10AM Hour: Citigroup & PayPal CEOs, Goldman Sachs’ First Reaction to the Jobs Number, VIX Signaling a Buy Opportunity? 11/6/26

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1:04Good Friday morning and welcome to Squawk on the Street. I'm Sarah Eisen. Joining today from the Citigroup TMT Leadership Summit in Pebble Beach, California, along with Carl Quintanilla and David Faber, live from the New York Stock Exchange. It's the perfect day to be at a tech-focused conference, as Wall Street has dealt a gut check on the AI trade, and the Nasdaq comes off its worst day in more than a year and a half. We've got a great lineup here at Pebble Beach over the next two hours to help make sense of this moment for investors, including exclusive interviews with Citigroup CEO Jane Frazier, PayPal CEO Enrique Loras, his first since taking the helm, and OpenAI CFO Sarah Fryer.

1:39Also ahead, we'll talk with the head of the popular DRAM ETF, which got destroyed in yesterday's tech wreck, falling more than 17 percent. Worst day ever. We'll ask where the chip trade goes from here. And then, of course, it's jobs day. Goldman Sachs, Jan Hatsias, will join us with his first reaction to the stronger than expected jobs report. and what the data and the extreme volatility all means for the Fed's next move. All right, we're going to start, though, with that rebound in tech, at least somewhat broad-based. Right now, the Nasdaq is up, got it up more than 1.5%. DRAM ETF, there it is, actually 1.8%, as you see right there.

2:15DRAM ETF trading higher this morning. This after, oh, it's just a terrible day yesterday for that ETF. And, of course, that broad sell-off saw its worst daily performance since it began trading earlier this year. Joining us now is Roundhole Investment CEO Dave Mazza, also manages the DRAM ETF. Dave, good to see you're still standing. Actually, I'm not sure if you're standing or sitting, but a brutal day yesterday. You know, what is the narrative from you in terms of whether this potential slowdown is going to impact the underlying demand for so many of the stocks or the businesses of the companies whose stocks you own in the ETF?

2:51Yeah, there's really significant

3:01Yeah, Dave, I've got to stop you. I'm sorry. We've got to fix your audio. Hopefully, we will be able to do that, Carl, and quickly return to Dave's. We seem to be having more of these. We seem to be having a bit of an issue. Cyber hackers? I don't know who you want to play. Well, you know, refrigeration in Europe is a problem. Well, maybe it's audio and television. I know we haven't discussed that, but again, to this overarching fear that is out there in terms of the increased ability of hackers to use AI tools, turning all the refrigerators off in Europe. We can hear you. Sorry, we're talking about refrigeration in Europe being turned off and spoiling an enormous amount of food.

3:42But yes, Sarah, what do you got to talk about? The jobs number? Well, you want to talk about the jobs report? Let's talk jobs. How about that? It was a really good number on today's jobs data. And by the way, we just got some good consumer sentiment data as well that came in above expectation. But let's talk jobs, because the payroll number in October really surprised. 165 ,000 jobs were added during the month. The expectation was around 70. And September, good news, last month was actually revised up as well to 60 ,000 versus 29 ,000 prior. And actually, these numbers exceeded all of the economist estimates in a lot of these surveys that, you know, Bloomberg and Reuters does.

4:20Also, unemployment rate moves down to 4.1%, which is impressive given the labor force participation rate actually increased to 61.9%. So all of those were kind of unexpected. Wage growth was also pretty firm at 0.4%. But what I really wanted to dig into, guys, because the market is so focused and the economy, rightly so, is so focused on AI, of just how much AI is contributing at this point to the labor market. You can really break this down. You can look overall at, for instance, manufacturing jobs. Manufacturing jobs have turned into a good story lately. They've been rising since basically the beginning of this year.

5:00And here's what you could break it down even further. Computer electronic manufacturing jobs, as you can see, those were added. And you can also see if you go down in some of the other granular numbers there related to AI, professional scientific services, 32 ,900. Management scientific tech consulting, 17 ,000. What's great about the Bureau of Labor Statistics is they break all this down. And so you can see that these are areas likely related to AI development and their job creators. The overall disappointment, David and Carl, in the report was leisure and hospitality gave back 13 ,000 jobs. But I think that this gives a good picture of why the overall market gets so scared by the idea of peak capital spending, peak data center boom, political backlash against data centers.

