Boeing, Tesla stock reaction, small-cap portfolio: Market Domination

The market (^DJI, ^IXIC, ^GSPC) is heading into its final trading hour on Tuesday, but the headlines keep coming. Market Domination Hosts Seana Smith and Josh Lipton detail the biggest industry stories and stock movements ahead of the closing bell.

Market Domination welcomes Barron's associate editor Al Root to discuss Boeing's (BA) latest legal obstacle as it faces potential charges from Department of Justice (DOJ) officials.

Sanders Morris Harris chairman George Ball later joins the show to elaborate why he believes the US economy isn't a textbook case of being in a Goldilocks environment, but is actually reflective of a "Winnie the Pooh" environment.

The top trending tickers on the Yahoo Finance platform this hour include Eli Lilly (LLY) and Novo Nordisk (NVO); Archer Aviation (ACHR); Paramount Global (PARA); and Nikola (NKLA).

This post was written by Luke Carberry Mogan.

Video transcript

Hello and welcome to market domination.

I'm Josh with in alongside Shana Smith live from our NYC headquarters.

We are giving you the ultimate investing playbook, help tune out the noise and make the right moves for your money.

And here's your headline bli getting you up to speed one hour before the closing bell on Wall Street.

I think the last reading and the one before it to inflation and the one before it to a lesser extent do suggest that we are getting back on a disinflationary path.

We want to be more confident that inflation is moving sustainably down to 2% before we start the process of reducing how tight our policy is of loosening policy.

He's kind of like really voicing investor sentiment right now is we'll see what's going to happen because there's a lot of uncertainty, even though the market right now is reflecting strength, there is still the risk of further price cuts ahead and there is still further question on fundamentals.

We are still facing somewhat of an e winter on demand so good result.

But I think the fundamental macro backdrop is still the same.

I wouldn't necessarily be overly concerned that the labor market is, is heating back up as a result of these, these data.

In fact, it makes some sense to me that we're stabilizing potentially after a few months of a sharp downturn.

All right, we've got one hour until the closing bell.

Let's take a look at where things stand right now.

And it has been a record setting day here for the markets, at least at this point with an hour to go.

You've got the NASDAQ that huge number up there on your screen.

18,000 crossing above that level here for the first time and flipping it over to the S and P 500.

Some of the trending, uh, that we have seen so far today as we flip over to the intraday chart here, you can say it's still just below the 5500 level, but still moving to the up side on track to close at a new record high.

When you take a look at the dow, we're also looking at gains there up just around 89 points as of right now.

Take a look at the bond market.

There are lots of focus on that over the last 48 hours.

But again, we're seeing a bit of cooling here as yields pull back after brushing up against that four or five level yesterday.

Take a look at the sector action, consumer discretionary outperforming here.

Financials not too far behind, but you've got consumer discretionary by far the leader in today's trading action.

On the flip side, you've got health care and energy as the underperformers.

Well, that, uh, out performance there from consumer discretionary, a lot of that is to do with the gains that we're seeing in Tesla alone today.

You've got Tesla just off the highs of the session, but still moving to the upside up about 9% today on the heels of better than expected delivery numbers that's carry the consumer discretionary sector.

They're the leader in today's trading action.

Also got much of the uh mega cap tech names.

Two in the green.

You've got Apple Amazon both up just around 1.5%.

NVIDIA giving back some of its uh recent gains there off just around just over 1% today.

Josh.

All right, Sea, a new job openings unexpectedly rising in May topping economists expectations.

The new data is showing a resilient labor market ahead of Friday's full jobs report.

Joining us now is Matthew Latte Deutsche Bank chief us, economist Matt.

It is good to see you.

Um le let's get right to your take, Matt.

Uh What you think is coming on Friday morning with that big Jobs report.

I it was interesting, Matt, I don't know if you saw Nick Tim Rose, uh his latest comment, the journal.

Um It was a good one and, and the way sort of um, Nick kind of framed, it was interesting as a question he sort of asked, you know, is the labor market in this sustained equilibrium where the unemployment rate kind of settles out around 4% or no?

Uh We keep softening, resulting in recession.

I'm interesting.

Matt, how, how you think about that question?

Yeah, I think anytime you have kind of a slowing in the economy that's taking place, there's always a question about the trajectory.

Are we slowing to something that's more worrying, you know, stalling out in the economy or perhaps even a recession or is it going from a very robust growth uh environment that we had last year back down to just something that's far more normal?

I think it's definitely the latter.

I think if you look at at this morning's jolts data, you mentioned job openings were higher.

Actually, the hiring rate had picked up.

The quits rate has stabilized at somewhat low levels over the past six months.

But all that together, it does suggest that after softening over the past six months or so, you're seeing a labor market that is stabilizing at this point in time for Friday, we expect that you see jobs added about 202 125,000.

Uh the unemployment rate remains steady at 4%.

Uh but actually risk that that could round down to 3.9%.

They see average hourly earnings or wage growth uh firm again at 0.4%.

And I think if we get that data point, it will alleviate some of the concerns uh around the the idea that the labor market be could be cooling too much.

