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Weekly Newsletter
🏗️ Data Centers Are Offsetting A Stalled Housing Market
📊 Key Takeaways From This Week’s Earnings
📈 Q3 Earnings Season Kickoff Preview
🏠 Mortgage Rates Highest Since 2023
📡 Impact Analysis - SpaceX Enters US Wireless
🏦 Key Points From The FOMC Minutes
QUOTE OF THE WEEK:
“I think when it comes to capital investment, the economy is more rate-insensitive than it has been historically. So when we're looking at overtime, which I think is a tremendously good signal of manufacturing, it's coming upstream from the traditional factors of production. Upstream meaning transportation equipment, industrial chemicals, technology hardware. We're seeing increased activity in these areas, and it suggests an economy ready for an investment boom despite higher interest rates.” - Nela Richardson, ADP chief economist and ESG officer
KEY US ECONOMIC EVENTS NEXT WEEK:
MARKET CLOSE:
WEEKLY MARKET WRAP:
Good Afternoon. Equities closed the week higher after a mid-week scare. Hawkish September FOMC minutes landed Wednesday, and 10-year yields spiked to a fresh intraday year-high of 5.36%, while the 30-year sits at 5.60%. Thursday brought the real test: Oracle fell 5.5% on a data-center delay report (which the company denied), Broadcom slid 4.3% on margin-mix concerns, and Nvidia dropped 2.9%, dragging the Nasdaq to its worst session of the week. Friday retraced most of it as dip-buyers returned. Prediction markets now price roughly 84% hold / 16% hike for the Oct 28 FOMC.
In short: hawkish Fed minutes and a 5.36% 10Y did not break the tape, and the AI trade is getting more selective at the edges — specific names, not the whole sector. Big-bank earnings next week are the first real fundamentals check since the September hike.
For the week:
CNN's Fear & Greed Index now stands at 45 (Neutral) out of 100, up 14 points from last week. Details here
The top five trending stocks on Reddit are AST SpaceMobile, Micron, SPY, DTE Energy, and VOO. Read More
Liquidity:
Banking Reserves + ON RRP: Banking reserves remain at approximately $3.02 trillion. ON RRP balance remains immaterial.
Standing Repo Operations: The New York Fed’s standing repo operation (primarily reflecting SRF take-up) balance is $0.
Here is a summary of this week’s key economic releases:
Target Rate Probabilities for October 28th FOMC Meeting:
CURATED INSIGHTS & ANALYSIS:
SpaceX Moves Into US Wireless, but the Real Impact Is Years Away:
SpaceX agreed on 8 October to buy Grain Management’s nationwide 800 MHz spectrum for about $8 billion. This spectrum passes through walls, which helps fix the main weakness of satellite-to-phone service. US carriers lost about $58 billion of market value the next day, after a similar $44 billion drop in late June. Both selloffs exceed everything SpaceX has spent on US spectrum, about $25 billion. Tower owners rose on the same news, which suggests investors expect SpaceX to need ground infrastructure. The threat looks real, but the timing appears mispriced. SpaceX’s current satellite service carries texts and a few apps, and it handled 0.0003% of T-Mobile’s traffic this summer. Its upgraded service starts in rural areas at the end of 2027. City customers would need a ground network SpaceX does not have, so subscriber losses are unlikely before 2028.
The nearer risk is cost, not customers. SpaceX can bid in the 2027 upper C-band spectrum auction with equity at a valuation of about $2.1 trillion. That may push spectrum prices higher for every carrier. Exposure is scored on four factors: a satellite partner turning rival, momentum before the selloff, cash room for auction costs, and reliance on coverage as a pricing edge. T-Mobile and Verizon score highest, but for different reasons. T-Mobile’s risk is contractual and comes first, because Starlink is its only satellite partner and that exclusivity ends in 2027. Verizon’s risk depends on SpaceX bidding in the auction, and its roughly 6% dividend yield leaves the least cash room. AT&T scores lowest, cushioned by fiber bundles and 0.86% churn. In short, the market has priced a subscriber war that is likely years away, and the selloff looks most overdone in AT&T.
