10AM Hour: A Tough Stretch for Lululemon, Goldman Sachs Chief Economist, Zscaler CEO on Earnings 9/4/26

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0:33Schwab 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.

1:03Good Friday morning. Welcome to Squawk on the Street. I'm Carl Quintanillo with Leslie Picker and Mike Santoli, live at Post 9 of the New York Stock Exchange. Sarah Eisen and David Faber are off today. Stocks a little bit lower here, 10-year holding steady as August Jobs comes in much stronger than expected. We will get Goldman's first take on the number with Chief Economist Jan Hatsias. Lulu shares plunging after earnings. We'll talk to an analyst who says there is a long road ahead, and he'll outline the key questions that he wants answered. And the CEO perplexity on the company's latest AI agents, its valuation, and some updates on plans to go public.

1:36Let's begin, though, with the market today as we're hovering in this range here right above 7 ,700. Mike, we've talked about sort of where we've been last couple of weeks. Yeah. I mean, obviously, we sort of held the bottom end of this range this week and actually are still below last Friday's high in the S &P. So it's kind of this compressed range that we're And at the moment, although I do think the jobs number, it's not translating as a pure, you know, good news is bad news, which I think is a net positive. But it absolutely means the Fed is only focused on inflation here. If you actually had any thought that you had to be mindful of what's happening in the labor market, you probably don't think that today.

2:12So rates also staying just a little bit under the recent highs. One of those elements we were just discussing is the MAG-7 and how it is essentially on a six-month basis now started to outperform the S &P again. So there you see it. kind of taken charge a little bit. The valuations got compressed. We got through the earnings season. It feels like that's all we needed to know in terms of having people return to this group. But that being said, the dispersion within the MAG-7 is massive. It's just not really a helpful cohort anymore, except to say these are mega cap kind of tech platforms. And then semis versus software has been this constant.

2:48It's still kind of this constant toggle back and forth. And you see they've come closer together over the last six months. but still semis kind of hanging in there above those lows. So the other piece of it, and I don't know how it fits into the Fed either, but you can't ignore what's going on broadly in commodities. So if you look at a five-year, this is a commodity ETN that tracks the index, you're pretty much at those highs. It's not a direct translation into what happens in broad inflation, but it's notable. It's a change in tone of this market. Definitely notable. What do you make of what's going on with momentum specifically?

3:25There have been a lot of notes with big question marks surrounding momentum, which have been such a key driver several months ago. And now it's just back and forth. Historic extremes of crowding and the momentum of momentum in June almost total unwind. The biggest liquidation in history. And then history says after that, you probably have kind of a frustrating churn bouncing around period until it reasserts itself as a leading source of returns. I think that's where we are. It's been hard to disentangle that from semis and what's going on with memory because they were overrepresented there. I think it's fascinating because, you know, those stocks, they've done nothing but if you believe the numbers gotten cheaper and people have greater certainty about the total spend.

4:06It's really about how much are we going to extrapolate after next year for the spend and what valuation we're going to put on this kind of maybe short term over earning by this sector of the economy. Your point about commodities got me thinking about food, because the Ag Index earlier in the week had its longest daily rise, so 13 straight sessions, I think, of the century. We've talked a lot about corn, sugar, and wheat, and that, of course, ties right into what we were talking about, diesel, at the top of the hour. Yeah, so obviously it's meant to show it's not just an oil story, and obviously there's weather involved in that, and there's supply disruptions.

4:39So I do think it's notable. It's significant. I find it interesting in the sense that now we worry about the bond market It has a very, very high real yield. So over and above inflation expectations. And it just feels like the economy is, you know, kind of more of a high metabolism. We have to buy more real stuff. We have to reshore. It's anti-globalization. Everything pushes in the direction of, you know, things are going to settle out at a higher level of nominal growth and maybe, you know, maybe inflation for a while. And at least that's what the markets seem to be positioning for. Yeah, good point.

5:12For more on the market reaction, especially to this morning's blowout jobs report, let's bring in David Talley, Chief Global Strategist at JPMorgan Asset Management. Good to see you, David. So you were expecting jobs to bounce 100K in August, and that was double consensus. What do you make of the numbers we saw?

5:30Jan Hatzius: I'm not shocked. We get very big bounces one way or the other in payroll employment. And if you look at the non-seasonally adjusted numbers, we frequently have moves of plus 600 ,000, minus 800 ,000. So over the summer, it's kind of hard to seasonally adjust. And if you look at leisure and hospitality and education employment, those are two classic areas where over the summer you can get a seasonal problem. So look at the last three months, 70 ,000 jobs per month. That is really exactly where this economy is. It's kind of like bowling with bumper lanes, this economy. I mean, no matter how much we try and swing it to one side or the other, the ball just heads straight down the middle.

