AI Hype Slowing Down? | Bloomberg Markets: The Close 05/09/2024

AI Hype Slowing Down? | Bloomberg Markets: The Close 05/09/2024

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Live from Studio two at Bloomberg headquarters in New York. I'm Scarlet Fu and I'm Alix Steel. So I got to say, it's a little bit of a nothing burger today. So it's a default, which is buy stocks.

Let's get a check in here on where markets are headed. So you get the S&P in. Well, the stocks index is down by about 3/10 of 1%, but the S&P is up overall. You definitely have the Nasdaq and the Dow all in the green. The Dow actually outperforming as well

within the S&P. You got the S&P real estate index. That's the best performer, up by 2%. And below that, you the S&P energy index. And then you have utilities. So I don't know what you make of that. A little bit of cyclical and a little bit of safety and defensive all kind of lumped in leading the S&P higher. And the 30 year yield is down three basis points.

We had a super solid 30 year auction. We can clearly take down the supply that's coming out. You're getting a bit all across the curve, Scarlett. All right. So as you can tell, stocks are higher, bonds are higher as well. So on the face of it, markets are pretty calm as investors await new catalysts to clarify the timing for future rate cuts. But you look under the hood and it's clear that earnings continue to drive entire sectors like arms tepid, full year guidance, pushing chipmakers lower, as you just showed us.

But in just over an hour, we're going to be watching for Soundhound, AI and Marathon digital results. And of course, we'll bring those to you. In the meantime, Bloomberg is hosting big names at big events from coast to coast. We're going to be hearing from Reddit CEO Steve Huffman and opening eyes, a CEO at our big tech summit in San Francisco. Here in New York, we've got the Sell Side Leaders Forum featuring Pingyao, the head of Citadel Securities, among others. Alex All right, girl, let's kick things off right now with Hung Zao, the head of Citadel Securities, speaking right now with our own Erik Schatzker Lee negotiated, But you were still only, as you put it, playing around with the technology, looking for use cases. Where are you now? So first of all, I think the broader trend of everyone getting fascinated with China beauty and then I think Catherine from Bloomberg and I talked not that long ago about how much my daughter and I enjoyed using change, but they were kind of getting over the face of just playing with it. Right now, we're Oscar novelty worn on

novelty is is wearing off. Okay. That's a good thing because we're not asking the more serious question of what can we use this for. The lesson we have learned so far are twofold. We have been finding the most amount of success, either to do something that's relatively easy and quick to do and maybe cheap to do that would affect many members of our team. So that's helping them to cope more efficiently, helping them to retrieve information knowledge more efficiently. Those things would affect a large swath

of the employees within our firm and the technology available to do that is readily accessible. Or we use some of the lessons learned from the more recent Yvonne Man in A.I.. But a lot of times machine learning in other areas that's adjacent to generative AI, and we try to solve some of the hardest, the highest value problems that we're trying to solve internally, such as in another word, if you take that to say, if we go take this group of the highest productivity, highly highest value add researchers and ask the question of what are they doing that we can help automate and make that the loop at which they iterate on their ideas go faster. That's a hard problem to solve. But was finding just as much success in that because the reward from solving that problem is that much greater? Who's lems have you found useful so far? And the differences are becoming smaller and smaller. Interesting. Yeah.

And, and that's a phenomenon where over the last 12 to 18 months, the progress within the latest algorithms, the performance progress has been slowing down that a lot all the different players to essentially catch up to each other. There is some excitement about the next iteration of generative AI, whether it's chatting about five or Anthro picks, whatever it's supposed to. I guess, extend the capability of the artificial intelligence to decision tree reasoning, what they call Q star.

I am certainly not an expert. Is this something that you're interested in and do you see applicability to what you do at Citadel Security? And so I'm interested in it, you know, on a technical level. And as an individual who's done this type of research when I was in grad school. But from a business perspective, we will

react after we see it. Nowadays, it's hard to tell what's real versus not until you see it. One of the things we did talk about as well last year was the potential for A.I. powered disinformation to become a real risk in financial markets, for example, to manipulate retail investors. To see any evidence of that happening,

it likely not yet. I think the meme driven stock trading has subsided somewhat, where that's certainly not been part of the market condition and market story that we're seeing this year. I think that's a good thing. But the other thing we talked about is the upcoming election, and I personally remain concerned about that. Citadel is one of, I believe, seven

firms backing Flex, the new Futures Exchange being launched by Howard Dean of Cantor Fitzgerald fame. In fact, some of those firms are probably with us here in this room. Why are you interested in this? And what potential for success do you think Amex really has? So we've had a history of supporting and backing changes.

We find the launch of New Exchange as a very efficient and effective way of driving innovation, resiliency and efficiency. And, you know, BGC have had a strong track record of launching successful exchanges. So have we have done that? And so are the partners, many of them here in the audience. So I think we our consensus is there's a huge amount of opportunity for BGC to build on top of the success, if already had with fintechs in Treasuries and innovate and push the frontier on rates futures forward. But if the members exchange after five

years has only been able to take mid-single digit market share away from NYSE and NASDAQ, you know, why does it stand to reason that Amex might do better against CME? We we would argue the members change has been a very large success. Okay. That's within the period of time. That's year shorter than the closest comparison I guess it's now have a multiple of the market share that access has. It's further driven real innovation in market resiliency and market efficiency and more recently also launched both a options exchange and started as technology outsourcing business.

