U.S. stocks face earnings, Fed tests as AI rally wobbles

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US stocks face earnings, Fed tests

Highlights

About one-third of S&P 500 companies, including Alphabet, Microsoft, Amazon, Intel, Eli Lilly, and Exxon, report earnings this week amid key Fed policy meeting.
Futures indicate only a 5% chance of a Fed rate hike this week but an 80% probability by December, with markets awaiting Fed Chair Kevin Warsh's guidance.
AI-related market caution increases after Meta and Lam Research disappoint, questioning sustainability of $800 billion hyperscaler capital spending as S&P 500 is up 12% in 2026.

Heavy earnings calendar and Fed decision

As reported by Reuters, the coming week brings quarterly results from roughly one-third of S&P 500 companies, alongside the Fed's policy meeting on Wednesday, giving investors two major tests for sentiment.

Alphabet and Microsoft report on Wednesday, while Amazon is due on Thursday. Investors are watching whether the companies maintain aggressive capital spending plans and whether management teams indicate those investments are generating returns.

The reporting slate also includes Intel and Sandisk, whose results could further shape views on AI-related demand. Outside technology, Eli Lilly, Exxon, Chevron and Caterpillar are also scheduled to report, broadening the earnings test across sectors.

Rate expectations are also in focus after the Fed raised rates in September for the first time since 2023. LSEG data show futures imply only a 5% chance of another increase at this week's meeting, while markets are pricing in an 80% probability of a hike in December.

Investors are also looking for signals from Fed Chair Kevin Warsh at his post-decision press conference, especially on whether policymakers reinforce expectations for another move before year-end.

AI spending outlook and market volatility

Technology weakness has left investors more cautious about the AI trade that has powered much of the U.S. bull market. The pullback deepened on Thursday, when the Nasdaq Composite logged its biggest one-day drop since June after disappointing quarterly reports from Meta and Lam Research.

Meta is among the hyperscalers spending heavily on data center expansion, while Lam has been one of the semiconductor companies most closely tied to the AI boom. Their results intensified scrutiny over whether elevated valuations can hold if earnings or spending guidance weakens.

Hyperscaler capital spending, expected to total about $800 billion this year, is supporting a broad network of companies tied to AI infrastructure. At the same time, investors are questioning how durable that pace of spending remains as financing costs rise.

Broader market risks are also building ahead of the U.S. midterm elections on November 3, with investors weighing the possibility that Democrats take control of Congress from President Donald Trump's Republican party. The mix of earnings, central bank policy and politics could increase volatility over the next several weeks even as the S&P 500 remains up about 12% in 2026 and third-quarter earnings are on track to rise more than 32% from a year earlier, according to LSEG IBES data.

Our earlier report on the UN-backed plan to move fertilizer through the Strait of Hormuz explained that the mechanism remains stalled pending a U.S.-Iran agreement, even as planting windows near in key importing regions. We noted that prolonged disruption to Gulf fertilizer flows could tighten agricultural supplies, push up food and commodity prices, and add to broader market uncertainty tied to critical shipping chokepoints.

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