Up Next... Big Tech & The Fed

Good morning investors,

The S&P 500 closed at a record 6,978.60 yesterday, its fourth all time high of 2026, now within striking distance of the 7,000 milestone. Markets shrugged off a brutal day for health insurers, with the Nasdaq surging 0.9% and the S&P gaining 0.4% even as UnitedHealth dragged the Dow down 0.8%. Today brings one of the biggest sessions of the quarter, with the Fed announcing its decision this afternoon and Microsoft, Meta, and Tesla reporting after the close. ASML's record €13.2 billion in orders this morning just validated the AI infrastructure buildout, and China approving Nvidia H200 sales to ByteDance, Alibaba, and Tencent adds another catalyst for the semiconductor complex.

S&P 500 ($SPY ( ▲ 1.92% )) futures up 0.4%, Nasdaq ($QQQ ( ▲ 2.11% )) futures advancing 0.9%, and Dow ($DIA ( ▲ 2.48% )) futures edging higher as ASML's ($ASML ( ▲ 4.66% )) blowout orders lift the entire semiconductor space. The VanEck Semiconductor ETF jumped more than 3% in premarket trading.

Gold ($GLD ( ▲ 3.07% )) surged to fresh records above $5,300 per ounce while the U.S. dollar fell to its lowest level in four years after Trump dismissed concerns about the decline, saying "I think it's great." The Dollar Index slid more than 1%, its steepest one-day drop since April. The euro climbed above $1.20 for the first time since 2021.

The Federal Reserve will conclude its January meeting this afternoon with rates widely expected to remain at 3.5% to 3.75%. Fed funds futures suggest two quarter point cuts by year end 2026, with March and June meetings as potential opportunities, though cuts could be pushed into the second half if conditions warrant.

The current economic outlook remains positive with ongoing growth and a labor market that, although somewhat soft, has stabilized. Inflation continues to run above the Fed's target, leaving little justification for immediate cuts. Chair Powell's cautious, meeting by meeting approach seems set to continue.

But this Fed day is particularly electric. It's the first major press conference since Chair Powell finally said enough is enough, breaking from his disciplined silence to defend his record and the central bank's independence, noting he would "stand firm in the face of threats." With an off the leash Powell, reporters who might have previously decided not to waste questions about the Trump administration's attacks on the Fed likely have their hopes up.

The dollar's 10% decline in 2025 and continued weakness in 2026 is becoming a theme markets must incorporate. When asked about the drop, Trump shrugged it off, reinforcing the view that Washington is unlikely to resist a weaker exchange rate.

One way to think about a weaker dollar is that it loosens financial conditions without a rate cut. It boosts U.S. exporters, inflates overseas earnings for multinational companies, and drives capital into safe havens like gold. Markets are now trying to figure out how much easing can arrive through the dollar instead of the Fed.

In practice, a weaker currency eases financial conditions at the margins while supporting corporate profits, two things that help prop up asset prices. Dollar weakness remains a meaningful tailwind for large multinational companies, particularly the largest U.S. growth and technology firms with significant overseas revenue exposure. This currency effect is expected to support earnings growth at a time when valuation multiples have already compressed.

ASML delivered a decisive earnings update that removed lingering doubts around 2026. Record orders, stronger than expected forward guidance, and a large buyback underscored how firmly the AI infrastructure cycle is driving demand for advanced chipmaking tools.

Net bookings of €13.2 billion crushed the €6.3 billion expected, a €6.9 billion beat. Management explicitly tied the strength to a more durable view of AI-driven demand, particularly from leading edge logic and memory customers. The 2026 sales guidance of €34 billion to €39 billion came in above consensus.

Memory is an underappreciated tailwind here. With shortages emerging and pricing surging, major players like Samsung and SK Hynix are expected to increase capacity, which directly feeds demand for ASML's most advanced systems. Management flagged that EUV revenue will "significantly" increase in 2026, reinforcing that customers are pushing further into advanced nodes.

China remains a known headwind at about 20% of 2026 sales, down from 33% previously, but AI led demand elsewhere more than offsets that decline. The stock's move reflects fundamentals catching up to reality, not excess optimism.

In a significant development, China has approved ByteDance, Alibaba, and Tencent to purchase over 400,000 Nvidia H200 chips in total, with other enterprises now joining a queue for subsequent approvals. The approval was granted during CEO Jensen Huang's visit to China this week.

This marks a shift in Beijing's position as it seeks to balance AI needs against spurring domestic development. While the U.S. had previously authorized H200 sales, China was reportedly pushing companies to buy domestic alternatives. This clears a meaningful overhang for Nvidia's China business.

