For over three years, the monthly U.S. Consumer Price Index (CPI) report has been the most closely watched federal data release among stock traders.
Now, investors are largely indifferent to Thursday's delayed November inflation report, a stark contrast to their previous anxiety.
Data compiled by Barclays (symbol: BCS) shows options traders expect the S&P 500 (symbol: ^GSPC) to move within a ±0.7% range—significantly lower than the average 1% swing observed after the 12 CPI releases in the first nine months of this year.
The shift in sentiment stems from the Federal Reserve's heightened sensitivity to labor market weakness over minor inflation fluctuations. Tuesday's data confirmed continued job market sluggishness, leaving room for potential rate cuts next year.
Originally scheduled for December 10 but postponed to Thursday, the November CPI report carries weaker timeliness than usual. Its reliability may also be compromised due to survey disruptions from the government shutdown. Notably, October’s CPI data will not be released.
Alexander Altmann, Barclays’ Global Head of Equity Tactics, noted: "The market consensus is that this inflation data is either irrelevant or methodologically questionable—hardly a focal point."
The U.S. Bureau of Labor Statistics acknowledged the report’s limitations: Without October data, it cannot provide sequential comparisons for headline or core inflation, offering only a partial snapshot.
The report is unlikely to sway the Fed’s January policy meeting, where officials are widely expected to hold rates steady pending more reliable economic indicators. The central bank just completed its third consecutive 25-basis-point rate cut last week.
Greg Boutle, BNP Paribas’ Head of U.S. Equity & Derivative Strategy, said: "The report’s potential impact on equities is minimal. For CPI to regain market focus, it would need a massive deviation from expectations."
This reflects the Fed’s equal—if not greater—concern over employment risks versus inflation. November’s tepid job growth and four-year-high unemployment rate signal sustained labor market cooling after October’s weakness.
However, not all Fed officials prioritize employment over inflation. Two dissented in last week’s rate-cut vote, citing inflation risks. Atlanta Fed President Raphael Bostic reiterated Tuesday that policymakers must stay focused on curbing inflation, which he expects to persist through much of 2024.
Investors last saw a full CPI report in late October, showing 3% headline inflation—slightly above the Fed’s target but in line with forecasts. November’s reading is expected to mirror this.
Chris Zaccarelli, CIO of Northlight Asset Management, said: "We anticipate no surprises," with consensus expecting ~3% year-on-year inflation. A jump to 3.5% could unsettle traders, while a drop to 2.7% or below would be a positive shock.
Another factor diminishing the CPI’s relevance: Fed Chair Jerome Powell’s term expires in May 2024. Markets expect his successor to aggressively cut rates, aligning with President Donald Trump’s unconventional demands—regardless of economic data.
Jason Coogan, index options trader at Chicago-based Simplex Trading, noted: "All inflation reports mattered earlier this year, but their significance has waned amid the approaching Fed leadership transition under Trump."
Seasonal trends may further dampen reaction to Thursday’s data as stocks enter a traditionally bullish period.
Coogan added: "Current positioning suggests traders expect equities to rally to record highs."
On Tuesday, the S&P 500 fell for a third straight day, closing just 1.5% below its all-time peak.
Comments