Martin Gamble on US markets: SpaceX’s debt raise, JPMorgan, PepsiCo

US markets touched new highs this week before retracing slightly as oil prices and bond yields remained elevated.

The domestically-focused smaller companies Russell 2000 index, which is sensitive to higher borrowing costs, continued to lag the major indices and is down around 9% since the middle of August.

September’s services PMI (purchasing managers index) came in below expectations but showed the economy is still expanding, while price inflation rose to its highest level since 2022, and employment returned to modest growth after two months of contraction.

Minutes from the Federal Reserve interest rate meeting showed unanimous support for September’s interest rate hike with committee members expecting another increase by the end of the year.

Software company PTC surged 35% after agreeing to a takeover from France’s Schneider Electric for $205 per share, representing a 42% premium to PTC’s prior closing price.

Semiconductor shares were weak, with Intel losing around a tenth of its value this week. Investors questioned the pace of AI infrastructure spending and reports that OpenAI’s revenue growth rate was lower than anticipated.

SpaceX eyes $40 billion debt raise

The satellite and rocket company said it is in discussions to raise up to $40 billion of debt to buy Nvidia chips, comprised of $10 billion in bank loans and $30 billion in investment grade corporate bonds.

Investment grade debt and can potentially be bought by large institutional investors such as pension funds and insurers.

Elon Musk said xAI's Colossus 2 data centre could more than double its Nvidia chip count by December, while SpaceX is targeting a huge expansion in computing capacity.

The proposed $40 billion debt raise is almost equivalent to SpaceX’s projected 2026 revenues of $45.6 billion. SpaceX raised $86 billion in its June IPO (initial public offering) and subsequently issued $25 billion of debt.

What this shows is that the narrative of companies using their enormous cash flows to finance AI infrastructure is increasingly becoming a story about companies borrowing money to finance the AI boom.

Morgan Stanley estimates that AI infrastructure could require $1.5 trillion of external financing by 2028.

It is worth noting that Nvidia is a major shareholder in SpaceX with a stake of $21 billion, further raising questions around circular financing.

JP Morgan – priced for perfection

The third quarter earnings season gets underway next week with bellwether for US banks, JP Morgan, due to kick things off on Tuesday 13 October. Expectations are high after a strong Q2 driven by record investment banking fees and booming stock markets.

Management has already guided for mid-teens earnings growth with analysts forecasting $51 billion of revenues and $5.9 of earnings per share.

Treasury yields have risen sharply in recent weeks, which could be supportive for net interest margins, but higher funding costs via higher interest paid on deposits and rising market rates have moved in the other direction.

While mergers and acquisitions activity has remained strong, higher bond yields have caused some IPOs (Initial Public Offering) to be delayed, impacting fees generation.

Investors will be watching credit quality closely for signs of consumer stress amid continuing inflationary pressures on household budgets. Valuations are priced for perfection which probably means investors will not be tolerant of any earnings shortfalls.

PepsiCo sees delay to US recovery

Snacks and soda maker PepsiCo delivered better than expected third quarter revenues and earnings but warned that recovery in the US was taking longer than expected.

Chief financial officer Steve Schmitt commented: “We expect North America's core operating margin performance to remain under pressure in the fourth quarter.”

PepsiCo has faced the perfect storm of rising input costs and falling demand, forcing the company to slash prices for key products amid the growing threat from GLP-1 weight loss drugs.

The company cut its 2026 outlook for core earnings per share to a range of 1% to 2% from prior guidance of the lower end of 4% to 6%. CEO Ramon Laguarta said additional cost cuts would be implemented to accelerate organic revenue growth and mitigate inflation.

PepsiCo has been under pressure to improve profitability since activist investor Elliot amassed a $4 billion stake in 2025. The shares were trading close to six-year lows earlier in the week, before eking out a small gain after the results.