Stock markets at highs with the equity risk premium under pressure

Highs on Wall Street, Europe steady, and a valuation that demands macro confirmation

• 📊 The S&P 500 closed at 7,580.06 on Friday, May 29, with a weekly gain of 1.80% and a new closing high.
• 💵 The EUR/USD is trading at 1.1337, while the 10-year Treasury yields 4.453%, a combination that continues to pressure multiples.
• ⚠️ Brent closed at $91.12 and gold at $4,593.00, two key benchmarks ahead of the OPEC+ meeting and the Iran front.

What happened this week

Friday closes: Wall Street keeps the lead, Europe follows

Friday, May 29 delivered a constructive closing picture. The S&P 500 ended at 7,580.06 points at 23:03 CEST, with a weekly gain of 1.80%. The Nasdaq Composite closed at 26,972.62 points, with a 2.39% weekly rise implied by the recent sequence of closes. The bias remains bullish, but prices are already discounting a lot of flawless execution.

Europe followed with a gentler slope. The Euro Stoxx 50 closed at 6,050.54 points on Friday, May 29. The IBEX 35 ended around 18,387.41 points in Madrid, with banks and energy still supporting much of the relative tone. In Spain, Santander, BBVA, and Iberdrola remain market-leading names due to their sensitivity to rates, credit, and the cost of capital.

Breadth is not confirming as clearly as the main index. The Russell 2000 closed at 2,919.34 points, leaving the Russell 2000/S&P 500 ratio at 0.3851. The VIX closed at 15.32, consistent with risk appetite. The rally is still alive, although the weaker relative traction of small caps versus technology indicates that leadership remains concentrated.

Macro of the week: U.S. core inflation still offers too little relief

The most relevant macro data point was the persistence of core inflation in the United States. The monthly core PCE rose 0.3% in March, in line with consensus, while the year-over-year rate remained elevated. The reading does not worsen the picture, but it does not open the door to a rapid Fed easing either.

That message has a direct impact on valuation. When core inflation does not clearly decelerate, the market demands higher real rates for longer. That raises the discount rate and particularly penalizes long-duration assets. Nvidia, ASML, and the semiconductor complex can withstand it better thanks to earnings growth, but the threshold for justification is getting higher and higher.

In Europe, the implication is different. Continental equities continue to find support in sector composition. European banks can continue to perform if the curve does not collapse, but the nuance matters: higher rates support net interest margins, although they also raise default risk, tighten credit quality, and increase sensitivity to sovereign spreads. In utilities such as Iberdrola, the key remains the cost of debt and the ability to pass it through into regulated valuation.

Cross-asset: firm dollar, demanding bond market, and an ERP already too narrow

In FX, the EUR/USD is trading at 1.1337, a level that still does not reflect an aggressive turn in favor of the euro. In fixed income, the 10-year Treasury closed near 4.453%. In commodities, Brent ended at $91.12 and gold at $4,593.00. The combined message is clear: the market is comfortable with growth, but not with rapid disinflation.

The institutional metric in this block is the equity risk premium. Taking the S&P 500 close at 7,580.06 and a 2026 consensus forward EPS around $305, the implied P/E stands at 24.9x. The resulting earnings yield is 4.02%. Against the 10-year Treasury at 4.453%, the ERP comes in at -0.43%. That figure is demanding and limits the room for further multiple expansion.

The relative reading favors discipline. If the bond yield remains above 4.40%, equities need more real earnings growth to justify prices. That leaves a better profile in quality, infrastructure linked to public investment, and well-capitalized domestic banking. In consumer, Inditex retains an advantage through execution, although the market will watch margin elasticity if the dollar and logistics costs pick up.

What could move markets next week

Earnings: focus on CrowdStrike and Broadcom as a barometer for software and AI

The corporate calendar for the week from Monday, June 1 to Friday, June 5 is lighter than in April, but it still includes names with broad read-across. CrowdStrike reports earnings on Tuesday, June 2 after the close, which corresponds to early Wednesday in CEST. Broadcom reports on Thursday, June 4 after the close, already late into the European night. These are two relevant reference points for software, cybersecurity, infrastructure, and AI demand.

