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Uh about 7 minutes before we get started with trading here at the New York Stock Exchange. Let's get to today's Mad Dash. Uh Gap is going to be a bit of a loser this morning after earnings. Now, Richard Dickson's doing a very good job, but it seems like it's been inconsistent. Uh this quarter, Gap, for instance, the actual flagship is up 10%, but Old Navy was very disappointing, and that's the biggest.
And because Old Navy was disappointing, the company cut num cut they just slashed the outlook in a way that people were kind of shocked. Old Navy projected down in the low single digits, and they've been really, really strong. At I you know, this Athleta business is just not good. Down double digits down.
So, what is the issue? Do we know? Well, that was part of the difficulty, David. The issue was that they felt they did not execute. Now, we have some headline which says that they blamed it on the environment and costs. No, it did not. I just have to tell you this you know, I don't have to correct things.
It was He did Sorry, specifically did not blame the environment. He blamed it on himself and on execution. Okay, so they did not say it was a broader macro issue or consumer issue. They said it was an execution issue. You know, one of the things I don't like is when I hear that someone blamed the environment, and they did blame himself.
You know, so it's like in Julius Caesar, I mean, the fault was in himself. It wasn't the stars. So, it was a jarring call because Richard is really fabulous in fashion. I do have him on tonight. And they have to get They called some very big damage. Matthew Boss down, where a lot of people had really hoped that this was going to be the breakout quarter.
I You didn't blame tariffs, either. I mean, they're going to get a tariff refund, but it just plain it just didn't get it done, and it was a brutal call, brutally honest call. I I recommend if someone did not have a good quarter, this is the way to do it. But the guidance was done by the CFO, and it was just concerted because we if you take a longer-term chart, you'll see the inconsistency in Gap has been very unnerving, very unnerving.
All right. Yeah, I mean real spending on footwear and apparel is negative. I mean, I'm not sure how you can't not look at that. talked to all the different retailers, they Those are big categories. Uh but he would say, "Listen, I'm trying to bring in cosmetics. I didn't get that done. I didn't have the right law." And he said, "Or he did not say our team." He did not do any of that stuff.
He puts it right on himself. And I I like that, but of course I like better numbers. We'll keep an eye on sure as the gap looking down as much as 14 or 15%. Got an opening bell a little less than five When you look at how massive the margins are, certainly with what was reported yesterday by Mike Crotty.
There's There's There's you know, the benefit to the company, of course, when you have 75, 80% margins. But somebody is eating the cost of that margin, and that is what's coming into the narrative a bit, and why I think analysts, particularly when you get into earning season, are going to take a much closer look at that profit margin story, the productivity story, and the return on invested capital story.
And and let's pivot here and talk about humans, particularly the consumer, and how all of this is affecting us. Cuz one of the things that really stuck out to me in your notes is that you pointed out that household equity ownership has reached more than 45%. That's nearly tripling from the lows that we saw during the financial crisis in 2008.
So I have a twofold question here. One, does that make the market more vulnerable to corrections? And the second is, are households then systemically overexposed to an equity correction right now? So this is a bit of a chicken and egg story. It kind of works both ways. So [snorts] this this rise in households' exposure to equities, alongside what has been a very healthy bull market in equities since the bear market that we had in 2022, through the wealth effect has been a support for the economy.
Where it Where it potentially has the ability to sort of shift is if there is some sort of corrective phase in the equity market more than just some of the dips that we've seen recently, does that feed its way into economic activity? And that's exactly what happened when you went from the late '90s into the early 2000s.
You you had the bear market begin in March of 2000. In 2001, we had an economic recession. I think that recession only came about because of the bear market stocks. There were no major economic dislocations. It wasn't a financial system problem. It wasn't massively tighter monetary policy. It was the wealth effect once you went into a bear market.
So, I think we have to think of it as sort of, you know, in multi-directions, kind of that chicken and egg. It has been a tailwind. At this stage, I'd say base case is still as a tailwind, but it's something to consider. Paul Suse, the EVP of investment strategies at Vistashares. David, always nice of you to join us.
Thank you so much for your time and also for stopping by in the flesh. It's always good to do this in person. What do you make of this rotation? Because it's been pretty rapid-fire under the surface, you know, between the hardwares, the softwares, the Mag 7. Does it make sense to you? Yeah, I think what's happening and what we've really been observing in the market is a lot of macro pressure.
And a lot of that macro pressure is over weighing some of the really strong fundamental earnings that we've seen on the micro side. And so, what we kind of see is a lot of short-term volatility. And that short-term volatility is driven, you know, by a number of things. And a a number of things being, you've seen a lot of the oil prices out of the situation in Iran.
Now, that, you know, obviously has a lot of implications, but specifically for the jewels of the AI supply chain, meaning South Korea and Taiwan. They're largely energy dependent, and that has a lot of pressure on, you know, their currency and inflation. Um so, it provides a little bit a little bit more volatility.
So, we we kind of view this volatility that's happening right now in the market has given people a a reason to pause, take a step back, and really look at the full AI picture and understand where do they want to position themselves within that. And what we've really been looking at is, you know, finding some of those companies that can take what they've generated from AI exposure and turning that into actual durable earnings power over the long run.
is that? Yeah, so I think a perfect example where you're starting to see that, you know, really solidify itself We need to talk about why the recent weakness in semiconductor stocks maybe creating opportunities. But also why the investors should not blindly assume that every pullback is a timely buying opportunity.
Because under down the surface of the technology sector, something important has changed. The stocks that lead the market higher for the months has started experiencing a volatile corrections. Memory stocks pulled back and semiconductor equipment companies declined. Momentum strategies experienced one of their sharpest short-term reversal in the years.
And suddenly the investors who were worried about the missing the AI rally are now worried that the entire semiconductor cycle may be approaching its peak. But when we look beyond the stock prices and examine what is actually happening inside the industry, the situation become much more interesting.
still expanding. Memory demand remain extremely strong and the hyperscalers continue investing. Semiconductor companies are increasing production capacity. New AI models continue launching and growing. So the question the investor need to answer is not whether the semiconductor stocks can experience correction.
Of course they can. The real question is whether the fundamental growth supporting those stocks is beginning to weaken. The right now I don't think we have enough evidence to say that. Let's start with Micron. Micron recently announced a significant increase in its long-term investment plan for company is preparing to invest enormous amount of capital over the next decade to expand memory production and the state-of-the-art supply chain.
Normally this type of announcement would make memory investors nervous because the memory industry has a long history of destroying shareholder shareholders value through the over investment. Prices increases and the margin expand. Manufacturers become optimistic and build new factories. Supply increases and eventually the market become oversupplied.
Prices collapse, margin disappear and the stock get crushed. That's a historical memory cycle. [clears throat] And that's exactly why investors are nervous today. Micron is making enormous profit, that's good. Samsung is making enormous profit. SK Hynix is benefiting from the extraordinary for high bandwidth memories.
These things are good for the memory sectors. But all the three companies are investing in additional manufacturing capacity. So the investors naturally asking whether the today's shortage is creating tomorrow oversupply. But there is an important difference between announcing new manufacturing capacity and actually producing additional memory.
Semiconductor factories take years to build. Companies need clean room and testing equipment, raw silicon wafers, advanced packaging capacity, high skilled highly skilled workers, customer qualification and an enormous amount of capital. Even after the construction is completed, the companies cannot immediately produce billions of dollars worth of advanced memory.
Production need to ramp gradually. Yield rates need to improve. Customers need to test the product and supply chain need to be adjusted.
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