Tariffs Blocked In Court... What's Next?
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A warm welcome to the Risk Reversal Podcast on this Thursday, May 29th, the final Thursday in the month of May. Guy Adami, Dan Nathan. Dan.

how are you today i'm you know i'm right here with you guy we're doing this thing we actually while it's the final thursday we still got a lot of stuff to do this week you know we have the fed's most favored inflation yes sure we do coming out at any moment um this is right after the opening it is a sea of green guys so we're going to talk about the trade and tariff stuff you can't wait to get it get into all that well that's what we have to start with i think we don't want to bury the lead as they say in the business and this

came out, I believe, somewhere between 6 p.m. East Coast and 8 p.m. on the East Coast. I was in a car headed home. And then when I got home, I put on the television set and I noticed that futures were up 82 handles. And I said to myself, self,

That cannot be solely on the NVIDIA earnings report. There must be something else going on. And then in my quick search, I found out that, oh, by the way, all these tariffs that have been implemented apparently are now deemed to be illegal. And the market, obviously, it's taking its cues from that, which I guess makes sense just on a knee-jerk reaction. But I think the conversation should be centered around, okay, what's next? Like, what's the next iteration of this? And what is

you know, what is the then, I guess, reply from the administration? Now, immediately, they obviously challenged this, which one would think they would do. But how does this all play out, Dan? That's really the question. This is not something that most people had on their bingo card, if you think about it. And, you know, one thing I would just say about this administration is they generally don't care about

court rulings. Like, let's be clear on that. This is not one, I don't even understand where this is coming from. Obviously there's been lots of different lawsuits about a lot of this executive order stuff. I mean, we got to go back to you know, the power of the purse, right? It

is in the hands of Congress. So I think there's a lot of folks who just said, how did Congress just cede all this power to the executive branch? Right. And there's ways around that. And so, you know, the Alien Enemies Act and the like here. But now, you know, the headlines were, Guy,

What are the tools that the White House has to put these sorts of things in place or keep them in place? And, you know, we got to take a step back to yesterday afternoon. And this was trending all over the place. This sort of taco trade and mega casella from CNBC asked President Trump in the Oval Office,

which takes some stones, let's be honest. She said, you know, there's this trade or this acronym going around, the taco trade, and he asked what it meant. And she said, it is Trump always chickens out. And they were talking about the, you know, the history over the last couple of months of,

setting these high tariffs and then scaling them back and how the market's kind of getting used to this. We've been talking about this play out of the playbook. We've seen it before. We saw it in the first administration. And I don't think his answer was particularly great. He was kind of floundering a little bit. And so my question to you, I guess, is we know how he reacts to those sorts of attacks.

he doubles down, right? And so if you now have the kind of, he's annoyed by the taco thing, and then you have this court ruling, you know, if you think that this is some sort of reprieve,

I think you're doing it wrong. I think you're not paying attention because I think that they're going to actually double their efforts to get these tariffs through. Does that make some sense? Yeah, no, it does make sense. I mean, again, you know, he will talk about this being it's all part of a negotiation and that's fine. I'm not going to, you know, quibble or sort of argue that point. He has his own methods. People, other people have their own methods. But your point about he's not going to take this lying down is what you're saying. I think it's exactly right. And

there's going to be an escalation almost by definition, because I think based on that question, which clearly irked him, and based on that subsequent ruling a few hours later, which no doubt irked him, you know, there's going to be some sort of escalation in whatever way they find possible. And I don't think, again, this is just me, I don't think it's going to be particularly market friendly. Now, as we're sitting here now with the S&P up

40 handles basically getting back what it lost yesterday. It's hard to make that assertion. And again, you know, VIX at 19 seemingly under control. You know, things are seemingly moving in the right direction. It's hard to sort of

I don't know, think about or see that type of situation where something comes out of the blue, but we've seen it before. And I think here at sort of a 19 VIX and S&P north of 5,900, the market's clearly not prepared for that. Yeah. And I would also say that if you're paying attention here, you know, the Chinese, they're scaling back exports of like rare earth materials and some other things that are really important.

to our electronic sector. I don't know if you saw that like Best Buy guided down for the year. It wasn't a huge guy down the stocks down 6%. It makes sense that electronics, you know what I mean? Are going to feel some pressure of this as far as the tariffs are concerned. But you know, when you think about China as the main event and you think about the EU, you think about Canada and you think about Mexico, there's been no progress. You could say the EU, there's been a little progress. Obviously UK has been a lot of progress, but

The EU doesn't know what they're dealing with. You know what I mean? And the situation with the UK is very different. Surplus versus deficit, right? You know, we've seen these situations where it's usually trade surplus, right? So let's put the UK out of there. Let's think about the EU. What are they going to get? I mean, come on, man. At the end of the day, that's a nothing burger. And then if you think about Canada and Mexico, why haven't they come to the table then?