6:08Jan Hatzius: And this is a 2 % growing economy. It's strong enough, I think, to support a very good stock market for tech companies, but it's still weak enough to hold wage growth down. I mean, that's the other thing. Wage growth is still weak in this report. Yeah, that was a remarkable note, especially as we look ahead to PPI and CPI next week, the next big data point before that all-important Fed meeting later in September. Well, that's right, because we're at a 4.1 % unemployment rate, and that is probably better than it's been 85 % of the time over the last 50 years. But if you actually look at perceptions of the labor markets, for example, the conference board numbers on, you know, are jobs plentiful or hard to get?

6:45Jan Hatzius: That's really right in the middle of its range. It's better than it's been about 60 % of the time. So it looks, you know, by the numbers, it's a very tight labor market, but it doesn't feel that way to workers, and they don't feel like they've got the ability to ask for wage increases. In fact, the wage number today, year over year, was the lowest since May of 2021. And so we may have a tight labor market, but it is not generating inflation. But if the job creation outpaces labor force for a while, won't workers feel more confident in asking for races? No, I just don't think. First of all, I don't think that's really going to happen.

7:17Jan Hatzius: We've got a lot of growth coming in tech, yes. But if you look at things like housing, you look at all the demographics around broad consumer spending, There isn't an increase in broad consumer demand that will lead to an increase in hiring. So I think it's just going to be a low-hire, low-fire economy for some time. But I think the key point is, whatever happens with commodity prices, inflation won't stick unless you get wage growth that goes up with inflation. And this is the fourth consecutive month in which we've had wage growth below year-over-year CPI inflation. And that means the Fed can stay on hold of it.

7:55I mean, we keep circling back to this. Wages appear benign. But once you fold in health care costs for small and large businesses, it's going to be the biggest rise in 20 years.

8:07Jan Hatzius: Yes, but it's and it's it's there's a lot of pain out there. I get it for a lot of businesses outside of tech. There's a lot of pain out there. But the key message is, what do you do about it? And what you don't do is shut off demand. You don't raise interest rates to try and slow down demand in the economy. because, honestly, that demand is not the thing that's pushing up inflation. I mean, yeah, we've got higher health care costs. Well, you know, look what we did to Obahamacare subsidies. You know, we've got higher, some core good prices higher. Well, look at tariffs. We've got higher energy prices.

8:38Jan Hatzius: Well, look at the war in Iran. I mean, there are reasons for all of this. None of it's coming from the Federal Reserve. None of it's got to do with monetary policy. And none of it's got to do with what's actually going on in the real economy. It's really all about policy. There is an argument that I've heard kind of bubble up recently, which is the three cuts from last year looked like it was in response to a kind of a false alarm on the labor market. I mean, I'm not saying that's true, but you did have a real softening. And there were some people saying, look, this is going to backslide further.

9:04And in that case, because we've seen labor firm up and obviously we're still well above target on inflation, that at least we do a kind of housekeeping, take back the three cuts or something like that. and that somehow gets us back in a good spot relative to neutral.

9:20Jan Hatzius: I don't think there's any evidence that rates are so low as to cause higher inflation. And by the way, I think if you actually look at the voting members of the Federal Reserve, not the whole FOMC, but the 12 people who vote, I believe eight of them are of that opinion right now. That, you know, unless we get a very hot CPI report next week, I actually think the bond market's wrong here or the futures market's wrong. I don't think the Fed's going to raise in September unless you can actually show, show me CPI inflation really taking off here. And it's not coming down quickly, but it is coming down slowly.

9:49Do you think that, given what diesel's done in the last couple of weeks, that the pass-through is over?

9:57Jan Hatzius: You'll get some pass-through, but, of course, you've got pretty strong corporate profits across the board. So companies may just eat it. I mean, at the same time as we've got this, we've got tariff refund checks. So I still don't see this causing broad CPI inflation. And I would like it if the Federal Reserve, you know, Kevin Walsh is in favor of saying that. I just want them to do less. I just want, you know, if rates are a more or less okay place, then just leave them there. Say you're going to leave them there and let the economy sort it out. Going back to your comment on the wage stickiness, how much of that do you think is obfuscated by maybe higher paying jobs in information services and financial services being weaker than those maybe that are lower paying jobs?

