US stocks face a make or break moment with the October CPI report with investors split on the Fed's December rate move

• The October CPI report "will make or break the market for the week," Bespoke Investment Group said Monday.
• Investors are largely split on whether the Fed will raise rates by 50 or 75 basis points in December.

The fortunes of the S&P 500 this week will come down to the US government's inflation report, market research firm Bespoke Investment Group said, with the data in focus as investors gauge the size of the Federal Reserve's next rate hike.

"Thursday's October CPI report will make or break the market for the week," the firm said in a note published Monday.

Investors are looking to see if inflation may have reached its peak after roaring to a four-decade high this year above 8%. The next update on consumer prices from the Labor Department report will be released just days after the Federal Reserve indicated it may reduce the pace of its upcoming rate hikes after raising its benchmark rate four consecutive times by 75 basis points.

But Powell also said inflation has been stubbornly high and that it was "very premature" for policy makers to start considering interest-rate cuts. Investors since last week have largely been split on how much the Fed will raise rates at the December 13-14 meeting, by either by 75 or 50 basis points.

Economists polled by Bloomberg expect October headline inflation to rise by 0.6% and core consumer prices to increase by 0.5% month-over-month. For his part, Nobel laureate Paul Krugman said Saturday that "true" US inflation may have cooled to below 4% as rental prices and wage growth has slowed.

In September, headline and core inflation rose by 0.4% and 0.6%, respectively, month over month.

The S&P 500 last week fell by 3.4% after rising in the previous two weeks. Bespoke said the broad equity index this year has had 29 weeks that have ended either up or down by 1%, a record amount since the New York Stock Exchange moved to a five-trading day week in late 1952.

The index has logged that record with "still eight weeks left in the year," Bespoke noted.

"Outside of the economy, [Tuesday's] midterm elections will likely provide a good amount of sound and fury, and from a market perspective, we can only hope that the results aren't drawn out for days," the group said.

The midterms will decide whether the Democrats will retain hold of Congress. Elections are being run in all 435 seats in the House of Representatives and 34 of the Senate's 100 seats. The S&P 500 since World War II has advanced in the 12 months after midterms and market analysts told Insider that the run should remain intact even with the challenges of inflation and expectations of a recession in 2023.

The S&P 500 came off bear-market lows reached in October but remains down by 21% so far this year.