At 8:30 a.m. ET this morning, the Bureau of Labor Statistics releases the May Consumer Price Index. There has not been a more loaded macro release in months. The Federal Reserve has already cut its policy rate 75 basis points from last September’s peak, to an upper bound of 3.75%, and the bond market is pricing the next move on the basis of exactly the number that crosses the wires in about 75 minutes.
Equities went into this print bruised: the SPDR S&P 500 ETF (NYSEARCA:SPY) is down 2.96% over the past week, and the Nasdaq-100 proxy Invesco QQQ Trust (NASDAQ:QQQ) is off 5.14% over the same stretch. Investors are expecting the worst before today’s release. S&P 500 futures are down .95% while Nasdaq futures are off 1.44%, as of 7:25 a.m. ET.
Let’s look at what the market is expecting and what numbers could cause either a continuing drop in the market or it to rebound.
The Setup: Inflation Has Quietly Re-Accelerated
The narrative that “inflation is solved” took a real hit this spring. The Fed’s preferred gauge, the Personal Consumption Expenditures price index, has climbed from 2.86% year-over-year in February 2026 to 3.77% in April. Core PCE, stripping out food and energy, reached 3.29% in April, up from 2.75% in October 2025.
The CPI series has tracked the same arc. The headline index sat at 325.252 in January 2026 and climbed to 333.020 by April, four consecutive months of upward pressure. The pressure points are visible in the PCE component data: energy ran 18.26% above year-ago levels in April, goods inflation jumped to 4.39% year-over-year from 1.8% in February, and services held sticky at 3.49%. Wage growth is feeding services: average hourly earnings hit $37.53 in May, up from $36.28 a year earlier.
Expectations for this Morning
Here’s Wall Street consensus for this morning:
- CPI is expected to grow at a 4.2% annual rate. That would be a .5% gain since May.
- This would be the first time the CPI has crossed 4% since May 2023.
- Stripping out energy prices, Core CPI is expecting to rise 2.9%. This is a .3% rise from May’s reading. As we’ve noted, energy has been driving much of the rise in inflation after oil spiked following the conflict with Iran.
- Wall Street will be watching to see if inflation is broadening across categories.
Closely watch Core CPI. As I noted above, investors are most closely watching whether inflation will broaden beyond energy. If Core CPI comes in less than 2.9%, stocks could rally. If its above these levels, today could be another painful sell-off for investors with risky assets in sectors like technology seeing declines exceeding the broad market.
What Could Sink Stocks
Wall Street is braced for a hot report. The 10-year Treasury yield is already at 4.54%, sitting in the 97th percentile of its 12-month range, and the VIX has crept up to 21.47.
A headline CPI reading that extends April’s acceleration, or any core CPI reading that breaks meaningfully above the recent trend, would do three things at once. It would push the 10-year yield through the May 19 high of 4.67%. It would erase the market’s hope that the Fed cuts again before year-end, validating the JPMorgan view that just as many Fed officials worry about upside inflation risk as about upside unemployment risk. And it would land squarely on the most rate-sensitive parts of the market, namely long-duration tech inside QQQ.
What Could Send Stocks Soaring
A cool surprise, anything that shows the April PCE re-acceleration was a one-off energy spike rather than the start of a new regime, flips the picture. Goldman Sachs Research is already on record that the US inflation issue has been resolved, and there’s potential for the Fed to cut rates more than expected. A soft core reading would pull yields lower, revive odds of a July or September cut, and give battered consumer sentiment, currently at a recessionary 49.8 reading in April, room to breathe.
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