Morning Call 10/19/26

0:00At Edward Jones, we believe rich isn't about having life all figured out. It's opening yourself to all the possibilities. That's why your dedicated financial advisor provides long-term planning built around you. Meeting you where you are and helping you get closer to where you want to be. So no matter where you're starting from, you can move forward with confidence. The key to being rich is knowing what counts. Let's find your rich. Edward Jones, member SIPC. Whoever said good things come to those who wait, never shopped Black Friday early at Lowe's. Right now, get up to 50 % off select major appliances.

0:41Plus, get free delivery, free haul-away, and free basic installation and parts when you spend$896 or more on select major appliances. Shop Black Friday early in-store and online now at Lowe's. Valid through 12-2 while supplies last. Selection varies by location. See associate at lowes.com for details.

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

1:17Morgan Brennan: Good Monday morning. Let's get a check on U.S. stock futures, which are, well, now lower in the case of the Dow, just dipping into the red this morning, poised to open down 36 points. But the S &P 500 is poised to open up higher by 35 points. And the Nasdaq, we are seeing an attempt at a tech rebound this morning because the Nasdaq is up about 248 points. That's after we're coming off of the worst day since July for the Nasdaq, worst week since April of 2025. And we had a down day on Friday for the major averages, all the major averages, or the S &P and the Nasdaq, I should say, lower on the week as well.

1:52Morgan Brennan: Let's get a check on the VIX, also lower after hitting its highest level since June on Friday. 1881 is the level there right now for the volatility index, down about 6 % this morning. And let's also get a check on what we're seeing in the bond market with Treasury yields. You can see lower across the curve. The U.S. 10-year Treasury yielding 5.08 % right now. Fed-sensitive two-year Treasury, 4.72%. And the 30-year Treasury yielding 5.42%. Let's also get a check on what we're seeing in the energy market, because crude is taking a bit of a breather here this morning, given all of the news that we have seen and the markets have been digesting over the weekend regarding the U.S.

2:31Morgan Brennan: and Russia and a deal to import diesel here in the U.S. and hold off, according to President Trump, in that executive order that he signed on some of those sanctions and tariffs on Russian energy. You can see WTI crude is down about six-tenths of one percent right now, trading right around$100 a barrel. Bread crude is down one and a half percent,$108 a barrel. That's after touching its highest level since spring, 110 in trading on Friday. Let's also see how Europe and Asia are shaping up. Steve Sedgwick is in London with that trade. Steve.

3:04Hey, Morgan, lovely to see you. Yeah, it's volatile. And that 35 % increase we saw on the VIX last week being mirrored in some of these European indices. But as you know, the Asian markets, they also took an absolute drubbing last week. The Kospi, which is pretty much as we talked about, has two major semi stocks as well. And it was down 14 % last week. It's actually rallying this week. And I'll come through a few more of the individual details at the moment. It's up 1.8 % having fallen about 14 % plus last week. So Asian equities holding up in today's trade so far, despite concerns about that AI of enormous funding needs.

3:41Chinese GDP actually rose 4.5 % in the third quarter, whilst retail sales also came in better than expected, up 1.1%. But there is one index in Asia which is absolutely getting a drubbing, and that's the JCI over in Jakarta. The Indonesian stocks are plummeting this year on the back of concerns about a whole host of stuff, including the fact that MSCI may drop them from their broader indices. Right, let's move on to Europe as well. European equity markets under a lot of pressure. I know you're going to speak to my colleague Charlotte a little bit later on about France, but French stocks especially are under a vast amount of pressure.

4:17The Cacarant down 1.4 percent, underperforming amid widespread violent protests over the weekend. Oil prices, as you mentioned, in decline after the president waived some sanctions on Russia after he created that deal with President Putin on diesel exports. Back to you, Morgan.

4:34Morgan Brennan: All right, Steve Cedric, thank you. All right, let's turn back to markets here in the U.S. We're looking to recover some ground on the back of Friday's sell-off. The tech-led selling, fueling steep losses for the Nasdaq and the S &P, down 4.5 % and 2 % for the week last week, respectively, with the Nasdaq breaking a four-week win streak, in part on fresh worries around the health of the AI trade. Well, speaking of the AI trade, watching the chip sector with the Sox Semiconductor Index riding an eight-session losing streak. It's the longest since May of 2006. It's bouncing back right now. You can see there on your screen up two and a half percent.

5:08Morgan Brennan: But for more, let's bring in Tom Lee, head of research at Fundstrat Global Advisors, also a CNBC contributor, and Ben Emmons, founder at FedWatch Advisors. It's great to have you both here. Tom, I'm going to kick this off with you. How would you describe this market right now, especially when you have an S &P that, if you look over the last couple of months, has been pretty range bound? Good morning. You know, the S &P has actually held up very well. it's very close to all-time highs but as you know underneath is an incredible amount of turmoil because it is trying to digress this wall of worries uh ai spending how it's going to be funded you know even the growth rate of these frontier models on top of that it's energy which is very important but it's very uncertain because not only are prices high but you've got two wars and both wars in the Ukraine and in Iran seem to be escalating.

