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Record market highs, Cisco earnings: Market Domination Overtime

On today's episode of Market Domination Overtime, Yahoo Finance Hosts Julie Hyman and Josh Lipton reflect on the trading day and break down what to watch on Thursday, May. 16.

The S&P 500 (^GSPC) closed above 5,300 for the first time ever following the release of April's Consumer Price Index inflation print. The Dow Jones Industrial Average (^DJI) and the Nasdaq Composite (^IXIC) both also closed higher.

Investors are bullish after BMO Capital Markets raised its year-end target for the S&P 500 to 5600, the current highest target on Wall Street. Yahoo Finance Reporter Josh Schafer joins Market Domination Overtime to analyze whether the market can continue its momentum.

CEO of Brazil-based Nubank (NU) David Vélez joins the show to break down the company's earnings which topped the Street's expectations. Nu Holdings is looking to expand its business beyond Brazil, seeing Mexico as a "phenomenal opportunity" due to its large market size.

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Cisco (CSCO) posted its third quarter earnings after the market close. The company reported adjusted earnings of $0.88 per share, which beat the estimated $0.82, and revenue of $12.70 billion, which was slightly better than estimates. The tech giant also raised its full-year guidance. Morningstar Equity Analyst William Kerwin says the demand slumps for Cisco up until now were a symptom of the "COVID hangover," and it may take another quarter for demand to stabilize fully.

Finally, Julie Hyman and Josh Lipton break down what to watch on Thursday, from new housing data to Walmart (WMT) earnings to remarks from Federal Reserve officials.

This post was written by Melanie Riehl

Video Transcript

That's the closing bell on Wall Street.

And now it is market domination over time.

We are joined by Jared.

Look to get you up to speed on the action from today's session sponsored by tasty trade.

Guess what?

Market domination is a pretty apt name today because all three major averages are closing at records.

We've got the dow taking up by 350 points, about 9/10 of 1%.

The S and P up by about 1.2%.

The NASA up 1.4%.

A lot of it has to do with the economic data that we got this morning.

The CP I coming in a little bit lighter than had been estimated retail sales bang on flat here.

So that raised some hopes that indeed we are going to see the disinflationary trend reassert itself in the coming months that we will not see consumer demand be so hot that it's going to continue to push up prices at a re accelerated pace.

What does that mean for the Federal Reserve?

Well, maybe it means that we'll get a cut or two before the end of the year perhaps.

And now all of that is pushing the 10 year down as well yields down to 4.36%.

1 of the major components of the rally in stocks today, Jared's got a closer look at today's action.

Thank you, Julie.

Rate cut hopes they spring eternal.

I think that's really the bottom line.

You nailed it.

Here's tech XL K up on top up over 200% or 2%.

NASDAQ 100 very tech heavy record closing high XL K two throw in financials.

And last time I looked a couple of minutes ago, it was going to be industrials too.

So everything just kind of playing a game of catch up here.

And as you can see also all sectors in the green today.

And then when we look at our leaders, Bitcoin, Bitcoin came roaring back starting at that 8:30 a.m. release.

Was it CP I was it retail sales?

Well, Bitcoin is up 7%.

After that.

We have chip stocks, then software, then the momentum trade.

So uh lots of juicy uh leaders at the top there.

What did not work well today?

Well, X RT is a retail E ETF so a couple of re retail names holding that back.

Uh Oil also didn't fare so well, cannabis and solar, but uh we're gonna be taking a, I'm gonna be taking a deeper dive into it that close today.

The day that was and the meme stocks in just a few minutes, Josh, thank you, Jared.

It was a record day on Wall Street with the Dow and S and P 500 closing at New Highs for the first time since March NASDAQ also extending its record run.

And Josh Shaffer is here with the takeaways from the Trading Day, Joshua Record Eyes.

That, that's it.

Right.

Yeah, I think we're done, but no, we got record eyes for all three major indexes, right?

And Julie was just hitting on this a moment ago.

But I think largely the rallies seem to be driven by the economic data that we got this morning.

You had inflation core CP I finally coming back down, we have been waiting for that to sort of re accelerate, right?