5:51Because as we've been reporting on this show for the last several months and really years, AI is becoming a bigger piece of the overall economy. And I think today's jobs report is just the latest evidence. Yeah, I mean, there's no doubt about that. We've had any number of our guests obviously point out the significant accretion it's meant for overall economic growth, and you've reported on it a lot, Sarah. There's no way to really measure what a slowdown would mean, though, at this point as well in terms of whether it would significantly take away from that growth. That's true, but it certainly would take away from GDP growth.

6:26We know that, that the investment in data centers and in the jobs reports as well, you know, Indeed puts out these job listings and they do some some data and survey work. And they've showed that data center related job postings, they've risen 20 percent in the last three months and 147 percent since June 2024. So it is interesting that the public perception of building these data centers is so negative, whether it's the noise or the electricity costs or the water or just backlash in general against AI, when there's evidence that people are getting jobs as a result of the AI boom in these local communities.

7:08We see that in the survey data and we see that in the economic data. So it's a little bit be careful what you wish for. I saw that at the Wall Street Journal conference. Dina Powell, the president of Meta, said that one of the governors that ran against AI data centers did contact them and say, hey, how are we going to work with you? Because we don't want these jobs to go away. So that's going to be sort of a political conundrum as this all plays out. And whether some of these newly elected governors actually do crack down with moratoriums on data centers and what that might mean for jobs and economic growth.

7:41I mean, we're going to talk to Jan Hatsias of Goldman in a little bit. And their work, as you remember, does suggest that AI in general is a bit of a net drag on employment. So maybe a slowdown makes that a little bit easier. And certainly from GDP, if you export or if you import a little bit less, trade deficit shrinks, you subtract a little bit less from GDP on imports. I don't know. Maybe the effect is a little bit nuanced, more nuanced. Well, it may be. I mean, the bigger. It's not what the bond market is telling you this week. Yeah, we don't have an answer to the bigger question, which is when this, you know, when there's 12 billion agents running around in the world, what is that going to mean for anybody doing anything when they have intelligence that exceeds our own?

8:19I don't know. Hopefully we'll find something to do, Sarah. But that could be interesting to hear you reporting unemployment then. Yeah, no, you're right. And the truth is, we just don't know how it's going to play out yet. We're really in the early innings of this. And it's why I'm looking forward to some of these conversations with Sarah Fryer, for instance, who's CFO of OpenAI. and, you know, as they grow their book of enterprise business, eager to hear how companies are using these agents and ultimately what it's going to mean for jobs. And I think that's a big, it's still a big part of the conversation.

8:51And clearly, I think the public has fears around this, but there are also, there's also evidence, I think, on the plus side that doesn't get enough attention that it's a job creator, both in terms of data center construction. You see that in the manufacturing numbers today and the job postings that I showed. And in general, like if this can empower, you know, as IBM CEO and others have said, if it can empower those that code or engineers, then ultimately, you know, they'll still be in demand. They'll just be able to do more with less. And that's the hope. That's the positive side. But again, yes, to empower human labor as opposed to replace it.

9:29All right, Sarah, we're going to try and get back to a guest we We spoke to very briefly a moment ago. Roundhill Investment CEO Dave Mazza back with us. Apologies for the audio problems there. Dave, getting back to the broader market, we do have the NASDAQ, a bit of a rebound, up one and a half percent, but your ETF obviously suffering significant losses yesterday. What do you tell your investors as they watch the stocks that you own, obviously, and worries about the underlying business for the future? Yeah, we had a lot of conversations with investors yesterday. hitting your question really directly because there are two things happened yesterday.

10:05One was a bit of technical deleveraging. Of course, there was reports of hedge funds who were either shutting down pods, liquidating completely, coupled with the fact that we saw retail investors with their greatest number of selling since the COVID period. Then you have the fundamental questions that you've been talking about, about how politicized data centers have been. And if we're forecasting out the potential for the need for further chips going into data centers, if they're not going to be built or if those are going to be pushed out into the future, investors really begun to start repricing exactly this fantastic growth that all these companies, particularly Micron and others, have done and are forecasted to do.

10:44All right. And where are you on that? I mean, it's early days and we heard Sarah talking about it as well. It's very much unclear, I think, at this point, despite that blue wave and many of the referendums that passed against data centers in particular localities to understand what it all means. What's your sense? Yeah, I think it's interesting, right? The market had already been selling off sort of anticipating the blue wave. What it wasn't participating was a blue tsunami, particularly at the state and local level. And we know how unpopular data centers have been with ballot measures really coming out against that.

