Inflation Risks to the Rally: How to Protect your Portfolio 9/18/26

0:00At Edward Jones, we believe rich isn't about having life all figured out. It's opening yourself to all the possibilities. That's why your dedicated financial advisor provides long-term planning built around you, meeting you where you are, and helping you get closer to where you want to be. So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich. Edward Jones, member SIPC. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases.

0:43That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. 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.

1:12Thank you, Carl, and welcome to the Halftime Report, everybody. I'm Leslie Figerin for Scott Wapner. today. Front and center this hour, the rally's runway as elevated yields, oil prices, and AI fears raise the stakes for stocks in the weeks ahead. The Investment Committee is ready to break down the next move for your money. With me for the hour, Amy Raskin, Jim Labenthal, Jason Snipe, and Rob Siechen. Let's take a look at the markets right now. Near session lows, the Dow down about half a percent or so. The S &P down a quarter of a percent. The Nasdaq down about 0.2 percent. The 10-year at exactly 5 percent, those yields.

1:49You know, it's been a week. It has been a remarkable week, in fact, especially as we kind of work our way through September. Amy, we were just talking about, you know, the 5 or the 10-year at exactly 5 percent. How would you kind of characterize the implications of yields, the implications of oil prices for equities at this point in time, which really does kind of feel like an inflection? Right. So over the past month, you've had oil up 30 percent. You've had the tenure up 40 bps, which is a lot given the levels we're at. And the market's done nothing. The market's like slightly off its high. So the market's been incredibly resilient.

2:25But what you have seen is momentum slowing considerably. And it does feel like we're going to be in a churn for a while until something breaks one way or another with regards to AI, with regards to all the wars that are going on right now. So there's a lot of moving parts. And now we're going to be in a month where we're just going to wait to see what the Fed does again for another month. So I am sort of sympathetic with maybe they should have gone more earlier and then we can put the Fed behind us for a little while. We can't do that. So we have a lot to worry about. But the market's hanging in there.

2:56Jim, do you think that this backdrop is inherently negative for risk, just given all the cross currents out there? I don't think it's negative for risk, just based on the assumption. And I I think it's a very sound assumption that profits are growing wildly fast. The economy is doing well, 5 % versus the Atlanta GDP. Labor markets are pretty stable. So I don't think that in that condition one has to get negative. However, I think to the point, Amy, that you just made, for the market to have done nothing in light of what's been going on is pretty darn good. I think, though, if we look under the hood a little bit and we say, OK, well, the S &P 500 is where it was in June.

3:32Flat, fine. You know, momentum, as Amy, you pointed out, has come off quite a bit since June. And so that means that other things, as measured perhaps by the equal weight RRSP or the small cap index, have done quite well. So really what this is saying, Leslie, in answer to your question, is it isn't negative, not only because of the fundamental backdrop that I pointed out, but because there's rotation going on. We've talked about this a lot. Clearly, momentum has given up some steam, but there are other sectors that have pulled up the slack. whether that's health care, energy, financials to a certain degree.

4:05I think that's healthy, quite frankly, the broadening of the rally. Well, at the same time, though, Jason, you've got Goldman saying that the AI investment boom has accounted for nearly half of the S &P earnings growth this year and that this tailwind should begin to fade next year, even as CapEx spending begins to grow. So the question I think investors are grappling with is how the earnings driven rally kind of works from here, especially since it has been so tethered to AI working? There's no doubt about it. And to that point, Leslie, 52 % earnings growth this past quarter, right? And the guide for this coming quarter is around 28%.

4:43So it's quite a difference, but still extremely strong. Now, when it comes to kind of infrastructure, AI infrastructure, CapEx, again,$900 billion plan spend this year,$1.6 trillion next year. You know, I think that, to Jimmy's point, the broadening story is an important one as we closely follow other sectors like healthcare, industrials and the like, financials as well. And I think that is a story I'm acutely aware of and focused on as we look into next year. Because I think as it relates to earnings, that will subside in terms of the outsides grow from the AI and AI infrastructure name. So it's really about what are the other sectors doing?

5:24And I do think there's some downstream effects which will impact them in a positive way. Does the inflation stickiness, if it were to, you know, be realized here, you've got Morgan Stanley raising its inflation outlook, expecting two more hikes from the Fed, expecting restrictive policy to weigh on growth in 2027. Rob, does that create an additional headwind for that broadening story? Of course it creates a headwind. But there's some positive things that have come out of this. The Fed is now in a position, as they've reloaded the guns, so to speak, if there is an issue, to be able to address that issue.

