Market Review 1st June 2026

Everything you need to know, Simplified!

The rally keeps rallying as earnings continue to power markets

Summary

• US equities rose to another record high last week, with technology once again leading the market higher

• The backdrop also improved as oil prices fell, hopes of a US-Iran ceasefire increased and global bond yields moved lower

• The rally continues to look earnings-led rather than purely valuation-driven, with record forward earnings extending beyond mega-cap technology companies

• Although technology remains expensive, current valuations are still well below the extremes seen during the late-1990s technology bubble

• Stronger inflation and AI-driven investment demand are complicating the disinflation story and forcing the US Federal Reserve (Fed) to recalibrate their easing bias

• This week’s focus is on US manufacturing data, the US employment report and eurozone inflation, all of which should help clarify how restrictive central banks may need to remain.

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Market Review

Equities extend gains as AI enthusiasm remains the dominant market theme

US equities gained 1.6% last week, reaching another record high, with technology again leading the advance. Ongoing optimism around innovation and investment in technology continues to support markets.

The wider backdrop was also supportive. Hopes of a US-Iran peace agreement increased after reports of a ceasefire deal awaiting US President Trump’s approval. Oil fell to US$92 per barrel, its lowest level since mid-April, while market-implied odds of a lifting of the US blockade of the Strait of Hormuz by the end of June rose to 68%. Global bond yields moved lower, with the US 10-year Treasury yield ending the week at 4.44%.

While markets have rallied strongly in recent months, the move continues to be supported by earnings rather than pure enthusiasm. Forward earnings reached another record high last week, with technology at the centre of that strength. Technology earnings are forecast to grow 47.2% this year and a further 32.7% in 2027, after expanding 24.7% in 2025. So long as those forecasts are broadly realised, higher valuations can be justified. An earnings-led melt-up (a rapid surge in asset prices) is far more sustainable than one driven purely by multiple expansion and a fear of missing out.

Importantly, this is not just a mega-cap technology story. While the largest names continue to dominate headlines, earnings momentum is visible across a much broader swathe of the US market, with forward earnings for mid and small-cap companies also reaching record highs last week.

Although the information technology and communication services sectors continue to lead the market, their combined forward price/earnings ratio (how much investors are willing to pay per the companies expected earnings) of 23.2x is not an especially dramatic premium to the broader market at 21.2x. During the technology bubble of the late 1990s, the equivalent multiple rose above 40x. If market performance were being driven primarily by multiple expansion rather than earnings growth, that would be a clearer sign of excess. For now, that is not the case.

The AI investment and infrastructure build-out is also supporting other parts of the market, notably clean energy, which is up 43.6% year to date. Commodity markets continue to reflect the scale of that demand, with copper hitting record highs in mid-May.

With the US economy strong and financial conditions relatively loose, inflation risks are becoming harder to dismiss. Last week PCE inflation rose to 3.8%, its highest level since March 2023. Some policymakers, including Chair of the Fed Kevin Warsh, have argued that productivity gains driven by innovation and AI support the case for lower interest rates. Yet, in the near term, heavy investment in AI infrastructure, alongside rising energy demand from data centres, is contributing to shortages and adding to price pressures.

Higher productivity should, over time, be disinflationary. But it is equally true that interest rates should remain restrictive during periods of solid growth and the Fed has little reason to cut without a clear deterioration in the economic backdrop. While the bar for further rate hikes remains high, the case for easing fades if AI is proving inflationary in the short run. In that sense, the Fed seems to already be recalibrating their easing bias.

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The week ahead

Manufacturing PMIs

In the US, the ISM and S&P Global manufacturing PMIs are released this week. Manufacturing has now been in expansion for four consecutive months, while services activity has eased but remains in expansion. Forward earnings growth has historically led the manufacturing PMI and on that basis the signal points to further strength in US manufacturing. Economists expect a reading of 55.3 from S&P Global and 53.0 from ISM, both firmly in expansion.

US employment report

The labour market in the US bounced in March and April and economists forecast another strong month for job growth in May. The unemployment rate is anticipated to remain at 4.3%.

Eurozone inflation

Euroarea inflation is expected to rise to 3.2% increasing the probability of a rate hike from the European Central Bank at their meeting on 11 June. The market places the probability of a June rate hike at 95%.

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