• Bonds: The 10-year Treasury yield jumped on hotter-than-expected September CPI (more on that later), then receded by day’s end.
• Stocks: All three indexes dropped based on inflation data and resulting losses in the AI trade.
• Commodities: Oil prices climbed after a Houthi-led attack on Saudi Aramco facilities, and on the IEA warning that restrictions on the diesel market could continue into 2027.

Economy

Illustration: Shannon May, Photos: Adobe Stock

Just as investors were starting to relax, the bill arrived and ruined the vibe.

The US Bureau of Labor Statistics consumer price index climbed 0.6% in September, bringing annual inflation up to 3.7%—hotter than forecasts of 3.6% and the highest level since May. Core CPI, which strips out volatile food and energy prices, rose 0.3% for the month to an annual gain of 2.6%, also topping projections of 2.5%.

Analysts didn’t take this news in stride. Lindsey Piegza, chief economist at Stifel, warned that inflation has hit “dangerously elevated levels.” Analyst Adam Crisafulli of Vital Knowledge admitted in a note to investors that “there aren’t many ways to sugarcoat it.”

The biggest culprit was the price of gas, which surged 9.1% and accounted for more than half of September’s increases. But the damage has seeped beyond pain at the pump. Airfare, which closely tracks fuel costs, also soared 22% from a year earlier. Petrochemical-heavy goods like apparel and toys ticked higher, too. But the effects weren’t all about oil: Price gains were broad-based across goods and services, from autos to education to recreation and beyond.

Worse yet, this inflation might not be so easy to put in the rearview mirror even if the Iran war ends tomorrow. With core CPI running at a 3.4% annualized pace over the past three months, James McCann, senior economist for investment strategy at Edward Jones, said it could signal “some stickiness.”

Another worrying sign? Americans expect inflation to hit 4.7% over the next year, according to the University of Michigan’s latest survey. Those fears could become a self-fulfilling prophecy if shoppers hustle to buy before prices rise—and before holiday shopping season adds its own special brand of sticker shock to the mix.

Fed up

These new inflation numbers put the Federal Reserve in a bit of a pickle. In September, the Fed raised rates for the first time in three years. Since then, most economic indicators have suggested that the central bank had little reason to rush into another rate hike at its next meeting October 27–28, and could probably kick this can down the road.

Today’s hotter-than-expected inflation reading changes that calculus, and Wall Street is already recalibrating: Traders now see a roughly 50% chance of an October hike, up from 22% before the CPI report landed.

Some even think just one rate hike may no longer cut it. Joseph Brusuelas, principal and chief economist at RSM US, cites “little in the way of disinflation evidence. This points towards more than one additional rate hike.”

One thing that could curb the odds of rampant rate hikes? Consumers running out of cash. BLS data shows that prices have outpaced wages for six months straight, with average hourly earnings up just 3% year-over-year. Paychecks that don’t stretch as far could dampen spending enough to cool inflation, though that could also mean a pretty sparse haul under the Christmas tree.—JD

      

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Stocks

🟢 What’s up

• Bending Spoons surged 41.20% on news that Berkshire Hathaway will invest another $330 million in the software company.
• Liquidia rallied 26.59% after reaching a $380.7 million settlement with United Therapeutics to resolve six legal disputes between the drugmakers.
• Greenland Energy soared 76.47% after President Trump said drilling operations in Greenland are expected to begin soon.

🔴 What’s down

• CoreWeave sank 15.46% as rising yields on its debt fueled concerns about heavy borrowing for AI infrastructure.
• Morgan Stanley slipped 2.72% despite solid quarterly results, as some business metrics showed slower improvement than investors had hoped.
• Dell fell 11.39% following a Barclays downgrade to Equal Weight that argued the stock looks expensive after its recent rally.
• IonQ dropped 9.50% on a $2 billion equity offering that raised concerns about shareholder dilution.
• Skydance fell 22.22% as roughly 471 million newly distributed stock warrants began trading separately, reducing the value reflected in its share price.
• Tesla fell 2.15% ahead of Thursday’s long-awaited Roadster unveiling.

Stock of the day

BofA’s double trouble

Illustration: Morning Brew Inc., Photo: Adobe Stock

Congratulations are in order for Bank of America, which just secured a podium finish in the financial-crime Olympics.

The second-largest US bank was slapped with more than $1.21 billion in penalties yesterday for allegedly violating anti-money laundering and sanctions laws, earning it the third-largest penalty in Treasury Department history.

Regulators found that BofA failed to report more than $5 billion in suspicious transactions, including over $1 billion involving potential national security risks linked to Chinese money laundering networks and illicit activity along the US-Mexico border. The bank also admitted to longstanding deficiencies in its compliance systems, despite earlier warnings from regulators.

