Welcome to Yahoo Finance's morning

brief. I'm Julie Hyman. Today back with

me, Yahoo Finances Prubmanian and Rohan

Gowami, Semaphore Business News reporter

and co-host of the Compound Interest

Podcast. We've talked to your co-host

Liz Hawk.

>> Yes, my favorite

>> occasion. Um, thanks so much for being

here guys, both of you. Um so it the

sort of one of the running jokes here is

that um I don't like to talk about Iran

because like the markets don't care

about Iran but occasionally episodically

something episodically something will

happen again and you know we have to

talk about it again because the market

cares again for 5 minutes. So and it

cares less than it did earlier this

morning when futures were down more. But

here we have again um President Trump

saying the ceasefire is over. He is of

course at the NATO conference in Ankura

in Turkey and he says for me I think

it's over. Talking about the the uh

ceasefire as far as I'm concerned it's

just a waste of time and this is after

Iran fired on some ships um in the

strait and then uh the US retaliated. So

now we've sort of reignited hostilities

uh between the two countries. Um oil is

up, stocks are down. Probably won't I

mean if I not an original story

>> it's Yeah. I mean, it's not and it's and

it probably won't last long, right? Like

because it hasn't lost and and this is

President Trump, by the way, speaking um

there at at the at the summit, but

>> you know, it's it doesn't feel like that

this is going to have any kind of

sustained negative impact.

>> I mean, the whipssaw effect is the real

problem, and that's sort of the durable

lasting effect is the one reliable thing

is the unreliability. So, if you're a

company, if you're an investor, how do

you digest and process your supply

chains? It's not actually that

surprising to me that Trump had to

retaliate or say this. I mean, they did

fire on these ships. A ceasefire is a

ceasefire. You saw Mark Ruda, uh, the

NATO sort of boss, say, you know, Trump

made the right decision. There's a

little politics involved there.

>> Right now, we're just going to say the

Trump makes the right decision no matter

what Trump says.

>> Well, yes, there's there's some fairness

to that.

>> That's been the character of their

recent relationship.

>> That is fair. Right. There is a lot of

sort of butt kissing and and try

appeasement here in part because you

need to if you're a European power and

you're trying to hold this alliance

together. For investors, however, if you

look at the way that everyone is trading

off today, there was a period of time, I

think, where, you know, Taco, right, the

FT coined this where there was an

expectation from the street that there

wasn't seriousness behind what Trump

said. Now, investors are forced to

confront the fact that, you know, this

is an actual war. There's no getting out

of it. We've been dealing with this for

6 months. And if you're a corporation

that relies on oil or any of these

inputs, whether you like it or not, you

have to deal with it. There's no calling

us bluff anymore on this stuff,

>> right? Yeah, it does feel that way.

>> Yeah, it seems like, you know,

typically, you know, if we were in

February, it' be groundhog day, right?

just consistently something happening

every week or two, some little flare up

here and usually kind of mellows out a

little bit and we're back to normal and

then it perks back up again. And I think

that you kind of hit the nail on the

head is that companies still have to

kind of operate in this environment and

you know from my point of view from the

automaker's point of view uh they're

still suffering from from huge steel and

aluminum input costs. So this doesn't

help oil back up again a little bit like

you said Julie but not near the peak of

125 or whatever it was. Uh but it's just

not good to have to constantly deal with

this. But maybe has corporate America

moved on and said, you know, we can deal

with this. We just kind of sort of

ignore it for a little bit, try to

operate and then we kind of just forget

about it.

>> Well, they've done the same thing with

tariffs, right? So I I would say two

things are different now. One is that

the worst case scenar even even when the

oil was uh even when the war was at its

peak oil didn't get as high as the worst

case predictions right it never did

>> and there are a lot of reasons behind

that so now even when this happens

people are like okay we can you know how

is it going to go to 150 no probably not

at least not in the short term so that's

thing one thing two is the backdrop

right after the war happened um the AI

trade came sort of roaring to the rescue

this time The AI trade in the background

is at a shakier point, right? We've got

semiconductors that have sold off

sharply. They were the sort of latest

darlings. Micron is technically in a

bare market, although it's still up 230%

year to date. Semiconductors broadly

have sold off. So like the so one thing

working in our favor, which is that I I

think people are not worried about the

worst case scenarios for oil. But one

thing that maybe isn't working as much

in the favor, which is that the

underpinnings of that AI trade are not,

you know, we're at a more delicate

moment.

>> And you're seeing government

intervention, the this administration

putting its thumb on the scales in so

many more disperate sectors. It isn't

just the top of sort of the value chain

with the AI trade, right? I mean, of

course, we see all these crazy stories

about the government taking stakes in

these companies, but to your point,

whether it's steel or aluminum, these

inputs that actually go into rare earth

elements that go into chips that go into

sort of the underpinnings and the basis

of all these trades, the government is

stepping in and cloudying the picture on

all of that. Even with oil, right? I

mean, it's impossible for traders to

actually gauge and price things when the

government is constantly whipsong, we're

going to release the SPR. We're going to

force people to start shipping. No,

there are ships moving through the

straight even if there aren't.

>> We're like, we're going to let Iran sell

oil. Right. No, no, we're not. We change

our mind. We're going to whip back and

forth. I mean, if the government keeps

on stepping in, the the cloudiness is by

design. It makes it impossible for

investors and companies to actually

price and gauge risk, which is a good

thing. It keeps the markets artificially

elevated. We should be, to your point,

we should have seen oil way higher than

it was. We should have seen a way

sharper correction, not just in the

Cosby, but across the world off of this.

And we don't because no one knows what's

coming next. It's a great thing for all

of us that own equities in the short

term. In the long term, it's a little

scarier. And you got travel stocks

selling off today, you know, based on

the energy prices, but then also just

outlook uncertainties. What's the Hilton

and the merits going to do as we

approach peak summer travel or in the

midst of pe?

>> They're going to be fine.

>> They will be fine.

>> They were fine even when oil was $10

more than it is right now. People are

traveling like crazy.

>> But is that travel or is that personal

>> No, it's both. It's both. Look at

airline fairs. I talked to Steve Trent

who's an independent um airline analyst

earlier this week who's covered the

industry for a long time and if you look

at airline fairs they are remaining

elevated not just now even with jet fuel

prices coming down those airline fairs

are staying up because the premium

especially the premium traveler is

traveling and not just the premium

traveler it's the mid-range traveler

that people are still traveling they're

still staying in hotels they're still

flying so like

>> but how much of that has just been

locked in I mean is there net new travel

that's coming in from his perspective or

is it just it's summer vacation now if

you have kids this is the only time you

can travel you're doing it hell or high

water even if you have to borrow

>> I think it's still booked out I think

it's booked out into the into the

remainder of the year to

>> do you I mean I just for me for the last

year I've sat here and I've watched all

this and I' I've wondered how can this

keep on going on how can how can the

consumer sustain this we we we're all in

the New York area we we see the prices

it's but it's not just New York I mean

if anything we are sheltered from the

worst of it because everything is still

coming to us and to our but if Look

across the country. Credit card debt at

its highest level I think ever at this

point. People continuing to borrow,

continuing to fance their entire

existence even as rates stay super high.

This doesn't feel sustainable. And yet

the music keeps on going. Everything

seems to be fine. I don't understand it.

>> Yeah. Yeah.

>> Well, maybe that takes us to our next

point. Part of the reason that it's

sustainable is because the S&P is still

up 10% this year. True. Right. And if

you're in tech stocks in particular,

you're up even more. If you're in

Micron, you're up even more,

>> right? And so that is definitely part of

the like people hold their nose and keep

on spending even though if you look at

all the sentiment indicators, they feel

terrible, right?

