On today’s episode of Morning Brief, Yahoo Finance’s Seana Smith and Brad Smith break down some of the biggest stories hitting the market as May’s Consumer Price Index (CPI) came in unchanged, signaling cooling inflation.
May’s CPI lifted major market indexes (^DJI, ^IXIC, ^GSPC), with the Dow Jones Industrial Average jumping as high as 330 points while the Nasdaq got a 260-point boost at the market open. Mastercard Economics Institute Chief US Economist Michelle Meyer joins the show to break down the print, explaining, “The consumer is empowered right now… it’s very clear that the consumer is still engaged. They are still spending, but they are empowered. They’re making choices in how they want to deploy their purchasing power. And I think that’s showing up in the inflation data that we saw today as well.” While markets are excited about deflation, Tematica Research chief investment officer Chris Versace says investors should not get too excited, as the Federal Reserve will weigh several economic indicators to get an overall inflation picture ahead of any potential cuts.
Apple (AAPL) shares soared to a record high on Tuesday as investors digest the tech giant’s newest AI features and services. Oracle (ORCL) shares are also rising after announcing cloud deals with Google (GOOG, GOOGL) and OpenAI, despite missing on fourth quarter earnings and revenue. Meanwhile, shares of Paramount Global (PARA) are slipping after controlling shareholder Shari Redstone ended discussions to sell her stake in the company. National Amusements, which controls Paramount, reported it did not reach acceptable terms with Skydance Media.
Tesla (TSLA) shareholders are set to vote on a proposed pay package for CEO Elon Musk that is currently valued at around $46 billion. Guggenheim Securities Automotive Equity Research Director Ronald Jewsikow believes shareholders will vote in favor of the pay package, explaining, “It’s a mix of promises made and promises kept.” However, he outlines a “small win, big loss” scenario.
Is this alongside Brad Smith and this is Yahoo Finance’s flagship show the morning brief stock futures trading higher.
After the latest CP I prints came in cooler than expected treasury yields.
They are, I mean the head of the fed decision this afternoon can’t wait for that.
Let’s get to it with the three things that you need to know this Wednesday morning as you prep for the trading day, Yahoo Finance’s Jared Bry Jennifer Schober and Madison Mills have more.
That’s right.
Stock futures are in the green as investors digest a key inflation report, consumer price index coming in cooler than expected for the month of May boosting the case of some of Wall Street that will see a rate at excuse me, a rate cut from the fed sooner rather than later.
Over month prices were unchanged and on a core basis, stripping out volatile food and energy prices, annual price gains in May.
Those were 3.4% versus 3.5% expected.
And month over month, that figure come in came in at 2/10 of a percent versus 3/10 of a percent as expected.
And that brush reading on inflation this morning ahead of the federal Reserve interest rate decision should continue moderation but likely isn’t enough yet to inspire confidence for fed officials to cut rates that expected to hold rates steady this afternoon in the range of five and a quarter to 5.5% as it has done since July of 2023.
But all eyes will be on the Federal Reserve’s quarterly interest rate projections that so called that the question is, will the encouraging reading on CP I cause some that officials to lean towards more rate cuts than before the number?
That is, could they feel that the number of cuts to two rather than one from three previously?
And Apple making historic moves hit a record high and bringing the S and P 500 with it.
The I phone maker is trading lower free market but had its best day since November of 2022 on Tuesday.
Now they closed the session up more than 7% yesterday adding $215 billion to the overall market cap.
That is Apple’s largest one day gain on record.
The turn to the upside comes after Apple announced its a strategy and its worldwide developers conference.
The initial market reaction to the conference did seem muted the commentary appeared to cement positive investor sentiment for Apple.
Well, happy Hump Day.
Everyone may’s inflation prints coming in cooler than expected this morning and it’s sending futures rising as of right now.
We’re taking a look at the dow futures up by about 9/10 of a percent.
NASDAQ 100 futures.
Also seeing a gain of about the same on a percentage basis there.
All right, let’s take a look at the uh bond year because we’re also seeing that reaction play out within yields.
You got yields sinking on the heels of this print, a massive reaction in the two year.
But we actually got to look here at the 10 year and that’s down just about 11 basis points.
So the reason why we’re seeing this type of reaction is because of that cooler than expected inflation print, maybe what exactly this does to the feds calculus or the feds next move here in terms of the timing of that first rate cut.
We, we were just speaking to a strategist not long ago and he was actually saying that maybe July is still in play and this print here was enough to convince the fed that maybe that is the right move.
And then that’s also distancing themselves there from getting a bit closer here to election.
But it looks like at least from the market’s perspective, general consensus still right around that.
September, good friend of the show, Peter Cher coming in with some new this morning we have all the same.
All right.
Well, further declines in energy prices and a slight slow down here in shelter contributing to the cooling inflation print.
But what is this all signal for the consumer?
We want to bring in Michelle Meyer, Mastercard Economics Institute Chief us economist.
Joining us now, Michelle, it’s great to see you.
So first, just your quick reaction here to this cooler than expected inflation print.
