U.S. equity markets face a critical week as investors brace for a surge of corporate earnings reports from major artificial intelligence (AI) players alongside a Federal Reserve policy meeting, both of which could influence the trajectory of a recently weakened market rally.
Technology shares have shown signs of vulnerability in recent sessions, raising concerns about the sustainability of the AI-driven bull market that has propelled U.S. stocks to nearly four years of gains. On Thursday, the Nasdaq Composite experienced its steepest single-day decline since June, weighed down by disappointing quarterly results from Meta Platforms Inc. and Lam Research Corporation. Meta, a significant hyperscaler investing heavily in expanding its data center infrastructure, and Lam Research, a leading semiconductor supplier benefiting from the AI boom, both highlighted challenges in the sector.
The upcoming week features earnings reports from additional hyperscalers Alphabet Inc., Microsoft Corp., and Amazon.com Inc., which are expected to offer further insights into the health of the AI trade. Approximately one-third of companies in the S&P 500 will report results, marking the busiest week of this earnings season. The Federal Reserve’s interest-rate decision on Wednesday, amid concerns over inflation and economic growth, adds another layer of uncertainty.
Market strategists note the prevailing cautious tone among investors as the companies' extensive AI-related capital expenditures face scrutiny. Nick Giorgi, chief equity strategist at Alpine Macro, described the current environment as one where the market is closely evaluating the returns on substantial AI investments. While such spending is considered vital for long-term growth, it may lead to short-term market volatility.
In addition to earnings and monetary policy, attention is also focused on the U.S. midterm elections scheduled for November 3, with increasing speculation that Democrats might secure control of Congress, potentially impacting economic policy and investor sentiment.
Robust corporate earnings have thus far supported the S&P 500’s roughly 12 percent gain this year, despite challenges including rising Treasury yields and elevated energy prices linked to ongoing conflicts in the Middle East. More than 100 companies have reported third-quarter results, showing an overall earnings increase of over 32 percent from the same period last year, according to LSEG IBES data.
Key earnings releases from Alphabet and Microsoft are expected on Wednesday, followed by Amazon on Thursday. Investors will focus on these companies’ capital spending plans and the returns they generate, as hyperscalers are projected to spend approximately $800 billion on AI infrastructure this year. However, the sustainability of this spending is questioned amid tightening financing conditions.
Semiconductor companies Intel and Sandisk will also report next week, potentially influencing the broader AI sector. Other notable companies reporting include drugmaker Eli Lilly, oil giants ExxonMobil and Chevron, and industrial equipment manufacturer Caterpillar.
Regarding monetary policy, the Federal Reserve raised interest rates in September for the first time since 2023, aiming to rein in persistent inflation. However, futures markets indicate minimal probability (around 5 percent) of an additional rate hike at Wednesday’s meeting, partly due to caution ahead of the midterms. The consensus anticipates a likely increase at the December meeting, with an 80 percent probability according to market data.
Investors will watch closely for signals from Fed Chair Kevin Warsh during the post-meeting press conference, seeking guidance on the potential path of rates in the coming months, as market participants weigh the implications of policy adjustments on economic growth and the stock market.