The Epicenter of the AI Trade…. And Looking Ahead to the Fed Rate Decision 7/28/26

22:49Don't go anywhere. Fast Money is back in two.

23:15Investor Choice to learn more. Vanguard Investors own shares of our index funds, which own shares of the companies they invest in. Available for Vanguard Index funds that participate in Investor Choice, Vanguard Marketing Corporation Distributor. It's smart to always have a few financial goals. And a really smart one you can set? Earning cash back on what you buy every day. And with Discover, you can. Get this. Discover automatically matches all the cash back you've earned at the end of your first year. Seriously, all of it. And we trust you to make smart decisions. After all, you listen to this show.

23:47See terms at discover.com slash credit card. Something amazing is happening in networking. Organizations are scaling with less stress. That's because CDW is designing and implementing intelligent HPE Aruba networking solutions that simplify and secure operations. With automation at the center of your data center, growing pains can be a thing of the past. HPE Aruba Networking and CDW. Make amazing happen. Learn more at cdw.com slash aruba. Welcome back to Fast Money. Ford shares surging after the carmaker's latest results. The company raising guidance on sales of its SUVs. Phil Abbo's got all the details.

24:29Hey, Phil. Hey, Melissa, who is a better than expected quarter in terms of profitability for Ford, earning 42 cents a share. The street was expecting 35 cents a share. What was driving it? The two parts of the business that are really doing the best. internal combustion engine vehicles, that division, they made$1.13 billion. Commercial vehicles, which has long been the profit driver, they made$1.71 billion. Here's the Ford CFO, Sherry House, talking to us last hour about the quarter and what was working. The story this quarter is really about strong pricing and mix. In particular, where we're seeing the mix improvements is with the Bronco, as well as with our three-row SUVs like the Explorer and the Expedition.

25:16And then there is the guidance. They are raising guidance in terms of full-year profit between$10 and$11 billion. Previously, it was$8.5 to$10 billion. Free cash flow,$6 to$7 billion. That's an increase of$1 billion. CapEx, still$9.5 to$10.5 billion. That has not changed. As you take a look at shares of Ford, we should also point out, Melissa, They are declaring a Q3 dividend of 15 cents a share. And one last note, Melissa, at a time when a lot of people are saying, well, prices can't go any higher. We already have average transaction prices for the industry of 50 or 50 ,500 dollars. Could they go higher?

25:51Ford believes that, yes, the pricing is for another increase of a half a percent. So for all the talk about, hey, the consumer is tapped out. They're not going to pay any more for new vehicles. That's not the expectation of Ford. Yeah. House, I think, also spoke in the interview, Phil, the F-150 and how it had the biggest market share with the least incentives. So obviously people are willing to pay for what they want. Right. And we're seeing this with the most popular vehicles out there. The incentives are not rising. Yes, you'll find incentive deals on the vehicles where you're not selling as many and the automaker needs to juice sales.

26:26But if it's a popular vehicle on its own, the incentives are not increasing. All right. Phil, thank you. Bill LeBeau, Ford shares up 6.5 percent, just coming off of an upgrade earlier this week. Tim, what do you make of this quarter? I think it's a combination of micro and macro. So the macro GM helped set or allay some of the fears and assuaged the fears around what's going on with the U.S. consumer and frankly, an environment that has been held in question. But with Ford, it's always about the bottom up. At least it seems to be. And it seems to be a company that has fixed a lot of the capital allocation issues, some of those overhangs.

27:00I think analysts see this as a margin improvement story. And the fact that they're still paying that div, that div announcement isn't anything fancy. I think that's where they were. But, yeah, I think you can own Ford. Free cash flow. I mean, Phil said it for the year. But for this quarter, the street was expecting about$850 million. It came at$2.1 billion. So good for them. And it speaks to what Tim was just talking about. And the stock should be up on the back of this. The question is, do you chase Ford here, which has been a loser's game now for the better part of how many years, Tim? four?

27:29I don't know. 40. Oh, a 40-year chart. Sorry, can we bring up a 40-year chart, please? However, GM, this iteration of GM all-time high today. But this iteration of Ford, there is also the battery element. There are also some potential Army contracts. It's looking for potentially the biggest contract since the Cold War for tactical vehicles for the U.S. Army. And there's all these other sort of growth areas that investors may not be thinking of. Well, and I think that allows one to look at a car company who, even in their best of days, especially when the battle of EV was out there, could not get better than six times multiple.

