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CPI and Stocks Over the Short and Intermediate Terms

Steve LeCompte | | Posted in: Economic Indicators

Guide Market Indicators Economic indicators

Key Insight

Monthly U.S. total and core CPI changes show little association with S&P 500 returns (release-day and 5-day correlations near zero; quarterly correlation -0.12; Jan 1994–Mar 2023; 351 releases; in-sample, descriptive; not a trading test).

Do investors reliably react over short and intermediate terms to changes in the U.S. Consumer Price Index (CPI), a logical measure of the wealth discount rate? Using monthly total and core (excluding food and energy) CPI releases (for all items, not seasonally adjusted) from the Bureau of Labor Statistics (BLS) and contemporaneous S&P 500 Index opens and closes during mid-January 1994 (earliest available CPI release dates) through mid-March 2023 (351 releases), we find that:

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