Yahoo Finance

Welcome to the opening bid podcast. I'm Yahoo Finance executive editor Brian Sai. Like I always say this, the podcast that will make you a smarter investor, period. And of course opening bids sponsored by our friends at Vanguard. Let's get a minute on the shot clock. I want to dive into our stocks of the day. That is 7 stocks, and you guessed it, that is the mag 7 because these stocks are absolutely ripping higher once again, locking in on the.Round Hill Mag 7 ETF up 18% from the April 8th low. Now first blush, you think these stocks are doing well because of this new China trade news and yeah, that might be part of the reason, but there are two other reasons for this. First up, the earnings earnings estimates for these companies were absolutely demolished over the past few weeks, pretty much across the board. Google, Microsoft, you name it.Good stat by the folks over at Barclays. The average large cap tech stock beat first quarter earnings estimates by 8%. That's pretty darn good. Number 2 reason is that earnings growth for large cap tech players was very strong in the first quarter yet again, not that it hasn't been strong. It's just people didn't think it was going to be strong, was strong again. Goldman Sachs data shows large cap tech stocks in the Mag 7 delivered 28% average earnings growth in the fourth quarter. The 4.493 other stocks in the S&P 500, only 9%, so 28%, 9%. The market likes the 28% better as you would expect. That's it for our stocks of the day. All right, let's bring in our featured guest for this episode, Lolly Acker, uh, eToro global markets analyst, uh, and of course this podcast sponsored by our friends, uh, at Vanguard. Lolly, good to see you. It has been a long, long time. Uh, welcome back to Yahoo Finance. So we're, we're trying to digest.This news on China. So we start this, we start this market day, the US is lowering tariffs on China from 145% to 30%. And let's keep in mind there was no tariffs that really existed anywhere, you know, a month and a half ago, but we'll put that aside, and China is leaving 10% tariffs on the US. What's your assessment of this? Is this as good a news as the market thinks?

Thank you so much Brian. It's, it's very exciting to be here. Thank you for having me. Look, I think it is a dramatic de-escalation. um, I think it's likely aimed at calming markets and also averting a further economic drag. Still, I would caution that there are some structural issues remain unsolved.Um, and we think that the follow through actually matters more than the headlines. Now let me be clear about that again, um, the 90 day cool off echoes 2018's ceasefire which did actually collapse into a deeper conflict before they were able to sign the phase one deal.Um, and also that um, the purchasing agreements that they're talking about, um, based on past experience, it, it shows how fragile these deals can be going back to the 2018, um, period, but I think that overall it does say that, you know, they do want to, um, you know, just come to an agreement and they are looking to work together.Um, still, I would caution that based on 2018 alone, it might take longer than expected. Overall, we do think that it's a big tailwind for global risk assets, not only for those tech stocks that have supply chains in China and in Asia.Um, and also obviously other exporters, cyclicals and supply chain sensitive sectors that I just talked about.

Does it bother you as as an analyst twofold one, that we still have 30% tariffs on China. And then number 2, does it bother you that 90 days from now we don't, it's unclear where these tariffs go. Maybe they go back up. Maybe they go back up a little bit. It's wildly unclear what happens next.

It does bother me a little bit. I think I'm more bothered about the real economy, Brian, rather than the markets. Marcus seems to be looking at liberation day and whether there is meaningful um change in sentiment and rhetoric based on that versus for the real economy as you know, because this is so uncertain, businesses, consumers, they have stopped their decision making and therefore that is going to come in hard data as well going forward now we, we did.Um, listen to, uh, Chair Powell's talk about how they would like to keep rates at this point because of the fact that again this is so very uncertain they don't know what to do and just imagine what it means for business decision makers and and from consumers as well for markets again I think they do take a look at the liberation day. It's way better than we expected risks on mode we have the liquidity the background as well, so it's all good news.

It's like everything just comes full circle. Like just the markets were just getting blown up. But let me, let me ask you this. So we have now this this de-escalation in tariffs, but you mentioned, I think, a very important point on hard data. Now over the next few weeks, a lot of this data might reflect 145% tariffs on China and really robust tariffs in other places across the world. So what is the market likely to pay more attention to?

That's a great question. First, I think inventories, the level of inventories, Brian is gonna be very important because that will tell us when that pricing pressures are going to be started by the companies on to consumers. The second thing is going to be employment data. I think the Fed was very clear about how they will take a look at.Whether there are any micro cracks showing up in the labor market data we are looking at job openings we are looking at um layoffs pretty much on a weekly basis just to see because that's where this hard data first uh shows any signs of weakness and then it goes to the consumer spending and then the real economy so I.I think these are the places to take a look at and obviously inflation is an important indicator as well, but unfortunately on a very macro level it's lags so it's it's a less reliable indicator in my opinion rather than taking a look at again the more micro labor market data and as I said inventoriesas well.

The data that we're going to get, uh, let's say in terms of growth data, will it suggest we are in a mild recession already?

