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Chip stocks soar, housing market struggles: Morning Brief

On today's episode of Morning Brief, Hosts Brad Smith and Madison Mills break down the market open and some of the trading day's biggest stories.

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) opened Thursday's trading session higher, while the Dow Jones Industrial Average (^DJI) hovered below its flat line. The tech sector continues to push the markets to new heights, as Nvidia (NVDA) has become the most valuable publicly traded company on the New York Stock Exchange. Meanwhile, Dell Technologies (DELL) has announced a new partnership with Nvidia to construct an AI factory for xAI, Elon Musk's artificial intelligence venture. In a parallel development, Musk indicated that xAI will also explore utilizing Super Micro Computer's (SMCI) server solutions.

Meanwhile, new economic data releases painted a mixed picture of the labor market and housing sector in the United States. On the employment front, the number of initial jobless claims fell to 238,000 for the week ending June 15, coming in hotter than economists' expectations of 235,000. The housing sector also showed signs of strain, with both housing starts and building permits falling more than expected in May. Pulte Capital CEO Bill Pulte calls the print "a little bit of a speed bump" in an overall strong housing market.

As the Swiss National Bank initiated its second interest rate cut this year, all eyes are on when the Federal Reserve will cut rates. JPMorgan US Head of Investment Strategy Jake Manoukian explains: "The Fed's going to join the party probably at some point this year. We're 90 days away from the September Fed meeting, traders are pricing in a 67% chance that that's the first cut." He adds that if a rate cut does not come in September, it will most likely come in December.

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This post was written by Melanie Riehl

Video transcript

It's 9 a.m. here in New York City.

I'm Brad Smith alongside Madison Mills this morning.

This is Yahoo Finance, its flagship show the Morning Brief and the 500 the NASDAQ set to open at record highs led by gains in in video.

Of course, we're also watching European markets following two interest decision.

So let get to it with the three things that you need to know this Thursday morning as you prep for the trading day, Yahoo Finances and as for Jennifer and Jerry, we have more and the 500 NASDAQ Futures climbing higher this morning on track for a winning.

We we once again by in video, the chip giant surpassing Microsoft as the most valuable public company in the world.

The stock is up more than 170% this year alone.

The hype around A I has helped the rally in equities and the S and P 500 NASDAQ composite hit Fresh records Tuesday before the markets closed for the June 10th holiday.

The two indices are set to open at fresh record highs this morning and it's a mixed picture for interest rates this morning.

The Bank of England is holding rates steady at a 16 year high.

The bank choosing to stay put despite earlier this week, showing inflation in the UK fell to its 2% target for the first time in three years.

It also comes two weeks before the UK general election, the pound falling against the dollar this morning.

Meanwhile, the Bank of Switzerland is making its second cut of the year citing a drop in underlying inflationary pressure.

The Swiss Bank trimming its key interest rate by 25 basis points.

This was frank rising today against the dollar here in the US.

More than half of traders are pricing in the first interest rate cut in September and we have fresh jobs and housing data out this morning on the jobs front, 238,000 people filed new claims for unemployment benefits for the weekend in June 15th and that's a few 1000 higher than analysts expected, but it's a decline from previous weeks and those weeks were at revised levels.

Now the labor market has showed signs of some cooling but overall remains strong.

And on the housing front both starts which means new construction and building permits.

They came in below expectations.

A sign that higher mortgage rates, they continue to weigh on the market.

Both that points also coming in below the prior months levels.

Well, good morning everyone.

NVIDIA officially becoming the most valuable public company on Tuesday.

The chip makers market caps are passing Microsoft and now worth $3.34 trillion.

This comes just a few weeks after the company crossed that $3 trillion threshold for the first time here, shares of NVIDIA, they're up over 100 70% so far this year there.

You're taking a look at that continued rise that really kicked off in 2023 and continue to move higher in 2024.

Pushing it to this its newest accolade that it can to for itself right now.

Yeah, it's interesting.

It's just the 12th company to hit a record high in the S and P over nearly 100 years.

So joining a very elite few there.

But I do want to talk about the negative elephant in the room that we got within video because the 10 top largest stocks have been up 17% in the past three months.

The rest have actually lost 1.3%.

So it's a question that we're having about concentration.

Another big issue at play is whether or not the growth that we're seeing within video is going to be able to continue.

March 2000 was the last time that a computing infrastructure company was the most valuable company in the S and P. And that company was Cisco, clearly not near the top today.

So it leads to this broader question about whether or not this is another tech bubble moment, whether in video can continue to keep up the pace of growth that the street is looking for.

And we should note most valuable US company here.

Of course, you got to continue to remind ourselves that Saudi Aramco is out there somewhere, just sipping coffee and uh chilling uh on its laurels uh of sorts.

But anyway, one of the huge things as we're thinking about this market stat for N video, also thinking about the market market share that it comes with as well here, especially within some of the chip segment.

The graphics card chip shipments are up uh according to John Petty Research uh and the stats that they were able to put out for Q one of 2024 up by about 39% year over year.

And you think about the market share for that for NVIDIA, 88% in Q one according to J Pr and that's compared to 80% the prior quarter here.

You're thinking about some of the other players out there.

