- The highly anticipated April CPI report comes out on Wednesday morning with the S&P 500 trading just below its all-time high.
- Headline annual inflation is seen rising 3.4% and core CPI is forecast to climb 3.6%.
- While the rate of inflation is slowing, it is not yet clear whether it will drop to the Federal Reserve’s 2% target anytime soon.
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As stocks on Wall Street continue their upward trajectory towards fresh record highs, investor attention remains firmly fixated on the looming release of the April Consumer Price Index () inflation report.
The benchmark index is up about 10% for the year, trading near its late-March record closing high, thanks to a strong earnings season and growing hopes that the Federal Reserve will cut interest rates soon.
With recent economic indicators suggesting a mix of optimism and caution, the forthcoming CPI data is poised to offer crucial insights into the trajectory of inflation and its implications for monetary policy.
As such, the stakes are extremely high. Be sure to check out InvestingPro to stay in sync with the market trend and what it means for your trading.
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Here’s what to know ahead of the key CPI report scheduled for release on Wednesday at 8:30AM EST.
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Inflation Expectations:
Most economists anticipate that the April CPI report will show a slight moderation from the previous month, however annual prices are expected to remain above the 3%-handle for the tenth consecutive month.
Factors such as higher gas prices and ongoing pressures from the services sector are likely to contribute to this sustained inflationary trend.
Key Projections:
- Month-on-month CPI is forecast to rise 0.4% in April, matching the same increase seen in March.
- Core CPI, excluding volatile food and energy prices, is forecast to tick up 0.3% MoM in April, after climbing 0.4% in March.
- Annual inflation is expected to moderate slightly, with the headline CPI year-over-year rate forecast to increase 3.4% in April, slowing from a gain of 3.5% in March.
- The core CPI YoY rate is forecast to rise 3.6% in April, decelerating from March’s 3.8% reading. If that is confirmed, it would mark the lowest annual core CPI rate in three years, dating back to April 2021.
Market Reaction:
- A cooler-than-expected CPI report will likely extend the ongoing market rally, providing reassurance to investors that the Fed will cut rates in the months ahead.
- As per analysts at JPMorgan Chase, a MoM CPI reading ranging from below 0.2% to 0.3% could trigger a rally between +1.0% to +2.5% in the S&P 500.
- However, a surprisingly strong inflation reading could trigger market volatility, as it may delay expectations of a rate cut and raise concerns about inflationary pressures.
- According to JPMorgan, the bank’s trading desk sees a potential decline of as much as -2.5% in the S&P 500 if CPI comes in above 0.4% on the month.
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Market Implications:
With investors now firmly expecting the Fed to start cutting rates after the summer, the latest CPI inflation report will be key in determining the U.S. central bank’s policy moves in the second half of 2024.
At time of writing, the Investing.com pegs the chances of a 25-basis point rate cut in September at around 65%.
Against the current backdrop of persistent inflationary pressures, the Fed is expected to maintain its cautious stance on interest rates, with policymakers closely monitoring economic data for signs of sustained moderation in inflation.
Conclusion:
The upcoming CPI report holds significant implications for market sentiment and monetary policy expectations in the weeks and months ahead.
Overall, while CPI is expected to decelerate, inflation is still rising at a faster rate than what the Federal Reserve would consider consistent with its 2% target. Taking that into consideration, I believe that the Fed will leave interest rates unchanged until early 2025 as inflation remains too high for comfort.
Market participants are advised to remain vigilant for any signals that could influence investment decisions.
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Disclosure: At the time of writing, I am long on the S&P 500, and the via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.