Stocks have rallied since the election in a “reflation trade,” which can be broadly defined as an expectation of both higher inflation and stronger real economic growth. However, investors have recently started to doubt these themes with data on both fronts showing some weakness. First quarter GDP numbers this week could show growth below 1%, largely reflecting weaker consumer spending. In addition, following an oil-driven surge in CPI inflation to 2.8% year-over-year in February, March CPI inflation retreated to 2.4% year-over-year, well below expectations. Lower actual inflation numbers have also seeped into market expectations with the difference between 10-year nominal Treasury yields and 10-year TIPs falling from a post-election high of 2.07% to just 1.86%, as we show in this week’s chart. While a stalling-out in the oil price rally and cautious consumers are responsible for some current weakness in economic data, the reflation theme is also being challenged by disagreement in Washington, which has created uncertainty around the likelihood and extent of both tax cuts and government spending increases. Even without fiscal stimulus, both growth and inflation could rebound in the months ahead. However, for now, the U.S. economic environment seems neither as positive for equities nor as negative for fixed income as has generally been assumed since election day.