Trading the Rate Hike Rebound: The Investment Committee's Strategy 9/17/26

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1:10All right, welcome to Halftime Report. I'm Mike Santoli in for Scott Wapner today. Front and center this hour, the rate hike rebound. Stocks moving higher following yesterday's post-Fed sell-off. The investment committee is standing by to break down the move and game out where we could be headed from here. Joining me for the hour, Joe Terranova, Malcolm Etheridge, and Kevin Simpson. Let's check the markets. Pretty close to the highs of the day. The S &P 500 up 1.1 percent. 76.36, a little bit above actually where the index was yesterday before the Fed statement and Kevin Warsh's press conference.

1:42You see the 10-year Treasury yield there down below 4.95 percent. A little bit of relief on that side. Oil also lower. NASDAQ, you see, is the outperformer. It really is AI food chain type stocks that are moving things in video in the lead position. But, Joe, let's start talking about how we're to think about the Fed. Sure. Obviously, it was inferred initially as net hawkish in terms of, you know, dangling out this idea we have to get inflation down in a timely fashion. A little indigestion, as often happens. Now a rethink. What do you what do you make of it? I think we're all collectively glad we're past the moment.

2:17I think we have a degree of clarity. I spoke in the last week about how the market was positioning in anticipation. I think you have confirmation that the market had priced this in. Let's highlight several areas of the market which had been correcting moving in. It was consumer discretionary that was obviously struggling. We're seeing a little bit of a lift today in consumer discretionary names. I think when you look at the MAG-7, there was this moment where they were a source of almost a defensive retreat relative to memory and optical. Memory and optical had that corrective phase. That's bouncing today as well.

2:59And then I do think the speculative short was actively in play in the Treasury market. So if you were short treasuries, I don't know if yesterday's announcement, which we can agree was hawkish, really gave you much more incentive to either add to that position or carry that position forward because you're basically right back where you started. So went down to 75, what, 07 yesterday, intraday? Right. Yeah, basically bounced off 7 ,500. And that was the 100-day moving average, I believe. So now, technically, you look at where we are today, 76.35, it looks pretty good. And, you know, let's just wait and tell me the story on earnings.

3:39You're back up to levels that two weeks ago we were hoping we were going to hold to the downside, which is like 76.20. So I guess you have to define what victory is here. Malcolm, well, we got the clarity on the move and what Warsh said about it. Not necessarily clear exactly how the cadence goes from here. You have firms like Citi saying we think they hold in October, maybe don't do another one, then cut mid-next year. Goldman saying one more in October. I mean, there's clearly some data dependency here. I guess how much does it matter? It matters a ton at this point in the year and at this point in the cycle.

4:14So to your point about we're glad to have the moment past us, I wish that we had gotten the moment past us earlier in the year, maybe even in Q1. Because the bond market now is in disarray. The bond market's trying to absorb$75 billion worth of issuances of hyperscaler debt just since July that it can't find takers for. We didn't have that problem earlier on in the year. We did still have an inflation problem, which would have made sense to increase rates to address it. But now we're at a point where we do have—we're on pins and needles with every single little move or every little pronouncement because interest rates have such a high impact.

4:56So if the cost of borrowing is going up at the same time, all of the hyperscalers are tapping the bond markets more and more to fund these data center build outs. It really could create some lasting impact now going forward. Yeah, it's I mean, the strongest part of the economy is the most hungry for capital. I mean, that's kind of the situation we're in right now. And and, Kevin, maybe it's worth listening to what what Jeff Gundlach did say in reaction, because we're talking about the wide spectrum of opinions about what was done, what could have been done, what should have been done. Here's what he said he would have done.

5:28I actually would have dissented and voted to raise rates 50 basis points today. And I would have called that stun and done and give the market a little bit more of a truing up with the Fed funds rate. So I don't think 50 was ever in the cards, but it's a statement, I guess, of somebody who thinks there's catching up to do. or, as some in the committee might have suggested, the economic momentum, at least in the CapEx part of the economy, is so strong that we can deal with rates that high. You know, again, I do think that it gets to this idea of what the proper neutral rate is for the underlying economic conditions.

