On today’s episode of Morning Brief, co-hosts Seana Smith and Brad Smith delve into the intricacies of economic data, company updates, and market dynamics.
Kicking off the show, fresh economic data hits markets. US retail sales rose 0.1% in May. The show dissects the report, offering insightful perspectives on the implications for consumer sentiment.
A slew of companies takes center stage as the show spotlights stock reactions and company updates from heavyweights like Lennar (LEN), Fisker (FSRN), NextEra Energy, (NEE) and Boeing (BA), whose CEO Dave Calhoun is slated to testify before a US Senate panel on Tuesday.
Markets command attention as Wall Street analysts grow increasingly bullish on the S&P 500 (^GSPC). Citi’s (C) Head of U.S. Equity Strategy, Scott Chronert discusses the rationale for raising their target.
I’m Sean Smith alongside Brad Smith and this is Yahoo Finance’s flagship show.
The morning brief brought to you by Invest that features taking higher on the back of some fresh econ data out this morning, retail sales increasing though at a slower pace than expected, a sign of weakening consumer.
Plus we’ve got that on.
We’ll hear from five different fed officials today and later, hey, guess what?
Yahoo Finance will speak with Boston fed President Susan Collins an interview.
The three things that you need to know this to day morning as you prep for the trading day, Yahoo finances, Madison Mills, Jerry and as for have more a fresh pulse on the consumer here, retail sales increased at a slower than expected pace in May as high interest rates and inflation seemed to be weighing on consumers sales rising 1/10 of a percent last month.
That is less than what economists had expected, but still higher than April’s 2/10 of a percent decline.
Plus the excitement surrounding artificial intelligence has yet to run its course on Wall Street.
It’s no surprise and video has soared this year.
But the XL K ETF that tracks the tech sector has underperformed because how it waits its members.
Now.
A big shake up could see $11 billion worth of Invidia stock bought and $12 billion of apple stock sold as the S and P revamps its index.
And Boeing heads to the Hill.
Outgoing Ceo David Calhoun will testify before the Senate later this afternoon as the aerospace giant faces more scrutiny from lawmakers about its year full of blunders.
The Senate investigation subcomittee chaired by Senator Richard Blumenthal wants Calhoun to discuss how the company plans to fix its manufacturing problems after a panel blew out on a 737 max nine plane operated by Alaska Airlines back in January.
The incident sparked wide and scrutiny over the airplane makers safety challenges.
Well, good morning everyone.
Our top story today, retail sales growing at a slower pace than expected in May as high interest rates and inflation weigh on consumers here.
Retail sales grew 1/10 of a percent in May versus the 3/10 of a percent that analysts were expecting and economists expecting.
Coming into this print from the Census Bureau here, a few areas perhaps that a lot of consumers may be paying close attention to here, especially as you think about things like food and even categories where we’ve continued to see year over year declines uh in furniture, all of these things considered.
It really gives us a sense of where the consumer is pushing back on price or not engaging as much with some of the retailers that are either in specialty items or in some of the more cyclical week in week out purchases.
But then where they’re just needing to continue to spend health and personal care stores that’s still up by about 2.2% year over year.
And then you’re looking at clothing and clothing accessory stores, which is interesting to me, you think that that would be a little bit more discretionary, but ultimately, here still seems like there’s a little bit more price being taken that’s trickling through to some of the general merchandise stores as well here.
Yeah, it certainly is.
And, and this report comes on the heels when there’s a lot of anxiety, a lot of stress, a lot of uncertainty surrounding how strong the consumer is right now.
So this is just another reading coming in below the streets expectations that revision to the prior month reading, I think is also very important here to point out just given the fact that maybe the consumer is a bit weaker than we had initially anticipated when it comes to this report.
The quick reaction that we’re getting from the street is that there is reason to be a little bit concerned right now, Chris Rupkey over at four bonds out with a quick reaction saying that as it stands right now, retail sales had barely changed in the first five months of this year and this is a recipe for a disaster.
So again, when you talk about the uncertainty of the US economy, right now, we talk about the consumer, the importance of the consumer because it accounts for about two thirds of the US economy.
So again, when you, when you talk about the fact that we are maybe seeing a little bit more material weakness than had initially been priced in, this could be a bit worrisome here as we talk about the stability of the economy and whether or not maybe the odds of a recession are slightly higher than what is currently being factored in the market is trying to figure out how much they should factor that in this morning.
I mean, we’ve essentially seen futures around the flat line here as we’re just inside of 30 minutes until the start of today’s trading activity and taking a look at the dow 500 the NASDAQ futures flat, as we mentioned, I’ve al also taking a look at some of the seeming fed watch probability just to see if there’s been any movement there since yesterday.
And the only area that I can see a slight tick higher is actually in the probability for a cut in September there.
So that’s moved higher from what it was yesterday at about 56 57%.
Now up to about 62%.
Uh So all of that considered the markets are really just going to look at data components like this and try to figure out what this means all in context of a potential cut.
All right, let’s talk about Wall Street getting a bit more bullish here on the outlook for stocks.
So full of big banks, hiking their S and P 500 year end targets this week.
The latest is city city boosting its forecast of 5600.
