Morning Call 10/13/26

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1:00Morgan Brennan: Tech sell-up in Asia, pit stocks at home. I'm Morgan Brennan, and this is your Morning Call.

1:19Morgan Brennan: Good Tuesday morning. Let's get a check on U.S. stock futures ahead of a bevy of big bank earnings before the open today. That will certainly get a lot of attention. But right now, as you can see right there on your screen. Futures are a mixed picture once again today. The Dow is poised to open up 220 points. The S &P basically flat up half a point. The Nasdaq is under pressure again this morning, down 180 points pre-market. And this is very similar to what we saw in trading yesterday with the Dow eking out again in trading yesterday. The S &P finishing basically flat and semi-stocks leading to a sell-off in the tech-heavy Nasdaq.

1:54Morgan Brennan: But the big focus right now is a broad-based tech sell-off that continues here. It's hitting stocks overseas as well today, here at home overnight, too. South Korea's KOSPI, a key indicator of the global tech trade, specifically the semi-trade, closed down more than 5 % after being down as much as 7 % on the day. It actually closed below 6 ,000 and, or I guess dipping below 6 ,000 at one point. It closed slightly higher than that. its lowest level since July. Names like Samsung, SK Hynix and LG closing sharply lower, along with a number of other tech centric names across Asia. And here on Wall Street, the semi selling continues as well.

2:36Morgan Brennan: So as you just saw on your screen, a lot of red. There you go. A lot of red across the SMH and the Sox this morning, names like SanDisk and AMD down 1%, 2%. This, as we keep a close eye on bond yields, too. With yields, if we pull that screen back up lower across the curve here, 10-year Treasury dipping back below 5.2%. We're trading right around 5.19 % right now. Keep in mind the bond market was closed yesterday for Columbus Day. Fed-sensitive two-year Treasury, 4.76%, and the 30-year Treasury, 5.55%. Let's get reaction now to all of this from Yorkville Ives and Company Senior Managing Director Dan Ives.

3:19Morgan Brennan: He is joining me now live from South Korea. Dan, given the fact that you're there, let's start right now with what we are seeing, the selling we have seen in Asia as an extension of weakness in tech here in the U.S. yesterday. Yeah, Morgan, I could tell you on the ground, I think there's just some nervousness on the memory stocks. I mean, in terms of some China competition. And it's just a jittery overall market in terms of worries about the AI build out. And, you know, do ultimately we see some sort of slowdown? I think that's what you're seeing here in Korea. I continue to think it's way overdone, you know, relative to the sell off.

3:55But definitely investors are a bit nervous. And I think they're going to need earnings season, which I expect to be robust, to ultimately calm the nerves.

4:03Morgan Brennan: I understand the point about overdone here. We've seen some pretty steep moves in recent days. You can argue it's been a rotation under the hood, too, when you see the Dow, for example, and equally S &P outperforming here in the U.S. But you did get some interesting comments from Broadcom CEO Hawk Tan, where he was basically saying that it's a very speculative nature for AI investors. You had the IMF report as well that was pointing to circular AI spending here, too. I mean, these are not new concerns per se. But when you see rates continue to climb higher, you see corporate debt issuance at a record.

4:37Morgan Brennan: Is there a growing risk that we are not going to, we, the markets, are not going to be able to fund, fully fund this AI infrastructure buildout? Yeah, relative to yields and just what we're seeing here, we already assume that combined with maybe in midterm elections and just political backlash, you could have 5%, 10 % of data centers that ultimately don't end up happening. But the reality in terms of as we're seeing this play out, deals are accelerating, not just here, but in Taiwan. And relative to chips, demand and supplies 13 to 1. And I think that's going to show up in earnings relative to the hyperscalers, relative to chip names.

5:17And I get some of the nervousness that we're seeing from investors and given some of the just noise that we're seeing in the market. Some of it's legit, but it all comes down to what demand looks like. And it's accelerating. And that's why I just do not view this as any reason to panic. It's actually the opportunities to own the winners, in my opinion, in terms of what we're seeing here.

5:39Morgan Brennan: So what do you see as winners right now? I think Microsoft on the hyperscale or I think NVIDIA, that stock actually continues to get cheaper just given where we see numbers in demand. And then what I was seeing in software, it's Palantir, CrowdStrike. Those continue to be two that just stick out so much real tough to the use cases that are building out. And then on cybersecurity, they might CrowdStrike. This AI revolution's third inning, I get some of the nervousness, but we are seeing the opposite relative to our checks here in Asia. What do you think about Meta's new AI rollout? I think it's a game changer because it's something that really when it comes to mainstream what we're seeing on Mews, you have 3.6 billion users that you can now and subscribers to tap into and many counted Zuckerberg and Meta out because of the level that they were spending you're now starting to see the monetization it's an arms race, they will start to play catch up to Anthropic and OpenAI and I think it just shows the arms race is not going to slow down is actually going to accelerate.

