Fed expected to hold rates, Mag 7 earnings season begins

Fed rate meeting – 28/01 - this week's Fed meeting is likely to be a sideshow compared to what has been going with respect to Fed chair Jay Powell’s position as chairman of the Fed, which he is vacating in May in any case. This fact makes it all the more bizarre that there is so much noise around his position, and that’s even before the DOJ subpoena that has prompted many people to rally to his corner, and thus make it much more difficult for the current members of the FOMC to deliver the rate cuts the President says he wants, but which the data suggests probably aren’t needed yet. Even though unemployment has ticked higher, the Fed has responded to this with a rate cut in December, however since then jobless claims have come down and inflation has settled slightly lower to where it was prior to the US government shutdown. Much of this reduction however may well have been down to discounting in the leadup to Thanksgiving and Christmas as US shops unwound their inventory, while hiring still appears to be holding up well. This suggests that the bar to a further cut is too high and Steve Miran notwithstanding the FOMC are likely to err on the side of a hold, which will inevitably incur the wrath of President Trump. The problem for the President is that in being so belligerent towards Powell, he is making it harder for the Fed to even consider cutting rates over concerns that they are succumbing to political influence on their decision-making process. Sometimes playing the long game works better and yields better results, however we all know that’s not how President Trump likes to operate.

Lloyds Q4 26 – 29/01 – led the way in 2025 outperforming most of its peers and finally breaking above the 100p level in the process. Has been a perennial underperformer over the past few years, but now appears to be getting the credit it deserves for generating consistent profits. The main problem over the past few years has been that it’s been weighed down by various legacy issues, the latest of which was the Black Horse Finance which acted as a lag on performance for most of 2024. These concerns were largely overblown despite it being one of the biggest lenders to the UK car industry with loans totalling up to £16bn. Now with that in the rear-view mirror and the bank setting aside another £800m in October, taking the total set aside to £2bn, management can now focus on taking the bank forward. This additional provision meant that Q3 profits fell to £778m in Q3, a sizeable fall from last year’s £1.3bn, which included the additional £800m in respect of mis-sold car loans, as well as another £75m in respect of other legacy issues. Net interest margin for Q3 came in at 3.06%, up from 2.95% a year ago despite rates being lower now. When it came to lending, demand had been holding up well with loans to customers up by £6.1bn over the quarter, while customer deposits also rose by £2.8bn over the quarter. On guidance Lloyds revised their forecasts for underlying net interest income higher, from £13.5bn, to £13.6bn, with operating costs for the year expected to rise to £9.7bn excluding the acquisition of Schroders Personal Wealth. With the acquisition of Schroders, the bank will be able to expand this particular area of the business, as well as improve its profitability further to help push the shares up and through the 100p level in 2026. The only cloud would be more punitive taxes on a sector that in some people’s eyes is making too much money.

easyJet Q1 26 – 29/01 – as far as the share price is concerned it’s been a fairly stable quarter for easyJet, barring the sharp rise in October on reports that Swiss based shipping company MSC was considering a bid for the airline. While MSC denied having any interest the fact remains that unlike a lot of its peers their share price hasn’t got anywhere close to the levels it was trading at prior to the pandemic when they were north of £13. For the last 2 years they’ve been stuck at levels of more than half that number between peaks at 590p and lows around the 400p through 2025. With the takeover reports swiftly denied it does beg the question as to whether easyJet shares are cheap or whether they are fairly priced? The full year numbers do suggest an airline that can deliver profits on a regular basis and at a higher level than before the pandemic. In full year 2019 profits were a healthy £427m before tax. In fiscal year 2025 full year group revenue and profits before tax both rose by 9% to £10.1bn and £665m respectively, with solid improvements across all business areas. The airline business accounted for £415m of that amount while easyJet holidays saw profits come in at £250m, well ahead of expectations, and ahead of schedule. The dividend was also raised to 13.2p per share, up from 12.1p. That doesn’t tell the whole story, however given there are differences between now and pre-Covid. Firstly, the number of shares in issue is much larger now than pre-Covid, at around 750m, compared to around 400m at the end of 2019, with the issuance of extra shares and rights issues the result of measures to boost the balance sheet in the wake of the pandemic shock. This also helps to explain why pre-Covid the dividend was much higher, with a 2019 final dividend of 43.9p. These two factors are a key difference between then and now, but even with these factored in, it can still be argued that the shares are a little on the low side on a relative basis. On guidance for 2026, and the improvement in the holiday business, easyJet raised its profit forecast for the business to £450m to be achieved by 2030. Both passenger and ancillary revenues saw a 6% increase in 2025, rising to £6.07bn and £2.6bn respectively. Revenues from the holiday business rose 27% to £1.44bn. On the outlook easyJet said that bookings for Q1 were 81% sold, with Q2 26% sold. The holiday business is expected to grow by another 15% in FY26 from a base of 3.1m customers.    

