JP Morgan's Stock Market Statement: ''A Serious Problem!''

JPMorgan, the American investment bank, mentioned that if the inflation rate in the US comes in above expectations, it is possible to experience losses of up to 5 percent, creating a serious problem for the stock market.

While the Fed's option to shift to dovish policies seems to be off the table after last week's employment report, risks are on the rise ahead of the US inflation to be announced on Thursday. According to JPMorgan Chase's trading desk, any inflation rate above the previous data of 8.3 percent could pose a big problem for the stock market. The team led by Andrew Tyler said in a note on Monday that the S&P 500 fell 4.3 percent on September 13, when August inflation data came in higher than expected. JPMorgan expert analysts led by Mike Feroli forecast September inflation to fall to 8.1 percent. If inflation comes above the median forecast, the S&P 500 could come down 2 percent. The bank's trading team predicts a buying strike that would result in the S&P 500 going down between 1.5 and 2 percent if the data reaches a level between 8.1 percent and 8.3 percent. Inflation data has a big impact on stock markets. Barclays Plc strategists including Anshul Gupta and Stefano Pascale, plotting S&P 500 performance against top 10 economic indicators such as monthly payrolls and quarterly gross domestic product, noted that in the last decade, stocks have never reacted so negatively to an economic indicator.

Expectations of Fed Dovishness Dissipated

With data coming out of recent market volatility expected to set the Fed's tightening roadmap, the S&P 500 recorded its two best days since April 2020 after weak manufacturing figures last week sparked speculation of a less hawkish Fed, but fell again after solid employment data dashed expectations that the Fed would make changes. "This week's inflation data will be the most important catalyst for the November 2 Fed meeting; 75 basis points seems like a foregone conclusion, but there is no consensus on the next two meetings," Tyler said. Tyler added that the bond market repricing of stronger inflation would increase the likelihood of another jumbo rate hike in December. The team also emphasized that any softening in inflation could lead to a stock rally and that it is "highly likely" that the S&P 500 will jump between 2 and 3 percent if CPI falls below 7.9 percent. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!