Inflation and Iran vs. earnings and AI: Your next move

Added: 2026-05-14

[00:00:00]It's a split tape today. As you see, Dow's under a little bit of pressure.

[00:00:04]S&P and NASDAQ just continuing really to roll on. You had the PPI report, stronger than expected, 10-year and 30-year, both at the highest since July of 25. We'll see what comes out of the president in China. And Weiss, I feel like there's there's a pretty good tension I I would say, in some corners of the market. You've got elevated inflation. You've got worries about the war. You've got elevated oil prices against great earnings and the AI story.

[00:00:32]And as those two things butt together, it feels like the AI story, it doesn't feel like the evidence is there that the AI and earnings story is winning out by a lot. Fair to say, >> very fair to say because I was going through sector performance both in the NASDAQ as well as in uh in the S&P and you know it's clear it's clear what you stating that's the AI trade that is really driving everything creating the overvaluation. So the value and and it's significant by the way. I mean you're on a you know you're on a forward NASDAQ at about 35 37 times versus historically in the in the mid20s and that's all tribute to the eye trade. So and the AI trade I'd say is a tenative trade at this point because of valuations because you're not seeing necessarily returns and just people look if you're an experienced investor and this is not a shot at somebody's new investor at all.

[00:01:30]They're mostly in indices or pick one of their favorite names, Nvidia. You don't understand what's going on because the headwinds and the strength of those headwinds outweigh the valuation where you are now. And that is true tension. I don't know what to do, you know, in this market. I'm greedy. I want to stay with it, but I've also put on some hedges because I do expect the war, the hostilities to resume in Iran. I don't see any way around that. So, I think you got to prepare for a little bit of a draw down here, but it's not going to derail the AI trade. It may put a cap on it at lower levels. And I think this point more likely than unlikely. I mean, you know, Liz, there are certainly plenty of people who are are looking at what's happening in in the market uh from a valuation standpoint, some respects, from a price action u standpoint, and even on the earnings front, sort of wondering whether you're you're pulling forward so many earnings now that you're not going to be able to uh defend them or live up to them over the longer period of time. the idea uh that Jim Chenos raised yesterday when we had a conversation at SN I want you to listen to what he thinks investors should be thinking about all of this >> what investors should worry about or concern themselves about is that they don't pay too high of a multiple for what are cyclical earnings not secular earnings right and and we have to make a distinction between that as to what what is getting premium pricing and is the subject of a capex boom that might subside or at least slow down versus what is sustainable profitability um from AI models >> market obviously thinks that these are are secular tailwinds not cyclical or you wouldn't have the stocks probably appreciating to the degree that you are now you might but if if you know let's just say if chainos is correct that these are some of these are going to be more cyclical than secular then you would have some level of comeuppance at some point.

[00:03:36]>> I think the rate of growth in stock prices related to these earnings will have to slow but there doesn't have to be a as a comeuppance as you call it that causes a big draw down or that says earnings have to pull back and turn negative or anything of that nature. I think the speed that we've been moving both in earnings and in capex will eventually have to slow down.

[00:04:01]>> You're not going to be able to get I guess to your point. You're not going to be able We just did 50% earnings growth, right, >> for techust obviously that's that's not going to be >> nor is the capex thing sustainable.

[00:04:11]>> Well, I mean for the foreseeable future it feels like the capex thing is is sustainable. We just don't >> Well, I mean I guess it in by the purest definition it is. Uh but it feels secular. It feels like these companies just going to spend and spend and spend and spend and then that's going to change at some point, but who knows what the runway for that is. That's part of this conversation too that all of you have to figure out.

[00:04:35]>> Yeah. Well, I don't think the runway is ending anytime soon. And I think the market is dealing with two separate forces. We obviously have the AI force, which is still a lot of optimism, still good fundamental strength behind it.

