The majority opinion on Wall Street is next week’s Federal Reserve policy meeting will bring no formal action, and a lot of stern talk about a commitment to bring down inflation further leaves open the option to resume raising rates at the central bank’s July meeting. The betting is also that the latest inflation reading for May that will be reported Tuesday, just as the two-day Fed meeting gets underway, will show additional progress in the fight against higher prices. After all, there’s a 72% probability the current 5% to 5.25% federal funds rate will remain unchanged next week, according to 30-day fed funds futures pricing data as gauged by the CME Group, and only about a 28% chance rates will rise. By the July meeting, however, there’s only a 33% chance rates stay where they are. Those views have helped power a broader stock market rally on Wall Street this month. So far in June, the S & P 1500 regional bank index is 10.2% higher, the Russell 2000 index of small-cap stocks has risen 6.6% and groups of S & P 500 energy, consumer discretionary, industrials and materials stocks are all up between 5.3% and 6.2% — far more than the S & P 500’s 3% advance and a 1.5% gain in tech stocks. That’s the conventional wisdom anyway, but opinion is far from unanimous. “Our expectation is for CPI to continue to show signs of disinflation and for this to lead the Fed to ‘pause’ and leave rates unchanged on Wednesday,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina. If that happens, “expect a modest rally in risk markets (~1% in SPX), led more by the cyclical/small cap parts of the market which have lagged broader indices thus far in 2023.” Tuesday CPI report may tell the tale But Wall Street’s sanguine take — reflected in the Cboe Volatility Index trading below 14 this week for the first time since the Covid-19 pandemic struck more than three years ago — relies on Tuesday’s consumer price index report matching or beating economists’ expectations. If it comes in hotter than expected, “we’d expect a sharp reaction across most markets,” Ladner said, with the S & P 500 possibly falling 2% to 3%, the Russell 2000 underperforming and the dollar strengthening. “In this case, the Fed does hike [Wednesday] and signals more to come. This is very at odds with how the market is thinking about the end of Fed tightening” and Tuesday and Wednesday’s “price action will be nasty.” Other investors sound skeptical of the latest stock market rally almost regardless of next week’s inflation data and Fed decision, and are throwing cold water on the notion a new bull market has begun. “Even though the S & P 500 is up just over 20% from the October 2022 low, that does not mean the bear market is over yet,” said James Demmert, chief investment officer of Main Street Research, with roughly $2 billion in assets under management. “The bear markets of 2000 and 2008 both saw rallies in excess of 20%, which did not constitute the end of the bear market, as the market experienced further downside after those rallies.” Most stocks in many indexes are still firmly in downtrends, “which is the hallmark of a bear market. We need the majority of the stocks in the indexes to start establishing an uptrend in order to declare the beginning of a new bull market,” and that’s not likely until sometime in the second half, Demmert said. In fact, the combination of the narrow stock market rally in 2023, until this month at least, plus the low VIX reading, leads Demmert to expect a 10% stock market correction at some point. “The stock market at large is in overbought territory and investors are very complacent, which was the case prior to the past three major declines within this 18-month bear market. Investors should have some dry powder ready to go in the event of a near-term market correction,” Demmert said. The catalyst for such a sell-off could come if the Fed raises rates next week. “Market sentiment is extremely confident —particularly after the passing of the debt ceiling … Typically, when investors are this complacent, volatility surges in the coming weeks,” he added. Bare minimum Wall Street expects at a bare minimum the Fed statement next Wednesday, plus its quarterly Summary of Economic Projections and Chairman Jerome Powell’s press conference afterward, will contain language “that officials are minded to hike interest rates again, probably at the following meeting in late-July,” said Paul Ashworth, chief North America economist at Capital Economics. “We suspect the recent resilience of employment and stickiness of core inflation will ensure that the Fed delivers that rate hike as planned next month,” Ashworth said. Although a July hike would serve as the last in this rate-raising cycle, Capital Economics now sees no rate cut until sometime in 2024. By contrast, a note from the fixed income sales desk at UBS argued if the Fed raised rates next week and potentially skipped doing anything in July instead, policymakers would buy themselves 14 weeks until the September meeting to see how economic growth and inflation are panning out. Between the June and September meetings, the Fed would get three more inflation and three more payrolls reports. But if the Federal Open Market Committee skips the June meeting, it has only bought itself four weeks of numbers until the July meeting to observe how conditions evolve, UBS said. Week-ahead calendar Monday Earnings : Oracle Tuesday 8:30 a.m. – Consumer price index (May) Fed policy meeting starts Wednesday 8:30 a.m. – Producer price index (May) 2:00 p.m. – Fed decision and statement 2:30 p.m.- Fed chair Jerome Powell press conference Earnings : Lennar Thursday 8:30 a.m. – Import/export prices (May) 8:30 a.m. – Philadelphia Fed survey (June) 8:30 a.m. – Empire Fed survey (June) 8:30 a.m. – Retail sales (May) 9:15 p.m. – Industrial production (May) Earnings : Kroger, Adobe, Jabil, John Wiley Friday 10:00 a.m. – University of Michigan consumer sentiment and inflation expectations — CNBC’s Hakyung Kim, Michael Bloom and Jeff Cox contributed to this report.