Consumer price inflation: Annual headline CPI remained 2.7% y/y in December 2025 with food and shelter contributing most of the increase. Core CPI (excluding food and energy) slowed to 2.6% y/y, the lowest rate since 2021. Markets expect core inflation to fall toward 2.5% by the end of Q1 2026.
Producer prices: U.S. producer prices (PPI) rose 0.5% m/m in December 2025, the largest increase in five months. The annual PPI rate accelerated to 3.0% as services costs surged. The report suggests upside risk for the Fed's preferred inflation gauge (core PCE), which was 2.8% y/y in November 2025.
Federal Reserve & interest rates: The January 28, 2026 FOMC meeting left the federal-funds-rate target range unchanged at 3.50%–3.75%; members noted elevated uncertainty and reiterated their commitment to returning inflation to 2%.
GDP growth: The Atlanta Fed's GDPNow model estimated Q4 2025 growth at 4.2% (SAAR) as of Feb 2, 2026. The economy continues to grow above trend despite restrictive monetary policy.
Employment: December 2025 non-farm payrolls rose 50k, leaving the unemployment rate at 4.4% and the labour-force participation rate at 62.4%. Average hourly earnings increased 0.3% m/m and 3.8% y/y—still above the Fed's 3% target.
Consumer sentiment & spending: The University of Michigan consumer sentiment index increased to 57.3 in February 2026 (third consecutive monthly gain); one-year inflation expectations fell to 3.5%. Retail sales rose 0.6% m/m in November 2025, suggesting resilient consumer spending.
Manufacturing: The ISM Manufacturing PMI jumped to 52.6 in January 2026 (from 47.9), signalling expansion for the first time in a year; new orders and production strengthened while employment remained slightly contractionary.
Services: The ISM Services PMI reached 54.4% in December 2025 (highest of 2025). New-orders and business-activity indices were robust, and employment returned to expansion after seven months.
Industrial production: Total industrial production rose 0.4% m/m in December 2025; manufacturing output increased 0.2%, while mining fell 0.7%. Capacity utilization (76.3%) remained below its long-run average.
Housing: Existing-home sales increased 5.1% m/m in December 2025 to an annualised 4.35 million units, though inventory remained tight at 3.3 months. Housing starts fell 4.6% m/m in October 2025 to 1.246 million units.
Fed stance: Policymakers maintain a hawkish bias but signalled that further rate cuts will depend on evidence of sustained disinflation. Several members favored a quarter-point cut but emphasised data dependency.
Fiscal policy: The federal government continues to run sizable deficits; discussions around fiscal stimulus (e.g., corporate tax cuts tied to the "Beautiful Big Bill") accompany forecasts for 2026, but no major new legislation has passed yet.
The S&P 500 entered February 2026 near all-time highs around the 6,900–7,000 range. EquityClock notes that the index has been consolidating just below 7,000 and that an upside breakout is likely; short-term support sits near 6,900, with 6,830 (previous October gap) acting as key secondary support.
The index has traded above its 50-day moving average since 5 Feb 2026 and above the 200-day moving average since May 12, 2025; the 50-day average has been above the 200-day average since July 1, 2025. This golden-cross alignment indicates a medium- to long-term up-trend.
Year-to-date performance: As of early February the S&P 500 was up 1.27% YTD, while the equal-weight S&P 500 had gained 5.47%, implying breadth had improved.
Volatility (VIX): According to TradingEconomics (sourcing Federal Reserve data), the CBOE VIX index stood at ~21.77 in early February 2026, up from mid-January levels around 16.5. A VIX above 20 indicates investors expect moderate volatility but not crisis-level stress.
Put-call ratios: EquityClock reports that the put/call ratio—a sentiment gauge—closed at 0.85 on Feb 2, 2026 and 0.86 on Feb 3. Ratios below 1.0 suggest more call buying than put buying, reflecting bullish sentiment.
Support/resistance: EquityClock emphasises psychological resistance around 7,000, with 6,900 serving as short-term support and 6,830 as a key secondary support.
A Financial Times survey of nine major investment banks found that the average year-end 2026 S&P 500 forecast is 7,500 points, implying roughly 10% upside from the Dec 20, 2025 level. Forecasts range from 7,100 (Bank of America) to 8,000 (Deutsche Bank and Capital Economics), with most institutions expecting the AI boom and easing monetary policy to support equities. Such clustering of forecasts may indicate consensus bullishness yet leaves little margin for negative surprises.
