Bond Yields Hit 2007 Highs, Costco Cashes In on Inflation

0:00public.com presents the rundown. Your daily market update in 10 minutes. My name is Zadeh Dadmani and today is Friday, September 25th. In today's episode, we'll talk about why bond yields are at levels we haven't seen since the financial crisis and why AI might be making it worse. We'll also recap Costco earnings and why inflation might be helping them. Then stick around to the end of the show to find out about a new feature on public that could change the way that you invest. We get a great show for you today. Let's go. Yesterday was kind of a quiet day for the stock market. The S&P 500 was basically flat down just 0.02%. The NASDAQ was up just 0.01%. So not a ton of movement in the stock market. Bonds on the other hand though, they kept selling off. The 10-year treasury yield climbed to around 5.2% late Thursday as the highest level since June of 2007,

1:03which was right before the financial crisis. The 30-year hit about 5.5% and even the five-year cross 5% for the first time since 2007. Now, as we've talked about in the last few weeks, there are many reasons why yields have been surging. Lately though, the oil market has had the most influence on yields. The Wall Street Journal pointed out that the daily link between the 10-year treasury yield and oil prices is the tightest it's been on record. That means on the days that oil prices drop, yields also drop. And then on the days that oil goes up, yields tend to go up as well. Now, speaking of oil, there's big development on that front this morning. According to multiple reports, the US and Iranian negotiators are exploring a phase deal where Iran would reopen the straight-up or moves within seven days. If the US meets Iran's conditions, like lifting their naval blockade of Iranian ports and unfreezing Iranian assets, and ending the war in all fronts. The conditions that Iran wants are very similar to what was agreed to back in the June ceasefire,

2:04but that deal fell apart, so we'll see what happens from here. The market seems to be hopeful though, oil prices are moving a bit lower this morning on this news. Now, the other big macro news this week was President Trump's meeting with Chinese President Xi at the White House yesterday. And Iran was one of the issues that they discussed. President Trump has been trying to get China involved in bringing Iran back to the negotiation table. On top of that, the US and China also agreed to extend their existing trade truths by another two months pushing the deadline to January 10th. I'll be honest with you guys, I kind of forgot about this trade truth, and I wouldn't be surprised if it gets extended again. Big picture though, if we actually get progress with Iran and the straight-up or moves reopens, that could take some pressure off oil prices and potentially the bond market too. But you know, there are bond investors that think this is bigger than oil and that AI is playing a role here. AI is one of the biggest reasons that stocks are near record highs right now. And it also may be one of the reasons why bond yields keep climbing. The same AI spending boom supporting the stock market is also keeping the economy hot as well.

3:06And you know, these AI companies are spending billions of dollars in selling a ton of bonds to pay for it, which competes with the US treasuries for investor money, and that's pushing up yields as well. And by the way, higher rates probably won't slow down AI spending very much, because if you're a giant tech company and you think a data center could generate huge returns in the future, a 5% treasuries yield probably isn't going to make you cancel your project. And that's going to put the Fed in a very tough spot, because if AI spending refuses to slow down, well, the Fed's going to have to put even more pressure on everything else to slow the economy to get inflation under control. And that's why a lot of people think bond yields could keep rising. According to a Bloomberg survey this week, more than half the respondents said that 30-year treasuries yield is going to hit 6% by the end of the year. We haven't seen levels that high since the dot com bubble burst at 25 plus years ago. So yeah, I think it's possible the bond market continues to be the main character for the rest of the year. So, yo, it's funny. I went from pretty much never talking about the bond market on this show, because it's usually very boring to talking about the bond market pretty much every day.

4:07Maybe once the earnings season starts in a couple weeks, we can focus on that instead of what yields are doing. Either way, though, we'll keep an eye on all of it. So definitely get subscribed to the podcast if you haven't already, and tune in every day to stay in the loop. Let's run through some headlines starting with Costco. Costco reported earnings last night, and it was another strong quarter. Revenue's were up 11% to $95.7 billion, and quarterly profit hit nearly $3 billion up from the $2.6 billion last year. And if you look at their other metrics like comparable sales, that was up 9.4%, which includes an 11% growth in the US, and online sales were up nearly 20%. All those metrics that I just mentioned, they beat Wall Street estimates. Now, gas was a big reason for the growth. Costco says that their gas business had a record year, and the shares of US members buying gas at Costco hit an all-time high, likely because gas prices are surging right now, and members are looking for the cheapest option.

