SMCI & GOOGL Earnings Adding to AI Roadmap & Clarity Act's Stall in D.C.

[00:00:00]Welcome back to Morning Trade Live. It's time now for the big picture, so let's welcome in the team from Charles Schwab.

[00:00:05]We're joined by Nate Peterson, director of derivatives analysis, and Jim Ferryoli, who's the director of crypto research and strategy. Gentlemen, thank you so much for your time. Nate, let's just start with you because yesterday we had a scenario, higher oil, higher yields, stocks were higher. Today, we've got higher yields, higher oil, but stocks struggling. What's the difference between yesterday and today?

[00:00:30]>> Uh good morning, Sam. Yeah, I I I think it was the bounce back in the AI infrastructure trade that really kind of supported, uh you know, obviously the Nasdaq and Nasdaq 100, but also Ciment uh as well. And if you go back to April when we were having high oil prices, there was this relationship that you have that, of course, higher oil, higher yield, stocks down. And then at some point that kind of broke to where uh if oil's between 90 and 100, it's not a big deal. So, even though we're up here at, you know, 87, 88 on WTI, uh we were higher back then. So, the market has some, you know, uh uh patience uh for this type of a level.

[00:01:14]Now, granted, it doesn't look great in Iran, but I think that what we're doing is we're going into this earning season, we're going to going to get guidance on CapEx. Where does the AI infrastructure trade stand? Look at SMCI and the guidance they provided last night.

[00:01:29]That's the first data point. AI infrastructure thrived during the Iran war in April. It was seen as the safety trade. Remember that uh that Anthropic said, "Oh, we thought demand was 10x, it's 80x." And then we get these earnings reports that would just continually support the the demand for AI buildout.

[00:01:50]If that's going to happen again this quarter, then that's where that bid came from yesterday. And if you look at what happened this morning, we opened lower.

[00:01:59]That bid started just come right in and buy those stocks, especially within the tech space. So, it looks like there's a bid underneath the market at least for right now. Let's see what Alphabet says after the bell.

[00:02:11]>> Yeah, that's going to certainly be the big one as far as a market moving here.

[00:02:15]Jim, getting over to you. We did momentarily see a brief rally there for Bitcoin yesterday alongside the semiconductor chips. We're back down again today. It seemed to get a little bit of a boost in the session previously from Bessent talking about the Clarity Act at the one-yard line. How closely are we following this? How far away are we from a little bit more clarity on the Clarity Act?

[00:02:39]>> Hey Sam. Yeah, as you and I have spoken many times this year, Clarity Act is something we continue to watch. We think this is a really important fundamental catalyst for Bitcoin and the rest of the crypto market.

[00:02:52]We're heading getting closer to the summer recess. That, you know, August 10th, the Senate heads home.

[00:03:01]Then they come back and it's midterms time, right? They're going to be campaigning. They're going to be out.

[00:03:06]And so, the risks are if this bill doesn't get passed in the next few weeks, it might be delayed till after the midterms. So, that's something we're watching pretty closely and obviously something that we think is very important and needs to pass.

[00:03:25]>> And Nate, getting back to you. I mean, how do you look at things technically right now? We've got a pretty tamed VIX all things considered. You've got this trading range on the S&P 500 bounced off the 50-day yesterday, but as I mentioned, has really been kind of just stuck in this zone for the last couple of months. What are you watching right now and what's kind of a danger zone on this 10-year for stocks, do you think?

[00:03:49]>> Yeah, okay. First on the 10-year. So, right now we're at what you know, this is what surprises me is is the markets are not caring right now that the 10-year is at 4.66%.

[00:04:01]The high back on May what? 17th or so, 4.687.

[00:04:07]Is that a big deal? Mhm. I don't think so.

[00:04:11]Uh, if you start getting up between 4.8 and 5% specifically 5%, that would be the cycle high. If you actually meaningfully get some velocity and you make a move up towards 5% and push through that, I'd say get ready for, you know, a volatility event. I think the market's really going to stand up uh, if that happens. To your point on the VIX, the S&P 500, we got a 1% down day on Friday uh, for the first time in gosh, I you know, I can't even remember. And that's what the VIX signals. It's you know, it's a level of 16 on the VIX tells you on a daily change, it's a 30-day estimate, but on a daily measure, 1% up or down is the expectation when the VIX is at 16. It's at 17 right now.

[00:04:54]However, Sam, we've talked about this, single stock volatility. Go look at that AI infrastructure trade correction that we had from June 30th to July 17th. The the SOX down 21%.

[00:05:07]If you're in Corning or Applied Optoelectronics, these guys down 30, 40, 45% in like 2 and 1/2 weeks. So, the volatility is there. It's just hiding within that the tech complex.

[00:05:22]>> Yeah, it's interesting. And yesterday I heard a trader who was saying that they were among those that were snapping up shares in Micron and they were trying to get ahead of the hyperscaler earnings because if those companies like an Alphabet tonight come out and confirm all this CapEx and things are going well, then this stuff could rip. So, you're trying to get ahead of that potential move, maybe. But that was just one view, one trade that I heard about.

[00:05:47]Jim, getting back to you, what exactly is driving Bitcoin then right now?

[00:05:51]Because, you know, if we're sort of dragging out as far as the progress on the Clarity Act, you've actually pointed out in some of your research that it can't be attributed to the passing right now. It can't be attributed to the macro factors. So, what is it?

[00:06:05]>> Yeah, the biggest some of the questions that we've been getting as people are paying closer attention to Clarity Act, they're watching um the odds of its passage rising and falling. And they they want to know what's priced in to Bitcoin here. And and we don't think passage is priced in.

[00:06:21]Uh one thing that we did is we we looked year-to-date at several different factors, traditional macro factors like the dollar, oil, inflation break evens, the 10-year. But we also included things like long and short liquidations of Bitcoin futures, uh Clarity Act's Clarity Act's um odds of passing. And we found that um even incorporating all these different factors, that still about 30 to 35% of Bitcoin's daily move is isn't attributed to any of these. If you look across the entire time period, uh the Clarity Act's odds of passing have really only attributed 4% to Bitcoin's daily price move on average.

[00:07:02]And so, that makes us think again that at these levels, the the Act passing is not priced in. And so, in the event that it either gets delayed or it doesn't get passed, we don't think that's really a negative for Bitcoin here. And it almost uh is an embedded legislative call option that if it were to pass, you might actually see some price upside.

[00:07:25]>> Guys, it's always a pleasure picking your brains. Thank you so much for joining me this morning. It's going to be a busy afternoon. Nate Peterson, director of derivative analysis, and Jim Ferryoli, who's the director of crypto research and strategy over the Schwab Center for Financial Research.

[00:07:47]>> Mhm.