US stocks remain bullish ahead of CPI data
The S&P 500 continues to move higher as markets price in three rate cuts from the Federal Reserve in the last quarter of the year
US equities continue to move higher as markets price in an aggressive easing cycle from the Federal Reserve starting next week. Market pricing currently shows a high chance of three consecutive 25bps cuts in the last three meetings of the year, with an 8% chance that the meeting next week sees an outsized 50bps cut. Wednesday’s softer PPI data further enabled this mentality, as the headline figure fell 0.1% m/m, pulling the y/y rate down to 2.6% versus expectations for 3.3%.
The fact that inflation seems to be easing at the producer level is a welcome respite after a few months of upside surprises. However, the key test is going to be the Consumer Price data (CPI) to be released today. A hotter print could lead to some unwinding of rate cut expectations and a possible return of stagflation concerns, making the Fed’s job harder that it needs to be. This is especially true given that the latest data suggests the labour market has now become a concern. In fact, the Bureau of Labour Statistics’ latest preliminary revisions show a reduction of about 910,000 jobs in the year to March 2025. Now that the jobs market seems much weaker than previously thought it has changed the narrative that the US economy has been exceptionally resistant despite a challenging macroeconomic environment.
Nonetheless, stocks celebrated the latest jobs revision by setting new all-time highs as it further clears the path towards easing rates, which seems to be the primary focus right now. The S&P 500 continues to show remarkable upside as the rotations from high-beta tech stocks into more defensive stocks starts to unfold. The path of least resistance remains to the upside with the RSI still below the overbought level and several layers of support at play.
On the topside, buyers are finding increased resistance as the rally plays out, with some profit taking likely to be taking place before the next key events. A softer CPI print could reignite the appetite to move higher, potentially breaking above 6,600, which currently stands as the next target. However, if the data muddies the outlook of the US economy even further by reminding traders that inflation remains alive, then sentiment may take a tumble, likely leaving equities slightly lost for direction ahead of the FOMC meeting next week.
S&P 500 daily chart
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