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Semis Outperforming Mag 7, Warsh’s First Move, SpaceX IPO Impact on Markets 5/28/26
00:43:42
Are semi stocks outperforming at the expense of the Mag 7? We’ll debate and look at how long that can continue. Plus, Komal Sri-Kumar joins us with his thoughts on Kevin Warsh’s first move as Fed Chair. And we dig into the SpaceX IPO and its impact on the benchmarks with a market structure expert.
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- [00:00]
Chase Sapphire Lounge Narrator
The day begins at the Chase Sapphire Lounge by the club at Boston Logan Airport. You get the clam chowder in San Diego, it's Tostadas New York Espresso Martini. It's 10:00am why not? It's the quiet before your next flight, the shower that resets your day, the menu that lets you know where you are. This is access to over 1300 airport lounges and every Sapphire Lounge by the club. And one card that gets you in Chase Sapphire Reserve now even more rewarding.
- [00:25]
Chase Sapphire Reserve Advertiser
Learn more@chase.com Sapphire Reserve cards issued by
- [00:28]
Kelly Evans
JP Morgan, Chase bank and a member FDIC subject to credit approval.
- [00:30]
Podcast/Show Announcer
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update.
- [00:57]
Kelly Evans
Wherever you get your podcasts, you're listening to THE Exchange. Here's today's show. Thank you very much, Scott. Welcome to the Exchange everybody. I'm Kelly Evans and we have the S and P, the Russell and the Nasdaq all hitting new highs after US and Iranian negotiators reached an agreement on a 60 day memorandum of understanding to extend the cease fire and launch negotiations on Iran's nuclear program. Now it still has to be approved by President Trump. Dow's lagging a little today. It's up about a tenth of a percent, but the S&P is now up 6 10, NASDAQ up 810 again, record highs for all of the major averages. The software sector is also broadly moving higher as shares of Snowflake are up 30 plus percent 37 now after earnings. The semi stocks are higher as well after Yesterday's pullback, the Mag 7 a little mixed. In fact, the semi stocks are now outperforming the Mag 7 by 60 points this year. But our first guest says that can only last so long as he says the Mag 7 are still stupid cheap Here joining us on our opening exchange is Dan Skelly. He's the head of market research and strategy at Morgan Stanley Wealth Management. Dan, good to see you. Before we dive into that fresh headlines on Iran memorandum reach extending the ceasefire. Was this already priced in?
- [02:16]
Dan Skelly
Yeah, and great to see you, Kelly. And to be fair, the Mag 7 isn't as cheap as when we made that comment about two months ago. But no doubt the Market continues to look through geopolitical shocks and even domestic policy shocks like Liberation Day a year ago as pop up ads and the longer winding main narrative continues to be around AI and the resilient economy. Beyond that, I think the market has become increasingly comfortable that even despite elevated energy prices and now the rehash of inflation fears that this is an economy that just isn't as inflation sensitive as it used to be. We are services driven, high income, consumer driven and more AI spending driven.
- [02:58]
Kelly Evans
Yesterday as oil began to fall and it's falling I believe again at the moment there's WTI crude around 88. We saw consumer stocks, Dan, begin to perk up a little bit, both discretionary and staples. Is that anything you're interested in chasing or that you think could be leadership or is it just helpful that that's an area where we're not seeing deterioration?
- [03:16]
Dan Skelly
So that's an excellent question and this is a theme that we actually align really closely with our strategist Mike Wilson on. So if you look at the equal weighted consumer discretionary sector trading at multi year low to the market at the moment, we do continue to foresee de escalation across Iran. And that could certainly be a boon to some of the consumer names, particularly in housing, leisure and then of course in some of the lodging and travel names. We've got a big soccer event I'm told coming later this summer and so that could certainly be a boost to some of those types of business models.
- [03:49]
Kelly Evans
A World cup play. Okay, so let's kind of having gotten that out of the way, talk about the areas where we're seeing just the most incredible runs, namely in the semi names, the memory names. What's your point of view there?
- [04:01]
Dan Skelly
Sure. And so look, the dramatic narrow concentration in semis, IT hardware and power, that is anything that's tethered to first order spending beneficiaries from AI CapEx has been extreme. Something like 90% of the S and P total attribution is coming from those three sectors. And look, we've added some of these names to our portfolios in recent years. What we would say today though it's better to hold the developments and the dynamics we're watching. Kelly, at some point will there be a catch up in actual deployment of a lot of these chips that have been ordered in advance of the data centers being operational? Number two, will we see potential supply easing either vis a vis a deal with China to give them more access to high end compute and or domestic subsidies which we've already seen. And then lastly it's just about the nature and the changing technology itself. A year from now, will the training of AI models be as compute and as energy intensive as it is today? History doesn't imply it will.
- [05:02]
Kelly Evans
Yeah, I mean you rattled off what sounded like kind of obvious things there, but none of them are. I mean pre orders could be pulling demand forward in kind of the memory and chip space. You're saying might get more supply online, might get a China deal that adds to that US subsidies could bring more capacity on the training, could get more energy efficient. All of those I think investors have to keep in mind. So are, you know, does that push you towards looking say a Mag 7 software? I mean where in tech then do you feel like there is the most upside?
