Bank of America Slides, CoreWeave and Oracle Sink, Dell Drops, ASML Falls

Good evening. This is Trade and Ticker. Wednesday, October fourteenth, twenty twenty-six. Your evening company deep dive after the close.

Four stories tonight, and one thread runs through all of them: a hot inflation report, and what higher interest rates could mean for the companies that borrowed big. First, Bank of America, which fell almost five percent after a record federal penalty and a quarter where its trading desks came up short. Second, CoreWeave and Oracle, which got hit hardest as investors started asking whether the A-I building boom is running on too much debt. Third, Dell and Hewlett Packard Enterprise, which sank after Barclays said the A-I demand from regular businesses just isn't here yet. And fourth, A-S-M-L, the Dutch company that makes the machines behind the world's most advanced chips. It beat on profit, raised its outlook, said customers want to order years ahead, and its stock still fell, along with almost the whole chip group. Let's get into it.

First, a quick look at the board. This was a lopsided day. The Dow barely moved, down about fifty points, less than a tenth of a percent. The S-and-P five hundred fell about one-point-one percent. The Nasdaq took the biggest hit, down almost one-point-nine percent. Small companies in the Russell two thousand fell almost two percent. The Nasdaq led the way down, and the Dow held up because healthcare stocks, which carry a lot of weight in that index, had a very good day.

The groups tell the story. Technology was the worst sector in the S-and-P, down about three percent. Healthcare was the best, up about two and a half percent, and consumer staples, the companies that sell things like food and household goods, were up more than two percent. The Philadelphia semiconductor index fell more than four percent, its sixth straight loss and its longest losing streak since May of last year. The VIX, Wall Street's fear gauge, jumped about ten percent, to near seventeen. That's still not a panic level, but it's a step up from the calm we've had.

Now the reason for all of it: inflation. Consumer prices rose six-tenths of a percent in September, and three-point-seven percent from a year ago. That's up from three-point-four percent in August, and economists had expected three-point-six. Gasoline jumped about nine percent in the month and drove more than half of that increase, which ties straight back to the war in the Middle East and the high price of oil. But the part that worried investors most is core inflation, which leaves out food and energy. It rose three-tenths of a percent for a second straight month, when economists were looking for two-tenths. From a year ago, core prices are up two-point-six percent. Shelter, used cars, airfares, and clothing all moved higher. In other words, the price pressure is spreading beyond the gas pump.

That matters because of what the Fed does next. The Fed raised rates in September, to a range of three-and-three-quarters to four percent. Most officials have hinted that another hike is likely before the end of the year, but probably not until December. Today's report pulled that timeline forward in a lot of minds. Those odds swung around all day. By late in the session, the CME's FedWatch tool put the chance of a hike at the meeting on October twenty-seventh and twenty-eighth at a bit better than one in three, up from about one in five on Tuesday. Earlier this morning, before the numbers came out, Fed Vice Chair for Supervision Michelle Bowman said the central bank had time to wait and see how the economy responds to September's increase. The inflation report made that patience harder to sell.

The bond market had a wild ride too. The ten-year Treasury yield jumped above five-point-three percent right after the report. Then buyers stepped in, and it finished the day a little lower, near five-point-one-nine percent, down from about five-point-two-two. The two-year yield, which tracks Fed expectations more closely, ended a little higher. And borrowing costs are reaching people's wallets. The Mortgage Bankers Association said the average thirty-year fixed mortgage rate rose last week to about seven and a half percent, the highest in nearly three years.

This afternoon, the Fed also released its Beige Book, a survey of business conditions from its twelve regional banks. It described an economy growing only slightly, with hiring stuck in place, companies not adding many workers and not cutting many either. And on prices, it lined up with the morning report. Businesses talked about high diesel prices, with fuel surcharges passing those costs down the supply chain. A few regions said price increases were intensifying. Businesses also pointed to tariffs, insurance, and other commodities as sources of pressure.

Oil kept climbing. U.S. crude settled up about one percent, at about ninety-five dollars and nine cents a barrel. Brent crude, the global benchmark, rose about a third of a percent, to about one hundred six dollars and six cents. Gold fell more than one percent.

