June consumer sentiment disappoints, Tesla short-selling: Catalysts

On today's episode of Catalysts, co-hosts Seana Smith and Madison Mills dissect key economic data, the latest developments surrounding Tesla (TSLA), and check in on some of the day's top trending stocks.

Kicking off the hour, the June Consumer Sentiment report fell to its lowest level since November, raising concerns about the economic landscape. To shed light on the market implications, Research Affiliates Founder and Chairman Rob Arnott joins to discussion, sharing his perspective on the market outlook after a hefty week of data.

The show then shifts to the stock reactions of prominent companies such as Boeing (BA), GameStop (GME), and automaker Stellantis (STLA). Notably, Stellantis' decision to minimize electric vehicle production in China is explored.

Finally, Tesla takes center stage with a focus on Elon Musk's recently approved $56 billion pay package. Canaccord Genuity Managing Director George Gianarikas joins the discussion, providing insights into the implications of this historic compensation plan for the company's future. Bireme Capital Founder and Chief Investment Officer Evan Tindell offers his perspective on the potential concerns surrounding short-sellers and their impact on Tesla's stock performance.

This post was written by Angel Smith

Video transcript

10 a.m. here in New York City.

I'm John Smith alongside of Madison Mills.

And let's dive into the catalyst moving markets that consumer sentiment is crossing the wires.

Now we're going to give you those numbers and break down what the data means for the economy and the fed in just a few moments here.

And the next big catalyst for Tesla could be its optimist robots.

Elon Musk is saying at the company in shareholder meeting that the human robots could lift the company market $25 trillion.

Could this maybe way the Tesla bears we're going to discuss but take a look at the global picture here, European stocks falling with French equities and bonds taking quite a battering this week.

As President Ma attempts to hold on to his power over in Japan, the closed higher after their central bank kept rates on change.

We're going to dive in how global markets could be impacting your portfolio.

All right.

First, we want to get to some breaking news that we have out on consumer sentiment coming in below expectations falling to 65.6 versus the prior month reading of 69.1 putting this into context here for you.

It's actually the lowest consumer consumer sentiment index rating that we have seen since November and digging into this report just a bit, the expected change in meum prices during the next year that was actually unchanged at 3.3%.

The expected change in median prices during the next 5 to 10 years that actually rose to 3.1%.

So some concerns about rising prices, inflation uh clearly coming through within this print.

But again, uh Consumer sentiment, University of Michigan, the prelim reading here of the survey for June falling to 65.6 here, matty versus 69 point one last month for the Yeah, it's really interesting to see this kind of softness because we're seeing that wage growth is continuing to keep pace with inflation.

And that is one of the key drivers of consumer sentiment.

So interesting to see this having said that though, when you think about the falling consumer sentiment and what the consumer feeling about the economy, you have to wonder what so many of our guests have been saying Mohammed and making the great points about this yesterday, this idea of a case recovery and when part of the economy is starting to feel really negatively about it could weigh on the broader picture.

And in here, we're starting to see some evidence of that soft, softening view moving forward.

And I also think this just points back to the fact that obviously consumer is such an important part of the economy being prop of the economy.

We talk about the spending.

We talk about the fact that the consumer has remained extremely resilient, much more resilient than many forecasters had anticipated up until this point.

So any sort of softening within that, I think also begs the question, maybe if whether or not it signals broader weakening here down the road or really maybe a change literally in sentiment amongst consumers at this point.

Given some of the latest data points that we had seen here over the last several weeks.

Just taking a look, we are seeing a little bit more movement to the downside in the 10 year.

Just seeing some more of that the bond space.

We also continuing to see the movement to the downside in the broader market, but that was already happening prior to this data this morning.

So moving forward here after that lower than expected consumer sentiment reading, we are seeing the stocks continuing to move to the downside after a big week of inflation data showing inflation pressures easing back in some categories.

We also saw an uptick in jobless claims.

So what can we expect for the economy moving for joining us to discuss?

We've got Bob are not research affiliates, founder and Chairman Bob.

Thank you so much for Rob rather.

I'm sorry.

Thank you so much for being here with us.

So I want to talk about your reaction to these consumer sentiment numbers that we are getting in here and how it kind of relates to the totality of the data.

Not to sound like JP that we've gotten this week.

Does this change your overall thesis at all?

No, not really.

We love finding asymmetries and risk and um uh consensus about the economy about the markets uh is usually largely correct, but it's pretty useless because it's already baked into the price 100% reflected in share prices.

So the way to win is task where the consensus might be wrong.

Consensus expectations suggest a mild softening of growth and a gradual last mile in the easing of inflation.

Is that possible?

Of course, it is.

But the risks are asymmetric.

Most would agree that the economic growth uh is more likely to surprise to the downside and inflation is more likely to surprise to the upside.

Uh We look at the economy and uh see the PM I in inventories yield curve slope and three year trend in uh cost of capital.

