Stocks closed sharply higher on Monday, extending Friday's gains. The Nasdaq was the top performer with 2.01%, followed by the small-cap Russell 2000 with 1.25%, then the S&P with 1.19%, and finally the Dow with 0.76%.

Optimism that inflation is on the decline (as referenced by the last several months of inflation reports, including the most recent CPI and PPI reports), while economic growth remains resilient (as referenced by the strength in the labor market, and robust estimates for Q4 GDP of 3.5%), have many believing that a soft landing might very well be possible.

But much of that has to do with inflation, and thus, how high interest rates will ultimately have to go.

We'll get another look at inflation on Friday with the Personal Consumption Expenditures (PCE) report, which is the Fed's preferred inflation gauge.

Another better than expected inflation report should solidify expectations for a 25 basis point hike when the Fed makes their next announcement on rates on Feb. 1.

A move of 25 bps would put the midpoint for the Fed Funds rate at 4.63%. That would leave only 2 more hikes of 25 basis points to get to their projected terminal rate of roughly 5.10%.

The market will be listening for any clues as to whether the Fed expects to lower that target, maintain it, or raise it.

Interestingly, in spite of the Fed projecting to hit 5.10% before they call it quits, Fed Fund traders, at the moment, appear to be expecting the Fed to hit the brakes at 4.75% - 5.00%.

Either way, in a week and a day, we shall find out what the Fed does, and what they are thinking.

In the meantime, the market will be focused on earnings.

Today, we'll hear from heavyweights Microsoft, Johnson & Johnson, Verizon, Union Pacific, and Lockheed Martin, to name a handful. All in all, we'll hear from 151 companies reporting earnings today.

Tomorrow, we'll hear from biggies Tesla, Abbott Labs, IBM, Boeing, ADP, and more.
In other news yesterday, the Leading Indicators report fell by -1.0% m/m, which was slightly less than last month's -1.1%, but a bit more than the consensus for -0.7%.

Today we'll get the PMI Composite report, and the Richmond Fed Manufacturing Index.

January's price action continues to impress.

As they say, "as January goes, so goes the year."

If that holds true, that bodes well for a positive 2023.

See you tomorrow,