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The following massive catalyst for the inventory market is the February CPI inflation report, in keeping with Fundstrat.
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It is going to be launched on March 12, and can sign to buyers whether or not the Fed may quickly lower rates of interest.
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“We marvel if that is doubtlessly the basic catalyst for a sell-off,” Fundstrat mentioned.
Th subsequent massive catalyst that might shake up the inventory market is the February CPI report, in keeping with a latest be aware from Fundstrat.
The inflation studying, which is scheduled to be launched on March 12, will sign to buyers whether or not the Federal Reserve may quickly lower rates of interest.
“To us, that is additionally the choice level for markets in 2024. If the Feb CPI is ‘sizzling,’ even when for statistically mistaken causes, we predict markets may grow to be anxious,” Fundstrat’s Tom Lee mentioned.
The February inflation report will observe a hotter-than-expected January CPI report, and Lee highlighted that a few of the seasonality that drives larger costs in January may spill over into February.
Citing economist Jens Nordvig, Lee defined that firms typically increase their costs in January, and a few of these worth will increase happen later within the month after the January CPI survey interval. Meaning the value will increase that happen in late January do not present up till the February CPI report.
“Traditionally, a ‘sizzling’ Jan CPI tends to be adopted by a ‘sizzling’ Feb CPI. That’s, the residual seasonality that tends to drive a better Jan typically spills into Feb,” Lee mentioned.
Finally, if the February CPI report does are available in larger than anticipated, it may put the Fed in a tough place and result in extra hawkish habits from the central financial institution, as two back-to-back sizzling CPI stories would trigger buyers to query simply what number of instances they may lower rates of interest this yr, in the event that they do in any respect.
And that is why a sizzling February CPI report may spark probably the most important sell-off within the inventory market since its file rally started in late October.
“It looks like the Fed can’t ignore the optical situation of two CPI prints that seem like breaking the downtrend. Thus, it looks like shares may see promoting strain on the heels of this,” Lee mentioned.
“And whereas it’s only a short-term rise that might reverse in March/April, given the sizable rise in shares since October 2023, we marvel if that is doubtlessly the basic catalyst for a sell-off,” Lee mentioned.
Lee has steered that the S&P 500 may expertise a 7% sell-off in early 2024, which might ship the index all the way down to 4,777, which is true across the inventory market’s prior file highs.
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