Hello and [music] welcome back to Trader

Talk at Yahoo Finance. I am Kenny

Pulcari and today we're talking to

Christina Hubu who's the chief market

strategist at the Man Group and Ryan

Kelly who's the CIO at Legato Financial

in Louisville, Kentucky. Thank you very

much for joining me today. Look, there's

a lot going on. So, let's just get to it

because we're in the middle of earning

season. This is a big week, certainly a

big tech week, but we're going to get

about 150 names that are going to report

this week. So give me your sense on

where where what we've heard so far

which has been stellar and where you

think we're going.

>> So I think we're going to continue to

hear some really good news this week. Uh

earnings growth has just been

phenomenal. Now having said that I think

when we get to the consumer

discretionary names that's where we're

going to see a good amount of weakness

and we'll also get forward guidance that

may surprise.

>> Right. So it'll pull down the growth

rate. Right now, I think they said

they're growing at about 15 or 17 16%.

>> But I think once you start to get those

weaker numbers, that number will come

down. Still be good overall, but it

won't necessarily be this picture. I

think that they're looking at right now

or the way it feels right now. What do

you think?

>> Yeah, I think we're going to have uh

some very good reports from earning

numbers. I think the capex spending on

the tech side has been worrisome for

some investors. I think Google coming

out with more capex than they have cash

flow is something that just worried a

lot of people. First time ever, by the

way, that they had negative cash flow,

>> right?

>> Absolutely. So, I, you know, I I think

it's going to be a bit of a mixed

picture as long as there's all this

stuff up in the air with Iran. Um, we

just keep swinging back and forth about

every week, it feels like. So,

>> do you think um do you think the AI

trade is over by any stretch of the

word?

>> I don't think it is. I think the uh the

kind of habit of just jumping into

whatever the next small group is, you

know, you jump from software to GPUs to

memory to whatever it is, I think that's

over. Uh I think we're going to have

some stratification. There's going to be

some companies that are going to execute

a lot better. There's going to be some

companies that that build some things

that just don't work as well as others.

Uh so some of the names that are up two

or 300% are going to drop a lot and I

think we're going to continue to have

pullbacks along the way in the whole

sector.

>> What do you think? So I I'm a bit more

circumspect when it comes to AI. I

certainly think that it is a

transformative technology. This is an

industrial revolution. But having said

that, if we go back to the telos of the

late 1990s, early 2000s, there's a lot

that rhymes, right?

>> Uh and so I do worry in particular about

hyperscalers because they have an

enormous hurdle they need to meet. Bane

came out and and forecast that they need

to get to to to a a very high level of

uh AI related revenues to make this

worth it by 2030. That is going to be a

tough

>> is that a stretch?

>> I think it's definitely going to be a

stretch. Now, there are parts of the

food chain that are going to do very

well because the hyperscalers are

spending so much, right? this is just

the maturing of a technology cycle. And

so there are going to be winners and

losers. There's just going to be more

differentiation,

>> right? And I I think that's right. And

so this week we've got uh Microsoft and

Meta on Wednesday and Apple and Amazon

on Thursday, right? So Microsoft is

going to come out. Microsoft, which by

the way had gotten has gotten really

beaten up.

>> I think way overdone. I think they that

was like, you know, throwing the baby

out with the bath water because I don't

I own Microsoft. The firm owns

Microsoft, so maybe I'm a little bit

partial, but I thought it was a huge

buying opportunity for a long-term

investor. And I think it and it's proven

to bounce off that 350 level now. It's

trading at foreign change, I think,

isn't it? Well, yeah. And I think what's

happening is investors are becoming more

discerning and they're also

re-evaluating the different

characteristics of many of the AI

related plays. And so you may very well

find that there's a lot more reward uh

that investors give to those companies

that do still have strong positive cash

flows that are being more careful with

how they spend. Right? I mean we for a

few years now the philosophy has been

the greater risk is to not spend enough

>> right

>> that's changed now I think the greater

risk is to overspend in this environment

especially if one needs to borrow to do

it

>> well at what point are you overspending

look Google just came out and said that

they raised their number to 205 billion

>> right

>> and you have token usage by corporations

what up a thousand% right year to date

so I mean I I think we're just at the

beginning of figuring about what we can

do with this whole new universe of of

>> but but we have to be careful because

not dissimilar to the late 1990s early

2000s and I think we need to learn from

past history there are components of

this spend that can quickly depreciate.

>> Yes. And in fact in this particular

scenario GPUs are a lot more expensive

and they can easily become obsolete or

you know less less useful because more

powerful uh GPUs are created. So there's

a real risk in throwing in a lot of

money right now as opposed to being uh

more uh more careful more thoughtful

about spending.

