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GameStop tumbles, Reddit jumps: Morning Brief

It's another busy morning on Wall Street. One of the biggest movers is GameStop (GME). The video game retailer saw its shares plummet after unveiling plans to offer up to 45 million additional shares and released preliminary first quarter results that show a decline in net sales. One stock moving higher is Reddit (RDDT), which announced a partnership with OpenAI in which ChatGPT will use Reddit content.

Stocks (^DJI,^GSPC, ^IXIC) opened relatively flat the day after the Dow Jones Industrial Average climbed above 40,000 for the first time. JPMorgan Asset Management global market strategist Jack Manley told Yahoo Finance's Seana Smith and Brad Smith on Morning Brief that stocks could rise 5% to 10% more from here.

For more expert insight and the latest market action, click here.

This post was written by Stephanie Mikulich.

Video transcript

9 a.m. here in New York City.

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I'm John Smith alongside Brad Smith and this is Yahoo Finance like to show the morning brief.

So features higher this morning after a milestone market for a moment for the do.

We got do features holding study on the heels of touching 40,000 for the first time.

Look like at least right now.

But we set to open about that.

Yeah, put in my request for a had with some of the traders and we'll see if I get one remains the same.

And games stop shares were tracking those this morning on the company's preliminary Q one results, the news sparking another sell off in meme stocks this week.

Let's get to it with the three things that you need to know.

This Friday morning, we've got your road map for the trading day.

Yahoo finance is Josh Josh Lift in and Madison Mills have more Brad stock futures taking a breather this Friday morning.

Softer inflation data pushing major averages to record highs earlier this week with the Dow surpassing 40,000 and the S and P 500 trading above 5300 for the first time.

Ever indexes are on track to end this week with gains and Gamestop shares are under pressure here this morning, the video game retailer issuing its preliminary Q one earnings revealing that gamestop expects a decline in sales.

The company also said in a separate filing, it plans to sell its securities for an uns size, unspecified size shares down.

You can see about 20% and shares of red is surging to the upside this morning after announcing a new content partnership with Open A I under that agreement, open A I will gain access to red its data that will allow the social network to bring new A I powered features to its users.

Those shares popping this morning up over 10% in the free market.

Happy Friday, everyone.

Our top story of the day, the dow hitting 40,000 for the first time ever Thursday.

But what components have driven the move?

Yahoo Finance's Josh Schafer has the full breakdown here for us, Josh.

All right, Brad, we're going to take it back a bit here.

The Dow first hit 20,000 back in 2017 and several companies have contributed to the index doubling since then.

Apple alone has accounted for over 3000 of the Dow's 20,000 point jump since 2017.

And United Health comes in a close second at just under 3000.

That's according to data from Bloomberg.

But when it comes to the indexes rally this year, United Health hasn't been much help falling.

Just about 1%.

Investors really have two names to thank this year, Goldman Sachs and Caterpillar.

Both companies seeing about a 20% jump in 2024 and all of this comes into play when we look at how the Dow is weighted.

United Health takes the top spot making up over 8% followed by Goldman Sachs, Microsoft and Caterpillar respectively.

That's according to data from index A RB, Goldman Sachs and Caterpillar alone have added almost 880 points to the Dow's rally this year as of the end of trading on Thursday making them the two largest gainers so far this year, the next closest contributor has been American Express, which has added more than 350 points in 2024.

Yeah, Josh, I think the question and Brad, we have spoken about this time and time again.

It just where exactly we go from here.

When you're talking about the fact that we are at these record levels.

We've seen lots of euphoria, lots of optimism, lots of excitement play out in the market and be very consistent and much more resilient than what we're expecting heading into this year.

So you take that into account also coupling that with the fed speed that we heard earlier this week.

We've kind of seen a trimming here of rate cut bets here before the end of the year.

How much that matters and what that ultimately means for the markets.

Obviously, that is up a debate.

But I think what this all points to given that uncertainty is just maybe the volatility that we could potentially see here, Josh over the next several weeks and several months.

I think one of the most notable things that we've heard from strategists over the last week is most people that are saying they think stocks go higher this year.

Still think we see another pullback, right?

And I think that's always important to keep talking about when we're at record levels is that Pullbacks are normal.

The 5% pullback that we had in April is not abnormal.

Actually, on average, you would probably have closer to a nine or 10% pull back in a given year.

So the path you, like you said, Shana is not necessarily going to be smooth here, but right now, the way things are setting up, I think it sort of makes sense where we're at with the stock market, with the major indexes overall, right.

We've been talking about a better than expected earnings season.

We're seeing earnings grow at their highest level in just about two years.

You're expected to keep, keep that momentum going through the end of the year.

So at some point, it at least fundamentally makes some level of sense, sort of how we got here.

It's I I think it's the additive factor of what we were talking about with Kevin Gordon yesterday and how much of a goldilocks scenario we could have to navigate through for the rest of the year if we're continuing to see if we do continue to see new all time highs that puts even more pressure on companies who have already been rewarded less even for beating both on top and bottom.

And then also giving a guidance that might still be in line with what the street looks at with the valuation that's already been attacked on Fred.

You mentioned the goalie a it just seems interesting to me how quickly we shifted back to this narrative in, I don't know, two days and we had it quickly, narratives are shifting.

