Week (October 27-31) in Review: Financial Markets

Key Points

• S&P 500 New Records: The SPY surged to multiple record highs during the week, driven by strong tech earnings and easing trade tensions, closing the week near 6,900.
• Federal Reserve Rate Cut: The Federal Reserve cut interest rates by 0.25% on October 29, bringing the federal funds rate to 3.75%-4%, but Chair Powell signaled strong uncertainty regarding a December cut, tempering market enthusiasm.
• Big Tech Earnings Dominance: A remarkable week of earnings from the Magnificent Seven tech giants (Microsoft, Meta, Alphabet, Apple, Amazon, Netflix, Tesla) delivered mixed results, with standout performers like GOOGL and AMZN leading gains.
• Record AI Capital Expenditures: Major tech companies signaled unprecedented investment in artificial intelligence infrastructure, with Microsoft, Amazon, Google, and Meta collectively planning capex well over $300 billion for 2025-2026.
• U.S.-China Trade Breakthrough: President Trump and President Xi Jinping reached a preliminary one-year trade agreement, reducing certain U.S. tariffs and suspending Chinese rare earth export restrictions, significantly easing tensions.
• Netflix Stock Split: NFLX announced a 10-for-1 stock split effective November 17, aimed at making shares more accessible to employees and retail investors.

Overview

The week of October 27-31, 2025, proved to be one of the most consequential for financial markets this year, characterized by record-breaking corporate earnings, watershed moments in U.S.-China relations, and critical monetary policy guidance. The period began with optimism as trade tensions eased, but the Federal Reserve's cautious communication on future rate cuts introduced significant uncertainty mid-week. Despite this volatility, major equity indices reached new peaks as investors balanced mixed tech earnings against the promise of sustained AI-driven revenue growth. The week demonstrated the market's focus on competing narratives: the strength of Big Tech fundamentals versus concerns about unsustainable AI spending, the stability provided by a tentative trade détente versus the uncertainty of Fed policy, and the resilience of consumer demand despite macroeconomic headwinds.

Financial Markets Weekly Recap

Equities

Market Indices: The SPY reached multiple record highs during the week, notably surpassing 6,875 on Monday and continuing its advance with strong momentum despite Fed-induced volatility. The QQQ demonstrated remarkable strength, surging 1.9% early in the week as traders anticipated big tech earnings and the Fed decision. However, this enthusiasm faced headwinds after Powell's October 29 statement suggested December rate cuts were far from certain, causing the DIA to turn negative following the announcement. By week's end, the indices had largely recovered, with the S&P 500 approaching 6,900 and the Nasdaq and Dow gaining modest ground. The IWM (Russell 2000) demonstrated tentative catch-up strength early in the week as small-caps began to participate in the rally, though momentum varied as macro uncertainty increased.

Sector Performance: Technology dominated the week's narrative, with the Information Technology Select Sector SPDR (XLK) up 1.6% on Monday alone as the Magnificent Seven mega-cap stocks led the advance. Energy stocks showed volatility, initially declining on concerns about sustained higher interest rates before stabilizing as energy demand expectations remained firm. Utilities and Consumer Staples provided defensive ballast as investors navigated the volatility. Within the tech sector itself, divergence was notable: companies posting strong AI-related revenue growth like GOOGL rallied sharply, while those increasing capex significantly ahead of clear revenue streams like META faced sharp pullbacks. Financial stocks showed resilience as the prospect of a prolonged higher-for-longer rate environment supported net interest margins.

Corporate Highlights:

Magnificent Seven Earnings: The week featured earnings from five of the seven mega-cap tech stocks:

