JPMorgan: high consumer price index will put stocks at risk of falling by 5%

According to JPMorgan Chase & Co., the stock market could be in for a very problematic situation if Thursday's consumer price index is expected to be higher than the previous value of 8,3%.

"It looks like another -5% day", the Andrew Tyler-led team wrote in a note Monday, noting that the S&P 500 was down 4,3% on Sept. 13 when August's inflation numbers were unexpectedly higher. Such a scenario represents a worst-case scenario, presented as a rough guide for clients seeking to navigate the heightened market volatility based on economic data.

Economists at JPMorgan forecast that the September consumer price index would fall to 8,1 percent, which is in line with the average forecast of the Bloomberg survey. As the data comes in between 8,1% and 8,3%, the bank's sales department would expect a potential "buyer's strike" when the S&P 500 falls 1,5% to 2%.

Not surprisingly, inflation data has a huge impact on the stock market. Comparing the S&P 500 results to 10 major economic indicators, such as monthly payrolls and quarterly gross domestic product, strategists at Barclays Plc found that over the past decade, stocks have never reacted as negatively to economic indicators as they do now. 

Upcoming data will likely determine the Fed's future path of tightening after the recent market turmoil. The S&P 500 posted its best two-day performance since April 2020 last week after weakening manufacturing sparked speculation about a less hawkish central bank, but fell sharply after a jobs report confirmed the possibility of further monetary policy tightening.