Fed Decision, Meta, Microsoft, and Tesla Ahead

0:05Welcome 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.

0:17I'm Keith Lansford, and here's Schwab's early look at the markets for Wednesday, January 28th. Much of today's action comes later, as investors await an afternoon Federal Reserve rate decision and post-close results from Tesla, Meta Platforms, and Microsoft. Stocks come off another winning session that featured a new all-time high close Tuesday for the S &P 500 index, partly reflecting hopes of strong tech earnings. Apple follows tomorrow afternoon with shares of both Apple and Meta up this week after recent struggles. Their sudden strength may reflect ideas that shares fell too much and earnings could hold bullish surprises.

0:59As always, proof will be in the numbers and guidance. Collectively, profits for the Magnificent Seven are projected to grow by nearly 17%, making this the most important stretch of earnings season so far. As data center and AI-related firms report, spending will be under scrutiny. Capital expenditure guidance will be interesting for hyperscalers, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, referring to companies growing their AI data center capability. Markets likely want not-too-hot, not-too-cold CapEx guidance. A few quarters ago, investors drilled in on quarterly cloud growth for Microsoft, and it's still an important metric.

1:45Overshadowing that to some degree now is the amount of spending that Microsoft and Meta plan to dedicate to data centers, which could have implications for margins as well as the future health of chip companies. Last quarter, Meta concerned investors when it raised its estimate for total 2025 expenses and said capital expenditures' dollar growth would be notably larger in 2026 than in 2025. If Meta and other firms announce more spending this time around, it could be interesting to see how the market reacts after Meta shares slumped on similar news last time out. One question investors may have for Meta is whether it can begin generating meaningful revenue from AI initiatives after last quarter's CapEx concerns.

2:32Weaker spending growth by the hyperscalers could have a negative impact on semiconductor shares, but earnings from Taiwan Semiconductor Manufacturing, an important barometer for the industry, impressed earlier this month. With Microsoft, investors will watch Azure cloud growth, backlog and future revenue commitments, updates on data center spending, and any commentary around OpenAI's financial position. Tesla also faces questions about its own heavy AI spending and falling fourth quarter deliveries amid mounting Chinese EV competition. ASML, a chip equipment maker, also known as a barometer of industry health, reported early today and could have an impact on chip stocks early this morning.

3:18The sector hit an all-time high earlier this month, fueled partly by heavy demand for memory chips made by firms like Micron and Western Digital. Aside from ASML, investors await earnings this morning from GE Vranova, AT &T, and Starbucks.

3:38Today's 2 p.m. Eastern Time Fed decision is widely expected to bring no change to rates, and the meeting doesn't include any fresh economic or rate projections. One thing on investors' mind is whether Fed Chairman Jerome Powell will leave the Fed when his chairmanship expires in May. While traditionally that's how it's worked, Powell has hinted he might stay on, preventing President Trump from making a new appointment. Powell's term on the Fed Board of Governors doesn't end for two more years. In his press conference, Powell is also likely to share thoughts on the economy and possibly the rate path, with investors generally expecting two more rate cuts this year, but the Fed's December projections averaging just one cut.

4:22In his last press conference, Powell indicated that the current rate is close enough to what's considered neutral to wait before making more changes. Another thing to watch is for dissents. Some Fed policymakers have made it clear they want rates lowered faster, but they're unlikely to have their way today. The statement will likely contain minimal changes, said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research. The press conference is always the wild card. This isn't a big week for economic data, and now there's the chance of another interruption if Congress can't pass all its budget bills by Friday's deadline.

5:05Senate Democrats are now expected to block passage of a six-bill funding package because it includes funding for the Department of Homeland Security, or DHS, and Democrats want some restrictions on immigration and customs enforcement or ICE agents as part of a revised bill. This uncertainty, combined with new tariff threats against South Korea yesterday, and the announcement of a major trade deal between the EU and India all weighed on the dollar early this week. The U.S. dollar index cratered to its lowest level in nearly five years Tuesday. Ideas that the U.S. and Japan might work together to lift the yen was another weight on the greenback.

5:45A dollar slump could lead to rising crude oil prices and trigger inflation worries, something Powell might be asked about. Investors receive a delayed December producer price index, or PPI, report Friday. The 10-year Treasury yield climbed one basis point to 4.22 % Tuesday, following relatively weak demand for a$70 billion five-year Treasury note auction. As Powell steps to the podium, there's chatter over who the next Fed chairman might be. As of early this week, Rick Reeder, Chief Investment Officer for Global Fixed Income at BlackRock, gained momentum as Powell's possible replacement. Reeder is seen by some in Washington as having the smoothest pass to confirmation in the Senate, said Michael Townsend, Managing Director of Legislative and Regulatory Affairs at Schwab.

6:36In Data Tuesday, January consumer confidence from the Conference Board contrasted with recent upbeat economic reports coming in at a headline level of 84.5. That's the lowest since 2014, down from 94.2 the prior month and below the average 91.0 estimate on Wall Street. Expectations, which track respondents' thoughts about the near future economically, also tanked.

7:05We'll turn to Tuesday's market action in a minute, but if you'd like to receive market news and actionable insights from Schwab's experts, sign up for the daily market update and more at schwab.com slash newsletters.

7:22Markets cruised higher again Tuesday, carrying the S &P 500 index to a fresh all-time intraday high above 6 ,988. It closed about a point above the previous January 12 record, and there still seems to be reluctance to test the psychological 7 ,000 level. The Nasdaq 100 outpaced the S &P 500 index and drew within range of the all-time peak from late October as Infotech led sector performance ahead of earnings from Mega Caps this week and next. Eight of 11 S &P sectors gained on Tuesday. Utilities and energy were second and third behind Infotech as the U.S. continued to dig out from weekend snowstorms and cold that led to heavy energy use and clipped crude and natural gas production.

8:11Crude prices reached their highest level since October above$62 per barrel for U.S. futures, as about 2 million barrels per day of U.S. production likely went offline due to the severe weather, according to OilPrice.com. Healthcare struggled Tuesday, hurt by 20 percent declines for UnitedHealth Group and Humana after the Centers for Medicare and Medicaid Services proposed raising payments to Medicare advantage insurers by a net average of just 0.09 % in 2027. The plunge for UnitedHealth stock hurt the Dow Jones Industrial Average. In individual trading Tuesday, Boeing slipped 1.6 % after reporting better-than-expected revenue and positive free cash flow in the most recent quarter.

8:58The company's backlog grew to a record$682 billion. Earnings of$9.92 per share may not be comparable because it reflects a$9.6 billion gain on a sale associated with closing a deal. The company would have had an approximately$2 per share loss without the sale, Barron's noted. General Motors rose nearly 9 percent despite quarterly revenue missing analyst estimates. Earnings easily surpassed consensus, but revenue fell 5.1 percent. The company's guidance was in line with estimates. Texas Instruments climbed 5 % initially in post-market trading, despite earnings per share coming in slightly below consensus and revenue roughly matching estimates.

9:46Investors seemed enthused over strong guidance for the current quarter. And Micron jumped 5.4 % after it announced it would invest around$24 billion in Singapore in the next decade amid strong memory chip demand, Barron's reported.

10:04The Dow Jones Industrial Average slipped 408.99 points Tuesday, or 0.83%, to 49 ,003.41. The S &P 500 Index gained 28.37 points, or 0.41%, to 6 ,978.60. And the Nasdaq Composite added 215.74 points, or 0.91%, to 23 ,817.10. 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.

11:04For important disclosures, see the show notes and schwab.com slash market update podcast.