Mag 7 Reports Results… And The Latest Fed Rate Decision 1/28/26

22:54stabilization, removed this issue of downside risk to employment from the prior statement and said inflation is somewhat elevated, not overly concerned there. The Fed also used language in the statement from December that signaled a pause in January. Power wouldn't rule out future cuts, but was clearly not signaling anything imminent. We think we're well positioned here to watch how the economy performs, look at the data. We're not making decisions about future meetings, but we do think we're well positioned after those three cuts to let the data speak to us. As Melissa told you, Fed governors Waller and Myron dissented in favor of a quarter point cut.

23:31Waller, of course, remains a candidate for Fed chair. His odds went up and Myron is only on leave from the administration. Whatever their reasoning, dissenters can sometimes lead the way. So it may be that rates are going to come down eventually, but markets still don't see another cut till June and we'll have another Fed chair. And there's only a 60 percent probability, Melissa, on that second cut in December. Wow. Steve, was it your interpretation after you asked that question that the Fed would actually stay at this higher neutral rate for much for longer? Well, I mean, I think there's a question as to what the Fed means by its neutral rate, whether or not it means a real neutral rate or a nominal neutral rate.

24:09I need to talk more about that at some other time. But I think the Fed is sort of happy where it is. Remember, we can talk about the two dissenters, but there were, you know, 10 other votes on the other side to hold. It's maybe a slightly more hawkish committee this year. And I would take Powell at his word that we're waiting for the data to speak to us, is what he said. And I think the data right now, as you guys have been talking about, both the earnings data as well as the economic data, have been a lot stronger than anybody expected here. So the Fed's going to wait till that sort of figures itself out here with the only question about what happens to the job market here.

24:47Yeah. Steve, thanks. Steve Leesman for more on the markets and Fed decision. Let's bring in Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America Securities. Savita, great to have you with us. Great to be here. So given what he said today, given some of the mega cap earnings that we're getting after the bell, what do you think? What are we making of all of this? Well, today felt like a really boring day until after hours, right? So I think it's still a lot of the attention is still focused on tech, AI. Meanwhile, the market has been broadening. We've seen the S &P equal weighted outperform the cap weighted benchmark.

25:24We've seen small caps come back. So I think there's a lot of interesting stuff going on that doesn't get a lot of airtime. In terms of how to position for the year, I think it's important that this is a midterm election year because, you know, where we are is an environment where we need to, you know, kind of the current administration wants to really, you know, focus on affordability. The rhetoric is changing a little bit from just trade policy to affordability to domestic issues here at home. And I think that could actually be really positive for areas that have struggled, like consumer staples.

25:58So consumer staples is our most out of consensus bullish overweight. and nobody likes it. And we get questions every day, especially after, you know, the most recent announcement from Amazon on grocers. I think it's an interesting sector that's pricing in a lot of bad news. And if you do see that lower income consumer cohort that has been struggling the most against inflation, get a lifeline. And what we're hearing now from policymakers is a lot of good things in the midst. I think that could be a really interesting sector to look into. Right. I think it is out of consensus. And that's fascinating.

26:35I think it's it's particularly coincident and fascinating that you're on tonight when Steve just gets off saying we upgraded the economy. We seemingly have upgraded EPS outlook. And you think those two ingredients for most people are not good for the stock market. Well, look, I think it's I think that the stock market right now is more likely to be bolstered by CapEx and manufacturing than consumption. And I worry a little bit about consumption because when you think about the biggest contributor to consumption growth over the last 30, 40 years, it's been white collar professional services, 25 to 45 year olds, like, you know, basically us when we graduated from college.

27:12And that cohort is not getting jobs. Today, there has been a kind of a big pause in terms of hiring grads. So college grads are going back to grad school, incurring more debt and still not getting jobs. So I think that's something to keep an eye on. Maybe it's nothing to write home about right now, but we're seeing it. You know, we're seeing it everywhere. You're seeing just this sort of air pocket in terms of demand for new skilled labor because AI can do a lot of that stuff. I'm sorry, I was going to say if memory serves, which it typically does, it was June of 2023. The S &P was 4 ,300. You were the most bullish you'd been in a decade.