>> But they're still spending.

>> Yeah. I mean, my portfolio like if I

just sort of know we're up 10% this

year, I was down 30 or 40 and might not

be going, you know, up to an upstate

trip and things like that, staying at a

nice hotel,

>> you feel warm and fuzzy, even if you're

still spending more and more,

>> going out to eat, all these different

things. Yeah.

>> And and it's also all relative. You

know, this is this is the whole Trump

playbook, right? You might feel lousy,

but you don't feel as bad as you did in

late February when the war started. You

don't feel as bad as you did on

Liberation Day when stocks,

>> right? It's all relative. It could have

been so much worse. And now look how

nice it is. The world isn't blowing up.

America is great again. There is like

that relative happiness factor,

>> I think. So on this too big to fail

front, um my former colleague um Eric

Baltunes, former because I used to be at

Bloomberg at Bloomberg Intelligence um

ETF analyst, he wrote this piece that I

found really interesting where he talked

about the US market being too big to

fail. Um and this is a a point I've

touched on in conversations on this show

over the past several months, which is

that the participation in the equity

market is so vast. And this shows that

the biggest growth, this is one of the

charts from his piece, the biggest

growth has come in in in households, in

individuals who have gotten into the

market. And so I what I've talked about

is that maybe that caps the downside,

right, or limits the downside in stocks.

But as he points out, he says if there's

another crisis and we get a bare market,

maybe the Fed could buy equity ETFs and

that's how it could support the market.

>> The concept in 2008, there was the moral

hazard, right? This is all that people

cared about. The idea that you can't

incentivize people to be reckless actors

by providing some sort of government

backs stop. That's why Bayer was allowed

to fail. There is no conception of a

moral hazard anymore. The US government

outright owns equities. Not AIG style

bayout. Not not you know General Motor.

This is an actual strategic stake that

we've taken. So we are literally all of

our money is invested in these companies

whether we like it or not. I think it

was a great point. I thought it was a

great piece. I don't think it's very

good for the market. I think it distorts

incentives. When you have CEOs who feel

like they can do whatever they want and

investors who kind of expect that

they'll be bailed out, that there's some

sort of structure there. It doesn't

create the right incentives and is a big

reason why we're up 10% even when all

the indicators are flashing red.

>> Yeah. It's like, yeah, keep pilot

Nvidia. Why not? Right? Because it's if

we're going to be back stop. But I don't

know, Julie, this kind of reminds me

just a little bit, you know, back in

'08. We mentioned 08 when there was like

the whispers like the Fed is buying call

options.

and now it's like we're gonna buy the

corporate bond ETFs and maybe we'll buy

some stocks, you know, according to

potentially the story, right?

>> Well, okay. So, this

>> it's like it's okay now to do these.

>> I think it's worth lingering on on

whether this would actually happen.

>> I don't necessarily believe that the

Fed, especially Kevin Worsh Fed,

>> would make a move like this, especially

since he's been very vocal in the past

about wanting to shrink the the balance

sheet.

>> Yeah. So, I don't know if it would

actually happen, but does it matter if

it would actually happen if the markets

expects it's going to happen? I don't

know. And I don't know how broadly the

market expects it's going to happen for

that matter. But,

>> I mean, it's a very provocative piece. I

mean, to think about the fact that

>> this guy makes a pretty good case that

this could potentially if we had any big

challenges uh to our to our portfolios

and things are kind of crumbling and

there was sort of no indication of a

Trump put or whatever you want to call

it,

>> would the Fed step in? And the writer is

saying potentially maybe it makes sense.

Look what look what's happening other

other country central banks right

they're already potentially doing things

like this

>> a little family fight as war

>> yeah I mean to to your point I mean it

feels like we are in a um postmoral

society in many ways certainly from the

from the government perspective on down

we've seen all the reports of

money-making activities on the part of

members of the administration um but I

think it's worth like um pulling the

thread from what you were saying a

little bit Rohan why would it be

misaligning incentives like why so Let's

say um let's say maybe that the

hyperscalers say we're going to cut

spending. It's not it's not working.

We're going to cut some spending and the

market falls 20%.

>> And the Fed or there's some other

systemic risk and the Fed says okay

we're going to go in and buy equity

ETFs.

>> Why then like what then? What what would

be so bad about it?

>> I'll make a I'll make there's an actual

take autos for example. You you have

actual inputs and those drive the cost

of the output. Although I saw that Fiat

car and it looked really fun and really

nice. I'm never going to try it. But

like you have actual costs and those

costs have steadily gone up because the

inputs go up. There is no actual

profitm. I love Ed Citron. I think some

of his writing is amazing. He is the

biggest AI bear out there and his point

is very fundamental.

>> These companies don't make money. There

is no pathway for them to make money.

Forget about spending the money that

they say they're going to spend. They're

not even close to profitable. So the

idea on like a pure business fundamental

sense that investors or the government

should continue to underwrite something

that may never make money. It's at least

with fiber the comparison that's always

made there was going to be utility in

those assets at some point. You can't

use these data centers if there's no

demand for them. So what you're

effectively asking people to do is

borrow finance unlimited expenditures in

this theoretical situation where the the

Fed is buying ETFs or or you know we are

talking about some sort of larger scale

government backs stop for for for

corporations or for hyperscaler you

asking people to subsidize something

that creates no actual value in the bare

scenario at least when you had a bailout

of insurance well

>> that has a real impact on the real world

the bailout of the automakers that has a

real impact on the real world right

these are these are companies that

actually employ hundreds of thousands of

people that make a thing that we sell

that we export that's tangible or real

or storied. These companies

fairly or unfairly a lot of Americans

feel like this is a massive wealth

transfer from them whether it's taking

their jobs or taking their money to very

powerful very wealthy people and we have

Bradley Tusk on our show this is the

last point I'll make who made a very

simple point to me the only way to think

about how governments make decisions is

every politician gets elected whether

it's two years or four years or eight

years or whatever it is and every

decision they make is about increasing

and maintaining their electability.

whe

this will increase the odds of their

electability of their popularity whether

it's through the Fed or another vehicle

they will do something like this if it

means saving off short-term economic

pain

>> and I think I think you almost touched

on it was like what does this say about

risk takingaking

>> uh is it the moral hazard's gone right

people just keep piling and it raises

the possibility even of a worse

situation if we keep piling into the AI

names, the chip names and things like

that. You think that

>> that's going to stop come going to come

in? I think that's sort of a big concern

too, right? Is the fact that we don't

know if we're just building a bigger a

bigger bubble and they might we can't

>> I mean you mentioned Ed Zitron. I was I

now I'm thinking of them of them as the

eds now in my in my head. Eden um from

the Professor G podcast writing a piece

this morning also talking about again

this possibility that the US would

invest in an open AI. Yeah. for example,

you know, and when when President Trump

says, "Oh, we can share in the profits."

Uh, which which profits?

>> And also the downside because to your

point about risk, it used to be that you

you you opted into risk if you were if

you were a junk bond investor or a

venture investor or or in any sort of

distressed asset. You wanted to be there

by choice because you thought there was

more alpha there, there was more upside

there. A lot of people weren't. They're

value investors. They want to hold

stocks. They want to hold assets. Now,

the risk is everywhere. You can't escape

that risk. Even safe assets are down 20%

30% year to date.

>> Not because of any fundamental issue

with the asset class, but because

everyone else is rotating out of them.

