Stocks closed higher yesterday with all of the major indexes up 1% or more.

All eyes will be on this morning's Consumer Price Index (CPI) inflation report. The consensus is calling for headline inflation to show a 0.5% m/m increase, and a 6.2% y/y change. The core rate (ex-food & energy) is expected to be up 0.3% m/m, and 5.5% y/y.

Last month's report helped extend the recent rally after showing inflation actually declined the last time out with a -0.1% m/m change. On a y/y basis it was up 6.5%, which was down from the previous month's 7.1%, and the summer high of 9.1% in July. (The core rate was up 0.3% m/m, and 5.7% y/y, also down from their summer high of 6.5%.)

The steady decline in inflation has propped up stocks, as well as speculation that the Fed won't have to raise rates as high as planned. The Fed, as recently as their last FOMC meeting, has suggested rates will get as high as 5.1%, and stay there for an extended period, as they press for a 2% inflation target, that they admit will take a fair amount of time.

In spite of the Fed's 5.1% terminal rate forecast, Fed Funds traders are betting the Fed calls it quits in the 4.75%-5.00% range (midpoint of 4.88%).

That's why all eyes will be on this morning's CPI report. If inflation unexpectedly ticks up, that could throw a wrench into the narrative of a lower than expected terminal rate. But if inflation keeps ticking lower, that's good news for the economy and the markets.

But after today's report, we're not done on the inflation front.

On Thursday, 2/16, we'll get the Producer Price Index (PPI).

And then next week on Friday, 2/24, we'll get the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index.

But the next Fed meeting is still a long way off as it's not until March 21-22.

In other news, earnings season continues with another 157 companies on deck to report today. All in all we'll hear from a total of 643 companies between today and the end of the week. And then another 872 next week.

It's been a great start to the year so far.

If inflation keeps declining, and growth continues to come in stronger than expected, 2023 could be a fantastic year. Then when you add in all of the seasonal tendencies going for the market this year, it could be even better.

See you tomorrow,