And what exactly do you think this does ultimately to the timing, if anything to the timing of the Fed’s first cut?
Well, we certainly saw some easing of inflation pressures across the board.
Um So goods inflation continuing to ease car prices was a big one that saw some relief services.
Inflation remains a bit stickier, particularly around owners equivalent rent.
So that shelter component is coming in uh uh you know, a bit higher here.
Um But generally speaking, it’s an economy that is seeing a moderation in it’s not sudden, it’s not immediate, but it is trending in the direction that the Federal Reserve wants to see.
And I think that’s what we’ll hear from Fed Chair Powell later this afternoon, which said there’s more work to be done to get back to an equilibrium to get back to target.
But the direction of travel is now a lot more encouraging than certainly it was um in the first quarter of the year, more data on how the consumer is feeling, the confidence, the sentiment essentially.
And we were speaking to the conference board, chief economist Dana Peterson, uh another good friend of the show as you are as well, who was telling us about how she’s defining the consumer battle weary.
How would you after this inflation print define the consumer?
I would take a different approach.
I would say that the consumer is empowered right now.
We are here right now at our annual conference for mastercard, the mastercard Connections Conference where we’re talking to our biggest clients about the state of the consumer, about what they’re saying on the ground.
And it’s very clear that the consumer is still engaged, they are still spending, but they are empowered.
They’re making choices and how they want to deploy their purchasing power.
And I think that’s showing up in the inflation data that we saw today as well where there’s more choice where there a greater ability to find promotions and bargains the consumers looking for that.
And some of the deflationary pressures we’re seeing around um some of these goods categories for experiences, particularly once in a lifetime experiences.
There’s lots of price tolerance still out there and the consumer support in terms of the labor market is continuing to expand Michelle.
Do you think that trend is going to shift though, if we do keep rates as restrictive as they are today, I guess, at what point maybe do you expect or if at all, do you expect to see any sort of deterioration then there?
Well, look, I think the economy is continuing to transition away from this highly unusual period that we were in coming out of the pandemic.
So I don’t think we found our new, new normal for the economy or it’s kind of equilibrium.
So we are going to continue to evolve.
There’s still lots of changes that are happening in terms of the share of the consumer basket.
But the Federal Reserve has been very clear that they are on path to ease monetary policy.
They are going to be normalizing policy which does mean lower interest rates in the future.
The timing of that is a bit to be determined.
We’ll hear more from Fed Chair Powell today, but more likely or not, they are on track to be cutting interest rates before the end of the year.
Michelle.
I wonder what you make of the rate at which consumers are tapping into credit cards versus deploying cash.
Yeah, so we have certainly seen a lot of changes in terms of um how consumers are purchasing when the pandemic first occurred.
There was lots of extra cash out there.
We had all excess savings that we talked about and there’s a lot more debit card usage.
Um and then that changed where there was more credit card usage of the last 2.5 years or so.
So if you look at the Federal reserves, that credit card debt outstanding is certainly increased, but on trend basis, it’s not that different than where we might have been all sequel if we didn’t have all these gyrations coming out of the pandemic.
Um So I think you need to consider kind of that big picture of where the underlying trend is in terms of credit card debt outstanding.
Um and then where we’re going after that and it overall debt service, right?
If you think that overall debt service is a percent of disposable income on aggregate is still pretty well managed, Michelle, I’m curious what you make of some of the debate around whether or not elections are going to play into the feds timing the risk of that.
That was something that was brought up a couple of times uh earlier here in the show when we were talking to our last panel, is this something you’re factoring in or I guess is something that you view as influencing the timing of that first rate cut at all?
Well, I’m sure that your power is going to be asked that question this afternoon.
So here he has to say he’s been asked that regularly and all his recent speeches.
But look, I think they are very clear in their message which is that they are looking at the balance of all the data out there and trying to conduct policy the best way possible, which means that they are trying to make sure they get to a stable economy with low and stable inflation and they’re taking into account the economic data and they’re taking into account the environment around them in terms of making those, those decisions.
Does it seem like a consumer that is going to wait or, or be perhaps more conscious about their spending right now until they see that rate cut?
It doesn’t appear to be.
I mean, it feels like to me, the consumer is being mindful of how they’re deploying their purchasing power.
They are aware of where borrowing costs are, of course, but I don’t think that’s the main driver for consumers.
Which is defined by the rate of and right now aggregate wage growth running at between 4.5 to 5% depending what measure you look at is running above underlying CP.
I, so I think that’s what matters the most for consumers right now.
Michelle, I missed my invite to Music City, but I’m sure it’s in the mail somewhere.
Thanks so much for joining us this morning next year, Brad.
Well, Apple shares surging 7% and adding $190 billion in market cap on Tuesday, its largest one day gain ever this after the tech giant announcing its artificial intelligence system to discuss if the plate is enough for consumers to hop on the A I bandwagon.
We’ve got yah finances for your own Julie Hyman here with us.
Hey, good morning.
And I wrote about this in this morning’s morning brief newsletter as I was thinking through Apple’s announcements and sort of what was different about it.