10:37Jan Hatzius: It's a good point. Could it be a wage mix shift? But I don't actually think so because I think a lot of the job loss Things are in retail. I mean, it's a great question. We could look into it. But when I look at the year over years, I see a lot of declines in, for example, immigrant labor, jobs that would have been done by immigrants, which would have paid less. So I don't think there's a mixed shift towards weaker paying jobs here overall. I just think that less than 6 % of American private sector workers are a member of a union. The other 94 % are on their own. They think this is a scary economy.

11:11Jan Hatzius: They think they're threatened by AI, and they don't have the guts, basically, to ask for a wage increase or to demand a wage increase in this economy. That's a good point, because the machine could potentially do your job cheaper. So better put your head down and keep doing the work. Exactly. David, thank you so much. Sure. Let's turn to this move in energy. Diesel did hit an all-time high yesterday. Pippa Stevens has more on that impact and just how broad it might be. Morning, Pippa. Good morning, Carl. $5.85 today on the national average for diesel. That is up more than$2 since the war began at the end of February and now at a record.

11:43The war in Iran is really what started the move higher in diesel, but Ukraine ramping up its tax on Russian refineries, it's what's turbocharged the price action. Oil is up 33 percent since the war began, but heating oil futures have doubled that. Now, even as more ships move through the Strait of Hormuz, we aren't seeing the same number of product tankers transit because they're smaller, and so the overall value of their cargo is lower, and therefore the insurance premium is higher. Between the Middle East and Russia, the world is now missing about 8 percent of global diesel supplies. That's according to Lipow Oil Associates' Andy Lipow.

12:15And there isn't really spare capacity to add to the system. The economics here are really attractive. So if you are a refiner, you're producing as much as you can. Diesel is known as a tax on the consumer because it impacts goods that are moved by trucks and trains across the U.S. In California, prices are now$7.71 per gallon, impacting the busiest port complex in the United States. Now, as the world looks for diesel, U.S. exports have jumped to record levels, up more than 30 percent in the last year. And that is leading to domestic inventory depletion. Guys, U.S. distillate stockpiles are now at a record low.

12:49I should say East Coast distillate stockpiles at a record low. Stockpiles are tough. We got chatter about what if China starts buying again. We got hurricane season now in force. And then I got to get you on these refinery utilization rates. I mean, they are going all out. Can they afford to do maintenance this season? I mean, that is the big question. We have seen some maintenance delayed because, you know, they really do want to be producing here at max rates because they are making so much money with diesel, you know, 100 bucks above the price of crude. But, you know, as you mentioned, hurricane season is here.

13:20And if there are any unexpected outages, that will add to the disruptions in global supplies. But I think we also need to watch where diesel prices in the U.S. are hitting records because states like Iowa, Kansas, Missouri, Nebraska, South Dakota, Texas all seeing records today. And, of course, that does come ahead of the farming and the harvesting season here in the northern hemisphere, as well as the planting season in the southern hemisphere. So it is really going to hit kind of people where it hurts the most. And then what does that do in terms of, you know, how consumers are feeling ahead of the midterm elections?

13:53Of course, it is very much in focus here with the White House calling in the refining executives earlier this week to see what can be done. But the answer is there is no spare capacity worldwide. So it seems like at this point it's going to have to be demand destruction that leads to any price relief because it doesn't seem like Ukraine is going to stop its attacks on Russian refiners at any at any point soon. And we also don't know the extent of the damages there. So, guys, this is certainly going to bite for consumers, given that it tends to be a pass through, especially, you know, ahead of the busy Christmas retail shopping season.

14:24Yeah, for sure. Pippa, good good roadmap of where we are right now on distillates. That's our Pippa Stevens. Speaking of roadmaps, let's get ours for the rest of the hour, including a tough stretch for Lulu. The street's reaction as those shares plunge following a cut to guidance. Plus, the CEO of cybersecurity firm Zscaler on results will also get his reaction to new reports of another hack from OpenAI agents. And Goldman's chief economist, Jan Hatsies, with his first reaction to the jobs report. Swap on the Street is back after this break.

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15:34With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Weren't agents supposed to take things off your plate? Building 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.

16:08This 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 marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Welcome back. Zscaler topping earnings expectations and giving upbeat guidance. The stock is down this morning.

16:47John Ford joins us now, along with the CEO and a first on CNBC interview. John. Thanks, Mike. And Jay, it was good to see you. Jay Chowdhury, CEO of Zscaler. The stock is down after you guided to current quarter growth at 19 percent. You had beats across the board on the quarter that you've reported. How much of your full year guide, which is a little lighter than the current quarter guide, is conservative, especially given that you said your sales force's productivity just hit a high?

