Rising yields, AI momentum and media industry challenges 10/8/26

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1:16Good morning. Welcome. I am Leslie Picker in for Morgan Brennan today checking U.S. stock futures after a rough day for Wall Street yesterday that saw the Nasdaq snap a five-session winning streak. You can see there's still some significant red on the screen near session lows in the pre-market this morning. The big laggard is the Dow implied to open down about 407 points. The Nasdaq implied to open down about 207 points at this hour. Watching treasuries with yields creeping higher once again back toward that 24-year high after a sharp drop-off yesterday. The 10-year up slightly about a basis point here at 5.328 percent and the two-year at about 4.806 percent at this hour.

2:04Energy prices on the move once again amid reports the U.S. is preparing to ramp up attacks in Iran in the coming weeks. More on that coming up, but prices up once again. WTI up about 4.01 percent right now at a 91.80 and ICE Brent at 104 up about 3.9 percent this morning. Now let's get to some of this morning's top stock stories watching shares of Samsung in overseas trading sinking after the world's largest memory chip maker said it's forecasting a nearly 800 percent rise in operating profit for the third quarter at just over$80 billion, the most for any technology company in history. That$80 billion figure, however, still short of the most bullish street expectations as that demand for AI chips continue to surge.

2:54So you can see shares down 2.4 percent despite those massive numbers on operating profit. Sticking with the action in Asia, shares of Taiwan Semi also under pressure. The world's largest contract chip maker says third quarter sales coming in at$46.7 billion, beating street estimates and growing 50 percent from a year ago, but those shares still down more than 1 percent. And stateside shares of Levi Strauss under pressure, despite raising its annual profit forecasts and forecasting a strong holiday quarter. Company also reporting a bottom line boost from$79 million in tariff refunds. Sales growth guidance is where it really fell short here, coming in, expecting to come in on the low end of its expected range at about 7 percent.

3:37Those shares down about 1 percent. Let's see how Asia and Europe are shaping up. Steve Sedgwick is in London with the trade this morning. Hey, Steve.

3:48Hey, Leslie. I mean, some of those numbers you just mentioned are quite extraordinary, but are they worrying for U.S. tech as well? Let's go through it a little bit. Asian equities closing in the red this morning. South Korea's KOSPI leading to declines. That's despite so much of that index being taken up by the stock you were just mentioning, Samsung. I mean, the highest quarterly profit of any tech firm ever, 800 % increase. You mentioned it, Leslie, and yet the share is still down. What does that tell us about valuations? And I'll tell all our viewers, if you want to see valuations that look at a low P multiple, put yourself a chart up of Samsung versus some of the US names.

4:25It is quite sobering if you think we're not at the top in some of these valuations. Anyway, moving on to the European equity market, also trading in the red this morning. France's CAC 40 raising nearly 12 percent from its value in the space of only two months. Banks touching their lowest level in more than a quarter. And here's a very interesting comment. We've had comments out from the governor of the Bank de France. His name is Emmanuel Moulin. What a great name as well. And he has said, and this is really interesting, inflation is clearly 100 percent energy, but we don't see second round effects.

4:55Well, maybe you to look on the streets of France at the moment, but it's 100 percent energy. So what does that mean for Walsh & Co and all of us who are looking at those Fed minutes? Now we need to look forward. But what he does say, Monsieur Moulin, he says geopolitical shock is also transmitting into a financial shock. And I think that's very sobering. What we're seeing on the geopolitical front, Leslie, could become a financial shock as well. That's from the governor of the Banque de France. Back to you. Yeah, that is very sobering and clearly a second order effect potentially as well, just in the transmission mechanism to the financial side of things.

5:26Steve, thank you. Turning back to Wall Street, bracing for another day of selling with U.S. equity futures deep in the red as yields resume their march back to near quarter century highs. This is investor debate continues to rage on when or if rates will ever do any kind of real damage to stocks. But the bears appear to be coming out. Here's what longtime options trader Sam Carson had to say on CNBC yesterday. You're getting up to that edge and you can see it happening. At some point, we'll wake up one morning and bonds will move 20 basis points along the curve and things will really start to break.

