For US stock investors, this week is a crucial one. With the release of U.S. CPI data measuring inflation levels, the Fed's interest rate decision and subsequent comments from Chairman Jerome Powell, investors are hoping to finally get a clearer picture of what's ahead for battered stocks in 2023.
After a tumultuous year for US stocks, the S&P 500 is set for its biggest annual loss since 2008. With heavy economic data and the Federal Reserve's interest rate decision coming soon, Wall Street traders are already preparing for more severe market volatility in the next few trading days.
Inflation reports have rattled stocks all year, allowing markets to assess the Fed's likely policy path amid surging prices. This week's consumer price index (CPI) data is crucial, with signs of a pullback in inflation likely to moderate expectations for further rate hikes by the Federal Reserve, boosting stocks by the end of the year.
According to data compiled by Bloomberg, over the past six months, on the day of the U.S. CPI announcement, the S&P 500 has moved about 3% on average, the highest level since 2009. The S&P 500 fell seven of the 11 CPI reporting days this year.
(Screenshot source: Bloomberg)
The market generally expects that the Federal Reserve will raise interest rates by 50 basis points at the end of the interest rate meeting on December 14. As a result, equity investors are more focused on what Powell will say in his subsequent news conference, looking for any hints about the direction of interest rates. The Federal Reserve's outlook on the US economy , as well as changes in interest rate expectations, will also become the focus of market attention.
Of course, global fund managers are hoping to end 2022 on a high note after the S&P 500 posted its first two-month winning streak in more than a year in October and November. But with the S&P 500 heading for its first annual decline since 2018, betting on the direction of the next few months is particularly challenging. Erik Ristuben, chief investment strategist at Russell Investments (Russell Investments), said: "Right now, it is difficult for investors to find the right position. The Fed's policy has really curbed the carnival of the stock market until Wall Street is convinced that the Fed is about to complete the rate hike. "
There is a general lack of confidence among investors ahead of a crucial week, which is quite evident in the options market.
Over the past 10 weeks to Dec. 2, the CBOE Volatility Index (VIX) has fallen on 80% of the sessions. That has only happened three times since the so-called "fear gauge" on Wall Street began, according to data compiled by Bespoke Investment Group. "There's a sense that the VIX has fallen too much given this week's big events like the CPI data and the interest rate decision," said Brent Kochuba, founder of
analysis service SpotGamma. "People are starting to realize, maybe getting a little too complacent At the same time, the CBOE stock put/call ratio on the Chicago Board Options Exchange (CBOE) rose to 1.5 last Wednesday, the highest level since 2001, driven by demand to hedge losses on a single stock. It is also more than double this year's average.
(Screenshot source: Bloomberg)
Pricing in the futures market suggests that the Fed’s policy rate will peak at around 4.9% in the first half of 2023. That means the Fed still has room to raise rates further as it tames high inflation.
Carson Investment Research (Carson Investment Research) data shows that in the past eight rate hike cycles, the Fed has been raising the cost of borrowing until it is higher than the CPI.
(Screenshot Source: Bloomberg)
If the Federal Reserve raises interest rates by 50 basis points on December 14, Federal FundsThe interest rate will be in the range of 4.25%-4.5%. Meanwhile, Tuesday’s CPI report is expected to show U.S. CPI year-on-year growth slowed to 7.3% in November from 7.7% the previous month.
but nothing is certain. U.S. stocks wobbled on Friday after the producer price index (PPI) was stronger than expected.
last Friday the US government announced a closely watched inflation indicator - November PPI. Data show that November PPI rose by 7.4% year-on-year, estimated to be 7.2%; U.S. November PPI rose by 0.3% month-on-month, estimated to be 0.2%. "It's certainly a tricky time for investors," said Stephanie Lang, chief investment officer at wealth management firm Homrich Berg. "If history is any indication that the Fed has a track record of overshooting, then that makes us cautious about equities. "The agency advised investors to remain defensive and favor consumer staples and healthcare stocks.
reminds readers: all content does not represent the position of Chuanxi culture, it is for reference only! The transaction-related data and information provided by Chuanxi Culture do not constitute the basis for investment decisions, and the resulting investment risks and losses are borne by traders themselves.
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