17:19Jan Hatzius: So, John, good to see you again. First of all, the record quarter from any measurement. Our revenue, our ARR going at 25 percent at scale. Our ARR exceeded$3.8 billion. dollars, our known gap operating margin 24%. These are spectacular numbers. On the business side, our sales productivity, it hit all-time high, and we signed record number of million-dollar deals with our customers. All is good, I think. What I'm very excited about is the outlook we're seeing, the traction we're seeing with AI. So rather than focusing on the guidance, guidance is what it is today. But I'm so excited about the opportunity.

18:07Jan Hatzius: We created a record pipeline in Q4. So personally, I'm excited about where the business is headed. All these agentic issues coming, all these agent hacks are happening. The best solution for that is zero to the change that we pioneered. So very bullish about fiscal 27. Well, let's talk some more about that, because I think you've got some announcements coming just next week with agent-native security ops. What is it that that's going to bring, riding on top of the kind of specialized infrastructure that you build, that you think is going to distinguish you in this market? So today, Zscaler sits in line to make sure the right agent can talk to the right agent or they can access the right resources.

18:50Jan Hatzius: That is probably the best solution for avoiding hacks we are hearing about, hugging face or many other hacks like that. Now, when you sit in line, you're picking up a lot of telemetry, and we take that telemetry. We take it to our SecOps solution, which is powered by agentic technology. So I can analyze the data, find for any reconnaissance and any of the underlying activity that could lead to bad things, and feed it back to my inline system. So I can act to those issues in minutes today in a traditional security operation system. It takes days or weeks. So I'm very excited about extending our platform from inline policy enforcement to security operations.

19:36That's an interesting point because as I understand it, if you're talking days or weeks, that's just figuring out what got stolen and what window they entered in, as opposed to if it's in real time, you could potentially prevent and arrest what's happening. Tell me, to what degree did the incident with Hugging Face, with OpenAI, kind of rogue agents breaking in, and then all of the follow-on announcements from Anthopic and others, to what degree is that driving interest and demand right now among customers in your products?

20:08Jan Hatzius: So these incidents are making CEOs, CIOs, and boards very nervous. I have been talking to lots and lots of them. They have two concerns. One, even if I don't adopt AI, these frontier models have the capacity, have the ability to find vulnerabilities and break something down. That's number one. Number two, if they embrace AI, they build their applications and models. Can somebody breach them? Zscaler has the perfect solution for both of those because as a zero-class exchange, We make sure we hide your applications behind our exchange. If you're not reachable, you're not breaching. That's number one.

20:50Jan Hatzius: Number two, today, a user is the weakest link from a cyber point of view. Tomorrow, agents will be the weakest link, or if I may say, is the most dangerous link. By being an exchange to make sure only the right agent can talk to the right application, we can handle that and reduce the number of breaches like hugging face and the like. That's the opportunity for Zscaler. I feel like we are built for this moment. So underlying all of that and different with Zscaler than some of your competitors or partners out there in the security market, you are building out infrastructure that supports this real-time zero-trust approach.

21:29But that means you need stuff like memory that's really hard to come by in this market. And when you can come by it, it's really expensive. What's the impact of this memory crunch, say, on your margins? And how short term is that? How should investors think about the way that that investment prices out over time?

21:50Jan Hatzius: So, John, to really become a zero-tossed chain, you need to have infrastructure globally. We already have infrastructure in 160 locations around the globe. That's serving to secure 60 million-plus users. We are expanding it to handle agents. So, yes, we are adding some capacity, some memory, some GPUs of the world. The prices are high. We are reflecting that in our capex. But capex doesn't really hit your operating margin right away. It's spread over years. We have a number of other levers to play. So that's why our operating margins for next year is sitting at the same level at 80%. So we are fairly well positioned to serve our customers and still deliver very respectable operating margins.

22:40And then finally, as a multi-time founder yourself, who's seen a number of transactions in this industry, I wonder if you'd give us your thoughts on NVIDIA Hugging Face. There's been a lot of talk about open weight models recently and open source. Hugging Face is a big source of that. You've got, hey, arguably the biggest name in AI infrastructure now looking to snap that up. What do you make of it?

23:06Jan Hatzius: AI is a very fast-moving market. Lots of dynamics, lots of changes happening. From my point of view, when I talk to customers, they believe that the models eventually will become commoditized. There'll be many, many models out there. That's good for customers. That's good for us. Also, where the model will run matters. Today, most of the models are running in massive data centers. That's why you're seeing the built up of these data centers tomorrow. Some of the models will run on big data centers. Some of these models will run on your laptop, and some of these models will run on your mobile phone.

