WEBVTT - Breaking Down the Market Selloff 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.800 --> 0:00:14.920 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney, along 0:00:14.920 --> 0:00:17.280 with Tom Keene. Join us each day for insight from 0:00:17.280 --> 0:00:20.800 the best in economics, geopolitics, finance, and investment. You can 0:00:20.840 --> 0:00:24.480 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.800 --> 0:00:30.240 from seven to ten Eastern from our global headquarters in 0:00:30.320 --> 0:00:33.480 New York City. Subscribe to the podcast on Apple, Spotify, 0:00:33.640 --> 0:00:36.800 or anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.880 --> 0:00:39.839 the Bloomberg Terminal, and the Bloomberg Business app. All right, 0:00:39.880 --> 0:00:41.920 let's go to a pro here. Quincy Crosby, chief Global 0:00:41.960 --> 0:00:44.680 strategist at olpl Financial. Quincy, thank you so much for 0:00:44.760 --> 0:00:48.400 joining us here. What do you make of what transpired 0:00:48.479 --> 0:00:51.760 from the close on Thursday to where we are here? 0:00:54.080 --> 0:00:56.520 Well, you know, you could attribute it to the. 0:00:58.840 --> 0:01:02.400 Unemployment number jumping. Its skipped four point two, went right 0:01:02.440 --> 0:01:05.720 to four point three. Expectations were that it would remain 0:01:05.760 --> 0:01:09.759 at four point one, and there have been concerns. Even 0:01:10.080 --> 0:01:15.320 Powell mentioned at the press conference that they are I 0:01:15.400 --> 0:01:17.720 don't know if you use the word monitoring, but it 0:01:17.800 --> 0:01:22.360 was close to that the employment landscape, and he has 0:01:22.440 --> 0:01:27.319 been invoking the maximum employment mandate over and over again 0:01:28.400 --> 0:01:32.280 over the last month or two months. And now he's 0:01:32.280 --> 0:01:35.679 got a situation in which the market believes that the 0:01:35.920 --> 0:01:38.960 push in the unemployment rate, which in and of itself 0:01:39.000 --> 0:01:41.320 isn't But he even talked about four point one was 0:01:41.360 --> 0:01:44.920 still a strong, a resilient labor market. While we jump 0:01:45.000 --> 0:01:48.480 up to four point three. The question is is this 0:01:48.640 --> 0:01:52.240 the harbinger of a labor market that is going to 0:01:52.360 --> 0:01:55.960 weaken at a faster clip, because that's what the historical 0:01:56.120 --> 0:02:00.320 pattern suggests that once you start moving up higher, it 0:02:00.400 --> 0:02:03.080 continues to move up higher. The other thing with the 0:02:03.120 --> 0:02:08.160 initial unemployment claims and also the continuing claims, and that 0:02:08.360 --> 0:02:13.320 is worrisome because you can argue about the participation rate 0:02:13.680 --> 0:02:16.720 all of that, but when you see that people cannot 0:02:16.760 --> 0:02:20.040 get jobs, it's harder and harder for them to get jobs. 0:02:20.680 --> 0:02:23.640 You have to look at this employment landscape and wonder 0:02:24.240 --> 0:02:27.360 is there something deeper going on? And you don't have 0:02:27.400 --> 0:02:30.600 to be a PhD economist to figure it out. Yes, 0:02:30.680 --> 0:02:31.120 there is. 0:02:31.600 --> 0:02:33.600 Companies may not be late. 0:02:34.040 --> 0:02:36.760 So therefore you had that and that was by the way, 0:02:36.760 --> 0:02:41.839 in conjunction with the manufacturing ISM manufacturing report that has 0:02:42.360 --> 0:02:46.160 been deteriorating. Even at a faster clip. Today we'll have 0:02:46.200 --> 0:02:48.760 a bigger picture on the services you. 0:02:48.760 --> 0:02:51.120 Have to get those ISM services at ten o'clock, which 0:02:51.280 --> 0:02:53.400 I love that indicator as well. You know, it didn't 0:02:53.440 --> 0:02:55.920 take Wall Street banks a lot to jump on this. 0:02:56.080 --> 0:02:59.000 I mean, within like hours we got GP Morgan, we 0:02:59.080 --> 0:03:02.760 have City Look, fifty basis point cuts for September and November, 0:03:02.760 --> 0:03:06.280 and then twenty five basis point cut in December. Other 0:03:06.360 --> 0:03:08.560 banks sort of added on to that, is are those 0:03:08.639 --> 0:03:09.840 kind of calls justified? 