Fed Holds Steady, While Meta Jumps and Microsoft Slumps
Some significant earnings reports have arrived after an unsurprising Federal Reserve verdict.
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The market struggled on Wednesday as investors awaited the Federal Reserve and major earnings reports. Breadth was poor, with just 34% of stocks advancing and over 150 new 12-month lows. Small-caps lagged for the fourth session in a row with a loss of 0.6%, but several groups like retail, pharmaceuticals, insurance and biotechnology were hit particularly hard. Semiconductors (SMH) were the big winners again, which bodes well for the Magnificent Seven.
Fed Stays the Course
The market barely budged on the Federal Reserve interest rate decision. To no one’s surprise, the Fed held rates steady. The most notable comment was that the labor market is looking more stable. In the December policy statement, the economy was described as "expanding at a moderate pace," but in the January statement, that was upgraded to "expanding at a solid pace."
The message the Fed is sending is that, although inflation is still running a bit hot, there is no reason to cut interest rates, regardless of what President Trump would like. A March cut is unlikely, and unless there is some notable softening in jobs, a cut in May is also unlikely. There were only two members who dissented, which means that Powell’s successor may have some difficulty convincing other Fed members that rates need to go lower. The good news is that the economy is solid. The bad news is that there is no rate cut on the horizon.
Meta Jumps While Microsoft Slumps
The initial reaction to earnings from Microsoft (MSFT) is negative, while Meta (META) is jumping. Meta is a solid beat, and while it is increasing capital spending more than expected, revenue guidance is very strong. Microsoft is also a beat, but not as big as hoped, and it is trading down. Guidance will be coming on the call, but so far, it looks like they are not meeting expectations.
Tesla (TSLA) is just slightly ahead, but expectations there were low, and the market is looking ahead to news on robotaxis and other developments.
The Game Plan
The question we will have to address is whether the poor reaction to the AI Magnificent Seven earnings will spill over to the broad market. The Nasdaq 100 (QQQ) is down slightly on these reports since they are a large weight in the index, but chips and data centers are likely to like the numbers.
Don’t be fooled by the early response to these reports. There is often a tendency for dip buyers to jump in after the initial selling. We will see how things digest and then do it again on Thursday when Apple (AAPL) reports.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