6:45Morgan Brennan: All right. Dan Ives, don't go too far because we're going to see you a little bit later when you join the call crew as well. Dan Ives joining us from South Korea. Turning to the trade in Europe and our Ben Boulos. Ben, to follow on to the conversation we just had with Dan, what are you seeing in Europe early trading?

7:05Well, I just want to pick up on the Asian picture as well briefly for you, Morgan, because the Korean shares very much in focus amid that tech sell-off. The country's Cosby Index just closed at its lowest level since July overnight. Korean exchange even temporarily halting trade at one point. You can see the redding there on the board of Asian markets. Yet the European equities seem to be shrugging that off. It's another day in the green. The pan-European stock 600 advancing around half a percent at the moment. It's London and Switzerland, the markets, the benchmarks leading the way. We've had some European names report earnings overnight, But even luxury giants like LVMH not doing too much to move the needle this morning.

7:42That said, tech is one of the sectors in Europe that is falling. So don't let that general green picture lull you into false sense of security because there is red ink on some of the key chip names in Europe. Look at that. Down between one and two and a fifth of a percent here. ASML, Infineon, STMicro and BE Semiconductor. just like on your side of the pond. They are giving up some ground this morning amid those worries around the trade in AI. Those chip plays in Europe very much firmly in the red. Morgan, it's back to you.

8:17Morgan Brennan: All right, Ben Boulos, thank you. Earnings season is getting into full swing here in the U.S. today with results from four major banks before the market opened, JPMorgan City, Goldman Sachs and Wells Fargo. The sector is on solid ground. It's helped by healthy loan demand, commercial activity, and credit quality. But analysts say there are questions about whether banks can sustain that growth and rising interest rates and competition for loans and deposits. Joining me now is Ben Gerlinger, the director for equity research for U.S. large cap and regional banks at Citi. Ben, it's great to have you on the show.

8:50Morgan Brennan: What are the key metrics you're going to be watching when we start to get earnings this morning? Good morning. For the largest banks, we're really looking at trading, whether it be equities or FICs. FIC trading goals have seemed to struggle a little bit on a linked quarter basis, but we would say that the second quarter was arguably the high watermark potentially for the cycle. Although it's not necessarily a mean reversion, things are likely a little bit softer in the third quarter relative to the second. Most of the largest banks are still up on a year-over-year basis, so we do think that there's still a good amount of revenue from the trading of equities and FIC and investment banking.

9:27Although it is softer in the second quarter, that seems to show a little bit of the overall concern investors might be having is whether bank stocks have traded a little bit lower. As banks generally see interest rates moving higher, it does improve profitability, but bank stocks do lag a little bit because deposit pricing tends to move a little bit faster than asset pricing. So although profitability likely improves over the coming year, the quarter in which there's an interest rate hike, it does show a little bit of noise in the quarter. And we think that likely plays through in the bank space across almost every major bank that is likely to report in the coming days.

10:05Morgan Brennan: Yeah, I mean, that's exactly where it's going to go with you. We've had a rising rate environment. We have yields trading at, or near, I should say, multi-decade highs. But we've also had a yield curve that's flattened a little bit here. So what does that mean, especially when you do have banks and other financial stocks that have been hit pretty hard in the midst of it? Yeah. So when we look at just the general loans and deposits of a bank, I think the best index to really use is a three-month versus five-year treasury. That really shows the profitability of a bank and that overall outlook going forward for potential profitability.

10:45But like you said, as you get a little bit of flattening, it does show a little bit of skepticism of how profitable banks could be. So although the bank space has seen a pretty healthy first nine months of the year, that flattening, and more recently the long end moving up, it does show potential credit concerns. And moving off of a base of arguably the best credit environment, the rate of change is slightly negative. Although nothing recessionary in that respect, the net change is a little bit of a headwind to overall valuations.

11:14Morgan Brennan: On the investment banking side, I mean, M &A certainly seems like it's continuing here, but we're seeing stalled issuance and IPO pipeline that seems to be freezing up again. How do you anticipate that's going to factor into some of these names that we will get results from, whether it's Goldman Sachs or Morgan Stanley or some of the others that have had a really strong start to the year because of that? Yeah, no, that's a really great point. I think pipelines continue to be strong. The timing in which those pipelines actually come to market has obviously been pushed a little bit. So the third quarter is not shaping up to be the continuation people had previously expected, partly due to rates, partly due to just AI names coming in and going to market on the timeline in which people had perceived.

