CPI hotter, Fed threatens 50 bps, CRWV crushed it and AI comes roaring back

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Reality check – aisle 5…..After buyers came charging back into stocks on Monday - scooping up the same names that they were throwing out last week – yesterday was a reminder that the inflation problem hasn’t gone away…and neither has the FED.

In yesterday’s note I told you that Fed Governor Chris Waller was shaking the bushes – suggesting that the FED needed to raise rates by 50 bps IF the CPI report came in hotter than expected…. Well, guess what? The CPI report came in hotter than expected….

And suddenly we had something else to consider beyond AI spending, valuations and what happens next at NVDA…The question now is - How much higher will interest rates go - and how long will this hiking cycle last?

At the end of the day – stocks gave back a piece of Monday’s rally…. - the Dow lost 0.3%, the S&P lost 0.4%, the Nasdaq lost 0.7%, the Russell lost 0.7%, the Transports rose 0.1%, the Equal Weight S&P ended the day flat while the Mag 7 gave back 0.8%.

Let’s start with the eco data, because that is what changed the conversation. October CPI rose by 0.4% versus the expected 0.3%. Core CPI – ex food and energy - rose by 0.3% versus the expected 0.2%. Ok – but then you say that headline inflation was slower than September’s 0.6% increase YES. But it wasn’t’ slow enough to satisfy the inflation is cooling narrative. Another hotter than expected increase is the problem…..

In the report we found that food prices rose 0.5%, energy rose 0.7%, shelter increased 0.3%, motor vehicle insurance added 0.7%. Now, used car prices fell 1.2%, great! The issue is how often do you buy a used car vs. food, energy, shelter and car insurance?

Enter – stage left – Fed Governor Chris Waller. While speaking in London yesterday morning BEFORE the release, he made his hawkish position very clear. Look, even if inflation improved, he was in the 25-bps increase camp next month…… But if core CPI came in at 0.3% or higher, then a 50-bps increase should be on the table….

And what did we get? A 0.3% increase…BANG!.

Waller’s concern was credibility. His reasoning is - if inflation remains stubborn and the FED’s response is too cautious; it will undermine the confidence in their willingness to finish the job. That was the warning – the report was what it was, so investors are now forced to reconsider the size of the next move.

And to throw a bit of salt on the wound - Dallas FED President Lorie Logan chimed in, supporting at least two more 25 bps increases – one in December and one in January while suggesting that the pace might need to be even stronger. Remember – the market was pricing in a December hike and then a March hike – so a January hike only added a new piece to the puzzle.

As of this morning – Fed Fund Futures are now pricing in a 114% chance of an increase in December, a 61% chance of a hike in January, a 66% chance of a hike in March – which suggests at least another 75-bps worth of hikes before the end of the 1^st qtr. – taking rates from 3.75%-4% to 4.5%-4.75% range.

So, let’s be clear – while it is not a done deal – 50 bps is clearly on the table, and the bond market wasted no time in responding…

The TLT lost 1.3% while the TLH lost 1.1% - the 2-year treasury yield jumped 18 bps to 4.725%, its biggest one-session jump since April 9, 2025. The 10-year rose 12 bps to 4.982%, while the 30-year added 9 bps to 5.349%. And with the 10-year once again knocking on 5%…think about what happens to mortgages, corporate financing and the valuations investors assign to stocks.

Higher yields also make investors reconsider how much they are willing to pay today for future earnings – promised years down the road and that hits growth stocks/tech stocks particularly hard – putting another challenge in front of the AI trade at a time when the spending bills are already getting plenty of attention.

Which brings us right to CoreWeave. Remember them? The company that had everyone talking about financing a month ago? Well, it reported after the bell…and somebody is still ordering all that computing capacity!

Quarterly revenue hit $3.66 billion, up 168% from a year ago. Revenue backlog reached $132.5 billion, adjusted operating margin came in at 10%, and management raised its full-year revenue outlook to $13–$13.3 billion. The stock is up 13.4% premarket to $55.15, with IREN and Nebius catching a bid, too.

