Oil Hits 5-Month High, iPhone Duo Launch, Weekend Sports Slate 10/23/26

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1:04Big tech trying to grind out a higher week, even as many parts of the AI trade get kneecapped. Welcome to Power Lunch, everybody. I am Brian alongside Kelly. Happy Friday. Is the bottom in in many parts of tech? That is the question all of you may be or should be asking. In the meantime, Apple rolling out a new$2 ,000 phone. Will you buy it? Plus oil back above 100. Natural gas is down. And the first ship full of Russian diesel fuel making its way to America. Halima Croft is here. And a big week for your money is on deck next week as well. The Federal Reserve meets on Wednesday as Microsoft, Alphabet and Amazon all report quarterly results.

1:44Will the earnings justify the AI spending or test our patience once again? Wells Fargo's Osung Kwan and Pimco's Jerome Schneider join us to break down what they think it all means for stocks and bonds. But let's begin with the markets. It's been a rough ride for tech stocks with some of the sector's biggest winners well below their peaks. Check out Western Digital. We just spoke with the CEO last hour. Oracle, Corning, and Coherent. They've all dropped by more than half from their highs over the summer. Chip stocks haven't been spared either. Broadcom and Intel down 30 % from their peaks this year.

2:13NVIDIA, even NVIDIA, down 13 % from its highs. And the pain isn't limited to them either. Some of this year's biggest tech debuts have had a rough welcome to the public markets. Cerebris down 40 % since May when it debuted. Similar can be said for Quantinuum, which went public a month later. So is the AI trade losing its luster? Is it over? Let's ask somebody with a great long view of what's coming in the tech pipeline. Jason Greenberg is executive chair of TMT Investment Banking. Now, for those who don't know, Jason, welcome. TMT means technology, media and telecom, correct? It does. Thank you.

2:48OK, a very busy space right now. Or is it? And look at what's happening today with all the telcos again. So anyway, what do you think is going on broadly out there with investors? Look, I think at the top of it, this is a rotation out of picks and shovels, out of people investing in effectively chips, data centers and the like. And towards effectively the application software companies that six months ago, investors talked about being left for dead. At the end of the day, when I look at it, if you look at to a consumer, you look to an enterprise, if you offer them a dollar of spending and said, where do you want to spend it?

3:22They're always going to spend it on what helps them accomplish a task or an objective on the end application on the software, not on the infrastructure that helps them get there. The reality is you needed the infrastructure to exist to actually enable companies to be able to offer software that actually helps. And you're beginning to see that as we speak. Well, in the spring, software stocks got dumped. I mean, they got sold off. We even created some kind of a name for it. Kelly, what was that name? The something apocalypse, which I always view it as like Cyber Monday. I just don't even want to say it.

3:50But here's the point. If you were prescient enough or smart enough to buy into that, you've done very well. Many of those names are higher than they were back then. Salesforce has been a phoenix rising out of the ashes. Number one, what did investors get wrong with software back then? And number two, is there any buying opportunity now in that AI sell-off that we just referred to? Well, let me start with the first question. I think investors did and continue to get software wrong. The idea that software is going to get replaced by agentic AI software, get disintermediated by foundation model companies building things direct.

4:31The idea that you or I on a weekend is going to vibe code our way into software. We can. It's actually lowering the bar to creation of product development. But it's not changing the ability to deploy it, to integrate, secure, make sure it meets regulatory and compliance and actually make sure you maintain it. So it doesn't kill the value proposition that a software company might provide. Because back then, when I say then, I mean like five months ago, people came on this show, smart people, and said, they're dead. Yeah, they did. And the answer is, it's not changing it. The reality is, it's disintermediating some portion of software companies that had very little lock-in, very little proprietary data, workflows that weren't very advanced.

5:11Sure, for really simple software solutions, you can vibe code what you want for things that didn't meet your objectives. that you were using because it was the best thing to get you where you wanted to go, but wasn't really what you wanted, that's going away. But for everything else, it's effectively enabling. Software companies are leveraging AI faster to basically make their products less expensive, more capable, and frankly, better at what they do. I'm so glad you're here because there's something I've been scratching my head about for weeks now. How can we have people pulling their IPOs, citing market conditions, when the markets are more or less at all-time highs?

5:45I mean, I remember periods where we'd be down in serious corrections. That's fine. But we're going through nothing like that now. What am I missing? What are the market conditions out there that are keeping a company like Aura from going public? Look, in general, if you look at the IPO market, it comes down to a couple of things. First, are investors in IPOs making money? And look at what the median return is for an IPO that's gone out. Are you making money number one? But isn't that usually true? And you're saying the returns have not been great, correct? I'm saying a lot of IPOs that have gone out have not made investors money.