It's been a huge source of innovation and increase an exporter of efficiency and willingness to see for the whole market. And we believe Affirm Acts will do just that. Two quick topics to finish with Pong. The first is Bitcoin ETFs. What has Citadel's Citadel Securities excuse me, experience been so far with Bitcoin ETFs in terms of demand and our own Erik Schatzker. Speaking with Tongzhou, the head of Citadel Securities at the Bloomberg Sell Side Leaders Forum here in New York. If you want to check out the conversation and the ones that will follow, go to live. Go on the Bloomberg terminal.

Alex you know the old adage, Solomon, go away. Aside from selling, go away seems to be the theme of the day. Volume is down 25% from the 20 day average. It's what I had a headline on my notes Wall Street snooze fest like yes, we're seeing upside on stocks. It feels like the default is to go ahead and buy equities below up. But you're right, volume is down.

Hard to see a catalyst. It feels tricky to see a catalyst in the equity markets. We get NVIDIA. And then for the economic data CPI, that's like miles off. I know CPI is next Wednesday and the video is about a week and a half away.

Yeah, So I mean prepare for a lot of days of slow trading. So let's continue the conversation because coming up, market analysis from Amy Silverman, equity derivatives strategist over at RBC Capital Markets. She's got a lot to say about Nvidia. Oh, yeah. Plus Shopify racking up analyst upgrades on the back of the stock's worst drop on record yesterday. We're going to get into what's fueling the optimism and coffee chain. Dutch bro's brewing something big. A conversation with the CEO, Christine Brode about what's next for the company.

This is Bloomberg. I think, again, we are in very, very early days in terms of the capabilities of what this can unleash for our society. Incredibly excited to be part of it. But I don't think we're part of a hype cycle at all. I think there's a lot of innovation taking place. And, you know, frankly, the innovation

that's taking place, any inventions that we're seeing, it's just breathtaking. So, no, I don't personally view it as a hype cycle at all. That was the ARM CEO sharing his big expectations for A.I.. And investors are eyeing those artificial intelligence players ahead of Nvidia's much anticipated results on May 22nd. Our next guest says, interestingly, this is the first time we have not seen exuberance from the options market ahead of NVIDIA earnings.

The woman behind that call, Amy Will Silverman, equities derivatives strategist over at RBC Capital Markets, joins us now. Okay. There's not exuberance, is there? Negativity and pessimism? Like, are we looking to put some video right now into the numbers so we're not, But sometimes it's this lack of excitement that's actually kind of exciting. It's kind of interesting because Alex, since May of last year, the call option demand on NVIDIA was through the roof, like historic, unseen before. And so the fact that we've actually seen this exuberance sucked out of the market, that right tail being absent to me is very telling because it is a noticeable shift in sentiment from what we've seen all these past quarters. But the media doesn't report earnings until May 22nd.

So there's time for that narrative to change or that mood to change as well. Do you tend to see big swings and in mood changes when it comes to a company like in video? So it's interesting, you are right, especially these days with zero data that two weeks and options may as well be infinity. But what I've seen happen is, especially with the other MAG seven, having reported the last few weeks, usually Nvidia sentiment stays stable, but it hasn't. This time around. We actually start to see it inflect during Meadow's earnings, during Google, Apple's earnings.

And so to me that was interesting because there was actually shift in option sentiment sort of as a prelude to this earnings, which is coming up. So what does that tell us about the numbers as in in line good enough then to move? I think in some ways it tells us that we can't just rely on the FOMO and the Momo and the AI frenzy, which to some degree has been what we've seen from the derivatives market. And some of that momentum has kind of begat more momentum.

We can't rely on that tailwind. That definitely has been a tailwind. Alex I think it does have to be idiosyncratically the stock as well. That bar has to meet that expectations because you're not getting that tailwind from options, which has usually kind of kept that steam going. So interesting. So are we seeing exuberance tied to other AI plays? I mean, NVIDIA is not the only one out there was kind of the original one, but there was a lot of excitement attached to AMD, There was a lot of attachment, excitement attached to MicroStrategy. Of course, that's a whole different animal on its own.

But do you see that playing out elsewhere in in some of those names? So I will tell you what I think is fascinating is this inflection in sentiment has been not unique to NVIDIA. I think we focus on NVIDIA because it's one of the few that hasn't reported and it's also a proxy for sentiment. But Supermicro, for instance, was another one where we saw what we call skew inversions. So that historic demand of call options outweighing put options. We've seen some of that sucked out of the market too. We've seen it sucked out of the market.

In terms of Mag seven, the way I would read this is with that exuberance gone, the bar is just that much higher. And the second part of that is folks who have historically been a little afraid to hedge because it's sort of like the train just keeps running in one direction. You're kind of seeing them poke their heads out as well, which is again, not saying things are bearish, but you are seeing that shift in sentiment speak for it. So what are the trades right now? So we sort of have three broad trades that we think are interesting in terms of max seven, you know, something simple like a kuku hedge using puts or put spreads, you know, I cannot just the historic level of cheapness in the left tail is really is stunning. Alex So valuable the volatility of VIX has really it's dropped towards the 0/5 percentile. It can't go any lower, you know, and then the other one in terms of IWM So a sensitivity to that. Russell 2000, if we believe in a left

tail of even rate hikes or just rates higher for longer, we just don't see that baked into any of these indices. Really. People have not been focused on the left tail, but we continue to see risks abound. What does that tell you that given the uncertainty that's out there, whether you're talking about the economy or geopolitics halfway around the world, even fundamental risks given how much and how far prices have rallied, what does that say about sentiment and the fragility or the durability of the gains that we have posted? I'd say one, I think there's a little bit of complacency and too, there's a little bit of this aspect of market structure and options has changed a lot and some of it is being masked. So there are these themes that we've talked about since the beginning of 2024 volatility, suppression, the idea that zero data expiry trading has made all the activity, all that ten or shrinkage.

