From Retail Sales to Rate Cuts — The Dominoes Are Falling

BY BILL GRIFFO

February 11, 2026

Hey Income Hunters,

Bad news just became very important news.

This morning’s retail sales report was a negative surprise, and markets didn’t shrug it off. In fact, it quietly flipped the entire macro setup heading into tomorrow’s unusual Wednesday Non-Farm Payrolls report.

Why this matters:
Retail sales are a key signpost for the U.S. economy.

When consumers slow, earnings slow.
When earnings slow, layoffs follow. And
When layoffs show up in payrolls, the Fed’s hand gets forced.

We believe the Fed will now error on the side of lower rates even with inflation above their target.

The significance of the chart above is that it reignites the “bad news is good news” trade:

Retail Sales missed badly
Small Business Optimism dipped
Rate-cut expectations jumped to ~60 bps for the year

10yr US Treasury (UST) yields fell hard

This is the market quietly saying: “Growth is slowing faster than expected.”

That’s why today’s payroll number matters far more than usual.

Normally, jobs data is noisy. Today’s number is a potentially dangerous one.

Why?

Birth/death model assumptions are being tweaked
Revisions have already been ugly in recent months
AI-driven job displacement is accelerating under the surface

A weak print — or big downward revisions — would confirm what retail sales just hinted at:

The consumer is rolling over. The labor market is next. The Fed will have cover to cut

That’s positive for further downside in bond yields (for now) … but not necessarily bullish for stocks.

Unless of course the Fed cuts rates more than the markets currently expect.

Power Income has flagged the AI revolution for having a negative impact on the economy due to all the white-collar jobs it will be replacing.

If the employment report confirms that to be the case… Bad news may be good news for the markets.

This would lead to higher inflation, as the Fed would be lowering short-term rates in the face of a higher inflation rate than the Fed’s target rate (~2%).

This is why Power Income accumulates the US Treasury TIPs ETF (TIP). This ETF distributes dividends that compensate the holders for inflation (CPI). The TIP dividend also includes distributions that come from interest paid on actual TIP bonds that are held in the TIP portfolio.

US Inflation Protected Treasury Bonds

Notice the dividend payments that include payments that flow from the US Treasury to the TIP holders is equal to the changes in CPI.

What to Watch Over the Next Days & Weeks

Here’s your Power Income checklist:

Wednesday’s Payrolls
- Weak number = bond rally extends, stocks stay choppy
- Strong number = yields snap back, tech under pressure
AI Narrative Rotation
- Watch for the next “AI threat” headline to hit another crowded sector
Volatility Regime
- VVIX near 100 says traders are hedging again — smart money isn’t relaxed

Power Income’s Takeaway

Retail sales just fired the first warning shot.
Today’s jobs report may confirm it.

AI isn’t just reshaping companies — it’s reshaping investor psychology, accelerating sector rotations, and amplifying volatility across sectors that once felt “safe.”

We’ve written extensively on how AI is already impacting Wall Street jobs and market structure — if you missed it, revisit “AI vs Wall Street – My Money Is on AI” here:
https://optionpit.com/ai-vs-wall-street-my-money-is-on-ai/