Key Takeaways:
The next big catalyst for the stock market is the February CPI inflation report, according to Fundstrat.- It will be released on March 12, and will signal to investors whether the Fed could soon cut interest rates.
- “We wonder if this is potentially the fundamental catalyst for a sell-off,” Fundstrat said.
Fundstrat suggests that the February Consumer Price Index (CPI) report, slated for release on March 12, could serve as a significant catalyst for the stock market. This report will offer insights into whether the Federal Reserve might consider adjusting interest rates in response to inflation trends.
Tom Lee from Fundstrat emphasized the importance of the February CPI report, indicating that it could be a pivotal moment for the markets in 2024. He noted that even if the February CPI data reflects elevated inflation levels due to seasonal factors, it could still trigger market anxiety.
Lee pointed out that January typically sees price increases driven by seasonal factors, and some of these increases may spill over into February. Economist Jens Nordvig’s analysis suggests that price hikes occurring late in January may not be reflected in the January CPI report but could impact the February report instead.
Tom Lee from Fundstrat highlighted the historical trend where a high Consumer Price Index (CPI) reading in January often leads to a similarly elevated CPI in February. He explained that residual seasonality from January tends to spill over into February, potentially influencing inflation trends.
If the February CPI report does indeed exceed expectations, it could pose a challenge for the Federal Reserve. Back-to-back high CPI reports might prompt a more hawkish stance from the central bank. Investors could start questioning the Fed’s rate-cutting intentions for the year, or whether any rate cuts are warranted at all.
This scenario could trigger the most significant stock market sell-off since its record rally began in late October. Lee emphasized that the Fed might find it difficult to overlook two consecutive CPI prints indicating a break from the downtrend. Consequently, stocks could experience selling pressure following such reports.
While any market downturn could be short-lived and potentially reverse in the following months, Lee raised concerns about the possibility of this CPI-related event serving as a fundamental catalyst for a broader sell-off, given the substantial gains in stocks since October 2023.