As the release of the US inflation report for July draws nearer, investors are all the more concerned about the surprises it could bring about in the market, and whether it is time to sell off their assets on the different trading platforms like Pepperstone brokers, eToro and Markets.com trading platforms. This article will help you learn more about inflation reports and their possible impact on stock market performance.
Meaning of Inflation
Inflation is a progressive increment in the prices of goods and services sold at the market over time. It means that, on average, the purchasing power of money decreases, leading to the need for more money to buy the same things.
Impact of Inflation on the Stock Market: What you need to know as an Investor
Inflation can have many negative impacts on the stock market. First, it could result in higher interest rates. When inflation rises, the Federal Reserve is more likely to raise interest rates to cool the economy. This can make it more expensive for businesses to borrow money and invest, which can lead to slower economic growth. Slower economic growth can lead to lower corporate profits, which can hurt stock prices.
Second, inflation can erode the value of corporate profits due to rising costs for products and services for industrial productions. This means that companies need to raise prices to maintain their profit margins. However, if they raise prices too much, they may lose customers. This could result in lower returns and lower stock prices.
Third, inflation can lead to uncertainty in the markets. When inflation is high, investors are more likely to be concerned about the future of the economy. This can lead to volatility in the stock market, as investors buy and sell stocks in anticipation of future events.
Of course, inflation can also have some positive impacts on the stock market. For example, inflation can lead to higher corporate profits if companies can pass on higher costs to their customers. Additionally, inflation can make stocks more attractive to investors who are looking for a hedge against inflation.
Inflation Report – Possible Surprises for the US Stock Market?
The US stock market is closely watching the upcoming inflation report, which is due to be released on August 10th. Investors are hoping to see signs that inflation is starting to cool off, but many potential surprises could impact the market.
Here are a few possible surprises that could come out of the inflation report:
First, the inflation rate could come out higher than expected. The consensus forecast is for the Consumer Price Index (CPI) to rise by 0.2% MoM in July, but there is a risk that it could be higher. This would be bad news for investors, as it would suggest that inflation is not yet fully under control.
Second, the core inflation could turn out higher than expected. The core inflation rate, which excludes food and energy prices, is also expected to rise by 0.2% MoM in July. However, there is a risk that it could be higher, which would be even more concerning for investors.
Third, inflation expectations could rise. Investors are also watching inflation expectations closely. If inflation expectations rise, it could lead to higher interest rates, which would be bad for stocks.
If any of these surprises come out of the inflation report, it could lead to a sell-off in the stock market. Investors are already on edge about inflation, and any news that suggests that it is not getting better could trigger a panic.
Of course, it is also possible that the inflation report will be better than expected.
If inflation comes in lower than expected, or if core inflation and inflation expectations remain stable, it could lead to a rally in the stock market.
The imminent inflation report due to be released this week’s Thursday is an important economic report that will drive large volatility in the stock market. It is therefore necessary for investors to apply proper risk management strategies to withstand the market volatility ahead of this report.