That’s up from 5100 here to discuss the latest call we wanna bring in Scott Croner.
He is a city’s head of us equity strategy here, Scott.
It’s great to see you again.
So much of this, I was going through uh your note out this morning.
Um Much of this being attributed to the outsized performance that we’ve been talking about of large cap tech.
So walk us through your thesis and why you think there’s still more room to run here to the upside.
Yeah.
So I, I think what’s happened is that if you look at the S and P performance so far this year, let’s say we’re up 14% or so, you can really break that performance into three categories.
Um One is NVIDIA which has contributed to about 5% points of that of the index.
Move here to date.
About 4% comes from the other uh of the mag seven and then about 5% from the other 493.
So really what’s happened is a function of index waiting math is that you’ve had this unique situation where uh this mega cap growth cohort has been responsible for a big chunk of the index performance this year and notably has been supported by an ongoing beat and raise dynamic, which has not been true for the other 493.
So where do we go from here?
Well, we think that the fundamental certainly for the second half of this year continued to be in very good place for this mega cap growth leadership.
So we expect a continued positive follow through from an earnings perspective there as as to the remaining 493 we’re in a ok place.
Uh so far, it looks as if a 6% earnings growth for that cohorts um in the cards.
But we think that there’s room for that to broaden going forward, all told when you put all this together, I think we’re uh I, I think on a pretty good footing here to take our target up to this 5600 level, which is relevant to uh $250 worth of index earnings.
And we give it about a 20 times 22 times pe And so when you think about and really kind of evaluate what the earnings and the guidance has looked like coming from companies going into.
Uh and really once we finally kick off the Q two earnings season here.
What are you gonna expect to hear from companies, especially as they’re trying to best deliver to investors, what the demand uh situation looks like from their perspective that would actually contribute and deliver on some of those earnings promises.
Ok, so you’ve got two things going on and the first is what you were alluding to earlier in your program on the on the retail sales data, right?
So I think under the surface, we think that there is a fraying around the edges on, on the economic condition.
If you go back and think about the Q one reporting period, most C suites were fairly constructive or let’s call it cautiously optimistic regarding outlooks.
We’re going to be watching that pretty closely.
I think in general, what we’re going to see as we go to the Q two reporting period is a little bit more evidence that um the uh the lagging effects of fed rate hikes to this point is starting to weigh on fundamental activity.
So we have to be aware of that.
In the meantime, we do think that this A I driver is going to continue to spur a lot, a lot of activity.
Um on the investment side of generative A I and that should continue to feed through to a certain degree into the mag seven.
But we think that there’s a broadening effect as well.
So on the one hand, you’ve got signs of fraying economic activity uh on the other hand, we have this new growth driver in town, the combination of the two I think is going to give C suites, generally speaking two ways to talk about this.
Yes, some concerns short term, but longer term, we think there are really interesting growth opportunities unfolding.
Courtesy of uh this generative A I angle, Scott.
What’s gonna be the catalyst of that broadening effect?
And I guess when we talk about that leadership, maybe where we will see strength outside of those larger cap tech names.
Where do you see that?
So it’s really interesting, you know, we have a couple of different views on this.
We’ve been consistently overweight industrials, which we think is in the middle of what we think is a much more structural uplift in terms of its weighting and persona within the S and P 500.
But interestingly, um going into the second quarter, we actually went overweight consumer discretionary and this was really beginning to get premised on the view that we’re getting closer and closer to an end of two years of fed hawkish narrative that’s going to become at least less restrictive and potentially more dovish.
We want to be aligned with those sectors that are historically most perceived to benefit from that fed inflection.
Consumer discretionary would be at the forefront of that, Scott, how many cuts are you pricing into the this new target that you’ve got?
So we’re in this case, relying on the, uh, city economics view, which is for a first cut in September 3 cuts for the year fall by another 100 cuts, uh, 100 basis points of cuts next year.
So we think we’re moving into a mode here where there’s gonna be a again enough concern regarding economic activity, employment, in particular that we think is going to end up giving the fed room.
Now, what you have to be careful of, right is that there is no free lunch on this.
What comes with an easier fed is probably some some consternation on the surface presumably regarding economic activity, Scott, I know you guys have been keeping a close eye on investor sentiment right now, whether or not we’re reaching those euphoria levels uh via the Levkovich index that you guys use.
What are you seeing now?
And is that signaling anything that may be a bit worrisome, I guess here on out?
So it’s still in euphoria has been for the past couple of weeks.
So usually the read through on that is not particularly constructive for the four or 12 months that said that said we have to be uh prepared that when you have like a a new growth driver, a new thing such as Gene A I, that’s quite conceivable that you fourth backdrop of positive sentiment backdrop can persist for longer.
And so the way we watch for this to play through is is how aggressive investors want to play this uh A I theme.
We get to the discussion a lot.
Hey, we’re nowhere near in the bubble mentality that we had back in the tech bubble late nineties, early 2000.
And we think that’s probably a good thing, but under the surface.
Yeah.
Um The nature of this market year to date is such that investors have to be in there.
Sentiment is a bit stretched.
What that does is set up for the volatility risk should a fundamental circumstance?
