Pre-market market developments. 1. On Tuesday, October 27, ahead of the US market open, all three major US stock index futures were higher. As of press time, Dow futures were up 0.28%, S&P 500 futures were up 0.37%, and Nasdaq futures were up 0.55%. 2. As of press time, Germany's DAX was up 0.37%, the UK's FTSE 100 was down 0.59%, France's CAC 40 was up 0.50%, and the Euro Stoxx 50 was up 0.37%. 3. As of press time, WTI crude was down 0.93% at $100.81 per barrel. Brent crude was down 0.82% at $109.83 per barrel.
Fed expected to hold steady this week, Morgan Stanley warns 75-100 basis points of hikes may still lie ahead
The Federal Reserve will announce its October rate decision on Wednesday US Eastern Time. The market broadly expects the Fed to keep rates unchanged. Morgan Stanley's chief US economist, Michael Gapen, agrees with the market view. He said the Fed will hold steady in October, but the market should still expect the policy rate to rise later. Gapen believes the Fed will take a wait-and-see approach, saying it will observe underlying trends to assess where policy ultimately heads. The Fed may argue that it will judge for itself whether financial conditions have tightened enough before deciding the policy path. Either way the Fed goes carries risks, but a "more gradual pace" is more likely. The economist also believes the Middle East war and rising oil prices pose risks to inflation, adding that Morgan Stanley is "incorporating some of that into next year's inflation forecast," and that the Federal Open Market Committee (FOMC) may also take this into account. Gapen said: "I think the economy can withstand a total of 75 to 100 basis points of hikes without huge concerns about yields." But he warned that if the Fed needs a total of six to seven hikes to return to 2023 levels, that could trigger some concern.
Morgan Stanley says US stock correction is nearing its end, sticks to year-end S&P target of 8,000, identifies three catalysts for a rebound
Morgan Stanley's chief US equity strategist, Michael Wilson, said in a latest research report that the internal correction in US stocks that began in June has entered its final tail phase, though the index may still see one last leg lower. Wilson said the digestion of three key uncertainties—AI-related capital issues, midterm election uncertainty, and changes in Fed liquidity—could help the market form a bottom, laying a major foundation for the S&P 500 to rally to a record level near 8,000 by year-end. Morgan Stanley's composite sentiment indicator is currently at a neutral level, and third-quarter earnings are expected to grow 27% year over year. On that basis, Wilson maintains his view: as these key uncertainties gradually become clearer in coming weeks, attractive buying opportunities should emerge. Risk appetite has fallen below zero—is the window to add to stocks finally open? With semiconductors rebounding, Goldman Sachs sticks with an "overweight" stance on equities. Goldman Sachs' latest "GOAL Kickstart" research report, which focuses on financial market risk appetite and equity-bond allocation, shows that the tech-led risk repricing has significantly reduced market crowding, but credit stress has not yet been resolved; earnings support, lower valuations, and reduced positioning are still enough to support the Goldman Sachs financial market strategist team's "mildly pro-risk" asset allocation stance, which leans toward optimistic forecasts for stocks and government bonds. The report places Goldman's proprietary risk appetite indicator falling to -0.5, falling credit excess returns, a rebound in major government bonds, pressure on European assets, and quality and defensive styles leading, within a single cross-asset framework, and cross-validates with valuation, earnings revisions, fund flows, volatility, liquidity, and recession models. As a result, Goldman Sachs maintains the "overweight" bullish rating on equities over 3-month and 12-month horizons that it introduced not long ago. Citadel warns: the tech selloff is only the first warning bell—the AI trade has "almost no margin for error." Noushad Shah, head of EMEA fixed income sales at Citadel, said the selloff in tech stocks shows investors are becoming increasingly demanding about whether massive AI spending can ultimately generate sufficient profits, adding that "given how much of the economy and stock market is now betting on the AI trade, once other risks begin to emerge, there is almost no margin for error." Shah said tariffs, fiscal stimulus, and high energy prices have made both the financing and operating costs of AI investment more expensive, while public opposition to data center construction could slow projects and push costs higher. He added that the US has so far been able to absorb these pressures because earnings and confidence remain strong. But a continued retreat in AI investment and financing could threaten the growth and household wealth that have helped the economy buffer higher costs. JPMorgan Asset Management CIO: US bond returns could reach 7%-8% over the next 12 months, with the long end offering more value. Bob Michele, chief investment officer and global head of fixed income at JPMorgan Asset Management, said the US bond market could deliver returns of about 7% to 8% over the next 12 months. He also believes the long end of the US Treasury yield curve offers the most value. Michele said, "The US Treasury curve is close to 5%," with front-end yields slightly below that level, "so we first expect some price appreciation. After that, you also get carry." He believes the long end of the US Treasury curve is the most attractive. So far this month, US Treasury prices have risen overall. A mix of factors—the selloff in artificial intelligence-related stocks, the crisis in France, and ongoing tensions in the Middle East—has made US government bonds the preferred safe-haven asset for global investors. The benchmark 10-year US Treasury yield has fallen by more than 30 basis points cumulatively since the start of October and is set to end a streak of seven consecutive monthly increases.
