S&P 500 futures at fresh 52-week high ahead of inflation data

What’s driving markets

U.S. stock futures rose alongside improving global sentiment after China eased monetary policy amid reports of more stimulus to come.

Hong Kong’s Hang Seng index
HSI,
+0.60%
climbed 0.6%, Japan’s Nikkei 225
NIK,
+1.80%
rose 1.8% to hit a fresh 33-year high, while industrial commodities like oil
CL.1,
+0.86%
and copper
HG00,
+1.52%
gained ground on hopes of more demand from the world’s second-biggest economy.

However, the broad positivity will be tested at 8:30 a.m. Eastern when the U.S. consumer price index for May will be published, analysts noted.

“Of course, this week’s bigger and more immediate question comes from today’s U.S. CPI and how it affects the Fed’s reaction function tomorrow,” said Stephen Innes, managing partner at SPI Asset Management.

Investors will hope that headline CPI inflation, which hit a four-decade high of 9.1% last June and by April had eased to 4.9%, will cool further to the 4% forecast by economists.

Such a decline in price pressures should help the Federal Reserve leave interest rates unchanged after its policy meeting Wednesday, a scenario that has contributed to a sturdy equity market rally of late.

The S&P 500 closed Monday at its highest level since April 2022, having just completed a four-week winning streak. The stock barometer is up 12.5% over the past three months, taking its relative strength index, a momentum gauge, to the overbought threshold of 70.

Some market darlings have enjoyed even greater momentum surges. Shares of Tesla
TSLA,
+2.22%,
the sixth biggest S&P 500 constituent by market capitalization, are up 43% over the past three months, and have gained 103% for the year to date after claiming on Monday a record 12th successive day of gains. Tesla’s RSI closed at 87.

Such bullishness may have bred injudicious calm. The CBOE VIX index
VIX,
-0.47%,
a gauge of expected S&P 500 volatility that usually rises at times of market stress, is around 15, well below its long-run average of 20.

The trading desk at JPMorgan has produced a trading scenario analysis for what may happen to the market given various CPI outcomes. If headline CPI is between 4% to 4.2% then the bank reckons the S&P 500 may quickly gain 0.5% to 1.25%.

A reading of 3.9% or lower may spark a 1.5% to 2% spike, while a stronger-than-forecast 4.9% or higher could trigger a 2.5% to 3% dive, says JPMorgan.

“There are diverging opinions about what happens next. Some investors think that the Big Tech led equity rally should continue with the rest of the market due to catch up their technology peers. Some others think that the S&P 500’s fresh bull market is just an illusion and doesn’t mean that the bear market is over,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“The S&P 500 is now approaching overbought conditions, which will bring some investors to take their profit and walk away. Big Tech, which saw the strongest rally this year, is potentially where the profit taking will be happening,” she added.