Yeah, like I don't know, what was the CP I print that good.

Did I read the wrong report?

Like it was good.

Don't get me wrong.

And my core inflation coming down as people have projected is great, but we've been on that path before and then it gets bumpy, right.

So I think at some point you do sort of at least question that part of the rally, maybe look at something like small cap Sean.

And you were mentioning now back close to December levels.

That was when we were pricing in six rate cuts, almost seven rate cuts.

Now we're talking about two.

So it's just, it's getting a little bit mixed and muddled, I think.

And again, when you think about the economic growth story, I think that's gonna be the big part of the second half of the year here is we're gonna be focusing on what kind of slowdown are we talking about?

Because, remember, yes, a slowdown in theory is goldilocks.

Right.

So, we're not too hot.

You don't wanna be too cold either.

And I think that's something that people need to keep in mind moving forward.

Yeah, certainly.

And also just, and then that with how well earnings hold up too in the second half of the year, clearly, some huge drivers here.

You've had a revenue problem this quarter overall, right?

The story we talked about coming into earnings was that people wanted to see revenues picking up and not necessarily just protecting margins via cost cutting.

And when you look index wide at the S and P 500 it hasn't been a major revenue story.

And so you wonder if that does start to pick up in the second half of the year right now, a lot of strategist and analysts would tell you that is the projection.

So hopefully that does play out and then maybe we do get some of these bullish targets that we have in the S and P 500.

Yeah, exactly.

All right.

Well, let's talk a little bit more about where we head from here because we're all trying to figure this out right now.

The market rally is, it's set to broaden out here for the rest of the year for that.

We want to bring in Jack Manley JP Morgan Asset Management, Global Market strategist.

Jack, it's great to see you here at the desk.

So talk to us just about how you're looking at Dow 40,000, this psychological level.

How significant is this at all here for the market?

II, I think psychological.

It's, it's sort of amusing.

I mean, first of all I remember Dow 20,000.

Not too long.

Everybody was getting those caps.

Everybody was so excited about right now.

It's like, well, we're double that.

I can't, I can't believe it.

But the, the rally that we've been seeing, whether it's, it's tech stocks and Nasdaqs or the blue chips or, or whatever, it feels good to me.

Ho honestly, because, um, the macro data have been pretty good and, and, you know, all these macro data that we've been talking about CP IP P IP employment from a couple of weeks ago, all this stuff matters because of what it means for rates.

And at this point, the market is used to this idea that the economy is a lot more resilient than we had expected five months ago.

Right.

That is not a surprise anymore.

So, as long as the data keep on coming in where they're supposed to come in, even if that's strong, that's not a bad thing, you've already seen this massive swing in the pendulum in terms of rate expectations.

It's gonna take a lot more to change that, you know, 25 to 50 basis points of cuts this year to no cuts this year.

Even, even hikes.

And we've heard that from, from Powell himself.

So, as long as markets are comfortable with where rates are right now and rates are where they are because the economy is doing well.

I think this, this rally's got legs, especially as you move into the back half of the year.

Yeah.

Yeah.

Go ahead.

When you talk about the rally having legs, how much higher do you think we could go from here?

Oh, gosh, I mean, that's a tough one.

I mean, 5 10% by the end of the year maybe.

Um You know, I think we've learned over the last couple of years that you never want to underestimate what the us equity market is capable of.

Like, you don't want to underestimate what our economy is capable of what our, what our consumer is, is capable of.

So I don't want to woe ball that number, right?

But for me, as we move into the back half of the year, it is all about this, this, this broadening out because so much of the rally from last year is still being driven by, by multiples.

You still have markets that are trading at pretty elevated levels.

And any time you're not only at all time highs but all.

So at all time highs because of multiple expansion, you're asking for trouble, right?

You're asking for volatility.

So the earnings have to catch up.

And thankfully, those big tech names have really been pulling their weight, which is great.

A lot of development on that front.

But we need the rest of the index to start playing ball too.

And that is uh I think a back half story, I think it helps to cushion the valuation below a little bit and I think it helps to get the market just a bit higher from there.

Markets are forward looking and for a market that might be looking 6 to 9 months out, even when you're thinking about a portfolio pivot.

What is the flashing sign that investors should be looking for in order to make sure that they're not continuing to enact the higher for longer playbook.

When now you're clearly getting signs that the fed may be starting to enact a. Ok. Now it's a rate cutting time.

So from an equity perspective, Brad, I I don't think there really is a pivot necessary, at least if you've been, you've been playing it the way that I've been thinking, which is right down the line, kind of boring core us equities, right?

I feel like there's a big temptation right now with, with conversations to sort of pigeonhole yourself and say, well, is this a growth market?

Is it a value market?

Right?

I think the pond that you're fishing in is just too big.

You cannot limit yourself to a style box or, or you know, one way or the other.

Uh the story for me right now has been and I think will be for a long time, a story that has to emphasize quality in, in security selection and quality there being, you know, dependable earnings growth, reasonable valuations, a strong balance sheets and that quality being so important.

And we've talked about this before.

Money is not free.

You know, we spend a lot of time talking about the FED cutting rates and when they do start to cut how much they're going to cut by.

But I can tell you with near 100% certainty that even if there's a recession, rates aren't coming back down to zero.

That experiment, I think is behind us.

