Volatile week for stocks, where investors are buying: Catalysts

On today's episode of Catalysts, Co-hosts Seana Smith and Madison Mills dig into this week's market volatility, from jobless claims data to the yen carry trade unwinding.

The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) are reversing some of the gains made in Thursday's trading session as volatility rocks the market. Edward Jones senior investment strategist Mona Mahajan explains, "Markets have certainly calmed much more meaningfully over the last couple of days than we saw Monday and Tuesday of this week even... We've seen this week alone the jobless claim figures that came in below expectations provided a little comfort to the market that is really looking for direction on a couple of things. One, is the US labor market headed towards some sort of meaningful collapse or downside, and two, is the broader economy headed towards a downturn as well? And I think for us, both of the answers to both of those questions are no."

The tech sector has been particularly rocked by market volatility this week, yet Goldman Sachs Asset Management fundamental equity managing director Luke Barrs still sees opportunity. "Selectively, there's great opportunity across the broad market, but specifically in tech as well. There are some transformational themes that are coming through that are driving earnings," he explains. He adds, "When we come to technology, what is very apparent is not just the macroeconomic picture, but also the fact that people want to see... evidence that that gen AI trade is actually driving positive outcomes."

A global market sell-off occurred on Monday after the Bank of Japan hiked interest rates, which unwinded the yen carry trade (JPY=X). TD Securities global head of FX and EM strategy Mark McCormick believes that the carry trade unwind isn't over, explaining, "The structural nature of the carry trade is that for pretty much around the last decade, Japanese investors have put their money, mostly pension funds, which accounts for about 80% of GDP in other markets. So the assets that they're tracking in other markets are actually a big form of the carry trade."

Some retail investors used the market sell-off as a buying opportunity. IG Group North America CEO JJ Kinahan notes, "Every crisis... we've had over the last five years, where retail traders tend to start are two technology names, Apple (AAPL) and Microsoft (MSFT)." He adds that "Apple and Microsoft are going to be names that retail trades significantly anyways, but made up a larger percentage of trading on Monday and Tuesday, for sure, as people were looking for places to go buy."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Melanie Riehl

Video transcript

Just after 10 a.m. here in New York City.

I'm Shana Smith alongside Madison Mills and let's dive into the catalyst.

Moving markets today.

Stocks are taking lower after a week of turmoil just taking a look because stocks are now reversing earlier gains.

It's appearing like we're seeing a lot of pressure particularly in the big tech stocks is coming on the heels of that print from TS MC.

We see that stock now flipping into the red and we're seeing a similar pattern from a lot of the broader tech names including tech giant Invidia.

Also.

Now you see movement in treasuries, 10 you Hoing under that 4% mark is the rotation away from tech going to continue as we head to the close.

We'll discuss all of that throughout our show and the broader market sell off.

Triggering wild swings in the big tech trade this week.

Could next week's inflation report be the next week.

Catalyst for the group, we talk to bars.

He's from Goldman Sachs Asset Management about that in just a few moments and big reactions from global markets on the back of last week's manufacturing and jobs data.

Next week, the inflation, retail sales reports out will be the next big test for markets.

We discuss what that could look like moving forward.

The first, let's take a look at where stocks stand right now.

You're looking at downside pressure in the S and P and the NASDAQ again, as I mentioned, reversing some of the earlier gains that we saw with red across the board and NASDAQ are moving to the downside.

As I just mentioned, it's been a roller coaster ride for equities throughout the week with the S and P noting its worst day since 2022 on Monday and then it's best day and about the same time period, just a few days later on Thursday.

So where do we go from here?

Joining us now for an outlook on the market?

We've got Mona, she is a senior investment strategist at Edward Jones mo.

It's, it's great to speak with you.

I know that the choppiness here is not over and that's evident given the flip that we've seen the market do just 30 minutes after the open this morning.

What is today telling you?

And what do you think the narrative will be as we had to the close today?

Yeah.

Uh It's a great call out and look, uh markets have certainly calmed much more meaningfully over the last couple of days than we saw Monday and Tuesday of this week even.

Um And keep in mind, look, we've seen this week alone the jobless claim figures that came in below expectations provided a little comfort to the market that is really looking for direction on a couple of things.

One is the US labor market headed towards some sort of meaningful collapse or downside.

And two is a broader economy headed towards a downturn as well.

And I think for us, both of the, the answers to both those questions are no and what we're seeing in the labor market and we'll get the next job support on September 6th is yes, it's cooling 4.3%.

Uh 4.3% unemployment is higher than we've seen any time this year.

Uh But much below the long term average of about 5 to 6 UN unemployment rate in the US.

And keep in mind this higher unemployment has come because new entrants are entering the workforce, not because we're seeing job losses and layoffs.

And so to us, it's a much more benign environment.

We don't see a recession on the horizon.

And in that backdrop, if the fed is cutting rates and there's no recession that tends to be pretty good for financial markets over time.

So the mo what's going to be the catalyst because it seems like investors did overreact a bit.

Maybe there's not too much to be worried about, but in terms of reassuring those sept investors because we are talking to so many strategists over the last several days.

And they've been saying, hey, many, it's smart to stay on the sidelines right now.

So what is that?

Maybe one or two data points or one or two readings that investors should be looking for in order to gain that confidence.

Yeah.

You know, look, we have talked about the next job support on September 6th.

Uh, we would really like to see that unemployment rate stabilize.

We'd like to hear more about what's driving the higher unemployment.

And then of course, we're looking at GDP growth and earnings growth as well.