So close kind of intraday that something like headline VIX doesn't really tell you the nervousness we feel short term. And so these technicals are sort of masking the risks. And third, just because it has not worked in the past in terms of geopolitical risks or hedging doesn't mean it couldn't work in the future. Right? I mean, it hasn't worked in the last however long, but that could always change, right? Yeah. Amy, really appreciate your joining us. Amy was Silverman is equity derivatives strategist over at RBC Capital Markets. How many times have we heard people talk

about the VIX being broken, how it's not really a signaling tool anymore? I guess I wonder I mean, if you want to look on a macro level, if you if you can't understand the skew and stuff like Amy does, you need to look at gold like, is that now a good reflection of safety or is that just straight up like China's central bank is buying some gold and that's what's moving it like, Are there other things you can look at to help judge the underlying risk? Or it's just like the lack of performance in small caps and the other day? No, that's a good point. And of course, because of the option structure, market market structure changing so much, it's so easy to buy options on your Robinhood app, Right. So you don't really have to think through any of this stuff. You just buy, buy, buy, buy, buy. Yeah, no, I don't do that.

But I know some people do. Are Robinhood people do? Yeah. We don't do that. We don't. We don't do that also because I don't know what I'm doing. So there's that. All right. Coming up.

Online retailer Shopify may have disappointed in the first quarter, but some analysts are still finding upside to the stock. We've got that in our top calls. This is the close. It is time now for our top calls. A look at some of the big movers on the back of the analysts recommendations. And let's start with Cheesecake Factory. An upgrade to outperform from market perform over at Raymond James, which set the price target to $42 a share. The analyst says the restaurant chains

first quarter results showed encouraging same store sales resilience. Despite softer industry trends. He says margins have risen beyond pre-pandemic levels, again, giving some upside to the stock's low valuation.

The shares right now up by more than 5%. A firm next in line, Jp morgan lifting the buy now pay later company's rating to overweight from neutral. Disappointing quarterly sales from Shopify spurred a sell off and overshadowed affirms earnings beat the analysts baffled by the reaction, urging investors not to let a good sell off go to waste. Now that he sees an attractive entry point.

The shares up, as you can see, by more than 8% on the day. And let's end things on Shopify, the Canadian e-commerce retailer getting a few upgrades after its first quarter report, including one from Piper Sandler. Analyst Clarke Jefferies feels that Shopify profit expectations and valuation were more right sized. There are few areas that could drive a thaw in sentiment, but not enough to justify an underweight rating. He lists his recommendation to neutral with a $63 price target. The stock just trading below that right now, off a third of 1% at 60 to 50. And those are some of our top calls.

Now, we're happy to say that the analyst behind that call joins us now. Clarke Jeffries, senior research analyst at Piper Jaffray, covering e-commerce and industrial software. Clarke, good to speak with you. What did you see from Shopify that prompted the analyst action? Yeah, certainly. So the most important update we got was on profitability and growth in operating expenses. I think it's helpful to think about the context of last year. Last year was a year of incredible progress on our profitability and we think expectations on share were getting a little bit elevated into the end of the year, but are celebrating at the end of the year.

We now have two data points of operating expense growth after the company restructured and sold its logistics business. And we now have a a more realistic operating expense trend. And so really at this point, we think that the elevated expectations are out of the numbers, consensus and both that expectations about converged. And so from here, we think we can get more productive on it. So, Clark, the way I understand this company, if I just dumb it down for me, is that if I want to sell anything online, I have to use that software. Do they have any viable competitors? Because if not, it's just a matter of how long can e-commerce grow and how much can they make on it.

Yes, there is a field of competitors. I would say that there is more substantial technology in the upper end of the market. Certainly in the enterprise, a lot of the lower end part of the market is evolving in terms of e-commerce functionality, vendors that provide it, website services kind of up leveling into e-commerce functionality. But, you know, this is a this is a vendor that has a substantial share already of of of the North American e-commerce market.

So, you know, valuation expectations are built off of a different level than say, you know, starting point of zero. I got to ask you also about Shopify selling the majority of its logistics unit to flex port. What's the thinking behind that? And is that going to pay off down the line in the long term? So I would I would frame the logistics business as a very difficult business to get scale and get margin in. I think that there was obviously a big incentive to solve a big friction point for merchant, and it made sense from a strategic standpoint.

But I think it was a difficult thing for investors to right size in terms of the ultimate margin potential of the business. And so I think part of the outperformance you saw last year was alleviating that concern, that overhang on on what the margin structure of the business could be with logistics. And so, you know, huge progress during 2023 was on the back of that sale. So clear medium term, what kind of growth profile are we looking like for a company like Shopify? And then what kind of free cash flow margins are we looking at? Yeah. So, you know, this is a company that will probably still grow within the 20% range in terms of gross profit growth, rough revenue growth. The company was targeting low to mid twenties in terms of Q2 organically. And so, you know, I think that's still

in play here. The free cash flow margin is the backstop. And you know why we wouldn't have kept a more negative stance. You know, the company is going to be a.

