by Peter Jones, CFA
Executive Vice President
Equity Research and Portfolio Management
This past week offered a trifecta of market-moving headlines: the Federal Reserve lowering interest rates, the latest chapter in the U.S. - China trade saga and a flurry of earnings reports from the leaders in tech and AI.
As widely anticipated, the Federal Reserve delivered a 0.25% interest rate cut this week, bringing the federal funds rate to a range of 3.75% - 4%. The market's reaction was largely muted as this move was aligned with expectations and had been fully priced in by investors. The focus, therefore, quickly shifted from the cut itself to what comes next.
Chairman Powell's accompanying remarks quickly tempered enthusiasm. He emphasized that future rate decisions, including in December, would remain data-dependent, and additional cuts were not guaranteed, pouring cold water on expectations for an immediate follow-up cut in December. In fact, prior to Powell’s remarks, investors were pricing in a 92% probability that the Fed would cut rates again in December. As of the end of the week, that probability fell to 60%. The Fed's cautious stance suggests they are keenly aware of the need to balance stimulating growth with taming lingering inflationary pressures. While lowering interest rates is certainly helpful in providing liquidity and lowering short-term and floating rate borrowing costs, it's crucial to remember that it is not a magic bullet. Going forward, corporate profit growth, stable inflation and most of all, a healthy labor market, are the key factors to support an expanding economy and appreciating stock market.
U.S. - China Trade: A Familiar Tune
Another "truce" emerged in the trade dispute between the U.S. and China, offering a temporary reprieve from escalating tensions. While any de-escalation is welcome, the details reveal a continued status quo rather than a fundamental resolution. Core issues such as intellectual property theft, state subsidies and market access remain largely unaddressed, and significant tariffs on Chinese goods entering the U.S. persist.
This pattern of temporary truces followed by renewed friction has become a defining characteristic of the current administration's approach to China. While neither side wants severe economic disruption and therefore avoids outright trade wars, there also does not seem to be any near-term hope for a comprehensive and lasting solution. While headline risk might temporarily recede, the underlying structural challenges between the two economic superpowers endure.
Earnings from the Trillion Dollar Club
Microsoft, Alphabet, Meta, Apple and Amazon, representing 25% of the market value of the S&P 500, reported third quarter earnings this week. In a few words, they reported jaw-dropping growth in both cloud computing and in capital investments. These companies continue to defy gravity, churning out impressive revenue and operating profit figures (chart below).
Source: Company Earing Reports, Q3 2025
Despite reporting by far the highest revenue growth in the group, a notable exception to the generally positive tech narrative was Meta, which saw its stock price fall by over 11% following its earnings report. The market's negative reaction was centered on costs and future spending. Once a prodigious cash machine, Meta has seemingly transformed into a cash incinerator, indicating they are likely to spend around 90% of their operating cash flow on capital investments in 2026. Unlike the cloud service providers (Google, Amazon and Microsoft), for Meta it is not as obvious how spending on compute capacity turns into future cash flows. After all, Google, Amazon and Microsoft will turn around their investments in data centers and host AI workloads in the cloud for a fee. For Meta, with guidance for spending to increase even further, investors are questioning whether the returns on this investment will justify the enormous cost.
On the flipside, despite having below-average revenue growth, Amazon stock rallied more than 10% on their earnings report. For much of this year, the narrative around Amazon is that they have been losing market share in cloud computing to Microsoft’s Azure and Google’s GCP. In the third quarter, Amazon quieted the critics, reporting their fastest cloud revenue growth in three years. Juxtaposing Meta’s 11% stock price decline despite 26% revenue growth with Amazon’s 11% stock price rally on 13% revenue growth is a great reminder for investors: it is all about results relative to expectations instead of results by themselves.
Takeaways for the Week:
As expected, the Fed cut rates by 0.25% on Wednesday. The Fed has now cut rates by 0.5% in 2025 and a cumulative 1.5% since September 2024
The U.S. and China agreed to a trade “truce” that should diminish near-term headline risk, but does nothing to address structural issues
Magnificent Seven growth rates continue to defy gravity, but stock price reactions were mixed