Market remains calm: November CPI data may become a "side show," and triggering a rally requires crossing higher thresholds

In recent years, US stock traders’ attention to the monthly Consumer Price Index (CPI) report has significantly waned. The inflation data for November, released in mid-December, is about to be unveiled, but this time, the market’s reaction indicates that investors have already changed their attitude towards such data—from previously being highly nervous to now remaining largely indifferent.

Significant Change in Market Sentiment

Data from the options market fully reflects this shift. Traders expect the S&P 500 index to fluctuate within 0.7% on the day of the data release, a forecast that is clearly lower than past historical performance. Looking at the 12 CPI reports released in the first nine months of this year, the average actual market volatility triggered was 1%, which means investors’ expectations for the upcoming inflation data’s volatility have decreased substantially.

This calm attitude is not without reason. Recent policy signals from the Federal Reserve have indicated that they are more concerned about signs of weakness in the labor market, and are less sensitive to minor fluctuations in inflation data. The employment data released on Tuesday further confirms this—continued weakness in the labor market leaves ample room for a rate cut cycle next year.

Fundamental Shift in Policy Orientation

According to assessments from the Barclays Global Equity Tactical Strategy Team, the market has formed a consensus: this CPI report is either irrelevant to policy or its data quality is subject to technical controversy; in any case, it will not be a focal point for the market.

Behind this view is a reordering of the Federal Reserve’s policy priorities. While inflation management was once the core issue for the Fed, their current focus has shifted to the performance of the employment market. This means that mere fluctuations in CPI data are now unlikely to shake market expectations.

Uncertainty in Future Policy Framework

Another factor diminishing the importance of this CPI report is that Federal Reserve Chair Powell’s term will end in May next year. His successor is expected to adopt a more aggressive stance on rate cuts in response to President Trump’s calls for significant easing. Regardless of how November’s inflation data evolves, this shift in policy framework suggests that the outcome of the Fed’s policy meeting in January is essentially already determined.

This means that investors have effectively shifted their focus from data to politics, from short-term volatility to long-term policy frameworks. In this context, for a single CPI report to stir the market significantly, the data would need to deviate from expectations by a considerable margin.