Least the low double digit free cash flow margin, you know, company for this year. And so the broader context here is, you know, this is a you know, a more than $8 billion run rate revenue company that's grown for four quarters over 25% organically. So still think of it as a very premier tech asset. We're just now at a point where expectations and numbers are in the right place for maybe getting, you know, a more a more equal balance stamp. All right, Clark, really appreciate it. Thanks for jumping on with us today. Clarke Jeffries over at Piper Sandler. I was talking to Entourage run a Bloomberg Intelligence yesterday on Shopify. Man, he could not say good enough things

about Shopify, just in terms of the innovation and how and how good the CEO was and everything. It was amazing that he doesn't dole out those compliments that quickly. But just the idea that this is like a revolutionary major player we have price. It's hard to come by from him. But one thing I think that you really encapsulated nicely was that Shopify is prospects really just like e-commerce. As long as people continue buying on their tablets or their phones, this company will benefit. You're saying you always think about if

you were going to sell something online and like make something, what would it be and have like a store? Yeah, I need to if I, if I figured that out, I probably wouldn't be here. No. Would be like sport. Even something like sports memorabilia. Like sports retail sales things for the Rangers win the Stanley Cup. I think I shouldn't have said that out loud. And then we'll come back to that. Okay, we'll do that. I was thinking, like secondhand clothes.

I don't know. Anyway, coming up, you get a standout quarter from Dutch pros. And also the expansion plans are going to be huge. Starbucks warns Dutch Brew does really

well. We're going to talk with Fergus Giambrone, the president and CEO next. This is Bloomberg. I'm.

And it's just about 3:30 p.m. in New York. This is the countdown to the close. I'm Scarlet Fu and i'm Alix Steel. Like I said, virally late. Yes, stocks are higher, but let me tell you, it definitely feels like we're going to wait for Nvidia for any equity market actions like Wall Street and News. That's like a week and a half from now.

Man, I don't know. Maybe you missed tomorrow. We'll do something I like. I like Michigan, maybe CPI next week. Individually though, on earnings, we're definitely getting stocks that are moving and one stock is Dutch rose It's up almost 19% this week after a quarter that one analyst called a fairly impressive report. It's also going to offer up new seasonal beverages and expand in states like Florida and the south. And joining us now for more is Christine

Broni, president and CEO of Dutch Bro's. So we're not familiar with Dutch Bro's in New York. You like the South? Fine. Whatever. We'll get to that in just a moment. But can you describe to me your growth profile for the next year and how it's looking that way? Yeah, absolutely. We love the West Coast as well. We start it in Grants Pass, Oregon. We have 876 shops now at the end of Q1

across the country. We opened our first two shops in Florida and we're really continuing to expand coast to coast. So from California to Arizona to adding shops in our existing markets to going more into Florida, going more into Tennessee. So lots of growth plans in front of us. We're projecting to open about 150 to 165 shops this year. Wow. I find that so fascinating because I pulled some quotes from some earnings calls from maybe what we'd say some of your competitors.

In essence, you got Starbucks CEO saying many customers are being more exacting about how and where they choose to spend their money. Amazon CEO saying that customers are shopping but cautious. McDonald's saying macro headwinds have been more significant and they anticipated into the coming year. Yet you're expanding at a very rapid pace. What do you see that they don't? Yeah, I think that when you look at an environment like this, it is just so important that you're delivering on exactly what the what your customer wants and what your team wants. And this quarter, we just had, I think, an awesome quarter where we are firing on all cylinders.

We rolled out really great new innovation. So we rolled out protein coffee, we rolled out pop and boba our rewards program. 66% of our transactions are coming through that program and we're also having great success with paid media and building awareness in new markets. You've mentioned California earlier, so I have to ask you, Christine, about the new minimum wage law for fast food workers there that takes the hourly wage to $20.

What does that mean for Dutch pros? I know that for the industry at large, it's resulted in menu prices going up. Yeah, absolutely. So we have just a wonderful business in California. We're continuing to open new shops in California. We we did take a small price increase in California, like many of many others did to look at that. But we're still very pleased with with how we're doing in California. Does it give you pause, though, when it comes to expansion plans and whether you want to continue building out your presence in California or given the cost structure, maybe it makes more sense to look at other markets? Well, we're continuing to look at markets really across the country. And as of right now, we're continuing to

expand in California as well as market, as well as all of the other markets that we're in. So, Christine, I'm sure if I asked Starbucks and McDonald's, are you delivering what your customers really want, they'd be like, Totally, Yeah, that's what you said. And in answer to why you're able to grow when they're seeing struggles, is it also how you run your operations? Like how do you run your operations maybe in a different way than a traditional fast food place? So I think what's most important to us and what's incredibly core to our brand is our service model. And so every single thing we do starts with our approach, and we only expand new shops when we have an operator that's been with the company for an average of seven years to go and open that new shop and open that new market and build a relationship with the with the community that we're going in to. In terms of maybe other points of inflation, though, like input costs and stuff. We all talk about Cocos at coffee, etc.. How do you manage those price fluctuations and what do you notice that sticky? Yeah, absolutely.

So those are things we're watching closely and that do move up and down quite frequently within our business. You know, we sometimes lock in things when it makes sense so that we have that steadiness across our business. So we do have a fair amount of foresight into what's coming on all of those commodity prices. Christine, I got to ask you about Panera scrapping its caffeinated drinks. Those charge Sips following lawsuits that they led to adverse, in some cases even fatal health effects. What was the takeaway for someone like you in terms of how you look at your lineup of drinks and how you roll them out and how you assure your customers that they've gone you've done your due diligence and these are safe drinks? Yeah, absolutely. So we have we have an extensive

processes. We're looking at launching new drinks to customers to ensure that they're also going to love them as well. So we do a lot of screening before we launch new drinks. We also have nutritional information that is readily available through our customer service team and also at our shops.

Christine Perrone, president and CEO of Dutch Rose, thank you so much for joining us. Thanks so much for having me. Really appreciate it. And of course, we have neither of us have gone to one, but you are about to embark on a trip in which you might go visit. Yes, ma'am.

