Equity markets after a round of stronger-than-expected economic data. The Q4 GDP came in at 2.9% and a tenth hotter than expected on strong labor conditions and consumer health. The takeaway is that the underlying strength in the economy is supporting activity among S&P 500 companies but also inflation. The recent downtick in inflation is good news but may not be sustainable given the economic strength. In this light, the market's expectation for only a 25 basis rate hike at the next FOMC meeting may be misplaced.

The entire outlook could change today upon the release of the December PCE price index. The index is expected to confirm the downtick in consumer-level inflation but the data will most likely be mixed. While YOY comparisons will cool, inflation is expected to have accelerated on a month-to-month basis and may come in hot. In this scenario, the odds of a 25 basis point hike will crater and the S&P 500 could fall with it.