Good morning investors,
Micron's blowout earnings forecast of $18.70 billion versus $14.20 billion expected shows AI demand remains insatiable despite Oracle's data center financing woes. November CPI at 8:30 AM expects 3.1% annually, the psychological difference between a 2 handle and 3 handle could determine whether we get a Santa Claus rally. Fed Governor Waller, still in the running for Powell's chair, declared "the labor market's telling you we should continue cutting rates" at Yale's CEO Summit. Tech's 4% selloff yesterday on Oracle's debt concerns sets up today's battle between AI believers and bubble worriers.
Opening Bell: Micron's AI Validation
S&P ($SPY ( ▼ 1.55% )) futures up 0.4% with Nasdaq ($QQQ ( ▼ 2.03% )) futures surging 0.8% while Dow ($DIA ( ▼ 1.33% )) futures gain 91 points. Micron ($MU ( ▲ 0.89% )) rockets 14% premarket after crushing Q1 earnings with $4.78 EPS versus $3.95 expected on $13.64 billion revenue. The company's Q2 guidance of $18.70 billion absolutely demolished the $14.20 billion consensus, proving memory chip demand from AI data centers remains explosive.
Oracle ($ORCL ( ▼ 0.43% )) continues struggling after Financial Times reported its primary investor pulled from the $10 billion Michigan data center project. The financing concerns that crushed tech yesterday persist despite Micron's validation.
CPI's Psychological Threshold
Today's November CPI release at 8:30 AM marks the first inflation data since the shutdown ended. The 3.1% expected annual rate puts us at a critical psychological threshold and the initial and on going reaction difference between a two handle and a three handle could be large.
Without October data for comparison, this report arrives incomplete and potentially biased since BLS only collected the second half of November's data. Whether this is the case or not, I often tell people that make data readings political, the market will react to the numbers released and not how you feel about them.
Waller's Dovish Push
Fed Governor Christopher Waller meeting with Trump Wednesday keeps him in the chair succession race alongside the two Kevins. His Yale comments advocating continued cuts despite colleagues' patience shows clear dovish leanings: "We're not seeing a dramatic decline, just continuing to soften. So we can go at a moderate pace."
This stance contrasts with the broader FOMC's wait and see approach but aligns perfectly with Trump's preference for easier policy. Waller having actual voting power today makes his views immediately market-relevant unlike external candidates.
Oracle's Debt Shadow
Yesterday's tech selloff with Nvidia down 4%, Broadcom over 4%, and Alphabet over 3% stemmed from Oracle's financing struggles raising existential questions about AI infrastructure funding. The company's use of massive debt for data center buildout cast doubt across the entire sector's sustainability.
Yet Micron's results suggest the issue is Oracle specific rather than systemic. Memory chips seeing "soaring prices amid tight supplies" per Micron validates continued AI investment even if individual companies struggle with execution.
I think the sell off in most of these tech stocks is overdone. Broadcom reported good earnings and was undeservedly punished. I like Broadcom as a leader in the AI story. I am also slowly moving towards the camp that this Oracle sell off is now overdone. Yes there are funding concerns, and a string of negative news events, but I still think the company can benefit longer term.
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The timing capitalizes on crypto's 2025 momentum while regulatory clarity improves. I believe that coin base will recover $300 in 2026 as Bitcoin moves back to the upside.
Fed Policy Crossroads
The Fed finds itself paralyzed between conflicting signals. Waller sees softening labor markets justifying cuts while others cite sticky inflation and solid growth arguing for patience. Today's CPI becomes crucial, a 2.9% print could unlock Santa Claus rally potential while 3.1% or higher validates hawkish concerns.
Torres believes keeping inflation in the twos strengthens 2026 easing expectations versus crossing into the threes limiting Fed flexibility. This binary outcome setup creates volatile potential around 8:30 AM.
Earnings Calendar Loaded
Nike reports after close with the stock near 52 week lows on inventory concerns and China weakness. FedEx provides crucial logistics pulse check while Accenture offers IT spending intelligence. Darden Restaurants gives consumer discretionary insights as dining represents ultimate economic confidence indicator.
Each report matters individually but collectively they paint year end economic picture. Strong results could override inflation concerns while disappointments compound tech rotation fears.
Final Thought
Markets stand at a pivotal moment where narrative battles determine direction more than fundamentals. Yesterday's tech massacre on Oracle's debt concerns directly conflicts with Micron's explosive guidance proving AI demand remains robust. This schizophrenic response shows markets struggling to price structural growth versus financing sustainability.
Today's CPI release carries outsized importance not for its accuracy, the data is admittedly flawed from shutdown disruptions, but for its psychological impact. Breaking above 3% provides bears ammunition while staying in the 2s keeps bull case intact. The irony is we're trading on incomplete, potentially biased data because markets need something to anchor expectations.
The rotation from tech continues but Micron's blowout suggests throwing out the AI baby with Oracle's bathwater proves premature. Quality matters more than theme, as the companies with real revenue growth and manageable debt thrive while their overleveraged counterparts are punished. This differentiation marks healthy market evolution, not bubble deflation.
December typically delivers positive returns but this year's crosscurrents complicate seasonal patterns. We have incomplete data, Fed succession drama, tech rotation violence, yet underlying earnings strength. This setup favors volatility with upward bias rather than smooth sailing.
As always, feel free to reach out with questions about navigating year-end volatility.
Best regards,
Dan Sheehan
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.