* CPI, PPI, retail sales highlight US economic data

* Strong Q1 earnings season fuels rally; Cisco ( CSCO ), Applied

Materials ( AMAT ) due in week ahead

* Trump-Xi meeting set for end of week

By Lewis Krauskopf

NEW YORK, May 8 (Reuters) - The rallying U.S. stock

market will take its cues next week from inflation and consumer

spending data, developments in the war in Iran, and a

high-stakes meeting between the leaders of the U.S. and China.

U.S. equities have been on a tear, with the benchmark S&P 500

up more than 16% from its low for the year, hit in late

March. The strongest U.S. quarterly earnings season in more than

four years has lifted sentiment for equities, while worries

about worst-case economic fallout from the Iran war have abated

and investors are jumping in for fear of missing out on gains.

"We have seen this tremendous rebound as markets have willed

themselves to focus on only the positive," said Kristina Hooper,

chief market strategist at Man Group.

Hopes for an end to the Middle East conflict, which began in

late February with U.S.-Israeli strikes on Iran, remain at the

forefront for Wall Street. In particular, investors are eager to

see a reopening of the Strait of Hormuz, a critical choke point

for global oil supplies.

Energy prices have soared in the wake of the Iran war, with U.S.

crude up more than 60% for the year.

"The continued progress towards a resolution for the

U.S.-Iran war will be top of mind for investors," said Michael

Arone, chief investment strategist at State Street Investment

Management. "You need to begin to see ship movements in the

Strait of Hormuz."

The war is also expected to be a topic when U.S. President

Donald Trump meets with Chinese President Xi Jinping in Beijing

late next week. Investors will monitor any developments between

the two nations on access to rare earths and technology, as well

as other issues.

STELLAR EARNINGS SEASON WINDING DOWN

The market's latest surge, which has pushed the S&P 500 up 8%

for 2026as of Friday, builds on three consecutive years of

double-digit returns. The technology-heavy Nasdaq Composite

was last up nearly 13% on the year, with both indexes

hitting record levels.

While the first-quarter results season is winding down,

corporate reports will remain a key driver for stocks in the

coming days. Next week's results include tech networking

equipment firm Cisco ( CSCO ) and semiconductor equipment maker

Applied Materials ( AMAT ). Heavyweights Nvidia ( NVDA ) and

Walmart ( WMT ) are due later in the month.

S&P 500 earnings are on track to jump 28.6% in the quarter,

according to LSEG IBES data as of Friday. Massive corporate

spending on artificial intelligence is flowing through to the

results of several industries, as AI hyperscalers build out data

centers and other infrastructure to support the technology.

The results indicate that "all the fears that tariffs or

this oil price shock would eat into margins have not

materialized so far," Arone said. "Earnings are the lifeblood of

this rally."

CPI SET TO SHOW WAR, ENERGY-PRICE IMPACT

Economic data covering April, especially on inflation, also

could show the impact from the Iran war.

Tuesday's consumer price index - a closely watched inflation

gauge - is expected to rise 0.6%, according to a Reuters poll.

CPI rose 0.9% in March, the most in nearly four years, driven by

a surge in gasoline prices.

With markets expecting a near-term resolution to the war,

investors said they may focus on the CPI's core reading, which

strips out energy and could offer clearer clues for projecting

the path of interest rates. Following the war-related surge in

energy prices, markets have ruled out equity-friendly rate cuts

this year, and the latest Federal Reserve meeting indicated more

hawkish sentiment from several policymakers.

"If core CPI is significantly higher, I think that's going

to be very problematic," Hooper said.

Other data next week include Wednesday's producer prices, which

will offer another look at inflation trends, and Thursday's

monthly retail sales, where investors will focus on how much

higher gasoline and overall energy costs are eating into other

types of consumer spending. This week, the national average

price for gasoline topped $4.50 a gallon for the first time

since July 2022.

"Even with oil bouncing around a bit and coming down from

the highs, gasoline prices across the U.S. have just continued

to move higher," said James Ragan, co-CIO and director of

investment management research at D.A. Davidson. "We haven't had

any relief there. I don't think there is a lot of evidence yet

that it's hurting the consumer spending, but it's definitely a

larger budget item."