10AM Hour: Stocks Stage Midday Reversal, Starboard’s Jeff Smith, Predicting Netflix’s Post-Earnings Move 10/20/26

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0:29Jeff Smith: This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Good Tuesday morning. Welcome to Squawk on the Street. I'm Carl Catania with Leslie Picker in for Sarah Eisen here at Post 9 of the New York Stock Exchange.

1:05Jeff Smith: David is joining us today from 13D Monitor's Active Passive Investor Summit here in New York City, where he's got a couple of great interviews coming up, including Starboard Value CEO Jeff Smith and, just a minute, Impactive Capital's Lauren Taylor-Wolf, who said last year that we were, quote, absolutely in an AI bubble. Also ahead, we'll talk about GM's pullback this morning on earnings. Look ahead to results tonight from SpaceX and Tesla when we're joined by former GM board member and former Tesla president John McNeil. Speaking of earnings, we'll look at the setup for Netflix tonight after the close.

1:38Jeff Smith: That stock's down more than 40 percent in a year. Former Disney and TikTok executive Kevin Mayer will give us his take on those key departures and signs of waning engagement.

1:48Squawk on the Street Hosts: But first, pending home sales just crossing the tape. Let's get to Diana Olick with the numbers. Diana.

1:55Jeff Smith: Well, Leslie, pending home sales in September dropped 7.3 percent from August. That is a huge miss. The street was looking for a less than one percent decline. Sales down 11.3 percent year over year, according to the realtors. This count is based on signed contracts. So as people out shopping, when the average rate on the 30 year fixed really took off, it started down around 6.8 percent and then hit 7.6 percent by the end of the month. That according to Mortgage News Daily. Now, Now, regionally, sales dropped across the nation, but the biggest drops month to month were in the south and west. The south is usually the most active market, and the west, of course, is the most expensive.

2:33Jeff Smith: Now, the realtor's chief economist, Lawrence Yeun, blamed mortgage rates and suggested they could be topping out. But he also said increasing energy prices and the resulting inflationary pressure are highly uncertain. Now, this, of course, comes after a disappointing read on September. Housing starts and building permits that we got a couple hours ago both missed big time with single-family starts down over 4.6 percent month-to-month and permits down 4 percent. September was not a great month for housing, guys. Very rough prints all across housing this morning, Diana. Thank you, Diana Olek. Meantime, let's get to some of the broader market action this morning.

3:09Jeff Smith: Solid gains for the Dow on the back of some defensive names, early pressure in tech and some of the AI-related stocks. Our senior markets commentator, Mike Santoli, is with us trying to break down. I think a new column's out on the tape as well. Sure. I mean, the market's been showing that it's feeling these late cycle tremors, right, where it's basically looking for quality earnings reliability, not earnings growth velocity as much. It doesn't want the companies that are consuming a ton of capital because guess what? The markets are now rationing capital to the more marginal razor of it. So that's the hardware, the AI hardware trade, I think, is still dictating the direction of the rotational dynamics we're having here.

3:47Jeff Smith: The S &P 500 continues to kind of get off easy in some respects. We haven't had more than a 3 percent pullback over the last six months, but that's only because you've had some groups step up. And today it is defensive quality, such as health care. In fact, if we take a look at semis, the SOX index versus health care over the last six months, you've now got health care overtaking semiconductors. So, you know, we can kind of keep it going this way for a little while. There is a bull case out there coming into this week, which said positioning has definitely been reset. You've de-risked a lot of the kind of growthy AI trade, taking some leverage out of the hedge fund community.

4:25Jeff Smith: Just as you're getting into what should be a good earnings season and the seasonally strong part of the year when you almost always have like a post midterm election rally. All plausible. All makes sense. But we had a similar setup in 2018. And in 2018, you actually had a massive fourth quarter sell-off in stocks, even though earnings were going up because the Fed was perceived to be too tight for the conditions at play.

4:50Squawk on the Street Hosts: Yeah, I guess it really feels like an inflection point, whereby investors are trying to make some sense as to whether the recent sell-off was just an unwind, a positioning that needed to be flushed out, or if there are some kind of secular fundamental concerns that could persist, which really matters whether or not this is a buying opportunity.

5:06Jeff Smith: Without a doubt. And, you know, last Thursday and Friday, we were saying it at the time, it really did have a lot of the characteristics of some kind of forced liquidation type unwind. And then, you know, you had yesterday a really kind of unpersuasive half-hearted rally in some of the most oversold areas, data center trade, all the rest of it. Corweave couldn't hold the bid, even though it got an upgrade. Obviously, its credit did not really calm down very much. And then obviously this really bad debut of Ellis over in South Korea is dictating the action right now. So I do think that it's not just, oh, what are they going to have to pay to finance the build out?