We're sorry, restart coming back down after the first three months of the year and then you had retail sales coming in flat and largely the fear had been well, is the economy may be growing too much, is the consumer too strong?

And that's what's keeping inflation sticking.

It seemed like we got maybe a little bit of fodder on the side of that narrative that OK, maybe we're, we're just all right.

The market moved to pricing in two fed rate cuts this year.

For the first time in a month, you had the 10 year down, I think about 10 basis points at one point today again to its lowest level in about a month.

So when you think about the headwinds we talked about during the April drawdown and you're rising tenure, right?

The market's pricing out cuts this year.

Are we even going to this year?

Well, in the last month, we've sort of reversed that conversation when you add that up, it kind of makes sense that the markets rally.

It makes sense.

It doesn't feel at, like I said, woo hoo at the beginning of this.

It doesn't have that feeling though, for some reason, it doesn't feel like this is this huge, like momentous push upward, like some of the previous rallies that we have seen perhaps, well, because maybe it's only on one inflation print, right?

And I think a lot of economists that we've been speaking with today have said they like the fed, they still want to see a little bit more data, right?

And I think also you could look at the retail sales print and economists sort of spun that with, ok, maybe we had this big tick up in March.

There was also an Amazon sale that apparently impacted non store tailors pretty significantly in March.

So then when you don't have an Amazon sale in April, that's why that declines.

So maybe the decline isn't that bad, but there is a world where retail sales, flat month, over month isn't the best sign, right?

Of course, that's a normal world.

Maybe that's why you feel a little bit of pause though, right?

Is we need to see a little bit more before we get too over excited that like, ok, yay, soft landing fully back on.

Well, listen, Wall Street, you know, Brian Belski is getting more bullish.

5600, which I mean, 5600 as someone pointed out to me is only 15% gain on the year.

Sure.

Why does he feel?

What was his reasons?

Is it just like he's in a decent economy, decent earnings are good enough camp or he sees something else?

Yeah.

So this is I should highlight exactly who we're talking about here, right.

We're talking about VMO Capital Markets Chief Investment strategist, Brian Belski came out today, updated his S and P 500 year end target to 5600 from 5100.

Now, this is the first time Belskis moved his target yet this year, we've been talking a lot about the strategists moving.

This has been his first move.

And Belski normally sort of labeled as bullish on the streets of coming out with the highest target here.

But what he highlighted Josh, that was interesting to me.

He talked about being comfortable with the fact that market momentum is kind of here to stay and trying not to avoid that.

This time around.

He was referencing 2021 and 2023 in the rallies that we saw and basically not being willing to just admit that the market momentum is moving in a way that could get us to 5600.

And then he actually used a lot of historical analysis in here.

He does feel good about earnings.

I know you asked about that.

BSY usually feels good about earnings, but he also used a little bit of his historical analysis in here.

And Julia, you were just talking about this, that we'd only get to a 15% game for the year.

But what he was referencing is that how much we've rallied to this point?

And when you rally for the first five months at about an 8% clip normally from May to December stocks do particularly well, they gain, he got to 5600 using a 7% gain from where we were yesterday and over 70% of the time if we have the first five months, like we just had that is what happens.

So essentially saying that strength will sort of beget strength to some extent, the one caveat I should add, he still thinks we could get a larger pull down than we've seen thus far this year.

That would be a time to pile in.

He's saying, yeah, maybe, maybe so.

Right.

But him, him sort of warning that that drawdown that we had in April isn't normally the biggest drawdown you'd see in a year.

Did he break out Josh, when he, with his note, did he break out V pop the hood?

Where, what sectors he likes?

Not particularly in this note.

It wasn't full sector by sector sort of going through exactly how he's getting there.

But it will be interesting to see sort of how maybe the rotation place.

Sorry, I'm interrupting you because I want to get in this last point mag seven is still going up, mag seven is still going up.

Mag seven is at an all time high as well.

So I was looking at the MAGS index which is the round tail ETF that tracks that tracks the magnificent seven.

And I just thought it was interesting is we're talking about all time highs across all three indexes.

We haven't really talked about the mag seven a lot over the last month.

We've been talking about the individual stocks and the fact they're doing better, right?

