Fed's ripple effect, Tesla shareholder vote, Virgin Galactic: Morning Brief

On today's episode of Morning Brief, Yahoo Finance's Seana Smith and Brad Smith break down the market open and the biggest stories of the trading day.

The Dow Jones Industrial Average (^DJI) dropped more than 100 points at the market open, while the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) moved into positive territory after Wednesday's breakout session. This comes after the Federal Reserve left interest rates unchanged on Tuesday as inflation continues to cool. Evercore ISI Vice Chairman Krishna Guha explains that there's no rush to get to the Fed's 2% target, saying, "I am optimistic that we're heading in the right direction. I think it's reasonable for the Fed to say, 'okay, but I'm not just going to turn over one good card and say, that's all right, I want to turn over several cards and check we're in more of a trend here.'" On the other hand, Northwestern Mutual Wealth Management chief investment officer Brent Schutte believes the economy is still on track for a recession, stating, "investors are discounting too easy of a process. They think miraculously inflation is going to come down without causing or having the economy slow too much to cause a recession."

Tesla (TSLA) shares are trading higher after CEO Elon Musk said the shareholder vote on his pay package is passing by "wide margins." CFRA Research analyst Garrett Nelson is bullish on Tesla and Musk, explaining, "You look back at his 2018 compensation plan; it was entirely incentive-based. There was no salary, and he's really delivered for shareholders over the last 5 to 6 years. And so I think that's why you've seen, just this week, a number of very large investors come out in favor of this because Elon's incentives are really aligned with the interests of shareholders."

Virgin Galactic (SPCE) shares are falling after announcing plans for a 1-for-20 reverse stock split. On the other hand, Broadcom (AVGO) shares are soaring after topping second quarter earnings expectations and announcing a 10-for-1 stock split. Meanwhile, Bank of America raised its price target on Boeing (BA) from $180 to $200, noting that the company is "too big to fail."

This post was written by Melanie Riehl

Video Transcript

It's not am here in New York City.

I'm Brad Smith alongside Sean Smith and this is Yahoo Finance its flagship show the Morning Brief.

It's a mix a picture here in free market trading.

As investors are just in the latest reading on inflation, producer prices unexpectedly declining in the month of May going to 10th of a percent from the prior month.

So get right to the three things that you need to know this Thursday morning.

As we you for the trading day, we've got Yahoo Finance, Alex Keenan and Madison Mills have more.

Thank you, Shana stock features in the green on the back of another key inflation print the producer price index falling 2/10 of a percent versus a rise of 1/10 of a percent that was expected.

Now this comes after the Federal Reserve held interest rates at a 23 year high on Wednesday.

That chair Jay Powell saying the timing of the rate cuts remains uncertain as the central bank scaled back its estimate of the cut this year to one from three previously.

Plus we're on Tesla watch.

Tesla shareholders will finish voting on CEO Elon Musk Multi Billion dollar compensation package and a move of the company to Texas.

But Musk is saying in a tweet this morning last night rather that the votes cast so far a favor both proposals by quote wide margins.

Tesla shares were watching today and Broadcom passing the A I Euphoria test shares of the company sing after the chip supplier for apple and other tech Titans topped analyst second quarter expectations that's been driven by robust demand for its A I products.

Broadcom is on track for its biggest gains in four years today.

Tesla share is moving higher this morning after Ceo Elon Musk says he's prepared for victory in his pay package battle Musk taking to X posting quote, both Tesla shareholder resolutions are currently passing by wide margins.

Lexus Kan Yahoo Finance Zone joins us with the latest here there.

We're taking a look at the expo here, Alexis, what could this all mean here?

Yeah.

So Musk putting this out there for the public to see uh saying that he's, it looks like he's expecting both of these measures to pass so not normal by any standard, not by any standards.

No.

And this was late last night.

Both of the move to Texas and his pay package and you had then Dan Ives at Wedbush saying that a yes on pay would remove what he thinks would be a 20 to 25% overhang that's been on the stock ever since this court decision came down in validating the package.

You've got major shareholders putting in their votes, you have some reports out there that Blackrock and Vanguard have expressed their blessings to this package.

So that's why you would see a big spike in those tweets that Musk put out.

There is a lot of times these major shareholders, they wait to the last minute to cast their votes and then boom, we see some action there at the tail end.

So you have our investment, you have Baron capital frs all saying they are for this package against you have the pension plans, Calpers Kors and then that report from New York times' deal book saying that Vanguard and Blackrock were voted yes uh Vanguard for its part 7.32% shareholder, Blackrock at about 6% among the major shareholder in Tesla, but he doesn't get a chance to vote on his own pay package here at around 13%.

So that is out of the mix.

Now you have the stock really as you saw there kind of suffering ever since this deal.

And the version of this is that if it's a yes that you will see a pop in the stock price.

So that's why you're seeing and expecting some action here.

Uh question though.

What will the Delaware Court do regardless of what the vote is?

If it's a yes, it doesn't mean this is a done deal.

This whole thing could end up at the Delaware Supreme Court.

If the judge does not think that Tesla in its process and how it put this vote back out to shareholders was insufficient in some way.