[00:04:47]Capex, that's just can't stop, won't stop. And I don't think that that's going to end anytime soon. And then we've got this other force that we're finding more out about this week in inflation. And the PPI numbers are a big deal. The market broadly is not trading off of them, but they're a big deal because they mean a lot for what's going to happen to consumers later on. Now, they could be transient. I'm not going to use the word transitory. They could be transient, but they still make an impact on what consumers can spend. So I think what's going on today in the market and you've seen this already with the change in sector se sector leadership since this morning we finally have inflation numbers that are starting to make people worried about a growth scare. That hasn't really been the case up until perhaps now. So if we have inflation that's sticky enough and higher than anybody expected, you start to worry that consumption gets hit both on the consumer side and on the business side. So what do investors do when there's a growth scare? when when growth in the economy might be scarce >> by tech.

[00:05:49]>> Exactly. They look at tech.

[00:05:52]>> Yeah.

[00:05:52]>> Exactly. But when the market opened today, right after we got this inflation print, you saw things like consumer staples and healthcare doing a lot better. So, we've already gotten off the defensives train and gotten back onto the tech train. So, there are two separate things going on. And I think the way you open the show exactly right, tech is winning still. Clients are according to Bank of America and their flow show Joe clients are big buyers of tech the largest since mid-March. You see that showing up in Nvidia for one hits a record high today. You can take a look at that stock. They report earnings a week from today. As we now know Jensen Wong is in China with the president a lastm minute addition nonetheless important because does something come out of that? Is there something that Nvidia comes home with out of that out of that uh trip?

[00:06:42]>> And Nvidia's been running away from the the mega caps of late into earnings up 8 and a half% in a week.

[00:06:48]>> Interesting. So effectively zero data center revenue from China.

[00:06:54]>> Those were the words from Jensen Wong at the Citadel conference. Remember that last year it was 13%. Well, maybe he comes away with slightly more than zero.

[00:07:03]Maybe that's the reason why Nvidia is at a new all-time high. Maybe that's the reason why Apple today is at a new all-time high. Maybe that's why Alphabet and Amazon in the last week have recorded new all-time highs. This has been the consistent dominant theme for the entire second quarter. This hasn't emerged out of nowhere. The market for the entire year has been rotating from sector to theme to factor. And right now, it's about growth and it's about momentum. One day ago, we were sitting here and debating whether the 3% decline in momentum was something that was going to be a very uh isolated one or two-day event or if it was going to be a multi-day event. Well, here you go. You learned just an isolated one-day event and it comes back stronger than ever. I don't know how anyone can make a strong argument for the market ability to broaden out with oil at 103 and the 10year approaching 4.50. And you know what's interesting too, um, Brennan, I want you to react to this. What Wells is talking about today, that the fact that the they say a closed straight of Hormuz actually fuels the AI trade bubble in their view. You can't own anything but AI. That's how a bubble forms. We expect limited downside until either growth slows, core inflation meaningfully accelerates, or the war evolves into a hot war. Don't fight the tape. I mean, it takes that takes a little bit of what everybody here on the desk has has already said and takes it a level further. Don't fight it. Don't try to get too cute. Play the hand that you got and what's right in front of you. Do do you agree with that?

[00:08:47]I mean, this is this is Joe's market and we're just living in it because I mean, Joe hit on momentum. Obviously, he runs a momentum strategy. Um the momentum the energy underneath momentum stocks is parabolic. I mean if you just look at the socks which is the SOXX it's like 525 the 50day okay is way down in the 300s way down there. And so it's like this is where we are. And I think that the point that Wells and Joe and everyone else made about while the straight is closed and I think the problem is that you know Trump plus all of our amazing CEOs are in China right now that the problem with the strait is who is anyone actually talking to because the people China was talking to the people the the the US were talking to have all been killed.

[00:09:36]And so in Iran we have such a fractured government right there. I think this really complicates that. But I do think that there's a high probability that we get some good trade news because you're not going to have all these CEOs go all the way to China and come back with nothing. And so I think we're going to have some really positive um green shoots we'll say come out of China around trade. You know, Boeing's been trading really solid. I think that could be really great news for the US. But I I go back to, you know, this is Joe's market and we're all living in it because you really can't bite the tape on momentum and that momentum is ob obviously very narrow being the participants that are benefiting from this really high momentum trade. Yeah.