Goldman Sachs’ Outlook: Next Week’s Inflation Data Shocks

Important information for the trading day in the United States

Did you follow the saying “Sell in May and go away”? I hope you didn’t, because the S&P 500 has had a strong start in May, rising by 3% after a 4.1% drop in April. It is still early in the month, and the next market-moving data will not be released until next week, when the consumer prices data is released.

Goldman Sachs’ macro strategist Vickie Chang is worried about the Consumer Price Index (CPI) and its potential impact on the market, as she talks about possible market disruptions caused by inflation data in our daily conversation.

Chang, in a note to clients, stated that despite the calming effect of last week’s Fed meeting on fears of more rate hikes and the central bank’s reassurance that prices are expected to decrease, the overall economic outlook will now heavily depend on the trajectory of inflation.

“We believe, as the Federal Reserve does, that inflation may have been postponed rather than eliminated. This factor will now be crucial in determining the macroeconomic environment, and the upcoming Consumer Price Index report on May 15 will be a significant piece of economic news to watch,” she explained.

She explains that if data indicates increased inflation, it could negatively impact assets like stocks, whereas a decrease in inflation could have a positive effect. However, the strategist explores various short-term market scenarios related to both potential outcomes of the inflation narrative.


The initial discussion is about a surprise development that is seen as unfavorable for the markets, as investors anticipate the Federal Reserve’s tendency to adopt a more aggressive stance towards curbing inflation. This is expected to negatively impact stock prices and cause an increase in bond yields, while the value of the dollar is predicted to rise and commodities to decrease in value.

In the second scenario, markets are anticipating a relax policy change due to lower inflation, causing stocks and commodities to rise while putting pressure on the dollar and bond yields. The S&P 500 is expected to increase while yields are expected to decrease.

In the third quarter, the reduction in U.S. inflation is accompanied by slight improvements in global growth outside of the U.S., which strengthens the weak dollar and boosts non-U.S. stocks. European and emerging-market equities benefit from this situation.

In scenario four, there is a decrease in inflation in the United States, but there are also some concerns about the country’s economic growth. This poses a potential risk due to recent data showing lower activity levels in the U.S.

As a result, U.S. bond yields are expected to decrease, and changes in stock markets and currency exchange rates are limited by conflicting factors, leading to minimal movement. Chang explains this situation.

In this final scenario, bonds and other assets like gold and the yen are expected to perform well. The strategist points out that the Japanese currency has already experienced a significant increase in value due to potential intervention.

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