Bank Earnings Kickoff, Tech Fueling Rally, Sarat Sethi Guest Host 10/13/26

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1:00Hi, everybody. Welcome to Power Lunch. I am Brian Sullivan with Kelly Evans. And maybe we'll party like it's 1999 because big tech is back working. Most of the magnificent seven are higher with a new high for Apple. And with that, a new member of the five trillion dollar club. And a bold prediction from legendary investor Paul Tudor Jones, telling CNBC today that 2027 could be pretty challenging for the stock market. So how should investors prepare? Sarah Malik joins us. She's Nuveen's chief investment officer, overseeing more than$2 trillion in assets, and she's here to help you navigate these markets.

1:35All right. We've got a lot to do, but we'll start with what we'll call a tale of two tech trades today. Apple hitting a new record high, and with that move, a move above$5 trillion in value. Apple now joining NVIDIA in that rarefied air in the$5 trillion value club. In the meantime, at least for today, investors forgetting about memory. SanDisk, Western Digital, Seagate, all lower. And the CEO of Broadcom out on the tape warning that the need for capital, i.e. money, could be AI's next big hurdle. He said at a conference in Singapore, quote, some investors are setting extreme expectations, almost like they're in a casino gambling.

2:16So does investors weigh AI spending against the promise of returns? Or exactly, does the tech trade? and maybe the entire market go from here. Let's kick things off with our opening panel. Joining us for the entire hour, our friend Surat Seti, managing partner at DCLA. He owns many of the mega cap names. And Mark Newman is Bernstein's senior IT hardware analyst. He covers the memory stocks and he covers Apple as well. Mark, Surat, great to have you on. We got you the whole hour, Surat. We love that. Is this gambling? was Hock Tan, the CEO of Broadcom, speaking truth to market power. So I will bring it back to what we talk about a lot is the portfolio approach of diversification.

2:56It becomes gambling when you overweight your portfolio in all stocks that are, I would say, you know, Mag7 or they're completely kind of momentum stocks. I think it's good to have stocks that are like NVIDIA, Broadcom, Apple, but you have to make sure that you're diversified and we'll talk about it more during the show, that you have other sectors in there too because everything doesn't just go to the sky. And when you get re-evaluations, the last couple of years, it kind of has. It has. I mean, if you put, like, grandma's savings in Micron, grandma's on a yacht right now. That's if she's sold and if she got lucky.

3:31Even better if she put it in SanDisk. Right. So I would say yes, but over a 10-year period, you've got to be right twice. You've got to also know when to sell. Mark, jump in here. Yeah, I mean, I think that there's still a lot of opportunity here. I mean, some of these memory stocks, yes, they've been on a tear. They're up a lot last year. But, you know, there's been a lot of fears recently. They've sold off quite a bit. And I think this is getting increasingly much more attractive here. And I think, you know, all the memory stocks and hard disk drive stocks, I think, are very attractive and quite a lot of upside here.

4:05Put up, guys, that Western digital chart again. So I think it was a one year, maybe a year to date chart. But it shows this clear peak over the summer. There it is. It's like a ski slope. and then you're coming down. I'm not a chartist, and I don't know if being a technician matters, but what happens, Mark, after you see a chart like this? Can it just pivot and go back up? It can. I mean, I think what's going on with that chart there is, so if you look at the Seagate chart, it looks a bit better. So actually Seagate's our top pick because not only do they have the tailwinds of what's going on in hard disk drive playing out, which is rising prices, strong demand, but also they have better cost profile as well.

4:47So the Seagate trade looks much better. Still, it has flattened out, and it's still down from the peak. But the reason why Western Digital has done a bit worse is because they're falling behind a bit on technology. That's the next generation hard-to-strive technology. And so there's a bit of worries that there's a bit of risk in the next year or so as they kind of catch up in technology. So what do you see then, Mark, as the biggest risk going forward? You're obviously bullish. Seagate, your top pick. But like I was kind of alluding to with grandma on our giant yacht, things have been really good for a long time.

5:23What makes you think they will continue or even get better? What's the next catalyst? Yeah, sure. I mean, for the hard disk drive names, actually, it's earlier innings than the memory stocks, where actually we're seeing pricing not only go up, but it's actually accelerating. So I think that the second derivative play that people are playing in memory, which is why if you pull up the memory stocks, those are down more because you are getting a deceleration of price increases in memory. You're not seeing that of a hard disk drive. We have at least, I think, next five quarters where pricing is going to go up at an accelerating rate because purchase orders are already signed up for the next five quarters.

