10AM Hour: 5-10% Pullback Coming? C.H. Robinson CEO of Deal for RXO, Former DOJ Antirust Chief on AI Regulation 10/5/26

0:00With the Discover Cashback Card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to Discover. Terms apply. See discover.com slash 5 for details. 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.

0:39and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and And subscribe at schwab.com slash market update podcast. Or find Schwab Market Update wherever you get your podcasts. Good Monday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with David Faber. Melissa Lee's in this morning at Post 9 of the New York Stock Exchange as Sarah Eisen's off today. Coming up this hour, stocks have proved resilient despite this slew of headwinds. RBC's Lori Calvacina says a 5 % to 10 % pullback could come soon.

1:11She'll join us to explain why. Plus, the logistics of a deal. We'll talk first on CNBC with the CEO of C.H. Robinson. fresh off news of its agreement to buy RxO. And Dan Niles said to buy Meta in September ahead of a double-digit rally for that stock. He'll join us with an updated call on that name, plus what he makes of NVIDIA on these all-time highs. We got ISM services that just crossed, and Steve Leisman has the numbers for us. Steve. Good morning, David. The ISM services sector coming in at 54.9, just a tenth of a miss from the expectation at 55. That is down from 55.4 in the prior month.

1:50Employment ticking up, though, at 50.1. That's a good sign from 47.8 in the prior month. Prices paid, though, surging 74 versus 72.6. We had had the highest number since August of 22. Now this is the highest number since July of 22. So what we're seeing on the inflation side percolating up through the service sector. The new orders index just a touch below where it was 60.9 was the prior 59.8 is the current number. So service sector doing well because that top line number being well above 50 does continue to expect expansion. And looking at the bond complex down just a tick 529. We're near the highs of the day at 530 on the 10 year, the two year 481.

2:36And that's down from pretty much unchanged from the prior number. We get into this number, guys, with an expectation for the Federal Reserve, the 21 percent probability they would hike in October. That's obviously way down from where it was, but an 85 percent probability of a December hike. Back to you guys. All right, Steve. Thank you. Steve Leisman. Pleasure. Let's get to the broader market now. Joining us on set, Laurie Calvacina, head of U.S. equity strategy at RBC Capital Markets. Laurie, great to have you with us. You're sticking to your rolling 12 month of 81.50 here. Higher but not aerobic is your words.

3:11Has anything changed since the last time we spoke, I mean, in terms of investor sentiment? So, you know, what's changed, I would say, over the last couple of weeks in our modeling is that the interest rate dynamics have gotten worse. So this morning in our weekly, we pointed out that one of our models, our cross-asset model, a very, very simplistic earnings yield gap, had been signaling a plus 14 percent 12-month forward return. That's now down to 9 percent. So it's still positive, but did take a bit of a hit. Our valuation earnings model, I'm not going to go into all the math here, but as you sort of take bond yields up, you sort of erode the likely, you know, sort of place that will be 12 months from now, even with strong earnings.

3:46If you think about investor sentiment, though, it's doing the exact opposite. So net bulls in the AAII survey have plunged, and they're now giving a 15 % forward return signal on the gain side. So sentiment's gotten worse, and as bond yields have gotten worse. In terms of the impact, though, on specific sectors or areas of the market of higher bond yields, I mean, I would imagine that what has helped our markets the most, technology, not as affected by higher yields. Exactly. So where is that getting hit the most? Well, what's interesting, we did a study a few weeks back on, like, what happens around liftoff when we have the first Fed rate hike.

4:17And the sector history is very messy, but two sectors that tend to work over the duration of the hiking cycle, technology, which is doing quite well right now, and energy. So sort of the tool to combat inflation and then the instigator of inflation itself. You have been signaling the alarm about financials. You didn't take it down exactly, but you said caution. We've got what's going on in Europe now in terms of France and France's banks. Do you see any sort of, I don't want to say contagion because maybe that's too strong a word, but impact on how the banks here trade or are perceived? So what I'll tell you is that valuations always come home to roost.

4:52I know there's a big contingence of people who think they don't matter for timing, but when the right catalyst comes along and you're expensive, you can get taken down. Financials were starting to look pricey right after Labor Day to us, and they're still looking pricey right now, especially that capital markets group where the investment banks are sitting. And we've also seen this with some of the other kind of cyclical, you know, kind of destinations of the rotation trade, like industrials and utilities. They've been taking it on the chin, and they're just not cheap yet. And we've said, you know, that case for growth over value, U.S., non-U.S., they're all linked.