6:00And I think it's at a time when there's a lot of criticism about valuation. So I think investor sentiment's negative. I know this sounds all very scary, but to me, this is because fundamentals are so strong. This is a coiled spring. I think stocks are going to really ultimately get through this, but we're at a time of great concern.

6:19Morgan Brennan: OK, before I dig deeper there, Ben, I do want to get your thoughts on this because it does feel like all of the big tentpole topics that have been driving the news cycle this year are converging here in terms of what it means for the market. I think that's right, Morgan. And, you know, as Tom mentioned, like if you're getting fundamental factors being somewhat doubted currently, driven by, you know, downshows on how to fund those fundamental opportunities, and then we have geopolitical developments that we cannot really predict how that will end, because it seems to be getting a price by the day, then what you're getting is a picture where the financial conditions just naturally start to tighten.

7:01This is irrespective of what the Federal Reserve or the central banks are doing. And it's more about investors becoming reluctant, maybe pulling back a little bit and putting some cash on the sideline for this opportunity, this coiled spring, as Tom mentioned, to re-engage sometime in the future when all the uncertainty dissipates again. So I think that's what the environment currently is working. And it's just an uncertain situation. And we'll get clarity on this, but it's going to take maybe, you know, a couple of weeks before that happens.

7:28Morgan Brennan: To go back to the coiled spring, Tom, where do you see those opportunities right now, especially where when in recent trading sessions, the focus has really been on this rotation under the hood in the S &P right now? I mean, and actually, if you look at the stocks, if you look at semiconductor stocks versus the equal weighted S &P, there's been a bit of an inverse correlation. So does that actually have to come together and meld a little bit more to really move higher and see that spring bounce back here? Well, I think to me where the opportunity lies in things that investors have been unwinding, you know, I saw some reports from the brokerages that AI positioning by hedge funds has been almost entirely.

8:10The overweight has almost been entirely unwound. I think that, number one, explains a lot of the selling pressure. But I also think that's where the opportunity lies, because the growth, you know, the visible growth, the source of drivers of S &P earnings, it's really coming from the AI and all the bottlenecks. And that's still where valuations are quite reasonable. So to me, I think as much as people are sort of fearful of this, I'd be sort of jumping into the AI, semiconductor, mag seven software. These are AI downstream names, as well as crypto, which got caught up in the same sell off.

8:48Morgan Brennan: Ben, how closely are you watching credit spreads right now? And what is that part of the market signaling? So I think that part of the market, Morgan, is about the really AI-sensitive credits that are under pressure currently. Those who have borrowed just significant amounts of money to put that into investments in the economy, and it has yet to pay off. That's the reassessment in the credit markets. It kind of reminds me of 10 years ago when we had this sort of credit correction building because oil prices falling. Today, it's really about interest rates rising and putting pressure on these AI infrastructure players.

9:24And yes, you've seen Oracle, as you show here, or Corweave, any of those names widen really because people want to get out of those and be underweight that with this view that their borrowing costs are getting too prohibitive to borrow from here. And it would slow down their margins, their profit growth and the opportunity. Whereas the broader credit markets are really calm currently. So the major spillover has yet to happen. It could happen, of course, if these press blow out even further. That's what happened 10 years ago. I think at the moment it's the idiosyncratic phase. But it's carefully to be watched because, you know, credits move when people start to get underweight credit.

10:03They do that in a more significant way, just like the unwind or the AI trade happened with hedge funds.

10:10Morgan Brennan: Tom, I want to get your thoughts on that as well. And you just mentioned crypto, too. So I also want to get your thoughts on that, because obviously we've seen a very big rally there. And I'm curious what you think is driving it. Is this financial infrastructure adoption and convergence with A.I. Or is this a macro star story, given some of the geopolitical tension, some of the political tensions? We were just talking about France with Steve Cedric a few minutes ago and what that's doing in asset classes. Morgan, all of those are tailwinds for crypto. Perhaps the only one that's not is the fact that the Fed isn't sort of, quote, dovish and easy money.

10:46But, you know, crypto's resilience is impressive in the face of that. But I think the biggest, probably the most outstanding driver for crypto now is that Wall Street is recognizing that the future financial rails are going to be built on blockchains, you know, regardless of the future cybersecurity threats coming from AI on all financial infrastructure. BlackRock even states explicitly that they want to be building collateral and through tokenized products on blockchain. You know, Vlad Teneff of Robinhood says he thinks the entire financial system will be built on blockchains. And today, JP Morgan announced they're building a stablecoin on Ethereum.

11:27So to me, this just points to Wall Street recognizes the efficiency of settlement that comes on blockchain and the security. And actually, that's a huge opportunity because basically half of everything that happens in the world, every economic transaction, everything in the real world is now a financial transaction. Of course, that's a big opportunity for blockchain.