Ma'am.

My question to you is a as we have seen some of these softer econ prints here as of late discounting the the Jel report out this morning, but we have seen weakness in housing manufacturing also coming in a bit weaker than expected earlier this week.

What does that tell us just about your confidence here?

Are you still confident that we are going to see a soft landing and be able to avoid a recession?

Yeah, it it's still our baseline.

You're right, you are seeing some slowing in the data.

Um A lot of this was anticipated uh for for for quite some time on the manufacturing side, you know, the ISM manufacturing index was a little bit softer than expected.

But actually, if you look at new orders relative to inventories, it's showing that we we should have good growth momentum in the manufacturing sector.

And that's actually a similar signal that we got from the PM I data this week as well.

I think there's gonna be a lot of focus on the consumer as we look ahead.

Obviously, there's a lot of interplay between the consumer and the labor market.

But if we continue to see a labor market that turns out meaningful income growth, uh something that we actually saw in the personal income report last week, it's really hard for me to see a reason why with, with very high wealth, meaningful income growth for, for consumers, why the consumer should slow in a worrying way.

And now when we talk about the consumer, of course, you know, there's, there's different consumers, high income, middle income, low income.

Do you ever read on kind of how each is doing right now and what you see ahead?

Yeah, no doubt.

I, I think you have a lot of heterogeneity in the consumer experience at this point in time.

You know, that is being driven in part by the drawdown in excess savings that we've had, particularly at the bottom half of the income distribution.

You're seeing certainly some strains or stresses showing up showing up there with, with higher delinquency rates.

You know, on the other side, if you look at the upper half of the income distribution, uh higher income households, they're benefiting from, from very high uh uh house prices from, from equities that are near record record levels.

The fact that they're locked in the low mortgage rates kind of insulates them from, from higher interest rates at this point in time.

And the labor market is still chugging along here, you know, despite the slowing that we've seen, so there is definitely some divergences in the data that we're seeing.

I think importantly though, from an aggregate or macro perspective, you know, which is what the fed will be most focused on at the moment.

It looks like a consumer that's slowing just to more comfortable levels rather than something that is that is either stalling out or, or recessionary at this point.

So the Mac given that and also just the commentary from Fed Chair Jay Powell earlier today, I'm curious just to get your perspective on what this tells us about that first rate up because he didn't explicitly say or give us any hints on the timing.

But when you take into account what he is saying or what he did say, the fact that the labor market is cooling, the fact that he is very much encouraged by some of the progress that we have seen on inflation.

What does that then tell us just do you think about the odds of a cut in September?

Yeah, our baseline is that you get one cut this year and then it happens in December.

But you know, there are certainly some prospects for, for September rate cut that can come in one of two ways that we get better inflation data over the next several months.

And as that clip showed, you know, chair pal has been encouraged by at least the last inflation print.

You know, certainly if we get something that looks like last Friday's core PC print over the next several months, the fed could very well cut at the September meeting.

The other way to get to a rate cut is that you have a weakening in the labor market that's unexpected.

Uh That's the area where, you know, that is a downside risk, but it is not part of our baseline at the moment.

Um From Chow's comments this morning, I did, you know, sense a little bit of a dovish tone to that, you know, he was encouraged by the inflation data.

He certainly looking at a labor market that is coming into much better balance uh and is not a, an important source of inflation at this point in time.

And so really, they'll be data dependent, you know, essentially if they get very good inflation data over the next few months, that will certainly improve the prospects for a September rate cut.

Uh Matt, you know, election is front and center, that means tariffs are front and center as well.

Biden and Trump have both both embraced that.

Uh I'm just interested as an economist.

How do you think Matt about that policy tool?

Do you think it's smart?

Do you think it's effective?

What, what's the potential impact on the economy?

Matt, yeah, I think from an impact on the economy perspective, it really matters.

Um kind of the breadth and size of those, those tariffs, you know, certainly we've seen President Biden embrace that to a certain extent, but it's been quite narrow on things like imports of electric vehicles from China.

The proposed tariffs from the potential Trump administration are broader, they're much higher.

Um He's thinking in contemplating a 10% universal baseline tariff.

That's a 10% tariff across the board contemplating 50 to 60% tariffs on imports from China that would have a meaningful macro impact.

And so, you know, as we think about the Federal Reserve in particular over the next year, December and then into next year, uh the election outcome will be important for how much they cut rates.

And if we get an election outcome that promises fiscal stimulus via, via tax cuts and inflationary policies through, through tariffs, it will be less likely that the fed cuts rates immediately next year.

Matt, great to have you on today.

Thanks for helping us kick off the show.

Appreciate it.

Thanks for having me.

We are just getting started here on market domination and coming up, Tesla shares getting a lift after the ev makers surprise the street with better than expected deliveries in Q two.

More on what that means for the company's road ahead next.

Plus we'll discuss some of the top trending tickers on Yahoo finance for the fourth of July vacation.

Travel plans could prove bumpy with a record number of Americans expected to hit the road.

We've got the outlook ahead.