11:58But that said, the pipeline is still strong. It's not like things are being pulled. It's just being pushed, which is still a net positive for the space. We think the next two years is a very strong environment. But the third quarter is obviously going to be a little bit of a downshift from fifth gear to potentially fourth gear.

12:14Morgan Brennan: So, Ben, in light of all of that, quickly, what would be your top pick going into results? We think Bank of America has been overly punished here, although trading up to date they provided was a little bit softer than expected. We think that outlook for just higher interest rates in the three month, five year spread, like we talked about, just the core loans and deposits of the bank continue to set up a really strong profitability into next year. So although the name has lagged over the last couple of weeks, we continue to like the name and think there's quite a bit of an opportunity here relative to some of the larger peers.

12:44Morgan Brennan: OK. Ben Gerlinger of Citi, great to have you on. Thank you. And don't miss a first on CNBC interview with Wells Fargo CFO. That is going to be later today at 1145 a.m. Eastern. We've got a lot more to come here on Morning Call, though, including fallout from Saudi Arabia airport attacks and news strikes this morning as the kingdom security comes into question. Plus, we're exploring the next frontier of cyberspace with the CEO of IonQ and ambitions for quantum computing and beyond. And later, the consumer spending setup with MasterCard's Michelle Meyer and the mixed picture heading into a critical earnings and holiday season.

13:22Morgan Brennan: We've got a very busy hour still ahead when Morning Call returns. All right, let's just get a check on energy prices right now. Now under pressure, WTI is down almost 2 percent, trading just below$92 a barrel. Brent crude is also down 1.6 percent, trading just below$105 a barrel. Let's turn to the latest out of Saudi Arabia. Officials announcing the country intercepted more ballistic missiles launched by Yemen's Houthis, including fresh attempts to strike Riyadh. This, as leaders there launch a probe into how the air defense systems failed to intercept a barrage of missiles and drones fired by the Houthis over the weekend, including the deadly attacks on Riyadh's airport.

13:58Morgan Brennan: The strikes putting a number of high-profile events being hosted by the kingdom into question. As we told you yesterday, a number of high-profile energy leaders pulled out of this week's World Petroleum Congress. And the MISC Global Forum, which was scheduled to be held in Saudi Arabia next month, has been canceled by its organizers. But for more, let's bring in Hussein Nasser-Edin, CEO of Crownnox. This is a risk mitigation solutions company, an international security and crisis response company. and specializes in executive production and supporting multinational organizations. Hussein, it's wonderful to have you on.

14:36Morgan Brennan: Welcome to you. How are you counseling clients right now, given the situation, the evolving situation in Saudi Arabia and the Middle East? Hi, thank you for having me. A very important topic today to discuss, as the escalation highlights an important reality. Even countries with established security infrastructure and strong economic environments remain today vulnerable to the wider regional security dynamics, something that we have learned during the last year, I believe. The principal concern for international businesses is not necessarily an immediate deterioration of the security across Saudi Arabia.

15:14We don't see this happening today and hopefully not in the future. But the unpredictability of further escalation and its potential impact on aviation personal movement and business continuity is the key concern today.

15:29Morgan Brennan: So in light of that, I mean, you have an airport in Riyadh that's now closed for the rest of the week. And as The Wall Street Journal wrote over the weekend, we've now opened up air travel as a front line of conflict in a way we've never seen before. It's been unprecedented to see civilian airports and infrastructure targeted the way it's been happening and ramping up here in the midst of this war in recent months. So how does that change the calculus when it comes to economic warfare, when it comes to companies and executives and workforce trying to move through a region? Exactly. So what we are seeing today is not a classical effect of regional war the way everyone imagined.

16:12It's a very surgical way of attacking infrastructure that is affecting a specific sector within the economy. And today in Saudi Arabia, we see a live presentation of that. We had a lot of people actually planning their visits this month for the economical conferences that are on a peak. And today we see a different way of interaction from businesses across the world who want to maintain that relationship with Saudi Arabia. They can't actually afford to have a sudden change in plans. still they need to keep security at their planning schedule. For example, a proportional intelligence-led approach remains essential.

16:59Security measures should reflect actual exposure and operational requirements rather than generalize perception of regional risk. This is what everyone is recognizing this year, starting from what happened previously in the UAE to what's happening today in Saudi. I can't afford not to continue my business if it's doable. Still, I can't afford not to take into consideration what's happening as serious as I can.