11:48Morgan Brennan: We haven't even talked about earnings and earnings season really ramps up this week. So, Ben, what are you watching here, especially as we start to get some of the big mega cap tech and AI names kicking off here, including SpaceX after the bell tomorrow, but also a lot of industrials, which we know have been exposed to this infrastructure build out to. Yeah, that's a big thing, Morgan. I mean, it's all about AI. It's about the economy. So these earnings are probably strong. You know, this economy hasn't weakened, even though the marketers seem to be anticipating a try that there's going to be some softness from here.

12:23But I do think that SpaceX is a key focus because the stock has recovered, interestingly, you know, of late. And it's been such a name of like, We opened the capital markets this year really with the blockbuster IPO from SpaceX. This will be the first real earnings sprint we should watch in terms of, you know, how strong is this company really? Because it sets the tone for others that come after them, tropic others, this IPO thematic idea. I think that's the key theme this week, the SpaceX earnings. OK, gentlemen, what a great way to start this hour.

12:57Morgan Brennan: Appreciate it. Tom Lee and Ben Emmons. You're welcome. We got a lot more to come here on Morning Call, including the wait to get the new foldable iPhone duo. It just got a little longer. Blame, extraordinary demand. Plus, Berkshire Hathaway shares about to do something for the first time since Warren Buffett was in charge. And later, the midterm election countdown is on with key Senate races taking center stage. What that means for your investments. We got a very busy hour still ahead when Morning Call returns. Still waiting in line? Again? That's time you'll never get back. Save time and money with Stamps.com.

13:37Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now. Print postage for certified mail, registered mail, and packages in seconds. Then schedule a pickup right from your home or office. For a limited time, go to stamps.com and use code podcast for a free welcome gift. Taxes and fees apply. If you're the type of person who wants data, not assumptions, PreNuvo's Whole Body Scan gives you a deep understanding of your health. Screen for over 500 conditions, including many cancers, autoimmune disorders, neurodegenerative diseases, and more.

14:15Add blood panels to test over 80 biomarkers, and you've got information about your body you may never have had before. Book your scan at prenuvo.com. That's P-R-E-N-U-V-O dot com. Now smaller than ever, more powerful, more accurate. Meet Pod 6, the sixth generation of 8Sleep's award-winning sleep system. The Pod is an intelligent mattress cover that transforms your existing bed. It cools and heats on each side of the bed from 55 degrees to 110 degrees. As you sleep, it also measures your sleep stages, heart rate, and breathing. then acts on that in real time adjusting temperature. All you have to do is sleep.

14:56Shop now at 8sleep.com.

15:00Morgan Brennan: Welcome back to Morning Call. Let's check some of this morning's stocks to watch. Apple says demand for the new iPhone Duo is, quote, nothing short of extraordinary as shipping estimates have slipped to the end of January. Apple says it's working hard to get the foldable device into customers' hands as soon as possible, but hasn't said whether inventory will be available when the Duo goes on sale this Friday. You can see shares are basically flat right now. But Microsoft has reportedly pulled out of a data center deal with British cloud provider Nscale. The UK's Telegraph saying Microsoft, which is one of Nscale's two biggest customers, recently terminated its agreement.

15:34Morgan Brennan: Nscale, which is backed by NVIDIA, filed for an IPO in the U.S. last month. Investors are already speculating about what this could mean for that timeline. We will see. Microsoft shares up one third of one percent right now. And SoftBank is in early talks to buy Allied Universal. That's according to various reports in a deal that could value the company at about 18 billion dollars. Allied provides security staffing for businesses, venues and major events and has been growing in presence presence in supporting data centers. SoftBank and Allied have declined to comment. SoftBank shares down two percent in overseas trading.

16:10Morgan Brennan: Well, straight ahead, it's Elon Musk versus Anthropic in a battle of who can do more for the public good. Plus, a big box office haul for Elizabeth Holmes and her big screen debut. Morning Call will be right back. Hi, I'm Roman Mars, host of 99 % Invisible. It's a podcast about all the thought that goes into things most people don't even think about. You're going to see stories everywhere. Follow and listen to 99 % Invisible wherever you get your podcasts. This guy is really cute. I think I'm in love. I wait. Is that a dirty sock in the bathroom sink? Toothpaste on the mirror? What is that? Oh, no.

16:51Morgan Brennan: Where's the toilet seat? It's like a haunted house in here. The shower. No, no, no. Dear God, get me out of here. Wait, a Jolie. I knew you were the one. Your best self. It's in the water. Find a Jolie filter showerhead at JolieSkinCo.com. I like things my way, my coffee, my schedule, and my treatment. So I talked to my doctor about self-injecting with the Vivgard Hytrulo Pre-Filled Syringe, which contains F-Gartigamide Alpha and Hyaluronidase QVFC. It's injected under your skin subcutaneously. It means I can inject in my space on my time. It's my treatment, my way. Visit VivgardMyWay.com. That's V-Y-V-G-A-R-T MyWay.com.

