Your thoughts?

Yeah, it's not a good day.

We're obviously a bit off the lows here, called 75, 80 basis points off the lows for tech.

But it's not a good day.

And I think Mike touched on a lot of the important points and had a good couple of conversations all hour.

I think the one observation that hasn't been made that sort of I will make it as hopeful is the Q's are coming up on the 200-day moving average.

Not that that automatically means a bounce, but it quite often is important.

Does it feel to you as though the midterms will be some degree of clearing event in any part of this conversation? No.

Is it there? And I think we're going to continue to see that in cloud revenues and in backlogs, we're going to see that the demand for compute is extremely strong.

Let's pivot off your movie analogy right there, and let's equate the AI build-out to Friday the 13th.

Truth be told, I've never seen one of them.

I've seen Nightmare on Elm Street, but I've never seen any of the Friday the 13ths.

Right now, Jason is the interest rates.

And Jason, Corweave is like the random person, the camper who was like in the movie for like a minute, and you don't really know who he or she is.

Jason is killing that camper.

Thank you.

Dan, what do you make of, of what's going on with the neo cloud issue right now? Do you feel like the market is unfairly punishing it, or do you think that it could be this canary in the coal mine and that's why it's become such a, a point of focus this week?

The problem with the canary in the cola- coal mine argument, L- Leslie, is h- how many canaries have we killed in the coal mine over the last three years as everybody has latched onto every new sign of weakness, so to speak, as evidence that the, the bull market was about to end, only to see the broad market, both tech and otherwise, go on to make new highs? So I, I don't know that I would read any more into what's happening now than I would have or did any of the other headlines.

The issues appear to me to be rates are higher, and so to the extent that everyone's already nervous about the extent of the AI build-out and it getting over its skis- Everybody is starting to knock on the doors of some of the riskier parts of the build-out and, and CoreWeave and the NeoClouds are on the riskier end of the spectrum.

And even within that context, what's happening at, at, uh, CoreWeave is they're not knocking off the secured debt, they're knocking off the unsecured debt, which is the riskier of the riskier AI build-out play.

So I think you have an issue here where people are looking to sell something in the face of higher rates.

But we heard from ASML, we heard from TSMC, uh, we've heard from any number of other companies that the broader demand environment remains pretty robust.

And, uh, I, I would wanna hear from CoreWeave that there were some issues with their business before I, I read anything larger into what's happening right now.

... to use that analogy?

But discretionary is the second worst sector, to your point.

Yeah, that's right.

And staples are having a real hard time here, not just because of the yield argument for utilities and staples, but also the freight component for a lot of the staple companies.

Look at Mongolia's Procter & Gamble, et cetera, et cetera.

So there is a lot going on under the headline here.

And it's not fair to look at the market down 70 basis points and go, OK, it's not that bad.

Underneath the headline, only about half the index is trading above the 200-day moving average right now, which is pretty unusual for an overall stock market that's sitting at a near-term high.

flattening curve is not good for the banks.

Let's just call it strong.

Yeah, cons- consumer's doing just fine.

That's right.

And the AI investment cycle's probably somewhere between a quarter and a third of, call it total GDP growth to oversimplify a, a longer conversation.

But outside of that on the investment side of things, the areas of the economy that would be hit particularly hard is by higher interest rates, it is not great.

And I, I'll mention again, non-residential construction has been a drag on GDP basically every quarter for the last, I don't know, eight or nine quarters.

It's...

Dan, what if yields do continue to back up like, uh, Gunlock thinks they, they might? What, what ultimately does that mean for the stock market, do you think?

What do you make of Sarah's thoughts and what are yours when it comes to not just this afternoon, but the bigger picture? As

usual, Sarah's right.

Far be it from me to disagree.

I think the one characterization I would disagree with is that I think most people think that they should be hiking rates.

I hope everybody should be watching this show every day, but if they're not, that's a good thing, at least today, because I'm going to repeat everything that Stephen Meyer had said yesterday.

I'm in the camp that thinks that they shouldn't be hiking rates right now.

I think that's the minority position.

When you talk about the AI investment cycle, though, why carve it out? I mean, it's a key part of GDP growth right now, and obviously it's creating a good amount of jobs and consuming an enormous amount of capital.

say they're hiking now?

