Market Digests Microsoft, Tesla, Fed, Awaits Apple
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, January 30th. Earnings from Microsoft, MetaPlatforms, and Tesla after yesterday's close preceded Apple's earnings scheduled for later today.

Microsoft kicked things off by exceeding analysts' expectations, but Tesla fell short. Microsoft's closely watched Azure and other cloud revenue popped 31% during the quarter, slightly below the company's 31% to 32% guidance, and might have been a factor behind overnight weakness in shares.

The entire intelligent cloud business saw revenues at the bottom end of Microsoft's guidance, but personal computing revenues surpassed the company's outlook. Microsoft has the second-largest cloud business behind Amazon, and the miss could raise questions about overall industry cloud growth and demand.

Tesla's earnings per share missed the fact-set consensus and revenue came in well below, analysts thinking. Lower margins appeared to hurt the EV firm's profit despite improvements in cost of goods sold per vehicle. Shares slipped in pre-market trading.

The Federal Reserve kept rates unchanged yesterday at the target range of 4.25% to 4.5%, the first pause after 100 basis points of cuts since September, but one that was widely expected in the market. Furthermore, Fed Chairman Jerome Powell said in his press conference that there's no hurry to make further adjustments.

Labor market conditions have cooled but remain solid, Powell said. Inflation remains somewhat elevated versus the 2% goal. Inflation data since the previous Fed meeting has been good, he added, with some pressure from housing prices cooling. In his press conference, Powell confirmed the Fed still sees progress on inflation. Investors initially got spooked by the Fed's written statement, which removed a previous reference citing progress on that front.

The missing words were a simple language cleanup, not a change in Fed thinking, Powell said. The market, which initially lost ground after the Fed's statement on concerns about the wording, recovered most of those losses after Powell's reassurance, but still finished lower Wednesday, as NVIDIA tumbled on worries over more potential AI competition from Chinese firms and tariff concerns.

The 10-year Treasury note yield fluctuated rapidly after the Fed meeting but ended unchanged at 4.56%. Shorter-term yields rose, indicating less likelihood of rate cuts in the near future.

Odds of a rate cut in March fell to 20% soon after the Fed decision, from 30% earlier Tuesday, according to the CME FedWatch tool. Futures trading still builds in high odds of one rate cut by mid-year and one to two rate cuts overall in 2025.

Today's calendar includes the first U.S. government estimate for fourth quarter gross domestic product, or GDP. Trading economics expects 2.8% down from 3.1% in the third quarter. One item to check is the quarterly deflator, which tracks prices across the entire economy and rose 1.9% in the third quarter, down from 2.5% in the previous quarter. Analysts expect a rebound of 2.5%.

That's not an ultra-alarming figure historically, but would suggest less progress fighting inflation. The Fed's preferred inflation indicator, the December Personal Consumption Expenditures Price Index, or PCE, is due Friday before the open. Consensus is for 0.3% monthly headline and 0.2% monthly core PCE growth. Core excludes food and energy prices.

The December Producer Price Index, or PPI, and Consumer Price Index, or CPI, released earlier this month pleased investors with signs of progress but offered a mixed picture for PCE. Some categories that filter into PCE, like airfares, rose sharply in December's PPI report.

The benchmark core year-over-year PCE index is seen rising 2.8%, the same as in November, according to Trading Economics. Anything under that might be taken as an encouraging sign. Today is also likely to bring a rate cut from the European Central Bank, if analysts are correct. This would mark the fifth straight meeting with a cut, but there's some question swirling around whether the March meeting will bring another trim.

Eyes are on ECB President Christine Lagarde for possible color on the next step. Europe is a major market for U.S. companies, so healthy growth there plays into U.S. stock performance. Apple earnings come after shares rebounded this week. The consensus earnings per share estimate is $2.35, with revenue seen at $124.1 billion, up 3.8% from $119.6 billion a year ago.

One question heading in is whether domestic iPhone demand helped outweigh weakness in China. Also, be on the lookout for updates on Apple's aggressive AI plan and whether that's helped lead to a better upgrade cycle for devices.

The S&P 500 index slid 28.39 points Wednesday or 0.47% to 6,039.31. The Dow Jones Industrial Average lost 136.83 points or 0.31% to 44,713.52. And the Nasdaq Composite dropped 101.26 points or 0.51% to 19,632.32.

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