6:09I think you're right that the market could have handled a 50 basis point rate hike. I think it's worth saying, by the way, the first hike in 2022 when inflation was raging was not a 50. The initial one was 25 because rates were at zero, and then they went 50-75 after that. So, I mean, it doesn't, I don't think it necessarily dictated we should have gone there. But anyway, go ahead. No, it's the right way to play it because the bigger problem is if you go 50 basis points and it doesn't stun, and the yield on the 30-year continues to move higher, you basically used up whatever ammunition that you were hoping could help bring this down over time.

6:43So I like the play, but I do think the calculus did change yesterday. I'm not motivated by a bounce today. It's nice, but I'm not going to let one day's tape change my thesis. I think that I'm not going to say it's risk off, but I think the bar for risk has moved higher for us. So I'll speak about our portfolio. We run$21 billion for financial advisors and their clients. They come to us not for the highest degree of risk. We don't need to make every penny to the upside. They want us to protect capital. And I think right now you need to be a little bit more defensive on the fringes. And from a portfolio management standpoint, we're certainly going to be doing that.

7:20Not in a big way. I'm not turning bearish. I'm not trying to time the market or go to cash. But we are increasing our liquidity. We're writing more covered calls. And I'm putting the string a little bit tighter on our stop losses. I just want to make sure that we've got things properly allocated. And again, it's not this risk-off thing. I just think after yesterday with the 10-year at 5%, good enough probably isn't good enough anymore. Yeah, I said after the close yesterday, Joe, that, you know, that paramount rule, don't fight the Fed, don't fight the tape. Sometimes it's clear what that says you should be doing.

7:51Sometimes I think like right now, it's a little bit ambiguous because while the Fed is snugging up rates, it's not sort of in an all out assault on, you know, financial market conditions. It doesn't necessarily want to really bring a deep slowdown to the economy. And the tape is completely in the eye of the beholder right now. You have Jonathan Krinsky has been a little bit cautious into this seasonally week period and saying that the underpinnings of this rotational kind of support for the market might be suspect. And others are basically saying, look, we de-risked and we got cheaper, and internally you had the pullbacks you needed.

8:28Yeah, I think the right way to look at the market is it's really to look at two different scenarios, right? So look at the first half of the year. Very generous, aggressive returns. Now look at the second half of the year. And I think you see a slowdown, and I think you have to temper the enthusiasm surrounding what that return might ultimately be. But, Mike, the market has been trading, I think, really since the end of June, very defensively. And establishing any really strong trend has been very difficult for the market, except maybe in energy. We see the beginnings of what appears to be a trend, and we see the rotation into something else that appears to be a trend.

9:10So I think the defensive nature is already kind of embedded in the market right now. And I think the message is if you're going to concentrate in the second half of the year, you're not going to be rewarded the way you were in the first half of the year. Yeah, I mean, there's one way of telling the story of this year, Malcolm, which is he kind of like got all overexcited into the second quarter, And there was a real peak in terms of risk appetites, in crowding in the momentum trade, in what semis we thought could never go down, the SpaceX IPO right at the end of the second quarter. So all of it sort of built toward, you know, this kind of, you know, run as fast as you can, take as much risk as you can.

9:49And there's been kind of payback in bits and pieces since then. I think the big call is, is it enough? And have we reset the market properly? Well, I'm not convinced that that exuberance has necessarily gone away completely. In the last quarter of the year, we'll find out. But I am starting to pay attention to the fact that you're hearing analysts talk a lot more favorably about the hyperscaler specifically. So the trade that got away from us was all of the semis and all of the semi names that weren't necessarily AMD, Broadcom and NVIDIA, which had kind of been leading the way before it started to go into other places, especially when the shortage in memory became so obvious.

10:27but all of the large cap tech names now have become fair value or even, dare I say, value stocks in some cases. So I think that what we might be seeing toward the end of this year is a rotation back into those names that have actually been spending all of the money to put shovels in the dirt and get the data centers built out, irrespective of what chips actually power them and whether they bring them in-house and go vertical and all of that, because that is where you expect all of the investment to really pay off in the long run. And so we've gotten offsides now being so heavily weighted in chips that maybe we'll start to see that rotation back where it initially was.

11:04Yeah, the spenders are getting it. Are those the MAG-7? Because over certainly this last several weeks, the MAG-7 has established clear bullish momentum relative to everything else. That's essentially where I was going. So it's not necessarily been long enough to say that is definitely the trend that you want. I know momentum investors like you just need two seconds to decide this is what it is. But if I'm looking at what is the trend that's going to hold, I think you see a couple more weeks where the MAG-7 names are going in this direction and the semi-names are going in the opposite. It's not so much the software trade that we thought maybe there's the rotation or the switch going there.

