This is the week we have all been waiting for. Investors hope for a clearer picture of what lies ahead for a battered stock market and economy in 2023. We’ll have more news after key inflation data, the Fed’s interest rate decision, and comments from Chairman Jerome Powell. However, stock traders are expecting more volatility in the coming sessions. This is due to a tumultuous year, with the S&P 500 Index losing its largest yearly loss since 2008.
Market uncertainty has existed all year regarding the central bank’s prospective policy path amid continually rising prices. Signs of deflation might help shares recover into year-end by lowering expectations for future Fed rate increases. This week’s consumer price index reading is crucial for stock traders.
According to data from Bloomberg, the S&P 500 had experienced a daily move of around 3% in either direction over the last six months when CPI was released. This year, the S&P 500 has fallen on seven of the 11 CPI reporting days.
Expectations of Fed Decision on December 14
At the end of its meeting on December 14, the US central bank is widely expected to announce a half-point increase. As a result, equity investors are more interested in Powell’s comments at his post-press conference. Any revisions in central bankers’ rate expectations will be a major topic of conversation at the Fed’s meeting. In addition to changes in central bankers’ rate projections, the Fed’s outlook for the US economy will be a focus.
In the options markets, investors’ lack of conviction is evident. Over the previous ten weeks ending December 2, the Cboe Volatility Index (VIX) has decreased on 80% of days. According to data supplied by Bespoke Investment Group, that has only happened three other times since the beginning of Wall Street’s so-called fear gauge.
Meanwhile, the Cboe equity put-to-call ratio rose to 1.5 on Wednesday. This is the highest since 2001. Also, this year’s average is more than double due to demand for a hedge against single-stock losses.
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