Bank of America: If US July CPI falls below expectations, it may reignite concerns about stagflation
Bank of America's Global Research Department stated that the U.S. Consumer Price Index (CPI) for July, to be released this week, may reignite concerns about stock market stagnation. It is expected that the July CPI will increase by 3.0% year-on-year and by 0.25% month-on-month; the core CPI, which excludes food and energy prices, is expected to increase by 3.3% year-on-year and by 0.22% month-on-month. Weak CPI data may trigger a stock market rebound, but overheated CPI data would be a significant downside event, potentially causing the market to fall back into stagnation concerns. It is expected that the Federal Reserve will cut interest rates by 25 basis points at its meetings in September and December
According to the VESYNC financial APP, the Global Research Department of Bank of America stated that the U.S. Consumer Price Index (CPI) for July, to be released this week, will pose another major challenge for the stock market. The market has just emerged from a significant decline triggered by concerns about an economic recession, and disappointing CPI data could lead to further market declines.
Since concerns about an economic recession were sparked by the U.S. non-farm payroll report for July, the S&P 500 index has been on a downward trend. The U.S. Department of Labor will release the U.S. CPI data for July on Wednesday. Bank of America expects the July CPI to rise by 3.0% year-on-year and 0.25% month-on-month; the core CPI, excluding food and energy prices, is expected to rise by 3.3% year-on-year and 0.22% month-on-month.
Bank of America analyst Ohsung Kwon stated, "Weak CPI data may bring a relief rebound to the stock market, but overheated CPI data will be a major downside event that could lead the market back into stagnation concerns." "For the market, hotter CPI will be more surprising than softer CPI."
He added that investors expecting a market sell-off due to the July CPI data can buy S&P 500 index put options, which are "still cheap" compared to buying downside protection for the Russell 2000 index or the Nasdaq 100 index.
Ohsung Kwon mentioned that concerns about an economic hard landing have been exaggerated, and the likelihood of the Federal Reserve making a significant interest rate cut or cutting rates between policy meetings is low. However, he stated, "The stock market at least needs the support of the Federal Reserve until the next strong macroeconomic data is released. What is lacking now is the Fed's acknowledgment, restoring people's confidence that economic growth will eventually be supported." Bank of America expects the Fed to cut rates by 25 basis points at the September and December meetings