It’s Tuesday in the final trading week of June 2024 and stocks (^DJI, ^IXIC, ^GSPC) are roaring to give it the old college try after tech-heavy indexes have been dragged down by Nvidia’s (NVDA) recent sell-off. The Morning Brief Co-Hosts Seana Smith and Brad Smith guide investors through the market open, reporting on the leading business stories and stock trends of the day.
Kace Capital Advisors Founder and CEO Kenny Polcari believes Nvidia’s downturn and the market’s reaction to it is “way overblown,” telling the Morning Brief team that investors should focus on the chip company’s long-term story.
Bank of America Securities Managing Director and Chief US Economist Michael Gapen sits down to talk about US Secretary of Treasury Janet Yellen’s comments on the Federal Reserve’s inflation target and the likelihood of a recession made in an exclusive interview with Yahoo Finance.
European Union regulators are targeting yet another tech giant, this time it’s Microsoft (MSFT), alleging the company breached antitrust laws by bundling its Microsoft Teams software with other programs.
Other stocks trending on Yahoo Finance include Boeing (BA) and Spirit AeroSystems (SPR), Airbus (AIR.PA, EADSY), and Carnival Corporation (CCL) as the cruise line operator reports fiscal second-quarter earnings results.
Watch Yahoo Finance’s full, exclusive interview with US Secretary of the Treasury Janet Yellen.
I’m John Smith alongside Brad Smith and this is Yahoo Finances flagship show the morning brief brought to you by Invest right.
Stock Futures are mixed this morning as heavyweight in video eyes, a cautious come back from a three days skid.
So let’s get to it with the three things that you need to know this morning as you prep for the trading day, we’ve got Yahoo Finance is Jared Madison Mills and Alex Keenan with more shares have been video up 3% in pre market after a historic stock slide, the chip maker experienced a three day sell off resulting in shares falling nearly 13% over the period represent representing a loss of over $400 billion in market cap.
Now in videos move bring the heavy NASDAQ composite to its worst day since April plus investors.
Now this comes after inflation has cooled in recent months but it’s still above the FEDS at 2% target.
Treasury Secretary Janet Yellen told Yahoo Finance in an exclusive interview that she expects inflation to continue to trend downwards.
I do expect inflation to come down.
And as we get into next year, I believe that inflation will uh go back to uh the Fed’s 2% target.
Secretary Yellen also said she does not see a recession in sight.
We unpack why.
And European regulators are going after a second big tech target this week.
The EU antitrust authority says Microsoft is violating the blocks antitrust laws by bundling teams with its other business software.
This comes just one day after the Eu hit Apple with an antitrust claim saying Apple’s App Store was illegally preventing developers from steering customers towards alternate ways to buy their contents.
Our top story this morning shares of NVIDIA rising trying to regain some ground here pre market the stock off around 10% over the last five days, losing nearly $430 billion in value in market cap over the last three trading days.
Now Monday’s declines alone, they fueled $200 billion in losses in Via’s biggest one day slide since mid April here and here.
We’re taking a look at that five day view here for NVIDIA.
Of course, one of the huge things that this comes back to is really some of the selling that we’ve seen from insiders that’s come forward.
But more largely here, much of the thesis may not have changed for those bullish investors that are out there with NVIDIA.
Exactly Brad.
And I think that is the question that everyone is asking here this morning because here you’re looking at NVIDIA, at least in the pre market trading, regaining some of those losses that we’ve seen over the last several trading days.
So we’re looking at a rise of just about three and I think investors are at home or at their desk asking themselves whether or not the narrative has changed at all in NVIDIA.
If we’re going to see any sort of unraveling when it comes to the A I trade, or if this is simply profit taking and you, the investor at home should be looking at this, this pullback that we’ve seen here over the last couple of days as a buying opportunity and going through many of the notes that have been out here over the last several days from Wall Street, there is there is that tone saying that, hey, maybe you should be using this as a buying opportunity here for investors, given the, given the competitive, given the dominance that we have seen NVIDIA here within the space over the last several quarters.
So again, when you take a look at their most recent earnings sprint, it doesn’t look like it is slowing down their momentum, slowing down any time soon.
So again, a bit of a give back here and you’re looking at losses of just over 10%.
So again, at least my take away from the notes that I’ve been reading here over the last several days is many are arguing that this is a buying opportunity for investors.
At this point, semiconductor is gonna get their next test this week when Mikron also reports earnings as well.
Giving us a better picture of the overall uh chip sector here.
All right.
Well, it does Nvidia’s slide show signs that the A I trade might be unraveling.
We wanna talk about that, that with Kenny Polcari, he is Key’s capital advisors, managing partner here to help us answer that question, Kenny, what do you think?
I don’t think people need to be nervous about what’s happening in NVIDIA.
They should not be surprised.
The stock has done nothing but go up in a straight line.
