Market Snapshot

Get a Top Job Offer, Guaranteed (or tuition is free) | Apply Here

📉 Banana Bits

• Houthi attacks on Riyadh's airport pushed Brent up 1.8% to $106.65 on Monday, and Delta bumped its first Saudi nonstop to March.

• Microsoft unveiled Maia 300, its in-house AI chip, and says it could deploy over a million next year.

• Starbucks told CNBC it's "not buying Chipotle." RIP to the guac latte. CMG fell 3.8% to $30.40.

• This year's econ Nobel went to Robert Hall and Michael Woodford, whose work helps central banks smooth out booms and busts.

• The Fed's Beth Hammack urged faster monetary tightening as inflation pressures spread beyond energy

• Big bank earnings kick off as JPMorgan, Goldman, Citi and Wells Fargo report Tuesday

Market News

Bonds Took the Day Off. Chip Stocks Should Have Too.

The bond market took Monday off for Columbus Day, and to be frank, the S&P 500 acted like it did too. It slipped 0.06% to 7,807.24, a hair under last Tuesday's record close. The Dow picked up 0.38%, the Nasdaq lost 0.44%, and the Russell 2000 fell 0.45%. Banks were closed as well, so stocks had the place to themselves.

That flat number hides a pretty big rotation though. Nine of the S&P's 11 sectors closed higher, with energy (+1.45%) and consumer staples (+1.17%) out front. Tech fell 0.90%, and that was enough to cancel out most of it. The Philly semiconductor index touched its lowest level in three weeks, Ciena and Lumentum each lost roughly 10%, and memory stocks got hit after a Chinese rival showed off a denser chip design. (More on both in What's Rotten.)

A lot of this is still hangover from last week. Last Thursday the Financial Times reported that OpenAI's annualized revenue was running around $50 billion at the end of September, while investors had been passing around $68 billion to $70 billion. Much of that discrepancy comes down to how revenue through cloud partners is counted, rather than a sudden drop in demand. Still, the report added to broader concerns about the economics of the AI build-out, alongside worries about infrastructure financing and stretched valuations. Meta was the exception. It launched new AI models and finished up 3.4%.

Oil prices also climbed amid continued tensions in the Middle East. Houthi strikes on Riyadh's main airport killed at least 13 people over the weekend, while two tankers were hit, one near Oman and another in the Strait of Hormuz. Brent rose 1.8% to $106.65 a barrel, while WTI gained 2.1%. Brent has traded between the mid-$90s and nearly $110 over the past month. U.S. gasoline prices averaged $4.33 a gallon in September, a record for the month, adding to inflation concerns ahead of Wednesday's CPI report.

The rest of the week is packed. JPMorgan, Goldman Sachs, Citi and Wells Fargo report this morning, along with Johnson & Johnson and UnitedHealth. Wednesday brings September CPI, with economists expecting headline inflation to rise to around 3.6%–3.7% from 3.4%, largely driven by higher gasoline prices. Core inflation is expected to edge up to 2.5% from 2.4%. Bank of America and Morgan Stanley also report Wednesday morning, while Anthropic is reportedly holding a pre-IPO investor day in San Francisco. PPI and retail sales follow on Thursday.

Peel Take: The S&P closed nearly flat Monday, but the sector performance told a different story. Semiconductor stocks came under pressure while energy and consumer staples gained, suggesting investors are becoming more selective about where they're putting money. That doesn't necessarily change the long-term outlook for AI, but it does put valuations and the returns on massive infrastructure spending back in focus. With the 10-year Treasury yield above 5% and Brent trading above $100, the backdrop remains challenging for expensive growth stocks. This week's bank earnings and CPI report could offer more clarity on where the market heads next.

💼 Career Watch

Planning to apply for J.P. Morgan’s 2029 Summer Analyst Program? Applications aren't on the calendar yet, so use the time now to prepare rather than waiting for the recruiting rush.

👉 Apply to WSO Academy

What's Ripe

Fair Isaac (FICO) 10.86% 

• Best performer in the S&P 500 on Monday. It's a bounce off an ugly few weeks, including a 26.5% drop on Sept. 29 after the FHFA put VantageScore 4.0 on equal footing with Classic FICO in Fannie Mae and Freddie Mac mortgage pricing.

• There's been some better news since. UWM said it'll keep using FICO scores on all broker credit pulls, and FICO is cutting about 15% of its staff. Even so, the stock is still roughly 60% below its 52-week high of $1,858.91.

