Inflation Data Could Push Stocks to Record Highs

Want more stock market and economic analysis from Phil Rosen directly in your inbox? Subscribe to Opening Bell Daily’s newsletter. 

The S&P 500 is once again within reach of a record high and the latest inflation report could be just the thing to push it over the top.

The index secured new all-time highs following the CPI releases in September, June, and May — three of the last five inflation announcements — and bullish momentum has only grown since then. 

Indeed, stocks climbed across the board on Thursday, recouping losses from earlier in the week and building on a series of strong earnings results.

Economists expect the report to show September’s headline and core CPI at 3.1 percent year-over-year, roughly in line with the prior month, according to FactSet.

What’s unique about this release, of course, is that the government remains shut down.

Markets have largely marched higher in the absence of economic data, though the White House deemed this report important enough to call back furloughed workers to make sure it published.

(It was originally slated to publish on October 15.)

The release will have “more than the usual fawning over the numbers given the ongoing government shutdown and data vacuum it has created,” David Cervantes of Pinebrook Capital wrote in a note Wednesday. “Expect extrapolations to be magnified beyond import, and for the cope to be at max levels.”

While Cervantes may be correct about reactions from pundits and market participants, the data is unlikely to change the outlook for the Federal Reserve.

Prediction markets and traditional indicators all effectively guarantee quarter-point rate cuts next week and in December.

Since the last central bank meeting in September, several policymakers have voiced a willingness to lower borrowing costs to support the labor market.

Even with another cut here or there, according to Fed President Susan Collins, “monetary policy would remain mildly restrictive, which is appropriate.”

“The labor market has demonstrated pretty significant downside risks,” Fed Chair Jerome Powell said in recent remarks.

With minimal chance the inflation data derails rate cuts, it seems unlikely markets will react any other way other than optimistically, even if the headline number shows a surprise.