Nvidia craze, Target vs. Walmart, Pixar layoffs: Morning Brief

Analysts are eagerly awaiting Nvidia's (NVDA) first quarter earnings and speculating about the broader market's reaction. Target (TGT) missed Wall Street expectations in its first quarter results, with a drop in comparable sales year over year. Meanwhile, Walmart (WMT) picked up in both comparable sales and US foot traffic year over year. Morning Brief hosts Brad Smith and Seana Smith discuss what these retail giants' results reveal about the state of the consumer. Disney (DIS) continues to look for ways to cut costs, laying off 14% of Pixar staff.

For more expert insight and the latest market action, click here

Video Transcript

9 a.m. here in New York City.

I'm Sean Smith alongside Brad Smith and this is Yahoo Finances flagship show the morning brief that teachers are falling just a bit this morning as investors await the release of the video earnings report.

It's a big test for the market and we will see whether or not the results live up to the high P FS and investors are still betting on great cuts by cautious commentary from policymakers.

We'll see if the fed carries a more hawkish tone as the meeting minutes from the FOM CS May meeting.

They're set to be released at 2 p.m. Eastern time today.

Let's get right to it with the three things that you need to know this Wednesday morning.

Your road map for the trading day.

Yahoo finance is Jared B. Brian Sazi and Jennifer Sber have more.

Teachers mixed this morning ahead of the biggest earnings report of the season.

In video.

The A I chip darling is set to report its first quarter earnings after the bill today offering the biggest test for Wall Street's rally.

Wall Street is expecting in video to report revenue and profits that rose more than 200% and 400% for the year prior.

As the company experiences a surge in demand for its chips amid the A I boom.

All right, inflation battered households are saying no to putting extra stuff in there already.

Big shopping baskets.

Shares of target are tanking after earnings miss estimates on the back of more cautious us, shoppers comparable sales dropped 3.7% of the fourth straight quarter of decline for this key metric.

The company is now warning that the thriftier consumer vibe may continue throughout the summer.

And Cleveland that President Lore a master and Boston, that President Susan Collins both said Tuesday night, they need to see more evidence.

Inflation is cooling before lowering rates that J PA said the f needs to see more than a quarter's worth of good inflation data before cutting rates will get minutes from the Feds policy meeting this afternoon at 2 p.m. Eastern to see whether officials still sounding a hawkish tone happy hump day.

Our top story today, the headliner of this earnings season set to report after the closing Bell NVIDIA taking center stage and expectations on Wall Street sky high folks.

This is a stock that's up over 200% over the past 52 weeks there.

You're taking a look at that one year move.

So let's dig into why this matters so much here for the market.

A lot of it has to do with simply just the size of NVIDIA, when you take a look at the market cap just around 2.3 trillion.

So what exactly does that mean here for that size influence?

It's waiting is more than 4 5% excuse me, of the S and P 500 just around 10% of the NASDAQ 100.

These are the latest calculations here compiled by our very own JB L. And then also when you take a look at the Vanex semiconductor ETF the waiting there just around 20%.

And it is so important to the overall story for earnings, especially what we are seeing this season.

Now, we've talked about technology, those mega cat names really carrying some of that growth that we have seen so far this earnings season.

Let's take a look what those expectations are because earnings growth with NVIDIA, that would be right around 23.5% nearly 24%.

Now compare that to the earnings growth that we would see without NVIDIA and that would be just under 11% here.

So really just talking about the weight of NVIDIA right now and the massive influence it has here, Brad on the broader market.

Yeah, I was looking at that stock price, as many of our viewers were as well as we had that blown up on the screen $953 right now per share for NVIDIA.

And so people may naturally ask themselves, is this company too expensive.

And we were discussing that very matter actually with David Wagner from Actis on wealth a few days ago.

And one of the huge things that he was mentioning is the share is now trading at about 37 times forward pe which is actually the cheapest that they've been since the crypto blow up at the end of 2018.

He says on that basis and are now even at a discount too, as you were mentioning the index.

Well, the Philadelphia Semiconductor Index, the SOX index, it's even trading at a discount to that and that hasn't been managed that feat since 2014.

So all that considered it's really gonna come to where this forward and demand growth continues to get a lot of investors to see that realization of some of the new forward pe that has been on the move there there.

You're seeing it in about a little over 38 as of this morning here.

So ultimately, that's gonna be one of the things I'm keeping a close tab on here.

I think the options A I um market here as well.

The options A I read on this was expecting an implied volatility or move of 9% after this earnings report as well.

We will see where I guess in what direction the stock could potentially swing here.

And then of course, the broader market implications.

Let's talk a little bit more about that because it's not just Invidia as to why this report matters.

Whatever the company ends up saying about A I chip demand could matter for a lot more than just the tech sector.

Let's bring in Yahoo Finance's Josh Schafer, he's here to explain.

