What Nvidia, consumer spending signal for the market: Catalysts

On today's episode of Catalysts, Hosts Seana Smith and Madison Mills break down key market trends and the trading day's biggest stories.

As Nvidia (NVDA) is set to report its earnings this week, HSBC Global Private Banking and Wealth Management Americas CIO Jose Rasco joins the show to discuss how the chip company and the overall AI push may impact the market (^DJI,^GSPC, ^IXIC). He explains that new technology, like artificial intelligence, is diffusing across all sectors as companies seek to find efficiencies and expand revenue. Rasco adds that Nvidia and the AI boom will ultimately drive deflation in the market, ultimately resulting in lower prices for goods and services.

However, there are some geopolitical pressures facing the chip sector. ASML (ASML) and Taiwan Semiconductor Manufacturing Company (TSM) could disable their chip machines remotely if China were to invade Taiwan, according to a report from Bloomberg.

JPMorgan Chase (JPM) CEO Jamie Dimon sparked speculation about his potential resignation after pivoting from his usual stance during the company's annual investor day and saying that his remaining time at the company is no longer five years. Yahoo Finance's David Hollerith explains what this means for the company's future and who might be considered to succeed Dimon.

Lowe's (LOW) topped Wall Street's first quarter earnings estimates, posting revenue of $21.36 billion and gains of $3.06 per share. While consumer spending remains low, CEO Marvin Ellison points to loyalty programs and online spending as areas offsetting pullback concerns.

Meanwhile, Peloton (PTON) is having a more difficult time dealing with the consumer sales slump as the home fitness company announced it is starting the sale of a $1 billion loan offering. Wendy's (WEN) and (TGT) both announced new initiatives to draw consumers back to their stores, from a $3 breakfast value meal to price cuts on five thousand items.

This post was written by Melanie Riehl

Video transcript

It's 10 a.m. in New York City.

I Madison Mills alongside Sean Smith and they may 21st let dive into the cattle that are moving the markets this morning and video earnings expectations are through the roof.

The street is looking for the firms eps to grow by 474%.

In his Wednesday report, the chip giant is responsible for almost a quarter of the S and P 500 earnings growth so far this year and the consumer showing signs of weakness and some earnings so far low seen those do it yourself, shoppers buying less and Macy's credit card business showing increased delinquency rates as Wall Street gains more bullish calls from strategist alone bear stands out, Jp Morgan holding the lowest year and target for the S and P 542 100.

That kind over at JP Morgan playing a drop of more than 20% from the closing level of yesterday.

So many are going on the bull side, but we do have some bears sticking with their calls that are all live on video this week as the report earnings Wednesday after the close the chip Gian proving that it is the market mover already this week shares, moving to the upside yesterday, pushing the NASDAQ to close at a record high.

NVIDIA has also had a massive influence on the overall market.

Now, we've been talking about this quite some time with the out performance of the mag seven last year into the beginning of this year.

For some of those names.

You've got the, you've got uh NVIDIA among those top performers.

Now, when you talk about those returns, clearly, it's certainly a massive move here for the market.

11% of the entire S and P 500 returns over the last 12 months is responsible because of NVIDIA.

So when you take into account, what is riding on this print, whether or not it's a break or make or break moment here for the market.

We've put that question to a number of strategists over the last couple of days.

They weren't necessarily taking the bait there and going too far.

But they did say that obviously, a I the excitement there, NVIDIA being the main driver of a lot of that excitement has clearly been shown to really boost the market's optimism over the last 12 to 18 months.

So a lot sentiment wise, I think is riding on this print.

Absolutely.

And when you look the impact that NVIDIA has had to your point about the overall S and P 500 contributed to 11% of the growth over the last 12 months.

It's clear why there's so much emphasis on this name.

I want to pull up a statistic if we have it from Bank of America.

Since Nvidia's blowout earnings print a year ago, we've seen a I mentions up a whopping 186%.

This chart is tracking those mentions and you can see that absolute vertical pop right at the end there that drop in 2023 is from a year on Nvidia's earnings print.

So seen the impact there of NVIDIA in terms of other names wanting to get in on the A I craze.

But Mike Wilson this morning from Morgan Stanley talking about this saying that A I is everywhere except in the numbers.

We're seeing lots of spending but not a lot of monetization or efficiency.

And also important thing to note is that it spending overall is flat or down across a lot of firms.

So what does that mean it spend is getting allocated more into A I that could either be a make or decision for some of these companies in terms of capital allocation?

Are they investing in A I that's gonna make them more efficient?

Are they failing to invest in some traditional it measures that would actually keep things good?

You know, that that's a great point to really bring up because I think that is a huge question here going forward.

What exactly some of these growth rates are going to look like here.

And now given that Macro and given the fact that companies are starting to pull back some of their Capex spending where exactly that all plays out, I think is a critical question obviously for so many within the sector.

But that chart that you have brought up there from Bank of America, the uh the increase that we've seen in A I mentions this quarter really highlights how many companies are talking about A I.

It's no longer just some of these niche tech players, the original names that have been making the case that they have been talking about this for years, but it has really started to spill over and we have seen this trend over the last couple of quarters outside the tech industry.