5:41Jeff Smith: It is where ultimately are the economics of the AI economy going to settle? And these are kind of last at the trough type companies, arguably, that it's going to be the model builders and the hyperscales and everybody else who has a better position. And because the value of these things was if there is a lot of value, it's all years in the future, stuff unbuilt, order books that don't even have a chance of being financed yet. You know, where does that leave you today?

6:08Squawk on the Street Hosts: Yeah, which is what we've seen out of the IPO prospectuses, some of them, and a lot of them have been delayed. You mentioned the Ellis Data Center infrastructure company out of Korea. I mean, this is a small valuation. This was under a billion dollar valuation at the IPO price and fell from there. And yet it had this kind of ricochet effect across the world. What does that tell you about where sentiment is right now with regard to the AI trade and just the overall skittishness?

6:33Jeff Smith: I just think it's just a very sort of twitchy moment for anything that has, again, that has debt attached to it or that is not self-financing. You could definitely make the case this is just kind of one of these gut checks that we've gotten along the way. If you think of how the AI trade has played out, first it was NVIDIA was the only thing you need to own. Then NVIDIA went to sleep for like eight or nine months at a time. Then it becomes MAG7 type trade. Then it becomes memory bottleneck. All those stocks are way off their highs. So it has kind of surfed from place to place within the industry.

7:07Jeff Smith: And we might just be moving on from this area to the rest of it. On the other hand, if NVIDIA is going to be there as a backstop and these things are kind of too important to either fail or to just keep from building out, who knows what that means and what the equity value could be. Mike, thank you. Meantime, let's get to David over at 13D Active Passer. Hey, David. Hey, Carl, thank you. Yeah, we are here, as you said, at the Active Passive Investor Summit. Jeff Smith joins us, CEO and CIO of Starbird Value, disclosing a new position this morning. It's in Solstice Advanced Materials, arguing the market, as you might expect, is undervaluing the company overall, particularly its refrigerants and nuclear fuel businesses.

7:52Jeff Smith: Also pressing Knife River to improve its margins or consider a sale. Our annual sit down. Hi, David. Hi, Jeff. It's good to see you. And a new idea is always nice. You know, I covered this a bit, of course, when the deal with Element blew up. Shareholders didn't like it. But to management's credit, they said, OK, we'll back away. What's your issue here, given they did seem responsive to shareholders at that point, certainly in saying we don't like this deal, in part because they felt like it perhaps undervalued the nuclear part of the business. I'm just curious, like, why now and why do you see the value?

8:26Squawk on the Street Hosts: Yeah. Look, Solstice is a terrific company. ESI, Element Solutions, is also a terrific company, so we don't have anything against ESI. Solstice, as you mentioned, one of the leaders in uranium conversion for the nuclear fuel landscape, I guess, and also in the refrigerants business. And the common theme around the mini conglomerate of Solstice is that they are experts in fluorine and all their businesses are related to that. We think the businesses are great. The nuclear business has natural, all of them actually have natural demand drivers. They have impending growth where they are in converting uranium into the first step of the fuel process is very, very unique.

9:16Squawk on the Street Hosts: They're the only player in the U.S. They're one of three in the Western world. Demand for nuclear, I think everybody kind of believes now, is only going to increase. So they're set up incredibly well. And as you mentioned, shareholders were really excited about that, the refrigerants business, the whole thing, really. And then they threw them for a loop with this. And the stock, to your point, we're just looking, has not really recovered. So, yeah. So that's what happened is they then, I don't know, if you own those businesses all tied together in Florida, and everybody's excited about nuclear.

9:49Squawk on the Street Hosts: Maybe you come out, maybe you decide to do a deal, but you would think that it would bolster nuclear or refrigerants or be related to fluorine. You would think that it was going to be at an attractive multiple. Instead, they came out with the CSI deal and it was related to their semiconductor, a much smaller part of their business.

10:07Jeff Smith: It would have diluted the part of the business that investors seem to be paying more for.

10:11Squawk on the Street Hosts: Right. So they diluted the nuclear then and they paid a higher multiple than where they trade and the market hated it.

10:16Jeff Smith: I mean, I guess to start off on timing, though, I think they report on November 4th. Why not just wait until you see what the numbers look like?

10:23Squawk on the Street Hosts: Well, I think it's more about we're building a position. We have a position, a fairly large position. And we have a conference here, and we're supposed to talk about our best ideas. And you wanted to have something to talk about today. So, you know what? I did this for you. Oh, OK, good.

10:39Jeff Smith: All right. I don't know where to go with that. That's a first. I could talk to you about so many things. Have you speaking of talking, though, have you talked to management at all here or not yet?

10:46Squawk on the Street Hosts: We have spoken to management. Look, we think there's an opportunity for them to reduce costs. We think they have$100 million of costs they can take out of the business. We want them to focus on their core of their business, which is what we normally do when we get involved in a company. We want them to commit to shareholders that they understand that their job is to maximize value for shareholders and do the right thing for shareholders. And I think there's some concern. I think shareholders would like someone to get involved and make sure that the company is focused on that aspect, which is what's the best thing to do for this company to create value, not just how do we get bigger.

