Historic U.S.-China Summit: AI & Trade in Focus 9/24/26

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0:56Scott Wapner: I'm Scott Wapner, and you're listening to CNBC's Halftime Report, the podcast, the most profitable hour of the trading day. We record this live weekdays at 12 Eastern. Listen in.

1:12Carl, thank you.

1:13Scott Wapner: We do begin with breaking news. The Trump-She-Summit, the two leaders meeting right now at the White House in Washington. Welcome to the Halftime Report. I'm Scott Wapner. It's important to know we're not seeing video of President Xi's visit to the White House, given the TV pool coverage of the president has been suspended following his decision to ban three national news outlets from the White House. Early this morning, a federal judge ordered the Trump administration to immediately restore that access to those news organizations. But as of now, the White House has not yet allowed them onto the grounds.

1:44Scott Wapner: We do know that there is a lot on the agenda today. For that, let's get right to Megan Casella on the North Lawn with the very latest. Megan? Scott, that's exactly right. President Trump and President Xi are sitting down together right now. There is a Marine station outside the West Wing door to my left right now, signaling that the president is in the West Wing. It was supposed to be a small bilateral meeting beginning at 1130. And then right now at noon, according to the schedule, the presidents will be moving to the Cabinet Room for an expanded bilateral meeting. So far this morning, we've had a lot of pageantry here at the White House, an official welcome ceremony on the South Lawn with a military band, a flyover, an official gift exchange, as well as a military review.

2:21And now the policy talk is getting started. So a couple of developments there already on the trade front. For one, Treasury Secretary Scott Besant saying late last night that the two sides had agreed to extend their tariff truce by another two months. That brings us to January 10th. That brings a little dose of stability to the relationship going into this meeting, although the Chinese had been pushing for a longer extension. On AI, President Trump saying this morning on True Social that he doesn't want to see anything change there. He said it was China's stance that they also didn't want to see anything change, although we did hear from President Xi in remarks from the White House this morning, saying that it is important to make sure that AI remains under human control.

2:59So a little bit of differences there. On Iran, Taiwan, other topics like rare earth, those are areas where I'm still watching for possibly more policy developments later today. And then, Scott, the next big item on the agenda after these meetings are over is that CEO-studded state dinner tonight here at the White House. Of course, a huge honor for President Xi to be getting that. And we expect really a who's who of U.S. leaders in tech and finance. You can see a number of them here. Sam Altman, Jensen Huang, Jamie Dimon, Jeff Bezos, you name it. All of them expected here at the White House for that dinner this evening where both presidents are expected to give remarks once again.

3:33Scott.

3:34Scott Wapner: Megan, thanks so much for that. That's Megan Casella on the North Lawn of the White House for us. The committee is also with me, of course, today. Stephanie Link, Malcolm Etheridge, Shannon Secosia, Josh Brown. Steph, I'll turn to you first. It's the first state visit for President Xi in some 11 years. They'll have that big state dinner this evening. And you saw the star-studded lineup of CEOs who are going to be in the room, very tech-heavy. I think that shows you the importance of these conversations around AI. What, to your mind, matters most to you as a market participant and an investor? Yeah, I mean, a lot.

4:08There's a lot going on, not to mention other things happening with regards to oil, with regards to interest rates.

4:14Scott Wapner: Sure. We'll get to all that. We will. But in terms of what comes out today? Today, I mean, I think it's really going to be a lot all about AI, to be honest with you, and how it's going to impact all of the various different companies and CEOs that are in these meetings. things, and it's really going to depend on can they get to an agreement on the whole safety issue. I mean, that is really the most important thing. And a pause, I just don't see it, but we're going to have to realize about regulation and we'll have to figure out how much can get done. I'm not sure we're going to get a lot of answers, though, Scott.

4:50Scott Wapner: If there's an agreement that at least one of the parties wants to get done, and that's the president. Meghan read the Truth Social post from this morning. I'll read it to you all again and quote the president. A big day with President Xi of China. Super intelligence will be a big topic of discussion. But I want to leave it exactly where it is. That is China's position also. Our guardrail is the DOJ, President DJT. So that's going to be a heavy topic of conversation, whether it's possible to reach any level of agreement, whether these two sides even want to reach that point. Malcolm, your quick thought before we bring in our special guest today?

5:27Yeah, I would just point out the obvious, which is that it's very important that they get this right. And when I say they, I mean all parties involved, the folks calling for a slowdown who obviously have a vested interest in things going well, the folks who are early investors in the anthropics of the world that obviously want to see the liquidity event. That is the IPO scheduled now for mid-November sometime. time. It's the government agencies that are trying to get themselves involved here in the equation to help make sure that it isn't the existential crisis that some are predicting. But the reason that it matters so much is because basically all of our GDP growth at the moment is tied to the spending related to the AI build-out.

6:06And so if this does go wrong or meaningfully slows down, all of a sudden falls off a cliff, that will be negatively impactful for all parties involved too, which is not necessarily wiping out human existence. But from a financial perspective, it'll be meaningful for us as well.

