Wavering US stock prices before release of July CPI

US stocks have started the day high, absorbing losses from yesterday as investors eagerly await the US inflation report for July to be released tomorrow. Investors are driving their capital into the stock market, hoping the US inflation rate will likely slow down from the CPI data to be released tomorrow.

Stock traders care so much about the inflation report to be released as it will determine the pace for future interest rate hikes by the Fed during their next session. A higher reading from the CPI report above the forecast of 0.2% will likely push the Fed to continue with the aggressive interest rate hike by over 75 basis points or more during their next session in September. In contrast, a reduction in the inflation rate from the CPI report will give investors the firm hopes to return fully to rebuying US stocks.

More active US stocks have made some positive moves during the Asian session today.

• Apple (#AAPL) is up by 0.45% with its price at $164.88
• Adobe Systems Incorporation (#ADBE) is up by 0.35%, with its price at $434.06
• Best Buy Co (#BBY) is up by 0.65%, with its price at $78.50
• Compass Inc (#COMP) is up by 2.5%, with its price at $4.56
• eBay Inc (#EBAY) is up by 0.6%, with its price at $47.57

Generally, the high expectations for a reduction in the US inflation rate seem to push the stock market up again. The decline in oil prices in the past month up till the present moment has given investors more hope to believe that the US inflation report for July will probably fall massively. Oil prices have remained below $100 per barrel for the more significant part of July up until now. This is quite different from the situation witnessed in June when oil prices rose above $110, almost running through the month. This caused the inflation rate in June to attain a forty-year high of 9.1%. Well, some analysts believed that the inflation rate peaked at this point.

With the reduction in oil prices in July, investors are much more optimistic about a massive decline in the inflation report to be released tomorrow. This will further push more investors into stocks with the expectations of a slow down in the pace of the interest rate hike by the Fed during their next session in September.

How does inflation affect US stocks?

Some analysts argue that inflation often favours the stock market as investors tend to jump into them as a hedge against inflation. However, the case is quite different for the US stock market presently. The high rate of inflation seen in the US economy has instilled fears of possible recession among investors. This has led investors to be more reserved in their investments in stocks within the first and second quarters of 2022.

Rising inflation often pushed the Fed to hike the rate aggressively. This accounts for the Fed’s series of interest rate hikes for four consecutive months. Walking the interest rate affects the US stock market negatively. Investors tend to withdraw from the stock market and move into less risky assets.

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