JD Durkin: Let’s bring in friend of the show Ben Emons, CIO and Founder at Fed Watch Advisors, for his take on today’s tape and a lot more. I’m glad I’m talking with you, of all people, on a day like today.
Walk me through what we saw with the Treasury auction earlier on today. It’s been a while since we’ve had the phrase “bond vigilantes” on the tip of our tongue. Is that where we’re back at today?
Ben Emons: As you look at today’s market, they’re in full swing, full force today, JD. And, you know, you think about that. We have a strong economy, and PMI data was much stronger than expected. Overnight in Germany, PMI data stronger than expected.
And then you got that auction later where basically people realized, hey, stronger economy, you know, you basically have to get higher yields. You know, it follows GDP.
And then we had, you know, one of the Fed members saying, well, we may have to hike a bit more from here. And that wasn’t really expected by the market. So it all came together, and it spiked the interest rates really because of a lot of technical positioning around interest rates, but also a view that the Fed will have to continue to raise rates from here as the economy continues to strengthen overall.
JD Durkin: Have you been surprised with the market’s reaction since the interest rate hike last Wednesday? Because we did have a nice little bit of a rally, and we know what history kind of tells us. Maybe that interest rate hike was already priced into the market. But up until today, had that been your expectation for the market reaction?
Ben Emons: So I thought it was really interesting because, like you say, normally markets react negatively. But because it was well telegraphed that this hike was likely coming, it was fully in the price.
But I also think that the market is at a point where the Fed has some credibility. You know, the Fed has the market’s back on inflation, and you continue to see this. Yields didn’t go up today because of inflation. They went up today because of GDP, because of growth, because of PMI. That was really the reason.
And that’s positive for stock markets, which I think is why the market wasn’t down so much. It could have been down 2% or 3% on these higher yields. Instead, it’s down marginally, right?
So it’s all about the economy, really. I think if you go from here and the Fed sort of sustains this message about, we’re going to stay on this course to keep inflation under control with moderate rate hikes, I think the markets rally.
JD Durkin: We have the U.N. General Assembly currently going on right here in New York City. Tomorrow, Xi Jinping meeting with President Trump for a state dinner down in Washington.
What, if anything, in the world of geopolitics, my friend, are you tracking? Do you think investors should be paying maybe a little bit more attention to? And, oh yeah, we’re under 40 days out from a midterm election here in the States.
Ben Emons: Yeah. You know, it was interesting yesterday that they had a meeting with Iran on the sidelines of the U.N. conference, right? And there’s a lot of, you know, tension there.
But what’s really important with the Trump-Xi summit is that, aside from AI and aside from trade and tariffs, China has a real stake in the Strait of Hormuz. I think they may talk to China about it. Hey, look, we’ve got to make something work with Iran here. We want you to, you know, back us up in this deal with Iran to make it actually happen, because so far China has been hands-off on this whole conflict. Again, not willing to get involved.
But they have a clear stake because they import so much energy out of the Strait of Hormuz. So I’ll be watching that. Whatever comes out of that conversation, if it is, that will be a big trigger for the market because, ultimately, you saw yesterday when the Iran sort of signals came from, “We may open the Strait in seven days,” the market went up.
So there was a clear link there on what markets expect from the Strait of Hormuz reopening, for sure.
JD Durkin: Bandwidth with the remaining time. You brought us some stocks. Let’s start with these two that jump out to me. AMD, which just became a $1 trillion company earlier this week, and MU. We’ve got Micron earnings. That’s a big one next week. What are you seeing in some of those names?
Ben Emons: So they’re really off the highs from the parabolic, you know, phase where we went into somewhere in June. And it’s sort of more like oscillating in line with the Mag Seven.
So I think they found better footing. The guide is good on both of these companies. It will be really about data centers. Their stock prices have not been affected as much by the data center backlash you’ve had so far, all the AI backlash.
So I think we’re setting up for some good performance here. I mean, these companies should beat their earnings pretty handsomely. And they’re no longer these volatile, you know, let’s say parabolic stocks. They’ve sort of kind of aligned with, I’d say, more behaving like Mag Seven stocks.
JD Durkin: So let’s talk financials. We’ve got Goldman and we’ve got KRE. That’s a well-known regional bank ETF. Yesterday, we had a lot of rotation. Financials got hammered as investors maybe tried to position for this latest AI semiconductor move. What do you see more broadly in financials today, Ben?
Ben Emons: So there was the Meta story that hit the banks yesterday because there’s new agents, banking people waking up like, oh, wait a minute, it can do all these financial transactions too, and it takes away margin from the banks. I think that was highly exaggerated.
You know, this is more a story about, again, the economy, right? There’s strengthening of the economy, more lending, more credit, more opportunity. The capital markets are wide open. Eventually, you get IPOs coming back on, and you’ve got all this other trading.
And although rates can affect the margins for banks, interest-rate margin because the curve gets a bit flatter, ultimately banks really make their money on lending and on capital markets transactions. I think it’s a very healthy environment.
JD Durkin: Yeah, we’re having like a SaaS apocalypse 2.0 conversation the last couple of days. That’s all the time I have for you, but please come back and see us again soon.
Ben Emons: Definitely.
JD Durkin: This is one of our favorite guests. It’s nice to see you again, Ben.
