Stock market today: S&P 500 breaches 7,000 mark as Wall Street braces for Fed decision, Big Tech earnings

NEW YORK – The S&P 500 shattered another psychological barrier on Wednesday, surging past the 7,000 level for the first time in history as a potent wave of optimism around artificial intelligence swept through markets. This latest milestone arrives at a critical juncture for Wall Street, with investors holding their breath for a pivotal Federal Reserve policy decision and a slate of blockbuster earnings reports from the titans of technology.

The market's relentless upward climb underscores the dominant narrative of 2024: AI is not just a buzzword, but a powerful economic engine reshaping corporate valuations. The benchmark S&P 500 rose approximately 0.3% in early trading to cross the 7,000 threshold, building on a series of record closes. The tech-centric Nasdaq Composite led the gains, climbing around 0.6%, while the Dow Jones Industrial Average remained more subdued, hovering near the flatline.

This high-stakes session sets the stage for a potential clash between market euphoria and economic reality, as corporate profits and central bank policy are put to the ultimate test.

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The AI Engine Roars Louder

The day's bullish sentiment was ignited overnight by news from Europe that sent ripples across the global semiconductor industry. Dutch firm ASML, the world's sole manufacturer of extreme ultraviolet (EUV) lithography machines essential for producing advanced chips, reported a surprise and record-breaking surge in new orders.

The news was interpreted by investors as a clear signal that the massive capital investment in AI infrastructure is not only continuing but accelerating, suggesting a long and durable growth cycle.

• The Semiconductor Supply Chain: ASML's results provided a powerful lift to the entire AI ecosystem. Shares in the Dutch firm soared, and the optimism was contagious. Taiwan Semiconductor Manufacturing Company (TSMC), a primary customer for ASML's gear, saw its stock rise, as did AI bellwether Nvidia, whose high-powered GPUs are produced by TSMC using that advanced equipment.

This fervor has intensified the focus on the upcoming earnings reports from the megacap technology companies that are the ultimate customers in this supply chain. They are spending billions to build out the data centers needed to power the AI revolution.

Big Tech's High-Stakes Earnings Gauntlet

The after-market hours will serve as a crucial test of the AI-driven rally's fundamental strength. A significant portion of the S&P 500's recent gains has been driven by a small handful of companies known as the "Magnificent Seven." Now, they must prove their massive investments are translating into tangible growth.

Microsoft and Meta: The AI Monetization Test

Both Microsoft and Meta Platforms have staked their futures on AI, and investors will be scrutinizing their results for proof that the strategy is paying off.

• Microsoft's Cloud Focus: For Microsoft, all eyes will be on the growth rate of its Azure cloud computing division. Shareholders want to see clear evidence that AI services, such as its partnership with OpenAI, are accelerating Azure's revenue and helping it gain ground on competitor Amazon Web Services.
• Meta's Efficiency and AI Integration: For Meta, investors are looking for continued growth in digital advertising revenue and commentary on how AI is improving ad targeting and user engagement across its platforms, including Instagram and Facebook. Cost discipline and updates on its Reality Labs division will also be key.

Tesla and Apple: Facing Different Headwinds

While also part of the megacap cohort, Tesla and Apple face distinct challenges that have made their recent stock performance more volatile.

• Tesla's Demand Questions: The electric vehicle pioneer is grappling with concerns over slowing demand, increased competition from Chinese automakers, and pressure on profit margins. CEO Elon Musk's commentary on the 2024 delivery outlook and the production ramp of the Cybertruck will be paramount.
• Apple's Growth Narrative: Apple's report on Thursday will be closely watched for iPhone sales figures, particularly in the crucial China market where it faces stiff competition. Investors are also eager for any updates on how the world's most valuable company plans to integrate generative AI into its ecosystem, an area where it is perceived to be lagging its tech peers.

All Eyes on the Federal Reserve

Looming over the market is the conclusion of the Federal Open Market Committee's (FOMC) first two-day policy meeting of the year. While no change in interest rates is expected, the subsequent press conference with Chair Jerome Powell will be one of the most closely watched market events of the quarter.

The central bank is widely anticipated to hold the federal funds rate steady in its current range of 5.25% to 5.50%, a 23-year high. With the rate decision itself a foregone conclusion, the market's entire focus will shift to Powell's language and tone for clues about the future path of monetary policy.

• The Hunt for Rate Cut Clues: The key question is timing. Markets are currently pricing in several quarter-point rate cuts before the end of the year, according to the CME FedWatch Tool. Investors will parse every word from Powell for any signal that validates this timeline or pushes back against it with a "higher-for-longer" message.
• Navigating Economic Strength: The Fed faces a delicate balancing act. Recent economic data has remained surprisingly resilient, and a roaring stock market does not signal an economy in need of immediate stimulus. Powell will need to acknowledge this strength while reassuring markets that the fight against inflation remains on track.
• The Dollar's Role: Recent movements in the U.S. dollar could also influence the Fed's thinking. A sustained decline in the dollar could be inflationary by making imports more expensive, potentially complicating the timeline for rate cuts. The U.S. Dollar Index (DXY) was stable Wednesday after a recent dip.

The Path Forward

Wall Street finds itself at a pivotal crossroads. The market's valuation, particularly in the technology sector, is priced for near-perfection. The coming 24 hours will deliver a verdict on two fronts.

First, earnings from Microsoft, Meta, and Tesla will determine if the AI-fueled optimism is built on a solid foundation of profit and revenue growth. Second, Chair Powell's commentary will set the macroeconomic tone, dictating borrowing costs and investor risk appetite for the months ahead.

The S&P 500's breach of 7,000 is a testament to the market's powerful momentum. The question now is whether that momentum can withstand the potent combination of hard corporate data and the sober reality of central bank policy.