Closing Bell Overtime: AI Hits a Speed Bump 9/14/26

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0:43Fanatics, the only sportsbook to reward every bet. Must be 21 plus. Gambling problem? Call 1-800-GAMBLER or 1-800-MY-RESET. CT, call 888-789-7777. MA, call 800-327-5050. NY, call 877-8HOPE-NY. MD, visit mdgamblinghelp.org. Offer now available in all states. Terms apply. See Fanatic app for details. The bells bring an end to the trading day at the NYNC. Teva Pharmaceutical ringing the closing bell. And at the NASDAQ, Norwood Financial doing the honors. Welcome to Closing Bell. Over time, we're live from Studio B at the NASDAQ Market Site. I'm Melissa Lee, along with Mike Santoli. Stock slightly lower today as the market tries to process the impact of a slower AI build out.

1:17The Dow down a little more than 150 points. S &P 500, NASDAQ Composite both down about a half a percent. Slightly bigger loss for the NASDAQ 100. Of the Big Mag 7 hyperscalers, Google, Microsoft and Meta all gaining today as slowing spending might not be bad for them, but it would hurt NVIDIA, which lost about 3 percent. Other chip and memory names, including Broadcom, Micron and SanDisk, also falling pretty significantly. The component parts of the AI build down, optical gear also getting crushed, Corning down 13 percent, almost 14 percent. Even the industrial stocks hit hard, Eaton and GE Vernova losing about 8 percent each.

1:54But the money is going somewhere. Software stocks are the big beneficiaries today, especially the cybersecurity names. CrowdStrike, Palo Alto and Okta all up big. And we're even seeing a safety rotation with consumer staples, one of the best performing sectors today. Our team is all over every aspect of this. Kate Rooney on Anthropic and OpenAI, Leslie Picker on the IPO implications and Megan Cassell is watching what is coming out of Washington. We'll get to them in just a moment. We do want to get the first take on the close here. Mike, if we had said 5%, you know, crude oil, much higher, AI, question mark.

2:27I don't know if you'd say the markets would be sort of flat. Probably not. Although interesting that the buyers showed up in Treasuries just as we clicked over 5%. You know, we needed to test it. Oil is like$4 off the intraday high. So maybe a little relief there. But, you know, again, another one of these days where the index looked like it was hanging in there well. 10 % of the S &P 500 was down at least 4%. 10 % was up at least 4%. And so we keep having this push-pull inside the market. I know it's a broken record, but that's exactly what's been going on. So it's prevented the market. Fear in one part of the market gets converted into relief in another segment.

3:02And how sustainable is it? What do we need to see once, you know, the bond market reacts to the Fed on Wednesday and all the rest? Big questions. I did find it interesting, though, that the money did flow back into MAG-7 type names that seem like, OK, fine. Maybe if we kind of pace things out on the A.I. spend, you know, they just have their great businesses to fall back on. Right. And then also, we highlighted so many sectors that were sort of losers on this and winners off of this. But one that we didn't mention is biotech, which had been losing effectively to this sort of high growth A.I. trade.

3:34But without it, people are looking for that return and they're going to biotech once again. So we saw a bid there. And that's absolutely. And, you know, even some of the stocks that were very much in the, you know, AI will kill this business bucket. Right. FactSet and Gartner Group. Now, obviously, that could just be positioning. It could just be a positioning shock and a shakeout and a short covering rally. But it is it is still interesting that we're not just saying game over. We're backing away from the market, at least not. Yeah. Let's get more on the big story driving today's market action.

4:01Serious talk about slowing the pace of the AI build out over safety concerns. Kate Rooney joins us now with all the details. Kate. Hey, Melissa. So this does come right in the middle of Anthropics IPO process. CEO Dario Amadei is now calling for the industry to pump the brakes on rushing out new AI models. In an essay on Saturday, Amadei proposed a three-step plan to slow down and oversee the creation of the most powerful AI technology, often referred to as the frontier. He asks in part for third-party evaluators, talks about safety standards and international coordination. Amadei has pushed for some of this in the past, but there is some new urgency given the recent panic really around some of the risk factors here.

4:43Last week, anthropic researchers tweeted about the existential risk of this technology, said in part that the AI labs were, quote, gambling with our lives. It got a lot of attention. You had major AI leaders also unite behind Amadei on his commentary over the weekend. Elon Musk, Sam Altman tweeting their support. Extremely rare that you would get all three of these guys to agree. I did speak to people over the weekend who argue now the safety push could actually help Anthropik's IPO, positioning the company as a responsible player in the wake of some of the safety discussions there. It also may reduce some of the liability risk.

5:17And then being public could bring more transparency around this company. Multiple investors I talked to told me the growth rate is still off the charts. They do expect this company to go public this year and go forward with the IPO. I've also confirmed with sources that Anthropic has seen back-to-back quarters now of at least adjusted profitability, guys. You mentioned all these AI leaders uniting behind this notion that we need to sort of slow things down. But interestingly, Kate, also in China, the Ministry of State Security also said that, you know, left unchecked, this could be a threat to Beijing's power.