Geom Maro geopolitical macro situation come into the fore.
So we’re allowing in here that at some point in the second half, we’re likely to see a 5 to 10% pullback, but we want to be prepared to buy in any related volatility on that.
Scott Kroner.
Thanks so much for joining us here this morning ahead of the opening, Bell City head of us equity strategy.
Well, everyone Boeing is in the spotlight again, Ceo Dave Calhoun gets set to testify before a Senate panel at 2 p.m. Eastern time today where he’ll face questions surrounding the safety and manufacturing of Boeing’s aircraft.
Now Calhoun will be stepping down from the helm of the company before the end of the year and this is going to be taking place in front of the Senate Committee on investigations, the investigation subcomittee.
Uh, we should note and Senator Richard Blumenthal is the head of that.
And so ultimately, here, there are a few things that could be key to watch coming out of this hearing, especially as it relates to Boeing investors that are out there.
Of course, the thing that jumps out to me is what comes out from the investigations that are moving forward that you hear from not just the executives at the company, but more of the employees who are now coming forward about what they’re noticing in some of the negligence or noticing in some of the operational procedures that would lead to missteps in manufacturing.
And then additionally, if this rattles any of the potential buyers of large planes, some of the orders that Boeing relies on for years, they are able to kind of deliver upon some of those targets.
We don’t have, I think the next big air show until July.
So that coming forward over the summer, that is going to be the key one that is also noteworthy to watch going into that event about a month out from now.
Yeah, that is going to interesting just seeing exactly what the demand looks like and also their ability to meet the demand.
When you come, when you talk about some of those setbacks, some of the things that stuck out to me was late yesterday.
The subcomittee here releasing a staff memo including among much other information.
This is all according to reporting from the Wall Street Journal allegations from a quality assurance inspector and Boeing 737 factory in Renton, Washington.
So again, you talk about the fact that Boeing and specifically Dave Calhoun, the CEO they are under tremendous amount of pressure trying to defend the culture at Boeing, trying to defend the inspection process and and exactly the different um the different I guess processes that are in place right now, policies that are in place.
Uh So he of course, is going to be forced to try and defend that.
Now, in the written statement that has been reported by many other outlets as Boeing Ceo Dave Calhoun, saying that much has been said about Boeing’s culture.
We’ve heard those concerns loud and clear about our culture is far from perfect, but we are taking action and making progress.
And I think exactly that action is what kind of progress they have seen that is really going to be the crux of a lot of questions here from lawmakers throughout the day.
And of course, it’s going to be questions that many analysts and many shareholders want to be answered as well, especially when we talk about the uncertainty going ahead and the leadership question to exactly who is going to be filling the shoes of Dave Dave Calhoun and next year.
And and don’t be surprised either if we hear them being very pointed with their questions and and even almost kind of walking the fence of accusatory given the severity of what’s taken place.
But a lot of these senators are still going to want to paint Boeing as, hey, a great American company, a company that’s done a ton in aviation and defense.
Why?
Because it’s really the only large aviation play of this magnitude for some of the commercial aviation that we have in, in this country, quite frankly here.
And you think about and Brier and their uh being headquartered in, in Brazil and then of course, the other large plane uh manufacturer which is Air Us and them being headquartered in Netherlands, these senators are still going to want to show the public that there’s confidence in flight while also that they are being um that they, they are having a, a kind of stance of accountability for Boeing, especially as this proceeding moves forward.
Uh It sounds like some of the senators at least Blumenthal is going to be painting this as uh uh a day or at least a hearing of reckoning for Boeing here.
Certainly again, Boeing a ticker to watch here in today’s trading.
All right, let’s talk about a up coming to the street investor is awaiting a big shake up in the $71 billion tech ETF XL K after Nvidia’s massive run to the upside.
Yahoo Finance’s Jared.
He joins us now with the details here to explain Jared.
And here I have our s and P 500 sectors and I’ve organized them by market cap, which is really their assets under management.
So XL K is what we’re interested in right here that has assets under management of just over $60 billion right now.
And a really interesting thing has happened this year.
I’m gonna dial up the year to date performance and uh XL K is actually underperformed its benchmark index, which is the S and P 500 tech index.
And the reason that is is because of some very old waiting rules.
Uh whenever you have a stock or multiple stocks that take that make up more than 5% of the index, uh only two of them can have their true waiting and this is what we ended up with.
So here I have a grid that shows uh three companies that were interested in Microsoft, Apple and NVIDIA.
And here is their current weight.
You can see Microsoft has a weight of 22% Apple, 21% and this is an XL K and NVIDIA only 6%.
Uh But because NVIDIA climbed above Apple last week, it’s since reverted, but last week is what mattered.
Uh This is what we’re going to see probably after the close on Friday, there’s gonna be a rebalance.
So Microsoft, it’s gonna stay about the same increase a little bit to 23%.
Apple is gonna go down from 21% to 5% NVIDIA, 6% to 20% and the dollar amount dollar amounts.
That’s as much as you typically see in one day of Apple trading, NVIDIA is going to get bought $10 billion worth or thereabouts.
These are just estimates that is one quarter of its daily volume.
So this could be a market pack full.
