What to watch in the week ahead

• Investors received limited new direction on the US economy last week, but elevated oil and diesel prices kept inflation risks in focus. The Fed’s decision and September PCE data will provide the next test of the rate outlook. We expect the Fed to pause before raising rates in December.
• Results from several leading tech companies disappointed investors and contributed to renewed pressure on AI-linked stocks last week. About one-third of S&P 500 companies report in the busiest week of the season, led by Alphabet, Microsoft, and Amazon. We believe robust earnings can support further equity gains and favor diversified exposure across sectors and regions.
• French political and fiscal strains increased pressure on European sovereign bonds last week, even as regional activity and corporate profits continued to improve. The ECB’s decision, Eurozone growth data, and company results will test the region’s resilience this week. We retain our Attractive view on Eurozone equities despite expecting sovereign bond volatility to persist.

Will the Fed remain patient as energy costs sustain inflation risks?

Investors received limited fresh direction on the US economic and inflation outlook last week. The calendar lacked a major inflation or employment release, and Federal Reserve officials were in their pre-meeting communications blackout. Markets instead weighed company results against renewed energy price concerns. Brent crude settled at USD 116.72 a barrel on Friday, up 6% over the week to its highest level in nearly six months, after Houthi attacks in Saudi Arabia heightened concerns about further disruption to Middle Eastern energy supplies.

Attention will now turn to the Fed’s decision and press conference on Wednesday. With markets and our forecasts pointing to unchanged rates, investors are likely to focus on the Fed’s assessment of inflation, economic activity, and the conditions that could prompt another rate increase. The meeting does not include updated projections or a new “dot plot,” making the tone of the statement and press conference especially important. September PCE inflation the following day will show whether underlying price pressures are continuing to moderate. Investors will also be looking to see if Middle East diplomacy can help reduce worries over energy supplies.

Our base case remains for the Fed to leave rates unchanged in October before hiking again in December. Recent inflation data support additional increases, but an immediate move is not required, in our view. We remain positive on equities and fixed income, believing resilient activity and strong profits can help markets absorb measured tightening. Elevated yields offer attractive income, and broad commodity exposure can help protect portfolios against further supply-driven inflation.

Can earnings support further equity gains beyond the AI trade?

Technology shares came under renewed pressure last week as investors became more concerned about the cost and returns of AI investment. On Thursday, the Nasdaq Composite suffered its biggest one-day decline since June after results from Meta and Lam Research disappointed investors. Over the week, the S&P 500 fell 0.5%, and the Nasdaq 100 declined 0.8%, focusing attention on whether heavy capital spending is generating sufficient growth and returns.

This week is the busiest of the US reporting season, with about one-third of S&P 500 companies due to announce quarterly results. Alphabet, Microsoft, and Amazon will be judged on cloud and core-business growth, AI monetization, capital spending plans, and evidence that investment is producing tangible returns. Results across semiconductors, health care, energy, consumer, and industrial companies will also test the breadth of profit growth beyond the largest technology companies.

We expect a strong third-quarter technology earnings season, although elevated expectations may produce company-specific volatility. We remain constructive on the structural AI opportunity and favor well-funded hyperscalers, high-quality semiconductor and hardware beneficiaries, and defensive areas of technology. Robust earnings can support further equity gains, and we favor diversified exposure across sectors and regions. Investors with concentrated technology positions can rebalance while retaining exposure to long-term innovation.

Can European earnings resilience outweigh fiscal and policy risks?

French government bonds rebounded on Monday after Moody’s maintained the country’s Aa3 rating with a negative outlook, offering some relief after a recent rise in borrowing costs. The French 10-year yield slipped back below 5%, having risen last week to its highest level in 24 years, while its spread over equivalent German debt approached 180 basis points, the widest since 2011. Continued political unrest has underscored the challenge of bringing government borrowing under control. Yet data continued to show the wider Eurozone economy expanding and European earnings are strengthening.

The European Central Bank's (ECB) rate decision will bring that tension into sharper focus this week. Investors will assess how policymakers balance persistent inflation and elevated energy costs against uneven regional growth and fiscal strains. The ECB’s language on the future rate path will matter more than the decision itself, given widespread expectations that the central bank will keep rates on hold. With companies representing more than half of the Stoxx 600’s market capitalization due to report over the next two weeks, earnings will provide an important test of whether the improvement in European profits is continuing to broaden.

We remain constructive on European equities. We forecast Eurozone earnings growth of 15% in both 2026 and 2027, supported by a pickup in manufacturing, continued cost discipline, and higher investment in AI, electrification, and defense. Political risks, particularly in France, may cause volatility, but corporate fundamentals remain solid. More broadly, higher rates and energy costs warrant selectivity, rather than a broadly defensive investment stance, in our view.