June CPI analysis, Delta Air Lines earnings, Costco: Morning Brief

June's Consumer Price Index (CPI) report is showing inflation to have fallen 0.1% month-over-month, as annual inflation picked up by 3.0%. The data is indicating cooling inflation as it came under estimates over a 0.1% increase in June and a 3.1% year-over-year rise.

Seana Smith and Brad Smith crunch the numbers on what this latest inflation report indicates about the US economy and which direction the Federal Reserve may start to push interest rates, talking to leading economists and top market strategists on the issue.

When stripping out inflation stressors such as housing costs, Moody's Analytics chief economist Mark Zandi states the Fed's 2% inflation target is "dead ahead."

Delta Air Lines (DAL) stock is having a downbeat morning after reporting a second-quarter earnings miss. Delta CEO Ed Bastian told Yahoo Finance that low-end consumers are still facing pricing challenges while summer travel demand spikes significantly.

Other top trending tickers on the Yahoo Finance platform include Darden Restaurants (DRI), Conagra Brands (CAG) as the food company posted mixed fiscal fourth-quarter results, and wholesale retailer Costco (COST).

This post was written by Luke Carberry Mogan.

Video transcript

It's 9 a.m. here in New York City.

I'm Sean Smith alongside Brad Smith and this is Yahoo Finance's flagship show.

The morning brief stock futures are lower this morning.

Even as June CP I report shows inflation cooling further bolstering hope across Wall Street that the fed will cut rates sooner rather than later.

Treasury yields though were close tabs on them.

Diving on the latest data here.

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

Now finances J Madison Mills and as for a have more stock futures falling even after June CP I report shows further signs of inflation moderating headline inflation month over month actually falling 1/10 of a percent beating the street expectation for a 1/10 of a percent rise.

Annually.

Price growth cooled slightly up 3% below expectations.

And core CP I which excludes volatile food and energy prices also moderating both month over month and annually overall.

An encouraging report for investors who are eager to see the fed cut rates sooner rather than later.

And shares of Delta Airlines plunging this morning as discounted airfares put pressure on earnings felt a missing on profit expectations for the third quarter and profits for the second quarter.

Also coming in below estimates that the CEO at Bastian told Yahoo Finance that summer travel demand does remain healthy despite these numbers.

But he did a knowledge that some consumer challenges are here.

Take a listen.

The domestic marketplace is where a little bit of the uh price sensitivity is starting to take hold and it's in the lower fare buckets Pepsico trading to the downside this morning after posting weaker than expected sales amid declining demand for drinks and snacks as inflation weighs on shoppers.

The snack makers revenue came in at $22.5 billion just shy of estimates.

The company citing subdued performance in North America as well as the effects of product recalls at Quaker Food, specifically Quaker foods volume declined.

A whopping 17% overall volume declined 2% for food that go now expects to deliver 4% organic revenue growth for the full year.

That was previously at least 4%.

We've got a fresh read on inflation.

June's inflation prints coming in cooler than expected this morning and sent futures higher initially.

But now they reverse course a little bit here and we're seeing fractional declines flat just barely the downside across all of the US major averages as of right now, Shana.

Yeah, Brad, we are seeing a bit of a reversal here.

I think a lot of this uh good news in terms of inflation.

Some of that improvement has really already been priced into the market.

So that now being reflected, something that we heard from Peter S last hour, I also want to pull up gold because that's moving to the upside.

A clear beneficiary here on that improvement in inflation you're seeing across above 2400 announce and when you take a look at the yield market, when you take a look at some of the pricing that we're seeing there, at least when it comes to the treasury yield, we're seeing a move lower in yields and move higher in prices, they move inversely here to each other.

That's not necessarily a huge surprise there.

And we're really seeing that downward movement almost across the curve.

So a bit of a steen in there, especially when you take a look at the downward movement in the five year and the two year, then.

So again, investors really pricing in the options, the hope the odds that we are going to get a fed rate cut sooner rather than later.

We heard from a number of guests here this morning saying that September obviously still on the table.

But now there's even more and more talk about the possibility of July.

So let's talk a little bit more about that with the for that we want to bring in Mark Zandi.

He's Moody's analytics, chief economist here.

Mark It's great to see you.

So talk to me just about your reaction to this print and ultimately what it signals do you think for the fed?

Uh great news sha I thought it was pretty close to script even a little bit better than script.

It shows that inflation is moderating, steady, coming back into the Federal Reserve's target.

Uh You know, my favorite measure of inflation and the measure that I think gets to underlying inflation is the so called harmonized.

Uh CP I that excludes the implicit cost of homeownership, which is really tough to measure and the rest of the world doesn't even try.

And, uh, that's uh back to the fed's target and has been for a better part of the, uh, the past year or so.

Uh, you know, we're, we're, if we're not at target, uh by any measure, we're, it's in clear view.

Uh, it's, it's dead ahead and all the trend lines look pretty good.

So given that, I think, uh the Fed should start cutting interest rates, uh, that, you know, that, that probably won't happen until September.

They want a couple more months of really good inflation numbers, but I think they'll get them and we'll, we'll get a September rate cut.

What, what type of effect then do you anticipate that that's gonna have on the housing market?