And if money is not, not free, we got to be more thoughtful about how we allocate and that's a quality story.

And I don't think that changes even when the fed does start to cut rates.

So Jack, you talk about the vet that investors need to be a bit more discerning at this point.

And speaking about that rotation, you're expecting to see in the second half of the year, just more specifically, where are you seeing it right now?

Most likely on the sector basis because we are starting to see signs of broadening or had been here over the last couple of months.

Well, I think the consumer names are, are going to be doing quite well sort of throughout the year because we got to spend and we like to spend it.

Um I think that energy uh probably should have something of, of a kick start because of what's going on geopolitically.

Right?

I mean, a lot of tension around uh around energy prices and a lot of profitability in that space.

I, I feel like I'm beating a dead horse on the financial story, but I've like the financial story for a while.

There've been a lot of idiosyncratic issues that have hammered financial stocks at a high level.

But man, you know, if, if, if, if a big bank will, will borrow from you at two basis points and then turn around and lend to you at 700 basis points.

That's a heck of a net interest margin, right?

So, um II, I do think that it's some of those more cyclical, more value oriented names, uh could do something over the next, you know, 6 to 9 months.

But uh it is broader than that, I think uh over the longer term, you know, uh uh and I know we can't talk individual stocks here, but is there one name that could break a broad theme?

And that theme has been generative A I and that name has largely been NVIDIA to this point, a company that's reporting earnings next week here.

Is that theme ironclad enough, at least as of right now in the demand profile that we've seen regardless of what NVIDIA says.

Yeah, you know that that's a really tough one.

I think it might be one of the more important questions that we have to ask is equity investors?

Is, is this A I stuff the real deal or is it a flash in the pan?

Right.

And I mean, I I think frankly that the jury is still out on whether or not A I will fundamentally transform the world.

I mean, there are certain pockets of, of industry that are already being augmented and, and, and elevated by artificial intelligence.

And you hear about some really interesting use cases in the health care space.

I mean, I was talking to a client a couple of weeks ago, uh who is saying that artificial intelligence is a better salesman at drivers than humans.

They're better at upselling you.

Hey, you wanna supersize that?

They know, they know and they'll ask, it's crazy.

It's totally crazy.

So there's some really interesting use cases for this stuff without a doubt, but is the whole world gonna be transformed?

Maybe, maybe not.

And even if it is, it's not gonna happen in a month or six months or 12 months.

So this is a long term play and we keep on seeing interesting things crop up.

You know, I'm not gonna say name names, but there is an interesting demo that was released a couple couple days ago that shows just how impressive some of this technology really can be.

It's a little bit shocking.

Um frankly, but I think if markets wake up to say, hey, maybe we got a little bit too excited about this and maybe we pulled forward some of these earnings just a little bit and that's reflected in those valuations.

That's where I think you have potential for, for a bit of a shaky, shaky road.

I mean, it's already starting to talk to us at this juncture.

So, uh we'll, we'll see, we'll see what people are comfortable with and what they're fading a little bit within their technology at their fingertips.

Jack Manley JP Morgan Asset Management, Global Market strategist joining us here today.

Thanks so much, Jack.

Thanks guys.

All right.

Are you another?

So that we're watching here today is Reddit.

We were just talking about the excitement surrounding A I.

Let's talk about this move that we're seeing in Reddit today because it's to do with A I, we're looking at gains of just about 9.5% here in the pre market.

Now, the move higher coming after the social network company announced a new partnership with Open A I under the agreement.

Open A I will have access to Reddit's data, giving the artificial intelligence start up a chance to use Reddit's content in real time.

When we talked about that excitement surrounding Reddit following its IP O A lot of that excitement was driven by the A I potential and exactly what that means here for Reddit in the long term.

So on the heels of this licensing deal, to no surprise, we're seeing the stock move higher here in early trading and Brad, when you take a look at exactly what this means ultimately here for REDDIT, just quick glance at at early analysts reaction here city's Ron Josey saying that open A I licensing deal showcases the quote, the value of its data corpus and open A I's agreement should provide chat G BT with a continuously refreshed source of human conversation at scale.

So they're looking at it as a win win here for both companies.

I mean, Reddit signaled it, reddit signaled it coming into the IPO.

This was in the S one filing that this was how they saw their business being monetized by partnerships like this.

I think the revenue sharing that they're able to enter into is really going to be the stickier part of this for investors as they start to get some details in future earnings reports just about how much in pass through revenue they're able to ultimately see and net out as a result of partnerships that are really gained from generative A I looking at the human and conversational element that takes place online indexing and ranking that ingestion of, of data.

Um And so I think on top of the advertising realm that Reddit still does have and is more prominent at this juncture in its ad in its revenue base, this general sort of A I kind of indexing of the data is that next major element that they talked about leading up to this IP O.

And once again, investors are gonna hear about that for a long, long time here.

Also, let's talk about shares of GME gamestop, the stock tumbling 21% after the video game retailer issued a profit warning ahead of its first quarter earnings.

The company also said in a separate filing, it plans to sell securities for an undisclosed amount shares are down by about 21% kind of a double whammy here and I, I'm gonna focus in on the selling of securities.

Actually, this should come as no surprise to some of the shareholders out there that may have piled into GME over the past few days because it's a lever that these companies are able to pull when there are this many people that are and investors traders that are buying into their stock.

