Global Markets, AI Debt Concerns, Energy Stock Ideas 10/19/26

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0:37and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

1:00The chips are up with one of the world's most important sectors on pace to break an eight-day losing streak. Welcome to Power Lunch, everybody. Hope you're having a great Monday. After a painful, nearly two-week-long sell-off, semiconductors are on the mend, and the company at the center of some of the AI debt fears, losing its early gains even after a big bank tells clients to buy CoreWeave. Also higher, oil, still above$100 a barrel. But what happens now? We have two key voices for you. Dan Juergen and Goldman Sachs' Neil Mehta, both here. France has been gripped by its worst urban violence in years following nationwide protests over fuel prices, education and the rising cost of living.

1:40Yields in France, the United Kingdom, Spain and Germany all higher. Roushir Sharma, the chairman of Rockefeller International, is here with more today. All right, folks, there's a lot going on. But the big market story to start the week is the continued worries around AI and AI spending and debt levels. And we do start the week with just a touch of good news for you. The Nasdaq 100 is rebounding right now. Inside the Nasdaq, semiconductors may be the group to watch anywhere in the world. The SMH right now is seeing some buyers come in, this after eight straight days of losses. AMD, NVIDIA, Taiwan Semi, they're all higher.

2:19Heading into today, like we said, it was a nearly two-week-long win-losing streak, by the way. one where the SMH was down nearly 15 % in that time. This adding to what has been a lot of selling coming into today. But as of today, at least right now, the buyers, they are back. So let's talk about it all, what people are buying, what they're selling. Joining us, the perfect guest, Robinhood Chief Investment Officer, Stephanie Guild. How was that for an intro, Stephanie? Oh, it's amazing. Because you see the data. you can see what your clients, Robinhood's millions of customers and clients are buying and what they are selling.

2:56What were they doing? What are they doing? They're actually, over the past week, they have been buying the dip that we had. And if you think about the AI trade, like it's been pretty grindy since June. But this past week, they have been going into Micron, buying Nebius, like buying the things that, you know, we have been under pressure. And I think part of a broader deleveraging, selling consumer names. And that's kind of interesting because consumer names haven't been that strong this year, but selling like the Netflix and the Nikes. Well, I would assume, I'm guessing if they're selling Netflix and Nike, I think Walmart also, they were selling.

3:35Some of these are losers. So maybe they're selling for tax loss reasons ahead of the filing their taxes. I don't know. But we had a power poll, Kelly, I think last week, right? We asked people, you buy or sell in the AI dip. And I think most people, not by a lot, it was close, but it was more buyers than sellers. So your data would seem to confirm that. It does. Yeah. And I think that's pretty normal for their behavior because they will buy on those dips and the things that they truly believe in. I think the selling of the consumer names is actually not aligned with some of their behavior because they do tend to look for opportunities there as well.

4:08You know, I'm a little concerned, shall we say, about this move towards 24 hour trading. I think that a lot of people are waking up and seeing all sorts of crazy prices being reported on their apps. Not yours. I don't know about Robinhood, but like in general, you know, you might just be looking to check or update your account and you're going, why is this moving around on you? So what can you tell us about, and this is just, today is like tiptoeing in the direction of more that's going to come. I mean, I think it's the future. Like you, you, when you have a world where you have 24 hour trading, you have tokenization, you have agents potentially, being part of your investing practice.

4:45I think that's part of the future, but you do have to be, I think you have to be more careful about shutting out that daily noise or that hourly noise. And I think that, especially if you have a long-term view. So that's something that I think we'll be focused on when it comes to education. Why do we need this? I would have thought five or 10 years ago, like you said, it's the future, obviously. Why would we have old-fashioned market hours? I've sort of come full circle on this. And now I'm like, why do we need this? Who needs this. Did you hear our conversation when you came in from your show?

5:14Stephanie and I were literally talking. Do we change our wording on CNBC? How do we say pre-market and post-market anymore when there is no pre - or post-market? It's just the market. I mean, the volumes will still fluctuate, right? Because there are times where people will be more focused on it than other times. Like, people still need to sleep, but agents don't need to sleep. And I think that's why you need it, because you can play on information and kind of take a view at any time of the day. And markets continue to be more global, and this is part of that, too. Yeah, it's, I don't know, some of it's options, some of it's kind of like plain vanilla equities.

5:46What do you make of this move to kind of put more shares? We'll see how it actually works. Anthropik says they're going to do a public benefit corp. Musk says he's going to do direct deposit of SpaceX shares. Could Anthropik just do the same thing? Could everybody just do the same thing? Can we just wake up and every founder in America could say, and you can have a MediShare, and you can have a, where could this end? I mean, why not? Could more people do this? Yeah. I mean, why not? Because I think you've seen like I think the CEO of SpaceX actually already said they would contribute the shares.

