Bank beats, hot inflation and CoreWeave: Wall Street's split week

Through Thursday's close the Dow Jones Industrial Average was up around 520 points on the week, or about 1%, at 52,177.69. Over the same four sessions the Nasdaq Composite lost roughly 650 points, or 2.4%, to 26,713.02. Two American indices, the same four days, opposite directions — and the gap between them is the week's whole story.

On Monday we told readers this was a bank-earnings week, with JPMorgan, Goldman Sachs and Citigroup due on Tuesday and analysts looking for roughly 30% profit growth across the big American lenders. That part came good. What we did not expect to be writing about by Friday was the price of CoreWeave's bonds.

Because the week was not decided by the earnings we flagged. It was decided by a semiconductor selloff that began in Asia on Monday night and had still not stopped by Friday lunchtime in New York, and by a credit market that abruptly started charging distress prices to fund the artificial-intelligence buildout. A hotter-than-forecast inflation print on Wednesday made both worse. Across the five sessions we logged our sentiment as Mixed, Mixed, Cautious, Mixed and Mixed — never risk-off, never risk-on, which is about as fair a description of a split tape as one word allows.

How the week unfolded

Monday was a half-built session: the New York Stock Exchange and Nasdaq kept normal hours, but the US bond market was shut for Columbus Day, so there was no Treasury trading and no 8.30am data release. Our note led on the American telecoms — T-Mobile, AT&T and Verizon had fallen between 5.5% and 7.4% in the previous Friday's pre-market after SpaceX agreed to buy low-band spectrum from Grain Management in a deal reported at roughly $8bn, raising the prospect of a Starlink Mobile rival for US phone subscribers; Monday brought only a modest recovery. The indices barely moved: the Dow rose 0.38% to 51,850.55, the S&P 500 slipped 0.06% to 7,807.24 and the Nasdaq Composite fell 0.44% to 27,245.90, with Micron Technology down 3.9% as the single biggest drag. That was the first warning shot, and we under-read it.

Tuesday delivered the earnings and buried the lead. Goldman Sachs was the standout, reporting diluted earnings of $17.01 a share — a beat of roughly 30% against consensus — on equities trading revenue up 72% to $6.44bn. Citigroup beat with $2.85 a share against $2.66 expected, on revenue of $23.8bn, and Wells Fargo edged it at $1.87 against $1.85. JPMorgan was the exception: third-quarter profit of $15.3bn was up 6% on the year, but earnings of $5.57 a share fell short of a consensus near $5.90 as investment-banking activity slowed, and the bank lifted full-year expense guidance to $108.6bn. The telling detail is what the market did with it: all six of the largest US banks fell on their earnings day, Citigroup worst at 5.6%. Meanwhile Samsung Electronics and SK Hynix led a fresh rout in Asian chip stocks that pulled a regional semiconductor benchmark to its lowest since August. The Dow gave back 180.45 points to 51,670.10, the S&P 500 finished effectively flat at 7,805.45 and the Nasdaq slipped 0.15%.

Wednesday is the one session we logged as Cautious, and the catalyst was the one we had flagged the day before. Our Tuesday note said September's consumer price index was expected to show headline inflation accelerating to 3.6% year-on-year with core easing to 2.5%. It came in above both: headline rose 0.6% on the month to 3.7% annually, core rose 0.3% to 2.6%, and petrol prices alone jumped 9.1% in the month, accounting for more than half the increase. For British readers, the significance is that the Federal Reserve raised rates in September for the first time in three years, so a hot print does not merely delay a cut — it puts a further increase back on the table. The S&P 500 fell 1.1% to 7,718.94, the Nasdaq dropped 1.9% to 26,692.87 and the Dow shed 48.62 points to 51,621.48. Morgan Stanley beat with $3.03 a share against about $3.01; Bank of America's $1.08 missed estimates clustered around $1.11-$1.17, though a $1.2bn regulatory settlement charge alone cost $0.17 of that. And CoreWeave fell 15.5% to close at $65.78 as the yield on its high-yield 2032 notes pushed towards 15%.