Investors fled health insurance stocks after CMS proposed that Medicare Advantage payment rates would rise by just 0.09% in 2027, far below analyst expectations of up to 6%. UnitedHealth lost close to 20%, while Humana shed roughly 20% and CVS and Elevance fell in the low teens.

The small increase comes after Advantage plans got a 5.06% increase for 2026. Final numbers for 2027 are scheduled by April 6.

UnitedHealth is the most exposed among insurers to Medicare Advantage changes, which accounts for roughly 30% of enrollment nationally. This is a fundamental repricing of the sector's growth outlook, not a temporary dislocation. The political and regulatory environment for healthcare insurers has deteriorated significantly.

Microsoft, Meta, and Tesla report after the close, setting the initial tone for 2026 from both the powerful tech sector and the market broadly.

Coming into these presentations, Big Tech has been buoyed by strong demand signals, most recently from Micron and now ASML. Investors will monitor the appetite for construction spending as the infrastructure buildout continues. Spending and ambition serve as implicit sentiment checks, and if they're spending big, they're confident rather than doubling down.

For Microsoft and Meta, the focus centers on how much they're planning to spend on AI and cloud computing, and how they're funding it. Meta boosted spending projections to $70 billion to $72 billion, while Microsoft indicated spending exceeding the $88.2 billion deployed in 2025. The tech sector issued nearly $700 billion in investment-grade debt over the past quarter, closing in on the financial sector's just-over $800 billion.

I think Meta will report great numbers. They have already signaled a pull back in Metaverse spending and any further signaling of cutbacks alongside growing add revenue could see a move to the upside for the stock.

Tesla investors have their own unique set of questions after CEO Elon Musk's Davos appearance. Progress checks on robotaxis, Optimus, and full self-driving updates. As always with Tesla, it's not only the progress investors watch for but also the level of detail that shades how realistic the timelines sound.

Amazon announced plans to eliminate about 16,000 corporate jobs, marking its second round of mass cuts since October's 14,000 layoffs. Combined, the 30,000 cuts represent about 10% of its corporate and tech workforce of roughly 350,000 people.

The layoffs are part of an ongoing effort to "strengthen our organization by reducing layers, increasing ownership, and removing bureaucracy" while the company invests heavily in AI. CEO Andy Jassy has looked to slim down after the pandemic hiring spree and said efficiency gains from AI would likely cause corporate headcount to fall in coming years.

Amazon expects capital expenditures to reach $125 billion for 2026, the highest spending forecast among megacap companies. The message is clear: fewer corporate workers, more infrastructure investment.

After nearly two decades of negotiations, India and the EU struck a landmark free trade agreement. European Commission President Ursula von der Leyen called it a "free trade zone of two billion people."

The deal is expected to double EU goods exported to India by 2032. India would ease tariffs on more than 96% of shipments while the EU would eliminate or reduce tariffs on 99.5% of imported Indian goods.

For India, facing 50% U.S. tariffs, this provides a crucial alternative market. It's the fourth major trade deal since Trump imposed steep tariffs in August, following pacts with the U.K., Oman, and New Zealand.

AT&T forecast annual profit above expectations, projecting 2026 adjusted EPS of $2.25 to $2.35 versus estimates of $2.21. The company expects 2028 free cash flow exceeding $21 billion versus analyst estimates of $19.61 billion, betting that wireless and fiber expansion will tap growing 5G and high speed internet demand.

Another trading day, another record close for stocks. The S&P 500's march toward 7,000 continues despite headwinds that would have derailed markets in prior cycles, from healthcare sector carnage to geopolitical tensions to a plunging dollar.

ASML's record €13.2 billion in bookings is the clearest signal yet that AI infrastructure spending is accelerating, not decelerating. When the company that makes the machines that make the chips says demand is stronger than expected, that's not speculation. That's order books.

The dollar's weakness is becoming a feature rather than a bug for this administration. A weaker currency eases financial conditions at the margins while supporting corporate profits, essentially providing stimulus without Fed action. Gold's surge above $5,300 reflects both this dynamic and broader concerns about government debt trajectories.

Tonight's earnings from Microsoft, Meta, and Tesla will determine whether Big Tech can sustain its leadership or whether rotation continues. The spending commitments these companies announce will signal confidence levels for the next leg of AI infrastructure buildout. Watch guidance more than backward-looking results.

The Fed decision this afternoon is largely priced in, but Powell's commentary on independence and the path forward carries outsized importance given the political backdrop. Markets have priced two cuts by year-end, but the timing remains uncertain with inflation still above target.

Concerns around stretched valuations plagued shares in the AI trade toward the end of last year. Questions remain about return on investment. But ASML's results suggest customers are voting with their capital, and €13.2 billion in a single quarter is a powerful endorsement of the thesis.

As always, feel free to reach out with questions about positioning.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.