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Halftime Report
Mega Cap Earnings in Focus: Your Next Move 7/20/26
00:44:17
Leslie Picker and the Investment Committee debate how to navigate mega cap earnings and share their latest trades heading into the week. Plus, we hit the latest Calls of the Day. And later, we give you the setup on earnings this week. Investment Committee Disclosures
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Narrator/Advertiser
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Board Member
The board recommends approving regarding that seat
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Joe Taranova
on the committee we're promoting quarterly earnings.
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Vanguard Announcer
Every day shareholders meet to discuss important matters about the companies you invest in. Now you can easily make your voice heard. Vanguard Investor Choice gives you a say in the companies you invest in. With just a few taps, you can set your proxy voting preference for your index funds. Visit vanguard.com investorchoice to learn more. Vanguard investors own shares of our index funds, which own shares of the companies they invest in. Available for Vanguard Index funds that participate in Investor Choice. Vanguard Marketing Corporation Distributor I'm Scott Wapner
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Joe Taranova
and you're listening to CNBC's Halftime Report, the podcast the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in.
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Leslie Picker
Welcome to Halftime Report. I'm Leslie Picker in for Scott Wapner front and center this hour, the next test for the market. They were just talking about it. With key earnings looming in the coming days, our investment committee is standing by with this setup. Joining me for the hour, Joe Taranova, Shannon Sokotia, Steve Weiss and Surat seti. Let's get a quick look at the market midday. You got the dow down about 0.2%, the S&P up about 0.4% and the Nasdaq higher up about 0.8% as we see some rebounding of the semiconductor names today. But as we mentioned, earnings, we're getting Alphabet this Wednesday. There are a lot of questions involving capex as we start to see the Hyperscalers report. And I want to hear from the committee today about what you think happens with regard to capex in terms of a market reaction. Do you think at this point in time the market wants to see higher capex, lower capex or just slowing growth of Capex? Let's start with you.
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Surat Seti
Well, I think two things. One is going to be what's the forecast for cash flow for all these max 7 and I think that's kind of what we're going to tee off from because if that changes and just say it goes up, then I think the market's going to say, all right, what's your return on investment going forward? If it's coming down, then I think the market's going to not be happy at all and they're going to expect that CapEx comes down, but at the end of the day it's the return on invested capital. That's what we're all trying to see because originally the thesis on the mag 7 was hey, free cash flow, you get to do what you want. But now you're so focused on spending money here, what is this going to be? And then you get all the, whether it's noise or news from China in terms of open or closed systems and then you've got IPOs coming. So I think it's going to be really important for capital to stay in these big stocks, right?
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Leslie Picker
Because why, you know, you could see return on invested capital now, but then if you have this looming threat of these open source models abroad and what that means in terms of the overall equation here, how do you think about those two levers moving forward?
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Steve Weiss
Well, so go back to your first question. What does the market want to see? It depends where you are in the market, right? So if you're in the mag 7 you want to see that they either can tell you what the ROE is, right, or the ROI on it. If you're in the semis you want to see budgets increase, right? So the max seven goes down. So there's no, really there's no one answer. But, but look, there's so many other points at play like China, right? Much cheaper chips, cheaper memory, everything's less expensive. So that may influence, I believe it is the training in Micron, SK Hynix and all the others. So you have to look at all those. Bottom line is I think we can all agree that CapEx spending is going to continue and that the AI spending is not over, but that sort of disassociates from the stocks. So it's what the stocks are going to do, what the company share prices are going to do and is it pulling forward the end of the cycle? Sometimes the cycle peaks in terms of the stocks a year ahead of time. I think that's where the debate actually is right now. Now if you have a meta that says, hey, we found our use for our, we don't know if it's to get into new business or if they bought so much capacity, which generally happens, markets get tight, right? You overbuy to make sure you have it, then you get stuck with it. So they foresee themselves getting stuck with this excess capacity. So they're offering compute out to others, so we don't know. So they're so. So the way I've approached it is that I've exited Micron, I've exited a Caterpillar, which is traded up because it's an AI play. And I'm sticking with Taiwan Semi, and I bought Broadcom because it was, you know, was on sale and I bought slightly below here. So it's a convoluted answer to questions, just not easy to answer.
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Leslie Picker
It's not. No, no. And that's why I figured we'd start the show with the hard one. Shannon, how do you think. You know, Weiss obviously mentioned that it's kind of dependent on where we are in the cycle and perhaps even more importantly, where the market expects the cycle to be moving forward. How would you kind of answer that question about where we are in the cycle and the market's Appetite for additional CapEx from here?
