Wednesday’s inflation report could take on greater importance given recent wild moves in the stock market. The S & P 500 extended its recent losses Tuesday after a midday rally failed, as fears of an economic recession mount. President Donald Trump announced additional tariffs on Canadian steel and aluminum imports. Ontario Premier Doug Ford then threatened to shut off electricity to the U.S. in response. The U.S. agreed to resume military aid shipments to Ukraine after Kyiv backed a 30-day ceasefire. All this comes as investors brace for the latest consumer price index release, due Wednesday at 8:30 a.m. ET. Economists polled by Dow Jones expect a 0.3% month-over-month increase and a 2.9% advance from the year-earlier period. Core CPI, which strips out volatile food and energy prices, is forecast to have grown 0.3% month over month and 3.2% year on year. Against that backdrop, the JPMorgan trading desk laid out how it expects the market to react to CPI, based on five different scenarios: 5% chance — Core CPI rises 0.33% or more: The S & P 500 would drop 1.5% to 2.5% under this outcome, according to the traders. “The first tail risk, which could show inflation accelerating higher after last month’s 0.45%. Even the best case in this scenario is still a print that would be the second strongest since March 2024,” they said. 25% chance — Core CPI rises between 0.28% and 0.32%: The trading desk said this print would add to a “stagflationary narrative” despite it marking a decline in month-over-month core prices. The S & P 500 would fall 1% to 1.5% under this scenario. 40% likelihood — Core CPI increased between 0.24% and 0.28%: JPMorgan traders called this possible outcome a “welcome respite” from higher inflation. Still, the potential market reaction ranges from a 0.5% decline to a 1% advance. 25% likelihood — Core inflation gains between 0.2% and 0.24%: This potentially benign print would lead to a 0.5% to 1.5% advance for the S & P 500, according to JPMorgan traders. 5% chance — Core CPI rises 0.19% or less: This is the “second tail risk, which would come from a material dovish surprise from shelter prices and Core Goods moving towards increased deflation,” JPMorgan traders said. The S & P 500 would pop 1.25% to 2% under this scenario.
