Morning Reads

Morning Reads

Open Interest Changes

PREMIUM

Prepper

Get ready for the first Fed meeting of the year. The latest monetary policy announcement from the Federal Open Market Committee will be released at 2:00 PM ET, and many are keeping a watchful eye on the decision that influences mortgages, credit cards and business expansion plans. However, with the central bank likely to hold rates steady for a fourth straight meeting, investors will be focused on tweaks to the language in the Fed's statement and on Chair Jerome Powell's post-decision press conference.

Backdrop: As the FOMC jacked up interest rates by 525 basis points in 2022 and 2023 to tame inflation, the cost of borrowing money surged, constraining a range of economic activities, like mortgage originations, mergers & acquisitions, and stock and debt offerings. Inflation has since closed in on the 2% level, while credit card delinquencies and net charge-offs have crept up, prompting expectations that the Fed will act while the labor market and consumer spending are strong. Policy easing will be a popular topic of discussion at today's meeting following some preliminary talk in December, and markets have continued to embrace that kind of chatter with a focus on when the central bank will start a new cutting cycle.

There are still plenty of developments coming between now and March that could alter that course. Geopolitical tensions have been rising after Iran-backed groups killed three U.S. service members and injured dozens over the weekend. The Houthis in Yemen have meanwhile pledged to continue targeting ships in the Red Sea, and shipping delays worse than the pandemic might mean a resurgence in supply shocks that can halt the progress made on inflation. WSB subscribers see less looser conditions in 2024 than the FOMC, but Powell has emphasized the need to proceed carefully based on incoming economic data.

SA commentary: "The other component of the Fed's Policy Normalization Plan has been the reduction of the Fed's balance sheet, or what is more commonly known as Quantitative Tightening (QT)," SA analyst Michael Gray writes in Fed Meeting Preview: The Future Of Quantitative Tightening. "Executing this policy has proven to be more difficult than imagined, with the Fed struggling to reach its targets for reducing its balance sheet." (6 comments)

Muted reaction

Microsoft (MSFT) shares are largely unchanged after the tech behemoth reported Q2 earnings that topped expectations, aided by strong results from its Azure cloud business driven by new AI features. "We’ve moved from talking about AI to applying AI at scale," CEO Satya Nadella declared. For the coming quarter, Microsoft expects overall revenue to be $60B-$61B, largely in line with estimates, and Azure revenue growth to be stable compared to Q2. SA Investing Group Leader Livy Investment Research said the results will reinforce Microsoft's durability in the $3T club. (95 comments)

Not enough

Another tech giant posted impressive earnings after the bell on Tuesday, but they were met with a colder reception. Shares of Alphabet (GOOGL) slid 5.7% AH to $142.70, with some disappointment over advertising sales growth. The Google parent firm also spent heavily on servers and data centers to power AI, with its capital expenditures for the quarter totaling $11B, and the figure will only rise in 2024, CFO Ruth Porat said on an earnings call. Meanwhile, Investing Group Leader Jonathan Weber attributed the negative market reaction to profit-taking, as well as a "sell-the-news" phenomenon. (71 comments)

Voided by judge

Elon Musk's $55B pay package at Tesla (TSLA) has been rejected after a shareholder lawsuit claimed his hefty compensation plan was unduly approved. "Swept up by the rhetoric of 'all upside,' or perhaps starry-eyed by Musk’s superstar appeal, the board never asked: Was the plan even necessary for Tesla to retain Musk and achieve its goals?" Judge Kathaleen McCormick wrote in her opinion. "Never incorporate your company in the state of Delaware," Musk replied, with Tesla shares sliding more than 3% in premarket trade, continuing a decline seen in the aftermath of earnings and amid threats to develop AI products outside of the company. (337 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong -1.4%. China -1.5%. India +0.9%.
In Europe, at midday, London +0.1%. Paris +0.2%. Frankfurt -0.1%.
Futures at 7:00, Dow +0.1%. S&P -0.5%. Nasdaq -1.1%. Crude -1.3% to $76.85. Gold +0.2% to $2,055.20. Bitcoin -2.2% to $42,591.
Ten-year Treasury Yield -3 bps to 4.03%.

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 Treasury Refunding Announcement
8:30 Employment Cost Index
9:45 Chicago PMI
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
3:00 PM Farm Prices

Companies reporting earnings today »

What else is happening...

UPS (UPS) to cut 12K jobs amid higher union costs, slower demand.

AMD (AMD) outlook disappoints; sees sequential decline in three units.

GM leads peers higher on ICE commitment while EV pure plays fall.

Walmart to implement 3-for-1 stock split to ease access for staff.

Byron Allen makes $14.3B offer for Paramount Global (PARA).

Ken Griffin: If China invades Taiwan, U.S. could see 'a great depression.'

PayPal (PYPL) starts layoffs in cost-cutting drive to boost profit.

Cathie Wood’s ARKK ETF left out of 2024's early growth rally.

SLB reaffirms outlook, sees 'significant growth' in Saudi Arabia.

Starbucks (SBUX) strikes confident tone on store growth and profitability.

More on today's WSB topics


Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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