I'm going to Nashville, Tennessee, for radio in a couple of weeks, and I feel like I'm going to stop by a Dutch bros. Yeah. Are you going to get a caffeinated drink or what's your. What's wrong? I'll get like, a coffee, but, like, energy drinks scare me. Nothing against Dutch boys or anything

but like that. I don't know. What about Boba? You like Boba? I never had a baba. Yeah. Be careful, because if you're not aware of it, you'll just end up swallowing it like all the things. But the whole point, like, do we like it? Like chewing? We I like that. Yeah. It's kind of like candy in a way, Right? And you can make it more sweet or tart or something. Right.

Okay. I might try one of those two, you know, just double fist that. All right. We'll check in with you when you go to Nashville and find out you got it on the ground. Coming up, powerful conversations from

the Bloomberg South Side Leaders forum. You're going to hear from the U.S. Bancorp president coming up next. This is the close. I'm Bloomberg. The Bloomberg Sell Side Leaders Forum is currently underway in New York. This conference brings together business and industry leaders to discuss how financial markets can leverage emerging technologies and also adopt new strategies, digital strategies to drive growth. Arne Manus Cranny sat down with U.S. Bancorp President Gunjan Kedia.

Take a listen. I'll tell you what's on my mind. And it's informed a lot by all the clients we talk to which cover many, many sectors. But I would say the short term conversation, because we are bankers, is very focused on cost of capital. Right now, interest rates, the shape of the curve, inflation are very pleasant conversations with a lot of our clients. In some sectors like banking and commercial real estate, these are sort of quintessential conversations, but they tend to be focused in the short term. There is sort of a longer term expectation that the inflation story will settle properly in a couple of years.

The bigger conversations that are more introspective about long term trends, which is what we are discussing here, there's a big conversation on technology and AI and what that does to different industries and business model. When I first started hearing it, it felt a little bit like, is it is this an Internet or is this blockchain? And there's a little bit of that doubt, but it feels a little bit more like as impactful as the mobile phone or the Internet or the cloud. So that's a big conversation. The second is just labor, you know, second, very expensive input to almost all business models. Just a lot going on with the workforce. It's getting very expensive for almost every industry.

So a lot of conversation there. And finally, I'll capture geopolitics, although I'll tell you, when you talk to a client who's running an agricultural firm in Central Valley, California, geopolitical impacts are very different. They're worried about immigration, seasonal workers.

You talk to an industrial company that sells to China, they have a very different level of concern. But those are sort of the conversations that are that are top of people's minds. I'd imagine the politics across America are probably much more about America rather than what's going on elsewhere. When I was preparing for this, I went back and had a look at what Alan Greenspan Roche on the 6th of March in the year 2000, and he said this. Since 1995, output per hour in a

nonfinancial corporate sector has increased at an average rate of three and a half percent. That is nearly double the pace of the preceding quarter of a century. For anybody in the room that wasn't running for Alan Greenspan, he had a thing or two to do with the Fed. So with that in mind, I mean, when you look, we talk about let's talk about the technology piece from what you've seen, from what you've experienced and you've been in this banking industry, are reasonable and out of time.

Are we about to embark on some kind of major productivity shift, as we're all talking about, or what can you tell me that that sort of matches that? Do you think we're going to see that kind of velocity in the technology revolution we're on at the moment? Well, the question is we need something, because if you just look back 20, 30 years and what propelled sort of GDP growth across, you know, big labor pools in China and India were coming online at very cheap rates. We probably had the most significant wave of offshoring talent. Women were coming into the workforce in every which way. The demographics of the baby boomers moving through the workplace. It was a big, big driver of growth for all of us. So now what are we looking at here?

A lot of those trends are reversing. You know, India was the first time not having replacement population growth. So what will create the next level of productivity? The hope is AI, if we can get that kind of a productivity boost out of a technology, it will drive, you know, another 20, 30 years. The question is, can it happen? Is there enough energy in the world to have that kind of impact? And and how do you harness it? So this is a very big ship question on the mind of every industry. Now is us being quiet. But President Bush and John Kerry, of

course, is going to bring in Alan Greenspan is joining some Tom Keene there, some Boeing news that's coming across the terminal right now. The SEC is scrutinizing statements that Boeing made about its safety practices following a near tragic January accident aboard one of its 737 max nine planes. So the SEC now is probing Boeing safety claims after that panel blew off the plane. The stock is still up by 3/10 of 1%. But if you just look at intraday chart, you're going to see like a boom, like a move lower off the highs of the session at the headline crossed. This is also a stock that's lost 31% of its value so far this year.

So I don't know that it's exactly news at this point or new news at this point that yet another regulator is looking into Boeing. The other thing, Alex, of course, that you got to keep in mind is that these SEC reviews don't always lead to enforcement actions as well when it comes to false or misleading statements. They could lead to fines. But that's a whole different animal, isn't it? Right.

But it also feels like for Boeing, just the constant stream of headlines that come across just to get stability is going to be very difficult, especially when they're undergoing their CEO search at the end of the day. Remember, the National Transportation Safety Board said the panel was missing four bolts to hold in place when it left Boeing's factory. They're kind of figure out what to do about Spirit Aerosystems at the same time. None of this makes it any easier. It doesn't make it easier. But at the same time, they're making planes that all these airliners need. So demand is still there, not the truth.

That's what happens. You have two of them. All right. Coming up, we continue to countdown to the closing bell as Michael Fujino, president over at the permanent Portfolio Family of funds will be joining us this the close on Bloomberg. This is the countdown to the close. I'm Scarlet Fu alongside Alix Steel snooze fest, as you put it, when it comes to the equity markets, when it comes to the bond market. Right. But not snooze fest for Boeing, although the stock is actually not doing that much. It's off the highs of the session.

