US stocks rise, big bank earnings in focus, Fed's Collins talks inflation and tariffs

Hello and welcome to Market Domination. It is Friday, April 11th, the last trading day of the week, and it's been a week. I'm Julie Hyman. That's Josh Lipton live from our New York City headquarters. We got one hour to go to the market close. We're seeing more swings today. Right now the Dow is up more than 500 points. We're a little loopy here at the end of this week. Up about a percent and a quarter. The S&P 500 up by nearly one and a half percent and the NASDAQ is there. But I do want to linger for a moment, Josh, on looking at this week that we have seen because when we talk about volatility, and this doesn't even give the full scope of the intraday moves, right? We have to go to kind of the candlestick to get all of the wild moves that we've seen over the course of the week. What's interesting is we're up on the week by more than 5%. This is the best week we've seen for stocks in a little while even though it doesn't necessarily feel that way because of all the volatility.

It's been a wild week. It's been a historic week really, Julie. A couple headlines that hit the tape this afternoon that I think helps explain the moves we saw. We saw a headline hit that President Trump optimistic he can get a deal done with China. This was according to the White House press secretary. You also then saw Susan Collins hitting the tape. She's the head of the Boston Fed and she was telling the FT that the Fed is absolutely ready to step in and help stabilize the market if necessary. And I think, you know, investors assume that, but it's nice to hear as you head into the weekend.

Yes. Let's look at some of the other asset classes that we've been watching so closely this week. We got to look at what's going on with yields because massive moves. There we are seeing an upward move in yields again. So, this is not necessarily what the markets or what the White House wants to see. They want to see perhaps yields come in a little bit, but we'll be watching the 10-year really, really closely at these levels. I know you have had your eyes squarely on the US dollar, which has been sort of breaking down. It's back above 100 if you look at the dollar index.

Yeah, I see some of the selling abating in treasuries in the dollar. I think it helps explain the move in the stock market today. I also think just to quickly touch on the economic data we got today, Julie, which was interesting. PPI was good. Consumer sentiment not so good. Right? So, it's sort of in line with what we have been seeing, the trend that we've been seeing as of late where, you know, as we talked about with a couple of guests yesterday, the Fed got so close to the soft landing and now sentiment is really pushing down on and putting pressure on the hard data that we're going to start to get that may be affected by that. So, we're still keeping a close eye on all of that.

Getting back to stocks here and what we're seeing today in terms of groups, broad-based rally that we're seeing today. Materials and energy and tech up the most here. Let's look at that versus what we've seen over the past 5 days. Real estate in the red on the week. Energy barely in the green, but tech and industrials, the two big outperformers that we've seen this week. Let's talk more about these markets because we're joined now by Mike Dixon, head of research and quantitative strategies for Horizon Investments. Mike, it is good to see you. I thought it was interesting, Mike. You say in your notes there that global diversification, Mike, that could be, you say the new Mag 7 trade. What do you mean by that, Mike? Walk us through it.

Yeah, what a week. This is the kind of week you just wish there was a three-day weekend involved on the other end, right? But when you look at what I mean by that is that the MAG7 trade has definitely been challenged. There's an area of the market where valuations were kind of priced to perfection and here we are with just massive uncertainties and that increase in risk premium has definitely seen that segment of the market really suffer. And even before this last week we saw extremely strong performance from international stocks to start the year. This is very consistent with what we saw in 2017 during Trump's first term. And it's just a reminder as well with the strength that we've seen that global diversification is back and with a lot of areas of this kind of move away from the US exceptionalism trade, that's where international stocks begin to look a lot more attractive. You got a lot different sector makeup, good bit lower valuations, and I think really poised to be a place to put capital when the top of the market in the US here is struggling and under stress.

And we've already been seeing that move to some extent, right? The move into international, the move into Europe in particular. Mike, it sounds like you think that that move has more legs and does it come at the expense of capital moving into US equities?

