Few things moved the U.S. stock market last year like inflation data and the next reading is due this week.
Under the spotlight is the January consumer price index, which is set to be released at 8:30 am Eastern on Tuesday. Traders are expecting the data to provide more clues on whether the Federal Reserve may pause its interest rate hikes later this year in its combat with inflation that was running at a 40-year high last year.
In fact, CPI data publication days have been among the most volatile for stocks for the past year.
When the August inflation data arrived hotter than expected on Sept. 13, the S&P 500 and Nasdaq Composite plunged 4.3% and 5.2%, respectively, their largest single-day drop in 2022, according to Dow Jones market data.
By contrast, when the October CPI data was released on Nov. 10, the S&P 500
SPX,
+0.22%
and the Nasdaq Composite
COMP,
-0.61%
rallied over 5.5% and 7.3%, respectively, recording their largest single day rally in 2022.
Intraday volatility tends to be significant as well during CPI days in recent months. When the September data was released on Oct. 13, the Dow Jones Industrial Average
DJIA,
+0.50%
surged nearly 1,500 points from its trough to peak, recording one of the biggest intraday swings for the index in recent years.
The inflation data for January and the following months especially matters, as it may point to whether the Fed could successfully steer the U.S. economy to a “soft landing,” where inflation falls while unemployment remains low, according to Scott Ladner, chief investment officer at Horizon Investments.
Earlier this month, Fed Chair Jerome Powell said for the first time that “the disinflationary process” is under way. He reiterated the point in the past week, saying in an interview that “the disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy.”
Still, “the reality is we’re going to react to the data, so if…
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