Fall means cooler weather, changing leaves, and for investors it's another earnings season. Between the Fed's new rate-hike cycle, Big Tech's ongoing AI spending spree, and consumers gearing up for the holidays, there's a lot to watch this month.
At Carnegie Investment Counsel, we're focused on three things: what companies are actually getting for their AI investments, how healthy the consumer really is, and whether rising energy prices start feeding back into inflation.
AI infrastructure spending has defined the market for years, and it shows no signs of slowing. But this earnings season, we expect a sharper question from investors: what's the payoff?
Tech has traditionally run on a great model with low capital spending and highly recurring revenue. That's changing. Companies are now pouring enormous capital into AI, some taking on debt to do it. That doesn't kill the long-term case, but it raises the stakes on execution. We'll be watching for real evidence of returns and clearer answers on how this buildout gets financed.
Tech gets the headlines, but the consumer matters just as much. Right now, spending is growing faster than income that means households are dipping into savings to keep up. That works for a while. It doesn't work forever.
October's earnings should sharpen the picture: banks get an early read on consumer finances, Visa and Mastercard show spending trends in real time, and retailers will weigh in later in the month as they gear up for the holidays.
The likely outcome isn't a collapse, it's a slowdown. Higher borrowing costs are already making that more likely. If the Fed gets this right, growth eases gradually. The hard part is not overdoing it.
Anyone who's filled up a tank lately knows gas prices can swing fast. That's because crude oil and the gas in your car aren't the same thing. Oil has to be transported, refined, and distributed, which takes time, even as markets react to new information instantly. Add geopolitical noise, and you get real volatility.
But the bigger story isn't what you pay at the pump; it's what happens downstream. Higher oil and diesel prices raise transportation costs everywhere, and oil is a key ingredient in things like plastics. Those costs work their way into packaging and everyday goods over the next 3 to 12 months. Today's oil price can become tomorrow's inflation story.
Here's a lesson from the recent inflation cycle: when input costs fall, final prices don't automatically follow. Businesses raised prices as costs rose, and once customers got used to paying more, many companies had little reason to roll them back.
There's a silver lining: competition is starting to push back. Retailers are leaning into discounts and multi-buy deals again, giving consumers some relief. Companies now have to decide whether to eat the cost, pass it on, or cut prices to win volume. That tension will shape earnings through year-end.
Source: Bloomberg
The real question is whether the Fed can thread the needle. Go too far, too fast, and we tip into recession. Get the pace right, and market returns simply normalize and are driven by real earnings growth instead of investors paying up for the same earnings. High-single-digit returns would look tame next to the last few years' gains, but that's not a bad market. It’s just a different one.
October could start to answer a lot of open questions: Can AI investment show real returns? Is consumer spending slowing gracefully? Are energy prices about to become an inflation problem again?
Short-term market noise is inevitable as those answers come in. Our focus stays where it always is, on the long-term fundamentals of the businesses we own, and the opportunities that changing conditions create.
At Carnegie Investment Counsel, that means identifying strong businesses, understanding what's driving them, and staying disciplined through the market's ups and downs.
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