Jobs, Cars, AI and Financial Freedom!

0:05Jason Moser, Jobs, Cars, AI, and Financial Freedom. You're listening to Motley Fool Money.

0:20Welcome to Motley Fool Money. I'm Jason Moser. Joining me today, it's Motley Fool Chief Investment Officer, Andy Cross. Andy, thanks for being here. Jason, thanks for having me on the holiday week. Yes, holiday week indeed. On today's show, we're going to take a closer look at the state of the EV market. Cloudflare is, I guess, standing up to AI. We've got some stocks that make us want to celebrate financial freedom. But first, Andy, let's talk jobs and banks. The jobs report came out this morning a day early due to the holiday weekend. It seemed like a pretty good report. Markets receiving it well.

0:56It was good on the state and local government side, whereas the federal side, it seemed like there's some more headwinds, which I guess shouldn't be surprising given the last few months with Doge and their efforts to try to sort of trim the fat, so to speak. But what did you see in this jobs report that stood out to you? Yeah, Jason, I think it was a good report. It certainly was ahead of the consensus, but it wasn't blazingly great like it was maybe a few years ago. Interesting, we saw the futures. You mentioned the stocks rebound nicely. And the expectation for a rate cut had dropped from 25 % in July down to less than 7%.

1:37So, clearly, as the yields moved higher on the strength of this report, investors betting that maybe those rate cuts that they were maybe expecting in the summer are going to get pushed out. But what was really interesting to me is inside, underneath the hood, Jason, healthcare and services very strong, accounted for 40 % of the 147 ,000 net gains. As you mentioned, state and government accounted for 32 % of those gains as well. What was also fascinating, Jason, and speaks to a little bit of the news we saw this week, construction accounted for about 10 % of the overall gains and specialty contracting construction, focusing on very specialty, roving, supplying, things like that, they were accounted for 100 % of the construction gains.

2:22And that also speaks to why I think we saw Home Depot going after and putting out that acquisition for GMS, another specialty retailer distributor to build out their distribution business on the contracting side. So strength there, I think, speaks to that acquisition of why it's so attractive for Home Depot. Yeah, I'm glad you brought Home Depot up because it does seem to me like, you know, we're in a position where the conversation goes on and on about housing supply, and it seems like there's just not enough supply to meet the demand. But, you know, when you look further out, you see the opportunity there, whether it's home builders, whether it's home improvements, retailers like Home Depot or Lowe's, it seems like they're poised for a pretty good stretch here going forward as we see more investment made in the housing market here domestically.

3:16I think, yeah, Jason, I think we just have to see rates start to normalize and that did not show up in this report. So that's something that's going to, I didn't look at the home building stocks today. That's going to be a challenge, just the rate environment. Now, I think over time that will start to come down for a variety of reasons. I think that will lessen, But certainly today we saw those rates jump on the strength of this report. Interesting, Jason, also still seeing some of the stress on those white collar jobs, you know, management, business and financial, that unemployment increased from 2.2 percent to 2.4 percent.

3:48Professional unemployment increased a little bit. Sales and offices unemployment rate increased a little bit, even though the unemployment rate was pretty steady. We are seeing a little bit of stress on the office and those white collar jobs, which kind of gets back to that, you know, a quote from the Ford CEO talking about how at some point in the near future, expecting that 50 % of white collar jobs could be eliminated or replaced by AI. Wow. That's just an amazing statistic to think about there. And I'm hoping, hoping that our jobs are still safe, AC, but we'll see. Yeah. Well, I think it'll, I think we're going to see a lot more of that next year or so, a lot of this show up in some of this job data.

4:26So I'm paying attention to that very closely. Yeah, I think that makes a lot of sense. Okay, let's pivot into banks here, because just this past week, we saw the banks all go through the stress test, right? The Fed went through the stress test with all the banks here, and all 22 banks that were examined by the Fed last week passed the stress test, right? And this is something that really kind of popped up on the radar through the great financial crisis over a decade ago. But now, I mean, it's encouraging to see at least that we're kind of putting the banks through this sort of regular regimen of making sure that they're OK and healthy.

5:05It sounds like in this case, the Fed noted they found that large banks are well positioned to weather a severe recession, which is encouraging. Now, the result here shouldn't be surprising. we saw a lot of dividend increases and we saw a lot of share repurchase authorizations. Yeah, Jason, it was a little bit of a milder stress test. They had lowered the bar a little bit, I think, in a more normal environment, which I think makes sense. And now expecting the test goes, looks at like a 30 % drop in real estate prices or a 33 % drop in home prices. And if the unemployment rate skyrockets or increases, but that's a little bit more milder than what they had before when the banks were in a little bit more difficult spot.

