Wednesday preview: Earnings due from three of the 'Magnificent Seven'

(Sharecast News) - All eyes will be firmly on the US on Wednesday as three of the 'Magnificent Seven' release quarterly numbers and the Federal Reserve makes its latest policy announcement. On the corporate front, US tech giants Meta, Tesla and Microsoft's earnings are due. Apple's first-quarter results will be out on Thursday.

Danni Hewson, head of financial analysis at AJ Bell, said: "With four of the so-called Magnificent Seven due to update this week there will be plenty of nervousness that this could be the quarter when the AI story really takes an ugly turn, with good not likely to be good enough."

As far as Meta is concerned, Kathleen Brooks, research director at XTB, said the company's share price is rallying into the results, but it is still lower by 5% in the past six months, and its price-to-earnings ratio is now below the average for the S&P 500.

"The focus will be on Meta's capex spending," she said. "The company was forced to cut its spending plans at the end of last year and it scaled back its plans for the 'Metaverse'. However, the company still spent between $70bn and $72bn on AI last year, up from $39bn in 2024, and investors want to see this pay off.

"Revenues are expected to come in at $51.2bn for last quarter, and net income is expected at $24.19bn. Gross profit margin is expected to remain elevated, although it could dip to 81% for last quarter, and the company may say that gross profit margin could compress further to 80% in Q1.

"Meta's lack of solid AI capabilities, for example it does not have large language models, could lead to questions about how quickly it can monetize its sizeable investments in AI to date. Investors want to know how Meta's new reasoning models that are based on voice and vision are progressing. How investors react to this news could determine the share price response. Advertising revenues and how the company is adapting to tariff risks will also be in focus."

Overall, Brooks said the Magnificent 7 are expected to report blended earnings growth of more than 20% for the last quarter, compared with 4.1% for the rest of the S&P 500. "This means that the magnificent 7's performance this earnings season will ultimately determine the overall performance of the US blue chip index."

Investors will also be eyeing the latest policy announcement from the Federal Reserve, with interest rates expected to remain at 3.5% to 3.75%.

XTB's Brooks said: "This comes after Donald Trump subpoenaed the Fed chair, Jerome Powell, earlier this month. Powell then criticized the decision and launched an extraordinary attack on the President, accusing him of threatening Fed independence.

"The Fed is standing firm: policy will be based on incoming economic data and not the President's whims, and we expect the majority of the FOMC board to say that the data is too strong to support a rate cut right now. There is only a 2% chance of a cut at this week's meeting, and the first rate cut from the Fed is now not expected until June.

"The pickup in US labour market data has led to a recalibration of US rate cut expectations. There are now less than two rate cuts priced over the next 12 months, and over the last three weeks, the market has pushed up year-end interest rate expectations for the US from 3.03% to 3.18%. If President Trump is looking to lower interest rates, the market is moving in the opposite direction."

An interest rate decision from the Bank of Canada will also be announced on Wednesday amid expectations the policy rate will be kept at 2.25% and there will be no material changes to forward guidance.

On the UK corporate front, precious metals miner Fresnillo will publish a production report, while Pets at Home will release a trading update.

Wednesday January 28

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INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Crude Oil Inventories (US) (15:30)

GFK Consumer Confidence (GER) (07:00)

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