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The $1T Club, Cyber the New Semi & A Potential Rate Hike 5/27/26
00:46:39
SK Hynix joins Micron as the latest member of the $1 trillion club, but is bigger always better? Cyber security ETF BUG up 37% over the past two months. Could cyber stocks be the new semis play? And the odds of a rate hike are climbing, but could the market be getting ahead of itself?
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- [00:00]
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.
- [00:29]
AT&T Business Wireless Advertiser
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- [00:52]
Keith Lansford
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- [00:59]
Kelly Evans
You're listening to the Exchange. Here's today's show. Thank you very much, Scott. The Trillionaire Club gets a new member. Is Cyber the new semi play? And is a rate cut still on the table? I'm Kelly Evans and welcome to the Exchange. All of that's ahead of us. The Dow and the Russell are hitting new highs today, with the S and P and Nasdaq not far behind. Interestingly, today it's Discretionary and Staples leading the gains. Haven't said that in a very long time. Those could Consumer focused stocks are rallying as oil briefly falls or is now below $90 a barrel. Right now as a 4% drop, it's down 8% in the past week. Gasoline prices are down 10 cents a gallon. We'll have more on that in a bit. But let's begin with the freshest members of the trillion dollar club. Two memory stocks, Micron and SK Hynix, hitting that threshold as of yesterday. Our next guest has a more cautionary take on the memory trade. He says bigger isn't necessarily better. Joining us for our opening exchange is Gene Munster. He's managing partner at Deepwater Asset Management. And Gene, you should know we've got Vivek Arya right behind you to perhaps argue the other side of this and explain why their total addressable market is bigger.
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Kate Rooney
Now.
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Kelly Evans
We heard similar from Gil Laurier yesterday. He said we have to just look at the numbers, follow the growth. What are you seeing that makes you less bullish?
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Gene Munster
Well, Kelly, I want to start with I am broadly bullish on where these trades can go. I think that these stocks still have room to go. If you believe that we're in the second inning of this transformation, which I in fact believe were there. My concern is more about just the law of large numbers and what we've seen with in video more recently, these spectacular improvements in numbers.
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Kelly Evans
Hold that thought for one second. President's been in the middle of a Cabinet meeting. We're going to dip in right now. This might be relevant to the audience. Here's the President. Would you be comfortable with Russia or China taking their stockpile of highly enriched uranium?
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Seema Modi
And have they offered to do that?
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President Donald Trump
No, I wouldn't be comfortable. That would not make me comfortable.
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Kate Rooney
Is the US Considering easing sanctions on
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Kelly Evans
Iran to allow Iran to sell its crew to market?
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President Donald Trump
No, we're not talking about any easing of sanctions. Giving money. No sanctions, no money, no nothing. We have control of money that they claim is theirs. We'll keep control of that money when they behave properly and when they do what's right, we'll let them have their money. But right now we're not doing that. And it's not one thing is not contingent on the other.
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Reporter at Cabinet Meeting
Mr. President, on the shooting last weekend. It came barely a month after the third assassination attempt against you during the White House Correspondents Dinner. What was your reaction when you first heard about the latest shooting? And what gives you the courage to really keep doing your job effectively without thinking about these threats every day?
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President Donald Trump
Well, I can't think about it because if I thought about it a lot, you know, I wouldn't be a very good president. I wouldn't be here, probably I'd be up in some room with a locked door and said, just leave me alone. So I can't really think about it. If it says something that it's a sad part of life. It's a dangerous business. What I'm doing is a dangerous business. And they say, and look, we have been maybe the most consequential, but we certainly have been one of the most consequential. This group has been a very consequential administration. And they say if you're not consequential, you don't have so much problem. If you are consequential, you do. So you have to look at that. But, but it's a shame. It's a sad, it's a, it's a very sad fact of life. Look, anybody in office, not only in this country, in other countries too, but when you are a consequential president, your life is in grave danger. I knew that.
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Kelly Evans
Mr. President, how would you characterize the current state of the talks with Iran? I guess if it were a football field, what Yard line, would you be on?
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President Donald Trump
Well, I think we're doing very well. They are starting to give us the things that they have to give us. And if they do, that's great. And if they won't, then the man on my left is going to finish them off.
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Gene Munster
Is there a time frame in your mind? What is there a time frame in your mind for?
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President Donald Trump
I mean, it happens quickly. The problem is every time I mention a time frame, for instance, I see, you know, we've been doing this for a few months. Vietnam lasted 19 years. Korea lasted eight years. Afghanistan lasted many years. They were all many, many years. And we were into it for a few months. And I read about you, people like you. What's taking so long? We're in it. You know, we lost between two wars, two big wars, Venezuela and Iran. We lost 13 souls. 13 great people, met the parents, great people. And it's a terrible thing. But 13, if you look at the war casualties and the deaths and wars for Vietnam and all that, they lost hundreds of thousands of people and numerous of these wars. We want, we're very cognizant of that. We want to lose very few. We want very few to be injured. We're very, we're very careful. But war is war. War is, War is dangerous. But we've lost 13. I saw that the Democrats took an ad putting in the 13 people that were lost. And when you look at hundreds of thousands of people that were lost in the Middle East, Iraq, all the different wars we were in, we have done an amazing job with that being said, I hate to lose 13, I hate to lose one. But we've been very, We've been very, We've been very capable. I mean, when you think of it, we took over Venezuela in one day. We have done a similar job, but we said we'll give them a little chance at the request of somebody that we greatly respect from Pakistan, the Field marshal and the Prime Minister, they've been. They asked us, would we pause the war for a little while because they'd like to. So we'll do that. But we had them beat. They're, you know, no, no better now. We could, we could close it out very quickly if we can do it in a different way, that would be good if we get everything we, we want. But we could close that out very, very quickly. And we may have to. I don't think so, but we may have to.
