A Huge Day For Stocks

 | Dec 10, 2021 02:47AM ET

The S&P 500 finished the day lower by around 70 bps, but it was weaker than that across most indexes. The NASDAQ Comp fell 1.7%, and the Russell 2000 lost 2.25%. It isn’t likely to get much better either with the big CPI report.

President Biden indicated that inflation would be high, but he gave no context. So, what we care about is what the street expects, and estimates are for 6.8%, which would be higher than last month’s reading of 6.2%. But again, “high” could be 5.9% for all we know, so I take comments as a way of stating the obvious. What matters is the 6.8% estimate.

Based on the price of oil and gasoline, I find it hard to believe that CPI will be above 6.2%, but I don’t have a quantitative way to figure that out other than looking at the chart and based on past correlations.

So a huge miss on CPI could be seen as quite the negative for the equity market. The Fed is highly likely to accelerate the Taper, regardless of the CPI reading. There is no way CPI will be anywhere low enough to give a pause to the Fed’s tapering pace. But if CPI misses, it could be seen as a sign of falling inflation, but for all the wrong reason, mainly weakening demand.

If you are a bull, you want the CPI to come right around expectations. You don’t want anything with a seven-handle or below 6.2%.