Market Snapshot

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📉 Banana Bits

• Bank of America fell 4.7% after a $1.2 billion regulatory fine hit Q3 earnings, with profit down 17%.

• Barclays downgraded Dell, citing stretched valuations and a lack of meaningful acceleration in enterprise AI spending

• ASML posted record €11.7 billion quarterly sales and says it can't build enough machines to meet 2027–28 demand. Stock fell 3.9%.

• Morgan Stanley beat estimates on $20.3 billion in revenue, up 12%, and still slipped 2.7%. Tough room.

• The Fed's Beige Book: a Southeast brewer-distiller says GLP-1 drugs are partly why people drink less.

Market News

Inflation Runs Hot, AI Gets a Credit Check

It was the worst day for stocks since July. The S&P 500 dropped 1.11%, its fifth loss in six sessions since last week’s record. The Nasdaq had it even worse, down 1.88% and the Russell 2000 lost about 1.9%. The Dow went down just 0.09%, with defensive heavyweights like UnitedHealth propping it up.

The first punch came at 8:30 a.m., when the September CPI report dropped. Prices rose 0.6% for the month, matching forecasts, but were up 3.7% from a year ago. Economists expected 3.6%, and August was 3.4%, so it's heading the wrong way. Blame gas. It jumped 9.1% in a single month and is up 34.2% from last September. Core CPI (everything except food and energy) rose 0.3% for the month, above the 0.2% forecast, and 2.6% for the year, compared with expectations of 2.5% and August's 2.4%. Both a hair hotter than forecast.

Because the Fed already raised rates in September, its first hike in three years, to 3.75%-4%. New York Fed President John Williams and Boston Fed President Susan Collins have both indicated another hike may be warranted before year's end. After the CPI report, traders briefly pushed the odds of a hike at the Oct. 27-28 meeting toward 50%, before those bets cooled. By Thursday morning, CME FedWatch showed a 27.1% chance of another quarter-point hike, with a 72.9% probability the Fed would hold rates steady.

The second punch came from the bond market. Some of CoreWeave's bonds were yielding close to 15%, which is basically credit card territory, and the stock got crushed, down 15.5%. That dragged the whole AI build-out trade back into the question nobody wants to answer: who is paying for all these data centers, and with whose money? Oracle fell 8.8%. Dell lost 11.3% after a downgrade. Bloom Energy, the fuel-cell company riding the AI power trade, dropped 9.2%.

Lastly, banks were under pressure. BofA fell 4.8% after a $1.2 billion regulatory charge weighed on earnings, and Morgan Stanley slid 2.7% despite beating profit and revenue expectations. Meanwhile, investors shifted toward defensive sectors, with health care (XLV) gaining 2.5% and consumer staples (XLP) rising 2.2%. Both held up as investors sought stability amid the broader market selloff.

Peel Take: The CPI number is concerning, but this isn't 2022. Core inflation is at 2.6%, and rate hikes can't directly fix an oil supply disruption. Still, inflation is spreading beyond energy, and that gives the Fed something to worry about. The CoreWeave bond situation raises a different question. Stock investors will happily believe a good story for years. Bond investors want their money back on a schedule, and right now some of CoreWeave's bonds are yielding nearly 15%. That's a warning about how much risk lenders see in the AI build-out. Strong demand is one thing. Financing billions in new infrastructure when investors are demanding those kinds of yields is another.

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Wells Fargo plans to open applications for its 2028 Corporate & Investment Banking summer internships in January 2027. That's roughly three months away, so now's a good time to start preparing before recruiting begins.

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What's Ripe

UnitedHealth (UNH) 4.73% 

• Q3 came out Tuesday and it was a good one. Adjusted EPS hit $4.69 (Wall Street wanted about $4.14) on $112.7 billion of revenue, the medical care ratio fell to 88.4% from 89.9% a year ago, and 2026 adjusted EPS guidance rose to at least $20.50 a share.

• Funny part: the stock slipped 0.2% on earnings day. Then on Wednesday it jumped as health care led the market, Piper Sandler bumped its target to $504, and Mizuho named it a top pick.