17:36And talk to your doctor about Vivgard Hytrulo. Brought to you by Argenix.

17:42Morgan Brennan: Welcome back. Let's check on some of the morning's latest headlines. Anthropic says it will commit 5 % of its shares to a new public benefit fund, a wholly owned limited liability company focused on large donations to traditional nonprofits, solving problems like AI fuel job losses and even direct share distributions to specific populations. At its current value, the fund will be worth around$48 billion, subject to shareholder approval. And as if to one up Anthropic, Elon Musk posting on X this morning that starting next year, he will be giving one of his SpaceX shares to every kid in America.

18:16Morgan Brennan: He also commented on that plan by Anthropic, suggesting that perhaps they should just give it to the public. Russian President Vladimir Putin, meantime, is reportedly proposing a summit with U.S. President Donald Trump and China's Xi Jinping as soon as next month to discuss the war in Ukraine. That's according to The Wall Street Journal. President Trump has not agreed to the summit, though he could be receptive to the idea in order to fulfill a campaign promise. That report coming after Trump signed an executive order late Friday, waiving a series of proposed sanctions targeting Russia and its energy sector, claiming it was in the best national interest to do so.

18:53Morgan Brennan: Those sanctions, which were signed into law just a few weeks ago, were set to go into effect this week. There's now a 60-day hold in terms of review of those sanctions and tariffs associated with Russian energy. We're watching the iShares MSCI Indonesia tracking ETF. That's sinking ahead of the open after the region's benchmark stock index sank to its lowest level in six years. The move lower was sparked by MSCI's proposal Friday to reclassify Indonesia from emerging market to standalone status. They haven't made a decision. I don't think that comes for another maybe seven or eight months. But the fact that it's even on the table is sending shares lower here.

19:33Morgan Brennan: New details on the Saudi national charged with planting a recording device in an open AI executive conference room. The U.S. attorney's office in San Francisco revealing that the defendant was, quote, in frequent communications via WhatsApp with a member of the Saudi royal family throughout 2025 and 2026, though prosecutors did stop short of suggesting that Saudi Royals directed the installation of the device itself. And you can see everything. The Elizabeth Holmes documentary directed by Nathan Fielder and Lance Oppenheim, making a box office splash released on just 800 screens by independent distributors, distributor A24.

20:13Morgan Brennan: The film brought in 15 million dollars in the U.S. and Canada, the second best debut ever for a documentary trailing only Michael Moore's Fahrenheit 9-11 back in 2004. Well, turning to a series of Berkshire Hathaway, turning to shares, not series, of Berkshire Hathaway, after Bucking Friday's AI fear-fueled market sell-off with more than 1.2 percent gain. Right now it's down fractionally, but it's sitting just 1 percent away from an all-time high. Also, it's the highest level for these shares since Warren Buffett told shareholders back in May of last year that he planned to step down as CEO by the end of that year.

20:53Morgan Brennan: And it's been anything but a straight line back to near records as the stock continues to underperform the broader market year to date. So joining me now is Adam Patti, CEO of VistaShares and a custodian of the OMAH ETF. It's an income fund that promises exposure to Berkshire's 20 largest holdings and Class B shares themselves. Adam, it's great to have you on. We've been talking about it. We started the hour talking about the rotation we have seen in the broader S &P into things that are not AI and tech related. Is Berkshire swept up in that? And if so, is this a great opportunity for it to break out?

21:29Hey, well, good morning. Yeah, look, I mean, the market's been in a momentum driven in a frenzy for years at this point. Value and quality have been out of favor, which, of course, has hurt Berkshire shares. The other issue with Berkshire is that the market spent a year pricing Berkshire without Buffett. I think it's finally decided that Able can, in fact, run it. And then kind of third, the cash pile at Berkshire, which is around$350 billion, was the bear case. Now, it's being deployed, as we saw last quarter. And that's really what the stock is reacting to. And so I think Berkshire is on its upswing now.

22:05And typically what we see is, you know, Berkshire is a coiled spring. When it comes back, it comes back fast and furious.

22:11Morgan Brennan: And of course, we've seen yields rise in Treasuries. So holding that cash in short term Treasuries is actually proving to be, I would imagine, you know, a pretty low risk model for Berkshire right now as it waits for values to come off. It has. And in fact, but most interesting, I think, is that they started the buybacks again last quarter, almost five billion in buybacks. And as we know, Berkshire has very stringent requirements about when they do buybacks. So they believe their stock is undervalued. So we'll see what happens this quarter. But that's an interesting data point. They've also been making big bets on housing.

22:48Morgan Brennan: I mean, is this a value play for Berkshire? And if so, what does it signal to the broader market, especially in a week where we're going to get housing data? And so far, it hasn't been great as the Fed has started to raise rates again. Yeah, it's been that's an interesting move. I mean, the country is short millions of homes. Abel has been buying the builders at the bottom of the cycle, or at least what he believes is the bottom of the cycle. And he's waiting for rates to cooperate. You know, right now, Berkshire is, I think, the fourth largest home builder in the United States. So it's a very interesting move.