You know what I mean? And then there was another ruling. You know, I guess this is about USMCA and the like here. So this is going to remain a complicated situation where I do not believe there's going to be a resolution. I think as we get closer to that 90 day mark was sometime in July. Right. As it relates to China, I think folks are going to be disappointed. So just to put a bow on this taco situation is like.

I think that he is going to double down, which to your point is going to make things, it won't be market friendly. And I think that's one of the reasons why you do have a VIX at 19. You don't have a VIX at 16 on a day like today. No, fair enough. And again, what does that mean for the 90 day? What does it mean for the July date? Do those things get thrown out the window? Just, you know, again, I think,

Last night's ruling, in terms of what we talk about the market, threw a monkey wrench in this entire thing. And I understand the optimism that the market is feeling on this knee-jerk reaction. I think it's somewhat misguided, and I think it'll be somewhat short-lived. And today's one of those days where if we were to reverse lower – and we'll talk about this on Market Call later in the day –

I mean, that's one of those days that you're sort of looking for. And again, it's hard to sort of visualize that right now. Again, with Nvidia earnings, Nvidia now sort of around 143 level. You know, I'm sure we'll talk about that at length in a little while, but, you know, it's hard to see it, but that's typically when it happens.

Yeah, and on the single stock front, obviously, NVIDIA is driving a lot of the enthusiasm. You see semis being pulled up right here. CoreWeave, which is a name that obviously has become a bit of a meme stock, is up 8%. I mean, the stock went public, I think, at $38, guy, and 8%.

role and here it is at $125. And so that's a data center play. And, you know, it's a pure play data center play. So a lot of folks I think are looking at that in a way where, you know, you don't have to look at a company like a Microsoft that has Azure in it and try to figure out how they're benefiting, you know what I mean, on an enterprise basis and what the cloud means on the backbone of that. And Amazon's the same sort of thing. And Meta's a big company. So, you know, pure plays and that's how NVIDIA is being looked at.

You know, that's obviously what you want to focus on if you're just really looking to drill down on some of the, you know, the CapEx sort of stuff. But let's do the NVIDIA here, man, because, you know, last night on Fast Money as the news is coming out and you and I are kind of looking at, you know, the guidance and who cares about the quarter. And, you know, there was a lot of noise around charges and missed China sales and all that sort of stuff.

But I don't know about you, man. I was like, you know, Nvidia looks good. That's fine. You know, I'm not buying it here. And then the one I was like, well, Salesforce doesn't look that bad. I mean, there's a little hair on it with the acquisition of Informatica and that stock's down 5%. So that's how it goes some days. You know, it's amazing that you bring that up because I thought the same thing. I thought the Salesforce quarter and the subsequent guide

given the sell-off we've seen and then given the valuation was good enough to get the stock higher and it for a couple hours at least it appeared that way and then you just say now we're down some six percent in

in Salesforce. That's a $17 move. And by the way, for those playing our home game, it's not like it's 6% off the all-time highs. I mean, the all-time highs in this stock were made back in December, I think around 369. So this is just another re-acceleration to the downside of a stock that's been in decline since December. I think we traded down to 240-ish

in early April, you know, 258 now, but that's why the market is so humbling, Dan. You know, Nvidia sort of was fine, as you just said. I will say the magnitudes of the beat in terms of percentages continue to get lower. The absolute numbers are bigger. The percentages continue to get smaller, which suggests

slowing growth. But the market's taking its cues from a lot of the things that the CEO has said, and the fact that margins sort of hung in there, and there's a hope for this re-acceleration in the back end. But I think this move in Salesforce, and you juxtapose it with NVIDIA, that's what makes this so difficult on a day-to-day basis. Yeah. I'll just say this. We talked about Workday last week. It was down 12%. Some of these SaaS companies are not

