Market Performance On Valentine's Day? This Time It'll Be Different, And Inflation Is Why

The SPDR S&P 500 ETF Trust SPY was trading 1% higher Monday ahead of a critical consumer price index (CPI) inflation reading Tuesday morning.

Economists are expecting the U.S. Labor Department to report 6.2% CPI inflation in January, down from 6.5% in December and a 2022 peak of 9.1% in June. Economists are also projecting that core CPI inflation, which excludes volatile energy and food prices, gained 5.5% in January versus 5.7% in the previous month.

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On Monday, the Federal Reserve Bank of New York's Center for Microeconomic Data reported U.S. consumers expect inflation of 5% 12 months from now, unchanged from a month ago. Expectations for inflation three years from now dropped 0.2% to 2.7%.

Tuesday's CPI reading comes after the Federal Reserve issued a 0.25% interest rate hike in February in its ongoing battle to bring down the highest U.S. inflation in roughly 40 years. The Fed has had some success in cooling down an overheating U.S. economy, but the market expects at least one more interest rate hike in March.

Jobs And Wages: Earlier this month, the Labor Department reported the U.S. economy added 517,000 jobs in January, exceeding economist estimates of 187,000 positions. The Labor Department also reported wages were up 4.4% from a year ago and up 0.3% from December. U.S. GDP grew 2.9% in the fourth quarter, ahead of the 2.8% growth economists were expecting.

In addition to the CPI reading, investors will be watching closely on Wednesday when the U.S. Census Bureau releases its January Retail Sales report. Economists are expecting U.S. retail sales to increase 1.6% month-over-month.

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Voices From The Street: Bank of America economist Ethan Harris projects headline CPI growth of just 6.1%, below consensus expectations.

"Our outlook for an acceleration in headline CPI largely reflects an expected 2.0% m/m increase in energy prices," Harris said.
George Ball, chairman of Sanders Morris Harris, said Monday that he doesn't expect any major surprises from the CPI numbers.

"Any core reading under 5.5% would likely be a short-term upward catalyst for stocks and any reading above 5.5% would likely be viewed negatively by the markets over the very short-term," Ball said.

Benzinga's Take: Investors are hoping for a happy Valentine's Day CPI number that shows inflation is still trending steadily lower. Regardless of the CPI reading, the S&P 500 has historically underperformed in the second half of February.

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