May 8 - The U.S. stock market’s recent surge will face several key tests next week as investors parse fresh inflation and spending data, monitor conflict-related developments in Iran and await a high-profile meeting between the leaders of the United States and China in Beijing.
Equities have rallied strongly in recent months, with the S&P 500 more than 16% above its low for the year that occurred in late March. The rally has been underpinned by what market participants describe as the strongest quarterly earnings season in over four years, which has helped lift investor sentiment. At the same time, some of the most dire expectations about the economic fallout from the Iran war have softened, prompting a wave of buying driven in part by fear of missing out.
"We have seen this tremendous rebound as markets have willed themselves to focus on only the positive," said Kristina Hooper, chief market strategist at Man Group.
Geopolitical risk tied to the Middle East remains a central concern for market participants. The conflict, which intensified in late February with U.S. and Israeli strikes on Iran, has affected global energy markets and shipping routes. Investors are particularly focused on any signs that the Strait of Hormuz - a vital maritime corridor for oil shipments - might reopen if tensions subside. Energy prices have been among the chief channels through which the conflict has affected markets: U.S. crude has risen by more than 60% so far this year.
"The continued progress towards a resolution for the U.S.-Iran war will be top of mind for investors," said Michael Arone, chief investment strategist at State Street Investment Management. "You need to begin to see ship movements in the Strait of Hormuz."
The Iran war is expected to be discussed when U.S. President Donald Trump meets Chinese President Xi Jinping in Beijing late next week. Investors will be watching the outcomes of that meeting for any indications on access to rare earths, technology trade and other points of contention between the two countries, all of which could have implications for corporate strategies and sectors linked to advanced technology.
STELLAR EARNINGS SEASON CONTINUES TO SUPPORT RALLY
The market’s recent advance has helped lift the S&P 500 roughly 8% for 2026 as of Friday, building on three straight years of double-digit returns. The Nasdaq Composite, led by technology names, was up nearly 13% year-to-date, with both benchmarks reaching record levels.
Although first-quarter reporting is winding down, corporate earnings will remain a focal point. Upcoming quarterly reports include networking equipment maker Cisco and semiconductor equipment manufacturer Applied Materials; later in the month, heavyweight companies such as Nvidia and Walmart are scheduled to report. According to LSEG IBES data as of Friday, S&P 500 earnings are on track to rise 28.6% in the quarter.
Analysts and strategists attribute part of the earnings strength to heavy corporate investment in artificial intelligence, which is boosting revenues and capital expenditures across industries. AI-driven spending by hyperscalers on data centers and related infrastructure has flowed through to company results in several sectors, reflecting demand for the hardware and services that support AI deployments.
"The results indicate that all the fears that tariffs or this oil price shock would eat into margins have not materialized so far," Arone said. "Earnings are the lifeblood of this rally."
INFLATION, CONSUMER SPENDING AND ENERGY PRICES IN FOCUS
Economic data for April, especially inflation readings, may reveal the near-term effects of the Iran conflict on prices. The consumer price index (CPI), released on Tuesday, is expected to show a 0.6% increase according to a Reuters poll. By comparison, CPI jumped 0.9% in March - the largest monthly rise in nearly four years - largely driven by a spike in gasoline costs.
With market participants assuming the possibility of a near-term resolution to the conflict, attention could shift to core CPI, which excludes energy and might offer clearer signals about underlying inflation and the likely path for interest rates. After the surge in energy prices related to the war, markets have largely discounted the prospect of equity-friendly rate cuts this year, and recent Federal Reserve commentary reflected more hawkish leanings from several policymakers.
"If core CPI is significantly higher, I think that’s going to be very problematic," Hooper said, pointing to the sensitivity of markets to persistent inflation readings.
Additional reports due next week include Wednesday’s producer price index, which will provide another perspective on inflationary pressures at the wholesale level, and Thursday’s monthly retail sales release, where investors will be looking to see how higher gasoline and energy costs are affecting broader consumer expenditures.
This week the national average price for gasoline crossed $4.50 a gallon for the first time since July 2022. "Even with oil bouncing around a bit and coming down from the highs, gasoline prices across the U.S. have just continued to move higher," said James Ragan, co-CIO and director of investment management research at D.A. Davidson. "We haven’t had any relief there. I don’t think there is a lot of evidence yet that it’s hurting the consumer spending, but it’s definitely a larger budget item."
LOOKING AHEAD
Investors will weigh the April inflation data, producer prices, retail sales and the remaining corporate reports as they reassess growth and margin trajectories amid continued uncertainty over energy costs and geopolitical developments. The U.S.-China meeting adds another variable, as discussions could influence trade flows and technology access for companies operating across global supply chains.
For now, the combination of strong reported earnings and an easing of the most severe conflict-related market fears has supported a pronounced equity rally. How durable that move will be depends in part on incoming data and whether geopolitical developments reduce energy market stress and shipping disruptions.