Markets Await CPI

Good morning investors,

Wall Street finally gets its data fix today as September's Consumer Price Index emerges from the government shutdown blackout, likely showing inflation stuck around 3.1% annually. After weeks of flying blind, this single report carries outsized importance for Fed policy and market direction. Meanwhile, Intel's surprising profit and Ford's aluminum supplier disaster capture the dual nature of this earnings season: underlying strength meeting unpredictable disruptions.

Futures point modestly higher with Dow futures up 64 points, S&P 500 futures gaining 0.3%, and Nasdaq futures advancing 0.5%. Intel shares surge 7% premarket after the chipmaker delivered its first profitable quarter since the government took a 10% stake, while Procter & Gamble climbs 2% on earnings beat despite tariff headwinds. Major indices remain on track for weekly gains with the S&P 500 up 1.1% week-to-date.

The market largely shrugged off President Trump ending trade negotiations with Canada over an Ontario advertisement dispute, focusing instead on confirmed meetings with China's Xi Jinping next week during the Asia trip. After weeks without economic data, today's CPI reading at 8:30 AM will dominate trading as investors gauge whether the Fed can continue cutting rates with inflation potentially accelerating.

September's Consumer Price Index takes on extraordinary significance given the data vacuum from the government shutdown. Economists expect 0.4% monthly inflation bringing the annual rate to 3.1%, with core also at 3.1% year-over-year. As SMBC Nikko's Troy Ludtka noted, "This is going to be the report to end all reports" with all market attention directed toward this single data point.

The stakes are clear: an in-line or cooler reading keeps alive hopes for Fed cuts at both remaining 2025 meetings, while any upside surprise could derail the bull case entirely. With tariff pass-through potentially accelerating and the Fed already cutting despite above-target inflation, even slight deviations could trigger outsized reactions in a data-starved market.

Intel delivered a revenue beat of $13.65 billion versus $13.14 billion expected, with adjusted earnings of $0.23 per share crushing the $0.01 consensus. This marks the company's first report since Washington became its biggest investor with a 10% stake through an $8.9 billion capital injection. The unusual structure created accounting complications, with Intel absorbing a 37 cent charge related to the investment and warning results may need revision pending SEC guidance.

The Nvidia partnership announced last month pairs Intel's processors with Nvidia's dominant AI accelerators, critical for resurrecting Intel's struggling data center division. PC and laptop chips generated $8.5 billion demonstrating core demand recovery, though the foundry division still lacks major external customers despite $100 billion in planned capital spending. CEO Lip-Bu Tan's aggressive restructuring dropped headcount to 88.4 million from 124 million, with shares now up 87% year-to-date.

Ford crushed Q3 expectations with adjusted earnings of $0.45 per share versus $0.36 expected and record quarterly revenue of $50.5 billion. Yet management slashed full-year guidance to $6-$6.5 billion adjusted EBIT from $6.5-$7.5 billion due to a catastrophic fire at Novelis's New York aluminum plant disrupting production of Ford's most profitable trucks and SUVs.

CFO Sherry House revealed Ford was planning to raise guidance above $8 billion before the fire, making this cut particularly painful. Initial damage estimates reach $1.5-$2 billion, though Ford expects mitigation to under $1 billion by adding 1,000 workers to recover 50,000 units of lost truck production in 2026. The incident exposes how vulnerable automakers remain to single-point supply chain failures despite operational excellence elsewhere.

Anthropic and Google officially announced their cloud partnership Thursday, giving the AI company access to 1 million Tensor Processing Units worth approximately $50 billion in infrastructure. The company now reports a $7 billion annual revenue run rate from essentially zero two years ago, with 300,000 businesses using Claude representing 300x growth.

Claude Code generated $500 million ARR in just 60 days, possibly the fastest product launch ever. Rothschild analysts estimate Anthropic added 1-2 points to AWS's entire growth rate in Q4/Q1, expected to exceed 5 points by H2 2025. While OpenAI announces theoretical mega-projects, Anthropic's multi-cloud strategy across Google TPUs, Amazon Trainium, and Nvidia GPUs provides resilience that proved itself when AWS went down Monday and Claude didn't blink.

Thursday's quantum computing roller coaster saw stocks initially surge on reports of potential government equity stakes, only to reverse when sources refuted Commerce Department involvement. The whiplash highlights these companies' current position alongside meme stocks like Beyond Meat and Krispy Kreme in speculative portfolios rather than serious institutional allocations. Government backing would provide a credibility boost, but for now these remain high-risk, high-reward positions requiring strong conviction and patience.

Procter & Gamble beat expectations with $1.99 adjusted earnings per share versus $1.90 expected despite tariff pressures, with beauty and grooming leading growth. Target announced 1,800 corporate layoffs representing 8% of headquarters workforce in its first major reduction in a decade. Alaska Air lowered guidance on fuel costs and operational challenges while dealing with technology outage that grounded 229 flights.

Baker Hughes beat profit estimates on industrial and energy technology strength with record $32.1 billion backlog. Applied Materials announced 1,400 layoffs citing export control pressures. The earnings mosaic shows companies successfully navigating current challenges while preparing for tougher conditions ahead through cost discipline and strategic focus.

Today's CPI release carries extraordinary weight after weeks of data darkness, with even slight deviations potentially triggering outsized market reactions. The expectation of 3.1% annual inflation keeps Fed cuts alive, but any upside surprise could quickly unravel rate cut assumptions supporting current valuations.

Intel's profitable quarter under government ownership and Ford's supply chain vulnerability capture this earnings season perfectly: operational excellence meeting unpredictable external shocks. Anthropic's enterprise dominance validates AI's commercial reality while quantum computing's volatility reminds us how early we remain in that transformation.

October's volatility continues delivering opportunities for active managers as sectors diverge dramatically. The combination of pending CPI data, Trump-Xi meeting next week, and earnings demonstrating corporate resilience suggests markets can push higher into year-end once today's inflation hurdle clears. But with the Fed cutting despite above-target inflation and tariff impacts accumulating, the margin for error continues narrowing.

As always, feel free to reach out with questions about positioning for these evolving market dynamics.

Best regards, Dan Sheehan [email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.