Morning Call 10/16/26

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1:00Morgan Brennan: Stabilization. I'm Morgan Brennan, and this is your Morning Call.

1:17Morgan Brennan: Good Friday morning. It's great to be back with you. Let's get a check on U.S. stock futures after a whipsaw session for stocks yesterday that saw the major averages snap, a three-session slide all finish higher. And you can see right there on your screen, we're attempting some gains again here pre-market this Friday morning with the S &P poised to open up 12 points. The Dow 122 points, the Nasdaq down 44 points. In terms of the week so far up until today, rotation has been the name of the game. The Dow tracking for its best week since August. S &P and Nasdaq are both lower heading into today's trade.

1:51Morgan Brennan: And actually, the Nasdaq 100 has been hit the hardest. It's of this final day of trading. The Dow is poised to finish up 1 percent. Treasury's in focus again today. Obviously, you've seen big moves, lots of buying in the bond market in the last couple of days. You could see taking a little bit of a breather here this morning. U.S. 10-year Treasury yielding 5.1 percent exactly right now. Fed sensitive to your Treasury down. It's 4.74 percent and the 30-year Treasury 5.44 percent. Speaking of yields, we're continuing to watch the neocloud sector, which has come under intense pressure this week amid the rising rate environment and massive debt loads and investor concerns about all of that.

2:31Morgan Brennan: And so you can see CoreWeave is taking a bit of a breather here this morning. That's after the CDS yields for five-year credit default swaps spiked above 15 percent in trading earlier this week, basically trading at distressed levels. And you can see it's a similar situation across the board here as well. Let's also check on energy and what we're seeing in crude oil prices this morning, which are also under pressure. WTI is down eight-tenths of 1%, trading around$97 a barrel. Brent crude is down six-tenths of 1%, trading around$105 a barrel. This after WTI yesterday had its best day in a month.

3:08Morgan Brennan: Let's see how Europe and Asia are wrapping up their week. Steve Sedgwick is in London with that trade. Steve.

3:17Morgan, I've been listening attentively to your summary there and the rotation is absolutely spot on. But I think it's been the most bemusing week in any way. What happened? All of a sudden, treasuries became the safe haven trade again. As you say, a couple of really heavy days of buying, taking that yield right back down again. And yet it's a week when we've seen hot CPI and even hotter PPI. And yet we've still got the concerns about the deficit. We've still got the concerns about AI, which you were quite clearly saying there with the NeoClouds and CoreWeaver and others as well. And yet we found a safe haven in treasuries.

3:49What does that say to us about this market? European equities, just like what you were saying about the Dow there, European equities are lining up for their biggest weekly gain since August. So we're worried about a whole host of things. And yet the equities, again, very glib, very glacial, doing really well. The stock 600 up nearly 2 % for the week. But But as you quite clearly alluded to, beneath the figure, it's been a really tough few days for technology. Chip names notching double digit declines. And of course, Asian equities also oscillating. But they're in the green today. So the recovery, the buy on the downtick trade that the retail investors who watch CNBC and watch Morning Call especially love so much, the buy on the dip trade.

4:32Look at this. You've got some of these markets, the Cosby, which has just been all over the place. The Cosby, by the way, which I put into a well-known search engine. How much leverage can I get on the Cosby? On the Cosby, I beg your pardon. It was quite extraordinary. There's a three times ETF, right? Three times leverage ETF, which if you use an offshore crypto, you can get 50 times on. Now, by my math, that's 150 times. And we wonder why the Cosby, which is dominated by two stocks, SK Hynix and Samsung, which have a weighting of just over 50 percent. And we wonder why it's volatile. OK, Cosby, anyway, it's just clocked its worst week since October 2008.

5:06down just a mere 14.5%. Back to you, my friend. Have a wonderful weekend.

5:11Morgan Brennan: You have a wonderful weekend as well, and I'm glad you brought that up because it's a key point. I don't think we talk about it enough. The actual machinations of the market and everything that's going into it, all the leverage, it's just unlike anything we've really ever seen before in terms of what's available out there for trading. All right, Steve Sedgwick, thank you. Have a great weekend. Federal Reserve Chairman Kevin Warsh says he will not prejudge any rate moves ahead of the next Fed meeting in a little more than two weeks from today. Speaking overnight at the World Bank meetings, the IMF meetings in Bangkok, Thailand, Warsh once again stressing the central bank's core aim of ensuring price stability in a U.S.

5:48Morgan Brennan: economy, enjoying strong investment and growth. And Warsh outlining key factors that would influence the Fed's thinking heading into the final meetings of the year. We came to a judgment. What are we seeing in the global economy as it affects the U.S.? I would say broadly over the month or so that's transpired since then, the world has broadly conformed to our expectations. We'll be meeting a couple more times this year, and that will be the crystallizing moment at which we're going to look out the window. What do we see? What's happening to output? What's happening to employment? Well, Warsh also weighing in on growth prospects surrounding AI while warning about the near-term impact on employment and broader economy.