• Alphabet (GOOGL): The company delivered a blockbuster quarter, surpassing the $100 billion revenue milestone for the first time with Q3 revenue of $102.35 billion, up 16% year-over-year and exceeding estimates of $99.89 billion. Google Cloud revenue accelerated to $15.16 billion (up 34% YoY), substantially outpacing analyst expectations of $14.74 billion. Search revenue reached $56.57 billion (up 14.5% YoY), demonstrating that AI chatbots have not displaced Google's core business. Most impressively, Google reported an $155 billion backlog for cloud services, signaling strong future revenue momentum. Net income surged 33% to $35 billion with diluted EPS of $2.87 (up 35% YoY). The company raised its full-year capex guidance to $91-93 billion from $75-85 billion, signaling aggressive infrastructure expansion. Shares rallied 8% on the results, with GOOGL gaining additional support from the company's demonstrated ability to monetize AI across its product suite.
• Meta (META): Meta reported Q3 revenue of $51.24 billion (up 26% YoY), exceeding consensus of $49.6 billion. However, a surprise $15.93 billion one-time tax charge severely impacted reported EPS to $1.05 versus expectations of $6.72. Excluding the tax charge, adjusted EPS would have been $7.25. The core business showed strength with operating margin expansion, yet the massive capex guidance increase to $70-72 billion (up from $66-72 billion) and CFO Susan Li's comment that spending would be "substantially larger" in 2026 raised red flags with investors concerned about delayed AI returns. CEO Mark Zuckerberg emphasized aggressive infrastructure buildout in preparation for "superintelligence," but Wall Street remained skeptical about timelines to profitability from these investments. Meta's stock fell 11% immediately following the earnings, marking its worst day in three years.
• Microsoft (MSFT): The software giant delivered strong results with fiscal Q1 FY2026 revenue of $77.7 billion (up 18% YoY), exceeding consensus of $75.6 billion. Operating income advanced 24% to $38 billion with a 48.9% operating margin. The crown jewel was Microsoft Cloud, which surged to $49.1 billion (up 26% YoY), with Azure specifically growing 40% year-over-year, reflecting robust enterprise AI adoption and Copilot penetration. Non-GAAP net income reached $30.8 billion (up 22% YoY) with non-GAAP diluted EPS of $4.13 (up 23% YoY). Commercial remaining performance obligations (RPO) expanded 51% to $392 billion, providing substantial forward visibility. However, CFO Amy Hood's comment that capex growth would accelerate beyond the 45% increase recorded last year—signaling a potential spike to $94+ billion in FY2026—spooked investors concerned about oversupply of AI infrastructure. Shares declined approximately 3% despite the earnings beat, as the market repriced capex expectations. The stock began recovering late in the week as investors acknowledged Microsoft's clear cloud advantage.
• Apple (AAPL): The company posted exceptional results for its fiscal Q4 2025 (ended September 27), with September quarter revenue reaching $102.5 billion (up 8% YoY), a new record. iPhone revenue set a September quarter record at approximately $49 billion, while Services revenue reached an all-time high of $28.8 billion (up 15% YoY). Diluted EPS of $1.85 (adjusted basis) grew 13% year-over-year. The company's installed base of active devices reached an all-time high across all product categories and segments, pointing to customer retention and loyalty. CFO Kevan Parekh indicated that the company expects holiday quarter revenue to grow 10-12% YoY with double-digit iPhone growth, providing solid forward guidance. While noting continued China revenue pressures (down 4% YoY due to supply constraints), management indicated these should reverse in the holiday period. Notably, Apple signaled increasing capex investments in artificial intelligence while maintaining its disciplined spending approach compared to hyperscalers. Shares initially fell 3% after hours before rallying 5%, closing the week up approximately 2% as investors recognized the quality of results and the strong holiday outlook.
• Amazon (AMZN): The e-commerce and cloud giant delivered impressive Q3 2025 results, with revenue reaching $180.2 billion (up 12% YoY), marginally exceeding the estimate of $177.75 billion. Adjusted EPS of $1.95 crushed expectations of $1.56, representing 33% growth year-over-year. The critical metric for investors was AWS performance: the division posted $33 billion in revenue (up 20.2% YoY), exceeding analyst estimates of $32.42 billion and demonstrating renewed momentum after concerns about Azure and Google Cloud gains. CEO Andy Jassy emphasized that AWS is "growing at a pace we haven't seen since 2022" with strong demand for AI and core infrastructure. Advertising revenue climbed 23.5% YoY while online subscription revenue grew 11.5%. Despite operating income of $17.4 billion being flat YoY (impacted by $4.3 billion in special charges including a $2.5 billion FTC settlement), the underlying operational strength was evident. Management indicated 2025 capex would reach $125 billion with further increases projected for 2026, reflecting massive data center buildout for AI capacity. Shares surged approximately 13% in after-hours trading, positioning AMZN for potential new all-time highs.
• Netflix (NFLX): The streaming platform announced a 10-for-1 stock split to be effected on November 17, with shares trading at split-adjusted levels approximately one-tenth their current price of $1,089. The company stated the split aims to reset the stock price to a level more attainable for employees participating in stock option programs. While stock splits themselves do not alter fundamental business value (shareholders receive 10x the shares at 1/10 the price), historical precedent and market psychology suggest investors often interpret such announcements favorably, potentially supporting stock performance. Netflix shares rose approximately 3% on the announcement. Reuters reported that Netflix is actively considering a bid for Warner Bros. Discovery, though such a transaction would face significant regulatory scrutiny. Shares finished the week higher.