And Josh, you've been looking at obviously the outsized influence that NVIDIA could have on a number of sectors including energy and utilities.

Yeah, Shana.

So we've been talking about this NVIDIA story really for a year now, going back to last May is when we sort of had that blowout earnings report.

And from there, we kind of looked at, OK, what are the other chip plays in A I?

Right?

Where do we sort of go from there?

And you get to a name like maybe a MD and then we get to kind of the hypercars in A I, right?

The companies we talk about a lot meta alphabet, Amazon Microsoft.

And then from there, we've spread all the way to what's on your screen now, which is energy.

When you take a look at the amount of the in the energy sector mentioning A I, it went from 19% last quarter, up to almost 67% in the most recent quarter.

You've seen a rally in the energy sector really.

For the large part of this year, you've seen a rally in the utility sector for a large part of this year and most people are not talking about either of those sectors right now.

Without mentioning A I.

And so I think it's going to be interesting when we watch sort of the market action tomorrow and moving forward, you know, Jensen Wong talks a lot about demand for A I and demand for A I chips.

That's a large part of this call.

It's not just about the numbers.

We like to talk about the numbers and NVIDIA stock itself, but they have the best read on the industry and how much people are gonna be looking for these chips.

And then the chips, of course, when we talk about energy and utilities, it's the power that it takes to utilize these chips and it takes a lot more power than a normal chip.

And so that's where the energy utilities play has come in.

And it will be interesting to me to see, do we see any of those stocks start to trade with the A I demand story at all because it's certainly become a part of the narrative there.

Well, the other question too is when does it become tough to beat consistently on some of the comps that NVIDIA is going to have to face because of its own success as well?

And that's one of the other kind of frames of mind we can't state whether or not an air pocket will not happen or whether it will happen.

But ultimately, the timing of that is something investors have to remember.

A absolutely Brad and that really probably starts next quarter.

Right.

What you're gonna get a look into tonight with the guidance for, I should say the current quarter.

Um, so this quarter, NVIDIA, NVIDIA is still expecting 400% earnings growth.

I don't think we're gonna call that tough comps, right, that they're easily beating that when you look forward to the current quarter, looking at more like 100% growth.

And so it's gonna start slimming down and how do people sort of accept that or does it also not start slimming down?

You know, Jose, I'm curious in the conversations that you've been having with these strategists, how much from your sense is riding on this report just in terms of the overall health of the market and some of that broader participation because that really has been the narrative that the story like you said here, just even the A I story moving beyond just these mega cat names are starting to see more participation.

So how much is it a make or break report do you think for the market?

No.

Yeah, like we, we wanna make it like, yes, it matters a lot.

Of course, it matters a lot, right?

Because as you guys just pointed out, even simply the weighting of NVIDIA and the S and P 500 could bring the index down tomorrow to some extent, right?

Like of course, that is kind of what we're talking, talking about here.

But the overall rally at this point.

We're getting pretty broad, right.

We're getting pretty broad in this rally and there are a lot of things working right now.

So I don't think an idiosyncratic story for the company is necessarily something that could totally bring down the rally because I think it always depends on what's happening with the company.

Right.

They have a massive amount of demand right now.

If they're not able to meet all of that demand at some point, it becomes in some ways maybe reasonable because how are you gonna be able to create all of these chips and ship all of these chips are also coming out with a new chip?

And that's creating sort of its own interesting narrative there and it's sort of a company specific thing, right?

And I think that doesn't necessarily challenge the whole rally.

This rally is no longer about people just pouring into NVIDIA and that's sending the market higher.

Now, I do think if you get to a point where they were to warn about actual slowing demand or something like that, then yes, maybe you're starting to take a hit to the A I narrative.

And OK, is it as big as we thought that's a larger question?

But I don't think a lot of people anticipate that to be the narrative tonight.

All right, Josh, we're gonna continue to watch NVIDIA as we get closer to this report later on after the close today here, we got a lot of time between now and then and everyone after the bell today in an exclusive interview, Yahoo Finance speaking to NVIDIA Ceo Jensen Wong, you could find that interview at Yahoo finance.com or watch it tomorrow on the morning brief.

You don't want to miss that switching gears here.

Let's talk about the Bulls Eye brand.

If you will target shares, they are getting hammered after the company's first quarter earnings report missed the Bull's Eye by a wide mark.

The retailer chairman and Ceo Brian Cornell saying on a call with reporters that inflation is putting a quote strain on the consumer wallet.

Yahoo Finance's executive editor, Brian Sazi was on that call and has the details.

All right, Brian, what do we learn?

I wish it wasn't on the call guys because it was just wasn't good.

Um But I think it summarized this quarter really in one word and, and just to make it very simple to the average investor out there, uh it stunk uh really through and through the sales were down uh down about uh 3.7% for Target Walmart sales up 3.8% in the United States.

I mean, the disparity between these two companies right now is simply striking number two, you know, target has really uh been focusing over the past year on cutting expenses.