23:17It's and we'll see how it works out. But, you know, they're pretty intelligent. You know, they've been in the in that market for a while with Taylor Morrison. And they merged it with their Clayton Holt Builders. They've been buying more of Lenar. So interesting move for sure.

23:31Morgan Brennan: You make the point in your notes that Berkshire does have AI exposure, even if it's not talked about very often. What do you mean? Well, look, I mean, their third largest holding now is Alphabet. Right. I mean, they made they they wrote one of the biggest checks, financing checks to the AI build out last quarter, about$10 billion to support Google, Google's efforts on data centers. So it's the third largest holding behind Apple and American Express right now. But I think the biggest story or the bigger story is their electricity, right? So electricity is the bottleneck. You know, whoever wins the model race, you know, every data center needs electricity and Berkshire sells it to them.

24:12Berkshire Hathaway Energy has around 9000 megawatts of data center load contracted right now. And it's either in service currently or it's being constructed. So Abel has been very bullish on the AI build out and he continually touts his utility investments there as a way to play that.

24:33Morgan Brennan: Okay. Adam Patti, great to have you on as we keep our eye on shares of Berkshire Hathaway. Thank you. Well, still on deck, why the unrest that's spreading across Europe may matter in the U.S. midterm election. Now, just two weeks away, we're going explain when Morning Call returns. I'm Morgan Brennan. Welcome back to Morning Call. Let's get a check on U.S. stock futures. After Friday's AI-fueled sell-off, you can see the S &P is poised to open up almost 40 points, the Nasdaq 287 points this morning. But the Dow is down a tad, down, poised to open down 19 points as of right now. This, with the Nasdaq coming off of its worst day since July, worst week since April of 2025, as both the Nasdaq and the S &P finished last week lower, but the Dow eked out gains.

25:18Morgan Brennan: The VIX is also lower after hitting its highest level since June on Friday. You can see down almost 7 percent, 6.5, 7 percent right now. The level there for the volatility index, 1865. And let's also get a check on the bond market and what we're seeing with Treasury yields, because those are lower across the curve. U.S. 10-year Treasury yielding 5.08 percent, Fed-sensitive two-year Treasury 4.73 percent, and the 30-year Treasury yielding 5.42 percent. We're also seeing energy lower this morning, given what we've been hearing about President Trump signing an executive order and striking a diesel deal with Russia.

25:54Morgan Brennan: And that right now is putting some pressure on energy prices. WTI is down about three-tenths of one percent, trading right around$101 a barrel. So we're off the lows of the session so far here pre-market. Brent is down 1.4 percent, trading right around$108 a barrel. That's after it touched highs we haven't seen since spring of about 110 in trading on Friday. Arbob gasoline and the ultra low sulfur diesel contract are also both lower right now. Global markets, a mixed session to kick off the new trading week in Asia. As you can see right there on your screen, the cost we actually gained about 1.8 percent.

26:33Morgan Brennan: But other major averages across Asia were lower. And if we take a look at the early trade in Europe, you could see pressure. The German DAX is down 1 percent. The French CAC is down about 1.3 percent after the protests we saw there tied to affordability and cost of living over the weekend. So let's stick with Europe and let's stick with those latest developments out of France, because it was another violent weekend of protests and French President Emmanuel Macron vowing accountability for those who, quote, sought to bring down the Republic in a national address. This after police arrested thousands across the country following destructive demonstrations that saw buildings and vehicles lit on fire.

27:13Morgan Brennan: Well, our Charlotte Reid is live in London and she has more for us. Charlotte.

27:21Good morning, Morgan. As you were saying, the French stocks are underperforming in Europe today. I mean, the wider political unrest in France, the French born years are rising as well. as the country counts the cost of the riots over the weekend. French President Emmanuel Macron addressed the nation yesterday evening, condemning the violence on the street, while also urging for dialogue on the wider issues of the cost of living. Now, more than 2 ,500 people have been arrested in France following the clashes between protesters and the police that left shops looted in several cities with some heavy damages.

27:53The Prime Minister, Sébastien Lecornu, is holding a crisis meeting this morning. This crisis is unfolding just six months ahead of a key presidential election in France, with President Macron unable to run again because he has won already two mandates. So the race remains contested with the far right and anti-immigration leader Marine Le Pen currently in the lead, according to the latest polls. Now, France has been under scrutiny from investors for a number of weeks now, as the government is looking to pass its latest budget and address its historic debt levels.

28:26Morgan Brennan: Morgan. Charlotte, I want to talk a little bit about that, because this budget, I mean, National Assembly is due to hold a formal vote on the first part of that bill on Tuesday. And the fact that they do seem to be trying to seek fiscal savings here, how much did that trigger the timing of these protests over the weekend? Or was it something else?

