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The Exchange
Tech Trashed and Rising Risks 7/23/26
00:44:26
Tech under pressure as oil prices climb and yields touch multi-year highs, on top of Alphabet hiking capex for the second quarter in a row, adding to AI spending concerns. And there could be more pain ahead, at least in the short-term, according to BTIG’s Jonathan Krinsky. Plus, one company’s pivot to pets.
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- [00:00]
Podcast Host Keith Lansford
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 Market Update podcast or find Schwab Market Update wherever you get your podcasts.
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Show Announcer
You're listening to the Exchange. Here's today's show
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Brian Kelly
and welcome to the Exchange. I am Brian Infert Kelly. Today big tech getting hit as Google slips and bond Yields rise. Every Mag 7 stock not very magnificent today. Tesla down more than 10% as Alphabet earnings get an F from investors. All this as oil prices keep moving higher, back above $100 a barrel. Overseas new attacks in the Red Sea spooking investors. How far does this go? Alima Croft is also how is the rural and suburban consumer really doing? Tractor supply shares a little higher today despite some big earnings misses. That CEO is here as well. We have got a big hour ahead. There's a lot to do. Welcome everybody. Let's begin though with the Iran war. It is now expanding beyond the Strait of Hormuz, hitting the entrance to the critical Red Sea. All on the twelfth night in a row of US Strikes. Let's get right now to Eamon Jabbers, ndc. From what we know at this hour.
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Eamon Javers
Eamon yeah Brian, and what a lot of folks are focusing on here is this social media post from the President. Take a look at it in this post he is threatening to expand the war to the Houthis in Yemen responding to their attacks on Saudi ships in the Red Sea. The President says if they do this again, the US Will hold Iran responsible in that the Houthis are a surrogate and or proxy of Iran and major military punishment will be inflicted upon Iran and and of course the Houthis themselves, who I am very disappointed with in that they have until now acted very professionally and Smart. So take a look at the map just to refresh everybody on where the Red Sea is in relation to the Strait of Hormuz. And what you see is this Bab el Mandab Strait at the southern end of the Red Sea there, just off the coast of Yemen. Yemen is where the Houthis are. The strait is where the Saudis are trying to get their oil through. You see the Strait of Hormuz to the north, east, east there of the Bab el Mandab Strait. That's been throttled by Iran, which of course borders it. The Houthis are a proxy force for the Iranians. And the question now is, what will all this do to the long term price of oil, given that we saw this spike overnight after all this talk began, the question militarily for the United States, Brian, is can it do anything to stop the Houthis from being able to close that strait? You know, you can go out the Suez Canal in the northern part of the Red Sea, but that adds a lot of complexity and time for oil shippers, particularly trying to get to Asia. And so militarily, the question is, the United States has hit the Houthis in Yemen before. Can they hit them again enough to keep that strait open? And that's an open question right now.
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Brian Kelly
Well, yeah, you can't go through the Suez with a ship that's over a certain size called a Suez, Max, for a specific reason. Eamon, you and I have talked about this in the past. Is there still an understanding of who exactly or not an understanding of who we are negotiating with in Iran? Again, not to belittle us. I've been talking about this for months. People I talk to suggest it's not still clear who is actually in charge of Iran, if indeed anybody or one party truly is. What do we actually know right now?
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Eamon Javers
Well, I think the US Knows a lot about who's in charge in Iran, and certainly they know who's been showing up to these, you know, on the ground negotiations where they've been physically talking to Iranians, you know, in hotel rooms and the like? The question is, which factions do those Iranians represent? And how powerful are each of the factions vis a vis each other? You know, are there people who want to come to some deal and others who are willing to fight on until the bitter end? I mean, I think that's a calculus that you're always making in intelligence, trying to figure out how much leeway against domestic politics do the leaders you're talking to actually have. And that's going to be a complicated question in a country where the leadership has been decapitated by the beginning of the war. And now you're seeing these power struggles emerge between people, you know, two and who had been two and three levels down in the leadership ranks before the war, now responsible for the fate of the country.
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Brian Kelly
Yeah, well said. Eamon jabbers in Washington, D.C. eamon, appreciate it. Thank you very much. So let's talk more about what all of this means for oil and energy and commodities. Crude oil here back above 90 bucks a barrel. Brent crude overseas above 100 bucks a barrel and even higher in some specific countries. With us again, Halima Croft, head of global commodity Strategy at RBC Capital Markets, also a CNBC contributor, put out a big new note on this very topic last night. How tight is the pressure point right now, Halima?
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Halima Croft
And they are now dealing with wars on multiple fronts, as you just mentioned, Brian, if you were trying to bypass Baba Mandeb, you have to go through Suez Canal and you cannot take a fully laden VLCC through that waterway. So we are starting to talk about the kind of no way out scenarios because of this new Red Sea unrest. What is unclear when we talk about the Red Sea are the Houthis seeking a better deal from the Saudis. Is all kicked off when an Iranian plane tried to land at the airport in Sanaa and the Saudis fired on that plane. The Houthis responded by firing into Saudi Arabia. So the question is what is the internal calculus of Houthi decision makers in terms of how far they want to push this? But we also have to look at what's happening in Russia as well. We've had over 100 tankers attack in the Black Sea in July and CPC has stopped Black Sea loading. So we're dealing with really rough waters on multiple fronts.
