Traders Aim for S&P 500’s Busiest CPI Day Since March 2023

Article content

(Bloomberg) — Options traders whipsawed by the stock market’s recent gyrations are getting anxious that more bouts of volatility may arrive in the coming days, starting with Wednesday’s report on consumer prices.

Article content

Article content

Soaring bond yields and robust jobs data have put extra focus on the next consumer price index report. The S&P 500 Index is expected to move 1% in either direction on Jan. 15, based on the cost of at-the-money puts and calls, according to Stuart Kaiser, Citigroup Inc.’s head of US equity trading strategy. That’s the largest implied move ahead of a CPI print since the regional bank turmoil in March 2023.

Article content

In the sense of what is on the line, reading is opposed to walking which is said on the day of Jan. 29 – the Federal Reserve’s interest rate decision – and is higher than the next jobs report, due on Feb. 7. Traders expect CPI figures to do. provide clarity on future rate cuts this year as several major banks revised their forecasts to fewer or later cuts, Bank of America Corp. says that now they don’t expect anything. The change in tone helped lower the stock to start the year.

“Because of the high volatility, a cool CPI number could quickly push the S&P 500 back above 5,900,” said Brent Kochuba, founder of options platform SpotGamma. “Now we’re seeing big long positions placed under that, so if the CPI heats up then we could see a decline in the S&P 500, which would be accompanied by a big jump in the VIX.”

Worries about sticky inflation and the Fed’s approach to containing it pushed the Cboe Volatility Index to 20, a level that reflects concern among traders, as the S&P 500 erased its annual gains. Expected and observed volatility measures both start in 2025 at above-average levels, according to Asym 500 analysis firm.

Article content

Article content

Overall, increased volatility and higher call premiums have made broad stock market hedging more attractive, SpotGamma’s Kochuba said. One month sees volatility around 16, which in itself proves the VIX is in the 18 to 20 range, he said.

The reaction in options markets ahead of the CPI data shows how investors are growing more sensitive to inflation reports as well. Last year, stocks had a muted reaction to consumer price signals as inflation eased and the focus was on the employment side of the Fed’s dual mandate following the strongest rate tightening cycle in decades.

The CPI report will add to the mosaic of data prints US traders will need to analyze for more clues on the Fed’s interest rate path. The Institute for Supply Management services directory was published on Jan. 7 — which showed the average price paid for construction materials and services rose the most since early 2023 — sent the tech-heavy Nasdaq 100 Index down 1.8% in its worst day since mid. -December.

After that, separate data on Friday showed that the US economy added more jobs from March to December, supporting the case for a pause in rate cuts.

Article content

However, investors are preparing for a cool number by the end of 2024.

Wednesday’s CPI report, to be released at 8:30 a.m. in Washington, is forecast to show the core reading – which excludes food and energy costs – rose 0.2% in December from the previous month, down from 0.3% in November. . That would leave the key gauge up 3.3% from a year ago — above the Fed’s 2% target — though similar to the reading three months ago.

Fourth-quarter earnings season will also officially begin on Wednesday, led by financial providers JPMorgan Chase & Co., Citigroup Inc. and BlackRock Inc., who can contribute to the big change.

“Volatility is increasing in these major events now,” said Chris Murphy, head of derivatives strategy at Susquehanna International Group.

Article content