The Trump trade, CDK cyberattack: Asking for a Trend

On today's episode of Asking for a Trend, Host Josh Lipton break down some of the biggest stories and trends impacting markets.

The cyberattack on CDK Global, the software provider for car dealerships across the US and Canada, led to system outages for auto dealers across North America. Meanwhile, prices for new cars remain well above pre-pandemic levels. CoPilot founder and CEO Pat Ryan explains that the hack "really threw the industry back to the Stone Age in a lot of ways because with the systems locked down, they [car dealerships] couldn't do business the way they are." He also points to "structural increases in car prices" leading to consumer pressures: "We're still up over 30% from pre-COVID. So there's sticker shock for people who have bought a car since before COVID. And then when you add in that most cars are bought with financing, about 80% of cars. And so when your car is bought with financing, interest rates go up and prices go up. That has a compounding effect that has really made them unaffordable."

The tech sector was dealt a major blow in Wednesday's trading session as chip giants like Nvidia (NVDA), Taiwan Semiconductor Manufacturing Company (TSM), and ASML Holding (ASML) sank in the day's session. Meanwhile, signs of a so-called "Trump Trade" are ringing throughout Wall Street, specifically with interest in M&A activity which could see a pullback if the former president were to take the White House once again. Yahoo Finance markets reporter Josh Schafer joins the show to break down the latest market trends for July 17.

The Russell 2000 (^RUT), an index tracking small caps, broke its 5-day winning streak at market close on Wednesday. Market Domination Anchor Julie Hyman breaks down the latest data pointing to potential signs of a rotation out of Big Tech.

Warner Bros. Discovery's (WBD) TNT may be losing out on the media rights to the NBA as Comcast (CMCSA) has reportedly reached a deal with the basketball giant. In addition, Disney's (DIS) ESPN and Amazon's (AMZN) Prime Video platform will be paying the NBA more for their game rights. Although Warner Bros. has the option to match the incoming offers, LightShed Partners media and technology analyst Rich Greenfield doubts it will: "I don't believe that Warner Bros. really wants to spend 1.8 plus billion dollars on a rights package for a much smaller package with less playoff games."

Catch more Yahoo Finance coverage on the media and streaming landscapes as part of this week's Media, Streaming, & Investing: What's Next special.

This post was written by Melanie Riehl

Video transcript

Hello and welcome to asking for a trend.

I'm Josh Lipton for the next half hour.

We're going to be breaking down the trends of today that will move stocks tomorrow.

Here's a lot to take, keep track of.

So we're focusing on what you need to know to get ahead of the curve.

Here are some of the trends.

We're going to be diving into a tough day for tech.

The NASDAQ led losses today sliding nearly 3% nvidia meta alphabet and micros of all closing lower in the latest sign of a pullback from mega cap tech Bloomberg report that the Biden administration was weighing tougher trade restrictions on semiconductors.

Also hitting big chip names plus checking in on autos.

New car prices have decreased just 3% from last summer's record highs.

That's according to data from a copilot as higher rates continue to keep cautious and a recent cyber attack threatens to rock the industry further.

We're going to be monitoring the silver linings in today's auto markets and plugging into the state of game in Hollywood deals major acquisitions and the disruptive promise of A I all could have wide ranging impacts for video game companies and their audiences.

We're going to hear from the former president of Nintendo.

Later on in the hour, new data this week showed retail sales rose in June by the most in three months.

The only loser, the auto industry largely result of a cyber attack on CD K global uh software company.

Joining us now is Pat Ryan Copilot CEO founder, Pat is good to see you and, and maybe I'll start there, Pat, I'm interested to get your insight.

CD K just walk us through.

Um what happened there and what have been the ramifications, Pat you're seeing kind of still ripple through the industry.

Well, I mean, it really threw the industry back to the stone age in a lot of ways because with the the systems locked down, they couldn't do business the way they are.

These are typically their systems of record and as their systems of record, they're kind of the hub for everything that they do.