I didn't say anything.

By design.

I don't think that there's a single additional credibility problem for the Federal Reserve today than there was three months ago, six months ago, two years ago.

They have missed their target for years.

They decided to miss, I don't care what anyone says, they decided to miss their target.

In 22 and 23, when they announced to the market, inflation is not getting back to our target for four years, a time frame that continuously has been rolled forward.

If the earnings story was different,

But I just wonder if you think that there are decisions to be made to figure out which way to lean in terms of either we have to get more restrictive on CapEx or the rest of the economy needs help.

I don't know why we need to get more.

I mean, listen, we've had 500 billion, something like that of global issuance this year to fund the build out.

Uh, there's very little difficulty for, for Google issuing in every market around the world for, uh, we've seen some equity issuance.

So the willingness of investors to fund the build out and the desire of companies to seek that funding is unchallenged right now, even with elevated interest rates.

We, we know this is part of the argument against raising interest rates that the investment is largely interest rate and sensitive.

Uh, I, Are we overbuilding? I've always said probably.

And I do wonder, you know, to the extent that you now have some experience and wisdom, even though you're still a young man, Dan, what are you looking at to try to, you've still got to try and figure that out if and when that music does

Uh, the idea of yields, trying to deal with yields- Trying to deal with Iran and the markets fall where do you think in all of this?

Well, the, the market, equity markets, well, I guess both the equity and the credit markets really haven't cared thus far despite all the consternation and the commentary about 10- and 30-year longer duration yields backing up.

Um, so, so I don't think it really matters thus far, and it's, it's partially because of what I'll call ICI.

IEI.

ICI is something else.

IEI: inflation, uh, the economy, and issuance.

There's nothing really that the Treasury can do about any of that, so you have this upward pressure on yields from these three items, inflation, the economy, and, and issuance.

... and, and are angry about that

The only reason they don't matter as much as they maybe ordinarily would is because earnings right now matter more.

Okay, well, but, but that's sort of the point, that, that you have interest rates at s- cycle highs in some cases.

But the A- w- we've had some version of the debate, what's more important, the Federal Reserve/interest rates or the AI story? And I have, for a year, come down on the side of the AI story, and I think that's borne out quarter after quarter after quarter.

Rates are at a high, but if you look over since the start of earnings season, which has been exceptional, as you noted-

Was the chair gonna be the dissenter?

Yeah, maybe.

Um, it's happened be- Volcker got outvoted, so it g- uh, uh, who knows? Uh, yes, I think gun- uh, g- you know, if I had to make a decision, yeah, I probably, probably doesn't wanna raise rates before the midterms.

Uh, at the same time, I would also say I'm not sure the economy needs a rate hike right now because there's a ...

Mm-hmm.

The KIE, the insurance companies are at highs.

Uh, the commentary across the board from the card companies who I mention every quarter about consumer spending, just fine.

So you have all the investment themes going on, AI, power generation, et cetera, et cetera.

The consumer's doing fine.

Jobless claims two weeks in a row, sub-200.

For, for viewers out there who are not aware, under 200,000 in jobless claims didn't happen one time from 2000 through, through basically through COVID.

And then if you pile on top of that a blow up in a, in a hedge fund that's heavily levered to the AI trade, and yet the market was up three or four days, uh, consecutively following that, and we find ourselves, you know, closing at record highs and, you know, today obviously notwithstanding.

Dan, are, are we in a worse place today than we were a few days ago or, or not?

I don't th- I don't think we're in a meaningfully worse place, and, and for the fun of the discussion, I'm going to disagree with Stephanie.

I don't think the Fed's credibility is any more at risk today than it was before the meeting, and that's because as, as everyone on the panel knows and many viewers, they have missed their inflation target for five years.

There's nothing different now, uh, than, than, uh, uh, six months ago or a year ago other than who appointed the Fed chair and who the Fed chair is.

So I think there's some of that going on.

Uh, and I would also disagree, I don't think that he was dismissive of the inflationary environment, if you will.