- [05:32]
Dan Skelly
Yeah, it's a great question and one of the things that stands out to me is through the first 100 trading days of this year, semis are up 80% on average. It looks a lot like 95 where the semi index was up 60%. But here's what's interesting. After 95, what happened? The pace of semi outperformance slowed and the rest of the market caught up. I think a very similar dynamic could play out this time around where in the next couple of years as the spending inevitably plateaus or even slows, that lifts an overhang for the Mag 7. Secondly, we see more and more Fortune 100 adoption of AI monetization in the earnings guidance that helps sectors like healthcare, financial and parts of consumer Internet and even big box retailers. And I think that's really where you actually see more index and diversified upside over the next couple years.
- [06:20]
Kelly Evans
It's an intriguing idea and if that's true, can you get name specific or how would you help people think about the next semi name that might actually be a financial or a consumer name or something like that?
- [06:32]
Dan Skelly
Yeah. So aside from the stock specific name mentions on this format, what I would highlight is looking at some of the survey work and some of the research our team and equity research has provided. Healthcare, manufacturing, financials, asset management, these are some of the business models that have been fast adopters. And look, we're a long way from 2023 over the last three quarters vis a vis the S and P earnings transcript commentaries. Three quarters ago 17% of those index constituents were referencing direct use cases for AI. Two quarters ago was 24% and last quarter was 35%. So we're seeing that that use case specificity go up.
- [07:13]
Kelly Evans
It's okay. So we've got maybe improving sentiment on the consumer not, you know, for the AI reasons you mentioned, maybe the oil relief there as well. Health care, manufacturing, asset management. Let's then end with the mag 7 itself. And as you said, if we are going to kind of circle back around in the next couple of years, these mega capex years and we in that number's coming down. Is that the tailwind you're looking for?
- [07:38]
Dan Skelly
Absolutely. It's part of it I would argue that relieves the overhang that's existed for the past year or so. Secondly, it's a function of, you know, a source of new ideas. So maybe people taking profit on this dramatic semi run, staying within tech, going to parts of MAG7. It's also a byproduct of seeing the Fortune 100 monetize the use case. So if more banks and consumer business models are actually saying our earnings are going up vis a vis AI, that's good for the multiples of MAG7 which frankly over the last three years have just stayed kind of flattish. Last but not least, Kelly, the biggest growth opportunity will be coming things and it's no doubt space, robotics, autonomous and quantum and I'd be remiss if I didn't think those Mag7 businesses dominate in those areas as well.
- [08:29]
Kelly Evans
Well earlier this week with the Knicks winning and everything we were saying, is it like 1999? If you're saying it's like 1995, that's actually maybe even more intriguing. Dan, thanks so much for making the time.
- [08:39]
Dan Skelly
Thank you.
- [08:39]
Kelly Evans
Appreciate it. Dan Skelly with Morgan Stanley Wealth Management. The soaring AI trade has taken some attention away from the stubborn inflation readings we have gotten lately. Today's pce, the Fed's preferred inflation gauge, showing its biggest year on year gain since 2023. Our next guest argues that Kevin Warsh's first move as Fed chair should be a symbolic rate hike and not just because of inflation. Here on set with us is Kamal Sri Kumar. He's the president of Sri Kumar Global Strategies along with CNBC senior economics reporter Steve Liesman. Welcome to you both. SRI kick us off.
- [09:12]
Kamal Sri Kumar
I've been seeing on your program for a while, Kelly that they should increase interest rate and I think the latest inflation numbers just Bolst that argument. Why? Because inflation goes up in waves and we have seen that happen. If you go back to the 1970s, it goes up, then it comes down a bit and then rises again over several years. We are going through that phase. We have not met the inflation target the Fed set for the last five years. And I think we are going to go further and further away. That's on the inflation side. And in terms of what's happening to the consumers, we saw that consumer savings fell to a very low 2.6% in today's numbers from 3.2% one month ago. But even more significant, the Savings rate was 5.5% one year ago, meaning in May of 2020, April of 2025. The reason is consumers are very pressed. The last time the consumer savings rate was this low, guess when June of 19, 2022, when we had 9.1% inflation rate. And we are heading toward a much higher rate unless we take steps to cut them.
- [10:29]
Kelly Evans
And you have made this case for some time. And we've seen the consumer sentiment surveys. They do echo what you're saying, that maybe we need to hike rates to deal with that problem. But there's some other reason too, that you think. Is it because of political independence or why do you think that as a symbolic move, war should raise rates?
- [10:44]
Kamal Sri Kumar
The symbolic reason, Kelly, is the fact that he has been seen as somebody who said he would cut interest rates in order to get his job right. Otherwise he wouldn't be in the current position. And therefore he has to show his independence, which he said he would show when he spoke to the Senate Banking Committee. How do you show your independence? You're going to show at least one symbolic hike in the interest rate. Second reason for that, if he doesn't do that and stays ultra dovish, you're going to have the first time since the 1930s that the Fed chairman gets outvoted by the rest of the committee. It did not happen since Mariner Eccles in 1938. And you don't want a chairman to come into the office and be outvoted by his colleagues immediately. And for his prestige, for his credibility, I think it's very important to do that.
- [11:39]
Kelly Evans
Steve, I wonder the next meeting, their decision is June 17th, I believe. So we watched that WTI oil price. It's been leading bond yields. If that comes down significant, they've got about, what, three weeks for this to happen.