6:14Dell obviously has been active in providing assets to kids through Trump accounts. I don't see why, because if you think about like the biggest wealth generation has actually been participating in the markets. And if you can if the wealthiest people who have benefited the most from this can help that, I think it's only good because it's not coming necessarily from an everyday salary. Well, obviously, a big part of the recent selling has been about CoreWeave, AI, and whatever. CoreWeave debt yields nearly 15 % for a second straight week. But today, Goldman Sachs upgraded the equity to a buy, seeing 73 % upside, calling the recent sell-off a big buying opportunity, although they did bring that price target down.

6:56Let's bring in somebody who's been tracking this story from the beginning very closely, Seema Modi. Seema, obviously looking at a couple things. The equity is one thing, but the debt level is a different thing. and I think the debt level is probably more important here. What is the debt doing? The debt, to your point, the 2032 bond, still above 15%, guys, which is classified as distressed territory. And what this tells us is that the unsecured debt market is not an option that Corey really has to raise additional capital. I would read into the comments from CEO Mike Intratore, which he made to employees last week in a memo that we obtained as well, in which he said equity is potentially on the table.

7:30So basically he's telegraphing a potential stock sale, because at this point at 15%, that remains incredibly undesirable to go to the debt market. Now, what we've also learned from conversations we've had with credit folks is that the GPU-backed loans will remain a key go-to option for CoreWeed, the NeoClouds, and even the hyperscalers. And I think that's why this week earnings we get from Meta on Wednesday, SpaceX, that will provide a key read just for the AI funding cycle in general, understand whether they're going to slow down CapEx, or again, resort to these other unconventional methods to support the purchase of chips.

8:02that could have an implication for Corweave as well. But if the CEO is talking about selling equity stock to raise money because the debt market's too expensive, what he's also saying indirectly is that they need to raise money, that they need money somehow. They're going to sell debt or they're going to sell stock. I've heard rumors in market chatter, Seema, about tapping the European high yield debt market, about insurance companies coming in to backstop this debt. Where are we right now in all of that? So insurance capital, that is an untapped pool of capital that the AI funding ecosystem has yet to really leverage.

8:35And from what we understand, CoreWeed does see that as one option. And by the way, they're not the only recipients of that insurance capital that will likely come to market. And when we're talking about insurance, it's mostly the private equity companies like an Apollo and Blackstone that have an insurance arm that they can use to help support some of these GPU backed loans. So, yes, that is something we should expect in the next three to six months to provide some type of support for the AI funding ecosystem that's expected to come up. Look, the revenue is doubling from$1 to$2 billion. It's not a big number.

9:08The losses are more than doubling at the same time. It's like all these stuff about the future doesn't matter if they have a real near-term problem. It's a really unique business model that they're using, right? The ability to hoard and buy as many chips as they can right now because scarcity is such a big issue. But in order to fund it, they have to use these aggressive financing measures, whether it's the unsecured debt market, which they've already leaned on, equity as well, now insurance, the GPU-backed loans where you're using basically the investment-grade rating of your customer. That seems to be, you know, those options are very much on the table for CoreWeave.

9:44Even in the broader story here is the$40 billion of debt that is coming up for payment in the next five years. That's being watched very closely in the debt market. One thing I would just add, the last thing I heard, don't expect the high yield debt market to move a lot until the midterms. Post midterms is when we are expecting activity to really resume. Right now, there's just too much uncertainty. And again, people have become much more conservative over the last two weeks because of what's going on with Corweave and where rates are at. Stephanie, is this still a big, is it a big retail name?

10:11And I thought I saw data about retail investors buying CoreWeave amid the sell-off last week. Is that, can you confirm if that's happening on Robinhood? Yeah, they definitely have been interested in the dip that's been coming because they believe in the long-term compute. I am a little bit personally nervous about CoreWeave, and I would prefer to probably own the other companies that benefit from this. But it just shows you that, like, there is, you have companies like NVIDIA that are really pushing to have this supported and talking to insurance companies to help them understand because it benefits their business as well.

10:40So I feel like tech is just becoming a bank more and more. It has been a bank in a way. AI has become the default bank to the world in a kind of a weird way. To the market, yeah. Right, that sort of circular financing idea that we've been talking about now for about a year. Exactly, yeah. Stephanie and Seema, thank you both very much. I have a feeling this story is not going away. Thank you. All right, folks, we are just getting started. We've got a big energy doubleheader coming up. Dan Yergin is out with a new report connecting the dots between the Middle East, diesel fuel and a global food crisis.

11:16He's here. Plus, do you want to buy energy stocks now? Goldman Sachs' Neil Metis here. He'll lay out his top names right now. But ahead of that, the turmoil in France spreads across the border and it's pressuring markets. Is Europe uninvestable?