All right, we're gonna get a final result on that vote from Tesla's annual shareholder meeting this afternoon, Alexis breaking this down for us.

And as we're waiting for that final result this afternoon from the Tesla shareholder vote, our next guest is feeling bullish ahead of the final vote, raising his price target from $200 to $230 and reiterating is by rating Garrett Nelson CFR, a research analyst joins us now to discuss.

All right, Garrett take us into your thesis here.

I mean, we've seen the shares drop precipitously here since the original pay package was voided.

So what makes this that much different now that we have this potential shareholder vote and do the fundamentals for the company change?

Sure.

Thanks for having me.

Well, this really would remove a major uh overhang on the stock that's been lingering for for weeks and months now.

Um ever since the Delaware court ruling came out.

So, um in our view, it's not surprising that the shares are currently trading about 7% higher uh in the pre market.

Um You know, in a worst case scenario, it, you know, it, if uh if this was not approved, if his uh 2018 compensation plan was not reapproved by shareholders, um You know, given the the diversity of his business interests, especially at this point now that he owns X um and is re-involved with A I with the Xa I, again, uh we could, could have seen a scenario where he could potentially have walked away from the company.

So, um so investors are really sending a message that they want the company to stay.

The course.

Would he really have walked away from the company?

We, we think it's a possibility when you consider that he uh you know, the six businesses that he's involved with, um you know, not, not all at once, but perhaps over time uh selling his remaining shares and, and, and moving on.

Um but, you know, when you look back at his 2018 compensation plan, it was entirely incentive based.

Um there was no salary um and he's really delivered for shareholders over the last 5 to 6 years.

And so I think that's why you've seen uh just this week, a number of very large investors um come out in favor of, of this because Eon's incentives are really aligned with the interests of shareholders.

And in fact, he has delivered on those very lofty thresholds from the compensation plan.

And so, um you know, I think what you're seeing is the overwhelming support of retail investors for this.

And really, he just needed a fraction of support from institutional investors, which it appears that he has, he has gotten garret, there has been no concerns out there from shareholders really over the last several months, last couple of years, just about these distractions that we have heard when it comes to Musk, when it comes to his other business interests, are any of those concerns warranted, do you think o of course, uh, you know, you consider someone who owns a half dozen very large businesses, um, such as Elon.

But, you know, in our view, if anyone is capable of, of that juggling act, it's him and he's shown that over time, um You look at the total returns uh since the uh compensation plan was approved, the stock is up more than 1000%.

And so, uh I think there's a recognition appreciation especially on behalf of retail investors that he has helped deliver uh for them.

And so now it's time for them to uh deliver for him in that, in that compensation plan that was agreed upon uh six years ago.

Ok. And so as we're looking at all of the different undulations for Tesla share price and the activity, I mean, this environment that Tesla is in is far different than years past and in the returns that investor shareholders have seen before, especially with the demand generation cycle that all of the automakers are trying to navigate through right now.

So what does this next leg for growth potentially if Elon Musk sticks around?

If the shareholder vote goes his way, what does that look like?

Sure, I think the past five or six years have been about volume growth.

Um And the next five or six years are really going to be more about A I and uh you on delivering on this promise of fully autonomous driving in our view, Tesla is leading the autonomous driving race and, and is going to get there first in terms of fully autonomous driving.

And so, you know, given the heavy investments that they're making in uh in A I. Um and you know, we, we think that, you know, that's gonna really show up, you know, with every subsequent update of their autopilot software, full self driving.

Um you see material improvement in the quality of, of the uh of, of what it's able to do.

And so we think that's really gonna set the stage for the next 5 to 6 years.

It's been more about delivering on that and then actually bringing a Robo taxi to market Gary real quick while we have you, there are headlines crossing this morning just regarding the pricing of model threes in Europe.

And this, of course, being brought up on the heels of the expected tariffs uh that are going to be implemented on cars that are manufactured and produced in China and then brought to the eu what do you think that's ultimately going to do for demand?

And, and how big of a headwind do you potentially see this being here for Tesla, at least for its sales in Europe.

Yeah.

I mean, certainly a headwind.

The good thing about Tesla is they're very much western market based.

Um, of course, they have the plant in Shanghai but, you know, the bulk of their sales are in North America and, and in Europe.

And so, um, you know, they're in a different, uh, uh position than they were a few years ago and that they, they now have a factory uh, there in Europe so they can mitigate the, the impact of those tariffs with their, their factory uh in, in, in Berlin.

So, um, so I think they're in a better position to navigate those tariffs than they were previously.

All right, Garrett Nelson.

Always great to talk to you Cfras research analyst.

Thanks so much for hopping on with us this morning.

Thank you and stay tuned for our special coverage of Tesla's shareholder vote.

That's from 430 to 5:30 p.m. Eastern time today, Julie Hyman and Josh Lipton will be speaking with Ark invest, Ceo Kathy Wood.

You won't want to miss that another big story that we're talking here at Yahoo finance features are mixed here this morning on the back of another key inflation print, we got producer price index out this morning unexpectedly falling about 2/10 of a percent in the month of May.