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Kelly Evans
World cup, if I could. The US Spent a lot of money getting the World cup here and increasing the infrastructure. Does the economic benefit outweigh the cost.
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President Donald Trump
Now the World cup is great, the most successful they've ever had ticket wise. It's they've never had anything to sold.
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Kelly Evans
So that's President Trump in the midst of his Cabinet meeting. We'll go back for any further comments. The question and answer portion will continue. But of particular note to the audience, perhaps everyone saw in the Wall Street Journal, they're reporting today that Europe is starting to think Putin will expand the war beyond Ukraine. And the president's response when asked about Russia, he said no easing of sanctions, no money. When they behave, they can have their that topic is going to move probably to the front burner as the war with Iran in Iran hopefully winds down again. Keeping an eye on the energy complex, which is still looking past the Iran conflict and looking for a positive outcome there. We'll be back with Eamon Javers later on with more of a recap. Let's get back to Gene Munster with Deepwater Asset Management standing by. Gene, I'm sorry to interrupt you just.
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Gene Munster
No problem.
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Kelly Evans
Please feel free to dive back in because we are talking about these new trillion dollar memory names, trillion dollar memory names and asking whether you think that's justified and warranted.
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Gene Munster
Well, I think that they can continue to go higher. If you believe, like myself, that we're in the second inning of this, which is kind of hard to wrap our head around. A year ago I thought we're in the third inning. I think we're in the second inning. That's based on the fundamentals here. But to your point at the top is that the bigger question that I'm asking is is this the best place to be is are these companies and so to be clear, is that these stocks, Micron, sk, Samsung to work if in fact we're in the second inning. But you know, where is that incremental piece? Which begs the question why is that what it is about? You know, these companies that can start to not show the investor rewards relevant to the performance. And of course, we can look to Nvidia over the past six months. The numbers initially for calendar 27 were for 10% growth. The street's now looking for 42% growth.
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Kelly Evans
Wow.
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Gene Munster
During that period, the stock is up about 20%. So you see this diminishing return. And Kelly, I just want to put some numbers about when you think about the second derivative, the growth rate pieces to it, it is a tell when you have higher numbers and acceleration off of higher numbers, that's when something bigger is going on. We saw that with the iPhone when it started to ramp. We've seen that with Nvidia, we're seeing that with these chip companies. But to put it into perspective is Micron in their November quarter I believe revenue was up 57%. In the February quarter was up 197%. The street is modeling for 260% for the May quarter. Now if they make good on the counterpoint research work from yesterday on the macro, the revenue is going to be up 360% off of a bigger number. So why that's important for Micron and SK Hynix and Samsung investors is that's now the bogey, that's what's in investors minds. Of course the multiples are still very low on these companies but the reality is that for these stocks to continue to outperform, you need to see that acceleration just gets harder and harder. And I think if we look at the class that's coming here with AI companies with these new IPOs coming, it's super exciting. And I have to believe that some of that excitement around OpenAI anthropic SpaceX is going to be funded by what we've seen more recently with these new trillion dollar members.
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Kelly Evans
I think people are wondering if you look at these numbers and say ok, can you even hear if you were to buy it here? Yeah, you missed the huge run but if you buy it here and put it away, is this a stock that's going to do? Because it was same with Nvidia. Okay, you missed the big run but you can still buy it and do fine. Is is Micron in the category and the memory names of you can buy it and still do fine or do you need to be careful because at some point this thing is going to give back 90% of its gains.
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Gene Munster
Well I think we're more in the fine camp. I think there are better places to be but I think we're more in the camp that they're going to be okay. And just to put some perspective on that is that we are we being the tech investment community has been like conditioned to think about these businesses as boom and bust. We've never seen a cycle like we're seeing with AI and if in fact that this is a five, ten year build out. And again Micron trades at nine times next year's earnings. SK Hynix trades at seven times. I mean it's remarkable that I don't think we have a ton of risk the probability that there's going to be a Chinese provider coming to market soon, but the probability that someone else comes into the fray and takes some of this is relatively low. So I don't think this is these are companies. I think the bigger picture is this what's happening in AI is still massively underappreciated by investors. And if in fact that world comes to fruition, I think there are better places to be than Micron and sk, but they will undoubtedly do well. And I think what you're going to see is a continued bull market. We've been talking about a couple of years and it's going to be a reluctant market, but there is something much bigger going on and the temperature in the room right now is going to take a step, function up once we get through SpaceX and open air and anthropic.
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Kelly Evans
One chart that gives me pause is the following. It shows how long it took a company to go from 500 million, 500 billion I'm sorry to a trillion in market cap. And if you look all the way to the right of your screens there, you can see it took Berkshire Hathaway 5 years. Apple not far behind Alphabet, Meta, Amazon all the way to the left is the amount of time it took Micron, which you kind of have to squint to even see Gina. And that's what makes me wonder if this is a little too far, too fast.