So GDP growth, if you look at something like an Atlanta GDP now, which forecasts third quarter, they are calling for 2.9% GDP growth well above, of course, uh positive territory and well above even what we call trend growth rates of 1.5 to 2%.

And then more broadly earnings, we know earnings underpin the stock market.

And right now, we're seeing 10 to 11% earnings worth for this quarter and notably still for the full year.

Um So this is a market where we will continue most likely at your point to see choppiness, we're heading towards a more volatile September and October period, um traditionally more volatile in the markets.

And of course, then we're headed right towards election.

So could we put in a bottoming process during that time?

Absolutely.

But what investors really want to be mindful of is that is your opportunity if you haven't yet looked at your portfolio, make sure you're diversified if you haven't rebalanced and really if you haven't bought quality investments in a long time because you've been waiting for the opportunity.

Uh This is a great time to think about that as well.

I'm torn on my next question for you because you just mentioned that we're in this kind of seasonally difficult moment, but also you got to look for quality and, and I, I don't know whether I should be viewing this moment as a head fake where we're stressing out and it's not that big of a deal because this happens every fall or if it's something more sinister that does require a rethinking of people's portfolios.

Yeah.

You know, it's a, it's a good question and probably something a lot of investors are debating even today.

Um You know, when we think about a bear market, a 20% plus decline in the stock market, those usually happen for a few reasons.

One, we're in a recession or entering a recession.

Two, the FED tends to be raising rates when we're in a bear market or three.

There's this unknown, unknown factor, whether it's a geopolitical risk or something like a pandemic, much harder to handicap that uh third one.

But the first two is really environments.

We don't see as our base case as of now as we talked about, we don't see a recession and the FED is actually going in the opposite direction.

We think, in fact, they'll start signaling rate cuts perhaps as early as the Jackson Hole meeting on August 22nd.

And so that's why we think this volatility, we know corrections are the norm 1 10% to 15% correction can happen in any given year.

Um But we don't see that turning into something more nefarious to your point.

And mona real quick, when you take a look at tech specifically, we're gonna talk a little bit more about this later in the show.

But, but when you see the type of reversals or wild swing specifically within the leadership that we had seen for so long within the market, what does that tell you just about how much jitters there are in the market?

How, how much investors are on edge?

Is there something more broadly maybe that we should be taking from those wild swings?

Yeah, you know, look, we know mega cap technology has moved perhaps too far, too fast.

In the first half of the year, the NASDAQ was up almost 25% through mid July.

And that magnificent seven was up closer to 40% valuations were probably extended and were they due for a bit of a pull back or at least a correction or period of profit taking?

Probably yes.

But when we think about the theme for portfolios, um the theme for the last, you know, 18 months or so had been narrow portfolios are winning.

Um You had to be focused on tech, more concentrated and overweight there.

When we think about the next 12 to 18 months, we think the theme and the winning portfolios will actually shift to you need, you need to be diversified, that doesn't mean wholesale up on your technology.

But you need to make sure that you have value in cyclical parts of the market, perhaps some mid cap stocks in there as well.

A little bit of international exposure and that we think will be a more winning portfolio.

So that's really where you want to make sure as we're headed in, especially towards a rate cut by the fed that you're looking for a diversified portfolio in your own investment investments.

All Mona Mahajan, always great to get your insight.

Thanks so much for joining us here.

Thanks so much guys, senior investment strategist at Edward Jones.

All right, turning now to more about the tech sector because you've got NVIDIA and Taiwan semiconductors reversing some of those earlier gains, at least NVIDIA.

Now, just below the flat line, you still got a Taiwan semiconductor holding on to those earlier trades.

And as you take a step back and try to figure out where Wall Street stands right now overall on the tech sector and especially the wild swings that we see played out in the market, it seems to be that Wall Street is split on where the sector is headed from here.

So here with who has been tracking every move.

What analysts are saying, strategists are saying we have our very own, Josh Schafer and Josh, you're looking at two notes, right?

And they kind of contradict themselves a little bit.

They do.

And I don't know, I just think chips have been the most interesting part of the market.

Probably this week.

The swings have been insane.

You're looking at NVIDIA down 8% 1 day, up 8% another day, basically opposite every day and sort of the overall chip sector doing that.

And two notes caught my eye this morning out from strategy.

So Michael Harne over at Bank of America saying that he still think that leadership of A I is going to continue to wane over the next couple of months into the second half of the year until eps gains more visibility.

So him essentially saying yes, these estimates for some of these stocks in the A I trade in the magnificent seven trade have held up these earnings estimates.

But is that actually going to come to fruition?

He wants a little bit more evidence before feeling confident in the A I trade.

And then there's sort of the other side of this which is simply tech just got its face ripped off over the last month and maybe that's a trade that you just want to get into because it's been a leader of the market.

So our friend Keith Lerner over at Truist had downgraded tech in June after tech had outperformed by a significant amount, he was looking at a one month rolling average of tech versus the S and P 500 in June.

Tech had absolutely ripped.

So really the key takeaway here is at the end of that chart where you see greatest in 20 years, worst in 20 years.

That was back to back months.

You had massive of tech out performance.

And Keith said I want to take some chips off the table.

Now you have massive tech underperformance.

And he's saying, OK, maybe this is an interesting entry point, he timed it well and he points out in this note.

Yes, of course, Keith Keith did time it.

Well, Keith is a friend of the show.

We got to point it out when Keith times up.

Well, but he also pointed out in that note and I think it's important to mention he's not saying that he's, you know, calling bottom on the tech sector and it's going to just definitely go up from here.

He said he's still expecting some chop in the overall market and maybe some chop in the tech sector.