>> Right? Which is why I think um when we

talk about tech, I still think it's a

very very legitimate trade, but I don't

chase tech at all. Right? We own it.

It's already in the portfolio, so I

don't need to play catchup and buy it.

But I'm certainly not chasing it. Like

look at Apple and I love Apple, but it's

tra alltime highs. I'm not buying Apple

up here at all just because why would I?

We own it already. Why would I be buying

it way up here when I'd buy it on a

pullback? And has Apple been rewarded

lately because they're not hyperscaling

and they're not putting all the money

into AI? Have they been re-evaluated as

the more traditional Apple company now?

>> Right. Well, let's see what they say on

Thursday. It's going to be interesting

to see what Apple says on on Thursday.

And uh what should people be looking for

in Amazon in your opinion? What could be

what could be, you know, the headline in

Amazon that um that surprises everybody?

AWS

I mean, I I think everyone's looking for

some certain specific numbers on the

growth in in AWS. Uh saw actually

earlier today that Meta is talking about

coming out with a competitor for AWS.

>> Um but I mean the good thing with Amazon

is they have such a tremendous business

outside of AI. They can support a

tremendous amount of cash flow spend

without having to right monetize

anything the way that you know with

Microsoft is that legacy software going

to survive? Is it still going to be

useful, you know, a few years from now?

Is that all going to be replaced by AI?

I I don't know. But I think the shopping

is still going to be there.

>> And I think a lot is riding on AWS. So

So I think that's that's going to be

critical, especially the for forward

guidance around it.

>> Right. I think it's interesting because

because that is I think one of the key

things that everybody watches for when

when Amazon comes out. Um all right. So,

let's talk about now kind of move past

that because we're going to get, you

know, 146 other names that report this

week on the S&P. Um, and to your point,

they're going to start representing

these other sectors of the economy which

are going to be very interesting. You

think we're going to have a

disappointing consumer discretionary

sector report?

>> I do. Absolutely. The consumer is very

weak right now. I obviously've heard it,

you know, over and over again. It's a

K-shaped economy. I think actually the

bigger issue is that it is a P-shaped

economy in that uh the top 10% have

almost all the household wealth, right?

And so I think of it as as like sort of

the the upper end of the P like arms

holding on to everything, right? And

then the the rest of the line is where

there's very little and no one has it.

>> That's interesting. I have never heard

it defined as a as a P-shaped economy.

we should start that because the K shape

is what everyone's been talking about

>> and and income is not to me as important

as assets,

>> right?

>> Because uh it's assets that help cushion

when there's a downturn, right? We

continue to hear, you know, survey

results like uh you know almost 50% of

households wouldn't be able to afford

like a $500 emergency. So that really

goes to the heart of uh you know, net

worth and especially those households

that have higher debt levels. if it is

um you know a a a non-fixed rate then

you have to worry as rates go up that

it's going to become more expensive to

service debt. So for a lot of reasons

it's about% it's about net worth.

>> Yeah. But let me ask you a question.

Consumer staples on the other hand are

things that people have to buy every day

whether that whether the market's up or

down or whether the economy is good or

bad. You still have to go out and buy

diapers and whatever toothpaste and all

the other stuff that you have to buy in

consumer staples, right?

>> Yes, you do. But I will give the caveat

that you know in some surveys we are

seeing responses like I'm skipping a

meal. Um so so there is so consumer

staples I think will be will be solid

but on the edges there is there could

very well be some weakness there too.

But of course it's all about consumer

discretionary and for the high you know

the the stores the the this part of that

industry that is that's largely about

you know high netw worth uh shoppers uh

clients that's going to be okay but it's

the vast majority of households um below

that that are really suffering stress.

>> Do you have the same sense? Um, I I

guess I have a little bit of a different

sense on on some of that. Um, you know,

we've had gas prices go up certainly

lately. Um, however, inflation's

significantly below where it was over

the past few years. Um, so, you know,

I'm still seeing Walmart and Costco

trading at extremely high um, multiples.

Um, you know, we've we've looked at some

of the Dollar Tree, Dollar General and

that sort of thing and kind of had mixed

results there. They went on a tear a few

months ago and have have suffered since

then. So, um, I'm just I'm really really

focused on what's happening in the

Middle East. I think that 90% of the

issues with inflation and and kind of

that acceleration go away if that

problem is fixed. Not that I think it

is, but

>> yeah. No, I don't disagree either.

