After Payrolls Comes CPI: U.S. Stocks Enter a Two-Stage Stress Test for a September Rate Hike

Tonight’s jobs report will determine the market’s initial reaction, while next Friday’s CPI may determine the Federal Reserve’s final decision. With U.S. markets closed on Monday for Labor Day, stocks will carry this rate uncertainty into a three-day weekend.

On September 3, all three major U.S. indexes rallied: the Dow rose 1.18%, the S&P 500 gained 1.06%, and the Nasdaq climbed 1.40%.

The catalyst was not another corporate earnings release, but a comment from Federal Reserve Governor Christopher Waller: if upcoming data confirms that inflation is cooling, he would be inclined to support keeping interest rates unchanged in September.

Markets quickly reduced their rate-hike bets. According to the CME FedWatch Tool, the probability of a September hike fell from 63.2% to 50.4% in one day.

In other words, ahead of tonight’s jobs report, the market is almost evenly divided between a rate hike and a pause.

1. Why Does Tonight’s Jobs Report Matter?

The U.S. Bureau of Labor Statistics will release the August employment report tonight at 8:30 p.m. Beijing time.

Current market expectations are:

• Nonfarm payrolls: approximately +56,000

• Unemployment rate: unchanged at 4.1%

• July nonfarm payrolls: previously reported at −23,000

This will be the final full employment report before the Federal Reserve’s September 15–16 policy meeting.

However, this jobs report is unlikely to determine the September rate decision on its own.

The U.S. economy is currently sending two conflicting signals.

On one hand, initial jobless claims increased only slightly to 206,000 last week. Companies are still not conducting widespread layoffs, leaving the labor market in a “slow-hiring, slow-firing” condition.

On the other hand, the ISM Services Prices Paid Index rose to 72.6 in August, its highest level since August 2022. The economy is not showing clear signs of recession, but service-sector price pressures remain elevated.

That leaves the Federal Reserve facing a more difficult combination:

Employment is cooling, but inflation may not be cool enough.

2. Do Not Focus Only on the Payroll Number

Markets will probably trade the headline payroll figure first, but three other factors will determine whether the initial move can continue.

1. Nonfarm Payroll Growth

The market expects approximately 56,000 new jobs.

If the figure comes in clearly above expectations, it would confirm that the U.S. economy remains resilient, but it could also push the probability of a September rate hike higher again.

If payrolls decline for a second consecutive month, markets will begin questioning whether July’s 23,000-job loss was a temporary fluctuation or the beginning of a broader trend.

2. The Unemployment Rate

Compared with the volatile payroll figure, the unemployment rate provides a clearer indication of whether labor-market conditions are deteriorating persistently.

If payroll growth is weak but unemployment remains at 4.1%, markets may interpret it as a controlled cooling.

If the unemployment rate also rises, recession concerns could outweigh the valuation benefits of lower rates or a pause in rate hikes.

3. Wage Growth and Revisions

Wage growth determines whether labor-market conditions continue feeding into service inflation. Revisions to the previous two months will also affect how investors interpret the employment trend.

The most favorable combination for risk assets is therefore not simply “the weaker, the better.” It would be:

Moderating job growth, no sharp rise in unemployment, and no renewed acceleration in wages.

3. How Could Three Different Scenarios Affect Markets?

Scenario One: Employment and Wages Are Both Strong

If payroll growth clearly exceeds 56,000 and wage growth accelerates, the probability of a September rate hike could rise again.

Potential beneficiaries or relative outperformers:

• Banks and selected financial stocks: $Financial Select Sector SPDR Fund(XLF)$

• U.S. dollar-related assets: $Invesco DB US Dollar Index Bullish Fund(UUP)$

Potentially under pressure:

• Long-duration technology and software: $Invesco QQQ(QQQ)$, $iShares Expanded Tech-Software Sector ETF(IGV)$

• Long-term Treasuries: $iShares 20+ Year Treasury Bond ETF(TLT)$

• Gold and gold miners: $SPDR Gold ETF(GLD)$, $VanEck Gold Miners ETF(GDX)$

• Bitcoin and crypto-related stocks: $iShares Bitcoin Trust(IBIT)$, $Coinbase Global, Inc.(COIN)$

The logic is not that stronger employment is negative for corporate earnings. The risk is that higher rates may be priced into valuations before the market reflects any improvement in earnings.

