Earnings Flood, Fed Decision Set to Test Shaky AI-Led Market Rally

US stock investors enter a pivotal week as corporate earnings from the biggest artificial-intelligence spenders and a Federal Reserve interest rate decision threaten to rattle a suddenly shaky market rally.

The Nasdaq Composite posted a slim loss on Friday, following its largest single-day drop since June. Recent quarterly reports from Meta and Lam Research disappointed investors, heightening scrutiny of the AI trade that has powered the four-year-old equity bull market. The S&P 500 remains up 11% for 2026, but a series of market catalysts could challenge that optimism.

Three hyperscalers — Alphabet, Microsoft and Amazon — headline the busiest week of the reporting season. About one-third of S&P 500 companies are due to report. Alphabet and Microsoft are scheduled for Wednesday, with Amazon following Thursday. Investors will focus on capital spending guidance and evidence of returns on massive outlays.

Capital spending from hyperscalers is expected to total around $800 billion this year, according to LSEG IBES data cited by Reuters. The spending has boosted profits across a swath of companies involved in the AI buildout, but mounting financing costs have raised questions about sustainability.

“Earnings are critical to the overall confidence level of the AI trade and how much longer the spend will continue,” said Kevin Mahn, president and chief investment officer at Hennion & Walsh Asset Management, as quoted by Reuters.

“The market’s just not giving the benefit of the doubt to companies that are spending a ton of money on building this all out, which to us is actually very healthy, but still does augur for some short-term pain,” said Nick Giorgi, chief equity strategist at Alpine Macro.

With more than 100 companies already having reported, third-quarter S&P 500 earnings are on pace to climb more than 32% from a year ago. “I think earnings will determine whether this tech pullback is a buying opportunity, or is there a deeper correction ahead,” said King Lip, chief strategist at BakerAvenue Wealth Management, as reported by Reuters. “What we need is just another round of really strong earnings.”

Elsewhere in tech, chipmakers Intel and Sandisk report next week. Other high-profile names include drugmaker Eli Lilly, oil majors Exxon and Chevron, and industrial equipment giant Caterpillar.

**Fed Expected to Pause, but December Hike Looms**

The Federal Reserve closes a two-day meeting Wednesday and is widely expected to hold its benchmark rate steady following a September hike — the first since 2023. Fed funds futures late Friday suggested a less-than-10% chance of a move this week, according to LSEG data, partly because investors doubt the Fed will raise rates just a week before the Nov. 3 midterm elections.

Markets, however, are pricing in roughly an 80% probability of a hike at the December meeting. Fed Chair Kevin Warsh’s press conference after the decision will be scrutinized for clues on the rate path.

“Does he say something to give an idea about December, because right now the expectation is there is going to be a hike,” said Walter Todd, chief investment officer at Greenwood Capital, as reported by Reuters.

The Fed is expected to hold rates steady alongside the European Central Bank and Bank of Japan, according to a Bloomberg report.

**Stubborn Inflation and Slowing Growth**

The economic calendar is equally dense. The Conference Board’s consumer confidence survey for October, due Tuesday, is expected to show sentiment continued to weaken after September’s reading plunged to its lowest level in more than a decade. The Associated Press reported that confidence has dropped sharply from two years ago, dragged by rising prices for gas and groceries and the uncertainty of a wide-ranging US trade war.

The US Department of Commerce on Thursday releases its first estimate of third-quarter gross domestic product. Economists forecast a 1.7% annualized growth rate, down from 2.2% in the second quarter, as higher oil prices and inflation weigh on activity.

The personal consumption expenditures price index — the Fed’s preferred inflation gauge — is due Thursday. Economists expect the annual rate rose to 3.7% in September from 3.4% in August, according to the Associated Press. The Fed targets 2% inflation.

Inflation has accelerated since the US war with Iran began in February, shutting down the Strait of Hormuz and constricting global oil supply. Gasoline prices have surged, hitting household budgets, while higher diesel costs have raised shipping and warehousing expenses that businesses pass to consumers.

Retail sales data show household spending still appears strong on the surface, but the AP noted that much of the increase reflects higher prices, especially for gasoline, rather than increased volume.

**Midterm Elections Add Uncertainty**

All of this unfolds just weeks before the Nov. 3 midterm elections that will determine control of Congress. Reuters reported growing bets that Democrats will wrest control from President Donald Trump’s Republican party.

The confluence of earnings, Fed policy, economic data and political risk could ratchet up market volatility over the next two weeks, testing the resilience of the AI-led rally.