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• The S&P 500 gained 1.7% last week, recovering part of the loss from the prior week, with sentiment lifted by a positive start to the US third-quarter earnings season. This week, investors will be hoping for more evidence of solid profit growth, especially if it points to resilient consumer spending in the US and continued momentum for the tech sector.
• US regional banks could remain a concern for investors. Several top institutions said they had been exposed to fraud—though more banks came out toward the end of the week with smaller-than-expected credit losses.
• Other focal points this week will be the release of US consumer price inflation data, as investors brace for the Federal Reserve's policy meeting later this month. And as the US government shutdown enters is third week, will there be progress toward ending the political deadlock?

Will the third-quarter earnings season reinforce equity optimism?

The third-quarter earnings season is now underway. Investors have been hoping for confirmation that consumer demand is healthy, and that top tech firms continue to deliver robust profit growth and spend heavily on artificial intelligence (AI). The early indications on both counts were encouraging with positive results from ASML, which makes equipment used to produce microchips, and TSMC, the world’s largest contract maker of chips. On consumption, top US financial firms were unanimous that spending remains healthy. In addition, several top regional banks announced smaller credit losses than analysts had expected—helping to assuage concerns of a broader crisis for the sector after Zions Bankcorp and Western Alliance Bancorp last week said they were exposed to fraud.

The outlook for regional banks is likely to remain a focus for investors this week. More broadly, about 20% of the S&P 500 by market value will unveil results. The highlight will most likely be Amazon on Thursday. Its AWS cloud computing services division will be seen as an important proxy for AI demand for the industry overall. And the company is also the world’s largest online retailer. Investors will also be on the alert for further tech tieups, such as the recent partnership between chipmaker AMD and OpenAI.

Despite concerns about circularity, such multi-billion-dollar partnerships between hyperscalers and AI chip firms have strengthened our confidence that AI capital expenditures will top expectations and remain robust for longer. Against this backdrop, we recently raised our expectations for earnings growth for the S&P 500 index to 10% this year and 7% next year. The increased momentum behind AI contributed to our decision to upgrade global equities to Attractive this month. It also increases our confidence in our transformational innovation themes, including Artificial intelligence, Power and resources, and Longevity.

Will investors get more rate guidance ahead of the Fed’s policy meeting?

As the countdown to the Fed’s next policy meeting on 28-29 October begins, top officials enter the blackout period, in which they avoid public comment. However, investors will get the delayed consumer price index for September, despite much data still being held up by the government shutdown.

This is likely to show that inflation—though above the Fed’s target—is not so high as to stop rate cuts. The consensus is for the core monthly rate—excluding volatile food and energy prices—to hold steady at 0.3%. Fed Chair Powell last week articulated the market-friendly position that “we see low levels of job creation—and yet people are spending.” This is all consistent with our view that the labor market is cooling sufficiently to justify further rate cuts, though not so much as to cause a recession. In summary, we expect three rate cuts before the end of the first quarter of 2026, providing a supportive backdrop for equities and quality fixed income.

Will an end to the government shutdown provide greater clarity on policy and the US economy?

The US government shutdown, which started on 1 October, looks set to enter its third week. It has already eclipsed the 2013 shutdown, which lasted for about 16 days, and the next milestone would be the 35-day 2018 shutdown. The closure has already lowered economic visibility, and Powell stressed last week that “we’ll start to miss” the data if the shutdown persists. Investors will be hoping that the political gridlock can be cleared this week, allowing government statisticians and other federal staff to return to work.

But despite data delays, recent indications have added to confidence that US growth is exceeding expectations. Again, this was observed by Powell, who said that the economy “may be on a somewhat firmer trajectory than expected.” Middle- and high-income households continue to benefit from wealth effects, and consumer spending is resilient. Further evidence of the resilience of consumers could come from the University of Michigan’s consumer sentiment index this week.

In addition to supportive monetary policy, fiscal policy—including measures such as capital spending and R&D expensing, cutting taxes on tips, and lighter regulation—should also provide a modest tailwind to cyclical sectors as we move into 2026. Again, this improving economic backdrop underlines our increased confidence in the outlook for global equities.