6:05Joining me now with reaction is Kieran Ganesh with UBS Global Wealth Management. Kieran, what do you think? 20 basis point move in a morning. Is that something that's, you know, within the realm of possibility here? Well, markets are clearly somewhat fragile in the fixed income area in particular. So I don't think we can rule out any particular day-to-day volatility. But I think more broadly, what we're seeing is a race between earnings and yields. Yields are rising. So far, earnings have been rising even faster. And as we enter this new earnings season, then we're going to find out if the stocks can continue to outpace some of the pressures that we're seeing in the fixed income markets.

6:45Yeah, there was a great Wall Street Journal piece about that this morning where they talked about how you should have you would expect to see a bigger impact given what has happened with rates so far. But given that earnings have been so strong, even though P.E. multiples have come down, stocks have actually done OK. So is your expectation that the third quarter earnings season, which kicks off next week, will really help catapult that further? or, you know, given just the examples we've seen this morning with Samsung, our expectation is just so high right now that everything is a little bit up in the air.

7:20Yeah, I mean, we're going to keep focused on how are the expectations for 27 and even 28 starting to evolve. Obviously, with any individual stock, you can get these travel and arrive stories. Many of them have performed extremely well. And then the specific result can lead to some disappointment. But broadly, what we'll be looking for is, is there signs that the AI investment is going to continue? Are we still seeing very strong demand and monetization coming through for some of these names? And does that give us confidence in this AI trend continuing into 27 and 28? And as long as that holds up, and I think we've still seen very strong absolute results this morning, then we think that we will stay confident on stocks continuing to perform.

8:03Kieran, I want to get your reaction to some comments made by Fed Governor Chris Waller. He's basically saying that there are more rate hikes that are needed from the Fed to cool inflation, according to some of these fresh comments that he's making in Europe. He's speaking at the Istanbul Economic Forum and says insufficient progress is being made in lowering inflation to the central bank's 2 percent target. However, Waller says he is not concerned that hiking rates would damage economic growth. the current Fed funds target range is 3.75 percent to 4 percent. So as you can see on Calci, there's an 86 percent probability the Fed stands pat later this month.

8:45What's your take? It's been a really interesting dynamic that you've seen this big increase in yields, but at the same time, the expectations for the Fed in October have actually been dropping. We do think that they're going to stay on hold in October, but we do expect to see a hike come through in December. We think that it is clear the Fed is focused on trying to restrain inflation, and we think it might take one more hike to do that. But as we go into 2027, you're going to start to see some of the year-on-year effects from energy prices start to drop out. We think that some of the underlying inflation data does suggest that the downward trend is still intact.

9:23So we think that after that hike in December, they're likely to stay on hold, And that should hopefully give a bit more confidence for equity investors that there won't be further tightening in financial conditions. And then it'll be interesting to see what happens with bond markets as well. We think more stability in the Fed rate should also lead to the bond yields starting to fall in 2027 as well. Are you surprised we haven't seen that yet? More stability in the bond markets given what's been telegraphed from the Fed? Yeah, I mean, I think while we've got this upward pressure from energy prices, I think that is leading to a lot of uncertainty in bond markets.

10:02And you can see that the correlation between oil prices and bond yields has been almost one for one recently. So I think that's really putting a lot of upward pressure right now. If that does start to alleviate, and I think we all hope it does in 27, then that would be a further catalyst to help those yields move down. Yeah, definitely something to watch for. Thank you so much, Kieran. Appreciate your time this morning. A lot more coming up here on Morning Call, including the$80 billion Skydance debt question and whether investors will ever get on board. Plus, Lululemon taps talent at The Gap in hopes of kickstarting its struggling strategic turnaround.

10:37And later, no money, no problem for one chipmaker that just got a billion dollar loan from the U.S. government. 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 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.

11:10That's Acura. The quarter pounder with cheese is made with 100 % fresh beef, cooked when you order it. Add hot crispy fries and an ice cold Coke and hopefully a lot of napkins. All for$8. Ba-da-ba-ba-ba. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini.

11:57The new Skydance may just have created one of Hollywood's biggest media empires, combining brands like HBO, CNN, Discovery, Warner Brothers, CBS, and Paramount under one roof. But for investors and bondholders, the company's massive debt load now takes center stage. The combined Paramount Warner Company has nearly$80 billion of net debt on the books. And SEC filings put pro forma annual interest expense around$6.4 billion. Yes, that is per year. And investors already showing some possible concern with shares closing more than 6 % lower yesterday, this morning. For Skydance's part, it said it can generate more than$10 billion in free cash flow by 2030.

