Trading CPI: How JPMorgan thinks stocks will react to Tuesday’s big inflation report

Published Mon, Mar 11 20241:46 PM EDTUpdated Mon, Mar 11 20243:00 PM EDT

Wall Street is bracing for the release of fresh U.S. inflation data, and traders at JPMorgan think the report could spark a major stock market move. The February consumer price index report, due Tuesday at 8:30 a.m. ET, is expected to show an increase of 0.4% month over month and 3.1% year over year, according to economists polled by Dow Jones. The core CPI, which strips out volatile food and energy prices, is forecast to climb 0.3% from January to February and 3.7% from the year-earlier period. The numbers come after Federal Reserve Chair Jerome Powell said last week that the central bank is "waiting to become more confident that inflation is moving sustainably at 2%" before cutting interest rates. While it's not the Fed's preferred inflation gauge, it will help investors price in when the first rate cut could take place. Against this backdrop, JPMorgan traders explain how they expect the S & P 500 to fare, depending on how much the core CPI increased from the prior month. Here's their breakdown, based on five scenarios: 37.5% chance — The CPI rises 0.2%-0.3%: A print like this would give the S & P 500 a boost of 0.25% to 0.75%, according to JPMorgan. "A print at the lower end of the range, would build comfort in the disinflationary trend and while not enough to reprice Fed expectations, Equities may take this as a signal for further rotation into more Cyclical/Value sectors," JPMorgan said. 30% chance — The CPI rises 0.3%-0.4%: Such a gain would raise concern that inflation may be reaccelerating. JPMorgan sees the S & P 500 falling 0.5%-1% under this outcome. 22.5% chance — The CPI increases 0.1%-0.2%: A muted inflation increase like this one would boost the S & P 500 by 1%-1.5% as "we would likely see some of the delayed housing disinflation show up in the print as well as a larger than expected decline in vehicle prices," the traders said. 7.5% chance — The CPI jumps more than 0.4%: JPMorgan traders see a 1.75%-2.25% sell-off under this scenario, noting such a report would manifest fears of a "second peak in inflation." 2.5% chance — The CPI rises less than 0.1%: Under this outcome, an "everything rally" in stocks would take place, sending the S & P 500 higher by 1.5%-2%. "This would likely coincide with the bond market bringing May rate cut expectations above 50% from its current ~23% level," JPMorgan said.