(Bloomberg) -- For months now, an uneasy truce has prevailed between the Federal Reserve and stock investors. As inflation cooled, Chairman Jerome Powell kept mostly quiet about a $5 trillion equity rally that many worry impedes his efforts to drain bloat from the economy.

Whether the peace can last will depend a lot on Tuesday’s consumer price index.

Consensus is building that a softer reading is likely to revive the new year’s equity rally while anything stronger may extend last week’s selloff in risky assets. Stocks and bonds have risen sharply since October when inflation reversed a two-year trend where CPI readings came in mostly stronger than expected. A simultaneous easing in financial conditions has repeatedly been brushed off by Powell despite questions over whether it hurts his goal of slowing demand and curbing inflation.

“I don’t think this Fed expected financial conditions to ease as much as they have, but as long as inflation keeps trending south, they’re not objecting,” Tony Pasquariello, a partner at Goldman Sachs Group Inc., wrote in a note Friday. “This only ups the ante for CPI.”

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Which part of consumer prices investors will focus on and how they will place bets in various scenarios are where some of the differences lie. At least that’s according to the game plans presented by two of Wall Street’s most prominent sales and trading desks. 

The team at JPMorgan Chase & Co. put emphasis on the yearly change in the consumer price index. Economists expected a decline to 6.2% in January from 6.5% in the prior month. 

Should the data come in near the estimate, confirming continued cooling in inflation, bond yields and the dollar will fall while technology and economically sensitive shares lead an advance in the S&P 500. But any equity gains are likely to fade, they warned, once investors shift attention to a relatively slower pace of disinflation than the previous two months, where each CPI print saw a decrease of 60 basis points.

Read: It’s Too Soon for Stock Investors to Call Victory on Inflation

At Morgan Stanley, the trading desk focused on CPI’s month-over-month change, which the bank’s economists forecast to show a 0.4% increase. In the event of a soft print, say 0.2%, tech and consumer stocks will climb alongside a rally in fixed income. A hotter reading like 0.6%, however, is expected to spark a risk-off move that even cyclical shares poised to benefit from inflation can’t escape.

Predicting inflation has proved almost impossible in the post-pandemic world, not to mention market reactions to it. If anything, the exercise from the two firms offers a lens into the risks that investors are contending with. 

At JPMorgan, the trading team including Andrew Tyler saw an almost two-in-three chance for the CPI data to arrive within 20 basis points of the median estimate from economists. 

After a surprise jump in Manheim’s used-vehicle price index, expectations for a hotter reading have grown. If inflation comes in above 6.5% — a scenario that Tyler’s team assigned a 5% probability, the S&P 500 would drop 2.5% to 3%. Should that occur, invest should look to sell expensive software stocks and cryptocurrencies while buying Treasuries and the dollar, the team suggested. 

“This bearish outcome would align with the resurgent inflation hypothesis and could be driven by services where the consumer has shown a rebound in spending, evidenced by the latest Manheim print,” they wrote in a note Friday. “More troubling for bulls is that this scenario would occur before we have witnessed an inflationary impulse from China.” 

Read more: The World’s Next Big Inflation Surprise Is Looming in China 

From stocks to bonds, financial assets last week halted their new-year bounce as Fed officials stressed the need to keep raising interest rates amid ongoing price pressures. Amid the hawkish remarks, traders ramped up bets on the Fed’s peak rate to around 5.2%, from under 5% earlier this month. 

“The recent backup in bond yields may be enough such that we do not see another rate hike priced in given that we would have the March print before the next Fed meeting,” Tyler and his team said.

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