However, markets will have had a week to figure this out and I wouldn’t be surprised if it’s already locked in.
These are two really, really liquid stocks that we’re talking about.
In fact, all three are Microsoft Apple and NVIDIA.
So I don’t think investors have too much to worry about with respect to this one issue.
All right, massive uh rebalancing and new waiting there for investors to know about.
I unbuckled my seatbelt so I can come over to the touch here, Jared just for a hot second here.
We gotta let the good folks know what’s coming up here on the morning brief as we are just getting started coming up this filing for chapter 11 bankruptcy, what this means for the EV space that’s coming up next.
And NVIDIA and Broadcom both hitting fresh all time highs, we’ll discuss who’s best position in the chip space later on this hour.
But wait, there’s more in the words of the late great city saying oil prices could fall below $60 a barrel in 2025.
The analyst behind that call will join our 10 a.m. Eastern hour of catalysts all this and much more.
You’re watching our finance lenar share is following this morning after giving weaker than expected estimates for home deliveries in its third quarter.
The company’s executive chairman noting that it’s been quote tested by interest rate movements that you’re taking a look at shares of lenar down by about 2.8% here pre market.
Uh, the company in terms of some of the figures that they were able to report, uh, net earnings per share ultimately did move higher by about 15% that not enough to impress the street new orders that increased by about 19% to 21,293 homes in the most recent quarter.
And they have a backlog of about 17,873 homes dollar value for that backlog of about $8.2 billion.
Yeah.
And I think a lot of this just ties to where exactly mortgage rates are right now.
The fact that consumers are under a tremendous amount of pressure now, you still have mortgage rates higher when you compare it to.
Obviously, historically speaking, they’re not much higher than where they had been when you go back decades.
But where they compare to what, what levels that they have been over the last 10 to 15 years, we are substantially higher here.
So I think many, we talk about this lock in effect, then you also have the the problem that people simply cannot afford homes.
So when you stack that up against each other, clearly, we are seeing a bit of a slow down here.
So it could be a sign that some of that demand for new homes here is expected to remain a bit sluggish as mortgage rates do hover around those higher levels.
And we also talk about the average price here of homes.
The price per home is 426,000 in the quarter, that’s compared to 449,000 a year ago.
But again, at extremely elevated level.
So again, there is this pent up demand because there simply is not that much inventory out there.
People are still looking to buy the homes, those that can afford right now.
And you’re also paying higher prices if you are in the market for a home.
So that combined with the higher mortgage rates, making it very difficult here for many home buyers in particular, first time home buyers to afford that home.
And that of course, has been weighing on the entire sector.
Yeah, one of the first time home buyer, core kind of new home companies that we’ve heard from here in Lenar.
Another one that we’re gonna hear from after the bell today with KB Homes.
So we’re gonna be watching that ticker, uh, especially after the close.
All right, let’s take a look at Fisker because EV start up Fisker officially filing for bankruptcy in a Delaware Federal Court.
Now, this comes about a year after the company released its first model, the ocean SUV, which has been plagued with many issues, uh, uh, software.
It had hardware issues, consumer reports, which we know has been extremely influential, is extremely influential with potential car buyers has called the vehicle quote unfinished business.
So now here they are, they’ve stopped production of the ocean SUV.
They filed for bankruptcy.
Now they listed between 500 million and a billion dollars of assets between 100 million and $500 million of liabilities.
But again, Brad, I think the big takeaway here is this just point to the hyper competitive space that the EV landscape is right now and they are far from the first to file for bankruptcy.
We’ve seen a number in the past Lordstown Electric Glass Mile Solutions Proterra.
Among those that have filed for bankruptcy over the last two years, we talk about the sky high cost to produce evs versus what demand looks like and versus being able to even meet some of that demand, still great vehicle names.
Uh Unfortunately, the model that they’ve had to shift to as well and not the car models, but the model of the dealership program that they were really trying to make sure got off the ground here 15 dealer partner locations.
They had signed agreements for uh distributor ships in the US and US territories and I think uh in Canada as well here.
So North America, they had really been focused in on there and, and that was their most recent pivot that after they essentially tried to kind of leverage Tesla playbook of not having a ton of dealerships that you would need to have your vehicles move through or have partnerships with.
But instead just make sure that you have that direct to consumer relationship where you’re essentially selling these.
Now.
Uh, of course, for Fisker, a lot of the electric vehicle uh play has really been spurred by Tesla by the success that they had seen there and, and Fisker, um one of the youngest players within that industry, but uh not seeing the same type of reception.
All right, let’s take a look at the energy space.
Berkshire Hathaway boosting its stake in Occidental Petroleum now, holding roughly 29% worth of over $15 billion.29 percent stake in the company Yahoo finances.
And for a has the details on that.
And yes, yes, Sea and Berkshire Hathaway has once again scooped up shares of Occidental Petroleum, acquiring another 2.95 million shares of the oil and gas company.
It paid 100 and 76 million dollars and three separate purchases of the shares.
And this is Warren Buffett’s favorite oil and gas producer.
He has said in the past, he believes in the leadership of the company and he was instrumental by the way in backing occidentals acquisition of Anna Darko back in 2019.
