On today’s episode of Market Domination Overtime, Yahoo Finance’s Julie Hyman and Josh Lipton reflect on the market close and the trading day’s biggest stories.
Despite being off to a slow start this week, all three of the major indexes (^DJI,^GSPC, ^IXIC) closed in the green. Both the Job Openings and Labor Turnover Survey (JOLTS) and the ISM’s manufacturing Purchasing Managers’ Index (PMI) print came below expectations as Wall Street eyes the Federal Reserve’s next interest rate move. John Hancock Investment Management Co-Chief Investment Strategist Emily Roland tells Yahoo Finance that despite economic growth slowing, “it’ll probably come in pretty choppy fashion in terms of the rates backdrop. But ultimately, we think that rates will fall into an economic contraction here.”
Major tech earnings were reported after the bell, with shares of Hewlett Packard Enterprise (HPE) rising after beating second quarter earnings expectations on top and bottom lines. Similarly, CrowdStrike Holdings (CRWD) reported first quarter results that beat top and bottom-line estimates, and raised its full-year earnings and revenue guidance. The sector has been seeing major gains largely driven by the AI boom. However, a new study by MIT Professor of Economics Daron Acemoglu finds that AI will offer no more than a 0.71% increase in economic productivity over the next decade. Acemoglu explains that AI models still cannot do most things that humans do, adding that society won’t see massive job losses in the next 10 years.
Finally, Josh Lipton and Julie Hyman break down what to watch on Wednesday, June 5, from the release of May’s Purchasing Managers’ Index to key retail earnings (LULU, DLTR, FIVE, VSCO).
This post was written by Melanie Riehl
Video Transcript
That’s the closing bell on Wall Street and now it is market domination over time.
We’re joined by Jared Bli to get you up to speed on the action from today’s session.
Let’s start where major averages ended up here.
We see the dow still in the green here.
Although off the highs of the session still up a little more than a third of 1% 100 and 40 points.
But the S and P and the NASDAQ also strengthening into the close here a little bit.
Listen, this is not a runaway rally but still in the green after we got worse, an estimated economic data this morning in the form of the so called jolt survey that is jobs opening and labor turnover survey which showed at the end of April, the lowest number of job openings going back to 2021.
So the S and P up here, the NASDAQ up as well helped in part by what we saw in the bond market, which is this continued, come down in yields another seven basis points state of 4.34%.
And if you look here, we’re at the lowest that we’ve been I call it since early April in the bond market.
So all of that percolating through stocks today, Jared.
Yes.
And let’s take a quick look at the Vix which has come down from not even a call it a recent peak.
It’s just an interim high here that spike up maybe led some traders to believe that could be the beginning of a move and it still could be.
But right now, as you said, Julie’s bonds really helping out stocks here, just kind of taking a back seat.
Now, here’s a sector action.
We got real estate up about 1%.
That’s in the pole position.
After that, you got staples, communication services, health care, and then also tech, all of those outperforming materials the worst to the downside, that’s XL B followed by energy, financials, industrials, then utilities.
So really the value in cyclical trade getting hit the most today.
If we take a look at our leaders Bitcoin, that’s in the top spot, that’s up about one and three quarters of a percent.
And oil, small oil that is PS ce is a smaller oil players that was down almost 3%.
Also home builders.
That’s XHB and X RT, that’s real estate feeling a little bit of weakness there.
And I did mention the banks were seeing some red today and that is indeed the case here.
Not a lot of uh well, that’s actually energy.
Let me show you the banks here.
If I can get that.
There we go.
JP Morgan down about one and a third percent, but not seeing a lot of outliers.
And in fact, that’s kind of what we’re seeing in the energy sector as well.
I haven’t checked out travel in a while.
So this is actually a bright spot today.
We can see Hilton up 1%.
The cruise lines have been volatile lately, but up today, Royal Caribbean up 2.5% carnival cruise lines up over 5% guys.
All right.
Thank you, Jared.
As Julie just mentioned, job openings fell in April to the lowest level since February 2021 showing further signs of the labor market cooling off.
Joining us.
Now is Emily Roland, Co Chief Investment strategist from John Hancock Investment Management.
Emily, always good to have you on the show.
So stock market relatively muted today, Emily Bond market climb.