0:03:12.040 --> 0:03:15.840 They'll only be justified if the numbers continue to deteriorate. 0:03:16.480 --> 0:03:18.840 You know, the mart the market has wanted as you know, 0:03:19.600 --> 0:03:22.840 what was it seven rate cuts this year. They're lucky 0:03:23.000 --> 0:03:25.559 and then they thought, oh, maybe we'll get one in September. 0:03:25.919 --> 0:03:28.480 But the fact of the matter is that finally they 0:03:28.480 --> 0:03:32.960 have an economic rationale for suggesting that the FED has 0:03:33.040 --> 0:03:35.680 got to come in and offer more help, and the 0:03:35.680 --> 0:03:38.280 Fed is going to have to do it. The worry is, 0:03:38.520 --> 0:03:41.920 and you know, I don't need to be looking at 0:03:42.040 --> 0:03:44.839 what they did wrong at the beginning. They waited too 0:03:44.920 --> 0:03:48.360 long to raise rates and then they are looking as 0:03:48.400 --> 0:03:50.040 if they're behind the curve already. 0:03:51.120 --> 0:03:54.960 Emergency rate cuts. Put that into context. When do they happen? 0:03:55.000 --> 0:03:57.800 Why do they happen? Should should emergency rate cut be 0:03:57.920 --> 0:03:58.480 on the table? 0:04:00.400 --> 0:04:02.360 Well, it should always be on the table, and it 0:04:02.400 --> 0:04:04.680 is always on the table because the fake could come 0:04:04.680 --> 0:04:07.760 in at any time to raise race or cut race. 0:04:08.240 --> 0:04:12.120 And I think if they do see that the unemployment 0:04:12.240 --> 0:04:15.800 rate is going to rise again, if we start to 0:04:15.800 --> 0:04:19.599 see a host of data releases that suggest even more deterioration, 0:04:20.000 --> 0:04:22.080 such as what we're going to have this morning with 0:04:22.200 --> 0:04:26.600 the ISM service sector report, they may have to do that. 0:04:26.720 --> 0:04:29.200 They don't want to do that. There's always a suggestion, 0:04:29.360 --> 0:04:32.320 now this is what's ironic, that it'll scare the market. 0:04:32.360 --> 0:04:34.359 We'll take a look at the market today, take a 0:04:34.400 --> 0:04:37.560 look at it on Friday. The market is already scared. 0:04:37.720 --> 0:04:41.400 They're not going to cave unless they really believe that 0:04:41.440 --> 0:04:43.279 they are behind the curve. And the other thing is 0:04:43.320 --> 0:04:46.440 there are rumors that at the last FED meeting there 0:04:46.440 --> 0:04:49.480 were those who suggested that they needed to cut rates 0:04:49.480 --> 0:04:52.039 at that meeting. The Fed is waiting an awfully long 0:04:52.120 --> 0:04:56.000 time until September eighteenth. The market is clearly not waiting 0:04:56.040 --> 0:04:56.480 that long. 0:04:56.960 --> 0:04:59.960 So that brings the question into the actual market action. 0:05:00.480 --> 0:05:02.080 If you look at the S and B futures, we're 0:05:02.080 --> 0:05:05.080 down by three percent, NASA future is off by over four. 0:05:05.560 --> 0:05:08.080 I mean, it's ugly, right, And this raises the question 0:05:08.120 --> 0:05:11.320 of selling. The gets selling, like once you trigger stops, 0:05:11.360 --> 0:05:13.159 then you have to sell more. You have a systemic 0:05:13.240 --> 0:05:14.880 funds that'll come in at nine point thirty when the 0:05:14.920 --> 0:05:16.680 cash market opens, and they're going to have to be 0:05:16.680 --> 0:05:20.600 selling more like CTA's. You have the en carry trade unwinding. 0:05:20.640 --> 0:05:24.000 How much of that is playing in versus the fundamentals? 