Rising CPI and Market Reactions: A Volatile Fall Season Awaits

[Image] Rising CPI and Market Reactions: A Volatile Fall Season Awaits This week, the spotlight in the stock market is shining on the newly released [Consumer Price Index (CPI) report]( a pivotal inflation gauge that provides insights into the economic conditions affecting households across the nation. While it’s not uncommon for the market to react to the numbers displayed in the report, the initial response has been somewhat subdued. However, I think this quiet phase might just be the calm before the storm. A “fakeout,” if you will. With that in mind, let’s break down everything you need to know about this week’s CPI report, the market’s initial reaction, and how to adjust your trading moving forward. Keep reading and I’ll show you… A Very "Hot" August Let's start with the main attraction: the August CPI report. The print came in "hot", which means it indicated a spike in the prices of goods and services that most consumers use on a daily basis. Here are the [key takeaways]( from the print: - The consumer price index rose 0.6% in August, its biggest monthly gain of 2023. It’s also up 3.7% from a year ago. - The core CPI increased 0.3% and 4.3% respectively, against estimates for 0.2% and 4.3%. (Fed officials focus more on the core CPI as it provides a better indication of where inflation is heading over the long term. - Unsurprisingly, energy prices fed much of the gain, rising 5.6% on the month, an increase that included a 10.6% surge in gasoline prices. - The jump in headline inflation also negatively affected worker paychecks. Real average hourly earnings declined 0.5% for the month. Simply put, it is costing people more money to buy the things they normally buy, like food, clothing, and housing. This increase isn't just a small uptick, but rather the biggest rise in inflation we’ve seen all year, hinting that the economy might be heating up more than previously anticipated. The Market's Initial Reaction: A False Sense of Calm Surprisingly, the market seems to be shrugging off this report at the moment, maintaining a steady course instead of fluctuating wildly as one might expect. The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) is up more than 1% since the CPI report was released on Wednesday. SPY 2-day 5-minute chart — courtesy of [StocksToTrade.com]( But don’t get overly optimistic and fall into the bullish trap… In my opinion, this subdued reaction to the CPI report is just a façade, a fake rally before traders readjust based on the newly revealed economic data. It can be likened to a fakeout, where the actual response is delayed, possibly due to a myriad of other factors influencing trader sentiments and strategies. Upcoming PPI Reading: A Crystal Ball into Future Movements This illusion of stability may soon be shattered as we anticipate the release of the Producer Price Index (PPI) reading. This data gives us a glimpse into the cost pressures faced by producers or manufacturers of goods. When paired with the CPI, it forms a more complete picture of the economic landscape. And if the PPI echoes the “hot” trends displayed in the CPI report … look out below! It could potentially serve as a confirmation of the increasing inflationary pressures in the economy. I expect to see a similarly hot PPI reading followed by traders puking up the growth stocks they were buying hand-over-fist on Wednesday and Thursday. If it occurs, this change in market sentiment will be driven by the expectation that a surge in prices could potentially lead to a cooling of consumer demand, affecting the profits of companies that have been driving the growth narrative thus far. A September Defined by Violent Mean Reversion Moves If I take a step back and look at the big picture, it’s clear to me that September could be characterized by violent mean reversion moves. This term essentially describes the sudden and sharp changes in market prices as they attempt to return to a perceived “normal” or average level, after a period of significant deviation. For those who have been closely monitoring the market, this trend doesn't come as a surprise. The market is currently trading above the mean, leading me to believe that stocks could face some considerable downside in the near term. WARNING: I’ve been predicting that September would be an extra-volatile month for weeks now. And sure enough, these forecasts seem to be aligning well with the current market dynamics… Closing Thoughts As we venture further into September, it’s critical for both traders and consumers to keep a vigilant eye on the unfolding economic narratives. For traders, it would be wise to approach the market with a strategy that allows for flexibility. Be nimble, and ready to deal with any situation the market throws at you. The recent CPI report serves as a beacon, illuminating the path that the economy is treading. And there’s a growing consensus that a storm is brewing on the horizon, with potential repercussions that could reshape the landscape of the market in the coming weeks. As we enter this period of uncertainty, maintaining a sense of cautious optimism, coupled with strategic planning, may just be the key to weathering the storm successfully. Stay Street Smart, Jeff Zananiri   66 West Flagler Street STE 900 Miami, Florida 33130 United States [Facebook]( [Twitter]( [Instagram]( [YouTube]( [Click Here to Unsubscribe]( **Our gurus teach skills others have used to make money. Any results displayed are extraordinary and are not typical and will vary from person to person. For more info read our [Earning Claims Disclosure]( About: Making money trading stocks takes time, dedication, and hard work. My goal is to teach you how I have succeeded in the market, but you may not achieve my results. 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