11:20Squawk on the Street Hosts: Do you know the answer to that question? There's a lot of choices. I'll tell you what's not the answer to that question, buying something that's a small part of your business for a much higher multiple. Right. But there are other choices.

11:32Jeff Smith: There are. But, I mean, to their credit, and I said this, they walked away from the deal, in part because shareholders said we don't like it. Yeah. So they do seem responsive to a certain extent, don't they?

11:41Squawk on the Street Hosts: Sure. And I'm not necessarily out there criticizing them. We would love to help them. So I think the stock hasn't recovered since they, so the stock went down 25 plus percent when they announced the deal. They, to your point, canceled that deal, but the stock really hasn't recovered. So that gives us and anybody else watching now also an opportunity to buy into this stock at what we think is a low valuation for businesses that should have inherent tailwinds, an opportunity to improve margins, and possibly ways to isolate or highlight the incredible value of their refrigerants business and their nuclear business in order to create more value.

12:19Jeff Smith: I think you value nuclear alone from your slides at, what,$3.9 billion? That's more than a third of the enterprise value. It seems like a pretty high multiple you're putting on what I guess you're looking at, 29 EBITDA.

12:29Squawk on the Street Hosts: Yeah, we're looking at 29 EBITDA, and we're looking at their growth rate compared to their peers and what their multiple should be. On our website, we have the slides that support that in a bunch of different ways. There's natural growth in that business, both from price and from increasing capacity. So, I mean, right now, if you look at it based on the UF6 spot market prices, they are priced because they have long-term contracts at half the market price. So just from increasing their price alone as those contracts roll off and they sign up new contracts, you're going to have tremendous growth in this business.

13:03And then we have to fill up capacity.

13:06Squawk on the Street Hosts: There's more demand than capacity. And the U.S. has said that we shouldn't be taking in uranium from Russia starting in 28. That's somewhere around 15 to 20 percent of the capacity right now that's being brought in. It's coming in from Russia. So that's got to be picked up by someone. Again, they're the only ones in the U.S. and one of three in the Western world. And they're the ones that have the biggest opportunity to expand capacity of those three. So there's a lot of tailwinds here. It needs to be highlighted. It needs to be emphasized. And they need to focus on creating the value for shareholders.

13:40Jeff Smith: All right. Finally, before we move on here, I mean, you do have, you know, Element, Martin Franklin, of course. He was one of your nominees, I think, on Newell. You do have a relationship with some of the people involved with that company, right? We do. Yeah. Is that figured into your thinking here at all?

13:54Squawk on the Street Hosts: We know Martin well. We have a lot of respect for Martin. It doesn't really have anything to do with our investment thesis here. He makes his own decisions. We're not involved with him. He's super smart. Yeah. All right.

14:06Jeff Smith: You know, you and I have sat down this conference for years, obviously, as you indicated so nicely. You came up with an idea to share today with me. I'm just curious as to how you think about activism these days. I mean, we talk so much about AI takes up all the oxygen in the room, so to speak. Do you feel as though it is still a viable strategy at this point and one that still captures the imagination of other investors, the way you need it to impart when you are bringing certainly an action in a particular company?

14:33Squawk on the Street Hosts: Yeah, look, we've invested now for 23 years as an activist in all sorts of market cycles. The beauty of activism is what we're doing is looking across every industry, and we're looking for the companies that are underperforming their peers and getting involved in those companies to get them, assuming their assets are as good or better than their peers, to perform better and reach their goals. So it kind of doesn't matter which environment you're in. There's always going to be companies that are underperforming their peers, and you have an opportunity to get them to perform better. So I think in all environments that exists and is welcomed by that shareholder base that's also frustrated being invested in companies that are underperforming.

15:18Squawk on the Street Hosts: It's also welcomed often by management teams and boards and certainly the employees of those companies when they start to win again.

15:23Jeff Smith: It is, but it's nice to have the wind at your back, I would assume, sometimes. Just broader market in general and sort of sentiment, isn't it? I think we do.

15:33Squawk on the Street Hosts: You do? Yeah. I think 2024 and 2025 were hard for value stocks. There was massive multiple compression. Yes. But where we are today, we're able to buy into most of the companies in which we invest at single-digit or low-double-digit multiples. Most of them are trading near three-year lows or five-year lows or maybe even all-time lows. So being able to buy in at that value and be your own catalyst to get them to improve their margins, I think the next however many years is going to be amazing. You do? Yeah, amazing.

16:06Jeff Smith: In part because they've been abandoned to a certain extent as a result of what, the growth and obviously AI has captured everybody's imagination?

