CPI COOLED – ROTATION ACCELERATES

MORNING MARKET COMMENTARY

CPI COOLED – ROTATION ACCELERATES

Friday, February 13, 2026 – Post-CPI Analysis

Timothy McCandless – Protected Wheel Strategy

🎯 THE DECIDER: CPI came in COOLER than expected (0.2% vs 0.3%). Annual inflation 2.4% = LOWEST since May 2024. Market RALLIED initially BUT tech STILL distribution. Russell 2000 +1.2% while Nasdaq lagged. VIX spiked to 20+. The Great Rotation CONFIRMED. Rate cuts back on the table.

SECTION 1: MARKET OVERVIEW – CPI AFTERMATH

Friday’s CPI Report – COOLER Than Expected

• Headline CPI: +0.2% month-over-month (expected +0.3%) = BEAT
• Core CPI: +0.3% (in-line with expectations)
• Annual CPI: 2.4% = LOWEST since May 2024
• Core Annual: 2.5% = Lowest in nearly 5 years

Market Reaction – THE GREAT ROTATION CONFIRMED

S&P 500: ~6,941 (essentially flat) BUT 370 of 500 stocks ROSE

DOW: +150 points initially, finished near 49,000

NASDAQ: LAGGED – Megacaps -1.1%, Amazon longest slide in 20 years

RUSSELL 2000: +1.2% 🔥 Small caps SURGED

VIX: Spiked 18% Thursday to 20+ (elevated volatility)

10-Year Treasury: 2-year yields = LOWEST since 2022 (rate cut hopes revived)

KEY INSIGHT: S&P 500 flat BUT 370 of 500 stocks ROSE = Breadth STRONG. Russell +1.2% while Nasdaq lagged = The Great Rotation ACCELERATING. CPI cooled = Rate cuts back on table (majority pricing June cut). This is EXACTLY the environment for your methodology.

Rate Cut Implications

• Market Pricing: Majority now pricing 25bp cut by JUNE
• 2026 Total: Most bets on TWO cuts by year-end
• Impact: Small caps (Russell) LOVE rate cuts = Floating rate debt relief

SECTION 2: SECTOR ROTATION – FRIDAY’S WINNERS & LOSERS

VALUE LEADERSHIP: INDUSTRIALS + HEALTHCARE LED

Friday’s Sector Performance:

🟢 WINNERS:

INDUSTRIALS (XLI) – Top Performer

• Leadership sector Friday
• Amazon $200B + Alphabet $185B CapEx = AI infrastructure BOOM continues

HEALTHCARE (XLV) – Strong

• Top performer alongside Industrials

RUSSELL 2000 – +1.2%

• Small caps SURGED on rate cut hopes

🔴 LOSERS:

MEGACAP TECH – Megacaps -1.1%

• Amazon: Longest slide in 20 years
• Pinterest: -20% on AI disruption fears
• Applied Materials: +11% (semiconductors DIVERGING from software)

S&P 500 – Worst Week Since November

• Despite Friday bounce, still ended week down

CRITICAL DIVERGENCE: Semiconductors (Applied Materials +11%, Micron +13% week) DIVERGING from Software (Pinterest -20%, ServiceNow -6%). This is CHIP rotation AWAY from software disruption. NOT all tech is equal.

State Street SPDR Sector Performance (Recent)

XLI (Industrials): +0.65% (Feb 12), continuing strength

XLE (Energy): +0.66% (Feb 12), steady leadership

XLV (Healthcare): +1.11% (Feb 12), defensive strength

XLU (Utilities): +2.52% (Feb 12), defensive surge

XLK (Technology): +0.09% (Feb 12), LAGGING despite chip strength

SECTION 3: YOUR FINVIZ SCAN – TODAY’S FRAMEWORK

MONDAY CLOSED (President’s Day). RUN YOUR SCAN NOW for Tuesday positioning. CPI cooled = Rate cuts back on table = Russell 2000 +1.2% confirms your thesis. Your scan will show if institutions CONTINUE buying the rotation.

Three Possible Scan Outcomes

✅ SCENARIO 1: Industrials/Healthcare/Russell Names (40%+)

• What it means: Value rotation ACCELERATING post-CPI (confirmed by Friday action)
• Your trade: EXECUTE AGGRESSIVELY
• Priority: VRT, GEV, ETN (Industrials) OR Healthcare leaders OR Russell small caps
• Confidence: VERY HIGH – CPI cooled, rate cuts coming, Russell +1.2% confirms

⚠️ SCENARIO 2: Semiconductors (Chips, not Software)