Other Notable Earnings: Tesla reported Q3 2025 earnings ahead of the week's Big Tech cascade, posting revenue of $28.01 billion (exceeding estimates of $26.27 billion) but EPS of $0.50 below forecasts of $0.54. The company's operating expenses surged 50% year-over-year to $3.43 billion due to increased R&D spending on next-generation products and AI initiatives, with management reinforcing prior guidance regarding 2026 Robotaxi timelines. The stock showed resilience, closing the week higher by approximately 2%.

Monetary Policy and Federal Reserve Decision

FOMC Rate Decision: On October 29, the Federal Reserve implemented its anticipated 0.25% rate cut, bringing the federal funds rate to a range of 3.75%-4%. This marked the second consecutive rate cut this year, with officials voting 10-2 in favor, with two dissents on opposite sides: Governor Stephen Miran favored a larger 0.50% cut, while Kansas City Fed President Jeffrey Schmid preferred no change. Fed Chair Jerome Powell characterized the move as bringing policy to a more "neutral" stance that neither promotes growth nor restrains it, suggesting limited room for additional cuts.

Forward Guidance Surprise: The critical moment came during Powell's post-meeting press conference when he indicated that a December rate cut is far from certain. Specifically, Powell stated, "The outlook for employment and inflation does not seem to have shifted much since our September meeting," but emphasized that "there were strongly differing views about how to proceed in December" and that "a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it." This commentary swiftly reversed market expectations, with the probability of a December cut dropping from approximately 90% to 70% virtually immediately.

Challenges and Uncertainty: Powell highlighted the complications posed by the ongoing federal government shutdown, which has disrupted the normal flow of employment, inflation, and other critical economic data. He noted that this data scarcity adds to uncertainty and may warrant a more cautious approach. The Fed Chair also emphasized there is "no risk-free path," acknowledging the trade-off between supporting employment versus controlling inflation, with different committee members weighing these risks differently.

Market Impact: The Fed's cautious guidance triggered an immediate market shift, with the DIA turning sharply negative in the late afternoon as yields on 2-year Treasuries surged 9 basis points. Stock futures suffered sharp declines, particularly impacting segments of the market that had benefited from rate-cut expectations.

Trade and Geopolitical Developments

U.S.-China Trade Breakthrough: In a significant geopolitical development, President Trump and Chinese President Xi Jinping met on October 30 in Busan, South Korea, during the Asia-Pacific Economic Cooperation summit, resulting in their first direct talks since 2019. The two leaders announced a preliminary one-year trade agreement that meaningfully reduces tensions and eases major trade friction points:

• Tariff Reductions: The U.S. will reduce the "fentanyl tariff" on Chinese goods (including Hong Kong and Macao) from 20% to 10%, reversing the March 2025 10% hike. The U.S. will also extend the 10% "retaliatory" tariff rate for another year, suspending the additional 24% rate imposed in April. In exchange, China will adjust its countermeasures, with both sides agreeing to extend certain tariff exemptions.
• Rare Earth Resolution: China agreed to suspend its October 9 rare earth export control measures and refine their implementation plan. This represents a major concession, as rare earth elements are critical for American high-technology manufacturing, including semiconductors essential to the AI sector. The U.S. will suspend its "50 percent ownership rule" announced September 29 for one year.
• Port Fee Suspension: The U.S. will pause port fees on Chinese vessels at U.S. ports for one year, with China reciprocating on U.S. vessels.
• Additional Agreements: The sides reached consensus on agricultural trade expansion (with China resuming soybean purchases), fentanyl cooperation, and several corporate-specific cases including provisions surrounding TikTok.

Market Reaction: The agreement significantly eased risk sentiment at the week's outset, with traders viewing it as a positive development for global trade and supply chain stability. The rare earth agreement particularly supported technology stocks and reduced concerns about AI chip supply chains. However, the impact was somewhat muted by subsequent developments, including the Fed's cautious guidance and mixed tech earnings.

Inflation and Economic Data

CPI and Core Inflation: While specific inflation data releases during this particular week were limited due to the federal government shutdown disrupting normal data collection and publication schedules, the broader economic backdrop remained one of moderating price pressures, which had supported market expectations for Federal Reserve rate cuts.

Employment Situation: The ongoing government shutdown created a critical data vacuum. The September jobs report had shown job growth of 254,000, with an unchanged unemployment rate of 4%, but lack of current data created uncertainty about underlying labor market momentum. This uncertainty directly influenced Fed deliberations and Powell's cautious October 29 guidance.

