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Wall Street’s Best Quarter Runs Into an Inflation Test · The Financial Exchange Show

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  Speaker 1: and Mark Fandetti.
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  Speaker 2: Welcome to this Wednesday edition of the Financial Exchange. Paul Lane,
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  Speaker 2: Mark Vendetti, and Ben Kitchen here with you as we
• 1:18
  Speaker 2: kick off the second half of the year.
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  Speaker 3: For twenty twenty six, markets.
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  Speaker 2: Wrapped up what was a very strong first half of
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  Speaker 2: the year, with Wall Street having its best quarter in
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  Speaker 2: six years. For Q two that we just closed out yesterday.
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  Speaker 2: The S and P five hundred was up fifteen percent
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  Speaker 2: over the second quarter, and the Nasdaq was up a
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  Speaker 2: whopping twenty percent over Q two. The Dow Jones also
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  Speaker 2: had a good run as well today in markets relatively
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  Speaker 2: mixed territory. This is typically a pretty quiet week in
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  Speaker 2: terms of trading as we prepare for the Friday, July
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  Speaker 2: fourth holiday or July third, that will be observance of
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  Speaker 2: the July fourth holiday. S and P five hundred off
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  Speaker 2: about twelve points in the Dow Jones relatively flat as
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  Speaker 2: we head into early trading here. We also will get
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  Speaker 2: a job support that will be a big focus that
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  Speaker 2: will come out tomorrow morning for the month of June,
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  Speaker 2: and we also are going to be attuned to any
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  Speaker 2: commentary from the Federal Reserve in terms of what they
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  Speaker 2: sort of come out with in terms of their thoughts
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  Speaker 2: on interest rates. But we'll start by kind of recapping
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  Speaker 2: the first half of the year. I mentioned it in
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  Speaker 2: the beginning here. What was a really good run for
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  Speaker 2: many of the major indices, and certainly the semiconductor index
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  Speaker 2: has been an area of significant growth. The Philadelphia Semiconductor
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  Speaker 2: Index is up a whopping eighty eight percent over the
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  Speaker 2: course of the second quarter, and that really mark has
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  Speaker 2: been the story here is you've seen continued strength in
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  Speaker 2: the tech sector that has propelled the S and P
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  Speaker 2: five hundred to be up about ten percent year to date.
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  Speaker 3: We also have had a i rally.
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  Speaker 2: In small caps as well, in area that we haven't
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  Speaker 2: really spoken about much, and they've languished compared to their
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  Speaker 2: larger cap peers. But the Russell two thousand was also
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  Speaker 2: up twenty two percent through the first half of the year.
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  Speaker 2: That's its best start since nineteen to ninety one.
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  Speaker 4: Yeah, it's interesting.
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  Speaker 5: As a result of the rally in semiconductor stocks, which
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  Speaker 5: had been relatively cheap on a price to book basis,
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  Speaker 5: you've got value stocks across the capitalization spectrum capitalization meaning large,
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  Speaker 5: mid and small outperforming growth stocks. You would think the
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  Speaker 5: story this year would be growth because you think tech,
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  Speaker 5: you think growth. But many of them were so beaten
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  Speaker 5: down and they'll get there again. If you subscribe to
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  Speaker 5: the cyclical theory of semiconductor stock, you know performance, they're
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  Speaker 5: highly boombust. That makes them value stocks periodically and then
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  Speaker 5: when they pop, value indices explode. Like if you'd asked me,
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  Speaker 5: I would have said, well, growth stocks have outperformed probably
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  Speaker 5: value stocks year to date if it's if the story
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  Speaker 5: is tech. But that's absolutely not the case. That's one
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  Speaker 5: thing that jumps out. A couple of other things jump
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  Speaker 5: out too, but I know you got more to cover.
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  Speaker 3: No, that is an interesting point.
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  Speaker 2: I feel like just because of just the rapid growth
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  Speaker 2: that you've seen of those memory component providers like the
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  Speaker 2: Microns and Sandas of the world, who have just returned
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  Speaker 2: tremendous returns yere to date, that you would think that, hey,
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  Speaker 2: it's tech, it's growth that.
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  Speaker 4: Really has been the price to book basis.
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  Speaker 3: Problem the driver.
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  Speaker 2: But as you mentioned, you know the Rustle one thousand
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  Speaker 2: value which is tracking those value companies performing better than
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  Speaker 2: that of the growth sector out there.
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  Speaker 4: Oh sorry, Paul.
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  Speaker 2: And another piece that has been of focus is the
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  Speaker 2: energy sector obviously has been a strong returning this year.
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  Speaker 2: We know the reasons for that, with oil rising dramatically
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  Speaker 2: this year though, coming off its recent highs and continues
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  Speaker 2: to confound me with its price movements, with West Texas
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  Speaker 2: in immediate sitting at seventy dollars a barrel the moment.
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  Speaker 4: Yeah, I don't know that I have anything to add
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  Speaker 4: to that.
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  Speaker 5: You know, the price of oil, any commodity for that matter,
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  Speaker 5: even for the experts, is really hard to forecast.
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  Speaker 3: But you were gonna say more commentary and just how the.
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  Speaker 5: Market's you know, Looking more broadly, most of us have
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  Speaker 5: exposure to stocks through say a target date fund or
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  Speaker 5: some type of balanced or asset allocation fund and a
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  Speaker 5: four to one K plan. Part of that is international
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  Speaker 5: equities typically because although we're very US equity centric, understandably
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  Speaker 5: every country investors are home biased, is the way researchers
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  Speaker 5: like to talk about that. So you tend to own
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  Speaker 5: way more in proportional terms of your country stocks than
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  Speaker 5: you do other country stocks. But other developed markets have
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  Speaker 5: provided investors with returns similar to US markets over a
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  Speaker 5: very long time frame. US markets have been dominant lately,
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  Speaker 5: but that's not always been the case, and it won't
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  Speaker 5: always be the case.
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  Speaker 4: To date, the.
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  Speaker 5: Broadest measure of foreign market performance, no need to name
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  Speaker 5: the index because we just get bobbed down on all
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  Speaker 5: the terminology is up forty percent more fourteen versus ten
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  Speaker 5: than US equities. So US equities have delivered solid performance
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  Speaker 5: in the first half of the year, up ten percent.