Tesla shares jumping as the ev giant reports upbeat results for deliveries at Wall Street and pleasantly surprised the lower than expected decline of nearly 5% in deliveries compared to just a year ago.

Joining us now to discuss, we want to bring in Baron's associate editor Al root al.

It's good to see you.

So let's talk about these numbers that we're just getting out here from Tesla because coming in better than expected when you take a look at the market's reaction, clearly, they were very excited about uh the print that was uh published this morning.

So what does that tell us just about where Tesla stands is the worst over for Tesla?

Yeah, I, I think that if you look at the reaction today, the message is sort of the worst is over.

Um several notes from Wall Street basically indicate that.

And you know, one of the interesting questions I got early in the day was, well, how did they do it?

I mean, it was a very good quarter better than the first quarter where they delivered about 387,000.

But like that graphic shows it's still down year over a year.

So part of how they did it is basically just meeting lowered expectations or beating, lowered expectations.

Estimates always tend to fall, headed into the print that certainly happened this time as well.

So it was a good quarter.

Um And again, I just think there was so much anxiety over, you know, two consecutive year, over year declines.

How bad is it gonna be?

Is it gonna be 420,000 units?

You know, it wasn't that bad.

Al next next date on the calendar for Tesla investors, July 23rd earnings.

Day.

What are you expecting to hear there al are there certain metrics you're gonna make a beeline for in that print?

I'd like.

Well, so, you know, the, the deliveries are connected to that.

Right.

You know, they also did 9.4 gigawatt hours of storage.

Um, you know, that goes in their other business category.

That was a, that was a record for a quarter by, you know, more than 100%.

So that's more revenue.

Um And then with, uh with the deliveries being a little better than expected, I will go right to that operating profit margin, but they did about 5.5% operating profit margins in the first quarter.

Uh Down from about 11% a year ago, margins have been steadily marching lower as they've lowered prices and growth has slowed.

Uh So I would like to see that turn around the streets expecting about 8%.

So the street expects some improvement.

Uh So we'll look at operating margins and we will look for like the reversal in earnings estimate declines.

This delivery result is good enough where earnings estimates didn't have to be cut into the quarter.

And you can expect sort of, you know, the standard beat, you know, and look forward to the rest of the year, you know, Q one Q two being the worst part of the year and then establishing this idea that Tesla can grow again in the back half and then in 2025.

Yeah.

So I, with, with that in mind, I guess my question is on pricing, then do you think the pricing wars that have played out that Tesla has had to lower prices on vehicles really across the world?

That maybe that isn't going to be as big of a driving factor here when we talk about some of the pressure that, that has put on margins.

Well, interestingly, uh to your point, Tesla produced far fewer vehicles than it's sold.

So Tesla's inventories are lower so that, that lowers the pressure for them to cut their prices uh further to clear up some of that inventory.

But they are only one right.

There are about 50% of the U, they're about 20% globally of all electric vehicle sales.

So, um you know, other people have to play along uh uh ev growth in China has been better.

But again, that's partially been boosted by pricing.

I think the same thing to say is um pricing is probably gonna bump along the bottom.

So it's not necessarily going to be the pressure, it was in 2023 and early in 2024.

Uh some of the delivery results, not only from Tesla but Rian Neo XP le Byd indicate that that uh that vehicles are being sold at these levels.

So, you know, car companies might say to themselves, ok. You know, we're good, we can just sort of operate at these levels.

But again, it's not totally up to Tesla, at least from their perspective, there's less pressure to keep cutting prices.

And now I want to switch gears a bit.

Talk about another company, you know, very well.

That's Boeing.

You just made a visit al uh to a Boeing manufacturing plant.

Walk us through it.

What, what did you learn?

So Boeing uh usually does investor events, right?

Uh or media events and they bring everybody out there.

We were in the rent and facility of the 737 max.

So obviously, that's a very big deal this year merged the door boy blew out on Jan f. Uh The stock was about $249 a share.

Then you see it on the, on the graphic there.

It's below 186.

Most of that's related to 737 quality issues.

So they spent basically time trying to explain how quality was improving now, uh uh a plane facility.

Um It is sort of an awesome site, right?

It's huge, it's clean.

Um There's a lot of people doing a lot of things, there's more than 2 million parts.

Uh If you add up all the rivets and everything, there's more than 2 million parts of 737.

Um So it would be foolish to say that, you know, like, oh, I went to the plant and now I know the quality has improved, but they spent a lot of time trying to carefully detail, these are the kinds of changes we've made.

Uh So something like that can never happen again.

And so, you know, we can ramp production and put this in the rearview mirror.

Um, you know, time will heal all wounds.

In the case of Boeing.

They don't really have a lot of leeway.

They have to be perfect from this point forward.

Um And I left the plan saying, ok, at least, you know, there are things being done in terms of training, uh measuring employee efficiency, slowing the work down.

They've delivered a lot fewer 7, 37 minutes taxes than even the customers would like.

But that's all part of the process of digging themselves out of this hole.

They built, um Curious what was the feeling like from employees?

There are those associated with Boeing and then when you talk about how obviously it's going to take time here for manufacturing to improve any sense of just more.