6:03It has the tools necessary to do it. I also think the Fed did what they had to do. The market backed the Fed into the corner to have to tighten rates. And, you know, Chair Warsh had to talk tough. This is the best outcome we could have had. Now, when you look at rate hiking cycles, in the last seven rate hiking cycles, markets in the forward nine months returned 9%. That was a normal market. That was not a market with this hyperactive capex in the most important part of the market, which is a 30 % constituent, which is already re-rated. Boy, I like the setup right now that we're typically seasonal weakness, seasonal chop.

6:55You see that right now. When I look at it, I say, OK, what's gotten hit as a result of a possible rate tightening cycle should be getting hit because the reality of it is they're more exposed to rates. There is nothing going to derail this cap and spending except intolerance by the market to accept the debt issuance and accept the fact that these companies are moving from cap light to cap intensive. Guess what? Would you like the other choice that they have to not not do it and fall behind? And so here you have a chance to buy some of the greatest businesses in the world at much more reasonable valuations.

7:39In 25, they were trading at 34 times earnings. Now they're down to 24. You have some of them that have re-rated down to 18 times with visibility like we've never seen before. You talk to the data center builders. The demand is insatiable. Yes, you have not in my backyard. Yes, you have energy concerns. Those will get resolved. I am not worried about AI being derailed and derailing the market. Not at all. I'm not even worried about a Fed mistake because they did the right thing here. Whether your rates going up or not, no choice. So when I look at the landscape, it's not all sunshine and rainbows.

8:24There's definitely issues that can happen. But inflation is transitory. It is completely based on what is happening. in the Middle East right now. We are not stimulative right now. No, we're not. And by the way, this too, we're all clear. I'm glad we have a lot of things to worry about. We spoke on this show yesterday. One more thing. One more thing. And fixed income is finally a hedge to all this. We have been buying bonds like maniacs because we think that story was over. Everybody, we're going to lose control of the curve. We are not losing control of the curve. Actuarial yields are now at a place where they can insulate portfolios.

9:08And now is the time to do that. Yeah, we've seen a lot of inflows into bond funds lately as investors seek yield and some cash sweeping implications there, particularly as it pertains to money market funds. Jim, I know you wanted to say something, and I think it was. I want to extend what Rob's saying, and I like the positivity in what you're saying. And I'm thinking about our viewers. I probably can speak for all of us. I maybe shouldn't. But, you know, look, this is another episode that we're going through in this time period where people are talking about the end of the world, right? AI is going to kill us, yield curve control, the dollar is going to lose supremacy, all these things.

9:41And I don't want to sound dismissive. That's not the tone I mean to strike. I mean to speak clinically that in our long, many decades of doing this business, there have been multiple, multiple, multiple times where clients have called up in on mass and said, oh, my God, the world is ending. I mean, I can And I'm not, again, being dismissive, but think back four years ago, the Ukraine crisis strikes. And now we're talking about global nuclear warfare. Didn't happen. I'm not saying that the world isn't at some point going to end, but it's highly unlikely that the things we're talking about now are anything more than the wall of worry being constructed.

10:15And, Rob, this is what I think you're saying. You want the wall of worry to be constructed so that the market can climb it. And this marching time over the last three months, in my opinion, is setting up for the climb. Jim, do you remember Y2K? What an event. We can do this all day long. We can spend the whole April off talking about times that the world was going to end. Tail risks, but sometimes the tail risks do materialize. Well, I don't know if this is going to be the end of the world for AI, but I disagree that this, I think this is a financially unsustainable arms race for AI dominance that is not going to end well.

10:50You can't argue that higher yields is better for this. It's not. I mean, it's going to raise the cost of capital. prices going up for all of their components is actually raising the bar in order to earn a good return. You have too many players simply competing. I agree, none can stop because they don't want to lose the race. But that makes this all sort of unsustainable to earn great returns in the long run. And these multiples have come down a lot. But have they come down enough to compensate from going from a capital light business to a capital heavy business? Capital heavy businesses usually have much lower multiples.

11:24So she's right in one way, in my opinion, many ways, obviously, but one way in this case, we will overbuild. We will. That is not today's problem. Right. Every investment cycle sows the seeds of its own demise. So the question is how close are we to that demise? And by the way, we're riding a train from here to California. It may crash, but I'm not getting off and walking the rest of the way yet. I can tell you that. Well, that's hopefully you're wearing your seatbelt. But, you know, to your point, we did hear from Bruce Flatt of Brookfield on this show yesterday. And when I asked him what your main concern is with regard to the AI infrastructure buildout, it was not the safety concerns or the slowing of the pace of the models or whole tech pulling its IPO or not pulling it, but delaying its IPO, that's a nuclear provider that's seen levered to this trend, it was compute and the access to energy, and that's still just a supply issue for them.