The reading coming on the heels of yesterday's comments from Fed chair, Jay Powell, where he once again reiterated more data is necessary before feeling comfortable about cutting rates.

Here's what Chair Powell had to say.

We'll have to see where the data light the way you know, we're, we're uh we're at uh the, the economy has, you know, repeatedly surprised forecasters in both directions.

And all right, we wanna bring in Krsna Guha.

He is Evercore I si vice chairman here.

We, we, we need to take a look at what is happening right now and, and some of the comments that we heard from Fed chair Jay Powell, does it make sense in terms of remaining so data dependent and balancing that risk here and potentially going too far?

What, what, what do you think?

Well, of course, you're right.

It's a balancing act for the fed, right?

They don't, don't want to declare victory too soon and cut rates.

They don't want to hang around at 5.5% for too long and find that they end up blowing the soft landing.

So that's been the balancing act for a while.

It's still the balancing act right now.

What we heard from the Fed yesterday was, you know, thumbs up the last inflation print was good but one print not enough.

We need to see a more sustained downshift in inflation over several months to build that confidence that in the balancing of those risks, the time has come to cut rates.

Do you think the fed should be as stringent as it is about getting inflation to 2%.

So I think the truth is that the fed will be fine about taking a couple of years to get all the way down to 2.0 on their preferred measure the cor the P ce deflator.

But what they want to make sure is that they're not getting stuck at three, late last year.

Everything was looking fantastic.

They were teeing up to go in June.

Remember they, they were gonna go at this meeting this week, three cuts this year and then we ran into that unexpectedly hot patch of inflation data.

So they're just trying to check that the basic story is still on track.

We are still heading down towards two.

We don't have to be in a real rush to get to 2.0 but we don't want to get stuck at three.

Are you, are you convinced that we are going ahead on that downward path?

And I guess how bumpy is that ride potentially going well, Bumpy is a loaded word, right?

Uh So I am optimistic that we are on that path.

I think if you look at the labor market at the economy more broadly, I think the economy is broadly back into balance.

We've had a big assist from this massive supply of cheap immigrant workers over the last year, year and a half.

So whatever you think about the larger political and social issues relating to that from a narrow economics perspective, that's more labor supply, helping to meet demand for workers.

I think when you look at the inflation earlier this year, most of it, not all of it, most of it was in backward looking categories.

You know, the the official measure of the housing related cost, the o still hasn't caught up to the step down in private sector, rent, vehicle insurance was running high because it was still catching up with the increase in used car prices beforehand.

And there were various other things that were printing hot but didn't feel like they were really a good guide to where inflation is heading going forward.

So I am optimistic that we're heading in the right direction.

I think it's reasonable for the fed to say, OK, but I'm not just gonna turn over one good card and say that's all right.

Right.

I wanna turn over several cards and check.

We're in more of a trend here.

So I just quickly then what would be, what do you think the Fed needs to see in order to be convinced that it is OK to act.

So it's a holistic view across what's going on in the economy itself.

Economists will use the term real economy, you know, spending employment, those kind of things and what's happening on inflation, inflation is first among equals, they want to see that downshift in inflation.

So let, let's say three, at least maybe four really good months on inflation like the one we just got in May, but they're also paying attention to what's going on in the economy in general.

If the economy is rip roaringly strong, they'll ask for more proof on inflation.

If the economy is showing more signs of weakening, which I think is more of the tone of some of the data recently and some of the market signals, there'll be a little bit more give on the inflation front, the fed in all of the cards that you were mentioning that they turn over and are looking for something very specific.

And that to really show them a trend more broadly that they're looking at.

Is there forward looking data instead of all of this backwards looking data that they should be considering?

So you're 100% correct, that policy has to be forward looking and the type of risk management that the fed needs to conduct has to be forward looking.

It's not enough to say, oh, well, last month, the payrolls were fine.

Well, last month, the spending was fine.

Is there something that issue is where are we going, going forward?

The problem is that in this post pandemic world, it's been very hard to forecast the economy, right?

Stuff has been happening that isn't familiar and we don't have a good sense of how to model this.

So inevitably that makes the fed and other central banks lean a little bit more on the actual data as opposed to forecast.

But I absolutely agree with you.

That policy should be needs to be forward looking.

You can't get trapped in just looking in the room view mirror.

What I think the fed can reasonably say is we want some minimum confirmation in terms of the current run rate of inflation that things are moving back in the right direction.

And then we pivot to that more forward looking view.

What do you think about some of the softness that we're starting to see within the labor market?

When you take a look, kind of over the divergence of what we got with the household survey versus establishment survey, we have that unemployment rate right now right around or at 4% that risk here that, that could start to slide and we could then see further weakness within the labor market.

How are, how likely is that?

And I guess the risk that that then ultimately poses when we're talking about the Fed, maybe needing to see, needing to be a little bit more convinced before they feel comfortable cutting, maybe that's exactly what they need to say.

So the Fed has said that they wanted to see the previously tight labor market ease off a bit.

What we've seen up to this point with unemployment edging up to 4% still looks like the sort of desired easing off of things a bit and not the scary.

