US Stock Market Rally Faces Test in Key Employment and Inflation Reports

The US stock market's rally may be put to the test as investors await key reports on employment and inflation, which could influence interest rate hikes by the Federal Reserve.

The monthly employment report, due on October 2, will be a closely watched event for Wall Street, with expectations of around 100,000 new jobs and an unemployment rate of 4.2%.

A key inflation gauge, the personal consumption expenditures price index (PCE), will also be in focus, particularly after the core PCE index increased 3.3% in the 12 months through July, exceeding the Fed's 2.0% target.

Economists warn that a blowout jobs report could lead to further rate hikes and slow the economy, while higher bond yields may create more investment competition for stocks.