Wednesday's Market Minute: Bulls Need A Subzero Inflation Print

This might just be the most-watched inflation print all year, thanks to the persistent yarn bulls are spinning about peak inflation. The Nasdaq is now technically in a bull market, up 20% from the bottom. Bitcoin is trying desperately to break out from its summer-long range, but the dollar refuses to back down – probably because there’s a huge disconnect between the market’s story and the one coming from the Federal Reserve.

Will “Peak Inflation” age better than “Transitory?” The two share a lot in common in their potential to disappoint investors. The difference is that this time, it’s market participants promising the prediction, not the central bank. Fed members have done just about everything possible to distance themselves from the idea that they have a reason to slow down their tightening program, yet the notion that they’re preparing to pivot is permeating Wall Street’s consciousness. 

That’s why when it comes to Wednesday’s CPI print, the status quo likely won’t suffice. Economists expect the month-over-month consumer price index to cool off to just a 0.2% rise. That would indeed suggest the momentum for inflation – by definition a rate of change – has peaked. But it’s still not an ideal outcome, and not one likely to sway the Fed from hiking rates. A positive number still means prices are climbing, albeit more slowly, but at intolerably high levels just shy of nine percent.

Earnings have been a mess this season, consumers are weakening, and the latest wave of semiconductor updates are a major problem for the market. That’s to say nothing of the chaotic geopolitical landscape. Peak inflation is the only narrative bulls have going, and everyone’s been waiting for Wednesday’s data for weeks. It’s baked in. For stocks to continue their momentum, a slower rate of still-increasing inflation is unlikely to do. The number needs to be cool. Ice-cold. Subzero. Literally. A negative month-over-month figure is the only scenario in which I see a rally.

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