So theoretically, you would think you would see profit margins going up, didn't really happen.

I didn't see any mind blowing profit margins from this company go further down the income statement.

You'll see that customer traffic decline, Walmart traffic increased average transaction for target down company.

Also again, for another straight quarter didn't buy back any of its stock despite having $9.7 billion left in a buyback authorization.

I think sending the signal to investors.

It's not confident in its medium term outlook everywhere you looked in this target quarter, it stunk from top to bottom and I am surprised Target is out here re reiterating its guidance on that call with Brian Cornell and the CFO and I believe was the chief uh chief merchandise officer.

They noted that inflation is starting to slow, but they're not seeing a corresponding improvement in sales and that is a big problem.

Now, if I was an analyst, uh and out there visiting stores, I would essentially go out there this weekend and probably come back with a story, 10 reasons why Target is losing market share to Walmart.

And I think when you go into a target store, you could easily see target, small section of groceries.

Walmart has greatly expanded its grocery section.

Getting more one stop, shoppers, I can't get an oil change at Target, I can get an oil change at Walmart and then uh just a third one before I would drop several more photos.

It's that the prices at Walmart are just cheaper.

Walmart has been very aggressive over the past year chopping prices in everyday essentials, home goods, you name it.

And I think that's why you're finally starting to see Target Respond this week saying it's going to cut price on 5000 items by the end of the summer it has to.

And what I'm worried about, how does that impact margins?

And does that even gain the shopper back from Walmart?

Yes.

And that, and that's exactly what I wanted to ask you this move here.

Is it too little, too late or do you think it could maybe help move the needle just a bit here in these coming quarters?

I think Target bottom line is dealing with a perception problem with American households that have been battered over the head with inflation.

For the better part of what, for almost four or five years, they don't see prices coming down and their first thought right now is a play into Wal Mart's tag mine, save money, live better.

And it's that simple.

I mean, there's something wrong here when Target is continuing to put up negative same store sales and Walmart is blowing things out of the water in terms of same store sales margins guidance.

Uh not only at Walmart us and Sam's Club and I think this is a target problem.

And to your point, Sean, I think the reality is for target stock to start working and for Target's financials to start working and improving in the back half of the year, inflation just has to continue to show uh slow down and the economy has to continue to strengthen and that's a tall order.

All right, we will continue this conversation later on the hour.

We, we will be speaking with Michael Lasser.

He's U BS us Hardline and broad line and food retail analyst.

He will weigh in on these results that we're just getting out here from target sauce.

Thanks.

Yeah, thank you.

All right, more fed speak coming up today reinforcing the central banks, the message of hire for longer interest rates high for longer interest rates.

Now, Cleveland fed President Loretta Mester and Boston fed President Susan Collins both reiterating the need for further evidence of cooling inflation before the fed feels comfortable cutting rates.

Yahoo Finance's Jennifer Schonberger has a break down there for us, Jen.

Good morning, Shana.

That's right.

Cleveland fed President Loretta Mester and Boston fed President Susan Collins both said Tuesday night they need to see more evidence that inflation is cooling before lowering rates.

The two become the latest officials to call for holding rates higher for longer.

Collins said the fed will need to be patient that getting inflation down will take longer than she previously thought.

She thinks there's still more bite left in the pipeline with rates at current levels.

While policymakers welcomed the latest consumer price data which showed inflation easing again after a sticky first quarter.

Officials stressed they needed to see more evidence.

Inflation is decisively coming back to their 2% target.

Mester says she needs to see a few more months of data to show inflation is coming down before cutting rates separately.

Tuesday fed Governor Christopher Waller said he needs to see several more months of good inflation data before lowering rates.

These comments come after fed Chair Jay Powell said last week that that needs to see more than a quarter's worth of good data to lower rates.

So some differing views within the Federal Reserve on just how long rates will need to be held higher for longer.

We will get more insight inside the feds thinking when minutes from the feds may policy meeting are released this afternoon, guys.

All right, Jennifer Shamberger, thanks so much for bringing that down for us.

We are just getting started here on the morning brief coming up.

We will take a deeper dive into the trending tickers here on the street earnings out from TGX.

And we've also got a downgrade on Lulu Lemon.

We're gonna break it all down on the other side.

We'll be right back.

Let's take a look at some top trending tickers this morning.

We're taking a look at shares of Lululemon they're falling after announcing the departure of its chief product officer and saying it doesn't plan on refilling the role.

The apparel brand, also launching a new team made up of leadership from its merchandizing and brand branches.

Uh notably a new name here for some of the investors out there.

Perhaps Jonathan Chung is going to be leading that particular charge here is this is gonna be consolidated up underneath of him.

This is a person that also had, you know, kind of a seasoned professional track record over three decades, essentially across brands like Gap uh Pangaea, I think was one of them Merrill was in there.

Uh Levi's with there as well.