0:05:25.839 --> 0:05:27.840 Well that you know this is this is the This 0:05:27.960 --> 0:05:30.520 is the basic argument, because you can make an argument 0:05:30.560 --> 0:05:33.920 on both sides of the equation. Right now, the labor 0:05:33.960 --> 0:05:37.000 market with the numbers that we have, suggest that there 0:05:37.080 --> 0:05:41.000 is still some resilience. The fact that the GDP report 0:05:41.120 --> 0:05:43.359 for the second quarter, the first streat came in at 0:05:43.360 --> 0:05:45.760 what was a two point eight percent, the fact that 0:05:45.839 --> 0:05:49.960 consumers continue to spend. But the question is the market 0:05:50.080 --> 0:05:53.640 is supposed looking ahead. That's the market's job. And by 0:05:53.680 --> 0:05:55.760 the way, I should point out that the economists of 0:05:55.800 --> 0:05:59.320 the FED should also be looking ahead, because that's the 0:05:59.480 --> 0:06:02.719 a in this job as well. And then the concern 0:06:03.000 --> 0:06:07.480 is that again selling begets selling, buying begets buying. That's 0:06:07.520 --> 0:06:10.400 the way it is, you know, margins, margin calls are 0:06:10.440 --> 0:06:15.200 coming in. It creates a war text of the Vix 0:06:15.320 --> 0:06:17.800 climbing higher. We haven't seen the Vix climb this hire 0:06:17.880 --> 0:06:20.239 in a long time. But the fact of the matter 0:06:20.400 --> 0:06:23.680 is the FED is going to be very careful about 0:06:23.720 --> 0:06:28.159 coming in and suggesting that we need an emergency move. However, 0:06:28.240 --> 0:06:30.640 I do want to point this out. I will never 0:06:30.720 --> 0:06:35.240 forget a Christmas Eve on twenty eighteen, as that market 0:06:35.360 --> 0:06:39.159 just tanked and the FED that that December meeting raced 0:06:39.240 --> 0:06:41.960 rates suggests that we would have rate hikes in twenty nineteen. 0:06:42.360 --> 0:06:46.920 The first Friday in January, the FED called it off. 0:06:47.040 --> 0:06:50.520 Remember that before the market opened, right, Fed's going to 0:06:50.520 --> 0:06:51.080 be patient. 0:06:51.920 --> 0:06:55.120 End of story, all right, Quincy, fantastic perspective. Thank you 0:06:55.120 --> 0:06:57.400 so much for joining us, Quincy Crosby. She's the chief 0:06:57.640 --> 0:07:12.800 global strategist for LPL Financial Boy, the economic narrative really 0:07:12.840 --> 0:07:15.960 seemed to pivot on Friday, with that weeker than expected 0:07:16.040 --> 0:07:19.160 jobs data really calling into question the health of the 0:07:19.320 --> 0:07:22.040 US economy and of the US consumers. Let's get some 0:07:22.680 --> 0:07:24.680 color on that right now. We can do that with 0:07:24.720 --> 0:07:28.720 Angie Solonk, National director of Retail Services for the US 0:07:28.760 --> 0:07:31.360 at Collier's. Angie, thanks so much for joining us here. 0:07:32.040 --> 0:07:35.440 What's your view aerie of kind of the US consumer 0:07:36.000 --> 0:07:36.440 right now? 0:07:37.440 --> 0:07:39.240 You know, it's really interesting when we look at the 0:07:39.360 --> 0:07:42.800 US consumer. I mean we've actually seen a slight you know, 0:07:42.920 --> 0:07:45.920 gain compared to June twenty four to twenty three by 0:07:45.920 --> 0:07:49.520 two point three percent, although from prior month it's been 0:07:49.680 --> 0:07:54.520 relatively unchanged. Now I'm forecasting or we're forecasting at two 0:07:54.560 --> 0:07:57.120 percent at your end, and we're trying to kind of 0:07:57.120 --> 0:07:59.720 put our wrap our hands, you know, around what's going 0:07:59.760 --> 0:08:03.880 on the consumer. Paul, I'll just let you know. You know, 0:08:03.920 --> 0:08:08.000 we're really seeing the consumer having so much convenience and 0:08:08.080 --> 0:08:11.320 ease of shopping with online or in store. I mean, 0:08:11.320 --> 0:08:14.960 it's really a frictional less type of shopping experience, so 0:08:15.600 --> 0:08:16.559 they're spending more. 0:08:17.320 --> 0:08:17.680 All right. 