- [11:53]
Steve Liesman
I just gotta tell you what's going through my mind while SRI was talking. There's some movie where the guy says the best thing to do when the first time you get into prison is to walk up to the toughest guy and punch him in the face. And there's a symbolic move of, hey, I am tough on inflation.
- [12:09]
Kelly Evans
He needs to walk up and punch you.
- [12:11]
Steve Liesman
Thought I was gonna cut. I got an inflation problem now I'm gonna hike rates. There's a lot to that, and I mean that a little bit more seriously when it comes to monetary policy affairs, because every chair is tested. They wanna know, how tough are you gonna be? They wanna know this question, are you willing, the bond market wants to know, are you willing to sacrifice the economy to save my back on inflation? And that's the test that the bond market eventually puts to all Fed chairs by doing that at the outset. Now, the Fed, by the way, as far as the market concerned, is already offsides. It has this subtle easing bias in that some members of the committee tried to move back. And by the way, apropos of what SRI said just now, Alberto Musalam this morning said, if we were to raise cut rates when the market doesn't think it's appropriate, you would have the adverse reaction of higher interest rates if you don't get it right. And one other thing I want to add to the conversation is Warsh himself has said inflation is a choice, and he criticized Powell for the pandemic era inflation. So that said, there is something to be said for Warsh coming in and sounding tough at the beginning, trying to set a better table for himself down the road of being tough on inflation now, not necessarily abiding these things and saying, you know what? I'll get there. I'll get where you want to go. But first I got to take care of this fire in front of me. Now I got to punch this guy in the face.
- [13:37]
Kelly Evans
Okay, all of that makes sense. And here's what I would just say. As the only maybe quasi dove feeling person at the table, let me just ask the following. I'm a little skeptical, Sree. You can tell me I'm wrong, that hiking rates, slowing the economy is going to do anything to fix some of these inflationary pressures. That was kind of my point about oil prices. If they start moving lower in the next few weeks, are we going to kind of crest these high readings? Are we going to get to a point where the pressure's off a little bit? And because I would hate to see, unless you think the economy is, like, strong enough that it needs to be slowed down, you know, I'd hate to see a rate hike if it just makes things worse for the consumer.
- [14:15]
Kamal Sri Kumar
Two answers to that, Kelly. And you raise a very relevant point. First point is I've always said that monetary policy should be focused on only one, one objective. I'm a believer in something called the Tinbergen rule of the Dutch economist Jan Tinbergen, who said with one instrument, you can only deal with one objective, not two. So Essentially, we have had a seat of the pant policy making now, now, today saying, oh, inflation is the big idea. Oh, no, no, no, tomorrow. I think employment is the big issue. Stick to inflation, control it and let that be your only motivation. That's the first one. Second, if you think increasing interest rates is going to hurt economic growth, go back and look at history. The 1970s, oil prices went up lot more than we did today in terms of percentage terms. And when the interest rates were cut in response to that to try to help growth, it worsened both and we ended up with stagflation. And that's the risk we run.
- [15:20]
Steve Liesman
I'm trying to get a chart made. I don't know if it's going to happen, but while SRI was talking, it reminded me of a chart I've been looking at, which is the answer. An answer to your question is how long can we go? And how quickly would oil prices reverse? And it's a function, among other things, of our stocks of crude oil. And if you look at what's been happening, US stocks of crude oil have been plummeting.
- [15:41]
Kelly Evans
This is what Brian's been talking about.
- [15:43]
Steve Liesman
We've been, we've been bringing down the spr and then we've also been bringing down private inventories as well. Some of what's happening in the spr, by the way, if you listen to the commentary, is going overseas, which is, okay, we're balancing global markets. It's where the oil is needed that ultimately determines the price. But we're in a race right now, Kelly, and that race is we need to get this thing flowing again until we reach these operational minimums that they're talking about in the oil business. And it looks like, at least for a while, you're gonna have something of an elevated oil price. And I'm working on some data for tomorrow which shows what is the average bill to households. And it's a big number.
- [16:18]
Kelly Evans
I think in 2022 it took 12 days for oil prices to spike and then 148 for them to fall back down to where they were.
- [16:25]
Steve Liesman
That's the rocket feather phenomenon as we've all read about.
- [16:27]
Kamal Sri Kumar
Yeah, you make a valid point, Steve. On the other hand, even if oil prices do come down, which I don't expect to happen immediately, the inflation issue is going to continue because it is going from the overall inflation rate to the core inflation rate. And it takes 6 months, 12 months, 18 months to spread. And so you are not going to escape inflation. Even if oil prices were to go down from current levels do you think
- [16:56]
Kelly Evans
the economy is overheating?
- [16:58]
Kamal Sri Kumar
I think the economy is overheating. And you see that in terms of the consumer sentiment that you made reference to, which has come down, very low, consumer spending which is hurt and consumer savings just plummeting. All of those says to me that inflation is a real issue.
- [17:16]
Kelly Evans
But doesn't it tell you it's a disagree though. In other words, if we had a chance, giant tax hike, that's how consumers would react. They say I don't have the income to keep doing this. My savings rate is falling. It's acting as a tax versus the Biden era. When it was acting it was absorbed. And yes, we had low sentiment ratings then. But you they had wages, they were eating it, it was being passed along. And I wonder if we're seeing the same thing this time or not.