5:21That feels like it's eroding a little bit. But, frankly, where else are you going to go when some of these problem children don't look like they've had their valuation problems resolved? We've been talking about how much financials, corporate commentary is going to punch above its weight in the coming weeks on the curve, on the AI build out, and now on sort of the rate risk. And then whether or not the midterms mean more hearings or more regulatory friction. I mean, can I give you just a weird chart? And I don't fully understand what's driving this. I pointed this out to Gerard Cassidy last week, our bank strategist.

5:54But if you look at the purple scenario in the betting market, so the Republican Senate, the blue house, just in, I think we looked at poly market, it's been correlated with financials performance relative to the S &P 500. And it's not just one of these things, you measure it for a period of time, get a nice positive number. If you actually look at the line chart, it's still holding up. So we're not quite sure what's driving that unless interest rates in oil are kind of battering both. But it's been a fun chart to watch. That's interesting. Sorry we don't have it. When you talk about financials still being expensive.

6:24I'm also curious though. Oh, there it is. I think the, what is that? Oh no, that's just taking a look at it. I'll send it to you. I'll send it to you. That doesn't look weird enough. That doesn't look weird enough. But on them still being expensive. I mean, for most of the year, the financials, the big ones that we track certainly most closely were outperforming the S and P sizably. They have retreated a great deal. Why are they still expensive? So when we go down and do the industry level work, and by the way, our commentary is based on median PEs and my sector comments are based on the S and P constituents.

6:51My industry comments are based on the Russell 3000. But when we look, the real problem child is the capital markets industry group, which has the investment banks, the alternative asset managers, things like old fashioned regional banks, insurance. Those are actually looking pretty cheap. Consumer finance as well. So we still see some interesting breadth in the sector. But some of those, frankly, you know, areas of the sector that get more attention are where there's a bit of a problem. Now, they're not as expensive as they were at their peaks last year. So I think this can get resolved sooner rather than later.

7:21It just hasn't gotten resolved yet. So we're at 5.3%. Let's say we see a pullback in rates. We get a broadening of the market. Is your 81.50 at risk if we get the broadening? Yeah. So look, we've actually said in our last update, which we did kind of, I think it was around like September 9th or 10th or so. But we basically said we're pegging our target to this valuation and earnings model because we can bake in very specific fears and concerns on interest rates and inflation. But if you looked at our other models at the time, they were signaling 10 to 14 percent forward returns, while that one was only signaling about a 6 percent forward return.

7:53And actually, that sentiment model is now looking better with 15 percent. So it really is a tricky market because the big problem we have is interest rates. If we can get past that, there is some upside risk to the numbers. Upside risk. So the broadening wouldn't threaten it. In other words, if we see money rotating out of technology in favor of the other sectors. It's always a question, you know, it's a sliding scale on how much pain you take in one versus strength in the other. I would say on software and tech, still very, very compelling valuations there right now. And I'll be curious to see what those companies say in the next reporting season, because I think in the last one, they did a very, very good job of articulating why you need them to get to the last mile on AI.

8:31Right. And that's even despite what has been a fierce rally for many of those companies. Yeah. AGV's well off its lows. Yeah. So again, we look at the Russell 3000 median levels for industries. But if you look at the software valuations, what we had seen in that segment, I think it's software and services broadly, but we had gotten down to GFC lows on media. Well, people thought the entire industry was going out of business. Right. And so you've re-rated, right? But we're still, I don't think we're even back to the long-term average yet. So we've still got plenty of room. And semis, by the way, you know, are sort of hitting that five-year post-COVID average.

9:03If you look across the Russell 3000 group, they've gotten crazy overvalued. They had their moment of reckoning over the summer. They've done well, but they're not looking like a problem yet. There were some analogs over the weekend looking at the socks and trying to argue that it's rhyming with 2000 that were sort of implying near peaks, if you look at that. And I don't know, is that a strong, a strong analog? So I push back on that. And, you know, so I started in the business in the summer of 2000. I always joke I got my job in March of 2000 when they were giving jobs away to political science majors.

9:33But the reality is I sort of saw the downturn on that. I didn't see the melt up. But when I go back and look at data, we have this one chart that looks at the market cap share of the top 10 market cap names and then also looks at the net income share. And if you go through various math, what you basically see is that market cap share versus the net income share. There was a pretty big gap back around the tech bubble. And right now, we're not really seeing you're getting the market cap you deserve based on the earnings you deserve. And is that stripping out other income or investment gains? No.