23:43Jan Hatzius: Apple and Google are particularly interested in making that happen. So as that happens, we think the prices of running AI will go down and more companies will be able to take advantage of them. And our solution will power some of that solutions so our customers can be much safer. They can safely embrace AI. Qualcomm, very interested in that as well, the potential of running on device. Jay, thanks for the insights. Jay Chaudhry, the CEO of Zscaler. John, always a pleasure to talk to you. That was good stuff, John. I was going to ask your thoughts about hugging face and whether or not we're going to look back at this period as an inflection point for open.

24:24Definitely. It reminds me a lot of what happened in the Linux era and people at first being afraid of it. And then it just really redefining the market. Also, what we saw in infrastructure when for a while, hey, you had all these specialized equipment makers, Sun, Cisco, et cetera. And then you saw some white box, more commoditized hardware move in for dealing with stuff like email. This is a very familiar place in the tech cycle. Does that place it similar to IBM buying Red Hat? I mean, in that context? I think it does. What do you think it means for open AI and Anthropic? I think it means that they've got to really perform at the high end of the market in a way that sort of makes that commodity stuff irrelevant.

25:08Apple managed to do that in the smartphone market. I mean, by units, they're certainly not competitive, but by profit, they are. So can they do that Apple device and Apple App Store effect in how they build an ecosystem? I tried that one yesterday, too. All right. Apple App Store, IBM Red Hat. That's good. And Microsoft GitHub. John, thanks. That's John Fort. Still ahead, the challenges that lie ahead for Lulu's incoming CEO. We're going to break down this quarter and the guidance as the stock plunges. We'll get Goldman's first reaction to the jobs number. Jan Hatius will join us in a few moments as Squawk on the Street continues on this Friday.

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26:47Weren't agents supposed to take things off your plate? Building 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.

27:20Schwab 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.

27:49Welcome back. We are about 30 minutes into the hour. Here are three big movers we're watching. First up, Adobe. The stock lower as the company announces Anil Chakravarti will replace CEO Shantanu Narayan, who announced last March he would be stepping down after 18 years in the role. Narayan will become executive chair. Stock has fallen off of late alongside other software names. Shares down 7 percent right now. Then satellite imaging company Planet Labs reversing early gains after results. Revenue of over$116 million is well above estimates. The company's defense and intelligence division is now accounting for 70 percent of its business, up from 57 percent a year ago, down 1 percent.

28:28The Lululemon shares tanking after cutting guidance as well. Brandon Gomez has more on the quarter and the turnaround job for the company's incoming CEO. Brandon. Hey, good morning, Mike. Lulu is handing incoming CEO Heidi O 'Neill a pretty significant turnaround job. The company reporting Q2 revenue of about$2.4 billion with comparable sales down 9 percent, both missing street expectations. Now, North America remains the biggest problem with comparable sales down 12 percent. Lulu also cut its full year outlook again, now expecting revenue down as much as 7 percent from last year and below its previous forecast of as much as 11.15 billion.

29:03The bigger story is what O 'Neill walks into when she takes over next week. Management said on the call the near term problem does remain clear.

29:13Predominantly, we're seeing the pressure in traffic. We're also seeing negative year-over-year conversion, but we're not seeing that worsen. And that is at the top of O 'Neill's to-do list. First, rebuild the brand hype. Lulu said it's increasing marketing spending and leaning into community events, social content and activations. Everything from the U.S. Open to the fall marathon season. Second, fix the product engine. Legging sales fell roughly 20 % in the quarter, while the company says customers are responding better to looser, so-called away-from-body styles. And third, O 'Neill will have to figure out the cost structure around a business whose sales are shrinking.

29:48Lulu is now planning about 35 new stores this year, down from 40, while taking a harder look at expenses. The challenge is more than simply getting people back into stores. It's reigniting the brand, getting the product right, and restoring full-price sales. After another guidance cut, investors are going to be looking for evidence that the company can return to growth in the near term. Guys. And where do we stand with this pact with Chip Wilson? And can he can he stop himself or must he stop himself from criticizing if he gets impatient? Yeah, right. We've been following the back and forth there.

30:18Obviously, there were those two board appointment seats that that that Chip Wilson had put forward. Part of the agreement was that he would no longer issue those aggressive comments about how he felt the company should be run. So, again, it's going to be a dynamic. I'm sure the incoming CEO is going to have to figure out how to navigate should that arise again. Yeah, maybe some private criticism, but not as much publicly. So we'll see how that filters through into their strategy there. Brennan, thank you. Thanks. Brennan Gomez. Time now for ACNBC News Update. Pippa Stevens has that for us. Hey, Pippa.

