This is the operating cash flow against spending on property and equipment, the latest qtr each one reported. Meta, Amazon and Alphabet all spent more than they brought in. Microsoft is the only one of the 4 that covered it and by a lot.

The second chart shows how fast it happened, Alphabet's capex went from about half its operating cash flow to more than all of it in 2 qtrs and Meta's went from about 60% to just over 100%.

"They can afford it" only works if you count cash they already had or new financing because operations didn't cover it, which means the build out pays off only if revenue catches up. Alphabet and Microsoft report tonight and Amazon tomorrow so these will move.

This month in international markets saw significant volatility in Brazilian equities. EWZ, which tracks the MSCI Brazil GRTR USD index, surged +12.5% at the beginning of the month, as it priced in the probability of a Flavio Bolsonaro win after a strong showing in round one of the Brazilian elections. However, when the dust had settled, Lula unexpectedly came from behind, and the EWZ gave back all its gains and then some, with a -18.4% drop on Monday.

I wanted to figure out the investors viewed Bolsonaro as so much more market friendly. Curiously, I found that the Brazilian stock market did extremely well during Lula's two prior terms and the third current term and was slightly negative during the presidency of Jair Bolsonaro, the father of losing candidate Flavio Bolsonaro. In Brazil, the presidential terms are four years long and align neatly with the calendar year. This makes it really easy to track returns using the MSCI Brazil, which would be the gold standard anyway. All returns are gross returns using USD currency:

I certainly would not have expected the less market friendly candidate to outperform his counterpart (presumably with similar policies as his son) by such a drastic margin, even after eating that monster -18.4% single day drop this week. However, to be fair, Lula 1 was an incredible time for emerging markets, one which likely could not be reproduced again. And Bolsonaro's presidency coincided with the pandemic, which could have hampered returns.

To control for this, I compared the MSCI Brazil against several other benchmarks to which the country belongs. ACWI includes all countries, ACWI ex-USA is the international market excluding the USA, and emerging markets are the MSCI emerging markets. Additionally, while Brazil does not belong to the MSCI USA, MSCI World (a misnomer which means developed markets including USA), and MSCI World ex-USA (developed markets excluding USA), these are included for comparison. Brazil has trounced all of these benchmarks under Lula's presidency and badly lagged all of them under Jair Bolsonaro.

Boeing fell 10.7% on Tuesday to $168.18, its worst day since June 2020. It missed on earnings (an adjusted loss of $0.34 a share vs $0.20 expected) and pushed back the 737 MAX production ramp. That leaves Boeing worth about $133B.

The MAX has only one engine option, the LEAP-1B, from CFM, a 50/50 venture of:

- GE Aerospace: ~$310B

- Safran: ~$130B

Over 3x Boeing between them. Even Airbus, its direct rival, is worth more, at about €152B.

Building planes is hard. Selling the engines, then the parts and servicing for 30 years, apparently less so.

Plane or engine?

There is a lot to cover today, with several major earnings reports, the Fed decision, and important developments across the broader market. As a result, today's write-up is a bit longer than usual, but I'll try to keep it focused on what matters most. I've also included a TL;DR at the end

I'll start with SK hynix's earnings, which add another piece to the AI infrastructure story and reinforce my view that the investment cycle could extend into 2031.

The company reported operating profit of 83.3 trillion won ($62.5 billion), more than seven times last year's level and over 7% above expectations and also announced an additional $45 billion in shareholder returns, while confirming that its DRAM and high-bandwidth memory production is effectively sold out through 2029, with shortages expected to persist into 2030.

What I find v important is the outlook for infrastructure spending as according to estimates cited by SK hynix, global cloud service provider CapEx is projected to increase by more than 60% in 2027, while secured power capacity could more than double year over year. Beyond that, the AI data center infrastructure market is expected to grow at roughly 40% annually through 2030.

These are not numbers I would associate with an investment cycle nearing exhaustion.

Turning to the broader market, we're also starting to see some improvements beneath the surface. The Nasdaq McClellan Summation Index is beginning to turn bullish, meaning that market breadth is improving.

Volatility in the Treasury market is also starting to calm down as you can see from the MOVE index )VIX of bonds). Do note it's still elevated so we're not out of the woods yet

Another development worth noting is that hyperscalers and memory stocks are moving together again, reversing the negative correlation we saw previously.

This is constructive for the AI trade as higher memory prices were previously viewed as a margin headwind for hyperscalers, even as they benefited memory producers. Now, with both groups advancing, the market appears more comfortable rewarding both sides of the AI infrastructure trade.

That suggests the AI trade may be broadening as well

Speaking of correlations, the next two days could also bring an important change in options positioning.

Once we get through the major earnings reports on Wednesday and Thursday, uncertainty around individual stocks should ease, bringing single-stock implied volatility lower.

If that hpens while the VIX remains relatively stable, implied correlation could rise, as the options market prices less company-specific risk relative to broader index risk, leaving us with the midterms to clear

For now, despite yesterday's volatility crush, I'm not seeing a convincing shift toward a lower-volatility regime as the two main events that could change that are the Fed decision today and the upcoming earnings reports until the end of the week.