>> Yeah, I I I agree. If if the price of

oil can come down, but look, that's the

frustrating thing because a month ago,

we all thought this was science seal was

over, right? That everyone was going to

play nice in the sandbox and we were

going to move on. Well, that clearly was

not what happened, right? And so we saw

oil spike higher again. I mean, Brent

was over $100 last week and and and and

West Texas traded up to the mid90s, 94,

maybe 93. Um, and today it's down

because

because, you know, we have supposedly

another deal. But I wonder,

do we really have another deal yet or

are we going to are we going to be on

the edge of the seat waiting?

>> Well, first of all, let's let's make

sure we know what a memorandum of

understanding is. I mean, when that was

signed in June, that was just saying

we're going to essentially have a

ceasefire while we negotiate the real

agreement. That was going to be the most

difficult part of this.

>> Correct.

>> We're finding that even getting a

memorandum of of understanding that we

can stick to is a really difficult uh

thing to accomplish. So, I think that

>> we're very likely to have continued

elevated prices, continued conflict in

the Middle East for some time.

>> Right. Do you do you think

>> I I think that we are and I'm I'm not

really sure if Iran is just playing for

kind of the next couple of weeks out and

if they're looking for when we finally

hit these other dates if we're going to

get something done or are they really

pushing all the way to the midterms and

>> that's the question are they look

they're well aware that Trump's got the

midterms coming up right and if they

drag this on long enough I guess I guess

they're betting on the fact that it you

know it'll flip everything and the

Democrats will take control of

everything and leave Trump kind of

sitting there as a a lame duck. Right.

Well,

>> I think if uh if the Democrats win, I

mean, I think they're going to rein him

in rather quickly,

>> 100%. Or they'll try.

>> They'll try,

>> right? And if they win both houses,

they'll immediately start impeachment

proceedings again.

>> Um but I but I I do think I I I think

it's I I think it's naive to think that

Iran isn't playing that card,

>> that, you know, that that's in the back

of their mind that this is all going on.

And look, we're only three months out

now really from the from the election,

right? And so now it's going to get even

more um potentially more volatile as you

start to kind of really get a sense of

which way it's going to turn. I think

the market is still expecting the House

to go, but the Senate to stay. I think

that's what the sense is right now. Do

you do you agree with that?

>> I think so. I I think that you'd be

seeing some different I think if he was

expected to lose both houses. I I think

that you'd be seeing a little bit more

in terms of what Iran is doing. I think

they'd be more aggressive to be

>> think more pressure on the market if

that happened.

>> I think there would be. Yeah.

>> What do you think?

>> Well, I mean, keep in mind that this is

historically the worst year for the S&P

500, right? And so I I I

actually surprised at how well the stock

market has held up in this environment.

>> We've thrown everything at the stock

market and the S&P is up what 9% the

equal weight is up nearly 12%.

>> And it it tends to rally when we get

good news about uh the conflict in the

Middle East. Even though it's nothing

permanent, doesn't really go down as

much when we get negative news. It's

bizarre, but it's this gravitational

pull upward that's really been

surprising to me. I think it's all about

earnings growth, of course, right? Um

but I think that there could easily be

um some kind of ranch thrown into this.

I think it most likely will come from

higher yields.

>> Okay, so let's talk about that. Let's

talk about the Fed and Kevin Worsh and

where we think this is going because he

can cut the short end all he wants. He

can't really control what happens at the

long end and and the long end is where

you're getting those you know the 10

year and the 30 years is where 20 where

you're getting these higher yields that

he can't seem to control. So what do you

think happens next? Well, first let me

just say that, you know, interestingly,

there's an expectation, I think, that

he's going to be a hawk. That literally

the week after he was nominated, we

started to see the San Francisco proxy

Fed funds rate, which is intended to

essentially be the real feel on monetary

policy, right? Factoring in other

monetary policy tools in addition to the

Fed funds rate, that started to decouple

from the Fed funds rate. They had been

moving in lock step and it started going

up. Yeah. uh and it's gone up quite

significantly really since then. And so

I think the expectation is that sooner

rather than later he's going to start to

actually shrink the balance sheet. And

so he will be to a certain extent

impacting rates on the long end. Right.

>> I don't think he's going to cut on the

short end. And what I'm getting is a a

more hawkish tone today than I've had

I've heard in the past. Um Beth Hammock

came out most recently with uh some

comments that sounded very hawkish in

terms of her concerns around inflation

and also the feedback she's getting from

businesses in her district. Right.

>> And so so I think you know it's no

surprise that that um the probability of

a rate hike has gone up for a rate hike

in July has gone up in the C CME Fed

watch tool. It was you know

>> Yeah. But I still don't think rates

going up in July. the September rate

expectations likely went up to 70%. It

was 43 weeks ago, then it went to 50.