16:13Squawk on the Street Hosts: Well, I think rightfully had margins, had multiples reduced, but not because they were abandoned and everybody was running the other way. I think that's in part the case. I think it's more that you can't predict the future. So some of these companies just had to hire multiples than they should in an AI world. In an AI world, look, multiples are predicting how many years of cash flow you are sure you're going to get. Yes. And in an AI world, there's more disruption than ever. So can you see out 20 years for a company? Some companies maybe, but far fewer than you could five years ago. So multiples in general have to come down.

16:47Squawk on the Street Hosts: Can I see out five years for some companies? Yeah, pretty well. And then when you think about AI and the transformation for us, when we get involved in companies five, ten years ago, if I went to a company and I said, you need to be more efficient, some might say okay. Many would say, no, actually, Jeff, we run the company really well. Today, if I walk into a company and say, you need to be more efficient, they all say we understand. I may not be saying you need to reduce employees, but I can easily say as you grow your business, you don't need to be adding as many employees as you used to. There are tools out there that should make you more efficient.

17:25Jeff Smith: Yeah, I mean, but many companies are fully aware of that, aren't they? I mean, what we discuss all day long is the diffusion of AI in the enterprise to try and gain these efficiencies that are so vital, frankly, to the entire ecosystem and proving that there's going to be return on capital. It's not like this is a secret to companies.

17:40Squawk on the Street Hosts: No, not at all. That's what I'm saying. It's not a secret at all. Right. But we're now buying into these companies at historically low multiples with more confidence that over the next two, three, four, five, six years, that margins are actually going to go up faster than they might have otherwise gone up because they know about these efficiencies. And we're going to hold them accountable to get those efficiencies.

18:00Jeff Smith: All right. We can end on one name then. You can pick that. That is a perfect example of what you're discussing there and you feel like has the most upside.

18:07Squawk on the Street Hosts: Well, one of the other ones, well, we talked about two others. I'm giving you two, though. We talked about Skyworks. We talked about Knife River. But I'll talk about Knife River here. Knife River is in the aggregate space, which has a tremendous amount of pricing power. And the story there is that two and a half years ago, they said that they were going to close the gap with their peers. They had a 1 ,000 basis point gap in margin with their peers. And they said they were going to close the gap to 700 basis points, which equated to 15%. However, over that time period, their peers went up another 700 basis points.

18:36Squawk on the Street Hosts: and they still only went up the 300 basis points and didn't close the gap. They used to be 1 ,000 basis points behind their peers. They're now 1 ,400 basis points behind their peers. So from our standpoint, the opportunity to improve margins, easily there for Knife River with pricing power as well as cost containment.

18:54Jeff Smith: Okay. Jeff, it's always a pleasure to sit down for our annual conversation. Thank you, David. Thank you. Jeff Smith from Starboard, send it back to you. Oh, actually, you're going to keep me here because I've got to tell you about next hour. We've got Impact of Capital's Lauren Taylor Wolfe. She will as well join me right here. She warned last year about a potential AI bubble. Let's find out where she stands on that and a lot more. Carl? Look forward to it. See you soon, David Faber. Let's get a look at our roadmap for the rest of the hour. Coming up next, GM hits the brakes. Stocks down despite some pretty solid results.

19:25Jeff Smith: We'll talk to a former board member about what's behind those declines.

19:29Squawk on the Street Hosts: Plus, Brent Crude hitting a five-month high just two weeks before the midterms. We'll look at what's driving the latest push higher for oil.

19:36Jeff Smith: And we'll get the setup for Netflix tonight. Results after a dismal year of returns. Former Disney and TikTok exec Kevin Meyer will be with us to discuss with the Dow hanging on to session highs up 420.

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21:02Jeff Smith: This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Welcome back.

21:34Squawk on the Street Hosts: We're about 30 minutes into the hour here at Three Big Movers. We're watching first up Salesforce falling after announcing it will acquire customer engagement platform Braze for more than five and a half billion dollars. The deal values Braze at forty seven fifty a share and is expected to close in Salesforce's twenty twenty eight fiscal year. Shares of Bray is up more than 50 percent right now. Meantime, auto and industrial parts supplier Genuine Parts is at the bottom of the S &P 500 after an earnings beat, but cutting the high end of its guidance. North America automotive revenue was also slightly below expectations.

22:09Squawk on the Street Hosts: Those shares down more than three and a half percent. And General Motors, one of this morning's biggest laggards, despite reporting a Q3 earnings beat and raising estimates for free cash flow, also announcing a multi-year buyback of$20 billion. GM did narrow the range of its earnings guidance to$14.5 to$15.5 billion from the previous range of$14 to$16. Shares have bounced back a little, down about 5.5 percent, though.