Because that's where we might be looking for some spur and demand.

If, if there is uh, cut that finally gets announced that finally gets put into effect and for potential home buyers that have been sitting on the sidelines waiting or even for those who are looking for even more cuts to, to refinance, uh that's anticipated to have even more of effect on that marker that you mentioned that the fed is gonna be keeping close tabs on, on shelter.

Well, well, Brad, I think the most immediate benefit is to lower income households through lower payments on things like credit cards or consumer finance loans.

By now, pay later pay later might see auto loan rates come in.

Uh And that would be very helpful for uh again, lower middle income households, uh who are uh been unable to purchase a car because of the cost of financing.

Uh So I think that's where we see the, the biggest benefit.

Uh It, it should help the housing market.

And you know, my sense is we will see if the fed starts cutting rates.

Uh that'll help the yield curve become more normally shaped and uh the volatility in the bond market should moderate.

And that means mortgage rates, the 30 year fixed mortgage rate should come start to come in and uh be more consistent with uh the 10 year treasury yield.

Uh So that, that will, that will ultimately help uh uh housing demand.

I mean, right now the 30 year fix is at 7% and anything over seven, the the housing market tend it feels like it goes into a deep freeze.

People just can't afford to buy a home closer to six.

things come back to life.

So I think the Feds move, uh, and if they can signal that they're gonna continue to cut interest rates.

Uh I think, uh, we'll, we'll get rates from going from 77 closer to six.

And, and that's when life starts to come back in the housing market.

Mark my question to you is there, there's been more and more focus on some of the weakening that's happening within the labor market right now.

Even uh Chair Powell uh commented on that down the hill this week.

If we don't see a September rate cut.

How much further weakness do you think we could potentially see in the labor market then in the coming months?

Yeah, I, I think that would be a mistake.

I mean, I, I think the economy is under a lot of strain from the higher rates.

Uh It's, it's doing some damage.

Uh The labor market is the most obvious place.

I mean, hours worked are down, uh temp jobs are down, the hiring rates, quit rates are down, the job growth is slowing all the revisions we're getting now uh are to the downside of reducing estimated job growth.

Uh So uh unemployment insurance claims are up that, you know, that might be more seasonal than anything we'll have to see.

But it does feel like businesses are, you know, starting to lay off a bit more.

So, yeah, I worry about that if the fed keeps rates here too high for too long.

And then of course, the other kind of uh stress point is the financial system, the banking system and the broader financial system because the yield curve is inverted, short term interest rates are higher than long term rates.

And that is a very uncomfortable place for, for uh uh folks in the financial system trying to make some money on the net interest on their net interest margins.

And so I, I worry that we could see the uh some other type of event in the financial system.

So I, I, you know, I, I think it's really important that the fed follows through here and starts cutting rates.

Mark, what does that type of event potentially look like and talk to us a little bit more about what maybe some of those stressors could trigger when we talk about that wider fallout.

Well, there's a few, I'll, I'll call out one, you know, the bond market, it feels uh uh uh uh really choppy.

It's uh the liquidity in the market is very poor and that goes to a number of things.

Uh most significantly the, you know, the broker dealers that the divisions of big banks that uh do the trading in the bond market, they haven't increased the size of their business, their balance sheet to be consistent with the growth in the amount of debt outstanding.

How about what this treasury debt, you know, that's been uh because of the large budget deficits and the, the the broker dealers have not kept up, that goes to capital rules and it's not economic for the banks to invest in these broker dealers.

And that's adding to the, the the problems of liquidity.

The other is the quantitative tightening.

You know, the fed is pulling out of the bond market uh through its QT and that means some other buyer has to step in and it turns out that that buyer is our hedge funds and hedge funds are obviously very price sensitive.

Uh They're there when things are going well and they immediately leave when things aren't going that well.

And uh you know, uh that creates a lot more volatility makes the the bond market more fragile.

So, in this high rate environment with that QT uh that's a, that's a flash point, that's a, a stress line in the system that, you know, could get.

Uh it could be a problem that the again, if the fed keeps rates here too high for too long, you know, as we were taking a look at at one more component within this, that had been part of the sticky inflation um kind of narrative that we had seen uh report over report essentially that moved a different direction and offset housing.

It was, it was energy, you know, that's gonna continue to be kind of one of the more volatile pieces perhaps of this.

But, but is there some stability that energy could even bring to the inflation print on a go forward basis from here?

Well, well, as you point out energy prices, particularly oil prices go up down all around.

So that, that always makes me nervous.

I mean, you know, that's the one thing that could upset the apple cart here.

But having said that it does feel like uh uh oil prices should stay down.

I mean, we're getting a lot of uh production coming out of the US.

The Frackers have done a marvelous job ramping things up here in the US.

We're producing well over 13 million barrels of oil a day brad just for context.

The Saudis and the Russians are producing 8.5, 9 million barrels a day.

We're the largest oil producer on the planet by rules of magnitude and that's helped to fill the void left by the Russian sanctions and OPEC plus production cuts.

So that's, that's helped quite a bit.

Also demand.

Global demand has been on the soft side, you know, given the weak Chinese economy, given the, the, the the the the move here to hybrid and ev re reducing the demand for, for gasoline to power our cars.

