Chip Rally vs. Geopolitical Risk

Grant Calloway

Ten straight nights of airstrikes on Iran. Let that sink in. Central Command is- is actively hitting targets, Trump's declaring the ceasefire is officially over, and the Houthis are putting a literal chokehold on Saudi shipping lanes. In my day on the floor, that kind of tape would have had traders diving for treasury bonds like their lives depended on it. But today? Today, the pre-market screen is a sea of bright, glowing green. It- it- it makes absolutely no sense on paper, but that's the tape for you.

Grant Calloway

If you look at the actual numbers as of 7:00 AM Eastern, S&P futures are up point-five-two percent, sitting at seventy-five twenty-three point fifty. Nasdaq-100 futures are leading the charge, up a massive one-point-three-eight percent--that's a three hundred and ninety-six point five-zero point surge to twenty-nine thousand one hundred and seventy-five point two-five. Even the Dow futures are up point-four-three percent to fifty-two thousand two hundred and ninety-six even. Now, if you want to know where the actual, physical risk is being priced, look at commodities. Gold futures are trading at a historical four thousand sixty-two dollars and ninety-seven cents per ounce, up one-point-four-one percent. Brent crude is holding heavy at eighty-nine seventy-seven, and WTI is at eighty-three ninety. The commodity pits are whispering trouble, while equity traders are- are basically whistling past the graveyard.

Grant Calloway

And- and why? What's the drug of choice today? It's the semiconductor recovery. After the absolute- absolute bloodbath we saw last week, the VanEck Semiconductor ETF--the SMH--is trading up over three percent. We've got Micron and Marvell both jumping six percent pre-market, and even old Intel is- is clawing its way up over five percent. I've seen this movie before, though. Back in ninety-eight, and again in oh-eight, you'd get these- these massive relief bounces on oversold tech. We called them "liquidity head-fakes." It's just short-covering and fast money trying to front-run the big boys before Alphabet and Tesla drop their numbers. It's a dangerous game to play when the world is on fire.

Grant Calloway

And it's not just a domestic delusion, either. Look at Asia overnight. Tokyo's Nikkei 225 exploded, up three-point-two-six percent to close at sixty-six thousand two hundred and thirty-two point nineteen. Hong Kong's Hang Seng index jumped two-point-three-six percent to twenty-five thousand one hundred and forty-three point zero-five. Europe is a bit more, uh, sober, let's say. Germany's DAX is up a modest point-four-six percent, while London's FTSE 100 actually slid point-four-three percent. So the- the physical world is showing fractures, but equity liquidity is still trying to force a melt-up.

Grant Calloway

Now, to be fair, the bulls do have some fundamental ammunition this morning. We are seeing some absolute corporate blowouts in the pre-market. 3M is surging over seven percent after posting an adjusted EPS of two dollars and forty cents--that's up eleven percent year-over-year--and they raised their full-year guidance to eight-eighty to eight-ninety-five. General Motors is up two percent, bringing in forty-eight point zero-three billion in revenue and adjusted earnings of three dollars and fifty-seven cents per share. And Charles Schwab? Schwab absolutely crushed it. Their second-quarter net revenues increased twenty-one percent year-over-year to seven-point-zero-seven billion, with adjusted EPS hitting one-sixty-two. They brought in one hundred and nineteen point eight billion in core net new assets, with Rick Wurster pointing to a record sixty-two point seven billion in June alone.

Grant Calloway

If you need to cut through all this earnings noise and get high-signal, daily audio briefs delivered straight to your ears, check out jellypod.com. It's what I use.

Grant Calloway

But let's look at the real- the real battleground for the American consumer, and that's D.R. Horton's Q3 report. On the surface, the bulls are popping champagne. DHI beat expectations with an EPS of three-twenty, beating consensus by twenty-three cents, on revenue of nine-point-two-three billion. They closed nearly twenty-four thousand homes, up four percent. The narrative there is that builders can- can just use rate buy-downs and incentives to steal market share from regular folks trying to sell their houses.

Grant Calloway

But hold on a second. If you look under the hood... their cancellation rate spiked to twenty percent. That's up from seventeen percent last year. One in five buyers is- is literally walking away from their deposit. And they cut their full-year revenue guidance to thirty-two and a half to thirty-three billion, which is well below the consensus of thirty-three point eight-One billion. Buying down mortgage rates is a margin-destroying trap. That twenty percent cancellation rate is a flashing red light that the physical American consumer has finally hit a brick wall, no matter what the stock price says.

Grant Calloway

We'll get some more clarity on that consumer health at ten AM Eastern, with the BLS Second Quarter Usual Weekly Earnings and the state employment numbers. Keep an eye on those. Until then, remember what we used to say on the floor: "The trend is your friend, until it bends at the end." And, uh, just a quick compliance reminder, this podcast is purely for educational purposes and is not investment advice. Alright, let's see how the open plays out. Talk soon.