NEW YORK, June 26 (Reuters) - Jobs data in the coming week will shed light on the U.S. economy's strength, which could raise prospects for near-term interest rate hikes, adding potential volatility to a stock market already on edge from swings in technology shares.
Major U.S. equity indexes next week are set to close out a solid first half of the year, with the benchmark S&P 500 (.SPX), up more than 7% so far in 2026. But equities have had a rougher time in June. High-flying shares of semiconductor companies have seen huge moves this week as investors calibrate their optimism over AI-driven profits.
A Federal Reserve meeting this month revealed policymakers were laser-focused on containing inflation. Investors said the monthly jobs report due on Thursday could increase bets on rate hikes if it indicates a hot economy. U.S. financial markets will be closed on Friday for the Independence Day holiday.
"If we do get a really good jobs number, my guess is the market's not going to treat that as good news," said Doug Huber, deputy chief investment officer at Wealth Enhancement. "It's going to treat it as the economy's hot and it's going start to probably price in even higher risks of potentially a hike."
Action in shares of tech companies and especially chip companies was set to keep dominating Wall Street's attention. The Philadelphia SE Semiconductor Index (.SOX), has soared more than 90% since the market's late-March low for the year, but has pared back this week as investors assess if the trade is overheated.
Blowout results from memory chipmaker Micron Technology (MU.O), late on Wednesday gave support to the group but the tech-heavy Nasdaq Composite (.IXIC), was on pace for a weekly decline.
"The flavor of tech leadership for the last two months has been semiconductor-related names...concentrated in memory-related equities," said Julia Hermann, global market strategist at New York Life Investment Management. "The live question is, are higher interest rates going to threaten the more cyclical and volatile component of market leadership at play?"
JUNE TO CONTINUE SOLID JOB GAINS?
The U.S. economy has posted three straight months of solid job gains, with payrolls rising by 172,000 in May. June employment is expected to rise by 135,000 jobs, according to Jefferies economists.
Meanwhile, inflation has remained well above the Fed's 2% annual target. The central bank said at its latest meeting it was focused on delivering price stability — a meeting investors took as surprisingly hawkish. Data on Thursday showed inflation breaking above 4% for the first time in three years, as the Middle East conflict boosted energy prices.
"The Fed is very finely balanced," said Brad Conger, chief investment officer at Hirtle & Co. Even if the jobs data is not "a big surprise, it can tilt the Fed in one direction or the other...If jobs are strong, interest rates could go back up, and that challenges the market."
Fed funds futures are indicating better than even odds of a hike by the central bank's September meeting, according to LSEG data on Thursday, a reversal from the start of the year when investors were banking on equity-friendly rate cuts by year-end.
"We've shifted from the sense that interest rate hikes were this less-than-ideal way to cope with a supply shock, energy specifically, to this sense that the Fed is now structurally engaging with its inflation mandate in a new way," Hermann said.
Higher rates pose several potential headwinds for equity performance, including by raising borrowing costs for companies and consumers and slowing economic growth.
Investors will also watch earnings results next week from sportswear company Nike (NKE.N), opens new tab. Second-quarter reporting season ramps up later in July.
Developments in the Middle East remain in focus for Wall Street, with energy prices easing amid a ceasefire in the region. Oil has dropped to the $70-a-barrel range from $100 a month ago.
"We are trying to evaluate: is there staying power to a truce in the Middle East and that impact on oil and the big knock-through effect on inflation," Huber said.
Reporting by Lewis Krauskopf; Editing by David Gregorio