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Shannon Sokotia
So I think there's likely to be incremental increases. If, you know, in this quarter. I mean, I think when we look at the first quarter, we would anticipate that most of these companies would come out with their sort of big bang number for 26, and potentially with a little bit of a lens towards 27. I think that the appetite for the digestion, you know, you have to look at not only the equity issuance that's happened in the market, but also on the credit side. If you look at, you know, spreads have been incrementally wider for the hyperscaler credits over the course of the last several weeks, there have been some perhaps surprising issuance out of these companies. And then you start to look forward to 27, 28. You know, are we in a position where free cash flow actually becomes negative now? That's the question that really comes forth in the growth story. How much of this growth will be realized? How much additional cash flow can be generated by these companies to justify the spend that they've made so far. I don't think we're at the end of that. I think that there is still continuing to be meaningful demand. If you look at the denominator in terms of the number of companies that have actively invested in AI and put that forth in their core businesses as a strategic priority, there's still a lot of talk and a little less action in some areas. A lot less action than talk. And so if you just look at financials, industrials, you look at health care, we are, we are very early in sort of the demand pull in those sectors and in certain industries within those sectors. And so I think it's, it's premature to say, okay, we're kind of topping out, but I would say I wouldn't anticipate that we would see kind of meaningful increases to capex announcements this week in this quarter just because I think that they've telegraphed through the end of the year and we haven't really seen a big change in demand over the last three months or so.
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Leslie Picker
Yeah, I was surprised with the bank earnings last week, how token cost was basically a rounding error for most of them at this stage. They expect that to be higher in the second half of the year and going forward, but at least at this point in time, not a big margin compressor. Joe, you own Alphabet?
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Joe Taranova
I do.
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Leslie Picker
What would you like to see in terms of CapEx color or guidance or announcements?
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Joe Taranova
I'm going to take a little bit of a different perspective here. The market overall, it's kind of idling in place, waiting to rev the engine in one particular direction. You're bearish, you're hoping it's down for a pullback. If you're bullish, obviously you're hoping for a continuation and new all time highs. When I think about the capex, what is critical is monetization. And here we go, we are idling, we are waiting for what? We're waiting for earnings. Earnings have been the tailwind that has been the single most dominant tailwind over the last two years and we are waiting for them. We're going to hear from Alphabet next week, we're going to hear from Amazon and if you think about the Max 7, there are four of them who have had really strong performance so far year to date. You've got Apple which has made a new 52 week high on Friday and then behind it you have your Amazon, you have your Alphabet and you have your Nvidia. And I think those three are critically important, Leslie, to where this market ultimately is going to go in the near term. Why do I say that? In the month of May, each one of Those names made 52 week highs and that was it. From there they began to pull back. The S&P 500 could not continue to make new highs subsequent to that. June 2nd was the high for the S and P. So if earnings are going to deliver, you have to hear about one single word monetization. There has to be monetization on the CapEx. Why did Alphabet make a new 52 week high in May? It was because Google Cloud was up 63% year on year, it's three straight quarters of acceleration. AWS 28% growth rate, that was the fastest acceleration in four years. So that's exactly what you want to hear. You want to hear the proof point of monetization, you want to hear that it's real. Later on in the earnings cycle we're going to hear from Nvidia and there it's just all about insatiable demand relative to supply. But we're coming into a really critical moment hearing from these mega cap earnings corporations.
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Leslie Picker
At the same time, you know, Friday with the sell off, Alphabet, Amazon, Microsoft, all declined over concerns that more firms would switch to an open source model. Given what we've seen with some of the Chinese competitors to save on inference cost, do you think that kind of sell off makes sense?
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Joe Taranova
I think Friday was a liquidity more than a fundamental sell off. I think it was just paring back of positioning as the market seems to lately be trading with a little more of a heightened sense of urgency, in particular because of the decline in the memory names and the semiconductor names. So a lot of times you have to look at positioning and you have to say to yourself when you see that type of a sell off, when you see a little bit of reversal in the price of Apple, when you see some of the mega caps go down, understand they're an ATM for portfolio managers and it's really raising liquidity, getting cash availability ahead of a weekend where you have this geopolitical concern. I don't read anything more into it than just a near term dynamic in the market itself.
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Shannon Sokotia
I would, and I would echo that. I think that we have seen, you know, we're seeing, I'm seeing additional questions around volatility. I'm seeing questions around the re escalation in the Middle East. This we're entering into a period where we still have a number of companies left to announce, but then we move into August. And August has been a challenging time the last couple of years. From a liquidity perspective, we're staring down Jackson Hole with potentially a mixed message coming out of the Fed and we've got midterms. And so I think that ahead of some of this it's, you know, could we see this increase in volatility? Do I want to potentially pare back what has been a really nice first half of the year? We didn't see that as much right after the quarter ended. Perhaps that's a little bit of a lag or delayed effect.
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Steve Weiss
You know, I look at it this way that the bar is always high for Meg cap earnings. In fact, the bar is always high for every company that's reporting because we're seeing moves of 20 to 30%. Some cases look at IBM at post earnings up or down. So my advice would be be to make sure you like the companies that you own. Make sure you know the companies shown and own it through the quarters. Because as we saw, you know, these stocks recover, we've seen in every single stock cycle, they still, despite the debt that they're taking out to finance the expansion, expansion, they can cover that debt. You know, debt coverage is not an issue for these companies. They print mounds of cash. So just own them through the quarters. Don't get all worked up about and don't trade around them, you know, unless they get, for example, you know, I've taken opportunities on Google, I think we all have, on Metta, on others to buy it if it gets significantly displaced relative to the fundamentals. So I think that's how you have to try and guess what the quarters can be with so many levers they have to pull. How's cloud growth, how's ad growth? Right. How's their spending? What's the ROI and spending? So, you know, not all are going to come in as you want to see.