11:15But it's interesting if you actually peel back the onion and look at the policies that are intended to be put in place in Texas with their governor-elect, it's actually not that different than what Abbott had been talking about with the moratorium that's in place. And I think investors are going to need some time to absorb that, see where it shakes out. But the fundamental story behind here still has not been fully challenged. It does raise some questions. And this uncertainty is a reason where investors are selling first and then reassessing later. All right. Well, finally, Dave, memory pricing still rising, capacity still committed.

11:54I mean, what are you looking for for next year in 2028? Has it changed at all? Yeah, it's interesting. The market already started forecasting and really baking in 2027 being a great year looking out to 2028. But it's interesting. If we look at the peak that we saw in the runoff in DRAM and memory stocks earlier this year, the market actually was anticipating an unbelievable level of growth. Now it's anticipating, you know, cuts of 50, 60 % of the revenue that we're seeing, which is opening up a value opportunity as these stocks are trading at multiples that really haven't been seen over the last five years.

12:29Now, the question becomes exactly, do investors step into that today? Clearly, we're seeing that. I would advocate, though, that market bottoms are a process. It doesn't happen in one day. But net-net, this is going to be a show-me story. these companies and Micron's coming up not that too soon, NVIDIA as well, are going to need to show continued demand so that investors continue to believe in the story and not just have to be thinking about what is 2029, 2030 look like. Yeah, although we're going to keep doing that as well. Dave, appreciate the time. Thank you. Thank you. All right, here's our roadmap for the rest of the hour.

13:06When we come back, our first interview of the day from Pebble Beach with the hostess. Citigroup CEO Jane Frazier joins us on the tech sell-off, her first reaction to the midterms, the jobs report, and much more. And later, we'll speak exclusively with PayPal CEO Enrique Lórez, his first interview as CEO of PayPal, and OpenAI CFO Sarah Fryer as the AI sell-off raises big questions about when her company and rival Anthropik will go public. Spock on the Street will be right back after a quick break. 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.

13:48and 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. Hi, I'm Cindy Lauper, Cosentix's lead detective in the new mystery series, Unpredictable Symptom Squad. My team and I are on a curious case to gather clues about plaque psoriasis and psoriatic arthritis and learn how Cosentix treats both and can help stop further joint damage in psoriatic arthritis. Cosentix Secukinumab is prescribed for adults with moderate to severe plaque psoriasis and adults with active psoriatic arthritis.

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15:35The world's top business executives convening here in Pebble Beach for Citigroup's annual TMT Leadership Conference. And joining me now in an exclusive interview is the woman at the head, Citigroup's chair and CEO, Jane Frazier. Good to be here again. Thank you for having us. Oh, thank you. It's fantastic to have you here again as well. Probably one of my favorite conferences of the year. Me too. And you always seem to time it well. this week we have the midterms and of course quite a market setup yesterday absolutely brutal one of the worst days in years for the nasdaq for the s p what what do you think is happening in the market look i don't think any of us should be particularly surprised we are two three days after the election with a major shift in the results there and we all know that there's a confluence of factors here between the war and some of the ai concerns etc in a market that was priced to perfection If you take the step back, what are we seeing underneath all of this?

16:30It's really the it's this is action taken by the hedge funds to de-risk. So we're seeing them buying back the short positions. We're seeing them selling their long positions. What's been interesting is a less activity by the institutionals and also retail's not been playing a role. But, you know, we shouldn't be surprised. So does that signal that this is this is going to run deeper and longer, this correction? I don't think so. I think it's probably time for a market correction at some point. It's probably going to be a good thing to have one. But let's look at AI. This is a transformative technology and capability.

17:10The demand behind AI is real. And so what we're seeing is some of the adjustments as players de-risk. Do you think that the picture fundamentally changes in the United States as to how many data centers we can build and how fast given the election results? Well let's let's look at sort of three different factors going on here. So the first one is in terms of the genie is not getting put back in the bottle here. This is real demand behind compute and that's not going to be changing. That's not going away in the next few years. The question is really coming around pace. How quickly this is getting built out and you're seeing it with the different bottlenecks so all the valuations are going to where the bottlenecks are and the challenge of pace is when it's been doing done this quickly there's consumer concerns that are coming up very legitimate ones as concerns around the risks associated with AI as well so we've got where I think it's it's time for us to be making sure that there's a responsible approach here I think the good news on the data center front where there's been the consumer pushback is It's not falling on deaf ears.

