Tech Sells Off Despite Strong TSMC Earnings
Taiwan Semiconductor (TSM) reported strong numbers this morning, yet tech keeps falling. The worry is not the fundamentals; the numbers look great. The worry is the cost of capital.
TSM posted net profit near $23.6 billion (US equivalent), up 69% year over year, beating street expectations. The company raised revenue guidance to up to 44% revenue growth on a US dollar basis, slightly above the prior 40% guidance. It did not change capex spending, even after earlier news about building out infrastructure in the US and deals with ASML (ASML) and other firms. Fiscal year 2026 capex guidance stays at $60 to $64 billion, and management said it is too early to give a capex figure beyond that.
The one worry in the report is tool supply. It stays tight, tool price inflation is real, and there are shortages at the back end of packaging. That may add concern about TSM's capex spending.
This is a wider industry problem. Memory names are selling off, with cues from an ugly session in South Korea. Some neo-cloud companies may carry too much debt interest compared to the revenue they generate. CoreWeave (CRWV) shows this, with negative free cash flow; it fell 7% today after a 15% drop yesterday. The core question in the market: with high visibility from ASML and TSM, does that visibility matter if capital costs more or access to money tightens?
A late bounce of about 25 points hit the broader equity market over roughly five minutes, possibly on news trying to lift lagging sectors.
PPI Runs Hottest in Four Years
The PPI (Producer Price Index, which tracks prices producers get) hit its highest level in four years, matching the heat in the Chinese numbers. It feeds into PCE, the Fed's preferred inflation gauge.
This increase is fairly significant. The concern is less the final demand number and more the intermediate goods segment, which points to services inflation risk. Headline final demand inflation came in at 1.3% month over month, the largest gain since March 2022. Core (ex food, trade, and energy) rose 0.5% month over month, above August's 0.3%.
Goods inflation is driven by energy. The energy component for final demand rose 10.8%, with gasoline up over 20.3% on year-over-year comps. Services inflation rose 0.8% month over month. Trade margins rose 1.4%; transportation and warehousing rose 3.4%. That means companies are passing prices on to buyers of both intermediate and final goods, so services inflation could rise over the coming weeks and months.
It was a poor print the market was bracing for. With higher inflation readings, treasuries are getting bid and yields are moving down. That signals risk-off in equities, especially higher-beta sectors, and that tone feeds back into the Treasury market. This is a normal reaction as the market readjusts ahead of the Fed meeting in about a week and a half.
The move showed in the 10-year yield and also in German bond yields overnight. The macro picture is adding pressure.
Retail Sales: Strong Headline, Weak Core
Retail sales were driven almost entirely by gasoline. Headline came in at 0.8%, beating the forecast, with August revised up to 1.3%. Ex autos and gas, the increase was only 0.2%. The control group, which feeds into GDP, rose just 0.1%, showing retail purchases stalling out.
These figures are not inflation-adjusted. Gas stations saw about a 6.4% increase month over month, the biggest gain in roughly six months, because gasoline prices moved higher. This does not bode well for retailers or for the restaurant part of the economy, since the gains come from higher gas prices. A downside revision for the GDPNow forecast is likely, probably updated later today.
Taken together, demand is cooling while inflation picks up - a difficult setup heading into the next FOMC meeting.