They're all strong predictors of slow down their recession.

All four are in their worst quartile ever.

The latter two are in their worst decile ever.

So the only thing sustaining current economic growth is a wealth effect from the bull market and consumer spending.

The asymmetries of risk are that the economy can do much worse than consensus far more easily than it can do much better than consensus.

So if I guess given those concerns and first just talk to me about the downside that you potentially see as a result of all that, what do you think that looks like?

And what should investors then potentially be waiting for if you don't think now it doesn't sound like is the right time to buy?

Well, we can watch for shocks this year on the economy more likely on the downside than the upside on inflation, more likely on the upside than the downside on geopolitics.

Geopolitics is fraught many places around the world.

I I don't think the risks to Taiwan are totally off the table for this year.

It's not impossible.

President Xi decides uh I'll never have a better chance to take Taiwan um with the US so thoroughly distracted.

None of these things are in current pricing.

Domestic politics has been fraught to say the least and is not going to get any nicer or any Tidier between now and November.

So there will be great buying opportunities in the next couple of years.

This but this is not one of them.

Ok. Well, it's interesting because you have this idea.

Yes, you want to bet against consensus.

That's how you find an edge, of course, but you've got the top five names driving 80% of the gains in the market this year.

Explain to me how you make money with that viewpoint, right?

If the top five names are gonna be driving the majority of the gains.

How can you afford to bet against consensus when there is this much concentration?

Well, you should definitely bet on those top five names.

Uh, as long as you have some sort of, uh, crystal ball that tells you when to get out.

Ok. Now, tell me what the crystal ball is.

Do you have a, do you have bubbles persist until they don't?

Um, uh, I've written a lot about bubbles over the years and we uh developed a definition for bubble that you can use in real time uh back in 2018.

And that definition is that you have to use implausible, not impossible but implausible assumptions to justify the current share price of an asset or of a market uh uh uh in a discounted cash flow or other valuation model.

And the second confirming part of the definition is that the marginal buyer doesn't care about valuation models.

Uh NVIDIA is a fabulous company with enormous profits, enormous growth, enormous potential, but it's priced at over 40 times sales.

Uh Now, yes, sales are doubling this year versus last year.

So it's 20 times next year's sales.

That's still an enormous multiple of sales.

Uh uh Tesla you've been talking about lately.

Firstly, as, as for the shareholder vote, I enthusiastically endorsed the notion that a deal is a deal and that the Chancery Court had absolutely no right to void something that was voted on by shareholders um and that paid off massively for Elon Musk in a context where he delivered the goods, he delivered spectacular growth and he earned that payoff.

So I I support the vote, but the share price is as your last um uh Panelist, our last discussion said that the share price is a massive multiple to uh sales and profit.

So we're looking at bubbly behavior.

Now, bubbles don't necessarily mean that the growth is impossible.

Can one of these companies turn out to grow sufficiently to justify astronomical multiples?

Yeah, it can happen.

But uh the likelihood of uh uh all of them continuing to deliver, it is slim to none.

Uh The top of the.com bubble, the 10 most valuable tech stocks in the world in the year 2000, how many of them had beat the S and P over the next 15 years?

Zero?

Not one of them.

How many beat the S and P over the next 20 years?

One Microsoft, that's it.

So when you get to frothy bubbly behavior, it's time to be careful.

I'm not saying short these stocks.

Um shorting a bubble is very dangerous because bubbles can go longer and further than you can possibly imagine.

So, Rabbi II, I guess my question that is what happens next.

What should investors do if they are invested in some of these names?

It sounds like it's not just maybe those at the top that we we're just seeing that bubble like behavior.

How do people protect themselves then?

And what do you think is going to be that catalyst?

I have a lot of questions here.

What is going to be that catalyst that is going to cause that bubble then to potentially burst?

Well, uh consumer spending um faltering uh can take a lot of froth out of the market.

Uh markets move based on liquidity.

And so if liquidity is withdrawn from the system, uh that can do damage if inflation exceed uh exceeds expectations to the upside.

Uh We're not saying that inflation is going to uh go crazy anytime soon, but we're not saying that risk is totally off the table because our policies uh out of Washington DC are reckless.

So when it comes to uh what investors should do, if you, if you have heavy exposure to these stocks, what's the harm in taking your initial investment out and play with house money?

Uh uh That's uh a very, very simple expedient.

That can make a lot of sense.

Where should you invest non us stocks are cheap for obvious reasons.

Um uh Things get cheap for a reason, but those reasons can change too.

The asymmetries of risk with European stocks and emerging market stocks are to the upside, not the downside.

And so we see lots of opportunity for investing outside the US and outside of the tech sector.

I've been called a Perma bear at times.

I'm not a bear when things are, are cheap and there's a lot of cheap things out there.

They just aren't the so called Magnificent Seven.