27:52Yeah. And now look at where we are now. But your price target suggests not so bullish anymore. Yeah. I'm glad you brought that up. I mean, back then there were a lot of things going right for the market. It was cheaper. There was, you know, very little debt, you know, no capital raises. You didn't see a lot of, you know, interest in equities. It was still like we're heading into a recession. Everything is awful. Today, the economy is booming. Everything's fine. You want to be long stocks and crypto and everything else out there. So I feel like sentiment has really done a big 180. And Michael, you'll appreciate this.

28:28We have one model at B of A that we've been running since Rich Bernstein started it back in the 80s. And it is still telling us that sentiment on stocks is not necessarily euphoric. So I think there could be upside in a lot of areas of the market. But sentiment on AI and tech feels pretty darn euphoric to me at this point. Yeah. Yeah. I mean, we agree, obviously, Savita, sort of the broadening of the market. Much of our framework is the same, of course. What happens if, you know, you have the Atlanta Fed right now running at, you know, 8 percent essentially nominal GDP, 5 percent real. You've got earnings growth that is accelerating.

29:08You've got inflation near 2 percent. What happens if the Fed just doesn't hike this year? What happens if rates go back up? It doesn't cut. It doesn't cut this year. What if the 10-year goes back up to 5 %? What does that do to sort of the outlook? Is that better for the outlook, suggestive of higher growth, or is it worse for the outlook because of this? I think it's better for broadening, and I would stick to that broadening call. We thought broadening was going to happen last year. It didn't. Mea culpa. I think April 2nd kind of screwed that up. But, you know, this year we've got CapEx kind of firmly in place.

29:41We know tax policy. Rates can move to five. I don't see that as anathema for the stock market. Nice word. Yeah. Sorry. We were wordsmiths here, so I keep going. That's an SAT word that I just snuck in there. Sure. But I think that we could have a year where tech doesn't do as well. And I think that rates rising on the long end is most detrimental to these mega cap growth companies, because back in 2023, what they did to deal with higher rates and less of a multiple was they cut capex, cut costs, fired a bunch of people, did a huge buyback. Today, can they really cut capex? I wonder. We're in this arms race on AI.

30:23So I think that's where you get to the problems. But on the broader market, we can still see rooms for a lot of upside and multiple expansion, as long as the reasons are cyclical growth. Yeah. Savita, thanks. Good to see you. Thank you. Great to see you. Coming up, what we're hearing out of the MAG7 conference calls and the latest results from IBM in Southwest and the pops and drops in this morning's reports as well. You're watching Fast Money Live from the Nasdaq Market site in Times Square back right after this.

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32:03It's smart to always have a few financial goals and a really smart one you can set. Earning cash back on what you buy every day. And with Discover, you can. Get this. Discover automatically matches all the cash back you've earned at the end of your first year. Seriously, all of it. And we trust you to make smart decisions. After all, you listen to this show. See terms at discover.com slash credit card. Welcome back to Fast Money. Stocks closing near the flat line today. The S &P topping 7 ,000 for the first time, but ended the day just in the red. The Dow adding 12 points, while the Nasdaq was up about two-tenths of a percent.

32:42AT &T jumping after topping EPS and revenue estimates this morning. The company also approving a$10 billion stock buyback. Shares of French luxury retailer LVMH falling despite beating sales expectations. And GE Vernova raising its 2026 outlook shares climbing nearly 3%. And some more after hours action. Service now beating estimates in the top and the bottom lines, raising revenue guidance. Southwest Air earnings in line with estimates, but falling short on revenues. Las Vegas Sands dropping despite tapping estimates. And IBM beating earnings and revenue expectations, raising its free cash flow guidance as well for the year by a billion dollars.