And it, it’s not about whether consumers are gonna hop on the A I bandwagon.
It’s that they are because look, the three of us are all sitting here, we all have our iphones right in front of us and we’re glued to them at all times.
So this is really going to be the first time as we get these A I introductions that people are going to be using A I in their daily lives at scale.
And it’s that part of it that really stuck out to me after you guys talked to Gloria of D A Davidson yesterday.
This is what he told you.
That means we’re gonna go from hundreds of millions of people using generative A I to billions of people as soon as this is introduced.
And that’s what’s gonna drive an iphone upgrade cycle.
And here’s the thing, even if it doesn’t drive an upgrade cycle, um even if it doesn’t drive it, people are still going to buy new iphones and people who have the iphone 15 will have access to these A I functions.
So you look at something like chat G BT which yes, has large number of people using it.
Are they using it for daily life or they using it for work?
Probably not every single day you’re on this thing all the time.
What’s the killer use case on an individual personal basis?
And Julie, I think you summed it up just so well in your piece when you just said that proving part of it, right?
What, how, what they need to do to prove to consumers out there, maybe who are one of the people that haven’t that are not using A I in their daily lives right now, what they need to do to convince that and then ultimately, the trickle down effect of the impact that that’s gonna have on some of these other larger tech giants as well.
Right?
And it’s, there’s no guarantee it’s going to work, first of all.
Right, maybe, you know, I’m gonna ask Siri, when my, that is gonna arrive at the airport or whatever it is and it’ll give me the wrong answer or maybe I’m not gonna ask it in the first place because I’m still not gonna think to do it.
So there’s no guarantee that this convincing will work.
But it seems to me that, that what Apple and anyone else who’s trying to get people to use this stuff need to do is get it in front of them and actually using it because the presentation on Monday, yes, the stock went up a lot yesterday.
But on Monday everybody was kind of like, that’s it.
A lot of the analysts who cover even the people who were bows were like, ok, it met expectations.
This was enough, but it didn’t wow people, it’s not gonna radically change your life maybe until you start using it all the time.
I mean, just because Apple announced this, it doesn’t mean that all the other smartphone manufacturers fell in a ditch somewhere like they’re still going to try and iterate on top of the operating systems that they already have and try to introduce their own competitive product in A I form that can integrate into apps.
And it still comes back to the developers and what developers are able to put into the ecosystem that make it that much more of a customer lifetime value that Apple is able to extract.
I I think there has been a better case for the enterprise and what it is good for there.
There are so many companies who have talked to us about how they’re integrating chat bots into customer service, using it for coding, using it to save money.
In many cases, it’s on the consumer personal level that I think that that case just has not yet been made.
If anybody’s gonna make it, Apple is a good contender.
Certainly there’s no reason why other smartphone makers are not also going to be making that case.
All right, Julie Hyman, great stuff.
You can check out Julie Morning Brief here on Yahoo finance.com.
Julie think.
Well, we are just getting started here on morning Brief Oracle shares moving higher here surging up just around 7.5% in pre market trading despite missing expectations in the latest print, we will explain why next and Elon Musk battle for his big pay package.
We will speak with one analyst about what he expects to be the outcome to be and what exactly those implications are.
We’ve got all this and more.
You’re watching Yahoo Finance Oracle shares rising after announcing cloud deals with both Google and open A I.
But the company did miss on earnings and revenue in the fourth quarter.
Here, we’re taking a look at the shares moving higher pre market by about 7% here.
One of the huge things that was called out, especially during the quarter where they saw remaining performance obligation that RPO $98 billion up 18 billion from the third quarter and up 40% 44% year over year.
It really does come back to this deal making that they were able to do here.
And the number of people and companies that are relying on this is what they call the OC I the oracle cloud infrastructure here.
And so this is the cloud services, the data centers here.
And the way that they describe it is that human beings don’t run this operating system in the database, autonomous software robots do Larry Ellison saying that on the earnings call and you actually got a sense how they think about these data centers and how they think about language learning models.
He he went as far as to call them actually more like neural networks if you will because they’re not just looking at language and ingesting that they’re looking across photos of video and really having to run influential equations on top of that.
And so, uh it’s, it’s really interesting how this company is thinking about generative A I right now and that infused into its own cloud infrastructure and how big of a however they see this being ultimately here over the next couple of years.
And I think that is what the street is focusing on.
And that was enough here for investors to kind of look back the weakness that Oracle presented here in its most recent quarter, even really what it’s seeing here in 2024 and looking ahead to 2025 and how some of these partnerships that were announced with Google, with Microsoft with Open A I how that is ultimately uh expected to drive the business here going forward.
And JP Morgan called it out in their notes saying that the guidance here aiming for acceleration to double digit growth here was enough here to satisfy the street and, and from our recent conversations that we’ve had and even the conversations I was having la last week out in uh San Francisco at Bank of America’s uh Global Tech conference.
There was such a focus here on enterprise spent and what exactly that is going to look like and, and we talk about the next leg and the next phase or wave whatever you wanna call it of A I, what ultimately that is going to look like who is best positioned within that space.