So what exactly that timeline looks like?

Um So it's a years long, process, years long, right?

So, you know, if, if, you know, we're talking about the Tesla, you know, deliver 444,000 cars.

Uh you know, Boeing and Airbus combined will deliver like 1100 planes this year.

It is a it, you know, they take, uh there's a lot fewer of them, there are a lot more money.

Uh They're huge.

Um So, you know where Tesla, you know, looking to turn things around in a quarter to, you know, uh Boeing, in terms of production quality should be looking to turn it around in a year or two and, and people might want to see that process um sped up, but that's just sort of the reality of plane manufacturing.

Um, so it, it'll take a while and, you know, the things that uh uh investors can look for is, you know, they're basically delivering 20 a month, they're allowed to deliver 38 the month, you know, so getting back to 38 and then having the FAA say, you know what you can make 50 a month, which is their long term goal or one of their long term goals, I mean, and that and, and then also seeing some of these other derivatives of the 737 max approved like the 737 max seven or the longer version called the, the dash 10.

These things will come out, you know, between now and 2026.

And then people will basically say, oh, OK, things are getting better at Boeing um from an employee perspective, you know, each individual employee very proud of their work, you know, can talk about all of their training most interestingly, you know, through COVID, you know, and some of the suppliers, Boeing couldn't really quantify it or didn't want to quantify it, you know, 20% turnover at some of these places.

So there is a huge, you know, curve that some of these people have to go up to get proficient.

And I think that really caught Boeing short over the last couple of years as they run into some of these problems.

You know, al if we're talking Boeing, we also got to talk about who's gonna lead this company, Calhoun.

Uh stepping down.

There's been that chatter al about spirit arrows systems.

Uh Pat Shanahan, what do you make of that?

OK.

So we looked at this a little while ago and you know, the names that always came up were patch and hand from Spirit Larry Cult from General Electric uh Stephanie Pope, who is the coo who's the internal candidate.

Maybe somebody wild like Gwen Shotwell from spacex.

Uh Larry is firmly ensconced at Ge uh Pat is a legitimate candidate um to replace Dave Calhoun.

Um And there's just an endless debate over.

Should you go internal?

Should they have no ties to Boeing?

Should they have a lot of ties to Boeing?

Because it's a complex organization where you need a lot of credibility internally.

There is just no good answer.

I can show you CEO S that came from outside Boeing that did.

Well, Dave Muhlenberg, the guy who lost his job to Dave Calhoun because of the 737 max crisis in 2018, 2019.

He was an internal candidate and an engineer, Steve Mollenkopf, the old Ceo of Qualcomm is running this process.

To find the next guy.

I would say it's probably been harder than he thought, right?

Uh We haven't seen basically any development in months.

Um And it is, it is gonna be tough to handicap, like to answer your question directly.

Shanahan is one of the leaders, I would say Stephanie Pope internal candidate is one of the leaders in the clubhouse and we'll just have to see how it develops.

All right, we'll bring you back when we have the news.

Al Thank you so much for being on the show today.

I always love to have you.

Yep.

See you guys time to check in on some of today's top trending tickers.

Eli Lilly receiving FDA approval for its Alzheimer's drug, Kuma Yahoo Finance's Angelique Kamlani has been following that story and joins us now with more on.

That's right.

Good news for Eli Lily, like you mentioned, finally getting that approval, we expected it uh after the uh advisory committee meeting last month in which it was unanimously recommended for approval.

This is great for Alzheimer's patient.

Now, the second drug on the market for patients.

Just a reminder, Eli Lily's drug was found to have a reduced cognitive decline by 35% over 18 months.

It's a monthly infusion.

So they do have to go to a clinical care center to receive this best for those age, 60 to 85 years with mild dementia.

And uh it is basically delivered until the plaque the build up in the brain.

That's what it targets.

Uh clears up the price tag attached to that $32,000 for the year.

That's a little bit higher than the now competitor by in and a size lambi which has been on the market for 26,500 per year that is delivered more frequently through infusion.

So, uh Eli Lilly did mention of course, that the prices will vary by individual.

So that is just sort of a top line price if you will all on.

So Eli Lilly there, I mean, you take a look at chairs pairing some of their earlier losses have been under pressure that them along with uh Novo Nordisk on the heels of this Op Ed that we got from President Biden and also from Senator Sanders targeting the cost of G LP one drugs.

What can you tell us there?

And just in terms of how big of a medium overhang this could potentially be if, if we do continue to see this type of pressure.

Yeah, that op Ed was really interesting because it definitely had a lot of uh Senator Bernie Sanders talking points, right.

He's in harping on Novo Nordisk in particular and kind of letting the Lily hang back even though both do have pretty high prices for both their G LP ones.

Those are for a refresher.

Uh Eli lilies are monro and that bound for diabetes that bound for weight loss as well as uh Novo Nordis Ozempic for diabetes and will go for weight loss as you can see on your screen at or over, near or over $1000 per month.

That's the monthly prescription costs and those are the list prices.

And so that's sort of where we get into the dirty details.

