Amazon soars on earnings, why the gold rally could return

Key Concepts

• Market Performance: Dow, S&P 500, Nasdaq, Russell 2000 performance, Treasury yields, US Dollar Index, Bitcoin, Ether.
• Big Tech Earnings: Apple, Amazon, Microsoft, Meta, Alphabet, Nvidia, Broadcom, AMD.
• AI Trade: Spending, revenue generation, circular investing, over-capitalization.
• Consumer Health: Income cohorts, spending frequency, economic outlook.
• Federal Reserve Policy: Interest rate cuts, December cut outlook, monetary policy.
• Gold and Silver Markets: Central bank buying, ETF demand, physical demand, price targets, industrial use cases.
• Geopolitics: US-China tensions, safe haven bid.
• Airline Industry: Government shutdown impact, air traffic controllers, clean CR.
• Company Specifics: Roblox, Fox Corporation, Kimberly Clark, Exxon Mobile, Chevron, Dominion, Disney, YouTube TV, Apple leadership.

Market Performance and Big Tech Earnings

The market experienced a downturn, with the Dow down approximately 20 points, the S&P 500 down 0.7%, and the tech-heavy Nasdaq down 1.4% as investors digested a flurry of earnings reports and headline news. The Russell 2000 (small caps) also saw a slight decline. Treasury yields moved higher, with the 10-year Treasury at 4.09%, and the US Dollar Index also strengthened, potentially impacting equities. Bitcoin was down over 3.5% at around $107,000 per token, and Ether was down over 5% at $3,700 per token.

Key Points:

• Dow: Down ~20 points.
• S&P 500: Down ~0.7%.
• Nasdaq: Down ~1.4%.
• Russell 2000: Slightly lower.
• 10-Year Treasury Yield: 4.09% and ticking higher.
• US Dollar Index: Moving higher.
• Bitcoin: Down >3.5% (~$107,000).
• Ether: Down >5% (~$3,700).

Tech Stock Performance (MAG 7):

The Nasdaq 100 showed a mixed picture for the "MAG 7" companies:

• Nvidia: Down over 2%, trading below its $5 trillion valuation.
• Microsoft: Down over 3% despite a strong earnings report, indicating a negative market reaction.
• Meta: Down 11%, with investor concerns potentially stemming from significant AI spending.
• Alphabet: Higher, with the market appearing more enthused by its AI investments and return on investment, despite also spending heavily on AI. Alphabet is up nearly 50% year-to-date.
• Apple and Amazon: Gearing up to report earnings after the market close.

Chip Space:

The chip sector was also under pressure, with Nvidia, Broadcom, and AMD all trading lower.

Apple and Amazon Earnings Preview

Investors were keenly awaiting the earnings reports from Apple and Amazon after the market close.

Apple:

• Key Focus: iPhone sales.
• Counterpoint Research Report: iPhone 17 sales were up 14% year-over-year in the US and China during the first 10 days of sales compared to the iPhone 16.
• Expected Q4 Results:
  • iPhone Sales: $49.3 billion (up 6.7% year-over-year).
  • Services Revenue: $28.2 billion (up 12% year-over-year).
  • EPS: $1.77.
  • Revenue: $102.1 billion.
• Market Cap: Recently crossed and holding above the $4 trillion mark, placing it in the same league as Microsoft and Nvidia.
• AI Strategy: Expected to be a topic of discussion, though significant details from Tim Cook are not anticipated.

Amazon:

• Key Focus: AWS (Amazon Web Services) performance.
• Cloud Computing Wars: Investors are closely watching AWS's growth relative to Microsoft Azure (up 39%) and Google Cloud.
• Concerns for AWS: Lack of a "marquee" AI service like OpenAI (Microsoft) or Gemini (Google). AWS partners with Anthropic, which also splits time with Google.
• Anthropic Deal: Announced Anthropic will use 1 million AWS chips to train and deploy, a move that mirrors a similar announcement from Google a week prior, offering little distinct advantage.
• Expected Q3 Results:
  • AWS Revenue: Potentially $3.2 billion (up 18%).
  • Note: The transcript later provides actual Q3 AWS net sales as XFX up 20%, consensus closer to 17.9%.

