The Federal Reserve holds steady, and market focus shifts to corporate earnings performance

Southern Finance, Special Contributor to 21st Century Business Herald Wang Yingui

In line with market expectations, the Federal Reserve paused interest rate cuts, and the stock market reacted very calmly, but the de-dollarization trend in other markets seems to be accelerating. The Federal Open Market Committee (FOMC) believes that the US economy is growing strongly, the unemployment rate remains stable at a low level, the labor market is still robust, and inflation remains somewhat high. Current monetary policy is moderate, so the stance is maintained.

The stock market had already anticipated the Fed’s decision, and by the close, major US stock indices showed little change from the previous day. The Dow Jones Industrial Average, mainly composed of blue-chip stocks, rose slightly by 0.02%. The widely representative S&P 500 index briefly touched 7,000 points during the day before retreating, ending the day with a slight increase of 0.01%. The tech-heavy Nasdaq index rose by 0.17%.

However, other markets experienced more volatility. The US 10-year Treasury yield closed at 4.249%, remaining relatively firm; the 30-year Treasury yield was 4.867%, continuing to push toward 5%. April gold futures (main futures price) closed at $5,547.85 per ounce, up 0.17%. June silver futures closed at $114.762 per ounce, down 0.03%. The US dollar index closed at 96.040, down 0.24%. Bitcoin closed at $88,155 per coin, down 1.27%. Since the beginning of this year, gold and silver have risen by 28.46% and 66.77%, respectively, while the dollar index has fallen by 2.08%. Global investors (including central banks and ETF funds) are increasingly favoring precious metals and are less optimistic about dollar assets.

US Economic Outlook Brightens, Rate Cut Expectations Cool Down

According to Fed Chair Powell’s remarks at the press conference, there is a basic consensus within the FOMC: the federal funds rate is at a “loosely neutral level” (loosely neutral) (neither pushing inflation up nor hindering employment growth). Inflation is roughly in line with expectations; some data show signs of stabilization, and overall, the economy remains strong.

After three rate cuts, the Fed can calmly respond to risks from the labor market and inflation, but future decisions will still depend on data. Currently, corporate hiring is slowing, and the US government’s crackdown on illegal immigration has led to vacancies for many low-wage jobs, affecting overall employment levels. The Fed believes that after the one-time price shocks caused by government tariffs, inflationary pressures will weaken, with the mid-2026 as the expected timeline.

This Fed meeting was convened under the high-pressure environment of the Trump administration. The Justice Department is investigating Powell’s economic issues, and the Supreme Court is reviewing the legality of the government’s move to remove Fed Board member Lisa Cook. The US government (executive branch) is interfering roughly with the independence of Fed decision-making. Based on the voting results, two of Trump’s appointees supported a 25 basis point cut, while the other members agreed to maintain the current stance. This undoubtedly signals to Trump that the consensus mechanism of the FOMC cannot be changed, and the new chair must follow established procedures.

Market Focus Shifts to Corporate Earnings, Tech Giants Under the Spotlight

Earnings season each year begins with bank stocks. Despite JPMorgan Chase’s investment banking revenue falling 5%, JPMorgan, Wells Fargo, Citigroup, and Bank of America all exceeded market expectations, with strong interest income growth. 2025 is expected to be a bull year for the banking industry.

Tech giants like Microsoft, META (Facebook), and Tesla took the stage first. Market reactions suggest investors have high expectations for Microsoft. Although Microsoft reported adjusted earnings of $4.14 per share for the second fiscal quarter, beating expectations of $3.97, with revenue of $812.7 billion, surpassing the expected $802.7 billion, the company’s quarterly capital expenditure and financing leases reached $37.5 billion, higher than the expected $34.3 billion, and cloud business growth was 39%, slightly below last quarter’s 40%. Microsoft forecasted a gross profit margin of 45.1% for the third quarter, below the market expectation of 45.5%. Investors are somewhat dissatisfied with Microsoft’s AI investment scale, and after-hours, Microsoft’s stock fell by 6.14%. Investors see Microsoft as a traditional tech giant, a conservative tech company lacking true innovation.

META’s performance was average but better than expected. META reported earnings of $8.88 per share, exceeding expectations of $8.23, with revenue of $59.89 billion, below the expected $58.59 billion. The company’s Reality Lab sales reached $955 million, with a loss of $6.02 billion, accumulating a total loss of $80 billion since 2020. META’s capital expenditure for 2026 is projected between $115 billion and $135 billion, higher than the expected $110.7 billion, but Wall Street remains optimistic, as the company expects revenue of $53.5 billion to $56.5 billion, above the expected $51.41 billion. The growth in investment returns naturally pleases investors, and after-hours, the stock rose by 6.64%.

Tesla’s earnings fell short of expectations, but projects remain attractive. Tesla’s revenue and sales declined year-over-year, with costs up 39% and net income down 61%. However, actual results beat expectations: earnings of $0.50 per share, higher than the expected $0.45, with revenue of $24.9 billion, also above the expected $24.79 billion. Tesla’s quarterly report also highlighted its autonomous taxi (Robotaxi) and Optimus humanoid robot projects. Tesla’s overseas car market faces strong competition from BYD (002594), but the financial markets recognize Tesla’s technological development potential, and after-hours, the stock rose by 1.92%.

Recent Economic Data and Its Impact on Financial Markets

The Fed makes judgments based on current data, but recent years have seen frequent major forecasting errors, leading to subpar policy quality. Government shutdowns have delayed the release of key data, and the labor market and inflation levels are in dynamic flux. Economic growth data are less timely, so the economic outlook remains to be further validated. Recently, expectations for rate cuts have weakened and are beginning to fade from investors’ view. Other tech giants’ quarterly earnings remain market focus. Next Friday (February 6), the employment report is extremely critical, followed by CPI data, and the GDP report at the end of February could change market direction.

Recently, the total US federal government debt has grown rapidly (currently $38.667 trillion). Less than a month into the new year, debt has increased by $120 billion. The US Treasury is expanding borrowing, but investor appetite is weak, leading to higher borrowing costs. If long-term Treasury yields continue to rise and exceed 5%, investors will reassess the investment value of US stocks. If the dollar index continues to decline, investors will find it hard to stay calm.

Politically, the US federal government’s budget vote results are the biggest concern for investors. If Congress’s two parties again reach an impasse, leading to partial government shutdowns, policy uncertainty will once again undermine market confidence. Regarding the actions of the US Immigration and Customs Enforcement (ICE) in Wisconsin, Democrats are unlikely to let Republicans off easily. According to Xinhua News Agency, after a resident in Minnesota was shot and killed by federal law enforcement officers on January 24, several Democratic federal senators announced they would vote against the government funding bill that includes appropriations for the Department of Homeland Security, greatly increasing the likelihood of a partial “shutdown” at the end of January due to funding exhaustion.