Equities pulled back on Wednesday following hotter than expected CPI data. The S&P 500 and Dow Jones Industrial Average shed less than 1.0% each at the low of the day and were led by a much bigger decline in the NASDAQ Composite. The CPI or Consumer Price Index jumped 0.9% over the last month, 0.3% hotter than expected, driving the year-over-year increase to 6.2% and the faster YOY pace in over three decades.

At this pace, and without definitive FOMC action, consumers can expect to pay significantly more for products of all variety over the next 12 months. With the earnings season largely wrapped up and the CPI data out, the next big hurdle for the market will be next week?s retail sales data.

Equities slipped on Tuesday leaving the S&P 500 down about a half percent at the low of the day. The question now is whether this move foreshadows a deeper correction or if it is the start of consolidation. If the market is able to hold these new highs for a few days the odds the market will continue moving higher will increase.

Tuesday?s decline, however, was sparked by hot inflation data and there is an additional risk this week. The PPI data came in as expected but accelerated from the previous month and points to higher consumer prices down the road. The CPI is due out today and could confirm the market?s worst fears; consumer-level inflation is running unchecked. If this situation continues to run unchecked revenue and earnings growth among S&P 500 companies will come to a grinding halt.

Equities were mostly steady on Monday to start the week. The S&P 500 advanced less than 0.25% to set a new all-time high in the process. Traders are focused on earnings and the economy with the October reads of CPI and PPI due out this week. Both the CPI and PPI are expected to accelerate on a month-to-month basis, the question is by how much.

With the FOMC already set to begin tapering, a hotter than expected number will move up the timeline for interest rate hikes as well. The CME Fed watch tool is expecting at least one interest rate hike by June 2022, if inflation continues to rise unabated that could easily become May or even April. The takeaway for investors is that, as bad as rising rates are, it will be quite some time before interest rates put a cap on economic growth.

The S&P 500 rocketed to a new all-time high last week fueled by good news. With earnings better than expected, economic data strong, and the Fed?s taper weaker than expected upward momentum should continue through the end of the year. The bad news is that euphoria is setting into the market and that spells danger for investors. At some point, the market will come crashing back to reality.

This week the market will be focused on the inflation data. Not only is the CPI and PPI data due out but also the 5-year inflation forecast. If inflation is running hotter than expected it will put more pressure on the FOMC and that could result in a quicker taper. Also on tap this week are reports from hundreds of small and mid-cap stocks so it will be a busy one.

The S&P 500 moved up to set another new all-time high on Thursday with notable strength in the tech sector. The NASDAQ Composite led the day?s action with a gain of more than 0.5% and also set a new all-time high. The moves come in the wake of the FOMC?s taper announcement, an announcement that was both long-expected and less than what the market was expecting.

The FOMC says it will taper bond purchased into the second half of next year when it may begin hiking interest rates. The risk of the market and the FOMC is inflation. If the pace of inflation continues to rise as it has been, the first interest rate hikes could come sooner than expected and be larger than forecast. The CME?s Fedwatch Tool is projecting the first rate hike will come in June of 2022 and be at least 25 basis points.

Equities were cautious on Wednesday ahead of the FOMC announcement and press conference but quickly found solid footing in the wake of the release. The FOMC decided to begin the taper with an incremental $15 billion reduction per month until the middle of next year. Fed Chief Jerome Powell says the trajectory of the taper is not set in stone and could be adjusted at any time.

Investors should take that to mean tapering may accelerate over the next few months along with the inflation data. Inflation is still rising unchecked and there is little sign within the economy those pressures are subsiding. Even when they do, there is no guarantee retailers and merchants will lower their prices to match. The next big hurdle of the week is the NFP report on Friday. If the NFP is in-line with the ADP report jobs should come in the range of 550,000 to 600,000.

Equities continue to melt upward on better than expected earnings. Tuesday?s list of reports included strong results from Clorox and Rockwell Automation which also included a favorable outlook for earnings. The takeaway for investors and non-investors alike is that much of the earnings growth expected by the S&P 500 is due to inflation. The average S&P 500 company has engaged in multiple price hikes since the start of the year and more are on the way.

The FOMC is meeting today and will release the latest policy statement this afternoon. There is a high expectation the Fed will announce the start of taper and may also indicate a faster pace of tapering than what the market is expecting. With inflation apparently running rampant it is a wonder the FOMC has not already begun to taper.

Equities started the week on positive footing with the S&P 500 index moving up slightly to set a new all-time high. Monday?s action marks the 12th positive close in three weeks for the index and could easily lead to another string of new highs. The move is driven by corporate earnings that have come in better than expected despite strong headwinds within the economy. This week, traders will on alert for reports from another 167 S&P 500 companies marking the busiest week of the reporting season. By the end of this week, nearly 90% of the index will have reported results for the season.

Also on tap this week, a key meeting of the FOMC and the monthly NFP report. The FOMC is expected to begin tapering or explain why they are waiting while the NFP is expected to be a tepid 450,000. After last months? decline in total unemployment claims, the NFP figure should run well into the millions.

The S&P 500 is coming off of a record-setting week and will look to set new all-time highs this week. This week is another busy week of earnings and includes reports from a bulk of the S&P 500 as well as several Dow components. So far, the earnings season has been better than expected despite the threat of rising inflation and supply chain disruptions and proves to be another record-setting quarter.

There is more than earnings for traders to be wary of this week. The FOMC is meeting on Wednesday and is likely to begin tapering very soon if not now. The PCE price index only confirmed that consumer-level inflation is still rising and points to the need for aggressive Fed policy. Later in the week, the market will be on watch for the October NFP figures. Based on the numbers of people exiting unemployment the level of job creation should be very robust indeed.

Equity markets bounced back on Thursday following Wednesday?s slide. The onslaught of earnings reports continues to be better than expected and is lifting investor sentiment. While inflation is a big part of the story, margins are holding up and earnings remain strong. So long as this scenario remains intact the S&P 500 should continue to move higher but there is a risk. The PCE index is going to be released today and could put an end to investor euphoria.

Rising prices and inflation are already cutting into the volume of business done by retail companies, if the PCE indicates hotter than expected inflation the outlook for future sales and earnings will sour.
Next week, the deluge of earnings reports will continue with the addition of some key economic releases as well. The Nonfarm payrolls report is due out on Friday and there are a host of other important releases due out during the week.