U.S. markets are preparing for a critical week as investors shift their attention from geopolitical uncertainties to key economic developments, including a Federal Reserve policy meeting and major corporate earnings announcements. The focus comes after markets experienced volatility earlier due to trade tensions involving Greenland, which have since eased as potential deals emerged.
Federal Reserve Policy Decision Expected
The Federal Reserve is widely anticipated to maintain current interest rates when it announces its monetary policy decision on Wednesday following a two-day meeting. This expectation comes after the central bank implemented quarter-percentage-point cuts at each of its final three meetings in 2025. According to LSEG data, Fed Funds futures are pricing in at least one additional rate cut during the current year.
| Fed Policy Outlook: |
Details |
| Expected Decision: |
Hold rates steady |
| Previous Actions: |
Three quarter-point cuts in 2025 |
| Market Expectations: |
At least one more cut in 2026 |
Michael Pearce, chief U.S. economist at Oxford Economics, noted that an extended pause is expected because "the fed funds rate is close to neutral, downside risks to the labor market have begun to ease, and inflation has peaked."
Major Technology Earnings in Focus
Approximately one-fifth of S&P 500 companies are scheduled to report quarterly results, with particular attention on four "Magnificent 7" megacap companies: Apple, Microsoft, Meta Platforms, and Tesla. The earnings season carries heightened significance as investors seek evidence that companies are generating returns from substantial artificial intelligence investments.
| S&P 500 Earnings Performance: |
Metrics |
| Q4 Expected Growth: |
9.1% year-over-year |
| 2026 Projected Growth: |
Over 15% |
| Companies Beating Estimates: |
81% (59 companies reported) |
| Current Valuation: |
22 times expected earnings |
The benchmark S&P 500 index has gained approximately 1% to start 2026, following three consecutive years of double-digit returns. However, the index's current valuation of 22 times expected earnings significantly exceeds its long-term average of 15.9.
Artificial Intelligence Investment Returns Under Scrutiny
A critical theme for this earnings season centers on whether companies are beginning to realize benefits from AI-related expenditures. Concerns about returns on massive data center and infrastructure investments had pressured technology and AI-related stocks in late 2025, despite this sector driving the ongoing bull market entering its fourth year.
Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, emphasized the importance of hearing "from the major companies in the S&P 500 that they are continuing to push these uses and initiatives forward for AI so that people believe that it is not just a story of building and infrastructure."
Market Volatility and Geopolitical Considerations
Markets experienced turbulence earlier in the week due to aggressive trade positioning regarding Greenland, which initially threatened new trade conflicts with Europe. The unusual market reaction saw simultaneous declines in stocks, bond prices, and the U.S. dollar. However, major equity indexes recovered as trade tensions appeared to ease with potential deal prospects.
Chris Galipeau, senior market strategist at Franklin Templeton, noted that while markets "can get sidetracked by the economic data" and geopolitics, "at the end of the day, earnings are the driver." The Fed meeting also occurs amid questions about the central bank's political independence, following revelations that Fed Chair Jerome Powell faced legal threats from the current administration regarding rate cut preferences.
19