Company News
Anthropic officially files for IPO, aiming for the largest listing in history. Anthropic publicly submitted its S-1 filing to the SEC on Monday, planning to list on Nasdaq under the ticker "ANT." The company plans to complete its IPO in the week of November 16. Market expectations for Anthropic's valuation range from $1.5 trillion to $2 trillion, with the offering potentially raising as much as $100 billion or more, which would set a record for the largest IPO in global history. The S-1 shows that Anthropic generated about $16.3 billion in revenue in the first half of this year, exceeding full-year 2025 revenue of $4.6 billion. At the same time, however, the company posted a net loss of as much as $80.7 billion in the same period, of which about $72.4 billion came from accounting charges related to changes in the fair value of instruments such as convertible notes. Operating cash flow has turned positive at $3.93 billion. Computing investment is the biggest highlight: computing spending in the first half was nearly $9 billion, and the company has committed to future infrastructure spending of $518 billion, including at least $110 billion to Amazon and at least $114.5 billion to Google. Analysts believe this prospectus will serve as a "trailer" for this week's earnings from Google, Microsoft, and Amazon—the cloud revenue of all three companies may reflect traces of Anthropic demand. Memory chip stocks rose broadly in pre-market trading, with reports that SK hynix (SKHY.US) plans a record shareholder return. On Tuesday ahead of the US market open, as of press time, SK hynix (SKHY.US) was up more than 3%, while Micron Technology (MU.US) and Seagate Technology (STX.US) were up more than 2%, SanDisk (SNDK.US) was up nearly 2%, and Western Digital (WDC.US) was up more than 1%. On the news front, SK hynix (SKHY.US) will report its third-quarter 2026 earnings after the US market close on Tuesday. After months of adjustment in AI-related assets, this report will also become the latest window for the market to gauge the strength of high-bandwidth memory (HBM) and the sustainability of AI infrastructure demand. In addition, according to reports, SK hynix (SKHY.US) plans to announce an additional shareholder return program of 50 trillion to 60 trillion won (about $38 billion to $45 billion) on the same day as its third-quarter results. Combined with the recently completed 40 trillion won buyback and cancellation of treasury shares, the company's total shareholder returns this year will reach 90 trillion to 100 trillion won, a record high and about seven times last year's scale. Microsoft opens voluntary buyouts to about 60,000 employees: covering more than a quarter of its global workforce, cutting costs to free up room for AI capital spending. Microsoft is offering voluntary separation (buyout) packages to about 60,000 employees. This is the broadest coverage in a series of team adjustments at Microsoft since 2026, and it also signals that the company, amid continuously increasing investment in artificial intelligence, is compressing labor costs more intensively and reallocating resources. That number exceeds a quarter of its total global workforce. People familiar with the matter said entire departments including Xbox, Windows, Copilot, and Finance are included in this program; some positions related to data centers, sales, marketing, cybersecurity, and quantum computing are not eligible. This boundary arrangement shows that while Microsoft is "slimming down," it is focused on protecting teams directly tied to AI infrastructure and core growth engines. Selling chips, providing leasing, and offering residual value support: Broadcom teams up with four Wall Street giants to finance $63 billion for Anthropic chip purchases. Broadcom (AVGO.US) and four major Wall Street financial institutions—Bank of America, Blackstone, Citigroup, and Morgan Stanley—jointly arranged a financing transaction of about $63 billion to provide major financing support for Anthropic, the world's top AI large-model developer and a leader in AI applications, to purchase AI chips. The participating institutions said in a joint statement that the transaction will be implemented through a newly established special purpose vehicle, with committed financing provided by the above financial institutions to purchase Broadcom chips and lease them to Anthropic. Broadcom guarantees part of the financing through an arrangement known as "residual value support." The financing took shape over several weeks and has been closely watched by Wall Street and Silicon Valley professionals. With opposition to data centers growing and concerns about future demand emerging, they want to confirm from it that investors are still willing to support AI infrastructure construction. Corning's Q3 results and Q4 guidance both beat expectations. The earnings report showed that Corning's Q3 sales rose 19% year over year to $5.081 billion, slightly better than the market expectation of $5.028 billion; core earnings per share were $0.91, better than the market expectation of $0.88 and up nearly 36% year over year. Among them, optical communications business sales rose 44% year over year to $2.38 billion. On guidance, Corning expects fourth-quarter core earnings per share of $0.96 to $1.00, versus the market estimate of $0.93; core sales of $5.2 billion to $5.3 billion, versus the market estimate of $5.2 billion. As of press time, Corning (GLW.US) was up more than 2% in Tuesday pre-market trading. Coca-Cola's Q3 revenue and EPS beat expectations, and it raised full-year profit guidance. Coca-Cola (KO.US) third-quarter net revenue rose 