THURSDAY MARKET UPDATE

Good morning. I'm writing before the open, so the equity numbers are futures. One thing is already settled.

— Nathan Reed

GOLD DIDN'T LOSE THE ARGUMENT. IT GOT OUTBID.

Gold is $4,276.62, down 0.25% and 8.2% lower over a month. Silver is $64.29, off 6.3% in the same stretch. The 10-year sits at 5.10% and the 30-year above 5.4%, its highest since 2004, with October hike odds near 75%.

Gold has now fallen 8.2% through a shooting war, $100 oil and a global bond rout. That is not a refutation of the case for owning it. When the entire risk-free curve pays 5%, the cost of holding something that pays nothing quietly beats every traditional reason to own it — the argument wasn't answered, it was outbid.

Yesterday I said the bond market had stopped trading energy. Wednesday it proved the point in reverse: Brent rose 4.4% and yields rose with it, which is the opposite of how those two are supposed to move together.

ORACLE IS NOW PAYING FOR THE TREASURY'S DEBT

A $70 billion five-year Treasury note sold Wednesday at 5.033%, the highest since 2006. It tailed — the government had to take a worse price than the market expected in order to clear the paper. A Treasury buyback of up to $6 billion in long bonds the same day failed to stop the selling.

An auction that tails is not a story about a strong economy. It is a story about whether enough buyers turn up at the price. And the bill lands on companies: AI-related borrowers now pay roughly 115 basis points over Treasuries against 78 for investment-grade borrowers generally — a penalty that didn't exist a year ago.

Oracle fell about 3% and is down nearly 20% this year despite record cloud growth. The AI buildout and the bond market have quietly become the same trade.

What to watch

The seven-year auction and any further buyback operations — a second failed one settles the argument. Then that 37 basis point premium: if it widens, the capex cycle gets repriced in the bond market long before it shows up in an earnings release.

"A Treasury auction that tails isn't a story about a strong economy. It's a story about whether anyone still wants the paper at that price."

ORACLE, MCDONALD'S, MICROSOFT

Oracle $ORCL (▼ 3%) — the bond selloff finally put a price on its debt-funded AI buildout.

McDonald's $MCD (▼) — slid after an investor day that paired higher technology spending with guidance for flat traffic growth.

Microsoft $MSFT (▲) — upgraded by Stifel, which argued open-weight model advances strengthen its model-agnostic strategy.

BP $BP (▲) — upgraded by JPMorgan on what the firm called macro tailwinds, with Brent back above $103.

Royal Caribbean $RCL (▲) — announced a $3 billion deal for half of Sandals Resorts, the month's largest consumer deal.

Where no percentage is shown, the size of the move wasn't confirmed before the open. For real-time data, I recommend monitoring Finviz.

MORTGAGES | The 30-year mortgage hit 7.12%, the highest since May 2024, with refinancing demand at a 19-month low.

META | Meta disclosed 500,000 Muse users and 250,000 daily actives — I cited 902,000 downloads Monday, and those are not the same number.

FED | Fed Governor Michael Barr said further rate increases would likely be needed.

RETAIL | Costco and Darden report today — the cleanest read on the consumer before the October meeting.

CHINA | Xi Jinping dines with Trump, Jensen Huang and Sam Altman tonight, on his first US visit in eleven years.

This month the safe half of the portfolio did the damage. Nobody plans for that one.

Nathan Reed  |  Profits & Insights