Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

From JPMorgan to Citigroup, the trading departments of the most well-known commercial banks on Wall Street are urging investors to prepare for the volatile week in the US stock market. After the relatively calm trading days in the stock market, the huge market volatility is about to appear this week. The latest US CPI inflation data and the latest Fed interest rate decision will be announced on Wednesday US Eastern Time. JP Morgan's trading department listed the potential volatility of the US stock market after the inflation data was released; Citigroup's trading department expects the implied volatility brought by CPI and the Fed's interest rate decision to increase drastically.

Andrew Tyler, the US market intelligence director from JPMorgan's trading department, said that the US stock options market is betting that the S&P 500 index, the benchmark index, is expected to fluctuate in both directions by 1.3% to 1.4% before Friday. This expected fluctuation range is based on the price of the at-the-money straddle option that expires that day and reflects the unusually intense long/short game in the market. Most of the expected fluctuations are expected to occur after the CPI data report, which will be released early on Wednesday morning EST (late Wednesday night Beijing time) and Federal Reserve's policy rate decision, which will be announced on Wednesday afternoon EST (early Thursday morning Beijing time).

Tyler and his trading team wrote in a report to clients on Monday that: 'As CPI and Federal Reserve's interest rate decision will be announced on the same day, the latest interest rate dot chart of the Federal Reserve, and Powell's remarks at the press conference may reverse the market fluctuations shown by CPI.'

The 'at-the-money straddle option' mentioned above is an option trading strategy, which refers to the trader simultaneously buying a call option and a put option, and both of them have the same strike price, which is often close to the current market spot price of the underlying asset. According to the statistical data of JPMorgan's trading department, the latest at-the-money straddle option price basically reflects the high uncertainty and expected volatility of the upcoming economic data and interest rates, and the long/short game is unusually intense.

This strategy is usually used when traders expect significant market volatility but cannot determine the direction of the volatility. This setting makes it possible for at least one option contract to generate higher returns when the spot price changes significantly. If the underlying price rises sharply, the purchased call option will generate income, while if the underlying price falls sharply, the purchased put option will generate income. Although this strategy can be profitable when market prices fluctuate significantly, investors will lose the option fees they paid if prices remain relatively stable.

JPMorgan overlooks the trend of the US stock market on 'CPI release day' - the most optimistic situation may rise by as much as 2.50%.

Economists compiled by institutions expect the overall CPI, including food and energy prices, to increase by 3.4% year-on-year, which is basically the same as April; the overall CPI is expected to rise by 0.1% on a month-on-month basis, which is lower than April's 0.3%. Based on the core CPI, which excludes food and energy prices with large volatility, economists generally expect the core CPI to increase by 3.5% year-on-year, lower than the 3.6% increase in April, and the month-on-month increase in the core CPI is expected to reach 0.3%, basically the same as last month.

This data will be released a few hours before Federal Reserve announces the latest interest rate policy decision. The market widely expects that the Fed will keep the benchmark interest rate unchanged at the highest level in 20 years. The main focus of the market is on the latest economic forecast summary (SEP) of the Fed, especially the interest rate 'dot chart' given by Fed officials and Powell's comments. The former depicts the consensus expectation of Fed policy makers on future interest rate trends.

Considering all possible scenarios, JPMorgan's trading team predicts that the US stock market may experience violent two-way fluctuations on the 'CPI release day + Federal Reserve interest rate decision day', and the global stock market will have the same trading situation as the US stock market that day.

In the view of JPMorgan's trading team, the most likely situation on the 'CPI release day' is that the month-on-month growth rate of the core CPI is between 0.3% and 0.35%, with a probability as high as 40%. At that time, the fluctuation range of the S&P 500 index may be a decline of 0.75% to a rise of 0.75%; the second-highest probability situation is between 0.25% and 0.3%, with a probability as high as 25%. At that time, the fluctuation range of the S&P 500 index may be a rise of 0.75% to a rise of 1.25%.

According to JPMorgan's trading team, the most optimistic range for the S&P 500 index is expected to be 1.75% to 2.50%, but this is the lowest probability scenario, only 2.5%, and the required Core CPI month-on-month increase is only 0.2%. The most pessimistic range for the S&P 500 index is expected to fall 1.5% to 2.5%, the second-lowest probability scenario at only 5%, and a Core CPI month-on-month increase of over 4% is required.

On CPI release day, JPMorgan set up contingency plans, providing a situational analysis for the US stock market.

The Core CPI month-on-month range is expected to be between 0.20% and 0.25%, which is expected to trigger a rapid increase in rate cut expectations for September.

Taylor emphasized that if the U.S. May Core CPI month-on-month increase exceeds 0.4%, it may trigger short-term selling of all risk assets such as stocks, and the S&P 500 index is expected to fall 1.5% to 2.5%. However, he believes that this situation has only a 5% chance of happening.

The Core CPI removes the more volatile food and energy components and is considered a better potential inflation measure than the overall CPI index. Economists generally predict that Core CPI will rise 0.3% month-on-month in May.

Taylor wrote that if the Core CPI month-on-month is between 0.3% and 0.35%, which is the most likely scenario predicted by JPMorgan trading department, the final S&P 500 index will fluctuate between a 0.75% to 0.75% decline. Taylor said this will depend on the "deflationary" progress of U.S. housing prices and the upward trend in auto and medical prices.

Taylor also emphasized that if the Core CPI month-on-month is only between 0.20% and 0.25%, the market expectation for a rate cut by the Fed in September may skyrocket and the U.S. stock market will start a new round of rally. He explained that after the European Central Bank cut interest rates for the first time in five years last week, some traders even bet that a rate cut by the Fed in July would be a "surprise insurance" for the market.

It is worth noting that after the release of the US non-farm payrolls surged last Friday and the salary growth rate exceeded expectations, traders significantly postponed the potential timetable for the Fed's rate cut when relevant data was released last week. After the release of non-farm payrolls far exceeded expectations last Friday, the Fed's rate cut expectations cooled significantly, and the interest rate futures market only bet on the Fed's rate cut expectations in December. The expectation of a rate cut in September before the release of non-farm payrolls has completely retreated.

A report released by Bank of America last week pointed out that the "appropriate range" of non-farm job additions for bullish US stocks is between 125,000 and 175,000 in May (the actual data released last Friday is 272,000). If this goal is achieved, the US stock market may usher in a rebound, and any number lower or higher may trigger a sell-off.

Taylor from JPMorgan added that any month-on-month inflation data below 0.2% would be regarded as a major bullish factor for the US stock market, which will trigger a 1.75% to 2.50% rebound in the S&P 500 index.

Meanwhile, Stuart Kaiser, head of US equities trading strategy at Citigroup, said investors should be prepared for the volatility of the stock market on the day of the Fed's interest rate decision, and this trading strategy director predicts that it may be since March 2023. The biggest US stock market volatility.

As the possibility of major stock market fluctuations around the CPI report and the Fed's interest rate decision arises, volatility indicators in the market have always been suppressed. The Chicago Board Options Exchange (CBOE) Volatility Index (also known as the VIX Index) is currently close to a 52-week low, at 13 points, far below the 20-point level that began to worry option traders.