You're right to think about that.

A MD that fell uh from 19% to 12% Intel also struggling to keep up with some of that demand and the market share uh battle and jousting continues to move forward.

The, the last thing that I'll mention on this too is it's interesting where the street is continuing to rally right now.

And this is not a specific NVIDIA story, but it is a generative A I story where you're seeing according to factset research, some of the most bullishness and buy signals right now of the three top buy signal or buy rated companies.

Um I believe it's Microsoft, Amazon.

Amazon should be the top one.

You've also got Microsoft and then lastly, uh you've got Delta Airlines, of course, uh, of the airline fame.

Anyway, uh of those companies Delta Airlines, Amazon might so all the strongest buy ratings in the market according to data from facts set two of those three companies, of course, strong generative A I plays for the market, right?

And really interesting though to see that the fundamentals still matter and that's why you've got Delta and that makes as well.

Brad 100%.

We've also got some fresh economic data out this morning, jobless claims falling to 238,000 last week.

That's down from the 243,000 the prior week, but still sitting near a 10 month high.

We've also got some housing data with housing starts and permits falling more than expected during the month of May.

So two economic readings for the market to really digest going into the start of today's trading activity.

Perhaps a little bit more of that waiting given to what we're seeing in the employment situation front right now.

Yeah.

And it's interesting because this is kind of like the B team of data, but it can be a leading indicator still because of what it tells us about the status of inflation.

When you look at the starts and permits, they are the lowest since 2020.

So that is a key metric to be watching here, particularly when you think about how this could drive the inflation narrative.

I'm excited to talk with our guests later in the show about this because if there is this dearth of supply that has typically supported housing prices, could that be inflationary moving forward in the housing market or is it really just about when the fed is going to cut back on rates and what that does to demand?

And of course, the price impact that that groundswell of demand that has just been waiting for cuts could have the housing market moving forward.

But it was interesting to see that surprise in starts and permits again, the lowest level since 2020 was not necessarily anticipated coming into the day.

Yeah.

And just as we're thinking about what this means more broadly here, especially as we're kind of and I zero and more so on the the housing data front because it's particularly interesting, you've also got some fresh data out from Red Fin this morning, which had really pointed at three main things within this broader uh housing market right now.

Buyers backing off largely because housing costs are high.

The irony of near record high housing costs causing buyers to back off and enough of them have backed off to give buyers who remain more negotiating power for certain homes.

And then lastly here, new listing still near historic lows here.

So tho those really three of the factors that are really uh weighing into this housing situation as of right now.

And potentially the idea that the Fed, you know, is gonna have reason to cut rates because we're seeing a little bit of pressure in consumer spending on all things including housing.

Well, traders remain mixed on the Feds path forward as we're talking about here with nearly 60% still anticipating a rate cut in September our very own.

Jennifer Shaber spoke with Boston Fed President Susan Collins in an exclusive interview on Tuesday, Susan Collins stressing the importance of not overreacting amid volatile data.

I think what we've seen in the data and again, consistent with what I heard on the ground today is things are very volatile.

Um You know, you get some welcome news and then they're challenging news.

And so I think it's really important not to overreact to what has been encouraging.

I think the data that we have seen recently in terms of CP I, in terms of the producer, prices is consistent with an economy that in an orderly way is becoming better aligned for.

More on this.

We are joined by Jake Mookie and JP Morgan's us, head of investment strategy.

Jake, thank you so much for joining us in studio.

We really appreciate it and for joining the Billie Eilish listening party earlier too, but I I wanna join the Neil Kashkari listening party with you for a second.

He was speaking this morning a little bit less fun.

Perhaps not for us.

But uh he said that it could take a year or two to get down to 2% inflation.

Do you agree?

It could.

But I think, I think the um that argument is a little bit less relevant for investment.

I think the fact of the matter is the global rate cutting cycle is already well under way, we track 37 central banks, 20 of them are already cutting rates.

The fed is going to join the party.

Probably at some point this year, we're 90 days away from the September fed meeting.

Traders are pricing in a 67% chance that that's the first cut.

And I think that's what investors need to focus on.

What if we don't see the first cut at that point.

Well, then we'll, you know, kick the can to December, but it doesn't change the global backdrop that central banks are in easing mode.

And Kasha has been on the kind of hawkish end of the spectrum.

It seems like the core of the committee and Jerome Powell especially is, is very much aligned on this idea that they don't need to get to that 2% target to start cutting.

Maybe they want to be there on a three month annualized run rate.

Um But I don't think they need, you know, core P ce to be at 2% to start cutting rates.

It's interesting though, when you talk about the global rate cutting cycle, you have the Swiss National Bank kind of kicking off that domino effect, right?

One cut then followed by another, we're not seeing that same path forward for every central bank though, not all rate cutting cycles are going to be equal, right?

And I think that's a big difference between um the rate hiking cycle that we saw, which was very co ordinated and very aligned.

Um Whereas this easing cycle is gonna be a little bit more staggered to us, that means there's probably a little bit more volatility in currency markets, maybe a little bit more volatility um uh in in FX and and kind of cross currency fixed income.

But as long as central banks broadly are pointing in the same direction, it seems like the direction of travel is clear in terms of the support that that gives for risk assets.