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Leslie Picker
And I mean news. Today we had the Alphabet chart up. It's up about two and a half percent. There is a report that says Alphabet is working on a new chip to enable its Gemini AI models to run 6 to 10% more efficiently. Sarah, what are you looking for on the conference calls? As it pertains to China's moonshot, as it pertains to Alibaba's point preview of. Gwen, you know, what kind of commentary do you expect to hear on that front?
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Surat Seti
I think in addition to the fundamentals, I mean, Steve was talking about cloud growth for all of them. In terms of what's advertising grow, what are they looking forward to? I mean, that's still very important for these stocks, right? We're so focused on what are going to their free cash flow, where is their free cash flow coming from? So let's get back to fundamentals on that. But I think to your point on GPUs and all of them doing TPU, what is your cost coming down?
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Angelica Peoples
Right.
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Surat Seti
We're going to see efficiencies coming down, whether it's in memory, whether it's in semiconductor, whether it's data centers, where is that cost going to be contained or improved or be more efficient? And I think those companies that have that advantage, the other thing that's going to be interesting to see is all these companies that are using all this compute, are you going to go to the open source with China or are you going to go to a closed loop for security reasons?
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Mike Santoli
Right.
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Surat Seti
So that's also something that we need to understand because this is all your data out there and that's all the customer data, whether it's, you know, you're talking about businesses or you're talking about consumers. So that's kind of another thing to watch for because you can have those moments on Friday and say, oh, this is a deep seat movement, here we go again. But in reality, what's really going to happen or is just going to just make us all more efficient. And I get that at the end of the day then the folks that have the biggest free cash are going to win.
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Leslie Picker
Yeah, I think there was a surprise that the cost was Only only down 4 1/2 percent. There weren't some outsized moves from SK, Hynix or Samsung. And you know, you're obviously seeing a bounce in semis today after last week where the industry in the US declined 10%. Semis underperforming the S&P 500 by 840 basis points last week, which was the widest underperformance going back to 2009.
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Joe Taranova
Well, memory and semiconductor and semi equipment went parabolic and we're just now moderating that extreme momentum that was embedded there. So we're seeing a significant sell off with that significant sell off. Let's bring the word rotation in the conversation because everyone's talking about we made
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Leslie Picker
it 14 minutes without rotation though.
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Joe Taranova
Exactly. But there are rotations that continue to dominate the market in 2026. And you have to pay a price for rotation. The price rotation is volatility and it's tempting you to kind of exhibit the wrong behavior. I think it's important to understand that this personality of the market has changed because of what we've seen with memory and semi equipment. The fever breaking. I think the personality of the market market is now wanting to pay a little bit more of a premium for the degree of safety. You have to ask yourself, okay, these Mag seven companies, they do offer a degree of safety that I can't find in other places. I have yields rising back towards the high of the year. A 10 year is at 460. I think the high is 468. Mag 7 really doesn't care where yields ultimately go low. Longer duration. Semiconductors and software. Yes they do. So I think it's important if they deliver here on earnings to understand, you may see capital push in that direction, but it's pushing in that direction not because the market saying we want more risk, it's a risk. On element, more, it's a degree of safety.
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Leslie Picker
Does that, Shannon, you think, kind of exemplify and talk about the personality of the market, just the broadening trade. Is that a beneficiary of the AI Pause? Do you get one or the other? Are they binary or do you see a world where they kind of all move up together or the reverse?
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Shannon Sokotia
I think realistically, if you look at the companies that are doing well in many of the broader sectors, it's because of an anticipation of some relative AI benefit, even if it's, you know, in parallel or a kind of a second derivative. I think that there's also an interesting component that's happening where if you look at some of the quote unquote defensive industries, for instance, I think portfolio managers are looking at them as a potential barbell. I mean, if you look at health care, you can think about, you know, that potentially being an offset to some of this tech volatility, but there's an opportunity in that from an AI standpoint as well. And so, so I think that investors are looking at whatever you want to call it value or cyclicals or the broader trade. The thing that maybe is not getting as much attention as it deserves is that broadening is supported by a strong economy and the economy has been quite resilient. You look at retail sales, you look at jobless claims, you look at, you know, kind of this steady, low hiring, low firing environment. You look at the potential for, for a more sustained de escalation in the Middle east. That helps Japan, that helps Europe from an energy cost perspective. So I think that what's being lost here is that we're talking about it being very binary. It's tech or everything else. I think we've moved well past that narrative and I think that people should be cognizant of the fact that in an environment where the global, where global growth remains at or above trend, depending on the economy that you're looking at, plus this accelerant of capex and industrial impulse levels, that supports broadening your exposure.
