The risks of rate cuts, TikTok fights ban bill: Asking for a Trend

On today's episode of Asking for a Trend, Host Josh Lipton breaks down some of the top stories and trends from the trading day.

Investors are all but certain the Federal Reserve will cut interest rates at its September meeting on Wednesday. But the question of by how much — 25 or 50 basis points — has been hotly debated. Wall Street Journal Chief Economics Commentator and Deputy Economics Editor Greg Ip lays out the case for a half-point cut, explaining, "It all starts out by looking at where rates are now," Ip says, noting that the current target rate of 5.25%-5.50% is the highest in 20 years. Rates were initially pushed that high because of sticky, elevated inflation. But in recent months, inflation has cooled considerably.

The major indexes (^DJI, ^IXIC, ^GSPC) closed Monday mixed after disappointing iPhone 16 pre-order numbers caused Apple (AAPL) to slip and pull the Nasdaq down along with it. Yahoo Finance senior reporter Jared Blikre analyzes the day’s top market movements, including the surge in cyclical sectors such as utilities (XLU), the weight of the Federal Reserve's interest rate decision later this week, and September's seasonality trends.

TikTok spent Monday in court in the first day of its trial arguing against the US bill that could see the popular social media app banned in the United States if parent company ByteDance doesn't sell the platform to a non-Chinese entity. Axios Business Editor Dan Primack explains that the judge in the case was "fairly skeptical of TikTok's arguments," adding, "But what's important to note is the President of the United States does not have to ban it if there's not a divestiture, it gives the president the option to ban it. You've already got Donald Trump saying he would not ban TikTok."

Intel (INTC) and Amazon (AMZN) Web Services announced a co-investment in custom chip designs in a multibillion, multi-year strategic collaboration. Creative Strategies CEO and principal analyst Ben Baron explains that Intel has won a large customer in AWS, saying, "there's positive momentum there in terms of getting foundry wins." He believes that Intel is ultimately setting the stage to split into two companies: Intel and an Intel foundry. He believes that having an Intel Foundry subsidiary is "essentially as close as you can get to putting the right kind of walls and guardrails around Intel Foundry so that other customers can come in and feel comfortable knowing that they'll have capacity wafer allocation."

This post was written by Melanie Riehl

Video Transcript

Hello and welcome to asking for a trend.

I'm Josh Lipton and for the next half hour, we're going to be breaking down the trends of today that will move stocks tomorrow.

There is a lot to keep track of.

So we're focusing on what you need to know to get ahead of the curve.

Here are some of the trends.

We're going be diving into investors on edge ahead of the FO MC September rate decision.

The tech heavy nasdaq fell, the S and P gained slightly down man though to close at a new all time high plus unprecedented uncertainty, investors nearly split 5050 on whether the fed will going to cut by 25 or 50 basis points on Wednesday.

It is the least confident the market has been since at least 2015.

The Wall Street Journals, deputy economics editor joins me next the case for a half point cut.

And Tik Tok's Day in court lawyers for the social media app today arguing against a potential ban in the US.

The Biden administration signed a law back in April that gave the app until January to decouple from its Chinese owner or face a ban amid fears of surveillance from Beijing and discuss what's at stake later this hour.

Well, this week, investors are all but certain the fed will cut rates on Wednesday.

But the question of course is how much has been hotly debated during the trading day.

Monday futures tied to the fed's decision swung wildly by Monday afternoon.

Investors were pricing in a more than 60% probability that the fed would cut by 50 basis points on Wednesday.

My next guest is firmly in the half point cut camp and join me now, Greg IP, chief economics commentator and deputy economics editor at the Wall Street Journal.

All right, Greg, it is great to see you as always, you think the fed should cut by half a point.

Make the case, Greg, how come?

Ok. First of all, I don't know what they're going to do.

And second of all, I think there's a case for both a quarter and a half.

But when I review the evidence and the facts, I come out in favor of the half point cut and you know, it all starts out by looking at where rates are now.

They're five and a quarter to 5.5%.

That's the highest in 20 years.

Now, when they pushed rates to that level a year ago, they had some justification, inflation was really high and they were really afraid it was going to get stuck there.