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  Speaker 5: If you annualize that you get about twenty great, but
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  Speaker 5: foreign equities are doing even better. And so my point
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  Speaker 5: here is that the well diversified investor, say one who
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  Speaker 5: uses a target date funder or is able to spread
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  Speaker 5: their assets out through using single manager options and say
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  Speaker 5: therefore one K plan is doing better than the US
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  Speaker 5: centric investor.
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  Speaker 2: And that picks up a trend that has been going
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  Speaker 2: on on the trailing twelve month basis too, where a
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  Speaker 2: good portion of twenty twenty five that was a similar
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  Speaker 2: story where international equities outperformed the US piers. Like you mentioned,
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  Speaker 2: there still is a gap there this year where international
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  Speaker 2: has outperformed US markets. It's still large, but not as
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  Speaker 2: large as it was last year, but it does continue
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  Speaker 2: the trend that international equities have continue to perform well.
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  Speaker 5: I should mentioned some of this could be currency I'm
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  Speaker 5: not looking at the current So when your foreign stock
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  Speaker 5: goes up, it could be because the company, you know,
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  Speaker 5: does something investors weren't expecting, and so they expect whatever
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  Speaker 5: they pushed the price up for whatever reason. It could
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  Speaker 5: also mean that the foreign currency in which that company
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  Speaker 5: does business. If it's Sony, it's yen, If it's Volkswagen,
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  Speaker 5: it's euros has appreciated relative to the dollars. So you
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  Speaker 5: always have to think about is it currency that's driving it?
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  Speaker 4: Is it? Is it the underlying security.
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  Speaker 5: It's partly currency, but mostly in this case, UNDERLAFE security.
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  Speaker 2: Heading into this year, the labor market was of significant focus,
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  Speaker 2: but that has largely shifted where now we spent a
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  Speaker 2: tremendous amount of focus again on the inflationary picture of
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  Speaker 2: the US and Iran war, as many listeners know, really
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  Speaker 2: sparked up prices at the pump in terms of the
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  Speaker 2: impact on the oil and gas side of things. And
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  Speaker 2: then you had new chair Kevin worsh come out recently
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  Speaker 2: stating and again I believe he reiterated these comments again
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  Speaker 2: today and just reading through some of this morning's news,
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  Speaker 2: that inflation is too high. We sit at a point
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  Speaker 2: where if you look at the Fed's preferred measure of inflation,
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  Speaker 2: it's about four percent year over year that's been running. Obviously,
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  Speaker 2: the target has been for the Federal Reserve two percent,
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  Speaker 2: which we have had a significant amount of difficulty meeting
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  Speaker 2: over the last several years here. So now investors are
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  Speaker 2: you know, continuously following what the interest rate picture may
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  Speaker 2: look like. Heading into this year, there was this presumption
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  Speaker 2: that we would see interest rate cuts because of the
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  Speaker 2: war and some of.
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  Speaker 3: The inflationary pressure.
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  Speaker 2: That sort of paradigm has shifted where now there is
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  Speaker 2: much more focus on what type of hikes we may see,
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  Speaker 2: if any. Looking at the next meeting, which won't be
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  Speaker 2: till the end of the month of July, here, it does,
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  Speaker 2: according to the CME futures look like that the most
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  Speaker 2: likely path here is that we would stay the course
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  Speaker 2: and not see an interest rate hike come at the
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  Speaker 2: end of July.
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  Speaker 3: However, if you go further out.
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  Speaker 2: Into the fall in September and October, there is some
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  Speaker 2: probabilities priced in that we may see a quarter of
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  Speaker 2: a percent hikes. So certainly that is of significant focus
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  Speaker 2: for investors, and we talk a lot about the tech sector.
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  Speaker 2: Any increase to interest rates for these companies that are
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  Speaker 2: typically predicated on future earnings growth. That can really lead
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  Speaker 2: to a bit of a self if we do see
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  Speaker 2: further interest rate pressure heading over the course of the
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  Speaker 2: second half of the year.
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  Speaker 3: Here.
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  Speaker 2: The commodities market has struggled quite a bit too, after
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  Speaker 2: coming out of the gates really hot. You had gold
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  Speaker 2: and silver off thirteen percent for gold over the course
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  Speaker 2: of the last few months, and then silver was off
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  Speaker 2: about twenty percent over the last quarter. Year to date,
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  Speaker 2: the commodity index is still in positive territory, but this
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  Speaker 2: last quarter there was certainly a shift, and some of
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  Speaker 2: that comes from the interest rate changes that I was
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  Speaker 2: speaking of before, putting pressure on those commodities.
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  Speaker 3: We're going to take a quick break here.
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  Speaker 2: On the Financial Exchange. When we come back, talking a
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  Speaker 2: little bit about the labor markets. Microsoft announcing some layoffs
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  Speaker 2: and this is a trend that we've seen all across
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  Speaker 2: some of the major tech sector companies, so we'll cover
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  Speaker 2: that more on the Financial Exchange right after this break.
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  Speaker 3: Little bit of.
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  Speaker 2: News here on the AI front before we get into
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  Speaker 2: the labor market and discussing some recent news from Microsoft
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  Speaker 2: to layoff some employees. Anthropic has said that President Trump's
• 11:36
  Speaker 2: administration has lifted export controls on their Claude Fable five
• 11:41
  Speaker 2: and Mythos five. On June twelfth, Howard Lutnik, the Commerce Secretary,
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  Speaker 2: had put export controls on the Fable five model that
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  Speaker 2: Anthropic has because of concerns that there was a jail
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  Speaker 2: breakway that was discovered that could bypass some of the
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  Speaker 2: guard rails of the model. There are tremendous amounts of
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  Speaker 2: cybersecurity concerns with these new AI models, specific to Anthropic,
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  Speaker 2: and as a result of that, it created quite a
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  Speaker 2: clash between Silicon Valley and the White House, where of
• 12:14
  Speaker 2: course Silicon Valley has sort of criticized the government's at
• 12:18
  Speaker 2: hoc approach to regulating AI, and you've also had foreign
• 12:23
  Speaker 2: governments accusing the US of punishing their allies by imposing
• 12:27
  Speaker 2: the ban. But like I mentioned to lead here, that
• 12:30
  Speaker 2: band has been listed open AI is set to release
• 12:34
  Speaker 2: it's chat GPT five point six in the next few weeks,
• 12:38
  Speaker 2: and the administration is also trying to look at what
• 12:41
  Speaker 2: that potential model may look like. It will be interesting
• 12:45
  Speaker 2: to see the continued sort of push and pull between
• 12:48
  Speaker 2: the administration trying to protect cybersecurity concerns and everything that
• 12:52
  Speaker 2: comes with some of these new AI models, and obviously
• 12:55
  Speaker 2: Silicon Valley's aversion to any interference in trying to develop
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  Speaker 2: new technologies here as there continues to be a race
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  Speaker 2: to develop the best model and compete with other countries,
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  Speaker 2: you know, most specifically checking and if this.