Capital Expenditure Trends

Unprecedented AI Infrastructure Boom: A defining theme of the week's earnings was the collective commitment by Big Tech to massive capital expenditure increases focused on artificial intelligence infrastructure:

• Microsoft: Signaled accelerating capex growth in FY2026 beyond the 45% ($64.55 billion) achieved in FY2025, potentially reaching $94+ billion when including leases, reflecting demand for Azure AI services.
• Amazon: Announced $125 billion capex for 2025 with further increases projected for 2026. The company is actively deploying massive data centers, including an $11 billion facility in Indiana as part of Project Rainier and committing $5 billion for data centers in South Korea.
• Google (GOOGL): Increased its capex guidance to $91-93 billion from $75-85 billion, reflecting cloud and AI infrastructure expansion to support the growing Google Cloud backlog of $155 billion.
• Meta (META): Raised capex guidance to $70-72 billion (up from $66-72 billion) with expectations for "substantially larger" spending in 2026 to support AI development and potential future applications in virtual reality and artificial intelligence.
• Apple (AAPL): Signaled increased capex spending in the coming fiscal year, though maintaining more discipline than hyperscalers, consistent with its integrated hardware-software model.

This collective spending surge reflects intense competition for AI infrastructure dominance and confidence in AI's value creation potential, though Wall Street analysts increasingly questioned whether companies would achieve adequate returns on these massive investments in reasonable timeframes.

Currencies and Fixed Income

U.S. Dollar: The DXY (U.S. Dollar Index) experienced volatility throughout the week. Early gains on perceived safe-haven demand following the Fed decision were tempered by the improved U.S.-China trade environment, which supported risk sentiment and reduced demand for dollar strength.

Treasury Yields: Two-year Treasury yields surged notably following Powell's October 29 press conference, rising approximately 9 basis points as markets repriced the probability of December rate cuts. Ten-year yields remained more stable, reflecting longer-duration inflation expectations.

Commodities

Oil (USO): Crude oil prices stabilized during the week as concerns about geopolitical shocks eased with the U.S.-China trade agreement. U.S. crude oil declined modestly from earlier highs to approximately $60-61 per barrel by week's end, with Brent crude at approximately $63.95, reflecting stable global demand assumptions and lack of supply disruption threats.

Gold (GLD): Gold prices remained bid throughout the week as investors sought safe-haven assets amid Fed uncertainty and equity market volatility. The precious metal maintained strength as a hedge against monetary policy surprises.

Cryptocurrencies

Bitcoin (BTC.X): Cryptocurrency prices showed resilience during the week despite broader equity market volatility. Bitcoin remained in the $100,000+ range, supported by expectations for eventual rate cuts and risk-on sentiment from strong tech earnings. The digital asset demonstrated correlation with equities as market risk sentiment fluctuated.

Ethereum (ETH.X): Ethereum and other altcoins tracked alongside Bitcoin, with sentiment supported by broader technology sector momentum and expectations for increased institutional adoption.

Market Outlook

As markets head into November, several critical developments will shape sentiment:

1. December Fed Rate Decision: The probability of an additional December rate cut has shifted dramatically based on Powell's October 29 guidance. A key question will be whether incoming economic data between now and the December meeting can rebuild conviction for a cut, or whether the Fed remains on hold. The ongoing government shutdown complicates this assessment as data delays persist.

2. AI Investment Returns and Capital Allocation: Wall Street will increasingly scrutinize whether the unprecedented capex spending by Big Tech translates into revenue growth and margin expansion, or whether the market has mispriced the return on these investments. Companies without clear cloud monetization strategies like Meta face particular pressure to demonstrate tangible returns.

3. U.S.-China Trade Agreement Implementation: Markets will monitor whether the one-year trade truce holds and whether both sides move toward actual normalization or use the period to prepare for renewed conflict. Any deterioration could reignite risk-off sentiment.

4. Holiday Consumer Spending: With major retailers beginning their reporting cycle, guidance on holiday shopping trends will be critical for assessing consumer resilience amid broader economic uncertainty.

5. Labor Market Dynamics: As data collection resumes following the government shutdown, employment statistics will become increasingly critical for Federal Reserve deliberations on rate policy and for assessing recession risk.

The week of October 27-31 demonstrated that financial markets remain highly sensitive to the intersection of corporate fundamentals, monetary policy guidance, and geopolitical developments. The strong performance of Big Tech earnings and the U.S.-China trade agreement provide structural supports, yet uncertainty about the Federal Reserve's near-term policy path and questions about the sustainability of AI capex spending create headwinds. Forward-looking investors should prepare for continued volatility as these competing narratives play out over the coming weeks.

Disclaimers and Limitations