18:24We're seeing we're seeing firms looking at where they're putting their data centers, being thoughtful about water, investing back into the communities, making sure it's not impacting local electricity pricing. So I don't think the industry is being deaf to it. Underneath it all, Jeannie's not going back in the bottle here. But Jeannie's not going back in the bottle. But there are questions about whether we were peak data center build out or capital spending. I have just I've been traveling around the world, Sarah, and this is a conversation that is happening everywhere about building data centers.

18:58There is just not enough capacity. I was just in Turkey. They're building their first data center there. They're excited about it in the Middle East last week. And there again plans for building the data centers, what this is going to be able to do for helping advance manufacturing, what it's doing for education. and finally heading off to China after this in a contrast. And there's excitement about AI there. And this is a race. It's important for American competitiveness, but it's also important that we do this thoughtfully. Do you worry about that in the wake of the election? The U.S.'s position in the race?

19:41No, I don't worry about it because I see there's a race for a tech stack, not just for the frontier models. And the American economy is extraordinary in the areas that it's innovative and more competitive. And it's different from where China is. China is much more of a manufacturing physical AI play. The U.S. economy is driven completely differently. We're driven by affluent consumers. We're driven by the breadth and depth of our capital markets and all these entrepreneurs in different industries. They're interestingly quite complementary between the two economies. So some of that race is head-on, other parts of the race not so much.

20:20Why do you think there's such a disconnect between public's perception around AI and you guys, corporate America, where virtually everybody is optimistic and excited about it and it's priority number one in terms of integrating in the business? It's interesting because as I say, in different parts of the world there are different sentiments. China, the consumers are excited about it, the workers are excited around what it's doing in terms of enhancing them. Look, in the States, there's been some valid concerns. Some of these data centers have not necessarily been built in the most thoughtful manner.

20:52And they've driven concerns on fear of job loss. There's been concern about the price of electricity at a time where affordability was the defining factor in the election. What's important is what's the response not to be deaf to this going forward. And we're seeing that. We're seeing that in a lot more of the local communities where this is being built. I think the industry is listening. What about your own exposure? A bank like Citigroup, how tied in are you to the AI trade, whether it's direct loans or private credit or capital markets? Look, I see it in terms of we earn money from the AI trade.

21:32We also save money from AI. And of course, we spend money in the defensive capabilities around it. And it's for both Citi, we've been extremely active in the AI space, as have many of the large banks. I'm very proud as we head into Pebble with the big financings that we've been doing as we engage with companies about their capital structure and how to make sure they've got a responsible financing capabilities behind this. The same as some of the M &A and the other transformation in industry after industry that's going on. We're also getting real benefits. Both our product development life cycle has really come down.

22:16The speed and improvement of customer service is generating material differences. And we're saving a lot of money in terms of productivity that we reinvest back in so that we can continue growing. Also, while we try and support our people. What about cyber risk? What's happened with that? Yeah. I mean, this is the area. when you innovate at this scale, you better be retaining trust. It's for me, it's the big mantra. And that means you've got to be risk managing at speed as well. And you've got to make sure you don't get ahead of your skis on one without having the other in place. We're seeing that on Argentic as well.

22:57We put a huge amount of effort, as have all the banks, into getting our cyber defences up and using these new frontier models. That ultimately benefits everybody because as we identify vulnerabilities in third party software and applications, we're making sure that those vendors know and that they're then developing the patches. And that gets released to the whole system. So I think it is good to see that investment happening. And it is a race. It's a race. And it's a lot of money. Yeah, I mean, clearly there's also this concern around banks that that the business model, the deposit relationship could be disruptive as agents find ways for people to save more money and just will help people put their money where they can earn the most.

23:50Is that a real concern? It's certainly one way. We all better be innovating and disrupting ourselves and making sure that we're applying these capabilities to our own business models. I think banks have shown an ability to do that innovation after innovation. The other element, though, this is this piece about retaining trust. It's not just about where are you going to put your money in terms of a pricing play. What is the cyber protection about it? What is the fraud protections against it? What are the other elements that you're providing that are important here, particularly for someone's daily operating deposits and operating account?

24:32So if you don't innovate, it's at your peril. But innovate and retain trust. And that is how we will make sure that we adapt to this technology. Speaking of your own performance, I mean, we've been following your transformation for the last several years. It continues to yield results. I think you had your best third quarter in a decade. So what's left in terms of what you're trying to do to unlock value? Yes. What I'm very pleased about is that we have been able to really grow the franchises and the business at the same time as we went through a period of very heavy lifting and transformation.

