U.S. May PCE Inflation Remained Above Target, While Core Inflation Stayed Sticky

The U.S. Personal Consumption Expenditures (PCE) Price Index increased 4.1% year-over-year in May, while Core PCE rose 3.4% year-over-year and 0.3% month-over-month. As the Federal Reserve’s preferred inflation gauge, the report indicated that inflation remains well above the Fed’s long-term 2% target. Although the recent decline in oil prices has helped ease concerns over future energy-driven inflation, core inflation continued to exhibit persistence, reinforcing expectations that the Federal Reserve may need to maintain restrictive monetary policy for an extended period.

From a market perspective, the PCE report prompted investors to reassess the outlook for interest rates. With consumer spending remaining resilient, the data suggested that the U.S. economy continues to demonstrate underlying strength, while also reducing the urgency for the Federal Reserve to pivot toward monetary easing. Employment and inflation data released in the coming weeks will remain key drivers of market expectations for future monetary policy.

Strong Micron Earnings Reinforced AI Memory Demand and Supported the Semiconductor Sector

Micron’s earnings release further strengthened investor confidence in AI-related memory demand. The company issued revenue and earnings guidance above market expectations and noted that demand for High Bandwidth Memory (HBM)products remains exceptionally strong. According to Reuters, accelerating investment in AI data centers is expected to continue driving demand for AI memory chips, highlighting the strength of the ongoing AI infrastructure investment cycle.

Micron’s results reinforced the market’s view that AI infrastructure spending remains in a sustained expansion phase. Demand for HBM, AI servers, and data center infrastructure continues to serve as a key growth driver for the semiconductor industry. However, as valuations across AI-related equities remain elevated, investors are increasingly focused on earnings execution and the return on capital expenditures rather than growth expectations alone.

Oil Prices Declined Sharply, Easing Energy Inflation Concerns

International crude oil prices declined significantly last week. Concerns over potential supply disruptions in the Middle East eased as additional oil tankers resumed transit through the Strait of Hormuz, reducing market anxiety surrounding global energy supplies and driving oil prices lower from recent highs.

The decline in oil prices has helped alleviate concerns that energy costs could continue fueling inflation. Given that energy prices have been a significant contributor to inflationary pressures in recent months, lower oil prices may reduce upward pressure on future inflation readings. Nevertheless, geopolitical risks in the Middle East remain elevated, and developments in the energy market will continue to play an important role in shaping inflation expectations and the Federal Reserve’s policy outlook.

U.S. Equities Remained Near Record Highs as the AI Theme Continued to Support Risk Appetite

U.S. equities remained close to record highs last week, with AI-related sectors continuing to dominate investor attention. Although the PCE inflation report reinforced a cautious outlook for interest rates, Micron’s strong earnings reaffirmed robust demand for AI infrastructure, helping maintain positive sentiment toward technology and semiconductor stocks.

Overall, the market continues to balance persistent inflationary pressures against strong AI-driven earnings expectations. While the PCE report suggested that inflation remains above the Federal Reserve’s target, creating continued uncertainty around the interest rate outlook, corporate earnings continue to demonstrate solid demand for AI-related products and services, providing meaningful support for growth-oriented sectors. This week’s Nonfarm Payrolls, ISM Manufacturing PMI, and JOLTS Job Openings reports will be key indicators in determining the market’s next direction.