Investors zero in on August inflation data in the week ahead after yields spike to levels not seen in years

Following this week's much hotter-than-expected August jobs report , next week's inflation data takes on even greater importance for investors as they try to determine where the Federal Reserve could go with interest rates later this month.

On Friday, nonfarm payrolls rose 162,000 last month , well above the Dow Jones forecast of 53,000, while the unemployment rate came in line with expectations at 4.1%.

July and June also saw upward revisions. Stocks fell as investors recalibrated their expectations on the Fed's rate decision when it meets Sept. 15-16. Fed funds futures pricing showed bets for a hike at that meeting grew to 58% from 49.4% the day before, according to the CME FedWatch tool .

With the report supporting Fed Chairman Kevin Warsh's recent comments that the labor market is " quite stable ," the release of August's producer and consumer price index readings on Thursday and Friday, respectively, will serve as the final piece in the rate path puzzle for investors.

"What's been happening in the market now is that it's the tug of war between those who are worried that the Fed will be raising rates and those who think that the Fed will remain on the sidelines," said Sam Stovall, chief investment strategist at CFRA Research. That focus is exacerbated by the fact that there also aren't many other competing catalysts next week, Stovall noted.

Unless Russian President Vladimir Putin suddenly says he's going to halt the war in Ukraine or unless Iran wishes to negotiate a ceasefire agreement, he believes that traders are "going to focus on the hard data." "They're going to all come from Missouri and say, 'Show me,'" he said.

Yields still in play While some like Ameriprise's Anthony Saglimbene believe the market could be overreacting to the prospect of a rate hike this month, there's another force that could weigh on equities next week: Treasury yields. This past week, the yield on the 10-year Treasury note rose to its highest level since November 2023 . The 2-year note yield also reached its highest since January 2025 .

Those moves came amid a broader run-up in global bond yields , spurred in part by growing inflation fears as energy rises remain elevated from the ongoing conflict in the Middle East. "Yields are becoming a larger deal for the market," said Saglimbene, his firm's chief market strategist.

"Markets see volatility increase when longer-term rates are moving higher, and I think that is going to be an underlying issue for the market for the rest of this year." That's especially the case if the 10-year yield starts "moving closer to 5%," he said. "Markets would have a difficult time with that."

The S & P 500 and Nasdaq Composite finished the week in positive territory, rising 0.1% and 0.4%, respectively. The Dow Jones Industrial Average , on the other hand, fell about 0.3%. The market is closed on Monday for the Labor Day holiday.

Week ahead calendar All times ET. Monday, Sept. 7 U.S. markets closed for Labor Day Tuesday, Sept. 8 6 a.m.: NFIB Small Business Index (August) 3 p.m.: Consumer credit (July) Wednesday, Sept.

9 None. Thursday, Sept. 10 8:30 a.m.: Initial jobless claims (week ended Sept. 5) 8:30 a.m.: Producer price index (August) 10 a.m.: Existing home sales (August) 10 a.m.: Wholesale inventories (July) Friday, Sept. 11 8:30 a.m.: Consumer price index (August) 10 a.m.: Consumer sentiment (preliminary, September)