Investors focus on rate path, AI slowdown after Fed hike

US stock investors will be focusing on the trajectory of interest rates, tensions in the Middle East, and the call for slower AI advancement next week. The Federal Reserve's decision to raise interest rates for the first time in three years signals uncertainty for investors about the number of hikes and implications for rising Treasury yields.

The benchmark 10-year Treasury yield crossed the 5% level and oil prices reached $100 a barrel, acting as psychological barriers. Stocks have struggled when these levels were crossed, with investors finding headwinds insurmountable. However, Thursday's gains saw US crude falling to $101 a barrel and the 10-year yield dropping to 4.93%.

The S&P 500 index is up more than 11% for the year and 2% below its mid-August record high. The Fed Chair Kevin Warsh's credibility test was seen in the decision, with investors awaiting more insights from his upcoming speeches. Surveys on manufacturing, services, and consumer sentiment may provide clues about inflation trends. The visit of Chinese President Xi Jinping to the US, including a meeting with President Trump, could impact markets, particularly technology shares, with AI development and semiconductor restrictions being key concerns.

Tech stocks, accounting for 38% of the S&P 500, have gained over 20% in 2026 but have lost ground since June. Investors are watching for more concrete signs before declaring any trouble for AI spending, as regulation may not significantly impact the pace of model development. Despite strong corporate earnings, the S&P 500 has been relatively unchanged in recent months, providing a good valuation base for risk assets if long bond yields drop.