And honestly, they were ready to cause recession to prevent that from happening.

Well, inflation has come down a lot right now by a lot of underlying measures, it's below 3%.

It's in shouting distance of the 2% target.

If you look at a variety of forward looking indicators, I think there's excellent, um, probability that they'll be very close to 2% a year from now.

There's no need for a recession.

Now, having a recession now would be a terrible waste and a big mistake.

And so rates just look too high right now for the economic circumstances we have now they need to get them back to some semblance of normal.

Now, whether that's 3% 3 and a quarter, maybe less than that, I'm not sure, but it's definitely quite a lot lower than five and a quarter.

And so I would start that process with a half a point just to bring the stance of mon policy back to something that looks a little bit more logical for the economy that we have today.

What would be the risk Greg of cutting half a point as you think through them?

So, the biggest risk, if you could have a point is that in the next few months you get new data that tells you that actually inflation isn't continuing to head down, it's actually kind of stuck here.

Maybe it's even edged a little higher.

There are certain things out in the, out there that we can't predict like for example, what if oil shoots higher again, what if we get higher tariffs in the next 12 months?

So those are things that we can't really predict.

And I'm not dismissing that the possibility.

And if it came along, the fed would look at that and say, uh huh.

Well, looks like we won't be cutting rates as much as we thought we would.

But, you know, if they're in that situation, the answer is fairly straightforward, just don't cut rates the next meeting or the meeting after that, they can, as they like to say, be data dependent.

What, what you, what are the risks?

I guess there, there would be risk too of, of going for a traditional 25 the norm, Greg.

But you must think that's, that's less risky.

Well, no, I actually think that sticking with a quarter point is, uh, brings more, more, more.

I mean, ask yourself like, so your baseline scenario is that the job market stays fine, growth stays fine and all that and that in which, and if that's what works out, so it's fine.

A quarter point, nobody's going to complain about that.

And if you're asking me, I don't think the world will end.

If they go by a quarter point, it's perfectly defensible.

But I like to think about things that can go wrong.

And fed chair Powell said in his Jackson Hole speech a few weeks ago that the labor market has cooled and any more cooling would be really unwelcome.

And I agree, we're now in a situation where job growth is very, very modest, the unemployment rate has moved up about, you know, three quarters of a percentage point, any more weakening in the job market starts to look very, very recession like, and you don't want that to happen.

And if you look at the, uh, where we've been going lately, there's a AAA, more than zero possibility that the next few job market reports could be very weak and that the probability of recession will then look higher.

And if that happens and the fed has only gone a quarter point, it will be obvious to everybody including the fed that their rates are that they're behind the curve and then they're stuck in this catch up situation of having to cut rates more aggressively, Greg.

We will soon out soon find out my friend.

Thank you for joining the show today.

I always appreciate it.

All right then.

Thanks a lot stocks closing mix as Apple pulls down NASDAQ.

Meanwhile, the dow hitting a record close while fed rate cut decision on the horizon.

Yahoo Finance is Jared.

Blick joins us now with the trading day takeaways, Jared.

Thank you, Josh.

And let's take a survey of what happened today.

It was a mixed market in the indices.

But as we're saying here, banks surged, Apple, it fell and that was kind of indicative of the entire tech sector chip stocks really took it on the chin.

But here's the sector action.

Today, we see finance in the poll position.

We see tech in the uh in the, the laggard position here.

And what's been interesting to me is to track how things have been doing in the month of August, which I'm just kind of waking up to the first time I've been out two weeks.

Thank you for rolling with the punches here.

But real estate and utilities, these are two of the top sectors.

That's a very defensive look.

But if you think about it, we kind of began the month with this big downtrend and that really uh skewed things has been utilities all year long.

You know, it's interesting.

Here's another interesting thing.

Uh, year to date, we're gonna see utilities is in the front spot.

That's up 25%.

I could.

Do you remember a time when utilities was up 25% over five years.

We had so many analysts pounding the table on this, I mean, really offense defense they would say in one sector.

Yeah, it's really, well, what I like about this play is it's a I related but it's not.

So, you know, it ties into the infrastructure of the A I, I think we're gonna see a lot more of this and what I really like about it is the low volatility.

