It’s Not Amazing Cost Mgmt

Looks like analysts meaningfully underestimated the bottom lines but not the top lines. That’s what happens when co’s hike prices, right? C suites should be uber focused on expense reduction right now because what happens when demand is not as robust? Prices come down, hence the $5 MCD meal.

With the follow-on point, consumers are not putting up with higher inflation, per BTIG’s note with a BofA chart shared here. (lower nominal GDP = lower not higher EPS). BBG notes that a weaker consumer is driving some of the turnover in popular trades that had reached 'stupid' levels. They were playing Texas Hold’Em with concentrated bets.

Pitbull might sing Que No Pare La Fiesta…but OpenAI is dancing to it this morning. They’re rolling out SearchGPT in direct competition with Google Search, per Reuters. Also, employees at JPM must be looking over the precipice this morning as their employer rolls out a GenAI product it believes can do the work of a research analyst, FT. Don’t laugh too hard, back office, because guess who’s next…spoiler alert on next week’s podcast. It’s going to be a not-to-miss episode from a global leader on AI and ML.

The Fed’s preferred measure of US inflation (core PCE price index) was up in June by 0.2% from May. Year/year it was up 2.6%. These figures were pretty much as expected. So, we’ll see next week if the Fed stays put and cuts in Sep, or if they get a little wild and cut here in summertime. Wages and salaries were up in the mo, but not by as much as before. This gives the Fed cover to take action.

GS wrote about yesterday's wild price action: 'From an institutional trading flows perspective, yesterday's US market selloff appears to be driven by significant length reduction by the LO community and less about further de-grossing by hedge funds (following large risk unwinds seen lats week).'

Now it’s JPM’s turn to provide color…which is reasonable but not that earth shattering: • If you’re in a crowded trade (long or short), you’re seeing more volatility…but the moves are getting more stable. (Sounds like a straight forward explanation) • There’s market rotation for factors (e.g., size, value vs. growth, momentum, and sectors). OK, we know that… • Positive US CPI and retail sales data is supporting investors’ 'growth without inflation' narrative. Yep. • After a few Mag7 earnings scared folks and some FX carry unwind, investors are facing high expectations. Sure, we’ve written about that. • Investors are concerned about rising trade/tariff uncertainty. Not surprising.

It’s not just a sultry Sofia Carson song…BAML broke down investor flows: • Cash: largest outflow in 3 months ($42.3 bn); • Gold: biggest 2-week inflow since Mar 2022 ($1.3 bn this week); • IG bonds: 39th week of inflows ($8.8 bn this week); • EM equities: largest inflow since Feb 2024 ($11.1 bn); • China: largest inflow since Feb 2024 ($8.3 bn); • Japan: largest inflow in 3 mo ($4.1bn); • Financials: biggest outflow since Feb 2024 ($0.8 bn); • Consumer: biggest outflow in 3 mo ($0.9 bn); • Energy: record outflow ($3.0 bn); • Tech: inflows past 4 wks ($2.0 bn this week).

Per the aforementioned song, small caps are making it easier to love them…with the 2nd largest inflow ever.

Investors are scrounging for related AI plays. To that note, we’ll be releasing a thoughtful podcast episode on the Power/Electricity industry in the next couple of days, so you can check that out (JustThinkAINadineBen.com) while investors were bidding up utilities and property firms this past quarter, per BBG.

First, gotta wonder if Apple is feelin’ it this morning, listening to Heart of Glass and wishing for its former love in China. The co no longer is a top 5 smartphone vendor there, giving up the love to domestic brands, per the FT. To keep its other relationships going, Apple agreed to set of voluntary safeguards for AI drafted by the US gov, per BBG. Second, speaking of lost love, Musk says he’s going to talk to the Tesla board about a $5 bn investment in xAI, per Reuters. Dude, if you don’t have good places to put the cash in one company, don’t be like a p/e firm and move it to another entity. Give it back to shareholders.

Broken-hearted China made some big moves overnight. Unloved geopolitically and investor-wise recently, they repurposed some debt for a consumer goods trade-in scheme, part of their stimulus agenda, per Reuters. Like a jilted lover, China is considering a 10x fee hike on high-frequency traders, per BBG. This crackdown on short selling is keeping bearish positions at their lowest levels since May 2020, per BBG. The yield on their 10-yr bond fell to a record low after rate cuts, per BBG. And news is that they may buy more gold…speaking of which…check out the chart…

We’ll see if the Japanese yen will continue to rally, but if the BOJ does not hike rates, we may see a reversal of that trade, per Reuters.