- [17:39]
Steve Liesman
And you had massive government stimulus happening at the time and that coincided with the price spike. And I agree with you Kelly. I think there's a something of a downdraft coming. We've had this resilient consumer and if you read what Goldman's been writing, that resilient consumer is almost directly a function of the excess tax refunds. So I think there's going to be a bill to pay come this summer. Again, unless this thing turns around, we'll see how resilient. You know, Mark Zandi makes an interesting point. Everybody talks about the top 10%. He says that 90% of consumer spending is done by the bottom 75%, that that's where the bulk of it comes from. So if you think about these gas bills right now we see the two things that we see happening, by the way, I think I have a chart on real incomes as well by the way, which, which are now year over year are negative. So people can't keep spending the money they don't have. Right. So we have the saving. There's the real income. You see that's the year over year percent change. You can see it was reasonably healthy over a period of time and now it's turned negative. On a year over year basis the last couple months. On a month to month basis it's been negative. It' down the last three months or been lower. So that's going to start to bite I think over time. And you're already seeing some reports which are interesting to me. Where is the inflation for the consumer right now? Some of it's being absorbed in margins.
- [18:59]
Kelly Evans
Yes.
- [18:59]
Steve Liesman
And you see companies reporting that they've taken margin hits because of it. And that's something that is not going to continue either.
- [19:06]
Kelly Evans
All right, gentlemen, thanks. It feels like we're on the cusp of either. It's all going to, you know, the income is going to rise and we're going to pass it along or the
- [19:13]
Steve Liesman
other way around to turn this around soon. Mr. President, Sri, thanks for joining us.
- [19:17]
Kelly Evans
Sri Kumar Steve, thanks as well.
- [19:19]
Kamal Sri Kumar
Steve Liesman thank you, Kelly.
- [19:20]
Kelly Evans
Coming up and about face from the CFTC on its multimillion dollar penalty against the Winklevoss twins. We'll have the details of fallout next. Plus, SK Hynix shares rising again after topping $1 trillion in market cap this week. The stock is up 1,000% of the over the past 12 months and our guest is turning cautious on its home market. We'll tell you why coming up.
- [19:45]
Podcast/Show Announcer
This is the exchange on cnbc.
- [19:51]
Chase Sapphire Lounge Narrator
The day begins at the Chase Sapphire Lounge by the club at Boston Logan Airport. You get the clam chowder in San Diego. It's Tostadas New York. Espresso Martini. It's 10am why not? It's the quiet before your next flight. The shower that you resets your day. The menu that lets you know where you are. This is access to over 1300 airport lounges and every Sapphire Lounge by the club. And one card that gets you in Chase Sapphire Reserve now even more rewarding.
- [20:16]
Chase Sapphire Reserve Advertiser
Learn more@chase.com Sapphire Reserve cards issued by JP Morgan, Chase bank and a member
- [20:20]
Kelly Evans
FDIC subject to credit approval.
- [20:21]
Tim Seymour
Introducing Fidelity Trader Plus. With customizable tools and charts you can access across all your devices, try our most powerful trading platform yet@fidelity.com TraderPlus investing
- [20:32]
Kelly Evans
involves risk, including risk of loss.
- [20:33]
Tim Seymour
Fidelity Brokerage Services llc, Member nyse, SIPC
- [20:37]
Chase Sapphire Reserve Advertiser
out on the road, it's nice to have a partner who can help you make the most of your journey. A partner like the Love's Rewards app. With Love's Rewards along for the ride, you can earn points and get great deals like a free coffee or fountain drink. Just buy any four, any size and get the fifth one free. How refreshing is that? Download the app today and let the points roll in mile after mile. Love's Rewards save and earn at every turn. Terms apply. See website for details.
- [21:07]
Kelly Evans
The CFTC is backtracking on a $5 million penalty against the Winklevoss Twins crypto exchange that was from nearly a year and a half ago. Eamon Jabbers is at the White House with those details.
- [21:18]
Eamon Jabbers
Eamon hey there, Kelly.
- [21:21]
Kamal Sri Kumar
You're right.
- [21:21]
Eamon Jabbers
A big question now is whether the CFTC is going to write a 5 million doll to the billionaire Winklevoss twins. Now that's because as you say, the Trump CFTC is reversing course on a Biden era CFTC decision about the billionaire Winklevoss twins cryptocurrency company called Gemini. Now, the Winklevoss brothers each donated a million dollars to the President's election campaign back in 2024. And in 2025, just before President Trump was sworn in, Gemini agreed to pay a $5 million penalty after the commission found that Geminitrust made statements or failed to disclose facts that the company should have known were false or misleading. Now the statements included whether or not Gemini was a full reserve exchange that required all transactions to be fully pre funded. But last night the CFTC reversed itself and has asked a judge to vacate the $5 million penalty. The CFTC now says it should never have accused the company of making false statements in the first place and that the CFTC had used inappropriate tactics. Now President Trump initially nominated Brian Quintens to serve as the head of the CFTC but reportedly withdrew his nomination last year after opposition from the Winklevoss twins. Now Quintenz posted text messages to him from Tyler Winklevoss on social media last fall. Those messages show Winklevoss asking about the CFTC ruling against Gemini. And Quinten said on social media, I believe these texts make it clear what they were after from me and what I refused to promise. Now today an attorney for Gemini told cnbc, quote, the facts speak for themselves. This case should never have been brought and we are thankful that the CFTC has joined us in seeking to right this wrong. Kelly, back over to you.