A few other movers before the deep dives. The big tech names were all lower. Meta fell more than three percent, Microsoft and Amazon each fell almost two percent, and Alphabet dropped almost two percent as well. Apple was the exception, up about half a percent. On the other side, healthcare had a strong day. UnitedHealth rose almost five percent, adding to Tuesday's earnings beat and raised forecast. Merck gained almost four percent, Eli Lilly was up more than three and a half, and AbbVie and Amgen each rose more than three percent. Johnson and Johnson bounced about two percent, after its drop on Tuesday. Money moved from fast-growing tech stocks into businesses with steadier profits, which is what investors often do when they think rates are going higher.

That's the setup. Now to the banks.

Bank of America.

On Tuesday, Wall Street's big banks got earnings season started, and the stocks mostly fell even when the numbers looked good. Today it was Bank of America's turn, and this time the numbers did not look good.

Start with the penalty, because it landed the night before the report. On Tuesday, the Treasury Department announced more than one-point-two billion dollars in penalties against Bank of America, the second-largest bank in the country, for violating anti-money-laundering and sanctions laws. Treasury said the bank failed to deal with and report risks tied to Chinese money-laundering networks and illegal money moving across the southwest border. The Office of the Comptroller of the Currency, which oversees national banks, imposed a seven hundred fifty million dollar fine as part of that total, the largest in that agency's history. According to Treasury, the bank admitted it willfully violated the Bank Secrecy Act and failed to report in time more than five billion dollars in suspicious transactions. The bank said it has spent billions on compliance and is far along in fixing the problems.

So this morning, the earnings. Bank of America made about six-point-nine billion dollars in the third quarter, or ninety-one cents a share. That's down seventeen percent from a year ago. The penalty cost it about seventeen cents a share, and the bank can't deduct it from its taxes. But here is what really hurt the stock. Even if you take the penalty out, the bank earned about one dollar and eight cents a share, and analysts were expecting about one dollar and ten cents. So it missed even on a clean basis.

Revenue was the bigger problem. It came in at about thirty-point-one billion dollars, up about three percent from a year ago, but more than half a billion dollars below what Wall Street expected. Most of that shortfall came from the trading desks. Bond trading revenue fell seventeen percent, on weakness in mortgages, municipal bonds, and credit. Stock trading rose ten percent, but it still came in below forecasts. Altogether, trading missed expectations by about seven hundred fifty million dollars. That stung, because just last month, Chief Executive Brian Moynihan told analysts trading revenue would be roughly flat for the quarter. Instead, the combined result fell about five percent.

The bank had an explanation. Chief Financial Officer Alastair Borthwick said on the call, quote, "It just happens when rates go up eighty-five basis points in a quarter, that tends not to be good for" credit and mortgage trading. Eighty-five basis points is about eight-tenths of a percentage point, and that's how much rates climbed during the quarter. When rates jump that quickly, the bonds a bank holds in inventory lose value, and clients pull back from trading them.

There was good news in the core lending business. Net interest income, the money the bank makes from the gap between what it earns on loans and pays on deposits, rose almost eight percent, to about sixteen-point-six billion dollars, and that was a touch better than expected. For a bank like this, that is the engine. But the analysts on the call wanted to talk about the penalty. One of them, JPMorgan's Vivek Juneja, put it this way: "It's not that you can't absorb a billion. But obviously it's a reputational and confidence issue." Wells Fargo analyst Mike Mayo called the bank's capital markets results "easily worst in class" for the quarter.

Moynihan has led Bank of America since twenty ten, and he spent his early years cleaning up mortgage problems from the financial crisis. In an interview with CNBC today, he would not give a timeline for wrapping up the regulatory issues. "We got to do the work, and then the regulators look at it," he said. He added that he is "confident that we are on the right course to remediate everything."

The stock was down more than seven percent early in the day. It recovered some and finished down almost five percent, at about fifty-one dollars and thirty-nine cents. And it pulled the rest of the bank group lower. The S-and-P five hundred bank index touched its lowest level in more than four months.