So uh like when you saw hospitals that couldn't access hospital records, same kind of problem.

Uh It really just, it, it was the perfect place to hit to cause maximum chaos in the largest, you know, retail vertical in the economy.

And, and it took uh put everybody back back to pencil and paper, you couldn't get data.

The entire industry relies on real time data to be able to know how to price cars, to be able to know how to market cars uh, you couldn't update your website, you couldn't get information to send loans to the banks.

I mean, it just gummed up everything and, uh, now it happened at a time that the market's been slowing but dealers fill out a lot of headwinds.

I think it really, uh, added insult to injury for, for people who are feeling that slowing from, uh, ra rising interest rates already.

Well, let's talk more about that pat.

Let you know, let's say you're a viewer.

Um, you're in the market now for a car and you got your eyes on a new car.

Uh, in terms of pricing pat, we tease, tease out a bit in the intro but just walk us through what we're seeing there.

Well, I mean, we saw something unprecedented during COVID, you know, we saw used car prices go up in ways that we frankly had never seen.

I mean, who, who thought cars were appreciating assets like stocks that was sort of unparalleled net peaked maybe a little over, you know, a year ago, it started to really accelerate down.

Um, the new car market, we went from 3.5 million cars on dealers lots before uh COVID started to a low of under a million but 900,000 cars on dealer lots.

And so that's all healed and as it's healed, the normal behavior you expect used cars depreciating, um, has started to happen, new car prices, you know, this, you're not seeing cars by and large sell at sticker or above in the same way they did before.

Um But that being said, you know, we had a structural increase in prices and that structural increase in car prices has left consumers with sticker shock because the average new car went up dramatically in price.

The average used car went up dramatically in price.

We're still up over 30% from PRE COVID.

So there's sticker shock for people have bought a car since before COVID.

And then when you add in that most cars are bought with financing about 80% of cars.

Uh And so when your car is bought with financing, uh interest rates go up and prices go up, that has a compounding effect that has really made them unaffordable, but it hopefully has achieved what the Fed wanted, which is to start slowing the economy and you're seeing it in car sales and you're seeing it in affordability, uh really having reached crisis levels and now starting to put downward pressure on prices finally.

And pat, let's say, um you know, you're out there in the market for a car, you're looking for a deal.

Uh You say there are some options including I thought this was interesting.

UDVS, yeah, you know, the, the, the big manufacturers saw Tesla and got a lot of Tesla envy and said, oh, we can do that too, but they really misjudge the adoption curve on consumers.

Um consumers between the concerns about range that need to have charging in a home, you know, versus if you live in a parking lot that consumers have really, um not been ready to adopt.

We got into sort of the high single digits of adoption and the mass market just wasn't ready.

And, you know, people like GM and Ford and a lot of the big European brands of events that we were ready to adopt.

Meanwhile, the Tota and uh Hondas of the world realized having dealt with the technology adoption curve before when they introduced hybrids 20 years ago, they realized sometimes these things take time to be able to move from the early adopter market which Tesla dominated into the main or, you know, the mainstream market.

And so the, the uh EVs are really been piling up on dealer lots that over 100 and 20 days supply a lot of great deals to be found there because they basically just out kicked their coverage in production.

And so it's a great time to be buying EV but ironically enough, it's a great time to buy an EV because consumers want hybrids.

It's a way to be green.

It's a way to be cost efficient um Hybrids.

I think the hybrids still run in hot pad.

Well, they're still not as hot as they were, but they're running hot.

Toyotas and Hondas are just popular generally.

So there's really a tale of two markets, you know, the ST anti dealers have dust on their cars and the Honda and Toyota dealers are still very hot, hotter than they were before COVID.

And, and part of that is, um, hybrids, hybrids are not as hot as they were, but they remain hot relative to the rest of the market.

All right, pat.

We're gonna leave it there.

Thank you, sir.

I appreciate your time today.

Thank you.

The rotation out of high flying tech stocks continues concerns over risk to tech names.

Eclipsing high hopes for fed rate cuts.