Now, Buffett has said in the past, he does not want to own all of the company or control it though Berkshire Hathaway does have the right to buy up to 50% of the company.
But right now, it owns almost 29% of occidental petroleum.
If we take a look at the stock price is it is relatively flat year to date, it’s hanging around the $60 level.
But remember that these, this stock was the best performer back in 2022 of the S and P 500 outperforming all the other stocks that you guys are.
We got much more of your market action ahead, taking a look at where things stand in the pre market.
We’re still looking at gains.
It looks like at the open, at least for the S and P and the NASDAQ.
You are watching the morning brief on Yahoo Finance brought to you by Invesco.
Let’s do a check of the markets as you’re taking a look at some fetti, some fun.
Fetti still in the air at the NASDAQ there.
You’re taking a look at the major averages, the dow, the S and P 500 the NASDAQ flat just barely to the upside though.
Here we’ve seen this teetering, waffling, hyper oscillating, whatever you wanna call it, call higher at the open.
At least as of right now, the NASDAQ decided to say, hold my beer anyway, as of right now, we are still seeing just flat line trading to start today.
We can take a look at the sector action that we have up here on the board as the trading day does get underway.
You’ve got energy leading the way followed by real estate on the flipside, consumer, discretionary utilities, financials under a bit of pressure here today.
So a bit of a split action at the open and take a look inside the NASDAQ.
So much of the focus has been on some of those larger cap tech names really carrying the rally here.
Many of those upgraded outlooks that we’ve got to the S and P 500 but many of that has been based on this momentum that we’ve seen in those larger cap tech names.
So taking a look at where the where they are starting the day.
A bit of a mixed picture.
You got Apple and Microsoft there trading just to the upside and the flip side, you’ve got Amazon Google and Meda Meta under a bit pressure here in early trading.
He’s standing by with a closer look at what is moving and Jared.
You’re kicking it off with a look at crypto and Bitcoin.
Yeah, I’ve had enough of stocks for a little bit.
So we’re going to start off there and I’m going to dial up our crypto heat map behind.
We see a lot of dark red, not in Bitcoin because that’s only down 1%.
We’re simply flagging near highs until we get above this zone doesn’t really matter too much until we get below.
It doesn’t matter too much trying to find a direction here, but for what it’s worth, we are at one month low.
So that’s kind of grabbing some headlines there.
I wanna move on to some other tokens, especially Solana because this is an interesting pattern that I’m looking at.
This is a year to date.
And you’re saying, uh you can see it’s quite a bit different than the Bitcoin one.
I don’t know if I would really call this sideways consolidation.
Let me show you the five year chart.
So you can see this a little bit better and I’m gonna put some candlesticks on uh here.
We have the record highs but we ended up having uh 210, end up a pretty big level there.
And here we have this giant cup, we had the beginning of a handle and guess what we went down again.
So is this gonna be a W handle?
I haven’t seen that but uh I think it happened in technical analysis also want to get to futures real quick because we’re tracking wt I crude that is holding just under $80 a barrel.
Here’s the year to date chart.
I don’t have a lot of incremental news there pretty much between the OPEC announcements.
Those come at the beginning of the month and not a lot of news that’s been moving crude lately.
I will say positioning is light so that presents the ability to squeeze to the upside, but you got to really materially crack $80 per barrel first and we just haven’t been able to do that, Jared.
Thanks so much teeing up all of what we should be watching over the course of today’s trading activity.
Investors are digesting the latest retail sales report out today as well.
Sales increased at a slower pace than expected in May as high interest rates and inflation continue to weigh on consumers.
The report comes as economists remain wary of any signs of a consumer slowdown here to weigh in.
We’ve got Matthew Luti who is the Deutsche Bank chief, us economist here in studio with us script Matthew good to see you guys too.
So the market is trying to make up their mind off of this retail sales for what does it tell you about the state of the consumer right now?
Yeah, I, I think, you know, we clearly have slowing going on in the economy if you look back, you know, last year was a very robust economy above 3% growth.
You do have a consumer s slow down, that is ongoing, the labor market, it also seems to be slowing and coming into better balance.
But I think you, you you need some context.
So this morning’s report for retail control, stripping out the volatile items was actually up 0.4%.
It was a decent print.
Retail control over the past three months is actually the highest since December.
So the economy is slowing, the consumer is certainly slowing.
But at the moment, I don’t think it’s a worrying trend.
I think it’s just getting back down to what we think is a more normal type of pace for the economy.
So Matt, how do you think that’s gonna translate into how many cuts we’re going to see by the end of the year?
I believe your base case is still one cut.
But I guess my question to you is following the signs that we have seen some weakening in the economy, especially on the heels of that softer than expected inflation print uh just last week.
Does that still leave the door open for the possibility of a September cut?
The number one consideration there will be inflation, you know, do we get three more inflation prints that look like what we got last week?
If we do, then I think the probability of a cut by September could be reasonable.
That’s not our base case.
We think that you’ll get another strong inflation print between now and in the September meeting that creates enough uncertainty for the fed.
But they would also like to see an economy that is not re accelerating, that is not too strong.
