U.S. Market Trends (Oct. 29): Fed Holds Rates Steady, Google Misses Expectations

Written by: Tidal Research

The Fed held rates unchanged, with two voting members favoring a hike, while Warsh did not clarify the December policy direction. U.S. stocks edged higher on Wednesday, with memory and cloud computing stocks continuing to rebound. After hours, Microsoft and Google earnings triggered mixed reactions: Microsoft Azure revenue grew 48%, and its shares rose as much as 6%; Google's revenue and EPS missed expectations, and its shares fell as much as 10% after hours. Tonight's GDP and PCE data will provide new evidence for assessing economic and inflation trends.

Major Indexes Post Three Straight Gains; Memory Stocks Continue to Strengthen

On Wednesday, the S&P 500 rose 0.28% to close at 7743.98 points; the Nasdaq rose 0.27% to close at 26549.85 points; the Dow rose 0.19% to close at 52475.10 points. The three major indexes extended their gains for a third straight trading day, while the VIX fell 3.48% to 16.91.

Among the S&P 11 sector ETFs, Information Technology, Financials, Energy, Industrials, Health Care and Materials rose, while Consumer Discretionary, Consumer Staples, Communication Services, Real Estate and Utilities fell. Information Technology gained 0.80%, while Utilities declined 0.84%.

In regular trading, Alphabet A rose 1.34% and Amazon rose 0.59% among the Magnificent Seven; Microsoft fell 0.06%, Tesla fell 0.80%, Apple fell 0.94%, Nvidia fell 1.17% and Meta fell 1.24%.

The Philadelphia Semiconductor Index rose 1.75% to close at 11684.00 points. Micron rose 5.86%, Arm rose 4.10%, Marvell rose 3.32%, AMD rose 3.24% and Broadcom rose 2.77%.

Memory stocks stood out, with SK Hynix U.S.-listed shares up 13.30%, SanDisk up 7.66%, Silicon Motion up 7.56% and Seagate up 4.51%. Optical communications company Lumentum rose 5.52%, and Corning rose 3.88%.

Oracle rose more than 10% after publishing new cash flow guidance, CoreWeave rose 7.32%, and Nebius rose 6.96%. Oracle expects free cash flow to turn positive in the second half of fiscal 2028 and to reach at least $30 billion in fiscal 2029, easing investor concerns about its expansion spending.

The Nasdaq Golden Dragon China Index fell 1.83% to close at 5400.39 points. Baidu rose 1.57% and Alibaba rose 0.72%; Trip.com fell 2.58%, NetEase fell 1.44% and PDD fell 1.19%.

At the close of New York bond trading, the 10-year Treasury yield was about 5.02%, and the 2-year was about 4.70%. Spot gold was around $4,067 per ounce. As of this morning's fact-check, Bitcoin was around $81,000 and Ethereum around $2,353.

Fed Holds Rates Steady, Two Votes Favor Rate Hikes

The Fed kept the federal funds rate target range at 3.75% to 4.00% by a 10-2 vote. Governor Cook and Cleveland Fed President Hammack dissented, favoring a 25 basis-point hike.

The statement upgraded its assessment of economic activity from solid expansion to strong expansion, while emphasizing that inflation remains elevated and that more information is needed to determine the appropriate policy stance. Warsh declined to preview the December decision at the press conference and did not rule out further rate hikes.

The meeting schedule will also be adjusted. The FOMC will still hold eight meetings each year, but in 2027 one meeting will be dedicated to monetary policy strategy with no rate vote; in 2028 such strategy meetings will increase to two, and rate-decision meetings will accordingly decrease to six.

Microsoft Azure Grows 48%; Cash Spending Below Expectations

After hours on Wednesday, Microsoft reported first-quarter fiscal 2027 results. Revenue was $92.279 billion, up 19% year over year; operating profit was $45.915 billion, up 21% year over year. Excluding the impact of its OpenAI investment, EPS was $4.89, up 18% year over year.

Azure revenue grew 48% year over year, faster than 43% in the prior quarter; Microsoft Cloud revenue reached $63.9 billion, up 30% year over year.

Cash capital expenditures for the quarter were $39.367 billion, although doubling year over year but below market expectations. Operating cash flow reached $58 billion; after deducting cash capital expenditures, free cash flow was $18.633 billion, down about 27% year over year.

The company said on its earnings call that it expects Azure revenue to grow 49% to 50% next fiscal quarter on a constant-currency basis. Faster cloud growth and lower-than-expected cash capital expenditures this quarter helped shares rise more than 6% at one point in after-hours trading.

Google Cloud revenue doubles, while advertising and cash flow miss expectations.

Alphabet's third-quarter revenue was $127.577 billion, up 25% year over year; earnings per share were $2.12, both below market expectations. The company's shares fell more than 10% at one point in after-hours trading.

Google Cloud was the main highlight, with revenue rising 103% year over year to about $30.7 billion, helped by TPU system sales. However, search and related business revenue grew 12%, and YouTube advertising revenue grew about 9%, both missing analyst expectations.

Investment losses also weighed on earnings. Alphabet's net loss on equity investments this quarter was about $8.7 billion, reducing earnings per share by about $0.55 and explaining part of the earnings miss.

Cash flow pressure increased further. Operating cash flow this quarter was $42.290 billion, capital expenditures were $51.355 billion, and free cash flow was negative $9.065 billion, marking the second consecutive quarter of negative free cash flow.

Oil prices rebound as U.S. crude returns above $102.

On Wednesday, WTI crude December futures rose 2.88% to close at $102.78 per barrel; Brent crude December futures rose 1.26% to close at $115.32 per barrel.

Houthi attacks on Saudi refining facilities heightened supply concerns. The U.S. and Iran are still attempting to resume contacts, but no new ceasefire arrangement has emerged, ending oil's two-day decline.

Today's Focus

All times below are Beijing Time.

20:30: U.S. third-quarter GDP advance estimate, September personal income and spending report.The latter includes the PCE price index. Watch consumer spending and business investment performance, and whether core inflation is cooling.

After the U.S. equity market close in the early hours of October 30: Amazon and Intel report earnings.For Amazon, focus on AWS growth, capital expenditures, and free cash flow; for Intel, watch the data center business, margins, and forward guidance.

Source: TechFlow