33:18John Fort's got more details from that quarter in the stunning move. John. Yeah, it is, Melissa. And the Q &A just now starting on the call, but I have my own Q &A with CEO Arvind Krishna earlier. Here are some things that might get said on the call that investors should know. One, software portfolio diversification, a big feature for IBM now. Red Hat was a little weak. It was 8 % versus double-digit growth for the rest of software. Arvind told me he's proud of that, that the rest of software is big enough and growing fast enough to offset software's weakness. Also, this sovereign infrastructure demand, particularly in Europe, a lot of countries is a little iffier about putting their data in a cloud owned by U.S.

33:56companies and hyperscalers. They're more focused on buying their own equipment, putting it in their own data centers. Arvind's saying, hey, since 2017, he was predicting that this was going to happen, IBM benefiting because they do a bit of both. They have this hybrid strategy. Also, the mainframe cycle, very strong. It has been strong, actually, since a couple of mainframes ago. And so he said it's going to do what it usually does, strong first year, flat second year, a little off the third year, but the raw numbers are going to be better in part because people are buying just more of this equipment.

34:27And also consulting, he's saying, has turned the corner. Profitability improved by 200 basis points. Despite the revenue being a little bit on the weaker side, he said this is the bottom, this is the base. We should expect growth, stronger growth from here throughout the rest of the year. All right, John, thanks. John Fort, and also that headline you see at the bottom of the screen in terms of the first large-scale a quantum computer by 2029. There's a little bit of that quantum magic embedded in IBM stock. I think that's more the move, given the market that we have here. But it is fascinating to think of, you know, just the sentiment change in terms of build your own infrastructure, not necessarily, I mean, the thought that U.S.

35:06cloud would be like a China cloud, you know, like something people wouldn't want. That's interesting. IBM shares up 8 % right now. Coming up, Microsoft and Tesla just kicking off their earnings calls. What we're hearing from the names and where Fast Money friend Gene Munster sees the stocks heading next. Fast Money's back in two.

35:35More details now out of Tesla's conference call. Phil LeBeau has the details there. Phil. Melissa, Elon Musk right off the top of the call, and it just started a couple of minutes ago saying that the company plans to end Model S and X production at the company's plant in Fremont, California. Why? So that they can ramp up, retool the plant and ramp up production of the CyberCab. So this is a clear indication that Tesla is pivoting, as he has predicted, towards autonomous vehicles. So again, Tesla will be ending production of the Model S and X, I think he said next quarter, as they begin to retool and pivot for production of the cyber cab and what he believes will be the future of vehicles, autonomous vehicles.

36:21And that's a clear indication of where Tesla is at and where it is heading. So just for clarification, the only models that consumers will actually be able to purchase are the Y, which is the best-selling model, and the Cybertruck? Yep. Okay. Model 3. Model 3, Model Y, and the Cybertruck. Okay. Phil, thanks. Phil LeBeau. We see Tesla shares there higher by about 3.7%. Let's get more reaction with Gene Munster, managing partner at Deepwater Asset Management. Gene, good to see you. So far, Tesla seems to be delivering. What do you make of the quarter? Well, as someone who's constructive on AI, this is just a lot of good news tonight.

37:02Even with Microsoft being down, there's just so much that we've been hit. But just to answer the Tesla question specifically, Elon just said just a half a minute before I got on here that they will be in dozens of cities in the U.S. by the end of the year. Now they've said that they're going to be in an additional seven by the middle of the year. But on top of that, there's something bigger going on that I think is largely underappreciated is the significance of how good FSD is now. And for Tesla owners out there who are running the latest software, they understand this. And I would just encourage anybody, any investor who's short Tesla to go and do a two-day demo.

37:40They'll give you a two-day demo for their car and try FSD. It is remarkable how much it has improved. And the reason why I mentioned that, that's why they're breaking out FSD now. That's why they're giving out the subs numbers. That's why they're talking about increasing from seven to dozens of cities. That's why they're talking about cutting out the S and the X in terms of production and focusing on RoboTaxi is that they're feeling really good about where FSD is, and they should because it's really made a lot of progress. So that's my takeaway. I think this stock, it's not about valuation. It's about the hope of the future.

