S&P 500: Don't Expect Any Trend Changes Today Unless CPI Delivers an Actual Shock
Michael Kramer | Oct 12, 2023 03:23
Stocks had a sluggish day yesterday, with the S&P 500 essentially staying within the previous day's trading range. It managed to close the session up about 40 basis points. Interestingly, the index opened higher yesterday but the highs from the day before remained intact, for now.
It seems that we may merely be waiting on the CPI report that is due later today. The estimates are for a m/m increase of 0.3%, down from 0.6% in August, while rising by 3.6% y/y, down from 3.7% in August. Core CPI is expected to climb by 0.3%, in line with August, while falling to 4.1% down from 4.3%.
CPI swaps are pricing a 3.55% increase in the headline y/y change, basically in line with analysts’ estimates.
At day’s end, the S&P 500 straddle was only pricing in a 75 bps move by the end of the day today, which doesn’t seem like much given the inflation report. Perhaps that is because the Fed minutes today implied that the Fed is probably done at this point.
There is always a chance for one more rate hike, but from reading through the minutes, it sounds like the odds favor them being finished hiking rates, barring a surprise.
Source: Bloomberg
It seems that the Fed is content with policy where it is; instead, it is shifting its focus on the length of time that rates will remain at these levels. Which I would imagine is going to be high for some time. Of course, that will depend on the neutral rate of the economy and whether the policy is restrictive enough.
Based on the minutes, it doesn’t seem clear they actually know what the neutral rate of the economy is, and at this point, they seem to be feeling their way through a very dark room. Given that the Fed has raised rates about 550 bps over the past 18 months and real GDP in the third quarter is expected to advance by a real 4.9% and 8.9% nominal rate, I find it hard to believe the Fed is restrictive enough.
Meanwhile, stocks rallied a bit after the minutes’ release. However, the index could not surpass the day before yesterday’s highs and could only get back to its early morning highs. So, at least at this point, we have a 78.6% retracement of the day before yesterday afternoon’s sell-off, and yesterday’s late rally could be a 78.6 extension off of the 2 PM ET lows. So today's data and market reaction may take on some extra level of importance.
Get The App
Original Post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.