A critical inflation report next week will test a U.S. stock market already consumed by worries over Federal Reserve hawkishness and potential fallout from the largest bank failure since the financial crisis.
The S&P 500 sank on Friday, bringing the weekly loss to 4.5%. After a big rebound in January, the benchmark index is now clinging to a 0.6% gain for 2023.
On Friday, markets appeared to be dialing down their expectations for Fed hawkishness, pricing in a 40% chance that the central bank will raise rates by 50 basis points at their March 21-22 meeting, according to CME's Fedwatch tool. Those odds stood at around 70% as recently as Thursday, but abated on Friday after investors saw the employment data and gained more clarity on the extent of SVB’s troubles.
While moderation of annual inflation from a peak of 9% last year to current levels was the "easy move", going from 6% to 3% will be more difficult, said John Lynch, chief investment officer for Comerica Wealth Management.Markets have been more volatile on average on CPI days over the past year, with the S&P 500 moving an average of 1.8% in either direction on those days against an average 1.2% daily move overall in that time frame.
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