Yeah, finance his very own.

Josh Scaff joins us here with more on the trading day takeaways, Joshua.

Yeah, Josh, we got to start with tech.

That was the big story of the day.

So I'm gonna flip over the Wi Fi interactive here and take a closer look at what we saw.

So as you mentioned earlier in the show, we obviously had that report out about the Biden administration, potentially putting stricter restrictions on what would impact a lot of ship makers business with China.

You can see here, it really took a lot of tech too, but specifically when you take a look at the semis, I mean, it was really a bloodbath in there.

It was not good for the semis today.

And I think the interesting thing is just how that sort of impacts the overall index.

Now, we should mention this happened right around this time last year, there were reports too about NVIDIA potentially having trouble in China.

And if I pull up the NVIDIA chart and we go back a year, I think we'll be able to see it.

If we go back a year, you'll see that you've got to pull back last August a little bit there and then end up rallying back out of it.

And really what that was was earnings and we're coming up on big tech earnings.

Right.

So we had a big tech sell off today.

We know there's been that rotation out of tech, but you sort of have the fundamental driver of this rally still coming at some point in the next couple of weeks with earnings and video doesn't report until the end of August.

So it'll be interesting to see sort of how these stocks trade going into earnings.

We know they're up a lot, but there will be kind of more fundamental backing coming at some point.

Yeah, because s mh, I mean, the ETF that tracks the chips, you know, it slipped today.

But it also, I mean, when you pull back that chart, Josh, the move even to after today, I mean, it's like 45% this year, right.

We're, we're talking about stocks, stocks that are mostly up over 100% this year, over 100% in the last year.

Having a 5% fall back.

There's still some serious gains there.

Right.

And then the other side of this though was, it wasn't really a bad day everywhere.

And I thought this was interesting.

I was taking a look at just the sector action today.

And when you look at what we had throughout the day, I mean, you have five sectors in the green eight sectors, outperforming or sorry, six sectors in the green eight sectors, outperforming the S and P 500.

But this is your big one, right?

Tech falls almost 4% and you have communication services falling 1.5%.

These are the bigger sectors in the S and P 500.

So we talk a lot about this rotation, right?

The rotation out of tech into a lot of these names.

But I wanna pull up a chart for you.

So we just talked about something like energy, something like utilities, right?

When we look at the weighting of the S and P 500.

So this is how much it contributes to the index, look at how big tech is.

So if tech falls almost 4% it's a tough day for the S and P 500 to set a new record.

And I think that's kind of the trend to focus on moving forward here.

And we keep talking about this rotation.

That means it's probably gonna be a slower chug higher for markets when the big companies are doing really well.

You have what we had to start the year.

Now it's gonna be a little bit of push and pull.

I think, which would be more interesting to follow with, with what work today did you see?

You got any threads connecting?

What, what worked?

Yeah, I mean, when you take a look at the sectors largely it was still the rates trade, right?

You have a lot of interest rate sensitive sectors in the green.

Here, you have sectors that have underperformed Excel, re consumer staples, healthcare all haven't been great sectors, performance wise over the last two years.

So to see them sort of keep outperforming, I think shows perhaps people still looking for laggards, right?

And a a final point on this Josh, that I thought was interesting that Callie Cox brought up uh to me over at real wealth management.

She just said for index investors, it's important to remember on days like this, how much you've gained already from Big Tech over the last two years, the index is up about 18% this year.

That's a pretty good year.

So if we just kind of do this teetering and tottering for a couple of months, you're still sitting on 18% gains, which, you know, isn't all bad.

All right, final, final Trump trade signs of the Trump trade, right?

We've been talking a lot about it and I thought this was an interesting one.

So, Eric Wallerstein, the chief market strategist over at Yardeni research highlighted this on X today and he said this is sort of one part of the Trump trade.

He's been watching.

So we're looking at Mazard and evercore, they're big players in M and A, you look at their stocks, they're up about 10% over the last five days.

