0731 | Big Tech’s AI split, Fed rifts, and oil war profits

Mia: Welcome to After Market, a podcast from Bri. Big Tech's AI divide just widened in dramatic fashion, with earnings sending shares in opposite directions. The Federal Reserve is openly split on rates, and Exxon and Chevron are sitting on a war-driven profit surge. Plus, bond traders are paying up for protection, a high-profile AI hedge fund just cratered, and consumer sentiment hit a fresh high. I'm Mia.

Milo: And I'm Milo. We've got a packed show ahead, so let's get right into it.

Mia: Let's start with the astonishing divergence in Big Tech. Alphabet, Amazon, and Microsoft added nearly one and a half trillion dollars in combined market value this week alone. Three names, one point five trillion.

Milo: That number is hard to wrap your head around. Amazon in particular drove Nasdaq futures higher after what one commentator called an excellent quarter. The market is clearly rewarding the companies whose AI investments are showing real traction right now.

Mia: But here's where it gets interesting. Apple and Meta saw their market valuations fall over the same stretch. So you've got this sharp line drawn right through Big Tech between the AI haves and the AI have-nots, at least in the market's eyes this week.

Milo: And it wasn't just the megacaps. Eaton, the power management company tied to data center infrastructure, also jumped after earnings. That signals continued resilience in the physical AI buildout. But that buildout carries a ballooning price tag, with evidence pointing to dwindling cash and soaring memory costs across the sector.

Mia: Right, so even as the market rewards certain AI bets, the cost side of the equation is getting harder to ignore. Jim Cramer flagged ten items for watchers on Friday, singling out Amazon as a key driver. And a separate note pointed to two, quote, no-brainer reasons to buy Microsoft after its fifteen percent post-earnings pop.

Milo: Now to the Federal Reserve, where the cracks are getting louder. We just learned that three regional presidents dissented against this week's decision to hold rates steady: Cleveland's Beth Hammack, Minneapolis's Neel Kashkari, and Dallas's Lorie Logan.

Mia: All three voted to raise rates. Their argument? Waiting too long to act against inflation could force even more aggressive policy later. They specifically pointed to supply shocks that are helping drive up inflation right now.

Milo: And the internal debate extends right to the top. A closer reading of Fed Chair Kevin Warsh's prepared remarks suggests he may be close to raising rates himself. Markets largely missed that signal because they interpreted his press conference as dovish.

Mia: So you've got a potentially hawkish chair plus a bloc of regional presidents pushing for immediate hikes. That combination raises the real possibility that the committee's patience is running thin. Bill Dudley separately contends that Warsh's approach to Fed policy is flawed, while Richard Clarida says the Fed needs a clear inflation target and consistent messaging. External and internal pressure converging.

Milo: And markets are now watching a key technical battleground on the S&P 500, where an obscure index could decide the next major move as traders reassess the rate outlook.

Mia: Let's shift to energy. ExxonMobil and Chevron just reported second-quarter profits that surged on rising oil prices driven by the Iran war.

Milo: But here's what's notable: rather than channeling those blowout earnings into huge buyback increases, both companies steered the windfall primarily into paying down debt. That signals real caution about how long war-driven price rallies will last.

Mia: And the conflict itself keeps spreading. The Iran war is hitting energy infrastructure across the Middle East on multiple fronts. Oil prices rose further after Iran said it attacked two tankers transiting the Strait of Hormuz.

Milo: That's the world's most critical oil chokepoint. Traders are now assessing shipping flows, and oil continues to climb with a big monthly gain in sight. Big Oil's debt-first approach suggests the industry isn't betting the house on these prices sticking around.

Mia: Over in the bond market, traders are getting nervous. The cost to hedge against a deeper selloff in U.S. bonds is now at the highest level since March, right after this week's Fed meeting.

Milo: And the municipal bond market tells a similar story. The U.S. state and local government debt market is on track for its weakest July in more than two decades. Rising benchmark Treasury yields and heavy new issuance are weighing on that four trillion dollar market.

Mia: Allspring Global Investments' Noah Wise suggests investors may want to focus on the front of the yield curve as markets anticipate the next Fed meetings. Fed hawks are pushing yields higher while stocks give back gains.

Milo: And the coming week's U.S. jobs data could offer a real steer on the Fed outlook for both FX and bonds. That report now looms even larger given the open dissent inside the committee.

Mia: Now to a dramatic unwind in the hedge fund world. Leopold Aschenbrenner, the former OpenAI researcher turned hedge fund manager, saw his AI-focused fund Situational Awareness suffer a massive decline this week.

Milo: According to Bloomberg's Hema Parmar, the heavily leveraged fund unraveled after volatile stocks triggered margin calls and a frantic asset sale. Ken Griffin's Citadel stepped in to buy the bulk of the fund's public stock bets.

Mia: And the aftermath is staggering. Assets at Situational Awareness slumped to about ten billion dollars. For context, this was a fund that had reportedly been built up to forty-five billion. A dramatic fall in a matter of days.

Milo: This is one of the first high-profile blow-ups in the AI investing space, and it raises real questions about leverage and concentration risk when the AI trade turns volatile.

Milo: Finally, a bright spot for the American consumer. The University of Michigan's final sentiment index for July came in at fifty-five point two, a five-month high and an improvement from the preliminary fifty-four point four estimate.

Mia: And separately, private sector wage gains lifted U.S. labor costs in the second quarter, though the underlying trend is described as benign. So costs are rising but not in a way that seems alarming.

Milo: Taken together, you've got consumers feeling a bit better and wages climbing without setting off major inflation alarms. That's the kind of soft-landing data point the Fed would want to see, assuming the committee can settle its internal debate.

Mia: That's After Market for today. I'm Mia.

Milo: And I'm Milo. Thanks for listening. We'll be back next time.