But when you have a sell off like that in a sector that has been a secular leader of the stock market, maybe it's time to up your position a little bit.

And to your point that you mentioned earlier, it does sort of feel like right now you can't be calling it tech broadly and applying the same kind of investment thesis across the board.

It feels like there's chips, there's NVIDIA specifically, there's the hyper scalars, there's the other big tech and many A I plays.

It feels like you can't kind of rest on mentioning A I A certain number of times in your earnings anymore.

No.

And when you look at the market over the last week and yes, like the NASDAQ has been a big mover to both sides, right, Mattie, but you just mentioned it when you look at the mega caps, they've been moving a little bit differently.

You're seeing dramatic moves in NVIDIA and perhaps less dramatic moves in some of the other names.

The constant reminder, we always bring up that these are different companies that actually sell different things.

And so the story isn't really the same.

I don't know, I think it's gonna be interesting though over the next two or three weeks, we're still several weeks out from NVIDIA earnings.

And I know you guys have been asking strategists as well.

What's the catalyst?

How do we know when, when it might be time to get back in?

It seems like that just isn't a clear picture for another couple of weeks, right?

Like we're sort of in this middle ground and selling video earnings.

Well, exactly.

And, and I think that that also has largely been the consensus, right?

When you take a look over the next couple of weeks, it's hard to identify what exactly would be the catalyst, at least in the short term.

But people are remaining optimistic maybe about what in results are going to tell us about the broader space.

So we'll see, imagine if they disappoint.

Oh, no, then I'm going to be, remember last is my bet with Josh last earnings season.

We talked about how in video is going to drive the market and their earnings are going to matter so much they beat and it didn't do that much for the market.

If they miss, I would say that would be a pretty negative catalyst.

It would be a bad time for them to finally disappoint in these.

Yeah, exactly.

Plenty of time to talk about it.

There is a lot of time to talk about it.

We're gonna spend even more time talking about tech.

All right, Josh, thanks.

Well, the mass that we saw this earlier this week allowing some of that frothiness that's driven the market gains this year to subside.

So it is now the time for investors to buy into tech at more attractive prices or does it make sense to stay on the sidelines?

We want to bring in Luke Bars.

He is the managing director and fundamental equity at Goldman Sachs Asset Management.

Luke, it's great to see.

I think so many people are trying to figure out what they should be doing what the approach should be when it comes to tech right now.

Do you think it's more attractively valued or how should investors be buying in at these prices?

Well, I think our starting point is selectively.

There's great opportunity across the broad market, but specifically in tech as well, there are some transformational themes that are coming through that are driving earnings.

There's no doubt there was a bit of froth in the market and what we've seen in the last week or so is a correction that is, I think in many cases quite healthy.

But if we're finding where those fundamentals are still resilient, and we're looking at how the market is trading in the last couple of days.

It's really coming back to where can I find that earnings growth?

Where can I find that cash flow generation and profitability?

And I think for us now there are some select opportunities that we think are quite appealing.

We were just talking about how you can't be looking at all the tech names as a monolith.

And I know that you in particular are trimming your exposure to hyper scalers.

Talk to me about what long term narrative that call is based on.

Yeah, so I think your first comment is critically important.

I think we've just looked at technology and assumed everything is homogeneous when actually there's huge underlying trends and themes that we need to decompose.

And so for us, the gen A I trend is a very transformational one that has been rewarding to some of the enabling technologies in the course of the last 18 to 24 months.

And you've seen that crystallized into significantly higher earnings expectations and outcomes.

What we're seeing now is a little bit of an adaption in hyperscale Capex trajectory.

And so we still see a lot of investment coming from those hypersal into chips and into the A I trend, but it's just being a little bit more thoughtfully delivered than it may have been over the last 12 months.

And so where we're trying to be selective is if we haven't seen that pull back in valuation, if we're not seeing necessarily the normalization of that Capex cycle that we think is healthy, we just need to be a little bit more cautious but still selectively trying to find exposure that we think can deliver good upside on a 4, 12 to 24 month basis.

When you take a look at the volatility that's played out more broadly speaking here this week.

But, but it's been very noticeable even within the mag seven name specifically in video, it seems like every other day it's either down 7% or up 7%.

What is that?

Then?

Tell us maybe about the expected volatility that we could see as the market remains so dependent on some of those uncertain factors and a lot of that surrounding the econ data prints and what exactly that tells us about the fed.

Yeah, so I I think there's two critical parts of this one is just the market had to absorb some negative macroeconomic data points that changed the direction of travel or at least the pace of travel for the FED.

And so that was a bit of a whips or effect.

But once the market recognized that actually we're on a, a cycle where the fed is going to be normalizing rates, it might be a little bit quicker in the next three or four months than maybe was expected 10 days ago.

But that cycle should be favorable in terms of just maintaining growth at a relatively stable level and helping to positively influence earnings over the coming year.

Now, I think what is important within that as we look at it more broadly is saying, ok, well, what else is important within this, that the market is focusing on?

And when we come to technology, what is very apparent is not just the macroeconomic picture, but also the fact that people want to see.

And I think Josh mentioned this a second ago evidence that that gen A I trade is actually driving positive outcomes and where the market has struggled a little bit in the last month or two is show me in the software space where you have clear proof statement, this is additive and so show me where you're putting that capital investment to work, that I can deliver a positive earnings outcome.

And that is a little bit more difficult at this point because we just don't know how to utilize and apply some of those new techniques and capabilities in those software products to enhance that solution.

Luke, what do you look at to suss out the answer to that question?

Look, I think it's a very, very difficult question to answer and I think the simple statement would just be we have to just be cautious and let it play out over the next year or two because it's very hard to say with certainty.

