High Bar for Q3 Earnings? The Investment Committee Debates 10/12/26

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1:12Oliver Renick: Listen in. Thank you, Carl and Sarah. Welcome to the Halftime Report. I'm Leslie Picker, in for Scott Wapner today, front and center this hour. Elevated expectations, stocks just off record highs as Q3 earnings season gets underway. And the question remains whether those reports can keep this rally going. The Investment Committee is here to break it all down. With me for the hour, Jenny Harrington, Jim Laventhal, and Steve Weiss. Let's get a check on the markets at this point in the day. The Dow up about 0.4 percent. The S &P relatively flat. The Nasdaq down about 0.2 percent. And, of course, the bond markets closed for the holiday today.

1:51So, obviously, it's a big week. We've got earnings. We've got CPI. We're going to hear from the Fed chair this week as well on the macro front. And I think really in focus is this question about earnings and whether the expectations are too elevated going into the quarter. What's your take, Jenny? So my guess is that the expectations for the earnings numbers that we're going to hear in the next four to six weeks, I don't think it's elevated. I think things are going to come in very much exactly as expected and that that's kind of baked in. where I think the expectations may be elevated. And this is where the pedal will hit the road or whatever.

2:26You know, I always screw up my analogies.

2:27Oliver Renick: Rubber will hit the road. Thank you, where the rubber will hit the road. It's Monday. Where the rubber will hit the road will be in what the guidance is and what the forecasts are and what the pace of earnings growth is going to be. And is that pace of earnings growth relative to what it's been, is that enough for people? What the outlooks are. And I think that's where things could get dicey. And I don't have a great sense of if it's going to come in as robust as expected. I feel like I've been waiting in no man's land for about two months now to see what these numbers are. And I've thought that earnings overshadowed everything.

2:59They overshadowed interest rates. They've overshadowed everything that's gone on with oil and the Fed. And it's all about earnings this year. So we really need to see if the setup now is for earnings really to be up another 15 % in 2027, like they're expected to be, or things start to get just a little bit squishy. And you know what else, Leslie? I think how the market responds to each of these is going to be so interesting, too. I wonder if it'll be almost like that, you know, like what we see from NVIDIA, where you see NVIDIA deliver amazing numbers, and then the share price is kind of squishy in the aftermath.

3:33So what's the response going to be? There's going to be a lot of behavior in this more than actual. The behavior will be more telling than the actual data. Yeah, just the uncertainty around kind of EPS expectations, Jim. And I think it also begs the question whether the expectations are elevated maybe in certain sectors more than others and how we should be looking at the sentiment and the psychology around, say, tech vis-a-vis everything else in this environment.

3:59Oliver Renick: Well, with tech in particular, Leslie, I think the question is not so much the earnings, which I'd be surprised if they disappointed and they're probably baked in. But the question that I'm expecting to be confirmed is whether the CapEx plans are still intact. It's been three months, obviously, since we've heard from the hyperscalers and their increased spending plans back then. Every indication is that those plans are intact. Maybe they even go a little bit higher. Yes, there's political blowback on data centers, but interviews with various CEOs and other leaders of these companies indicates that nobody is pulling back on the spending, that this race they feel is still in the early innings and pulling back on spending is a way to lose the race.

4:38Oliver Renick: With regards to your question, though, about other sectors and earnings expectations, I do think something that is still important is where interest rates are, because we are still expecting good earnings growth outside of technology, and not just energy and materials, but good earnings growth in financials and industrials, not on par with technology, but still good. And so the question is, why have some of those sectors languished recently? And the easy answer, and I think the right answer, is because of interest rates. Now, over the last week or so, the 10-year has kind of stabilized here at 5.25%.

5:08Oliver Renick: Where we go from here depends a lot on this week's CPI and PPI numbers. But if you can get further stabilization and interest rate, and if you pair that with good earnings, starting from the banks tomorrow, I think you can see non-techs start to perform going forward. And some of it, too, Weiss, is just the mindshare. Right now, we haven't had any earnings for the last few weeks. And so we have, but not in bulk like we're about to get. And so the attention has really been on the bond market. It's really been on what's oil doing, what's going on in the macro front. The earnings season kind of changes that picture.

5:39It gives us more micro companies and micro analysis to focus on. Do you think that bodes well, given just the expectations for growth in the quarter?

5:49Oliver Renick: Let's back up just a little bit to your original question, which is saying market near new highs. I'm going to take issue with that because obviously the market's at new highs, but you're really cherry picking the performance because most stocks are not trading above their 50 day average. More than half is trading below their 200 day average. So using the term market gives a false sense of security to this when most of the market has underperformed except for tech. So that's where we are. So it's critical then again for technology to not only meet expectations, but also to give good guidance going forward.