Almost every single industry now has companies that are talking about this.

Every single industry does have companies that are talking about this on their most recent earnings report.

And that mention has actually really skyrocketed when you take a at the energy sector, specifically when you talk about the power that's needed to drive A I and um for the A I adoption.

So lots of questions just about what exactly that demand looks like, what exactly that Capex spend looks like here.

We will get more info when we get uh Nvidia's results tomorrow, but certainly could be a driver at least in the short term of some of the moves that we could see and we'll definitely talk about the energy impact later on in our show as well.

But as markets are stalling a bit ahead of those NVIDIA earnings fed speak is continue.

We had fed Governor Christopher Waller saying this morning that he needs to see several more months of good inflation data before from his perspective, cutting back on rates.

Now, traders still pricing and two rate cuts this year.

That is according to our beloved CMEF watch tool, but even in a higher for longer environment, our next guest thinks that earnings growth could give markets more room to run.

Here in studio.

We have Jose Roscoe H BC Global Private Banking.

America's Chief Investment Officer, Jose, thanks for coming in studio.

We appreciate it.

You're talking a little bit here about the NVIDIA of it all and the fed, speak of it all from your perspective.

Which one is going to drive us into the close at the end of this week?

Is it gonna be Jensen or Jay?

I think uh a little bit of both probably, but I think and, and the market is rebalancing risk and reward, right?

And that's what you're seeing play out which we see all the time.

And I think what you just talked about is key, really key.

Remember 9495 you guys weren't, aren't old enough to remember that, but I am clearly.

Um And if you look at 9495 the internet came in internet companies did well, but they made no money.

Multiple soared, right?

And that was risk, multiples have not soared.

Here.

We have a long way to go on multiple expansion on this market.

Still.

Number two, the broadening out the con the convergence of technologies one and one equals three and the diffusion of those technologies throughout the economy.

You talked about A I, if you're in the movie business, if you're in the energy business, you're using A I, you're using light or you're using all these new technologies to make yourself more efficient on the cost side and to expand revenues.

That is just beginning the essence.

If you look at the tech sector X the Magnificent Seven, it was under performing the market as of two weeks ago, year to date.

Now it is almost with the Magnificent Seven.

It has soared past.

So we're seeing that broadening out already happen.

And that's how we view the next phase of in investing in this bull market is the broadening out of the tech sector and the broadening out of these technologies throughout the other sectors in the economy, Jose, what do you think that upside then looks like given the fact that we're almost just to getting started and multiples aren't near those concerning levels, at least at all now.

Well, the the problem is we assign, you know, these, these time frames, right?

Because year end, because everybody gets paid year end, right?

We and more, more money managers want mark to market at year end.

But if you look at the 9495 experience, again, the fed raised rates, they doubled rates from 3 to 6 and they cut them 75 basis points over the next 79 months.

That was it fed funds averaged 5.4% throughout the rest of that bull market.

So, in my mind, you've got a growth momentum and the cyclical side of the economy is slowing.

As you both mentioned, look at the retail numbers, consumers are going from steak to hamburger, right?

But real earnings, real incomes are still positive.

That's a huge factor.

Um And then you've got these secular drivers of growth that are absolutely monstrous and there are four of them, right?

Tech innovation and in tech and health care, in particular, the re on shoring of jobs and near shoring and the re industrialization of the US.

Look at construction and manufacturing facilities growing at more than 50%.

50 here in this country.

Number one economy in the world, most developed advanced economy in the world growing at 50% we're building.

And you talked about energy, look at micro grids, look at off off grid, energy production, co location of facility facilities.

Now that is gonna help in a lot of ways, but that's not really in the public markets yet, but that's coming as well.

So how can investors play the broader a in a higher for longer environment, particularly when the debt picture looks so different across a lot of companies in the S and P. Yeah.

Uh look, we, we think the consumer continues to look good, not great but good technology, obviously com services, obviously two sectors, we like a lot health care, we think does.

Well, if you look from the fed pause, historically, when you go into a mid cycle slowdown, the key question is we're going into recession or slow down.

We think because of those secular drivers, we avoid recession, right?

So if you're going into a mid cycle slowdown, the markets from the fed pause, the three major indices 25 to 30% over the next 12 months.

So we're right on track for that.

We're fine and, and we think you wanna focus as well on financials.

We like financials because as the yield curve un inverts, right?

Or de inverts, I don't know what the made up word is of the day you get that positive slope to the yield curve.

Financials should do well.

And as the cyclical side slows, we'll see some of that creative destruction.

You'll see some M and A right and a lot of new companies popping up.

So I'm curious what you make of the activity that we've seen in the bond market because here we are, we have the 10 year yield back just around 4.4.

What, what is the bond market telling you just in terms of the read that we're seeing for what the Fed is going to do, what exactly that means for equity position.

And then maybe some of that volatility that will likely see at least in the short term.

Well, you know, it's interesting, right?

Because the Fed communicates and everybody listens.

Janet Yellen communicates and everybody seems to ignore it.

And I don't know why she warned us when we reached, when we pierced the debt ceiling last year, she said we have to issue a lot of debt.

