Lot went right over the weekend to set up a positive Monday morning. Iran tensions cooled enough for markets to breathe. Oil fell 5%. Futures jumped. Now the real week begins with four major tech earnings and a Fed decision all landing before Friday.
What Moved Futures Higher
Dow futures up 0.8% Monday morning. S&P 500 futures gained 1%. Nasdaq futures surged 1.5%. Strong start after two consecutive weeks of losses for S&P 500 and Nasdaq and three straight losing weeks for the Dow.
Catalyst was a pause in US-Iran fighting. Not resolved. Not a signed agreement. But enough of a pause that oil markets reacted immediately. Brent crude fell 5% to around $91 a barrel. That is a meaningful drop in a single session and it takes one of the biggest inflation concerns off the front burner at least temporarily.
Lower oil means lower energy costs for businesses and consumers. Lower energy costs means less inflation pressure. Less inflation pressure means Fed has slightly less reason to hike. That chain of logic drove risk assets higher across the board Monday morning.
Europe opened broadly positive. South Korea Kospi up 0.5%. Kosdaq jumped 1.8%. Japan mixed with Topix edging higher and Nikkei slightly red. Generally constructive picture outside the US heading into the week.
Four Major Tech Earnings This Week
Apple, Microsoft, Amazon, and Meta all reporting this week. Four of the largest companies in the world dropping results in a four day window. That does not happen often and when it does the market pays full attention.
One question above everything else. Is the AI spending boom generating returns that justify the enormous capital being deployed. Microsoft, Meta, and Amazon have each committed to spending that makes investors uncomfortable when they look at near term profit margins. The only thing that makes those numbers acceptable is evidence that revenue is growing fast enough to eventually make them look small.
Alphabet rattled investors last week by lifting its capital spending outlook further than expected. Stock dropped on the news even though overall results were strong. That reaction set the tone for how this week’s earnings will be judged. More spending requires more justification. Companies that show clear revenue acceleration from AI investment will be rewarded. Companies that show spending going up without proportional return will be questioned hard.
Chipmakers, cloud providers, and AI infrastructure names will all move based on what these four companies say about their forward plans. Not just the earnings themselves but every word on the conference calls about data center expansion, GPU orders, and AI product revenue.
Fed Decision Wednesday Adds Another Layer
Federal Reserve delivers its rate decision Wednesday. Base case is unchanged at 3.5% to 3.75%. Most traders are positioned for a hold and that is the consensus expectation going into the week.
But 30% probability of a surprise hike is still sitting in CME FedWatch. That is not small. One in three chance of something markets are not fully prepared for. Kevin Warsh has been deliberately vague about forward guidance since taking over. Nobody knows with certainty what Wednesday brings.
Even if rates stay unchanged Warsh’s comments matter enormously. September is already viewed as consensus for another hike. If Wednesday’s language confirms that September move is coming it could cap the rally that Monday’s futures are starting. If Warsh sounds more cautious than expected it gives the market more room to run.
Oil falling 5% Monday helps the Fed’s inflation calculus slightly. Energy prices dropping takes some pressure off. But one day of oil movement does not change a trend and the Iran situation can reverse quickly as the past several weeks have demonstrated repeatedly.
Context for the Week
S&P 500 and Nasdaq are coming off two straight weekly losses. Dow has lost three weeks in a row. Market needs a reason to break that streak and Monday morning is giving it one with the Iran pause and oil drop.
Whether the streak actually breaks depends on tech earnings and Fed delivering something markets can work with. Both things have to cooperate. Strong Apple and Microsoft results alongside a steady Fed hold and measured language from Warsh would be the recipe for a positive week. Any one of those pieces going wrong and the losing streak extends to three and four respectively.
Week has enough going on that trying to predict the outcome in either direction is genuinely difficult. Monday looks good. Wednesday and Thursday are where it gets decided.