Tech's Cash Flow Divide, Hot Data, and Pre-Bell Rotation

Grant Calloway

Welcome to the Bull Sheet. Yesterday I left you with a question. The Fed was about to decide on rates with oil north of a hundred bucks, and I asked whether the market could handle both. Well, the Fed held rates at 3.75 to 4.00 percent, and two dissenters wanted a hike. This morning the economy answered back. It said, I'm fine, thanks, and prices are still climbing. And tech got a lesson in who actually has the cash.

Grant Calloway

Here's the headline. Two giants reported Wednesday night and got opposite verdicts. Alphabet is down about ten and a half percent in the pre-market. The reason isn't the cloud business. Google Cloud grew 103 percent. The trouble is Google Search growth slowed to 12 percent from 17 percent the quarter before. Then there's the cash. Alphabet spent $51.4 billion on property and equipment, and by its own measure free cash flow was negative $9.1 billion. That's the second quarter in a row below zero.

Grant Calloway

Now Microsoft. Up roughly two and a half to nearly three percent before the open. Azure grew 48 percent, and by StockTitan's math, Microsoft's $58 billion of operating cash flow covered $39.4 billion of spending with $18.6 billion to spare. Same game, same AI arms race, completely different balance sheet. I spent a career watching specialists who couldn't pay their positions. Revenue growth makes a nice story. Cash pays the bills. Today the market is checking who can pay them.

Grant Calloway

The tape. Nasdaq 100 futures were down about one percent early, and the Nasdaq opened off somewhere between 1.4 and 1.6 percent. The S&P 500 is down about half a percent. The Dow was pointing up earlier, then slipped to a loss of about 0.3 to 0.4 percent at the open. Not exactly a stampede. More like a crowd shuffling toward a different door.

Grant Calloway

Overseas, South Korea's Kospi fell 1.24 percent on chip and AI jitters. In Europe, Christine Lagarde said she'll leave the European Central Bank on February 7, 2027, months ahead of schedule. That's a delicate moment, with stubborn inflation, rising bond yields, and French budget turmoil. Oil cooled a bit on signs of fresh diplomacy over Iran. West Texas Intermediate slid toward $102 a barrel, and Brent closed near $115 in the prior session. Cooler, but nobody's calling that cheap.

Grant Calloway

The data landed at 8:30 Eastern, and it was loud. Third quarter GDP came in at 3.4 percent annualized, ahead of the roughly 3.2 percent expected, and up from 2.2 percent in the second quarter. Initial jobless claims were 194,000, better than the 199,000 expected, and insured unemployment fell 21,000 to 1.701 million, per the Labor Department. Strong economy. Now the other half. September PCE inflation ran 3.6 percent year over year, up from 3.4. Core was 3.1 percent, up from 3.0, with core up 0.3 percent on the month. Strong growth plus warm inflation. That's the mix a hawk likes.

Grant Calloway

Movers, and let's leave the Nasdaq out of it for a minute. Fortinet is down about 26 percent after cutting its service revenue forecast. Sprouts Farmers Market is off about 24 percent after comparable sales slipped and it guided to a fourth quarter decline of 2 to 4 percent. Marvell is down about 11 percent on reports it's in advanced talks to buy Lumentum, and Lumentum is up about five percent. Per Bloomberg, a deal could come as soon as next week. Neither company has confirmed it.

Grant Calloway

On the upside, DoorDash is up more than five percent after agreeing to buy Instacart for $17 billion, $65 a share, a 26 percent premium to the October 22 close. Eli Lilly is up about four percent on strong GLP 1 results. Carvana is up nearly eight percent on record third quarter sales of 217,385 cars, up 39 percent. Shell is up about four percent on a $5 billion buyback. Iovance is up almost ten percent ahead of a webcast on lung cancer trial data. Pharma, autos, oil, groceries, a cybersecurity wreck. Wide tape, wide stories.

Grant Calloway

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Grant Calloway

Bull versus bear. I'll argue both, and I'll tell you where I land. The bull goes first.

Grant Calloway

The bull says look at the economy. GDP at 3.4 percent. Claims under 200,000. Companies that actually monetize are posting records: Microsoft with that cash cushion, Carvana, Eli Lilly. The tech pullback is a clearing of stretched multiples, not a breakdown. The Dow is nearly flat and the money is moving, not leaving. That's a healthy market sorting winners from spenders.

Grant Calloway

The bear says hold on. Core PCE is 3.1 percent and the Fed just paused with two votes for a hike. In a CNBC interview, former Fed Vice Chair Roger Ferguson said the Fed risks losing credibility if it doesn't raise rates in December. And a hot economy means hot inflation, which means no relief for rates. Meanwhile one of the biggest companies on earth burned cash in back to back quarters while its core engine slowed. If that's the leader, what are valuations leaning on? The bear says strong data is the problem, not the cure.

Grant Calloway

Where do I land? Mostly with the bull's facts and the bear's caution. Nothing here says systemic collapse. The economy is solid and the selling is picky. But I don't dismiss the bear on inflation. A Fed with two hawkish dissenters and a 3.1 percent core print has little room for error, and that's why cash flow suddenly matters more than a growth story. This isn't a verdict. It's a stress test, and the market is grading on a curve that just got steeper.

Grant Calloway

On deck. Mastercard reports this morning with a call at 9 Eastern, and Eli Lilly follows with a call at 10. After the close, Amazon reports with a call at 5, Intel reports just after the close, and Sandisk has a call at 4:30. Amazon is the next test of that spending question. Also watch whether Marvell or Lumentum confirms those reported talks. Other earnings on the calendar include Caterpillar, Merck, Starbucks, Shell, and Coinbase.

Grant Calloway

One more thing. Today is October 29th, the anniversary of Black Tuesday in 1929. I won't pretend this tape rhymes with that one. A 10 percent drop in one stock isn't a crash. But the lesson of that day was never about one date. It was about leverage, liquidity, and who had real cash when the music stopped. Today, keep an eye on exactly that.

Grant Calloway

What matters most today: Amazon after the bell, and whether the rotation holds. Join me tomorrow morning for the next Bull Sheet. This podcast is for educational purposes only and is not investment advice. Good trading.