I mean, the the Bank of Canada would also mention how dare we forget about the cuts that they put out there ahead of the others.

But anyway, you know, one of the huge thing that, that we're trying to figure out from an investment strategy perspective.

If you're an after waking up this morning, this holiday, abbreviated trading week, perhaps there's low volume that you're gonna see, but you're still trying to chart your next portfolio positioning.

If we do head towards a wave of cuts.

What is the biggest thing that you should be thinking about?

Yeah, I think the the first thing to think about is to be very skeptical of cash.

I mean, what, what we're seeing on our platform is our clients have around 30% of their portfolios in cash that's up from an average of 25% you know, when interest rates are at zero.

Um there's still a tremendous amount of cash that's on the sidelines that's been enjoying these kind of 5% plus treasury bill rates.

Um that are in real terms, you know, 2 2.5% after you adjust for inflation.

So that's the best that pictures looked in a very long time.

We've been in a, you know, ne zero and negative real interest rate policy for a while.

Um So cash hasn't, hasn't been trash.

It's obviously underperformed the S and P 500 but I think it's felt like a safety blanket and that safety blanket is gonna get much less attractive when rates start, when rate cuts start to come.

And when you add a layer of the idea that the Federal Reserve is going to be cutting rates most likely outside of a recession, the underperformance to both stocks and bonds is, is pretty meaningful when we look back at other soft landings.

So that, that's the, that's the, the key view for us for if you're waking up this morning sticking with the bonds portion of that.

I am curious whether or not we're starting to see kind of a peak in bonds given that we've got 90 until that next potential cut from the Federal Reserve.

If that is to be true.

Have investors missed the opportunity to dive into treasuries, particularly at the front end of the curve?

I mean, they probably missed the peak in yields.

Right.

I think, you know, the tenure in our view in our base case probably isn't going back to 5%.

Um But that doesn't mean there's not opportunities in fixed income, especially for us taxpayers.

I mean, municipal bond yields have underperformed treasury yields over the last month and they finally widened out to levels that are a little bit more attractive on an on an after tax basis.

That's one of the key areas where we're focused is and that is even more important.

Um If you're in a high tax state, like the tri state area, California, etcetera.

Um And then when you think forward to the election, which um um might be a topic of conversation later, people are worried about the deficit, they're worried about the na the national debt.

We, we're less focused on what's actually gonna happen in this election and more focused on the long term direction of travel, which is likely to higher tax rates uh for individuals.

So that makes tax efficiency in your portfolio, all the more important and municipal bonds are, are kind of the anchor for that communication.

And also since you, since you mentioned and in a year of global elections where you know, more than half the world's population expected to participate in one form or another.

This could also have a major impact in terms of foreign policy and the international Business relations where that is actually could potentially be a tax on top of what we're already accustomed to here.

How do you see that changing this kind of broader um the the broader outlook that you were mentioning about, I mean, to us, that's beside uh you guys were spending the the beginning talking about A I and the, and the mega trend that we see there.

The second mega trend that we see is around industrial policy.

And this is another similarity between both, both candidates, both parties and around the world is that there's a a renewed focus on resiliency um after the pandemic uh given the global conflict is at 80 year highs, companies and governments are laser focused on making sure they're secure and security goes beyond traditional defense.

It, it relates to supply chains, infrastructure, uh cyber security, natural sources.

Um And, and that, that I think outside of the noise around the election, investors can focus on that and the companies and industries that might benefit Jake Manookian, who is the JP Morgan us head of investment strategy.

Jake, great to see you here in studio with us.

Thank you.

It's great to be here.

Well, the Swiss National Bank, as we were just discussing Norway's Central Bank and the Bank of England all announcing different decisions on their respective countries.

Interest rates today.

Switzerland cutting for the second time this year.

Norway remaining unchanged along with England, which will hold steady heading into their parliamentary elections on July 4th.

Wow.

Our own Jennifer Schonberger has more.

Jennifer.

Take it away.

Good morning, Brad.

That's right.

Three central banks taking action this morning.

The Bank of England opting to hold rates steady near a 16 year high but signaled it could follow its European peers and lowering rates in the coming months.

The UK Central Bank held its key interest rate of five and a quarter percent for the seventh straight meeting in line with what investors and economists had expected.

Much of the decline in UK inflation over recent months has been owed to falling energy and food prices.

The Bank of England worries that since those declines are unlikely to continue rapidly rising prices for services will push the rate of inflation back above its target in the second half of this year.

Meanwhile, the Swiss National Bank cut interest rates for the second straight meeting, pointing to easing price pressures.

Switzerland was the first to begin cutting rates elsewhere.

Elsewhere, Norway's Central Bank also stayed on the sidelines today leaving its key rate unchanged.

Now these moves coming after the European Central Bank cut rates for the first time in this global rate hiking cycle earlier this month as some global central banks opt to cut rates here in the US.

The US Federal Reserve is continuing to hold rates.

Steady.

Boston fed President Susan Collins told me in an exclusive interview this week that she, she sees scenarios later this year for 1 to 2 interest rate cuts though that will depend on how the inflation data come in for now.

The FED is closely watching that inflation data.