>> Yeah,

>> there's no safety anymore. Risk is just

everywhere.

>> Um well, speaking of which, um if you

wanted to buy, not that the not that the

QQQs are traditionally a risk-free

asset. We're talking about the ETF that

tracks the NASDAQ 100, but now you'll

get SpaceX in there if you which is a

very large, very unprofitable company.

Um, and I had fun yesterday reading all

of the notes um that came out from the

companies on the onslaught of notes on

the same day that the NASDAQ wasn't or

that the that SpaceX went into the

NASDAQ indices at the same time that

SpaceX closed below $150 for the first

time since the IPO. And I was struck as

I always am by the bullishness that was

out there. Draymond James I think was

the highest at $800. Although like the

the timelines of price targets weren't

all uniform. I don't know if you noticed

that. think that one was sort of a

longer term

>> the 10 trillion market have like 10 year

vision right something

>> it wasn't even it wasn't quite that long

but it was longer term certainly and

like the you know the poets came out and

the and the dreamers came out in these

analyst notes that I was reading

yesterday there were some incredible

quotes I mean you were you were reading

through them pros what what what stood

out to you about where we are in this

space moment

>> you know so I I wrote about the I wrote

Adam Jonas's note um from Morgan Stanley

talking about you know at the I'm a $300

street high, right? And then we had

Raymond James come out. I can't take the

$800 seriously. I'm sorry. But but but

>> but you can take the $300 seriously.

>> Well Well, it there's there's some

numbers in there that kind of, you know,

we're talking about several years down

the line, we're talking about like you

mentioned, you know, $13 trillion market

cap. Like how do you get to that point

when we're talking about a company

that's is going to need to raise and his

own in his know in his own words over

$80 billion a year in capital raises

just to fund everything that they need

to do. So, you know, then we just saw

the $25 billion fund raise go through

and it's now been the bonds are trading

off a lot, right? A huge spread.

>> So, you have to somehow are going to

balance that, let alone visions of of a

launch business, a terrestrial AI

business, the enterprise AI business, uh

scaling out Starlink even more and more

even though you have you start having

more competitors in that space coming

on. Maybe we'll mention Blue Origin

later, but

>> you can mention it now if you want. Uh

well CNBC out with the report out Andrew

Oen talking about how uh a new capital

raise $130 billion valuation which is

seems like chump change uh compared to

you know trillion

>> but the outside money I found

interesting COU going in there $2

billion from Bezos himself and the other

the other four from actual outside

investors which I've long I don't know I

don't cover the space as close as you

I've long waited for and hope because

SpaceX's secret edge is the economics on

their launches. That's why Starlink is

so profitable. It's why they're able to

do so much. And you've watched the

conventional telos kind of just fall by

the wayside. They have no strategy here.

And Bezos is really the only viable

outside contender. No,

>> I mean, yeah. I mean, you had you had

Idium get bought but by a rocket lab,

but that's just a very small player and

a very specific aspect of satellite

communications, but yeah. I mean, Amazon

LEO is going to be probably the main

competitor there in the satellite world.

>> That's Kyper, right? That's the

business.

>> Yeah. Yeah. Well, what's and what's

interesting to me is reading through the

notes yesterday, like all of the pie in

the sky ideas about what um SpaceX is

going to be, the one thing that I think

is as solid as can be is that like it's

the leader in in this in this business,

right? And so, um, the fact that Blue

Origin has even hung on as long as it

has and it keeps raising money at this

level is interesting to me because that

the the solidity of SpaceX's leadership

there does seem to be like the the most

certain or one of the more certain parts

of of that business.

>> It's remarkable.

>> Yeah. So, I don't know. We'll see how

Blue Origin

>> Yeah.

>> ends up doing at the end of the day and

we'll see how SpaceX. I mean, I think

whatever else you can say about SpaceX,

I think we're still in for a rocky ride.

>> I want to quickly mention you you

flagged a really interesting funny

comment from Edison. You go. I love that

one. It's just

>> Can I Can I read it?

>> I want you to read it cuz it's so

Edison. This was my favorite. Edison,

you over at Deutschbank. SpaceX

represents in our view the apex of

civilizational ambition oftent times

expressed in steel and fire. bending the

arc of history to make humans

multilanetary by building foundational

infrastructure across transportation,

connectivity, and AI. And I was just

like, wow, this, you know, you

>> they're all just repressed journalists.

They wanted to write all the time.

>> I was saying he should be like a sci-fi

novelist.

>> It's beautiful. Yeah,

>> it's beautiful. The

>> Song of Fire and Steel.

>> Yeah, exactly. George R. Martin, but at

Deutsche Bank. The problem is though, if

you bet against Elon for the lifetime of

his his businesses, you would have lost

big time. Any of the short souls can

attest this. He does have this

otherworldly reality distortion field,

this ability to bend reality to his will

in the equity markets. The bond markets

are famously less forgiving and and much

more calculating. The problem with

SpaceX, right, is like

>> it could be that. It very well could be

that. And

>> a lot has to go right.

>> A lot has to go right

>> to do to be that. There was a great

story in the journal about about Jeff

Bezos's sort of concerted uh courtship

of the president and a lot of it in

service to his dreams for Blue Origin,

the contracts that he wants Amazon to

get, right? I mean, there is this

knowledge that that space is going to be

this massive no matter what the S1 says

about enterprise software being the

biggest sort of TAM space for them. It's

going to be space that is that is going

to be where they're going and that's

sort of a great thing that we can all

underwrite and aspire to.

>> In the interim, the problem of course is

whether we like it or not, it's in our

401ks. It's in our It's now in the QQQ

and the contagion and the size of it. It

is there's this massive sucking noise as

at least temporarily a lot of money

rotates into that asset.

>> Yeah. All right. We got to move on to

our last thing and this is on the same

topic by the way of government

intervention. This time in the beef

markets at least reportedly the Wall

Street Journal says that a member of the

USDA high staffer at the USDA called up

the um companies like Walmart and said

um it's July 4th's coming up. how how

much you guys charging for your for your

dogs and your burgers and sort of tried

to jawbone them to get them to lower

prices. And it seems like they did.

Walmart came out with release and said

they were lowering prices. Now Walmart,

like many of the grocerers, all of the

grocerers does dynamic pricing. So who

knows what they would have done anyway.

Like usually you go in ahead of a

holiday weekend, there's stuff on sale.

>> But you know, this way the

administration gets to say we fought for

you. I mean, it's just funny the whole

like and then Trump saying at my

administration's request they cut

prices. Like this will make mom Donnie

blush, right? I mean, come on. Like, can

you cut those price a little bit? Yeah,

it might be good for my my people,

right? I mean, so it's just it's just

such a again we have this balance of

we're free market capitalists, but also

like uh we want to own companies and we

want to tell you what to do. So,

>> state sponsored capital.

>> Yeah. Yeah. So, that's but it's just

politically expedient right now. Well,

my beef prices, where's the beef? Cut

the prices. Which is why it's so

shocking to me that when when you see

and talk to CEOs as we all do who are so

happy and bullish about this

administration even now they'll take the

lumps because they feel like they can

they can do big M&A or they can really

go ham. There's no antitrust

enforcement. But the downside is

unlimited. You are one phone call away

from being told, "Hey, you forecast how

your quarter is going to go. You know

there's going to be whether it's, you

know, Fourth of July sales or big

holiday, whatever. We're going to blow

all that up because we want you to cut

beef prices by however much we want want

you to cut them by." Right? There's no

predictability and there's unlimited

downside here. That being said, this

administration has been nothing if not

consistent. They really care about food

prices. You saw the antitrust department

finally take action in a big way against

the egg cartel,

>> right? Not against any sort of any of

the mergers that have been sort of

contentious or hairy or any sort of the

the anti-competitive behavior that that

consumer groups have accused these

companies of. No, it was egg prices. And

to their credit, there was a real issue

there. But they've shown a willingness

to do these very muman-esque

populist moves that are great PR wins

and maybe hurt companies for a little

bit but actually don't help the markets

operate freely or fairly. It's very

strange.

