In the wake of the Federal Reserve's recent decision to maintain interest rates, the stock market has exhibited significant bullish momentum. This comes as the Fed not only kept rates unchanged but also upgraded its assessment of the United States' economic landscape. The S&P 500 and Dow Jones indices are poised for what could be their most substantial weekly gains of the entire year.
Simultaneously, the bond market has witnessed a shift, with yields on 10-year Treasuries sliding to 4.65%. This move follows a noteworthy occurrence in the prior month, where the benchmark yield surged above the 5% threshold. Recent data releases highlight a moderation in inflationary pressures and a deceleration in the labor market's growth.
As these developments unfold, Wall Street's fear gauge, the VIX, dwindled to a three-week low, marking a notable decline to 16.12. This phenomenon coincides with a two-day consecutive rally in equities, underpinned by growing optimism that the Fed's rate hikes may be concluding for the year.
Recent data substantiates the notion that current levels of inflation might not warrant additional interest rate hikes by the Fed in the next six months. Such data potentially allays concerns that the Fed could inadvertently tighten monetary policy excessively, thereby increasing the risk of a near-term economic recession.
Microsoft: A Milestone Comparable to Apple's iPhone Launch
Microsoft appears to be standing at the precipice of a transformative moment akin to Apple's groundbreaking iPhone release in 2007.
The formal introduction of M365 Copilot is being viewed as an 'iPhone moment' for Microsoft, emblematic of a broader strategic endeavor to harness a pioneering role in generative AI. Although AI investments contributed a modest half-billion in revenue during the last quarter, Microsoft's expansive AI aspirations project a potential addition of $10 billion in revenue by 2025 and an even more impressive $100 billion in the long term.
Meta: Distinctive Advantages in an Advertising Universe
While the advertising realm grapples with the ever-present shadow of geopolitical events, the allocation of advertising resources remains a relative game. In this context, Meta's differentiation from its industry peers is perceptibly widening.
Additionally, Meta continues to reap the rewards of foundational investments in artificial intelligence, with its Reels platform no longer posing a revenue impediment. Engagement metrics are on an upward trajectory, and, despite an augmented earnings outlook, Meta's valuation presently offers a 5% discount relative to the S&P 500. These dynamics converge to present a compelling buying opportunity for Meta.
Apple: A Testing Revenue Outlook
Despite the prevalence of tepid demand for iPhones throughout the quarter, Apple demonstrated resilience in its fiscal fourth-quarter earnings report, surpassing analysts' expectations. CEO Tim Cook disclosed that the iPhone 15's initial performance outstripped that of its predecessor, the iPhone 14, at the same point in the preceding year.
Nonetheless, Apple's revenue exhibited a marginal contraction, dipping by approximately 1% relative to the preceding year, to a total of $89.5 billion. This instance marks the fourth consecutive quarter of revenue retraction, an unprecedented trend for the tech giant, stretching back to the period before the iconic iPhone's inaugural release in 2007.
Fullerton Markets Research Team
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