6:04The companies know what the purchase orders, what the pricing is for the next five quarters, and it's strong. And so that's really what's going to drive earnings growth over the next few quarters. So a question for you, because memory, and we know as a commodity, the hard disk drives kind of can add value. Is that the key differentiator that over time their technology improves, but memory is just memory and it becomes a commodity? Well, I think, you know, in AI, the core of AI is data. What's driving AI revolution right now is data. And that data all sits in memory and storage all the way throughout the hierarchy from DRAM to NAND to hard disk drive, all the way down, actually, all the way to tape, in fact.

6:48And so they are all benefiting in terms of demand. Did you say tape? Yeah, even tape. What's tape? So tape is the old-fashioned way of storing data, which, believe it or not, is now also booming because DRAM, NAND, hard disk drive are all sold out. And so customers are actually having to go to tape now, the older-fashioned way of storing, because they don't have enough hard disk drives in NAND. So the market is extremely tight right now. Kelly is double long microfiche. Right, exactly. To think that that's an area of investment opportunity, but for how long? Do you guys have any thoughts on this$5 trillion mark for Apple?

7:25And we have multiple companies kind of in this world now. Now, the Mag 7 have been great drivers where a lot of the stocks beneath the surface have been a little bit quieter and more of a struggle. But, Sarat, what do you think? I think Apple's key here, if they can continue to services, right? What they came out today was another key indicator that you're going to subscribe to more Apple services, whether now it's in the home and you have it in the car and you have it, you know, in your phone, in your TV. So for them, that recurring revenue and their ability to raise prices is giving them, even though they have a 36 multiple or, you know, depending on what year you're looking at.

8:00So I think that's sustaining it because it's going to have more of an even kind of earnings than you are with some of the others. So I think that's the push. And then plus we saw what happened with 18. You know, this is an offset to maybe some potential demand because of all the things that are happening in memory and then happening in hard drives because everything has become more expensive. So Apple kind of balances out and becomes more of a consumer. If you look, Mark, at that services business, it's Apple's second business behind selling phones. But that services business, if you just stripped out that revenue, is larger than most S &P 500 companies' entire business.

8:39Apple's second revenue source is bigger because we're giving them hundreds of dollars a month with Apple TV, iCloud, storage, everything. And the key to that is it's growing faster than everything else, and they're increasing the total addressable market, right? As they keep on bringing more things in, your Apple device, and I'm not just talking the phone, it's going to be whether it's the computer or iPad. The HomePod, CarPlay. You think they can afford to hire two people that can make a better email client, but that aside, Mark, are you worried? Did I just say that out loud? Are you worried about that 36 multiple that Surratt talks about?

9:15That's rich. I'm slightly worried about the multiple when you're looking at PE. But if you look on EV to free cash flow and you compare it to the Mag 7, it actually looks pretty cheap. Because the rest of the Mag 7, most of them don't have free cash flow. But wait a minute. Just because the rest of them don't have free cash flow doesn't mean that Apple's cheap in comparison. You know what I mean? True, true. But I think Apple has time and time again shown that they are growing free cash flow. Their CapEx budget is not blowing up. It's still about$13 billion CapEx this year. That's crazy. Just think for a second, a$5 trillion market cap doing just$13 billion in CapEx when the rest of this country and its rivals are doing hundreds of billions at a clip.

9:55I know it's crazy. I think what they have is this real, real strong position where they can be the gateway to AI. I think really what is key now is for them to improve their AI positioning. I think Siri AI has been a big step forward, and I think they have more to come from that. I'm going to use a sort of dirty word about Apple. Surat. You're going to say monopoly, aren't you? No, but that's a good one, too. I was going to say utility. Okay. Because I do wonder if people who've made so much money in other parts of tech and they sell it to your point at the top, you have to know when to hold them and know when to fold them.

10:36You know, that should be a song. When you sell other tech that you've made a fortune in, hopefully, Right. Do you put it or park it into Apple? Because that Apple is, dare I say, a semi utility with all this recurring revenue. Let's be clear, unless this goes away, that money is never going away. It's just the price you're going to pay for it. Do you want to pay 36? Do you want to pay 22? And that's the question of entry. Right. And we see points again in Apple where, yeah, it's done really well. but there will be periods of time where it doesn't do well. And maybe we have a consumer in the case shape than the lower shape that doesn't buy.

11:13And the market then kind of reacts to that and says, hey, maybe they have to reduce prices. The biggest thing on their hardware is the margins. Software margins are really high. Hardware margins are high. But if they start going down, then investors will knock down the PE as well. But you almost have the luxury of not having to put Apple in the portfolio. Meaning for a lot of the rest of us, it's more a question of, do you kind of willfully take them out or wait to look for it? And I wish we had a chart of the historical PE because we all wish we were Buffett in the mid, you know, late 2010s buying it then when it was at, what, 10 or 12 times.

