This week was dominated by monetary policy and Microsoft. Gary analyzes the Fed’s decision to keep interest rates steady for the first time since July. Microsoft had a difficult week, losing around $400 billion in market capitalization when their shares fell 12% after their latest earnings report. Watch the video below for the full analysis.

FULL TRANSCRIPT:

Hello, everyone. Welcome back to 7 Market Movers. My name is Gary Quinzel with Wealth Enhancement. The Fed held rates steady this week, which was widely expected, but the real story isn't about the decision itself. It's what changed beneath the surface. Today, I'm going to focus on three key investment takeaways from the Fed's January meeting and how our investment team is interpreting those shifts. The first and most important takeaway is that the Fed has clearly shifted from cutting to calibrating.

If you compare the statements from the last meeting to the most recent, the language tells the story. The Fed removed references to rising downside risks in the labor market and instead noted that unemployment has shown some signs of stabilization.

Chairman Powell reinforced in his press conference, emphasizing that after 175 basis points of rate cuts, the policy is now close to neutral and not meaningfully restrictive. We observed multiple sources sources of independent research, which broadly agrees with this sentiment.

The Fed believes that it's done most of the heavy lifting already and now wants to pause, reassess, and let the data guide the next move. This is no longer a race to the next cut. It's a wait and see environment.

The second takeaway centers on the labor market, and this is where opinions start to diverge. The labor market is going to be the swing variable at upcoming FOMC meetings. Chairman Powell acknowledged that job growth has slowed, but argued that labor demand and labor supply have cooled at the same time, leading to stabilization rather than outright deterioration.

Now, independent research providers agree, suggesting that the economy may be experiencing a jobless expansion or productivity gains support growth even as hiring slows. Yet others are more cautious. Some argue that the Fed may be declaring victory too soon, pointing to weaker private hiring, elevated uncertainty for small businesses, and borrowing costs that remain restrictive for parts of the economy. This disagreement matters because if labor conditions stabilize, the Fed can stay on hold. But if labor weakens again, rate cuts could return very quickly. For for investors, that makes labor data the single most important catalyst in the months ahead.

The third takeaway is all about growth, which will have a direct impact on what the Fed does next. The Fed upgraded its assessment of economic activities from moderate to solid. Now Chair Powell emphasized that resilient consumer spending, improving productivity, and ongoing investment tied to artificial intelligence and data centers all matter.

Now research again echoes this view noting that growth has remained stronger than expected even as the full impact of fiscal policy has felt. So strong growth is good news for the economy, but on the other hand, it also caps how dovish the Fed can be.

When growth is solid and inflation risks are better understood, there's less urgency to ease aggressively. That's going to shift market leadership away from Fed speculation and back towards earnings, cash flows, and fundamentals. So to sum up, the Fed is no longer cutting preemptively. The labor market is the key swing factor. Growth remains solid, and the markets are becoming more selective.

Now before we close, it's worth touching briefly on Thursday's significant move in Microsoft, which recently reported earnings. Shares fell roughly 12%, wiping out more than $400 billion in market value, which was one of the largest, actually the second largest, single day losses of market value in one day, after earnings showed that record AI spending but slower growth in its cloud business. This wasn't about Microsoft suddenly becoming an ineffective company. It was about expectations, valuation, and concentration.

When markets and portfolios are heavily concentrated in a small number of mega cap names, volatility can emerge quickly, even in high quality businesses. It's just yet another timely reminder that diversification isn't about filling up a style box, it's about managing risk when leadership becomes narrow. So please remember, in this environment, discipline, diversification, and fundamentals matter more than trying to time the next policy move or predict winners from the AI tailwind. Thanks for joining us. We'll see you next time on 7 Market Movers.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal. There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss.

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