• Stocks: The shortened week ended on a high note for the major indexes, with the S&P enjoying its best day of trading in a month. But all three indexes still concluded the week in the red—especially the Dow, which suffered its worst week of trading since March.
• Commodities: Crude markets were jolted by Saudi Arabia’s announcement that it is shutting down a pipeline that bypasses the Strait of Hormuz after recent attacks. Oil prices still fell, though both Brent and WTI closed the week above $100 per barrel. Diesel prices climbed to a new record high of $6 per gallon, with some analysts warning that it could be the “silent killer of the US economy.”
• Bonds: Yields retreated a bit this afternoon, but remain near recent highs as traders weigh the rising likelihood of an interest rate hike next week (more on that later.)

Tech

Illustration: Morning Brew Inc., Photos: Adobe Stock

The aftermath of tech-earnings season is sort of like Santa’s workshop on December 26: Before any relief at a job well done can set in, it’s already time to look ahead to all the work for next time.

Oracle’s earnings after the bell yesterday gave investors objectively good news: The company’s total quarterly revenue grew 30% to reach $19.3 billion, beating the $19.13 billion forecast by analysts. All of that growth was fueled by—you guessed it—growing AI demand. Oracle’s cloud-infrastructure revenue grew 121% year-over-year to $7.4 billion, while total cloud revenue grew 62% to $11.6 billion. But even more impressive was management’s claim that demand for Oracle’s AI training and inferencing capacity is growing faster than the company’s ability to supply it.

On top of that, Oracle’s remaining performance obligations (RPO) showed that it has customers lined up around the block. “The key growth driver is the RPO conversion to revenues, related to new additions of datacenter capacity,” explained Bank of America analyst Tal Liani in a note today. He also reiterated his Buy rating and $240 price target, nearly 60% higher than where shares trade today.

New quarter, same old fears

On the heels of the earnings announcement, shares popped 7% in after-hours trading yesterday. But the stock sank 1.77% today as investors focused on the negative: While Oracle didn’t up its capex guidance over the quarter, it still has a full-year capex target of between $90 billion and $95 billion, and the company has taken on massive debt to fuel its AI buildout.

That stoked fears among investors that while these AI companies continue to see strong demand, the economics of the infrastructure buildout could still come up short of working out. Even as AI giants boast increasingly bullish quarterly results, the high stakes mean the risks are getting bigger, too.

Now, even green flags look yellow to investors, as they wait to see if gargantuan infrastructure spending will indeed bring in the promised returns.—LB

      

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Stocks

🟢 What’s up

• Dell jumped 11.92% after its CFO highlighted surging AI server demand at a Goldman Sachs conference.
• Sweetgreen gained 5.03% after the CDC said the cyclospora outbreak is officially over.
• Power module manufacturer Vicor rallied 11.15% on plans to acquire two New Hampshire sites to expand chip manufacturing.
• Shopify climbed 1.73% following a Bernstein Outperform rating that argued AI will boost rather than threaten the e-commerce company’s growth.
• Skyworks Solutions gained 5.14% after announcing that it expects its acquisition of Qorvo to close this year.
• GameStop rose 3.73% following CEO Ryan Cohen’s purchase of 1 million shares worth roughly $20 million.

🔴 What’s down

• NuScale Power fell 15.67% on a UBS downgrade to Sell that cited the nuclear company’s lengthy timeline to build projects.
• Oklo dropped 9.18% after entering an agreement that allows it to sell shares into the market, raising concerns about dilution.
• Clothing store Zumiez tumbled 12.93% on a wider-than-expected quarterly loss.
• Chewy slipped 3.04% following a JPMorgan Chase downgrade that pointed to economic pressures and sluggish underlying growth.
• Copart declined 2.6% on a $1.9 billion deal to acquire rival ACV, while the company also reported a quarterly earnings miss.

Stat of the day

Inflation's sticky situation

Illustration: Morning Brew Inc., Photo: Mandel Ngan/Getty Images

Just like your ex who refuses to log out of your Netflix account, inflation is proving annoyingly hard to get rid of.

Consumer prices rose 0.4% in August month-over-month, accelerating from July’s 0.1% increase, while annual inflation held at 3.4%. Both figures matched expectations.

The economy has been grappling with high energy prices as the war with Iran pushed oil above $100 a barrel. Gasoline prices jumped 3.9% in August, accounting for more than one-third of the monthly CPI increase.

Optimists are hoping this is just a temporary shock that could ease if energy prices come back down. But core CPI, which strips out volatile food and energy prices, rose 0.3%—slightly hotter than economists expected, and a sign that inflationary pressures beyond the oil spike are still lingering.

With inflation still well above the Fed’s 2% target and the labor market holding up, traders are increasingly betting on a rate hike next week. The odds of a quarter-point hike climbed to 86.5% after today’s report, up from roughly 72% a day ago, according to the CME Fedwatch tool. The 10-year Treasury yield briefly touched 4.99%, its highest level in nearly three years, as investors prepared for rates to stay higher for longer.

