AI Stocks and Fed Policy: A Market Tug-of-War as Year-End Approaches

As the U.S. stock market rally charges forward, apprehension surrounds the fervor for artificial intelligence-driven investments and the Federal Reserve's interest rate policies. Although the S&P 500 gained 2.3% in October, the mixed results from major corporations have cast doubt on the sustainability of the rally.

Despite comments from Fed Chair Jerome Powell suggesting that further rate cuts are not guaranteed, corporate earnings remain robust. Profits among S&P 500 companies showcased a 13.8% increase year-on-year, with more than 130 companies yet to report. This scenario has pushed market valuations to their highest since the dot-com bubble, leading investors to question the potential overvaluation.

Furthermore, tech giants such as Meta and Microsoft revealed increased spending on AI expansions, stirring investor concerns about the tangible returns from such investments. Analysts will closely monitor upcoming reports from companies including AMD, Qualcomm, and Uber, amid fears of a weakening labor market exacerbated by the ongoing U.S. government shutdown.