6:21And at the end of the day, if you're not going to make money on an IPO, you'll stand back and wait so it's a little harder to place. Two, valuations. At the end of the day, what you saw was with the AI trade, companies going from$200 million to$1 billion to$2 to$5 to$30 billion over the course of a year in financing. And I think to some degree, it's a supply and demand of capital issue, which will come back to the data center question you asked a moment ago. But there's been so much supply of product relative to the amount of demand of money, the amount of money that's actually out there to invest in it.

6:53But I think to some degree, valuations have gotten ahead of themselves in terms of what people are asking. So not making money in them. You have basically companies that are asking prices that are simply higher than investors want to pay. And then obviously you've got capital costs right now, as you've seen the 10-year go up, inflation go up, et cetera. I think all of those together are making it a little bit of a reset. But I don't think that changes the number of companies. I think you're going to see IPOs come. It's just going to take a little bit of a reset. And I know you're not an individual stock guy.

7:20Don't worry. You're the head of investment banking in a group. But if I look at a CoreWeave down 36 % in a month, I look at an IREN down 40 % in a month, I look at a Nebius Group down 30 % in a month, I can name some of the power shell companies, the terror wolves of the world. They've all gotten whacked. I mean, completely kneecapped investors. Sounds like you're saying that is not a buying opportunity now like software was back in June. And if not, why not? Without commenting, I'm not going to comment on specific stocks. But if you step and look at the data center trade in general, you know, what's happened to it?

7:55it's incredible the amount of capital that's going into data center expansion. And a couple of things have happened. One, you've seen the hyperscalers, several of them, Google, Meta, among them, actually go free cash flow negative. So you had companies that were self-financing for a long time that actually now need to look externally to raise financing. When you do that, there's a competition for who can actually get that capital. At a cost of capital play, you can invest in a hyperscaler, an Amazon, a Meta, a Google, or you can invest in a neocloud provider with an emergent business model. I think at the end of the day, data centers are capital plays.

8:31It's what's the cost of capital relative to what's the return I can get. I think it's a healthy market where you see it shaking out individual stocks. I don't think it's a all stocks are going to go down in that space. I think it's a shakeout between those that have better business models with customers that actually have real demand behind them and that actually have builders that have cost of capital that's lower. You're a banker. How important are Anthropic and OpenAI's potential IPOs to the macro market, if at all? I think they'd be very, very helpful. And I look, I'm wildly optimistic about what AI is doing in general.

9:10You know, if you told me tomorrow that none of the foundational models got any better for the next 10 years than they are today, I think you'd see productivity growth for the next 10 years. One of the biggest problems we're having is the rate of change of technology is exceeding our ability to actually deploy it. And when you talk about return on investment, the ability to recognize it, how fast can we all change our actions, what we do? How fast within corporations can we deploy technology? It just takes a while. That's why it's ironic, and I just wish these companies could and would go public.

9:42Okay, fine, you're down 40 % from your launch, but if you're right, and I know we all have to be discerning about business models and competition, but there's so much gain to be had. Like the best performing stock in the S &P, I think, since inception was Home Depot, right? Not Apple, because Home Depot came to market so much earlier than Apple did. And these companies are so mature by the time that the market's ready for them, you know. Yeah, that's that. It's a great question. It's a bigger issue. I mean, if you look at what's happening, 40 percent of all demand for public companies now comes through passive index funds.

10:12And the problem is most of those index funds track large companies. So it's one of the reasons why you're seeing fewer small companies go public, because there's plenty of money in the private markets. The cost and consequence to being public with the reporting requirements, the liability litigation, what it does to your competitive profile relative to the benefit of the liquidity and trading volume. It's just a fundamental change over the last 10 years. Jason Greenberg at Jeffries. Jason, really appreciate you coming on. Happy Friday. Important views. Thank you very much. Thanks for having me.

10:41Also important, we got a news alert from D.C. right now. Now let's get it with Eamon Javers. Eamon, what's going on? Brian, that's right. We're getting a press release just crossing from the office of Senator Susan Collins of Maine. She is saying that the Trump administration has agreed to exempt tariffs on a number of products coming from Canada. That is to give tariff relief to Canada in a way that will help consumers in Maine. Susan Collins saying that nine categories of products that are crucial for Maine's agricultural industries will be exempted from U.S. tariffs on Canada. Those include blueberry, potato, apple and seaweed producers, all affecting Canadian agricultural industries and those consumers in Maine.

