by A dovish Federal Reserve detour is looking off the table by the day. The jobs report published last week makes it apparent. The risks around speculators are getting higher as the Consumer Price Index (CPI) publication gets closer.
JPMorgan Analysis
A higher figure than the last figure of 8.3% might be problematic for the stock market. This is according to the trading desk at JPMorgan Chase & Co.
The JPMorgan team is led by Andrew Tyler. It wrote a release note on Monday stating that it feels like a -5% day. The team referred to the publication of the August inflation figure which came in hotter than envisaged.
The scenario was given as an estimated guide for clients who seek to navigate market volatility. The market has become especially volatile with recent economic reports.
Economists at JPMorgan expect that the CPI for September will drop to 8.1%. They think it will be in tandem with the Bloomberg median forecast.
If the report, however, comes within the range of 8.1% to 8.3%, there might be a buyers’ strike. This is according to the investment bank’s sales trade team. They see the S&P 500 index falling by 1.5% to 2% in that scenario.
Without surprise, inflation data are putting much pressure on the stock market. The stock markets have not reacted so negatively to economic indicators as they have to the CPI. Placing the S&P 500 against the first ten indicators would reveal this reality.
Future Implications
The CPI report for July has been the only exception in recent times. The S&P 500 dropped each time the report was published. Consumer prices have been hotter than envisaged.
The upcoming data this week might set the future for the Federal Reserve’s tightening. The S&P 500 had its best two-day rally last week since April 2020. It followed the weak manufacturing report bungled expectations of a Feds’ dovish detour.
The rally later fell due to the jobs report that followed. Thereby validating those who called the expected Feds’ pivot a wishful one.
Tyler said the coming CPI will be the most important catalyst toward the next Fed meeting. He said 75 basis points seem concluded but the next two meetings have no consensus.
Tyler added that strong inflation will cause the bond market to reprice. Thereby increasing the likelihood of another high-interest rate announcement in December.
But, on another hand, a soft inflation report might create an equity rally. The S&P 500 might rise by 2% to 3% if the CPI returns less than 7.9%. The positive influence will be more if the CPI draws back by more than 60 basis points seen in July.
