Rising Yields & Rally Risk: The Investment Committee's Strategy 10/14/26

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1:00I'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.

1:15Thank you, Carl and Mike. Welcome to the Halftime Report. I am Frank Holland in for the Judge Scott Wapner. Front and center at this hour, higher yields is a hotter than expected inflation report, raises rate hike odds and puts pressure on stocks. The Investment Committee is right here to debate the next move for your money. With me for the hour, we have Joe Terranova, Carrie Firestone, Liz Thomas, and Steve Weiss. We'll be along very shortly. Before we begin, quick check of the markets. You can see a lot of red up here. The Dow pretty close to flat, fractionally lower. The S &P down almost 1%.

1:45The NASDAQ composite down 1.3%. The NASDAQ 100 down about a similar level as well. The small caps, the Russell 2000 down over 1.5%. And we've got to take a look at bond yields right now. Right now, kind of close to multi-decade highs, still a bit lower than the levels we saw just in the last two weeks. The two-year right now at 4.86. The 10-year, 5.25. And the 30-year at 5.57. And that's where we start our conversation. Joe, I'm going to turn to you. Are these rising rates, again, at multi-decade highs, are they a threat to the bull market that just celebrated its fourth birthday? Look, I think that yesterday, to begin the show, Scott asked me a fantastic question.

2:26And what I said was, I believe this is an unhealthy market because we're relying on a very small, concentrated basket of stocks to carry us and carry us through the earnings season. Unfortunately, to Scott's question, rising yields present the challenge in terms of accessing the debt markets to fund the build out for AI. And when Scott asked the question, he said, well, what if that ultimately becomes an impediment? I said, well, we're already here. I didn't make that up. You saw what was building over the last several days was some uncomfortable trading in the high-yield market for tech companies specifically like CoreWeave.

3:10We could show CoreWeave, which is down 15 % today for the equity, but you're looking at the bonds trading on 80 cents on a dollar. That's troubling for one of the original neoclouds that is so reliant on the debt market. So it's spilling over into Oracle. I think it's one of the reasons why the market is so soft today. And I think it's something that you have to give consideration to in a market environment where it's just this small group of stocks that's carrying us higher. Yeah, the concentration risk is something a lot of people put notes about. We're going to get more on tech coming up just a bit later in the show.

3:47But, Kerry, I want to ask you the same question. Is this rate situation, is this a threat to the bull market again, four years strong as of right now? Well, it's not clear, Frank, that it's a threat to the bull market if you're looking over a long period of time. But let's just look at what's happened since the end of March, just since the end of March. So we're looking at seven months, six and a half months. We've got a couple of charts here. The S &P is up 19 and a half percent. This is when we had a 5 % drawdown because of the price of oil, the war, some fears about AI and valuations. Market came down 5%.

4:23Markets up 19.5 % since then. And if you look at what's happened with some of these stocks, of the MAG babies, Alphabet up 34%. Sorry, 30%. Apple, 34%. They're all up in the 30 to 40 plus percent range. So we've had a tremendous move in technology and the S &P as a whole in many parts of the S &P. Now, recently, that's been weaker. So let's not look at this as anything other than we've got high inflation, we've got higher rates. Yes, the market has had this enormous run. Maybe we're a little ahead of ourselves. There should be some reaction to the market because of interest rates. And if it were to come in 5 % to 10%, that would be healthy, in our opinion.

5:13All right. So you're you're seeing a healthy pullback with something to be something you would welcome. Yeah. But the fact that the pullback would probably come from a lot of names that are driving their earnings strength that we've been seeing. Wouldn't that also be concerning? I mean, how could how could it be good on both ends? Oh, I think that it would be reasonable to expect that the earnings we hear about two weeks from now are the ones that matter. Nobody really cares that much, unfortunately, about what's happening with financials. And then we'll talk about other sectors of the market.

5:41What they really want to know is what happens with the Max 7 and with the big chip companies. So if they come in, and remember, the moves have been extraordinary. I think it would be better if it resets the market somewhat lower. I do think people have concerns surrounding the financial sector. Because myself and others came into the year from the perspective of how do you want to position overwhelmingly bullish to owning the financials. Individually, I own personally, I own JP Morgan. So you have to acknowledge that not so much the results, but the reaction to some of the earnings is somewhat troubling from the banks.

6:25And also, I think in the start of the year, at least, people saw financials as a direct beneficiary of the strength of tech. So if tech becomes weaker, then I think that may change the thesis when it comes to financials. But Liz, I want to give you a chance to WAN. Can I bounce the MAG7 topic off of you very quickly? BTIG's Krinsky came out with the note saying MAG7's holding things together. But for how long? Question mark on that. MAG7's the last cohort of stocks that are important to the S &P that hasn't shown any weakness, according to the note. Of course, that's not counting today's action.