So that all augers well, but having said all of that, uh I really worry because there's a lot of cross currents.

Global demand supply uh factors uh that uh that uh affect the price of oil and you know, could blow in the wrong direction here.

But right now it feels, it feels ok.

It feels uh we got a, a tenuous uh bit of a calm here at the moment.

Mark Zandi, always a pleasure to grab some time with you and thanks so much for breaking down this CP I report with us Moody's Analytics, chief economist.

Great to see you, Mark.

Thank you.

Well, shares of Delta Airlines are plunging this morning as the airline misses on profit expectations for the third quarter.

Now profits for the second quarter.

They also came in just slightly below analysts expectations.

I had the opportunity to speak with Delta Airlines, CEO Ed Bastian and he touted the company's record revenue for the June quarter and said that summer travel demand remains very healthy.

He did have something to say though about where the company is seeing some challenges within the consumer.

Take a listen, our consumer is very healthy.

Uh Our consumer tends to be a bit more affluent.

Uh our our consumer uh tends to have more discretionary uh wealth and, and and purchasing capability.

Our consumers tell us that one of their top uh uh purchase drivers for their, for their uh their, well, their, their, their funds are to continue to travel.

So our consumers are driving the experience economy and whether it's, you know, traveling to Europe to see a Taylor Swift concert or going to see friends uh in another part of the country that's driving a tremendous amount of our stability.

Uh I do acknowledge that in the lower fare, excuse me, the lower end of the consumer um ribbon that that's been a more challenging picture for the the airline industry.

And that's probably what led to some of those price declines that you mentioned last year was really, really high.

Uh But as supply came back, you're starting to see uh prices start to, to uh to, to match that accordingly.

Always weird to hear that Taylor is still very much a part.

Uh and perhaps core driver of some of the experience economy right now, especially with some of the touring still taking place, all that said.

And jokes aside here, this is a quarter where you look across the TS a passenger throughput data that we've seen over the course of this year.

Thus far, the number of passengers who have been in error are going through these checkpoints.

It's running above those 2023 markers, which was the post pandemic high and also set some new records of its own 2024 is outpacing 2023 by about 6%.

So that's just about 100 4,546,000 passengers every single day.

And so as you're thinking about that, and as you're thinking about where this consumer is pushing back, it also comes back to some of the routes that Delta is running to here.

So that is something that certainly could challenge margins, not just for Delta, but for the industry as a whole.

And I wouldn't be surprised if we heard something similar.

United Airlines from American Airlines as well here this quarter.

Yeah.

And I think when you take a look at the stock's reaction here to this program, I mean, you're looking at losses of nearly 9% in shares this morning and you're seeing that across the board when you take a look at Piers and the reason why is because yes, there are reasons to be optimistic about what happened last quarter.

But when it comes to current quarter, trends and some of the commentary that even you mentioned on the phone with you last night, Brad is pointing the fact that consumers are under pressure.

These airlines simply don't have the pricing power that maybe they did over the last several quarters were see that reflected in margins.

We're seeing that reflected even in demand numbers uh here today or in those in those guidance numbers.

And because of that, that's obviously a bit worrisome on the street and a huge reason why we're looking at the stock under a tremendous amount of pressure here this morning.

Yeah, in tandem with the results here, I also was able to ask Ed Bastian about Delta's expansion into the international markets.

Now, he touched on the company's investment in Latam Airlines to expand in South American markets.

Here's what he had to say about that while that region has been probably or was a bit slow to recover from COVID over the last couple of years, it's been recovering quite well.

And we, we've uh expanded pretty aggressively whether that's the South American markets, whether it's Latin America, whether that's Mexico.

Um Those markets have seen a lot of capacity growth.

Uh We're happy with that because we realize that those are markets that our market share, uh opportunities are, are pretty important to us and we want to capitalize on them, but it also drives pricing down.

Uh as again, all the capacity comes back and is uh what is, you know, certainly a, a price sensitive consumer in that range and opportunities to travel more.

And so, no question.

Yeah, a flight going overseas to Europe gonna cost more than a flight going to Latin America.

And typically what that means as well is that, that's gonna add a little bit of compression onto the margins year over year, tough comparisons.

And that's where we were kind of getting back to what the company is expecting for the third quarter here.

Looking at this range of about a dollar 70 to the high end of $2 which compared to the same quarter last year came in at about $2.03.

So it is still a decline year over year that they're forecasting even at the top end and especially at the mid point.

And I think that's what the street is really looking at here today.

If there's still continued demand around international travel and there is even prompting Delta to net a new partnership with Riyadh Air, which hasn't even had their first flight yet that's expected in 2025.

But it goes to show the ambitions that Delta has to scale out internationally.

But also understanding where there might be some flights and some routes that are not going to be as profitable as others, especially when you do have a comeback into that region and resurgence into that region as a new option for international travel as compared to when people were going gung ho to Europe last year.

And I think that was reflected also in his capacity growth outlook, right, just in terms of where they are seeing that opportunity, a certain route that they, that they aren't seeing demand and as a result or making those changes to better obviously in the attempt to boost their business and have the right uh flight maps in place in order to get the the best bang for your buck.