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Leslie Picker
Weiss, do you think earnings, as we get further and deeper into earnings season, really helps support that as well? Because, you know, the last few weeks we've had a bit more of a vacuum as it pertains to the hyperscalers and we've had a little bit of semiconductor reports. But do you think as the weeks go on and we start to hear concrete numbers, we start to hear commentary that that could provide a level of support or do you think that the bar is really high this earnings season and it could actually be a detriment
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Steve Weiss
overall, the bar couldn't be higher this earnings season. I mean I don't recall the bar being this high in terms of what, what analysts are forecasting for S and P earnings. And the pre announcement period, aside from like an IBM has been very, very light as it has been the last few years.
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Leslie Picker
So that's a good point.
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Steve Weiss
Yeah, so. So I think the. So it's going to go by sector, it's going to go by S and P sector rather than overall and when it ultimately washes out. So. But to your point Jim, you know, last couple August have been tough. So I think, you know, going back to what I said before, I think you drive yourself crazy trying to trade earnings seasons, any particular earnings season. So I don't know how you get in front of it. You know, what do you do? Do you sell? Do you sell because you're worried only to be surprised by a better than expected quarter or quarter in line or for the stock to recover shortly thereafter? It's the best thing to do. If you have conviction in the companies you own, you stay in those companies. Now if you think there's reason to be concerned and these, most of these positions, particularly in semis, even though they're making lower highs, everybody still, I would say everybody, people that were early have still made a lot of money. And I'd suggest as I see my own portfolio that they could be outsized positions relative to what your normal risk management is. There I pare back and that's just simple portfolio management. So my point is I don't think you abandon what your portfolio management strategy is just because of all the heightened issues that we're seeing for this quarter
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Leslie Picker
which could be what it, you know, some of the recent sell off is, is akin to as well just this idea of portfolio management and some of these names.
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Narrator/Advertiser
Yeah.
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Leslie Picker
The overriding side.
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Steve Weiss
Yeah. Comes back to the portfolio is, is the stock performance as the stock performance peaked.
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Leslie Picker
Yeah.
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Steve Weiss
Based upon the cycle. That's the overriding question. If it is the caterpillar is still overvalued, significantly overvalued.
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Leslie Picker
I mean if you ask Edgar Denny, he was on the tape saying this morning that Infotech looks tired. As we talk about kind of the personality of the market, he says there is a fatigue and a lack of catalysts. That was from his note this morning. Surat do you, do you agree with that? I mean that kind of, to me suggests, at least from a sentiment standpoint that he thinks that it has peaked.
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Surat Seti
So there are a couple of things that could happen. One is money flows out of the market or just goes to the broadening phase. And we saw financials did very well. But financials need another tail because. And what could provide that is if you get decent earnings from the big tech stocks coming, then you can see more capital markets activity coming right on the other side is if you don't get good earnings, the market pulls back, then the IPOs coming could get deferred. M and A activity could slow down. So they're all counting on that as well. So I think you have economic activity, capital markets activity, you could have a base to the market, you could have a broadening still continuing on some of the other, other financials, industrials and other areas that will partake in more capital markets activity.
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Joe Taranova
All right, so you have three names. You have Micron, you have Marvell and you have Corning. Each one of those names off the peak, somewhere between 25 and 40% has been the correction. Each one of those names, Micron, Marvell still sitting above a supportive 100 day moving average. Corning sitting above its 200 day moving average. So I think that just shows the degree of which these names went parabolic. And when these names go parabolic and when momentum is the dominant force, the factor that's outperforming everything else in 2026, you'll see a tremendous amount of quantitative algorithm capital being allocated in that direction. And what has been happening ever since is that capital's just move, moving out and going into other places to your favorite work, it's rotating.
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Leslie Picker
Well, the momentum factor itself has erased the gain since the end of April. And Goldman says that momentum's volatility has surged to the highest level on record outside of recessions. So do you feel like that rotation out, that that unwind is, is done as you look at the positioning, or do you think that there's still still more room to decline?
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Joe Taranova
I've been saying this over the last several months. I think it's difficult to kind of identify at the end of 2026 what ultimately is going to be that winning factor. I think a lot of people are trying to play this game of is it going to be S and P market cap weighted or S and P equal weighted, that's going to be the winner at the end of the year? Well, if I look at them, they're statistically within about 200 basis points of each other. It seems as though they're playing this game of one stepping forward into leadership and then the other steps forward into the leadership. So maybe it's the return of diversification. I don't know. I know Steve believes in concentration. I don't disagree with that. But this is a year where you have more opportunities and I think trying to identify one single winning strategy at the end of the year that might be detrimental.
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Leslie Picker
All right. Up next, more of the day's biggest movers and our top calls of the day. Halftime is back in two minutes.
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Board Member
The board recommends approving regarding that seat on the committee.
- [24:47]
Angelica Peoples
We're promoting quarterly earnings.
