Let's get to the big story breakdown while we are kicking off a crucial week for both consumer health and monetary policy.
Home Depot just reported its earnings this morning, starting a wave of retail headlines that will continue with Target and Walmart later this week and at the same time, investors are awaiting the FOMC meeting minutes to get a look inside the Fed's family fight over rates all while housing starts and industrial production data are out this morning and that slowly being digested while here to break down all the action on the trading floor Michael.
King, senior market strategist at the New York Stock Exchange.
Michael, good morning.
Thank you so much for joining us.
Good morning, Remy.
Thanks for having me.
Well, it is the middle of August, but we are paying attention to what's happening with global bonds, in particular the longer term bond yields this morning.
So give us your take on what all of this means for the Federal Reserve and, especially ahead of Jackson Hole.
Yes, so yes, I mean it started to finally feel like we were getting into summer.
Now we've got the Kind of this sell off that we're seeing kind of in um kind of longer duration bonds across the globe, right?
So it's not just a US issue, right?
So we're looking at kind of 30 year yields at multi-decade highs in Japan, the US, across Europe, right?
So this is something that's happening kind of, you know, kind of more broadly, um, you know, and we're also starting to see kind of 10 year yields, you know, kind of push up against recent highs, you know, right around 475 this morning.
Um, I think there's a couple of different, you know, kind of things going on, right?
You've had, you know, some of the fiscal imbalances that have been kind of talked about, you know, kind of for a long period of time, you know, kind of across, you know, kind of all these different, um, you know, kind of all these different economies.
We also have kind of this increasing supply, right?
So to put that in perspective, so you know, related to kind of this AI debt issuance, right, which has become one of the, the kind of narratives that's been kind of, uh, you know, kind of really picking up some steam recently, so.
Um, to kind of put that in perspective, uh, in terms of investment grade issuance, it's projected to be about $300 billion of investment grade like hyperscalar issuance this year with AI related issuance expected to exceed $500 billion.
So if you look at.
But Treasury issuances, um, you know, for, for 2026, you're looking at between 10 and 30 year yields, about $750 billion that are expected to be, um, issued throughout this year, right?
So you can see that you're definitely starting to kind of, um.
Crimp some of the demand kind of related to kind of all this bond issuance, and then if you also kind of look at the other narrative that's kind of picking up some steam is if you look at kind of the makeup of those bond buyers over, you know, that has kind of shifted over the last kind of 4 or 5 years right where you're seeing kind of more private investors that are kind of taking up a lot of that supply and they're a little more price.
Sensitive, so they're kind of they're demanding a little bit more yield, you know, kind of to, to, um, you know, kind of to, to digest that supply, right?
So we have a couple of different things that are kind of moving.
You also have kind of what's happening in Iran, you kind of, you know, kind of, um, you're kind of creating some concern around kind of the inflation expectations, right?
And so what you're seeing is kind of really, you know, particularly over the last week we started to see a very significant steepening of the yield curve where with the recent, uh.
Kind of set of economic data you've seen kind of the Fed expectations for rate hikes, you know, kind of this year start to move a little bit lower as we had a weak jobs report.
The inflation data came in slightly better than expected and then a weak retail sales report on Friday.
Yes, so you highlighted a lot of key points there, and I think it really speaks to the fact that there are so many layers to the story here.
But we are also paying attention to the American consumer.
Particular earnings coming out from Home Depot.
Yes, we'll be hearing from Target, TJX, as well as Walmart.
So what did you make of the Home Depot report?
Yes, so the conference call just started.
You know, the numbers look pretty solid, right?
They had a beat for the quarter.
They reaffirmed guidance, and they're kind of obviously dealing, you know, kind of their end market, related to housing, which has been kind of just very much stuck in the mud, right?
So.
But the numbers in general look pretty solid.
Stock was trading modestly modestly higher in the pre-market.
Ammer Sports, the other kind of retailer that reported this morning, had pretty strong numbers.
That stock is also kind of moving higher.
If you take kind of a step back and look at that retail sales report on Friday, it was disappointing, right, you know, but some of that was related to kind of the.
