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The stock market may try to regain its footing in the next few sessions, even as a fresh inflation report looms large at the end of the week. Stocks struggled to move forward in the past week. With Friday’s sell-off, the major indexes closed out the four-day period with losses. That was disappointing to investors looking for a similar upside to the week before Memorial Day during which the S&P 500 gained about 6.5%

Liz Ann Sonders, Charles Schwab chief investment strategist, said the market’s late May surge was likely the setup for more selling.“The type of rally like we saw last week and some of what it contained looks a little more typical of bear market rallies,” she said. “I still think you’re likely to get countertrend pops in some of the more speculative areas of the market. ... But I think very decidedly the low quality trade is in the rearview mirror. I think to do well in this environment you have to be value minded. Not value indexes, but valuation minded.”

“Traders are losing faith in trying to put more risk on to catch more of an oversold bounce, or a bear market bounce. They’d almost not want to be involved because there’s too many potholes,” said Scott Redler, partner with T3Live.com.

Redler said Tesla CEO Elon Musk soured sentiment, after reports that Musk told Tesla executives he had a “super bad feeling” about the economy and needs to cut 10% of Tesla’s workforce. The comments followed closely on a remark from JPMorgan CEO Jamie Dimon that he is preparing for an economic hurricane. “You can’t have the poster child of risk saying they’re going to reduce their headcount by 10%. If they’re supposed to have a multiple for growth, and they reduce the headcount, then something has to give with valuation,” Redler said. Tesla shares fell 9% Friday.

A RALLY that lifted US stocks from the brink of a bear market faces an important test next week, when consumer price data offers insight on how much more the US Federal Reserve will need to do in its battle against the worst inflation in decades.

Despite a rocky week, the S&P 500 is still up over 5 per cent from last month’s lows, which saw the benchmark index extend its decline to nearly 20 per cent from it's all-time high. The index was recently down about 14 per cent from its Jan 3 record after losing 1 per cent in the past week.

More upside could depend on whether investors believe policymakers are making progress against surging prices. Signs that inflation remains strong may bolster the case for even more aggressive monetary tightening, potentially spooking a market already battered by worries that a hawkish Fed could deal a serious blow to US growth.

“This market is likely to remain range-bound until we get a meaningful move lower in inflation,” said Mona Mahajan, senior investment strategist at Edward Jones, which currently favours large-cap stocks over small-cap, given the ability for larger companies to absorb higher input and wage costs. “Clearly, the print next week is going to be key.”

The consumer price index (CPI) for the 12 months through April rose 8.3 per cent, down from an 8.5 per cent annual rate reported in the prior month, which was the largest year-on-year gain in 40 years.