So a 30% pullback yes, does represent a little bit of a sale.
But quite honestly, you could see this thing drop another uh five or 8%.
You know, if we saw a 20% pullback, Invidia, I wouldn’t be surprised at all.
It’s up 100 and 40% just this year alone.
A lot of it driven by this A I theme and this I mania which you know, on its own probably got a little bit ahead of itself.
And so therefore I would look at this and, and I, and I continue to tell clients, I would look at this as an opportunity, meaning take your time, be strategic.
If you see further weakness, it’s OK because this is a this is about, this is a long term story about the future.
This isn’t about today or tomorrow.
And so with that in mind, if we see continued profit taking in NVIDIA, is that ahead for the exit sign for some who have been holding it for an extended period?
But you also have to understand there’s a couple of things happening.
So you get a lot of big asset managers that are trying to reshuffle and rebalance, they gotta show that they own some, but they use some of the profits to reallocate the other sectors.
And so this is just normal risk management and that’s what individual investors need to understand.
Look, Vanguard’s been a buyer going into this quarter, but Fidelity has been a seller.
They’re both large asset managers, but they’re buying and selling for different reasons.
Doesn’t mean failing doesn’t mean Fidelity is getting rid of their position.
They’re just trimming some of it where Vanguard says we see even more opportunities.
So we’re buying.
So you have to think like an institution and what what, what is, I guess the appropriate risk management?
Then if you’re an investor at home, how much of your portfolio should be allocated towards NVIDIA towards chip sector?
Look, I’m 63 NVIDIA is 13% of my portfolio and some asset managers would say, oh my God, that’s way inappropriate for you because of my age.
Well, guess what?
It’s not inappropriate for me because I’m the one who made that decision.
I’m comfortable with that level of risk.
If you’re a 30 year old, you may want 40% in the A I trade because you’ve got 30 years to go.
But if you’re 70 you may wanna have, you know, a 5% or a 3% position because you’ve got less time.
Um and you, and you don’t wanna risk it.
So the, the answer to that question very much depends on who you are and where you are in the life cycle and on the risk scale, I mean, we’ve tracked the run up in NVIDIA, but if you’re rotating out of NVIDIA, what are the other areas that look appealing right now?
Well, listen, if you’re rotating out of NVIDIA, but you wanna stay reallocating some profits, you wanna reallocate them outside of tech or do you wanna, you know, and take advantage of consumer staples or energy or financials, which are perfectly, uh, uh, great sectors to rotate into, especially if you think that the A I trade is well ahead of itself and we’re gonna see some pullback and the market’s gonna hit a little bit of, uh, uh, a little bit of a rough patch in the, in the o over the summer.
July and August and maybe into September, which I actually think it’s going to so new money that I’ve been putting to work, I’ve actually not been chasing, I haven’t been chasing, you know, the A I trade, but I’ve been putting money into consumer staples, utilities, utilities.
The most boring sector in the world is up 15% here today.
So, uh, listen, I, I, I’m in this, I’m in this camp that you can’t let, especially stuff like NVIDIA because it’s not a small cap, unknown company.
It’s very much at the center of where the world is going.
Listen, when Bloomie’s has a sale and dresses go on sale for 30%.
You don’t go to return your clothes, you buy more because it’s on sale.
And that’s why when people say, especially with names like Apple or Amazon, it goes down 10% and you go, oh my God.
So II I think investors are also just taking a step back right now.
They’re trying to figure out where we are right now within some of that enthusiasm, euphoria that we see within the market.
So we have NVIDIA, we have that story, but then also moving on some of the other catalysts that investors need to keep on the radar when it comes to the fed, when it comes to that P ce print that we’re gonna be getting at the end of this week, we’ve also got the Russell rebalancing.
So what should investors, what do investors need to know the Russell rebalancing happens on the same day?
And so what investors have to understand about the Russell rebound just like the S and P rebalancing last week is that it says nothing about the market.
All it does is the Russell has rebalanced the weightings of these, of these small and mid cap stocks that are in the different indexes to reflect the movement.
So it says nothing about the overall market.
It just, it’s gonna create volume because there’s gonna be shifts in names, but it says nothing to you as an investor about.
The, the P CE which is the feds in flavor inflation gauge is something that people will pay attention to and trust me.
It is expected to be softer which would be a positive.
Um But you really have to turn around and look at yourself and say to yourself, am I really feeling this decline in inflation when you go to the supermarket, when you pay your utility bill, when you get your insurance bill, are you really seeing prices come in?
Do you feel any better about the inflation picture?
And that’s kind of where, where, you know the investor has to kind of where the rubber meets the road you were talking about where there might be sales coming forward here.
What, what are the three are there three names that you hope there are sales in uh in some of the stock price action that we’ve seen recently?
Certainly in the tech space as well.
