Artificial Intelligence Market Under Pressure from Reports and Fed Meeting

American investors face a decisive week: earnings season led by the biggest players in the artificial intelligence market and the Federal Reserve meeting will be a test for the faltering rally.

Weakness in technology stocks keeps investors on edge. The pullback in the AI segment deepened on Thursday: the Nasdaq Composite posted its biggest one-day drop since June. Investors were disappointed by reports from Meta and Lam Research.

Alphabet, Microsoft, and Amazon lead a busy week of reports, including about a third of S&P 500 companies. The Fed's rate meeting on Wednesday could also shake the markets. "There are a lot of balls in the air," said Nick Giorgi of Alpine Macro. "The market is scrutinizing AI-related spending and not giving the benefit of the doubt to companies spending huge amounts."

S&P 500 earnings for the third quarter are on track to grow by more than 32% year-over-year: over 100 companies have reported. "The reports will determine whether the pullback is a buying opportunity or if a deeper correction is ahead," said King Lip of BakerAvenue Wealth Management.

Alphabet and Microsoft report on Wednesday, Amazon on Thursday. The main focus is on capital expenditure forecasts: hyperscalers will spend about $800 billion this year. "The reports are critical for confidence in AI trading and how long the spending will last," noted Kevin Mahn of Hennion & Walsh.

The Fed raised rates in September for the first time since 2023. Futures indicate only a 5% chance of a hike on Wednesday, but markets lean towards a December hike with an 80% probability.