Almost a third of us.

Government debt had to be reissued this year.

That is coming in blurbs and, and you know like hu huge blobs that are hitting the market, right?

And that if you look at the fall, they issued a ton of paper, what happened in the market rates backed up?

We had trouble digesting it, right.

Same happened in March and April.

We think the direction for rates is down.

We've seen the the policy rate pause.

The next move we think is down.

Inflation will stubbornly continue to move lower.

Everybody talks about tech, right?

NVIDIA A I all these wonderful things.

Nobody focuses on what, what it, what it, what does it contribute, deflation, deflation in certain sectors, health care, et cetera.

Fin fintech.

You're gonna see a lot of lower prices for goods and services.

I think over the next 12 to 24 months, that's gonna help push the inflation rate down as Well, that's so important though.

What you just said because that's what the f once, that's what's like, really driving the conversation right now.

What is the main catalyst for that in terms of something that's not gonna cause too much pain?

Right.

How do we get the goldilocks of that scenario?

Yeah.

Well, and, and that's the fine line that Powell's talked about that he's walking.

Right.

And, and we think they can pull it off.

I mean, people act like there's never been a mid cycle slowdown.

It's happened twice that we know of and, and you could argue late night, you know, the, the most recent before COVID could have been another right?

We were on our way to that we felt.

Um, so we've seen it before and, and the trick is to make sure that the unemployment rate doesn't go up too much.

There will be a long term rise in the unemployment rate due to A I but what nobody talks about is let's go back to the Amazon effect.

Many, many politicians talked about the Amazon effect and how horrible that was.

Right?

Because we lost 300,000 jobs in retail in the last business cycle.

We gained 1.4 million jobs in logistics distribution, warehousing, trucking and they were higher paying jobs.

So yes, we're in for change and yes, change is scary.

But we think it's gonna, we're gonna have a better economy, more resilient economy and, and we think smarter cities and all that will benefit the average American.

So Jose Rasco, it's great to have you here in the studio.

Thanks so much for having on with us HS BC, Global Private Banking.

America's Chief Investment Officer.

Thanks Jose.

Thank you.

All right.

Well, the weakening consumer is weighing on retailers lows seeing a 4% decline in comp sales in this latest quarter.

As do it yourself, shoppers continue to pull back their spending.

You're looking at losses of just about 2.6% here in the name.

But despite that, it did come in better than expected, slightly better than expected.

So let's talk about what exactly going on Mondays ahead here for Lowe's for that.

We wanna bring in Michael Baker, he's D A Davidson, managing director and senior research analyst.

I it's great to see you.

So when you take a look at the reaction that we're seeing to Lowe's print here this morning com sales did be, is Lowe's making inroads and, and do you think this decline that we are seeing is justified here this morning?

Well, so you're right, the coms did come in a little bit better than expected down but down less than, than we thought.

And they narrowed the gap versus Home Depot, uh which is really important.

So, so that's the positives, the negatives were that the gross margins were lower than expected and the margin gap between Home Depot is actually widening and we think what really may have hurt the stock is during the call.

The company talked about the second quarter margins being impacted a little bit more than what is in consensus estimates.

So the consensus second quarter eps estimates are likely to go down and we think that took some of the wind out of the early morning sale on the better than expected.

Comp Well, I'm curious about the situation with Lowe's when it comes to home prices uh from tours and flock this m this morning showing that home prices are up 7.3% in the past 12 months.

Michael should higher prices which could indicate some more demand be a bullish signal for lows or not necessarily.

Well, no, absolutely.

Uh 11 of the more important drivers of demand is home price appreciation and, and Thorson's right.

Uh We have seen that improve, I think now on a year over year basis, eight months in a row.

So that is a positive for sure.

But there are also negatives, turnover is way down.

Uh There are all the pressures that the consumer is facing.

So we have some positives, we have some negatives, it all mixes out into uh again, you know, continued negative comps, but less negative in the last two quarters, less negative than expectations.

And at least their guidance suggests that we should get better in the back half of the year.

Uh So Cotter Bing wins, is it uh home price appreciation definitely on the positive side.

But, but again, there are offsets if we do see rates stay high for longer.

What exactly then does that mean to for lows?

Just in terms of some of that pressure that we could continue to see on their business?

Yeah, that's a negative for sure.

Higher rates, less home activity, that home price appreciation that we're seeing get better.

Maybe that turns back for the worst if uh if turnover slows because of rates.

So, uh the the the the stocks and the businesses are definitely driven by rates, higher rates tire for under is not a good scenario for these guys.

Uh And so they will react positively again, both the, the, the sales and the stock if and when rate starts to come down.

Uh That's frankly what bulls are waiting for, that's been delayed and, and that's probably why those stock is under performed year to date, at least relatives in the market.

I'd love to take a step back and look at the overall sector here, Michael.

We know that retail stocks have seen short interest climbing over the past couple of weeks and there's a lot of pess pessimism overall on the consumer discretionary sector.

Uh, if we're meant to be greedy when other people are fearful, is that a buying opportunity for the sector or should investors be looking for individual names, for opportunities for growth?