What, what do we, what do we make of this US?
Stock market, Emily, uh where we are and where you think we’re headed.
Yeah, it’s pretty notable.
It’s starting to feel a little bit like bad news might just be bad news.
Um We’ve talked already about uh the myth on job openings lowest level since 2021.
We also saw the ISM manufacturing Index disappoint here, new orders in particular, slowing down the Atlanta fed GDP.
Uh now measure as high as 4% for Q two at one point and we’re down to 1.8%.
And I think it’s pretty notable that you have seen the reaction across treasury markets, 10 year treasury yield down seven basis points today, but yet small cap equities are down over 1%.
So I think there’s a feeling out there that cyclicality is not going to get rewarded, an environment where growth is, is slowing down pretty uh pretty notably here.
And is the perception also Emily, hey, it’s Julie here.
Um is the perception also that the fed is not necessarily gonna come riding to the rescue, at least in the sort of short to medium term that even with these numbers that are rolling over, maybe we’re still not gonna get a cut for a while.
Well, that’s the challenge here.
I mean, we’ve got an environment in which, you know, growth is slowing, but inflation still remaining pretty stubborn.
It all started when the Fed just suggested that rate cuts were coming back in the fall.
Financial conditions loosened.
You saw this bounce in the housing market.
Um And so the challenge now that is that growth did pick up in the first quarter.
Of course, that’s slowing now as we talked about, but the kind of nasty side effect of growth reeler is that in comes with it.
So the fed still has a bit of an inflation problem to deal with here.
We’ll look at the non farm payrolls report on Friday to see how that’s showing up in terms of wages, but they could be backed into a corner here if inflation doesn’t come down enough for them to justify cutting rates in the back half of this year.
Emily, having said all that, uh, for viewers who are listening right now, I, I’m gonna guess you, you know, you know, suggest I still own stocks which stocks Emily, what, what looks attracted to you here by sure.
What we’ve been doing is, is trimming uh riskier assets here.
You know, we’ve seen a big surge in momentum, sentiments been elevated.
Um We wanna avoid things like uh meme stocks which have been coming back into the mix here.
We wanna uh avoid um you know, deep value type sectors.
Um We’re looking to increase quality in the portfolio leaning into companies with great balance sheets, lots of cash and just finding quality at a reasonable price is really the name of the game.
So looking for those strong fundamental stories where businesses can have lower interest burdens great uh profitability and just the ability to navigate this late cycle environment.
Is it hard to find those names right now?
Emily?
You know, there has really been some increased breadth across the market.
So we’re not just finding it in tech, tech was kind of the poster child for great earnings results, but we’re seeing areas like communications, services, participate, utility sectors participating.
I know there’s been some discussion around utilities this afternoon on your programming.
Um So there has been some other opportunities we even find, you know, we’re finding some quality on the value side as well.
He health care, for example, has some of the best return lot of equity uh metrics that we’re seeing across the S and P 500 sector.
So there are places to find it.
And I think it can be a more idiosyncratic stock specific story here where active managers should really be able to capitalize on some of these strong fundamental stories.
Emily, what about utilities?
I asked just because you know, uh in today’s show, we were talking to some smart folks who who, who like that sector.
Uh one of them kind of described as the Iron man sector, you get to play offense and defense.
What do you think?
Yeah, we like utilities in this environment, of course, uh the yields, they are going to be more attractive as bond yields come down.
I think that’s one big part of the story, but there’s also a lot of investment in utilities in terms of modern, modernizing the grid and seeing a lot of the the um the fiscal spending that’s going on being funneled into these projects which are more long lived.
Um We also see a big change happening right now as the consumer comes under pressure, um we are seeing cracks in this consumer as people are sort of protesting higher prices, especially that lower end consumer.
But we look at that as an opportunity people are going to continue to buy the stuff they need, you know, pay their electric bill, pay their utilities even if they’re not necessarily buying the stuff they want.
So I think there’s a number of different catalysts in place that should support the sector.
Well, and then outside of stock Emily, is it finally time to go back to bonds or where do you stay?
Do you stay out?
I know Julie, you know, we love bonds.
Um, I would say, you know, we just love the income potential there.