6:26Oliver Renick: I have no reason to believe they won't. But we do know that even a slight miss is going to be an issue for the market if it happens in more than one company. We can get over whether it's an alphabet or even a meta or anybody else, but we wouldn't be able to get over a pattern of missing expectations. The other question is how much we've pulled forward. The market's not trading up because it doesn't because it's ignorant of what's predictive, which is 30 percent earnings growth. It's trading up because of that. So you're in a restrictive rate environment, which shows no signs of letting up. You know, fictitious deals between Russia and Ukraine aside.

7:09Oliver Renick: The market now is smart enough to look at the reality and not what's coming out of the White House. So that will remain an issue, number one. Number two, while the Fed will be on pause, regardless of what the numbers are this week, because they're not going to tighten that close to the election. Not that they couldn't, but they won't, right? So you'll have another tightening in December. So you put all that together, and we're going to look for guidance to really dictate the direction of the market. And particularly with the banks. While the banks should have had a good quarter, and they will be very optimistic about their pipeline, of IPOs, philanthropic and, you know, open AI, who knows, but others, and that'll feed it, will be optimistic with some guardedness because of where rates are on M &A.

7:56Oliver Renick: So I don't think it's a slam dunk quarter as everybody's, you know, intimating. And all you have to do is look at the other sectors and see what's happening. And frankly, even in some sectors, you know, like we've seen, like Micron. Micron just can't move forward past its old ties. SK Hynek, same thing. So it's just not an easy setup. I'm still more on the cautious side. I think I'm still in a bull market, but I just think there'll be an opportunity to put money in a world. Well, just to underscore what you were saying, Barclay said indices haven't done much, but there has been an abundance of market stress elsewhere with over 50 percent of SPX down at least 20 percent from all-time highs and some of the poorest breadth divergences witnessed since data collection began in the 1990s, Jenny.

8:44So it does kind of feel like this bifurcation of Q3 earnings season, where you have kind of tech doing one thing, and then there are pockets of tech, which are not as beneficial in this environment as others. And then everybody else. And then everybody else. I'm in the everybody else category since the beginning of September. But I just finished writing the first draft of my quarterly market letter. And that's exactly what I was trying to explain and flesh out for my clients, which is when you look at the quarterly return of the S &P 500 for the third quarter, you're up 2.3%. And holy moly, was that misleading?

9:18You know, and then we saw all these strategists come out and say like, oh, I think large cap equities should be fine. Okay, but we're referring to a very small group. So as soon as you step out, as soon as you step out from that very narrow kind of top 25 % of the S &P 500, as soon as you step out of very different stories being told. Building on something that Jim said, and then what Steve said, too, is Jim said, you know, we need to see if their CapEx plans are intact. And something that I've been wondering about, Leslie, is, is it, everyone's going to say their CapEx plan is intact. Nobody's going to want to pull back.

9:48But there were two interesting things that I read this morning. One was in the FT saying AI borrowing slows as investors grow wary of debt binge. And then Hawk Tan from Broadcom was out saying the biggest obstacle to the AI industry is access to capital. And so that should be really interesting, too, in earnings. If we start to see a little bit of like, hey, our CapEx budget's on track, how are you going to get the money?

10:10Oliver Renick: I read those articles, too. So I know what you're talking about. And then at the same time, I also read articles that talk about how much compute is still in demand. So if you look at Anthropic going to arch enemy SpaceX to get compute demand, or Meta transitioning some of its business plans to open its compute to others to use. It just indicates to me that there still is enough demand that while those debt worries are there, and certainly we saw that with how badly Paramount's debt traded two weeks ago. Granted, Paramount is not AI, but still it just shows that the market is saturated. It does appear to me that the demand is still there to support all this debt.

10:48Oliver Renick: The demand's there, but look, there's way more demand for Ferraris than they could ever manufacture. Everybody wants a Ferrari, but how many can afford it? So at some point, at some point, the market gets tired of financing these companies, particularly when it's costing more and more to finance them. And they want to see they want to make sure their coverage ratios are actually there and doable, not based upon some ridiculous projections. If you take a look at the failed IPO in Australia, which is on data center build outs, now they had no revenue. So I think those will be the first to fall down.

11:30Oliver Renick: But guess what? That affects the valuations of the others. Firmus is one of, say, you know, a handful, five or six that are exposed to the AI data center build out with limited revenue, limited operating experience. And to your point, my question is, is it that there is limited demand or was there a pull forward phenomenon where we just saw so much of this debt issuance in June and it has since slowed? There were proxy revenue for debt capital markets for the banking system showing about an 8 percent decline. But I don't know how much of that is because of demand weariness or just that people have maybe already bought their Ferraris.