0:08:17.720 --> 0:08:20.000 So I'm not into this back to school thing because 0:08:20.040 --> 0:08:22.880 my kids are grown. But my youngest he's gonna be 0:08:22.880 --> 0:08:24.720 starting a sophomore year in college and we bought him 0:08:24.760 --> 0:08:27.600 his first suit yesterday. So that is my back to 0:08:27.640 --> 0:08:31.320 school shopping scenario. But Angie, I know it's a thing 0:08:32.120 --> 0:08:34.640 for the retail space. Back to school. How's that looking 0:08:34.679 --> 0:08:35.000 so far? 0:08:35.800 --> 0:08:37.320 It's looking actually quite well. 0:08:37.720 --> 0:08:40.800 You've actually seen an early start to back to school, 0:08:40.880 --> 0:08:43.560 so right now it's about eight percent of compared to 0:08:43.920 --> 0:08:45.800 what we've seen in the past. And I think people 0:08:45.880 --> 0:08:49.200 are refreshing their closets, just like your son with this suit. 0:08:49.280 --> 0:08:52.040 I mean, people are taking pride in what they're wearing. 0:08:52.800 --> 0:08:54.480 Do you feel like we're going to see a value 0:08:54.520 --> 0:08:57.800 war though for back to school? Similar to say fast 0:08:57.800 --> 0:09:01.079 food chains like McDonalds, Burger King, Wendy's. It's all about 0:09:01.080 --> 0:09:04.560 that value, right, how's that transmitting itself into the retail space. 0:09:05.679 --> 0:09:08.280 Definitely, You're you know, you're still seeing value. Look, there's 0:09:08.280 --> 0:09:12.400 still a discrepancy as it relates to wage in job 0:09:12.480 --> 0:09:16.200 growth and unemployment. So people are still managing their funds, 0:09:16.360 --> 0:09:19.760 they're being conscientious, they're taking their time and understanding how 0:09:19.840 --> 0:09:22.560 much to buy, where to buy, and how much time 0:09:22.600 --> 0:09:26.160 they're spending. So there is a value driven component, but 0:09:26.200 --> 0:09:29.480 there still is that middle class and higher income you know, 0:09:29.559 --> 0:09:33.679 where they're still spending and not thinking too much about it, 0:09:33.760 --> 0:09:36.520 you know, So there is still that hyper spend occurring. 0:09:37.200 --> 0:09:38.760 How about it? Some of it at the lower end. 0:09:38.760 --> 0:09:40.880 I'm thinking some of the dollar stores, how do they 0:09:40.920 --> 0:09:44.319 fare in this environment where again we really see a 0:09:44.360 --> 0:09:50.080 disparity in income and a disparity in retail spending, savings 0:09:50.160 --> 0:09:52.920 rates at credit card delinquencies. How are the dollar stores 0:09:53.000 --> 0:09:54.440 kind of seeing business today? 0:09:55.280 --> 0:09:56.800 I think they're asally going to do quite well. 0:09:56.800 --> 0:09:58.880 You know, with some changes that we've seen with ninety 0:09:58.920 --> 0:10:03.200 nine cent store closing, there's still a need and therefore 0:10:03.240 --> 0:10:05.839 you're going to see them actually kind of rechange their 0:10:05.880 --> 0:10:07.480 merchandise and their product mix. 0:10:07.320 --> 0:10:08.000 And their stores. 0:10:08.320 --> 0:10:11.280 So with that, there will be an increase in terms 0:10:11.320 --> 0:10:14.880 of their the people going into that store spending because 0:10:15.000 --> 0:10:18.000 at this point, you know, with the ninety nine cent 0:10:18.120 --> 0:10:20.960 no longer around, people have nowhere to go other than 0:10:21.000 --> 0:10:23.559 they're going to maybe shop into the targets and walmarts. 0:10:23.760 --> 0:10:26.360 But that ninety nine cent store and that dollar store 0:10:26.360 --> 0:10:29.800 is still bringing value. So you're still able to buy produce, 0:10:29.800 --> 0:10:32.400 You're still able to get you know, quick, you know, 0:10:32.520 --> 0:10:37.640 grab and go items, batteries, household goods, napkins, et cetera. 0:10:37.800 --> 0:10:40.480 So I think there's still definitely going to be an 0:10:40.520 --> 0:10:43.160 increase foot traffic in those types of value stores. 