Morning Call 8/17/26

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 I'm Morgan Brennan and this is your morning call.
 Good Monday morning. Let's get a check on US stock futures with the S&P 500 and the NASDAQ coming off their third straight weeks of gains.
 The Dow finished down last week, fractionally lower all the major averages basically in the red though on Friday.
 You can see S&P is poised for a slight gain this morning, indicated to open up to the tune of seven points.
 The NASDAQ poised to open up 180 points in the Dow under pressure again this morning down 87 points.
 Let's get a check on treasuries as well with a busy week for housing data on tab. We also get some fed minutes in the middle of the week.
 You can see right there we've got a little bit of pressure on yields across the curve right now.
 The US 10 year treasury yielding 4.68% and the fed sensitive to your treasury yielding 4.15%.
 Big story last week was the yield curve steepening so you continue to keep an eye there.
 We're checking energy as the US and Iran's memorandum of understanding technically officially expires today.
 No signs of an agreement to from either to extend it or to return to negotiations.
 We're going to have more on all of that in just a moment.
 But if you get a check on oil prices this morning, you can see a bit of green here on the screen.
 WTI is a fractionally trading around $82.50 a barrel.
 Rents is up $7.10 to 1% trading around $89 a barrel and a look at the metals complex as well.
 Gold and copper both coming off their 4th straight weeks of gains silver is riding a 2 week win streak as well right now.
 And you could see across the metals complex.
 We have some fractional gains here this morning.
 Let's see how Europe is shaping up in early trading right now relatively muted start to the new trading week.
 If we could pull those screens up, yeah, you could see the let's say the DAX is basically flat here.
 The French CAC is basically flat to the downside.
 It's a similar situation really across the board.
 And if we check on Asia markets too and the trading session, we saw overnight.
 Okay. All right.
 We're going to talk about South Korea here.
 President Trump announcing yesterday the US will reduce military exercises with key regional allies South Korea.
 The announcement coming just hours before those drills were due to get underway.
 The president citing his positive relationship with North Korean leader Kim Jong-un and Seoul's lack of assistance with the war in Iran.
 So if we take a look at the trading we saw overnight in Asia, we've got those boards for you here now.
 You could see gains Japan's Nikkei actually finishing your highs this session up 7.10 to 1%.
 That was despite disappointing Q2 GDP reading in Japan, which is injecting perhaps some more question marks about what happens next with the bank of Japan.
 And you can see the hang sang finishing up 1.3% and the Shanghai composite up 1.4%.
 Let's turn to the war in Iran again.
 And Washington and Tehran's memorandum of understanding that expired today.
 This emitter report that Iran is looking to escalate the fighting with the US.
 Dan Murphy is in Abu Dhabi. He has more. Dan.
 Morgan Good morning. Washington also preparing to ratchet up economic pressure on Iran with Treasury Secretary Scott Bessent signaling a new package of measures could come as soon as this week.
 You'll remember that recent interview that when Besset said the US is preparing for economic steps against the Iran that have never been seen before as Washington basically looks for new ways to target Tehran's oil revenues at shipping networks and its financial channels.
 The timing here really critical as you say Morgan the 60 day US Iran memorandum of understanding expires today with few signs of a new agreement in sight.
 And here in the region concerns are also growing.
 The Washington Post citing Arab and Western officials reports today that Gulf leaders are increasingly worried about whether President Trump can manage the diplomacy needed to secure peace with Iran.
 And then separately there's a Wall Street Journal report today citing Iranian and Arab officials that reports Tehran's hardline leaders have used these past two months not to wind down the conflict, but to prepare for a bigger fight.
 The journal says that includes giving the revolutionary guard more control over the regular army, ramping up missile and drone production and expanded coordination with militia allies in Yemen and in Iraq.
 Interestingly this report also says that Iran has basically used attacks on shipping to tighten its grip on the street of Hormuz where an adknock vessel was also attacked on Friday adknock of course being the state oil giant here in the UAE.
 President Trump at the same time stepping up his own claims over Hormuz saying the US could declare the straight American territory around also rejecting that saying the waterway cannot be taken by tweet.
 All right Dan Murphy thank you and of course we get all this as we continue to focus on things like US aircraft carriers and dynamics there the US Admiral were seeing the war with Iran visited the USS Abraham Lincoln amid reports of poor living conditions on that aircraft carrier.