6:54It's also the group that's the most widely owned right now for their perceived safety to rates and geopolitical risk. But again, as Joe's pointing out, we're seeing some parts of tech move lower on higher rates. Always hard to pick a fight with new highs. But if this trend begins to reverse, that's likely what causes the S &P to finally see some sustained weakness. It's emblematic of the concentration that Joe referenced. We're back into this concentrated game of a handful of stocks leading the broad market higher. So on an index level, everything is going to look OK. But we're not broad anymore.

7:26And we still have a lot of stocks that are under pressure. And I am absolutely in the camp that I I don't like how financials are trading here. And earnings were OK. I don't know that I feel like they were good. In fact, I'll say I know I don't feel like they were good. I think they were mixed. And I think there were maybe some surprising disappointments in the earnings reports and some of the nuanced points and even some of the comments from CEOs from the big banks. So there are some things that changed in the environment for financials. We're having a slowdown or at least a concern over a slowdown in deal flow.

7:59And that took a decent amount off of names like Goldman Sachs and some of the other ones that are really involved in the IPO market. But I think the bigger concern here for me, and I talk about this a lot and I was saying it going into financials starting to trade a little bit more pressured, is that I look at financials to either confirm or deny the cyclical nature of the economy, the cyclical nature of the market. And right now they're not confirming it. They're confirming that we're in a rough patch, that things are not really going all that great. And I think that it's very possible that through the midterms, we stay in this sort of rough patch.

8:33I think there's a lot of headwinds that the market is trying to face right now and investors are trying to digest. And not many of them are showing any foreseeable solution. So I think through midterms, we're still struggling. Towards the end of the year, I think there's a big possibility, if not probability, for a relief rally. Yeah, I think where you have some concern with financials as well is there's three stocks I would look at today. I would look at Blackstone. I would look at KKR. I would look at Evercore. Each one of those private equity names, they've rolled over once again. I think in the case of Blackstone, middle of August, you were talking about a relief rally up to 150.

9:09It's rolled back over once again. So, look, it's not like I'm coming on the show. I'm saying I'm bearish. I'm not bullish. I'm not bearish. I'm just acknowledging based on the positions that I have. I don't feel so comfortable today based on what I'm seeing in the reaction in a lot of financials. And then certainly as it relates to situations like Corweef and Oracle. You know, to Liz's point, some of the commentary from the C-suite in general, Jamie Dimon said client activity moderated somewhat during the quarter. The CFO actually put a bit of a finer point on it, saying that things slowed down in the second half of September than the CFO of Wells Fargo, saying trading activity slowed meaningfully in September.

9:43So, I mean, you're hearing some comments from the C-suite that I'm sure seems, not sure, but it seems like are weighing on the financials today. I want to get to a move in the financials, actually. Bank stocks being led to the downside by Bank of America after a Q3 revenue miss. Halftime committee member Stephanie Link owns it and is making a move in the name today. She's joining us by the phone. Link, great to see you as always, or at least hear from you. What move are you making? Hey, Frank. Yeah, I'm trimming pretty big time Bank of America, and I'm adding to Wells Fargo. So I think you want to be very specific in terms of what you own in the banks.

10:15And quite frankly, Bank of America was very disappointing. This is excluding the charge, which was disappointing, too, but it's a one-time thing. But the quarter itself, I mean, it was all right on NII, net interest income, and net interest margins. Loans and credit was all good. But fee income fell 13 percent, trading total revenue down 5, equities only up 11. And that compares to J.P. Morgan up 49, and even Citigroup up 14. And FIC was very disappointing, down 17. Again, J.P. and Citigroup outperformed. So I think they're losing a little bit of share. And this is just one quarter. It is very volatile per quarter, but I just feel like there's a better opportunity in Wells Fargo at this point after their quarter.

10:56I understand why the quarter was soft, because the core earnings beat, but it was mainly taxes. Their PPNR, pre-provision, net revenue was a little softer. But the story is progressing, as I hope. The key to the stock working is stabilizing the net interest income and net interest margin. That has been a drag on the stock. and we saw improvements in both areas in the third quarter. So NIM grew 2.4 basis points. That's down versus down 13 basis points in the first quarter and four basis points in the second. Their guide was good for net interest margin. Net interest income also is stabilizing. And so now you can focus on growth.