12:07Oliver Renick: They bought them in June. Right. There are two sides to that. Right. If you take a look at all these semi-companies, whether they're, you know, or memory, you go to past cycles, they all double ordered, right? Because, and I think you're seeing that with data center demand. They don't want to be shut out. They want to make sure they have room. Now, we've got on the private side investment in cold storage data centers, cold storage cloud, which prices have gone up tremendously, right? So the point is, is that we don't know how much of that demand is their own prediction of what's going to happen in 10 or 15 years.

12:46Oliver Renick: And so these warehouses may find themselves with excess capacity, data centers, not warehouses. So we don't know. But yes, demand, of course, is still there. It will continue to be there with the development. You're right, it will run out at some point in time. I mean, I think we all know that, right? But the question is when. Don't forget that cycles peak a year in front of CapEx peaking. Yeah. Well, let's just be really clear. Which demand are we talking about? Because I think there's insatiable demand for the compute. And then separate from that, there's the demand for the debt to buy the compute.

13:18Right. And so I think those are two different sides of the demand equation. And I think the investor demand for the debt, that's where you're starting to see, I think, the first cracks of maybe, you know, maybe we need to see the returns first. Maybe we'll see a little bit of backing off.

13:32Oliver Renick: institutional bondholders, right, and credit funds still have to worry about portfolio construction. Yeah. Right? As do the sovereigns. So everybody's been going to the sovereigns, right, and they're loading up. When do they say, you know what, we've got enough? NVIDIA, what's really, really troubling is that if we thought 2008 was a house of cards, and it turned out to be, this is a major house of cards. Right. What do you mean by that? What I mean by that is that NVIDIA, for example, is the biggest culprit. They're funding their own revenue by lending money. We're looking at another cloud company now.

14:13Oliver Renick: NVIDIA's putting another$250 million in, right? Because they'll buy the chips. They're doing that with so many companies. The circular financing concerns and the asset-backed financing concerns. And it's great while it works out. I'm not saying that, hey, you know, that we're going to wake up to something really, really ugly soon. You know, but you just have to be aware of that when you structure your portfolio. It's wise to be looking for what could go wrong. And certainly the debt market is where we should look first, particularly if we're thinking about a crisis. When I look at the debt market and again, thinking about how much debt has been issued and how some issues have traded very poorly right after being issued.

14:50Oliver Renick: I think this is a question of demand versus supply. Why do I say that? Look at credit spreads. Investment-grade credit spreads are tight. Look at CCC, high-grade credit spreads, and they have really widened. Now, that disparate between those two categories indicates to me that there is a saturation effect going on right now in the debt market. That's different than a credit worthiness. Will these debt be good to pay back? I don't think that's where we are yet. Steve, I get your point. I don't think that's where we are yet. I think we're in the selectivity period, though. Yeah, I want to make one point, and then you can do with it what you want to do.

15:25Oliver Renick: I hear you on circular financing with regards to NVIDIA. Clearly, that's been something that people have been worried about. I ask quasi-rhetorically, what is NVIDIA supposed to do with$300 billion of free cash flow? I answer it partially by saying if they instituted a big dividend, they've got a small one right now, but if they all of a sudden said, hey, we're going to return all of this cash to shareholders, no, they did a buyback, but it's just a pittance compared to the free cash flow. Then the markets would say, wait a second, you don't have good investment opportunities? I think they have to invest in the ecosystem.

15:56Oliver Renick: They've got too much cash. What are they going to do with it? That's typically done through not vendor financing, but acquisition of other companies. Vendor financing, to the extent they're doing, I know it's relative to that balance sheet, which is significant, right? Is not, I don't think historically it's been done to this extent anywhere in any cycle. But you know what's interesting? This is giving me a flashback to dividend history, where if you look at the S &P 500 prior to the 1990s, you see that there was like a 3 % plus yield forever. And then what happened? Dot-com boom. And companies got separated into two categories.

16:32They were either old economy or new economy. And you were severely punished if you were seen as old economy, right, where you had nothing to do with all that cash except return it to shareholders. And suddenly they saw their valuations compress. And so there was this flurry of just like, oh, my God, we have to spend it at any cost. Otherwise, we'll suffer the fate of being considered old economy because we have cash and now we're a dividend company. You and I worked together. We remember it.

16:57Oliver Renick: Obviously, you were in the market at the same time. I'm just going to point out that that was 30 years ago. And as much as we all talk, and I know you've been very vociferous about the change in the market dynamics, it has changed. But this is kind of the new normal now. I mean, I don't think we're going back to an environment where a high dividend yield indicates anything other than the market's concerned about the share price. No, but it's a reminder of how companies change in their life cycle. And if we think about the late 90s, Jimmy, it was like IBM was a high growth company. Western Digital, Seagate, those were all on our radar.

17:26Now, those are hot again. But for much of the past 20 years, they've been huge dividend issuers, right, because they ultimately were kind of commoditized. And there's some group of today's companies that are going to be essentially commoditized. NVIDIA might, you know, might one day be one again.

