Any thoughts on what's carrying this market?

Right, yeah.

It's an interesting condition, if you will, as it relates to consumer here.

But, you know, you still have a pretty low unemployment rate, historically speaking.

And while there are certainly price pressures out there all around, and not just in gas prices, but in a fair number of products and services, consumer, this is a point which I think you highlighted before, Rob, on your show, but consumers who are gainfully employed are going to continue to spend more They might be a little bit more cognizant of their discretionary spending as they face some of these added pricing pressures.

But the data bears out that they are continuing to spend.

And that's been an important factor here for the overall economy.

Is there anything that you're working on that you think would be important for us to know? Anything that we didn't get to that you kind of are itching to tell us? Any thoughts?

Any thoughts on what's carrying this market?

Right, yeah.

It's an interesting condition, if you will, as it relates to consumer here.

But, you know, you still have a pretty low unemployment rate, historically speaking.

And while there are certainly price pressures out there all around, and not just in gas prices, but in a fair number of products and services, A consumer, this is a point I think you've highlighted before, Rob, on your show, but consumers who are gainfully employed are going to continue to spend.

They might be a little bit more cognizant of their discretionary spending as they face some of these added pricing pressures, but the data bears out that they are continuing to spend, and that's been an important factor here for the overall economy.

But, you know, I guess one of the maybe interesting things Divergences here is that you have a consumer discretionary sector is the only sector that's down year-to-date in the S&P 500.

So in this conversation, Dave, as I typically end the conversation, is there anything that you're working on that you think would be important for us to know, anything that we didn't get to that you kind of are itching to tell us? Any thoughts?

Well,

I think that the...

Yeah, I think the Fed share has pretty much laid the groundwork for a rate hike, frankly, at least in terms of what the Fed knows now, what the inflation data shows now, and what the Fed share is saying about the Fed's desire to fight inflation that's been above target for five years now.

And the Fed share acknowledged that the committee would be attentive to market signals and as opposed to just offering that forward guidance.

And so what the market is signaling here, presumably, is that the Fed needs to raise rates.

And it's going to be a really important meeting decision because Mr. Warsh's credibility will be on the line if the inflation rate is still reasonably above that 2% target, and we still have elevated energy prices and signs of pass-through effects that the Treasury Secretary would deem secondary and third-order effects.

And Mr. Walsh pointed out, as Jackson Hole speech, how over 50% of the basket of goods in the PCE index are above their averages.

Anything pressing in your head that you want to talk about?

How do you feel about the Fed's position? And what's your position in all this?

Yeah, I think the Fed share has pretty much laid the groundwork for a rate hike, frankly, at least in terms of what the Fed knows now, what the inflation data shows now, and what the Fed share is saying about the Fed's desire to fight inflation.

inflation that's been above target for five years now.

And the Fed chair acknowledged that the committee would be attentive to market signals as opposed to just offering that forward guidance.

And so what the market is signaling here, presumably, is that the Fed needs to raise rates.

And it's going to be a really important meeting decision because Mr. Warsh's credibility will be on the line if the inflation rate is still reasonably above that 2% target.

And we still have elevated energy prices and signs of pass-through effects that the Treasury Secretary would deem secondary and third-order effects.

Anything pressing in your head that you want to talk about?

How are you approaching said tug of war and the effects of AI being a once-in-a-lifetime, once-in-a-generation potential investment opportunity, as it has been for the last three and a half years?

Yeah, the numbers are so massive, they're almost hard to believe, right? And that's coming up.

From someone like yourself, we saw the dot-com build out as well as the bust.

The key difference, of course, is that the companies at the helm of this AI transformation are some of the most powerful, profitable, strongest, balancing companies going.

That's an important characteristic.

You would think that With this AI build-out and the productivity gains, it's promising that you should see margin expansion trickle down to smaller companies that are going to get the benefits of using AI without necessarily the massive investment it takes to run these large language models.