Americans now expect inflation to hit 4.6% over the next year, up from 4% last month, according to the University of Michigan’s preliminary September survey. It’s no surprise that consumer sentiment fell 7.5% from August, to the second-lowest level on record.

With that in mind, maybe grab the eggs, beef, and $8 bag of chips while you still can—inflation doesn’t seem to be going anywhere anytime soon.—SY

Economy

Morning Brew Inc.

When shoppers start cutting back on food, you know things aren’t good.

This latest ominous sign comes courtesy of Kroger: Although more shoppers were scrounging the chain’s aisles in Q2, they were tossing less in their carts. As a result, same-store sales inched up just 0.2%, below estimates of 0.8%. Total revenue rose 2% to $34.62 billion, short of forecasts for $34.64 billion.

Part of Kroger’s problem was the cyclospora outbreak, which had shoppers avoiding produce like the plague. But price tags were ultimately an even bigger issue than parasites.

“Customers remained under pressure and that has affected the industry broadly,” Kroger CEO Greg Foran explained on a call with investors.

Giving credit where it’s due: Kroger managed to turn Americans’ anxiety over gas and grocery prices into a competitive edge. The company tweaked its rewards program so that grocery purchases translate into bigger gas discounts—giving customers one more reason to fill up their tank right after loading groceries into the trunk. That boosted demand at Kroger pumps enough to outpace the broader market.

Still, this trick alone didn’t juice sales enough to cover the gap, and the future does not look bright: Kroger lowered its full-year same-store sales growth outlook to a range of 0.2% to 0.8%, down from its previous projection of 1% to 2%. Investors took the news in stride though, with the stock ending the day up 2.7%.

Grocers are tightening their belts

Kroger is hardly the only grocery store enduring a grim stretch. Walmart, the world’s largest brick-and-mortar retailer, recently suffered its worst day on Wall Street in nearly five years after mixed earnings raised concerns that even its bargain-hunting customer base is starting to tap out. To make up for it, the mega-discounter announced plans to funnel much of its $2.9 billion in tariff refunds into slashing prices—which sounds nice for shoppers, but not so nice for Walmart investors and their bottom line.

Other stores have gotten more creative rejiggering the math. Whole Foods announced plans to shrink its cavernous stores, which typically sprawl across 40,000 to 45,000 square feet—big enough to lose your keys, your kids, and your grocery budget all at once. In place of that acreage, Whole Foods plans to expand its “Daily Shops” concept, which takes up about one-fourth the real estate; a footprint that should help trim costs and pass those savings along to customers.

Meanwhile, Costco—infamous for even bigger shopping warehouses of 146,000 to 147,000 square feet—is finally paying attention to a corner of its business that takes up no floor space at all: its website. Costco’s e-commerce arm, long derided as an afterthought, saw digital sales soar 17.9% in August—and unlike Amazon and Walmart, which have poured major cash into building out their delivery infrastructure, Costco has simply outsourced the heavy lifting to partnerships with companies like Instacart.

Let that be a lesson to us all: Sometimes, getting others to carry your groceries is the real victory.—JD

      

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News

• The odds of an interest rate hike just skyrocketed. Here’s why that may actually be a good thing for the market.
• One Polymarket user won $22,000 after correctly betting on earnings reported by companies that were all audited by KPMG. Must be a coincidence.
• Speaking of prediction markets, sports bettors using Kalshi may actually be wagering against FanDuel.
• Morgan Stanley thinks Tesla could become…a trucking business?
• After losing $35 billion, Leopold Aschenbrenner is once again betting big on tech stocks.
• As memory chip prices balloon, smartphones under $100 are becoming a relic of the past.
• This is the story of how Alger Management Chief Investment Officer Dan Chung rebuilt the firm after it lost 35 people on 9/11.

Calendar

Tuesday: In a week bereft of big earnings announcements, we’ll have to settle for a report from Trip.com. More importantly, the Fed’s two-day policy meeting kicks off today.

Wednesday: The only other earnings announcement of note comes from Lennar. And sure, we’ve got a handful of reports worth watching, like a look at August retail sales and the NAHB housing market index. But let’s face it, all eyes will be on Kevin Warsh as he takes the podium and reveals the Fed’s next move.

Thursday: Housing starts and pending home sales for August keep the spotlight on real estate, while weekly initial jobless claims provide some insight into the labor market.

recs

💰 Do you need to be a millionaire to retire? The classic 15% rule can help you cross the finish line in style even if you’re not raking in the dough.

🛍️ It’s a weird time for US consumers (as we mentioned in the article above). Here are four specialty consumer stocks that are worth buying—and four you should probably avoid.

🎲 Gambling is fun and all, but betting the farm is a bad idea. Here’s how much money you should be putting into speculative investments, and how much of your portfolio you should protect.

📊 President Trump is offering a $5,000 dividend to every American adult. Here’s how much money that would add to the national debt—and what it would do to inflation.

🛢️ Higher oil prices are a boon for energy companies—especially these 12 stocks that are returning some serious cash to shareholders.

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🇺🇲 Readers’ most-clicked story was about how one strategist thinks you should play it if the Democrats sweep the midterm elections.