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Brian Kelly
Yeah. So this is a critical point that you're bringing up, which is of course why we have you on. We're going to talk about this little more in Power Lunch in the next hour as well. A lot of people, I understand it, don't realize what's going on around Russia. You've got obviously Iran and Hormuz. We know that Baba Mandeb, we're learning that a Turkish cargo ship, not oil but a cargo ship, got hit early this morning leaving a Russian port in the Black Sea. We want Ukraine to win the war. At the same time, it's raising risk, though, on shipping and shippers. How much, if at all is that, Halima? That sort of third wave, if you will, playing in to what is going on right now in the commodity markets,
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Halima Croft
I don't think it's getting enough attention. But, Brian, when you think about the tightness in the diesel market, I mean, Russia has now put a export ban on products and their refineries have been hit so aggressively by Ukraine. And Russia is one of the largest products exporters, one of the largest diesel exporters. So it's really tightening the products market as well as the crude market. And again, this administration on Washington, they're facing an everything everywhere all at once situation. And what is really concerning, Brian, we talk about Iranian retaliation. Who's in charge? If you are sitting in a neighboring Gulf country like Kuwait, for example, when we strike Iran, the Iranians respond by striking countries like Kuwait. They're hitting their power supplies, they're hitting their desalination facilities. And that's really important because so many of these Gulf countries are vitally dependent on desalination for clean water. So this war is really rapidly escalating on multiple fronts.
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Brian Kelly
But are those strikes on Kuwait, on the Qatari LNG factory, on some of the other allies in that region, are those strikes, I presume they're designed to try to use those countries to pressure the United States to come back to the negotiating table. Is that going to work, Halima, or is it going to enrage those countries enough that they say, you know what, Donald Trump, White House, United States have finished the job?
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Halima Croft
Yeah, no, I think that is a really big question mark right now, Brian, because we've heard from some leaders in the region that they were adamant before this latest way of violence that they were not going to pay any tolls. They wanted the situation resolved that Iran could not exercising control over Hormuz. So the question is, do the region, people in the region have different views of how this should end. Some are pushing the diplomatic track, some might be pushing the finish the job track at this point. And we don't know where President Trump is going to come down on this. At one point he says he wants to, he might escalate. Then he says the Iranians want to negotiate. So we simply don't know how this is going to end. But again, it's rapidly escalating on multiple fronts. And I would pay very close attention to the water situation.
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Brian Kelly
Yeah. What is the exit here, Halima? It feels like we're getting to a point where two guys, the playground, they're threatening to fight. They've been kind of fighting. It's either they're either going to have to shake hands and walk away or it's going to escalate.
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Halima Croft
I mean, Brian, the question is what does a deal actually look like at this point? Like how can we get back to a situation where we can talk about, you know, getting ships moving through the Strait of Hormuz? One of the challenges Bread's Brian, right now is the Iranians are adamant that this ends with them in charge of the Strait of Hormuz. And for now, Washington is saying that's unacceptable.
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Brian Kelly
Alima Croft, RBC Capital Markets feels like the pressure points next couple of days are going to be critical. Alima, thank you very much. All right. So folks, that oil and other commodities spike is just what's part of pressuring the markets today. Also not helping rising yields, the 10 year bond yield hitting its highest level since January of last year, 4.7%. What does this all mean? Let's talk about it. Joining us now, Mike Dixon. He is head of research at Horizon Investments here on set at CNBC hq. Peter Bookfar, chief investment officer at one point BFG Wealth Partners. Also like Kalima, a CNBC contributor, we just keep going up. Peter, 4.5, 4.6, 4.75 to me would seem like the next stop. Can this stock market handle a 5% yield on the 10 year?
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Peter Bookfar
No, I don't think that would be an unscathed situation. And maybe today is the first sign where the current level and higher is what bothers the equity market because it's always very difficult to say, okay, at what level yield the stocks care. You don't really know until you see it. But maybe today is one of those days. And importantly also, it's not just a rising US yields, the China, the Japanese 10 year, near a 30 year high.
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Brian Kelly
I know it's not just it's a global issue on the United States.
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Peter Bookfar
But either way, it doesn't it doesn't
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Brian Kelly
make it worse in some ways because there is no haven then for the markets to look at. Mike, I'm going to ask you the same question. Do you think this stock market, given all the borrowing around I, given everything else can handle a 5% assuming we get it 10 year?
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Mike Dixon
Well, that is certainly a little bit higher than where we are today. But one of the biggest things I think that, you know is a surprise this year is not that, you know, yields are higher. It's that earnings have been able to handle the higher level of yields. And a good portion of, you know, the increase in yields we have this year is due to stronger real underlying economic activity and that's showing up in earnings. This level of yields are around this last year firmly met restrictive policy. This year the market is kind of repricing exactly what restrictive is. So I do think the very strong earnings backdrop that we have and really can activity can do a pretty good job of offsetting the higher level of yields that we're sitting with now, you know, in the market.