 And also reports that we're going to see the only US aircraft carrier in Asia pulled and redirected to the Middle East so that one can be serviced.
 So we continue to focus on all of that but let's let's get a little bit more specifically on the action we've seen in Asia with JP on JP.
 Good morning you guys Morgan and it was a tale of two economies here in Asia this might kick off the trading week and we'll start off with the biggest one China which released what we call the monthly indicators or the
 effective data that indicates how healthy China might look at it and across the board across the score for that is from retail sales industrial production and all the way to fix that investment we saw them actually coming well below as expectations in fact fix that investments for you for the
 entire year contracting by a bigger than expected margin and thus pointing at signs of a slowdown once again and raising some slowdown fears in the world's second largest economy.
 Interestingly enough it did not impact how markets and greater cross-regator China did today we saw the likes of the Hamsai and the CSI 300 both close solidly into the green Chinese officials saying they are going to employ counter cyclical measures to help arrest some of the slowdown fears that we're seeing there but I'm very touching
 going just showing how difficult it's going to be to try and solve some of the economic challenges that China is facing internally.
 Over in Japan we saw a second quarter GDP coming at 1.1% again well below what comments are expecting a growth of about 2% one a year on your basis.
 Interesting also here to see that private consumption was flat and capital spending for businesses actually contracted by more than 1% and there was one clear suspect as to why.
 We've indicated and talked about the weakness of the Japanese yen and this was highlighted by businesses making it difficult for them to actually spend because of rising energy costs and also the rising costs of investing
 in their tactics, expansions and also investing in their business and thus also indicating why the Japanese yen is one of those things that they're going to watch out for and also starting to weigh broadly across the world's fourth largest economy not impacting Japan's GDP to 2.5 low today which closed in the green.
 Morgan, good morning you guys.
 Good morning to you or good afternoon I should say evening J.P. Young thank you let's tie all this together as we kick off the new trading week bring in Alan McKnight Chief Investment Officer at Regions Wealth Management.
 Great to have you here back on set. I mean we basically just took a trip around the world and then circled back on certain places as well.
 But how does this set us up here for trading here in the US and it does seem like maybe from not from a new standpoint but from a trading standpoint we are sort of moving into that summer slowdown.
 Is that all that is think global and act local if you will because when you think about what's happening this week in the US it's all about the US consumer.
 We've got home depot reporting lows target Walmart really can get this lens into what's happening are they still spending at the rate that they had been.
 And fundamentally are we going to see that type of pushes we go into the into the holiday season later in the winter.
 Do you think about this as a bifurcated market and perhaps a bifurcated economy you have you have AI and sort of the industrial activity on one side and then the consumer on the other.
 We do and the way we thought about it almost is this capex spend which has been good and then you have the consumer side and within the consumer side it's even more bifurcated.
 You have these asset owners who are doing really well if you own investments you on your own home you're feeling quite good about the economy.
 If you're an asset renter and you are renting your apartment your car and a host of other different assets you're not feeling is good because inflation has been running hotter.
 So we're seeing both corporate versus consumer as well as within the consumer this bifurcation with owner versus renter.
 Yeah I mean we hit fresh record highs for both the S&P and the Russell 2000s last week I mean can that continue through the rest of the year when you think about how strong.
 We've got more than what more than 90% of S&P 500 companies are reporting so far I mean the numbers have been gangbusters even higher than expectations in June.
 Best first half potentially since coming out of the pandemic in 2021 but how does that set us up for the second half of the year.
 I think it sets us up pretty well so obviously crushed earnings in a second quarter up over 50% we're already seeing this this feel of okay we can make this through the end of the year Q3 Q4.
 But the reality we're going to need is a broadening within the earnings perspective so the max seven has really driven a lot of that a lot of this AI spend.
 We've got to see that moving out into other sectors such as consumer discretionary and health care and so that has to be fostered and as long as the economy stays on farm footing we don't get any real shocks we think that can happen.
 Yeah health care has already had a pretty good run of it where else would you be putting money to work then.
 Well we think about where you want to reallocate capital it's more on the one small mid cap side because we think even though the Russell 2 is done over 20% year to date we still think there's room for that to run just based on a relative valuation perspective.
 Same with mid caps we like even looking across sectors when you start thinking about consumer discretionary week a sector year to date when you think about health care when you think about even on the comm services side.
 We think all those places can do pretty well in an environment where the economy is stable inflation continues to grind lower and unemployment stays relatively stable.
