Show Me The Money
Call it a K-shaped economy for the consumer, but with continued massive spending on AI infrastructure driving overall economic growth. On the corporate side, energy and technology earnings have been stellar, while other sectors, such as consumer staples, have reported mixed results. Semiconductor stocks have rebounded more than 5% this week after trading lower for the last two weeks. Toss in a Fed meeting, mid-term elections, another mega tech stock offering, along with major technology earnings reports, and we could be in for greater volatility ahead.
Credit card companies, as an indicator of overall spending, have been charging ahead with positive results. Visa# reported its strongest year in 15 years last night, excluding the pandemic era rebound and acquisitions. Visa’s latest quarter was solid, generating 13% revenue growth and 17% earnings growth. Visa is also projecting low double-digit revenue and earnings growth for its 2027 fiscal year. American Express# reported similar metrics last week. The consumer spending spree continues at a healthy pace.
Cruising Along
Consumers are not just sitting on the dock ordering deliveries. They are getting on the ship. Cruise company Royal Caribbean noted that its third quarter results reflect continued strong consumer demand for vacation experiences. The company reported that the number of guests served in the third quarter increased 9% year over year to 2.7 million and said booking volumes for 2027 were already up in the high teens. Delta Airlines recently announced that revenue from its premium cabins has officially surpassed revenue from its traditional economy cabin for the first time in the airline’s history. Premium revenue has continued growing at a double-digit pace, up roughly 9% to 18% in recent quarters, while main-cabin growth has lagged or slightly declined. The company noted that demand from its higher-income, brand-loyal travelers shows no sign of slowing down, supporting higher pricing power and yields. Revenue is fine, but fuel costs are limiting profitability.
Mission Impossible
Home building and remodeling seem to be stuck in an impossible situation, with prices relatively high and increased mortgage rates limiting affordability. Sales of new homes in the US edged lower last month as homebuilders’ efforts to trim prices and offer sales incentives failed to offset a rise in mortgage rates. New single-family home sales decreased 5% in September from the prior year while the median sales price fell 3.9%. For existing homes, sales are running close to 4 million units, down 2.2% from September 2025, although median home prices increased 1.3%.
Looking ahead, annual spending on home improvements and repairs is expected to remain relatively flat through late 2027, according to the latest Leading Indicator of Remodeling Activity from Harvard. It puts spending growth on renovation and repairs at just 1.5% year-over-year by the third quarter. Retail spending on building products has been flat to negative, and remodeling permits have stagnated, which points to continued sluggish renovation activity. Paint maker Sherwin-Williams# noted a challenging demand environment and higher raw material costs squeezing margins. However, Sherwin-Williams is also raising prices by about 8% going forward. Home renovations may be down overall but will cost more to complete.
Risky Business
Anthropic, best known for its Claude AI models and services sold through enterprise contracts and subscriptions, disclosed more information related to its coming initial public offering. The company’s filing shows that revenue reached $16.3 billion in the first half of 2026, marking a significant increase from prior years. Despite achieving profitability in the second quarter of 2026, the company reported an $80.7 billion net loss largely driven by non-cash accounting adjustments. Furthermore, Anthropic has committed over $500 billion in infrastructure spending arrangements with major technology partners over the next decade.
On the downside, there are 90 pages of risks in Anthropic’s filing. Its technology is helping to shorten lines at the DMV apparently, so it can’t be all bad. On the plus side, Anthropic has $130 billion in cash on hand. The filing helped reinject investor enthusiasm in the artificial intelligence trade after it took a drubbing over the last two weeks amid concerns about the amount of debt fueling the infrastructure build-out. Hyperscalers, such as Meta Platforms#, have resorted to selling stock to raise cash in order to further fund massive AI capital expenditures. At least for now, capital for funding continues to be available.
The Federal Reserve’s October meeting statement will be out this afternoon. Current expectations suggest a roughly 92% chance that the Fed maintains the current interest rate level. After the mid-term elections, however, further interest rate hikes are possible in December and next year. A little forward guidance from Fed Chairman Warsh might help, although the Fed Chair is leaning against it. Whatever the outcome, we can handle the truth.
Bill Gates turns 71 today, actress Julia Roberts turns 59, and singer Brad Paisley turns 54.
Christopher Crooks, CFA®, CFP® 610-260-2219