11:41But, you know, how long has it been in the 30s now, Mark? It's kind of like Costco. Utility is not a dirty word in investment. It's a golden word. I mean, that's what Berkshire is always looking for. Is Apple a utility in the positive sense of how long should we expect its P.E. to stay up here or grow? I mean, it's a great question. I think when I meet investors, they really look at Apple as very defensive stock. You know, if you think it benefits a lot of what's going on in tech, but it is a much more safer haven. And so you see these days where memory and hard disk drives coming down a lot. These days, Apple does pretty good.

12:13It's up again. That's where money goes when in a risk-off environment. Do you recommend clients buy it? Do we buy Apple? I do. I do. I have an outperform rating, buy rating on Apple. I worry in the short term that the gross margins are going to be disappointing in the December quarter because of these much, much higher memory costs. That's what I worry about in the short term. But longer term, I think the story goes on. Their positioning continues. I think they're a very strong position. Up 30 percent in the past six months, although some of those other names have corrected to your point. Mark, thank you.

12:45We really appreciate having you here today, Mark Newman. Surat, we'll see you after the break. We're just getting started. Paul Tudor Jones' market warning for 2027. Do you follow that? And the historical tailwinds will talk about it. Plus some blue chip names moving big today. We'll bring those to you and get into whether there's buying opportunity. But first, did bank earnings this morning show enough to get the financial sector in on the market rally over the past month? Stay with us.

13:17Some 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. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that.

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14:42Bank earnings in full swing today. JP Morgan, Wells Fargo, Goldman, and Citi all reporting. You can see the results there. Bank of America Morgan Stanley will report tomorrow. Let's bring in Gerard Cassidy. He's co-head of global financials research at RBC. Gerard, always good to see you. But I think largely trading lower today, if I'm not mistaken. What do you make of it? Sure. Thank you for having me on the program. I would say that a couple of factors are coming into play here. First is that as we look to revise our earnings estimates or the street revises earning estimates, based on this quarter's numbers, the estimate revisions are not going to be as powerful or as positive as we saw in the second quarter when the numbers for the group were just blowout numbers.

15:26So I think that's part of the reason that investors are saying that the numbers were in line to slightly better, but maybe the revisions won't be as dramatic as they were in Q2. The second part is that the share repurchases, which has been a very strong component of the banking sector, are probably going to start to be dialed back a bit, primarily due to the strength in lending. Jamie Dimon at Goldman said, JP Morgan pointed this out. But also there's a concern that as interest rates go higher, that might be impacting the capital levels for the banks because of the AOCI accumulated other comprehensive income, which is essentially unrealized bond losses.

16:04So I think it's a combination of these factors. But the numbers, to your point, were in line to better. and the core commercial banking numbers are very good. Invest in banking and trading, not as much so. Gerard, help us make sense of the interest rate story, because I keep hearing that bank stocks are going down because interest rates moved higher, but interest rates have been moving higher for a year. I mean, they went from four and a quarter to five and a quarter, so I get it, but bank stocks are doing just fine until interest rates hit about five. Like, is there some kind of weird magic number that caused the sell-off, Or is it something else and maybe not the simplistic interest rate story that's behind the recent selling in some of them?

16:46I think part of it, Brian, and to your point, rates have moved up not just recently, more dramatically recently at the long end of the curve. And that is certainly, I think, given some people some pause. Now with the Fed moving into monetary tightening to fight inflation, some investors may also have taken that as a sign. Let's get on the sidelines. But what's interesting is you go back to the last five tightening cycles, rising short-term interest rates initially have a positive impact on net interest margins and net interest income. Now, if the rate increases continue for an extended period of time, that benefit starts to wear off.

17:25But to your point, I would say that it's just been more the sudden move in long-term rates that may have some people a little concerned about capital levels. But again, this is capital is very strong. The other thing too, Brian, was I think people remember what happened in 2023 in March Madness when we had those three big bank failures. And that may give them some pause as well with this recent rate increase. Jared, I guess to your point, yes, when rates go up and capital reserves have to change. But how much of this is credit? How much of this is, hey, long-term rates going up? What's going to happen?

18:01We've kind of been hiding in this lower interest rate environment. We had some blow-ups in some of the credit issues. But A, is credit going to come out and we're not going to see something we didn't expect? And B, issuance is going to kind of slow down too, especially for those banks and I would call it the regionals, et cetera. You're bringing up a very valid point. Credit, by the way, I'm glad you brought it up because second quarter credit number is incredibly strong. Consumer, I mean, JP Morgan's credit losses and credit card, well below expectations. Citi as well. So it's interesting. Credit today, both on the commercial and consumer side, very healthy.