6:22Scott Wapner: Altimeter Capital's Brad Gerstner will be at tonight's state dinner. He is on the north lawn of the White House for us this hour. It's nice to have you on. Welcome. It's great to be here, Scott, on what is a really historic day here at the White House. How are you thinking about what could transpire between these two countries related to AI, knowing what the president has already put out on Truth Social? I want to leave it exactly where it is, what he has said about what he thinks should come out regarding any sort of AI regulation. Do you think we need a greater platform for AI regulations and for safety?

7:00Well, first, let's start with this, Scott. We're here to talk about superintelligence. And we have this historic meeting between two of the most important economies in the world. It's the second of what looks like it's going to be four meetings this year. So that in and of itself is an extraordinary level of dialogue, including on issues like super intelligence. I'm sure that conversation will come up today. But let's set the table a little bit, Scott, on what we are doing. This idea when the president truths this morning that he wants to continue the course. Remember, the course that we are on is both safe and fast.

7:37The idea that we don't have any regulation is a little bit crazy. The Center for AI Standards and Innovation, which is in the Commerce Department, it reviews and looks at every single frontier model before it's released. Remember, and I think we're the only government on the planet to pull a model off the shelf when Mythos was suspended earlier this year in order to make it more cyber safe to be released. That was directed by the president and the White House. And so there is a cop on the beat. We are taking safety and these precautions seriously. But we're not doing it in a way that's slowing us down.

8:13And so I think when he says stay the course, the course is make sure that we're reviewing those models. Number two, the labs are reviewing the models. We've been red teaming these models and increasing steps in compute that we're using to make sure that this is safe. And then we heard over the course of last week ideas such as independent monitors are out of Elon, the idea of peer review. So we will continue to evolve those frameworks as the technology evolves. And then finally, Scott, this idea that we're going to shut down AI, have a pause, the moratorium on AI, that is just unilaterally disarming both our economic security and our national security to others around the world who certainly are not going to slow down.

8:52So that's not on the agenda. So that's what go ahead, Scott.

8:56Scott Wapner: It doesn't sound like you think that we need or that you're in favor of some globally accepted standard. You mentioned Elon. He's gone a step further in the last 24 hours where he had a conversation with China's state run global television network on AI regulation and said the following. I'll quote and get your reaction to that. I think a really important thing that would be good for the safety of the whole world would be for China and the U.S. to agree on a platform for AI regulation that ensures safety of AI for all of humanity. that seems to be going a step further than either what the president is in favor of.

9:36Scott Wapner: And if we're hearing you correctly, what you would agree to. Well, part of the reason that all the executives are here today, part of the reason that I'm here is because these important conversations are happening between the United States and China. So I'm not going to front run the White House in terms of the things that are being discussed. But you wouldn't be having these people convene at the White House if there weren't discussions about the frameworks that will guide us all as we come forward. What the president has made clear, he's not ceding any authority to some supernatural national entity like the U.N.

10:08for A.I. You know, he's going to maintain U.S. sovereignty over A.I. But of course, we're going to coordinate and cooperate where we can with countries like China that also have a vested interest in superintelligence. I think it's a great step forward. I think that the path that we're on right now is finding, is threading the needle on what is safe, but what is also very fast. And so, you know, we're leading the world in AI today. I think that's the most important thing that we continue to keep innovating and that we evolve these frameworks as the technology evolves.

10:44Scott Wapner: I understand. I mean, respectfully, you're not front running anything if the president has put forth his point of view as saying, I want to leave it exactly where it is. And then when Elon comes out in the last 24 hours talking about agreeing on what he terms a platform for AI regulation that ensures safety, are you in favor of that or not? Well, let me ask you this, Scott. We have a model release framework in the United States. So no frontier model can be released in the United States unless it's reviewed by, you know, the Department of Commerce. Like I mentioned, Casey, the Center for AI Standards and Innovation.

11:21So is that a regulatory framework? I think it is. And we're already doing it. So it wouldn't be surprising to me if we have similar frameworks that we can compare notes on and set those best standards with China on a go forward basis. So I don't know that there's a lot of daylight between Elon and the White House that you're suggesting. But I do know this. Everybody around the table has goodwill. There's nobody who wants to YOLO. There's nobody who thinks we should disregard safety. We know we've got to bring this into the world in a way that is maximally beneficial to all citizens of the United States.

11:54And it is and will be. So everybody takes those issues seriously. But Washington has a way to do Washington. And what that means is they want to lead with regulation. They want to smother this opportunity before it even gets off the ground. We're not going to allow that to occur. The reason we haven't had, you know, incidents to date. And remember, we've been at this now for four years is because we have a pragmatic and a sensible solution to regulation. And we need to continue pushing that forward.

