High-flying U.S. equities could face turmoil in the tumultuous final days of the corporate earnings season as investors grapple with an increasingly difficult backdrop of inflation and rising bond yields.

The benchmark S&P 500 dipped this week but remains more than 8% for the year, down 1% from its all-time high. The strength in earnings has allowed investors to look past negative factors such as higher yields, rising oil prices and the ongoing US-Israel war with Iran, said Anthony Saglimben, chief market strategist at Ameriprise, but “company reporting is now kind of done.”

“Investors are moving on from earnings season, and the macro environment is starting to take more center stage,” Saglimben said Monday ahead of a short trading week due to the Memorial Day holiday.

Wall Street is on the brink of a selloff in the bond market. This week the benchmark 10-year Treasury yield hit its highest level since January 2025, while the 30-year yield touched its highest level since 2007. Yields, which rise as bond prices fall, create headwinds for stocks as they rise faster, including under pressure on valuations and higher costs for businesses to leverage debt.

Inflation concerns and war-related energy price hikes are the main factors driving yields higher.

“Inflation concerns continue to grow,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “You’re looking at an upside in long-term Treasury yields that is challenging the bond market and putting a broadly practical lid on equities if it continues for some time.”

US inflation gauges on tap

Inflation will be seen on Thursday along with the April reading of the Personal Consumption Expenditure Price Index. The release of PCE, the measure favored by the Federal Reserve to set its 2% annual inflation target, follows hot readings this month for other gauges of consumer and producer prices.

“That will be another data point that likely shows that months of elevated oil prices and supply disruptions are starting to seep into the inflation data,” Saglimben said.

Inflation concerns are increasingly filtering into interest rate expectations. The futures market is now pricing in the possibility of a rate hike by the Federal Reserve in 2026. Earlier this year, markets were banking on a more equity-friendly rate cut.

Minutes released from the Fed’s latest policy meeting this week showed that officials are more concerned that rising prices during the US-Israeli war over Iran could fuel inflation. A growing number were open to the possibility that they might need to raise rates.

“At best, I’d say you’re now in a more extended pause scenario with the possibility of a rate hike later this year if the inflation story continues,” Baird said.

Other economic data next week include a fresh estimate of first-quarter growth and the latest print of consumer confidence.

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More than 90% of S&P 500 companies have reported results, with overall first-quarter earnings on track to rise more than 28% from a year ago, according to LSEG IBES data.

“I would say expectations for earnings and economic growth are very high,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. “It’s built on where stock prices are right now.”

Several major retailers, including Costco, Best Buy and Dollar Tree, will report next week, as investors look for signs that elevated gas prices could lift other consumer spending. Shares of Walmart fell on Thursday after the retailing bellwether stuck to its conservative annual sales and profit targets.

AI, a key driver of stocks and earnings growth, will also weigh on the results of cloud software provider Salesforce and Dell Technologies, which sells servers.

Chipmaker Nvidia, whose results are considered a barometer for the health of the AI ​​market, on Wednesday forecast second-quarter revenue of $91 billion, beating Wall Street estimates.

Brock Weimer, investment strategy analyst at Edward Jones, said in emailed commentary that Nvidia’s “results help the strong AI-related spending trends remain intact.”