18:42Credit trends strong. But you're bringing up an interesting point. Rising rates could make credit become a little more stressful. And that is something that people have to take into account. But it hasn't shown up just yet. And in terms of issuance, certainly I think you're right, especially in the DCM business. If rates continue to move higher, it makes projects maybe less attractive and there's a postponement of some issuance. But so far, I don't think anyone's kind of jumping off the bank stocks because of credit yet, even though rates are going higher, because credit's remarkably strong right now.

19:16It really is. It's kind of amazing. People just don't seem to care. Every plane is packed. Restaurants are packed. I don't mean in New York. I mean all over the country. Gerard Cassidy, appreciate it. Thank you very much. Thank you. All right, coming up, Nuveen. It manages more than$2 trillion. So we invited its chief investment officer on set. She said yes. We'll talk more about it next.

20:08We'll be right back. Integra. That's precision-crafted performance. That's Acura. 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 go.gle slash workspace with Gemini. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much.

20:48Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. A warning from legendary investor Paul Tudor Jones. Remember, he called the 1987 market crash. And now he says today's AI-fueled rally is starting to feel a little bit like the dot-com bubble.

21:23It still feels like 1999, a two-speed market. You've got it completely, perfectly bifurcated in the sense that you have obviously everything that's adopting AI and everything that's not. And they're going in opposite directions. And 2027 is going to be really, really challenging for the stock market. His warning comes as the rally enters its fifth year. I think the four-year anniversary is what, today? Yesterday? Maybe the low was yesterday. The beginning of the bull market is today. And history says that the fifth year can be a strong stretch. According to Carson Group's Ryan Dietrich, the fifth year of a bull market has delivered an average return of about 19 percent.

22:05So who do you bet on? Do you stay in the market and ride the rally or do you do what PTJ is doing? Start positioning defensively. I think he might even be shorting before it turns. Let's ask Sarah Malik. She is the chief investment officer at Nuveen. Sarah, it's great to have you. I was going to say have you. It's great to see you. It's great to see you. Great to be here. Thank you. What would you say to Paul Tudor Jones? It's definitely a market that has a bit of a have and have not feel with technology being the haves. But what I like to follow is earnings growth. And if you look at Q3 earnings growth, which is kicking off this week, we expect 27 percent earnings growth, according to consensus.

22:41That's going to be led by technology stocks. The key question, of course, though, is is all of the spending on AI infrastructure going to eventually turn into monetization? Admittedly, I think the jury is still out on that. And whether that'll happen in a reasonable enough time frame for the stock market is another question. So I would look at diversification in a different way, though. You want to keep your foot in the ground with technology stocks, but you want to be able to expose yourself to other areas of the market. So global equities are a great way to do that. You hold on to your tech exposure in the U.S., but you can also participate in the rest of the world, which is much less tech exposed.

23:14So I would do it that way rather than just betting against the market. Right. Right. And turning to our Surat Setty, who's here on set with us, Sarah, all hour long. But here's the thing. I think if you're a professional investor, professional trader, that that Paul Tudor Jones, that's one thing. Right. But for everybody else, we keep here over time. If you get out of the market, you're making a mistake. It doesn't matter if you're at all time highs. I mean, if your time horizon is reasonably long. And I think that's the struggle a lot of people have. They get out every time they hear him or someone else saying it's going to crash, it's going to crash.

23:44And then the joke's on them. So I think the point there is to say you don't have to be out of the market. You can just within the market choose different areas you want to be. So Sarah's talking about international. You know, we like the commodity space. We like the staple space. I think there's health care. There are other defensive parts of the market that you can barbell. And you can say, I still want my exposure for growth. And if growth works, AI trade works, monetization works, I'll do well. But if it doesn't, there will be other parts of the market that are cash flow heavy, that will still partake.

24:16And that happened in the first decade. So, you know, after the crash or 99 that we had, the first decade was great for the Russell stocks. The value stocks did really well. We haven't seen that in 15 years because we also have interest rates going at 5 % finally, not zero and two. So I think having international in there, having some of the others will barbell you, but not get you out of the market. Because getting back in, we could have another 15 % from here. We should, you know, and then we will. That's the only thing I'm confident of, Surratt and Sarah is that the market will fall again at some point.

24:48We forget, Sarah, that in 2022, which I've told us four years ago, not that long ago, the S &P 500 fell over 20 percent. It didn't fall all at once, but it went down. Now, again, I don't want to do bad math. 50 percent in 2022. Yes. And I don't want to do bad math, but I'm going to do some bad math. If you have $100 ,000 and the market falls 20 percent, you have 80. Well, you need a 25 percent gain to get back to that hundred. So by timing things in the right way, you can insure yourself a little bit. Is it time, Sarah, to buy a little insurance? And if so, how would that get done? How can your clients protect themselves right now if they think that Paul Tudor Jones, who's a pretty smart guy, is right?