6:37We don't know in the next 12 or 18 months its effect on employment. But if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing. But the path from where we are to there is likely to be a very bumpy one. Bumpy in our understanding of the technology. Bumpy because we really don't know what the market structure is going to be of these new technologies. Who's going to get to make the money? What are the consequences for those that bet that they were going to make money, but the market structure doesn't allow it?

7:18Morgan Brennan: And bumpy, possibly, because we do not know when the companies spending the money are going to turn that into revenue or even profitability. This is something obviously we've been talking about every single day for what feels like weeks on end, but has certainly been roiling the market overall and trading activity in recent days. With that, let's bring in Peter Scheer, Academy Securities, head of macro strategy. Peter, it's great to have you back on the show. I do want to get your reaction to what we just heard from Fed Chair Warsh. One thing is I do like that he's waiting for the data to come in.

7:50He did stress even during the conversation that they're looking at alternative data. They're looking at all sorts of data. And especially what I like is they don't want to react to lag data. They're trying to figure out what's going to happen. There's so much going on with the war, with Iran, with diesel. I think that makes sense to wait, see how these things play out. So I like that. I think he's a little bit too optimistic on the benefits of AI versus the cost and inflation pressures that we're currently. headed. But I do like the fact that we are talking about the AI economy almost as a distinct economy, because I think that's where we're at.

8:21This compute build is separate from everything else. And getting that right is going to really drive your investment returns for the next few months or years.

8:29Morgan Brennan: Why do you think he's too optimistic? Is it because it's inflationary, more inflationary than perhaps he's presenting it as in the near term? Or is it something else? Yeah, I think it's more inflationary in the near term, right, where there's going through this build out. And we're not yet seeing necessarily these huge productivity gains. There's stories here and there. At the same time, we might be not getting charged the full price or the full cost of this. So I think that to me, the jury is still open on whether we get these productivity gains before this inflation spike comes. And then we're in one of the weirdest markets.

9:01I think it's really hard to get your hands around. And you mentioned earlier on Corwee, for example. And we're in this area where normally credit spreads, they widen if the company's doing bad and they tighten if the company's doing well. So stocks tend to do well if credit spreads are tightening. And I think we're at the strange point where if the AI or the compute spend slows, credit will do very well and the equities will not do very well. And I think that's one thing that drove treasury yields much lower this week. The concerns that the AI spend won't be as big, that the compute spend might not be as big, actually helped treasuries a lot, but hurt equities.

9:39So I think it's a new dynamic that's being added to the market and it's hard to get your head around.

9:43Morgan Brennan: You just literally just took my next question out of my mouth. And that's the fact that we're coming off the best two day rally in the Treasury bond market in over a year, to your point. And that happened in the face of hot CPI and PPI reports, which are now going to funnel into the PC report, which we know the Fed watches most closely. And I think we're moving past kind of the inflation and the reaction to that. And this to me is much more where's the AI, where's the compute spend going to go? And if these companies are at all forced not to issue as much debt as they thought, their growth prospects probably slow.

10:15That's great for treasuries, good for their credit spreads, but not good for their equities. And I think that's why we're seeing this rotation, right? Why you mentioned the NASDAQ 100 underperformed. It is most dependent on the ability to keep that financing coming. And I think what you're seeing is investors say, hey, I can digest a couple hundred billion more this year. Maybe I can digest a trillion next year. But if I'm going to be digesting a trillion more each and every year for years to come, I want to get paid a lot more. And that's changing the dynamics.

10:41Morgan Brennan: I want to go back to this idea of analyzing more data, assessing the data from a Fed standpoint in real time versus versus looking at backward data as well. I mean, we're seeing this as a key example is what's happening with diesel prices and how that's radiating out into inflation data and higher prices in real time. What are you tracking? What do you think the Fed should be tracking when it comes to this high-frequency data right now? And what does it mean when we know so much of this is tied to wars and geopolitical dynamics? Yeah, so I think, you know, we're all become geopolitical experts or have to at least look at it.

11:17Unfortunately, at Academy Securities, we have a lot of help on that. But we're really trying to figure out where does diesel go next, right? Is Trump going to be successful with some of his things? You know, we reached out to Europe to potentially release diesel and oil. They've talked about it. So far, very little has come of that. I think the Putin deal may backfire and it wasn't going to bring much diesel back on. Maybe we see some real progress towards peace in one region or the other. So that to me is the wild card. But right now, I think we're headed towards higher diesel prices. That's going to put pressure on this.