Now - before everyone gets carried away – let’s remember: the bills are still enormous. Quarterly net interest expense was $846 million, the company lost $709 million on a GAAP basis, and this year’s capital spending is expected to reach $37–$39 billion and that keeps the financing debate very much alive. YTD – CRWV is down 32%.

And not to be left out – the ongoing AI / Anthropic drama……Yesterday they were targeting a $1.3 trillion valuation in its upcoming IPO and this morning there is talk of a $1.4 trillion valuation – 30% below the rumored $2 trillion originally floated.

But remember $2 trillion was more rumor mill than not, while the current $1.4 trillion is an actual proposed valuation and that tells us something about the environment in which this deal is being marketed. Investors want more discipline around price. The technology may be extraordinary. The opportunity may be enormous. But shareholders still have to decide what those future earnings are worth TODAY. The current speculation around IPO pricing is $70 - $78 /share.

And NVDA? The stock fell 5.5% Tuesday after losing 4.3% Monday. It closed at $168.89, down 32% from its October high and getting close to the March low of $164.27. The AP reported that President Trump said the FBI was investigating the circumstances surrounding CEO Jensen Huang. For investors, the immediate questions are about Nvidia’s leadership and governance. The broader issue to watch is whether Washington tightens chip-export restrictions. This morning, NVDA is back up about 4.7% near $176.50. Earnings are due next Tuesday, November 17.

Meanwhile—oil continued to fall. WTI lost 0.9%, to settle at $86.04, while Brent fell 1.2% to $91.49. This morning – WTI is trading up 1.4% at $87.25 while Brent is up 2.2% at $93.48. The issue is the same…. oil investors continue to weigh the possibility of progress – or not – of ending the Iran conflict without the threat of additional military action. And remember – yesterday’s CPI report measured October’s oil prices that averaged about $95/barrel……not the current $87/barrel we are seeing now.

And that is the tension…. today oil is offering a reason to be optimistic about the future while yesterday’s CPI report is giving the FED a reason to be aggressive, and so the clock ticks.

Gold continued to fall – losing 2% to end the day at 4,020 – recall rising yields and a stronger dollar typically causes gold to fall. Yesterday we got both – rising yields and a stronger dollar. This morning gold is trading up $36 at $4,056. For now – we remain in the $3,950/$4,180 trading range.

Eco data today is just Mortgage Apps. Tomorrow will be about Existing Home Sales – which are expected to be down 3.5% - you can think rates and time of year. We will also get the October PPI – what will it say about inflation at the producer level?

This morning – European markets are mostly higher…. Germany up 0.7% while Spain is off by 0.1%.... Everyone else is in between.

US futures are up and the Nasdaq is on fire – you can thank CRWV and all of the recent selling …. Dow futures up 57 pts, S&P’s up 63, Nasdaq is up 520 pts while the Russel is up 20.

The S&P closed at 7,520 – down 30 pts. leaving us in between the trendlines…7,330/7,620. The Nasdaq – which broke down and thru its long term trendline on Friday – will take it back this morning if the excitement about CRWV and Anthropic continues. The question is whether those gains stick once the bell rings. Yes, demand looks strong, but the buildout still costs a fortune, and the prospect of higher rates makes that bill harder to finance.

Butternut squash soup

Prep time: 5m

Cook time: 20m

Total time: 25m

Serves: 4-6

Ingredients

2 packages Cut Butternut Squash

1/2 stick Butter

1 container Chicken broth, Splash of cream.

Preparation

Step 1

Begin by adding the squash to a large pot. Add enough chickens stock to almost cover the squash. Add half a stick of butter.  – cover and bring to a boil – then turn heat down to med and let it cook until softened – maybe 15 mins or so.  

Step 2

Once softened – remove from heat and let cool just a bit.

Step 3

Using a food processor – blend/puree the squash and add back to the pot.  Stir in a splash of cream and serve.