17:25Morgan Brennan: I mean, as an expert and as someone who is his counseling companies and executives on risk and on solutions to navigate conflicts such as this, are protocols changing? Are you thinking differently about intelligence gathering? Are you sharing advice differently? It does feel like we're moving into it, as you sort of touched on, a different era of war fighting and risk assessment on civilians and on society as a whole. Definitely. We are maneuvering thin lines that actually have a lot of politics to do with. So access to intelligence is always affected by the reality that we are part of an ongoing conflict.

18:10So government sources are the first to look at. Still, we have to understand that governments are conservative for different reasons on an international level today. The corporate security community is one of the most important to tackle in when looking at analysis, forecasting and intelligence. And again, infrastructure within the companies itself has changed rapidly. The speed of taking strategic decisions, access to cash, the ability to actually implement alternatives has changed dramatically during the last year. as many companies recognized that we were not resilient enough and people were not empowered enough to take fast decisions and move a big number of people through different paths when that required it.

18:59I believe today in Saudi we're seeing a more resilient, more aware security community within the private sector, within the international company sector that have learned rapidly during the last year from what happened in neighboring countries. OK.

19:15Morgan Brennan: Hussein Nasser-Edin of Crown Knox Risk Mitigation Solutions. It's good to have you on. Appreciate it. Thank you for having me. President Trump continuing to defend his administration's decision to temporarily ease restrictions on Russian diesel fuel exports. That's amid bipartisan pushback. Taking a true social late last night, firing back at comments that China and Russia are helping Iran and adding that if they are, it's at a very low level. adding that he does not believe they are helping Iran and stressing that they have too much to lose and the U.S. would know about it. The comments come after the president earlier in the day said he made the right choice for American people in making that diesel deal.

19:54Morgan Brennan: Well, straight ahead, Elon Musk makes 2026 election season history. We're going to tell you how when Morning Call returns.

20:06Morgan Brennan: Welcome back to Morning Call News Alert on the 2026 midterms and new details on Elon Musk's spending around those contests. A spokesperson for Musk's America PAC confirming he has spent more than$276 million on donations to Republican groups since July. That makes him the biggest known donor of the 2026 midterms. The largest share of that money,$158 million, went to the Senate Leadership Fund. That's the main super PAC backing Republican Senate candidates. The new contributions bring Musk's known federal political giving for the 2025-2026 cycle to roughly$366 million. That surpasses the$290 million that was spent during the 2024 presidential election.

20:45Morgan Brennan: You can read more about this on CNBC.com. Meantime, hackers striking hundreds of French supermarkets early Monday, raising temperatures in refrigerators and freezer cases to more than 100 degrees. That spoiled food. It actually triggered some fires. The prosecutor's office in Paris saying, quote, a large-scale attack affected connected refrigerator systems. Carrefour says 80 of its stores were hit, while Monoprix, which operates roughly 500 stores in France, says 5 % were affected. We'll bring you more as we learn more. We're checking on shares of INQ, meantime, though, after the Quantum Company tumbled 9 % yesterday.

21:22Morgan Brennan: INQ announcing a$1.3 billion deal for enterprise security company Elicity as it expands into, as expands its cybersecurity portfolio. I spoke with CEO Niccolo DeMasi, who says this will provide INQ with expanded channels to bring quantum offerings to government and enterprise customers to protect them not only for the AI era that is emerging, but for what's coming with quantum and de -encryption. We've only had three or four months of the OpenAI Anthropic latest language models, and they've already started doing things like trying to hack into the FBI website and so on. And so I think, unfortunately, we all have to be realistic that the amount of investment, care, attention, and resourcing that we all put into protecting ourselves from households to government to infrastructure is going to have to climb a long way and climb a long way quickly.

22:16You know, INQ is spending a lot of money on security, both physical and digital, because we're building the world's most powerful quantum computers. And because of that advantage in being, as I like to call it, the safe breakers or the code breakers, we think we're ideally positioned to provide the safe making, the code making and the security.

22:37Morgan Brennan: Now, decrypts later. That's part of the emerging threat when it comes to data here. So in a down day for tech stocks, INQ underperforming the Nasdaq in part because some investors worry that it's scaling too quickly. INQ purchased semiconductor firm Skywater Technologies earlier this year, Oxford Ionics, last year. And INQ has logged wins recently, though, selected last week by DARPA for the final stage of its quantum benchmarking initiative and recently announcing a partnership with NVIDIA to bring its quantum computers into data centers. That was enabled in part by that Skywater purchase. You can see shares of IonQ are bouncing back up about 1 % here pre-market.