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  Speaker 5: Is potentially pernicious, like existentially threatening, as some people say,
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  Speaker 5: let me, I should stop there is it? You do
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  Speaker 5: a lot of reading on this subject. What's your take.
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  Speaker 3: From all pieces that I've read?
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  Speaker 2: And again, certainly not an expert matter exit expert subject
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  Speaker 2: on the subject matter, but it does appear that what
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  Speaker 2: was considering to me on the cybersecurity front is that
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  Speaker 2: there were significant flaws that this model was able to
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  Speaker 2: pick up in a lot of critical infrastructure that we
• 13:45
  Speaker 2: use on a daily basis to power our financial systems
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  Speaker 2: and other key parts of the digital world that we
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  Speaker 2: live in. So, based on what I've read, I do
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  Speaker 2: buy in that there was a risk that loomed out
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  Speaker 2: there from people who are more well informed on the
• 14:02
  Speaker 2: topic than that.
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  Speaker 5: So if it could potentially take down all of our
• 14:05
  Speaker 5: infrastructure digital infrastructure, either a bad actor infiltrates it, or
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  Speaker 5: it develops a mind of its own and decides to
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  Speaker 5: screw us, it's an existential threat. I think we have
• 14:16
  Speaker 5: to first like decide do we think it is or
• 14:18
  Speaker 5: do we think it isn't? And then if it is,
• 14:20
  Speaker 5: isn't the answer. I'm sorry for editorializing. It's more of
• 14:22
  Speaker 5: a question, really, why not do what we did with
• 14:25
  Speaker 5: nuclear power, which is effectively create a commission to control it?
• 14:30
  Speaker 5: I mean, why are we letting the private sector see?
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  Speaker 3: To me?
• 14:33
  Speaker 5: I think I know the answer to this. The private
• 14:34
  Speaker 5: sector coders specifically, who are working on these models understand
• 14:39
  Speaker 5: how they work. Nobody else does. People in finance as
• 14:42
  Speaker 5: glib as they are, as articulate as they can be.
• 14:45
  Speaker 5: Their job is to sell you something, So you never
• 14:47
  Speaker 5: trust the guy in finance trying to sell you something.
• 14:49
  Speaker 4: He's conflicted trying to sell it. No, we do good.
• 14:52
  Speaker 5: I know what you're getting out here. We're in finance.
• 14:53
  Speaker 5: What do we do, financial planning, long term investment management.
• 14:57
  Speaker 5: I'm not trying to sell you anything. If we think
• 14:58
  Speaker 5: manager X has a cheaper way to get the beta
• 15:01
  Speaker 5: that you need to realize your return goals, that's where
• 15:03
  Speaker 5: we'll suggest that you go right. Sure so, And I'm
• 15:06
  Speaker 5: sorry you're right though I shouldn't pay. I'm not just
• 15:08
  Speaker 5: being defensive, even though I feel really defensive. I shouldn't
• 15:11
  Speaker 5: pain with that broad a brush. When a when a
• 15:14
  Speaker 5: salesperson any domain is trying to sell you something.
• 15:17
  Speaker 4: They're conflicted.
• 15:18
  Speaker 2: So yeah, ultimately these things, they're conflicted. The bottom line
• 15:21
  Speaker 2: is financial people don't.
• 15:22
  Speaker 3: Understand this technology.
• 15:23
  Speaker 4: Altman is conflicted. All of these Oh sure, these people
• 15:26
  Speaker 4: are all conflicted.
• 15:27
  Speaker 5: They're all pumping up their own boat. They're pretty much right.
• 15:31
  Speaker 5: I mean, you can't. It's good. It's in the interest
• 15:36
  Speaker 5: of being good consumer, good citizen. You can't sorry to say,
• 15:38
  Speaker 5: you just can't trust them, So we can't trust them.
• 15:41
  Speaker 5: This stuff might present an existential threat. It seems to
• 15:44
  Speaker 5: me like maybe we're not trying to control it at
• 15:46
  Speaker 5: the right level, control it like we did nuclear technology,
• 15:49
  Speaker 5: which is give the government a monopoly on it. I
• 15:52
  Speaker 5: hate to say it. I mean as a as a
• 15:53
  Speaker 5: libertarian ish person different from your usual yes, but if
• 15:58
  Speaker 5: it's But I wouldn't say let anybody build a nuclear
• 16:01
  Speaker 5: bomb either, because again it could. Now, in those in
• 16:05
  Speaker 5: the days of the Atomic Energy Commission, the threat wasn't existential.
• 16:08
  Speaker 5: We didn't know about nuclear winner, I don't think, and
• 16:10
  Speaker 5: these were atomic not nuclear weapons.
• 16:12
  Speaker 4: There was a difference.
• 16:16
  Speaker 5: Still though it doesn't seem to me that we're approaching
• 16:18
  Speaker 5: this with the right urgency.
• 16:19
  Speaker 4: Is that fair?
