11AM Hour: Morgan Stanley CEO, Merck CEO & Former NEC Director Gary Cohn 10/14/26

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0:43Adults, kids, toddlers, babies, and even pets. Grab matching sets and classic plaids, whimsical designs, and even Disney-themed prints. Plus, they have coordinating graphic tees, sweatshirts, cozy socks, pet sweaters, and fleece blankets. Get more merry for your money at Old Navy this holiday season. Good Wednesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Mike Santoli here at Post 9 of the New York Stock Exchange. Sarah Eisen's off today. Big show ahead. September CPI runs a bit hot. Highest since May. We're going to break down the print and the implications for the Fed with former NEC Director Gary Cohn.

1:16Plus, Morgan Stanley topping estimates with equities trading revenue beating by more than$900 million. CEO Ted Pick joins us exclusively to discuss the quarter and his outlook. And we'll be joined exclusively by Merck's chief, Robert Davis, Let's talk about the pharma giant's newest R &D facility, its product pipeline, and the role of AI and robotics in drug development. Not a whole lot working internally this morning. Got several sectors down a full percent. Financials, utilities, industrials, discretionary, IT, materials. It's really about health care, staples, and energy today, Mike. Yeah, market trying to rotate away from the weakness.

1:53Obviously, there's some slippage in that process. The jolt to the bond market from the warmer CPI number, something you can't fully sidestep, given that you still have this weakness in memory and the AI hardware food chain. So all that working together. What does go up? Apple. Apple is anti-semis. It works defensively within tech. It's doing its best to kind of limit the damage today. But you mentioned big cap health care, too. And we now have some suspense two weeks ahead of a Fed meeting about what maybe the next move is going to be. I don't think anyone necessarily thinks it's absolutely going to happen that we get a rate hike.

2:26We'll talk more about it. But it's a little more uncertainty about the path of inflation than we thought we had a couple days ago. Yeah, we're not done. PPI retail sales is still on the way. That's right. There is more to hear from there before we have to make that call. We did get a chance to hear from multiple banks yesterday, both in their earnings calls and on this program. Executives painted a similar picture of a healthy consumer supported by a strong labor market despite higher inflation. Take a listen. Despite these cross-currents, the health of the underlying U.S. economy has remained solid, with strong corporate earnings growth, GDP growth of 2.2%, and a very resilient labor market.

3:04Fundamentally, the picture is pretty simple. The consumer is currently very healthy, primarily because of a healthy labor market. In the U.S., whilst much has been made of the AI boom, the consumer is still driving much of the growth, the labor market is stable, and companies remain active. Our near-term economic outlook remains positive. Both consumer and businesses are doing really well. On the consumer side, the fact that people have jobs and unemployment is really low still is a great sign. You're seeing wages keep up with inflation. For his view on the economy following that hotter than expected CPI, let's bring in the former director of the National Economic Council during President Trump's first term.

3:47It's Gary Cohn. Gary's also former president of Goldman Sachs and current vice chair at IBM. It's always good to have you in, G. Carl, thanks for having me. So the lead of the journal is rates spoiling the party for the banks. They did try to make a push going into earnings. That's getting unwound. What's your view on what's happening at the minute? Well, look, you can't ignore the rate picture. We talk about it all the time. We're talking about the Fed meeting in two weeks. As the market is pointing out right now, it's about 50-50 whether they raise or not. I do not believe they're going to raise in October.

4:18I think December is a pretty clear path for them. But they will have two extra months of data in there. There's no meeting in November. So interest rates are clearly creating some indecisiveness or some caution. You think about where we were a decade ago with zero interest rates in QE. and the Fed and all the markets were telling you, go buy risky assets, because that's the way you're going to get a rate of return. Today, when you've got 10-year rates over 5%, you've got municipal bonds over 5%. That's a taxable income of about equal to almost 10 % in certain jurisdictions. You're now creating some indecisiveness in the markets.

4:57So do I want to buy a 5 % after-tax yielding asset, or do I want to be long a stock market that's in a four-year bull market, being lid by a small sector of the population of stocks. It's more of a dilemma today than we've had. And I feel like the population today is getting a little bit tired, a little bit exhausted. It's been a long run. And then throw on top of that, you know, if you turn on any TV, you watch any football game, which is the only thing I watch, you know, you're inundated by political negative ads. So all we feel all day long is all the negativity going on in the country right now.

5:31Yeah, I keep calling it a normalization shock, what's going on with rates. As you point out, right, we had this long period of time when we had very subdued interest rates. And now today's CPI year over year is 3.7 percent. You got two and a half percent year to date real GDP growth and maybe better. Who knows? So that gets you above six percent nominal growth. Where do we expect 10 year yields to trade in that context? The issue is, as you suggest, it does price out certain activity. And for everyone who said, hey, look, AI demand is going to be resilient in terms of CapEx to whatever the Fed does.