Microsoft Q2 26 – 28/01 – since retesting its July record highs back in October, Microsoft shares have started to roll over as the lustre starts to come off the AI trade and investors start to look beyond the vast amounts of money being spent and start to focus on returns. With the likes of OpenAI starting to have questions being asked about how the vast amounts of money that is being spent will generate a return, the likes of Microsoft who are a big investor in OpenAI are now being held to a higher standard when it comes to costs versus benefits. When Microsoft reported its Q1 numbers the shares popped higher before slipping back sharply the following day. Q1 revenue came in at $77.7bn, an 18% increase on last year, and above forecasts along with net income which rose 12% to $27.7bn. All so far so good, with Azure revenue rising by 39%, well above forecasts of 37%. The wider cloud business saw revenues come in at $49.1bn, an increase of 26%. All of its other business areas also saw gains from last year, including LinkedIn which saw revenue increase by 10%, Windows OEM and devices by 6%, Microsoft 365 also saw strong growth in both commercial and retail revenue streams. The only letdown was in Xbox content and services which were flat. Capital expenditure over the quarter was higher than expected, coming in just shy of $35bn, almost $5bn above its estimate, putting it on course to spend more than the initial $120bn it was looking at when the company issued its guidance at the end of the previous fiscal year. It appears that concerns over these types of overspend are the reasons for this change of attitude amidst rising concerns over returns when it comes to all of this spend. Like Alphabet the rise in capex appears to be being driven by demand/order backlogs which Microsoft is struggling to keep up with. Given recent outages with not only Azure, but across the cloud more generally there appears to be rising concern that in the desire to build more capacity, that existing infrastructure may well be being neglected?

Tesla Q4 25 – 28/01 – despite concerns over the ability of Tesla to maintain its profit margins, as well as increasing competition from the likes of BYD, Tesla shares still managed to post new record highs in December, although we have slipped back a little since then after the latest Q4 deliveries numbers showed a sharp fall of 16%. Part of this was due to a $7,500 US government incentive scheme which came to an end in September and helped boost the Q3 numbers as buyers pulled forward their purchases from Q4. Total Q4 deliveries came in at 418,227, while production also slowed, down by 5.5%, to 434k. For the full year Tesla deliveries fell to 1.64m from 1.79m. On the plus side Tesla is generating more income from its energy business, saying that it deployed up to 14.2GW hours, up from 12.5GW hours in Q3. That said, this can’t disguise the fact that automotive revenues still make up the bulk of its turnover even as revenues surge to record levels. In Q3 Tesla reported a 12% increase in total revenue of $28.1bn, with automotive revenues rising 6% to $21.2bn, but as just mentioned this was boost by the expiry of a tax credit that saw a boost in demand to record 497k car deliveries, helped by a rebound in domestic sales. Energy generation and storage revenue saw a rise of 44% to $3.4bn, while services revenue rose 25% to $3.48bn. Operating margins, however, were lower than the same quarter last year to the tune of 501bps at 5.8%, although they were still the best this fiscal year. Tesla also saw a 50% increase in operating expenses which impacted operating income, knocking that lower by 40% to $1.6bn. This saw net income decline 37% to $1.37bn. The decline in operating income was driven by a sharp fall in regulatory credit revenue, as well as a higher cost of production which included higher tariffs, which impacted the business to the tune of $400m. This remains the key risk going forward as the US administration continues to threaten tariffs on anyone who disagrees with it. Investors will also be hoping to hear progress on the prospect of other products as well as what other projects Musk has up his sleeve. A question on future products was swerved by Tesla with the response that it wasn’t the right forum for such an inquiry. On the outlook Tesla was a little woolly, citing the uncertainty and impacts of shifting global trade and fiscal policies. 

