U.S. equities skidded along the unchanged line in quiet trading on Tuesday. In the end, the Dow Jones Industrial Average lost a fraction, the S&P 500 lost 0.1%, the Nasdaq Composite gave back 0.3% and the Russell 2000 finished 0.1% higher. Treasury bonds were mixed, the dollar was lower, gold gained 0.7% and crude oil added 2.6% after hitting the highest level since 2015.

Energy stocks led the way with a 0.8% gain, while technology stocks were the laggards, down 0.7% overall, as Apple Inc. (NASDAQ:AAPL) fell 2.5% on reports it could cut its first-quarter sales forecast for the iPhone X from 50 million to 30 million amid tepid demand.

IPhone manufacturer Foxconn Tech Co (OTCMKTS:FXCOF) is reportedly slowing hiring and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) has stopped production of the A11 iPhone processor.

All indications are that the iPhone X is falling short of the iPhone 6 “supercycle” in 2015. This is no doubt connected to the $1,000 price tag, the slow rollout of handsets and general fatigue with smartphone upgrades.

Overall, however, the holiday season looks solid: Mastercard data showed that spending was up 4.9% from last year for the biggest increase since 2011.

Conclusion

Looking ahead, the focus in January will be the impact of the GOP’s $1.5 trillion tax cut on the economy and inflation. Already, companies like AT&T Inc. (NYSE:T) and Boeing Co (NYSE:BA) have announced they will pay one-time bonuses to employees as a result of the legislation. Worker paychecks will increase in just a couple of weeks as well, as 2018 withholding schedules change to reflect the new law.

Polling suggests most Americans don’t believe they will personally benefit from the tax cut; leaving room for positive surprises as they notice a boost in their weekly, bi-weekly or monthly paychecks.

Yet with the economy already operating above full potential and with the labor market extremely tight, this fiscal stimulus package is likely to boost inflation more than growth according to Capital Economics. That will likely force the Federal Reserve into a move aggressive rate hike pace in 2018 (coming off of the three rate hikes in 2017).

Currently, short-term rates stand at upward of 1.5% up from a low of a range of 0.25% to 0.50% that ended in December 2015. Another set of three quarter-point hikes are penciled in for 2018, which would take rates to 2.25%, but that assumes a tepid inflation rate near 2%.

Inflation has been moribund since 2012, allowing this long “Goldilocks” condition of strong growth, good job gains and persistent monetary policy support.

The last time this wasn’t the case — in 2011 — the bond market turmoil was associated with the debt ceiling showdown as inflation nearly topped 3%. The current rate is near 2%, up from a low of 0.2% in 2015.

Capital Economics believe inflation will surge toward 3% by the third quarter of 2018, which will force the Fed to raise interest rates to 2.5% by the end of the year. Look for four quarter-point hikes.

The stock market is likely to take things in stride, though not without a long-delayed and healthy correction that it hasn’t experienced since 2016.

It’ll likely be a different story for the bond market, with both the specter of faster GDP growth and higher inflation pressuring long-term bonds no matter what the Fed does. Indeed, a recent study by the Bank of England showed that bond market freakouts aren’t associated with economic recessions or other factors, but with high inflation.

Keep an eye on high-yield corporate bonds, which look especially frothy. Particularly in Europe, where yields have actually fallen below equivalent U.S. Treasuries thanks to the aggressiveness of the European Central Bank.

Looking into 2019, the picture darkens according to Cap Econ:

“Moreover, as much as 2018 looks like being a good year for the real economy, we fear that 2019 will be a disappointment. By that time, the short-term boost from the fiscal stimulus will be fading and the impact of the cumulative monetary tightening will begin to bite. We forecast a slowdown in GDP growth to only 1.7% in 2019, with a rising risk of a cyclical downturn or recession developing in the second half of 2019 or in 2020. That slowdown would be presaged by a stock market sell-off and a yield curve inversion.”

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.