11:26So this appears to be an effort, Brian, by the Trump administration to lower tariffs in a strategic way to help an embattled Maine senator. also could have some implications in Michigan as well, where there's a very tight Senate race there. And this issue of tariffs on Canada has become center stage in that Senate fight. So the Trump administration here in just about the last week of this campaign, reducing the tariff burden in a strategic and apparently targeted effort here to help some of these embattled Republican senators. Also, we just heard from the president in Florida. He's talking to reporters on his way to a campaign event about that lawsuit that the Department of Justice filed against election authorities in Alaska, asking them not to certify the Alaska Senate election if the Republican loses in that state.

12:16And the president was asked about that lawsuit. He made a rare acknowledgement that he apparently directed the Department of Justice to file that suit. He said, I'm the one that said to do it. They have two guys named Dan Sullivan. So the Democrats put up a guy. I don't think he ever voted before. And his name is Dan Sullivan. This has nothing to do with politics. So the president suggesting there that he was the one who directed the Department of Justice to file this lawsuit. It's about this issue of two people with very similar names running on the ballot. The Republicans argue that this is sort of a Democratic dirty trick to siphon off voters from the incumbent Senator Dan Sullivan there.

12:55So fresh comments from the president on that one, guys. Back over to you. Yeah, two people on the ballot, both named Dan Sullivan. No relation, by the way. But going back to your previous point, Eamon, about these tariff relaxations, I guess that's the right word. You've also got a shipload of diesel fuel coming from Russia. It'll be here on November 7th. It feels like there are some fourth quarter changes being implemented by the White House. Sure. And, you know, Brian, you could say these are fifth quarter changes, right? I mean, because a lot of this is too late to have any impact on the election.

13:31The diesel fuel arriving on November 7th is obviously after Election Day. This, you know, exemption of tariffs for Canada to affect main consumers. You know, how many consumers will actually feel a financial impact of that decision, even if it's put in place today by the White House? You know, that's unknown. And a lot of the perceptions around this have already crystallized in the minds of voters. You know, a lot of voters have already voted early in some of these states. And the general impression that voters have about the impact of these tariffs will be more or less solidified. And, you know, an effort to undo that in the final days of the campaign, you know, maybe on a very slim margin might move some voters.

14:14But it seems like politically this would have been much more effective if the president had done it, say, over the summer with some chance for voters to kind of digest that and factor it into their decision making. Eamon Javers in D.C. Eamon, a lot of news there. Really appreciate it. Thank you very much. You bet. All right. A lot more to come here on this show as well. Is the A.I. trade the real reason borrowing costs have been rising? Blast PIMCO's Jerome Schneider, plus Apple's new two thousand dollar phone. It's called the Duo. It launches today. But are buyers backing up the truck or backing off?

14:46But up next, oil's up, nat gas down as Russian oil heads to America. Helm Kroff explains the moves in energy. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools, no extra logins, just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. Weren't agents supposed to take things off your plate?

15:28Building another to handle the others is a bit much. Don'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. 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.

16:06and 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 market update podcast or find Schwab Market Update wherever you get your podcasts. All right, welcome back. Let's turn now to energy where some big price moves are raising new questions about supply and the risks ahead, at least in oil. Now, Brent crude, the crude traded overseas on the paper market, back above$116. That's the first time that's been that high since May. You've got fears of renewed escalation in the Middle East.

16:43And again, remember, as we've said a lot of times, that is the paper price. The price for actual oil, a physical barrel, is much higher. And as J.P. Morgan's Natasha Koneva wrote today, what is the price of oil? Eight months into the war with Iran, what should be the straightforward question has become surprisingly difficult to answer. In the meantime, U.S. natural gas prices are going in the other way. They've actually dropped to their lowest level in two months. In fact, natural gas here, this is not the price overseas, but here on track for their biggest weekly drop since February. But as we said, different story across the Atlantic Ocean.

17:21While our prices have gone down, European natural gas prices have soared. In fact, they have tripled this year. The continent facing potential winter energy crunch, lowest storage levels in more than five years, and really twin wars, Iran and Russia, Ukraine. Joining us now, Halima Croft, Global Head of Commodity Strategy at RBC Capital Markets. And Halima, normally we bring you on to talk a lot about oil. I want to start, though, with natural gas. Cheap here, expensive overseas. Doesn't look like it's getting better anytime soon. Now, it's deep there because we are an ample natural gas producer, also a major exporter, and we're pricing in potentially warmer weather for November.

