Bank of America has issued a timely warning to investors: resist the urge to sell in May, particularly ahead of the upcoming Consumer Price Index (CPI) report.
This advice comes as the CPI data for April 2024, set to be released by the US Bureau of Labor Statistics on May 15, looms large over financial and crypto markets.
Bank of America Says HODL
According to the Cleveland Federal Reserve, the anticipated CPI report is expected to reflect ongoing inflationary pressures, with predictions suggesting a 0.4% increase in headline inflation and a 0.3% rise in core inflation. Kalshi, an event forecasting site, predicts inflation will range between 3.3% and 3.5%.
These figures, if accurate, would signify that inflation remains well above the Federal Reserve’s target of 2%.
The Federal Reserve has maintained a stringent stance on inflation, raising interest rates to curb rising prices. Despite these efforts, inflation has proven stubborn, particularly in the shelter category, significantly impacting the CPI index.
Inflation Forecast in April 2024. Source: Kalshi
The Federal Open Market Committee (FOMC) hopes that easing shelter costs will eventually help achieve their inflation target. However, thus far, there has been little evidence of such a trend.
As the market braces for the CPI report, Bank of America analysts recommend holding off on selling investments. Historical data indicates that the S&P 500 performs well in the summer months, especially in presidential election years.
“The S&P 500 (SPX) tends to have a summer rally, and presidential election years can see big summer rallies,” the bank stated.
From June to August, this period has historically been the second strongest three-month period, with an average return of 3.2%. In election years, the average return increases to 7.3%, with the S&P 500 rising 75% of the time. Meanwhile, Bitcoin’s average return during election years is 23.68%.
Bitcoin Monthly Returns. Source: CoinGlass
The upcoming elections, CPI reports, and subsequent Federal Reserve actions are closely watched in the crypto market.
Bitcoin, in particular, stands to be impacted by these economic indicators, with institutions starting to show their appetite for this new asset class. For instance, Susquehanna International reported owning $1.2 billion in Bitcoin across ten ETFs, while Hightower disclosed $68 million in Bitcoin holdings through six ETFs.
This institutional interest suggests confidence in Bitcoin’s potential as a hedge against inflation and economic uncertainty.
Read more: Bitcoin Price Prediction 2024 / 2025 / 2030
As the market awaits the CPI report, investors are advised to remain cautious and avoid hasty selling. The interplay between inflation data, Federal Reserve policies, and market trends will be crucial in shaping the markets in the coming months.
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