00:00The jury is out on where Treasury yields go next. What do you expect tomorrow?
00:05What we expect is interesting. The markets are not pricing in a big move tomorrow,
00:09given Warsh's speech. It's about 60 basis points in terms of plus or minus. So it's not a lot of
00:14expectations out of it. What I'll be looking for is, does he have commentary around his comfort
00:19with long-term yields at over 5%? And also, how is he thinking about inflation and the strength
00:25of the economy? Just recently, jobless claims have been at the low end of the range. PMI data has
00:31been very strong. The Philly Fed data has been at some of the highest levels in years. All of that
00:35is telling us the economy is strong. Inflation is here to stay. Yields are telling us that.
00:40It'll be interesting to see if we get any commentary from Warsh around any of those items.
00:45It gets to this idea, though, too, when we talk about equity traders and how they're valuing
00:49stocks either on an individual basis or an aggregate. How much of a factor do you think
00:56current yield levels will be and bets on what the direction is for those yields?
01:04Yields are increasingly important. It used to be more about the bond market and how is the bond
01:08market thinking about them. But equities take note of what is the 10-year and what are 30-year
01:12yields doing. And we've been seeing those creep upward, mostly because for one good reason,
01:17which is a stronger economy, but one reason that that's not so great, which is that inflation
01:21is structural. And how will the Fed react to that? Will they raise rates or will they
01:25be able to stay on pause? I don't think we have any cuts on the table. But what to watch
01:30there will be the employment markets, which have weakened. Now, of course, if employment
01:34markets continue to weaken and inflation stays structurally high, then we have to start thinking
01:39about stagflation. I'm not thinking that stagflation is going to be an issue yet, but that's another
01:44thing to watch. Employment markets, are they going to keep getting worse? And secondarily,
01:48will inflation stay structurally above target, which is where we are on inflation already.
01:53So where in the equity market then is basically a good place for investors to hide out? Is it the
01:59mega cap tech stocks that have these strong balance sheets, that have this resilience, or is it maybe
02:04some more unloved parts of the equity market that haven't rallied yet?
02:10But there's been three pressure points causing turmoil for the markets recently. That is yields,
02:15which we already discussed, higher oil prices, and of course, questions around the AI trade.
02:20NVIDIA answered that question yesterday very boldly and dismantled the bear's case on AI.
02:26People had been worried about AI spending. They talked about spending on CapEx through
02:302028. And even more importantly, they raised revenue growth for fiscal 2027 to 70% when consensus
02:38was at about 45%. So that's very bullish for tech stocks. And we're seeing that today
02:43at the expense of everything else that's not technology. We're also seeing software recover.
02:48We'll see Workday report after the close today to see if that continues. But if software and hardware
02:53and semis are continuing to show the strong earnings numbers, I think tech will continue to lead from
02:58here. And that'll be what takes markets higher.
03:01Hey, what about within credit markets? We had a guest on The Real Yield a little bit earlier today
03:05saying that the equity investors have fared well from AI, but the fixed income investors haven't. I think
03:12you said we've been a bust. AI has been a bust for fixed income investors. Is there opportunity now
03:19to come in where spreads are?
03:22Well, spreads have been pretty tight recently, which has been a little bit challenging for fixed
03:26income markets. But of course, yields are high. So returns on fixed income are still, you can still
03:31get pretty strong returns on fixed income. It's interesting. You are seeing AI creep into the
03:36credit markets, though, in terms of the types of credits that are available for fixed income
03:40investors. But the main beneficiary of the AI trade is the MAG-7 and the Nasdaq. That's where the
03:45earnings is. And that's why those are the companies that have been leading the markets higher on the
03:49equity side.
03:50I do. It's kind of interesting. You talk. We talk about the MAG-7. But were you surprised at some
03:55of the results that we got out of some of the software makers? I know all the focus is on
03:58NVIDIA
03:59today. But I mean, you have Salesforce up 20 percent. A lot of the other software makers
04:03that have reported over the last couple of weeks seem to have sort of, at least for now,
04:09put some of those fears about that SaaS-pocalypse to rest. And as you said, we're going to hear from
04:13Workday and Autodesk after the bell tonight. Is it too soon to sort of make a call on that?
04:18Well, there was so much noise around the impact of AI on software companies earlier this year. But
04:24really, when you separate the signal from the noise, it didn't show up in software companies'
04:28fundamentals. Revenue growth rates for software companies remain fairly stable. Earnings have
04:33remained very strong. And so have margins. So we're not seeing it. I think it was just a lot
04:37of concern earlier this year. There was so much talk about how many jobs is AI going to eliminate.
04:42We're not really seeing that to a great degree at this point. And which sectors is AI going to
04:46replace? People were very concerned about software. I don't think that's the case. I think you will
04:50continue to see these companies rebound from the ashes.
04:53Just real quickly, we're also going to get Marvell after the bell tonight. I am curious,
04:57anything to read from NVIDIA's earnings into Marvell. I know not quite apples to apples,
05:02but there's got to be a connection. My question will be, if Marvell earnings are strong,
05:06it'll tell us that the AI trade is more than NVIDIA. It's broader than NVIDIA. I would like
05:10to see that with strong Marvell earnings.
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