Fed on Speed Dial: Statement, Powell Remarks Seen Key as Tech Shares Slide After Microsoft, Alphabet Report

As the FOMC decision and statement loom, stocks are under pressure from tech earnings. Microsoft and Alphabet's results late yesterday both surpassed Wall Street's estimates, but investors appear focused on a few negative nuggets. No rate move is expected today, and three more mega caps report tomorrow.

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Key Takeaways

  • Mega-cap earnings in focus as Microsoft, Alphabet shares fall despite quarterly strength

  • No rate move expected at today’s meeting but Powell comments eagerly awaited for tone

  • Thursday features a mega-cap triple play as Apple, Meta Platforms and Amazon report


(Wednesday market open) Mega caps backtracked early Wednesday for the second straight day despite earnings from Microsoft (MSFT) and Alphabet (GOOGL) that generally met or topped expectations. Shares of both giants slid in premarket trading, leading to sharp losses for the tech-heavy Nasdaq-100® (NDX) as investors now await today’s Federal Reserve decision.

Hopes were high heading into both Microsoft’s and Alphabet’s reports late Tuesday, and in many ways, the two companies delivered. Both exceeded Wall Street’s quarterly forecasts and demonstrated progress in key business segments. However, their shares roared last year and into 2024, possibly setting up a “buy the rumor, sell the fact” scenario.

As Wall Street digests those results, the Fed’s rate decision and statement loom. Both are due at 2 p.m. ET, followed shortly by Fed Chairman Jerome Powell’s press conference. You can find coverage and reaction from the Schwab Center for Financial Research in today’s closing Schwab Market Update.

Markets price in virtually no chance of rates changing, so Wall Street’s reaction hinges almost completely on the statement and press conference. Powell’s dovish remarks and the Fed’s rate cut projections last time put stocks and Treasuries in a holiday mood. However, resilient U.S. economic data and Fed speakers’ reticence since then slowly cooled widespread hopes for a March rate cut despite inflation that continues to slow.

Tuesday’s upbeat Conference Board Consumer Confidence report and rising job openings data made a March rate trim feel even more remote. Futures trading now sees the first cut as more of a May or June event. Even so, Treasury yields continued to give back recent gains early Wednesday ahead of the Federal Open Market Committee (FOMC) decision and after the U.S. Treasury Department announced lower-than-expected quarterly borrowing needs earlier this week.

Futures based on the S&P 500® index (SPX) dropped 0.4% shortly before the close of overnight trading. Futures based on the Dow Jones Industrial Average® ($DJI) rose 0.12% and Nasdaq-100® (NDX) fell 0.9%.

Morning rush

  • The 10-year U.S. Treasury Yield (TNX) fell five basis points to just above 4%, a two-week low.
  • The U.S. Dollar Index ($DXY) stayed steady at 103.37.
  • The Cboe Volatility Index® (VIX) inched lower to 13.23.
  • WTI Crude Oil (/CL) slid 1.26% to $76.84 per barrel amid signs of some Middle East tension possibly easing.

Stocks in spotlight

While the FOMC debates weighty matters out of sight this morning, there’s plenty to keep everyone occupied in addition to Microsoft and Alphabet. Boeing (BA) reported before the opening bell and Qualcomm (QCOM) steps to the line this afternoon. Thursday afternoon features a mega-cap triple play as Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) report.

Earnings scorecard: Reporting season approaches the halfway mark in mixed fashion. Earnings growth is now expected to be near 5% for S&P 500 stocks, an improvement from the start of the quarter but down from 11% expectations in late 2023. “The move back down in net profit margins is notable,” said Liz Ann Sonders, chief investment strategist at Schwab.

Mixed results continued late Tuesday as Microsoft, Alphabet, and Advanced Micro Devices (AMD) opened their books. Initial market reaction was lackluster, with Alphabet sliding on disappointment over the firm’s ad revenue and search metrics. This was despite earnings per share (EPS) and revenue beating expectations and a solid quarter for the cloud business. The Google Cloud segment grew 26% from a year ago and also rose sequentially.

AMD lost ground after the chip firm shared an outlook that fell short of Wall Street’s expectations. Microsoft, which posted record highs ahead of results, slipped despite its Azure cloud platform growing 30% to surpass Microsoft’s own guidance. Some of the cloud growth was tied to Microsoft’s artificial intelligence efforts, MSFT said on its earnings call, and the company is infusing AI across its business. Revenue and EPS also topped analysts’ estimates. But some analysts felt the company’s guidance was cautious.

