The Compound
What Did the Fed Actually Say? | TCAF 215
10/31/2025, 1:01:40 PM
Economic Summary
- Tech capex and AI-related spending are strong and likely to continue; big incumbents (NVDA, MSFT, GOOGL, META) are still in early innings of deployment, so the stimulus to IT investment can persist across many quarters.
- There is a risk if AI spending becomes debt-financed: smaller public and private firms could face solvency or ROI problems, while large cash-rich firms (e.g., MSFT) can absorb overspend without broad spillovers for now.
- Powell signaled that a December rate cut is far from certain, forcing markets to reprice expectations; that communication hit mortgage- and housing-related stocks hardest and raises the probability of a longer pause in policy.
- Labor market dynamics show a 'low hire, low fire' environment with wages growing near 4%; AI may displace jobs over time but also create new roles, implying possible interim rises in unemployment and political consequences even with corporate margin strength.
- Shelter inflation metrics (owner's equivalent rent and private rent measures) appear to be decelerating, consistent with a gradual easing in shelter-driven CPI/PCE pressure, though CPI/PCE timing is lagged and noisy.
Bullish
- Large tech firms continue heavy AI-driven spending, supporting revenue and capex growth.
- Strong free cash flow at big techs provides a buffer to fund AI investments without immediate distress.
- Investor flows into AI products/ETFs show broad demand and can sustain sector rallies.
Bearish
- Debt-financed AI and capex could leave smaller or overlevered firms vulnerable if ROI disappoints.
- If the Fed delays or skips a December rate cut, housing and mortgage-sensitive stocks may give back gains.
- AI-driven labor disruption could produce political and social costs despite aggregate economic gains.
Bullish tickers
NVDAMSFTGOOGLAMZN
Bearish tickers
METACMGHOUSING
NVDA
Bullish
Central player in AI infrastructure demand; heavy spending trends and ETF inflows support further upside.
Bearish
Valuations are extreme and priced for many future quarters; disappointment in AI monetization could trigger large drawdowns.
MSFT
Bullish
Strong free cash flow and diversified business make MSFT well positioned to fund AI investments and sustain growth.
Bearish
If overall tech capex cools, Microsoft could see slower growth in cloud and AI services.
GOOGL
Bullish
Large-scale capex and sustained ad/search demand position Alphabet to benefit from AI and infrastructure investments.
Bearish
High capex run rates (large $100B+ scale) risk lower near-term returns if monetization lags.
META
Bullish
Big balance sheet and core business allow Meta to experiment with AI compute and potentially redeploy assets.
Bearish
Aggressive AI spending risks overinvestment; smaller firms following Meta's lead could misallocate capital.
CMG
Bullish
Strong brand and pricing power could allow recovery if consumer spending stabilizes.
Bearish
Management comments about weaker young-customer spending suggest demand softening risk for Chipotle.
AMZN
Bullish
Ongoing retail and cloud demand plus AI opportunities support continued investment and revenue growth.
Bearish
Highly volatile stock performance can undercut investor sentiment in the short term.
People mentioned
Stephanie RothJerome PowellMark ZuckerbergDan IvesCallie CoxLisa AbramowitzMyronMichaelJoshJohnDuncanChrisJeffreySprinkles