28:08You start talking about better margins in government contracts, and it's a different story. If you had asked, would you rather? OK, I will. OK, I would have said GM, because a lot of what's going right with Ford, you know, the high margin, that's good. It's going right with GM as well. They're under the battery excitement. But the balance sheet's better. You know, it's pretty shocking. A lot of people were critical when GM Ford moved heavy into EVs, right? And then they were critical when they just cut loose. And look at how bad the EV market is right now. So in hindsight, these companies made some pretty good decisions.

28:39So at the end of the day, when we look at Tesla's margins that they had right now, it's embarrassing. I just want to say, by the way, I was right. I just brought up a Ford chart. It was a four-year kind of nothing story. It's much longer than a nothing. It's been a decade-long nothing story. One doesn't preclude the other. But, I mean, I just want to get the 40-year in. Because you made fun of me about Toyota. Rightly so. Even more earnings action to bring you all the details from Visa's earnings report and the read-through to other payment stocks next. Plus, it's not just earnings taking center stage this week.

29:11A key Fed decision less than 24 hours away, what to expect from the central bank, and the rising odds that rates could go higher from here. You're watching Fast Money live from the NASDAQ Market site in Times Square. Back right after this.

29:29The Board recommends approving... Regarding that seat on the committee, we're promoting... To boost quarterly earnings... Every day, shareholders meet to discuss important matters about the companies you invest in. Now you can easily make your voice heard. Vanguard Investor Choice gives you a say in the companies you invest in. With just a few taps, you can set your proxy voting preference for your index funds. Visit vanguard.com slash investorchoice to learn more. Vanguard investors own shares of our index funds, which own shares of the companies they invest in. Available for Vanguard index funds that participate in Investor Choice, Vanguard Marketing Corporation Distributor.

30:00Ever finish your to-do list just in time for three more things to get added? That's what managing technology can feel like. There's always another ticket, another update, another thing demanding attention. That's why CDW's here. We help run, optimize, and evolve complex IT environments so your team can focus on moving the business forward. We've been there and solved that. When operations stop getting in the way, it's actually pretty amazing. We configure, optimize, and deliver the tech that runs business. CDW. Make amazing happen. Hey, Chicagoland. The Wayfair store is in your neighborhood at Edens Plaza and Wilmette.

30:35Finally, you can feel the fabric, sit on the sectionals, and even open the refrigerators. Plus, our in-store designers will help you bring it all together with free one-on-one design support for any project on any budget. Yep, we said free. Oh, and did we mention the cafe? So what are you waiting for? Come see all that's in store. Visit the Wayfair store today at Edens Plaza in Wilmette. Wayfair, every style, every home. Welcome back to Fast Money. Stocks mostly higher in Tuesday trading. The Dow rising over 500 points. S &P narrowly eking out a gain while tech lagged. The Nasdaq ending fractionally lower.

31:11UPS down 6.5 % despite beating second quarter estimates and raising full year guidance. The delivery company now expecting current quarter revenue to be flat, citing seasonality in the drawdown of its Amazon operations. And an earnings alert on Visa shares are lower despite the credit card company beating top bottom line estimates. CNBC confirming a memo that Visa plans to cut 7 percent of its workforce as its CEO looks to use AI to streamline workflow. We do have new developments on OpenAI's rogue agent. Another company has reportedly been compromised. Deidre Bosa's got the latest. Deidre. Hey, Mel.

31:44So Reuters is reporting that a rogue agent, that rogue agent at OpenAI compromised a second AI company. This time, it's an account at New York firm Modal. Reuters is citing an unnamed executive there. Now, the extent of that access is unclear at the moment. But the agent, some might remember previously, about a week ago, breached Hugging Face, another AI company, during an OpenAI cybersecurity test. Hugging Face contained that attack and did forensic analysis using a Chinese open weight model after U.S. models blocked the work. And that added a new wrinkle to this growing debate over open versus closed AI.

32:24And this will likely add to that. Mel, back to you. It also opened the debate over a kill switch, Deidre. And I'm wondering, I mean, is there a kill switch? I mean, at this point, it's it's two that we know of in a short amount of time. be done on that front. You know, there's a lot of talk here in the Valley about a kill switch and also about sort of the feasibility of that. But as these cases happen and they happen more increasingly at a frequency, there's going to be more talk of that, whether you can actually do it, whether there's actually going to be industry support or even regulation to support such thing as a kill switch will be a big topic of discussion going forward.