This specific business has a solution.

This specific business doesn't, but you'll get more evidence as we go through.

I think our starting point is those businesses with very large market share will likely be able to maintain that market share as long as they stay up with the pack on some of those gen A I capabilities.

And so the question then is how much are they having to spend and invest and how attritional is that to margins and earnings and to the extent that they can do that in a balanced fashion?

Actually, those major software businesses still look fairly attractive.

Luke, we've talked a lot about tech, I'd be remiss to not get into your small caps.

Call with you.

You talk about some, you have some bullish sentiment on small caps.

It seems, does your view on small caps require a certain amount of speed from the Federal Reserve in terms of rate cuts?

Well, it's predicated on the view that the US economy is still still fairly robust.

Yes, we will see a little bit of a normalization in growth.

We we saw this 2.8% annualized growth trajectory and that will come down a little bit.

But our current activity indicators still say tring out at 1 to 1.5%.

So this is still a soft landing scenario.

So the fed dynamic is going to be one where there's a little bit of extra flexibility the FED has if that growth cycle comes down a little bit more significantly.

But we think the underlying trajectory for small caps, which is tied into the US domestic economy is driven very favorably by what will be a rate normalization cycle.

And now whether that's 5075 or 100 basis points over the next three or four months, I think is going to be data driven for the FED.

But we know the trajectory we're likely on.

And what I would say is for small cap specifically, you have a very clear history that from that point of peak rate following that first rate cut the next 12 months, you typically see 10 to 15% out performance of small cap versus large cap in principle, because one you are seeing that positive impulse of monetary policy, but also because these are businesses that are tied to floating rate debt.

And so that normalization of rates is very healthy in terms of margin and healthy in terms of passing through into superior earnings.

All right, Luke Bars.

He is the fundamental equity managing director at Goldman Sachs Asset Management.

Luke thanks so much for taking the time to join us.

Thanks guys right here on Yahoo Finance.

We got much more of your market action ahead.

Again, we take a look at the major averages.

We been trading almost seems like with lash at this point up and down here when it comes to the black line, you've got the dow just below the F line of just about 72 points.

You got the S and P and as that back in positive territory to be now, just above the fly line got much more when we come back.

Let's get a look at some trending tickers on this Friday morning.

You're looking at shares of rocket lab right now up over 11% rising after they completed a successful engine test of what they call a hot fire of its new rocket engine.

That is I guess code for a test of the engine here.

Now this comes also as their results for this quarter.

We're looking good led by strong demand for its launch services and space systems products as well.

Just some of the analyst commentary, I'll start with city here.

Same production and launch infrastructure for the program continues to fall into place and there appears to be plenty of pi pipeline for the rocket.

Also again noting that hot fire test of the engine being successful and indicative of successful launches moving forward here.

Also, interestingly, just looking at the numbers revenue was up 71% year over year, just growths margins came in just below expectations.

But looking at that top line revenue number, it looks like a good quarter for them.

You know, it's like they might expect to see a bit of an improvement on that adjusted gross margin, but going back to the hot fire test because right before we were coming to air, we were supposed to be talking about this and I was asking what the heck a hot fire test was in case you don't know it's to evaluate an engine's performance and also obtain information that can help it achieve certifications and type approval.

So obviously, that's very critical to this industry and why this is ha is having such a massive impact on the stock here just in terms of what ultimately this means.

No.

So just ties back to the city comments, Mattie that you were just suggesting or you were just saying there which suggests that there's plenty of pipeline here for the rockets.

So again, this is a bullish sign here for rocket lab within this race trying to best position their company amidst all of this.

But again, shares moving to the upside just about 11%.

And like you mentioned, the numbers actually for the second quarter, they were impressive, especially on a year over year basis.

They're just an Ebola loss also just around 21 million.

All right.

Well, shares of Sweet Green on the move today, they're rallying this morning after the company increased its revenue and same store sales outlook for the year, same store sales increasing 9% from just a year ago.

Yahoo Finance is Brooke Dipalma joining us now.

And Brooke, you're looking at shares of just about 28%.

Yeah, lots of excitement and momentum on the street as this fast casual sector continues to outperform what we're seeing is a very challenging restaurant landscape.

And investors really focusing on that same source sales growth of 9% in Q two.

That was the best in two years.

And now that gives the company confidence to raise the same source sales outlook for 2024 now is expected between the range of 5 to 7%.

That's up from 4 to 6%.

And there's lots of excitement around this future restaurant design, sweet Green, calling it the Infinite Kitchen.

And what we're seeing there is seven new Infinite kitchens will open Q three or Q four of this year in addition to retrofitting 2 to 3 restaurants, and that's a part of a total expectation to open 24 to 26 net new restaurants in 2024 by year end.

And now the based upon this Infinite Kitchen, they're seeing strong performance and an increased speed of service during this quarter, they did open one here in New York in Penn Plaza.

That's a hub for transportation here in New York.

And they say that this infinite kitchen has the potential to reach 500 bowl orders for an hour and the average order completion time is just under 3.5 minutes.

So it really increases the speed of service menu innovation.

Also a huge plus for sweet Green here.

They introduced that caramelized garlic.

See, and what they're seeing here is that's bringing in new gas, increased traffic, higher check sizes.

JP Morgan analyst says that this reaffirms the standing as the company steadily rebuilds credibility after a tough post COVID and post IP O environment, they are still lower than the IP O price that they debuted at of $52 a share.

And so lots of momentum here, Sweet Green, really putting into action to really turn things around here.

All right, Brooke, thank you so much for joining us on that.