11:41It's really the MAGs that are carrying us. Yeah, I mean, we did have Evercore raising a price target on Alphabet up to$450 from$420. It's not really outperforming today, but it's the kind of thing where you have this comfort that, you know, they have a couple of different ways to win. And I think one of those questions, Kevin, is are we going to rebuild to the valuations we saw, let's say, late last year? Right. That was kind of the peak in NASDAQ valuations, overall S &P, forward PEs. Now it's a much more capital intensive part of the economy and the stock market. So you wonder how investors are going to treat them.

12:17Yeah, I mean, they've got to pay for all this, and you're not going to go to private credit to get it. You can't just shovel it all into the public markets. But I like Malcolm's point about the MAG-7. What I think, how I would even narrow it down further, you look at this note on Alphabet, I think it's really the value trade that's coming back. And you haven't called them value stocks to a certain degree. So it's not the MAG-7 as an asset class or a combined ticker, but it's a company like Alphabet that I think is getting cheaper, becoming more valuable, and a stock that we're very comfortable owning.

12:48I think one of the things in terms of the reaction after the Fed yesterday did get some notice was the pronounced weakness in some of the big banks. And a lot of that seemed like a buildup of, okay, some cautious comments by Bank of America at a conference about investment banking revenues. Goldman yesterday saying maybe fixed income commodity currency trading is going to be softer than was built in. Goldman's back up a percent and a half today, But it's still down like 7 % week to date. I wonder if everyone is now also having the sense that, you know, the fever in the second quarter is somewhat broken.

13:25Well, to Malcolm's point, I don't know if it's two seconds, maybe it's 20 minutes, maybe it's two days. But the big banks are part of the momentum story. They're totally in the momentum funds. So you hit the restart button. If we could show one of the momentum ETFs, you'll see it's up about 2 % today. So a one-day reflex reaction to yesterday, I think, built upon positioning was already significant, leaning in the direction of, OK, you're getting a rate hike and you want to avoid this factor being momentum itself. So you're getting that balance. I think where there's durability as you move towards the end of the year is if you tell me we have higher rates, there's been this revival in the insurance companies that you're all stated, Travelers, Chubb, Progressive.

14:12I think there's sustainability. I think there's a building trend there because higher rates are going to benefit those insurance companies. Well, they benefit banks also from net interest income. I think it's amazing. The yield curve is still flattening. It depends on the yield curve. Two to ten flattened even further today. 100%. But I think, and this is not critical of anyone sitting here, I just think sometimes it's a lazy trade to say, well, higher rates and financials get hurt. I think your point about the institutional investment side of things and the trading side of things, absolutely appropriate.

14:44That enthusiasm is waning. But the interest rate itself, I think, is sometimes less important to the financials. Yeah, I mean, the absolute level of interest rates is not really the tell. But if you have a Fed chairman who says, we're removing accommodation, and everyone says, oh, wait, we were accommodative? We thought we were neutral. neutral. And, you know, we don't think financial conditions are tight. Maybe the underlying conditions of the economy require them to be tighter. You can talk about how banks make their money all day. Bank investors are going to read that as, OK, maybe at the margins, that's turning up the pressure on the banks.

15:21Yeah, you're right. I think one other thing to consider, and I think you would agree with me, I don't know the statistic. I'm sure you're an encyclopedia of market knowledge, so you probably know this. But it feels to me like over the last 30 to 45 days, is we have very tight ranges in the S &P 500. Trading volumes have diminished relative to where they were in the first half of the year. So I'm not feeling so confident that you're going to see these financial institutions delivering the type of trading revenue that we were comfortable with in the first and second quarter. I think it was June 23rd I put a position on personally in CBOE at 263.

15:56I'm close to literally timing myself out over a 90-day time stop because it's basically just sitting right there. So the exchanges and a lot of the financial institutions who earlier in the year benefited from that strong trading revenue, I don't know that it's going to be there this quarter. Yeah, it's definitely being pushed out a little bit. And, you know, Malcolm, you mentioned about, you know, the aggressive issuance on the corporate debt side from the big tech borrowers. We're getting a little bit less in the way of new equity supply than maybe we thought to. I mean, the second quarter, again, huge, mostly because of SpaceX.

