Stock markets face reality check this week as inflation bites

"The market seems to be engaging in some wishful thinking," says Tom Siomades, chief investment officer of AE Wealth Management.

Pedestrians in front of the Nasdaq MarketSite in New York, US.

A rally in US stocks that has powered on despite some Wall St scepticism faces a reality check in the coming week, as key inflation data threatens to shut the door on expectations of a dovish shift from the US Federal Reserve. 

The S&P 500 of leading US shares has walked a tightrope this summer, rising 13% from its mid-June lows on hopes that the Fed will end its market-bruising rate increases sooner than anticipated. A blowout US jobs number last week bolstered the case for more Fed hikes but barely dented shares. The S&P fell less than 0.2% on the day and eked out its third straight week of gains.