6:04Well, it's not resilient to whatever the stock, whatever the bond market does, because look at the neocloud stocks and look at all the financing rates that they're going to have to deal with. Well, I also think when you bring in the AI picture in particular, you know, we just had this astronomical growth. We have this astronomical revenue explosion and we had a multiple explosion. Just because we're seeing a re-rating of multiples doesn't mean we're in a bear market. I think people are starting to re-evaluate what the long-term sustainable run rate for AI is. And the picture's getting more confused, not less confused, over time.

6:38You know, we started out with foundation models, and everyone thought foundation models was the way we were going to go. Now we're talking about open-weight models that are much more efficient, cheaper to run. So where's the revenue going to go? Is it going to go to foundation models? Is it going to go open models? All the hyperscalers are locking up an enormous amount of compute, but you've had these neoclods as well and these data centers that are also trying to compete. Is the compute going to move to them? Because in the open-weight world, that's where the opportunity is. So that's why I say we're at this cautionary period where people are realizing this is not a one-way street.

7:12The market is just not going to go up forever. We've got to actually evaluate what the long-term run rate is of AI. On top of that, we are seeing more and more companies talk about, I would say, the IRR of an AI investment. And so far, the internal rate of return on the AI investment has been lower than people would have projected. And companies today being squeezed on the commodity price, being squeezed on interest rates, they're having to become more and more efficient to meet their top line. So we're seeing a lot of these pressures in the system. That's interesting. B of A had a phrase, they call it the margin mirage because of those increased costs and the pressure to deliver.

7:53Are we getting to see it in this earnings season, would you argue? I mean, Delta, Pepsi, Levi, some of the banks. Yeah. You think that's a theme? I think we are seeing margin pressure. You almost have to. If you're in the manufacturing business, you're seeing it. If you're in the banking business, if any inventory you're holding in fixed income is going down in value, as yields go up, bonds go down. You have to hold some inventory. Look at what happened in the equity capital markets. I think we had about 20 deals in the last 10 weeks. They were either pulled or postponed. That's another sign of the anxiety that's in the market here.

8:27And I see what we're doing with companies now is companies, and many of them have talked about this in their earnings call, they're getting more efficient on human capital. Companies are getting smaller. Something we've been talking about on the set for a year. It was the overhiring coming out of COVID. It was needing the extra employees because they were working from home and they weren't as efficient. People are back in the office. People have become more efficient. They are using a little bit of AI. But even without AI, companies would be getting smaller right now. Almost every earnings call you hear will highlight the decrease in human capital.

8:59That said, the job market continues to stay fairly robust and fairly strong. If you look at the Joltz numbers month over month, they're relatively unchanged to slightly up. So we continue to create jobs in this country. You mentioned it's a noisy political season. As you look into next year, let's say some configuration, there's split government. Is there any implication, do you think, for overall fiscal, you know, approach in terms of whether it's just going to be stalemate and therefore no new spending? Or is it going to be a default to, you know, Democrats saying we're going to restore the ACA subsidies and maybe put back some of the domestic spending that we didn't do?

9:37I don't know where that that leaves the markets thinking about it. You know, Mike, you hit on a really important topic, because it's not only the data centers that are borrowing money. It's the government, the deficit the government has built in the last 20 years, the$40 trillion. The government now has to compete to fund themselves. Historically, the government didn't have to compete. They weren't borrowing that much, and there was enough liquidity in the system. And the system right now is starting to figure out where is the liquidity and where is the rate of return for liquidity. You know, I think the natural reaction of each party historically for the last two decades has been to spend.

10:11Neither party has shown a real ability to curtail spending. That said, I think the markets themselves are starting to send a stronger and stronger message to Washington that they're going to have to get things under control. We saw the inflation adjustment for Social Security today come out, I think 3.6 percent for next year. Yeah. Look, that's money that's coming out of the Social Security trust fund. That's going to that's going to speed up the trust fund running out of money. All of these issues are falling upon Washington right now, and no one's really talking about that. If you watch anything on TV on a political lab, they're talking about how bad their opponent is, not what they're going to do to cut the deficit, not how they're going to help you save money.

10:49So we did have CBO last week say if we're going to bring in the budget deficit, maybe not to three, but a little bit towards that, you've got to run nominal six to seven. IMF says they think China and U.S. deficits could go to eight, and they use a slightly different basket. But do you think that which direction do you think we go in? Look, there's only two ways to deal with the deficit. One is to stop spending money and curtail spending. We have failed miserably at that forever. So I don't I don't put that on the real probabilistic outcomes. The way we have dealt with our deficit and we've done it fairly well is we have grown our economy.