Now, uh this has been part of Senator Sanders for some time.

He's been focusing on them.

So he did say in the op ed that you know these companies basically they don't reduce those prices.

The government will be forced to then reduce it for them.

And then Lily and no, no both gave statements to Yahoo Finance.

In a statement, Lily said that basically comparing list prices in the United States to other countries is basically doing an injustice.

It's too complex and that's the equivalent of what Novo Nordisk also said that they're disappointed that's a very difficult and complex problem that's being over simplified for political purposes.

Very strong comments there and this all on the heels of the treat and reduce Obesity Act that just got its first ray of sun.

I got passed out of the House ways and means Committee, which means that Medicare will finally get a chance to actually evaluate or rather the congressional budget office will finally get a chance to evaluate the cost to Medicare for these drugs.

So that bill did get reduced to kind of a limited population.

But we're looking at really a shift in the focus of these drugs and the potential for government in impact as well.

Stories that we'll continue to watch.

Right and good.

Thanks.

Let's take a look at Archer Aviation, the stock moving sky high today on news that ST Anis is investing 55 million or more into the EV toll maker.

Now last month, Archer Ceo Adam Goldstein spoke to Yahoo finance about increasing investor interest.

It's not just Archer that's out there building that we've seen really um investment come from all over the place um globally as this has the potential to be a really large industry and really help, you know, be transformative in the way that people are traveling.

So the excitement that we're seeing today in this investment that we're seeing from ST is coming on the back of a successful transition flight here for Archer.

It's being hailed as a milestone here for the company.

So again, the stock down pretty significantly since the start of the year, but we are seeing some optimism play out on the with more enthusiasm moving on Nicholas fares higher today after the EV makers saying it wholesaled 72 class eight Nicola hydrogen fuel sale trucks in the second quarter and that Shana was above the 60 unit high end of expectations.

100 and 12 during the first half, reports of new customers too like Walmart Canada.

Yeah, I think there's lots of questions just about what exactly the future still looks like for Nicola, we, we, we are certainly seeing this excitement play out in the market today.

But again, when you take a look, even at those numbers, yes, it is coming in better than expectations, but they're still not delivering a significant number of these are getting, um, I here for this for a significant number of these trucks.

72 class eight nla hydrogen fuel cell trucks here to wholesalers during the quarter.

So again, even when you take a look at that chart year to date, you're looking at a stock that's off 69% nice pop today, but it has been hammered.

It has been hammering for quite some time uh and coming up shares of Paramount, that's, you know, that's you, Sean.

I jumped right in.

I was, I was so excited.

I jumped in, I couldn't help myself, you know, because we're talking about Paramount.

It seems like every single day at this point.

So let's update you with what is new today?

We just had this crossing earlier this afternoon.

Paramount rising today on the back of a report that it is selling its bet network for $1.6 billion.

It's according to Bloomberg.

Now, Paramount is in exclusive talks to sell the bucket entertainment television network to buyers that include its CEO Scott Mills and also another uh individual runs the New York, New York based private equity firm CC capital.

So again, they have been rumored to have interest here going back to last year.

Now we have that $1.6 billion.

Uh, it looks like the offer that could be on the table here.

So we of course, will see how all this plays out because they are far from the only people who have been interested in bet network over there.

Do we see those other reports?

They do, Barry Diller, maybe kicking the tire national amusements.

You know, what does Sherry Redstone want?

That's the question Shawna.

And it doesn't seem like any the money.

Is that what it is?

I don't know.

It now also seems like so many of these offers that have been put forward here over the last several months.

Obviously, we talk about Sky Dance when we talk about Paramount overall here and how that how those talks kind of fell apart uh most recently.

But even with the bet, when you go back to last year, the same group had discussed an offer of just under 2 billion.

You also go back to some others who have been interested in the company Byron Allen had been interested in it, Tyler Perry and their offers have not been good enough for Redstone.

So to answer your question, I have no idea, Sherry comes on the show, talk us through it.

Always welcome.

Moving on stocks rally higher today as investors react to fresh commentary from Federal Reserve Chair Jerome Powell who share the disinflationary path of recent economic data.

Powells said Tuesday that he is encouraged by cooler inflation but reinforced that the central bank will need to see more evidence, reporting, cutting interest rates for more on the path ahead for the fed.

Let's now welcome in George Ball Sanders, Morris Harris chairman George.

It is good to see you.

So talk about the environment, George.

This is an interesting note uh in which we find ourselves in.

You say George, it's not goldilocks but Winnie the pooh would be very happy in today's environment.

I will confess George, I do have a five year old at home, but I I am not, I'm not that up to speed on, Winnie the pooh, walk us through what you mean there, George, what, what is the Winnie Pooh environment?

Winnie the pooh and his friend Christopher Robin would walk through the forest very happily hand in hand.

And that's really what's happening in the economy and in the marketplaces today, uh Chairman Powell is happy.

Uh inflation is headed in the right direction, but it's not there yet.

Uh American business is showing that it can make uh very healthy profits and have near record profit margins even with interest rates of what I would call 5%.

