The upcoming main market event this week is the release of the June consumer price index report, which has the potential to provide crucial insights into the Federal Reserve’s decision regarding interest rates. Economists are expecting that the CPI would have risen by 0.1% month over month in June and 3.1% year over year. Additionally, the Core CPI, which excludes volatile food and energy prices, is forecasted to have expanded by 0.2% month over month and 3.4% year over year. This report has the capacity to introduce short-term volatility into the stock market, particularly given the current record-high levels of equities.
Traders at JPMorgan have outlined six different scenarios based on their expectations of the S & P 500’s reaction to the report. Each scenario has been assigned a certain probability and potential impact on the stock market. Let’s analyze some of the key scenarios:
In this scenario, where there is a 35% chance of occurrence, the S & P 500 is anticipated to rise by 0.5% to 1%. This increase would likely lead to growing calls for a rate cut in September. The reaction of the market would be dependent on whether the decline in CPI is attributed to shelter prices, which have been a significant factor in inflation trends.
With a 30% chance of happening, this scenario could result in the S & P 500 increasing by 0.25% to 0.75%. Interestingly, the decimal point in the CPI figure could influence the initial market reaction, with a rounded 0.3% potentially causing negativity, while a precise 0.2% could be viewed positively.
In the least likely scenario, with only a 2.5% chance of occurrence, if the CPI rises more than 0.3%, it could trigger a significant sell-off of 1.25% to 2.5% in the S & P 500. This would indicate a potential shift towards a recessionary or stagflationary narrative in the market.
Overall, the upcoming June consumer price index report holds significant importance for investors and traders alike. The various scenarios outlined by JPMorgan provide a roadmap for understanding the potential impacts on the stock market following the release of this report. It will be crucial to closely monitor the market reaction and adjust investment strategies accordingly.