Alphabet, Microsoft, Amazon Earnings Meet Fed Rate Decision

Alphabet (GOOG) and Microsoft (MSFT) report earnings on Wednesday, with Amazon (AMZN) following on Thursday, just hours before the Federal Reserve announces its interest rate decision at 2 p.m. This convergence of hyperscaler financial results and central bank policy comes after a sharp market pullback in which the S&P 500 fell nearly 2% on Thursday, driven by investor reassessment of ballooning artificial intelligence spending. The sell-off pushed the 10-year Treasury yield (^TNX) below the 5% mark, even as oil prices surged to levels not seen since May.

The recent volatility stems from the first week of Big Tech earnings, where SpaceX (SPCX), Meta (META), and Tesla (TSLA) reported results that did not signal restrained spending for the coming year. Instead, the reality that long-term projects require significant capital expenditure prompted a reevaluation of the tech rally. Deutsche Bank strategist Jim Reid asked clients whether this was a temporary wobble or a fundamental shift in how the market values capital expenditure promises versus actual spending. Jefferies data indicated that tech was the most sold sector in its equity trading department on Thursday.

Traders are currently pricing in a 90% probability that the Federal Reserve will hold interest rates steady on Wednesday. This follows the September meeting, where the FOMC issued its first rate hike in three years. Rabobank senior US strategist Philip Marey noted to clients that skipping an October hike allows the Fed to observe more data before the next move. However, the decision is complicated by inflation running over target and the escalating war in Iran, which has sent international Brent (BZ=F) and US WTI crude (CL=F) futures up by 9% and 12% respectively over the previous month. Minneapolis Fed president Neel Kashari and Cleveland Fed president Beth Hammack have recently called for a hike, arguing that inflation must be addressed quickly, while other officials favor a cautious approach.

Political timing adds another layer of complexity. The Wednesday decision comes six days before midterm elections that appear set to flip control of at least one chamber of Congress to the Democratic party. President Trump has expressed a preference for rate cuts, making an October hike politically sensitive for Fed Chairman Kevin Warsh, despite the Federal Reserve's independence from the White House. Markets are pricing in a 77% chance of a hike at the December meeting.

Investors are closely watching how Alphabet, Microsoft, and Amazon fund their capital expenditures and whether they are raising spending projections. Gabelli Funds portfolio manager John Belton identified specific metrics to watch: for Alphabet, growth in search revenue and sales of TPU chips within its cloud division; for Microsoft, the adoption rate of Copilot seats; and for Amazon, margins in its retail segment. Capital.com analyst Daniela Hathorn stated that investors are shifting focus from revenue growth to profitability and tangible returns. Strong results could restore confidence in the Nasdaq, but disappointing margins or increased spending could reinforce concerns about elevated valuations.

Bank of America's Michael Hartnett described the current market mindset as negative and risk-averse, a mood he expects to last until mid-November. He cautioned that investors should expect down-in-yields, down-in-stocks, and down-in-US-dollar trades as they guard gains built during tech's massive run over the past few years. The week also includes a dense economic calendar, with key data points including the September PCE price index, core PCE price index, and third-quarter GDP annualized reading expected on Friday.