The stock market could see a shock after Wednesday’s inflation and Fed decision

Jun 10, 2024
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Market analysts are telling investors to prepare for a stock market shock on Wednesday in anticipation of the latest inflation print and the Federal Reserve’s interest rate decision.

According to Andrew Tyler, head of J.P. Morgan’s U.S. Market Intelligence, the options market is expecting the S&P 500 (SP500) to go up around 1.3-1.4% “in either direction” by Friday, based on the price of at-the-money straddles that expire that day.

On a note to clients, he wrote that “with CPI and Fed on the same day there is a possibility of a CPI outcome being reversed by Powell’s press conference.”

Citigroup’s head of U.S. equity trading strategy, Stuart Kaiser, noted that investors are preparing for a Fed-day stock market move that would be the largest since March of last year.

Tyler said that if month-over-month core CPI surpasses 0.4%, then a sell-off would be triggered across all risk assets, and the S&P 500 (SP500) would fall between 1.5-2.5%. However, he only sees a 5% chance of that happening.

May’s core CPI, excluding food and energy, is expected to go up 0.3% from the previous month.

J.P. Morgan’s analysts believe this is the most likely scenario, with the S&P 500 ranging from a 0.75% loss to a 0.75% gain.

On the other hand, if core month-over-month core CPI comes in between 0.20-0.25%, a surge in September rate cut expectations would be likely, said Tyler. But anything below 0.2% will be considered “a substantial positive for equities,” with the S&P 500 (SP500) rallying between 1.75-2.50%.

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