11:35And the example in growth in their quarter, the average loans grew 11 % in CNI, credit card, and auto. Expenses in line. They've got a great ROTCE path of 17, 18 percent. So I think you want to take advantage of this weakness in this particular stock, because I do think that the CEO is doing a really commendable job going from defense to offense. Yeah, Wells Fargo down about 1 percent today for the year, down more than 14 percent. Steph Link, trimming B of A, adding to Wells Fargo. Link, great to see you as always. Thank you. Thank you. Carrie, I want to come over to you. No ownership of Wells or Bank of America here on the desk, but do you have some thoughts about Steph's move?

12:13I don't think it's a bad move, but I would say one thing about the banks in general, and I don't know if either of you noticed this, but other than Morgan Stanley, which I have not read, I went through the transcripts of the other banks, and no one has mentioned that they are starting to generate substantial revenue as a result of using a lot of AI. They all acknowledge. You mean in their operations? Okay, understood. They're all acknowledging that they're spending a lot on AI, and it's an important factor on their platforms. but no one has talked about how they're generating earnings and profitability from it.

12:49And I think the market is waiting for that and hoping that they'll see it soon and hear it from the CEOs because we know how much it's costing. I want to welcome Steve Weiss into the conversation. Weiss, great to see you. We're talking about financials right now. You actually own Goldman, one of the better performers this cycle. Yeah, so look, Goldman had a great quarter. again, distinguished themselves. Morgan Stanley did as well. But you're in a rising rate environment. So that's going to hit both their pipeline of M &A deals as well as the IPO pipeline. So and when you take a look at components of it, equity trading really excelled.

13:31That helped. Fixed income trading, commodities trading, not so much. So it's a mixed bag. So it depends what your holding period is. I'd say for the next six months, maybe nine months, these are going to be very tough stock to hold. Don't expect the performance there. However, on a relative performance basis, it will be there because I'm not comfortable with basically most parts of the market. So for example, for a short-term trade, I'm sure the IWM, which is the Russell. Small cap stocks will be particularly hard hit with rising rates, not to mention the exposure that the IWM, that the Russell has in financial stocks.

14:13So while I think the long-term future, intermediate-term future is very bright for these, that the markets in this period of time where you just have to make too many excuses to perpetuate the bull story. So going back to your initial question, Frank, while they were adjusting my camera to get me on. Look, it's a rising rate environment. And there's an inverse correlation to how equities perform generally. It doesn't mean it's a disaster necessarily, but it does mean, as we saw in 2007, that there are problems that come out that you haven't considered before that cause the markets really tank.

14:53Again, I'm not looking for that. When I look at what's in the positive bull case versus what's not, in what's not being talked about in the bear case. In the bull case, you've got 30 % earnings growth. Okay, that's already done. Most of that's been pulled forward, number one. And number two, it's highly concentrated in a certain segment of the market. And that segment of the market has shown particular vulnerability with the rest of the market. And these are generalizations, but they're accurate. Trading very poorly. So again, I've been saying for the last month or so, I don't believe it's now the time to put new money in the market.

15:28wherever it is. And minor moves like down 5 % or 10 % in equity aren't dislocating the price enough to get me excited. All right. Joe, I want to come over to you. We're spending a lot of time talking about the big banks. You also own State Street. Those shares down about 6%. Oh, Frank, thank you for reminding me that we have that in the ETF. That's wonderful of you. Very high expectations coming into this report for State Street. And they had a miss. And they They had the miss wasn't significant. It was it was a small miss on net revenue on AUM. You had a little bit softer in terms of the fee revenue itself.

16:05But the street was anticipating much more. And when you have that high expectation and a high bar to exceed, you have to meet it. And when you don't, you get punished to the degree that they're getting punished today. Why is that the case? Because you look towards positioning and you say to yourself, when you look at the financial sector, this was one of the names that had the resiliency and the relative outperformance to the rest of the sector. Therefore, you had a lot of the momentum funds that were allocated in that direction. I think State Street year to date was up about 24 percent coming into today.

16:38So for the technical oriented investors and traders out there, you're coming down towards a 200 day moving average. You want to take a shot there against 156. Good luck. Hopefully it holds. benefit us with our ownership in the ETF. But this is a classic example of a stock that had really high expectations and slightly missed. And that's the reason it's down. Yeah, down up six and a third percent right now. We want to switch gears a bit. Get over to our Mackenzie Sigalos, who's following the latest on OpenAI's fight with Apple. Mac, coming over to you. So, Frank, OpenAI is escalating its trade secret fight with Apple, telling a federal judge that a former OpenAI employee who has since returned to Apple sent more than 100 confidential files about an unreleased OpenAI device to personal accounts before then leaving the company.