23:13Morgan Brennan: You can see the full interview where we talk all about cybersecurity and quantum in depth with IonQ's CEO Nicolo DiMasi on CNBC.com. Well, still on deck, the state of the consumer when we speak with MasterCard's Michelle Meyer ahead of a critical earnings and holiday shopping season. The setup and what investors need to know when Morning Call returns. Hi, I'm Morgan Brown, and welcome back to Morning Call. Let's get a check on U.S. stock futures ahead of a bevy of big bank earnings before the open today. That's going to get a lot of attention. We're going to dive deeper into that a little bit later in the hour.

23:49Morgan Brennan: But as you can see right there on your screen, it's a mixed picture, again, for the major averages. The Dow poised to open up about 280 points. The S &P up slightly higher, about 4.5 points, and the Nasdaq down 157 points. Very similar to the market action we saw yesterday with an S &P that basically closed flat to the downside. a Dow that posted gains and a Nasdaq that was under pressure as we continue to see a semi-stock slide here. Let's get a check on what we're seeing in the bond market with Treasury yields, which are lower across the curve as well. The U.S. 10-year Treasury yielding 5.19 percent, slipped back below 5.2 percent.

24:25Morgan Brennan: The Fed-sensitive two-year Treasury yielding 4.77 percent, 30-year Treasury 5.55 percent. Let's also get a check on what we're seeing in energy, because there's red on the screen there, too, which is perhaps in part fueling what we're seeing in yields. WTI crude is down almost 2 percent, trading right around$92 a barrel. Brent crude is down 1.75 percent, trading just below$105 a barrel. Arbob Gasoline, other refined product contracts are also lower this morning. The big focus right now, though, is this broad-based tech sell-off that started in the U.S. and has now been hitting stocks overseas and is continuing with its momentum here as well.

25:02Morgan Brennan: So overnight, South Korea's KOSPI, this is a key indicator of the global tech and specifically semiconductor trade, closed down more than 5 percent, about 5.5 percent, after being down as much as 7 percent on the day and actually triggering a trading halt. It actually fell below 6 ,000 at one point. It finished slightly above that 6K level, though this is the lowest level since July for the Kospi. Names like Samsung, SK Hynix, LG closing lower, Chinese battery maker CXMT all sharply lower. And on Wall Street, the sell-off continues here as well. Names like AMD, Micron, Applied Materials, SanDisk is down about 3 % pre-market, and others are also under pressure.

25:46Morgan Brennan: We're going to turn to the consumer now, though, as investors brace for another busy week of key spending data, including existing home sales today, CPI tomorrow, PPI later in the week. You got retail sales on Thursday as well. This after the latest consumer sentiment read Friday hit its lowest level in five months, despite a consumer that still appears willing to spend. And we may get more clues when the big banks report this week as well, revealing their latest credit card spending trends and lending trends. Plus, today, when grocery giant Albertsons and Domino's Pizza report before the open, we'll get more commentary regarding the consumer.

26:23Morgan Brennan: But ahead of all of it, the setup looks like an uphill climb with a state street consumer discretionary sector ETF down 10 percent from its August high. And we are seeing nearly$640 million in net outflows last month. That was the most since January. Among the fund's biggest laggards, Ollie's Bargain Outlets, Dick's Sporting Goods, and Tractor Supply, which just withdrew its long-term outlook over the summer. On the flip side, we're seeing signs of life from other corners of the sector, with names like Victoria's Secret, Target, and Best Buy all up double digits year-to-date. So let's dig through all of this.

26:57Morgan Brennan: Michelle Meyer, chief economist at MasterCard Economics Institute, joins me now. Michelle, it is great to see you. And I guess just a broad general question, your assessment of the state of the consumer right now. Yeah, so you talked about this disconnect, and I think that's important to keep in mind where it is not one story for the consumer. The sentiment surveys for some time have been showing concern, worry about the path forward. You see differences in the types of spending, which sectors, which categories are seeing strength versus some pullback. But when you put the whole thing together and you look at the aggregate state of consumer spending, it is strong, and it has been strong all year.

27:41The first half of the year was very impressive in terms of overall spending on a nominal basis. And there was a lot of factors in play. The labor market was improving. Tax refunds were supportive. Consumers were managing through some of that higher prices, particularly at the pump, but doing it very well. And then momentum is continuing, and we think that will be revealed as we get into the holiday shopping season.

