Markets Edge Higher Ahead of Inflation Data, Despite Labor Concerns and Rising Yields

U.S. equities extended gains to fresh record highs on Tuesday, with the S&P 500 and Nasdaq climbing modestly amid growing expectations for a Fed rate cut next week. The rally was led by Big Tech and bolstered by Oracle’s strong bookings after hours. Bond yields ticked higher as traders eyed upcoming inflation reports, which will be pivotal in shaping policy expectations. Markets are pricing in three rate cuts by year-end, but a hotter CPI could challenge that view. Meanwhile, the labor market continues to show signs of softening, setting the stage for what many expect to be the start of a Fed easing cycle.

Key Headlines & Market Movers

• Fed Rate Cut Bets Rise as Labor Market Weakens: Investor conviction around near-term rate cuts strengthened after data revealed payrolls were overstated by 911,000 over the past year, a record downward revision. Fed officials are now perceived as more likely to cut rates at the upcoming meeting, with consensus leaning toward a quarter-point move. However, some warn that deeper cuts might signal economic distress rather than reassurance. The market will closely watch Thursday’s CPI for confirmation.
• Inflation in Focus - CPI Could Make or Break Fed Narrative: With both CPI and PPI data due ahead of the Fed’s Sept. 16-17 meeting, markets are on edge. A soft inflation read would reinforce the case for a cut, but a hotter-than-expected print could ignite stagflation concerns. Core CPI is expected to rise 0.3% for the second straight month. Traders are anticipating a modest move in the S&P 500 post-release, reflecting both high stakes and uncertainty.
• Tech and AI Continue to Power Market Gains: Big Tech outperformed, helping offset broader market weakness. Nvidia rose 1.5% on AI infrastructure news tied to Microsoft’s $19.4 billion deal with Nebius Group. Oracle jumped after hours on strong bookings. Google Cloud revealed $106 billion in unfulfilled contracts, pointing to robust demand. Apple, however, fell 1.5% after unveiling an underwhelming iPhone 17, denting enthusiasm.
• Oil Rises on Geopolitical Tensions; Gold and Bitcoin Retreat: Oil prices rebounded amid renewed geopolitical tensions in the Middle East following Israeli strikes in Qatar. WTI rose 0.6% on the day. Gold pulled back slightly but remains near record highs on Fed cut hopes. Bitcoin slipped again, now down significantly from August highs, as sentiment continues to cool.

S&P 500 Sector Performance

Looking Ahead

All eyes are on Thursday’s CPI release, which could be a market catalyst and sway Fed policy expectations dramatically. A balanced print may solidify the case for a measured easing cycle, but any surprises could swing sentiment sharply. Positioning is cautious, and volatility may return depending on how inflation trends unfold.

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