11:38the only account your business needs to scale globally. You're building a business with global ambitions, but hidden fees are eating into your margins. With Wise Business, you can pay overseas suppliers without exchange rate markups. Have customers worldwide get payment details in 22 currencies so you get more of each hard-earned payment without hidden conversion fees. Be smart. Get Wise Business. Download the app. T's and C's apply. 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.

12:15At 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. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

12:51Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

13:05Big story out of France this weekend that is rippling through global markets. Mass protests about the cost of living, which then erupted into rioting by some, are sending shockwaves through equity and debt markets in France and across Europe. You can see European averages lower across the board with the Caixart down more than a percent. The French 10-year yield also jumping 15 basis points. Let's bring in Rockefeller International Chairman, Rasheer Sharma. It's great to have you here. Thanks. Can you, you know, I think people are looking at causes, looking at effects and trying to figure out where does France go from here?

13:37Ruchir Sharma: Well, this is a big story playing out around the world, the source of which is interest rates. You really think so? You really think that these protests in France are about interest rates? No, I'm going to say that in terms of, no, the protests are different, but in terms of why yields have started to go up in France, right, which is the fact that we've had a massive interest rate shock in the world over the last six months. And that's causing all sorts of problems to emerge now, whether it's got to do with European debt, the AI debt out here. There's a common link is what I'm trying to say. And you know what's fascinating about that is Brian and I would sit here as bond yields were soaring and you'd say, you know, it feels like something's going to break, right?

14:12Didn't necessarily foresee that this would break out, but continue.

14:17Ruchir Sharma: Yeah. So like around the world, what do we have today? Which is debt as a share of GDP today is more than 350%. This is the new high, ex-financial debt. And this is the real problem, that you have very high debt levels and interest rates have gone up very sharply. Every time in history that interest rates go up sharply, particularly when you have a big increase in real yields, you always have some financial accident. Do you think it's fair to say that the difference between the US and Europe, because we also have 5 % budget deficits, we also have high debt, but we have growth? Absolutely correct.

14:47And this is where I struggle. We're going into the midterms. We're having big conversations about big spending programs and all of these challenges that we face. And some might say, look, the market's telling you we can keep spending. But it's not necessarily about the level of the deficit. It's not necessarily about the level of the debt. It's not necessarily even about the level of your bond. It's about the growth. You either have it or you don't. How does Europe get that back?

15:11Ruchir Sharma: Yeah. So it's impossible, as we were speaking about, in fact, during the break, that if you look at France, the statistics are terrible, right? Which is that they have the highest government spending as a share of GDP in the world after North Korea at 57 percent. Then they also have the fact that they're running persistent deficits and they don't have a growth strategy. Now, as America is concerned, yeah, we can be comforted by the fact that we have growth, but we're hanging by the AI thread just now, which is all the flows that we're getting into this country today are through equity. The debt flows into the country have really slowed down.

15:42Ruchir Sharma: It's all equity money which is rushing in because of the AI story. And even here, How long are we going to be able to finance some of this AI expansion if interest rates are going to keep going up at the current pace that they are? So I think that the common story around the world is we have had an interest rate shock. The weakest links in the system around the world are being exposed. And I want to make sure that I heard you right and our audience heard you right, that France's government spending as a percent of GDP is second only to North Korea. Korea. Not South Korea. Right. North. Yes. Korea.

16:21So we saw the scenes over the weekend. Yeah. Right. Some people call them protests. Let's be clear. If you're burning things down, rioting, looting, you're not protesting. These are riots. Yes. OK. It may have started as a protest. That's not what it is. I was in Greece when they were throwing Molotov cocktails into banks. And the one thing we learned about Greece is shortly after you see those types of scenes is often the best time to invest because that's when the government is forced to make painful but real changes. Or the European Central Bank comes in and puts everything over. Something doesn't break, something they try to fix.

16:56So, Rashir, given all this right now, is France, is Europe investable?

17:04Ruchir Sharma: Well, I think it depends where in Europe you want to go because you're parallel, it's correct, Greece. But remember, Greece spent many years, the first signs of a crisis in Greece emerged in 2010. It took five to six years after that for Greece to really clean its act up. And then you had an incredible decade for Greece, right, in terms of what's happened over the last decade. I don't think in France we're anywhere close to that point as yet. One, the spreads haven't widened to that level as yet, which is like in Greece the spread widening was incredible. And two, that Greece carried out a lot of economic reforms under pressure.

