Expectations for the Federal Reserve to push interest rates even higher this year have helped to put a lid on U.S. stocks’ rebound rally in 2023, but the outlook for interest rates, and with it stocks, could shift once again if Wednesday’s consumer-price index for June shows inflation has ebbed more quickly than economists had expected.
The report made a splash in markets, sending shares of troubled used-car sales platform Carvana Co. CVNA surging 16% on Monday, and another nearly 3% on Tuesday to $36 a share, according to FactSet. Jason Draho, head of asset allocation for the Americas at UBS Global Wealth Management, described what a sudden retreat in inflation might mean for markets in emailed commentary.
Economists polled by The Wall Street Journal expect headline year-on-year inflation to fall to 3.1% from 4.0% and year-on-year core inflation to slow to 5.0% from 5.3%. If this relationship holds, it could mean core goods prices could drag on broader measures of inflation during the second half. Economists’ median estimates have been fairly accurate since the start of the year in predicting inflation, Donnelly said, which diminishes the odds of a substantial downside surprise.