18:05But if you talk about Europe, as you just mentioned, European storage levels are well below where they should be this time of year. If we have significant escalation in the Middle East, we can basically take away any hopes of getting more supply from Qatar through Strait of Hormuz. There's still the issue, as you mentioned, of the Russian-Ukraine war. So Europe is facing a potential winter of discontent if we don't have any relief when it comes to weather there. Yeah, and they had a hot summer, record hot summer, which they don't have the air conditioning we have, but they do have some, and so they drained natural gas to power the cooling and some other things.

18:43They're going in below the five-year median, so the lowest storage levels in five years. I do wonder, Halima, if parts of Europe can even afford it. You're looking at huge LNG price increases. We're looking at high interest rates relative to 20 or 30 years ago, high debt levels, twin wars, high shipping costs. There's a part of me that does wonder, will there potentially be rolling blackouts in parts of Europe this winter? I don't know. in Europe. And so if you add on to it a real energy shop, what does that do for governments across Europe? And the issue we're going to be watching, Brian, is, as you know, Qatari LNG primarily goes to Asia.

19:27But the U.S. cargos that are not under long-term contract, you could get a significant bidding war between Europe and Asia for those available cargo. So that's also something to pay attention to what happened to the U.S. cargos that are not under contract. Halima, it's Kelly. And just to jump in here, I mean, these divergences are huge. And at least we have things that are lower. At least natural gas in this country is down. At least uranium prices, I don't know how much that matters. But when we have Brent at six-month highs today, and this is before any potential escalation with Iran breaks out, what is that telling us?

20:03I mean, again, I I think people are really focused on the potential path for escalation. And what's so interesting is there's been so much discussion about the cargos that are moving through Hormuz, questions about are we close to pre-war transit levels. The question I keep asking is at what cost? If you look at the shipping cost to move those barrels, it's extortionate. If you think about the U.S. military resources that are being used to move those cargos, huge burden on CENTCOM forces. And when you talk to companies that operate in the Gulf, they keep saying their ships continue to be targeted.

20:40People are dying on some of these ships. Like, this is not in any way smooth sailing through Hormuz, even if the actual volumes have increased. Speaking of sailing, the first cargo of Russian diesel fuel left Primorsk, which is a port in Russia, kind of near St. Petersburg. We're showing a live map, Halima, on our screen. The flashing light is the name of the ship that is a live track on marine traffic by Kipler. And that ship should arrive in New York City on November 6th, November 7th ish. It's kind of an older ship. It's not a lot of fuel. 300000 barrels is like three to five hours of U.S. demand.

21:22Man, does this matter, though? The volume of fuel on that ship won't matter a lot. But does Halima Croft view this as like some sort of bigger door opening to more cargoes down the line? The question is, would we be talking about significantly more cargoes in this pullback of sanctions situation if we had Ukraine agreeing not to target Russian refineries? I think that's why President Trump did two things. He pulled back the sanctions. At the same time, he announced this energy ceasefire, which has not taken effect yet. So the interesting question is, are we going to see any plausible path to substantially more Russian diesel exports if Ukraine continues to target the infrastructure?

22:12And if we get change in Congress, are we going to see efforts to tighten up the sanctions architecture? A number of Republicans are not happy with President Trump pulling back these sanctions on Russia either. So do we see post-midterms an effort to remove, for example, the sanctions, you know, waiver that's given for national security reasons to the White House? All right, Halima, thank you. As always, great to see you. Great to have you on today. Thank you for having me. Halima Croft with RBC. Up next, Apple's much-anticipated iPhone duo hits stores, and we've got one right here to unfold.

23:12right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at go.gle slash workspace with Gemini. 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. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

23:50You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter. Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.

24:25Russ is like, give the phone back. Welcome back. Customers lined up at Apple stores today trying to secure the iPhone Duo in person. Our next guest didn't need to wait on the street to get his hands on one. Joining us on set with the new iPhone duo is Russ Frushtick, executive director of partnerships at Kind of Funny, great name, and co-founder of Polygon. Thank you for coming in. Sure. So wait, so how did you get one? Apple, obviously, for people that need early access to it for testing purposes, was able to provide. So you're a reviewer? Yes. Okay, what's your review? My review is it is incredibly cool tech.

25:00I mean, you could see it here. If you're not used to using a folding phone, this folding phone, I mean, people that have used iPhones are used to it being an iPhone, right? And this folds out into being essentially an iPad mini, which is very cool. It's$2 ,000. So you also need to swallow that pill, which is a hefty pill. But apparently AT &T is going to give it to you for$1 ,200 off. Yeah, I'm always a little wary about those deals. I don't know how long I want to sign for AT &T necessarily, but it is a good deal. So I think the thing to keep in mind, I think for most casual people, you're going to probably want to wait until the second generation.

