Tech rallies ahead of MSFT, GOOG earnings as Fed holds and Consumer Confidence surprises

Stocks pushed higher yesterday as investors, traders & algos stepped back into technology AHEAD of earnings from MSFT and GOOG today, followed by AMZN tomorrow. Three giants, three enormous spending budgets and one question hanging over all of them…What are we doing with all this money….

At the end of the day – the Dow gained 15 pts - you can blame the underperformance on BA – down 11%, the S&P added 0.6%, the Nasdaq rocketed higher, gaining 1.2%, the Russell up 1.2%, the Transports added 1.7%%, the Equal Weight S&P ended unchanged, the Mag 7 gained 0.9%.

It was the ongoing excitement around artificial intelligence that sent the chipmakers up 4%, Cybersecurity up 1.3%, Software up 0.4%, Disruptive Tech up 3.6%, Memory names up 4.5% while the Quantum stocks added better than 7%.

The move was fueled by fresh evidence that investors remain willing to finance the AI buildout - And nowhere was that more apparent than at META.

On Monday they announced a $22.5 billion ‘forward sale agreement’ (led by GS and MGS) To help finance its enormous AI buildout – think data centers, chips and computing capacity. Recall META expects to spend $135 - $145 billion this year on the buildout. On Tuesday they increased the size of the deal to $25 billion because of high demand - and it was still 5 times oversubscribed.

NVDA stepped up and committed $3 billion, putting more of its own money behind a major customer…and yes, that raises the circular financing question again. NVDA invests in META, META spends heavily on AI infrastructure, and NVDA stands to benefit from those purchases. That doesn’t invalidate the demand, but it does make you ask how much of this buildout is being financed by the very suppliers selling the equipment.

Five times oversubscribed tells you, in fact SCREAMS at you that investors are willing to pour more money into/finance this buildout. Think about that. After all the histrionics lately over AI spending, investors still lined up to hand over even MORE money. Interesting, no?

CLS helped make the case. The company, which supplies hardware and manufacturing services for data centers and communications networks, reported quarterly revenue grew 83% y/y and raised their full-year revenue outlook to $21 billion.

Earnings away from technology offered plenty to chew on as well. UPS delivered a beat and a stronger outlook. The company’s focus on more profitable shipments is helping margins.

RCL also beat expectations and raised its outlook, with management saying 2027 bookings were running ahead of historical levels at higher prices.

SOFI beat expectations, added a record 1.2 million members and raised its revenue outlook. KO topped estimates and raised its forecast.

But it wasn’t all sunshine and sandy beaches…

PayPal raised its earnings outlook, yet revenue missed expectations.

And Boeing? They go grounded! Shares sank roughly 11% after the company cut its delivery target and reported a wider than expected quarterly loss. The problem? Investors need to see orders turn into delivered airplanes…and delivered airplanes turn into CASH. Production delays and the costs of ramping up manufacturing keep complicating that story.

While they can brag about having a big order book that supports the long-term story, it doesn’t pay the bills today…..So, yesterday, investors lost their sh*t…..

The selloff was the main reason the price-weighted Dow struggled, helping explain why the Dow did not keep pace with the tech rally.

Remember, the Dow is a price weighted average, so a sharp decline in one or two or three of the higher-priced components can have an outsized effect on the index. Another reminder that you have to know what is moving an index before deciding what that index is telling you about the entire market – because yesterday the DOW told you nothing about the broader performance.

And then there was the CONSUMER – something the main st media and CNN conveniently forgot to discuss. Consumer confidence ROCKETED to 91.7 in October, up from a revised 84.2 in September and well above the 80.4 that was expected. Both consumers’ assessments of current conditions and their expectations for the months ahead showed all kinds of improvement.

Which brings up an interesting question…yesterday we learned that Consumer Confidence is surging while on Friday we learned that Consumer Sentiment is near all-time lows! So you ask, how could that be???”?

Consumer confidence is about jobs, while consumer sentiment is about the ‘squeeze’ on household finances and buying conditions – meaning you can feel secure in your job and still be angry about the grocery bill.

In any event – Despite higher borrowing costs, despite higher gas prices, and despite all of the negativity that they want you to believe - consumers felt considerably better than Wall Street anticipated. Now remember, feeling better doesn’t automatically mean you’re spending more, but that ‘survey’ was a significant upside surprise, and it certainly doesn’t suggest that consumers are lighting their hair on fire.

Add in September durable goods orders, which rose 1.8%, and new home sales, which came in ABOVE expectations, and you have an economy that continues to ‘sing’. Now to be honest - housing is hardly roaring - new-home sales still fell 0.6% from August -but the EXPECTATION was for a decline of 4.5% - so all I am saying is – the data did not suggest an imminent collapse and a negative 0.6% is a lot different that -4.5%.

Meanwhile, oil gave investors a little breathing room. WTI fell 1.5% to end the day at $100.10. Traders continued to weigh the diplomatic efforts to reduce tensions in the Gulf against the continuing risk of escalation. That possibility took some pressure off prices. (at least yesterday). This morning WTI is up 1.5% - taking us to $101.36. Prices at the pump are averaging around $4.25/gal – Recall, when Russia invaded Ukraine initially – when Joey was president – gas prices hit an average of $5.02 while inflation was running at +9.4% (today inflation is running at about 3.4%).