17:24OpenAI says that those files included detailed device images, engineering and manufacturing data, as well as supplier information, and that the same employee then later presented OpenAI's product plans to senior Apple leadership. OpenAI adding in this brief that it's concerned that its trade secrets could now be circulating inside Apple as Apple pushes further into AI hardware, and that the company wants the ability to investigate and potentially bring counterclaims against Apple. Now, I'm in touch with Apple and they are pushing back, telling me that it has found no evidence to support OpenAI's allegations.

17:59Apple saying that it searched for the one file that OpenAI specifically identified and did not find it on any Apple system. The company also disclosing to me that OpenAI has not responded to requests for more information and calls the filing an attempt to distract from its own allegations that OpenAI employees took Apple's confidential information. Frank? Mackenzie Cigalos, the very latest on OpenAI and Apple. Mac, thank you very much. Good to see you. While we're talking about tech, very important to note that the SOXX ETF, the semiconductor ETF, one pays for its seventh down day in a row, longest losing streak potentially if it holds today since May of 2025.

18:36Kerry, you're looking over at me. Is that a concerning sign? Chips seem to be a bellwether of where the tech trade is going. Tech also the worst performing sector today as we see rates again at multi-decade highs after a hotter than expected CPI. It's not surprising. If you look at the performance of the stocks as a group over the last year, it's unbelievable. I mean, there's never been such an acceleration and, you know, phenomenal interest in chip stocks in the history of the market. So I don't think anybody should be surprised that the stocks are going down. What we need to watch is how far they get in this decline and whether we can accelerate the pace.

19:20Maybe they'll be off 30 percent. I would say 30 percent is where lots of times the cycle goes up and then they drop about a third before they start to plateau. So and history has shown again and again, that's happened with NVIDIA, Micron, TSM, Texas Instruments, etc. It's not healthy. Does that mean you just sell them because you're afraid? I think you've already missed the boat to sell them at a peak. So I think that trimming is fine, but the stocks will probably come back once they've hit a level that people, again, feel comfortable. And that could be a few weeks from now. Yeah, it's important to know that you're saying trim.

20:00I mean, if you look at the chart here, the SOXX up over 70 percent year to date. So even with the seven day pullback, you have to put it in perspective. Yeah, exactly. Weiss, I want to come over to you. You own NVIDIA. Any concerns about the chip trade in general? I own NVIDIA. I own Taiwan Semi, which is a much bigger position for me than NVIDIA. But it's the same play, essentially. Yeah, of course there are concerns. Are the stocks telling you that the CapEx cycle is peaked? because the stocks typically discount peaks a year ahead of time. Now, peak doesn't mean a decline in spending. And not necessarily, it could be.

20:36It means a plateauing in spending. So if you're not continuing to see the growth in the spending on that means the CapEx going into the semis, then, you know, valuations will be reset even further. So, look, I don't know what it means. We have seen this to Carrie's point multiple times during the cycle. Right now, I'm still sticking with Taiwan Semi as one of my largest positions and also holding on to NVIDIA. NVIDIA does give me a little pause, though, because the market seems to be at that point over the last whatever year of not rewarding the company, that everything's assumed that they're going to continue to grow.

21:14And even though the multiples compress quite a bit as earnings and revenues have grown, it's still not getting rewarded. We saw a minor rally after this recent quarter, but in the scope of things and relative to a Taiwan semi, it's really been a punk performer. Now, I want to point out ASML. They actually came out saying that they're getting order interest through 2030. Stock actually not moving a lot. But Liz, I want to come over to you. They're so critical for the chip supply chain. If this company is saying they're getting orders for the next four years, is this much ado about nothing and maybe just a healthy pullback that Kerry was calling for when it comes to chips?

21:48Yeah, I mean, there haven't been fundamental deterioration factors that have come in yet. And the real concern, and this was partially to Kerry's point, the real concern would be if demand actually slowed and we started to see it in the fundamentals, the revenue growth of some of these companies. But the reality is that markets have been trading on short-term news headlines, whether company-specific, rate-specific. I think it makes a lot of sense that long-duration stocks like semiconductors would be under pressure on a day when yields are rising. Markets have been trading on some of those short-term headlines, but the fundamentals for these companies are very long-term.

22:23We're looking at three to five years into the future. A lot of these are committed out that far, and we're still in a year where they couldn't produce enough stuff to fulfill demand, right? That's not over. So I think at this point, it's difficult to get really all that bearish on the semiconductor complex, but the way that they're trading, is it easy to get emotional about it and look at it and wonder if everything is over? For sure. I mean, I think we're all doing that a little bit. And you don't want to look at a chart later and say, oh, I should have known. Right. But in a time when it feels like things are falling really sharply, that's rarely the right time to run for the door.