We've seen this with A MC before doing at the market equity offerings.

In fact, back then in 2021 to try and make sure that they could boost their liquidity position.

They did about one a quarter bill enact the market equity offerings in that wave and it was coming of course, kind of in the down draft of everything.

But all these things considered, they're looking at this as a clear opportunity to cozy up to investors who might still be out there might still be interested and improve their own cash position at the same time.

So this should not come as a surprise for gamestop to be pulling that lever.

Yeah, it certainly doesn't.

And gamestop saying that they were that they could potentially use these proceeds for a quote, general purposes also may include acquisition.

So talking about maybe trying to get their business in a better spot fundamentally speaking than we are here today.

But when you take a look at that action, we just had a longer term chart there up on your screen.

But taking a look at the action even since the start of the week here, it certainly has been dramatic, these moves that we've seen in gamestop that we've seen in a MC that we've seen in so many of these meme names as the retail investor really coming back in on the heels of that tweet from Maureen Kitty over the weekend seeing reason at least in their minds to buy gamestop at these levels.

And as you take a look at that one week chart, you can see the decline that we've seen over the last two days when about 7 billion was wiped out from Gamestop and from a MC and clearly more pressure here today.

But again, it's a volatile trade to no surprise, similar not in scale to what we've seen in 2021.

But I would say just in terms of the retail investor excitement and some of the narratives that we are talking about.

Now, it does mirror similar to what we're talking about in 2021 although clearly wide uh, differences there that remain on what we're seeing today versus 2021.

But again, we could potentially see a bit more selling here today.

And then into next week, as we do pull back from those highs earlier this week that everyone has been continuously scratching their heads though.

Yeah, 2021 was more of the ok to the moon and this was more no stopping.

This was more like a trampoline.

Yeah, for now we'll see.

All right, coming up a double upgrade for Robin Hood sending shares higher.

We're gonna break down some of today's top trending kickers.

Next Microsoft announcing it will begin offering its cloud computing customers AM DS A I chips A move which will give users an alternative to invidious processors.

Microsoft is expected to announce more details at its build developer conference next week.

We're taking a look at shares of both companies here moving higher pre market but A MD, the outsized move there.

It's up by about 3.5% on this news.

Uh I did a lot of learning about actually what it takes for these artificial intelligence chips uh and the broader data center and what's taking place.

Well, it's a cluster thing.

Microsoft's cluster is apparently of the A MD A I chips.

They're gonna be sold through this uh cloud computing service.

Of course, that Microsoft has Azure here and ultimately for A I models and, and applications to run these businesses actually have to put together or cluster multiple GP us here.

So um that from some of the great reporting out of Asia, yeah, it's interesting you're going to take us a look.

Ultimately what this could mean for AM D's business A MD expects 4 billion A I trip chip revenue this year has said that the chips are powerful enough to train and run those large A I models.

When you take a look at that and coupling that with exactly what this ultimately means here for this business here, we are expected to hear a little bit more details than Microsoft does.

It's event, but clearly there is a lot of excitement surrounding the potential here of this partnership.

And what exactly that could ultimately mean here for both of these companies.

And then you've got also got ask what this could mean here for NVIDIA as well and whether or not how much market share this could potentially take from them or pressure this could ultimately put on the business.

Yeah, I mean, I I guess with the, the clustering that takes place in data centers, it's actually more advantageous to have multiple different types of chips running for the for the large language processing.

Um So, so that is something that is far over my head.

I would love to get an expert on that.

But no doubt the stock movement is not over my head.

You're taking a look at a MD shares as we were just a moment ago here, a pre market 3.5% on this news.

And you gotta wonder how this company is also gonna be drumming up some of the other major deals here that are similar or synonymous to what they've just been able to do with Microsoft Year to date company up by about 17% right now.

All right, let's take a look at take two that stock on the move posting a $2.9 billion loss in the fourth quarter, sending the stock lower.

The company also announcing it's, it's Grand Theft Auto.

It will not be released until the fall of 2025.

That's huge news here for the company.

You're looking at losses of just about 2/10 of a percent here in pre market trading.

When it comes to analyst commentary, you got Jeffrey out saying that yes, the results may have been better than feared bookings beating expectations, but the full year 2025 guidance coming in came down here for the third quarter in a row.

And then you've also got Grand Theft Auto not launching the delayed time frame of fall 2025.

Not exactly what many analysts and not exactly what the street hoped to hear from these results to say the least.

Yeah, some bright spots.

NBA two K 24 did well, Zynga's in app purchases led by Tom Blast and Match Factory, all you people out there playing on your mobile devices that helped out a little bit.

And then additionally, red dead redemption series, not my top favorite player but uh uh game.

But hey, it's for people out there.

One of the huge things though, the recurrent consumer spending that actually declined by about 2% for the period and accounted for 79% of net bookings here.

But that also gives you a little bit of the mindset into the consumer that's in the gaining realm and trying to figure out, ok, where does it make sense for me to pay more in the in app or in game experience here?

And any signs of weakness similar to actually what we were talking about even with road uh roadblocks as well, this most recent quarter.

So that kind of being one of the common denominators or the threads uh in these gaming companies right now.

All right, let's take a look at Robinhood, another stock that's trending here in Yahoo.

