S&P 500 (SPX) waits for CPI to make its move

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  • Equities close strongly on Monday ahead of Tuesday's CPI.
  • JPMorgan's strategy appears to fuel the bulls.
  • CPI is expected to show signs of peak inflation.

The equity market recovered on Monday despite some obvious headwinds. Some strategists are putting the recovery down to oil stocks, which indeed moved higher as oil recovered. However, oil recovering is inflationary and so not exactly a good look for risk assets. This is a case of fitting the story to the outcome.

S&P 500 (SPX) news

Also, it seems a note from JPMorgan's sales/trading team caught some bulls by the horns and released them. If inflation CPI comes in at 6.9% or lower the S&P 500 could rally by up to 10%, according to Bloomberg, citing the JPM note. Seems extreme, but it is only given a 5% chance of happening. Nonetheless, the market still wants to rally, and so that is what it did on Monday. The last CPI print was met with an enormous six sigma event with a huge position to unwind in the US Dollar and stocks. This is unlikely to be the same, but CPI has average moves of 2% or more for stocks this year. Ergo, expect volatility. JPM's note has 2-3% gains as the most likely outcome, so it is still pretty bullish. Notably on Monday, the VIX did pick up in advance of this data. With the Fed release on Wednesday, however, it may not be an open road like last time. 

S&P 500 (SPX) 

3,900 and 4,100 remain the key levels with notable option strikes building up there too if the latest analysis is accurate. The CPI will likely see one of them tested, but it could be a case of fading the move ahead of tomorrow's Fed decision, assuming the CPI is someway around the expectation. Last time out, we got a huge move. This time it may be a more normal 2-3%! Normal! 2022 is a year of the tails!

SPX daily chart

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