Stock market today: Dow, S&P 500, Nasdaq futures edge up as Wall Street braces for Fed decision, Big Tech earnings

NEW YORK – Wall Street is entering a pivotal 48-hour period, with investors holding their breath as they await a critical policy announcement from the Federal Reserve and a deluge of earnings reports from the technology titans that have powered the market's recent ascent to record highs. The outcomes will likely set the market's tone for the first quarter of 2024.

US stock futures saw modest gains in overnight trading, signaling a cautious optimism ahead of the main events. The muted moves underscore a market on edge, balancing the potential for a dovish pivot from the central bank against the risk of disappointing corporate outlooks.

The State of Play

Futures contracts tied to the S&P 500 and the tech-heavy Nasdaq 100 ticked up approximately 0.1% and 0.3%, respectively, in Tuesday evening's session. Dow Jones Industrial Average futures remained largely flat.

This follows a mixed session in regular trading on Tuesday, where the broader market showed signs of strength but also underlying fragility.

• Record Highs: The S&P 500 closed at a new all-time high, its fifth of the year, underscoring the powerful momentum that has carried over into 2024.
• Tech Leadership: The Nasdaq Composite outperformed, driven by strength in semiconductor and software stocks, reinforcing the market's reliance on the technology sector for growth.
• Dow Dips: In contrast, the Dow Jones Industrial Average slid, weighed down by a significant drop in shares of healthcare giant UnitedHealth (UNH), highlighting how weakness in a single blue-chip heavyweight can drag on the price-weighted index.

All Eyes on the Fed

The main event on Wednesday is the conclusion of the Federal Open Market Committee's (FOMC) first two-day policy meeting of the year. While the outcome of the rate decision itself is seen as a foregone conclusion, the subsequent commentary from Chair Jerome Powell will be scrutinized for every nuance.

Why it matters: The Fed's communication will be the most significant catalyst for markets this week. Investors are desperate for confirmation that rate cuts are on the horizon, but policymakers are wary of declaring victory over inflation too soon.

Here is what investors will be watching for in Wednesday's 2:30 PM ET press conference:

• No Rate Change: The committee is universally expected to hold the federal funds rate steady in its current range of 5.25% to 5.50%, a 23-year high. The focus is entirely on the forward-looking signals.
• Powell's Tone: The key variable is whether Powell maintains a hawkish stance, emphasizing that the fight against inflation is not over, or adopts a more dovish tone, acknowledging the significant progress made. Any shift in language will be interpreted as a major signal.
• Pushback on Cuts: Markets are pricing in a series of aggressive rate cuts beginning as early as March. Powell is widely expected to use this opportunity to push back against that optimism, stressing that the path of policy is "data-dependent" and not on a pre-set course.
• Economic Assessment: The Fed's updated view on the economy is crucial. Recent data has shown surprisingly robust GDP growth alongside cooling inflation—a "soft landing" scenario that complicates the timing for easing policy.

The Great Rate Cut Debate

The disconnect between market expectations and the Fed's own projections remains a central theme. The Fed's last "dot plot" in December projected three quarter-point cuts for 2024, but traders have consistently priced in a more aggressive path.

• Market Pricing: According to the CME FedWatch Tool, markets are currently pricing in a roughly 45% chance of a rate cut at the Fed's next meeting in March. For the full year, traders are betting on five to six quarter-point cuts.
• Inflation's Path: This optimism is fueled by inflation data that has trended steadily downward. The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, fell to 2.9% annually in December, within striking distance of the central bank's 2% target.
• The Risk: The primary risk to the market's bullish narrative is a re-acceleration of inflation or economic data so strong that it forces the Fed to keep rates "higher for longer" than investors currently anticipate.

Big Tech's Earnings Gauntlet

Beyond the Fed, this week represents a crucial test for the so-called "Magnificent Seven" stocks that were responsible for the lion's share of the market's gains in 2023. Their performance and, more importantly, their outlooks for 2024 will be critical to sustaining the rally.

Four of the seven are on deck this week.

• Microsoft (MSFT) & Alphabet (GOOGL): Reporting after the bell Tuesday, these two giants are locked in an artificial intelligence arms race. Investors will demand to see tangible revenue growth from their massive AI investments, particularly in Microsoft's Azure cloud division and its Copilot services.
• Meta Platforms (META): The Facebook parent, reporting Wednesday, will be watched for the health of the digital advertising market. Commentary on spending at its metaverse-focused Reality Labs division will also be a key focus.
• Apple (AAPL): Reporting Thursday, the world's most valuable company faces scrutiny over iPhone sales, especially amid reports of weakening demand and rising competition in China. Growth in its high-margin Services division will be critical.
• Tesla (TSLA): Reporting Wednesday, the electric vehicle maker's outlook is paramount. After a stellar stock performance, the company faces margin pressures and growing competition. Investors will be looking for concrete delivery guidance for 2024 and an update on the Cybertruck production ramp.

The Bottom Line

The next two days will inject a dose of reality into a market running high on optimism. The durability of the S&P 500's record-setting rally hinges on two pillars: the promise of looser monetary policy from the Fed and the ability of Big Tech to deliver on its promise of continued growth. Any significant crack in either of those pillars could quickly check the market's bullish momentum. The path forward for the next quarter will be charted by the words of Jerome Powell and the numbers from Silicon Valley.