I’d like to, I see a lot of NVIDIA is right at the top of my list, right?
I said I would love to see NVIDIA back off because I wanna buy more, not only for me, but I want to buy it also for clients, but I didn’t want to chase it.
I mean, look at the chart, it’s just it goes like this.
I’d like to see it actually come back to trend line support is where I think uh where I think it could actually test and then where I think you could start to get in, right?
But other names in that tech space.
So uh uh A MD is a name uh Mike’s gonna be, we’re gonna, we’re gonna hear from Mike.
Even Intel is a name that suddenly seems interesting.
Pent is another name in the tech space, right?
But away from that, like I said, I’m looking at the other sectors.
I like consumer staples because if I think that there’s gonna be a little bit of a rough patch over the summer into the fall, you it’s the things you need versus the things you want, right?
So you need, the staples are things you need.
Uh And so that, so they continue to have some pricing power and look, IIII I think it’s a safe place to put some money, still have exposure to the market.
Some of them are very good dividend payers as well.
So it makes sense if you’re 22 maybe you don’t wanna be in consumer staples.
But for me, uh and a lot of my clients, you need to have some stability and you need to understand what those different sectors represent in the, in the broad portfolio all about a balanced approach.
Kenny Kalari, always great to have you, especially here in studio.
Thanks so much for joining us here today.
Alright, let’s move on to another big story that we’re watching.
It’s another setback for big tech in regards to regulations.
We’ve got the European Union, the Eu accusing Microsoft of bringing some antitrust rules with the bundling of its office software and teams products.
Yahoo Finance’s Alexis Keenan joining us now with those details.
So right on the heels of this apple news that we got yesterday, um This is a similar statement by the European Commission.
So different facts here.
But the European Commission, the right later in the in the EU is issuing Microsoft a preliminary view.
And what they claim is that Microsoft is bundling or tying its Microsoft teams product to other business software, namely office 365 and Microsoft 365.
They say that’s a violation of Eu antitrust rules and the market that they’ve identified is Sass Productivity App for business.
So specifically in that business sector, and we knew all the way back in April that the EC was planning to make a charge.
And these actual claims, these of these problems that Microsoft’s competitors have with this issue go all the way back to 2020 when sales forces Slack complained that this was anti competitive.
So that then led Microsoft in 2023 in October last year to Unbundle teams and but the EU the EC says they didn’t go far enough.
Microsoft then spread that out globally this year.
But now Microsoft is going to get a chance to respond to these claims.
But you know, the eu the process, it’s administrative, it’s really different when the EU makes an antitrust claim against a company in the US.
Were familiar with the DOJ or the FTC, bringing a complaint going through a trial but perhaps going through negotiations, a lawsuit, right?
A court of law.
But in the case of the EC, it is the investigator, it’s the judge, it’s the jury and the fines can be very, very steep in the eu they are up to 10% of global revenues, they can be up that high.
And for Microsoft in 2023 we’re talking about annual global revenues of 212 billion.
So if it were a violation were found and a fine that high was assessed, we would be talking about $21 billion.
So no small change.
So the take its anti trust laws very seriously here.
Once again, we’re seeing evidence of that.
In response, Microsoft has told Yahoo finance that having bundled, having unbundled teams rather and taken initial interoperability steps.
We appreciate the additional clarity provided today and they say they will work to find solutions to address the s remaining concerns.
So Microsoft definitely saying they want to work it out here and for good reason, who knew teams would cause such the hub.
All right.
Thank you so much Alexis for breaking this all down major implications potentially there for Microsoft.
We’re also tracking investors shifting their focus to the next set of inflation data.
P ce is on tap Friday.
Over 60% of traders still anticipating a rate cut to come in.
September.
Our own, Jennifer Schoenberger asked Treasury Secretary Janet Yellen in an exclusive interview about the path forward for inflation.
And as we get into next year, I believe that inflation will uh go back to uh the fed’s 2% target.
Our next guest is expecting a slightly slower routes to that two percent mark Michael Gapen B of a securities head of us economics joins us now, Michael, great to see you.
What are your anticipations as to when we could see us finally getting to that 2% target?
Yeah, I think we largely agree with what Secretary Yellen said.
We we think it’ll come a little later.
We think 2% may be achieved in 2026 not 2025 but we don’t agree we don’t disagree with with the trajectory.
We do think inflation is coming down.
But Secretary Yellen also noted in her interview that a lot of the stickiness about inflation was centered around housing and housing related costs.
Um Those are likely to be elevated for some time.
But directionally, yes, we think inflation will come down.
We, we do think it opens the door for a grad rate cut cycle later this year.
We just think ha things happen a little more slowly than Secretary Secretary Yellen suggested.
So would rate cuts then if we were to see that later this year and even going into 2025 would that hinder being able to get to that 2% target by 2026?