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Gene Munster
I'm always nervous about the concept of this is going to be different this time. But if we think about what AI is doing to humanity, I think it is different. I think objectively this is different. And what we've seen and using these comparisons, the comparisons of dot com, the comparisons of how long it's taken companies to reach the trillion dollar market cap using those comparisons I think are a trap. We have to do is look forward and effectively what we have is a world that is preparing. The brain of AI is getting much bigger. That's what we've seen with the hyperscalers is they're building that brain out and we still haven't seen the utility. It's still far and few between beyond Google Revenue growth and Meta, there really aren't a lot of great examples of AI having an impact on our world beyond experimentation. Once that becomes more mainstream, you can start to imagine the demand for intelligence at scale is going to only increase. And so I think that the big picture here is don't look at my perspective, don't look at the rearview mirror, how long it's taken us look at what's in front of us. And I absolutely believe this is going to be a tsunami much bigger than what people Anticipate.
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Kelly Evans
My favorite line from this discussion is when you said a year ago I thought we were in the third inning and now I think we're in the second, which I think perfectly captures how a lot of us feel. Jean, really appreciate it. Thanks for now.
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Gene Munster
Yeah, thank you, Kelly.
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Kelly Evans
Gene Munster with Deepwater Asset Management. Our next guest still has Micron as his top pick and says the market still underestimates its growth potential. He raised his price targets across the industry two weeks ago. Vivek Arya, senior semianalyst at bank of America. Vivek, welcome to you. And Jean was a little bit cautioning of just the magnitude we should expect from now on. Right. Making the Nvidia comparison, you know, as its earnings forecast has gone from 10 to 42%, the stock's only gone up 20 points. What would you say about Micron at this juncture?
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Vivek Arya
Sure. I think, Kelly, one point we have made is that semiconductors as an industry, right. As kind of these stocks, they are extended but they're not expensive. Right. Many of them are trading below their earnings growth rate. Many of them, including Micron, are actually trading at multiples that is below historical rate. It's certainly below their earnings growth. I think it's important to understand that the reason it is different in memory this time is that AIR is creating demand that is growing at four to five times the speed at which the industry can provide supply. We have never seen this before. In the past, whenever, you know, demand for memory always goes up, but capacity catches up very quickly this time around. Capacity is not able to catch up very quickly because demand in things like high bandwidth memory is growing four to five times faster. And the reason it's growing that fast is AI is going from becoming just simple chatbots to more important reasoning and agentic systems. And these reasoning and agentic systems need to remember context. Right. They need to be smarter than before. And that requires a ton of memory. So yes, eventually the cycle will end, but I think for the next 12 plus months, demand for memory, their pricing power, I think that can continue to be very strong. And the final point I would make that is that there is the chance for many of these memory companies to sign long term agreements that guarantees, you know, that more visibility on pricing and their output. That also helps us make the case for higher multiples than, than historical times.
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Kelly Evans
No, that's, I was going to ask about pricing, you know, even if it's true that it's, you're not going to bring another, what do they call it, a fab, A manufacturing facility online in the next year. But pricing can turn. You can wake up one morning and have a headline out of the foreign press that says something about price cuts or discounts or something to that effect and boom, I can imagine there would be a big reaction, sure, that that can always happen.
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Vivek Arya
And in fact, to that point I would say that as much as we always conceptually make the case for memory demand to last very long, memory stocks often respond to the sequential growth in data pricing. And right now we are projecting data and pricing to continue to grow for the next several quarters on a sequential basis. So on a tactical level, that is one thing to watch out for because that drives kind of the near term performance of memory stocks. But if you look intermediate to longer term, making these fabs is very difficult. You know, making the kinds of memory that is required in these chips, you know, so called high bandwidth memory, we are going from version three to version four to version five and every time we go through those versions it requires three to four to five times the number of wafers just for the same amount of capacity. So that's why I'm making the case that the demand, the complexity is far outpacing the industry's ability to supply it to it. But no, keep, absolutely. I think we should keep an eye on sequential growth in memory pricing. Final point I would make that is that look this year, because AIR is crowding out many other parts of the PC market, the smartphone market next year, if, let's say for whatever reason demand slows down or starts to somewhat, some of that incremental memory can also go to some parts of the consumer market that have been crowded out by.
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Kelly Evans
When you say that the stocks do follow sequential DRAM pricing, that means that every single quarter DRAM prices have to go up. How much have they gone up so far? I mean, they can't go to the moon.
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Oliver Renick
Sure.
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Vivek Arya
They are up by a factor of seven to eight times versus last year in Q2 they are up by I think 60 to 70% sequentially. Meeting that up another 5 to 10% in Q3, you know, somewhat in Q4. Then perhaps they do start to decelerate, you know, sometimes early next year. Why? Because second half of next year is when we start to see incremental capacity coming online. So I think the supply side is saying that yes, at some point early next year sequential pricing will start to decelerate. But then we look at, well, what is then the demand environment next year? Right. What is going to be the growth of Nvidia's Vera Rubin and then Vera Rubin Ultra of the next generation tpu. You know Google just launched a new version of their TPU. It is using HBM version 3. It is not even using HPM version 4. That comes out because not enough was available. Right. So the point is that the demand side is still outpacing that. But based on what we see today, we think at least through the end of this year the sequential growth rate and pricing can continue.
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Kelly Evans
And just to take a step back, we just showed this. You have preferred exposure across the whole space. I mean and it includes a lot of it. The compute names, the memory names, including some analog chips like txn, semi cap equipment. We talk about Lam kla, you also have, and it's not on the screen there but EDA, whatever that is, CDNs, a lot of acronyms here. And the interconnects like Marvell. You also have consumer maybe you can talk about. I mean you see a lot of areas where if people are a little nervous about buying or being in a micron, right here you see a lot of other stocks that you think could have big gains still.
