This one chart shows why January's stock rally hit a wall in February - CNBC

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The stock market has done a complete 180. After rising 6.2% in January, the broad-based S & P 500 index has fallen nearly 2% so far in February — following a big drop on Tuesday. What happened? Two words: inflationary data. More than earnings season, which has largely exceeded analysts' expectations, it has been the steady release of economic readings, specifically those that speak to inflation, that has most influenced the market moves in 2023 — both up and down. That's because investors are weighing every new piece of data against the Federal Reserve's battle against inflation, and trying to determine when all rate raising will end. This year-to-date chart tracks how each new report led to a corresponding move in the S & P 500. To be sure, economic data always impacts the market, but so far this year it is the prime mover of investor sentiment. On Jan. 5, the December ADP employment report showed an addition of 235,000 private sector jobs, well above expectations of 145,000. In line with this hotter-than-expected print (remember hotter than expected is a negative for a market concerned with inflation), the S & P 500 fell 1.16%, no doubt expecting the nonfarm payroll report released the following day to also prove hotter than expected. On Jan. 6, nonfarm payrolls came in at 223,000, higher than the 200,000 expected on the Street. However, the S & P 500 rallied 2.28% as investors shrugged off the headline number, focusing instead on the weaker-than-expected annual increase in hourly earnings, which pointed to a 4.6% increase versus expectations for a 5% increase versus the year-ago period. Holding on to that crucial positive update, the market continued to grind higher into the December consumer price (CPI) index reading released on Jan. 12. With a lot riding on that release, the market was pleased to see a monthly increase for the headline index come in below expectations (down 0.1% versus a flat consensus) with annual readings for the headline number and core index matching expectations. The market bounced around a bit before giving a chunk back on Jan. 18 following a December produce price index (PPI) reading and retail sales number that both came up short versus expectations. While weaker than expected is largely considered a positive in this market as far as inflation is concerned, the Fed is trying to thread a very fine needle: High inflation is the primary concern, a "hard landing" in which the economy tanks as a result of the Fed's actions is the secondary one. So, with investors on edge and shares up 4% in the first two weeks of the year, a pullback didn't come as too much of a surprise. The selloff was short-lived. On Jan. 26, a preliminary reading on the fourth-quarter gross domestic product (GDP) was better than expected, but the market liked the reading, figuring the December CPI was the more relevant read on inflation. The GDP print showed the resiliency of the economy, perhaps easing concerns that we were headed for a hard landing. The next day, a goldilocks reading with the monthly read on personal spending slightly below expectations, while the read on the PCE price index and more importantly the core PCE price index — the Fed's preferred measure of inflation — both matched expectations. The data in January pointed to inflation that was coming down either in line with expectations, if not a bit faster. Then things took a turn. On Feb. 1, a weaker-than-excepted January ADP report was good news that was followed up later that day with the Fed hiking rates by 25 basis points and Fed Chairman Jerome Powell used the term "disinflation" 15 times during the question-and-answer session. The market rode the "disinflation" high for another day, with the S & P 500 hit a year-to-date high on the Feb. 2. The selling kicked on Feb. 3 , with a nonfarm payroll report that nobody saw coming — the economy added an incredible 517,000 nonfarm payrolls in January, nearly three timers the 185,000 expectation. On top of that, annual wage inflation of 4.4% was more than the 4.3% expected on the Street. Investors appeared to hold off on making a judgment about inflation until more data rolled in, bouncing around for the next week and half. The market shrugged off a hotter-than-expected January CPI release on Feb. 14, perhaps thanks to a deceleration in "super core inflation" or core services excluding shelter, and even managed to look past a hot January retail sales report the next day. But a hot January PPI on Feb. 16 was the start of the slide, as higher input costs could portend higher consumer prices down the line. Bottom line We see a market that very much wants to leave the inflation narrative behind. However, investors must contend with the reality that while some inflation has definitely decelerated, we are only just now starting to see a slowdown in some of the more "sticky" areas of the economy . Powell has singled out core PCE services ex-shelter as a metric of focus for the Fed. Progress on this area, therefore, is the key in thinking about the path ahead for Fed rate hikes and also the market. That report is out Friday. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Traders work on the floor of the New York Stock Exchange (NYSE) as a screen shows Federal Reserve Board Chairman Jerome Powell during a news conference following a Fed rate announcement, in New York City, February 1, 2023.

Andrew Kelly | Reuters

The stock market has done a complete 180. After rising 6.2% in January, the broad-based S&P 500 index has fallen nearly 2% so far in February — following a big drop on Tuesday.

What happened? Two words: inflationary data.

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This one chart shows why January's stock rally hit a wall in February - CNBC
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This one chart shows why January's stock rally hit a wall in February - CNBC

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