But that breaking news that the FCC is looking into some safety protocols and safety claims from Boeing after the panel blew off the plane. Yeah, absolutely. SEC scrutinizing everything is just one of many regulators who is doing just that. Let's bring in now alison vertebral. She is bloomberg news aviation regulation reporter. Alison, the fcc looking into statements

that executives have made about their safety practices. What can you tell us about what these investigations usually result in? So, you know, we have in this case, we kind of have a, you know, an example of something similar in the past. You know, in September 2022, Boeing agreed to pay $200 million to settle ATC allegations over statements it had made or didn't disclose about issues with the 737 max in particular related to those fatal crashes in 2018 and 2019. And so these types of FCC investigations, you know, they can lead to big fines for companies, which obviously it isn't it isn't great for them. And then there's always the public perception as well.

But I will point out, you know, right now, this is just an investigation. These don't always lead to enforcement action. So I'll make sure to put that out there as well. Any comment from Boeing on this? What would be their pushback to this? So Boeing, they just declined to comment. So we're not hearing much from them on this front. You know, this is just one of several legal headaches that they have at the moment. We already know that DOJ has been

investigating from the criminal side this incident with a door plug blowing off the Alaska Airlines flight. So it's, you know, one of the many headaches for Boeing of late. All right, Alison, thank you very much. Alison verbal joining us there on Boeing. That stock is still up by 3/10 of 1% off the highs, but still also off the lows. So take a take your guidance from where that comes from.

All right. In the markets here, we're looking at low volume all across the board in any index that you're looking at. But the S&P is still up by 5/10 of 1%. The best performing stock within the S&P is Equinox. And this is a real estate story. That's why the S&P real estate sector is also the best performing sector within the S&P. The NASDAQ 100, though, outperforming.

That's kind of interesting. And the Russell outperforming up by a full one percentage point. I mean, this is the deal. When you get the S&P doing well, the Russell is going to do well. The question is, can you really trust these moves? Have we sort of done all the selling we needed to do in the tax season, Scarlett? And now we're going to see some relative calm in the market until we get to in video. I feel like we're at selling may go away.

And I really I recognize that these are all green arrows right now, but there's not a whole lot of activity. There's not a whole lot of conviction right now either. Yeah, you're just looking for direction. And where are you going to get it? That's the thing.

If we're just going to be on hold from the Fed for months and months, where is that direction going to come from? P CPI in video earnings and then after that, wait for the summer earnings. In the meantime, buy stocks, buy bonds. That's exactly what's happening today, the path of least resistance. Right? All right. Earlier, we spoke with Amy Woo Silver. She's the equity derivatives strategist

over at RBC Capital Markets. And we asked her about the hype in AIG names. Take a listen. We can't just rely on the FOMO and the Momo and the AIG frenzy, which to some degree has been what we've seen from the derivatives market.

And some of that momentum has kind of begat more momentum. We can't rely on that tailwind. That definitely has been a tailwind, Alex. I think it does have to be

idiosyncratically the stock as well. That bar has to meet that expectations because you're not getting that tailwind from options, which has usually kind of kept that steam going for more market analysis. Let's welcome Michael Fujino. He's president and portfolio manager at the Permanent Portfolio Family of Funds. Michael, are we getting are we seeing a

bigger rethink reassessment of the I play that we that dominated trade since last year. I think gradually I think it gets down to simplicity and common sense of what I think. Amy's right on a macro level. You're going to need more than hype to get continued gains. You know, whether they're at the levels

we've seen or going forward, you're going to need some substance. And I had growing revenues, growing earnings. Seeing how a pie is applied to different businesses and how profitably. And so I think that is longer term, the next leg up in that area. So Scott and I have been talking for the whole day about the lack of volume in the market, what the next catalyst is going to be.

Do we have to wait for May 22nd for Nvidia to come out to really help us understand that dynamic? Or is it going to be CPI or is it honestly just going to be wait until the Fed actually cuts? Well, inventory is clearly important for the reasons we gave, plus the broader market. But there's a there's a whole other big market out there with many asset classes besides stocks that are not waiting on a video. So I think investors have to sort of decide where they want to be, invest accordingly. The two broad themes would seem to be we're in the beginning or middle stages of a continued bull market. There's some validity to that that started last fall and seems to continue to bleed up. It's been supported by corporate earnings.

And so that's one direction. The other direction is are we sort of inching to a stagflation, slowing growth recessionary scenario? And you could argue that the labor data recently has been softening, that the composition of new jobs is is not as strong in terms of animal spirits. The news today with new claims and continuing claims, etc., gradually going up. Interest rates are higher for longer. So there's those issues that would lead to some sort of leading to a slower growth but stickier inflation environments.

And we've also seen stickier inflation data. So depending on where you sit on those two broad stories, you invest accordingly. We would tend to gravitate towards the latter and advocate for a pretty diversified approach. What's your take on this idea that as much uncertainty has arisen, you kind of encapsulated that nicely with the diverging points of views on what could happen. You have a lot of companies taking advantage of the fact that spreads are really tight and they want to come to market now while they can, while risk premiums are tight.

Specifically, you've got more than 40 investment grade firms selling $53 billion of bonds this week through Wednesday in the high yield space, issuers priced about $11 billion of bonds. What's the take up of that and what's what's the risk appetite out there for something like that? Well, that's an area we love with our fixed income in both our permanent portfolio and our flexible vertical bond portfolio. So we're basically low duration, high quality balance sheet, finding a lot of opportunities in the shorter space and corporates. And we continue to do that. The yields are competitive. You don't you're not getting compensated

right now going out too far in duration, but you're getting very competitive yields and performance. And so for the investor that doesn't want to have to predict too far in the future but still get a competitive return in bonds, that's an area want to be companies are recognizing that I think and it's a reasonably quiet time given the lack of volatility and trading volume. It's a quiet time to maybe come to market, get something priced and get set up.