22:58So, Joe, you've got a lot of skin in the game. Qualcomm, Texas Instruments, AMD, KLA Lamb Research. We can go on Micron. Are you getting emotional at all right now? Do I look emotional? Yes. Look, I think the reaction that you have to have for the price action today is a full understanding of where everyone right now is allocated. And they are allocated in the direction of the AI trade, in the direction of technology, and certainly in the direction of the trillion dollar companies. We've narrowed the investment thesis and the opportunity as we move through Q3 to that isolated segment of the market.

23:35And what we're seeing currently is that if, in fact, we're going to have this retreat for equities, if we are going to have the pressure that we're seeing from higher yields, if we're going to have the debt markets signaling to us with companies like CoreWeave that maybe they're not trading at what we would call the most desirable valuation. If you're going to have that, then you're going to have a reduction in positioning leading into earnings. It leads to the opportunity for earnings to be the savior for these trillion dollar companies. We could very easily see that at the back end of October that you hear from the MAG7 and others.

24:15And they kind of revive the bull market that's been in place for the better part of this year. But you have to react and understand that what's in front of you right now could lead to further selling pressure as people pare back some of the positioning in the areas of the market where there's been the outperformance and really the only place to hide. All right, the unemotional Joe Terranova. All right, coming up next on Halftime, a CNBC exclusive. Our Morgan Brennan is on site in Texas with the Lockheed Martin CEO and the Undersecretary of Defense. You don't want to miss this one. Halftime is back in just two minutes.

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26:34We're back on Halftime. I'm Brandon Gomez with a CNBC News update. FBI Director Kash Patel is reportedly in Russia for a meeting. Two people familiar with the matter tell our sister network MS Now that it's not widely understood what the purpose of this trip is. Politico reported in July that Patel was planning the visit and senior House Democrats urged Patel to call it off in the letter sent last week. A jury in Miami found former Dolphins wide receiver Tariq Hill liable today for two counts of battery over allegations of abuse made by his ex-wife. He was not found liable on eight remaining counts.

27:06The jury also awarded the woman$500 ,000 in damages. And Mexican President Claudia Scheinbaum says she will sign a presidential decree today that requires all digital platforms to protect children and teens from violent, sexual, and other harmful content. It comes after an attack by two former students on a high school in Mexico in early October. The decree includes social networks and streaming sites. If companies fail to follow it, Scheinbaum says the government will back a bill to punish the platforms. Frank, that's your news this hour. I'll send things back to you. Brandon Gomez, thank you very much.

27:38I'm Brandon Gomez from CNBC HQ. All right, welcome back to Halftime. Lockheed Martin cutting the ribbon on a new missile facility today in an effort to expand production of critical U.S. defense munitions. Our Morgan Brennan is live at the site in Texas with a CNBC exclusive. Morgan. Hi, Frank. That's right. I am here in Texas. I'm joined by the CEO and chairman of Lockheed Martin, Jim Taitlitt, and the Honorable Michael Duffy, the Undersecretary of Acquisition and Sustainment for the Department of Defense. It's great to be with both of you here today. I think just to start, Jim, the moment that we're in when we are so focused as a country on missiles and munitions, what you're doing here and how it speaks to growing manufacturing footprint, a different manufacturing footprint across the country right now.

28:21So, Morgan, we are bringing the best of American industry into this site and many others. And just today, Secretary and I saw Hadrian's new production cell using their automated machines that they built in the United States, designed and built in the United States. So robotics are everywhere. Hadrian's our latest partner in bringing robotics to our production system. And on the other end of the spectrum, you have one of the most storied and largest industrial companies in the world, and that's General Motors. So the GM leadership team from their defense business is here and working with us already to bring their manufacturing expertise, their supply chain skills to this mission.

29:03because what I like to say to my team here and every other place I go is that we may be in the aerospace and defense industry, but we're in the business of deterrence to armed conflict. And so we should go out to every sector of the economy, the tech sector, the telecom sector, manufacturing, robotics, AI, and bring all that best technology, all that best capacity and capability to this mission that Secretary Duffy's team is responsible for. So we're trying to bring all of American industry into places like this so that we can get better and better at what we do. Yeah. And of course, we're having this conversation as you're exponentially growing production of key missiles and interceptors, things like that, interceptors and PAC-3, Patriot missiles, which I know parts and components of both of those programs and others are made here.

