U.S. equity markets have extended their advance into the year, powered largely by technology names buoyed by strong profit expectations linked to artificial intelligence. The S&P 500 has climbed more than 10% year-to-date, while semiconductor stocks and other megacaps have staged a sharp recovery since late March.
Investors now face a sequence of events that could reshape risk sentiment: the monthly employment report due on June 5 and quarterly results from Broadcom later in the week. Both releases are likely to influence perceptions about inflation, the Federal Reserve's policy trajectory and the sustainability of the recent market rally.
Where the market stands
Technology stocks have led the rebound following deep losses in March, as investors have focused on restored valuations and continued earnings growth in the sector. "That group really had a significant correction," said Chuck Carlson, chief executive officer at Horizon Investment Services. "What has really been a fuel for this market was investors going in looking at the values that had been restored in that group, seeing that earnings were still growing at pretty rapid rates, and going to buy them."
Semiconductor shares have been a notable contributor to the rally. Since the March 30 low for the year, the Philadelphia SE Semiconductor Index has risen about 80%, and Broadcom shares have climbed 45%. Over the same period, the S&P 500 is up roughly 19%.
Inflation readings and the jobs report
Market participants are weighing fresh inflation data alongside labor-market developments. Data released on Thursday showed the Personal Consumption Expenditures Price Index (PCE) rose 3.8% in the 12 months through April - the largest 12-month increase since May 2023 - a jump the report attributed in part to higher energy prices amid the conflict in Iran. The Federal Reserve uses PCE measures in assessing progress toward its 2% inflation goal.
Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, said the interaction of employment and inflation data could alter expectations for Fed policy. "If you were to get a hot employment report alongside still-rising inflation numbers, I think it continues to change the outlook for Fed policy," she said. "If it were to be a weaker-than-expected report, then maybe it calms fears that the Fed is going to have to shift to a tightening stance."
Consensus estimates from a Reuters poll as of Thursday forecast May's payrolls report will show an unemployment rate of 4.3% and an increase of 96,000 jobs. Market strategists note that substantially stronger job gains could raise concerns about an overheating economy. Angelo Kourkafas, senior global investment strategist at Edward Jones, warned that an increase of more than 150,000 jobs might be problematic for equities if it intensifies worries that growth is pushing inflation and drives U.S. Treasury yields higher.
Kourkafas pointed to other indicators of solid economic activity as context for the payrolls outlook, including the Atlanta Fed's GDPNow model tracking second-quarter growth at 3.8% and a strong first quarter for corporate profits. He said those signals suggest investors should be less worried about a recessionary outcome and more attentive to the risk of a potentially overheating economy.
Broadcom earnings and the AI trade
Broadcom's quarterly results, due on Wednesday, represent another focal point. As one of the largest U.S. companies by market capitalization, Broadcom's guidance and reported demand trends for chips used in AI infrastructure could influence sentiment across the sector and beyond. The recent surge in semiconductor stocks reflects optimism about rising chipmaker profits from the AI-driven buildout of data-center and computing capacity.
Bond yields and the Fed
Rising inflation expectations and the potential for additional policy tightening have contributed to higher U.S. Treasury yields, a development that can weigh on stocks by increasing borrowing costs for consumers and businesses and offering investors an alternative to equities. Although benchmark Treasury yields have moderated somewhat, the 10-year yield has been around 4.46%, and higher yields remain a meaningful risk for equities.
Carlson cautioned that a sustained and significant spike in interest rates would be unsettling for investors. "If you saw a real spike in interest rates that was maintained ... that would be the thing that I think would be most disconcerting for investors," he said.
Futures markets currently indicate a greater probability of a rate hike this year than a cut, even as President Donald Trump has publicly urged the Federal Reserve to ease policy. Upcoming data releases include manufacturing and services sector reports next week, and another key inflation reading the following week - both arriving shortly before the Federal Reserve's scheduled June 16-17 meeting, which will be the first under Kevin Warsh as chair.
Bottom line
Investors face a compact timetable of data and corporate results that could reprice expectations for inflation, interest rates and earnings. The June jobs report and Broadcom's earnings are likely to be the most market-moving items in the near term, with bond yields and Fed policy expectations the central transmission channels through which those developments would affect equity valuations.