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Brian Kelly
But don't Mike, bond yields, borrowing costs, they do in some way impact earnings, do they not?
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Mike Dixon
They do, absolutely. But you know, you've got a couple of different themes this year going on, right? You've got a lot of the spending out there which you know is impacting productivity or at least the expectation of that. You have oil that's creating uncertainty around inflation. And we have the bond market trying to figure out which one of these two forces is winning. And thus far this year, the overwhelming force that has been winning has been earnings. And that can be seen with a lot of the earnings surprises. The market price is just where it is, you know, but really the next phase and what we need to look at as we go for the second half of the year, you know, is, is is this AI not just turning into revenue growth for memory names and you know, the SK Hynix and Sanders of the world that are actually up today, but actual real productivity in the market.
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Brian Kelly
I Peter, listen, I know that Alphabet and Microsoft, they're not borrowing at 4.7%. It's way cheaper than that because they've got balance sheets that are respectfully probably better than the United States government, although they lack the printing press. That aside, a lot of the other stuff around the buildout does rely on borrowed money. That's not coming from some of these so called hyperscalers. To me, that's what I worry about is that level of borrowing where people say, you know what, I was going to build this, but now I'm not. Because borrowing costs have gotten expensive. And once we start to see that, assuming we do, I'm not saying we will, that's where you start to get the trouble for the equity markets. Yes or no?
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Peter Bookfar
Yes. And I want to add to that because the multiple that an investor is willing to pay for an asset a lot of times has to do with interest rates. So not only can you have a slowing impact from the higher rates, you're going to also pay a lower multiple on that slowed earnings trajectory. So that's where it gets complicated. Yes, the big companies, it doesn't matter, they're spending what they're going to spend on building out this AI but it's not just the rise in the cost of capital, which mostly affects small business. It's the rise in the cost of doing business. Generally speaking, pie is running 200 basis points above CPI. So it's not just interest rates.
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Brian Kelly
Super price index, 2% above producer price index.
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Peter Bookfar
No, producer prices are 200 basis points above.
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Frank Holland
Okay.
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Brian Kelly
Producer price is 2% above consumer. What does that tell you?
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Peter Bookfar
Why, why are we bringing that pressures broadly? Cost of capital, the cost of raw materials, the cost of labor, the cost of rent. It just adds to sort of the inflationary pain point that the economy is feeling.
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Brian Kelly
Yeah. And I just wonder, Mike Dixon, as we look out to next Wednesday with the Federal Reserve meeting, Kelly and I will be in D.C. for that meeting as well. What Kevin Warsh and his team can do about what Peter just talked about. I mean, I guess you could raise rates to the point where you tried to slow the economy down, but a lot of the inflation that we're talking about is not coming from necessarily an overheated economy, is it? It's coming from a war overseas.
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Mike Dixon
Yeah. And you know, that's the challenge. You know, it kind of goes back to the tariff conversations last year. Right. Is this just kind of a one step up increase in prices or is this more of a persistent thing because you know, the market is not necessarily going be bothered by a higher level of rates. The market is bothered by a higher level of rates that becomes restrictive for growth. And that's what we're really trying to figure out right now as we look out to next week. You know, I do think looking back at the last meeting, a lot of the comments that we got from Wash around the task forces really gives the Fed an opportunity to be patient as long as the incoming economic data on the inflation side allows for this. But you know, there is one wild card I'll throw out for next week. You know, you know, WASH is new in the seat and if you look at Power Yellen, they would have never have raised rates in this environment. So look, there is a wild card that he might come out and try to make a statement though. The market currently has that at less than a coin flip. But you know, the more of these meetings we'll get to see how he.
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Brian Kelly
Mike, I would add to that. Peter, let's keep that chart up because I want to bring a point on that chart. He said Jay Powell wouldn't raise rates that environment. Well, Jay Powell actually cut rates in an inflationary environment two years ago, sort of bizarrely. I still don't understand that one. But that's I guess in the past, we forget it. The one upside is that look at those charts. And if you're on the radio, folks, both charts are starting to turn down. They went up and they're starting to turn down. Are you? I guess inspired by that small trend of a downturn in inflation.
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Peter Bookfar
Well, that chart is before oil prices went to $92 a barrel.
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Brian Kelly
Fair. So oil prices tomorrow could be $80. Exactly.
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Peter Bookfar
And that.
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Frank Holland
Exactly.
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Peter Bookfar
And that's why Jay Powell is not going to do anything next week. Or wash. Did I say Japan? Yeah, Wash. Because there too. Yeah, he is. Because if wash. Let's just say he hikes and then the next day there's another mou and well, goes back to 75. He's like, why did I just hike?
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Brian Kelly
Yeah.
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Peter Bookfar
So until there is clarity on Iran, which there may not be, he's stuck just sitting there watching as a spectator.
