This week will focus on the labor market, inflation, updates on weight-loss drugs, and the earnings of key players in the AI industry. New employment and inflation data will be released as Wall Street debates whether the Federal Reserve’s first rate hike in three years marks the beginning of a long tightening cycle or the beginning of a short-term one. This week’s announcements cover both sides of the Fed’s dual mandate of maximum employment and price stability, creating the potential for instability in expectations for rate hikes. Wednesday night’s gains for the club, named Micron, will test a rebound in AI stocks that began in mid-September following a brief sell-off stemming from growing concerns about AI’s safety risks. There were such concerns. Eli Lilly also spotlights the next phase of the obesity drug race. Here’s a closer look at what to expect. 1. Jobs, jobs, jobs: Friday’s September nonfarm jobs report will be the week’s biggest economic report. This will be preceded by the release of the so-called JOLTS report, or Recruitment and Turnover Survey, on Tuesday morning, followed by the release of payroll company ADP’s private employment report on Wednesday. JOLTS, which measures the tightness of the labor market and the turnover rate, covers August, so the information is relatively old. Therefore, it is the least important of the three. The ADP statistics are for September and will be the appetizer for Friday’s official government announcement. The consensus is to add 58,000 private sector jobs, according to FactSet. Economists expect payrolls to rise by 82,500 in September, with the unemployment rate unchanged from August’s 4.1%. August’s jobs report was much better than expected, likely helped by the Fed’s decision to raise interest rates by a quarter of a percentage point at its September meeting, while inflation remained above its 2% target. “There’s a pretty broad set of data that shows the economy is strengthening, including in the labor market,” Federal Reserve Chairman Kevin Warsh said in explaining why the central bank decided to raise rates in September after keeping them on hold in July. The Fed’s interest rate hikes are said to help curb inflation by raising borrowing costs and slowing economic activity. This is a blunt measure, but the central bank cannot reopen the Strait of Hormuz and resume energy supplies in the pre-war pattern. Nor can companies be directly forced to curb capital investment to build new data centers or manufacturing plants. As long as these inflationary forces remain intact and economic activity remains resilient in other areas, the Fed’s job of achieving price stability will become increasingly difficult and further rate hikes more likely. Indeed, traders last week increased bets on further tightening at the upcoming Fed meeting after S&P Global’s monthly survey of U.S. manufacturing and services activity, known as the Purchasing Managers’ Index (PMI), came in much better than expected. Friday’s closely watched employment report could have a similar impact. As of Sunday, traders were pricing in a 66% chance of a quarter-point rate hike at the Fed’s end-October meeting, and a roughly 50-50 chance of another hike in December. 2. Inflation data: Two days before the jobs report, the August personal consumption expenditures (PCE) price index, also known as the Fed’s preferred inflation measure, is available. According to FactSet, PCE is expected to rise 0.4% month over month and 3.8% annually. On a core basis, which excludes more volatile food and energy prices, economists expect prices to rise 0.3% month-on-month and 3.4% year-on-year. The Fed pays close attention to core PCE, believing that it is a better indicator of underlying inflation trends. Some of the data used to calculate the PCE index is included in the Bureau of Labor Statistics’ Consumer Price Index (CPI) and Producer Price Index (PPI). The August CPI and PPI were released before the Fed’s September rate hike, allowing central bankers to speculate on what the PCE would indicate. “This summer’s inflation numbers do not indicate a significant improvement in the underlying trend,” Warsh said. However, the August PCE is not without intrigue. The Bureau of Economic Analysis publishes the PCE in its monthly Personal Income and Expenditure Report, and the Bureau now plans to issue an updated version of its methodology. BEA is changing the way it aggregates spending on financial services such as portfolio management, computer software and accessories, and legal services. The agency plans to release retrospective data through the first quarter of 2021. In a blog post last week, economists at RBC Capital Markets predicted that the update to the PCE methodology could result in a “one-time change in the measured U.S. inflation rate, resulting in a lower-than-expected reading.” However, it added: “Importantly, we caution against misinterpreting Wednesday’s lower-than-expected statistics as a sign of further disinflation.” 3. Micron Earnings: Wednesday night’s earnings from Micron are sure to move the market, not just in the company’s stock, but in AI trading more broadly. The demand for Micron’s memory chips can be extrapolated to the demand for overall AI computing. As a reminder, agent AI systems like Meta’s Muse require large amounts of high-bandwidth memory (HBM) to maintain context across tasks. As demand and adoption of agent AI increases, memory demands will also increase. The debate is not about current demand but about the durability of the current investment cycle. How long will the industry be supply constrained and therefore able to maintain strong pricing power and high profit margins? Eventually supply will catch up and demand will be further met. In other words, it’s not so much a question of whether prices will fall as it is a matter of when. These questions are expected to dominate Micron’s conference call. Bank of America analysts said hyperscalers recently agreed to increase memory prices in the first half of 2027 compared to the fourth