33:04Certainly. Deidre, thanks. Deidre Bosa in San Francisco. All right. Coming up, the interest rate debate, a look at whether a Fed rate hike is really on the table tomorrow. Why our next guest doesn't see an end to the bull market anytime soon. Fast Money is back right after this.

33:25Welcome back to Fast Money. The Fed decision less than 24 hours away in the CME's Fed Watch tool shows a 32 percent chance of a hike tomorrow. But UBS thinks the odds could be even higher. Let's bring in Evan Brown, the firm's lead global multi-asset portfolio manager. Evan, great to have you with us. Great to be with you. What do you think the odds are? And just sort of filter that out to how you think the markets will react to it. Yeah, I'm thinking, and this is my view, not UBS's, but I think higher than 50-50 at this chance. When you look at what Chair Warsh has been going around saying, he's been banging the table that it's been unacceptable for inflation to be above target for this long.

34:04And at some point, you kind of have to back that up with action. I think he'll be able to carry the rest of the FOMC with him. So it's looking increasingly likely. How would that play politically, though? Because you know as well as I do, that's going to be a blank storm coming down on him. Yeah, I you know, it'll be it'll be tough. But it's interesting. President Trump, when when he nominated Warsh at the ceremony, he said, I want you to be independent. Right. His tone shifted a little bit away from what he was talking about with Powell. So I think the president realizes that inflation is an issue with voters and so may not be quite as hard on Warsh as he's been on Powell.

34:39How do you think it plays out in the markets, though, whether it be equities or treasuries? Yeah, the markets won't like it on the day. I mean, with only a one in three chance price, it'll be a bit of a surprise. And so I think the markets sell off on that. But I think at the end of the day, when it comes down to it, what drives stocks is earnings. And we're having another great earnings season. And really what's impressive is the median stock is up 17 % year over year. So as much as the AI infrastructure stocks are running out of steam a little bit, we're actually seeing really good performance breadth across the market.

35:19But again, taking taking that thought a little bit further, do you this isn't multiple hikes. This isn't a cycle. This is a tinkering. And therefore, is the message ultimately that the economy is strong and this is a Fed that's going to stay ahead of inflation? Yeah, we'll see what what language comes out from from Warsh. I mean, he did come in and say that he thought that the 75 basis points of easing that they did last fall was the principal reason why inflation has risen. And so he could make the argument we need to unwind all those cuts and do 75 basis points of hikes. The market would struggle with that.

35:53Yeah. Or this could be a, hey, this was a close call, but we wanted to send a message to the market that, you know, this is kind of like one and done. I don't know if it'll be that explicit, but the guidance will really make the difference in terms of how the market reacts. One and done wouldn't seem to be a message he would do, right? that that would be giving guidance that we won't do it in the future when maybe things don't really change. And what necessitated this one is still current for the next meeting. Yeah, he wants to air away from from forward guidance. So I think what will be critical is seeing, you know, how close a call he says it is.

36:30Was it a close vote or not? And that might give people an indication of is there more to come or is this more of a one off? I mean, at some point, too, the CME Fed watch tool or any sort of prediction as to what the Fed does will become less and less relevant in theory. Yeah, I mean, it's going to be I mean, and nobody will have any sort of edge because if there's no guidance and there's no dot plot, there's no evidence to say one way or another. All of this is just out the window. Yeah, look, I mean, I think over time he's going to have to become clear with his reaction function. Right now, the reaction function just seems to be inflation has been too high and we need to send a message.

37:05But we do have to see over time if he's clear about how the data are going to lead to their decisions going forward. Evan, we just spent a lot of time kind of debating the AI trade in general. And, you know, if you look at this per fact set, you know, Q2 expected earnings growth year over year is about 25 percent. That's not right ish, I think. And then if you look at what is expected for the Mag 7, it's like 32 percent. X that out and you get below what we're seeing, obviously, for the 493. Now, the performance of the S &P has largely been driven by the MAG-7 and the associated trade. How do you think about that if we were to see a slowdown, if we were to see CapEx come back a little bit?

37:43Yeah, I mean, I think we're it's as we speak is that's what's happening is we're seeing, you know, tech really take a hit. I think Nasdaq was down about 9 percent at one point today. And then at the same time, you saw the equal weight making new highs. And so I think there's a very healthy rotation that's that's happening right now. I do think that probably tech is a bit oversold at this point. We could start to see it bounce. We saw semiconductors hit against the 100-day moving average. They've been pretty dependable, bouncing off that. So, you know, maybe we went too euphoric in the second quarter on tech, and now we're getting a little bit too downbeat and probably see a little bit more balanced performance going forward.