16:28But I I wonder how the, you know, the open AI anthropic pacing of IPOs, whether that's going to also, you know, have sort of coattails in terms of other deals coming either before or after. And what it would mean for the overall market, because it's fascinating. For a while, a bearish talking point was market's going to get swamped with new equity supply. Be careful. And then we get through SpaceX and it's like, oh, no, what if we don't get open AI and anthropic IPOs? Because guess what? They need the money and they need the money to pay for the stuff they ordered from all the hardware makers.

16:57Yeah, that's been the thesis of all of the concern that I've had basically this entire year, which is what happens if and when one of the two companies that have done all of the promising to spend all of the money, suddenly we find out that they're not really good for those promises, at least not all of those promises. It doesn't help when you have the CEO of one of the two most important AI labs coming out and saying, we have concerns over the safety of the product that we were planning to IPO in a couple of weeks. So I think that it's more of a we have to wait and see at this moment to see how the sentiment in the market shifts, if it shifts, related to the AI trade, those additional issuances, those sorts of things.

17:41But we do, I think we all agree that they have to continue to issue, tap the markets in one direction or another because that's the only way left to continue to fund these massive buildouts. and they're using their own equity as the thing, in some cases, like Oracle as an example, they're using their own equity as the thing that the debt is being offered against. And there's only so long that can go if the share price doesn't continue to appreciate. So it's really a tenuous situation right now, and it doesn't help that all of a sudden the mood seems to be souring just a little bit around AI in general and whether or not we do, in fact, get that IPO.

18:17I was going to mention Oracle because it's sometimes, you know, it's sort of many things. It's a proxy to some degree for open AI and the build out there for obviously this very leveraged approach to trying to build compute capacity. Stock is up over 5 % today. So I think this represents more just like the relief trade in some of the more highly stressed parts of the market. And it is, as I said before, the AI hardware stuff is working for a day. And I just don't know, like, Joe, what's going to persuade people that this is more than just like today's weather? I think it's consistent earnings.

18:54And I think you also have to break this pattern. And forgive me, Malcolm, for going here. But the speculative hedge fund community, they've had this pair trade on with software and semis now for the last 18 months. And they've crushed it on it. Well, today's the first day that I could remember that both software and semis are moving higher. So you have to break that pattern. I think you have to see a continuance of strong earnings across the board to believe that there is a viable bottom that's been traced out. And I think to Malcolm's point, what's interesting is I just wonder if this political debate or narrative surrounding the build out of AI as you move towards the midterm election, I wonder if that actually suppresses some supply where you have some of the hyperscalers and those that have been actively going out, raising capital in the debt market, stepping back and saying, OK, let's let's see this maybe pass towards the midterm election.

19:47I don't know. Yeah. It's just just just a random thought. Is it possible instead, though, that the first half of the year where we're talking about them issuing debt and equity at breakback speeds was because they knew the second half of the year as we got closer to the midterms, they could read the tea leaves and figure out there's only so long before it turns against us, before these local communities start to have these town hall meetings, before the Capitol dries up. So we have to go as aggressively as we possibly can, which also would mean then that next year, the CapEx expectations come down, which could be the death knell for this particular trade.

20:25This isn't disputing that, but there's another layer to it. They're also trying to raise debt, and when money's cheaper, they're more anxious to do it. You have higher interest rates, there's a little bit less enthusiasm. So that may have been a second tiered reason for the acceleration earlier in the year. Remember when the bond market was the boring part of your portfolio? Yeah, exactly. No, it is fascinating. How price insensitive are they going to be in terms of rates going up, and really how much pressure they feel from investors to sort of get back into free cash flow harvesting mode as well.

20:55And the wild card in all of this, we haven't even talked about it because it's nearly impossible to predict. But where do oil prices go over the next 60 days? And that's the difficulty here. And it's almost as if we're being told, get ready for triple digit oil prices into the month of November. And I don't think anyone, I don't think, well, I don't want to say anyone, but I don't think most people, the majority, two or three months ago factored that in. No, for sure. Down a little bit today, probably giving a little relief to bonds, but that's going to be the key thing to watch for a bit. All right, up next, a halftime exclusive.

21:29Our Leslie Picker is standing by with Brookfield CEO Bruce Flatt to talk rates, the AI boom, and much more. Halftime is back in two minutes.

