Here's something worth paying attention to: while December's CPI report showed inflation holding steady at 2.7% year-over-year, the stock market is quietly waving red flags about what might be coming in 2026.
The warning signs aren't coming from headlines or economic data. They're buried in how money is moving between different parts of the market. Investors are rotating out of growth stocks and into value plays, while showing renewed interest in small-caps and transportation names. If that sounds boring, it shouldn't—these shifts have historically preceded inflation breakouts.
Tom Essaye, founder of Sevens Report Research, sees uncomfortable parallels to the setup before 2022's market mess. Energy and materials stocks have jumped more than 9% since January, crushing the S&P 500's measly 1% gain.
Why does this matter? As Essaye told the Insider, these sectors are basically inflation's early warning system. "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.
Meanwhile, the market is pricing in two Fed rate cuts for 2026, assuming inflation stays tame. JPMorgan isn't buying it. The bank is calling for zero rate cuts next year and potentially a rate hike in 2027—a dramatically different scenario that would force investors to rethink their playbooks.
The shift from mega-cap tech darlings to value stocks and smaller companies suggests something fundamental is changing beneath the surface. Whether it's the start of a genuine inflation problem or just a head fake remains to be seen, but the market is clearly hedging its bets.