Oh my God.

Unemployment is shooting higher type of thing.

But as in all fairness Powell himself acknowledged yesterday.

If you wait until you get that big spike in unemployment, you've screwed up.

Right.

So you can't say well, ok, but you, we're gonna wait until that happens.

No, you need to try and act in a way that prevents that from happening.

Now, payroll survey versus household survey truth is probably something a little bit in between.

But I do think that the payroll survey is probably a better measure of job creation at this point in time.

It generally is.

But also when we have this big influx of immigrant workers, that's probably getting better captured in the corporate payrolls than the household survey.

So the household survey isn't being scaled up in a way that fully captures the amount of new immigrant workers uh that have entered the US economy in the last year or so.

You know, as we have you here, can we compare what the FED is doing versus some of the other central banks around the world?

You're also watching Friday's Bank of Japan Decision here.

Uh And of course, we'd already seen the Bank of Canada, uh perhaps, you know, less significant than the Bank of Japan.

But anyway, we saw them trim rates last week.

So what the FED is navigating through right now within their own policy decisions versus what we're seeing around the world, right?

So I basically put the central banks in, in two buckets, there's Japan and there's everybody else as there has been for a while.

So what Japan is doing?

Remember is Japan is getting, trying to, is working its way out of that multi decade period of very weak inflation or outright deflation.

So for them, the question is, have we seen enough to prepare for our next rate hike?

Right.

They did their first hike out of negative.

You remember a few months back?

I think what they're gonna do and we're going to find out pretty soon is they're going to trim their QE purchases a fraction.

And I think they're going to hint that that next hike is coming potentially as soon as their July meeting, but not later than October.

So in the next few meetings, they're going to be making that next move up on rates in Europe and in Canada, it's more of a situation like the US rates are high because inflation has been high.

When have we seen enough to start bringing rates down?

So the European central banks, possibly the second most important central bank in the world after the Fed.

They of course cut rates for the first time in June.

They're sending us a cautious signal.

They're not pre committing to anything else.

But I think their basic plan is that they would go another two times this year provided that every time they rerun their forecasts and so on, they confirm that inflation is on track per your earlier point about the fed needing to be forward looking.

The ECB is precisely telling us right now that they don't want to be too data point dependent.

They have a forecast that inflation is going to be in their case right back at two next year.

And so they want to start walking those rates back this year carefully.

All right, Christa Guha, always great to have you.

Thanks so much for joining us here in the studio.

We hope to have you back again soon.

And of course, vice chairman, thanks so much.

Well, Broadcom shares surging after posting a beat in the second quarter, also announcing a 10 for one stock split which is set to take effect July 15.

Now, the company is saying it's A I products contributing to over $3 billion in sales during the quarter.

We're seeing the excitement play out here in real time and pre market action.

You've got the stock up just about 14%.

And right when you take a look at these numbers, very impressive growth here from Broadcom, a number of analysts, we will be speaking with one later on in the show raising price targets as a result of this, some of that momentum that they're seeing within their A I business specifically about the A I revenue was 3.1 billion, significantly exceeding many of those forecasts.

There are from the stream.

Yeah, some numbers on this quarter Q two revenue of $3.8 billion that grew 44% year over year, 53% of semiconductor revenue is what that represented.

And they said that this was driven by strong demand from hyper scalar for both A I networking and custom accelerators here.

So uh also interesting to note within this and they talked about this on the earnings call that A I data center clusters continue to deploy here.

And the revenue mix has been shifting towards an increasing proportion of networking here.

And so doubling the number of switches that they sold year over year, particularly by what they call Tomahawk five and Jericho three.

We'll dive into that further.

Perhaps we need a little like terminology breakdown for some of these companies.

As we hear more about the chips and the hyper scalar and the switches, yada yada yada, but successful deployment of those and some of their partners Dell Juniper Super Micro, they're citing within this report talked about them.

Well, on the call to shares up just about 14%.

Keep right here on Yahoo finance.

We got much more coming up shares of Virgin Galactic thinking in the free market.

They actually announced a reverse stock split.

You're looking at losses of just about 12%.

We've got that and some other top trending take when we come back, Virgin Galactic shares sinking after announcing a reverse stock split, the space tourism company saying its board has approved a reverse stock split of one for 20 that's effective at 5 p.m. there.

You're taking a look at shares, they are down right now by about 12%.

Uh We should note that this is probably happening in order to make sure that they can keep their stock price above a certain threshold that's needed.

Uh in order to gets a notice, a warning from the exchange that you trade on as well.

Yeah, they're doing this to uh in the hopes of being able to remain listed on the New York Stock Exchange.

When you take a look at some of that historical data here, stocks typically maintaining that minimum average closing price of at least a dollar a share over 30 days to avoid being delisted and take a look at the stock reaction this morning.

We're off just around 10% I believe just off a 12% yesterday, we actually saw shares sinking on the news.

They were off as much as just over 30% at the lows of the day before pairing those declines.

So again, lots of uncertainty about what exactly it looks like for the future of this company.

The ability here to navigate what it is expected to be a expensive couple of quarters to say the least as they move forward.

