Last Week on Wall Street - Week of October 26th

Last Week on Wall Street

October Went Out Loud, and the AI Trade Finally Got a Hard Question

Two Fed officials voted to raise rates, the biggest spenders in technology reported cash flow in the red, and crude climbed back toward its highs of the year. The month ended with more open questions than it started with.

Stocks finished the week lower, and the Nasdaq took most of the damage. That closed out a losing October for both the S&P 500 and the Nasdaq, with the Nasdaq posting its weakest month since March of last year. For an index that spent the better part of this year ignoring bad news, that is a change of posture, and it happened fast.

The Federal Reserve held rates on Wednesday, which surprised nobody. Then the dissents showed up on the hawkish side of the table, which surprised plenty of people, and Chair Kevin Warsh used his press conference to change how often the committee votes at all. Long yields pushed higher into the decision and eased back after it. Oil went the other way: fresh attacks on tankers in the Strait of Hormuz had crude running toward a fourth straight monthly gain. And the quarterly reports from the companies financing the AI buildout arrived carrying the one line nobody had bothered to read all year, which is what the buildout costs to carry.

November opens with three things unsettled: whether the AI spending earns its keep, which is now an earnings question rather than a story question; whether the Fed's next move is up rather than down; and whether the strait stays passable. None of the three gets resolved in a week, which is more or less the point. For most of this year the tape had one clean narrative to price. It now has three messy ones, running at the same time, in different directions.

Two Policymakers Voted to Hike, and the Fed Gave Itself One Fewer Chance to Argue

The key takeaway, the Committee left its target range alone, and the dissents came from the hawkish side: two members wanted a quarter point more. Then Kevin Warsh announced that one of the eight meetings on the 2027 calendar will lose its rate vote entirely.

The Federal Open Market Committee held the federal funds target range at 3.75% to 4% on Wednesday, and the statement reads like a description of an economy that does not need the help: activity expanding at a strong pace, domestic spending resilient, capital investment robust, job gains keeping pace with the workforce. Inflation, it says, remains elevated. It closes on a flat declarative, "The Committee will deliver price stability." The vote was 10 to 2, and both dissenters, Governor Lisa Cook and Cleveland Fed President Beth Hammack, wanted a quarter-point increase rather than a hold.

The structural news came at the press conference. Warsh said one of the eight scheduled meetings in 2027 becomes a strategy session carrying no rate vote and no policy statement, and that 2028 will run six policy meetings and two strategy sessions. That is the first cut to the number of scheduled rate votes since the eight-meeting calendar was adopted in 1981. The arithmetic is simple enough: fewer decision points means more data stacking up between them, which makes every remaining vote a larger event, and the press conferences and projections around them larger still. On December, Warsh gave away almost nothing, describing the stretch ahead as information rich and saying the Committee had reached no firm conclusions. Futures markets read past the ambiguity and kept pricing a strong chance of an increase at the December 9 meeting.

SOURCE: Federal Reserve: FOMC statement, October 28, 2026 →

The Cloud Numbers Were Enormous. Everyone Read the Cash Flow Line Instead.

The key takeaway, one cloud business roughly doubled year over year and another posted its fastest growth in years, and the tape sold both reports anyway. After a year of treating capital spending as proof that demand was real, the market started treating it as a bill.

Alphabet reported third-quarter revenue of $127.6 billion, up 25% from a year earlier, with Google Cloud revenue up 103% to $30.7 billion and the cloud operating margin widening to 36.2% from 23.7%. Capital expenditures landed at $51.4 billion, below the roughly $55.1 billion the Street had modeled, and free cash flow for the quarter came in at negative $9.1 billion against an expected shortfall nearer $2.7 billion. Management held 2026 capex guidance at $195 billion to $205 billion and said the figure rises significantly in 2027, which raises depreciation and data-center operating costs along with it.

Amazon followed a day later with revenue of $201.9 billion, up 12%, and AWS growth accelerating to 39%, its fastest pace in years. Earnings came in at $1.89 a share against roughly $1.97 expected, 2026 infrastructure spending sits near $220 billion, and free cash flow ran to negative $42.4 billion. Add the four largest spenders together and calendar 2026 capital expenditures now track toward roughly $725 billion. For most of this year a bigger capex line was read as evidence that demand was real and that somebody had to build for it. Last week it was read as a claim on cash that has not yet produced its return, and the selling concentrated in the names writing the checks.

SOURCE: Investing.com: Nasdaq slides as the AI trade suffers →

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