10:02That's just operating? That's just looking at the operating net income. But I would say there are always, you know, sort of adjustments you have to make over time. And I don't know quite how to strip out some of those issues today, but I do know that they've popped up in the past. I will also say our valuation work goes back to the 60s. And so we know that there were, you know, the nifty. I initially worked for a strategist who sort of made his name in the nifty 50 period. And so I used to hear about that quite a bit. So we know that some of, you know, these past periods of excess, we do know they're in things like our valuation time series.

10:33Lori, great to see you. Thank you. It's my pleasure. seen it. Take a look at our roadmap for the rest of the hour. When we come back, we'll talk to former assistant AG Jonathan Kanner about the White House's new super intelligence force and what AI regs might really look like in practice. Plus, we're going to get the latest on Skydance. This as Paramount is ready to close its acquisition of Warner Brothers Discovery. That will happen tomorrow. And the CEO of C.H. Robinson is with us as the logistics company makes a deal to buy rival RxO. Squawk on the Street is back right after this break. Ever notice how every new AI tool asks you to explain your business to it all over again?

11:10Google 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. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants.

11:53It pays to Discover. Terms apply. See discover.com slash 5 for details. 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. Welcome back. President Trump announcing members of a new super intelligence force, which he says will coordinate the government's engagement with AI companies, consumers and infrastructure providers.

12:41It will be led by Director of National Intelligence Jay Clayton. It also includes FTC Chair Andrew Ferguson, Under Secretary of Defense Emil Michael and director of the Office of Personnel Management, Scott Fapport. What does it mean for the regulation of AI companies as they clamor for antitrust exemptions? Well, let's bring in somebody who knows about that, former assistant attorney general for antitrust, Jonathan Canter. Jonathan, always good to have you. I guess first, before we get to antitrust, just give me your overall take on this new body, so to speak, that we just mentioned the members of that are going to be overseeing with what we expect will be a very light regulatory touch, AI regulation.

13:24It's basically vaporware. It's nice to have principles, but non-binding principles are like traffic lights being a suggestion rather than a rule. And so if you only have to stop at the red light when you want to, and there are no consequences if you blow through it, it really doesn't do anything. All right, I can hear some of you saying, yeah, just another democratic obstructionist. There he is. All he wants is regulation. And what's your response to those who would say, you know, you're standing in the way of progress? No, I think we want lines on the road and stop signs and traffic lights. We just want some basic rules.

13:57There's a difference between rules and regulations. We want to make sure that there are standard basic duties of care so that if companies violate those duties of care, they're held responsible. And that shareholders are going to hold the company's feet to the fire to make sure they comply. We're inventing technology that is transformative. transformative. It could have a major impact. It could do major good, but it could also do major harm. And the public is saying we want some basic safety and security. Yeah. Now, leaders in AI, such as Jensen Wong, say the liability laws already on the books in our country, various states, will be enough that they will prevent companies from doing things that are unsafe.

14:37What do you say? I think they're helpful, but not sufficient. So products liability has ultimately been a useful framework or at least a recently effective framework against social media, but it took us over a decade to get there. I think we need to establish basic principles and duty of care that essentially say if you build harmful products and they do bad things, you're held responsible. And the consequences of violating the duty of care have to be significant enough so that the companies have an incentive to comply. What I say is not that this is overregulatory. It's that it's not fair to put this on the shoulders of the companies.

15:12They have fiduciary obligations. They need to innovate. We need to give incentives to make sure that they innovate in the right way to make sure that the products are both useful and safe. And that will result in us having better AI, better products and better productivity. Let me come to you now as an expert, obviously, on antitrust, having once run that for the for the U.S. government as part of the DOJ. The labs say that or at least we've been hearing this idea that they need so-called blanket antitrust immunity to be able to fully cooperate on safety. Is that the case? No, they don't. So the labs do not need blanket antitrust immunity to cooperate in safety.

15:50Existing laws, properly structured collaborations on standards, sharing information about malicious actors and threats are all perfectly permissible under the current laws. So no immunity is necessary. And, you know, I, for one, am a little bit concerned or suspicious of any immunity in tech, I think we saw the results of Section 230, which conferred immunity early on for a very narrow purpose that ended up becoming a liability shield that allowed social media companies to essentially become invulnerable or to the consequences of building bad products. And so I think we should be very careful about imposing antitrust immunity, especially when they can collaborate in safety and security without one.

16:32I'm curious then as to how you see the liability side, assuming maybe there is cooperation, but back to what you were talking about earlier, Jonathan, if one of these rogue AI agents does real harm, which by the way, certainly seems very possible given what we already learned about, for example, any number of the rogue agents that OpenAI has unleashed, for example, what are the liabilities to a company such as OpenAI for the damage that might be caused? I think we need some clarity because it's unclear. You can argue that they're liable today, and they might be. But I think we should impose a dog bites neighbor style rule.

