Stock Market Reactions to Inflation Surprises and Their Short-Term Macroeconomic Implications (2021–2023)

Tony Josue Reyes

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Meng, Chen  

Abstract:

This study examines how U.S. stock markets respond to inflation surprises and whether these reactions provide insight into short-term macroeconomic conditions. Inflation surprises are defined as instances in which reported Consumer Price Index (CPI) values differ from market expectations. Using S&P 500 returns surrounding CPI release dates from recent years, this paper analyzes how stock market reactions reflect changes in economic expectations. The study then explores whether negative market responses to inflation surprises are followed by shifts in key macroeconomic indicators such as consumer confidence and unemployment. The findings suggest that stock market reactions to inflation data may serve as an early signal of short-term economic sentiment, highlighting the role of financial markets in processing macroeconomic information.