Well, I think when you look at where capital has been moving, right? Just looking at international versus US stocks, looking at the moves in yields, looking at the moves in the US dollar. All of these really point to a coordinated move away from US assets. And I think that that is a trend that is likely to persist here in the short to medium term and again is a trend, you know, somewhat consistent with what we saw during the first term with President Trump. And that is an area of the market that's been very ignored for quite some time. And I think that along with, you know, even inside of the US just the rest of the market, right? The broadening out we've seen that be very strong thus far to start the year and I really think that broadening out trade both in the global international space as well as the more equal weight sectors here in the US is kind of the new core portfolio to think about as opposed to just the pure Mag 7 which is what it was in 23 and 24.

Mike, I also want to get your take on another big theme which was clearly these moves, these massive moves in the bond market, Mike, and the reason or reasons you think that that explains that. Is one, do you think, Mike, because investors are starting to try and think through what could be tariffs induced higher prices coming at us?

I think so. I mean, there's a couple areas you could point to. I mean, one of them is, let's take China for example. Obviously this trade war is pretty much exclusively about China at this point. I think that was made pretty clear this week. And with that, that's put a lot of stress on and expected to put a lot of stress on Chinese exports and as a result, you could have been seeing and what a likely driver would be selling US treasuries that China owns in order to kind of prop up their currency. That could be one of the drivers that we've seen. And also when you look at other areas internationally, let's take the Euro zone for example, they are very large holders of US paper and you could see selling some of the US treasuries to basically invest in more domestic bonds from their perspective is also another source of a lot of this selling. But like you said, I mean it has certainly been quite odd to see some of these large moves that you would not kind of expect upfront, but I think those two things are some of the main drivers that are likely in the works causing these moves in longer-term yields.

Mike, obviously sentiment now is kind of the pits, right? Whether you're talking about consumer sentiment or investor sentiment for that matter, even despite, you know, rallies like the one we saw today and two sessions ago, when you look over the longer term, if you're talking to a client who has clients or who is someone who's going to be retiring in say 10 years or more or even five years or more, should they be less worried? In other words, is the longer-term uptrend in US stocks still intact or is this something that is a more profound reworking of the typical economic cycles and market cycles that we see?

Yeah, for somebody with that type of horizon, I don't think this changes things. I think if anything, for the average person working with an adviser kind of building a financial plan, this is a very stark reminder to take a look at your asset allocation, make sure you're properly diversified. I think the last couple years with the concentration in the MAG7 that we've seen, just a pure passive style in investment has folks really over-indexed to concentrated, high valuation areas of the market and they've probably had, if that was their situation, a rough couple weeks for sure. So it is certainly a reminder to make sure to stay diversified even if that doesn't appear to be the most popular trade at the moment. But also when we think about longer term, the overall starting place for the US consumer and the overall economy, the consumer balance sheets, that data looks really strong and while this might challenge some of that consumer spending power here in the short term, the starting place is from a really good place and I think that's really important to keep that perspective as we hopefully get some of these negotiations to a resolution soon.

Mike, thanks so much. Appreciate it.

Yep. Thank you.

We're just getting started here on Market Domination. Coming up, big banks have been reporting. What tone are they setting to kick off earning season? We'll discuss. And Yahoo Finance sits down with Boston Fed President Susan Collins to talk market uncertainty. You'll want to hear what she has to say. Plus, business at Tesla is not business as usual. We'll have all of those stories and more coming up.

Big banks kicking off another earning season this morning. JP Morgan and Morgan Stanley headlining the reports with solid beats against the backdrop of looming economic uncertainty. For more, we're bringing in Ken Leon, director of equity research at CFRA covering the banking sector. Ken, it's always great to get some time with you and there was a really fascinating disconnect today because indeed most of the numbers from the big banks written large were pretty decent, especially things like equity trading revenue. But what we were hearing in terms of the commentary from the banks maybe is leading us to buckle up a little bit for the rest of the year. Is that how you read it?

You know, I've been covering these large banks for 20 years. By far the rockstar was Ted Pick, chairman CEO Morgan Stanley. He did not buckle down. He was confident about the opportunities Morgan Stanley has and the business and even if they have 75% of their revenue coming from the US, they're going to continue to enrich and expand outside the US including Asia. So that to me was by far five stars. Jamie Dimon was a little bit more cautious mostly because I think there is some concerns from the geopolitical risk that we all know about.

