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Expect questions about Fed independence at the chairman’s Q&A. (0:59) Apple, Microsoft, Met and Tesla report results. (3:10) Alphabet may be sitting on an Nvidia rival. (5:53)
The following is an abridged transcript:
Our main event – macro vs. megacaps.
In this corner, out of Washington D.C. weighing in at $6.83 trillion on the balance sheet, it’s been known as the defenestration of inflation and is led by Jerome “Wasn’t Built In a Day” Powell – your Federal Reserve.
And in the opposite corner, hailing from Silicon Valley, Seattle and Texas, they weigh in at $9.59 trillion in market cap. They are four parts of the Magnificent Seven, two thirds of the Big Six, and have also been called “The Death of Breadth” – Apple (NASDAQ:AAPL), Microsoft (MSFT), Meta (META) and Tesla (TSLA).
Let’s start with the Fed.
The FOMC announces its rate decision on Wednesday. On the face of it, it should be the most boring Fed Day since lockdown. Easing looks to be on hold and the market is pricing in a near certainty of no move. There’s also no dot plot.
Chairman Jay Powell will likely continue his message that the Committee can be data dependent. Right now, the odds are for the next quarter-point cut in June.
Governor Christopher Waller said last week “we need to see a little more progress on inflation, this month was good, but we need to make sure we get through the turn of the year to make sure it continues. We’ll have to wait and see, I don’t think March could be completely ruled out depending on what the data does.”
But the Q&A session could be a barn burner if the press corps focuses on Powell’s relationship with President Donald Trump this time around. Meet the new boss, same as the old boss and pretty much the same feud.
While Trump has said before that he wouldn’t try and remove Powell from the Fed, last week he said he wants interest rates to drop “immediately,” that he would talk to Powell about it and that he knows much more about interest rates than the FOMC and the chairman in particular.
Powell has already addressed this numerous times, most recently in December, saying: “We’re supposed to achieve maximum employment and price stability for the benefit of all Americans and keep out of politics completely.”
But reporters will still look to raise the issue. Expect a question of whether Powell would expect to cut rates sooner if OPEC responds to Trump’s demand to lower oil prices.
Also on the economic calendar, traders get the first measure of Q4 GDP on Thursday. The consensus is that the economy grew at 2.3% annual clip.
Wells Fargo economists are looking for the over, forecasting a 3% rise. They said: “consumer spending was strong through the end of the year, as exhibited by solid retail sales data through December, and we forecast PCE to grow at a 3.5% annualized pace.”
“Equipment investment was likely a weak spot, based on nondefense capital goods shipments data falling through the end of the year. We expect a modest rebound in residential investment after two quarters of consecutive declines and for the volatile net exports and inventory components to be a rather neutral force on top-line growth.”
On Friday the December core PCE price index, favorite inflation gauge of the FOMC, hits. Economists predict a 0.2% rise.
“Progress on the last mile of inflation looks to be slower going forward,” Wells Fargo said.
Now to megacap earnings.
On Wednesday, Microsoft, Meta and Tesla all issue numbers. Apple is up on Thursday.
Apple is expected to report EPS of $2.35 on revenue of $124 billion. Recently Jefferies cut the company to a rare Sell-equivalent rating on “weak iPhone sales and the general (consumer electronics) market and … reduced outlook for iPhone 17/18 due to slower AI update and commercialization.” But BofA reiterated is Buy rating and said they expect a strong fiscal first quarter report, driven by initial demand for the iPhone 16.
Microsoft is expected to post EPS of $3.13 on $68.8 billion in revenue. Jefferies said earlier this week that it expects “prudent” guidance for the current period and the focus will be on growth in Microsoft’s Azure cloud and M365 Copilot products, as well as capital expenditures.
Meta’s (META) earnings call will be closely watched not just for updates about its AI plans, but comments on its swing to the direction of X when it comes to moderation. The Wall Street Journal says executives reached out to advertisers to detail steps brands could take to keep their ads from appearing near content they deemed inappropriate following the loosening of speech restrictions.