And it’s a lot of names like an oracle here that was mentioned just in terms of well positioned at this point in the cycle, in terms of that future adoption.
And ultimately now the street even more bullish on what these partnerships with Google, what the partnership with Microsoft, what that ultimately here is going to mean for demand for their business.
Yeah, absolutely.
NVIDIA Microsoft, Google Xa I open A I Cohere and dozens more were brought up and mentioned names drop on the earnings call as they were talking about OC I here So, uh I imagine it’s an acronym.
We’re gonna hear a lot more whether I keep bringing it up or whether the company keeps talking about it one way or another, one company that we certainly do keep talking about that is Paramount.
Let’s update you because the shares are falling today after Sherry Redstone ended discussions to sell her stake in Paramount National Amusements announcing that they have not been able to reach turns the Sky Dance media for the potential transaction.
You’re looking at a loss of just about 3% on uh in pre market action, this update announced uh yesterday, late afternoon.
So here you have Sherry Redstone here, walking away offering and then this introduces even more uncertainty.
And as a result, we’ve seen analysts here a bit more negative on these names.
You got Wells Fargo downgrading here to underway.
They’re, they’re citing some of these causes here for internal disruption.
What exactly the path forward here means for a Paramount and ultimately how a Paramount can survive at least in the streaming space with so many of those larger competitors.
And ultimately, here we talk about not even surviving but really becoming a larger player and able to win some of that market share that they currently don’t have.
Yeah, it sounds like based on some reporting from Wall Street Journal Redstone going to hope to sell national amusements to a different company or suitor out there, whoever’s stepping forward and throwing their hat in the ring and perhaps puts up a good price.
Um But ultimately Redstone has bucked at many of and all of the deals that have essentially come forward to this point in time here.
Um And given the amount of share and stake uh that she holds, that’s why it makes it so difficult for this to go through.
She’s been running the company since 2020 after uh her father passed and so who this eventually goes to and at what price is continuing to keep shareholders in limbo right now?
Um But you gotta wonder for the consumer, what type of difference they’ll see in the service level, depending upon who the acquirer and the suitor is to buy up.
So buy up the assets here and ultimately, who would even be interested at this point here with, with so much it’s a purchase and then an investment even more.
So because then you’ve got to figure out, ok, where are we going to either send at certain parts of the business or uh start to trim some of the fat or, you know, do we need to spend further into making sure that this is actually getting to a level that it was mis that because of mismanagement perhaps, uh and because of falling out of consumer favor.
So all those things considered and many of the uh large shareholders, some of the large shareholders that we’ve had on the program here.
Uh Most recently, over the last couple of months have been pushing for a sale.
I want some sort of a change here at Paramount.
So again, uh interesting story here to continue to follow.
Let’s also talk about gamestop this time raising over $2 billion in recent stock sale of 75 million shares as it looks to take advantage or is taking advantage of that meme, a stock resurgent.
Now shares of gamestop are up down here this morning, but over the last month, the stock has surged.
You’re looking at a gain with just about 74%.
Well off the highs that we have seen over the last four weeks.
Of course, a lot of the excitement was reintroduced surrounding Gamestop when we’ve gotten some of these social media updates from war and Kitty Keith Gill, certainly a die hard following people that are firm believers or want to be believers, maybe in what he is saying and, and that is certainly driven up as some of that excitement surrounding this up.
But once again, you’ve got games up here capitalizing on that renewed excitement.
So raising just around 2 billion.
Yeah, I think he’s got what uh 10 more days uh inside of 10 days before some of those options calls uh come to fruition.
I believe that uh a little bit uh actually around this level.
So um that is gonna be a key level for him to watch.
And I think for a lot of the meme stock or Reddit traders who have continued to watch his YOLO updates.
Um I mean, last week’s on Friday, we sat there and just waited for something to pop up forever, seemingly.
But at the end of the day, I think that’s where so much the conversation for the retail trader has been focused on, but for the company, they’re just trying to figure out, ok, how can we leverage this opportunity to maintain liquidity?
But anyway, and you see the excitement surrounding name.
Yes, it’s under pressure here today off just about 4% point we said over the last month has been on quite the wild roller coaster ride and to no surprise on the top mention of stocks on stock twits here this morning.
All right.
We are just a couple of minutes away from the opening bell on Wall Street taking look how the trading day is shaping up on the heels of that cooler than expected inflation print CP I report that was out at 830.
You looking at futures across the board for the three major averages pointing to gains here at the open.
Now, that features of just around 9, 10 of a percent will be right back.
All right, we’re inside of a minute until the opening bell.
We’re taking a look at the US futures right now.
Major averages pointing to a higher open right now.
The dow is up by about 9/10 of a percent.
The S and P 500 up by about the same on a percentage basis will round up.
Anyway, math, let’s take a look at the heat maps that we’ve got here as well here as we’re trending towards the open as we’ve got just seconds away from it.
Take a look at real estate that’s leading the pack right now.
But ultimately, it looks like she was waiting across the screen coming into today’s opening Cross.