And also just to in order to try and boost that bottom line here going forward.

So I think that's also the real question here on the street as they had discussed some of that capacity growth and exactly what that's going to be, look like an overall moderation going forward just where those further adjustments may be are going to be here in the second half of the year.

All right.

Another stock that we're watching this morning is Pepsi shares.

Moving to the downside after the company saw softer demand for its and drinks here in the second quarter, you're looking at a loss of just about 2%.

Of course, when we take a look at this print, the big question is what, what this tells us about the consumer.

Clearly, it shows that consumer is still under a bit of pressure.

Consumers are cutting back on some of their spending, especially on what they are spending on snacks.

That was very evident within this report also after years and years of price increases and some sales growth, it does look like Pepsi business be struggling just a bit but consumers maybe are there is a bit of a backlash in terms of the willingness to spend on those higher prices at the moment we're seeing that reflected in these results here today.

Yes, it's amazing when you kind of look through and for all of the talk that we've heard around shr inflation, I mean, it's even made it all the way to the presidential lecterns that certain appearances and speeches that the president has given all of this is going to be more in focus for consumers as they're especially trying to figure out where they're either buying in bulk for some of the typical snack purchases that they may have made or drink and soft beverage purchases that they may have made before.

But for Pepsico, it's also a larger, um, kind of inclination as to where they need to sell into some of their B to B clients as well to offset where the consumer pushback may be.

And I, I think that's part of the calculus that this executive team uh really has a lot of potential work to do because even if you see more consumers saying, all right, we're not gonna buy as much of that same product.

We're not gonna stock up the pantries the same way, but we're also not gonna go out.

And that's gonna mean that some of the food and beverage service industry companies are not buying the same quantities, then you're getting hit on both sides, both the, both the restaurant and the retail side of the business too.

Yeah, exactly.

You can see it reflected just strictly in the volume numbers.

You got free to light North America.

That volume of 4%.

Quaker Foods, North America volume of 17 percent.

Some issues there.

Obviously, Latin America in foods volume off 6% are really declined here.

Pointing to the fact that consumers under a bit of pressure as a result, they aren't going out and spending some of those higher prices that many of these consumer table companies have enacted over the last several quarters when you talk about those price hikes.

So we're seeing a bit of a push back and as a result volumes really heading in the wrong direction.

Big hit on Quaker Foods in North America.

Not as many people eating oatmeal, I guess these morning staple in our house.

My dad, you see it every morning.

All right guys, we could just get, getting started here on the morning brief.

Uh, and if you're my dad, you're probably just warming up your oatmeal coming up.

Inflation hits Costco, the retailer is hiking its membership fees.

We've got some top trending tickers coming up next.

Plus later on Walmart betting.

Big on artificial intelligence.

They sell oatmeal there too.

We're gonna hear from one analyst who believes that the retailer could be a key player in the A I arms race though.

All this and much more.

You're watching Yahoo finance time for some trending tickers.

Costco shares, climbing this morning after announcing it's hiking its membership fees for the first time since 2017.

Effective September 1st members of us and Canada, gold star business and business will, uh, will business add on rather, will pay $5 more for their membership.

Now, that brings a new annual cost to 65 bucks.

You said this wasn't a big deal in our morning meeting?

Well, it's not a huge in terms of the fact that maybe that price increase could have been a lot more.

Right?

It's five bucks.

Yes, I'm not discounting the five bucks.

But if you are a loyal, uh, Costco shopper, I don't think you might be too upset.

Maybe I'm wrong, um, about a five buck hike it when it comes to the membership fees.

And the reason I bring that up is because Wall Street has been waiting for this to be announced now for several quarters, every single time earning season rolls around.

It's almost the first or second or third thing that's us is about membership fees and how big of a catalyst this could potentially be for the stock.

And there's been a number of analysts who have run through the numbers saying that there has been a performance in Costco stock leading up to the membership hike because Wall Street then starting to price that in ultimately what that's going to mean for the bottom line.

So again, that's why we're seeing some excitement in chairs here this morning just in terms of maybe how big of a boost this is going to be to Costco in the quarters to come.

But again, this has a move that we have been waiting for for quite some time.

I don't not necessarily say that we were personally excited about it if you're, if you're a Costco consumer.

But again, if you're an investor in Costco, what this will ultimately do to the business in the long run, that's something to be excited about.

Fair enough.

I I'm just saying divided up that is uh three and one thirds hot dogs that you're missing out on every month.

That's because you're paying that $5 extra here.

I don't know, it might be good for the waist line, but Costco probably reading some of the tea leaves of consumer purchases.

If you can purchase gold bars at Costco, you can probably afford to pay a little $5 extra per month.

All right, let's take a look at conagra because the stock is under a bit of pressure here this morning hitting a four month low in pre market trading off just around 1.5%.

The company missed on its fourth quarter revenue.

Also its outlook coming in a bit underwhelming here for the street when it comes to quarterly net sales that fell about 2% from just about a year ago.

And when you take a look at some of the other areas here, volumes overall declining 1.8%.

So again, a similar theme to what we just talked about and Pepsi co a few minutes ago, a drop in volumes heading in the wrong direction.

A bit of a push back here from consumers as they do adjust some of their spending patterns there.