12:27And as the cost of that rises, that also increases the bar to get a higher return. So almost everything is sort of raising the bar. And we've had, according to Roger McNamee,$200 billion of cumulative AI revenue to date, and we're spending a trillion this year on CapEx. So you have to hope that that the timing matches up and that eventually this trillion dollar market appears. And it's not completely clear to me where that money is coming from. Oh, sorry, Rob. We do have some headlines crossing on Disney and Julia Boorstin has that for us. Julia. Hey, Leslie, that's right. Disney is creating the new role of chief technology officer reporting directly to CEO Josh Tomorrow and is hiring for this new position.

13:12Character AI CEO Karandeep Anand. Character AI is a platform for chatting with fictional and custom bots. Now, Anand was previously at Meta and Microsoft. This move by Josh DeMauro, just six months into his role as CEO, speaks to the value he places on technology as a growth driver for Disney and, in particular, the power of AI. DeMauro is saying, Karandeep has, quote, a clear sense of where technology and creativity meet and shares our belief that technology creates the most value when it helps people do their best work. This comes after yesterday. DeMauro named a new chairman of the direct-to-consumer business overseeing all elements of Disney Plus and Hulu's business.

13:56And with a number of Character AI's technical team expected to join Disney as part of this news, along with DeMauro's commentary about his work to deepen Disney's direct relationships with fans, with Disney Plus as the digital centerpiece of that. You can imagine after this news, Disney might want to add interactive characters on Disney Plus. So, Leslie, we'll have to see. Fascinating. Tomorrow, wasting no time there, Julia. Thank you. Jim, you own Disney. Yeah. You like these new moves? Well, I'm intrigued by them. It's too new, too breaking of news for me to say that I like or dislike. But I'll tell you what initially my thoughts are, is that there have been a couple of controversies or conflicts going on with Disney over the past many years.

14:41One is between the cost elements of the creativity and the other is between the creativity. It costs to create, but there have been some CFOs over the past several years who have wanted to clamp down on that. The other aspect which goes hand in glove with this is what are we doing about AI? We can't put our heads in the sand and say that we're just going to be making animated movies by hand. So there has to be a way to basically co-opt AI. And there have been some attempts by Disney to do that so far. They've kind of fizzled a little bit. There was an open AI partnership that really didn't go anywhere.

15:14For those of you who own the stock, like me, where I end up on this is that this is still a very cheap stock. And even as it goes through a little bit of back and forth here about how it's going to engage with AI, I think it's worth hanging on to. Rob, I wanted to circle back to you because I cut you off for that news alert. I know you had some comments about the AI build out and you're not too concerned. We'll skip it. We'll skip it. We'll stick in the media space. Netflix getting a downgrade to sell today at Wells Fargo. Jason and Rob, you both own that one. Yeah. Yeah. So I think for me as it relates to Netflix, I mean, it's been a tough story ever since kind of the Paramed deal didn't happen.

15:53Right. So the stock's down 20 percent so far this year. Engagement is a real story. I think YouTube, short-form media is really taking center stage, is starting to pull, even though I believe Netflix is the streaming winner. There's no doubt about that. You know, licensing for sports is very expensive. It's obviously very expensive content. I think they're going to continue their foray there. And I also think they're going to double their ad revenue. I think that's a place I'm strategically focused as it relates to Netflix. And I think the content slate will grow over time. So, you know, I hear Wallace Fargo on this downgrade, but I think that the future is brighter going forward.

16:35Rob, what do you think? I think it's a matter of what content comes out. I think there can be multiple winners in this space. The beauty of right now is that you've been able to add to the name after it's re-rated. Historically, you've been paid for that. a nice hedge to the other side of that is also owning YouTube, which we own through our other ownership stakes. So I think this can be more than a one-horse race. They're still clearly the dominant player in the space. And I think, as Jason has said, super opportunity within sports that I would look at this as a way, hey, can I get this exposure more cheaply than I've been able to get it in the past.

17:18It's about the eyeballs that they have and the subscribers that they have. You can always monetize that. I feel very similarly about Meta and the engagement with the ecosystem. Yeah, well, shares of Netflix down about 24 % year to date. We are still keeping an eye on tech with the Max 7 ETF hitting a new high today. The group being led by Apple this year. The iPhone 18 Pro and Pro Max go on sale today. It's the first big sales test for John Ternus as CEO Mackenzie Cigalos has been following this story, Mac. Hey there, Leslie. So Apple using the iPhone 18 cycle to solve three problems at once, supply, margins, and the seasonality of its revenue.

18:02Instead of launching four new iPhones together, it's staggering them. Pro and Pro Max now, the foldable duo next month, and then the more budget mainstream phones are expected this spring. That eases pressure on a supply chain already dealing with expensive component constraints at a time when Apple reportedly just agreed to pay Samsung even more for memory starting early next year. It also gives Apple another major iPhone selling window next year instead of loading so much revenue into the holiday quarter. And the mix gets more expensive in the process. The entry point for a new iPhone on sale today is$1 ,200, helping lift average selling prices as Apple tries to protect margins.