Investment Strategy and Market Trends

Patrick Ryan, Chief Investment Strategist at Madison Investments, discussed concerns about the AI trade and opportunities beyond the "Magnificent 7."

Main Topics and Key Points:

• AI Trade Concerns:
  • Circular Investing: Parallels drawn to the late 1990s and vendor financing, with companies investing in each other.
  • Sustainability: Questions raised about where future revenue will come from to sustain current spending levels.
  • "Long in the Tooth": The AI trade may be nearing its end, with a "spidey sense" of caution due to extensive investment.
• Opportunities Beyond MAG 7:
  • Small Caps (Down Cap): As long as the economy performs well, small-cap stocks offer opportunities.
  • Equal Weight vs. Cap Weight: The S&P 500 Equal Weight index has lagged the S&P 500, indicating many stocks have been left behind. Only about 35% of stocks in the index are outperforming the S&P 500 year-to-date.
  • S&P 600 and S&P 400: These indices present better opportunities, though earnings need to pick up, and the economy needs to accelerate.
  • Valuations: While not screamingly attractive, valuations in smaller caps are more appealing relative to the S&P 500.
• Consumer Health:
  • Chipotle's Alarming Data: The CEO noted a widening pullback across all income cohorts, with low to middle-income guests reducing frequency. This indicates a "drip up" into the next consumer strata, which is concerning.
  • Economic Outlook: Inflation is hitting consumers harder, and a potential rollover in employment could exacerbate problems.
• Federal Reserve Policy:
  • Rate Cut: The Fed cut rates by 25 basis points.
  • December Cut Uncertainty: Fed Chair Jerome Powell stated a December cut is "far from a foregone conclusion," surprising many who expected it.
  • Fed's Message: Potentially to temper market expectations, acknowledge diverse opinions within the FOMC, and signal caution due to low visibility into economic data.
  • Market Odds: Despite Powell's comments, the market still prices in a greater than 70% chance of a December cut.
  • Ryan's View: Believes the Fed will likely cut rates this year and next, unless there's a significant deterioration in the economy or employment.

Airline Industry and Government Shutdown

Praz Samuran reported on airline CEOs meeting with the White House to discuss the impact of the ongoing government shutdown.

Key Points:

• Impact on Air Traffic Controllers: The shutdown is causing stress and financial hardship for air traffic controllers, with many unable to miss two paychecks.
• Economic Stress: The shutdown is also putting stress on the broader economy.
• Call for a Clean CR: United CEO Scott Kirby urged for a "clean continuing resolution" (CR).
• Flight Delays: Only 2% of flights have been delayed during the shutdown, but the potential for more is present.
• Political Leverage: Democrats view the shutdown as leverage to secure healthcare subsidies.
• Thanksgiving Travel: Concerns are high for potential disruptions during the upcoming Thanksgiving holiday travel period if a deal is not reached.

Gold and Silver Market Analysis

Ben McMillan, Chief Investment Officer at IDX Advisors, provided insights into the gold and silver markets.

Gold Market:

• Recent Cool-off: The gold rally has cooled following the Fed's rate cut, with Powell signaling uncertainty about a December cut.
• Drivers of the Rally:
  • Central Bank Buying: Central banks have significantly increased their gold purchases, becoming marginal buyers.
  • ETF Demand: Institutional and retail buying through ETFs has been substantial.
  • Physical Demand: Strong physical demand, with lines for gold bullion observed.
• Structural Tailwinds: These factors are considered structural and generational, driving gold higher.
• Technical Pause: The rapid rise in gold has led to a technical pause, especially with shifting interest rate expectations.
• Consolidation: The current phase is viewed as a consolidation, with dip buying observed below $4,000 per ounce.
• Recession Impact: A recession could lead gold to retest levels of $3,800-$3,600, but institutional buying is expected to support it.
• Goldman Sachs Target: Seen as "very likely" to hit $4,900 by the end of next year.
• Currency Debasement Trade: Gold is part of a broader currency debasement trend, with central banks now owning more gold than treasuries. This trend has shifted to "Main Street."
• Fed's Impact: The near-term impact of Powell's comments on gold is negative due to competition with interest rates. However, the structural demand shift is a significant factor.
• Inflation Concerns: Powell's focus on inflation over jobs suggests potential headwinds for gold if inflation remains elevated.
• Allocation Recommendations: Goldman Sachs is recommending higher allocations to gold in 60/40 portfolios.
• Geopolitical Impact: De-escalation of US-China tensions could reduce the safe-haven bid for gold, potentially elongating the consolidation phase. However, it does not address fiscal and monetary deficits.