And I think that the market's kind of hanging its hat on that right now, and that's part of what we're seeing in this broadening out trade is that there's a high expectation that the The earnings momentum will continue, probably not at the pace we've seen this quarter.

Any last thoughts on the current conditions that you want to share with us or anything that's working up your desk as far as ideas?

How are you approaching said tug of war and the effects of AI being a once-in-a-lifetime, once-in-a-generation potential investment opportunity, as it has been for the last three and a half years?

Yeah, the numbers are so massive, they're almost hard to believe, right? And that's coming from someone like yourself.

You know, we saw the dot-com build out as well as the bust.

And the key difference, of course, is that the companies at the helm of this AI transformation are some of the most powerful, profitable, strongest, balancing companies going.

And so that's an important characteristic.

But you would think that With this AI build-out and the productivity gains, it's promising that you should see margin expansion trickle down to smaller companies that are going to get the benefits of using AI without necessarily the massive investment it takes to run these large language models.

And I think that the market's kind of hanging its hat on that right now.

Any last thoughts on the current conditions that you want to share with us or anything that's working up your desk as far as ideas?

But what are your thoughts on earnings for the S&P 500 throughout this season so far?

Yeah, sure.

It's been an extraordinary earnings season.

There's no question about it.

You have a blended growth rate that's 50%.

That's 5-0, and that's according to FactSet's data.

But it's just been phenomenal.

week.

Am I missing anything?

Not really.

Good news.

Yeah, the data itself has continued to hang in there pretty well.

We saw in the ISM numbers this week.

Of course, it's a survey data, not like hard data.

But the ISM Manufacturing Index and the ISM Services Index came in just fine.

What are you projecting with the world of inflation and everything that goes on in your head, Mr. O'Hare?

Is that fair or am I going to be proven out on a limb?

Yeah, I think if you look at it just from a macro perspective, it's fair.

Like you're saying, it doesn't seem like that would be the advisable approach, given what we know about the macro conditions right now.

Now, I think that what... investors need to appreciate more.

So at this point, it might have availed itself in the fallout in IBM yesterday after its earnings warning.

In fact, that stock fell 25%, worst day ever for this blue chip company.

And with the volatility we're seeing in the semiconductor space in South Korea, right, where you get the average daily new, I think it's 5% in that index.

What does your work show us about is this going to be a problem that we'll eventually not have any more money to fund all these ambitious money raisers?

Is that fair? Or am I going to be proven out on a limb?

Yeah, I think if you look at it just from a macro perspective, it's fair.

Like you're saying, it doesn't seem like that would be the advisable approach, given what we know about the macro conditions right now.

Now, I think that what investors need to appreciate more so at this point might have availed itself in the fallout in IBM yesterday after its earnings warning.

In fact, that stock fell 25%, worst day ever.

for this blue chip company and with the volatility we're seeing in the semiconductor space in South Korea, right, where you get the average daily move, I think it's 5% in that index.

It has to do a lot with like leveraged ETFs.

So what else is grabbing your attention this morning?

It's just, it makes me a little crazy because the opposite side, the viewers, the listeners out there, they're more scared than I am.

Yeah, there's times when you feel like the market's just a puppet and it's glad to be played with by the powers that be.

And it doesn't react, I guess you could say, in a fashion that you would think it would react to some negative sounding remarks or developments.

But you turn that around, I think you also could argue that the market also knows what it's up against.

And so it doesn't get too caught up in the negative-sounding remarks and developments because it's always staring at the likelihood that there's a silver lining in it.

And I think we saw that in the second quarter when you had the market holding near all-time highs, even as oil prices were moving above $100 per barrel because we were at war with Iran.

But the futures curve for crude didn't imply that there was a belief that there was going to be a lasting spike in oil prices.

Or incomplete,

It's just it makes me a little crazy because the opposite side, the viewers, the listeners out there, they're more scared than I am.

Yeah, there are times when you feel like the market's just a puppet and it's glad to be played with by the powers that be.

And it doesn't react, I guess you could say, in a fashion that you would think it would react to some negative sounding remarks or developments.

