Weekly Outlook: Show Me the Capex

This is the most crowded week of the quarter. Alphabet and Microsoft report on Wednesday night, a few hours after the Federal Reserve announces its October decision. Amazon follows on Thursday, the same day as the advance read on third quarter GDP and September PCE inflation. The Bank of Canada, the ECB and the Bank of Japan all meet before Friday. And with the US midterms a week away on November 3, election-driven volatility starts to seep into prices from here.

The setup going in is better than it was a week ago. Treasury yields have reversed hard, with the 10-year back below 5% and the long end falling faster than the front. Last week's earnings were a clean sweep of beats from the names we flagged. What the market now needs is two things: a Fed that does not manufacture a reason to hike, and hyperscalers that not only beat but raise their capital spending plans. The second matters well beyond the hyperscalers themselves, because their capex is someone else's revenue: the semiconductor equipment makers, the power and electrical suppliers, and the industrials building the data centres.

The Yield Environment

Source: U.S. Treasury yield curve (October 19 vs October 26, 2026), CME FedWatch, index closes October 16 and 23, ICE Brent.

The reversal in yields is the most important development heading into the week. The 10-year fell 18 basis points to 4.966%, the 30-year fell by the same amount to 5.295%, and the 2-year fell 11 basis points to 4.667%. Only three weeks ago, on October 7, the 10-year touched 5.35%, a 24-year high. A curve that is coming down from the long end is the friendliest version of easing for growth stocks, because long-duration assets like technology are valued off long-term rates.

The timing is awkward. The relief arrives just after a week in which the Nasdaq lost 4.5% and AI infrastructure names were repriced on financing fears, and the index slipped a further 0.71% last week while the Dow edged higher. But the direction of travel is what matters for this week. Hyperscalers reporting into falling long-end yields face a far less hostile valuation backdrop than they would have faced at 5.35%.

Last Week's Report Card

Every company we flagged last week beat on earnings. The reactions were a reminder that beating is the entry ticket, not the prize.

Source: company results, October 20 to 22, 2026; Investing.com and FactSet consensus.

GE Aerospace and RTX confirmed the defense and aerospace cycle has further to run. Texas Instruments beat handily and guided above consensus, a useful signal that the analog and industrial end of semiconductors is healthy, not just the AI end. Lam Research beat by a hair, and with more than a third of its revenue coming from China, a narrow beat was not enough. Netflix beat on earnings but trimmed its advertising outlook, and the market sold the guidance rather than buying the beat.

Meta deserves the closest reading. Revenue beat by $1.3 billion and earnings per share beat, though operating income absorbed a $9.9 billion legal charge. Capex guidance for 2026 moved from $130-145 billion to $135-145 billion: the floor rose by $5 billion while the ceiling held. Even after the raise, Meta remains the smallest spender of the four hyperscalers. Amazon guides to roughly $220 billion, Alphabet to $195-205 billion and Microsoft to roughly $190 billion for calendar 2026. What spooked investors was not the size of the spending but the cash flow: Meta reported its first cash outflow in more than a decade, and the implied fourth quarter capex of about $59 billion would be a record.

The Hyperscaler Test

Source: company guidance and Q2 2026 results; FX Empire consensus compilation. Cloud growth is year over year for the quarter ended June 30, 2026.

The bar this week is high and specific. The market does not just expect Alphabet, Microsoft and Amazon to beat. It expects them to raise capex guidance again. That expectation is rational, because hyperscaler capex is the demand signal for the rest of the AI supply chain. A raise from these three bleeds directly into the order books of semiconductor equipment makers, memory suppliers, power infrastructure and the industrials building the physical data centres. A hold or a cut would be read as the first crack in the cycle, regardless of how strong the quarter itself was.

The hyperscalers have said for two years that demand outstrips their ability to build. As skeptics, we should ask about the quality of that pipeline. A large share of incremental demand comes from a venture-backed ecosystem of AI model labs and startups that are themselves burning capital. Microsoft's commercial backlog illustrates the point: when it reached $627 billion in April, up 99%, growth excluding OpenAI was 26%. For the current level of spending to be sustainable, AI tools have to be adopted by the broader economy, not just financed by the AI economy. That is a question for 2027 and beyond.

For this week, the test is simpler. As long as cloud growth stays above 30%, these questions will remain few and far between. Last quarter, Google Cloud grew 82%, Azure 43% and AWS 37%. All three cleared the bar with room to spare. The pattern of the past year has been consistent: fear builds around AI spending, the hyperscalers report numbers, and the sector rallies. A clean repeat on Wednesday and Thursday would likely reverse much of October's damage. A deceleration in any of the three cloud businesses is the scenario that would change the conversation.

Wednesday: The Fed

The market prices roughly a 91% chance that the Fed holds at 3.75-4.00% on Wednesday, and the hold is not in doubt. The question is December. As of Friday, futures implied about an 84% chance of another hike by year-end, with the December 9 meeting as the expected date. That is the part of the decision that can move markets: the statement and Chair Warsh's press conference will be read for whether December is kept alive or quietly taken off the table.

Our view is that there is no reason to hike. The bond market has already done much of the tightening. The 10-year reached a 24-year high this month, and long-end yields are pricing inflation expectations on their own. The inflation that remains is concentrated in energy, which interest rates cannot fix: a hike does not reopen the Strait of Hormuz. Raising rates into an energy supply shock risks tightening into softening demand for no gain on the component actually driving prices.