17:40Ruchir Sharma: In France, they're still protesting the slightest cuts. And the system is really warped. You know, another statistic, I wrote a piece this morning in the FT about the billionaires. And I couldn't mention France there. But here's the statistic about France. And this is where it gets so hard to carry out reforms. The highest number of inherited billionaires in the world is in France as a share of the total billionaires. And what do you think? In the U.S., we constantly hear politicians excoriating billionaires basically for existing. So repeat what you just said. In France, they have the highest number of inherited billionaires.

18:14Ruchir Sharma: As a share of their total. As a share of the total in the world. Do you know where the U.S. ranks on that? Yeah, the U.S. is very low on that. We are created billionaires. We create billionaires. Yes, we are created billionaires, and therefore billionaire wealth in this country for long was celebrated. The only difference which has happened, moving to the U.S., is that the image of the billionaires, because they're all coming from tech, has shifted. So therefore, as I said, that Hollywood is capturing that popular zeitgeist today by casting them as the villains in their new movies coming out. But that's the shift which has taken place, which is that until three to four years ago, Elon Musk, Jeff Bezos, they all had very high or relatively high popularity ratings.

18:50Ruchir Sharma: Those have flipped to being negative. So that's a bit of a warning sign as far as the U.S. is concerned about wealth creation. So somebody gets an inherited billion because great-great-grandpa invented some kind of a handbag. Right. And then people that are poor are being asked to take cuts. Exactly. I understand why they're pissed off. Now, they shouldn't be burning stuff down. These are riots. I understand a lot of this has nothing to do with anything other than that. That said, I want to go to the bond report because we do have an actual bond report with an animation and everything like this.

19:20So there it is. I say it and the animation rolls. So we've obviously talked about French debt, 10-year closing on 5%. We're above that here. Yes. But it's not just here or France. UK, the guilt's up 5.5%, 5.4%. Germany's not as high, but it's up. Everybody is up. Japan is up. Everybody is up around the world. Spending is up. People don't want to take cuts. So where does this, how does this play out, Rashir?

19:48Ruchir Sharma: Well, interest is going to keep going up until it forces governments to start cutting back. That's the natural pathway. But when they start cutting, people start burning things. Or central banks come in and paper things over. but this is what Europe did even a couple of years ago. What was the name of the newest thing, the TTF or the TNO? You can't even keep track, but they effectively reacted to widening German, or not German, French periphery spreads by buying more of their debt. They're responsible for helping to keep this whole thing going. And so at what point do the governments, this problem is so intractable, so hard to solve.

20:23It's now putting so much pressure on the current leadership and the population to fix years.

20:27Ruchir Sharma: But there's one big difference, which is now compared to a few years ago, that's inflation, which is that a few years ago, all the governments could say, yeah, we can monetize this debt or do whatever it takes because of the fact that we can have low interest rates because we don't have inflation. The difference today is you have inflation and the people are really annoyed about inflation as well. So therefore, I think the capacity of governments to try to what you're sort of hinting at monetizing the debt or stepping in is limited because of the fact that people for the number one political issue across the world today is affordability.

21:01Ruchir Sharma: And that is what's going to limit the ability of governments to do this. I think to sort of connect with Brian saying, which is very good point, which is normally when things are burning is often the time to buy. That is true. However, if it's because of short-term papering over measures, the entire future of the euro could be called into question. I just hope that it's much harder to fix the real stuff. It's a lot easier to just come in and say, you know, hey, we're the buyer of last resort. Europe has not been able to fix this stuff because they're always being bailed out. Like Italy, France, they have so much wealth, they're able to find some way or the other to keep this going.

21:35Ruchir Sharma: But that's why they're never able to solve it. countries like Greece, Portugal, they were able to solve it because they didn't have this amount of wealth to back it up. So it's almost the fact that, as you said, that it's a great time to buy, as the old line goes, that you buy when there's blood on the streets. Problem is that if you buy in these countries, half the blood is likely to be yours, just because of the fact that in these countries, they are not able to carry out reforms because they don't feel the pressure as yet. They have enough wealth to keep getting by. And they're not like emerging markets or even like the Greases, where you don't have wealth, you're forced to carry out economic reforms, and you set yourself up for the next cycle.

22:14And we'll let you go, but I would add that energy costs have doubled in five years, which we're going to be telling that story a little bit later on in the show, but also hopefully in a couple of weeks. But Roshir, I urge everybody, by the way, go read his piece in the FT. You're also an author, by the way, and you talked about the tech billionaires. Got a lot of good stuff in the FT, so we appreciate you coming on, Roshir Sharma. Thank you very much. Good to be on set. Thanks. Still on deck. Middle East turmoil driving up energy costs. Could a global food crisis. How about a global food crisis on top of everything else?

22:44In all seriousness, that's an issue. Dan Yergin is here to talk about that next.

