Last Week on Wall Street - Week of October 19th

Last Week on Wall Street

Most Stocks Had a Fine Week. The Index Didn’t Get the Memo.

Big Tech spent another week getting grilled about its spending, oil kept climbing, bonds caught a bid, and the average stock quietly did better than the headline let on.

Second losing week in a row for the big indexes, though not by much. The S&P 500 slipped about half a percent and the Nasdaq gave back a little less than three quarters of one. Thursday did nearly all the damage: the Nasdaq had its worst day since June and the S&P 500 its worst since July. Here’s the twist. On that same Thursday, more stocks rose than fell. Small caps finished the week higher, homebuilders and regional banks had a good run, and a version of the S&P 500 with the AI names stripped out has quietly pulled ahead of the real thing for the year. The scoreboard said down. Most of the players said up.

The week ran on three things at once. First, earnings from the companies paying for the AI buildout. Meta posted a record quarter and still got sold, because what investors wanted to talk about was the bill, not the revenue, and chip stocks went down right alongside it. Second, oil, which kept grinding higher on Middle East headlines and gave airlines a rough Friday. Third, bonds. When tech cracked on Thursday, money ran into Treasuries hard enough to pull long-term yields sharply lower and talk a would-be Fed hike most of the way off the table. Oil up and yields down in the same week is not the usual pairing, which tells you how much the AI scare was driving the bus.

Next week is a big one. The Fed meets Tuesday and Wednesday, and the bond market has spent the last few days deciding the committee will sit tight. More of Big Tech reports too, so the rest of the AI spenders get their turn at the microphone after Meta’s went badly. The broad market has gotten along fine without the giants this month. Whether it can keep doing that if they keep sliding is the part nobody has answered yet.

Meta Booked a Record Quarter, Then the Bill Came Due

The key takeaway, Meta posted record revenue and the stock jumped after hours. By Thursday’s close it had reversed hard, as investors fixed on capital spending that outran operating cash flow for the first time since 2012, roughly $825 billion in future commitments, and a new nonvoting share class built to help pay for it all.

Meta reported third-quarter revenue of $64.6 billion, up 26% from a year ago and ahead of forecasts, with both ad impressions and ad prices rising. Capital spending for the quarter came to about $34.9 billion, and the company narrowed its full-year range to $135 billion to $145 billion by lifting the low end. The arithmetic underneath mattered more than the headline: purchases of property and equipment ran ahead of the cash the business generated from operations, something that had not happened since 2012. Filings released Thursday added a bigger number still, roughly $825 billion in future spending agreements, most of it tied to computing capacity and data center leases.

The financing plan landed just as awkwardly. Meta will issue one nonvoting Class C share for every existing share, which works like a two-for-one split but also gives the company stock it can sell later without diluting voting control. Investors read it as a sign that more capital raising is coming, and the bond market seemed to agree, with Meta’s five-year credit default swap spread hitting a record. The selling traveled quickly. Lam Research fell sharply after flagging supply constraints in its outlook, and the semiconductor index finished Thursday more than 26% below its June 22 record. Friday brought some stabilization, but not a reversal.

SOURCE: Reuters: S&P 500, Nasdaq end sharply lower as revived AI doubts ignite tech selloff →

Oil Hit a Six-Month High, and Bonds Rallied Anyway

The key takeaway, Brent finished the week at its highest level in six months, the kind of move that usually pushes yields up. Instead, Thursday’s tech selloff sent money pouring into Treasuries, handed the 10-year yield its biggest one-day drop in more than two years, and all but erased the odds of a Fed hike next week.

Brent crude settled Friday at $116.72 a barrel, its third straight weekly gain, with West Texas Intermediate finishing above $103. Attacks near the Red Sea added to worries about supply out of the region, and the energy bill showed up quickly elsewhere: the three largest U.S. airlines each fell more than 4% on Friday. In most weeks, that setup would have bond traders bracing for more inflation and higher rates.

This was not most weeks. When chip stocks broke on Thursday, investors went looking for shelter and found it in government debt. The 10-year yield fell about 17 basis points that day to roughly 4.96%, a one-month low and its first finish below the 50-day moving average since late June, leaving it close to 40 basis points under the two-decade highs it touched earlier in October. Rate expectations followed. Fed funds futures put the odds of an October hike near 5%, according to Bloomberg data, down from 15% earlier in the week and 37% at the end of September. Yields drifted up a few basis points on Friday but held below 5%. The committee meets October 27 and 28, and the market now expects it to hold.

SOURCE: Schwab: AI Pressure Persists, Oil Up as Price Data Looms →

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