25:34Well, I think here's the problem which you brought up, which is the timing here. So first of all, I completely agree with you. Markets at some point are going to fall. The problem is if If you look at history, investors are actually terrible at timing those falls. They tend to miss. They tend to get out after the fall and then they can't get back in fast enough to capture the recovery. Statistics even show if you miss the top return days of the market, you generally cut your returns by a quarter or even by a half. So that's the problem there. The other problem is insurance. Insurance is expensive.

26:03So when everybody's worried, guess what? Just like any other insurance policy, the prices go through the roof. So now you're paying a lot of money for something that you can't time. You know, that's the point of insurance on the market. That's why I'm more of a you want to stay invested, but you want to diversify. You want to look at global equities. You can look at other asset classes. It isn't only about the stock market. You can look at lagging asset classes and, of all things, fixed income, like municipal bonds, which lagged pretty significantly last year and having a nice catch-up trade somewhat this year.

26:30And then also outside of public asset classes, you can start to look at alternative asset classes, such as, you know, there's now availability becoming in areas like private credit, private equity, also infrastructure, and real estate, another asset class. So I try to be more diversified with my portfolio because for everyone, history has basically shown people are terrible market timers, and they then tend to, not only do they get out of the market too late, but they don't get back in fast enough. Yeah. Sarah, just pile onto that. I mean, because to Brian's point, there will be corrections. It's actually been an unusually long time without a 1 % drop in the S &P 500.

27:07Every 18 months, you get a 10 % correction. And we haven't had one. Maybe we get one now. We're going to midterms. We've got oil. You can point to 20 different things that are very different now in a market where the stocks keep on going up. But then you look at the bifurcation. You say, hey, so timing it is just impossible. You've got to be right twice. And if you're compounding for the long term. Now, the other point to this, again, and I bring this up a lot, is if you're at the higher end of your equity allocation, or you are just way off the risk curve, it could be time to then reallocate.

27:39And that's where also investors get caught, because you look at your 401ks, you look at, you know, you might be 75 years old and be like, why am I now 90 percent? I was 75 percent equities just a year and a half ago. But as they've gotten bigger, as they've gone up, that weight increases. The weight increases. And by the way, a 5 percent yield on the 10-year, maybe a muni with some federal tax incentives, which could gross up to 7 or 8 percent or even higher in high tax rates. That's not a terrible option, Sarah. And the other thing that happens in allocation, and we see this with our clients who are retired, when you have a portfolio that has cash and bonds in it, the first thing clients would draw for, say, the required minimum distribution or their regular live-on is the cash.

28:18So what does that do? Mathematically, it moves your equities up anyway. So now you are way above where you should be, even if the market was flat. You get two, three, four years of a bull market, you kind of have to rebalance again. And I think that's where investors get caught up. Well, I'm doing really well, but that 10%, 15 % correction comes and then you get stuck. Yeah, but rebalance into what? Well, I think what Sarah and I were talking about, you can balance into commodities, you can balance into global, you can balance into healthcare, you can balance into private assets. There are other things that you can do that over time have done well.

28:49We've just had this run on AI stocks. Sarah, we'll leave it there. We really appreciate it. Great to check in with you today. Good to see you. Sarah Malik of Nuveen, Chief Investment Officer. All right, time now for your bond report. Speaking of yields, and listen to this. New York Federal Reserve President John Williams says he still sees one more rate hike this year. However, he told Bloomberg that he doesn't believe the central bank will need to increase rates next year. So where are we right now? There's a lot going on. OK, here are the rate odds, according to the CME Group. Traders expect the Fed to keep rates steady this month.

29:25Only a 24 % chance that they hike at the October 28th meeting. But you've got a December meeting, Kelly, which may be live. And if we determine. Yes, we have. We are. We're going back to D.C.? Yes, we are. Okay. I learned stuff on the show. This is where we take care of business, I think. Because once we say it, it has to happen. Coming up, another big macro call from legendary hedge fund manager Paul Shooter-Jones. This time it's an area he's bullish on. We'll reveal that to you next.

30:01All right, welcome back. Oil prices, they are mixed right now. Traders monitoring really all the fast movie headlines out of the Middle East. And listen to this. Paul Tudor Jones thinks that crude oil may have more room to run higher. Long oil, bullish on oil. I think it can rally another 20 or 25 bucks. Wow. Higher crude oil prices helping the energy names all move higher. The stocks, Exxon and Chevron, both hitting new hides today. You've got a lot of the refiners, Surat, Valero, PBF, Marathon, HF, Sinclair, even BP and Shell, all at new highs today. I think you own some of these names. You own the refiners?

