Equity markets are bracing for what could be disappointing economic news in the face of rising optimism that inflation has peaked. The data includes the 1st read of Q4 GDP on Thursday and the PCE price index on Friday. Both are expected to reveal underlying economic strength and could come hotter than expected. In this scenario, the fear of rising interest rates would peak again and likely bring the S&P 500 down. If not, the market may be able to extend the rally that began on the 1st of the year and end January on an up note.

The S&P 500 is at a critical juncture. It is above a key channel but below a pivotal resistance level that could continue to cap gains if no other catalysts emerge. The risk that seems to be ignored by many market watchers is that the outlook for S&P 500 earnings is in decline. In this light, the index may move higher in the near term, but any gains are subject to quick reversal as the market bias is still bearish.