Stocks closed lower yesterday. But are still on pace for their best January since 2019.

Profit taking and position squaring, ahead of Wednesday afternoon's FOMC announcement, ruled trading yesterday.

Stocks have been on the move, especially after the last several weeks of better than expected inflation reports, courtesy of the CPI (Consumer Price Index), the PPI (Producer Price Index), and the PCE (Personal Consumption Expenditures) Index.

At the moment, it's widely expected the Fed will raise rates by only 25 basis points at the conclusion of their 2-day FOMC meeting tomorrow (Wednesday, February 1). If so, that would put the Fed Funds rate at a midpoint of 4.63%.

While the market sees this as all but certain, the real question is how high will the Fed keep raising rates this year?

At their last meeting, they hinted that the terminal rate could get as high as 5.10%. Since then, some Fed officials have suggested the Fed might need to go even higher.

Nonetheless, if 5.10% is their target, they would only need to raise rates by another 25 basis points for each of the next two meetings (after this week's meeting), to get to that level.

But fed fund traders are speculating that the Fed will call it quits between 4.75% ? 5.00%.

If they're right, that would mean only one more 25 bps hike after this one.

We also have the question of how long will rates stay at that level? And how far will the Fed go in paring down their balance sheet?

Investors will be listening closely for any clues on those topics.

In the meantime, today we'll get the Employment Cost Index, the Case-Shiller Home Price Index, the Chicago PMI, and the Consumer Confidence report.

We'll also get more earnings with 77 companies on deck to report today, including marquee names like Exxon Mobile, Pfizer, McDonald's, United Parcel Service, Caterpillar, Amgen, Advanced Micro Devices, and more.

With just one more trading day to go, stocks are on pace to close out one of their best January's in years.

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

See you tomorrow,