17:07And so if you build a technology that goes and does bad things and is acting as an agent on your behalf, then you should be held responsible. And that will effectively force companies, just like they do with their employees, to put robust compliance measures into place and for there to be necessary oversight, internally and externally. That's kind of rhyming with what we mentioned, Bill Gates' appearance on the Ezra Klein podcast. I mean, you invent the automobile, you have NHTSA, you invent the airplane, you have the FAA, you invent AI. There should be something beyond the idea that you can go bankrupt if you do something wrong.

17:44Right. So, I mean, there are a whole bunch of different solutions here. One is robot jail, right? And so if your agent violates the law, just like your employee, they should be held responsible and compounded. And if that happens, guess what? You're going to make sure that your agents behave responsibly because the economic and financial consequences of having your technology compounded will be too high. So this is the enormity of the problem cannot lead to paralysis. And right now, this is a big issue. It's going to take it's going to evolve over decades, if not longer. And we're not going to solve it with one regulation or one statute or one set of principles at the White House.

18:22We're going to need a framework throughout society, national security, basic safety rules, corporate governance that are put in place to make sure that these companies have the incentive to behave responsibly. And it's not solely falling on the shoulders of the companies when they have a fiduciary obligation to maximize value. The argument, Jonathan, though, is that there are existing laws in which you can make a case against these frontier labs. And I'm wondering, in your view, are those sufficient laws? Can you not make that case? that because they developed this model and they cause whatever damage it may be, could be physical damage and maybe otherwise, that they could be held liable?

19:02Are the laws insufficient? Perhaps, but we're relying on general products liability law, which is uncertain and could take decades to move through the courts the way it did with social media. A sound policy here would be to create basic duties of care and make sure that there are appropriate consequences for violating that duty of care. And that's ultimately going to have to be on Congress to do, which unfortunately is difficult because Congress is at a point of paralysis right now. Yeah. I mean, even if the Democrats were to win the Senate and the House, uncertain, obviously, a month from now in the midterms, do you expect that that would really change what you just described?

19:42No, but I think what people in Washington and I talk to many of them are hearing is that the public is angry and the public wants accountability. And a lot of the hand-waving in the early days of the Internet are not working in the eye. And it's becoming a central issue in the next presidential and certainly in the midterms. And so imposing some kind of rules that are responsive to the demands of the public is going to have to happen. And I think the sooner government gets there and can do so sensibly, it is much easier to mold clay than it is to chisel marble. And in terms of stunting progress, you know, imposing rules at the outset of this technology will be a lot less invasive than trying to contain technology that has been built and calcified and hardened in a way that is difficult to then change, sort of like we're facing with social media.

20:32Jonathan, thank you. Thank you. Jonathan Canter. Up next, Paramount's acquisition of Warner Brothers Discovery is slated to close tomorrow. We'll take a look at what changes could be coming, including additions to the C-suite. Plus, later this hour, the CEO of C.H. Robinson is with us. Those shares falling after announcing a more than$5.5 billion deal for logistics firm RxO. Stay with us. 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.

21:12No 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. With the Discover Cashback card, it's payback time when you earn cash back on everyday purchases. Activate and earn 5 % cash back at different categories each quarter on up to$1 ,500 in purchases. That's 5 % cash back at different places each quarter, like grocery stores, on gas, and at restaurants. It pays to discover. Terms apply. See discovery.com slash 5 for details. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

21:58Schwab 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. Later today, Paramount will be wiring all the money that it is going to use to pay for Warner Brothers Discovery into an account that tomorrow will be drawn on to close the deal at$31.01. 1.6 cents. That was that ticking fee, remember, that began October 1st.

22:43Of course, that ends a tumultuous chapter for Warner Brothers Discovery. once it appeared, as our viewers know, to be in a deal to be acquired by Netflix, ultimately to be undone by that$31 a share all cash offer from Paramount. And then a new chapter begins as it becomes a part of a new company that will then be called Skydance, run by its chairman and CEO, David Ellison, determined to deliver on at least$6 billion in various cost initiatives as it has a sizable amount of debt. In fact, it did the largest corporate bond deal of all time only last week to finance part of the deal. Another$47 billion.

