Wall Street Week Ahead: US stocks face tests from Fed decision, tech-led earnings deluge

NEW YORK: A wobbly US stock market will take its cues in the coming week from a Federal Reserve meeting set to shed light on the path for interest rates, and from a packed slate of corporate earnings led by technology companies and heavyweights in artificial intelligence.

Major equity indexes were on track for weekly declines, dragged down on Thursday by steep slides in Alphabet and Tesla following their quarterly reports.

The fallout for Google parent Alphabet, sparked in part by an increase in its already massive AI spending plans, set a negative tone ahead of results next week from other AI “hyperscalers”: Microsoft, Amazon and Meta Platforms. AI-related stocks have been at the heart of equity market gains this year, helping drive the bull market near to its fourth year.

Despite this week’s stumble, the benchmark S&P 500 is still up 8 percent in 2026, while the market “feels very frothy,” said Kristina Hooper, chief market strategist at Man Group.

“Investors are, to a certain extent, walking on eggshells,” Hooper said. “And they’re more likely to react negatively to any signs of imperfection.”

Meanwhile, the Fed meeting comes as oil prices have shot up due to escalating tensions in the Middle East. Brent crude hit USD100 a barrel on Thursday.

That has fanned fears that policymakers will need to be more aggressive in raising rates to control inflation, which consistently has run well above the Fed’s 2 percent annual target.

The central bank was expected to hold rates steady when it gives its monetary policy statement on Wednesday, with Fed fund futures on Thursday afternoon pricing in a 36 percent chance of a quarter-percentage-point rate increase, according to LSEG data. But there was still some uncertainty on Wall Street over whether the Fed, whose new chair, Kevin Warsh, is overhauling monetary policy communication, might surprise markets.

“The possibility of a shock rate hike cannot be ruled out entirely,” BNP Paribas economists said in a note this week.

The meeting will be the second under Warsh, who has shunned forward guidance while vowing to bring inflation down to target.

Even if the central bank holds rates steady on Wednesday, investors will look for hints about the future path of rates in the policy statement and Warsh’s ensuing press conference. Fed funds futures are factoring in two quarter-point rate hikes by the January 2027 meeting.

“If you get the feeling that there are more committee members that are moving towards these multi-hike scenarios over the balance of the year, then I think that’s going to be a problem for the market,” said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute.

Higher interest rates raise borrowing costs for consumers and companies, slowing the economy and often weighing on stocks. They can also translate into higher Treasury yields, which already have been rising in recent weeks, creating competition for equities. The benchmark 10-year Treasury yield topped 4.7 percent on Thursday, reaching its highest level since early 2025. Yields move opposite to the price of bonds.

Investors also get a series of updates on the US economy next week, with reports due on second-quarter gross domestic product, monthly inflation and consumer sentiment. About one-third of S&P 500 companies are expected to post results, making it the busiest week of the second-quarter reporting season, including Apple, Visa, Chevron and Coca-Cola.

With more than 80 companies having reported as of Wednesday, S&P 500 second-quarter earnings were on track to post a 26.5 percent increase on last year, according to LSEG IBES — a huge profit boost that Wall Street had been anticipating and incorporating into stock prices ahead of earnings.