28:03Morgan Brennan: And yet some of the soft data we've gotten, for example, consumer sentiment, not so great. So how to understand that disconnect between what consumers are willing or finding the ability to shell out in terms of their spending versus how they're feeling about it? Yeah. Well, look, the sentiment data have been somewhat misleading, frankly, for the last few years. So it's been hard to reconcile what the sentiment surveys have been suggesting about what consumers will do versus actual spending. So, yes, I think the direction of travel of the surveys is helpful. So we have to keep an eye on that. And the fact that it has slowed down in the last few months is definitely worth monitoring.

28:45But we're not yet seeing that show up in terms of actual spending. So spending has been strong and, as I mentioned, accelerated in the first half of the year, even relative to last year. And it comes to purchasing power. Does the consumer have the ability to spend? And I think right now the answer is yes. You have a 4.2 % unemployment rate. You've had impressive wealth gains if you look at the health of the household balance sheet. And that's allowing consumers to realize some of those wealth gains. And that further generates power to spend.

29:17Morgan Brennan: I mean, you just touched on it, but you also have a consumer that's more discerning here. So what does that mean in terms of where consumers are spending, especially as you go into a holiday season, a key holiday shopping season, and what they're steering clear of? That's a critical point, the discerning consumer. And I think it's because consumers have a lot more choices right now. They have a lot more information. So they can be really mindful about how they are spending and how they're engaging. And I think technology plays a really big role in that. So we'll see as we get into the holiday season just how much AI search changes the consumer path forward, right, in the sense of how do they look for different items?

30:00How do they optimize value? And what does value mean for consumers? For some consumers, it might just mean the lower price. For others, it means finding that very specific item where they're not as price sensitive. So during the holiday season, we think we'll learn a lot about how this shifts and what it means as we look into the next few years where AI and agentic commerce will become an even bigger part of this spending trajectory. For this season in particular, we're looking for five and a half percent year over year growth in the holiday season, which will be the strongest in over four years if we're right.

30:32Morgan Brennan: So in light of all of this K-shaped economy, G-shaped economy, C-shaped economy, I mean, there's so many debates around all of this. I'm not sure how much any of it matters, but it certainly all speaks to bottom line. You have a striated consumer economy right now. Yeah, I think that's right. I mean, you have to be careful picking your letter because they're all kind of right, but kind of not right in the same time. And I think it's because you have these very different narratives that are moving through the economy and for the consumer. And it's not new today. If you think about the last few years, you've had this bifurcated story, right?

31:10Just coming out of the pandemic, you saw so much spending on the experience economy once the economy reopened and the goods economy was softer after during the pandemic, there was so much spending on furniture and housing. So it's not new. These cycles, this differentiation is here today as well. And I think it speaks to, again, how consumers are being really careful of what they're doing with their dollars. So when it comes to everyday purchases, where there's lots of competition, where there's lots of price discovery, consumers probably are looking for the biggest discount, that best moment to buy in bulk or however it is that they find value.

31:48But when it's a once-in-a-lifetime experience or a certain item that they must have or they must gift, there they might look to spend a bit more money, especially with social media creating this hype around certain items or certain experiences. So it's not one story by any means. And I think that's extremely important to keep in mind. It makes it hard to come up with that one letter to describe the consumer.

32:10Morgan Brennan: All right, Michelle Meyer, great to have you on. Keep us updated as the holiday season unfolds here. I can't believe we're already at that time of the year. Holy moly. You got it. A lot more to come here on Morning Call, including Apple ready to lay out its smart home strategy as the tech giant looks to expand its ecosystem and get a bigger piece of that market. Morning call. We'll be right back. Welcome back. Let's get to some of this morning's top stock stories. Apple will unveil a suite of smart home products at an event in New York today as it pushes into a space dominated by Amazon and Google.

32:40Morgan Brennan: The items are expected to include a home hub with a display that will be controlled primarily through Siri and voice commands, as well as new versions of the HomePod mini and Apple TV. The launch comes as Apple's shares are within striking distance of an all-time high. Kroger, meantime, plans to cut about 3 ,000 corporate roles over the next few years. That's according to an internal memo that was seen by Reuters. The move comes as the supermarket chain is expanding its use of AI. In the memo, Kroger's CEO says the cuts will help the company lower prices and invest in store employees. They're basically cutting about a third of their corporate workforce.

33:13Morgan Brennan: And Visa gets approval from China's central bank to begin preparations for a domestic bank card clearing business. It puts the company a step closer to entering China's local payments market. Visa didn't put a timeline on launching the business, but the green light comes after President Trump visited China in May and said that he pressed officials to grant Visa greater access just a couple of weeks ago as well. Visa's CEO was involved in some of those trips, too. Well, straight ahead, the Morning Call crew teeing up the trading day ahead with the tech trade facing fresh pressures ahead of the open.