 Okay, Alan McKnight great to have you back in set always a pleasure.
 Alright we got a lot more to come here on morning call including joinmakers getting new help from President Trump and his terrorist playbook.
 And we're going to talk to the CEO of one company that is exposed to all of that and what it means for the future of warfare.
 Plus more on the new economic concerns around China and whether it's growing problems could spread beyond its borders.
 We are live in Beijing and later we've got a busy weekend for some of the biggest names in AI including Nvidia apparently scaling back its funding plans for one major AI startup and one major project.
 We're going to break that down a very busy hour still ahead one morning call returns.
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 Welcome back to morning call let's get a check on shares of SpaceX those are higher pre market to the channel 1.3% and video remote revealing its SEC filing on Friday that it's stake in the company's worth about 21 billion dollars as of the end of the second quarter.
 The chip maker says it owns just under 123 million class a shares of SpaceX currently it's second biggest holding behind Intel.
 SpaceX shares closing at $140 per share on Friday down from more than $170 at the end of June meeting the value of Nvidia shares have declined to just over $17 billion.
 Nonetheless we're still trading above the IPO price SpaceX it's been a bit of a comeback here in the last call week and a half two weeks.
 SpaceX also over the weekend logging a new space flight record to back to back Falcon 9 launches 38 minutes apart is the shortest time ever between two orbital flights.
 The first from Cape Canaveral in Florida on Saturday night that carried eight satellites from global star as part of that company's work to replenish its low earth orbit communications constellation remember global stars being acquired by Amazon.
 That also marks SpaceX's 14th mission using a Falcon 9 first stage booster the second mission for Falcon 9 was from Van and Berg in California that launch for a classified payload for the US space force.
 Well if we turn to 13 F filings that are out after the close on Friday we just touched on one but let's take a look at Berkshire halfway because the conglomerate was buying 17 billion dollars worth of shares in private and open market purchases making the tech giant.
 Berkshire's third largest holding in its portfolio alphabet that is Berkshire also increasing its delta stake by more than 44% and more than doubling its stake in Macy's in Q2 as well.
 If we turn to David Tepper's Apalusics banning its stake in Amazon by more than 15% Amazon remains the hedge funds largest holding its position in meta growing by almost 55% but it did cut its position in micron by more than 41% still the second largest holding.
 Apalusics taking a new stake in good your tire in the second quarter also discussing a new American Airlines position and new but small stakes in Apple and Boeing.
 Then their situational awareness it's 13 F giving us a look at what Leopold Ashen Brenner's fund looks like one month before it's collapsed in late July.
 It's top public holdings of the end of Q2 include Sandisk Micron Bloom Energy Taiwan semi and Nebius these have been some of the biggest momentum movers in the market this year new details emerging over the weekend that Jane Street took a 15 billion dollar hit last month.
 Do at least in part to is exposure to situational awareness it was an investor in that hedge fund while straight ahead energy riding high is the best performing sector so far this year but not every stock.
 In the spaces reaping their rewards let's go have a look at the haves and have nots of the energy trade but versus we had to break let's get a check on shares of Ali Baba because that company announcing that it's selling its video game unit and deal worth at least one and a half billion dollars and this as Baba revealed its open weight models have accumulated more than three billion global downloads in the past six months that surpasses meta alphabet and domestic peers to become the world's top AI model.
 Ali Baba is going to report earnings later this week on Thursday morning call we'll be right back.
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 Welcome back to morning call we got a big week for shares and drum drum makers that's what we're coming off of getting boost Friday after president trump announced tariffs on imports of drones and components in an effort to boost us manufacturing protect national security names like our environment crados and usual machines red cat also carbon holdings all close higher and Friday anywhere between two and twenty five percent.
 And if we get a check on shares this morning.
 It's a bit of a mixed picture here this morning but for more let's bring in the CEO of carbon holdings John Rambo great to have you here back on set welcome great to be back Morgan thank you.
 So there's a lot to talk about and you certainly have momentum at Carmen but I do want to start with what we're seeing with these tariffs on drones the drone supply chain and as we see right now in real time both in the Middle East and Ukraine the role that drones are playing in warfare.
 It is really an important thing to focus on Morgan whether they are designed for military purposes or not I think as we're seeing in Ukraine.
 All drones can serve a military purpose and so with the focus on domestic sources of supply for drones and drone components.