5:50And I'm wondering in terms of what's going on over there, because this is very much framed as if we slow down, China could win. And what happens with the open source models? Because you would think that they can't necessarily be reined in if you even impose regulatory guardrails at this point. It's a huge factor, Mel. I mean, geopolitics is so important to mention in this discussion. President Trump, not tweeting, but truthing, I guess we're calling it, made a comment this morning about exactly that, about the U.S.-China race. Dari Amadeh, as I mentioned, called for this international coordination.

6:20He said in the CBS interview over the weekend that China was going to be the most difficult part of that. It's not clear that the entire world wants to work together on this, given how extremely competitive it is. And it doesn't seem like the U.S. necessarily wants to move in that direction either. Also, President Trump saying explicitly they don't want U.S. regulation necessarily. So it does set up this tough dynamic. It's also unclear exactly what this all looks like. And if the entire industry would agree, you have OpenAI, XAI, Anthropoc, who are seen as on the frontier. What does that mean for the mega cap tech companies that are also in AI, but potentially just behind some of the leaders?

6:56And there are more questions than answers at this point in terms of what this actually looks like as it rolls out and what these evaluators can actually do from inside a lab. Yeah. And I mean, even big questions about if, in fact, we're going to be putting up guardrails. Does it mean these model builders have to have more computing capacity to try and refine them? I mean, it's not like it's a linear conclusion as to what it all means for the business. The expense part also has come into play as well. I mean, the more cynical view has been that this could actually be beneficial because it could lower expenses in some ways ahead of an IPO.

7:30So that's another factor that's been floated in all of this. But compute is another big open question. If they're going, they're reducing the amount of training they have to do. What does that mean for the amount of capital that they've committed to this entire build out, which is one thing investors have been really focused on and trying to figure out over the weekend, is how does this all change to compute, which is obviously one of the biggest factors when you talk about the bull case in AI and what could actually unwind the overall trade. Right. Their capital commitments are everybody else's order book.

7:56So we got to look that out. Exactly. Well said. Thank you very much. What would be the impact of a potential AI slowdown on the potential IPOs for OpenAI and Anthropic? Leslie Picker joins us now with that angle. Hey, Mike. So just a reminder, Anthropic announced its confidential IPO filing three and a half months ago. And so far, sources say that it still plans to proceed despite some of these fever pitch concerns over safety. That's because nothing that we've heard in recent weeks, especially from CEO Dario Amadei, is demonstrably different from what he or his peers have said before about the risks of uncontrollable AI and the need for industry-wide coordination and a potential slowdown.

8:33However, slowing down the pace of model development while simultaneously contending with unprecedented regulatory and political and security risks, all while pitching investors what is likely to be a pretty lofty price tag, is not an easy balance. Amadeus' rival, Sam Altman of OpenAI, saying it would be, quote, ill-advised to go public now, citing concerns about safety. However, even though OpenAI has also confidentially filed, its timeline has long been stretched due to the complexity of its own business and desire to scale the enterprise side before a debut. The big question, and you were just touching on this idea, is how well the broader market, the AI infrastructure trade, holds up and whether it remains conducive to these listings, all the commentary over the weekend, putting some pressure on the AI infrastructure space today.

9:20Not a major sell-off, though, and Anthropik seems to continue checking boxes toward its own listing, including selecting the NASDAQ as its venue and reportedly speaking with potential anchor investors, including NVIDIA, for that IPO cover. Now, a near-term IPO question is what Amade's weekend communications might mean for the typical quiet period before an S-1 is made public. In normal times, such a move could possibly require a pause so lawyers have the chance to pour over disclosures, make sure everything's in line. But these are anything but normal times, guys. Yeah, it's hard to handicap exactly how this is set up in terms of scheduling.

9:59Leslie, although, as we've mentioned before, if we get much beyond this month, it's another quarter of results. You'd have to update the numbers. And who knows what we'd be looking at as we get to the fourth quarter? Yeah, financials get stale, to your point. I mean, a lot of the IPO story has to do with a certain inflection point that you communicate to the market. Here's our Act 1, which you see in the prospectus, and our Act 2 will look something like this. So the question is, you know, do they still have that same story the longer that this process goes on? And to Kate's point, potentially being public, being transparent is kind of a washing event for the industry where all of the information is out on the table.

10:38But on the other hand, it could also have a backlash component as well, depending on what that S1 says. So the market timing is important so far. What we've seen from the activity today and up until now has been pretty conducive by and large for something like this to come out. But again, we'll have to see what the numbers say to really understand what this company looks like truly from its internals, as well as what the valuation is that they're going to seek as a result of all that. Leslie, thanks. Leslie Picker. While certain pockets of the markets saw big declines, the overall indices managed to hold on relatively well as health care and staples get a bump.

