By Daniela Hathorn, senior market analyst at Capital.com
Micron’s latest performance has reinforced the idea that the AI and memory cycle still has momentum, and that played a significant role in supporting broader market sentiment. The company delivered stronger-than-expected guidance for high-bandwidth memory demand tied to AI infrastructure, which helped revive confidence across semiconductors and the wider Nasdaq. Markets effectively interpreted the results as further evidence that hyperscaler spending remains robust despite higher yields, geopolitical uncertainty and concerns around the sustainability of AI-related capex. That strength helped offset the weaker University of Michigan consumer sentiment data, which showed households becoming more concerned about inflation and the economic outlook. Under normal circumstances, deteriorating consumer confidence would weigh more heavily on equities, especially given the pressure from higher gasoline prices and rising borrowing costs. But right now, the market is still being driven primarily by the earnings and AI narrative rather than the consumer cycle. In other words, investors appear more focused on whether corporate profits and productivity gains can continue to support valuations than on softer household sentiment data.
Tomorrow’s PCE inflation report is likely to be the next major test of that narrative. Markets will focus particularly on the core PCE measure, which is the Fed’s preferred inflation gauge. After hotter CPI and PPI readings, investors will want reassurance that inflation pressures are not broadening further beneath the surface. A softer-than-expected print would likely support equities and help ease yields, reinforcing the idea that inflation remains manageable despite elevated oil prices. A stronger reading, however, could reignite fears that inflation is becoming more entrenched, potentially pushing yields higher and putting pressure on growth-oriented sectors, particularly tech. The key thing to watch is whether markets continue treating inflation as a “rates problem” rather than an “earnings problem.” As long as earnings momentum remains strong and companies continue to defend margins, equities may continue to absorb hotter inflation data. But if inflation begins to threaten profitability or materially alter Fed expectations again, the market reaction could become much less forgiving.
Nasdaq 100 daily chart.
Past performance is not a reliable indicator of future results.
