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The Fed held. Microsoft rose. Alphabet slipped.
The Fed left rates alone on Wednesday, but two officials wanted a hike. After the close, Microsoft jumped and Alphabet fell, even though Google Cloud more than doubled.
The Close A calm day for stocks, a busier one for bonds. The S&P 500 rose 0.3% to 7,744. The Nasdaq gained 0.3% to 26,550, and the Dow added 98 points, or 0.2%. The ten-year yield climbed back above 5%, to 5.04%. The chip index rose 1.8%, and U.S. crude bounced back above $102.
The data center builders led. Vertiv, which makes power and cooling gear for data centers, jumped 16.5% after it raised its outlook. Oracle rose 10.7% after an upbeat long-term forecast. The memory makers kept climbing, with Micron up 5.9%. F5 fell 20.4% after its growth forecast for next year disappointed. Lennox lost 10.6% after it cut its profit outlook. CoStar lost 14.0% despite beating forecasts. What The Market Is Pricing In Start with the Fed. It held its key rate at 3.75% to 4%, as expected. But the vote was 10 to 2, and both dissenters wanted a quarter-point hike. Traders now see the chance of a December hike at well above 80%. Then the earnings. Microsoft beat forecasts, its Azure cloud sales grew 48%, and the stock rose about 4% after hours. Alphabet's sales came in roughly in line, its profit missed, and the stock fell between 8% and 10% after hours. Google Cloud wasn't the problem. Its sales more than doubled to $30.7 billion. The problem was spending. Alphabet put $51.4 billion into buildings, servers and chips in the quarter, and the money left over after that came in at minus $9.1 billion. Wall Street calls that free cash flow: the money a company has left after running the business and paying for new investments. When it turns negative, the company is spending more than it brings in. That's fine for a while if the spending pays off later.
I've seen this before. In 2022, the money Amazon had left over fell to about minus $11.6 billion as it built warehouses, and its stock lost about half its value. A year later, that number swung back to about plus $37 billion. That's the hopeful version for Alphabet. Tonight, Amazon gets its own turn. What's Next Three things I'm watching today and next week: 01 Growth and Inflation This morning's report showed the economy grew at a 3.4% yearly pace in the third quarter, a bit faster than forecasts. The PCE inflation gauge rose 3.6% from a year earlier. Strong growth plus hot inflation is exactly the mix that keeps a December hike on the table. 02 Amazon Amazon reports today, Thursday, October 29, after the close. Watch its cloud business and its spending plans. After Alphabet, investors will look hard at how much money is left over. 03 Apple and the Election Apple reports Monday, November 2, after the close. The midterm elections follow on Tuesday, November 3, and they decide control of Congress. The Fed held, but leaned toward a hike. Big Tech is growing fast, and investors want to see the payoff.
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