Base case (55%): both companies beat on revenue, but maintain cautious guidance. That would support the Nasdaq and semiconductors, with Nvidia and ASML as indirect beneficiaries. Bullish scenario (25%): clear improvement in guidance and corporate capex. In that case, the market would once again reward secular growth and the earnings curve would justify part of the current multiple. Adverse scenario (20%): weak surprise in orders or monetization. That outcome would hurt high-duration software and open the door to rotation into financials, energy, and value.

Beyond the headline, demand quality matters. If Broadcom confirms strength in networking, custom silicon, and hyperscaler spending, the market will accept high multiples for a while longer. If CrowdStrike shows weaker commercial expansion, the reading will be more nuanced: software is still growing, but corporate budgets are starting to discriminate. That nuance is key to understanding why the Nasdaq is still rising with weaker breadth outside megacaps.

Macro: U.S. ISM and employment will measure whether May extends the cycle without reopening inflation

Next week concentrates the most sensitive part of the short-term calendar. The U.S. manufacturing ISM will be released on Monday, June 1. The services ISM will follow on Wednesday, June 3. The main reference point will be the official U.S. employment report on Friday, June 5 at 14:30 CEST. That data point will define the next leg for rates, the dollar, and equity duration.

Base case (50%): ISM in a moderately expansionary zone and solid payrolls, but without disruptive wage acceleration. That backdrop would keep the S&P 500 above 7,500, with the Treasury stable between 4.35% and 4.50%. Bullish scenario (20%): wage cooling and resilient activity data. That would be positive for the Nasdaq, defensive utilities, and investment-grade credit. Adverse scenario (30%): employment too strong or wages moving higher. That result would lift yields, strengthen the dollar, and pressure growth multiples.

From a sector standpoint, the reading differs sharply depending on the business. European banks would welcome a curve that does not collapse, but with close monitoring of delinquencies and cost of risk. Utilities would benefit if yields fall, although their sensitivity to debt costs remains high. Consumer discretionary will only maintain traction if end demand sustains margins. Here Inditex starts from a stronger position than the European average thanks to operating discipline and inventory turnover.

Geopolitics: Iran and OPEC+ could alter energy, implied inflation, and sector rotation

The relevant geopolitical front for next week continues to run through the Middle East and oil supply policy. Reuters and the international financial press have kept the focus on talks regarding Iran and on OPEC+ strategy ahead of its next production decision. The transmission mechanism is direct: any expectation of greater supply pressures Brent lower, reduces implied inflation, and gives multiples some breathing room; any disruption does the opposite.

Base case (60%): OPEC+ avoids an abrupt shift and the market keeps Brent in a range close to $88–94. That favors an orderly continuation of risk, with energy not overheating and bonds facing no fresh tension. Bullish scenario (15%): diplomatic progress with Iran and a signal of sufficient supply. In that case, crude and breakevens would fall, and the Nasdaq would receive additional support through discount rates. Adverse scenario (25%): political deterioration or a restrictive production message. Brent above $95 would complicate disinflation and reinforce the dollar.

The European implication is important. Higher oil penalizes consumer and transport names, but supports oil companies and part of the value segment. For Spain, a persistent rise in crude prices pressures corporate costs and reduces room for available spending. For banks, the effect is mixed: higher inflation may delay rate cuts, although it also worsens credit quality among households and SMEs. The market will reward robust balance sheets, not indiscriminate exposure to the cycle.

Conclusion

The market enters June with a demanding combination: highs on Wall Street, solid Europe, low volatility, and a negative equity risk premium versus the Treasury. That does not force an immediate bearish turn, but it does change the nature of the opportunity. From here, the continuation of the bullish leg depends less on multiple expansion and more on earnings validating price. Nvidia, ASML, and the technology block still dominate leadership. Even so, the next sustained advance requires corporate growth to keep accelerating while inflation does not tighten again.

The base thesis remains one of selective continuation, not a straight-line rise. It would be invalidated if U.S. employment reaccelerates wages, the Treasury rises sustainably above 4.60%, or Brent breaks upward above $95. In that context, the natural hedge lies in the dollar, gold, and short-duration fixed income, in addition to defensive exposure to healthcare and strong-balance-sheet utilities. If, on the contrary, the bond yield eases and crude stabilizes, the market will have room to extend the favorable bias, with better relative performance from small caps and quality European banks.

This article is general financial information and does not constitute investment advice.