So today’s consumer spending I think is, is supported from, from that perspective, what the Fed would ultimately like to see would be better inflation, a labor market that is slowing but is still resilient and a consumer that is slow, but it’s still resigning.
And so, I mean, those two go hand in hand, of course, what are, what are you seeing within the labor market right now?
That is starting to make its way over into some of the consumer readings that we’re getting the, the the labor market is this really mixed picture depending on what data you look at.
Um John Williams spoke, spoke this morning and he, you know, he, you have to look at the totality of the data there as well.
You know, we we got a jobs report that showed 275,000 jobs added um incredibly robust numbers.
At the same time, you’re seeing the unemployment rate tick up and measures like the household survey are showing weaker employment.
I think as you kind of look at the the broad swath of data that the labor market looks roughly as tight as it was in 2019.
You know, the unemployment rate has moved up, the quits rate is down, but employment growth still remains strong, income growth remains resilient from the consumer perspective.
And with that backdrop, I’d be surprised if the consumer slowed in a worrying way, man, I guess at what point do you think the fed is going to be a bit more concerned about the labor side of the mandate?
Because yes, we are starting to see some softening.
Maybe it’s nothing to get too concerned with just yet, but we could see maybe a further deterioration rather quickly.
Yeah, I think that’s always the way with the labor market.
You know, the it looks great until sometimes it just uh accelerates to the downside in this non linear way.
Um Typically if the unemployment rate rises by 50 basis points over the course of a year, you’re in a recession.
And so the FED is balancing those risks at the moment.
II I, you know, those risks are are there, but I don’t think that they’re particularly heightened from a historical perspective, we still see robust job gains there.
Income growth is still resilient.
Consumers have a lot of wealth on their balance sheets.
You still have excess savings on those consumer balance sheets.
And so while there is are some strains, particularly for parts of the, the parts of households, I would be surprised if you saw a slowing in the labor market and a slowing the consumer that was enough to get them to cut by September.
We often hear for companies they, they would look at the macro environment and if they see any type of, you know, storm clouds in the equation, they’re, they’re quick to say, ok, what’s the head counts that we’re operating on right now?
And do we do we need to make further cuts?
Should we expect more cuts in the employment situation or from, from jobs right now?
Uh in companies that have already for many of them implemented cuts.
Yeah, I mean, the interesting thing about this labor market is we’ve had these, you know, clouds or headwinds for the past two or three years.
I think companies have been worried about recessions over that period.
You’ve had, you know, shocks to the system.
We had this aggressive monetary tightening yet within that context, if you look at layoffs for the broad economy, they’ve remained incredibly low.
Um The jolts, data shows that layoffs are lower than they were at any point.
Why does it feel like they’re so large?
I think you, you get headlines out there for large companies that have laid off individuals, but those are a relatively small share of the US economy.
And when you look at broader numbers, you know, even initial jobless claims, continuing jobless claims, they remain low from a historical perspective, they’ve moved up a little bit, but just about any data point that we see show layoffs broadly speaking, remain low.
Now, sometimes they do tick up in, in, you know, this this way.
But I think it takes a shock really to get there and push you into a weaker labor market outcome.
Ma’am.
My question is we, we, we had, we had uh Mohamed El Aian on the show last week and he was telling us that he thinks that December cut would be too late.
He also talked about the fact that the risk that maybe is posed here about the fed remaining too data dependent.
Do you see that as a real risk at all?
Yeah, I mean, the fed is, is emphasizing that they’re data dependent.
And you know, part of that I think is it’s been really difficult to forecast in this environment.
You know, most forecasters miss the inflation shock, they missed the upturn in inflation earlier.
This year.
And so there still is some upside risk in terms of how they’re thinking about the inflation outlook and for them, and I think rightfully so gaining confidence on inflation is the number one story.
I still see an economy that looks resilient.
Now we are downshifting to something that looks closer to 2% but that should be viewed as normal, not something that is worrying.
You know, if you begin to get data points that look something different than that, if layoffs actually do begin to pick up, I actually do think the fed would be relatively quick to pivot and begin to cut rates.
So if you got that evidence by September, that would certainly be a reason for them to cut rates.
All right, Matt Lizzette, always great to have you and special thanks for coming in studio here with us today, Deutsche Bank’s chief us economist.
Let’s take a look at a trending ticker here today, a lazy boy moving to the upside chairs of just about 18% on the company posting better than expected earnings in the fourth quarter.
Also forecasted upbeat sales for its fiscal Q one.
The maker of recliners also expecting modest sales growth for the year ahead as it plans to open more than 10 new furniture stores.
And when we talk about consumer spending, seeing a pull back there, it actually looks like people are maybe still spending on lazy boy.
When you take a look at what demand is relative to expectations.
We’re seeing this bit of a jump here of just around 18%.
Also, the fact that they are looking to expand their footprint is relatively significant here in order to capitalize on that demand that they’re seeing.
I don’t know what the lazy boy replenishment rate is like.
But obviously, there are some things that investors are looking at within this report and saying, ok, clearly there’s some more demand perhaps driven by some of either the new furniture galleries, uh the three additional stores that they’re adding on here.
So uh one of the major things though, too, for investors to consider especially within this sales environment here was it actually kind of mirrors what we were talking about within that census bureau data from retail sales just a little bit earlier.