0:10:43.920 --> 0:10:47.760 What would you be telling what area of retail has 0:10:47.800 --> 0:10:50.160 the most problems and how would you tell them to 0:10:50.200 --> 0:10:51.560 solve that problem right now? 0:10:52.800 --> 0:10:55.440 You know, when you look at retail overall, you know, 0:10:55.520 --> 0:10:58.880 the grocery sector has been pretty steady. And what I 0:10:58.920 --> 0:11:02.000 really have noticed in terms of the grocery spend is 0:11:02.040 --> 0:11:04.480 that it's been seen in actually a very you know 0:11:04.679 --> 0:11:08.319 slide increase about one point seven percent. And so when 0:11:08.320 --> 0:11:09.920 you stop and think about that, it has to do 0:11:10.040 --> 0:11:13.480 with a the cost of the product and the goods 0:11:13.520 --> 0:11:16.360 within the stores. Also, I think if you're stopping think 0:11:16.400 --> 0:11:18.360 about it, you can go into a quick service. Yes, 0:11:18.400 --> 0:11:21.200 it's a little more expensive in terms of you know, 0:11:21.360 --> 0:11:24.480 the per person spend, but if you look at that 0:11:24.679 --> 0:11:28.160 versus you know, grocery, cooking at home, making your meals, 0:11:28.520 --> 0:11:31.120 doing the dishes, all of that, it might be a 0:11:31.160 --> 0:11:34.840 little more convenience. So, you know, the quick serve restaurants, 0:11:34.840 --> 0:11:38.719 the fast food restaurants, although seeing a bit of a slowdown, 0:11:38.840 --> 0:11:40.800 it's still you know, there's still seeing. 0:11:40.600 --> 0:11:41.640 Quite a bit of pace. 0:11:42.480 --> 0:11:46.360 We're actually from a retail perspective, in terms of leasing, 0:11:46.640 --> 0:11:50.679 we're actually seeing more quick service restaurants looking for space, 0:11:51.120 --> 0:11:55.280 looking to expand, So it hasn't slowed down in that part. 0:11:55.280 --> 0:11:58.160 But I would say groceries starting to still trying to 0:11:58.160 --> 0:11:59.600 figure itself out. 0:12:00.000 --> 0:12:02.839 About luxury. We've seen some of the luxury retailers report 0:12:02.880 --> 0:12:07.280 some sluggish results of the most recent quarter, citing in part, 0:12:08.080 --> 0:12:10.600 you know, the sluggish Chinese economy and lack really of 0:12:10.640 --> 0:12:14.600 outward bound travel by Chinese. How's the luxury space look 0:12:14.640 --> 0:12:14.800 to you? 0:12:15.800 --> 0:12:16.800 It has slowed down. 0:12:17.000 --> 0:12:19.559 I would say that it's slowed down if you're comparing 0:12:19.640 --> 0:12:23.520 it to kind of the peak we had, you know, right, 0:12:24.080 --> 0:12:27.160 you know, during COVID and slightly after that. I wouldn't 0:12:27.200 --> 0:12:32.200 say it's completely you know, it's less than twenty nineteen. 0:12:32.320 --> 0:12:35.400 It's it's still you know, ramping, it's still in I 0:12:35.400 --> 0:12:37.920 would say, you know, maybe fifteen to twenty percent from 0:12:37.920 --> 0:12:41.240 twenty nineteen. So we are seeing a slowdown there. Definitely 0:12:41.320 --> 0:12:44.000 has been a slowdown. As it relates to just the overseas. 0:12:44.679 --> 0:12:48.160 I think people are still looking at luxury. They've kind 0:12:48.160 --> 0:12:51.720 of spent during the last few years and of you know, 0:12:52.559 --> 0:12:55.839 kind of identified and purchased what they needed. So we 0:12:56.280 --> 0:12:58.320 are seeing a bit of that occurring at the moment. 0:12:58.400 --> 0:13:00.400 And also I think we're seeing, you know, kind of 0:13:00.400 --> 0:13:05.080 that Chinese Asian consumer going elsewhere to spend in luxury. 0:13:05.120 --> 0:13:06.679 Maybe not in the US. 0:13:07.000 --> 0:13:10.640 That's interesting, Yeah, exactly like Chinese going to Japan. I 0:13:10.679 --> 0:13:12.679 think because of that exchange rate, you have to wonder 0:13:12.679 --> 0:13:15.240 what happens at the last couple of days. But I 0:13:15.280 --> 0:13:16.960 want to just I know this might be a little 0:13:16.960 --> 0:13:19.440 off field for a second, but in terms of EVS, 0:13:19.520 --> 0:13:21.679 we've had a lot of the Carmakers report, and it's 0:13:21.679 --> 0:13:24.600 been really ugly out there, particularly when it comes to 0:13:24.720 --> 0:13:27.480 sales weather in China or in Europe when it comes 0:13:27.520 --> 0:13:32.640 to EVS. However, can retailers though capitalize on this shift 0:13:32.679 --> 0:13:35.319 that we are eventually going to see. 0:13:36.080 --> 0:13:37.960 I would say yes for a couple of reasons. So 0:13:38.040 --> 0:13:40.319 what was really interesting when we started digging into these 0:13:40.400 --> 0:13:45.080 numbers was when we saw that foot traffic, so the 0:13:45.160 --> 0:13:49.560 actual footfall in stores was starting to you know draw 0:13:49.920 --> 0:13:52.960 We started to dig why why is this happening? This 0:13:53.000 --> 0:13:56.480 is really for your large major you know retailers, big 0:13:56.520 --> 0:14:00.120 box retailers. Well, because they made it so easy to 0:14:00.160 --> 0:14:04.640 shop online, pickup in store, curbside pickup et cetera. They 0:14:04.640 --> 0:14:07.080 started to notice that people were not spending as much 0:14:07.160 --> 0:14:11.040 time in the store. So by putting a or getting 0:14:11.080 --> 0:14:15.480 involved in that kind of retail or EV sector, you're 0:14:15.520 --> 0:14:19.400 really creating another reason for that consumer to come into 0:14:19.440 --> 0:14:21.120 the store and spend more time. 0:14:21.200 --> 0:14:23.680 So it's not a fifteen minute in and out. 0:14:23.720 --> 0:14:26.640 But if I'm charging my car, if you have an 0:14:26.640 --> 0:14:29.600 EV car or vehicle, you can actually go in and 0:14:29.640 --> 0:14:31.760 you're going to you know, you may start buying things 0:14:31.800 --> 0:14:34.760 that you didn't even think about. So you're spending thirty minutes, 0:14:34.800 --> 0:14:37.200 forty five minutes, or even an hour in a store, 0:14:37.440 --> 0:14:41.160 you're going to be accumulating just things to purchase. 0:14:41.320 --> 0:14:42.880 So I think it's a little bit of that. 0:14:43.000 --> 0:14:46.480 Plus it could be another additional revenue channel. They may 0:14:46.520 --> 0:14:49.680 be able to advertise specials. If you're sitting in your 0:14:49.720 --> 0:14:52.440 car charging your car and waiting, you might see something 0:14:52.480 --> 0:14:54.720 that pops up that's going to drive you into the 0:14:54.760 --> 0:14:55.840 store to make a purchase. 0:14:56.200 --> 0:14:58.360 Angie, thanks so much for joining us. Always appreciate getting 0:14:58.400 --> 0:15:01.400 your thoughts on the retail side of the business. Anchie Slank, 0:15:01.720 --> 0:15:04.080 National director of Retail Services for the United States for 0:15:04.160 --> 0:15:11.320 Colliers Lissa Auto Joints is here, head of TMT Research, 0:15:11.680 --> 0:15:15.000 simply Global Visible Alpha. Melissa, we're just hearing Lissa Miteo 0:15:15.120 --> 0:15:17.280 rattle off some of these pre market trading numbers for 0:15:17.320 --> 0:15:21.440 somebody's big tech names like Apple, like Nvidia. Are these 0:15:21.640 --> 0:15:24.400 entry points? I think if you had told somebody, you know, 0:15:24.680 --> 0:15:27.600 Thursday afternoon, hey, I can give you in Nvidia thirty 0:15:27.600 --> 0:15:30.680 percent off its recent highs, I think most of the 0:15:30.720 --> 0:15:33.080 people in the mark would jump at that opportunity. You 0:15:33.160 --> 0:15:35.240 have that opportunity here pre market. What do you think 0:15:35.240 --> 0:15:36.520 about some of these big tech names? 0:15:36.600 --> 0:15:40.400 Melissa, good morning, Thank you. It's a wild one on 0:15:40.440 --> 0:15:45.080 this Monday morning. You know, it's all about expectations, and 0:15:45.200 --> 0:15:49.520 Nvidia is certainly a company that has very high expectations. 0:15:50.360 --> 0:15:55.480 So it's critical to believe in the direction of that 0:15:55.560 --> 0:15:58.600 company and where it's going. And the Blackwell series is 0:15:58.680 --> 0:16:02.360 expected over the next couple of years to generate sales 0:16:02.560 --> 0:16:05.600 of over one hundred million dollars one hundred billion dollars, 0:16:06.120 --> 0:16:10.360 so you know, ultimately the company has to deliver on 0:16:10.400 --> 0:16:14.320 those fundamentals for the expectations to meet where they are. 0:16:14.880 --> 0:16:16.840 So does that mean that if we have reports there 0:16:16.840 --> 0:16:20.440 were reports that in Nvidia had some production delays. Okay, 0:16:20.440 --> 0:16:22.680 if they can't produce the stuff, even if the demand 0:16:22.760 --> 0:16:25.640 is there, they can't book the revenue. So could part 0:16:25.640 --> 0:16:28.320 of the Sellouf and Nvidia actually be fundamental at this 0:16:28.360 --> 0:16:30.600 point or no, it may be. 0:16:30.720 --> 0:16:32.960 I mean, we haven't had an official statement from the 0:16:33.040 --> 0:16:37.160 company to verify that, but that that's certainly something that 0:16:37.200 --> 0:16:40.840 could impact their numbers. 