17:41Oliver Renick: Yeah, but what does it do for you? Take AT &T, right? Nice dividend. Take all these nice dividend companies, and it has to stay for the stock price. Not only that. Oh, it does nothing. I'm just saying, like, the hot stuff of today is going to be tomorrow's dividend payer. Yeah, I don't know about that. When is tomorrow? 30 years? Well, that's the point. I mean, I don't think NVIDIA is going to become AT &T. I don't think it'll be that long. I don't think he'd get paid. I know nobody's suggesting that. But that's not going to happen in the next year. Ten years from now, will NVIDIA have the growth rates that it's enjoyed over the last five years?

18:08Oliver Renick: Of course not. I mean, just the law of large numbers. They'd be the entire global economy. So maybe they need to buy. They're buying other companies. They are buying other companies. But they're so small relative to what their balance sheet is. In some cases, less than their vendor financing to one company. Again, I ask rhetorically, like what are they supposed to do with$300 billion in free cash flow? And I just said buy back stock and buy companies. And they're doing it. That can be. They are. They are, and they've got the largest buyback out there, right? We'll see how long it takes them to do it.

18:38Oliver Renick: Yeah. Buy another company. Just this morning, the FT is reporting they're in talks to acquire an open-source model reflection AI. I mean, is that the kind of deal you want to see them do? I know, Jim and Steve, you both own NVIDIA. I mean, it seems to me they're running a venture portfolio. They know a lot of this isn't going to work. I don't know what their strategy is. They haven't been very clear on what their strategy is in these companies. So are they buying that company or going to buy that company because it's not done yet because it'll be another customer for them? You know, that's typically been it.

19:12Oliver Renick: So how do you diversify their revenue stream? Or maybe you don't need to. Keep in mind, it was a gaming chip company, right? And it floundered for a while. AI came along. I won't say save them. Jensen saw it. He's a visionary, right? I want to know what his next vision is. Or is this the vision for the next 50 years? And you're right. He is building a venture capital portfolio, and he said he's interested in robotics, and he's been investing in large language models themselves directly. But, you know, Steve, this is to your point, which I agree with. These acquisitions, Leslie, they're very, very small.

19:46Oliver Renick: When you talk about, and I'm kind of reading into what you're saying, Steve, you know, them making an acquisition, I think you're talking about like a$100 billion acquire a public company that's out there. Or private. Or private. But I don't think they'll do that. I don't think you'll think they're going to do it either because that would disrupt a freight train that's running down the tracks for them. I want to turn the conversation to bank earnings because tomorrow we get four of the big ones reporting. Wednesday, we get two more. It's been a bit of a tumultuous couple of weeks for the bank stocks.

20:17They've sold off, the KBE has sold off five weeks in a row leading up to bank earnings. And I'm curious if you all think that leads to potential, you know, underperformance over delivering once the results actually come out.

20:33Oliver Renick: Well, you know, I think the one negative that we're all looking at is that the IPO market is nowhere near as robust as we expected it to be. Now, hopefully Anthropic will come next month, but we're not going to have any reports on that in the earnings tomorrow. The things you're looking for in earnings tomorrow, has all this market volatility benefited the various trading desks, whether it's fixed income or equity? That's what I'm looking for, number one. I expect no credit issues, whether it's consumer or corporate. Expect good capital markets. That's what I'm looking for. Every bank is going to have a different story, right?

21:03Oliver Renick: So Wells Fargo, they sort of got to get going. Right? Everybody's loading up. I mean, Charles Shepard's done a good job. Big ship to turn. He's turned it. Asset cap has lifted. Now they're free to grow. Right. So let's see what the growth is. So that's their story. Yeah. B of A, they'll have another story. They'll talk about consumer credit quality and all that that drives them. Banking apart. But for Goldman and Morgan Stanley, it's going to be M &A and it's going to be the IPO calendar. M &A has to be taking some hits because of where rates are. It is taking hits. Absolutely. So what does that do to future earnings?

21:42Oliver Renick: Because nobody's looking for rates to come back down, right? They're actually looking for firming here, maybe higher. Right. Jeff Reitz has proxy revenue for each of those businesses. And it shows advisory has been lower. That's M &A. Yes. Debt capital markets has been lower, although obviously a high bar for that one, given all the financing we've seen around the CapEx and data center build out. And ECM, equity capital markets, which is where IPO sit, that's actually been a bright spot. But you have seen so much of these postponements of deals. It does kind of create this question mark around that business.

22:16Oliver Renick: It's not only financing of deals. You always have a refinancing cycle, too. Exactly. Right? You're not getting that now. Right. You can't refinance higher. So here's what I've been thinking about with banks, but also with our earlier comments about how the market's so – all the returns concentrated. Right? All the return of the last quarter is concentrated in a small area. But it might be nice if we see bank earnings come out and people kind of get like that aha awakening where you see things like J.P. Morgan at 13 times with a 5 % year-to-date return. Bank of America, 10 times earnings with a basically flat return.