- [24:49]
Vanguard Announcer
Every day, shareholders meet to discuss important, important matters about the companies you invest in. Now you can easily make your voice heard. Vanguard Investor Choice gives you a say in the companies you invest in. With just a few taps, you can set your proxy voting preference for your index funds. Visit vanguard.com investorchoice to learn more. Vanguard investors own shares of our index funds, which own shares of the companies they invest in. Available for Vanguard index funds that participate in investor choice. Vanguard Marketing Corporation Distributor.
- [25:14]
Leslie Picker
Here's what happened when one journalist reported on dei.
- [25:18]
Nick Confessori
I decided to just focus on the University of Michigan. I obtained internal documents that showed that the school had spent about a quarter of a billion dollars on DEI programs. I spent two weeks in Ann Arbor talking to everybody I could find. The unintended consequences of these programs, they had sort of left everybody dissatisfied and this expensive machinery the school had built just imploded. If you're a journalist, you are not on anyone's team. All you're trying to do is figure out as many of the facts as you can gather. The facts are going to guide you to where the story lands. You're not taking sides. I'm Nick Confessori. I'm an investigations reporter for the New York Times.
- [26:00]
Leslie Picker
Journalists like Nick follow the facts wherever they lead. They go where news breaks, get answers firsthand and publish what they find. That's fact based reporting. Seek it out if you don't already. At Etsy, we want to know what moments mean the most to you. Whether it's buying a home or hosting a party, there's an Etsy seller with the perfect original pieces to help you celebrate. Celebrate being human. Welcome back. Let's get some stocks on the move today. Bristol Myers buying in videos. Latest AI computing system for driving drug research. You own both of these. It was kind of speaking also to what Shannon was talking about with regard to the broadening of the AI Trade to other sectors as well.
- [26:54]
Surat Seti
I think you're going to see more and more companies do this, especially in health care. We know Thermo Fisher does this. We know other companies are doing it in health care. This is one of the best ways to be more efficient. You have raw computing power, you have all this data and you have scientists who can use it. So I think this is really helpful. And one of our big themes on the, on the health care sector is the efficiency and the ability to get products faster to market.
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Leslie Picker
Yeah, Bristol Myers shares not moving too much, down about 0.2%, but definitely one to watch for further implementation. Boeing CEO Kelly Ortberg telling CNBC that the company will need, quote, a couple more years to repair its finances before launching a new commercial jet. Joe, this is one you own. Yeah, 1.8%.
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Joe Taranova
So let me be clear. The reason that we have this position in the ETF is solely based on momentum. It was a position that we established at the end of April at 229. That momentum. If I'm going to use a, a green light, yellow light, red light type of signal, it's definitely solidly yellow. Teetering on being red right now. So I can't sit here and advocate for some fundamental story. That really wasn't the reasoning behind us taking the position. It was based upon momentum. Maybe you get a restart after earnings, which I think are July 28th. I'm not sure there. But right now it doesn't categorize itself as a momentum.
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Leslie Picker
Yeah, down about 3.2% year to date. Lockheed Martin planning a new bargain rate Patriot missile to replenish low stockpiles.
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Joe Taranova
This is also another example of a position that we just took at the end of April. When I cite, when we, we just take a position within the last 90 days, it has this prove itself element to it. Yeah, you want to see that the momentum builds. And in the case of a lot of the defense names, that's not exactly what you're seeing. We have ownership. Some of the better names have been General Dynamics. That's a good one. But Northrop Grumman rather Leidos, not working well for us. Lockheed Martin, yellow light, best way I could define it. I think there's fundamental challenges in front of all these defense names as it relates to some of the budget concerns. They need a catalyst and maybe getting past the midterm election ultimately is the catalyst. And we'll see budget become more favorable for the defense names because they've struggled. And I think it's been surprising that we've Seen the struggle in defense.
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Leslie Picker
Names, you'd say lock, heed, caution maybe.
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Joe Taranova
I like that.
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Leslie Picker
There you go. Moffitt Nathanson saying it's going to get worse for Uber before it gets better. Surat, you own it?
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Surat Seti
We do. And if you look at the stock chart, you go back a little bit, it almost hit 100 now. It's back into the 60s and 70s. We trimmed a bunch of it up in the 90s. Now I'm looking, I'm actually getting very interested in this level because they also just did an acquisition over in Germany.
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Leslie Picker
Right.
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Surat Seti
And they're trying just to yield, use it more as a super app. And yeah, we know the danger, or let's just say Waymo and all the others are coming at them. But at the end of the day, Uber is an international company that's growing and I think as the app gets bigger and bigger, it's a company that we're watching for and watching for the cash flow, earnings.
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Leslie Picker
Definitely a beneficiary of scale, one would think. Weiss, you sold it a few months ago. So you buy this idea that it's going to get worse probably before it gets better.
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Steve Weiss
I just think it's. It's going to continue to be dead money. There are lots of things going on here. First of all, you've got EVs coming on, so you've got a lot more competition that's coming out. And, you know, I. They've not been able to really hit their earnings over the last, I think about a year. I think one quarter nearly did. So I don't know why I have to own it. I owned it because scarcity value, that's out the window right now because you've got ways, you've got others that are coming into the market. And I just don't see where it's an attractive polking here. There are other ways to let your money die.
