“Investors, to some extent, are walking on eggshells,” Hooper said. “And they are likely to react negatively to any signs of imperfection.”
Will the Fed hold rates steady?
Meanwhile, the Fed meeting comes as rising tensions in the Middle East have boosted oil prices. Brent crude reached $100 per barrel on Thursday.
This has fueled fears that policymakers will need to be more aggressive in raising rates to curb inflation, which has consistently hovered above the Fed’s 2% annual target. Fed funds futures late Friday priced in a 38% chance of a quarter-percentage-point rate hike, according to LSEG data, with the central bank expected to hold rates steady when it delivers its monetary policy statement on Wednesday. But there was still some uncertainty on Wall Street about whether the Fed, whose new chair, Kevin Warsh, is overhauling monetary policy communications, could surprise markets.
“The possibility of an increase in the shock rate cannot be completely ruled out,” economists at BNP Paribas said in a note this week.
Live events
The meeting will be the second under Warsh, who has shied away from forward guidance, pledging to bring inflation down to the target.
“It doesn’t really show the Fed’s cards,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest Wealth Management.
Investors look for cues about a Fed rate hike
Even if the central bank keeps rates steady on Wednesday, investors will look for clues about the future path of rates in the policy statement and Warsh’s upcoming press conference. Fed funds futures peg two quarter-point rate hikes by the January 2027 meeting.
“If you think there are more committee members who are moving toward these multi-increase scenarios in the balance of the year, I think that’s going to be problematic for the market,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.
Higher interest rates increase borrowing costs for consumers and companies, slow the economy and often weigh on stocks. They could also translate into higher Treasury yields, which have already been rising in recent weeks, creating competition for equities. The benchmark 10-year Treasury yield topped 4.7% on Thursday, hitting its highest level since early 2025. The yield moves inversely to the price of the bond.
Investors also get a series of updates on the US economy next week, including reports on second-quarter gross domestic product, monthly inflation and consumer sentiment.
Big earnings week, including big AI spenders
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 already reporting, S&P 500 second-quarter earnings were on track to post a 26.5% jump from a year ago, according to LSEG IBES data through Wednesday — a huge profit boost that Wall Street was anticipating and factoring into share prices ahead of earnings. AI spending has been a central driver of stock prices in 2026, boosting semiconductor companies and companies involved in building data centers and other infrastructure.
But investors are also increasingly worried about whether the big spenders will recoup their big investments. That issue arose with Alphabet’s report and could play into how investors react to quarterly reports from Microsoft, Amazon and Meta next week.
Companies can easily meet earnings expectations and provide strong guidance for next quarter, but will still be punished by the market as investors’ perspectives on AI spending change, said Man Group’s Hooper.
“Where they saw opportunities, now they are more likely to see threats,” she added.
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