38:14And I think the substance of how this technology is progressing is really making some remarkable improvements recently. Hey, Gene, if it's not about all the things you just said, I mean, how long do you think Tesla investors are going to be willing to take losses in this robotaxi business, especially they're going to probably take bigger losses the more cities they roll out. Like how long do you expect that to be? And when do they see this as profitable? So kind of some fun with math. If you take what Waymo is going to do this year in terms of the autonomous miles driven, and you assume that Tesla doubles what they're going to do this year, they probably will more than double.

38:50You get to the total the total autonomous robo-taxi miles as a percentage of ride-sharing, Uber and Lyft, at just over a percent and a half. And so to answer the question, like, how long are they going to give? Like, there is a case where there's just a lot of room to go. If you look at total miles driven, this is almost even more remarkable. FSD right now accounts for about 0.1 % of total miles driven in the U.S., 3.3 trillion miles a year. And so I think that's why this can keep going is that these are huge opportunities that I mean it gets the storyline gets old about scratching the surface but that's what's going on and they're making a lot of progress to get there.

39:31Gene Microsoft what's going on here? So from my perspective it was about some of this deferred revenue slipping I haven't gotten their commentary on the call about why that has slipped I don't know if that's entirely AI related but I think that that's it went from 59 billion at the end of last quarter to 50 billion so an 8 billion drop. A little bit of seasonality in there, but I think that that's kind of what's driving it. But I think that that's just want a quick level set. That's what's going on at Microsoft. But tonight's a big night for AI, people who are positive on AI. The CapEx from Microsoft, if you follow through what they did in this on the December quarter, will probably be up 50 % plus.

40:12The street was thinking 30. Meta's CapEx goes from 57 % before it'll be 85 % after the guidance that they gave, these companies are still saying we're early. And so even though Microsoft is having a tough time here, I think that this is for someone who's positive on AI, this is like an all-you-can-eat buffet in terms of good news. Yep. Gene, thanks. Gene Munster, Deepwater Asset Management. We should note that Alphabet shares are higher by about 2.3%. I mean, the read-through, Tim, from Meta. And Robo. Yeah, to Google. Yeah, I think what we've heard from the pure ad business of Meta and the cyclicality of that core business, the strength of the consumer, the strength of technology, increasing margins, it's great for Google too.

40:56And there's no question. I think what we're hearing from Tesla in terms of Robo and what that means in terms of Waymo, I mean, either way, these businesses are growing and the delta of the valuation of the underlying company, Google has more to gain than Tesla does by Waymo versus RoboTaxi. Coming up hot and cold on Starbucks, the sales numbers that gave investors a jolt early this morning and why shares of the coffee chain cooled off into the close. We got the details when Fast Money returns.

41:31Welcome back to Fast Money. Shares of Starbucks losing some of their caffeine buzz, rising nearly 10 % early in this session, but closing the day just in the red. This after the coffee chain posted its first same-store sales growth in two years. As CEO Brian Nichols' turnaround plan starts to gain some traction. CBC's Kate Rogers. Come on. Clap around. Kate Rogers is not being here. Wow. I'm going to visit. It's so nice to see you guys. So this was really the quarter that I think investors, analysts have been waiting for with evidence that the turnaround under Brian Nichols' plan is starting to take hold.

42:05So the company had mixed results with an EPS miss. Revenue beat, but the same-store sales that you mentioned, Melissa, of focus globally, they were up 4%. That's the second consecutive positive same-store sales growth that followed six-quarters of negative growth, showing that changes are really starting to resonate with consumers. Now, in the U.S., there was also some real progress with same-store sales also up 4%. Notably, the company said that it had transaction growth now for the first time in the U.S. in eight quarters. That's a tough area for restaurant companies across the board right now.