And then also just ultimately how this is going to register with investors as well because I think there's lots of questions just about the timeline for some of their lofty and how realistic those are at this point.

Yeah.

You think of some of the launches, the flights, they just recently completed that commercial flight of the unity spacecraft that was uh over the past few days here.

And so you talked about how expensive it is to send things into space.

And of course, the goal is you bring some of these costs down if you do it frequently enough and you have reusable rockets.

And so all of these things considered virgin Galactic SpaceX Blue origin, all of these initiatives really targeted at making sure that there is more sustainability that you're able to bring the costs down as well.

But at least in the early innings of this, it's still going to continue to remain expensive right now.

And that's what investors have really had to wrap their heads around with regard to a name like Virgin Galactic here.

Um And whether or not we're going to see uh a large amount of, you know, con continued spend have to move forward at this juncture and how that would cut into.

Uh I mean, it's gonna cut into margins there, there's no other way to slice it.

Yeah.

And this is the size that struggling on for some time this year, it's off over 60%.

And then you compare that to the rise that we've seen the S and P of just about 13%.

So clearly a real under performer here.

Let's take a look at Boeing.

That's another that's catching our attention here.

Getting a bullish call from Bank of America.

They raised their price target on the stock from 180 to 200 bucks a share.

The analyst behind that call saying that Boeing is too big to fail, but turning around operations is going to take some time maintaining that neutral rating that he has on the stock when it comes to some of those other tidbits here within this call here from Bank of America saying that Boeing remains uniquely positioned to the robust air traffic demand environment with the moat that the duopoly creates.

Although again, reiterating the fact that some of those turnaround operations that's going to take some time to play out and there are uncertainties clearly that remain in the future.

So because of all that seeing raising his price target given where Boeing is trading today.

But still though staying on the sidelines when it comes to that rating of maintaining uh neutral rating, neutral stance on.

Yeah.

And we've seen in the past where especially for the large plane manufacturers, where that duopoly that's in the system for those orders where it's largely either Boeing or Airbus at the end of the day and where that can be a backstop for some of the share price activity too.

And the slippage that we've seen in the past, even when Boeing has a a tumultuous start to the year here.

And so as investors are trying to figure out trying to best position themselves as to where they can see some type of potential bounce back for Boeing.

I mean, we were just speaking with the CEO of the company earlier this week and they had said previously prior to this year and prior to some of the manufacturing shortcomings for the large plane order, uh just broader landscape, they were able to receive or bank on receiving a plane in about 18 months.

That's drastically moved out and it's changing the amount of fleet that companies, either a small as a company that has two aircrafts right now or some of the other airline operators that have hundreds of different uh aircraft that they operate are actually able to insert into their flight path, their routes and uh that impacting some financials and leading them to adjust as we had seen earlier this year as well.

All right, let's take a look at Dave and Buster's getting a read on the consumer here plunging after reporting that revenue fell 1.5% in the first quarter.

Com sales also falling during its most recent quarter down 5.6% from a year ago.

That was below the street's expectations.

A bigger than expected fall.

You're looking at shares drop of just around 9.5% when it comes to some of the issues facing Dave and Buster's right now.

They called out that uncertain economic environment.

They also said that they logged more quote incremental labor and marketing costs.

And they also mentioned the unsuccessful marketing campaign test.

Here we talk about some more uh higher price when it comes to new menus, the new service model, new technology here weighing on some of those, only one.

Comment here.

If the Celtics sweep the series, that's not good for Dave and Busters, you rely on them games.

All right, everybody.

You're taking a look at the NASDAQ and at the NYSC.

Great group of folks ringing the opening bell.

You've got Sila, Sila sila.

Well, we'll workshop it, realty, trust ringing the opening bell at the NYSC and at the NASDAQ, you've got pack, uh, professional athletes, community, pro athlete community with the fun Fetty out there.

I'm trying to see if I can recognize anybody in there.

I'm squinting.

So maybe that's on Chip Paws.

Wow, Chip Paws.

Formerly.

Oh my gosh.

Why is it escaping me?

Um, I'm gonna, I'm gonna research that.

Uh, that name sounds really familiar though.

Um, former CEO of a major NASDAQ company back in the day.

All right.

So anyway, that's a check of the markets here.

Uh Let's take a look at the major a just to see where we begin things on the day.

The dow starts the day in negative territory that's down by about 3/10 of a percent.

The S and P 500 though in the NASDAQ, they're holding on to gains to begin today's trading activity.

When you take a look at the reaction that we're seeing following that PP I print uh coming in with the biggest decline that we've seen since October better than what the street had been looking for.

We're seeing that play out in the equity markets here in the reaction right at the open.

But also some of that movement that we're seeing within the bond market to you was the name of the company Chips, former CEO there.

Yep.

Or he might be the current CEO as well.

War knowledge to everyone.

All of our viewers, hey, let's get over to Jared Booker standing by with a closer look at some of that movement that we're seeing here at the open Jared.

Thank you, Shana.

Well, let's get the Wi Fi Interactive cranked up behind me.

We can see the Dow just down about 35 basis points or 100 39 points.