Meta Platforms Q4 25 – 28/01 – has seen sharp falls in the share price over the past few months, it has fallen from record highs near $793, falling as low as $580 in November last year on the back of concerns over how much money the social media giant has been throwing at not only AI but also its Reality Labs operation which has been haemorrhaging cash. Q3 revenues comfortably blasted through forecasts of an upper boundary of $50.5bn at $51.24bn, however net income took a huge hit, plunging by 83% to $2.7bn, which Meta blamed on a one-off $15bn tax charge related to President Trump’s recent tax bill. At the time Meta raised its capex guidance for 2025 at the lower end of $66bn to $72bn to between $70bn and $72bn, with an expectation of an even higher spend in 2026. This appears to have not gone well at a time when its Reality Labs continues to haemorrhage cash, losing another $4.4bn on sales of $470m. This year alone this part of the business has lost $13.17bn. For Q4 revenue is expected to come in at $56bn and $59bn with full year expenses to come in between $116bn and $118bn, with Meta also announcing that it was launching a 6-part bond sale to help fund this AI spend. In an acknowledgment of these increasing concerns Meta went on to announce that they had decided to scale back their investment on the Metaverse and AI by 30%, which appears to be an early acknowledgement that appetite for AI spending has reached a peak. It’s also seen Meta announce further reductions in its Reality Labs workforce, with another 10% reduction earlier this month. It’s about time as well given that this part of the business has lost $73bn over the past few years, however the question being asked is whether it will be enough. Throwing money into AI in the hope that some of it will generate a return is not a strategy and while Meta’s core business appears to be doing well there is a feeling that investment into AI needs to be funded from existing business revenues and not from complicated bond sales.

Apple Q1 26 – 29/01 – despite the share price popping up to a new record high in December Apple shares have underperformed their peers over the last 12 months, largely due to concerns they have been left behind with respect to their investment in AI solutions. Over the last few weeks this underinvestment may well start to work in its favour as investors now look to balance the amount of capital being invested with the type of return that can be expected. We’ve already seen the effects of this in some areas of the AI space where doubts have increased about the ability of some companies to generate a return as the debate over infrastructure costs takes hold. Apple appears to be looking to outsource this particular issue having announced a deal with Google owner Alphabet to use Gemini to augment Siri and power some iPhone features instead of going with OpenAI’s ChatGPT. When Apple reported in Q4 the numbers were largely positive across the board with the numbers bringing down the curtain on a record year. Q4 revenue came in at $102.5bn, an increase of 8%, with services posting another new record of $28.75bn. Total revenue for the year came in at $416bn, with services now accounting for over 25% of that total on an annualised basis. iPhone revenue for the quarter saw some decent growth, rising to $49.02bn, an increase of $2.8bn from the same quarter a year ago. Mac revenue also rose to $8.7bn from $7.bn, while iPad revenue was flat at $6.95bn. Wearables revenue was also flat at just over $9bn. Net income almost doubled, rising from $14.7bn to $27.47bn. On a regional basis Europe and the US accounted for most of the gains, with China seeing a modest decline, which Apple blamed on the delay in the launch of the iPhone 17 Air for the miss. As far as the outlook is concerned Apple is optimistic on what traditionally tends to be a strong quarter given it covers the Thanksgiving and Christmas period. Q1 revenue growth of 10-12%, with iPhone sales expected to see double digit growth due to strong holiday sales demand. A key risk is likely to be supply constraints on some iPhone 16/17 models.