On October 29th, the futures of the three major U.S. stock indices fell, mainly due to Google's parent company Alphabet's earnings falling short of expectations. At 7:39 a.m. Beijing time on the 29th, NASDAQ 100 index futures declined by 1.2%, S&P 500 index futures fell by 0.5%, and Dow Jones futures fell by 0.06%. Despite Microsoft releasing strong quarterly results, Alphabet's ongoing expansion of AI capital expenditures once again raised concerns among investors about the return on investment for tech giants.

Alphabet Tumbles Nearly 10% After the Market Close; Microsoft's Earnings Surpass Expectations

After Alphabet released its third-quarter financial report, the stock price tumbled 9.8% after the market closed. Although the growth in cloud computing business drove revenue slightly above market expectations, the company's continued increased investment in artificial intelligence and data center infrastructure dragged down overall profitability, resulting in quarterly profits falling significantly short of expectations. Market concerns about whether the huge AI investments by tech giants will generate sufficient returns have further intensified.

In contrast, Microsoft's shares rose by 2.7% after the announcement. The company's revenue and profits in its first fiscal quarter both exceeded market expectations, with its Azure cloud computing business growing stronger than anticipated, indicating that Microsoft is converting the demand for AI into actual revenue. The distinctly different performance of these two tech giants highlights even more that investors are closely watching the relationship between AI capital expenditures and profit growth.

The Fed maintains interest rates unchanged, traders adjust their bets on the magnitude of the December rate hike

On October 28, the Federal Reserve announced that it would maintain its policy interest rate at 4.0%, in line with market expectations. Among the 12 members of the Federal Open Market Committee, two supported a 25-basis-point interest rate hike. After the meeting, Federal Reserve Chairman Kevin Warsh emphasized that U.S. consumer spending remained resilient and the job market was relatively stable. He also reiterated the policy goal of keeping inflation rates at 2%, but did not clearly reveal the direction of future interest rate adjustments. His speech drove up yields on U.S. Treasury bonds, with the yield on 10-year Treasuries briefly rising above 5%.

Interest rate futures market data shows that traders have reduced their bets on the Federal Reserve raising interest rates by 50 basis points in December, while increasing the probability of a 25 basis point increase. The probability of a 25 basis point increase rose from 72.8% the previous day to 83.5%, while the probability of a 50 basis point increase dropped from 8.1% to zero. Based on this, the total market expectation for at least a 25 basis point increase in December has only slightly risen from 80.9% to 83.5%. Investors will now focus on the U.S. third-quarter GDP and the September personal consumption expenditure ( PCE ) price index to further assess the interest rate trend before the end of the year.