- [23:11]
Kelly Evans
But so what, what are the facts, Eamon? So they were charged with. Just walk through this again. What were they accused of and what are they now saying did not take place? What are the facts?
- [23:23]
Eamon Jabbers
The allegation is that. The allegation is that they lied to the cftc, in essence misrepresented and they should have known at the time that those were misrepresentations. And the CFTC is now saying that it used inappropriate tactics in pursuing that investigation, should never have pursued it in the first place and therefore is very sorry. And the question is whether or not this means that ultimately a judge will order the CFTC to write the Winklevoss twins a check for 5 million doll. Now I don't actually know as I stand here Kelly, whether the, the Winklevoss's or Gemini actually paid that $5 million or if this has been in abeyance ever since January of 25 when that agreement was struck. So are they owed a check. Will they get a check? We don't know. Watch this space.
- [24:12]
Kelly Evans
Is it, is it clear that they were, that they lied and the only issue is about the tactics?
- [24:19]
Eamon Jabbers
I think, I think it's clear to one side that they lied and to the other side that they didn't lie. Right. I mean, that's what's in dispute. And the CFTC has now taken both sides of that.
- [24:32]
Kelly Evans
Okay, Eamon, really appreciate it. Thanks. For now, a complicated situation. Eamon Jabbers Coming up, auto loans are at a record high with 1 in 5 people paying more than $1,000 a month. Why prices are climbing and why auto buyers are starting to balk at that. That's next.
- [24:52]
Chase Sapphire Lounge Narrator
This is the Chase Sapphire Lounge at Boston Logan. You got clam chowder in New York, dirty martini over 1300 airport lounges and one card that gets you in Chase Sapphire Reserve. Now even more rewarding.
- [25:02]
Chase Sapphire Reserve Advertiser
Learn more@chase.com Sapphire Reserve cards issued by
- [25:05]
Kelly Evans
JP Morgan, Chase bank and a member FDIC subject to credit approval.
- [25:08]
Podcast/Show Announcer
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update. Wherever you get your podcasts out on
- [25:37]
Chase Sapphire Reserve Advertiser
the road, it's nice to have a partner who can help you make the most of your journey. A partner like the Love's Rewards app. With Love's Rewards along for the ride, you can earn points and get great deals like a free coffee or fountain drink. Just buy any four, any size and get the fifth one free. How refreshing is that? Download the app today and let the points roll in mile after mile. Love's Rewards Save and earn at every turn. Terms apply. See website for details.
- [26:07]
Kelly Evans
Welcome back. Record highs for the S and P, Nasdaq and Russell. As you can see their slight dip for the Dow this hour. All of this on optimism around a continued ceasefire with Iran. As for the individual movers, we're watching shares of Dollar Tree just speaking about consumer stocks. Interesting space here to watch. DLTR up 19% on the back of strong results and raising its full year outlook. The CEO says customers are spending more time at the stores and purchasing everyday items more frequently and everything from toys to beverages and household consumables. They also announced a partnership with DoorDash to offer on demand delivery and Union Pacific and Norfolk Southern are lower after the Surface Transportation Board paused its review of their proposed $71 billion merger. Regulators say they need more information before proceeding with the application. Norfolk shares are down almost 5%. Worst day in over a year. Meantime, the cost of auto loans hitting an all time high in the first quarter. Phil LeBeau has a closer look at the numbers. Is it really $1,000 a month? Phil, welcome.
- [27:08]
Phil LeBeau
For about 19% of the people who have an auto loan right now, that is their monthly payment at least $1,000. We'll show you a chart in a second, Kelly, but let me give you the numbers. In terms of record highs in the first quarter, according to Experian Automotive, the amount borrowed has never been higher. The average loan just under $44,000. The average monthly payment is now at a record high or was in the first quarter, $770. As for the people who are paying at least $1,000 a month for their new vehicle auto loan, it's now almost 19%. But look at the growth. If you go back to 2020, just five years ago it was just over 5% of the market. Now it's almost 19% of the market. And believe it or not, people are kind of getting used to this.
- [27:55]
Kelly Evans
I think as time goes on, I think more consumers are getting used to the thousand dollar payment. I think there was definitely some market shock when a consumer prior to 2022 had a $500 monthly payment and then they came back into market and it doubled.
- [28:15]
Phil LeBeau
As you take a look at the dealership stocks, keep in mind that we will get the May auto sales report. That'll be next week. The expectation is that the sales pace is still around 16 million vehicles. Kelly, between 15, 9 and 16 1. That's the expectation. We have not seen a drop off in terms of the demand that many people thought we might see when the conflict in Iran began. That has not been the case. Even with elevated gas prices. You're just not seeing that translate into people saying, well I'm not going to buy a vehicle because gas prices are where they are.
- [28:46]
Kelly Evans
Right. Although I thought it was interesting and I don't know if you agree. The Wall Street Journal today, front page, top above the fold.
- [28:52]
Phil LeBeau
I saw the article.
- [28:53]
Kate Rooney
Yeah.
- [28:53]
Kelly Evans
I mean they were basically saying everyone thought we'd go back to 17 million which was the pre Covid sales pace and we're kind of now lingering year around 15 or 16. What do you think about that?
