NEW YORK, July 3 (Reuters) - Investors in the coming week will seek clues about the likelihood of impending interest-rate hikes and early signs of a pivotal earnings season as they gauge the strength of the U.S. stock market's rally.
The second half of 2026 kicked off this week much the same as the first half ended, with rocky performances of heavyweight technology shares swaying major indexes. Minutes from last month's eventful Federal Reserve meeting, as well as earnings from Delta Air Lines (DAL.N), and PepsiCo (PEP.O), could provide new signposts for the market whose tech-fueled rally has wobbled in recent weeks.
Tech shares and especially semiconductors propelled the market's gains in the past few months, with the benchmark S&P 500 (.SPX), rising 14.9% in the second quarter that ended Tuesday, its best quarter since 2020.
But more recently, that group has swung dramatically, including with steep declines to end this week. Other sectors have performed well over the past month such as healthcare, industrial and financial stocks, spurring investor hopes of a healthy rotation that leads market gains to broaden.
"That's something I'll be keeping my eye on over the next couple of weeks is to see whether or not that broadening continues," said Joe Mazzola, head trading and derivatives strategist at Charles Schwab. "Or if you do start to see a protracted pullback in some of the technology winners, does that portend the market pulling back overall?"
INVESTORS SEEK RATE CLUES WITH FED MINUTES
The outlook for interest rates has switched from expectations at the start of this year for equity-friendly rate cuts, to projections of hikes in the coming months. Those rate-hike expectations were pared slightly on Thursday following a cooler-than-expected jobs report.
Hawkish bets had grown following last month's Federal Reserve meeting, the first led by new chair Kevin Warsh. He emphasized the central bank would focus on delivering price stability, with inflation above the Fed's 2% annual target. Minutes from that meeting will be released on Wednesday.
Warsh also warned that the central bank would no longer hold the market's hand and was jettisoning forward guidance on what actions the Fed might take in the near term. That could make minutes of future Fed policy meetings more important.
"I think it's going to be interesting to see how the discussion went around the table, how incrementally hawkish are they leaning," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments.
"That's what investors and markets are going to be wondering: What is this new Fed chairman and updated (Fed policymaking body) looking for to decide the path of rates from here?"
A key topic, investors said, is how Fed policymakers were thinking about the inflationary impact of energy prices, which heading into the meeting had been receding from Iran war-related spikes. Another is the extent of any division among Fed officials.
Higher interest rates can pressure equities by raising borrowing costs for consumers and companies, and by translating into higher bond yields, making bonds potentially more attractive than stocks.
Fed fund futures late on Thursday suggested roughly even odds that the central bank would raise rates by its September meeting, according to LSEG data. Thursday's Labor Department data showed U.S. job growth slowed sharply in June, calming some market fears about a near-term rate hike.
"If the Fed does become more restrictive and starts into a tightening cycle, that is a risk to the market and the valuations," said James Ragan, co-CIO and director of investment management research at D.A. Davidson. "The more information we can get about how the Fed is thinking about things, I think that's very important."
PIVOTAL EARNINGS SEASON LOOMS
In a relatively light week ahead for U.S. economic data, services and manufacturing activity releases could help clarify inflation trends.
Stocks rebounded in recent months from declines stemming from the U.S.-Israeli conflict with Iran. The S&P 500 is up more than 9% in 2026, while the tech-heavy Nasdaq Composite (.IXIC), has gained 11%.
Surprisingly strong first-quarter corporate profits underpinned the market's climb and raised the bar for second-quarter reporting season, which heats up later this month.
Two early reports come next week: Delta and snacks and beverage maker PepsiCo, which offer different perspectives on consumer-spending trends.
Overall, S&P 500 companies are expected to increase second-quarter earnings by more than 24%, according to LSEG IBES.
"If the north star of this bull market is earnings, I think the main thing for the earnings season is just to validate the earnings trajectory for this year and that the upward momentum continues into next year," said Keith Lerner, chief investment officer at Truist Advisory Services.
Reporting by Lewis Krauskopf; editing by Michelle Price and David Gregorio