22:47Schwab, which we own, 12 and a half times with a negative 2 % return. And then you look at their earnings growth and they all have double-digit earnings growth estimates ahead. And you know what I think? I think that those are highly reliable or at least more reliable, potentially, Leslie, than other parts of the market where you're really relying on huge debt issuance to continue to drive AI. So something that could come from this is that rebalancing that kind of like first quarter, second quarter momentum where you had companies where they were at a fair valuation, decent earnings growth ahead, reliable earnings, and people just kind of wake up and say, hey, capital's been misallocated, and now let's reallocate to the banking sector.

23:26Oliver Renick: What's the valuation price to book, which is where these things typically traded? I don't have it directly in front of me. It's between one and three. Ask the boss. Ask the boss. Thank you. And you talk about P.E. of J.P. Morgan 13 times. Well, if you go back to long-term history, these traded barely double-digit P.E.s. So they've also been inflated by the A.I. cycle. Yeah. They're not crazy, though. They're not crazy, but you can't talk about 13 times as a discount to historical training. But relative to the S &P, these banks have— But it's always been big discounts at the S &P. OK, but the S &P trade's a lot richer than where it used to, too.

24:03So maybe I still like Citi in this group.

24:05Oliver Renick: If we're going to talk about expensive, it's still cheap. It's the cheapest, yeah. Tax forward earnings, decent dividend yield. But importantly, and I do think this is important for any bank stock, is there's idiosyncrasies. Like, when will they come out of the various regulatory consent orders that they've been under? I thought about that when you mentioned Wealth Fargo, Steve. But then also they've got the Banamex, their Mexican operation, being spun off sometime in the next three to six months. I will admit that keeps getting pushed back. So I'm a little bit worried about that. But the thing with Citigroup is not just that there's cheapness there.

24:34Oliver Renick: They're turning it around, improving expenses and their stories, as I said, like the consent orders and like Banamex. Yeah. Well, the KBE cohort, that's the ETF of larger banks that has underperformed the S &P since June 30th by about twelve hundred basis points. And the last time that happened was in January of twenty twenty five and it rallied on earnings. So we'll see if that kind of trend continues this time. Up next, we'll debate our top calls of the day, including a double downgrade for one software name. We'll reveal that name. Halftime is back in two minutes. Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture.

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26:56Welcome back. Let's hit some of the calls of the day. Adobe double downgraded to underweight at Wells Fargo.

27:04Oliver Renick: Not just a downgrade. Not just double. You have to say first. You have to first say we have some ownership on the desk. We have some ownership on the desk. Everybody knows. I think it goes without saying. All right, let me get into it. Let me get into it. I'm not going to rub the salt in the wheels here. Look, I read the note again. By the way, I didn't even think there was anyone left to downgrade it, but OK. They're worried that pretty soon the results are going to show the impact of competition from AI, that IT budgets are going down. And I get it. All right. That is a real concern. That's why the stock trades at nine times forward earnings.

27:38Oliver Renick: I just have to point out that we're now approaching the fourth year anniversary of chat GPT. This threat has been out there the whole time. Simple facts are in four years, they've grown sales. They're now 80 % higher than they were, excuse me, 50 % higher than they were four years ago. Earnings per share are up 80%. Now, of course, that's going to slow down. And we know that. That's why stocks trading at nine times. Last quarter, revenue grew at 12.5%. This quarter, it's projected at 11%. Buying back shares like crazy. In the last nine months, they've shrunk the share count by 7%. No debt. I mean, I can go on and on about this, but basically it comes down to when is AI going to eat their lunch?

28:18Oliver Renick: It simply hasn't happened in four years, and I find it attractive at this price. Well, they've lost a third of their value year to date, down about 32 percent. I am aware. Thank you. You knew that. It's better when Steve does it. We'll let you redeem yourself because eBay named a top pick at Morgan Stanley today. Last I checked, it was the best performing constituent in the S &P today. So, you know, there you go. Up 4.2 percent. Turn that frown upside down, Leslie. Up 34 percent. So they just cancel each other out. Exactly. Look, I think it's interesting. eBay, I bought it earlier this year. I think it's very attractive.

28:54Oliver Renick: But I think it also has this question about where exactly is the consumer? We've seen a number of retail stocks. And yes, I do consider eBay retail stocks underperform. And yet, clearly, consumers are going to eBay. I think the results show that. They've expanded their product line into things like collectibles. This, to me, seems like a nice multi-year grower. I'm happy with where I purchased it, right under$100, and I like where it's going. All right. Regeneron, price target raised to$908 from$891 over at Bank of America. Shares up 2.6 % today. Jenny, you own this one. We do, and it's nice to see it getting a little bit of positive attention.

