of the market open on this Tuesday morning, we are looking at US stock futures higher, and this does come as the major stock averages are set to extend the recovery following Friday's sell-off.
And of course we continue to monitor geopolitics in the Middle East at the same time, the global energy supply chain does remain crippled with the Strait of Hormuz still choked off by a standoff between Washington and Tehran.
And the semi stocks just roar back to life out in the blockbuster news that open AI has confidentially filed to go public along with the SpaceX IPO expected later this week.
There is speculative mania while at the same time we are going to be talking about what we're seeing underneath the hood for the equity markets.
Joining me live here at the New York Stock Exchange is Michael Reinking, Senior Market Strategist at the NYSE.
Good morning, Michael.
Thank you so much for joining me.
Good morning.
Thanks for having me.
I don't know if you stayed up late to watch the Knicks games, but here we are on this Tuesday morning.
We are looking at a recovery for the major US stock averages.
So what's happening this week?
Yes, so I mean, as you've pointed out, right, on Friday we had a pretty sharp selloff, breaking the nine, the nine week winning streak for the S&P 500.
I guess that was a little bit of foreshadowing.
The Knicks' winning streak also came to an end last night, unfortunately, yes, a little disappointing.
Um, but we are seeing kind of, you know, yesterday we saw a bounce, you know, a lot of that was kind of tech driven bounce this morning, you know, we're kind of extending to the upside, you know, partially on the heels of President Trump's commentary about you know kind of Iran, and we're continuing to see kind of oil prices move a little bit lower, and then we're seeing kind of strength once again in the tech sector, you know, some of that is being driven, you know.
By some reporting out of China that they are looking to spend around $300 billion to build out kind of data center infrastructure.
Now a lot of that is expected to come from internally sourced chips and equipment, but it is kind of also feeding into that data center infrastructure, all the data center infrastructure stocks here in the US, and that's kind of what has got us moving higher this morning.
Yes, and we're continuing to monitor the AI trade, of course, but this week we get key economic data on inflation here in the US, and this does come on the heels of last week's US jobs report and of course SpaceX IPO at the end of this week.
So first, let's talk about the data.
What are you seeing?
So Friday's jobs report was very strong.
Red Sox that's our third consecutive of pretty strong report, over 100,000 jobs added to the economy, really drawing into question kind of the break-even rates that people were sort of suggesting that it would only be 25,000 to 50,000 jobs kind of for a break-even rate.
We've seen three consecutive stronger jobs reports.
We're actually, interestingly, we're not seeing the unemployment rate kind of moving lower, so it's that that break even rate is a little bit higher.
What that did is start to push yields kind of back to the upside.
We crossed back over 5% for the 30 year, 4.5% for the 10 year, and that's that's kind of raised a little bit of concern you're kind of within the market now.
That being said, Friday's was very much about the stuff that had kind of led us higher, right?
You saw kind of very sharp declines in kind of semis and memory.
And and and kind of all the stocks that had been leading in kind of tech, you know, but within the context of the larger moves, right, that that pullback is, you know, even though it's kind of very big on a single day basis, right, it's within the context of the whole move, you know, not so, so large.
I think the big question from here is going to be kind of inflation and then the impact on on rates, right?
So you know tomorrow we have CPI you're expecting to see.
And kind of a take up in kind of both headline and core, you know, the question is, you know, I think markets will accept rates moving higher.
It's just the pace of that of the pace of that increase, right?
And I think that's really kind of a question, you know, that then leads us into kind of next week's kind of FOMC meeting, which is Kevin Warsh's first, um, you know, and we're going to have to see kind of how he, you know, kind of positions himself, you know.
The first time kind of out of the gate and Michael, of course we continue to monitor the geopolitical situation as well as oil prices in New York morning trade.
We're looking at the July WTI contract below that $90 a barrel level, but of course we're expecting higher for longer, at least for the time being in terms of oil prices.
And at the same time, as you mentioned, next week we get the first Fed meeting with Kevin Warsh as the head of the central bank.
So that's a Lot coming down the pike, but before we get to that, tell us about your expectations for some of the mega IPOs that are heading our way.
Yes, yes, look, I mean, so I mean it's a very kind of very big topic of conversation, right?
We have kind of 3 kind of mega IPOs that are going to have kind of filed at this point, you know, SpaceX being the first out of the gate, you kind of pricing on Friday, right?
There's going to be kind of quite a bit of supply coming to the market.
Interestingly enough, last week.
We also saw Alphabet you know kind of kind of announced a capital raise right ahead of all of these IPOs and there are and there are reports that you kind of meta and Amazon and Microsoft are all kind of considering you know raising some capital so you know from a market perspective, right, that is a lot of paper you know to digest right and in many ways right the success of those IPOs.
I kind of there's a sort of a feedback loop right where you know the success of those IPOs, you know, a lot of that money is going to kind of recycle back into this infrastructure build out that we have, right?
So we want to see, you know, kind of, you know, we'd like to see kind of all of that be successful.
I think from a from a broader perspective, right, I mean there is a lot of demand out there.
You can afford this paper, you know, the pipeline is kind of looks very strong.
Right, and these are kind of big, big kind of game changing companies.
Yes, of course we're keeping our eyes closely glued to SpaceX's IPO at the end of this week.
But finally, before I let you go, I do want to ask you about what we saw on Friday and the risks regarding corrections, especially since we've been hitting new record highs for the major stock averages so far in this quarter.
So look, I mean, you know, as, as we can, as I noted, right, what led us higher, you know, kind of really kind of just kind of came off of the boil, right?
And we've had, you know, kind of, uh, you've really started to see kind of the speculative juices fly.
You've seen kind of you know just parabolic moves in a lot of these stocks.
Now that is being driven by earnings growth, right?
So you know, what you can see in sort of situations like that is, you know, there, there can be this.
Period of digestion, right?
And you know if you think back to you know kind of how Nvidia has kind of traded over the last couple of years, right, you had this kind of big ramp in earnings, right, the stock kind of moved up ahead of that, right?
And then as those beats, you know, as the company continued to beat the stock, the stock gains started to slow down, right, and that's kind of, you know, kind of a correction via time as opposed to price, right, where you grow.
Into the earnings multiples that are there now you know for something like uh the memory stocks right I mean just based on what you know the earnings expectations are these things are trading at you know really really low multiples right so you know you know that is kind of the investment case here you know the bigger kind of concern or question right when you kind of look at this is you know how much demand is.
Been pulled forward with the expectations for higher prices, you know, for kind of supply shortages, right, so that you know kind of is the question is how durable are those earnings, right?
And you know so it's not necessarily just the price, it's it's not just the P, it's also the E, right?
And so you have to kind of follow that as we move forward.
Well, a lot to keep our eyes on, Michael, so I appreciate your time and as always, thank you so much for sharing all of your insights.
Thank you.