• 16:20
  Speaker 2: You know, I'm not sophisticated enough to know how large
• 16:24
  Speaker 2: does the threat loom, you know, from what I've read,
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  Speaker 2: I don't think existential necessarily would be the word that
• 16:32
  Speaker 2: they would attribute to the potential risk. But there was
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  Speaker 2: significance concern that if this got into the hand of
• 16:37
  Speaker 2: bad actors who were able, who were just as sophisticated
• 16:40
  Speaker 2: on the tech front on the hacking side, then they
• 16:42
  Speaker 2: were able to utilize this model to breach security flaws
• 16:47
  Speaker 2: in i'll just say, banking systems or wherever it may.
• 16:50
  Speaker 2: Wherever they were able to find flaws that could potentially
• 16:55
  Speaker 2: lead to some very serious issues.
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  Speaker 5: How were a politician, I'd be thinking, this gets out
• 16:59
  Speaker 5: even if they're only a point five percent chance and
• 17:02
  Speaker 5: it takes down the economy effectively. Because of the critical
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  Speaker 5: nature of i'll just say digitiz a digital technology, that
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  Speaker 5: that ain't gonna happen on my watch, I would err
• 17:15
  Speaker 5: on the side of imposing incredibly stringent controls. It is
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  Speaker 5: the point of like suppressing it completely.
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  Speaker 4: Maybe that's not possible.
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  Speaker 2: Noting that Anthropic did put together this glass swing endeavor
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  Speaker 2: where they basically brought together what was initially I believe
• 17:28
  Speaker 2: fifteen different corporations across many different lines of business before
• 17:33
  Speaker 2: these models were released the first time around, or perhaps
• 17:37
  Speaker 2: it was a prior iteration of them to allow these
• 17:40
  Speaker 2: large corporations that have significant impact on our financial institutions,
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  Speaker 2: and otherwise to patch up some of the security flaws
• 17:47
  Speaker 2: that were found within this model development. So they have
• 17:50
  Speaker 2: taken some steps to try and be sort of practical
• 17:54
  Speaker 2: on it. I would push back to you know, I'm
• 17:57
  Speaker 2: not I see.
• 17:57
  Speaker 3: Both sides of this.
• 17:59
  Speaker 2: Where you know, is the government sophisticated enough from a
• 18:03
  Speaker 2: technology perspective to be apprized of.
• 18:05
  Speaker 5: That as sophisticated as any other player, whether they hire experts,
• 18:09
  Speaker 5: you do you treat it again like you did, like
• 18:12
  Speaker 5: you did the breakthroughs in atomic and then nuclear energy.
• 18:17
  Speaker 5: Otherwise we're just letting the fox guard the hens.
• 18:19
  Speaker 3: Hopefully Hopefully that doesn't it.
• 18:21
  Speaker 5: Feel like the fox is not just guarding the head
• 18:23
  Speaker 5: house but de hen house, but like designing it and
• 18:26
  Speaker 5: hiring the security guards.
• 18:28
  Speaker 4: And I mean, we're taking this again.
• 18:31
  Speaker 5: We're taking because there's there's no expertise apparently and not
• 18:34
  Speaker 5: sufficient expertise in government to regulate this stuff.
• 18:38
  Speaker 2: Perhaps, and that the problem with with tech always is
• 18:41
  Speaker 2: I feel like it evolves more quickly than they can
• 18:44
  Speaker 2: then the government can even put resources together to properly
• 18:47
  Speaker 2: address all the issues.
• 18:49
  Speaker 5: Yeah, it's true, but that's true. I mean, jeez again,
• 18:51
  Speaker 5: think about the fifties and sixties.
• 18:53
  Speaker 2: Right right, No, anyway, it's it's interesting to continue to
• 18:57
  Speaker 2: follow here that news just coming out this morning, so
• 19:01
  Speaker 2: lifting that several week freeze on Anthropics' recent most recent
• 19:06
  Speaker 2: model of fable five. Be interesting to see what happens
• 19:08
  Speaker 2: with the new version of chat GPT five point six
• 19:11
  Speaker 2: if they are under the same scrutiny in the next
• 19:13
  Speaker 2: few weeks when that's rumored to be released. Here taking
• 19:17
  Speaker 2: a look around at markets, We're in relatively mixed territory
• 19:20
  Speaker 2: in what is a pretty slow trading week. But we'll
• 19:23
  Speaker 2: have more for you on the markets right after this
• 19:25
  Speaker 2: break with Wall Street Watch.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:46
  Speaker 1: on the Financial Exchange Radio Network till now full wol
• 19:51
  Speaker 1: Street Watch tracking the stocks, the dato and the headlines
• 19:55
  Speaker 1: driving markets so far today right here on the financial exchange,
• 19:58
  Speaker 1: radio network.
• 20:00
  Speaker 3: Well markets are mixed as we've get in the day here.
• 20:03
  Speaker 3: The Dow Jones is.
• 20:04
  Speaker 6: Up seventy five points, or zero point one four percent.
• 20:07
  Speaker 6: The S and P five hundred, on the other hand,
• 20:09
  Speaker 6: is down ten points or down point one four percent.
• 20:12
  Speaker 6: The NASDAK is off one hundred and twenty seven points,
• 20:15
  Speaker 6: just about half a percent, and the Russell two thousand
• 20:18
  Speaker 6: is up four tenths of a percent. Nike shares are
• 20:22
  Speaker 6: up three and a half percent after reported a sales
• 20:25
  Speaker 6: decline of twelve percent in the Greater China market. Despite
• 20:28
  Speaker 6: the significant decline in a key market, Nike still reported
• 20:31
  Speaker 6: in earnings and revenue beat in its fiscal fourth quarter
• 20:35
  Speaker 6: financial report. Bloom Energy is up more than two percent
• 20:39
  Speaker 6: after an announcement and after it announced an expanded partnership
• 20:43
  Speaker 6: with investment firm Brookfield to finance power for artificial intelligence
• 20:47
  Speaker 6: infrastructure projects. Bloom said in a press release the expansion
• 20:51
  Speaker 6: shows sustained demand from AI infrastructure developers. Kroger shares are
• 20:56
  Speaker 6: off over two percent after the company announced it will
• 20:58
  Speaker 6: acquire giant Ea Eagle, a food and pharmacy retailer, for
• 21:02
  Speaker 6: one point six five billion dollars Kroger CEO Greg Forren
• 21:06
  Speaker 6: said in a press press release that the acquisition expands
• 21:09
  Speaker 6: to companies reach into attractive adjacent markets. And finally, Shutterstock
• 21:14
  Speaker 6: and Getty Images are tumbling after Getty called off a
• 21:17
  Speaker 6: proposed merger with Shutterstock due to demands from a UK regulator.