And also interesting within that is kind of the rotation we were writing earlier in the year about how it was Amazon that was doing better and Meadow was doing better and NVIDIA is doing better.

Will you look over the last month?

It's Apple, it's alphabet and of course, it's still NVIDIA but setting the stage a little bit, maybe heading into NVIDIA earnings next week.

May 22nd, if you've been watching, you know, it's May 22nd.

We've been talking about a lot.

Thanks Josh, one of the top training tickers all day on Yahoo Finance new holdings.

It's the parent company of the Brazilian Digital Bank, New Bank that's new as in nu not new.

And the company reported record revenue in the first quarter.

Joining us now is David Bella New Bank, Ceo David.

It's great to see you again.

Thanks for being here.

Hi, Julie.

Thank you for the invite.

So you guys are big in Brazil.

That's your home market.

Um And what's remarkable to me is the growth that you guys have been seeing in Mexico.

You're, you're branching out into Mexico and Colombia, but in Mexico, in particular, um your growth has been fairly extraordinary and I know some of it has been offering depositors, their higher rates on their deposits.

But talk me through your strategy in Mexico.

Sure.

So Mexico is a phenomenal opportunity because we have a large market that is very, has very access to financial, very low access to financial services.

You have 12% credit card penetration.

You have over 80 million people that have no bank account.

It's a very much an informal economy and we get the opportunity to come into this market, compete, compete fully digitally by offering better yields and better products uh to the bank population.

So we've been competing pretty significantly gaining share across all the different verticals and becoming one of the largest issuers in just a few years.

Um And David, as I mentioned, one of the reasons you've been doing that is, is offering folks yields to, to get them um from unbanked to bank in some cases or to take market share from your competitors.

But that's coming at a cost to you all obviously offering attractive interest rates right now, you're gaining scale there.

When does it flip to sort of profitability in that market?

Sure.

We're following actually the same uh playbook we used in Brazil.

What it's interesting about Mexico is that when you look at the profit pool of banks or 40% of the profits don't come actually from credit, they come from deposits, banks in Mexico pay effectively zero or very close to zero to their consumers.

And so there is significant value to be created in offering higher yields.

There is a lot of unit economics.

On the credit side, we are growing first with the credit and even at offering higher yield, we're still making very significant unit economics.

However, our goal is to have the very best deposit and savings account in the market for that, we need high yield and a number of different functionalities.

As we add new fund functionalities to our bank account, we're going to be able to decrease those yields while maintaining the value proposition.

We did that in Brazil as we launched in 2014 where we launched a market without paying 100% of the ref free rate.

Eventually, we were able to decrease that yield while maintaining significant consumer activity and consumer base.

Uh And David, I do wanna get your, your take on one metric I saw here I I was reading David, your Q one did show an increase in delinquencies.

Uh Can you walk us David kind of just what's going on there and how are you navigating that?

Sure.

So we just announced or Q one result has been really record across all the different uh numbers.

We were able to do about $443 million of net income in Brazil or core market.

We had over 40% return on equity.

So new Bank is very unique globally today in that it is the only digital bank in the world outside of Asia that has crossed 100 million customer base while maintaining a very high set this faction and very high profitability, higher profitability than incumbent banks.

Specifically to your question on delinquency.

What happens is Q one tends to have a higher delinquency than Q four.

There tends to be a bit of a hangover in the market because Q four tends to be very high purchases.

So we're seeing that seasonality go up.

But at the same time, we're seeing a significant opportunity to expand in certain of segments of the market.

We're pricing risk effectively for the higher delinquency.

And we ultimately, what we're trying to do is optimize N PV.

We're not in the business of necessarily minimizing credit losses.

If we wanted to do that, we just stopped growing.

We don't lend anything, we're in the business of pricing risk appropriately.

And that's the opportunities that we're seeing in the market.

And finally, David just on a note about Brazil specifically, I know there has been extensive flooding in the south of the country um that has basically immobilized uh the southern state centered in Puerto Alegre.

Uh Is that having any effect on your business?

Is that having an effect on, for example, borrowers ability to repay?

Are you gonna see any effect on your default rate as a result of what's going on there?

Yeah.

No, it's a, it's a phenomenal question.

