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Market analysts are urging investors to brace for a stock market shock on Wednesday as they anticipate the latest inflation numbers and the Federal Reserve’s interest rate decision.
According to Andrew Tyler, head of U.S. market intelligence at JPMorgan, the options market S&P 500 (SP500) is expected to rise about 1.3% to 1.4% “in either direction” by Friday, based on the prices of at-the-money straddles expiring on that day.
“With the CPI and Fed being released on the same day, there is a chance that Chairman Powell’s press conference could upset the CPI results,” he wrote in a client note.
Stuart Kaiser, head of U.S. equity trading strategy at Citigroup Inc., said investors were bracing for what would be the biggest stock market move on Fed day since last March.
Tyler said that if the month-on-month core CPI reading rose above 0.4%, it would trigger a sell-off across all risk assets and send the S&P 500 down 1.5% to 2.5%, but he sees only a 5% chance of that happening.
Core CPI, which excludes food and energy, is expected to rise 0.3% in May from the previous month.
JPMorgan analysts see this as the most likely scenario, with the S&P 500 falling by 0.75% to gaining by 0.75%.
Meanwhile, a core CPI reading of 0.20% to 0.25% month-on-month would likely boost expectations for a September rate cut, Tyler said, but a reading below 0.2% would be seen as a “big positive for stocks” and would send the S&P 500 up between 1.75% and 2.50%.