5:47So a little bit of a lower bar, but the banks jumped way over it. And we saw these increases. We saw Goldman increase their dividend by 33%. JPM, JPMorgan by 7%. Bank of America by 8%. So naturally, we're going to see them start to return capital more to shareholders because that's essentially what banks are doing. They take in a lot of capital and they make good profits on their earnings base and they spit that back out to shareholders. So I think the markets would have been disappointed had we not seen those dividend increases after this announcement from the Fed. Yeah, you know, one thing I thought was interesting, they're talking about like this stress test sort of process, right?

6:23It can be taxing, it can produce volatility in this financials market. And the Fed is looking at this and saying, okay, well, we're going to try to address this volatility. And ultimately, we're going to propose that we basically average two consecutive years of stress test results as opposed to just going year by year by year. What do you make of that? Does that make sense to you? Just giving us a little bit more of an average? It seems a bit more long-term thinking in my mind. Yeah, I think so. I mean, I think I tend same thing like jobs. Like we talked about the jobs earlier. It's one month, and you really have to look at the average over time.

7:01And so, we don't want to make too much of any one period. And I think the same thing with looking at these tier one capital ratios. Undoubtedly, the banks are in a much better spot now. Undoubtedly, they're better capitalized. And we saw that not just in the little bit of a more milder test that they achieved and passed, and the fact that so many of them, I think almost all of them, I think, as you mentioned, all of them passed. So, we're seeing these large banks well capitalized. And I think that measurement over time is what I think investors really want to pay attention to. I think banks are interesting.

7:34I used to own Bank of America. I sold it last year. And the stock's actually up since I sold it. And I had already made 40 % or 50 % on it. So I think banks are in a good spot. The valuations have started to creep up. You have those on a per-book value basis or earnings basis. They are more elevated than historical norms. I think that's the expectation that, hey, you know, over the next couple of years, the economy is going to be in decent enough shape and the banks well capitalized to be able to take advantage of a pretty healthy consumer out there on both the commercial side and the retail side.

8:06Next up, EV sales feel some headwinds. Trading at Schwab is now powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk, our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check. Need assistance? No problem. Get 24-7 professional answers and live help and access support by phone, email and in-platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab.com slash trading. Andy, we saw an auto report this week that was, I guess, mixed would be the best way to put it.

8:46We saw some good things. We saw some bad things. But it does seem like while automakers saw sales slow down a little bit, it feels like maybe there were some impulse buying there in the front half of the year due to tariff uncertainty and whatnot. Tesla really stood out here. I mean, when we talk about EVs, I mean, Tesla's going to be obviously the headline maker there. But Tesla, they've run to a little bit of a buzzsaw here, right? Tesla global vehicle sales fell by 13.5 % in the second quarter compared to a year ago. And it wasn't just Tesla that felt this. I mean, other automakers are feeling the pressure here.

9:28But what do you make of this? Do you feel like, was this a lot of sort of front-loading where people kind of impulse mind getting out there on the front half of the year because of tariff uncertainty? or is there a little bit more to make of this? No, we certainly saw outside of Tesla, when you look at Ford's deliveries, they were up 14 % or the unit sales up 14 % this quarter. Very healthy on the Ford side, but not on the EV side. So it was all on the industrial combustion engine and the hybrid for Ford's growth. But as you mentioned, Jason, Tesla saw continued weakness through this quarter. You mentioned the deliveries fell 13.5%.

10:02Now that was above the whisper numbers out there. I think that's why you saw the stock react positively. And I think the concern was it was just going to be so much worse. So a little bit higher in the whisper numbers, even though it was below the published stated estimate numbers, it was higher than the first quarter. So we saw a little bit of improvement into the second quarter. Cybertruck and the other category, which is the smallest part of Tesla's sales, fell almost 52%. So that was a continued weakness. And we see continued struggles with them in China as we're seeing more and more heated up competition really start to ramp up into China.

10:41So, obviously, Tesla has some of these branding issues. They're well documented. We've talked about them before. The story for Tesla is not – it's just the investing case is not about what is happening right now. It's really what's going to happen with full self-driving, the robo-taxi, all of those initiatives, even into robotics, that is going to be, if it works out, the big driving case and success factor for Tesla. So, I think the expectations were, these were two bad quarters. And if you're an investor, I think you have to see now Elon Musk back, driving sale. He's running the sales department and hopefully start to rebound a little bit throughout the second half of the year.