So all of these things considered, we'll see if a lot of that is transferable to the business of stress, shoe fabrics over at little Lemon and some shoes here and there.

Yeah, I think the worry here from analysts is excuse me is exactly what this could potentially signal here, at least in the short term.

And maybe that this is a sign of weak demand for the current products that they have because they certainly have seen a cooling in demand of some of those hip products.

Not too long ago when we've been talking about Lulu Lemon over the past 12 to 18 months, there's been so much excitement surrounding their belt bags, that excitement has certainly faded here recently over the last couple of months.

So three of those people for Christmas, you're a little late to the trend here, Brad.

But, but I think the I think the question for analysts is just future changes, whether or not that is going to take a little bit longer to take place and to really happen here at Lululemon and remember this is a stock.

We have the one year on the screen right now, but year to date shares have tremendously underperformed the broader market.

You're looking at losses here of nearly 37% and that's versus the S and PS gains of right around 11 to 12%.

So certainly we have seen Lulu Lemon under a bit of pressure right now, Raymond James Rick Patel, the analysts there say that this adds a wall of worry, at least in the near term towards Lulu Lemon.

So lots of questions just about what exactly that product line is going to potentially look like here, at least in the coming quarters.

Yeah, I I mean, I was waiting for, you know, some type of call or a title for this Evercore I si note to be unicorn tears, no fears or something like that.

But uh we didn't get that.

We just got Chief Product Officer departure ads to near term Lulu concerns.

And ultimately one of the other things that they had been concerned about, uh they talk about this instinct being that Lou's explanation that some small execution issues with small sizes, select color stock outs didn't fully explain some of the US same store sales pressures as well here.

So continuing to think about the price point, especially as consumers are pushing back in specific areas of even at leisure.

I think that's where Lou Lemon might have to see some moderation in how it puts price into the market based on the product as well here.

I mean, I know for me, I go straight to the back of that store and I'm, I'm, this is my one wealth tip of the day for folks.

Here you go straight to the back of the store.

Look for that.

We made too much track and you say load me up with some, a lot of deals on that.

I just made an order.

We made too much.

All right, let's talk about another retailer here on the move this morning, a trending ticker here on Yahoo Finance and that's TJ X shares are rising up just about 2% of the company lifting its earnings guidance for the full year.

Also posting a 3% jump in com sales seeing heightened demand from its home goods store.

So that has been a stand out here at least for this quarter.

We can take a look at this off price retailer, some of the other tidbits that we're getting from these results.

Many of it, they're saying that general consensus on the street that this was very much in line with expectations, gross margin was in line with consensus.

Although just ahead of what the management's plan was, it does expect Mangin to be a little bit more optimistic about their business on the conference call.

That's happening right now.

That was the latest, no doubt from citi their quick reaction to these numbers.

But again, we are seeing more and more consumers trading down hurt by these higher prices, shopping at names like TJ X like home goods and clearly that is benefiting these results.

Just yeah, looking for deals no matter whether the T shirt that actually matches the shorts that you're getting is in the home goods department or somewhere else in the store.

Ultimately, here, one of the huge things that this company is looking at going forward here for the quarter that they actually mentioned is off to a good start and see numerous opportunities for their business for the balance of the year.

Given this environment in the longer term, they're also excited about the potential that they see to drive customer transactions and sales.

You think about those customer transactions.

They were also strong in this quarter.

They said they saw comp sales growth at every division entirely driven by customer transactions.

So that kind of underscoring the strength of the value proposition for consumers that are trying to value hack right now by looking for deals and discounts.

All right, let's take a look at another mover here this morning game fab shares on the move again today, third party presidential candidate Robert F. Kennedy Junior announcing that he invested $24,000 in the stock, but you're still looking at losses of just about 2.5% on X.

He posted a picture saying that his administration would support or he would support the quote ape.

Retail rebellion.

Yahoo Finance's Rick Newman has more on this.

Rick, just give me your thoughts on this move whether or not it really matters here with voters and whether it's not, whether or not it's going to win him voters here in November.

I guess presidential candidates now have to decide whether they're pro ape or anti ape.

Uh, I'm not really sure what to make of this.

I mean, it's interesting that game stock is not up, it looks like it's down a little bit in the pre market trading.

So it's not as if RFK junior is uh, is giving a boost to this stock.

And he sounds like kind of a poser, doesn't he?

I mean, he sounds like he looked, looked up for uh four of the um sort of phrases you're supposed to use if you're uh an ape trader, a day trader, a meme stock trader.

I looked up.

Um You know, so the question is how many, how many day traders or ST or meme stock traders are there?

And are, are they actually like a political block that's worth trying to persuade?

So I went over to Reddit, looked at the Wall Street bets channel there that has 16 million subscribers.

Uh But that doesn't mean all of the them are in the United States doesn't mean they're registered voters who knows where they actually lived.

If they don't live in swing states, it doesn't really matter.