11:16Is this telling us that the market doesn't necessarily need to rely on AI to keep up its momentum? With us now is Adam Carlin, Morgan Stanley, Private Wealth Management Managing Director and Senior Portfolio Management Director. Adam, great to have you with us. Thrilled to be here. How do you think about this slowdown? You know, what's very interesting is we've been through this period of extraordinarily strong economic numbers. And as a result of which, we have seen a bit of a slowdown. But the underlying fundamentals are so strong. Earnings have been so strong. S &P 500 earnings through the first six months of this year up 30 percent.

11:50Carve out MAG 7 still up 20 percent for six months of this year. And during the second quarter, earnings were up 30 percent for the 493 company. So the underlying fundamentals are very strong, which has allowed for the market to digest some negative news here without really having a lot of pressure. But specifically when it comes to the A.I. slowdown, how do you think about that? because a certain percentage of that earnings growth is attributable directly to AI. Yeah, well, certainly it is important. It's not the only thing. If you take a look at the breadth of this expansion we're going through, as well as the earnings announcements and the earnings strength in different sectors outside of AI, it really is due to a strong economy with meaningful tailwinds.

12:32And so while it happens to be that AI is important, it's not the only thing that's kind of carrying us through, which is really wonderful right now to be to have that during this period of volatility. What does it mean when we're facing for the rest of the economy oil where it is, Treasury yields where they are, the Fed feeling compelled probably to hike a little bit? Listen, you know, at this stage, the markets are telling us that the Fed should move. Yeah. Right. So we've got a meeting this week where I would say more likely the Fed increases by 25 basis points. And the good news is we have two more meetings this year, October and December, where the Fed could move.

13:08The markets are saying that they're prepared for it. And that's a good thing. The economy is really able to withstand it. And so, you know, the Fed could do it. I think the market will digest it. The economy digests it well. And we still have the optionality to move further, you know, later in the year. And the fact that the markets are already saying that this is built in and the markets are acting as well as they are, in spite of some of the negative news that we've seen, is pretty... I mean, the market by the S &P 500 has kind of done nothing since May. So, I mean, yes, it's held up because earnings have been so strong, but it's not as if we're celebrating everything that's going on in the environment.

13:42It's very true. And what's interesting also is that even though earnings have been very, very strong, the market up about 10 % this year, 10, 11 % perhaps this year, fundamentals have actually been extraordinary because the multiple on the market has actually come down. At the end of last year, the multiple was about 22, 23 on the S &P 500. The multiple now is down to about 20. That doesn't mean that it's overly cheap. It's a little toppy, but it's not crazy here. So the fundamentals, earnings have been incredibly strong to carry us through. So it's OK that the market hasn't necessarily gone up dramatically since May.

14:14But to have a market that's up 10 percent this year, you know, in spite of all the negative cross-currents is pretty encouraging. I see your market weight, the MAG-7. And I'm wondering to the extent that, you know, if this AI slowdown allows the MAG-7 to not spend as much. Does that make them more attractive to you? Yeah. You know, for us, we continue to be market weight, the MAG-7. We think they're essential. This is a very unique period in AI's expansion within the world. In addition to that, though, we're constructive on quality cyclicals, industrials, financials, health care, energy. And so while we do think AI has some legs here, we also are very constructive on the rest of the market.

14:59And when it comes to fixed income, is it creating a better opportunity to layer some in? Certainly. This is really unique. Right now, the 10 years at a two-year high, the 30 years at a 20-year high, this creates a really interesting opportunity, particularly in the municipal market. So right now, you can get 4%, 4.5 % on a high-quality municipal bond. If you're in a high tax bracket, that means you're in a low tax state. You're in the mid sevens taxable equivalent yield. And in a high tax state, you could be eight or nine percent. In order to get those types of yields, you need to be buying in corporate paper below investment grades.

15:37You need to be buying B double B paper. You can buy a double A paper with much less risk and get those yields. And so there is real opportunity right now in the municipal market. Yeah, we do want to show you a live shot of the SIBO in Chicago, where the Mothers for Awareness and Prevention of Drug Abuse, that organization is ringing the closing bell. They are marking the regular trading day for options, the close there. Adam, great to see you. Thank you so much for joining us. Thrilled to be here. Thank you for having me. Up next, while Dario Amadei and Sam Altman discuss how to move forward with AI, Washington is watching, and it comes amid growing public scrutiny ahead of crucial midterm elections.

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17:31If your workday happens in two languages, this one's for you. Whisperflow is a voice-to-text app. You talk, it types in any app in more than 100 languages. The email in English, the text to your mom in Spanish, the client note in Portuguese, and it switches languages as you do with the ums and typos gone four times faster than typing. Whisperflow is free. Get it at whisperflow.ai. That's W-I-S-P-R-flow.ai. Two big issues around AI getting more attention recently, safety concerns, and the pushback on data centers. And with crucial midterms in about six weeks, Washington is paying attention as well.