>> Well, and of course the one huge

exception to that is gasoline prices.

>> Yes.

>> So that's that's the one thing where

they they you know

>> but as the president said, I don't I

don't care about Americans wallets on

this point. On this point alone, he does

not seem to care.

>> He's bored of it, right?

>> Yes. I'm bored of talking about this.

Why do we care about this? Well, he's

pulled back in cuz now he's back in the

war.

>> Now we're back in it.

>> So, we'll see what happens. All right,

guys. Thank you so much. Really

appreciate it. And that does it for

Morning Brief. Opening bid is next with

Brian Sassy.

Heat.

Heat.

Hey. Hey. Hey.

Heat. Heat.

Down.

Down.

Heat. Heat.

Down.

Heat.

Hey. Hey. Hey.

Hey, hey,

hey.

Curious how my investing morning has

gone? Of course you are. Here you go.

Because I don't think I'm alone.

To me, I think it's over. I don't want

to deal with them anymore. They're scum.

You know what scum is? They're scum.

They're sick people. They're led by sick

people. And they're vicious, violent

people. And if they had a nuclear

weapon, they'd use it. As far as I'm

concerned, it's over.

>> So we we're going to cut off all trade

with Spain. We don't want anything to do

with Spain. I could tomorrow stop or

today, even better, stop everything

having to do with Spain. All business

having to do with Spain. Have the right

to stop it. Uh embargos, do anything I

want with it. And we may do that with

Spain.

>> Okay. Put all that together and neatly

explains why markets are in the tank

this morning. I think the broader market

itself is putting a spotlight on these

other moves I've seen that are flying a

little bit off the radar but shouldn't

be. First, the Philadelphia

semiconductor index has reached its

lowest level in nearly a month. The

index is now 16% below its mid June

highs after just posting its best

quarter ever in Q2. Number two, the

30-year Treasury yield closed above 5%

for the first time in nearly a month on

Tuesday. And last but not least, South

Korea's Kosby index, the world's best

performing market this year, entered a

bare market today. That amounts to a

plunge of 20% from its peak as the tech

heavy uh index deals with valuation

worries following a mixed Samsung

earnings report early in the week. So,

is it time to batten down the hatches

here? The opening round table, opening

bid round table is here to weigh in. Anz

Pere and Brooke Deal. Good to see you

both. Anz this uh Kosby selloff is

getting pretty bad.

Yeah, it is. And as you mentioned, there

are several risks that we're talking

about here. You just heard President

Trump talking about trade with Spain. Uh

then you also have seen oil prices that

have spiked higher and you're watching

the semiconductor trade that continues

to unwind. There are some risks that

have been really bubbling through the

surface. I mean, you talked about

Samsung um this week and how we saw

memory the memory trade uh going lower.

You've seen Micron SKH Highix uh SKH

Heinix is going to be having uh its

offering at at the NASDAQ uh reportedly

this week. So, that'll be a litmus test

for that AI trade. But there's still

there there's still these uh concerns uh

about, you know, what if the

hyperscalers even hint hint at slowing

any type of spending that would not do

well for the uh for the AI trade. And

now you've got with oil prices higher,

you have now this added pressure of what

happens with the Fed and will the Fed

have to hike this year?

>> Brooke, all eyes. Uh speaking of the

NASDAQ, uh now we have SKH Heinix coming

to market here. I don't think it's going

to be as exciting as SpaceX, but I don't

know. There seems to be this

anticipation building for this company.

Most human beings have never even heard

of before.

>> I mean, never even heard of it before.

And then come this spring, it's the hot

topic. It's the most talked about as the

run between SKH Heinix and Samsung and

Micron has just been unbelievable over

the past few months. And now SK Heinix

looking to tap into the US equity

market, looking to raise about 28

billion dollars in this US IPO. And it

really has become a larger conversation

about these companies, not only these

memory uh chips like SKH looking to tap

into the US equity market, but also we

have the hyperscalers at the same time

like Alphabet looking to offer uh

looking to also they recently increase

the size of their equity offering by

about 84 to nearly $85 billion. And so I

really think as NZ pointed out with the

bond market really increasingly under

pressure uh this week especially these

companies are trying to look okay is it

better to go into the the public markets

here or better to go into the bond

market in order to to be able to tap

into this next opportunity here

>> and as we have this uh this memory chip

selloff uh no thanks to uh Samsung's

report earlier in the week and now this

comes at the same time is where I think

the market got comfortable with the fact

that gas prices are off their highs but

now gas

They're still off their highs, but

they're out there rising again along

with oil prices because of this latest

flare up with Iran.

>> Yeah, we've seen oil prices jump 5%. And

again, this is just at a time where we

had seen oil prices unwinding almost to

pre-war levels or near pre-war levels.

So now the street was getting used to

the fact that, okay, maybe this energy

shock is transitory. Maybe the Fed

doesn't have to tighten. maybe the Fed

can stay uh steady through the rest of

the year. A but now we've got the

situation where oil prices going higher.

President Trump saying it's over. And so

now you have a situation where you're

thinking to yourself, the Fed eventually

is going to have to tighten. And that's

what the bond market is telling it.

>> Brooke, I think there's a lot more

intrigue. I'm always intrigued by

PepsiCo's earnings report. We're going

to get that tomorrow. It really is that

first look at the consumer uh every

single quarter. Of course, then we get

all the other retailers reporting other

consumer companies.

Now I'm more worried about what a

PepsiCo has to say. Uh they dealt with

lower gas prices for much of this

quarter, but I'm really concerned about

how their outlook pans out at the right

now as we're getting higher oil prices.

You still got a cautious consumer out

there. Very fascinated by we might hear

from that company tomorrow, which of

course has direct implications for a

company you follow uh as well in

Coca-Cola.

>> I think that it'll be interesting in the

fact that just how much pressure did

consumers get under because of those

higher gas prices and just how much did

it impact them? Of course, we did see

that ramp up in April and May, but

perhaps in June, as gas prices lowered,

maybe they're going to point out to some

relief that definitely drove or could

have drove consumers in. We've been

seeing a lot of foot traffic data about

just that, how that sort of correlated

to a return, but at the same exact time

as we saw recently that FIFA World Cup

maybe didn't exactly bring in as many

people as we once had gone, maybe didn't

see as large of a return as many had

anticipated. And so I think we're

hearing that this might not be as good

as we had predicted, especially given

those higher gas prices and also

consumers just being more uh cautious

about where exactly they're shopping and

just how much they're spending there.

>> Brook, I wanted to bring it up again

because it's worth I think an extra day

of coverage what Walmart is doing uh on

lowering prices. Of course, he had

President Trump putting that out there

yesterday. Walmart confirmed it to us,

but this is a big deal and we could have

really uh a significant price war in the

supermarket space this summer into the

fall. At the same time, you have Kroger

out there lowering prices aggressively.

You have Target out there lowering

prices. And this is good stuff for the

consumer.