Take a listen.

I do think that it will be important to see more information that is consistent.

I think we have learned that um there's no crystal ball that there's no preset path.

We have to let the data tell us and it's not one or two indicators.

It's looking more holistically at the information.

The next key piece of inflation data due out is the core personal consumption expenditures index that will be on June 28th.

I will have more from my exclusive interview with Susan Collins on Friday guys.

All right, Jennifer Schoenberger, Yahoo Finance's own.

Thanks so much, Jennifer.

Appreciate it.

Well, everyone.

We're just getting started here on the morning brief coming up Dell getting a boost after announcing its plan to partner with NVIDIA to build out an A I factory for Musk's Xa I.

We'll have some top trending tickers next plus R BC capital slashing its price target on Tesla.

We'll speak with the analyst behind the call later on this hour, we've got all this and much, much more and oh yeah, the opening bell in under 15 minutes it's coming up.

Yeah, we find it shares of Trump media falling this morning after saying the SEC has declared the registration of additional shares effective.

The move could dilute shares that are existing in the market already here and there.

You're taking a look at the reaction here.

Pre market shares are down by about 11%.

What's interesting is they're expecting to potentially see an aggregate of approximately $247 million and proceeds.

Now, they're likely to make sure that they can exercise any future transactions that would also include acquisitions or mergers.

All of these things considered, uh it's cash that they would potentially want to put towards building out this media vision that they've communicated to the street but not fully delivered to this point.

And Brad just to add a little bit of context there, this essentially allows investors in the firm's derivatives to swap out those derivatives which are known as warrants for holdings of shares in the actual company.

But that can dilute those long time investors in this name, which is not that long because it went public very recently.

But over the past month, this is a name that's down over 35%.

If I take a look at all time though, the stock is still up and it's up 80% year to date here.

So a long term investor story of growth, but this could be a bearish signal for those long time executives.

And that's exactly what we were seeing just after this announcement, that stock was down over 17%.

So the question about whether or not this is going to die shares for existing shareholders moving forward, kind of being firmed based on that stock price, which continues to go down days after this initial decision, lost money during the first quarter.

And it has been very me me of a trade that very much so very much so well, definitely not a very many trade.

We're moving on to Dell, the company shares moving higher after the company CEO announced on X that it will partner with video to build an A I factory for Musk's Xa I Super Micro shares.

Also getting a boost after Elon Musk responded that it will also be providing servers.

And it's really interesting to see this move from Dell Brad becoming kind of the latest company to find a way to hop on to the NVIDIA rally here.

It does bring this question to mind for me, this idea that if you have all of these various companies kind of finding a way to invest in A IA I Capex.

At what point does that dilute the overall picture, then you're going to have so much competition in kind of finding any way to not only add investment in A I but also specifically to partner with NVIDIA.

At what point do we stop seeing that be a bullish signal for stocks when they drop the NVIDIA name?

Yeah, absolutely.

I mean, I think for Dell, what they're trying to also make sure is that investors see the A I play for their company coming more to fruition, especially with some of the major partnerships like this, NVIDIA, just another feather in their cap.

But for Dell for Super Micro, I think that this gives them a little bit more of fanfare that they could potentially kind of add on to what they've already been telling or trying to sell the street on with their own A I ambitions and making that just a little bit more real in terms of Grok.

I mean, they've been trying to make this work for X for it seems like the better part of almost a year now.

I mean, you think back to the acquisition that eventually went through where Elon Musk was able to acquire formerly Twitter now X and make that his platform as he was trying to make an entire Super app of many of his businesses here.

X was intended to be kind of the first play of all of that.

But Grok is, is, is actually within the platform right now.

I don't know how many people use it.

It's not a publicly traded company anymore.

So they're not required to tell us how many people who are paying for subscriptions or, or, or are signed up or actively using CROC.

So we don't get those updates, but it sits there on the side panel for me.

At least II, I haven't even tried to cook it yet, but you're exactly right on the timing.

This is last November that the start up launched Grok and raised $6 billion in VC money to support that effort.

But there's a question about whether or not it has been utilized by consumers like us shares of accenture also moving higher after reporting $900 million in bookings from generative A I during the third quarter stock however, is still down over 18% so far this year.

And I want to take a look at what we are seeing in terms of the overall moves for accenture because this is yet another name that we've been talking about Brad that continues to try and find ways to incorporate the A I trade again, this name down 18% year to date 10% over the past year.

The question whether or not accenture is kind of ja I addition, here is going to be to add on some much needed support for this stock.

Yeah, not exactly a company that everybody talks about at the breakfast, lunch or dinner table on a daily basis, but it is important given the fact that it is the highest market cap company that's going to be reporting earnings over the course of this week.

Now, you mentioned the key thing in what they were talking about with their own generative A I bookings that they did see revenues all in that.

Ultimately though was a decrease of about 1%.

Um an increase in 1.1 0.4% in local compared to the third quarter, fiscal 2023.

All of these things said they're saying that they're scaling in their business with another 35 acquisitions, $5.2 billion of capital deployed year to date.

So uh a ton of efforts that's going forward within accenture in order to really generate even more.