“When a bank of this size fails to meet its anti-money laundering and sanctions obligations, the consequences extend far beyond its own walls, exposing the entire US financial system to significant illicit finance risks,” Treasury Secretary Scott Bessent said in a press release.

When it rains, it pours

The bank delivered itself another blow with its quarterly earnings today: Profit fell 17% to $6.9 billion, while fixed-income trading revenue plunged 17% and investment-banking fees declined 11%. Even excluding the regulatory charge, earnings still missed Wall Street’s expectations.

The results paled next to Morgan Stanley’s 41% surge in equities trading revenue, which beat estimates by $909 million. BofA’s capital markets performance was “easily worst in class,” wrote Wells Fargo analyst Mike Mayo in a note.

The double whammy sent BofA shares tumbling 4.76%—recording its steepest post-earnings drop in 16 years—as investors weighed whether the fine was a one-time hit or a sign of deeper problems. “It’s not that you can’t absorb a billion,” JPMorgan analyst Vivek Juneja said on an earnings call. “Obviously it’s a reputational and confidence issue.”—SY

Tech

Illustration: Shannon May, Photo: Adobe Stock

Apparently, the hottest reservation in tech isn’t a table at Carbone. It’s a chipmaking machine you might not get until 2030.

Reporting third-quarter earnings today, ASML raised its 2026 sales outlook for the third time this year, now expecting $49.3 billion to $50.4 billion (€44 billion to €45 billion) in full-year net sales. But its most compelling number came much further on in the calendar: Customers are already asking to place orders for 2029 and even 2030, and ASML says the production capacity it currently plans through 2028 still won’t be enough to meet demand.

That’s a big commitment for Europe’s largest company by market value. ASML holds a near-monopoly on lithography machines needed to manufacture the world’s most advanced chips—and chipmakers booking them four years out are betting billions that AI will justify new factories well into the next decade.

Scarcity is good business

Those bets are already showing up across the industry. TSMC is expanding production with $52 billion to $56 billion earmarked for capital expenditures this year, while memory makers Micron and SK Hynix are pouring money into the high-end memory needed for AI systems. Elon Musk’s planned Terafab semiconductor project could eventually add another major buyer.

The problem for buyers is that ASML may not be able to make the machines fast enough.

But for ASML, it’s the kind of shortage companies dream about. BofA estimates that raising average selling prices by 5%, while keeping cost increases lower, could boost earnings per share by roughly 10%.

Selling shovels during a gold rush is nice. Selling the only shovel with a four-year waitlist is nicer.

Bullish, but for whom?

But what’s good for ASML isn’t automatically comfortable further down the supply chain.

More expensive machines raise costs for chipmakers already spending billions to expand factories. Because ASML sits near the top of the chain, its backlog tells us how much capacity chipmakers expect to need—not how many chips Microsoft, Meta, Amazon, and Google will ultimately buy. While the waitlist says the industry is still betting heavily on AI demand, it doesn’t guarantee that those bets will generate attractive returns.

When TSMC reports tomorrow, investors will get a look at the next link in the chain. While chipmakers are willing to spend years ahead, someone has to make that spending pay off. TSMC’s results will indicate if bottom-line growth is truly keeping pace.—HC

      

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News

• BlackRock’s assets grew to a record $15.5 trillion, meaning it manages money equivalent to roughly half of the entire US economy.
• Netflix is cutting about 6% of its workforce, or roughly 1,000 jobs, in its biggest round of layoffs since 2022.
• Warren Buffett can relax—even without the Oracle of Omaha in command, Berkshire Hathaway’s stock has had its best winning streak in two years.
• A Kansas data center developer is offering nearby households $1,000 every year for a decade to ease opposition to its planned $7.5 billion project.
• McKinsey is adding AI simulations to interviews, with candidates asked to debate artificial clients on their recommendations.
• After leading the US’s iOS App Store chart since its launch last month, Meta’s Muse app was finally unseated from the top spot—by hot chicken.

Calendar

After hearing some hot CPI numbers today, we’ll turn to PPI and advance retail sales tomorrow to get more indicators on inflation. Semiconductor heavy hitter TSMC reports earnings, along with Charles Schwab, Prologis, BNY, US Bank, PNC, and Marsh & McLennan.

recs

💭 Buy now, pay maybe. A new crop of financial apps are taking advantage of consumer anxiety—offering products like $0 shopping sprees, happiness insurance, and other wild ways to spend.

😮‍💨 Here’s some respite from a volatile Treasury market: This chart lays out which five bond funds have had the biggest increase in 12-month yields this year.

🛡️ Or, a way to shield yourself from rising rates: Top fund managers say these alternative bond funds can protect your portfolio from a rate hike.

👀 Eyes this way. HSBC says these overlooked names could lead the next leg of the stock rally.

🏌️ Steady yourself for swings. Options traders expect big stock-market shake-ups starting in a few weeks—here are four signals to watch for.

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