dailyfreespinsandcoins| If CPI exceeds expectations in April, the stock market may face a "tragic" decline

Source: Jinshi data

The rebound in May pushed the stock market back to near all-time highsDailyfreespinsandcoinsLast month's correction temporarily relieved the pressure, with April inflation data to be released on Wednesday, widely seen as a potential catalyst for stocks to hit new highs or fall again.

Tom Essaye, founder of Sevens Report Research, analyzed the potential "tragic, bad and good" results of the April consumer price index (CPI) reading on Tuesday.

Background: into 2024, interest rate traders expect the Fed to cut interest rates six or more 25 basis points by the end of the year. But a series of higher-than-expected CPI reports and other inflation indicators have scaled back those expectations-traders now expect about two interest rate cuts this year.

The stock market was basically comfortable with it, but fell back in April. The stock market rebounded after Federal Reserve Chairman Colin Powell told reporters on May 1 that raising interest rates was unlikely to be the next step for the central bank.

So far, the S & P 500 is up more than 9% this year, closing on Monday from 5254 set on March 28th.DailyfreespinsandcoinsThe record of .35 points is below 0.Dailyfreespinsandcoins.6%. The Dow Jones industrial average is still less than 40000 points from the milestone, while the NASDAQ is up more than 9 per cent so far.

Whether investors can remain calm about the interest rate outlook may depend on the April data. On average, economists surveyed expect CPI to rise 0.4 per cent monthly in April, slowing to an annualised rate of 3.4 per cent from 3.5 per cent in March.

Core CPI, which excludes food and energy, is expected to rise 0.3 per cent on a monthly basis, slowing to an annualised rate of 3.6 per cent from 3.8 per cent in March. Core CPI data are more closely watched by policy makers and may be the key to market reaction.

Tragic

So what will trigger a tragic reaction?Dailyfreespinsandcoins? Essaye thinks the threshold is 3.9%.

He wrote that meeting or exceeding this threshold of core CPI could trigger a "strong sell-off", further reinforcing the idea of inflation stubbornness and long-term high interest rates. That could reverse the rebound of the past two weeks, as investors are likely to scale back expectations of interest rate cuts, expecting only one rate cut in December.

It is not surprising that the S & P 500 fell 1% or more, and all sectors are likely to fall, although defensive stocks may perform better. He also said this could cause the yield on 10-year Treasuries to jump by 10 to 15 basis points, pushing the ICE dollar index above 106.

Not so good

A core annual rate of 3.7 per cent to 3.8 per cent of the CPI would not trigger such a sharp reaction, but it could still lead to a fall in the stock market and a rise in Treasury yields.

Essaye said such a small drop in inflation would not dispel concerns that price pressures remain stubborn. It could trigger a "mild sell-off", while "supercapital" technology and cyclical stocks are likely to perform better, while defensive stocks are likely to underperform.

Good times

A core CPI annualised reading at or below the expected 3.6 per cent would be a relief for the market. Essaye said this meant that core inflation would fall further. In this case, "new highs should not be surprised", and the stock market will continue its rebound since the April low, driven by parts of the market other than "super capital" technology stocks.

It could also lead to a sharp drop in Treasury yields, with 10-year yields falling below 4.4 per cent and returning to the 3.75-4.25 per cent range seen earlier this year, Essaye said. The dollar index is also likely to come under pressure as investors count two or three interest rate cuts in 2024.