NEW YORK - Strong corporate results have helped fuel the S&P 500’s climb to new highs this year, taking the focus away from the Federal Reserve’s tortuous path towards lower interest rates. As earnings season winds down, some investors believe monetary policy will jump back in the driver's seat.

Nvidia Corp's blockbuster earnings results put an exclamation point on the fourth-quarter reporting period, as the AI darling's surging shares propelled the S&P 500 to fresh record highs in the past week. The benchmark index has gained over 6.7% so far this year.

With the vast majority having reported, S&P 500 companies were on track to increase fourth-quarter earnings by 10% from the year-earlier period, according to LSEG IBES data, which would be the biggest rise since the first quarter of 2022.

As the earnings glow fades in coming weeks, the spotlight could turn back to the macroeconomic picture. One pivotal factor could be the steady rise in bond yields, which has come on the heels of shrinking expectations for how much the Fed can ease monetary policy this year without reigniting inflation.

"The market has been able to ignore the rise in yields because of the strong earnings," said Angelo Kourkafas, senior investment strategist at Edward Jones. "That focus on the path of rates and yields might come back into the forefront as we move past earnings season."

Higher yields on Treasuries tend to pressure equity valuations as they increase the appeal of bonds over stocks while raising the cost of capital for companies and households. The benchmark 10-year Treasury yield, which moves inversely to bond prices, hit 4.35% earlier this week, its highest level since late November.

While optimism on earnings and the economy has helped stocks shrug off the climb in yields, this could change if inflation data keeps coming in stickier than expected, forcing the Fed to further delay rate cuts.

Futures tied to the Fed’s main policy rate on Friday showed investors pricing in around 80 basis points of Fed cuts this year, compared to 150 basis points they had priced in early January.

An inflation test arrives Thursday, with the release of January's personal consumption expenditures price index, which the Fed tracks for its inflation targets. On a monthly basis, the PCE index is expected to increase 0.3%, according to a Reuters poll of economists, up from a 0.2% rise the prior month.

"If inflation renews its downward trend, that is going to be helpful to interest rates and that can provide the next catalyst for an up move" in stocks, said Chuck Carlson, chief executive officer at Horizon Investment Services.

At the same time, many investors believe AI fervor will continue driving stocks for the foreseeable future. Nvidia touched $2 trillion in market value for the first time on Friday, riding on an insatiable demand for its chips that made the Silicon Valley firm the pioneer of the generative artificial intelligence boom.

“We believe retaining strategic exposure to the US large-cap technology sector is important, and the rise in tech stocks could go further still,” wrote analysts at UBS Global Wealth Management on Friday, adding that they believe generative AI “will prove to be the growth theme of the decade.”

Next week will also bring other data including on consumer confidence and durable goods that will give a broader look into the state of the economy. A number of the companies due to report results in the coming week, including Lowe's and Best Buy, are retailers who will give insight into consumer spending.

Jack Ablin, chief investment officer at Cresset Capital, is among the investors who see benefits if the economy continues walking a fine line to a so-called “soft landing,” in which the Fed is able to cool inflation without upending growth.

"If we can get slowing growth, slowing inflation, create an environment that the Fed can start reducing interest rates... that should help the average stock," he said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)