US stock investors face a critical week as fresh inflation data collides with tariff uncertainty and rising bond yields, challenging equities that sit at record highs. The S&P 500 closed at a new peak on Thursday, but analysts warn valuations look stretched and sentiment may be tested.
September’s Market Pressure
Historically, September has been the weakest month for stocks over the past three decades. “September has been known to see a wearing down of the sentiment picture,” said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. He added, “Stocks aren’t pricing in a lot of risks right now. They look fully valued.”
CPI in the Spotlight
The consumer price index (CPI), due Thursday, is expected to be the key economic release next week. Markets are watching closely for signals on whether inflation could derail expectations of Federal Reserve rate cuts. Fed Fund futures currently show a 96% chance of a quarter-point cut at the September 16-17 meeting, according to LSEG data. “Only a CPI number that comes in egregiously higher than estimates could dent assumptions of imminent monetary policy easing,” said Art Hogan, chief market strategist at B Riley Wealth.
Fed Rate Cut Expectations
Investors are pricing in about 58 basis points of easing by December, equivalent to slightly more than two quarter-point cuts. “The prospect of the Fed cutting has been the overwhelming factor driving equity sentiment to be more positive,” Miskin said. “And so if that reverses, then it could be problematic for equities.”
Tariffs Back in Focus
Markets were jolted this week after a US appeals court ruled most of President Donald Trump’s tariffs illegal. The Trump administration has appealed to the Supreme Court to preserve the duties, but the ruling revived uncertainty. “It felt as though the fog of trade war was clearing, and now we’re just back into the thick of it,” Hogan said. “And that doesn’t help corporate America make decisions, consumers make decisions, and investors make decisions.”
Bond Yields Pressure Equities
At the start of the week, long-dated Treasury yields surged, with the 30-year yield briefly hitting 5% for the first time in over a month. Although yields have since eased, they remain elevated, with the 30-year at about 4.88%. “That yield level has been problematic for risk appetite over the past few years,” said Adam Turnquist, chief technical strategist for LPL Financial.
Valuations at Risk
The S&P 500 has gained more than 10% so far in 2025, boosted by a strong earnings season. However, the index now trades at 22.4 times forward earnings, well above the long-term average of 15.9, LSEG Datastream shows. “Investors face ongoing threats from trade and tariff unknowns as well as potential economic releases … that could ultimately challenge elevated stock valuations,” wrote Anthony Saglimbene, chief market strategist at Ameriprise Financial.
Market Resilience So Far
Despite recurring concerns over inflation, tariffs, and yields, stocks have steadily pushed higher. “Investors have been navigating those dynamics for months, and stocks have continued to grind higher,” Saglimbene noted.