Yeah, I mean, I, I think it is a stock pickers market in general, you do want to pick your spots.

Uh, but, but we are generally positive on retail just on the idea that we do think we are closer to the end of the rate cycle than the beginning.

Uh, retail stocks do perform well when rates fall, that's been pushed out a little bit.

So retail has underperformed a little bit year to date.

But eventually we do, I think rates are gonna come down more likely down than up from here.

Uh And we do think that will be a positive for retail stocks.

So we do see it as an opportunity to, to to buy uh names.

Those are not one of the ones we we're recommending.

There are other names that we are recommending but, but we do see opportunities out there.

One of our preferred picks, for instance is Walmart.

Uh we just elevated Walmart to what we call our best of breed bison product, which really highlights long term winners at good valuations.

We see that as as a a con continue to take market share in this environment.

And we think that stock works, for instance, Michael, you also cover Target, that's going to be the next major retailer to report results this week.

It certainly has been a bit of a mixed picture so far.

What are you anticipating that we will be hearing from Target?

Yeah, the benefit for Target right now, I suppose is that expectations are very low.

Uh We're looking for central sales to be down 4%.

Uh So not a very high bar.

The key though is that they need to reiterate their guidance, that C should turn positive as early as the second quarter, the quarter that we're in now.

Uh And, and then be about flat for, for the year.

Uh So, so that will be the key.

We think first quarter will down, they start to cycle some issues that they had last year.

And so we need to see an improvement in the second quarter.

Uh Also a name we're recommending, recommending for different reasons.

Then then Walmart as an example, uh target, we see as a turnaround story again, likely the fourth quarter in a row of negative comps for the first quarter.

But we think that turns back to positive margins should then benefit.

We think it back to closer to historical trends which are about 6% prior to the pandemic.

The margins are about 6%.

They went way up during the pandemic.

They plummeted in 2022 when they had the inventory problem.

And now low fives, we think eventually their margins get back to 6%.

And that will be the catalyst for the shares is target's reduction of prices for 5000 items bullish or bearish for the stock.

We think it's a positive.

I I think the key right now is for them to get customers uh in the door uh and, and, and win back some traffic and win back some market share.

So, so we think it's the right thing to do and, and should pay back, uh pay off, uh you know, with positive problems later in the year.

All right.

Well, I'm sure Jay Powell would love to hear you say that Michael, thank you so much for joining us.

We appreciate it.

That was Michael Baker D A Davidson managing director and senior research analyst.

Now, coming up, Microsoft is partnering with Qualcomm for new A I powered surface laptops and tablets.

We're gonna have the details on that after the break, Microsoft unveiling new A I powered devices this week with chips from Qualcomm and how he joins us live from the Microsoft event out in Seattle.

That's right, Shana.

We're here at Microsoft's second day of their events in Washington State.

Yesterday was at their Redmond campus.

Now we're at the Seattle Convention Center where they're going to kick off their build conference.

That's going to be all about A I and the cloud.

But what they announced yesterday had to do with the PC Space and more importantly, it's Copilot software.

Microsoft has obviously teamed up with Open A I.

They started doing that uh in 2023 with the release of some of their uh copilot based software and now they're going all in on that as part of their win 11 software.

So you can expect new features like something called recall, which literally takes screenshots of what you've been doing throughout the day.

And then over time, if you forget where you were on a website, say you're booking a trip and you're, you know, you had something ready for Cancun.

Uh You don't know what the website was.

You were looking for a deal.

You could type in Cancun trip into this recall feature.

It'll pull up a screenshot of that website for you.

Now, obviously, privacy concerns abound there.

Microsoft says that you can filter out what you want from that.

Uh And uh it won't uh keep in uh certain information if you don't want it to.

There's also just the general spread of copilot across windows overall, they said they re architected the operating system for it.

And so you're going to be able to do things like pull up a copilot in an app and ask it how to do certain tasks.

Uh One of the more interesting features that they showed was how it works in gaming at this point.

Now, you might think that that's not really a big deal for Microsoft.

It is.

And the other thing is it's very interactive.

There's so many different things going on that they wanted to prove a point.

And so they were able to say, OK, I'm in this game, Minecraft.

Uh How do I build a sword as Copilot?

Copilot looked at the screen said, OK, pull up this tab, you don't have these resources, go get these resources and you can build a sword.

So just a multi step process that they were showing that Copilot is able to do using what it sees on your screen as well as uh through your voice and text.

So really spreading this Copilot software all across its uh its offerings.

Well, Dan, stay in the personal computer space yesterday, Dell did unveil their new line of P CS which will have Qualcomm processors and NVIDIA powered servers as well.

What can you tell us about that specifically as we await those NVIDIA earnings coming out tomorrow.

Yeah.

Well, on the, on the PC space, that's really going to be uh an interesting story because Microsoft is launching this kind of new Copilot era uh with Qualcomm not Intel, not a MD.

Uh they're going to have tip for this new Copilot E they call Copilot plus PC kind of a weird name but uh they're going to have those for Intel and a MD, but Qualcomm right out of the gate.

