Ahead of the market open here in New York, we're looking at mixed trading for the major US stock averages.
We just got a slew of big bank earnings as well as consumer inflation, and we did see CPI cooling in June coming in below forecast now earnings season getting off to a busy start with big banks reporting results for the latest quarter.
Well joining me ahead of the market open is Michael ranking, senior markets.
Strategist for the New York Stock Exchange.
Michael, good morning.
A lot of headlines breaking this morning, but first, let's address the inflation figures.
So what did you make of that reading morning?
That was a tour de force of going through all those headlines this morning.
So well done.
Look, there's a ton ton ton going on this morning in terms of the inflation data, right?
Fed Waller's speech yesterday really kind of set the stage, right?
So I had a little bit of a different takeaway than kind of your guys' take on his speech yesterday where he really reinforced the idea or enforced the idea that if we had a hot number today that a July hike was potentially on the table.
You saw markets move pretty dramatically on that in terms of where kind of Fed rate expectations were, you know, we had moved to almost 50/50 for a July hike.
Um, right, and we've seen kind of the dollar moving higher, yields moving higher, a lot of pressure on kind of, um, your, your kind of long dated, um, kind of growth stocks and then kind of precious metals, right?
And then you got this number this morning which unequivocally came in better than expected, right?
You, um, you're kind of on a headline and a core basis.
You saw core actually move a little bit lower.
Super core moving a little bit lower as well, so pretty much the opposite of what kind of Waller was warning against, and you have some trap positioning, you kind of markets moving pretty sharply.
You have 2 year yields down 10 basis points.
We're just kind of reversing much of what all of yesterday's move and then a little bit more kind of in the other direction, right?
So I think. of the reaction function today just comes on the back of Waller's comments yesterday.
Yes, and I do want to address the inflation because energy prices do remain front and center, and of course we're looking at prices for crude WTI rising yet once again.
And given this uncertainty in the Middle East, how are you factoring this in?
Yes, that's, and I think that's Kind of why you have a little bit of a tempered reaction function here, you know, kind of from a market perspective in that you're seeing kind of better inflation data today.
We understand that a lot of that is being driven by the decline that we just saw in oil prices over the last month.
Now you're kind of reversing, you know, kind of a pretty significant portion of that, you know, over the last few days you see kind of a re-escalation.
You know, in Iran, so markets are now kind of kind of recognizing that we've seen the data move in the right direction.
The drivers that are helping that you kind of are now dampened.
That being said, like if you look through you kind of some of the areas within the inflation data that is kind of more impacted by tariffs and things of that nature, which was something that Waller was also highlighting, right, there were declines in, you know, disinflationary kind of pressures in a lot of those, in a lot of those areas, right?
So that's Kind of a positive to kind of take away from the overall numbers.
Yes, and of course we've been paying attention to the big bank earnings that have been pouring out this morning.
A lot of blockbuster results from some of the big names here.
But at the same time we have to keep in mind that the Dow is lower this morning and this does come as IBM is seeing its worst single day drop in nearly 4 decades here.
Given the fact that we're seeing this preliminary earnings report, not just from IBM, but yesterday we did get TSMC.
What do you make of what we're seeing between financials and tech?
So it's crazy.
So, I'll do one real quick plug.
So last night we put out our kind of Q2 earnings preview, so check out the NYC.com.
That will be posted a little bit later this morning for public consumption.
Um, you know, I think our big takeaway was that like that was, you know, the bar is higher, right, earnings are going to be strong, you know, that's our expectation.
The question is, you know, has, have kind of, uh, expectations outrun kind of the fundamentals here in the near term and, and whether or not, um, you know, kind of like stocks and, and kind of, you know, markets can continue to, you know, just kind of plow higher now.
There's a lot of, you know, every sector and kind of every situation is a little bit different, so we'll, we'll start with the financials, right, since they were kind of the the big headlines this morning.
The numbers pretty much across the board were very strong, right?
And if you looked at it from a trading perspective, they were strong.
The investment banking numbers, you know, kind of really picked back up, loan growth was was positive.
If you looked at the provisioning and credit quality, all those numbers were positive, so there wasn't really a whole lot to get negative about.
They had good expense controls, right?
The only, the stocks are trading, most of the stocks outside of Goldman, which was a very, very big standout in terms of FI trading relative to the peers.
Most of the stocks are trading a little bit lower, largely due to the function that we've just had such a big rally in a lot of these names, you know, kind of, you know, coming into the coming into the quarter.
Now IBM is a totally different situation, right?
So, AI disruption has been, you know, kind of software has been kind of in the crosshairs of this AI disruption trade.
Um, IBM negatively pre-announced, uh, last night, you know, kind of talking about.
Um, you kind of shifting IT budgets, moving into kind of memory, AI, you know, kind of and hardware and drawing away from, um, kind of, you know, spending on, on some of their mainframe products, right?
So um that is going to once again very much put software.
In the crosshairs you're looking at the software sectors down kind of 34, 5% um you're kind of here in the pre-market um you know and that kind of that memory um and hardware kind of dynamic is something that we're going to continue to hear about now the the the.
If you want to kind of look for a negative within that from kind of the semi-memory perspective, the question is, and we've talked about this, you know, and I've talked about this with you previously, is how much of a pull forward of demand have we seen in the first, you know, Q1 and Q2 this year in terms of with with the expectation that prices and that prices are going to move higher and that.
There is a shortage in a lot of this, in a lot of this in memory and a lot of the inputs.
So how much of a pull forward demand was there really kind of in the first half of this year and does that kind of potentially lead us to some tougher comps as we move into the back half of the year and into next year?
Yes, and finally, when it comes to the big banks, of course the question is, are the record profits, these gains, are they sustainable?
Right, yeah, and I think that's, I mean that's kind of the, you know, that's a question from the banks and that's also kind of a very, very big question kind of in terms of kind of the the AI or the kind of AI beneficiary complex, right?
And that's, you know, kind of, I think that is the the the thing that kind of companies need to convince the street of right now everybody understands the numbers are going to be good, the numbers are going to come in strong. can you know management teams.
Convince the investment community and markets that there is durability in these earnings on a go forward basis, you know, kind of some of those long term contracts that Mike Ron kind of talked about, you know, kind of during their most recent quarter kind of is a step in kind of you know showing that there is some durability there, you know, the other thing to kind of keep in mind is there's.
Just such a big positioning dynamic going on, right?
You know we've seen kind of the volatility in South Korea has been definitely bleeding into US markets, right?
Yesterday they had their 7th market-wide circuit breaker kind of over the last year, right, you kind of SK Heinek ADR kind of being listed on Friday, you're seeing all the leverage.
Products that are kind of tied to these things, right?
So you know that's you've had this kind of parabolic move higher in that sector and you're kind of in the kind of digestion and unwind phase of some of that here in the near term.
Well, it is only day one of the official earnings season, so we have a lot to digest and of course look forward to.
So Michael, thank you so much for weighing in and thank you so much for all of yours.
