Bond yields fell as relatively moderate inflation data fueled market expectations of a Federal Reserve rate cut, giving Wall Street some breathing room. While most stocks rose, weakness in tech giants limited market gains.

The two-year U.S. Treasury yield fell to its lowest level since 2022 as traders increased their expectations of more than two Fed rate cuts this year. About 370 stocks in the S&P 500 rose, but the index closed essentially flat, marking its worst week since November. Large-cap stocks fell 1.1%. Amazon shares suffered their biggest drop in nearly 20 years. The Russell 2000 small-cap index rose 1.2%. Bitcoin prices surged.

The Consumer Price Index rose 0.2% in January, the smallest increase since July, mainly capped by lower energy prices. While service prices rebounded somewhat last month, core goods prices remained stable. The core CPI year-over-year increase was the smallest since 2021. Overall CPI also declined year-on-year.

Given signs of stabilization in the labor market and persistently high inflation, the Federal Reserve chose to keep interest rates unchanged in January. This week’s data showed that U.S. nonfarm payrolls increased by the largest amount in over a year, and the unemployment rate unexpectedly fell, indicating that the labor market continues to stabilize in early 2026.

The two-year U.S. Treasury yield fell 5 basis points to 3.41%. The market-weighted version of the S&P 500, excluding market capitalization, rose 1%, near record highs. Gold prices returned to the $5,000 per ounce mark. U.S. stock markets will be closed on Monday for Presidents’ Day.

Influenced by the Consumer Price Index (CPI), the two-year U.S. Treasury yield fell to its lowest level since 2022.

“This report fundamentally reinforces the ‘Goldilocks’ narrative—promoting economic growth while inflation moderates—creating an ideal environment for diversified portfolios,” noted Florian Ilpo of Lonzo Asset Management.

Tiffany Wilding of Pacific Investment Management Company (PIMCO) said the CPI report confirmed several points: tariff-related adjustments are largely complete, housing inflation will slow to below pre-pandemic levels, and unit labor costs will also subside inflation over time.

She stated, “This report doesn’t materially change our 2.4% inflation forecast for the end of 2026, and we still plan to lower our inflation forecast twice more later this year.”

The larger-than-expected rise in U.S. inflation in January dampened concerns about a potentially larger increase.

Data shows that price pressures remain excessively high, which is worrying, but the inflation trajectory appears to be declining—although this has proven to be a bumpy and slow process, said James McCann of Edwards Jones.

Chicago Federal Reserve President Austan Goolsby said the central bank could cut interest rates further if inflation were on track to reach its 2% target, but that’s not the case right now.

“We’re not on the road back to 2% yet. We’re kind of stuck at 3%, which is unacceptable,” Goolsby said on Yahoo Finance on Friday.

A June rate cut may be revisited.

With inflation slowing, traders are weighing whether the Federal Reserve will cut rates earlier this year.

Traders continue to fully anticipate a July rate cut, and a June cut is also highly probable. Swap contracts predict that rates will ease by about 63 basis points by the end of the year—equivalent to two 25-basis-point cuts, roughly half the total cuts—up from Thursday’s forecast of 58 basis points.

The S&P 500 fell for the second straight week, down about 2% from its record high at the end of January.

“After a strong rally since April, some consolidation in February, which is typically weaker, isn’t a bad thing,” said Mark of FXCG. “Valuations have moderated, earnings expectations continue to improve, and bond yields are falling. Fundamentals still support this bull market.”

However, he noted that market leadership is shifting, with investors finding better risk-reward in international stocks, value stocks, and small-cap stocks.

Daniel Skelly, head of market research and strategy at Morgan Stanley Wealth Management, said that this week the “guardians of AI disruption” have a new target, but the initial reaction to this event may prove to be “exaggerated” because, in the long run, many industries and companies are likely to ultimately benefit from artificial intelligence.