18:41But the new Apple upgrade leasing program softens the hit. You can get the 18 Pro for about$35 a month. The trade-off is that some buyers may simply wait for the lower-priced phones coming this spring. And then next month comes the bigger swing, the Duo that starts at$2 ,000, scaling all the way to 3 ,200 with two terabytes of storage It's Apple's first foldable phone and the clearest test yet of just how far the company can push customers up market. Leslie? Yeah,$2 ,000 for a phone, Mac. You know, what seems to be kind of the consumer response to just the price tag itself? And does that leasing program really seem to solve for some of the concerns around the sticker price?

19:26It does take the sting out of it, right? I mean, you look at the, to this point, you've looked at monthly installment plans either through the carriers or buying it outright. So I was comparing the prices today on the 18 Pro, and it's$50 a month if you want to purchase it,$35 for this leasing program. So that certainly takes away some of the scare factor when you think about the pricing. And what I will say about the foldable is they're very much serving this up as an additive phone. So something where you'd buy the 18 Pro, but then you'd have this as a second phone. That's where this whole handoff where you can have the same number across two phones comes in.

19:59And also, this is typical Apple playbook, right? The foldable market, it's expected to grow by 40 percent next year, according to CounterPoint estimates. This is a market that Samsung has been in since 2019. They're on their eighth generation of the phone. So Apple kind of waits on the sidelines. And then you've got IDC modeling for them to sell six million of those duo phones this year, which would already put them at 25 percent market share. And yes, it's an inarguably much smaller market than the overall set of smartphone sales, some 23 million against 1 billion. But you have to think maybe a rising tide lifts all ships here with Apple getting into the market.

20:33I just tried out this phone last week down in Apple Park, and it was incredible. I've looked at many foldable phones out on the market today. I've not seen anything like this in terms of no crease in the phone. It's very impressive. Yeah, I mean, just the pictures from where I sit are impressive. I can't imagine holding it as well. Mackenzie, thank you so much. Everybody here owns Apple. You're all nodding. Everyone seems happy with what they've seen. Amy, we'll start with you. Yeah. No, look, Apple's not cheap anymore. It's had a really good year. It's leading the MAG7. And I think that tells you something.

21:07I actually, we own the stock. We still like the stock. We're holding it. I'm not sure I would be adding right now, but I think Apple's earnings are incredibly stable. They're an incredibly good steward of capital. They're one of the few MAG7 whose CapEx has not been blowing out. So I like that a lot. And I think they have pricing power. I think they're going to get this prices. They have an incredibly loyal consumer base. And I keep watching for any competition or anything that's going to knock them off their throne. And I don't see anything yet. Rob. Nothing's knocking them off their throne. I don't think you're going to see it.

21:41And here's why. Short term, it's going to trade around the rich valuation, the healthy fundamentals, the lofty expectations, everything that we know. Long term, Apple owns the customer. Period. Full stop. No different than the wireless networks. The benefit in all of this eventually moves from the infrastructure layer to the application layer. and the application layer is sold into the customer, Apple owns the customer, they will benefit. And timing aside, you can't be underweight, Apple. You can be market weight, you can be slightly overweight at times, but being underweight with that balance sheet, fortress balance sheet, tons of innovation, owning the customer is a very dangerous proposition for active managers.

22:36If I was a valuation person alone, I would be underweight Apple right now because, as Amy said, it's expensive. OK, but you can't ignore that. Yeah. 36 times forward. You can see on your screen. Talk to me. Talk to me. I like that jacket. I told you that when we started. I don't like your call that you can't be underweight this stock. I trimmed it in half back before the last earnings. I'm sorry to hear that. This is what makes a market. And we can agree on the jacket, but not a great look. I do think you have to have a core position, right? For the record, I'm underweight as well. I do have a big position, but it's not at the market weight.

23:16I am neutral to be canned. That's fine. I mean, look, it is a question about valuation. All of us can acknowledge the quality of the business itself and what you're saying about owning the customer. That's, of course, not news, right? They've owned the customer for quite a long time. The new lineup is awesome. I'm going to look for that duo, and I think the price point is actually very attractive compared to what was talked about. $2 ,000? Okay. All right. But I do think at 35 times forward earnings, historically, this has been, to use Amy's term, a level at which it's hard to add. So, you know, own that core position.

23:54But this has been a stock that over the years has made a lot of sense to have a trading position in addition to the core position. Look at how much he's smiling. He wants to come at me hard. I do. I do. Just go. I mean, my point's made. So, Jim manages money for individuals that are taxpayers. Oh, come on. No. Oh, hold on. We've had this conversation on the show. The half that I own has a$15 cost basis. I know. I'm never going to sell it. Okay, good. So, being able to be in this stock, my long-term call is different than my short-term call. My long-term call really has to deal with the application layer on top of AI.

