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Technology stocks extended a relief rebound on Monday, but the rally now faces two tests: whether major AI companies can justify enormous capital spending with earnings and guidance, and whether the Federal Reserve signals that interest rates could rise in December. The Oct. 27–28, 2026 meeting was still underway, with a rate hold around 3.9% the prevailing expectation rather than an announced outcome. The Nasdaq Composite rose 0.8% and the S&P 500 0.7% on Oct. 26, while their year-to-date gains reached 12.6% and 12.1%, respectively. Those gains can persist only if profits, cash flows and policy expectations continue to support high technology valuations.
Why is tech rallying if the Fed may keep rates high?
Investors are treating the rebound as a test of corporate earnings rather than a declaration that monetary policy has become easy. Strong third-quarter profit expectations and continued spending on artificial-intelligence infrastructure have revived demand for technology shares, even though inflation remains above the Fed’s 2% target and borrowing costs are restrictive.
What happened in Monday’s session?
| Index | Oct. 26 move | 2026 gain through that close |
|---|---|---|
| Nasdaq Composite | Up 0.8% | Up 12.6% |
| S&P 500 | Up 0.7% | Up 12.1% |
| Dow Jones Industrial Average | Up 0.3% | Not stated |
The Associated Press reported those index moves and year-to-date figures on Oct. 26, 2026. A relief rally can continue while investors believe earnings growth will catch up with share prices; it is vulnerable if rates rise or AI spending fails to produce credible returns.
Why AI expectations matter now
LSEG IBES data cited by Reuters put third-quarter S&P 500 earnings on pace to increase more than 32% year over year. Market estimates cited by Reuters also put 2026 hyperscaler capital spending at about $800 billion. That spending supports chip, networking, data-center and software demand, but it raises the standard for guidance: companies must explain revenue growth, utilization, margins and the timing of returns on that investment.
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Will the Fed hike rates in October or December?
An October hold was the base case in contemporaneous reporting, but investors were looking for language that could keep a December increase alive. The official Federal Open Market Committee calendar lists the Oct. 27–28 meeting and the next meeting for Dec. 8–9; the October decision had not been announced at the time of the supplied reporting.
October hold versus surprise hike
| Scenario | What it would signal | Likely market focus |
|---|---|---|
| Hold near 3.9% | Officials want more evidence before tightening again | Statement wording, projections and the chair’s explanation of December risk |
| Surprise hike | Inflation and fuel costs are judged too persistent to wait | Higher Treasury yields, pressure on long-duration technology valuations and a stronger dollar |
The Associated Press said futures showed almost no chance of an October hike when it published its account. Reuters had earlier reported a 5% futures-implied October hike probability and an 80% probability for a December hike. These are dated market snapshots, not guarantees, and they can change before the announcement.
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What guidance could move markets?
- Rate path: Investors want to know whether a hold is a pause or the end of tightening. Walter Todd of Greenwood Capital asked whether officials would say something about December because a hike was then the expectation.
- Inflation language: Philip Jefferson, the Fed’s vice chair, said that “my colleagues and I will need to come to our own judgment, which may take more time.” A slower projected return to 2% would tend to lift yields and weigh on richly valued growth shares.
- Independence: Policymakers’ willingness to follow their own assessment matters after earlier decisions by Kevin Warsh to raise rates despite White House preferences. Investors will scrutinize how he describes communications with President Donald Trump and the boundary between political views and monetary decisions.
- Dissent: The AP identified Beth Hammack and Lorie Logan as possible votes for a hike. A dissent in favor of tighter policy would show that restrictive policy still has meaningful support even if the majority holds.
Why do inflation, fuel prices and mortgages complicate the decision?
The Fed is balancing two kinds of damage. Keeping rates high can restrain demand and housing, while easing too soon could allow inflation to remain above target, especially if energy costs feed through transportation and goods prices.
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- AP reported 30-year mortgage rates at 7.4% earlier in October and 7.32% the following week, versus just under 6.2% a year earlier.
- Oxford Economics estimated that higher rates had put home buying out of reach for another 5 million households.
- Diesel reached $6.53 in late September and was $6.35 afterward, according to AP.
