Earnings or Else

Corporate earnings are once again running the show. This morning, stock futures are edging higher as investors brace for another wave of quarterly results and a crucial inflation report tomorrow. The mood is not euphoric, but it is steadier than it was 24 hours ago. Wednesday's stronger-than-expected jobs report - 130,000 jobs added in January, unemployment dipping to 4.3%, wages holding firm - helped ease fears of an imminent economic slowdown. In recent weeks, markets have oscillated between worrying about overheating and worrying about stalling. For now, the data suggest neither extreme.

But strong employment also complicates the interest-rate picture. Traders have dialed back expectations for near-term rate cuts. Some now see the first move coming in July rather than June. The odds that the Federal Reserve simply holds steady have risen sharply. At the same time, at least one cut later this year is still widely expected. The next clue arrives tomorrow with the Consumer Price Index, which economists expect to show inflation cooling modestly to 2.5% year over year from 2.7%.

This delicate recalibration explains today's restrained optimism. Dow, S&P 500, and Nasdaq futures are all modestly in the green. Treasury yields have slipped slightly in overseas trading, reflecting caution despite the strong labor numbers. The dollar has softened, suggesting currency markets aren't fully convinced the U.S. economy is accelerating. Investors appear to be waiting for confirmation.

Interest rate levels remain the constant backdrop to markets. Yesterday's employment report was strong, and in theory, this should have reduced the probability of rate cuts and pushed bond yields higher, as it undermines the scenario of economic deterioration forcing the Federal Reserve to ease policy. Strictly speaking, that is partly what occurred. However, the annual revisions, customary with the January release, effectively wiped out most of the gains of the past three years outside the public sector, leisure and hospitality, and private health and education, ING notes. In other words, swathes of industry, finance, technology and retail are shedding jobs. The momentum is therefore highly concentrated, while leading indicators such as declining job openings and weaker hiring intentions point to a marked cooling of the labour market. What conclusion should be drawn? That the labour market is not as robust as yesterday's headline payroll figure suggests. Investors can therefore continue to hope for several rate cuts this year, a conviction that provides fuel for the equity rally.

Meanwhile, earnings are delivering the real volatility. AppLovin topped expectations, yet its shares fell sharply in premarket trading as investors fretted about intensifying competition and artificial intelligence's impact on its business model. Cisco reported stronger revenue, helped by demand tied to AI infrastructure, but its stock dropped after margins disappointed and after a strong run earlier this year. Applied Materials slid following a $252 million settlement with the Commerce Department over illegal chip-equipment exports to China. In contrast, Howmet Aerospace rose after projecting first-quarter profit above expectations, and Novocure surged after the FDA approved a pancreatic cancer treatment.

This is a market with little patience. It is not enough to beat earnings estimates. Companies must defend margins, explain capital spending, justify exposure to AI, and reassure investors about 2026, all at once. Any perceived weakness can wipe out months of gains in a single session.

Overlaying this is the AI question that refuses to settle. Investors have spent the past year rewarding the obvious beneficiaries: chipmakers, cloud giants, hyperscalers. Capital spending from Big Tech is projected to reach staggering levels over the next several years, and the accounting implications alone are starting to raise eyebrows. Massive investments in data centers and specialized chips will translate into rising depreciation costs that could cloud future earnings. 

Now markets are probing the second-order effects. Which industries are strengthened by AI, and which are threatened? Software firms, financial-services companies, publishers, and others have all felt tremors in recent weeks. Shares are moving not only on fundamentals, but on speculation about how algorithms might reshape entire business models. The fear is less about today's profits than about tomorrow's relevance.

Beyond earnings and AI, geopolitics and policy remain in the background. The House of Representatives narrowly approved a measure disapproving tariffs on Canada, a symbolic rebuke of President Trump's trade policy, though its ultimate fate is uncertain. Reports also suggest the U.S. and China could extend their trade truce for up to a year, with a potential leaders' meeting in Beijing this spring. Trade tensions, in other words, are not escalating, for now.

Today's economic highlights:

Today's agenda includes: Fed Logan's speech in the United States; in the United Kingdom, the RICS House Price Balance, Industrial Production, GDP MoM, Manufacturing Production, GDP 3-Month Avg, GDP Growth Rate QoQ Prel, Goods Trade Balance Non-EU, GDP Growth Rate YoY Prel, Goods Trade Balance, and Business Investment QoQ Prel; the IEA Oil Market Report in France; in the United States, Initial Jobless Claims and Existing Home Sales. See the full calendar here.

• Dollar index: 96,944
• Gold: $5,057
• Crude Oil (BRENT): $68.99 (WTI) $64.35
• United States 10 years: 4.16%
• BITCOIN: $67,845

In corporate news:

• Procter & Gamble is being investigated by Italy's competition authority over allegedly misleading ads for its Braun Skin i-Expert hair removal device that may overstate its effectiveness.
• Russia has fully blocked Meta Platforms' WhatsApp for non-compliance with local laws, urging users to switch to state-backed messenger MAX.
• Cisco Systems reported higher fiscal Q2 earnings and revenue and raised its full-year outlook, but its shares fell in premarket trading.
• Applied Materials agreed to pay $252 million to settle U.S. Commerce Department allegations over illegal exports of chipmaking equipment to China.
• T-Mobile US plans a euro-denominated senior notes offering to fund general corporate purposes including share repurchases and debt refinancing.
• Check Point Software Technologies posted higher Q4 adjusted earnings and revenue, with profit beating analyst expectations.
• The U.S. FTC has raised concerns with Apple over accusations that Apple News may favor left-leaning outlets and potentially mislead consumers.
• Blackstone and EQT will acquire waste management firm Urbaser from Platinum Equity for about $6.6 billion, while Platinum retains its Argentina business.
• CME Group plans to launch four South Asia cash-settled edible oil futures contracts, pending regulatory approval.
• WeRide and Uber Technologies expanded their commercial robotaxi service in Abu Dhabi to cover about 70% of the city's core areas.
• 3M India posted its first quarterly loss since June 2020 due to a one-time charge related to India's new labour codes despite higher revenue.
• British American Tobacco reported a 2.3% rise in annual profit, driven by market share gains for its Velo nicotine pouch and growth in newer products.
• Gaming and Leisure Properties acquired the real estate assets of Bally's Lincoln for $700 million, adding the property to its existing master lease agreement.
• China's January sales of electric and hybrid vehicles fell 20% year-over-year for the first time since February 2024, while Tesla exported 50,644 China-made vehicles during the month.
• Alibaba Group said its Lunar New Year promotion for the Qwen AI app generated over 120 million orders in six days as it pushes to expand AI-driven consumer services.
• Curtiss-Wright: Shares gained 6% after hours following quarterly results.
• Motorola: Shares rose 2% after hours following quarterly results.
• Rollins: Shares fell 13% after hours following quarterly results.
• Tyler: Shares fell 7% after hours following quarterly results.
• AppLovin: Shares declined 6% after hours following quarterly results.
• Pershing Square: Bill Ackman's fund remains heavily exposed to Meta, which is launching construction of a $10 billion data centre in Indiana to bolster its artificial intelligence capabilities.
• Apple: Its latest attempt to roll out a new version of Siri is facing obstacles, according to Bloomberg.
• AbbVie: Is suing the US Department of Health and Human Services over Botox pricing.
• Baker Hughes: Is considering the sale of Waygate for $1.5 billion, according to Bloomberg.
• Nu Holdings: Announced a $4.2 billion investment plan for its Mexican operations through to 2030.

Analyst Recommendations:

• Inspire Medical Systems, Inc.: Wells Fargo downgrades to market weight from overweight and reduces the target price from USD 145 to USD 70.
• Kraft Heinz: JP Morgan downgrades to underweight from neutral and reduces the target price from USD 24 to USD 22.
• Pegasystems Inc.: Barclays upgrades to overweight from market weight and reduces the target price from USD 67 to USD 48.
• Pfizer Inc.: Daiwa Securities downgrades to neutral from outperform with a target price of USD 27.
• Rollins, Inc.: Wells Fargo downgrades to market weight from overweight and reduces the target price from USD 68 to USD 56.
• Vertex, Inc.: Jefferies downgrades to hold from buy and reduces the target price from USD 28 to USD 16.
• Applovin Corporation: JP Morgan maintains its neutral recommendation and reduces the target price from USD 650 to USD 500.
• Biogen Inc.: DZ Bank AG Research maintains its hold recommendation and raises the target price from USD 150 to USD 195.
• Bloom Energy Corporation: Haitong International Research Ltd maintains its outperform rating and raises the target price from USD 120 to USD 184.
• Circle Internet Group, Inc.: Wolfe Research maintains its underperform recommendation and reduces the target price from USD 65 to USD 40.
• Ge Vernova Inc.: CICC maintains its outperform rating and raises the target price from USD 643 to USD 857.
• Generac Holdings, Inc.: Baird maintains its outperform rating and raises the target price from USD 199 to USD 292.
• Globalfoundries, Inc.: Evercore ISI maintains its outperform rating and raises the target price from USD 45 to USD 58.
• Hilton Hotels: Mizuho Securities maintains its neutral recommendation and raises the target price from USD 266 to USD 321.
• Hubspot, Inc.: BMO Capital Markets maintains its outperform recommendation and reduces the target price from USD 385 to USD 285.
• Humana Inc.: Cantor Fitzgerald maintains its neutral recommendation and reduces the target price from USD 290 to USD 201.
• Nov Inc.: Griffin Securities maintains its buy recommendation and raises the target price from USD 17 to USD 22.
• Paycom Software, Inc.: BMO Capital Markets maintains its market perform recommendation and reduces the target price from USD 175 to USD 137.
• Robinhood Markets, Inc.: CICC maintains its outperform recommendation and reduces the target price from USD 160 to USD 120.
• S&P Global, Inc.: Citi maintains its buy recommendation and reduces the target price from USD 635 to USD 480.
• Snap Inc.: Citi maintains its neutral recommendation and reduces the target price from USD 10 to USD 6.
• Stellantis N.v.: Berenberg maintains its buy recommendation and reduces the target price from EUR 10 to EUR 7.80.
• Tenet Healthcare Corporation: Stephens maintains its overweight recommendation and raises the target price from USD 225 to USD 275.
• Unity Software Inc.: Citizens maintains its market outperform recommendation and reduces the target price from USD 50 to USD 37.
• Vertiv Holdings Co: Barclays maintains its overweight recommendation and raises the target price from USD 200 to USD 281.