18:13Megan Casella joins us now with this. Megan. Melissa, that's right. All the safety concerns we heard from AI leaders over the weekend are certainly getting a lot of attention in Washington. But the Trump administration so far is dismissing all of it. The president today has been defending a light-touch regulatory approach, and he says any new regulations would only slow down the United States in its race against China. The president has posted several times on True Social today about it all. He says strong regulation would drive AI companies into oblivion and bankruptcy. He described concerns of AI taking over the world and destroying humanity as nothing more than a hoax.

18:46He says the only control or guardrails that AI needs is a strong and smart president, which he says the U.S. has. And he said there was a sick conspiracy going on against AI and data centers. And he's not the only one. Vice President Vance also said today that he felt, quote, a little bit weird having so many frontier AI companies asking the government to regulate them. He called it a Trojan horse. So from Washington for now, the posture is definitely that there's not a role for the government to be playing here. Guys. Megan, thank you. So where could this all lead on the policy front, especially with midterms approaching?

19:19Joining us now are Jim Vande Hei and Mike Allen, co-founders of Axios. Both have a deep knowledge of how D.C. operates from years of covering politics. Their new book on cutting complexity at work and in life and A.I.'s role in that. Simplify. Do 50 percent more with 50 percent less. It is out this week. And guys, great to have you. Thanks for coming by. So we now have this fast building consensus that maybe A.I. is more of a problem than an opportunity. We have to do something to contain it. Everybody with the administration seems to want to do this, even folks in Congress. How do you see it playing out when the industry itself is saying we need some kind of guardrails?

19:55I mean, take the president at his word that he's got this let it rip mentality of like no breaks, no regulation. He believes rightly so. It's largely propping up the U.S. economy. I think he does think these claims that it could destroy humanity are overblown. I don't think he spends a ton of time himself playing with the technology. But the politics have changed in the last week. It was already bad. People hated data centers. They don't really like artificial intelligence. And now they have whistleblowers from the inside saying it could destroy humanity, which gets people to sit up and probably pay attention to this as an issue.

20:29I don't think, given this Congress, given this administration, there'll be any meaningful regulation this year, probably not till 2029, unless something else worse than that hugging face incident happens, which I think a lot of the firms actually could happen. happen. And so I would watch the Democrats because they're the ones who are much more pro-regulation on this. Bernie Sanders wants to shut it down altogether. Right now, that's a minority view. But I think if the politics keep trending this way, I could see this being the dominant view of the Democratic Party is to shut down and curtail artificial intelligence, which would have massive market implications.

21:05There's something in between, though, between shutting it down and letting it rip. I mean, it seems like that's where many people are at this point. So what is happening in terms of the pendulum swinging in Republicans actually calling for more regulation? And what is doing to the party if President Trump, the party leader, is saying, nope, no problem here? And the rest are saying, you know what? Our constituents and the voters are saying there is a problem. We don't like data centers. We don't know what AI is going to do for us. No, that's such a good point. The Republicans are really in a jam.

21:36And we were chatting during the commercial break about there are not a lot of 80, 20 issues in life. This for sure is one. So you have the Axios scoop this morning that Senator Bernie Sanders and Steve Bannon, MAGA star, are going to be together saying that there needs to be more regulation. Who's really in a jam here is Vice President J.D. Vance, right, who wants to run for president in 2028, but knows that the public is really in a different place. Here's to what to watch in the administration. I think there are people around the president, the president reacted today in a very predictable way, which helped the markets, as we heard at the top of the show.

22:15But people in the White House are very suspicious of doomers and they're very suspicious, particularly of Dario Amadei, of anthropic. I think that you will hear people around the president saying we need some policy. Right now, it's kind of been whack-a-mole, very light touch responding to crisis. some policy. And I think where you'll start to see this is with Xi's visit to Washington later this month. I think there you'll start to see President Trump saying, is there something the two countries could do together? Should there be a way that we can see each other's models, test them for safety?

22:51Jim, you mentioned that the attitude is let it rip. I mean, AI is being counted on by the administration to help run the economy hot. President loves to build. Data centers are building in greater volumes than anything else out there. And there's also this undercurrent of, look, this is going to bail out the economy long term and maybe make the debt serviceable if we get a productivity bill out of all this. The public is really not sold on a lot of those things. Do you think that it's a matter of messaging to persuade people? It's like the twilight zone, right? If you're in the 1 % to 2 % of people who are building the technology or using it all the time, I use it all the time.

23:26We use it throughout the company. At Axios, I feel like I really understand it. I kind of see the magic of it day to day. But most people I run into, they look at me like I'm an alien. They're like, ah, it's a fine chatbot, or occasionally it hallucinates, or yeah, my kid used it to cheat. They don't see it as something that could be catastrophic or economy-shaping. And I think that's the collision that's really defining politics. And in that void, you just have fear and uncertainty. You've had a bunch of people running companies saying, hey, I'm building this product, and guess what it could do?

