Update Equities: Fed decision and geopolitics drive markets
This week, capital markets were shaped by the interplay of monetary policy, corporate earnings and sharp moves in foreign exchange and commodity markets.
And all of this was amplified by geopolitical tensions. After a strong start to the year, investors initially took a step back. Caution was driven primarily by the US Federal Reserve’s interest rate decision as well as by expectations ahead of key quarterly results from major corporations.
As expected, the Federal Reserve left its policy rate unchanged. Following three consecutive rate cuts, this decision had been largely priced-in, and equity markets reacted only modestly. Futures markets are now pricing in the next rate cut no earlier than the summer.
At the same time, greater attention shifted to the question of the Fed’s institutional independence, as political influence and the upcoming reshuffle of the central bank’s leadership are seen as potential sources of uncertainty. On Wall Street, the major indices showed little movement after the Fed decision, even though the S&P 500 index briefly reached a new record level above 7,000 points.
The week was also marked by pronounced shifts in currency and commodity markets. The US dollar continued to weaken, with the euro at times trading above USD 1.20. Dollar weakness and geopolitical risks simultaneously fuelled an ongoing shift to safe havens, with gold and silver reaching new record highs. These developments affect equity markets indirectly, for example through rising costs, changes in competitiveness and sector rotations.
At the corporate level, the latest results from large technology companies were mixed, reinforcing investors’ selective nervousness. Microsoft delivered strong operational performance with robust cloud growth and rising profits, but the sharp increase in capital expenditures for data centres and artificial intelligence (AI) infrastructure weighed on the share-price reaction.
Meta, by contrast, presented very strong results. Driven by a buoyant advertising business and high margins, revenues rose sharply, and despite significantly higher AI investments the company continues to signal further profit growth. In Europe, ASML provided positive momentum for the technology sector, as strong figures and an optimistic outlook underscored its role as a key beneficiary of the global AI and semiconductor boom. LVMH, meanwhile, showed a more subdued performance, highlighting ongoing pressure on luxury stocks and contributing to European indices lagging behind US technology markets.
Looking ahead, a key question remains whether high expectations for AI‑driven growth can be underpinned by sustainable earnings. At the same time, market participants are closely watching signals from central banks, the US dollar and geopolitical risks. In the short term, the environment is likely to remain selective: technology and commodities continue to benefit from structural trends and hedging demand, while interest‑rate‑sensitive and cyclical sectors remain vulnerable to disappointment.
Kevin Mcpherson