US Stock Market: Wall Street eyes Fed decision, AI earnings as traders navigate rising uncertainty

The U.S. stock market is set for a pivotal week as investors brace for the Federal Reserve's latest policy decision and a flood of corporate earnings, particularly from technology giants driving the artificial intelligence (AI) boom. According to Reuters, the outcome of the Fed meeting and quarterly results from major AI-focused companies are likely to determine the near-term direction of Wall Street after a volatile week.

U.S. equities ended lower last week, weighed down by sharp declines in Alphabet and Tesla after their earnings reports. Alphabet's results unsettled investors after the Google parent announced another increase in its already substantial AI spending, raising fresh questions about whether technology companies can generate adequate returns on their massive investments in artificial intelligence.

The cautious reaction has set the stage for earnings reports from Microsoft, Amazon and Meta Platforms, all of which are expected to provide updates on AI-related investments and spending plans. These companies have played a central role in this year's market rally, with AI-linked stocks helping lift the S&P 500 more than 8% so far in 2026, Reuters reported.


Investor sentiment, however, has turned more cautious as concerns grow over lofty valuations and the sustainability of heavy AI capital expenditure. Markets are expected to closely scrutinize not only earnings and guidance but also management commentary on AI investments and profitability.

Fed meeting in focus
The Federal Reserve's policy meeting on Wednesday will be another key event for investors. Reuters reported that the central bank is widely expected to leave interest rates unchanged, although markets continue to price in a possibility of another quarter-percentage-point rate hike.

The policy decision comes at a time when oil prices have surged amid escalating tensions in the Middle East, with Brent crude briefly touching $100 a barrel last week. Rising energy prices have renewed concerns that inflation could remain elevated, potentially forcing the Fed to maintain a tighter monetary policy stance for longer.

The upcoming meeting will be the second under Fed Chair Kevin Warsh, who has adopted a less predictable communication style and avoided offering detailed forward guidance. Investors will therefore closely analyse both the policy statement and Warsh's press conference for clues on the future path of interest rates.

Market pricing currently suggests expectations for two quarter-point rate hikes by the January 2027 Fed meeting, according to Reuters, although officials' assessment of inflation and economic conditions could significantly influence those expectations.

Higher interest rates generally increase borrowing costs for businesses and consumers, slowing economic activity while also making fixed-income investments more attractive relative to equities. Treasury yields have already been climbing in recent weeks, with the benchmark 10-year Treasury yield recently reaching its highest level since early 2025.

Key economic data due
Apart from the Fed decision, investors will monitor several major U.S. economic indicators scheduled for release next week. These include second-quarter gross domestic product (GDP) data, monthly inflation figures and consumer sentiment readings.

The reports are expected to offer fresh insight into the strength of the U.S. economy and whether inflationary pressures remain persistent enough to warrant further monetary tightening.

Busiest earnings week of the season
This week also marks the busiest phase of the second-quarter earnings season, with nearly one-third of S&P 500 companies scheduled to report results.

Besides Microsoft, Amazon and Meta Platforms, investors will track earnings from Apple, Visa, Chevron and Coca-Cola.

According to Reuters, S&P 500 companies that have reported so far are on track to deliver a 26.5% year-on-year increase in second-quarter earnings, based on LSEG IBES data. While strong profit growth has largely met market expectations, investors are becoming increasingly selective, particularly when assessing companies making significant AI investments.

The market's response to Alphabet's results has highlighted growing concerns over whether the enormous spending on AI infrastructure, semiconductors and data centres will translate into sustainable earnings growth.

With valuations remaining elevated and expectations still high, Wall Street is expected to react sharply to any signs of slowing growth, weaker guidance or further escalation in AI-related spending.