Scenario Two: Employment Is Near Expectations and Wage Growth Cools

This would be the market’s preferred “soft landing” outcome.

Employment would not be deteriorating rapidly, while softer wage pressures would allow the Federal Reserve to wait for next week’s inflation data without needing to raise rates immediately.

Technology, software, small-cap stocks, and crypto assets could all receive some relief, while the recently pressured Treasury market may stabilize.

Scenario Three: Payrolls Decline Again and Unemployment Rises

The initial reaction could include falling Treasury yields and a weaker dollar, rising gold prices, and a sharp reduction in the probability of a September rate hike.

However, if the report is weak enough to trigger recession concerns, market performance could quickly diverge:

• $TLT and $GLD could benefit

• $iShares Russell 2000 ETF(IWM)$, retailers, banks, and cyclical stocks could face pressure

• Technology stocks could initially trade on lower rates before investors reassess earnings risks

A weak jobs report does not automatically mean a broad stock-market rally. A slightly soft report and a labor-market breakdown would produce two very different trading environments.

4. Why Will This Topic Remain Relevant Throughout the Weekend?

U.S. stock markets will be closed on Monday, September 7, for Labor Day, creating a three-day weekend after Friday’s close.

Meanwhile, Bitcoin, foreign exchange, precious-metals sentiment, and geopolitical developments in the Middle East will not pause.

After the U.S. market closes tonight, investors should continue watching:

1. Whether the 10-year Treasury yield maintains its recent pullback

2. Whether Bitcoin sustains risk appetite over the weekend

3. Whether oil prices continue rising on geopolitical risk

4. Whether the market’s September rate-hike probability stabilizes

5. Whether market breadth improves alongside the major indexes

Bitcoin deserves particular attention. Because crypto trades throughout the weekend, it may provide a temporary window into risk appetite while the U.S. cash market is closed.

However, weekend liquidity is lower, so one sharp move in either direction may not fully predict how U.S. stocks will trade on Tuesday.

5. After Payrolls, CPI Is the Real Finish Line

Waller has explicitly said that his September policy decision will be “heavily influenced” by the August inflation data.

The U.S. will release PPI on September 10 and CPI on September 11, followed by the Federal Reserve’s policy meeting on September 15–16.

That creates a clear two-stage stress test for markets:

• Stage one: Payrolls will indicate whether the economy and labor market are overheating.

• Stage two: CPI will determine whether inflation allows the Federal Reserve to continue waiting.

Even if tonight’s jobs report is weak, a renewed increase in CPI next week could quickly revive rate-hike expectations.

Conversely, even if employment is slightly stronger, the Federal Reserve may not need to act immediately if wages and inflation continue cooling.

Tiger’s View

The most important question tonight is not whether payrolls beat or miss expectations by 10,000 jobs. It is whether Treasury yields and the probability of a September rate hike move in the same direction after the report.

Markets have already placed the rate-hike probability at approximately 50%, meaning that any meaningful deviation from expectations could trigger significant repricing.

For U.S. stocks, the most comfortable outcome would be a moderate cooling in employment, no renewed acceleration in wages, and a stable unemployment rate.

If the report is too strong, it could push rates higher again. If it is too weak, it could trigger growth concerns. The true Goldilocks range is becoming narrower.

For gold, I will continue watching U.S. real yields and the dollar. Gold already rose approximately 2% on Thursday and could receive further support if payrolls are weak. However, before CPI is released, the market’s rate expectations could reverse again at any time.

Tonight’s jobs report will reveal the first card. Next week’s CPI will turn over the final answer.

Which theme do you think the market will trade after tonight’s jobs report?

A. Strong employment pushes rate-hike expectations higher
B. Moderate cooling allows technology stocks to continue rebounding
C. Labor-market deterioration triggers a recession trade
D. Payrolls have limited impact as markets wait for next week’s CPI

Primary sources: U.S. Bureau of Labor Statistics Release Calendar | Reuters: Employment and Services Inflation | Reuters: U.S. Stocks and Rate-Hike Probability | AP: Waller and the September Rate Decision | Nasdaq Holiday Schedule

This content is provided for market discussion only and does not constitute investment advice. Market expectations may change before the data release. Please refer to the final report published by the U.S. Bureau of Labor Statistics.