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23:13We are back on halftime. Brookfield hosting its Investor Day in New York City. Leslie Picker is there and joins us now with the company's CEO. Leslie. Hey, Mike. Thank you. And thank you, Bruce Flatt, for taking the time to join us from your Investor Day today. It is a big day just in terms of market themes. The most prominent, perhaps being the FOMC meeting yesterday, decision to hike interest rates. You have a bunch of interest rate sensitive businesses, whether it's insurance or credit or real estate. And I'm curious, given what you've heard over the last, you know, 22 hours or so, how do you think about financial conditions right now and the Fed's decision?

23:52Did rates go up? They did. 25 basis points, you know, in case you missed it. I say that because it doesn't matter. In long-term investing when you buy great businesses in great countries with great people 25 base points this way or that way or 50 or 75 it just doesn't matter when you trade bonds it matters but when you buy businesses and you invest in great assets and you hold them for long durations whether it goes up or down like there will there will be a lot of changes between now and 35 years from now when we do something else with an asset. During that period there will be wars and there will be crises and there will be financial situations and interest rate increases and decreases and it doesn't matter.

24:38It's been proven in history and it's been proven in our history that it really doesn't matter. Now, you have to be prepared. Never get yourself out where you have to do something in a situation where you shouldn't be doing it. But as long as you run your business conservatively, you buy great things, you're in great countries, you're going to be fine. So you're not concerned about financing costs going up? You're not concerned about credit quality? It would be better to have lower interest rates, yes. I get it. It's better to have 25 basis points less. Many of our things are fixed rate. Plus, the reason things are going up is more inflation.

25:16Many of the things we do are real return assets. These are real assets of what we own and real return assets means inflation is a positive factor to the revenue streams. So many of the things we have today have significant pricing power because revenues are going up at far greater paces than interest rates are doing and going up. And in addition, remember, interest rates are going up because we're trying to cool a little bit of inflation because, well, mostly oil prices are high. But this war will end. Interest rates will come back down. And we're not in a situation like four years ago, we had a lot of inflation.

25:59And we had to raise interest rates by 350 basis points. And that was a lot very, very quickly. We're not even close to that today. This is just a small aberration in a long-term fiscal plan. Well, you mentioned your energy business. I want to ask you about Westinghouse Electric because Brookfield owns a 51 % stake in that. It's filed confidentially to go public. You said on your recent earnings call that no business you own is more directly positioned to benefit from the growing importance of energy. And this whole idea of powering data centers has really unleashed interest in nuclear power, of which Westinghouse is seen as a beneficiary.

26:37But then this morning, we saw Holtec Nuclear postpone its IPO reportedly over the data center backlash. And I'm just curious what you make of that and what you see as the implications for nuclear in Westinghouse as well. I don't know that company, so I make no comments on it. We supply fuel to and engineering services to 60 percent of the nuclear fleet in the whole world. We have 14 plants in various forms of construction, another 40 coming shortly, another 100 after that. This build-out of power, led by all types of power, but nuclear, because it's baseload and it's clean and it's dispatchable, is very, very important, and it's really important to the United States of America, and it's important to many, many countries in the world.

27:29So this is not stopping. And this isn't, we're not talking two years, we're not talking three years, we're talking a 25, 30-year trend where nuclear is going to come back in a very significant way. And Westinghouse is the heart, it's really the heart of the industry because our technology is in all of our reactors, but it's in many other reactors in the world. So it's a dominant technology in the world. How incumbent is that upon the AI cycle and the AI CapEx cycle continuing at the clip we've seen so far? And I ask that against the backdrop of the broader conversation about safety and pacing of frontier models and how that impacts the overall investment.

28:10Obviously, you were exposed in a variety of ways, data centers, real estate, energy, as you mentioned. So firstly, the power and uses were going up largely because of electrification of industry. And that's what was going on first. Then it was going up because of digitalization. And only recently has it been the AI factory business, which is what you're really referring to. So that was an additional piece. We almost couldn't build enough power for the first two pieces. This one's a whole other one. One and the biggest impediment to the data centers being built and AI factories being built is power.

28:49And I don't know about slowing it down, models are not our thing, but we are having trouble keeping up with the amount of power and the amount of data center capacity that we can build. And we just can't build it fast enough. And it takes time to bring power on. It takes five, seven years to bring a nuclear plant on. It takes four years to bring a gas plant on. It takes two and a half years to bring solar on, brings three, four years to bring wind on. It's tough. And that's really the biggest impediment to all of this. But it starts with electrification. And we're constrained in almost every grid in the world, not just in the United States.

