Stock market crash fears are brewing ahead of Thursday’s crucial consumer price index (CPI) report. Indeed, with stocks starting 2024 on a cold streak, the upcoming inflation reading should set the tone for equities and the U.S. economy for the entire year.
So, what should you expect for the first major inflation print in the new year?
Well, early signs point to a mildly hot inflation report. Economists project the CPI will climb at an annual 3.2% rate in December. Interestingly, inflation swaps are pricing in a slightly higher price change of 3.32%.
While this is slightly above November’s 3.1% reading, it may just be an organic change spurred by higher holiday shopping. Prices may have naturally climbed as more Americans spent money on gifts and other holiday supplies. Because of this, the increase in prices shouldn’t reflect much about the state of prices in the country as a whole, nor the trajectory of prices in general.
They may, however, affect the Federal Reserve’s rate cut schedule, something Wall Street is increasingly anxious about.
Stock Market Crash Fears Raging as Stocks Slump
The Fed is top of mind as the December CPI approaches. Indeed, the central bank has already confirmed it expects to cut rates at least three times in 2024. Traders are hotly divided over when the cuts will come, however. Some have lofty expectations that the Fed will cut rates as early as March. Others are less optimistic.
If the CPI shows prices aren’t quite as disinflationary as the Fed assumed, the central bank may hold off cutting rates until the second half of the year. On the flip side, if inflation continues to ease, it would encourage earlier rate cuts.
Lower interest rates typically facilitate stronger economic growth, which would certainly come to benefit the stock market.
Stocks have been down in the dumps in the new year. In fact, the Nasdaq Composite recently concluded a surprise five-day losing streak, the longest since October 2022, in which the index shed nearly 4% of its value.
Most traders attribute the recent stock market downturn to a simple technical reversal following the fourth quarter’s surge rather than a pessimistic indicator for the year. After riding so hot for so much of last year, it makes sense that investors take a breather and capitalize on some of their gains. At the time of writing, the Nasdaq is eying a tidy 1.8% gain to start the second week of the year.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