30:47Good morning, Leslie. Officials in Ukraine say Russian attacks overnight killed at least three people ahead of a weekend visit of U.S. envoys to both countries. Two U.S. officials say advisors Steve Whitcoff and Jared Kushner are planning to travel to Moscow and Kyiv. The visits come after Russian President Vladimir Putin said yesterday there was a chance of reaching an agreement to end the war. Meanwhile, court is back in session this morning as jurors in the Lindsay Clancy murder trial begin their seventh day of deliberations. The jury is deadlocked on whether she should be held criminally responsible for killing her three young children.

31:21The judge this morning refused to question a lone holdout juror who the defense has argued is refusing to listen to the law. And court records show former Jets quarterback Mark Sanchez is set to plead guilty to charges stemming from a fight with a truck driver last October in Indianapolis. Sanchez faces a felony battery charge and three misdemeanor charges. He was stabbed in the altercation, which prosecutors say started as a disagreement over parking. Carl, back to you. Thanks so much. When we come back, Goldman's chief economist, Jan Hatsi, is on the other side of the break. We'll get his first reaction to the jobs number, talk some Fed, and then we'll look at the expansion of Tesla's robo-taxi service in Austin and whether that can provide a boost to the stock.

32:02And we're back in three.

32:10This number was above anybody's forecast, and by a lot, it was four standard deviations above the mean. And so it's a really blockbuster number. If you dig down, then what you can see is that there's a lot of policy success underneath it all. NEC Director Hassett last hour reacting to the jobs number that did blow past expectations. 162 in August, more than the 53 expected, while unemployment held steady at 4-1. joining us to talk about it on set here, Goldman Sachs chief economist Jan Hatsias, as he typically does on Jobs Friday. It's great to have you in, Jan. Good to see you. Wonderful to be with you.

32:44Hass, it's right. This did blow away the range.

32:47Jan Hatzius: It was a very strong report on the payroll number, for sure. It followed a couple of weaker ones, of course, but this was a very strong trend in terms of payroll jobs created. If you look at the household survey, I think it was a bit closer to expectations. You know, we have a 4.1 percent unemployment rate edged up a little bit in unrounded terms. And the wage numbers were very benign. So overall, I would say this is consistent with a solid labor market. But I don't see a lot of overheating pressures in the labor market. Right. Because of the wage number? The wage numbers and also the unemployment rate, 4.14 percent, is basically at the Fed's estimate of full employment at 4.2.

33:32Jan Hatzius: And employment to population, if you look at the trends, that's sort of moved sideways. So things are good in terms of at least overall availability of jobs. Still very low hire, low fire. So it depends where you are in the labor market. if you're a job seeker, it's still worse than you would guess based on the 4.1 % unemployment rate. But if you have a job, it's a strong labor market. It doesn't sound like you think this moves the needle much on Fed stuff. No, I think it does remove an obstacle to a hike. So I do agree with that. So the market repriced a little bit towards higher probability.

34:11Jan Hatzius: But it doesn't, I think, provide an affirmative case for why the funds rate needs to go up. Again, there's not really a lot of signs of overheating in the wage numbers. Unit labor costs are growing below 2 percent. So to me, it really hinges much more on the inflation story. We'll get that news next week on Friday. And our expectation is it's going to be a pretty benign report and will be consistent with them staying on hold. But it's going to be data dependent. it. And I guess what is the hurdle then for CPI, PPI in terms of how that projects ahead to PCE inflation for, you think, getting September really in play and having it be a hike?

34:55Jan Hatzius: I mean, I think it's hard to draw an exact line in the sand with this. But if it looks sort of, you know, two tenths like for PCE and is really more core PCE probably than CPI, then I think that would be consistent with them staying on hold. I mean, we're not going to know because there hasn't been clear guidance. The speech from Chairman Walsh a week ago definitely leaned hawkish, but there wasn't a clear signal of what he intends to do. And then other people have spoken and they've had different views. We've got three dissenters who voted for a hike last time. They're presumably still in that camp.

35:35Jan Hatzius: And then we've had a few other people who've been more skeptical. Governor Waller yesterday, you know, leans against the hike. We had, you know, we had President Williams from the New York Fed, who also sounded more sympathetic to holding. So it's really kind of counting heads. Is there a case to be made for a small insurance hike? I've seen some debate this morning in the research about just some people saying, you know, Maybe some gradual hikes could be good and preventative so that you don't stay on hold for too long and then need to do some aggressive hiking in the future if inflation really does get out of control.

36:10Jan Hatzius: Well, if you think that inflation is going to get out of control, then for sure you should be hiking. I just don't think that when I look at the economy and I look at our expectations for how the economy is going to perform. But it's ultimately going to hinge on that. It's going to depend on the outlook. And under our outlook, hikes aren't really necessary. The funds rate is sort of in the zone of neutrality. And I would expect inflation, which clearly is above target now, to come down over the next year because the elevated level is driven by some more temporary or price level factors, such as tariffs, tariff pass through the impact of oil prices, and a couple of other factors like imputed portfolio management charges that are probably a little bit less reliable, as Governor Waller explained yesterday.

