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Thursday, 11 July 2024

Morning Brief: Politics are volatile this year, but markets aren't

Thursday, Jul 11

👋 Good morning! It's CPI day.

What we're watching

🏷️ The big inflation reveal: June's inflation print Thursday is the biggest event on our calendars this week, with results set to cross at 8:30 a.m. ET. Economists expect the Consumer Price Index's core reading, which strips out volatile energy and food, to show price increases of 0.2% since May, keeping the year-over-year figure at 3.4%. Adding those components back in, the headline figure is set to come in at 3.1%, which would be the lowest annual figure since January.

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💼 Powell looking at jobs: In his appearance before House lawmakers on Wednesday, Federal Reserve Chair Jerome Powell reiterated the central bank's increased attention toward the labor market after recent data indicated the labor market is cooling off. After spending most of the year guarding against labor data that might boost inflation, the shifting tone has quickly reverberated through markets, which welcomed the dovish remarks. Still, Powell's words were far from sounding an alarm, as he said the labor market "is getting pretty much in balance to where it needs to be."

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📈 37th high of 2024: The S&P 500 closed Wednesday up 1%, bringing it to 5,634 — the 37th record high close of 2024 — and the seventh straight close in the green for the flagship index. The index has benefited of late from a potent cocktail of AI, Tesla, and rate-cut hopes as a few of the year's major narratives come together. Just in time for earnings season to begin in earnest.

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✈️ Earnings season takes off: Delta Air Lines reports Thursday, headlining the first day of major corporate results of the quarter. PepsiCo and Conagra Brands also join in before the big banks grab the microphone Friday morning.

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🤖 AI's bulls and bears: There's plenty of bullishness left in the AI trade, according to BlackRock. Wei Li, its global investment strategist, said this week that AI's capital expenditure numbers will be roughly in line with the Industrial Revolution and that the next year will see Big Tech stock prices soar, even if there isn't much to show for it yet. The bullish call sits opposite Goldman Sachs' recent note — titled "Gen AI: too much spend, too little benefit?"

Morning Brief is written and edited by Ethan Wolff-Mann. For the web version, click here. Follow all the action throughout the day on Yahoo Finance and on the Yahoo Finance app.

What we're reading

⚖️ Elon Musk beats $500 million severance lawsuit by fired Twitter workers.

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⚡️ Tesla's energy business is growing — and it could be the company's next big earnings driver.

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⚠️ Social Security is headed down an unsustainable path.

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💸 Ozy Media founder engaged in 'massive fraud,' prosecutor says as fraud trial closes.

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📱 Samsung is leaning on AI to power device sales

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🍪 Amazon launches its fourth-generation Graviton4 chip as competition intensifies.

Politics may be volatile this year, but markets aren't

Today's Takeaway is by Julie Hyman, Anchor.

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Washington has been abuzz with questions about whether Joe Biden should step aside as presidential candidate ever since his poor debate performance a couple of weeks ago.

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But while political TV networks and newspaper editorial pages have been hotly discussing the issue, equity markets barely shrugged. That's not an unusual reaction, but it remains somewhat puzzling given that this is an unusual election on a number of fronts.

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The S&P 500 has risen by about 2% since President Biden's much-criticized debate showing on June 27. What's more, the VIX index — which measures volatility and serves as a sort of barometer of the stock market's mood — has barely budged.

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In fact, if you take July 9 as a midway point of this election year — as Bespoke Investment Group did in a recent analysis — you'll see that the VIX reading was the lowest for a presidential election year going back to 1992. (Catch Bespoke's Paul Hickey on Yahoo Finance Live Thursday in the 4pm hour.)

There are several potential reasons why stocks have shrugged as the political class has chattered.

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One: Are investors seeing the race as a win-win? If Biden stays in the race and is reelected, that could mean the status quo continues in a year that has seen 37 record closes for the S&P 500 as of Wednesday's close. If Donald Trump prevails, his presidency could be marked by a decrease in regulation — something some CEOs would welcome.

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Of course, when Trump won the presidency the first time around, stock markets plunged only to recover and rally. It's difficult for investors to accurately predict the actual effects of a president on the economy and markets. (And as our Rick Newman has written, the economic power of the presidency is frequently overstated in any case.)

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Two: All the chattering won't make a difference in the race. Some political analyses have found that voter preferences didn't change after the debate.

