Markets Wanted a Boost From Earnings, Fed and China Talks. How Powell Disappointed.

Federal Reserve Chair Jerome Powell (Alex Wong/Getty Images)

Investors were hoping to receive treats from the Federal Reserve, President Donald Trump and big technology companies ahead of Halloween. They got some of what they wanted, but Fed Chair Jerome Powell’s handout in particular falls more in the realms of trick.

The Fed delivered the expected cut to interest rates but it came accompanied with a bit of an unexpected fright from Powell—a warning not to count on another cut in December. That soured things for the stock market, while the 10-2 vote in favor of the reduction, with one Fed board member wanting a bigger cut and another looking to freeze rates, didn’t help those wanting clues to the future. Traders slashed the chances of another cut this year to about 70% from 90% previously, according to the CME FedWatch tool.

The meeting between Trump and Chinese leader Xi Jinping was more satisfactory. While not the “complete” deal touted beforehand, lower tariffs in exchange for a crackdown on fentanyl-related exports mark a de-escalation of tensions. China has suspended its curbs on rare-earth exports for a year. While that raises the possibility of another showdown in 12 months’ time, for now U.S.-China relations look to be warming.

Finally, Big Tech earnings were a mixed bag. Strong beats from Google-owner Alphabet and Microsoft were undercut by worries about raised spending on artificial-intelligence infrastructure. That was an even more pronounced concern for Meta Platforms , with shareholders perhaps haunted by the memory of Mark Zuckerberg’s ill-fated Metaverse spending drive.

All in all, it was more treat than trick but a further rally likely depends on Powell being more giving when December rolls round. Perhaps he will get with the holiday spirit if the government shutdown ends and official data releases resume. Until then, investors will have to make the best of what they are given.

— Adam Clark

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Fed’s Powell Says December Rate Cut Isn’t a Given

Federal Reserve Chair Jerome Powell dashed hopes for clarity about interest-rate cuts. A December cut isn’t a foregone conclusion, he said, tempering expectations that have been building in markets. While they did cut by a quarter of a point on Wednesday, policymakers are split on what should happen next.

• Officials noted the risks on both sides of the Fed’s dual mandate, including that downside risks to employment rose in recent months. This is despite not having critical labor and inflation data. Lower-income households are feeling financial stress more than affluent ones, buying less and shifting to lower-cost goods.
• Officials have “strongly different views” about monetary policy, with 11 committee members voting for a quarter-point cut, while one, Fed governor Stephen Miran, wanted a half-point cut for the second-straight meeting, and another, Kansas City Fed President Jeffrey Schmid, wanted rates to remain steady.
• Powell stressed that the Fed would continue relying on data to make policy, despite delayed September employment data and other constraints. The evidence they do have suggests that both layoffs and hiring remain low, Powell said, citing lower immigration and labor-force participation and slowing labor demand.
• Officially the Fed will stop shrinking its balance sheet as of Dec. 1. Since 2022, the Fed has allowed up to $5 billion in Treasuries and up to $35 billion in mortgage-backed securities to mature monthly without reinvesting the proceeds, a total of $2 trillion, in a process called quantitative tightening.

What’s Next: Powell’s unusually forceful comment about December’s meeting comes amid a government shutdown that has delayed official data reports the Fed uses to make its rate decisions. Powell compared it to driving in the fog, adding that such uncertainty could be an argument in favor of caution about moving.

— Nicole Goodkind, Megan Leonhardt, and Janet H. Cho

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Trump Cuts China Tariffs After ‘Amazing’ Meeting With Xi

President Donald Trump hailed “an amazing meeting” with China’s leader Xi Jinping in Busan, South Korea on Thursday, as the two men brokered a trade truce between the world’s two largest economies.

• As a result of the talks, the U.S. will cut fentanyl-related tariffs on China to 10% from 20% in exchange for Beijing’s help to crack down on exports of chemicals used to make the drug. Trump said that will bring the average tariff rate on Chinese goods to 47% from 57%.
• China has also agreed to suspend its tightened export controls on rare-earth materials for a year, the country’s commerce ministry said Thursday. Trump said that Xi had also agreed to authorize China to start purchasing “massive amounts” of soybeans from the U.S.
• “I thought it was an amazing meeting,” Trump told reporters before boarding Air Force One, adding that he expected the two countries to sign a trade deal “pretty soon.” He added that he plans to visit China in April with Xi traveling to the U.S. sometime after.
• “China and the U.S. should be partners and friends. That is what history has taught us and what reality needs,” Xi said, according to a report from the state-owned Xinhua News Agency.

What’s Next: The meeting went pretty much how the market was expecting, although tensions remain between Washington and Beijing. There was no final deal relating to the social video platform TikTok, but China’s commerce ministry said Beijing will work to “properly resolve” the issue, Xinhua reported.