And that $2 billion in generative A I sales year to date, $500 million in revenue year to date, which demonstrates what they say an early lead in the critical technology, interpret that as you want, but they're calling it an early right now.

I mean, you can call it an early lead if you want, but the street is going to decide whether or not you are right.

Speaking of coming up, we've got the opening bell on Wall Street.

We're going to see where start stocks are moving here.

You're looking at a bit of a mixed picture.

The dow under a little bit of pressure here, but the S and P up to 10 of a percent, the NASDAQ pushing 3/10 of a percent to the upside.

We're gonna help you pass through the biggest movers of the morning after the break, Bing Bong.

There it is.

All right.

The opening bell here on this Friday's Eve, you're taking a live look at the NYSC and at the NASDAQ where I believe you've got the executive leadership council ringing the opening bell.

And you've also got the NYSC live shot there.

Take your simple A os 100 50 years of innovation, I guess is what the company is celebrating here.

I was around for a sliver of it, but ultimately, as a spectator from the outside looking in.

So that's where we find our as well today.

Looking at this opening bell.

Let's take a look though, at the major averages as we begin this trading session, Dow Jones industrial average begins a flat just barely to the downside, NASDAQ composite.

You're seeing that open higher by about a quarter of a percent right now.

3/10 of a percent in the S and P 500 you're seeing that open to the upside as well by about 2/10 of a percent.

Let's take a look at some sector activity wide, only Maddie 11 S and P sector, uh 11 S and P 500 sectors.

We've got them loaded up here for you on the screen.

XL re real estate, pulling up the caboose, but you've got leading the pack right now.

I mean, no surprise, right?

This is the story that we've been talking about for so many years.

Here.

Oh, look, I pulled up the tech sector.

You did.

Let's populate that chart.

Well, I mean, it's fascinating.

Look at that 20% gains year to date.

And then when you take a look at the more kind of broad market action, we're seeing something like the Russell pretty much flat year to date.

But then you've got tech bringing up the S and P bringing up the NASDAQ.

So it's interesting seeing that level of concentration.

My big question though, when is that concentration going to start to potentially be a little bit of here?

Look at the Russell just really around the flat line year to date here.

We're going to get more of this fantastic intel from Yahoo Finance's Jared Blicker.

He is looking at the market action for us, Jared.

What do you got?

Yes, Mattie.

Thank you.

Yes.

The small caps.

They've been doing nothing all year.

So let's take a look at the S and P 500.

Here's a year to date chart.

But as we head into the month of July, I just want to share some statistics that were generated by Bull Boss Ryan Dietrich over at Carson Group.

Can this rally continue?

You be aware that July has been up nine years in a row for the S and P 500 over the past decade, higher, 90% of the time tied with November for the best and up 3.1% on average.

Second only to November.

We got a little chart here and here's where we are, I guess, point to take away there.

Second best month of the year July over the last 10 years.

That is a tail wind.

And, um, I looks like we got tech heading for an eighth straight day of winds right now.

And, uh, that's just bare, holding on to some gains right now.

You can see it just flip negative so it might give that up.

But I have been tracking some other markets here.

I do want to get into the futures market where silver, silver has been advancing.

It's up 2% and here's the year to day chart and you can see it was screaming higher earlier in the year, pulled back a bit a bit.

And you can see within the five year trend that it has just recently broken to the upside.

So we'll have to see if we can get any momentum off of that.

And then real quick, I want to check on Bitcoin as well.

Uh Let's put a two day actually on here so we can see what happened over the holiday, not a whole lot, but we do have Bitcoin up to uh 65,000.

It's been holding 65,000 recently.

Here is a three month chart and more sideways action there.

Kind of reminds me of the small caps guys.

All right, Jared.

Thank you so much for joining us.

Really appreciate that.

Now after eight days of wins for the tech sector, one tech name that is under pressure this morning is Tesla, that stock is moving to the downside here after down a little over one and a quarter percent after our next guest lowered his price target on the name based on some new calculations for the company's Robo Taxi program.

Joining us now to discuss we have Tom, he's R BC capital markets, lead equity analyst for global Autos.

Tom, thanks so much for being here with us to discuss your decision here.

Talk to me about the single biggest driver of this price target change for you when it comes to Tesla.

Yeah, there are really two things.

Uh The first thing is we looked at what pricing would be in a world of Robotaxis.

And we realized with working with our internet team who covers the ride, hailing companies, Uber and Lyft, et cetera, that pricing will actually be lower.

It will come down as this will be a regulated industry.

So we lowered our pricing.

The second thing is we increase the value that we think will go to those companies, the app companies, the Ubers, the Lyft um as a higher revenue share percentage than what I was assuming previously.

So it's really those two things that lowered the Tesla specific Robo Taxi valuation, but we still love Robotaxis and we still think it's going to be the biggest contributor for value for Tesla by when Tom?

Well, my evaluation, I think you guys remember is based off 2040 then I discounted back, but I do think on August 8th we will get an announcement that we will start seeing uh some actually near term deployments of Robotaxis, but it'll be in cities like we've seen probably like from GM Cruise and Waymo and cities like San Francisco, Austin Phoenix.

Uh It is a very small scale.

You're not going to get this at mass scale for years, if not decades out.