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Brian Kelly
And this is a critical point. We'll leave it there because there's going to be a pressure point where China and others, Pakistan, India, they start to get involved in the negotiations. Say, guys, we need to find a solution because their economies are going to be hit a lot more than our economies here tomorrow. Oil could be 85 or oil could be 105. I would just say tune in to CNBC tomorrow. But also Peter, Mike, thank you both very much. Do appreciate that. All right. On Alphabet saying it's going to spend even more money on AI, but is that really what the street wanted to hear? We'll give you some of the numbers to know next. With shares of Alphabet having their worst day in over a year plus, do we call this momo? No Mo. While one technician is fading the momentum. Trade.
- [18:25]
Podcast Host Keith Lansford
This is the exchange on cnbc.
- [18:31]
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- [19:25]
Podcast Host Keith Lansford
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 Market Update podcast or find Schwab Market Update wherever you get your podcasts.
- [19:54]
Brian Kelly
All right, welcome back to the Exchange. Alphabet, the parent company of Google, having its worst day in nearly three years after saying it's going to spend even more money on its AI ambitions. Still, let's remember context is key. Alphabet, the best performing Magnificent Seven stock over the past year, up about 66%. Let's bring in Mackenzie Sagalo is covering this story and I bring that last point up because Alphabet's not having a good day today. We know that, Mac, but it's had a pretty darn good year.
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Mackenzie Sagalos
And you saw that show up in the print, right? So you've got Alphabet. Yes, it is spending a lot more money on its AI data centers, up to $205 billion this year, flipping free cash flow negative in Q2 and using debt and equity sales to fund this buildout, signaling another significant increase next year. But it really paid off in the numbers. Now I was looking at the street notes this morning. They are modeling a dramatic step up from here. Piper Sandler sees 2027 capex at 320 billion. JP Morgan's at 378 billion in 2027. And that wide range really shows how little visibility investors have into where spending ultimately settles. Now part of what's driving Alphabet shares lower today is that uncertainty. But Brian, this is not just an inflationary adjustment. JP Morgan says Alphabet's accelerating the actual build out of data center capacity, a much more constructive reason for spending to rise in component costs alone and on nearly every operating measure tied to the return on that investment. Alphabet delivered cloud revenue and backlog surging 82% year over year, token use jumping 40% sequentially. And they disclosed $811 billion in future cloud commitments, which is all clear evidence that demand is there. Now what I will say is that Google builds more. As Google is building more of its own capacity, it is now having to lean on third party compute that pressures margins near term, but it does let the company keep serving demand until more of its workloads can move in house. Google Cloud chief Thomas Currian arguing earlier on our air that the economics still
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Brian Kelly
work when we win a customer, they
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Jonathan Krinski
stay with us for many, many years.
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Brian Kelly
And the margins that we get from
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Jonathan Krinski
them compounds over time as they increase their spend. They're spending roughly 50% more than the commitment.
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Mackenzie Sagalos
Alphabet showed it can generate the demand. And many of the street notes this morning called the sell off overblown, said it was a good time to buy. Brian?
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Brian Kelly
Okay, it's one data point. It's a big data point, but it's one data point. What does this mean potentially for all the big hyperscalers that are reporting their earnings next week?
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Mackenzie Sagalos
Going into this print, we were talking about Alphabet as the ideal litmus test for how investors would respond to another step up in capex. The stock reaction in Google shares is it, it's a tough setup, right, for Microsoft Matter and Amazon, all of which are reporting next week. Amazon, which is the biggest cloud player, erased $100 billion from its market cap today alone. And keep in mind, Alphabet was the one best positioned to raise capex. It has one of the strongest balance sheets in tech, a highly profitable search business, and control over its models, chips and infrastructure. That whole vertical stack sells. So if investors are not willing to look past a spending increase after an 82% cloud quarter, the rest of the group, the rest of that hyperscaler group could face even greater scrutiny over their own spending plans.
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Brian Kelly
All right, good stuff. Mackenzie Sagalos in San Francisco, thank you very much. All right, your next guest says despite increased capital spending, Alphabet still best positioned in AI for the long term and he's putting his money where his mouth is, adding Alphabet to his best ideas list. Joining us now is Eagle Rooney and he is a managing director of Equity research at Wedbush Securities. Eagle, thanks for coming on. I feel like with Alphabet today because that big run over the last year that we just referred to, it's like spending more bad, but if they cut their spending, that might be worse. What were investors actually looking for?
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Igal Arunian
Yeah, thanks so much for having me. And honestly, I think Mackenzie did part of my job here for me. I mean, on your question, it's really about striking the right balance right now. I don't think anyone's hoping for capex cuts or spend to go down, right? If Google is pulling back spend, we know, or if Alphabet is pulling back spend, we know that their, their cloud competitors are not going to be doing that. There is a right balance.
- [24:21]
Brian Kelly
I would imagine that would be far worse if Google, if Alphabet came out today and said we're going to cut our capital spending on AI, I think that stock is down a lot more than 5% what do you think?