Generally, yesterday’s tech outcomes didn’t appear to blow anyone away. AMD’s weak guidance came under particular scrutiny following similar lackluster outlooks last week from several other major chip firms. The semiconductor space was among Tuesday’s worst Wall Street performers.

AMD’s disappointing forecast might represent another speed brake, considering it’s second only to Nvidia (NVDA) in graphic processing units used in AI. Nvidia reports in late February. After semiconductors sparked much of January’s rally to record highs for the broader market, the recent chip forecasts sound a cautious note heading into February.

Mega-cap earnings accelerate tomorrow afternoon as Apple, Meta and Amazon compete for views on Wall Street. One concern is Chinese demand, especially after companies, including General Motors (GM), reported challenges there this earnings season. Cloud dynamics also come into play when Amazon reports following Alphabet and Microsoft’s tallies in that segment yesterday.

Stocks on the move early Wednesday include:

  • Boeing shares barely budged after the company posted better-than-expected earnings per share performance early Wednesday. Focus remains on manufacturing quality issues, and BA didn’t provide guidance. The earnings press release said Boeing’s full focus is on “taking comprehensive actions to strengthen quality” after more issues with the 737 MAX. Back in Q4 before the recent incidents, commercial airlines revenue rose 13%, driven by higher deliveries and a favorable mix, Boeing said.
  • Mastercard (MA) shares slipped nearly 1% after reporting results early Wednesday that surpassed Wall Street’s average estimates. Strong reports last week from competitors American Express (AXP) and Visa (V) raised the bar for MA, Briefing.com noted.
  • Starbucks (SBUX) perked up 4.5% ahead of the open despite its earnings and revenue falling short of Wall Street’s estimates and referring to “unexpected headwinds” in Q4 that hurt the U.S. and Middle East business. The company also sliced its guidance for sales. The shares might be up in part because some investors had worried results might be even worse.
  • Tesla (TSLA) fell 2.6% after a Delaware judge voted against CEO Elon Musk’s compensation package.

What to watch

Fed tracker: The last time Powell took the podium, in mid-December, his upbeat remarks helped propel both stocks and Treasuries to a vigorous rally. Several Fed speakers since then sounded more hawkish, easing the rally in Treasuries that briefly took the 10-year Treasury note yield to below 3.8%.

“We’ll be focused on tweaks to the statement or comments from Powell at his press conference,” said Collin Martin, a director of fixed income trading at the Schwab Center for Financial Research. “We don’t expect the Fed to lay out a timeline for rate cuts, but the statement may highlight that the committee doesn’t expect any more tightening going forward. We believe a cut in March would be premature and believe a cut in May is more likely.”

One thing to watch is whether the Fed’s statement keeps language about possible “additional policy firming,” CNBC noted. That clause remained in last month’s statement, but the Fed last hiked rates six months ago. If it’s removed, it might spark optimism that the FOMC is less biased toward tightening.

Data monitor:  More clues into the jobs market trickle in today ahead of Friday’s January Nonfarm Payrolls report. This morning features the Employment Cost Index, Chicago PMI, and ADP Employment Change.

The ADP report showed January jobs growth of 107,000, way below the Briefing.com consensus of 140,000. The prior report also got revised downward. However, recent ADP reports haven’t correlated well with the official government jobs report.

The Employment Cost Index showed further signs of easing pay pressure, rising just 0.9% in Q4 versus Briefing.com consensus of 1%. It rose 1.1% the previous quarter. This data, out just before the open, might be another reason why Treasuries are rallying. Even so, gains in the index still run at a generally higher rate than before the pandemic.

Investors received fresh insight yesterday when the government reported that December job openings rose to 9.026 million. It was the second straight monthly increase and above Wall Street’s expectations for 8.75 million. When labor demand outpaces supply, companies often raise wages, sometimes leading to inflation concerns.

Friday’s January Nonfarm Payrolls report is expected to show healthy employment gains of 180,000 in January, Trading Economics said. That’s down from 216,000 in December but still exceeds population growth. Unemployment could rise to 3.8% from December’s 3.7%, which might reflect a positive trend of more people entering the jobs market.

