Market closely watching next week's CPI data. Morgan Stanley: Inflation will dominate the US stock market

Following the release of non-farm data indicating a cooling labor market, the April CPI data to be released next week will provide clearer new clues for the US economic outlook.

Morgan Stanley's strategist team led by Michael Wilson stated in their latest research report that the CPI data will play an important role in "determining the monetary policy path and the market's pricing of that path."

Data from media surveys show that the year-on-year growth rate of core CPI in the US in April is expected to further decline from 3.8% in March to 3.7%, while the month-on-month growth rate is expected to decrease from 0.4% to 0.3%, indicating that inflation will further slow down.

Wilson added:

Given the significant impact of price trends on investor sentiment in the backdrop of macroeconomic uncertainty, market reactions after the release of CPI data may be more important than the data itself.

With non-farm data reigniting rate cut expectations, coupled with robust corporate profits supporting investor sentiment, the S&P 500 index has risen in the past two weeks, closing above 5180 points on Monday, about 15% higher than Wilson's 12-month target of 4500 points.

Wilson believes that the US economy has the possibility of achieving a "soft landing" or so-called "zero landing" (meaning economic growth remains resilient even with high interest rates).

Due to the high uncertainty in the current macroeconomic environment, he recommends that investors adopt an investment strategy and portfolio composition that can withstand market volatility shocks in order to achieve stable returns in the ever-changing market conditions.

He said:

If business activity indicators further slow down, investors may even consider appropriately increasing their holdings in defensive sectors such as utilities and essential consumer goods stocks.