29:51So, Secretary Duffy, it's well documented that we've seen these drawdowns and stockpiles of some of these critical missiles and munitions. I mean, even just in the last couple of days, reports of the U.S. military rationing some interceptors and the government telling some allies that maybe they're going to have to wait a little longer for their orders of some weapons systems. Your response to that, how would you describe the current situation? Well, my response to it is here we are responding to the need for us to really ramp up the deterrence and the munition stockpiles for our country. We all know the threats are great across the world, and we've put the challenge to industry, and industry is responding.

30:32Jim and his team walked us through, as he mentioned, this great partnership with Hadrian and General Motors as an opportunity to bring really America's strength, which is our industrial and economic might, to bear on the problem of how do we protect the American people, and how do we ensure that we've got the munitions, the military force that we need. And in the meantime, we're creating 2 ,000 jobs here in Dallas, 6 ,000 across the country, just in this project alone. Across the country, we're seeing the kind of growth we need to ensure that we can supply the military what they need, to ensure that we can deter any threat, and also bring that kind of reindustrialization to our population in America.

31:14For Lockheed, Jim, this is part of an$8 billion-plus investment over the coming years to build out and expand your missile production and capabilities here. How quickly can you ramp production of something like Patriot missiles, and what should we expect next year and beyond? So we are tripling or quadrupling the production rate of these kinds of defensive and sometimes strike missiles, right? that is not easy to do as one company and that's why we need a lot of American industry to partner with us but we have a plan a joint plan to get for from for example 600 Patriot MSC missiles a year which is the typical sort of run rate to 2000 and 2000 plus eventually over a reasonable amount of time so we're going to do this we're going to do it fast we're going to do it effective and we're basically automating this and other sites in a way that can make that happen.

32:09So the automation part, the robotics, advanced additive manufacturing, those are the kinds of skill sets that are going to enable us to meet those kinds of goals for the department. And the other thing I say to everybody I meet, do not underestimate the American workforce. Like Mike said, we're going to add 6 ,000 people just in our company that work on these products. But we're doubling, tripling or quadrupling the production rate because the American worker can either transition or be hired to use those new technologies to do things more efficiently and effectively than we ever could before.

32:45What do you see as the bottlenecks, though? Because the supply chain has been a big issue for years now. It has been. And one of the great things about, say, the GM partnership is they have suppliers that actually could do some of the tasks that we need. The other approach to this is we are working with the department, I'll let Mike speak to it, but they're standing up their own advisory team to help small and medium suppliers be more effective. A third thing that we're doing together is we're going to the capital markets. So for example, some of the leading financial firms in the country, what we have done is given each one for every munition that we operate and scale the list of the 20 key suppliers that would need third party financing to be able to triple their production.

33:32And so some of the big financial institutions in the United States have those lists. They're reaching out to those companies so that they can have not just the labor, but the capital to meet these goals that we jointly have. Yeah. And we're talking about hundreds of billions of dollars worth of deals, whether it's Lockheed or RTX or others, Boeing, et cetera, that you have struck and the Pentagon has struck this year. And they're starting to convert over into undefinitized contracts. The key here is when do we actually see these contracts funded? And what does that mean when we are looking at a midterm election and there are questions about proposals around reconciliation to actually see it funded?

34:12Sure. Well, listen, I think President Trump was leading on the issue of ensuring that we get the resourcing we need to rebuild the military. We still have to work that through Congress. Congress, of course, is out of session right now. They'll be back in November and December. And we expect to work hard with our partners and colleagues in Congress to ensure that we can secure the funding that can enable these contracts. I mean, we've taken, I think over the last year and a half, we've taken feedback from industry. The secretary rolled out an acquisition transformation strategy, which is aimed at reducing the burden of doing business with the federal government.

34:45We have pursued these agreements. We've entered into, with all the key munitions, these contracts. And so I think that missing piece is funding. It'll be an essential last step for us as we come to the year end to ensure we can really supercharge this growth effort. Yeah, I have to wrap this up. I have one more quick question for you, Jim, and that is the demand picture is obviously big and it's insatiable. And yet defense stocks are actually lower since the start of Epic Fury. Has that surprised you? What do you think investors need to know or understand about the landscape right now? I think what investors need to know and understand that this demand is not fleeting.

35:20It's permanent. There's a way I discuss this with my team again and our investors, which is we're trying to solve kind of a master engineering equation here. And the equation is how do we maintain effective deterrence in the world that we live in today? So we have an escalating threat. We have technology moving faster digitally and Newtonian faster than any time in human history. And there is a limited defense budget. At some level, it will be limited. It will not double or triple. And so to solve that engineering equation, we have to change the relationship between government and industry writ large, like we've been talking about today.