Um It makes me wonder if, um, Keith Gill A K A roar and kitty, uh, the, you know, sort of, uh, the main mean stock trader if he's gonna endorse a presidential candidate and if he does, will it matter?

You can imagine that RFK junior and, uh, maybe Trump are, are ask him, hey, how about an endorsement?

I mean, I was, you know, I've been thinking like a Taylor swift endorsement would be the thing that might be, uh, you know, decisive in the, uh in the late stages of this election.

But maybe it's gonna be a roaring kitty endorsement or maybe we'll even have a roaring kitty political party that comes out of this somehow.

So many interesting possibilities.

Also, maybe this won't matter at all.

You know, Rick II, I struggle to conjure up some type of serious question after seeing that graphic that we just saw on the screen here, but I, I'll, I'll do my best here, you know, ok, you put it back on screen great.

Uh you know, ultimately at the end of the day, when you think about this moment for RFK and even if we know anything about what his economic policies would be that investors out there could or, or should have in mind as they go to the polls.

Do we know anything about that at this juncture?

Well, that I think that question Brad supposes or presupposes that he might actually have a chance of winning, which most analysts think he does not, he does not have a chance of winning.

Um The big question with RFK Junior is uh if he's on the ballot in swing states, will he take more votes from Biden or more votes from Trump?

And uh it's not entirely clear.

Um So, you know, he's positioning himself as more of a fringe candidate here uh by siding with the mean stock traders.

And, you know, they sort of um don't like the system.

It's these, it's these people who feel like the system is rigged.

Wall Street is rigged.

So I guess he, if, if he actually positions himself in that way, maybe he takes a few votes from Trump who also kind of wants to blow up the system.

But another interesting thing going on here is the Biden administration suddenly uh is looking more friendly to crypto traders.

Uh you know, not the same as meme stock traders but kind of related.

Um And we're, we, we seem to be getting this possible uh uh ruling out of the sec that's gonna allow uh an E ether ETF.

So it seems like people are definitely going for like the fringe investor vote here.

That's how close this election is.

Everybody wants every single vote doing everything they can to get those votes.

All right, Rick Newman.

Great stuff.

Thanks so much.

Bye guys.

Well, coming up the opening bell on Wall Street, we'll take a look at how the trading day is shaping up ahead of those critical and crucial and NVIDIA results after the bell tonight, you've got the Dow and S and P is set to open the day in the red.

We'll be right back.

All right, we're about 20 seconds out from the opening bell on Wall Street.

We're taking a look at the US major averages, the futures right now pointing lower for the Dow and the S and P 500 the NASDAQ futures on this NVIDIA earnings day flat just barely to the upside right now.

I'm trying to hype it, trying to make sure we stay excited.

Yeah.

And, and I think a lot of this, this action could maybe be on the sideline here until we get those results after the bell.

That certainly has been at least what has been playing out so far this week.

So we will say what the results are and exactly those moves then after the bell here.

Oh man.

Look at these great groups ringing the opening bell.

Today you've got Air Jewel from Montana Technologies or in collaboration with Montana Technologies uh over at the NASDAQ, Montana Technologies exa jewel ringing the opening bell there and integer.

That's an easy one to pronounce ticker symbol, itgr ringing the opening bell at the nyse.

All right, that's the opening bell.

Let's take a look at the markets here as we open up things on the day, the dow and the S and P 500 just as we were mentioning moment ago, starting off the day flat just barely to the downside about 1/10 of a percent move in the red for both of those major averages.

The NASDAQ composite though trying to hold on to those gains out of the gate here right now.

Yeah, coming off a record setting move here for the S and P. So giving back some of those recent gains.

When you take a look at the movement that we're seeing within the bond market today, we will be hearing from from more fed officials here later on today.

Of course, the focus is going to be on rate cuts.

So we're seeing yields move up just a bit higher here today, right around 445.

And you take a look at the second action that we're seeing playing out, at least at the open.

You've got technology, the loan sector in the green here today followed closely by communication services that's just below the flat line of flip side, consumer staples and materials under performing Jared bookery standing by with a closer look at some of the other movement that we are seeing right here at the open in commodities markets, Jared.

That's right.

We're seeing kind of a mix board.

I'm going to put the Wi Fi interactive heat map for commodities behind me, you can see copper is actually the worst off here.

I'll get to that in a second.

But first let me talk about crude oil, WT I and Brent for that matter too, have really traded in a pretty tight trading range over the last few weeks to a month.

This is the overnight action.

But let me just show you the year to date.

And there you can see basically during the month of May, we've had a very, very low volatility.

It looks like it wants me to talk about gold, but we'll get to that in a second.

So pretty low volatility, but we are on track for the lowest close since about March.

So that could generate some headlines.

Everybody waiting to see what is going to do in the next couple of weeks.

Are they going to maintain the production cuts?

The problem with oil, at least if you're an oil bowl, if you're not an oil bowl, maybe you don't like high prices.