Brad.

Yeah, absolutely.

I mean, let's remember, Conagra brands really does touch the core of households here at the end of the day with some of the brands that they have underneath of their belt.

And I, I think taking a look at the year to day performance here it and you know, it was up by about half a percent it looked like, but over the past year down by about 12.5%.

This is another one of those kind of key brands in addition to that Pepsico to watch, especially as they're trying to give us some insight into where the consumer is continuing push back in certain product elements here.

And I, I think similarly going forward for investors, they're trying to figure out, all right, for all of these companies that have leaned into making specific acquisitions over time to build out the brands that they do own, where might they actually have to deploy even more capital to acquire that next brand or to acquire that start up, that may be able to add into the existing portfolio of brands that they have just to put some names on this.

I mean, people out there who are tapping in the slim Jims or Hunts tomato sauce or ready whip.

Yeah, these are all conagra brands.

And so at the end of the day, if people are pushing back on how much they're willing to pay on Orville Redenbacher's popcorn, then that spells out problem for, for conagra at least in the near term period of time.

All right, let's take a look at Darden because Darden falling after Jeffrey downgraded the stock to underperform from hold Sasha's price target as well.

The analysts, they are citing near term challenges for Darden's fundamentals.

So that that's a bit of an overview here.

But again, essentially what this analyst is saying and, and this is the operator of Olive Garden Jin, a number of eateries there basically saying that because of some of the pressure that customers are facing right now on their wallets, the fact that they don't have as much spending power, maybe as they once did, that is going to then hurt names like Darden.

And as a result, they lowered their price target to 124.

That was down from 154.

What exactly that in terms of pricing action?

They're saying that they think shares could decline about 10% from yesterday's closing price.

Also saying that the rising promotional intensity could see Darden lose some of its share.

So again, important things to keep in mind, we're seeing a bit of pressure here on Darden.

Yes, this new target is essentially a 10 point or 10% downside from that Wednesday close here.

And the risk as you were mentioning to near term fundamentals, the analyst citing here in this client's note.

Also, everyone, we've got the opening bell coming up.

Let's do a quick check of the markets here as we're keeping close tabs on the NASDAQ, the Dow Jones industrial average and the S and P 500.

We've got much more on that here as we're taking a look at the major averages.

The Dow right now and the NASDAQ moves into positive territory.

We are mixed though, coming off of that CP, I report, uh, we're gonna go to a quick break and then we've got the opening bell.

All right.

The opening bell has run its course.

Anyway, it's wrong on the Wall Street.

The Nyse things are thrown off and I can't see who's ringing the bell anyway.

Nyse, they rang it, NASDAQ, they rang it, I believe they had fun.

Fetti somewhere in there and we're taking a look at the opening cross here that has happened as well.

The Dow the NASDAQ composite and the S and P 500 as they were trying to make up their mind here this morning, they were negative then positive and the negative.

Ultimately, they open up the day higher here flat just barely to the upside here as we're taking a look at the Dow Jones industrial average hold known to gains right now about 5/100 of a percent early in trade.

Yeah, let's take a look at that bond market's reaction.

Gee, you've got the 10 year off just around nine basis points of 4, 18 below that 42 level.

You're also seeing the reaction play out on the 30 year bond market as well.

Take a look at some of that sector action and reaction to that CP I got here this morning.

You're looking at real estate materials leading the way real estate really by far the leader here today up just around 1.6% on the flip side.

Taking a look at the lads, you got energy and consumer staples pulling up the rear.

Jared Bl has a closer look at this movement that we're seeing.

Jared.

Yes.

Well, let's not forget we got a nice winning streak in the NASDAQ composite, the NASDAQ 100 the S and P 500 going on.

I believe it's going to be eight days today.

That is in the balance right now.

Here's the last 10 days.

You can see S and P up about 3% quite respectable.

And I like how you were emphasizing the 10 year T note yield that has now hit the lowest in a couple of months.

So let me just bring up that chart real quickly.

This has some important implications for which sectors are outperforming today.

Um And here you see, we are actually at the lowest in maybe it's three months, nevertheless, definitely on the way down here.

And that just it's kind of a release valve.

It just makes the market participants more confident that the fed will be able to cut sooner rather than later.

And uh looking at the sector action, I said this the tenure t not yield dropping had important implications.

We're seeing that with real estate, John, you were noticing that real estate is by far the biggest performing sector, then you have materials and utilities, another interest rate sensitive sector, then consumer discretionary uh to the downside energy, the biggest loser down about 4/10 of a percent.

And speaking of winning streaks, I just wanted to catch, uh, Tesla real quick if I can find it.

There we go up about 17 basis points and it is in the midst of, I believe this is going to be day number 12.

Anyway, here's the last 10 days.

You can see it's up 34%.

Uh, the big resistance level I'm looking at is 300.

That's a little bit farther away than we've gone right now.

But uh every five points or so every $5 you could pretty much say that's a new resistance point until we get to 300.

Also wanted to spend a minute on regional banks.

We've been seeing these uh perk up over the last couple of days.

This is what happened this morning and let me just show you the last two days adding to those totals.

Just kind of interesting.

This is another perhaps interest rate play.