23:00This message comes from Wise Business. the only account your business needs to scale globally. You're building a business with global ambitions, but hidden fees are eating into your margins. With Wise Business, you can pay overseas suppliers without exchange rate markups. Have customers worldwide get payment details in 22 currencies so you get more of each hard-earned payment without hidden conversion fees. Be smart. Get Wise Business. Download the app. T's and C's apply. 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.

23:38At Acura, that means looking closely at how every detail could make your experience behind the wheel more rewarding. Every lesson learned and every idea refined becomes part of what comes next, and it lives inside every MDX, ADX, and Integra. That's precision crafted performance. That's Acura. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

24:14Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.

24:27All right, time now for a Power Insider. And right now, let's take a look at how the energy market is trading. Crude oil is higher by about 1.8 % right now to 103.22. There is some talk that maybe more Russian supply will hit the market. We'll see what happens. Crude oil above 100 bucks a barrel. Here's a look, by the way, at the UAE Merban contract. We talk a lot about delivery costs and what the real price of oil may be. Well, Morbon down right now about 4%, but still at 109.10. But as I've said many, many, many, many times, the price of actually getting a physical barrel is way above all of this.

25:01Now, what's happening in the Middle East and Ukraine, not just impacting how much you're paying at the gas pump, diesel fuel shortages around the world, they're driving up shipping costs and also the cost of both making, producing and selling food. And in a new report, S &B Global's Dan Juergen warns that fuel and fertilizer disruptions combined with weather patterns from El Nino could put global food supplies under pressure. Joining us now is Dan Juergen, vice chairman at S &B Global. Dan, thank you for coming on. I want to get to that report in just a second. But first, I have to start with this.

25:36You just returned from a huge conference in Saudi Arabia. It was an event, turns out, successful event, even with the terror attacks on civilian targets. But now the big FII conference in Riyadh is going to be rescheduled. You were just there. What is the current situation in the Gulf region? And is there any real visibility on how this ultimately all plays out? Well, you have several different questions there, Brian. But I'll start to say that I was there last week in order to leave the country, had to drive five hours across the desert to Bahrain. All the airports are shut down, the major airports.

26:11You can't have an international conference if you're airports. So it seemed it's a reasonable decision by the Saudis in terms of this conflict with the Houthis. And and there this has been a longstanding battle, but it's really reignited right now. And it is disrupting what would have been a very important and timely major global conference. Yeah. And you look at these attacks, which is disgusting because they were on civilian targets as well. Airports and, you know, company headquarters and things like that. Do you view this as part of a sort of a semi-regional dispute between the Houthis and Saudi Arabia?

26:50Or is this the reacceleration? Because we've seen other attacks on ships in the Persian Gulf, etc. Is this the reacceleration, Dan, of bigger problems? Well, it is. I think certainly Iran is involved in this. I don't think the Houthis have the capacity themselves to target it the way. So clearly, the Iranians are helping them as, of course, the Iranians have also stepped up attacks on ships in the Gulf. Dan, it's Kelly here, and I'm glad that we could check in with you because these, as we know, this is all now potentially coming to a head with this meeting that Putin has requested with the U.S.

27:27and China. What do you think about the prospects for that trilateral summit? Well, I think it's Putin's theory that only big powers, he sees it as big three. He'll get there with Xi and President Trump and settle everything. That's his theory of politics. I don't think it's going to work because I don't think Ukraine is part of it. But Putin is, you know, he's in this to win. And he thinks that's his theory of power. But I do want to pick up on what you were just talking with Rashir about, about inflation, because you were talking about where we are now. But if you look, as Brian said at the beginning, about what's happening with food, with fertilizer, natural gas, sulfur is very important, cut off from the Gulf.

28:11You look at fertilizer, you look at diesel prices, which I know you've been talking about, but farmers in Iowa are paying 80 percent more for diesel. And then you add to that the El Nino. And you can see in India where their sugar crop is down. If you connect the dots around the world, there is the potential for a serious food crisis if these conflicts continue. But it's not like the oil price where, you know, something happens, it registers immediately. This unfolds with the seasons and the planting and the harvesting. So we're looking at something that could go well into 2027 in terms of disruption of global food supply.

28:51The piece hit home in a previous life. A long time ago, Dan, I actually traded chemical fertilizers. That was kind of my first. Well, I admire your expertise here. Me and like six people in the world. And it didn't last very long. I don't want to make that much of it. But what it did do and what still sticks me when I talk about ureas and phosphates and nitrates and triple superphosphates is I know it goes into them. Right. I know there's a lot of natural gas. I know there's a lot of petroleum products, so your point is well taken. But we're in month eight and a half now of Iran, and we're in year four of Ukraine, Russia, and ships are being blown up off the coast of Sochi, Russia.

