Here's a summary of the Yahoo Finance Morning Brief discussion, including all news and facts mentioned:
**Hosts:** Julie Hyman, Adam Shapiro (AI Invest Managing Editor and Yahoo Finance's in S4A)
**I. SK Hynix and Chip Stock Volatility**
* **Initial Excitement Faded:** The excitement around SK Hynix's U.S. listing last week has faded.
* **Record Drop in Korea:** The stock experienced a 15% "record drop" in Korean trading, which surprised Julie Hyman given the stock's typical swings.
* **Reason for Drop:** A report from a South Korean brokerage firm predicted SK Hynix's Q2 operating profit would trail consensus expectations by 8%.
* **High Bandwidth Memory (HBM):** While HBM is an advantage for SK Hynix (supplier to NVIDIA), its price is not rising as much as other components, impacting profitability.
* **Earnings Expectations:** SK Hynix is set to report Q2 earnings on July 29th. While a "blockbuster huge operating profit" of 60.4 trillion won is still expected, the street's expectation was higher at 65 trillion won, leading to "disappointment before we get to the earnings."
* **Broader AI/Chip Trade Theme:** The situation reflects a broader theme of volatility in AI/chip stocks and hyperscalers, with people questioning "real value." Adam mentioned a "Drudge Report" headline saying "AI doesn't work" (which he refutes, stating AI works but has mistakes).
* **Leveraged ETFs:** These ETFs amplify stock movements, causing disproportionate swings and daily recalibrations that can lead to selling at the close.
* **South Korean Market Concerns:** Some South Korean lawmakers have called their stock market a "casino" due to volatility.
* **Margin Debt:** Significant margin debt in South Korea ( $38 trillion, or $24 billion borrowed to invest, in June) further magnifies market moves and creates "disconnections" from fundamentals.
* **Capacity Shift:** SK Hynix has shifted capacity to "normal DRAM memory" as it's yielding higher margins in some cases and seeing strong demand.
* **Stock Performance Context:**
* The Korean Kospi is down 25% (in a bear market) since June 22nd, but still up 62% this year.
* SK Hynix itself is down 38% from its highs, but still up 180% this year and much more over the past year.
* **Analyst Quote:** Bloomberg quoted an analyst saying SK Hynix is "trading through the hangover after the dopamine rush."
* **Increased Volatility:** Kevin Gordon of Schwab noted that daily swings in the Kospi this year are broader than during the financial crisis, partly due to leverage and the U.S. options market.
* **Retail Trader Access:** SK Hynix's ADR offers retail traders another high-flyer in the chip space.
**II. Earnings Season Outlook**
* **High Expectations:** Banks begin reporting tomorrow, and expectations for S&P 500 earnings are high and rising.
* **FactSet Estimate:** FactSet projects S&P 500 earnings growth at 23.6%.
* **Sustainable Growth Question:** Adam questioned if 20%+ earnings growth quarter after quarter is sustainable, noting the average is typically around 8%.
* **Tech and Energy Driven:** Most of the growth is from tech, but energy is also seeing gains and rising revisions.
* **Guidance Strategy:** Companies typically set low guidance to ensure they "beat" estimates.
* **Key Focus:** Earnings will clarify hyperscaler spending and their return on investment (ROI), which is crucial for the AI trade.
* **Market Driver:** Earnings are expected to continue powering the markets higher into the end of the year.
**III. Economic Data and Fed Policy**
* **Geopolitical Events:** Markets are largely shaking off geopolitical events like the U.S./Iran situation over the Strait of Hormuz, unlike when the war began. Oil prices are around $70-71, down from $100 and previous calls for $200-250, as the world is learning to circumvent the Strait.
* **FedSpeak:** A lot of Fed officials will be speaking this week, including Jerome Powell during the Humphrey Hawkins testimony on Tuesday and Wednesday.
* **AI Inflation:** John Williams mentioned "AI inflation" last week, and more commentary on this is expected.
* **CPI Debate:**
* Jay Hatfield (InfraCap) is predicting a negative CPI print soon and expects the Fed to cut rates this year, with three cuts through mid-2027.
* Mohamed El-Arian, Goldman Sachs, and UBS expect the Fed to keep rates "flat" this year.
* The Fed may "kick the can" with task forces or balance sheet adjustments instead of rate changes.
* **Fed Communication:** The Fed is providing less direct guidance, with Powell often saying "don't listen to me, watch the data."
* **Memory Chip Prices:** These are already showing up in PPI and CPI numbers.
* **AI Advertising:** Intuit institutional commentary suggested an increase in "AI advertising" as AI developers go public and focus on user growth, potentially benefiting platforms like Meta.
* **Consumer Sentiment:**
* The University of Michigan consumer sentiment survey hit a "record low."
* A Wall Street Journal story questioned the data collection, suggesting it might be flawed or biased towards Democrats who are feeling worse about the current administration.
* The survey director, however, maintains that people *are* feeling "lousy," citing high prices.
* Examples of prices: Gasoline saw a "tailwind" in June, but other services like daycare are "astronomical." Some grocery items like eggs ($2.99/dozen) and Rao's pasta sauce ($8) are high but not at peak.
* "Feelings are not fact" – despite sentiment, BofA data for June showed consumer spending up 6.3% year-over-year, the strongest since April 2022.
* **AI Jobs:** Contrary to popular narrative, companies making big AI pronouncements have increased hiring by 10% two years later.
* **Bank Earnings Importance:** Bank earnings will be crucial for insights into loan loss provisions, credit health, and default rates, providing "important data" on the consumer.
**IV. Box Office and Film Industry**
* **Live-Action Moana:** The live-action Moana performed poorly, not doing "great."
* **Old IP vs. New IP:** Julie initially thought this indicated "old IP isn't working," but noted that top movies this year include successful old IP like Super Mario Galaxy and Toy Story. "Michael" (Michael Jackson) is a new twist on an old story, Project Hail Mary is a book adaptation, and "An Obsession" is new IP from the internet.
* **Audience Motivation:** It appears people need a strong motivation or a "really good" reason to go to the theater.
* **Consumer Reaction:** Comments on the Moana trailer expressed disappointment ("Why did they mess up something great?"). Children, like Julie's five-year-old, prefer animated versions over live-action remakes of cartoons.
* **Live-Action Remake Trend:** Adam and Julie questioned the trend of costly live-action remakes of cartoons, noting they "keep failing."
* **Hollywood's Success:** Despite these failures, Hollywood is having its "best year they've had in a long time," implying success comes from other types of films.
* **Upcoming Blockbuster:** "Odyssey" is expected to be a blockbuster, releasing this Friday, despite some complaints.
* **Content is King:** The discussion concluded that "content is still king" in the film industry, emphasizing the need for good quality material.
* **AI in Film:** Speculation arose about the future of AI-created films, comparing them to animated films and noting that low-budget films (e.g., shot on iPhones) can become blockbusters.