Yahoo Finance: Market Coverage, Stocks, & Business News

Key Concepts

Market Catalysts: Events or factors that significantly influence market movements.
Tech Selloff: A rapid decline in the prices of technology stocks.
Chip Stocks: Stocks of companies involved in the design, manufacturing, or sale of semiconductors.
ETFs (Exchange-Traded Funds): Investment funds traded on stock exchanges, offering diversification and liquidity.
Passive vs. Active ETFs: Passive ETFs track an index, while active ETFs are managed by a fund manager who makes investment decisions.
Alpha: Investment returns above a benchmark.
Beta: Market risk.
AI (Artificial Intelligence): The simulation of human intelligence processes by machines.
Quantum Computing: A type of computation that harnesses quantum-mechanical phenomena, such as superposition and entanglement, to perform calculations.
Quantum Advantage: The point at which quantum computers can solve practical problems faster or more cost-effectively than classical computers.
Chiplets: Smaller, specialized integrated circuits that can be combined to form a larger system.
Gate Fidelity: A measure of the accuracy of quantum gates, which are the basic building blocks of quantum computations.
Consumer Slowdown: A decrease in consumer spending.
Same-Store Sales Growth: A measure of sales growth for existing stores, excluding new openings.
Macroeconomic Headwinds: Economic factors that negatively impact businesses and consumers.
Tariffs: Taxes imposed on imported goods.
Monetary Policy: Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.
Federal Reserve (The Fed): The central bank of the United States.
FOMC (Federal Open Market Committee): The monetary policymaking body of the Federal Reserve.
Interest Rates: The cost of borrowing money.
Neutral Rate: The theoretical interest rate at which monetary policy is neither expansionary nor contractionary.
Inflation: A general increase in prices and decrease in the purchasing value of money.
Output Gap: The difference between the actual output of an economy and its potential output.
Supply Side Economics: Economic policies that focus on increasing the supply of goods and services.
Demand Side Economics: Economic policies that focus on stimulating consumer demand.

Market Overview and Tech Selloff

The US trading day is 30 minutes in, with major averages showing a rebound. The Dow is up around 90 points, the NASDAQ Composite is up 0.510%, and the S&P 500 is up 0.310%. However, over the past two days, the market is still down approximately 1.5% following a sell-off that wiped out roughly $500 billion from chip stocks.

Within the NASDAQ 100, the picture is mixed. While names like Alphabet, Meta, and Broadcom are rebounding today, many of these tech giants were in the red over the past two days. Nvidia and AMD both fell 3% over the last two days, despite stronger-than-expected earnings and raised guidance, indicating that even positive results may not be enough to meet lofty market expectations.

Bitcoin prices have also been dipping, trading above $100,000 per coin but having dipped below that level earlier in the session. Over the past two days, Bitcoin was down roughly 3%, though it remains up around 10% year-to-date, highlighting significant volatility.

Navigating Tech Volatility with ETFs

Vince Laruso, CEO and President of Cloud Capital, discussed how investors can stay exposed to tech while managing volatility through ETFs. He highlighted that while ETFs have traditionally been seen as passive strategies offering liquidity, tax efficiency, and transparency, recent regulatory changes since 2019 have introduced a wide range of actively managed ETFs.

Passive vs. Active ETFs:

Passive ETFs: Offer exposure to a benchmark, sector, or geography without active management. They are a good way to gain "beta" (market risk).
Active ETFs: Employ fund managers who use research and unique investment processes to generate "alpha" (returns above a benchmark), potentially with less volatility. Cloud Capital, as a fundamental active manager, believes this is a good time to leverage active managers to navigate market volatility.

Laruso emphasized that ETF names indicate the structure, not the investment strategy. Investors must read prospectuses to understand the investment process and investable universe. Cloud Capital focuses on fundamental research, identifying macro environments, themes, and specific securities to construct their ETFs. While the majority of ETFs are still passive, there's a resurgence in actively managed ETFs.