11:22and they hopefully will get some new models and some refresh brand acceptance out there for Tesla shareholders. Yeah, and we're not going to just pick on Tesla here, right? I mean, Ford, Hyundai, Kia, they all reported heavy drops in their EV sales. Ford said EV sales fell more than 30 % from a year ago. Yeah. It's interesting to me to see that GM actually sort of bucked the trend there. They said their EV sales more than doubled from the same time last year, which I just thought was fascinating. I don't even know. What is the GM EV? I mean, what's out there driving this? I know. And just you think about just Ford's success across outside of EV, I mentioned the strength in the combustible and the hybrids, really.

12:07And across, really, they're so big into SUVs and trucks, and they saw a massive growth in those during the quarter. I think a lot of that was pulled forward, as you mentioned earlier, Jason. So we saw tariff increases. Ford had their employee pricing for all promotions, so they went out there on the pricing side. So we'll see how that ends up on the gross margins. It will be something to watch with Ford, but clearly having a lot of success in hybrid and combustible engines. And it is interesting to see just their EV is just not getting a lot of traction. They had that recall on the Mustang Mach-E.

12:43Think about GM having some success there. I don't know if that is the story for the future of GM. I think clearly EVs right now, as they are continuing to work through a lot of their battery technology, I think that's just a continued struggle in the market and not getting that much acceptance from the marketplace, especially with, I think, oil and gas prices where they are so low, so nicely low these days. Coming up, Cloudflare jumps into the AI ring and a couple of stocks to celebrate our financial freedom. They say leadership isn't just about where you're going. It's about the conviction it takes to get there.

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13:59Whether it's through unique interior finishes or custom wheel options, the ways to personalize your Range Rover sport are nearly unlimited. Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com. Andy, there's some interesting news from Cloud Flare this week, and we've been batting this back and forth here at work. According to the company Right now, they're basically giving their new customers that sign up to use Cloudflare, they're going to be asked if they want to allow or block AI crawlers, right? That AI technology that goes through there and scrapes websites to get all of this data that feeds those large language models.

14:42The company will also allow publishers to charge AI crawlers for access using a new pay-per-crawl model. Now, Andy, this makes me think a bit. The first thing I thought about when I read into this, it makes me think a bit about Amazon and Amazon's mission to be the most customer-centric company in the world. This seems like, from Cloudflare's perspective, this seems like a very customer-centric move, right? They're saying, hey, we want to help you protect your data. We want to help you protect your content and the stuff you're creating. I mean, I understand the other side of it as well, right?

15:20I mean, the data needs to be out there in order for these large language models to improve and train. And do you feel like this is a smart move by Cloudflare? Oh, I think it is, Jason. I mean, Cloudflare is accountable for maybe 20 % of global internet traffic out there. They're a content delivery network and a cybersecurity firm. So helping their publishing clients and other clients move data around. And so protecting them and taking their interests in mind is very smart for Cloudflare. And I actually was very positive on this. And this is a business that I owned before and sold earlier this year.

15:57But I just think this is actually a very positive move because no one is really addressing the elephant in the room. I think, Jason, it gets back to the online advertising business. and Matthew Prince in his blog at Cloudflare when he talked about what they are dubbing Content Independence Day, July 1st, Content Independence Day, and for them to help protect these publishers. He talked about the evolution of online search and advertising, starting with the history of Google in that blog post. And I think now he is starting to address, listen, to support the publishers that are responsible for so much content out there and the creators, We have to help them to be able to support the models that go into the AI engines that so many of us now are relying on.

16:43So they're starting to address the business model behind of what this might look like. They even talked about maybe opening a marketplace where AI engines and AI chatbot companies like OpenAI and Perplexity and even Google itself and others can collaborate with publishers in there. So I find that very encouraging because this is changing so fast. I'm glad someone with the reach of a Cloudflare is talking about this. But of course, it is talking their own book because they're trying to support some of their key clients in the publisher realm. Of course. Yeah. And I mean, Cloudflare was like 20 % of all internet traffic.

17:22I mean, this is not a small player in the industry. Do you feel like this is something that has the potential to snowball and maybe cause some near-term headwinds in the advancement of AI? I don't think so, Jason. I don't think so. I think the concern is, and I'm sure we, in fact, I think maybe we heard from the likes of OpenAI, and there is technology out there that is part of websites to help tell and direct search crawling engines, go here, don't go here, but it's not enforced. And so, it's more guidance. And I think what Cloudflare is saying, we need another level of security. So they will be concerned.

