A potential inflation data release could shake the US stock market

The Consumer Price Index (CPI) is expected to be released on March 12, and it will provide investors with clues about whether the US Federal Reserve (Fed) will cut interest rates soon.

According to Tom Lee, from Fundstrat, “For us, this is a decisive moment for the market in 2024. If the CPI index for February is ‘hot,’ even if it is due to statistical errors, we believe the market could become anxious.”

The CPI report for January was already hotter than expected. Lee emphasized that some seasonal factors that drove up prices in January could continue into February.

Quoting economist Jens Nordvig, Lee explained that companies tend to raise prices in January. Some price increases occur after the CPI survey period. This means that price increases may appear in the CPI report for February.

Finally, if the February CPI is higher than expected, it could put the Fed in a difficult position, leading to more hawkish actions from the central bank. Two consecutive hot CPI reports will raise questions for investors about how many rate cuts the Fed will implement this year.

And that is why a hot CPI report for February could trigger the largest sell-off in the stock market. The market is currently experiencing a record-breaking recovery since late October last year.

Lee is wondering if this could be the fundamental catalyst for a sell-off. He predicts that the S&P 500 index could drop 7% in early 2024, reaching 4,777 points, close to the market’s previous record.

According to MI