Themes in the Current Environment: Laruso conceded that tech is the primary driver of economic growth and market capitalization, noting that it looks less like a bubble due to strong free cash flow generation and productivity gains. He sees technology as the underpinning of the global economy. The focus extends beyond semiconductor chips to derivative plays, including semiconductor fabs, manufacturers, designers, and the build-out of data center infrastructure and energy supply. This broad mandate allows for exposure to themes without being confined to a specific sector, impacting companies in biotech, media, and beyond.

Outlook for 2024-2026: Cloud Capital identifies profit and credit cycles as their "compass." They are bullish on technological innovation and demographics, seeing the baby boomer generation's retirement as a deflationary pressure. With less appetite for credit spreads in bonds, equities are seen as a strong investment. Thematically, they favor technology, data center infrastructure, media, biotech, and natural gas names. Their ETF holdings, listed on cloudetfs.com, include a mix of well-known companies, less familiar names, and small to mid-cap stocks identified through bottom-up research.

Cava's Growth Forecast and Consumer Trends

Cava CEO Brett Schulman discussed the company's third-quarter results and a revised full-year sales growth forecast from 6-8% down to 3-4%. This adjustment is attributed to macroeconomic headwinds impacting the 25-35 year old demographic. While Cava has grown market share and wallet share with this group, their visit frequency has moderated due to cost pressures from student loan repayments, housing, and healthcare costs.

Addressing Consumer Challenges: Schulman stated that Cava does not over-index on Gen Z but acknowledges it as a core segment facing challenges. The unemployment rate for Gen Z is double the national average. Cava has focused on underpricing inflation, taking less than half the price increases of industry peers since 2019 (less than 17% vs. 34% for peers).

This pullback in younger consumers is not unique to Cava, with similar observations from Shake Shack, Chipotle, and Sweet Green. Cava's two-year same-restaurant sales have accelerated, growing revenue by 20% year-over-year and 67% on a two-year basis. They continue to gain market share across all customer segments. New restaurant openings are performing at record levels, with average unit volumes exceeding $3 million.

Menu Innovation and Expansion: Cava is launching salmon in late spring 2026, its first seafood item, to add variety to its protein mix. They are also mindful of cyclical headwinds and are working to make their food more accessible.

Headwinds and AI Integration: Schulman mentioned lingering tariffs and the government shutdown as headwinds. While initial impacts of the shutdown in their hometown of DC were minimal, softness has emerged as paychecks were not distributed. Cava has absorbed tariff impacts, passing on less than 2% price increases in the last 18 months, with a 20 basis point impact on COGS this quarter.

Cava is leveraging AI in its kitchens to improve productivity, team member experience, and guest experience. AI applications include prep scheduling, production forecasting, inventory management, and labor scheduling, using camera vision and historical data. The goal is to enhance the human experience, not replace it, freeing up teams to focus on guest engagement and hospitality.

Expansion Plans: Cava has no international plans, focusing on domestic expansion with significant whitespace opportunities. They are building out the Midwest and have not yet entered the Pacific Northwest or Northern California. They reiterated guidance for 68-70 new units this year (18% unit growth) and at least 16% next year, with a strong real estate pipeline and confidence in new restaurant performance.

Trending Tickers and Analyst Calls

Rivian: Topped Q3 estimates due to cost-cutting and staff reductions, with consumers buying EVs ahead of expiring federal incentives. The company plans to launch a new midsize SUV next year but kept its full-year loss outlook unchanged due to trade tensions and loss of EV tax credits.
Humana: Reported better-than-expected adjusted profit for Q3, but shares are under pressure due to higher-than-expected medical costs, raising concerns about rising healthcare expenses.
Unity Software: Shares jumped after reporting better-than-expected Q3 results and a stronger Q4 revenue forecast.
Micron: Reported weaker-than-expected Q1 FY2026 results, leading to an 8% stock drop. However, some analysts see this as a buying opportunity, with KGI Securities raising its rating to outperform. The stock is up over 40% year-to-date.
Pinterest: Shares tanked after an earnings miss and weaker forecast, leading to price target cuts from multiple firms. The average price target is $38, with the stock trading around $26.
Yum Brands: Evercore ISI raised its price target to $180 after better-than-expected results. The company is reportedly looking to sell its Pizza Hut segment.