11:22We have grown our GDP. You know, the one thing about AI is I do think it is a form of productivity. You know, if you can use AI, you can become more productive. As you become more productive, the economy grows. As the economy grows, we hire more people. Then our debt to GDP numbers stay in line. But I think the only real choice we have in this country is to grow and continue and invest. I mean, corporate, I mean, I know it's never been a big swing factor in terms of income for the government, but corporate tax rates crashed. Now, it's by design, right? The pull forward of, you know, the CapEx expensing and all the stuff that was in the last tax bill.

11:59But that is one area where, in theory, if you're bringing it back toward historical norms or averages, there are places to look beyond run the economy hot or cut spending. Yeah, look, there's always going to be places to look. I'm not telling you that we can't raise the corporate rate. We did lower the corporate rate, but we also forced all the offshore money to be repatriated. So instead of earning money offshore and leaving it there and never paying U.S. taxes, we said, OK, we're going to deem you to have repatriated whether you do or not. And I think a lot of that money led to this huge CapEx boom that we've had in the United States in the last decade.

12:34I'm particularly talking about the accelerated depreciation in the last year's bill. But again, all of that is meant towards trying to create more capital investment, more investment, create more jobs, grow the economy. I agree with you. It's a scale. If you stop accelerated depreciation, you stop R &D credits, will people stop investing? We don't know. But if they stop investing, then it affects the job market. So the intention of those accelerated depreciations, accelerated cost write-offs was to get people to spend money into the economy and grow the GDP. You can take the other side of it. It's a legitimate argument.

13:11So are you generally bullish 27? I'm generally cautious 27. I'm cautious. I think the market has gone up quite a bit. And you have to really factor in the alternatives of the fixed income market today, which is something that we have not had in our equation for the last two decades. You know, like I said, a decade ago, we were talking about zero interest rates, and we had to buy risky assets. Now you can earn after-tax yields of 5%. That's a new dilemma for investors who said, look, at the end of the day, I want a 5 % after-tax yield. Maybe I don't have to belong in stock market that's gone up for four years now.

13:48We keep saying it's like going to the gym after not having gone for a while. Gary, thanks as always. Thanks for having me, guys. Good to have you, Gary Cohn. All right, coming up, Morgan Stanley, CEO Ted Pick, joins us exclusively after earnings with that stock getting hit this morning, despite those solid results. We'll break down this latest quarter out of ASML. Pretty flat here. Company says it's getting order interest, though, through 2030, as they raise guidance for the third time this year. Don't go anywhere. Legacy credit scores only look at a brief snapshot in time, and that limited view often leaves millions of qualified credit seekers out of the picture.

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16:00Welcome back. Morgan Stanley beating expectations on the top and bottom lines for the latest quarter. But the stock is pulling back this morning. Leslie Picker joins us now with Morgan Stanley CEO Ted Pick for an exclusive interview. Leslie, all yours. Hi, Mike. Thank you. And, Ted, thanks for letting us come into the headquarters and have a conversation about the quarter and beyond. Welcome to Morgan Stanley, Leslie. Thank you. Thanks for coming. Thank you. You spoke on the earnings call about these two phases of the quarter. There was the July and August that were brisk, you said, and September changed the equation with inflation and higher rates and oil.

16:37Do you expect the fourth quarter will look more like the earlier part of the third quarter or the latter part? Well, that's that's the great question, right? The two known unknowns of the year have been the AI phenomenon and geopolitics. And I think the lights just went out, but we're going to keep going, right? But they're back. Here we are. Okay, glass half full. And the interaction of the AI phenomenon and geopolitics has been the dominant reality of the whole year. And what we saw in this past quarter are really two quarters, as you say. The first quarter was really risk-on. AI phenomenon powering GDP growth, 5%, 6%.

17:21The economy continues to move along in full employment. The Fed is focused on inflationary expectations. The sentiment, positive. And then as we got towards Labor Day, folks started asking about the rate at which the CapEx spend would take place. Are interest rates and inflation higher and elevated and sticky in a way that actually suggest there could be some incremental risk to the economy and obviously geopolitics in two places so it's really two very different stories and I'd like to think that we are going to have the first narrative the positive narrative if we can get some control over the geopolitics if some of the geopolitics sort of comes under control I think a lot of it flows back to the positive part of the class which is that the AI phenomenon is real economy continues to grow on the back of it Inflation is under control.

18:13Corporate earnings are great. So I'm cautiously optimistic about the fourth quarter. Where I'm more optimistic is Morgan Stanley's place in it because we are acting as a central advisor to clients. And that's in the wealth business, in our investment banking business, in our markets business. And there we are very busy. I want to ask about just the AI super cycle, because, as you mentioned, it's been kind of critical both from a sentiment standpoint as well as from a Morgan Stanley business standpoint. And on last quarter's call, you said that only 10 to 15 percent, that we were only 10 to 15 percent through that cycle.

