Inflation data to test stocks as some investors brace for rally to pause

NEW YORK Strategists have recently said the market could be poised for some level of pullback after a largely unabated climb over the past four months

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A fresh look at inflation trends will test the US stock market's rally in the coming week, with some investors saying equities are primed for a potential pullback after rocketing to records.

The benchmark S&P 500 ended on Friday up more than 8% on the year and on the cusp of all-time high levels, while the tech-heavy Nasdaq Composite was at a record, as stocks rebounded from declines following a weak employment report earlier this month.

Strategists at firms including Deutsche Bank and Morgan Stanley have recently said the market could be poised for some level of pullback after a largely unabated climb over the past four months, which has pushed valuations to historically expensive levels as a seasonally treacherous period for stocks begins.

The monthly US consumer price index report, due on Tuesday, could cause volatility. Data showing higher-than-expected inflation could undermine the growing expectation for impending interest rate cuts.

"I do think the market is set up for a bit of a pullback," said Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth. "There's a lot of concern bubbling underneath."