The "inflation ghost" returns to the spotlight as the S&P 500 index's record-breaking rally falters.

Due to increasing concerns in the market over the uncertainty surrounding the Trump administration's tariffs and the revenue prospects for artificial intelligence, the benchmark index of the US stock market - the S&P 500 index, which has soared by as much as 70% since October 2022, is now in jeopardy of a record-breaking rise. Following the plunge on January 27 caused by the "DeepSeek shockwave", the index has been fluctuating around the 6000 point mark. The "inflation ghost" that caused great panic in the financial markets in 2022 has re-entered the investors' field of vision, and if the latest inflation data "explodes", the US stock market may face a severe sell-off. According to the latest forecast from the market intelligence trading department of JPMorgan Chase, if the overall Consumer Price Index (CPI) in the US rises by 0.4% or more in January, the S&P 500 index could fall by 2%. If the US CPI increases by 0.2% or less, the S&P 500 index could potentially rise by 1%. "We expect bond market volatility to rise, ultimately leading to a sharp drop in US stock valuations as the market may shift its focus to the belief that the Federal Reserve's federal funds rate no longer poses a restriction and the Fed's next move is more likely to be a rate hike rather than a rate cut," wrote JPMorgan Chase's market trading team led by Andrew Taylor in a report. "The rise in bond yields will push up the US dollar, further pressuring the stock market." The CPI data released at 8:30 am New York time (21:30 Beijing time) is crucial for global stock markets. Taylor's team stated, "The market's overreaction to last Friday's release of US consumer confidence and inflation expectations data from the University of Michigan will inevitably lead to excessive attention on the latest CPI data." The expected trend of the S&P 500 on the day of the inflation data release - an unexpectedly high monthly inflation data will hit the S&P 500 index Wall Street strategists generally have a tactical bullish view on the US stock market, expecting US economic growth to be above trend levels, coupled with earnings reports showing continued improvement in corporate profits and betting that the Fed will soon maintain a neutral to dovish stance. However, they also acknowledge that slightly higher-than-expected inflation data could undermine this optimistic outlook, although the most likely outcome is that monthly inflation data falls within the range of 0.27% to 0.33%. Economists generally expect a 0.3% increase in the US CPI on a monthly basis in January, while options market implied volatility for the S&P 500 index is slightly below 1%. Last month, the release of CPI data led to a significant increase in the stock market, and any deviation from the widely predicted slight positive deviation could once again trigger a significant upside movement. After more than two years of strong gains in the S&P 500 index, investors are now facing the possibility that Trump's tariffs could boost US inflation, and with benchmark interest rates remaining high, as well as the low-cost AI computing paradigm led by DeepSeek, the high valuation of large-cap tech stocks that dominate the S&P 500 index is being strongly questioned by investors at least in the short term. This is why major banks like Barclays are advising investors to shift their focus to stock markets outside the US, particularly by shorting US stocks and buying European stocks. Barclays Bank's strategy team's view on the major flaw in the logic of the US stock market bull market is largely in line with the view of the wealth management division of Morgan Stanley, one of Wall Street's top investment firms, that the Fed's pause in rate cuts, and the continued pressure on the valuation of large-cap tech stocks by the "low-cost AI shockwave" brought by DeepSeek, are changing the "bull market narrative logic" of the US stock market. Fed Chairman Jerome Powell emphasized on Tuesday in the Senate that the Fed does not need to rush to adjust interest rates, and indicated that inflation has eased somewhat but remains above the Fed's target level. If policy is too fast or too loose, it could affect the process of inflation decline. His latest comments have undoubtedly greatly raised bond yields. Following Powell's hawkish remarks on Tuesday, the swap market currently expects the Fed to only cut rates once this year, rather than the two rate cuts shown in the FOMC dot plot. Since the summer, the US stock market has responded inconsistently to macroeconomic data - data shows the S&P 500 index's single-day price changes on data release days Dominic Wilson, a prominent strategist from Goldman Sachs, stated that his strategy team's inflation data forecast is slightly above market consensus, and could potentially cause significant volatility in the US stock market and the US bond market, ultimately leading to a major adjustment in US stocks. The above chart shows that after the release of last month's CPI data, the S&P 500 index saw a positive wave of up to 2%, and after the December Fed interest rate decision, the index saw a negative wave of up to 3%. "If the data is close to market consensus expectations, bearish sentiment in the market may slightly ease," wrote Wilson's team of senior strategists at Goldman Sachs in a report. "We believe that the potential inflation pressure after excluding the tariff factor may be more moderate than market expectations, but tariffs may offset this impact in the short term. We have also recently raised our inflation expectations, but financial markets have already partially absorbed these risks." Nick Timiraos, a renowned journalist known as the "New Fed Communication Agency", issued a rare warning in his column on February 11 titled "Why is the January inflation report this week particularly important?" regarding the inflation report set to be released tonight. Timiraos stated that US companies typically factor in the increased costs of food, energy, and labor at the beginning of the year, which affects the prices of some core goods - for example, restaurants may raise menu prices, gyms may increase membership fees, private investment advisors may raise asset management performance bonuses, and private car service companies may raise ride rates. After Powell's latest comments in the Senate, Timiraos of the "New Fed Communications Agency" commented that Powell has outlined the Fed's path for 2025: if inflation does not fall, rates will be maintained; if the economic slowdown is more pronounced, rates will be cut.