The Hurdle Is High for Big Tech Earnings and the Fed
The AI issue is no longer about a bubble, it is about competition.
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Stock index futures are slightly positive on Wednesday morning ahead of the biggest two-event day of the earnings season. Microsoft (MSFT) , Alphabet (GOOGL) , Amazon (AMZN) , and Meta Platforms (META) all report after the close. Those four names alone account for roughly 18% of the S&P 500 by market capitalization. Add Apple (AAPL) on Thursday and the five-stock total reaches close to 24% of the index.
There is no other day on the calendar where a quarter of the market reports in a 24-hour window and I don't ever recall in my trading career seeing four market heavyweights reporting simultaneously.
Before that drama unfolds we have the Fed. The two-day FOMC meeting concludes at 2 p.m. ET with the policy statement, followed by Jerome Powell's press conference at 2:30 p.m. This is likely Powell's last meeting as Fed Chair with the Senate Banking Committee voting on Kevin Warsh's nomination today and a full Senate vote expected before the June meeting.
The market is pricing a 100% chance of no change in rates at this Fed meeting and futures are roughly priced for no moves the rest of the year.
What to Watch From the Fed
No one expects a surprise on rates. The language is the question.
Powell is likely to reiterate that the Fed is data dependent and that inflation risks have increased while growth still looks reasonable. Any shift in tone on stagflation risk or on the path through year-end will move the curve more than the decision itself.
The DOJ closing its investigation of Powell on Friday takes some of the political tension out of the press conference.
Sell-the-News Risk Is Real
Tuesday's session exhibited some of the sell-the-news danger as Spotify (SPOT) beat by close to 17% and lost 14%, and United Parcel Service (UPS) beat and fell more than 4% for merely maintaining guidance. However, after hours, Starbucks (SBUX) impressed and was up 5% on a raised outlook, Robinhood (HOOD) slumped 9% on a miss, and Seagate Technology (STX) and NXP Semiconductors (NXPI) both jumped close to 16% on beats and strong guidance.
The four mega-caps reporting tonight are each up more than 10% this month already so expectations are high. This is very similar to the fourth-quarter reports earlier this year which saw weakness in all of the Magnificent Seven names.
The same risks are still in place. Capex levels remain the central question. Return on those AI investments is the second. What is newer is the competition issue.
The OpenAI report from Monday made clear that the AI sector is now also a fight for share among the leaders. The bubble framing of the last year is shifting toward a competition framing and the leadership within the group reflects that. Alphabet has been pulling ahead with Gemini. Amazon (AMZN) has been benefiting from AWS strength. Microsoft and Meta have been struggling more.
AI infrastructure remains the dominant theme but software has been under pressure. This isn't about a bubble any longer, it is about competition.
The Rest of the Tape
There is still a busy day before the Mag 7 reports hit. General Dynamics (GD) , Regeneron (REGN) , Humana (HUM) , and Phillips 66 (PSX) report this morning. After the close, beyond the mega-caps, we get Qualcomm (QCOM) , Ford (F) , Chipotle (CMG) , Allstate (ALL) , and eBay (EBAY) .
Durable goods orders for March, new residential construction, wholesale inventories, and the weekly EIA petroleum status report all come this morning.
Oil at New Highs
Another issue impacting the market today is that oil is trading higher and is now at the highest levels since the Iran situation started.
President Trump is telling aides to prepare for an extended blockade to compel Iran to capitulate on the nuclear issue. The Wall Street Journal is reporting that the Iranian economy is in a death spiral but internal disagreement is preventing any progress on negotiations.
Game Plan
My game plan remains what we discussed yesterday. Keep position sizes manageable into tonight, let the headlines do their work, and be ready to put cash to work after the news rather than ahead of it. The risk/reward of betting on the reports is poor. The risk/reward of trading the reaction is better.
I've raised my cash levels to more than 40% and am prepared for whatever develops. I'm hoping for the opportunity to be an aggressive buyer but I'm going to be selective as I deploy precious capital.
At the time of publication, Rev Shark was long GOOGL and NVDA.
