By
Steve Muchoki
April 16th, 2024
The Consumer Price Index (CPI) report for the month of August is billed to be released on Tuesday.
The current outlook of the United States Stock market is a bullish one with the futures tied to the Dow Jones Industrial Average (INDEXDJX: .DJI) soaring by 0.5% or 151 points. The S&P 500 (INDEXSP: .INX) futures also topped 0.6% in gains while the Nasdaq 100 futures gained 0.7% to lead the gains.
This positive sentiment stems from the impressive week these major indices had last week, a complete turnaround from the more than 2 weeks in which they ended in consecutive losing streaks. Following its impressive rebound in the past week, the S&P 500 shot up by 3.7%, Dow Jones ended the week with a 2.6% growth while the Nasdaq Composite ended the week as the best performer, with a 4.1% growth.
The volatility that is being perceived in the stock market is a function of the anticipation of the upcoming Federal Reserve’s Open Market Committee meeting where another 75% interest rate hike is expected to be announced.
The Consumer Price Index (CPI) report for the month of August is billed to be released on Tuesday. This figure is a key inflation determinant, and the number unveiled will be what the Feds will work with to determine the extent of the next interest rate hike.
“With the expectation for another 0.3% increase in the core rate for August, if the number is higher this will be a negative for stocks and bonds. If the report is less, it will be a catalyst for a market rally,” said David Donabedian, the chief investment officer of CIBC Private Wealth U.S. “Retail sales is also expected to be flat for the month of August, as it was for the prior month.”
Ecosystem-Wide Impact Beyond the Dow Futures Response
While many Central Banks around the world are hiking interest rates in response to combating inflation within their shores, that from the United States Federal Reserve will be more resounding across the length and breadth of the financial sector.
The interest rate, if above expectations may also weigh down the Dow futures as well as those of the Nasdaq Composite and the S&P 500. Other risky investment bets including digital currencies like Bitcoin (BTC), Ethereum (ETH), and XRP may also be weighed down as investors may choose to take a conservative approach to the investment ecosystem.
If the current projections are anything to go by, the anticipated interest rate hike will be the third time the Federal Reserve will be raising rates by 75 basis points. Despite the justifiable reasons for these bogus hikes, industry experts are still cautioning against the emergence of recession, a situation that will undermine the Fed’s efforts to stabilize the economy for the better part of the year.