Biden hosts NATO summit, Tesla’s rally, oil: Morning Brief
It’s a new day, but the same old stock market. Seana Smith and Brad Smith help investors start their trading session off right, guiding them into the market open and detailing some of the biggest industry stories and market movers.
President Biden is hosting world leaders for the annual NATO summit (North Atlantic Treaty Organization) — on the international alliance’s 75th anniversary — with all eyes on the sitting US president, at a time when his own party is asking him to resign from the 2024 presidential race, and newly elected foreign officials.
Tesla’s (TSLA) rally spanning nine-straight sessions has lifted up the stock significantly, reversing its downward momentum and erasing the EV maker’s 2024 year-to-date losses. Morningstar equities strategist Seth Goldstein comes onto the program to discuss Tesla’s growth timeline and what he expects from the company’s second-quarter earnings due out on July 23.
Crude oil (CL=F, BZ=F) prices dip as Tropical Storm Beryl makes landfall in Texas. Vanda Insights Founder and CEO Vandana Hari weighs in on what hurricane season and geopolitical tensions in the Middle East could mean for oil output in the summer months.
Other top trending tickers on the Yahoo Finance platform include pharmaceutical titans Novo Nordisk (NVO) and Eli Lilly (LLY), Nvidia (NVDA), and oil producer BP (BP).
This post was written by Luke Carberry Mogan.
Video Transcript
It’s 9 a.m. here in New York City.
I’m Brad Smith alongside Shana Smith.
This is Yahoo Finances flagship show.
The morning brief brought to you by invest stock futures are rising this morning as the S and P 500 the NASDAQ.
Not yet another record close investors are increasingly optimistic that the FED is going to start cutting rates soon and they’re looking for further evidence.
Inflation is moderating in Thursday’s key CP I report.
So let’s get right to the three things that you need to know this morning.
Yahoo finance is Jared, Rick Newman and Pro Superman and have more stock futures are higher after the S and P 500 rallied to yet another record close, notching its longest win in five months.
We’re also watching treasury yields rise ahead of fresh reads on inflation.
CP I and PP I out Thursday and Friday.
All of this comes as fed chair, Jerome Powell heads to Capitol Hill for a semi annual monetary policy address.
The testimony will take place Tuesday and Wednesday before the US Senate Committee on Banking Housing and Urban Affairs and the US House Financial Services Committee Powell face pressure from lawmakers around the fed’s timing of rate cuts and possibly questions surrounding banking regulations.
President Biden is kicking off a three day NATO summit in Washington DC today as he faces growing scrutiny over his ability to serve as president for another four years.
Biden will make a welcome speech this evening.
This evening, attend meetings with foreign leaders host a dinner at the White House and wrap up the event on Thursday with a press conference with reporters, Biden’s performance will be closely watched after his weak showing in the first presidential debate caused a number of Democrats to call for him to drop out of the race.
And Tesla shares are on a tear of the stock matching nine days of gains, erasing year to date losses.
The rally comes on the heels of the ev makers deliveries beat last week and Tesla bows are highly in the company’s fastest growing segment in its energy storage business.
Tesla slumped in the first half of the year amid tough competition and weighing demand for EVs in the US.
The stock, the stock is now up under just under 2% for the year markets eyeing another record high today.
The S and P 500 notching its best five day winning streak since January.
Now this coming ahead of Fed chair Jay Powell’s address to Congress today.
So let’s talk about what exactly this means for the market for that.
We want to bring in Liz Anne Saunders, Charles Schwab’s Chief Investment strategist Liz Anne.
It’s great to see you.
So, we’ve been having these conversations over the past several weeks now.
Look, the conversation has really been dominated by the fact that it’s largely driven the gains we’ve seen by these handful of large cat names or some.
Worry about the lack of breath that we’re seeing in the market.
I’m curious just your broad take of the current set up right now and how this looks here in the second half of the year.
Yeah.
So it, it’s, it’s a tale of two markets and that’s one of the the descriptors we’ve been using to describe this backdrop.
If you’re only looking at the index level, we you’ve seen a rip higher, you’ve seen all time highs 35 of them this year.
But under the surface is a much different picture.
It’s a lot more churn and rotation weakness even, I mean turmoil to some degree and it’s really heightened in the NASDAQ.
The NASDAQ uh is, is at all time highs, it’s had no more than a 7% drawdown at the index level year to date.
But the average member within the NASDAQ has had a 39% draw down.
So that just tells you that just looking at the index level doesn’t tell the full story on the other side of that.
It also means opportunities have been created with a lot of that weakness and churn and rotational corrections under the surface.
So I think there are opportunities and it wouldn’t surprise me if we see some convergence start to happen where maybe you see some profit taking up the cap spectrum into the mega cap names, but some interest on the by side in some of those other areas.
What is the biggest event driver even in this tale of two markets, as we’re looking at the second half?
Is it the fed cut?
Is it geopolitical concerns?
Is it election risks?