And Microsoft says, look, this is gonna beat Apple's uh Macbook Air with an M three, the latest Macbook Air by leaps and bounds in terms of battery life and performance.

Uh As far as Dell goes with their new uh servers running on nvidia's technology.

Look, uh Jensen Wong regularly calls out Michael Dell uh at events saying how such a good partner, how it means a lot to NVIDIA that Dell is offering these capabilities uh and using its processors, uh its graphics processor on the back end.

So obviously, the fact that Dell is building this up will be offering this huge news, but it won't have an impact right now in the current earnings that we're going to see on Wednesday.

And in terms of Dell, it looks like they are up about 96% year to date that stock having an amazing year here, Dan.

Uh thank you so much for joining us.

Really appreciate it chip giants, A S MA SML and TS MC can disable their chip making machines in the event that China invades Taiwan.

That is according to reporting from Bloomberg.

Now this comes amid heightened geopolitical tensions in the region and concern from us officials about escalation for more.

We bring in our own Akiko Fujita.

Yeah, Matty as you reported Bloomberg news saying that both equipment maker A SML as well as chip maker, Taiwan Semiconductor have assured us officials that they have the ability to shut off their operations remotely.

In the case of any kind of attack from China on Taiwan.

The big concern centers around A S MLS.

Extreme ultraviolet machines are what's known as EU vs.

These are machines that are capable of manufacturing the most advanced chips used in the military and artificial intelligence is the only company that makes these machines, which is why there is so much concern about this falling into the hands of the Chinese Bloomberg reporting that the company can remotely shut off the machines.

It has what amounts to a kill switch in any case of a conflict.

And the report suggests that there has been a lot more game planning around a potential conflict than we previously known.

The Dutch government has reportedly run simulations with a SML on how to protect these assets in the case of a possible invasion and shared those plans with us officials.

Now it's worth noting again that the reason there's been so much focus on protecting these advanced chips in Taiwan.

It's because the country specifically, TS MC manufactures nearly all of the world's most advanced chips.

The U has aggressively moved to block Chinese access to these ships and chip making equipment, establishing some of the most stringent export controls.

China has been pouring billions of dollars into developing its own chip making capabilities to counter those export controls.

But most experts I have spoken to say they believe China is still many years away from catching up with the likes of the US and Taiwan.

Now the timing of this report certainly we should say it is timely because Taiwan's new president yesterday was sworn in, he has forcibly pushed to maintain Taiwan's independence publicly saying yesterday that Taiwan must demonstrate in his words, its resolution to defend the nation and there are concerns now with that new leader in place, China can start to ramp up some activity to rattle the territory.

All right, Akiko, thank you so much as always for joining us.

We really appreciate it.

Now, Jp Morgan Chase is long time, Ceo Jamie Diamond sounding like he may finally be ready to put a succession plan in place.

He said at the bank's Investor Day that his timeline isn't five years anymore and they are quote moving people around.

So what does the future look like for America's biggest bank?

We've got our very own David Hall with us for this conversation.

David, thanks so much for coming in studio with us.

Obviously, this is a big deal, but he did kind of tease out, maybe I'll stick around as chairman.

So is Jamie Dimond really going away?

And if so, what does that mean for the bank?

It's a good question, Mattie.

I mean, I think, I think the context is for years, Jamie Diamond is sort of rebuffed attempts of pinning down his, his succession by explaining he'll be around for another five years.

So this is sort of a definitive comment that he might not.

It also lines up with uh 2026 which is something that we had been looking at.

Um based on his special retention awards uh for stock options which uh expire or at least he can exercise in July 2026.

Obviously, he's a billionaire.

So maybe the stock options aren't really the most important thing to him.

Um But, you know, last year he also did allude to something like 3.5 years, which would be along that time frame too.

It wasn't clear whether or not it was a joke at the time.

It was never clarified, but that's where we are now.

And it makes for an interesting um dynamic because also Jp Morgan has gotten a little bit more clear about telegraphing potential successors and who are those successors?

Because we've heard a little bit more drips and Drabs just about who might be considered.

So when we think about how Jp Morgan could potentially look under the successors, what is the thought there?

Yeah, I think the, the two clear front runners are Jennifer Pep and uh Mary Anne Lake.

And until recently, they both headed the sprawling Consumer uh and Community Bank of JP Morgan.

And so, uh now the dynamic has gotten interesting because both have been around at JP Morgan longer than Jamie Dimond and both have been in various CFO roles, but Peeps se is actually leading a new combined unit of the commercial bank and the investment bank.

And that's a little bit more complicated than the Consumer Bank.

So we'll want to pay attention to what's going on there as far as um what might lead us to see uh who's in the leadership uh front running position.

All right, David Haller.

It's great to have you on set here with us.

Thanks so much to be here.

We're breaking down.

The biggest headlines that are coming out of JP Morgan's Investor Day.

All right.

Well, media giants making more headway on the path to streaming profitability this earnings season, thanks to initiatives like password sharing crackdowns and also ad supported tiers.

But there's still a lot more work to be done.

Alexander Canal has been digging into this for us and Ali, where do things stand today?

Yeah, so I thought it was very interesting this past earnings season that investors didn't necessarily reward companies that turned a profit in their streaming or at least made more strides towards streaming.