Um, we’ve had a lot of volatility in the bond market as of late yields have come down, uh, significantly here over the last few weeks, 10 year treasury that was sitting at, you know, 470 not too long ago here.
So we would be looking at any backups and bond yields here opportunistically.
I do think this deceleration and economic growth is the real deal.
Um, it might not come, you know, it’ll probably come in pretty choppy fashion in terms of the rates backdrop.
But ultimately, we think that rates will fall into an economic contraction here.
It may take some time but the good news is that you can get paid to wait here, 5% to 6% income and high quality bonds.
We still like it.
And Emily in terms of us, you know, stocks, do you want to stay us centric or are there opportunities overseas internationally?
Yeah, we have been overweight US versus international indices.
And a couple of key reasons for that, we’ve seen better relative economic growth here in the United States.
It’s not a huge differential, but we’re holding in better here and that’s translated into better earnings growth in the US.
Analysts are penciling 11% earnings growth for the S and P 500 this year, almost 15% next year.
That is the best earnings growth that we’re seeing across global indices.
We also because we like technology companies, you sort of automatically have an overweight to us equities given the fact that we have a much bigger sector composition focused on tech companies here in the United States and there is international.
So a few things going a stronger dollar, I would say would be sort of the cherry on top.
Uh We continue to believe that the dollar will strengthen into this year as the fed remains the last central bank standing with restrictive rates from all those things pointing to an emphasis on on domestic equities.
Good to see Emily.
Thank you.
You too.
Take care.
Let’s get some breaking earnings news now, Hewlett Packard Enterprise out with its second quarter results.
So let’s break down those numbers and the numbers look strong as you can tell probably from the share reaction up 8% here.
Uh The company coming out with its fiscal second quarter net revenue that rose 3% to $7.2 billion.
Analysts had been expecting a drop year over year to $6.82 billion.
You can see adjusted earnings per share also coming in ahead of estimates and in particular server revenue here 3.87 billion.
Also ahead of estimates hybrid cloud net revenue was in line.
So it really seems like demand for A I servers is what was powering the numbers higher.
The company also coming out with a forecast for the third quarter, both revenue and earnings per share.
It looks like earnings per share leaves it room to sort of be in line with estimates, but revenue looks a little bit better than analysts had been anticipating and uh looks like the company is also raising its forecast for full year earnings per share.
Yeah, it’s interesting.
The stock had not done a whole lot heading into this print.
It was only up about 5% this year.
Julie be least initially in the after hours.
It’s it’s roaring.
Um It, it was curious because is you kind of as analysts were getting ready for this print, some of them had even bulls actually had called out some worries about networking and demand there, inventory di digestion there.
But as you mentioned, the the big really a big focus has been A I revenues back backlog and their execution on here.
I haven’t seen um the release yet, but also obviously, you’re looking for any kind of updates on that pending Juniper acquisition announced that in January for around 14 billion, the close of the H three C divestiture.
Um So lot lots of questions for the CEO in the call.
Yeah, I’m seeing a couple of details here that uh sales of um A I oriented systems doubled in the quarter.
Um So even though revenue overall didn’t get that much of a of a lift.
It in particular, there is that strong demand for A I oriented uh systems here.
So that company, you know, it, it’s so interesting to me throughout tech, kind of how this whole A I thing is trickling down.
You see the likes of an NVIDIA that just has, you know, triple digit digit revenue gains every quarter.
We’re not yet seeing that play out with many other companies in terms of the magnitude of growth.
Um you know, they’re getting sort of pieces of that, but we’ll see if they, if they get to that H pe was interesting because when it comes to A I, there were certainly folks who thought, listen, they’ve, they’ve got what they need to succeed there.
Maybe the only questions were, you know, can they stick the landing?
Can they execute?
Um at least initially in the after hours.
Investors seem very pleased.
Yes, we’ll see what happens out of the call and we will also see what happens when we hear from Antonio Neri tomorrow.
Uh That’s when our uh Brian Sazi, our executive editor will be speaking with the H PE CEO on these latest results.
You don’t want to miss that.
Let’s get to another report though.
And that is from crowd strike, that stock down a little more than 1% or just share in the first quarter.
Beating estimates revenue also of $921 million.
Also a beating estimates here.
And it looks like the company second quarter forecast for both earnings and the revenue is well above what analysts had been anticipating.