I think those are all important at a broad macro level and affecting things like volatility, not really at the index level because a measure like the vix is not even, you know, a teenager at this point, but at the individual stock level.
But in terms of defining within the rest of the market, the performance spread between the winners and the losers, you can do that at the factor level and there is still a quality bias in terms of what’s working and what’s not, you can do a profitability range.
And that’s particularly acute within the Russell 2000 where the profitable stocks have done quite well over the past year, the not profitable stocks have done quite poorly.
You can look at in terms of interest coverage, high interest coverage, stocks have done very well, low interest coverage, stocks have not strong balance sheet companies versus weak balance sheet companies, big performance spread there.
So I think that’s how to think about the market but also navigate where there are opportunities and where there are landmines.
I think the best way to do that is actually at the factor level or characteristic level, as opposed to say at the style level or at the sector level.
Then when you talk about the fact that we are seeing this wide gap between the performance of some of these handful, large cap names versus everything else that’s really underneath the surface.
Is this a trend that you see could potentially persist for some time?
It it could.
And II, I think it’s, it’s a fool’s errand to if you hold a lot of the, the big winners uh to, to try to figure out, OK, at some point, there will be consolidation.
When does that start?
It’s, it’s why we always point to the, the really beautiful discipline that is rebalancing it, it forces investors to do a version of what we know we are supposed to, which is by low, sell high.
But in this case, a low trim high.
And here’s though where psychology comes in.
Very recently, I had a conversation with a client about it, one particular stock within the magnificent seven.
And this client had sold a little bit of the position and then the stock ripped higher.
And this client said, oh, I’m so mad at myself, I’m so annoyed.
Meanwhile, they still have a huge position and the stock has gone up a lot.
But it’s the psychology of but I sold a little bit and I, and I, so I posed the question back.
Would you be happier if the stock went down a lot?
Because then you had the bragging rights of?
Well, I trimmed a little.
So this is where psychology comes into play and rebalancing just means you, you, you know, you take some profits and you find opportunities to a where it’s maybe been underperformance and that’s how we’re suggesting you navigate this environment because when it sort of when the party ends, I don’t have any, you know, clear crystal ball than anybody else does.
On that note, mine is in the shop too, Liz Anne.
So that is fair.
You know, one of the massive things that we think about is is what you were just mentioning is if you are kind of rotating out of some of those positions that or at least trimming on some of those positions that have outperformed where there are viable opportunities that the market may not be fully pricing in a rebound on right now.
And where are those opportunities from your perspective?
Yeah.
So again, we we have had more of a factor based focus than a sector based focus.
So we would the factors that we have been emphasizing definitely fit within the quality uh umbrella.
But I think in particular now in addition to traditional quality factors like strength of balance sheet, strong freak cash flow, high return on equity, profitability based factors.
I think you also want to take kind of a garp like approach to use an acronym from, you know, years ago and popularity growth at a reasonable price.
So you want the profitability and growth characteristics but not sacrificing valuation.
But that’s definitely still a quality wrapper around where we think there’s opportunities.
And also the other thing that people forget, there’s so much focus on whether it’s the largest 10 stocks or the Magnificent Seven.
And let’s use the Magnificent Seven as an example.
They’re the biggest contributors to S and P returns to NASDAQ returns because of the multiplier of their huge caps.
But a lot of people don’t realize in the case of the S and P, the top 10 best performers within the S AND P this year, only one of them, NVIDIA is in the Magnificent seven and it’s not the best performer.
Three of the top 10 stocks are actually utilities.
One of them, believe it or not is ge kind of old school within the NASDAQ, the 10 best performers.
There’s none of the magnificent seven in them and not only are none of them household names.
I I’ve never heard of any of the top 10 stocks.
So it’s the multiplier of cap that makes them the huge performance contributors.
But there’s, I think people conflate that and think they’re the best performers within these indexes and they’re actually not.
It’s a great point there, Liz Anne, we have to leave it there.
I wish we had more time.
Look forward to having you back soon.
Liz Anne Saunders, Charles Schwab, a chief investment strategist.
Thanks so much.
Thanks President Biden kicking off his hosting duties today for a three day summit to mark the 75th anniversary of nato’s founding.
Now the event will be filled with remarks from foreign leaders and meetings addressing a range of global issues.
And President Biden’s performance will be closely watched after a week showing at the first presidential debate prompted calls for him to exit the 2024 race here with more at Yahoo.
Finance’s Rick Newman and Rick no shortage of a list of things, topics to discuss here today.
But let’s start with the NATO summit since it is kicking off down in DC today.
II I guess my question to you is what does President Biden, does President Biden need to prove something to these foreign leaders over the next three days?
Just about whether or not he is fit for the job.
I’d say he has, he has something to prove to American voters more than he has to prove to foreign leaders.
I mean, starting with Kenny, remember everybody’s name.
I mean, we know what’s going on here increasingly public questions about whether President Biden is fit for the job after that terrible performance on June 27th in the debate against Donald Trump.
Um Some of this is going to be behind closed doors and we’re, we’re not going to know exactly how B comports himself, but he is going to hold a press conference on Thursday.