Silver Market:

• Price Target: Silver could hit $100 by the end of next year.
• Drivers:
  • Industrial Use Case: Robust demand from solar energy and electrification buildouts.
  • AI Spillover: AI's influence has extended to copper and other electrification components, including silver.
  • China's Buildout: China's focus on solar power will require significant physical silver.
• Supply Squeeze: Facing a supply squeeze due to strong physical industrial demand.
• Paper vs. Physical: More paper contracts than physical silver available, leading to a situation similar to the 1980s.
• Currency Debasement: Silver is also part of the currency debasement trade, with a multi-year, multi-decade uptrend expected.

Trending Tickers and Company News

Roblox:

• Q3 Results: Topped estimates for revenue, bookings, and daily active users.
• Outlook: Lifted full-year outlook.
• Net Losses: Saw a rise compared to the previous year.
• Future Challenges: Looming challenges in 2026, including tough comparisons and new safety policies.

Fox Corporation:

• Q1 Results: Beat earnings and revenue expectations.
• Television Segment: Strong performance noted by City.
• Advertising Revenue: Topped street expectations.
• Outperformance Drivers: Ratings and advertising for live news and sports anchor Fox's outperformance.
• Share Repurchase: Announced a $1.5 billion accelerated share repurchase transaction.

Kimberly Clark:

• Q3 Results: Delivered an earnings beat.
• Organic Sales: Rose 2.5%, exceeding analyst estimates of 1.9%.
• 2025 Outlook:
  • Adjusted Operating Profit: Expected to grow at a low single-digit rate (constant currency).
  • Adjusted EPS: Expected to grow at a low to mid single-digit rate.

Market Domination Overtime and Closing Bell

Market Close Recap:

• Dow: Down 210 points (0.63%).
• Nasdaq Composite: Down 1.5%.
• S&P 500: Down 1%.
• Nasdaq 100: Mixed picture for MAG 7.
  • Amazon: Down >3% ahead of earnings.
  • Meta: Down 11%.
  • Nvidia: Down >2%, below $5 trillion valuation.
  • Apple: Up 0.61%.
  • Tesla: Down 4%.
• Sectors: Consumer discretionary, communication services, and materials were down. Financials, healthcare, and real estate were in the green.
• Crypto: Bitcoin down 3.8%, Ether down >5%. Crypto stocks also in the red.

Amazon Q3 Earnings:

• EPS: $1.95 (beat street estimate of $1.58).
• Net Sales: $180.17 billion (beat street estimate of $177.82 billion).
• AWS Net Sales: XFX up 20% (beat consensus of 17.9%).
• North American Net Sales: $106.27 billion (beat street estimate of $104.96 billion).
• Q4 Outlook:
  • Operating Income: $21 billion to $26 billion (street was $23.78 billion).
  • Net Sales: $200 billion to $213 billion (street was $208.45 billion).
• After-Hours Reaction: Initial strong positive move in after-hours trading, with shares up over 9% at one point.
• AWS Acceleration: Andy Jassy highlighted AWS reaccelerating, growing 20% year-over-year.
• Tanium Chip Business: Now a $1 billion a year business.
• Project Rainier: Launched a data center using 500,000 Tranium chips for AI training and deployment.
• Stock Performance: Despite strong earnings, Amazon's stock has lagged Google and Microsoft year-to-date and over the last 12 months.

Fed Policy and Investment Themes

Rich Bernstein, CEO of Richard Bernstein Advisors, discussed the Fed's actions and investment opportunities.