But I want to check in on the four day price action.

We've seen the S and P 500 NASDAQ come off record highs and you can see for the dow it's been choppy and we're actually half a percent down for the week.

Different story.

When you take a look at the NASDAQ composite up 3.4% S and P 500 also in the green and real quickly the Russell 2000 as well.

So looking pretty good on that front.

And then if you take a look at the bond market, we have yields continuing to drop.

That has been a tailwind for equities.

And if we take a look at the uh at the sector action right now, we see Tech XL K that is up another 1%.

And guess why we're going to move over to the NASDAQ 100 where we can see our heat map screen and what jumps out more bullish action in some of these mega caps, not all of them but check out Apple.

Um Let's see what it's done over the last four days, what it's done this week up at 9%.

That is a huge move for Apple, which recently only recently broke out of a long term base.

This is a three year, this is a three year chart right here.

And if we take a look at Microsoft, it's down just fractionally today.

But uh let me just show you, it is also breaking out not quite as long a base, but there we have it, you can see that break out right there.

And then I want to take a look at our leaders and we can see actually Chinese stocks in the forefront um and also chip stocks are leading.

So let me end on this.

We're going to take a look at our semiconductors, look at this Broadcom up 13% in addition to nvidia's 3% that should be good for a record high.

Uh suffice to say that we've seen a lot of bullish action in some of these bigger chip companies recently and we're seeing that continue today.

All right, Jared, thanks so much.

All share soaring here at the open on track for the biggest gain really that we've seen in just about four years that these uh current gains hold.

All right.

Well, much more of Yahoo finance here on the other side of the break, we're gonna break down the latest read here on inflation.

What exactly that means for markets, how the fed is looking at these latest prints?

We've got that for you from stocks are mixed here to start today's trading session.

You got the dow still in negative territory.

Treasury yields are falling.

The moves coming on the heels of the producer price index that was released ahead of the bell unexpectedly dropping in the month of May the latest here and maybe some evidence that inflation is continuing to cool.

We want to bring in Brent Shy.

He is Northwestern Mutual Management Wealth Management's a Chief Investment officer, but let's talk about uh this data that we're getting out of here this morning.

What it ultimately, this means here for inequities.

We've seen almost this risk on rally here over the last couple of prints as the market searches for any sort of good news within these reports.

I'm curious what you think, what we heard from Powell yesterday, the likely timing here of the Fed.

Ultimately, what that means for the equity markets here in the short term.

Yeah.

Well, I think investors are discounting too easy of a process.

They think miraculously, inflation is going to come down without causing or having the economy slow too much to cause a recession.

They think the fed is going to be able to miraculously cut rates and keep a slowing economy from moving towards a recession, which I think there was some data on the other side this morning, jobless claims spiked to 242,000 continuing claims are higher.

And so to me, at least history would show that it's not usually an easy process.

The FED has trouble slowing inflation without causing a recession.

And to me that is still where we're looking at is right now, the good news on the inflation side, does it mean the economy is slowing or not?

Which I still think it means the economy is slowing and typically it takes a while for fed rate cuts to actually work their way in the system just like it does fed rate hikes which you're seeing right now.

Do you think then we're still heading towards a recession?

Brent?

I, I do.

I mean, I still think it's the most likely outcome, certainly it's been stretched out, but there are parts of the economy that are wobbling already.

The low end consumer is hurting from credit card and auto loan debts.

To me, the big question has always been, can rates come down quick enough to kind of pull back the impact of rate hikes which are still working their way through the economy.

If you think about the commercial real estate market, more, more uh that we go longer with rates higher, more and more properties are selling for large discounts from where they were, the longer rates remain higher.

Consumers continue to weaken under the impact of credit card and auto loan rates that are higher.

And so I I do still think you're likely to see a recession.

Um It never has happened at least in the past uh without that being the case, this time could be different, but I don't think so.

So Brendan, what, what are you advising investors to do right now is the time to say defensive.

Where are you seeing those opportunities?

Yeah, this is where I think you all say the market is moving higher.

But do you all realize that uh over the past three months this quarter while the S and P is up, every other part of the market is down and the S and P has been driven by the mag seven which were up 17% while the rest of the S and P four or 93 names are actually down 2%.

And so it's a very bifurcated economy.

It's a bifurcated market.

To me, parts of the market represent value value doesn't be, be a very good timing tool.

Um It's not an instant gratification trade, but I, I do think fixed income provides value even though I think um you might have to have higher rates to get that recession.

I think if you look at the 10 year treasury, for example, I don't think people realize that if it rises 100 basis points uh in, in a yield, you only lose 2% over the next year.

If it falls 100 basis points, which I think is more likely through a recession, you get 12% total return small midcap stocks trade at remarkable discounts to the S and P 500 which trades at 24 times historical earning or 12 months earnings and 22 times 4, 12 month earnings, which are expensive.

And so I think there's opportunities for investors.

Unfortunately, they're not places that people are looking right now.

And, and so as we're thinking about portfolio pivots, what, what, what is the playbook that investors should be enacting if they haven't already in, in line with what you were just mentioning and some of the opportunities that are out there and, and perhaps the areas that they should be rotating out of that have already seen the run up or the gains.