30:42We own a little bit of Valero and Marathon. That's like we were talking about you got to be right twice. Yeah. But you own the refiners. And I own them now for the wrong reason. They're doing well, not because of what's going on globally, not because of what they're doing with their own businesses, which is helping. But look, this is a hedge in the portfolio. I mean, I have market weight energy because it's a commodity. It also correlates with the price of the U.S. dollar. So dollar gets weaker, commodity prices go up. And I think that's what he's talking about, too, as you get pricing going into oil.

31:14Now, the question is, and we've seen this before, oil can roll over if the economy globally starts slowing down. So this is all because investors are in the markets thinking economy is going to rise. But OK, I would agree with you, but I would not push back, but I would remind people that if you own Exxon or Chevron, they're going to move with oil prices. Yes. if you own Marathon, which is the biggest refiner in the United States, one of the biggest in the world, if you own a Valero Pure Play refiner, they may actually benefit if oil prices go down but diesel prices stay higher. Because what's that spread called again?

31:51Crack spread. Correct. And that'll go up. It's like teaching class right now. I'd be a good teacher, I think. You'd be a fun teacher. It would be fun. Everybody gets an A. But you get my point that you can't just own them like banks is a basket. But this is when you look at a portfolio approach and you say, you know, if we were sitting here two years ago and oil was 50 bucks, you'd be like, why do you want to own energy? Well, because you own energy because these things happen in your portfolio and they're a good hedge to your portfolio. Better than bonds? I mean, again, it's based on your risk profile.

32:20But if you're 100 percent equity, yes, definitely better than bonds. Because the thing with the Chevron excellence of the world, you have rising dividends as well. They buy back shares, stock goes up, and it's a great inflation hedge to things that are going on in the world. Flip side of high, this is the portfolio. It's got both sides of the trade. Delta gets hurt by this. Yes. And maybe this Elon Musk Starlink drama, okay? Which one is the bigger threat right now? Or are both of them a non-event? I mean, look, I think, again, Delta is the best run airline we have out there. They are doing their best with oil prices the way it is.

32:54Companies firing on all cylinders. I mean, Ed said, Ed Bastian said, traffic is still there. They're seeing premium traffic still there. They have to pass some of the costs on. They're going to cut. They're still cash flow positive. They're making money. And I think, you know, as oil prices kind of come down over time, they will make a lot more money because they've also got the loyal customers that are coming back to them. And you saw American Express is making like$9 million off this. I mean, and look at the shares of 35 % over the past year. This is not a stock that looks like oil prices are the only store.

33:23Diesel or jet fuel prices are the only store. Historically, a delta would be half the price where we were at these prices, right? But they're running it as a business now. It's an industrial company that has loyal customers, recurring revenue. And, yeah, they will have to cut back on certain routes at some point to do that. To address your Elon question, I mean, Ed Bastian publicly said he drives a Tesla. This has nothing to do with Elon. This is what they feel in the long term they wanted to use. Time will tell, right? People are not flying Delta because it doesn't have Starlink. But over time, we'll see where that goes.

33:57We saw the cruise lines last week move higher. I think they had a day where they were up like 10 % or something like that. Now, cruise lines, they use a ton of fuel. It's called bunker, but it's effectively like a diesel type fuel. Teaching class again. Again. But, well, stuff. But they're full. The airplanes are full because they're able to pass those costs along. So this thesis of, well, higher fuel prices are going to kill the airlines, that has not been true. And, Surat, do you see anything that indicates in the near term that the consumer is buckling under any kind of surcharge? I do not.

34:34And I would say, add to that, is when you look at the K shape, what does Delta do? Premium travel, right? The upward K is not as sensitive to price movements as the lower K. So the airlines that are more focused, maybe the Southwest or some of the others that are not under premium, I think will get hurt more because their pricing might not stick as much. The same thing with the cruises. If people are going to pay for experiences, and that's what happened after COVID, customers want experiences, and they're going to pay for it. But there will be a breaking point. The breaking point could be if asset values come down, things like that, then all of a sudden you don't feel like you have your balance sheets.

35:12I know we've got to go. United Airlines today just raised their requirements for all their status levels for next year. Raised them again. Yes. Raised them again. So what does that mean? I don't know. What it means is I won't get them. That's what I mean. That's where this is really going. It will also mean that you'll keep on trying to fly the same airline and you'll be loyal because you want to hit it. That helps United and that helps Delta. It hurts the others because people want their status. They want the premarization. Totally. And look at United shares. For all we're saying about Starlink, they're down 7 % year to date.