Bonds barely budged – the TLT and TLH ended the day flat as investors wait for today’s decision from the FED. With the 10-year yield hovering around 5% and the 30-year near 5.31% - money is still expensive and while those yields are well below where they were 2 weeks ago, they are still meaningful borrowing costs for businesses, homeowners and anyone who needs to refinance. 30 yr Mortgage rates are now 7.25% down from 7.5% 2 weeks ago.

Gold rose $43 to end the day at $4,060. This morning gold is down $12 at $4,048 – and still remains stuck in that $4,000/$4,220 trading range.

Now, TODAY is about the FOMC. The markets expectation? A big NOTHING DONE. No change in rates. And don’t expect Kevy to give us much in the way of guidance either. I expect to hear that inflation remains elevated, the economy remains resilient and future decisions depend on the incoming data. December and March next year remain on the table, but I wouldn’t expect him to commit to it at this press conference. Blah, Blah, Blah…..

Why would he? There is more inflation data, more employment data and more information about growth still to come. Of course, that won’t stop everyone and every algo from dissecting every word, every pause and every facial expression…looking for a signal he may have no intention of giving.

So, the issue is that everyone hears something different. A comment about economic strength becomes “hawkish.” A comment about patience becomes “dovish.” Then the computers trade the headline and it’s either boom or bust before he even finishes the sentence.

Watch the bond market. If the Fed holds rates steady but longer-term yields (10’s/30’s) rise, that tell us that inflation remains the bigger concern. If yields fall, that will give stocks some breathing room, but you still need to understand why they are falling…. Is it because inflation is improving or are investors worried about the economy?

And just when everyone finishes translating Kevy…MFST & GOOG the stage (after the bell).

At MSFT, the focus will be Azure cloud growth, demand for AI services and how effectively Copilot is turning customer adoption into revenue. Investors also want to know whether capacity constraints are easing and how much additional spending is needed to meet demand.

At GOOG - the questions center on Google Cloud, the resilience of Search advertising and Gemini’s contribution to the business. Can AI strengthen the products that generate the cash while creating new sources of growth?

And for BOTH…WHAT ARE THEY SPENDING! Data centers. Chips. Networking. Power. How much more are they committing, and what does that mean for free cash flow? Now, let’s not kid ourselves – they are extraordinarily profitable companies with established businesses that can fund their ambitions and with that comes enormous expectations. Investors will compare what the C-suite says about future demand against what they say today.

The strongest response would be continued growth, evidence of AI monetization and a credible, realistic explanation of how additional investment will support future profits. A bigger spending number by itself will NOT be enough to excite this crowd and in fact could cause them angst if they are not clear about where we are going.

Amazon is tomorrow and extends the same debate to AWS, its infrastructure spending and the cash generated by the rest of the business.

So, there is plenty ahead before we even get to next week’s midterm elections. Current Kalshi estimates suggest a Democratic sweep – even as the polls suggest it is neck to neck. Do your part as an American and vote.

I am still looking for opportunities beyond the biggest technology names, where earnings, cash flow, balance sheets and reasonable valuations can do more of the work and with two more weeks of earnings reports – we still have a lot more to learn.

European markets are all lower…Spain down 1 .4% while Germany is flat…everyone else is in between.

US futures are mixed…. Dow futures down 110 pts, the S&P is up 13 pts, the Nasdaq is up 150 pts while the Russell is down 4 pts.

The S&P closed at 7,722, up 45 pts, putting us on the north side of the trendline (7,697). Last week, we broke that trendline to kiss the intermediate term trendline at 7,605 only to bounce right back up…. Today’s earnings will set the path going forward…. If MSFT and GOOG somehow disappoint – yesterday’s enthusiasm will become tomorrow’s disaster…. So, sit tight – my gut says they are not going to disappoint…but you never know how the markets and investors will react.

Thanksgiving pumpkin risotto

Prep time: 20m

Cook time: 30m

Total time: 50m

Serves: 4-8

Ingredients

1 c Pumpkin Puree, Olive Oil

2 large Shallots

1 1/2 c Caranroli Rice

1/2 c Dry white wine

4 - 6 c chicken broth - warmed. heavy cream, butter, pepper, Freshly grated Parmegian cheese, finely chopped parsley.

Preparation

Step 1

Heat oil and a dollop of butter in a large pot over medium-low heat. 

Step 2

Add shallot and cook, until shallot is softened, about 7 minutes - (remember to stir).

Step 3

Add rice and cook, stirring constantly, until rice is translucent, about 8 minutes.

Step 4

Now add wine and cook until wine is mostly absorbed.

Step 5

Then add 1 ladle of broth and stir, until liquid is mostly absorbed, when almost completely absorbed – repeat the process again.

Step 6

Now add pumpkin and stir to combine. Add remaining broth one ladle at a time until fully absorbed before you add more. Do this until rice is tender yet still slightly firm to the bite…in fact you may not use all the broth. Depends on how much rice you used.

Step 7

When complete – fold in about ¼ c of heavy cream….. (You can always taste and add more if you like) another tblsp of butter, season with pepper to taste (do not add salt – the cheese should be salty enough).

Step 8

Divide risotto among warmed bowls sprinkle with parsley and serve.   Now to make a real impact – shave some cheese over the top then sprinkle with the parsley….. Serve immediately.