Retail investor sentiment: Bruce MacKay's weekly report notes that the AAII investor sentiment survey for early February 2026 showed 39.7% bullish, 31.3% neutral and 29% bearish. Bullish readings declined compared with the prior week but remained above the long-term average.
Put-call ratio: As discussed above, the CBOE total put-call ratio around 0.85–0.86 indicates more optimism than fear.
Fund flows: The Investment Company Institute reported that for the week ending Jan 28, 2026, total inflows to long-term mutual funds and ETFs were $37.58 billion; mutual funds experienced $2.32 billion of outflows, while ETFs saw $39.90 billion of net issuance. Equity funds recorded $6.38 billion of inflows, with domestic equity funds seeing $8.60 billion of outflows offset by $14.97 billion of inflows into world equity funds. Bond funds drew $29.76 billion of inflows, reflecting strong demand for fixed income.
Narratives: Reports highlight investors' focus on artificial-intelligence (AI) themes, expectations for Fed rate cuts, and concerns about potential bubbles. MacKay notes that high volatility and swings across sectors (software, crypto, commodities) have become the "new norm". The TradingKey article notes that major banks view AI spending and improving trade relations as drivers for 2026, but worry about over-valuations and an AI bubble. Overall, sentiment leans optimistic but with caution.
TradingEconomics reports the following yields for U.S. Treasury securities on Feb 9, 2026:
| Maturity | Yield (%) | Notes |
|---|---|---|
| 4-week (1 mo) T-bill | 3.69 | 0.01 pp higher vs. previous day |
| 8-week T-bill | 3.70 | Slightly down from previous session |
| 3-month T-bill | 3.68 | Up 0.01 pp; about 0.65 pp lower than a year earlier |
| 6-month T-bill | 3.62 | Slightly lower than prior day |
| 1-year T-bill | 3.43 | Down 0.09 pp over the month |
| 2-year note | 3.49 | Down 0.01 pp |
| 3-year note | 3.56 | Lower by 0.01 pp |
| 5-year note | 3.76 | Slightly down |
| 7-year note | 3.98 | Slight rise; near term intermediate resistance |
| 10-year note | 4.22 | Data from Feb 6 show the 10-year finished at 4.22% |
| 20-year bond | 4.81 | Slightly higher |
| 30-year bond | 4.87 | Highest yield on the curve |
The curve slopes upward from short maturities (3-mo at 3.68%) to long maturities (30-yr near 4.87%), indicating a normal yield curve. The 10-year minus 2-year spread (~0.73 pp) and 10-year minus 3-month spread (~0.54 pp) are positive, signalling markets expect moderate growth and inflation.
AdvisorPerspectives notes that after being inverted for much of 2022–24, the 10-2 spread turned positive in September 2024 and has remained positive since; historically, recessions occur 18–92 weeks after the spread first turns negative. The curve steepening reduces recession risk but indicates monetary conditions remain tight.
Elevated long-term yields reflect expectations for persistent inflation and heavy Treasury issuance. The 30-yr yield near 4.87% shows term premium remains high relative to pre-pandemic levels.
Macroeconomic data show resilient growth and moderating inflation, while the Fed remains cautious but inclined toward easing. Technical indicators are bullish (price above 50-/200-day moving averages), breadth is improving, and investor sentiment is optimistic though not euphoric. However, elevated valuations and AI-driven concentration warrant caution. The S&P 500 has been consolidating between 6,830 and 7,000; a breakout above 7,000 could trigger momentum buying.
Strategy type: Trend-following with breakout confirmation.
Long entry: Initiate a long position in SPY when:
Short entry (hedge): Consider a short/hedge if SPY closes below 6,830 (support) with increasing volume and the MA50 turns down toward MA200, signalling a trend change. This would also require the put-call ratio above 1.1 or a spike in VIX above 25.
Profit target: Use a trailing stop based on the 20-day exponential moving average (EMA20). Exit half of the position when SPY gains 5% from the entry price; raise the stop to the entry level to protect capital.
