Tariffs, Oil Spikes, and Big Tech Earnings: Markets Brace for Monday

Hey, everyone. It is Julie here with TipRanks, and today we are diving into all things happening in the market with Chris Versace from The Street Pro. Chris, thank you so much for joining me today. >> Happy to do it, Julie. You know, as I I say all the time, I love our conversations, and I continue to uh look forward to them. >> As do I, and we have a lot to cover today. We're getting into geopolitical tensions, oil prices, tariffs, uh interest rates, but I want to kick things off with earnings as we are getting into the thick of earning season. Uh just yesterday we had Intel, their data center and AI revenue was up 59%. The company had their highest quarterly revenue growth in 15 years, and they also raised their CapEx again, but chip stocks are moving lower this morning. So, what's our insights there? >> So, you know, I think that there is a lot of uh concern about the overall capacity uh increases that we're seeing from a CapEx perspective. You You didn't touch on it, maybe you will, but you know, you look at Google and what they announced, Tesla what they announced. Um obviously um the flow through through that is positive for chips and demand, not just for, you know, the numbers you mentioned from uh Intel, but also for others that are doing chips that go into AI data center networking. For us, you know, that keeps us bullish on Marvell, Broadcom, Nvidia uh that we own in the Pro portfolio. However, however, we do realize that um with Google in particular, they dipped into negative cash flow, which is the first time it's ever happened, and that's rekindling some questions. And the thing is, I suspect that we're likely to see the other hyperscalers lift their CapEx. It's going to raise more questions like this. Uh so, the question I I think you really want to be asking me, Julie, is um are you still bullish on Google after what they said? And my answer is yes. I'll tell you why. Uh not only did we see a huge ramp in their cloud business uh and the margins for it, but we also saw improving margins in the core business as they continue to leverage AI. Um from my perspective, Google is ramping the capacity so that they can deliver on this backlog that hit 514 billion exiting the quarter. And if you look at it relative to uh the cloud revenue that they did the first half of the year, uh that's up almost sixfold in the next 2 years. So, you have to build a capacity to the convert the revenue from backlog to revenue. And the fact that they are squeezing more margin out of the business, incremental margins, Julie, on every dollar of revenue or over 200%. I think that the market will come around to realizing this. We remain bullish on Google. We're now just trying to figure out once we get through all the hyperscaler earnings, where are the shares going to settle out? Do we revisit our rating? That's kind of what we're waiting on. >> Yeah, Mike, you mentioned there we had Alphabet and Tesla both selling off, but then we do have Microsoft, Amazon, and Meta all reporting soon. So, if we also see them raise CapEx guidance, which I feel like there's a decent chance we can expect that coming into this, is that going to see another, you know, beat expectations but the stock is selling off or is a strong print going to change how the market reacts? >> So, I I think right now the market is more concerned about the ability to monetize AI and what that means relative to the CapEx increase. Cuz when you look at Google's incremental CapEx numbers compared to what they telegraphed earlier in the year, they're not tremendously higher, right? They are higher, just not another massive step up. But we do know they are going to increase their spending again in 2027. Tesla pretty much said that they're going to continue to ramp their capital spending. So, I I I think we're going to continue to have these funding questions, and I think the extent we see those other hyperscalers you just mentioned ratchet up their capital spending, it's going to renew them. So, you know, what we're going to do with the pro portfolio is let's get through this next wave. Let's see where these stocks settle out, and then we can start to make our move because when when you identify the ones that are properly investing, right? And I would argue I would put Google in that camp given the comments about backlog, about margins. To the extent that we see others do that, I think people will realize this is a little more disciplined than the than the headlines might be suggesting. >> Now, as you mentioned waiting until these hyperscaler capex levels are kind of recalibrated before adding into positions, what does that setup actually look like? Like, what would you be watching for to tell you it's now time to buy and that those reactions have settled? >> Couple things. I mean, one you know, when it comes to the portfolio, we don't like to chase stocks, right? We would rather pick our spots, and the extent we see a pullback, we see a stock become oversold, boy, we do like that. It It tells us that the risk reward is really skewed in our favor. So, we'll be watching some of that, but we'll also keep an eye on some of the more traditional technical support levels, you know, 50-day, 100-day, 200-day moving averages. And as we look at that for each of these stocks, we'll be doing the same for both the S&P 500 and the Nasdaq because we do realize that the overriding market mood is pretty important right now. >> Now, on that note, let's get into the geopolitics of it all. Trump promising major military punishment after strikes on two Saudi oil tankers in the Red Sea. And if that escalates further over the weekend, what's the market's likely reaction to be on Monday morning? Are there specific sectors and stocks that we're going to be being a close eye on? >> Yeah. Yeah. I mean, look, we'll obviously want to pay attention to those who benefit from higher oil prices. But, I also think that to the extent we do see that escalation, it's going to um stoke the fans of inflation concerns that are already starting to blow because we have seen uh oil prices, you know, move in a much higher fashion compared to where they bottomed out or, you know, just a few weeks ago. We're seeing gas prices back back above $4. So, the timing is kind of interesting, right? Because we have the uh Fed policy meeting next week. And