The upcoming inflation report may spark the inventory market’s subsequent large sell-off, Fundstrat says


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  • The subsequent large catalyst for the inventory market is the February CPI inflation report, in line with Fundstrat.

  • Will probably be launched on March 12, and can sign to traders whether or not the Fed may quickly minimize rates of interest.

  • “We surprise if that is probably the elemental catalyst for a sell-off,” Fundstrat mentioned.

Th subsequent large catalyst that might shake up the inventory market is the February CPI report, in line with a current notice from Fundstrat.

The inflation studying, which is scheduled to be launched on March 12, will sign to traders whether or not the Federal Reserve may quickly minimize rates of interest.

“To us, that is additionally the choice level for markets in 2024. If the Feb CPI is ‘sizzling,’ even when for statistically unsuitable causes, we expect markets may develop into anxious,” Fundstrat’s Tom Lee mentioned.

The February inflation report will comply with a hotter-than-expected January CPI report, and Lee highlighted that among the seasonality that drives increased costs in January may spill over into February.

Citing economist Jens Nordvig, Lee defined that firms typically increase their costs in January, and a few of these value will increase happen later within the month after the January CPI survey interval. Meaning the worth will increase that happen in late January do not present up till the February CPI report.

“Traditionally, a ‘sizzling’ Jan CPI tends to be adopted by a ‘sizzling’ Feb CPI. That’s, the residual seasonality that tends to drive a better Jan typically spills into Feb,” Lee mentioned.

Finally, if the February CPI report does are available increased than anticipated, it may put the Fed in a troublesome place and result in extra hawkish habits from the central financial institution, as two back-to-back sizzling CPI experiences would trigger traders to query simply what number of instances they could minimize rates of interest this yr, in the event that they do in any respect.

And that is why a sizzling February CPI report may spark probably the most important sell-off within the inventory market since its file rally started in late October.

“It looks like the Fed can’t ignore the optical concern of two CPI prints that look like breaking the downtrend. Thus, it looks like shares may see promoting stress on the heels of this,” Lee mentioned.

“And whereas it’s only a short-term rise that might reverse in March/April, given the sizable rise in shares since October 2023, we surprise if that is probably the elemental catalyst for a sell-off,” Lee mentioned.

Lee has prompt that the S&P 500 may expertise a 7% sell-off in early 2024, which might ship the index all the way down to 4,777, which is correct across the inventory market’s prior file highs.

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