But the problem with oil is that the producers have been able to come online and provide more supply in the US and abroad pretty easily whenever there seems to be a deficit.

Even the minor geopolitical skirmishes that we've had and the major ones have not put a dent really that big a dent in oil prices or should they haven't got them higher?

So here's copper Futures.

I mentioned this red candle right here.

That is the biggest drop in a year but still very close to these record highs.

Looks like the short squeeze is easing.

But we've also seen copper futures abroad in the London uh exchange.

Those have been pretty strong as well.

I do have time for gold.

Let's go back to that and we can see gold just kind of trading in a very small range by the top end and those are record highs from just a couple of days ago.

Pretty much the same case for silver guys.

All right, Jared Looker.

Thanks so much for bringing that down here for us.

Let's talk about a big theme that we're watching here at Yahoo Finance and that's a consumer.

We've gotten earnings results out this morning from Target that follows Walmart last week and a number of other big retailers all warning that inflation is starting to hurt and has been hurting the consumer.

This coming ahead of the fed speak that we are getting later today.

Officials widely expected to strike that cautious tone that we have been hearing all week.

The fact that the data isn't giving us enough evidence to at least for the fed to cut rates.

Now, the FO MC meeting M meeting minutes are also set to be released this afternoon.

So here to tell us what that means for the markets, the economy, where things stand today we wanna bring in David Rosenberg.

He's Rosenberg research founder and president David.

It's good to have you.

So let's just take a step back.

Just give us your sense of the consumer right now.

The strength of the economy and the consumer's ability here to withstand these higher rates for longer.

Well, I think that uh the economy was strong uh in the past tense and of course, we had 3% real GDP growth last year.

Uh And so much of that was predicated on really three things.

Uh the credit card boom, uh the last leg of the excess savings uh draw down uh all that pandemic era savings from the stimulus checks got spent.

And of course, we had tremendous fiscal stimulus.

I mean, imagine last year to get the 3% growth.

Uh It coincided with a 35% expansion in the fiscal deficit.

It just causes your eyes to roll.

But that's a story for the economy.

But as we saw in the first quarter, you know, GDP growth, 1.6% probably gonna get revised down.

So the economy is weakening.

Um It's uh the data aren't supporting that we're in a recession dot dot dot Just yet.

And as for the consumer, um it's not contracting.

However, you're seeing a major shift in behavior, uh much more towards frugality.

You're seeing that in terms of trading down.

Uh you're seeing that in terms of what the retailers are saying, in terms of how the consumption patterns are shifting towards staples and essentials and away from big ticket, the discretionary items.

And then when you start hearing stories of uh Ferraris and Lamborghinis uh being parked outside your local Walmart.

Uh, you know, things are even changing for the, uh, for the high income crowd.

Yeah, seeing a lot more May backs outside the planet Fitness too, David.

One of the huge things that I think we're continuing to try and get a sense of is not just the way that the consumer is defined but also what they're doing in the near term to offset some of the stickier parts of inflation.

And, and namely, it's gonna be interesting to see in the fed meeting minutes later on today, how they're continuing to evaluate things like energy and things like home owners equivalent rent as well right now in the shelter and energy uh calculus of the inflationary picture too.

What are you expecting there?

Yeah.

Well, you know, very interesting comment because uh you know, the Atlanta Fed that does us a great service.

And after the CP I numbers come out, uh they create two series, uh one's called the flexible CP I uh which moves with the economy and represents things that people can actually actually substitute away from.

And then there's the sticky CP I.

Uh and that is basically things uh as you had mentioned, um not easy uh to substitute away from gasoline.

Uh unless you'd rather walk than drive and you mentioned insurance.

Well, you're still gonna insure your home and you're still gonna have health insurance.

Um That's been your primary source of the deviation of inflation so far.

This year, uh rents are proving to be sticky because of the lag nature in terms of how the BLS constructs it.

Uh in uh in both the CP I and the PC deflator data.

As Jay Powlett said, these, the rental part will disinflate more forcefully.

But over time, there's just more inherent lags in that particular component.

But, you know, in terms of how are consumers responding.

Well, as I said before, they are trading down, uh you know, uh they're going more towards um uh you know, private labels from brand labels.

They are um shifting their consumption patterns uh away from expensive items to cheaper items.

They're really, uh you can see it in the data from spending on durable goods.

Uh That is really, I mean, there's no more really, I mean, all that demand has been satiated, you see that with Peloton as an example.

So um they're basically trading down.

Uh and uh that's manifest itself, I think and something that we saw in last week's retail sales report, which is that the grocery chains are actually seeing more activity.

Uh And that's why Walmart's numbers were so strong uh being such a massive food retailer at the expense of what, because we still have to eat at the expense of restaurants.