33:48Morgan Brennan: What should you do? We're back in a moment. Here's what to watch today. In a few minutes, we're going to get the latest look at sentiment among small businesses. The NFIB report also watching for existing home sales figures and also the monthly treasury balance. We're going to hear from the Fed's Tom Barkin and Susan Collins this afternoon and just mentioned it, but Apple will unveil its new lineup of smart home devices as well. Earnings season kicks off in earnest. We're going to get big bank results from JP Morgan, Citigroup, Goldman Sachs, and Wells Fargo. We're also going to get earnings from Johnson & Johnson and UnitedHealth, Albertsons, and Domino's.

34:22Morgan Brennan: But it's time for your call sheet, where we're going to look at the topics driving the trading day ahead. We just touched on some of them, didn't we? Crew members today, Dan Ives of Yorkville Ives, Gina Martin-Adams of HB Wealth, and Lee Baker of Clarisse Financial Advisors, also a member of the CNBC Financial Advisors Council. It's great to have all of you here. Gina, I'm going to kick this conversation off with you. Before we start getting into what to watch later this morning, the AI trade, the tech trade and the semi slide we're seeing right now. What are your thoughts, especially as we do see rotation into other stocks, other sectors that have been a little more beaten down recently?

34:53Yeah, it's a very interesting trade because it really is a tale of two stories that have just refreshed one another throughout the last several years. Over the last quarter or so, it's been about software stocks and hardware stocks as the semiconductors have taken a pause after that rip-roaring rally that we saw in April and May. But broadly, it's just who's leader today, not is tech leading overall. Tech is certainly one of the strongest spaces within the S &P 500, second only to energy. And that likely continues as long as we keep seeing cloud revenue improve, as long as we keep seeing spending guidance from the hyperscalers emerge.

35:29We're going to see generally the tech trade continually be this trade that refreshes itself. It's just who leads within tech at any given moment. But for asset allocators and investors that are long term investors, the tech space is one you can't ignore.

35:45Morgan Brennan: Yeah. And we had David George from Andreessen Horowitz on the show. And he was talking about the fact that the tech is the economy made the case. Absolutely. You have to be invested there. Lee, I want to get your thoughts on this, especially as we did see this IMF report overnight. That's getting some traction here talking about a disorderly that could see bond yields, that bond yields could see a disorderly spike as debt and inflation risks were worse in here. but also went out of its way to talk about the rising borrowing by AI firms as an additional source of strain on the bond market overall.

36:16Morgan Brennan: This is the stat that got my attention. Hyperscaler's share of global investment-grade bond issuance has risen to 10 % from less than 1 % since 2024. Gotcha. Not surprising at all. When you take a look at the number of data centers here in the United States and the projection of the number that are currently on deck, You've got about 1 ,300 data centers. There's another 2 ,300 on deck to be built. That money's got to come from somewhere. And so one of the pressures that you're seeing is that interest rates have gone up. That's making the cost of building virtually anything that much more expensive.

36:50And that also means you've got a higher hurdle to clear the bar to remain a profitable company.

36:54Morgan Brennan: Dan, I want to hear your thoughts on software. We haven't talked about that yet this hour. And IGV, you know, poised for a breakout here. as we do see investors start to embrace some of these big software companies like ServiceNow, like Salesforce, et cetera, as the other AI plays? Yeah, I think the SaaS apocalypse, that was a fictional narrative. And I think as it's played out, software definitely has struggles. We've seen Adobe and Twin others. But this is really a renaissance that could happen in a Salesforce, in what McDermott is doing at ServiceNow. Because the use cases are going to be led by software.

37:31And we've seen that with Palantir. We've seen it with Snowflake. And now it's starting to play out. And in my opinion, software could be a significant outperformer combined with cybersecurity over the next call, two, three, four quarters as this plays out. I think investors need to rotate more and more into software.

37:50Morgan Brennan: Dan, what are you watching for this Apple event? Do you think it's meaningful for the company, for the stock? I think it's more meaningful to see Ternus in terms of how aggressively he goes after this market. Clearly, they've been way behind, but it just shows. I mean, they're not just going to take the loss. I mean, they're going to go after this market and further expand that flywheel, especially when it comes to AI, because it all kind of weaves into that broader thought. All right. I want to shift gears here to talk a little bit about bank earnings, because we're going to be watching that as sort of the unofficial start of earnings season.