This is the hardest thing to do because it can last for some time where you have a certain part of the market that's really narrow, driving the gains forward and people want to pile into that.

And if you look, historically, every economic cycle has had different leadership.

And so an economic cycle from recess recession start the start of the next recession, at least going back to the 19 eighties every economic cycle, different leaders and the leaders of the past economic cycle typically become the laggards.

Think about Japan in the eighties took 34 years to make new highs.

Think about tech back in 2000, it took 17 years for them to make new highs.

Think about China in seven.

It's still half of what it was.

And so to me, the biggest risk that I think is that investors get um attempted to concentrate in a particular part of the market.

I think valuation matters, not necessarily in the near term but in the immediate term.

Uh and I think diversification still works despite the narrative that I keep seeing more and more to the contrary from news outlets and articles that are out there, Brent Suter, who is the Northwestern Mutual Wealth Management Chief Investment Officer Brent.

Great to see you.

Thanks so much for taking the time here today just after the opening bell.

Thanks.

Certainly everyone.

We've got all your markets action ahead.

Stay tuned.

You're watching the Morning Brief Broadcom shares surging after posting a beat in the second quarter, also announcing a 10 for one stocks, but we're looking at gains of just around 13.5%.

The results driven by strength in VM Ware.

Also the company's A I products which contributed to over $3 billion in sales during the quarter.

Our next guest has seen these results as a big win here for investors.

Joining us.

Now we want to bring in Stacy Roskin.

He is the Bernstein managing director and senior analyst Stacy.

It's great to see you here.

So we talked about this blowout quarter.

I think it's fair to say here from Broadcom.

I know you just raised your price target here on the stock.

How much more bullish are you on this name?

Following these numbers that we just got here from the company?

I like this stock.

I like Broadcom a lot.

Um You know, there's a few things going on.

The core business is not great.

It's cyclically weak.

They're not the only ones right now, but they probably reset it at this point enough.

It actually sets the core business up.

I see for growth as we get in the next year.

And in the meantime, they have this, what I, I always refer to as the second best A I story in the space.

I mean, NVIDIA is clearly number one, broad company is, is actually number two.

And, and they make um the, the custom chips that all the hypersal are developing for themselves and they do A I networking.

And in fact, there, there's only two companies where the A I growth is enough to cover up anything else.

It's NVIDIA and Broadcom, that's it.

And so even though their core business has been weak.

Their A I business has been more than strong enough to sort of bridge that gap.

They took that A I number um, up, up like this yet last night, I think the guidance for A I for them, this, this year is, is quite conservative.

They're suggesting $11 billion which would actually suggest about, you know, low to mid single digit growth, half over half and actually a run rate that would be below where they were running in Q two.

That's, that's in my opinion, unlikely to happen.

They've got upside from VM Ware, they're executing on that acquisition really, really well.

And I suspect there's upside as we get into, into next year is that, is that business kind of grows in scales.

And I mean, they've got the absolute best financial performance of free cash flow margins, everything else in the space by a, by a country mile.

And even though the valuation is elevated versus its own history, it's in a really sharp discount.

So to the overall space and it's a different company that to be its half software almost, it's again, you get the, the, the great A I story.

I still think the valuation is attractive too.

I really like it.

Stacy.

I wanna follow up on that point that you just made there about their guidance, maybe given the growth that they've seen within A I, this could prove to be a conservative guide from the earnings transcript call that also stuck out to me because you asked management point blank.

That exact thing.

I'm curious from your perspective, your models, what do you think that potential growth rate could look like?

Well, I mean, it grew something like, I don't know what it was 200% or something like this, this, this last quarter.

I mean, it, it's a lot, I mean, um, now what they were suggesting on, on the call was it, I don't think they're seeing it and they were just noting that for these, um, uh, computer offload chips that they make for the likes of Google and Meta, they only have a few customers.

So there's always the potential for some lumpiness and I, I think that's what they were calling up but I didn't get the impression they were actually seeing anything.

I do feel like they're just, again, it's a, it's a smart management team.

They're trying to keep expectations in check, which is not a bad thing.

Um, but, but again, I mean, they, they were, they've taken this up, I think it was 5 billion to 7 billion to 10 billion and now it's 11 billion.

I wouldn't, I wouldn't be surprised to see that number exceed the, the, the current diet guidance as we go through the rest of the year.

I wouldn't be surprised, Stacey, what type of market share profile do you believe that they would need to achieve in, in order to hit some of your targets uh in, in which business in, I mean, well, especially as we're thinking about the, the semiconductor landscape and the amount of networking that they're talking about on this call.

Uh I'm primarily thinking about that business where they're seeing the most growth.

But uh the A I accelerators potentially is where I was considering, they've already got pretty dominant share stuff.

You go through the businesses.

So their wireless business, it, it's, it's mostly Apple and for the stuff that they sell into Apple, they're mostly sole sourced.

It's RF and in connectivity.

Um Same thing in like storage, their, their market share is high in, in broadband.

