Stocks Hover Near Records as Inflation Data Looms

Market awaits key inflation reports that could shape Fed’s next move

U.S. stock markets treaded water early Monday, with major indices hovering on the edge of all-time highs. Investors are keenly awaiting a week packed with crucial inflation data that could influence future interest rate decisions.

Inflation Data to Dictate Monetary Policy

The Dow Jones Industrial Average saw a slight dip of 81 points, or 0.2%, while the S&P 500 gained 0.1%. The Nasdaq Composite climbed 0.3%. This week’s Consumer Price Index (CPI) report on Tuesday and the Producer Price Index (PPI) on Thursday are critical for assessing the path of interest rates, particularly for the Federal Reserve’s September meeting.

Jay Woods, chief global strategist at Freedom Capital Markets, emphasized the importance of the upcoming economic indicators. He stated, “The most important thing is the CPI data. That will definitely dictate monetary policy.”

Rate Cut Expectations Face Scrutiny

The Federal Reserve’s Jackson Hole meeting, scheduled for August 21-23, could also set the tone for monetary policy. While the market currently prices in an 87% probability of a rate cut in September, analysts suggest this optimism might be premature. “I’m getting a little concerned that the market is going to end up being disappointed,” commented **Sam Stovall**, chief investment strategist at CFRA Research. “The Fed will have a conundrum to deal with if inflation remains sticky and if the consumer remains willing to spend — where is the need to cut rates?”

Last week, the Nasdaq closed at a new record high, and the S&P 500 finished very near its own milestone. The Dow also ended the week on a positive note, offering a rebound after a prior week’s disappointing employment report.

Market Faces Seasonality and Valuation Concerns

Despite recent gains, some investors are questioning the market’s resilience amidst high valuations, a potentially cooling macroeconomic outlook, and tariff impacts, all occurring during a typically weaker seasonal period. Woods suggested the market might be entering a “digestion phase.” He added, “We may get a little bit of sideways action in this market, which is not a bad thing.”

The U.S. benchmark 10-year Treasury yield remained steady around 4.18% on Monday morning, providing a backdrop for the equity market’s cautious trading. This stability comes as markets digest mixed economic signals globally.