25:35But for new adopters, like you tried it backstage. I just wanted to see. I mean, cool, right? I just can't even do that. Well, first off, Samsung's had a foldable phone for two years. Yes. It's not like some new tech. Longer than that. Yeah, sure. I just wanted to see if it fit in a pocket. Can we find out? Can we see if it fits in? No, it did. You want to try it? Yeah, yeah, yeah. Here you go. But this is your personal phone. I mean, don't break it. So you don't mind if I put it in my pocket? It depends on where it goes. Well, I'm not going to answer that. Yeah, it fits right in the pocket. Yeah.

26:02It's smaller than you would think. It is. Not much different than the size of. Yeah. The aspect ratio is like a passport. It's not. And this is my phone. Yeah. So it's more the thickness that I think. It's not too much different. No, it's pretty close. Yeah, there you go. By the way. Hold them up a little bit. Like a beautiful kit there, by the way. Yeah, yeah. Oh, thank you very much. I appreciate it. I don't want to like. I would throw my phone. Scary. Because mine's old and crummy. You know, from far away, you almost can't see much of a difference. This one, the foldable is a little bit wider.

26:29Yeah. You know, this one is a little bit taller. Then in some ways, this might fit. And sort of there's your width test. It's still twice the price of a MacBook Air. Sure. You can get a MacBook for less than that. And I know that will do the same things, but it's a phone. Is it worth, Russ, is it worth the two grand? I don't know why. My pocket aside. Honestly, look, if you're traveling a ton, and when I travel, I have an iPad and I have an iPhone. So having them both in the same spot and I have to dig through my bag, it's very convenient. But it's two grand. I mean, whether that's worth it to you, it's tough to make that money work for me and make sense, especially in the first generation.

27:08There's always going to be kinks they have to work out. A lot of the apps don't support this natively. They work. They run. But they're not going to, like, look gorgeous on the bigger screen until those apps get updated. So it's going to take time. Six months. Maybe you'll see these apps come out, and then it'll be more worthwhile. while. Are you going to switch over? I haven't totally decided yet whether this is going to be like my daily thing versus a new phone. I still need more time with it. I'm several days in. I like it. It's cool, but I am still a little bit still. Your point about the apps is well taken.

27:40There are some apps that, you know, you bring them up on your iPad and they're still formatted for the phone and they either are the same size of the phone or they're stretched out and kind of It doesn't look great. It's a weird resolution. So there are still a lot of apps, it sounds like, that are not formatted for that. The majority of apps are not formatted for yet. That's annoying. So like Netflix works great, looks great. Like you have controls right on the bottom of the screen. But there's going to be a ton that just don't work immediately with that larger screen in a native way, which is annoying.

28:07But that's the price you pay for early adoption. What are your holdups for knowing, okay, I can just use this as my primary phone and move on? It's mostly a design, like I'm so used to left-handed, and this phone is mostly designed for being used with your right hand because of how the controls are generally on the right rail. So it's just like brain chem stuff where I need to adapt to it, and I haven't quite gotten there yet. So if you launch it, I'm going to show my password on it. But if you launch it, see all these side apps here are on the right side of the screen. Right-hand bias is what this is.

28:45That's what I'm saying. You really do need to like... Remember the Simpsons, Ned Flanders, on the leftorium. We need a leftorium for phones. We need a leftorium for the iPhone. I know. I'm right-handed, so I don't care. It's fine. You guys can suffer. What are you complaining about? Are you left-handed, Kelly? No. I'm empathetic. Nobody around the table cares. But people care. It matters. By the way, significant portion of this population, wonderful people, are left-handed. A lot of the presidents. Isn't that weird? A large percentage of presidents are left-handed. Like, way more than the population.

29:14I know. I like this guy. He knows random stuff. Good. And he's kind of funny. No, Russ, thank you very much. Thanks, guys. Appreciate it. Executive director at Kind of Funny and co-founder of Polygon. All right. On deck. The S &P 500 excluding AI, and that's critical, outpacing the broader index this month. But can that leadership shift last? We will ask Osung Kwon about that markets your money. And if he's left handed, that's next. All right, kind of a mixed market today, but overall, we're seeing a bit of a shift in market leadership. If you take a look at that, that is the regular S &P 500.

29:52That is the orange line. And then you take the S &P 500 backing out AI. I know that's hard to do and seems weird, but we do hard, weird things here. So there you go. The S &P 500 orange line, S &P 500 backing out AI. we've seen now this convergence of the two. One has done better than the other. So are you better off investing around this concept? Basically buying stocks that don't include AI. I know that sounds weird, but that's why we're here. Let's welcome in our front Osung Kwan. He is the chief equity strategist at Wells Fargo. So it's interesting because we've just, AI kind of has been the market.