42:35And on the call, Nickel said that now they're seeing growth in both rewards and non-rewards customers, which is key because, remember, the occasional customer had pretty much been lost before he came on board. In China, its second home market comps rose by 7 percent this quarter. And it was bolstered overall just by a strong holiday season across the board, particularly in the U.S. having their best launch day in history. The company also providing short-term outlook for the first time since Nickel took over and suspended guidance in the fall of 2024, seeing full year. 2026 adjusted EPS in a range of$2.15 to$2.40.

43:09And global and U.S. comp store sales growth of 3 % or greater. That is a bit above consensus. But really, just kind of showing that this turnaround plan that they put in place over a year ago now is starting to take hold. I'm curious what you guys think when you go to Starbucks. I notice a little bit of a difference in some of the stores I visit. I mean, morning is the key, right? Winning the morning is the key to all of this, Tim. You go in the morning. That's exactly when you get your— I'm a disciple. they're friendlier than ever. I get really cute designs and little writings on my cups, but I think they've figured out how to get things going a little bit faster, at least also for people that are normal, unlike a guy who orders almond milk and stuff like that and his protein foam.

43:49You're on the protein foam. Of course I am. Come on, Kate, you know me. I'll say this real quick. I mean, maybe Kate can speak to this. Operating margins were a disaster and they're promising the second half to start to see margins start to do a little bit. That's the hope. Is it achievable, I guess? I mean, they are definitely talking about the back half of the year looking better. And I think a lot of analysts are looking for tomorrow, hoping to see a longer term outlook when they give this presentation to investors. But remember, they made this$500 million investment into labor, right, that involves better technology, some upgrades for baristas, better staffing.

44:24And I think they hope to see some improvement on the margin front in the back half of the year. But that's really starting to take hold. And remember, a lot more of these cafe uplifts that they call them are coming through about a thousand by the end of the year. So, Kate, great to see you. So nice to see you. Welcome anytime. Thank you. We want to get to Steve Kovac. He's got some details on Copilot from the call. Steve? Yeah. Satya Nadella and Melissa just announced that Copilot now has 15 million paid subscribers. Now, this is the M365 version of Copilot, the one they sell to businesses for$30 per user per month.

45:0015 million, that's revenue, do the math there, that they didn't have before in artificial intelligence. But it is a very small percentage of overall seats for their enterprise customers. At least 400 million or so are the latest analyst estimates. So out of those 400 million seats, they've only convinced about 15 million so far to go over to this new co-pilot system. And by the way, it's been about two years to get to this point. That said, this is new revenue that they haven't been able to do before, and they expect it to keep growing, guys. All right, 15 out of 400 million. Yeah, a little out.

45:36Doesn't sound very good. It's like 6 billion. Is that right? Steve, thanks. More fast money in two.

45:47We've got a news alert out of Washington, D.C. Trump officials saying the administration is stepping back from plans to guarantee minimum prices for U.S. critical minerals projects, According to Reuters, a Senate committee specifically reviewing the floor given to MP materials, which the government took a stake in last summer, shares you see of MP down by about 6.5 percent. USA Rare Earth, which it just announced a stake in earlier this week, down 7.5 percent. Lithium Americas and Trilogy all lower here on this. So a little bit of a change here in terms of believing in that Trump backing. It only goes so far, apparently, for these names.

46:22Yeah, quickly. I wouldn't run too far away from this narrative can change very quickly. We've seen it before. Definitely. Up next, final trades.

46:42Final trade time. Timbo. Kate Rogers on set would be reason enough. However, it's also a story that I think is breaking out above 95 Starbucks. Starbucks. Michael Cantopoulos. I think we're on a longer term trend of international performing well, so we like ex-US. Thank you for being on the show, Michael. Thanks for having me. Dan. Mega. Nice. Palantir has had a very stealthy 25 % sell-off reports next week. I'm not buying the weakness. Guy. You know, I said to Tim, the song is over. He said, who's next? I said, what year? He said, 1971. It's amazing. Boom. We're not good at something. Maybe the most important, not.

47:18We're great at that. Paul. Sam X-Ray, back to you. Thanks for watching Fast Mad Money starts right now.

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