And on that exact point, Tom, when do you anticipate the Tesla robo taxi revenue kind of being a contributing factor to Tesla's overall profit margins?

Oh, not for a while.

Uh it could be 5, 10 years away, but it's one of these things where when it happens, it will happen in a big way, right?

The automotive or transportation industry is a $6 trillion industry today.

Uh autonomy robotaxis autonomous vehicles has the chance to make this much bigger 10 billion potentially, right?

Takes share from planes and drains and gives uh mobility to the elderly Children, people with disabilities.

And so it's one of these things that will be a tectonic shift in how we all live.

It's just it's gonna take a long while before it contributes financially uh to any of these companies.

Tom, when you think about city infrastructure, does there need to be a a significant change in city infrastructure in order to facilitate safe robo taxi rollouts.

Absolutely.

Yes.

Yes.

Yes.

That's probably the biggest hurdle.

Um, you know, we spoke to the CEO of, uh, ST anti last year at our conference and he said, like, the tech isn't really that far away.

It's not the tech, it's, it's really the cities need to reengineer themselves.

Right.

I mean, just think about, I don't know if you've been to Paris, the Champs, Elysees.

It's, there's not a lot of computers able to make decisions, it's humans making aggressive decisions on how to drive.

And so cities have to completely change themselves, reorganize.

It's already happening in China.

Some western cities in London, go check out Oxford Street.

There's only certain vehicles could drive there.

Manhattan is talking about stuff.

So it will happen.

But yeah, cities are going to have to change dramatically to allow for these things to happen.

But they will, hey, Tom, I do want to end on the lift and Uber of it all.

In your note, you talk about lowering the estimates for the company's Robo taxi venture, but you're also allocating a bigger revenue share to service providers like Uber and Lyft.

Why?

Yeah.

So there's like three parts of the ecosystem here with uh with robot taxes, right?

You have the software, you have the vehicle and then you have the app.

I think there's going to be a lot of software providers.

I think Tesla will be a big player in this, but there are a lot of folks making software for autonomy, the vehicle, lots of car companies are going to make the vehicle.

But the app, that's one where our analyst Brad Erickson on the internet team talks about how that's very sticky.

It's, it's a moat.

Just look at how you use your apps today.

Right?

Like how many apps are you going to have on your phone to order a car?

Right.

I have one.

And so, uh you know, that's really, I think where a lot of the power lies and that's something that I've raised and they collect right now for every Uber fare.

I think you take, I think 25% of it goes to the app goes to Uber, right?

Not the driver.

So that's a big lion's share for, for, for that stickiness.

So that's why we changed our view on that.

Uh And we think actually that the app is going to have a lot of Power Tesla is gonna make their own app sure for, for sure.

But we do think some of these other app makers who already own customers are gonna have a lot of power as well.

Elon Musk just won his pay package, Tom, but it's seems like he's also on the A I front in his other endeavors, perhaps on a war path to make sure that he is drumming up some major partners growing forward on, on the corporate side here.

Ho how much of a risk is that for Tesla, uh his pay package, specifically not the pay package.

But when you hear that he's not only threatening to ban his employees from using Apple iphones and, and whatnot, but when you hear about him and the other businesses that he is also running where he might get upset that some of the core partners that he's had for years are, are now cozying up to other partners instead of Xa I, for instance, does that create an overhang for his other businesses?

In this case, Tesla, I, I don't know about that.

I mean, this is a very well run business.

Uh It's not just Elon running this company, right?

As much as I think a lot of folks think it is, right?

Just go look into the event they hosted in March of last year where they had all those folks they trotted up on stage.

I mean, this is a company with some really powerful businesses, not just it's Robo Taxi endeavor, fsd uh the energy storage business.

Uh So these are, and they are led by some very enterprising uh smart individuals uh that are running this business, these businesses.

So I think at this point, you know, he he's the visionary, but these are businesses that are run very well by his lieutenants.

All right, Tom, the Ryan, always a pleasure to speak with you and grab some time.

Tom Ryan who is the R BC capital, a capital markets lead equity analyst for global Autos.

Tom.

Great to see you.

Thanks.

Coming up everyone.

What a sizzling summer means for your electricity bill.

We'll tell you how much it'll cost to stay cool this summer.

On the other side of the short break, we got a fresh read on the housing sector this morning.

Home builder stocks falling after the Commerce Department reports.

Housing starts and building permits came in below expectations for the month of May.

This is a sign, high mortgage rates continues to weigh on home builders and buyers for more on the sector we're joined by Bill Pulte, who the P capital CEO and Maurice Austin, who is the S and P global ratings, home builders director.

Great to have both of you here with us today.

You know, Bill I I wanna turn to you first here, you know, as you're thinking about more broadly what this spells out for the housing sector.

What comes to mind when you see softening like this?

I think it's a little bit of a speed bump.

You know, the housing market is very strong, it continues to be very strong and very importantly, the big home builders and this may sound a little biased.

Obviously, my family founded Pulte Homes, which is one of the top home builders, but the the big home builders have a balance sheet, have access to the mortgage bond market and frankly are taking market share right now.

So I think that the big builders will be doing fine.

It's a little bit of a speed bump, but it's something to definitely keep an eye on.

