Exciting night! Wall Street bets on CPI, the market will shake greatly that night

Recent fluctuations in the US stock market have been turbulent, and with the release of the heavyweight CPI data this week, market volatility may further intensify.

Last week, the US stock market experienced severe fluctuations, with the Cboe Volatility Index (VIX) measuring the volatility of the S&P 500 reaching levels not seen since the peak of the 2020 pandemic. According to a Citigroup report, traders expect at least a 1.2% volatility in the S&P 500 when the CPI report is released on Wednesday.

This expected volatility is consistent with Federal Reserve Chairman Powell's speech at the Jackson Hole Economic Symposium on August 23 and the expected volatility following Nvidia's earnings report on August 29.

Currently, the market expects the core CPI, excluding food and energy, to rise by 0.2% on a month-on-month basis and by 3.2% year-on-year, close to the Fed's 2% target. However, if the numbers are significantly higher or lower than expected, traders may readjust their expectations, potentially triggering another round of market turmoil.

Brooke May, Managing Partner at Evans May Wealth, stated:

"If the Fed cuts rates significantly due to economic slowdown, historically it hasn't been good for stock returns. But the economy is not as bad as people imagine. I expect more volatility and wouldn't be surprised to see more declines in the stock market in the coming weeks."

High Volatility May Continue

Despite the rebound of the S&P 500 from the "Black Monday" crash and a relatively flat performance last week, the options market does not fully believe in this recovery. Data compiled by the media shows that the cost of contracts for a 10% decline in the SPDR S&P 500 ETF Trust (SPY) in the next 30 days is roughly the highest since October, double the cost of contracts for a 10% profit increase.

It is worth noting that Rocky Fishman, founder of derivative analysis company Asym 500, stated that the options market has not yet sent a clear signal to the stock market. When volatility is high, historically it has been a good time to buy stocks, and the CPI will be an important catalyst.

Traders are questioning whether the expected volatility at Powell's speech will be higher after the release of inflation data, as he may announce rate cut plans. His information later this month may help investors predict the number of rate cuts next year, as he indicated at the end of July that policymakers are closer to cutting rates as early as September.

Thomas Urano, Co-Chief Investment Officer at Sage Advisory, stated, "We are at a turning point where economic data that was originally seen as bad news is now seen as good news because it will force the Fed to change its stance. But if the data continues to be weak, this backdrop will disappoint investors and lead to greater volatility."

Even a Slight Rise in Inflation Can't Shake Off Rate Cuts in September?

Some analysts also point out that even if US inflation rates rose slightly in July, it is not enough to shake off expectations of a rate cut by the Fed in September.

If the CPI data meets expectations, it indicates that inflation is still on a downward trend. Economists believe that after the unexpected weakness in inflation data in June, inflation will slightly rebound. The reversal in inflation is mainly driven by the so-called core services (excluding housing), which is a key category of concern for policymakersSome forecasters also point out that due to the rising transportation costs, there is an upward risk in commodity prices.

However, the long-awaited slowdown in housing costs that began in June should continue. Housing costs, accounting for about one-third of the overall CPI, are an important determinant of the overall inflation trend