11:43So the Fed may have to react. But I think you have to sit here and wait because that is such a fluid situation. It's changing almost every day. And then one thing I think I want to kind of warn your audience, because they're probably not as deep dive into credit and fixed income as I unfortunately get sucked into. But the things that I think you should be watching is how quickly the 10-year Treasury moved. We moved about 70 bps in a month. You saw German and French bonds move 60 basis points apart in the two-year very, very quickly. These are really kind of unusual moves. And what I'm watching closely is can we see that similar move in credit spreads?

12:16We have not seen it. I'm not particularly worried about credit spreads. Having said that, I am following a lot of my triggers very closely in credit. because if we get a credit spread widening and it's fast, that has to hit equity. So keep a very close eye on it. We've seen some mention of the hyperscaler names. We've seen a little bit of CCC. We have not seen that sort of rapid movement. But if you go back to periods when we have crises, it tends to follow one market after the other. And I kind of view, we saw treasuries, then we saw French government. Is credit next? I don't think so. But that's something your audience should be watching.

12:49So watch tickers like HYG, JNK, LQD for weakness, because that could forbid, you know, be a precursor to equity weakness.

12:58Morgan Brennan: OK, we will mark that and we will track that. And, you know, we might all be pretending to be geopolitical experts. You actually are one. So our man of macro to kick off the hour, Peter Scheer, it's great to have you on, as always. Thanks a lot. A lot more to come here on Morning Call, including after a decade of delays, the new Tesla Roadster appears ready to hit the road and the air. This might be the best video we bring you all day. Plus, the wait is over for Apple and its new foldable iPhone. And we'll see if demand can surpass the already heightened street expectations. And later, it's Coke over Pepsi for one U.S.

13:33Morgan Brennan: fast food giant. We have a very busy hour still ahead when Morning Call returns. 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. At Acura, that means looking closely at how every detail can 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. Weren't agents supposed to take things off your plate?

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15:01Morgan Brennan: Welcome back. We have some breaking news on Jeff Bezos' space company. Blue Origin unveiling for the first time its longer-term plan for launch operations and investment in Florida, disclosing it has invested more than$3 billion in facilities across the state and that its manufacturing and operations footprint has more than doubled over the past few years. Ian Richardson, Blue Origin Senior VP of Operations, writing in a blog post that, quote, as we look ahead, this infrastructure is designed to support multiple flights per week by the end of the decade. What does that mean? Multiple launches per week by the partially reusable New Glenn rocket, which leadership has said will return to flight before end of this year after a launch pad explosion back in May.

15:41Morgan Brennan: Blue is also adding additional new Glenn launch pads on the Space Coast to additional landing platforms and expanding its Rocket Park factory to be able to build up to 150 upper stages of that rocket annually. It is the latest announcement as the company raises its first capital from investors. Up until now, Bezos has funded Blue Origin. As CEO Dave Limp recently told me, that round is not yet closed but is, quote, oversubscribed. Blue ramping launch capabilities will mean being able to more aggressively compete with SpaceX for missions for commercial and government customers and being able to deploy lunar landers and lunar infrastructure and Blue's own satellite constellations that are in development for both broadband and data centers.

16:26Morgan Brennan: Well, Tesla last night officially unveiling its new Roadster sports car after a nearly decade of delays. The demonstration was held before a crowd of Tesla enthusiasts, including some that paid$250 ,000 to reserve the car nine years ago. At a SpaceX rocket test site facility in McGregor, Texas, CEO Elon Musk teasing at the start of the event that the crowd would see some, quote, crazy stuff. And, well, he certainly delivered. During the demonstration, the car using SpaceX rocket technology drove up a curved ramp before hurling itself to a controlled landing. And later it leapt over five other Tesla vehicles while twisting in the air.

17:03Morgan Brennan: Musk touting the achievement by the Tesla team.

17:09This is the culmination of incredible work by Tesla and SpaceX engineers working closely together to make something that you haven't seen in any movie that's better than any James Bond car.

17:29Morgan Brennan: Integration of SpaceX technology into a Tesla car. Barclays analyst Dan Levy yesterday, ahead of this event, writing in a note, quote, the possibility of a Tesla-SpaceX merger has increasingly become the consensus expectation. Among the other feats, Tesla also touted that the Roadster can go from zero to 60 in under a second. The vehicle isn't expected to be a significant contributor to Tesla's overall car sales volume, but it certainly speaks to all the technological capabilities afoot. And shares of Tesla right now pre-market are up 5 % on this. Well, whether it's Tesla cars or other EVs, you need lithium.

18:07Morgan Brennan: So speaking of lithium batteries, the price of lithium slumping 6 % this week. This after a deal between the European Union and China that will cut Chinese hybrid car exports to the region. But amid that pullback, Energy X announcing this week that it has signed a 10-year,$2 billion deal with Trafagora. This is one of the world's largest independent commodity trading companies and suppliers of physical commodities. And with the deal, Trafagora will purchase 100 ,000 metric tons of battery-grade lithium products from the General Motors-backed startup, marking its first commercial commitment for battery-grade material.

