US Stock Market Prepares for Possible Stagflation

A week of low numbers for the stock market continues on Wednesday as the market opens, with JPMorgan Chase CEO Jamie Dion warning of possible stagflation.

This is an economic situation where inflation remains high (as it is now), unemployment is high as well (as it also is), and economic growth remains slow (which it is as well). This troublesome situation may be where the US is headed, as unemployment numbers have come in recently as well as a new inflation reading. The current US unemployment rate is 4.20%, which is up from 3.80% at this time last year.

Inflation remains elevated at 2.5% for August, which is slightly down from the previous month’s 2.6%. As inflation drops, the Federal Reserve is eyeing interest rate cuts, which it plans to enact later this month.

US economic growth is up a bit, by 3.0% for the second quarter of 2024, compared to growth of 1.4% from the previous quarter. These numbers are based primarily on Gross Domestic Product, or GDP.

The State of the Stock Market

As Wednesday’s trading session opened, the stock market was posting low numbers. The Dow Jones Industrial Average was down 1.68%, continuing its downward streak this week. It was accompanied by the S&P 500, which fell 1.57% as well. For the top three indices, the Nasdaq Composite rounded out the losses with a drop of 1.33%.

There are two important inflation reports coming this week, specifically the US CPI report and the PPI data. The CPI comes first, and while it will not impact whether there is an interest rate cut, it could factor into how deep the cut will be. That is true for the PPI report as well, which is a very important indicator of inflation for the Federal Reserve and the stock market.

Unless these numbers are very positive, we expect the stock market to fall further, as it has already had a trying September and consumer sentiment is low right now on the state of the economy.