Unfortunately, this is probably the biggest uh tragedy we've seen in, in recent history in Brazil.

Uh effectively the entire state of Rio Grande do sul has been flooded.

Uh About 5% of our consumers, customers live in Rio Grande do sul so our exposure is limited.

Uh However, we've been very forthcoming in trying to make it easy for our customers there.

We've uh participated insignificantly in donations in the area and we are extending and lengthening significantly payment terms for all the different consumers that we have.

So I think it's not going to necessarily directly create significant impact for us, but from a consumer perspective, we think we got to be there helping our customers that are going through these very tough times.

Makes sense.

David, thanks so much for being here.

Really appreciate it.

Thank you so much Julie, pleasure to be here and now we gotta get to Cisco numbers which have just come out in the past few moments.

The company is raising its full year forecast.

So I wanna get to that first revenue now seen at 53.6 to $53.8 billion.

Um It had been 51.5 to $52.5 billion.

A pretty significant increase in that forecast here.

And if you look at uh the company's numbers that it reported looking backwards last quarter, you see them there.

The company beating by six cents a share on the bottom line revenue did fall year over year by 13% but it did come in a little bit ahead of what analysts had been anticipating and the Cisco shares are rising some 5% in after hours trading.

The stock by the way is down almost 2% year to date going into these numbers here.

I'm going to go through and take a look at the individual units as well to see what we're getting here.

Networking revenue.

It looks like ahead of estimates security revenue, $1.3 billion ahead of estimates and collaboration revenue also uh that went a little bit short of mess of estimates.

Networking is by far the largest part of the business here.

The company has been integrating its acquisition of Splunk.

Um And the former CEO of that company was named the president of go to market inside of Cisco here.

Yeah, I mean, heading into this print, as you noted, Julian expectations were low.

I mean, you know, today the stock had got nowhere was actually edging lower as you pointed out.

I think plenty of questions for Ceo Chuck Robbins about enterprise orders about A I orders.

You know, when does that start showing up as a real benefit to the company inventory levels?

Um, you know, are we close to getting kind of right size there and, and then to your point Splunk and that acquisition, what is kind of Chuck Robbins saying in the call about any kind of potential kind of sales synergies uh between those two.

Yeah.

And just one thing to point out from Scott Heron, the CFO who made a comment in the statement saying customers are consuming the equipment shipped over the last few quarters in line with our expectations.

He says we are seeing stabilization of demand as a result and that is what people want.

Well, ideally they want an uptick in demand.

Well, investors, you know, listen for this thing.

They'll take stabilization that coming up.

Analysts reaction to the Cisco report, it was a beat and raise from the networking giant and the stock is rising on that news day too and more market domination over time after this.

Welcome back to market domination over time.

Jared Blier is standing by to get you up to speed on today's action sponsored by Tasty Trade.

Jared.

All right.

Well, thank you, Josh.

Let's take a look at some of these numbers behind me on the Wi Fi Interactive uh the Russell actually in second place, 1.2%.

But I got to tell you the theme of the day has been records.

We had a record for the Dow and S and P 500.

The first one since late March and then the NASDAQ.

That was the first one since yesterday.

But lots of records to go around.

If you take a look at the sectors, we have three there as well.

That would be tech.

That was its first in a while.

Financials also first in a while and same for industrials there.

And if we take a look at the leaders, we can see some of the fringe investments that we like to talk about have attracted money and some have not.

Now, Bitcoin is in the lead that raised higher after that 8:30 a.m. report this morning consumer uh excuse me, not consumer sentiment.

I'm looking for CP I and also retail sales.

Then chip stocks, chip, chip stocks had an amazing day.

If you take a look at some of the record highs today, everything on your screen here is a record high.

You have Broadcom Qualcomm applied materials, KL A microchip that go, the list goes on and then you add to that alphabet JP Morgan.

We're seeing again a broad swath of record highs and so we're seeing this uh across industries here.

Hopefully something that continues as we look for that.

Um I'm gonna send it back to you guys on that.

Thanks a lot, Jared.

Appreciate it.

Well, Cisco shares are rising in after hours trading after delivering, delivering a beat on the top and bottom line, the company also lifted its full year revenue guidance, Morningstar tech equity analyst, William Kirwan is joining us now to talk us through this here.