18:41Morgan Brennan: So for more, let's bring in EnergyX founder and CEO Teague Egan. Teague, it's great to have you on the show. Welcome to you. Let's talk a little bit about this offtake deal and what it means for bringing more lithium online. Yeah, absolutely. I mean, it's huge for our company. It's our first major offtake deal. Like you said, 10 years, 100 ,000 tons, which has a lifetime contract value of about$2 billion. Lots of people need lithium, so we're here to supply it. When we talk about lots of people needing lithium, what are the dynamics in the market right now from the supply side and from the demand side?

19:14Yeah, I mean, overall, like on a macro stance, the demand keeps going up, whether it's things like Tesla's new Roadster or the new foldable iPhone or humanoid robots being produced by dozens of companies or ESS energy storage systems for data centers and grid. Everything needs lithium. All batteries need lithium. And the demand keeps going up year in and year out.

19:42Morgan Brennan: So where are you mining lithium? And how quickly can you supply it as part of this deal or others? So EnergyX has two projects. We have a big project in Chile. That's in the Lithium Triangle in South America. And we have 100 ,000 acres. And we're building a 50 ,000-ton project there. And then we also have our second project in the U.S. in the smack over formation, which is between Texas and Arkansas, which is the most prolific lithium resource in the United States. And we're building a 50 ,000 ton project there. So we want to have diversity in our projects, both domestic and abroad, and source lithium from all over.

20:21Morgan Brennan: I mean, I have so many conversations, whether it's on the tech side or the industry side, investor side, whether it's on the administration and policy side about U.S. supply chains and sort of these next generation materials that are going to have to go into them and acquiring that. So how are you thinking about that in terms of supplying the U.S. versus other parts of the world? I mean, there's a huge push for critical minerals in the United States right now. And I think that, you know, a lot of people don't realize that the critical minerals are the backbone for all of this new industry that's coming online, whether it's AI, data centers, containers, EVs.

20:59We need the critical minerals, whether it's lithium, copper, nickel, rare earths that are really powering all of these things. So from an EnergyX standpoint, we're trying to produce where the resources are, but bring that lithium back to the United States to feed these supply chains for the critical inputs.

21:19Morgan Brennan: It wasn't that long ago, just a couple of months ago, that China started to flood the world market in terms of lithium and drive those prices down and drive competition out of the market globally. Is that dynamic still afoot? Or because we are talking about supply chains that are diversified and resilient and for better or worse, a decoupling between U.S. and China when it comes to some of these critical minerals, has that dynamic come and gone? Yeah, you know, I think so. What China did really well is China doesn't actually have the resources in their country, but they build all of the midstream refining.

21:55And that's allowed them to control these critical minerals and critical materials and elements. And what the U.S. needs to do is build those midstream refineries, maybe even with China's help. Like, I think working with China on these solutions is probably a good thing because they're so far ahead of us right now. But ultimately, we need to have that resiliency and security in some of our supply chains working with them or not. And you can only control, you can't control where the resources are, but you can control having that refining capacity to produce the materials that you need. So that's something that they're 10, 20 years ahead of us on right now, but this current administration is really pushing to bring that refining capacity back into the United States, which is, I think, a really good first step.

22:49Morgan Brennan: All right. Well, T. Geegan, it's great to have you on. Keep us updated as you continue to build out your infrastructure from EnergyX. Straight ahead. Possible trouble brewing at Anthropic ahead of its highly anticipated IPO. Why$2 trillion may now be appearing lofty. Morning Call is back after this. 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. At Acura, that means looking closely at how every detail can 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.

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24:33Morgan Brennan: Welcome back to Morning Call. Let's get to some of the morning's other top stock stories. Pre-orders for Apple's new foldable iPhone, our Duo, start today. The device, which starts at just under$2 ,000, goes on sale in stores and ships to customers next Friday. Apple stock is up more than 1 % this week. It's up 25 % so far this year. It's basically flat this morning, pre-market, though. Proof point, a cybersecurity company owned by Toma Bravo, striking a deal to buy Varonis Systems for more than$6 billion in cash. Verona shareholders will get just under$50 a share. That's a more than 50 % premium to the data security company's closing price on June 22nd.

25:10Morgan Brennan: That was the day before speculation about a possible sale or acquisition here emerged. You can see shares of Verona's are up 2 % pre-market. And Alcoa reporting better than expected third quarter earnings, though revenue came in just shy of estimates. Full-year production and shipment guidance maintained for both Illumina and Aluminum. Alcoa's CEO Bill Opplinger telling me on CNBC's Overtime show yesterday that the company has reached a definitive agreement to sell a portion of its shuttered smelter site in Messina, New York, to developers who are going to convert this into an AI data center. They've got similar deals elsewhere in the pipeline.

