RobsonPL
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Philip Morris reports surprise cigarette strength. (0:15) Should Powell quit the Fed to save it? (1:25) Kohl’s surges on suspected short squeeze. (3:20)
This is an abridged transcript of the podcast:
Our top story so far, smoke ‘em if you got ‘em. Everyone else is.
Philip Morris (PM) reported a bounce-back in tobacco, where you still need a match or a lighter. The combustibles business saw net revenue increase by 2.1%, fueled by strong pricing, partly offset by negative mix dynamics.
Marlboro continued to gain global market share, achieving its highest quarterly market share since the 2008 spinoff. The overall cigarette category share was noted to be broadly stable, even though a return to negative growth is still anticipated.
PM’s smoke-free business accounted for 41% of total net revenue in the quarter and 42% of total gross profit. The company’s smoke-free products are now available in 97 markets, nearly half of which have at least two of our three flagship brands (IQOS, ZYN, and VEEV) available for sale, including 20 markets with all three.
But the stock is under pressure after the company missed top-line expectations for Q2, even though Philip Morris boosted guidance.
Looking ahead, the tobacco giant sees full-year adjusted EPS of $7.43 to $7.56 (midpoint $7.495) vs. a prior expectation of $7.36 to $7.49 and $7.49 consensus. Philip Morris also declared a regular quarterly dividend of $1.35 per share.
On the economic front, Fed Chairman Jay Powell sidestep any mention of Fed independence, pressure from President Donald Trump or monetary policy in general in his remarks this morning.
Prediction market Kalshi still puts the odds of Powell being out before his term is over below one in four.
But economist and strategist Mohamed El-Erian has an out-of-the-box suggestion for Powell’s future. He says the Fed chief should resign in order to ensure that the Fed remains independent.
“I recognize this isn’t the consensus view, which favors him staying until the end of his tenure in May. Nor is it a first best, which is simply not attainable. Yet, it’s better than what is playing out now – growing and broadening threats to Fed independence – and will undoubtedly increase should he remain in office,” he Tweeted.
“As to market reaction, most of the frequently mentioned candidates to replace Chair Powell would be able to calm any potential market jitters,” he added.
But his argument fails to address the fact that a Trump-picked successor be aligned with the president’s view that rates have to come down sharply. That would be a de facto breach of Fed independence and set a precedent of ousting Fed chairs.
Among active stocks, weighed down by import tariffs, General Motors (GM) reported operating profit that was down more than 30% in the second quarter from a year ago. But despite the challenging environment over the next 12 months, GM reaffirmed its solid full year guidance.
For the fiscal year, as the automaker continues to deploy mitigation efforts to offset the impact of import tariffs, net income is expected to be within a range of $7.7 billion to $9.5 billion, or $8.25 to $10 per share vs. $9.25 per share estimates. Adjusted EBIT is targeted for $10 billion to $12.5 billion vs. estimates of $11.25 billion.
Coca-Cola (KO) beat organic sales estimates with its Q2 earnings report and backed its full-year guidance.
Looking ahead, organic revenue is still expected to increase 5% to 6% during the full year, a midpoint of +5.5% vs. the consensus estimate of +5.7%. Coca-Cola sees EPS of $2.88 vs. $2.97 consensus.
And shares of Kohl’s (KSS) are surging, nearly doubling before falling back on a suspected short squeeze.
While the company has frequently been the subject of acquisition speculation — most recently by Sycamore Partners and Acacia Research — the most recent spike has not yet been attributed to any chatter regarding a takeover, instead, seems to be a short squeeze given the stock’s 47%+ short interest.
In other news of note, it was only a matter of time before AI models started claiming victory over each other.
Google (GOOG) (GOOGL) said its AI model won the gold medal at a global math competition, while Microsoft (MSFT)-backed OpenAI also claimed that its experimental reasoning model achieved took home the gold.
Google said an advanced version of Gemini Deep Think solved five out of the six International Mathematical Olympiad problems perfectly, earning 35 total points.
IMO President Prof. Dr. Gregor Dolinar said: “We can confirm that Google DeepMind has reached the much-desired milestone, earning 35 out of a possible 42 points — a gold medal score. Their solutions were astonishing in many respects. (The) graders found them to be clear, precise, and most of them easy to follow.”
Meanwhile, OpenAI also claimed a gold medal status for its experimental model.
Researcher Alexander Wei said: “I’m excited to share that our latest @OpenAI experimental reasoning LLM has achieved a longstanding grand challenge in AI: gold medal-level performance on the world’s most prestigious math competition.”
No word on whether the models started trash talking … yet.
And in the Wall Street Research Corner, J.P. Morgan’s global strategy and quant team argues crowding into high-beta stocks has reached the highest measurable level, leaving the broader market at risk due to complacency.
Beta measures stock price volatility and a high-beta stock (with a beta above 1.0) tends to be riskier, with greater potential reward. Crowding in high-beta names is now at the 100th percentile, according to J.P. Morgan’s analysis.
Previous times when crowding was this high include the Dot-Com Bubble, the period right after the Financial Crisis and Volmageddon in 2018.
“High Beta spans across both riskier low quality value and speculative growth stocks,” strategists said. “In our view, this is driven by a combination of markets increasingly pricing in a goldilocks outcome (e.g. growth resilience and easing Fed expectations), tariff exhaustion (e.g. the so-called “TACO trade”), and institutional investors chasing more levered and speculative equity segments of the market.”
“While some argue High Beta crowding could persist, we believe the current 100%ile crowding based on our quantitative analysis not only presents a risk for this crowded segment, but is also a red flag for the broader market, implying there is rising complacency in the short term.”
“This crowding is particularly unsustainable as it soared from 25%ile to 100%ile in just 3 months,” they said.
We “would fade this rally in High Beta stocks as it is not supported by a bust-to-boom recovery in the business cycle/fundamentals or significant easing in monetary/fiscal policies to sustain this outperformance over multiple quarters,” they added.
S&P stocks with the highest beta include Super Micro Computer (SMCI), Coinbase Global (COIN), Palantir Technologies (PLTR), Monolithic Power Systems (MPWR) and Broadcom (AVGO).
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