29:32And AI factories haven't even gone to the rest of the world yet. They're going there in the next 10 years, but they haven't even gone there. So this is, if there's a slowdown, That's really good because we will be able to build. We can't even we can't build for the excess that that many people were talking about. What about the political backlash, though? You mentioned energy as being the biggest impediment. We've seen so much, especially ahead of the midterms with political backlash, the moratoriums in various states. I mean, has that risen to a priority in terms of impediments that you focus on?

30:06Again, it it it limits how much you can build in some places. Some people don't like it because their site got taken away. But there's still a lot of sites out there, and the DOE in the U.S. is helping out by giving... We just got a site in Kentucky to build on for 5 gigawatts from the Department of Energy. So they're helping. But really, the thing that should be focused on is this is laying the future backbone of the global economy. Before, we built pipelines to connect gas, to connect energy. We built transmission lines to bring energy. And now what this really is, it's laying the backbone. That's what needs to be focused on.

30:45It's laying the backbone of artificial intelligence for industries, business, and people to use. And that's what's really important. And I think part of it is just the message has to get across to people of what's going on, because that's what's really important. You were one of the participants, one of the six financiers that sat around the table with Jensen Wong, talking about this$500 billion plan to help finance some of this build-out as well. At the time of that announcement, it was mostly just memorandum of understanding. Have you had discussions, and are you seeing concrete deals several months later?

31:23Yes, yes, many. this is coming and NVIDIA is leading an industry where we're going to take chips and today they're a consumable and we're going to make them into an investment asset class and therefore you can finance against them and like real estate and and power plants and infrastructure that we've over the decades figured out how to create capital structures and bring private capital in and other things the same thing is going to happen with chips because the industry is so large today, but it's in its infancy. It's small. It was a very small industry before, therefore they didn't need the large sums of capital that we have and private credit has.

32:04But in the future, we need that. And that's what we're just starting in the early stages of this industry. and capital formation has to be developed to facilitate the large-scale use of capital in this industry. All right, Bruce Flatt, thank you so much for taking time from Brookfield's Investor Day today here in New York City. Really appreciate it. Mike, some bullish comments still, believes, pretty early in that cycle for AI, regardless of the political backlash and some of the safety concerns that we've heard lately. Yeah, for sure. Hitting on so many of the key market themes. Leslie, thanks so much.

32:41Coming up, our top calls of the day. One firm says to buy the pullback in one of this week's worst performing stocks. Joe Owens, it will debate it next.

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35:04We're back on Halftime Report. I'm Mackenzie Sigalos with a CNBC News update. A federal judge in Los Angeles ordered immigration agents to stop making warrantless arrests unless they determine the person is likely to escape before one can be obtained. The ruling applies to L.A. and surrounding areas. The judge also denied the government's request to delay the order to give them time to appeal. The Pennsylvania Health Department is reportedly asking for the CDC to step in to help the state manage a growing measles outbreak. But according to Reuters, the request comes with a condition. The state says the federal agency must recognize the four deaths in the state associated with the disease.

35:41It comes after Health Secretary RFK Jr. reportedly instructed the agency to not include the fatalities in a national tally. And Apple says its new iPhone 18 Pro will be used to shoot the Los Angeles Dodgers versus San Francisco Giants game on Friday. The company says the phones will capture unique perspectives that would be difficult to achieve with traditional broadcast cameras. Mike, sending it over to you. All right. Inside a glove, maybe? All right. We'll see where that goes. Thank you, Mac. Let's get to some of our calls of the day. J.B. Hunt upgraded to outperform at Citizens. Obviously, hard hit, Joe.

36:17There's a warning. A lot of concern about margins here. 60 % of the analyst community has a buy rating. The 12-month price target is$305. Full disclosure, I always want to do that. We did purchase it at the end of July for the Joe T ETF,$271. We are down on it right now. I said yesterday, if you don't own it, I don't think you step in and buy it. I think you need to see it stabilize. It is really not bouncing very much at all. It's right near what yesterday's low was. But I think bigger picture, there's a story here that we need to bookmark. And that is the effect of rising refined products, gasoline and diesel.