29:32So that would be almost 20 % upside from here, and we think that's doable. The math on Regeneron is pretty easy. It trades at 12 times earnings, has a 6 % free cash flow yield. They have an enormous drug pipeline. And the earnings should grow in the double digits for like the next three years at least. So it's kind of easy math. That drug that Bank of America upgraded it based on, Libtayo, is actually like only a$2 billion drug. So it's nice, but it's not a huge part of their total portfolio. But the point is, or maybe that is the point, which is that that's one of many. And like I said, a great pipeline ahead.

30:04Year-to-date down about 0.8 percent. So today's move really helping chip away at some of the earlier losses year-to-date. Now to Julia Borsten with a CNBC News update. Hey, Julia. Leslie, UK Prime Minister Andy Burnham said today the security incident at a U.S.-run military airbase in England last month was almost certainly coordinated in Iran and directed by its Islamic Revolutionary Guard Corps. Seven men have been arrested and released on bail as counterterrorism police investigate. The U.K. Foreign Office issued a joint statement today signed by more than two dozen countries, including the U.S., that recognizes Britain's attribution of Iranian involvement in the incident.

30:43Nobel Peace Prize winner Naveep Pillai slammed U.S. sanctions against the International Criminal Court, calling them negative and cruel in an interview with the Associated Press. The U.S. announced the sweeping new sanctions on the court just hours after the former ICC judge was awarded the Peace Prize. And a federal judge ordered the National Park Service to pause all tree cutting at the historic East Potomac golf course for 24 hours. The Park Service said the trees did not contribute to the landscape. The judge's order comes amid President Trump's push to redesign the course into a championship level golf venue.

31:20Back over to you. All right, Julia, thank you. Up next, your ETF edge with Dominic Chiu. Dom, what's coming up? All right, so Leslie, the sell off in bonds and surge in interest rates is front and center for a lot of investors. these days, but has the volatility created an opportunity for those seeking income generating investments? We're going to speak with an ETF industry expert on where some of the biggest opportunities could be. And by the way, other areas of the market where traditional bond investors are turning more towards. That story is coming up on ETF Edge on the Halftime Report. Keep it right here.

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33:51Welcome back to the Halftime Report. I'm Dominic Chi with today's ETF Edge. The 40 portion, so to speak, of the traditional 60-40 portfolio is changing and another relatively niche part of the industry is expanding to fill the gap. Joining me now is Nate Geraci, the president of Novadeus Wealth Management, watches a lot of ETF trends and flows. Nate, let's talk a little bit about the 40 bonds. Are there opportunities there and what exactly are those opportunities going to be in?

34:20Oliver Renick: Well, there's clearly opportunity there that investors are seeing, because if you look, we've had over$75 billion in inflows into fixed income ETFs just over the past month. And we've now seen a record$525 billion in inflows this year, despite a large number of major bond categories posting negative returns. There are a lot of bond ETFs in the red this year, obviously anything with duration. But despite that, we have seen these inflows into ETFs. And to answer your question, it's really been across the yield curve, where you have some investors content to park on the front end and scoop up that 4 % plus yield and not take much risk.

34:58Oliver Renick: And then there are other investors who are becoming much more enticed by the higher yields offered much further out on the curve. But regardless, Tom, I think these strong inflows are indicative of the fact that there is a bond ETF no matter what your views are, right? You can express them via an ETF wrapper, and that's what we're seeing investors do. You know, Nate, I had mentioned before some bond investors, traditional ones, are also looking beyond bonds for that 40 portion of their portfolio. Where else are these bond investors going to? The answer is a little bit surprising here. Well, yeah, if you think about the market environment we're in, we now have major stock indices hitting record highs at the same time interest rates are at multi-decade highs.

35:37Oliver Renick: And think about this in the context of a traditional 60-40 portfolio where this environment has worked out great for the 60 percent stocks. But it's been a huge drag on the 40 % bonds. And so I do think some investors are seeking alternative solutions in this type of market. And they're looking for strategies with a lower correlation to stocks and particularly bonds. So something like managed futures ETFs, I think, can fit the bill here because they can go short bonds. They can go long the dollar, long oil. They can be a diversifier when other areas of the portfolio aren't working. So I think managed futures and other alternative strategies like that are catching the attention of investors.

36:14Oliver Renick: A shift towards alts for sure here. Nate, thank you very much for that. We're going to continue this conversation over ETFedge.cnbc.com. Nate's going to be joined by Andrew Beer, the founder and managing member at Dynamic Beta Investments, a specialist in managed futures and alt strategies with ETF wrappers. Leslie, I know you're a big inside alts person. I'll send things back over to you. I was going to say, looking forward to that one, Dom. Thank you. Up next, we're taking a look at the futures trade as one sector hits all time highs. Halftime is back in two.