Well, Maurice, I wanna bring you into the conversation because one thing we've been talking about a lot is of course, the impact to potential home buyers.

And I'm curious from your perspective, when we do get that 25 basis point cut, does that lead to just a groundswell in demand?

That's been pent up over the years during the rate hike cycle?

Um II, I don't think so.

I think where we are currently, I think the um buyers, um they've pretty much um become acclimated to these um new mortgage rates.

I mean, obviously 2 3% was at a historic low, but even at 7% historically, um those numbers are low from a historic level.

Um And again, even though they've risen over the last couple of years, um they are low by historic standards.

Well, Bill, I wanna bring you in on that exact question because as you mentioned, your family very familiar with, this is one of the largest home builders in the country.

There's also this idea that a cut in rates could lead to more inventory and a potential swell in that.

How would your family be responding to a potential rate cut to come?

Well, I'm not with the company any longer, but I will say this just my own opinion is that the cuts in interest rates will dramatically increase.

In my opinion, the price of homes because I think what's gonna happen is you're going to see people be able to access that mortgage market in a way that frankly like, yes, I agree.

A lot of people have become acclimated to the interest rates right now.

But if you see a reduction in interest rates, I think demand could potentially skyrocket and that could be a big problem for affordability.

It could be a big problem for people trying to get their first home if you see prices go up even higher than they already are.

So, Maurice, does that signal that for some of the home builders out there, new home builders that have been trying to incentivize buyers to, to, to build with them uh by offering offsets essentially to the mortgage rates that that's gonna dry up in the near term.

Um It, it could possibly dry up.

What we've seen is the level of sales incentives remain elevated and they will continue to, to be so as long as rates stay high for longer, which ultimately could lead um to negative profitability on the home builder side.

Right.

Well, that's, that's a great point and it leads to this question about the data that we saw today in terms of just low housing starts and permits bill from your perspective.

What would be the single biggest thing that could happen to increase residential construction more?

Would that be something a move coming from the Federal Reserve or would it have to be some type of policy move from the federal government?

No, it's a great question.

It's a threshold question.

It's a question.

I think you're gonna see a lot in this election.

But really the answer is zoning, you know, zoning is regulation and there's so many regulations around building homes these days.

People are worried about turtles and birds and all the things that we love, we love turtles and birds.

But sometimes if you want a new development, you have to allow for that new development to happen and you look at a lot of these municipalities and people don't want new homes to be built.

So it really is an issue of zoning and I see that being the only way that this is going to solve, but that's a very, very complicated problem.

Yeah, it seems like builders in New York are more concerned about alligator or sewer alligators up here.

So uh that's the um that is the analogous concern here in a city densely populated is this, you know, all things considered, you know, one of the major things that we're looking at this morning, especially with the new high that was just reported by Redfin in home prices.

When should we expect some easing on that front?

Maurice?

I'll go to you first and then, and then bill uh you can weigh in as well here.

Yeah, I mean, when you take a look at the increase in, in home prices, I think part of that as well comes to, comes with the limited supply of existing homes.

Um, I mean, we, we, um, we know about the lock in effect with those homeowners, um, that took out a mortgage at 2 3%.

They're not looking to sell their homes anytime soon.

So that has decreased the inventory for, um, existing homes.

So when a, um, buyer is looking to buy a home, he naturally now goes to a, a new home to, um, to, to purchase, um, but still the home price appreciation is having an impact on affordability.

And I think that will continue regardless of, um, the, um, mortgage rates.

Right?

And, and bill, I'll allow you to comment as well to, to Maurice's point when a, when a buyer is going into the market here, he, she, they, they're considering the reality of what these near record high housing costs are also doing to demand in the environment and where that's drying up and still, where you've perhaps got the wealthier.

And that are still saying, all right, we're, we're willing to, to still remain buyers or remain active, at least in the bidding.

What, what are you seeing?

Correct.

And he's right, Maurice is correct.

There's basically a new home market which is like new cars, but for new homes and then there's the old or used homes.

The problem right now is nobody's selling their old used homes, nobody's selling their, you know, old homes, they just, they are selling them, but not to the numbers that Maurice was exactly right on is saying is that there's not too much competition.

So now you really have to, in order to get a home, you might want to buy a new home and that is gonna keep prices very high.

Now, if you see a big fluctuation or you see a big reduction rather in existing homes, uh and people start selling those homes, then obviously you could see, uh, housing prices go down.

But I'll be honest, I don't really see housing prices go down anytime soon.

I think housing prices will continue to stay where they're at, if not go up.

All right, we're gonna have to leave it there.

But thank you so much, both of you for joining us.

That was Bill Pool, the Pool, the capital CEO and Maurice Austin S and P Global Ratings home builders director.

We're gonna be right back with more.

Stick with us.

This is the morning brief.

Let's get to some breaking news because the S and P 500 just made another all time high crossing the key 5500 level, the S and P 500 is having its third best month versus the equal weighted index of the S and P which assigns the same way to every single stock since March of 2000.

That critical month.

In which the global pandemic began.

You're looking at gains across the board here for the dow, the S and P and the NASDAQ again, the S and P is up 15% year today and just crossed the record breaking 5500 level for today.