Uh Let's take a look at this chart right here.

I'm gonna show you the year to day chart.

Now you compare this to NVIDIA, it's gonna look quite a bit different.

And by the way, NVIDIA is a big part of the trade too as we know.

But, uh, I think utilities has a lot to offer.

So getting to our second point, we have the fed.

We gotta talk about the fed.

What's what I like about this fed meeting is that people are talking about 2550 basis points.

We haven't even had that discussion since 2007.

Um Here's a chart that goes back to 2009.

I wish it went back a little bit further.

But uh this tracks the the amount of the fed surprise.

So if the fed actually uh surprise cuts 25 basis points, ok, that's going to be uh uh actually the biggest surprise here going back to 2009.

If it surprises and it with a, with a cut of 50 basis points, that's actually going to be a big surprise to the downside as well.

Either way, it just kind of highlights that this is a huge pivotal fed decision.

Did I hear the yield curtain inverted while you were out working on your tan?

Is that what happened?

You know, it did and it was direct, maybe directly add to that uh the yield curve had been inverted for such a long time.

It was a couple of years ago and then only within the last few days has it un inverted?

But you'll remember like it takes two, up to two years.

It's something like 18 months to two years for that yield curve inversion signal for the rec recession to take place.

Well, that's out the window now.

So rest easy.

Find a point.

Jared blacky.

All right.

We are looking at September seasonality, which is sad and this was the last thing we looked at at the close of August when I was standing here next to you.

Um This is the 1st 10 days in the last 10 days of each month.

The average return in the S and P 500 here is the back half of September.

You're gonna notice that is the worst of the year.

So that's kind of, that's just an average, that's just what we have to look forward to potentially.

But this is kind of the time of year when things pick up.

Well, when volatility picks up again, when the potential for unrest in the markets and here's the VIC.

So here's the Cyan is what usually happens throughout the year.

It's an average going back to the start in 1990.

Here's a purple.

We had that big spike in early August.

That was right on schedule.

We got another spike here, but you're gonna notice the trend is higher.

So that's a potential warning that we're in this crash season right now.

What happens after September?

Well, I will go back to this chart here.

Things really pick up um in November after the election, October can go either way.

We've had a lot of market crashes in October but October can go really well as uh as well.

And by the way, all this negative seasonality talk, I don't want to skew investors to the downside.

Too much.

Anything could happen, but these are just historical probability.

All right.

Jem.

Thank you, buddy.

Great to have you back.

Thank you.

Stick around more.

Ask for a trend right.

On the other side today, Tik Tok is making his case in court against a bill that would require to be divested by its Chinese parent company Bytedance or else risk a nationwide ban.

And joining us now is Dan Primack Axios, business editor Dan.

Always good, always good to see you.

Um I think question for you, Dan just maybe start high level because you've been obviously following the story, Dan reporting and writing about it.

I'm just interested to get your take and how, how strong do you believe that the US government's case is that tiktok does represent Dan this national security risk.

So there's two different things, there's the legal argument and then the actual argument on the legal side, I think it's pretty strong because they have a law passed by Congress assigned by President Biden.

So that's pretty strong.

The national security piece.

The reality is we don't know and neither does tiktok really because when you look at these filings that the government submitted to the court for the case that opened today, about a dozen pages of it is redacted, redacted classified information.

So we've never really had a particularly compelling public explanation of it.

But you, every time you get senators or congress people who go into these classified briefings about tiktok, they often come out in kind of lockstep that tiktok is a national security threat.

How do you think this actually then plays out, Dan?

I mean, is this the first step we're gonna, we're gonna head all the way to the Supreme Court on this one?

Well, I will definitely head to the Supreme Court because whoever loses right now in this case in DC appellate court is almost certain to appeal it to the Supreme Court.

So that is almost certainly where we end up with the CCP Dan.

What's your gut, the, the Chinese Communist Party, the Chinese government, would they actually ever even allow a divestment in your, in your opinion, a force by the US government?

I, I don't believe they would.

Uh now there, there's some clever things in theory by dance could maybe do to try, try to assuage that.

But no II, I think the Chinese government has been pretty clear over the years that if it feels it is in the Chinese government or China's best interest to harm one of its homegrown tech companies, it is perfectly willing to do so.