18:53Since then, we've seen bigger political pushback on data centers. We've seen higher interest rates, as you mentioned. And we've seen the large players ratchet back their own development over concerns about safety. Have your expectations shifted at all in light of those headwinds, just in terms of the durability of this super cycle and the ability to, you know, benefit and capitalize from it? We're asking the right question. One has to accept the premise that the AI super cycle is a once in a generation, once in a multi-generational phenomenon. And we at Morgan Stanley believe that to be true. So the question is, at what rate will the hyperscaler CapEx be deployed?

19:33Is it a trillion a year? Is it a trillion to a year? Will it take eight years or 10 years? Will it be 12 trillion or 15 trillion? These are huge numbers, but over the course of time, I think it is a reality that if you want to be in it, to win it, you have to be in in big size. And a lot of those flows are being put against the best capitalized, highest cash flow companies in the world. and our role is to act as an advisor in the middle to help structure private versus public, debt versus equity. Leslie, I think it is without a doubt the case that the AI investment cycle is here. How long it takes to deploy.

20:08At times, will there be investment ahead of the technology and vice versa? Absolutely. That's the case with any once in a generation or once in a multi-generation phenomenon. But for efficiency, for productivity, for resiliency, the digital realm is here. And I I think it's critically important that Morgan Stanley is a part of that as a trusted advisor. And so we are double overweight that. And whether the hyperscaler CapEx is a trillion next year or a trillion two or 900 billion, it's less important than where we're going. Where we're going is probably in the long run, depending on how you measure it, 10 to 15 trillion, which against a an S &P of 70 or 80 trillion is a big number.

20:49but it's one that, bear in mind, is powering probably 50 base points of real growth in the U.S. economy, as you know. So it's real, and we believe it'll be sustained. And in terms of the IPO pipeline specifically as it pertains to this, Morgan Stanley is a key advisor to a lot of the companies that are seeking to go public, as well as some who delayed their potential IPOs during the quarter. How are you thinking about the window right now for IPOs? I know you say that the pipeline is strong, as have many of your peers. But in terms of just the overall environment, are companies able to get the valuations they want, given what we've seen with the shift in the rate picture?

21:27We continue to be bullish on the corporate finance lifecycle, which is principally led by IPOs and the M &A product. It's a global phenomenon. There's been a ton of pent-up demand. We're in a reasonable regulatory environment, and that clock may be ticking. So strategics and sponsors are both thinking about that. It has been strategic-led. You think about AI, you want to scale to get bigger, as we've talked about before. You want to penetrate the public markets if you can. The holy grail is to go public. But if you don't go public, you can access private capital by other means and continue to act as a private company.

22:01But ultimately, you want to have that public currency. And the IPO market has been quiet for so long. We're starting to see it come to fruition. And we're seeing these very large, established companies come that are very exciting and will be well-held names. And for Morgan Stanley, the proposition is not just to act as the underwriter, the advisor, but also they are workplace clients. In many cases, we have the preponderance of the unicorns as workplace clients, which is incredibly exciting because then we are attracted and attached to the employee base and they become wealth clients. So for our integrative firm to have the investment bank working and to have the wealth management business working in a stock based world, we're still in a stock based world.

22:40That makes us constructive. Now, if interest rates were to get away from us and that was on the back of a lack of control over inflationary expectations or real geopolitical noise, then I would expect volumes to go down. The IPO windows are market sensitive, so they would they would be more closed or more opportunistic. But that's not the way we're thinking about it right now. We're thinking that the windows are open for the right structure. investors are discerning. They're taking a look at what the right cost of capital is in a normalized interest rate environment. And in many cases, they want to put the risk capital to work if they believe that the company can make it over the next three, five, 10 years, a public company.

23:19And you mentioned it's an equity world. Your equities division jumped 41 percent in the quarter. That was led by prime brokerage and derivative results. It's obviously been a boon for Morgan Stanley. But there is a question out there whether there's just too much leverage in the system and whether it increases the risk of the markets right now. Are you seeing any of that? We're not seeing it in any kind of troubling way inside of the equities business. The equities business is really largely a market making solution based business. Of course, we finance asset managers, too. But while there are high levels of gross leverage, there isn't anything that has struck us as folks being off sides or folks getting tripped up by the complicated geopolitics.

24:02Obviously, as a risk manager, we're constantly looking at how clients are doing every day to make sure we're in a good place. But part of what we like is the fact that it's a holistic offering. You know, we're basically bringing research and content on the desk to our clients. And what's different today versus when I was running the business many years ago is there's a real derivatives business now inside of what we call the nine boxes, cash, derivatives, and prime brokerage across three regions. It's a global business. It's a business that talks well with a fixed income business behaviorally.

24:37We have teams that work together with research and with bankers. So the clients feel that. And it is a business, as you know, that is built on scale, better, faster, cheaper if you're doing it through the machine. And real advice, if you're talking to a salesperson, she's on the desk. That's got to be the barbell. And I think we've achieved that quite nicely. And I think it's something that in a stock-based world is going to continue to run for many years because the world is just getting going on equitizing. We think sometimes in a U.S. context, but if you're in Japan, if you're in India, if you're in Korea, if you're in big parts of Europe and in France and Germany, we're at the early stages of equitization.

