- The closely watched U.S. October CPI report comes out today.
- Headline annual inflation is seen rising 2.6% and core CPI is forecast to increase 3.3%.
- Investors should brace for possible market swings after the CPI release as financial markets adjust their expectations for the Fed’s next rate move.
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The October Consumer Price Index (CPI) report, set to be released on Wednesday at 8:30 AM EST, will be closely watched as signs of persistent inflation may force the Fed to reconsider its potential rate cuts.
Source: Investing.com
Headline CPI is expected to accelerate to 2.6% year-over-year, up from 2.4% in September. Meanwhile, core CPI, which excludes food and energy prices, is expected to increase by 0.3% month-over-month, with an annual gain of 3.3%.
This would mark the third consecutive month of a 3.3% core reading, signaling ongoing challenges for the Fed, which is focused on the ‘last mile’ of its journey to bring inflation back down to 2%.
Source: Investing.com
The so-called ‘last mile’ of inflation reduction is often the hardest to achieve.
Should the data show stronger-than-expected price growth, the Fed’s interest rate trajectory, including a potential December rate cut, may need to be reevaluated. Market sentiment is split on a possible rate cut next month, with futures currently showing odds near 50/50, as per the Investing.com Fed Rate Tool.
This CPI report will arrive on the heels of Donald Trump's recent election victory, which has introduced new fiscal dynamics that could further complicate the Fed's inflation outlook.
Trump's pro-growth policy agenda, marked by possible tariffs and tighter immigration, is likely to boost demand while constraining labor supply, thus potentially driving up prices. Some analysts suggest that if Trump’s policies take effect, the longer-term inflation outlook may become even more complex, prompting the Fed to adopt a more cautious approach to monetary easing.
With bond traders pricing in higher yields amid inflation concerns, a “red wave” Republican fiscal shift could bring further changes to the Fed’s inflation forecast.
Indeed, a hotter-than-expected CPI print could raise yields further, causing turbulence in equity markets and creating a ripple effect across interest-sensitive sectors.
What to Do Now
With inflation lingering, investors should prioritize companies in sectors known to perform well during times of sustained price pressures and interest rate uncertainty.
Using tools like the InvestingPro Stock Screener can help identify high-quality companies that are worth considering amid the current climate.
Some notable names to make the cut include Nvidia (NASDAQ:NVDA), Booking Holdings (NASDAQ:BKNG), AppLovin (NASDAQ:APP), Cheniere Energy (NYSE:LNG), Deckers Outdoor (NYSE:DECK), Cincinnati Financial (NASDAQ:CINF), Interactive Brokers (NASDAQ:IBKR), United Therapeutics (NASDAQ:UTHR), and Hims & Hers Health.
Source: InvestingPro
In this environment, having a diversified portfolio across different sectors - including tech, energy, healthcare, and financials - can provide a buffer against inflation volatility while positioning for potential rate pauses or adjustments.
Conclusion
For now, the Fed's next moves largely depend on whether October's CPI report signals a path toward cooling prices or reinforces concerns of entrenched inflation.
If the data reveals that inflation remains steady or ticks higher, it could prompt the Fed to slow its rate-cutting trajectory, potentially pausing until early 2025.
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.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust (NASDAQ:QQQ) ETF. I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
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.