The stock market is flashing early warning signs of a possible inflation rebound in 2026. While December’s CPI held steady at 2.7% year over year, suggesting near-term stability, market signals point to growing caution ahead.
Analysts note an emerging rotation from growth to value stocks, along with increased interest in small-caps and transportation names, moves that have historically preceded inflationary pressures.
Tom Essaye, the founder of Sevens Report Research, has drawn parallels between current market trends and those observed prior to the 2022 financial downturn. Energy and materials stocks have experienced a more than 9% surge since the start of the year, significantly outperforming the S&P 500’s 1% gain.
Speaking with the Insider, Essaye emphasized the role of these sectors as potential inflation indicators, given their influence on costs in other economic areas.
“Energy is obviously a critical input to inflation metrics as oil and gas prices impact every aspect of global trade, travel and logistics. Materials are a lesser discussed, but equally important factor affecting input costs,” he explained.
At present, markets are anticipating subdued inflation in 2026, factoring in two Fed rate cuts. However, JPMorgan has cautioned that these expectations might be off the mark, projecting no rate cuts in 2026 and a potential rate hike in 2027.
Why It Matters: The potential inflation spike in 2026, as indicated by current stock market trends, could have significant implications for investors and the broader economy.
The shift from growth to value and from mega-cap stocks to small-caps and transportation stocks, as noted by Essaye, could signal a change in market dynamics.
This, coupled with JPMorgan’s forecast of no rate cuts in 2026 and a potential rate hike in 2027, suggests that investors may need to adjust their strategies in anticipation of these changes.
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