What about the macro though Ken? To the extent that we see a slowing US economy maybe even a contraction, that means what for your coverage universe?

Yeah. So we look at all the dials and the one would be Main Street whether it be the consumer or small business. The consumer, we are seeing a slight uptick in terms of loan balances for credit cards. But nothing in terms of delinquencies that is alarming. And we look at all the banks every quarter. Secondly for small business, we're not seeing anything that would at this point suggest that the businesses are not viable. And as it relates to corporates they're on the sidelines as is financial sponsors or private equity, they're both needed for the capital markets. CEO confidence probably is lower, they're not really sure how much they want to commit for capital and go to the markets. I think the consensus of analysts, it's a second half story. It reminds me when we were in COVID at the beginning with the capital markets and investment banking. And by the way the only thing that was down a lot was equity underwriting, M&A and debt underwriting was still double digits and positives. But it reminds me of that time with COVID, whether an analyst would say in this case second half 25, is it going to be V-shape or U-shape? And that's really what we're playing around. If you're really bearish on the geopolitical scenario, you're saying that things are not going to be good for all this year and I'm going to be conservative, maybe there's an uptick next year. I don't think that's the case. What we got in the results I think is certainly that these are durable great franchises for investors. They represent core holdings. And the other aspect we're overweighted on the financial sector is that many of these banks have more durable recurring revenue from wealth management and asset management and some principal investments. So yeah, are we concerned? Of course. But these are some of the best franchises we have in the United States.

Now, what I'm hearing you say when you talk about durable recurring revenue, when you talk about not seeing a big alarming uptick in delinquencies, all of that sounds like stuff is okay, but it doesn't imply that V-shape that you're talking about, right? And we did hear, I know you don't cover Wells Fargo specifically, but Wells Fargo did indicate there was softening demand for loans. So where does that growth come from? I mean I get your message that like these are solid but solid and growing are two different things obviously. So where is that going to come from?

Yeah. And my colleague covers it, Alexander Yokum, but I covered them for 15 years and I think Wells Fargo their softness might be in the middle markets. But again, it's going to have to be that slingshot is going to be coming from corporates, large corporates, CEOs, multinationals, and financial sponsors. We have $1 trillion that has to be monetized from the private equity firms. I cover the big eight. There's only three analysts that cover the large banks and private equity. And it was beginning to improve last year and then the brakes hit. So their success is dependent on an exit ramp of either going to the market for IPOs or perhaps selling those businesses. And these are all really smart management successful firms. We're going to get Blackstone next week, Steve Schwarzman, CEO, and that's going to be the next read. But that's my slingshot. It's not Main Street or Middle America. I personally at this point because there's been interviews along the last day or two, do you want to be in traditional banks or investment banking capital markets? I rather be in investment banks, capital markets. They're both good. I just feel I have more of a delta on the fundamentals and that's going to be a driver for alpha the stocks.

Ken, finally, let's just push ahead here because we got Morgan Stanley today, got Goldman on Monday. What do you expect to hear there, Ken?

Goldman should be more like Morgan Stanley. You know, I mentioned these words which for Goldman Sachs, durable recurring revenue. They did have a failed strategy as you recall looking back to retail consumer finance. So, it's all about the core franchise and making principal investments. Sometimes competing against the private equity firms also going in and as an agent or doing private credit. So, we're beginning to see Goldman Sachs try to level off that cyclical volatility. Of course, you can't do it in the world we're in right now. And the reason you want to do that is it gives them a chance to kind of get multiple expansion in their stock as Morgan Stanley was able to do or try to get as high as BlackRock. That's the strategy. It will work. But right now, we have the external factors that put a lot of pressure.

Thanks, Ken. Great to see you. Have a good weekend.

You too.

Let's take a look at today's trending tickers. We got Recursion Pharmaceuticals, Intel, and Five Below. We'll also check on a few other names moving along with them. We want to start with Recursion here. This stock has been near the top of the trending tickers list on Yahoo Finance all day. The company works on biotech AI models and the stock's extending its rally for a second day after the FDA said on Thursday it plans to phase out animal testing requirements for monoclonal antibodies and other drugs. So, what does that mean? It means there is going to be less animal testing. So other companies like Charles River have been plunging that facilitate that testing. And then there's speculation that companies that are trying to offer an alternative to that testing by doing AI models for example. Those stocks have been soaring.