It's, it's cable modems and set up their shares very high in networking, just sort of traditional networking.

It's a switching and routing.

It's mostly them in Marvell, they're the 800 gorilla on the A I A six side.

It's the same thing.

They, they, their Broadcom is by far the largest here.

Again, you have Marvel, you have a few smaller like Taiwanese guys, but Broadcom is already sort of like the, the, the big player then to be fair.

These are the kind of businesses that they focus on them.

Uh Hock 10, the CEO always talks about want to invest in franchises like what is it?

What does he mean to franchise dominant market share, good market structures, long revenue, visibility, um markets where customers are willing to pay for innovation So he has pricing power as long as he's, as he's investing in, in, in the technology road ups, these are the kind of business this is that he looks at all of their semiconductor um segments sort of fall into those kinds of buckets.

So their, their share is pretty good in all of these Stacy.

What do you think?

This also just tells us about some of the excitement more broadly speaking within the sector.

When you take a look at the reaction that we're almost seeing here across the board on the heels of this print from Broadcom, outside of Bron com, obviously outside of nvidia.

What else?

What are some of the other names that you still view as those top plays here within A I?

Yeah, you bet.

And so by the way, Broad comes up today, I think because again, they took up the A I numbers, I think the A I guy is conservative.

They, they also have this 10 for one stocks, but which I, I'm always a little hesitant, you know, I, I feel like fundamentally it shouldn't drive anything but in practice clearly that that's probably helping some today.

Um other names that I like on the A I side, I mean, so I mean, our top picks right now are Broadcom, nvidia and, and actually Qualcomm, um Qualcomm has the benefit of, you know, their, their, their core market, smartphones have kind of hit bottom which is good and I'm actually getting more excited about the A I opportunity, the edge for them, not even so much thinking about like upgrade cycles.

So that could happen.

It's more for them.

Even just content, content is enough, I think um as A I functionality rolls out and they've got some option value there.

They're trying to get into the PC market now of things.

Um But I'm actually liking Qualcomm as a broader A I play like, um, at, at, at the, at the, at the edge rather than just in the cloud.

Certainly.

And there we're taking a look at some of the stock moves here on the day.

What do you need to hear from management on a continued basis to ensure that they're marching towards e exactly how you and, and some of your peers are growing even more optimistic on them right now.

Yeah, I'm, I'm in luck, keep, keep going to keep doing what you're doing.

Right.

I mean, that's, uh, if I can keep hearing what, what the kind of stuff that we've been hearing over the last several quarters, I mean, that, that'll be more than enough.

All right, Stacey Razon, who is the Bernstein managing director and senior analyst.

Thanks so much for taking the time.

Stacy.

You bet a bearish call on crude oil next year.

How low can commodity get?

We discuss one bank's base case right after the break.

Stick with that.

A bearish call on crude from Citibank the bank forecasting rent will hit $60 per barrel in 2025 and crude inventories surging by 1.4 million barrels per day next year.

This after OPEC members announced plans to bring 2.5 million barrels per day back to the market in 2025.

The banks citing slowing demand, increasing energy efficiency and more TV versus oil and gasoline usage as headwinds for the commodity here.

You know, I was interested in seeing whether or not we would have gotten some type of A I data center mention as well within here, considering the amount of times we're increasingly talking about utilities being necessary to power even more of these data centers that are going to go from potentially 60,000 chips as we've seen in some cases all the way up to a million and chips, that means more demand potentially for oil as well.

Yes, I think there's lots of questions about what exactly that is going to look like when we talk about the biggest drivers here, I think this just simply comes down to supply versus demand and the supply factors, the updates that we've gotten here from OPEC, especially when you take into account by 2025 we are expected to have a surplus here in the global market and pairing that with the projections of the forecast that we got from IE A yesterday cities actually recommending that oil producers start to hedge against any of these potential price drops.

And that investors view any short term price ri rise in in the short term price there as an opportunity to maybe take some of those bearish conditions.

So they're actually expecting a pretty substantial drop from where we are trading today, right around 78 bucks for crude.

They're expecting that to fall all the way to 60.

So again, when you take into account some of the some of the prediction there, the fact that demand clearly when you put it up against supply, the surplus of supply is really going to be that clear driver here for prices of Brent crude against flipping at least city views all the way down to 60 bucks.

And I think that that's a real possibility and there's also a geopolitical implication within this as well.

I mean, 2025 could hold a vastly different geopolitical landscape than we have right now, especially considering the fact that more than half of the world is expected to participate in uh global elections this year.

And so as that takes hold and as we get even more of those results, it's going to come back to how different countries are viewing their role in energy production and in oil production as well.

So it's gonna be also that factor layered into us actually getting to this prediction that city has laid out here today.

All right.

Well, keep it right here on Yahoo finance.

We got much more coming up, the fed signaling one cut this year, bond investors still pricing in two.

That's according to latest that out from Bloomberg, we are going to discuss what the feds pass forward means here for the market.

Plus T could soon be incorporated in Texas according to, you know, must bring and dive into what that change could be here for the company.

Ultimately, what the votes today means for investors.

We got all that for you next on catalyst.