30:37But lately, the market outside of AI has done better. Is that the theme going forward or is that a short-term anomaly? Yeah, I think it's going to be more nuanced than that. So we turned cautious on semis, especially heading into September. So we've been pretty negative the AI build-out trade for the past two months. And I think there will be a rotation into AI applications over the build-out, meaning I think hyperscalers are going to do better than semis. I think there are some opportunities within software space as well. So those are some of the areas that we are more focused on. And outside of tech overall, we like health care.

31:16Health care is pretty interesting because the earnings cycle overall is going to be decelerating for the next few quarters. 10 out of 11 sectors, they're going to see decelerating growth, except health care. So health care is going to be the only sector with acceleration in EPS. And it's a pretty defensive sector. And we're seeing that flows into healthcare these days. So those are the areas that we're bullish on. What do you think about the neoclouds? Poster child for bad behavior or poster child for the AI cycle? Both? Neither? Yeah. So the way we see it is we are in a decelerating CapEx growth and decelerating semi-EPS cycle right now.

31:57That sounds scary. And when things are accelerating, everything looks amazing, especially the lowest quality stocks because they have the biggest torque. When things are starting to desolate, it's going to expose a lot of weak hands. And I think neoclows are probably the weakest link in the system. And I don't think higher capex from here is a bull case from hyperscalers. I think it's really capital discipline. Obviously, over the past two years, higher capex really drove semis higher. But I think those days are over. A couple of reasons. One is because we're starting to see all this financing pushback from capital markets.

32:32And if they continue to increase CapEx, that means more debt issuance. So more pushback from capital markets and especially for neoclouds. And number two, if you think about the compute pricing in terms of the curve, right, the compute curve is probably very backward dated, meaning the spot price is very high compared to the long term contracts. So companies are right now signing like$50 billion a gigawatt right now. But that number is probably closer to like 15 down the road. So I think that's one big concern that the market is starting to discount. And in that environment, if hyperscalers decide to put more capex, that means more supply down the road, which is going to further pressure the pressing power on the long end.

33:16So given that for the last several quarters, the most important event for the markets has been the CapEx figures from the hyperscalers, basically. And we're going to get some of that. We've had a few this week. We get some next week. And the narrative this week feels to me like it shifted and maybe you can explain what it is. You know, SpaceX reports goes higher, talking about more spend, neoclouds. It's not a neocloud, but you know what I'm saying. Meta reports, it goes lower. Not sure why. What are we learning this week and what does it tell us about what the most important numbers and catalysts are next week?

33:46Do those CapEx figures still matter for these overall AI trades then? I think it matters. I don't think higher CapEx is a bull case. I think what the market wants to see is some sort of capital discipline. Yeah, it might be a little bit higher because of cost inflation. But, you know, I think the market wants to hear that at some point this CapEx cycle is going to slow down. And they are starting to think about the capacity, the supply side of things as well. And I think that's actually the bull case, even for semis, that it could actually, you know, prolong this cycle for a longer period. I think semis are really...

34:21In other words, you think that if people actually show signs of pulling back or not increasing capex, that's what we need now for the market? Yeah, not necessarily pulling back, but, you know, being more capital disciplined. I think sort of like reiterating their prior guidance is probably the best case. But didn't Meta do that? And it got whacked. I thought they narrowed it was like from$130 to$145 to$135 to$145 or something. So maybe it wasn't. Maybe it was about the equity. I don't know. Yeah, I think there are a lot of like single stock narrative happening there as well. But for the broader market, I think capital discipline is really the bull case going forward.

34:56So keeping it the same but not raising it. Yeah. Interesting. Semiconductors 2, you talked about that a little bit. That health care you said you liked. Health care is a big group, right? There's pharmaceutical companies. There's hospital operators. Is there any part of health care you like better? Or just buy the group and let it ride? Yeah, no, I think the services side. So not pharma, not biotech. Those side of things within health care is starting to look more interesting. I mean, pharma has gotten the benefit of, you know, outflows from semis. And based on our sentiment indicator, pharma, biotech, and life science, that group has triggered a cell signal.