25:44Morgan Brennan: And I asked them about these conversions, and I also asked about the demand overall for aluminum in the AI infrastructure build-out. First of all, we have 10 sites around the world that we're looking at redeveloping and selling into the data center market. So we announced the first one of those here in this quarter. It's up in Messina, New York. That's a community that we've been in for 100 years. And it's with a midsize developer that will convert that to a data center. That's part of a broader program for us where we're looking to monetize 500 million to a billion dollars worth of closed assets before 2030.

26:26So this is the first one of those, and this could be as large as$320 million, depending on the size of the actual data center. In addition to that, the growth in data centers is really positive for aluminum. For every megawatt of data center capacity that's built, you need about 30 tons of aluminum. So if you think about a gigawatt, you need about 30 ,000 metric tons of aluminum. So it's driving some of the strength and demand that we're seeing globally.

26:57Morgan Brennan: You know what smelters have? A heck of a lot of power capacity and all the electrical infrastructure to be able to power it. So this is an interesting one. Keep an eye here on Alcoa and others when it comes to repurposing some of this type of infrastructure. Well, still on deck, a Netflix executive shakeup hoping to bring in some Disney magic to its content factory. Morning Call. We'll be right back. I'm Morgan Brennan. Welcome back to Morning Call this Friday morning. Let's get a check on U.S. stock futures, which are mixed. The S &P is poised to open higher by about 18 points. The Dow up 156 points.

27:31Morgan Brennan: The Nasdaq under the tiniest bit of pressure here this morning, down 15 points. This is after a topsy-turvy week for the markets overall, with all the major averages finishing yesterday higher. We are on pace for a gain of 1 % ahead of trading today for the Dow this week. The S &P under down and the Nasdaq has seen the biggest selling. The Nasdaq 100 actually is down right now as of this morning, 3 percent on the week. Let's get a check on some of the morning's latest headlines, too. Odds of a Federal Reserve interest rate holds this month spiking after Federal Reserve Chairman Kevin Worsh signaled that hotter than expected inflation has not impacted his view on the U.S.

28:08Morgan Brennan: economy. Worsh speaking in Bangkok at the IMF and World Bank meetings overnight. We came to a judgment. What are we seeing in the global economy as it affects the U.S.? I would say broadly over the month or so that's transpired since then, the world has broadly conformed to our expectations. We'll be meeting a couple more times this year, and that will be the crystallizing moment at which we're going to look out the window. What do we see? What's happening to output? What's happening to employment? Well, according to the CME FedWatch tool, odds the Fed holds firm this month now stand at 85 percent compared to just 67 percent 24 hours ago.

28:53Morgan Brennan: Warsh's comments coming after fellow voting member Cleveland Fed chief Beth Hammock said late yesterday that the bank may need to hike rates more aggressively if there were to be a notable drop off in inflation expectations. And Netflix announcing its chief content officer is leaving and will be replaced by former Disney executive Peter Rice. Rice used to oversee Disney's cable channels, news programming, and major live sporting events. And new reports this morning, some would that Anthropic investors are now tempering expectations ahead of its highly anticipated IPO offering. According to Reuters, some investors who attended Anthropic's pre-IPO Investor Day are now talking about a$1.5 trillion valuation.

29:37Morgan Brennan: And that's a big step back from the$2 trillion that's previously expected. We're going to talk much more about this with our morning call crew. And let's also get a check on Yum! Brands. KFC says that its U.S. restaurants will switch from Pepsi to Coca-Cola products next year. While leaving its international operations unchanged, KFC restaurants have been serving Pepsi since Pepsi bought the chain in 1986 before spinning it off to Yum! And you can see shares of both Coca-Cola and Pepsi are actually higher this morning, which perhaps speaks more to what we've seen in terms of this broader market rotation into other sectors like consumer staples and consumer discretionary as well.

30:16Morgan Brennan: Well, it's been a big week for defense news, too, with a flurry of product announcements at the Army's annual AUSA conference in Washington. Missiles encounter drone technology. That was the big focus there, as well as in Texas, where I spoke exclusively with Lockheed Martin CEO Jim Taiklet, who discussed the newly announced version of the Patriot missile missile, two versions, and lower end, less expensive counter drone technologies like the company's new Morpheus system. We want to get the economic match to hit the threat at the same time we don't let anything through. And so we still need Patriot MSC missiles.

30:53We're actually going to build a higher end one. We're also going to build a less capable one at half the cost. Because there are other types of ballistic missiles and threats in aircraft you don't need the top-end missile for. You can get a half-cost missile to do 75 % of the missions that the Patriot does today. That's a good thing to do. And then you get all the way down to this tradeoff, which is essentially once you buy this, it uses electricity, and every shot is free. So now we're below the cost of the threat by having a whole different technology that we're applying to it.