24:39And that's where I really think the opportunity exists. Because in the infrastructure layer, and this is why everybody gets so concerned with the build-out, typically we overbuild the infrastructure layer and the benefits accrue to the application layer. So, and again, Apple will own that. If you have an app that sits on top of, you know, any AI-based technology or data center, what you're going to end up doing is doing it on something that allows you to have that interface. And Apple owns that customer. Every app is going to have to pay them to do that. So buy calls more long term about not being able to be not in it.

25:21And so that's my comeback. You can sell and get back in if you want, Jimmy. Dear friend, you said you can't be underweighted. Of course you've got to be in it. Well, I think we may have a little bit of support for Jim's take here because halftime committee member Bill McRupe is actually trimming Apple, and he joins us now on the phone. Bill, I'm sure you were listening in to the debate we're having here on the desk. What was your rationale for trimming the stock? Hi, Leslie. I'd like to pick this up with talk about the valuation that Rob just mentioned. We're trimming it in a concentrated portfolio because it's at the upper band of its historical valuation.

26:01It's two standard deviations above its median valuation. We leaned into it. Now, this is on Jim's side. We leaned into it in May and June. We traded Apple. We went pretty heavy into it. It got to a 14 % weighting. So here's the thing. I see in the way we build our portfolios with the idea of outperformance, especially with concentrated portfolios, we see two risk-on-thrusts per year. One of those risk-on thrusts is going to be led by the largest names in the market. Apple's already up more than 20 % this year. And with this little bit of exhaustion on the valuation side, we're trimming it back from a 14 % weighting in this concentrated portfolio that only owns 10 names to an 8 % weighting.

26:39What we're doing is we're then leaning into other names that we think will outperform right here and help drive that. You mentioned that MAG-7 ETF that's breaking out right now. We want to own the names more heavily that are going to drive the breakout in that Mag7 ETF. We're buying more NVIDIA. We're buying more Broadcom. We're buying more Amazon to lean into that right now. Interesting trades there, Bill Burr. Thanks for joining us by phone today. Up next, big news out of Berkshire as Warren Buffett steps down as chairman. The committee's take is straight ahead. Halftime is back in two minutes.

27:39We'll be right back.

27:45Hey there, I'm Kat. I'm a college athlete. I was diagnosed with ankylosing spondylitis, which caused back pain and stiffness every day. With Cosentix, I'm able to stay active. Cosentix Secukinumab is prescribed for adults with active psoriatic arthritis, ankylosing spondylitis, or non-radiographic axial spondyloarthritis. Available in both IV infusion and self-injection. Don't use if allergic to Cosentix Get checked for TB before starting Increased risk of infections and lowered ability to fight them may occur Like TB or other serious bacterial, fungal, or viral infections Some were fatal Tell your doctor if you have an infection or symptoms Like fevers, sweats, chills, muscle aches, or cough Had a vaccine or planned to Or if IBD symptoms develop or worsen Serious allergic reactions and severe eczema-like skin reactions may occur Learn more at 1-844-COSENTIX or cosentix.com Move and feel better.

28:41Ask a rheumatologist about Crocantix.

29:09That's C-U-O-R-I dot com slash F-O-O-T-Y. Exclusions apply. Visit the site for full details.

29:34We're back on the Halftime Report. I'm Seema Modi with a CNBC News update. Governor Gavin Newsom issuing an executive order today that calls for stricter AI guardrails, including a kill switch for rogue AI systems. His order sets up a panel of experts that will come up with safety regulations for the industry over the next two months. Newsom blaming President Trump and Congress for failing to rein in on AI. President Trump's Board of Peace will meet on the sidelines of the UN next week to discuss the future of Gaza. The Trump administration established the board last year to oversee Gaza's post-war governance and reconstruction.

30:06But since the ceasefire and release of hostages last fall, the U.S. peace plan is frozen. Hamas still maintains weapons and governance of Palestinian-controlled areas. Israel holds more than half of Gaza's territory. And civil rights groups suing the Trump administration today to block armed agents from showing up to polling sites. They argue the Trump administration's suggestions it could send agents to polling sites violates the Voting Rights Act. Leslie, that's the latest. I'll send it back to you. Seema, thank you. Warren Buffett is stepping down as chairman of Berkshire Hathaway today, being succeeded by his son Howard Buffett.

30:41Shares have underperformed this year up just about 1%. Jim and Amy, you both own Berkshire. It feels like a passing of a torch that's been a long time coming. But still, does it signal anything just about the future of Berkshire and the direction it's headed? I think this has been a long time coming. And I think some of the underperformance this year is probably due to the management transition changes. But I also think this is just not Berkshire's market. When you have a strong momentum market, which we did until a couple months or weeks ago, Berkshire is not going to usually lead that market.

