Investors are entering a decisive week in determining the course of the US markets, with anticipation of inflation data that may tip the balance between keeping interest rates stable or raising them at its mid-September meeting. After a strong rise that pushed the Standard & Poor's 500 index close to its record level, price pressures and bond yields return to form a new test for stocks, at a time when investors are still divided over the central bank's next step.
In recent weeks, the markets have been preoccupied with the possibility of raising interest rates at the next meeting of the Federal Reserve, scheduled to be held on September 15 and 16. These expectations rose after a speech by Federal Reserve Chairman Kevin Warsh late last month, in which he indicated that the central bank may be forced to act if inflation remains high, but the possibility of taking such a step is still largely unresolved, according to Reuters.
This uncertainty has kept investors on the lookout for fluctuations related to the monthly CPI report, scheduled for release on September 11, which is the most closely followed measure of inflation on Wall Street.
“In recent months, Federal Reserve officials have emphasized their commitment to price stability, and at some point, these statements will have to be backed up with action if inflation does not show sufficient progress,” said Sid Vaidya, chief investment strategist at TD Wealth.
He added: “The CPI will definitely influence the direction, whether up or down... so there is a lot at stake in this report.”
The Standard & Poor's 500 index has risen by more than 13 percent since the beginning of 2026, supported by an exceptional year for corporate profits. But investors are bracing for the possibility of a decline in September, which is historically the weakest month of the year for US stocks.
With the end of the season for announcing second-quarter results, investors are anticipating other factors that may cast a shadow on the prospects for stocks, such as anxiety in the bond market or the escalation of tensions in the Middle East again.
A clearer picture of inflation
Producer price data will give investors a first glimpse of inflation trends in August during a shorter work week due to the Labor Day holiday, as US markets will be closed on Monday.
The producer price report is scheduled for Thursday, a day before the CPI data. Economists polled by Reuters expect the consumer price index to rise by 0.4 percent on a monthly basis in August, and the core index to increase by 0.2 percent, excluding the volatile food and energy components.
For several years, inflation has been consistently above the Federal Reserve's target level of 2 percent annually. But the consumer price index reading for the previous month showed a very slight increase in prices.
“What really matters in the next CPI reading is whether it actually confirms the slowdown we saw in June and July,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions.
He added: “In this sense, it comes down to one reading.”
The odds of raising interest rates are close
The odds of raising interest rates decreased on Thursday, after statements by Federal Reserve Governor Christopher Waller said that he was inclined to push for keeping interest rates stable if upcoming data confirmed a decline in inflation pressures.
Late Thursday, Federal Reserve funds futures showed nearly identical odds of a rate hike at the next Fed meeting.
Following Waller’s statements, economists at Goldman Sachs said in a note that they expect the Federal Reserve to keep interest rates unchanged, “although raising them remains possible if CPI and producer price data come in higher than our expectations.”
The prospect of tightening monetary policy may negatively affect stock performance in several ways, including raising borrowing costs, slowing the economy. Raising interest rates, and the resulting rise in Treasury yields, may increase competition for investment from bonds and put pressure on stock valuations.
The yield on 10-year US Treasury bonds reached 4.77 percent in its latest trading, moving away from the 5 percent level that investors had previously indicated might constitute a worrying level for stocks.
The US Treasury is scheduled to begin next week its largest long-term debt buyback program, which it announced last month, which is seen as an attempt to limit the rise in Treasury yields.
In another context, Oracle's quarterly results scheduled to be released on Thursday may have repercussions on stock trading related to artificial intelligence. Oracle is one of the giant cloud computing companies that spends heavily on developing data centers dedicated to artificial intelligence.
Some stocks that performed strongly in the artificial intelligence wave, including semiconductor stocks, have declined in recent weeks, but other groups have helped support the Standard & Poor's 500 index.
“This stock market is still dealing with the repercussions of faltering bullish momentum in July, and is looking for new leadership and a new narrative that will drive the next move in the market,” Natixis' Melson said.
Investors' appetite is turning towards liquidity again, as geopolitical tensions escalate, bond markets decline and inflation fears return to the fore. Global money market funds attracted $46.1 billion during the week ending September 2, the largest weekly inflow since August 5, while flows to bond funds slowed and investors turned more to short-term debt instruments.
The United States launched strikes on Iranian military targets near the Strait of Hormuz, while Tehran announced that it targeted American assets throughout the region. Brent crude rose to $97.62 per barrel, its highest level in about a month and a half, which increased concerns about inflation.
Concerns about interest rates also returned to the forefront after Federal Reserve Chairman Kevin Warsh said last week that the central bank would have “work to do” if policymakers were not convinced that core inflation was heading to return to its 2 percent target.
In contrast, global equity funds recorded net inflows of $6.65 billion, exceeding net withdrawals of $6.13 billion in the previous week.
