NEW YORK — A spate of inflation data confronts US stock investors in the coming week as markets grapple with fresh uncertainty over tariffs and government bond yields, while equities hover at lofty valuations.
The benchmark S&P 500 indexclosed at a record high on Thursday despite an uneven start to September, which has been the worst month for stocks on average over the past 35 years. Stocks were pulling back on Friday after the monthly US employment report showed job growth weakened in August.
“September has been known to see a wearing down of the sentiment picture,” said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments.
At the same time, he said, “stocks aren’t pricing in a lot of risks right now. They look fully valued.”
The monthly US consumer price index on Thursday highlights next week’s economic releases, with investors focused on signals from the inflation data about the prospects for interest rate cuts and the fallout from tariffs on prices.
Following Federal Reserve Chair Jerome Powell’s remarks late last month that flagged rising risks to employment, markets have been widely expecting the central bank to lower rates for the first time in nine months at its September 16-17 meeting.
Investors bet on even more accelerated easing after the weak jobs report.
Fed Funds futures were baking in a 90 percent chance of a quarter-point rate cut at the meeting, and a roughly 10 percent chance of a heftier half-percentage point cut, LSEG data as of Friday afternoon showed.
Only a CPI number that comes in “egregiously higher” than estimates could dent assumptions of imminent monetary policy easing, said Art Hogan, chief market strategist at B Riley Wealth.
About 70 basis points of easing, or nearly three standard cuts, are projected by December, according to the futures data.
Recently, “the prospect of the Fed cutting has been the overwhelming factor driving equity sentiment to be more positive,” Miskin said. “And so if that reverses, then it could be problematic for equities.”
Along with CPI, a Wednesday report on producer prices could also reveal impacts from import tariffs. Last month’s PPI data showed US producer prices increased by the most in three years in July as the costs of goods and services surged.
Tariffs and their economic implications were the main risk facing markets earlier this year, but other factors such as questions over Fed independence and caution about the artificial intelligence trade have been more prominent recently.
