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Pro: Inflation in focus
Following this week's hotter-than-expected August jobs report, the Federal Reserve's interest rate decision on Sept. 15-16 hinges on next week's inflation data, with Fed funds futures pricing showing rate hike bets rising to 58% from 49.4%. Nonfarm payrolls surged 162,000 last month, well above the Dow Jones forecast of 53,000, while the unemployment rate held at 4.1% as expected. July and June payrolls were also revised upward. Stocks fell Friday as investors recalibrated expectations, with the S&P 500 and Nasdaq Composite still finishing the week up 0.1% and 0.4%, respectively, while the Dow Jones Industrial Average dipped 0.3%. The strong labor data supports Fed Chairman Kevin Warsh's view that the market is "quite stable," shifting focus to August's producer price index (PPI) on Thursday and consumer price index (CPI) on Friday as the final puzzle pieces for the rate path. "It's a tug of war between those worried the Fed will raise rates and those who think it will stay on the sidelines," said Sam Stovall, chief investment strategist at CFRA Research. With few other catalysts next week, traders will "focus on the hard data," he added. Treasury yields also loom large: the 10-year note yield hit its highest since November 2023, and the 2-year yield reached its highest since January 2025, driven by global bond yield increases amid Middle East conflict and elevated energy prices. "Yields are becoming a larger deal for the market," said Anthony Saglimbene, chief market strategist at Ameriprise, warning that if the 10-year yield "moves closer to 5%, markets would have a difficult time." U.S. markets are closed Monday for Labor Day. Key data next week includes NFIB Small Business Index, consumer credit, initial jobless claims, PPI, existing home sales, wholesale inventories, CPI, and consumer sentiment.