It’s also raising its forecast for full year earnings per share and full year revenue, but the stock is down.
Yeah, I, you know, expectations were high, you know, heading into this one, Julie and the stock was up like more than 20% year to date.
Um And it, it, I think for this sector, we’ve, we listen, we’ve talked a lot about the names in this sector as a reported earnings.
It has been kind of choppy right choppy environment if you’re bullish and there are a lot of bulls on this name by the ring.
I mean, it’s like NVIDIA like love for crowd strike.
I mean, more than 90% of analysts have a buy ring.
Um I think it’s because you must, you’re betting, listen, the the company can kind of execute through that choppiness on the call.
You can have a lot of questions about new products and obviously for Co George Kurtz, you know, lots of questions about pricing competition shares kind of dip in here, at least in the Yeah, I mean, as you said, they’ve done well into this report but not crazy.
Well, I mean, they’re up about 20% a year to date.
Kurtz.
By the way, in this statement here, talked about the company’s momentum and strength.
Um going into this quarter, you talked about the competitive moat that the company has from its Falcon platform.
Um and the customer that they’re seeing demand from customers of all size here.
So, you know, unclear where there is any disappointment.
If any, the company also is talking about record free cash flow of $322 million.
That revenue number, by the way for the quarter up 33% year over year.
And so you just moved the stock, you flipped it into the green that I did it, Julie Hyman.
There you go.
You’re welcome bulls coming up.
A I may not be the productivity booster.
It’s been hyped up to be, we’ll discuss that next on market domination over time.
Last you been living under a rock.
You’ve heard all about how A I will change our lives, supercharge, economic growth, boost productivity.
But a new study by our next guest says not so fast.
Joining us now is Jone Amou Economics professor at MIT.
Thank you so much for being here.
Um So basically in your new study, you tried to quantify as others, of course, have uh what effect this is all going to have on economic growth.
The difference is you came up with a much lower number.
So talk to us first of all about how you got there.
Yeah.
Guilty as charge.
Look, I mean, I think, uh uh there’s a lot of excitement about A I and no doubt that these models are performing things, doing things that people thought would be impossible 10 years ago.
So there is a big achievement here at the, it’s, it’s impressive in many ways.
But when you actually look at the data, most of the things that humans do, these models still cannot do, you know, in 50 years time, all bets are off, we don’t know what’s gonna be possible.
What’s not going to be possible with A I.
But for the next 10 years, we more or less know what the technologies are going to be able to do because uh we have already the prototypes, they’re evolving at some rate and more or less we know what that’s going to be.
So there’s a lot of uncertainty, but at least we can put some numbers in there and on the basis of other people’s estimates as well, I come up with a number that about 4.5% of the things that American workers do can be impacted directly by A I.
Many more things may be indirectly impacted.
That’s harder to know, but directly impacted is about 4.5% of the economy and then when you take that and then put together with the, what types of improvements in productive and reduction in costs that these models currently deliver?
Either because they are automating some tax or in some, in a few cases, they’re helping workers, then you end up with something like less than 1% of GDP.
Exactly.
Like you’ve just summarized.
Well, it’s interesting Jerome because I know you do work also on economic inequality, how these changes are sort of distributed.
And so when you look at that increase, how is it going to be distributed?
Who is going to benefit the most?
Well, you know, the good news there is that if we came up with a number that said, you know, 50% of all jobs are going to be impacted by A I, then the distributional effects would be major, you know, there could be millions of people losing their jobs.
But if it’s only 4.5% or so of the economy, then the distributional effects are not going to be huge, either, it’s not gonna be massive job losses within uh within 10 years.
But the other thing that’s interesting when you look at the data, you see that the kinds of occupations that are being impacted by A I are much more equally distributed across geography and across demographic groups than say things that were impacted by robots.
Like, you know, if you look at robots, what did they do, they, you know, took over welding and painting and other things that were involved in heavy manufacturing and that impacted blue collar workers.
Uh That’s a specific group of many of the male low to middle education groups, many of them were in places such as the midwest.
Uh And so the effects were very concentrated A I is much more dispersed.
So it’s not going to have a major negative effect on inequality.
But on the negative side, some people were dreaming that A I may suddenly make us more equal because it’s gonna help low productivity workers.