Well, because usually there’s a different bell ringer every day and taking a look at the nyse, you’ve got viva glam ringing the opening bell.
A lot of excitement in your voice there for Viva Glam.
I mean, look, I wear glam every day.
That’s what gets me excited for the show, look a little bit better get rid of some of these blemishes along the a new appreciation there for make up.
All right, let’s take a look at some of this game on some of the games that we’re seeing here at the open.
We mentioned that softer than expected inflation print adding to this risk on rally that we’ve seen ever since 830 some of that pre market action.
So here we are at the bell.
We’ve got all three of the major averages here opening today in the green and taking a look at the NASDAQ, NASDAQ.
Still the out performing here of the major averages.
Take a look at some of these larger cap tech names clearly pushing here to the upside.
We are seeing some of those losses there here for Apple.
But NVIDIA, this has really been a winning trade here over the last several times trying to follow.
And now we’re back here to Apple.
Let’s take a look at those moves that we’ve seen the massive like that we saw in yesterday’s trading action.
And this coming after that, those A I announcements that were initially announced or were announced on Monday initial, the initial reaction was muted.
We saw that record setting day here for Apple yesterday.
So a bit of a get back here at the open.
But again, we are seeing a lot of, uh, the risk on sentiment here playing out in the broader market.
You don’t have to look any further than some of those larger cap tech names to see that.
Well, let’s get over to Jared Blicker.
He’s got a closer look at some of the other movement that we’re seeing.
Wanted to spend a second on the S and P 500 the SPX as it’s called, uh we’ve seen Volumes Cratering, but that hasn’t stopped it from achieving record highs most recently, only yesterday.
And that was the 27th record closing high of the year.
NASDAQ right up there with it right near those highs.
The dow languishing a little bit, still kind of stuck in a range.
And then you always have the Russell 2000, which hasn’t seen a new high in years, at least not a record high, but I wanted to focus for a second on the bond market.
I think what’s happening in the tenure is pretty instructive.
Here’s that big red candle and we are now touching the lowest, just barely the lowest since about April.
So you’d have to go back a couple of months to see that you also have the dollar dollar is going down as well.
Both of these things are tailwinds for some of these bigger tech stock or excuse me, bigger market cap stocks that we’re seeing and we can see this in the sector action.
So real estate is actually number one today, that’s up 2%.
And that’s probably on that big move down in interest rates as kind of an interest rate, sensitive sector materials up 1.5% financials up one uh utilities and industrials right there with them up over 1%.
And just taking a look at the NASDAQ here, we’re just taking a look at look.
Apple is in the green now shifted from red near the open in the pre market.
Uh just coming off the third largest market cap gain ever for a US stock.
And that was number one for apple.
And by the way, I was looking at that list, supplementary, I’ll just tell you five of the uh five of the top ones they all came within the last few months.
So this just has been a record setting year by a lot of metrics guys.
All right, Jared, thanks so much for digging into some of the movement that we’re seeing here at the open.
And like we’ve been saying here this morning, stocks, well, they’re rallying and yields are tumbling on the heels of May’s consumer price index coming in unchanged from the prior month.
Now, despite the softer than expected print, we’ve got the Feds press conference still ahead and that could actually maybe pose a risk to this risk on rally that we are seeing.
So to discuss, we wanna bring in Chris Versace.
He’s Tamati, a research Chief Investment Officer Chris.
It’s great to see you.
So we are seeing some optimism clearly play out here in the market.
The market seems to be satisfied and excited about this print.
What’s your first take of the number that we got this morning?
I mean, you look at whether you want to look at it on a year over year basis, sequential basis.
Clearly, the numbers were better than what the market was looking for.
Uh With the strong open, uh we’re, it’s also explaining why we’re seeing uh treasury yields move lower, particularly for the 10 year, they’re back 4.3% right, right around their lowest levels since early April.
So II, I think the takeaway here is the market is getting excited that the prospect or rate cuts or, you know, back on the table.
And so what does that mean for people’s portfolio positioning?
Is there a massive kind of shift that they should be thinking about as this puts that cut back on the table, even as we’re watching some of the CME fed watch probabilities shift for perhaps an earlier rate cut than anticipated.
Well, I let me let me back up a second brad because I said the market’s expecting that, right.
So the the the question is, what should we be thinking about?
And when you look at, you know, the last year we’ve seen the sequential core CP I hit 0.2% several times, you know, uh June, July October.
But at the same time in between those months and really since uh November, December and the first quarter of the year inflation has moved the wrong way.
So, uh we have to stop and think about how is the fed going to see this?
What’s the message they’re likely to, to deliver this afternoon?
Remember, they don’t want to get head faked here, right?
They want to make sure that yes, inflation is moving down on a sustained basis.
So they’re not gonna rest on any one particular data point, right?
They’re gonna wanna see continued good data.
And I think that’s the message that Powell is going to come out with this afternoon, potentially throwing just a little bit of cold water on the market’s enthusiasm for what it saw this morning.