25:12So it's incredibly exciting and very important, Leslie, because it attaches to our wealth management business. So as clients amass wealth and they want to monetize that wealth or they want to allocate to different products, we're able to bring that product to them. Yeah. And And you saw that in the quarter with a whopping$232 billion in wealth management flows, which was more than BlackRock and Evercore ISI estimates probably more than most public wealth managers combined in the quarter. Ted Pick, thank you so much. Thanks, Leslie. I really appreciate it. No, it's a busy day for you. Thanks. Thank you.

25:44See you. Bye. I'll send it back to you guys. All right, Leslie, great conversation. Thank you, our Leslie Picker. Still ahead, we'll take a closer look at ASML's latest quarter, the chip company beating expectations as they get orders now through 2030. And later, the CEO of Merck will join us exclusively as the company opens a new manufacturing facility in Pennsylvania. Squawk in the street. We'll be right back. This message comes from Wise Business, the only account your business needs to scale globally. You're building a business with global ambitions, but hidden fees are eating into your margins.

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26:51No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. At Jared Jewelers, we know it's about more than fine jewelry. It's the moment they open the box. That smile they can't hide. Knowing you chose exactly right. because the right gift can bring a lifetime of meaning, a promise, a milestone, a memory in the making. Make every moment unforgettable. Find great gifts starting at$250. Jared, make the holiday last forever. Shop Jared Jewelers.

27:34Welcome back. ASML beating profit estimates for the latest quarter, although shares marginally down. Seema Modi's got more details. Hey, Seema. Well, Carl, this was an important read into the semiconductor supply chain. ASML is basically the only company in the entire world that makes these incredibly complex lithography machines used by all the big players like NVIDIA and Intel. Executives at ASML alluding to the fact that demand is outstripping supply for at least the next two years, raised its Q4 guide, a statement that typically instills confidence in the market. But we're starting to see the opposite reaction with some analysts voicing concerns about future price hikes at a time when there are more questions about the costs tied to the AI build-out.

28:13A concern that is likely behind CoreWeave's drop today after one of its executives spoke to the FT about leaning on additional financing options like the insurance players to fund its purchase of chips. But back to ASML. Morgan Stanley is bullish on the name, yes, but does highlight two key risks. First, the strong inflation cycle with memory prices continuing to rise and weakness in China driving a further slowdown in sales. Remember, the U.S. still requires allies like the Netherlands, where ASML is based, to abide by the match rule. That's the bipartisan legislation that limits China from obtaining advanced chip-making equipment like the one ASML specializes in.

28:51China used to be a growth market, guys, for ASML, but those expectations have been shifted lower. Semiconductors as a whole, we've been talking about it, underperforming yet again, tracking for now seven straight days of losses. We haven't seen a down streak like this since 2025 as the market now awaits Taiwan semiconductor numbers tonight. Carl and Mike. Yeah, a very tough to please market. Thank you. We have a news alert on the housing market. Diana Oleg has the details. Hi, Dan. Hey, Mike. Economists at Fannie Mae are now predicting much higher mortgage rates through the end of this year and into 2027.

29:28The October forecast out this morning now puts the average rate on the 30-year fixed at 7.4 % for the fourth quarter of this year and 7.5 % through all of next year. It previously had forecast 6.8 % for Q4 and 6.7 % for all of next year. Now, the average rate on the 30-year fixed stood at 7.46 % Tuesday, that according to Mortgage News Daily, but it will likely move higher today. Of course, bond yields are rising after that. hotter than expected inflation report. I reached out to Fannie Mae for comment on this, but they did not respond. Stocks of the builders have been hammered in the last month as rates rose sharply.

30:07Now, this, of course, is just a forecast, but this is the one analysts tend to watch. Carl, back to you. All right. Yeah, obviously important data every week. Thank you, Diana. Diana Olick. Let's get a news update as well this morning with Brandon Gomez. Morning again, Brandon. Hey, good morning, Carl. The U.S. lifted sanctions today on Venezuela's top lawmaker, Jorge Rodriguez is the president of the National Assembly and the brother of interim president Delcey Rodriguez. The decision ends restrictions that bar Americans from doing business with Rodriguez and removes the freeze on any assets he held under U.S.

30:37jurisdiction. Broader U.S. sanctions on the country remain in place, though. Social Security benefit recipients are getting the largest annual cost of living increase since 2023. The Social Security Administration announced today recipients will get a 3.6 percent upward cost of living adjustment, which was driven largely by higher inflation. That translates to roughly$75 monthly increase for the average beneficiary. And the blue coating that was applied to the Lincoln Memorial Reflecting Pool over the summer reportedly failed in at least 85 places because of errors in the installation. The Washington Post obtained an inspection report commissioned by the contractor that did the work.