doing so well, at least in investor mindsets as it relates to disruption with generative AI, right? And so a company like Salesforce in particular, you know, I mean, they have leaned into the idea of agents, right? So these are these, you know, generative AI programs that are going to work in the background to do things for you. They're going to, you know, interact with

with other things and they're going to kind of make things happen without humans kind of directing each sort of action. And so these are things in my opinion that are going to be sort of years away when people trust them. And it's not just consumers and more importantly, it's going to be businesses, right? They have lots of liabilities, how this all goes. So again, I mean, the bull case is that agent force is going to be a force within

the customer service sort of realm where Salesforce lives. But the jury is still out there because if I'm looking, Guy, at I see semis up, I see the hyperscalers up, I see most of the software names down. So they're being dragged down with Salesforce and then the hyperscalers and the semis are being dragged up. Now,

you know what's down on the day broadcom and marvell this is hugely important okay because they were being dragged up if you look at a day chart what are we 20 minutes 15 minutes into the day you know broadcom i thought was trading up three or four percent let me just kind of look at this thing

It's unchanged now on the day. It's unchanged. And then Marvell, the same thing. They make custom silicon. The whole idea is that Microsoft and Amazon and Google and Meta and OpenAI, as they move past this inference phase of the build out of their models and the like and the training of these models, then they start doing the task, right, that they're being asked to do. And inference is meant to be more specific. And these guys, all the hyperscalers, are contracting with Broadcom and Marvell to make chips

that are very specific that will be, whether you like it or not, people will be competing with Nvidia chips. And the fact that these stocks are not rallying after they, you know, they've given it back. I think that's pretty telling guy. It's a straight. I think you're right to point that out. I mean, the sell, I mean, in the broadcom open on the highs as we're sitting here now, it's trading again, there's a lot of daylight left, but the fact that we, in terms of that individual stock, in terms of broadcom traded up to the levels we saw in December, uh,

and seemingly are sort of failing, I think is something to watch without question. And, you know, people explain it away saying, well, it's just NVIDIA taking investment dollars away from the rest of the space. That might be true, but there might be something else going on. And, you know, I think this NVIDIA day today will be as important as it was back in January when we saw an earnings report

had a stock make an all-time high north of 153, only to see it close lower and then sort of set the table for that subsequent move that we saw into April. So,

Stay tuned here, folks, because there's a lot of things today on this Thursday to be concerned about, a lot of things to be excited about. And that's why we have so much fun doing this every day. Yeah. And I guess let's broaden it out a little bit. So if you look at the S&P 500, 59, 22, we know the high back in February was 61, 50, right? And so I guess the question is, is like, what are the things that helps the market, you know, kind of, you know, retest those

prior highs, establish a new range above those highs. We have an S&P that's up less than 1% on the year or so. And the NASDAQ is up, let's say almost 2% or something like that. And it's just hard to think about what are the conditions in which investors are gonna feel comfortable

about getting this bull market really revved up, if you will, because the economic stuff, you know what I mean, is about as clear as mud, in my opinion. I think there's a lot of complacency around the disruption that might occur because of a protracted trade war. And I think a lot of folks are just

kind of discounting, not even the worst case scenarios. They're discounting some of the sort of base case scenarios, you know, and, you know, we don't talk about employment right now. It hasn't been an issue. We keep talking about inflation, but people seem to feel like that is going the way in which, you know, they would like it to be. The Fed doesn't seem to be in that camp. You know, we got the minutes yesterday. And so June 18th is going to be quickly approaching. And it'll be interesting to see if President Trump kind of dials up the rhetoric a

against Fed Chair Powell and what looks like the CME Fed Fund's futures are suggesting there's no chance that we get a rate cut at the June meeting. So a lot of things to me are still up in the air here. And it's not like I'm so bearish on the market. We've talked about

this kind of billionaire hedge fund set. You know what I mean? How they thought that we're going to retest. And that's something we heard throughout the beginning of May into just, I don't know, mid-May or something like that. They've all gone quiet a little bit. You and I, you know, we wish that they'd refresh some of those views, you know, a few weeks later when price action changes. They probably have within their own hedge funds and the way that they're investing and the like here. But again, it seems like the likelihood of a retest is not

particularly great. But the flip side of that is like, I just don't know how we make new highs, establish a new range and just kind of get this bull market going back up. First of all, you're right. They've gone quiet. I mean, but these are people that don't typically talk all that much either. So it's not like they're, and I don't think you're not suggesting this, but it's not like they're holed up waiting for the market to behave in the way. I mean, and again, these are people that are allowed to change their mind, but there are also people whose macro views I think matter and don't necessarily change the

just because the markets moved against them, which I think is important to point out. 'Cause I don't think fundamentally anything has really changed all that much.

