This week, U.S. stocks first declined and then rose. The gains brought about by the initial public offering (IPO) announcement of the new artificial intelligence star Anthropic and the Fed's inaction were overshadowed by concerns from the outside world regarding the financing and financial returns required to support the investment theme of artificial intelligence, which is at the core of the U.S. bull market (AI).

In the coming week, market attention will continue to be focused on the financial reports of many AI-related companies. At the same time, the results of the mid-term elections may affect the prospects for artificial intelligence regulation, bringing greater uncertainty to the market.

FED interest rate hike expectations have slightly declined

Economic data released last week showed that despite a tightening of monetary policy, the economy remained strong, with demand and overall inflation rising in tandem.

U.S. GDP growth in the third quarter exceeded expectations, with an annualized growth rate of 3.4%. Consumer spending grew strongly by 3.8%, and investment in business equipment increased by 20.9%.

Price pressures remain high. In September, the Personal Consumption Expenditures Price Index ( PCE ) rose by 0.5% month-on-month, accelerating from 0.2 percentage points in August, and the year-on-year growth rate increased from 3.4% to 3.6%. Excluding the more volatile prices of food and energy, the Federal Reserve is more concerned with the core PCE inflation rate, which was 0.3% per month, with a growth of 3.1% over the past 12 months, still far above the policy target of 2%.

Bob Schwartz, a senior economist at the Oxford Institute for Economics, said in an interview with a reporter from Yicai that the strong growth reflects the continuation of the AI boom, and at the same time, other parts of the economy are also strengthening. "We expect economic growth next year to continue to be higher than market consensus, but it will increasingly rely on a boom in capital spending driven by AI, defense spending, and a favorable inventory cycle. There are currently few factors that would change the Federal Reserve's judgment; they believe that the economy and labor market still have resilience. This means that the focus will continue to be on inflation in the near term, and the rebound in inflation in September supports the possibility of further interest rate hikes at the upcoming meetings," he said.

This week, the Federal Reserve remained inactive, stating that it needed more information before considering policy adjustments. Federal Reserve Chairman Jerome Powell said that he was reluctant to describe the economy as "overheated," partly because it is difficult to estimate the non-inflationary growth rate of the economy, especially with improvements in productivity. However, new data may challenge Powell's view, as key indicators of price pressures have surged, and strong consumer spending and business investment have driven growth far beyond what most central bank officials consider sustainable.

Fluctuations in the capital market have cooled down expectations for Federal Reserve policy. Futures pricing on federal funds rates indicate that the expectation of a rate hike in December has dropped from 91% to 78%, and there is now an expected 71 basis point of tightening space by next September (a decrease of 5.2 basis points from Thursday's levels).

Deutsche Bank believes that Walsh repeatedly returned to the topic of strong growth during the press conference. Although he continued to avoid providing forward-looking guidance, his remarks strengthened the signals from September SEP, when the vast majority of FOMC expected another interest rate hike before the end of the year. The bank continues to believe that the Federal Reserve will raise interest rates by 25 basis points in December and March.

Schwartz told Yicai News that inflation in September deviated from the Federal Reserve's 2% target. The spillover effect of rising energy costs on core prices, coupled with strong demand for artificial intelligence investment, will keep the Federal Reserve vigilant and may lead to two more interest rate hikes. However, a eventual decline in energy prices and a non-inflationary labor market will eventually curb price pressures by the end of next year, creating conditions for a shift in policy thereafter.

Market alert not yet lifted.

Along with the sharp decline at the end of trading, both the Nasdaq and the S&P 500 indices recorded three consecutive weekly declines. Since reaching a historical high on October 6th, the Nasdaq has fallen by 7.8%.

Dow Jones Market Statistics shows that this week, the two sectors in the S&P 500 index that declined were Communications Services and Information Technology, which fell by 8.5% and 1.8% respectively. The Communications Services sector recorded its largest monthly decline since April 2022. Funds shifted to safer sectors, with the Healthcare sector leading the way with a gain of 3.1%, followed by Materials and Utilities sectors, each rising by about 2%. The significant decline in tech stocks was due to the disappointing quarterly results announced by Intel and Amazon on Thursday evening; Intel tumbled 28.6% on Friday, with its market value evaporating by over $140 billion.

Data provided to Yicai by the London Stock Exchange LSEG shows that last week, there was a net outflow of $6.65 billion from US equity funds. There was extreme risk-aversion behavior on the institutional side, with a single stock experiencing a record net outflow of $14.8 billion, marking the 10th largest one-week net sell by institutions since 2008. Bank of America stated that the communications services sector recorded the largest one-week capital outflow since statistics began in 2018, while the technology sector saw a one-week net outflow of $1.9 billion, the largest since June 2026.

Looking ahead to the coming week, Wall Street expects the market as a whole to exhibit short-term high volatility and intense bidding between bulls and bears. Investors will face key tests such as earnings reports and mid-term elections. After short-term fluctuations, there are still structural opportunities in the market towards the end of the year.

Deutsche Bank believes that U.S. stocks are at the bottom of the last round of declines for the year. According to historical seasonal patterns since 1928, after hitting a bottom in late October during midterm election years, there is a high probability of an upward trend in the following three months.

Goldman Sachs is relatively cautious, believing that the Federal Reserve is likely to resume raising interest rates by 25 basis points in December. The risk of rising inflation has not been completely eliminated, and the high-interest-rate environment will continue to suppress the valuation of the tech sector. Morgan Stanley believes that before the next round of rebound in U.S. stocks, there are still three major hurdles to overcome. The S&P 500 may fall back to the range of 7,100-7,200 points before a sustained upward trend can begin, and they maintain their target of 8,000 points for the end of the year unchanged.