12:22Scott Wapner: I wasn't suggesting. I mean, I was merely reading the statements word for word of what was said by President Trump and Elon Musk in the last 24 hours. Let me ask you this. When you read the comments from both Sam Altman and Dario Amadei yesterday in front of the Security Council at the U.N., what was your reaction to Sam Altman saying in our history there have been times where countries who compete and don't always like each other very much still come together for shared interests and the collective good in the face of a powerful new technology? We believe this must be one of those times. Well, I mean, there's no better evidence of the president's leadership on this and the White House's leadership on it than the fact that President Xi is at the White House today having conversations on this very topic.

13:06And so, you know, it's unprecedented. We've never had the U.S. president and the president of China meet four times in a single year. This is the second of those historic meetings just behind me. Those meetings are occurring right now. So I think that he would agree that we need to coordinate. We need to have conversations. But that doesn't mean that we need to have moratoriums or we need to smother this. I don't think the Chinese want that. That's certainly not what they're doing. Remember, there's only one country on the planet that has actually suspended a model that has actually said a model is not safe enough to be released.

13:37That's not China. That's not Europe. It's the United States of America earlier this year with mythos. So the again, I come back to this, that I don't think there's a lot of daylight between the people around the table. but everybody's going to express their opinion, including Elon. And that's how we move the conversation forward. The technology evolves quickly. We need to make sure that we're having sufficient conversations to evolve quickly with it.

14:00Scott Wapner: We always hear, you know, this race between us and China in this, you know, great competition for the next frontier, if you will. Do you think we have a good handle on where that race currently stands? Well, it's very clear that the United States models are leading the world. You know, I think it's a poorly kept secret that the Chinese models are distilling the U.S. frontier models. And so in that way, they're derivative to those models. We have the best chips, you know, that are training these models and are running the inference on these models around the world. But we need to make sure that we continue to export the American AI stack to the world.

14:41There are some people in this country that would say, We shouldn't be able to export any of that. And I'll tell you that that's one sure way to make sure that the Huawei stack, the Chinese stack, runs the world of AI. The reason our values are embedded in the Internet around the world is because we didn't regulate the Internet to death when it started back in the late 90s and early 2000s. We allowed our companies to go compete. We need to do the same thing now. I think these are the conversations that are occurring inside that we all want to be safe But we all want to move quickly to make sure that all these benefits are delivered to our economies and to our citizens

15:17Scott Wapner: So you're in you're in favor of greater chip exports between the US and China Well, I I'm on record about this from the beginning I don't think we should be exporting our leading chips to China But I would love I would have loved if the United States had not you know unilaterally seeded that market to Huawei way. There's no evidence that we actually slowed them down in that regard. And so now I think we have limited exports of H200s and H20s that are going to China. I support that. I would love to keep all those Chinese developers. Remember, the vast majority of AI developers in the world are Chinese.

15:53We would love to keep those developers in the American ecosystem, in the NVIDIA ecosystem, in the AMD ecosystem. Unfortunately, by pulling back as aggressively as we did, which really started under the Biden administration and then continued into the Trump administration. By pulling back that aggressively, we really ceded a lot of ground to the Chinese and around the world, not just in China, in terms of the global AI ecosystem.

16:19Scott Wapner: I'm sure there are those who suggest, back to the point of a global regulatory platform, if you will, who would say, why should we agree to anything of the kind with the Chinese when they have shown a history of not living up to their end of the bargain on other agreements that have been made between these two countries? Do you share that view? Well, I mean, I just think from first principles, we start and we do what's in the best interest of the United States, taking all of those things into account. And, you know, we were leading the world for a reason, because we're letting our thoroughbreds run.

17:00And we have maximum competition. We have open source models from China, from the United States that are competing with our frontier labs. When the president says he wants to preserve the status quo, that's what I think he's talking about. We have tons of competition. The competition is good. It's put us on the frontier. I think we're separating ourselves from China. I don't think the Chinese models are catching up to the U.S. models. I think just the opposite. And given the amount of compute that we're bringing on board at the end of this year and into next year, I think our lead will extend. We're building over 40 gigawatts of AI compute in 2027.

17:33Nobody around the world can touch that. And remember, intelligence is the log of compute. The more compute you have, the more intelligence you have. And so I think the U.S.'s lead will extend as we look into 2027.

17:46Scott Wapner: Is this your first state dinner that you'll attend this evening? And I mean, just what are your general feelings about being in the room tonight with so many important issues on the table and, as we said, a star-studded guest list from tech, finance, and all other parts of our corporate structure. You know, Scott, I grew up in a small town in Indiana. You know, I revere the United States and our democratic process. It's messy often at times. We've thrived for 250 years, And I think it's an incredible honor to be here at what I think is a consequential moment in time with a partner in China that is the second largest economy in the world and certainly one of the most strategic economies in the world at a critical time when we're talking about things like AI and these technological advances.

18:37So I'm thrilled to be there. You know, and when I think about what's in that room and the CEOs who are in that room, there are Republicans in that room, there are Democrats in that room, there are centrists in that room. But all of these people care about the country. All of these people take the issues that you're talking about very seriously. It doesn't mean everybody agrees on the level of regulation that should be in place. But ultimately, they're all going to put their best ideas on the table. And then the president of the United States is going to make the decision. I think the decisions that we've made over the course of the last two years is the reason we're in the lead and extending our lead on the rest of the world.