25:07And we've still got some more work to do there. But there's a lot of light in that tunnel. What I particularly see on the strategy is that it's operating across all the different businesses. So in our big scaled franchises like services, we invest about two billion dollars a year into the cutting edge capabilities so that not only can we retain our market leadership position, but we continue growing at scale. And we've had double digit growth for the last year in that business with a 30 plus percent return. So a thing of beauty. Similarly, in our markets businesses, we've been investing behind scaling up even further.

25:51The more stable revenue streams within that, think of our market leading foreign exchange franchise and our top three financing business, the more stable elements of the revenues. And then we've got other businesses like Wealth, where, again, scaling up with good, strong growth, steadily improving returns and a great value proposition. So I'm pleased with the progress we're making. But what's even better? There's a lot more upside ahead. What about, I mean, you have a good window into the consumer, to the U.S. consumer, card spending, credit. What do you see right now? Just got a good jobs report.

26:28Yeah, I mean, the economy broadly is performing well and it's strong. But in practice, it's not all even. There's some patches of unevenness there. The consumer is continuing to perform well, both in terms of the spending. It is always, as it is in America, more skewed to the more affluent consumer. We've seen strength really across the spending on travel, on leisure, on essentials. It's pretty broad based. The other bit we liked is the stable labor market. We want people to have jobs. We want that stability in and I think encouraging numbers today again. And that has actually reduced some of the K-shaped behavior we've seen in the consumer over the last few months.

27:15That is wonderful. I don't downplay the affordability issue. But we are seeing delinquencies lower. We're seeing improvement in the credit losses. So, you know, long may full employment continue, Sarah. Are you bracing to spend more time in Washington, potentially having Elizabeth Warren as the chair of the Senate Banking Committee? Is there any change you expect in terms of regulation for banks? Look, what I hope happens is a continued focus on where are the material financial risks in the system. rather than regulation that's more governance and other pieces focused because there's some tail risks out there and there's a lot of new innovation that's come.

27:57So good, responsible regulation that protects consumers but also allows innovation and growth, that's what we'll be after. We engage with everybody in D.C. and try and have the conversations where we have disagreements. we try and find areas where we can agree and push on those agendas affordability is going to be an important one housing another well i i thank you for for having us here today and i also just want to acknowledge it was a tragic week for you at citigroup um and a tough one and i'm sorry yeah we lost we lost a really um wonderful colleague uh leanne selman um and i i spoke to her family I was down in Tampa the last couple of days just to be there with our teams and our people.

28:49A wonderful person and much love within the Tampa community. But also our colleagues. You know, we had thousands of people that had to flee for their lives. And so it was very important to be there as a team, giving out hugs, listening to each other, hearing everybody's story. and I have to say it was the best of city in the worst of all possible circumstances. Yeah, well, no, tragic, senseless, violent. Yeah. So thank you for having us here today. Of course, sorry that happened. And we'll continue our conversations from the City TMT conference here throughout the hour and the next hour. But David, I'll send it back to you.

29:31Okay, Sarah, thank you. Time for a CMC News update now. Pippa Stevens has that for us. Pippa. Good morning, David. Former West Virginia Governor and Senator John D. Rockefeller IV has died. The scion of one of America's wealthiest families, the Democrats served five terms in the Senate and worked throughout his political career to expand health care for the poor. Rockefeller was 89 years old. A federal judge last night blocked construction of President Trump's planned 250-foot-tall arch in Washington. The judge siding with veterans and local government officials who want the project shut down.

30:06The block is in effect for two weeks while the court considers challenges. The ruling came shortly after a federal commission largely appointed by the president approved the plan. And Elon Musk says Tesla plans to wind down production of its Cybertruck around the middle of next year. In a post on X, Musk said the move will allow Tesla to focus making on its CyberCab. It wasn't immediately clear from Musk's post whether production will end completely. but in a reply to another ex-user who called this the end of an era, Musk agreed but said the Cybertruck fleet will be around for a long time. Guys?

30:42Thanks so much. About 30 minutes into the hour, three big movers we're watching today include Airbnb, jumping after better-than-expected Q3 results, revenue up 19. That's the biggest in three years. Company raises the guide, says AI now resolves about 40 % of customer support issues and has reduced support costs per booking by more than 17%. Cloudflare jumps after reporting its fastest revenue growth in nearly four years, adds a record number of large customers. Matthew Prince, the CEO, points to growing enterprise demand against security threats from AI. And then there's DraftKings getting crushed after lowering its 26 revenue and earnings outlook as it increases investment in prediction markets.