to the extent we see further escalation in those oil prices, I think the market's going to gird a little more for more hawkish comments out of the Fed. Remember, um new Fed chair uh Walsh almost said Powell, but Walsh um said, "Look, we are committed to getting inflation back down to 2%." And the chatter from some of the other Fed heads, as I like to call them, is skewing incrementally hawkish. But, you know, what we see in the next couple days, I I think will help set the tone for that. To the extent that is the case from a sector perspective, those that are more interest-rate sensitive, like housing, for example, um it's going to be tough tough to contemplate owning those. They have gotten beaten up. Um but, here's the thing, you know, earlier this week, mortgage rates hit the highest level in over 12 months. And to the extent we see this inflation rekindle uh even further, it's going to be more of a headwind for the those more interest-rate sensitive areas. >> And so, Brent crude just broke $100 per barrel for the first time since May. Can you walk us through a bit of the read-through for how the sustained move above $100 uh can change the inflation picture heading into next week's meeting? >> Well, it's it's all about the flow-through. And I would say it's not just oil. I would say that if we look at the traffic through the Strait of Hormuz, it is falling considerably compared to the rebounded level we saw again, um you know, several weeks two months ago. And I think that's also kind of reinvigorating uh concerns over supply chain. So, there there are multiple aspects that we have to watch, but remember remember you mentioned that $100 barrel, you know, so far the market has been kind of like shrugging it off a little bit. Again, for every dollar it creeps past that, the more those rekindled inflation concerns are going to mount. If we get back to like 110, then I think um the market is going to start to revisit the thought about the number of rate hikes between now and the end of 2026. >> And I have heard you even making a bit of a case for two more rate hikes this year. So, what are we thinking about? >> me? No. >> I heard talking on it, you know, people still pro speculating on the chance >> Yeah, yeah, yeah, yeah, yeah, yeah. >> So, what's the outlook on the potential of those rate hikes? >> Look, I I I have said all along that we we have to be kind of fluid in our thinking when it comes to uh the number of rate hikes, you know, several weeks ago the market was expecting two between uh you know, now and the end of the first quarter. We saw some improving inflation data, those got dialed back, oil prices have moved up, now you're seeing expectations starting to move higher. So, it's all very fluid. Um I I I think it it it reminds me about some of the words that I used at the very start of the US Iran war, and one of them was duration. So, to the extent that we see oil prices move higher on a sustained basis, the duration extends, then I think the odds of seeing the Fed do more to tame inflation grows. Um but, you know look if if all of a sudden, you know, we we see um a new MOU emerge, peace talks come back, you know, then we see oil prices start to fall, the market will reconsider the number of rate hikes. So, I I I think we just have to continue to watch the move in oil sadly day by day. And the longer it goes on, the more we have to, you know, recalibrate our thinking. >> And we also have some news on tariffs. Uh the White House just rolled out new tariffs on a 60 countries, right? As the old 10% tariff expired. So, is this a meaningful escalation, more of a targeted symbolic move? How much of an impact does this have? >> Well, to begin with, the White House has really telegraphed that they were going to rebuild their tariffs, their tariff wall, as they called it. And this kind of replaces the ones that go out. Now, it's across 60 countries. Some are in the 10% bracket, some are a little higher. My understanding is that the uh administration intends to rebuild the wall on on China as high as 20%, but we also know that Trump and Xi are getting together, you know, sometime uh in the next couple months. So, a potential more negotiating than anything else. Um what I'm going to be watching, you know, later today and really over the weekend, in addition to the potential for renewed or escalated conflict between the US and Iran, is what are these 60 countries saying in response, what retaliatory measures might they be putting in place? And if they do, does Trump, you know, respond to that in a not so nice way, ratcheting these tariffs you know, even higher? So, a lot a lot a lot to watch over the weekend and ahead of what could be, Julie, a very big week for the market given those hyperscaler earnings and the Fed. >> That kind of brought me to my wrap-up question where I was going to say, you know, what's the big thing you're going to be watching over the weekend and ahead of that meeting? Anything beyond that that you want to add that investors should be keeping an eye on? >> I would say just from a market technical perspective, you know, keeping our eye on those key support levels again for the S&P 500, the Nasdaq. You know, if you look on a daily chart, you know, the S&P appears that it's flirting with some support on the Street Pro video that we did yesterday where I spoke with Bob Lang. He kind of zoomed out a little bit and looked at it on a weekly basis and what he shared is that through his view, he sees the S&P 500 more at the lower end of a trading range. Now, the question is does that hold? And I think the answer to that comes most likely from what these weekend developments and what we hear, you know, the first several days of next week. So, a lot a lot to pay attention to. >> I know. Hey, there's never a dull week lately. There's always a lot to watch, so. >> All right, Julie, you know, think of it this way. We've probably got about 2 plus years to go. >> Yeah, sounds about right, hey? So, I appreciate your insights, Chris. Always very interesting. And for all of our viewers, if you want to hear more, you can head on over to the Street Pro and catch Chris's latest articles covering a lot of these topics on what is happening in the markets. Chris, thank you again so much for joining me today. >> Happy to do it, Julie. Have a great weekend to your viewers. Have a wonderful weekend, as well.