Biden has not done very many press conferences and his, his administration is now under pretty heavy fire for, uh for accusations that they’ve kind of been hiding Biden’s aging by not putting him out in these types of public events very much.
Um So what I think is gonna happen is Biden is going to have to get out and really show that he, that he can handle the heat and that’s going to be part of the subtext here, I would add.
Um This is an important meeting.
This is not just a ceremonial meeting because it’s the 75th anniversary of NATO really important because of what’s going on in Ukraine.
Let’s let’s not lose sight of the fact that there is a huge war still going on in eastern Europe.
And I would like to point out that um that $61 billion that President Biden had such a hard time getting Congress to appropriate for additional weapons for Ukraine has made a huge difference in this war.
The narrative of this war has really changed during the last couple of months.
Russia was making advances because Ukraine just didn’t have the weapons and to some extent, the manpower, they now have the weapons and they have stopped Russia and there’s new analysis suggesting that Russia is just stuck.
It may never be able to get out of the Quagmire it’s in and for what it’s worth.
Um, the Russian army s sinking into the Quicksand in Eastern Ukraine that is in America’s interest.
Um So that is something that NATO um you know, is going to be talking about and to some extent that is a success.
But obviously, there’s a lot more to do on that, Rick and we know that that’s going to be a key focus for a lot of people who are tracking Biden’s performance and his messaging.
But a lot of other people, those who he’s fund raised with over the past years, talk to us a bit about Biden’s fundraising efforts.
The campaign says it has $240 million cash on hand.
We’re seeing some reports that fundraising has gotten harder since the debate.
Yeah, it’s a mixed bag and we, we have to point out here that we don’t, we, we only know what’s happening with fundraising in real time when the campaigns tell us what’s going on uh for the real data that there’s a lag in that data.
Uh Biden has continued to pull in um What, what we call small dollar donations.
These are, these are normal people.
They’re not giving $10 million to a Super PAC they’re giving it could be 20 $50 200 the limit for the campaign for campaign donation just $3300.
Uh My colleague, uh Ben Wo um has a story out today looking at uh the CEO S of the Fortune Top 100 companies uh in the Fortune 500.
He has found that going through all the uh campaign donation records at the FEC that um big CEO S of the biggest companies in the United States are giving a lot less money to candidates and to Super pacs than they did in the past, which indicates um kind of what we see among the public that um CEO S of the biggest companies kind of want to sit this one out at least at the presidential level.
Um They may not really want to be associated with either candidate or either cause at this point, they are still donating a lot of money to congressional candidates um because they want to keep their influence there, but they’re getting turned off a little bit from presidential poli politics, just like most of the rest of us, I guess you could say.
Yes, indeed.
All right, Rick, thanks so much for keeping tabs on all those.
We’ll check back in a little bit later on and we’ll also have more coverage of the NATO summit in catalysts.
We’ll speak to Jim Townsend who is the former Deputy Assistant Secretary of Defense for European and NATO policy.
That’s at 10:10 a.m. Eastern time.
You don’t want to miss it.
Well, switching gears here.
Another story that we’re watching for you this morning, shares of TSL A, they’re on the move right now as the E maker of taking a breather after notching its ninth straight day of gains.
On Monday, the stocks winning streak has erased its year to date.
Losses.
Shares have risen more than 75% since hitting its most recent low.
That was in late April here to weigh in is Yahoo Finance’s senior autos reporter, Pros Superman and hey, pros, hey, so yeah, Brad.
So basically, you know, we’ve been seeing the stock kind of rise Meteorically since Elon Musk’s pay package got approved in, in June and sort of just been on a, on a roll since then.
Uh, we talk about they had a pretty good, uh, delivery number coming out over the right, right after the holiday right before the holiday weekend.
Uh, better than expected, still down year over year, but still better than expected.
Uh, there’s some buzz about energy storage business doing well.
Uh, there’s talk about China doing better.
They were able to sort of get a contract sign where they can actually sell Teslas to state vehicles as state vehicles to use for the government.
So that’s kind of a big deal for them.
But, you know, it’s one of these things where we always see the stock kind of have a boom bust cycle.
Right.
And right now we’re gonna, we’re two weeks from today into earnings and that’s going to be a big kind of sort of moment for the company and usually earnings has haven’t been good, they haven’t been good for this, for the stock, but they were good last quarter because of the fact that they mentioned that they’re gonna introduce some cheaper vehicles in the future.
So that’s sort of the, the bigger game plan here.
A lot of the road with taxis, things like that.
II, I guess my question to you is how much do you think investors are focusing?
It seems like investors still tend to focus on those more lofty goals and and what must glaze out versus what is happening today?
Because when it comes to the fact that profit margins remain under pressure, e demand simply is not what it was initially expected to be at this point.
How much of that do you think is going to be reflected in this report that we’re going to get in a couple of weeks?
Well, interestingly, second quarter sales or deliveries were not that bad.
So it kind of it kind of hints that maybe there was actually some demand recovery there.