You're talking about a market that, you know, in early April was clearly oversold. I mean, all the sentiment was on the wrong side of the ship and that sort of changed very quickly. We saw a consumer confidence number, to me, entirely predicated on the move in market we saw in April. It was better than expected, but that can change on a dime as well. So as quickly as we got oversold, I think that's as quickly as we got an overbought. And all those metrics that we look at that we've pointed out time and time again, are

are not timing mechanisms, have gotten themselves right back to levels that are extraordinarily concerning, not least of which these CAPE ratios, which we talk about, the Buffett indicator, the price to earnings on the S&P 500. I mean, we can rattle off a bunch of different things, and those are all still continue to flash red. So to your point, how does the market take out those highs that we saw earlier this year? I'm hard-pressed to figure it out.

other than in absence of bad news, we just sort of, you know, go on our merry way and this continuation of passive money flowing into the market, you know, short of that, it's hard to sort of have a scenario where we take that out. If you take the macro out of this before we get some data over the next week, week and a half or so. And then obviously like we just talked about into the fed, I mean, how important guy is market leadership right now? Microsoft's back towards those prior highs. It's kind of an inching higher. You know,

nvidia like we just said you know is still not back towards those highs 153 right now is trading um 141 it's come off a little bit from this morning's highs and that one's going to be obviously the main event for the rest of the day if for any reason that thing were to give it all back and go um red you better watch out below i mean i don't mean like watch out below five percent but i mean like we could be on our way to fill in that gap from the china push out from a few weeks ago that's something that we thought

on Friday's close was very likely to happen, right? And so when you look at Nvidia, sometimes you say, is this as good as it gets? I mean, we have never seen anything in the history of capital markets like what's happened in Nvidia over the last five years. And I just want to be clear about this. So fiscal year 2020, this company had $11 billion in sales, okay? This year, they're expected to have close to

$200 billion in sales. The quarter that they just reported yesterday had $44 billion in sale. Their annual revenues five years ago were actually, you know, one quarter of what they just printed in this quarter. It's purely, I mean, it's nothing that I've ever seen before. So this is a bit of an outlier. And this is why I guess this is such an important stock when you think about it in the context of kind of the broader market.

And that's what people will say to us. And my response to that is the stock is being rewarded for that in terms of the valuation it's trading at. Nobody's denying those. And I'm not saying you are. Nobody's denying the numbers and the magnitude of the numbers.

What we're talking about is the fact that they're being rewarded in terms of valuation, number one. And again, the magnitudes of the beat in percentage terms are getting smaller. You just mentioned $11 billion. You recall that first guide that took everybody by surprise when I think they guided from $7.2 billion to $11 billion or something like that, $7.5 billion to $11 billion.

That's the one that was sort of eye-opening in terms of magnitude. When you're talking about magnitude, almost a 50%...

upside raise, 5-0%. Now, the numbers have gotten significantly larger, but that 50% is no longer 50%. Now it's in the mid-single digits. And that just speaks to the maturation of a company, which all companies go through. Now, if the company wasn't being rewarded for that, I'd say, you know what? The market's behind the eight ball now. They're really behind the curve.

The flip side of that coin is at $3.5 trillion valuation, you're still talking about a company back to the envelope that's probably trading, what, 13 or 14-ish? I got to look at it, but 14 times expected revenue, which to me is a little excessive.

Yeah, 14 times next year. And just to, you know, again, put this in context, you know, expected to do close to $200 billion in revenue next year. The deceleration that you see from 50% revenue growth in the current fiscal year to about 24%, it's still astounding. You're talking about, you know, from 200 billion to 250. And so that's the thing. It's been inching higher. It hasn't been hinching lower, right? And one of the reasons why...