Not necessarily because the, the way that the FED has laid this out is to say yes, they would likely be reducing rates later this year.
But the pace of rate reductions would be gradual.
And the way they think about it is inflation has come down an awful lot and in essence, you can cut interest rates and keep and preserve a real policy rate stand so adjusted for inflation, the Fed’s policy setting would be largely unchanged.
So what essentially they would be doing is cutting rates to prevent policy from getting too tight over time.
And so they, they can still guide inflation down to 2% from above even though they’re gradually reducing rates.
So they’ll maintain their existing policy stance by cutting interest rates gradually.
So Michael, what does that then do just to the overall US economy?
We talk about the fact that growth is already moderating.
Are you still confident that the FED is going to be able to orchestrate a soft landing?
And obviously nothing’s assured, of course.
But we do think um that every quarter that goes by kind of every set of data we receive does increase the probability that the US is achieving a soft landing, right?
And the key there is essentially how much to use the fed’s term.
How much pain do you need to inject into labor markets?
How much demand destruction do you need to create?
So every every month, every quarter that goes by and and growth is elevated and the unemployment rate stays low, but inflation comes down.
I think the FED is winning the battle in terms of creating a soft landing.
What what would be the reality of the consumer environment and and that need to move too in order for the Fed to see what it needs both on the inflationary side, but also on the employment side as well as many consumers.
Just look back to the strength in employment to figure out how confident they are to continue to spend.
Right?
And so I think kind of the nuance with this whole story, of course, is we we expect growth to moderate.
We expect the catch up effect in employment to slow as the services sector finally achieves the the level of employment that that it desires.
So the rate of consumption growth should slow, the rate of economic growth should slow.
These should all move back to more, you know, quote normal levels, which is around 2% which is still plenty to keep the US in an expansion phase.
And in a recovery, it just won’t be the 3 to 4% or 5% real growth rates that we saw in, in prior years.
So I I think the outlook is a little less employment growth, a little less wage growth, but still enough adjusted for inflation to keep the consumer balance sheet healthy overall.
Um But as you noted, the economy is cooling, it’s just not cool.
We should expect things to moderate, but it doesn’t mean the economy is weakening.
Thanks so much for making the time to join us here this morning, Bank of America’s head of us.
Well, we are just getting started here on morning brief, coming up a shares plunging after slashing his 2024 guidance, we got some of the top trending t for you next.
And church secretary Janet Yellen telling Yahoo Finance that there’s no silver bullet to lowering the cost of home buying.
We will speak to an economist later this hour.
Plus we, we lay out the three key factors that could drive the market in the coming weeks.
That’s coming up in the 10 am hour on catalyst who got all that and more you’re watching Morning Brief Boeing is reportedly offering to acquire spirit error systems in a deal consisting of mostly stock valuing the company at around $35 per share.
According to Bloomberg, the deal reportedly originally an all cash offer, this is significant, especially as you continue to really evaluate what this would mean for Boeing trying to bring even more of a handle over its manufacturing operation.
And of course, in Spirit aerosystems, they also have operations that run directly with Airbus as well.
A company that we’ll be talking about a little bit more in a moment here.
But Aero Airbus is trying to get its at least part of the Spirit Aero Systems manufacturing and Boeing is gonna end up with the more outsized share and the kind of lions share of what Spirit aerosystems is for their own, manufacturing, its uh aircraft going forward here.
But uh even as we’re kind of looking at both of these businesses, Spirit aerosystems stock has essentially been moving over the past several months over just this back and forth over what the price might be, what the deal might actually come down to at the end of the day.
You when you take a look at what the offer is and what exactly that means in relation to Spirit stock price.
Now, $35 per share price represents a premium of about 6% to where it closed yesterday and Monday is closed, but 22% upside to its closing price on February 29th.
And we talk about that day because this is the day before Boeing’s takeover talks.
It really started to become a public.
So we have seen a bit of a rise here and again, spirit error system is now moving lower by about 3.5% here.
On the heels of this news.
In terms of what Wall Street, what analysts are saying here, the early rea to this steeple was out with a note to clients here today saying that as we await more details, but we do see the $35 per share mark as a reasonable outcome here for both parties.
So obviously, Brad, like you said, you’re acquiring Spirit aerosystems.
It’s going to give Boeing greater control over the manufacturing process here of its jetliner structures.
We know obviously it has been under a tremendous amount of pressure to implement some changes here to the least uh to its manufacturing processes in order to eliminate some of the issues here that it has had here over the last several months.
But again, here in taking a look at the reaction to this news, $35 here per share price representing about a premium of 6% compared to where the stock closed.
Uh Spirit air systems closed yesterday.
Well, saying in the aerospace sector, let’s talk about abu because shares today are sinking off just about 12%.
The company is slashing its 2024 guidance for earnings and deliveries.
Now expecting to deliver only 770 commercial aircraft this year.
