Thu, February 13, 2025 | 7:50AM ET

Despite "hot" Jan CPI, equity markets barely decline. 5 reasons we believe explains this mild reaction

Name: FS Insight
Price range: $$$

Tom Lee, CFA ^AC

Head of Research

VIDEO: We discuss 5 likely reasons equities barely reacted to a disappointing and “hot” Jan CPI report. Thu is Jan PPI and if it is similarly hot, we will be keen to see equity market reaction

Please click below to view our Macro Minute (duration: 3:32).

Despite hot Jan CPI, equity markets barely decline. 5 reasons we believe explains this mild reaction

Today’s January CPI report came in hotter than expected, with core CPI rising 0.45% MoM, a notable acceleration from recent months. However, despite the initial market sell-off, equities recovered, signaling investor resilience and skepticism toward the data.

Five Key Reasons Markets Rebounded:

Skepticism Over CPI Data: Investors are questioning whether the inflation spike is real or a result of seasonal adjustments. Housing, auto insurance, and used cars accounted for 0.37% of the 0.45% increase, suggesting the rise may not be sustainable.
Fed Response Was Muted: Chair Powell acknowledged the CPI print in Congressional testimony but did not say inflation progress had stalled. This implies the Fed still sees inflation cooling over time.
Earnings Remain Strong: Post-market earnings from Robinhood (HOOD) and AppLovin (APP) were solid, reinforcing a strong Q4 earnings season.
Investor Sentiment Already Bearish: AAII sentiment collapsed in December-January, meaning investors had already de-risked. This likely cushioned today’s market reaction.
The Buy-the-Dip Market Continues: 2025 is shaping up as an extension of the 2023-2024 bull trend, with investors seeing pullbacks as buying opportunities.

Market Implications:

Rate Cut Expectations Adjusted: Markets removed one rate cut for 2025, and the odds of a Fed hike rose to 20%—but we believe that’s still too high.
Upcoming PPI Report (Thu): Given today’s hot CPI, January PPI could also come in strong. However, if markets continue to absorb inflation data well, it could reinforce the bullish trend.
Small Caps & Cyclicals Resilient: The fact that risk-on stocks held up suggests that broader growth concerns remain muted.

Bottom Line: Inflation Jitters, But No Panic

Despite hotter-than-expected CPI, investors are buying the dip, and markets remain constructive. The Fed’s reaction matters more than one month’s data, and so far, Powell has not signaled policy tightening. With earnings holding up and sentiment already cautious, we remain constructive on 2025.

Our top sector ideas remain:

Bitcoin
Small-Caps
Financials
Industrials
Technology

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44 SMID Granny Shot Ideas: We performed our quarterly rebalance on 11/25/2025. Full stock list here -> Click here

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Key incoming data February:

~~2/3 9:45 AM ET: Jan F S&P Global Manufacturing PMI~~ Tame
~~2/3 10:00 AM ET: Jan ISM Manufacturing PMI~~ Tame
~~2/4 10:00 AM ET: Dec JOLTS Job Openings~~ Tame
~~2/4 10:00 AM ET: Dec F Durable Goods Orders~~ Tame
~~2/5 8:30 AM ET: Dec Trade Balance~~ Tame
~~2/5 9:45 AM ET: Jan F S&P Global Services PMI~~ Tame
~~2/5 10:00 AM ET: Jan ISM Services PMI~~ Tame
~~2/6 8:30 AM ET: 4Q P Non-Farm Productivity~~ Tame
~~2/6 8:30 AM ET: 4Q P Unit Labor Costs~~ Tame
~~2/7 8:30 AM ET: Jan Non-Farm Payrolls~~ Tame
~~2/7 9:00 AM ET: Dec F Manheim Used Vehicle index~~ Tame
~~2/7 10:00 AM ET: Feb P U. Mich. Sentiment and Inflation Expectation~~ Hot
~~2/10 11:00 AM ET: Jan NY Fed 1yr Inf Exp~~ Tame
~~2/11 6:00 AM ET: Jan Small Business Optimism Survey~~ Tame
~~2/12 8:30 AM ET: Jan CPI~~ Hot
2/13 8:30 AM ET: Jan PPI
2/14 8:30 AM ET: Jan Retail Sales Data
2/18 8:30 AM ET: Feb Empire Manufacturing Survey
2/18 10:00 AM ET: Feb NAHB Housing Market Index
2/18 4:00 PM ET: Dec Net TIC Flows
2/19 9:00 AM ET: Jan M Manheim Used Vehicle index
2/19 2:00 PM ET: Jan FOMC Meeting Minutes
2/20 8:30 AM ET: Feb Philly Fed Business Outlook
2/21 9:45 AM ET: Feb P S&P Global Manufacturing PMI
2/21 9:45 AM ET: Feb P S&P Global Services PMI
2/21 10:00 AM ET: Feb F U. Mich. Sentiment and Inflation Expectation
2/21 10:00 AM ET: Jan Existing Home Sales
2/24 8:30 AM ET: Jan Chicago Fed Nat Activity Index
2/24 10:30 AM ET: Feb Dallas Fed Manuf. Activity Survey
2/25 9:00 AM ET: Dec S&P CoreLogic CS home price
2/25 10:00 AM ET: Feb Conference Board Consumer Confidence
2/26 10:00 AM ET: Jan New Home Sales
2/27 8:30 AM ET: 4Q S GDP
2/27 10:00 AM ET: Jan P Durable Goods Orders
2/28 8:30 AM ET: Jan PCE Deflator

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023:

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