Today should be an eventful gut-check for investor sentiment. The consumer price index is expected to post an almost 9% year-over-year advance, and the 1.1% monthly rate of inflation will likely mark a pickup in pace from June. Thing is, it kinda doesn’t matter… the data will be about as stale as they come, considering the epic rout in commodity prices that includes a 20% decline in crude oil the past four weeks. Can stocks look past the sky-high print?

If so, what do they see? A soft landing? An isolated, peaceful retreat in problematic oil and food prices while the good energy of the economy keeps on chugging? Where does inflation go if it’s peaked? Does the Fed’s preferred gauge go from 6.5% to 2% — their dream —  or does it stay at a level that still warrants extinguishing? Are we heading for another thrust of reopening rejuvenation, or is the American buyer tapping out?

We’ll start learning the answers to these questions today. If you are long-term bullish on stocks, you want to see long-dated Treasury yields start rising again. The 10-year / 3-month yield curve is collapsing for the first time in two years, an almost certain sign of impending recession risk. Higher yields may continue to punish unprofitable stocks, but that’s a helluva lot better scenario than real economic and earnings decline.

For a month we’ve had falling bond yields and a rising U.S. Dollar, which is a very notable departure from the year-long positive correlation between the U.S. Dollar and yields. I think it means the market is pricing in an aggressive Fed even in the face of recession and from that end, I think the writing’s already on the wall for the bearish trend to continue. But if both yields and stocks rise after the hottest inflation print to-date, it’ll be a compelling sign that bulls may finally be ready to recapture the narrative.

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