So Christopher Robin and Winnie the pooh are walking through the forest happily.

Powell is pleased with the trajectory of inflation.

Uh and business uh is very pleased with its ability to uh earn good and growing profits uh, in a higher interest rate climate than many people thought it's not goldilocks, but it's, it's a damn good uh, uh backdrop for both business and the economy right now.

What happens next though George?

I mean, how long can this continue?

And if it can continue, then what does that recessionary risk look like?

There are always gonna be recessions.

Uh If people think that either the, the Fed or, uh, any other exotic, this body can create a, a backdrop that gives us either Goldilocks or Winnie the pooh from now until the end of time, it's not gonna happen.

We do have a growth period that's a long in the tooth one.

and simply by the evolution of the stop clock is right, twice every 24 hours we are headed toward, I think a period of time where you're gonna get something like a recession or a recession f that is going to dampen profits and probably hurt the stock market at the same time.

Uh But again, that's not because of policy failures.

It's simply that economies and growth and, and innovation uh get tired after a while and I think late in the 19 in 19, in 2024 and 2025 we're going to see that a soaring in profits and a, a dip in the stock market ahead of us, not because of the Fed uh or fiscal policy, but even despite it and George, your message to, to investors here.

One message you say stay where you are in your portfolio.

If your stock holdings are in your normal range, would, would you say George?

Um you wanna stay where you are, you wanna stay in those positions or George?

I mean, after the run we've had here in the first half, I mean, do you wanna take some of those winnings?

Put that money to work in some new names?

The most boring thing in the world.

It is not, not popular, popular either as, as media or in any other way is to, is to say, stay where you are.

Um But yeah, we all know that trying to time the market is a fools game.

People who try to time the market end up poor.

Uh Second, there is nothing in the economic uh outlook that uh means somebody should try to take chips off the table.

You want to be a participant in the growth of America uh that takes place over time.

You, you don't want to say, gosh, I made a lot of money.

I'm gonna pull out and be on the sidelines.

It's not that uh uh that's not something that's smart in almost any period.

So I hate to be boring and say stay the course but stay the course even if it is boring.

George.

What do you think of the action though that we've seen in the bond market?

Because we did see Chair Powell's comments on disinflation, uh put some downward pressure on yields today.

And then you compare that to the massive run up that we saw in yields over the last two trading days.

Has that build up in yields at least run its course for now.

Or if we do brush up once again up against that four or five level.

What does that then look like for equities?

Uh Chairman Powell wants inflation to be dead and then he wants to do an MRI to make sure that it's dead and to show the um MRI to everybody so that the world at large understands that it's dead.

Uh We are probably going to see a period of time when there the, the fed uh suppresses short term rates but where in the fairly near future, uh there are fears that uh a Trump administration or a second Biden administration will be fiscally profligate and that will put upward pressure on yields in the longer term part of the market.

So I think we'll see 450 above before we see 425 and below on the 10 year uh treasury bond using that as, as a, a good uh uh bellwether George.

We, we, we uh covered the markets, the fed, Winnie the pooh.

I, we covered a lot of ground.

George.

Thanks for coming on the show today.

Appreciate it.

Thanks Josh.

Coming up, we are checking in on the biggest names and chips.

Stay tuned, more market domination on the other side and media share is pulling back today.

The A IA I market darling falling further from that record high that it reached not too long ago.

Our next guest though isn't worried about the bumpy path that we have seen for NVIDIA over the last several weeks.

He's got a buy rating on the stock, the highest price target on the street.

We wanna bring in Hans and Moses man, he is Rosenblatt Securities, a senior research analyst.

It's great to have you here.

So you take a look at what has been certainly a volatile uh couple of weeks for NVIDIA.

Some of that sells high pressure on the stock.

Why isn't that worrisome to you?

Well, I, we're entering new territory for NVIDIA.

Um you know, the valuation of really out of thin air almost over the past year.

Uh The move has been such that it has uh you know, people kind of worked, how is that even possible?

And it requires you have to have an understanding of what's going on with A I and their leadership position.

So it could be a little bumpy, but from a secular perspective for the next 10 years, this is going to be um the way to play A I uh they're at another level and I think people have uh have to just get used to that and they're not a semiconductor company anymore.

They're a platform, they're all things A I and Hans, you know, I'm assuming I, if you're bullish on NVIDIA two Hans, you must be also then bullish on just the bigger mega trend of A I that, that you must think, you know.

Ye yes, it is, this paradigm shift.

And yes, Jensen Wong is right when he talks about, you know how the next industrial revolution has begun, Hans.

Yeah, that's right.

So there are a couple of moving parts and so the cloud, which is where most of Nvidia's business is, is not going to be the home of all things A I as as time goes on more A I gets done not up there in the cloud, but in, in the mid edge, the far edge and it opens up the door for more efficient solutions in terms of platform uh hardware and even software.

So there are other players that will benefit uh from that transition such as A and D such as arm uh a little company called lady that we cover.

Uh So there's other participants, but in terms of the value capture of A I, uh NVIDIA may lose unit market share, but they may actually gain value because they're, they're, they're monetizing the entire stack.