— Callum Keown and George Glover

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Microsoft, Alphabet Beat Expectations Off Relentless AI Demand

Microsoft and Alphabet both beat September quarter expectations, fueled by double-digit gains in cloud computing revenue amid relentless demand for artificial intelligence. Like their rivals, the two are spending billions of dollars on building AI operations and developing new ways to deploy AI chatbots.

• Microsoft had adjusted earnings of $4.13 a share and revenue of $77.7 billion, including a 40% jump in Azure cloud computing revenue. Microsoft is boosting AI capacity by 80% this year and plans to double its data-center operations in the next two years, CEO Satya Nadella says.
• Microsoft CFO Amy Hood projected current quarter revenue of $79.5 billion to $80.6 billion and said Azure growth will come in at 37% growth in constant currency, which is inline with the Wall Street consensus. Demand remains significantly ahead of capacity, she said.
• At Alphabet, earnings of $2.87 a share came from a 16% jump in revenue to $102.3 billion. The Google parent once again raised its guidance for 2025 spending on AI data centers for its Google Cloud segment, now projected at $92 billion. It expects a significant increase in this spending next year.
• Alphabet still gets around 85% of its revenue from high-margin advertising and services, but eyes remain on cloud because of its fast growth and the extensive investments. Cloud sales growth reached 34% in the quarter. More important to some investors, operating profit margins improved to 24% from 17% last year.

What’s Next: Microsoft and OpenAI have said the artificial-intelligence start-up will convert its for-profit subsidiary into a public-benefit corporation of which Microsoft will own 27%. OpenAI will purchase an additional $250 billion of Azure services from Microsoft in the future.

— Tae Kim and Adam Levine

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Meta Platforms Raises Spending Expectations in AI Blitz

Meta Platforms isn’t slowing down at all, saying capital expenses are going to rise significantly next year as it continues to spend heavily on data centers and other artificial intelligence projects. Its full-year expenses for 2025 are also expected to come in higher than earlier projections, as are capital expenses.

• Hiring for its AI activities is a big reason for the expense increases this year. Total 2025 expenses are expected to come in around $117 billion, while capital expenses are now projected to be around $71 billion. Research and development expenses have risen 26% so far this year.
• Meta’s AI investments have reshaped its balance sheet and cash flow statement. In the second quarter, Meta had more debt, tax, and lease liabilities than cash and short-term investments for the first time, and that deepened in the third quarter, when free cash flow, after subtracting capex, declined by 35%.
• For the third quarter, Meta’s overall revenue rose 26% to $51.2 billion and adjusted earnings of $7.25 a share, excluding a tax charge, beat expectations. Meta’s data center investments are for itself, not for renting out in the cloud like Amazon Web Services, Microsoft Azure, and Google Cloud.
• CEO Mark Zuckerberg aims to offer AI to the 3.5 billion average daily users who use at least one of Meta’s apps such as Instagram and Facebook. Meta wants to provide new user experiences like the Meta AI chatbot, while increasing the effectiveness of ad targeting.

What’s Next: Meta projects fourth-quarter revenue of $56 billion to $59 billion. It also said 2026 total expenses will increase at a significantly faster percentage rate than this year, driven by infrastructure spending and hiring.

— Adam Levine and Liz Moyer

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Chipotle, Starbucks Trying to Appeal More to Budget-Minded Diners

Both Chipotle Mexican Grill and Starbucks reported that consumers are eating out less often and looking for more value because of rising prices. Chipotle executives plan to hold off on raising prices to avoid alienating budget-sensitive diners, even though their beef and labor costs have increased.

• Chipotle’s quarterly earnings matched expectations, but it lowered its full-year same-store sales outlook, signaling that it expects demand to slow. Whereas it previously projected that 2025 same-store sales would be about flat, Chipotle now expects them to shrink by a low-single-digit percentage.
• Raymond James analyst Brian Vaccaro says that Chipotle needs to more directly show consumers that it offers good value, pointing to its “entry-level” chicken bowl and burrito that still costs less than $10 in most U.S. markets.
• Starbucks’ fiscal fourth-quarter earnings fell short of expectations, but revenue rose 5% to $9.6 billion from a year ago, beating estimates. Starbucks’ quarterly same-store sales have finally turned positive, a point that CEO Brian Niccol said signals its turnaround plan is working.
• That $1 billion restructuring plan weighed on profit growth and operating margins, partly because it closed 107 stores in the quarter. Niccol joined the coffee retailer from Chipotle last year and has embarked on a plan to close hundreds of shops and cut 900 corporate employees.

What’s Next: Americans are dining out less often and shopping more at grocery and convenience stores—and when they do eat out, they’re focused on value, notes Mizuho analyst Nick Setyan. “A cup of coffee at Starbucks is too expensive and selling coffee is too profitable for smaller peers not to gain share.”

— Sabrina Escobar and Janet H. Cho

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—Newsletter edited by Liz Moyer, Rupert Steiner