31:30Morgan Brennan: Well, joining me now to discuss all things defense and what it means for the geopolitical picture, what it means for investors, Tom Carrico, Missile Defense Project Manager at the Center for Strategic and International Studies. It's great to have you back here on set. Welcome to you. I think we've got to start right there because that really has been the news from the defense industry this week, has been missiles and counter drone technologies as we do have these active conflicts afoot. Yeah, look, the AUSA conference that you mentioned, I spent a couple days there with my 44 ,000 closest Army buddies.

31:57And as you said, there were several new missiles unveiled there. There was the two versions of the Pac-3 that were talked about. There was the Morpheus counter-drone thing on display. Raytheon has a new counter-drone, a Coyote variant, and Andrel put out a new thing as well. So lots of that. And it comes at a moment where the demand for this has never been greater. You talked about your TakeLit interview and how they're massively ramping up. But we see Ukraine is literally running out of Patriot missiles this week. They just reported. So this is a problem. At the same time, you see new companies like Covenant and other folks that are looking for that are developing and testing long range strike to supplement things like Tomahawk so that, you know, Ukraine can reach deep into Russia and target their energy infrastructure.

32:42Morgan Brennan: Yeah. And Covenant emerged from stealth and made their public public debut actually right here on Morning Call just a few weeks ago, to your point. So the competitive landscape is changing, but the demand seems to be so strong from everybody I speak to here right now. The other key question in all this is going to be, how does it all get funded? Which I know you and I have talked about before, but it's really weighed on the publicly traded stocks very much so this year. Yeah, and you asked that to Takelett in your interview and Mike Duffy. And you said, you know, look, there are these massive double-digit billion but undefinitized contracts.

33:14And anybody can make an undefinitized contract. The key is to divinitize the contract, and that requires funding to actually get there. So I think we're probably going to see some of that. You may see not a full year, seven year funding. I think the prospects for what we're going to get in the lame duck are much more modest. But you may see kind of micro, limping along bite size at a time to be able to actually pay for some of these things.

33:38Morgan Brennan: Yeah, we're going to get aerospace and defense earnings in earnest next week. And it's going to be one of those things to watch in terms of what could be a volatile Q3 for some of these names, I would suspect. potentially. You just mentioned Ukraine. The last 24 hours, this has been the news, that they are reportedly out of Patriot missiles or very close to it. How does that speak to the role that all of these weapons systems are playing or not playing now when it comes to the geopolitical picture? Yeah, it is. I would say their salience is going up. And you see companies like Firepoint in Ukraine that are trying to do the ballistic missile defense stuff.

34:12That's a harder problem. But what they are being able to do is to develop missiles that are reaching into Russia and striking this infrastructure. So the salience of it is going up, and the demand signal between both the traditional Raytheon and Lockheed prioritized munitions that they're doing and these new companies, these new startups, that kind of stuff, the demand signal is extremely strong.

34:32Morgan Brennan: Yeah, it's going to be very interesting to see what it means from a policy and military operations standpoint, both here in the U.S. and among allies, too, as we go into the end of the year and beyond. And yet, as we have this conversation, the other thing that's happening right now is volatility in the public markets and what that means for an IPO pipeline. And we just touched on Anthropic, which we're expecting to go public here in the next couple of weeks, next couple of months. But there are other names that are well capitalized that maybe say they're going to wait until 2027 and beyond. And yet there's quite a bit when it comes to defense tech that could go public here and needs to raise capital.

35:08Morgan Brennan: So what are you watching there? Yeah. So look, one of the companies that recently announced their plans to go public is Ursa Major. And they've got both solid and especially liquid engines. They're a couple billion dollar companies looking like. And one of the systems that they are on is actually the Talon, which is straddle launches, hypersonic things. Straddle launches making hypersonic flight as a private company become routine and doing it with a pretty good cadence. And that's really, really important, not just for being able to say you did it, but for being able to test things on the hypersonic missile to be able to communicate to it, all kinds of other testing, and also as targets.

35:48So one of the value of having lots of availability of hypersonic things is to be able to see, can we shoot at it? Can we track it? So that helps our full defense architecture testing.

35:59Morgan Brennan: Yeah, Strata Launch is actually owned by hedge fund Cerberus, too, and I think has its roots in Paul Allen's early investments in commercial space as well. Tom, it's great to have you on. Appreciate it, as always. And defense tech IPOs have done pretty well this year, even as consumer ones haven't. So that'll be a key test for the market overall, too. We've got a lot more to come here on Morning Call, including fresh concerns about IPOs and another company reportedly pulling the plug on its public market debut, where some of the biggest names in the banking sector say things stand and where they're going.

