uploaded image
Image generated with Dall-e 3

Will the Rising Stock Market Get a New Lift on U.S. CPI Inflation Data?

By:Ilya Spivak

Where stock markets go from here will depend on whether April’s U.S. core inflation tops economists’ expectations

  • U.S. stock markets teeter-totter as PPI data comes out in line with forecasts.
  • With the Fed rate cut outlook in focus, all eyes now turn to U.S. CPI data.
  • Wall Street has most to fear from hotter-than-expected core inflation.

Stock markets felt relieved as April’s producer price index (PPI) data printed in line with expectations, leaving intact investors’ baseline Federal Reserve monetary policy outlook. Headline wholesale prices grew 2.2% year-on-year. The analog core measure excluding volatile food and energy components came in at 2.4%.

While both outcomes marked a pickup from March, they registered squarely in line with economists’ median forecasts. That left undisturbed what has emerged as the “new normal” for rate cut bets over the past month. Fed funds futures reflect 36 basis points (bps) in cuts this year. That means one 25bps reduction and 44% chance of another one.

Wall Street teeter-totters as markets weigh Fed rate cut outlook

The bellwether S&P 500 stock index lunged lower as the PPI report crossed the wires, then quickly reversed. Within an hour, it erased intraday spike lower and began trading to session highs.

The tech-tilted Nasdaq echoed these moves, as did Treasury bonds and most major currencies not named “U.S. dollar”.

UofM u.s. consumer confidence data
Source: tastytrade

This whipsaw price action stands in contrast to Wall Street’s defensive reaction to last week’s U.S. consumer confidence data from the University of Michigan (UofM), which showed a worrying jump in inflation expectations. Survey respondents’ one-year outlook jumped to a six-month high, threatening Fed stimulus prospects.

The spotlight now turns to April’s all-important consumer price index (CPI) data. It is expected to show that U.S. inflation cooled last month. The headline rate is seen falling to 3.4% year-on-year, down from the six-month high of 3.5% set in March. The core gauge is penciled in at 3.6%, the lowest in three years.

Can stock markets shrug off U.S. inflation data?

An upside surprise on the headline figure may be in the cards. Rising crude oil prices since the beginning of the year have entered the CPI calculation with about a one-month lag. The WTI benchmark slipped in April, but the March rise is yet to be accounted for.

Whether stocks can take such an outcome in stride will depend on whether core disinflation remains intact. This is the metric most emphasized by policymakers. Recent price action suggests that only an unmistakably hotter than expected figure here is likely to undermine market-wide risk appetite in a substantive way.

futures-implied 2024 fed outlook vs. S&P 500
Source: CME

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better brokeropen a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies. 

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.