And by the way, whoever coined the expression Magnificent Seven obviously didn't see the movie.

Four of the seven are dead at the end of the movie.

Well, you know, there's a lot of people that are trying to take credit for going for winning the mag Zim and Rob Arno.

Rob Arnott.

It was great to have you.

Thank you so much for taking the time to join us in Yahoo finance.

We hope to have you back.

All right, let's talk about Tesla because shares here moving not too far from the flat line now, they're actually off just about 2%.

So a reversal here from earlier action after shareholders approved Elon Musk's pay package yesterday afternoon at the meeting, Musk also predicted that Tesla's optimism of robots could eventually lift the company's market cap maybe all the way to $25 trillion for more.

I want to bring in George J.

He is K for managing director George.

It's great to have you.

So first, just your reaction to not only the approval but really more so those lofty expectations and goals that we saw laid out from Musk last night.

Yeah.

Uh Good morning.

Thanks for having me.

So first on the shareholder meeting, we were very encouraged that shareholders approved the previously approved pay package.

You know, obviously, Elon Musk is critical to the success of Tesla in the past and in the future, uh that he did make several comments that you alluded to regarding the future of robotics, the future of A I through full stop driving.

And we're very bullish on the long term prospects of, of full self drive and we're bullish on robotics.

It's just not something that at least from a robotics perspective, we see impacting our estimates anytime soon.

Now as it relates to full self driving, we're, we're very, very bullish on the medium to long term prospects and what we need to hear more about, you know, in the near term.

And on the conference call is what take rates are if you recall Tesla recently reduced the price of its full self driving software.

Uh If you buy the uh the annual subscription, it's come down to $99 a month and we really need to hear how consumers are reacting to that because that is really gonna drive our earnings estimates over the next several years.

Talk to me, George about what you'll be looking at to suss out what you just mentioned.

I I was really interested in your note that you commented on the potential for a Tesla to start looking like an Aws when it comes to full self driving.

If you saw more R and D into something like chips, for example, would that be an indication to you that that is an area of more growth potential for the firm.

Yeah.

So Elon Musk talked about leveraging the inference compute on some of the full self driving, ready vehicles.

Long term to create something that looks like aws that he can then sell and create a revenue stream around.

That's probably gonna impact the P and L, you know, 2030 beyond is our guess.

Uh But in the very near term, like I said, leveraging the A I that he's created within Tesla, the real world A I around full self driving really will drive the P and L to the extent people adopt it.

Do people want to buy the service that enables their vehicles to drive themselves that's super critical.

And we think it's going to be a really important driver over the medium to long term.

But in the near term, are people acting to the price cuts that they got and that one month of free service that he enacted a couple of months ago, that's very important to the near term of the firm.

And, and with regard to near term sales now, with something really interesting that he said towards the end of the conversation was two hours long.

Uh was that there's still, you know, it's tough sledding out there for evs and that they still expect year over year growth.

What's interesting about Tesla stock at this moment?

It's clearly been an underperformer relative to the other other mag seven over the last call it 12 to 18 months.

And what's driven that is earnings revisions, right, ultimately would drive stocks are earnings revisions and those earnings versions have come in place because EVC have been sort of weak across the world, including for Tesla and their margins have been dramatically impacted.

Now, what could happen from here is that those earnings revisions may at least stop going down.

It may start inflecting upwards.

So even though it's tough for evs, it continues to be tough for evs if they can grow year over year, which and we have 3% year over year growth in units.

That's probably better than most people think.

And that earnings inflection will be super important to the near to medium term performance of the stock.

George.

I'm curious, how do you view Tesla?

Where are they positioned in this A I play story?

Because we heard from Musk last night, he by far thinks that Tesla is leading this race.

Do you agree?

Look, they are in an incredibly enviable position relative to other companies for Real World A I?

And what Real World A I means for us in the near term is full self driving, maybe long term moving robots around.

Uh The other companies that we're very excited about, excited about in real world A I are companies like MO I that are enabling other vehicles to drive themselves.

And a company called Aurora ticker central A UR that's enabling class eight vehicles to drive themselves hopefully starting uh at the end of this year.

So they're clearly in a leadership position.

Uh There are other companies that are vying for that leadership position, including mobilize and passenger and Aurora and, and trucking.

And uh we think we're, we're incredibly bullish, like I said about the, the medium to long term of, of full self driving for Tesla.

We just really need to hear about those take rates and how consumers have reacted to that price cut.

How much does optimist play into the idea of Tesla as an A I play moving forward?

And obviously Musk seen that they could earn a trillion a year from bots.

You mentioned that that is probably a little bit further off.

But do you think that that is a reality?

Yeah, I mean, look, uh he said yesterday that for every human on earth, we're likely to have two robots per person, right?

So that's, you know, in the tens of billions.