37:03Jan Hatzius: But it's all going to depend on the outlook, of course. We've talked in recent appearances of yours about caution on the consumer, right, or about real disposable personal income, fading benefits from one beautiful bill. Does this do anything to ameliorate some of that, today's number? I mean, from an income perspective, I didn't really see a lot of news on this. Yes, payroll growth was stronger. You know, the wage numbers were a little bit soft. I think the nominal labor income trend looks OK. So I don't view that as a major concern. I do think, though, that with the tax refund impact rolling off and with gas prices still high, second half consumer spending growth, I think, is going to be a little bit softer.

37:49Jan Hatzius: You know, we have it at about one and a half percent in real terms. That's not disastrous, certainly. I think the trend is kind of two-ish also, but it's a bit softer than where we've been. Would that manifest itself in a degradation in retail sales data, or have we already seen some of that? I think we may have seen a little bit. The last report was a bit hard to interpret because there was a shift in Amazon Prime Day. So I think that probably contributed to the weakness on a month-on-month basis. But if I look at the trends over several months, I think it's consistent with the idea that we had quite a bit of strength in the spring, despite the gas price impact because of the tax refunds, and that some of that is coming off now.

38:29Jan Hatzius: How about the long end? Do you think Besson put a marker on 5.3 that people will be afraid to short beyond? I mean, I think ultimately there is, of course, some impact from debt management policies, and we'll see what the buybacks are going to be. But in the end, I would expect this to be driven more by fundamentals. And the fundamentals are somewhat two-sided. On the one hand, I think the Fed outlook may be a bit more benign than what markets are pricing. That, of course, also has some impact on the long end. On the other hand, the fiscal situation continues to be very problematic. And debt-to-GDP ratios are going up.

39:13Jan Hatzius: And that's going to mean private sector investors are going to have to hold more treasuries and probably will demand some compensation for that. And interest costs, you know, a trillion dollars and outpacing defense and Medicaid and potential crowding out as well and limiting budget. That's right. So the fiscal impact is, you know, going to continue to be a headwind. Yeah. The president, of course, reiterated this morning in a post that he thinks good jobs numbers means that the U.S. deserves lower rates. And he obviously use it as an excuse to pressure Kevin Warsh to cut soon. Obviously, it's kind of macroeconomically incoherent.

39:51It doesn't make sense. However, do you think we have to worry about or wonder about whether there is an election season restraint on the Fed hiking? You know, there's a sort of conventional wisdom aspect to it. But in 2022, they hiked every single meeting from April to November. So this year, does it matter that it's election season?

40:14Jan Hatzius: I've always been a little more skeptical that it matters that much. 2024, of course, we also had a 50 basis point cut before the election. I think this is really going to be driven by Fed officials' views on the economy. I take them at their word. And I think if you look at how different people have talked about the outlook and what they ought to be doing, I also really don't see a clear partisan pattern in that. So my expectation is that it's going to be driven by the data. And to your point, nine voted for a hold in July. If anything, the inflation numbers have improved a little bit on the margins, even if oil is higher.

40:55So maybe there's just enough of a way to the committee not to do anything.

40:58Jan Hatzius: Well, that's my view. I mean, that's very, very separate from any political considerations. But I think there is a solid case for at least saying, let's wait for a little bit more information before we go, especially because if they were to go, they probably would have to at least plan to do a little bit more. There's no point in doing 25 basis points and saying one and done. Finally, Jan, really quick. You have done a lot of work on the impact of AI on job growth by sector. I don't think you're drawing big conclusions that it's having the deleterious effects to date. That's correct. Yes. I mean, this particular number, while it was strong overall, actually did see a bit more weakness in some of the, you know, in some of the AI exposed categories.

41:44Jan Hatzius: But that came after a significantly better number. These numbers jump around a bit. My bigger picture view is that while I think it will be a headwind to a degree, I don't think we're seeing a ton at the moment. That's a lot. I look forward to the next time, Jan. Thank you, as always. Jan Hatsias, Goldman Sachs. Thank you. Thanks so much. After this, a look at Tesla's robo-taxi expansion and how the company's autonomous ambitions could impact the stock. Then next hour, don't miss the CEO of AI company Perplexity. Reports say NVIDIA weighing an investment in the company at a$30 billion valuation.

42:21No, go away.

