Inflation heats up again as the AI trade wobbles

Good morning. One day after the Fed held rates steady, the data gave it a fresh reason to second-guess that pause. The PCE price index, the Fed's preferred inflation gauge, rose 3.6% from a year earlier in September, faster than in August. Third-quarter GDP also came in hot, growing at a 3.4% annual rate versus the 3.1% economists expected.

Gas prices did a lot of the heavy lifting again. Consumer spending jumped in September, but much of that was households paying more for fuel and transportation. With the economy growing at its fastest clip in almost three years, powered by AI investment and shoppers, the case for a December rate hike only got stronger. One bit of relief: oil slid after reports that Washington reached out to Iran to restart peace talks.

Wall Street, though, was fixated on Big Tech. Alphabet sank a record 13% after revenue in its core business fell short, and Amazon added to the unease by announcing even bigger AI investments. The old question is back: will all that spending actually pay off? The Nasdaq closed down 1.38%.

It was not a broad sell-off, though. Early in the session roughly 80% of stocks were higher even as the major indexes slipped, a sign that money was rotating out of tech rather than leaving the market. Across the Atlantic, the European Central Bank kept its key rate at 2.5%.