23:24That was$52 plus,$53 billion in bonds. Another$47 billion in equity coming in as well from Larry Ellison, from Redbird, and from investors around the world, including Saudi Arabia, Qatar, Abu Dhabi. And the hard work will then begin in terms of executing. Last week, the announcement that Mattel's CEO, Enon Krais, will be joining as co-CEO. You get a look at sort of the equity side of this. That equity, by the way, to correct something I said earlier in the last hour, will be priced at$12 a share. It had a range of as much as$12 to$16. It will be the low end of that range at$12. And by the way, also worth mentioning again, current Skydance, prior amount Skydance holders will get warrants as well to purchase the stock at that same$12.

24:16That will be good for 10 years until the stock reaches as high as 30. So you do get that. But really, the real work, guys, will be for this new management team delivering on what they need to, given the debt load that they have and being levered at some six and a half plus times EBITDA. It will not necessarily be easy. And it's not been a good environment for media stocks in general very recently. I mean, all the stocks have experienced big drawdowns in just the past month or so. Yeah. You know, it's interesting, even our parent company as well. And I think there are worries about subscription services.

24:49And I've heard as well that, you know, the likes of some of these AI agents, such as Amuse, we've talked about this a bit, that they're able to have you cancel subscriptions very easily. You know, there's been some impact on some digital subscription services and the like. And so when you think about streaming. That's certainly part of it. Carl, I did want to as well be fair to David Zaslav in earlier when my commentary, when I said buyers of Warner Brothers have typically not done well for their shareholders. Obviously, AOL and AT &T being the two key ones. But in fairness, stocks up since he took over there.

25:28Not even close. And don't forget, it hit$7 a share when things were gloomiest in terms of the future of streaming, not to mention cable networks as well. Yeah. Of course, you're also dealing with a fickle, movie-going audience where sometimes marketing research may not lead you in the direction you thought. Digger's going to lose$150 million, barely got to$8 million in its opening weekend. Tom Cruise. Yeah, I know. And Tom Cruise not with a gun in his hand either, like actually doing a... I love Tom Cruise. Yes. Sorry it's not working out for him on this movie. I mean, coming off the Sinners and One Battle After Another, I mean, huge successes from audiences that seem to want original stories.

26:10We'll see how this, maybe there's a turn. They're going to try to rejigger some marketing here. It's 30 films, as they have promised, is a lot coming out every year. But we'll be following the progress of the new company. Obviously, Peace Sky itself is really a stub of what is the ownership by the Ellisons itself, who will own the vast majority of the overall equity, along with their partners, as I said, sovereign funds in Saudi, Abu Dhabi, Qatar and others. Did this come to a close sooner than you thought it would? You mean the battle, the latest battle with the AGs? You know, maybe a bit, but and really they did.

26:49The final settlement was quite favorable to Paramount, given all the rhetoric we were hearing from A.G. Bonta from California, for example. So, yeah, I guess I would say perhaps a bit sooner. Few expected it would. They couldn't take the risk of it going. Of it leaving the state. Yeah, of it going. And right. That was the risk for them. And then the risk for Paramount really was this thing dragging on until April or May would have been, even though they were thought to have had a far stronger case. than the AGs. You don't want to see that. What a corporate saga. Unbelievable. Yep. Let's get a CNBC News update with Contessa Brewer.

27:21Hey, Contessa. Hey, Carl. Disgraced former House Speaker Dennis Hastert has died at the age of 84. A coroner in Illinois said he died at his home over the weekend due to natural causes. Hastert represented the state for two decades in Congress and served as speaker for eight. That was longer than any other Republican in U.S. history. Hastert faced allegations. He molested four students as a high school wrestling coach, and he was later sentenced to 15 months in prison for making hush money payments to one of the accusers. Former Prince Andrew Mountbatten, Windsor, is challenging the warrants that allowed searches at two of his homes earlier this year.

27:57Police carried out warrants in an investigation into his ties into the late sex offender Jeffrey Epstein. A judicial spokesperson says there will be a hearing on his filing Thursday. And Spain's Prime Minister Pedro Sanchez called for early elections at the end of November after his minority government failed to pass two new laws addressing the country's housing crisis. It's kind of a gamble for Sanchez, whose socialist party is losing support, according to opinion polls. We'll keep our eye on it. Carl, I'll send it back to you. Thanks so much, Contessa. When we come back, we'll be joined by the CEO of C.H.