Q3-Earnings Season Kick-Off:
Analysts keep raising the bar — and still expect to be beaten
The S&P 500 enters Q3 reporting with expected year-over-year earnings growth of 29.6%, per FactSet’s Earnings Insight. We have reported each of these quarters as it arrived; placed side by side, they show something no single issue made obvious.
Season-start estimates have run 8.3%, 13.2%, 23.3%, and now 29.6% over the last four quarters—more than tripling in twelve months. Analysts have also revised estimates upward by 0.5%, 0.4%, and 3.4% each quarter, against a ten-year pattern in which expectations fall 2.7% as the quarter progresses. Three consecutive quarters of upward revisions are not the norm.
And 29.6% is still likely a floor. When a company beats, its higher actual EPS replaces the lower estimate in the index calculation, lifting the aggregate. FactSet notes that actual growth has exceeded the end-of-quarter estimate in 37 of the past 40 quarters—except Q1 2020 and the back half of 2022. Applying the five-year average beat lift of 6.4 points to the 29.2% quarter-end estimate implies 35.6%; the ten-year average implies 36.1%. The last four quarters, where beats averaged 13.8% above estimates and 82% of companies cleared the bar, imply 43.3%.
Early returns fit the pattern: of the 19 companies reporting through 9 October, 84% beat, with earnings 4.9% above estimates.
The caution is that an estimate that has tripled in a year leaves less room for upside surprise than one that has drifted lower, and one-time gains at a handful of mega-caps have flattered the four-quarter beat average. Longer averages make for a better base case.
Key takeaways from this week’s earnings:
A second wave of cost inflation is reaching profits
PepsiCo cut its earnings outlook as input costs rise and its hedges roll off, calling it “a new wave of inflation” from energy and farm prices. RPM’s raw material costs rose faster than its prices, cutting gross margin by 1 point. Delta absorbed $1.6 billion of higher fuel costs in the quarter and expects fuel prices to double from last year in the fourth. Hedges delayed the cost increase; they did not stop it.
Shoppers are too stretched for big price increases
PepsiCo said it does not expect the consumer to improve over the next 12–18 months and is leaning on smaller, cheaper packs. Constellation is keeping beer price increases at the low end of its 1–2% range and said high fuel prices are pushing shoppers to club stores. Companies facing higher costs are absorbing some of them rather than risk losing customers.
Wealthier travelers are paying higher fares to cover fuel
Delta grew revenue 16% on flat capacity and expects about 20% growth next quarter. It said the top 40% of U.S. households are nearly $40 trillion wealthier than a few years ago and are spending on experiences. The week after Labor Day was its biggest corporate sales week ever. At the top end of the market, buyers still accept higher prices.
Factories and data centers are offsetting a stalled housing market
RPM said housing turnover isn't improving and doesn't expect it to as interest rates rise. Its industrial coatings business grew on data-center construction and new U.S. factories. Construction spending is moving from homes to industry.
Key points from FOMC minutes:
All participants supported the 25 bps September hike to 3¾–4%.
Most participants expected another rate hike would likely be appropriate by year-end.
Disagreement centered on why rates needed to rise: many saw a higher rate path as insurance against persistent inflation, while others viewed higher rates as necessary under their base-case outlook.
Inflation remained elevated, with insufficient progress in recent months; risks were generally tilted to the upside.
Participants identified higher energy prices, tariffs, and strong AI-related investment as key inflation pressures, with concern that these could broaden into other prices.
Longer-term inflation expectations remained anchored near 2%, but several participants noted elevated short-term expectations.
Labor conditions strengthened modestly, with unemployment at 4.1% and employment gains slightly outpacing labor-force growth.
Participants generally viewed the labor market as near maximum employment, with risks now broadly balanced rather than tilted to the downside.
Underlying economic momentum remained strong: PDFP picked up notably in the first half and continued to grow faster than GDP.
AI investment continued to surprise to the upside, supporting growth but also creating near-term inflation pressure as demand may be rising faster than supply.
Financial conditions remained supportive despite higher Treasury yields, with strong equity markets, narrow credit spreads and broadly available credit.
Several participants viewed policy as either not restrictive or only mildly restrictive.
