Many investors are hoping battered U.S. stocks will end 2022 with a “Santa’s rally” after the S&P 500 posted back-to-back monthly gains for the first time in more than a year in October and November, FactSet data shows. .
But first, they have to navigate a week full of potentially shocking events. Chief among them: the release of November Consumer Price Index data Tuesday morning at 8:30 a.m. EST.
CPI data is not the only event likely to influence the market this week, far from it: on Wednesday afternoon, the Federal Reserve is expected to raise its benchmark rate by 50 basis points. Following the release of the interest rate decision, Chairman Jerome Powell will expand on the Fed’s views in a statement and take questions from reporters, which could impact markets.
The Fed will also release updated economic projections, including its “dot plot” of forecast changes to the federal funds rate.
See: 5 things to watch when the Fed makes its interest rate decision
Beyond the Fed, a handful of other central bank meetings are scheduled for this week, including the European Central Bank and the Swiss National Bank. Further rate hikes are also expected there.
With expectations of a 50 basis point move from the Fed already priced into markets, market strategists view the CPI report as a wildcard – unless the Fed breaks with precedent and does raises interest rates by more (or less) than the 50 basis points Powell alluded to during a speech at the Brookings Institution just before the start of the Fed’s pre-meeting blackout period.
Inflation is the main concern of the market
Inflation has become the main concern of the market this year, and as a result, monthly CPI reports have replaced other popular economic data series, such as the Department of Labor’s monthly employment data, as as the most important data for the markets.
Market movements on CPI days have been particularly exaggerated this year. Already, the S&P 500 posted both its biggest daily gain and biggest daily loss, for the year so far, on the day the monthly CPI data was released.
When October CPI data was released on Nov. 10, the S&P 500 rebounded more than 5.5%, its biggest single-day rally so far this year, according to FactSet data. .
Conversely, when monthly consumer price inflation in August turned higher than expected on September 13, the S&P 500 fell 4.3%, its biggest daily decline so far this year.
See: Stock market’s post-CPI decline is in line with recent history
Overall, CPI reports tended to drag equities lower as investors reacted to the fact that price pressures accelerated at the fastest pace in more than four decades. The S&P 500 ended lower on seven of the CPI’s 11 days since the start of the year, as shown by FactSet data cited below.
| Date | SPX displacement (points) | SPX movement (percentage) |
|
01/12/22 (December 21) |
13.28 |
0.3% |
|
02/10/22 (January 22) |
-83.09 |
-1.8% |
|
03/10/22 (February 22) |
-18.36 |
-0.4% |
|
04/12/22 (March ’22) |
-15.08 |
-0.3% |
|
05/11/22 (April 22) |
-65.87 |
-1.65% |
|
6/10/22 (May 22) |
-116.95 |
-2.91% |
|
07/13/22 (Jun ’22) |
-17.02 |
-0.5% |
|
8/10/22 (July 22) |
87.77 |
2.1% |
|
09/13/22 (August 22) |
-177.71 |
-4.3% |
|
10/13/22 (September ’22) |
92.87 |
2.6% |
|
10/11/22 (October 22) |
207.80 |
5.5% |
Intraday volatility in response to CPI data has become particularly severe in recent months. When September’s numbers were released on Oct. 13, stocks experienced a massive intraday swing, with the Dow Jones Industrial Average jumping nearly 1,500 points from peak to peak, one of the biggest swings intraday for the recent memory blue chip average, according to Dow Jones Market Data.
Investors are right to worry
Investors have reason to be anxious ahead of Tuesday’s report. Late last week, stocks sold off after Friday’s producer price index showed wholesale price growth had slowed less than expected in November. That challenged expectations that slowing inflation could allow the Fed to cut interest rates again perhaps as early as the second half of next year, market strategists said.
“Wall Street ended Friday’s session in the red as the weaker-than-expected slowdown in producer prices rekindled concerns of more sticky inflation, and therefore higher borrowing costs for longer,” it said. said Charalampos Pissouros, senior investment analyst at XM, in a note to clients. and journalists.
“Market participants can continue to reduce their risk exposure in case consumer prices confirm the picture painted by the PPI indices,” added Pissouros.
According to median estimates compiled by The Wall Street Journal, economists expect the headline CPI to post a 7.3% increase in the 12 months to November. This is less than the 7.8% recorded the previous month.
On a month-to-month basis, economists are expecting a 0.2% increase in November, compared with a 0.4% increase in October.
As U.S. stocks traded higher on Monday, an unusual thing happened: The CBOE Volatility Index, also known as Wall Street’s “fear gauge,” actually rose. The VIXVIX,
is based on the movements of options linked to the S&P 500, and it generally declines when stocks rise to reflect that markets are anticipating less volatility in the weeks ahead.
A higher VIX could mean options traders are bracing for greater volatility in the weeks ahead – a time of year that typically sees subdued trading volumes as liquidity thins during the trading season. parties, market strategists said.
In recent trading, the S&P 500 SPX,
was up 18 points, or 0.5%, while the Dow Jones Industrial Average DJIA,
traded 274 points, up 0.8%; the Nasdaq Composite COMP,
is up 31 points, or 0.3%.