28:29Robinson. More on its$5.8 billion deal for logistics firm RxO. Plus the risks of rising rates for commercial real estate. The CEO of Marcus and Millichap will tell us what he sees in the market right now. Later on, why one tech investor says NVIDIA is, quote, the best risk-adjusted AI trade in the market now, even as it sits at our close to record highs. Squawk on the streets, back in a minute. Welcome back. C.H. Robinson announcing this morning that it will acquire RxO in a$5.8 billion deal. Frank Holland joins us now, along with C.H. Robinson CEO Dave Bozeman, in a first-on CNBC interview. Frank, take it away.

29:04Melissa, thank you very much. Dave, thank you for joining us on the morning of this deal. Good to see you. Glad to be here. Always good to see you. So, Dave, we are looking at your stock right now, moving lower. Investors are trying to figure out exactly what's going on here. This deal is certainly about synergies and scale. You estimate about$300 million in synergies. You also put out a presentation that a lot of analysts are looking at right now where you appear to say you think you can double the profitability of the North American freight brokerage business that RxO has. Kind of explain the thesis.

29:36Yeah, absolutely, Frank. Look, it's a great day today. We're super excited about this deal. As you rightfully pointed out, we put out a presentation, had a call earlier in talking about this is a deal that gives$300 million in net cost run synergies. We feel good about that. Why do we feel good about that? Because, Frank, as you know, the last three years, Robinson has been on a transformation. We've built a right-to-win strategy that has been predictable. It's been disciplined. It's been measured. It's based on our lean AI execution that, quite frankly, has redefined the industry. And that's shown up in the results.

30:17I mean, 13 quarters in a row of truckload market outgrowth. We've had 10 quarters in a row of EPS consensus beat in a freight backdrop, as you know, that has been very challenging over the last several years. We are confident that when you take a really good company like RxO, great book of business, good gross profit margins, plug them into Robinson's operating model, that there'll be a huge unlock for shareholders, for customers, and for employees. That's what makes this deal so exciting. You know, the Squawk of the Tree audience is very familiar with RxO. Their CEOs appeared here several times.

30:59I want to get back to why this deal makes sense for C.H. Robinson. You're already the number one freight forwarder from the Asia-to-U.S. lane. That's basically bringing in goods from Asia to the U.S. You're also the number one truck brokerage here in North America. You're adding the second or third player, depending on what estimate you're looking at. Why did you need that third player for an asset-like business? Well, Frank, for a couple of different reasons here. One, today, if there's one thing I'll have you take away, I mean, just think about this as going from steamship to front door. And that's what you get with C.H.

31:33Robinson and RxO. RxO has some capabilities that, quite frankly, at Robinson, we don't play in. And that would be Expedite and Last Mile, two important segments that can click into our capabilities. So you have global multimodal solutions that will come together, provides customers with greater capabilities to solve problems and execute. But it also brings together that scale, that further scale. And we don't have we have limited overlap in customers when it comes to to brokerage. So applying our model into RxO, again, unlocks that value, gives customers a lot more choice. And that's why we're really excited about this deal.

32:21It makes sense. All right. So, Dave, we've had you on CNBC several times. You've talked about your use of AI to reduce headcount and expand margin. I want to talk to you about another part of your business that's very crucial, the holiday peak. What are you seeing when it comes to goods being imported from Asia into the U.S.? What are you seeing when it comes to demand for trucking services? The administration has certainly cracked down. that's limited capacity. Just give us a broad picture of the holiday peak. It's already kind of begun in October. Yeah, I mean, when you look at, I think things are operating back in kind of a normal timing fashion.

32:54Obviously, there's going to be a certain volume that happens in there, but we watch that closely, as you know, Frank. I mean, I'm cautiously optimistic on certain green shoots that happened. But for us, the main thing was that we built a model that it doesn't matter the market conditions, higher highs or higher lows. We're going to win in that market. But for right now, I think the timing of the peaks, which last year there was some dislocation, this year I think the timing is about right for seasonality. And I think you'll see that going into this holiday as well. We're very, very poised to make sure we deliver for all of our customers, and we're set to do that.

33:44This deal, we're really excited about what it's going to do going into next year as well. All right. We're just showing your chart a bit ago. Your company of other companies were negatively impacted by a Supreme Court decision. A lot of people call it Montgomery basically increased the level of liability that you could face and if there's an accident or some type of other incident. You're acquiring a company that actually came on here to CNBC to talk about what that decision could mean for the business. Can you give us your take on what Montgomery means for your business and just what it could mean for capacity going forward as we're starting to see a freight cycle that just seems to continue to accelerate?