29:27The Black Sea is probably as dangerous as part of the Strait of Hormuz or Bab al-Mandeb. So again, how much visibility? I mean, you're the world's leading expert in this. How much visibility do you have? Because if you don't have a whole lot, I don't know how anybody has a whole lot of visibility. Well, I think there's this recognition that these conflicts can go on for a longer time than had been thought. Remember, it's thought it'd be over pretty quickly. And as you say, the disruption of the inputs that go into fertilizer and people don't realize how important fertilizer is to the planting season and what the costs are.

30:08You look around the world. I mean, just take South Africa. It imports 80 percent of its fertilizer. Fertilizer costs have doubled. You look at rice from Thailand, it's up 43 percent. The data, if you add up all these data points, you see that we are the potential. If this continues with a very strong El Nino, that those costs go up. And, you know, I was watching the segment about what happens in France when costs go up. And we know that high food prices, food inflation was one of the causes of the Arab Spring. So, you know, it's not that things are going to get better, but there's a lot more risk out there that I think people are aware of.

30:49Yeah, there is. And actually, you know, we just showed natural gas, Dan, on our screen. But again, that's the U.S. traded contracts at three bucks. I'm looking at the European contract and the European contract has doubled in two years. They've kind of been saved by relatively mild weather. This year, they had a very hot, a record hot summer. They use gas a lot because they do have some air conditioning. If it is a colder winter, they're going in with natural gas storage levels below the five-year average. I'm going to be telling more of this story in the next couple weeks, but this is a major problem.

31:25Not only do they have a potential shortage, Dan, but if they want to buy it, they're going to have to spend a lot of money on it, money they may not all have in Europe. Well, we saw France doesn't have that money. And in terms of, you know, if you take another, you know, India, a lot of its fertilizer is made with LNG. So if LNG prices go up or in shortfall, then you have problems there. And by the way, you get protests there as well. So these problems are compounding right now in a way that's not well perceived, but does say that if you energy disruption, El Nino, fertilizer, all those things do say that there's going to be a lot more pressure.

32:03And, you know, we certainly are very aware of what's happening with farmers in Iowa right now. And it's, you know, my takeaway, Dan, from what you and Rooshir were just saying is that this kind of pressure, especially from multiple different directions, does end up, you know, with us kind of finding out who are the weakest links. Thanks for joining us. Really appreciate it. Dan Yergin from S &P Global. Still ahead, we're staying powered up on energy, and we'll discuss where the biggest opportunities are as earnings season heats up. In fact, Goldman's Neil Mehta will join us with his top picks next.

32:43All right, welcome back. Let's keep the energy conversation going, but we're going to pivot to getting some opportunity and stock picks for you because Goldman Sachs out with a new list of 10 energy stocks it likes heading into the quarter and earnings. Let's welcome in Neil Mehta, joining us from Goldman Sachs. He's the man behind that report. He's the head of Natural Resources Research. Neil, welcome back. Okay, so the last time we had you on, You were talking up a lot of the refiners. It's been a great call. Your clients have made a lot of money. Marathon and Phillips today, new highs. These stocks have been going up.

33:15You still like them. But as I understand, you're pivoting some of your recommendations to a different group of names. Who and why? Yeah, Brian, we we have been constructive on the refining cycle. Really a supply side story. And margins have been terrific over the course of the year. We are always looking for value and what is the incremental place that our clients should be deploying their dollar. And E &P, specifically oil E &P, looks like a very interesting value. Our framework tends to gear towards companies with higher free cash flow yields. The typical U.S. oil E &P trades at a 12 % free cash flow yield at$70 WTI, 75 Brent.

33:54We're talking like the Exxon Chevrons or you're talking smaller? So three companies in that 10 list that we featured here, ConocoPhillips, Occidental Petroleum, and Permian Resources. So there you have a super major in Conoco down to a mid to large cap in Permian Resources with somewhere in between with Occidental Petroleum. Each of them have idiosyncratic drivers, but we do think that the value is in the oil E &P complex right now. Permian Resources, PR, interesting name. Not a name we talk about a lot, by the way. We've got to get the CEOs on. Open invitation to come on, by the way. We're going to be calling you right after the show.

34:31Oxy, we know. Conoco, we know. Why do you like Permian Resources? Who are they? Why are they attractive to you? It started off as a bootstrap organization. Two guys, James Walter, Will Hickey, built this business from scratch. In that time, that business is compounded at a 50x. So it's gone up a lot. They're focused on one area, which is New Mexico, the Delaware part of the Permian. They found really good acreage, and they have an excellent ground game, which means that they're going out and acquiring sticks or locations at very attractive valuations and building out a really good footprint. And it ultimately reflects in free cash flow per share.

