Investors have another very eventful day ahead that includes the latest US Federal Reserve policy decision, highly anticipated jobs data, and another round of Q4 earnings.

The Fed policy announcement is due out at 1 p.m. CST, followed by a press conference by Fed Chair Jerome Powell at 1:30. The Fed is not expected to make any policy changes but investors are eager to learn if officials have begun rate cut discussions and/or slowing the pace of the central bank's "quantitative tightening," aka the amount by which the Fed is shrinking its balance sheet.

Powell's follow up press conference will likely provide more insights than the policy statement. Bulls are hoping the Fed Chief will say with certainty that the central bank is readying to ease policy which would in turn boost expectations for the first rate cut to happen in March.

Bears, however, warn that Powell is more likely to push back against the idea of a March cut as well as the degree of cuts Wall Street is currently penciling. The Fed signaled just three 25-basis point rate cuts for 2024 in its most recent projections, while traders are betting on five to six cuts. Most bears believe the labor market may still be too tight for the Fed's comfort and point to the pace of wage gains in particular that hasn't dropped below a +4% annual rate of gain since May 2021. In fact, the pace accelerated in December to +4.1% from +4.0% previously.

The Job Openings and Labor Turnover Survey yesterday, which showed job openings rose more than expected, is also stoking some concerns that the US labor market may be heating up again. ADP releases its private payroll report today with Wall Street expecting January job gains of +130,000 versus +164,000 in December. ADP in December missed the Labor Department's official tally of +216,000 jobs added, which was also far higher than Wall Street Expected.

The Labor Department releases the January Employment Report on Friday, which is expected to show +170,000 jobs added for the month.

On the earnings front, investors seemed unimpressed by earnings results from Microsoft and Google-parent Alphabet after the market close yesterday. Both companies topped Wall Street estimates but both stocks also traded lower after hours. Microsoft seems to be getting a better reception and perhaps because it broke out AI results. The company said AI related services contributed six percentage points of growth to its Azure cloud unit growth in Q4. For Alphabet, search advertising was a weak spot. In its earnings press conference, company executives said AI was increasingly contributing to growth in the cloud division but didn't provide any specifics.

Amazon, Apple, and Facebook-parent Meta release results Thursday. Earnings highlights today include ADP, Aflac, Boeing, Boston Scientific, Corteva, Mastercard, MetLife, Nasdaq, Novartis, Novo Nordisk, Old Dominion, Phillips 66, Qualcomm, and Roper.

IMF Raising Global Growth Forecast: Oil prices rose after the International Monetary Fund boosted its global growth forecast for the year and as the market waited to see how the U.S. would respond to a deadly drone attack this past weekend on its forces in the Middle East. The International Monetary Fund on Tuesday raised its forecast for the global economy on unexpectedly strong growth in the U.S. and stimulus in China.  Source CNBC

Walmart Announces 3-for-1 Stock Split: Walmart said it would initiate a 3-for-1 stock split in an effort to make shares more affordable for purchase by its associates. The retail giant said the split was part of the company’s “ongoing review of optimal trading and spread levels.” Shares will begin trading on a split-adjusted basis Feb. 26,  

UPS Will Lay Off 12,000 Following Rough Earnings Report:  The reduction in employees will save the company about $1 billion, CEO Carol Tomé said on the Tuesday company earnings call. Tomé said the company will also ask employees to return to the office five days a week in 2024. During Tuesday’s earnings call, Tomé blamed UPS’ difficulties on the broader economy, the disruption associated with labor negotiations last summer and the higher costs of a new Teamsters contract. In August, the trucking union and UPS came to an agreement on a five-year $30 billion contract that included higher wages and safety protections for drivers. Both the threat of a walk-out and the multi-billion dollar contract affected the company’s finances, Tomé said. On top of that, the increased number of people doing holiday shopping in person impacted UPS’ revenue, the CEO said Tuesday. Meanwhile, its relationship with Amazon also had an effect. The company slightly increased its shipping for Amazon in the past year, up from 11.3% in 2022 to 11.8% in 2023, but Amazon is known for negotiating discounts that smaller suppliers don’t necessarily receive.  Source Forbes