McDonald's Performance Amidst Consumer Slowdown

McDonald's shares are trading higher after reporting US store sales that topped forecasts for the second consecutive quarter. The company is focusing on value offerings in a "challenging environment."

John Tower, a restaurant analyst, noted McDonald's strategy of pulsing incremental value, including a $5 meal deal starting in summer 2024 and the "McValue" platform since January. They amplified this in September with an extra value meal and a $40 million advertising push, making value offerings prominent at drive-thrus with $5 and $8 combo meal price points.

Innovation is also a key driver, with the introduction of Snap Wraps and anticipated beverage innovation in 2026. IP collaborations are also seen as beneficial.

Broader Restaurant Landscape: Despite McDonald's success, other brands like Yum and fast-casual chains are warning of a challenging consumer environment, particularly for lower-income and younger diners. Tower anticipates greater promotional activity across the industry and potential consolidation as brands and franchises face pressure on their P&Ls. This could lead to store closures and opportunities for healthier brands to gain market share.

Investment Strategy: Tower recommends companies with strong balance sheets, cash flow visibility, and the ability to grow through new store growth and same-store sales. He highlights McDonald's for its value message and product news, Chipotle for its value proposition and operational enhancements, and Darden (Olive Garden) for its portfolio growth in casual dining. First Watch is mentioned as a smaller-cap name excelling in daytime dining for higher-income guests.

Tariffs and Small Business Impact

The US has collected $195 billion in revenue through tariffs this year through September. The Supreme Court is hearing arguments that could determine the future of these tariffs, which have disproportionately affected small businesses.

Elizabeth Gore, host of The Big Idea podcast and co-founder of Hello Alice, discussed the stakes for small businesses. Six small business owners are arguing that they cannot sustain the significant price increases caused by tariffs, which in some cases have gone up as much as 100%. Companies like veteran-owned Busy Baby and Brooklyn Tea are facing challenges. The represented companies include a fishing tackle company, a wine importer, a pipe fitter, and a toy company.

Half of the tariff revenue collected was under the President's ability to use the EPA. While large companies may absorb these costs, small businesses often cannot, leading to price increases for consumers. The argument at the Supreme Court is not about the validity of tariffs but the President's power to impose them without a congressional process.

Gore warned that if the ruling is upheld, it could lead to more closures and bankruptcies for small businesses, especially as they are still recovering from COVID and facing expensive capital. She encourages increased small business grants and bridge loans through the SBA.

Rigetti Computing and the Future of Quantum Computing

Sajid Carney, CEO of Rigetti Computing, discussed the commercialization of their quantum computing products.

Milestones and Challenges: Rigetti recently launched a 36-qubit system comprising four 9-qubit chiplets, achieving a 2-qubit gate fidelity of 99.5%. Carney believes chiplets are crucial for scaling quantum computing to hundreds and thousands of qubits.

The biggest challenge is reaching "quantum advantage," where quantum computers outperform classical computers for practical applications, which they estimate is 3-5 years away. This requires reaching roughly 1,000 qubits, 99.9% 2-qubit gate fidelity, faster gate speeds, and some form of error correction. The immediate focus is on improving the 2-qubit gate fidelity from 99.5% to 99.9%.

Skepticism and the Need for Quantum Computing: Carney addressed skepticism about quantum computing, noting that nature itself demonstrates a perfect quantum computer in the human brain. He acknowledges the complexity of quantum mechanics but points to the progress made by companies like Rigetti, IBM, and Google. He believes investors are increasingly recognizing the reality of quantum computing, as evidenced by company valuations.

