Investors are preparing for big market fluctuations on the Fed's decision day and CPI release day, which may be the largest single-day stock market fluctuations since the Silicon Valley Bank crisis in March 2023.

This Wednesday, the day when the Federal Reserve announced its interest rate decision, coincided with the release of CPI inflation.

How will the Fed decide without the May inflation data? Will the CPI inflation trend be completely opposite to the expectations of the Fed's resolution statement? Considering the results of various stimuli, the market generally believes that there will be huge fluctuations in US risk assets on Wednesday.

The market is currently betting on a 1.3% to 1.4% move in the S&P 500 by Friday, according to an analysis of straddle options expiring that day by JPMorgan’s trading desk.

The bank said in a report:

The Consumer Price Index (CPI) and the Fed's interest rate decision were announced on the same day, and there is a possibility that Powell's press conference will contrast with the CPI results.

At the same time, Citigroup also pointed out that investors are preparing for big ups and downs in the market on the Fed's decision day and CPI announcement day, which may be the largest single-day stock market fluctuations since the Silicon Valley Bank crisis in March 2023.

JPMorgan Chase believes that if the month-on-month increase in core CPI exceeds 0.4%, all risk assets may be sold off, causing the S&P 500 to fall by 1.5% to 2.5%. However, the bank believes that this possibility is only 5%.

If the core CPI is between 0.3% and 0.35% month-on-month, the S&P 500 index will rise or fall within 0.75%. The key lies in whether the cost of living continues to fall and whether the prices of cars and medical care rise. If the core CPI month-on-month growth rate drops to between 0.2% and 0.25%, the market may expect the Fed to cut interest rates in September, and some traders will even bet on the possibility of a rate cut in July. This is mainly because the European Central Bank has taken the lead in cutting interest rates last week, and the Fed may follow suit.

Once the month-on-month increase in core CPI drops below 0.2%, it will be seen as a major positive, which could trigger a surge of 1.75% to 2.5% in the S&P 500 index.

Currently, the market expects the US core CPI to increase by 0.3% month-on-month in May.

However, media analysis pointed out that investors' expectations of large fluctuations may be over-concerned. Recently, overall market volatility has remained at a low level, and the Chicago Board Options Exchange VIX Index, a U.S. stock panic index that measures the implied volatility of the S&P 500, has hovered around 13, close to a one-year low and far below the critical value of 20, which represents rising volatility.


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