I mean, there are a lot of price cuts in the US too and and potentially China not as bad as people thought.
So maybe there’s gonna be some upside surprise there and we get more color on is demand returning ever so slightly.
Uh we’re seeing other brands doing, doing a little bit better to Ford in particular.
Uh although some of me, a Porsche Mercedes also on that luxury kind of high end there.
Um, but the big question is, you’re right.
How much growth are we going to see in the future?
I mean, can you hit that, that sort of 1.41 point and a half, sort of, um, a average growth rate, right, for the year?
That’s kind of under threat.
And the question is, are the big bets gonna overtake that we gotta go?
But is there a lever that they could pull this quarter?
You talked about what they said last quarter and talking about the future of vehicles that they’re gonna be unveiling or uncloaking?
I mean, is there another type of lever that we could see them try to tap into here that would have this same effect and at least buoy some investor confidence for this interim period.
You know, I, I think, I think one of the things you wanna hear with regards to the Robo taxi reveal in August, are they gonna be doing actual trials like cruise and waymo are doing?
Are you gonna have like fenced in geo, fenced in trials of the car actually kind of being worked like actually used in service, for instance, are we gonna have a, a model Y with, with, with, with its current system kind of running around?
So we’re picking people up.
I think that’s sort of the question, it might get a hint on that.
That could be a big, like I said, lever to pull like, oh, actually we’re doing these trials now.
Um, but in part, but in terms of new products, uh, we’re not gonna see that for a while and maybe we’ll get some updates here and there.
But it’s not, not from a, from a new point of view.
I don’t see anything happening.
At least not for the next year or so.
Interesting.
All right, pross.
Thanks so much tracking all things TSL A plus the mobility space at a whole.
Appreciate it everyone.
We’re just getting started on the morning brief coming up and video bowls are charging key bank, the latest broker to raise its price target on the chip maker.
We’ve got some top trending tickers next plus Tesla shares dipped lower after notching its ninth straight day of gains as we were just discussing, we’ll see if the rally can last as we get to the opening bell and through it and later all eyes on fed chair Powell here as Powell will be appearing before the Senate banking Committee.
That’s at 10 a.m. eastern time.
What this means for the markets later on in the show.
All this and much more.
You’re watching Yahoo Finance.
It’s time for some trending takes first up.
We’ve got BP shares are off just around 4.5% this morning.
Now, the oil and gas producer expecting weak margins in its refining business and they’re saying that that is going to dent their second quarter profit by up to $700 million.
When you take a look at this release, some of the expectations, how they have shifted.
They also mentioned that they’re expecting a 1 to $2 billion write down of a plant in Germany.
The results from oil and trading are expected to be weak.
So as a result here also planning to scale back the refining operations in the country of Germany due to higher costs and declining demand for fuel.
So this all sets up for what could be a maybe weaker than expected quarter for BP.
Yeah, exactly.
And this is really pointing back to their customers and product segment as well, customers stronger fuel margins and convenience performance and seasonally higher volumes.
Uh So that’s one of the factors impacting that segment and then on the products significantly lower realized refining margins as you were expecting that half a billion to 0.7 billion uh impact adversely, unfortunately.
Uh and mainly relating to weaker middle distillate margins and narrow North American heavy crude oil differentials.
Uh and then a higher level of turnaround activity they’re talking about is well, it was actually more interesting as well in the gas and low carbon energy segment.
For those who have those hats at home, who are ultimately tracking what they’re expecting this adverse ultimate impact of about $1.1 billion including declines in non Henry hub natural gas make marker prices here.
So, uh all of this anticipated here impacting shares of BP and it kind of signals and is in alignment as you were mentioning with what we had heard from Exxon coming into this.
Yeah, we’re also seeing some analysts lower their expectations on the heels of this update.
You’ve got cities saying that they’re now lowering their Q two earnings, our EPS estimate by 9%.
Jeffrey also adjusting their expectations.
They now think that it’s going to result in a 20% earnings downgrade there.
So some figures to keep in mind ahead of this report.
Absolutely, the full report is going to be published on July 30th.
So we’ll be staying tuned for the rest of the financials in tandem with this.
We’re also watching semis this morning conductors analysts over at key bank, they boosted their price target on chip maker NVIDIA from 100 $30 to $180 over robust demand for its A I chips.
The firm also upped its price target on Mikron from $160 to $165 here.
It was really kind of a sweeping analysis of the broader chip segment here.
But you know, kind of coming back to what they were using as their methodology talking about this cloud instance tracker and how they use this essentially data analytics tracking the proliferation of semiconductor architectures by region based on instances available to purchase in the public cloud.
All that said they looked across A MD NVIDIA, Google Amazon and others as well here trying to get some clues uh with correlation to how much these companies are spending and when within their various architectures, it will actually pay fruits for their business too.
Yeah, exactly.
I think this all just comes down to demand and, and they lay it out uh pretty just point blank in this report that the A I demand continues unabated that traditional server demand is actually improving.