Of course, the last five days is when we're talking about people feeling more confident that Trump might win this election and sort of markets pricing that in.

Well, this is one way to think about that.

If Trump were to come into office, the general theory goes m and a will be a little bit easier.

There will be perhaps less restrictions with the Republican uh in office.

And so you see a rally there, I think it, it will be interesting leading into November as we sort of get perhaps more confident or less confident with who's gonna be in office.

What starts to outperform in little pockets like this, I thought was kind of an interesting thing to highlight.

Yeah, it's interesting because, you know, elections coming up.

So everybody tries to sort of gain that out which I get and it's, it's a fun smart thing to do.

It's just so hard though Jack because even with the in the deal making, um you know, look, let's say, I mean, you have to give the edge to Trump advance right now.

And so you would initially think, ok, Republican, good for deal making.

But on the other hand, you know, Senator Vance, when he talks about Lina Khan, he has nice things to say.

So I, I don't that, it's just, it's tough to game out.

No.

Yeah.

And people often aren't.

Right.

Right.

When they try and guess what sector is gonna out?

Here's one for you, Josh, what sector outperformed is the same sector that we, the S and P 500 through the last three presidencies.

Give it to me.

Technology, that's a secular trend.

Right.

It didn't matter if it was Obama, if it was Biden or if it was Trump, it was just technology reading the S and P 500 higher.

You didn't have to think too hard about it.

That's it.

That's your portfolio.

There you go.

Thank you, Joshua.

Coming up.

The W NBA has reportedly agreed to $2.2 billion media rights deal but the questions still linger for the NBA rights and if Warner Brothers Discovery will be back in the mix more on that when asking for a trend returns, the NBA has reportedly agreed to terms for its next media rights deal and it looks like Warner Brothers Discovery's TNT network could lose out for more.

Let's welcome in Yahoo.

Finance's Alexandra Canal.

Hi, Josh.

Yeah.

And if this is true, it would be such a gut punch for Warner Brothers Discovery.

I mean, they have aired these NBA games since 1989.

They currently sell $1.2 billion that's going to expire though at the end of next year, which is why these new rights are being negotiated but Comcast NBC Universal, that's going to be a new player in there taking over some of these rights.

Now, the NBA is reportedly agreed to these terms.

Not only is that Comcast NBC Universal Disney's ESPN, which is a current media partner, they're going to actually increase the amount they paid to the NBA and hold on to some of those games and playoff games.

And we also have Amazon Prime video coming in there as a new sort of tech presence for the NBA.

But where the discovery they still the option to match these offers.

And that's something that we're currently waiting on.

Uh We did speak with a rich Greenfield from late she partners about what could potentially happen.

I want to play a little bit of what he had to say earlier today, but I don't believe that the Warner Brothers really wants to spend 1.8 plus billion dollars on a rights package for a much smaller package with less playoff games than they have.

Now, uh I think the reality is, look, there is AAA pretty vicious debate among investors is losing the NBA catastrophic for WBD because they're at risk of getting dropped by distributors, whether it's a youtube TV or a Comcast, will this sort of be the end of, of carriage for this company or at least a significant haircut to carriage or is saving a billion plus dollars a year?

They currently spend about a billion, three on the NBA.

So that's the big debate here for Warner Brothers.

Discovery is it actually better for them financially if they just take a step back because they have been doing other types of rights deals with college football, we have the UFC rights coming up.

Maybe that's something that they go after more aggressively as well.

So that's something that Rich Greenfield said is going to be uh big determining factor moving forward is what are these other rights that they could potentially gather that could stem some of the bleeding if they were to lose NBA.

Of course, there are other analysts out there.

Uh uh Pete Zino from Wolf Research said that warm discovery could lose $600 million yearly in profit if they were to lose the NBA.

So it's one of those things where it's going to be a wait and see to see how this is going to affect the company's bottom line.

So that's NBA W NBA also making some headlines, right?

So this is part of this NBA deal and they're going to be getting paid.

The league will reportedly receive about $2.2 billion over the next 11 years.