36:55That is the problem for J.B. Hunt. They talked about rising costs yesterday, driver costs, and then also fuel costs, pressuring earnings, forecasting earnings now 5 % to 10%. This could be the beginning of what we hear in the earnings season from many other companies. So pay attention to it. Yeah, I mean, this is obviously a theme that's broader than just the truckers. There is a lot of talk about how even the fuel surcharges can't keep up with the weekly gains in the price of diesel. So even though they're going to get it back, they need stabilization and diesel prices for them to kind of make it up.

37:29So, I mean, Kevin, what does it matter for either the refining stocks, the rest of the oil stocks, or can the consumer swallow these costs? Well, it's like Econ 101. You can raise prices only so much before sales go down. It's almost like since COVID, we don't care, we'll just spend anything. But when you have$6 diesel, that just percolates through the entire system. Everything Joe said was spot on. You can pass it through, but it's only to a certain extent until you pull back a little bit as a consumer. And this is where the objection that some had towards a rate hike comes into play. They can't produce more diesel.

38:04They can't produce more gasoline. It's a supply shock. I think we have to deal with it. I think the administration clearly has to deal with the supply challenge. It's a huge issue. I purchased Valero last July at 144. We've got, I have, because it's in my personal account, I have a tremendous profit on it. And I don't want to sell it, Mike. Because what you see in front of you is a global challenge. Russia, Ukraine, Russian refineries are down because of Ukrainian attacks. And now what you're seeing with the refiners is because diesel is at an all-time high, they're switching from producing gasoline to diesel.

38:42That's not good because that leaves gasoline supplies even lower. So it's Phillips 66, it's Marathon, it's Valero. Yes, Malcolm, these are momentum energy plays. But there's a fundamental reason why I think you stay with these positions. Yeah, obviously there was a little bit of a lid on crude prices today. There's some other hopes about a meeting with the Gulf states over the next week or so. But so far, the story has had plenty of momentum, as you suggest. Straight ahead, the news that has Robinhood shares moving higher. We've got ownership of that stock on the desk. Half-time is back after this.

39:34we are back on halftime the sec issuing an order today clearing the path for tokenized stocks our tanae mikhiel is following that story here to explain hi tanae hey mike yeah this is the long awaited innovation exemption, giving certain trading platforms and liquidity providers the regulatory relief that they need to facilitate tokenized stock trading. And that, of course, is the blockchain-based representation of stocks under certain conditions. So two of those requirements recently becoming a hot topic of debate in the market. And that is, one, the tokens need to offer the same rights that they would with traditional equity holdings, think voting rights.

40:11And then also the companies need to be able to object to having their stock represented as tokens. So think, of course, of the spat between the CEOs of Robinhood and AMC recently. Now, two days ago, of course, the Clarity Act failed to advance in the Senate, and that bill would establish clear rules of the road for crypto, specifically with how digital assets, including tokenized securities, are classified and regulated. And so now you have here, the SEC moving to define that regulatory boundary through its own existing authority. So it's not a formal rulemaking yet, but a five-year exemption meant to open up activity in the market that could inform final rules eventually and perhaps even help Congress determine whether new laws are needed or not in this space.

40:55Mike? Yeah, very interesting moving that direction today. Thank you very much. Kevin, you own Robinhood. They've been aggressive at listing a lot of these tokenized instruments backed by or meant to represent both public and private stocks, now mostly overseas, right? So this is now would allow it in the U.S. But those conditions are significant, I think, relative to what Robinhood is currently hoping to do. Well, very specifically, the voting rights, I think, pose a little bit of a challenge. Voting rights, dividends, all that stuff. Yeah. But I love Robinhood. I mean, they just continue to become what they want to become, regardless of what's going on externally.

41:31They don't want to just be a trading app for kids and for crypto. They want to be a true, true financial institution. And I think tokenization can be the next leg of that. We talked about this regulation here domestically, but to your point, what they're doing overseas is very successful. It's 24-7 trading. And if they can bring that to the blockchain, there's a lot of efficiencies. So I wouldn't discount or laugh off what they do. I'd pay a lot of attention to it. Yeah. I mean, they do make a lot of noise in the direction of becoming a bigger financial institution, long-term money, while also taking sports bets.

42:03I mean, so they're doing, as you say, they're doing it all. They do it all. You can short your stock and go long. That's it. Diversification. All right. Up next, options action. Oliver Renick is following big activity in the cyber stocks. Halftime is back after this.