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Three: It might just come down to timing. The election is a long four months away. As Bespoke wrote in their note to clients, "While low now, though, there's a good chance that the VIX will move higher leading up to the election. Since 1990, the median maximum increase in the VIX during the four months following July 9th has been 8.9 points whereas in election years, the median increase over the following four months has been 13.1 points."

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That means there's still plenty of time for election anxiety to make its way to stocks.

Chart of the day

The recent jobs data, inflation numbers, and dovish comments from Federal Reserve Chair Jerome Powell have helped the market surge to yet another all-time high.

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But a look at Big Tech reminds us exactly why the S&P 500 is having a moment — again.

After spending most of the year left out of the AI trade, Apple crossed into the green in May. And finally, last week Tesla joined the rest of its "Magnificent" cohort, sharply jumping into positive territory.

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Of course, Nvidia's presence here means grading on a curve, as the entire scale of this chart is ruined by Nvidia's 179% gain year to date, which makes Meta's 54% second place look unimpressive.

Earnings and economic calendar

Thursday

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Economic data: Consumer Price Index, month-over-month, June (+0.1% expected, +0% previously); CPI excluding food and energy, month-over-month, June (+0.2% expected, +0.2% previously); Consumer Price Index, year-over-year, June (+3.1% expected, +3.3% previously); CPI excluding food and energy, year-over-year, June (+3.4% expected, +3.4% previously); Real Average Hourly Earnings, year-over-year, June (+0.7% previously); Real Average Weekly Earnings, year-over-year, June (+0.5% previously); Initial jobless claims, week ended July 6 (238,000 previously)

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Earnings: Conagra Brands (CAG), Delta Air Lines (DAL), PepsiCo (PEP), Progressive (PGR)

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Friday

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Economic data: Producer Price Index, month-over-month, June (+0.1% expected, -0.2% previously); PPI, year-over-year, June (+2.2% previously); Core PPI, month-over-month, June (+0.1% expected, 0% previously); Core PPI, year-over-year, June (+2.3% previously); University of Michigan consumer sentiment, July preliminary (67 expected, 68.2 previously)

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Earnings: BNY Mellon (BK), JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC)

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Wednesday, 10 July 2024

Welcome to Finance Morning Brief

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Morning Brief: Samsung is leaning on AI to power device sales

Web Version

Wednesday, Jul 10

Hi there, and welcome to this week's edition of Yahoo Finance's Week in Tech. I'm Dan Howley, and this week we're talking about Samsung's generative AI strategy.

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The company hosted its latest Galaxy Unpacked event on Wednesday, showing off its newest foldable smartphones, smartwatches, and its entry into the smart ring market with its Galaxy Ring. But the glue binding all of those announcements together was the company's Galaxy AI software.

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Samsung is looking to the platform to help drive sales of its various products in the coming years, and there's reason to be optimistic. According to IDC, generative AI smartphones will make up 19% of the market in 2024 and jump to 70% by 2028.

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The event also comes as Samsung Electronics' largest union in South Korea declared it will go on indefinite strike in an effort to boost pay and benefits.

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But before we get to that, here are a few other stories you should be following this week.

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⛔️ Microsoft, Apple avoid OpenAI's board as US scrutiny grows: Microsoft is pulling out of its observer seat role on OpenAI's board, according to Bloomberg. The move comes as Microsoft is facing increasing antitrust scrutiny with regard to its investments in OpenAI. The FTC has already launched an inquiry into the tech giant's moves, as well as similar investments by Google and Amazon related to OpenAI competitor Anthropic.

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The European Union's competition watchdog, the European Commission, has also asked stakeholders in the AI industry, including competitors, to provide feedback on competition issues that might have in the market. Microsoft isn't the only one dropping out of OpenAI's board, Apple has also reportedly decided not to join OpenAI's board as well. It's still unclear whether the moves will quell any competitive concerns regarding OpenAI and its backers.

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🙋‍♂️AI helps but isn't replacing workers: The AI explosion is driving share prices of tech companies and revenue for chipmakers ever higher. But the lingering fear that the technology will replace workers is still simmering just below the surface of all of the hype. Yahoo Finance's Josh Lipton sat down with Fortune's AI editor Jeremy Kahn to discuss the topic and find out if our jobs are actually in danger.

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Fortunately, Khan says, while AI will continue to advance at a rapid pace, it won't be smart enough to perform all of the tasks required to complete our jobs. Instead, he explains, AI is more likely to help make us more productive. Which, if you're already working constantly, could be a good thing or a bad thing.