And we should also mention stay tuned for Brooks interview with Sweet Greens CEO coming up at 4 p.m. Eastern today.

You will not want to miss it.

Another trending story that we are watching here in the health care space G LP ones, a key driver of the broader health care space.

This earning season companies like Eli Lily and no, no showing the demand for weight loss treatments does remain strong.

Yah who find in the senior health care reporter on Clan joins us to break it down.

And actually, I think for me, what's been interesting about this is that it's not all GP one providers created equal.

This cycle feels like there have been some key winners and losers.

Yeah, this is the first time that you've seen this sort of a little bit of a difference between No, no and Eli Lily, the two market leaders Novo while it did beat on its earnings, it did miss some of the sales estimates as well as downgraded or trimmed a little bit if you will, it's operating margin for the year, but it did increase sales as well as Eli followed suit in that respect, but they increased on both sides.

So we're looking at what that means for the future of the market and how that really shapes the race ahead, Lily coming out a little bit stronger in a number of ways.

First, of course, with the increase sales that found its weight loss.

GP One really climbing already reaching Blockbuster status after just two quarters on the market, it also li is also moving ahead with its application or at least slated to move ahead and indicated all it's on track for a submitting that bound for a heart failure to help treat a heart failure.

No, on the flip side, having to delay their filing even though they were slated to be first to file.

So that's just sort of the shift you're seeing.

It seems like you know, Lily also getting their drugs off the FDA shortage list just being really a big boost.

So we had one day where Novo came out in the market was kind of like, oh God, what's going on?

And then the very next day everything was settled, doubts are gone.

But what I also want to take a look at sort of like a six month check in if you will of the rest of the candidates that are coming down.

The at the start of the year, we had companies like Pfizer, Amgen and Roche really looking like they were going to take a good stance in the market.

Pfizer however, has been slowing down its prospects decreasing as it ran into some trouble with its drug, the oral G LP one that it is now in clinical trials with it still figuring out the dosing for its once daily and it had a twice daily that didn't have good tolerability.

So they're moving a little bit back in their pacing.

Meanwhile, moving ahead with its once monthly, potentially injectable, that's in the phase two and going to be going to phase three trial soon.

That's something that could be a good market contender.

And then you've got Roche, which entered the market with the $3 billion deal, acquiring a smaller biotech that had a couple of candidates looking pretty good there.

So they're still in the game as of right now.

And then there's Viking the little biotech that came out of nowhere with a really strong result, still having to end phase three trials.

And that's one of the ones that, uh you know, a lot of folks are still focused on whether or not it can make it to the finish line on its own or ends up being an acquisition target.

If you look at its stock, it's up 200% year to date.

So that's really quite a move and that's because of the great results we saw at the start of the year.

So that's sort of how the market shaking out right now.

If you look at sort of the competition is, I had a chance to catch up with Jared Hols, Mihos, health care sector expert and we talked about sort of that hiccup we saw in the middle of the week between Novo and Lily saying that, uh you know, Lily's results are a reminder that it's silly to look at either of these names on a 90 day basis, which is what we do in the market, especially because this market is north of 100 billion.

So we're going to need more of those contenders to come in to really see how it plays out.

All right, uh Julie, thanks so much for bringing us that reporting and for all of your coverage on the health care space throughout the earnings cycle.

We do appreciate it.

We're gonna have all of your market action ahead I was just taking a look at what we're seeing in the Treasury space.

We are seeing the tenure in particular under pressure this morning, a little bit of a bit up in bonds could be why we are seeing the market flipping around so much.

We take a look at the S and P and the NASDAQ right now.

You are seeing some mixed performance across the major averages here, but as you can see there in that 10 year under a little bit of pressure and looking at the S and P and the not that covering just around the flat line there, dollar yen is on track for its first week of gains since June, the unwind of the carry trade that drove part of the market sell off.

We've seen has slowed throughout the week that slowing coming on the heels of better than expected economic data and do commentary from the Bank of Japan.

So the big question, will the slow down of the unwind continue here?

Joining us to discuss.

We got Mark mccormick, he TD security, global head of FX and em strategy.

Mark Great to have you as always.

So you, you talk about this in your note, you said that the boj pivot has likely ushered in a regime, a regime change for the yen given that, do you think the unwind of the carry trade is over for now?

I do not think the uh carry trade unwind is over I think we have a long way to go.

I, I think you need to think about whether it's kind of tactical and the structural nature of it.

The structural nature of the carry trade is that for pretty much around the last decade, Japanese investors have put their money, mostly pension funds which accounts for about 80% of GDP in other markets.

So the assets that they're tracking in other markets are actually a big form of the carrier trade.

It's hard to say this is yen specifically, you know, they're betting on higher yields in other, in other places.

But a piece of this carry trade, if you look at the correlation of the NASDAQ to the YEN is the out performance of us equities and probably investments we have in Japanese pension funds into those us equities which have been very strong performers over the last five, 10 years.

So I I think a big piece of the un carry trade is it links together a lot of these different global themes, which is it was very, very easy to fund in Yen and it was very easy to find other places around the world that offered higher yield or higher growth.

And now the entire complex around that system is now starting to unwind.

So then mark, what kind of adjustments have you made?

Are you advising investors to make if the pain isn't over yet?

We've been talking about this for months like we have pushed back.

I think we had the same conversation probably in in April or May around the goldilocks trade.

To me.

This was um you know, you never know the catalyst but the conditions for volatility to rise, I I feel like is not very surprising.

Um I feel like what we're trying to do is piece together what caused this like us data slump thing I would highlight as well that if you look at Chinese data, it's slumping faster than US data and Eurozone data is also declining.