35:59And part of the way to do that are these long term agreements that will add a backlog that I think our investors will have to take notice of. We're actually getting more efficient at what we do. And there's opportunity for margin expansion if we perform, which we fully intend to do, because the department leadership, as well as industry leadership, realizes the only way to solve that equation is to make the Pentagon relationship with industry more like a commercial business relationship and less like a cost-based contract relationship. And I think we're seeing that because we're getting not only a commitment from the government to ensure long-term deals, but companies like Lockheed are making their own investment of this capital to get this growth.

36:44And I think that will be part of what makes this stick. Okay. Secretary Duffy, Jim, it's great to have this conversation with you. Frank, I'm going to toss it back to you in the studio, but we're going to continue this conversation. We're going to add some other guests to it as well. And we're going to really talk about how the strong manufacturing data, the growth in GDP. It's not just an AI infrastructure story. Defense is contributing to all of that as well. And we'll be rolling that out on Morning Call bright and early tomorrow. All right. I'm Morgan Brennan with a CNBC exclusive. Morgan, thank you very much.

37:12Coming up, committee moves. Steve Weiss just sold a big name. We're going to walk you through that trade coming up next. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at go.gle slash workspace with Gemini.

38:13premium. Trial eligibility varies. Terms apply. Cancel anytime. That's a mouthful. Every day as a small business owner feels like solving a puzzle. One moment you're cruising along and the next there's a shipping snag that has you scrambling. But here's a surprise you will like. With Progressive, small business owners save 13 % on their commercial auto insurance when they pay in full. So go ahead, surprise yourself. Get a quote in as little as eight minutes at ProgressiveCommercial.com. Progressive Casualty Insurance Company and Affiliates. Discounts not available in all states or situations. Welcome back to Halftime.

38:51We have a committee move to hit. Steve, coming over to you. You sold Netflix. Yes, I did, Frank. It was not a big position. I had gone back into it, I'd say fairly recently, but given my view in the market and my view in the consumer, I just don't believe that that's where I want to be putting my dollars. So I think it's dead money. I don't see anything really wrong with the stock here. It's absorbed a lot of news. Today's news, I guess, is somewhat welcome. You don't want to see people lose their jobs, but you do want to see rationalization of costs, particularly when you're seeing demand slow down.

39:27So I think all the streamers are going to have a tough time going forward, particularly as they raise prices on virtually all the streaming services, except Netflix most recently. So I'd rather keep that cash on the sideline at this point. Stocks just not going to get away from us here. Netflix shares down about 25 percent year to date. We'll hit some calls of the day. NextEra, Target trimmed at Morgan Stanley, but they still see more upside, more than 40 percent upside. Carrie, you own this one. Shares down fractionally lower today. Well, NextEra is a play on more power. We need power generation in this country.

40:00They are the largest builder of new power. And we therefore think there's a long runway to go. All right, Liz, I want to come over to you. Morgan Stanley reiterates gold as a top commodity pick. What's your take on gold? I like gold here. I was out of it earlier in spring. I stopped understanding really what was driving gold. But I think there is, and I agree with Morgan Stanley here, there is structural demand for gold again. And I think central banks, as we go through this period of fiscal indiscipline, I'll call it, I think central banks will continue to have demand for gold, and we're going to see gold perk up again before year-end.

40:36Indiscipline. Listen, Liz and I have talked about gold and silver on air over the last couple of months. I still do not trust the move that we're seeing in the precious metals. It looks like we had a parabolic peak earlier in the year. If you could look at December silver, it's down 6 % today, with yields rising in an environment where you think it would be some form of a port in a storm, and it's not at all. All right, we've got to leave it there. Coming up, we've got Mike Santoli's market memo. Stay with us. And we are back with senior markets commentator and overtime co-anchor Mike Santoli with his market memo.

41:11Mike, great to have you here. We've been talking about this all day. Tech, rates are higher after that, higher than expected CPI. Tech, the worst performing sector today. What are your thoughts? I mean, coming into this week, I think the prevailing thought was we might have emerged from a period where macro challenges were potentially going to stress the market and we were going to get into earnings season, and that could allow the average stock to maybe catch up to the dominant AI tech theme. A little bit of sand in the gears on that trade from CPI, from rates, and I think credit most of all, because you can deal with higher treasury yields if credit spreads stay tight.