I don't think so. I don't think we are in a mild recession at the moment. I think the weak GDP data is because of import rushing again that is also showing on the inventory levels. I think consumer spending, especially real consumer spending, which is again a better indicator, um, is, is still very strong, Brian, and yes, sentiment is attacking soft data is, um, it's multiyear lows, but I definitely don't think we're in a recession yet.Um, our opinion is that, you know, even if we do have a real recession.It's not going to be a major one because of the fact that the Fed will likely come in and cut rates. We have ample amount of uh rate cutting space if you will, um, that will, that will uh cushion the the real economy but again compared to the markets, I'm more worried about the macro side rather than the risk on sentiment. Does this,

does this news on tariffs while they remove.The chances of a recession. Like what does that break because I think about what Goldman Sachs, just before this news, the Goldman Sachs team were looking for a 45% chance of recession. They've been there for, uh, a couple of weeks already. Would something like that come down and like what, what happens to your probabilities?

Probability wise, I think there's a marginal improvement, Brian, um, again, the, the overall.Um, understanding that I got from Scott Besson's talk is that both sides are willing to talk and that decreases probability, uh, but again, you, you gotta, you gotta keep your scenario analysis, right? There there in this type of environment there cannot be any base case. I think it's still, uh, you know, when you're positioning, when you are advising clients, you gotta make sure that there are hedges and.You know, diversification with gold, with you know other uncorrelated assets still stays, but yes, and a marginal improvement and probability from our side aswell.

What I know you study uh earnings estimates uh as do I. It's just, it just comes with the gig but you know I was thinking back this morning I talked to Mattel's CEO a week ago, um, nor, and they pulled, they were looking for almost a $1.72 a share in earnings this year.Uh, that was 3 months ago. They pulled their guidance, but now that we have this news, do you go back to like relying on that guidance? like what's your North Star?

Yeah, we do definitely. I mean we do take a look at guidance very closely, but that guidance, as you said, has uncertainty embedded as well. I do want to say that again, when earnings growth is at these levels, there was never a case of a major recession happening.So that gives me some comfort, but I take a look at see your comments on the earnings calls and again the guidance. All of them are saying that it's very uncertain, um, you know, they are building on inventories and, and they are, you know, watching it very closely, um, it is, it is, it has that uncertainty element still um coming from that side of, of um of that as

well. Should investors even believe the numbers that are out there?

Um, I think they are good guidance, but at the same time, it's always good to be a little bit skeptical, again, understanding that if, if the Fed doesn't know what will happen and they just would like to wait and see, that's probably applies to businesses and decision makers as well.

So how cautionI think how much, you know, does your, I guess how important is it that the Fed does cut rates this year?

I think I mean if if there is a major sort of um disappointment coming from any trade deal, especially with with China, but I would caution that Europe might be even as hard as China in terms of coming to a trade agreement, then it is quite important that they will have to step in because.Uh, with that supply chain, whatever supply side reaction will probably um uh spill over to the demand side and then they will have to cut rates as well. So again, because they have so much room to cut.I'm quite confident that even if there is a recession it will not be uh sort of like a crisis or a meaningful one at

this

moment.

Yeah, we don't, we don't, we don't need a crisis. It's been a hell of a year so far and it's only, uh, it's only May. All right, hang with us, uh, Lolly. We're gonna go off for a quick break. We'll be right back on opening bid.All right, welcome back to opening bid here at the NASDAQ in Times Square, of course, opening bid sponsored by our friends at Vanguard having a fun chat here with EToro, global markets analyst Lolly Acker. Um, you're in the, you're in, uh, you're in London. You're in the, uh, the OK, Lolly. What's the vibe on, on the trade deal? We just signed a trade deal. Are people over there as excited as, you know, the Trump administration appears to be about their first trade deal?

Um, they are depending on how they look at it. Um, the fact that he still kept the 10% baseline tariff is obviously not ideal, but there are some strategic wins for key UK exporters in autos, aerospace.And still there are some companies such as Jaguar Land Rover, Bentley, McLaren, they are definitely breathing easier, um, and sort of others such as Tata Motors, uh, are actually thinking that they might see um US facing revenues stabilize so.Um, it's a very sector specific deal understanding that there is still a 10% baseline tariff, but any deal would have helped the market sentiment which we are seeing in in the overall indicesas well.

So basically, as you're telling me, my, my next McLaren will still be very expensive. I actually, I definitely don't own a McLaren and I, I, there's no chance of helling me get one within the next year or so, but I just wanted to talk it out there because I could see the comments coming in now. Um, let's look.Someday for us both, uh, Lolly, um, I wanna dig into some sectors here. So you know, I, I started off the podcast talking about Mag 7, how those stocks have come back rocking, and this is happening even before Nvidia reports earnings on, on, uh, on May 28th. Should investors lean into there now we have this China trade news. Do you go back to that Mag 7 trade that has worked so well over the past five years?