If you look at the uncertainty around the US election or geopolitical uncertainty, we had macro volatility basically setting back to levels that we were in 2021 after the world reopened from the pandemic.

So the levels that we saw in global macro evolve versus all the conditions that can change them.

It's always hard to get the precise trigger, right of what causes this thing to unwind.

But for me, it was very clear that the the thing that was going to happen is we're going to have a series of events that markets weren't expecting.

Namely uh we were looking for the the boj to hike in July.

This to me was a function of again that the currencies that are undervalued, that are short uh short plays in the Kerry basket or also the currencies that the US administration has called out on being undervalued, whether it be the Korean Wan, whether it be the Japanese yuan, whether it be essentially uh the Japanese Yen, these are all currencies that are fundamentally in value.

So I still think that the the drivers in place is, is something that we, we have a long way to go for the carried unwind.

And and we're probably in a new regime where again, the goldilocks trade is essentially fallen by the wayside is the Chinese yen.

The next carry trade unwind that investors should look out for.

So that's a great question because I think you need to kind of disentangle the correlation of the yuan versus the yuan.

They have rec correlated right now, they're being driven by similar factors.

So uh the Chinese yuan is a good funding for a carry trade.

And again, if you just think about what drives the carry trade of markets, why people love it?

It's very simple.

It's uh what you need is rate divergence.

So one country needs higher rates, another country needs lower rates and you need low volatility.

So you assume the conditions are not going to change.

Uh That's also what makes it very vulnerable to very violent drawdowns, which is what we've seen.

So what I'd say is the the coupling of the correlation between the Chinese yuan and the Japanese Yen makes sense because they are both funding currencies mechanically as we move uh out of what you would call, say the period of the next couple of weeks and into months.

And quarter.

I think they're going to probably recouple again because I think they're two undervalued currencies and I think they need to both be stronger.

But I think in the short term, the BOJ is moving in a, in a direction that's going to continue to tighten policy.

The yen is way more undervalued than the Chinese yuan.

And I think a big, big driver here is that Japanese flows uh or pension funds particularly have been pushing money outside of Japan.

They will be bringing money home, they will be resetting their asset allocation targets to buy more JG BS and buy more local equities.

And I don't think you have the same uh capital market mix in in China.

So that's where I do think we'll see divergence in the next couple of months as the Yen should outperform the yuan.

But I think if we measure this in terms of like over the next year, over the next two years, they should both be currencies that strengthen relative to the dollar.

So mark that was the comparison of currencies to ask you about.

But now I want to do a comparison of tech to currencies.

Uh If you're a tech investor, I feel like this week really had you looking at the dollar yen.

And I'm curious if the reverse is going to be true.

If, if we have bad invidia earnings, for example, does the yen appreciate off of that?

It's hard to disentangle cause in fact in all this because there's so many pieces II I think one thing that you could take away from the kind of the undermining of the N carry trade and where we see the end strengthening, where we see again the boj hiking and we see we're calling it panic, the government, the pension funds and the central bank now seem to want a stronger currency.

Uh The one consequence of this is if you think about where a lot of money has gone from Japan, you could track that money as well as it's gone into European bonds.

Uh They have picked up yield in France, they picked up yield and in other European markets.

So a consequence of these flows kind of repatriating coming home is one real rates go up.

So curves deepen real rates go up.

This is challenging for tech largely because tech is like premised particularly on easy money and and easy monetary conditions and low interest rates.

So I would say, you know, it could be either or like if NAVIDI is weak and that continues to see a further draw down of risk sentiment that would strengthen the yen.

But also again, the yen basically rallying because there's a repatriation of capital coming home and that's causing basically a trigger of interest rates to move higher, particularly real rates.

That could also be a catalyst that kind of provides the same outcome and sees earnings start to decline as well.

Yeah, mark to that point at the catalyst of all this, it seems to be this growth shock, right?

What does that then tell us about the wild swings or the volatility that, that, that we could then continue to see play out given not only uncertainty here in the US, but also just on a global scale as well.

It's a great question because I think investors have been just focused on the US and its US is slowing.

If you look at FED pricing for 2024 and 2025 the FED is supposed to be the most Dovish central bank in the world next year.

That makes very little sense to me.

Um Again, because if you look at like the impulsive data, we track and we run through our models and we trade in currencies um as portfolios.

If you look at data rises, data trends and you kind of look at the change in consensus growth expectations.

China is in a worse place in the US right now.

Um So you can't have the US slowing down China slowing down in Europe, essentially not growing that much, but coming from very low levels, the European momentum has already deteriorated as well.

If you look at just global manufacturing PM is essentially the global economy is now deteriorating.

So I'd say, you know, again, a big piece of this is that you can't have this risk on sentiment and low volatility with the uncertainty around the elections, the uncertainty around geopolitics and again, have an environment where we're moving away from carry trades.

That's just one that is not conducive to very low macro volatility in a weak dollar.

So I I think the global growth picture has to be taken in the context that if the US is slowing other countries have to offset it to allow sentiment to be stable.

So I would say again, what we're seeing is a marked slowdown in global growth expectations, which is not great for overall sentiment.

Mark the control room is going to kill me, but I've got 30 seconds.

I got to ask you about issue that we're potentially approaching.

If, if we see the dollar yen hitting around 146 is that a key level that we could see furthering the unwind and therefore leading to what might be another big sell off of stocks as we head into Monday, I'd put it this way.

I think the like fast money, the, you know, the positioning indicators that we track that could be kind of more hedge funds that are kind of taking very tactical views on this.