19:13Scott Wapner: Just bear with me for one minute. We're certainly not naive to the move we're seeing in the market as we're having this conversation. And you can clearly see it on your screens. The S &P has now gone green. You see the big spike really overall in the market. Take a look at crude oil, which has come off its highs. So much of the story of late. There it is. The move lower by more than two percent. Obviously, the focus around bond yields as well. Let's take a look at the 10-year note yield, which has been at its highest levels really since 2007. So many decades since we've seen something like this, that's dropping.

19:49Scott Wapner: We'll bring you certainly news on something is moving this market. And we'll get to that as soon as we have a better idea of exactly what might have transpired. Brad, you know, when you talk about open source and other models that are out there, I can't help but think of Meta, which you have a large position, I believe, in. This stock has made an incredible move in the last month. It's up 34 % this month alone. It's the best month since July of 2013. How has the conversation changed in a much more positive way, do you think? What are investors rewarding here? Well, remember, you know, Meta had underperformed for almost two years, Scott.

20:35It was trading well below the market multiple on fully taxed gap earnings. And what we saw was a company led by a founder with some incredible executives at his side, whether, you know, that's Nat Friedman or whether it's Alexander Wang, who he brought on board, or Dina, et cetera, who were really intent on building a frontier world-class model and a consumer application to distribute to their billions of customers. The market was looking at it and saying they're spending$110 billion on CapEx with no return. And we thought there were a lot of ways for them to win. The number one way for them to win, of course, they're oftentimes not first.

21:13They weren't first with Instagram, but they got there and then they ran the table. They weren't first with Stories, but they got there and they ran the table. We thought that they could get there with a consumer AI application that I've been talking about for two years. They delivered it in Muse. It's incredible. This is the next 10x moment. The world of AI started with chatbots. I would ask it a question. It would give me an answer. The world of AI for consumers is now agents. Think of it like a smart assistant who can go do everything that you need it to do, whether it's getting you a rebate, whether it's sitting on a customer service call for five hours on your behalf, booking a hotel room, you know, finding you cheaper car insurance.

21:52These agents will now work around the clock on your behalf. They're incredibly inexpensive. This is part of the democratization and the benefits that we're going to give to hundreds of millions of people in the United States. These are the benefits of AI that I can't wait for everybody to have. So they launched Muse. It's gone gangbusters, number one, in the App Store. We have other great companies that are working on this, like Instinct, etc. So they're not the only game in town. And certainly I expect that ChatGPT and Claude and others are going to launch their versions of it. But give it to Meta, man.

22:25They are executing in founder mode. They have swagger. Consumers love the product. You've read some of the reviews. So they answered with a double exclamation point that they are going to earn a return on the$100 billion investment that they were making. And I think it's as simple as that. It's re-rated. It's now basically in line with the market, Scott. I think there's still a long way for it to go. And we're thrilled to be shareholders. We've been shareholders, as you know, for a very long period of time.

22:54Scott Wapner: Yeah. I mean, you know, disgruntled at times, obviously wrote the now famous letter, but things have turned. It certainly appears that. Remember what I said in that letter, though, Scott, and Mark agreed with. At the time, it was the summer of 22. It was just before ChatGPT was released. And I said, instead of all the money that we're spending on AR and VR, we're entering the age of AI. We just need to reduce our spend on AR and VR. And I encouraged him to double, triple down on AI. That's what they did. They reorganized around AI in 2023. And, you know, we're starting to see the fruits of those efforts today.

23:30Scott Wapner: I'd like to get your just thoughts on the market at large and let our viewers know that a Reuters headline has moved, quoting sources, which says the U.S. and Iran have discussed a phased deal to reopen the Strait of Hormuz and end the U.S. blockade. It's the obvious reason why you've seen the move lower in crude, the commensurate move lower in bond yields, which have been a considerable story. And that's the pop in stocks. I mean, how do you feel about the market right now, given everything that I just said and that's been on your screens every day? Well, as I said, the last time I was on, we've taken our exposure, Scott, to a medium level.

24:08So if you just think about a small, medium and large, we've been large most of the year. But when I saw the 10-year go above 5, and now we're at 5, 10, 5, 12 on the 10-year, that becomes a really big headwind to the equity markets. You have mortgage rates over 7%. That's a big headwind to a big part of the economy. This would be incredibly welcome news to get the oil price to come down. We think that the 10-year would follow a little bit if we got that directional move. The other thing is, you know, remember, this AI trade is not going to be a straight line up and to the right. So I expect that we'll have some chop along the way here.

24:45But as we head toward an IPO or maybe two IPOs later this year and early next year, I think the enthusiasm will be there. Because the fact of the matter is the use case and the demand is there. The world wants a lot more AI than it can get its hands on. But we've got to continue to deliver those revenue numbers out of Anthropic, out of OpenAI, out of Meta. because at the end of the day, somebody has to pay the bill on the$1.5 trillion in annual CapEx that people are investing into the ground, which means consumers and enterprises need to pay for these products.

