The market open here on Wall Street.
We are looking at red for the major US stock averages as the tech sell-off accelerates at the same time, investors are balancing geopolitical progress against a surprising slump in big tech on the macro front.
The US and Iran have agreed to a 60 day roadmap for a final peace deal using the threat of military strikes at the major indexes are being dragged down by the 7 as well as the trade.
Now all of this does serve as the pregame for the May PC inflation gauge which will soon.
The Fed's recent hawkish pivot.
Joining me on this Tuesday morning is Michael Reining, senior market strategist at the New York Stock Exchange.
Michael, good morning.
Thank you so much for joining us.
Good morning.
Thanks for having me.
Well, we are looking at a triple digit loss for the Dow, S&P, as well as Nasdaq ahead of the market open, and this does come on the heels of the tech sell-off we're seeing not just in the US but also overseas, especially in South Korea.
So give us an idea of what's happening below the surface.
Yes, yes, I mean, so yesterday, you know, in US.
Markets right, we really had seen, you know, kind of some weakness, you kind of across the tech sector, you kind of primarily, you know, very heavily in in kind of the mega cap tech, um, you know, kind of hyper scaler names that bled into kind of Asian markets overnight.
You then had some reports in kind of South Korea press that SK Heinix was shifting some of their production away from AI chips into DRAAM, uh, which has now kind of, so you started to see kind of the unwinding the memory stocks which have gone.
Parabolic kind of over the last month or so we have micron earnings tomorrow, right?
So you're now seeing kind of an unwind of all that, you know, kind of, you know, the volatility that we've seen, you know, in South Korea, particularly over the last kind of month or kind of couple of months, right, it's been kind of really eye popping.
It's gotten the eyes of, it's gotten the attention of regulators who have been kind of looking into you know, kind of the leveraged ETF products that are out there.
I think yesterday was the 4th.
Um, the 4th circuit breaker that has been triggered this year, right, so you know you had 10% declines overnight in South Korea, you know, some of those memory names were down over, you know, kind of over 10%, right?
So that's bleeding into US markets this morning.
We're seeing kind of, you know, uh, continued weakness primarily kind of within that tech sector, right?
And you know, beyond the SK Heinek, you know, kind of story from last night, you've seen kind of the, the kind of narrative around.
AI start to shift a little bit, right? and so it wasn't necessarily a kind of 11 catalyst, but it's kind of a culmination of all these kind of headlines where you're starting to hear more about using open source models potentially even kind of deep seek, right?
You've started to see some of the, the, the major companies that are spending within this complex, you kind of actually start to kind of rent out their compute.
You're seeing GPU rental rates kind of moving lower, um, right, and so you have like, you know, there's, there's a host of.
The idea of token maxing and CTOs kind of pushing back on some of that spending, where you have a host of these kind of negative headlines that are starting to kind of come to the forefront and we're seeing kind of just a pullback in some of these areas of the market that have kind of really kind of moved sharply higher over the last couple of months.
Yes, and Michael, you bring up an important point because when we're looking at the South Korean markets, that word leverage does come to mind when we're talking about what we saw overnight.
But here in the US, as you mentioned, There are many moving parts to the AI trade story, whether we're talking about the hyperscalers, what's happening with some of the mag 7 names with capital raises, but I do want to focus on what we're seeing later this week, which is the micro earnings, as you mentioned and PCE figures.
This is the first time that we're talking since the first Fed meeting held by Kevin Warsh.
So where do we stand right now?
Yes, so, look, I think the tech trade is one kind of piece of that and a lot of A lot of the trading around that, you know, kind of comes in the way of kind of positioning and where markets are, right?
The other overarching kind of major theme, as you just pointed out, you know, kind of is, um, you know, kind of markets adjusting to new leadership at the Federal Reserve, right?
And we have a new sheriff in town.
There's clearly a new regime, right?
There's a regime change, and we're going to see, you know, I think one of the byproducts of that and the shift in communication, which was very, very evident last week is that that creates.
Some uncertainty and a period of time where financial markets have to acclimate to that to that change and what that does is introduce some volatility and you're seeing some of that I think the volatility that we're seeing right now is much more tech centric than than you know kind of an adjustment to kind of monetary policy, but but you know that is something that's happening tomorrow we'll get the PCE data.
I think We have a pretty good idea of what that might look like after kind of CPI and PPI.
It might come in a little, you know, there's some upside risk to that number, right, but with what's happening right in kind of in Iran and assuming that things kind of hold and with what we've seen in oil prices, you would expect the inflation backdrop to start to improve.
Over the next few months, right, so the question really is, you know, you, you, you've got this, this change in communication and commitment to inflation and price stability from the Federal Reserve, but does that mean, have we kind of shifted a little more overly hawkish where kind of, yeah, everyone is now expecting 2-3 hikes, right?
Can we get through kind of a.
Period of time where Ws will fall back on the 5 task force, right?
We have a task force for that, right?
The 5 task force for waiting to really necessarily make a big change in shift in monetary policy, hold that kind of hawkish view, right, but not necessarily move rates and then if the data starts to move in their direction, right, be able to kind of work through it that way.
Yes, and I think you've highlighted what we continue to watch whether we're talking about geopolitics or the macro front, because the situation in the Middle East will continue to monitor what the negotiations actually bring and the long-term impact on oil prices.
But given the fact that we've seen some central banks, including the ECB as well as the BOJ, raise rates, we'll have to see what this means for the FX market as well as rate differentials.
Moving forward, given all of this volatility, where do you stand when it comes to the IPO outlook, especially given the price action we've seen in SpaceX?
Yes, look, so I mean we had a very sharp rally kind of in the aftermath of the IPO.
You know we can change you go, right, and we've now started to kind of see some of that unwind, right?
And I mean that doesn't, that doesn't, that's not out of the context.
What we often see in kind of, you know, IPO markets, look, I think there is still a lot of demand out there kind of for new paper, right?
We have kind of innovative companies that are still looking to come public and we have, I think, you know, a very strong pipeline as we kind of move into the back half of this year and I don't think that you know kind of what we're seeing right now necessarily derails any of that.
You have to kind of keep things in context, right?
We've had a very, very big move, you know, particularly kind of within the technology sector, right?
So there are going to be times where you have to question the narrative and kind of you kind of grow into some of that price action that we've seen, and I think that's kind of what we're in here, you know, kind of at this kind of very moment it's not like necessarily.
Derailing the entire trade, right?
It's like it's a gut check.
You have to kind of, you know, figure out where things are, digest some of those recent gains, shake out, you know, kind of shake the tree a little bit, shake out some of the weak hands, right, and then you can kind of consolidate some of those gains and you know kind of continue to move forward.
Well, we will be watching that price action as we head into today's session.
So Michael, thank you so much for joining me today and thank you for your insights.
Thanks for having me.
Thank you.