Uh I admire him quite a bit, you know, he's done, he's accomplished many, many things.

Uh and, and then to his own credit, he said that being optimistic, irrationally optimistic has led to the construction of a massive factory in Texas and to this, you know, behemoth that we call Tesla and spacex.

I, I, we don't have optimism in our numbers anytime soon.

We'll see.

I mean, they said on yesterday's uh at yesterday's event that they'll have 1000 humanoid robots next year.

Plus working at the Tesla factory.

Clearly amazing and not so impactful on the PNL.

Uh It, it's something that is very important for the story we call it, you know, 5 to 10 years out.

We're not so sure that it impacts the PNL anytime soon.

All right, George, thank you so much for joining us.

We really appreciate it.

That was George Gian.

I'm so sorry, George Gian.

Arius can a court genuity managing director?

Thank you so much George for being here with us.

Now.

Coming up, we've got our trending tickers on the other side of this break, we're gonna be watching Boeing Stante and gamestop.

Next, let's take a look at some trending tickers that we are watching on this Friday morning start with shares of Boeing moving to the downside down just over 1.5% after the company announcing it was investigating a quality problem with its undelivered 787 Dreamliner planes.

Boeing said it's quote, taking the time necessary to ensure all airplanes meet delivery standards prior to delivery.

Now, as you know, this is coming amid a slew of issues for the company.

The FAA is also probing probing the 80 seven's quality defect.

According to the agency, the FAA has several investigations ongoing into this company right now.

And the FAA chief Michael Whitaker saying at a Senate hearing that this is just again, one of several of those investigations see that you can expect to see an increase in reports when you have a place for employees to kind of speak up.

And that's exactly what we are seeing when it comes to Boeing.

But as we were just talking about, this is an issue with the fastener and that is not the same manufacturing issue that we have heard previously from Boeing.

So it indicates that there are more problems potentially under the hood that we're gonna continue to be hearing about.

Yeah, this is just the latest in aring of uh many issues that Boeing is facing and we're seeing the nerves this year of investors.

When we do get news like this, you're looking at shares off just around 1.5%.

But when it comes to this issue, let's put it in context for everyone out there because the company here discovering hundreds of fasteners have been incorrectly installed on the fuse lodges of some of those undelivered for a jet.

So I read that line and I said, what the heck is our fasteners and what does this mean?

And how significant could that problem be and taking that just a step further.

So there were some issues with the tightening here of these fasteners and the Boeing plan of more than 900 pa fasteners per plane split equally between both sides of the jets mid body.

So number of these fasteners per plane, there are some issues about whether or not they were tightened correctly.

So this could be a huge issue here for Boeing at least in the near term.

Again, these are four planes that have not yet been delivered.

So Boeing now investigating this here, it is a quality problem.

The latest quality problem that Boeing now faces here at this time with those undelivered 780 sevens.

All right, let's take a look at Stata shares are falling this morning after the carmaker saying that it would ship production of some electric vehicles away from China due to New European Union tariffs.

Now the tariffs are scheduled to start just next month, July 6th and the results of an eu into potential unfair subsidies for Chinese ev makers.

Now we're seeing Stata shares off nearly 5% here in early trading.

This is just the latest move I think when it comes to the movement here or moving some ev production out of China for investors and analysts.

The questions that they're asking is, how quickly can that be done?

How realistic, what is that going to do to cost?

Is that something that will potentially hurt their margins down the line?

What is ST anti if anything, what can they do to maybe offset some those increased costs if in fact, that is an issue.

So again, this is just a another uh potential uh problem here uh or risk, I guess associated with the stock coupled with the fact that that ev demand clearly not living up to those expectations.

And that overall has already been an overhang on STIs and many of its competitors up until this point.

And that is exactly what the CEO talked about on their Investor Day.

Basically, this idea that you can only be so defensive with your balance sheet in terms of cost cutting at a certain point, you got to start bringing in the money.

The CEO saying that he aimed to correct, correct quote arrogant mistakes.

He said they had a convergence of three big issues that he should have started an immediate tax task force to address.

And he said, quote, when I'm saying that you're arrogant, I'm talking about myself.

So really taking some accountability for the challenges that we've seen in the stock, not the worst year to date performance and certainly not the worst over the past year.

In particular, they're down about 7% in Milan trading over the past year.

So it's certainly not been a horrific performance over there looking year to date here stateside, it is looking a little bit worse down 14% but certainly experiencing some of the broader headwinds that ev makers and carmakers in general have been experiencing here as well.

And finally, we have to end our week by talking about gamestop Keith Gill known as Roaring Kitty.

He seemed to increase his game.

His ownership in gamestop Common Stock now appears to be holding more than 9 million shares.

He posted a new screenshot of his E trade portfolio on Reddit.

Super strong for him.

After the Bell.

Yesterday, shares today are moving to the downside.

They're down just flipping over 2% here.