36:31Morgan Brennan: But first, a look at where traders on prediction market CalShe stands on AI market share this week. Morning call. We'll be right back. Welcome back. Questions around the health of the IPO market are not letting up. An Axios reporting long-duration battery developer Form Energy is pushing its public debut to next year. Form joins a growing list of companies delaying their push to go public, Though high hopes around Anthropics expect to debut breathing some big life into the market. IPOs are a big topic of conversation in this week's bank earnings. And right here on CNBC. We're just seeing more and more of the economy flow through the U.S.

37:07capital markets. The IPO market is wide open. Is it though? It's wide open. It's just a question of price. The IPO windows are market sensitive, so they would be more closed or more opportunistic. But that's not the way we're thinking about it right now. We're thinking that the windows are open for the right structure. The IPO market, especially for private equity and sponsors, as we've been saying for a long time, that market's actually probably more structurally broken.

37:32Morgan Brennan: Well, a new piece on CNBC.com this morning highlighting how the IPO drought is driving private equity-owned companies to the debt market to help pay their investors. Head over to our website to read more on all of that. And as we head to break, we're watching action in the EWY, South Korea-focused ETF, down 12 % over the past four trading sessions. It's down fractionally again this morning. It's off nearly 30 % from the June high. The ETF is highly exposed to South Korea and all the tech and semiconductor names that trade there. Top two holdings, Samsung and SK Hynix, both down sharply on the week, despite some stabilization that we saw in trading in Asia overnight.

38:13Morgan Brennan: Morning call. We'll be right back. It's time for your call sheet. The crew members today, Brent Kachuba of Spot Gamma, Ryan Dietrich of the Carson Group. They're both also CNBC contributors and Rob Hayworth of U.S. Bank Wealth Management. First time joining the crew. Welcome to you. Good to have you here. Great to be here. I mean, we've got to start with a week that was because my goodness, what a week it was. Ryan, I'm going to kick this off with you and specifically some of the news that we got late last night, which was report out of Reuters that Anthropics valuation drops to$1.5 trillion from$2 trillion based on some of the conversations apparently the company's having with investors ahead of its IPO.

38:48Morgan Brennan: How significant is that? In a week where you're already seeing a downdraft, you're seeing some nerves in public markets, in credit markets, for example, around AI and monetization of all of this. Well, first of all, good morning. I'm glad that you're here on Friday and I get to see you in person. So thank you, Morgan. You know, we know chips are on eight days in a row. We know that tech is down 5 % the past five days. There are these jitters that's going on right now. I mean, I'm not shocked to see this, but I think what investors need to really focus on, what's been happening, right? All of a sudden, health care is going up a lot.

39:18We saw financials do well. We've seen Europe up the last five days. So we're not minimizing this news. And this news is out there. But I think this rotation out of tech is not the end of the world. In fact, it's pretty healthy. One more stat, Morgan, the last, how bad breadth was? Nine of the last 11 days, we've had more advancers on the S &P 500 than the climbers. Like, we're not hearing the breadth has actually improved a lot lately. I think that's a good thing.

39:40Morgan Brennan: Yeah, I mean, it's been a great rotation. The Dow's actually higher on the week, even as the NDX and ASEC 100 is down about 3 % coming into this final day of trading. Rob, I want to get your thoughts on all of this, especially when you see what happened, the blowout you saw in credit default swaps and the yields in Corwe, for example, and others following suit. Yeah, certainly that's concerning. We're certainly watching that when it comes to lower quality credits, but it's not happening everywhere, right? And I think when we look at double B, single B, triple B credits, right, those spreads are staying fairly tight.

40:09It's really the triple Cs, the weaker hands, where you would expect to see it. And that's a small part of the market. I think the constructive thing is the economic story remains solid, right? And that's what we really have to look at. The fundamentals keep improving for us as we look into year end. So I think it's a positive story, even though we've got some temporary blips.

40:28Morgan Brennan: Well, and that was despite Right. Ambiguous guidance, no guidance, actually, from Fed Chair Warsh overnight in Bangkok. I mean, that really was the message from him. It certainly seems very constructive on the U.S. economy. Brent, want to get your thoughts on all of this, especially as another friend to the call crew and the show, Michael Rourke, wrote about Anthropics specifically and raised this question. If greater transparency at one of the world's most important open, most important AI companies wipes out 25 percent of its value, what does it say about all the companies that depend on it?

40:59Well, the interesting thing about the selling was it was really the CXMT memory, Chinese memory company, that announced faster production about a week ago. And you can look at the top in the Korean markets, which you guys were talking about here on the show, and then also the semis that started about a week ago. And that was about a 15 percent sell off now in in the semis, in the semiconductor space. And as Ryan just alluded to, there's been a real rotation out of tech and into other stocks. And so I think the Anthropic sell-off, if you look at the perpetuals, that only started a couple of days ago here, maybe on the 13th.

