Alphabet, Microsoft to report; Fed decision ahead - what’s moving markets

Investing.com - Futures linked to the main U.S. stock indices hover around both sides of the flatline, as investors prepare for a raft of key tech sector earnings and a key Federal Reserve interest rate decision. Alphabet and Microsoft are scheduled to kick off a parade of major tech-sector earnings after the closing bell, while South Korea’s SK Hynix reports a sharp jump in quarterly operating profit. Meanwhile, traders will be searching for clues into the Fed’s rate outlook following the central bank’s latest policy announcement.

1. Futures mixed

U.S. stock futures were mixed on Wednesday. By 04:02 ET (08:02 GMT), the S&P 500 futures contract had risen by 10 points, or 0.1%, Nasdaq 100 futures had climbed by 173 points, or 0.6%, and Dow futures had dipped by 117 points, or 0.2%.

The main averages on Wall Street all advanced in the prior session, with tech stocks in particular powering a 1.18% jump in the Nasdaq Composite. A slew of recent artificial intelligence funding deals, as well as Claude-maker Anthropic’s long-awaited IPO filing earlier this week, have helped to soothe jitters around massive debt-fueled spending on AI infrastructure.

"[I]nvestors continue to celebrate the AI funding announcements that hit the tape over the last 36 hours [...] as these demonstrate that plenty of money still exists to underwrite the data center bonanza," analysts at Vital Knowledge wrote in a note.

At the same time, the quarterly corporate earnings season is roughly a third over. Results have largely been "decent" thanks to resilient demand, cost controls, and price hikes, the Vital Knowledge analysts said.

2. Big-name tech earnings loom large

Although the AI anxieties of recent weeks were given a reprieve this week, a major test of the AI boom is due to come after the closing bell.

Google-owner Alphabet and software giant Microsoft are set to headline the slate of post-market earnings -- and potentially shed more light on the AI spending outlook among some of the world’s largest companies.

In particular, traders are hunting for any signs of possible returns from Big Tech’s planned expenditures -- in some cases ranging into the hundreds of billions of dollars -- on the data centers and chips underpinning AI systems.

Altogether, Alphabet, Microsoft and Amazon -- which reports after the bell on Thursday -- are aiming to shell out as much as $600 billion in capital expenditures this year alone.

Whether investors will welcome or balk at an increase to those spending forecasts may be a central question when the firms report this week. Earlier this month, an uptick in Facebook-owner Meta Platforms’ spending plans cast a pall over otherwise strong results, sending shares down a day later. Meta’s stock is now down by more than 4% so far this year.

"The more skeptical the market gets about AI returns, the harder it becomes to justify today’s pace of spending. Meta is a good example: the core business was shown to be strong, but with capex hitting nearly $34 billion in a single quarter, the market increasingly needs to see the ROI from that investment," said Jake Behan, Head of Capital Markets at Direxion.

3. SK Hynix operating profit surges

To that end, SK Hynix posted a stronger-than-expected third-quarter operating profit on Wednesday, with the South Korean memory chip giant outlining plans to return a total of 100 trillion won ($75.5 billion) to shareholders this year.

Shares of the company jumped over 10% in Seoul trade.

SK Hynix’s operating profit for the three months to September 30 surged 632% versus a year ago to 83.33 trillion won, handily beating Bloomberg estimates of 77.5 trillion won.

Revenue spiked 328% to a record 104.615 trillion won, while net income jumped 216% to 39.78 trillion won, SK Hynix said in a statement.

The company, which is among the world’s largest memory chipmakers and has been a major beneficiary of the AI era, said it will pursue shareholder returns of 100 trillion won for the year.

4. Fed decision ahead

How investors feel about AI debt deals and spending binges could also be swayed by Wednesday’s all-important Fed interest rate decision.

The central bank is tipped to leave rates unchanged after policymakers lifted borrowing costs for the first time since 2023 in September. However, there is currently a three-in-four chance that the Fed opts to raise rates again at its final meeting of the year in December.

For that reason, analysts have suggested that Fed Chair Kevin Warsh’s post-decision press conference will receive especially close scrutiny. Yet don’t hold your breath for clear-cut guidance: Warsh has long resisted laying out forward guidance.

Still, some of Warsh’s colleagues at the Fed have indicated that more hikes may be necessary to quell elevated inflationary pressures.

For tech, more policy tightening could "raise the cost of funding the AI buildout while simultaneously raising the hurdle for the returns needed to justify it," Direxion’s Behan flagged.

5. U.S. warns Gulf countries of Iran war renewal after midterms - WSJ

A key driver of rate expectations in recent months have been oil prices, which have soared largely because of disruptions to Middle East supplies following the outbreak of the Iran war in late February.

The increase in crude has pushed up the costs of items like diesel and gasoline. Economists are now on the lookout for any indication that these price jumps, which can impact everything from transportation expenses to consumer gas prices, are feeding into other goods and services.

Although markets have cheered a fresh diplomatic effort to avoid fresh fighting in Iran, the conflict has spread across the Middle East and has shown little sign of de-escalating. Indeed, the U.S. has told Gulf Arab countries to be ready for a short, intense military campaign following the American midterm elections in November, The Wall Street Journal reported.

Benchmark Brent crude futures were last higher by 1.2% at $115.29 a barrel.

Original Article

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