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The stock market set-up heading into the crucial CPI report Thursday morning

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Stocks are rallying on a bet that inflation (particularly wage inflation) is moderating and that job growth will slow down but not collapse.

That is the soft landing. Thursday's CPI at 8:30 a.m. ET is expected to confirm the inflation is slowing story. After peaking in June of 2022 at 7.1% year over year, December CPI is expected to come in at 6.6%, according to the Dow Jones consensus estimate. Month over month inflation is expected to be flat — no growth in inflation at all. That's good news for bulls.

"It would take a real regime shift in the environment to meaningfully alter the FOMC's course," Mike O'Rourke from Jones Trading said in a note to clients. "It would take months or even quarters of [inflation moving down] trend to move the policy needle at the FOMC." Besaw agrees. His research indicates it takes 6 to 12 months for the increase in the Fed funds to have an impact on the components of inflation.

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