CPI Numbers Raise Questions, But Market Trend Holds Strong

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Alex Partida

Jan 12th 2023  .  3 min read

CPI Numbers Raise Questions, But Market Trend Holds Strong

The U.S. Consumer Price Index (CPI) for December was released this morning before the market opening. The data showed that the median forecast for both the overall CPI (year-over-year) and the core CPI (year-over-year) was spot on at 5.7%. 

The forecast rarely comes in exactly as the actual number, so this occurrence created a ton of indecision following the release. The market initially saw a spike in the indexes, but it quickly dropped as the S&P 500 futures tested the psychological level of 3,950. The market then made another pivot and returned to its highs, but by the time the market opened, it was back to where it started before the event. The high implied volatility made it difficult for options traders as the premium on their contracts quickly evaporated.

Bright spot in CPI may cause rally to continue

Despite the initial confusion caused by the release of the U.S. Consumer Price Index (CPI) for December, there was a positive aspect of the report – the CPI decreased by 0.1% from the previous month. This decrease in inflation is a step in the right direction and can be seen as bullish news for the market. It is also becoming more likely that significant rate increases seen in 2022 may be coming to an end. The Federal Reserve (Fed) is now expected to keep rate hikes between 25 to 50 bps moving forward.

Early profits are taken, markets recover

When the market opened, some profit was taken off the table following a rally over the last several sessions. However, as previously noted by Simpler News, any pullback should be seen as a normal market adjustment. The market continues to hold key moving averages, and with new data supporting the trend, it is likely to remain intact. For the current trend to be questioned, the market would need to break the key level of 3,900 on the S&P 500 futures.

Throughout the rest of the trading session, the market remained around the 4,000 level. The indecision in the market was partly due to the neutral nature of the Consumer Price Index (CPI) report. Still, with positive momentum, the market is likely to continue moving upward.

Ending the week with Umich and what to expect

Tomorrow, the market may be impacted by the release of the University of Michigan (Umich) Consumer Sentiment Index at 10 a.m. Eastern. The forecast for consumer sentiment is 60.7, higher than the previous report. If the numbers come in higher than expected, it can provide additional support for market trends. However, if the numbers come in lower, it could dampen market sentiment.

Market Continues Upward Trend with Another Positive Day

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 closed up 0.37%, gaining 14 points, while the Nasdaq closed up 0.65%, an increase of 70 points. The Dow Jones followed, closing up 0.65%, adding 221 points.