Investors pumped a net $13.09 billion into European stock funds and $4.22 billion into Asian stock funds, while they withdrew about $11.12 billion from US stock funds.
Global sector funds recorded net withdrawals worth $2.62 billion, as investors ended a two-week wave of flows into technology funds with net sales amounting to $856 million. Financial and industrial sector funds also witnessed large withdrawals of $1.35 billion and $484 million, respectively.
Net inflows to global bond funds slowed to $10.01 billion, the lowest level in five weeks, although short-term bond funds attracted $7.43 billion, recording their largest weekly inflow since July 8, according to “LSEG Lipper” data.
Mutual funds also attracted inflows of $1.08 billion, while government and corporate bond funds recorded net withdrawals of $3.34 billion and $1.41 billion, respectively.
In the commodities sector, gold and other precious metals funds continued to attract investors for the eighth week in a row, with inflows amounting to $2.85 billion. In contrast, energy funds recorded a third consecutive week of withdrawals worth $232 million.
In emerging markets, investors extended their series of purchases in equity funds to eight consecutive weeks, with net inflows amounting to $1.99 billion. They also added $646 million to bond funds, according to data that included 28,994 funds.
US stock funds
In the details of US stock funds, they recorded outflows for the second week in a row, and investors withdrew a net $11.12 billion from US stock funds in the week ending September 2, compared to net outflows of $22.72 billion in the previous week, according to “LSEG Lipper” data.
Bond yields and oil prices witnessed a noticeable rise earlier this week. However, the strong results of NVIDIA and Dell Technologies indicated continued strength in spending on artificial intelligence and related trading in the markets.
US large-cap equity funds recorded net outflows of $7.52 billion, down from net sales of $24.73 billion the previous week. Mid-cap equity funds saw outflows of $572 million, while small-cap equity funds recorded outflows of $1.83 billion.
Sector funds recorded net sales of $3.48 billion during the week, led by the technology, financials and industrials sectors. Net outflows from the technology sector amounted to $1.39 billion, followed by the financial and industrial sectors, amounting to $1.31 billion and $620 million, respectively.
US bond fund flows fell to their lowest level in five weeks, recording $4.27 billion during the week, with continued demand for government bond funds and short- to medium-term Treasury bonds, which attracted $4.53 billion.
Short to medium-term investment-grade bond funds and loan participation funds also attracted significant inflows of $1.53 billion and $990 million, respectively.
Money market funds attracted about $48.76 billion, recording the highest level of inflows in four weeks.
US Treasury bond yields and the dollar rose, while the Standard & Poor's 500 index fell slightly on Friday, after job growth in the United States showed an acceleration in August, while the unemployment rate stabilized.
The monthly report indicates that the labor market remains stable, which has strengthened expectations that the US Federal Reserve will raise interest rates later this month, while investors are awaiting consumer inflation data scheduled for release next week as a major factor in determining the central bank’s decision.
The number of non-farm jobs increased by 162,000 jobs last month, after a rate of increase to 21,000 jobs in July. Economists polled by Reuters had expected an increase of 56,000 jobs, after previous data showed a decrease of 23,000 jobs in July.
The 10-year US Treasury bond yield, the benchmark yield, rose by 1.21 basis points to 4.774 percent in the latest trading. It had reached 4.792 percent immediately after the report was issued. The two-year bond yield also reached its highest level since January 2025.
“From the Fed’s perspective, the labor market is still holding up, which means inflation remains the biggest problem,” said Brett Kenwell, US investment analyst at eToro in New York.
He added: “Next week’s consumer price index data will be closely followed, as the Federal Reserve’s decision on interest rates approaches in mid-September.”
Short-term interest rate futures indicate a probability of about 65 percent for a rate hike at the Federal Reserve meeting scheduled for September 15-16, up from about 55 percent before the report was released.
Oil prices fall and the dollar rises
Oil prices have fallen from their recent high levels. Renewed attacks this week in the war between the United States and Iran have sent oil prices soaring, adding to already existing concerns about rising costs.
US crude fell 1.6 percent to $89.87 per barrel, while Brent crude fell 1.3 percent to $94.26 per barrel.
The Dow Jones Industrial Average fell 98.46 points, or 0.19 percent, to 53,587.65 points, the Standard & Poor's 500 Index fell 6.06 points, or 0.08 percent, to 7,741.65 points, while the Nasdaq Composite Index rose 17.02 points, or 0.06 percent, to 26,601.08 points.
The MSCI World Stock Index rose 1.02 points, or 0.09 percent, to 1,155.76 points, while the European Stoxx 600 index rose 0.04 percent.
The dollar index, which measures the performance of the US currency against a basket of currencies that includes the yen and the euro, rose 0.2 percent during the day. The Japanese yen briefly fell 0.41 percent to 156.45 yen to the dollar, before the dollar almost stabilized against the yen in the latest trading.
The spot gold price fell 1.2 percent to $4,418.09 per ounce.
