{"id":441142,"date":"2026-10-29T21:00:08","date_gmt":"2026-10-29T14:00:08","guid":{"rendered":"https:\/\/www.swingfish.trade\/blog\/market-news\/morning-kickstart-the-day-after-the-fed-alphabet-rattles-the-ai-trade-441142\/"},"modified":"2026-10-29T21:00:08","modified_gmt":"2026-10-29T14:00:08","slug":"morning-kickstart-the-day-after-the-fed-alphabet-rattles-the-ai-trade","status":"publish","type":"post","link":"https:\/\/www.swingfish.trade\/blog\/market-news\/morning-kickstart-the-day-after-the-fed-alphabet-rattles-the-ai-trade-441142\/","title":{"rendered":"Morning Kickstart: The day after the Fed, Alphabet rattles the AI trade"},"content":{"rendered":"
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The day after the Fed, markets have another set of questions to answer.<\/p>\n

Did Chair Warsh give the economy more room to grow, or simply give the Fed more time before another rate hike? Are massive AI investments generating sufficient returns? And will today\u2019s growth and inflation reports support the market\u2019s expectations for additional tightening?<\/p>\n

The early price action is mixed. Treasury yields are lower across the curve, the dollar is modestly higher against some currencies and lower against others, and U.S. equity futures are under pressure. The Nasdaq is leading the decline as a sharp premarket fall in Alphabet overshadows stronger results from Microsoft.<\/p>\n

Warsh\u2019s message: Healthy growth, elevated inflation and time to assess<\/p>\n

The Fed held its target range at 3.75%\u20134.00%, with a 10\u20132 vote. Warsh described an economy with healthy consumer spending, strong business investment and positive employment conditions. He indicated that third-quarter growth was likely above 3%. Inflation, however, remains too high, and renewed increases in energy prices raise the risk that price pressures could spread more broadly.<\/p>\n

Warsh also suggested that September\u2019s tightening is beginning to work. Some households and businesses face tighter credit conditions, although he stopped short of describing overall financial conditions as tight. His message was to gather more information before deciding the next step. Another hike remains possible, but he did not commit to a December move. See InvestingLive\u2019s coverage of Warsh\u2019s press conference<\/a>.<\/p>\n

For the economy, my takeaway is that the Fed sees enough strength to keep its attention on inflation. There was little indication of an urgent need to support growth through lower rates.<\/p>\n

For markets, the distinction matters. A Fed willing to wait can provide some relief from immediate tightening concerns. But persistent inflation and healthy demand would keep borrowing costs elevated and make it harder to justify increasingly expensive equity valuations.<\/p>\n

Yesterday\u2019s reaction also showed that markets can interpret the same decision differently across maturities. From just before the announcement through the end of the press conference, the dollar fell, shorter-term yields declined and longer-term yields rose. That steepening showed that relief at the front end did not extend across the entire Treasury curve. This morning, longer-term yields are also moving lower.<\/p>\n

Alphabet and Microsoft deliver contrasting AI messages<\/p>\n

Alphabet is the main source of pressure on technology sentiment, with shares down more than 11% in premarket trading.<\/p>\n

The company reported EPS of $2.12 versus $3.03 expected \u2014 MISS, and revenue of $127.6 billion versus $127.91 billion expected \u2014 MISS. Google Cloud was a bright spot, but Search and YouTube advertising revenue fell short of expectations.<\/p>\n

The concern goes beyond the headline miss. Advertising revenue grew at its slowest pace in five quarters, while management said AI Mode searches were being monetized more slowly than traditional searches. At the same time, capital expenditures climbed to approximately $51.4 billion, up about $6.5 billion from the previous quarter, and free cash flow moved deeper into negative territory.<\/p>\n

Investors are being asked to fund a substantial investment cycle while waiting for clearer evidence of the returns. Slower monetization makes that wait more uncomfortable.<\/p>\n

Microsoft delivered a stronger message. Adjusted EPS of $4.89 BEAT expectations, while revenue of $92.28 billion also BEAT, increasing 19% from a year earlier. Azure growth of 48% offered evidence that demand for cloud and AI services continues to expand strongly.<\/p>\n

Microsoft shares are higher in premarket trading (+1.5%), although that strength has not been enough to offset the broader technology weakness. The company\u2019s reported buyout program\u2014with roughly 60,000 employees potentially eligible\u2014also puts efficiency and costs alongside growth in the discussion.<\/p>\n

The broader lesson is that investors are becoming more selective. Spending on AI infrastructure needs to translate into revenue, margins and cash flow. Microsoft\u2019s report provided more encouragement on that front. Alphabet\u2019s raised more questions.<\/p>\n

U.S. stock futures<\/p>\n

The early indications from futures trading point to a lower opening:<\/p>\n