Wall Street Week Ahead: Resilient stocks rally faces earnings wave after AI, Fed wobbles

NEW YORK: A resilient US stocks rally heads into a busy week of corporate results, with investors concerned about the strength of the artificial intelligence trade and about how aggressively the Federal Reserve will cut interest rates.

On Thursday, the S&P 500 backed off somewhat from record highs but the benchmark index remained on pace for its third straight week of gains, despite wobbling after megacap companies posted mixed results. Doubt also grew that more interest rate cuts were imminent after the Fed eased by a quarter point on Wednesday, as expected.

Following the October monetary policy meeting, Fed Chair Jerome Powell said an interest rate cut at the next meeting in December was “not a foregone conclusion.” Investors had expected that move to be almost a done deal.

Corporate earnings have broadly topped expectations. Third-quarter S&P 500 profits are on pace to have climbed 12.5 percent from a year earlier, according to LSEG IBES. More than 130 index companies will report in the coming week.

Making some investors nervous, the rally has lifted the S&P 500’s forward price-to-earnings multiple above 23, putting the market’s valuation around its highest since the dot-com bubble 25 years ago, according to LSEG Datastream.

“If we assume that we’re getting close to the ceiling on valuations as investors may be reluctant to pay multiples closer to what they were in the tech bubble, I think earnings will have to do the heavy lifting to drive returns forward,” said Angelo Kourkafas, senior global investment strategist at Edward Jones.

The first week of November kicks off a traditionally rosy period for stocks. Still, given the strong performance so far in 2025, some investors question whether some year-end cheer has been pulled forward. The S&P 500 is up 16 percent year-to-date, while the Nasdaq Composite has gained 22 percent.

Since 1950, November ranks as the best performing month and December the third-best for the S&P 500 on average, according to the Stock Trader’s Almanac. November has an average gain of 1.87 percent in that time, with December averaging an increase of 1.43 percent, just behind April’s 1.47 percent. With 44 percent of S&P 500 companies that reported as of Wednesday, 83 percent exceeded earnings expectations. That beat rate would be the sixth highest on record if it holds, according to strategists at Ned Davis Research.

Still, there have been hiccups. On Thursday, shares of Meta Platforms and Microsoft slid following their quarterly reports. Both announced spending increases to fuel AI expansions.