35:42Let's get to Seema Modi for the CNBC News update. Seema? Kelly, here's what we're watching at this hour. Cornell announcing today it has banned all parties and social events at fraternity houses for the rest of the school year. The university also said it will work with the New York State Police to allow their criminal investigators to lead independent probes into allegations of sexual assault on campus. The changes come as the campus deals with the fallout of a lawsuit filed by a woman known as Jane Doe who claimed she was gang raped at a Cornell fraternity in 2024. In other news, the CDC said today it will deploy support to Pennsylvania to help investigate its ongoing measles outbreak.

36:18The state has reported more than 1 ,100 cases and five deaths from the highly infectious disease this year. The federal health agency says it will help Pennsylvania improve its response efforts and prevent further spread. Netflix scored the exclusive rights to broadcast the 2030 World Cup in Spain, the tournament co-host and defending champion. The company says it will stream all 104 games live while allowing one match per day to air for free on public broadcast, the value of the deal not disclosed. Power Lunch will be back after this.

36:53Welcome back to Power Lunch. Time now for your Market Navigator. Annual recurring revenue is the commonplace thing in the business world these days, but what about in healthcare? Our next guest says disease detection and prevention could hold the key to healthy returns for companies and is eyeing one name in particular that's already up more than 125 % in the past year. Joining us now for the case is David Miller, the co-founder of Catalyst Funds. David, we're talking about making healthcare a subscription as a service kind of thing. What exactly type of company can make that happen? And just what kind of stock are you looking at?

37:29Sure. So the company that I'm very excited about is called Natera and their Signatera platform. because what it used to be is you had a cancer and you got it cut out of your body when you went in through surgery and then they'd have to do imaging to detect how much cancer you did or did not have left in your body and it was very imprecise. What their Signatura platform does that got recently approved by the FDA a few months ago is it makes it so you can get a blood test that tells you do you have cancer that needs to be treated, specifically how it should be treated and it's a recurring test for the remainder of that individual's life and it can be an incredibly high margin business that can save lives.

38:07I had already mentioned, David, this is a stock and we just show the chart to our viewers here. That's already up 127 percent over the past 12 months. Has it already been priced in all of this optimism? What makes you think that the addressable market can grow even more for that stock price to grow along with it? Sure. Well, when you look at the revenue growth, it's been about 37 percent annualized. It looks like margins going forward could get to 70 percent. And the number of cancers this can treat is really across the board because the best way to detect if someone still has cancer in their body after surgery is through their blood, not imaging.

38:42So their business specific to diagnostics and oncology has been growing well over 50 percent, which I think really justifies these valuations, especially when you look at how great the margins can be in this. And just to quickly conclude here, within health care, you like this versus pharma because why? Well, I like Pharma, too. I like Eli Lilly as well, but that's a pretty huge company. It takes a lot more to move the needle. A company like Natera can grow at exponential margins for several years to come, whereas there's a limit to how big you can get for a trillion dollar company. All right.

39:19David Miller, Catalyst Funds, thank you very much for the case. We appreciate it. Brian, I'll send things back over to you. All right, Dominic Chudon, thank you very much. Coming up, Johnson & Johnson. J &J getting punished today after reporting earnings this morning, but you want to buy low and sell higher. So we'll ask Surratt if this sell is a buy.

39:45Welcome back. Want to take a quick look at some market movers today, starting with Johnson & Johnson, which reported a solid quarter, but overshadowing those results was weakness in its medtech business. The shares are down 6 % on pace for their worst day in more than a year. I mean, who was our buddy who was – Jared Holtz. I don't know if you saw his note about this. I don't want to say he was freaking out, but there are some in the community who are pretty upset and surprised by, I don't know, this sort of set of announcements from J &J today. Are you bothered by it? Well, I think the weakness we could have seen because Stryker's already talked about it.

40:20You've seen it from a couple other med tech companies. So Boston Scientific had it. But, you know, I think what's the overhang here is also that they're going to sell their orthopedics division. And maybe investors are now saying you can get the price that we baked in already. How did we get here? We had the J &J CEO on not long ago. It was the they were off to they were having a great year. And their guidance is higher than what they said in the beginning of the year. It's just the med tech division within there is, hey, is this a short term thing? And what they're saying is we've got issues in the Middle East, oil prices.

40:53It's international. China hasn't helped. But the pharma division is doing really well. And the stock has had a great run. It's still up 18 % for the year. So I think it got baked in. It's 20 times earnings. It used to be trading at 15, 16. That's when we got interested. I think it's still a great company. It's a AAA balance sheet. And all these companies have to work through their med tech issues right now because the demand has slowed down. Because consumers are postponing a lot of kind of the things they want to do, whether it comes, you know, for any type of what I would call not necessary medical.