31:21David, this is a three-and-a-half-year low, I think, on DKNG. Just a crazy move so far through the course of this year. Yeah, we didn't get to that in the first hour. And watching that stock at$17, you know, as you well know, Carl, we often point to this as one of the few great successes of the SPAC era, if you recall. Was that a 21 issue? No, it would have been. Yeah, it might have been around then, right? And, of course, gets issued at$10. I'd have to go back. But not looking as good now yet again. Fascinating. Obviously, the prediction markets one would expect are having a real impact there.

31:59Still ahead, Goldman's first reaction to the jobs number. That is, as in Goldman Sachs and its chief economist, Jan Hatsius, who will be with us. Then next hour, a big interview with OpenAI CFO Sarah Fryer, the company pledging new policies for the data center build out. This is the market, of course, questioning how quickly that build out will take place after the midterm election. Stay with us. Introducing Fidelity Trader Plus, the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web, and mobile. For faster trades anywhere you go, try the all-new Fidelity Trader Plus.

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34:30Let's bring in Jan Hatzius, Goldman's chief economist, for his reaction to the number and to the midterms and to the markets and data centers, all the rest. Jan, it's great to have you in. It's great to be here. Nothing wrong with this number. I assume you agree, and I wonder if you think it's the beginning of something new. Definitely nothing wrong with it. And I would say, you know, very solid report, certainly as far as payrolls are concerned. Now, there's some up and down from one month to the next. But we think the underlying trend of job growth is probably back above 100 ,000. And that is, you know, more solid, certainly, than it was earlier in the year.

35:08Now, what we're not seeing is sort of sustained downward pressure on the unemployment rate. It edged down a little bit, but it's been in the sort of 4.1, 4.2 percent range. So to me, this still looks like a labor market that's stable at about full employment. And, you know, we think that over time it'll probably stay roughly in that range. And that's consistent still with relatively subdued wage growth and low inflation. How low can claims get, do you think? Are we sort of scraping the bottom of that historic range? Well, it is the lowest that we've seen in a series that goes back more than five decades.

35:49So layoffs are at extremely low levels. And that's consistent, I think, with what we see in other indicators. Hiring continues to be relatively subdued, too. So we haven't really seen this big pickup in hiring. So it tends to be still a more stagnant environment, but at a very solid level. The markets this week and this rethink of maybe a more elongated build-out cycle, does that prod you to tweak lower nominal GDP estimates for next year? I mean, I think right now we're growing at a very rapid pace. If you take the GDP numbers, and again, those fluctuate a bit, but we're talking, you know, a three-handle in Q3, a three-handle in Q4.

36:36I do think that that's going to be softer next year. But you've thought that before. We've thought that before. We haven't really made a change to our underlying growth estimate. We think it's probably in the sort of 2 % to 2.5 % range. And that should keep the unemployment rate roughly stable. Now, there are some downside risks to that growth outlook. The tightening in financial conditions that we've seen, about 50 basis points according to our index, that's, I think, one of the downside risks. There are questions around, obviously, what happens to energy prices, what happens to the war in Iran, what does that mean for real income growth.

37:16And then there are questions around the AI build-out and the impact that that's having both on GDP and on the labor market. But, yeah, my baseline is that it's pretty stable growth. You guys also still closely monitor sort of the increase in efficiency in enterprise as a result of the use of AI and or at least these expected productivity increases. Where are we and what are your expectations for 27? So we have seen some effects on the labor market, mainly in the tech sector. And that's been worth about, you know, minus 10 ,000, maybe minus 15 ,000 per month on employment growth. There are some indications that that's broadening out to the service sector.

38:01And we have now started to see, for example, a correlation between employment growth and unemployment rates on the one hand, and then AI adoption on the other hand across service sector industries. But it's still not particularly strong. And you wouldn't expect it to be if you just looked at the overall labor market outcomes. Over the next year or two, I think that relationship is probably going to strengthen, and that's going to be a little bit more of a headwind to employment growth. By 2028, I have quite a lot of conviction that it'll be more of a macro story. By 27, I think it's a little harder to say, and it's one of the open questions.