22:36Jeff Smith: Yeah, still one of the lower parts of the range it's been in for a couple of months. For more on GM, let's bring in John McNeil, DVX Ventures co-founder. John was a GM board member before leaving that position back in June. also Tesla's former president and author of The Algorithm, the Hypergrowth Formula that Transformed Tesla, Lululemon, General Motors, and SpaceX. John, always great to have you. Thanks for the help today. Thanks, Carl. Good to see you. Sounds like you think, in general, GM, with all the curveballs, energy prices, tariffs, trade, executing about as well as you could expect, given that volatility?

23:12Squawk on the Street Hosts: I think investors might be surprised by three things when they dig into this earnings report a bit. The first, Carl, is growth. They are growing a$200 billion revenue company at double digits. And that is a bit eye-popping considering they're multiple. I think the second surprise is on the tech side. They're now doing a million miles a day on Super Cruise, which is their version of full self-driving. And they quietly now have a$10 billion software business. And then, as you mentioned, the free cash flow that they they narrowed their projection, but still it's triple last year at eleven and a half to twelve and a half billion dollars.

23:51Squawk on the Street Hosts: That's fueling this enormous buyback announcement. But I think on the multiple side, despite multiple years of overperformance, GM's multiple is below its peers. And that's an obvious opportunity to use their cash flow to, I guess, buy back stock. In total, they're buying back over two-thirds of the company when you combine the past few years with the just-announced buyback. So the team's got this—they've overcome multiple curveballs, as you said, with tariffs and energy price shocks. They tripled their earnings over last year. Even though they narrowed their guidance, it was within the prior range.

24:26Squawk on the Street Hosts: So if they keep beating and do what they say they're going to do, then at some point, you've got to believe in the terminal value and re-rating the multiple on this stock. Yeah.

24:34Jeff Smith: Where would you argue is the biggest risk for them at the moment? Is it something regarding competition in autonomous or maybe it's just the craziness regarding Canadian American auto production right now?

24:47Squawk on the Street Hosts: I think it's all of the above. Plus, I would say it's hybrids. The market has moved really rapidly to hybrids. It's now one out of every five cars sold. GM is announcing some models in their Cadillac lineup, but hybrids is an issue they've got to address and got to address quickly. Yeah, on the conference call, Mary Vara, the CEO, said that they see clear external headwinds in some cases. They are intensifying. What do you think she means by that? I think it's both the energy price shocks, Leslie, and the tariffs. The cross-border trade in autos, which was really encouraged in the first Trump administration, ironically, for the North Americans to set up a trade block really to compete against China.

25:35Squawk on the Street Hosts: And that led the automakers to invest heavily in Canada and Mexico. And with this current tariff regime, the automakers are really taking it on a chin. And that's part of the headwinds, I think, that they're dealing with, for sure. Why do you think Ford isn't facing the same fate? I mean, even just looking at shares of Ford off of GM's earnings today, they're a little bit higher, but definitely not being dragged down with GM. Do they face different external headwinds and face less of those kind of competitive pressures that you outlined? I think they face a different set of expectations, to be honest.

26:09Squawk on the Street Hosts: Ford has underperformed GM over the past few years. That's likely to continue. They've got aluminum challenges, for sure, because most of their cars are built out of aluminum. But they're mainly a truck story where GM's portfolio is much more broad. And so I think you see that overall in the difference in the market cap, in what's happened to the market caps of those two companies over the last few years. They've really diverged.

26:33Jeff Smith: Yeah. I mean, that's a five-year that we're showing GM versus Ford. But give us a 10, because over 10, Ford's basically flat. I think GM's up almost 150%.

26:44Squawk on the Street Hosts: That's right. So when you start to look at that performance, that's where I kind of look at the multiple and say that GM multiple has either got to change or they're going to continue to buy stock back and buy back more than two-thirds of the company.

26:58Jeff Smith: What do you think the issues are for Tesla right now? They've got some headlines on the tape this morning about Waymo using some of its recently raised debt to, I think, quintuple their fleet. I mean, there's a lot going on in autonomy.

27:11Squawk on the Street Hosts: Yeah, definitely. I think the difference between GM and Tesla stocks is the free cash flow. Tesla's investing heavily now. After more than a decade of positive cash flow this year, Tesla's gone negative. They're investing heavily in self-driving and robotics and chips and AI. And the deliveries are impressive. And that's what's driving their full self-driving. It's being driven by full self-driving. That feature has gone viral. And it's really propelling their sales. But automotive margin is the cash machine at Tesla. And the question is, can they turn that delivery beat into automotive margin, which is just over 16 percent?

27:47Squawk on the Street Hosts: So I would say tomorrow in the earnings announcement, investors should really watch that number because it's really the temperature check on the cash machine that drives everything else. Secondarily, they should probably watch China because Tesla's major market is China. If China sneezes, Tesla gets the flu. And it's a critical market where pricing can make or break Tesla's gross margins. But I think the broader story... Yeah, go ahead.