But it's interesting that this post seemed to be the biggest catalyst for the movement that we're seeing in this stock to the downside.

But he's still continues to be one of the top four holders of GME.

The others are, I think Vanguard is among them, Black Rock as well.

So he's certainly the biggest individual investor.

It's not necessarily a bearish signal for the people who love Keith Gill.

Um But we're still seeing moves to the downside.

Yeah, again, his portfolio no longer showing or no longer including the 120,000 call options and then those are set to expire next week.

So I don't necessarily think that huge um surprise here to many on the street.

He is remains invested.

It seems like at least uh to Gamestop really backing what he has said or what he has signaled, I should say uh through his social media outlets over the last several weeks.

So again, we are seeing some movement here to the downside from Gamestop, but this is a stop.

Clearly, it's been on quite a wild ride here over the last several weeks ever since we did have Keith Gill return to social media for the first time, reuniting some of the excitement re uh reuniting.

Uh certainly his fan base surrounding Gamestop and you can see that on that year to day chart on the right half of the screen ever since the middle of May when we have certainly been on the up and down path here over the last several weeks.

It's hilarious.

They, the stock was at 50 bucks in May now, it's down to 28 earlier in May.

It was at 11.

It's just totally all over your head.

Yeah.

Made our husband total wild ride here.

All right, we're gonna have more of your market's action ahead right here on Yahoo Finance.

So stay tuned for more.

You're watching Catalysts the federal holding rate study this week now, only signaling one cup before the end of the year.

The equity market still digesting that latest commentary.

Our next guest saying that the credit market is in more of a holding pattern and the low market could soon maybe be due for pricing.

Let's talk about it.

The investment opportunity is we've got Michael Anderson.

He's citigroup's head of us credit strategy, Michael.

It's great to see you.

So let's first just take a step back when we take a look at what we heard from the Fed this week.

That lack of reaction, maybe that we saw play out in the credit market.

What do you attribute that to?

Yeah, a lot of it is just due to the fact that the markets have tightened a lot, there isn't a lot of upside in either the high yield or the loan market.

Uh so if you think about the high yield markets in terms of spread, the spread has been locked around 300 basis points in a very narrow range for the last three or four months.

And of course, we've seen a lot of volatility in recent years.

And then on the loan side, you know, loans are floating rate assets.

Uh they are also called at par generally very quickly after new issue.

And so with the vast majority of the low market trading above par, there isn't a whole lot more uh that it can go up so risky assets generally were cheered by the inflation news and, and, and, and, and to some extent the fed.

Uh but uh but for the most part credit right now is there just isn't a lot of upside to participate in, in uh in, in a rally.

So then Michael, what questions are you getting from clients specifically regarding kind of the path to rate cuts as it does start to become a little bit clearer?

What are they asking you about next moves and potential catalysts in the credit space?

Yeah, I mean, well, first on the fed side, our, our econ team is expecting the fed to cut in September and then to continue to cut in successive meetings after that, they are definitely more embarrassed than the street is on the economy.

Um So that's going to drive sort of the, the fed policy but as far as the credit markets are concerned, it's more of a fundamental story.

Um, you know, these, these are asset classes that traded to spread over treasuries and those spreads are very tight right now, as I mentioned before, I'd say that the, um, you know, the, the real question is, is when the fed cuts rates, why are they cutting rates?

Are they cutting rates because we're heading into a recession and we've certainly seen some softening of data particularly in the labor market recently.

Uh So there are good reasons to be, to be watching that very, very carefully or are they cutting rates because you have this, what economists call immaculate disinflation and that you get the soft landing and that the FED is able to cut rates on, on, on, on their own and, and then that hopefully that will further ease financial conditions for companies and, and, and, and compel more investors to come into our asset classes.

Like I wanna go back to what you just said a moment ago when we, when we were talking about the loan market here could be in for a sustained repricing wave.

There's also something you mentioned here in your notes, I guess more specifically, why, what would be driving that and ultimately, then what do investors need to be prepared for or know about the impact that that's going to have?

Yeah, it's a great question.

Uh This is, take a step back uh as I mentioned, your spreads are very, very tight.

And so why are we in this situation where it's good to be a borrower is good to be an issuer.

Um It's right now, companies have multiple channels that they can access capital.

The private credit markets have grown a lot.

Uh And so therefore, they have um quote unquote, stolen some share uh from the broad least indicated markets that we are talking about here.

And so in order to compete the broadly syndicated loan market and, and, and the bond markets are trying to be a little bit more issuer friendly.

Um And, and actually, you've seen our markets shrink a little bit.

So that's also supported the technical, you know, the loan market has, has, has peaked out at about 1.4 trillion in size, the high yield market shrunk by about 15%.

So when there's more demand for credit assets, they're sort of chasing the same amount of paper and driving and, and, and driving valuations higher.