>> And Brian, don't forget Amazon also

lowering prices aggressive, especially

around their prime deal days. I think

this just goes to show that the consumer

right now is stretched and these

companies are really looking to get

ahead of that. At the same exact time

what we've been hearing, especially

during these peaks of inflation, think

about back in 2020 uh 2022 moving into

2023. That's when we saw Walmart and

Target slash their prices significantly

on thousands of items. And now it seems

like that pressure is back and these

mega grocery chains have to react to it

in order to not only listen perhaps to

the administration and their concerns

over these higher prices, but also to

everyday consumers. And so it'll be

interesting to see not only uh how same

sort of sales growth does within the

quarter, but on top of that too, ticket

sizes. Are consumers maybe cutting back

on their basket sizes because they're

concerned about that at the same time?

Are they maybe making one less trip a

week or maybe even going even more to do

smaller trips at once? And so these are

all the questions that we have moving

into these earnings report. But

certainly what we've seen in the past is

Walmart went out on that essential

goods, those groceries, but we know that

Target has been looking to compete, even

Amazon too within that space as well,

Brian.

>> So true, Brooke. And as uh from what

you're watching here in the oil markets,

like this latest flare up with Iran, are

we talking another move to $100 barrel

oil here or it's not likely to hit that

level again?

>> I mean, not yet as far as what the

streets expecting. And this the flare up

is have you've seen oil prices moving up

um 5% 4%. So you're looking at WTI

around $73, but keep in mind it was at

68 um at the beginning of the week. So,

it's been quite a move up over the last

couple of days, but uh everything points

to the fact that President Trump

wouldn't want to to this to continue as

we go into the midterm elections. I

mean, this is the number one sticking

point with the consumer. As you guys

were just talking about, the consumer is

totally stretched and they do not want

to see gas prices going higher. So, uh,

you have this sort of, uh, feeling that,

okay, well, this may be a flare up. Um,

let's see what happens because as we saw

oil prices unwind, as the ceasefire was

going in just a couple weeks ago, you

had uh, some analysts even talking about

a glut going into next year if this

ceasefire were to continue. And as

higher oil prices uh at the same time as

as this Philadelphia uh semiconductor

index really one of the hottest things

or markets we have seen all year really

at one month lows. It just I'm not

getting good vibes in on the market here

and of course the market hasn't

corrected but like there are there are

these little signs that can really

quickly become big worries to the

broader market.

>> Yeah. Look, I mean, I was reading Ed

Yardini's note about uh is this a market

rotation that's happening and could you

see a rotation taking place that would

sort of deter a correction, a full

market correction from happening? Uh you

have UBS that is saying that they are

still uh they still believe in the

growth story. They still believe in AI

and the AI infrastructure trade, but

they're talking about diversification.

They're talking about a broadening of

leadership. You just had BFA's client

data coming out this morning talking

about record inflows into small caps

into medium uh size companies. You also

had a record inflows into consumer

discretionary. So we are seeing sort of

a rotation that is away from the hottest

trade of the year that would be the AI

trade the memory trade. And that doesn't

mean that the street doesn't think that

it is going to still continue and go

higher because that's been really the

driver of earnings growth. But there is

talk about this rotation or broadening

of the market as as we speak right now.

>> Even Intel is getting hit. This stock is

up about 200 I can't believe it. Almost

200% year to date. I got a little story

on this uh hitting our homepage soon. Uh

but really I mean nothing is safe here.

And a good reminder, no stock goes up

forever. Nezro, hang with me. We got a

lot more coming up on the show. Uh

Nvidia stock, speaking of

semiconductors, is looking silly cheap.

Or is it? That's next.

Heat

up

Ah.

Heat. Heat. N.

Heat.

Heat.

Down.

Heat. Heat.

Down.

Down.

The AI king getting knocked down a peg

or 10 pegs. Nvidia has lost roughly $1

trillion in market value in less than

two months. $1 trillion.

And the stock is now trading about 16

times forward earnings according to our

lovely Yahoo Finance Alpha Space data.

The cheapest it has been since early

2019, which was way before the AI boom

even erupted. I mean, the company in

2019 was still seen as a play on video

game chips and Bitcoin mining. The stock

has tanked roughly 16% since hitting its

all-time high on May 14th as investors

have rotated into memory chip names like

Sandis and Micron. Is Nvidia now too

cheap to ignore though? with me Jessica

Insk stockbrokers.com director of

research and anesfor and Brooke De

Palama are still here as well. Jessica

let me start with you. Are you surprised

by this Nvidia selloff?

>> Now I'm not necessarily surprised of

this selloff because if we look at what

really led us up the beginning of the

year it was all very tech heavy. It was

that socks index. it is semiconductors

and because we had such a runup that

there is room for a correction and I

prefer that and this is a rotation

rather than a correction and as long as

that continues I don't have concern. Now

we are heading into earnings season and

I think that will be a telltale sign.

However, the AI narrative is very much

intact. It still certainly needs to

participate in order to have a rally but

I think we've introduced other risks. So

meaning in short there the sell-off is

warranted because we had a huge runup

alto together within that space and

Nvidia is just participating in

sympathy. However, the setup is really

really great from a technical

perspective. We've got really great

earnings increases but we've got this

increased headline risk and uncertainty

and we need cat and a catalyst to send

us higher and the AI narrative is a part

of that. Nvidia is a part of that.

>> Well Jessica, let me follow up with you

on this one. uh the the the technical

setup might be set up pretty well, but

what about you know the fundamental uh

perspective as well? 16 time forward

earnings and I don't want to put anybody

to sleep here watching this talking

about valuation multiples but at 16

times forward earnings Nvidia stocks

trading below the market uh below the

markets multiple which is what 21 22

times somewhere around there. Uh it's

not often you can get into a high

quality name like Nvidia at these

levels.

>> That exactly right. So I think that's

really important that it's a great

buying opportunity. I think Nvidia is

part of the infrastructure buildout.

They are creating emotes and there is

certainly more to it. So I I would be a

buyer here. However, I'm hesitant to say

that oftent times with retail traders

when we say we'd be a buyer meaning in

these times it's a great time to deploy

a cash secured put to add it to your

longerterm position when we're waiting

on a catalyst of some sort. It's also a

great time to dollar cost average into

it. But we want to also be cognizant of

portfolio over concentration and Nvidia

is one of the largest components of the

S&P 500. So I do think that we should

own it. I do think it's attractive from

a valuation perspective and I do believe

this infrastructure buildout is

extremely important and Nvidia is so

much more than just chips. They bu are

building a mo with software with CUDA.

Now they're going going into consumer as

well which we we heard earlier on this

year. So I I still think Nvidia is

something we should own in our

portfolio. I just want to caution

individual investors with the

overconentration, the headline risk and

even the liquidity concerns. It's even

with these compelling valuations, it is

very difficult sometimes for a stock to

go higher if there isn't in any

liquidity. And we see these big AI

companies are issuing equities now.

They're issuing bond issuance. We're

looking for creative ways in order to

capture cash. But if we don't have any

additional liquidity to put an

underlying bid in that security to drive

it higher or a catalyst to support that,

then it's very difficult to maintain a

bull market. And that's really my

trepidation with Nvidia right now. Great

pick from a fundamental perspective,

even a technical perspective. However,

it's really the environment that Nvidia

is surrounded by that is creating the

challenge. Nvidia. Uh, and as I should

have seen this Nvidia selloff happening

when I saw that Jensen's leather jacket

was going to be auctioned off, I

believe, uh, at Sbees a couple weeks ago

for $40, $50,000. Anz that was a sell

signal. Uh, now I'm not in there buying

and selling Vidia, but to me, I should

have brought it up and I just didn't.

