An upcoming inflation report will assess the strength of the U.S. stock market rally and influence the Federal Reserve’s rate cut strategy.
The S&P 500 has recorded its third consecutive weekly gain, increasing over 27% year-to-date.
This upward momentum in equities is influenced by expectations of additional Fed interest rate cuts amid a resilient economy.
Friday’s employment report indicated stronger than expected job growth, reinforcing this positive outlook. However, this data is not expected to change the Fed’s rate plans for its upcoming December meeting.
The consumer price index data due on Wednesday may alter this optimistic sentiment if inflation exceeds expectations, posing risks for well-performing stocks.
Experts note that if inflation rates are high, it could create uncertainty for investors before the Fed meeting.
Following the recent jobs report, the probability of the Fed cutting rates has increased, with nearly a 90% chance predicted for a 25 basis point cut.
The consumer price index is expected to rise by 2.7% over the past year.
If CPI results are higher than expected, it might prompt a cautious approach on future cuts, affecting outlooks for 2025.
Additionally, inflation concerns are heightened by the potential introduction of tariffs by President-elect Donald Trump.
Despite these factors, stock prices continue to rise, although there are warning signs of overly optimistic sentiment in the market.
Some analysts maintain a positive view on stocks heading into the year-end, citing a reduction in concerns surrounding the economy and interest rates.