36:47Welcome back. Energy hitting a new record high today, now up nearly 50 percent for the year. Halftime committee member Bill Baruch is tracking how the big move in heating oil is powering the sector's gains. He joins us now with the futures trade. Hey, Bill.

37:01Oliver Renick: Hey, how are you? If you look at XLE ETF, the top three performers this year are all refiners, Marathon Petroleum, Valero, and Phillips, they're all up over 100%. So really, this is heating oil, diesel, crack spreads that have surged on the heels, not of Iran so much, but this was something that was popping up earlier this year on the Russia-Ukraine war. Russia and China are major exporters of diesel globally, and heating oil futures track diesel prices. And then, of course, when the US attacked Iran start of March, then it was another tailwind to these prices. So it was already kind of salt in the wounds there.

37:46Where do you see kind of the inflection point going from here?

37:50Oliver Renick: You know, it's it's tough to say. You see earlier this day today or on the session, crude oil was lower. Heating oil was lower. President Trump over the weekend talked about an energy ceasefire between Russia and Ukraine, which has not been confirmed. He's trying to drive diesel prices lower, especially ahead of the election. But there doesn't seem to be much stopping it because the U.S. has refiner utilization running red hot. It's been continuing to go better. So we don't have a diesel problem or crude oil problem here in the U.S. because we're pulling the crude oil to refine. It's the diesel which is becoming the real issue.

38:31Oliver Renick: So a lot of people may say this is the the A.I. trade under pending energy. It's not. This is the crack spreads. And these are the refiners that are really capitalizing on this move. Yeah. And of course, the impact of diesel prices on things like inflation broadly outside of even gas prices as well. Bill, thank you. Appreciate it. Bill Baruch for us phoning in. There's some ownership of energy on the desk here. Jenny, I know you own Enterprise Products, Energy Transfer, Flex LNG, and Kinder Morgan. Right. How are you assessing the upstream and downstream effects? Well, I think it's true. So Bill said something that was, I think, a little bit loaded, which was, you know, some people say there's AI underpinning it.

39:14And Leslie, I don't know if you saw, but last week Josh and I got into it because what I was saying is, like, there is an element of AI that's supportive of the energy markets. I think I went down a rabbit hole. But the bottom line is, I think AI, you know, is supportive of it in that AI is supportive of the entire U.S. economy right now. And so when I think about upstream and downstream and like why I'm not in the refiners, the reason I'm not in the refiners is because I think that there's too much political sensitivity and too much economic sensitivity. And so for the way we manage money at Gilman Hill, I don't want to run that risk.

39:45Like, I don't want to run the risk that oil could go back to 68 and the refiners start to collapse. I don't want to run the risk that the AI, you know, that there's an economic slowdown and the refiners collapse. Where I play is I'm like, hey, I want to be in the midstream space because all I know for sure is that for the next at least five, probably 15, 25 years, whether we want it or not, fossil fuels are going to be flowing in the United States. And so I want to own enterprise products, energy transfer, Kinder Morgan, just the huge pipeline companies. They're slow and steady. They're not going to be up 100 percent.

40:15But that's the way I want to make money. And I get like six, you know, seven, eight, nine percent yields. In our international strategy, where it's a little different, we own Total and Shell. These are both up 50 percent on the year, and they're both global leaders in LNG. So, again, not inside that oil trade, but they're up 50 percent just from being in LNG, because however you cut it, globally right now, there is huge demand for energy of every type. So I want to be in it, but I want to take out as much economic and political risk as I can. Yeah, I did see it. It was a very good debate. Thanks.

40:46Jim, we're pleased to be.

40:48Oliver Renick: I mean, I'm a big believer in the energy stocks. I've been in them for many years. And I think the hanging question out there is what if the war with Iran stops and what will that do to crack spreads? And you mentioned crude oil. Will it go down to sixty eight dollars a barrel? First off, I don't think crude oil is going to collapse. We've got strategic petroleum reserves around the world that need to be refilled. But to Jenny's point, there's economic activity, which is demanding energy, whether it's a or I, I or not. I don't care. There's economic activity that is demanding energy of all types, whether it's fossil fuel, renewable, whatever it may be.

41:20Oliver Renick: I like the more diversified plays because you can get pipelines, you can get refineries, you can get exploration and production. I'm playing it through three different names. Exxon Mobil, obviously integrated oil. Chenier, which is a pipeline like yours, focused on liquefied natural gas exports. And then Transocean Deepwater Driller. That is the highest beta play to the energy sector. All right. Thank you, guys. Mike Santoli's Market Memo is next. We are back with senior markets commentator and overtime co-anchor Mike Santoli with his market memo. A mixed picture to start the Monday, start the week.