Now, moving on hotter temperatures are expected to send residential electricity bills higher by an average of 3% this summer.

That is according to data from the Energy Information Administration as fray is here to break down the reason behind the jump and the impact it could have on prices and what do you have for us?

Yeah.

So what we're talking about are really the summer months, which would be June, July and August and monthly electricity bills uh on average are expected to be 100 and $73 in the US.

Although that's not my bill a bit higher than the 168 last summer, almost 90% by the way of households cool their homes with air conditioning.

So it's supposed to be a hotter summer and that means that residents will be consuming more electricity and that increased consumption will partially be offsetting those lower residential electricity prices.

Now, I want to pause for a minute to show you where we are going to see some higher price versus lower prices because the Pacific coast states, those are likely to see the biggest increase in electricity prices up 7% this summer.

And in New England.

You are likely to see lower electricity prices down 7% compared to last year because of lower natural gas prices.

Now, I do want to say the caveat that New England's average electricity prices are still very elevated compared to the rest of the country, country in other parts of the nation.

The cost is 26 cents per kilowatt hour.

One point to note also is that natural gas prices have declined since last year.

They're lower than the ti at this time last year.

And that's a big component to make electricity.

But the transmission lines upgrading, maintaining the grid, that is more expensive.

You guys, one silver lining is that now energy units are more efficient.

So air conditioning, air conditioners tend to be more efficient.

The EI A is forecasting that uh folks residents will be using or consuming less in that sense because of these more efficient uh air conditioning units.

I hope mine is one of those more energy, right?

Well, compared to last decade to the, you know, 2010, they're comparing it to so, yeah, over time they've gotten better.

Excellent Yahoo Finance's owner, Nez Ray.

Thanks so much.

Thanks Nez Well, President Biden and former President Trump are set to face off in the first presidential debate of this election cycle in about seven days here as the election gets closer, Goldman Sachs out with a new note arguing that investing in gold could be a hedge against any potential volatility heading into November, particularly in the event of a Republican sweep for more on this, we bring in our very own Rick Newman.

Right.

Great to have you with us in studio gold as a safe haven.

What a novel concept.

Yeah, let's examine the interesting premise here though.

So gold is, I mean, usually uh analysts don't tie gold to some political event.

It's, it's some kind of upheaval in the economy.

And the premise behind this Goldman Sachs research is that if Trump wins and especially if Trump wins with a Republican Congress.

In other words, full on Trump Republican agenda, we're going to have more inflation than if we were to have a split government or if Biden were to win.

And a lot of people might be thinking, wait a minute, I've been hearing about Biden inflation for the last three years.

Do I now have to worry about Trump inflation?

And the answer is yes, you do.

So look at some of the things Donald Trump wants to do.

Number one economic agenda item for him is more tariffs on imported products.

Tariffs are a tax that raise the price, rising prices equals inflation.

It really doesn't get any simpler than that.

And then there are a couple of other things a little more complicated, but Trump has talked about trying to exert political, political control over the Federal Reserve.

We know he strongly favors lower interest rates rather than higher rates.

That is the opposite of how you get inflation under control.

That's the reason the fed has been higher, raising interest rates for the last two years.

And then Trump seems to have no concern whatsoever about the $33 trillion national debt.

He wants to cut taxes even more, add more to the debt and that is potentially destabilizing for financial.

So all of those things that, that's the premise behind Goldman Sachs saying, wow, we might have more volatility, more inflation if Trump wins and especially if Trump wins with a Republican Congress, right position into gold is typically a strategy and investment strategy that you see deployed when there is more time of geopolitical concern here.

So that tying directly back to where Trump would say, ok, I want to lower taxes or have no taxes but ramp up or ratchet up tariffs as you were, that almost just gets you back into that same mindset of what are the geopolitical, what are the broader kind of international business concerns that could then come to light as a result.

And you know, polls show us that Trump has a better reputation for handling the economy than, than President Biden does.

And polls also show that a lot of Americans think of the Trump years as a stable time for the US economy.

Of course, that's before COVID arrived in 2020 changed everything.

Um And they're sort of right about that.

I mean, we didn't really have any inflation to worry about during the Trump years.

And so people say, well, Biden became president and then we had inflation.

Therefore, the very simple and frankly, too simple logic is Biden created inflation.

That is not the case.

It is a much more complex world right now.

Uh supply chain snafus related to COVID had a lot to do with inflation.

That was, that wasn't Biden's fault and Trump is not going to undo those sorts of things.

We have two wars going on, potentially widening war in the Middle East.

A lot more edginess in energy markets because small small developments based on where we are right now could have an outsized effect on prices.

So Trump is not going to come into office and just magically overnight, we're going to go back to, you know, 1.7% inflation which we had during the Trump years that is not going to happen.

Um And you know, this is where Goldman Sachs is coming from, telling their clients, let's try to get ahead of this and anticipate what might be coming.

Great overview as always, Rick, thank you so much for joining us.

Really appreciate it coming up here.

We're gonna dive deeper into the catalyst driving the market rally later, we're gonna speak with Needham analyst, Laura Martin on the bull and bear case for REDDIT all this more on catalyst.

Stick around next