Wall Street to Face Potential Volatility as Earnings Season Winds Down and Yields Rise

U.S. Equities Face Turbulence as Inflation and Bond Yields Cast a Shadow

High-flying U.S. equities could face turbulence in the final days of a blowout corporate earnings season as investors confront an increasingly tricky backdrop of spiking inflation and rising bond yields. The benchmark S&P 500 wobbled this week but was close to its all-time high, up more than 9% for the year. The index has posted eight straight weekly gains.

The strength in earnings has allowed investors to look past negative factors such as higher yields, surging oil prices, and the ongoing U.S.-Israeli war with Iran. However, with most of the company reporting now done, investors are moving beyond the earnings season, and the macro environment is starting to take more center stage.

A selloff in the bond market has Wall Street on edge. The benchmark 10-year Treasury yield hit its highest level since January 2025, while the 30-year yield touched its highest since 2007, although both yields pulled back toward the end of the week. Yields pose headwinds for stocks as they increase rapidly, including by pressuring valuations and translating into higher borrowing costs for consumers and businesses.

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Major factors driving yields higher have been inflationary worries and war-related energy price spikes. Inflation concerns continue to flare, with the April reading of the personal consumption expenditures price index due on Thursday. The release of PCE, the measure favored by the Federal Reserve for setting its 2% annual inflation target, follows hot readings this month for other gauges of consumer and producer prices.

Inflation worries are increasingly filtering into expectations for interest rates. Futures markets now price in the potential for a rate hike by the Federal Reserve later in 2026. At the start of this year, markets were banking on more equity-friendly rate cuts. Minutes released this week from the Fed's latest policy meeting showed officials growing more concerned that price spikes during the U.S.-Israeli war on Iran could stoke inflation.

A growing number of officials are open to the possibility that they may need to raise rates. "At best, I'd say you're now in more of an extended pause scenario with the potential for a turn to rate hikes later this year if the inflation story continues to heat up," said Jim Baird, chief investment officer with Plante Moran Financial Advisors.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Other economic data in the coming week include a fresh estimate of first-quarter growth and the latest consumer confidence print. Several key retailers will report in the coming week, including Costco, Best Buy, and Dollar Tree, as investors look for signs that elevated gas prices might be eating away at other consumer spending. AI, which has been a key driver of stocks and earnings growth, will also be in focus with results from cloud software provider Salesforce and Dell Technologies.