But you turn that around, you also could argue that the market also knows what it's up against.

And so it doesn't get too caught up in the negative-sounding remarks and developments because it's always staring at the likelihood that there's a silver lining in it.

And I think we saw that in the second quarter when you had the market holding near all-time highs, even as oil prices were moving above $100 per barrel because we were at war with Iran.

But the futures curve for crude didn't imply that there was a belief that there was going to be a lasting spike in oil prices.

That's the first thing I'm getting, maybe.

Yeah.

I think the stock prices, notwithstanding some recent declines, have still reflected a pretty hefty bonus in terms of being able to realize the potential of all that investment.

And I think that's where the rubber is going to meet the road here in the second half of the year, because you'll have an investment base that's more discerning in terms of companies that are actually delivering on those high growth expectations that have been embedded in many stock prices.

And the risk that presents itself as we look at the second half of the year is that the bar of expectations has risen just so high that these companies won't be able to live up to those expectations.

So that's one potential risk factor.

The other potential risk factor we think is you've got interest rates that continue to creep higher even though oil prices are coming down.

It could be a reflection of persistent inflation concerns and acknowledgement that the Fed has clearly not delivered the price stability yet that New Fed Chair Warsh is committed to, and higher rates can be a spoiler for higher valuations.

What are you working on? What do you think we need to know that we didn't cover this morning? I'll give you about three to five minutes to get into some details.

Can that set us up because they've underperformed for six to nine months now? Can that set us up for a strong back half of the year as their valuations have been crunched? Or is the concern too great in your mind about how much they're spending? Because hyperscalers, Magnificent Seven essentially, are catching a lot of flack for going from cashflow positive to big spenders with a lot of debt.

I think the stock prices, notwithstanding some recent declines, have still reflected a pretty hefty bonus in terms of being able to realize the potential of all that investment.

And I think that's where the rubber is going to meet the road here in the second half of the year because you'll have an investment base that's more discerning in terms of companies that are actually delivering on those high growth expectations that have been embedded in many stock prices.

And the risk that presents itself as we look at the second half of the year is that the bar of expectations has risen just so high that these companies won't be able to live up to those expectations.

so that's one potential risk factor the other potential risk factor we think is you've got interest rates that continue to creep higher even though oil prices are coming down could be a reflection of persistent inflation concerns and acknowledgement that the fed is clearly not delivered the price stability yet that new Fed Chair Warsh is committed to, and higher rates can be a spoiler for higher valuations.

And so I'd like to see kind of how the dust settles around that as we get more data.

But by and large, in the second half of the year, we go into it probably with this notion that the, quote, easy money has been made, knowing that you've got an index like the Philadelphia Semiconductor Index that was up 100% year-to-date pretty much by the end of the second quarter.

What are you working on? What do you think we need to know that we didn't cover this morning? I'll give you about three to five minutes to get into some details.

I don't want to put words in your mouth, but there's a lot for us to focus on.

Sure, sure.

Yeah.

One of the prevailing things is simply by the dip.

And that trade has been fortified by the persistence of very strong earnings growth.

Traders have had a rational, logical basis to come in and buy the weakness because there haven't been any true fundamental chinks in the armor yet.

And so you're seeing that filter through to some of the more growthier areas of the market, specifically the semiconductor stocks, some of those mega cap stocks and just other high beta names.

What are you seeing elsewhere in the market that you want us to pay attention to today?

I don't want to put words in your mouth, but there's a lot for us to focus on.

Sure, sure.

Yeah.

One of the prevailing things is simply by the dip.

And that trade has been fortified by the persistence of very strong earnings growth.

Traders have had a rational, logical basis to come in and buy the weakness because there haven't been any true fundamental chinks in the armor yet.

And so you're seeing that filter through to some of the more growthier areas of the market, specifically the semiconductor stocks, some of those mega cap stocks and just other high beta names.

So what are you seeing elsewhere in the market that you want us to pay attention to today?