• 21:22
  Speaker 6: Shutterstock fell sharply. It's off more than twenty eight percent,
• 21:25
  Speaker 6: while Getty has declined eight and a half percent. I
• 21:28
  Speaker 6: am Ben Kitchen and that was Wall Street Watch.
• 21:31
  Speaker 2: Taking a look at a recent headline here from MarketWatch,
• 21:35
  Speaker 2: Microsoft is reportedly planning on laying off thousands of employees,
• 21:41
  Speaker 2: about two and a half percent of this of its workforce.
• 21:44
  Speaker 2: And this follows a similar trend that we've seen over
• 21:47
  Speaker 2: the course of this year where a lot of big
• 21:49
  Speaker 2: name tech companies have come out and announced layoffs. You
• 21:52
  Speaker 2: had Meta announcing eight thousand employees that are due to
• 21:56
  Speaker 2: be laid off, Oracle another twenty one thousand, and then
• 22:00
  Speaker 2: and Dell and others have followed suit. Amazon two is
• 22:03
  Speaker 2: in that mix, and it's been interesting to track mark.
• 22:06
  Speaker 2: I was doing some research before the show because we
• 22:09
  Speaker 2: just had a Joltz report yesterday, and we'll obviously get
• 22:12
  Speaker 2: another report on the jobs report coming out tomorrow morning
• 22:16
  Speaker 2: for the month of June, that the labor market has
• 22:19
  Speaker 2: actually looked quite resilient this year. Heading into twenty twenty six,
• 22:24
  Speaker 2: it was a concern, but we saw on the job
• 22:27
  Speaker 2: openings front an increase yesterday to about seven point six million.
• 22:31
  Speaker 2: That was the highest that we've seen since May of
• 22:34
  Speaker 2: twenty twenty four and above expectations. And we're anticipating some
• 22:40
  Speaker 2: one hundred thousand jobs that perhaps were added over the
• 22:44
  Speaker 2: month of June. And so what it seems to me
• 22:47
  Speaker 2: is that there has been sort of this this split
• 22:50
  Speaker 2: between major companies announcing headlines, specifically in the tech sector
• 22:56
  Speaker 2: that are garnering eyeballs and news headlines, but it's not
• 23:00
  Speaker 2: really reflecting in the data as much.
• 23:02
  Speaker 5: Yeah, I mean, who cares. Microsoft has doubled their head
• 23:04
  Speaker 5: count in the past ten years. It's up forty percent
• 23:06
  Speaker 5: in the last several years. They need to pair staff probably,
• 23:10
  Speaker 5: and it's a natural time to do it. We might
• 23:12
  Speaker 5: be late in the business cycle. That's point number one.
• 23:14
  Speaker 5: Forgive me for being flipp I shouldn't say who cares.
• 23:16
  Speaker 5: People lost their jobs, right, I bet they're skilled and
• 23:19
  Speaker 5: they'll find new jobs. But if once again. It depends
• 23:22
  Speaker 5: on why you're used. I say once again, because I'm
• 23:24
  Speaker 5: thinking about that the fact that I may have said
• 23:26
  Speaker 5: this in the in the past, not that anybody would
• 23:29
  Speaker 5: remember or should have to. The churn in the economy
• 23:34
  Speaker 5: month over month is tremendous. You mentioned Joelts yesterday in
• 23:36
  Speaker 5: that report was an estimate of one point seven or
• 23:40
  Speaker 5: eight million discharges and layoffs last month. One point seven
• 23:45
  Speaker 5: eight I'm just going to ground it up. Call it
• 23:47
  Speaker 5: what one point eight million, So a few thousand jobs
• 23:50
  Speaker 5: here or there does Again, I don't mean to diminish it.
• 23:52
  Speaker 5: Somebody's life was upended by this, I guess. But in
• 23:56
  Speaker 5: the scheme of things, and in the scheme of things
• 23:58
  Speaker 5: is what we use data four year we try. I
• 24:00
  Speaker 5: do use it to estimate whether the economies, or at
• 24:03
  Speaker 5: least I think about it, is the economy running too hot,
• 24:05
  Speaker 5: too cold, or just right. Labor market appears stable, job
• 24:08
  Speaker 5: creation appears to be enough to keep the unemployment rate stable.
• 24:11
  Speaker 5: The unemployment rate is probably not low enough to be
• 24:14
  Speaker 5: pushing inflation up. Probably, I don't know, though it depends
• 24:19
  Speaker 5: on other factors, including what happens with energy prices and
• 24:23
  Speaker 5: therefore inflation expectations so differently. It's complicated, But in the
• 24:27
  Speaker 5: scheme of things, Microsoft pairing a little bit of headcount
• 24:30
  Speaker 5: perhaps to compensate for what might be over hiring over
• 24:33
  Speaker 5: the past several years, is probably not gonna matter much.
• 24:39
  Speaker 2: Meta and Microsoft and some of these other major tech players,
• 24:42
  Speaker 2: like you said, got extremely bloated coming out of the
• 24:45
  Speaker 2: pandemic in terms of their headcount. They now have had
• 24:47
  Speaker 2: a shift in business strategy where their capital expenditures are
• 24:51
  Speaker 2: extremely significant. Microsoft in particular is spending one hundred and
• 24:55
  Speaker 2: ninety billion on AI infrastructure. So as a result of that,
• 24:58
  Speaker 2: you are really going to scrutinize your labor force to
• 25:00
  Speaker 2: see if there are cuts that can be made somewhere.
• 25:02
  Speaker 2: Now a lot of times these are being sort of
• 25:06
  Speaker 2: made in conjunction with AI. But I think the real
• 25:09
  Speaker 2: fundamental reason is more cutting glut than it actually is, Oh,
• 25:12
  Speaker 2: we're trying to be more efficient with our workforce, or
• 25:15
  Speaker 2: AI is prompting us to lay off employees. I think
• 25:17
  Speaker 2: it's more just the reason of, hey, we just want
• 25:20
  Speaker 2: to trim down our headcount and become a little bit leaner.
