The 3 Things That Will Stand Out in Wall Street’s Blockbuster Week

Trade deals, rate decisions, and a huge slate of S&P 500 earnings will be in focus this week. (Spencer Platt/Getty Images)

Key Points

• The Federal Reserve is expected to cut interest rates by a quarter-point, with a 96.7% probability.
• U.S.-China trade talks will focus on rare earth export controls and high-tech shipments, with a potential TikTok ownership deal.
• Revenue growth and capital spending will be the keys when Microsoft reports its earning.

Investors will navigate what could be a critical week for U.S. stocks over the next five days, with a host of corporate earnings, a Federal Reserve interest-rate decision, and the expected trade truce between Washington and Beijing potentially coming together to cement the view that stocks are going to keep rising.

Also on the agenda are results from five of the so-called Magnificent Seven tech stocks, an address from Nvidia CEO Jensen Huang, and interest-rate decisions from central banks in Europe, the U.K., and Japan

Three events likely will stand out as investors weigh the outlook for the main issues driving the market: U.S. monetary policy, the trade war with China, and the artificial-intelligence boom.

1. Fed rate decision: Flying blind for how long?

Investors are pricing in the near certainty of a Federal Reserve rate cut when a two-day meeting of the central bank’s policy board winds up on Wednesday. The CME Group’s FedWatch Tool indicates a 96.7% chance of a quarter-point reduction in the fed-funds rate.

Market focus beyond the policy decision, however, is likely to center on Chairman Jerome Powell’s commentary regarding the challenge of mapping out an interest-rate path in the absence of consistent jobs and inflation data from the U.S. government.

Last Friday’s softer-than-expected consumer price index for September, which propelled stocks to a record high, included a large number of “imputed” calculations from the Bureau of Labor Statistics. That could suggest the headline figure of 3% was based on estimates rather than raw data. The concern is that reports published after the government shutdown concludes could indicate worsening price pressures that the Fed would need to take into account.

A lack of official jobs figures is also keeping the Fed in the dark, at least to a degree, regarding the other leg of its dual mandate of maximizing employment while keeping inflation in check. With its December meeting slated for Dec. 10, and the shutdown expected to last until early November or beyond, data integrity will be a key aspect to the Fed’s decision-making, and how the market reacts to it.

2. U. S-China Trade Talks: A Rare Deal?

The outcome of President Donald Trump’s meeting with China President Xi Jinping, on Thursday, is likely to be the market’s broadest focus this week. It likely will touch upon a host of issues that could prove crucial for growth prospects in the world’s two largest economies.

Of specific import will be the follow-through on Treasury Secretary Scott Bessent’s suggestion that China will delay export controls on rare earth elements for up to a year. The U.S., however, indicated it would continue limiting high-tech shipments and restricting investments from Beijing, even as it walked back a threat to impose an added 100% tariff on China-made goods.

That apparent concession by China, and the seeming lack of a comparable move by the U.S., may prove to be a sticking point in the final talks between Trump and Xi. Both rare earths and export controls are crucial to the tech sector in each respective economy.

Comments by President Donald Trump to reporters on Monday—he indicated that a deal to determine the U.S. ownership of TikTok could be reached this week as well — were also telling.

The president has indicated on many occasions that such a deal had already been reached, so his latest remarks are a reminder that the administration’s touting of agreements doesn’t always mean Beijing has signed off.

3. Microsoft: Will Azure bring the blues?

Microsoft will post earnings for its first quarter, which ended in September, after the close of trading on Wednesday. Its forecasts of AI demand and capital spending will likely provide a more comprehensive outlook on the trade than any other company in the Magnificent Seven can offer.

One of the best ways for investors to get a grip on the big picture is to focus on the growth rate of its Azure cloud division, which is essential to Microsoft’s ability to make money from the billions it is committing to AI investments.

Bank of America analysts sees Microsoft raising its overall spending target to around $125 billion for the 12 months ending in June, a tally that would likely comprise around 38% of its overall revenue. The total was about $89 billion in the latest fiscal year.

The expected boost will allow the group to address capacity issues that are preventing even faster growth rates for Azure as Microsoft clients migrate their workloads onto the platform and deploy AI strategies alongside them.

Microsoft doesn’t disclose specific revenue figures for Azure, but analysts expect the company to post a year-on-year growth rate of around 38%. Any figure that comes in below that will test both Microsoft’s post-earnings stock gains and the AI investment thesis.

Write to Martin Baccardax at martin.baccardax@barrons.com