Market Retreats on CPI Data as Traders Boost June Fed Rate-Cut Odds, JPMorgan Earnings Weigh on Sentiment

This analysis is based on Bloomberg Television’s “The Close” program [1] published on January 13, 2026, covering the market reaction to December 2025 CPI data and evolving Fed policy expectations.

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The Bureau of Labor Statistics released mixed but generally favorable inflation data [2][3]:

Metric	Monthly	Annual	vs. Expectations
Headline CPI	+0.3%	+2.7%	In line
Core CPI	+0.2%	+2.6%	0.1 ppt below

The core CPI reading represents the lowest annual increase since early 2021, suggesting continued moderation in inflationary pressures [2][3]. Shelter costs remain elevated at 3.2% annually, contributing to persistent services inflation.

Despite benign inflation data, equities retreated on January 13 [0]:

Index	Close	Daily Change
S&P 500	6,963.75	-0.20%
Dow Jones	49,192.00	-0.86%
NASDAQ	23,709.87	-0.11%

Significant sector divergence emerged [0]:

Real Estate (+1.61%), Consumer Defensive (+0.83%), Energy (+0.70%)

Consumer Cyclical (-1.07%), Healthcare (-0.72%), Technology (-0.29%)

The Real Estate sector rally reflects increased rate-cut expectations, as lower rates benefit rate-sensitive sectors.

JPMorgan Chase fell 4.19% to $310.90 after missing Q4 earnings expectations due to a $2.2 billion charge related to the Apple Card acquisition from Goldman Sachs [2]. Despite the earnings miss, trading revenues rose 15% year-over-year, beating estimates.

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Goldman Sachs revised its rate-cut forecast on January 12, pushing expectations from March/June 2026 to June/September 2026 [4][5]:

• Current Fed Funds Rate:
  3.50%-3.75%
• Goldman’s 2026 Target:
  3.00%-3.25%
• June Cut Probability:
  ~50% per CME FedWatch
• Next FOMC Meeting:
  January 27-28, 2026

The muted reaction to positive CPI data reflects:

1. Profit-taking
   after January 12 record highs
2. Earnings season positioning
   ahead of more bank results
3. Uncertainty
   around the January FOMC meeting

The DOJ’s grand jury subpoena of Fed Chair Jerome Powell introduces governance concerns regarding central bank independence [4]. The Supreme Court will consider this matter next week.

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1. Sticky Services Inflation:
   Shelter costs at 3.2% annually may slow progress toward the Fed’s 2% target
2. Earnings Quality Concerns:
   JPMorgan’s Apple Card charge highlights potential integration risks in the financial sector
3. Political Interference:
   DOJ investigation into Fed Chair Powell creates institutional uncertainty
4. Valuation Levels:
   S&P 500 at record levels entering earnings season increases downside sensitivity

1. Rate-Sensitive Sectors:
   Real estate and utilities may benefit from increasing rate-cut expectations
2. Disinflation Trade:
   Core CPI progress supports bonds and growth stocks
3. Bank Earnings:
   Strong trading revenues suggest potential upside in capital markets-focused institutions

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Factor	Next Update	Significance
FOMC Decision	Jan 27-28, 2026	Rate policy direction
January CPI	Feb 2026	Inflation trajectory
Bank Earnings	Through Jan 2026	Credit quality, trading trends

The December CPI data provides supportive evidence for continued disinflation, but the “last mile” toward 2% remains challenging. The Fed faces a balancing act between maintaining restrictive policy to anchor inflation expectations and responding to softening labor market conditions (December payrolls at 50,000 with unemployment near 4.4%).

The sector rotation toward real estate and defensive sectors, combined with the selloff in cyclicals, suggests investors are positioning for a slower growth environment with eventual monetary easing.