Profitability.

And Disney one clear example here they did turn a surprise profit for their DTC Entertainment division.

Now, this includes Hulu and Disney Plus the catch though is that they said the segment would be in the red for the current quarter.

And it also doesn't include all of their platforms if you include ESPN Plus total streaming is still a money loser.

So there is this fear among investors that profits just can't be sustained.

It's also a big complicated, especially for these legacy players since these companies are getting into profitability in a business that is disrupting their initial business, right, which is Legacy television.

So there's this double edged sword that these companies are facing because the more successful streaming is, the more it's going to have profits on the line your side in the traditional side of the business.

So that's where we stand, right.

Now again, we did make strides really across the board.

But there's this lump, this bumpiness that is giving investors some pause right now.

How does that work for a company like Netflix?

This comes to mind for me because last night I finally had to upgrade to the ad free too.

I've been hanging on for so long the show I wanted to watch.

I had to say what prompted you to make the but you blinders is that I heard anyone but you, you can only do it with the ad free plan.

Well, that's interesting.

Yeah, interesting.

So they are blocking that, they were blocking certain shows and only showing that on high pay plans.

So is that the strategy moving forward or in a way, does that prevent them like you've covered from getting these broadcast like margins because ads are good for sales overall, right?

I think advertising is very important, certainly when it comes to profitability, that's why we're seeing all of these platforms get into the ad supported game.

However, and that I spoke with said it's pretty much impossible.

We're not really ever going to see streaming reach those broadcasts like margins.

I mean, these are margins that were around 40% and just to put it in perspective, Netflix reported full year margins for 2023 at 21% and this is a company that turned a profit of two 0.6 billion in the first quarter.

And then you have all these other players that aren't even close to, to reaching those profits.

So this is something that's going to be a difficult journey.

That's why you're seeing a different initiatives like bundling as well.

Obviously, for the consumer, that's a head scratching phenomenon since it's hard to pick where and when you can watch certain types of programs.

But the fact that we are seeing increased bundling, the fact that we are seeing password sharing crackdowns at supported tiers.

This is all in a play to increase revenue and therefore increase profitability.

But I don't think we are going to see those linear like TV margins and that's going to be a problem area down the line for a lot of these legacy companies that have relied on that business to really survive.

So what really comes into play there that can help bridge the gap?

That's the big question mark and how they're able to walk that line, right?

Alexandra Canal.

All thanks so much.

Thank you guys.

Ok.

Right here on Yahoo Finance, we got much more of your market action.

Had they tuned.

You're watching Cat All Commodities have been on a run recently, oil gold and silver taking a bit of a breather today.

But this move to the upside.

It has catched Wall Street's attention called Wall Street's attention is called investors attention.

And we've got our next guest who thinks that the great reflation trade as he's calling it has more room to run.

So, let's talk about that with Jonathan Grins.

He is BT IGs, managing director and Chief of Market Technician.

Jonathan.

It's great to talk to you.

So, so much of the focus has really been on the equity market and what we're seeing play out in the broader averages.

You've got the S and P above 5300, you've got the dow right around 40,000, but you're seeing some opportunity in the commodity reflation trend.

What are you seeing?

And what does that upside look like?

Yeah, so it's really been um uh you know, broad based across the commodity complex and we've had uh you know, I would say kind of these little rolling bull markets across different commodity markets.

Um You know, earlier this year, crude was doing quite well as you mentioned, that's taking a breather but gold, silver, the precious metals, even platinum and palladium have have been really working well lately.

Copper um is at all time.

Highs right now.

Uh iron ore.

So I think that the China comeback story is, is playing a part of that.

Perhaps the Chinese equity markets um are are doing very well uh over the last few months.

Um And really, so it, it ties back, you know, our, our thinking here is energy equities are attractive.

They've had about a two month pullback.

Um consolidation.

Really, it's, it's, it's really more of a consolidation.

Um And so it's back to an area of what looks like good support to us.

So we think energy equities um look timely here.

Um you know, the the momentum in commodity land really has been in kind of the the metals and mining space.

So, um whether it's names like Freeport Mac or the gold miners, you know, those are the ones that are um trending and and at highs, but we think energy equities are are more timely here after the consolidation.

So talk to me about the catalyst for that reversal in energies and you have a fantastic chart that we're going to try to pull, looking at kind of the levels that indicate a potential turnaround story for something like energy.

What do you think is going to be the single biggest thing that investors should look at and say huh that means that this is really going to break out of that level.

You can see right now on your screen, this chart showing the uh kind of range bound trade of XL E one.

But again, what would that catalyst be to kind of move past that trade?

I mean, so, you know, it's kind of one of those things where you either um are buying a little now in anticipation of that breakout.

We do have um some, some bio signals on some momentum indicators on the XL E. Um You know, so you could be the the more aggressive approach is to buy a little now.

Um The more conservative approach would be to wait for kind of, you know, confirmation in the form of a break uh a breakout above some prior resistance.

Um you know, maybe a couple of dollars higher in XL E but it's really now at that downtrend line from recent highs.