So for, for folks, I would just say hold back and let’s get through the fed press conference this afternoon before making any snap decisions on this one data point positive though.
And we’ll find out what uh palace is say in just a few hours from now.
But for, for investors overall, at this point in the cycle, a lot of uncertainty that’s clearly highlighted even in the reaction that we’ve seen play out in the markets over the last several weeks and and we talk about the fact that maybe we shouldn’t get too excited about this print.
So what does that then tell us about investor positioning and what makes the most sense at this point?
So we’re getting ready for the back half of the year, right?
You know, we’re gonna soon segue from the mini wave of investor conferences that we have now, we will be moving into the June quarter earnings season and that’s really gonna reshape expectations for the back half of the year.
So, you know, kind of what we’re doing uh with the Street Pro portfolio is we’re, we’re building our shopping list, we’re getting ready for the second half of the year and any opportunities that we might see, could that be as soon as, you know, the market kind of cooling off after this afternoon, it’s possible.
Could it be when earnings expectations maybe get revised either lower or higher for the second half of the year?
Could very well be.
So that’s, that’s how we’re kind of, you know, plotting and tacking to get ready for all of this.
Um You know, where there’s some other companies that we’ve got some smaller positions in um you know, waste management Lab Corp, for example, if we got the opportunity to pick up more shares of applied materials, boy, we would love to do it.
Um You know, we’ve spent a lot of time in the first half of the year kind of repositioning, you know, bulking up on NVIDIA bulking up on Marvel, given what we see ahead, we also bulked up on Qualcomm.
Uh You know, again, all this kind of ties back to the A I cycle or the A I on device upgrade cycle that I think you guys were talking about quite a bit earlier today.
All right, Chris Versace, who is the Tamaica Research Chief Investment Officer, Chris, great to see you.
Thanks so much for hopping on with us.
Thanks guys, inflation coming in cooler than expected.
But what does this mean for the dash plot this afternoon?
We’ll discuss that next, the latest inflation data coming in cooler than expected ahead of the Fed’s decision coming at 2 p.m. Eastern time today.
And then of course, we got fed chair Jay Powell conference soon following.
So what does this uh data point ultimately mean here for the feds upcoming projections?
And what exactly fed officials are expecting uh to see is in terms of I guess the right way to go about policy at this point, Josh Schafer here standing by the best person to ask here in this newsroom.
And Josh, this has certainly been the big debate and maybe how excited should the markets really be about this one print?
Yeah, I mean about one CP I print, I think Jerome Powell will say don’t get too excited, right?
Because that’s what he said about every positive inflation print.
And normally remember he’s talking about P ce, you could read through to the CP I print and think, OK, that’s a positive for me P CE.
But I don’t think of all people, the FEG share is really gonna go there with us today.
But the dot plot is probably the most interesting part of at least the 2 p.m. release and markets largely expecting uh the FED officials to take out a cut here.
At least one cut come down to a consensus of two cuts, potentially even one cut.
But honestly, I think the more interesting part of the dolo could be sort of what we see for the other economic projections.
If you remember back to March, we saw upgrades to GDP, we saw core PC lower or actually sorry, core PC came in higher, but unemployment was only a little bit higher overall, they had a more positive outlook on the economy.
This is just what one economics team is projecting for today.
This is Deutsche Bank.
They’re seeing GDP coming in lower core P ce coming in, higher unemployment coming in higher.
If you look at those projections and just think about sort of how the the fed thinks about the economy, that’s not that great, right?
And to me what this sort of creates is, I think the most interesting thing to hear from Chair Powell today is the balance of risks we’ve had, we have the unemployment rate now at 4% we just showed back in March, the fed thought we were gonna end the year with the unemployment rate of 4%.
The jobs market is adding jobs, people are making money but to see the unemployment rate ticking up like that is definitely something that I would expect them to speak to.
Ok, so what do you think in the tenor of the press conference itself?
Because we’re not gonna get the meeting minutes for weeks until after we get this decision.
But what could he come out to the lectern and say that would spook markets then this afternoon?
I, I mean, I think spooking markets, Brad would be staying on the inflation path and we need more data and perhaps feeling maybe too solid about the economy because we know they often talk about data that has already happened and don’t project data that is going to happen.
But the unemployment rate is considered to be a little bit of a leading indicator, right?
It starts picking up, we know it continues to pick up for it to have raised 6% points over the last several months.
That’s something that normally keeps happening as a trend.
So it’ll be interesting to see if maybe he shifts the way he talks about data a little bit, we often talk about data that has already happened and not necessarily data that is going to come.
But I think the unemployment rate is a little bit different.
Well, exactly.
And I also think the question is, is to what degree is this does it take in order for that softening really to take effect in order to get the fed’s attention, meaning how much weaker do some of these data prints need to come in?
Specifically sticking with what you were just pointing out when it comes to the labor market and unemployment, if they are already a bit worried about the fact that we are already at that 4% level.
And exactly what that ultimately means here in terms of being able to balance that risk and not keep rates higher for longer at this current rate, obviously for too long.
