To The Moon

The eagerly awaited Consumer Price Index (CPI) report for March is scheduled for release on Wednesday at 8:30am. Following two consecutive months of higher-than-expected inflation reports, which have tempered market expectations for Federal Reserve rate cuts in 2024, investors are on edge, anxiously awaiting the latest inflation figures.

⚠️ Trading tips: looking at calls above 443.17 and puts below 439.07 on Tuesday. Best not to swing into Wednesday since CPI is out at pre market. Trade the trend on Wednesday ideally.

Symmetrical triangle for continuation?

* The consensus among economists is expected the annual CPI inflation rate to edge higher from 3.2% in February to 3.4% in March.

* The monthly CPI inflation is forecasted to show a 0.3% surge, slightly decelerating from February’s 0.4% pace.

* The annual ‘core’ CPI inflation rate, which excludes volatile food and energy items, is seen easing from 3.8% to 3.7% in March. If expectations are met, it will mark the lowest rate since April 2021.

* On a monthly basis, core CPI is predicted to show a 0.3% increase, marking a marginal deceleration from the previous 0.4% pace.

Which bull are you betting on?

Bill Adams, economist at Comerica Bank, foresees “another month of hot inflation,” as gasoline prices rose again and “U.S. crude production leveled off near a record high.”

The CPI index is expected to reveal significant price spikes in certain food items, particularly eggs and chicken, influenced by the avian flu outbreak.

However, shelter cost inflation in the CPI index is anticipated to have eased last month, while increased vehicle inventories likely stabilized or slightly reduced new and used car prices.

“The net effect will likely be a pickup in total CPI inflation but a moderation of core inflation, which financial markets would see as making the Fed more likely to cut interest rates at one of their next few decisions,” Adams said.

Bank of America’s economist Michael Gapen anticipates that core CPI inflation will ease in March to 0.2% month-over-month, attributed to a slight dip in core goods prices and reduced price pressure from core services.

On an annual basis, the core CPI is expected inch down from 3.8% to 3.7%. “It will be a confidence builder for the Fed and keep the option to cut in June alive,” Gapen said.  

How Markets Reacted To February’s CPI Report

On March 12, the Bureau of Labor Statistics announced that the CPI index had increased by 3.2% year-on-year in February 2024, slightly surpassing the expected 3.1%. The annual core CPI rate decelerated from 3.9% to 3.8%, still exceeding market forecasts of 3.7%.

S&P 500 recently was up 27% in 100 trading days. Since 1950, 10 other times it was up 25%. It was higher 9 times a year later (only '87 didn't work) and up 13.2% on average. 3 and 6 months later are also extremely strong.

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