Welcome to a big week, Evolvers!
Over the next three days, crucial economic reports will be released that could change the landscape of the entire stock market.
Spoiler alert: It’s all about the Federal Reserve and interest rates!
Traders have been waiting for this all month as these numbers could cause the market to swing wildly.
But for all of the self-proclaimed economic geniuses on social media, I still see a lot of confusion about what information is coming out (and when).
Why should you care about this data?
Because if you aren’t aware of (and ready for) the events taking place, you could get caught flat-footed and miss a five-star setup (or take an avoidable loss).
When the market enters a week like this one — where critical data could materially affect the price action of the major indexes — it’s important to have a game plan for every possible scenario.
So, how can you prepare for any possible outcome this week?
Keep reading and I’ll show you…
Wednesday: The Consumer Price Index Report
Tomorrow, before the market opens, the consumer price index (CPI) report will be released.
This is the big one as it tracks the cost of the goods that consumers purchase regularly.
The price of food, shelter, and gas is at the forefront of everyone’s mind this year (and for a good reason)…
In 2022, we saw inflation reach heights it hadn’t seen in four decades, causing broad ripple effects across the entire U.S. economy.
But so far, 2023 has brought some (slight) relief to the inflation concerns…
The February CPI report showed a 0.4% month-over-month increase in goods and services, an improvement over the 0.5% reading from January.
Meanwhile, the all-items index increased 6.0% for the 12 months ending February — the smallest 12-month increase since the period ending September 2021.
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Bulls will be looking for a continuation of this trend tomorrow. If the CPI report shows inflation is still heading in the right direction, that could be a major catalyst to send stocks higher.
On the other hand, if inflation rears its ugly head again and reads higher than expected tomorrow … look out below!
Thursday: The Producer Price Index Report and FOMC Minutes
Following tomorrow’s CPI report, Thursday will bring the producer price index (PPI) report which details manufacturers’ and companies’ wholesale costs over the last month.
February’s PPI report showed a decrease of 0.1% month-over-month, which was well below analyst expectations of a 0.3% increase.
This reinforced what was implied in the CPI report … that inflation has been cooling down across both producer and consumer prices.
But these two reports are simply preambles to the BIG event this week … the Federal Open Market Committee (FOMC) minutes.
FOMC minutes, which are released three weeks after each meeting, give a summary of the talks during the meeting and the decisions that were made.
Traders pay attention because the FOMC minutes can provide a unique window into the thoughts and feelings of Fed officials.
Last month, Chairman Jerome Powell announced a 0.25% interest rate hike, in line with analyst expectations.
To put things in perspective, this was the Fed’s ninth consecutive interest rate hike since March 2022!
Will the Fed minutes imply the central bank plans to keep pace with 0.25% hikes? Or could a cooler CPI and PPI lead to the first time the Fed doesn’t raise interest rates in the past two years?
How to Prepare for the Week Ahead
The price action following recent FOMC meetings has been wild and unpredictable.
The market has both rallied and tanked due to prior interest rate hikes, which makes it difficult to predict what will happen after this week’s decision.
Remember that the market hates uncertainty more than anything.
This is why I’m being cautious this week … I have no idea what the Fed is gonna do or how the market will react.
But you’re probably wondering how you can prepare for this slew of information coming…
First, don’t feel like you have to trade around these reports just because other traders are.
Should you always be aware of what’s going on in the markets? Absolutely.
But do you need to make an actionable play around every major market event? Of course not.
WARNING: Overtrading volatile setups is a recipe for disaster!
If you don’t have an extremely strong conviction in the play you’re making, you probably shouldn’t be making it at all.
And the truth is, it’s difficult to predict what the Fed will do … and impossible to know with certainty.
That’s why I suggest waiting until after the FOMC meeting before making any Fed-related moves.
In the wake of such uncertainty, don’t try to be a hero and make a 50/50 prediction about how traders will respond to the Fed decision.
Instead, wait for a clear market reaction and then reassess your game plan once all the information is in front of you.
If you do choose to trade the price action around the Fed Meeting, be swift in taking profits and even faster when cutting losses.
This week’s price action will be particularly unpredictable, so quick decision-making is more important than normal.