Eye on the Fed

Early today, futures trading pegged chances at 97.9% for the FOMC holding rates steady following today’s meeting, according to the CME FedWatch Tool. The market prices in a 48.6% chance the funds rate will be a quarter point lower than now after the Fed’s March meeting.

Beyond the Fed: There’s more to interest rates than the Fed’s next move. Learn about where other major central banks stand and how close any of them might be coming to rate cuts in the latest post from Jeffrey Kleintop, chief global investment strategist at Schwab.

CHART OF THE DAY:  TREADING WATER. Despite all the developments this month, two key market indicators stayed in trading ranges. The 10-year Treasury note yield (TNX-candlesticks) faded this week after the Treasury Department indicated less debt demand, and the Cboe Volatility Index (VIX-purple line) remains not far from December’s nearly four-year lows. Data source: Cboe. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Data trust: Though Friday’s jobs report remains among the most influential data, concerns grow that it doesn’t necessarily provide a full picture. So far, every single month of 2023 except July saw a downward revision to the previous report’s tally, raising eyebrows about accuracy. “A key reason we’ve seen so many revisions lately is because the response rates to the BLS have actually plunged since the pandemic,” said Kevin Gordon, senior investment strategist at Schwab. A decade ago, the response rate for the payroll survey was at 65%. Today, it’s dropped to 41.8%, possibly reflecting disruptions in how data get collected from companies in an era of remote work. “This is important because when only 30 to 35% of the companies polled are responding, it’s hard to get a good read on what’s actually happening,” Gordon added. “We should be aware of these hefty revisions that can occur down the road, given the fall in these response rates.”

Side job: One enduring theme heard on Wall Street and helping sustain bullish sentiment is that lots of cash is “on the sidelines.” It implies that mutual funds, retail investors, and other market participants hoard massive piles of money waiting for just the right moment to buy stocks. Don’t count on it. “It’s time to let go of the ‘cash on the sidelines’ narrative,” Schwab’s Gordon said. He noted several flaws with the idea, including that as a percentage of the S&P 500’s market cap, total money market fund assets haven’t changed over the past year; there are instances in history (like the late 1990s) during which stocks did well even as cash piles were built up; and there is no hard and fast rule stating that the built-up cash has to go into stocks. Cash could be directed into fixed income, considering today’s rates.

OPEC ahead: Crude oil takes center stage Thursday when the Organization of the Petroleum Exporting Countries (OPEC) meets to decide on production levels. While WTI futures at one point this month traded up 12% from their December intraday low below $68 a barrel, they haven’t revisited last fall’s highs above $90 despite Middle East tension. One weight is recent record high U.S. production, which many industry analysts see increasing this year. Then there’s China’s economic woes, though its crude imports rose last year as the country apparently tucked more barrels into storage. CME futures show a market in backwardation, with longer-dated contracts cheaper than the spot price. This implies traders expect current supply tightness to loosen. OPEC has been reducing production over the last year, but it’s unclear if it will decide to make any new cuts this week.


Feb. 1: December Construction Spending, January ISM Manufacturing Index, and expected earnings from Amazon (AMZN), Apple (AAPL), Altria (MO), Honeywell (HON), Meta (META), Peloton (PTON), Clorox (CLX), and U.S. Steel (X).

Feb. 2: January Nonfarm Payrolls, University of Michigan Final January Consumer Sentiment, and expected earnings from AbbVie (ABBV), Aon (AON), Chevron (CVX), and Exxon Mobil (XOM).

Feb. 5: Expected earnings from Tyson Foods (TSN), Caterpillar (CAT), and McDonald’s (MCD).

Feb. 6: Expected earnings from DuPont (DD), Eli Lilly (LLY), Spotify (SPOT), and Ford (F).

Feb. 7: December Consumer Credit and expected earnings from Uber (UBER), Alibaba (BABA), CVS Health (CVS), Bunge (BG), and Yum Brands (YUM).

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. (“Schwab”) and TD Ameritrade, Inc., members SIPC are separate but affiliated subsidiaries of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank.


Key Takeaways

  • Mega-cap earnings in focus as Microsoft, Alphabet shares fall despite quarterly strength

  • No rate move expected at today’s meeting but Powell comments eagerly awaited for tone

  • Thursday features a mega-cap triple play as Apple, Meta Platforms and Amazon report


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