That's the the entire rack, the entire software that goes around that.

So it's a formidable uh model that I think people have yet to kind of fully grasp hans what you just said a minute ago there that NVIDIA is no longer just a chip maker.

It's all things A I that has actually captured the attention of regulators around the world.

And earlier this week, we got the Reuters report out that actually France is looking uh to, to uh and media is setting a potentially facing some antitrust charges there in France.

I'm curious to you just how you're assessing that risk from an analyst's perspective and what, to what extent this could ultimately be a worrisome, a headwind here for the stock.

Yeah, I think that uh uh NVIDIA competitors and NVIDIA observers and countries get worried about uh a company that is grasping or, or capturing all of this value.

So there is a knee jerk reaction in some cases to stop that they've already endured.

The, the US basically with these restrictions on China, 20 25% of the business is basically gone and they're still basically sold out.

So it's something to watch, but they are not being predatory.

And in the least, even though prices have been moving up, it's not the the price of the chip or the board of the rack that is driving this business, it's the value created by the total cost of ownership.

It's a different metric that we in the semiconductor industry are not used to, right?

You can double the price of this product and it provides significant TCO you know, performance per watt per cubic foot per dollar advantages that nobody can meet Right.

It's, it's not like uh there's another guy that can do it, maybe a MD captures some share here.

But that's, it's a little different.

But yes, it's something to monitor in France is something that kind of raises eyebrows and so on.

But at the moment, I don't think it's going to lead to anything because they are being, they're being fair in terms of how they price their products.

In my opinion, Hans, as you know, you know, Jensen is is built out this platform as he expands hans, you know, he he moves into new areas, new verticals are there companies that you think should be worried.

Well, so the traditional way of of doing things in silicon or are are changing so that the the the let's call the general purpose server market is being, you know, really destroyed in terms of value by moving to an accelerated cycle.

So you know, guys like intel and even a MD, if A and D didn't have a GP U, for example, they'd be in big trouble.

Uh So they are changing the way compute is done.

And so the next wave of where a value capture for NVIDIA, if you look at say the cloud, for example, are networking areas storage areas.

And so you you start to kind of bring in those areas in terms of value and you maximize the interface between networking storage with the computer, the accelerated compute.

So I think that the traditional networking uh players and storage players probably have uh to deal with this.

There are ways to get around that, for example, Broadcom and Marvel uh which are, you know, big players in networking, they have the ability to do custom chips.

And so some of the hyper scalars don't want to use NVIDIA all the time.

They want to do their own custom, highly efficient, very expensive accelerators.

And so there's another kind of theme that is counter to that.

But it is interesting how if you look at Nvidia's roadmap, how they expect to capture, not just the, the GP U, the compute, but the entire rack and everything that goes inside of rack and, and a data center hans.

There's been more and more talk about some of the competitors within the space, even when you take a look at Mikron, that has certainly gotten a lot of tension here.

I'm curious just what you think of that comparison and then more specifically, some of that price action that we've seen on Mikron since its earnings report.

What is the street missing that you see given your bullish thesis there?

So my, my top two picks for this year are the ones that have kind of underperformed here.

A bit of late uh A and D and micro.

So Miron is an enabler.

Uh they're not a competitor to NVIDIA.

So they uh uh micro provides uh very uh useful and a fundamental memory be it DDR five, which is more commoditized or this new high bandwidth memory which the industry is currently constrained, uh probably sold out for the next year, maybe a year and a half.

So NVIDIA needs Mikron and Samsung and hi to, to bolster their production, get their eels, right?

A MD is more of a competitor and coming from nowhere and A MD is being helped by hyper scalars and Broadcom and some of the networking guys, as you can see an emerging battle of the Titans where a lot of the industry, hyper scalars chip companies which feel threatened by NVIDIA are kind of teaming up to, to, to do battle with what I would call, you know, like a Godzilla like like a personality here.

Uh when NVIDIA that you know the green, the green monster, if you will.

So that's kind of how things are playing out.

It'll be a, a battle that will last a long, long time.

But I think NVIDIA has the advantage here.

Uh Over time, you can think of this as you know, an apple with the iphone and that ecosystem doing battle with Android.

They kind of coexist.

Um But uh that's how I, I think it could play out Hans.

Great having you on the show today.

Thanks for making time for us.

You got it.

Now, let's get to some calls of the day here, Piper Sandler, downgrading crowd strike from overweight to neutral sinus docs risk reward after a strong run and to be clear, this is Piper's Rob Owens.

We've been covering this space a long time covering cyber security names for a long time.

When Rob speaks, I listen, Sandra, that's what I'm trying to say.

Ok. And he basically says this is a valuate.

I mean, this is a valuation call tells his clients listen, he looks at the valuation relative to the software companies.

He covers north of 75 billion in market cap current valuation.

He says placed his crowd strike with the highest 2025 multiple on sales and among the highest on free cash flow.

In other words, he thinks it looks pricey.

Yeah, exactly.