Finance, a double upgrade from Bank of America.

They upgrade the stock to buy and that's up from underperformed, sending shares to the upside.

You're looking at gains of just about 6%.

The analysts behind that call saying that they view the current entry point as quote the total opposite of 2021.

And remember in 2021 you might not remember.

But that is when the firm initiated coverage on this dog with that underperform rating and why they're saying that it's a bit different than what it was in 2021.

They're saying that right now, rising retail engagement accelerating organic growth, they have positive operating leverage after large uh expense reductions and then also just an attractive evaluation here.

And this comes following the massive surge actually that we've seen in Robin Hood shares since the start of the year.

It would be interesting to see if investors buy this one.

And, and here's why Robin Hood is going to be annexing itself just a little bit more closely to crypto than we had seen.

Even back in 2021 they just allowed or just announced one of the staking parts of the business as well.

That's going to be a salon of staking product for European customers here.

Um And then there's be some customer acquisition costs at least in this near term period at offering a 10% bonus for the 1st 30 days on platform.

So once you get past those customer acquisition costs and start to look under the hood at the customer lifetime value that you're getting from some of those new members who are trading on the platform, it's a larger question of what they are trading.

And if they are buying into more of the crypto side of the business that Robin Hood's closing up to just a little bit more or the options, equities side of the business.

Where uh ultimately, I think for right now, there's been so much fanfare, at least within the consortium of traders there, the group of traders on Robin Hood among some core themes.

And it's been the core themes that have run away for the market right now.

It's been the themes like generative A I, it's been themes around some of the biggest tech companies that have just been over uh overcrowded trades.

And so if you see more of those overcrowded trades, it's a, a larger question of OK. Where does that rotation take place?

Once you do see some profit taking from some of those score users, do they continue to transact within the platform?

And you got Bank of America a big their price target here.

It was initially 14 bucks.

Now the new price target of 24 bucks a share.

So about 87 bucks higher than where we're trading today.

All right, just minutes away from the opening bell on the street you're looking at, we could see a mixed open here in just two minutes.

We'll be right back with the opening bell.

Oh, yeah.

You're taking a look at the NYSC.

Oh, big baller energy down there.

The W NBA ringing the opening bell on Wall Street and in midtown Manhattan, you've got the great folks from Hi Deleo Huo, ringing the opening bell there.

Oh my gosh.

Do you see any of the, who are there any players there or is it?

I was trying to get a closer look to see if Klin Clark was up there.

But I don't see Klin Clark.

It's a small picture though, but it looks like Kathy Engelbert there.

The commissioner of the W NBA ringing the bell.

We know we had, they had a new season kicking off this week.

Did you see all the Caitlin Clark Jerseys?

I watched the debut.

Actually, I watched her first game.

There's a lot of excitement.

Impressive.

Yes, that's exactly what we thought we were gonna see from Ken Clark.

So, all right, let's take a look at where we are today with this market check sponsored by TC trade.

You are looking at a bit of a move actually to the upside that we're seeing right now at the open as things shake out, take a look at the NASDAQ right now.

Also a brief move to the upside just about up 1/10 of a person as we do wait for things to open up here.

And you also got the S and P 500 pushing above 5300, a couple of critical levels to watch.

Let's talk about that sector action that we are seeing first on an intra day basis.

We do have materials, energy leading the way flip side, consumer staples and utility is two names that have been catching a bit here.

Most recently.

They're actually in negative territory, at least right now, although it's very, very early and taking a look at the five day chart, the action that we have seen this week.

Technology by far the leader so far up just about 3.5% brand.

Yeah, we heard you like technology.

So let's give you some more tech and the uh kind of a motive of exhibit p my ride.

Anyway, taking a look at the NASDAQ for the past five days, we're taking a look at some of those technology players, Microsoft up by about 1.6%.

But look at Apple and NVIDIA right now, NVIDIA, of course, this week's performance coming ahead of that earnings report next week.

And so we're gonna be keeping close tabs on that as this company has absolutely been off to the races over the start of this year.

We'll see if they can add on to that night percent gain that they've seen thus far tall task.

We'll see if they can do it.

But all these things considered, it's been a wild ride thus far.

They've lived up to those lofty expectations the last couple of quarters.

So we'll see.

But again, it's amazing that we've seen this jump of 90% again since the start of the year.

All right, today's big news, the dow right around 40,000, that record high level milestone that we first hit yesterday.

We're trading just below that level.

Now, this recent move higher coming following.

That's softer maybe than expected inflation, printers pretty much in line with the street's expectations that renewed some hopes of rate cuts.

Although we are seeing a bit of a repricing here today.

Now, this comes after a month long rally that has pushed all through the major averages here.

Two closing highs our next guest though saying that despite some of the positive econ data, the be some macro headwinds ahead.

So let's talk about it.

We've got Roy Ibrahim ABC, a research strategist is here.

It's great to see you here.

So I'm curious how you're taking a look at these record levels, some of this optimism that we have seen continuously play out here in the US equity market and what that ultimately means here in terms of that momentum trade and where we had from here, right?

You're right.

There is a lot of optimism in the market right now.

And what we've seen over the past month or so is that the narrative has sort of shifted from uh you know, a no landing narrative to one that's sort of like a so soft landing narrative and that's really what's supporting the market right now.