 It's a big deal for American manufacturers of drones Carmen supports a number of those companies.
 Yeah I was just going to say what does this mean for Carmen.
 Yes we produce some of the sub components in the launching systems for a number of military drone manufacturers here in the state so many of the companies that you mentioned are companies that we partner with.
 Yeah we also got news on Friday about an SM-3 deal that's coming together that involves Boeing it involves RTX.
 We've seen a number of these multi-year long term agreements that have been struck between the Pentagon and the biggest makers manufacturers of missiles and munitions.
 We know this is a huge area of focus and it has been for quite some time so what does that mean for Carmen as well.
 Well Carmen is a merchant supplier that participates across the breadth of the US missiles and munitions manufacturers.
 So these seven munitions acceleration council or MAC programs as they're known are all programs that we're a part of.
 And so as the primes are negotiating those framework agreements and their long-term contracts we are also in discussions with the primes to do something similar at the level we support.
 How quickly can we run production and we're talking about exponential numbers and some of these production agreements.
 But how quickly can it actually happen can the supply chain whether it's Carmen or others can they actually meet the moment here.
 Supply chain can meet the moment and I think the Department of War has made clear that this is not just a military challenge.
 It's an industrial based challenge in the US and industry from the top down is taking this very seriously.
 Carmen has been out in front making the necessary investments to expand capacity so that we're ready to meet that increasing demand.
 Okay and it's not just a US story when we talk about defense spending and the need for more and more quickly.
 It's also a Europe story too which I think speaks to the acquisition you recently announced.
 Yeah I'm really excited about this one.
 We recently announced the acquisition of Walker.
 It's a company that's based in Scotland in the UK they have operations outside London and also in Poland.
 And what Walker represents for Carmen is our first US non-US presence and an opportunity for us to access the European defense market.
 At a time when our countries there our partners there are increasing their military spending.
 So it gives us access to new customers it gives us access to new programs and I think more importantly it's a business and a management team
 that's able to take on more so it's an opportunity for us over the long term to replicate the Carmen model in Europe.
 When we talk about these burgeoning defense budgets it would seem that that is going to be the case at least over not only the near term but over the long term.
 How do you see all of this continuing to I guess grow and evolve and take shape and oh by the way space is a big part of it too.
 Yeah we haven't really touched on space and so certainly we're seeing generational demand on the defense side particularly in the end markets the Carmen supports.
 Whether that's missiles munitions hypersonics maritime defense but the space side we're seeing the resurgence of the space economy as well.
 A lot of new capital flowing into space a lot of new partnerships for Carmen there and so just as we do on the military side we participate very broadly across the supply chain particularly in the launch side of the business.
 So as we see that launch cadence increasing over time Carmen's business and space is going to continue to grow.
 Yeah what are some of those partnerships what do they entail?
 Well the partnerships generally speaking are around advanced materials advanced subsystem some of the energetic systems on a launch vehicle.
 So for example the systems that can separate the two stages in flight to move from first stage to second stage boost.
 Some of those sophisticated systems we build in our facilities out in Seattle Washington and also in the Huntington Beach area.
 So we have operations across the country that support the space launch business and again broad participation across all the players in that market.
 Yeah I mean space takes so much attention we actually just talked about the fact that they broke a record over the weekend two launches back to back 38 minutes on two different coasts here.
 But one of the other things that's emerging out of earning season for the space companies is the fact that the launch demand continues to outpace the capacity that's currently in the market.
 And that's even if you count starship coming online into the equation.
 Yeah the demand is significant it's greater than the supply and it's expected to be greater than the supply for some number of years.
 So right now it's a really good opportunity for everyone who's participating in the market to have an opportunity to play.
 Now over time what we're going to see is the cost per launch or the cost per pound of payload is going to continue to be an increasing focus.
 But right now it's really about demand that it's about the supply to be able to support the launch cadence.
 Okay John Rambo great to have you here on set.
 Great to be here thanks Morgan. See you have Carmen Holdings.
 All right well still in deck.
 New worries about the stability of China's economy.
 We couldn't even bigger crisis be looming for Beijing and beyond.
 We're live in the Chinese capital with the details one warning call returns.
 I'm Morgan Brennan welcome back to morning call.
 Let's get a check on us stock futures with the SNP and Nasdaq coming off the third straight week of gains.
 You can see it's a bit of a mixed picture here this morning.