28:48Indeed, they have to make some of these cuts. They have to tackle the deficit that is at around 5.5 percent in France. They tried to bring it down to 5 percent. So they have to make some savings. But it is difficult because, one, you see the protests. The public opinion does not want to see more cuts. And also, it is a government that doesn't have a majority in parliament. They have to play with other parties and find a compromise. And that is, again, particularly difficult to find a compromise with other parties at a time when there is an all-important election around the corner, just only in the spring next year.

29:20And again, President Macron cannot run again this election. It's a wide-open race. The far-right leader is in the lead. But of course, none of these political parties want to be seen as making cuts because the public opinion is not out of sight of these tough political decisions that need to be made. So in the meantime, investors are watching how the deficit is not getting down, is not on the trajectory of going down. The debt to GDP is at 120 percent. That's why we see investors being more worried because we see this kind of situation ballooning, the public finances ballooning, their interest rates getting higher and no easy political decision.

29:55and solution on the horizon, given the electoral context and the public discontact in the street.

30:01Morgan Brennan: Charlotte, we're talking about France specifically, but we've seen protests around affordability in places like Spain, Portugal, others in recent weeks. Is it a similar situation that's playing out across the continent right now, or is France a very specific, different situation?

30:17Well, France is in a particular position, but you are right that we see, in a way, A lot of Gen Zs across the continent protesting for different reasons. We saw some looting as well in Italy. In Spain, it's slightly different. There hasn't been any unrest, but certainly some protests around the housing crisis, in particular a question of affordability of housing in the country. And here again in Spain, we are on an electoral cycle. There's an election in November. You have the incumbent, Pedro Sanchez, the prime minister, who tries to win again this election. But we see this question of cost of living that remains in the headlines.

30:51and the public opinion against cuts and, you know, that one more support, but of course, higher energy prices of the back of the war in Iran kind of feeding these problems around the cost of living.

31:00Morgan Brennan: Charlotte Reid, it's great to have you on to break it all down. Appreciate it. Well, geopolitics, geopolitics also looming large in the U.S. midterm elections. By the way, I just want to note the first NFL game is set to be played in Paris this upcoming weekend. And as of right now, that is still set to happen. But let's turn from geopolitics to politics, because this idea of cost of living and affordability, it's funneling through to midterm elections here in the U.S. as well, just two weeks away, primarily through the impact on things like the, from the impact of things like the Iran war, the Russia-Ukraine war, and how those are impacting voters in terms of affordability and energy prices, food prices.

31:40Morgan Brennan: Let's talk about some of those issues that could potentially tilt the balance of power in Congress and particularly in the Senate. That's where we're going to focus today. Joining me now is Henrietta Trace, co-founder and director of economic policy at VEDA Partners. Henrietta, it's great to have you back on the show. And I want to just home in here on perhaps four battleground states that, in some cases, surprising, even just compared to a couple of weeks ago. We'll start with Kansas, where we could see a change, a shift in November. Let's start there, Kansas. Yeah, it's a great place to start.

32:15if there's going to be a black swan in this election cycle, I do expect it to be Kansas. So as you just walked through, there are holistic macro pocketbook issues happening as a result of the war with Iran primarily. And that is, of course, the$2 ,000 in additional costs we all have for gas and fuel and food and interest rates as a result of the Iran war. But then on top of that, you also have a$1 ,700 hit per household from the tariffs. And those are really integral in Kansas, where the farmers have gotten a triple whammy in the immigration policies of this administration, the tariffs that rose costs for steel and aluminum and everything that goes into a tractor, the closure of the Strait of Hormuz, 40 % of the cost of everything you buy at the grocery store is the fertilizer price.

33:02So those real issues are massive in Kansas. But then on top of that, you also have the fact that after the economy, healthcare is the number one issue for the largest portion of people from Kansas. And we just happen to have an election cycle that pits a doctor who is facing some very difficult calls about lawsuits and collection claims on sometimes costs as low as$50 or even $100 that resulted in arrests from people who hadn't paid their medical bills. So it's bringing every single issue home across farmers, across families, on the health care front, and then, of course, the inflationary components of the war with Iran.

33:46Morgan Brennan: Let's also talk about Alaska, because as you note in your notes here, Americans are notoriously uninterested in foreign policy. But when it does come back home, and I think Alaska is sort of the front lines of this dynamic, that can shift things too. Morgan, that's exactly right. I mean, And Alaska is literally the front line with Russia. So for Alaska, what I'm really focused on, and it's interesting to see the incumbent, Republican Dan Sullivan, reject the president's approach to Russia and say, this is not what we have been fighting for, what we have been standing for since the Cold War era, since the sale from Russia to the United States of Alaska in the first place.

34:27It's sort of a core issue in the way that it is only across a couple handful of states, really, to my mind. Texas would be another. So the Alaska angle with the president's decision to embrace Putin and embrace Russia here, going into the final days of the election cycle, I think is a major problem that Dan Sullivan is struggling to distance himself from while staying close to the president. So this individual, very military exposed, very Cold War era recollecting dynamic is an issue for Alaska and is helping Mary Paltola in the state.

