Hold Your Breath: Stock Market Pivots on Inflation Data

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Tuesday Night’s Market Action: A Waiting Game

The stock market is holding its breath as investors eagerly await crucial inflation data that will significantly impact the Federal Reserve’s future actions. On Tuesday night, futures tied to the Dow Jones Industrial Average edged slightly higher by 0.09%, while S&P 500 futures gained a modest 0.08%. The Nasdaq 100 futures climbed 0.1%, signaling a modest appetite for risk.

Tuesday’s Regular Trading: A Cautious Stance

During the day’s regular trading session, investors seemed hesitant to make significant moves, opting instead to wait for the upcoming March consumer price index (CPI) report. The Dow slipped 0.02%, while the S&P 500 advanced 0.1%. The Nasdaq Composite rose slightly by 0.3%.

Inflation Data: The Key to Wednesday’s Moves

The CPI report, scheduled for release on Wednesday at 8:30 a.m. ET, is expected to provide crucial insights into the trajectory of inflation. Economists predict a 0.3% increase for the month-over-month period and a 3.4% increase over the past year. Core CPI, which excludes volatile food and energy prices, is also projected to rise by 0.3% and 3.7%, respectively.

Traders will be closely scrutinizing the CPI data for clues on how the Fed may adjust interest rates in the coming months. This could significantly sway Wednesday’s market moves.

Market Reaction Hinges on Inflation Reading

According to Quincy Krosby, chief global strategist at LPL Financial, a higher-than-expected inflation reading could lead to a sharp pullback in the market, which has rallied so far this year. Conversely, a cooler reading could send Treasury yields lower and boost the equity market.

“The market is becoming increasingly concerned about inflation remaining stubborn,” Krosby said. “There’s a growing fear of stagflation if the Fed initiates an easing cycle without inflation subsiding.”

Fed Minutes and Earnings Season on the Horizon

Beyond the CPI report, investors will also keep a keen eye on the minutes from the Fed’s meeting last month. These minutes could provide additional hints about policymakers’ stance on possible rate cuts in the future.

The first quarter earnings season also looms on the horizon. Delta Air Lines is set to report its financial results on Wednesday before the market opens, giving a glimpse into the corporate sector’s outlook.

Data sourced from: cnbc.com