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Good morning, this is Jason Ma in Los Angeles, where gas prices are falling — but still above $6 a gallon in most places. Fuel costs will be a key part of consumer price data for September coming from the Labor Department on Thursday and may signal where the Federal Reserve and the stock market are headed.
Analysts expect the headline Consumer Price Index rate to cool further, this time to an 8.1% annual pace from 8.3% in August, 8.5% in July and 9.1% in June. Investors should brace for a 5% stock market decline if the reading comes in above 8.3%, JPMorgan’s trading desk said in a note this week.
Even a reading of 8.1% to 8.3% would also be negative for stocks, with the note estimating that the S&P 500 would fall about 2% in that scenario.
But a CPI print below 7.9% would likely generate a 2%-3% rally, « though if we see CPI gap down more than 60 basis points the move could be larger, » JPMorgan added.
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1. Investors should wait to get bullish on the falling stock market as inflation and rate-hike concerns continue to roil the valuation norms of the past two decades, according to Bank of America.
The bank said it’s waiting for three key factors to suggest that it’s safe to buy stocks, and so far none of them have happened.
The three missing pieces « to turn bullish » on the stock market include corporate earnings falling at least 9% from current levels, consumer savings falling while the unemployment rate rises, and outflows from equity ETFs, the bank said in a Wednesday note.
Based on those metrics, there’s still a long way to go. For example, there has been $531 billion of inflows into equity ETFs year-to-date, representing the second best year on record, according to BofA.
One prominent ETF is still seeing robust investor inflows despite a massive sell-off.