You mentioned some of those larger cap tech names there.
The fact that the server supply chain feedback indicates that demand for traditional server demand continues to improve.
Most of that demand is from the US cloud providers that Brad was just mentioning.
But they also go on to say that they are also seeing sustained demand from China also moderating improving demand here within enterprise.
So all set up here for a bullish couple of quarters ahead of what potentially could be here for n video when you take a look at the stock.
Yes, we have seen maybe some uh a bit of a reset, maybe in Wall Street expectations or exactly what current valuations are after that 10 for one stock split.
But again, the start just says it all year to date.
We’re still looking at gains of nearly 100 and 60%.
And when you take a look at this momentum, it’s pretty much consensus on the street that a lot of this is not going to slow down.
Any time soon after.
Right.
Right.
And so so the thesis largely remaining intact, a slight ding because of some of the insider selling that took place.
But more largely the trend remains.
And especially with what key bank is talking about here within the demand profile here.
Not seeing any signs of a demand pause as demand for H 100 remains robust.
They say, all right, let’s take a look at shares of Novo Nordis they are following this morning after a new f after a new study found that Eli Lilly’s Manja has seen faster and greater weight loss result here at the takeaways our very own Angeli Kelani and you guys are gonna hate this.
It’s such a nuanced report.
It’s such a nuanced report.
But yes, the final result is not surprising.
We did already know based on the phase three trials from both these companies that both uh Eli Lilly’s drugs did have better weight loss results than Novos.
Now, we looked at the se the study looked at semaglutide, which is novo’s drugs for Ozempic and Wigo and Zeppa, which is Monja and Z.
And what they found was that over time when adjusted for characteristics of these patients MJ, which was the diabetes drug did a better job of weight loss.
No surprise there.
We saw that during the face, the face three trials.
What is interesting is that in the initial look at the study that looked like it was faring better for weight loss.
But then once they adjusted the patients that they were looking at, that’s when they found to be better.
This was not a randomized trial.
It did not include a head to head actual study.
This is sort of a retrospective look at patient information from pharmacies.
About 9000 patients were looked at and that’s where this information came from.
So while we do already know that the weight loss drugs for both these companies, you know, have a bit of a difference.
This kind of puts it in a different light.
We also do know that both companies contend that this was looking at the diabetes, drugs and diabetes.
When we know that the higher doses for both drugs actually encourage greater weight loss because there are higher doses of each formula.
So that is really some of the nuance that goes into this.
But of course, we know uh novo slightly under pressure because of this, you know, I was prepared.
I, I didn’t know if I was gonna be able to follow you throughout that report, but I think we got it.
I got it.
Good.
We’re all on the same page, right?
Great stuff.
Thanks so much.
Keep right here on Yahoo Finance.
You got your opening bell in just about two minutes.
We’ll be right back.
There you go.
That is the opening bell on Wall Street and in midtown Manhattan at the NASDAQ where you’ve got the Chicago Innovation crew ringing the opening bell at the NASDAQ in Midtown.
Ok. All right.
Different type of city, different type of vibe, but they’re bringing it there with the fun fetti.
And then you got Genworth over at the NYSC.
Let’s get you a check of the market sponsored by Invesco here as you’re watching Morning Brief on Yahoo Finance.
All right.
Well, we take a look at the opening trade.
Exactly.
We, we’re coming off another record setting close here for the S and P and the NASDAQ.
So we’ll see whether or not that momentum carries into today.
We’re 30 seconds into the trading day and we’re looking at the slight move to the upside.
You got the S and PF just around 1/10 of a percent here when you take a look at the dow under just a bit of pressure, although not too much to the downside off just about a 50 points, taking a look at the sector action.
We’re seeing a bit of a mixed picture.
You got communication services technology once again leading the way in the flip side energy being the worst performer.
And Brad, you wanna take a look inside the da at the dow.
I would love to 3030 components.
You love to talk about them.
Ladies and gentlemen, boys and girls take a look at what we got here shaping up on the day.
Look at this, the biggest mover intel out of the gate this morning.
That’s up by about 2.7%.
We don’t get to see that all the time.
So we had to call it out.
Also taking a look at some of the other major movers.
Both to the upside and downside.
Doesn’t seem like there’s too much deep red, but it is coming in the form of Chevron seems like there’s a little weariness across that trade thesis right now.
As we’ve seen Exxon, we’ve also heard from BP as we were just breaking down a moment ago and some of the guidance adjustments that have come through on that sector.
All right.
Well, let’s talk about what’s going on in the energy sector with commodities.
Jared B Bookery has a closer look at that, Jerry.
Yes.
Thank you.
I love your enthusiasm for Papa Dow.
You know, I’m looking at energy, energy is the weakest sector of the day and I’m going to pull up the Wi Fi Interactive behind me where we can see the future’s action.
And specifically, I want to call out wt I crude.
You can see under bit a little bit of pressure today.
This comes as the tropical storm barrel.
Now that it is a tropical storm, it lit, it landed in Houston as a category one, much lighter, much less damage than people thought.
