US Market Cooling Inflation, Fed Policy Signals, and the Rise of the AI Scare Trade

Mid February 2026 delivered a mixed but revealing signal for investors. Stocks moved higher after a cooler than expected CPI report, yet deeper concerns around sticky services inflation disruption continue to shape the US market narrative. The Federal Reserve remains cautious, sector rotations are accelerating, and infrastructure strains are becoming harder to ignore.

January’s CPI report showed inflation at its lowest level since May, offering short term relief for equity markets. Food and energy prices improved meaningfully, helping headline numbers cool. However, goods inflation remains unpredictable, especially with tariffs still influencing pricing dynamics across supply chains.

The bigger concern for policymakers is services inflation. Unlike goods, services prices tend to be stickier and less sensitive to global trade shifts. That persistence is keeping the Federal Reserve from signaling an immediate rate cut.

For the US market, this means rate cuts are possible later in 2026, but not guaranteed. Equity rallies may face resistance if inflation fails to continue trending lower.

The AI Scare Trade Is Spreading Beyond Tech

What began as a valuation shakeout in software stocks has evolved into what traders are calling the AI scare trade. Investors are now reassessing how artificial intelligence could disrupt industries far beyond Silicon Valley.

Sectors such as trucking, wealth management, insurance, and commercial real estate are feeling pressure. The core fear is simple. If AI can automate research, documentation, financial analysis, and administrative work, many white collar middle functions could shrink. Commercial real estate is particularly exposed. If AI tools reduce the need for office staff or streamline operations, long term demand for office space could decline further. That concern adds to existing pressure from remote and hybrid work trends.

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