So that's sort of the backdrop and you're not seeing a lot of new supply where would we normally get new supply will often would come in the form of LB OS.

But of course, the Fed has hiked rates and they've made, the fed has made debt more expensive.

So it's made buying companies and levering them up a little less attractive for sponsors.

So we, we are operating in an environment of really a lack of paper.

And so going back to the loan market that has driven prices, it's about 70%.

We estimate about 70% of the loan market is trading above par.

And so when you look at, we've already seen a lot of repricing May was a record month for repricing for the market.

Got close to 100 billion of the market reprice.

I've gotten close to 20% of the market has already repriced this year.

But there's a couple of things that you're saying.

Number one is some of the companies that repriced back in January are now coming back in and, and looking to reprice again and often they're actually able to cut more this time than they did.

Uh back back back in January.

Number two is you look at the margins in the market.

Issuers are still paying a fairly high margin relative to history.

If you look back to 2017, 2018, uh the last time, uh the that we had a very lengthy and uh extended repricing wave margins came in a lot.

They came in by about about basis points from 360 to 300.

Right now, we're close to 340.

So it tells you there's, there's scope on that side.

And then finally, uh with your loans are floating rate assets, they float off of short term sour.

And so that means that right now overall yields still look very attractive.

And even if the fed cuts 25 50 100 basis points.

They still are very attractive from, from, from, from a spread from an overall yield and competitive to other asset classes like investment grade credit or high yield credit.

So a lot of those tailwinds are in place for an extended repricing wave.

The big question is going to be the fundamental backdrop and whether or not we're, we're, we're still headed for that soft landing or some of the warning signs that we've seen recently are, are exactly that warning signs that things could get worse.

Michael in our final minute, I wanna end on what you mentioned there about valuations.

Can you talk a little bit more about what you're seeing under the hood with regards to what sort of keeping valuations tight and why, why you're not necessarily seeing a broader picture there of what the movement could look like moving forward?

Yeah, that, that's a big issue right now because the average.

So when people talk about the spread on the high yield market, they're talking about an average.

But of course, there's a distribution around that average.

And so if you break the market down into the tightest to the widest names, uh the tightest names basically trade on top of, you know, the tightest 80% of the market trades basically where it did in May 07, which was the all time record tight.

It's the distress segment which includes some communications names.

That's a sector that despite the fact that, you know, the growth has has has been resilient this year, it's still a sector that is quickly evolving and trades at a fairly widespread.

So when you look at it, look about the distribution, the reason why spreads don't even look even tighter than they are right now is because of this stubbornly wide tail and some of those names might be heading to restructuring.

So you know, they, they the, the the spread may not be as meaningful for investors in terms of being able to capture that spread because it might be more of a restructuring situation.

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

Thank you so much for joining us.

We really appreciate it.

That was Michael Anderson, he is citigroup's head us credit strategy, really appreciate it.

Now coming up Japan's Nikkei index closing higher after the BOJ making a critical policy decision but leaving some question marks for investors, we're going to dive into that next.

Let's take a look at where markets are trading.

We're just around an hour and 10 minutes into the trading day.

We wanna draw your attention to the selling pressure that we are seeing really across the board.

Now, you've got the dow off just over 300 points.

You have the S and P off about a half of a percent.

We are just off the Intraday lows for the S and P. The NASDAQ also moving to the downside here off just about 2/10 of a percent.

And when you take a look at some of the individual sector action that we are seeing industrial sector here, extending the declines here that we started to see.

Shortly after the open.

Right now, we have the industrial sector eyeing the worst day that we've seen since October the dow right now heading for its worst day since the end of May of May 31st.

So again, some selling following uh LA yesterday are really the risk on sentimental that we've had for much of this week where we also had a couple of the major averages, the NASDAQ and the S and P 500 ending yesterday at record highs.

So a bit of a give back here in early trading.

Maddie.

Yeah, a bit of a give give back.

I remember yesterday when we saw stocks kind of flipping to the downside, we were all like, well, why are they down?

And I remember what Steve Sosik always tells me you should be asking why are they up?

Right.

And this market, it's a very thin line between what they're going to be happy about with the data and what's going to signal.

Oh, no, the fed cut it too tight.

They aren't cutting rates back fast enough.

We're going to see some looseness in the economy, perhaps the sentiment numbers weighing on that picture.

But again, markets were already sort of moving to the downside prior to that.

So potentially also just heading into the end of the week here, a little bit of profit taking happening as well.

All right, moving forward here, the closing higher after the Bank of Japan kept its benchmark interest rate unchanged while indicating it's considering reducing its purchase of Japanese government bonds.

But leaving a lot of question marks about what that's going to look like here with this outlook here, with his outlook for Japanese equities.

We got Evan Tle, founder and chief investment officer of the at all.

Thank you so much for joining us this morning.

Evan, I appreciate it.