In fact, refining operations, they did close down and they’re going to restart soon if they’re not already really didn’t suffer much damage.
So kind of a sigh of relief there.
Let me put a one month chart.
So you can see in the lead up to all of this, we did see a price rise and you can see we’re still up, this is wt crude, we’re up 5% over the last month.
We also have the situation, Gaza, is there a ceasefire?
Is there not that kind of changes on a day to day basis?
But nevertheless, we’re looking at WT I with an A one hand right now and um also checking out Brent, let’s check out BZ equals F that is at $85.29.
01 more thing, I just want to mention that BP and Exxon are guiding lower expectations for lower expectations regarding refiner margins.
Exxon expected to take a $1.5 billion profit hit BP about $2 billion.
So watch for that in the coming weeks as the majors start reporting earnings.
All right, Jared.
Thanks so much.
Let’s let’s continue the conversation with crude plate prices slipping after tropical storm a barrel making landfall in Texas this week.
But causing less damage than maybe the market had initially anticipated optimism on recent cease fire talks between Hamas and Israel.
Also pushing putting some pressure here on the price of oil.
Let’s talk about where we are headed next and for that, we, I want to bring in our next guest.
We have Vandana, Harry Vanda Insights founder and Ceo Vandana.
It’s great to talk to you.
So we, we just heard from Jared just some of the pressures that’s going on right now within the energy space specifically, maybe on the price of crude.
I’m curious from your perspective about the recent price action that we’ve seen.
Maybe what that tells us about what we could expect in the coming days.
Yeah, good morning.
So you were mentioning Hurricane Barrel.
That was certainly a factor because in the lead up to barrel lashing the various Caribbean Islands and Mexico and Texas, there was fear in the market and justifiably.
So because the offshore us, Gulf of Mexico is a major oil producing area, nearly 1.9 million barrels per day is pumped out of that region.
And then of course, in Texas and Louisiana, you have nearly 40% of us refining capacity concentrated in just those two states alone.
And then of course, in history, we have seen hurricanes capable of wreaking a lot of havoc and damage to infrastructure both offshore as well as onshore in the refining segment.
So there is a sigh of relief there, but there’s another angle there is in the aftermath of such a hurricane, there’s no damage.
But typically what happens as the residents of the states hunker down is that fuel consumption goes down.
We won’t see those numbers in the E I report due out tomorrow, but we’ll probably see them next week.
So it’s a sort of a double whammy for oil sentiment.
But that alone is not the factor when prices hit nine week highs last week rent above $87 a barrel.
It was slightly overcooked.
There’s this narrative of summer oil demand bump which has been going around.
But I think the market is now starting to recalibrate that a little bit.
So jet fuel demand is doing well.
Air travel is doing well.
The world over certainly in Europe and the US.
But gasoline and diesel demand almost all over the world and including here in Asia where I am is really not doing too well.
It’s quite sluggish.
So all in the picture for oil demand is perhaps not that strong as what the oil bulls might have expected going into June.
At what point do we see a full pivot in the narrative from the pump, as you mentioned in the typical demand profile that was expected coming into the season to a full on slump.
So it really depends on the conviction of the of the bulls in the market.
Uh summer is not over by any means, right?
So we have July August and even September if you’re talking about the northern hemisphere holiday travel season, um you know, the market will take its time to to sift through this.
But in the meantime, as you know, you were mentioning, there’s also the geopolitical fear premium on the Gaza Front.
It has receded again quite a bit, but it still is there a little bit when it comes to the Ukraine War, you know, it’s intensified.
The fighting between Russia and Ukraine and Ukrainian drone attacks on Russian refineries have also been consistently going on.
So there are still price supportive factors I would say and let us not forget, one hurricane has come and gone, but this season is predicted to be one of the strongest in, in living memories.
So, uh I think that will keep the market uh on 10 to hooks.
I’m curious what you’re seeing just in terms of what you’re expecting, maybe is a better way to phrase that for demand versus supply and whether or not demand is going to outstrip supply any time soon or what or if it’s gonna be more of a continuation of the fact that we’re going to continue having a bit of this supply surplus, at least here in the US.
Yes.
So if you talk about the global supply scene plus is going quite steady, we know that they are keeping their current quotas and production targets in place until September after which actually they’re going to ease supply.
There’s going to be more supply gradually coming back into the market about 2.2 million barrels per day that eight members had cut back.
They’ll start releasing, it started October of this year.
So when it comes to supply, really, it’s the big picture is stability.
I would say the only wrinkle and the wild card there is the hurricane season because as I mentioned 1.81 0.9 million barrels per day of oil production in the US Gulf and US is now not just a major producer but a major exporter of crude as well.
You know, that could cause periods of tightness.
I do believe that if a really severe hurricane were to hit production upstream or downstream in the US, probably it will be time to release some more strategic oil reserves.
I really can’t see how the US administration would stand by and watch oil prices crude, climbing above $90 in an election year.
At that Padana Hari, who is the Vonda Insights founder and CEO.