Now Morgan Stanley, which shows how different two big bank reports can look on the same morning. Morgan Stanley beat on both lines. It earned three dollars and three cents a share, ahead of the two dollars and ninety-one cents analysts expected. Revenue was about twenty-point-three billion dollars, up twelve percent from a year ago. The star was stock trading, which jumped forty-one percent, to about five-point-eight billion dollars. That was roughly nine hundred million dollars more than analysts were expecting. Goldman Sachs had a similar jump on Tuesday. Wild markets this year, from rate swings to the war, have kept big investors busy moving money around, and those trading desks collect fees every time they do.

Morgan Stanley's wealth management business had a record quarter, with revenue of about nine-point-one billion dollars. It also brought in a record two hundred thirty-two billion dollars in new client assets, and the company said just over half of that came from money tied to big stock market listings. Morgan Stanley helped lead the SpaceX listing back in June, and the bank said many of the early investors in that company are its clients. Chief Executive Ted Pick called it another strong quarter, and said total client assets across wealth and investment management grew to ten-point-five trillion dollars.

So why did the stock fall almost three percent? Partly the same rate problem. Bond trading revenue fell about seven percent and missed forecasts. Chief Financial Officer Sharon Yeshaya said the sharp rise in rates during the quarter hurt investors with bond portfolios, and made it harder for anyone holding inventory. Mike Mayo at Wells Fargo summed up the quarter as "good, but not great." And on a day when the whole market was selling off on rate fears, good was not enough.

A few others from the financial group. State Street fell about four percent after its revenue came in light. Progressive, the car insurer, fell about four percent after its profit missed forecasts. BlackRock beat estimates and finished up less than one percent, after a bigger gain early. And JPMorgan, which fell after its miss on Tuesday, bounced more than one percent today.

Here's what this means. Bank stocks were already under pressure since the summer, because rates have climbed so far, which raises funding costs and slows deal-making. Today's inflation report pushed the same way. And Bank of America gave investors two separate reasons to worry at once: the controls question raised by the penalty, and a trading business that badly missed its own guidance.

Now to the biggest story in tech today.

CoreWeave and Oracle.

For most of this year, the A-I trade had a simple shape. Companies raised huge sums of money, much of it borrowed, to build data centers full of A-I chips. Investors cheered, and the stocks went up. Today, that borrowing became the story, and it came from an unusual place: the bond market.

CoreWeave rents out computing power for A-I. It's one of the companies people call neoclouds, newer cloud providers built around A-I chips. To build out its data centers, CoreWeave has borrowed heavily, including bonds that pay more than nine and a half percent interest. On Tuesday night, the tech investor Chamath Palihapitiya posted a chart on X showing the yield on one of those bonds, due in twenty thirty-two, had touched fifteen percent. Elon Musk replied with one word: "yikes."

Here's why that number matters. A bond's yield goes up when its price goes down. When a bond that pays about nine and a half percent is suddenly trading at a fifteen percent yield, it means investors have pushed its price way down, because they want a much bigger reward for the risk of lending to that company. Bloomberg reported that the bond traded below eighty cents on the dollar today. That's a level many investors consider a sign of financial strain. Investors bought those same bonds at full price just four months ago.

The stock followed. CoreWeave fell more than fifteen percent, to about sixty-five dollars and seventy-eight cents, after being down as much as seventeen percent during the day. At its low, it was the stock's biggest drop since February, and the slide wiped out its gain for the year. The company's chief executive, Mike Intrator, pushed back in a memo. "When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally," he wrote. "We are confident in our backlog which more than supports all of our debt obligations." The backlog is the work customers have already signed up for.

Not everyone on Wall Street is worried. One analyst at Freedom Capital Markets, Paul Meeks, told CNBC CoreWeave's balance sheet is relatively weak next to its peers, because it has borrowed more and is building more, but he called it, quote, "definitely not a deteriorating situation." His view is that the numbers get better once the new data centers are up and running. CoreWeave reports its next quarterly results in November. But the credit ratings tell you where it sits. S-and-P rates CoreWeave's credit at B-plus, which is junk territory. As one analyst at S-and-P Global put it, CoreWeave "has capital expenditure levels that are almost hyperscaler-like, but it doesn't have the hyperscaler balance sheet." Hyperscalers are the giant cloud companies, like Amazon, Microsoft, and Alphabet, that can pay for their data centers out of enormous profits.

