Fed meeting and Big Tech earnings put the $800 billion AI bet on trial

Wall Street walks into the busiest week of earnings season with no cushion left. After Thursday's rout — the Nasdaq's worst day since June — and a Friday selloff that spread into defensive stocks, investors face a double header: results from Alphabet, Microsoft and Amazon, plus a Federal Reserve decision on Wednesday, October 28. Both strike at the same nerve — whether the AI spending boom behind a four-year-old bull market can keep paying for itself.

Thursday's damage came from two prints that landed badly. Meta and chip equipment maker Lam Research reported, and the market punished both, deepening the pullback in the AI-linked names that have carried the rally. Meta, one of the heaviest data-center spenders, sat at the center of the worry: investors no longer assume every dollar poured into AI infrastructure earns its return. That mood shift makes next week's calendar dangerous — Alphabet and Microsoft report Wednesday, Amazon follows on Thursday, with roughly a third of S&P 500 members reporting across the same stretch.

The Fed meeting lands in the middle of that flood. Late-Thursday futures put an October hike at just 5%, per LSEG data, and Friday prints had it near 8% — a move next week is a long shot. December is the real question: futures price an 80% probability of a hike, and Chair Kevin Warsh's Wednesday press conference will be parsed for anything that moves that number. The November 3 midterms add political pressure — betting markets expect Democrats to take Congress from President Donald Trump's Republicans — giving the Fed every reason to avoid surprises now.

Alpine Macro's chief equity strategist Nick Giorgi summed up the mood as "balls in the air" everywhere. His read: the market is viewing AI outlays with "a discerning eye" and has stopped handing heavy spenders easy credit. Giorgi called that discipline "very healthy" — while warning it still points to "some short-term pain."

How we got here

September's inflation prints changed the policy weather. CPI ran hot at 3.7% year-on-year on October 14, beating consensus, and producer prices followed at 6.3% on October 15 — the fastest since December 2022. That put a December hike back on the table; the Fed's first rate increase since 2023 had already landed in September. On October 16 the Nasdaq sold off 2.1% while the 10-year yield spiked to 5.33%.

A Wednesday relief rally steadied nerves, but Thursday erased it in one session — the Nasdaq's worst in four months — as the AI trade's financing question went from background noise to front page. Friday completed the rotation: investors sold the defensive hiding places too. The Dow dropped 652.82 points, or 1.23%, to 52,215.16. The S&P 500 gave up 0.52% to 7,623.68. The Nasdaq, cushioned by a chip bounce, lost only 0.21% to 25,955.34. Crude piled on — WTI settled near $103.22, up 3.8% — while the 10-year slid to 4.953%, a one-month low.

Zoomed out, the week looks less dramatic: the Dow finished 0.41% higher and the Russell 2000 added 2.0%, while the S&P 500 ended 0.47% lower and the Nasdaq 100 lost 0.79%. Damage sat where the AI bet lives — Meta down 9.4%, Netflix off 6.6%, Alphabet down 6.0%. The uncomfortable part for the bears: analysts now expect 32.3% third-quarter profit growth from S&P 500 companies, per LSEG, up from 30.7%. Profits are not the problem. The price of growth is.

The week ahead, by the calendar

Wednesday pairs two hyperscaler reports with the Fed's statement and Warsh's press conference; Thursday brings Amazon. The Economic Times' version of the wire notes the benchmark is up about 11% in 2026 — Reuters puts it near 12% — either way, a year of gains rides on a few dozen hours of news.

Market commentary summarized the setup this way: with roughly a third of the index reporting alongside the hyperscalers, markets broadly expect the Fed to hold rates steady on Wednesday — the real question is what Warsh says about December.

Why it matters

The number at the center of everything is roughly $800 billion — this year's expected hyperscaler capital spending. That outlay lifts the bottom lines of a wide swath of AI-buildout companies, from chipmakers to equipment suppliers. But investors openly question whether the pace can continue with financing costs mounting, and Thursday showed what happens when a bellwether fails to reassure. Hennion & Walsh president and CIO Kevin Mahn said earnings will decide confidence in the AI theme and how much longer the big spending lasts.

BakerAvenue's chief strategist King Lip framed the week's binary question: is the tech pullback "a buying opportunity," or "a deeper correction"? His answer: only "really strong earnings" settle it. The catch: with more than 100 companies reported and third-quarter S&P 500 profits on track to rise more than 32% versus last year, per LSEG IBES, merely good numbers may not cut it for the AI spenders. The market wants proof the outlays convert into returns.