I'd say a lot of that carry trade is unwound again, the point that matters to me is if you just measure the carry trade through the balance of payments, you probably have $1.5 trillion.

Uh just on the Japanese side of assets that are in foreign markets.

So uh I would say yes.

Uh in a very short term period, I don't think the levels matter too much because again, I do think that the positioning market has adjusted a lot where our models are now along the yen that's probably squeezed out, you know, very short term uh sentiment, uh you know, like fast money chasers.

But I would say arguably, again, this is just the start of a move where if you just put it in this context, the valuation of our longer term dollar yen model tells us we should be about 120.

So in the context of 146 or we started at 160 there is a long way to go to price out the valuations in the end.

So I, I think uh yeah, I don't think it's going to have a very big impact in the short term because I think a lot of that those positions have been cleaned out.

But over the medium term, I think the dollar again is moving short lower, which should have significant implications outside of uh just that the currency market mark.

Everyone who wants to understand what will happen next with the carry trade needs to go back and watch that segment over the weekend.

Thank you so much for joining us and giving us that clarity.

As always, that was Mark mccormick.

He's TD Securities, Global head of FX and EM strategy coming up.

We'll continue to have all your markets action ahead.

So stay tuned.

You're watching Catalysts a key week to look at the flows of markets as we saw both the best and worst day in the S and P 500 since 2022 here to walk us through some of the biggest winners and losers of the week.

We've got our very own Jared.

Hey, Jared, thank you, Matty to talk about flows.

This week, we got to talk about the Yen again.

And by the way, that was just a great interview on the Yen Carry Trade.

And this is actually what we're looking at.

This is a chart that goes back to the beginning of the century shows when the yen K is breaking up or blowing up.

And that's when we get one of the big spikes to the downside.

We just got one wasn't as big as the March 20 pandemic spike or eight or seven in the global financial crisis.

But here's why that matters.

Japan is sitting on ultra, ultra low interest rates.

It actually raised interest rates last week and that's kind of the source of this problem, but they're still very low relative to the United States and Europe.

So here we have the US 525 to 550 basis points.

And then we have Japan all the way down here at 0.25% 25 basis points.

So people have been borrowing in the lower or lower costing currency and investing in the higher yielding currencies that is now reversing.

Thanks to the Bank of Japan's decision last week and let me just show you and share some of the insights by Michael Hartnett's team over a Bank of America.

Talking about the zeitgeist today.

Here's what the BJ said on July 31st, the bank will continue to raise the policy interest rate going forward.

A week later.

They say the bank will not raise its policy rates when markets and stable painfully.

This is a conclusion.

Wall Street has now stopped the Boj hiking Wall Street's October or August September goal now appears to be bossing the fed into big rate cuts and that's when we get into the bond vigilantes.

So here's the effect that we had on flows this week, high yield bonds largest outflow since 23.

So investors shunning risk credit risk there, bank loans also big outflows tips largest inflow since April 22.

I think that's an inflation, inflation play.

People looking to the fed, possibly lowering rates by a larger amount.

Japanese stocks, guess what?

They bought the dip European stocks.

Investors are shunning that risk market and then financials the biggest outflow since November of 23.

Not surprising there.

And then tech 1/6 week of inflows, that means tech inflows have been continuing for six weeks.

So not a big disruption in that trade which is pretty impressive.

I thought it would close out here.

I just wanted to go over a chart of the yen.

We just had that fantastic guest explain the Yen carry trade.

We are looking at 146 here as a potential level.

Let me just show you the 10 day chart that was a year to date.

Uh We get one, here's a trend line.

We are now breaching the trend line about to uh breach this 146 level.

We get down by 141.

That's when things start blowing up again.

So we want to keep that in mind throughout the day probably into next week.

Uh But right now, uh we'll have to see if any momentum develops guys.

All right, Jared, thanks so much for breaking down where we're seeing some of those inflows this week.

Let's take a look at retail investors because some retail investors using the market sell off earlier this week on Monday as a reason to buy scooping up some of this year's most popular trades at discount prices here with an inside look at some of that is JJ Kinahan.

He is CEO of IG Group, North America JJ.

It's good to see you here.

So I think a lot of people are trying to figure out just what the read is from the retail investor.

What where exactly they are seeing the opportunity.

What are you seeing in your de you know, it's interesting coming off that report talking about the technology stocks, one of the things that we see when uh retail investors get nervous normally is that they'll go to spiders and uh SPX and index type ETF S or the indexes themselves.

What was interesting in this down move is we didn't necessarily see that percentage of trade increases significantly as we normally did.

In fact, what we saw was many, as you just said, using this as an opportunity.

And it's always interesting to me that every crisis, so that so to speak, we've had over the last five years where retail traders tend to start our two technology names, Apple and Microsoft, they have great cash flows, people trust them, they paid, you know, decent dividends.

And once again, we saw those be the first two places our clients went to when things turn tough and look for the other stock.

I found very interesting an older school name but a stock has performed very well.

Coca Cola.

So those three were sort of the names that led, you know, Apple and Microsoft are gonna be names that retail trades significantly anyways, but made up a larger percentage of trading uh on Monday and Tuesday for sure.

As people were looking for places to go by.

What activity are you seeing in Intel specifically, uh an Intel, uh our our clients uh have cut back on it pretty significantly.

And in fact, Intel, I would say right now, you know, normally uh you, you, you have a little bit of a buy base a by bias for retail traders, they're normally buyers of about 52% sellers of 48%.

It's actually a pretty even flow.

But what we're seeing in Intel is a little bit of the opposite.

The selling activity is uh outweighing the buying activity.