And media rights with those same companies.

We were talking about Disney NBC and Amazon and we do know that the W NBA, it's certainly gained some positive recognition.

Recently, you have big stars like Caitlin Clark coming out of the woodwork there and receiving some uh fandom and a a at uh during the games and the um season as well.

I did have the chance to speak with and, uh, and the NBA deputy Commissioner Mark Tatum about this, he said that the interest in the W NBA is actually also increasing interest within the NBA as well.

So it's this ecosystem that they think is incredibly important.

So I'm sure the W NBA is going to continue to gain traction as well.

All right, thank you all.

Appreciate it.

Of course, moving on, it's been a difficult landscape for video games over the last couple of years with big layoffs across the sector.

But there have been some positives too, increasing popularity with TV adaptations like the last of us and fall out, bringing relevance back to game franchises.

For more on the industry.

We're bringing in Reggie fees.

Ame, former Nintendo of America president and coo and author of this in the game from the Bronx to the top of Nintendo, Reggie.

It is good to see you.

I thought Reggie um Beatrice are kind of big picture, you know, the the gaming industry, Reggie, we know during the pandemic, everybody's at home.

It booms.

But as we spin forward here today, Reggie sitting here July 2024 how would you kind of grade assess the health of the industry, Reggie?

How, how strong, how healthy, how resilient does it look to you?

Sure.

Well, first, thanks for being with you, you know, I think it's important to put this into context.

The overall entertainment industry is large.

It's a significant part of the global economy and gaming is the biggest part of that.

It's a $200 billion business today.

It's bigger than streaming, bigger than the movie box office across the globe.

3 billion people play video games.

So it's still large.

It's still vibrant and as you said, it did spectacularly well during the pandemic and then contracted slightly following it.

And I I think it's important to understand why you had significant investment leading into the launch of new machines by Microsoft and by Sony, you had essentially free money.

So game developers were creating a plethora of content and candidly some content that probably shouldn't have been created that hit the marketplace and it, it candidly just didn't do very well uh in 2003.

So the market contracted where we are today.

I I would say that the the games industry overall is poised for an upswing just this past month.

Uh late last month.

There were a number of game announcements across the industry that consumers reacted really well to.

These are new games coming later this year.

It's games that are coming uh in 2005, there's new platforms coming uh namely from Nintendo as well as rumors of uh an adaptation to the PS five coming.

So there are a lot of positive things that signal that we've essentially gone through the trough of the video game industry and now we're, we're poised for, for an upswing.

I'm interested, Reggie.

Um, when you look ahead, listen, there's a lot of companies betting big on Vrar mixed reality headsets as ways that they think people are gonna really love gaming in the future.

Do you, do you believe in those platforms, Reggie?

You think they'll prove really popular with gamers?

You know.

So this is where I I take very much a contrarian point of view, you know, a Ar and VR especially uh VR has been an area of the business that people have talked about that are gonna be, you know, that it would be huge, that it would bring in a completely new form of entertainment and candidly, it just hasn't happened.

If, if you look at the overall sales of headsets, it actually peaked a couple of years ago.

And that's despite of the latest meta quest coming late last year as well as the launch of Apple's Vision Pro this year.

And so you have to ask the tough question, why, why is this part of the, the business stagnant?

And I would say that first, there really aren't great experiences that motivate you to go out there and buy a headset and to keep using it.

And that's critically important.

And then given the lack of great applications, you know, the the headsets are, are perceived as incredibly expensive.

The vision pro is an eye watering $3500.

The meta quest three is about $500 which is about the same price as a PS five or an Xbox series X that has a ton of great games for any type of player.

So you know, the especially the VR space is in a very difficult place right now.

I'm not super optimistic unless there comes AAA number of really great pieces of content that motivate the consumer to go in and buy.

What about Reggie?

There's some excitement about cloud gaming.

I know nascent now is an industry, but you think that's a technology that investors and gamers are gonna be excited about looking out.