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Igal Arunian
Absolutely. I think that will be a big red flag and there'll be a lot of questions around capacity overbuild and roic. You know, management talked about Sundar said that they are more confident today on their R O I see. And what they're spending even though they're spending more than they were a year ago. So they see themselves in a really good spot here. Demand remains really strong and I think those are the things to focus on right now.
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Brian Kelly
So what is there like a Goldilocks scenario with capital spending? The porridge, the AI spending level you go is just right for investors or is today and we always listen, we're cnbc. We need to find a, a reason why things are happening. But after a 66% gain, maybe the entire tech space, Alphabet included, was just ready for a bit of a pullback.
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Igal Arunian
Yeah, I think we've seen that around the market a little bit. But this is, this is a difficult question for investors to grapple with. Right. You are seeing significant spend upfront to recoup gains in a year or two and set themselves up for this. Meanwhile it's a, it's a pretty competitive environment. Right. You're seeing the other clouds do it. You have the other frontier model companies that are building out their models so that management got a lot of questions on the earnings call about their model progress and how, how they're competing there. Our view is that Google is just really well positioned on this end to end stack. They have, they have the models, they have the chips, they have, they have the cloud business and they're monetizing really well. And search has been a phenomenal business. It was in line with expectations in 2Q but we're seeing the AI experience on search make it, give it a bigger moat.
- [26:14]
Mike Dixon
Right.
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Igal Arunian
And that wasn't what the expectation was a year ago.
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Brian Kelly
I guess the one investor question that I keep hearing or keep reading egal around not just Alphabet but any of these big spenders is will they ever make the money back? You said return on invested capital ROIC.
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Peter Bookfar
Right.
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Brian Kelly
Like 20 bucks a month for me. Maybe the enterprise side for you. It's real money. They're making tens of billions, but they're spending hundreds of billions. Do we know when they're ever going to make that money back? Because if there's a day where they realize they may not, that's when you're going to get the spending cut.
- [26:52]
Igal Arunian
Right. And that's exactly the question. And you know we flow dip to negative really for the first time since the early teens at least. Right. And so I think that's a number that maybe kind of spooked people as well. Even though I think that's sort of where expectations were. We knew this was coming. But Google Alphabet is positioned well here. I think they are already monetizing some of this.
- [27:19]
Hal Lawton
Right.
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Igal Arunian
You're seeing, you're seeing the strong growth in cloud 82% up from low 60s in 1Q. So sequentially stronger. They're starting to sell their TPU chips. That's going to become a much bigger factor next year. They're bringing on capacity that, that can help them accelerate that growth or keep that growth going on longer. In the cloud business, meanwhile, search again is growing well. It's monetizing really well. It's building a better ecosystem. And so they are monetizing, they're monetizing on multiple fronts. And I think that's why Google is well positioned here. You have to see over time the capex start to moderate and let the revenue catch up for the free cash flow to become positive again. And that's the balance search.
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Brian Kelly
I know it's on your best ideas list. So you obviously are recommending the stock to your, to your customers. Is search still doing well? Because for example, real world example, a couple of days ago I was in Milwaukee, Wisconsin. Love Milwaukee. Usually go to a place called Cops. It's a local burger shop. Want to try something new? Normally I might go to Google search and say, where am I going? You can go to Gemini, do the same thing. Are they making the same money off that Gemini search that they might off a, I guess more traditional Google type search.
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Igal Arunian
So they didn't specifically call that out this quarter. Last quarter they did say that, that there was no monetization degradation. So there's no cannibalization on the monetization side as they're rolling this out. They did talk about this quarter though, that they are adding new new ad products to, to AI overviews and an AI mode.
- [28:58]
Brian Kelly
Right.
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Igal Arunian
So, so, so they're seeing new, new, new, new new ad surfaces there, which is a positive. And then the other thing management talked about was that AI is helping them monetize search better, also monetize queries that previously were too difficult to sort of capture the right context on. And AI has been, been a factor there too. So they are monetizing better and this is just, really just the beginning.
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Brian Kelly
Right.
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Igal Arunian
We think about things like agenda commerce and building that out. There's still a long opportunity and I think the search experience has continued to get stronger all right.
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Brian Kelly
Well, we'll leave most that big thinking to you because I don't fully understand all this, but I love learning about it. Igal Arunian with Wedbush. Really appreciate it, Igal. Thank you.
- [29:43]
Igal Arunian
Thanks for having me.
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Brian Kelly
All right, coming up, Tractor Supply, the retailer slashing its full year forecast and withdrawing its long term financial framework. We'll talk to the CEO about why they did that and their turnaround plan as well. All that's ahead. Markets are down a bit. Oil's up. We're back right after this.
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Trading at Schwab is now powered by Ameritrade. Unlocking the power of thinkorswim, the award winning trading platforms loaded with features that let you dive deeper into the market. Visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools all while you uncover new opportunities with up to the minute market news and insights. ThinkOrSwim is available on desktop, web and mobile to meet you where you are. It's built by the trading obsessed to help you trade brilliantly. Learn more@schwab.com trading.