You're actually seeing uh about 55% sales, 45% buys little bit unusual, but for retail activity, that's actually pretty bearish.

To be honest with you JJ, what are you seeing outside the tech trade?

And, and I wanna bring up reeds and some of the opportunity within commercial real estate because we have Maddie and I were discussing yesterday, we have been getting questions just about the opportunity there, especially the fact that they pay a dividend.

Are you seeing a bit more interest there?

Well, you know, it, it's interesting for longer term holdings.

Yeah, you, you see a little bit, I'll start, I'll start with, uh, I'll break it up into two areas.

Number one, if you look at people who play it, they often play it through the ETF Iyr, which is actually done very well.

And, uh, you know, having a night, uh, uh, a day today where it's off a little bit but done well throughout this, uh, bit of course, but the two names where retail really goes to in the re space are SPG Simon Property Group and IRM Iron Mountain.

Those two stocks.

If you look at the chart over the last month, it is straight up to the right.

And the reason being, uh you know, all the talk of interest rates coming off help their businesses significantly.

And so people who have been investing our retail clients who have been buying have done fairly well on that.

The other thing, they both tend to pay very steady dividends.

And we just saw Simon Property Group for the third year in a row, increase their dividends now yielding above 5%.

So that's why people also like it for a little longer term play.

I think the real key in that space is going to be with interest rates.

What happens to the cost of labor and equipment?

We see that to, to refinance et cetera, it looks like it's gonna be cheaper and that's needed for a lot of the malls and the, the, you know, larger commercial real estate.

But is it going to be affordable for these firms now to rehab these spaces because that's where the next competition is gonna be, you know, AAA, as you guys see every day where your office is at, you know, a lot of these older buildings trying to refurbish, make it much more appealing for people to get back to the office.

And I think you're gonna see a lot more of that continue in the mall space also.

So can they afford to do that?

But I think the really big thing is if you look where loans are due, there are a lot of loans due at the end of this calendar year.

So the, if the rate cuts, if they do start to come in, September couldn't come at a better time for a lot of the refinancing action that's gonna have to take place also.

All right, JJ Kenne Hand IG group, North America's CEO.

Thanks so much for joining us.

Thanks man.

Have a good weekend.

You too.

Thank you.

Keep right here.

We've got much more of your market action ahead.

We'll be right back.

Apple reportedly releasing a Mac many later this year.

It would be its smallest computer ever.

According to Bloomberg news about the size of an Apple TV set here with the latest and what it could mean for the tech giant.

We got our very own, Dan, how Dan explain this to me because when I saw the news of a ma many I thought, oh, good for my back.

And then they said it was the size of the Apple TV set, which is like a little over 3.5 inches.

That feels extremely many.

Yeah, that's right, Mattie, this is, uh, gonna be a desktop.

It's, uh, one of the computers that they usually sell, uh, you know, college students use them a lot.

People use them for home computers, uh, when they're just trying to, you know, look to save a little bit of space.

And so, uh, according to Bloomberg's Mark Erman, they uh are rolling out a slightly smaller one, than they currently have.

The current, the current one's kind of, uh, you know, flat, uh, but a little bit wide, this one's gonna be uh, more compact apparently.

Uh, and it's going to run with the M four chip that Apple had rolled out with the ipad Pro earlier this year.

I got to use that, uh ipad Pro.

I thought, you know, the chip was great.

I was doing pretty much everything I wanted on it except it was running uh ipad Os instead of uh Mac Os, which, you know, if you're trying to multitask and you know, work, uh Mac Os is preferable.

Uh but this is going to be uh uh reportedly a smaller version.

Uh There will also be a version coming later uh with an M four Pro chip uh for people who want a little more oomph out of the, the system and then there's gonna be some other Macs as well uh coming.

And so, uh according to this report, basically Apple is going to just cover its lineup with M four style chips.

Uh And it would be the first time they really did that because right now, you know, there's uh the M two, the M three, you go into one computer, uh or you know, Mac on the site and it's gonna have an M two, you go into another computer on the site, it's gonna have an M three.

So this would be the first time where you can just say, OK, I'm gonna get the latest processor across the board uh for every device.

And so we'll have to wait a little bit longer for those to come out, those, those other devices.

The, the Macbook air, the Macbook Pro, uh the Mac Pro um uh for those to get the, the M four, but it seems as though the, the Mac mini is gonna be the first one out of the gate.

And, you know, Apple's been doing great with their own silicon.

Uh They've pushed Intel and A MD uh to really step up.

Uh Qualcomm has a chip that can almost rival what Apple does now with performance and battery life.

So they've obviously, you know, got on to something that's, that's really great.

All right, Dan, we're gonna have to leave it there.

Thank you so much for joining us our very own Dan Howley.

And I know that we pushed the time of our show a lot today, but it was important for us to have a couple of seconds here to say thank you to our line producer and producer, extraordinaire who filled in as our ep several times, especially throughout this week.

Mackenzie is her last day with us, Mackenzie.

We thank you so much.

It's been amazing to work with you and I know we both appreciate it.

Yes, we will, Miss Mackenzie so much.

She's also going off to get married in the fall.

So lots of exciting things for her to look forward to.

But of course, we can thank Mackenzie enough for her dedication for her hard work for her leadership on this team over the last several years at Yahoo Finance.

And also how quickly she climbed the production ladder too.

Alicia started just around the P A not too long ago.

So again, Mackenzie, we will miss you so much and we wish you all the best.

Well, coming up as we gave you about 40 seconds of lead time, Mackenzie before our show comes to a crashing halt, stick around because you got wealth dedicated to all your personal finance needs.

Our very young Brad Smith has you right here for the next hour.