The Fed, Microsoft, Alphabet and Amazon: the busiest week of earnings season | Week-Ahead Brief #10

Last week

No issue last Sunday, so this covers two weeks. In the week to October 16 the Nasdaq fell 4.5%, its worst week since June, led by chip stocks.
The Nasdaq fell 2.6% on Thursday, its biggest one-day drop since June. The S&P 500 fell 1.2% to 7,663.43.
On Friday the S&P 500 closed at 7,623.68, down 0.5% for the week. The Nasdaq closed at 25,955.34, down 0.7%, its second weekly fall in a row.
The Dow fell 652 points on Friday as US crude went above $100 a barrel, though it still ended the week up 0.4%.
Main mover of the week: Meta fell about 7% on Thursday after its results. It spent $34.9 billion on data centers in the quarter, more than the $32.8 billion of cash its business brought in. More below.
Brent crude settled at $116.72 a barrel on Friday, its highest since April 29, after more Houthi attacks on Saudi Arabia. It rose 6.2% on the week.
The 10-year Treasury yield dipped to 4.96% on Thursday as investors moved out of stocks into bonds. It closed the week at 5.00%.
The question for this week: will Microsoft, Alphabet and Amazon shares fall on how much they plan to spend on AI data centers, as Meta's did?

The week, day by day

The stock market is open normal hours every day this week. Calendar

Monday, Oct 26

Before the open: Verizon earnings. AT&T fell 6% on Wednesday after adding fewer phone customers than expected, with SpaceX's mobile plans weighing on it. Verizon now has to show it is not losing customers too.
No major US data.
After the close: Cadence Design, Nucor and Hartford earnings.

Tuesday, Oct 27

Before the open: Boeing, Coca-Cola, UPS, PayPal and Royal Caribbean earnings.
8:30am ET: September durable goods orders, a read on how much businesses spend on equipment.
10:00am ET: October consumer confidence, from the Conference Board.
The Fed's two-day meeting starts in the afternoon. Nothing is announced on the first day.
After the close: Visa and Robinhood earnings. Visa shows how much people spent on their cards over the summer.

Wednesday, Oct 28

6:00am ET: a lock-up period ends, so early Cerebras shareholders can sell about 19.4 million shares they agreed to hold after the May IPO.
Before the open: GE Vernova, Vertiv and Boston Scientific earnings. GE Vernova and Vertiv sell the power and cooling equipment AI data centers run on.
9:45am ET: the Bank of Canada's rate decision, expected to hold at 2.25%.
2:00pm ET: the Fed's rate decision. Markets expect a hold at 3.75% to 4.00%.
2:30pm ET: Fed Chair Warsh's press conference. Any hint on a December hike will move bonds and stocks.
After the close: Microsoft and Alphabet earnings. Options suggest Microsoft could rise or fall 5.3% on the results, and Alphabet 6.1%. After Meta, their spending plans matter as much as their profits.
After the close: T-Mobile, ServiceNow and KLA earnings. T-Mobile is the third phone company to report since SpaceX bought its own airwaves.

Thursday, Oct 29

Before the open: Eli Lilly, Caterpillar, Mastercard and Merck earnings.
8:30am ET: the first estimate of third-quarter GDP. Economists expect 3.0% annualised growth, up from 2.2% in the second quarter.
8:30am ET: September PCE inflation, the Fed's preferred gauge. The forecast is 3.6% for the year to September, up from 3.4%. Core, without food and fuel, is forecast at 0.3% for the month.
9:15am ET: the European Central Bank's rate decision, expected to hold at 2.50%.
After the close: Amazon earnings. Options suggest the stock could rise or fall about 6.6% on the results, per Bloomberg data. Its cloud business and its spending plans will set the tone for AI stocks into the weekend.
After the close: Intel, Sandisk, Starbucks and Coinbase earnings.
Around 11:00pm ET: the Bank of Japan's rate decision, expected to hold at 1.25%.

Friday, Oct 30

Before the open: Exxon Mobil, Chevron and AbbVie earnings. The oil companies' quarter ended September 30, before crude passed $100, so their outlook matters more than the results.
8:30am ET: the employment cost index for the third quarter, which measures wages and benefits. Faster pay growth would add to the case for a December hike.
9:45am ET: the Chicago PMI for October, a survey of Midwest businesses.