Forward of Prime Day, you know, kind of into June, so you're seeing kind of a little bit of a giveback kind of in those July numbers, you know, there is, there are some, you know, kind of reasons for concern and potential headwinds as we head into the back half of this year when we think about kind of the retail, you know, kind of sector and, and, um, your kind of performance in that, you know, you're coming off of, you're having the tailwinds from the World Cup over the.
Over the first half of this year, right, and those tax refunds and those, those are going to both kind of alleviate in the back half of the year.
So we could see kind of things kind of start to slow down a little bit from a consumer perspective, but at this point we're not necessarily seeing any kind of real signs of and I think this all goes back to the fact that we're keeping a close eye on inflation as well as prices everywhere because We all know when we're going to the gas pump or we're shopping that prices do remain elevated here, so we'll be watching for consumer discretionary spending on essentials when we're looking at TJX or in particular Target and Walmart here.
But when it comes to the central bank, what can rates actually solve for the economy?
Yes, so I mean right now, I mean that's kind of the question.
Does an increase or two, is that going to really, um, you know, it's a blunt instrument and is that going to really solve the issue of, you know, kind of of this you know kind of sticky inflation, right?
A lot of the demand, right, so a lot of the inflation that we're seeing is coming from supply driven.
Um, you know, kind of, you know, supply-driven, uh, you know, kind of forces, right, and, and so monetary policy doesn't necessarily kind of, it's not meant to address that, right?
It's meant to address kind of the demand side of things, and, you know, the question is, you know.
Is, you know, a rate increase or two really going to slow kind of that AI investment?
I'd say probably not, right?
Like, you know, those companies, uh, especially kind of the big issuers, right, are, are very committed to kind of, you know, this infrastructure build out and that's where you're seeing kind of any of.
The demand side inflation that is coming through, so I don't think you know unless you're going to really start upon a significant hiking cycle that that that is going to necessarily kind of address the issues which you know, in many ways, you know, leads you to believe that you know the Federal Reserve at this point might not look to just kind of.
Uh, you can bide some time and kind of keep things on hold at least until we kind of hear what the task forces, you know, kind of, you know, come up with, you know, kind of, um, in the December time frame, right, so you're starting to see kind of those rate hike expectations, you know, ratchet down pretty significantly, you know, Goldman Sachs, who's usually pretty plugged in, you know, kind of said that they thought it was very unlikely that we would see a hike in September yesterday.
And finally, before I let you go, you mentioned AI, and that is something that we're all paying attention to, especially given the fact that tech is lower this morning with AI and semiconductors leading the losses.
But as we look ahead, we'll finally be hearing from Nvidia next week in terms of their earnings report.
So where do you stand when it comes to the ecosystem?
Yes, look, I mean, you know, we had kind of this climactic sell-off a couple weeks. markets have kind of readjusted to that.
I do tend to think that you know when you have kind of a blow off top and then you know kind of a reset in pricing that that doesn't typically lead to kind of a V shaped recovery, right?
I think we've talked about this previously and kind of in terms of how precious metals had had traded earlier this year, right?
You had that recovery, you got an initial bounce, but it actually turned into a pretty long basing.
Process, I think that there's a good shot that we're in for something kind of similar kind of here where we've now had kind of a reset in prices, kind of a very fast snapback of 20%, kind of off the lows in a lot of these kind of memory and neo cloud companies.
I think there's going to be some digestion phase.
Some of the weakness today is related to kind of Xiaomi commentary and overseas and some concerns around kind of pricing.
Uh, you know, there's always going to be this overarching concern, you know, kind of given what we've seen in previous cycles that, you know, as you know kind of companies start to kind of bring capacity online that that's gonna, you know, kind of, kind of damper things on a go forward basis.
You are seeing companies contract out much longer, you know, particularly kind of within the memory sector, right, to try to, you know, kind of highlight that there there is um you know kind of demand that is going to be in place for a longer.
Period of time.
So you know what I'd be looking for is kind of this long basing process where it allows kind of that earnings to really kind of catch up to kind of some of the price movement that we've seen in the stocks and you know it can be kind of a good longer term kind of opportunity, but it just might take some time.
Yes, a lot to keep our eyes on as we head into the end of this month and of course head towards that Jackson Hole, Wyoming meeting.
So thank you so much for joining me today and I appreciate all of your time.
Thank you.