 Nasdaq poised to open up 158 points down 73 points and the SNP basically just above the flat line poised to open open.
 Higher to the tune of six points this afternoon down day albeit fractionally on Friday.
 But both the SNP 500 and the Russell 2000 hitting new records in trading overall last week.
 Let's get a check on the treasury market to busy week for housing data on tap.
 We get fed minutes on Wednesday to you can see yields are a bit lower here across the curve.
 U.S. 10 year treasury yielding 4.68 percent and fed sensitive to your treasury yielding 4.15 percent for the 30 year treasury 5.25 percent.
 Folks have been very focused on the long end of the curve.
 Let's check on energy as the U.S. and Iran's memorandum of understanding technically officially expires today with no signs of an agreement to for either to extend it or to return to negotiations.
 You can see oil is a bit higher here this morning WTI is up fractionally 82 dollars 50 cents a barrel.
 Brent is up 6.10 to 1 percent trading around 89 dollars a barrel.
 Our bug gasoline is also fractionally higher.
 Let's get a check on some of the morning's latest headlines ahead of its expected IPO this fall.
 Anthropic is reportedly projecting 2028 revenue between 190 and 200 billion dollars.
 That's according to Reuters.
 Compare that to the recently reported 47 billion dollar run rate that reflects the current pace of business.
 Projections heading into the IPO predict strong growth and the company just posted a 14-fold increase in quarterly revenue of more than 11 billion dollars.
 Some reports peg the company could be valued at about $2 trillion at the IPO.
 Think about this valuation wise as potentially commanding valuations similar to a SpaceX or a Palantir in this market.
 Now to the other AI behemoth is getting ready to go public open AI.
 A recent rash of top executives leaving has some in the industry sending up warning signals.
 Kevin McCormick, founder of AI Startup Sign Audit.AI, said on X-Quote,
 the executives leaving open AI ahead of their IPO's huge red flag.
 Now on the flip side, Anthropics, no open AI, CFO, Sarah Fryer told investors on Friday that its enterprise business is now bigger than its consumers.
 And we could see an open AI IPO as soon as Q4.
 We'll see.
 Separately, Nvidia is scaling back its plan to $250 billion financing of open AI's massive data center in Ohio.
 The Wall Street Journal says that Nvidia will cut the amount to $120 billion in orders to address investor concerns about risk exposure.
 There's a lot more to that story as well.
 The White House is urging Apple not to turn to China as a way to alleviate the global shortage of memory chips.
 When discussing the possibility of Apple buying Chinese memory chips, Commerce Secretary Howard Lutnik told the Wall Street Journal
 that the, quote, Trump administration is not in favor of that.
 And that great American companies using Chinese memory is not the solution.
 Lutnik said he had relayed that message to Apple, quote, plainly.
 And Spider-Man brand new day, remains number one at the ticket counter this weekend and top $2 billion at the global box office,
 becoming Sony Pictures' highest grossing film ever.
 Now, it took web slinger just three weeks to break through the $2 billion mark.
 Universal's Odyssey came in second and has pulled in more than one and a quarter billion dollars so far.
 So all good news for Hollywood as domestic box office sales are closing in on $7 billion.
 So far, this year, that's up nearly 20% from a year ago.
 And turning to China, fresh data out this morning showing further signs the economy there is facing challenges.
 Let's get to Eunice Yoon in Beijing with the latest units.
 Thanks, Morgan.
 Well, the July data revealed a stubborn slowdown with a broad-based miss.
 The retail sales came in at 0.6% versus an estimated 1.5%.
 The household spending has been flat and continue to be flat in July, in part because of some extreme weather,
 so some seasonal factors such as heavy rainfall, but also because of persistent problem here, which is that consumer confidence remains weak.
 And why is that?
 Part of that is because the property sector where a lot of people have their money tied up, continues to be in a slump.
 The investment number declined 19.2% contributing to the fixed asset investment miss.
 Urban unemployment ticked up from 5% in June to 5.2% in July.
 And then even factory output, which continues to be driven by the AI buildout overseas, missed.
 A lot of that was because of the fact that the front loading that factories had been doing has been tapering off.
 This was ahead of new US tariffs.
 So expectations are now growing that the authorities here are going to be considering making good on a promise that they made last month at a very important meeting,
 where they said that they would consider to boost their fiscal expenditure.
 People still aren't 100% sure or convinced just because up until now they have been very reluctant to do so.
