Stocks could retest June lows, as investors reassess interest rate outlook following August’s disappointing consumer inflation report. August consumer price index rose 0. .1%, while economists expect it to fall 0.1%. That fueled speculation the Fed would be even more aggressive in raising rates, with some experts even betting on a full percentage point hike as soon as next week. In response, stocks sold off sharply, the dollar appreciated and bond yields rose. The yield on the 10-year Treasury note rebounded to its highest level of the year, touching 3.46% shortly. By the way, the high of 3.49% occurred in mid-June, right when stocks bottomed and the S&P 500 index hit a low of 3,636. The S&P 500 index fell 4.3% on Tuesday to close at 3,932.69. Higher interest rates are a negative for stocks, especially as growth appreciates and tech names perform best when money is cheap. Rising yields can also make bonds look like a more attractive investment, especially when stock prices fall. “Things are being called into question,” said Sam Stovall, chief market strategist at CFRA. “Will we hit a seasonal low in October? Will we get the year-end rally every year in midterm election years?” Stovall said he had expected the market to follow the route it usually takes during midterm election years, with the market selling off in September and October but then recovering in the fourth quarter. Now, if investors don’t know the path of inflation and how high the Federal Reserve will have to raise interest rates, that could challenge assumptions that historical patterns will repeat. In each midterm year since World War II, Stovall says the stock market has risen on a total return basis from October 31 to October 31 of the following year. The average total return is 21%. “People are really starting to question GDP growth, interest rate forecasts, earnings forecasts, seasonal patterns and historical precedent,” he said. The CPI report is a big slap to a market that has grown in the report. “The market rallied in five days which it considers a light number and it really has no business doing that,” said Scott Redler, partner at T3Live.com. “The market doesn’t feel good… Today it seems everyone was wrong.” Redler said the next test for the S&P will be whether it can hold 3,900 and if not, a test of the June low is probable. Investors have been lulled by the notion that the Fed will raise rates too much and then pause at the end of the year or early next year. But on Tuesday, after the CPI report, there was an intense re-pricing of expectations. The futures market, for example, had a high valuation in the hedge fund of 4% for next April, but that expectation quickly spiked to 4.33% after the latest CPI. That high is seen as an expectation for final interest rates — the end point at which the Fed stops raising rates. “Those who thought a pivot would happen sooner are now thinking later, because inflation is still more,” said Redler. Quincy Krosby, LPL’s chief global strategist, said the June low is on the horizon again and it could be decided by the Fed itself when it meets next week. Most economists expect the Fed to raise interest rates by 0.75 basis points, the third hike in a row. The basis point is 0.01 percentage points. But there are growing expectations that the Fed could be more aggressive at its later meetings, keeping rate hikes bigger for longer. Economists at Nomura have even switched their forecasts to expectations of a full percentage point increase next week. The Fed will meet next Tuesday and Wednesday, with Fed Chairman Jerome Powell meeting on Wednesday afternoon. “The Federal Reserve press conference is as dramatic as the Jackson Hole meeting,” said Krosby. Powell was surprisingly unruly during short, pre-prepared remarks in Jackson Hole, Wyoming last month. “If he repeats his performance at Jackson Hole during the press conference, the market could turn around and say he said what he wanted to say and he said what he said,” she said. . That would be negative for the stock and could trigger a retest of the lows.