Global equities weakened last week as disappointing tech earnings and concerns about AI spending weighed on the markets. The S&P 500 fell about 0.6%, and the Nasdaq dropped roughly 2%. Investors also moved toward Treasuries, which pushed the 10-year yield down to around 4.93%. Additionally, markets were pricing in midterm uncertainty, with a Democratic sweep currently seen as the most likely outcome.
This week’s WEFC covers three themes: the Fed’s rate hold and the possibility of a December hike; resilient Q3 growth alongside energy-led inflation and thinner household savings; and the shift in AI investment from rising capex toward cash flow and monetization.
This Week's WEFC Preview
Tech Selloff Masks Broader Resilience as the Fed Holds
- Technology weakness drove the US equity decline. The S&P 500 fell about 0.6% and the Nasdaq roughly 2% as disappointing earnings and questions about AI returns weighed on large technology names; Intel dropped nearly 29% on its outlook.
- Other regions were more resilient. European equities generally advanced, Asian markets were mixed to softer, and investors moved toward Treasuries; the 10-year yield fell about 5–6 basis points to 4.93%–4.94% while the dollar index stayed near 102.
- Markets were also pricing midterm uncertainty. Polymarket put a Democratic sweep at 72%, a Democratic House with a Republican Senate at 23%, and a Republican sweep at 5%. A Democratic House could complicate Republican legislation and intensify funding and debt-limit disputes.
- The Fed held rates, while energy and geopolitics kept attention on inflation. Gold fell around 3% to the mid-$3,800s, while oil remained elevated amid supply concerns.
Fed Pauses as Credit Tightens and Year-End Liquidity Builds
- The FOMC voted 10:2 to hold at 3.75%–4.00%. Lisa Cook and Beth Hammack dissented in favor of a 25-basis-point hike. The statement described the economy as strong, while the commentary read the decision as a pause without a renewed hawkish shift.
- Tighter credit and softer hiring supported the hold. Payrolls rose just 29,000 and unemployment reached 4.2%; the Fed cited wider spreads for some borrowers. Gasoline prices eased in October, limiting the near-term case for another inflation jump.
- Treasury cash drawdown may add liquidity by year-end. The Treasury lowered its Q4 cash target to $850 billion from $950 billion after the TGA reached $1.02 trillion. The report expects a $100–$200 billion outflow, while bank reserves remained near $2.96 trillion after NY Fed purchases paused.
- A December hike remains possible amid Q4 inflation risks. FedWatch odds rose to 87% from 78% before the meeting, even as the two-year yield fell below 4.73%. The report identifies oil and post-midterm US-Iran developments as key variables.
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About Weekly Economic and Financial Commentary (WEFC)
The MacroMicro WEFC is published weekly, delivering rigorous analysis and in-depth insights on the most critical market-moving events. Coverage spans equities, foreign exchange, bonds, commodities, global central banks, geopolitics, and the international political economy.
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Get answers from MM AI.
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How did disappointing tech earnings affect global equity markets last week?
💡Disappointing tech earnings, combined with concerns about AI spending, led to a weakening in global equity markets last week, causing the S&P 500 to fall approximately 0.6% and the Nasdaq to drop roughly 2%. This downturn was specifically driven by underperforming large technology names, including Intel, which saw its share price decline nearly 29% due to its outlook.
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Which factors supported the Federal Open Market Committee's decision to hold rates?
💡The Federal Open Market Committee's decision to hold rates at 3.75%–4.00% was supported by tighter credit conditions and softer hiring data, with payrolls rising just 29,000 and unemployment reaching 4.2%. The Fed also noted wider spreads for some borrowers, and easing gasoline prices in October further limited the immediate case for another inflation jump.
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What were the key drivers behind the accelerated 3.4% annualized Q3 GDP growth?
💡Accelerated Q3 GDP growth of 3.4% annualized was primarily driven by strong consumer spending, which grew 3.8% and contributed approximately 2.5 percentage points, and significant investment. Private investment rose 19.4%, including 12.7% growth in nonresidential fixed investment, with inventory rebuilding also adding about 1.6 points to the overall growth.
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What caused September PCE inflation to edge higher, particularly energy prices?
💡September PCE inflation edged higher primarily due to a sharp increase in energy prices, with energy goods prices jumping 9.2% month over month. Overall, headline PCE rose 0.5% month over month and 3.6% year over year, while core PCE increased 0.3% and 3.1% respectively, indicating that energy costs were a key inflationary factor.
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How did AI infrastructure spending affect free-cash-flow deficits for tech giants?
💡AI infrastructure spending is significantly widening free-cash-flow deficits for several major tech giants, with Alphabet reporting a $9.1 billion Q3 deficit, Amazon $33.4 billion, and Meta $2.12 billion. This trend is expected to persist into mid-2027, as companies invest heavily in AI capabilities, although Microsoft remained positive with an $18.6 billion free cash flow.
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How do substantial backlogs indicate continued AI investment trends?
💡Substantial backlogs indicate continued robust AI investment trends, as evidenced by Google Cloud's backlog rising $47 billion quarter over quarter to $561 billion and Microsoft's commercial RPO reaching $677 billion, up 73% year over year. These large and growing backlogs signify strong demand for cloud services and AI-related infrastructure, reinforcing the ongoing investment trajectory in the sector.
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What were the key reasons for Intel's nearly 29% drop in share price?
💡Intel's share price dropped nearly 29% due to a disappointing outlook that contributed to broader technology weakness in the US equity market. This decline was part of a larger trend where concerns about AI returns and underwhelming earnings weighed on large technology names, leading to a significant market reaction.