42:28Welcome back. Tesla releasing its cyber cabs on the streets of Austin, Texas, as part of its push to fully autonomous driving. Phil LeBeau has more on this rollout. Hi, Phil. And it'll be interesting to see what happens, Mike, because the National Highway Traffic Safety Administration has just announced within the last half hour that it is opening an investigation into the process that Tesla used to say, look, these vehicles are safe to operate for commercial rides without a steering wheel, without a brake pedal, without some of the federal rules that have been in place and are required of vehicles.

43:02We'll see how this goes. So basically what we saw last night or did not see in Austin, Texas, it was an event that was held for Tesla influencers, those on social media who agreed to sign non-disclosure agreements and Tesla did not stream the event. And it basically comes down to this. They offering they will start offering commercial rides in cyber cabs as part of the robo taxi network. Exactly how many, what the fares will be, et cetera. That has not been clearly stated by Tesla at this point. And the fleet number is unclear. Is it going to be a couple? Is it going to be a dozen? Is it going to be two dozen?

43:37Nobody's sure right now. And as I mentioned, the federal government is doing an audit into exactly why Tesla believes it has gone through the processes necessary to ensure the safe operation of these vehicles. What does Wall Street think about the cyber cab event or non-event last night? Dan Levy at Barclay says without any new incrementals on growth scaling targets, we believe the event could prove to be less significant a catalyst than some investors had expected. Meanwhile, Ben Callow at Baird says the event is an important milestone for Tesla. And yes, it is a milestone if they are allowed to do commercial rides with the CyberCab.

44:16They're doing that right now. Will that continue once the federal government does its investigation here? It's possible. They could come back and say, OK, what you said is going to be happening is meets up. It's up to par. But we have the final say is what NHTSA is saying here. as you take a look at shares of Tesla. Bit of a sell-off today is not surprising, guys, given what we've seen since July 28th. It's just been on a steady move higher. Three things driving it, cyber cab, optimist robot enthusiasm, and obviously people talking about the potential for a merger with SpaceX or SpaceX taking out Tesla at some point in the future.

44:53Phil, on the legacy EV business, we've talked a lot about gas prices today at 4.15 or so. Yep. This piece about the Ford Fathom in the journal earlier in the week. Do you think the zeitgeist is going to drive demand for EVs overall? I think what we've seen right now is the base level, Carl. And it's about 6, 6.5 % of total vehicle sales in the United States. At its height, when there was the federal tax credit, it was close to 12%. I think as you see more of these lower-priced models come out, whether it's the Ford Fathom electric pickup truck, If the price is below$35 ,000, and I've got to stress this, truly below$35 ,000, if it's a marketing ploy where it's$34 ,900 and nobody under the sky is going to really pay$34 ,900, that's a different story.

45:39But if you can bring that price point down in that$35 ,000 range, I do think we will see an increase in demand and sales of electric vehicles. Yeah, that would be an interesting pivot after all this time. Phil, really interesting week. Appreciate it. As always, our Phil LeBeau watching Tesla today. When we come back, what the options market is signaling about Oracle getting ready to report next week. And then next hour, health and fitness ringmaker Aura files to go public. We'll take a look at the newly released financials ahead of that debut.

46:16Welcome back. Oracle will be a big test for the tech trade when it reports next week. Let's get to Oliver Rennick at SIBO in Chicago with a look at what the options market is signaling about Oracle. Hey, Leslie. Tech stocks are firming up again and traders are now looking ahead to next week. That means Oracle, where options are pricing a 9 % plus move, which is standard for this company. The stock's up more than 2.5 % today, trading the highest since June. There is a lot of action in the options. Volume is on pace for more than twice the daily average and calls are outpacing puts about 4 to 1.

46:49So far, roughly$60 million in premium is traded, and almost 80 % of it is tied to calls. The top eight contracts by volume, also all calls. Now, there is a catch, and that is that there's a lot of calls selling happening as well, particularly in a handful of big money trades, including someone who sold$1.5 million of in-the-money 150 calls and about the same amount of 165 strike calls expiring September 18th for a total of roughly$3 million. That said, there's plenty of bullish activity still. Just looks like smaller players. Lots of volume in the 160 and 165 strike calls expiring today. And then for next week after the earnings, it goes as high as the 177.5 strike, which means a 14 % rally to work, guys.

47:36Wow. Yeah, it does seem like the last few days we've talked about a lot of software activity and options. Oliver, appreciate it. We'll see what next week brings. Oliver Renick, it's SIBO. Still a lot more reaction to this move in Lulu today after the break. Is the bottom finally in for the stock after today's 18 % drop and these prices dropping back to 2018 levels? Stay with us.

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