Everything to Know about Macro and Markets
Another turbulent week saw most stock indexes close in the red. The Dow Jones Industrial Average (DJIA) fell by 0.54%, while the S&P 500 (SPX) was down by 0.24%. Meanwhile, the broad tech benchmark Nasdaq Composite (NDAQ) declined by 0.53%, with only the large-cap technology index Nasdaq-100 (NDX) logging in a minute gain of 0.06%.
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Turbulence Patch
The past two weeks have been eventful, to say the least. Stocks opened sharply lower to start the week, following Trump’s earlier tariff announcement on Mexico, Canada, and China. Together, these three economies account for over 40% of total U.S. trade. Stocks later regained ground amid the temporary rollback of the levies on Mexico and Canada.
Although China was not spared – and also announced reciprocal levies on U.S. goods – tariff concerns eased until Friday, when President Trump’s announcement of plans to implement reciprocal tariffs on various countries reignited market jitters. However, this also isn’t set in stone, as the European Union has already said it is considering lowering tariffs on car imports from the U.S.
Earnings Continue to Deliver
More than halfway through earnings season, corporate earnings continue to exceed analysts’ expectations. With over 60% of the S&P 500 companies having reported their Q4 results, the earnings growth rate is now projected to come in at 16.4% year-over-year, compared to analysts’ estimates of 11.8% before the start of the season.
The beat champions are Financials, Communication Services, Consumer Discretionary, Information Technology, Health Care, and Utilities, with double-digit EPS growth. Overall, 77% of the S&P 500 companies have reported actual EPS above estimates, while only 63% beat the consensus on revenues.
A similar picture can be seen in the “Magnificent” realm – except for Nvidia (NVDA), which is yet to report – where only Meta comfortably sailed past all estimates. With the weight of the Top 10 companies in the S&P 500 now reaching above 37.5% of the index’s total market value, these reports hold an outsized sway on the market moves.
Megacaps Mega-Spending
Going into the earnings season, key questions were related to the tech megacaps’ mega-capex. These questions became even more acute after the appearance of the “affordable” Chinese AI model DeepSeek, with investors wondering if the “big AI win through outsized capex” narrative remains intact.
These questions were answered in the past weeks with a definite “yes.” The AI spending race isn’t just still on – it’s hitting warp speed. Companies no longer talk about AI as the technology of the future; instead, they report surging demand, underscoring the need for massive investments to build out the compute power required to stay relevant in AI.
Alphabet (GOOGL) is planning $75 billion in capital expenditures in fiscal 2025, while Microsoft (MSFT) and Meta Platforms (META) will shell out $80 billion and $65 billion, respectively. The last tech megacap to report, Amazon (AMZN) has awed with the plan to spend about $105 billion. The Big Four’s combined spending – most of which is allocated to AI initiatives such as data centers, infrastructure, and cloud – project an annual capex increase of more than 45%.
“Goldilocks” Churns On
Beyond tech behemoths, other technology companies – including Oracle (ORCL), Advanced Micro Devices (AMD), Salesforce (CRM), and Arista Networks (ANET) – have also revealed plans to boost their capex, particularly on AI and cloud infrastructure. But the buck doesn’t stop there: firms across the Industrial, Materials, and Utilities sectors are also ramping up investments in capacity expansion, driven by accelerating demand from hyperscalers’ data-center build-out.
The elevated corporate capex spending points to upside risks to economic growth and hiring. Meanwhile, the latest jobs report showed signs of gradual cooling in the labor market, with the number of payrolls increasing at half the previous month’s pace and job openings falling to a three-month low. On the other hand, wage growth surged past estimates, hinting at continued inflation pressures, and the unemployment rate fell to its lowest level since May despite increased labor-force participation.
Other economic reports were mixed, still reflecting a robust economy and elevated inflation. Thus, consumer sentiment fell to its lowest level in seven months as consumer inflation expectations rose. Meanwhile, the ISM Manufacturing PMI indicated that factory activity in the U.S. expanded in January for the first time since 2022.
Overall, the economy is still firmly in the “Goldilocks” phase, with the underlying fundamentals continuing to reflect robust health. Moreover, after expanding by 2.8% in 2024, the GDP is on track to deliver a strong 2.9% growth rate in Q1 2025, according to the Fed’s GDP-Now tracker. This growth rate is well above the long-term trend, supporting the case for the Federal Reserve to remain on hold with rate cuts for now.
Stocks That Made the News
▣ Amazon (AMZN) declined despite surpassing Q4 revenue and EPS estimates after Q1 revenue guidance fell short of expectations and fourth quarter cloud growth disappointed. Amazon’s capex plans also pressured shares as the company said it expects to spend about $105 billion this year, mostly for AI-related investment focused on AWS.
▣ This followed a large drop in the shares of Alphabet (GOOGL), which revealed mixed results with EPS above and revenue below consensus. Notably, Google Cloud’s revenue increased by 30% to $12 billion, missing analysts’ estimates. Additionally, Alphabet announced 2025 capex plans of $75 billion, far exceeding the ~$60 billion that Wall Street had expected.
▣ PayPal Holdings (PYPL) saw its stock plunge despite the beat-and-raise Q4 report, as investors zeroed in on weaker aspects of the release after the stock’s strong performance over the past three months. One notable concern was Branded Checkout volume growth, which missed expectations, raising concerns over market share retention.
▣ Expedia Group (EXPE) was the top performer in the S&P 500, with its stock surging by over 21%, driven by strong holiday booking numbers, which led to an earnings beat that exceeded market expectations.
▣ Another notable outperformer was Monolithic Power (MPWR) with a weekly gain of more than 16%. The power management chipmaker topped quarterly sales and profit forecasts due to strong sales in the AI and automotive sectors.
▣ On Wall Street’s losing end was e.l.f. Beauty Inc. (ELF), which plunged more than 25% due to lower-than-expected quarterly profits and a reduced full-year guidance.
Upcoming Earnings and Dividend Announcements
The Q4 2024 earnings season is in full swing, with many notable earnings releases scheduled for this week. The reports in focus are arriving from McDonald’s (MCD), Coca-Cola (KO), DoorDash (DASH), American International Group (AIG), Super Micro Computer (SMCI), Cisco Systems (CSCO), AppLovin (APP), Equinix (EQIX), Robinhood (HOOD), Vertiv Holdings (VRT), Applied Materials (AMAT), Deere (DE), Palo Alto Networks (PANW), Airbnb (ABNB), and Moderna (MRNA).
Ex-dividend dates are coming this week for IBM (IBM), Apple (AAPL), ASML Holding (ASML), Visa (V), Exxon Mobil (XOM), Target (TGT), Shell (SHEL), and other dividend-paying firms.
For additional exclusive market insights and content from TipRanks Macro & Markets research analyst Yulia Vaiman, click here.
