3 massive catalysts converged in the market last night.
I expect volatility today.
Volatility helps us find larger trade opportunities. Which means we’re on the cusp of some massive setups…
Today is the first time the market will get to react.
And these 3 catalysts all relate to the biggest stories…
- Inflation
- The war in Iran
- AI
These catalysts could break the market out of its multi-month consolidation near all-time highs…
Week after week, investors couldn’t commit to a direction.
And it could all change today…
I can’t pretend to know what the market will do. But I know how to react once investors show their hand.
Story #1: The Fed
To understand yesterday’s decision, let’s rewind to the start of the year.
The labor market looked fragile, and inflation looked tame. Rate cuts in 2026 seemed like a safe bet.
But the economy refused to cooperate.
First, hiring strengthened. Employers added 172,000 jobs in May and 162,000 in August, with unemployment holding near 4.3%.
Meanwhile, the war in Iran sent oil prices soaring, and the AI spending boom added more fuel to the fire. Crude is now trading above $100 a barrel.
That’s the mess Kevin Warsh inherited when he took over as Fed chair in May.
Trump picked Warsh expecting lower rates. Warsh had argued for cuts on his way to the job, but he also promised the Senate he’d act independently.
Thus far, he’s kept that promise.
In September, the Fed raised rates for the first time since 2023, lifting its target to 3.75%–4%. The vote was unanimous.
Trump fired back on Truth Social, demanding rates of 1% or lower.
Then September’s inflation report came in hot. Consumer prices jumped 3.7% from a year earlier, including a 0.6% surge in a single month.
The timing couldn’t be worse. Midterms are less than a week away (November 3), and Republicans are defending slim majorities in Congress. A hike right before voters head to the polls could act as a political grenade…
Before yesterday’s decision, traders priced roughly 90% odds of a hold, with a December hike looking far more likely.
As a result, the decision itself wasn’t much of a catalyst.
The real catalyst is what Warsh signaled during the press conference. He’s gone out of his way to avoid telegraphing the Fed’s next move, a stark difference from prior Fed officials. If the market finds anything in his speech that hints at a December decision, it could cause a volatile reaction today.
Story #2: MSFT Earnings
Microsoft reported fiscal first-quarter results after the close yesterday.
It could be the biggest test of the AI trade this earnings season.
Tech has been under pressure, to say the least. Last Thursday, the Nasdaq fell 2.6%, its worst day since early June, as a wave of AI earnings revived fears about runaway spending.
Investors keep asking the same question: When does all this AI spending pay off?
Few companies spend more than Microsoft. Management guided for more than $50 billion in capex this quarter, which would be a record.
At the same time, Microsoft is cutting costs everywhere else. On Monday, it offered voluntary buyouts to roughly 60,000 employees, more than a quarter of its global workforce. That followed 4,800 layoffs in July, with Xbox hit hardest.
Spend big on AI. Trim everything else.
Heading in, Wall Street expected earnings around $4.71 per share on roughly $90.7 billion in revenue. But the headline numbers probably won’t matter the most.
Traders are watching Azure. Management guided for 44%–45% growth.
Last quarter, Azure grew 43% versus 40% expected, and the stock gapped sharply higher.
This time, 45% is the baseline. And beats don’t guarantee a rally. In January, Azure topped guidance, and the stock still dropped about 10%.
Before earnings, MSFT was up nearly 10% year-to-date. It spent October consolidating just below its 2026 high near $550, much like the broader market.
Yesterday’s earnings could force a decision.
A breakout above $550 could signal the AI trade still has legs. A move toward $500 could suggest the spending fears are winning.
Both scenarios offer trade opportunities. All we need is volatility.
Story #3: GOOGL Earnings
Alphabet also reported after the close yesterday.
Same test. Different setup.
Like Microsoft, Alphabet is spending heavily on AI. Management raised its 2026 capex forecast to $195-$205 billion last quarter. Analysts expect that figure to exceed $300 billion in 2027.
That spending has a cost. Last quarter, free cash flow turned negative for the first time ever.
So far, Google Cloud is the payoff. Revenue grew 82% last quarter, and its backlog has climbed to $514 billion.
Heading in, Wall Street expected earnings around $3.02 per share. Cloud is expected to grow about 90% to $28.7 billion.
But last quarter showed that strong cloud growth isn’t enough. When Alphabet raised its capex outlook in July, the stock gapped lower.
This time, traders are watching three things: Cloud growth, Search, and any change to the capex forecast, especially early guidance for 2027.
A bigger spending number without a matching jump in Cloud could revive the fears that hit the stock in July.
GOOGL is up just 3.5% year-to-date, well behind Microsoft. And unlike MSFT, it isn’t consolidating near its highs.
Since August, the stock has been stuck between roughly $340 and $360. In October, it broke lower. Shares fell in five of the six sessions and dropped about 7% for the month.
Now GOOGL sits near $320, right around its late-July lows.
That makes yesterday’s report a key catalyst during a pivotal moment for the chart.
A move back into the $340-$360 range could signal that the breakdown was a false alarm. A drop below $320 could open the door toward $300.
My Trade Plan
Three catalysts. Only a few days to react…
- The Fed could reignite December rate-hike fears.
- Microsoft and Alphabet could ease the AI spending concerns, or make them worse.
I don’t know which way the market will move today. I don’t need to.
I’m not trying to predict the first move. I want the move that comes after.
When a stock extends too far on aggressive buying or selling, it usually reverses, at least briefly. That pullback or bounce is the setup I want.
Here’s what I’m watching today:
If MSFT breaks out above $550 on heavy volume, I’m not chasing it. I’ll wait for the buying to fade and look for a pullback.
If GOOGL breaks below $320 and sells off hard toward $300, I’ll watch for the selling to dry up and the stock to bounce off support.
And if either stock makes a big move in the other direction, the same plan applies. I’ll wait for the extension, then trade the reversal.
Volatility is coming today. Make sure you’re ready.
Stay Street Smart,
Jeff Zananiri