18:03But I do think this starts to, like I said before, address how do we continue to get new, fresh content out there and have that get monetized in a way that supports those content creators, but also says, no, we need that content because it's a very competitive marketplace. We have so many from DeepSeek and others in China creating more advanced LLMs out there that they are continuing to invest in. And they probably not abiding by maybe all the rules out there. So it's a very competitive space. I just think I'm glad that we're seeing some conversation around how we can do this better in a sustainable way for all of the players and stakeholders going forward.

18:46Yeah, and it's worth noting, too. I mean, Cloudflare has already got customers, right? They've talked about early adopters here. There's Condé Nast, Time, Pinterest, Quora, Reddit. I mean, so there are companies jumping on board. And these are companies, obviously, responsible for a lot of content that's out there on the internet. So it'll be interesting to see how this develops. Look, Andy, tomorrow, of course, is the 4th of July. And in the immortal words of Homer Simpson, stand back while I celebrate freedom. Before we wrap up today, what is a stock? I thought this would be fun to take a look at some of the stocks that we like here.

19:23Before we wrap up, what's a stock in your own portfolio that makes you think, man, I love having that one in there? That stock or those stocks, they're leading me to my financial freedom. Well, Jason, I have a few I'll mention, and then one including one that's also a little bit of a miss by me, too, from an allocation perspective. I would say I've talked about NVIDIA's importance in my portfolio. It's done so well. It's up more than 1 ,200 % for me. And it's a large position in my portfolio. Netflix also one that's done very well for my family. And I'm just very thankful to see those into the portfolio along with Chipotle.

20:05But one that kind of goes under the radar that we never talk about that I invested in years ago, more than 10 years ago, is a little company called RBC Barings. And the ticker symbol is RBC. I think the ticker symbol used to be R-O-L. I'm feeling a little Ron Gross here, Andy. Yeah, so it does high-precision ball bearings. It's all about ball bearings these days, Jason. Ball bearings and other technology goes into aerospace and defense. And I think from the likes of Transdime and HowMet and others that we've talked about, that aerospace market continues to grow at mid-single digits over years and years.

20:40It's very technical. You need very, very complex technical machinery that goes into our airplanes, goes into our equipment. And so RBC has just played into this growth market and it's just thumped the market over time, making smart little acquisitions, growing their business, getting some margin expansion. And just one, when I look back on it, it kind of goes under the radar. I didn't unfortunately add enough to it, Jason. I wish I had added more to it along the way, but that one, that one's up very nicely as a multi-bagger for me and one that I'm happy to see in my portfolio. I love all those names.

21:13And when I look at my portfolio, I kind of feel the same. But there's so many companies in there that I just, I'd love to see that I own them day after day after day. Growth style investments, I'm thinking of things like the Trade Desk and Cloudflare, as we mentioned before, companies have just performed very well for me over time. And then I look to sort of the boring stayed companies like Home Depot stands out to me, right? I just, to me, like, that's like when you're, when you're a kid and you wake up and it's Christmas morning and you go find all the presents. Like, that's what I feel like every time I go into Home Depot, I'm just always eyes saucered and just looking all over the place.

21:52And I know that 20 years from now, I'm still going to be going to Home Depot because I'm going to need to do something or I'm going to want to do something for my house and you get the dividends coming in along the way. And then, you know, I talked about this with David Gardner recently, just waste management. I mean, just a boring business, right? But hey, we produce a lot of trash and that's the company that just has the biggest network, you know, in the country as far as like disposal sites. So waste management and Home Depot on the dividend side are just companies that I look at my portfolio.

22:23I think, man, you know what? I'm really glad I own those. Yeah, Jason, this is why I love investing because there's so many different ways to make money and to hopefully earn our way towards that financial freedom from growth to dividends to value and all things in between in international. And so looking across my portfolio, having such an appreciation, like you were saying, from the likes of Home Depot, which is my largest position, all the way down to some small cap companies. We'll leave it there. Andy Cross, thank you so much for being here. Have a great 4th of July. We'll see you next time.

22:53Thanks, Jason. As always, people on the program may have interest in the stocks they've talked about. The Motley Fool may have formal recommendations for or against it, or buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. Advertisements or sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Jason Moser. Thanks for listening. We'll see you next time.