- [29:04]
Phil LeBeau
That's because the automakers are disciplined. They want to Turn a profit. Gone are the days when the automakers were saying, crank it out, crank it out because we've got to keep the sales going high. Now they're saying what sells at a profitable pace. And this is a profitable pace right now for the automakers. I mean, you look at gm, you look at Ford, Stellantis is, is a strange situation because they're going to be working on turning around the business here in North America. And then you look at Toyota. They all are having record profits in North America. Why? Because they are not getting ahead of themselves as they have in the past.
- [29:36]
Kelly Evans
Right.
- [29:37]
Phil LeBeau
And just cranking it out and pushing it out to the dealerships instead. When you go out right now, it's a limited supply, limited in the sense that it's not like it was 15 years ago, where sometimes the automaker was like, just put it out there, put it out there.
- [29:51]
Kelly Evans
You know where I'm going to go with this, Phil? But to me, a thousand dollars a month, even if that's just a portion of the market, the price being as high as it is leaves the door open at some point to Chinese competitors. You see how they're making inroads across Europe. They have high tariffs there as well, not as high as ours. 100% tariff is pretty formidable, no doubt. But if the prices here get high enough, I just wonder if we're going to look back and say, well, that was the entry point.
- [30:19]
Phil LeBeau
Well, you have a number of the automakers who are saying, we are focusing on more affordable models. Look, last week we were talking with the CEO of Stellantis. He said that over the next couple of years, they're going to bring out nine vehicles priced under $40,000. And so that's an example of what you were seeing with the automakers realizing there's an opportunity in that 30 to $40,000 range. There's. Look, General Motors has had success there with vehicles in that segment. Now, they don't sell a ton of them, but there is a market there. And increasingly you hear automakers saying, can we build something and sell it at a more affordable price? If we can, let's do that. But one thing you should keep in mind, Kelly, 75% of the loans that require a $1,000 or more payment, they are not attached to luxury models. They are attached to things like full size pickups, full size SUVs, even midsize SUVs. Because we as a country, as consumers, we want to buy something, and maybe it starts at 50 or 55, but we want to add on to it that's in our DNA and the more we add on, the higher the monthly payment goes.
- [31:23]
Kelly Evans
Yep, I know once they, once they show you what you can have, it's hard to say. Now I'll go with the basic model. Phil, thanks very much. Phil LeBeau, let's get to Kate Rooney now, not out West. She's right here at headquarters.
- [31:33]
Kate Rooney
Right, Kelly, right across the studio. So Guatemala, though, has reportedly agreed to carry out joint strikes with the US to target drug trafficking groups within its territory. People familiar with MATTER told the New York Times that the country's president agreed to military action. In a call with U.S. defense Secretary Pete Hegseth, Guatemala would become the second country in the region to allow joint military action inside its borders following a similar deal with Ecuador this year. Cnn, meanwhile, is suing Perplexity, the AI company, alleging that its search engine provider is unlawfully distributing its copyrighted content. The lawsuit says that Perplexity copied thousands of CNN stories, videos and images to power its products and distribute competing content. In response to that suit, a Perplexity spokesperson told Reuters that you can't copyright facts. And finally, Michigan Governor Gretchen Whitmer told Fox 2 Detroit today that she would not be amongst the candidates running for president in 2028. The two term Democratic governor had been seen as a top contender in that race, but said she was looking forward to taking a break after leaving office. Won't be jumping into something right away.
- [32:41]
Kelly Evans
Kelly, back over to that copyright lawsuit is interesting. More to come maybe on that front. Kate, thank you. Coming up, Tim Seymour says it's time to go long China and short South Korea. The Korean ETF has roughly doubled since January while while the Chinese one is down 8%. We'll ask him why now after this. Welcome back. The Korean chip maker SK Hynix joining the trillionaires club this week. Its thousand percent gain over the past year has also helped power the whole Korean stock market which has nearly doubled since January. And its scorching run has our next guest turning a little cautious. Tim Seymour is CIO of Seymour Asset Management and a CNBC contributor. I take note, Tim, if you're saying, I remember we were talking about the potential still for its rise and its attractiveness, but that was a couple of months ago. What's your thinking now?
- [33:34]
Tim Seymour
Hi, Kelly. Yeah, we've been on this trade and while I would not be naked short Korea here, I think there's a lot of dynamics including fundamentals and valuations in Korea. Samsung might be one of the cheapest. It is the cheapest Mega cap Tech company out there. You're also seeing local dynamics, big Korean pension funds are investing more of an allocation into the local stock market. We're seeing a lot of just call it regulation around making investors investing for locals a lot friendlier. So what I would say is the great rotation into emerging markets certainly should bring an opportunity for the great rotation within emerging markets. And I look at China tech and I look at the k web at 18 month lows or the biggest China essentially tech companies in the world. Alibaba trades at a PEG ratio. So price to Earnings growth of sub 1 now being cheap's never been a reason to go buy China. I think we have a dynamic here where liquidity functions are going to continue to support that, that GMAG 3 trade which is Taiwan, semi Hynix and Samsung. But it's been an extraordinary run and by any measures of standard deviation you're in the outer till.