You look at the same comp for the five month period compared to last year sales, furniture stores were higher.
Now you compare that to last year, not everybody needed to replenish the same couch or lazy Boy or single chair, whatever it was because they had probably already done all of that either when they were purchasing new homes at low interest rates just coming out of or during the pandemic or when they said we were gonna be spending more time at home anyway.
And so let me just make sure that I stock up on that new lazy boy stock up on that new lazy boy.
Uh maybe for a new part of the house that is being renovated.
So all of these things considered the industry, they’re saying continues to grapple with higher longer interest rates, housing turnover near 30 year lows negatively impacting store traffic.
However, they are saying that their execution is the strongest it has ever been including conversion rates at all time.
Highs average ticket design sales trending up for the year and they’re also expecting industry fundamentals to remain volatile.
We should note for the near term but still confident as of right now.
All right, lazy boy share is rallying today in early trading up just around 18%.
Coming up next.
We’re taking a look at the chip sector that’s up over 33% since the start of the year.
Which company is best position in which name should you be adding to your portfolio?
We’ve got that answer for you next.
Welcome back to morning brief brought to you by Invesco NVIDIA briefly touching an all time high this week.
Now, the stock has certainly been on a tear this year alone.
It’s up over 100 and 60%.
The street remaining very bullish on the chip maker.
64 analysts have a buy or outperform rating on the stock.
One of those analysts joining us now we wanna bring in Matt Bryson.
He’s what equity research hardware, Senior vice president.
It’s great to see you again, Matt.
So talk to us just about this massive run up that we’ve seen in NVIDIA, clearly, lots of focus just about the emphasis and the impact that it is having clearly overall on the broader market.
What makes you so confident that this momentum is going to continue?
And I guess what do you think that that opportunity really looks like?
They, they came out um in late May, uh gave us great numbers uh gave a great guide.
Uh But, but since then you’ve seen new funding for start ups um in the A I space, uh the the funding numbers are large.
So you’re talking uh numerous billion dollars going to places like Xa I uh eventually most of that money gets spent either renting data center space um or building data center space.
Uh and that’s all additive to what the cloud service providers are spending.
And so if everyone’s spending on A I just things look really good.
Um At some point, I, I think we need more A IA I applications to show up.
Um But having said that I, I think everyone’s made a bet through nvidia’s next platform Blackwell, um which means things remain good well into next year.
I mean, when we talk about this chip demand, like is there a good ballpark figure that investors should be going off of in their minds about where these data centers that are being built out will eventually move to in terms of the number of chips that are necessary to really support the applications and, and the generative A I demand that we’re seeing.
So that’s, that’s a difficult number to come up with what we’re really seeing right now is companies making a bet that uh the next set of applications that change the world are gonna be built on A I.
So there, there’s lots of training uh of these large language models going on.
Um And that’s building out the infrastructure that these applications can get built on.
Um II I think at the end of the day, the A I opportunity is going to depend on what those applications look like.
So if we get self driving cars built on A I that changes the world that needs a ton of investment.
Um If we get something like the next youtube or the next tiktok um or the next bill Uber built on A I again, um That changes the world, we need a ton of investment, but it’s really what that next set of applications look like that we don’t know.
Um And that’s gonna define what the market looks like past this investment in training that we’re seeing right now, man.
When we talk about the next catalyst for NVIDIA, there’s been lots of talk, lots of focus on the upcoming shareholder meeting later on this month.
Is that going to provide another boost to the stock.
And how come?
I don’t know if the shareholder meeting changes much?
Um II I think that what the next uh kind of significant catalyst is, uh they’ll, they’ll have a fall GTC meeting.
Uh Those will be interesting, but I, I think it’s really what we see that comes out of Blackwell.
Uh So that in my mind begins shipping late this year into next, that’s going to define what the next step for NVIDIA looks like.
Um But again, there’s just really, really strong demand till then.
So I don’t see any stumbling points uh kind of through the course of 2024.
What, what is the kind of market share um dispersion that, that you would be tracking towards?
Y Yeah.
So right now, um I would guess NVIDIA has roughly 80% of the market um moving forward.
II, I think it’s an open question as to what um their, their competition looks like.
So II, I certainly believe that A MD can do better than the four plus billion that they got it to.
Um But that’s still a relatively limited fraction of what uh NVIDIA is producing.
Um Certainly Broadcom is making a bunch of tps for Google.
Um We’re seeing the cloud service providers uh work on a lot of their own uh as architecture um or, or chip architecture.
But, but I also think again, a lot of that’s gonna depend on what these applications that show up look like.
And at this point, um that’s kind of the million dollar question we get beyond this training stage.
You know, what are the applications that, that we’re supporting?
And that’s gonna define both what the chips are that support those applications.
Um As well as how much spending there is Matt Bryson Wedbush Equity Research Hardware, senior vice president.
Thanks so much for taking the time here with us today.
This is after the electric company announcing plans to sell $2 billion in equity units priced at $50 a piece.
It plans on using the extra crash to fund investments in its energy and power projects shares right now.
They’re down by about 3.5%.
