- The closely watched U.S. February CPI report comes out today.
- Headline annual inflation is seen rising by 2.9% and core CPI is forecast to increase by 3.2%.
- Investors should brace for volatility amid the ongoing market correction and mounting trade tensions.
- Looking for more actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to ProPicks AI winners.
As the U.S. stock market navigates through choppy waters, investors are bracing for a critical inflation report that could either calm markets or pour gasoline on an already burning fire.
The February CPI report arrives at a critical juncture, with the benchmark S&P 500 and tech-heavy Nasdaq Composite now both officially in correction territory after falling 10% from their recent record highs.
Source: Investing.com
Source: Investing.com
What to Expect
Scheduled for release at 8:30 AM ET on Wednesday, the February CPI data is expected to shed light on the inflation landscape during a period marked by escalating trade tensions and economic uncertainty.
Analysts predict a 0.3% month-over-month rise in headline inflation, moderating from an increase of 0.5% in January. Year-over-year, CPI is expected to cool to 2.9%, following a 3.0% rise in the preceding month.
Meanwhile, core CPI, which excludes food and energy prices, is forecast to increase by 0.3% month-over-month, with an annual gain of 3.2%, slightly down from the 3.3% observed in January.
Source: Investing.com
This data is particularly significant as it precedes the Federal Reserve’s policy meeting on March 18-19. Recent economic data has painted a mixed picture, with some indicators suggesting a slowdown in economic growth. This has led markets to anticipate more rate cuts this year to support the economy.
The odds for Fed rate cuts have indeed increased, as per the Investing.com Fed Monitor Tool, with markets now pricing in around three cuts of 25 basis points (bps) each by the end of 2025, with the first potentially coming in June.
However, the narrative could quickly change if the CPI report reveals that inflation is still running hot. A high CPI reading could dash hopes for imminent rate cuts, as it would oblige the U.S. central bank to maintain a tight monetary policy to combat sticky inflation.
What to Do Amid the Tech Selloff and Market Correction
The backdrop of President Donald Trump’s proposed tariffs on imported goods from Canada, Mexico, the European Union, and China has added layers of complexity to the economic outlook. Amid these uncertainties, the Cboe Volatility Index has spiked to the highest level since late 2024, reflecting growing market unease.
Source: Investing.com
The ongoing market correction, coupled with the tech selloff, has left investors searching for safe havens and strategic investment opportunities.
While the current market correction and tech selloff may instill fear, history has shown that such corrections can also present valuable buying opportunities for patient and strategic investors. It’s essential to remain vigilant, informed, and prepared to seize these opportunities while managing risk effectively.
Here are some key considerations and potential investment strategies:
1. Identifying Resilient Tech Stocks
Despite the broader selloff, some tech companies with robust fundamentals and strategic positioning remain attractive. For instance, analysts have highlighted names like Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Broadcom (NASDAQ:AVGO) as potential buy-the-dip candidates.
These companies are considered well-positioned to capitalize on long-term growth trends, making them compelling options during market downturns.
2. Diversifying with Value Stocks
Amidst the volatility, shifting focus towards ‘boring’ value-oriented sectors can provide stability. Investments in consumer staples, utilities, and healthcare sectors often serve as defensive plays during market corrections.
Companies like Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), Merck (NSE:PROR), Coca-Cola (NYSE:KO), and Altria (NYSE:MO) have historically demonstrated resilience in turbulent markets, offering investors a buffer against heightened volatility.
3. Leveraging Exchange-Traded Funds (ETFs)
ETFs that track value indices or specific sectors can offer diversified exposure with reduced risk.
For example, the Vanguard Value ETF (NYSE:VTV) provides access to a broad range of value stocks, while the Utilities Select Sector SPDR® Fund (NYSE:XLU) focuses on the utilities sector, both of which are traditionally considered defensive during market downturns.
Conclusion
The upcoming February CPI report stands as a pivotal indicator for investors, offering insights into inflation trends that could influence monetary policy and market movements.
Amidst the current market correction and tech sector selloff, adopting a balanced investment approach that includes resilient tech companies, value stocks, and diversified ETFs may help mitigate risks and capitalize on emerging opportunities.
As always, aligning investment strategies with individual financial goals and risk tolerance remains paramount. Whether you’re a novice investor or a seasoned trader, leveraging InvestingPro can unlock a world of investment opportunities while minimizing risks amid the challenging market backdrop.
Subscribe now and instantly unlock access to several market-beating features, including:
- ProPicks AI: AI-selected stock winners with proven track record.
- InvestingPro Fair Value: Instantly find out if a stock is underpriced or overvalued.
- Advanced Stock Screener: Search for the best stocks based on hundreds of selected filters, and criteria.
- Top Ideas: See what stocks billionaire investors such as Warren Buffett, Michael Burry, and George Soros are buying.
Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Invesco Top QQQ ETF (QBIG), Invesco S&P 500 Equal Weight ETF (RSP), and VanEck Vectors Semiconductor ETF (SMH).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.