The broad S&P 500 fell again on Wednesday shedding more than 1% at the low of the day. On the one hand, the earnings season is a little better than expected in its first full week of the reporting season but on the other, the reports so far haven?t been much more than the market wanted and the outlook isn?t as good as it could be. Inflation and supply chain hurdles are still omnipresent and are having a deep impact on the economy.

Thursday?s trading will be focused on the economic data. After a weak Empire State Manufacturing Survey the Philadelphia MBOS will be more important than ever. The Empire State Survey showed a contraction of activity that could lead to a recession for the sector. In that scenario, we see the S&P 500 contraction getting deeper.

Equity traders came back from the Martin Luther King, Jr. Holiday in selling mode, and for good reason. The yield on the 10-year treasury spiked nearly 500 basis points to its highest level since December of 2019. The worst part, for the equities market at least, is that the price action confirms an uptrend that began in the wake of the pandemic and points to much higher rates ahead. With the FOMC tapering and on track to not only hike rates but to run-off its balance sheet as well we see the rates on the 10-year Treasury moving up above the 2.0% level soon and reaching as high as 2.5% by the end of the year.

A much-weaker than expected read of the Empire State Manufacturing index can be blamed for Tuesday?s weakness as well. The index fell to -0.7 versus the 25.5 expected by the market and points not only to slowing but contraction with the economy.

Equity markets are ready for a busy earnings season and whatever it may bring. The start of the season came without much excitement due to the rising threat of inflation on bank earnings. While banks are well-positioned to benefit from the rising interest environment that is developing, they are also susceptible to the same inflationary pressures that are impacting the rest of the economy. This week will be another lackluster week for earnings, the peak of peak season begins the week after.

The biggest threat to the market right now is COVID. The rising number of positive cases threatens to keep America home sick, if nothing else and that is a threat to the economy, corporate earnings, the stock market. With the global supply chain already strained another hiccup could have long-lasting and far-reaching repercussions.

Earnings season started with a bang only it wasn?t a rally that was started. The first reports out of the financial sector were largely better than expected but reveal the rising threat of inflation. The outlook for earnings is tepid despite the onset of rising interest rates and may sap investor sentiment for the near term. The S&P 500 gave up about 1.0% at the low of the day to close at the lowest levels in three weeks. Based on the technical setup, it looks like the index could keep falling in the near term at least.

This week is the start of peak earnings season but even so, there aren?t too many reports on tap. The majority of the action will be in the financial sector although there are some other S&P 500 sectors with companies reporting. The most important report of the week may come on Thursday evening when Netflix reports. Netflix is important to both the NASDAQ Composite and S&P 500 so could easily move the market.

The tug of war between bulls and bears continued on Thursday with the bears winning out. The rising tide of fear that is driven by inflation and the FOMC?s rapidly accelerating timeline for interest rate hikes has the market on edge. While rising interest rates are a sign of economic expansion and it is very, very early in the rate hiking cycle, there are those who think the FOMC is behind the curve and will raise rates and a much faster pace than seen before.

The latest look at the CME FedWatch Tool shows the market is pricing in at least a 50% chance for 4 interest rate hikes by the end of the year. Based on this week?s CPI and PPI data, we think the first hike will be at least 50 basis points or worth half of the 4 hike outlook. As for the S&P 500, it looks like the market could head lower but earnings season begins today and that could change the entire mood on Wall Street.

Equities moved higher on Wednesday despite a hot reading of the CPI. The CPI came in at 0.5% for the month or up a tenth hotter than expected with similar strength at the core and YOY levels. The takeaway is that inflation continues to rise and is leaving the FOMC no choice but to raise rates. Based on Jerome Powell?s testimony to Congress it looks like the Fed will be raising rates at a much quicker pace than ever indicated. According to the CME?s FedWath Tool, a rate hike is all but assured at the March FOMC meeting.

Today?s action will be driven by the PPI. The Producer Price Index is expected to subside from the previous month but could easily come in hotter than expected. Even so, with CPI already at record levels, a cool read on the PPI will do little to alter the outlook. The question is how will the market react?

Equities went on a bit of a wild ride on Tuesday first falling and then moving higher later in the day. The NASDAQ Composite led the day with a gain greater than 10% as tech bounces back. The caveat is that interest rates are still going to rise so the threat posed to the tech sector remains. In other news, FOMC Cheif Jerome Powell indicated to congress his commitment to raising interest rates in order to combat inflation.

The CPI data comes out today and will be the driving force of the market. The market already expects to see consumer inflation accelerate on a YOY basis, the only question is by how much. If the data comes in much hotter than expected it will accelerate the market?s timeline for rate hikes if not the FOMC?s.

Equities fell hard on Monday with the S&P 500 down nearly 2.0% at the low of the day. The move was driven by the rising fear of inflation and the specter of higher interest rates for business. The good news is that markets bottomed by midday and regained most of their losses by the close of the session. Technically speaking, the S&P 500 formed a stong doji candle confirming support at the 4,600 level and the uptrend that began in October 2021.

This week?s focus is going to be on inflation once again. With the FOMC indicating a faster pace of taper and rate hikes than previously indicated, and JP Morgan Chase CEO Jami Dimon predicting more than 4 rate hikes this year, the CPI and PPI data will be more important than ever. The economists are expecting the pace of inflation to cool on a month-to-month basis but for consumer-level inflation to accelerate to a new high.

The equities market began to pull back last week and might be headed lower. The reason is rising interest rates and a Hawkish Fed that keeps upping the timeline for interest rate hikes. The FOMC minutes revealed the first hike could come by March and there are indications the pace of hikes could be aggressive. This week, investors will be on the lookout for the CPI, PPI, and Beige Book data that are all expected to reinforce the need for aggressive rate hiking.

The most important data this week may come out on Friday, however, in the form of the Retail Sales figures. The numbers are expected to be positive, the question is how strong will they be in relation to inflation. With inflation running at a high-single-digit rate the Retail Sales figure will need to come in near 10% for there to be any real growth of activity.

Equities steadied on Thursday following Wednesday?s FOMC-induced plunge. The action was bolstered by better than expected ISM data but may not be an end to the selling. The Fed?s new stance on inflation is hawkish and points to an aggressive round of rate hikes that has the yield on the ten-year treasury spiking. The yield jumped again on Thursday and threatens to break the bond market out to a new high. If the TNX moves up to set a new high above 1.750% it will open the door to a move up to 3.0% or higher.

Today?s action will be driven by the NFP however. The NFP is expected to be strong after the robust ADP report on Wednesday. A strong report coupled with lower unemployment and accelerating wage growth would seal the deal on interest rates and virtually guarantee a hike within the next 2 to 3 FOMC meetings.