23:55Take your job or kill you. Who's going to be like, hell yeah, I want one of those, right? And that's why I think you find yourself in this spot. But the truth is, as you know better than anyone, this economy really is propped up by artificial intelligence and artificial intelligence adjacent investment. That's where all the capital is flowing. It's the reason you still have some growth in what is otherwise a pretty difficult environment with a war and higher inflation, high interest rates. And so that's why I think the president thinks a lot like, man, I put the brakes on this. Does a whole economy come to a grinding halt?

24:27Do we fall into recession? last thing that he wants. But we need to see that productivity and we need to see companies implemented. And to your point, to the extent that people say, you know, I don't use it, my kid uses it to cheat and, you know, it's going to kill me. I'm not going to implement it in my company. If I am unsure at all about the security implications, I will not put it to work. And therefore, those productivity gains will be farther out on the timeline. I mean, that's got to be a concern as well. Yeah. An empowering way that we've talked about it at Axios is every single person from a day one intern to Jim.

24:58We've said, become the world's leading expert in how AI can enhance your superpower, can be a force multiplier for you. And if you do that, you're going to be in a position, a good position in your job now. And I have a lot of early career nieces and nephews. It's opportunity for them. But very few people see that. And your CEOs who are watching this get this, like the technology is actually quite good. It's much better than people realize. The problem is when you put it inside of an old line company, you have to hook it up to your data sources. You have to hook it up to your processes. You have to go through traditional security.

25:31And you end up with this messy middle where, yes, you can do all this experimentation and you can build things, but then actually productizing it and feeling confident in it, that's where we're jammed up. I think assuming that we continue to move the way we are with the technology, that's going to start to work its way in. I do think you'll start to see productivity gains. I do think you'll start to see it affect some jobs, create some, destroy some. But in the middle of that is the politics where you guys started. If people don't like it, it doesn't matter if it benefits people. If they turn on it, think about data centers.

26:01You have 80 % of the country that's opposed to them. But think about the number you have. 99.5 % of people in this country don't live anywhere near a data center. So why would you hate it? It tells you because it's not just the data center. Data center is a stand-in for artificial intelligence. I mean, it would seem that AI will allow people to outsource parts of their life, Mike, right? So is that a key element of the Simplify credo, or is it just along the way? No, it absolutely is, because unchecked AI is a great complexity machine, right? You see it every day. It pushes decks. It adds to the noise and the distractions that we have.

26:41We Simplify, we say if you run a company, you have to be intentional about the processes that have built up, the complexity buildup that is holding you back. And so we ask every single person, list one, two, three, the things that you need to do to crush your job or the things that you need to do to be successful. One, two, three, what are things that you could delete? What are the things that you can just say no to? Delete and no are two of the great power tools that we give you in our book, Simplify. And third, what are three things that AI can do? And this was implicit in your question that whatever parts of your job you hate that you like lease, let's say expense reports, Whatever parts of your job you hate, the AI is probably very good at that.

27:23And so use it to give yourself more time rather than letting it overwhelm you with more choices, more decks, more pitches. That seems like a really simple thing to do, Jim. It's as simple if you do it. Do most people have the tools at their disposal, the models, et cetera, to do this? I don't. And that's why we wrote the book. We actually put it into practice starting two years ago and saw massive productivity gains. But also employees were happier because they stopped doing the stupid things that they knew they shouldn't be doing or didn't want to do. And they started doing the things that they're actually good at and add value for them and add value for the company.

27:58A good example in the book is John Stanky from AT &T was talking about when he took over, he looked at AT &T and realized they had thousands of policy proclamations. And he's like, what the hell? We should have like 10. And so little by little, he whittled it down to 400 and he's trying to make his way down to double digits. But that one little example, that's a thousand of those inside every company. And no one gets complex because they're dumb or lazy. They just do it because, oh, that's how we always did it, right? And that's why you end up spending all this time, up to 25 % to 35 % of your week, doing things you shouldn't do or that you don't want to do.

28:33And then someone else has to pick up that work you shouldn't have done, and it creates this blob. One other story in Simplify that your viewers will relate to. I talked to a unit in Goldman. They were doing an audit to figure out what AI could do. They discovered that going back decades, anytime a client had asked for a snapshot or report, that snapshot report was automatically generated every quarter until infinity, even if nobody looked at it. And so the idea of Simplify is to confront what it is, the processes, the buildup, the meetings, the check-ins, the decks, the reports, and figure out what you can do so that you can amplify, have more time for what you're uniquely good at and what brings you joy.

