Wall Street steadied on Friday after the January 2026 US CPI report showed slower price growth. The data eased fears of a renewed inflation surge and pushed investors back toward a mid-year easing scenario for the Federal Reserve. The report also lifted risk appetite modestly. Stocks traded higher, while Treasury yields fell as traders increased bets on rate cuts later in 2026.
US equities recovered from earlier weakness and moved modestly higher in late-morning trading. By late morning in New York, the S&P 500 added about 0.3%, the Nasdaq 100 gained 0.3%, and the Dow rose 0.2%.
Investors widened their focus beyond a small group of mega-cap shares. Market data showed roughly 400 stocks in the S&P 500 traded higher, and smaller companies outperformed during the session.
Trading remained uneven after several volatile sessions this week. Investors continued to reassess earnings risks across technology and other sectors, even as the inflation print reduced immediate policy uncertainty.
The US Consumer Price Index increased 0.2% in January after a 0.3% rise in December. The 12-month CPI rate slowed to 2.4%. Core CPI rose 0.3% on the month and 2.5% over the year, which marked the slowest annual core pace since 2021.
Energy helped pull the headline lower. The energy index fell 1.5% in January, and gasoline declined 3.2% on a seasonally adjusted basis. Food prices rose 0.2% on the month, and food away from home increased 0.1%.
Core categories showed a split between services and goods. Shelter rose 0.2%, and medical care increased 0.3%. Airline fares jumped 6.5%, while used cars and trucks fell 1.8%, and motor vehicle insurance declined 0.4%.
The inflation release arrived after a short federal government shutdown delayed some data processing. In the background, labor-market data earlier in the week pointed to ongoing resilience, which has reinforced the Fed’s preference to move slowly.
Bond markets moved in the direction implied by the inflation surprise. The two-year Treasury yield dipped to about 3.42%, and the 10-year yield traded near 4.06% as investors bought short-dated notes more aggressively.
Derivatives markets reflected a higher probability of additional easing in 2026. Money markets priced around 63 basis points of Fed reductions this year, which equates to roughly a 50% chance of a third-quarter-point cut by December.
In analyst reactions, Phil Orlando of Federated Hermes said the report supported expectations for lower rates over the year. Other strategists warned that some service measures still ran firm, which could limit how quickly the Fed eases.
Currency trading showed limited follow-through. The dollar index held close to flat, the euro eased slightly near $1.186, and the yen traded near 153 per dollar.
Gold rose as investors weighed the drop in yields and the potential for looser policy later in the year. Spot gold climbed above $4,980 per ounce, and US gold futures also moved higher.
Oil prices steadied after early losses linked to supply headlines. West Texas Intermediate traded near $62.84 a barrel as markets balanced OPEC+ output discussions with the shift in US rate expectations.
Applied Materials Inc. issued a stronger-than-expected sales outlook, citing demand tied to AI and memory-chip spending.
Blackstone Inc. reported its private equity fund for wealthy individuals delivered about a 20% net gain last year, helped by AI-related exposure.
Alibaba Group Holding Ltd. landed on a US list of firms said to support the Chinese military, which created a fresh investor risk signal.
Baidu Inc. also appeared on the same US list, adding headline risk for the stock.
BYD Co. joined the list as well, which may influence how some global investors assess exposure.
Rivian Automotive Inc. reported better-than-expected 2025 results and drew attention ahead of its planned next-generation SUV debut.
Capgemini SE said it is pivoting toward supporting AI adoption, which it expects to support sales this year.
Overall, the softer January CPI reinforced confidence that inflation is cooling. This supported higher equity prices and lower Treasury yields as markets increasingly priced in Federal Reserve rate cuts later in 2026.