AI Winners, Bond Shock, and a 19-Year Yield Spike

Grant Calloway

So, uh, the tape this morning is... well, it is tighter than a drum, but it is also completely split down the middle. We are looking at a classic pre-market tale of two cities here. S and P 500 futures are up zero point six seven percent, Nasdaq one hundred futures up one point four four percent, but that is a very, very fragile bounce. Because if you look under the hood, the trading floor is basically tearing itself apart over how these massive tech companies are spending their cash on AI. I mean, look at Microsoft. They are gapping up over nine percent to four hundred twenty-six dollars and ninety-three cents. Why? Because they absolutely crushed their Q two earnings. We are talking an EPS of four dollars and eighty-one cents versus the four dollars and twenty-four cents expected. And the big one... their Azure cloud business topped one hundred billion dollars in annualized revenue for the first time. That is a massive milestone. But then... then you look at Meta.

Grant Calloway

Meta is plunging nine point eight four percent to five hundred twenty-eight dollars flat. Just a absolute, uh, brutal fourteen percent miss on earnings per share. They came in at six dollars and eighteen cents versus the seven dollars and twenty-two cents Wall Street was looking for. And what is wild is that this miss completely overshadowed Mark Zuckerberg's big announcement. He unveiled this massive strategic venture with BlackRock to develop a new one gigawatt data center in El Paso, Texas. One gigawatt. That is a staggering amount of power, but right now, the market is looking at that capital expenditure and saying, show me the near term cash flow, not the Texas size electric bill.

Grant Calloway

And speaking of bills, the bond market is having a absolute rebellion right now. Yesterday, Fed Chairman Kevin Warsh decided to hold interest rates unchanged for a seventh consecutive month. And the bond vigilantes? They are not having it. The long end of the Treasury curve is basically collapsing. The thirty year Treasury yield has spiked to a nineteen year high of five point two four percent... currently sitting around five point two zero two percent. And the ten year is at four point six seven six percent. This is a massive, massive move. It is the highest level we have seen since around two hundred seven. It tells you that investors are deeply, deeply worried that the Fed is falling behind the curve on this persistent inflation.

Grant Calloway

And you cannot blame them when you look at the global macro pressure. Overnight, we had retaliatory US strikes against Iranian targets. That pushed Brent crude oil right up near eighty-three dollars and fifty-two cents per barrel. That is a fifteen dollar surge since these hostilities broke out. Gold is still heavily bid too, acting as that defensive anchor... up one point one percent to four thousand eighty-one dollars and sixty cents. It is a very nervous tape, to say the least.

Grant Calloway

Now, it is not just a tech story today. We are getting some real reality checks in the mid-cap space that tell us a lot about the broader economy. Take Baxter in the healthcare sector. They are gapping up fourteen point two five percent to twenty-eight dollars and thirty cents on a really optimistic operational recovery outlook. Then you have Huntington Ingalls in the defense sector, ripping eleven point two seven percent to three hundred twelve dollars. They posted a monster Q two beat with an EPS of five dollars and twenty-seven cents versus the three dollars and eighty-one cents expected. Their defense backlog is just ballooning. But on the flip side, look at LKQ Corporation. This is your consumer cyclical warning sign. They are crashing fifteen point three five percent to twenty-two dollars and thirty-four cents after missing earnings. They hit sixty-seven cents versus seventy-one cents expected. That is a clear sign that consumers are pulling back on the automotive replacement cycle. They are holding off on fixing the old car.

Grant Calloway

Before we get into the big debate on these interest rates, a quick shout out to our sponsor, Jellypod. Look, this tape is moving way too fast to rely on lagging news feeds. If you want your daily market brief customized and read to you while you prep for the open, let Jellypod turn your reading list into a personal audio brief. Check it out at jellypod.com.

Grant Calloway

So, how do we weigh all this? The bear case is simple: that thirty year Treasury spike to five point two four percent is a systematic repricing of credit risk. It is going to choke corporate balance sheets, raise the cost of capital, and force a hard landing. But the bull case... the bulls look at Microsoft's Azure numbers and say, look, the productivity gains from AI are real, they are massive, and they are strong enough to let the corporate sector grow straight through this higher for longer rate environment.

Grant Calloway

We are about to get some answers. At eight thirty AM Eastern, we have the June Core PCE coming out... expectation is zero point two zero percent month over month, three point three percent year over year... along with Q two GDP. And of course, we have Amazon and Apple reporting after the close tonight.

Grant Calloway

The tape doesn't lie, but it sure likes to talk before the bell. Keep your position sizes tight, and I will see you when the floor starts roaring.

Grant Calloway

This podcast is for educational purposes only and is not investment advice.