 And that meeting, the next meeting, Morgan that people are on, is one that's going to be in the next two weeks.
 Okay, we'll be watching it.
 Eunice Yoon, it's great to have you on. Good to see you.
 Thanks for giving us the latest here with the data we did get overnight.
 Well, if we stick with China's economy and a potential new crisis that's brewing there in recent foreign affairs piece,
 former US trade rep Michael Froman, who is also the head of council and foreign relations, suggesting that China's industrial over capacity has put in growing pressure on economies worldwide
 and that the world may be nearing its breaking point.
 So for more, let's bring in Duarjik McNeil, senior policy analyst at Longview Global, also a CNBC contributor.
 Duarjik, it's great to have you back on the show.
 You know, they started to have this conversation on Squawk Box on Friday.
 And so we're bouncing off of that to dig a little deeper here, especially since we didn't just get this data that Eunice broke down for us.
 I guess top line here, state of China's economy, your thoughts.
 Well, I think in the numbers, Morgan, we certainly see a real problem for its domestic economy.
 Now, I don't believe that the government, the party has yet moved in a direction that shows the urgency in the data.
 But coming back to the Froman article, I think there's a lot there to unpack.
 First and foremost, let me just say it would be fair to note that the Chinese have pushed back on this narrative that have set in over over capacity.
 What they said in a Ministry of Commerce report just last month is that this is not at all over capacity.
 What it is is innovation, their ability to have industrial clusters, high productivity growth among workers, and a real comparative advantage.
 However, the numbers do not suggest this, Morgan.
 So I think the Chinese are going to have to really decide whether or not they're going to sit through a system of China Shock 2.0 happening in the global South, really where this is happening, and what that means for them politically.
 And right now the numbers suggest that the Froman framing is the correct framing, not the Ministry of Commerce framing.
 I'm just looking at these notes here and make the point, the deeper problem is that China became the world's factory, rapidly moved up the value chain.
 But never completed the corresponding transition toward becoming one of the world's great consumer economies.
 Is that necessary or is a paradigm shift underway here, and does that then in turn to your point about what this means with the global South?
 Does that change the economic framing and how we need to think about interactions across the world moving forward?
 Well, I think to that point, if China really became one of the world's great consumer economies, I think it would do a lot for their global standing.
 And I think it would take the pressure off of some of their geopolitical relations around the world.
 Most of this export capacity, as you know, Morgan has gone to Southeast Asia.
 It has gone to Latin America. Europe is being hit extremely hard.
 And the Chinese in the Europeans right now are in a trade spat over over capacity issues with a crescendo moment happening in October.
 But I just don't see the Chinese moving in that direction.
 Consumers are not confident, as Eunice said.
 We have a household savings rate at 20% of GDP, Morgan. That's two times greater than the OECD average.
 So consumers are not feeling very confident and not spending.
 Therefore, China is exporting that capacity to other places around the world.
 Yeah. And of course, it gets right at the heart of what we've seen in terms of US trade policy when you think about things like trans shipment dynamics as well.
 Yeah. You know, last month, the US began to really hammer home on this issue.
 Just last week, they introduced something called the Detective Borders AI Label Software to get at what people like Peter Navarro is calling the Great Transshipment Scams.
 So this is China finding a way to move their products through the global supply chain in according to this report, 40 plus other countries.
 So it is becoming a real challenge.
 I hope this becomes an issue at the Trump Xi Summit in September.
 And at the G20 Trade Ministerial that Ambassador Greer will be hosting in Milwaukee.
 But so for Morgan, I don't see this on the agenda at all. And I think that's a miss.
 Okay. Yeah, it's certainly something we're going to be having.
 We're going to be watching come September.
 We got a very busy September for all of these foreign policy relations.
 Dwargic McNeil is great to have you on. Thank you.
 Thank you, Morgan.
 A lot more to come here. I'm warning call including not all things are created equal, especially when it comes to energy.
 The Stevens is here to tell us about the split in energy stocks that investors need to know about.
 Morning call will be right back.
 Welcome back.
 Oil coming off its first positive week in the last three.
 With WTWTI, she said up nearly 5% and Brent up nearly 6%.
 But despite recent volatility, energy remains the top performing sector this year in the S&P 500.
 It's up nearly 38%. But not all names in the sector are reaping the awards of those gains.
 So Pipa Stevens is here. She's got to look at the biggest winners and losers.