12:38But the issue here is most of that still comes from linear television. Warner Global Networks, for example, generated about$6.5 billion in earnings before interest taxes, depreciation and amortization last year, down more than 20 percent from a year ago. So the challenge for Ellison and the company in what appears to be a rising rate environment is to meet his lofty goals of putting out 30 movies per year, find a way to cut six billion dollars in costs while still attracting top talent and pay down the old media debt while still investing in new media growth. Joining me now to discuss this and more is Tom Rogers, executive chairman at Foundation Zero, an AI film platform company.

13:19He's also a CNBC contributor and senior advisor to our parent company, Versant. It is good to chat with you, Tom. Thank you for being here this morning. So, you know, we laid out all of those numbers and yet they did still have demand, investor demand for to purchase those bonds. So clearly the investors are somewhat behind this project here, even though the bonds did sell off a little bit. Well, first, I think you got to congratulate David Ellison for closing two enormous media deals, Paramount and then Warner within 14 months of each other. A lot of people thought that could not be done, and he did it.

14:00And the combined company, you have to recognize, is going to be up there with YouTube as the number one media company in terms of total television viewership. So it is a behemoth. But as you point out, most of that television viewership comes from traditional linear television, where the combination of Paramount and Warner is 50 percent more linear television than the next two, Fox and Disney. And they have only 8 percent of streaming viewership, which is where their growth has to come from. Now, there's no doubt that it's a more formidable competitor as a combined company, but they got a long way to go to really turn that streaming service into something that's going to dig them out of$80 billion of debt.

14:49Yeah. As we think about just transforming a company and the cash flow profile, how quickly can they really jumpstart the streaming side of the business to be a much bigger driver of that cash flow and help pay for the high interest costs and the profitability of the company? Well, as you point out, they're dependent on serving that debt from the linear side of their assets. And the advertising on the combined Paramount Warner has been declining double digits. The subscriber fees that they get from cable operators, which is a huge component of their linear revenue, has been declining on a combined basis close to 10 percent.

15:38And their viewership on a combined basis over the last two years has declined about 19 percent. So they got enormous number of headwinds on the core revenue base that's necessary to service that debt. Now, at the same time, as you say, they have to invest for growth on the streaming side. Most notably, they have to really drive local international programming to penetrate multiple countries where Netflix has its enormous lead. I think Paramount and Warner together have about 10 percent of the global viewership of Netflix. And that just shows just how much they have to drive growth there. So they have to invest in that while also investing in a much bigger movie slate.

16:31The two companies together put out 18 theatrical movies last year. And they've committed under the agreement with the attorney generals to put out 30, growing to 32 movies a year. So a lot of content investment on the streaming and the theatrical side. why they have declining revenue to service that debt. So it's a hell of a balancing act. Absolutely. Is it a balancing act that you think is better done as a combined entity? Obviously, they believe their strategic rationale, and they pushed very hard for this deal to happen, took on all the debt, put in some of their own equity as well. So they believe it.

17:09As someone who has studied this space and is an expert in media and mergers, I mean, is there a real case to be made that being bigger and in the scale allows them to achieve those goals in a much better way than they would if they were separate entities. Well, yes, I do think they are more formidable as a competitor and have a better chance of driving scale as a combined entity because both the HBO Max and Paramount Plus were subscale services on their own and both did not look as if they had the accelerated growth necessary to bring them up to the kind of scale to be a global competitor. Just if you combine Paramount Plus and HBO Max subs and add in all of Disney Plus International subs, just talking about the global side now, not the domestic, Netflix still has 50 million more global subs than all three of them combined.

18:10So it is a tall order, but they are better off as a combined entity. I think the issue is that they're going to have to invest heavily in content. They're probably going to see some major renegotiation with the NFL because of the change of ownership with Paramount, where they have not come to terms yet with the NFL on that change of ownership. Estimates are that they may have to pay a billion more for rights going forward. If that's the case, that's probably another 8 % of costs that have to come out to make up for that on top of the$6 billion in synergy costs they've already committed to, where both companies have been picked over pretty substantially in terms of cost out over the last few years.

