Equity markets advanced on Tuesday, adding nearly 1.0% to the S&P 500 despite inflation data and the FOMC threat. The move means that hot inflation and a hawkish Fed are priced into the market, but there is a risk. The risk is that market participants are mispricing the outlook, and the news could be bracing. As it is, economists expect core CPI to hold steady on a month-to-month basis and to subside 0.2% to 5.3% YOY, numbers that should keep interest rates high through the end of the year, if not longer.

The S&P is in melt-up mode. The index has moved above the 4,300 level and is on track to retest the all-time highs set during the peak of the stimulus bubble. The move could result in a new all-time high, although there is little reason for 1. However, investors looking to ride this rally should be cautious because the 2nd half may not be as good as expected. The 2nd quarter earnings cycle begins in mid-July and could cap the market if the outlook for Q3 and Q4 deteriorates.