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The Exchange
The Exchange 6/26/26
00:44:13
Listen to the day's top stories, the must reads & a whole lot more for today's modern investor.
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You're listening to the Exchange. Here's today's show.
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Well, welcome to the Exchange. I'm John Fort in for Kelly Evans and stocks are a little changed a little in the positive at this hour with the S and P and NASDAQ on track for weekly losses. Oil is holding below 70 bucks a barrel as President Trump calls the drone attacks in the Strait of Hormuz a violation of the cease fire from Iran. Oil is down nearly 10% this week. Now chips, memory and momentum are under pressure. But big moves from memory this week with micron up 20% in five days after earnings big tech mostly higher. Microsoft and Apple bouncing back after steep losses yesterday after price increases from that memory crunch. And that's where we start today with the bifurcation in the trade. Wall Street's rewarding the company supplying it but punishing the companies buying it. Christina, Parts Nebulous and Mackenzie Seagalos are here looking at both sides of that trade. Christina, let's start with you and the suppliers.
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A
Well, right now every one of the largest names in The S&P 500 is lower this month, with one exception, Micron. And that is the bifurcation you're talking about in tech right now, memory versus the mag 7. Yes, of course, Sandisk and Micron are both lower today after soaring yesterday. Micron hitting all time high, SanDisk up 22%. So it's less of a reversal and more like a small unwind software also catching a bid instead. The IGB ETF up over 3% but Nvidia still remains below $200, which is a key technical level. And the Mag 7 as a group are underperforming the broader market by the widest margin in over a year. And the catalyst, Apple And Microsoft both raised prices this week and pointed to memory costs. Confirmation from two of the biggest buyers on the planet that the shortage is real and showing up in what consumers pay. Adding to the pressure, you had a report that OpenAI could push back its IPO to 2027 because of current market conditions and just the overall general concern about decreasing free cash flow, specifically for hyperscalers. Wall Street's patience for the long, expensive AI buildout range right now seems to be wearing thin. Investors are just rotating towards shorter duration. Money that essentially pays off right now, not years from now. Memories earnings like Micron are showing that the hyperscalers pay off, though right now, we could argue is still a promise.
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B
Yeah, Christine, this market when it comes to AI is still high reaction, low conviction. I mean, I remember when this started off and the narrative was, oh, Google's in trouble because OpenAI is going to destroy search. And then, oh, wait, Google's not in trouble. Actually, Google's the best. Oh, Apple's in trouble because AI, they missed the boat on it. Oh, it turns out the boat hasn't left for anybody. And then Apple's back up. It seems to me like the core question is, can the providers, the end providers of these AI products and services deliver value? I don't know if it matters how much Apple has to pay for memory as long as the users on the other end are willing to buy the product for the price they have to charge.
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A
Yeah, but to answer your question, that would require waiting how long, John?
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D
Right.
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A really long time. And so right now we're seeing that after a year and a bit of, you know, euphoria over AI, Nvidia could do no wrong. It seems like investors, especially retail, are pulling back because they don't want to wait. And so they're constantly looking for these small pockets in the market where they can make alpha in a short amount of term. Which is why you saw optical climb higher, even though optical may take longer too. You saw memory being the biggest bottleneck. And then what next is it going to be? Is it going to be, you know, the electronic design machine software that is provided for a lot of these chip names? India, is it going to be. The semi cap equipment names is going to be a completely different part that maybe we're not acknowledging right now. So I feel like it's a reflection of patience. And then the other underlying theme too is just there's so much leverage when it comes to the retail crowd too, and that is also starting to unwind.
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B
Hard to be patient when you're highly levered. Christina, thank you. Now to Mackenzie Seagalos with more on the buyers under pressure.
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E
Mackenzie so John, hyperscalers have been driving up memory and storage costs for months and now consumer electronics companies are finally passing that hit on to consumers. Apple announcing yesterday it's hiking Mac and iPad prices with increases averaging 20% across the non iPhone lineup. Which was really the high end of what analysts had been bracing for Microsoft raising Xbox Xbox prices the same day with Sony, Nintendo, Dell and other PC makers making similar moves to protect margins. But Apple is the one that investors are watching most closely because the next test is the iPhone. Apple needs 50% more working memory in its next generation handset to make its AI upgrade cycle work, putting new urgency behind lower cost alternatives. I'm told by a person briefed on the discussions that Apple is actively lobbying the administration for more flexibility to work with those vendors. Part of a broader industry push to qualify Chinese components without running afoul of Washington's restrictions. Now in terms of the Chinese memory market, the key names here are Y MTC for storage now tied with SanDisk in that market and CXMT for working memory that is a Samsung rival. I'm told they can undercut incumbent suppliers by up to 30% depending on the contract.
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B
John Mac as you know I covered Apple a bit in my day and it seems to me something investors should keep in mind. Apple has a two sided advantage here. One, they're so high volume that they can deal as if they're a really huge wide market supplier even though they're in a bit of a niche as one company. And then to their margins are so good that they can afford to wiggle around a little bit. And when the end user eventually buys that iPhone they can tempt them up to a higher price, one where the memory cost is baked in. So I don't know, I think we got to be careful about looking at Apple as the bellwether or canary in the coal mine because in a way they're a unique case.
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E
Yeah, I was talking to somebody yesterday, I said why start with the MacBook and iPad lineup instead of ensnaring iPhone and some of these price increases. And they said it's because those two segments together they account for 14% of revenue but they're a just in time production timeline rather than the iPhone where they have more of this war chest built up. And to your point John, on top of the fact that they have a cash stockpile where they can take some of this on the chin in terms of margin, they Also have an iPhone upgrade cycle coming as of this September because of the fact that 54% of iPhone ships since 2022 are not capable of running this new Siri AI. You have a lot of price insensitive customers who especially that high end, would be willing to pay more. And speaking to analysts who've taken apart the iPhone 17 Pro to get a sense of how much extra the cost would be at the high end of the spectrum, they're expecting around $280, that 20% price hike in the Mac book category, certainly tracking for something similar in iPhone, but they have a lot going for them. And you also have Tim Cook, who has a lot of credibility with Wall street, looking to set up his protege John business with, with a clear Runway. And that might mean hiking up the iPhone 17 series, something that they haven't done mid cycle in years in order to set him up for a cleaner story when that iPhone 18 is likely coming out during the September hardware event. Maybe a higher base price.
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B
Yeah. Stuff some more memory into the Pro and tempt people upward, perhaps Mac. Thank you. Let's bring in our first panel. Joining me now is Alex Cantowitz, founder of Big Technology and a CNBC contributor. We've also got Steve Sosnik, chief strategist at Interactive Brokers. Steve, give me your broad market take on what we're seeing in memory because everything seems to be affected by it in technology, whether you are a component maker, systems infrastructure maker, or trying to make software right on top of that.
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F
Yeah, well, hi, John. The think about this this way. You know, people have been flocking to the memory stocks because they, they deserve it from an earnings and a revenue point of view. The margins yesterday, two days ago that Micron reported were 80, about 84% and that's up from about 39% a year ago. So they are making, they're minting money, but at whose expense are they minting that money? And the problem is at their best, customers expense. Their best customers are the Mag 7. And so you do have this push pull where you have to wonder how long can you keep soaking your best customers before they start to rebel?
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B
Hmm. Alex, we've seen this in a way before with, with the GPUs. I mean, they're in shortage. And then people are trying to get allocation. Now we've got memory that's constrained. People are trying to get allocation. Usually it's some of the strongest names you're in, videos, your apples, your hyperscalers that have the position to get at least what they need. Even if they have to charge more for it, how do you expect that to play out?
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G
Yeah, well Assembly's are always cyclical so there is this demand surge and then eventually everything kind of zeros out back to normal. But what we're seeing now is the memories providers are locking in these companies for multi year deals. And as you mentioned, that's with increased prices. So you could see these price increases go for quite some time. And you know, when you look at the.
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B
Because it's on topic. We've got a news alert here on Open Air. Let's get to Kate Rooney.
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D
Hey there John. So we are hearing that OpenAI is now just announcing their new flagship AI model. Most people though are not going to be able to use it. So this is Chachi beat 5.6 company says this is its strongest AI yet. They talk about record setting performance in coding science, cyber security as well. And then on some benchmarks they do say that it is competitive with rival Anthropics Mythos. But at the request of the US government, as we have reported that OpenAI is only going to be releasing this to a small group of partner companies, executives from OpenAI told us that the list was approved by the US government. It does follow some of our reporting that the Commerce Department had reached out to OpenAI asking them to roll this out on a limited basis. There have been concerns of course around cybersecurity and misuse. If you just look at what's going on with Anthropic and the export controls, OpenAI does highlight price as well. That is of course top of mind for CFOs right now. Their top tier of this version is called Soul. There's also a cheaper everyday model called Luna. The prices range from about 6 bucks to $30 per million tokens. John?
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Kate, it seems like the trend right now is every new model is too hot for tv, right? Like they want to say that it's so dangerous that you can't put it out to everybody at the same time. But there's a downside here in that I'm starting to hear that some folks outside the us, potential European customers, are concerned that the US government has a kill switch on them being able to get access to this technology.
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D
So John, I would agree with you, but OpenAI stance has been actually the opposite of Anthropic in that they wanted to roll this out widely. They did not want to do this limited rollout and they had talked about this as a differentiator to their rival Anthropic. If it were up to Them and executives essentially said this to us at a bunch of reporters earlier on a briefing. They said we, we would have gone ahead and rolled this out, but the US Government stepped in and asked them not to. So if it were up to the company, they would not do this gated release. That is very different from what Anthropic did with Mythos. And they have been accused of sort of overhyping Mythos and saying, wait a minute, it's just too powerful, it's too good to put in the hands of the average person. And that has been the knock on Anthropic, although there are cybersecurity issues, clearly, as that company still battles with the Pentagon. White house is in D.C. right now trying to unwind these export controls and it's a big back and forth. But I think from what I'm hearing, these companies are just trying to walk on eggshells and not upset the administration. Go sort of stay within the lines. But the lines are very blurry right now because the executive order is voluntary. From what I'm hearing, it's still not done. They're still working on it. There's working groups from all of these companies trying to really set the rules. And until that happens, not a lot of clarity.
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B
Yeah, with this administration, you got to use air quotes with voluntary though, because if you don't volunteer, there can be consequences. Kate, thanks. I cut you off, Alex, so let me let you finish, but maybe wrap in some of this open air news. After Fable 5, which also got pulled back by the government, what does this say about the global nature or non global nature of this market?
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G
Well, I think the most important point here is that this is a crucial moment for OpenAI. Its main rival, Anthropic, has been hamstrong by the government, unable to get Fable and Mythos in the hands of customers. Where OpenAI now has a model that it says is on par with Mythos and when it comes to cyber capabilities, maybe even more token efficient than Mythos when it comes to cyber capabilities. I'll also note I've taken a look at the pricing which is just now coming out, and this new 5.6 SOL model is about half the price of Fable. Not exactly half, but just about half of the price of Fable, which means that it's going to be more token efficient as companies try to figure out whether they're getting their return on these models. So OpenAI has this amazing opportunity.
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Now, just because it's half the price doesn't necessarily mean it's more token efficient. If it doesn't work as well.
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G
No, John, that's what I'm saying. I'm looking at both the price and they have a graph in their release talking about how many tokens their model uses for similar cyber capabilities as Mythos. And I'm reading that roughly right now. But Mythos Preview, it looks like it's at around the 300,000 token per activity that was measured on a test called exploit bench, and OpenAI's is in between 100 and 200,000. So what they're claiming, and it's just their claims, is it's both cheaper, well, cheaper, we know, but also more token efficient. And if you're able to release this at a moment where Anthropic cannot release its own models because of its issues with the White House, it's an opportunity to really lock in some customers, especially in the enterprise world, which is where OpenAI has been desperately trying to push in while Anthropic has had the lead. So, major, major moment for OpenAI. And the way they are speaking about this model, they seem, at least, you know, if you're reading the post, they seem confident that they'll be able to get it into a much broader release in the coming weeks. And we don't even know if the fable Mythos situation is going to be resolved.
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B
Never lacking in confidence for sure. Alex Steve, this reminds me of the CPU benchmarks during the megahertz race. And it's, I mean, those benchmarks are good for something, but when it comes to tuning your actual workload and what you can get out of it based on, you know, what you've already been working on and how tuned it is to a particular mile, I've got to wonder, well, what do you think about this situation and how the market needs to respond to both these claims of immense power and then these enormous shortages toward even being able to access it?
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F
I think this is one of the problems that we're wrestling with as investors is because it is somewhat opaque. We have to, at this point, we have to take the companies that they were. Plus you now have to deal think about how the Commerce Department and the federal government is going to react to some of these. So will open a, will this new Open Air model come out as planned or will it not come out as planned? You know, at this point, it's right now there's a land rush. And yes, you could, you could, you could put it into the idea of the CPU race. You could also have to wonder, is one of these companies the Netscape of the, of the Air where you had a first mover advantage, in this case, open AI and ultimately competitors caught up. We're not, we're not browsing with Netscape anymore, although they revolutionized the Internet as we know it. And so this is, this is all very fast moving technology and it's very hard for investors to try to assume, you know, assume what's going on next. I think you have to sort of deal with what's on the ground and make your best guess and go from there.
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B
So Steve, I'm glad you said that because it really seems to me like the market has blind spots when it comes to AI like I haven't seen in a long time. I mean everybody was chasing the GPU and semi story and then out of almost nowhere, beginning of this year comes the memory stuff. Boy, if you were looking around the corner and buying the memory names early, you're having a great year. What are the corners we're not looking around now? I mean right now those SAS names have been more abundant for a long time. And there are some other software names that have gotten attached to that stock that might be getting valued incorrectly. Any thoughts?
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F
I'm actually concerned in the opposite direction that we're overvaluing a lot of this stuff. When I, when I read, I ran a screen this morning, 58 stocks in the S&P 500 are trading at more than 10 times revenue. And that's about, that's a little, that's a bit more than a third of the total weight. So you know, at this point we've become such momentum monsters. You know, we all, as a, as an, as a group, we're all rushing into one space, rushing out of another, rushing into another because, because of all this. And that was, that was alluded to at the top of the segment. And I think that the problem here is, I think it's all been picked over to a certain extent. So you, yeah, there's probably value in the SAS stock. Some of the SAS that's names have been thrown out and stuff like that. But I'm more concerned about the overvaluation and the, and the, the tendency for people to just chase these things without regard to value and just strictly on price movement. One of the things to keep in mind is if you're investing strictly on momentum and trend based trading, you're, you're saying basically all that matters is price. I don't care about fundamentals. That part starts to scare me.
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B
Alex, final word to you here. I believe you had your big technology AI summit last week. You had Brockman there. So you probably got some color from the open air angle on how this is playing out. There's rumblings that their IPO might be delayed because of market conditions, which seems crazy because the market conditions seem pretty good, but maybe not as good as Sam Altman wants. What did you take away from that conversation?
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G
Okay, so two things. First of all, on the demand underpinning this entire conversation, Brockman made an interesting point saying agents, agents are in the hands of maybe 5 or 10 million people, but they're going to come into ChatGPT, which has a billion people. And of course, agentic use cases are much more token and compute intensive. So I would expect that the demand that we're going to see will continue to rise. Now, we didn't talk about this at the, at the summit, but on the news that OpenAI is potentially going to delay its IPO into 2027. I have no, I have no reporting on this, but I would just say I'd be very skeptical when I hear reports that these IPOs are going to be delayed because we do know that it's very important for OpenAI to come out ahead of Anthropic, which has showed, at least before this fable, mess up that its acceleration and growth has been higher. And if I was OpenAI, maybe I wouldn't mind people thinking I'm going to come out in 2027 so I could potentially, you know, put Anthropic at ease and get out ahead of that company.
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B
Even if your IPO looks smaller than Space X, though, I don't know. Well, we'll see. Alex, lots of lots of measuring going on here. Steve Sosnik, thank you as well. Well, coming up, you just heard why the market is rewarding the makers over the takers. But after the break, we're going to hear from someone who's very cautious on Micron. Plus, President Trump reportedly easing pressure on Fed Chairman Kevin Wash as inflation climbs past 4%. How long of a grace period for Wash have before he's got to put on his own hard hat? That's ahead when the exchange comes right back. This is the exchange on cnbc.
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AT&T business Wireless Connecting changes everything In a breather today you can see it down about 3% after gaining more than 15 yesterday after its blowout earnings. But my next guest says while demand will remain strong into 2027, Micron's record high margins aren't sustainable and demand destruction is inevitable on all fronts. Joining me now is Pierre Ferrague, analyst at New Street Research. Good to see you. So I mean I got to take the other side to draw out the interesting narrative. You were right early on in video, but then I believe you downgraded it two years ago a little too early. Is this just an explosive move higher that might not be over yet, making you a bit nervous when it comes to Micron to Yes, John, thanks for the.
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K
Thanks for the background. You're actually right. We were seeing that coming. The idea that AI would completely crush available capacity for the rest of the market and get prices very, very high. Now you have to look at where prices are today. On average, micron prints almost 85% gross margin. So that's 90% gross margins in DRAM. That means against pricing when gross margins were at 50%, prices have gone up like 5x 5x. So you pay five times more on average for a DRAM product today. So that leads to inevitable demand destruction. And demand destruction. What does that mean? It's things like Apple is increasing their prices because they have to pay for memory. That means another phone manufacturer is going to reduce the memory content in their phone. That means an Nvidia who can sell a chip with a lot of memory content and a chip with less memory content will be incentivized to sell the chip with less memory content. And all these mechanisms are coming together and reducing demand, destroying demand. The thing is that you're not going to see like a very abrupt impact like in the past immediately because for the moment demand is way above what can be manufactured. But when things come more into balance towards the end of 2027, 2028, when additional capacity comes online, our call is things are not going to go to hell, but prices are going to normalize. And let's say prices get back to 2x where they were before, that means 2x below where they are today.
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B
But here's my counter to that. For the last, say 20 years at least, memory has been incidental to a lot of mainstream compute memory and flash storage. It's sort of like, oh yeah, if I've got a bunch of videos that I don't want to upload to the cloud, then I've got to have more storage on my device. If I'm doing some really intense workstation work on my work PC, then yeah, maybe I've got to have a whole lot of extra memory. But mostly the focus was on CPU and then GPU and then connectivity. What if with AI, and particularly agentic, where you've got not just a thinking machine and software, but multiple thoughts going on at once. What if memory is a new long term bottleneck and a new key component so it becomes sustainable no matter what?
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K
Yeah, it's a very good perspective. I think you're broadly right. This is what's happening. Memory is a new bottleneck because AI. The more you can throw memory at AI, the more efficient it is. That's clearly the situation now. You have to remember something. It's not like a set game. When you have a lot more demand for memory, memory manufacturers manufacture more, I mean build out more capacity to produce more and more capacity takes two years to come in and demand destruction comes in much more rapidly. So there is like an inevitable pullback at some point where you, you're still doing great and AI is still consuming a lot of memory. But at some point demand destruction combined with additional capacity coming online leads to a correction. And the correction can be mild or it can be very abrupt, but it
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B
might be the kind of correction like we had in Apple stock when there was a talk about you can't patent a black rectangle. And people were thinking that Samsung was going to commoditize them and their iPhone margins weren't sustainable. Turned out their margins were sustainable because the whole way that the world computes was shifting from PCs to smartphones and the app store gave them a moat. Is there the possibility that these memory makers, there's fewer of them than they used to be, actually have a bit more of a moat through their IP and their position than they used to in past cycles?
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K
So very clearly, especially if you look at it over the last 20 years, memory manufacturers have improving economics because it's getting more and more challenging to manufacture leading edge memory and only three people can do it. So over time their economics are improving, but they do remain cyclical. The key difference between an iPhone and a memory chip is that the memory chip is still an interchangeable commodity. You don't really mind buying one from Micron or Samsung or Hynix. So that creates a more flexible market. That's difference number one. And then difference number two is that it takes six months to produce a memory chip. So memory chips are arriving on the market based on what you decided six months ago. And when demand adjusts because you have demand destruction, there is nothing you can do and you have too many chips. And the last thing is that memory chips are evolving every year, every year they're getting better. So the chips you have today, you need to sell them now or if you don't, you have to destroy them. And the combination of these three realities creates cyclicality. And it's not because your market is growing much faster that it's not cyclical anymore. Investors tend to oppose cyclical and secular growth. It is a mistake. Both work together.
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B
Okay, you defended your thesis well. Pierre, good to see you. Farragut with new street research.
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K
Thanks, Jerry.
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B
Coming up, What a difference two weeks makes. SpaceX going public 14 days ago. Shares are only slightly above their opening price of 150 right now.
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I
Where are they?
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B
155 and change. What investors need to know. With the stock set to enter the NASDAQ 100 tonight as we head to break, check out the deal of the day on semiconductor buying. Synaptics and a $7 billion all stock deal. Its largest acquisition ever. Here's what On Semi's CEO told Squawk on the street about that deal. We have established ourselves as a key leading player in power and sensing, both in automotive, industrial and AI data center. That thesis, that strategy remains intact.
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What this deal provides is a margin
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is A TAM expansion, $30 billion incremental market expansion in a strategic forward looking view of where the market beyond the AI data center into the physical AI.
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This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.
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Join host Keith Lansford for this information
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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 to the Exchange, all the major averages are slightly higher, unless you count the Russell 2000, which is a little bit in the red. Dom Chu's got a closer look at the day's biggest movers.
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I
All right, so John, let's get you some of those big ones right? Not just the fractional ones, the movers of the day that are not tech, technology or semiconductor related. Right now, shares of Moderna are up 13% and at one point hit the highest level since September of 2024. That's being driven in part by news out of the company's Science Day for investors, where it unveiled new developments in its product pipeline with optimism about some of the autoimmune disease treatments it has. Last week as well, you may recall there was also news that an FDA advisory panel had approved Moderna's MRNA based flu vaccine. Now those pharma and biotech stocks are getting a lot more attention these days with that move out of some of the big AI and tech names. So keep an eye on Moderna and health care. Next up you got shares of Rocket Lab, which are up nearly call it 6% so far today, driven in large part by news that NASA has selected the company's electron platform for three launches involving two separate NASA missions for studying ice clouds at high altitude and one for Sun, Earth Energy Science. Today's rise reverses what was a five day losing streak for those shares and a drop of roughly 45% since its recent highs back on May 27th. And then we're going to finish things off with a notable analyst call of the day that sending shares of footwear maker Crocs up by just around 7%. Piper Sandler has upgraded these shares to overweight from a prior neutral. They raised the target price to 150 from a prior 95. They cite amongst other things, better trends in its direct to consumer business and an inexpensive valuation at roughly 8 times price to earnings. So keep an eye on crocs up 7%. For more on those and other top analyst calls of the day, just head over to cnbc.com pro subscribers get all the access to details around the big notable analyst actions each day. John, I'll send things back over to you.
- [32:01]
B
Dom, thank you. And now to Seema Modi for a CNBC news update.
- [32:05]
H
Hey John. A setback today for the Trump administration on environmental regulations. A federal appeals court rejecting the EPA's bid to end Biden era limits on soup pollution from coal fired plants and factories. The Trump administration last year asked the court to invalidate the law saying the agency had acted unreasonably by not considering the cost when setting the standard. A judge in Los Angeles declared a mistrial today after the jury deadlocked in the case of the suspect accused of starting the devastating Palisades fire after first saying they had reached a verdict late Thursday, the jury followed up with another note less than a half hour later saying they actually couldn't reach a consensus. Prosecutors say they will retry. And Serena Williams now knows her first round opponent in her return to Wimbledon for the first time in four years. She will play 20 year old Australian Maya joint. Williams. The seven time singles champion accepted a wild card entry to the Grand Slam tournament. She'll also compete in doubles with her sister Venus. Wimbledon starts on Monday. Cannot wait for this, John and her return.
- [33:04]
B
We'll see if that joint gets smoked or not. Thank you. Coming up, nearly half of the FOMC's members expect interest rates to go up this year. That is in stark contrast to the president's position. But new reporting suggests Fed Chairman Kevin Wash might have bought himself some valuable time to deal with the fight against inflation. Got details next. To the exchange? With inflation topping 4%, the Trump administration is easing off its long standing calls for the Fed to immediately cut interest rates. And that move giving new Fed chairman Kevin Warsh a little bit of breathing room according to our senior economics writer, Matt Peterson. He joins us now along with EY Parthenon chief economist Greg Daco. Welcome to both of you. So, Greg, let me actually start with you on this one. How are we positioned now given what we're seeing with these latest numbers? And what if Powell had cut already like the President wanted to? Would we be in a better position or less so?
- [34:09]
M
I think that's a great starting point. I think we always have to consider where monetary policy is in terms of how restrictive it is and what influence it is having on the economy. Right now we have a monetary policy stance that's slightly restrictive, which is imposing some form of restraint on the economy. The other thing that is important to keep in mind is that where are these supply pressures leading into inflation? I think inflation is not right now driven by higher demand, but instead by supply pressures like higher energy prices, like an environment where you're seeing a lot of strain from AI on limited resources, which is putting upward prices on computers and electronics. Those types of pressures are not the type of pressures that the Fed is well equipped to deal with. And raising rates by 25 basis points or 50 basis points is not going to get them far. So I still anticipate that the Fed will hold tight for the time being, even though inflation is is twice as high as its main target of 2%.
- [35:06]
B
So, Matt, we're talking about not raising rates, but we're not talking as much about cutting. And wasn't that what this whole fight was about? Isn't that why Jay Powell had to put on the hard hat, even though that was supposed to be about a renovation issue? Where is this putting that key issue? And arguably the whole argument that the President's been having with the Fed Fed for the past several quarters, maybe even longer than that.
- [35:33]
N
He's been mad at Jay Powell since what, 2018 or something? I mean, it's been a long time since the President has said, you know, the Fed is in the right spot. But that's sort of what we're starting to hear. I mean, we heard folks like Peter Navarro, who, you know, has the President's Year on Economic Policy, wrote an op ed yesterday saying he thinks that the Fed was right to hold interest rates. You know, that's just really striking to hear from this administration that has been breathing down the Fed's neck for quite some time. And really it all comes down to they've got their guy in the Fed and so they're willing to trust him, or so they say.
- [36:10]
B
Greg, a big political story, I think, has been the disconnect between the elites, and that can be the politicians, it can be the millionaires and billionaires, whatever from those who are experiencing the mainstream American economy. That caused a lot of upheaval in Washington in the past couple cycles, and one has to wonder whether it's about to happen again with midterms and beyond. How do you think about this in the frame of what you have called in the past an income less expansion that we might be on the brink of?
- [36:42]
M
Yeah, I think we're still very much in this income squeeze environment. If you look at the latest data for the month of May, you see that income is essentially not growing once you adjust for taxes and inflation. Inflation, which means that there is a gradual erosion in spending power for many Americans across the country, and that's limiting, that's capping consumer spending growth. It doesn't mean we're entering a slowdown or a recession of any sorts, but it just means that the cap, in terms of how rapidly the economy can be evolving is being put on and that income erosion is going to continue in the second half of the year, notwithstanding the fact that we're likely to see lower inflation because energy prices have come down. You have to remember that one of the key drivers, the key pillars of consumer spending, is wages adjusted for inflation, and that's currently in contraction territory. So when you look at the grand scheme, the grand picture of the US Economy, it's an economy that's still moving forward. But there are fragilities in terms of the underlying pillars of growth, which is likely the key reason why I think the Fed will eventually decide to stay on hold and not necessarily tighten in this environment, because tightening could actually hurt the economy more and wouldn't necessarily help with any of the inflationary pressures that we're discussing.
- [37:57]
B
Matt, we're talking about some of these inflationary pressures. Sure, energy prices have just headed lower, but those input costs can take a while to filter through to everything else. And in the meantime, we're talking about computer prices going up and all of this as we're heading into the back half of the year. In a holiday season, this is around the time when folks have to start getting goods into warehouses in order to be staged for that season. How does that set things up for the economic argument coming in November?
- [38:29]
N
I think that this economic argument is going to be pretty complicated, as Greg was just saying here. Right. I mean, really what's going on with the consumer is it's touchy. You know, people are dipping into their savings in order to get by right now. And we just don't really know how long American consumers can hold out for on that basis. I mean, it seems like they're holding up reasonably well right now. But, you know, unless wages start coming up again, these price pressures are going to start hurting people. And we will see a lot of pressure on the Fed to do something about that. Of course, that's not something that the Fed can easily tackle here. Right. These are the kind of supply shocks we're talking about, are not things that are really amenable to sort of Fed interest rate changes. So this is a pretty tough period for our new Fed chairman.
- [39:14]
B
All right, Matt, thank you. And Greg Daco from Parthenon, thank you as well. And don't mix CNBC's live coverage from the ECB's forum on Central banking in Sintra, Portugal, with Fed Chairman Kevin Warsh, ECB President Christine Lagarde, and the heads of the bank of England and the bank of Canada. That is Wednesday, 9am Eastern. Coming up, SpaceX has been stuck around its $150 opening trade price since the IPO two weeks ago. But that could be changing in the next few days. We're going to tell you why next. Got breaking news out of Washington. Our Eamon Javers has it. Amen.
- [39:57]
J
John. That's right. The United States, Israel and Lebanon just signed what they're calling a trilateral framework agreement for peace in the region. That coming after multiple days of talks here in Washington, D.C. secretary of State Marco Rubio said this is the beginning of the beginning. He said they're aware of how much work is yet to be done. But he hailed this as a significant diplomatic breakthrough after those days of negotiations. No details on what exactly is in this framework just yet, but notably, John, it didn't include one of the key parties in all of this, which, of course is Iran and their proxy Hezbollah, which has been operating in Lebanon. That's the entity that Israel has been striking against in the region. And so without Iran a party to any kind of ceasefire or peace agreement in the region, it's difficult to see how that will stick. But nonetheless, a diplomatic breakthrough among those three parties, at least, suggesting that they are ready to move toward a peaceful framework.
- [40:56]
B
Yeah, it's the entities not in these agreements tending to scuttle them, it seems. Thank you.
- [41:01]
J
Right.
- [41:02]
B
Well, it's been two weeks since Space X historic public debut, and the stock's been stuck right around its opening trade price of 150, minus a spike early on. But that could be changing soon. Sima Modi's got more in today's tech check.
- [41:16]
H
We've been tracking this one closely, John. A few big events coming out that could influence how the stock trades. First, Space X will join the NASDAQ 100. We are hearing that an update could come as soon as tonight on the 20 timing for space X's inclusion into this index that tracks the biggest technology heavyweights. That could force index funds that track the NASDAQ 100 to buy SpaceX shares. Argus Research in a note says expect more volatility given its tight share supply and this early inclusion. Fidelity's anti flipping policy also lifts, which basically means starting Monday, retail investors who got an allocation on day one of trading can sell the stock without being penalized. The brokerage had but had said that any selling in the first two weeks could result in being banned from participating in future IPOs. The goal really of this guideline was to reduce early selling and limit volatility. It does come as shares have whipsawed in the last few days, reaching a high of 225A share, then coming back down to right around its opening price of 150, currently at 155, still the sixth biggest company in the world. If we look across the analysts, 11 have a buy rating. Excuse me, 11 have coverage of this name. Six with a buy rating and two with a sell. One of those sell ratings is from Morningstar analysts. They're really citing valuation as the concern. Also noteworthy, John, following Space X's mega bond sale earlier this week, the company's credit default swaps have gone live trading as of yesterday. The 5 year space XCDS is now trading tighter than Oracle but wider than Meta. So we're following this from the equity side to the credit side close.
- [42:48]
B
No shortage of movers to trade for sure. Sima, thanks. Well, coming up, our next guest has said that owning or not owning SpaceX is one of the most consequential portfolio decisions this year. With potential catalysts on deck. We'll see if she's ready to strike. That's next. It's hovering near its lowest level since October 2024. And my next guest says if you're tempted to get in here, here, don't. Bitcoin is still in crypto. Winter. Victoria Green is cio, G Squared Private Wealth CNBC contributor. Victoria, good to see you. Bitcoin feels a bit like the risk roller coaster that used to be popular, but it's been upstaged by newer rides.
- [43:30]
L
No, yeah, no, I think it's old news. Now, right. Nobody wants bitcoin. Everybody wants space X open air and IPOs. It is facing a sentiment problem. You've had negative outflows which is really affecting the bitcoin and the Bitcoin ETFs over the last month. You continue to have heavy outflows and the that weighs on the price. And most of us that have lived through a crypto winter understand you have some more leg down. On average a winner is at least 12 to 16 months. We're only eight months into this. A 50% drawdown, which I know sounds like a lot, but that's not a lot for bitcoin. Historically hasn't bottomed till about 75, 80% pullback. So a lot of us are sitting this out. You're starting to see people have bad sentiment. We're wondering if microstrategy or is going to make it or not. If strategy, I'm sorry strategy is going to make it or not as they have levered bitcoin. But history is not on the sides of you catching a bounce here at all barrel.
- [44:17]
B
Ouch.
- [44:18]
F
All right.
- [44:18]
B
Crude is below 70 bucks a barrel as traffic through the Strait of Hormuz gradually resumes. Victoria, you say energy isn't a dead sector yet.
- [44:27]
L
It's not a dead sector. We finally have the war. We're trading back to where we were basically on WTI and Brent before the war started. 6570 is great for most US producers but look around the energy segment and realize number one it's a low correlated to tech asset. Number two, they mostly have high quality balance sheets and great cash flow. And number three, they're a very integral part of the data center play. Who's going to power these data centers? Most of them are leaning into gas turbines. Look at the Chevron Microsoft deal. That's huge for Chevron. They're about to figure out a way they don't have to flare gas off of their premium assets. Build a big gas turbine fire plant out there and then all of a sudden you have this new revenue stream that's coming up that five years ago was it in the cards. You've got pipeline companies like Williams brothers with 32,000 miles of pipelines including their massive transcode that's moving crude all over and they're highway. They're going to take their toll whatever crude prices are. So yeah. Are the Y and P is at risk with rerating? Absolutely. Is there still massive demand for gas, for LNG exporting for for powering and power plants? 100%. And so you want to look around, look maybe at your midstreams, look some at your integrated, look at your pipeline. Companies have some great yield. They've got pretty great balance sheets out there. One of you know, I think they deserve a lot.
- [45:41]
B
Okay, now finally SpaceX on track to end the week down about 14%. Victoria, you're expecting it to get volatile as Fidelity and Schwab lift their flipping rules. But I also wonder what you think about the Elon effect. Elon has been able to do his own internal M and A buy stuff of his that's not performing so well. When it's in trouble, talk up Tesla on X to give it a boost. But is there enough Elon to go around to keep supporting and gobbling his various things and, and keep investors whole?
- [46:12]
L
I think obviously the Elon effect is one reason the SpaceX IPO rose. I think at some point reality does bite the stocks. Look, I understand the opportunity step behind it. I just cannot get behind a $18 billion annual revenue company being worth as much as Amazon and Microsoft. And so for me, I feel like there's too much reality that's going to come to play here. You're going to have to raise money to generate all of this potential new XI revenue. You know, building rockets is not. I think Elon's a wonderful cheerleader. He often gets where he wants to go as a visionary, but it very much usually takes much longer to get there and much more capital to get there. But absolutely he can move the stock. And the cult of Elon and the followers of Elon are going to love this stock. And so there is certainly a sentiment play behind it that it's a one of a kind stock. And I think everybody's expecting it obviously to mega merge with Tesla next year and become this ultimate worship. The Elon stock.
- [47:05]
B
Well, but is that dangerous for the market? I mean, I mean it's gone well so far, but how much is this a bellwether or a catalyst, upside or downside for the rest of the market?
- [47:16]
L
I think it's more dangerous to Tesla and Bitcoin and other high volatile kind of Reddit love plays that are a little bit more meme stocky. I think those are most at risk because you have so much play going into Space X right now.
- [47:27]
B
All right, Victoria Green from G Squared, thanks. Good to see you.
- [47:32]
I
Thanks.
- [47:32]
B
That's gonna do it for the Exchange. Power lunch starts after this quick break.
- [47:41]
A
You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time.
- [47:47]
H
Same place.
- [47:48]
B
Early birds Always rise to the occasion for summer vacation planning because early gets you closer to the action.
- [47:54]
A
So don't be late.
- [47:55]
B
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