31:17If we do have a downturn, I expect Berkshire will continue to do its job and it will get access to these great deals. I mean, when you have a war for capital, which we have going on right now, Berkshire, which has a lot of capital, should win. in the longer term. So we like this as a longer term holding. I'm not uber disappointed in what the stock has done this year. I think I was on the show in April and it had really had a tough couple of months. It's come back from since then. So we're going to continue to hold it as a multiple. It's actually not very high compared to its own history. So we like it here.

31:54That was a great synopsis. Totally agree with you. I want to just address Warren Buffett and his stepping down from the chairman, amongst the many positive attributes of Warren Buffett, he has always focused on proper corporate governance. And I believe that he would agree that proper corporate governance is difficult when you've got the former CEO as the chairman. It's hard for the new CEO to really breathe and flourish in his own style when the former CEO is the chairman. Now, I know this is a very unusual situation. This is Warren Buffett. But I think This is very much in keeping with his standards for corporate governance to step down and let Mr.

32:33Abel do his thing. Well, former CEO as chairman has been kind of the playbook lately for succession planning. I think that was the case at Disney. Jamie Dimon has said when that time comes, he will ultimately. And we saw that at Morgan Stanley, too. And it's kind of that year timeline where they are chairman and then kind of sail off into the sunset. I think it's a bad idea. And the last thing I'm going to do is speak for Warren Buffett. But just knowing his I mean, this is not just Jimmy speaking out of the blue. There's a lot of people who would agree with that assertion that if you've got the former CEO as the chairman, it's hard to kind of look.

33:04What if Mr. Ava wants to initiate a big dividend? Right. That would go against what Warren Buffett has always said. So, you know, it's hard for him to do that with Mr. Buffett in the in the chair position. But Buffett will still be a big shareholder. Yeah. So could potentially wield influence. Yeah, he is. He's not completely stepping away. Let's talk about financials, because week to date, they have been the biggest underperformer. There are a few reasons why we have seen financials underperform this week and move lower. We had the Barclays Financial Services Conference, where we heard some management commentary.

33:36We had, obviously, the Fed decision, which the big banks in particular took a decline on that news and during the press conference. How do you see the setup for financials from here? Do you think it was kind of a knee-jerk reaction this week? Rob? Yeah, I mean, I think there's banks. There's banks that are engaged in capital markets activity as well. There's deposit-oriented institutions. There's those that are going to benefit from the M &A cycle as well as the capital issuance cycle. So I think there's going to be haves or have-nots. The JP Morgans, the Morgan Stanleys, the Goldman Sachs, I think are going to do incredibly well in this environment.

34:19As you're seeing a lot of deal activity, you're seeing a lot of capital market raises. You're seeing a lot of volatility in fixed income, which creates an enormous opportunity on their trading desk. These guys make markets, but they also take positions. And they happen to be pretty good at it. So I think this was more of a scare. Do I think net interest margin spreads may get compressed a little? But it depends on which business is most exposed to that. So try to separate. And not all of them are created equal. So I don't think you can just brush it as financials. Go ahead. Oh, I was going to say, Jason, you own Goldman, which is the biggest laggard week to date.

35:07on mostly the comments from CEO David Solomon, where he talked about some guidance, gave some qualitative guidance, really, about the bank's fixed income currencies and commodities trading business to be slightly softer in Q3. We've seen some volatility in particular with that business in recent quarters. So what do you make of that guidance, especially given some of the commentary from peers, some which believe trading will be weaker this quarter and others who say it's actually fine for them? Yeah. So obviously the first part of the year for Goldman was really strong. It's kind of slowed down over the last several weeks.

35:44The commentary, you know, a little bit of concern. I think fixed income training will be fine. You know, so I continue to believe that Goldman is the best of breed in the IB. And I think they will kind of get through whatever softness they are guiding to in the next quarter. You know, the other name that we own as well is Apollo, like to Amy's point earlier with rates and kind of the cycle that we're going through, you know, Apollo's gotten caught up in that whole alt manager sell off. You know, so I do think, you know, realizations, raising capital will probably get a little bit tougher. But companies like Apollo, which I believe are a little bit more diverse than typical alt manager, like I really like their insurance business.

36:31So I'm still going to hold these names. Goldman and Apollo are kind of our favorite picks. Very different companies, but that's kind of where we are, where I stand, kind of on the space that we're involved in. Yeah, reflection on the expectation that credit quality will hold up. Mike Santoli's market memo is next. At Fanatic Sportsbook, we're talking real fan cash on every bet. Spend it on jerseys, tickets, collectibles, and more. Rewards hit different here. New customers can bet and get up to$1 ,000 in fan cash over 10 days. Fanatics, the only sportsbook to reward every bet. Must be 21 plus. Gambling problem?