The balance sheet is not adding to the pressure, but it is not adding liquidity either. The Fed ended its balance sheet runoff in October 2025. Principal from its mortgage-backed securities is reinvested into Treasury bills, maturing Treasuries are rolled over at auction, and reserve management purchases have been paused since mid-August. The result is a balance sheet that is roughly flat at $6.6 to $6.8 trillion while its composition shifts toward shorter maturities. Meanwhile, the Treasury General Account sits at about $945 billion. Our earlier expectation that a drawdown of the TGA ahead of the midterms would release a large liquidity impulse remains on ice, and that is probably the right outcome: draining it quickly would work against the Fed's own inflation mandate.

Wednesday is also a global central bank day. The Bank of Canada is expected to hike from 2.25% to 2.5%, the ECB meets on Thursday, and the Bank of Japan on Friday. The Fed is not the only central bank leaning hawkish, which limits how far the dollar can run on a hawkish hold.

Thursday: GDP and PCE

Thursday brings the advance estimate of third quarter GDP, expected at 3.2% annualized after 2.2% in the second quarter, alongside September personal income and spending and the PCE price index. Core PCE is expected to rise 0.3% month over month, up from 0.2%. The Employment Cost Index follows on Friday, expected at 0.8% for the quarter. The sequencing matters: the Fed decides on Wednesday without these numbers, and a hot core PCE print the following morning would revive December hike pricing almost immediately, regardless of what Warsh says.

Oil: Still the Swing Factor

Brent rose for a third straight week to around $115, its highest level since June 2022, up about 5% on the week. Iran's Revolutionary Guards claimed a supertanker hit a mine south of the Strait of Hormuz, a claim not independently verified, while Tehran said an arrangement with Oman to manage shipping through the strait was nearing completion. Exxon Mobil and Chevron report on Friday morning. Oil remains the transmission channel from geopolitics to inflation to rates, and the energy majors' commentary on supply will be worth more than their earnings beats.

The Midterms: Volatility Starts Now

The US votes on November 3. Strategists have flagged that a shift in control of Congress could bring more scrutiny of big tech and AI, through hearings and investigations, which is directly relevant to the names reporting this week. We will publish a dedicated note on the election scenarios and what each could mean for markets later this week. For now, the practical point is that event-driven volatility tends to build into an election, and positioning will start to reflect that from here.

What We Are Watching

Hyperscaler capex guidance. Alphabet, Microsoft and Amazon need to raise, not just reaffirm. A raise from all three confirms the AI capex cycle and flows through to semicap and industrials. A hold from any one of them will be read as the first sign of discipline.

Cloud growth versus 30%. Google Cloud at 82%, Azure at 43% and AWS at 37% set a high bar. Any meaningful deceleration reopens the pipeline-quality debate.

The Fed's December language. A hold is priced. Whether the statement and press conference keep the door open to a December hike, and whether anyone dissents, will decide how the market trades into Thursday.

Core PCE on Thursday. Expected at 0.3% month over month. A hotter print the morning after the Fed would revive hike pricing quickly.

The 10-year around 5%. The relief rally in tech depends on long-end yields staying below 5%. A move back above it would undo last week's reversal.

Brent and the energy majors. Exxon and Chevron's read on supply will matter more than their earnings. A break above recent highs feeds straight into the inflation story.

This week answers two questions at once. Will the Fed resist hiking into an energy shock, and will the companies writing the checks for AI keep writing bigger ones? The yield curve has already given tech some breathing room. The hyperscalers now have to justify it. The pattern of the past year says they usually do. As skeptics, we will be reading past the beat and into the capex line.

Research | BitDelta Pro

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Appendix: Sources

Rates & Monetary Policy

U.S. Treasury: Daily Treasury Par Yield Curve Rates

CME FedWatch: Federal Funds Rate Probabilities

Vantage Markets: DXY Slips as Fed Odds Fade (Oct 26, 2026)

Federal Reserve: FOMC Minutes, September 15-16, 2026

SanCap / Santander: Fed Balance Sheet Checkup (Oct 23, 2026)

Wolf Street: Fed Cuts Reserve Management Purchases to Zero

Trading Economics: US Treasury Cash Balance

Earnings & Hyperscalers

HL: GE Aerospace Lifts FY Profit Outlook After Solid Q3

Tradingpedia: RTX Jumps After Earnings Beat and Guidance Hike

Quiver Quant: Netflix Q3 2026 Results

ZeroHedge: Meta Q3 2026 Results and Guidance

Capp Notes: Closing Look, October 22, 2026

24/7 Wall St: Texas Instruments Q3 2026

Goldesel: Lam Research Record Quarter, Shares Fall 7.6%

Motley Fool: Google Cloud Grew 82%, Azure 43%, AWS 37%

Eastern Progress: Amazon Raises 2026 AI Spending to $220B

Sherwood: Microsoft Plans $190 Billion of Capex

FX Empire: The Week Ahead, Fed, AI Earnings and PCE

Macro Calendar & Oil

Rio Times: Key Market Events, October 26-30, 2026

Schaeffer's: The Week Ahead, Wall Street Awaits October Fed Decision

Trading Economics: Brent Crude News

Rio Times: Brent Holds Near $110 on Hormuz Fears

Elections

Advisor Perspectives: AI Trade a Key Concern on Election Risks