We don’t, I don’t find much evidence for that.
Either one bad thing is, you know, A I just as other automation technologies is gonna probably increase the gap between capital and labor.
It’s gonna help capital owners and managers more than workers, you know, um when you hear people in the industry, you know, I I think of Jensen Wong talking about the A I revolution and a lot of other folks using that kind of language, you of course, have looked at the history of other types of revolutions economically, right?
The industrial revolution, et cetera.
What ki what can we learn from those past historical big changes in the way that we work?
Well, I mean, uh Jensen Wang is, is absolutely right.
There is a big revolution going on for NVIDIA stocks and that’s tho those are doing better than any other stock that I remember for quite a while.
So that’s what you see from history as well.
There are often some big winners from new technologies, especially the kinds of uh sectors or firms that provide key inputs or the key expertise for new technologies can gain a lot uh during the early phases of the industrial revolution.
Some people who were first out of the gate in terms of building big factories, made a lot of money and people who are going to provide the GP U capacity, either in the old form or computational capacity.
Let’s say either in the form of GP US or other types of chips that might develop over the next decade or so, you know, they’re gonna benefit a lot but for the rest of us to benefit from new technologies, A it takes time and B I think we need other conditions to be realized.
So I don’t subscribe to the view that, you know, ultimately automatically everybody is going to benefit from new technology, new technologies expand our capabilities and A I is certainly doing that.
But depending on how we develop it, depending on how we use it.
There may be a lot of inequalities that emerge.
You know, the British industrial revolution, we owe our comfort, health productivity, all of this industrial technology to that process.
But if you look at the first eight or nine decades of that industrial revolution, there was a lot of hardship, lots of people uh uh did not gain.
In fact, real wages may have fallen for many groups of workers, including those in the most dynamic sectors of the economy such as textiles.
So to avoid that, I think we do need more sort of guardrails, institutional guardrails, be more careful in how we develop the A I technologies.
And we there are also other more recent examples we want to avoid like for example, social media, great amazing technological capabilities in social media, improvements in communication that could have been truly transformative.
But there’s a lot of evidence that we have created a huge amount of polarization and mental health problems.
So A I could exacerbate those things.
So we have to be careful about how we use this very promising technological platform, right?
And while we have you Jerome off of A I for just a second here, I’m just curious to get your general thoughts on where we are in the economy right now.
I mean, we’ve been talking all so long about some of the recent economic data that we’ve gotten that has not been as encouraging.
Well, I think on the whole the US recovery since the COVID crisis, in fact, to some extent, even perhaps since the financial crisis has been better than other industrialized nations.
And I think a very important part of it is this is a dynamic economy, but also the government stepped in when it was needed both after the financial crisis.
And uh uh after the COVID crisis, of course, mistakes were made.
Uh You can, we can go back and litigate whether we could have done it in a less inflationary way or whether we could have done a better job in terms of financial regulation and so on.
But the reality is that the US economy has proven more robust than pretty much all of the other industrialized nations.
And uh and that I think over the medium term is likely to continue, but there’s going to be ups and downs.
Maybe we’re seeing a little bit of a down right now.
We’ll see how it plays out.
Darron Ajamu.
Thank you so much for being here, really appreciate it.
Thank you for having me on the program.
Have a good day.
You too time now for to watch Wednesday, June 5th, starting off on the economy, we’re going to be getting another piece of economic data in the morning with the monthly PM I print for May Economist forecasting that number to hold steady compared to April, moving over to the labor force.
The monthly ad P employment report coming out tomorrow, that number expected to decline from April.
And this coming after another week jolts report Tuesday ahead of Friday’s monthly jobs report.
And finally we’re going to get some more earnings tomorrow including Lou Lemon Dollar Tree and Campbell’s Soup dollar Tree reporting first score results before the bell cor analyst, consumer rules could be the main source of growth in the first quarter for the company is coming after Dollar General.
The rival discount store chain reporting strong Q one results last week.
But the company’s CFO also warning that customers continue to be price sensitive, that will do it for today’s market domination over time.
Be sure to come back tomorrow at 3 p.m. Eastern for all of your coverage leading up to and after the closing bell.
But don’t go anywhere on the other side of the break.
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