• Peel Take: The company that literally grades your credit just got an 11% curve. But FICO's longstanding dominance in the mortgage market faces a serious challenge now that VantageScore competes on equal footing in Fannie and Freddie mortgage pricing. One strong Monday doesn't erase that pressure, and it's too early to call this a lasting comeback.

Meta Platforms (META) 3.38% 

• Meta released Muse Wonder and Muse Wonder Full, the models it had been teasing as "Watermelon," and called them its most capable AI yet. Zuckerberg told the Financial Times that Meta has caught up to its rivals.

• The stock snapped a four-day losing streak and hit $752.24 at one point. Muse Wonder is available through Meta's API and Muse Code, while the more powerful Wonder Full requires a Muse Code subscription. Q3 earnings are Oct. 21.

• Peel Take: Yes, there's a watermelon in a banana newsletter. We'll allow it. Meta finally has a model it can actually brag about, and investors paid up for it. Still, Meta expects to spend $130 billion to $145 billion on capital expenditures this year, and benchmark scores don't pay the bills. The real test is whether its new AI models can generate enough revenue to justify that spending. Monday was a good start, but Wall Street will eventually want to see the returns.

What's Rotten

Ciena (CIEN) 9.95%

• Worst performer in the S&P 500 as optical stocks got hammered. Lumentum dropped 9.78% to $995.41, back under $1,000, one trading day after its CEO said some of its components were nearly sold out through 2029.

• No negative company-specific news emerged at Ciena. Its only announcement Monday was hiring a new chief people officer. MarketWatch pointed to concerns about AI infrastructure financing and profit-taking after the sector's massive rally, and the stock now sits about 36% below its 52-week high of $637.51.

• Peel Take: When a stock drops 10% on the same day it hires a new head of HR, it's safe to say HR had nothing to do with it. These optical names were priced like the AI build-out would never slow down, and even after Monday, Ciena trades at around 90 times trailing earnings. "Sold out through 2029" is great news, but how much of that demand was already priced in?

SanDisk (SNDK) 5.97%

• China's ChangXin Memory (CXMT) said it's made real progress on a denser "4F²" DRAM design and plans to launch DDR5 server modules using it by the end of the year. Micron, SK Hynix and Samsung all fell on the news.

• That's three straight down days for SanDisk, which now sits about 12% below last Wednesday's $1,692.42 close. It's still trading at more than 12 times its 52-week low of $120.96, and earnings are Oct. 29.

• Peel Take: The funny part is that CXMT's news was about DRAM, and SanDisk mostly makes NAND flash. Different product. It got sold anyway, which tells you how crowded the memory trade has gotten. A stock trading at more than 12 times its 52-week low doesn't need much of a reason to fall 6%. The Oct. 29 earnings report will be the next big test, because memory cycles have burned plenty of people who were sure this time was different.

🧠 Technical Trip

Interview Q&A from HSBC

👉 Want 1-on-1 recruiting help from HSBC bankers & 5,000+ top mentors? Apply to WSO Academy

🎥 Fresh Drop

How to Break Into Investment Banking: What to Do Each Year of College

👉 Check out more on WSO YouTube

🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• Bumble is in advanced talks to go private with Ithaca Holdings at about a $1 billion valuation, and shares jumped roughly 50% Monday.

• Amazon is in talks to buy AI startup Decart for around $7 billion. Anthropic explored a roughly $6 billion acquisition in August before walking away in September after due diligence.

• Nvidia is in early talks to acquire Reflection AI or increase its investment, per the FT. Reflection was seeking funding at a $25 billion pre-money valuation in April.

• IonQ agreed to acquire Elisity, an enterprise cybersecurity company, in an all-stock deal worth up to $1.3 billion.

• Getty Images plans to go private through a debt restructuring, backed by up to $533 million in fresh equity from Getty family affiliates and Koch Equity Development.

Student Success Corner

Banana Brain Teaser

Previous

A market maker quotes a stock at $99.80 bid / $100.20 ask. A client buys 250 shares from the market maker and later sells all 250 back at the same quote. How much gross profit does the market maker earn?

Answer: $100 gross profit

Today

Company A trades at 20x earnings, while Company B trades at 10x earnings. Company A acquires Company B entirely with stock. Assuming no synergies or transaction adjustments, is the acquisition accretive or dilutive to Company A's EPS?

How Would You Rate Today's Peel?

Happy Investing,
Elie, Mitchell, Fernanda, Nick, & Patrick

ADVERTISE // WSO ALPHA // ACADEMY // COURSES // LEGAL