38:41On the profit margin side, things could change as well. Yes, although at the moment that's still clearly a tailwind. Yes, no, I mean it's a tailwind. Once you get into 2028, I think you would expect the volume of investment to flatten out, and eventually the volume of investment is going to come down. That's what you see in these historical investment booms. You build out the infrastructure, and then at some point you have achieved the capital stock that you need, and then it starts coming down. Probably still a ways away, but of course, there's plenty of uncertainty around the path of that. Well, I'm glad we'll have you around for 27 and 28, I hope.

39:26We'll talk many times. Good to see you. Lots to catch up on. Yes, yes. Not hot, yes. Goldman Sachs. Sarah? All right. A lot more coming from Pebble Beach. PayPal CEO Enrique Loras is next. His first interview since taking the top job. Stay with us. Welcome back. PayPal's turnaround plan well underway under new CEO Enrique Loras. The company has cut more than 2 ,000 jobs and three layers of management as it leans on AI to find more savings. The stock is up around 28 % since Lourdes first took over on March 1st. And joining me here in Pebble Beach for CNBC Exclusive is PayPal CEO Enrique Lourdes.

40:02His first time speaking since taking the job. It's good to have you. Good to see you. Thank you for having me here. Thank you, Sarah. So it's been eight months. What is your diagnosis? What happened to PayPal? This was one of the most exciting fintech companies. What happened? I think we have a… we need to really change how we approach our market. One of the key strengths that PayPal has had for a long time is that we are a two-sided network and we lost the focus on the consumer. We were much more focused on the merchant. And this in parallel with a fairly complicated structure that made decision-making slow really drove to the results that we were seeing.

40:41And this is why the first thing that we have done is to really simplify the company, understand very well what our consumers want, and really start the process to turn the company around. Are there more cost cuts coming? Well, overall, we think that AI is going to have a significant impact in how we work. And we have told the market that we see at least$1.5 billion of savings. By the end of the year, we'll have achieved$800 million. So we still have some work to do. Is AI replacing jobs? In some areas it will. We think that AI, when it is used to replace and to redesign a process, it can really have a big impact to increase productivity, increase speed, and allow us to move much faster and improve customer satisfaction.

41:26So adopting AI is not only a matter of cost, we really see many more benefits for the overall company. So where are you in the turnaround? How long is this going to take? We have said the market is going to take two or three years. We are finishing year one. We have explained that we see this as following three steps. Now it's really about strengthening the fundamentals, and this is what we have been doing, simplifying the company, clarifying decision making, aligning the company to three businesses. Then it's really going to be about accelerating the momentum in some areas. And then at the end it's really about taking advantage of some investments we are doing today in AI, in biometrics to really accelerate our growth going forward.

42:08It's been an eventful few months for you. There was a takeover offer. Stripe and Advent offered$60.50 a share. Why didn't the board agree to this? Well, first of all, we are really strong in our conviction that we have a great plan to build and to grow our business. And we committed last week to the that we see how to grow double-digit EPS driven by growth of transaction margin. So really we have a strong conviction that we can make it happen. The stock is still below that price. I mean, did you leave money on the table? When we look at what we can do versus what any offer that we have got, we think that we have much more value.

42:48And what we have done and we will continue to do is look at any opportunity very objectively. Is it still in play? I mean, would you still be open to discussions? As a public company, of course, we're always open to analyze objectively any offer. But our focus today is in executing our plan. The other question that people always ask is Venmo, obviously, has been a huge source of growth, double-digit volume, again, multiple quarters in a row. So would you be open to some sort of separation of Venmo to unlock that kind of value? As I said, any option, we are going to be looking at it very objectively.

43:24but we see a lot of opportunity to grow the value of Venmo. It's a business that continues to grow. We have an opportunity to make it more relevant in the financial lives of our customers. We can monetize our consumers much better. Year on year, ARPU grew 10%, but we still have much bigger opportunity to grow it. We think like pay with Venmo or increasing the connection with debit and credit cards, offering additional financial services that is really going to help us to significantly accelerate the growth. What does agentic commerce mean to you? Obviously, you're leaning into it, and I know you partnered with Meta.

44:03But if the relationship is between the agent and the merchant, then where's the role for PayPal? We see agentic commerce as a huge opportunity. What PayPal brings to that conversation is trust and security, which is the same thing we brought to e-commerce, it is going to be even more relevant in agent e-commerce because your personal agent will have to validate that that's a real merchant. And the agent of the merchant will have to validate that you are a real person that can pay. And that connection, that position is where really PayPal has an opportunity. If the agent makes a purchase on behalf of the consumer that the consumer doesn't want, who's liable for that?