So um you know, I think you can do a little buying here and, and maybe add a little bit of as it shows you strength on the move through those that downtrend John.

Then we also got a chart that you sent over to look at silver.

We have silver purses right around those 12 year highs.

It has been outperforming gold in recent weeks when you take a look at this chart.

What does that tell you just in terms of that longer term performance?

Yeah, I mean, this is a very, very long term base going back.

Um You know, you could argue back to 2011 the last time we had kind of that that parabolic move in silver.

So um you know, 1213 years in the making.

Um and then really to your point that in, in the best precious metal bull market, silver outperforms gold.

And so that's really been lacking over the last couple of years even when gold is doing well.

So now we have silver, silver and gold trending iron and silver outperforming gold.

That's um typically a sign of, you know, of a strong precious metal bull market and the miners that, you know, if you want to talk about the GDX, that's also outperforming the metal.

That's another sign of a strong healthy uh precious metal bull market in our view.

Since you mentioned gold, I am curious, obviously gold is at record highs but looking at gold ETF we are seeing some downward movement and has picked up in the last couple of days.

But what do you make of that differential there?

Is that something that causes any concern for you?

Um You know, I think it's just part of a part of the uptrend process and you know, you get moves up and then you get consolidation and pull back.

There's nothing in the, in the price chart of gold, whether the, you know that you're looking at the commodity or the ETF that um suggests to us that a, a final top is in, there's obviously uh inner market analysis at play, whether you're talking about when you get pops in the dollar or in real interest rates, those can have short term, um you know, create short term headwinds for gold.

But um we think the trend is, is still higher and um we've probably yet to see the final high here for gold Jon and taking a step back and taking a look at the broader market here.

You've got the S and P 500 coming off of four straight weeks of gains like you pointed out in your most recent note.

Lots of calls just about how much higher we could be going at this point.

You are noting though, within your recent charts, some tactical exhaustion, what do investors need to know?

Yeah, I mean, I think at this point, it's more just um a signal to maybe hold off um on initiating new buys, you know, broadly.

Um There's obviously parts we just mentioned, we think our time like energy, but I think broadly speaking, um yeah, we've got, we've got a four weeks in a row, uh made a marginal new high to that 5300 level in the S and P. Um There's some complacency setting in, in the form of put call ratios.

Um If you look at a a five or 10 day moving average of the call ratios that are kind of back near year to date lows.

So, um investors are not really uh embracing puts and that's, that's a sign of complacency.

Um And then you have a little speculation creeping in.

We know last week saw some of the meme stocks come back and you actually had the all time record highest volume day for the NASDAQ composite last Thursday.

Um A lot of that volume came in the form of sub $1 penny stocks.

So that's another sign of, of a little bit of fraud there speculation.

Um And so all of this just suggests that a pause, consolidation is likely um to kind of work off those signs of excess, but at this point, nothing major um uh in the form of any sort of major pullback, I think just a consolidation.

All right, Jonathan, thank you so much.

We're gonna have to leave it there, but really appreciate you joining us here.

That was Jonathan Quinsy.

He is BT IGs managing director and chief Market technician.

Well, a trend that we are watching this morning, the growing popularity of G LP One, the use of these weight loss and diabetes drugs more popular than ever.

And companies are capitalizing off it just this morning, Nestle introducing a new frozen food brand called Vital Pursuit.

It will consist of 12 portion controlled meals and is intended to be a companion for G LP One drug users that is according to the company.

Now also coming off of the heels of hims and hers.

Yes.

Today announcing that they'll be selling weight loss drugs for cheaper than competitors and a lot cheaper, some of those offerings coming up to about 100 and 99 bucks.

Him and her stock was up over 27% when I was looking at one point yesterday.

But now we're seeing a little bit of a capitulation here, the stock down a little over 4.5%.

But Shana, it's so interesting given just the amount of demand here, taking a look at one study showing that 43% of health plan providers are predicting a 100% growth or more in G LP one demand in the coming months.

Yeah, and that's why so many companies are trying to position their business in order to take advantage of this trend and really capitalize on the fact that more people are likely or expected to take weight loss drugs.

I mean, dig into those numbers even more JP Morgan.

Now predicting that obesity medication is soon going to be a $100 billion market, $100 billion market here in the not too distant future.

So again, and speaking to the growth rate that they expect to see, they also see about 9% of the US population being on weight loss drugs by 2030.

So I think when you take into account those numbers, the fact that we are expected to see this market to grow so substantially even here over the next six years, it's why companies like Nestle, why more and more companies are trying to position their business in order to capitalize off of this trend or off of this growing trend that we are seeing in GOP one drugs.

And, and I think that this is the start of more of these consumer staples types of companies because I think that has been one of the challenges or unknowns that have been brought up in these earnings calls here over the last couple of quarters as we have heard more and more about GOP ones as we have gotten more and more data just in terms of interest and then just how, what exactly that means for their business.

We asked uh Pepsi's CFO not too long ago about any impact there.

We've asked a number of these consumer stable companies about that impact.

Some are starting to see people pull back just a bit of course, that is coupled with higher inflation.

So you have to take that into account as well.

