NEW YORK, Sept 18 (Reuters) - US stock investors will focus next week on the trajectory of interest rates, tensions in the Middle East and fresh calls to slow AI advancement as they weigh whether equity indexes can make new all-time highs.
Markets will continue to digest Wednesday's decision by the Federal Reserve to hike interest rates for the first time in three years, in an effort to tamp down above-target inflation. While the rate increase was widely expected, investors were left uncertain about how many hikes the US central bank might eventually implement and the implications for already-climbing Treasury yields.
Stocks have taken cues in recent weeks from rising Treasury yields and surging oil prices amid the escalating conflict in the Middle East. A 5% level on the benchmark 10-year Treasury yield and $100 a barrel for oil posed "psychological lines in the sand," said Art Hogan, chief market strategist at B. Riley Wealth.
Below those levels "lets market participants breathe a brief sigh of relief and get more involved," Hogan said. When they have been rising above those levels, "what's happened over the course of the last four or five weeks, the market just finds those headwinds to be insurmountable," he said.
Indeed, stocks rose on Thursday as oil prices and yields fell, with US crude dropping to $101 a barrel and the 10-year yield falling to 4.93% late in the session.
FED SPEAKERS, RATE CLUES IN FOCUS
Thursday's gains left the benchmark S&P 500 stock index (.SPX), opens new tab up more than 11% for the year and about 2% below its mid-August record high.
Rate hikes, which stand to raise borrowing costs and slow the economy, pose potential challenges for stocks. But Wednesday's move was largely priced in to markets ahead of the meeting. The decision was also seen by investors as a credibility test for new Fed Chair Kevin Warsh, to gauge whether the central bank would raise rates despite President Donald Trump's repeated calls to cut rates. Trump picked Warsh as Fed chief.
"We got through a significant hurdle" with the meeting, said Joe Mazzola, head trading strategist at Charles Schwab.
Investors are now watching for signs of when the Fed might raise rates again. Fed funds futures late on Thursday suggested roughly even odds that the central bank hikes at its next meeting in October, just before the US midterm elections.
In the wake of Wednesday's meeting, a number of Fed policymakers are expected to speak next week. Any insight into the central bank's plans for this hiking cycle could be especially valuable, given Warsh's own stated desire to avoid forward guidance about the path of rates.
"With lack of guidance, which really is the new normal here with Chair Warsh, I think it becomes more important to pick the brains of the folks that are willing to speak," Hogan said.
TRUMP-XI MEETING EYED FOR TECH TALKS
Surveys on manufacturing and services activity, as well as on consumer sentiment, also could offer information about inflation trends in a relatively light week of economic data.
Investors next week will monitor an anticipated visit by Chinese President Xi Jinping to the US, including a meeting with Trump expected on Thursday.
Among issues between the two countries, investors said the AI development race and restrictions involving semiconductors could impact markets, especially technology shares. The tech sector accounts for 38% of the S&P 500, and although it has gained over 20% in 2026, it has lost ground since the start of June.
"Tech needs to get back in that pole position for us to see those new all-time highs," Mazzola said.
AI is also in focus after industry leaders called for a slowdown in development following dire warnings about the dangers of the emerging technology. Slowdown worries modestly weighed on shares of semiconductor companies at the center of the AI boom.
Investors were looking for more concrete signs before declaring trouble for the AI spending theme that has boosted equities this year, including potential moves to more heavily regulate the industry.
Any stock weakness from such developments could be a buying opportunity, said Jeff Schulze, head investment strategist at the Franklin Templeton Institute. "I doubt that regulation is going to come that really curtails the investment and the pace of the model development going forward," he said.
The S&P 500 has been generally unchanged over the past few months, despite strong overall corporate earnings, which is "ultimately going to provide a good valuation base for the market to melt higher," Schulze said.
"It's a pretty positive setup for risk assets, especially if we can continue to get some drop of long bond yields," he said.
Reporting by Lewis Krauskopf in New York; Editing by Colin Barr and Matthew Lewis
