The Stock Market and Inflation: How the S&P 500 Performs on CPI Report Days

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Stock investors swarmed the outlets on Thursday, sending major stock indexes sharply lower a day ahead of another much-anticipated reading in the consumer price index. Recent history may offer a clue.

“While median S&P 500 returns have been near flatline for the past two years on CPI days, more recent returns have been much lower,” Bespoke Investment Group analysts wrote, in a note from Thursday. Since Federal Reserve Chairman Jerome Powell stopped using the term “transitional” in late November to describe inflation, the S&P 500 has fallen on CPI report day four out of six times, including the last four reports.

Over the past six months, the median performance of the S&P 500 on CPI days was down 0.18%, analysts said.

The S&P 500 SPX,
-2.38%
fell 2.4% on Thursday, while the Dow Jones Industrial Average DJIA,
-1.94%
fell nearly 640 points, or 1.9%, and the Nasdaq Composite COMP,
-2.75%
lose 2.7%.

The consumer price index is expected to post a strong 0.7% increase when the report is released on Friday morning, more than double the previous month’s gain. The rise in inflation over the past year, meanwhile, is expected to remain near a 40-year high of 8.4%.

Bespoke analysts looked at the sector’s performance over the past six reports and found that energy, unsurprisingly, was the best performer on CPI days, with a median gain of 1.1%, while that the technology was the worst. Of course, the stock market’s fall in 2022 was led by tech-related stocks, while energy soared in response to soaring oil prices.

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Bespoke noted that for a market preoccupied with inflation, recent reports have not provided much reassurance to investors. In the past 24 months, there have only been three months when the headline CPI was weaker than expected (6/10/20, 11/12/20 and 9/14/21), did they declared.

“Ironically enough, on each of those three days the S&P 500 actually traded lower, although to be fair, those three reports were before Powell dropped the term ‘transitional,'” wrote the analysts.

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