The Daily Breakdown looks at the recent pros and cons from the Fed meeting, while digging into the Magnificent 7’s approach to DeepSeek.
Thursday’s TLDR
- The Fed left rates unchanged
- Big Tech earnings talked AI
- MSFT bulls look for support
What’s happening?
There was something for every type of investor yesterday, so I’ll try to give the TLDR synopsis here.
First, as expected the Fed kept rates unchanged. Chair Powell reiterated the Fed’s expectation that inflation will gradually continue to cool to their 2% target, but added that they are not in a hurry to lower interest rates at this time. That makes sense as inflation hasn’t been moving lower and as the Fed has cut rates by 100 basis points since September.
That reads a bit hawkish, but on the plus side, Powell said the economy and the labor market remain on solid footing, while consumer spending remains resilient. These are all big positives for the US.
On the AI and DeepSeek front, companies like Microsoft and Meta provided some color on these topics when they reported earnings last night.
Both companies still plan to invest heavily in AI — which is good for chipmakers — although Meta CEO Mark Zuckerberg said it’s still too early to predict how new competitors like DeepSeek will impact Meta’s AI investments. If it’s too early for Zuck to predict, then it’s definitely too early for us. However, these companies remain optimistic about the future of AI.
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The setup — Microsoft
Of the three Magnificent 7 holdings that reported last night — MSFT, META and TSLA — Microsoft is the only one that’s trading lower in the pre-market. That’s despite the company beating on earnings and revenue estimates.
By now, I don’t need to highlight that MSFT has been consolidating in a large sideways pattern for several quarters. That’s evident when you look at the chart below.
Instead, I’m looking at where support might come into play this week.
Shares are currently trading near $425 in the pre-market, right near the stock’s 50-day and 200-day moving averages. I first want to see if MSFT is able to find support near these measures.
If not, a move into the $410 to $415 area could be in play. Not only has this zone been support for the last several months, but it’s also where the stock finds uptrend support going all the way back to its low in May 2023.
It’s possible that neither support level holds and MSFT’s momentum turns decidedly bearish. However, these are the two main technical levels I’ll be watching this week.
Options
On a dip, buying calls or call spreads may be one way to take advantage of a pullback. For call buyers, it may be advantageous to have adequate time until the option’s expiration.
For those that aren’t feeling so bullish or who are looking for a deeper pullback, puts or put spreads could be one way to take advantage.
To learn more about options, consider visiting the eToro Academy.
What Wall Street is watching
TSLA – Shares of Tesla are moving slightly higher in pre-market trading after a bumpy after-hours ride. That’s as the company missed on earnings and revenue expectations, but CEO Elon Musk spoke optimistically about robotics, AI, and autonomous driving in the future.
SBUX – Starbucks stock hit fresh one-year highs on Wednesday, climbing more than 8% after the firm delivered a top- and bottom-line earnings beat under new CEO Brian Niccol. While revenue was flat year over year, earnings took a sizable hit, falling more than 25% from the same period a year ago as the company focuses on its turnaround plan.
AAPL – Apple stock will be in focus tonight — alongside Intel — as both companies report earnings after the close. While AAPL shares have done well over the past few sessions, the stock is still down about 4.5% year to date. Check out Apple’s chart.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.