Interest rates could be lower, but the Fed has indicated that they might not be lower for a while. So if you need capital or want to raise capital at reasonable and quiet reasonable rates in a quiet time, this is a good time to go to market. Michael Where is my safety trade? So if I what if I was nervous? Not that I'm saying I'm nervous, but I do like soup cans and gold bars under my bed. But if I was nervous, where would I go put that money while I'm dealing with the uncertainty? Well, earlier you mentioned some people are investing in stocks and bonds. I noticed you didn't you didn't mention gold. I would have added that in. I think the market for gold is is going to be a strong one going forward.

The dollar is very, very strong right now. I don't see that continuing forever. It's been strong for the last decade. There are reasons for that. But still, be that as it may, it's very, very strong right now. It's likely going to weaken.

That's a headwind for gold. Central banks are big buyers. There's a lot of geopolitical risk. There are some countries out there that if they attain a critical mass in terms of creating a currency, global currency, to settle transactions in other the dollars that would be bullish for gold and retail demand is strong. Plus you've still got sticky inflation

and geopolitical risk. So there's a lot of reasons why you want to add some gold to that mix. I would also say there are certain are there are other certain sectors of the equity market that are interesting and attractive. I would point to energy and commodities as being one areas where you can control pricing power and you could reduce the energy cost structure, areas that pay very good dividends, total return stories that are trading below market multiples. And so I think that's an area of the equity market that is attractive despite the relatively rich price that we have. Right.

I mean, S&P Energy Index, third best performing sector in the S&P utilities is number two. You can make the argument that's not necessarily just a safety trait anymore. Michael, great to see you. Thanks so much. Michael Fujino, president and portfolio

manager over at the Permanent Portfolio Family of Funds. We're almost there to the closing bell, almost there to Friday. We do get the image numbers, I think, coming up tomorrow. Right? You mentioned that.

Yes, we get the CPI. But I do think it's interesting when you take a look at what's been performing well, utilities, energy is materials and industrials, utilities, I think you can put that into the category now because of the power growth due to high and the power demand. So it's an interesting change, I think, in. A sector. I know you've been talking about this a lot, which I think is really smart, in addition to the fact that they pay that steady dividend and investors are into income, they're obsessed with income, and that's exactly what utilities deliver. And there are the closing bell. We have green all across the indices.

Here. You have the Dow Jones Industrial Average ending up by 8/10 of 1%. The S&P up about 5/10 of 1%. The Nasdaq up by 3/10 of 1%. Within the S&P, you're looking at 416 stocks advancing just 487 that are not a pretty broad based rally led by real estate as well as utilities. GA.

Yeah, it's worth mentioning as well that with the S&P 500 back above 5200, it's at its highest level in a month. Feels like it's been a little bit of a stealth rally. Back up. I know there's a lot of nervousness about maybe not nervousness that might be going too far, but there's a little bit of apprehension, apprehension maybe about some of the names that hadn't existed since May.

And so, of course, we'll actually get certainty, more certainty come May 26 when in video reports. But up until then, we're just kind of meandering here as we obsess over every piece of economic data to glean whether the Fed moves with rate cuts at some point this year. All right. Let's take a look at the eye map, which

just shows us the different sector performances. Alex mentioned how it's a pretty broad advance and you can see it right there. If you break the S&P 500 down into 11 sectors, ten of them are in the green led by Reid's real estate investment trust up by 2.3%.

Equinix is one of the big reasons. Equinix, Equinix, well, I don't know. Normal window next to me it says Equinix. Right. You can you say Equinix, Equinix, Equinix, you know, potato, potato, that kind of thing. Utilities and energy, also big gainers and the red there is from technology.

All right. They can look at the bond market real quick. We get some earnings coming out. So I want to hit the bond market. You're seeing a bid pretty much all across the curve. You have a two year yields down by about

two basis points. You have a ten year yield down by two as well. Now, the real takeaway, though, is that we got three year, we got the ten year, we got the 30 year, we got through all of it this week. The 30 actually was surprisingly pretty good. It was a weaker bid.

The cover, when it comes to the three and the ten was tepid, but it got better and better as the week went on. Interesting that people want duration. I don't know. I support the news, man. All right. Here. Now yield over four. It means 4%.

That's juicy. You can get really good yields And the two year or the five year. That's true. And higher yields. Barbell, Barbell, Barbell.

There you go. All right. Let's bring in Bloomberg's just mentioned in Normal India to help us break down some of the individual movers. Nora, you were saying equity Equinix. I say Equinix. Equinix. Okay.

I could be wrong. No, no, no. We're going listen to you. But tomorrow we're going to do that. I just mentioned you've been looking at Gainers. It's a big update. What's the big one that you're looking at? Well, of course, Equinix, however you want to say it's a out tomorrow. Equinix is the ticker symbol in this. So I have to add this. If you look at the movie function in the

terminal, this is where you can see the biggest contributor is on a point basis or percent basis, 4% basis. It is Equinix up around 11 and a half percent. So this is actually its best day since March of 2020. This is a real estate investment trust. So it does own data centers, investors. This is sort of all the rage right now. It's interesting because Barclays was actually noting that usually its earnings report comes out around May 1st this year. It was delayed a little bit because of an internal audit, but nor actually had a really great story where she was looking at what's happening with short selling for this stock and how actually when you're looking at its biggest gains that it's had recently, how it's sort of upending some of these short bets right now for sure. I mean, I think that this is a really

big name specifically in the data center read space. Everyone's really focused on it. But the news of today that was really spurring the stock along was the fact that it was shrugging off an internal investigation that it was going through into its accounting practices. And so investors are happy that it's over that hurdle. But of course, we're still awaiting what's going to happen with the SEC because it does have a subpoena outstanding for them. But what's interesting is that this pairs very nicely with the second winner, what you had on your board with the NRG Energy.