25:18Scott Wapner: Before I let you go, I do want to talk about the latest development in your Invest America accounts, in which the Brad Gerstner Family Foundation will contribute$250 to a Trump account for every eligible child in Indiana born in 23 and 24, 2023 and 2024. It's going to reach over 140 ,000 kids in Indiana. You know, you're never shy to sort of talk about your roots in that state. And I'm wondering if you can just expand on this gift that you're giving. Well, I mean, you know, it's full circle, Scott. I couldn't be more thrilled. State of Indiana gave a lot to me, a free college education, free law school education.

26:03So it was our family's honor to pay it forward, you know, and started to drop those$250 on 150 ,000 kids around the state of Indiana this week. And I can just tell you the letters and the notes and whatnot that I'm getting from teachers and firefighters and others in the state, the return on that investment is off the charts. But this has been the mission from the very beginning. We talked on your show at the end of 2020 when I said I had a dream. I have an idea. A thousand bucks for every kid at birth, forevermore. Get them aligned with the upside of free market capitalism in America. They should compound when America compounds.

26:37This is another brick in that wall. And just with the announcement this week in Indiana, we have states from the state of South Carolina and Connecticut and Montana and Massachusetts across the country, philanthropists who want to do the same thing in those states. So we're going to do this in all 50 states across the country. We're about ready to announce that we're going to automatically create accounts for all 73 million kids under the age of 18, get those accounts funded and working. And so it's been an incredible success. The engagement is very high. But this week for the state of Indiana, for me and my boys and our family to have an opportunity to pay it forward, you know, was incredibly meaningful to us.

27:19Scott Wapner: We'll talk to you soon. And I appreciate you joining us on the North Lawn ahead of that state dinner this evening in which you will be in attendance. We'll see you soon, Brad. Thank you. Thanks for having me, Scott. All right. That's Brad Gerson once again joining us. So, Shan, let's let's just go right to the market. When you see the headline that we're showing on the bottom of our screen here and then the obvious market reaction to it in various places, you think what? I think this is clearly a representation of the fact that at this point the market feels like the Fed is keying in on energy price transmission and the potential for pass through inflation in terms of getting increasingly more hawkish.

27:55So I think that this is an indication that if there was some sort of additional memorandum of understanding, even if it's a phased deal, such as the one that's being discussed here in these headlines, that that would alleviate the pressure perhaps on the October rate hike and could potentially put the target closer to a two rate hike scenario than maybe the three or four, which I think has been priced in. And the other thing, Scott, is that this is just an indication that we also know that the 10-year continues to move in lockstep with oil prices. Sure does. And that alleviation of that pressure on the 10-year is also likely to create a foundation for a rally for the markets right into the earnings season.

28:35Scott Wapner: Josh, yesterday's move in the 10-year was rather historic in terms of how much the yield moved higher in a single day. To Brad Gerstner's thought that what you're seeing on your screen right here, the 10-year Treasury yield, is, in his words, a headwind to the equity market. How are you thinking about that in your own mind? Well, I can go beyond how we're thinking about it. I'll tell you what we're actually doing about it. We've got clients that have been long this market, very long this market for years and years and years. The S &P 500 has spent the entirety of the post-financial crisis period, which is now 17 years ago, compounding at above 10 % at an average annual rate.

29:28I think it's more like 12.5%. These are extraordinary equity market returns. And I think the rational thing now for every financial advisor in America to be doing is looking at their clients' exposures. And I guarantee you, a lot of people who started out with a 60-40 portfolio now look a lot more like 80-20. We have clients that look more like 90-10, especially if they came to us with company stock in public companies, technology companies. The job of every financial advisor in America right now is to address this with clients. And if you could lock in 5 % on a two-year treasury, a risk-free return of 5 % right here, this is a spectacular time to look at those allocations that have been drifting higher and higher and higher and ask a client a very simple question.

30:26We don't know what oil is going to do. We don't know if Trump is going to successfully make a deal with these maniacs that they'll actually stick to. Like, forget about all that. That's not the game we play. You now have the opportunity to lock in a risk-free rate of 5 % on two-year bonds. Are you sure you want to ride a 90-10 allocation of stocks without reconsidering any of that? So this is what we're actually doing right now. It's hand-to-hand combat. These are one-on-one conversations with, I don't know, we have thousands of households. And I think you're going to see exactly what I've just described start to have an impact on the stock market as we head into the fourth quarter.

31:07Everybody's thinking this way. And if they're not, they better wake up and start to.

31:12Scott Wapner: Okay, so I love that conversation to have with all of you now, too. I mean, how are you thinking about that? There are those who say, OK, for the first time in a long time, you've got competition. Yeah. And you have competition on various parts of the curve, right? What do you think? I mean, I think above 5 % on the 10-year, you will get some switching. But I don't think you're going to get 100 % switching. And that is because the economy is accelerating. It's accelerating. And earnings are still going to be much better than expected. And the long-term total return average for the S &P 500 is about 8 % over the long term.

