The big story breakdown.
Wall Street is in New York trade and this does come after riding a fresh rally for the S&P 500 to record highs last week in July surprise job losses came immediate expectations of a September Fed rate hike.
Well of course the true test does come on Wednesday with the July CPI data.
Investors are balancing elevated market valuations against new questions surrounding central bank independence as well as Treasury supply and of course a diverging winner.
Across the AI infrastructure landscape and here to break down trading on the floor this morning is Michael Reinin, senior market strategist at the New York Stock Exchange.
Michael, good morning.
Thank you so much for joining me.
Good morning, Remy.
Thanks for having me back.
Well, of course this morning we're looking at oil inching higher, and when we look at the whipsaw headlines, it really does speak to the concerns surrounding inflation and of course the risks when it comes to inflation here in the US.
So what do you make of what's driving the markets right now?
I mean, look, you know, from, uh, from the geopolitical perspective and an oil market perspective, right, we've continued to see these headlines, the ebb and flow of kinetic activity, you know, whether we're going to have a deal or no deal, um, you know, we continue to hear, uh, you know, that, you know, Oman and Iran are getting close to an agreement, you know, kind of what that means, you know, uh, when it gets translated into what that means for kind of the US, that'll be kind of the big.
Question, right, you know, from the press we're hearing that it excludes kind of the passage of US and Israeli ships through the strait.
It would entail kind of, you know, tolling, you know, those are things that you kind of, um, you know, have been red lines in the past, right, for, for the US.
So, uh, you know, we'll have to see kind of, you know, how that progresses.
Uh, look, I don't think this situation is, is going to go away.
It's going to be something that's going to be with us for, you know, kind of for the foreseeable future.
Uh, at this point, markets have gotten somewhat desensitized to kind of, you know, oil prices in the current levels, um, and you know, I think the, the bigger concern is if you have a, you know, kind of an escalation or you start to see attacks on, on infrastructure, right, and, and then you, you would start to see kind of oil prices moving sharply higher and we don't have the buffer that we had kind of earlier in this year as we've drawn down SPRs, right.
If we can continue back in this back and forth, I think we're kind of OK, but if you start to see kind of ice bre breaking back above $100 a barrel or a tax on infrastructure, that's when things will get a little more dicey.
Yes, so a lot to monitor in the Middle East, but of course less than 24 hours until we get that CPI reading for the latest month end.
This reading is something that we'll all be paying attention to, of course, on the heels of the July jobs report.
So we saw that non-farm payrolls number turn negative while unemployment also pulled back.
So what does the Fed need to do as we head into year end?
Yes, so I mean that's kind of a difficult question, right?
I think Friday's jobs report, which was pretty negative pretty much on all by all accounts, did take a little bit of the pressure off of kind of the Federal Reserve to kind of act a little more aggressively.
That being said, I think.
The gating item is going to be the inflation data as we look forward, um, you know, we, we heard some kind of reporting from the FT last week suggesting sources close to Chair Warsh suggested he would support a rate hike if we did see some hotter inflation data, you know, kind of before the next meeting.
We have two CPI reports before then.
That's not necessarily all that controversial, right?
I think, you know, kind of one of the interesting.
Things will be is we've heard, you know, we've heard a very split committee up until this point.
Um, if the committee was leaning to a hike, I think that would obviously kind of or it would pull Chair Warsh, uh, along for the ride because he wouldn't necessarily want to dissent, right, uh, you know, can it be the dissent on the dissenting side of a decision because that would, you know, sort of give the impression that he's lost the committee a little bit, um, right, so you know.
We'll have to see kind of what that inflation data kind of looks like, you know, Tom's the expectations for tomorrow is kind of a modest uptick, right, so you know it's, it's expected to be reasonably tame, but you know we'll have to, we'll have to see what the data.
Yes, and we're continuing to monitor the bond markets as well, what's happening both on the short end as well as long end of the yield curve, and of course we'll pay attention to what happens, especially as we continue to hear from Fed speakers as we move throughout the rest of this month.
But when it comes to the latest earnings, and of course we're anticipating some of the neoclass that are reporting, where do you stand right now when it comes to AI?
Yes, I mean in terms of Earnings, you can't argue that the numbers have been kind of spectacularly strong, right?
You know, if you look at the S&P 500x some of the investment gains at the mega cap tech names, right, you're looking at earnings that are up over 30% on a year over year basis, right?
It's pretty broad based.
It's not just technology, and you're seeing the impact kind of of that CE spending, that data center spending, you know, kind of impacting all, all areas of the market, right.
So the earnings have been very strong.
They have provided the buffer for kind of the market as we moved higher, you're continuing to see kind of the earnings growth rates are outpacing kind of the gains that we are seeing in the market, right, so you're actually seeing kind of multiples compressing compressing you know kind of within the marketplace.
So you know that is clearly been the buffer, you know, and then you've also just had this kind of massive.
Rotational activity kind of beneath the surface where you had the S&P 500 kind of holding right around all-time highs despite the very significant weakness that we saw within technology kind of during the month of July and now as that has sort of stabilized, you're starting to see kind of volatility kind of begin to compress within the equity markets which also kind of adds back some of that potential systematic.
And finally, Michael, before I let you go, while we're talking about valuation, I do want to get your take on consumer resilience, especially because we are expecting retail sales at the end of this week and of course we're continuing to monitor the growth of the US economy as well.
So given what you've seen so far from the earnings reports as well as the data, where does the American consumer stand?
Yes, so look, I think the consumer has been kind of very resilient up until this point.
This morning, Bank of America's Institute of noted that there was a little bit of a slowdown in the month of July in their credit card spending, falling to around 5% on a year to year basis, down from mid-60.
I do think that the back half of the year that you do have some, you lose some of the tailwind.
That you had in the front half you think to kind of the the tax refunds, um, right, and you kind of lower oil prices, you know, some of those tailwinds that that we've had in the first half of the year kind of run out so we're going to have, um, you know, some headwinds kind of potentially forming kind of in the back half of the year, um, you know, we'll have to see, you know, kind of, uh, if the uh.
Retail sales number on Friday kind of lends any credence to what we heard from Bank of America.
You also have things like the spending related to the World Cup and also kind of fading into the background, and that's going to be a good lead into the retail earnings and that really comes kind of in the following couple of weeks.
So we haven't heard much kind of in the earnings season to date from.
The consumer centric companies we have heard from the travel names and the travel names have put up very, very strong numbers, right?
So you're continuing to see the consumer is looking to travel.
We'll see how that kind of translates into more of the good side of things.
A lot to consider as we head into the rest of this week as well as the rest of this year.
So thank you so much as always for all of your insights.
Thank you.