I look, I think given that they are showing um that they can still monetizing AIEE and some of them are increasing CaE as well um guidance is, is quite positive, but I do believe that you know diversification would work in this environment so we are saying that look in this whatever all trade policy deal making volatility.Services sectors will actually outperform good sectors we think for instance financials, industrials, health care, they might see their revenue growth more positive as opposed to some of the more supply chain sensitive parts of tech. I guess what I would like to say is be selective, mindful of the fact that this trade policy uncertainty will still linger for some time.And therefore look for companies that are quite insulated from these these pressures again we do like financials such as Bank of America, JP Morgan, Mastercard, Prudential these companies back in 2016, 2017 where these trade talks first um came into um the whatever like policy making, they were saying that they are actually pro tariffs in DC lobby making.Because of the fact that they are well insulated if there would be any sort of like escalation and trade policy, so we do like these types of companies that are overall more insulated rather than again more supply chain sensitive tech sectors always be selective, always understand how these sectors will be impacted.And and and diversify across asset classes as well is what we'resaying.

What uh what happens to all of these defensive trades that have worked well over the past, I guess, post liberation? I look at gold gold price is getting hit, uh, here this morning after this news. What happens to some of those, those places?

I think gold definitely proved itself as a reliable volatility hedging instrument. I think that yes, obviously the the price was way about 200 day moving average. I think it was like 30% above its 200 day moving average at some point, so we did expect some consolidation, but about a longer term.Uh, period, say 1 to 2 years as these trade policy and overall geopolitical risks remain, it is very reliable again volatility hedging instrument we do still like commodity exposures, um, because of the fact that again it's a diversified hedge to potential inflationary pressures coming from these um trade policy implications as well so.Um, I don't like cash. I think cash is

not trash. Cash is trash just like the old trash.

It's look, bonds outperform cash during easing cycles, so it's the front end of the curve, even the belly of the curve, better than, uh, cash in our opinion, and that rate will continue in the next 6 to 12 months as as Fed continues to, um, ease and and cut rates as well. So, um.Other places that we do like uh treasury inflation protected securities as well again as a hedge to rising inflationary pressures hedging still works, I

think. I'm, I'm gonna get this question, so I'm gonna put it to you before I get it because it'll be very helpful to get the answer so I can just convey these things to everybody that asked me. So, uh, I look at some of your notes Walmart, Best Buy, Target, Nike, Gap, and Toyota. Now these were all.Companies that have been pretty much hammered in terms of multiples and then I guess secondarily when they start reporting earnings soon they will be hit because of the tariffs that start to trickle in and even the second quarters may not look good. But now that this stuff is reversed a little bit regarding China, what do you do with those names? These stocks were beaten up. Now we're going to have theoretically less pressure on their businesses. I do, do you nibble at these stocks?

I think that they could still come under pressure, Brian. I'll be honest, I think that again these are heavy anti-border adjustable tax companies, i.e. anti-tariff companies that are more sensitive to any type of escalation in um in in trade policy between the US and other major dollar markets. So I, I, and, and China as well. So I would, I would have a cautionary view on that again we like.Companies that are sort of like insulated from these pressures again you can think of it not only the financials but places such as General Electric, Caterpillar, even Boeing itself are going to uh perform better from a long term perspective in my opinion.

I been in the last 11.5, 2 minutes of the podcast, uh, we always love to get a hot take from our guest, and I love what you brought up here. So let me, I will put this to you. What is theI guess geekiest market indicator that you watch in environments like this and why is that the case?

Um,I think it would be job openings versus unemployed. It is very geeky because it does indicate how hot the labor market is and whether the Fed is going to start easing again.

I've got one more for you. net net liquidity.

Very important.

How do you watch that? What, what is, what is, what is that actually?

Yeah, so I think one of the things that we take a look at is, um, Treasury general account and in fact that might be more geeky than than job openings are unemployment. It is very important because, um, as you know, the US has hit its debt ceiling. They cannot issue net new debt.They are paying back their debt and therefore they are that liquidity goes to the um banking sector and therefore to the real economy and that that's sort of like provides a cushion if you will for the markets as well that drives down um.Um, the US dollar as well, so I, I think that's definitely one of the most important indicators out there because there are talks that actually it's the treasury that is setting rates right now, not the Fed itself because of that liquidity.Um, coming into the market and I do think that the fact that we have Scott Besant making these deals again makes it a very important indicator to watch. That's one part of the liquidity indicators that we look at Treasury general account.

Uh, very geeky. Lastly, um, we're almost at the, the midway mark for the year. If we're having this conversation last week in December, where's the S&P 500?No pressure.

Last week, I would say um I don't want to give a price target if it's OK, but I think I, I'm, I'm definitely risk gone at this point.

OK, I dig that. Well, it's good to see you. Uh, this was uh very informative as I knew it would be Lolly Acker E Toro, global markets analyst, good to see you. It has been a while. Uh, do not be a stranger. We will be talking to you soon.Thank you, Brian. All right, that is it for the latest, uh, opening bid podcast sponsored by Vanguard. Continue to hit us with all those hearts and thumbs up on all the podcast platforms, uh, and the thumbs up on YouTube, especially keep those comments coming on YouTube. I enjoy seeing them. Uh, it makes me better at doing these, and I greatly appreciate it. We'll talk to you soon.