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Leslie Picker
You mean EVs or EVs as competition?
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Steve Weiss
I'm sorry, EVs and EVs.
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Leslie Picker
Okay.
- [30:51]
Steve Weiss
EVs are important because we're seeing gas prices going up, Right. And while Uber doesn't. Doesn't, you know, pay for the gas, the drivers do. So drivers are going to want more money and I think that's going to be here to stay for gas for a while. As long as we are in a situation with Iran, which there's no sign of that ending anytime soon.
- [31:11]
Leslie Picker
Understood. BMO downgrading Charles Schwab to neutral. This is another one that you own. Stocks kind of up about 0.5% right? Now.
- [31:20]
John Mayer
Yeah.
- [31:20]
Joe Taranova
So we'll hear from them within 24 hours. I believe you're probably consensus is $55 on EPS, 6.92 on billion I think net interest margin looking somewhere around 2.98. You would have to think given what we've heard so far about the trading environment that they are benefiting from significant retail engagement. Stock has been somewhat disappointing year to date. We've owned it for quite some time so we're doing well on it. But you would like to see this earnings report be the catalyst to take it to a new all time high high. Get this stock above 107 and a half. Pushing 110, 115 and let's see if the retail community can be that catalyst. Earnings report.
- [32:03]
Leslie Picker
Yeah we saw with Morgan Stanley last week E Trade their entire wealth division took in $148 billion which was three times the comparable period last year. A lot of that the Schwab is
- [32:13]
Joe Taranova
what has already responded off of those reports with a rally. So now you're ramping up the expectations a little bit higher.
- [32:21]
Leslie Picker
Yeah, it's amazing how much of a role IPO is just playing that that interest level in those flows. Now to Angelica Peoples with a CNBC news update. Hi Angelica.
- [32:29]
Angelica Peoples
Hey Leslie. Three people suffered minor injuries after a man described by authorities as an anti ice activist set off fireworks outside an immigration court building in lower Manhattan. Law enforcement told Ms. Now that the suspect had two airsoft rifles and poured accelerant on the fireworks. That suspect was arrested. Arrested and the FBI and NYPD are investigating multiple UK officials leaving government following Andy Burnham swearing in as Prime Minister. As the country welcomes in a new cabinet. The Deputy Prime Minister and Justice Minister David Lammy and Finance Minister Rachel Reeves announcing their departures this morning. The BBC reporting the UK's Attorney General, Science and Technology Secretary and Welsh Secretary are all leaving as well. And the DOJ announced it seized more than 1,000 domains that engage in unauthorized streaming of the World cup finals matches which are protected under US copyright law in the form of real time streams. The investigation involved US agencies working alongside FIFA, media companies and law enforcement partners in several countries. A lot of people wanted to watch that game, huh? Leslie, back over to you.
- [33:35]
Leslie Picker
Absolutely. Angelica, thank you. Straight ahead is your ETF Edge. We are back after this.
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Joe Taranova
approving regarding that seat on the committee.
- [34:11]
Angelica Peoples
We're promoting quarterly earnings.
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- [35:13]
Board Member
Hello, everybody. We're back on Halftime Report. I'm Contessa Brewer with the ETF Edge. We are getting into the thick of earnings season, but with a broadening of market leadership confidence, quarterly results really live up to the great expectations. How should ETF investors adjust? Joining me now is John Mayer, who's the chief ETF strategist at JP Morgan. It's good to have you today. We have seen some earnings, upside surprises. However, expectations were particularly lofty. So how are you thinking about the rest of earnings season based on what we've seen so far?
- [35:45]
John Mayer
Yeah, thanks for having me. First of all, earnings season so far has been very strong, but just a small defined number of companies have reported about 50 companies and company reactions. Actually, the market's been reacting very positively to these numbers. Like, for example, banks have reported fantastic numbers and that has given us some insight actually into the consumer from various different banks, ours included. The consumer seems to be rather resilient and you're seeing that across the board. Also, capital market activity is increasing and that's really helping bank earnings. Now, looking to some of the other companies that are going to be reporting over the next several weeks, we're expecting A fairly strong earnings season. So far you've seen 20% year over year returns. Excuse me, EPS, that's 2Q20% or more. That's pretty incredible.
- [36:42]
Board Member
And when you see 88% of the companies that have reported so far in the S and P have beat expectations, many of them by double digits, it really is setting the stage. That's according to facts, setting the stage here for remarkable performance. So when you're looking for opportunities in ETFs, which sectors do you think have the most opportunity to outperform?
- [37:05]
John Mayer
So the easiest one to talk about is still technology. Technology is a big sector also. Technology has a lot of different parts and right now the AI companies or the ecosystem related to AI is really driving earnings. From my perspective, the capex has been very strong for, for the hyperscalers which is feeding into other sectors. And I view AI is kind of like a five layer cake. You have the AI models, you have application, you have memory, you have energy. And the capex cycle is feeding into those companies because it takes a lot of energy, a lot of industrials.