And looking at what the options market is pricing, there is still plenty of room for large moves.

-Microsoft: ±4.8%

-Alphabet: ±5.7%

--Amazon: ±6.0%

-Intel: ±8.0%

Given the weight of these companies in the major indices, the swings could be large. .

If we look at the previous eight earnings reports, Microsoft exceeded its implied move five times, which is another reason not to underestimate the potential volatility around this week's results.

In terms of positioning, Microsoft is heading into earnings with a bullish setup.

The immediate support is at $525, and as long as the stock remains above that level, market-maker hedging flows should remain supportive. If earnings deliver a negative surprise and $525 breaks, $500 becomes the next important level where I would expect some mechanical support.

On the upside, $575 remains the main level

High-conviction options flow is also bullish

Alphabet's positioning is more neutral, with $300 acting as the main support and $360 as resistance.

The vol trigger sits at $315, making it an important level for the near-term reaction. A significant earnings disappointment could change the positioning picture quickly, particularly below the $280–290 area, where dealer exposure falls sharply.

High conviction options flow is bullish here as well

Prediction markets, however, remain rather divided on the outcomes of the major reports.

What's also interesting this season is that so far, the market has been unusually forgiving of earnings misses.

According to BofA, companies missing EPS estimates have actually outperformed the S&P 500 by 0.7 percentage points the following day, compared with an average underperformance of around 2 percentage points since 2000.

FactSet's figures show tha same as companies missing estimates have declined by just 0.4% around their reports, compared with a five-year average decline of 3.1%.

Earnings beats are receiving roughly normal rewards, while the average next-day stock move has fallen to 3.7%, compared with 5.3% in the second quarter.

Basically, investors have been much less aggressive in punishing disappointments than usual.

For the broader AI trade, the most important numbers over the next two days will be capital expenditure and how the hyperscalers' spending plans compare with current estimates and, more importantly, whether they support the longer-term infrastructure outlook discussed earlier.

Before we get those earnings however, we have the Fed decision today.

Markets are pricing less than a 10% probability of a rate hike at this meeting, but the probability of a December increase is around 80%. Prediction markets are even more confident in a hold today- only about a 5% probability to a hike.

The FedSpeak model is currently at its most hawkish level since April 2023, so while market expectations have tuned down, the tone remains restrictive

A while ago, Jackson Hole I tihnk, Warsh said he is watching the second derivative of ai capex to help with making his next call and that second derivative has likely peaked this year, so the market might be going into this meeting too hawkish. Basically If the biggest acceleration in AI infrastructure investment is already behind us, the additional economic stimulus coming from AI CapEx could gradually weaken and that could mean less incremental pressure on growth, resources and inflation than markets currently expect.

In terms of positioning , yesterday’s levels played out as expected - SPY tested 770, QQQ reclaimed 720, and SOXX broke above 500, with momentum accelerating after the breakout. I am trimming most exposure as that is a good practice when vol is expected to pick and and will reassess after the major events have passed.

SPY is likely to chop around 770 for now, with positioning improving but the market still vulnerable to sharp moves. Immediate support sits at 765, followed by the more significant level at 750. Below 773, market makers are likely to amplify price moves in either direction. Despite the improvement in positioning, today's options volume still leans toward puts, particularly around 755, so downside protection is still prioritized

QQQs show a similar picture with main resistance moved to 725 and also in negative vol regime. Volumes on 715 and 700, but overall much more balanced. 740 - 45 is likely to be the top if earnings and Fed come in better-than-expected

SOXX is improving as well with market makers stabilizing priec action . The first levels to watch are 530 and 550 after that with 500 remaining strong. Volumes are skewed towards calls, but given that there's two major catalysts today, caution is advised.

TL;DR

- AI investment cycle remains intact: SK hynix's earnings and infrastructure outlook support my view that AI spending could continue into 2031. Hyperscalers and memory stocks are moving together again, while improving market breadth and calmer bond volatility are constructive.

- Earnings- Microsoft, Alphabet (today), Amazon and Intel (tommorrow) face big earnings moves. The numbers to watch are hyperscaler CapEx plans and whether they support the longer-term AI infrastructure outlook.

- Fed decision -xpectations remain hawkish, and despite yesterday's volatility crush, I see little evidence of a sustained shift toward a lower-volatility regime. The Fed and earnings could still trigger moves.

- Positioning has improved, but caution is warranted -yesterday's levels played out as expected. I'm trimming most exposure ahead of the major catalysts and will reassess afterward.

- Levels: SPY is likely to consolidate around 770, with support at 765 and 750. QQQ faces resistance at 725, with 740–745 possible on positive developments. SOXX looks stronger above 500, with 530 and 550 the next levels to watch.

- Geopolitical risk remains with rports of a potential US military operation against Iran after the midterms add another layer of uncertainty.

My broader outlook remains constructive for AI, but with the Fed, major earnings and geopolitical risks converging, I expect volatility to remain elevated and prefer to reduce exposure until we have more clarity.