The CPI report and the Fed’s policy meeting fell on the same day only 13 times since 2008.
How the stock market performed on CPI and Fed days in 2024.
Wall Street is gearing up for a rare 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 both have a reputation for market volatility, but they rarely coincide. The CPI report and the Fed’s 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, with the S&P 500 rising an average of 0.7%, the Dow Jones Industrial Average adding 0.9% and the Nasdaq Composite advancing over 1%, according to Dow Jones Market Data (see table below).
SOURCE: DOW JONES MARKET DATA
Despite the rare event on Wednesday, some strategists don’t expect greater-than-usual volatility in the stock market.
Dave Sekera, chief U.S. market strategist at Morningstar Research Services, said the things that could drive volatility higher on Wednesday would be if Fed Chair Jerome Powell was to “say something unexpected” during his press conference a half-hour after the release of the central bank’s policy statement and the updated economic forecasts at 2 p.m. Eastern.
“But I think that is of a very low probability as he’s [Powell’s] always very measured in his commentary,” Sekera said in emailed commentary on Monday.
Meanwhile, if inflation metrics come in line or better than expected, that may provide some positive market sentiment, but given the high valuations in the market right now, Sekera and his team don’t see
“much of a short-term upside left” for U.S. equities.
But if those inflation metrics come out much higher than expected, that could lead to a small selloff in the stock market, but that also depends on how much above consensus inflation is running, Sekera said.
The CPI, a measure of what Americans pay for goods and services, is forecast to rise a scant 0.1% in May, according to economists polled by the Wall Street Journal. Such an increase would be the smallest in seven months and mark the second consecutive month in which inflation has slowed.
The “core” rate of inflation, which excludes volatile food and energy prices and is more closely watched by economists and the Fed, is forecast to climb 0.3% in May for the second month in a row.
The S&P 500 and Dow industrials averaged small declines of 0.02% and 0.18%, respectively, on the past five CPI days this year. This contrasts with their 10-year averages of a 0.02% gain and a 0.06% decline on CPI days.
So why the reputation for volatility?
CPI day volatility was on display in 2022 as hot inflation numbers sparked the start of the Fed’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 median move was a 1.7% change, according to Dow Jones Market Data.
CPI day volatility moderated 2023 but has been significant this year. The table below shows that both the S&P 500 and the Nasdaq saw approximately 1% moves in either direction on four of the last five CPI release days so far this year, according to Dow Jones Market Data.
Meanwhile, stock-market performance on the Fed’s policy decision days also painted a muddled picture this year. The S&P 500 and Dow industrials logged an over 1% advance on March 20 while the three major indexes finished at their record closing levels after the Fed reiterated the prospect of three rate cuts in 2024.
However, the S&P 500 only averaged a 0.1% gain on three Fed decision days this year, while the Dow and the Nasdaq each booked an average decline of around 0.4% in the same period, according to Dow Jones Market Data (see table below).
U.S. stocks traded mixed on Tuesday with Dow industrials off over 120 points, or 0.3%. The S&P 500 rose 0.3% and the Nasdaq gained 0.9%, led by a 7% surge in shares of Apple Inc., according to FactSet data.
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