• Peel Take: It took the market a full day to appreciate the report, which feels very on brand for UnitedHealth. Even their earnings come with a waiting room. The number we care about is the medical care ratio. Lower means they're spending less of each premium dollar on claims, and rising medical costs were the whole problem last year. A favorable reserve adjustment helped this quarter, but the ratio still beat expectations without it. That's a promising sign for the turnaround.

GlobalFoundries (GFS) 4.80% 

• GF has been selected to operate two planned chip fabs in New York under a U.S.-Japan initiative worth up to $21 billion. Japan is providing the investment capital, while GF brings the technology and runs the plants. The first one costs about $10 billion and should begin production in 2029, while the second remains subject to approval.

• On top of that, the Commerce Department is taking an additional roughly 4% stake in the company, bringing the government's total ownership to around 7%. GF is also shifting $955 million of its existing CHIPS Act award toward photonics and advanced packaging.

• Peel Take: Up almost 5% on a day the chip ETF lost more than 4%. That's a flex. For a chipmaker, the setup is pretty attractive: somebody else provides the capital, and you get to operate the factories. The catch is that 2029 is a long way off, like three AI hype cycles from now. Washington is also increasing its stake in GF, just as it took a stake in Intel. Whatever you think about that, having government backing probably isn't the worst thing in this business.

What's Rotten

Skydance (SKYD) 22.22%

• Wednesday was the ex-date for the 470.7 million warrants Skydance distributed to eligible Class B shareholders, one per share. The Ellisons, RedBird, and other major holders were excluded. Each warrant lets you buy a share at $12 for up to 10 years.

• The warrants began trading separately Tuesday as SKYD.WS and were worth around $2.39 apiece Wednesday. But here's the catch: only about 9% of outstanding shares qualified, so the NYSE's official adjustment was just $0.19 per share, far less than the stock's $2.21 drop. This comes a week after Skydance closed its roughly $110 billion acquisition of Warner Bros. Discovery.

• Peel Take: If you opened your app and saw -24% next to SKYD, the warrant distribution explains part of the unusual trading, but not the entire drop. Eligible shareholders received a warrant for each share they owned, while most major holders got nothing. And the bigger problem hasn't changed: the combined company is carrying roughly $80 billion in pro forma net debt, and the stock needs to climb about 70% just to reach the warrants' $12 exercise price.

CoreWeave (CRWV) 15.46%

• Some of CoreWeave's bonds were yielding close to 15%. Chamath Palihapitiya questioned whether AI spending was inflating a private credit bubble, and Elon Musk replied with one word: "Yikes."

• CoreWeave points to its $104 billion revenue backlog as evidence it can meet its debt obligations, while co-founder Brannin McBee says getting investment-grade ratings on more of its chip-backed loans could unlock financing from insurance companies. Investors weren't convinced.

• Peel Take: Stocks will tell you whatever story you want to hear. Bonds are a lot less fun. When investors demand yields approaching 15% to hold your debt, they're pricing in some serious credit risk. CoreWeave's $104 billion backlog sounds reassuring, but there's a big difference between revenue promised over several years and cash available to pay lenders today. The AI demand may be real. The question is whether the financing behind it can keep up.

🧠 Technical Trip

Interview Q&A from Rothschild & Co

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🦈 Deal Dispatch

M&A, IPOs, And Other Notable Transactions

• Fairfax Financial was selected to acquire 60.72% of India's IDBI Bank in a proposed $5.6 billion deal

• Galderma agreed to acquire ZO Skin Health for $1.5 billion in cash

• Mukesh Ambani's Jio Platforms targets a $108 billion valuation in an upcoming IPO expected to raise up to $3.2 billion

• Berkshire Hathaway is investing another $330 million in Bending Spoons, increasing its ownership to 4%

Student Success Corner

Banana Brain Teaser

Previous

You draw two cards from a standard 52-card deck without replacement. Given that at least one card is an ace, what is the probability that both cards are aces?

Answer: 3.03%

Today

A company generates $100 million in revenue, has $40 million in variable costs, and $30 million in fixed costs. If revenue increases by 10% while the variable cost ratio remains unchanged, by what percentage does operating profit increase?

How Would You Rate Today's Peel?

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

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