35:31meaning like it's gotten pretty extremely bullish. So that's not necessarily a good signal. But the other side of health care, that's starting to look a lot more interesting. All right. Osung, always great to have you. Thanks so much. Thank you. Osung Kwan of Wells Fargo. To Frank Holland now for the news update. Hi, Frank. Good afternoon again, Kelly. Medical groups in Nigeria are calling for a nationwide emergency after the country confirmed its first Ebola case in more than a decade. The patient arrived from Uganda and is now in isolation. Health experts want increased airport screening, contact tracing and emergency treatment centers.

36:02No cases have been reported here in the U.S. President Trump says the NFL should consider postponing Sunday's game between the Pittsburgh Steelers and the New Orleans Saints in Paris. His concerns come as France braces for more violent protests this weekend. The State Department is urging American fans to use caution. The NFL says that game is still on. And the New York Knicks, they're facing backlash after assistant coaches were handed empty ring boxes during Tuesday's championship celebration. The coaches are expected to get their rings later. Meanwhile, Madison Square Garden employees were sent emails promising free championship rings, only to find out it was a cybersecurity test.

36:39Those who clicked the link were required to take security training, and they did not get any rings, Brian and Kelly. And one team that would never do that, the Philadelphia 76ers. So we'll find out next season what they're going to do. So the ring box was a cybersecurity test? No, no, the email. The coaches reportedly are still going to get their rings. The box was just empty on banner night. The employees, however, got emails, and when they clicked to get their free ring, it was like they got scolded. Right, you got caught in a fishing attempt, and now you have to do training. But back to my main point, Brian, when the Sixers win the title, they unveil their banner, I don't think that's going to happen.

37:15I think it's going to be great when the Sixers win the title, and I hope I'm still around in the year 2184. Brian, come on. Brian, thank you very much. Come on, Brian. You got one win, and now you're talking title already. And we beat the Knicks on championship banner night just for people that didn't catch on. I know we have a big New York audience, but that's what happened. Frank Philadelphia Holland here winning fans with the New York audience. Frank, thank you very much. Well, the Sixers could do it. All right, still ahead. Why are bonds and tech moving in tandem? Pimcom's Jerome Schneider joins us next.

37:47It's been a big week for the bond market. The 10-year Treasury yield fell below 5 % for the first time in a month. Yesterday, it posted its biggest one-day drop since the collapse of Silicon Valley Bank back in 2023. It was down 19 basis points. Investors fled to safety as AI stocks sold off. This chart kind of shows you the story. In the past few months, the 10-year yield has pretty much moved in lockstep with the NASDAQ, raising the question of whether the AI trade is now driving the bond market. Let's ask someone who would know. Jerome Schneider is head of short-term portfolio management at PIMCO.

38:19Jerome, welcome. What do you make of it? Thank you. Yeah, basically the correlations have changed, and that's a positive thing for bondholders, but it's also a positive thing for the market. You know, basically the opportunity set on bonds is to create a resiliency to what that downside protection is, whereas the market's beginning to question some of the profitability metrics in general. Although it's a robust market, economy is doing well, the tech sector is really understanding and trying to understand and discern where the ultimate long-term profitability is, And that is refocusing the market from upside equity potential to the downside protection that fixed income offers at this point in time.

38:57Explain that a little bit more. Yeah, absolutely. So when we think about the world today, there's several things in the bond market that are very interesting. Number one, rates are clearly not at the zero bound anymore. Not only that are rates nominally higher, but we're also finding that rates and income generated from bonds is real returns, meaning after inflation returns of more than 2 % in most cases. And so there's a lot of upside protection in terms of bonds and how we think about that. When you overlay the factors that are sort of prevalent in the market, geopolitical risks, concerns about inflation, even monetary policy, then when you overlay the concerns about the tech build out, you really find yourself in a situation where bonds create that alternative asset class that not only benefit from a higher yield, a higher income source, but also have an elasticity, which allows you to benefit from higher bond prices as yields move lower.

39:47And that's what we witnessed yesterday. As those risk-off concerns were prevalent, bonds rallied, bond prices appreciated, and bond investors benefited from that. Safety is obviously top of mind at this point in time, given where we are in the economy and these specific issues. So, in other words, you're saying at a moment when everyone's been talking about how you can't own bonds anymore, commodities are the new, you know, 60, 20, 20, 60, 40. You're saying, yeah, this is showing you that you can and you should, which is, you know, fine. Right. I guess my question would be, what does this also tell us about where bond yields may be heading next?

40:19I mean, if they're a buy now, does that mean yields probably don't go much higher from here? That'd be a pretty good development, right? Well, there is there. No one has a crystal ball exactly where bond yields are going to go. But the starting point of yields where we are, even if yields do move higher, is one where you can still produce pretty good positive returns over that point in time. Think about bonds as being in the range of a 6 % to 8 % total return over the course of the year. Again, depending upon what asset class is and what you're actually buying, that's a pretty solid return and puts you in an equity-like return over the longer term.

