U.S. stock futures are showing gains as data is anticipated to reveal that U.S. inflation has reached its lowest level in over two years.

How Stock-Index Futures are Performing

  • S&P 500 futures (ES00) are up 0.2%, rising 7 points to 4481.
  • Dow Jones Industrial Average futures (YM00) have added 35 points or 0.1%, currently at 34499.
  • Nasdaq 100 futures (NQ00) climbed 0.2% with a gain of 36 points, reaching 15296.

Previous Performance

Yesterday, the Dow Jones Industrial Average (DJIA) rose by 317 points or 0.93%, closing at 34261. The S&P 500 (SPX) increased by 30 points or 0.67% to reach 4439, while the Nasdaq Composite (COMP) gained 75 points or 0.55% and settled at 13761.

Stock index futures are higher, accompanied by lower Treasury yields and a weakened dollar, as investors remain optimistic that Wednesday’s data will show the slowest U.S. inflation rate in more than two years.

The consumer price index for June will be released at 8:30 a.m. Eastern Time. Experts surveyed by The Wall Street Journal predict that year-on-year headline inflation will drop from 4.0% in May to 3.1%. Furthermore, year-on-year core inflation, which excludes volatile items such as food and energy, is expected to decline from 5.3% to 5.0%.

Should confirmation emerge that inflation has reached its lowest point since March 2021 (down from a multi-decade peak of 9.1% just over a year ago), investors will likely embrace the belief that the Federal Reserve’s interest rate hikes are nearing their end. This could potentially provide an additional boost to the stock market.

According to Jim Reid, a strategist at Deutsche Bank, “CPI comes out at an important crossroads for the Fed. A hike in July is pretty much nailed on, but after that, it’s all to play for.”

Investors Positioning for Possible Decline in Inflation

Stephen Innes, managing partner at SPI Asset Management, suggests that investors are preparing for another decrease in both core and headline inflation. This reflects ongoing moderation in shelter inflation, lower used car prices, and slower non-housing services inflation. The crucial question is whether the incoming data will surpass consensus expectations and capture the attention of the Federal Reserve.

Potential Impact on S&P 500

The S&P 500 currently hovers just below its 15-month peak, demonstrating a significant 15.6% increase in value thus far in 2023. However, according to Tom Lee, head of research at Fundstrat, if the month-on-month core inflation data reveals unexpectedly subdued figures, the S&P 500 could experience a rapid rally of 100 points or possibly more.

Lee explains, “A June Core CPI positive print (+0.20% or less) would strengthen the case for stocks in the second half… We still believe the highest probability is a large rally this week. And as we noted… on the October 2022 and February 2023 CPI prints, the S&P 500 rallied the equivalent of 180 to 225 points,” as reported in a note to clients.

Insights from Fed Officials

Besides the mentioned market dynamics, investors will also be keeping an eye on Federal Reserve officials’ commentary on Wednesday. Richmond Fed President Barkin is scheduled to speak at 8:30 a.m., followed by Minneapolis Fed President Kashkari at 9:45 a.m., and Atlanta Fed President Bostic at 1 p.m. Additionally, the release of the Fed Beige Book is anticipated at 2 p.m. (all times Eastern).

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