• 25:23
  Speaker 2: As an organization. I've been focused on the tech sector
• 25:26
  Speaker 2: just because like you said, we have covered a lot
• 25:28
  Speaker 2: of big names that are announcing layoffs. But it appears,
• 25:32
  Speaker 2: according to Challenger, Gray and Christmas that we have seen
• 25:36
  Speaker 2: in Q one of twenty six job sector announcements of
• 25:40
  Speaker 2: cuts specific to the tech sector at about fifty two thousand,
• 25:44
  Speaker 2: which is a forty percent jump from where that was
• 25:46
  Speaker 2: in Q one of twenty twenty five.
• 25:50
  Speaker 3: But again, if.
• 25:51
  Speaker 2: You look at just that Joltz report that I was
• 25:53
  Speaker 2: speaking of earlier, the macro level of the information sector
• 25:59
  Speaker 2: has been running at one to two and a half
• 26:01
  Speaker 2: one point two to one and a half percent of
• 26:03
  Speaker 2: total employment month over month, which is not far from
• 26:06
  Speaker 2: its long run. Now it's said simply, you know, there
• 26:09
  Speaker 2: hasn't been a huge indication that the tech center has
• 26:13
  Speaker 2: been completely punished when it comes to job layoffs. We
• 26:17
  Speaker 2: still have a labor market that has been quite resilient.
• 26:20
  Speaker 5: Yeah, I mean, if this, if all this AI spending
• 26:21
  Speaker 5: doesn't pay off, you ain't seen nothing yet in terms
• 26:23
  Speaker 5: of layoffs.
• 26:24
  Speaker 2: Right right when you're you know, when you're spending one
• 26:26
  Speaker 2: hundred and ninety billion dollars on capex or seven hundred
• 26:29
  Speaker 2: billion across all those big hyperscalers. If that changes or
• 26:34
  Speaker 2: they're not getting the requisite return on investment there. Like
• 26:37
  Speaker 2: you said, Mark, you know well put that they're is
• 26:39
  Speaker 2: certainly going to be changes made there. There's another piece
• 26:42
  Speaker 2: here in CNBC that covers a reversal of positioning on
• 26:48
  Speaker 2: AI where employers who laid off workers are now citing
• 26:52
  Speaker 2: a initially citing AR now already starting to regret it.
• 26:57
  Speaker 2: There was an example cited in this piece here, and
• 26:59
  Speaker 2: again this is a small sample size that's noted in
• 27:01
  Speaker 2: kind of an anecdotal story, but the Commonwealth Bank of
• 27:04
  Speaker 2: Australia had forty customer service staff that they had laid
• 27:08
  Speaker 2: off to use an AI voice spot to replace those workers,
• 27:12
  Speaker 2: but they found that the AI system couldn't handle all
• 27:16
  Speaker 2: of the calls and it actually led to an increase
• 27:18
  Speaker 2: in calls for those representatives that they still had working
• 27:21
  Speaker 2: customer service. So they hired back all of the people
• 27:24
  Speaker 2: that they had layoff. And there are similar other stories
• 27:28
  Speaker 2: that are mentioned here where Ford, for example, reverse course
• 27:33
  Speaker 2: and is re employing hundreds of experienced workers that initially
• 27:36
  Speaker 2: they thought the work could be done with AI. And
• 27:40
  Speaker 2: I think it speaks to a broader point of when
• 27:43
  Speaker 2: you have new technology rollouts, it's bumpy. It's not a
• 27:47
  Speaker 2: smooth adoption curve. There often is a lot of challenges
• 27:51
  Speaker 2: that you don't anticipate and that can lead to a
• 27:56
  Speaker 2: questioning of how productive is this makeing us? For example,
• 28:01
  Speaker 2: in the case of this small customer service example for
• 28:04
  Speaker 2: the Commonwealth Bank of Australia, their intentions were to make
• 28:09
  Speaker 2: themselves leaner and more efficient, but it only led to
• 28:12
  Speaker 2: more headaches for.
• 28:13
  Speaker 4: For the existing poison.
• 28:14
  Speaker 5: You know that the manager that made that decision, whatever
• 28:17
  Speaker 5: level he or she is at, they might want to
• 28:18
  Speaker 5: wait next time and see how, once implemented, the technology
• 28:22
  Speaker 5: actually works out and then decide if if some people
• 28:25
  Speaker 5: are superfluous.
• 28:26
  Speaker 4: Yep, I mean really, what forgive me? But what management
• 28:30
  Speaker 4: and competence right?
• 28:31
  Speaker 3: Right?
• 28:32
  Speaker 2: And they were pretty they were pretty blunt blunt about it.
• 28:35
  Speaker 2: We didn't act adequately consider all relevant business considerations. I
• 28:40
  Speaker 2: mean like we should have been more throwing our assessment
• 28:42
  Speaker 2: of saying we should have been more throwing our assessments,
• 28:47
  Speaker 2: require assessment of roles required like that is a pretty
• 28:50
  Speaker 2: damaging way to paint yourself that you you really screwed up.
• 28:54
  Speaker 2: That's it's corporate speak for you really messed up with
• 28:57
  Speaker 2: with that decision making there, so again, it's interesting how
• 29:02
  Speaker 2: we continue to see what the labor market trends are.
• 29:04
  Speaker 2: We'll get more data on that tomorrow when we get
• 29:07
  Speaker 2: the month of June's jobs reports. We're gonna take a
• 29:10
  Speaker 2: quick break here on the Financial Exchange. When we come back,
• 29:13
  Speaker 2: talking a little bit about the auto market. It's been
• 29:16
  Speaker 2: a week year for US auto sales, but hybrids are
• 29:18
  Speaker 2: starting to gain momentum. We'll talk about that more after
• 29:22
  Speaker 2: this break.
• 29:23
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• 29:46
  Speaker 1: Face is the Financial Exchange.