And then the risk at that obviously, it’s just such a fine line right now, Shana, because you can look at other measures of the labor market which Sure Powell will reference often like say the ratio of job openings to unemployed people that’s back at the pre pandemic level.
But then you look at other things and say, OK, so is it going to get worse though?
Is it going to keep extrapolating?
And I think that’s sort of the looming question here that we don’t really know but it is why most economists that we’re seeing research from this morning as they’re sort of reacting to this inflation print.
They’re kind of saying, ok, it might be time to go.
And I know you guys have been talk talking about market expectations this morning.
Markets more aggressively pricing in a September cut.
Yes, that’s because you’re seeing some positives on the inflation front.
But as you start to see positives on the inflation front, there are a lot more people talking about the labor market and that’s really why people think the fed will need to go.
It’s a little bit less about inflation to some point and more about how long can we really hold on?
What’s cut before we wait too long because we know if we wait too long, that usually is not good.
We know markets are going to be very closely listening to what pal has to say about that as we will be Josh leading our coverage here for us.
Again, we 15 minutes into the trading day market still in this risk on rally move.
You got the dow of 336 points.
You got this and be trading to the upside NASDAQ up just about 1.5%.
We’ll be right back.
It’s a big week for Tesla and Ceo Elon Musk Musk facing a vote from his own shareholders to see just how much money they think he deserves here with more.
So there’s just one day left basically for Tesla shareholders to cast their votes that will decide if Musk should get a second chance.
At one of what is the largest CEO pay deal in history?
The value of this compensation.
it does shift with Tesla’s share price but it’s now worth approximately $45 billion if it is given that green light.
Now, voters are due by the time of Tesla’s shareholder meeting tomorrow afternoon.
That’s Thursday afternoon.
Those votes have to be in by then shareholders first approved this deal though in 2018 and at the time, 73% of Tesla’s independent shareholders gave it a green light.
But earlier this year, a Delaware judge voided that pay altogether.
The judge said Tesla’s board members that recommended the pay deal failed to disclose close ties with Elon Musk’s now analysts and major shareholders.
They’re mixed on support for this renewed deal if it were renewed.
Some argued that the pay is necessary to keep s must Elon Musk’s attention on Tesla.
Others say they’re worried that the payout will dilute shareholder value, give too much control of Tesla to Musk and other concerns.
Now, Musk is also, of course, the CEO of Space X.
He’s founder of Neuralink, founder of the infrastructure development from the boring company.
Plus Musk now owns X formerly known as Twitter.
Still having trouble getting that name out there.
I want to call it Twitter.
He’s also founder of the start up Xa I rival to open A I which he also helped fund in its early stage.
And Musk is also president of his charitable organization, the Musk Foundation.
So it’s safe to say he has a lot on his plate.
And Musk acknowledged as such on a saying that he would feel uncomfortable growing Tesla as a leader in and robotics without owning about 25% of Tesla.
That’s the number he’s been pushing for.
And then he went on to say that unless that’s the case that 25% he preferred to build products outside of Tesla.
Now, Musk currently owns about 13% of the company.
So let’s try to break down here how this multi billion dollar pay package is put together and that was back in 2018.
Now, Musk gets no compensation under this deal at all.
It’s entirely performance based.
If it were to be ratified again, it’s all performance based.
So no guaranteed base salary like we would see with most ceos.
Now instead his pays his pay is based on the potential to unlock various stock options.
In addition to the options that he already owns now to unlock these options must had to hit a combination of three different kinds of milestones there were market cap milestones, revenue and profit milestones.
You have to put them all together to figure out how this works.
Now on the market cap front, Musk was first tasked with hitting 12 levels and those ranged all the way up to $650 billion.
Musk, as we know, satisfied all 12 of those Tesla’s highest market cap came in at 1.24 trillion dollars that was back in November of 21.
But market cap achievements alone are not enough to seal the deal.
Here, there are eight revenue based milestones that range from 20 billion up to 100 and 75 billion.
Musk has set aside four of those eight targets.
Then you have Tesla’s annual revenue hitting a high of uh $97 billion in 2023.
So that’s the satisfaction in those buckets.
Now, as for the profit milestones or adjusted, I do the pay deal sets out eight milestones, all of which Musk has also satisfied Tesla’s profit in 2022 hitting those benchmarks around $18 billion.
So when you put it all together, you have Musk achieving all 12 of these additional vesting requirements that are on top of those market cap requirements.
And uh that is rev new plus profit uh plus market cap.
So under the deal as slated in 2018, Musk would have been entitled to roughly $46 billion at today’s stock price.
But now the question remains whether shareholders want to give him that second chance.
So, a lot to anticipate in the next 24 hours or so here guys.
Thanks so much for team this up for us, Wall Street, paying close attention to the vote on Elon Musk’s compensation package.
Our next guest says the stock could move on whatever the decision ends up being here with more.
We’ve got Ron Yuko who is the Guggenheim Securities Director of Automotive Equity Research.
Thanks so much for taking the time here with us.
So what is your anticipation of how this will net out in the vote based on what we’ve seen previously and how you’re expecting the stock to move coming into this?
