Fed Holds, Stocks Climb

Stocks rose as the Fed held rates, hike bets climbed, and Microsoft delivered strong AI earnings.

Author

Elie Zakhour
October 29, 2026

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Fed Holds, Google Folds

Stocks finally won one on Fed day. The S&P 500 rose 0.3% yesterday for its third straight gain, and the Nasdaq and Dow both finished a little higher. Now it's not exactly fireworks. But the S&P had fallen on every single Fed decision day this year, six for six, so a boring green close felt pretty good.

The decision was pretty easy to call. The Fed left rates at 3.75% to 4%, right where they've sat since September's hike. The vote was the interesting part, with Lisa Cook and Beth Hammack both wanting to hike again on the spot. Chair Kevin Warsh wouldn't say what comes next (he's not a forward guidance kind of guy), but traders aren't really guessing anymore. Futures put the odds of a December hike around 85%.

Bonds kept the pressure on. The 10-year Treasury yield climbed back above 5%, and oil didn't help. U.S. crude jumped nearly 3% to $102.78 a barrel after reports of a possible strike on a major Saudi refinery raised fresh supply concerns, though the attack remained unconfirmed as of Wednesday. That keeps inflation concerns front and center heading into the Fed's December decision.

The AI hardware crowd had a great day. Vertiv and Flex were the S&P 500's two biggest gainers after monster data-center quarters, and Oracle jumped almost 11% on a huge long-term forecast from its investor day. Memory stocks like Micron and Sandisk kept running too. Breadth was meh though, with slightly more S&P stocks falling than rising.

The real show started after the bell. Microsoft beat expectations with Azure growing 48%, while delayed capacity deliveries kept AI spending below forecasts. Free cash flow hit $18.6 billion, nearly $10 billion above expectations. Shares rose about 4% in late trading. Alphabet had a much worse night. Revenue came in a little light, a loss on some of its investments dragged down earnings, and heavy AI spending pushed free cash flow negative for the quarter. 

Expect a messy open this morning, with Microsoft pulling the Nasdaq one way and Alphabet pulling it the other. Amazon reports tonight and gets to break the tie. 

Peel Take: Wall Street is done clapping every time Big Tech announces a bigger AI budget. It wants proof the money is coming back, and Microsoft delivered the cash flow while Alphabet burned through it. Until that changes, we want the companies cashing those sweet AI checks, like Vertiv and Flex, than the ones writing them. 

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What's Ripe

Vertiv (VRT) 16.48% 

  • Third-quarter sales jumped 61% to $4.3 billion, and adjusted earnings of $2.21 a share blew way past the $1.82 analysts were looking for. Margins widened too, so the growth is actually turning into profit.

  • Organic orders more than doubled from a year ago, and Vertiv raised its full-year sales forecast by $650 million. It also expects fourth-quarter sales to climb above the already record third quarter, pointing to continued strong demand for data-center infrastructure.

  • Peel Take: Every AI chip needs power and cooling, and Vertiv sells both. Nvidia gets the headlines, but somebody has to keep those server racks from melting, and right now the hyperscalers are lining up to pay for it. The orders number is the one we care about most, since orders turn into sales over the next few quarters, and doubling them says nobody is tapping the brakes yet.

Flex (FLEX) 11.61% 

  • Revenue rose 25% to about $8.5 billion, and adjusted earnings per share hit a record $1.18, beating estimates for the fifth straight quarter. Not bad for a company most people couldn't pick out of a lineup.

  • Its cloud and power business, the part that builds power and cooling gear for data centers, grew 54%. Flex raised its full-year profit forecast and still plans to spin that unit off as its own company, Axiom.

  • Peel Take: Flex spent years as the company that builds other people's stuff, from medical devices to car parts. Now its fastest-growing business powers AI data centers, and the Axiom spinoff will let investors buy that piece on its own instead of getting it bundled with everything else. Wall Street usually likes that kind of breakup when the piece being split off is this hot.

What's Rotten

F5 (FFIV) 20.43%

  • F5 beat on its fiscal fourth quarter, with revenue up 13%, but said growth should slow to 8% to 9% this fiscal year from 11% last year. In this market, slowing down is a bigger crime than missing.

  • Pricier parts will squeeze gross margins from about 84% to the low 80s, while increased sales spending will put additional pressure on profitability. Piper Sandler downgraded the stock to Neutral, saying a big hardware upgrade cycle is close to peaking.

  • Peel Take: Investors pressed F5 and the page refreshed lower. It was the stock's worst day since 2013, for a company that actually beat estimates. Part of the problem is that the same memory boom making Micron and Sandisk rich is driving up the cost of the parts F5 puts in its boxes. The other part is that the wave of customers replacing old hardware is expected to fade later this fiscal year.

CoStar Group (CSGP) 13.96%

  • CoStar beat on revenue and profit, but net new bookings, a key clue to future sales, fell by more than half from a year ago. They also dropped sharply from $69 million last quarter to just $37 million.

  • The same night, it agreed to buy aerial-imagery company Vexcel for about $730 million in cash. Add it all up and the stock is down about 59% this year, a brutal run for a company that used to be a Wall Street darling.

  • Peel Take: CoStar is expanding its real estate data business with the Vexcel acquisition, but investors have a more immediate concern: slowing bookings. The deal could strengthen its platform and create new growth opportunities, but Wall Street will want to see new business pick up before getting too excited about another acquisition.

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A hedge fund starts with $100 million, earns 20% in its first year, and loses 20% in its second year. The manager charges a 20% performance fee on annual gains above the previous high-water mark, with no management fee. What minimum return must the fund earn in year three before the manager can collect another performance fee?

Answer: More than 25%. A 25% return only restores the high-water mark.

Today

A private equity firm acquires a company for 12× EBITDA, financing the transaction with debt equal to 5× EBITDA and the remainder with equity. Five years later, it exits at 10× EBITDA, having repaid half the original debt. Assuming no dividends or additional equity investments, by what percentage must EBITDA have grown for the firm to double its invested equity?

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