So you have 40% of your assets invested in Japanese mid to small caps which I'm fascinated in for a us audience of retail investors.

Explain to me how the movements from the boj are playing into your broader in that investment thesis and what that might look like.

Yeah, I mean, honestly, my, my biggest advice for uh for retail investors and investors generally is to pay less attention to, you know, quarter to quarter moves by the bank of Japan or any central bank and really focus on uh you know, the valuation of companies and you know how the corporate governance is changing or improving uh in a given market.

And, and that's where we see the biggest opportunity in Japan.

Yeah, I mean, I guess if you could speak a little bit more about this, just the fact that we didn't really get any details or specific timeline.

Is that something that's going to likely keep the market there, I guess a bit volatile until we get more clarity.

Uh Yeah, possibly.

I mean, you know, you see across the world, short term traders kind of focusing on the machinations of in the UF the fed in in Japan as the Bank of Japan.

I mean, I think over a longer term period with Japanese inflation sort of consistently at the 23 4% levels or similar to what we have in the U SI think they're likely to normalize rates over a over a longer period of time.

And um you know, but it doesn't change the fact that we, we still see uh pretty big opportunities in Japanese stocks more from just the the undervaluation of them rather than any sort of dependent on dependence on interest rate moves.

So I called to the to trigger that upside move when you talk about this bull market of reason to be optimistic here in Japanese equities, what's driving that or what will be the driver?

So, um you know, ever since Abe came out with corporate governance reforms in 2014, there's been sort of a growing movement for Japanese companies to to care about shareholders really.

Um but the South market has really done nothing.

I mean, you look over a 30 year period and the the topic, you know, had a 2% annual return up up until the end of 2023.

Um, but under the hood, we, we see companies with more independent directors, more buybacks, more dividends and just an increased responsiveness to, to shareholders in general.

Not to mention increased responsiveness to, uh, stock prices.

Like there, there was an article in the financial times a few months ago where these days co companies who stock trade up below book value up to when they see the head of the Tokyo Stock Exchange on the golf course, they have to actually apologize to him for how poorly their stocks are doing.

And that just kind of speaks to the, you know, increased uh concern that that management teams have about stock market valuation.

So the catalyst is buy back dividends and actually uh eventually opening up of the um the market for corporate control, which just means which is kind of code for private equity firm.

I mean, you just aren't gonna have uh a whole swap of companies trading at, you know, 78 times ebit for a long period of time if private equity firms are allowed to come in and, um, and, and buy them up and, and you see just this week black film announced a tripling of their um Japanese uh deal making to about $10 billion.

So we think that could be a big catalyst going forward.

Well, I'm interested in, I mean, I love the golf course example.

That's hilarious, but I am interested also in whether or not the BOJ is kind of over focusing on the inflation picture here in the US because there are two very distinct groups of, of challenges between the two central banks.

Do you have a sense that the BOJ is over focusing on us data?

And is that a potential headwind for your thesis?

Uh No, I don't think so.

I mean, uh Japanese inflation data is uh you know, I think roughly similar, you know, 23 4%.

Um I think over the long term, like differences with that in the, in the US uh US data is not um not gonna really impact, I mean, when, when you're buying stocks, you're, you're buying a stream of earnings that's 5, 1020 years out, even though everyone likes to, you know, sort of focus on the, the quarter to quarter moves.

Um and interest rate, we think that the, the more fundamental change in Japan uh is not any move and interest rates, but it, these changes to corporate governance and sort of the, the entry of global private equity firms that are really gonna drive uh the stock market forward and is independent from anything that's happening in the US.

Evan.

I wanna switch gears a little bit because Tesla and Apple have both had very big weeks here.

You are shorting both of those stocks and you're also shorting A MD.

I feel like we always talk to you about your contrarian calls.

And I'm curious about how you're finding success amongst these contrarian calls and how you're able to kind of withstand the upside that you're seeing in these names and maintain that call.

Yeah, it's, it's a, it's been a very difficult period for, for shorting any stocks.

Um, you know, we think it's, it's been difficult for us this year so far.

We're, we're down a bit on the year.

Um, but, you know, for us, it, it kind of rhymes with the 2021 period where, you know, of course, you had the, the stack craze and we also outperform or under performed significantly during that period.

But um we all kind of know what happened there, right?

I mean, the, the, the growing about uh evaluations or overvaluations in our view of some of the stock uh in 2021 contributed to uh you know, huge underperformance uh of the NVC and, and other, um you know, sort of growth names in 2022 which allowed us to outperform by around 50%.

Um So, uh you know, we're, we're sort of skeptical that uh the A I replacement cycle at Apple can really drive $300 billion of, of value.

Um And the other thing we're skeptical of is, um you know, any time, you know, Apple A I moves drive uh potentially more certain, which is to Siri rather than safari.

