US stocks were pointing slightly lower before Thursday's opening bell, as investors braced for two key economic reports that could shape the Federal Reserve's next move on interest rates. The focus is on September's producer price index (PPI) and retail sales figures, which arrive at 8:30 am ET and will offer fresh clues on whether inflation is still running too hot for the central bank's comfort.
The caution follows Tuesday's consumer price index (CPI) report, which came in warmer than Wall Street expected. That has reignited worries that the Fed may not be done raising rates, even as many traders still believe the central bank will hold steady at its meeting later this month.
What the data will tell us
PPI measures the prices that businesses pay for goods and services at the wholesale level. It's often seen as an early warning sign for consumer inflation, since those costs can eventually be passed on to shoppers. Economists expect PPI to have risen 0.6% in September from August, and 5.4% from a year earlier.
Retail sales, meanwhile, track how much consumers are spending at stores and online. That's a direct read on the strength of the American consumer, who has been the main engine of economic growth. Forecasters expect a 0.3% increase in September, a slowdown from August's robust 1.2% jump.
If both numbers come in above expectations, it would suggest the economy is still running hot—and that the Fed might need to keep rates higher for longer to cool things down. That scenario would likely push Treasury yields up and put pressure on stocks, especially growth-oriented tech shares.
What the market is pricing in
Despite the hot CPI print, most traders still think the Fed will pause at its next meeting. According to CME's FedWatch tool, there's about a 71% chance the central bank leaves rates unchanged, with the remaining probability split on a quarter-point hike.
But the bond market is reflecting the uncertainty. The 2-year Treasury yield was hovering near 4.73% early Thursday, while the 10-year yield sat around 5.08%. These levels are significant because they influence borrowing costs across the economy, from mortgages to corporate debt.
The 2-year yield is particularly sensitive to expectations for short-term rates over the next couple of years. If Thursday's data surprises to the upside, that yield could climb further, signaling that investors expect the Fed to keep rates elevated for longer.
What it means for investors
For everyday investors, the stakes are straightforward: higher interest rates make borrowing more expensive and can slow economic growth. They also raise the discount rate used to value future profits, which tends to hit stocks with earnings expected far in the future—like many tech companies—harder than those with more immediate cash flows.
That's why the Nasdaq 100 often reacts more sharply than the Dow on days like this. If the data comes in hot, expect growth stocks to feel the most pressure. If the numbers miss expectations, it could ease fears of another hike and give stocks a boost.
The reports also matter for anyone with savings or debt. A stronger-than-expected economy could keep the Fed on a hawkish path, meaning higher yields on savings accounts and CDs, but also higher costs for credit cards and loans.
Investors will be watching not just the headline numbers, but also the details—like how much of the PPI increase is driven by volatile energy prices, and whether retail sales are broad-based or concentrated in a few categories.
As the market digests these reports, expect volatility to pick up. The combination of inflation and consumer spending data landing at the same time forces investors to update two of the most important inputs for rate expectations: price momentum and demand.
For now, the market is in a wait-and-see mode, with the 2-year yield near 4.73% amplifying sensitivity to any surprise. Thursday's data could reset the outlook for the Fed's next move—and for your portfolio.
