Record Stocks Face Inflation Test as Fed Rate Hikes Loom

The US stock market has reached record highs, led by a technology-driven rally that has propelled the S&P 500 to new peaks. However, this week's inflation data will test whether the market can maintain its momentum.

A recent surge in stocks, with the S&P 500 gaining 5.75% over four sessions, was driven by tech and semiconductor shares. The benchmark index has now surpassed all-time closing highs from two months ago.

Investors are watching inflation data closely, particularly as it could influence the Federal Reserve's decision to raise interest rates. Economists expect a 3.4% year-over-year increase in consumer price index (CPI) and a 2.5% rise in core CPI, which excludes food and energy components.

Some experts believe that if inflation data comes in higher than expected, it could lead to a sell-off in stocks. Higher Treasury yields, driven by concerns about persistently high inflation and Fed rate hikes, have also contributed to a risk for the market.