I guess it's able to trade 14 times except expected sales. One thing I think is really important and we're starting to see some sort of kinks in the armor here. You know, the president came after Apple, right? You know, you know, Jensen Wong, the CEO of Nvidia really cozy up to the president was in Saudi Arabia with,

Saudi Arabia with them. One of the reasons why I think people feel pretty good about this guide from Nvidia is that, yeah, despite maybe these restrictions and these export bans to China, and they've been talking a lot about that, this is obviously the charge that they took and the charge they're going to take for the current quarter and the missed sales.

But maybe the Middle East kind of makes up for that. Right. But, you know, Jensen Wang on the call, he did say that this, you know, kind of policy towards China makes absolutely no sense. So the more you kind of fight with the big guy in the White House, you know what I mean? The more likely you are to have him.

come back at you you know what i mean and so you could kind of try to apply the taco trade to this sort of stuff but in the near term he probably pushes back a great deal he does not like to be criticized to himself which is also interesting that elon musk posted this yesterday that he's leaving the government he thanked the president but he also had this kind of closing salvo where he was talking about the big beautiful tax bill

that he's not a fan because it really just adds to the deficit and he doesn't really kind of support his doge work, if you will. So might we see a fissure guy in this relationship between Trump and some of these big mega cap tech CEOs? Yeah, well, look, you know, this is not Monday morning quarterback stuff. We said, I think, back in December, January, that it's

I'd be surprised if Elon Musk made it to the 4th of July, and we're here on May 29th. So that obviously came in on the under. To answer your question, I mean, all these relationships at a certain point seem to fracture a little bit. So I don't think it's out of the realm of possibility to think that you can't see further fracturing in the form of these

big cap tech CEOs and this administration. I mean, we're obviously seeing it with Apple. Right now, Nvidia seemingly is cozied up, but it's just a matter of time, I think, before that could potentially fray as well for a number of different reasons. By the way, if you listen to Jensen Wang, I mean, he talked about some of his concerns around US-China trade policy as well. So

Criticism is not really taken all that well, and there's typically some reciprocity on the back of it. And again, through the lens of the market, I mean, we're seeing what happened to Apple. I think it's just a matter of time before we see what happens to some of these other companies.

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um really quickly before we get out of here guy i know dell reports after the close um this is one that we talked about in the market call earlier in the week and the stock has had a nice rally off of those april lows but still down a whole heck of a lot right from the highs made um in early of 2024 and then again this is meant to be a beneficiary of the build out of data centers right if you think about the servers that go into them dell has taken share from super micro and it's meant to be

you know, a big part of their future growth. But Hewlett is trading down, I want to say, 7%, 8% on the quarter that they just reported. There's a portion of that, as you think about the PC market, that is going to be extrapolated to Dell. The fact that Dell can't rally

on a day where, you know, Nvidia is up the way it is. I think you gotta be really careful into this quarter. And we looked at the technicals and we're going to do it again on market call. I mean, you talk about a downtrend that this thing has been in for a year and a half and the likelihood that it breaks out above it is not,

particularly great. And the other point I'll just say, you know, when you talk about gross margins at an NVIDIA, I mean, you know, for them to maintain them, I know it's 71 and a half or something like that down from, you know, four or five points. And they're talking about the transitions of platforms and that's kind of weighs on

you know, margins a little bit. But once they get Blackwell kicking, you're going to see in the back half of the year, margins expand again towards the mid 70s. Well, if they are going to see expanding margins, they're also probably putting pressure on pricing. You know what I mean? For some of their customers, like jacking it up a little bit, which is pure margin if they're able to do that. So Dell is probably one of those customers that's going to feel a little bit of that heat. This is a 22% gross margin company.

You know what I mean? It's not a 71 and a half. It's a hardware company, right? So Dell is going to be really interesting to me because it speaks to the fact that there's other parts of this ecosystem. And we just talked about SaaS, the application layer of the generative AI doesn't seem to be doing particularly well. And so maybe some of the other hardware players that go into the data centers, maybe they're going to be the next one to kind of, you know, see the kind of shoes to drop a little bit. So that one's going to be really important for me to

Yeah, I agree. I mean, Dell's been you just mentioned it's been in a downtrend since May of last year. I mean, the move in HP, although I think right now higher. I mean, this is a stock that, you know what? Actually, it's not higher. Excuse me. I mean, it's just not trading particularly well. So you have to be when you see a stock down eight percent. I don't know why I thought it was higher. I saw a bounce, but it's not really bouncing.

