Investors who were absorbed by geopolitical instability at the beginning of the year may shift their attention next week to the profit prospects of companies related to artificial intelligence and the dynamics of interest rates, as a multitude of earnings reports and a Federal Reserve meeting are expected to be published.
This week, U.S. stocks experienced an unstable period due to the repercussions of President Donald Trump's aggressive stance on acquiring Greenland, which threatened a new trade war with Europe.
Initially, markets experienced a decline: stocks, bond prices, and the US dollar fell sharply, which was an unusual phenomenon. However, later this week, major stock indices recovered after Trump backed away from the threat of imposing tariffs, indicating the closeness of a deal regarding Greenland.
"The last few days have felt like a short but tumultuous American roller coaster," said Young-Yu Ma, Chief Investment Strategist at PNC Financial Services Group. "I don't know if it's completely behind us, but at least the acute phase seems to be over."
Investors are seeking insights into the advantages of artificial intelligence for profits.
The upcoming earnings week may draw attention to the profit prospects of American corporations, as overall profits are expected to rise significantly this year, including profit growth among a wider range of companies.
About one fifth of the companies in the S&P 500 index are set to report quarterly results, including Apple (AAPL.O), Microsoft (MSFT.O), Meta Platforms (META.O), and Tesla (TSLA.O) — four companies from the 'Magnificent Seven' with the highest market capitalization.
After a third consecutive year of double-digit returns, the S&P 500 index has risen about 1% by the beginning of 2026. The valuation of the index also exceeds 22 times the expected profits of S&P 500 companies, which is significantly higher than its long-term average of 15.9, so "the profit bar must be met," said senior expert Chris Galipo, Market Strategy Strategist at Franklin Templeton.
"We can be distracted by economic data, we can be distracted by geopolitics, such as the situation in Greenland, but ultimately the driving force is profit," said Galipo.
As of Thursday, 59 companies had reported earnings, and 81% of them exceeded analysts' profit forecasts. According to Tajinder Dhillon, head of earnings research at LSEG, profits for companies in the S&P 500 index are expected to have risen by 9.1% in the fourth quarter of last year compared to the same period a year ago. In 2026, profits for S&P 500 companies are expected to grow by more than 15%.
A key theme of this earnings season is whether companies are beginning to benefit from investments in artificial intelligence.
Doubts about whether large-scale investments in data centers and other infrastructure will yield profits have pressured the stocks of technology and other companies related to artificial intelligence at the end of 2025, after this group of companies had been a key growth factor in the American stock market entering its fourth year. "It's important to hear from major companies in the S&P 500 index that they continue to advance these use cases and initiatives in the field of artificial intelligence so that people believe it's not just a story about construction and infrastructure," said Ma from PNC.
Fed interest rate forecast, in focus — independence.
Overall, investors expect the Fed to keep interest rates unchanged when it announces its monetary policy decision on Wednesday, following a two-day meeting. After the U.S. central bank reduced rates by a quarter percentage point at each of its last three meetings in 2025, Fed interest rate futures are pricing in at least one more such cut this year, according to LSEG data.
"We expect the Federal Open Market Committee to take a prolonged pause, as the federal funds rate is close to neutral, the risks of a downturn in labor market activity have begun to diminish, and inflation has peaked," said Michael Pierce, chief economist for the U.S. at Oxford Economics. Short-term interest rate forecasts may take a backseat due to questions regarding the political independence of the Fed. The meeting will take place after it became known this month that Fed Chair Jerome Powell faced legal threats from the Trump administration, which Powell described as a "pretext" for achieving the sharp reduction in interest rates that Trump seeks.
Meanwhile, Trump is contemplating a decision on a nominee to replace Powell, whose term as chairman expires in May. A decision may be made soon.
Investors will remain vigilant regarding unpredictable geopolitical factors or other political proposals from the administration.
"If, for example, the situation with Greenland spirals out of control, and then the threat of tariffs and all that arises, it would certainly undermine confidence and likely put pressure on the market," said Galipo.
