It all may come down to this one. Investors are bracing for Tuesday’s July consumer price index, a report that could decide what’s in store for stocks heading into the fall. That’s because this week’s inflation data is the last before Federal Reserve policymakers convene next week for their annual summer consortium in Jackson Hole, Wyoming, an event that will likely shape expectations for their September meeting. Many investors hope the central bank will lower interest rates next month for the first time since last December. A hotter inflation print that points to the Fed remaining on hold at their Sept. 16-17 meeting could prove a stumbling block for a stock market that’s at all-time highs, especially after recent July jobs data pointed to a softening economic outlook. Yet, plenty of investors remain optimistic that the fear around inflation — and whether it will be pushed permanently higher by increased U.S. tariffs on imported goods — could be overblown. Many expect any rise in inflation from tariffs will result in only a temporary spike, one that could be less than currently expected. The same camp views a resilient consumer continuing to power the economy, even if there is some more slack in the labor market. “We are Tactically Bullish as we see this week’s macro data (Retail Sales, CPI, PPI, Jobless Claims) remaining supportive of [the] bull case, with earnings likely to maintain their positive trend,” read a note from the trading desk at JPMorgan. “While inflation is moving higher we have not yet seen evidence of an inflation shock, e.g. Headline YoY seeing a 0.5%-pt increase from previous month like we saw in 2021 and 2022,” the note continued. “If the inflation increases are more gradual, then the market is likely to remain unbothered unless/until we get to a level that would make a rate hike a credible threat.” To be sure, the team added, the key risk is that CPI will come out stronger. Nevertheless, the JPMorgan trading desk expects that a more threatening level in core, year-over-year inflation would mean a rate of 4.0%, rather than the 3.0% some economists are expecting from the next core CPI report. So-called “core” inflation strips out the effect of food and energy on consumer prices. Regardless, Tuesday’s 8:30 a.m. ET consumer price index data is set to be a crucial piece of information for the market outlook. Here are the scenarios JPMorgan has outlined for Tuesday, based on varying core, month-over-month CPI scenarios. A 5% chance that core monthly CPI prints above 0.40%. The S & P 500 loses 2% to 2.75%. A 25% chance that core monthly CPI totals between 0.35% and 0.40%. The S & P 500 might then lose as much as 0.75% or gain as much as 0.25%. 35% odds that core monthly CPI comes in between 0.30% and 0.35%. That might the lead the S & P 500 to end the day little changed or gain as much as 0.75%. A 30% chance that core monthly CPI prints between 0.25% and 0.30%. In this case, easier inflation might drive the S & P 500 to a gain of 0.75% to 1.2% Just a 5% chance that core month-over-month CPI drops to less than 0.25%. That would likely drive the S & P 500 to rally between 1.5% and 2%. JPMorgan sees only a small chance of a hot core CPI reading on Tuesday. The most likely scenario is a reading between 0.30% and 0.40%, which could result in a S & P 500 that is little changed or moderately higher.