- [31:35]
Frank Holland
Welcome back to the Exchange. I am Frank Holland with your CNBC news update. The Department of Justice said it will fast track merger review process, enabling companies to face less antitrust red tape. Under that change, the DOJ will reduce the amount of information the companies must initially turn over. The Department will first seek documents covering the most glaring risk of the transaction and then ask for more information if it is warranted. Secretary Mark Wayne Mullen has faced growing tension with the White House since taking over the Department of Homeland Security four months ago. One reason, according to NBC News, is that Mullen directed ICE officers to pause traffic stops last week without White House approval. An administration official called it 100% a bad move and President Trump reversed that policy the next day and telecom companies operating in India have complied with a government order to disable mobile data services in central parts of Delhi where youth protests have been taking place. That's according to Reuters. Protests have been happening in central Delhi since last month demanding that India's education minister resigns. Brian, back over to you.
- [32:34]
Brian Kelly
All right, Frank, thank you very much. All right, still ahead, from momentum to no mental why one technician is beginning to see signs of a slowdown in some of the high flying parts of this market. All right, welcome back. Fair to say that at least today in the last couple of days, the momentum trade losing a bit of momentum. Big tech getting sold today as bond yields continue to move higher. But what are the charts saying? Jonathan Krinski is chief market technician at BTIG and joins us now. Yeah, I mean Jonathan, listen, tell us about the charts because every little pullback that we have seen in this market the last couple of years has been a pretty quick buying opportunity.
- [33:21]
Jonathan Krinski
Hey Brian, look, I think when we're talking about the broad S&P 500, I think we're seeing a lot of signs that are analogous to about two years ago, that late July, early August period that would be about a 10% drawdown. The S and P kind of gets you back to the 200 day moving average. And to your point, I mean it probably would be a buying opportunity. But I think for the here now we're not, you know, we're certainly not there yet and we still see some further unwind risk, particularly in, you know, the high beta momentum parts of the market vis a vis the semis and AI sector.
- [33:49]
Brian Kelly
How much? Any idea of how much of a potential unwind we may have, Jonathan?
- [33:55]
Jonathan Krinski
So if we're looking at the semis in particular, we've seen a decent pullback off the highs. They're kind of trying to reclaim their 50 day moving averages. We think they fail there and ultimately move lower to test the 200 day moving averages on a lot of the semis, which is anywhere from 15 to 25% downside depending on what group of semis you're looking at.
- [34:13]
Brian Kelly
Yeah, and it sounds like the semis. I know you put this in your latest note as well. They're kind of the group to focus on right now. We're looking at a chart right now that's a 3x leverage chart. So I mean that's for the higher risk traders that are out there. But that chart, to my untrained eye, Jonathan doesn't look great.
- [34:30]
Jonathan Krinski
Yeah, I mean we've been saying for a while now that Parabolic moves tend to end in equal and opposite fashion and. Right. And so if we think about when the kind of parabolic nature of the semi started, it was probably late April, early May. And so we're, you know, we're getting into that top end of that zone, but we think there's a bit more to go on the downside. And then the other side of the coin is we continue to have this bifurcation where the hyperscalers or the spenders are being punished like we're seeing today, and the receivers are being rewarded. And we have to wonder how long can that relationship go? How much pain can these hyperscalers take before the market, either they decide to pull back Capex or the market forces them to do so.
- [35:10]
Brian Kelly
Well, do we know if the overall stock market, like the S&P 500 or the NASDAQ composite, could it survive if the hyperscalers and the semiconductors pull back? I mean, aren't they sort of the entire market?
- [35:26]
Jonathan Krinski
Yeah, probably. Probably not. And I think that's one of the reasons we, we do see higher risk unfolding. If you look at correlations, they're at all time lows. You know, we've had this kind of offset throughout the last couple of months where one group of stocks does well, the other does not. And I think we're starting to see correlations rise a little bit. Obviously the move in interest rates and crude oil is hurting the broadening trade. And so, yeah, I think if you were to see hyperscalers and semis move down together and not much offset from lower market cap groups, it would be a pretty tough sled for the S
- [35:57]
Brian Kelly
and P. Is it pretty tough right now to try to chart crude oil, Jonathan? Because it's moving on headlines. I mean, you get a ship that gets attacked, oil goes up, you get talk of peace, oil goes down. How hard is it to try to figure out where the price of oil may be going?
- [36:13]
Jonathan Krinski
Yeah, look, I think on any given day you're liable to a headline that could, could move it up or down pretty significantly like you said. But I think what's important is if we look at, you know, Brent, for instance, you know, $95 to $100 was pretty key resistance. And so the fact that it, you know, for now is surpassing that does open the door in our work kind of to the 110 area for, for, for Brent and probably towards that hundred dollars for wti. But you know, again, it's. Crude oil is just one little part of the overall market. But I think if we look at real rates which are impacted by crude. Those are moving to the highest level since 2008. And by the way, we have a Fed meeting next week. We now have 36 to 38% odds of a Fed hike. So you can decide whether or not that's likely to be the case. But I think as long as there's decent odds of a Fed hike, that's also going to keep a lid on things for now.
