Alibaba Says AI Spending Paying Off

Good Afternoon. Positive week for the markets, with some noise on tariff-related geopolitical news. As expected, the earnings season kicked off with strong earnings from most banks.

Below are the key things to note this week:

Strong Earnings: Banks kicked off earnings season with strong earnings as expected. Some regional banks reported fraud exposure, which led to the sell-off in regional bank stocks on Thursday, but this seems an overreaction to a couple of isolated banks reporting issues with specific clients and not overall credit deterioration.

AI Payoff: In an extremly positive news, Alibaba claimed that it’s already seen payoff in AI investement. This shows that all the massive CapEx spending in AI is not totally over the top, and tangible benefits in efficiency improvement are real.

Tight Funding Conditions: Banks accessed the Fed’s Standing Repo Facility on Wednesday with total borrows of $6.5 billion. This is the most extensive borrowing since the COVID pandemic and shows some funding stress. With reserves near $3 trillion and an RRP balance near zero, and now banks using SRF, it seems the Fed may soon end its balance sheet reduction program, not to cause further tightening. On Tuesday, Fed Chair Jerome Powell signalled that the Fed’s balance-sheet reduction may be nearing its end — suggesting the Fed could pause further runoff to avoid further liquidity drain.
 

For the week:

• The S&P 500 is up 1.7%, the Nasdaq is up 2.14%, and the Dow 30 is up 1.56%.

  

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CNN's Fear & Greed Index now stands at 27 (Fear) out of 100, down 2 points from last week. Details here

The top five trending stocks on Reddit are SPY, GLD, Beyond Meat, Nvidia, and Tesla. Read More

Here is a summary of this week’s key economic releases:

Target Rate Probabilities for October 29th FOMC Meeting:

CME FedWatch

AI Payoff: Alibaba is already reaping returns from its AI investments in e-commerce, Vice President Kaifu Zhang said Thursday. Despite market skepticism over costly AI bets, the company plans to boost spending on AI and cloud infrastructure, reaffirming its 380 billion yuan ($53 billion) commitment over three years. Read

Fed Balance Sheet Management: Jerome Powell signaled the Fed is nearing the end of its balance sheet reduction and hinted at further rate cuts. Speaking at the NABE conference, he noted that while no end date is set, the Fed appears close to reaching its target level of “ample” bank reserves. Read

Budget Deficit Lowers: The U.S. budget deficit narrowed in 2025 as record tariff revenues partially offset soaring interest costs on the national debt. The Treasury reported a $1.78 trillion shortfall, down $41 billion (2.2%) from fiscal 2024. Read

Banks Tap SRF: U.S. banks tapped $6.5 billion from the Fed’s Standing Repo Facility on Wednesday—the largest daily use since the pandemic (excluding quarter-ends)—as repo rates climbed amid tight funding conditions ahead of a major Treasury settlement this week. Read

Blackrock Beat: Q3 adjusted EPS came in at $11.55, above the $11.33 consensus, down from $12.05 in Q2 but up from $11.46 a year earlier. Revenue rose to $6.51B, exceeding estimates of $6.28B and improving from $5.42B in Q2 and $5.20B last year, driven by market gains, 8% organic base fee growth, transaction-related fees from GIP and HPS, and higher technology and subscription revenue.

Citigroup Beat: Citigroup reported Q3 revenue of $22.1 billion, up 9% year-over-year, with gains across all five core businesses and Legacy Franchises, partly offset by lower Corporate/Other results. Excluding divestiture impacts, revenue rose 9%. Non-GAAP EPS was $2.24, beating estimates by $0.31.

Goldman Sachs Beat: Q3 GAAP EPS rose to $12.25, exceeding estimates of $11.09 and improving from $10.91 in Q2 and $8.40 a year earlier. Total revenue reached $15.2B, ahead of the $14.3B consensus, up from $14.6B in the prior quarter and $12.7B last year.