Yeah.
Thanks for having me w we think the shareholder vote is going to pass.
I think it’s a mix of promises made promises kept, which is kind of what we saw in 2018 vote, vote, hold serve um running the math on most major institutions and how they voted last time.
You, you still do get a narrow passage if, if voting holds serve and retail Elon has indicated is 90% in favor.
It’s just a question of the variable of what percentage of retail investors are actually voting for this.
Um In terms of the stock reaction, we’ve characterized it and I think most on most of the investors we talked to agree is it’s, it’s, it’s a small win, big loss scenario.
Uh In the event, it passes stocks probably up slightly on Elon retaining Elon the A I efforts that he sees in the company and in the event it fails.
Uh I think it introduces risk that ultimately we don’t think Elon’s gonna leave.
We think developing A I and Tesla for a lot of reasons makes sense in terms of cost of capital, the liquidity profile, but it does introduce the risk that he spends more time developing A I and shifting talent elsewhere.
So I think that at least the narrative that that he could spend more time elsewhere would, would gain steam and the stock would, would be down quite considerably in the event this fails.
Yeah, Ron just really down a bit more, I guess.
What more specifically do you think that stock reaction to the downside if those risks, if it’s not approved what that ultimately looks like?
Yeah, we have, we haven’t put specific numbers around the downside.
It’s really tough to quantify too, but I would say that our price target is, is about $45 lower than here.
I think there’s a considerable amount of premium for Elon Musk being engaged and developing A I in Tesla currently.
Um just based on where we think the fundamental value of the business is versus the I I would say more uh hope fueled parts of the business.
Um But in terms of specific quantification, we have we have not put a number out.
Elon Musk has said in the past that he might reallocate how he spends his time if this vote doesn’t go through in, in his favor, what would you expect then?
Yeah, we, we’ve seen some capital raising at Xa I and I think his other, his other ventures, but ultimately, the cost of capital at Tesla is so much lower than any of his other start ups that I if he’s serious about developing A I and I I appreciate his, his terminator e tail risk of if A I become sentient.
But um ultimately, the cost of capital to develop it at Tesla is much lower.
There’s a lot of talent already in place.
Ok. Outside of the the control elements developing it in Tesla has the most prospects for success, I think ultimately, when it comes to the shareholder vote, exactly how it’s going to break down.
Of course, a lot of it is just a question of how many of the uh individual shareholders, how many of them actually cast votes.
And of course, where the institutional side of this all comes in.
If you take a look back at 2018, big institutions were pretty much split a couple of years ago.
Do you think that’s likely going to be the case this time around?
Yeah.
And we we’ve seen that publicly with various institutions announcing for or against in advance of this vote.
I think ultimately, we think institutions largely hold serve with how they voted in 2018.
And that is why we think this vote passes.
But if a few large institutions pivot from how they voted in 2018, whether that is, is for their own internal reasons or because of a shift in their, their ownership base.
Um That, that could swing the vote more negatively.
But ultimately, if votes hold how they did in 2018, this, this will pass as long as retail turnout is, is relatively strong.
Thanks so much for taking the time to join us here this morning.
Again, this pay package is gonna be put up for a vote here and we will see how this all plays out.
Well ahead of that.
We asked you keeping on Tesla and Elon Musk, we asked you and you answered, we wanted to find out what our viewers think, what you think of Elon Musk’s pay package, $46 billion pay package.
Think that Tesla shareholders will not approve the pay package only 4% think it will pass.
And Brad, I gotta be totally honest.
I actually questioned the producers in the break before.
If this in fact was right, because this really goes against what we have heard from many analysts, even what we were just talking to Guggenheim about here just, just a minute ago.
I think the feeling on the street is that this is going to pass and if this doesn’t pass is the risk that then this potentially poses here to Tesla stock is something that Yevsk was just telling us here moments ago that downside risk what this ultimately means for the future of Elon Musk at Tesla.
So I’m a bit shocked to see that 96% of people are not expecting this to pass.
You know, if it does not go through as we are clearly seeing show up in the results, at least from those who participated in this poll once.
I mean, they’re saying no, it should not go through then what would happen next?
All right.
And we were just talking to Guggenheim about that and the retail investors that he was trying to factor into this as well.
I mean, this is probably a lot of retail investors here.
And so if it is actually a misread on the part of big institutions in the anticipation of how retail investors will perhaps vote, then we could see this go a different way we could.
Yeah.
And of course, the question is what the turnout looks like from the retail investor, from the individual investor.
We largely uh know how the institutional investors are likely to vote this time around, we have, they have been very vocal here over the last couple of weeks and tying it back to what we saw in 2018.
It did pass overall uh overwhelmingly here, but institutional votes were split.
So again, it does bring up some of that uncertainty part of the conversation too and ultimately, what that could look like.
But again, 96% of those that we asked said that it should not be approved.
Well, coming up, we’re diving deeper into some of the key catalysts in that May CP I print report and what the inflation picture means for the fed.
We’ve got all that for you and more next hour on catalysts.