Reasons for optimism include the relative outperformance of the U.S. Strategists and investors currently have largely held faith in the market despite stocks’ recent wobble. "If we get a high inflation print we will see those expectations pick right up" for September and November, said Randy Frederick, managing director of trading and derivatives for the Schwab Center for Financial Research. Markets are also pricing in a nearly 44% chance of a rate hike at the Fed’s Nov. central bank is widely expected to hold benchmark rates steady at its Sept. Investors trying to assess future Fed policy will watch other data in the coming week too, including a reading of the producer price index and retail sales. "If we're hitting a structural shift with higher nominal GDP growth, that will come with some volatility and unintended consequences." "This inflation demon is far from being destroyed," said Michael Purves, head of Tallbacken Capital Advisors, who expects signs of higher inflation will weigh on the multiples of megacap growth names that have powered the rally. That would give investors less reason to hold onto stocks after a tech-led drop in which the S&P 500 lost about 5% from summer highs. Too high a number could fan fears of the Fed leaving interest rates higher for longer or hiking them more in coming months. Consumer price data next week may need to strike a similar balance, investors said.
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