• 29:55
  Speaker 2: Detroit's car makers are missing out on the hybrid momentum.
• 30:01
  Speaker 2: What we've seen through the first half of this year
• 30:04
  Speaker 2: is about a three percent decline in overall US auto sales. However,
• 30:09
  Speaker 2: hybrid sales rose nine percent during the first half of
• 30:13
  Speaker 2: the year, and that leaves Detroit's automakers in a fomo
• 30:18
  Speaker 2: stance where they do not have a lot of exposure
• 30:21
  Speaker 2: in the hybrid markets. It's much more dominated by Toyota
• 30:26
  Speaker 2: and Honda and South Korea's Hyundai Motor Group.
• 30:30
  Speaker 3: Those are all.
• 30:31
  Speaker 2: Companies that are expected to report higher US sales. And
• 30:35
  Speaker 2: I stepped back for the story for a minute because
• 30:37
  Speaker 2: I just so vividly remember doing the show back four
• 30:41
  Speaker 2: or five years ago when EV's were all the rage,
• 30:45
  Speaker 2: and there was a lot of criticism by market pundits
• 30:49
  Speaker 2: levied against specifically Toyota, I remember the most for not
• 30:52
  Speaker 2: investing in the development of further development of electric vehicles.
• 30:57
  Speaker 2: Toyota came out very staunchly and just said, you know what,
• 30:59
  Speaker 2: We're going to stick to hybrids. And it's interesting to
• 31:02
  Speaker 2: read a story like this and sort of have it
• 31:04
  Speaker 2: reaffirmed where they're positioning, even amidst criticism, was the right
• 31:09
  Speaker 2: sort of road to take.
• 31:10
  Speaker 3: Now, obviously, the.
• 31:11
  Speaker 2: Geopolitical conditions sort of changed a bit for electric vehicles
• 31:15
  Speaker 2: during that period of time, which probably helped them in
• 31:18
  Speaker 2: their favor. And maybe that's just a little bit of
• 31:21
  Speaker 2: luck there, but they have been able to take a
• 31:24
  Speaker 2: much more significant market share just hybrids in general than
• 31:28
  Speaker 2: the gas engines over.
• 31:30
  Speaker 3: The course of this first half the year here on
• 31:32
  Speaker 3: the hybrid.
• 31:33
  Speaker 5: Yah, I don't know how you do long term planning
• 31:35
  Speaker 5: when the regime changes every few years. In the ideology
• 31:39
  Speaker 5: driving the regime. By regime here, I mean just the
• 31:43
  Speaker 5: administration and all the people that they appoint. So it's
• 31:46
  Speaker 5: broad in the administration itself. It's the people that they
• 31:48
  Speaker 5: appoint at all levels. We were in the embrace of
• 31:52
  Speaker 5: the green energy revolution, like you said a few years ago,
• 31:56
  Speaker 5: and we've done and this might be an understatement of
• 31:59
  Speaker 5: oneint eighty embracing.
• 32:00
  Speaker 4: Fossil fuels right now.
• 32:02
  Speaker 5: So how do you if you're far Ley at Ford,
• 32:05
  Speaker 5: poor guy, you decided to go. You decided to change
• 32:10
  Speaker 5: the power plant on a off of the F one
• 32:12
  Speaker 5: fifty with an electric power plant, thinking well, this is
• 32:14
  Speaker 5: the future. The regimes pushing us to do this new
• 32:17
  Speaker 5: regime comes into.
• 32:18
  Speaker 4: Power exact opposite.
• 32:21
  Speaker 5: I mean, these decisions can't be changed on a dime.
• 32:24
  Speaker 4: Now.
• 32:25
  Speaker 5: Ford doesn't offer, for example, an electric car, yeah, or
• 32:29
  Speaker 5: a hybrid.
• 32:29
  Speaker 3: GM did it wrong. GM did a huge rite down
• 32:32
  Speaker 3: on their ev business too.
• 32:34
  Speaker 5: It's Caddy went all electric right right, Yeah, the plant
• 32:37
  Speaker 5: you can still get gas caddies. I don't think that
• 32:39
  Speaker 5: was accurate what I just said. But they planned on
• 32:41
  Speaker 5: going all electric. They assume that's not the case anymore.
• 32:44
  Speaker 2: No, I think there was several different auto manufacturers domestically
• 32:48
  Speaker 2: that were caught not flat footed, but literally on the
• 32:51
  Speaker 2: wrong foot or the wrong foot of you know, investing
• 32:54
  Speaker 2: significantly and ev technology just so to kind of have
• 32:58
  Speaker 2: the rug pulled out from uneath them. On the hybrid side,
• 33:01
  Speaker 2: they took fourteen percent of the market share through the
• 33:04
  Speaker 2: first quarter, and analysts anticipate that it could become a
• 33:08
  Speaker 2: much more significant trend over the next five years. According
• 33:11
  Speaker 2: to analysts, it's more than set to double the hybrid
• 33:14
  Speaker 2: market over the next five years, accounting for almost a
• 33:17
  Speaker 2: quarter of the market on the hybrid side, Maybe.
• 33:20
  Speaker 5: If you're a manager, you have to say, to heck,
• 33:22
  Speaker 5: with the current political environment, I'm going to maintain a
• 33:24
  Speaker 5: diversified product lineup.
• 33:26
  Speaker 3: Yeah, no matter.
• 33:27
  Speaker 5: What, even if that means the president's going to tweek
• 33:29
  Speaker 5: bad things about me or the last president's not going
• 33:32
  Speaker 5: to invite me to a Rose garden ceremony. Because the
• 33:34
  Speaker 5: regime could change, the political winds could shift, and another
• 33:39
  Speaker 5: I don't know how well.
• 33:40
  Speaker 2: Now you have to be disciplined in your capital management
• 33:43
  Speaker 2: and not get too over committed in one direction or another.
• 33:46
  Speaker 2: It seems like that taking a middle ground approach is
• 33:48
  Speaker 2: probably the way to go. From the other side of
• 33:51
  Speaker 2: the auto market, the Chinese auto market has really done
• 33:55
  Speaker 2: in absolute number on these Western carmakers, specifically in Germany.
