S&P 500 could rebound 10% on soft inflation data, says JPMorgan

CPI data released by the Bureau of Labor and Statistics has been a powerful force in stock markets this year, as the Federal Reserve continually raises interest rates to calm record inflation.

In fact, if the inflation numbers are weak on Tuesday, JPMorgan's sales and trading department expects the S&P 500 SPY to rise 10%.

What happened: According to JPMorgan's Andrew Tyler, an annualized inflation print of 6.9% or less would trigger such a rally, which could lift the benchmark from 8% to 10%.

If this move occurred, it would launch the index safely above the 20% bear market zone, as the S&P 500 would be down 6.66% since the start of the year, down from 16.6%.

However, Tyler's team estimates that the chance of this happening is only about 5%.

November CPI reading Probability S&P 500 reaction 7.8% or more 5% Down 4.5% to 5% 7.5% to 7.7% 25% Down 2.5% to 3.5% 7.2% to 7.4% 50% Up to 2% to 3% 7.0% to 7.2% 15% Up to 4% to 5% 6.9% or less 5% Up to 8% to 10%

Source: JPMorgan

The team predicts that a CPI between 7.2% and 7.4%, with a 2% to 3% increase in the S&P 500, is the most likely outcome.< /p>

Why it matters: The index managed to stay above the 100-day moving average, but fell below its 200-day moving average this month , a highly observed trend line.

"The CPI print has the potential to dictate the direction and breadth of the market until earnings kick off in mid-January," Tyler said . “The equity positioning is less light but remains historically low; investors seem to view this report as either in line or slightly dovish. »

On the other hand, anything near or above the previous reading of 7.7% could be cause for concern. If inflation rises above 7.8%, the equity index could fall as much as 5%, according to JPMorgan analysis.

Read next: Why earnings may be the biggest risk to stock prices in 2023

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