That’s a decline from the previous estimate of about 800 taking a look at what exactly this means here for the company going forward.
Deutsche Bank cutting its rating to hold following what it describes as the quarter as a rather damaging warning here from Erebus.
And we’re also seeing the ripple effect here through suppliers.
You’re seeing a number of its suppliers here under pressure this morning.
So clearly the fact that they are cutting their guidance here, some of the supply chain issues continuing to be a real challenge here for the sector.
And as a result, they are far, uh Airbus is far from the only stock here taking a hit on the heels of this news.
Yeah, I’m surprised to see some of the airline operators that are actually anticipating taking delivery of some of primarily the Airbus, a 320 family of jets where that’s been essentially pushed back in terms of the targets to produce 75 a month.
That’s been pushed back from 2026 to 2027.
As part of this, they held a call with analysts where the chief executive had discussed engines not being an issue in 2023 and at the beginning of 2024 again becoming a significant issue.
And so that is a new situation that they were not expecting here.
They talked about cabin parts, they also talked about the engine maker or kind of the wired wider aerospace sector here.
The implication there, at least that a lot of analysts were taking away from this, some of the engine makers that would also be impacted rolls Royce uh that was being impacted as well.
You saw their share prices following on this announcement too.
Um But again, it’s going to have a larger implication for a lot of the airline operators that were expecting to take delivery that had already pushed out some of their targets because of the Boeing issues that were taking place and call after call over this past season.
You heard each of the CEO S of airline operators talking about how tricky the manufacturing landscape has become and how much that’s impacted the route scheduling, the number of pilots that they’re able to then on board and really move from training into full routes and full schedules.
And then additionally, just what that means for their own revenue targets or even profitability targets in this near too.
Um So all of these things considered gonna be interesting when we do kick off the earning season.
Of course, some of those airlines might be prone to give some of those updates uh very early on early on.
Uh, Delta is typically one of the first airlines, the first airline to really report and kick off the earnings season too.
All right, let’s stick with the, the travel sector here because we’re also getting some earnings out from carnival, carnival shares.
Moving to the upside being on the top and bottom line also raising it’s full of your guidance.
You’re looking gains of nearly 4% here.
The call expected to get underway in just about 30 minutes from now.
But here going through what this report exactly shows in terms of demand, demand remaining extremely resilient.
You’ve got revenue up 18% on a year over year basis.
When you take a look at occupancy, that’s 100 and 4% beating what the streets expectations were.
When you look at passengers carried, that was 3.3 million up 10% from a year ago, also surpassing the street’s expectations.
And when you take a look at those booking numbers here, the fact that we are seeing such demand, not only for its most recent quarter, but looking out of the fiscal third quarter, obviously, the street very encouraged by some of the guidance numbers that we’re getting out this morning too.
I’m just sitting here and Sean and I mean, this company kept us on the edge of our ergonomic chairs coming into the start of today’s show.
We didn’t know what time it was gonna drop.
Uh but we knew it had to come out by 10 a.m. because that’s when the call starts.
But ultimately, here, one of the things that kind of jumped out to me within this release, the company is saying based on continued strong demand trends, they’re taking up their expectations for the year with net yields now forecasted to top 10% propelling them towards double digit returns on invested capital, their upwardly revised guidance.
They’re gonna be on average about two thirds of the way to achieving their 3 2026 sea change targets after just one year.
So this is considerably noteworthy and they think it gives them even more conviction in achieving some of those deliverables there that coming from uh the, the company’s executives who were expected to give even more commentary on the call.
But that specifically was from their chief executive officer Josh Weinstein also here just thinking about the net income 92 million dollars in this most recent quarter.
So that is an increase of nearly $500 million compared to 2023 here when you think back to the losses that some of these cruise line operators were having to navigate through really choppy waters.
I I had to throw in a pun somewhere.
Of course, you know, and when you take a look at some of their competitors as well, because take a look at that when you uh the, the games that we’re seeing almost across the board on the heels of these results uh from carnival, you’ll Gabri Caribbean up just over 1% in a region up just around 2.5%.
And we have seen strength across the board when it comes to bookings, when it comes to demand.
And I also think the question coming out of the pandemic was not only whether or not these cruise liners were going to be able to win back the business, those loyal cruisers that we saw here pre pandemic, but also what they were going to do in order to win that, that new business.
Those that hadn’t taken cruises before and you take a look at these results and compare them to the numbers that we saw Pre Panem.
Well, Bon Voyage on this trading session here today as we’re taking a look at the opening bell where you’ve got Booz Allen Hamilton ringing the opening bell at the nyse ticker symbol, bah ba and Estar pharmaceuticals.
My goodness, the pharmaceuticals industry never knows how to just give us a straight name.
Anyway, Estar, they kick off today’s trading session.
You’re watching the morning brief brought to you by Invesco.