Bottom line: the minutes validate the Fed’s hawkish shift. September was not seen as a one-off hike—most participants were already leaning toward another increase before year-end.
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FRONT PAGES:
Paramount-Warner Bros Merger Closes to Form Skydance: Paramount Skydance completed its $111 billion acquisition of Warner Bros. Discovery on Monday, creating a Hollywood company with roughly $70 billion in combined revenue under CEO David Ellison. The combined entity holds Paramount+, HBO Max, DC Studios, and the Warner film library. Ellison has said the combined business will run on technology-first operating principles.
AMD-OpenAI Deal Grants Up to 10% Stake: AMD agreed to supply OpenAI with 6 gigawatts of AI chips, starting with a 1 GW deployment in 2026, and granted OpenAI warrants to purchase up to 160 million AMD shares at $0.01 each, roughly 10% of the chipmaker. The company also disclosed a separate AMD-Meta warrant for an additional 160 million shares. AMD stock hit a record high on the news.
Broadcom Weighs $50B OpenAI Chip Financing: Broadcom is in talks with lenders to raise more than $50 billion in debt to finance custom AI chips it is building for OpenAI. The package would rank among the largest corporate debt raises on record and reflects AI infrastructure capex moving onto chipmakers’ balance sheets. SpaceX and Oracle are reportedly pursuing similar-scale AI-chip financings in parallel.
Nvidia in Talks to Deepen Reflection AI Stake: Nvidia is in discussions to acquire open-model AI startup Reflection AI or substantially increase its existing stake, with the startup valued at roughly $25 billion. Reflection has emerged as one of the leading open-weight model developers positioning against proprietary labs. The move would extend Nvidia’s practice of taking equity positions in its largest customers and ecosystem partners.
Mortgage Rate Hits 7.40%, Highest Since 2023: The average 30-year fixed mortgage rate rose to 7.40% on Thursday, up from 7.28% the prior week and the highest reading since November 2023, per Freddie Mac. It was the seventh consecutive weekly increase. Pending home sales fell year-over-year in both August and September, home prices are down 1.4% year-over-year, and inventory is up 5.4% as the housing market cools further.
EARNINGS UPDATE:
PepsiCo. EPS $2.34 vs. $2.29; revenue $25.3B, a beat, with organic growth of 3.1%. It still cut its earnings outlook because input costs are rising as its hedges roll off. International now makes up 45% of profit. Shares rose about 4%. Sales are fine; margins are the problem.
Delta Air Lines. Adjusted EPS $1.72 versus $1.77, a slight miss; adjusted revenue $17.6B, up 16% and in line. Fuel costs were $1.6B higher than a year ago, yet pretax profit held flat. It expects fourth-quarter revenue to grow about 20%. Shares were flat. Higher fares are covering higher fuel.
Constellation Brands. EPS $3.74 versus $3.62; revenue $2.63B and a beat. It kept its full-year guidance and said it may reach the top of the range if September trends hold. It is keeping beer price increases at the low end of 1–2%. Shares rose about 2%, then another 4%.
RPM International. EPS $1.98 versus $1.95; revenue $2.22B, in line. Raw material costs rose faster than prices, cutting gross margin by 1 point. It trimmed its full-year outlook. Shares rose about 3%. Industrial demand held up; housing did not.
EARNINGS PREVIEW:
Date | Symbol | Name | Time |
13-Oct | JPM | JPMorgan Chase & Co | Before Open |
13-Oct | JNJ | Johnson & Johnson | Before Open |
13-Oct | UNH | UnitedHealth Group | Before Open |
13-Oct | GS | Goldman Sachs Group | Before Open |
13-Oct | WFC | Wells Fargo & Co | Before Open |
13-Oct | C | Citigroup Inc | Before Open |
14-Oct | ASML | ASML Holding NV | Before Open |
14-Oct | BAC | Bank of America Corp | Before Open |
14-Oct | MS | Morgan Stanley | Before Open |
14-Oct | BLK | BlackRock Inc | Before Open |
15-Oct | TSM | Taiwan Semiconductor | Before Open |
15-Oct | SCHW | Charles Schwab Corp | Before Open |
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