34:18Well, certainly we've been open about this. I mean, post-Montgomery, I will say this. I think we have some of the best carrier vetting in the industry. pre-Montgomery as well as post-Montgomery. RxO certainly has those capabilities as well. So we feel really good about that. But I think you will see an impact within the industry. I think you'll see consolidation within the industry. I think there is pressure on, there could be pressure on small, medium brokers and carriers and even some larger brokers as well. But this is why we're leading the charge, as you know, Frank, in Washington, D.C., for a federal regulation and a standard on duty to care, as well as a legislative solution with Congress to really drive accountability and responsibility within the industry.

35:16But outside of that, Robinson will continue to prevail. We have a strong company. We've always managed our legal docket for over 20 years. And we've done a really good job of doing that because we have a safe network. We have a very capable network. We'll continue to do that. But we're also going to lead the way in making legislative changes, which we think are necessary post-Montgomery. Well, Dave, I know you have your finger on the pulse. I bumped into you out checking on customers and clients a couple times now. And he's speaking of consolidation. Consolidation today. C.H. Robinson acquiring RxO.

35:52Dave Bozeman, CEO of C.H. Robinson. Thank you very much. Absolutely. Thanks, Frank. Good seeing you as always. All right, Melissa, back over to you. Thanks, Frank. We're all taking it, Frank. Thank you. Thank you, David. Frank Holland, when we come back, the impacts of rising rates on commercial real estate. CEO Marcus Milchap will join us on that and why he says the mall could be the next growth driver for the industry. Plus, make sure to join CNBC's Trading the Midterms Forum in Washington, D.C. That's October 14th. We'll examine why political risk remains one of the market's biggest blind spots.

36:22You can register at cmbcevents.com. The Nasdaq keeps climbing, but is the market really as healthy as it looks? New 52-week lows are outpacing new highs, raising a red flag beneath the surface. We'll hear from one expert who thinks investors may want to detect their portfolios. Tune in to our Market Navigator segment today on Power Lunch at 2 p.m. Eastern. Welcome back. Commercial real estate firms enjoying the benefits of higher demand, at least, for office space and some increased traffic at the malls across the country. But these borrowing costs and declining new construction putting some pressure on the industry.

36:56For more on CRE's outlook in this rising rate environment, let's bring Hissam Naji, President and CEO of brokerage firm Marcus & Millichap. Hassan, welcome back. Always good to have you, especially now. Thanks for having me on. It's a pleasure to be with you. So if you are in the business and you're trying to roll over some debt or you have something maturing, how painful is the backdrop of the moment? Depends on when your original financing went into place. The vintage of 2020, 2021 and through 2022 has a lot of short-term debt that is terming out and is now looking for new financing. Those interest rates during that period of time were incredibly low, as you recall, and therefore it is a very painful process to try and figure out how to recapitalize a property.

37:44We're working with countless owners in every product type that are facing this challenge and having to raise fresh equity or putting in their own fresh equity to be able to refinance at these significantly higher rates. We have to remember there's a lot of properties that were not a victim to this over speculation or over leveraging during the low interest rate environment. And for those properties, their fundamentals are usually pretty sound and they're able to get new financing. But the overall direction of interest rates is not what the market expected and is creating the need for another round of repricing and price discovery.

38:22And it's somewhat disruptive as we speak. Right. Which buckets of CRE would you argue have is the pain most acute and most manageable? I would say that related to the maturing debt issue, a lot of multifamily properties were financed very aggressively in the time period that I just mentioned. In addition to that, there was a lot of speculation around when interest rates may come back down. So a lot of our clients stayed in floating rate debt, which really hurt them because the notion that interest rates would go back down after the Fed raised 500 basis points was a very low probability. And unfortunately, a lot of our clients bet on that and are hurting because of it.

39:07We're seeing a lot of basically cash purchases for discounted office buildings. We're seeing cash purchases for smaller retail assets where entrepreneurial and very mobile and nimble investors are coming in to take advantage of price correction. And Carl, there's been a lot of price correction throughout the last three years. Part of what's keeping the market active is those price corrections not becoming very attractive compared to replacement costs, especially given that the economy is actually held up pretty well. Where are you seeing the most price corrections? Office buildings, of course, have seen the biggest pain, followed by old obsolete retail and an industrial product that is having to basically be reused or almost entirely retenanted.

39:55Older multifamily has also suffered some pretty steep price corrections because the investor pool is really into a flight to safety mode right now. The risk tolerance is a lot lower for older assets that need some work. So those prices have really differentiated and have a shallower buyer pool than the higher quality newer assets. When you say flight to safety, is that out of commercial real estate altogether or within other areas of commercial real estate? Within commercial real estate, for sure. We're seeing a lot of preference for stable, newer properties that have had some price corrections, But they're the ones that have the least volatility because there's demand in more major metros versus secondary and tertiary metros.