And that brings us to Oracle. Oracle is a giant cloud company too, but it has leaned heavily on borrowing to build out A-I capacity. Oracle fell almost nine percent today, to about one hundred thirty dollars and fifty-five cents. That wiped out Tuesday's four percent gain on its data center power plan, and then some. The stock is now down about a third for the year. Yields on Oracle's bonds rose too. And according to S-and-P Global Market Intelligence data, the cost of insuring against a default by Oracle and by CoreWeave rose to record highs.

It wasn't just those two. Another neocloud, Nebius, fell about ten percent. Several data center operators dropped sharply. Chip and networking suppliers to those data centers, like Marvell and Lumentum, each fell about nine percent.

Why today? Go back to the inflation report. If the Fed has to keep raising rates, borrowing gets more expensive for everyone, and it gets most expensive for the companies that are already paying the highest rates. The scale of the borrowing is huge. According to data from LSEG, Alphabet, Amazon, Meta, and Oracle together have sold more than two hundred twenty-eight billion dollars in bonds this year, more than double what they sold in all of last year. JPMorgan estimates the biggest cloud companies are on track to spend about eight hundred billion dollars this year, and more than one trillion dollars a year by twenty twenty-seven.

One fixed income strategist at the Wells Fargo Investment Institute, Luis Alvarado, put the shift plainly. "The era of easy money, which we experienced in the first nine months of the year, is starting to disappear," he said. Kim Forrest, chief investment officer at Bokeh Capital Partners, told Reuters, "Investors are questioning whether the A-I buildout will generate the returns that were expected."

Here's how to think about it. Nobody is saying demand for A-I computing has dried up. The question is about the money. The companies with giant profits can absorb higher rates. The companies that borrowed at high rates, and are counting on future revenue to pay it back, have much less room. Today the market started sorting them into those two groups.

Next, the companies that build the servers.

Dell and Hewlett Packard Enterprise.

Dell has been one of the best-performing big stocks in the market this year, up more than three hundred percent. Hewlett Packard Enterprise had jumped about one hundred sixty percent, and the data storage company NetApp had doubled. The story behind all three was that A-I would set off a giant wave of hardware upgrades, not just at the cloud giants, but at regular companies, banks, retailers, hospitals, all buying servers to run A-I in their own offices.

This morning, Barclays said that wave isn't showing up yet. It cut all three stocks to equal-weight, which is basically a hold, from overweight, which is basically a buy. It said the move came, quote, "after a significant run and on enterprise A-I timing." Enterprise just means businesses, as opposed to the big cloud companies. Barclays cut its price target on Dell to five hundred seventy-four dollars, from six hundred three, and on Hewlett Packard Enterprise to seventy-seven dollars, from eighty-three.

The heart of the argument is about memory chips. There has been a global shortage of memory this year, and prices have shot up. Server makers have passed those higher costs on to their customers. So revenue looks great, but Barclays says a lot of that is higher prices, not a big new wave of A-I demand. In its words, "We believe the strong enterprise revenues are more of a function of memory costs than a move to enterprise A-I at this time." Barclays also said it does not see "a meaningful A-I inflection yet." It pointed out that businesses are typically spending just about five percent of their technology budgets on A-I, and that only about a quarter of business A-I spending goes to hardware.

And here's the risk it flagged. Memory is a famously boom-and-bust business. If memory prices level off and eventually fall, the revenue that came from those higher prices could shrink too. That concern got louder this week, after a Chinese memory maker reported progress on a new chip design over the weekend. Micron fell about four percent today, and it's down about eleven percent for the week. Western Digital fell more than four percent.

The market reaction was harsh. Dell fell about eleven percent, to about five hundred seven dollars and ninety-three cents, and it led the whole data center group lower. Hewlett Packard Enterprise fell about eight percent. NetApp dropped about seven percent, and Super Micro Computer fell more than eight.

To be fair, a downgrade after a three hundred percent run is not a verdict that the business is broken. The message is about price. When a stock has gone up that much, it's priced for the good news to keep getting better. Today, on a day when rates were already pushing investors out of the most expensive stocks, a major bank's analysts saying "not yet" was enough to knock more than a tenth off Dell's value.

And that brings us to the chip stocks, starting with a company that had a really good morning.

