*

CPI data set for Thursday, PPI a day earlier

*

Markets widely expect rate cut at Fed meeting later in

month

*

Tariff uncertainty re-emerges following court ruling

By Lewis Krauskopf

NEW YORK, Sept 5 (Reuters) - A spate of inflation data

confronts U.S. stock investors in the coming week as markets

grapple with fresh uncertainty over tariffs and government bond

yields, while equities hover at lofty valuations.

The benchmark S&P 500 index closed at a record high

on Thursday despite an uneven start to September, which has been

the worst month for stocks on average over the past 35 years.

"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.

At the same time, he said, "stocks aren't pricing in a lot

of risks right now. They look fully valued."

The monthly U.S. consumer price index on Thursday highlights

next week's economic releases, with investors focused on signals

from the inflation data about the prospects for interest rate

cuts and the fallout from tariffs on prices.

Following Federal Reserve Chair Jerome Powell's remarks late

last month that flagged rising risks to employment, markets have

been widely expecting the central bank to lower rates for the

first time in nine months at its September 16-17 meeting.

Fed Fund futures were baking in a 96% chance of a quarter-point

rate cut at the meeting, LSEG data as of Thursday showed, so

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.

About 58 basis points of easing, or slightly more than two

standard cuts, are projected by December, according to the

futures data.

Recently, "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."

Along with CPI, a Wednesday report on producer prices could also

reveal impacts from import tariffs. Last month's PPI data showed

U.S. producer prices increased by the most in three years in

July as the costs of goods and services surged.

Tariffs and their implications for the economy were the main

risk facing markets earlier this year, but other factors such as

questions over Fed independence and caution about the artificial

intelligence trade have been more prominent recently.

The issue returned to the fore this week after a U.S. appeals

court ruled that most of President Donald Trump's tariffs are

illegal. While the Trump administration since asked the U.S.

Supreme Court to hear a bid to preserve the sweeping tariffs,

the ruling injected fresh uncertainty for markets.

"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."

The potential of lost tariff revenue exacerbating the U.S.

fiscal deficit was one factor investors said may have driven

long-dated U.S. government debt yields sharply higher at the

start of the week, moves that also followed big jumps in yields

in the UK and other regions.

While long-dated yields globally have since calmed, their spikes

were cited as contributing to stock weakness initially during

the week.

The 30-year U.S. Treasury yield this week hit 5% for the first

time in over a month. That yield level has been "problematic"

for risk appetite over the past few years, said Adam Turnquist,

chief technical strategist for LPL Financial. The long-bond

yield was last around 4.88%.

The S&P 500 was up over 10% so far in 2025, helped recently

by a solid second-quarter earnings season. The S&P 500's

price-to-earnings ratio climbed to 22.4 times, based on earnings

estimates for the next 12 months, a valuation well above its

long-term average of 15.9, according to LSEG Datastream.

"Investors face ongoing threats from trade and tariff unknowns

as well as potential economic releases ... that could ultimately

challenge elevated stock valuations," Anthony Saglimbene, chief

market strategist at Ameriprise Financial, wrote in a

commentary.

"That said, investors have been navigating those dynamics

for months, and stocks have continued to grind higher."