Let’s do a check of the markets as you’ve got major averages up on your screen.
However, only two of the three US major averages are indeed up.
The dow is the loan laggard.
It’s down right now by about 2/10 of a percent S and P 500 though.
And the NASDAQ, they’re seeing some green, the S and P 500 up by about 2/10 of a percent NASDAQ composite tech heavy average.
You’re seeing that up by about half a percent here on the day.
And of course, we’ve got even more earnings that are gonna be coming out over the course of this week.
I’m really excited about this, Shawna Nike, Fedex, Paychecks General Mills Carnival.
We got them this morning mccormick for those who are seasoning their steaks when they’re getting ready to grill.
Yeah, we’ll get another real read here on the consumer.
We’ve also got consumer confidence coming out here at the top of the next hour at 10 a.m. Eastern time giving us a closer look to say exactly what those spending levels or ability to spend, uh, comments wise looks like here.
But also it’s important to check on the movement that we’re seeing at in NVIDIA here at the open rebounding from those three days of losses.
You’re now looking at gains of just over 2.5%.
Jared B book standing by with a closer look at some of today’s action.
We have the Dow and the NASDAQ heading in opposite directions yet again, except they’ve switched today.
But let me just show you a comparison over the last five days of the NASDAQ versus the Dow.
And here’s the NASDAQ in the green, here is the Dow in the red.
And you can also see a bifurcation in the S and P 500 based on market cap versus equal weight depending on how it’s calculated.
So the equal weight has been surging and we had a big day yesterday.
Meanwhile, the S and P 500 in the red over this time period.
So just an interesting dynamic uh that we’ve been tracking here.
I want to check out the tech sector XL K leading here.
That’s up 6/10 of a percent.
In fact, that’s the only sector that’s leading today.
Uh Everything else lagging.
Uh We do have communication services in a little bit of green there but materials and industrials are the biggest losers trading to the downside and it’s heading back to the NASDAQ.
So we just came off that three day loss from NVIDIA.
You can see it’s up about 2% and it’s switching positions with Apple here as I speak.
But I wanted to concentrate for a second on Amazon.
Just wanna show you a five year chart.
It is right back up to the Rubicon here trying to ba uh build out of this or break out of this multiyear base.
And if it can, it should have a lot of momentum to the upside.
Uh just something to watch for.
It’s not there yet, but something possibly to watch for.
Also, I want to close with biotech IBB just broke to the upside.
Here’s a five year chart again, it is just breaking above this potential resistance.
So something to look out for in biotech is a, is an upside surge past this resistance area guys.
All right, so that we’re gonna keep an eye on here in today’s Trading Day, Jared.
We’re going to take a look at oil crude prices moving just a bit lower today as the rally takes a breather.
We’re going to speak to one analyst on the other side about what stocks are best positioned right now within the sector.
That’s right after the break.
Stick with us crude taking a breather from its recent rally.
We’ve got prices giving back some of those recent gains this morning.
You’re looking at a drop at just about a half of a percent here for Brent also that move lower here for crude.
Well, so far this month though, it’s been a bit of a different story.
We have crude up over 4% as demand in the US continues to grow and also rising geopolitical tensions, pushing prices higher.
So where do we go?
I’m here here to discuss the best players within the sector.
We wanna bring in Roger Reed.
He’s Wells Fargo’s refining an integrated oil and gas senior analyst, it’s great to have you.
So let’s first just take a step back before we get into those specific places.
Talk to me just about where you see the price of crude and brunt heading lots of speculation about whether or not we are going to see a bump hire driven by that demand this summer.
Yeah, I mean, I think summer driving season should be fine, right?
If you look in uh retail pricing, it’s the most affordable.
It’s been in three years in the US and that’s a huge component of it.
Uh You look at jobs, you know, those are, are holding in fairly well, mobility and jobs are tied together.
Uh And then, you know, independent groups like AAA have said, you know, they expected record levels of travel, Memorial Day weekend and again over the fourth of July.
So everything looks pretty solid on the driving side, diesel has been a little weak with the industrial side of the economy, but it’s, it’s flat not down as, as we look at it, you know, as we kind of look out to the next coming months here, I mean, there’s gonna be a lot of focus on what some of the international moves in terms of production are and, and what are, what are your anticipations there for how that could also impact this run in the oil and gas sector?
Yeah, so the biggest thing to watch is how OPEC comes back into the market or OPEC plus as it’s kind of now called, right?
And they stated, you know, at their last meeting, they want to bring their oil back in, but that they, you know, put a caveat on it, we want to bring it back in in a way that doesn’t upset the market.
So they’ve kind of put a number of you call, it’s called aspirational and then they’ve got a number that let’s call it the realist number, right?
And what it says is OPEC wants to put more oil on the market.
Opec will put more oil on the market, but Opec wants to do it in a rational way.