- [37:03]
Brian Kelly
Yeah, 1/3 chance of a potential rate hike at the meeting. I mean I don't think there's a couple people out there on the street that maybe called that about a month ago. Now the odds are rising. Jonathan Krinski, btig. Jonathan, appreciate it. Thank you very much.
- [37:18]
Jonathan Krinski
Thanks, Brian.
- [37:18]
Brian Kelly
All right, we are not done yet. Coming up, intel that stock up more than 50% since its last earnings. What would keep that momentum going? Christina P. Will be here to tell you next. And we talked a lot about the spike and oil but it's not just the only commodity that is higher. What about some food prices? We'll talk more about things you aren't hearing elsewhere. Rice and wheat, things that go into a lot, their prices are way up. That is impacting consumers and grocers. Albertsons cutting its sales and profit forecast today citing a more cautious consumer. Albertsons heading a new 52 week low. We'll talk more about all of this and the consumer with the CEO of Tractor Supply coming up. All right, welcome back. Intel shares, they are down right now about 2.3% ahead of this afternoon's results. Semiconductors, the entire group selling off more broadly now. Intel wowed the street last quarter. The question will be tonight, can it do it again? Christina Parts and Evolis in today's tech
- [38:25]
Show Announcer
check, intel investors should have the ideal set up. To your point, Brian, PC sales I have to point out are going to be expected to be weak. But server prices keep climbing on booming agentic CPU demand, central processing unit demand. So data centers are essentially picking up the slack. A scenario though that is highly expected from the street and most likely already priced in. Supply is only getting tighter across the board. We hear it from memory and now CPUs Reuters reporting intel and AMD are locking Chinese server customers into long term deals just as prices continue to climb with intel lead times out to six months on certain parts. There are also rumors intel wants a joint venture partner for its Ohio Fab with SK Hynix among the names floated. Intel didn't deny it when I asked saying only that it remains quote committed to Ohio. But enthusiasm for chips, semiconductors is cooling as investors really question how long this level of AI spending can actually hold up. Examples Texas Instruments beat and guided higher last night. You still saw shares fall yesterday and today. STM also last night tsmc, asml, Samsung, albeit strong earnings reports, all traded lower. Intel is up 174% year to date and it's gotten pretty expensive. 172 now it trades at roughly 94 times forward earnings, an extreme premium to AMD and Nvidia and much higher than Intel's 10 year average that you're seeing on your screen. So intel can deliver exactly what this street expects and the stock could still sell off. Foundry would break that pattern. A name outside customer or outside of the foundry is one that nobody has priced in right now. So if they announce some big name tomorrow that could move the stock tonight, I should say.
- [40:11]
Brian Kelly
What time can we expect all this action tonight?
- [40:13]
Show Announcer
Christina, 4:05pm Eastern as usual.
- [40:16]
Brian Kelly
Can you be more specific? Christina Parts novelist, thank you very much.
- [40:21]
Mike Dixon
All right.
- [40:22]
Brian Kelly
Coming up, Tractors Supply reported disappointing earnings. It missed on sales and it lowered guidance. But guess what, the street at least compared to the rest of the market is taking it in stride. So what exactly is going on? CEO How Lott will tell you next. All right, welcome back. Let's talk more about the American consumer, particularly those in more rural and suburban areas because Tractor supplies a huge presence in many of those markets. Now that stock is a little bit higher today in a down tape overall despite missing Wall Street's expected earnings. Company also lowered guidance and pulled its long term financial framework. Tractor Supply saying that weakness due to a slowdown in seasonal and discretionary sales shares, like we said, a little bit higher right now but have had a rough year. Let's talk about all of what's going on. We're joined by Hal Laudna is the CEO of Tractor Supply. How it's good to have you on the CNBC exclusive pulling the financial framework. How hard is it for you and your team to forecast any kind of guidance right now?
- [41:31]
Hal Lawton
Hey Brian, thanks for having me on the show today. And first thing I'd like to do is just give a shout out to our 54,000 plus team members who wake up every day to serve our customers and take care of each other. I would say in the short term we had certainly a volatile Q2 and collectively over the first half the conditions that we operated in were weaker than what we anticipated at the beginning of the year. On the flip side, as you look at Q2, if you looked at it from an Optimist perspective. We had positive comps in April and positive comps in June with the real divot that impacted our business in the month of May due to a number of exceptional circumstances. We also commented today that July, which has our highest two year stack, is on track for us and meeting our expectations perhaps slightly ahead. So that was kind of one set of things we talked about today in the context of our sales. But more importantly what we talked about was the actions we're taking to drive near term performance in our business and also to challenge some of the current strategic assumptions we had based on an environment that we assumed. And so as we think about 2027, beyond what tweaks are we making?
- [42:43]
Brian Kelly
What assumptions are you challenging? How.