- [37:44]
Board Member
And if you want the icing on the cake, well, you just have to wait for that. John, you're going to stick around because we're going to continue the conversation@etfedge.cnbc.com and John will be joined by Cynthia Murphy who's the director of research at vetify. Les, I'll send it back over to you.
- [37:59]
Leslie Picker
Looking forward to that Contessa. Thank you. Straight ahead, searching for opportunities outside of. I will debate the bullish playbook on one area of the market next. Welcome back. Elevated tech volatility, we talked about it earlier in the hour, has some investors looking for opportunities outside of the theme. And Goldman Sachs has a number of ideas focused around the consumer and in particular consumer experience. Joe and Surat, you both own Disney bank, the one that often lets you.
- [38:45]
Surat Seti
I opened it up okay, 15 times earnings. We thought we had the catalyst new CEO. You know you get streaming, making money but right now there's really nothing they can do other than show earnings growth which they need to do at 15 times earnings. If you can get 8 to 10% plus a couple of percent dividend, that's the stock you're gonna, you're gonna want to own. I mean historically traded at over 20 times earnings. The issue is, you know, you've got the streaming assets but then you've got ESPN and then you've got the theme parks. And I think it's very hard for investors to put a valuation in all three. So I think at some point, given what you're seeing in this whole world with NBC now spinning off, you're going to see some consolidation. I don't know which way it's going to go, but it could be theme parks, could be streaming, it could be a lot more, because these are now companies with a lot of cash and actually have started growing again. The market just doesn't care. They're looking elsewhere. And I think at some point will get rewarded.
- [39:44]
Leslie Picker
Is it consolidation or is it separation?
- [39:46]
Surat Seti
Well, it'll be separation and then consolidation and probably go back to pure plays as opposed to what can I do as the conglomerate discount?
- [39:53]
Joe Taranova
So we took up this conversation last week, Scott, Jimmy and I. I don't know if you read the note that was suggesting they abandoned streaming and focus just on content alone. Our positioning. Look, it's not a momentum. It's. It's a red light more than. Than anything else. And I made the point last year that the last. Last week, rather in the last five years, activism has been the only catalyst for this stock. But I just wanted your view. Do you think they should abandon streaming and just focus on content? Would that work?
- [40:24]
Surat Seti
I think you're seeing streaming get hit everywhere. Look at Netflix now, too, right? There's nobody. It used to be, well, here's Netflix and here's the others. There's really decreasing value in there. So I think the idea of maybe getting consolidation and separating and then getting buying power is going to be the way to go. Look, all these things. Ranger in Covid. I mean, you saw what happened to streaming stocks. You saw what happened to alcohol stocks. All of them are kind of coming down now. Alcohol's got its own secular, but I think even it's got its own secular because people are looking for experiences. They're more out and about. You're doing other things, and the cost of content has gone through the roof. So I think you have. Have to do something to that.
- [41:01]
Shannon Sokotia
Yeah, you see. I mean, you see just kind of like experiences. You see, you know, concert tickets, people wanting to be there. People want to be at sporting events, traveling. Right. It's less time at home, more time out in the real world. And I think, you know, to the point about, you know, just in general content being king, it's like that content. It also is in many cases focused on live. Right. Like the replay of live content is actually really part of it. Part of it, yeah.
- [41:28]
CNBC Disclaimer Announcer
Yeah.
- [41:29]
Leslie Picker
Why is it you mentioned gas prices earlier? Does it surprise you that people are still spending $10,000 on World cup tickets and doing all of these experiences while gas prices are so high, I don't,
- [41:40]
Steve Weiss
I just don't so high.
- [41:42]
Leslie Picker
I guess now they come down and coming back up.
- [41:44]
Steve Weiss
I don't believe there's any correlation between gas price and World cup tickets. You know, there the consumer has shown, look, we're excited. Extending credit card delinquencies, payback. So while all banks say they're healthy, when they do their interviews, post earning interviews, they don't get into the details. So spending still going on, credit card balances of course going to increase because 60% of the country more so lives paycheck to paycheck. So ultimately gas pricing, it goes to the psyche of the consumer. So the longer they see high gas pricing, the worse it's going to get because they'll say this is for real, it's not going to be a blip as it has been in the past. And again, you have to have a view on Iran for this. So if the only exit of Iran is, as Condoleezza Rice says, you got to take out everything there. I believe that also, then that means gas prices go up, heating your home goes up, everything goes up. So that's where you are. So I don't think the consumer's in great shape right now. Now I think the segment of the population that can spend World cup tickets, they're in great shape. And gas prices, whether it's 350 for regular or $5, just isn't going to matter to them.
- [42:55]
Leslie Picker
Although in this most recent quarter, delinquencies actually went down sequentially and year over year and net charge. But those banks tend to have higher FICO score customers than just the broader representation of the United States.
- [43:06]
Steve Weiss
Exactly. So you've got to look at buy sector by segment of the economy.
- [43:11]
Joe Taranova
Get through Airbnb real quick is a position that we maintain. And I would think the World cup was beneficial for Airbnb TBD on Uber. But that might also the World cup could have been a catalyst for Uber as well.
