Fed Cuts Rates Amid Shutdown-Clouded Data as Tech AI Earnings and Trade Truce Take Center Stage

The U.S. Federal Reserve is poised to cut interest rates for a second consecutive meeting, signaling a potential shift in monetary policy as markets brace for a pivotal week of corporate earnings and high-stakes diplomacy. With the Fed expected to reduce its key rate by 25 basis points on Wednesday, investors are closely watching how the central bank navigates a fragile economic landscape marked by a government shutdown and global trade tensions, according to a Morningstar week-ahead outlook. The decision could trigger a $7.4 trillion liquidity surge into risk assets like stocks and Bitcoin, according to analysts, as lower yields diminish returns on money market funds, per a CoinPaprika analysis.

Meanwhile, the stock market's focus turns to Big Tech, with Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Meta (META) set to report quarterly results. These companies, which account for nearly a quarter of the S&P 500's market value, are expected to reveal how AI investments are translating into revenue growth. Microsoft's Azure cloud division, for example, is forecast to deliver 38% year-over-year sales growth, while Amazon's AWS unit faces scrutiny after a lackluster Q2 performance, according to an Investors.com preview. Analysts project that AI-related spending—expected to hit $420 billion in 2026—will remain central to Big Tech's earnings momentum, though skeptics warn that capital expenditures could erode profit margins, as Bloomberg reports.

The week's most consequential event may be the Trump-Xi meeting at the APEC summit in South Korea. After months of escalating trade tensions, the U.S. and China have reached a preliminary agreement to delay Trump's threatened 100% tariffs on Chinese goods and suspend new rare earth export controls, according to a Yahoo Finance report. Treasury Secretary Scott Bessent confirmed that the two sides have outlined a framework to extend the current tariff truce and resume U.S. soybean purchases, which had been halted in September. The deal, if finalized, would mark a significant de-escalation in a trade rivalry that has long rattled global markets, according to a Kaohoon report.

The Fed's rate cut is also expected to coincide with the end of quantitative tightening, as policymakers consider reinvesting maturing securities to stabilize the 10-year Treasury yield, according to Investors.com. However, the government shutdown has left the economic calendar sparse, complicating efforts to gauge the labor market's health. With unemployment concerns persisting, the Fed's December rate cut remains a key market focal point, per Morningstar's outlook.

As the week unfolds, investors will parse earnings reports for signs of AI monetization progress. Google's AI Overviews feature and Meta's costly AI ambitions are under scrutiny, while Apple's iPhone 17 launch could provide a near-term sales boost, the Investors.com preview noted. For now, the Magnificent Seven's consistent outperformance of earnings estimates has fueled a three-year bull market, but analysts caution that slowing profit growth—projected at 14% for the third quarter—could test investor confidence, according to a Seeking Alpha analysis.