35:12They're going to CAGR their free cash flow per share at 20 % between now and 2030. For an oil industry, we grow 1 % a year. Why is it that every basin name is from a state in a different part of the country? Yeah. There's the Delaware and the New Mexico. Anyway, that goes back, I'm sure, to ancient geography. Imagine if it was actually in Delaware. Right. Except there's only credit cards. I grew up in Marcellus, New York, but the Marcellus shale is not there. Anyway. And that's where a lot of that activity, Kelly, is moving. You know, historically, when we thought about Scott Sheffield and we thought about Travis Dice, the guys who were building out the Midland side, we were talking Texas.

35:47Now we're moving westward in the basements. We're going into the New Mexico side. It is federal lands. It is a little bit gassier. And the geology is challenging. So you need to have the right people. And I think you're backing two good guys here. Yeah, by the way, Scott Sheffield has a new book. He may or may not have mentioned me. So I want to say thank you. I appreciate that. Did you look in the index? Decent. Page 125. Not that I'm looking. Or 135. It's one of those. Anyway, just read the whole doggone book. ConocoPhillips. Ryan Lance. Legend. Retired. New CEO. Andy, you impressed? Oh, he's been impressed by Andy.

36:20Ryan is a living legend of the industry. He really built Conoco to where it is today. It's another free cash flow per share CAGR story. Between 2025 and 2030, it's free cash flow per share is going to grow at a 24 % CAGR. This company is all about execution. Andy's got to bring on one big asset, which is the Willow Project on the north slope of Alaska. That project comes online late 2028, early 2029. As that happens, you'll have a$7 billion free cash flow inflection. Unlike other companies that have to go out there and do large acquisitions, this is a company that just has to execute on one large project, and I think they'll get it done.

36:57So let's talk about the refiners again, because, again, they have been a high flyer. I'm trying to remember which momentum analyst we were talking to last week that thought that was just going to keep going. Mark Newton. It was, Mark. Okay. And so, again, he's not saying he's an energy expert, but he says, I still see a lot of positive momentum there. What would you tell investors, especially those who might be more recently in these names, about why you're saying a little bit of caution? Yeah. So, again, we're always looking for the value in the space. The space is up 170 percent this year. As I look at this large cap group, the stock that looks most differential from a valuation standpoint is H.F.

37:34Sinclair, ticker Dino. The old Sinclair gas stations, that's their brand. They have a brontosaurus as their logo. Awesome stuff. A green brontosaurus. And so the value in this business is around management transition. They lost their CEO earlier this year. I think they're going to name a new CEO in the coming days. They have a good crude access in the mid-continent, in the middle of the country. So the widening of the spread between Brent and WTI should help the business as well. And they've got an interesting opportunity in some of the non-refining side of the business. So if I have a Trump account and I want to put Dino in it for my boys, okay?

38:12Yeah. And by the way, I can't, but I'm just saying, could I put this in and not worry about it for 10 or 20 years? Or do you have to be really tactical? It is a cyclical space. So when do refiners not work, I guess, Kelly, would be the way to answer that question. They don't work in recessions. They did not work well in 2008. They did not work well in 2016. They didn't work well in 2020. So in periods of demand weakness globally, these are cyclical businesses. So that's when you have to worry. But I think at this point where the economy is, still chugging along at 3%, there's a place for it in your portfolio.

38:42And finally, implicit in all of this is kind of what the direction of oil and products and all that is. And we talked to Don about that. But what do you make of the stickiness? I mean, what are you kind of thinking about oil and the price of diesel and gasoline as you're making these picks? Great question. So when we focus on the back end of the curve and the liquid contract of 28, and one of the things that we've observed since the last time we were on the program is the slow grind higher in that Brent contract. That brand contract is now$81 a barrel. When we value these equities, we're valuing them at$75 to$80 a barrel.

39:17So the strength of the back end of the oil curve should be supportive of owning some of these oily E &Ps in your book. All right. Neil, thank you so much. Really appreciate it. Come back soon. Neil Mehta from Goldman Sachs. Let's get over to Frank Holland now for the CNBC News update. Hi, Frank. Good afternoon again, Kelly. The Department of Justice says it charged 28 alleged noncitizens in California with various voting and registration crimes. Those charges come after the DOJ sued California last week, alleging more than 20 ,000 non-citizens have received mail-in ballots for the November election.

39:46Florida has issued an arrest warrant for former Cuban President Raul Castro. The state is accusing him of conspiracy to commit first-degree murder for allegedly ordering Cuban forces in 1996 to shoot down two civilian planes operated by Miami-based Cuban exile group Brothers to the Rescue. Those state charges come just months after the feds announced an indictment against Castro. And an American search team that suggested it may have found Amelia Earhart's plane said today it found no conclusive evidence of the wreckage during an expedition in the South Pacific. The team said the potential sighting was likely a collection of large trees.