Key Takeaways:

• Big Tech Earnings Reception: The issue is not whether businesses are doing well, but whether they are uniquely performing well. Many other companies globally are growing as fast or faster without the same attention.
• AI Boom vs. Bubble:
  • Economic Story: AI will undoubtedly change the economy, similar to past technological advancements (internet, automobile, light bulb).
  • Investment Story: The success of long-term investment themes depends on capital supply and demand. AI is not starved for capital, suggesting potential over-capitalization which could hurt long-term investment returns.
• Federal Reserve Policy:
  • Jawboning: Powell's comments about a December cut being uncertain are seen as traditional Fed jawboning to temper market expectations and acknowledge uncertainty.
  • Economic Conditions: Bernstein argues the Fed doesn't need to cut rates given GDP tracking at 3.5-4%, inflation at 3% (not heading towards 2%), and employment not weakening significantly.
  • Banking System Impact: The Fed alters the economy via the banking system. If there's no hindrance to lending, rate cuts may not be necessary.
• Investment Opportunities:
  • High-Quality Non-US Companies: These companies offer faster projected earnings growth than MAG 7, 10x the dividend yield, and 30-50% lower valuations.

Future Market Events and Company News

Upcoming Events (Friday, October 31st):

• Earnings: Exxon Mobile, Chevron, Dominion (energy sector).
  • Exxon Mobile: Q3 results expected to be boosted by downstream businesses ($1.1 billion to profits), but offset by lower oil prices ($700 million reduction).
• Federal Reserve Commentary: Fed Presidents Lorie Logan, Beth Hammock, and Raphael Bastic.
• Media Dispute: Disney and YouTube TV facing a dispute that could lead to ABC and ESPN being pulled from YouTube TV if a new deal isn't reached by midnight. YouTube TV has over 10 million subscribers and is seeking shorter, cheaper contracts.

Apple Leadership:

• Tim Cook's Tenure: CEO since 2011, overseeing major product launches and strategic shifts.
• Wall Street Pressure: Concerns over Apple's slow AI move and the search for its next big product post-iPhone.
• Potential Successors:
  • Jeff Williams (former COO) is retiring.
  • Craig Federigi (SVP Software Engineering).
  • John Ternus (SVP Hardware Engineering).
  • Greg Joswiak (SVP Worldwide Marketing).
  • Eddy Cue (SVP Services).
  • Deirdre O'Brien (SVP People and Retail).
• Analyst View: Some analysts question if it's time for a product-focused CEO. However, Cook is expected to lead for at least the next 5 years.

Apple Earnings Preview (Dan Howie):

• iPhone 17 Cycle: Positive news flow, with lead times for iPhones appearing extended, seen as a bullish sign.
• iPhone 17 Sales:
  • Base iPhone and Pros selling well.
  • iPhone Air sales are reportedly not as strong as initially hoped.
  • Counterpoint Research: iPhone 17 sales up 14% year-over-year in the US and China in the first 10 days.
  • Jefferies: Lead times have been shrinking, which could indicate a softening in demand after initial launch spikes.
• Services: Expected to generate $28.2 billion in revenue (up 12% year-over-year), including Apple TV Plus, Music Plus, Fitness Plus, Apple Care, etc.
• Wearables: Expected to decline 4.5% year-over-year.
• Mac and iPad: Expected to see slight revenue growth, but new models were released recently and won't significantly impact the prior quarter's results.

Conclusion and Synthesis

The market experienced a broad decline as investors processed a wave of big tech earnings and economic news. While some tech giants like Alphabet and Amazon (post-earnings) showed strength, others like Meta and Nvidia faced headwinds. The AI trade remains a dominant theme, but concerns about over-capitalization and circular investing are growing. The Federal Reserve's recent rate cut was tempered by signals of caution regarding future moves, leading to uncertainty in the market. Opportunities are being sought beyond the "Magnificent 7," with a focus on smaller-cap companies and high-quality non-US firms. The consumer's resilience is being tested, with signs of spending pullback across income levels. In commodities, gold is seen as consolidating after a strong rally, driven by structural demand from central banks and individuals, while silver is poised for significant gains due to its industrial applications. The airline industry faces potential disruptions from the government shutdown, and attention is turning to Apple's upcoming earnings and leadership succession.