It also seems like the company is gonna be on a bit of an investor tour of sorts as well.
They essentially put up their presentation that they’re going to be really laying out in the case that they’re gonna be laying out for investors.
Do remember next, their energy is also the parent company of what is the largest electric utility in the US, which is Florida Power and light.
And so, uh ultimately, I think that company services what about 12 million uh people in Florida.
And so ultimately, uh that is a major part of the business plan and one of the huge kind of go forward.
Um, metrics that they’re judging themselves are benchmarking up against going forward from this point is a five year load growth forecast, jumping 81% year over year.
They’re also looking towards other two fold renewables growth.
So, uh retiring some assets and then um growing out the load as well.
But ultimately trying to three X the renewables and storage growth within the next seven years versus the prior seven years.
Yeah, they really focus on the power demand and what exactly that is going to look like here over the next two decades and at least from next era is a point of view or at least from what they are expecting there as they see us power demand, expecting to grow nearly 40% over the next two decades.
So again, they’re making this presentation, they’re trying to appeal here to shareholders just in terms of those investments and exactly why they’re making those investments.
Now, what exactly that opportunity, the growth opportunity looks like here down the road.
But again, no surprise that we are seeing the stock under a bit of pressure here in early trading following the announcement of the 2 billion that they’re looking to raise here from the sale.
So again, the stock is under a bit of pressure, they are some reason to be optimistic, given that longer term uh trajectory growth opportunity, growth, growth opportunity that they see, but they do intend to sell $2 billion of equity units here.
And again, we’re looking at the stock off about 3%.
Our producers didn’t think I would be excited as I am to talk about this.
But let me lay on two other things real quick.
It’s important that they do this spending both on the cyber security perspective because of the risks that a lot of the utility grids are going to need to layer on um to make sure that they are getting ahead of that and being more proactive about that as that is a vulnerability.
But then also you think about how these companies are also impacted by something in global warming as well here and trying to make sure that that is not impacted if you have more severe weather systems, especially if you think about how often Florida gets it.
All right.
So we were excited to talk about it and now we’re excited to talk about this story on the other side of the break.
Mickey D’s the Golden Arches scrapping its A I plans for now.
You’re watching Morning Brief brought to you by Invesco.
Well, mcdonald’s is pulling the plug on its A I ordering system for now.
The fast food giant partnered with IBM on its A I drive through tech back in 2021 to help mcdonald’s expedite its orders and meet growing demand, but the technology will officially shut off no later than July 26th.
At more than 100 restaurants, customers were apparently documenting.
They’re botched orders.
Ordering a, well, I guess the, the frosty machine still probably doesn’t work.
The, the mcflurry machine maybe use A I, that’s where they should have put the money, the money there.
But I think that this is just this kind of encapsulates the A I conversation.
Right.
We talk about the fact that more and more companies are deploying this technology trying to use it, investing their Capex dollars into incorporating A I. Yeah, it’s not exactly living up to those expectations in some instances.
And you talk about reliability, clearly, at least with this instance, there has been a reliability issue, orders are being uh messed up to say the least.
And so they’re taking a bit of a pause.
Now, this isn’t to say that mcdonald’s is abandoning the A I efforts going forward.
They have made some comments that they are of course looking to incorporate A I technology down the road.
But again, they’re taking a little bit of a break, they’re reassessing what their current partnership is, what exactly they’re using A I for in their business.
And then once they do that after a quote unquote, thoughtful review, then they are looking to possibly reintroduce A I down the road.
But again, lots of questions about what exactly this means even beyond mcdonald’s for companies that are looking to use A I to improve their operations today and how reliable it is.
I, I kind of think back to what we just heard from oracle and, and Larry Ellison just last week where he was talking about how it’s more than language learning models for artificial intelligence.
It’s about them being neural networks.
And when you think about the complexity of neural networks, not all of us speak perfectly as Americans, like we all have different types of tone that we speak with.
There’s so much nuance to the way that we talk, whether you’re in Boston or you grew up in Philly or you grew up in Texas.
And so these A I models need some time to really figure out what the heck we’re actually saying, like, how many times have you actually spoken even to?
And it gotten it right?
Like it’s setting a timer for two years out from now when you said, set it for two hours, be based on how you actually pronounce it.
So pronunciation annunciation, all of these different kind of tones of voice that we speak with, especially for something that’s supposed to be as fast as a drive through, that’s gonna be challenging and it’s gonna come, it’s gonna be challenging, but it’s also important to point out that this has been critical.
I mean mcdonald’s is far from the only restaurant obviously that has been testing A I capability.
Some have been doing it very successfully successfully when you take a look at some of those other names, Wing Stop, Del Taco, Chipotle Yum brands, among those that have been incorporating robotics and A I here in their investments in most recent years.
So this is in the end for mcdonald’s and incorporating A I but they are taking a bit of a break.
They’re reassessing their investments there.
We’ll see if round two is gonna be a little bit more, I guess successful.
Only time’s gonna tell that small front coming up, we’re gonna dive a bit deeper into the catalyst, driving the market rally.
Plus taking a look at oil.
There’s a call out from city saying that oil could actually fall to 60 bucks a barrel in 2025.