 Pipa, it's great to have you on set. Thanks, Morgan.
 So it really is though a tale of two energy sectors here, though, because we've seen a big divergence between the gas focused equities
 which have lagged relative to the oil focused drillers.
 Now at the start of the year, it was all about gas.
 Thanks to the two clear tailwinds of LNG growth and powered demand from AI.
 And so that's where the bull case within hydrocarbons was focused while oil was seen as, you know, past the peak.
 But the Iran war has flipped that on its head with WTI at more than 40% on the year, while natural gas is down nearly 30%.
 About one third of U.S. Nat gas production is associated gas, meaning it's produced alongside oil.
 And with oil prices holding above 80, drillers are making more than enough on oil to offset losses from gas,
 which is why gas production has stayed high despite the fall in price.
 The IA now forecasts U.S. production jumping to a record 122.5 billion cubic feet per day this year.
 So that's all pressured gas drillers, like EQT expand energy, range resources, and entero resources,
 all of which have lagged the broader energy sector this year.
 On the flip side, drillers with more exposure to oil, like Oxy EOG and APA, are all up at least 35% while X on and Chevron have advanced 30%.
 But it's the refiners that have been the standout performers this year with marathon petroleum and Valero Morgan more than doubling,
 thanks to the tightness that we're seeing worldwide in fuel markets.
 So the debates we're seeing for the broader market right now, and I think part of the reason that equity strategists haven't raised their price target expectations,
 or the price targets for the S&P through the end of the year despite the strong earnings we've had,
 has been this debate that have we peaked here.
 And when you look at something like the refiners, can that debate carry water?
 I mean, the refiners are doing very well in this environment, and it goes to show that even though oil has come down,
 really been in this range of call it $80 to $90 per barrel, which doesn't have the same impact that that price would have had, say, 20 years ago.
 But the fuel products is where it's so tight, and that's what we're actually paying.
 And so when you look at the inflationary costs, I mean diesel today is at $5.45, that is just a little bit below its record high back from 2022.
 And that feeds into everything. And so when you look at the inflation numbers, yes, they've moderated, but we haven't seen the end of this,
 particularly given refiners have now delayed some of their maintenance.
 So if there happens to be a big hurricane in the Atlantic say in some refinery capacities taken offline,
 that will have a really big impact, as well as that maintenance.
 We can't stay at above 95% utilization for forever, which indicates higher fuel prices, or at least, you know, steady fuel prices ahead.
 And that does start to have an impact.
 Okay, sounds good. A one-two punch.
 War and weather.
 Okay, Pippa Stevens, thank you.
 Thanks.
 Well straight ahead, the morning call crew team up the trading day ahead, including the good signs that one of our crew members
 is seeing right now.
 Welcome back. It's time for a call sheet where we look at the topic striving the trading day ahead.
 Crew members today, Michael Rorke, Jones Trading, Chief Market Strategist, Lee Baker, Claris Financial Advisor's owner,
 and President, and Henrietta Trays, Veda Partner, co-founder and director of Economic Policy.
 It's great to have you all here.
 Mike, I'm going to kick this conversation off with you because it really seems to me that we have something of a bifurcation in the market here.
 You have AI and arguably the economy.
 So you have AI and the industrial side of the economy, which is at least in part tied to that.
 And then you have the consumer side of the economy.
 Your thoughts?
 Yeah, the K-shaped economy exists.
 It exists in the economy, exists in the stock market, right?
 Everyone's focused on AA stocks.
 Everyone's focused on the AI buildout.
 We do have bigger earnings from retailers this week.
 So we'll be watching Walmart target, see how the consumer is doing, see how back the school is doing.
 Obviously, we have midterm elections coming up.
 So these are all going to be big issues.
 But I think the problem is, it feels like we're flying, you know, a plane flying on one engine at that engine's AI.
 And that could be a concern.
 Yeah, Henrietta, I want to get your thoughts on all of this.
 Yeah, that's exactly what the read from the economic data sets would tell you.
 If it weren't for this AI investment, for capital expenditures around data centers,
 this consumer is absolutely struggling.
 And so much of the S&P or the Dow is actually not on the rise the way the mag 7 is and the adjacent companies.
 So when the US consumer, as Mike mentions, goes to the polls,
 they are feeling very pessimistic about the state of the US economy.
 We saw it in the University of Michigan data last Friday.
 And what's so fascinating is that you're starting to see it amongst the very K-shaped that Mike references.