Thursday was the week's genuine surprise, and not in the direction the data implied. We had flagged the 8.30am double-header of September retail sales and the producer price index. Both ran hot: PPI rose 1.3% on the month against forecasts near 0.5%, taking the annual rate to 6.3%, the highest since May, while retail sales rose 0.8% against the 0.3-0.4% expected — though almost all of that was fuel; excluding petrol stations, sales rose just 0.2%. Stocks rose anyway, because Treasury yields sank: the Dow gained 556.21 points, or 1.08%, to 52,177.69, the S&P 500 added 0.33% to 7,744.06, the Nasdaq eked out 0.08% to 26,713.02 and the small-cap Russell 2000 jumped 1.38% to 2,767.27.

Friday is still trading as this is published — it is early afternoon in New York and Wall Street does not close until 4pm Eastern, so there is no Friday close and no full-week figure to report. As things stand, the split has held: the Dow is up around 0.4% and near a one-month high, with JPMorgan and Goldman leading it, the S&P 500 is little changed, and the Nasdaq is down around 0.4% as the semiconductor selloff runs into a ninth consecutive session. Tesla was up 4.4% in the pre-market after unveiling a redesigned Roadster developed with SpaceX. Richmond Fed president Thomas Barkin speaks at 1.30pm Eastern and Chicago's Austan Goolsbee is also on the slate — the last public remarks before the Fed's pre-meeting blackout.

The names that moved it

CoreWeave defined the week, and it is worth being precise about why, because the share price is the least interesting part. The AI cloud provider's 9.625% unsecured notes due 2032 fell to around 78 cents on the dollar, yielding 15-16%; the spread on its five-year credit default swaps — effectively insurance against default — at one point passed 1,140 basis points, a level reported to imply a near-63% chance of default within five years. The company carries roughly $50bn of debt and lease obligations and is rated B+ by S&P Global, which is to say sub-investment grade. Chief executive Mike Intrator told staff the firm is "confident in our backlog which more than supports all of our debt obligations". The read-across did the damage: Oracle and Nebius fell with it, and the question stopped being whether AI demand is real and became who is lending against it, and at what price.

Taiwan Semiconductor Manufacturing is the proof of that distinction. On Thursday it posted third-quarter revenue of $46.72bn, up 41.2% year-on-year and ahead of its own $44.6bn-$45.8bn guidance, with net income of NT$763.06 billion (Taiwan dollars) up 68.7%, a 66.4% gross margin, and fourth-quarter revenue guided to $52.3bn-$54.3bn. That is a demand picture in rude health. The chip complex sold off regardless — Nvidia, Micron, AMD and Intel all under pressure across the week. When the best set of numbers in the sector cannot arrest the selling, the selling is not about numbers.

The banks were the week's other pole, and the reason the Dow and the Nasdaq parted company. The pattern was almost perverse: Goldman's $17.01, Citigroup's $2.85 and Morgan Stanley's $3.03 all beat, yet the stocks fell on the day and only rallied later in the week as yields came in. We named JPMorgan in four of the five notes; it was the one big American bank to miss, and by Friday it was among the Dow's leaders. The telecoms that opened our week — T-Mobile, AT&T and Verizon — simply dropped out of the story after Monday, their SpaceX-related losses largely intact but no longer the thing anyone was trading. The chip and AI-infrastructure names can be screened side by side in our stock screener.

What to watch next week

• The Federal Reserve's pre-meeting blackout begins this weekend and runs to the 27-28 October policy decision, so there will be no policymaker commentary next week. Futures markets are split between a hold and a further increase.
• A heavier run of third-quarter corporate results follows the big banks.
• The next scheduled read on pipeline inflation is the October producer price index on 13 November.