37:06Call 1-800-GAMBLER or 1-800-MY-RESET. CT, call 888-789-7777. MA, call 800-327-5050. NY, call 877-8HOPE-NY. MD, visit mdgamblinghelp.org. Offer now available in all states. Terms apply. See Fanatic's app for details. Hey there, I'm Kat. I'm a college athlete. I was diagnosed with ankylosing spondylitis, which caused back pain and stiffness every day. With Cosentix, I'm able to stay active. Cosintix Secukinumab is prescribed for adults with active psoriatic arthritis, ankylosing spondylitis, or non-radiographic axial spondyloarthritis. Available in both IV infusion and self-injection. Don't use if allergic to Cosintix.

37:46Get checked for TB before starting. Increased risk of infections and lowered ability to fight them may occur. Like TB or other serious bacterial, fungal, or viral infections. Some are fatal. Tell your doctor if you have an infection or symptoms like fevers, sweats, chills, muscle aches, or cough, had a vaccine or planned to, or if IBD symptoms develop or worsen. Serious allergic reactions and severe eczema-like skin reactions may occur. Learn more at 1-844-COSENTICS or cosentics.com. Move and feel better. Ask a rheumatologist about Cosentics. Jimmy Conrad here, and I have something to put on your radar.

38:22The core short from Viore. Because after getting my first pair, I was hooked. They work for everything that I like doing. Soccer, tennis, hoops, and lifting weights to them a few. And they're unbelievably comfortable, which is why I wear them doing everything else. They are designed to work for whatever your day throws at you. For our listeners, they're offering 20 % off your first purchase. So head to viori.com slash footy. That's V-U-O-R-I dot com slash F-O-O-T-Y. Exclusions apply. Visit the site for full details.

39:05We're back with senior markets commentator and overtime co-anchor Mike Santoli with his market memo. Mike, what are you looking at on an eventful Friday of an eventful week? It has been eventful, Leslie. I think that most bulls anyway are looking to escape the week without further damage. For most of August, as the market kind of stalled out, there was a lot of focus in the S &P 500 on a level of 7620. That was the high from early June. And we kept in that range above that. For most of the month, we actually popped below there in the Fed reaction on Wednesday. We recovered yesterday. Where do we sit right now?

39:43Right on that line. So I do think that this market is a little bit indecisive and noncommittal because of the wear and tear that's occurred on the cyclical parts of the tape. So consumer discretionary not traded well this week with rates going up. You obviously have industrials also giving back some. You guys were just talking about banks. So whether this is, again, going to be one of these kind of rolling, stealthy internal pullbacks that then resets the market and sentiment gets subdued and we can launch higher from here to then try for new highs? Or is this the early stages of a breakdown? I think that still remains the debate right here as we're going to stay in suspense even about an October rate hike.

40:24And obviously, 10-year Treasury yields of 5%, oil not going down anymore is kind of all you had to know as to why yesterday's rally did not see follow-through today. Yeah, macro backdrop certainly in focus even more so after this week. Good questions, Mike Santoli. We appreciate it. Thank you. Coming up, a big win for On Holding as shares trying to turn around their worst year since 2022. The committee's take on the retail trade is next.

41:06Welcome back. We're watching On Holding, giving back earlier gains after signing soccer superstar Kylian Mbappe away from Nike. Both stocks are down big this year. Jim, you used to own On Holding. Is this the type of news that would get you back in? No. But I mean, I want to find a reason to get back in, but I'd need to see a more sustainable growth rate in earnings than what we're seeing right now. This was a great stock for a long period of time, and it traded at a very premium multiple because of it. It has now come down to well below the market average, very much value territory. And that's on the basis of earnings estimates that have come down.

41:43I think the shoes are fabulous. I think the apparel is fabulous. Nonetheless, the earnings are not good enough. So apparently, you know, I'm in the minority opinion as far as the quality of the goods. And until those earnings estimates start going up, this is no touch. What is it, Amy? Is it just too competitive? Is it? There's a lot of competition out there and the consumer is getting stretched. And the rise in interest rates aren't going to really help right now. So you have the wealth effect that has been supporting the consumer. But I think it's been about 18 months where real income has been negative for the most part.

42:16So we've kind of bounced up and maybe dipped positive or touched positive for a month or two. But you're seeing higher gasoline prices, higher mortgage rates. It's just not a great environment for the consumer right now. What do these companies need to stand out? Well, listen, I think Nike's crafted a niche. You know, we're sticking with soccer. They have Haaland. They have Ronaldo, Messi's with Adidas, Mbappé's on now. So I just think these models, we went through a period of time where they brought to market something new, whether that be Deckers with their Hoka or Ron Holdings with their shoes, and it kind of forced Nike to wake up.