Uh So all of a sudden a lot of the stuff, you know, the part of the YOLO spending, you only live once and the reopening trade, all that spending on services and especially on restaurants because restaurants are, you know, that you don't have to eat at a restaurant, you could eat in your kitchen.

And so that's something that you're starting to notice.

You know, before the consumer starts to contract, everybody's saying, where's the recession?

Where's the recession?

You know, the study of economics is ultimately the study of social behavior.

And you're starting to see those early warning signs that people are fundamentally shifting their behavior and this relative shift from restaurants uh to spending some time with the family in the kitchen and cooking at home, that's actually something that we should be keeping our eyes on.

Well, David, when you take a look though, at the surge that we're seeing in commodities in gold and silver, even the run up that we had seen in oil, does that suggest to you that this inflation issue, it's far from under control or where do things then stand today?

Well, actually, you know, everybody was saying, um, you know, after, especially after the um the onset of the conflict in the Middle East, uh And then when with Iran sending these missiles into uh uh into Israel uh last month, uh that oil, oil was supposed to be going over $100 a barrel.

Uh Where's that?

Uh everybody and after OPEC did their production cuts extended them, we're supposed to have oil over $100.

These are the experts on oil.

So you, you just showed a chart before that.

We've fallen below $80 a barrel on wt I where, where's the inflation in that?

Uh Copper has its own idiosyncratic short squeeze situation.

Much like nickel did a couple of years ago.

Um That's not really leading to a broadening out of the commodity base.

Uh So in answer to question, uh uh you know, there's, I'm not saying this broad-based commodity led inflation, you mentioned gold.

yes, gold.

Uh because uh the PPOC is ongoingly shifting its foreign exchange reserves from dollars into gold.

That India is the strongest economy in the world.

Their retail demand for gold is going uh in a huge upward trajectory.

This this is just a, you know, a shift in in Asian consumption, one by a huge central bank, the other by uh consumers in the one area of the world that's growing.

Uh you know, 9%.

There's no other really story there, there's no inflation story for gold.

It's just what's happening in India and China.

Uh As far as the inflation is concerned, look 100% of that deviation, everybody is just so anally retentive on the deviation and inflation.

The opening months of this year.

Uh 100% of that deviation from the disinflation trend in 2023 100% of it has come from insurance, health insurance, auto insurance, home, and tenant insurance.

Um They're not really moving with the economic cycle I mentioned before about the Atlanta fed, the Atlanta fed course sticky, which moves with the cycle and is actually contains the goods and services that the fed actually has an influence over this year of the year.

Core flexible is running minus 0.3 year of a year.

It's deflating and it's deflated now for two straight months.

Nobody talks about it.

Well, they talk about the fact that the core sticky is running at 4.5%.

But by definition, sticky prices don't normally go down.

Sticky.

Prices are not the things unless the fed wants to raise rates to 20 or 30%.

How is the fed going to have any influence over auto insurance?

Which has been this year's?

Yeah, when the, when the meeting minutes drop later on today, we're gonna see how they're talking about it.

At least in those federal Open Markets committee meetings.

David Rosenberg, Rosenberg, research founder and president.

Thanks for the time this morning.

Pleasure.

Thanks for having me on coming up.

Target misses the bull's eye in its Q one earnings report.

But is there a reason to be optimistic in the long term?

We'll talk to an analyst who has the answer on the other side of the short break.

Target heading for its biggest one day drop that we have seen in nearly two years.

It had been off, it's off its lows of the session right now after the retailer though, missing its mark in its first quarter.

Earnings report.

The story largely coming from Target's physical stores where traffic in the number of transactions fell during the quarter.

Company executives are blaming inflation saying that higher prices are taking a toll on consumers here.

With more we wanna bring in Michael Laser.

He's an analyst with U BS covering Target, Michael.

It's great to talk to you.

So first, just your take on Target and why we are seeing such a different story play out from Target compared to what we heard from Walmart just a week ago.

Thanks for having me.

Uh Our take on Target is that while some of the headline numbers were light of what was expected.

Targets clearly making progress.

Its same store sales was down less this quarter than it was last quarter.

Uh Plus it showed progress on its gross margin, especially important in light of facing more difficult comparisons on the gross margin.

It also noted that uh shrink which is the unexplained loss of inventory has turned the corner and it's, it's a a 20 basis point improvement from that product uh from that area within the quarter.

I don't think that this is a story of consumers who were going to one mass merchant to another.

Keep in mind that Target and Walmart have very different category mixes, target over indexes to more discretionary goods, things like coffee makers, televisions, uh apparel that all of which are under pressure right now.

So that is probably weighing on target sales, Walmart leans a bit heavier on consumable items and, and it's executing at a very high level and that's what uh probably driving its business.

So I I would not look at this as uh the performance of one retailer is mutually exclusive with the performance of another.

So for investors who are looking at this stock price decline on the day, should they feel comfortable then if they were to add on to or initiate a position in target, on the weakness that we're seeing?

Absolutely, this is a wonderful buying opportunity.