Uh banks love the fed cutting rates.

So that's probably as simple as it is right there.

We can also check out the big banks.

Now, this is over the last two days.

We're seeing some red there and today some more red.

So JP Morgan down about 9/10 of a percent and it looks like that strengthen banks, really, some of the mid size guys, not the big ones.

All right, Jared.

Thanks so much.

Let's take a look at that broader market reaction again.

We're still looking at actually now the mixed picture you got the dow just below the flat line, you got the S and P and the NASDAQ pushing to the upside the movement here coming after inflation cool more than expected during the month of June.

But is the reading even more important to the Fed at this juncture?

And ultimately does that mean here for Fed chair, Jay Powell's uh path here moving forward for that We want to bring in Callie Cox.

She is Red Holds Wealth Management Chief Market Strategist, Callie.

Congratulations on the new job.

Great to have you back here on Yahoo Finance.

So talk to us just about how you're looking at this report and also what the muted maybe reaction in the equities market.

What that signals to us s all?

Thank you.

I'm so excited to be representing Red Holtz, its an amazing firm and you know, more excitedly, we got another CP I report that points to celebratory rate cuts potentially in September.

Uh what we saw today was basically inflation coming down but not too quickly.

And that's exactly what the Fed wants to see, especially as weakness creeps up in the job market.

How many more reports like this does the fed need to see, Callie?

Well, that's the big question, Powell won't tell us and that's kind of his mo he doesn't, he doesn't give us, you know, hard numbers or projections, but they do have two P ce reports.

And two CP I reports before the September meeting.

So a July rate cut is probably too quick, but I'd expect to see Powell prompt us really hint toward the potential for a rate hike through change.

Uh, excuse me, a rate cut through a change, the language in July call.

If we were to see rates lower, what do you think that could tell us about participation?

Could we see more participation as a result?

Well, I think rate hikes have restrained this bull market so far and rates coming down, you know, with this economic backdrop, we probably won't see rate rates come down too much, but just a little bit of relief on the bull market could let it live a little, little bit more.

We could see stocks outside of tech actually participate in this bull market and you know, the small caps and midcaps which is lagged for so could uh potentially catch up.

And, and so with that in mind, I mean, where are some of the other areas?

You know, even as we're trying to wait for the catch up from small caps and mid caps, if there was an overflow from some of the rotation, perhaps that takes place out of the A I trade and into other sectors, what are the sectors that are most ripe for getting some of that windfall?

Well, I think you have to look at the rate sensitive sectors, right?

You're seeing housing, I know Jared mentioned a minute ago that banks are seeing a bid this morning.

Uh You have to think about those sectors that have been pummeled for so long from higher rates.

And, you know, if you think about, you know, who I'm serving right now, we're looking, we have longer term.

They're looking over years.

And what we've been telling them is that there's a lot of value in this market in those sectors that have been hammered by higher rates and aren't necessarily damaged for the long term.

Uh You know, if you have some time on your side, this might be a good entry point, especially as you know, the rest of the market starts to breathe.

Kelly, there's been so much talk about the concentration within the market, the need for broader participation.

How much is riding on a handful of tex especially this earnings season?

How are you looking at that?

And how big of a risk maybe this poses?

Does it pose a risk to the broader market, do you think?

Well, we need to see earnings follow through?

Of course, uh 11 of the reasons why tech has been so favored recently is because it has been one of a few sectors driving this earnings recovery.

Uh And to a certain extent, market concentration is natural.

You know, usually people invest in what's doing well and tech has been doing exceptionally well recently.

Uh But as this earnings season comes upon upon us on Friday, as we see a little bit of broadening, we need to see the fundamentals, uh you know, show a case for the rest of the.

So the rest of the market outperforming Kelly as we're kind of beginning this second quarter earnings season here.

What do you expect the outsized theme that we may hear from companies might be?

Well, I'm interested in hearing, uh about, uh, this is always the case, but I'm interested in hearing the commentary for management.

Uh I think the results matter a little bit more this time around because like I said, we need to see a little more success in companies outside of tech.

Actually, you know, posting sales beats, posting earnings beats, but more importantly, sales beats.

And you know, I, when I'm thinking about management commentary, I want to hear what management teams are thinking about the future, but especially when it comes to Capex and plans to expand and uh you know what they expect from the rate environment.

Uh More of that, more of that talk that you'd expect in bull markets that we haven't really gotten yet.

Callie Cox Rick Holtz Wealth Management Chief Market strategist, Callie.

Great to see you again.

Thanks so much for hopping on.

Thanks for having me.

Certainly coming up everyone.

We've got a deeper dive into Delta Airlines Q two results.

We have analyst reaction on the other side of this break.

You're watching the morning brief, one of the biggest first earnings reports of this season is Delta and shares of Delta Airlines moving lower this morning, the company posting a record June quarter revenue, but they say that discounted airfares pressured earnings which fell below analysts expectations.

I had the chance to catch up with Ed Bastian, the CEO of Delta Dis to discuss the company's report.

And this is what he had to say about the company's guidance.

Let's listen.

Well, relative to consensus, we're guiding to a to a little bit of a lower range.