18:59So, yes, they're better off as a combined company, but the challenges here are very, very significant. Yeah. The hard work starts now. Tom, thank you so much. Really appreciate your time this morning. Tom Rogers for us. Thanks for having me. We'll hear more from Ellison when he speaks exclusively with CNBC's David Faber today on Squawk Box around 8.30 a.m. Eastern time. Looking forward to that. Straight ahead, not just media moguls. The heat is on for the commercial real estate sector as well, facing another possible rate reckoning. We get an inside look coming up. But first, watching shares of Costco out with September sales after the close yesterday, coming in at$30 billion, up 13 % from a year ago, driven primarily by gasoline sales.

19:45Morning 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. That's precision crafted performance. That's Acura. The quarter pound of a cheese is made with 100 % fresh beef, cooked when you order it. Then comes the melted cheese, the slivered onions, the pickles, the ketchup, and the mustard.

20:25Add hot crispy fries and an ice cold Coke, all for$8. And if things go well, one loose fry at the bottom of the bag. The quarter pounder with cheese meal, now$8. Ba-da-ba-ba-ba. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini.

21:13The residential and commercial real estate market has been feeling the heat from higher U.S. bond yields with the 10 and 30 years, still well above 5%. REITs in particular have come under pressure. The FTSE All Equity REIT Index is down more than 7 % since the beginning of September. As yields jumped in the Fed raised rates, the decline in mortgage-related REITs was even greater as the average 30-year fixed rate is now at a three-year high. REITs are typically the first REIT on how investors value commercial property when REITs move. Let's talk more about this with Tom Shapiro, founder, president, and CIO at Bright Shore Capital, a private real estate investor, with a footprint in roughly 50 major markets.

21:52So the big question, Tom, is around affordability right now. What's the sentiment, given everyone you're speaking with? Thanks, Leslie, first of all, for having me. The sentiment is quite negative, of course, and I think you have to break it down to for sale versus for rent. The September 16th rate hike to 3.75 to 4 percent obviously was affecting the short end of the curve, but the long end also has really increased. We now have a 30-year mortgage at 7.5 percent. And as you point out, the consumer has already stretched, and now affordability is really, really quite low on the for-sale side. Homebuilders have been pulling back.

22:30August starts were down about 20%. That is the most since 2012. So, of course, the supply side is starting to adjust. But it's a real issue, I think, on the for-sale side. We're starting to see, you know, for-sale portfolio, definitely things are starting to slow down. So we have been cautious for a while for the last year or so. So we went into this knowing that we thought things would get worse. And, of course, you have the consumer has other things as well, of course, high inflation, gas prices, et cetera. So less than 20 percent of households can now afford a$600 ,000 mortgage. So, you know, we're being quite cautious on our for sale portfolio.

23:06And then if you switch over to what affects the REIT side, the rental, which is more rental portfolios, like that is also somewhat of an issue. And I'd say there's twofold issues there. Of course, rising interest rates means higher cap rates. Higher cap rates are just a multiple that you would pay for a property because you're demanding a higher yield. Your financing costs just went up dramatically. But it's more than that. I think one of the big issues is we just had a lot of supply going into this, particularly in the Sun Belt. And so that's really affected things as well. So I think it's both the supply side and the valuation side that's really been affected here.

23:40We see we have a lot of dialogue on this network about the crowding out potential of particularly as it pertains to U.S. Treasuries from the data center build out. Given that data centers are also seen as a real estate play, do you see any crowding out as well from the investing side where investors are putting more money into data center for their real estate exposure and less in, say, commercial real estate, residential real estate? I don't think so. I think investors, if they find good investments, they invest. We haven't had an issue from a capital raising perspective or feel all the money is all of a sudden going to data centers.

24:17There's just a lot more added and a lot more areas that the money is coming from. A lot of it's coming out of allocations from pension funds infrastructure side than it is from their real estate allocation. So I don't think that that is the guiding force of what's happening. And frankly, the data center build out is helping the economy. You know, one could argue that we'd be in a recession without it. Obviously, a lot of construction jobs are created. We're seeing we develop a lot of industrial properties and we're seeing a lot of demand from companies that are in the supply chain of data centers.

