Recent market volatility amid escalating Middle East tensions has put inflation front and center again for the U.S. stock market this week as investors awaited the release of the September consumer-price-index report on Thursday morning.
While stocks should be able to withstand a slight upside surprise in inflation given improving macro economic data, “a sizeable surprise” in CPI could bring uncertainty of the Federal Reserve’s easing cycle and more volatility into the market, according to BofA Global Research.
“Following the blowout jobs report last Friday, we believe the importance of CPI this week has risen,” a team of strategists led by Ohsung Kwon, equity and quant strategist at BofA Global, wrote in a Monday note.
In fact, the options market on Tuesday is pricing in a 90-basis-point move on the S&P 500 this Thursday, which is “significant,” Matt Amberson, principal and founder of Option Research & Technology Services, told MarketWatch.
Meanwhile, the recent jump in Wall Street’s “fear gauge,” or VIX, also implied stock moves around CPI “could be larger than before with the S&P 500 dancing along at the highest levels and credit spreads at a two year low,” said Doug Fincher, portfolio manager at Ionic Capital Management.
“There’s a lot of optimism that is priced into the market, so that could be impacted if we see a hot number on Thursday,” he told MarketWatch in a phone interview.
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