But, you know, this could continue over the couple of months of over the next couple of months.

But when we take a look at what the cyclical outlook is, as you mentioned, we think that there are some headwinds in the economy that are going to then weigh on the outlook for, um, for equities.

And so when we are looking at these headwinds, it's really, you know, the US consumer that we're concerned about, they're ultimately the driver of the US economy.

And we think that, you know, the situation isn't going to be a lot grimmer in 12 months from now to define the consumer right now.

I mean, we've heard this definition or, you know, how they've been categorized, how we've been categorized really changed over the course of the last year from resiliency now to what we were hearing from Walmart CFO when we spoke with him yesterday and relatively stable here.

Ho how are you monitoring the situation there?

Absolutely.

When we take a look at the consumer, I think there are three main things that is driving consumer spending.

First of all, it's their savings and what we've seen over the past year or so is that the excess savings that were built up during the pandemic have come down and they're being depleted.

And so the savings rate we expect that to rise and that will hurt spending in, uh, in, in the process.

The second main component is the, so we're seeing wage growth slow, we're seeing some signs that the labor market is deteriorating and that is going to weigh on the income of the consumer.

And the third main pillar.

And the final pillar is the borrowing how, you know, borrowing from their future earnings and what we're seeing from things like the, uh, the sluice is that, uh, you know, uh, banks are tightening lending standards and that's negative for consumer borrowing.

What's gonna be enough to keep some of this, uh, moved to the upside, this optimism alive.

And, and if we're due for a pullback is that actually something that investors should be viewing as a healthy move then here for the market?

Well, yeah, I mean, I do think that the S and P 500 is quite richly valued right now.

I mean, it's not where it was, let's say during the.com, but burst if you look at the four pe and it's right now, it's around 20.

But if you take a look at something like uh price to sales ratio, it's quite high, higher than where it was because of elevated profit margins.

And that's another thing that's probably going to weigh on the outlook for the S and P 500 is that these profit margins are probably going to come down a little bit.

Uh, and, you know, that's going to weigh down on the outlook, uh, especially even e even if we don't get a very, uh you know, uh even if we get like a mild recession, you know, that is going to weigh on the outlook for the, on, on equities because they're so richly valued right now, after times in the past where we've had such a pile into one specific theme and in this case it's, it's generative A I, and it's a lot of the overcrowded of tech.

Where do we see that broadening out, typically take place thereafter?

Yeah, I mean, what we, I think that, uh, investors are very optimistic about this A I um uh development and I mean, there is, there is reason to be optimistic but I think that they're, you know, they brought a lot of that, you know, future optimism forward and that's really boosting um you know, these tech stocks.

Uh and that's what really is keeping them very highly valued.

And I think that if we do have a macro economic environment that's deteriorating, they're going to be more susceptible, uh you know, to some uh declines because they're so richly valued right now.

And so we're looking to shift towards a more defensive positioning in terms of us equities, favoring things like utilities, healthcare stocks, consumer staples that would probably do much better in a um in a or, or do relatively better in, in a, in a situation where the economy deteriorates.

But talk to us about some of the excitement that we certainly have seen investor sentiment surrounding commodities.

We have seen this move this leg higher.

When you take a look at the price that we're looking on crude, we take a look at copper, for example, we take a look at gold, what is that signal to you as the investor?

And just in terms of where we are within this cycle.

Yeah, that's a great question.

I think when you take a look at what's happening with commodities, there are a few things going on.

Uh you know, commodities are typically a good inflation hedge.

Uh You know, what we've seen over the past month is, or since the beginning of the year really is that concerns about inflation ha being stickier than expected have, um you know, have supported demand for inflation hedges.

And so things like commodities benefit from that.

Uh you know, there's also these geopolitical risks that are happening and impacting, you know, oil markets and that's supporting uh oil prices, although they have of course come down and, and those risks seem seem to have ebbed at least based on the behavior of investors and typically commodities do well in a late cycle environment.

And so what we're seeing right now is most likely this sort of behavior reflect the late cycle environment that we're in, uh you know, commodities do not lead the S and P five 100 sniffing out a recession.

And, and that's mainly due to energy.

So they actually energy prices typically peak after the S and P 500 usually after a recession.

And so, you know, seeing these commodity prices rise is not necessarily a signal that uh the economic environment is uh is going to continue remaining resilient.

Rakaya Ibrahim BC A research strategist, thanks so much for taking the time here with us today.

Really appreciate it.

Thanks for having me.

Well, coming up, Copper is surging in 2024.

We'll break down.

What's behind the move?

That's next.

All right.

For our vibe on the street today, we're diving into the meme stocks.

It's been a wild week and it got even more interesting this morning on actual fundamental news, Gamestop shares are falling sharply after the company said it plans to sell an additional share count plus reported preliminary results that showed a drop in first quarter sales.

Now they haven't said how many shares they're gonna sell just yet, but shares are still reacting.

Here's the stock rallied earlier this week fueled in part by post on X from Rory Kitty A K A, Keith Gill, one of the key figures in the 2021 meme stock mania Yahoo Finance's Alexandra Canal joins us for our vibe check.

OK. What's the vibe on the memes?

You know, for me, Brad, the vibes are simple.

This is all for fun.

We are not serious people.

This was a silly little blip to start our week and now the rally is losing steam.