29:17Very useful. I hate expenses, so I'm going to put that to work right away. You know, that's part of the job you hate as opposed to another one, but that's good. Jim and Mike, thank you. Without a doubt, simplify. Thanks for having us on a big day. Thank you. It is out this week. Shares of Bank of America taking a hit midday, as CEO Brian Moynihan says, its investment banking revenue will fall in the current quarter. Will a potential AI IPO slowdown make this a bigger financial industry-wide problem? That is coming up next on Overtime. If your workday happens in two languages, this one's for you.

29:53Whisperflow is a voice-to-text app. You talk, it types in any app in more than 100 languages. The email in English. The text to your mom in Spanish. The client note in Portuguese. And it switches languages as you do with the ums and typos gone four times faster than typing. Whisperflow is free. Get it at whisperflow.ai. That's W-I-S-P-R-flow.ai. Where others see obstacles, you see opportunity. You collect wins even when no one's watching. This is what hustle looks like. So chase that degree and let your hustle make it happen. Capella University. What can't you do? Visit capella.edu to learn more.

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31:10Those comments dragging shares of other banks, including J.P. Morgan, Citi and Goldman Sachs lower. Joining us now on the phone is Erica Najarian from UBS. Erica, great to have you with us. Thanks for having me. What's the explanation in your view for this guidance? Yeah, look, I think it's really, let's just take a big picture step back. I think we've seen the industry data. We expected there to be a slowdown in investment banking. But I think why the reaction to B of A was so severe is that they said in July, look, we're going to generate 300 to 400 basis points of operating leverage in terms of revenues, outgrowing expenses.

31:50They said that in July. And then the CEO said in September that they're going to revert back to their original 200 to 300 basis point guide. So it was more than just, OK, we had a summer slowdown in investment banking. And by the way, the comps are tough in trading. And now we have all these questions on the IPO pipeline for AI. But it's really sort of miscommunicating what they can manage, which is, you know, expenses relative to revenue. And is that a franchise issue? Is there something going on in the business more broadly, or is it just a communications matter? Look, I mean, I did have a little bit of catch-up with IR, and you do have sort of wealth-related and asset management-related incentive comp also up a lot year over year.

32:40You know, clearly the market's been strong. But I think there's also just, you know, investors want a little bit more clarity. You know, consensus was at$18.3 billion of expenses for the third quarter. And Mr. Moynihan said$18.6 billion. And that's too big of a gap, right? So I do think that it's not necessarily a franchise issue. But I think that the communication issue should probably be addressed because, you know, the stock's now below 60 bucks, right? And it's, you know, quite a low multiple relative to J.P. Goldman and, you know, Morgan Stanley. And so there's definitely something there because their exposure to all the good that had been happening is the same as those other companies.

33:29The clients that we saw across the board, Erica, were they warranted or should it really be confined to Bank of America? Look, I think some of it is warranted, right? Because think about how bank stocks have performed. I mean, we were like, oh, my God, we're going to be in this AI super cycle. Trading is going to, you know, be super strong in perpetuity. And I think that we got a pretty strong reality check. So obviously, like I said, everybody was expecting kind of a seasonally weaker third quarter. But given the headlines related to AI and how that could impact the pipeline for the fourth quarter, you know, I think the market was saying, wait a minute, maybe investment banking can't go up in perpetuity.

34:13And obviously the trading updates have been mixed. And so I think that this is, you know, way more than Bank of America. In fact, you know, it was Morgan Stanley and Goldman that were down the most to begin the trading day today, which really showed sort of the connection to that outlook on the IPO and equity capital markets pipeline. Erica, thanks for joining us. Appreciate it. Erica Najarian, UBS. Time now for CNBC News Update with Mackenzie Cigalos. Mac. Mel, Senator Mitch McConnell is expected to return to the capital this week, according to a Politico report. The 84-year-old has been out of public view for roughly three months following his hospitalization for a fall in June.

34:53According to Politico, he will be back in time for a Wednesday committee vote on the farm bill, which stalled earlier this year because of his absence. The Food and Drug Administration is holding a public hearing today on potentially using psychedelic drugs for therapeutic use. The hearing comes after President Trump ordered the agency in April to issue priority vouchers to companies developing psychedelic-based treatments. And according to multiple reports, the Clippers and Raptors have agreed to send star forward Kawhi Leonard back to Toronto. In return, Los Angeles will get Brandon Ingram plus Grady Dick and several draft picks.

35:26The blockbuster trade comes after the NBA fined the Clippers$30 million for circumventing league salary cap rules by helping Leonard secure undisclosed off-court income and endorsement opportunities. Guys, sending back to you. All right, Mac. Thank you. Over the past three plus years, the Nasdaq 100 has jumped 165 percent, largely on AI buildout optimism. And a new wave of companies became household name with huge valuations. But if the buildout slows even a little bit, are those gains in jeopardy? And what role will rising rates play in any slowdown? We'll discuss that next on Closing Bell Overtime.