I think he acknowledged it, and he's repeatedly said, "We have one goal really, and that's to get inflation back to target, and we take that seriously." We can quibble about how he's is and will go about it, but I d- I don't dis- I don't agree that, that he is jeopardizing Fred- Fed credibility.

... fair assessments from their own language.

Is there any reason to believe that we don't see the same thing play out this time around for this kind of Iran war version 2.0 as we saw play out in the first couple of months kind of of the conflict going to the beginning of March through the middle of April?

I do think it's different, and it's, it's been an argument I've made for some time now.

You, you don't have, in my opinion, a rational actor on the other side, and whatever one thinks about the origins of the conflict, uh, there's no real easy way out of this.

And I think part of the reason that, that, uh, uh, you know, the, the, as you mentioned, the, the market has discounted the geopolitical risk premium over the last, certainly the last couple of years if not longer, is you've never really had an issue like this with a, a meaningful oil producer in, in the most important oil producing region within that area.

Uh, but now you do, and it doesn't seem like there's any real easy way out of this.

And, and you mentioned that, that, yeah, oil is not anywhere back to the highs.

Uh, but if this keeps g- going, and this was a- admittedly this was the argument that, that I was making a couple of months ago, but if this keeps going and now you've shut off the, as we mentioned, the Port of Yanbu, et cetera, there's only one way for oil prices to go, and that's up.

Sure

What do you think?

Well, we've seen a bit of a rotation.

I think in, in...

I mean, software's off the lows, obviously semi's off the highs a bit.

Uh, and the- we're, we're gonna start getting earnings in short order, and so we're gonna start to see what I think, uh, we've already seen, the differentiation, the performance of application software against, uh, cybersecurity, et cetera, et cetera.

I imagine in earnings you'll probably see something that at least supports tangentially that, that bifurcation.

Obviously we've got to get through the banks first.

Well, okay, but is that a cautionary tale for what may unfold over the next few weeks?

You believe it has some merit.

Why? Well, I mean, it's not whether I believe it has merit.

It has merit.

You look like the best way I like to do this is to just look at the S&P 500, excluding the technology sector, excluding the communications services sector.

So let's not just X out Mag7.

Let's X out all of them.

And that.

So I'm just kind of curious how you think it

make sense of this market then you heard what these gentlemen have to say

i mean to some degree i sort of disagree i mean to some degree the market has to broaden out were were the the s and e five hours up call it ten percent since the war broke out the only sector beating that The only sector really driving the games is the XLK, which is up called 23%, 25% or something.

Every other sector is underperforming.

Five of the sectors are down since then.

Rates are up 50 basis points, and it's really pressured the trade in general.

And what you've seen over the last three weeks or four weeks, is a rotation, so to speak.

There's now, I forget the number, five or six sectors are beating the market since mid-May, let's say.

So

Stay.

Um, I, I think it's a good thing.

And now obviously, uh, the, the semis have done phenomenally well.

They've driven a big s- percentage of the gain in the market.

They're huge, so mathematically that's just gonna be the case.

However, to the point earlier, the charts are gross.

They are vertical, and if you've been in this market, if you've been a trader, an investor, anything for more than 35 seconds, you know those charts, and you know they're gonna correct at some point.

Some have been good this month, like, like a Goldman, which is gonna lead, SpaceX, but the stocks haven't performed all that well consistently like some other areas.

But enough buyers are lurking out there that they're not gonna let these names fall too far, and the evidence is on the tape.

Yeah, I think the MTUM is the primary way the retail investor plays-The momentum trade.

The baskets, the momentum baskets put together.

Christina mentioned earlier the a- the, uh, Applied Optoelectronics.

Uh, y- last time I was on, I brought up a, a chart of a bunch of names no one had ever heard of.

I, I could've put Applied Optoelectronics on there, but it is one of the largest, uh, impacts on the momentum baskets, on the, like, the Goldman basket or the Morgan Stanley, UBS momentum baskets.

Um, those names have caught a huge bid in the last couple of months.

Have you ever felt like you know the story before going into the actual story to the degree you feel like you do when Nvidia reports?

It doesn't have to be irrational, I suppose.

I don't know that I see that much exuberance.

I gotta be honest with you.

To Brian's point, you don't have to, to get this back to the '90s, you don't have Qualcomm splitting four times in a year.