That's exactly what I just mentioned in terms of the domestic market weakness in the lower fare category, the discounting particularly in the lower by the lower fare airlines.

The good news there is that, you know, that capacity is anticipated to be back in balance by September and we see the industry taste with the supply coming out and that will enable us we believe to be uh unit revenue positive in the month of September domestically for a deeper dive into Delta's earnings.

We're joined by Nicholas Owens who is the Morningstar industrials equity analyst.

Great to have you here on the show with us.

All right.

So are the streets expectations of Delta just too lofty or is this kind of a symptom that we're expecting now?

Given where the consumer is moving?

I think maybe a little bit too lofty.

Yeah.

Uh what you've had over the last couple of years is just this record demand, record prices and basically, I see that as uh leveling off and um my fair value on Delta is $39.

Um So uh kind of coming, coming in closer to where I thought it would be the quarter really didn't surprise me.

Um And that, that the key story really is a little bit of uh price softening.

As you heard from the CEO Nicholas, it seems like the read, at least from the street is that maybe this signals the fact that there might be some concerns about the health industry wide, is that the right read here and why or why not?

Well, Delta is kind of the leader of the pack though the first to report and they have really the most um say successful uh customer segmentation that allows them to to re record record um or premium revenue and uh really great margins, I mean 15% operating margin is, is quite enviable for an airline.

Um And so if, if, if they're saying it's gonna be a little soft in the next quarter, the assumption is that other airlines will be even softer.

It, it sounds like some of the demand though still remains strong among their consumer, which the Ceo Ed Bastian pointed out to me is, is a more affluent consumer, is one that's looking to spend on, on things like private prioritizing international travel.

It's just kind of where those international travel routes, I guess are in comparison to what we were looking at last year when there was a lot of still the revenge travel that was in the tape and it seems like some of that has moved towards the Latin America division which saw revenue move higher by about what, 4% in this most recent quarter.

Yeah, a again and so there, there's still plenty of demand for travel, you know, they're, they're filling the planes.

Um II I think of it as a little bit of a uh a barbell in the sense that you still have, you know, the all the premium seats and so forth going um you know, going well, but the price war if you will is happening in the back half of the plane, you know where Southwest is, is uh cutting prices and they're also under pressure from the even more discounted airlines, Nicholas when it comes to uh I guess some of the commentary coming out from management just in terms of capacity growth that that is going to be moderating your going forward.

How big, how big of a boost do you see some of those adjustments being to their business here at least in the second half of the year or how quickly can we expect that to trickle uh to trickle down?

Well, um you know, they, there's, there's targeting two what it was a 3 to 5% capacity growth uh in the second quarter and only 2 to 4% revenue growth.

So um and 2 to 5% or whatever that is, 3 to 5% capacity growth is pretty slow compared to the last few years.

You basically were lapping the 2019 capacity levels.

Um And basically coming off of these sort of record high revenue yields, you know, Nicholas, while we have you, one of the huge things that actually kind of jumped out to me in, in my conversation with Delta was really around some of the hiccups that they're seeing right now or at least the headwinds that they're seeing, I should say within manufacturing.

And I, I believe what he had mentioned to me is that some of the maintenance is stretched.

Uh You're seeing some of the aircraft reaching or getting closer to maturity and this is gonna be a several year process to try and fix how much of an overhang for the entire industry.

Delta included is that, yeah, I think it's important to note as you do that this affects more or less the entire industry.

Uh I mean, Southwest has a unique exposure to Boeing aircraft, but in general, new planes are, are delayed.

Uh even from Airbus.

And so you, you'll just see them holding on to some of their older planes for a little longer.

Those planes are a little more expensive to run a little, a little less fuel efficient.

Uh And then, you know, in they, they require maintenance.

Uh that is also then um a little harder to come by with higher uh maintenance costs uh and part shortages in some spots.

So, but that's just a little bit of friction.

Let's say that the whole industry will experience.

All right, Nicholas Owens, Morningstar Industrials Equity Analyst.

Thanks so much for joining us here this morning.

Thanks for having me.

All right, coming up, we're taking a closer look at some big food and beverage companies reporting earnings this morning.

We'll break down what these reports signal for the current state of the consumer.

You can see Pepsico and Conagra brands, both of those stocks under pressure.

Following those results, conagra brands off nearly 4% more on why.

Next.

How is weak consumer demand impacting food and beverage companies?

Some earnings reports out this morning giving an early preview.

We got results out from Pepsi reporting.

We consumer demand in North America in its second quarter report and lowering its full year guidance to discuss what these reports signal about the state of the consumer.

Yahoo Finance's very own, Brian Zazi and says it looks like the streets a little worried just about some of the guidance that we got here from Pepsi.

Uh yeah, a little worried but uh you ultimately come to me to uh break down the numbers and go and pull up that earnings release up.

Bottom line is with Pepsi Co uh global volumes down for a straight quarters, not, we're not going to be well received by investors.

You go to conagra brands, weakness in the snacks business, weakness all over parts of their business.

Maybe it's a frozen food, uh, whatever it is.

Uh But what really, I think is jarring was this earnings call from Pepsi co led by uh Ceo Ramon La Guar.

And he really kept it real.