- [34:41]
Kelly Evans
But I, yeah, I think it's. Look, you watch these markets closely, Tim, you're an expert in them, you've been following them for many years. So I really do take note when you say it feels to you even like it's getting a little toppy.
- [34:53]
Tim Seymour
Well, again I love the story and as we've learned from the memory players this week, the visibility and whether it was that UBS upgrade of Micron, the visibility into three year contracts, long term deals means these companies should be trading at a different multiple. I get that and I think therefore the analyst community has kind of chased this one a little bit. And I think you have a dynamic in South Korea that's extraordinary. I think you have a dynamic in global tech. One of the things I always argue IDO is my international etf, that those same trades and themes you love here in the United States, you find them globally and in fact it's more of a global world than ever as we know. Look at the move in arm, look at the dynamic around again. Gpu, Gravitron, Axio shipments where they are a bigger share of hyperscalers than almost anybody. People are almost just waking up to that fact. I think investors need to remember that there are these trades globally but within that trade. I like emerging markets here, I like China tech.
- [35:48]
Kelly Evans
What will it take for China to get its mojo back?
- [35:52]
Tim Seymour
It's a combination of, I think first of all the rhetoric over the last couple days on the regulatory front has been beating up on some of the brokers and the trading platforms and kind of capital control scariness that I think has had something to do with the underperformance of some of these names and truly some technical dynamics of selling in some of those big names, that never helps. I do think the dynamic in terms of China supporting national champion mega cap tech companies. We are here. We are now. We know that some of the most important tech entrepreneurs in China are now on board with the government is they are all on the same team in a way that they weren't before. I think that's very interesting. I think second half 26 is going to show more resilience to the Chinese economy. There has been investment in consumption. It's not about building bridges and cities to nowhere. I think we're going to be surprised by a relative improvement in Chinese gdp. I think that macro is important.
- [36:44]
Kelly Evans
All right. And I think your call is important and I'm glad we could talk about it. Tim. Thanks very much, Tim. Seymour Coming up, a split in software. Snowflake having its best day ever after earnings last night, while Salesforce shares have barely budged despite a huge EPS beat. We'll look at why next.
- [37:04]
Podcast/Show Announcer
As America celebrates its 250th anniversary, CNBC spotlights the leaders driving business and the nation forward.
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Unnamed CNBC Narrator
The entrepreneurial spirit in the United States is our secret sauce. It's what makes us the great country we are. The DNA of entrepreneurialism was in this country at its founding. There had to be an entire new way of governing the country set up. And a bunch of really smart people got together and did in fact come up with the most sustainable and incredible democracy that anybody's ever known in the United States. There's a big tent for everybody. Everybody can come in and if you're motivated, want to put your head down, want to work hard, you can find a path for yourself in this country.
- [37:53]
Kelly Evans
It's the haves and the have nots in the software space today, as it has been in recent months. Seema Modi has more in today's tech check.
- [38:00]
Seema Modi
Seema Kelly here's what earnings season is basically teaching us. Companies like Snowflake that can demonstrate that they are partners to OpenAI and Anthropic, not competitors displaced by them are coming out ahead. That's what it did today, revealing its largest net new product revenue ad in company history. It saw a strong reception to its AI coding agent and also showed its willingness to pay up for cloud infrastructure. That $6 billion deal with Amazon Web Services. It will all also be using Amazon's custom chips. You're seeing the ST move vastly higher. Snowflake's blowout, by the way, follows competitor Datadog Strong report Akamai Tech more in the data infrastructure security space. They all saw big one day pops following earnings. Which tells us that software certainly isn't dead. But the market is becoming more discerning on which companies are getting bid up. Case in point, Salesforce seeing smaller gains today. A weaker Q2 Q2 guide overshadowing strong agent force numbers. Shares up just fractionally right now.
- [38:58]
Kelly Evans
Kelly, I mean we, I guess we could say at least they're green, they're slightly positive. But I'm sure they were looking for a bigger reaction there.
- [39:05]
Seema Modi
Absolutely. Especially when you see the 34% growth that snowflake is putting up on product revenue growth. Investors like to see that big acceleration in revenue, especially in this type of environment. So this is one sliver of software to keep a close eye on. Kelly. Snowflake Datadog and MongoDB Data Infrastructure.
- [39:24]
Kelly Evans
Right. And knowing Marc Benioff, he probably has a few more ideas up his sleeve if he's not getting the reaction he was looking for. Seema, thanks for now. Appreciate it. Seema Modi. Coming up, the SpaceX IPO has been fueling a bull market in the space trade. With The VanEck Space ETF up 20% in the past week. Our guest says his firm has been overwhelmed by institutional investors demanding to know more about the Space X ipo. He'll tell us what, what is getting their attention about it next. Welcome back. As we gear up for the hotly anticipated SpaceX IPO, the Nasdaq has created a new fast entry rule that lets new large cap companies into the NASDAQ 100 more quickly. Companies like SpaceX, the S&P, Dow Jones Indices and the FTSE Russell have also now launched similar rules to fast track listings. This has comes as SpaceX is looking to raise up to a record $80 billion next month. Our next guest says the sheer size of this IPO has generated a ton of buzz from institutional investors who are wondering how much it will impact markets. Peter Haynes is head of index and market structure research at TD Securities. Peter, welcome. It's good to have you here.
- [40:32]
Peter Haynes
Thanks very much.
