US stocks have had a strong run in 2026, but a correction risk is now growing. The S&P 500 has gained about 13%, while the Nasdaq Composite has risen around 14% through the first eight months of 2026. Both major indexes are on track for another year of double-digit gains.
If the gains continue, the S&P 500 and Nasdaq would record their fourth straight year of double-digit growth. But the stock market rally could now face a major test. Inflation is staying high, and this could push the Federal Reserve to raise interest rates again.
Higher interest rates are a problem for stocks. Rate hikes can make borrowing more expensive for companies and consumers. They can also make bonds and other safer investments more attractive compared with stocks. The latest inflation numbers have increased concerns about the US economy. Inflation is not falling as quickly as experts had expected, raising the chances of more Federal Reserve rate hikes.
Inflation remains above the Fed's target
The Federal Reserve's preferred inflation measure is the Personal Consumption Expenditures (PCE) price index. The PCE index tracks spending on goods and services and includes both money consumers spend on themselves and spending made on their behalf, according to The Motley Fool.
