The strong rally in US equities could face increasing pressure in the final stretch of the corporate earnings season as investors grapple with rising inflation concerns and surging bond yields.
The benchmark S&P 500 has shown signs of volatility this week but remains less than 1% below its record high.
The index is still up more than 8% for the year, supported largely by strong corporate earnings.
Bond market selloff unsettles Wall Street
A sharp selloff in the bond market has added to investor anxiety in recent sessions.
The benchmark 10-year Treasury yield climbed this week to its highest level since January 2025, while the 30-year Treasury yield touched its highest level since 2007.
Higher yields, which move inversely to bond prices, typically create headwinds for equities by increasing borrowing costs for businesses and consumers while also pressuring stock valuations.
Market participants have pointed to persistent inflation concerns and rising energy prices linked to the war as major reasons behind the move in yields.
Jim Baird, chief investment officer at Plante Moran Financial Advisors, said inflation concerns continue to weigh heavily on markets.
Inflation data in focus
Investors are now closely watching upcoming economic data for further direction, particularly the April reading of the personal consumption expenditures price index, or PCE.
The PCE index, which is the Federal Reserve’s preferred inflation gauge for its 2% annual target, is scheduled for release on Thursday.
The data follows unexpected readings this month from other consumer and producer inflation measures.
Inflation worries are also reshaping expectations around US monetary policy.
Futures markets are now pricing in the possibility of a Federal Reserve rate hike later in 2026.
Earlier this year, markets had been expecting rate cuts that would have been more supportive for equities.
Minutes from the Federal Reserve’s latest policy meeting showed policymakers becoming increasingly concerned that price increases linked to the US-Israeli war on Iran could worsen inflation pressures.
Several officials were reportedly open to the possibility of raising rates if needed.
Additional economic releases expected in the coming week include an updated estimate of first-quarter economic growth and fresh consumer confidence data.
Earnings remain strong as retailers, AI firms take spotlight
Despite growing macroeconomic concerns, first-quarter earnings have remained strong overall.
With more than 90% of companies in the S&P 500 having reported results, earnings are on track to rise more than 28% from a year ago, according to LSEG IBES data.
Several major retailers are set to report results in the coming week, including Costco, Best Buy, and Dollar Tree.
Investors will be watching closely for signs that higher fuel prices are hurting broader consumer spending patterns.
Shares of Walmart fell on Thursday after the retailer maintained its cautious annual sales and profit forecasts.
Artificial intelligence-related companies are also expected to remain in focus, with upcoming earnings from Salesforce and Dell Technologies.
Meanwhile, chipmaker Nvidia, widely viewed as a key indicator of AI demand, forecast second-quarter revenue of $91 billion on Wednesday, surpassing Wall Street estimates.
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