US stock market indexes -- S&P 500, Dow Jones, and Nasdaq -- are set to be driven by inflation data even as investors worry that President Donald Trump's tariff plans are endangering Wall Street's hopes for interest rate cuts this year.
The monthly consumer price index due on Wednesday offers the latest read on inflation trends, a key investor concern. A survey of over 4,000 traders published this week showed inflation and tariffs are the factors expected to have the biggest sway on markets this year, Reuters reported.
"Inflation really is the wildcard for 2025 in terms of how it's going to impact the interest rate environment," said Charlie Ripley, senior investment strategist for Allianz Investment Management. "In the event that we have higher inflation, it really reduces the opportunity for the Fed to continue cutting rates, and obviously markets don't like that."
The January report is expected to show an 0.3 per cent increase in CPI on a monthly basis, according to a Reuters poll.
Several Wall Street analysts warned that January is traditionally a more challenging period to forecast CPI due to seasonal factors, increasing the potential for market volatility when the data is released.
Markets are pricing in an over 80 per cent chance that the Fed continues to hold rates steady at its next meeting in March, while roughly two cuts are expected by the end of the year, according to LSEG data. Expectations for the Fed to stay on hold in March solidified after Friday's mixed U.S. employment report. Job growth slowed more than expected in January, but an unemployment rate of 4 per cent supported evidence of a healthy labor market.
But some investors are pulling back on expectations for further easing this year. Morgan Stanley economists this week said they now only project one cut this year, in June, as opposed to two before, saying in a note that, "the path for monetary policy in 2025 remains highly uncertain." The Morgan Stanley team pointed to tariff uncertainty raising the hurdle for rate cuts. Investors this week grappled with an evolving tariff backdrop, with Trump imposing and then delaying for a month tariffs on imports from Canada and Mexico, while putting in place a 10 per cent duty on China.
Following initial news of the tariffs on Monday, the Cboe Volatility Index spiked to a one-week high of 20.42 but has since subsided to around 15.
"Early in the second Trump administration, tariff threats have revived market volatility," Lawrence Gillum, chief fixed income strategist at LPL Financial, said in a written commentary on Thursday.
The Fed's rate view could become clearer when Chair Jerome Powell testifies before Congress on Tuesday and Wednesday.
Corporate earnings reports will also be in focus in the coming week, with results due from Coca-Cola, Cisco and McDonald's.
With over half of the S&P 500 reported, fourth-quarter earnings were on track to have climbed 12.7 per cent from a year earlier, up from an estimate of 9.6 per cent growth at the start of January, according to LSEG IBES.
Q1. Which are key indexes of US stock market?
A1. S&P 500, Dow Jones, and Nasdaq are key indexes of the US stock market.
Q2. What does Cboe Volatility Index indicate?
A2. Following initial news of the tariffs on Monday, the Cboe Volatility Index spiked to a one-week high of 20.42 but has since subsided to around 15.
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"Inflation really is the wildcard for 2025 in terms of how it's going to impact the interest rate environment," said Charlie Ripley, senior investment strategist for Allianz Investment Management. "In the event that we have higher inflation, it really reduces the opportunity for the Fed to continue cutting rates, and obviously markets don't like that."
The January report is expected to show an 0.3 per cent increase in CPI on a monthly basis, according to a Reuters poll.
Several Wall Street analysts warned that January is traditionally a more challenging period to forecast CPI due to seasonal factors, increasing the potential for market volatility when the data is released.
Markets are pricing in an over 80 per cent chance that the Fed continues to hold rates steady at its next meeting in March, while roughly two cuts are expected by the end of the year, according to LSEG data. Expectations for the Fed to stay on hold in March solidified after Friday's mixed U.S. employment report. Job growth slowed more than expected in January, but an unemployment rate of 4 per cent supported evidence of a healthy labor market.
But some investors are pulling back on expectations for further easing this year. Morgan Stanley economists this week said they now only project one cut this year, in June, as opposed to two before, saying in a note that, "the path for monetary policy in 2025 remains highly uncertain." The Morgan Stanley team pointed to tariff uncertainty raising the hurdle for rate cuts. Investors this week grappled with an evolving tariff backdrop, with Trump imposing and then delaying for a month tariffs on imports from Canada and Mexico, while putting in place a 10 per cent duty on China.
Following initial news of the tariffs on Monday, the Cboe Volatility Index spiked to a one-week high of 20.42 but has since subsided to around 15.
"Early in the second Trump administration, tariff threats have revived market volatility," Lawrence Gillum, chief fixed income strategist at LPL Financial, said in a written commentary on Thursday.
The Fed's rate view could become clearer when Chair Jerome Powell testifies before Congress on Tuesday and Wednesday.
Corporate earnings reports will also be in focus in the coming week, with results due from Coca-Cola, Cisco and McDonald's.
With over half of the S&P 500 reported, fourth-quarter earnings were on track to have climbed 12.7 per cent from a year earlier, up from an estimate of 9.6 per cent growth at the start of January, according to LSEG IBES.
FAQs
Q1. Which are key indexes of US stock market?
A1. S&P 500, Dow Jones, and Nasdaq are key indexes of the US stock market.
Q2. What does Cboe Volatility Index indicate?
A2. Following initial news of the tariffs on Monday, the Cboe Volatility Index spiked to a one-week high of 20.42 but has since subsided to around 15.
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