31:14President Trump blames vandals for the damage, but the report makes no mention of vandalism. Carl, send things back to you. All right, Brandon, thanks so much. Still ahead this morning, stock ownership might be falling, but stockholders are seeing the biggest wealth gains. We're going to break down some new data next. And later, don't miss Goldman Sachs CEO David Solomon, live from the company's annual Builders and Innovators Conference in California. That's at 1 p.m. Eastern on The Exchange. We're back in a moment. Welcome back. But new data showing that while stock ownership is falling, stockholders are still seeing the biggest wealth gains.

31:48Robert Frank joins us here with more. Mike, good to see you. Well, household wealth in America rising over the past three years, but there is a growing divide between older, wealthier households and everyone else. The Federal Reserve Survey of Consumer Finances that's released once every three years. That shows between 2022 and 2025, median household wealth increased by 2 percent to$216 ,000. And the bottom half saw a slight decline, mainly due to their falling stock ownership. Only 19 percent of Americans now have direct ownership of stocks. That's down from 21 percent in 2022. So we may have seen a peak there.

32:26Total stock ownership that includes retirement funds and mutual funds also fell. But that's 58 percent down to 56 percent. Most of the decline was among lower wealth and younger households. The median stock holdings, that's among those who stayed in the market, increased 36 % for those who stayed in to$77 ,000. The top 10 % gained the most with their median stock portfolio growing by over$500 ,000 during those three years to$1.7 million. About a third of families in the bottom half of the world hold stock compared to about 77 % of the upper and middle and 97 % of those in the top 10%. Older households, they typically start spending down their wealth after retirement.

33:13Well, not right now. Households over the age of 75 are the wealthiest, with average net worth of$1.9 million. So the old folks have all the wealth right now, and their wealth grew 37 % since 2022. That compares to a wealth decline of 23 % for those under the age of 35. Now, for more on stock ownership in America and how it's changing, you can sign up for the Inside Wealth newsletter out tomorrow morning at cnbc.com slash inside wealth. So stocks were the determining factor of your wealth gains between those 2022 and 2025, more so than housing, more so than any other asset class. And I've never seen it been this strong a factor.

33:59So listen to Jim Cramer. Own stocks. Stay in the market. I mean, the bull market just turned four years and you did 20 percent annualized. S &P. You can't outspend it. Usually most people, if they had that nest egg, they're not going to be able to even spend it down. That's right. And a lot of those folks who are even in their 70s that would normally be truly retired, they're still working. They're still in their jobs. They're still still earning. So so you do have this interesting generational divide. And then the question is, why did younger people, some younger people get out of stocks? I heard you speculate about this this morning.

34:30And, you know, and we don't know the answer. You know, one thing that did come to the fore during that period was the rise of prediction markets, sports betting. So there could be people that shifted into there and that impacted their wealth. Fascinating. Can't wait for tomorrow. Thanks, Robert. Thank you, Frank. We do have an update this morning on the White House investigation into Lisa Cook. Let's get to Steve Leisman. Steve. Hey, Carl, we want to bring people up to speed on developments in the extraordinary Committee of Inquiry formed by the president to judge allegations of mortgage fraud against Fed Governor Lisa Cook.

35:00She has denied those allegations. The White House pushing back on charges from Cook's attorney that the committee is biased against her. White House spokesman Matt Middleton saying in a statement, President Trump is performing his constitutional duty in evaluating Lisa Cook's conduct and eligibility to continue serving as a governor on the Federal Reserve. The president is going beyond what the Supreme Court required by offering Lisa Cook an in-person hearing that will be conducted in a fair and open process. The statement comes in response to a letter Cook attorney Abby Lowell sent last night to the White House in which they said, quote, we have significant concerns regarding the objectivity and fitness of the committee for its assigned purpose.

35:37A hearing with demonstrably biased members, unspecified additional allegations and an unclear schedule for the disclosure of any additional evidence with no explanation for why it was not previously produced is not a process that respects the appearance or history of independence. But a White House official pushing back on that, they responded, one, the committee members are, quote, fair-minded. Cook can provide written evidence, witnesses, and a post-hearing statement. The hearing will be on the record, made public, and Cook can be examined by her own legal counsel. Now, Cook's attorney also said Cook would be unavailable for the November 5th hearing date, could not appear before early December.

36:15That suggests Cook is willing to sit for this inquiry, but we don't know if it's going to be postponed, Carl. People are already going back and looking at past comments from Hassett and Sonderling, comments they made about rates and Cook in particular, Steve. Yeah, we did that the minute it came out. We did look up comments by Kevin Hassett, the NEC director, and he said that these charges were serious. He also said Cook should step aside. whether or not that's a measure of bias that should exclude him. That is going to be up for the president to decide, and to some extent, whether Cook wants to sit for a hearing with him on that panel.