36:01Welcome back to Closing Bell Overtime live from the Nasdaq market site. Concerns about the pace of the AI buildout sunk stocks today. The major indices finishing in the middle of their daily ranges lost about a half a percent, both the S &P 500 and Nasdaq Composite. Stocks at the forefront of the AI buildup from chips to memory to networking to energy all getting hit hard today. But the safety concerns around AI sending cybersecurity stocks sharply higher. Bitcoin, meantime, getting a bounce about 3 percent. Related stocks moving higher as well, including Coinbase, up nearly 10 percent on positive developments over the Clarity Act in Washington.

36:34The 10-year Treasury yield pulling back a little today after briefly hitting 5%, the highest level in nearly three years. Rick Santelli has got the details. Hey, Rick. Hi, indeed. As a matter of fact, the cash market's open for another 20 minutes. Look at the intraday chart and you can clearly see, yes, we hit 501 and change around 1022 Eastern. Then let's throw in oil. Then oil had its downside and it dragged interest rates with it. Then oil turned around and so did interest rates. And all of a sudden, we're knocking at the door of 499 again with enough time to potentially hit that 5%. Now, as you look at the next chart, I want to point out two things.

37:16Right around 23 on the right side of that graph, you'll see us almost touch 5%. We closed a whisker below it but had some intraday trades in 1023 above that level. But we haven't closed above that level basically in 19 years. But we have a shot today. And my guess is we'll have some chances for the rest of the week. If you look at Fed Fund Future's December contract, don't think about probabilities yet. Just look at what happens on Thursday, the far left, Friday in the middle. And today, clearly see whether it was PPI, CPI, or just a general feeling watching the oil market and reading the news over the weekend.

37:56It certainly seems as though the pricing continues to go down, raising the percentages. We're over 90 percent. I can see no way the Fed's not going to deliver a rate hike with these types of probabilities. And finally, the 210 spread for the same three days. You can see how it's flattening. Basically, what we're seeing is the more probabilities of a hike, the flatter the yield curve gets as short rates are stubbornly high. Mike, back to you. For sure. All right, Rick, thanks so much. So how will the market digest a Fed rate hike? And what if Chair Warsh doesn't raise rates, which seems unlikely at this point?

38:32Joining us now is KKR head of global macro and asset allocation, Henry McVeigh. Henry, good to see you. Great to see you. Thank you for having me. So the bond market's already been kind of repricing, maybe in response to all this demand. Maybe it's in its way trying to regulate access to capital by the AI buildout. Now the Fed feels like inflation means it has to move. What does it mean for overall macro? I think when you look around the world, it's interesting. There's only one bond market that's actually moved up because of inflation expectations. That's Japan. The rest of them, you've had movement up because of stronger productivity.

39:05You've got bigger deficits. And I think that's the world we're living in. And we've talked about this with you guys for quite some time, which is this idea of regime change, bigger deficits, more geopolitics, messy energy transition and some stubborn inputs on inflation. All that's all that's playing out. So what does that mean for equities? I mean, if we are in this regime change and as a market today and their reaction to 5 percent and oil moving higher, you know, taking it all in stride. Is that an indication of us dealing with the regime change? Look, I think if you go back to 25 and you look where we are, earnings are up kind of 30 percent.

39:39The multiples actually compressed 15 percent and we're up about 10 to 15 percent. So we're going to have the push and pull stronger earnings and a higher nominal GDP environment. the offset that is that the multiple will feel pressure as the cost of capital goes up. We still think we're in a productivity boom. It started after COVID automation, digitalization, machine learning. We're in chapter one of AI. Earnings still are quite strong. We can absorb more geopolitical shocks, but we're going to have more pressure. One is we've had three wonderful years up in a row. We're on par to have our fourth, but we've got higher rates.

40:14We've got more geopolitical tension. And so I don't think it's going to be as much where people have to catch up because they underestimate the multiple. The multiple has gone from 23 to 19. We've been bailed out by earnings. So focus on the earnings. When you look to next year, 70 percent of the earnings growth are coming from one sector. That's technology. 50 percent of that semiconductors. It's exactly where I was going to go. I mean, you know, it's hard to read exactly what the message is on a given day. But Semi's down 4 percent after already obviously being well off the highs. It just creates this little kind of ammo to rethink exactly how much or how long this boom is going to last and whether, in fact, you've kind of been over-earning or there was a pull forward or how it paces from here.

40:58What I would say, I mean, we own 250 companies around the world. We get pretty good data points. The AI boom is going to continue. I know there's this debate back and forth. We're estimating about$8 trillion of spend between 26 and 30. So let's say They were off by a trillion. That's still a huge number. There's nothing that the three of us have seen seen like that. So let's say that goes forward. What is changing, though, is is that rate of change is slowing down a little bit. And you've got semiconductors are highly cyclical and they've got 80 percent margins. And, you know, if you look at what's happening, the market's broadening out.