You don't have a zillion IPOs, uh, with no earnings, and I'll, uh, de- defer obviously to, to Brad's comments on Cerebras.

He knows much more about it than I do.

But this seems like a very real company.

Hello.

Now it's just another day.

Yeah, I, it's really remarkable what's been going on here.

But, but admittedly, we've been talking about this for weeks and months and quarters now, the idea that the AI story was not just the, the main chips, it's not just Broadcom and Nvidia, it's broader than that.

It's GE Vernova, it's Vistra, it's Vertiv, et cetera.

And I brought a table of, if we can throw it up on the screen if some- anybody was listening to what I'm saying, of five companies that I think most viewers have probably never heard of, that admittedly before we have a viral moment...

There we go.

Before we have a viral moment and you ask me what they do and I have to lie and tell you my microphone isn't working, I don't know what any of these companies do.

Mm-hmm.

Yeah.

I, I, I think, um, what's so interesting is we spent so much time for months debating what's more important, AI or the Fed, and now the question should have been, "What's more important, AI or oil?" And AI wins again.

Um, I, I think it's just remarkable.

I, I did not expect the, the broad market to rally as much as it has off the lows with oil as we have up on the screen here, 110 for Brent, 102 and change for, for TI.

Uh, I certainly wouldn't have thought the market did what it did, but you have EPS growth out of the hyperscalers, 60% CapEx up another tens of billions.

We're gonna be at 700 billion.

Let's just call it a trillion and round up.

Does that ever mean anything?

Mm-hmm.

Uh, which is sort of how I described it over the last couple of weeks, is this is really difficult to trade.

You don't...

O- o- on any given day, the strait is open, it's closed, ships are being taken, they're not, they're getting through, they...

It, it's just impossible to ascertain exactly where we are at any given moment, and so the best thing to do is just to look through it.

Now, here we are, obviously, a couple of weeks later, we find ourselves, the stock market's up, call it two, three percent above pre-Iran levels.

Obviously, uh, uh, uh, interest rates are a bit higher, call it 25 basis points higher.

... uh, that maybe over the long term it is something that investors need to be paying closer attention to?

Uh, what, what do playbooks even look like given the uncertainties right now?

Uh, I, I, I agree with you.

It's, it's, uh, y- sometimes you look at the price action and you throw your hands up.

I, I, I think a lot of people would've agreed, uh, and, and certainly did agree that if you had told me or us what was going to happen would happen, broader markets would've been down more than they were.

But at the same time, two things.

One, a 10% decline is not nothing in terms of the broader stock market, and secondly, coming on the heels of the tariff sce- scenario, where the stock market fell 20% only to see much of that reversed, you could forgive a lot of investors for saying, "We're probably not gonna destroy an entire civilization.

We're probably not gonna go into an all-out war," in which case, how low do you really wanna take equity prices in an environment where the economy's doing okay and earnings are gonna be pretty healthy?

Are there certain parts of energy that you would wanna gain more exposure to?

And, uh-

And the, the Iranians have said, "Sure, just pay us a buck a barrel." I'm paraphrasing, but, "Just pay us a buck a barrel," which nobody is going to want to do.

They may have to do it, but nobody's gonna wanna do it.

What does that mean, th- who- they pay us a...

Is that to consume? So Iran's gonna tell everybody who wants to get a ship...

And by the way, getting back to my original point, I forgot the most important part about oil prices.

There are no ships there.

Yeah.

I guess the, the big question, Dan, I'll begin with you since you're sitting here next to me, is if there's a, a resolution reasonably quickly, what do you do as an investor? You just go back to playing what you were playing before the idea that, hey, earnings are gonna be pretty good, and you still have this stimulus coming out of Washington and all's well again?

I, I think the temptation will be to do something else.

Uh, I don't know if that's correct.

Uh, it, it, it might seem to many to be too simplistic to say, "Well, we're just gonna return to the world as was," and admittedly, in a lot of respects, we will not.

Oil is not going back to $60 anytime soon.

And, and the exact mechanism by which this is solved remains to be seen.

But from an investment standpoint, we've talked ad nauseam, uh, as everybody has noted, that earnings expectations have held in quite well.

Right?