Right. So this is a re data center and then you've got the power side. That's right. And this is just for you, because you and I were talking about utilities earlier this week. So energy is the ticker symbol for energy. Energy here. That stock's up about 8%. So this is its best day since May six, 2022. Here.

The stock's up more than 50% year to date. So this is a big play here. Like Alex was saying, when you are looking at these sort of utility space and if you look at the S&P 500 utilities sector, it's actually up 15 of the past 17 sessions, up 13% in that span. It actually compares with about a 3% span for the broader S&P 500 in that and a shout out to Elaina Pina. She's our team leader on equity. She was actually looking at the ROIC function in the terminal, its rate of change. So if you look at this, it's basically exceeding the depths of the pandemic. As far as how fast over that time span

that we've seen the gains in the utility sector. But of course, energy, energy is one of the big winners when you are looking at this sector, Alex. And what's remarkable about this stock is that, you know, you think utility, you think, okay, slow, steady growth, big payouts, 58% gain year to date, and only a 1.99%. Yield. This one dividend I find so interesting and just had a great piece on this yesterday, is that so you look at utilities outperforming and you think that's defensive, Right. But if you're having power growth like we haven't seen in 20 years, is it actually a defensive play anymore or is you are utilities in essence a growth play because you're seeing all this power demand and they're going to wind up making a lot more money? I find that thesis to be quite interesting and I wonder if we really related for that.

Right. That's a great point because a lot of times people think of it as more of a safety trade, but there's definitely so much air aspect that goes into utilities as well as also the bets potentially that we could see a peak, at least for now when it comes to rates and seeing a play in that space as well. All right. We also have Sweetgreen. Before we get to your other winner here, let's go to Sweet Green ticker SMG, that earnings coming out right now, revenue for the first quarter beating expectations coming in 157.

9 million estimates were for 151.9 million. Now the loss per share, though, a little heavier than estimated at $0.23 versus $0.18. But same store sales up by 5%. So pretty strong. And they're taking a look at their full year revenue forecast on the high end. It was revised up as well as the low end and the same for same store sales. I mean, our producers went to Sweetgreen

today, 20 bucks for a salad. They're bringing them in. What can I say? I was just going to say that. I mean, they've got pricing power in that they're they have an audience that will go to them regardless. Right.

Because they want the healthy option. And now that more people are going back into the office, that's that's definitely going happen. You see the stock moving up almost 2% in the after hours trade. Nor you've been sitting here you've been educating us on how to say Equinix or tell the movers that you're keeping an eye on. What do you have your eye on? Well, let's look at some of the laggards. I'm keeping an eye on Airbnb.

That was really a topic of today. It posted lackluster guidance for a second straight quarter. And of course, as we think about this, in the midst of booking at Expedia, which we heard from more recently, they're also kind of seeing a bit of a lag when it comes to guidance.

So the upper end of the revenue forecast for Airbnb for the current quarter was in line with estimates. And so it expects 2.68 to $2.74 billion. That's versus the Street's estimates of 2.74. And it said that Easter coming early this year in March instead of April, was actually quite a drag on its key metrics.

It says that travel spending will slow ahead of the peak summer season. We've been hearing it. You said bookings at Expedia, I mean, are all across the board. And this next one is Roblox. And I was telling these guys on radio what I know of Roblox is this my daughter comes in and takes my phone every Saturday and Sunday morning and she goes into my phone, she opens Roblox and you plays warrior cats on the robots, on the warrior warrior. It's like a whole book thing.

They do game. It's a gaming thing. She makes her own cats. They're in clans, they eat food, they talk to each other. It's a cat clan. It's just spending money doing it. Hey, so Norm brought this up. You could, like, easily click on the game and be like, I'm going to spend money. I don't think that's happening, but this is something to be checked to be sure. However, the numbers weren't terrible,

but the stock reaction was awful. I mean, I'm curious to know what the age demographic is, but you get the numbers here. The bookings forecast missed the average analyst estimate.

And of course, this is kind of in the midst of the widespread weakness that we've seen in the video game industry as a whole. It expects 870 million to 900 million for bookings, and that's against the Street's estimates of 902. So I know earlier you were saying this sounds a bit critical. You know, they came in at 900 million, but the street was looking for 902 and we see the shares tumbling.

But it is kind of focusing on its advertising estimate, our efforts right now, as well as a recent partnership with Walmart to buy so that consumers can buy physical goods there. You know, I have mixed feelings about robotics because my children have spent way too much time on it and way too much money buying absolutely nothing. They're using the Robux to buy virtual things to help them build. Cats apparently are great plans. No, that's like the number one thing I'm doing when I get home to make sure it's all right. We want to thank, of course, our

contributor is just mentioned in normal. Linda joining us, giving us the stocks to watch on this Thursday. Coming up, Soundhound CEO Kevin McGarry joins us on the back of their soon to come earnings report. This is the close I'm Bloomberg I'm. Welcome back to the close. I'm Scarlet Fu and I'm Alix Steel. We made it. It is Friday eve.

It is the end of Thursday. We got there, guys. Let's take a look at where markets closed out on the day. The S&P 500 really closing around the highs of the session was a strong equity day pretty much across the board. You can see that reflect in the Russell 2000 up by about 9/10 of 1%. The Nasdaq 100, the und

2024-05-14 19:24

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