Now, that's not to say we didn't see some pretty serious moves here.

I think the five day charts of both games stop and A MC really emphasized this point at their peak on Tuesday, Gamestop shares were up nearly 250%.

A MC was up more than 200%.

But then we saw this drastic swing down and this really proved that the rally was largely unsustainable that this wasn't a repeat of 2021.

So that I think is the take away here.

And there's not a lot of panic among strategists.

They, they're pretty much saying keep calm on.

This was fine.

Now we now we move on.

Yeah.

And I think a big difference here when we compare it to 2021 and what we're seeing here today or a big difference, I would say is just in terms of where we're seeing the institutional side of things, just in terms of their quickness to respond.

They clearly had some lessons learned from 2021.

They're more ready this time around.

But, but I think there are some similarity or parallels that we can draw just in terms of the frothiness, the over excitement and maybe the fact that investors could be a little bit bored at this stage of the cycle and trying to add a little bit of excitement here within their portfolios.

And look, he he is clearly someone that can rally the troops, he has this cult like following.

And it's something that like you said is fun at the end of the day.

Now, the difference here from 2021 is that in 2021 we had a lot of extra stimulus money from the government.

That is one thing.

We also had a lot of people, like you said, bored at home due to the pandemic.

But today, like you said, with the Froines in the market, that could be something that really encourage investors to get in there, gamble a little bit, have some fun, join the Reddit craze.

Uh Hence why we saw this peak one day and then really starting Wednesday, we saw this come down pretty significantly.

Now we're still up on the week fairly a lot.

But compared to where we were not nearly as much.

Yeah.

And I think a lot of times the consensus here from the shoes, it's very dangerous to short some of these meat trade stuff.

Obviously, when you get into what has happened here and everything like that.

So I think a lot of lessons were learned from 2021.

Naturally.

There are a lot of comparisons just given the excitement that we are seeing around the same names that we were talking about three years ago.

But like you correctly pointed out and very important to point out there are massive differences compared to what is playing out now versus what played out then.

And this is almost just a blip when you compare to a trampoline.

Oh, yeah, this is, this is a trampoline versus a to the moon versus a rocket is a blue origin trip that some people might be saving for.

And there is data that actually backed us up.

Vander research had some interesting stats that Game saw Game stop saw net inflows of 15.8 million on a MC, 37.5 million.

Yes, that's a lot of money.

But if you compare that to 2021 87.5 million for gamestop and 170 million for A MC, when it comes to those peak inflows in a day, I mean, that, that speaks large largely to me that, that the data that speaks for itself.

It's not 2021.

Can we toss up that five day chart?

Just one more time here?

Because this is a textbook almost island reversal that people are looking at here and you know, not to get too technical in here.

But of course you had your fanfare, you got your island and then your reversal came in that sets in plus you've got the additive of what gamestop announced today, which should come as we were mentioning earlier to no surprise.

A MC did this back in 2021 to capitalize on the amount of people that were now not only investors, but some of them might have been customers trying to catch a good flick, a good movie.

And so many of the executives, their rights to capitalize on this to increase their liquidity position.

But that also dilutes shares at the end the day too, right?

You, you have to think they were they get on their feet fast like we we got a sell share soon.

Right now, considering we don't know how long it's gonna last.

And a big reason why a lot of the strategists and many people on the street were saying that the chances are that we get to that stage back in 2021 clearly extremely low.

And we've seen that play out in the markets this week.

All right.

Coming up, let's talk about another trade.

That's hard for some people here.

We've got copper, it's surging.

So far since the start of the year, we're gonna break down what is behind that move higher, nearly 30% gain from us copper prices.

It's been on a massive run since the start of the year.

You can take a look at this move to the upside here on your screen year to date.

We're looking at gains of just around 30%.

Now, this latest move higher that has really picked up steam here in the last couple of trading days.

A lot of that has been attributed to the supply squeeze that we've got going on the surge in demand that we will likely see for A I cap green Capex spending that's likely to go on.

That has been fueling the surge that we are seeing higher in copper prices.

So here we are today with that jump of just about 30%.

Now, I want to point out what has really stuck out to me is the difference of what we're seeing.

The divergence between the pricing in New York and in London, when you take a look at that gap that's playing out for the June and July, you can see a massive gap here city in a recent note pointing out that's normally around 90 bucks at 90 bucks a ton here.

And we have certainly seen that wide divergence here almost at record level.

So that of course, kind of points maybe to the squeeze that could potentially be happening here as traders maybe try to position themselves for what they expected to see in terms of snap back of the premium and the price of the US uh copper right now.

But clearly that has yet to take place.

So an interesting dynamic that is going on in the price of copper right now.

And also to compare that to some of the excitement that we've seen in other commodities.

First.

Let's take a look at gold because when you take a look at the price of copper versus gold, you can see coppers even outperforming gold here are really taking over at the end of last month.

You see gold futures up just around 16 17% year to date versus almost a double here that we've seen in the price of copper, which is up just about 30%.

And we have seen the shift to many of these commodities here catching a bid.

We were talking to a guest earlier, strategist earlier in the hour talking about the fact that some traders are trying to hedge against inflation, buying some of these commodity prices.

So that has been fueling some of the gains.

But we've almost seen this excitement play out across the board and we wanna take a look at the gains that we have seen more broadly speaking beyond commodities year today.