• 34:00
  Speaker 2: This has been an area where they have struggled quite
• 34:03
  Speaker 2: a bit. Where Volkswagen in particular had about a fifteen
• 34:07
  Speaker 2: percent market share in China in terms of vehicle sales
• 34:10
  Speaker 2: back in twenty fifteen. That number has come all the
• 34:13
  Speaker 2: way down to about nine point seven percent over the
• 34:16
  Speaker 2: course of the last ten years. And now Volkswagen is
• 34:20
  Speaker 2: laying off thousands of employees and typically they were reporting
• 34:24
  Speaker 2: five billion of profit in China. That segment now is
• 34:28
  Speaker 2: going to be anywhere from two hundred and twenty eight
• 34:31
  Speaker 2: million to six hundred and eighty four million in terms
• 34:33
  Speaker 2: of profit this year compared to where they were previously.
• 34:37
  Speaker 2: And this is what has happened in the Chinese auto
• 34:40
  Speaker 2: market is that they learned from a lot of Western
• 34:42
  Speaker 2: automakers how to make vehicles, and they've gone out and
• 34:46
  Speaker 2: partially subsidized through the government, these endeavors to make cars
• 34:50
  Speaker 2: that are cheaper, have better technology, and are more competitive
• 34:54
  Speaker 2: than a lot of their European peers, and has put
• 34:57
  Speaker 2: Volkswagen and others in a really difficul old spot. Tesla
• 35:00
  Speaker 2: is another example too, not a European company, but an
• 35:04
  Speaker 2: area where they had sparked the EV boom in China,
• 35:08
  Speaker 2: and now there are numerous amounts of EV competitors in
• 35:12
  Speaker 2: China that Tesla is up against, bid being the biggest
• 35:17
  Speaker 2: one there. It has been really dominated the by domestic
• 35:21
  Speaker 2: opposites in China and very much less focus on buying
• 35:25
  Speaker 2: American brands, where the market share of American brands has
• 35:29
  Speaker 2: fallen to about five percent from what was twelve percent
• 35:33
  Speaker 2: in twenty fourteen. So that major trend shift that we've
• 35:36
  Speaker 2: seen in the Chinese auto market. For sure, you guys
• 35:40
  Speaker 2: got a fourth July cookout coming up in a couple
• 35:43
  Speaker 2: of days here, Mark ben Uh, anybody, no, do you
• 35:49
  Speaker 2: eat hot dogs and hamburgers on the wet.
• 35:51
  Speaker 4: We don't celebrate, We were on the wrong side.
• 35:54
  Speaker 3: Well I don't so yes on the cookout for sure.
• 35:57
  Speaker 2: Okay, it is going to be your cookout is going
• 36:01
  Speaker 2: to be ten percent more expensive than last year according
• 36:05
  Speaker 2: to the American Farm Bureau Federation estimating about seventy four
• 36:10
  Speaker 2: dollars to feed ten in their cookout estimate. That's a
• 36:15
  Speaker 2: ten percent increase or a nine and a half percent increase.
• 36:17
  Speaker 3: From last year.
• 36:18
  Speaker 2: You've had beef prices that have jumped more than seventeen
• 36:21
  Speaker 2: percent year over year. Good news not for cookouts. Chicken
• 36:25
  Speaker 2: prices have decreased slightly, but that doesn't really help us
• 36:28
  Speaker 2: for Saturday at all. They reasons behind this is, you know,
• 36:33
  Speaker 2: they mentioned just some of the inflationary pressure in general.
• 36:36
  Speaker 3: Barbecue sauce is also up.
• 36:38
  Speaker 2: Thirteen percent year over year, and soda pop as they
• 36:42
  Speaker 2: call it in the Midwest or cited in this piece
• 36:44
  Speaker 2: here for a twelve pack is up about twelve percent.
• 36:48
  Speaker 3: So Kansas City, just reading.
• 36:51
  Speaker 2: What the Peace says here out of the Wall Street
• 36:54
  Speaker 2: Is this the Wall Street Journal here?
• 36:56
  Speaker 3: That's no bearance.
• 36:57
  Speaker 2: Perhaps they have Midwest for order that was on the
• 37:01
  Speaker 2: coverage for this story.
• 37:02
  Speaker 3: But your your barbecues.
• 37:03
  Speaker 2: Are going to be be more expensive, you guys, traditional hamburger,
• 37:07
  Speaker 2: hot dog, I feel like that is pretty much the standard.
• 37:10
  Speaker 2: Are you go more elaborate with ribs and steak and
• 37:13
  Speaker 2: stuff for the.
• 37:14
  Speaker 6: Barber normally would just be hamburgers and hot dogs, because
• 37:16
  Speaker 6: that's the easiest thing to do. It's quick and very
• 37:19
  Speaker 6: very simple, and you can feed a bunch of people
• 37:20
  Speaker 6: with it.
• 37:21
  Speaker 3: Yep.
• 37:21
  Speaker 6: But for some reason, my wife decided, let's do ribs
• 37:25
  Speaker 6: this year. All right, are you in charge the grill master?
• 37:29
  Speaker 6: She never asked me to be in charge of this one,
• 37:31
  Speaker 6: so I think I'm just gonna pass. You brought the ribs,
• 37:33
  Speaker 6: you cook them.
• 37:35
  Speaker 2: The other areas that have seen price increases, I will
• 37:39
  Speaker 2: not be eating country style baked beans.
• 37:41
  Speaker 3: But they are also up about ten percent.
• 37:44
  Speaker 5: And your your wife's on the phone.
• 37:47
  Speaker 3: We've lost our producer for the day.
• 37:49
  Speaker 2: Taking a look at markets relatively flat today, the S
• 37:53
  Speaker 2: and P five Hunter is off a measly five points,
• 37:56
  Speaker 2: the Dow Jones is up about ninety points, and then
• 37:59
  Speaker 2: now Stack is off about a half percent. That's all
• 38:03
  Speaker 2: the time that we have for the first hour of
• 38:05
  Speaker 2: the program here, but we'll be right back at it
• 38:08
  Speaker 2: with a lot more to cover right after this break.
• 38:10
  Speaker 2: Stick with us on the financial exchange