The Fed Held Rates Steady, And Both Dissents Wanted A Rise

The Federal Reserve left its benchmark interest rate alone on Wednesday, and the two officials who voted against that decision both wanted it higher. Hours later Alphabet and Microsoft reported the same enormous spending on artificial intelligence, and investors marked one of them down about 10% in Thursday's premarket while the other rose. Samsung posted a record quarterly profit overnight and South Korea's main index fell anyway.

Fast Facts

• Microsoft said it took $10 billion of revenue from commercial arrangements with OpenAI, revenue-sharing payments included, in the quarter that ended September 30 (Read More)
• Weil Gotshal & Manges, the firm that helped build the modern bankruptcy practice, said it plans to dissolve and hired AlixPartners to steer the wind-down (Read More)
• Nelson Peltz's Trian offered $1.4 billion for Wendy's, whose shares have fallen roughly 70% over the past five years (Read More)
• The U.S. goods trade deficit widened as AI-related demand pushed imports to a record high (Read More)
• $5 billion in Department of Energy loans went to nuclear plants that will supply power to data centers (Read More)
• American auto companies say they are paying more for computer chips, steel and copper, plus the diesel to move the finished cars (Read More)

Global News

• European natural gas topped €100 per megawatt hour for the first time since 2022, with the EU saying its storage is 72% full and warning households of a difficult season as it heads into winter (Read More)
• China's yuan climbed to a four-year high against the dollar after the Fed held rates steady (Read More)
• Vonovia shares fell after the German landlord cut some of its 2028 targets, warning that higher interest rates are holding back property transactions (Read More)
• The World Bank expects commodity prices to finish 2026 up 23%, blaming the Middle East war and other shocks (Read More)

The Fed Left Rates Alone, And Both Dissenting Votes Wanted Them Higher

The Federal Reserve held its benchmark interest rate steady on Wednesday, keeping the target range for the federal funds rate at 3.75% to 4.00%, where it has sat since a unanimous 12-0 vote raised it a quarter point on September 16. This time the vote was 10-2, and the two against are the news. Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack each favored another quarter-point rise. Neither wanted a cut. The statement keeps the line that explains why: "Inflation remains elevated," while "Job gains have kept pace with the workforce, and the unemployment rate has changed little."

Prices then moved in two directions at once. Stocks and long-term bond yields edged higher after Wall Street read Fed Chairman Kevin Warsh as hesitant to hike aggressively, the Wall Street Journal reported, though the Nasdaq slipped into negative territory. As of October 28, the government's daily curve put the 10-year Treasury yield at 5.05%, up 6 basis points from the day before, a basis point being one hundredth of a percentage point. The 30-year rose 7 basis points to 5.37%. Short-term costs went the other way: the 2-year fell 3 basis points to 4.67% and the 3-month fell 4 to 4.18%, widening the gap between the 2-year and the 10-year to 38 basis points.

That split is worth understanding. The federal funds rate is what banks charge each other for overnight loans, and the Fed sets a target range for it rather than pricing any loan itself. From there it works outward into what households pay on credit cards, car loans and mortgages and what they earn in savings. Because every vote is published, a dissent is a rare look inside the argument, and two for a rise say the live debate is about how much higher to go, not when to start coming down. Short-term yields mostly track where investors think the Fed will set that overnight rate over the next year or two, so they fell as traders read Warsh's tone as a slower path. Long-term yields are the price of lending for 10 or 30 years, which turns far more on inflation over decades than on any one meeting, so they rose.

The next meeting is December 8-9, and it comes with a fresh set of the officials' own published forecasts. Both the Journal and NPR report that investors widely expect an increase there, and an expectation is not a decision. The figures also carry lags: that curve is the October 28 session, and yields fell again in Asian trade on Thursday as markets turned toward the European Central Bank.

Sources: Federal Reserve statement · WSJ on the decision · WSJ on the market reaction · WSJ on Treasury yields · NPR · U.S. Treasury

Alphabet And Microsoft Described The Same AI Build-Out And Got Opposite Verdicts

Both companies reported their July through September results after Wednesday's close, and both described the same enormous spending on artificial intelligence. Alphabet, Google's parent, said revenue rose 25% to $127.6 billion, a little ahead of the $127.22 billion analysts had expected. Earnings per share, a company's profit divided across all of its shares, came in at $2.12, a full $0.90 short of the $3.02 consensus estimate. Google Cloud revenue rose 103% to $30.7 billion and that division's operating income more than tripled. But Google's advertising revenue grew at its slowest pace in five quarters, and capital expenditure, money spent on long-lived physical things like data centers and the chips inside them, hit $51.4 billion for the quarter against $24 billion a year earlier. Microsoft's quarter read differently. Revenue was $92.3 billion, and for the first time the company said in dollars how much came from Azure, its business renting out computing power over the internet: $33.2 billion, up 48% from a year earlier and roughly 36% of everything Microsoft sold.