>> Then after last week, it was a 70%

chance that probability that there's

going to be a hike in September.

>> Yeah.

>> Which is going to be interesting.

>> Yeah. And less than 10% chance that

we'll still be at these rates in

December, at least last time that I

looked. So, yeah. And there's no one

guessing at this point that we're going

down in rates. And it's very surprising

to me. I mean, you look at the

tremendous pressure that Trump put on

the Fed, that put on Jerome Powell,

right? Um, I mean, my initial thought

was this guy was brought in to cut

rates, but only three of the the Fed

members were nominated by Trump at this

point.

>> Yeah, but he can't just cut, let's be

clear,

it's majority rule. Exactly. Like, he

could get he could stamp his feet all

all he wants, but if the majority if he

doesn't get the votes, he doesn't get

the votes.

>> And he's actually talking these days

like he wants to raise rates. He's I'm

very surprised by what he's saying to be

honest.

>> But do you think he's jawboning? I is he

looking for credibility? There was so

much talk about, you know, the Fed is

not going to be independent. This is

Trump's picked guy. He wants things to

go a certain way. I think if he was just

out talking a lot about cutting rates, I

think that it would hurt credibility.

But the bottom line is he still has the

power to do it as long as he has the

consensus. So,

>> but think about this. Think about the

amount of

issuance that's coming to the market.

Mhm.

>> That's only going to absorb, you know,

buyers of that debt are going to demand

higher yields because there's a lot

coming.

>> Exactly.

>> Right. So, so they're going to bid lower

and so prices will go down, yields will

go up.

>> There are many forces conspiring to

drive up rates on the long end.

>> Exactly. Right. And he can't do anything

about that if he's bringing all this

supply to the market. Correct.

>> That's correct.

>> Yeah. So, that's going to be, you know,

there's a little bit of a conundrum

there for him and for the for investors.

And the interesting thing is what else

is he going to do? I mean, if you look

at everyone was looking at, you know, is

he raising rates, is he lowering rates,

but so much of what else he said in this

last meeting was a little unusual. We're

talking about potentially less messages

coming out, different Spanish.

>> Yeah.

>> Which, by the way, I think is great.

I would love if he if on Wednesday he

just said, "Here's what we did." And he

turned around, he walked away just the

way Alan Greenspan used to do. He didn't

sit there and take all kinds of

questions and, you know, rub your back

and ask you if you're okay and what do

you think? Uh-uh. The Fed used to come

out and say, "Here's what we did. You

guys figure it out."

>> And people forget that. I mean, I think

that there was a big push for more

transparency or

>> during the great financial crisis. And I

agree that that was probably necessary,

>> but I think we're beyond that. And he's

made it very clear he wants less, not

more.

>> Oh, yeah. The radical transparency of

the Powell years is done. Yeah. Uh but I

think that's going to be very hard

because once you give markets something,

it is hard to take it away.

>> Agreed. A

>> and and there's a look at there's a

whole generation of people that came

into this business right when that

transparency was happening. So they they

didn't live under the prior

>> no

>> regime when that didn't happen. I came

into this 1980 when right when Al

>> when you're looking at the size of his

briefcase to figure out what he's doing

right

>> to figure out what he was going to say

and then he'd walk away right and and

remember the market was always had to

try to figure out what what it all meant

>> and so look he's also made it very clear

Worsh that he wants less he wants less

of these Fed members to to to to do the

circuit go on CNBC and Fox and Bloomberg

and everywhere else he doesn't want so

much of that going on because it creates

chaos.

>> Well, it creates a lot of additional

messaging. It creates messaging that

might not be part of the majority

>> 100%. Which is which is which is what

was happening because you get the people

that came out desending saying why they

descended and you know and then the

other people that came out in the other

side. So there was this conflict

constant conflict back and forth. He

wants to do away with that which I

actually don't think is a bad idea.

Well, I you I'm I'm a big believer in,

you know, more transparency. I I like to

hear different voices and hear what

they're thinking. I think it gives us

insight into where where they might go,

especially if if one is making a more

compelling argument than others.

>> Okay, that's fair enough. And I think I

think that information can make its way

into the market.