43:05I think this has always been a branding business, but you also need a very strong consumer. in the lower end of the K is very stretched on the consumer side. I actually think you need to get inflation in check. You need to get real disposable income up a little bit, and the incremental dollars will flow to those that have made investments like this. But, you know, that's going to take some time. Now is not that time. Yeah, there was a piece in the Wall Street Journal this morning about just everything that people spend money on is higher going into the midterm elections, and that leaves less for discretionary spending.

43:41Up next, AI stock swings in your 401k. We're breaking down the risk and the reward coming up.

44:00Tech has had a tough week amid new concerns about the pace of AI development, capacity constraints and safety concerns. For millions of retirement savers, the AI trade may already be inside their 401ks. Our Sharon Epperson joins us now. Hi, Sharon. Hi, Leslie. You know, even if you don't own an AI stock or an AI-themed fund, market swings may still affect your 401k. Five tech giants, NVIDIA, Apple, Microsoft, Alphabet and Amazon account for about 30 percent of the S &P 500. That doesn't mean an S &P 500 fund is not diversified, but it does mean a handful of mega cap stocks can have an outside effect on returns.

44:41That's because AI can show up in companies that supply chips, power, data centers, and other infrastructure for the AI buildup. And that exposure can also show up in target date funds. That's the automatic default option in so many 401k plans through stock allocations. If the AI buildout slows, investors could see more volatility, but financial advisors stress that AI-linked stocks are not your entire portfolio. So what should 401k savers do now? Look beyond the fund's name and check its top holdings. Rebalance if you're overweight in one area. Consider portfolio bucketing investment strategies, keeping near-term retirement spending and safer assets like cash and bonds while giving growth investments, including volatile stocks, some years to ride out market swings.

45:28And keep your retirement goal in mind, Moving to a more conservative mix may reduce volatility, but it could also mean you need to save more to stay on track. The bottom line is know what you own, know your risk, what the risk that you're taking and make a long term investment decision for your retirement savings based on not short term volatility, but what those goals are. For more retirement saving strategies, subscribe to my Money 101 newsletter. Use the QR code on the screen or go to cbc.com slash Money 101. Leslie. Sharon, thank you. Jim, I guess someone say on the flip side, you want to be exposed to AI because that's so much of the economy right now.

46:08Well, you certainly did in 2023 and 2024, right? I mean, part of what we're talking about here is 401ks and their limited choices in 401ks. But the S &P 500 is probably going to be in every one every 401k program. So if you were in the S &P 500 2023 to 2024, hallelujah. Now, since the middle of 2025 through the current day, we've had a little bit of a broadening of the rally. I think it's going to continue. So what I say to the viewer is look in your program at what the alternate choices are. Maybe there's a value stock, international stock fund. Maybe it's a small cap stock fund. Maybe the equal weight S &P 500 is an option.

46:46But look at some things that you can broaden your exposure along as the rally broadens. All right. Thank you, Jim. Stay with us. Final trades are coming up.

46:59We're back with Final Trades. Rob? Broadcom, AVGO, up relatively little year to date. It's re-rated a bit lately, 60 % revenue growth this year, 60 % next. I think it's a relatively attractive valuation at 20 times. Jason? Rista Networks data center networking is still extremely robust. Jim? Well, based on what Jason just said, Cisco Systems. This has been a winner all year, and I think the last couple of months of consolidation sets for the next leg higher. And Amy? We like Itau. It's a relatively new holding in our portfolio. It's a little risky with the Brazilian election next month, but nine times earnings.

47:42And if the election goes the right way, we think there's a lot of upside. All right. Just looking at the markets, we're coming back a little bit from what we saw earlier in the hour, down about 0.3%. That does it for Halftime. The Exchange starts right now.

48:23as 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. To view the full Halftime Report disclaimer, please visit cnbc.com forward slash Halftime Report disclaimer. Hey there, I'm Kat. I'm a college athlete. I was diagnosed with ankylosing spondylitis, which cause back pain and stiffness every day.

48:54With Cosentix, I'm able to stay active. Cosentix Secukinumab is prescribed for adults with active psoriatic arthritis, ankylosing spondylitis, or non-radiographic axial spondyloarthritis, available in both IV infusion and self-injection. Don't use if allergic to Cosentix. Get checked for TB before starting. Increased risk of infections and lowered ability to fight them may occur, like TB or other serious bacterial, fungal, or viral infections. Some were fatal. Tell your doctor if you have an infection or symptoms like fevers, sweats, chills, muscle aches, or cough, had a vaccine or planned to, or if IBD symptoms develop or worsen.

49:31Serious allergic reactions and severe eczema-like skin reactions may occur. Learn more at 1-844-COSENTICS or cosentics.com. Move and feel better. Ask a rheumatologist about Cosentics.