By Lewis Krauskopf
NEW YORK (Reuters) -The U.S. stock rebound has driven key indexes to the cusp of record levels, with fresh economic data and trade and fiscal policy developments set to test whether equities will get an extra push higher in the near term.
A monthly U.S. inflation report headlines the events for markets in the coming week.
Equities have bounced back from a steep fall in April, sparked by concerns about the economic fallout from President Donald Trump’s tariff plans. Stocks hit a speed bump on Thursday as a public rift between Trump and Tesla chief Elon Musk sent shares of the electric vehicle maker down 14%.
The benchmark S&P 500 ended on Thursday just over 3% off its record closing high from February. It closed down 0.5% on the day as Tesla’s tumble offset news of progress in tariff talks between Trump and Chinese President Xi Jinping.
“I’d still say it’s a cautious tone” in the market, said Jim Baird, chief investment officer with Plante Moran Financial Advisors. Despite a “recovery off the lows, I still think it’s a market that is looking for greater clarity.”
Some uncertainty stems from how the U.S. economy is weathering the shifting trade backdrop. Trump has eased back on some of the harshest tariffs since his April 2 “Liberation Day” announcement sent stocks tumbling, but investors are waiting to see how other levies may be rippling through the economy.
The consumer price index report for May, due on Wednesday, could give insight into the tariff impact at a time investors are wary of any flare-ups in inflation.
“Consumers are feeling the impact of higher prices and if there are indications that near-term inflation could re-accelerate, that is going to put further pressure on discretionary spending and ultimately could lead to a more pronounced slowdown in growth,” Baird said.
The CPI report will be one of the last key pieces of data before the Federal Reserve’s June 17-18 meeting. The U.S. central bank is widely expected to hold interest rates steady at that meeting, but traders are pricing in about two 25-basis point cuts by the end of the year.
“If we see inflationary data that defies what people are concerned about based on this tariff talk and it comes in cooler, then that could also be a catalyst to at least test those old highs,” said Jay Woods, chief global strategist at Freedom Capital Markets.
For the year, the S&P 500 is up about 1%. But the index has stormed back over 19% since April 8, at the depth of the stock market’s plunge on concerns over the tariff fallout.
Investors also are grappling with uncertainty over a sweeping tax-cut and spending bill under review in the U.S. Senate. Wall Street is monitoring how much the legislation could stimulate economic growth, but also inflate the country’s debt burden as widening fiscal deficits have become a central concern for markets in recent weeks.
“As debt increases, it has a greater negative impact on growth,” said Kristina Hooper, chief market strategist at Man Group.
The legislation also appeared to be the source of a severe rift between Trump and Musk, who had been his strong ally. Musk called the bill at the heart of Trump’s agenda a “disgusting abomination,” while Trump said he was “disappointed” by the billionaire’s public opposition.
Trade talks also remain at the forefront of markets, with a 90-day pause on a wide array of Trump’s tariffs set to end on July 8.
“When it comes to policy from Washington, D.C., there are still big question marks,” said Bob Doll, chief investment office at Crossmark Global Investments.
(Reporting by Lewis Krauskopf; additional reporting by Davide Barbuscia; Editing by Alden Bentley and Richard Chang)