A-S-M-L.

A-S-M-L is a Dutch company, and it is the only company in the world that makes extreme ultraviolet lithography machines. These are the machines chipmakers like Taiwan Semiconductor use to print the most advanced chips, including the ones that power A-I. So when A-S-M-L reports, investors treat it as an early read on the whole A-I chip pipeline.

This morning's report looked strong. Sales were about eleven-point-seven billion euros, just a touch below estimates. But profit came in at almost five billion euros, well above the roughly four-point-one billion analysts expected. The company raised the low end of its full-year sales forecast, to a range of forty-four to forty-five billion euros. And it guided fourth-quarter sales to between fourteen-point-two and fifteen-point-two billion euros, with the top of that range above what analysts were expecting.

The bigger headline was about the future. Chief Executive Christophe Fouquet said customers keep raising their forecasts for how much equipment they need, driven by how big and how long they expect the A-I build-out to be. "In light of their demand visibility," he said, "some customers are expressing an interest in placing orders with us for twenty twenty-nine and even twenty thirty." The company said its planned supply for twenty twenty-seven and twenty twenty-eight won't fully meet what customers want. It had already planned to raise capacity for twenty twenty-eight by about thirty percent, and now it's looking for ways to go beyond that. During the quarter, Samsung and Taiwan Semiconductor both committed to its next-generation machines.

The stock rose about two percent in Europe early on. But by the end of the U.S. session, A-S-M-L's U.S.-listed shares had fallen almost four percent, to about one thousand six hundred fifty dollars. Part of that is that the stock had already rallied more than fifty percent this year, so a lot of good news was priced in. But mostly, A-S-M-L got swept up in a chip selloff that didn't care much about one company's numbers.

Here's how wide it was. A-M-D fell almost six percent. Intel dropped about four and a half percent. Nvidia fell about three percent, and so did Broadcom. Taiwan Semiconductor's U.S. shares fell more than three percent, the day before its own earnings. Micron and Western Digital were down more than four percent. And the semiconductor index, as we said, fell more than four percent for its sixth straight loss.

Why did good news from A-S-M-L not help? Think about where these stocks sit. A lot of chip stocks have had huge runs, and they trade on expectations for profits years into the future. When rates rise, those future profits are worth a little less today, and the most richly valued stocks feel it first. Add in this week's memory scare, and the worry about how the A-I build-out gets paid for, and you get a group selling off even as one of its most important suppliers says demand is outrunning supply.

That gap is the signal: the business news in chips is still very strong, but the market is now pricing the money side of the story, rates and debt, just as hard as the demand side.

Which makes tomorrow morning a big test. Taiwan Semiconductor, the world's biggest contract chipmaker, reports before the U.S. market opens. It makes chips for Nvidia, Apple, A-M-D, and many others. If it echoes what A-S-M-L said about A-I demand, and its stock still falls, that tells you the selling is about rates and valuations, not the business. If it disappoints, the chip group has a lot further to fall.

So here's what to watch into tomorrow. Three things.

First, Taiwan Semiconductor's results and outlook before the open, and how the chip stocks react after a six-day losing streak.

Second, more inflation data. Producer prices and retail sales for September both come out Thursday morning at eight-thirty Eastern. A hot producer price number would add to today's worry about a Fed hike later this month. Retail sales will show how much shoppers are still spending with gas this expensive.

Third, more bank earnings before the open, including U.S. Bancorp, P-N-C, B-N-Y, and Charles Schwab. After today, investors will be listening closely for what higher rates are doing to their trading desks and their borrowers.

To wrap it up. Hotter inflation put a Fed rate hike back on the table, and the market moved fast to punish the companies most exposed to higher borrowing costs. CoreWeave and Oracle sank on worries about A-I debt, Dell and Hewlett Packard Enterprise fell on a call that business demand for A-I isn't here yet, and chips slid for a sixth day even as A-S-M-L said its customers want to order years ahead. Bank of America fell on a record penalty and a trading miss, while healthcare and other steadier stocks kept the Dow close to flat.

We'll be back tomorrow morning before the opening bell, with Taiwan Semiconductor's results and Thursday's inflation and retail numbers. Thanks for listening. I'm Trade and Ticker.