 The lower income, non-college educated older voter that struggled basically since the pandemic.
 And they are feeling even more pessimistic now than they were before.
 Especially because of gas prices and inflation.
 Yeah, and of course I think gas prices, average price for a gallon of gas right now is at the highest level it's ever been for this time of year.
 I want to have you weigh on this as well, especially since we've had some softer data here, right?
 We had a weaker than expected jobs report.
 We had cooler inflation readings last week.
 We had a weaker retail sales number on Friday.
 And yet, when you look at the bond market, the long end continues to climb here.
 So, you know, the bond markets are troubling and it seems as though the bond markets are warning us about something,
 but the equity markets just on listening.
 You know, the things you talked about, the weaker jobs number in July.
 But we've also had downward revisions when we take a look back at May and June.
 And so, I'm going to be singing from the same hymnol as it relates to this K-shaped economy and what consumers are feeling.
 It's troubling for the lower leg of that K, if you will.
 Yeah, Mike, we laughed a little bit.
 Yeah, no, I mean, Lee's right there.
 It's the stock market, is ignoring the bond market.
 You know, the spread between the 10-year treasury yield and the SB 500 earnings yield is hitting records that hadn't seen in 20-plus years.
 So, the equity market still is very optimistic, but again, it's that single engine that we're relying on.
 So, there's still so much risk that if there's any type of slowdown in the AI trade, the AI economy, it's a risk to everything.
 Again, I think AI is a bubble. That's my point of view, or at least not AI itself.
 It's funny. AI is fantastic. It's the valuations of these stocks right now.
 So, that's where the real risk is in this economy because if we see those stocks turn lower, it's going to hurt spending.
 It's going to hurt everything. It's going to hurt the consumer.
 And investors are going to be, it's going to be a painful experience.
 Yeah, I mean, the circular financing conversation and how Nvidia is kind of central.
 What I'm hearing phrase is central bank of AI.
 For Nvidia, we got more of those headlines over the weekend, but here are the other headlines we got, Mike.
 I want to have you weigh in this week.
 A number of reports regarding Anthropic as we weigh a potential S1 ahead of an IPO as soon as this fall.
 And then reports about open AI.
 And in terms of both of those companies' growth trajectories, very, very strong here.
 But this specifically, the Reuters article over the weekend.
 Anthropics IPO valuation ambitions are based on 2028 sales projection of $190 to $200 billion.
 And a Palantir slash cloud flare slash SpaceX like revenue multiple of 40 to 50 times.
 I bet you have thoughts on this.
 First of all, I think Anthropics incredible.
 I think they're a company. I think cloud's incredible.
 That said, again, the multiple you want to pay for assets is where the risk is.
 If you want to overpay, it's going to be dangerous.
 I mean, it is going to be an interesting year that 2026 turns out to be,
 which it looks like it will be that we got the SpaceX Anthropic and open AI IPOs.
 Because that is tremendous amounts of supply coming on the market.
 Again, you go back to the, you know, the Ray Dalio type of thinking where when people try to turn their wealth into cash,
 that's where you turn it running to problems and markets.
 And that's exactly what we're seeing in 2026.
 Lee, your thoughts?
 So, I'm in agreement. This circular financing is really a problematic concern to me.
 I won't say it keeps me up at night, but you know, we've often heard the phrase with robbing Peter to pay Paul.
 This circular financing is a dynamic of borrowing from Paul to pay Paul.
 It works for a while, but then at some point it just doesn't work anymore.
 I'm going to shift gears. Henrietta, I know you've followed this very, very closely.
 Where we're at in terms of trade dynamics and tariffs as we look to Wednesday
 and the possibility of 50% tariffs on some Canadian goods.
 You know, I'm not expecting the 50% tariffs to go into effect.
 It's very wonky, but the statute that the president has decided to pursue here, Section 338,
 is one that has been overrun by Section 232 or the more familiar Section 301 tariffs.
 So, I think just the mechanism tells us a lot, which is that the tariffs are unlikely to go into effect on Canada.
 Not to mention the extraordinary economic toll that that will have across the manufacturing,
 the farming sector, even entertainment and travel and tourism.
 It's just an untenable situation.
 Okay, so we're going to see what we get with retail earnings this week,
 the possibility of tariffs and gas prices being mentioned on calls.
 That's going to do it for us here. Thank you to our call crew.
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