The US September inflation report is due Wednesday, 14 October, and a hotter-than-expected reading would normally pressure stocks. investingLive looks at what traders should do if equities hold firm anyway.
The US CPI report is due Wednesday, 14 October, and it is the main focus in markets this week. Traders are still weighing the inflation outlook and the risk of the Fed raising interest rates further, while Treasury yields have been threatening multi-decade highs.
Why a hot print should hit stocks
Higher inflation could force the Fed to keep rates higher for longer or even raise them further. Fed funds futures price roughly an 81% probability that the Fed holds rates unchanged later this month.
A hot report could challenge that pricing and push traders toward bets on another rate hike. At the least, it could reinforce expectations of another move in December.
That should lift Treasury yields and the dollar. Higher yields make borrowing more expensive for companies and make bonds more attractive relative to equities, which could pressure stock valuations, particularly among big tech.
What it means if stocks do not fall
Stocks may still hold up. Traders could have already positioned for a hot reading, so much of the bad news was priced in. Alternatively, the headline number could look ugly while the underlying inflation details are less worrying.
Even so, the author would still be wary of treating that resilience as a bullish signal. The test is whether stocks build on the initial reaction, especially if yields keep climbing. Stocks might hold firmer for the first 15 to 30 minutes after the data, but if yields keep rising and equities lose ground a couple of hours later, the early resilience may not have been convincing.
Traders should also check whether the buying is broad-based or supported by a handful of big tech names. That would show what is carrying the mood in equities if bonds and the dollar send contradicting signals.
The takeaway is not to trade only the headline figures from the CPI report. The author argues that the absence of a selloff can arguably tell traders more than the inflation numbers themselves.
Source: investingLive
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