Post-Fed Morning: Alphabet's Slide Hits AI Sentiment

Markets face a fresh batch of questions in the session following the Fed's decision.

Did Chair Warsh expand the economy's room to grow, or simply buy the Fed extra time before another potential hike? Are the hefty investments in AI producing adequate returns? And will the growth and inflation figures due today support market bets on further tightening?

Early price action is mixed. Treasury yields have slipped across the curve, the dollar is trading unevenly against major peers, and U.S. equity futures are pointing lower. The Nasdaq is leading the drop as a steep premarket decline in Alphabet overshadows solid results from Microsoft.

Warsh: Healthy growth, elevated inflation, time to assess

The Federal Reserve kept its target range at 3.75%–4.00%, with a 10–2 vote. Warsh highlighted healthy consumer spending, robust business investment and positive employment conditions. He suggested third-quarter growth likely exceeded 3%. Inflation, though, remains too high, and rising energy prices could broaden price pressures.

Warsh indicated that September's tightening is starting to have an effect. Some households and businesses are seeing tighter credit conditions, but he did not go so far as to call overall financial conditions tight. His stance was to wait for more data before deciding. Another hike is possible, but he made no commitment to a December move. See InvestingLive's coverage of Warsh's press conference.

From an economic perspective, the Fed appears to see enough strength to keep its focus on inflation. There was little sign of urgency to support growth with rate cuts.

The distinction holds significance for markets. A patient Fed may offer some relief from immediate tightening fears. But persistent inflation and strong demand would keep borrowing costs elevated, complicating the case for expensive equity valuations.

Yesterday's market reaction showed the same decision being interpreted differently across maturities. From before the announcement through the end of the press conference, the dollar weakened, front-end yields fell and longer-term yields rose. This steepening indicated that relief at the short end did not carry across the entire curve. This morning, longer-term yields are also declining.

Alphabet and Microsoft: Contrasting AI narratives

Alphabet is the biggest drag on tech sentiment, with shares down over 11% in premarket trade.

The company posted EPS of $2.12 versus the $3.03 consensus — MISS, and revenue of $127.6 billion against $127.91 billion expected — MISS. Google Cloud stood out positively, but Search and YouTube advertising revenue lagged expectations.

The concern extends beyond the headline miss. Advertising revenue grew at its slowest pace in five quarters, and management said AI Mode searches were monetizing at a slower rate than traditional searches. Meanwhile, capital expenditures climbed to roughly $51.4 billion, up about $6.5 billion from the prior quarter, while free cash flow sank further into negative territory.

Investors are being asked to back a substantial investment cycle while awaiting clearer signs of returns, and slower monetization makes that wait more uncomfortable.

Microsoft offered a more encouraging picture. Adjusted EPS of $4.89 BEAT expectations, and revenue of $92.28 billion also BEAT, up 19% year over year. Azure's 48% growth demonstrated continued strong demand for cloud and AI services.

Microsoft shares are trending higher in premarket trading (+1.5%), though that strength hasn't offset broader tech weakness. The company's reported buyout program — potentially covering about 60,000 employees — also brings efficiency and costs into the growth conversation.

The broader takeaway is that investors are becoming pickier. AI infrastructure spending must convert into revenue, margins and cash flow. Microsoft's report offered more reassurance on that front. Alphabet's raises more doubts.

U.S. stock futures

Early futures indications point to a weaker open:

• Dow futures: Down 41 points.

• S&P 500 futures: Down 15.6 points.

• Nasdaq 100 futures: Down 300 points.

The larger Nasdaq decline underscores the pressure on technology shares rather than a uniform retreat across the main indices.

Morning earnings: Mostly beats outside tech

The morning earnings snapshot shows a generally better set of headline results:

• Altria: EPS $1.52 versus $1.51 — BEAT; revenue $5.44 billion versus $5.31 billion — BEAT. The company boosted its buyback authorization by $1 billion and lifted full-year guidance. Up 2.25%

• Bristol Myers Squibb: Adjusted EPS $1.35 versus $1.10 — BEAT; revenue $13.07 billion versus $12.72 billion — BEAT. Up 2.20%

• Eli Lilly: Adjusted EPS $7.48 versus $5.68 — BEAT; revenue $24.4 billion versus $22.58 billion — BEAT. Mounjaro revenue of $10.7 billion and Zepbound revenue of $5.3 billion also topped forecasts. Full-year adjusted EPS guidance was raised to $35–$36 from $35–$35.50. +4.20%

• Merck: Adjusted EPS $2.49 versus $2.09 — BEAT; revenue $18.1 billion versus $17.34 billion — BEAT. +2.40%

• Caterpillar: Adjusted EPS $7.20 versus $7.06 — BEAT; revenue $20.7 billion versus $20.76 billion — MISS. Combined retail sales rose 22%, down from 25% previously. -9.46%

After the close, Amazon and Intel will provide the next big tests. Amazon's AWS performance, AI spending and retail profitability will be scrutinized following the divergent Microsoft and Alphabet reports. Intel's results and guidance will offer another read on semiconductor demand and its manufacturing turnaround.

Dollar mixed; CAD leads, AUD lags

The dollar's biggest gain in the snapshot is against the Australian dollar, while its steepest loss is against the Canadian dollar, in a mixed open for the greenback.

• EURUSD: 1.1148, down 0.04%.

• GBPUSD: 1.3330, up 0.04%.

• USDJPY: 157.93, up 0.07%.

• USDCHF: 0.8278, down 0.01%.

• USDCAD: 1.3974, down 0.14%.

• AUDUSD: 0.7040, down 0.18%.