Great to have you back on here with us.
Appreciate it.
Thank you.
Coming up, everyone.
Tesla share is moving slightly lower this morning after notching 1/9 straight day of gains.
But how long will the rally last?
We’ll discuss on the other side of this break.
All right.
Welcome back to the morning brief brought to you by Invesco after a slow start to 2024 Tesla making a comeback.
The stocks nine day winning streak racing, the losses that we saw year to date.
You’re now looking at gain since the start of the year of just over 2%.
Now, the extended momentum that we have seen the extended rally comes as a car manufacturer really beat on quarterly deliveries last just a couple of weeks ago here.
So for more on Tesla’s run, we wanna bring on Seth Goldstein.
He’s Morningstar’s Equity strategist.
Seth.
It’s good to see you.
So certainly there’s no shortage of excitement surrounding Tesla right now, when you take a look at those delivery numbers, it was enough to excite many on the street.
You, you’re looking at a rally here of just about 40% since the beginning of June.
Do you think these gains that we’ve seen over the last couple of weeks?
Are they justified?
Given the numbers that we did see in the fact that it was still a drop from a year ago?
Well, I think what we’re seeing is when the delivery numbers came in above consensus, you know, Tesla is a very high growth stock.
So the market reacted very positively and then you have some momentum from Tesla’s A I businesses which the market is, is uh giving extra value to.
And so you, you have Tesla all of a sudden the market is valuing the growth potential for Tesla.
Whereas if you look before the deliveries, Q one delivers, I think is a surprise to the downside.
And so the mark was assuming a lower growth rate.
And so that’s why we’ve seen the large rally set the deliveries numbers.
Ok. And so as we have the deliveries, the production numbers going into the next financial performance print once that’s fully unveiled, uh when earnings drop, what do you anticipate Elon will need to signal to the investment community about the future construct of, of how they’re thinking about production and the new vehicles that they teased and now the street’s gonna be expecting at some point.
Yeah, it’s a great point.
I think we’re going to need to see a solid concrete timeline and that the timeline has not pushed back for the new more affordable model last quarter.
They said it was going to be by the end of 2025.
So we need to see that being met or pushed up earlier.
So that, so that, you know, the street can assume that Tesla will see a second wave of deliveries growth starting in 2026.
As long as that narrative t remains intact, I think that the stock will be ok. You know, but if that’s pushed out, if management sounds more uncertain that that’s going to happen, then I think we could see the stock falter as you know, the market may be assuming that the second wave of deliveries growth either won’t happen or will be pushed out into the future.
What type of vehicle, what type of model should customers be hoping that this vehicle is?
And, and perhaps investors too, you know, I I would think it would be maybe a smaller size SUV maybe a little smaller than the model Y but at a price point that’s comparable to more like a Honda Crv, Toyota rav four something in the mid $30,000 range versus the current model Y, which is the next leg up.
And so, you know, if Tesla can offer that, then that gets them into a more affordable vehicle segment, that’s a much larger market in the US.
And so I think that would drive many consumers who are considering an EV but one is still a little too expensive for them that would push them over to buy an EV.
So I think uh the uh one of the big questions here for investors is surrounding profit margins and whether or not we are going to see much improvement there.
Are you expecting improvement?
And if so or even if not this current quarter looking out, then in the second half of the year, what do you expect will drive that?
Yeah.
So I don’t, I don’t think we’re necessarily going to see much improved profit margins.
If anything, we might see margins slightly fall in the second quarter versus the first quarter.
But I do think in the second half of the year as hustler starts to realize lower unit production costs, lower raw materials that they should see expanding profit margins sequentially starting in Q three and Q four, setting them up for a profit growth return in 2025.
Does, does Tesla has have a quality assurance or quality delivery issue right now?
I mean, some of the early reviews that we had seen of the Cyber Truck and, and we’re not even a full year into these things, being on the road and being an absolute eyesore at this juncture.
And people are already talking about how it didn’t meet some of the expectations that they had, especially as they were finally able to take delivery.
Yeah.
You know, I think the cyber truck, we didn’t get the range that we wanted.
You know, some of the features that were initially promised were not quite delivered.
And then we saw a recall where, you know, the they, they did not have the manufacturing high quality that we have expected with other Tesla vehicles, but you know, it’s a new vehicle.
So I think really the first year of a new vehicle, I would expect Tesla to work through the problems, work through the mass manufacturing issues as they’re scaling up production.
And so I don’t think it’s going to be, you know, any, any major issue that they can’t overcome.
Um just, you know, maybe not as smooth a product as as many had initially hoped.
That being said, I do still think the Cyber truck offers a unique Tesla product.
It does showcase some of their high quality technology.
And you know, I I do think that it helps drive the brand and helps you make consumers more aware of Tesla when they’re looking at luxury vehicles.
So my question to you is about the election when it comes to President Trump, he’s had some critical words just in terms of Biden’s policies towards the EV market saying that he wants to undo some of those policies, some of those laws he’s called them quote unquote crazy with a pre with a Trump presidency.
