Goldman Warns: Inflation Report Could Shake U.S. Stocks This Week

Goldman Sachs says a hot inflation reading could push stocks lower by raising the risk of Fed rate hikes, despite strong company earnings.

Investors are watching one number this week — and it could move the entire stock market. Goldman Sachs, one of the world's biggest investment banks, warned that an upcoming U.S. inflation report could hurt stock prices.

Here's the concern. If inflation (the rate at which prices for everyday goods rise) comes in higher than expected, it makes it more likely the Federal Reserve (the U.S. central bank that controls interest rates) will raise interest rates (the cost of borrowing money). Higher rates make it more expensive for companies to borrow and grow, which usually drags stock prices down.

The key report is the CPI (Consumer Price Index — a measure of how much prices have changed for typical household items). Goldman's own forecast is actually mild:

Core inflation (prices excluding volatile food and energy) expected to rise just 0.17% for June
Headline inflation expected to fall 0.11%, helped by cheaper energy

But here's the catch: financial markets are betting the Fed will raise rates by nearly 0.50 percentage points by mid-2027, even though Goldman thinks rates will stay flat this year. That gap creates uncertainty.

Why does this matter for stocks? Goldman points out some history:

The S&P 500 (an index tracking 500 large U.S. companies) has fallen about 2% on average in the first three months after the Fed starts raising rates
But over a full 12 months, it has usually gained about 9% — except in the tough year of 2022

There's also a possible upside. If inflation data looks calm, stocks could enjoy a relief rally (a quick jump when investors feel reassured). Options markets suggest the S&P 500 could swing about 0.8% right after the report.

The bottom line: Company profits still look solid, but this week's inflation number is the wildcard. A surprise could tip stocks either way — especially for tech firms and companies carrying lots of debt.

This is an AI-generated summary. Read the original article at: https://www.investing.com/news/stock-market-news/goldman-sachs-flags-fed-rate-outlook-as-key-risk-for-us-stocks-ahead-of-cpi-4787366