Earnings Season Looms, Fed Meeting in Focus: Tech Stocks, AI Rally Slide

Technology Stocks Sell Off Ahead of Fed Announcement

Summary

Prior to the Federal Reserve's interest rate decision, stock traders reduced risk exposure, with three major tech firms kicking off the earnings season days after DeepSeek's market impact. The S&P 500 declined ahead of earnings reports from Meta Platforms Inc., Microsoft Corp., and Tesla Inc.

Market Analysis

* "Magnificent Seven" tech giants witnessed a 1.5% drop, with Nvidia Corp. plummeting 6% due to potential curbs on chip sales to China.
* Apple Inc. experienced a stock decline following an analyst downgrade.
* ASML Holding NV surged after receiving orders exceeding analyst expectations by double.
* The S&P 500 fell 0.6%, Nasdaq 100 lost 0.6%, and the Dow Jones Industrial Average declined 0.2%.

Fed Decision and Market Impact

* The Fed is widely anticipated to pause rate cuts, with traders awaiting cues from Chair Jerome Powell on the potential inflation trajectory.
* A hawkish outcome and a subsequent yield increase could trigger an equity selloff.
* Tech earnings also influence market sentiment, with expectations of a growth slowdown over the next two years.

DeepSeek's Impact on Tech Giants

* DeepSeek has heightened scrutiny over the "Magnificent Seven" tech behemoths' AI expenditures and their minimal financial benefits.
* Microsoft Corp. and OpenAI are investigating possible data breaches related to OpenAI's technology.
* The Chinese tech firm is under investigation in Ireland for its citizen data handling practices.

Concerns Over Tech Sector Concentration

* The recent volatility among tech stocks has raised concerns due to the S&P 500's extreme market concentration, not seen in over two decades.
* Goldman Sachs Group Inc. believes the recent sell-off is not an indicator of a sustained decline in stocks.

Outlook for Tech and AI

* AI model advancements are expected to drive incremental growth and reduce inflation.
* A broader stock market selloff could be triggered if the ongoing correction in AI-related stocks accelerates.

Fed Watch

* Analysts anticipate a dovish pause, with the Fed acknowledging the resilient labor market but expressing caution in light of persistent inflation.
* The market's reaction may hinge on the degree of hawkishness in the Fed's statement and Powell's press conference.

Corporate Highlights

* Trump Media and Technology Group Corp. launched a financial services brand focused on crypto and ETFs.
* Hewlett Packard Enterprise Co. met with antitrust enforcers to discuss its bid to acquire Juniper Networks Inc.
* Apple Inc. collaborated with SpaceX and T-Mobile US Inc. to integrate Starlink in its iPhones.
* Alibaba Group Holding Ltd. showcased its advanced AI model's capabilities.
* Starbucks Corp. exceeded quarterly expectations, driven by effective advertising and the removal of nondairy milk surcharges.
* T-Mobile US Inc. reported strong quarterly results, driven by subscriber growth.
* Cigna Group plans to cap patient out-of-pocket medication costs amidst pressure on prescription costs.
* Spirit Airlines Inc. rejected a new acquisition offer but remains open to a potential combination with Frontier Airlines.
* Spotify Technology SA successfully dismissed a lawsuit alleging royalty fraud related to its premium service changes.