42:33The first step isn't to say we get out of it because we want to self-regulate or we want regulation. The first step is to say, OK, you've disclosed this. What are you doing about it? And the second step is to say, if you're not doing it, you're not being responsible here. We're going to have to get people involved. That's going to be also very complicated because regulating these things needs people. You need people who understand them. Another problem we have is seemingly everyone who understands this is on some payroll. So it's like, you know, it's like who are you going to trust? That was Palantir CEO Alex Karp last hour weighing in on the growing chorus of AI safety fears.

43:05Those fears giving a big boost to the cyber trade this week. Oliver Rennick is following the options action in that space from CBO Global Markets in Chicago. Oliver. Hey, Mike. Options traders today piling back into tech, and that includes the cybersecurity winners that have been outperforming the software space since this summer. CrowdStrike really has been the name to watch here for options traders. as it continues to be the favorite, with 100 ,000 options traded today for a total$120 million in premium and more than 75 % of premium purchased on the call side. To be sure, there was some call selling at these levels, but there was also a lot of put selling, too.

43:44So the bias in the flows remains quite positive, even as the stock has more than doubled this year. The most popular contract to buy today in CrowdStrike is the 250 strike call expiring tomorrow. It's a$2 trade that needs another 2 % to break even, Mike. Oliver, thank you. You know, Bernstein out today, Malcolm, with a little bit of maybe reality check, caution on this group. More or less just saying sentiment seems pretty exuberant. Maybe the bar is pretty high to continue to please investors. They brought down ratings on Palo Alto Networks, Okta, Sentinel One. So not really a fundamental story, but more about maybe some crowding in that group.

44:21Yeah, I think that's a fair criticism, except for the fact that we've been ignoring how important cyber is for the last two, three years as we've been excited about everything else AI can do. So it could be that this is us finally catching up on where the trade should have been. I understand the concern that CrowdStrike, as an example, has gotten way too far over its skis with the valuation like 180 times forward or something like that. But it is possible that as the category leader, it can grow into that valuation near term. And so I think it's a little early to call the end of this wave. I think we're finally just waking up to a trend that has been setting up for quite some time.

45:00Extended for sure. And most of us are there allocated in that direction, playing the momentum, but also the fundamental momentum. Okta is a name, though, I would maintain positioning on. You're looking at a market cap of somewhere around$35 billion. and that is a clear takeover target. I think remember something about all of this. Who can afford them though, Okta? Maybe one of the hyperscalers. Maybe it's one of the hyperscalers that takes them out. But I think the thing that's most important with all of this and the conversation around where we go with AI and the guidelines is, I don't know, Mike, is has there been an experience where the guidelines come before the accident or does the accident have to occur before we have the guidelines And there just seems like there's so much right now for the administration to deal with.

45:48That's the concern I have. And that's why I think you stay with cybersecurity names, because it seems inevitable the accidents. I mean, I think the bull case in some sense, big picture is every company has no real idea how to protect themselves. They really don't know how these models are going to align. But they at least have to retain these firms and buy the products to make sure you say you're trying to protect yourself. For anyone who's skeptical, focus on the annually recurring revenue growth in these names. It has been extremely strong in the last couple of quarters. And I don't think that trend is going to slow down anytime soon.

46:21They buy more insurance than they need. That's kind of how the insurance industry eats, too. All right. Stay with us. Final Trades coming up. We're back with Final Trades. Kevin, get us started. I'm going to go with UnitedHealthcare. Expectations have reset. And I think the risk reward has finally turned favorable. All right. Now, I'm going Goldman Sachs. well off its 52-week high, and I think this freakout over rates is going to create an opportunity to own the name that ends up at the far left of the anthropic prospectus. Yes. I like that. All right. So this is final trade, so I'm going to give a trade.

46:52It is Teradyne, and your risk here is down to the 200-day moving average at 323. In Q3, you have a series of higher lows. You're buying against that level with the hope that the restart happens for the semiconductor name with a reasonable valuation. All right. Yeah, so$33 of downside, more than that for the upside. VIX below$16, S &P up about 1%. That's going to do it for halftime today. The exchange with Kelly 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.

47:43You 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. Some of the most important design choices are the ones that go unnoticed. The details that together make an experience feel intuitive, comfortable, and above all, exhilarating.

48:15At Acura, that means looking closely at how every detail could make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision-crafted performance. That's Acura.