Fed Decision Looms as AI Optimism Clashes with Energy Squeeze

Grant Calloway

Welcome to Markets Daily, the Bull Sheet for Wednesday, October 28th. I'm Grant Calloway. We've spent a good few mornings tracking rate hike anxiety, and the question we kept leaving open was whether the pause would hold. Well, today is the day we find out. The Fed decides at two this afternoon Eastern, and tonight two of the biggest names in tech report after the close. This tape's tighter than a drum, so let's get to it.

Grant Calloway

The headline is the Federal Reserve. The FOMC wraps its two day meeting with a rate decision and statement at 2:00 PM Eastern, and Chair Kevin Warsh holds his press conference at 2:30. Market pricing puts the odds of a hold around 95 percent, which would keep the benchmark range at 3.75 to 4.00 percent after September's quarter point hike. Call it a hawkish pause. They stop, but they don't look happy about it.

Grant Calloway

So the decision itself isn't the story. The story is the fine print. Analysts at JPMorgan and Mizuho are looking for as many as two hawkish dissents, meaning officials who'd rather tighten right now than wait. And you can see why they'd want to. September CPI ran at 3.7 percent. Core PCE comes out tomorrow, and the expectation is 3.1 percent year over year. Then there's energy. Brent crude is sitting around 115 dollars a barrel. Markets are already pricing high odds of another hike in December, so a pause today with no hint of what's next could be read as soft. A pause with two dissents reads like a warning shot.

Grant Calloway

Now, the tape. It's a split screen this morning. Nasdaq 100 futures are up roughly a half a percent, S&P 500 futures are up about a fifth of a percent at best, and Dow futures are lagging, down around two tenths. That's AI and chip optimism pulling the growth side up, while the old line industrial names sit on their hands.

Grant Calloway

The chip optimism came from Asia. South Korea's Kospi surged about 6 percent, and Japan's Nikkei 225 jumped 1.08 percent to 63,954, both riding blowout earnings from memory chip giant SK Hynix. Hong Kong's Hang Seng went the other way, down 0.73 percent. Europe is mixed to a little softer. The Stoxx 600 is off about a quarter of a percent, the CAC down 0.12, the DAX flat. Adyen is sliding something like 11 to 13 percent, which is dragging fintech with it.

Grant Calloway

Cross asset, oil is the one that matters. An attack on a Saudi Arabian refinery has reignited supply worries. Brent is up 1.1 percent to about 115 dollars, and WTI is up 2 percent to roughly 102. The dollar index is holding near two week highs around 102.50. Gold slipped 0.44 percent to about 4,046 an ounce. And the 30 year mortgage rate, per the MBA, came in at 7.37 percent, down a hair from 7.41.

Grant Calloway

On to the movers, and notice we're nowhere near a pure tech story this morning. First, Vertiv, up somewhere between 14 and 15 percent premarket. Third quarter net sales jumped 61 percent, organic orders more than doubled, and management raised full year guidance across the board. Data center power and cooling, in other words, is still a very busy trade.

Grant Calloway

GE Vernova is up a touch, under 2 percent. Adjusted earnings of 4.81 a share crushed the 4.00 consensus on 12.64 billion in revenue, up 18 percent. They raised guidance, announced the acquisition of high voltage specialist Trench Group, and doubled the share buyback to 20 billion dollars.

Grant Calloway

Healthcare is the wreckage this morning. Boston Scientific is down about 8.6 percent. Adjusted earnings of 73 cents missed by two cents, the company is still dealing with disruption from an August cybersecurity incident, and fourth quarter net sales guidance calls for a decline of 1 to 3 percent.

Grant Calloway

Financials split. Deutsche Bank is up about 3.5 percent after a record third quarter post tax profit of 1.9 billion euros. Banco Santander's ADR is down about 4 percent, even with nine month underlying profit up 16 percent, because loan loss provisions rose 13 percent, led by Argentina, and integration costs from TSB and Webster are weighing on sentiment.

Grant Calloway

Robinhood is down 7 to 8 percent after an earnings miss and a new 10-Q risk disclosure about legal and regulatory exposure if customer AI trading agents execute unauthorized transactions. And in consumer, Wendy's is jumping about 15 percent on reports that Nelson Peltz's Trian Partners proposed a 1.4 billion dollar buyout. That one is reported, not confirmed, so treat it accordingly.

Grant Calloway

A quick word from our sponsor. Jellypod is the platform that helps turn ideas into podcasts like this one, and if you've been thinking about making your own show, head to jellypod.com. Now, back to the floor.

Grant Calloway

Time for Bull versus Bear, and today's debate is the AI buildout against the rate and energy squeeze. I'll argue both sides, then tell you where I land.

Grant Calloway

The bull first. Look at the orders, not the adjectives. Vertiv's orders more than doubled. SK Hynix posted a profit spike of 632 percent. Broadcom's 63 billion dollar AI compute financing tells you the money is still being lined up. The bull says this spending is contracted, planned, and insulated from the macro noise. A Fed pause, even a grumpy one, doesn't cancel a data center that's already half built.

Grant Calloway

Now the bear. Oil at 115 doesn't stay in the energy section of the paper. It leaks into everything. Yields near multi decade highs, a Fed that pauses reluctantly with a December hike priced in, a mortgage rate at 7.37 percent. The bear says debt financed hyperscaler budgets and consumer discretionary spending eventually choke on that. Every one of those big orders was written in a cheaper world. And the bear asks the pointed question: what happens when capex guidance meets a 4 percent funding cost that isn't coming down?

Grant Calloway

Here's where I land. The bull is right about now, and the bear is right about later. The orders are real, and Vertiv and GE Vernova just showed it. But a market that's already priced for a flawless AI story has the least room for a hawkish surprise. And look at the evidence from this very morning. Boston Scientific and Robinhood show what happens when anyone stumbles, and the steel and power names show the money is spreading beyond chips. If I'm hunting for opportunity in the wreckage, I'm watching the second tier, not the crowded first row. Tonight's Microsoft and Alphabet capex commentary will tell us which of these two stories wins the quarter.

Grant Calloway

On Deck. The 7:00 AM mortgage applications and 8:30 AM trade data are already out. Mortgage applications rose 3.4 percent. The September goods trade deficit widened to 134.9 billion against 130.5 expected, and wholesale inventories rose 0.6 percent against 0.4 expected. Still ahead, the Bank of Canada decides at 9:45 Eastern, with a quarter point hike to 2.50 percent expected. At 10:30 the EIA petroleum report lands, with crude stocks expected flat after the API showed a draw of about 2 million barrels overnight. Then the main event, the FOMC at 2:00 and Warsh at 2:30.

Grant Calloway

Earnings before the open include GE Vernova, Vertiv, Boston Scientific, Deutsche Bank, Santander, Equinor, ADP, Amphenol, TE Connectivity, and Old Dominion. After the close, the headliners are Alphabet and Microsoft, plus ServiceNow, T-Mobile, KLA, Chipotle, Ford, and eBay.

Grant Calloway

One piece of history to chew on. On this date in 1929, the Dow fell nearly 13 percent in a single session, Black Monday, just weeks after the Fed lifted its New York discount rate to 6 percent. The lesson the Fed later drew was not to overreact to markets, and to keep the banks open when panic hits. Different era, different animal, but a good reminder that central banks and stock markets have always had a complicated relationship.

Grant Calloway

What matters most today: the Fed's tone, not its move, and the dissent count. Tune in tomorrow, when core PCE lands and we'll see how the market digests all of this. As always, this podcast is for educational purposes only and is not investment advice. I'm Grant Calloway. Good luck out there.