Keep in mind that target is still on pace to earn somewhere in the neighborhood of 5 $9.50 this year, putting it well positioned to earn $10 next year.

If that's realistic, the stock is trading right now 14 times that number that is just too low.

A multiple another way to think about it is targets uh in a good spot to generate at least $4 billion of free cash flow this year that it can distribute to shareholders in the form of share buybacks and dividends.

And if you look at that relative to its market cap, it translates to a 6% free cash flow yield for a business of this standing and this quality that is a a very attractive uh evaluation level.

And we would advocate that investors take advantage of this short term dip in the stock price.

You will make money in our view over the long term, Michael.

When you take a look at some of the initiatives that target has laid out earlier this week, we heard the news that they're lowering prices on about 5000, up to 5000 products.

Also recently announcing a target 360.

How much are those two moves?

Coupled with some of the other initiatives that they've done is that going to really move the needle help them win back, that lost market share.

I think it will the to the target shopper right now is under uh a significant amount of pressure from the collective impact of inflation uh from uh rising credit card debt target.

Noted that one in three American consumers have maxed out on their credit cards right now.

All of those suggest that target needs to lean in to value uh which is suing by these price investments.

And at the same time, it's also introducing more private label products that come at a very attractive price.

So uh those factors should drive better trends at target coupled with easier comparisons in the quarters ahead and you think and compare target to what we're seeing in in Walmart right now.

And how both of these have a a grocery play to try and lure consumers in and make sure that they are shopping in other aisles of the store.

But is there, is there one play that's really more well positioned at this juncture?

So the near term momentum has to go to Walmart and it's benefiting from traffic to its stores, traffic to its online business.

It has expanded its online assortment to 420 million items online.

So that makes it uh appeal to a broader array of, of customers target right now is thought of as more of a discretionary retailer in areas like home and electronic and sporting goods.

And that's those are areas where the consumer is just not focused right now.

Now, with that being said, there's quite a divergence in the multiples of these two stocks, we argue that they both can continue to outperform given the relative positioning of those businesses along with their evaluation.

So we don't think it's one or the other.

Uh We think that they both are core holdings for those who are vested in the retail sector, Michael Laser, U BS us, Hardline and Broad Line and Food.

Thank you very much for having me.

Thanks so much Michael.

Good to see you all your markets action ahead.

Everyone.

Stay tuned.

You're watching Morning Brief the Vibe on the street.

Today is a little less animated than usual.

Pixar Animation studios is laying off about 14% of its workforce as Disney looks to cut costs and scale back on content made for streaming.

The cut signal that Disney might turn its focus back on feature films that are released in theaters.

Now, a lot of these Pixar films are also released in theaters.

We should mention some of them have been wildly successful for Disney over the years, both in performance at the box office, but then additionally, even more into merchandise as well.

Here, we're taking a look at shares relatively muted on this announcement here.

Um This comes after what we had seen in a wave of layoffs that Disney put in last year.

But now this kind of still lingering in some of the other strategic parts of the business where Disney will need to reallocate costs in order to hit some of the targets that have become more brought to light as a result of activist campaigns, putting pressure on the executive team at the company.

Yeah, I think this is just the latest iteration of I cutting back spending in some areas trying to boost profitability.

Clearly the goal and the priority for Disney at this point.

So this move here is certainly a reversal than what we have seen over the last couple of years.

We know that Disney had been using Pixar to really build up its Disney Plus customer base.

They debuted three films, Soul Turning Brad and Luca specifically online in an effort to do that.

And I think it did work to some extent.

They've also had original series that had been a huge hit here for Disney Plus Cars on the Road.

It's one of the favorites boys.

They love that show.

It's huge hit with young kids.

Also Doug days that was a series of shorts about a dog from the movie.

A it has worked, it has worked.

But I think right now in terms of the priority and where those priorities lie.

Iger is very focused on scaling back that spending.

So as a result, they aren't going to be, uh they aren't going to be producing these original shows for Disney Plus as part of that broader restructuring here.

And like you said, that's resulting in unfortunately, layoffs for about 14% the workforce.

Yeah, absolutely.

I just have to look up Doug days by the way too.

Yeah.

Yeah.

Cute dog from the movie, uh Squirrel.

Anyway, one of the other things that we're gonna continuing to track here, of course, among the broader media landscape is just where Disney is going to be able to going forward, monetize a lot of the streaming bundles that they had talked about here, of course, picture of playing into that.

Um So we'll see what more the company has to say about this and uh how this plays into the strategy going forward.

We certainly will.

All right, Disney moving just slightly to the upside here this morning.

I will, coming up the latest reading on how this home sale set to be released right at the top of the hour plus crypto has been surging.

Anthony Scaramucci joins us here at the desk to weigh in.

Plus we also hear from Transportation Secretary Pete, but he joins us to discuss the latest on the travel industry that's all coming up on catalyst next.