Stock futures fall following CPI data release indicating peaking inflation

U.S. stock futures traded lower Sunday evening as investors took profits after major indexes posted their most significant weekly declines in five months. A higher-than-expected inflation reading triggered the decline in the S&P 500, Nasdaq Composite, and Dow Industrials prices.

The futures for the Dow Jones Industrial Average and the S&P 500 index fell more than 1%. The Dow Jones Industrial Average lost more than 300 points in late trading, while the Nasdaq-100 and S&P 500 futures also posted steeper declines.

The major averages posted their biggest weekly losses since January as investors sold off stocks. The Dow Jones dropped 4.6%, S&P 500 lost 5.1%, and Nasdaq took the heaviest hit by dropping 5.6%.

Bitcoin and other digital currencies also fell over the weekend, with the price of Bitcoin dropping to around $27,000, which is 60% off its all-time high. Meanwhile, oil prices also fell by 1.43%.

Rising CPI means peaking inflation

The Labor Department reported on Friday that the consumer price index rose 8.6% in December from a year earlier, exceeding economists' expectations. The core consumer price index, which strips out food and energy costs, also rose by 6%.

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On the other hand, the preliminary June reading of the consumer sentiment index released by the University of Michigan fell to a record low of 50.2.

This data came ahead of the Federal Reserve's highly anticipated meeting, scheduled to begin on Wednesday. The central bank is widely expected to raise rates for the third time this year. It has increased rates twice this year, with the first increase occurring in May.

Despite the May's consumer price index report showing a moderate increase, Ed Yardeni, the president of Yardeni Research, noted that inflation is still expected to peak soon.

Despite the lackluster consumer sentiment and investor sentiment data, Yardeni noted that the firm's outlook on the economy has changed. He now sees a 45% chance of a mild recession, up from his previous forecast of 40%.

"May's CPI report showed scant signs of inflation peaking, though we still expect peaking soon. The report also suggests a more hawkish Fed and higher recession risk," Yardeni said. "Investor and consumer sentiment both have soured. But this time, pervasive bearishness may not be as useful a contrarian bullish signal as in the past."

Market falls to inflation worries

Markets fell over the weekend after a new report showed that consumer prices in the U.S. rose more than expected in May. The consumer-price index increased by 1% last month, which exceeded the 0.7% monthly increase that economists had expected. Over the past year, the annual inflation rate has also risen by 8.6%.

Economists expect the Fed to raise interest rates by another 50 basis points at its meeting this week. However, following the release of the consumer price index report on Friday, some experts suggested that the central bank might increase its rate by 75 basis points.

Stephen Innes, the managing partner of the investment firm, noted that the consumer-price index report sent a negative message to the markets. Innes said that the market now thinks the Fed will raise rates aggressively to get ahead of inflation and then cut back as growth slows.

The increase in interest rates by the Fed is expected to leave investors and traders uncertain about the future direction of the central bank's monetary policy. Innes noted that the market volatility will continue to affect the returns investors can expect from bonds.