US Stocks Face Jobs, Inflation Test as Fed Rate Hike Bets Rise

U.S. stocks face a crucial test in the coming week as investors await employment and inflation data that could shape expectations for the Federal Reserve’s next interest rate move.

Major indexes remained near record highs Friday, with the S&P 500 less than 1% below its mid-August peak. Technology and artificial intelligence-related stocks have helped support the market despite a sharp rise in Treasury yields.

The September employment report, scheduled for October 2, is expected to dominate Wall Street’s attention. Economists polled by Reuters forecast payroll growth of 100,000 jobs and an unemployment rate of 4.2%.

Investors are particularly sensitive to labor-market strength after the Fed raised interest rates by 25 basis points on September 16, its first increase in three years, and signaled another hike could come before year-end. Fed funds futures indicated more than a 60% probability of another increase at the October meeting, according to LSEG data.

A stronger-than-expected jobs report could reinforce those expectations and pressure equities. Higher interest rates can increase borrowing costs, slow economic activity and make bonds more competitive with stocks.

Treasury yields are already creating concerns. The 30-year yield climbed to its highest level in more than two decades this week, while the benchmark 10-year yield moved well above 5%.

Weakness has also emerged beneath the headline indexes. While the S&P 500 is little changed in September and remains about 13% higher in 2026, eight of its 11 sectors are down for the month. The equal-weight S&P 500 has fallen roughly 4%, highlighting softer performance among the average stock.

Technology remains a bright spot, particularly semiconductor companies benefiting from AI demand. Micron Technology is scheduled to report quarterly results Wednesday.

Investors will also monitor the personal consumption expenditures price index, the Fed’s preferred inflation measure. Core PCE inflation previously rose 3.3% year over year through July, remaining above the central bank’s 2% target. Signs of easing inflation could reduce pressure for more aggressive Fed rate hikes and provide support for U.S. stocks.