I mean, that's concerning. And again, HP is in that ecosystem. And at $25, you know, we're getting close to the levels that we saw in early April, about 22 and a 22 or so. So all these things, I mean, the headline continues to be NVIDIA. I get it. The sideshow continues to be all these ancillary names that, you

you know, have bounced, but have not, not, not nearly commensurate with some of the other things that we've seen. Yeah. We're going to get the all important jobs number next Friday. And that one will be interesting to see because we have seen, you know, companies with layoffs. And as we get kind of further along with, you know, no resolution, even the,

pushouts. And I think this is really important, whether it's July 9th on the EU, whether it's 90 days on China. One of the things that corporates don't like is the uncertainty, their inability, right, to kind of plan their business around that sort of stuff. So if we get pushouts of those dates, you're going to see

unemployment number going higher, right? It's just how it has to happen, which is a really sad byproduct of what's going on here. And you could say, okay, well, that's been the Fed's kind of mantra for the last couple of years since they started raising interest rates in 2022. They wanted to slow down the economy. They had unemployment at 50-year lows. They needed that to go up a bit, right? That sort of thing. So we really haven't had that kind of unemployment shock

the thing that the Fed kind of got aggressive on the cutting front the first time since 2020, you know, back in September, because they were worried about unemployment. And so maybe that's something that kind of rears, to use your expression, its ugly head at some point as we get into the summer and it doesn't look like there's a lot of progress on the table. Yeah, I mean, to me, it's a final piece of a very complicated puzzle is the job picture, which

which listen has hung in there a lot longer than I thought if I'm being honest but it doesn't mean that you know they're not some warning signs out there the warning signs are Crystal clear and you know if you start to lose the job market in you know a somewhat meaningful way and inflation continues to be a problem despite this number being somewhat softer than expected you know that puts the Fed in a bit of a box here Dan

Yeah. And just a last thing, just going back to Best Buy, you know, is down, you know, 8% right now. And, you know, we did have a bunch of retailers report. They did talk about the uncertainty. Some of them that came out, we've been talking about this over the last couple of weeks and said that, you know, tariffs are not affecting them just yet. I think when you saw Trump tweet at Walmart.

telling them to eat the price increases. Don't think for a second that if you were a much smaller retailer, and let's be clear, every other retail in America is much smaller than Walmart, right? They don't have the sort of pricing power, you know what I mean, that a Walmart is.

you're going to keep your mouth shut, right? And you're going to basically, you know, Target did this, by the way. Target's like, they just kowtowed to the administration. If Walmart is going to the strength of their business, right? And they're going to basically say, we're going to have to raise prices. And Target's like, we don't have to raise prices. They said, we have lots of levers to pull. That's a shitty retailer right now. That's a shitty operated retailer. And that we know is a bunch of bullshit, right?

Yeah, I mean, you know, Target had the benefit of seeing the ramifications for Walmart saying what they said. And they're like, we're not going to make that mistake ourselves. But it doesn't mean that they're not in the same situation. They clearly are. And you say what you want and we'll get out of here on the back of this. I mean, Target has been one of the worst performing retail stocks for the last three and a half or four years. And at some point, I think you have to take a hard look at what's going on just in terms of market.

just in terms of the not ownership, but the stewardship of that company under the auspices of their current CEO. No doubt about it. All right, Guy, just a little housekeeping. If you're listening to this today on Thursday, we have a drop of Michael Cantopoulos. Guy and I are sitting down with him. He is the chief market strategist, I think co-CIO at Richard Bernstein Advisors. He's a guy who's joined us on Fast Money.

For years now, really smart guy that drops tomorrow in the risk reversal pod. Any closing words here, guy?

A lot of day left. We're going to do market call later. But again, you know, if you're listening to this sort of on a macro view, keep your eyes on some of the things that we've been talking about for a while. The move in dollar yen, the move in yields, the move in commodities. And if Nvidia were to close lower today, you're going to have sort of a replay of what we saw back in January, Dan. All right. No doubt about it. Thanks, everyone. We will see you tomorrow morning on the Risk Reversal Podcast.