Next week, the U.S. will release an important report about inflation, which might make stock investors nervous. Stock prices have been shaky at the start of 2025, with the S&P 500 down about 1%. The fear is that rising inflation could lead to higher costs and interest rates, which worries investors.
The Federal Reserve (the central bank) is expecting inflation to rise faster than they planned, which means they may not cut interest rates as quickly as they thought. This week, the stock market reacted negatively to a strong jobs report, with many people finding jobs, pushing stock prices down, and Treasury yields (the interest on government bonds) up.
The monthly Consumer Price Index (CPI) – a key measure of inflation – is due out on January 15. If it shows higher inflation than expected, it could create more chaos in the stock market. Marta Norton, a strategy expert, mentioned that every inflation report feels like a tense moment for investors.
The last jobs report showed a surprising increase of 256,000 jobs in December, much higher than the 160,000 expected. This strong job growth raises questions about how fast prices will rise, impacting the Fed’s plans for interest rates this year.
The CPI for December is anticipated to show a 0.3% increase. Although the Fed thought inflation was under control in September, it has stayed above their 2% target. They’ve now projected inflation will rise by 2.5% in 2025. Recent Fed meeting notes indicated concerns about how incoming President Donald Trump’s policies on trade and immigration could affect inflation.
Many anticipate the Fed won’t cut rates at their next meeting because of fears that inflation might rise. A stronger-than-expected CPI report could delay any future cuts.
Additionally, if inflation increases significantly, it could drive Treasury yields (the return on government bonds) higher, which often affects stock prices negatively. The 10-year Treasury yield recently reached its highest point since November 2023, making bonds more appealing compared to stocks.
In the coming weeks, several companies, including major banks like JPMorgan and Goldman Sachs, will share their earnings reports, which are anticipated to show an increase of nearly 10% compared to last year. Mr. Trump’s upcoming presidency (starting January 20) adds extra tension, as investors are curious about his plans for tariffs and immigration changes.
There are already signs of market reactions to speculations about Trump’s policies, even as he denies some reports. Investment manager Bryant VanCronkhite highlights the uncertainty investors feel about Trump’s next moves.
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