Every earnings report this week is on the earnings calendar. The full list of data releases is on the economic calendar, and each morning's timetable on /today.

The Fed will almost certainly hold rates this week, and markets expect a hike in December

The Fed raised rates to 3.75% to 4.00% in September, its first hike since 2023. Futures markets give another hike on Wednesday less than a 10% chance. They give December about 70% to 80%. In a Reuters poll, 94 of 100 economists expect a hold this week.

We expected a 0.3% rise in September core inflation to make an October hike likely. We were wrong. Core CPI did come in at 0.3%, above the forecast, and the odds of an October hike fell anyway. After a weak September jobs report, officials have signalled a slower path. And the midterm elections are on November 3, a week after the meeting.

In July, three officials voted to raise rates and were outvoted: Hammack, Logan and Kashkari. If any of them votes against Wednesday's hold, it tells the market the pressure to raise rates is still there.

The GDP and PCE reports land the next morning, too late to change Wednesday's vote. They set up December instead. A 0.3% core PCE reading after a hot CPI would make a December hike close to certain.

Prediction: a hold with at least one vote for a hike. Warsh keeps December open.

The Fed meeting calendar contains key dates and past votes.

Meta's shares fell 7% on its AI spending, and Microsoft, Alphabet and Amazon report this week

Meta's sales beat forecasts. Revenue was $64.6 billion, up 26% on a year ago, against about $63.4 billion expected. It also announced a 2-for-1 stock split.

Investors sold the shares anyway, because Meta spent more cash than it made. Meta spent $34.9 billion on data centers and equipment in the quarter. Its business brought in $32.8 billion of cash. So for the first time since 2012, its free cash flow was negative. It also raised the bottom of its full-year spending plan, to $135 billion to $145 billion. The stock fell about 7% the next day. Lam Research, which sells chipmaking tools, also disappointed, and chip stocks fell with Meta.

The big tech companies are expected to spend about $800 billion on AI this year, per Reuters. Investors are starting to ask what all that spending earns, and how much of it is borrowed. Microsoft, Alphabet and Amazon all face that question this week.

Microsoft told investors to expect 45% sales growth this quarter at Azure, its cloud business, against a year ago. Amazon forecast $197 billion to $202 billion of sales, growth of 9% to 12%, after 20% last quarter. For both, the cloud growth needs to keep pace with the spending.

My read on big tech week: big AI spending freaks out investors again causing minor drops (not major, and big tech is still printing money).

Oil above $110 is a problem for inflation

Brent crude, the global oil benchmark, settled at $116.72 a barrel on Friday, up 6.2% on the week. US crude went above $100. Houthi militants have kept attacking Saudi Arabia, and shipping costs have risen with them.

Higher oil prices feed straight into inflation. Gasoline rose 9.1% in September and made up half of that month's rise in consumer prices. Oil at these levels keeps pump prices high into October's inflation report on November 10.

Exxon Mobil and Chevron report on Friday. Energy was the only sector to rise on Friday. The two companies' forecasts will show how long they expect oil to stay this high.

Scorecard: how our past predictions turned out

The October 11 issue's prediction of an October hike looks wrong, with markets now giving it less than a 10% chance. The October 11 issue also said the phone companies fell too far, too fast after the SpaceX airwaves deal. So far it is mixed. Verizon is up about 7% since October 9, while T-Mobile is down about 1%. AT&T fell another 6% after its results on Wednesday. Verizon and T-Mobile both report this week, so the prediction gets its real test.

Every entry and outcome is in the track record.

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Read this week

The full week-ahead piece, every figure sourced
Fed meeting calendar: every decision date and vote
IPO lock-up calendar: when early shareholders in Cerebras and SpaceX can sell
Sector heatmap, showing where the market moves after Microsoft, Alphabet and Amazon report

Last thing

Next week Apple reports on November 2, with Palantir the same day and AMD on November 3. The midterm elections are on November 3, and the October jobs report follows on November 6.

Next Sunday's issue will cover it.

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