Alphabet shares fell more than 10% in Thursday's premarket, the session that runs before the opening bell. Microsoft's stock headed higher, which MarketWatch put down to the company showing investors it can grow quickly while keeping spending in check. Here is why one build-out earns two verdicts. A share price is not a scorecard for the quarter that just ended; it is a judgement about profits still to come. What moves it is how the numbers compare with what investors already assumed, and whether the spending is visibly turning into revenue yet. Alphabet is laying out $51.4 billion in a single quarter while the advertising engine that has always paid for everything slows, and its free cash flow, the cash left after running and building the business, fell deeper into negative territory. Microsoft, on the same evening, put a dollar figure on the business its own spending is building.

Alphabet's capital spending for the year to date stands at $132 billion and the company kept its full-year forecast of $195 billion to $205 billion, so the bill is not shrinking. Deutsche Bank said the results "raised questions about whether the payoffs will come fast enough." Amazon is expected to report after today's close. One caveat on the figure above: a premarket move is not a closing price, and where Alphabet finishes Thursday is a different number from where it traded at dawn.

Sources: Investing.com · TechCrunch on Azure · MarketWatch on Microsoft

Samsung Posted A Record Profit And Korean Shares Fell Anyway

Samsung Electronics reported a record quarterly operating profit of 107.4 trillion won, which the Economic Times converts to about $80.5 billion, on surging demand for AI memory chips. Operating profit is what a company has left from its main business after the costs of running it, and for a sense of scale, MarketWatch reported that Samsung earned nearly as much as Microsoft and Alphabet combined. Then came the selling. Samsung shares fell 4.13% on Thursday and the KOSPI, the main index of Korean shares, fell 2.18%, two sessions after that same index rose 6.63% on a rival chipmaker's profits. Losses extended into battery, automotive and steel stocks, the won strengthened 0.72%, and the Economic Times reported that the concerns behind the fall were the performance of Samsung's semiconductor division and whether this level of AI investment can be sustained.

A record quarter can be met with selling because a share price is a judgement about profits still to come, not a receipt for profits already banked. The 107.4 trillion won is in the past; Thursday's trading was about how long the AI build-out keeps ordering chips. Samsung sits on the supplier's side of that build-out. Memory chips hold whatever a computer is working on at that moment, and only a small number of companies make them at the scale AI systems need. So when American cloud companies commit money to AI, a Korean chipmaker's order book is the other half of the same ledger, and doubts about that spending show up in Seoul too. It also shows how concentrated one national market can be: the KOSPI rose 6.63% on one chipmaker's results and fell 2.18% two sessions later on another's.

Sources: Economic Times on Samsung's profit · Economic Times on Korean shares · MarketWatch · our briefing of October 28

What To Watch

Data today:

• The Bureau of Economic Analysis is scheduled to release third-quarter Gross Domestic Product, the total value of what the economy produces, along with Personal Income and Outlays at 8:30am ET. The second of those carries the PCE price index, the inflation measure the Fed aims at.
• The European Central Bank announces its own rate decision today, with a hold expected.

Reporting today:

• Amazon (AMZN), after the close. Analysts' average estimate is $2.01 in earnings per share, against $1.95 a year ago.
• Intel (INTC), after the close. The average estimate is $0.28, against $0.11 a year ago.
• Eli Lilly (LLY), before the open, with an average estimate of $5.38 against $7.02 a year ago.
• Mastercard, Merck, Caterpillar, Shell, Linde, TotalEnergies and Anheuser-Busch InBev are expected before the open, and Gilead after the close. 317 companies are scheduled to report today.

Later:

• The Bank of Japan decides on Friday, with a hold widely expected.
• ExxonMobil, AbbVie, Chevron, AstraZeneca and BP are expected Friday before the open.
• Apple (AAPL) is expected Monday after the close, with an average estimate of $1.98 against $1.85 a year ago, and Palantir the same afternoon.
• The Reserve Bank of Australia meets next week.
• The Federal Open Market Committee meets again on December 8-9, and that meeting comes with new projections from the officials themselves.

The Classroom Takeaway

Short-term yields fell and long-term yields rose on the same afternoon, which is something you only notice by watching the whole curve rather than one headline number. Students can follow those yields themselves, day by day, with live market data.