40:53We haven't seen this in almost a generation. Wow. When you overlay the fact that these yields really offer, again, real returns, inflation-adjusted returns, above even the most optimistic inflation prints, let's call it 3 % plus, that's still a really attractive environment. and protects you against those inflation things. So from that perspective, this is not just a story about bond yields reacting lower because of risk-off attitudes within the equity market. It's actually a story of a generational opportunity to diversify your portfolio into income-oriented assets. And that's really what we should take away from this, despite what the Federal Reserve might do over the next meeting next week or even over the longer term.

41:33You're right. We get very caught up in that. And we'll see you next week in Washington. No, Jerome, thank you. really appreciate it today. Jerome Schneider of PIMCO. Absolutely. Thank you, Kelly. All right, coming up, we're totally changing gears. The Brewers and the Tampa Bay team, they face off in the World Series. It begins tonight. Two small market teams, but can they brew up some big ratings? We are just hours away from the first pitch of the World Series, the Milwaukee Brewers facing off with a Tampa Bay Rays. These are two small to mid-market teams. Some people suggest this could smell trouble for TV ratings.

42:10Alex Sherman joining us now. Alex, I am not so sure. Now, I know I'm a homer for the Brewers as a part-time Wisconsin guy, so take that aside. I think there's going to be a lot of interest because both these teams are good. They play fun to watch baseball, but you know more than I do. What say you? Well, you know, this is a really interesting World Series because the Major League Baseball collective bargaining agreement is up at the end of the year. And it's sort of a foregone conclusion that the owners are going to lock out and push for a salary cap. And the main argument for why the league needs a salary cap is that there's a competitive balance problem, that there's no—it's the only major American league that doesn't have a salary cap, so you're allowing the big market, big money teams to spend way more than the small market teams.

43:01and the main culprit here is the LA Dodgers. But the Brewers swept the Dodgers. So the Dodgers aren't in this World Series after winning the last two. It would have been a much stronger optical argument if the Dodgers were playing here for the owners as they push this. Instead, you've got Milwaukee, which is like the 19th largest spending team, and the Tampa Bay Rays, which is one of the lowest spending teams. Now, you mentioned they're both good. But another argument that potentially could be counter to the owners is that if you look at the TV ratings for recent World Series, it seems as though people really like to watch the Dodgers.

43:41If you just you can take a look, the last two World Series that the Dodgers have played have both averaged more than 15 million viewers. That is much higher than the previous two World Series that did not have the Dodgers in it. There it is right there. You can see lower than 10 for the Texas Rangers winning in 2023 and about 12 for Houston Astros. So that's where I would suspect we're going to see a number somewhere like we saw in 2022, 2023 with the Brewers and the Rays. It'll be interesting to see if that number comes in line with those numbers or maybe a little bit lower. And if it's a little bit lower, you know, then it starts to get into the range of like this could be one of the lowest rated World Series ever.

44:24So I don't know if we're going to get there to your point, Brian, because both of these teams were good. In fact, arguably the two best teams in the major leagues this year. So, Alec, and I'd love to catch him. Where is it? How do you want? Anyway, we'll talk about that offline. The NFL, you have some information about this Paris game. I think the president suggested they shouldn't play it. Do we know? Is it going forward? It is going forward as of now. I just spoke with a league spokesman who again verified, yes, the game is moving forward. Of course, the league is monitoring the events that are going on and the protests that are going on in Paris.

45:01There was a League One soccer game that was just postponed from Sunday, which is the day of the Steelers-Saints game, to Monday. But the league, as of now, is not postponing it, not canceling it. It's obviously taking a lot of safety precautions as they play this game, but the game is still on. Yeah, because things have been set on fire. I mean, people are burning things in various cities. It's not a small deal. I mean, this is why we're starting. Like, there was already a fan event that was canceled in preparation of this. The Steelers were doing, we're going to have a fan event over the weekend.

45:40And they said, no, we're not doing that. But, of course, that event was not taking place in the stadium where there can be hyper security around this. and that's likely why the league feels comfortable moving forward. Stade de France. Alex Sherman, merci beaucoup. Really appreciate it, Alex. Thank you. De rien. Dropping a little French there. I like it. Who are you rooting for? Milwaukee. Oh, 100%. I'll root for Tampa Bay then. There we go. We have a bet. Closing bell starts right now. 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.

46:20and 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 market update podcast, or find Schwab Market Update wherever you get your podcasts.