Fed Meeting, Mega Cap Results, Inflation Data Loom
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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 Monday, January 27. The jam-packed week ahead features a Federal Reserve meeting, pivotal U.S. inflation data, and earnings from four mega-caps.

Major indexes set record highs last week but leveled off amid profit-taking on Friday, even as yields and the dollar sank.

Results and guidance from Microsoft, Tesla, Apple, and Meta platforms will be under scrutiny for any sign of a slowdown from recent frenetic gains. Earnings and guidance from these four mammoth firms might determine the overall market's direction this week, considering that the Magnificent Seven make up around 30% of the S&P 500's market capitalization. Wednesday is the biggest earnings day, featuring Microsoft, Tesla, and Meta. Thursday brings Apple.

Other major firms reporting this week include AT&T, Starbucks, Boeing, General Motors, and Lockheed Martin. Apple, overtaken by Nvidia last week for largest market capitalization, stumbles into earnings down almost 15% from its late-December all-time high, hurt by worries about iPhone demand.

Last week's record Wall Street highs were fueled by President Trump's ambitious AI investment plans, continuing signs of easing inflation, and robust earnings reports. S&P 500 companies reporting through midday Friday had surpassed analysts' average earnings per share estimates by nearly 8 percent, according to Bloomberg. A drop in crude oil and a retreat in the dollar also helped pave the way for gains, and volatility slipped to one-month lows.

While pro-growth initiatives are a welcome sign for the bulls, as they have the potential to add to corporations' bottom line, they also carry the potential to foster inflationary forces in the future, said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. This is the balancing act that the Federal Reserve undertakes with its monetary policy.

Futures trading at this CME group builds in nearly 100% odds that the Fed pauses this week. The meeting could be a placeholder with no move expected and no fresh projections scheduled. The Bank of Japan raised rates Friday, as analysts had expected, and the Bank of Canada is expected to lower rates Wednesday, according to consensus.

Though longer-term market breadth remains subdued, the last two weeks featured some healthy broadening of investor exposure across Wall Street. By midday Friday, before the afternoon selling, around 80% of S&P 500 stocks traded above their respective 10-day moving averages, and advancing shares outnumbered decliners by roughly 2-1 last week. Stocks are near-term overbought, but that doesn't necessarily mean that a pullback is imminent, Schwab's Peterson said.

The next two weeks form the heart of fourth quarter earnings season. So far, 80% of S&P 500 companies have beaten average analyst earnings per share estimates and 62% have beaten on revenue. Blended S&P 500 earnings per share growth is seen at 12.7% research firm facts that said Friday, combining actual numbers from reporting firms and estimates for those yet to report.

That's up from the pre-earnings season estimate of 11.8%. The week ahead is back-weighted from a data standpoint, with U.S. fourth-quarter gross domestic product due Thursday and the Fed's preferred inflation indicator, Personal Consumption Expenditures Price Index, or PCE, due Friday. Friday's numbers were mixed, with final January consumer sentiment below analysts' expectations, but December new home sales above.

Also, the preliminary S&P Global U.S. manufacturing PMI edged above 50 in January to 50.1, up from 49.4 in December. Anything above 50 signals expansion and U.S. manufacturing has been in the doldrums for months. U.S. preliminary January services data stayed above 50 but fell to 52.8 from December's 56.8.

The services weakness might explain why the 10-year U.S. Treasury note yield dropped Friday, closing near 4.63 percent and up about two basis points for the week. The dollar also softened Friday, posting one-month lows after the Bank of Japan's rate hike. Further weakness in the dollar and yields this week would likely be a welcome development for stocks. The 10-year yield is up more than 20 basis points over the last month and nearly 50 basis points from the early December low.

New home sales for December are due today, followed by durable orders and consumer confidence tomorrow. Bitcoin prices notched a fresh all-time high above $109,000 last week, driven by optimism over what some investors perceive as a crypto-friendly attitude from the new U.S. administration.

The S&P 500 index fell 17.47 points Friday, or 0.29%, to 6,101.24 and rose 1.74% for the week. The Dow Jones Industrial Average slid 140.82 points, or 0.32%, to 44,424.25, up 2.15% for the week.

And the Nasdaq Composite gave back 99.38 points or 0.5% to 19,954.30, up 1.65% for the week. This has been the Schwab Market Update Podcast.

To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow. For important disclosures, see the show notes and schwab.com slash market update podcast.