Fed Decision, Microsoft, Meta, Tesla Results Ahead
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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's Schwab's early look at the market for Wednesday, January 29th.

Federal Reserve Decision Day dawns with investors baking in high odds of a pause. There's more drama around earnings from Microsoft, Tesla, and Meta Platforms, which report after the close amid new questions about their AI spending in the wake of Monday's deep-seek shockwave.

Fed policymakers made clear before today's 2 p.m. ET decision that a pause is in the works following 100 basis points of cuts since September. The market still anticipates trims later this year, but chances don't pick up until the second half, according to the CME FedWatch tool. Investors hoping for color on policymakers' thinking might be disappointed by the Fed's statement, but Fed Chairman Jerome Powell's press conference is worth watching.

The statement will likely be fairly bland and won't provide any clues about the direction of monetary policy, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The press conference will be more interesting to watch, as it may offer clues as to how the Fed is thinking about the various issues discussed by President Trump. We also expect an update on the Fed's balance sheet. It's been running on autopilot in the background.

Earnings from Microsoft and Meta today, followed by Apple tomorrow, are under more scrutiny than usual after deep-seek, with investors focused on their revenue and spending outlooks. Any positioning around the recent ramp-up in AI spending, especially from Microsoft and Meta, is likely to get a close look, as investors want to understand whether the huge amounts announced earlier this month remain built-in after ideas that deep-seek might allow a cheaper AI build.

MegaCap firms led the market with around 30% earnings growth in 2024, but many analysts think that that could slow in 2025. Apple, which rolled out its aggressive AI plan six months ago, has seen an underwhelming uptake and faces heavy phone competition from Chinese producers. Digital ad spending for firms like Alphabet, which reports next week, and Meta may fall now that the election surge is over.

However, the DeepSeek news might have given Meta, Apple, and Alphabet support this week on ideas that they could implement AI improvements more cheaply than previously thought. Mega caps this week and next might help investors put DeepSeek into more context. But the real test could come next month when investors hear straight from the horse's mouth from AI-related firms like Advanced Microdevices and NVIDIA reporting then.

Data-wise, December durable orders released Tuesday fell 2.2%, much worse than the Briefing.com consensus of 0.4% growth. But new orders for non-defense capital goods excluding aircraft, a proxy for business spending, rose 0.5% after a 0.9% rise in November. That softened the headline numbers Impact Briefing.com noted.

January consumer confidence from the conference board Tuesday was 104.1, below the briefing.com consensus of 108.1. Also, the prior reading got a downward revision to 104.7. This comes after University of Michigan consumer sentiment slipped this month amid rising inflation expectations.

Starbucks gained in pre-market trading after earnings late Tuesday narrowly topped consensus, even as same-store sales declined. While this morning brings results from semiconductor equipment maker ASML. Last time ASML reported in October, its disappointing sales forecast sent shares of the company and other chip stocks down sharply. As a key supplier to the chip industry, ASML's results are often seen as a barometer of semiconductor demand.

In general, fourth quarter earnings season has impressed. With 20% of S&P companies now reporting, the average year-over-year revenue growth is 3.83%, and earnings per share growth has averaged at 11.13%. Faxat's fourth quarter earnings per share consensus is around 12%. The Fed isn't alone in its meeting this week, as the Bank of Canada is likely to lower rates Wednesday, followed by a European Central Bank rate cut probable on Thursday.

U.S. fourth quarter gross domestic product, or GDP, is due Thursday, with consensus for 2.3% growth, down from 3.1% in the third quarter. And the Fed's preferred inflation indicator, Personal Consumption Expenditures Price Index, or PCE, is Friday, and consensus is for 0.3% monthly headline and 0.2% monthly core PCE growth in December.

Both were 0.1% the previous month. Core excludes volatile food and energy prices. The technical picture still looks relatively healthy after the S&P 500 bounced off its 50-day moving average on Monday, while volatility has calmed from the start of the week. The major U.S. indexes bounced back briskly yesterday, led by the tech-heavy Nasdaq's 2% gains on leadership from NVIDIA and Broadcom.

Both were punished after the deep-seek news Monday, but rose nearly 9% and 2.6%, respectively Tuesday, as investors weighed the possible impact.

The S&P 500 index rose 55.42 points Tuesday, or 0.92%, to 6,067.70. The Dow Jones Industrial Average added 136.77 points, or 0.31%, to 44,850.35. And the Nasdaq Composite climbed 391.75 points, or 2.03%, to 19,733.59.

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