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Investors took an optimistic tone heading into the release of March CPI with futures marginally higher. Headline CPI came in at 0.1% m/m which was less than the 0.2% forecast. Core CPI increased by 0.4% which was right in line with forecasts. On a y/y basis, headline CPI was 5.0% versus estimates of 5.1% while core increased by 5.6% which was right in line with consensus forecasts. The immediate response in the futures market was higher equities and much lower yields as the 2-year drops back below 4%.
CPI reports have become increasingly important in the eyes of market commentators in the post-COVID environment. From an outsider’s perspective, you would think that these are the most important days of the month. Looking at the actual data, though, CPI reports may not necessarily be as impactful as you would originally think.
The chart below compares the S&P 500’s median daily percentage change on all market days versus CPI days for three different periods. First, for all days since 2000, the S&P 500’s median daily change is the same for all days versus CPI days (0.55%), so we can consider that the baseline. Since the start of 2020, when COVID first started showing up in the headlines, the S&P 500’s median daily percentage move on all days has been 0.74% versus 0.59% on CPI days. In other words, in the post-COVID world, the S&P 500 has been less volatile on CPI days versus all market days.
Where the stock market has become more volatile on CPI days is since November 2021 when Fed Chair Powell retired the term transitory. From then until now, the S&P 500’s median daily change has increased to 0.88% while on CPI days, it has risen to 0.95%. So, yes CPI reports have taken on an added significance, but they may not be as impactful as you would think from the headlines. CPI day or not, in the post-COVID world and even more so in the post ‘transitory’ world as the Fed aggressively hiked rates, the market has become more volatile on all trading days. This morning, the CPI report is the most important release of the year so far, but by this afternoon, it will have faded well into the rearview mirror.
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