0:16:40.960 --> 0:16:43.520 Let's just kind of look into review mirror just a 0:16:43.560 --> 0:16:45.960 little bit here some of the recent earnings we've had 0:16:46.080 --> 0:16:51.880 out of some of the tech folks. Apple generally in line, Microsoft, Amazon, Alphabet, Netflix, 0:16:52.280 --> 0:16:54.640 I don't know. I mean, I guess this smidge disappointing 0:16:54.760 --> 0:16:56.160 me a little bit. What do you make of the 0:16:56.200 --> 0:16:57.840 earnings of these big tech names. 0:16:58.480 --> 0:17:02.760 It's again it goes back to expectations coming into the quarter. 0:17:02.880 --> 0:17:06.199 Expectations were high about both what the companies were going 0:17:06.240 --> 0:17:08.439 to deliver and what the outlooks were going to be like. 0:17:08.560 --> 0:17:11.119 So companies, in order to generate an additional leg of 0:17:11.160 --> 0:17:15.080 alpha to justify the valuations and what's actually priced into 0:17:15.080 --> 0:17:19.040 the stock, companies needed to exceed that. And if they're not, 0:17:19.520 --> 0:17:22.959 then it's disappointing to the market, it's disappointing to investors 0:17:23.000 --> 0:17:26.439 and they will look for opportunities elsewhere where they can 0:17:26.440 --> 0:17:28.640 get a better valuation and more upside. 0:17:28.880 --> 0:17:32.560 How do you think technology companies need to relate to 0:17:32.600 --> 0:17:37.560 the market their capex investment versus their profitability? Like Meta 0:17:37.600 --> 0:17:40.240 clearly did a good job of that, Like they show 0:17:40.320 --> 0:17:42.640 that AI was helping to impact the amount of money 0:17:42.640 --> 0:17:45.359 they could make per ad that they sold. How do 0:17:45.440 --> 0:17:48.280 other companies that don't have that avenue deal with that? 0:17:49.560 --> 0:17:49.760 Yeah? 0:17:49.800 --> 0:17:53.920 Absolutely, This cash dimension to the megacaps is an absolutely 0:17:53.960 --> 0:17:57.920 critical one because we've been in an environment where rates 0:17:57.960 --> 0:18:00.240 have been rising. So if you're sitting on cash, your 0:18:00.400 --> 0:18:03.440 cash is getting a really nice return. So it gives 0:18:03.480 --> 0:18:06.119 companies a lot more freedom to invest it, and it 0:18:06.160 --> 0:18:09.920 makes that cash flow potential a lot stronger. And the 0:18:10.640 --> 0:18:15.600 megacap tech companies have enormous cash positions. So now in 0:18:15.640 --> 0:18:20.119 an environment where that is potentially reversing, coupled with the 0:18:20.160 --> 0:18:26.120 fact that they're accelerating capex, it presents some interesting questions 0:18:26.119 --> 0:18:28.200 about what their cash flow positions are going to look 0:18:28.240 --> 0:18:30.199 like over the next twelve to twenty four months. 0:18:31.600 --> 0:18:34.159 So, Melissa, given some of the pullback we've seen in 0:18:34.160 --> 0:18:36.200 some of these tech names, what are some of the 0:18:36.640 --> 0:18:39.320 best opportunities in your coverage universe. 0:18:41.359 --> 0:18:41.840 Overall. 