38:22Ev, thanks for coming by. Yeah. Sounds nice, right? It's cool. Breaking, first of all, we love Ev. Ev. He's a Met fan, too. You don't get a nickname unless you're accepted here. Lori Calvasino went to the University of Virginia. Great school. There's an economics professor there. Edwin Burton's been there forever. He just texted me 40 years. The Fed will raise rates tomorrow. And I said, can I quote you? He said yes. So he's out there saying the same thing Ev is saying. Well, Ev oversees multi-asset dynamics at UBS in terms of allocation. I'll tell you, this Fed is not good for gold. As a guy that loves gold, there's no question that gold right now is backfooted because of the sense that the Fed is on the front foot.

39:06So I think this is an opportunity, ultimately, if this stance has changed at all. And we talked about the GDX and the miners yesterday. But I think whether it's gold or other, I would call them hard metals, commodities, I think they've been waiting to really hear where the Fed is. And right now, worse, not good for that group. Coming up, paint poor profit. Three defensive staple giants breaking out on the back of strong results inside the big moves in Coke, Sherwin-Williams and Unilever and Fast Money Returns.

39:40Welcome back to Fast Money. A trio of staple stocks surging after earnings today. Coca-Cola hitting a record high after hiking its full-year forecast, saying the World Cup helped boost demand. Sherwin-Williams saw its biggest gain in over four years after it raised its full-year outlook. The residential business is still a challenge, but the company is seeing demand from data centers, semi-infrastructure and manufacturing. And Unilever also seeing its biggest gain in four years, the maker of Dove Soap and Vaseline, raising its forecast. I don't know what's funny about that. I don't know. You burst out in a laugh.

40:11I mean, I'm just these are its lines of business, its major products after seeing its best revenue growth in a decade. Anyway, you want to talk Sherwin-Williams? Yeah, I mean, good for Sherwin-Williams. That wouldn't be the sort of place I would expect to help the market so much. And I also happen to know Lowe's is a giant customer of Sherwin-Williams. Nice for Lowe's as well. I'm surprised, though, given what's happening. And I would think housing would have weighed down even with the data centers. You don't think about data center painting so much. But you can't just leave it with just sheetrock.

40:43You've got to paint it. I guess you do. Can I grow up over here and put a real spin on what's going on Unilever? When you have a staples company like this that now is actually in home and personal care, this is a story. The analyst community is re-rating this one. And, again, that merger with McCormick, food goes this way. Exciting stuff goes this way. I'm long Unilever in Ideva. I think the valuation discrepancy between Coke and Pepsi is one that you can buy Pepsi here. It's been bouncing recently. But it's got snacks. I understand. But look at the valuation. I mean, it's twice the valuation.

41:17So I think we know about the snacks. By the way, I like a good snack. Who doesn't like a good snack? There's all sorts of headwinds and snacks. What's your favorite snack? If you could snack right now. Does a brownie sundae count as a snack? A what? Not really. I was thinking like a bag of chips. That's a dessert. Cookie bush does. Munchos? Can I tell you what I do? Funyuns? I get a large glass, cylindrical glass, and I fill it with Chips Ahoy in a straight line. Then I pour milk, and then I get a spoon, and I crush the Chips Ahoy. After it's softened or after? Yes, and then I call it Cookie Mush.

41:50Sounds awful. The more you know. The more you know. La, la, la, la. I like a good chip. Anyway, I'm surprised you didn't go Coca-Cola also. Well, organic growth of 5.6%. I mean, Coke is so far ahead of all their peers. It's amazing what this company has done, especially when you think about the CSD, carbonated soft drink category, as something that in this country is dead. So they have reinvented themselves, and it's been a great own for three to five years, and I think you stay long. Coming up, retail traders riding the bull, the big uptick in positive sentiment that Schwab is seeing among active trading clients and where they're putting their money to work now.

42:26More Fast Money in two.

42:33Welcome back to Fast Money. Our next guest is seeing growing investor bullishness despite persistent inflation concern. Charles Schwab's head of trading services, James Costulius, joins us now. James, great to have you with us. Great to be here. Especially at this recent round semis. What are you seeing? Has anything changed in your view? Yeah, I think from a change perspective, the AI trade continues to evolve. And, you know, from the hyperscalers into the chips and memory. And now I think you were talking about paint. I think it's evolving even a little bit beyond your sort of traditional tech stuff into some of the more heavy equipment and machinery things.