How do you think this market would be handling? Would we be just a 1% or 2% up? Because we've had a spectacular three and a half years, largely tied to the earnings and the earnings expectations of AI.

Yeah, it's a really interesting question.

When you think about just let's just say the AI investment cycle relative to GDP, and we're talking a little over a trillion dollars, right? But real PCE, that's real personal spending, accounts for $17 trillion of our economy.

So what I'm driving at is that the consumer is really the driver of overall GDP, right? So you could take the AI out, and I think we'd still have an okay market because we still have an okay consumer, right? that's been underpinned by steady employment levels at relatively low unemployment rates.

And then, of course, you get that matched on the upside with the wealth effect that's come along with rising stock prices, rising equity, home equity.

And I think you can make a case that we've hung in there okay, even with, again, that spike in oil prices hasn't derailed the consumer.

But certainly, I don't think, I think to your larger point, no, we wouldn't be doing nearly as well overall because AI has been such a powerful driver of the earnings growth.

Is there anything you want to talk about that you think the market watchers on my side of the fence should be aware of that we don't know if we didn't listen to you today?

How do you think this market would be handling? Would we be just a 1% or 2% up? Because we've had a spectacular three and a half years, largely tied to the earnings and the earnings expectations of AI.

Yeah, it's a really interesting question.

When you think about just Let's just say the AI investment cycle relative to GDP, and we're talking a little over a trillion dollars, right? But real PCE, that's real personal spending, accounts for $17 trillion of our economy.

So what I'm driving at is that the consumer is really the driver of overall GDP, right? So you could take the AI out.

And I think we'd still have an okay market because we still have an okay consumer that's been underpinned by steady employment levels at relatively low unemployment rates.

And then, of course, you get that matched on the upside with the wealth effect that's come along with rising stock prices, rising equity, home equity.

And I think you could make a case that We've hung in there okay, even with, again, that spike in oil prices hasn't derailed the consumer.

Is there anything you want to talk about that you think the market watchers on my side of the fence should be aware of that we don't know if we didn't listen to you today?

so i haven't looked at your page one column yet it's the only day that i don't start my day with it because i always like to be surprised a little bit it seems like the iran war is not causing gas to go above a hundred dollars a barrel I don't understand why, and I turned to your column and I don't know if you have a finger on it, but why are things not getting worse in your opinion with Iran and the United States stock markets?

It is confounding, but at least from a headline standpoint, why, why it hasn't caused more of a setback for the capital markets.

But you think that what you read between the lines of this though, is that the stock market in general, continues to adhere to this notion that this will get resolved, the strait will open up, and that you'll see relaxation in these stubbornly high prices and ultimately a return to lower prices both for oil and gasoline.

That's the enduring belief at the moment.

But one of the things we've discussed in the past is that the market hasn't been necessarily motivated to react to negative considerations because it hasn't really seen or heard a lot of truly disappointing guidance out of corporate America as it relates to the spike in energy prices.

And it's, again, one of those seen as believing.

And when you maybe start hearing that more in concert, as opposed to an isolated incident here or there, when you start hearing it more in concert, then the reaction should be more pronounced.

What did I miss in my approach today?

And I turned to your column and I don't know if you have a finger on it, but why are things not getting worse in your opinion with Iran and the United States stock markets?

It is confounding, at least from a headline standpoint, why it hasn't caused more of a setback for the capital markets.

But you think that what you read between the lines of this, though, is that the stock market in general continues to adhere to this notion that this will get resolved, the straight will open up, and that you'll see relaxation in these stubbornly high prices and ultimately a return to lower prices both for oil and gasoline.

That's the enduring belief at the moment.

But one of the things we've discussed in the past is that the market hasn't been necessarily motivated to react to negative considerations because it hasn't really seen or heard a lot of truly disappointing guidance out of corporate America as it relates to the spike in energy prices.

And it's, again, one of those seen as believing.

And when you maybe start hearing that more in concert as opposed to an isolated incident here or there.

What did I miss in my approach today?