Under the expectation of a Fed rate cut, CPI data may become the stock market's barometer.

On September 7, with the Fed's rate cut in September almost a foregone conclusion, options traders generally expect the stock market to operate steadily before the CPI data is released on Thursday. However, if the data shows rising inflation, such bets may carry hidden risks. The logic behind market expectations for a rate cut is quite simple: U.S. job growth has stalled, and the economy needs stimulus. Friday's weak employment data further reinforced these expectations, prompting investors to fully price in a 25 basis point rate cut by the Fed next week. The market reacted mildly: U.S. stocks fell slightly on Friday, the fear index rose slightly, but still remained well below the key level of 20, mostly staying below this level since June.

Looking ahead, options traders are betting that the S&P 500 index will experience a bidirectional volatility of about 0.7% after the CPI is released on Thursday, below the average actual volatility of 1% over the past year. However, this trading logic overlooks a major risk: what if inflation data significantly exceeds expectations? "The current balance is very delicate," said Eric Teal, Chief Investment Officer at Comerica Wealth Management. "Any very positive or very negative data could change the market outlook."