And I think that's everyone's take away from this call and you can see you listen and the street listens too because you can see that in the pressure that we are seeing on shares today off just about 1.5%.

But remember this is a stock that had been up more than 50% year to date.

It's rallied just 10% since the announcement of its inclusion within the S AND P. So clearly, there has been a lot of excitement, a lot of that driven by some of those underlying uh factors.

Uh fundamental factors that Rob Owens does remain very bullish on still going forward.

But again, saying that current valuation levels, it might be due for just a bit of a break here, but going forward he's saying that he's taking us an intermission prior to the second act to put it in his words, but he still believes that strong fundamental performance is going to continue here and sees a number of catalysts ahead.

Well, coming up, taking a look at how to play small cap names in your portfolio.

Next on market domination, small caps simply put, are struggling to keep up with the broader market.

While the S and P 500 has matched a numerous record highs since the year began.

The Russell 2000 has gained less than a half of 1%.

We're looking at how to navigate small caps in your portfolio with the Yahoo Finance Playbook joined now by A BA A, he's SSNC Alps Advisors, a chief ETF strategist.

It's great to have you here, Paul.

So walk us through exactly why maybe now investors should be rotating just a bit and be a bit more bullish on small caps given the underperformance that we've seen now for some time.

Well, I think you touched on it in your lead in where basically the S and P 500 continues to climb and make new all time highs.

And yet the Russell 2000 small and mid caps really haven't done anything to participate in that rally and you go back five or six years and you've basically had sideways action in small caps.

And if you look at the ratio between the Russell 2000 and the S and P 500.

So just divide one by the other and we're at the lowest levels we've seen in more than 20 years.

You have to go back to the end of the dot com era to see any time when small caps, at least at a price level have looked like this relative to large caps.

Then you look at valuations and you look at the pe spread between large caps and small caps as defined by the Russell 2000 sp 500.

And historically speaking, when you get that type of anomalous relative valuation, it does portend to potentially strong relative performance on a go forward basis.

But as always, anytime there is a valuation story in the market, you have to think about what it means, short term and long term valuation is not necessarily a signal for near term out performance, but there's reasons why small caps are relatively cheap compared to their large cap counterparts.

What about uh Paul earnings growth for the small caps just broadly?

What do you expect versus large caps?

Well, I think the earnings growth picture for small caps is significantly muted compared to large caps.

Although I will say that a lot of the large cap growth at least in earnings in aggregate is dragged up by the significant growth we're getting from the top of the cap spectrum.

So growth expectations for the Russell 2000 in a SM cap universe is much more subdued than for a large cap universe and as we talked to, but there are warts in this universe.

You do have a valuation story in place, but you have 9% of the Russell 2000 in regional banks.

That's a segment of the market that faces significant economic headwinds.

You have 40% of the Russell 2000 famously, that doesn't make money.

So forget about earnings growth, just think about profitability in and of itself and then you have 50% or so of that index, which has floating rate debt.

So when thinking about allocating to small and mid caps, I think of a lot of allocators and a lot of advisers are trying to balance what they see as an economic cycle that might be favorable to small caps.

They typically perform well when you get to the end of a fed rate hiking cycle, but also that valuation story.

So Paul, I guess my question to you is where are you seeing those opportunities given?

When you take a look at the Russell 2000, there's a heck of a lot of companies in there.

When you take a look at those balance sheets, they look very different in terms of profitable, uh those that are profitable and those are not.

So ho how are you, I guess determining those winners?

And then when we talk about catalyst, how much of this call is contingent upon the fed cutting in terms of what that catalyst is going to be when we talk about a bit of this shift in rotation.

Well, I think there's very simple ways to reconfigure a small and mid cap oriented strategy to avoid some of the worst outcomes.

So something that O US M the ETF Alps offers does is it screens for companies with high ro a so profitability, low leverage, so low net debt to EBITA companies that pay dividends have grown their dividends and have strong dividend coverage.

So you call that universe down to let's say 100 100 and 15 names that are defined by the quality characteristics that an active manager might look for when picking and choosing in that market.

And when you look at historically at the risk reward profile of a quality oriented small and midcap portfolio, it may not give you full leverage to a rip your face off, rally in small and mid cap stocks.

But ideally what it does through its low volatility screens as well as those quality screens is avoid some of the worst companies in that universe and therefore some of the worst drawdowns in that universe.

But in terms of catalysts, one of the things that historically has been positive for small gaps is when you get this type of wide valuation gap between small and large cap companies, which we currently see.

But also if the FED does indeed start to cut rates one time, two times or more into the back half of 2024 into 2025.

That should ease some of the tension economically on some of those be small cap companies because I mentioned 9% of the Russell 2000 is in regional banks.

Well, why have regional banks suffered so much over the course of the past year and a half?

Largely because of a mismatch between deposits, a mismatch between capital flight and importantly, a mismatch between what they've lent money at and what they're borrowing money at in terms of rates.

All right, Paul Bay, we have to leave it there.

Thanks so much for taking the time to join us today.

Thanks for having me.

You got the closing bell on the other side of the break.

Stay tuned.

You're watching Market Domination.