New inflation data is set for release Wednesday. How to trade it
Traders see the February consumer inflation report as a major inflection point for their Federal Reserve outlooks and the direction of the market in a year marked by the Iran conflict and artificial intelligence disruption fears. Economists polled by Dow Jones expect the consumer price index rose 0.3% month over month and 2.4% year on year. Excluding volatile food and energy, they see CPI expanded by 0.2% month over month and 2.5% year on year. Ohsung Kwon of Wells Fargo wrote on Tuesday that the February jobs report — where payrolls fell by 92,000 instead of the expected increase of 50,000 — only raises the stakes for CPI. “The weak NFP print last week puts more pressure on incremental macro data. In our view, even with potential de-escalation of war against Iran, the S & P 500 will be capped at 7,000 until either 1) the Fed turns more dovish, or 2) growth reaccelerates,” he said in a note. Trading a cooler CPI number Malcolm Ethridge of the Capital Area Planning expects CPI to come in below estimates, but expects that to have a negative impact on market sentiment. “We keep seeing where good news is bad news, the market keeps finding ways to turn good news into bad news,” said Ethridge. He added that he is buying software stocks into the print and would see another move to the downside as a buyable dip. The iShares Expanded Tech-Software Sector ETF (IGV) is more than 26% off its September record high on AI disruption concerns. IGV 1Y mountain IGV 1-yr chart “The question I keep getting from clients, ‘is it too late to buy software?’ The answer is obviously not because a lot of the stocks we are talking about sold off 40% to 50%, said Ethridge. “If we get another dip in anticipation of CPI or because of CPI, I would be putting capital to work.” Doug Boneparth of Bone Fide Wealth is advising clients to be cautious on market moves in U.S. equities even if we see a cooler-than-expected CPI but sees opportunities in international markets. “I’m hedging by maintaining a pretty strong allocation to international stocks. They have been correcting harder on Iranian news than U.S. equities so that might be a better place to scoop up discounts if they avail themselves,” said Boneparth. “But you just have to be very cautious of your own behavior because of these headlines.” Playing a hot CPI report Tiffany McGhee of Pivotal Advisors sees continued upside in “real economy” assets if we see a hotter CPI print than expected. “If inflation proves to be a sticky, I like assets that are going to be tied to physical infrastructure, energy systems, commodities,” said McGhee. “Markets are focused on the CPI as a Fed signal, but I think from an institutional investors perspective, investors are looking at where inflation might show up in the economy and that’s often in real assets. McGhee said the Van Eck Real Assets ETF (RAAX) is a great way to play the theme in the public markets. George Acheampong of Capitalwize sees similarities in the current market to roughly the same period in 2022 — when Russia invaded Ukraine, inflation moved higher and the Fed turned hawkish. “It’s very similar to what I’m seeing in 2026, commodities, oil and also precious metals trending upwards, said Acheampong, “I am bullish on the energy sector, commodities, oil, the dollar. I am bearish on big tech and bitcoin.” Watch the cyclical trade Jimmy Lee of Wealth Consulting Group said cyclicals are the best play regardless of how the CPI report comes out. “Inflation is not the worry for 2026, it’s the economy slowing down, the latest jobs report and some of the revisions could possibly be evidence,” said Lee. “Materials is a sector that you can play and we think will continue to do well going into the CPI report,” said Lee. “Also industrials and I think financials are going to bounce back once we get past some of the current headlines. I also think we are going to continue to see the broadening of the markets. We also believe being an active investor is very important this year versus trying to just buy the market.”
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