S&P futures experienced an early rally on Monday, coinciding with a decline in oil prices, as hostilities between the U.S. and Iran saw a temporary halt over the weekend. Traders were also anticipating a challenging week characterised by earnings reports from megacap companies and the possibility of unexpected developments from the Federal Reserve meeting. Futures for the Dow Jones Industrial Average increased by 550 points, representing a rise of 1.1%. S&P 500 futures increased by 1%, whereas Nasdaq-100 futures rose by 1.7%. Cooling of tensions in the Middle East resulted in a decline of 9.2% in international benchmark Brent crude futures for September delivery, bringing the price to approximately $87.89 a barrel. U.S. West Texas Intermediate crude futures experienced a decline exceeding 7%, settling at $82.46 per barrel.

Tensions escalated following Ukraine’s attack on an Iranian commercial vessel in the Caspian Sea, leading Tehran to label Kyiv’s actions as a “hostile and criminal act.” The week ahead will present a plethora of challenges for the major averages. A succession of quarterly reports from Amazon, Apple, Meta Platforms, and Microsoft will either alleviate investor concerns regarding excessive artificial intelligence expenditures or exacerbate them, following Alphabet’s disappointing results from the previous week. The results could directly impact semiconductor companies that are the primary beneficiaries of the AI spending surge.

“The biggest risk is the continuation of the spend,” stated Ken Mahoney. “The issue arises when, should they heed shareholder concerns and curtail some of that expenditure or temper the pace of growth in that expenditure, the broader market is likely to react unfavorably.” He stated, “So there’s like a seesaw factor.” The Federal Reserve is set to announce its most recent decision regarding interest rates on Wednesday. The consensus view indicates that the central bank is expected to raise rates in September; however, market participants are factoring in a significant likelihood that the Fed may increase its benchmark borrowing rate by a quarter percentage point as early as this week, as per the CME FedWatch Tool.

U.S. equities have experienced yet another week of losses, influenced by a decline in semiconductor stocks and prevailing uncertainty regarding the conflict with Iran, which has impacted investor sentiment. On Friday, the S&P 500 and the Nasdaq experienced declines of 0.6% and 2.1%, respectively, marking consecutive weekly losses. The Dow fell 0.4%, marking a third consecutive week of declines.