This morning, the investment community is digesting a few important reports on the economy and a slew of high-profile quarterly reports from Corporate America. On the economic front, the Commerce Department reported its first read on the 2024 fourth-quarter gross domestic product (GDP), which showed that output expanded by an annualized rate of 2.3% during the final three months, once again driven by consumer spending. That figure was below expectations, but still gives credence to the Federal Reserve’s recent commentary that the U.S. economy is expanding at a solid pace. The report also showed that the pace of price growth was below expectations, but still higher than the previous period. Meanwhile, the Department of Labor reported that initial jobless claims for the week ending January 26th totaled 207,000, which was down notably from the prior week’s revised figure and still at a level indicative of a tight labor market. The equity futures, which were mixed heading into the economic releases on quarterly results (see below), are still presaging a bifurcated opening when trading kicks off stateside.
As noted, we also received a number of prominent quarterly reports since the close of trading yesterday afternoon. Microsoft (MSFT) beat expectations on both the top and bottom lines, with earnings per share coming in at $3.23, versus Wall Street’s consensus forecast of $3.11. The company also raised its forecast for artificial intelligence spending this year. However, shares are lower in extended hours trading, likely due to a sequential decline in Azure revenues. Tesla (TSLA) shares, which were on a phenomenal run since early November, are higher despite the electric vehicle maker missing on both revenue and earnings, with the top line totaling $25.71 billion, short of the forecast of $27.27 billion. Investors, though, were heartened by reports that production of more-affordable models should begin in the first half of this year and cybercab volume production will start in 2026. Lastly, Meta Platforms (META) reported revenues ($48.39 billion) and earnings per share ($8.02) that far exceeded consensus forecasts, but its revenue guidance for the current quarter fell just shy of analyst estimates. Meta shares are slightly higher in pre-market action.
In addition to the mega-cap names, there were results from a few prominent technology companies. Of note, International Business Machines (IBM) shares are up sharply in pre-market action after the technology company reported positive top- and bottom-line results, driven by artificial intelligence spending by its customers and increased software demand. ServiceNow (NOW) reported in-line revenues, with results hurt by negative foreign currency translation. The stock is primarily down on a lighter-than-expected first-quarter subscription forecast. Outside the technology sector, shares of Sanofi (SNY) are up in pre-market trading after the healthcare company forecasted stronger profit growth and announced a $5 billion stock-buyback plan. Conversely, shares of United Parcel Service (UPS) are down sharply in extended hours trading after the shipping giant reported worse-than-expected fourth-quarter results.
So far, fourth-quarter earnings season has been quite strong. With more than one-quarter of the S&P 500 companies having reported results, the vast majority have far exceeded expectations. This growth has provided some support for equities, especially with recent artificial intelligence (AI) news from China weighing on the technology sector and the overall market.
Yesterday the Federal Open Market Committee (FOMC) completed its first monetary policy meeting of 2025. As expected, the Federal Reserve held the federal funds rate in the range of 4.25% to 4.50%. The Fed statement also said that the unemployment rate has stabilized at a low rate, and the economy is expanding at a solid pace. The major equity averages, which were trading lower prior to the Fed decision, initially took another leg down on the statement before rallying some during Federal Reserve Chairman Jerome Powell’s press conference. For the session, the Dow Jones Industrial Average was down a modest 0.3%, while the NASDAQ Composite and the broader S&P 500 Index each declined 0.5%.
Looking deeper at the Fed statement, it did not include the sentence saying that further progress has been made in bringing inflation closer to the Fed’s 2.0% target. Wall Street viewed the removal of these words as a sign that the Federal Reserve will be more hawkish than initially expected in 2025 and the odds of multiple interest-rate cuts this year fell a bit. Treasury yields initially moved higher on the Fed’s decision, with the rate on the 10-year Treasury inching up, but yields have since eased to around 4.50% this morning after Chairman Powell walked back some of the concerns about the progress the central bank has made on the inflation front.
The bond market is signaling that it expects interest rates to remain elevated in 2025. On point, Chairman Powell said rates still remain meaningfully above the neutral level and the central bank is still considering additional adjustments, but the market is not anticipating further easing until the second half of this year.
Weighing on technology stocks this week was artificial intelligence (AI) news from China. Most of the sharp selloff centered on China-based AI startup DeepSeek. Specifically, if the company’s claims are true that its open-source AI model would pose a significant threat (in terms of affordability) to current players in the artificial intelligence realm. Notably, shares of NVIDIA (NVDA), a leading manufacturer of AI hardware and software, fell anew yesterday after shedding close to $600 billion in market cap on Monday. The NVIDIA weakness is hurting the semiconductor stocks and the technology sector. In general, we are seeing some sector rotation out of the higher-growth technology space and into some of the more value-oriented and defensive sectors. –William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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