JPMorgan Warns of Stock Market Shock From CPI, Fed

What You Need to Know

Investors are preparing for a stock move that could be the largest since March 2023, says Citigroup’s head of U.S. equity trading.
The potential for a large swing around the CPI report and Fed decision comes as volatility across markets has been historically restrained.

Wall Street’s most prominent trading desks from JPMorgan Chase & Co. to Citigroup Inc. are urging investors prepare for a stock market jolt this week after the latest inflation print and the Federal Reserve’s interest-rate decision, both of which arrive on Wednesday.

The options market is betting the S&P 500 Index will move 1.3% to 1.4% in either direction by Friday, based on the price of at-the-money straddles that expire that day, according to Andrew Tyler, head of U.S. market Intelligence on JPMorgan Chase’s trading desk.

This would come in the wake of the consumer price index report Wednesday and the Federal Reserve’s interest-rate decision that afternoon.

“With CPI and Fed on the same day there is a possibility of a CPI outcome being reversed by Powell’s press conference,” Tyler and his team wrote in a note to clients on Monday.

Meanwhile, investors are preparing for a Fed day stock-market move that would be the largest since March 2023, according to Stuart Kaiser, Citigroup’s head of U.S. equity trading strategy.

If month-over-month core CPI tops 0.4%, that would likely spur a selloff across all risk assets, with the S&P 500 falling between 1.5% to 2.5%, according to Tyler. But he sees just a 5% chance of that happening.

The forecast for May’s core CPI, which strips out the volatile food and energy components and is seen as a better underlying indicator than the headline measure, is projected to rise 0.3% from a month earlier.