38:23Morgan Brennan: And so what are you looking to hear and see from some of these banks today and tomorrow? Yeah, it's going to be a really interesting earnings season. The KBW is already down about 12 percent from its peak. So we know that the regional banks are under pressure in particular. That's putting the onus on the mega cap banks, the multidimensional banks, to really shore up the sector. That means it will not likely be mostly about the yield curve and interest expense, but more about will we get investment banking revenues? How is M &A? What's happening with IPO? How are your trading revenues doing? The diversified approach should help shelter the biggest of the big cap stocks from what is evidently regional bank weakness.

39:03That's a big question mark because obviously we need financials to improve in order to sustain this kind of broadening trade that we talked about earlier this year. It's not just tech and energy. It has to be the story in order for the market to sustain its gains. And that means financials need to participate. Will we get it or not is a huge question mark in the environment that we're in because we are seeing rate hikes emerge. We are seeing the yield curve change, in particular in the shorter end of the curve, but also across the space we're seeing yields rise. What does that mean for financials overall?

39:33It usually means some degree of underperformance. It'll be up to the big banks to prove us wrong.

39:38Morgan Brennan: What do you think, Lee? Yeah, when I take a look at this, the thing that I'm most curious about with earnings reports is if we dig down a couple layers and see what the big banks tell us about the consumer. Are they borrowing to keep the spending going? I think that's going to be pivotal because when we take a look at the consumer, it goes beyond just simply the numbers. You know, it's a story of faith, hope, belief. Does the American consumer in particular believe that there's a brighter future that allows them to continue to fuel the spending? Yeah. Speaking of earnings, we actually got our first earnings report.

40:11Morgan Brennan: So I just want to bring you the results here. UnitedHealth just out with its quarterly the results. Earnings of$4.69 a share. That was well ahead of 414 expectations. That's on revenue of$112.7 billion, which was also ahead of estimates. UNH is raising its earnings guidance for the full year to at least$20.50 a share versus estimates of$19.86 a share. And you can see shares of UNH right now are spiking about 4 % on these results. So, Gina, I'm going to kick this back and it's bringing the Dow higher. Look at that. We're now up about 411 points in Dow futures. Gina, I want to get your reaction to this, whether it's the company specifically or overall, what we are seeing so far when we get a report like this, especially when I think about something like CPI and the role that health care inflation is making.

40:57Yeah. Yeah. It's as long as we get a positive reaction to earnings, it's actually a very good sign. Generally, I think you want to look at how the guidance emerges from a lot of these companies, though, because what we're looking at for third quarter are expectations that have been reined in. Since July, more than half of industries have actually reduced their expectations for third quarter earnings. So the chances that these companies beat are actually very high. Even with very robust expectations, we will most likely see a beat. What tends to drive the stocks longer term is not just the beat, but also the guidance toward the outlook.

41:28And right now we're in a point in time in which we need to see companies confirming that we are likely to see 25 percent earnings growth over the course of the next 12 months in order to keep the stock price momentum moving higher. That's got to come from the non-tech and non-energy estimates inside the S &P 500. Again, this was a year that was about broadening. And I think the third quarter is going to tell us whether or not that broadening continues into 2027 or if we revert back to a more concentrated trade that is really focused on just tech and energy, which are the brightest of the bright spots in the index.

42:02So something like this today, if we continue to get beats out of health care, financials, consumer stocks, industrials, materials, the non-tech and energy spaces of this economy, we can continue to see this market rip higher into 2027.

42:16Morgan Brennan: OK, we've got a minute left. We're going to lightning around this. Lee, your thoughts, and then Dan, I want to get to yours. Yeah, I have to agree with her wholeheartedly. If we continue to get these beats, it does provide us with a good foundation to certainly the rest of this quarter and the early part of 2027 to continue higher. OK, Dan, I'm going to give you final word here and what you're watching as we go into a market that's going to be driven at least today, the next couple of days by earnings from things that are not tech. But of course, it does set us up for hyperscalers, too. I think it's going to set us up for just a massively robust earnings season.

42:48I think tech rips into year end despite the jitters we're seeing get the popcorn out.

42:53Morgan Brennan: All right. We still have 30 seconds to go. I'm going to take the time, folks. Lee, consumer, dominoes, others that we're going to get results from. How do we think about the consumer here? I think the consumer right now and into the holidays is still pretty solid. I'm more concerned about things falling off of the consumer in 2027. OK, we will continue to watch that. We'll continue to watch the bond market. Energy prices are under pressure. We got a mixed picture for the major averages this morning. Dow pushing higher on those UNH results. Real talent is defined by what people can do, not where they learn to do it.

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