By Douglas Porter
February 13, 2026
Wall Street’s growing concerns over the impact of artificial intelligence (AI) are rippling through various industries, with analysts warning that entire sectors may be at risk. The Nasdaq has seen a decline of over 5% in the past two weeks, hovering below the record high set in late October, while other sectors, often overlooked, are thriving. Notably, the Dow recently surpassed the 50,000 mark for the first time, buoyed by gains in traditionally stable areas such as consumer staples, utilities, and industrials.
This shift in investor sentiment is occurring amid a complex economic landscape in the U.S. Two major economic indicators released within a day sent mixed signals about consumer health. December retail sales fell short of expectations, remaining flat for the month, with the control group recording a 0.1% decline. Year-over-year sales growth of 2.4% fell below headline inflation, raising concerns about consumer spending, especially among middle-income households struggling with debt.
In contrast, a robust January employment report released the following day revealed private payrolls increased by 172,000, while the unemployment rate ticked down to 4.3%. The household survey identified an addition of 528,000 new jobs, predominantly in the healthcare sector. Average hourly earnings continued to grow at a rate of 3.7% year-over-year. However, the market appeared to focus on the weaker retail signals, compounded by significant downward revisions to 2025’s job numbers, which adjusted the average monthly payroll gain down to just 15,000 from initial estimates nearing 100,000.
Moreover, initial jobless claims rose at the beginning of the year, small business confidence dipped, and existing home sales stagnated in January, all contributing to a perception of slowing growth. The January Consumer Price Index (CPI) further reflected this softer economic landscape. Core prices increased by 0.3% month-over-month, aligning with consensus expectations, while headline prices edged up by just 0.2%. The annual inflation rate fell to 2.4%, and the yearly core rate eased to 2.5%, marking the slowest pace in nearly five years.
Despite some lingering uncertainties regarding inflation, it appears to be gradually subsiding. A significant factor impacting U.S. government revenues has been tariffs, which generated $27.7 billion in January, a substantial rise from $7.3 billion a year earlier, contributing to a 12-month total of $284 billion. This increase has somewhat mitigated the federal budget deficit, projected to reach $1.85 trillion for the fiscal year, maintaining a steady 5.8% of GDP.
As a result, Treasury yields fell throughout the week, particularly at the long end of the curve. The 10-year yield, after testing a six-month high of 4.30%, approached 4.05% by Friday morning, its lowest level in over two months. The short end of the curve also saw declines, with 2-year yields dropping nearly 10 basis points to 3.4%. While the possibility of a Federal Reserve rate cut in the upcoming meetings remains slim, markets are beginning to price in more than two reductions for the remainder of 2026, aligning slightly with forecasts for three cuts throughout the year.
In Canada, the economic landscape differed significantly. While the U.S. faced a deluge of data, Canada experienced a week of notable silence on key releases. However, the focus shifted to the nearly completed Gordie Howe Bridge, which became a point of contention in U.S.-Canada relations. U.S. Trade Representative Greer noted that discussions with Canada had been less constructive compared to those with Mexico, casting a shadow over future trade negotiations.
Despite the challenges, Canadian markets remained resilient. The Canadian dollar gained ground, tracking closely with the euro, while the TSX finished the week higher after reaching a record high earlier. Canadian bonds mirrored the trends in Treasuries, with 10-year Government of Canada bonds declining by 15 basis points to 3.25%. Nonetheless, the Bank of Canada is unlikely to cut rates this year, as markets remain skeptical about easing given the overnight rate is already below inflation.
The upcoming week will see the release of Canada’s January CPI report, which is anticipated to show a potential uptick in the yearly inflation rate to 2.5%. If realized, this could position Canada with a higher headline inflation rate than the U.S. for the first time in several years, underscoring contrasting monetary policy paths taken by the two countries. As the Fed appears poised for rate cuts, the Bank of Canada is likely to maintain its current stance, highlighting the divergent economic trajectories shaping North America’s future.
See also
OpenAI’s Rogue AI Safeguards: Decoding the 2025 Safety Revolution
US AI Developments in 2025 Set Stage for 2026 Compliance Challenges and Strategies
Trump Drafts Executive Order to Block State AI Regulations, Centralizing Authority Under Federal Control
California Court Rules AI Misuse Heightens Lawyer’s Responsibilities in Noland Case
Policymakers Urged to Establish Comprehensive Regulations for AI in Mental Health
