- The April CPI report due out on Wednesday could shake up the stock market.
- Calm inflation reports portend a Fed rate cut, and vice versa if inflation reports are higher than expected.
- JPMorgan has laid out six scenarios for April’s CPI and how the stock market would react to each.
JPMorgan’s trading desk is giving a thorough overview of the potential outcomes of the April Consumer Price Index report, which will be released Wednesday morning.
The upcoming inflation report will shake up markets as it will help investors determine when the Federal Reserve will move forward with rate cuts. A lower-than-expected CPI report would suggest a rate cut is near, but higher-than-expected inflation in April is likely to push the timeline further back, perhaps even increasing the likelihood that the central bank won’t ease policy at all. right. this year.
At the beginning of the year, markets were pricing in as many as seven rate cuts, but by the end of the year, the market had reduced rates to just two.
The median economist forecast suggests core CPI growth will be 0.3% in April, slightly lower than March’s 0.4%.
Here’s how JPMorgan sees the stock market based on six scenarios for April’s inflation data.
CPI is over 0.4%
Likelihood of happening: Ten%
Movement of S&P500: 2.5% decrease from 1.75%
“The first tail risk scenario is that shelter price inflation is lower than expected and resistance caused by vehicle prices and public transport prices is likely to reverse. Focus on declines in all risk assets Then investors may find security.”Commodities have outperformed in defensive downturns,” said JPMorgan’s Andrew Tyler.
CPI is between 0.35% and 0.40%
Likelihood of happening: 30%
Movement of S&P500: 0.5% to 1.25% decline
“Given market pricing and Chairman Powell’s comments, this result may be revisited in the coming days, but stocks will still fall as bond yields rise and the likelihood of a rate cut in 2024 remains low,” Tyler said. I think it will go down,” he said.
“Ultimately, this scenario does not change our investment thesis, but it could create a very short-term soft patch depending on the outcome of AI-related catalysts this week and next.”
CPI is between 0.30% and 0.35%
Likelihood of happening: 40%
Movement of S&P500: 0.5% loss to 1% profit
“OER and rent inflation remain at high levels, so until we witness stronger disinflation, it will be difficult to see inflation softening significantly, both in the headline and in the core. In fact, the closer the print is to the lower limit, the stronger the positive effect, especially when prints below 0.30% are rounded up to 0.3%,” Tyler said.
CPI is between 0.25% and 0.30%
Likelihood of happening: Ten%
Movement of S&P500: 1% to 1.5% increase
“The first potential positive tail risk is most likely to be achieved by a decline in shelter inflation. This positive tail could cause material rotation within the stock market, and the SMid It could be very similar to November/December 2023, which was “all up.” Cap is performing well,” Tyler said.
CPI is between 0.20% and 0.25%
Likelihood of happening: 7.5%
Movement of S&P500: 1.5% to 2% increase
“As shelter inflation eases, we need to see a decline in core goods.Given China’s PPI track record, a decline in core goods feels more likely, but we still see this scenario As for the bond market, we expect a significant decline in bond yields.” July’s rate cut will benefit equities and credit as Goldilocks returns,” JPMorgan said. .
CPI is less than 0.20%
Likelihood of happening: 2.5%
Movement of S&P500: 2% to 2.5% increase
“In a final tail risk scenario, bets on a June rate cut may even return as immaculate inflation recovers with a quarter lag. If we look at this through a ‘too good to be true’ lens, , I wonder if some investors would think this way.”The 24th quarter GDP failure is turning into a stronger economic growth slowdown, and this inflation failure is the proverbial canary in the coal mine.” , if that’s the case, any gains will be replaced by market instability as we wait for the next growth data. ” Tyler said.