>> And And you didn't make a bid for that

jacket. Surprise.

>> Come on, I don't have your money, Anz.

Come on. Give me a break. Let's

>> No, no, I don't have yours. But still,

look, S. um Nvidia to all the points

that Jessica was making uh you have the

competition that you you've seen in the

market and this is something that we've

seen with it's not it's not only

competing with the likes of Intel AMD

but you've got Alphabet you've got

Amazon that's making their own chips you

also had a report from Reuters yesterday

about Deepseek in China making chips

okay the US doesn't supply to China but

still they can supply elsewhere in the

world so there is this bubbling

competition that is coming onto the

market and Nvidia still has the mass

vast majority of GPU share but now

everyone's talking about CPUs and AI

inference using CPUs and Nvidia also

going into that CPU market as well so it

is expanding as as well so there's a lot

of the this this entire landscape it it

seems to be rapidly shifting you've got

you've got also the Micron situation

where investors are now interested in

that so at one point it was Nvidia was

the hot stock then You saw Micron being

the hot stock. You have Let's see which

one will be the next one. That doesn't

mean though that the AI trade is over.

Far from it.

>> And uh Brooke, uh I think maybe you and

I can go half on this jacket. I could

scr up 25 grand. We could buy the modern

day Mickey Mantel jersey in this leather

jacket from Jensen.

>> I mean, anything's possible nowadays,

Brian. I just got to, you know, scrap up

my penny and pull out my piggy bank in

order to get that. But I mean, the

interest and obviously the the retail

investor interest over that company has

just been incredible. And so I'm curious

to see how much exactly this jacket will

sell for. And also curious to see how

Nvidia will make a comeback from here.

>> No, we'll take this offline, but I'm not

buying this jacket, guys. I'm

>> Oh, yes, you are.

>> No comment. No comment. You guys don't

get to ask me questions. Come on. We got

to keep the other way around. Uh let's

keep it moving here. Uh President

Trump's fiery rhetoric today during the

latest NATO summit and the negative

market reaction we are seeing in the

aftermath reminded me that the midterm

uh elections in November will be here

quicker than you expect and markets

could begin to price it today what is

likely to be a dumpster fire come

November. Now weaker S&P 500 returns in

a midterm election year are not an

opinion or a guess they are well

doumented repeatable phenomenons but

here is the most part that I think

people miss. The pain is not spread

evenly across the calendar. It

concentrates most brutally in August and

September. Precisely when election

related uncertainty and risk premiums

hit their absolute peak and

institutional money pulls back uh on the

from all the money they have on the

table waiting for clarity from the

elections. Now, the good news, and there

is genuine good news here, is that once

the election passes, history shows that

risk on sentiment picks up materially

and the S&P 500 has delivered better

than average returns over the subsequent

year, with tech growth in quality stocks

leading the charge in all but one of the

last nine midterm election cycles,

according to the folks over at Barclays.

My question of the day is this. Is there

a major correction ahead of the

midterms? Jessica, what say you?

Um, I think that's a little overstated

as far as if there's a big a correction

ahead of the midterms. And I think this

environment is particularly different.

And as someone who absolutely loves the

technicals and patterns and trends, I

think we have to be cognizant of the AI

environment that is a huge component of

it. The complete headline risk, but more

importantly, the earnings revisions that

we've seen on the S&P 500 have been

trending higher. We've had record

earnings and those are the components

that can keep us higher. So meaning I

don't believe that we'll see a

correction. I do think however we're

going to have a hard time going high

higher. I see a sideways environment,

some periods of some periods of

consolidation probably throughout the

summer until we completely remove this

headline risk or we have another

catalyst that sends us higher which

would be astronomical earnings which is

set up. But on the other hand, the bar

is rather high due to those increased

earnings expectations. So I I do not see

a correction from the the technical

definition of a correction on the

horizon. However, I do absolutely see

consolidation within the market. We've

had the hardest time going above 7500

and it's going to be very difficult with

yields increasing as well.

>> It is look, I'm I'm not suggesting we're

going to get a, you know, 20% downturn

in markets ahead of the midterms, but I

mean we're I think markets have

underpriced the uncertainty that is

going to exist in the leadup to these

elections. And I am concerned if we do

get a you know something under 10% but

still some form of of pullback that is

worth talking about.

>> There is that concern and strategists

have been talking about that concern

about a correction but still you have to

look at earnings and earnings growth and

that's what they're pointing to that

would send the stock market higher. So

strategists are still saying if you see

a drawback it's a buying opportunity. JP

Morgan expecting 7,800 for the S&P 500

talking about the possibility of of a

flash crash, but still they're saying

buy the dip. You've got fund strat

that's saying the same. Even Barkley

saying if you see a draw down, it's an

opportunity to buy.

>> All right, Brooke. Uh, last word to you.

Uh, are you expecting a big correction

in markets? Come on, give it to me.

>> I think we're what we can expect is

definitely some volatility heading into

the end of the summer. I feel like last

summer a similar pattern happened, but

now especially what we're seeing is will

eventually will these midterm elections

sort of take a backseat to the points

that a Jessica and Anaz are both

pointing to with just so much

concentration and so much focus right

now on that AI trade. It'll be

interesting to see how exactly Congress

is it going to be divided? Is it going

to be a full Republican, full Democrat?

And I think that will be a key

indication heading into the the back

half the way back in the half of the

year, November, December, to really

understand what the outlook could be,

especially for big tech should there be

a divided.

>> Jessica Nezenbrook, good to see you all.

Awesome insights as always. I appreciate

it.

>> All right, programming note. I am

dropping a cool new episode of my power

players podcast Thursday morning with

Lyft CEO David Richer. Love that Richer

arrived to my New York City office on

his bike, which didn't come a surprise

to me seeing as he also drives for Lift

frequently to stay close to the

consumer. This man is all in and I love

that. Richer and I talked about what

lift's future holds with Uber only

getting bigger and flatout meaner. You

can watch the episode on Yahoo Finance,

our app, YouTube and Samsung TV or

listened on Apple Music, Spotify and

Amazon. Be sure to leave me a review and

like and subscribe where you can. I love

all the fan feedback. Julie has you next

on Martin Catalyst.

Heat. Heat.

Heat. Heat. N.

Heat. Heat.

Down.

Heat.

Down.

Down.

This is market catalyst. I'm Julie

Hyman. We are 30 minutes into the US

trading day. So, let's take a look at

the major averages where we are seeing a

sell-off underway here. It's more acute

in the Dow which is down about 550

points. That's a drop of about 1%.

Contrast that with the S&P which is down

about half that amount, about a half a

percent and the NASDAQ is only off by

about a quarter percent at this point. A

lot of crossurrens going on today. But

probably chief among them is that it

looks like that hostilities between Iran

and the US have resumed. Uh President

Trump saying that the ceasefire looks

like it is done for now and so there

have been strikes on either side and he

says that could continue. So that seems

to be once again renewing some of the

concerns in the market. Although as we

know uh stocks have largely shrugged off

past sort of flare-ups in the conflict

ever since uh we have seen it begin uh a

few months ago. But certainly it's worth

looking at a couple areas of the market

here. Chiefly we got to look at what's

going on in yields and what's going on

with oil. So on the yield front, the

10-year at 4.57%

here. So we've seen yields globally move

higher on perhaps renewed concerns about

inflation here. We've got the 30-year

moving up a couple of ticks to 5.07%.