41:47So I think a little bit of this unnerved action in the AI debt-dependent hardware CapEx food chain is what has the rotational action in the market a little bit unable to rescue the indexes. So that's what I would say. Now, coming into it, I still think you had small caps, semis, and banks in pretty nasty downturns. And so in that kind of environment, you wouldn't really expect the S &P to be within 1 % of its record highs as we were coming into today. So, you know, nothing's decisive about today. But I do think a lot of the things you would want to grab onto to say people are finding something to do, they're not really there aside from pure defensives.

42:24Mike Santoli's Market Memo. We'll see you coming up in OT later today. Mike, thank you very much. All right. The earnings set up on more committee names coming up next. Stay with us. Have time back right after this break. And we're back with the setup. J.B. Hunt reporting tomorrow after the bell. Joe, you own this one in the Joe T. ETF. So this is an interesting name. CFO Brad Delco last month came out. He guided that earnings would be down five to 10 percent on rising costs estimated somewhere around 25 million. So the street is expecting here that you are going to see deceleration in earnings on those rising costs.

43:00A lot of the logistics names have been under pressure recently. Of all the names that we own, and Josh Brown highlighted it yesterday in his best stocks in the market, expeditors of Washington. To us, that's the strongest, both technically and fundamentally. And they benefit from just basically being a broker that's leasing large space for logistics. You know, Joe, to your point, J.B. Hunt also has a pretty sizable brokerage business itself. I want to show a chart right here. This is container shipping rates in the spot market hitting a post-pandemic high. Pandemic was a totally different situation, but post-pandemic at a high.

43:36Does that give you a lot of confidence going forward? Just the fact that a lot of these are going to be consumer goods. They have to be shipped from a warehouse to somewhere else. So that should be business for other carriers. Yeah. So excellent point, Frank. I think, look, there's a couple of dynamics here that kind of have complicated the story. The tariffs for sure led to a little bit of friction as it related to acquiring large carrier space. But I think the setup is a positive one for J.B. Hunt going into tomorrow because we've gotten in front of what we expect to be the contraction in earnings.

44:13So the reaction to it will be interesting, but at least we know the bad news is out. And what you hope they deliver tomorrow is a little bit better than what they guided to one month ago. Yeah, we'll get a look at transfers prologis earlier in the day than J.B. Hunt after the bell. All right, stay with us. Final trades there coming up next.

44:35All right, welcome back to Halftime. We have new data crossing on mortgage rates. Let's get over to our Diana Olick. Well, Frank, the average rate on the 30-year fix jumped 10 basis points this morning to 7.56%, according to Mortgage News Daily. Now, rates are about 125 basis points higher than they were a year ago, so a really strong jump. Obviously, the home building stocks, if you look at the ETF, ITB, they have not been loving this since rates began rising at the beginning of September again. But the 10 basis point jump today puts us right back where we were about a week ago. Rates had been pulling back a little bit, but we got that hotter than expected CPI.

45:13We also saw a new forecast this morning from Fannie Mae, which had rates for all of next year, the 30 year fixed at 6.8 percent. They revised that higher to seven and a half percent. So they do not expect rates to come down anytime soon. Frank. All right, Diane Oleg, thank you very much. Also, coming up tomorrow, you don't want to miss a special look at AI in America live from One Market in San Francisco for both halftime and for Closing Bell. Again, special shows for both halftime and Closing Bell on AI in America. All right, now we're going to turn to final trades. Mr. Steve Weiss, going to start with you.

45:47Yes, I'm going with the 10-year. While I think rates will continue to rise, this is a pretty good entry point and a great return. Liz. Well, since Steve is using the 10-year, I won't use it again. I'm using aerospace and defense this time. I think trading down because of the expectation of a Dem sweep of Congress. But the war isn't over, so it has opportunity. Carrie. Thermo Fisher, this stock has finally broken out. It has taken years to get over the COVID hangover. And now we're finally starting to see money loosen up for research. And that's good for Thermo. J.T., giving you the last word. When was the last time we could say Pfizer is on a 52-week high?

46:26Well, the last time would be 2021. That's five very long years ago. That's where we are right now. Pfizer, 52-week high. Yeah, a little context, obviously, that's during the pandemic. So quite a bit will go. One quick look at the markets right now. You can see we're in the red across the board. The S &P pulling back 1%. The NASDAQ down 1.5%. That does it for halftime. The exchange starts right 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. All opinions expressed by the halftime report participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates and may have been previously disseminated by them on television, radio, internet, or another medium.

47:10You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion. Such opinions are based upon information the Halftime Report participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Halftime Report disclaimer, please visit cnbc.com forward slash Halftime Report disclaimer.

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