US Stocks Face Rate Hike Fears Ahead of Fed Meeting

US stocks are facing tests this week from a Federal Reserve meeting and a packed slate of corporate earnings led by technology companies, particularly those in artificial intelligence.

The S&P 500 is down for the week, weighed down by steep slides in Alphabet and Tesla following their quarterly reports. Google parent Alphabet's AI spending plans sparked concerns about its future profitability, setting a negative tone ahead of results from other AI 'hyperscalers' like Microsoft, Amazon, and Meta Platforms.

AI-related stocks have been driving the bull market near its fourth year, but investors are cautious, said Kristina Hooper, chief market strategist at Man Group. 'Investors are walking on eggshells,' she noted. 'And they're more likely to react negatively to any signs of imperfection.'

The Fed meeting comes as oil prices have surged due to escalating tensions in the Middle East, with Brent crude reaching $100 a barrel. This has raised fears that policymakers will need to be more aggressive in raising rates to control inflation, which consistently runs above the Fed's 2% annual target.

While the central bank is expected to hold rates steady on Wednesday, investors will look for hints about future rate hikes in the policy statement and Chair Kevin Warsh's press conference. Even a steady policy statement could raise concerns if it suggests more committee members are moving towards multiple rate hikes by the January 2027 meeting.

Higher interest rates can slow the economy and weigh on stocks, while also translating into higher Treasury yields, which have been rising in recent weeks. The benchmark 10-year Treasury yield topped 4.7% on Thursday, its highest level since early 2025. Next week will see updates on US GDP growth, inflation, and consumer sentiment, as well as earnings reports from over one-third of S&P 500 companies, including Apple, Visa, Chevron, and Coca-Cola.