Buoyant markets face a Fed and tech stock test - the week ahead

There’s a busy week in prospect. Three central bank meetings and a flurry of results announcements from Magnificent 7 stocks will test the resilience of a stock market rally which continues to defy the sceptics.

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Another week, another high

The S&P 500 hit another new high last week, ending just shy of 6,800, up almost 17% year to date. Global stocks have done even better, with the MSCI All World index up 18% so far in 2025. The rally from the April tariff tantrum is, for now, seemingly unstoppable.

Attention shifted early this week to Asian markets, with a visit to the region by President Trump in focus. Japanese shares rose 2.5% on Monday, surging past 50,000 on the Nikkei for the first time. In Korea, equities were 2.9% higher, hitting another new high and making the market the world’s best performer, up by two thirds this year.

Even here in the UK, where economic and fiscal problems dominate the headlines, investors have the bit between their teeth. The FTSE 100 is closing in on the key 10,000 milestone, up 17% so far this year.

• Read: When might the FTSE 100 hit 10,000?

Central banks in focus

But it will be the central banks that hog the headlines this week. First up, the Fed is likely to cut interest rates for a second consecutive month to the 3.75-4% range. With a third cut pencilled in for the final meeting of the year in December, a repetition of the three consecutive rate cuts that fuelled the dot.com bubble at the end of 1998 is in prospect.

The European Central Bank (ECB) and Bank of Japan are also due to announce rate decisions this week. Both are forecast to leave rates on hold for different reasons. Europe moved faster than other central banks, halving rates from 4% to 2%. With inflation creeping up again, it is thought the ECB will now hold fire.

In Japan, meanwhile, the appointment of the country’s first female prime minister is giving the central bank the excuse to wait and see. Sanae Takaichi is a proponent of fiscal spending and low interest rates - very much in the mould of the US President whom she will meet this week. The Bank will want to see what her policy platform looks like before building on its recent tightening stance.

Still Magnificent?

With questions mounting about whether the US stock market is heading into an AI-fuelled bubble, this week’s results from five of the big tech stocks will be in the spotlight. Apple, Amazon, Meta, Microsoft and Alphabet are all due to report. In all cases, attention will focus on the companies’ colossal AI spending and the prospect of them earning an acceptable return on their investment.

More broadly, earnings season has started well. With around a third of big US companies having reported so far, three quarters are beating estimates. The initial estimate of a 7% year on year profit increase in the third quarter looks too pessimistic. Double digit earnings growth now looks more likely.

Gold loses its lustre

Meanwhile, one of the other big outperformers this year - gold - has come off the boil. Having hit a new all-time high of $4,400 last week, the precious metal eased back towards $4,000 as investors took some profits after a doubling in bullion’s price in a couple of years.

It was a reminder that bull markets do not carry on in a straight line forever. Something that equity bulls should remember as the valuation of the S&P 500 heads back towards levels last seen in the dot.com bubble. The US benchmark now trades at 25 times earnings, although this is skewed by the higher valuations of big tech stocks. The equal weighted index is priced at a high, but more reasonable 19 times earnings.

• Read: What is the best way to invest in gold - ETFs or gold miners?
• Read: 2 best-selling gold mining funds

The good news for nervous investors is that we are through the difficult September and October period when markets are typically more volatile and, on average, deliver a lower return. November and December are historically some of the better months in the market, with prices often rallying into the holiday season.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.