41:29I mean, we continue to be super active in Japan. We're doing a lot of public to privates. There's a lot of activism out there where people are particularly in industrials and health care and other sectors where you're seeing more spinoffs. And so I think that's actually think that part is healthy for the market. I think it's irresponsible to just put all your eggs in the A.I. basket. I mean, you've had that was the trade three or five years ago where we are right now. It's like, what are the applications of A.I. that can actually benefit companies? And a lot of what we're doing with our internal kind of McKinsey workforce is figuring out how to make these companies more productive.

42:02And again, it's not just all A.I. There's a lot of really interesting things going on that started around when you couldn't get to the store and you had to figure out how to use technology. And that is a mega theme within KKR, and it's showing up in our portfolio companies. Near terms in terms of the portfolio companies, what they're dealing with right now. The last time you were on, we were dealing with high oil prices, but here we are again. And it's been a period of time now that companies and consumers have had to deal with this. And maybe that, you know, inflation expectations become a little bit more embedded since the last time we talked to you.

42:36I'm wondering how that is impacting how your portfolio companies are planning or the cost of capital being where it is. Yeah, look, I'd say that everybody globally is dealing with a cost of living shock. And even, you know, if you go into India where they import a ton of oil, same thing, U.S., Japan, all that. So that is happening. What I would say is unemployment rates still stay low. You've had much less immigration into most major developed economies. And so people have the capacity to spend. It does make you want to wring out greater efficiencies in your companies. We're probably a little more services based than most than GDP in terms of where KKR participates.

43:14What I what I would say overall, though, is, is that housing is is being stung by what's what's going on. And you're going to see that this is a really tough decision for the Fed on Wednesday, because on the one hand, you would say, hey, you need to slow down. spending on supply chain reconfiguration, AI, and national security. The offset is the traditional stimulants are being under pressure. I mean, we grew up when you couldn't get inflation and you would use the Fed to stimulate consumption. And now you've got something that is three megaforces that are spending right now that probably are not that influenced by what's going on with rates.

43:51Henry, great to see you. Thanks for coming by. Thank you very much. Absolutely. What is it a name? Apparently a lot for Novo Nordisk, which is announcing a rebranding. But will it help the company better compete in the weight loss drug space with Eli Lilly? That is next. Closing Bell Overtime. Be right back. The race to come out on top in the obesity drug space is driving Novo Nordisk to rebrand to just Novo. The company also shifting its corporate culture to focus on four new principles, customer obsession, competitiveness, clarity, and care and integrity. The changes come as the company struggles to keep up with its competitor, Eli Lilly, which is up nearly 6 % this year, as Novo is down 14%.

44:28Novo, remember, did launch the oral version of Agobi earlier this year, which surpassed 3 million prescriptions as of June, widely considered one of the most successful drug launches in pharmaceutical history, and yet the stock is getting absolutely no credit for that. It's remarkable. Only the pipeline and what doesn't exist in the pipeline. Exactly. I mean, first of all, not sad to see Nordisk go. Sometimes it's a little bit of a tongue twister. And it's known as Novo casually anyway. But it is this funny place that this company sits. Of course, it's like responsible for Denmark's like, you know, budget surplus and capital account and everything else.

45:04And yet on the global stage where it tries to play, it doesn't quite have the profile. So I do wonder what gets it going, what has investors kind of rethink what's behind this new launch. I mean, an acquisition, I think, is probably what most analysts will say at this point. like to bolster the pipeline because they haven't had many promising data readouts that have really given investors hope there. Well, to raise or not raise rates, that's the question facing the Fed when it begins its two-day meeting. Tomorrow, we'll discuss what is at stake when closing bill overtime returns. Take a look at shares of Cisco, the food company that is, moving lower by around 3 % after the company announced that$1 billion common stock offering.

45:46It's been a relatively good year for the stock as consumer staples. Some of them have worked well, but taking a little bit of a haircut after hours. Let's get you set up with tomorrow's trade today. There are no earnings or economic data on the calendar, but the Federal Reserve does kick off its two-day meeting on interest rates tomorrow. And make sure to tune in at 1 p.m. Wednesday for the countdown to that decision and Chairman Kevin Walsh's news conference as well. Yeah, we got pretty solidly priced for a hike, along with everything else going on today. And just It's kind of fascinating that 10-year Treasury did what everyone kind of thought they would.

46:20Touched 5%. And now the question is, as happened in October of 2023, was it a single touch, buyers come in, and you get a spike on the chart? Well, after hours, we are seeing 5 % on the charts. We'll see if it actually closes. It's the close, that it hasn't happened in 19 years, as recently mentioned. Absolutely. All right. That's it for overtime. If your workday happens in two languages, this one's for you. Whisperflow is a voice-to-text app. You talk, it types in any app. In more than 100 languages. The email in English. The text to your mom in Spanish. The client note in Portuguese. And it switches languages as you do.

46:56With the ums and typos gone. Four times faster than typing. Whisperflow is free. Get it at whisperflow.ai. That's W-I-S-P-R-flow.ai.