The way we’ve been looking at the oil markets overall was, you know, a year ago or so we just said long term 75 Brent, 70 wt I then with the OPEC discipline, we came up $5 kind of 7580.
So oiled it 8085 Volpe overshoots a little, bringing it back, puts a little pressure on to us that’s still in the range of where things ought to be.
Um, but you know how exactly it will play out.
You’ve got the Red Sea, you’ve got Ukraine tossing missiles in the Russian refineries.
You’ve got sanctions, risk post us elections if Trump wins on Venezuela and Iran.
So there’s a ton of moving parts to it.
Roger, we also got the uh ie a issuing their outlook not too long ago.
And my question to you is what I, I guess how confident are you or whether or not you agree and what they are projecting when it comes to ev sales that demand ticking higher when it comes to the, the demand here for gasoline and oil peaking by the end of the decade is, is that in line with what you’re seeing, why or why not?
So first off, uh anybody who has to make forecasts II I feel for him.
Um we have been skeptical about the pace of ev penetration almost back to the aggressive kind of numbers that were put out in the 2020 2021 period.
Um I if you look uh the most recent data out of Europe, Germany had to scrap subsidies due to some specifics of German law and, and tax and spend policies and we saw German ev sales drop rather precipitously.
And if you look at total eu sales, they’re only at about 12% of, of total.
So way below the targets they have now that’s pure battery evs, not, not hybrids and everything else.
Um But what it tells me is any place that loses its subsidies, even for a short period of time is struggling to hit the targets.
And so for that reason, we are skeptical of the numbers the IE A included and therefore we have a longer timeline in terms of demand for, for oil.
And you know, in this case, gasoline transportation, fuels, we think beyond 2030 you’ll continue to have growth.
Yeah.
Uh and Roger just while we have you here, I’m looking at a headline from AAA and, and a lot of investors who are also consumers and buyers of gas uh trying to get from point A to point B especially over the summer travel months.
Uh reading headlines like despite the rise in temperatures, gas prices keep it cool.
What is your anticipation for how this might all trickle down to prices at the pump?
Yeah, I don’t know.
Uh for us it’s not so much temperatures, I guess you’d call it more rain or no rain in terms of whether people will drive.
But uh yeah, the affordability thing and we look at it a couple of different ways, but one of the, the key ones is, you know, what are wages and, and what part of wages are required to buy gasoline, think of it as a ratio.
And as I said earlier, that ratio is as favorable as it’s been for this time of the year, going back to the summer of 21.
And that would argue that all else equal people will feel comfortable spending the money on gasoline and mileage.
Now, there’s other aspects of it, right?
Broader inflationary pressures that can have some impact, but at least as we think about it from the cost of a gallon of gasoline, it’s in a serious incentive compared to the last two summers.
Roger real quick.
Uh those investors at home that are watching the segment, they’re trying to figure out what the best plays are, how to invest within the oil sector at this point.
What are some of those top plays that you’re looking at now?
Yeah.
So we cover a pretty wide swath of the oil and gas space.
So in the integrated oils, uh Chevron is our top pick in the inter internet.
What we call international ENP Suncore is our top pick in the um refining space.
Phillip 66 is our top pick.
And then in um the uh energy services space, that’s, that’s a tougher one for us.
But uh uh a US onshore play in Liberty oil field is, is our top pick there.
All right, Roger Reid, who is the Wells Fargo.
We’re finding an integrated oil and gas senior analyst, Roger.
See you, see you coming up, everyone a fresh read on the labor market will break down what the data means for potential home buyers on the other side.
Welcome back to Morning Brief brought to you by Invesco.
We’ve got the latest reading out on housing this morning home prices rising 7% from a year ago setting a new record high in April as the market remains tight and higher home prices.
Will they continue to exacerbate the nation’s affordability crisis?
In an exclusive interview.
Treasury Secretary Janet Yellen had this to say about the housing market in America.
Uh President Biden has proposed a program that would lead to the construction of 2 million um new housing units which um it would really make a sizable dent in the problem that we face here to weigh in.
We want to bring in Brad case joining us at the desk.
He’s Middleburg community’s chief economist and Brad, let’s start there with what we just heard from Secretary Yellen when it comes to the fact that she said there’s no silver bullet to addressing the nation’s affordability crisis.
Some of the policies that have been laid out by the Biden administration.
So, yes, I think, I think what she’s announced is a, is a very good idea.
You have to keep in mind two things.
First of all that, the biggest driver of high housing house prices is a big increase in demand and that’s coming um from several sources, one of it is just people moving out of living with friends and getting their own place.
There’s also immigration.
I don’t know, there’s a lot of migration to especially the Southeast.
So, so demand is driving this growth in, in house prices.
Um And the solutions really are mainly at the local level.
Um uh So what, so what the federal government can do is kind of limited.
