There are plenty of reasons to be concerned if you’re an investor in the market right now. Inflation remains public enemy number one. What’s more, this week will see key data with which the Federal Reserve will determine how to proceed with rate hikes. This Thursday marks the release of October CPI numbers. The report could determine just how fast the Fed moves from here.
The consumer price index (CPI) is a broad metric used to measure how quickly prices increase across a basket of goods. Headline CPI numbers, which most consumers pay the most attention to, have been hovering around the 8.5% range for the past few months. This measure includes food and gasoline prices, to which consumers are very sensitive.
The core CPI measure, which is the preferred metric used by the Federal Reserve, excludes energy and food prices. Regardless, both numbers have recently managed to come in hot, signaling that the Fed must do more to bring down inflation.
With tomorrow’s report on the horizon, let’s dive into what this could mean for the broader stock market — and why investors are growing jittery today.
Will the October CPI Reading Crash the Market Tomorrow?
Interestingly, U.S. Producer Price Index numbers were released today, which came in hotter than expected. This measure, which takes into consideration the prices producers get paid for their offerings, rose at an 8.5% clip in September. The month-over-month increase for PPI was 0.4%. That’s much higher than the expected 0.2% increase and the 0.1% decline in August.
Accordingly, many would expect market participants to be in selling mode today. With most indices in the green as of this writing, though, many seem to believe the data is already priced in. An unusually hot or cold report tomorrow could change this reality. Still, this is where we sit right now.
If tomorrow’s October CPI numbers do exceed expectations, investors may want to pay attention to real estate investment trusts (REITs) and other interest rate-sensitive sectors. Real estate prices are very sensitive to interest rates, as the valuations placed on real assets are very negatively impacted by higher borrowing costs.
Other defensive sectors may get a boost from higher inflation data. That said, if inflation cools, the opposite may be true. We could see a big jump higher in growth stocks and other higher-risk assets.
In any case, this will certainly be a key report all investors should watch tomorrow.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
