Big Tech earnings, Fed cuts rates, Trump-Xi meeting and more in Morning Squawk

Big Tech earnings delivered mixed results, with Alphabet surging on strong cloud and YouTube growth and significant AI investment plans, while Microsoft and Meta shares declined due to increased spending forecasts, an OpenAI investment hit, and Reality Labs losses, respectively, impacting market futures. The Federal Reserve cut rates by 25 basis points, but Chairman Powell's caution against a "foregone conclusion" for further cuts tempered market enthusiasm. Geopolitically, the US and China reached a trade agreement involving tariff reductions and renewed agricultural purchases. Meanwhile, Chipotle shares tumbled on a missed revenue outlook, while Comcast's earnings beat fueled speculation about a potential Warner Bros. Discovery acquisition, and Nvidia notably became the first stock to reach a $5 trillion market capitalization.

Analysis

Alphabet (GOOGL) shares surged over 7% after beating revenue forecasts for Google Cloud and YouTube, with executives planning significant AI infrastructure spending. Conversely, Microsoft (MSFT) slid over 2% due to increased spending forecasts and a $3.1 billion OpenAI investment hit, while Meta (META) tumbled 9% on a one-time tax charge and a $4.4 billion Reality Labs loss, despite CEO Zuckerberg defending AI investments. These mixed Big Tech results, particularly Microsoft and Meta's declines, are weighing on stock futures.

The Federal Reserve's 25 basis point rate cut was tempered by Chair Powell's statement that further cuts are "not a foregone conclusion" for December, causing stocks to decline after earlier highs. Powell also distinguished the current AI spending boom from the dotcom bubble, noting today's companies "actually have earnings." Separately, a US-China trade agreement was reached, with the US halving fentanyl-related tariffs to 10% and China agreeing to restart soybean purchases and delay rare earth export controls for one year.

Chipotle (CMG) shares plummeted over 18% after missing Q3 revenue expectations and cutting its sales outlook, citing issues with its younger consumer base. In contrast, Restaurant Brands International (QSR) beat Wall Street forecasts, driven by Tim Hortons, leading to a 3% premarket pop. Comcast (CMCSA) also surpassed Q3 estimates, despite a fourth consecutive quarter of no broadband subscriber growth, fueling speculation about a potential Warner Bros. Discovery acquisition. Nvidia (NVDA) notably achieved a $5 trillion market capitalization, becoming the first stock to reach this milestone.

Key Decisions for Investors

• Investors should differentiate between Big Tech firms demonstrating immediate AI-driven revenue growth, like Alphabet, and those facing significant investment costs or operational challenges, such as Microsoft and Meta.
• Closely monitor Federal Reserve communications for further clarity on future interest rate policy, as Chairman Powell's recent remarks suggest a cautious approach to additional cuts despite the initial 25 basis point reduction.
• Re-evaluate exposure to consumer discretionary stocks, particularly those like Chipotle facing headwinds with consumer spending and revised sales outlooks, while noting the resilience and growth of others like Restaurant Brands International.
• Consider the implications of the US-China trade agreement on specific sectors, such as agriculture and rare earth materials, as tariff adjustments and renewed purchases could shift market dynamics.