35:02Morgan Brennan: All right. You just mentioned Texas. I was there last week. I couldn't believe how bombarded I was with the political ads just in less than 24 hours of being on the ground. Yeah. I mean, those guys are dealing with presidential visits, vice presidential visits. Everybody is going to Texas. I think that there were some really interesting decisions made to pull funding on the House races in Texas from the Republican conference. So it really is leaving the Senate as this make or break moment. I think the psychological impact of the president embracing Russia also is critical to this state. You know, Texans are a very proud political state.

35:37They vote often. They're very politically engaged. And of course, the original George H.W. Bush is one who reached a deal with Russia back in the day to end the Cold War. And now here you have what was a source of pride in Texas being apparently unwound by President Trump. So it's creating yet another path for Texans to say, this isn't what I signed up for. Certainly the war with Iran, but now also this on top of the immigration issues that are really migrating the Latino vote in the state.

36:11Morgan Brennan: OK, Henrietta Trays, we have to leave the conversation there, but hope to have you back very soon to continue discussing all of this much more. We could just dedicate the whole hour to this conversation. All right. We got a lot more to come here. By the way, Henrietta's call last week for a potential October surprise was all these sanctions regarding Russia. So we're going to talk about that more here in just a few moments with our call crew. But in the meantime, we're also focused on SpaceX because the company is preparing to report earnings. It's the latest on the political back and forth over Ukraine's use of its Starlink satellites as White House and Kyiv trade new accusations.

36:48Morgan Brennan: We're going to break that down and why investors need to be keyed in there as we do get those results after the ballot tomorrow. Morning call. I'll be right back. Welcome back. As we've been discussing this morning, a busy week of earnings on tap, including newly added results from SpaceX. It will report third quarter earnings tomorrow after the close. The stock is up about 19 percent over the last three months. But one of the key numbers to watch in those results will be the performance of its Starlink satellite unit. This is its cash generating big profit engine that's enabling everything else, including the AI infrastructure build out.

37:19Morgan Brennan: It's called the connectivity segment. That division, though, has been a source of controversy in recent days tied to the war in Ukraine. after Ukraine's president accused both the Trump administration and Elon Musk of throttling service, with Musk publicly saying Star Shield, that is the military grade, is controlled by the U.S. government. The debate continued over the weekend regarding apparent curbs on Ukraine's access to Star Shields for its battlefield communications and drone operations and whether and if the directive exists and where it started. Ukraine's president Volodymyr Zelensky speaking on the matter on U.S.

37:53Morgan Brennan: television yesterday. Of course, the message came from government. I don't know from whom, what cabinets and et cetera. And I think it doesn't work either way, but I don't know really. But we think it's not my opinion. It's opinion of our generals, of our government. And of course, my also opinion, they say that it was the message from American government to limit this bit. And technically, SpaceX did it. Well, a short time later on the very same program, Treasury Secretary Scott Besson rejecting that claim by Ukraine's president. President Trump and Secretary Rubio have categorically said that no one on the Trump administration did that.

38:38And I think it is very reckless for President Zelensky to make such a charge. President Zelensky should be very careful about making statements like this that aren't true.

38:49Morgan Brennan: Well, straight ahead. The Morning Call crew is going to tee up the trading day ahead. And one member says investors should not ignore the ongoing AI pressures. We'll be right back. It's time for your call sheet, where we look at the topics driving the trading day ahead. The crew members today, Peter Buchbar for One Point BFG Wealth Partners, also a CNBC contributor, Veronica Clark of Citi and Thomas Martin of Global Investments. Great to have you all here. Veronica, I'm going to kick this off with you, because we were just talking about it through the lens of Europe and what we saw with violence that turned protests that turned violent in France over the weekend.

39:21Morgan Brennan: But whether it's there, whether it's here, affordability, cost of living certainly seems to be top of mind. And we see that funneling out into the economy. We see it funneling out into markets as well after three hot inflation readings, because I'm going to include import export prices in that bucket last week. Your thoughts? Yeah, no, absolutely. We did get that surprisingly strong inflation data. Now, Some of it was expected, right? We knew that energy prices, transportation costs went up in September. But yeah, some of the details were stronger than we were thinking we were going to see in that September CPI data.

39:53Yeah, I mean, it is still, of course, an issue for the Fed. We saw rates, of course, move higher after we got that data. But I do think markets are starting to realize that, you know, higher rates are not costless, you know, for certain parts of the economy that will slow things like housing sector and whatnot.

40:07Morgan Brennan: Peter, I want to get your thoughts on this, especially since I know you are very macro focused, and this is moving markets, including, for example, when we talk about France adding weakness to the euro. Well, on the inflation side, I want to also add PPI. PPI is running about 250 basis points now above CPI. So just because certain prices are now flowing through to the consumer doesn't mean that there are intense cost pressures that a lot of businesses are feeling. Now, I'm not so sure how much the Fed can actually respond to that. Now, on the longer end of the curve. You mentioned France. That, of course, has been a major influence on higher rates.