We think it, we think it might endanger the, the Google uh $20 billion annuity that Google pays to be the default search engine on, on safari.

So, uh we, we feel like that's kind of underappreciated by uh by apple investors right now.

All right, Evan, we always appreciate your contrarian call.

Thanks so much for joining us here this morning, walking us through this Evan Tel.

We uh hope you have a great weekend.

Have you back soon?

Thanks.

All right.

Keep right here on Yahoo Finance.

We got much more of your market action ahead.

Stay tuned.

You're watching Catalysts GP one drugs like OJ and that bound have been huge cash generators for the manufacturers with eil the maker of J and that bound reporting $5 billion in revenue last year from just the two diabetes and weight loss drugs alone.

But what are their competitors doing to catch up as the research and technology enters its next phase?

For more on this, we bring in solving Rich Goldman Sachs us lead biotech Aly.

So great to speak with you and thank you so much for being here.

Uh I know that you just got back from this conference and it's interesting because we constantly have guests coming on saying the health care space.

It's so defensive.

I wonder from your perspective and some of the conversations that you had this week, how much is the weight loss, drugs of it all playing into that trade?

Sure.

Thanks for hosting me.

Really.

Nice to be here and we did just come off our Goldman Sachs Health Care Conference in Miami.

Um So I think there is a defensive nature clearly.

Um But there's also macro dynamics that have been playing out this year, the weight loss dynamic that's happening and the theme that's happening is, is probably one of the biggest we've we've ever seen for the sector we just came out with 100 and 30 billion as the total addressable market that we're looking at.

Um and very much there's been a duopoly situation via Lily and Novo.

Um And there was a lot of commentary at the conference about how to think about these next generation um options that are coming in that are looking at improving upon efficacy upon tolerability um as well as the um the ability to deliver in a different way such as an oral versus injectable and then finally maintenance.

Um because if this is going to be a chronic disease, you want to be able to, you know, manage through a long time period.

And then there's people looking at quality of weight loss such as the muscle loss.

So Sylvia, I guess the question is after Eli Lilly, after Novo nodes, when you kind of get down to some of those players that are now entering the space or see that real opportunity, who should have or what should investors be considering when they are trying to get some exposure uh into that excitement.

So the, the third company that's likely to enter is Zealand, which is based out of Europe.

The um the fourth is likely MJ and they will show us their phase two data by year end at a once a month to once every three months injectable, potentially with a differentiated approach.

And then we're watching Regeneron as a player going after the quality or body proportionality of weight loss.

Meaning right now when you lose weight, about 40% of that's coming from muscle.

So they're trying to address that side of the story.

I know that you don't cover this name specifically, but just as an example, the him and hers health company kind of offering their own compounded version which is not FDA approved.

But I am curious to what extent you think that could be a headwind for the FDA approved names as people just start buying the compounded versions that are a little bit more excess.

They don't need as much clinical approval.

Is that a potential headwind for the companies that are selling FDA approved drugs?

I think that's coming into debate right now because there's limited supply, right?

There's there's significant demand.

And you've heard Lilly and Novo talk about how many plants they would have to build to be able to address the supply.

Um So I think when we start to see them expand on manufacturing, but also these new entrants coming in who have manufacturing capa capacity like Amgen talked about at length about their ability to manufacture here that should kind of aid and also you'll have a differentiated approach, right?

We're looking at the next generation, the second generation and beyond of these drugs.

So I mean, when it comes to the ability to meet that demand, right?

So much of the conversation has been centered around supply, lack of supply, what every what so many of these bigger players are doing, trying to address that.

What's the realistic timeline just in terms of getting more manufacturing online and and realistically maybe being able to meet that demand in the future.

So um some plants have existing capabilities like an Amgen does, they have huge plants around the world and they can work on this but they have to build and they have to put money into it.

And I don't think we necessarily have a timeline.

I think Eli Lee talked about a couple of years recently to be able if they were to address all of it, but you're going to have multiple players.

And so I think there's gonna be significant investment, maybe there's a way to use contract manufacturing organizations and bring them into the process here.

Um And then other players will decide, but I think what everybody realizes is based on the opportunity the investment in manufacturing and supply has to come in much earlier than than perhaps thought before.

What ending are we in to getting the amount of supply to reach the demand.

I mean, a very maybe the the 1st 3rd.

Yeah.

Yeah, it's been incredible to watch the excitement surrounding so many of these players and also just the real opportunity you mentioned about 100 and 30 billion.

Do you say it was the?

Yeah.

All right.

Well, thank you so much, Salve for coming in, especially after your travels.

Really appreciate it.

Thank you so much.

Thank you for having me.

Thank you Sal Richter Goldman's uh us lead biotech analyst.

Appreciate it.

Thank you so much.

Now, coming up, we've got wealth dedicated to all of your personal finance needs.

Our very own Brad Smith is going to have you here for the next hour.

So stay tuned for more.