- [19:23]
Vivek Arya
Yeah, I mean if you look at the stocks index right now, it's trading at about 25, 26 times forward. That's basically where it was when the year started. Right. So this entire 70% plus jump in the stocks index has come really all from earnings growth. Right. We have not really expanded the multiple of the stocks. And what you're seeing is demand proliferate even within the data center. Used to be accelerators, then it became CPUs. Right. Then it's memory, then it is optics. You need very complex chip design software that is Electronic design automation or eda, names like Cadence and offices that reports tonight. So I think many different parts of the industry have come together. And the reason, you know, these all seem right, so unique is because there's been a lot of consolidation in semis over a long period of time. Entry barriers are very high. That's why these companies are so profitable and have this pricing power because it's very hard to create. You know we celebrate every time there is an IPO in the semiconductor company. It's because there are so few of them. It's so hard to create new semiconductor companies. And that's why we think many of these companies can participate in growth in whether it's in the data center and even by the way things in industrial, look at aerospace, look at defense. Right. Look at the move towards EVs. Chip companies are providing the value in many of these new industries.
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Kelly Evans
Yeah. You know, Silicon Valley is very good at software. You wonder if and Cerebras came from, you know, from that as well, environments 10 plus years ago. It'd be fascinating to see if people really try to actually create more upstarts in a very capital intensive area. For now though, Vivek, thanks for explaining why you think there's still so much to come. Really appreciate it today.
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Vivek Arya
Thank you, Vivek.
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Kelly Evans
Aria with bank of America. From big public valuations to big private ones. Space X wants to raise $80 billion reportedly for its IPO next month. That has some investors warning of a liquidity crunch for that, plus the other mega IPOs we are expecting this year. Dan Primack is business editor at Axios. Dan, it's great to see you. Do you share those concerns?
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Dan Primack
I really don't. I kind of went into the numbers and look back at 2021 and this is in the Axios Pro rata newsletter today. 2021 was the all time record for US IPOs in terms of proceeds. And if you kind of look out and you assume, which is a big assumption, that SpaceX could raise $80 billion and that anthropic and open AI could raise about the same, you're not really seeing when you compare it to the overall market capitalization, the public equities market capitalization which has gone up so much since 2021, it's not that much more. I really believe the public markets can swallow this. And I think as evidence of that, you've got six different companies right now that are on IPO road shows. If they were really worried about people holding on to dry powder, they, they'd be holding back right now.
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Kelly Evans
I guess I just don't believe that capital is finite. I sort of think, I know on some philosophical level that must be true, but it sort of feels like if people want to get in, they're going to find a way to get in. And the more interesting dynamic to me is, you know, are people getting in because they don't want to miss out or are they getting in because they feel like they have to because of some of the fast track changes being made to include these companies in the major averages?
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Dan Primack
I think all of the above. Right. Like I would, I would be very surprised and maybe I'll be wrong about this. I would be very surprised if a lot of major institutional investors look at the three, right, which is open AI, anthropic and SpaceX. SpaceX, which is a little bit different in going first, but it says we're going to take one of those three or we're going to invest in two of those three, but not the other. I think there is the FOMO piece. You feel you need to be in all of them. And then as you say, the index changes are massive. Right. Because that could, even if one is considered the weaker company, which may be a space X and that the, the index changes are going to kind of float, that are going to kind of be a buffer.
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Kelly Evans
Do you, do you think that's wise by the indexes?
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Dan Primack
Yeah, I mean, I don't think it's probably great that folks are. Even though I know no one is officially changing their rules to satisfy any one issuer, to include any one issuer. Of course that's what happened. What's happening here, Right. Why weren't these changes made a year ago or two years ago or six months ago? They're being made now for these companies.
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Kelly Evans
Right. And I. So I guess, be that as it may, we were just talking about the memory names and yes, Cerebras was an IPO in the chip space. Could you ever foresee others? I mean, could America literally incubate? You know, we're really good at incubating software. You know, we've been going back decades, were really good at incubating hardware. Could we incubate more memory and chip names? Or is that just, you know, a silly prospect?
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Dan Primack
I think we could. I mean, look, you've obviously got major investment in the US in that via the Chips act. And Trump has changed the purpose of the Chips Act a little bit from where Biden had it, but nonetheless it's the same purpose ultimately. Right. Which is to onshore chip manufacturing, whether by legacy names or a lot of that money is going to startups, including some of the quantum computing startups that got money last week or agreed to get money last week, one of which wants to go public next week, which is I'm going to mispronounce this quantity of quantitative, whatever that is. They look to raise $1 billion next week. They got $100 million from the US government. So yeah, I see no reason why we can't because I feel that. And Cerebras is an interesting example. I think that's reminded people that we can build physical things here from a tech perspective, can make chips and they can do well. I know the company's off from, you know, its first, but it's still been a very successful offering.
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Kelly Evans
Now we're just showing it $256 there. What was the price? 185. So comfortably above that level. Absolutely. Dan. We'll leave it there for now. Thanks so much. Appreciate it. Dan Primack with Axios coming up an all time high for the Russell 2000 today and they're actually on pace for the 11th positive month in the past 13. So why is the options market starting to turn sour on the small caps? We'll have those details next.
- [25:09]
Oliver Renick
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- [25:33]
Dan Primack
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- [25:40]
Keith Lansford
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.
- [26:08]
AT&T Business Wireless Advertiser (Alternate)
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- [26:32]
Keith Lansford
AT&T business Wireless Connecting changes everything
- [26:39]
Kelly Evans
welcome back. We dipped in earlier, but the President's Cabinet meeting is now wrapping up and Eamonn Jabers brings us all the headlines.
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Eamon Javers
Eamon yeah, hey there Kelly. No real change to the President's public negotiating position on Iran. During the Cabinet meeting, he said, you know, either the United States will have to go in and finish the job or it won't. We'll see what happens, said the president. In terms of the highly enriched uranium, the President made an interesting comment there, appearing to sort of rule out the idea of the Iranians being allowed to send highly enriched uranium to Russia or China to be destroyed or contained there. He said he wouldn't be comfortable with that option. And the President also said here that at the end of the day, the Strait of Hormuz will not be controlled by anyone appearing to rule out an initiative that's underway by the Iranians in Oman to charge fees for transit through the Strait of Hormuz. The president seemingly did not like that idea, but no indication exactly what the timeframe is for any negotiation to be over with. The president pushed back on a reporter who asked him for a timeframe, saying every time I issue a time frame I get criticized for it. So I'm just simply not going to do that. So we're left with this sort of open ended situation as these negotiations continue behind closed doors, Kelly, and we'll see if they can make any movement there.
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Kelly Evans
And for now, the market doesn't seem to mind. Eamon, appreciate that. Thank you. Eamon Jefferson, Washington Speaking of which, let's check on this Major averages with the Dow, the S and P, the Nasdaq all were positive, but right now it's the dow that's up 195 points with slight declines for the S and P and slight declines for the Nasdaq as well today and the Russell 2000, the small caps not only a record high today, they're on pace for their ninth positive week in the past 10 with a 20% gain in that time frame. And barring a major collapse next month, they're on pace for their best quarter in six years. All of this has the options market turning cautious. Oliver Renick is at the CBO with more. Hi Oliver.
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Oliver Renick (Alternate)
Hey Kelly. Small caps are indeed on a terrific run the past year. In fact, they're outperforming the QS by a small edge. But they're not getting much love from options traders. Among the three major benchmark index ETFs, the IWM has the most options premium skewed towards puts. Right now you can see 38% put premium percentage in the S&P, 57 in the NASDAQ, 71 in the Russell. That's a lot by volume, almost to three times more puts traded than calls and 100,000 more puts were bought than sold. This could reflect nervousness around interest rates, which tend to have an outsized impact on this group. But bonds are on a six day bounce back right now and the options action in TLT I looked is not outwardly bearish. Still, tomorrow brings a heavy slate of economic data that includes inflation and perhaps the message here is that if you think stocks need to cool down, the small caps might be the most at risk. One trader we saw put this view to work by purchasing nearly 24,000 of the July 17th expiration 277, 271 strike put spreads for almost $8 million betting IWM could drop as much as 7% by mid July.
- [29:54]
Kelly Evans
Kelly what is the typical pattern? Oliver is that that after a strong run the options market would kind of confirm it with more bullish behavior or is it what you're describing which is leaning more against it or does it depend and maybe they're a little bit more cautious on the Russell's than the Nasdaq or the S and P?
- [30:11]
Oliver Renick (Alternate)
That is a great question. That really is honestly what we have been tracking for a lot of these index and a lot of these sectors on a daily weekly basis because it does depend. For example, a couple of weeks back when the semiconductors were rallying, we were seeing a lot of call buying chasing that rally. But actually I'm working on a story right now for overnight that shows that has flipped. So it does have a tendency to change. But generally as we saw for the Nasdaq and The S&PS, which of course have been on a good run as well, that premium is much more balanced almost even if not favoring calls in the S and P. So the Russell definitely stands out right now and it's not necessarily a traditional thing that you would just expect people to fade a big run.
- [30:50]
Kelly Evans
Great answer and I love a little teaser of what might be coming next. Oliver, thanks. Thanks Oliver Renick. Let's get to Pippa Stevens now for the CNBC news update. Hi Pippa.
- [30:59]
Pippa Stevens
Hi Kelly. A new report says US Military contractors will need at least three years to replenish stockpiles of key weapons systems used in the war with Iran. The center for Strategic and International Studies says that the US has enough munitions for any plausible scenario in the war, but it notes the depleted inventories have created a window of vulnerability for a potential conflict in the the Pacific. Alabama asked the U.S. supreme Court to pause a lower court ordering barring it from using a controversial congressional district map in this year's midterm elections. It comes a day after a district court stood by a prior ruling that found the map intentionally discriminated based on race. Alabama asked the Supreme Court to issue a decision by Monday. And the head of one of the largest teachers unions is calling for limits on AI classrooms. American Federation of Teachers President Randy Weingarten urged elementary schools to avoid using AI chat bots and calls for new national privacy and safety standards for AI tools
- [31:58]
Kelly Evans
in all schools and not just AI as I understand it. I believe Pippa that she also was saying elementary school kids should have limits on screen time, which if so, would be huge. And very, very much welcomed, Pippa. Thanks, Pippa Stevens. Coming up, how soon will Kevin Warsh look to make his mark on the Fed? Our next next guest, who doesn't expect any rate hikes this year, says the market's getting ahead of itself. She'll explain why right after this
- [32:26]
Podcast Narrator
A History of the United States in 100 Objects is a brand new podcast from 99% Invisible and BBC Studios. Each week we're looking at a different object from across American history with a unique story to tell about who we've been, what we've built, and what we've allowed ourselves to forget. Some of these objects are well known, many are not, but all of them carry the story of how we got to this moment. Find A History of the United States and 100 objects on the 99% invisible feed. Wherever you get your podcasts, this episode
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Keith Lansford
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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Keith Lansford
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- [33:57]
Kelly Evans
welcome back. The odds of a rate hike have been rising lately. As you can see there. About 60% odds for March of next year, a little higher by next summer. All of this as if inflation ratings have been climbing. But my next guest says the market may be getting a little ahead of itself. She doesn't think the Fed will hike this year and thinks when they move at all, they could still be cutting rates. Carol Schleife is chief Market Strategist at BMO Wealth Management. It's good to see you, Carol. And listen, I don't want to overstate the case you're making here, but do you believe that rate cuts could still be on the table? That would be a big deal for the market.
- [34:33]
President Donald Trump
It.
- [34:34]
Carol Schleife
It would be a big deal for the market, but it's really Important to remember when we're considering the Fed and particularly when we're looking at inflation, why we're getting those rises in prices and in rates. And so it's important to sort of parse through the rationale. And when you look at why rates now are going up and you look at even the shape of the yield curve, a piece of why they're moving up is because there's demand pull. You've got a big inflation. Inflation are a big push, if you will, a growth push coming from the buildup that's there. You've got big companies paying up for chips, paying up for talent and a lot of other things that they're doing that's pulling that those rates up, as opposed to your more traditional wage price spiral, which, which would constrict things in a different way and cause a different reaction from the Fed. So the Fed and trying to balance off that keeping the labor market happy and balance and in good balance and then also not limiting growth. I think there's a lot of factors in there for them to consider, not the least of which is they have a new leader. Right.
- [35:40]
Kelly Evans
And I don't want to make you an economist. I mean, you're the chief market strategist. But that's why I kind of like your take because it's, you know, it's a little bit outside of, of kind of the econ box right now. I wonder about the consumer as well, because on the one hand, you have terrible consumer sentiment. Reading things across, no matter if they're the ones we follow widely, if there are some private sector, all of them are picking up on this negative shift. And then the market today has the consumer stocks leading the way. So I could see that being an area that slows the economy and justifies rate cuts in the future. But then I look at price action today, I'm like, I don't know. So I'd be curious how you marry this point of view with where you think people should be invested.
- [36:17]
Carol Schleife
Well, and it is important to remember too that consumers tell pollsters one thing and then turn around and do another. And there's been, and it's notorious, that the sentiment readings do not reflect what happens in the stock market per se, and they don't necessarily even reflect through to economic activity. As long as consumers are employed and feel relatively comfortable in being employed, there is a propensity to want to spend. Who knows? Some of us actually spend because we're crabby speaking for. Yeah, but, but then again, you've got lots of other factors in there. But, but as it relates to markets, you're seeing the broadening in the markets. I know in your prior segment you were talking about the over the counter or that this, the Russell 2000 and the broader index is doing well. And we do expect to see that you really need that for this market momentum to continue to go. But there's every likelihood, especially as the AIO build up, continues revenues and it radiates through to other industries and productivity improvements. There's a lot of rationale underneath the economic strength that we've got going on and that's what's allowing rates to drift up, if you will.
- [37:27]
Kelly Evans
Yeah, although you're saying, look, we need to get closer to five probably to be a bigger issue for stocks. So you're sticking with tech, communication services, industrials, financials and all of that. I guess what you're saying too as a reminder is, is we have to be careful that rising rates and Fed hikes don't derail the rally. I mean, even as those odds have moved up, the rally has been so strong it hasn't really mattered. It's been sectors outside of tech that have struggled more. If you're right and we pull back those expectations, definitely feels like we should rally more broadly. If we don't, then maybe it stays a little bit more concentrated.
- [38:04]
Carol Schleife
Yeah, I think we need to rally more broadly. And it's also important to acknowledge the fact that we've come very far in a very short period of time. Despite the fact that we've had close to triple digit oil, we've had a big move up in rate. So there's a lot for markets to digest. We're coming off of earnings season, we've got some quiet period in here when, when and a lot of economic fundamentals coming out next week. So there'll be a lot to parse and to think about. And it would be lovely actually to see markets move sideways and digest some of these gains. But it's also important to not lose sight of the fact of how strong that first quarter earnings season was where you had really magnified growth between the top line at 10 or 11% and the bottom line growing 25 to 27% across a whole bunch of different industries.
- [38:50]
Kelly Evans
No, it was wild. I mean, it truly is. That's the kind of, usually you're coming out of recession, you get readings like that. To have it mid cycle is striking. And that's as you say, it could put 8,000 plus in play in the next 12 months or so. All right, Carol, thanks, thanks. Appreciate it.
- [39:05]
Carol Schleife
Thank you.
- [39:05]
Kelly Evans
Carol Schleife with BMO Wealth Management. Still ahead, your brokerage account is the latest place you'll find AI. We'll dive into Robinhood's new tech that puts AI Not Carol. It says I could be in charge of your trades. We'll talk about that next. Welcome back. Robinhood just unveiled a new product that will let AI agents trade on behalf of their clients. Kate Rooney has more into today's tech. Check the jokes write themselves. Kate, this is serious business.
- [39:34]
Kate Rooney
What could go wrong?
- [39:34]
Kelly Evans
I know.
- [39:35]
Kate Rooney
Well, it's great to see you in person, Kelly.
- [39:36]
Kelly Evans
Great to be here.
- [39:37]
Kate Rooney
So Robinhood, as you mentioned, letting AI really take the wheel. They're letting clients connect outside agents. So think of chatbots. You could use CLAUDE directly into the brokerage accounts and then have those trade on their behalf. It is happening in a separate account. Robinhood does say there are safeguards here. Customers can limit the access. They can ask for, sign off, and then disable things if, if something goes wrong. This is rolling out in the next couple of weeks just with equities. But they did say options, crypto, other asset classes are going to be coming next. Robinhood does warn that agents can make mistakes. They can misunderstand instructions, generate losses, and says at the end of the day, it is the customer that's responsible for any activity in their account, even if it's AI driven. So it's also bringing this concept to spending. The other half of this news today for Robinhood, they're allowing agents to do your shopping so customers can connect those same agents that I mentioned to virtual credit cards and then the tech is going to go out and make purchases automatically. Hedge funds and professional traders have been a lot quicker to adopt AI. This does mark a first for the retail brokerage industry, where it's largely just been used for advice. So far, we haven't really seen it go out and execute trades, at least for retail investors. Robinhood did tell me they designed it around the current regulatory structure. It is the latest sign also, Kelly, that this technology is moving beyond just chat bots. And it's a major test too, for how comfortable consumers are letting AI fully manage their money. A lot of questions still about how good this technology is going to be at picking stocks, too.
- [41:00]
Kelly Evans
I mean, this could be a 20 minute conversation, but a few observations. One, does anybody need this on some. Okay, it's kind of a cool gimmick. Reminds me a little bit of the Robo Advisor era, when that was all we heard about. And robo versus whatever number three can you give it. So if we said we just want to buy the VO every day X amount of dollars, can you just go x execute on that? That's fine.
- [41:22]
Kate Rooney
Yeah.
- [41:22]
Kelly Evans
Another thought, they should at least be like, if it screws up, will bear the law. Because otherwise why would I want to risk that the chat bot screw something up and then I'm on the hook for it.
- [41:32]
Kate Rooney
I think the liability part is a huge open question. You also mentioned kind of the Robo Advisor era that was such a big thing 10 years ago. Robinhood really pushed back on that and was so much more about self directed trading. So there is almost an irony that now they're doing this passive trading, but it's, it's managed by an AI. And I said to Becky earlier that it's sort of like handing your money over to a mutual fund. But it's this test of do you trust AI? Do you trust technology more than you trust a portfolio manager?
- [41:58]
Kelly Evans
Well, at least I can sue the mutual fund if they make a mistake. If I can't, if there's no recourse to the chat bot, it just feels like a high stakes situation to say, yeah, you can have access to all.
- [42:08]
Kate Rooney
I think we're going to have to see how this goes. And they're saying that it's a separate account so you're going to have sort of your AI driven account. It'll be interesting to compare that because there's, there's a limited amount of studies, but what's been out there so far is actually that the AI driven strategies have not outperformed and there's a lot of risk. You think about, I was thinking about earlier about a potential for a Flash crash. You think about what happened with quant trading when that first came out. If all of these agents are making the same stock picks, are there going to be these knee jerk market reactions that are actually going to have broader implications and that our hedge funds to try and capitalize on this.
- [42:38]
Kelly Evans
I still can't get it to track my calories correctly.
- [42:40]
Victoria Green
Right.
- [42:40]
Kelly Evans
So I'm just like, you know, okay, I wouldn't mind if it made life easier when it comes to executing on trades, but it's memory loss and things like that. I'd be curious if it really is reliable. That's great, but I don't even find my main usage of AI that reliable.
- [42:54]
Kate Rooney
One of the things that could be useful is tax loss harvesting and then taking the emotion out of trading. If you can actually do that successfully and say, okay, stop me.
- [43:02]
Kelly Evans
Tax loss harvesting is a Great idea.
- [43:04]
Kate Rooney
Or even like stop losses if you were to say okay, do this for me. But also all of this. I was trained by humans and so you would think that it's probably going to have the same sort of human behavior in a way. And I wonder too as, as people start to use the same AI to, to execute strategies there's, it's going to be harder to stand out.
- [43:24]
Kelly Evans
Like a herding effect.
- [43:25]
Kate Rooney
Exactly. This herd mentality. And so I think that is one risk we'll see if other brokerage firms follow suit. By the way, Robinhood has been a first mover and when you think about free trading, they were a pioneer. Their fractional trading, overnight trading. Are we going to see the rest of the industry follow? They have sort of this, this time period where they can watch and see if it's actually effective. There's any liability or losses, any major
- [43:44]
Kelly Evans
blow ups, I'm sure we'll hear about it as well. And if they're not, that's a point too.
- [43:48]
Kate Rooney
Exactly.
- [43:48]
Kelly Evans
Kate, thank you very much. It's great to see you Keep coming up. This ETF is down 5% today but up 36% over the past two months. Our trader says that could lead to the sector being dubbed the new semis. We'll reveal this mystery chart ahead. Zscaler falling more than 30% on weak Q4 guidance and that's pushing the overall cyberspace lower today. Our Seema Modi has more on what has happened to your sema.
- [44:18]
Seema Modi
Well, here's the thing, Kelly. The reason behind Zscalers revenue guide that came in weaker than expected is notable. The company's blame claiming soaring memory costs and the departure of key sales executives. CFO Kevin Rubin saying on the call is just a reality. When you have leaders that depart, you may see some disruption. Disruption. And so therefore I'm taking a prudent approach. But Wall street doesn't seem to be buying it. That's reflected in today's stock performance with a number of price target cuts UBS from 260 to 225 a share. Citing Zscalers tepid guide Wedbush saying there's a need for better execution. The challenge Kelly really is cybersecurity. Stocks largely have been trading at a premium due to the belief that I will only enhance the need for corporations to double down on cyber protection. If that's the case, why is the scaler guiding to slower than expected growth? The performance of Zscaler actually pretty significant when you compare it to its peers Palo Alto crowdstrike and Cloudflare over this past year and even year to date. Which tells you just again, as we been seeing across software and cyber, the this idea that investors are looking for the winners and losers, are scouting them out real time with earnings.
- [45:26]
Kelly Evans
I know you're seeing it big time in a couple of those areas. A little bit risky to just buy broad I think right now. Sima, thank you. Despite those losses, the cyber stocks have been on its hair, as you just saw with some of those other names in SEMA's chart. The bug ETF, that was our mystery chart. That's the ETF for the whole space. And despite Zscalers declines, it is up 37 in the past two months. In fact, some would say cyber kind of looking like the new semi trade. Victoria Green is CIO of G Squared Private wealth and a CNBC contributor. Victoria, do we take it that far?
- [45:55]
Carol Schleife
Welcome.
- [45:57]
Victoria Green
Yeah, no, I'm a big boy here in the cyberspace, but I think you need to be a little picky. As we saw with the Z scaler risk here, there is a little bit of single stock risk. They were one of the weaker picks in the, in the cybersecurity space. We really like the CrowdStrike and the Palo Alto in this space, especially because they're trusted by Anthropic with Mythos, they're going to be on the front line. They're using Anthropic to or they're using AI to enhance their offerings and they're trusted by enterprises. We really think enterprises are going to be super sticky about what they choose to do with cybersecurity. And we think enterprise and government cybersecurity spending is going to increase as the threats continue to multiply.
- [46:31]
Kelly Evans
You like Palo alo, you like CrowdStrike. You even have a kind of a hold on Zscaler. You know, you don't think that one's an outright selling.
- [46:38]
Victoria Green
No, I mean, I don't like to sell on a 30% down day. So a little bit of as you own Zaylor here, it's a little grin and Barrett, hopefully you get a bounce here. It was not that horrible of a news. It was just a messy print. And with the run that cyber has been on, it's a bit of a miss here and we think it was a very idiosyncratic risk though. We don't think this is something that's going to affect the whole cyberspace. Even though, yeah, we're seeing a little drag down. We're bullish on them going into next week. We really think that that both Palo Alto and CrowdStrike CrowdStrike are going to beat and raise and it's going to be that guidance rate that raises really, really necessary. Palo Alto has got to come on strong with their position. CrowdStrike's got to do their net new annual recurring revenue. That's a bit of a new figure for them to report. So all eyes on them. But look, Palo Alto works with 85% of the Fortune 500, Fortune 100 companies. So many governments and there's so much beyond firewalls. They brought chronosphere, they brought cyber arc, they're pushing into new areas. And then you got to love. CrowdStrike has always been the leader in the air space anyway. They were driven cyber before I was cool.
- [47:36]
Kelly Evans
You have half a dozen companies on the heels of Micron hitting the trillion dollar milestone. There are a bunch more that you think could be. This is fascinating to me and I love how you say aside from the obvious ones like AMD and JP Morgan, Micron thing, maybe it kind of stays on the list. The other question is whether they stay. You know, I could rattle these off or I could let you do it. IBM, SanDisk, GeV. Tell me, tell me who else. And I mean in some cases these would be big gains but we're talking now about this is going to become a very almost commonplace thing. These trillion dollar market caps.
- [48:10]
Victoria Green
Yeah, I think the trillion dollar clubs like being a billionaire is no longer enough.
- [48:14]
Kate Rooney
Right.
- [48:14]
Victoria Green
You got to be a multibillionaire. I think every stock is going to join the trillion dollar club over the next 20, 30 years because it's just going to be as the market melts up, obviously the market cap continues to go. We love or no, no, look, they're going to be powering it. We're going to have lam resource building the machines that are building these semis. We've got SanDisk with the memory behind what we need for all of this. And then IBM is such an underrated quantum story. Obviously all of these would mean a huge push. I'm not saying any of them are going to be $1 trillion stock in the next six months. But if you look at the Micron melt up and you look at the trajectory of some of these revenues and you add a tailwind like what can Quantum and I do for for IBM? They're one of the first companies that would be able to put that together. How big of a catalyst could that be? And then you've just got to love the electrification, the continued CapEx build and you want to even over they play in nuclear, they play in the actual transmission lines. And they play in every space there. From renewables, nuclear and gas generations and turbines. That's what's going to power all of these new data centers. So I want a piece of all of these stocks and I do think that they will eventually make the trillion dollar clip.
- [49:19]
Kelly Evans
Just maybe not, you know, six to
- [49:21]
Victoria Green
12 months, you know, might be a little longer lead time than Micron, because that was a pretty incredible rat.
- [49:25]
Kelly Evans
Well, some of these companies are still around 250 billion in market cap. So if they made it, then again, like you said, anything's kind of possible these days. But it's also trying to capture, and it sounds like you would agree when Gene Munster at the beginning of the show said he's gone from thinking we're in the third inning to the second of AI. Does that ring true with you? Yeah, I think you want to have
- [49:44]
Victoria Green
a piece of what is building out AI. How is AI being constructed? Not just the software and the protection, but who benefits from all of this capital spending? And it's the people that are going to make make the machines that make the chips. Like, how could you not want a piece of land resources? You want the people that are powering the data centers empowering all of this data that we're going to have to store. And you definitely want to make sure you have a piece of memory stock. I know memory is hideously expensive here, but what's to stop memory from moving higher? Why, why are we so concerned that this is a bubble in memory? I get, yes, there might be a pullback, but why not?
- [50:14]
Kelly Evans
All right. And Micron was a $350 billion stock at the beginning of the year. Wow. Victoria, thanks. Appreciate it. For now, Victoria Greene Powerledge is next. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
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