24:46So that's helping us. We recently had a building we delivered in Dallas outside of the airport. It sat vacant for a little bit. And then a data center company approached us to at least 75 percent of it the next month. They said, just kidding, we actually need the whole the whole property. So we are seeing a lot of demand from data centers. I actually think the knock-on effect is quite positive from a real estate perspective, creating jobs, et cetera. So I don't think that all of a sudden capital is fleeing away from traditional real estate just to go to data centers. Interesting. So the crowding out theory may not necessarily apply to real estate in the same way it may other asset classes.

25:23No, I don't see it. All right, Tom. Tom Shapiro, thank you so much. Appreciate your time this morning. Thank you so much for having me. Appreciate it. Still on deck. The Mideast tensions tick higher, sending WTI crude back above 90 bucks a barrel. A live report from the region when Morning Call returns. Welcome back to Morning Call. I'm Leslie Picker in for Morgan Brennan this morning. Let's get a quick check on U.S. stock futures. Pretty firmly in the red this morning. The Dow implied to open down about 423 points. The Nasdaq, 186 points lower is the implied open. And the S &P implied down just about 31 points this morning.

25:56Chip stocks, after Samsung's record third quarter profit missed the street's most lofty expectations, are somewhat to blame here. Somewhat the culprit, especially from some of the weakness we're seeing in the implied open for the Nasdaq. You can see Samsung currently down about 2.4 percent, and that's having a ripple effect across the chip sector. NVIDIA down about 0.6. AMD down 1.25. And Intel down about 1.8 percent this morning. Hear more from our call crew on that coming up. Energy sharply higher as Mideast tensions rise once again this morning. WTI up about 3.7 percent. Ice Brent by the same magnitude.

26:38You can see Ice Brent at about$104 and WTI at about$92 this morning. Treasury yields back on the move again this morning, especially toward the longer end of the curve. You could see 10-year up just a little bit, 5.33 percent, 30-year at 5.7 percent, and the two-year at 4.8 this morning. We've also seen some red arrows around the world as well. You can see the KOSPI down about 2.6 percent, thanks in large part to those Samsung figures that we saw as well, a heavily semiconductor-focused index over there. Japan, Nikkei, down about 1.4 percent. And you can see Europe teetering lower, France down about 0.8 percent, and the German docks down about 0.8 percent as well.

27:32Let's get a check on some of this morning's latest headlines. Lululemon naming industry veteran Maggie Gager as its new chief product officer, reporting to new CEO Heidi O 'Neill. Gager, a former Nike executive and most recently CEO of Gap's Athleta brand will join the company later this month. The Pentagon is awarding U.S. chipmaker Wolfspeed a loan for as much as$1.5 billion to support the development of domestic chips for national security purposes. Under the terms of the deal, which are not yet final, Wolfspeed, which filed for bankruptcy as recently as last year, would issue the Defense Department warrants in exchange to buy as much as 7.5 percent of Wolfspeed's outstanding stock.

28:09Fresh off its first outside investor capital raise, Jeff Bezos says his rocket company, Blue Origin, will likely pursue an IPO in the coming years. In comments to Fox News, Bezos says the move makes sense after personally injecting$28 billion of his own wealth into the company since its founding in 2000. Blue Origin's most recent funding round valued it at$140 billion. And President Trump will be awarding a number of tech executives, including Elon Musk, Michael Dell, Sergey Brin, Jensen Wang, and Lisa Su presidential award medals in Washington today. The summit comes a little over a week after Trump hosted a lunch at the White House focused on AI that included several of those executives.

28:49Each of the awards recipients at today's event has financially contributed in some capacity to President Trump or Republican campaigns and causes. Turning back to a developing story and the price of oil surging once again this morning following comments from President Trump that he no longer wants a deal with Iran. This follows reports The U.S. military is preparing for new strikes against Iran, possibly before midterm elections. Let's get to our Dan Murphy live in Abu Dhabi with more. Dan. Leslie, good morning. We'll Brent back above$100 a barrel this morning. And this move is all about the risk of this conflict reigniting.