Is that bad news for Tesla specifically?
I don’t necessarily see it as bad news for Tesla specifically.
You know, even if Trump were to win the White House and overturn the inflation reduction act.
So getting rid of ev subsidies, I still think that Tesla has has, has been able to move into lower and lower price points over time.
And with that new affordable vehicle, you’re looking at an entry level price that’s going to be on par with, with comparable and trunk combustion engine vehicles.
So if it is something in the mid $3000 range, at that point, you don’t need subsidies to, to set the price parity.
And as we’ve seen in China, when electric vehicles reach price parity, you get a whole lot of consumers move from interest to buyers.
And so, you know, we we also have the infrastructure uh law that’s funding the out of high powered EV chargers along highways.
That’s the other big thing missing, that’s, that’s making consumers hesitant to buy an EV so with more charges being built out with more affordable EV si don’t think that Tesla would really, you know, see a huge dip in sales even if Trump wins in the inflation reduction act, uh gets, you know, overturned Seth.
Do you think that’s the case for other EV makers as well?
Well, I think for many ev makers, it, it, the, the political environment isn’t the big issue.
It’s, can you profitably mass manufacture cars to, to turn a profit, generate positive free cash flow or will the losses continue?
Will you have to continue to seek alternate financing and shore up your balance sheet?
So I think that’s going to be the issue regardless of whether Biden or Trump wins the election.
Uh You know, that that’s really going to be the big issue for any EV start up that Tesla’s already profitable.
They’re already generating free cash flow.
They have a strong balance sheet so they don’t have to worry about that.
They’ve moved past those issues.
But for earlier stage, ev makers, that’s the big reg, that’s a big hurl to overcome regardless of who’s in the White House could be a down ballot issue as well considering where the full self driving ambitions are for a lot of EV companies right now.
And that would be a hit to some of those Tesla autopilot, taxi ambitions as well.
Seth Goldstein.
Thanks so much for taking the time here with us, Morningstar Equity strategist.
Great to have you.
Thank you all your markets action ahead.
Stay tuned.
You’re watching the morning Breath, you’re watching the morning brief brought to you by Invesco, the S and P 500 the tech heavy NASDAQ are on a tear this year, both up double digits, the S and P 500 notching its longest win streak in five months.
But Morgan Stanley’s, Mike Wilson told Bloomberg that a 10% market correction is likely sometime between now and the election here.
Now we’re taking a look more broadly here at the year to date charts.
But one of the massive that you have to think about is the different events that are set to take place and could be triggers of that correction, whether it’s a sell the news type of event, the fed may be starting their fed rate cutting cycle.
And then additionally, of course, you have the event of the election itself.
But leading up to that, there’s a larger question mark l for the Democratic Party of whether or not the current president who is the front runner for its party and convention going into the convention is set to potentially pull back or pull out of the race as well.
Yeah, I think long time bear Mike Wilson’s back.
He had tempered his expectations.
Uh most recently on the heels of that massive rally that we have seen play out in equities markets over the last couple of months here.
But what he’s essentially saying that the market needs to brace for is some choppiness leading up to the election saying that the third quarter is going to be quote unquote chopping.
He goes on to list the election of some of those reasons, a pullback though.
He’s saying they offer some opportunities.
He doesn’t look at valuations as exciting right now.
And he also went on to say what you’re a likely your likelihood of upside from now until year end is very low, much lower than normal.
And he placed the odds of the stock prices actually closing higher from current levels and now it just 20 to 25%.
So again, just striking a tone that we have heard, maybe just in terms of that cautionary tone that we’ve heard from some on the street, maybe they’re not saying that the pullback will be to the extent of 10%.
But they raised some concern about the concentration that we’ve seen play out in the markets.
The fact that it hasn’t exactly, uh we haven’t seen a wider breath up until this point.
And then some of that momentum seems to be maybe leaving the market here when you take a look at some of those larger cap tech names, some of that A I excitement.
So there has been alarms or maybe some red flags have been raised on Wall Street over the last several weeks.
Uh You know, I really enjoyed hearing what Liz Anne Saunders was reminding us of earlier in the show as she was talking about some of the psychological element of the trading that we might see really come into the forefront.
And then that is really looking at some of the profit taking that could come forward and some of the sectors that have been extremely overcrowded or the trades that have been extremely overcrowded.
And then now what a rotation or pulling some chips off the table or at least trimming positions could mean as related to a correction.
Because if you did see those tri that trimming of positions happen in a larger wave, then that’s the volatility you’re looking for on one instance And then it’s people sitting on our investors sitting on some of that cash to try and decide where they would deploy it next and how long they sit on that cash could eventually get us to what Mike Wilson is talking about in a 10% market correction.
I will keep it right here because coming up that chair J Powell, he’s getting set to testify before Congress that testimony kicking off at the top of the hour, we will discuss what investors can expect to hear and exactly what we could maybe shed some light.
That JP is going to shed any light on where he sees the battle to tame inflation.
All that coming up next on catalyst.