40:42And what this has created is an unbelievable buying opportunity for commercial real estate because the worst of the price corrections is behind us. 2023 was really the low point when it was clear that interest rates were headed much, much higher and the prices just had to recalibrate to the new reality of interest rates. the industry is starting to absorb the fact that the interest rates are going to be, you know, 4 % to 5 % range. Today, we're north of 5%, of course, on the 10-year treasury. It's more than 100 basis points higher than a year ago. And that is not what was supposed to be happening this year, unfortunately.

41:19But the market has recalibrated pretty well. All right. Well, I mean, to that point, though, you did say it's been somewhat destructive. Can you characterize for me, is it simple as if rates keep moving higher, the destruction gets more pronounced? The worst of it is behind us. But yes, the higher the interest rates go, the more challenge it puts on valuation because the numbers just don't make sense. So is there more price correction in the making if interest rates continue to head north? The answer is yes, because the math just has to work, but not to the degree that we've already seen. On average, we've already seen a 20, 25 percent price correction across all property types of all segments and quality.

42:01I don't anticipate there to be a one-for-one, if you will, movement of higher interest rates to further price corrections. But there's an absolute correlation between interest rates and evaluation of commercial real estate that's inevitable. Finally, I was looking at, I think it's Goldman, their 12-month outlook has the 10-year at 4-4. So it's not like there's just doom and gloom as far as the eye can see in the view of some. Carl, you're absolutely right. We're still seeing sort of an optimistic attitude toward where interest rates will head up, mainly because of the fact that the inflation battle had been at least tamed, if not won, prior to the Iran war and prior to the energy price shock.

42:47And the fact that the consumer is hanging in there pretty well and the economy is hanging in there pretty well is really encouraging a lot of buyers not to overthink the current window of time on interest rates and bet on the fact that this is a rather unusual period. And we should at least get back to that four to four and a half percent rate. Right. We'll see what happens in the coming year. Hassam, really interesting. We definitely have our radar tuned to CRE. Please come back soon. Thanks for having me on. This is Najee. Up next, why the options market is split on the fate of two Elon Musk companies.

43:21We'll take a look at Tesla and SpaceX next. And next hour, why the election in Brazil is leading to some big market moves, including a new 52-week high on EWZ this morning. We'll be right back. Welcome back. Offense traders are placing bets in different directions on Elon Musk, SpaceX and Tesla. Let's get to Oliver Rennick at SIBO in Chicago with that story. Oliver. Hey, Melissa. SpaceX is on its best two-day run since August, up almost 12 percent after sending four astronauts to the International Space Station on a Falcon 9 in under eight hours. The fastest launch to docking ever, by the way.

43:54Bulls are taking notice with the stock trading the highest since early July and options volume more than twice the 30-day average right now. Over$250 million across half a million contracts have traded so far this morning with more than 300 ,000 of them calls and about 150 ,000 of those look like they were initiated by obvious buyers. That compares to 60 ,000 puts. 13 of the top 15 trades were bullish or neutral, and the top three most popular contracts are the 165, 170, and 180 strikes expiring Friday, the last of which needs more than an 8 % rally this week to pay off. What's also notable is how SpaceX and Tesla stocks look somewhat linked.

44:35The two are trading at a 30-day correlation of 0.7, roughly, and Tesla's back knocking on the door of 380. Options trading there is also elevated with more than a million contracts trading for a total premium over$400 million. And over 70 % of that tied to calls, mostly initiated by buyers, thanks in part to some big participants in the 375 and 380 strike calls expiring today, guys. So, Oliver, is it fair to say that between SpaceX and Tesla, the options are beginning to trade more in tandem? Absolutely. The price action and the options, too, Carl. What's interesting is if we rewind and look at our coverage on this, the most telling part of the SpaceX journey, actually, since IPO, was when the big money shifted towards selling put, which is a good notion and a lesson for traders as we see the importance of watching what big money does because there was always this active call buying of far-out-of-the-money, reach-type calls, looking for big upside fast.

45:37A lot of those didn't pay off along the way. But what really put in the bottom for SpaceX was when we saw folks showing confidence by selling downside instead. And since then, it's basically been a runaway hire. Yeah, that is going to be the highest since definitely late June. And as Morgan Stanley wrote today, their argument is that one last chance to grab some opportunity before Flight 15. Really interesting, Oliver. Thank you. Oliver Rennick watching two very important names. All opinions expressed by Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet, or another medium.

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