Investors who have been consumed by geopolitical turmoil to start the year may switch focus in the coming week to prospects for artificial intelligence-related profits and the path for interest rates, with a huge crop of earnings reports and a Federal Reserve meeting on tap. U.S. stocks hit a rocky patch this week due to fallout from the President’s aggressive stance to acquire Greenland, which threatened a new trade war with Europe. Markets initially reeled, with stocks, bond prices and the U.S. dollar all swooning, an unusual occurrence. But major equity indexes rebounded later in the week after Trump backed off tariff threats, suggesting a deal was in sight for Greenland.
The upcoming reporting week could turn attention to the outlook for U.S. corporate profits, with earnings overall expected to rise substantially this year including gains from a wider group of companies. About one-fifth of the S&P 500 is due to report quarterly results, including Apple AAPL.O , Microsoft MSFT.O , Meta Platforms META.O and Tesla TSLA.O , four of the “Magnificent 7” megacap companies.
Coming off the third straight year of double-digit returns for the S&P 500, the benchmark index is up about 1% to start 2026. The index’s valuation is also above 22 times expected earnings for S&P 500 companies, well higher than its long-term average of 15.9. With 59 companies having reported results as of Thursday, 81% have beaten analysts’ earnings estimates. S&P 500 earnings are now expected to have climbed 9.1% in the fourth quarter of last year from a year earlier. A critical theme this earnings season is whether companies are starting to reap benefits from AI-related investments. Doubts that massive spending on data centers and other infrastructure would yield returns weighed on tech and other AI-related stocks late in 2025, after that group had been a key driver for the bull market in U.S. stocks that is entering its fourth year.
Investors widely expect the Fed to hold rates steady when it gives its monetary policy decision on Wednesday at the end of its two-day meeting. After the U.S. central bank lowered rates by a quarter percentage point at each of its last three meetings of 2025, Fed Funds futures are pricing in at least one more such cut this year, according to LSEG data. The near-term rate outlook could take a back seat to issues around the Fed’s political independence. The meeting follows the revelation this month that Fed Chair Jerome Powell faced legal threats from the Trump administration, which Powell called a “pretext” to gain the dramatic rate cuts Trump wants.
Reporting by Lewis Krauskopf; Editing by David Gregorio.
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