• What it means: Chip strength (AMAT +11%, MU +13% week) continuing
• CRITICAL: Chips ≠ Software. AMAT, MU, NVDA = Tradeable. ServiceNow, Pinterest = AVOID
• Your trade: Consider chips IF <20% RED, small position
• Confidence: MODERATE – Still counter-trend to The Great Rotation

❌ SCENARIO 3: Software/Megacaps

• What it means: AI disruption fears continuing (Pinterest -20%, Amazon sliding)
• Your trade: AVOID COMPLETELY
• Why: Megacaps -1.1% Friday, software still distribution

SECTION 4: COLLAR TRADE PRIORITIES

POST-CPI PRIORITIES: Value + Small Caps = THE TRADE

Priority 1 – Industrials (XLI Leader Friday)

VRT (Vertiv) / GEV (GE Vernova) / ETN (Eaton)

• Catalyst: Friday’s top sector + $375B+ AI CapEx 2026
• Edge: Sector leadership + individual momentum + rate cuts help capex
• Premium: Rich but justified (multi-year capex cycle)

Priority 2 – Healthcare (XLV Strong Friday)

Healthcare Leaders from Your Scan

• Catalyst: Friday top performer + defensive in volatile environment
• XLV: +1.11% (Feb 12), consistent strength

Priority 3 – Russell 2000 Small Caps

Small Cap Names from Your Scan

• Catalyst: Russell +1.2% Friday + Rate cuts = Floating rate debt relief
• Edge: Small caps LOVE rate cuts, CPI cooled = June cut likely

IF Semiconductors in Your Scan

AMAT (Applied Materials) / MU (Micron) / NVDA

• Opportunity: AMAT +11% Friday, MU +13% week = Chip strength
• Risk: Still counter-trend to rotation (Russell +1.2% vs tech lag)
• Decision: Small position IF <20% RED, but Industrials/Healthcare/Small Caps = SAFER

AVOID COMPLETELY

• Software: ServiceNow, Salesforce, Pinterest, ANY SaaS
• Megacaps: Amazon (20-year low slide), Meta, Google parent
• Why: Megacaps -1.1% Friday, AI disruption fears continuing

SECTION 5: 10-YEAR TREASURY – RATE CUTS BACK ON TABLE

THE SILENT KILLER NOW HELPING:

• 2-Year Treasury: LOWEST since 2022
• Market Pricing: Majority pricing June rate cut
• 2026 Total: Two cuts expected by year-end

Impact on Your Trades:

• Russell 2000: MAJOR BENEFICIARY (floating rate debt relief)
• Industrials: HELPS (CapEx spending easier to finance)
• Healthcare: Less rate-sensitive but defensive = Safe in volatility

SECTION 6: TUESDAY MARKET OPEN (Monday Closed)

Markets CLOSED Monday (President’s Day). Tuesday = First test of post-CPI rotation. Watch:

• 1. Does Russell 2000 +1.2% Friday extend OR fade?
• 2. Do Industrials/Healthcare maintain Friday leadership?
• 3. Does megacap tech continue slide (Amazon 20-year low)?
• 4. VIX at 20+ = Does volatility compress OR stay elevated?

Tuesday Decision Timeline

• 6:40 AM Tuesday: Run scan, count sector concentration
• 7:10 AM: IF Industrials/Healthcare/Russell 40%+ = EXECUTE
• 9:00 AM: Confirm or adjust based on Tuesday open

SECTION 7: BOTTOM LINE – YOUR EDGE

CPI COOLED → RATE CUTS COMING → ROTATION ACCELERATING

What Happened Friday:

• CPI: +0.2% vs +0.3% expected = COOLER
• Annual: 2.4% = LOWEST since May 2024
• Russell 2000: +1.2% (small caps SURGED)
• Industrials/Healthcare: Top sectors
• Megacaps: -1.1%, Amazon 20-year slide
• Breadth: 370 of 500 S&P stocks ROSE

Your Decision Framework:

• IF scan shows 40%+ Industrials/Healthcare/Russell: EXECUTE AGGRESSIVELY
• IF scan shows chips (AMAT, MU): Consider small position (still counter-trend)
• IF scan shows software/megacaps: AVOID (distribution continuing)

RISK LEVEL: MODERATE (CPI cooled but VIX 20+)

PREMIUM: Good to Rich (volatility elevated but rotation strong)

CPI 2.4% | Russell +1.2% | Megacaps -1.1% | Rate Cuts June

The Great Rotation CONFIRMED. CPI cooled = Rate cuts coming = Russell/Industrials/Healthcare = THE TRADE. Run your scan Tuesday. Execute where momentum meets rotation.

Commentary compiled: Friday, February 13, 2026, Post-CPI Analysis

Monday CLOSED. Tuesday = First test of post-CPI rotation.

Source: State Street SPDR Sector Tracker (XLI, XLE, XLV, XLK performance)