What Has the Dow Done After Past CPI Releases.

What Has the Dow Done After Past CPI Releases?
What Has the Dow Done After Past CPI Releases?
Stocks have been choppy in the year following the Federal Reserve’s resumption of rate hikes last March, but a resilient economy has pushed expectations for future interest-rate moves higher. Inflation is the central concern for many investors, and the monthly consumer-price index (CPI) data releases provide a key bell-weather for economic confidence.

Typically, stocks have been volatile ahead of these releases because of the risk that prices could move lower on a given day. The S&P 500 has averaged a 1.8% move on CPI days, double the 0.87% average for all 180 non-CPI trading days during the same timeframe, according to Bespoke Investment Group.

Investors want to see signs of a slowdown in inflation before the Fed pauses its rate hike cycle early next year, which is what is likely to happen Tuesday when January’s CPI data is released. Headline inflation is expected to climb 0.4% this month, while core inflation–which excludes food and energy–is seen rising 1.6% year-over-year.

Inflation has been a thorn in the side of markets since March 2022, when the Fed raised its benchmark rate from 0% to 0.25%. It has since continued to ratchet up the pace of rate hikes, and the market is pricing in at least two more such increases for this year.

On the other hand, some companies’ earnings reports have sparked confidence among traders that prices are trending lower and could encourage the Fed to start scaling back its hiking cycle. This is particularly true for beverage behemoth Coca-Cola (NYSE:KO), travel platform Airbnb (NASDAQ:ABNB), and restaurant chain owner Restaurant Brands International (NYSE:QSR), all of which have reported strong quarterly results this month.

The biggest gainer this week is the Nasdaq Composite, which has gained 4.1% so far as investors picked up beaten-down growth stocks ahead of the CPI report. The S&P 500 and the Dow Jones Industrial Average are also on track for their best weekly gains of the year so far, with gains of 2.3% and 1.7% expected.

After an era of rampant inflation, the White House is hoping that this year’s CPI data will be lower than last year. However, with unemployment at a 19-year low and the economy growing strong, it will be tough for the central bank to stifle the inflationary pressures.

This is especially the case considering the recent release of an impressive jobs report for January, which shows that wages are on the rise and the labor market is still in good shape.

The latest CPI data release should come as a relief to investors, but it is important to note that inflation has peaked and may take a while to fall back to normal levels. This is due to a range of factors, including the Covid-19 pandemic and global supply chain disruptions, that have caused prices to soar over the past few years.