Stocks wavered at the start of a week that will bring inflation data seen as key in shaping the outlook for Federal Reserve policy and the direction of markets.
This month’s advance in the S&P 500 put the gauge close to erasing its April slide as speculation grew that inflationary pressures have eased. While the projected annual increase for the core consumer price index due Wednesday would be the smallest in three years, the measure would still be running too fast to placate policymakers, who want evidence inflation is slowing consistently to allow rate cuts.
JPMorgan Chase & Co.’s trading desk says investors are gearing up for big swings in the S&P 500 following the CPI report, according to a note from Andrew Tyler. Daily breakevens in the options market show traders are betting that the equity benchmark will move 1% in either direction after the data.
“The key risk is a hotter CPI print, but upcoming macro data creates a two-tailed risk — with one tied to stronger-than-expected growth fueling inflation concerns and the other being weaker growth fueling either recession or ‘stagflation’ concerns,” Tyler said.
The S&P 500 hovered near 5,230. Treasury 10-year yields declined three basis points to 4.46%. The dollar fell.
Ahead of that, economists will parse the government’s report on producer prices Tuesday to assess the impact of categories such as health care and portfolio management that feed into the Fed’s preferred inflation gauge — the personal consumption expenditures price index. Fed Chair Jerome Powell is also scheduled to speak on the same day at a foreign bankers event in Amsterdam.
US equities are poised for a correction as soon as this quarter as inflation remains sticky and expectations for the Fed to cut interest rates get further pushed out, according to Stifel Nicolaus & Co.’s Barry Bannister. He forecast the S&P 500 will drop roughly 10% in second or third quarter to 4,750.
Investors ready to trim or ditch their stock exposure because they are worried the S&P 500 is losing steam after a double-digit run up since October should look to history for reasons to stay committed to their US equity allocations.
Since the 1930s, missing out on the 10 best days per decade for the benchmark would have yielded a 66% gain — a fraction of the roughly 23,000% return staying invested through those days would have generated, according to data from Bank of America Corp. More importantly, those best days have come after the worst days for stocks, when selling was likely most tempting, the bank’s analysis showed.
“Market timing is fraught with peril, and panic selling results in outsized opportunity costs,” Savita Subramanian, head of US equity and quantitative strategy at BofA, said in a note to clients on Friday. “’Time in the market beats timing the market’ is an old but prescient adage.”
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