• NZDUSD: 0.5617, down 0.12%.

The Canadian dollar is outperforming even with crude oil lower. The Australian and New Zealand dollars are weaker, while the euro, pound and Swiss franc show only small moves against the USD.

That leaves a mixed dollar backdrop ahead of U.S. data.

Currency ranges: Most pairs have room to extend

Comparing the session highs and lows with the average ranges over the past 22 trading days (about a month) shows:

• EURUSD: 1.1126–1.1161 — 35 pips, roughly 53% of its 66-pip average.

• GBPUSD: 1.3297–1.3336 — 39 pips, roughly 55% of its 71-pip average.

• USDJPY: 157.61–158.06 — 45 pips, roughly 54% of its 84-pip average.

• USDCHF: 0.8272–0.8297 — 25 pips, 50% of its 50-pip average.

• USDCAD: 1.3971–1.4002 — 31 pips, roughly 48% of its 65-pip average.

• AUDUSD: 0.7031–0.7068 — 37 pips, roughly 82% of its 45-pip average.

• NZDUSD: 0.5609–0.5636 — 27 pips, roughly 64% of its 42-pip average.

USDCAD has covered the smallest share of its usual range, though several pairs are clustered near half their averages. There is notable room for extension if economic releases or a technical breakout provide the trigger.

AUDUSD has already traversed more of its typical range than the others. That doesn't rule out further movement, but it gives traders a different context when deciding whether to chase an extension.

Treasury yields retreat

Treasury yields are lower across the curve in the morning snapshot:

• 2-year: 4.6912%, down 4.38 basis points.

• 5-year: 4.8282%, down 4.28 basis points.

• 10-year: 5.0031%, down 4.19 basis points.

• 30-year: 5.3318%, down 2.92 basis points.

The 10-year yield is back near 5%, but the decline hasn't been sufficient to lift technology futures. Earnings and AI investment returns are vying with the interest-rate story this morning.

European stocks mostly higher

Europe's main markets are showing a firmer tone, though Spain and Italy are in the red:

• Germany's DAX: 25,949.33, up 245.30 points or 0.95%.

• France's CAC 40: 7,959.57, up 72.60 points or 0.92%.

• UK FTSE 100: 10,735.72, up 41.23 points or 0.39%.

• Spain's IBEX 35: 18,816.30, down 67.20 points or 0.36%.

• Italy's FTSE MIB: 49,764.22, down 60.09 points or 0.12%.

The ECB decision is another focus, with the central bank expected to hold rates steady. Traders will watch its take on energy-driven inflation, growth risks and the scope for further tightening.

Oil falls, but Iran headlines keep risk alive

Crude oil is trading at $101.43, down $1.35 or 1.31%.

The decline comes despite a Semafor report that President Trump is seriously considering renewed military strikes against Iran shortly after the U.S. midterms if diplomacy fails. The report also indicated negotiations over a temporary peace agreement are still ongoing.

That leaves oil exposed to headlines in either direction. Progress toward a deal could ease supply worries. A breakdown in diplomacy could quickly bring those concerns back into the price.

Elsewhere in the markets:

• Gold: $4,031.79, down $35.11 or 0.86%.

• Silver: $52.8130, down $1.1270 or 2.09%.

• Copper: $6.5915, down $0.0800 or 1.20%.

• Bitcoin: $80,044, down $1,206 or 1.48%.

Today's calendar immediately tests the Fed's outlook

The major U.S. releases arrive together at 8:30 AM ET:

• Advance Q3 GDP: Forecast 3.2% annualized; previous 2.2%. The Atlanta Fed's GDPNow model's final estimate stood at 3.3%.

• September headline PCE: Forecast 0.5% m/m; previous 0.3%.

• September headline PCE: Forecast 3.6% y/y; previous 3.4%.

• September core PCE: Forecast 0.3% m/m; previous 0.2%.

• September core PCE: Forecast 3.1% y/y; previous 3.0%.

• Initial jobless claims: Forecast 198K; previous 194K.

• Continuing claims: Forecast 1,720K; previous 1,728K.

Personal income and spending figures are also due at 8:30 AM ET, with consumption expected to rise 0.5%. The InvestingLive PCE preview details inflation expectations and implications for December pricing.

The combination matters. Firm growth with elevated inflation would support keeping a tightening bias. Softer inflation with resilient growth would give the Fed more room to assess the impact of September's hike.

For traders, the challenge is reading the reports together. A strong GDP headline may draw the initial reaction, but inflation, spending and claims could determine whether that move holds.

EURUSD, USDJPY and GBPUSD: Levels to watch

In the morning video above, I examine three major currency pairs—EURUSD, USDJPY and GBPUSD—from a technical standpoint. For each pair, I outline the bias, risk-defining levels and targets that would give either buyers or sellers more control.

Ahead of that analysis, the session extremes provide immediate reference points:

EURUSD is trading near 1.1148, between 1.1126 and 1.1161. A break above the session high would give buyers more room to extend. A break below the low would hand sellers the stronger hand. Within that range, neither side has established a decisive break.

USDJPY is near 157.93, toward the upper end of its 157.61–158.06 range. Buyers need to get above and hold above 158.06 to extend the move. A failure there keeps the pair contained, with 157.61 as the lower boundary sellers would need to break.

GBPUSD is near 1.3330, just below the 1.3336 session high. Buyers have pushed the price toward the upper extreme, but they still need a sustained break to increase control. The session low at 1.3297 remains the downside reference.

With several major reports arriving simultaneously, the initial move may be hard to interpret. The price action after the release—and whether a break can hold—will help define which side has control and where risk can be limited.