GE’s Big Quarter Meets the $100 Oil Test

Grant Calloway

Welcome to the Bull Sheet. I'm Ray Calloway. Yesterday I told you to circle the industrials on your calendar, and this morning the industrials answered. The opening bell rang a little while ago, so let's get you caught up. Tuesday, October 20th.

Grant Calloway

The headline is GE Aerospace. It reported third quarter results before the open, and the numbers were big. Adjusted earnings came in at $2.25 a share, up 36% from a year ago, against a consensus of $2.01. Orders jumped 49% to $19.0 billion. Adjusted revenue rose 18% to $13.3 billion, and operating profit grew 30% to $3.0 billion. Commercial Engines and Services revenue climbed 21% to $10.34 billion, and the commercial services backlog is now north of $170 billion. That's the stream of repair and maintenance work already contracted, and cash comes out of it like water out of a tap.

Grant Calloway

And GE raised its full year guidance again, the second quarter in a row. Adjusted earnings per share are now seen at $8.00 to $8.10, up from $7.65 to $7.85, and above the $7.92 analysts were looking for. Free cash flow guidance went up to $9.1 billion to $9.4 billion.

Grant Calloway

Now, here's the wrinkle, and I like a wrinkle because it tells you the company isn't reading its own press release. Shares were down about 1.6% in early trading. Management, including CFO Rahul Ghai, warned that jet fuel costs sustained above $100, tied to the conflict in the Middle East, could eventually push airlines to trim schedules and capacity. Fewer flights means fewer engine shop visits down the road. So the quarter was terrific, and the company is telling you what could dent it. I respect that. RTX and Northrop Grumman also lifted their 2026 forecasts on record backlogs, and General Motors posted results after its 6:30 Eastern release.

Grant Calloway

On the tape, it's a tale of two moods. S&P futures leaned higher early on a strong factory report. September industrial production rose 0.7%, and manufacturing capacity utilization hit 75.9%, the firmest since early 2024. But by the open, the tape softened on renewed weakness in AI related tech and pricey crude. The Dow slipped 6.8 points to 51,959. The S&P 500 fell 11.7 points, or 0.15%, to 7,679. The Nasdaq Composite dropped 98 points, or 0.37%, to 26,333. Not a rout. More like a shrug with a frown.

Grant Calloway

Overseas, UK wage growth ticked up to 3.7% in the three months to August, per the ONS, which reinforces bets on a Bank of England hike in November. Europe is also carrying the French bond mess, with French ten year yields lingering near 24 year highs as new protests loom.

Grant Calloway

Across assets, the U.S. ten year yield is hovering around 5.06 to 5.07%, consolidating after pulling back roughly 25 basis points from that multidecade spike above 5.19% on October 7th. Oil is the loud one. Brent is near $108, WTI above $101, with Hormuz tensions keeping fuel tight. Gold is easing a bit, because oil driven inflation worries keep real yields high. Bitcoin is holding above $82,000.

Grant Calloway

Movers, quick. Braze is up more than 50% after Salesforce agreed to buy it for $5.66 billion in cash, $47.50 a share, a 58.1% premium. Salesforce shares are trading lower on the cash outlay. Tradeweb is paying about $2.0 billion for Trumid Holdings, an electronic corporate bond platform, to link primary and secondary credit trading.

Grant Calloway

Over in financials, Ameriprise is down about 4% after Bank of America cut it to Neutral, citing advisor attrition and margin pressure. In utilities, NRG Energy is off about 4.2% as several brokers trimmed price targets, even with a fresh quarterly dividend declared. Western Digital is up about 6% on a relief bid in memory hardware and easier yields. Datadog is up about 5.4% on a Bernstein upgrade tied to AI token consumption, while Cerebras is down about 5% after objecting to unauthorized tokenized versions of its stock. And Amazon announced it will hire more than 300,000 holiday workers, its first seasonal hiring increase in three years.

Grant Calloway

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Grant Calloway

Now the Bull versus Bear. The question: can old economy cash generators power through 5% yields, or is $100 oil setting up a margin squeeze ahead of a December Fed hike?

Grant Calloway

The bull goes first. Industrial America has contracted demand and real pricing power. GE's orders surged 49%, earnings jumped 36%, and factories are running at their busiest in over two years. And per a fresh Reuters poll, 94 of 100 economists expect the Fed to hold at its October 27th and 28th meeting, in a range of 3.75 to 4.00%. That's breathing room for balance sheets.

Grant Calloway

The bear says that's an optical illusion. Same poll, all 100 economists expect a hike in December. Mizuho's Alex Pelle said the risk is greater the Fed ends up going 50 than not going at all, and Morgan Stanley's Michael Gapen said the risks tilt toward more hikes. Inflation has been above target for nearly six years, and Brent is above $100. And GE itself just told you prolonged fuel costs could ground flights and thin out shop visits.

Grant Calloway

Where do I land? I've traded through two crashes, and I trust cash over adjectives. The bull's evidence is already in the bank. Orders are booked, and the backlog is contracted. The bear's evidence is a forecast, but it's a forecast with a poll behind it and oil underneath it. So the numbers are strong today, and the question is how long they stay strong at these yields. I'd call that unresolved, and the tape agrees, because it's barely moving.

Grant Calloway

On deck. At 8:30 Eastern, September housing starts and building permits, with consensus at 1.31 million starts and 1.40 million permits. Reuters is reporting single family starts and permits tumbled in September, so watch homebuilders and materials names. Pending home sales are expected to dip 0.5% on the month and rise 1.0% from a year ago. This afternoon, the Atlanta Fed's GDPNow update, with third quarter tracking near 3.2%.

Grant Calloway

Earnings this morning: GE, GM, RTX, Northrop Grumman, 3M and Halliburton. After the bell, Netflix reports subscriber and revenue metrics, and United Airlines gives us a direct read on fuel costs, which is exactly the question we just argued about. Tesla and Meta report tomorrow.

Grant Calloway

What matters most today is United's fuel commentary tonight. It's the cleanest test of whether the oil squeeze is real. Back here tomorrow morning. And a wry thought to leave you with: on Wall Street, the best earnings call is the one where the company tells you what could go wrong. This podcast is for educational purposes only and is not investment advice.