- [43:25]
Leslie Picker
Yeah, there was that piece in the Journal about the cities, including my hometown of Kansas City, that were beneficiaries of new tourism. They probably don't have the hotel infrastructure to support that. So Airbnb is way to go. Up next, Mike Santoli joins us with his midday work. Welcome back. We are back on half time. Senior markets commentator and overtime co anchor Mike Santoli joins us with his midday word. Hi, Mike.
- [43:52]
Mike Santoli
Hey, Leslie. Yeah, I don't know if today's action so far is really going to settle any of the big debates sort of the default mode of this market in the absence of of any kind of big, you know, incremental macro information or other jolt from from corporates is dispersion. Most stocks are down today. The S and P is managing to go up. If I could sum up the street sentiment I think coming into the week it was semis have taken enough of their medicine. The momentum unwind might be getting washed out and meantime mag7 looks like it's been de risked and looks cheaper on a relative basis going into earnings. It's all plausible but I also think there's information in the fact that almost everybody is saying these are dips to buy. So to me that's why we, we kind of stay stuck here in this two month range. S&P 500 kind of just riding the 50 day moving average. Maybe you know Wednesday we get the big earnings rush. VIX futures expire for the month and we'll see if that that loosens things up a bit.
- [44:47]
Leslie Picker
Yeah we've got a few catalysts just starting a few days from now that could hopefully be pull us out of that funk. Mike, thank you. The setup is next. Welcome back. Let's get to the setup on some key committee names reporting this week. First up GE Ver Nova which is reporting Wednesday before the bell. Weiss you own this one up about 8.3% over the last three months.
- [45:15]
Mike Santoli
Yeah.
- [45:15]
Steve Weiss
So unfortunately it's not one of my bigger positions but because it's been pretty well look, I mean this stock as well as the others, well it's VRT or fdai they definitely trade quarter to quarter. So as long as you don't and the quarter should be fine. I mean their backlog was significant. They can't fill order all the orders they have. So where would the pressure points be on it? Pressure points would be if they had to add costs which would hit the quarter, something like that. Something unforeseen, the cost side, not in the order side. So I think the course be okay. However, I don't think anybody here in the desk knows what the whisper numbers are these days on their high volatile, highly volatile stocks. So that's where the caution is.
- [45:58]
Leslie Picker
So focus on a cheap stock.
- [46:00]
Steve Weiss
Right. So. So up or down could be pretty significant.
- [46:04]
Leslie Picker
Yeah. Next up, United Rentals reporting Wednesday also out after the bell this time this one is owned by you, Joe.
- [46:12]
Narrator/Advertiser
Yeah.
- [46:13]
Joe Taranova
And a lot of times Steve, to kind of offset that lack of clarity, you look at the option market to see what the implied move is going to be. In the case of United Rentals, it's six and a half percent. This is a little bit of a complicated story that they're going to tell on earnings. Have to watch gross margin. It's probably going to contract about 10 basis points. When you're looking at rental revenue probably up somewhere around 7 or 8%. Not exactly exciting. And then earnings itself for the quarter up about 9%.
- [46:44]
Leslie Picker
$2,000 stock, look at that of about 26 targets.
- [46:48]
Joe Taranova
Generally $100 above where it is right now.
- [46:51]
Leslie Picker
Yeah, remarkable. Stay with us. Final trades coming up on halftime. We are back with final trades. Surround.
- [47:02]
Surat Seti
Morgan Stanley stocks up about 10% off 10% since its earnings. Nothing's changed. It's just a. I think people just taking money out. But great company.
- [47:10]
Leslie Picker
A little bit of that R word rotation.
- [47:11]
Steve Weiss
Weiss, same call with Goldman Sachs. It's down off what was a phenomenal earnings. We had the best on the street and so I think it's a good place to buy right here.
- [47:21]
Shannon Sokotia
And Shannon Energy, still cheaper on a relative basis. You don't have to have a higher for longer crude call.
- [47:28]
Joe Taranova
I'll see your energy and raise you the refiners, they really are the strongest momentum in the market right now. Valero PSX MPC Diesels above five bucks.
- [47:37]
Leslie Picker
All right, that does it for halftime. The exchange starts right now.
- [47:42]
Joe Taranova
You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern only on CNBC.
- [47:54]
CNBC Disclaimer Announcer
All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and and may have been previously disseminated by them on television, radio, Internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the Halftime Report participants consider reliable. But neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Halftime Report disclaimer, please Visit cnbc.com halftimereportdisclaimer.
- [48:28]
Jay Uso
Yo, it's Jay Uso from WWE and I'm Jimmy Uso. Chumba, Kasina and WWE are hyped for the biggest event of the summer, SummerSlam. I know I can't wait. There's nothing better to do while we're waiting than playing Chumba Casino. Sign up today and you can win a VIP experience with Chumba Casino and with WWE for SummerSlam. So what are you waiting for? Play Chumbo Casino and enter for your chance to win. Let's Chumble.
- [48:53]
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