29:27The upside here being driven by a fresh headline this morning. Axios out with a new report citing U.S. officials saying here that the Pentagon has now instructed Central Command to conclude preparations for resuming major combat operations in Iran. So as you would expect, that is helping to drive the price of crude higher this morning. Now, this report says there's no date that's been set. Of course, no final decision has been made either. But U.S. and Israeli forces tell Axios here it could happen before the Israeli elections this month and before the midterms in November. President Trump also speaking at a campaign rally in San Antonio when he said, and I quote here, I think the deal isn't really something that I want to do, but they're willing to offer us anything to stop.

30:15So oil also barreling higher here off the back of the president's comments. And because it's also reported in this Axios piece that any renewed campaign would include the bombing of Iranian energy, infrastructure and nuclear targets that, of course, coming after what has been months of stalled negotiations and, of course, no real off-ramp here for lasting peace. The other thing to add here, Leslie, is that this is also quite an interestingly timed report as well. Of course, as you know, fuel prices already quite a significant headache for the administration. So striking Iranian energy sites would be kind of an unusual choice of aspirin here.

30:56The market right now perhaps working to determine whether or not this is just more talk or whether or not this is a real threat. Let's back over to you. Was this notion, this belief that nothing would accelerate going into the midterm elections and then we would just kind of address what's going on on the geopolitical front after the midterm elections. Do you think that this pours cold water in that potential comfort that investors had around just the timing of everything and the fact that the administration may not want to do anything that would spike oil further ahead of the midterms here, which are in three weeks' time.

31:36Exactly. So, you know, interesting. I was speaking with a couple of analysts this morning, and some have suggested to me that this is perhaps the calm before the storm. We know that the U.S. has also been moving military assets into the Middle East region, boosting up the resources on the ground here for any potential action or a resumption of military conflicts. But at the same time as well, the political calculus in the Gulf region has been one of calm here. Regional and Gulf and Arab leaders really urging the United States and Israel from some states to attempt to hold their horses, so to speak here.

32:15And of course, on the U.S. side as well, the president's appetite for escalation also really important to watch as we come into the midterms, given what's happening with crude and products, as you say. Exactly. It's certainly a key issue here in the U.S., Dan. Thank you very much. Appreciate it. A lot more coming up here on Morning Call, including NVIDIA's march to a$6 trillion market cap and what it means for the broader market. Ultra concentrated tech trade. Morning Call is back after this. Welcome back. We have a market flash on Applied Digital, the data center operator reporting a narrower first quarter loss than analysts were expecting.

32:50Demand around AI helping revenue surge 322 percent from a year ago when those shares up about 4 percent. From one AI giant to another, checking shares of NVIDIA this morning down about half a percent, still hovering near record highs, though, and is trading in some rarefied air as it closes in toward that$6 trillion market cap. It would be the first company to top that mark and will need to reach right around$248 a share to do so. NVIDIA and other mega cap tech names have been helping to power the market's recent gains. In recent weeks, tech and communication services were the only positive sectors in the S &P 500 last month.

33:34They currently account for nearly two-thirds of the index's total returns, just three stocks. As a reminder, NVIDIA, Apple, and Microsoft now make up 21 percent of the S &P's weighting, the most ever. Joining me now is Melissa Otto, head of research at Visible Alpha at S &P Global. Melissa, it's good to see you this morning. Thanks for having me on. There has been all sorts of questions around concentration risk and what it means. And as we kind of think about the threshold of a six trillion dollar market cap for NVIDIA, how should we be thinking about this company is is getting to the point of being potentially too big to fail, given just its importance in the index, its importance in the economy and its importance in the broader sentiment driver of the markets?

34:22Absolutely. First of all, thanks for having me on this morning. It's always great to share my views on the markets. I think, you know, NVIDIA is an interesting one. It is the bellwether of the AI trade. And going into the rest of the year, it looks like all systems go for that. And we're seeing upward revisions essentially across the board for next year around the expectations for AI to continue to drive a lot of demand for chips, for memory, around the data center explosion. So, you know, I think as we listen to what hyperscalers are going to say this earnings season, you know, around their capex, around their fundamentals, unless they significantly pull back CapEx, it doesn't seem like there's anything that's going to slow this down.

