Inflation Cools, Fed Bets Fade, and AI Valuations Explode

Grant Calloway

Seventy percent. That's where the odds of an October rate hike sat yesterday, when I told you to keep your powder dry. Well, this morning at eight thirty, Yahoo Finance reports the Fed's preferred inflation gauge rose 3.4% in August, less than expectations for 3.7%. And the core number, the one without food and energy, cooled to three percent against three point three expected. That's a, a, a real gap.

Grant Calloway

So what happened to the hike bets? They fell off a table. Traders went from over seventy percent to roughly a coin flip, and by the open the CME FedWatch tool had it near thirty five percent. Dow futures added a hundred eleven points, up to 51,813. S&P contracts up three tenths, Nasdaq one hundred up four tenths. Tighter than a drum yesterday, and this morning somebody let a little air out.

Grant Calloway

Now, why does a number like that move the whole board? Think of the Fed like a thermostat. Everybody's been sweating, waiting to see if it clicks up again. Then, um, New York Fed President John Williams says there's, quote, no need for urgency to raise rates in October. Two words, no urgency, and the panic premium comes right out of the short end of the curve. That's the whole trick.

Grant Calloway

Skeptic in me says, hold on, is this a real thaw or just a good morning? Because the rest of the tape didn't get the memo. Crude is parked in the mid nineties a barrel, the Iran war is in its seventh month, and the thirty year Treasury hit 5.62% on Tuesday. That's the highest since 2002. I was on the floor for a couple of crashes, and I can tell you, a yield like that doesn't care about your feelings.

Grant Calloway

And the data is, um, arguing with itself. ADP says private employers added ninety thousand jobs in September, beating the seventy five thousand Bloomberg's survey expected, and August got revised to thirty six thousand. That's strong hiring. But yesterday's job openings came in at 7.097 million, under forecast. So, hiring's up, openings are down. Both true. Friday's jobs report gets to referee.

Grant Calloway

Then there's the dollar. It's up nearly two and a half percent on the euro this month, the biggest monthly jump in fourteen months, with the euro sitting around a dollar thirteen thirty nine. Reuters quoted one FX strategist saying the US economy is running hot. Hot economy, cooling inflation. That's the, the, the dream, right? Except, hmm, mortgage rates were 7.58% on Tuesday, the highest since November 2023. So when the index bounces a hundred points and everybody high fives, ask the fella trying to buy a house how he feels.

Grant Calloway

Alright, quick reset while the tape catches its breath. Mornings like this throw a dozen releases at you: inflation, central bank chatter, premarket order books. That's a lot of screens. A friend put me onto Jellypod, that's jellypod.com, which turns all that noise into one personalized audio brief. Fewer browser tabs, more coffee. Saves your eyes before the greatest four hundred milliseconds in capitalism, the opening bell.

Grant Calloway

So, the question I left hanging: if the Fed is off the ledge, where is the real balance sheet stress hiding? I'd say start with the biggest number of the week. Reuters saw a leaked Anthropic IPO prospectus, not an official filing yet, and it targets a valuation as high as two trillion dollars. Two trillion. Now here's the, the, the fine print. Reported operating loss in 2025, over eight billion. Net loss, forty two billion. And plans to spend five hundred eighteen billion on infrastructure obligations in coming years.

Grant Calloway

And the risk section, it's something. Per the report, the company itself warns of, quote, catastrophic or existential risks to humanity, models that might try to resist shutdown, or behavior resembling blackmail. I've read a lot of risk factors in my day. Never one that read like a movie trailer. One columnist at Yahoo joked the only real risk listed is not investing. I'll say, that's funny, and also, uh, a little bit right about the marketing.

Grant Calloway

Compare that paper to actual cash. AMD agreed to pay eight point two billion dollars for World Labs, the shop run by Fei Fei Li, the so called Godmother of AI. Real money, real closing date, end of 2026. Meanwhile, Apple's new CEO, John Ternus, is reportedly planning layoffs because memory chip costs are rising. So, the AI build is not free. It's starting to eat margins at the very companies buying the chips. That's the, the mirage part.

Grant Calloway

Now, the single stocks. Boeing is up nearly two percent, leading the Dow early, per one market note. Conagra reports before the bell, so we get a peek at grocery volumes. And Nike. Nike reports Thursday, and short interest just hit an all time high, eighty seven million shares, up from fifty five million a year ago, over seven percent of the float. Everybody hates it. Which, in my old trade, is exactly when you start looking for the wreckage with something worth salvaging.

Grant Calloway

So, bull versus bear, before the bell. Bull says Jensen Huang, standing at the White House, claims the data center build could create about a million jobs, blue collar, re-industrializing, his words. Bear says, uh, consumer confidence fell to 81.9 in September, the lowest since 2014, and households expect business conditions to weaken. Both can't be right by Friday. Well, they can, for a while. Markets are patient like that.

Grant Calloway

Two things to watch today. The Chicago PMI, expected at fifty one point two, up from forty seven point one. And Micron after the close, our next litmus test for the AI trade. I'll be watching both with my powder dry, one more day. And that's educational commentary, not investment advice. Do your own homework.