40:45So has been Japan and so has been UK and issues in the US. But when I saw the headline cover from The Economist asking, will bonds blow up, that told me that maybe this rise in rates in the short term have probably played itself out. I still expect higher rates on the long end over time. But in the short term, I think we're getting some relief here that could last.

41:09Morgan Brennan: OK. I want to bring you into this conversation, Thomas, especially given what we did see in credit markets last week and specifically with Corweave and the credit default swaps there. Sure. Well, excuse me, that's a really more very specific thing for them and for the AI trade. And we've seen a lot of weakness there over the last seven or eight trading sessions. But in the meantime, what you've seen in the U.S. is rates on the 10-year have gone down. So we're a long way from 5.30 anymore down to 5.08. And, you know, notwithstanding the pressures on whether Corweave is going to be able to meet its obligations, which kind of come due a little bit more quickly than it's expected to get revenue, that's the issue there.

41:58And then a lot of just fear, really, and positioning in those markets to make sure that people aren't taking more risks than they really want to, given their optimism.

42:11Morgan Brennan: It has, Veronica, raised some questions about what this is going to mean in terms of companies and others being able to access the capital they need to continue the build out around AI infrastructure, which in turn we know has been buoying the U.S. economy. Yeah, no, absolutely. And if there were to be any kind of sentiment correction around that AI investment, of course, any equity market correction, this does feel like an economy that's just very exposed to that story, whether that's the direct investment in building data centers and whatnot, or also consumption that has been resilient, but resilient when income growth has been pretty soft.

42:50And so where is that spending coming from? It's probably coming from a wealth effect. You know, people are seeing their asset prices go up. So, yeah, it's a it's an economy at multiple points. That's very exposed to the story.

43:01Morgan Brennan: Peter, we're going to get earnings really ramping here in earnest. We're going to start to get some of the mega cap tech names, whether it is SpaceX and Meta or others that are going to be key here, like IBM, Netflix, which we don't even necessarily talk about very much anymore. We almost just lump them in as a media company rather than a tech company. What are you watching? What is going to matter the most this week and moving forward? Well, under the hood, call it the 30 to 35 percent estimate for Q3. A third of that are two companies, NVIDIA and Micron. About two thirds of that is the rest of the AI tech trade, which I think now obviously is under threat, as we just discussed on CoreWeave, which I think has a ripple effect throughout the supply chain.

43:43And then there are a lot of other companies that are indirectly benefiting from the AI tech trade. like the banks, for example. So I can I can math out that maybe 70 plus percent of Q3 EPS growth is tied in some fashion to the AI tech trade. So we know that's strong for now, but maybe waning in some respects. But so I want to see what the rest of the economy looks like. The non-AI tech trade, which we know has been much weaker to see how companies are maneuvering through that environment.

44:14Morgan Brennan: Thomas, what do you think, especially as we did see that rotation take place under the hood in the S &P last week? And we actually saw the Dow eke out again. We're going to get a lot of industrial results, too. And I guess on the one hand, you can make an argument that that's something outside of tech. On the other, they have been exposed to this build out. Yeah, a lot of the industrials really have been driven by AI, and particularly on the upside and then lately on the downside a little bit. So the AI trade is driving all of this. And there's just a lot of uncertainty going forward from a lot of different sectors as to how that's going to pan out.

44:51And the market is reacting to that. I mean, I think that this correction, if you will, is healthy because this skepticism is keeping AI from actually truly reaching a bubble status. What you've got is questioning about how long and what the implications are. and therefore you get adjustments in valuation. And we've seen this really several times in the last year where you get a rotation out of tech and into health care and consumer staples and then back again. So what we'll be watching for this week in those earnings is continued focus on the fundamentals and our data centers being built. Is there demand?

45:33Is there pricing, et cetera? Yeah. All right.

45:36Morgan Brennan: We've got 30 seconds left. Veronica, how closely are you watching what's happening with energy prices given the the waiver of sanctions and tariffs on Russia and some of the other levers that are being pulled here ahead of midterms. Yeah, it doesn't seem to be too material for energy prices yet, but obviously that's such an important part of the equation. You know, why is the Fed raising rates? You know, a lot of it does have to do with the concerns about the passer of those higher energy costs to other goods and services. All right. Well, we're going to have to leave the conversation there. Thank you so much to our morning call crew to start off the day and the week.

46:08Real talent is defined by what people can do, not where they learn to do it. So by stopping at the education section of a resume, you might throw away the perfect hire. Skills First Hiring helps you see talent others miss, like more than 70 million stars, skilled through alternative routes. Let their story unfold and gain a competitive advantage because hiring managers who start with skills are 60 % more likely to find a successful hire. Hire Skills First. Learn why at tearthepaperceiling.org. Brought to you by Opportunity at Work and the Ad Council.