It does not have this kind of reflexive.

Oh, we have to protect byte dance because it's, you know, one of our big unicorns and in byte dance, by the way, for those who don't know, it is the most valuable privately held tech company in the world.

But tiktok is not all of Bytedance.

If tiktok went away, Bytedance could survive, it has kind of a version of tiktok in China and other places and then it has other assets.

So at the end of the day, Dan, I mean, place some bets for me, would you, as you take out your, you know, your forecasting uh magic here, would you say?

Listen, I think this does end up as a nationwide ban.

Well, here's what I think my guess and based in part on what we heard from the judge's questions today uh to tiktok, they, they were fairly skeptical of tiktok's arguments.

So I do think we could get to the point where this divestiture or ban law gets put into place.

But what's important to note is the president of the United States does not have to ban it.

If there's divestiture, it gives the president the option to ban it.

You've already got Donald Trump saying he would not ban tiktok and Kamala Harris has not taken a position on this one way or the other.

You could say she's part of the Biden administration that has said it would do so.

But AXIOS reached out to her campaign yesterday and then again this morning to ask her perspective on this and they declined to respond.

Well, what's also interesting, you know, you do have these, um, bold faced American investors, big names who, who, you know, are kicking the tires here, say they're interested.

It's all, it's hard though to imagine by dance would, you know, part with that algorithm or be allowed to.

So if they did buy Tik Tok Dan, what would they be buying exactly yet?

No one seems to really know because without the algorithm, there's really, that's the special sauce, right?

That that's, that's the recipe that everybody wants.

You know, you hear, you know, you hear Steve Mnuchin and others, the former Treasury Secretary who's theoretically put together a group to buy it.

So, you know, we could do this without the algorithm or, or we could maybe silo off the US piece of the algorithm.

But again, this all goes back to even if Bytedance was to sell, you know, uh I don't know a piece of paper to, to these investors group, the Chinese government has to approve it.

And, and with this goes back to your earlier question, there's no particular reason to think that the Chinese government would be willing to do so, particularly because this isn't just Bytedance saying, you know what for, for a variety of strategic reasons, we don't think we should on tiktok anymore.

This is byte dance being forced by the American government to do it and it's hard to see China abiding by that.

Dan always love having you on the show.

Thanks for joining us.

Thanks.

Yah.

Finance is adding to its growing list of shows starting this Thursday.

September 19th.

Money glow up will break down the misunderstandings.

We tell ourselves about money.

Tiffany Aliche will be your favorite personal finance educator and she helps you transform the way you think about money Tune in every Thursday at 12 p.m. Eastern.

We ask for a trend right on the other side, Intel and Amazon web services announcing a co investments in custom chip designs under a multi year multi billion dollar framework.

This is a significant expansion of the two companies long standing strategic collaboration and joining us now to talk about all this is creative strategies, CEO and principal analyst, Ben, Ben.

Ben, always good to see you.

So let's get right to this news, Ben.

So Intel is gonna be making a custom A I chip for Amazon.

Give me your reaction to that headline, Ben.

How, how important is this in your opinion for the company's manufacturing business?

Yeah, I mean, I think the big win is just a, a large customer, obviously aws by name, Intel's also mentioned that Microsoft will be doing some custom chips with them as well.

So I think there's positive momentum there in terms of getting Foundry wins, particularly in this case for 18 A. Um I think that's been one of the big uh nodes where both Pat Gelsinger CEO of Intel and many others have said, you know, this is the first kind of big scale commercial node that they want to push.

And it sounds like, you know, they have a number of customers uh already announced as well as it appears that there's a lot of interest as well as customers looking for that.

So it's a good win for Foundry.

I think it sets the stage for more customers.

Um, but a good solid, solid step one for adding more customers and getting more revenue to Intel Foundry as they look to make that sustainable and profitable on its own.

I'm just looking Ben at the reaction right now in the after hours.

I mean, this stock is surging about 8%.

Um Does that move make sense to you, Ben?

Is that justified in your opinion?

So I think that's more from a uh a separate note that Pat Gelsinger put out to employees and a road map on from one, updating them on the board conversations that happened uh last week, I believe.