Yeah, I see analysts weighing in. Team in RBC is saying the steps towards increased regulatory flexibility, net positive they say especially given recent concerns about potential FDA dysfunction potentially greater stringency. Citi, Barclays, they weighed in as well, taking out pre-clinical animal testing. They talk about a good goal. Questions though here on feasibility and implementation remain they say right and that Charles River plunge is something as well and analysts are commenting on that. Baird analyst Eric Caldwell talking about this saying the players in this industry likely won't fully recover when it comes to valuation. He called yesterday's news shock and awe on this front. All right, moving on. Let's check out Intel here because that stock along with Texas Instruments moving lower today. It's after the China Semiconductor Industry Association released an urgent notice regarding the criteria for determining the origin of imported chips which could heighten trade tensions between the two nations. So you did see some of these chip makers specifically those with manufacturing footprints under some pressure. China we know of course hit back announced these new tariffs going after semiconductor imports. The tariff rate raised we know in all goods to 125%. Those are going to be determined where chips sounds like Julie are manufactured. So then you did see no surprise some of these names kind of a bit of pressure today specifically Intel, Texas Instruments. I did see analysts at Baird though cited as talking about how TI shares they thought were overreacting to the news that its shares in China could erode somewhat but they were saying it benefits from product performance, product breadth, cost structure, customer service advantages, which would be difficult they said for Chinese OEMs to ignore altogether.

Yeah, I was looking at a note from Jordan Klein, our buddy over at Mizuho, who's on the desk there and writes all about tech stocks every day. And he said basically this is bad news for companies that manufacture chips in the US and want to try and export them to China like an Intel and a Texas Instruments. He said conversely this could be good news for companies that design their chips, don't make them here, but make them, TSMC makes their chips for them. So a Qualcomm, Jensen Huang perhaps Nvidia, a Qualcomm and AMD and indeed those stocks are performing better today. Nvidia.

Yeah. Our next trading ticker is Five Below. Those shares have been slumping. The retailer asked vendors to turn away products waiting for shipment in China before they set off for the US. This was according to a memo reviewed by Bloomberg here. And this was the intermediary here was Maersk, which is the shipping giant, which sent this note to some of Five Below's vendors. It's unclear if it affects all of the vendors or just some of the vendors, but this really gets to the heart of what this tariff ripple effect is going to look like.

Yeah, China is Five Below's largest source of merchandise that it imports. Bloomberg citing Oppenheimer is saying tariff increases could pose costs of 90 to 95% for Five Below. And I just look at the chart of this one. I mean it's just rough. I mean Five Below we're down here about 60% now over the past 12 months. And Josh, you know what this story reminds me of? It's you know we've had this whole debate about how much this is going to push up prices on items in the US. But there's also a growing chorus that is saying it also could just mean we see COVID-like shortages where we just don't have, it's not that the prices go up. So you can't even get the thing that is imported from China. So that's something to continue to watch.

Another dynamic. All right. Is the US still number one? We're going to take a look at the concept of American exceptionalism when we return. It's a conversation you don't want to miss.

Boston Fed President Susan Collins sitting down with our own Jennifer Schonberger earlier getting her perspective on the tariff uncertainty and implications for the economy and the Fed's mandate.

Susan, you mentioned that it could take a couple of years for inflation from tariffs to really filter through our economy. We know that there are going to be tariffs on intermediate goods filtering through our supply chains. How are you thinking about the prolonged effects on inflation?

So do you think that inflation could not just increase for this year but persist then through 2026?

Do you worry about stagflation?

You mentioned you're watching the financial markets closely and the Treasury market has been on a wild ride over the past week and a half. What are your takeaways from that? Are there implications for your balance sheet and how that's being managed? Obviously the runoff has now been slowed down. Could we see changes on account of that? And what would it take for you to intervene in the Treasury market?

Do you worry that the tariffs could somewhat sully the reputation of the US and hurt foreign demand for US treasuries? That's been a concern in markets this week.