- [42:47]
Hal Lawton
Yes. So first on the near term it's really around re accelerating our pet business and driving more price and value impression in the marketpl. And we've been very pleased with the actions that we're taking on those two fronts over the last 90 to 100 days. And then more broadly as we step back and look at our strategic assumptions, we're doing some work on that right now. We shared an update on some of that work today with our investors and that included shutting down 75 pet cent stores. It included stepping back a bit from our new store growth for next year and then reallocating that capital into some initiatives that we're seeing significant value creation in particularly our final mile delivery program as well as investment our existing stores through through our Project Fusion remodel program.
- [43:31]
Brian Kelly
When you say delivery, I think about Amazon. They've said they want to get more into your markets, more of these rural markets. How is that happening? Any sense that Amazon is trying to encroach on your turf?
- [43:43]
Hal Lawton
You know, the first thing is say is we face a, you know, a wide variety of competition both from a brick and mortar perspective as well as online. Being a lifestyle retailer, you opened yourself up to all types of competitors. What I would say from our delivery program, we are building our delivery program from a position of strength. Our core customer is a hobby farmer and a Big Barn owner. And they, the Big Barn owner in particular has shopped us in a convenience way over the last 20, 30 years, but not in really a stock up way. And that's what our final mile delivery program is really unlocking. It's allowing us to deliver big bulky multi pallet orders to these Big Barn and equine facilities. The Big Barn customer was our largest growth customer segment in Q2, our largest growth segment in Q in the first half. There is Significant share for us to go take with that customer. So we're building our delivery program to be differentiated and against a position of strength. We certainly have that free shipping, one day kind of two day sort of delivery offering from our stores. And we have a variety of kind of same day 12 hour offerings with DoorDash and Instacart as gig providers for us. But our core focus on delivery is operating it from a position of strength, of track spy, leveraging our scale and consumables and our position with our large hobby farmer and big bar owners.
- [45:02]
Brian Kelly
Gas prices going up again? Oil prices going up again. How a lot of people may drive a long way to get to one of your stores. How impacted, if at all, are your customers to the price of gasoline?
- [45:16]
Hal Lawton
You know, I think all customers are sensitive to the price of gasoline. Particularly when oil goes above 100 and you start to see gasoline prices hit $455. That sends shocks, I think through all of retail. You saw that in the month of May with retail sales where gas station sales were up 20 over 25%. When that happens, consumers have to reprioritize their spend. That is what we saw in the month of May. And what we'd say since then is our consumers have figured it out. They found some resiliency in their spin. We, as I mentioned, we had strong comps in the month of June and we continue to be very pleased with the month of July with just a few days left to go.
- [45:55]
Brian Kelly
Did you notice when gas prices went up, you know, 50 cents a gallon, a buck a gallon? Do you notice that in the average check when people check out, they just complain about it but spend the same?
- [46:10]
Hal Lawton
We very much saw it in Q2 in the month of May. Gas prices spiked in the second, that was their high point was the second week of May and that's when we saw our lowest transactions in the store. It dominantly impacted our big ticket and discretionary businesses. Tractor supply is the grocery store for pets and animals. Consumable, usable and edible products are about 45% of our business. Animal feed, dog food, chicken feed, forage, things like lubricants for tractors. Those businesses continue to perform well through the month of May. People take care of their animals, take care of their pets and take care of their property. But some of those discretionary purchases they did pull back and we talked about that in our call.
- [46:48]
Brian Kelly
Yeah, by the way, take care of your pets, right? Everybody should take care. My dogs, I think eat better than I do. But guess what goes into dog food. A lot of the products that are also higher, rice, wheat, some of the stuff that gets put into a lot of the stuff that you might sell indirectly. We just showed those commodities up as well. How, how much inflationary pressure are you seeing?
- [47:08]
Hal Lawton
You know, start with, I think all retailers are seeing freight pressure in their business and that's been well documented, you know, kind of in the retail industry over the last 4560 days. As we've seen the freight pressure go up, all retailers move a lot of goods similarly. So do we. I think the way all retailers are playing it this year is we've all, many of us are importers of record. We're able to leverage those tariff refunds to offset the freight costs we're seeing. And that's kind of the, the game that all retailers are playing this year.
- [47:39]
Brian Kelly
All right, well, the music tells me we're out of time. Hal could keep talking, but they're going to cut us. Hal Lawton, Thanks Brian, CEO of Tractor Supply. Thank you very much folks. Thank you for watching the Exchange. I will join contestant Brewer on the other side of the this short break of power lunch.
- [47:55]
Show Announcer
You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [48:02]
Q
Trading at Schwab is now powered by Ameritrade. Unlocking the power of thinkorswim. The award winning trading platforms loaded with features that let you dive deeper into the market. Visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools all while you uncover new opportunities with up to the minute market news and insights. ThinkOrSwim is available on desktop, web and mobile to meet you where you are. It's built by the trading obsessed to help you trade brilliantly. Learn more@schwab.com trading.