Time-based exit: If SPY fails to reach the profit target within 30 trading days and closes below the 20-day EMA, exit to avoid stagnation.
Initial stop-loss: Place a stop 2% below the entry price or just below the breakout level (6,900 for long entry). This aligns with recent support and keeps risk manageable.
Trailing stop: Once the position is profitable by 3%, trail the stop at 2× the 14-day Average True Range (ATR) to capture larger moves while allowing normal fluctuations.
Risk no more than 1% of total portfolio capital per trade. Position size = (1% of portfolio capital) ÷ (stop-loss percentage). For example, with a $100,000 portfolio and a 2% stop, invest up to $5,000 in SPY (0.01 ÷ 0.02 = 0.5; 0.5 × $100,000 = $5,000). Adjust for leverage or margin restrictions.
Short- to medium-term (2–8 weeks). Trend following works best during sustained momentum but should adjust as macro conditions evolve.
Positive macro momentum, easing inflation and expectations of Fed rate cuts support equities. The yield curve is no longer inverted, reducing recession risk. Investor sentiment remains constructive but not extreme. A breakout above resistance could attract institutional flows, while stops protect against downside risk if valuations face mean-reversion.
The yield curve has normalized with positive spreads; however, yields remain historically high (10-yr around 4.22%, 30-yr near 4.87%). Moderating inflation and potential Fed cuts suggest downside risk for yields (bullish for bonds). Fund flows show strong demand for bond funds—$29.76 billion of inflows in the last week of January—indicating institutional interest. Still, the long end may stay volatile given heavy Treasury issuance and term-premium uncertainty.
Strategy type: Duration play/mean-reversion – go long Treasuries on yield peaks and lighten exposure when yields fall toward support.
Long entry (buy bonds): When the 10-year yield crosses above 4.3% or the 30-year yield crosses above 4.9%, levels that represent recent highs. Confirm that macro data show cooling inflation (e.g., CPI/core PCE below 2.6%) and deteriorating economic momentum (e.g., ISM indices declining) to support lower yields. Additionally, watch for a drop in the VIX below 20, signalling risk appetite that could drive demand for yield.
Curve steepener trade: Alternatively, implement a steepener using 2-yr vs 10-yr Treasury futures if the 10-2 spread drops below 0.5 pp. In that case, go long 10-yr futures and short 2-yr futures; exit when the spread widens back above 0.9 pp.
Exit long bonds: Take profits when the 10-yr yield falls to 3.8% or the 30-yr yield falls to 4.5% (near the mid-January lows). For TLT/IEF, this equates to a price gain of roughly 4–5%.
Time-based exit: Close positions before major Fed announcements or CPI releases if profits exist; re-enter after events.
Initial stop-loss: For ETF positions (e.g., TLT), place a stop at 1.5% below entry price due to lower volatility. For futures steepener trades, set a stop if the 10-2 spread moves 0.15 pp against the position.
Macro stop: Exit the trade if inflation prints re-accelerate (e.g., core PCE rises above 3%) or if the Fed signals further rate hikes.
Risk 0.5–0.75% of portfolio per Treasury trade due to lower volatility. Determine the position size using the distance to the stop-loss; e.g., with a 1.5% stop and 0.5% risk, invest ~33% of risk capital (0.5% ÷ 1.5%). For a $100,000 portfolio this would be roughly $3,300 in TLT.
Medium-term (1–3 months). Duration trades often require patience but must adjust if macro conditions shift.
Inflation is trending lower and economic growth is slowing but remains positive, suggesting the Fed may start cutting rates later in 2026. Bond fund inflows and high yields provide attractive entry points. The strategy aims to capture capital gains as yields revert downward while protecting against unexpected inflation or policy shifts. The steepener trade offers additional upside if the yield curve resumes steepening.
U.S. macroeconomic data depict a resilient economy with moderating inflation, robust employment, and continued growth. The S&P 500 remains in an uptrend, supported by improving breadth and strong momentum, but valuations are high and investor optimism is elevated. The U.S. Treasury yield curve has returned to a positive slope, though yields remain elevated.
The trading strategies above integrate technical and fundamental triggers with clear risk controls. They are designed for informational purposes and should be adjusted for individual risk tolerance and investment objectives. Always consider consulting a financial advisor before executing any trade.