36:53It's unclear. We've seen in the comments so far a suggestion that Cook is willing to sit for this inquiry. So they're not saying no. They just seem to be battling over the form of this and the method that they're going to use. Right, right. And some of the timing, as you say. Steve, thanks. Steve Leisman. When we come back, the CEO of Merck will join us exclusively from their new manufacturing facility in Pennsylvania. We'll discuss their cancer vaccine with Moderna, their new cholesterol drug, when we're back in just a minute. Welcome back. Merck just opening a new R &D facility in Pennsylvania.

37:30Our Annika Kim Constantino is there now and joins us with Merck's chief, Rob Davis, in an exclusive interview. Morning, Annika. morning carl let's get right into it it's so great to see you again rob and it's so great to be here in west point pennsylvania just 45 minutes outside of philadelphia we're inside your new 120 000 square foot advanced research facility which will use robotic systems as well as ai capabilities so tell me rob what measurable improvement in r &d spending will this site expect to sort of deliver over the next five years here. Yeah, well, you know, this is really exciting.

38:06And as I said in the comments I made when we did the grand opening, it's really seeing in physical form AI coming to life. And what this will allow us to do is meaningfully accelerate getting drugs to patients. Because what this does is it allows us to much more quickly process clinical data, clinical information, run our biologic testing at a pace we could never do before and at a scale that really is unprecedented, which hopefully ultimately will allow us to get that medicine to the patient in our long-term goal years ahead of where we do today. And speaking of your drug pipeline, there's been so much interest in your personalized cancer vaccine with Moderna, especially after that late-stage data that we saw very recently.

38:47But you've also described your strategy around this vaccine as conservative. You know, if we continue to see more positive data come out of melanoma and other cancers, What other types of cancers would you consider expanding this vaccine program to beyond the cancers that you're already testing today? Yeah, well, you know, this is, as you say, this is really a game changing type of technology. This is truly individualized care for a patient. It's called the individualized neoantigen therapy. But what it is doing, it is using your own body's mutations of the cancer to study that and then have a direct ability to interdict on that and really drive personalized care.

39:25It is having amazing results in melanoma, which is our first indication. But to your question, assuming this goes well, we're also looking at non-small cell lung cancer. We have phase two studies in RCC and muscle invasive bladder cancer, non-muscle invasive bladder cancer, and more. So really, where this ultimately goes, the clinical data will have to tell us. But we're very excited about what this can mean for patients who, you know, facing cancer. You like to talk that maybe you can start moving towards, you know, talking about cure. We're not there yet, but we're moving in a direction with technology that's really unprecedented.

39:59Great. And I have to follow up on manufacturing as it relates to this vaccine. You know, it takes around six weeks from sequencing a patient's tumor to actually delivering that to the hospital. And so how much room is there to actually shorten that timeline and manufacture this vaccine at scale much faster than that? Yeah. Well, you know, obviously we're working with our partners, Moderna, to do everything we can to accelerate. So that is really the time out of the gate where we expect to be initially. We are going to drive for improvement, but right now the focus really is let's make sure we have the supply ready, we have the market ready to bring this important innovation to the market, and then we'll talk about how do we accelerate.

40:35But I do think over time you're going to see that timeline shorten. Understood. But what other bottlenecks would you have to kind of overcome here to really bring this to market at scale when you think about commercializing this, though? Well, you know, a lot of this is you can think of it as because it's individualized, We have to be able to sequence the person's tumor, make sure that we get the testing done, develop the new antigens. So it is a complex system, but I can tell you we've worked very closely with Moderna. We have this down to a very tight science. So I'm actually very confident that we're not going to have complexities in getting this to patients in a very timely fashion.

41:12We're doing it in our clinicals, and I only see improvement going forward. But I have every confidence we have this well underhand. Got it. And Keytruda's upcoming loss of exclusivity is very top of mind for investors here. You've talked about building a patent wall around Keytruda with combination regimens and new forms of the drug. And so collectively, how far does that actually extend protection beyond that key patent expiration in 2028, as well as those additional patents in 2029? Yeah, well, so if you look at the way we think about it, I wouldn't think of it as necessarily a patent wall. What it really is is bringing new innovation.

41:46And the main innovation we're bringing is Culex, which is a subcutaneous form of Keytruda that we're launching now. And actually, early adoption is going quite well. And what this allows us to do is to not only bring something that is valuable to the patient, because obviously if you're someone suffering from cancer, especially early stage cancer, if you can get something infused in under a minute to a minute to two minutes versus a half an hour or longer in a chair with an IV, that's quality of life improvement for you. It allows you to think less about the cancer you're facing, but it also helps drive the system because you can process more patients.