41:23And J &J, and I referenced grandmothers earlier. I want to give you equal time. This is not your grandfather's company, right? J &J has spun off like half their businesses. Well, they spun off Kenview. They spun off all of us. And CalNova and all this other stuff. So what is J &J? What do you like about it? Well, it's a pharma company, MedTech company, and spinning off their ortho. The pharma company they put a lot of resources into, MedTech, is slowing down. So investors are disappointed in that. Is MedTech slowing because of consumers being pressed, or is it slowing because of GLP-1s? Well, their slowdown was mainly Asia, Europe, and China, which is where they're saying because what's going on in the Middle East, people just don't have the resources or the money to kind of go do that as well.

42:03But you'd think that would be such a short-term issue that's not fundamental to – Well, they still raise their guidance for the year. So it is one of those things where the market's not giving them the benefit of the doubt, and the question is going to be execution and kind of how do you change it around. All right, let's switch gears here, talk about General Motors. CEO Mary Barra was on with Jim and Mad Money last night talking about GM's car portfolio. We continue to grow midsize SUVs. So we have a very strong portfolio across the board that I think is what is giving the strength that General Motors has and how we've been able to with all the twists and turns you've talked about, whether it's tariff, whether it's oil prices, whether it's interest rates, the strength of the product is what's fueling our business.

42:48You sold GM What, two years ago, you went on halftime. You called it a horrible investment, but the stock has done well since then. You think about re-getting back into it? Nope. Nope. There you go. Nope. Made a mistake. Our thesis at that point was consumer was not going to be as strong. Consumer is still strong in buying the cars, but I think the consumer is more into experiences, and I think they've done a great job to their credit. So, you know, sometimes you have to say, hey, I was wrong. Are they buying back a lot of the float? If I'm not mistaken, I thought we had someone come on not too long ago.

43:20who is buying General Motors in part because they're doing the Apple hotel to buy back a lot of shares. And they've been able to manage through the tariffs. They're buying back their shares. They've been good cash flow. But you always have the issue also with the autos as to at some point the stakeholders are the unions and they're going to want more of it. And if you see a slowdown and if oil stays the way they – and Brian, if oil goes up$25 from now, you know car sales are going to start coming down. And, you know, these are hard companies because they don't have recurring revenue either. 76 % in two years, and you're like lamenting it.

43:51Yeah, but it was a$61 stock five years ago. So I don't know if you made a mistake. Maybe you just sold too early. Well, I think it was kind of in a band, right? It went up, but then it went down, and then it went back up. But, you know, same thing with the airlines, right? So there are certain sectors where you just kind of have to say, hey, how do I kind of get the best in breed over there? And I think there's, you know, again, they've done really well. I'm not knocking them. She's done a phenomenal job. But there's a lot of competition. Mary literally grew up in the auto industry. She went to Kettering University.

44:19She literally, her dad worked for GM. She went to basically General Motors University. Yeah. It's her whole life. And you know what they're saying right now? At least we're not Stellantis. Because they didn't make a$125 ,000 Jeep Grand Wagoneer, which looks like a cross between a Ford Explorer and a box van. Tell us how you really feel. You know, as I get older, I just feel free to express my opinions a little more. By the way, this is a guy that owns two Jeeps. So I want Jeep and Stellantis to win. More Power Lunch right after this. We're in a good place, but we can learn from F1. You know, F1 growing, motorsports growing is great for us.

44:59That was NASCAR CEO and New Jersey guy Steve O'Donnell this morning on Squawk Box. Speaking of Formula One, it may return to Africa for the first time since it raced in South Africa in the early 90s. They signed a 10-year deal to potentially race in Rwanda. Here's a sneak peek at what a track would look like. An early Grand Prix is scheduled, theoretically, for the 2030s. This is a stock, by the way, FWONK. It's actually a U.S.-based company based in Denver, part of Liberty Media. Formula One. Stock's down off its highs. Again, no set time. We hope they go back, but I'm skeptical. We'll see if they get a deal done.

45:37They've got to build a track. There's a lot of capital. They haven't announced the exact date. Still kind of cool. Huge investment, Ben, to build that. I mean, that is a big, it's going to be a ton of money. It is, it is. And F1, I just wonder, I went to my first F1 race in 1978 when I was, like, small in Long Beach, but it used to be an F1 race. I don't know if it's peaked out or not. We'll see. There's a strong demand for F1, and it is growing. So why not try International? See what happens. Yeah, I guess it's good for the brand. We didn't talk Disney. We didn't talk F1 style. Get you back on soon, Sir Rod Steady.

46:09Thank you. We'll be back on. Thanks for watching Power Lunch, everybody. Closing bell starts right now. 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.