43:06So the AI trade continues to evolve. What are you seeing? on. I know this is the Q3 report, but what are you seeing sort of more in real time in terms of, you know, the reaction to the volatility lately? Yeah. Our clients are buyers on down days. So we see typically more than 3x the number of buys on down days when the S &P closes lower. And so we've been seeing a lot of chip buying, a lot of memory buying, even through the, you know, the big swoons or some of them down, you know, as much as 30 percent over the course of the last three days. Well, that's what I was going to ask you about. The story and memory, those stocks rallied in an incredible way, but some have lost almost 50%.

43:42I mean, Micron, Seagate, people are standing in the pocket and still buying these names despite that move to the downside. Yeah, I think the other important point, retail gets a lot of publicity for the buying the dip, but they've been selling all along the way. So it's not like they're piling in and now they're watching all this stuff go. They have been buying and selling, buying and selling, and doing quite well as a result of that. And so now when they continue to sort of get beat up, they're picking some of them off at a discount. So, James, with those customers you're talking about, are they buying on margin or not generally?

44:13How does it look? I think a little bit of both. We've obviously seen a big increase in the margin book year over year, and we released some numbers about$165 billion. I would just caution, I think the easy way to look at that is clients are levering up and they're getting into all this stuff. A lot of that growth has been in long short, which is obviously a hedge strategy. and we're seeing a lot of as the markets drifted up and it's weird to say, you know, a couple percentage points off of all time highs with some of the volatility we've seen. But as clients portfolios have continued to grow, they have equity to debt ratios and they want to keep those pretty much in line.

44:46So as the market's been going up, they've been borrowing more. We haven't seen big, you know, risk on trades into more heavy leverage, Karen. But, James, you're just hitting on something that I think is fascinating. How diversified are your clients? Because historically, you know, retail is not afraid to be concentrated. It could be 10 positions, you know, averaging 10 percent or. But are these portfolios that are 40 to 50 names? Do you think there's some sense about what what are overweight or underweight positions? I don't mean to be pedantic, but I mean, I think there's some element to that.

45:19Yeah, I think it depends. Right. We have some sophisticated traders that have hundreds of thousands of names within their portfolios. and we have some who are certainly far more concentrated. I think one of the changing behaviors we've seen, as we've talked about this survey, and actual client behavior recently, is an ability to rotate out of stuff. It used to be these are sort of the retail darlings, and this is what they're in. We see in our Schwab Trading Activity Index most bought and most sold sort of flip-flop month over month. And so clients are buying the beaten-up ones, and then they're selling them.

45:49Last month, clients were really buying up—I'm sorry, were selling the NVIDIAs, and the Microsofts of the world, the Googles of the world. But once they get beat up enough, they'll come back and they'll buy them again. So a lot of this is trading behavior as opposed to sort of broader portfolio construction, Tim. And just quickly, I know you don't offer these products, but do you get a sense that these same retail traders are also betting in other ways, predictions, markets, per futures? I mean, I would think it's the same cohort, and they may not be taking dollars away from Schwab. I mean, it doesn't seem like it according to the last quarterly report, but what's the sense that you get?

46:24Yeah, so$120 billion of NNA last quarter, doing really well with young clients, 30 % of our new accounts under 30. I'm sure there's some that have an interest in that. We're looking at the financial products, the things that CBOE are rolling out in binary options. We're excited about the NASDAQs, outcome-based options. No interest in sort of the sports and the social stuff. And quite frankly, I talk to a lot of our clients. We just don't hear interest from them in us offering those products. James, good to see you. Thanks. You as well. Up next, final trades.

47:00Final trade time, Timbo. Yeah, this is not your father's unilater anymore. This is one I think you can own on margin improvement and growth. Karen. Yes, it's sell IBM, which is not even IBM at all. It was a trade when I put it on, when that giant down day worked. Yeah, PayPal beat raise this morning. He's got that bid hanging out there. I think it's bottom. It's amazing how just a singular word can just change. Break one word. I know. It's the whole mood of a desk. Giddiness. Fun. Fun. Frivolity. That's what we do. Pepsi is not that word. Thanks for watching Fast Mad Money with Jim Kramer starts right now.

47:54but only as an expression of an opinion. Such opinions are based upon information the Fast Money participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Fast Money Disclaimer, please visit cnbc.com forward slash Fast Money Disclaimer.

48:24More automation led to reduced maintenance times and greater efficiency, so that creativity stays the star of the show. Dell Technologies and CDW. Make amazing happen. Learn more at cdw.com slash delldatacenter.