35:23What do you make of, you know, investors' ability to diversify given all of that? Because it's not just the 21 percent weighting for those big tech behemoths. It's just the tentacles that they also have throughout the entire AI trade, throughout the broader ecosystem. You know, we've seen breadth kind of narrow a bit. How should investors really seek out more diversification if this trade does kind of go sideways or even decline? Yeah, it's fair. I think we're seeing pretty significant outperformance also in overseas markets, particularly in emerging markets. I think there's been quite a bit of strength there where you see commodities doing quite well.

36:11You see some emerging economies just doing quite well. That's been an interesting hedge, I think, against some of this. Also, energy has been a fantastic hedge. We see that the moment that oil prices go up, energy stocks are essentially outperforming. And that, too, can be a good diversifier. In addition, you know, one thing I've been looking at is the mean reversion trade that could potentially come into the mix next year. And that's around consumer staples, consumer discretionary. We've seen those stocks meaningfully underperforming, in part because of inflation, higher gas prices. I think just some dysfunction in these companies.

37:04I mean, you talked about Lululemon. Lululemon trades it around eight times. You know, it would be interesting to see, you know, if we get a lot of economic growth coming from all of this CapEx investment, does that actually trickle down to the consumer in a way that could start to prop up some of these stocks from their low valuations? Yeah, that's a good question. We've obviously seen the wealth effect just from what the stock markets have done and that trickling down to the consumer. But in terms of a, you know, a real correlation between all of the data center build out and, you know, the impact in the economy.

37:41Melissa, thank you. Appreciate your time this morning. Melissa Otto. Straight ahead, the morning call crew teeing up the trading day ahead and why one crew member says now's the time to get paid to wait. It is time now for your call sheet, where we look at the topics driving the trading day ahead. The crew members today, Bill Lee of Global Economic Advisors, Mike O 'Rourke from Jones Trading, and Bilal Little from Direxion. Let's start with rates. Obviously, that's been a key driver, a key question that everybody has on their mind when they wake up in the morning. Today is no exception, Bilal.

38:14Well, one of the big questions I think today, just kind of reading all of the newspapers and what people are talking about, has centered around this idea of when rates will really start to impact equities. We've seen it. Valuations compress a bit since the rates have gone up. But earnings have been so strong. So how long can that trend continue? Well, one, you already know, right, the cost of capital becomes more expensive. It makes it more difficult for businesses to fund themselves. The challenge, though, and I think the opportunity for investors today is determine when is the right time for me to allocate to fixed income.

38:47Here's an interesting number that I've pulled recently. So I've pulled basically top ETFs that have been seeing flow over the last couple of weeks. And four out of the five categories have been fixed income, which is interesting because now investors have a psychological hurdle in their mind of five, three or five and a quarter. And they say, you know what, now is the time to make that trade. So we see a barbell approach in fixed income. And that's why I think they should be paying attention to rates and keeping some powder dry. Mike, what do you think? Yeah, it's interesting. I think yesterday is the first time we saw the equity market react to the rate story.

39:18Obviously, earlier this week, we had the reports that the broadcom-backed anthropic debt deal, $60 billion debt's being sold this week. Then we had the news that SpaceX is trying to sell$40 billion worth of debt. And last night, we get another broadcom-backed open-and-eye$50 billion debt deal. So it just shows so much debt supply coming just from three players. Forget about everybody else in the AI space who needs to build out and they need to raise capital to do that. And I think the market's finally waking up to the fact that the AI build out is funded with debt. So it's going to be very rate sensitive when we talk about all these big CapEx numbers over the next several years.

39:58That's where it's coming from. So I think the equity market's waking up. We'll see. Yeah. I mean, although we did see a Treasury auction yesterday and speaking about kind of the potential crowding out concerns that went OK, Bill. I mean, does that give us any kind of comfort that the market seems at least here in U.S. Treasuries to be OK with what they're seeing? There's still some sort of demand there. Let's remember that Europe is also giving the U.S. Treasury market quite a bit of a hand because what's going on in France is demonstrating to markets that government's just not going to be able to close their deficits.

