After a solid Monday and ahead of key earnings reports where profit growth is expected to push the stock markets recovery bus forward, stocks veered into a late session very mild profit-taking mode as investors turn slightly less inspired. It’s more of a wait and see, ahead of a week that promises no shortage of “rock the boat” type inflation data.

The market could also turn increasingly curious about how industry leaders will address two keen forward-looking items on the top of every investor mind.

First, the margin outlook, including supply chain and commodity input cost pressures and any resulting planned price increase they might pass through.

Second, how severe the potential negative EPS impact is if the Biden administration’s new tax reform proposal is adopted, which could prove to be a significant hit to bottom lines even if the tax hike percentage gets water down.

The fact that stocks remain perched near record highs suggests investors still believe the economic acceleration should be a powerful tailwind for stocks this quarter and ensure earnings growth.

Indeed, earnings tailwinds look set to outweigh concerns around supply chain shortages and rising commodity prices. Importantly, positive earnings and sales revisions have been broad across sectors and industries.

But with significant moves already in place and the “easy recovery phase, money has been made”, investors could still temper long duration and rates sensitive assets like gold if yields climb while struggling to resolve with what form and fashion the next leg of the reflation trade will take.

It’s all about yields

Bond yields are always the most critical macro concern in a rising interest rate environment, especially to the long-duration assets.

In the wake of the robust March jobs report and a slew of other indicators suggesting that economic activity has strengthened in recent weeks, Fed officials, including Chair Powell, have taken a more optimistic tone about the baseline economic outlook and the balance of risks around their forecasts.

Indeed, this past week Powell highlighted that the economy could be reaching a positive inflexion point, with growth and hiring possibly on the cusp of accelerating.

Despite this rising sense of optimism about the economic outlook, the relentless push towards higher yields and steeper curves has stalled out in recent weeks as the market awaits fresh catalysts.

This week’s data docket could provide the opportunity for sparking the next leg higher, with Tuesday’s US CPI report providing the first peek at how more vigorous activity may begin to spill over to price pressure and Thursday’s retail sales report likely to show a surge in consumer goods spending in March.

However, for 8.4 million reasons (US total unemployment), the market could remain in “don’t fight the FED mode.”

Most participants are not expecting these strong data points will push the Fed in a more hawkish direction, although rates by their very self-correcting nature due to solid economic activity could move higher.

So, the global equity market’s reaction to this week’s data docket, possibly via the higher yields feedback loop, will be a keen litmus test that the equity investors are happy with growth driving higher yields and continue buying into the Fed’s messaging by allowing to let the economy run hot.

Oil markets remain uninspired

The oil market’s magnetic attraction to the $63 level should tell us much about the near-term outlook amid conflicting signal of new Covid waves coming to shore ahead of what should be a summer gasoline buying bonanza.

But overall, this is an oil market that feels completely uninspired outside of a few micro lurches here and there.

Still, positive comments on the US economy from Fed Chairman Powell help to reassure the outlook for oil demand, balancing concerns about the continued spread of Covid-19 in some regions.

After a shaky Asia session market then rallied almost 2.5% as the tide started to turn first on a weaker US dollar.

Then price gains were amplified after Houthi rebels fired 17 drones and two ballistic missiles at targets in Saudi Arabia, including Saudi Aramco refineries in Jubail and Jeddah.

Still, with no damage reported, prices were faded hard after as Descartes Labs survey based on cellular devices’ movements indicated US gasoline demand fell by 1.2% last week. And coming off a gasoline inventory glut the previous week, this news provided the ultimate rally capper.

Iran is reportedly insisting on the lifting of US sanctions as a precondition for re-engagement. An apparent cyberattack on Iran’s Natanz nuclear facility over the weekend is likely to complicate discussions.

However, as I’ve noted before, Iran had reportedly been ramping up production and exports since the US elections last year. Although progress on nuclear talks will affect sentiment, the supply impact is already getting baked into the price.

Market analysis from Stephen Innes, Chief Global Market Strategist at Axi