Global markets are struggling to find a clear direction this morning after a busy session dominated by the Federal Reserve and contrasting Big Tech earnings. The Fed left rates unchanged at 3.75%–4.00%, as widely expected, but offered little clarity on the path ahead. Despite acknowledging stronger economic activity and persistent inflation, Chair Kevin Warsh struggled to explain convincingly why policymakers had chosen to wait until December rather than raise rates immediately.
With two officials voting for a hike, the message leaned slightly hawkish, although the broader policy outlook remains largely unchanged from September, with another increase still expected before year-end. The lack of clear forward guidance leaves markets heavily dependent on incoming data. Treasury yields rose following Warsh’s press conference, with the 10-year yield moving back above 5%, while the dollar’s reaction was relatively subdued.
“Markets are no longer rewarding companies for investing heavily in AI, but increasingly demanding evidence of sustainable profits.”
The Fed appears reluctant to commit to a predetermined path, but this creates an uncomfortable situation for investors, who are left questioning what additional evidence policymakers need before tightening further. The risk is that continued uncertainty keeps bond market volatility elevated, potentially weighing on equity valuations.
Markets Drift as Fed Holds Rates and Big Tech Earnings Split
Meanwhile, Alphabet and Microsoft delivered competing narratives about the profitability of AI investment, leaving US equity markets somewhat confused. Microsoft shares gained around 3% after strong Azure growth and improving cash flow demonstrated that substantial AI spending can translate into tangible returns.
Alphabet, however, fell nearly 10% in after-hours trading as concerns about cash generation and the cost of its AI expansion overshadowed strong cloud growth. The divergence highlights a shift in investor sentiment: markets are no longer rewarding companies simply for investing heavily in AI, but increasingly demanding evidence that spending is generating sustainable profits. With Nasdaq futures under pressure, Amazon’s results later today will provide another important test.
Looking ahead, today’s US GDP and PCE inflation releases could prove more influential for interest rate expectations than yesterday’s Fed meeting, as strong growth alongside persistent inflation would reinforce the case for December tightening. The ECB is also expected to leave rates unchanged today, with attention turning to Christine Lagarde’s guidance on a potential December hike and the impact of rising European sovereign borrowing costs. Ultimately, markets are facing a difficult combination of monetary policy uncertainty and increasingly selective enthusiasm for AI, leaving risk appetite vulnerable to further surprises.