But you would think more and more of these types of companies will position their products in order to market to this group that is expected to grow very, very significantly here in the coming years.

Absolutely.

Especially for a company like Pepsi.

We know that for some users of these GLP one drugs, sparkling beverages in particular are really negative use case.

Having said that one potential headwind health care changes, we know that there have already been issues with health care providers changing what they do cover if these drugs do become more expensive.

What could that do to the amount of demand?

So something to definitely, I mean, we'll definitely continue talking about this for years to come.

It feels like all right, we're gonna have all of your markets action right here ahead.

So stay tuned for more.

You're watching Catalysts.

All right, Peloton chairs are plunging here this morning, looking at losses of just about 15%.

The move lower coming after the company saying that it's starting a sale of a billion dollar loan offering the company refinancing debt as it attempts to recover from a recent slump in sales.

Now, this has been an ongoing story here with Peloton just in terms of the depressed sales levels that they have seen at their company doing everything they can to turn around the business.

They also have a new CEO coming in at the home too.

So lots of questions just about what ultimately the future looks like here for Peloton.

But again, they're launching this global refinancing here for Peloton in an effort to buy back its debt, extend its low maturities trying to get the business and more liquidity move in the right direction.

What exactly the extent of that direction looks like?

I think it's what's up for debate right now.

Yeah, and it sounds like the convertible bond could be available as soon as two.

That's according to reporting from Bloomberg News, so not confirmed there, but that would obviously be a very quick turnaround.

It also indicates that JP Morgan Chase is leading that transaction.

So we'll have more information uh tomorrow at 1 p.m. we're going to get a call from JP Morgan that's going to have more information about this.

But Peloton just kind of becoming the latest issuer of a lot of debt.

We've seen this as a trend following the rise in rates, uh other companies doing this.

We've got Citrix parent company Staples Gray Television, also kicking off some refinancing efforts.

And this is what we've also been talking about when it comes to those small and mid cap names that are gonna have to refinance their debt in a higher for longer environment that's not gonna be good for the amount of debt that they have to pay off.

And that's why you're seeing the stock plummeting today.

Yes, certainly.

And I think that this is a name just to keep on your radar when you talk about what exactly that looks like here for Peloton under new leadership with Barry mccarthy stepping down the fact that they haven't been able to boost demand for their business at a time when the macro picture has deteriorated just a bit with consumers pulling back on spending, not buying those large larger ticket purchases.

And as a result that is weighed on Pelotons business, they also announced another large lay off on the heels of its most recent earnings results of the company making a number of moves to try to get in a better, more financial position here going forward.

Well, in speaking of the consumer slow down, Wendy's debuting its new $3 breakfast combo meal on Monday.

This is the latest sign that some chain restaurants and retailers could be sensing a consumer slowdown.

Now this comes also after target announced price cuts on 5000 items.

Earlier this hour, we spoke with D A Davidson managing director Michael Baker about those price cuts and what it could mean for the retail companies outlook is target's reduction of prices for 5000 items bullish or bearish for the stock.

We think it's a positive, I, I think the key right now is for them to get customers, uh, in, in the door.

Uh, and, and, and win back some traffic and win back some market share.

So, so we think it's the right thing to do and, and should pay back, uh, pay off uh you know, with positive problems later in the year.

So a positive sign for the stock, but I have to wonder whether or not that's going to be true.

Long term for a company like Target, it feels like they're in this difficult position where they're not necessarily the high end consumer or the low end.

And as we've been talking about with a lot of the economists in particular who come on our show, we are starting to see signs that were in a K shaped recovery.

So like the letter K, you got one end going up one and going down.

Where does Target fall if that is the economic situation that we're in and where do some of these other names fall?

A Wendy's and mcdonald's may be benefiting from some consumers trading down, maybe they're capitalizing off of that with something like this $3 combo meal.

But where do these middle tier retailers?

And I think more and more retailers are coming around to the fact that inflation likely is going to remain sticky from these levels.

Yes, it has eased quite a bit off of the peak levels that we not too long ago.

So that of course, is good news here for many of these retailers.

But when you take a look at the performance of target overall and you compare it to what we have seen in Walmart, target is more exposed to the consumer discretionary spend, which is why it has been under more pressure than its rival Walmart.

Walmart.

Much more exposed to staples there.

So it's been able to weather uh what has been a tougher macro picture now for quite some time.

Also, they are really buying in.

They're learning some of these larger or the higher income consumers are starting to trade down to Walmart.

That is a trend that will be interesting what we hear from uh Cornell tomorrow just about whether or not that is also a trend here at target that they are seeing.

But again, the consumer is weakening, not exactly anything new when you take a look at these earnings reports that we're getting out.

Also squaring that with the recent econ data or sentiment data that we have been getting out consumer sentiment most recently falling consumers there referencing sticky inflation as a huge headwind here for spending going forward.

So I think that's why we've talked to strategist time and time again saying that the discretionary sector could be under a bit of pressure here, at least in the short term as we do see more of this rotation out and we do see more broadening here of market participation as well.

Absolutely.

All right.

Well, coming up next, we've got wealth, 40% of us mortgages in 2020.