US Stock Rally Faces Inflation Test as Investors Weigh Fed Rate Path

The US stock market's recent rally is set to face a key test this week as investors await fresh inflation data, which could influence expectations for the Federal Reserve's interest-rate path.

Last week, the S&P 500 posted its first record closing high in two months, powered by technology and semiconductor stocks that had previously retreated from their peaks. The benchmark index gained 5.75% over four sessions through Tuesday, its strongest four-day advance since April 2025.

The easing of tensions between the US and Iran supported equities, while a decline in oil prices helped reduce concerns over renewed inflationary pressures. Stocks also rose on Friday after data showed the US economy unexpectedly lost jobs in July, easing some expectations that the Federal Reserve may need to raise interest rates soon.

Investors will turn their attention to the US Consumer Price Index report due on Wednesday, which is expected to show headline CPI rising 3.4% year-on-year in July, while core CPI is expected to increase 2.5%. A hotter-than-expected inflation reading could revive concerns about further monetary tightening and put pressure on stocks.