0:18:42.000 --> 0:18:45.040 One of the things we're looking at really carefully is 0:18:45.960 --> 0:18:50.359 what is going to really trigger broad adoption of generative AI. 0:18:50.640 --> 0:18:55.280 We know there's an an AI revolution out there happening, 0:18:56.000 --> 0:19:00.119 but there needs to be a trigger point where these 0:19:00.240 --> 0:19:04.320 companies are either internally adopting generative AI in a way 0:19:04.320 --> 0:19:08.720 that's giving them a competitive advantage, or they're crafting and 0:19:08.800 --> 0:19:14.360 creating an application that is going to revolutionize the way 0:19:14.520 --> 0:19:19.560 users enterprises interact and become more productive. So that is 0:19:19.600 --> 0:19:22.760 really the critical nexus point. I think, you know, where 0:19:23.160 --> 0:19:26.119 we're looking at what companies are actually going to be 0:19:26.160 --> 0:19:28.520 doing that, And that's really I think where we are 0:19:28.560 --> 0:19:32.000 with the generative AI revolution right now and where megacap 0:19:32.640 --> 0:19:36.520 and just tech stocks in general really are going going 0:19:36.560 --> 0:19:38.600 into the second half of the year and next year. 0:19:39.440 --> 0:19:41.920 So anecdotally, let me tell you the story. So yesterday, 0:19:42.000 --> 0:19:43.840 my best friends moving to Costa Rico or their family 0:19:43.880 --> 0:19:45.440 for a year. So it's like a going away party, 0:19:45.520 --> 0:19:48.280 YadA YadA. One of my friends is a consultant. One 0:19:48.320 --> 0:19:51.119 of my other friends also has deeply involved in the market, 0:19:51.119 --> 0:19:54.360 and guess what the conversation was between the two of them, Yes, 0:19:54.880 --> 0:19:59.160 how much AWS comprises their budget and how much that's 0:19:59.200 --> 0:20:01.639 going to continue to go with AI and doubt that 0:20:01.640 --> 0:20:03.640 they're really going to see the benefit of that kind 0:20:03.640 --> 0:20:06.240 of money. And I'm wondering that at what point to customers, 0:20:06.600 --> 0:20:08.720 Like one of my friends pushes back and says, you 0:20:08.800 --> 0:20:11.360 know what, Amazon Web Service, I'm not going to pay 0:20:11.400 --> 0:20:13.240 you that money. I don't want to do that. I 0:20:13.240 --> 0:20:15.359 don't see the benefit to AI in that sense. 0:20:17.440 --> 0:20:20.040 That's a million dollar question. I mean, Amazon was an 0:20:20.040 --> 0:20:26.280 interesting one this quarter because their AWS business was very robust. 0:20:26.320 --> 0:20:29.840 It was it basically carried the whole company. It beat 0:20:29.840 --> 0:20:32.680 the quarter, and it had a strong outlook. Their margin 0:20:33.440 --> 0:20:37.760 beat by over three hundred basis points. There was an 0:20:37.760 --> 0:20:40.240 adjustment in there of two hundred basis point, but still 0:20:40.280 --> 0:20:45.159 it came in over thirty five percent. But when we 0:20:45.200 --> 0:20:48.080 look at the other side of the Amazon's story on 0:20:48.119 --> 0:20:52.600 the North America retail margin that came in soft. That 0:20:52.680 --> 0:20:55.280 business coming into the quarter was expected to generate a 0:20:55.320 --> 0:20:58.040 five point nine percent margin, but it came in a 0:20:58.119 --> 0:21:01.080 five point seven percent, and the company said, well, you know, 0:21:01.240 --> 0:21:04.760 as we look out at our guidance, we you know, 0:21:05.040 --> 0:21:10.840 kind of don't really see the profitability coming in that strong, 0:21:11.040 --> 0:21:16.159 and it actually came in below where the consensus was. 0:21:16.200 --> 0:21:20.240 Consensus was about fifteen point seven billion dollars in operating 0:21:20.280 --> 0:21:23.320 profit and they're the top of their range was around 0:21:23.320 --> 0:21:26.520 fifteen billion. So it was like, whoa wait a second. 0:21:26.840 --> 0:21:30.000 You know, you know you've got AWS doing really well, 0:21:30.040 --> 0:21:32.760 but what else is in there that's potentially diluting it? 0:21:32.880 --> 0:21:37.040 Or is AWS to your point, potentially slowing down a 0:21:37.080 --> 0:21:39.359 little bit, or we're not seeing the profitability that we 0:21:39.440 --> 0:21:40.240 have been seeing. 0:21:41.040 --> 0:21:42.760 All right, this is a lot to think about here 0:21:42.800 --> 0:21:45.439 in the big tech space. Melissa Auto, head of TMT 0:21:45.560 --> 0:22:00.480 Research sp Global Visible Appha, we need some perspective on 0:22:00.520 --> 0:22:02.520