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⚡️ Tesla's energy business is growing: When you think of Tesla you, rightly, think of electric cars. But Yahoo Finance's Pras Subramanian says its next leg of growth could come from the company's energy storage business. The company deployed some 9.4-gigawatt hours of energy storage in Q2, its most ever for a quarter and more than double what it deployed in the first quarter. The business is also helping Tesla's bottom line.

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In Q1, the company reported $1.6 billion in revenue for its energy storage business with $403 million of that going toward gross profit, good enough for a gross margin of 24.6%. That adds more credence to the thought that Tesla is a tech firm, not just a car business.

Samsung is leaning on AI to power device sales

Samsung took the wraps off of a litany of new devices on Wednesday during its Unpacked event in Paris, France. Not only did the company show off its latest foldable smartphones, the Z Fold 6 and Z Flip 6, and its next-generation smartwatches, the Galaxy Watch 7 and Galaxy Watch Ultra, it also launched its highly anticipated Galaxy Ring.

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But the star of the show was the company's Galaxy AI platform. A suite of software products the company initially launched with its Galaxy S24 line of smartphones earlier this year, Galaxy AI includes a number of generative AI capabilities that touch on everything from Samsung's health and fitness apps to its photo, productivity, and web browser offerings.

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The strategy is clear: Samsung is banking on its AI efforts, which include some of Google's AI magic, to help power its device sales going forward. But the company's longtime nemesis, Apple, is just months away from launching its own AI software, which could sway Samsung users to the iPhone's side.

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The AI era

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Samsung's latest devices are certainly impressive. I'm a fan of both of its foldables, and its smartwatches are some of the most capable around. Adding in its Galaxy Ring could give Samsung a nice foothold in a still relatively small market. But the company is clearly focused on ensuring that its AI capabilities are front and center alongside each of its new products.

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Samsung has demonstrated how Galaxy AI fits into the Galaxy Ring, Watch 7, and Watch Ultra thanks to the addition of the company's new Energy Score feature. The company says the software uses Galaxy AI to help calculate how you've slept, how much exercise you've gotten recently, and more to provide you with a numerical representation of your overall fitness level that you can use to better understand why you might be more tired or energetic on certain days.

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It has also shown off its conversation mode feature, which lets you have a conversation with someone speaking a different language by turning the Fold's and Flip's covers and main screens into digital whiteboards that display what you and the person you're chatting with are saying in your own languages. The app also reads the translated text out loud.

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Samsung has similarly brought generative AI features to its photo apps, allowing you to do things like draw sunglasses on a person in an image and automatically generate and place realistic-looking glasses on the subject's face. Samsung also uses some of Google's AI capabilities, adding the company's Gemini software and assistant to its devices.

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An incentive to stay and upgrade

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Like Apple, which debuted its Apple Intelligence generative AI initiative at its WWDC event in June, Samsung is using AI as a means of differentiating its latest hardware offerings from its older devices in the hopes that Galaxy AI and its features will get customers who have been holding onto their phones for two years or longer to pony up for newer, pricier options.

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Unlike Apple, which is only making its AI options available on its iPhone 15 Pro and future phones, Samsung is rolling out its Galaxy AI software to a handful of prior-generation products, including the S22 and Z Fold and Flip 4 series from 2022 and S23 and Z Fold and Z Flip 5 series from 2023 .

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With consumers holding onto their smartphones for between two and three years, that makes sense. It gives users a taste of Galaxy AI, at a time when they're just about ready to upgrade, adding an incentive to stick with Samsung and continue taking advantage of its generative AI features.

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The Korean tech giant says customers are already using its AI software at a decent clip, with the company reporting that 77% of S24 owners access AI features every week. And with Samsung raising the prospect of charging a fee for its AI services in the future, its Galaxy AI offerings could not only get customers to stick with the company and upgrade to its latest phones but also open up a new revenue stream as well.

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Of course, that could also depend on what Apple ultimately decides to do with its Apple Intelligence services. If Samsung charges for its AI software and Apple doesn't, it could incentivize customers to switch to the iPhone.

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Either way, both companies are entering into a new race to see which can outdo the other in terms of generative AI know-how. And while Samsung has a sizable lead in getting its software to market, Apple is just a few months away from launching its own AI platform. Time will tell if either AI service is capable enough to drive increased sales or not.