40:30So a lot of global investors are coming to the U.S. Treasuries as opposed to, say, European, French or German bonds. And let's also remember that the equity markets are being affected already. 70 % of stocks are under their 50-day moving average. If you take away the AI names, more than 80 % are under their 50-day moving average. So if the stock market is being affected, it's just that the strength of the AI trade is so strong. It's covering up in the aggregates what's really going on underneath the markets. Yeah. And to your point, it's all relative, given what we've seen in Europe lately. Let's talk about what we're seeing in Asia this morning, Bilal, because Samsung reported just amazing numbers, very impressive record gross profits for any company, over$80 billion for the quarter.

41:17But it still didn't meet analyst expectations. And so the stock is down more than 2 percent this morning and it's kind of created a domino effect across the chip space. How much of that are you expecting going into third quarter earnings, which really kick off next week here in the U.S.? Just this idea of such lofty expectations that these companies have to really meet those bars. Yeah, look, I think there's an issue with technology right now, basically, to Bill's point, clouding the entire trade of where opportunity is. The market is looking for value. You focus a lot on fixed income, I mean, on the financials.

41:52Think about next week. The banks are going to be reporting they're off 14 percent or so since the 10 year hit five percent. That creates a real opportunity in investors. I just came from a trader conference last week and literally 500 people are saying, where's the valuable out? They're looking for the opportunity. And I think in the banks, you actually see some serious opportunity. Now, there is a bit of a bifurcation situation in the banks right now. You think about the capital market system is drying up a little bit. The IPO market's been put on pause in areas. So you've got a pipeline backlog.

42:18But then on the other side of the trade, banks that are diversified, well, net interest income looks really appealing. And that's going to be able to basically carry that value trade for a little while. Yeah. And to your point, it's kind of the opposite of what we've seen in prior quarters, where the banks have really run up into the print, risking a potential sell-off when the numbers are disclosed. This quarter, it is the opposite, where you've seen a bit more of a sell-off in recent weeks leading up. What's your expectation for earnings this quarter? And what do you think it means in terms of investor attention from macro switching more toward the fundamentals?

42:51Well, I think the news out of Samsung and Taiwan Semi last night is Taiwan Semi's Q3 revenues are in now because they reported their September sales number. And it was, I believe, about a 2 percent beat. So, you know, like you said, the expectations are high in the technology sector. Also things, you know, both companies, Samsung and Taiwan Semi had record numbers. But like you said, that's built into the expectations right now. So I don't think there's a great deal of upside opportunity. There are upside surprises that we should expect because the AIA trade has been so loved for the past several years.

43:25So I do think looking beyond those groups. And it's interesting. I think the pressure that banks have seen that Bilal talked about has been the interest rate move. So if you see the 10-year stabilizing here at 5.3%, that's going to help the banks and whatnot. The Consumer Staples Group, they're hated. They're hated by everybody. We're getting to the point where they all almost yield 6 % in dividends. And if we ever see a rotation out of those mega cap companies like NVIDIA, a group like Consumer Staples, the market caps have become so small, it would have a powerful effect throughout the other 493 names in the S &P 500 outside the Magnificent Seven.

44:05So it's interesting. Those names have been depressed in valuation. So any good numbers in those groups, rotation starts. It should be really good for them. Yeah, as we continue to wait for that catch-up trade to actually be effectuated. Bill, as we think about what the interplay is between higher rates and things outside of kind of the obvious candidates like banks and, you know, culprits from higher rates, what about risky assets and what higher rates means for them? Because the tech trade has been somewhat volatile, but by and large, up and to the right, despite what we've seen with interest rates.

44:41Do you think that that ever shifts? Let's remember, you can't go up to the right without adding on more risk. And I think the risk that's underappreciated on the A.I. trade is that so much of it's being funded by private capital and in particular light, covenant light and variable rate private capital. And there, I think, is where the risks are. As rates go up, a lot of the banks are being sucked in because many of the private capital firms are relying on lines of credit and NEC loans from banks to support these funds. So as much as we think that private capital and sophisticated investors are funding the AI trade and that is OK and not so risky systemically, banks are involved.

45:23And let's remember LTCM and the 2008 financial crises also sucked in banks in ways that we didn't think about before. And that's one thing that we need to watch out for is the untold risks underlying the A.I. trade that we haven't discovered from private capital. Yeah, those NDFI loans. Appreciate you all. Thank you very much for your time this morning. Thank you to our Morning Call crew for joining us. We really appreciate you watching. 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.

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