41:31So that's a more recent story. And so I do think traders are able to sort of parse these two things and say, you know, Anthropic exists in this silo. It's part of the AI story, certainly. But there's a broader, you know, chips and shovels, so to speak, idea here under play or underway, right? And so to me or for me, I think the Anthropic is a story, but the whole sector in terms of the ability for AI to make money and data center redwoods, et cetera, is much bigger than just Anthropic. And that's what I think we're seeing play out here in the price action as the semis have come down really, again, since last week versus Anthropic just having some recent days of selling.

42:07And also yesterday, it was fairly strong. There's a pretty good bounce. If you look at SMH, it's bounced off this 540 level now a few times here. So, you know, it is a critical juncture for tech. But again, the fact that there is strong rotation, like if you look at the equal weighted S &P, for example, it's up 10 percent over the last week while SMH is down. So I think Anthropic is not quite maybe as big of a deal.

42:26Morgan Brennan: OK, got it. I mean, it is interesting when you see Alcoa saying that they're going to strike some of these deals, including one in New York to start here. This was part of their news out of their earnings last night to for a developer to repurpose one of their closed smelters for AI data center capacity as well. It sort of speaks to the moment we're in. It's not just rotation into other stocks, though, Ryan. It's also rotation in the bond market. I mean, we had quite the rally in treasuries this week. Do we see a different trading relationship emerging here? It seems that way because, obviously, we all know yields have been up a lot.

42:56We get that. And you said it's had this huge rotation. Like yesterday, right? Yesterday, PPI is higher. The 10-year yield is above 530. And now you look, it's at 510. And it kind of reminds me of October four years ago, Morgan. People forget this. The bear market bottomed when we got CPI October 12, 2022. way higher than expected. Everyone freaked out. Everyone got worried. Market down 2 percent, closed up 2 percent that day, now up 120 percent since then. So there's some similarities right there. You know, at the same time, I think this economy is strong. You know, building what we just said.

43:27Yes, triple C spreads are high. Is that the first domino to fall? We'll see. We'll see. We're watching it very closely. But you don't see other spreads blowing out. So I think that's positive. And yes, it's earning season. We'll see what happens. We're optimistic it's going to be a strong earning season.

43:40Morgan Brennan: All right. Speaking of, I do want to get your thoughts, Rob, and what we heard from Fed Chair Warsh overnight, especially as the Fed goes into a blackout period ahead of its next rate decision. And to Ryan's point, earnings are just going to turbocharge from here and take center stage. Right. No, they remain extremely important. I think the great news is, well, it hasn't been all positive news coming out of earnings. It's been solid. Right. And that's I think that's good enough for us to get what is into a very solid year. Right. We're expecting up 32 percent for 2026. It looks like it's a 28 percent earnings growth story for Q3.

44:14I think that's enough to get this market into new record territory by the time we get to year end.

44:20Morgan Brennan: Yeah, we're only, I think, what, down one and a half percent from the most recent record high for the S &P. Case in point, Brent, want to get your thoughts on what you're watching as we go into the rest of the month and beyond. The biggest feature of this market the last couple of weeks has been the move higher. So realized vol to the upside has been a lot stronger than realized moves or big moves to the downside. And if you look at, yes, everyone was talking about the first 1 % down day in 53 days in the S &P yesterday or on Wednesday, excuse me. The biggest move over the last two months was that upside day when Meta came out with Muse.

44:54And so there remains, and I still believe that there remains a real right tail risk in this market where if you are underinvested to the upside and we get positive news out of say a Meta or a Google of some of their new models, then there could be a real strong upside chase into a part of the year that has really strong seasonals. Right. And so I do think investors really have to watch out as they kind of step into this bearish mode here. They have to watch out for that right tail risk. If you remember that Monday just a few weeks ago when the metal was up nearly 10 percent and the Nasdaq rallied 3 percent, that kind of came out of nowhere.

45:25We just don't get these expressive moves to the downside. And I think that's really been true here over the last couple days outside of tech.

45:31Morgan Brennan: Okay. We got 30 seconds left. Ryan, I see you nodding your head. Midterm elections are coming up. Just remember this. If you start from midterm elections, go out one year, Morgan, the last 19 times, the S &P 500 has been higher. Now, no, we don't know if there'll be 20 or not, but we think it will be. There's a lot of positive seasonals, as Brent just mentioned. Okay. 15 seconds left. What would you be buying right now? I think you have to buy what's on sale, right? You have to take the opportunity to rebuild your portfolio and build that diversification with the things that have been weaker. And right now that's been tech.

45:59So So I look at that if you haven't been overweight yet, it's time to look at that again.

46:03Morgan Brennan: All right. Thank you so much to our call crew. Great to have you all here on this Friday. And happy weekend to our viewers. 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. At 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.