The Odds of a September Rate Hike Just Jumped. Should You Still Buy the S&P 500?

Following last week's stronger-than-expected jobs report, the odds of a Fed rate hike at next week's meeting jumped from around 35% to nearly 60%. This week's Consumer Price Index (CPI) inflation report could push that number even higher.

The U.S. economy added 162,000 jobs in August, well above expectations, while the unemployment rate remained steady at 4.1%. The June and July numbers were also revised higher, suggesting that the labor market may be more resilient than originally thought.

This is good news for the economy, but not for stocks. The S&P 500 (SNPINDEX: ^GSPC) declined on Friday, anticipating that higher rates could slow future growth prospects.

With the inflation report later this week adding another wild card to the situation, should investors keep buying the Vanguard S&P 500 ETF (NYSEMKT: VOO), or wait until after next week's Fed decision?

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Another rate hike became much more likely

We know already that the August jobs report increased the chances that the Fed will raise rates next week. The big question now is whether the August inflation report is about to increase the chances even further.

That's a legitimate short-term risk for the S&P 500. In the recent past, almost any economic number or news report that could be viewed as helping the case for rate hikes has been negative for stocks. Even in the face of stronger corporate earnings or a healthy labor market, stocks don't like the idea of tighter monetary conditions.

A cooler inflation report could delay a Fed rate hike for at least one more meeting, but a hotter report could potentially lock in a rate hike for next week's meeting.

Should investors keep putting their money in the S&P 500?

However, one Fed meeting shouldn't alter a long-term portfolio plan. Anything that happens in the next month should be considered only a minor issue for someone who plans on being invested for the next couple of decades.

In other words, as long as your time horizon, risk tolerance, or investment objectives haven't changed, there's probably no need to change the equity allocation in your portfolio.

If you happen to be wrong in your prediction of what the inflation report, Fed decision, or stock market response will be, there's a good chance it'll end up costing you in performance results. Market timing and predicting the future usually don't work. I don't see any reason why this week would be any different.

If you're regularly contributing to your portfolio, the best bet is to do nothing. Even if the market does turn lower, this allows you to buy shares at discount prices. That can even end up enhancing your returns in the long run.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.