7% to $13.4 billion, better than the market expectation of $12.92 billion. Organic revenue rose 7%, helped by a 5% increase in unit case volume and a positive 1% contribution from price/product mix. Operating profit rose 12% to $4.5 billion, and operating margin expanded from 32.0% to 33.4%. Earnings per share rose 8% to $0.93; comparable earnings per share rose 11% to $0.91, better than the market expectation of $0.88. Coca-Cola raised its full-year 2026 guidance: organic revenue growth of at least 5%, comparable earnings per share growth of at least 11% (previously expected 9%-10%), and free cash flow of at least $13 billion. CEO Henrique Braun said the company's momentum continues and he is confident in the updated guidance. PayPal's Q3 revenue missed expectations, and it raised full-year profit guidance. The earnings report showed that PayPal (PYPL.US) Q3 revenue was $8.6 billion, up 2.4% year over year, below market expectations; Non-GAAP earnings per share were $1.45, beating market expectations. Transaction expenses in the quarter were $4.248 billion, higher than $4.063 billion a year earlier; transaction and credit losses were $386 million, significantly narrower than $483 million a year earlier, indicating improved credit quality. The company raised its full-year adjusted profit guidance, signaling progress in its business transformation. PayPal raised its full-year 2026 Non-GAAP earnings per share guidance to $5.60, above the market expectation of $5.39; it also gave fourth-quarter EPS guidance of $1.43, also above the market expectation of $1.35. As of press time, PayPal (PYPL.US) was down nearly 2% in Tuesday pre-market trading. Strong AI chip design demand! Cadence Design Systems' Q3 revenue rose 22% year over year, and it raised full-year guidance. The earnings report showed that Cadence Design Systems (CDNS.US) Q3 revenue reached $1.633 billion, up 22% year over year; non-GAAP adjusted earnings per share were $2.11, higher than $1.93 a year earlier. Driven by AI-powered chip design demand, all major businesses achieved double-digit revenue growth. Among them, core electronic design automation (EDA) business revenue rose 20% year over year, mainly due to broad portfolio growth and increased adoption by memory chip and hyperscale data center customers. The company also won 16 new full-flow digital design and signoff projects in the quarter. Intellectual property (IP) business revenue rose 24% year over year, benefiting from strong demand for interface, memory, and foundational IP products, as well as ongoing cooperation with large cloud computing companies, semiconductor companies, and wafer foundries. Looking ahead to full-year 2026, Cadence raised its performance expectations, forecasting full-year revenue of $6.387 billion to $6.417 billion, corresponding to a midpoint of about $6.402 billion, or about 21% year-over-year growth. As of press time, Cadence Design Systems (CDNS.US) was up more than 3% in Tuesday pre-market trading. UPS raised its full-year revenue guidance, signaling strong holiday-season demand. The earnings report showed that United Parcel Service (UPS.US) Q3 revenue rose 6.7% year over year to $22.85 billion, above the market expectation of $22.29 billion. Revenue growth this quarter came almost entirely from price rather than volume. On profitability, GAAP operating profit was $1.74 billion and diluted earnings per share were $1.37, down 3.3% and 11.6% year over year, respectively; adjusted diluted earnings per share were $1.69, above the market expectation of $1.63. The company also raised fourth-quarter and full-year guidance, its second consecutive quarterly increase, showing that the package delivery giant expects to benefit from high prices and resilient demand during the holiday season. The company expects full-year revenue of about $92.6 billion (previous value: $91.2 billion), adjusted operating profit of about $8.75 billion, adjusted earnings per share of about $7.28, and adjusted free cash flow target raised from about $5.5 billion to about $6.1 billion. Novartis Q3 revenue rose 4% year over year, with a long-end pipeline impairment weighing on net profit. The earnings report showed that Novartis (NVS.US) Q3 net sales were $14.522 billion, up 4% year over year (also up 4% at constant currency), missing market expectations; core operating profit was $6.036 billion, up 11%; core earnings per share were $2.46, up 9%, beating market expectations. Core operating margin was 41.6%, up 2.3 percentage points year over year, mainly due to sales growth. IFRS operating profit was $1.843 billion, down 59% year over year, with an operating margin of 12.7%, down 19.7 percentage points. The main drags included: R&D expenses rising to $5.150 billion (+75%) due to a $1.9 billion partial impairment of the del-desiran IPR&D asset obtained from the Avidity acquisition; other expenses rising to $1.575 billion due to increased provisions related to long-term supply agreements and restructuring costs. The impairment stemmed from the Phase III HARBOR study in the DM1 indication announced in September 2026 failing to meet its primary endpoint, with the asset's carrying value reduced to $5.5 billion.
Key Economic Data and Event Preview
Beijing time 22:00: US October Conference Board Consumer Confidence Index. Earnings preview: Wednesday morning: Visa (V.US), Seagate Technology (STX.US), Robinhood (HOOD.US), NXP Semiconductors (NXPI.US). Wednesday pre-market: UBS (UBS.US), Deutsche Bank (DB.US), Nomura (NMR.US), New Oriental (EDU.US), GE Vernova (GEV.US), Amphenol (APH.US), Automatic Data Processing (ADP.US).
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