And then you have what's going on with

oil. Oil just under $74 a barrel if

we're talking about WTI. Of course, it

bears mentioning that even at the peak

we had oil not Yes, it was high. It was

above $100 a barrel, but it wasn't as

high as some of the worst case

predictions. So now this uptick that we

are now seeing, how much damage is it

going to do to sentiment? How sustained

will it be? What effect will that have

on inflation? These are all still

outstanding questions. Whether this will

be another blip or something more still

remains to be seen. And then if we if we

take a look at the groups in the S&P 500

that are on the move. Got to highlight

what's going on in energy stocks today.

They are moving along with oil prices.

By the way, if you look at energy stocks

year to date, they're still up 23%. So

one of the worst the best performing

groups even with the sell off in oil and

the come down from the highs of those

energy stocks. So that's thing one. Also

want to mention what we're seeing on the

downside today. It is not by and large

technology shares. You've got materials

that are lower, consumer discretionary,

you've got financials. Um, so those are

the groups that are falling the most in

today's session. The XLK is actually a

little bit higher. I mentioned the Dow

is falling the most today. So I'm going

to equate it and take a look at what is

falling in the Dow. Sherwin Williams,

Home Depot, Salesforce, Proctor and

Gamble, American Express, IBM. I don't

see a very clear theme there in terms of

what is down, but those are the stocks

percentage-wise that are down the most

in the S&P 500. Then you got the NASDAQ

100, which is holding up better on a

relative basis. You do have Microsoft,

Amazon, Alphabet, Apple that are all

trading lower. SpaceX popping a little

bit today. Nvidia as its price to

earnings ratio. Um Bloomberg wrote a

story this morning talking about how

that PE is at the lowest since 2019.

It's rebounding a little bit today.

Broadcom is up 3.8% on a new extended

partnership with Apple. We're going to

talk about that a little bit later on.

So that's the movement that we are

seeing right now. Let's talk about the

backdrop. Let's take a deep breath and

talk about the backdrop for all of this

from an economic perspective. Joining us

for more is Torston Slock, Apollo chief

economist and partner. Great to see you

Torsten. I want to talk with you about

AI because you've been writing about it

a lot, but I do want to linger for just

a moment on some of those questions I

was talking about a few moments ago with

this what looks like a resurgence of the

conflict between Iran and the US. As you

know, the markets have really brushed

this off pretty consistently this year.

Do you think anything will be different

this time? You know, are we sort of

tapped out in terms of oil supplies? Is

that going to make a difference? What

are you watching?

Well, what's very important is that the

backdrop here, Julie, is exactly that

the economy is actually in quite good

shape. We have three very important

tailwinds coming from the AI spending

boom. We have also tailwinds coming from

the one big beautiful bill that's still

helping consumers and also helping capex

from companies and we're also seeing a

tailwind coming from the industrial

renaissance meaning the home shoring of

production in particular in the

manufacturing sector. those three

tailwinds, they are a very important

backdrop for discussing well what is it

that's going on at the moment in markets

because the Middle Eastern conflict

which has now been coming and going and

now it's been away for a little while

now it came back a little bit in the

last 24 hours it still is the case that

corporate earnings have actually been in

pretty good shape across the board and

therefore the answer to your question is

that yes maybe oil prices are up a

little bit and it's a little bit

worrying that yields also have gone up a

little bit here on the back of this

flare up. But the bottom line still is

that corporate America is still in

pretty good shape. So from that

perspective, this is just a very small

bump on the road because the economy

just continues to be in really great

great uh shape at the moment.

>> Torston, what's your thinking these days

on um the new Fed under Kevin Worsh and

his um request of the market that they

pay attention to the data and not to

what they think the Fed's going to do in

response to the data. And that said,

what do you think the data suggests the

Fed should do?

>> Yeah, with this backup that the economy

is actually doing quite well. Obviously,

if the economy is doing well, you would

expect some upside pressure on

inflation. The challenge at the moment

is that we now have two additional

forces that also have been putting

upside pressure on inflation. Number one

is of course we still have some delayed

effects of tariffs that are putting

upward pressure on goods inflation. And

now number two, we also have because of

the conflict in the Middle East, some

both now more immediate but also more

delayed effects on energy prices. So

those three things are raising some

questions for the Fed about how quickly

is inflation going to come down. If you

on the one hand still have a good

economy, you still have upward pressure

of course from tariffs and also upward

pressure from energy prices and on the

other hand all those things are more and

more in the rearview mirror. You should

expect to see inflation come down. So

the challenge for the new Fed and the

challenge for Kevin Walsh is that yes,

they should really be thinking more

about rate hikes just like we've seen

from the ECB because there the economy

is strong. Yes, energy price went up.

Yes, there's some effects from tariffs,

but at the same time we are looking more

and more at these things as more as

temporary. Yes, there is a flare up at

the moment, but not many people expect

oil price to go back up to $100 a

barrel. Similarly, tariffs also

certainly look like they're more and

more in the rear mirror era. And if

that's the case, we should expect to see

inflation come down. So my best guess is

and our view is that therefore the Fed

will basically stay on hold for the rest

of this year because there is no reason

to hike rates if we should expect to see

inflation begin to come down on the

other side of these shocks that we're

experiencing at the moment.

>> Torston, there's one other shock that I

want to get your take on and that is the

AI shock which right now is an

inflationary shock, not a

disinflationary one. When do you expect

that to flip? Right? Because at some

point the expectation is it will give a

boost to productivity and then

eventually be disinflationary but right

now we're not in that phase.

>> Exactly Julie. So because of the AI

spending boom that we're living through

at the moment remember that the

hyperscalers want to spend about $700

billion on building data centers and

energy associated with data centers here

in 2026. That's of course a very strong

tailwind to economic growth but it's

also a tailwind to the cost of producing

data centers. We are seeing significant

of course increases in chip prices,

increases also in labor and production

costs. And we're also of course seeing

some increases in energy prices

associated with building data centers.

That's inflation in that fairly narrow

sliver part of the economy that has to

do with the construction of data

centers. But if you calculate on the

back of an envelope how much does that

contribute to inflation, you do get

exactly to your point that this will

lift inflation in the near term by

roughly around 0.3% over the next 12

months. So this is an inflationary

impulse simply because of the strong

economy. On the other side of that to

your point we should expect to see and

we're beginning to see productivity

gains and remember when we all become

more productive that also means of

course that there will be less pressure

on inflation and that over time also

means there will be some more downward

pressure on inflation. So yes there is

some sequencing here in terms of the AI

spending boom. near-term we get some

upward inflationary pressure and to your

point Julie over the next 12 18 months

we then begin to get some downside

pressure on inflation and I think that's

also gets important for the Federal

Reserve as they think about the

inflation outlook. Yes, again there is

some upward pressure at the moment but

we should ultimately begin to see the

downward pressure come through

especially as we look into 2027.

>> Tristan, this is also really relevant

for a recent note that you put out and I

loved the charts in this note. One of

them um has to do with profit margins in

S&P 500 companies and you said basically

profit margins are going up but they're

only going up for the tech sector and

that of course again goes back to say

pricing power that we see among

chipmakers for example right now but

eventually profit margin should be

getting better at other companies that

maybe are benefiting from AI. Is that

how what we should be taking away from

this chart?