So we were kind of looking to Cisco as an indicator of corporate spending demand here.

Just give us your sort of big picture takeaways, first of all.

Absolutely.

And thank you for having me on really Cisco's results came in roughly in line with our expectations across the board.

Um As you mentioned before, the break, networking really continues to be the primary driver of the business here.

And Cisco has been talking for a few quarters now about slower spending at customers.

We're digesting orders that ended up being a little bit excessive in the years following the COVID endemic really in 2022.

And so we've been calling this a bit of a COVID hangover if you will, for that networking demand, we think it'll come back in 2025 but probably another quarter or so here of that weakness.

Now, on the positive side, uh Cisco did close down its acquisition of Splunk that gave some upside to figures in the quarter.

They got about half a quarter of contribution from Splunk.

And we really see the full year guidance raise being wholly attributed to having Splunk in the door.

Now, the guidance that they actually lowered last quarter um excluded Splunk.

So it fit with our expectations with Splunk now part of the portfolio.

Uh Well, I, you know, let, let's say you're on this conference call coming up here and you have the chance to ask uh Co Chuck Robbins a few questions.

What, what would you ask him, William?

What would be top of mind?

I think top of mind for us right now is, you know, buying Splunk is great and getting that inorganic growth.

But Cisco's organic security and observable businesses have been under performing peers and the broader cybersecurity market for a few years now.

So really the key that we're looking at in those businesses is now that they have slunk in the portfolio.

Can they augment that organic growth uh rather than just continuing to buy assets?

And do you think they're gonna be able to do that?

Uh a little bit, maybe not as much as a lot of investors would like, you know, we like Splunk stand alone before being bought by Cisco.

We think it's a really good fit for the portfolio.

So we do model that organic growth coming more in line with the market, maybe not gaining share, but at least saving off those share losses.

And William, you know, on, on this call, it's a good bet.

Chuck Robbins is gonna talk about A I and A I orders.

Do you consider William?

You know, as a, as a financial analyst covering the company, do you consider Cisco a smart A I play for investors?

We think it is a good A I opportunity but it pales in comparison to the size of the business really.

So we're expecting about a billion dollars in A I sales for Cisco in fiscal 2025 which will start here in the second half of calendar 2024.

And so that's a big number, but against a, you know, roughly $50 billion top, we don't think it will be a significant contributor to overall firm results in the medium term.

We actually like, you know, a networking pure like and networks a lot better as an A I play a little bit more highly concentrated in high speed data center networking and uh better play on the A I trend for networking in our view.

Um The other thing that um with regard to Splunk that they mentioned is that the former CEO of that company is gonna be the president of what they call, go to market um inside Cisco, was that the right move to, to keep on Gary Steele and, and integrate him into that kind of a role.

Uh Yes, we like keeping on Gary Steele and we think, you know, the title president of go to market makes a lot of sense.

Again, talking about these, you know, relative underperformers and security and observable for Cisco.

We think go to market is really the key lever to pull there in terms of what to improve, to get those back up towards growth.

More in line with beers, William.

It was great having you on the show today.

Thanks for joining us.

Thank you time now for what to watch.

Thursday May 16th going to start off on the housing fund.

Lots of new data coming out including housing starts and building permits in the morning.

Economists expecting both those numbers to go up.

This coming after that home builder conference report came in lower than expected and went down for the first time in six months while getting new mortgage rate figures tomorrow afternoon, take a look at earnings.

It will be a big day for retailers tomorrow.

We're getting reports from Walmart and Ross stores, Wal Mart.

Of course, the worlds biggest retailers set to announce first quarter earnings for fiscal year 2025 ahead of the opening bell.

And finally, we'll get a big round of from fed officials tomorrow.

We'll hear from Richmond's Tom Barkin and New York fed President John Williams among others.

It comes after Minneapolis said President Neil Kari reiterating today that rates will have to stay at these levels for a while longer.

That'll do it for today's market domination over time.

Be sure to come back tomorrow at 3 p.m. Eastern for all of your coverage leading up to and after the closing bell, we've got more Yahoo finance on the other side.