By Isabel Wang
The CPI report and the Federal Reserve's monetary policy meeting fell on the same day only 13 times since 2008.
Wall Street is preparing for an unusual double feature of market-moving economic events on Wednesday, with the May consumer price index due in the morning and the Federal Reserve's policy announcement in the afternoon.
CPI days and Fed decision days are known for market volatility, but they rarely coincide. The CPI report and the Federal Reserve policy meeting have fallen on the same day only 13 times since 2008, according to Dow Jones Market Data.
While the sample size is small, all three major stock indexes have tended to post gains on those days: the S&P 500 SPX rose an average of 0.7%, the Dow Jones Industrial Average DJIA added 0.9%, and the Nasdaq Composite COMP advanced more than 1%, according to Dow Jones Market Data (see chart below).
Despite Wednesday's rare event, some strategists don't expect higher-than-usual volatility in the stock market.
Dave Sekera, chief U.S. market strategist at Morningstar Research Services, said things that could increase volatility on Wednesday would be if Fed Chair Jerome Powell "said something unexpected" during his news conference half an hour after the publication of the central rate. Bank policy statement and economic forecasts updated at 2 pm ET.
"But I think it is a very low probability since he [Powell's] always very measured in his comments," Sekera said in an emailed comment Monday.
Watch: Stock market faces double whammy midweek with Fed decision after CPI inflation reading
Meanwhile, if inflation metrics are in line or better than expected, that can drive positive market sentiment, but given the high valuations in the market right now, Sekera and his team don't see "much left." bullish in the short term". for US stocks.
But if those inflation metrics turn out much higher than expected, that could lead to a small sell-off in the stock market, but that also depends on how far above consensus inflation is, Sekera said.
See: Good news about inflation? The CPI could show signs of easing prices.
The CPI, a measure of what Americans pay for goods and services, is expected to rise just 0.1% in May, according to economists surveyed by the Wall Street Journal. Such an increase would be the smallest in seven months and would mark the second straight month in which inflation has slowed.
The "core" inflation rate, which excludes volatile food and energy prices and is more closely watched by economists and the Federal Reserve, is forecast to rise 0.3% in May for the second straight month.
The S&P 500 and Dow industrials averaged small declines of 0.02% and 0.18%, respectively, over the last five days of this year's CPI. This contrasts with its 10-year averages of a 0.02% gain and a 0.06% decline on CPI days.
So why this reputation for volatility?
CPI intraday volatility was evident in 2022, when high inflation numbers sparked the start of the Federal Reserve's rate hike cycle. The S&P 500 saw an average percentage move (up or down) of 1.9% on CPI release days in 2022. The average move was a 1.7% change, according to Dow Jones Market Data.
Daily CPI volatility moderated in 2023, but has been significant this year. The chart below shows that both the S&P 500 and Nasdaq have posted moves of about 1% in either direction on four of the last five CPI release days so far this year, according to Dow Jones Market Data.
See: The Fed won't move interest rates this week, but the meeting will still be a feast for economists
Meanwhile, the stock market's performance on the Federal Reserve's policy decision days also painted a confusing picture this year. The S&P 500 and Dow industrials posted more than 1% gains on March 20, while all three major indexes finished at their record closing levels after the Federal Reserve reiterated the prospect of three rate cuts in 2024.
However, the S&P 500 only averaged a 0.1% gain in three Fed decision days this year, while the Dow and Nasdaq each posted an average decline of about 0.4% over the same period. , according to Dow Jones Market Data (see chart below). .
U.S. stocks traded mixed early Tuesday afternoon, with the Dow industrials losing more than 250 points, or 0.7%. The S&P 500 fell 0.3% and the Nasdaq rose 0.1%, led by a 6% rise in Apple Inc. (AAPL) shares, according to FactSet data.
-Isabel Wang
This content was created by MarketWatch, operated by Dow Jones & Co. MarketWatch is published independently of Dow Jones Newswires and The Wall Street Journal.
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06-11-24 1258ET
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