>> Absolutely. This chart is really really

important for markets at the moment

because the blue line tells you that

profit margins have been going up for

the magnificent 7. We all know that they

have been very profitable for the last 5

years. They as you can see have just

expanded their margins quite

significantly. But in the green line you

see profit margins for the S&P 493 and

that has done literally nothing for the

last 10 years. And a very important

premise for this discussion around

what's going on with AI is of course

that we should not only expect to see

profit margins go up in the blue line

meaning in the magnificent 7 but we

should also ultimately expect to see

profit margins go up outside of the

magnificent 7 because ultimately the

whole idea with AI is that we will

become more productive. So a very very

important data point when we all talk

about what's going on for the S&P 500

and the stock market is that we are

waiting for any signs that profit

margins are going up outside of the tech

sector and that becomes really important

for this discussion around how quickly

would the AI payoff come around because

if the AI payoff comes around only very

very slowly well then maybe some of the

assumptions about earnings in the Max 7

are going to be too optimistic. So

that's why the speed with which AI pays

off for the rest of the economy is

actually really important for asset

prices and for stock prices today

especially for the magnificent 7. So yes

this discussion around we got to see AI

also show up in the S&P 493 or outside

the tech sector and the speed with which

that happens is absolutely critical for

thinking about valuations today. Yeah,

and this is the the other chart that you

had in that note. You're speaking to it

right now. The sort of return on

investment that the timeline it might be

longer than the market thinks. So, this

is something that I've seen a lot of

concern being expressed about right now,

Torstston. This idea that you have this

massive spending that is happening. You

already have seen a little bit of a

backlash against things like token

maxing or even just the cost of compute,

right, by companies. And so you've seen

a little bit of a pullback in that

already, right? You see Meta, for

example, coming out and saying, "We're

going to start selling our excess

capacity," which implies they're not

using all of their capacity. Like, how

how seriously or gravely should we take

some of these what look like warning

signs?

>> But that's right, Julie. That's why

these two conversations especially about

the growth in the use of Chinese models

there's a lot of nuances to this but

broadly speaking the growth in the use

of models that are not of course the

models that we normally use in the US

because if they grow more of course that

begins to raise questions about well how

much revenue is there then for the

hyperscalers if we have more growth now

coming from the Chinese models and the

second question is also token costs that

the cost of tokens of course have been

getting a lot of attention in

organizations over the last several

months so The question now is what is

the speed with which token costs are

going to slow down or is there going to

be ultimately a slowdown and therefore

ultimately something that will also

generate less revenue for the

hyperscalers. And why this is important

is because if you and I really step back

and take our finance textbook out all

assets today all stock prices they are

ultimately simply the net present value

of the discounted cash flows in the

future. But if those cash flows come

slower and if those cash flows don't

come as quickly as is assumed in market

prices at the moment then we will see a

correction especially in the magnificent

7 on the back of the market beginning to

realize that maybe the cash flows are

not coming as quickly as currently is

priced in. So this discussion around how

quickly the revenue is going to come in

what form when the revenues come and if

they do come slower that's a very

important part of the conversation

especially when we think about

valuations for the Mac 7 at the moment.

What are you watching most closely to

give it like are there any early warning

signs that you would be watching Torston

um that would get you more concerned

about that conversation?

>> Well, I would say two things. The first

of all the thing that we just talked

about namely what's going on S&P 493 are

companies of course adopting AI in a way

where they're beginning to see either

productivity gains are they seeing some

cost savings are they seeing some profit

margin expansion? I know this is a

little bit more of a armwy area to look

at, but it is very important the

anecdotes around what's going on in the

S&P 493 outside the MAX 7 because the

S&P 493 will give you some clear

guidance on what is the speed with which

AI is paying off outside of the tech

sector. So that's a very important area

first to focus on for thinking about

this area, this whole discussion around

market valuations, especially for the

magnificent 7. And the second area is

this even more complex issue of token

demand Chinese models. I know these

things are much more complex and it's

very difficult to connect them directly

with valuations for the S&P 500 but they

are in some ways leading indicators for

thinking about well what is the speed

with which the revenues will be coming

what is the magnitude with which the

revenues will be coming for the

hyperscalers and yes there are number of

discussions about model routing the

discussions around Chinese models that

can also run only inside the US so

there's a lot of important nuances in

this debate but I would say those two

areas of thinking about tokens and

Chinese models and also thinking about

what are the anecdotes we're hearing

from the S&P 493 are really the key

critical areas to look at at the moment

>> and we should be hopefully getting more

on the ladder going into earnings

season. Listen to all those conference

calls. Torson, it is great to see you as

always. Thank you so much.

>> Thank you.

>> Coming up, could the US stock market be

too big to fail? And if it is, what does

that mean? We'll get into it next.

Heat. Heat.

Heat. Heat.

Oh,

heat, heat.

Down.

Down.

The Federal Reserve could buy equity

ETFs during the next major bare market.

At least that's according to an analysis

positive by Bloomberg Intelligence

arguing the market is now too big to

fail, especially as more and more

Americans count on stocks to fund their

retirements. Joining me now is the

author of that piece, Eric Baltunis,

Bloomberg Intelligence senior ETF

analyst. Eric, it's great to see you.

>> So, great to see you, too.

>> So, let's let's talk about this

analysis. I think it's it's really

interesting. Let's go from the from the

beginning and basically why you say the

market is too big to fail. This is

something I've been watching really

closely, just seeing the increase in

participation in the market, the

proliferation of asset managers out

there and IAS that are servicing all of

this money that's in the market and that

that at the very least provides maybe a

little bit of a floor. Um, but we'll get

to that in a moment. So, you're looking

at talk to me about the different

metrics that led you to the sort of um

the increase of participation in this

market.

Yeah. So the big one was on Monday they

announced these Trump accounts which is

a pretty good idea right you you know

you have 45% of the country that doesn't

own any stocks and that has contributed

to the wealth effect. The increase in

monetary supply largely goes up to asset

owners. So that's why the rich get

richer and that's why Elon Musk is a

trillionaire. So much money connected to

these billionaires and trillionaires is

just the stock market going up which is

really a result of a lot of more money

in the system. So the people who are in

the lower half, they're just left with

inflation. That's why people are

frustrated. Well, these Trump accounts

are trying to bring them in. So on one

hand, it's noble and it's good. But if

you go for 55% of people owning stocks

and then you bring in like another 2530%

of people who hardly may might not even

think about the stock market much, but

they're going to take the free money.

$1,000 for every baby born basically

goes into the stock market in the S&P

500. You're going to get 70 80 maybe

even 90% of Americans that are invested

in the health of the fund of the stock

market. So when the stock market goes

down, not talking 5 10%. I'm talking

like 20 30%.

Um people who own stocks are going to

feel that pain. It's going to get it's

be front page news and the outcry will

be even worse than it is already. I mean

people are coddled as is. They freak out

at a 2% pullback 10 12 20 30%. the

outcry will be so great and because all

the people that own stocks are also

voters um it's going to put enormous

political pressure to keep the stock

market out of like a prolonged bare

market.

>> Now what's interesting is even before

the Trump accounts the participation in

the US stock market has gone way up. You

show some um stats first of all that

countries by percentage of population

that own stocks on a relative basis the

US is already up there. We're already at

55% which is again relative to other

countries really high. And the other

thing that I was really surprised about

in your piece is stock market growth by

owner type. Now this isn't like the

absolute ownership. This is how much it

has grown and households far and away

have have shown the biggest growth here

which I again I found a little

surprising.

>> Yeah. The fact that we're 55% and like

there's a couple countries in our

ballpark, but most countries are like

less than 20%. So this is kind of an

experiment we are running here in

America. It's ironic. We're so

capitalist, but we're kind of

socializing the stock market in a way.