And this is a great chart here.

You copper by far.

The outperforming, you take a look at some of these sectors here or plays, that's up 31%.

Like I said, you've got tech stocks and gold, both up just around 20% utilities also catching a bit.

So you've seen this excitement play on equities in gold and copper commodities.

So investors really trying to find different pockets of the market trying to position them, their portfolios best is certainly an a couple of months ahead.

So here to talk more about what is driving copper specifically higher and where do prices go from here?

Is there mu uh much upside here from these levels we wanna bring in John LaForge, he is Wells Fargo's head of real asset strategy joining us now and John talk to me just about what you attribute this recent rise to and whether or not there is much room to the upside from these current levels.

Well, I'd say that the most recent move.

So this move to five, let's call it $4 a pound to $5 was more speculators.

Uh It was essentially contract based.

Uh there was an arbitrage going on.

So, uh essentially you saw a little bit of a short squeeze.

Uh But that can only really happen because underneath the surface, you have these fundamentals where we frankly are not producing enough copper.

Um And yet there are buyers everywhere right now for copper uh across the globe, you have, it doesn't matter if it's China, India, the United States, uh everyone's pushing to go green.

Uh and copper is the number one metal when it comes to uh that type of future.

Um There's really no substitute for what copper does.

Uh And so underneath the surface, you really have good fundamentals.

But I'd say this last little move.

So we're up 30% on the year.

Let's call it the last 10 to 15%.

Uh was much more speculator based and wasn't about fundamentals, John to the extent that we can.

What is the kind of as you were mentioning, the international marketplace here for copper as well?

To what extent is this and the broader commodities landscape right now, really hinging on geopolitical kind of factors uh for copper, not much.

Um What's generally happening now is if you go back since COVID uh commodities are one of the best performing major assets out there, period, they kind of go under the radar and that's across the board.

Uh And that's because frankly, it's not geopolitical, it's the fundamentals underneath commodities.

There isn't enough supply um demand tends to rise through time.

And I'm talking decade after decade after decade, mankind uses more and more commodities.

So you have demand going up all the time.

Just a little bit, 1 1.5% a year supply is the kind of key in here.

So the last four years, we haven't had enough supply uh across the board, whether you're talking copper, gold oil, it almost doesn't matter.

Um So what you really have is a commodity super cycle that started four years ago, that's pushing all commodities higher.

Um So I'd say it's less geopolitical uh and much more the underlying fundamentals, you probably have another 6 to 10 years left of really strong commodity performance.

Well, it really puts it in perspective, John, I'm curious when we talk about the, the the divergence or the gap between what we're seeing the pricing action in the US versus what we're seeing in London.

That chart that we had up there uh earlier in the segment is that because going back to what you were just saying about supply, supply is tighter here in the U SS or talk to us and just exactly why we're seeing such a wide gap.

Yeah, supplies are tighter here.

So you have a lot of the Refiners take, the Chinese Refiners are trying to get ships and trying to get it here.

Uh So the situation, if you look at Shanghai, it's not nearly as dire from a supply perspective.

Uh In fact, inventories right now for refined copper are at, let's call it 2.5 year highs in, in Shanghai.

So it's not that bad.

This is much more about futures contracts and something quirky that happened in the United States that we were running dry on refined product and you had some speculators come and take advantage of that on a futures basis.

Um doesn't change the fact though.

Uh we're gonna look out a year from now and two and three and we're probably gonna be stuck with the same dynamic, which is you have roughly about 5% more demand growth in the world than we do supply growth with copper.

Um So prices are going higher uh longer term, you know, maybe this little squeeze we've seen uh deflates a little bit over the coming months.

But, but generally I'd expect prices to be higher is copper.

A perhaps annexed chip trade here as well.

No, I, I mean, we could frame it that way in the short term.

Uh I kind of like that.

Uh But, but generally, no, I'd say if you look around the globe, we just don't have the supply.

So we, we could say it's some type of uh ship play or, or arm play between China and the United States and so on.

But if you look at the major producers in the world, the countries, this is just about supply.

Only the Congo saw an in increase in ore production.

Copper ore production last year, the other major areas, all flat, last year, all flat.

And we're talking us China Canada, you name it right down the line.

Um We just don't have the ore production and yet if you think of the globe, everyone's kind of in this, um I don't want to say irrational world but they just want to be green.

So price doesn't matter much and they just kind of push forward.

Um So I'd say it's, you know, chips, of course, use a lot of copper.

Same with, you know, evs and you name it, but I wouldn't put it on chips.

I, I put it on just generally, there's a lot of buying and it's not always rational buying.

They're just willing to pay whatever price there is out there because they want to move forward with again, whether it's chips green world, you name it.

It's kind of this, this buying that's persistent and isn't gonna stop anytime soon.

All right, John LaForge, always great to hear your insight.

Thanks so much for hopping on with us this morning.

Wells Fargo, head of Real Asset strategy.

We appreciate it.

Thank you coming up Madison Mills.

She's joining me for catalyst in the next hour.

Markets are at all time.

Highs.

We're gonna kick off the show with a strategist that now has the highest year and target for the S and P 556.

100.

He thinks we're going to see a rally from these current levels where we're hovering just around 5300.

Brian Bowski joins us after the break.