And then, um that there are some plans which, which includes a uh and setting up Intel Foundry as its own internal subsidiary and why that's important.

And this is what I think the news is, is, is positive too in some of the stock reactions is it's not a spin out, but it's essentially as close as you can get to putting the the right kind of walls and guardrails around Intel foundry so that other customers can come in and feel comfortable knowing that they'll have capacity um way for allocation.

And again that there is a separation of Intel foundry from Intel's Fabulous product group.

And I think that's been one of the, the big question marks for, for everybody analyzing this is the services side of that business and it needs to be operated ifs needs to be operated really as its own entity in order to attract many of these way for scale customers for 18 A and beyond.

And this is one step toward inevitably where I think they'll, you know, have it Intel foundry stand on its own.

But I think the reaction is to that, that depend formal independent unit of ifs now folk uh being functional within broader intel uh Intel's business.

You know, uh Ben earlier, we had the chance to speak with Stel, applied uh technology analyst Ruben Roy on whether uh se O bad Pat Gelsinger was really the right man for the job.

Ben and just take a listen, what he had to say here.

I think Pat's heart is in the right place.

I think he came into a situation that required a lot of heavy lifting and they've done a lot of heavy lifting.

There's more to do.

Uh Unfortunately, I think that Pat overestimated the time with which it would take him to kind of complete a large overhaul.

So be we, we've spoken to a couple analysts um on the street who cover Intel uh recently and asked them whether Gelsinger is the, is the right guy for the job.

Um And I, I wouldn't say it was a resounding, you know.

Yes.

What's your take?

Do you, do you think he's the right leader, the right executive and has the right strategy for the chip giant?

I, I do, I mean, I've never doubted Pat's ability to lead this company.

I think holistically, the the timeline and the cost to do so was uh was extremely hard, right?

They, they went through an extremely ambitious undertaking to to regain process leadership and we'll see if, if it sounds like they'll do that and we'll see if they do this for product leadership as well.

Um But that, but trying to do four nodes in five years is or sorry, five, no, four years is essentially difficult and monumentally expensive but, but Intel still has very hard technology problems to solve the entire industry.

Does TS MC has hard, hard problems to solve everybody who makes these chips getting beyond two nanometer and below these are hard technology problems.

And I think having somebody like Pat Gelsinger who is at his heart, a technologist and very good and has a history of solving those technology problems with Intel is the right person to get over.

What are technological hurdles going forward as well as some economics, economical ones.

And I think that sets the stage for, you know, again, a long term opportunity where I think again, we will see two companies at some point in Intel and an Intel foundry, which one of those he then runs, you know, I don't know, I'm not even going to speculate, but I think for where they are right now, he's the right person because of his vision and his ability to overcome technical hurdles, being highly technical himself.

So real quickly, Ben you know, a stock higher right now, but it's obviously been under a lot of pressure.

I think obviously Intel surprised investors with that financial report last month.

What would you say?

Some, some potential catalysts are that investors could have on their, on their radar for Intel near intermediate term here.

So I think there's two, there's two things I think looking at Lunar Lake as kind of the flagship launch where you're looking to see um them regain some process or some product leadership, meaning that it's competitive in areas where Intel has not been competitive.

Uh in years past obviously, performance per watt having battery life as well as high performance in uh in a product road map that can fit into thin in like laptops and all host of other things.

And obviously, Intel has said they're, they're committing more priority of wafers to Lunar Lake than they originally intended because they do feel it's gonna be a stronger pipe for A IP CS and everything that's going on with a, at the edge.

So, so I think monitoring that monitoring volumes and then Intel's profitability around shipping more of those products, even though A SP is gonna be a little bit uh hampered because they're making that product with TS MC.

But I think I look at that product as the uh as the lens by which we see do they have product leadership or product parity again?

So, so there's one piece and the other is process leadership and that's taking place.

I think when we look at 18, a both from a process standpoint as well as backside Power Gate all around.

And I think those are the two bars to see leadership in those two areas.

Thank you, Ben.

I always appreciate your time.

My friend, happy to be here.

That is a wrap on today's, ask for a tread.

Have a great night.