You know, I I think that cloud can be a very interesting technology but I want to be clear, it's, it's just a a technology, it's just going to be another way that consumers can get access to games in the end.

This is an industry that is driven by content and when you look at great content that's coming, there are a number of great games that were announced that are coming later this year.

There's a new Zelda game, for example, where you actually get to play as the Princess.

There are a great new editions in the Call of Duty franchise next year in 2025 there's a new Grand Theft Auto uh game that's coming that's generating all types of, of buzz and, and uh anticipation by the gamers in the end, you know, if these games are made available through uh uh a cloud type based system, that's what's gonna drive cloud as a platform and as an industry, it always comes down to the games.

Let me ask you this quickly, Reggie, I gotta ask you, you're a veteran of this industry.

Is there a game you're playing now, Reggie that you're a fan of, you know, so here's what's interesting.

I, I think in terms of what's happening right now, I, I think there's three different types of, of games out there that are doing really well.

There's a bunch of Sequels that are out in the marketplace right now.

There's uh uh uh a New Hell Divers that's been in the marketplace for a couple of months.

It's doing really well.

There's a new Hell Blade that's doing well.

There's new content for a game launched in 2022 that's called Elden Ring that's doing really well.

There's great indie content out there.

There's a game called Animal.

Well, that's doing well in the marketplace.

I think you've got gamers like me that uh that play a game to its fullest level of completion.

The game that's candidly taking up the most of my time.

It's a game that was launched a year ago and that's the, the legend of Zelda game for the Nintendo Switch.

So, you know, I, I think what's important about this industry, is there truly is something for everyone and that's what's gonna help this industry get out of its, uh, its doldrums from late last year, Reggie.

Great, having you on the show today.

Thanks so much for taking, making time for us.

Appreciate it.

Thanks, Josh.

Stay tuned more.

Asking for a trend.

We're on the other side, the Russell 2000 snap on a five day winning streak today.

The recent run up fueled by optimism around imminent interest rate cuts, but there's still skepticism surrounding small caps and their profit margins.

Joining us now with our chart of the day, Julie Hyman Julie and indeed, Josh, we've been talking to people who like small caps, right?

Sandy vary today, who we spoke to, uh, we spoke to Carrie Murphy of Castro who said, uh, she likes mid caps a little more than small, but we've definitely seen this big rally in the small caps.

Well, one of the skeptics in the longer term sustainability of this rally is Eric Johnson.

He's Cantor Fitzgerald, Chief Equity and Macro strategist.

And he laid out his case in a recent note to clients here where he talked about, we're just not going to see their earnings growth and he says valuations are uh pretty elevated here, particularly for the Russell two.

He also talked about profit margins for the Russell 2000 and you see her a 10 year chart of those profit margins as he pointed out, they've kind of been trending downward as of late and not only that.

He says the 10 year average, he said is unremarkable.

He said profit margins have been falling and now unremarkably in the middle of a 10 year range.

And so you see this is the 10 year average and indeed, we're sort of bumping along those levels right now.

So he doesn't think the recent rally is justified.

One of the other skeptics that we've heard from is Savita Subramanian of Bank of America.

Our Josh Schafer sharing the comments with me that she made about small caps where she pointed out around a third of the Russell 2000 has unprofitable company.

So if you're looking at them as a whole, it's a tough bet to make rather than if you're doing some stock picking.

Then of course, Ed Yard Denny, who we talked to earlier today, Josh talked about that.

Maybe some of the rally that we are seeing is short covering.

And for that reason, he too seems to be a bit more skeptical on the small caps for sure.

Ok, Julie, thank you.

Now, let's take a look at what's trending here after our shares of Beyond Meat tumbling after hours, the plant based meat companies reportedly engaging with a group of bondholders about a balance sheet restructuring.

This according to the Wall Street Journal, Beyond Meat has run into issues as of late in its first quarter results, the company did post a wider than expected Cory loss an 18% drop in revenue companies volumes also fell more than 16% as consumers pulled back on spending.

That is a wrap on today's asking for a trend.

Have a great night.