Today’s CPI and JPMorgan’s Expectations for the Market

The publication of inflation data on Thursday is a key event for the market this week.

Investors are preparing for the Consumer Price Index (CPI) for August, which will be released on Thursday at 3:30 PM Bulgarian time. The report is expected to inform the Federal Reserve’s decisions at their September meeting. Many investors hope the central bank will announce its first interest rate cut since December, even though the level of inflation remains above the Fed’s 2% target. The Fed has explicitly linked future rate cut decisions to progress in tackling inflation.

For the previous month, the annual CPI is expected to rise to 2.9% from 2.7%, according to consensus estimates from FactSet. Excluding volatile food and energy prices, core CPI is expected to remain steady at 0.3% month-over-month and 3.1% year-over-year. The report is considered the most widely used measure of inflation.

JPMorgan expects the Fed to proceed with a 25-basis-point rate cut in September, regardless of the CPI result. A higher-than-expected inflation reading may cause central bankers to hold off on further cuts at upcoming meetings later this year, especially if GDP growth indicators continue to rise.

“We don’t believe there’s a real threat from this result that would force the Fed to stay on hold in September. However, we believe that a significantly more aggressive result here would change the Fed’s response for the October and December meetings,” said a note from JPMorgan’s trading desk. “Simply put, if we see a sharp spike in inflation in this report, it’s likely we’ll see accelerating inflation through the end of the year and into 2026.”

The monthly CPI report, along with other key economic indicators, is becoming increasingly important for investors as U.S. stocks are trading at record highs. Although traders are taking profits, a few risk factors remain, even as the current bull market “feels unstoppable,” JPMorgan warned.

“Inflation, employment, and trade are key risk factors,” the note said. “CPI data on Thursday, even with a more aggressive surprise, is unlikely to stop the Fed from cutting on the 17th; but a combination of public and private commentary on inflation indicates that more cost pass-through from tariffs is expected, though the speed and scale remain unknown. Additionally, labor supply is shrinking, and rate cuts may stimulate labor demand, which could trigger wage inflation, which tends to be persistent.”

The firm adds that the upcoming Fed meeting could turn into a “sell the news” event due to macroeconomic data, potentially overcrowded positions, and reduced activity from retail investors.

JPMorgan states that it maintains a “tactical bullish” view on the market, although with lower conviction due to rising macroeconomic risks and the negative seasonal effect. Here are the scenarios they have outlined for Thursday, based on different values of the core monthly CPI:

• JPMorgan sees a 5% chance that the core monthly CPI will be above 0.40%. In that case, the S&P 500 would lose between 1.5% and 2%.
• They see a 25% chance that the core monthly CPI will be between 0.35% and 0.40%. The S&P 500 could then lose between 0.5% and 1%.
• The chance that the core monthly CPI will be between 0.30% and 0.35% is 35%. This could lead to a loss of 25 basis points to a gain of 50 basis points for the S&P 500.
• There is a 30% chance that the core monthly CPI will be between 0.25% and 0.30%. In this case, the S&P 500 could post a gain between 1% and 1.5%.
• And finally, there is only a 5% chance that the core monthly CPI will fall below 0.25%. This would likely lead to an increase in the S&P 500 of between 1.25% and 1.75%.