Dear Trader,
The Fed held rates yesterday, and this morning the economy told them they were wrong to.
Third-quarter GDP printed 3.4%, better than anyone forecast. PCE came in at 3.6%, which is a lot of inflation for a central bank that spent September hiking into a two-tenths core number. Two voters wanted another quarter point on Wednesday.
After 8:30 this morning, their case got stronger, and Warsh’s “monetary medicine is working” line got weaker.
So that’s what Mark and Andrew are digging into when they go live today. Mark’s hosting State of the Market, and Andrew’s coming on to break down the Fed meeting, what the dissents mean for December 9th, and why the 10-year already sits above 5% while the committee waits for more data.
They’ll also run through earnings.
Microsoft and Alphabet both reported last night, and Wall Street bought one and dumped the other for the same reason. Plus they’ll hit the three stories below, including the Robinhood numbers that show where retail money actually went.
Click this link to jump to the State of the Market live room.
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The Daily News Breakdown
SIGN:Microsoft and Alphabet both rent compute to the AI labs and own pieces of them, and this quarter one side of that trade paid out while the other sent a bill. OpenAI wrote Microsoft a $10 billion check last quarter. That’s more than Xbox and Windows combined, and about $7 billion of it is still an IOU. Alphabet got the opposite treatment. Its stakes in Anthropic and SpaceX lost nearly $9 billion, knocked 55 cents off earnings, and sent the stock toward its worst day in three years. Google Cloud doubled to $31 billion, so the money’s showing up somewhere. The twist: Anthropic could price as soon as November 16th, and Alphabet’s 14% stake gets marked to market after that. Today’s drag could turn into a windfall by Christmas.
SNEAKER: Robinhood just told you where the retail crowd went, and it isn’t the stock market. Goldman says retail equity volume is down 20% since midsummer and more than 40% since the start of the year. Morgan Stanley’s survey has 42% of investors bearish. Yet Robinhood posted record activity last quarter in stocks, options, and prediction markets. The gambling side, prediction markets, grew revenue more than 500% to $173 million on 16.4 billion contracts. Leveraged ETFs trade at double the volume of their plain-vanilla versions. Crypto revenue fell 55%. Retail wants more action per dollar, and plain old stocks stopped delivering it. Keep that in mind the next time someone tells you the little guy is “sitting this one out.”
SIGNAL: The Fed sat on its hands Wednesday in a 10-2 vote, with Lisa Cook and Beth Hammack voting to hike anyway, and this morning’s data made the hold look even softer. Third-quarter GDP came in at 3.4%, better than expected. PCE printed 3.6%, right on forecast and nowhere near the 2% target Warsh keeps calling the only one. So the economy grew faster than anyone thought while inflation stayed stuck. That’s the setup Warsh hiked into in September. Now he’s telling us the “monetary medicine” is working and December stays open. The 10-year sits at 5.05%, so bond traders already priced in what the committee wouldn’t vote for. Next meeting is December 9th. After today’s numbers, Cook and Hammack look less like dissenters and more like early.