31:46So sure, I understand when you can get a 5 % risk-free rate for five years or even the two-year, as Josh mentioned. Fine, I think that's attractive, Scott. But I still think there's a lot of parts of this market that are very attractive. What I really want to highlight is that the past month, September, the S &P 500 is up 1%. The average stock is down 4%. The Qs are up 4%. So it has been a very narrow market.

32:10Scott Wapner: Once again, yeah. A very narrow market. And I think the economy continuing to accelerate earnings continue to be well. I think and then seasonally, October, November, really good, strong months of the year. I think you're getting opportunities in other parts of the market. Problem with that perspective is on the face of it. Yes. But with oil as elevated as it is, you would say, well, if the economy is picking up speed and some folks say the case of economy is over discretionary. discretionary. But respectfully, it doesn't matter that perspective when you look at consumer discretionary stocks, for example, down five and a half percent in a month.

32:51Scott Wapner: Those stocks can't get anything going. A lot of the cyclical parts of the economy can't get a lot going despite the strength in the economy because oil prices are elevated, yields are elevated, and those are two counterpoints to the strength that you're talking about. I totally understand, but we're seeing the low-end consumer hanging in there because their wages are going up more than the high end. No, but that's what I mean. People say the K-shaped economy is over. The consumer's hung in there enough. They're working, right? Labor market is still strong. But as long as oil's up to where it is and yields are where they are, it's a headwind to that other part of the market trade.

33:27I understand about inflation. I do. But gasoline is only 3 % of household income of the overall all budgets, if you will. And that is much, much lower than where we were in the 70s when it was much higher. So I think they can handle it. They are handling it. And again, it goes back to what you just said. They have jobs and wages are growing three and a half, four percent. Sure, it's a headwind. We all feel inflation. I get it. I think yields being higher. I get it. We're not having a housing cycle anytime soon, which is why I sold my housing stocks. However, there are a lot of parts of this economy that are very good values.

34:01I think it is the cyclical parts of the of the market that are very attractive because, again, you're seeing really good numbers. I mean, those PMI numbers yesterday, I think that was half the reason why yields actually spiked. Now, let's watch yields and the velocity of the move in yields because that is certainly something that's important. But I think right now, I think that you can continue to own stocks and find some of the values, and I expect a rally into the end of the year. What do you think? Yeah, I think that there's no doubt that the consumer has the desire to spend. I think that there are questions forming now about their capacity to spend.

34:39Really?

34:40Scott Wapner: You look at the recent retail report? If we're talking about a rising rate environment, we can't confirm that we are unlikely to see at least one more hike this year. Just the sentiment shift that that would present, I think, might actually have some of these different credit card issuers, the banks, like we're talking about, the Moynihans of the world, starting to rein that in a little bit, trying to get ahead of where the consumer might be capped out. And if that happens, that flies in the face of the argument. Well, delinquencies and net charge-offs are at record lows, though. I mean, and every one of the big six banks and the CEOs were talking how strong the consumer is and how it has surprised them.

35:16And you see it in the numbers. And we've been saying that basically since we started the recovery from COVID. So we'd say 2021 to now, we've been talking about how remarkably strong the consumer is. Surprisingly, the consumer is every single quarter after quarter. At what point does that hit a wall? I think if we do see a resurgence in inflation that is met with an increase in interest rates, that's where you start to see that. I hear you.

35:40Scott Wapner: We've asked that question for the last two plus years, it feels like. And there's been a resiliency to almost everything, whether it's the consumer, the economy itself or the stock market, for that matter, which has had a lot of stuff thrown in its face. And the windshield wipers just keep blowing it to the side every time. And we're down the road to a further stop than we thought maybe we'd get to. The idea of, you know, it's not a secret, I don't think, as to why money's come back to the mega caps. You feel like you can play the offense of earnings growth that's better than everything else, not as susceptible to issues that arise with rising bond yields, right?

36:16Scott Wapner: Not tapping the debt market every five seconds, despite the fact of the, you know, the obviously the AI infrastructure build out and they're deemed defensive at the same time. Yeah, absolutely. And I think, so I think the question is, are we, you know, likely to see over the next three to six months, institutional investors in particular, but also, you know, ultra high net worth investors think about the risk that they have and reallocate some of that risk. And I think that goes within portfolios in terms of how they want to be positioned for the AI trade next year. I think, Scott, we're going to look at year-over-year earnings growth expectations.

36:52Those are going to be pretty lofty, and there's going to be some hard comparables as we get into 2027. This idea of a savings rate that has continued to decline and that we're not going to get a higher tax refund as well as lower withholding for high net worth consumers going into the first half of 2027. But the challenge is that I think that you just have to be more selective going into this environment. And so I do think that there is going to be an incremental removal of some risk to taking of profits. And I think that Josh's point on being able to lock in and recalibrate to some higher yielding environment to perhaps wait and see, Scott, where this next phase of CapEx goes to and comes from, and some of these concerns around AI safety and security, I wouldn't be surprised to see that positioning.