44:42Is it PayPal then? If the consumer will be using PayPal, this is the position and the value that we can get, same as we did in the traditional e-commerce space. So you would own that sort of middleman relationship. What we are going to do is offer to the consumers ways to control what the agents will do. So then they will be able to dictate how much money the agent can spend, where the agent can buy. So that's the trust that we can bring to the model. What do you see overall in consumer spending? Right now, we were just talking about how the jobs number came in better than expected. But clearly, I mean, there are concerns about inflation and affordability out there, as we learned this week.

45:22We have continued to see very strong momentum in consumer spending in the U.S. We haven't seen a slowdown. In fact, in our last results, we showed how the U.S. continues to grow very strongly. Are they using buy now, pay later more? Is that a sign of folks being stretched? I think what we have done a lot of work to understand what our customers want and payment flexibility is one of the key needs that they have and this is what is driving the growth of buy now pay later which is just one of the elements we're gonna do to continue to grow the company we are transitioning the company from a payments company into financial services company and buy now pay later is the first step in this direction so the holiday spending season looks so far looks very strong and based on what we saw this morning in terms of the report we think it's going to continue across income groups across income groups of course we we see also the split between those that have the in the key economy but we have seen strong performance across the board all right Enrique thank you very much for joining us on on some of the the company specific issues of of course what you're seeing in the economy it's great to talk to you thank you Enrique Louras The CEO of PayPal, formerly HP, David, got in some M &A ones for you as well.

46:37Yes, thank you for that, Sarah, as well. Yeah, it's trading right near that 60, so you'd have to put a nice premium on that for them to get interested, one would expect. Sarah Eisen coming up later as well. They evaluate all options. Yes. After the break, the VIX spiking to its highest level since March. But if history is any indication, now may be a good time to buy. At least that's what it says here. We're going to look at some of those trends when we come back. Welcome back. The volatility index seeing a historic spike in yesterday's session. Could Signola buying opportunity? Let's get to Oliver Rennick at CBO in Chicago, who perhaps can answer that question.

47:14Oliver. Hey, David. VIX is retreating here a bit this morning, but big moves in either direction probably means volatility is likely to be fairly sticky here. Options volumes on VIX itself, three times higher than average this morning, mostly put selling and call buying. So, We're not out of the woods just yet, but I do have some possibly encouraging stats for you guys, courtesy of the Bespoke Investment Group. They looked at all the days since 1990 that looked like yesterday, which we define as a VIX pop of at least five points from a starting level under 20. As Bespoke's Paul Hickey put it to me, it's kind of like a flash thunderstorm on a calm day.

47:55It's happened 19 times the past 35 years. And looking at the typical returns 1, 3, 6, and 12 months later is interesting. At 6 and 12 months, the median returns of almost 5 % and 11 % look like just about any other 6 to 12 month starting point in history. Where the strongest signal might be is in 3 months with a median 4.2 % return, which compares to the average 2.3 % for all other 3 month periods. Now, a catch is that if you look at the one-month returns, it arguably signals caution. The median return is 2%, but because the signal catches a few big bear markets, the average one-month return is negative.

48:39So really what this does is bring home the question for traders right now. Do you think this is COVID or dot-com? If the answer is no, you should definitely be buying. And if the answer is yes, you probably still should be buying, but maybe you've got a month to try and dodge something bad. Coming off of the put volume yesterday, it was a record. Any sign that we're backing off on that materially today? It's a great question, Carl. The battle's right here at 740, and the further we lift above that, the better we start to feel because yesterday when the semis blew out, it was such a big move that for a lot of these key components, the open interest on the put side basically disappeared because everybody's strikes got blown through.

49:25So it looked like there was very little downside hedges that could be taken off and act as support today. So the fact that we're able to hold 740 in the S &P, which was the key area in SPI yesterday, tells me that this is at very least a starting point for, I think, the general positive outlook that Bespoke conveys in their data. Yeah, yeah. Oliver, thanks. And to that point, David, I mean, some of the desk notes do suggest you're not seeing a lot of follow through anecdotes about blow ups or stress. And that is net constructive on a day like today. It would seem to be. It would seem to be, yeah, with any number of those names at least up nicely.

50:02Although we'll keep a close eye on the NASDAQ as the day goes along. Coming up, OpenAI's Sarah Fryer in just a few moments. She'll lay out the company's possible new approach to data centers and give one of her first responses to the election with that entire AI trade now in question as Squawk on the Street continues. 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. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion.

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