AI and Quantum Computing Synergy: Carney predicts that by 2026, quantum computing combined with AI will lead to hybrid systems that offer a more elegant, faster, and better way to achieve Artificial General Intelligence (AGI).

Federal Reserve Monetary Policy and Economic Outlook

Fed Governor Steven Myrin discussed the Federal Reserve's monetary policy and the economic outlook.

Labor Market and Monetary Policy: Myrin views the labor market as showing modest job creation, moderating wages, and potentially softening labor demand. He believes interest rates could be lower than current levels. He also discussed the structural vs. cyclical nature of job growth, noting that policy changes like immigration can be "output gap neutral" as new workers also consume.

Supply Side and Demand Side Economics: Myrin believes both supply-side and demand-side economics matter. He supports expansionary supply-side policies like full expensing for PP&E, which can boost investment demand and increase productive capacity. However, he notes that regulations can shape the economy and potentially expand output gaps that monetary policy should address.

Tariffs and Economic Impact: Myrin does not believe tariffs are driving material inflation. He also sees shelter inflation coming down more quickly than many colleagues. He believes policy is too restrictive and that moving faster towards a neutral rate is necessary to avoid undue harm to the job market. He noted that while the economy doesn't crater immediately with restrictive policy, prolonged restrictiveness carries risks.

Interest Rates and Housing: Regarding Treasury Secretary Scott Besson's comments about parts of the economy, particularly housing, potentially being in recession, Myrin stated that the Fed's mandate is to target maximum employment and stable prices for the economy as a whole, not specific sectors.

December Rate Cut Outlook: Myrin indicated that based on the September Summary of Economic Projections, a December rate cut was the median forecast. He believes new information since then, including lower-than-expected inflation and a stable labor market, would be consistent with increasing the odds of a December cut, barring new information.

Inflation and Shelter Costs: Myrin views the latest CPI report as consistent with his expectations, with shelter disinflation compensating for higher inflation in other segments. He believes market rents, running at about 1% on a weighted average basis, will eventually converge with official data. If there were a significant change in shelter inflation, his forecast and policy outlook would need to be revised. He also noted that certain "imputed services" in the PC index, like portfolio management fees influenced by stock market movements, can distort inflation data and are not necessarily indicative of supply-demand imbalances that monetary policy should target.

Market Action and Investor Sentiment

Palantir Pullback: Despite strong earnings and guidance, Palantir's stock pulled back, which some attribute to stretched valuations and a divergence between the S&P 500 and the equal-weight S&P 500. While a pullback is seen as healthy, some investors are waiting for the news to settle before buying. Palantir's high valuation (213 times forward earnings) is noted, but its commercial business growth (up 121% year-over-year) is impressive. The stock's significant retail investor support is also a factor.
Uber: Similar to Palantir, Uber also saw a pullback despite a strong report.
Market Breath: The market is seen as taking a "breath" after a period of strong gains, with a potential for a pause or dip.
CEO Commentary: Concerns are raised about Wall Street CEOs calling pullbacks "healthy" when investors are losing money.
Valuation Concerns: The market has been talking about stretched valuations for a while, and even strong reports are not preventing pullbacks.

Conclusion

The market is navigating a complex environment characterized by a tech selloff, particularly in chip stocks, alongside a rebound in major averages. Investors are seeking strategies to manage volatility, with actively managed ETFs emerging as a tool. Consumer spending is showing signs of a slowdown, impacting fast-casual chains like Cava, which is adjusting its growth forecasts due to macroeconomic headwinds affecting younger demographics. McDonald's, however, is demonstrating resilience through value offerings and innovation.

On the policy front, the Federal Reserve is grappling with inflation and labor market data, with differing views on the pace of interest rate adjustments. Tariffs continue to pose challenges for small businesses, with a Supreme Court case potentially impacting their future. In the realm of advanced technology, quantum computing is making strides, with Rigetti Computing focusing on scaling up systems and achieving quantum advantage, while also anticipating a synergistic future with AI. The market sentiment remains cautious, with ongoing discussions about valuations and the potential for further volatility.