37:41Last thing is, though, is that Steph is right. We are likely to see some strength in the equity market coming out of the midterms. That's a cyclical trade, a seasonal trade. But I think that it might look and feel a little bit different, a little more defensive, a little more constructive than perhaps some of the speculation that we would have seen six months ago.

37:58Scott Wapner: All right. Well, Steph's putting more money to work. And we'll tell you exactly where next when we come back from this break.

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40:25Well, we're back on Halftime Report. I'm Contessa Brewer with your CNBC News update. New York Attorney General Letitia James sued the crypto-based prediction market platform Polymarket today for allegedly running an illegal gambling operation. James has brought similar cases against rival platform Kalshi and prediction market operators Coinbase and Gemini Titan. Both Polymarket and Kalshi are based in New York. The Senate scheduled a vote in just a little more than an hour on the War Powers resolution that would direct the president to remove U.S. forces from Iran. The House already passed the resolution in July.

40:59It doesn't have any legal force, but it would be a public rebuke of the Trump administration's military actions. And China's president made time for some panda diplomacy during his state visit in the United States. He confirmed today that China will send two pandas, Pingping and Fuxiang, to Zoo Atlanta in a few days. China and the zoo first announced the new arrivals in April, but they didn't provide a timeline then. The pandas will make their appearance less than two years after China reclaimed four pandas from U.S. zoos as diplomatic tensions between Washington and Beijing grew. That's the news now, Scott.

41:33Scott Wapner: All right, Contessa, thanks so much for that, Contessa Brewer. Stephanie has a new move. I told you about that before the break. And it's Coinbase. You bought more. Yeah, I know it's had a nice runoff of its low, but it's still down 12 percent year to date. And what caught my eye is we've seen$3 billion of inflows into Bitcoin ETFs in the past two months, pushing the price higher, which is good for a transaction-based exchange. 50 % of the revenues are transactions. These are the market leader. But I also like the fact that they are switching into more subscription and services as well, which carries higher margins.

42:06So it trades with the underlying price of crypto. I get it. I can't tell you day to day what the price is going to be. But I think that this is setting them up for, the environment is setting them up for a really good quarter. And I want it to have a bigger position.

42:20Scott Wapner: No Clarity Act passage, no problem? No problem, no. I mean, no. I mean, I care more about the underlying price than I do about the regulation, and I think it's going to take a really long time to get any kind of regulation. And in fact, once you do get regulation, maybe you'll have some of the weaker players get removed from the system, but I think we have a ways to go. Okay. Let's talk Okta. The target raised to$220 from$200, Bank of America. They're neutral on the name. Malcolm, you own the stock. And Josh talked just the other day about highlighting in terms of best stocks in the market, cyber.

42:56Scott Wapner: This quarter alone, Zscaler's up 51.5%. Your Octa's up 50%. CrowdStrike's 36%. Fortinet, 17.5%. Palo Alto, 14.5%. That doesn't even get into what's happened this year, which all those are, every one except for Zscaler's up more than 100%. And the question buried in there is, have they all run too much too soon, basically? Or are they finally making up for lost time and kind of growing into where the market should have been paying them some attention before? So a price upgrade from 200 to 220 while the stock's at 210 doesn't mean a whole lot to me, especially while you remain neutral. I think the most important thing to focus on here as an investor paying attention to this is the fact that every single agent deployed across a company's network is expected to need its own identity.

43:45If you think about it in terms of how human employees right now have a username and password, those credentials are tied to me personally. If we're going to take Sam Maltman and others at their word that we're likely to have more agents running around our network soon than actual human employees, that makes the bull case here all on its own. I do, however, think if I'm a viewer watching this and trying to decide whether I buy here or not, it is a good idea to exercise a little bit of buy discipline average into it. Because as you just mentioned, the stocks are 50 percent for the quarter. It's also doubled since January.

44:19Octum talking specifically. So that valuation is definitely pricing it as if all of the agentic tools that we're excited about have been they've actually come to fruition. But they didn't actually roll out many of those tools except maybe four or five months ago. So I think we should cool our heels a little.

44:36Scott Wapner: So, Josh, I mean, how would you address our viewers exactly what Malcolm was talking about? They see the same charts you do. They have the same optimism that you do. But the charts don't lie. The runs have been incredible. yeah i mean all of us on this show have been pounding the table on the cyber theme the market is completely insane three as recently as three or four months ago you could not give these stocks away they were in the igv and so they were caught up in all the outflows from software generally and the narrative like we were doing segments on tv will uh llms replace cyber security Like it was completely crazy.

45:22All right. So now that's changed. The whole narrative now is, oh, my God, this is the only guaranteed bull market within tech for like the next five to 10 years. This is the only area of tech spending, even beyond semis. We know for a fact nobody can afford to pull back on. Now I think that we've seen all these stocks double. Probably the smart thing is to be more discerning. I am not reaching down to buy the eighth best company in the group, which is the thing that the junkies will do. We talked about Sentinel one the other day. Ticker symbol S also has the bad karma of taking Sears' old ticker.