Um But the, the proposal that she talked about really does nail what the federal government can do.
I think that will be helpful.
You know, it’s interesting because demand is one component of it, but it’s also materials, those are higher labor that costs more.
You’ve also got more favorable land, especially as potential homeowners are looking at 15 or 30 year mortgage rates and trying to figure out, ok, what do I feel comfortable in terms of property that I’m buying into making sure that it holds up over that time when you’re thinking about some of the hottest summers on record that we’ve been tracking over these past few years.
So how is that all playing into the equation too, from what you’re tracking.
Well, when you think about the, the, the mortgage interest rate piece of it, I mean, that, that’s a, that’s a situation where we’re kind of stuck because yes, mortgage interest rates are high and that’s preventing some people from buying.
It’s also preventing a lot of people from selling because they’re gonna buy into a different house at a different mortgage interest rate.
Um But at the same time, uh the the house prices are very high and that goes back to the demand part.
So what’s gonna bring down affordability in the owner occupied part of the market if you bring down interest rates, all that does is make house prices go up more and that wrecks affordability.
What you really need is some moderation in house prices.
And the only way to get that is supply growth.
But uh we need supply growth on the rental side of the market as well as on the owner occupied side of the market.
And part of the reason for that is that we think that we’re in, we’re witnessing a shift to uh among households to prefer renting for longer.
And that’s because for the first time, they’ve had the op opportunity to uh rent professionally managed well built single family houses instead of having to buy a house if you want four walls and a yard, um you, you’re able to rent it and what that means is you’re not being forced to buy into something that maybe you’ll want several years from now.
You’re, you’re able to rent something that you want right now and then move into a bigger rental place or an owner occupied house later on when it makes sense for you, when should we expect to see some relief when it comes to pricing?
Well, we, we are seeing uh some relief uh when you look at the at uh you know, uh you showed the house price uh appreciation numbers that came out this morning.
They’re still very strong year to year on the rental side of the market, rent growth over the last year has been very close to zero, maybe even below zero depending on which part of the market you’re looking at and which data source you’re looking at.
So that part of the problem really has been solved.
Um uh But we need to continue developing more rental housing in order to make sure that prices that rents don’t clip uh don’t uh creep up again because demand is still growing.
Whose fault is high home prices?
I mean, millennials get blamed for everything these days.
Is it, is it our fault that we’re not buying into homes that we we can’t afford right now.
Uh Even despite family formation that might be happening or job relocation or whatever the factor of the input is, no, I would say the real problem and, and the reason that what Secretary Yellen uh talked about yesterday is so important is because the fault is, is the the cost of developing new housing at all levels uh of all types in all areas.
But the result of that is that only the most expensive housing gets developed, we have to make it possible to develop and and doesn’t need to be what we call affordable housing, you know, with, you know, um with uh with markets with subsidies and that sort of thing, it just has to be housing for normal people, housing for regular people and that is very difficult to develop.
So it’s only the most expensive how things that get developed and therefore that the price of the house goes up even though the people don’t want those expensive houses, what they really want is moderate houses.
Brad Case, always a pleasure to speak with you and get some insights and perspective.
Brad Case, who’s the Middlebrook community’s chief economist joining us here in studio all the way up from Virginia here today.
You’re watching the morning brief, you’re watching morning brief brought to you by Invesco.
It seems Apple is calling all the shots.
The iphone maker reportedly rejecting meta’s advances to integrate A I chat bots into its smart smartphones months ago.
According to a Bloomberg report.
Now the pair have not been in discussions about an A I partnership since March.
According to people familiar with the matter, this is noteworthy because Apple has recently come out at its own W W DC and said exactly how generative A I was gonna play a role in the next iteration of smartphones that it brings to market or at least in the operating system for the most updated smartphones where we’re looking out to the 15 and above essentially going to have those capabilities.
So this is once again, another instance where meta platforms and back years before the decade before Facebook was trying to make sure that it didn’t miss out on the wave of being able to tap into install bases.
And that’s where it got into the sharing of data practices, yada yada yada that came forward um and they never updated that over time.
So uh this is another instance where they’re trying not to miss out on the install base and the potential for generative A I or its software.
Yeah.
And you can argue that this is a potentially a huge missed opportunity here from meta.
When you talk about the size of the install base, what exactly that could have done here to their business.
So the fact that is, it sounds like they did hold talks, although that was extremely early when Apple had been holding talks with a number of companies to explore some of that integration within their models uh with their devices here.
So again, the fact that, hey, it doesn’t turn out or doesn’t seem to be true, we’re not going to see a partnership here, at least for now.
What exactly that looks like obviously is up to anyone’s guess, but it would make sense given some of the technology data that meta has with its A, is systems, maybe down the road could make sense here for Apple.
We’ve got breaking consumer confidence, data hitting right at 10 a.m. Eastern time.