41:54Oliver Renick: For a change, right? A mixed picture, a deep split within the market. This is the world we've been living in for a while. We have the additional twist today, of course, of stocks not having the bond market to lead them around in terms of telling whether the macro trade is a source of pressure or relief. I do think that, you know, the semis down following the South Korea market lower has created that very familiar impulse, which is everything else kind of goes up in contrast, software, meta, things like that. I think that it's kind of a now or never in terms of whether these divergences are going to resolve themselves in the way a lot of people, I think, are assuming that earnings season will allow some relief for the majority of stocks that have vastly underperformed to catch up and maybe the mega caps can take a break.

42:37Oliver Renick: But again, we will see because we've had the makings of that reconvergence for a while right now. So, you know, you have the equal weight S &P still four or five percent below its highs. You have the S &P 500 proper, very close to a new record. So this is the split we're dealing with. It's keeping volatility very suppressed in the equity market. And I think that's almost encouraging people to at least, you know, maintain exposure, if not get out over their scheme. Yeah, a lot of questions about positioning as third quarter earnings begin in earnest tomorrow. So we'll see what happens. Mike Santoli, thank you.

43:09We have got some breaking headlines crossing from Cleveland Fed President Beth Hammock. Our Steve Liesman joins us with the details. Hey, Steve.

43:16Oliver Renick: Leslie, hi. Fed's Cleveland President Beth Hammock saying that restricted monetary policy is appropriate to ensure a timely return of 2 % inflation. She goes on to say that smaller adjustments relatively quickly reduce risks of a large course correction needed down the road. The important part about that is other Fed officials have said the Fed can take its time leading the markets to price in an October pause. She says they need to be done quickly. She says inflationary pressures are relatively broad based. And she's concerned that an inflationary mindset, quote, is taking hold in the economy.

43:53Oliver Renick: She sees financial conditions as neutral rather than restrictive, suggesting the Fed has work to do here. And it's difficult to look through multiple supply shocks that arrive one after another. For example, she says there have been multiple ways of tariffs. They've resulted in a series of cost shocks. Goes on to talk about energy as well and says the demand side pressure from the AI buildout is raising prices. Also, price pressures are showing up in the core services, ex-housing inflation indicators. And it will take some time for inflation return to 2 percent, even with appropriate monetary policy.

44:27Oliver Renick: So Hammack really seemed more concerned than maybe the average Fed official over inflation. And she goes on to explain why she's talking to begin with. She has a responsibility to explain to the public why I make the decisions. I make a little bit of pushback there against Kevin Warsh's reluctance to do so. Again, Leslie, the importance here is, I mean, this could be setting up a potential dissent by Hammock and maybe others in the October meeting where she says the Fed needs to act quickly. And other Fed officials, Jefferson and Williams, have said the Fed can maybe take its time with the next rate hike.

44:59Yeah, that's kind of how I read those comments as you described them, that maybe she's setting herself up for a descent, given the strength of her views around the pace of interest rate hikes. Steve, thank you. Steve Lee's been for us. Up next, Options Action with Oliver Rennick. Let's get to today's Options Action. Oliver Rennick joins us from Sebo Global Markets in Chicago. Hi, Oliver. Hey, Leslie. I'm looking at about$5 million of options trading in Snap, which is peanuts by many standards. But for a stock that's been all but dead for four years, it's quite interesting. It's traded more than 120 ,000 options today, four times the average.

45:37And almost all of them are calls, more bought than sold, as the shares rallied 3 % to the highest since February. There's not much news on the tape other than a shareholder last week saying the company's AR glasses could be a game changer. 15 of the top 20 trades by dollar amount were bullish, including a string of call buying for expiries between now and year end, with the biggest chunk happening in the eight-strike December call, which needs a 30 % rally to pay off, Leslie. All right, definitely one to watch there, Oliver. To your point, down about 92 % over the last five years. Stay with us.

46:12Final trades coming up on Halftime. And we're back with final trades. Weiss, we'll start with you.

46:19Oliver Renick: Yes, let's go with me. Netflix. Look, I think the stock has found its lows, and everything depends on the next quarter. Street couldn't be more negative on it. So I think the risk-reward is very attractive here. Jim. Amvy. You know, I debate whether to recommend a stock right at an all-time high, but the momentum here is strong. This is a solid company that I've owned for many years, and I expect will perform for the next several years. And Jenny. Okay, DocuSign. 14 times earnings, nearly 10 % free cash flow yield. This one's from our growth strategy, and it was treated for a while like AI was going to eat its lunch, but I don't think it's going to.

46:53And up about half a percent today. That does it for halftime. The exchange starts right now.

46:59Oliver Renick: You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC. All opinions expressed by the Halftime Report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates. and may have been previously disseminated by them on television, radio, internet, or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the Halftime Report 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.

47:39To view the full Halftime Report disclaimer, please visit cnbc.com forward slash Halftime Report disclaimer.

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