5:08But even if you used your about gas and the fluctuation in currency, comparable sales were up a healthy 6.7% for the quarter. So despite inflation and higher gas prices, and all the talks about consumers getting squeezed, Costco shoppers are still spending. And just like the many other retailers we've covered on the show, Costco also got a tariff refund last quarter. Their refund was $184 million last quarter, and they say that's only about a third of what they expect to get in total. And instead of just keeping the refund and patting their bottom line, Costco is putting most of that money back into lowering prices on things like produce, meats, and drinks. And that's a great example of why Costco has such ridiculous high customer loyalty. Now a big reason that Costco can do this is because of their membership business model. Membership fees came in at $1.85 billion last quarter, which is more than 60% of Costco's entire profit. So Costco doesn't really need to make money on their gas or products. They just need customers to keep renewing their membership. You know, it's funny, like in a way, Costco kind of benefits when inflation runs hot

6:10because their membership becomes more valuable as consumers look to save money. Dad being said though, membership fee growth slowed for the third straight quarter. Big picture though, Costco's still doing well and they're still expanding pretty aggressively. Costco is opening 33 warehouses this fiscal year, including five relocations, so 28 new net locations. And the stock is up around 2% this morning in reaction to the earnings. But if you zoom out though, the stock has only gone up 7% this year, which is underperforming the S&P. To be fair though, Costco is still trading at like 40 times forward PE, which is pretty high for a retailer. Let's talk about some stocks making moves today. Shares of the cloud company, Akamai are ripping this morning after they announced a massive deal with Anthropic. Anthropic has agreed to spend $11.6 billion using Akamai's computing infrastructure over the next seven years. And if Anthropic needs even more compute, there's an option to expand the agreement

7:11by another $9 billion. So this is a massive deal for a company like Akamai. I mean, this deal alone is about 40% of the company's entire revenue last year. Now, there is a catch here. Akamai has to spend $5.5 billion building out capacity for this compute. Akamai also gave Anthropic a warrant, which is basically the right to buy about 5% of the company at $111 a share. But yeah, a big picture. This is the latest example of Anthropic trying to find compute anywhere they can. Shares of Akamai are up 15% this morning at the time of this recording. And if you zoom out, the stock was already up more than 30% on the year. Now, on the flip side, Nike's stock is down this morning after Bank of America downgraded the company to underperform and slash their price target from $47 down to $30. Bank of America basically thinks Nike's turnaround is going to take a lot longer than Wall Street had hoped. The firm cut its earnings estimates for the next two years by more than 10% and they expect sales to keep falling through fiscal 2027. Now, Nike has been in a brutal slump

8:12over the last couple of years. Sales continue to fall, especially in China, where revenue was down 17% last quarter. Now, as a result, the stock has been in freefall it's down 42% this year and down almost 80% from its 2021 highs. Shares are down another 2% this morning in reaction to this downgrade. Now, Nike does report earnings next Thursday on October 1st, so we'll see if there's any signs of a turnaround there. I kind of wonder if Tim Cook might end up becoming the next CEO of Nike. He's been on the board of Nike for a long time and I don't know, maybe he could turn things around. Let's wrap the show with a fun fact. Prediction markets are now live on public and the way that they are doing it and implementing it is the best use case that I've seen of prediction markets anywhere. Now, unlike some other brokers which will not be named, you won't see any contracts for sports or who will get voted off a love island. Public is purely focused on the economic related markets, so it's made for investors and not gamblers.

9:13So you'll see things like inflation data and what the Fed will do with interest rates and company KPIs, which I love. So that means you could take a position for example on how many cars Tesla sells in a quarter instead of investing in Tesla stock directly, which can act very irrationally sometimes. You'll also see live probabilities on events like whether OpenAI will IPO by the end of 2027. And that can serve as a hedge if your portfolio is heavily AI focused, which mine is right now. And I think the most powerful part here is how the prediction markets will integrate with public's AI tools. So say it like the probability of the Fed raising rates at their next meeting rises above 70%. You can have your AI agent identify interest rate sensitive stocks in your portfolio and maybe trim some of it. So it's really powerful stuff. I highly recommend you guys check it out if you haven't already. I'm probably gonna spend a good chunk of my weekend with my AI agent and coming up with trading strategies and how to incorporate the prediction market data. I think this makes investing more interesting and honestly more fun. So go check it out. And if you don't already have a public account,

10:14use the link in the description. If you open an account using that link, it will help the show out as well. Well, all right, guys, that's the rundown for today. That's the rundown for this week. Hope you guys enjoyed today's episode. Just a heads up, we have an awesome interview coming this weekend with tech journalist Kevin Russe. We talked all of things AI was a very interesting discussion so I highly recommend you guys check that out. That interview will be posted on Sunday morning. Thank you guys so much for listening, watching, and commenting, shout out to Mike and V. For all the work behind scenes, and we'll see you guys back here for the interview. Push your limits, train with precision, see the results. At Equinox, that's high performance loving. Iconic spaces that inspire personal training backed by real data, unlimited group fitness classes from yoga and Pilates to strength and conditioning. Elevate your post-performance ritual with sonas, steam rooms, cold plunges, and more. Everything you need to lock in and unlock your potential at Equinox.

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