28:12Jeff Smith: I was going to say, we're showing a video of the Roadster demo, which, of course, everybody has seen by now. I mean, aside from the engineering, some call it a gimmick. I wondered, does it sort of elucidate possible synergies with SpaceX?

28:29Squawk on the Street Hosts: Yeah, I think when you look at the combined CapEx alone between SpaceX and Tesla, it's staggering. And, you know, frankly, both companies could use the strength of each other's balance sheets to come together to fund that CapEx. You know, the Tesla-SpaceX story has several key pieces, the compute and Starlink at SpaceX, and robotics self-driving cars and the TeraFab chips at Tesla. And I do think, as a lot of investors think, it makes sense for these two things to come together. They should leverage a combined balance sheet. For Elon, that means he finally gets control of Tesla. And I think when you stack up all the reasons why these two companies should come together, the list of why they should is a lot longer than why they shouldn't.

29:16Jeff Smith: Yeah. No, definitely a potential force in nature if and when that happens. And, of course, we keep tracking the calciots of when that might happen. And, John, really interesting week for autos. Always great to have you. Thanks so much. Good to see you. John McNeil.

29:32Squawk on the Street Hosts: Still to come this hour, how traders are thinking about Netflix after layoffs and high-profile executive exits. We'll take a look at what the options market is signaling about the beaten down stock. Plus, WTI crude set for its ninth straight day of gains, up almost 20 % in a month. We'll look at the renewed fears of escalation in the Middle East. And check out 3M this morning at the top of the Dow after lifting its full-year profit forecast, citing cost-control initiatives and higher prices supporting margins. Stay with us. This message comes from Wise Business, the only account your business needs to scale globally.

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31:01Jeff Smith: This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Nice upside reversal here as oils flip negative, core weaves gone positive. Let's get a news update with Dom Choup.

31:38Jeff Smith: Hey, Dom.

31:38Squawk on the Street Hosts: Hi, good morning, Carl. Ukrainian President Vladimir Zelensky will meet today with U.S. Envoy Steve Witkoff after President Trump suggested it was time for someone else to negotiate on behalf of Ukraine. Meanwhile, Kiev says Washington has recently failed to provide early warning of Russian missile launches and throttled SpaceX's Starship satellite links that guide the country's drones operations. The meeting with Whitcoff will take place in Norway. President Trump's son-in-law, Jared Kushner, is expected to attend, but virtually. The UK says it will deploy fighter jets to defend Saudi Arabia against recent Houthi attacks.

32:14Squawk on the Street Hosts: The British defense secretary says the planes will conduct defense counter-air operations over Saudi Arabia, meaning planes would attack drones or missiles in the air, but will not strike Houthi targets on the ground. And SpaceX's Bandwagon 5 mission lifted off from Cape Navaral this morning, carrying more than 30 payloads into orbit. It also marks the second flight of the SpaceX Starfall return capsule, which is designed to reenter Earth's atmosphere and bring cargo back from orbit operations. David, I'll send things back over to you at the Active Passive Summit.

32:50Jeff Smith: Thank you very much, Dom. After the break right here, the Nasdaq turning positive after a shaky start as the Dow and the S &P also. You can see right there a session highs. Veteran Wall Street strategist Sam Stovall tells us why he thinks the rally can continue despite growing headwinds. Plus, in the next hour, don't miss it. Impact of Capital's Lauren Taylor-Wilf will join us right here from the Active Passive Summit. Last year, she warned that the AI trade was a bubble waiting to burst. We'll find out where she stands on that and a lot more.

33:20Squawk on the Street Hosts: Welcome back. The Nasdaq joining the Dow and the S &P 500 in the green this morning as investors shake off some early AI fears. Our next guest says tech is still poised to outperform in Q4 along with health care and energy. Joining us now, CFRA Research Chief Investment Strategist Sam Stovall. Sam, I first have to ask you, what do you think is responsible for this bounce we're seeing right now?

33:42Jeff Smith: Well, good morning, Leslie. I think we're seeing the bounce because investors realize that we're now in the very positive seasonal period for the market. The fourth quarter of midterm election years is the second best of the 16 quarter presidential cycle. And Q1 is the best. So we have a lot to look forward to. Also, I think investors realize that when it comes to hyperscalers and robust demand, we're going to be seeing 50 percent increase in spending in 2027. So the concern that we were seeing recently with CoreWeave is probably related more toward the smaller companies, certainly not the larger ones that have the better funding capabilities.

34:30Squawk on the Street Hosts: You think they kind of this morning woke up and realized that? I'm asking because every day we are hearing kind of a back and forth, whether it's positioning, whether it's fundamentals. There are fears, you know, from a Korean IPO that fizzled on its debut that's related to the data center infrastructure play. I mean, there's a lot of cross currents out there in light of some of the bigger trends that we've been hearing about. Which which narrative do you think takes priority?