For Tesla (TSLA), Morgan Stanley thinks Trump 2.0 opposition to electric vehicles incentives has already hit 2025 volume expectations. Oppenheimer anticipates Tesla will continue focusing resources and its narrative on physical AI technology leadership position, while further moderating vehicle sales growth expectations.
During the call, CEO Elon Musk is expected to once again talk up the potential of the autonomy, AI and humanoid robot businesses, and downplay expectations on 2025 deliveries. Investors may be looking for more specifics on the timeline for FSD, Cybercab deployment and Optimus milestones as they gauge how much of a premium to place on the new business opportunities.
Also on the earnings calendar, AT&T (T), Brown & Brown (BRO), Nucor (NUE), W. R. Berkeley (WRB) and Ryanair (RYAAY) report on Monday.
Tuesday sees numbers from Boeing (BA), SAP (SAP), RTX (RTX), Stryker (SYK) and Lockheed Martin (LMT)
ASML (ASML) and T-Mobile (TMUS) join Microsoft, Meta and Tesla on Wednesday.
Visa (V), Mastercard (MA), Blackstone (BX) and Thermo Fisher (TMO) weigh in along with Apple on Thursday.
Friday brings reports form Exxon Mobil (XOM), AbbVie (ABBV), Aon (AON), Colgate-Palmolive (CL), and Charter Communications (CHTR).
In the news this weekend, the White House looking at a plan to save TikTok that involves Oracle (NORCL) and a group of outside investors.
NPR reports that in the deal being negotiated by the administration, ByteDance (BDNCE) would retain a minority stake in TikTok, but the app’s algorithm, data collection and software updates would be overseen by Oracle.
Drinks conglomerate Diageo (DEO) denied speculation that it was looking to shop the Guinness beer brand and possibly jettison its stake in Moet Hennessy, saying it has no intention to sell either.
And Barron’s says Google parent Alphabet (GOOG) (GOOGL) has an AI chip business that not only could rival Nvidia (NVDA), but also could be the most valuable part of the company.
Alphabet’s internally designed chips are in AI data centers, where they work with semiconductors made by other companies such as Nvidia (NVDA). Meanwhile, Alphabet also has an AI business called DeepMind that is said to be comparable to OpenAI.
D.A Davidson analyst Gil Luria says the value of these AI businesses is more than $700 billion, or as much as $60 a share.
For income investors, Clorox (NYSE:CLX) goes ex-dividend on Wednesday, with a payout date of February 14.
Valero Energy (VLO) goes ex-dividend on Thursday, paying out on March 3.
And Ally Financial (ALLY) and Texas Instruments (TXN) go ex-dividend on Friday. TXN pays out on February 11 and Ally also pays out on Valentine’s Day.
Among companies expected to raise dividends are Blackstone (BX), to $1.24 from $0.86, Las Vegas Sands (LVS), to $0.25 from $0.20, and Meta Platforms (META), to $0.575 from $0.50.
And in the Wall Street Research Corner, sre we on the precipice of a global stock bubble?
UBS global equity strategist Andrew Garthwaite says six of seven preconditions for a bubble have already been met.
“Into bubbles historically, the bubble areas of the market have risen to 30-43% of global market cap and have a P/E of, at least, 45x on a (10-year) bond yield of 5.5%,” he said.
“Currently, the average 12-month forward P/E of the ‘Magnificent 6’ – Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), Nvidia (NVDA), Meta (META), Microsoft (MSFT) – is 28x and trailing PE is 34x.”
Those six conditions are:
- The end of a structural bull market
- Profits being under pressure
- The loss of breadth
- A gap of 25 years from a previous bubble
- The notion that ‘this time is different’
- Retail participation
The only one missing is loose monetary policy.
Garthwaite says there would be two “justifications” for a bubble. The first one is if Generative AI pushes productivity growth by 2 percentage points from 2028. The second would be suggesting that the (equity risk premium) over bonds should be lower, “especially for those companies with strong balance sheets such as the Mag 6.”
Above 5% for the 10-year yield (US10Y) is “when we worry,” he added.
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