- The closely watched U.S. December CPI report comes out on Wednesday morning.
- Headline annual inflation is seen rising by 2.9% and core CPI is forecast to increase by 3.3%.
- A hot CPI print would likely see investors push expectations for rate cuts into 2026 amid stubborn inflation risks.
- Looking for more actionable trade ideas? Subscribe here for 50% off InvestingPro!
Investors are bracing for the U.S. December Consumer Price Index (CPI) report, set for release Wednesday morning. The data will provide a crucial update on inflation trends and could significantly influence market sentiment.
With Wall Street grappling with uncertainty over the Federal Reserve’s next moves, the CPI reading has the potential to drive sharp moves in equities, bonds, and currency markets.
The CPI inflation report also comes amid broader economic concerns, including global geopolitical risks and the implications of anticipated policy shifts under the incoming Trump administration.
These factors further complicate the inflation outlook and its impact on financial markets. As such, market players should prepare for potential volatility and monitor the data closely.
Expected Figures and Market Impact
Economists forecast headline CPI to rise 2.9% year-over-year, with core CPI, excluding volatile food and energy, anticipated to increase by 3.3%.
Source: Investing.com
Any surprises—particularly an upside deviation—could ignite concerns about persistent inflation, further delaying anticipated rate cuts by the Fed.
Recent data, including robust job numbers, have already fueled inflation fears, pushing the 10-year Treasury yield to around 4.80%, its highest level since November 2023.
Source: Investing.com
A hotter-than-expected CPI reading would likely keep yields elevated, adding pressure to equities, particularly growth-sensitive tech stocks. Conversely, a softer print could trigger a market rally as hopes for Fed rate cuts in 2025 strengthen.
Fed Chair Jerome Powell and other FOMC officials have recently signaled caution in easing monetary policy amid a complex economic environment. Markets currently expect the U.S. central bank to keep rates unchanged until October 2025, as per the Investing.com Fed Monitor Tool.
Strategy for Investors
Given the volatility surrounding inflation data, a cautious approach is warranted.
Investors might consider reducing exposure to riskier assets while remaining poised for potential buying opportunities once market conditions stabilize. A swing trader mindset, emphasizing agility, could be advantageous in navigating this uncertain period.
After the CPI Report
- Hotter-Than-Expected CPI: Favor inflation-protected securities like TIPS and defensive stocks while reducing exposure to growth-oriented equities vulnerable to rising yields.
- Weaker-Than-Expected CPI: Rotate into technology, discretionary stocks, and high-growth areas poised to benefit as rate cut expectations are pulled forward. ETFs tracking major indexes, such as the S&P 500, could also see a boost.
Final Thoughts
In conclusion, December’s CPI report will be pivotal for shaping expectations on inflation, interest rates, and market direction heading into 2025.
Whether inflation accelerates or moderates, staying adaptable and diversified will be key to navigating the upcoming volatility.
Investors should remain focused on quality assets with strong fundamentals, aligning with a strategic long-term vision while taking advantage of tactical opportunities in this dynamic environment.
For this, InvestingPro is a powerful tool that can prove useful. Whether you're a novice investor or a seasoned trader, leveraging InvestingPro can unlock a world of investment opportunities while minimizing risks amid the challenging market backdrop.
Subscribe now to get 50% off all Pro plans with our New Year’s Sale and instantly unlock access to several market-beating features, including:
- ProPicks AI: AI-selected stock winners with proven track record.
- InvestingPro Fair Value: Instantly find out if a stock is underpriced or overvalued.
- Advanced Stock Screener: Search for the best stocks based on hundreds of selected filters, and criteria.
- Top Ideas: See what stocks billionaire investors such as Warren Buffett, Michael Burry, and George Soros are buying.
Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.