Rotation Week: When Inflation Cools, Money Gets Picky

Markets are closed Monday for Washington’s Birthday. This might seem minor, but squeezing a week’s activity into four days often makes things move faster.

With less time and just as many stories, everyone reacts more quickly.

Monday is quiet, but the rest of the week is busy. Two key data points will be in focus:

In short, this week is when the market looks to the Fed for reassurance about whether the worst is over.

January CPI came in at 2.4% year over year, down from 2.7% in December. Core CPI was 2.5%. It’s not a complete victory, but it’s a sign of progress.

Reports called this the lowest reading in almost five years, a detail that often catches the market’s attention.

What matters for investors is that disinflation changes what people want to invest in.

As inflation cools, investors shift focus from worrying about inflation to asking which companies can still make money if rates stay high.

This leads to a shift in which stocks are favored, without causing panic or a market crash.

To understand investor sentiment, look at where they are putting their money.

EPFR’s early-February work describes a move toward income and liquidity, including dividend equity, alongside outflows from crypto and physical gold funds.

This shift in fund flows reveals a few things:

This is why sectors with real assets are gaining momentum, not because of renewed interest in industry, but because steady returns are back in favour.

By the time the minutes are released, the decision is already known. What matters is the extent of disagreement among members.

The key question is whether members seem confident about cooling inflation or if they are still worried it could rise again.

The minutes will be released on Wednesday, Feb 18, a time that often brings market volatility.

CPI gets the headlines. Core PCE tends to get the Fed’s attention. BEA lists Feb 20 as the release date for the next print.

If CPI shows that inflation is improving, Core PCE will help the market decide if that improvement will last.

Enerdata reports that OPEC+ has confirmed no production increases for February and March, reinforcing a tighter supply posture into early spring.

OPEC communications sit in the same neighbourhood, framing the decision and the near-term posture.

Energy doesn’t need a big event to perform well when supply is steady, and investor flows are positive. It just needs stable conditions and steady demand expectations.

During weeks of market rotation, earnings reports offer insights beyond individual companies; they act as small economic indicators.

Two names matter mostly because they are widely watched barometers:

To follow the rotation trend without tracking hundreds of stocks, focus on companies that reflect broader economic changes.

This week’s outlook depends on a delicate balance: inflation is cooling, growth is steady, and the Fed can keep policy tight without causing surprises.

Three things can mess that up:

This is not a market where investors are avoiding risk, but one where they want to see real results.

Markets usually shift focus not out of pessimism, but because investors become more selective.

January’s CPI report didn’t suddenly make all investments cheap or safe. Instead, it led investors to consider new questions.

Now, instead of asking how quickly AI can grow, investors are asking which companies can grow and generate cash in the meantime.

Rather than looking for the next popular trade, the focus is on investments that provide steady returns.

EPFR’s data supports this view, showing money moving toward income and liquidity, and away from investments based mainly on stories.

For the week of Feb 16–20, the best approach is to watch how the market reacts to new information.

This is the type of week when the overall index may seem steady, but the leading stocks can change. These weeks are often important to watch.