quarter of 2026. Nevertheless, “despite increased near-term pricing optimism, we still model memory prices as potentially falling more than 10% in (calendar 2028),” it said in a Sept. 22 note to clients. Micron has sought to add durability to the cycle by entering into strategic customer agreements (SCAs). When Micron reported its third-quarter results in June, it said it had 16 such take-or-pay agreements with customers. CEO Sanjay Mehrotra told Jim Cramer on August 20 that Micron has since signed additional SCA without disclosing the new numbers. We’re hoping to get those numbers Wednesday night. These agreements allow Micron to invest in the capacity it needs to increase production while protecting itself from future declines in customer demand as it continues to build out its AI. Investors will pay close attention to SCA’s comments. That’s because the deal provides greater transparency into future revenue, the portion of revenue that customers are contractually obligated to pay whether they want or need tips. Indeed, if there is a broader slowdown in AI investment, SCA alone will not be enough to compensate for cycle weakness. “We do not believe that SCA alone can justify multiple expansions or completely prevent a recession,” BofA analysts said. “MU’s earnings power and valuation remain attractive if AI capital spending persists. If AI spending weakens, both customer purchases and future capacity additions will adjust.” Weakness is not a risk this financial year, but SCA is calling this out to make clear that while it helps with cycle durability, our investments are about real demand and not contractually obligated future revenue streams based primarily on demand forecasts. Rosenblatt analysts note that they expect the number of SCAs to increase over time and that the agreement will account for “up to 40% of bits produced over the next three to five years.” We also intend to listen to management’s active recommendations regarding future stock repurchases. Micron is currently restricted from conducting large-scale stock buybacks due to its acceptance of CHIPS Act subsidies. However, this restriction is set to expire on December 9th, potentially allowing for a huge buyback program. BofA estimates that the free cash flow generated over the past year alone would be enough to buy back 8% to 10% of its outstanding shares. As of Friday, Micron was expected to post earnings of $31.49 per share and revenue of $50.9 billion, according to estimates compiled by LSEG. However, keep in mind that it really takes a beat with better-than-expected guidance for the stock to react positively. The stock is up 17% since September 14, the day we last bought it. However, it is still down 11% from its all-time closing price on June 25, after the third-quarter results. We initiated the position on August 11th and the stock has increased approximately 25% since that date. 4. Lilly updates: Beyond earnings, hear the latest from Eli Lilly at the European Diabetes Society’s annual meeting. The drug company plans to present trial data on several key pipeline assets for diabetes treatment: late results for letartortide investigating once-weekly injections in adults with obesity and type 2 diabetes; Lilly announced topline results for this trial in July. Conference presentations will allow for a deeper dive into the results for a more comprehensive analysis. Mid-term results of eloraTZP, a combination therapy of eloralintide and tirzepatide in adults with obesity and type 2 diabetes. Tirzepatide is the active ingredient behind Lily’s Munjaro for diabetes and Zepbound for obesity. In this trial, it will be used in combination with eloralintide, which is not yet approved. Late-stage results of Foundayo in obese adults with type 2 diabetes with increased cardiovascular risk. Foundayo is currently approved by the FDA as an obesity treatment, but not yet as a diabetes drug. That could happen later this year, and CEO Dave Ricks told CNBC last week that it would be a “huge expansion” for Foundayo. Munjaro’s final stage results in a head-to-head study with Lilly’s Trulicity examining its ability to reduce serious heart-related complications such as heart attacks, strokes and death. In a note to clients earlier this month, Leerink analysts said they were most interested in updates to EloraTZP and expected “better weight loss and tolerability rates than higher-dose tirzepatide.” They expect this combination to move into late-stage trials in the coming months. Eloralintide mimics a hormone produced in the pancreas known as amylin, which increases the brain’s sense of satiety. Tirzepatide, on the other hand, works by suppressing appetite, slowing digestion, and improving insulin response by mimicking gut hormones known as incretins. In particular, Lilly’s tirzepatide mimics the GLP-1 and GIP hormones. It is hoped that by combining drugs that target both amylin and incretin hormones, they may act complementarily and achieve better weight loss with fewer side effects. Lilly is also studying elolarintide as a monotherapy, with late-stage results from that trial expected in 2028. One Week Ahead, Monday, September 28th Dallas Fed Index at 10:30 a.m. ET Before the Bell: No notable earnings report After the Bell: Jefferies Financial (JEF) Tuesday, September 29 FHFA Home Price Index at 9:00 a.m. ET August JOLTS Report at 10:00 a.m. ET Conference Board Consumer Confidence Survey at 10:00 a.m. ET Before the bell: Carnival (CCL), CarMax (KMX) After the bell: Concentrics (CNXC Wednesday, September 30th, ADP employment survey at 8:15 a.m. ET) PCE price index at 8:30 a.m. ET Before the bell: Conagra Brands (CAG, Jabiru (JBL), FactSet (FDS), Cal Main Foods (CALM)) Bell: Micron (MU) October 1 First unemployment claims on Thursday, Oct. 2 at 8:30 a.m. ET Before the bell: Accenture (ACN), Acquity (AYI), McCormick (MKC) After the bell: Nike (NKE) Nonfarm payrolls report on Friday, Oct. 2, at 8:30 a.m. ET (Jim Cramer Charitable Trusts long on MU and LLY. 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