I think um

>> I worry that it's not consistent I guess

is is but like different different Fed

officials can come out and and say

whatever they want. There could be some

that are quieter, some that like doing

the interview circuit. So it's it is a

little bit chaos with that. If it was

maybe something that was more like a you

know more regular release and everyone

had to say something like an additional

dot plot on a more often

>> kind of schedule maybe. Which by the

way, they're going to do away with the

dot. I'm sure that's going to be thrown

out,

>> which I think is so interesting because

here we are in 2026 and there's actually

people with a number two pencil drawing

a dot on a piece of graph paper. I mean,

it's almost it's almost [laughter]

ridiculous when you think about it. But

>> well, he's doing away with that

>> to get, you know, any little bit of

information, any color can be helpful,

even though we know that it has been

grossly inaccurate in the past. I mean,

we go back to December 2021 dot plot,

right? They anticipated something like

90 basis points in rate hikes for 2022

and the rest, you know, we know what

happened. The rest is history. So, so it

can be wildly inaccurate, but it still

was it still gave us insight into what

they were thinking at that at that

moment in time.

>> Yes. But I think over I think even if

they even if they have less of it, I

think you'll still

it'll still end up making its way. May

not be with, you know, with appearances

on CNBC and Bloomberg and everywhere

else, but I think it'll get out there.

Anyway, look, we're going to run out of

time because we've already been here for

half an hour and and I could go on for

another hour and a half, but tell me

real quick at the second half of the

year. I don't know if you have any a

year-end target or not. I had this 7576

range on the S&P, which I still think is

where it could be because I I think

we're gonna get a pullback and then a

rally into the end of the year. There

are numbers as high as 8,000 which I

think are fairly aggressive, but tell me

what you think.

>> I don't love to put a number on it. I

think trying to pick the where the

market's going to be on an exact day is

is just too difficult. Um I I do think

and I was amazed today because you know

it was talking to everyone this morning,

oh it's another riskon day and then all

of a sudden, you know, you'll have lunch

and come back and everything's,

>> you know.

>> Yeah. By the way, what flipped? Did

something Did something happen?

>> I don't really know. I don't really

know. Oil is still down which makes

sense. Um but there is the the same

pullback on my

>> NASDAQ that's under pressure again.

>> Yeah, it's it's the chip names. It's you

know part of part of the problem is that

we are seeing credit spreads widen for

the hyperscalers and I think that's

exerting pressure right now and and um

you know sometimes it just takes time

for investors to get uh more nervous.

>> Yeah. And I don't think I don't think

that that trade is is done yet. I know

Goldman Sachs came out last week and

said, you know, it's approaching

capitulation in the tech sector, not the

broad market, just the tech sector, that

they're exhausted. And while I think

it's true, I think there's a little bit

I think they're going to push it one

more time just to test it to see who

gets anxious and, you know, does it hold

or does it melt, it's going to be

interesting to see what happens over the

next couple of weeks, right? This week

will certainly be a big week. Well, the

capex spending has been what everyone is

not a fan of lately, but I still think

that there are a few names out there

that have some value. I mean, Micron is

still fairly cheap. Highix is still

fairly cheap if you can figure out how

to trade it with the premium.

>> Micron's on sale. It was trading at

1,200 just a month ago.

>> Yeah.

>> Right. But wait, before we go, I ask you

one question. IBM, tell me what you

think.

>> I like IBM.

>> Do you? Okay. And look, when they

crushed it two weeks ago, down 25%, it

was down more than it was in Black

Friday in 1987. Lost 23% of its value on

that day. Last week or two weeks ago, it

lost 25% of its value. But it brought it

right down. If you look at the chart,

right at the chat, 205 was that level

that had been resistance, and then it

broke through. It became support, traded

right back down there, and held. And now

it's trading off that level.

>> Well, we've got a couple dozen names

like that. I mean, that's really the

only one that was down 25% in a day, but

Micron's over 20% off of its high.

>> Yes. But that happened one day. And And

so, so do you like IBM? You don't like

IBM?

>> Um, it's uh it's not one that is one of

my favorites, I'll say. Uh maybe I need

to take another look. You and I should

have another conversation about it, but

>> Perfect.

>> Yeah.

>> Well, I can't comment on individual

stocks, but what I can but I didn't

answer your question about the S&P 500.

First of all, I think we're going to see

a lot of rotation. I think that we're

going to see wild swings like the ones

we saw with IBM again and again now

because so much is changing. The ground

is shifting under our feet. Um I I agree

with you that I think there's going to

be a selloff in the S&P 500.

>> But I think it's going to take longer

for there to be a recovery because I

don't think we're going to have a

willing Fed.

>> Ah it's interesting and we got the

midterms in the middle of all that. So

let's see what happens. In any event,

listen, thank you very much for joining

me today. that half an hour went by way

too fast. But I do appreciate you coming

in and you know we could circle around

probably at the end of the year just to

kind of see you know how it all turned

out as we discuss it. In any event until

next week, take good care.