34:58Jeff Smith: Well, I think that they didn't just wake up to it this morning, but what they have been seeing is that at the end of September, only 12 % of the 153 sub-industries in the S &P 1500 were trading above their 10 - and 40-week moving averages to a very low participation rate. Now we're up to 35 % and climbing. So I think investors are feeling better that we're in more of a rotate than retreat mode at this point. and that we could actually see investors move back into the market after last week's short-term panic because of higher rates. Also, I think it's going to be an earnings-driven situation. Even though we've got a 50 % rise in Q2, even though the initial estimate was for a 21 % increase in the market, now we're looking at upward revisions in Q3, Q4, 2026, and 2027.

35:57Jeff Smith: and also seeing that 8 of 11 sector. So earnings still remain the primary driver. Sam, we've kind of gotten this synchronized acceleration in some input prices. I mean, our headline PPI is running 6 plus. We're looking at longer dated Brent delivery now moving higher. I just wonder, do you think the Fed has more resolve than the market thinks? I think the Fed will be raising rates, but they'll wait until December. History shows us that even though it has frequently made monetary changes in just a couple of months before the midterm elections, they've never done so twice. So we got our first hike just at the last FOMC meeting.

36:43Jeff Smith: chances, therefore, and you can see that on the Fed wants tool, expectations are very low for another hike in October, but then again, very high for the likelihood year ending in December. So the Fed wants to know that it is independent and that it is on an upward bias. The other one I wanted to throw at you, Sam, was just in terms of sectors, healthcare, not just IGV at an all-time high, but a higher forward PE than tech? Well, typically when you see a group that is coming out of a slump, that it does end up having a relatively high PE. Interesting, however, is that healthcare has traditionally outperformed the market in midterm election years.

37:32Jeff Smith: And now with earnings expectations to be relatively strong, as we look to 26 and 27 for the group. I think investors are realizing in a rotational approach that it's time to move into health care. And also, typically, the third quarter outperformers in mid-term election years continue to do so in Q4. All right.

37:56Squawk on the Street Hosts: Sam, thank you. Sam Stovall. My pleasure.

37:59Jeff Smith: Coming up after the break, oil has pulled back now after tensions in the Middle East pushed WTI, at least, to its highest level since April. We'll get to that volatile energy trade in just a bit. Plus, don't miss former Disney executive, former TikTok CEO Kevin Mayer, why he thinks Netflix's newly named content chief is the right person to claw back some engagement. We're back after this.

38:22Squawk on the Street Hosts: The strength of the AI and tech trade is being called into question, but are there ways to keep the exposure without having all the volatility? One chief investment officer is looking at what he says are safer ways to play the AI boom. Tune into our Market Navigator segment later on today on Power Lunch for those picks, 2 p.m. Eastern time.

38:41Jeff Smith: Welcome back to Squawk on the Street. WTI crude, you can see it there, now turning lower. This is after it hit what was its highest level since April. Pippa Stevens has more on what is going on. Of course, I guess some new ideas about potential talks involving Iran helping their PIPA?

38:57Squawk on the Street Hosts: That's right, David. So we're seeing a steep reversal here for oil on some unconfirmed reports about a possible resolution in the U.S.-Iran war with Brent now at 106 after earlier topping 112, hitting a five-month high. Still, the market has been very focused on Iran stepping up attacks in the Strait of Hormuz, the Houthis continuing to hit Saudi Arabian infrastructure, and Ukraine resuming targets on Russian refiners. Now, all of that had been pointing to a deterioration in the oil outlook. Now, the U.K. also announcing it will provide military support, including fighter jets to support Saudi Arabia, stoking fears around a possible wider regional conflict.

39:33Squawk on the Street Hosts: Now, WTI did top 110 today at one point for the first time since April before backing off. Now, the front month does roll today, and the more active December contract is right now trading around 96. Now, we're seeing an interesting dynamic, though, where a lot of the action has now shifted down the curve. As CIBC's Rebecca Babin notes, the market is increasingly pricing a conflict with lasting consequences for balances rather than just an immediate supply disruption. And this marks a difference from April when the front month was hitting highs, but the curve wasn't really moving. And that is now changing with Brent for May delivery now at 96.

40:06Squawk on the Street Hosts: That's compared to 66 back in February. Finally, over in Europe, natural gas topping 90 euros per megawatt hour for the first time since 2022. That's equivalent to$30 per MNBTU, so 10 times where U.S. prices are currently trading. Goldman estimating by the end of October storage will be at 63 percent of capacity, far from enough to guarantee a comfortable storage path through the winter without higher Mideast LNG supply coming over the coming months. And the firm said that LNG flows through the strait are now just above 30 percent of just about, I should say, 30 percent of pre-war levels. Guys?

