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Torque in Tech, Macro Shifts, and Earnings Exchange 8/3/26
00:43:59
Evolution in the AI trade. A rise in long-term global bond yields. And the key names to watch this week.
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- [00:00]
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- [00:57]
Kelly Evans
You're listening to the Exchange. Here's today's show. Thank you very much Scott. Microsoft and Amazon are powering higher again today after last week's massive rallies. I'm Kelly Evans and welcome to the Exchange. The memory stocks are some of the weakest in the market today as China's largest chip maker CXMT is reportedly planning a second chip plant in Beijing. Western Digital down nearly 4% as it and Sandisk get ready to report earnings this week. On the floo flip side, Microsoft and Amazon up 5% with Amazon hitting a new all time high today. It's having its best week in more than a decade. And get this, Microsoft on pace for its best week since 1999 and this is after they soared on earnings last week. We'll talk to Gil Luria in just a bit. He thinks Microsoft will lead the next leg of this trade. We also have Boeing popping 5% today as the FAA certifies the 737 Max 7 to fly and as oil prices slide after the President halted an attack on Iran that he said would have been biggest since World War II. We'll get the very latest from the White House. But let's begin with this massive torque in the tech trade. Last week and today as well we had the semis and software seeing a huge bounce while the Mag 7 continued to rupture as a group. And today the memory names are leading the declines. Travis Prentice is CIO of the Informed Momentum Company. He's joining us in today's opening exchange. Travis, it's good to see you. And how would you describe what's going on with this trade here in the markets more broadly.
- [02:28]
Travis Prentice
Yeah, it definitely was a rough July for the broader AI trade. Most notably, like you said, semiconductors and memory stocks. It's too early to say whether. I think the jury's still out whether this is a change in narrative or just a correction. But certainly there was some damage done to the trade and it's going to take some time to heal. As far as the technical damage and the trends are concerned, when you see
- [02:53]
Kelly Evans
damage done to the trade, is it the kind of damage that makes you want to come in and snap up these stocks because they're, you know, way off the highs or the kind that makes you question whether the, you know, we're moving on in the same way that we kind of had the Nvidia moment. It's holding its own, don't get me wrong. But the market kind of moves on. Is it moving on from the memory trade?
- [03:16]
Travis Prentice
It's tough to tell now. I think right now it's not time to be a hero. I think the trade is definitely flashing a caution signal, some flashing yellow lights perhaps. But I think right now it's time to manage risk, monitor these trends and be open to wherever the trend either reasserts itself in terms of the memory and semiconductor or actually new leadership. But I also think what's interesting within the broader AI trade is not every company leverage to AI is having a rough time. In fact, we see a very strong confluence of both price momentum and fundamental momentum in the. In the trade that's leveraged to the rise of AI agentic traffic, whether it be security stock, Palo Alto, this.
- [04:02]
Kelly Evans
Say that again because this is important. You're seeing the strongest part of the AI trade for fundamentals and technicals in the agentic trade and keep continue.
- [04:13]
Travis Prentice
Yeah, sure. Certainly I think it's time to look at stocks, you know, from a stock by stock perspective and certainly at the informed momentum company, we're looking at single stock trend and we're looking at the idiosyncratic nature of what's driving both their price trend and their fundamental trend. So the intersection of both those things. And so within the AI trade you have companies that are levered to the rise of agent traffic. So things like security networking, so a company like a cloudflare, a Palo Alto or a crowdstrike, those companies that are levered to the broader adoption of AI or we're seeing very strong trends even throughout July and into August today, as
- [04:52]
Kelly Evans
you see, this is fascinating and I just want to make sure that I understand. And what else it would imply. So you're seeing strong momentum in Agent Traffic and the trade and companies. So I'm thinking now about, you know, back in the Internet, we just took it for granted that it was humans using it. Now agents are using the Internet and what's happening as a result for the security names for networking. Are there other areas implicated here?
- [05:17]
Travis Prentice
Yeah, I think there's going to be other areas and that's why you need to be open to where trends emerge and persist. But if you think about the rise of traffic with agents, think of them as digital assistance, but they all need to be credentialed. Security is obviously very important. And then obviously the traffic that it creates needs to be optimized in the network. So there will be a tremendous amount of opportunity as AI kind of diffuses across industries. And I think that's one thing we saw from the quarterly reports is just how many different companies in very different industries are embracing the power of AI and harnessing the power of AI to do their business better. Either cut costs or actually create revenue acceleration, embracing this technology. So I do think though, that, look, it's time to kind of look at the market in terms of a market of stocks rather than a stock market. And so right now I think we just look, look at the market, observe and be open to wherever either the leadership asserts itself again within the same trade, or it goes outside of, of kind of what we've been used to this year so far.
- [06:21]
Kelly Evans
Cloudflare, Datadog, F5. Are there any other companies, Travis, maybe outside of that direct security and networking area that you think? I mean, we have names like Caterpillar and Eli Lilly reporting this week. Is it time to, to further make the leap into names that will benefit from deploying this into their business models? Or would you stay closer to where we're seeing the newest bottleneck happen, which is around Agent traffic?
- [06:44]
Travis Prentice
Oh, I think you should be diversified in terms of not only the AI trade, but in terms of investing styles, in terms of factor exposure. So we're always big advocates of being diversified in terms of everything. So be balance, balance your risk and momentum, quality and value as an investment style. All those things together create more resilient portfolios. So even within AI, or even there's life outside of AI, by the way too.
- [07:09]
Kelly Evans
So the financial divers, imax, garment for
- [07:13]
Travis Prentice
trends, no matter where they emanate, is really what we should be focused on right now.
- [07:17]
Kelly Evans
Why do so many of the banks screen? Well, for you, Yeah, I think what
- [07:22]
Travis Prentice
price trend is kind of Just self explanatory. I mean it's just facts right? The stocks that are outperforming in terms of momentum. But when we look at what's happening fundamentally, I mean I think credit surprising on the upside that consumers still resilient. We've heard that from very different varied companies. But also we're seeing loan growth in terms of being better than expected at a lot of these companies, especially the smaller regional banks. And then you see the servicers like a Northern Trust or a State street that are doing extremely well. A lot of self help initiatives but a loss also a lot of new revenue generation revenue generating services. So there is life outside of AI even in theater companies that we've mentioned from, from, from our research that like IMAX and Marcus Theaters who actually had its one of its best weekends in the box office in its history. So there are good things going on even outside of AI. So I think that's what momentum why momentum should be a part of everyone's portfolios because it's always moving, it's always looking for the next leadership and it could be in areas that we haven't been used to at least recently outside of tech and outside of AI.
- [08:30]
Kelly Evans
IMAX up 37% year to date being perhaps one such example. Travis, thanks. Good to see you. Travis Prentice with the Informed Momentum Company While the trade and earnings continue to be the top level drivers of this market, we do have some major macro shifts taking place behind the scenes like the rise in long term global bond yields which Robin Brooks told us last week would be much worse in places like Japan and peripheral Europe if their central banks weren't such heavy buyers of government debt. And here in the US many are wondering if that's the direction Kevin Wash is trying to go in, pushing the Federal Reserve to the sidelines to some extent and forcing the market to find the real level where treasury yields should be trading. Let's bring in CNBC senior economics reporter Steve Liesman along with Kumal Sri Kumar, who is the president of Sri Kumar Global Strategies. Steve, do you want to just kick us off with kind of a recap of where we are after the yen intervention, which I think also has people wondering if that has anything to do with the events here in the US but maybe some people where to start?
- [09:28]
Steve Liesman
Some people I spoke to say there is a relationship that you had the rise in bond yields on the tale of the Fed meeting last week. Higher bond yields increases the differential between US And Japanese rates which put more pressure on the currency, helps devalue it so that was a reason why Japan came in the next day after that surge in bond yields. So that could be a factor. On the first thing you mentioned I was thinking about it pretty deeply and I've been reporting on this notion. There's sort of two extremes on the issue. One extreme is the Fed needs to handhold markets and tell them everything at all times. The other is the Fed should tell nothing to markets and they should set their own level. The idea of the market setting the benchmark interest rate is just not possible. The Fed interest rate is an administered rate that is determined according to the dual mandate which comes from Congress. So it's a democratically underpinned idea. Okay. The market setting, it would be a very different situation. And one way to think about it is every guy can, every, every bond trader could come in in the morning and know in the absence of an intermediating that the funds rate, the base of the whole chain is set until the next meeting. Now maybe there's up and down or possibility but it creates a more stable environment. If the market set this, we could have a long discussion about how difficult that would be.
- [10:55]
Kelly Evans
It kind of takes you back to the olden days of Libor and some of the crises that we've had or so for in those, those kind of plumbing issues in the financial system where sometimes you get squeezes or pops or let's put that. Let me bring in Sri for a second. Back to that Sri Kumar.
- [11:10]
Steve Liesman
I'm sure he has some thoughts about this.
- [11:12]
Kelly Evans
I'm sure he does. And I was reading your work over the weekend Sri and thinking that are you looking at this as a step in the right direction or a step in opening a bigger can of worms?
- [11:25]
Sri Kumar
I think the Wash press conference last week I thought was a disaster. He was talking about as if to say he's not going to hold the investors hands. He has to stay out of the way. Unfortunately he does more than that. He muddies up the water by being present, not telling you what he's going to do. It's actually acting a bit too cute in this whole situation. My recommendation to him would have been if you want the Fed to stop, get out of the way. If you want the investors to act by themselves, follow a rule such as my PhD thesis advisor John Taylor's Taylor rule, and it gives you rules and when to raise interest rates, when to cut interest rates based on GDP growth and inflation being above or below target. So if he does that and gets out of the way, we will have actually a free market and at the same time, the Fed would not interview or interfere and the investors would know exactly what is going to happen. Right now, WASH has given us the worst of both worlds.
- [12:39]
Kelly Evans
I want SRI to emphasize and this is why I thought your point of view would be especially interesting. You were frustrated that the Fed hadn't been doing more to fight inflation. Am I, am I correct in saying that coming into war should take it? So I would have half expected you to be cheering and saying this. Yes, this, this is what we wanted. He's, he's tackling this problem and so why. But you feel that he's not doing so or you just are worried about the approach?
- [13:03]
Sri Kumar
You're absolutely correct. I have been saying for quite a while that inflation should be the top priority. In fact, I've gone to the extent of saying the Fed should have a single target mandate only inflation. Leave growth to the U.S. treasury. You take care of one item which you should do properly. Right now the Fed is not doing anything properly. Now the reason why I dislike last week's decision is because he's not telling you what he's going to do to bring inflation down. What does it mean to say I think inflation is too high. I would like it to be lower, but what are you going to do about it? Oops, sorry, I'm not going to tell you anything. Then does he take investors to be fools or does he really not know what to do?
- [13:52]
Kelly Evans
To quote Stephanie Roth in her note today from Wolfrat Research Steve, she said the press conference raised a question that markets won't easily forget is the plan to beat inflation or to wait for inflation to beat itself. And by the way, this is. Now we're all going back into the history books because Volcker did a version of this if I not mistaken early late 70s, early 80s to fight inflation. He let the funds rate kind of fluctuate but he targeted monetary aggregates. You can target the price or the quantity of money in this modern financial era. Post a lot of the it seems like it's going to be hard to do the latter. So I haven't yet heard if there's a new framework where they would try to target something like. I doubt that's the case but that only really leaves to your point the funds rate for unless it's the balance sheet. I mean unless the balance sheet.
- [14:34]
Steve Liesman
I'm amused Kelly, because some people criticize me for being too tough on Kevin Warsh. The reason I was tough on Kevin Warsh is I was talking to people like SRI and I didn't use Half of the things they said, I did not say the meeting was a disaster. Sri did. I also heard a variety of other things I didn't say because, but, but people were very critical of that meeting because you were sort of in between, like, give me, give me, tell me you're going to, to solve this problem and how you're going to do it. But you can't leave us hanging like this. And I want to come back. A couple of things that three said. One, if he went according to the Taylor rule, I've seen, I've seen estimates of the Taylor Rule. I think it was Diane Swonk did a piece on this. North of 6% in one thing north of 4, 9 and another one they
- [15:19]
Kelly Evans
were at 3 and a half and
- [15:20]
Steve Liesman
we're at 3 and 3.6 right now. So there wasn't a single Taylor rule equation that did not yield a substantially higher interest rate.
- [15:27]
Kelly Evans
But also the Taylor rule quote unquote itself could be widely interpreted. It would have a point and a half of variation.
- [15:32]
Steve Liesman
But we kind of made my point for, for me. And he may want to debate this. I'll bet he does. Which is that yes, the market can set the interest rate according to the things the market cares about. And in this case it might be inflation, but that's not the law. The law is a dual mandate. It's actually a triple mandate, but we can talk about that later. But the dual mandate is the Fed has to consider employment and inflation. So the market may do something, for example, well, we'll just care about inflation. Right. And by the way, when we say the market should set the interest rate, which market? Does the stock market get a vote? Does the bond market get a vote? Which market are we talking about set the interest rate?
- [16:10]
Kelly Evans
The third party.
- [16:11]
Steve Liesman
For what reason?
- [16:12]
Kelly Evans
The third part of the triple mandate, stable long term.
- [16:14]
Steve Liesman
So that's another key.
- [16:16]
Kelly Evans
If they are by law beholden to stable long term interest rates, at some point, if those become a very active
- [16:23]
Steve Liesman
Fed meeting, six every six weeks or so, or maybe less than that, we'll see what creates a stability to the bond market. Like I said, you come in in the morning and you know what N is, so you can price n +1, n +2, n +3 should give us
- [16:37]
Kelly Evans
a quick last word on this. What happens now? They have Jackson Hole coming up, although the subject I can't remember, but it's something far afield from this. But this is a chance for him to perhaps more fully explain his thoughts,
- [16:49]
Sri Kumar
let me say, end up with two points, Kelly. One I agree with a lot of what Steve said in terms of the problems with the Wash speech going to Jackson Hole. Jack from now to Jackson Hole you have another three weeks plus before Kevin Walsh speaks. I don't know that the treasury market can withstand three more weeks of this kind of silence and confusion from the Fed. Three weeks is way too long. Definitely. I think action to take place before the mid September FOMC meeting, I think they have to come out and say which way they are going to act. And probably before the end of the year, Kevin Walsh is completely either going to be a total failure or he's going to change his position with respect to how he acts so that he has seen the rest of his term. He can continue to maintain some confidence, but this situation cannot persist.
- [17:46]
Randy Connick
All right.
- [17:46]
Kelly Evans
Well, I think it's too late for the subject of Jackson Hole this year End of the month is financial innovation implication, implications for payments and policy.
- [17:55]
Steve Liesman
So there's a rule, Kelly, that, you know, it's always about if the chairman wants to be heard on something, he will be heard on it. In other words, if he feels the exigency that SRI is laying out, he will talk about these things. If he feels there's a need to
- [18:09]
Sri Kumar
be better, that's absolutely right. And if he does not, and if he speaks about other issues as he did last Wednesday, if he is not going to talk about the principal issues, Kelly.
- [18:20]
Megan Casella
Right.
- [18:20]
Sri Kumar
Then it is again going to be a failure.
- [18:23]
Steve Liesman
Let me point out Peterson, my colleague Matt Peterson did write a piece saying that he thought that maybe wars was a little misunderstood and was perhaps more hawkish than he was given credit for. It's worth a read.
- [18:34]
Kelly Evans
I would just say watch long term yields. Yes, they rose last week, but if that stops happening, the pressure is going to be off of him. Frankly, I think the market is the arbiter of this to some extent.
- [18:42]
Steve Liesman
True.
- [18:43]
Sri Kumar
Stephen. Stephen Kelly, one quick thing in terms of reading it. Look at the FD editorial over the weekend and you see all the things that were wrong with the speech. The very big difference.
- [18:55]
Kelly Evans
I think he's trying to frustrate the ftse. I think an FT editorial slamming him is probably exactly what he's here to accomplish. I don't know, I won't say.
- [19:04]
Steve Liesman
But not higher yields for no reason that agree.
- [19:06]
Kelly Evans
Agreed. We'll watch the market. SRI thank you. Sri Kumar thank you, Steve. Thank you as well. Our Steve Liesman. Don't miss Steve's exclusive interview, by the way, with Philly Fed President Anna Paulson Tomorrow at 8:30am Eastern on Squawk Box. I'm sure we'll see if we can get anything out of her about how she thinks about all of this. Coming up Microsoft and Amazon both soared the day after their results last week. Alphabet sank, remember going back to its earnings. What is driving that divergence? We'll talk about that next. Plus, we are kicking off the second busiest week of earnings season with more than a quarter of the S and P set to report. We'll look at how to position with a variety of these tech names and the memory trade Back under pressure the exchange is back after this.
- [19:46]
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- [20:44]
Julia Boorstin
What made you confident that you could do something that hadn't been done before?
- [20:48]
Kelly Evans
I have no fear of failure. Trailblazing women, changing the game One of my favorite pieces of advice? Think about what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself. Life is short and you just gotta think big to accomplish big things.
- [21:06]
Megan Casella
Julia Boorstin hosts CNBC Changemakers and Power
- [21:09]
Kelly Evans
Players New episodes every Tuesday. Wherever you get your podcasts. Amazon is back to a record high for the first time in three months and topping 3 trillion in market cap for the first time. It's also coming off its best week in over a decade, while Microsoft is coming off its best week since the turn of the century. Now, Alphabet, let's go back to how they kicked off earnings season for these hyperscalers, so to speak. The shares sank 7% when they originally reported results, including that higher CapEx forecast for this year. So why the divergence? Mackenzie Sagalos has more in today's Tech check Mac at least today Alphabet's rising with its peers.
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Mackenzie Sagalos
Yeah, Alphabet surging more than 5% this morning and eclipsing Apple in market value, now behind only Nvidia. Yet it is still trailing the renewed Hyperscaler rally. Microsoft and Amazon have outpaced Alphabet by nearly 10 points in five sessions. Now Google's problem is not AI demand. Cloud revenue and backlog both grew more than 80%, while Google Cloud is converting each new dollar of revenue into additional operating profit at nearly the same rate as us, despite growing more than twice as fast. Now I've been speaking with traders about why the stock reactions have been so different. Their answer is partly funding, but also messaging. Alphabet was only one, this is the only one of the three to issue stock, part of this broader financing push that raised 140 billion plus across equity and debt. Then it emphasized another major capex increase in 2027 and explicitly called out pressure on cloud margins and and slower search growth without clearly connecting that spending to returns that it's already generating. The Gemini rollout compounded the problem. Incremental model updates coming the day before earnings really reinforce this perception that Google still trails the Frontier labs. Rather than strengthening the case for AI investment, Microsoft did the opposite. CEO Satya Nadella argued that better infrastructure models and custom silicon can really protect margins even as spending stays high. But Sundar Pichai never quite made that case over at Alphabet, and the disconnect helped leave Alphabet as more of a value play that investors are piling into today. And in fact, after two days of gains, it is still trading at a discount to Amazon.
- [23:19]
Kelly Evans
Kelly Fascinating. Mackenzie, thank you. If Amazon and Microsoft were to successfully make the case for continued CapEx this earnings season, does it make them also the best position to win the next leg of the air race? Let's ask Gil Luria. He's head of technology research at DA Davidson. Again, I love looking back at the history of this, Gil. Microsoft was first out of the gate. They were the golden child after chatgpt. They had the open air collab. It was all about Microsoft. Until it wasn't, which was up until about last week. So you think they're going back into the leadership position here?
- [23:52]
Gil Luria
Yeah, they have, they have. And part of it is that they actually reported positive cash flow and said that they'll retain positive cash flow where Google and Amazon are already negative and will stay negative. Microsoft said they're going to increase capex next year. They didn't use the word significantly, which is why the market had the negative reaction to Google. Now Part of it is that they're not just selling AI compute, they're doing a better job than the other two at selling infrastructure software. On top of that, they have all the Microsoft fabric and databases and orchestration layers and control planes and harnesses to upsell their customers, which is why they're doing just as well without. Those are less capital intensive businesses, so they don't have to match the capex at that scale that Google or Amazon do. So it's a little bit of an advantage they have both in the ability to deliver and the efficiency to deliver that. Having said that, all three are winners. The only difference right now is valuation. Amazon's the most expensive, Google the second and Microsoft the least expensive. All three are winning.
- [25:04]
Kelly Evans
What about Meta Oracle? They're a little bit more on the bubble. The investors are a little bit less sure where they and some of the others are going to come out here.
- [25:16]
Gil Luria
A lot of it has to do with execution on the Oracle front and decision making on the Meta side. If Mark Zuckerberg decides that he'll be transparent with the monetization of the data center build out and tell us how much he's going to make by renting out that capacity, which could be a lot, investors would have been a lot more comfortable than him saying, well we're not sure yet, which is the multiple quarters that we've gone to. Yeah, we could rent out compute capacity, but we're not sure yet. On the Oracle side, it's just execution. They need to get data centers build. They're having a problem with that. They need to raise capital. They're having a problem with that. They said they're going to do an add to market equity offering at the beginning of the year. They haven't done it yet and the stock keeps going down so now it's even harder to do. So they have that lingering. This is all execution and messaging. Both of these companies can do well
- [26:09]
Kelly Evans
if they do that, is it. Is that the only problem or do they need partner with deeper pockets or I mean should matter get into the cloud? I don't know how you get into the cloud business up against these incumbents at this point. Should Oracle have some kind of partner with a better balance sheet?
- [26:26]
Gil Luria
So Oracle does have all the cash flow. They'll probably have 25 billion of cash flow from their core software business so they can fund some of the debt. It's just that they piled on too much. So they need to slow that down, build the data centers, get the cash flow in and execute on that. It's a high wire act. That's why the CBS are trading so high. And in many case again, they also have the cash flow. Selling ads is a fantastic business. They just grew, that is 28%. They can fund the growth. It's just that investors are saying we want to own the ad business. Until you show us that you can monetize the data center business, we don't want you to keep investing more in that than you're investing in the ad business.
- [27:10]
Kelly Evans
Quick last question. Gil, we've talked a lot about your positivity on the memory kind of economics for a long time, but what do you think about the trade? Are you becoming a little bit more cautious? I know we're going to hear from Western Digital, I think Sandisk this week. They're under pressure today, see xmt maybe looking at a second plant and a build out in China.
- [27:28]
Gil Luria
Nothing fundamentally has gotten worse. In fact, fundamentally the story for Micron has gotten a lot better. We just had all the large customers acknowledge that memory prices are going to continue to go up and that they need long term contracts just to make sure that they have some sort of hedge. So Micron's the only chip company that has these long term contracts. So their fundamental situation gotten better. Now what's happening in the in the stock market has to do with more with situational awareness and Korean retail traders and things like that. But from a fundamental perspective, the story for Micron has gotten a lot better in the last couple of weeks.
- [28:05]
Kelly Evans
All right, Gil, we'll leave it there. Thank you so much.
- [28:08]
Julia Boorstin
Appreciate it.
- [28:08]
Kelly Evans
Thank you, gil Luria of D.A. davidson. Coming up, oil prices are tumbling after President Trump called off a planned strike on Iran, saying he reached an agreement over the, quote, perimeters of a deal. What exactly does that mean? We'll have a live report from Washington next.
- [28:26]
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Kelly Evans
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- [29:25]
Julia Boorstin
What made you confident that you could do something that hadn't been done before?
- [29:29]
Kelly Evans
I have no fear of failure. Trailblazing women, changing the game. One of my favorite pieces of advice, think about what your boss's boss needs. Leadership can look in many, many different forms. It really does come down to just trusting yourself. Life is short and you just gotta think big to accomplish big things. Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your podcasts. Oil prices are coming off their first down week in four and continuing to move lower with WTI down five and a half percent, just over $80 a barrel at the moment after President Trump called off an attack on Iran. Megan Casella is in Washington with the latest.
- [30:10]
Megan Casella
Meghan kelly, that's right. The president saying that he called off what would have been the largest military attack Since World War II after Gulf allies told him they had reached what he described as the perimeters of a deal with Iran. President Trump said the agreement would include an immediate reopening of the Strait of Hormuz. But Iran, though, countering the president's claims, a spokesperson for Iran's foreign ministry saying this morning that they are not currently negotiating with the United States and that their only negotiations are with Oman to establish a safe shipping route through the strait. The president then this afternoon pushed back on that. He said on Truth Social that talks have begun, that more are scheduled in in the immediate future, and that whether Iran wants to admit it or not, we are in fact talking of a solution to a problem that they have caused for decades of reference there to Iran's nuclear program. And Kelly, if any of this sounds familiar, we have been here before. The president claiming that Iran has agreed to demands, Iran denying that and of course, no deal in hand as of yet. CBS News also reporting earlier this hour that despite the president's most recent comments, US Officials say no new negotiations have been planned. Kelly?
- [31:13]
Kelly Evans
All right, Megan, thanks. Megan Casella, let's get to Christina Parts Nevelis now for the CNBC News update.
- [31:18]
Julia Boorstin
Christina Kelly, the state of Michigan today revealed its first two deaths from the cyclospora outbreak. Health officials there say significant underlying health problems contributed actually to the deaths. According to the cdc, the outbreak, which can cause diarrhea, vomiting and dehydration, has now been reported in 45 states. The FDA is currently investing a link to shredded or linking it to shredded iceberg lettuce imported from Mexico as the potential cause. The Trump administration is planning a sweeping rewrite of Head Start rules. According to two people familiar with the proposal. Federal requirements for this early education program covering class sizes, safety and health screenings could be eliminated or loosened with more decisions left to states. HHS says the changes would reduce bureaucracy while preserving federal funding. And Mauricio Pochettino will remain head coach of the U.S. men's national soccer team through the 2030 World Cup. The extension follows America's run to the round of 16 at the 2026 tournament. Pochettino says that performance strengthened his belief in the team's potential and the sports future nationwide.
- [32:30]
Kelly Evans
Kelly, congrats to him. Christina, thanks. Coming up, chip stocks and memory names have been on a tear over the past year. Even Caterpillar shares have nearly doubled in the past 12 months. What are expectations for their earnings this week? We've got the action, the story and those trades next. Welcome back. It has been a strong earnings season so far overall with the highest percentage of companies beating earnings earnings estimates in five years. That's according to bank of America. But our next guest notes, the reaction to those beats has been a little more muted. So how does that set us up for several key reports this week? Let's ask Chris Sinek. He's the chief investment strategist over at Wolff Research and he joins us for today's earnings exchange. Chris, it's great to see you broadly speaking. Look, we've seen some, some big names to the upside like an Amazon and a Microsoft last week, but what has the overall reaction been to these strong results?
- [33:26]
Sri Kumar
Yeah.
- [33:26]
Chris Seneca
Hi, Kelly. Thanks for having me on. So to be muted than in the past for companies beating on revenue and EPS, the stock price reaction's only been about 0.8% compared to long term average around 1.2%. So macro forces, unwinding of momentum, hedge fund blow ups, all that's contributed to other noise in the numbers. But the results themselves, as you mentioned, have been exceptionally strong.
- [33:54]
Kelly Evans
Yeah, and I guess maybe it was priced in. I mean, let's put that to the side for a second. Talk about some particular examples. For instance, the memory names you have SanDisk and Western Digital both reporting this week. They're reporting after the bell Wednesday and the stocks are up triple digits year to date, 193% for Western Ditch. SanDisk is up 408 and that's a percentage investors are listening for commentary on supply Tightness, margin expansion, long term contracts with Chris. I mean this one, this is like a high wire act.
- [34:22]
Chris Seneca
Yeah, no, it definitely is. And the market is expecting clearly another being raised quarter. It's really the size of that revenue beat and forward guidance. Also for SanDisk, gross margin trends, that's extremely important. You know, in the case like Micron, their gross margins have more than tripled over the last six quarters. So any commentary on that which embeds manufacturing efficiency and so forth. And then remember with Western Digital it's the end of their fourth quarter fiscal year and so fiscal 2027 guidance for EPS and revenue will really be most important. Western Digitals beat consensus estimates in 7 out of the last 8 quarters. So you know, certainly the market's not looking for a miss. It's a matter of is that beat high enough? But it's really a forward looking commentary for those two names and gross margin commentary that's going to really drive this initial stock price reaction.
- [35:18]
Kelly Evans
Yeah, and as you say, even with the rerating the bar you think is high. I mean certainly for SanDisk or maybe for all of them. Let's talk about AMD which reports after the bell tomorrow, that one's up 125% year to date and analysts have revised their earnings up 54 times in the past three months. Chip sales, supply constraints, China export controls, what are you looking for?
- [35:37]
Chris Seneca
Yeah, you know the stock was down the 20, 20% in the prior, now in the last quarter is up 20%. So it's been a really volatile roller coaster. But it's really the data center revenue growth, gross margins again that really matter a lot. Of course the guidance and then the M i450 product ramp which is supposed to really ramp up into fourth quarter and can really drive that revenue growth and gross margin expansion into next year. So product ramp is very important, more so than SanDisk or Western Digital which pretty much commodity names and of course gross margins for productivity there.
- [36:16]
Kelly Evans
Yeah, it's amazing, as you say for the S and P as a whole, margins are at new highs this quarter. Guidance is the strongest since 2020. Thank you to corporate America for doing what it's doing here. A lot of heavy lifting to get us to these levels as the stock market continues to be strong. Try to keep up. So Caterpillar, finally, let's talk about that one. It's out before the bell tomorrow. It's actually down about 14% over the past month. You've got data center power, demand backlogs, tariffs, all top of mind. What about this one the bar here
- [36:45]
Chris Seneca
is high as well. They've beaten consensus estimates the last three quarters, 10% or more. The market's going to really focus on the backlog. Backlog has been up a lot. Margins of course, secondary and then anything on power equipment, business trends. Right. This is a all depend upon the build out how that's going. There's read through from some of the other names that reported the result should be strong. It's just a matter of whether it's enough for the market at that point in time. But the backlog I think is how the stock initially trade off it. And again, you know, given that it's beat by 10% or more EPS the past three quarters, I think, you know, the market's expecting another double digit beat on the EPS side.
- [37:25]
Kelly Evans
Well, and as you say, it's obviously technology is strong this season or energy to industrials, health care. I mean there's a lot of places that are putting up good numbers. Chris, thanks so much. Appreciate it. We'll check.
- [37:36]
Chris Seneca
Thanks for having me.
- [37:37]
Kelly Evans
Maybe at the end give it a grade on how it goes. CHRIS Seneca WOLFE RESEARCH Coming up, mortgage rates are hitting the highest level in more than a year as the housing squeeze, the inventory squeeze enters year four. Is there any relief on the horizon or could even worse be yet to come? We'll talk about that next. Remember when mortgage rates dipped below 6%? That was back in February and it was very brief because then came the Iran war which is yet to be resolved, and a new Fed chair being pressured to raise rates. All of that is working against a housing turnaround. Diana Olich is here with the latest number 682. Diana, at some point we have to start asking are we going back over 7%?
- [38:17]
Diana Olich
Well, you just took my lead, Kelly. Mortgage rates surged to the highest level in over a year last week and they only came down one little basis points today, even after President Trump said he had called off a new plan to attack Iran. Now the Average rate on 30 year fixed 6.82% according to mortgage News Daily. Friday's rate was the highest in over a year. Now, as rates rose last week, demand for refinances dropped sharply down 10% week to week, according to the Mortgage Bankers Association. And demand from home buyers also fell down 4% for the week. Now the difference between where we were at the same start of the spring housing market at 5.99% at the end of February and where we are now, it's pretty stark. We always say buy the home but date the rate. And for someone buying a $450,000 home with 20% down, they would pay close to $200 a month more now than they would have at the end of February. As a result, the homebuilder itf it's up a little bit on the day today, but it had a rough week last week. And for all of July, it underperformed the S&P 500 for the first time since the 2014. Of course, we are now in the dead zone of the summer housing market, but fall can often be busy. Still, we're getting closer to that emotional border of 7%. And if we really touch it, that's going to be a problem. Kelly.
- [39:34]
Kelly Evans
And what's been happening with pricing is we're hearing a little bit softer the market a little bit softer.
- [39:39]
Diana Olich
You know, it's all depending on location. There are some markets, some cities, where prices are actually lower than they were a year ago. Some are kind of right around the Zone 0 level compared to last year. Homebuyers do have a little bit more negotiating power just because homes have been sitting on the market so much longer and sales have been weaker. But we're not seeing prices come down really markedly.
- [39:58]
Steve Liesman
All right.
- [39:58]
Kelly Evans
I have a special reason. I want you to say it's really tight. Just for the next couple of weeks.
- [40:02]
Diana Olich
Just say we selling are we buy. What's going on? Anything I should know?
- [40:06]
Kelly Evans
Nope. Okay, Diana, thanks. Coming up, from Starbucks to caring the early read on consumer names. This earnings season seems to be holding up okay. And with the rest of retail starting to report, our next guest brings three names. He sees position for big gains with little risk. You're looking at one of them.
- [40:23]
Diana Olich
That's next.
- [40:28]
Kelly Evans
Welcome back to the Exchange. Little check on the markets. It's a pretty strong session across the board now. Dow's up 600 points, 1% gain. Nasdaq's up 2%. Even with the memory names under some pressure, this session Again, broad based Russell 2000 up as well. I want to mention some M and A chatter as well on this Monday. According to The Financial Times, AstraZeneca and Bristol Myers have discussed a potential merger that would make the joint company one of the biggest pharma companies in the world. Analysts are somewhat skeptical about whether a deal would get approved. They have two major competing products in the oncology space, for example. And AstraZeneca is having its worst day since the start of the pandemic down south. Seven and a half percent on this news, bmy fractionally lower. Meantime, Space X is rebounding after touching an all time low of 104. Earlier today, the IPO priced at 135. The shares climbed to 225 just days after its debut. The stock is about 50% below those levels now and their quarterly results are due out tomorrow after the bell. Always a volatile period for IPO names, their first set of results and for Space X that's coming up in just 24 hours time. Retail earnings meanwhile are beginning to pick up steam this week with Under Armour, Shopify and Wayfair on deck to report. But that is not where my next guest thinks the biggest retail upside could be. He's looking at three other names that have been a little beaten up but are positioned for some big upside surprise with little risk here like tko. That was our mystery chart. Let's bring in Randy Connick, senior retail analyst analyst at Jeffrey. TKO is, is that the, that I think of them as like the, the, you know, the, the boxing guys. Who's tko?
- [42:03]
Randy Connick
Yeah, they own a great couple of great businesses in the UFC and wwe. So think real fighting and fake fighting, right? So this is a great company with a great management team and importantly has a great underlying business model with more than 75% of their revenues are contractually based. So with investors you get a lot of visibility into long term cash flows and cash flows are the ticket here because over 40% EBITDA margins and little capex great creates a great free cash flow business. So you have fake fighting, real fighting, a growing global sports with these two entities, two great brands and with the pullback on the Middle east conflict because a couple a little bit percent of their revenues are in the Middle east, we think TKO is a very attractive opportunity to get into the stock today ahead of the quarter. The reports after the close, fascinating.
- [42:53]
Kelly Evans
Not one we usually talk about in the more kind of traditional retail space. Planet Fitness and Ollie's, is that right?
- [43:00]
Randy Connick
Yeah, look, I mean I think with the tech euphoria over the last seven months in the market here we have the consumer discretionary space been been left for dead and a couple of names have been kind of, you know, taken and taken to the woodshed. Planet Fitness, one of them, they had some self inflict inflicted issues with some CFO communication issues. That CFO has now departed the company. A new one has been hired. But what's, what's really important here is Planet Fitness is levered to the right part of the market. Fitness Wellness, it's the number one gym in the United States of America. And also it's taken over the planet by expanding its unit Base around the world. So this is a business we took public about 11 years ago, trading at its IPO valuation on a multiple basis. And we think that's super attractive for a company that we think can more than double its unit base in the domestic market, but also grow around the world.
- [43:51]
Kelly Evans
All right, so just to kind of recap, we've talked about tko, Ollie's Planet Fitness. You think these are some fallen angels? Could be a little defensive. You also like Yeti, which I always wonder how much staying power that one has. Shark Ninja, Brunswick. And what happened with Adidas last week, Randy? That was the one. Is that just an outlier? It was down big after its earnings things.
- [44:11]
Randy Connick
We don't cover Adidas, but we do cover Nike in the footwear space. You've seen a bit of a pullback malaise in that space. Why? Athletic footwear was the hottest space during COVID and took a little bit of a backseat from a demand perspective once we came out of COVID as it pertains to companies like Yeti, Brunswick and. And Sharp Ninja. Yeti is a very interesting example of a stock that was a huge winner when we took it public in 2018 through Covid and then have had a Covid demand hangover. This stock's been flat in a trading channel for about four years. We think it's about to break out and break out in a pretty big way because the company is embarking on an accelerated product development strategy as long as well as geographically expanding in a more aggressive way around the world, which will create an accelerated fund. Accelerating fundamental profile profile with accelerating revenue growth and margin expansion for a stock that's trading at half the market multiple that used to trade at a premium to the market. So with an accelerating growth rate, we think this stock is an easy winner. Stock should be up another 50% from here. That's Yeti. And then if you think about Shark Ninja, it's been a huge home run this year, up 40% year to date. It's a great company again with another great management team that executes flawlessly and is a great innovator. Innovator, just like Apple. It's the Apple of small appliances. And this is a company that can continue to grow its business dramatically around the world. It's just getting started in many international markets beyond the UK and other areas of Europe and South America. So Shark Ninja is another name we'd be buying here today.
- [45:44]
Kelly Evans
It reminds me of what we were talking about off the top. And we always love to bring this program full circle, where our guest was saying there is life outside of AI and the consumer stocks. Some of these retail plays you mentioned are an area where you might think there's pressure on the consumer. There's inflation, there's some spiking oil prices and we'll see. I mean I don't want to say anything before the season has started, but so far the macro data points bank of America spending survey, they held up well throughout this period. Starbucks, its comps were strong. What you're saying doesn't sound like you're, you're coming to us with a bevy of caution.
- [46:13]
Randy Connick
Look, I think the consumer is in a great spot. You know, not every consumer, you know, the lower 10% of the consumer base is struggling. That is, that's a problem. But a majority of the spot spending is by the, the, the top 10%, top 20% of the of the income cohorts in the United States. So you know, with that, what you're seeing and what we're seeing in our data and we cover about 75 companies across a number of analysts and consumer discretionary. And what we're seeing is accelerating revenue growth out of the first quarter and into the second quarter. We think that continues along with tight inventories, which means gross margin expansion. And finally we're about to lap tariff costs that were elevated starting in the second morning. So the third, third quarter last year.
- [46:52]
Sri Kumar
True.
- [46:52]
Randy Connick
What does that mean? Continued margin expansion and earnings acceleration from here.
- [46:56]
Sri Kumar
Yeah.
- [46:57]
Kelly Evans
It's weird to show you the Under Armour chart. Yes, they're up 37% this year. But I mean to see it as a $6 stock and you remember, remember it's heyday. I don't know it. Nike, Adidas, what's happened? It's just all what Lulu and on these days, Randy.
- [47:10]
Randy Connick
Well, Lulu was our biggest short call for three years. We finally covered that short. Our biggest short call now is on. We think it's overvalued. In fact the on market cap is similar to the Lululemon market cap which we think doesn't make sense given a lower EBITDA trailing twelve month dollar basis.
- [47:26]
Steve Liesman
So.
- [47:26]
Kelly Evans
All right, you know, look, maybe, maybe it's its rivals can make a cut or maybe a new shoe has come into town. But there's a moment shorting on. Randy, thanks. Really appreciate it. We got to go. Randy Connick of Jefferies. And that's it for us. Thank you for watching the exchange. Dom is in for Brian and we'll see you on Power Lunch right after the strike. You've been listening to the exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:52]
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