JNJ Beat: The healthcare giant posted adjusted EPS of $2.80 on $24.0B in revenue, topping estimates by $0.04 and $240M. Both Innovative Medicine and MedTech grew ~7% YoY, generating $15.6B and $8.43B, surpassing Street forecasts of $15.38B and $8.38B. Crohn’s therapy Stelara delivered $1.6B globally, beating the $1.49B estimate despite a ~41% YoY drop from generic competition.

JP Morgan Beat: Q3 EPS rose to $5.07, above the $4.87 consensus and up from $4.96 in Q2 2025 (ex-item) and $4.37 a year ago. Adjusted revenue increased to $47.1B, beating the $45.6B estimate and rising from $45.7B in Q2 and $43.3B last year. The bank raised 2025 NII guidance to ~$95.8B (market dependent) from ~$94.5B and expenses to ~$95.9B from ~$95.5B. Card net charge-off expectations improved to ~3.3% from ~3.6%.

Wells Fargo Beat: Q3 EPS rose to $1.66 from $1.60 in Q1 and $1.42 a year ago. Results included a $0.07 per-share severance charge; excluding it, adjusted EPS was $1.73, ahead of the $1.54 consensus. Revenue climbed to $21.4 B, exceeding the $21.2 B estimate and improving from $20.8 B last quarter and $20.4 B last year.

Abbott Labs Mixed: ASML reported Q3 GAAP EPS of €5.48, beating estimates by €0.06, on revenue of €7.52 billion, up 0.7% Y/Y but below expectations by €210 million. Net bookings totaled €5.4 billion, including €3.6 billion from EUV systems. The company guides Q4 2025 sales between €9.2 billion and €9.8 billion with a gross margin of 51–53%, and projects full-year 2025 sales growth of ~15% vs 2024, with margins around 52%.

ASML Mixed: ASML reported Q3 GAAP EPS of €5.48, beating estimates by €0.06, on revenue of €7.52 billion, up 0.7% Y/Y but below expectations by €210 million. Net bookings totaled €5.4 billion, including €3.6 billion from EUV systems. The company guides Q4 2025 sales between €9.2 billion and €9.8 billion with a gross margin of 51–53%, and projects full-year 2025 sales growth of ~15% vs 2024, with margins around 52%.

Bank of America Beat: Bank of America reported Q3 EPS of $1.06, above estimates of $0.95 and up from $0.89 in Q2 and $0.81 a year ago. Net interest income on an FTE basis rose to $15.4B, exceeding the $15.2B consensus and improving from $14.8B in Q2 and $14.1B last year. The bank now expects Q4 NII (FTE) of $15.6B–$15.7B, slightly raising the lower end from prior guidance of $15.5B–$15.7B.

Morgan Stanley Beat: Q3 GAAP EPS was $2.80, exceeding estimates by $0.69, on revenue of $18.22 B, up 18.5% year-over-year. The firm delivered a strong 23.5% ROTCE and maintained a 69% year-to-date expense efficiency ratio, reflecting solid operating leverage. The Standardized CET1 capital ratio stood at 15.2%.

Charles Schwab Beat: Q3 EPS rose to $1.31, exceeding estimates by $0.06, while revenue grew 26.6% to $6.14 billion. Total client assets reached a record $11.59 trillion, up 17% year-over-year. Core net new assets totaled $137.5 billion, bringing year-to-date inflows to $355.5 billion, a 41% increase. New brokerage account openings topped 1 million for the fourth straight quarter, lifting active accounts to 38 million and total client accounts to 45.7 million.

TSMC Beat: TSMC’s third-quarter profit surged 39.1% year-over-year to a new record, driven by sustained AI chip demand. Revenue rose 30.3% to NT$989.92 billion ($33.1 billion), exceeding estimates of NT$977.46 billion, while net income reached NT$452.3 billion versus NT$417.69 billion expected—up 13.7% from last quarter’s previous record.

American Express Beat: Q3 GAAP EPS rose to $4.14, above the $4.00 consensus and up from $4.08 last quarter and $3.49 a year earlier. Revenue reached $18.4B, exceeding the $18.1B consensus and increasing from $17.9B in Q2 and $16.6B a year ago.