40:40Jeff Smith: Pippa, before we let you go, that draw on the SPR this week. I think we're back to 1982 levels. And is there a notion that the Chinese are back in the market?

40:50Squawk on the Street Hosts: The Chinese are definitely back in the market here. And we're seeing an increase in VLCCs heading their way. And that, of course, had been the surprise buffer earlier in this war that the market had not anticipated, the extent to which Chinese imports fell. That is now changing. We have seen from their data that they are still continuing to draw down on their domestic stock piles, but they have also increased imports. And so that is leading to more supported prices looking forward. And then, of course, the idea that we'll have to refill our SPR here in the U.S., but then also other nations around the world will also have to refill their stockpiles.

41:21Squawk on the Street Hosts: And that could be contributing to what we're seeing in terms of the strip looking forward now with Brent for next year now, well above the$90 level versus in the 60s back before the conflict began.

41:31Jeff Smith: Yeah, everyone's going to want to refill their reserves at the same time. Might create somewhat of a floor. Thank you very much, Pippa Stevens, watching Energy Today. Big story. Meantime, Dow's up 660. When we come back, how the options market is thinking about Netflix tonight. We'll look at the implied move in that name, which is down five straight times following their earnings. We'll also get to GE Aerospace, another earnings beat. Stock is still down this morning. We'll talk about why when we come right back.

41:58Squawk on the Street Hosts: Welcome back. Netflix has been under pressure all year, and the options market is pricing in a huge move for the stock ahead of tonight's results. Let's get to Oliver Rennick at CBO in Chicago with more. Hi, Oliver.

42:10Jeff Smith: Hey, Leslie. Netflix is in a tough spot going into earnings after the bell, but early trading today shows surprising signs of hope. Stakes are extremely high for the streaming giant amid a 50 percent drawdown from last year's highs, layoffs and a five quarter losing streak. Carl mentioned that's the longest since 2021. That's showing up very clearly in the options, which are implying a nine and a half percent swing for the stock after its report, the biggest anticipated move since 2022, which interestingly that quarter saw a rally. Coming into today's session, there was roughly an equal number of puts and calls open on Netflix, which is actually near the highest to put ratios since April, reflecting how the stock's once reliable bullish bias has receded during the stock decline this year.

43:00Jeff Smith: But this morning, day of, The flows are trying to go against the grain a bit here, with twice as many calls bought than puts in the first hour of trading, and more than twice as many puts initiated by sellers than buyers, with some notable put selling from someone who sold a string of 70 strike puts expiring November 20th for just shy of$2 million. Those strikes are right at the money, which means it's about as bullish as put selling can get. There was also a decent amount of speculative call buying at the 80 strike expiring Friday, which needs Netflix to surge past the implied move higher and rally 25 percent just for those contracts to break even, guys.

43:43Jeff Smith: Oliver, I wanted to get you on just overall index put activity. Over the weekend, Goldman talked about Friday's volume, one of the highest ever, and said it was the first real sign of panic in index protection. I wonder what you've seen lately. Absolutely. 100 % the case, Carl. The best way to define Friday's session was what we saw in VIX, which was a sharp move higher to the highest since June. We saw options on VIX explode. We saw what looked to be at least a few big traders, maybe one. There were rumors swirling, but it was very much a covering your tail, literally, situation where we saw VIX spike.

44:22Jeff Smith: We saw the fixed futures curve go upside down and backward eight. And I think that set us up for a pretty good situation this week to now stabilize. It's been pretty rowdy here this morning, frankly, after we started week. But now 50 points up in S &P with VIX back below 18. Gotta say, it starts to look like the bulls are getting some edge back here. Definitely feels that way. Thanks, Oliver. Oliver Rennig watching some options activity. And to his point, LP Dow up 700. Granted, it's being led by the Mercs and Travelers and J &Js of the world.

44:54Squawk on the Street Hosts: Yeah, part of that rotation that we've been talking about.

44:56Jeff Smith: Which is why I think Citadel even commented this week on a podcast about how you can have such vicious rotation and S &P within 2 % of all-time highs.

45:05Squawk on the Street Hosts: Yeah, I can't remember who said it, but they analogized it to ducks paddling under the surface, where you've got a violent rotation beneath the surface, but it all looks calm as the duck swims by. Yeah.

45:15Jeff Smith: Core we've entered is also an interesting story. I think got below 58, which was below Friday's low of 58 and a half, and then up 3%. So clearly some reversal in core weave. There's a look at intraday. And then we've already talked about what energy's done since the open.

45:32Squawk on the Street Hosts: Yeah, I mean, it's been a remarkable day intraday already. So we're just getting started. 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. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.

46:08Squawk on the Street Hosts: To view the full Squawk on the Street disclaimer, please visit cnbc.com forward slash Squawk on the Street disclaimer.

46:13Jeff Smith: This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts.