Listen below or on the go on Apple Podcasts and Spotify
UnitedHealth and insurance inflection point (0:30). Tech names have been very headline dependent (5:55). Cisco’s growth factors (10:10). Walmart set tone for upcoming retail earnings (11:10). Shopify’s interesting earnings (13:20). Coinbase, S&P 500, Bitcoin (14:45). CPI biggest macro news (17:05).
Transcript
Rena Sherbill: Brian Stewart, our director of news. And for those that are just checking in for the first time, Brian and I do a weekly roundup every Friday recorded on Thursday afternoons. Here we are for another week. Brian, welcome back.
Brian Stewart: Great to be here.
RS: Summarize what we’ve been seeing for the past week. Certainly a lot going on, I would say. I was thinking we start with UnitedHealth (UNH). We had a CEO resign. Anybody that’s paying attention to the world, I would say, has seen what’s going on with UnitedHealth a little bit.
But from an investing perspective, what are you seeing from UnitedHealth?
BS: Yeah. I think it’s interesting to look at the stock narratively. So starting with the high profile murder of its insurance group head, moving forward from there, we saw the company have earnings recently where it missed expectations, this had the stock going down and then, this week we had the abrupt departure of its CEO, Andrew Witty, also withdrew guidance at that point.
There were signs in there that the company was suffering from higher medical care activity and higher medical costs.
Basically, its insurance customers are using medical services more than they expected, and those services are coming at a higher price than was expected. So that’s obviously cutting into the bottom line.
And then the final blow this week has been reports of a DOJ probe for Medicare fraud by the company. So the stock is down 32% over the the past five days. That’s going into today and then down another 15% on Thursday on reports of the DOJ probe.
If you’re looking at this from a bearish philosophy, you could say this company is in in tatters. It’s one piece of bad news after another. If you’re looking at it from a bullish perspective, the CEO leaving marks day zero for the new UnitedHealth, and they can move forward from here.
The DOJ investigation will be what it is, but that’s under the old regime. And we can, as an investing group, move forward from there.
The question, I think, for investors in general is how company specific is this? There are some signs that this is relevant only to UnitedHealth, but the market seems to think it has broader sector impacts.
There’s some signs that the news flow especially has been very company specific, but the market seems to see implications for the rest of the sector. You see Humana (HUM) down 12%. You see (CVS) down 11%. You see Cigna (CI) down 9%. This is over a five day span.
So the market seems to think that the macro picture for medical pricing and and the upswing in usage of medical services is probably going to affect all the insurance companies.
RS: Would you say that insurance companies are at a inflection point a la the tobacco industry? Like, walking around Los Angeles let’s say, it’s clear that Luigi, the murder of the executive from last year, it’s taken on this somewhat Che Guevara type of resonance with everyone.
Do you feel that the DOJ probe is reflective of that? Do you feel like the slide in the names is reflective of that? How much is culture affecting things and how further would you say or what’s the best take that you’ve seen on on what’s happening in the insurance names?
BS: I think you’re asking a very important question, and I think it has broader implications about government regulation and the relationship between the public and private spheres in the sense that we often as investors and in the pro business camp think of regulation as always being detrimental to a sector.
The more a sector is regulated, the less growth is possible there. So let’s keep government regulation as low as possible. But I do think there are times when regulation or a stronger relationship between government oversight and an industry can actually provide the basis for a more confident investing environment, just a more confident situation surrounding that sector.
And I agree we might be reaching that point with the insurance sector where the public opinion about it has become so sour that having some sort of reform on a broad scale, even a mild one, would be enough to help return some of the confidence that people have lost in the sector.
RS: What is your sense in terms of the guidance coming? Do you have a sense that will be coming in the next quarter?
BS: It kinda depends on the new CEO coming in and how long it takes to right the ship there.
Next quarter might be aggressive. They’re gonna want to get some information out, so maybe more signposts and less specific numerical targets.
But I do think that, say, six months from now, we’ll probably get a situation where the new CEO is starting to put their stamp on things and set the longer term priorities for the company.
RS: So sector wise, another sector I was looking to cover were all these tech names in the news, reflective of the market volatility, reflective of this meeting in Saudi Arabia. We had Sara Awad from Tech Contrarians on Investing Experts laying out all these tech names and and how she sees it going.
What are you seeing out of the tech space this past week? By the way, excuse me, but I didn’t even mention the China tariffs, which is also part of this volatility and spike up this week. Just wanted to get that in there.
BS: Yeah, I was gonna throw that in there. You know, it’s Thursday, so Monday seems a long time ago, but we did have a huge market rally Monday after the the Chinese tariff announcement was made.
And then I agree, rolling from that right into the Saudi Arabia tech industry, the tech names, especially the big ones have been very headline dependent this year. It’s been taking the eye off of fundamentals and looking more towards the macro picture.
I think the general take, the consensus take among investors is that the AI boom provides a medium term at least to long term growth environment for many of these tech names.
And the pace of that is going to be decided by macro factors. The state of the economy, the regulatory environment, the general fiscal and monetary policy that’s going on. It makes it so investors are taking their foot off the gas when they have bad headlines or suboptimal headlines and slamming their foot back on the gas when do you see a reversal of that?
So I think going forward, you’re going to continue to see these names be very dependent on what happens out of Washington, what happens out of other capitals elsewhere in the world. So keep an eye on the tariffs.
The main headline from the tariff meeting was a 90 day pause while we talk some more. And oh, the end result of those talks are going to be very important in determining the near term stock price for these companies.
RS: Anything to look for along the way there? Are there any hints that we may take, or is it really just a wait and see game?
BS: It’s interesting because, clearly, Donald Trump’s negotiating process is to keep options open as long as possible. So I’m thinking about, as an example, the TikTok situation, which was also kind of kicking the can down the road.
And this tariff situation is another one where at another ninety days to the negotiation process and see what we get out of it. Eventually, the market’s going to want to see a deal, a final here’s how things are gonna be going forward and move out of the uncertainty.
I’m just not sure what framework that’s going to be. We have a ninety day ticking clock now, so we’ll see as we get closer to the end of those ninety days. But all signs point to the likelihood that that’ll possibly be extended. At the end of that, there’s no reason to believe that ninety day limit is going to be some sort of hard deadline where we’re definitely going to see a resolution.
So I think as we’re mapping out the next few months, I would look for signs that things are starting to get locked down, and that might come in the form of smaller tariff deals with other countries.
So China’s obviously the white whale, but along the way, there’s many guppies and minnows and marlins, whatever fish you wanna name, on the way to bring into the boat.
So I would look if there’s a proliferation of smaller tariff deals that start to get done, that might be a sign that the administration writ large is ready to put some signatures on the dotted line.
RS: And earnings wise, we haven’t seen a ton, but we saw some big names report this week. Where where do you think is a good place to start with earnings?
BS: Cisco (CSCO) is the biggest name, up 6% today after its earnings. It beat expectations, gave better than expected guidance.
One of the main growth factors was AI orders. So I think this is just another example of a company where the knock on effects of the AI revolution are starting to be seen in a wide variety of companies.
So if you kind of see Nvidia (NVDA) as the point of the spear, you start to see it come down away from that tip to the market rich writ large. I think as an investor, as you’re looking down the line, you wanna be looking for other companies that have that next growth wave still left to go.
And then ask yourself, if you’re an investor in Cisco, to what extent has this AI growth been baked in, and and how much is there still left to go?
RS: Walmart (WMT) reported today. Back to our Investing Experts podcast, we just had J Mintzmyer on this week talking about why he was short Walmart.
So what would you say about Walmart’s report? Certainly, there was a lot of interest given the tariff talk and how they were gonna come out about that and in general how they looked. What did you see out of Walmart?
BS: Walmart provided a good starting pistol for a run of retail earnings that are coming out next week. So just to list a few of them, you got Home Depot (HD) on Tuesday, you’ve got Lowe’s (LOW) coming Wednesday, and then through the week you have Target (TGT), Best Buy (BBY), Williams Sonoma (WSM), Macy’s (M), Dollar Tree (DLTR), Gap (GAP). So a wide variety of retailers coming out soon.
Walmart’s earnings set the tone for that. Just looking at the retail sector generally, it’s down about 5% year to date.
I’m talking now about the (XRT) S&P retail ETF. So that’s a good look at the overall sector down about 5% year to date, but that’s the end result of a very volatile year. So it’s currently sitting at about 75. It was above 80 as late as February 6 and then fell to around 62 in early April.
That was driven by tariff concerns. So at that point in early April, it was down about 22% year to date and has crawled itself back. It’s up about 21% from its lows, but still down for the year as a whole.
So you see that the retail sector is very tied into people’s vision of both the tariffs and consumer sentiment writ large, whether or not inflation is going to force consumers to pull back on their buying.
Walmart warned that consumers might see higher prices even at reduced tariff levels. So you see this worry that even if a deal is struck with China and any of the other companies that are integral to the supply chain for these retailers, you might not see a complete pulling away of those price concerns.
The retailers might have that headwind even in a positive environment. The kind of environment that might spark a rally for tech stocks might not be enough to drive gains for retail.
RS: And anything else to point out earnings wise that you saw?
BS: Shopify (SHOP), had earnings early this week. It was up 14% after those results. I think it’s interesting to look at Shopify in the context of the Internet commerce upswing that we saw last week.
Last week we saw companies like AppLovin (APP), and Carvana (CVNA) see gains and Shopify played into that. So there’s clearly appetite for consumers to be purchasing items online. It will be interesting to see if this is a process of stuffing the channel before higher prices come in.
Consumers are as aware of it as anybody that tariffs are looming and so might be getting purchases done earlier in the year with the hope that they can get things cheap now and not have to worry about it later. It’ll be interesting to see whether this kind of growth that these companies are seeing can be sustained through the year.
For a company like Shopify specifically, the concern is, okay, this was good execution for this past quarter, but our valuation’s already out of whack.
So there’s a there’s a couple headwinds facing Shopify specifically and then the retail Internet retail sector generally.
RS: Speaking of sustained growth and how much can be sustained and how much growth is in there, I think a good segue from that conversation is the crypto conversation.
We saw some increases in Bitcoin (BTC-USD). It passed $100,000 again.
We saw some news out of Coinbase (COIN). They reported last week, but they’re also set to join the S&P 500, which feels like a nice noteworthy moment in time in terms of crypto getting into the conversation, the day to day conversation. What are you seeing out of the crypto space? What kind of takes are you seeing there?
BS: I think your point about Coinbase joining the S&P 500 is a good one in the sense that this is another point on the road towards broad acceptance.
We had talked about before that the main driving force for higher Bitcoin prices and higher crypto in general will be the broadening acceptance by both institutions in terms of putting their clients into these assets as investing vehicles and consumers in general using them day to day.
And so I think Coinbase becoming officially one of the 500 most respected companies in, the investing world is an excellent step forward for that.
So if you’re a bull on Bitcoin, I think you can take heart in that progression. Bitcoin, as you pointed out, has been volatile this year. It’s still up 51% since the election, but had a swoon in kind of the middle of the first half.
So reached around 109 and then slipped and then last week got above a hundred thousand for the first time since early February. So you’re seeing it hover below its recent highs at this point.
So the question is, where is the driving force for the next leg higher going to come? If you’re a bear, you’d say maybe we’re topping off at this point and looking for more catalyst.
If you’re a bull, I think you’re hopeful that the crypto friendly Trump administration that was promised on election day and drove many of those gains in late 2024 and early 2025 will continue to provide an environment where that broader acceptance can take place.
RS: And macro speaking, what do you have your eye on? How are you seeing things play out? What should investors be focused on? And what do you think they were most focused on this past week?
BS: Well, I think in terms of macro picture, I think the trade deals, the communication between the US and the rest of the world is the broadest context for which stocks are trading now.
So I think more headlines in that area are probably going to move the market a lot. I think in terms of digging down a little bit and looking at the underlying economy, I think the biggest news this week has been the CPI. It came in relatively benign.
It showed a 2.3% annual rate of growth for April, which was moderating from March and below expectations of a 2.4 increase. It’s also worth noting that the Fed’s target for inflation is 2%, so this is getting pretty close to that.
However, there is some uncertainty in the fact that the core number, so that include that excludes food and energy, that number came in at plus 2.8%, so you’re seeing sticky inflation on the core number even as the headline number comes down.
Also, the April number did not include the tariffs. And now that those have been paused ninety days, maybe that doesn’t have as much of an effect as people were counting on.
But there’s still gonna be a tariff impact, and we’re still kind of waiting for that shoe to drop. And that’s being shown in the probabilities for whether or not the Fed’s going to cut rates in the near future.
So if you look at the the market and what it’s expecting currently, it’s pricing in a 92% chance of no cut at the June Fed meeting. That was already pretty much baked in that everyone was expecting June to be another hold and see what happens.
But if we look ahead to July, it’s now a 61% chance of a no cut. That was 42% a week ago. So you’re seeing July flip from majority chance that there was going to be a cut to a majority chance that there isn’t going to be. And then September, now there’s a 25% chance of no cut and that was at 11% a week ago.
So you continue to see the the prospect of a rate cut moving further and further down the horizon later and later into 2025. And while the majority of people are still expecting rate cuts in the relatively near future sometime this year, that keeps being pushed back, keeps getting further and further away.
The concern is that the underlying economy will need some sort of boost sometime in the near future. And if inflation remains sticky and that’s exacerbated by tariffs, it might tie the Fed’s hands. It won’t be able to act as quickly as it otherwise would.
The housing market’s gonna be in focus next week. There’s new home sales, existing home sales are both coming out. Also, as I mentioned, Home Depot and Lowe’s are reporting earnings, so you’re gonna get a pretty good look at what the housing market looks like.
That’s an interesting one. It’s very rate sensitive. And as people are expecting rates to come down, I don’t know how much that’s permeated the general thinking of a home buyer.
But there might be the thought that if rates are coming down later this year, maybe I’ll put off buying a house, locking in a rate until I can get a little bit less, the mortgage.
RS: I can tell you that empirically speaking, I went looking for nails this week to hang something on the wall, those kinds of nails. I went to so many different places that do not sell them, that should be selling them. They’re off the shelves for various reasons. The only place where we could find them was Home Depot. I think that might be a a real nice indicator. I think people can extrapolate a lot from that data point.
BS: One thing I would say from that is I mean, that’s sort of the the Walmart thing we were discussing last week where if you’re one of these bigger companies, you just have better relationships with suppliers.
They might be more insulated because we think about it as, like, oh, no. Walmart is gonna be hit by these tariffs because they get all their products from China, but they might actually be more insulated than some of the smaller players just because they have more options in terms of leveraging their sources.
RS: To me, it’s a similar conversation, although I don’t mean to mix my metaphors, but what a lot of people say about, like, the ETF space in Bitcoin, they’re only going for BlackRock. They’re only going for Fidelity. Like, those big names. There is cache that is worth the brand name.
BS: Yeah. And if you’re an AI person, maybe that speaks to NVIDIA. You think, okay. NVIDIA laid out, so let’s move on, find something smaller. But there’s something to be said for being the the largest player in a certain segment.
Read the full article here