- Bank of America economist Aditya Bhave said inflation had not been at the Fed’s 2% target for a full calendar quarter since late 2020.
Those conditions make a December hike possible even if officials avoid an October move, but they also explain why policymakers may wait: mortgage stress and weaker consumption can eventually reduce inflation without another increase.
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Can AI earnings justify the technology rally?
The next earnings reports must show more than demand for computing capacity. Alphabet, Microsoft, Amazon, Intel and Sandisk are the companies highlighted for investors’ attention. Their results and forecasts will be read for evidence that AI infrastructure is generating durable sales and returns rather than simply moving capital between suppliers.
| Question for earnings calls | Why it matters |
|---|---|
| Are AI-related revenues accelerating? | Growth must support the scale of planned data-center investment. |
| What is the return on each dollar of capital spending? | Low or delayed returns would challenge the valuation premium attached to AI. |
| Is 2026 spending rising toward the roughly $800 billion market estimate? | Higher spending can help suppliers but increase depreciation and financing pressure for buyers. |
| Do management teams raise, maintain or cut guidance? | Guidance determines whether the relief rally has fundamental support. |
Is the AI pullback a buying opportunity or a deeper correction?
The answer depends on whether the pullback reflects temporary positioning or a deterioration in earnings and policy assumptions. A pullback is more defensible as a buying opportunity when companies maintain strong guidance, cash generation and demand visibility while Treasury yields stabilize. It is more likely to deepen when inflation pushes yields higher, the Fed signals a December hike and companies acknowledge that AI capacity will take longer to monetize.
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Signals that favor a durable rebound
- Positive earnings revisions across several AI beneficiaries, not just one headline stock.
- Capital-spending plans accompanied by customer demand, utilization data and margin guidance.
- A Fed statement that keeps October policy unchanged without making December tightening appear inevitable.
- Broader participation beyond a narrow group of large technology shares.
Signals that favor renewed selling
- Higher fuel-driven inflation and rising bond yields.
- A hike or strongly hawkish December guidance, especially with multiple dissenters.
- Spending increases without evidence of revenue conversion or acceptable returns.
- Index gains concentrated in a few stocks while breadth deteriorates.
What should investors watch in the next Fed statement and tech earnings?
- Read the rate decision and vote count. A hold, the number of dissents and any change in the statement’s inflation assessment establish the policy signal.
- Check the projected path. Listen for whether officials describe December as data-dependent, likely or unnecessary.
- Compare inflation and labor-demand language. Persistent price pressure paired with resilient demand would keep tightening risk elevated; weakening demand could argue for patience.
- Parse AI spending disclosures. Separate committed capital expenditure from longer-term plans, and look for revenue, utilization, operating-margin and free-cash-flow effects.
- Track breadth and rates together. A rising Nasdaq with higher yields and fewer advancing stocks is less durable than a broad advance accompanied by stable or falling yields.
What does this mean for the rally?
The rebound has bought technology shares time, not certainty. With the October meeting still pending, the market’s next direction rests on whether Fed communication keeps December risk contained and whether AI leaders demonstrate that roughly $800 billion of expected hyperscaler spending can earn an attractive return. Mortgage pressure, fuel costs, inflation persistence and the credibility of Fed independence will determine how much tolerance investors have for disappointing guidance.
Frequently Asked Questions
When is the Fed’s next scheduled meeting after October 2026?
The FOMC calendar lists Dec. 8–9, 2026, as the next meeting after Oct. 27–28. The schedule identifies meeting dates, not the outcome or the size of any rate move.
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How do mortgage rates affect technology-stock valuations?
High mortgage rates reduce housing activity and household purchasing power, which can weaken the broader economy. They also reflect a high-rate environment that generally increases the discount applied to future technology earnings.
Why can higher AI spending hurt an AI stock?
Spending raises near-term depreciation, power and financing costs. If management cannot show customer demand, utilization and improving cash returns, investors may view the investment cycle as value-destructive rather than growth-enhancing.
What is the difference between a Fed dissent and a rate hike?
A dissent is a policymaker’s recorded preference for a different decision; it does not change the adopted rate by itself. Several hike-oriented dissents can nevertheless signal that the committee’s internal balance is shifting toward tighter policy.
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