He said consumers are pushing back on higher prices and now the company is going to have to go back and figure out ways to offer them more value.

Now, I I caught up with Ramon just a couple moments ago and we talked a lot about what value means and it's not necessarily going out there and making a potato uh bag of potato chips cheaper cutting the price on.

It might be on a multipack offering two bags free, might be adding a couple more chips into that bag, whatever it is.

Uh the company look for the company to become more aggressive uh on getting customers back into its Pepsi Co Universe, Frito Lay Doritos, you name it by offering them either more in their packages or and yes, in some cases cutting prices.

And I think that will also apply to their beverage business.

In addition, I would not be surprised if you see a new round of cost cuts at Pepsico over the next six months.

Company is notoriously drilling down in cost to keep its margins some of the best in class on Wall Street.

I wouldn't expect anything too significant.

But again, I think the company is very margin focused, given the weakness.

They aren't, they are, in fact seeing in volumes.

Uh, ultimately, I think you take this quarter from Pepsi Co and start to think now if out there trading, uh, retail or consumer names, how might this show up in the earnings out of a Walmart, how might this show up in earnings out of a target?

Keep in mind what we have heard from Walmart recent quarters, uh sale strength in upper income households.

But Pepsico is saying now they also are seeing consumers push back.

And of course, Brad, you talked to Delta Co Ed Basin calling out consumer weakness of its own.

So a lot of alarm bells, I know we're early on in earnings season but right off the bat, there are a couple of key trends or Shana Smith and investors need to know where are the weight loss drugs?

Yes.

Being a key trend.

Yeah, hot debate.

Uh we really had AAA somewhat of a discussion about this in the Alfi newsroom miles Uland, very focused on this is a key impact to a lot of packaged food volumes.

Now, Ramon said his company has been doing a lot of study groups really drilling down into this.

And I think Ramon Ramon falls to my side of this argument is that these drugs are still for upper income households, lower income household do not have the financial funds or means to go out and purchase G LP ones.

Uh And right now, a lot of that consumer weakness is coming from lower income shoppers that are more price sensitive.

Not yet.

Uh He, I believe Ramon was saying that he's not seen a material impact on its business from G LP ones.

Now, bottom line is this something to watch over the long term as these drugs come down in price perhaps?

Is it 5, 10 year uh impact something to watch perhaps?

But right now, I think the bigger concern is that inflation has been up in package in the package good industries over the past 3 to 4 years.

And now these companies are going to have to figure out ways to reduce prices, get customers back shopping their categories.

Is that a trend that you expect to hear now in the coming weeks, as we do get more results from so many of these consumer staple companies when it comes to some of the pressure, some of the push back, we have been talking about the time that this was going to ultimately come.

It sounds like at least from these early reports, we are starting to see hints of that.

So then should consumers or viewers there expect maybe more deals and more incentives down the line?

They're coming.

Pepsi has already started to ramp up its promotions.

In the past few weeks, they have started to see an improvement.

I think in some parts of the business but expect more.

And it's not just a Pepsi Coke thing.

I would expect.

You're seeing this from a Can Ara brands.

You're going to see it.

If you haven't seen it already from Coca Cola, you'll probably hear some of this commentary from Coke.

When it reports, you'll probably hear from Target where actually I didn't see it was interesting.

Was those Costco results, monthly sales results for June, uh, that the company announced last night, I think those results got overshadowed by the membership fee hike as you would expect.

But nonetheless, uh, you had strength in consumable goods.

You had strength to double digit increases in jewelry and non, uh, non food categories, which is pretty interesting but overall not, not a good start, not a good start, um, to the earning season.

That is true.

Certainly some red flags there when it comes to the consumer while we have you.

What did you think of that Costco news?

Finally, you got that right.

I was right enough about when I was just a cub reporter.

What, four or five years ago, we were looking for another membership fee increase seven years since Costco last raised, it raised its membership fee increase.

Usually the stock performs very well into a release like this.

As people expect an earnings boost, Costco shares up 35% year to day.

Usually the stock underperforms the S and P 500 after the fee increase, uh, is released.

Usually because profits don't get the biggest, uh, the big bump as many people expect.

No surprise.

You're seeing Costco shares down uh, after the fee hike, I think there, this is, this is what Costco does.

Uh, they're not gonna lose any customers.

They're gonna take this fee increase lower, uh, go back in lower prices, gain more market share and just keep on winning.

That's what Costco does.

There's a lot of overlap in the Venmo diagram or not the Venmo, the Venn diagram between Costco and Pepsico bringing it all together.

There's a lot, there's a lot of Pepsico uh being sold in, in Costco for sure.

Yeah, a lot of quick roads too.

Just love Costco.

I love Costco.

It's good.

You get like fish.

I can like salmon like this size.

It's like I love the thing.

One of getting salmon that size.

Yes, you are.

That is not fake news.

Like I would have questions if you were getting salmon.

All right.

Always great to have you just tossing the same.

They toss it to me all the time.

It's just the size.

No, no G LP one in for like a month for you.

All right.

Thanks so much for having on with us here discussing all the big topics that everyone needs to know.

Keep right here on Yahoo Finance.

We got much more coming up on the other side.

Catalyst starts at the top of the hour.

We'll see you then