Fed Decision and Microsoft, Meta Earnings In-Focus

**Keith Landsford** (0:05)
Welcome 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.
I'm Keith Landsford, and here is Schwab's early look at the markets for Wednesday, July 29th. Earnings season kicks into top gear today as Microsoft and Meta prepare to report after the bell. Results come amid a chip sell-off that has put the spotlight on AI spending. Investors will be looking for evidence that hyperscalers are beginning to generate a meaningful return on their AI investments, particularly as concerns mount over circular AI deals. The Federal Reserve will also announce its latest policy decision at 2 p.m. Eastern time. The Central Bank is widely expected to leave its benchmark interest rate unchanged in a range between 3.5% and 3.75%. However, Bloomberg reported late Monday that Citadel Securities is forecasting a surprise rate hike. Either way, investors will be listening closely to Fed Chair Kevin Warsh's press conference and reading the tea leaves of the policy statement to find clues about the policy path ahead. At their last meeting, Fed officials struck a decidedly hawkish tone, emphasizing their commitment to price stability even as they issued a brief 130-word policy statement and omitted some traditional forward guidance. Half of all officials also projected at least one rate hike this year in their quarterly dot plot amid the risk of persistent inflation from rising energy prices and geopolitical tensions. As of Tuesday afternoon, the futures market priced in a roughly 32% chance of a rate hike at today's meeting, according to the CME Group's FedWatch tool. That was down from a 38% chance of a hike on Monday, but still up from 25% odds seen a week ago. While the Fed meeting will likely draw headlines today, many investors will be focused squarely on earnings which have impressed thus far. Microsoft is expected to report $4.24 in earnings per share on revenues of $97.6 billion. That would mark a 16% euro- per-year earnings per share jump and a 14% euro-per-year revenue increase. Both figures represent a growth slowdown for the company. However, guidance, free cash flow and capital expenditures may end up moving the needle more than earnings per share in revenue metrics this quarter. Alphabet shares plunged after the company posted negative free cash flow and guided for roughly $200 billion in capital expenditures this year in its second quarter earnings report, showing investors may be beginning to question hyperscalers' AI spending splurge. Consensus expects Meta's earnings per share to rise just 1% euro- per-year to $7.22 this quarter, while revenues are seen rising 26.6% to $60.2 billion. Once again, guidance, free cash flows and capital expenditures will be closely watched amid the growth slowdown. While Microsoft and Meta will be in focus this afternoon, today's packed earnings calendar kicks off with Procter & Gamble, Anpanol, General Dynamics, Automatic Data Processing, and Johnson Controls International before the bell. After the market closes, investors will be closely watching Lamb Research, Arm Holdings, and Qualcomm for fresh insight into demand across the AI ecosystem. Earnings from Starbucks, Fortinet, and HSBC Holdings will also garner attention. Looking ahead, Apple, Amazon, MasterCard, and Shell highlight another crowded day of earnings reports tomorrow. Investors will also get some insight into the health of the economy and inflation's trajectory when the latest Gross Domestic Product and Personal Consumption Expenditures Price Index reports are released at 8:30 a.m. Eastern Time.
In Economic Data Tuesday, the Conference Board revealed its Consumer Confidence Index sank to 90.8 this month from 92.2 in June. Consensus had expected a figure above 92, but households' perceptions of the labor market were weaker than anticipated. Meanwhile, the S&P Quotality Case Schiller Home Price Index showed home prices jumping 1.6 % year-over-year in May compared to the 1.3 % consensus forecast. The data represents another challenge to the Fed's inflation fight, given that shelter prices make up roughly one-third of the Consumer Price Index, or CPI.
Treasury yields fell across the curve on Tuesday, however, as U.S.-Iran de-escalation hopes led to oil prices to fall sharply ahead of today's Fed meeting. Looking at individual market movers and earning standouts on Tuesday, Boeing rose 4.8 percent after topping Wall Street's revenue estimates. Rising jet deliveries helped push the aircraft manufacturer's free cash flow into positive territory. Boeing missed earnings-per-share estimates after taking a $280 million loss on Air Force One aircraft, but managed to narrow its net loss to $428 million from $612 million in the same period a year ago.
Coca-Cola surged 5 percent after surpassing both earnings-per-share and revenue estimates due to higher drink demand. Coke also hiked its full year guidance and is now projecting earnings-per-share growth of 9 percent to 10 percent, along with organic revenue growth of roughly 5 percent.