NEW YORK, Sept 5 – A busy week of inflation reports is on the horizon for U.S. investors, with Wall Street preparing for consumer and producer price data that could determine the Federal Reserve’s next steps on interest rates. At the same time, uncertainty surrounding tariffs has resurfaced, while government bond yields remain a key factor for sentiment as stocks trade near all-time highs.
The S&P 500 (.SPX) closed at a fresh record on Thursday, despite September’s long-standing reputation as the toughest month for equities. Over the last 35 years, it has averaged the poorest performance of any month. This makes the market’s resilience notable, but many strategists warn that valuations leave little room for error. Some analysts say equities currently look stretched, with investors seemingly brushing off risks that could undermine the rally.
The centerpiece of next week’s economic calendar will be the release of the consumer price index (CPI) on Thursday. This report is expected to give markets a clearer picture of whether inflation is continuing to moderate or proving sticky. The data comes as the Fed’s September 16-17 meeting approaches, where many traders expect policymakers to deliver the first interest rate cut in nine months.
Following comments from Fed Chair Jerome Powell late last month signaling increased concern about risks to employment, markets have largely priced in a rate reduction. According to futures tied to the Fed funds rate, investors are currently assigning a 96% probability that the central bank will trim rates by a quarter point. Analysts note that only an unexpectedly strong inflation reading would be enough to derail those expectations.
By December, traders anticipate about 58 basis points of easing, which translates to a little more than two typical rate cuts. The widespread belief that monetary policy will loosen has fueled optimism in stocks, with many investors pointing to potential cuts as a driver of the market’s upward momentum. But strategists caution that if the outlook for rate reductions shifts, sentiment could turn quickly.
Alongside Thursday’s CPI report, producer price index (PPI) figures will be published on Wednesday. PPI often highlights changes in costs faced by businesses and can reveal the impact of tariffs on imported goods. In July, producer prices jumped at their fastest pace in three years, sparking concerns that higher costs might eventually filter down to consumers. Any renewed evidence of tariff-related inflation pressures could reignite investor anxiety.
Tariffs are back in the spotlight after a U.S. appeals court recently ruled that many of the duties imposed during the Trump administration are unlawful. The administration has appealed to the Supreme Court for a review, yet the ruling has already stirred new uncertainty across the markets. For much of the past year, tariffs were a secondary concern compared to the Fed’s policy stance and the buzz around artificial intelligence. Now, the trade issue appears to be resurfacing as a major risk factor.
Market strategists note that the reemergence of tariff concerns complicates decision-making for businesses, consumers, and investors alike. The uncertainty also raises questions about fiscal policy, since lost tariff revenue could further strain the U.S. budget deficit. Some believe this concern helped push long-dated Treasury yields higher at the start of the week, alongside similar moves in global bond markets.
The 30-year U.S. Treasury yield climbed to 5% for the first time in more than a month before retreating to around 4.88%. Historically, yields at or near 5 percent have been viewed as a challenge for risk appetite, making it more difficult for equities to sustain momentum. While yields have stabilized, their sharp move earlier in the week contributed to initial market weakness.
Despite these headwinds, the S&P 500 has gained more than 10% in 2025 so far, supported in part by a strong second-quarter earnings season. Corporate results exceeded expectations, helping offset macroeconomic worries. Still, valuations remain elevated. Based on estimates for the next 12 months, the S&P 500’s forward price-to-earnings ratio has climbed to 22.4, well above the historical average of 15.9.
Market commentators caution that stretched valuations leave stocks vulnerable if inflation data or policy expectations turn unfavorable. “Investors are still contending with risks from trade and tariff issues, along with upcoming economic reports, any of which could challenge the high valuations in stocks,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. He noted that while investors have grown accustomed to navigating these risks, the market’s ability to keep climbing is not guaranteed.
For now, the focus is squarely on next week’s inflation data. If the CPI report shows that price pressures are cooling, expectations for Fed easing will likely remain intact, supporting equities. However, if consumer prices rise faster than anticipated, the narrative of an imminent rate cut could be called into question. Similarly, if the PPI points to escalating cost pressures from tariffs, it could add another layer of complication for both the Fed and the markets.