- [40:33]
Kelly Evans
Let's start with the fast track rules. What do they allow specifically the index providers?
- [40:40]
Peter Haynes
What they need to do is to make sure that their benchmarks are properly representative of the universe of stocks. And when you see an IPO the size or proposed size of SpaceX and and ultimately will be a trillion dollar company in the benchmark, the benchmarks need to be reflective of those large cap names. So they need to find a way to get them in the index. As soon as practical, the index needs to be investable. So naturally that's not going to happen at the ipo, but sometime after that ipo. So what we're seeing amongst the index providers that you just mentioned is a plan to include SpaceX and other mega cap IPOs over certain size thresholds in the indices. Between five days the IPO is priced and 15 days. And that's I think, a fair balance between ensuring those indices. In particular, the names you mentioned are properly representative of the universe of securities, including these mega cap IPOs, but at the same time have traded for at least a few days in order for the price volatility off the IPO to normalize.
- [41:46]
Kelly Evans
Let me jump in here because I think there's a lot of questions and misunderstanding. I thought, and a lot of people think, and maybe this is a miss, this is incorrect, that one of the purposes of these rules that places like the S and P, I don't know what the NASDAQ 100 rules are specifically, was to make sure companies had reached certain financial benchmarks or governance kind of hurdles that they felt it was appropriate for them to join these blue chip indices. Is that the case?
- [42:16]
Peter Haynes
Case, yeah. There's only one major provider that has financial thresholds in terms of gaining access to the benchmark and that is S and P. For its system of the 500, the mid cap and the small cap 600, S&P has proposed as part of its mega cap rules to bypass or waive the profitability test that has historically existed, which required companies to be profitable in the past 12 months. They are going to waive that rule for mega cap IPOs and allow potential entry based on their current proposal, which has not been finalized at six months or be eligible at six months after the ipo. So you can see S and P is a bit of an outlier relative to the other benchmark providers who are making these changes much quicker.
- [43:04]
Kelly Evans
But I guess that I, I would say okay, if the idea behind this, and for years this has been an issue with companies who have wanted to gain entry to the S and P but had to wait until they were basically mature enough to have earned it based on real earnings and not just market cap. Market cap we can create out of thin air with enough hype. SpaceX has $19 billion in revenue, as I understand it, 25 or so billion dollars of losses. So it's in a net loss position. Why should it be fast tracked for entry? Why should its sheer existence force it into any of these indices?
- [43:36]
Peter Haynes
It's a tricky question. To answer. But the reality is the benchmark is supposed to be representative of a universe of stocks and not be judgmental with respect to whether A is profitable or what its future outlook is. In the case of S and P, they have maintained up until now policies that as you say, limit the access to the index to only profitable companies. The reality is once you're in an S and P benchmark, if you merged with an unprofitable company, you would remain. If you migrated from one bench, one, say the small cap to the large cap, you would remain. So there's already reasons without having to be profitable, I should say. So there's already ways in which you can be part of those indices and essentially bypass the rules. And so our view is that is that the profit test has passed its best before date and that benchmarks, the importance of the benchmark is to ensure that it's properly reflective of the universe of stocks. And so when these mega caps come along, and they are literally, in the case of SpaceX, potentially as big as the 10th biggest company in the US market by the time all the locked up shares are released, we need to get those, those securities into benchmarks to ensure those benchmarks remain properly representative.
- [44:51]
Kelly Evans
I guess, but I don't know if the goal is for them to be properly representative. I mean, if you want SpaceX, own SpaceX. If you want the S&P 500 made of profitable companies, own the S&P 500. I don't see why it has to be one or the other. But my other question, because Peter, your knowledge of this area is so good. On the question of governance, have they relaxed the rules there over the years as well? Was governance ever one of the issues that used to dictate who gets to belong to which benchmarks?
- [45:17]
Peter Haynes
Yes. In 2017, index providers started to look at rules regarding multi voted voting or classes of shares or companies that had more than one class of shares, one of which had more votes than the other. It was around the time of the SNAP IPO and each of the index providers went through a process, the major index providers, of determining whether or not it made sense to allow securities into benchmarks that don't or have limited voting rights over time. While there were rules in place and other proposals that existed over time, generally speaking, the index community pushed back and said, look, it's not the job of the index provider to be dealing with issues around governance. You hear the same thing with respect to exchanges and their policies for listings around governance.
- [46:04]
Kelly Evans
Great point. And the quick final seconds. And there's more to come on this. But my, my parting observation would be then why have these committees at all? If all they want to do is market cap and who cares about governance, who cares about profitability, then why are they even a bench, a gatekeeper? Can't this just be done automatically?
- [46:22]
Peter Haynes
Well, look, it's very important and I know you're, you're short on time, but it's very important that these index providers remain independent and that their benchmarks are managed with a process that is very easy to follow, easy to understand. I don't think you want to discount or take away the importance of having a third party, third party index provider. Even though it may be that you think that we're just talking about market cap as the test, there are still very significant nuances around how those rules need to be maintained. And that needs to be done by an independent third party.
- [46:52]
Kelly Evans
Come back. Let's do that. Maybe next week. Peter, this was great. Thank you. Peter Haynes from TV securities. That's it for the Exchange. I'll join Brian Sullivan next for Power Lunch right after this quick break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day. Day, same time, same place.
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Kelly Evans
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