46:01I think now what you want to do is focus on the larger players, because the thing that happens next is the customers start to ask themselves, OK, why are we paying for five different versions of cyber? can we start to collapse and consolidate into one or two vendors? In my view, CrowdStrike wins in that world. So I acknowledge some of these stocks might go up more in the short term, but I'm a long-term investor here. I think the Falcon platform is the one that wins, and so I want to stick with CRWD. This stock has just been on an unbelievable record-setting run for years and years. Now it's going parabolic, but I'm not going to take profits.

46:44Scott Wapner: All right. Well, you got the spotlight on another name today. We'll do that in your best stocks in the market after this break. Yep.

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49:05Scott Wapner: All right, let's do that. Best stocks in the market. It is light is the ticker. L-I-T-E. Tell me more. All right. This thing's been on the list for a year. The stock is in the 930s right now. The all-time high, as you can see, was back in May at$1085. This stock broke out on February 3rd after a ridiculously bullish set of guidance from management. And it really never looked back until it got above$1 ,000. And then in May, it started to fall apart. It has since spent the last few months consolidating, but not giving back much. As you can see here in the chart, never violated that 200-day. And as a result, it's been able to stay on my list this entire year.

49:54I'm bringing it to you now because it looks like we're going to have a challenge of those old May highs. This could be a massive breakout given how long it's been consolidating for. So I like it here, a small position. And then as it breaks that May high, I would double up on the breakout. Remember, the goal of best stocks in the market is not to buy at the cheapest price and then sit there and wait for something to happen. We actually want to buy these things when the setup looks to be a higher reward relative to the risk. We have all the stop loss information in the column at CNBC Pro. This is part of the center trade.

50:33It's going to live or die based on that demand continuing. Those stocks are hot again because what Meta just did was remind people this is not going away. The spending will continue. And now there's actually a revenue opportunity attached in the form of these personal assistant agents. So I like the stock here. But again, I want to add on strength as it breaks out. Lumentum is a very exciting company selling a critical product in the highest growth theme in the entire stock market.

51:02Scott Wapner: You make a good point, and it sort of answers the question that we just asked about cyber names, that just because a chart looks like a stock has moved a ton shouldn't necessarily be a deterrent, even as crazy as a stock move looks, if, as you say, the setup remains positive. Yeah. Look, you look at the biggest winners throughout history. the thing that they all have in common is that after they've already done a 5x or a 10x everybody looks at it and says i missed it and they're probably right like it's not going to 10x again that's not what we're talking about here but just because a stock has gone up doubled tripled quadrupled that doesn't mean it's done going up and we've seen this over the years with the NVIDIAs, the SanDiscs, the Microns.

52:00Like this happens all the time. So what we're not saying is this is going to go from 900 to 9 ,000. What we're saying here is this stock has been consolidating after a massive run and the sellers have been rotating out and replaced by new buyers. Eventually, if and when the buyers overwhelm the sellers and take this stock into a green field where it's never traded before, who's bearish there? Everybody in has a gain in the stock. So we use stop losses because this won't continue forever. But if you want to buy a stock because you think it'll go up, the best place to start is a stock that is already in the process of going up.

52:40And I think that's a really key concept for our viewers and listeners, people who haven't been investing for 30 years, to wrap their heads around. All right.

52:49Scott Wapner: We'll take a break. We'll come back. We'll do finals. track the final stretch of trading today three o 'clock closing bell tom lee courtney garcia chris harvey and goldman's great count on so don't miss us as we see what happens in this market in that last hour josh what's your final trade today utwl thank you very much shannon materials geared to the global industrial recovery tailwinds for this sector all righty Malcolm. Yes, ServiceNow. We just talked extensively about cybersecurity and didn't mention the work that they're doing right now quietly to compete in agentic governance. Thank you very much.

53:28Scott Wapner: And the Linkster. Quantum Services is down 18 percent. It was upgraded by Bernstein today. They have 50 percent backlog growth. I think you're getting an opportunity. There was an upgrade, and I'm glad that you mentioned it because we didn't get a chance to get to it with all this breaking news. See what transpires out of the White House this afternoon. The Exchange is now. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC.

54:14but 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. To view the full halftime report disclaimer, please visit cnbc.com forward slash halftime report disclaimer. Did you know that psoriatic arthritis may progress over time and could cause permanent joint damage if left untreated?

54:43Listen to what it sounds like to be a million miles away.

54:52Trimphaya gusocomab, taken by injection, is a prescription medicine for adults with active psoriatic arthritis. Serious allergic reactions, increased risk of infections or lower ability to fight them, and liver problems may occur. Before treatment, get checked for infections and tuberculosis. Tell your doctor if you have an infection, flu-like symptoms, or need a vaccine. Imagine being a million miles away. Explore the possibilities. Ask your doctor about Trimphia. Tap this ad to see new joint data and learn more about Trimphia, including important safety information.