The Year of the Deepfake:  All I keep hearing is that the next few years are going to be crazy wild as we are going to encounter many things we think or believe to be true but are simply deepfakes created by AI and other new technologies. While the act of creating fake content is not new, "deepfakes" leverage powerful techniques from machine learning and artificial intelligence to manipulate or generate visual and audio content that can more easily deceive us all. Before long we are not goin gto have any idea if we are reading or seeing some real or fake on the internet or television the problem is regulators will always be one step behind innovators, so the first few years could be like the Wild-West. Best to be extremely cautious with whatever you see an hear.    


Investors Watch For Change to One Key Clause in Fed Policy Update: In its post-meeting statement, the central bank is expected give an important hint about interest rate moves to come by removing a clause from previous statements that reads: “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time,” followed by an outlining of conditions it assesses. For the past year-plus, the wording has underlined the Fed’s willingness to keep raising interest rates until it reaches its inflation goal. Remove that clause and it opens the door to potential rate cuts ahead; keep it and policymakers will be sending a signal that they’re not sure what’s to come. Post-meeting statements going back to at least late 2022 have used the “in determining the extent of any additional policy firming” phrasing or similar verbiage to indicate the FOMC’s resolve in tightening monetary policy to bring down inflation.  Source CNBC

The Real-Estate Downturn Comes for America’s Premier Office Towers: The highest quality office buildings have had much better success navigating the industry’s turmoil. Now, even premier towers are starting to wobble. Rents at the highest-end buildings have been falling, while the rate of leasing has been slowing. Owners of the most elite buildings escaped this fate for a while. These landlords persuaded blue-chip tenants that reluctant workers would return if only their offices sparkled with lush roof decks, fully loaded gyms and food prepared by Michelin-starred chefs. But that strategy is losing steam as more companies have accepted the reality of hybrid work schedules and, for the most part, have given up on compelling workers to be in five days a week. Asking rents for prime space in 16 U.S. markets declined in the third quarter after increasing on average from about $61 a square foot in mid-2021 to close to about $70 in the second quarter of last year, according to CBRE Econometric Advisors. They were just under $69 in the fourth quarter, CBRE said  Source WSJ


UPS Cutting 12,000 Jobs: UPS plans to cut 12,000 jobs as the shipping giant grapples with a significant drop in package volume and higher labor costs. The company's revenue declined by -7.8% in the fourth quarter, to $24.9 billion, compared with a year earlier. During that same period, it saw a -7.4% decrease in average daily package volume in the U.S. The job cuts — which represent about 2.4% of the company's workforce — will primarily affect management and contract positions, CEO Carol Tomé said on an earnings call. The company expects to save about $1 billion on the reductions. The job cuts come several months after UPS reached a new labor deal with the Teamsters union to avert a potential strike. The company on Tuesday said that it's still recovering package volume that customers diverted to its competitors ahead of the potential labor stoppage.  Source Axios

Your Child’s Next Playmate Could Be An AI Toy Powered By ChatGPT: A host of startups are building robots and stuffed toys that can have full-fledged conversations with children, thanks to generative AI. Some AI toys are touted as a screen-free form of entertainment that can engage children in conversations and playful learning. Others claim to offer additional features beyond storytelling and learning activities, such as providing emotional support. These robotic pals are designed to not only help children grow academically and improve communication skills but also teach them how to deal with their emotions during times of distress. However, experts say generative AI has not yet reached a stage where it can be safely used for crucial tasks like therapy. ChatGPT also has a habit of conjuring inaccurate responses.  ChatGPT, for instance, struggles with simple math problems — and some of these AI toys have the same weakness. Then, there’s the privacy question. Other, less advanced versions of these toys haven’t had strong security measures to protect children’s data. Source Forbes

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