40:21Earhart and her navigator disappeared over the Pacific Ocean in 1937 as she attempted to become the first woman to fly around the world. Kelly, back over to you. All right. Thank you, Frank. Coming up, Will, Wall Street's fear gauge on a wild ride, jumping 24 percent Friday, down 8 percent today. What these wild swings say about the market's move next.

40:48Welcome back. The volatility index, the VIX, has been in focus the last couple of days. It's known colloquially as the fear gauge. It spiked on Friday as stocks plunged and rumors swirled about hedge funds collapsing. It's settling down somewhat around the level of 18. But what does this level and that action tell you? Let's turn to Oliver Rennick for more about that. Oliver, you're over there with the VIX experts. What are they saying? Hey, Kelly. Today's bounce is probably most easily understood in the context of Friday's sell-off, and in particular, that sharp surge in S &P 500 volatility that came with it.

41:21VIX on Friday ripped to the highest since June, and options traded on VIX jumped to the most in a year and about three times the 30-day average. VIX futures, which naturally slope upward as you go out further in time, got inverted as traders scrambled to buy up immediate and short-term protection. To see this, look at volatility of volatility. That's measured by the VVIX, which spiked to the highest since April. This is not what you see in run-of-the-mill pullbacks or even steady grinding bear markets. That was real fear on Friday, or as some rumors suggested, someone sizable having to literally cover their tail, tail risk.

42:01The good news is that type of mad dash for coverage can often signal a short-term bottom. And here we are bouncing today. I was going to ask you about that, but you read our mind because Kelly and I were talking about your video where things kind of really heated up in the VIX. And you were sort of implying that maybe, you know, a fund maybe got blown out or blown up. We're not spreading rumors, but the market certainly acted that way. How much, if at all, Oliver, does increased hour trading 24-7, after hours, pre-market, maybe it doesn't even matter. How much does that affect moves or positioning these days, if at all?

42:41It's a very fair point, Brian. I think that's a question here that can be answered in short versus long-term form. In the short form, first of all, I know some people actually already reached out. They said, hey, we didn't know this was going to happen today. We didn't get a big flash warning from our broker. I didn't realize that my positions were going to be moving at this juncture of the day. But they would have moved that way anyway once we opened. Now, the broader trading hours, in theory, if you believe that capital markets are efficient and doing what they should, then more time to trade means more price discovery.

43:13Now, in the short term, because the liquidity and volume is low, there's definitely going to be some choppiness here. I don't think I would tie any of the new trading hours to what we're seeing in the short term. That's probably better affected by other dynamics that are happening in the market. But over the long term, as more players come into the market, it should give us a wider, more thorough and filled out volatility spectrum to deal with. All right, Oliver, thanks for now. Get that VIX back down, Oliver Rennick. All right, coming up, the AI fears overall may be fading, at least for today.

43:48But investors, smart ones like you, not dropping your guard. We'll have some names for you coming up.

44:03Welcome back. If you are worried that the AI sell-off could yet deepen from here, Goldman Sachs has identified 23 Russell 1000 stocks that could offer some defense if market growth slows. Their top picks include Tyson Foods, CVS, J.M. Smucker, Kroger, and Cardinal Health, these names that you see here behind you. According to Goldman, they have below average share price volatility and above average free cash flow yields. Everyone, it's like if we had a drink for every time someone said free cash flow in the last two hours, the rest of the list is concentrated in food and beverage, consumer staples, healthcare equipment, and pharma.

44:38If you want that full list, just scan that QR code on your screen and go to CNBC.com. And before we go, take a look at shares of Apple, the company announcing a product launch event on October 28 in Los Angeles. Analysts expect them to release the new Macs, including potentially the first touchscreen laptop. Shares are fractually lowered today. More Power Lunch after this short break.

45:1139 years ago today, Wall Street suffered one of its worst crashes in history. October 19, 1987, a Monday, the Dow plunged 23 percent, its biggest one-day percentage drop ever, erased$500 billion in market value at that time, became known forever as Black Monday. And Brian, some just viewers and investors have been pointing out some of the similarities had to do with the dollar and bond yields, the way things echo across time. The craziest thing about that year, and even I wasn't in the market then, was that the stock market, the Dow, ended higher that year, had the biggest one-day decline of all time, and the market ended the year up.

45:51And no recession. pretty amazing and paul tudor jones had a documentary about that like if you can find it good for you because he doesn't want anybody to see it he was a trader and he's like you see how he worked and whatever pretty amazing time because was it his call that the crash was coming or to that it wasn't going to be just i think it was that the crash was coming i'll leave that to you i don't remember i just want to hear his accent by sale thanks for watching power lunch everybody closing bell starts right now This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

46:28Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.