42:21And so it has both a system benefit as well as a patient benefit. Beyond that, what we're looking to do, you talk about combinations, is now looking at how can we combine Culex as well as Keytruda with other drugs, like what we have now coming in antibody drug conjugates. Obviously, if you look at intismuron, that is in combination with Keytruda. That's the cancer vaccine we were just speaking about. So we are looking at both combinations and Culex as a way of continuing to bring value. And I think if we do that, we will continue to be able to have patients stay with our therapies as we move forward, even if the compound patents and the Keytrudib IV form itself loses exclusivity in, as you say, either 28 or 29, depending on ultimately how it all plays out.

43:05And about how many more years does that kind of give you to have those new forms in the combinations? Well, if you look at what the subcutaneous form, it has IP protection well into the 2040s. Now, I expect we'll see competition before that. But to me, it's more about innovating through the combinations that bring value than it is trying to look at what is the patent protection itself. If we keep coming with the new combinations, we'll stay ahead of the patent question. And you've also guided to more than$70 billion in sales by the mid-2030s with new products, even after Cichuda goes off patent.

43:39But you've also said that you could raise that number here. And so what's giving you the confidence? What driver or specific clinical program is giving you that confidence to say there's more upside to that target? Well, part of it is there's many, not really one. So that guidance we gave, which was over$70 billion, about double what the external view of Keytruda is by the mid-2030s of commercial opportunity from oncology, immunology, cardiometabolic, respiratory. we have a whole host, infectious disease, HIV. But today, as you say, given the confidence we have with the fact we're seeing so much early data that's reading positive, both more positive than we expected and earlier than we expected, we actually now believe we will be well in excess of that$70 billion and will, at the right time, bring that formally out.

44:27But if you look at what's driving it, we did a deal for a company called Terms, which has an important oncology agent. Beyond that, we're now really investing heavily in our PD-1 VEGF by specific. That was really not included when we originally talked about the$70 billion. And then obviously in Tismaron, as we're seeing the targeted product profile, given the clinical results, we actually think the commercial opportunity there could even be bigger. So all of that across our broad portfolio is why we are so confident in not only being well ahead of that$70 billion, But frankly, as we look forward to the Catruda LOE, seeing it as a hill, not a cliff, one where we will be back to growth very quickly and with strong growth thereafter.

45:08Rob, it's Carl back here at the exchange. Really fascinating conversation between you and Annika. And I wonder, given what you're saying about the pipeline, does that have implications for the cadence of at least large scale M &A? Well, yeah. So if you look at what has been our strategy, we've been very focused on augmenting the pipeline through smaller deals, one to 15 billion. And as I sit here today, that will be the space we continue to look at. I do not see a need for a large scale deal of any size. We have such a strong, broad and diverse pipeline. I'm very focused. If we deliver that pipeline, I am quite confident we have everything we need.

45:49I always will look to add to it with great science. but we're in a strong position, so we don't need the large-scale deals. It's about bringing best science. Great discussion, Rob. Really good, and congratulations on the R &D facility. Annika, our thanks to you as well. Annika, Kim Constantino with Merck today. We are 20 days away from the midterm elections, and Republicans have spent more than a billion dollars in advertising for toss-up Senate races. That's as Calci odds place about a 60 percent chance of Democrats controlling the Senate. Megan Casella has a closer look at that strategy. Morning, Megan.

46:25Mike, good morning. So it's a lot of money flowing around and a closer look at just where it's going shows us just how much Republicans' campaign efforts this cycle are centered on defending states that were once considered their party's strongholds. So take a look here. Of the$1.1 billion Republicans have spent so far on advertising in the seven Senate races rated as true toss-ups, a full three-quarters of that is in states that the president won by double digits just two years ago. Texas and Ohio alone take more than half of the money, plus Kansas, Iowa and Alaska. And then there's the president's own campaign travel, which tells us a similar story.

46:59The president has now held or announced 15 rallies so far this month, and 12 of those are in states that he won by 10 points or more in 2024. And the president, for his part, has acknowledged that he's spending time in friendly territory. Some of them I go to for no reason other than to pay my respect and my love because I got to say hello to people. What the hell am I doing in Tennessee? I'm here because and I feel this. I'm doing it with a few other states, too. I don't have to campaign here and I win. You got to pay respect to the people that have loved you right from the beginning. Now, Republican strategists tell me that this is all a reflection of the concern that with the president's approval rating hovering right around 35 percent, a presidential visit in a purple state this cycle could do as much to drive the opposition's turnout as it would rally Republicans.

47:52And part of the strategy, too, is simply triage. The president is still very popular among the base. And so by sending him to redder districts, he can then help bank turnout in the states that Republicans can no longer take for granted. Guys. Meantime, Megan, a lot of attention this week on governorships. Cook Political, for example, moved some races into the Dems column. I guess in that respect, it's probably more important from things like data center moratorium policy. A lot of hyper-local issues, I would say, data centers being a big one of them, the tariffs being another one. And that's where one area where you're seeing some Republicans try to separate themselves from this White House.

48:28Inflation, of course, and the cost of diesel and home heating fuel and that sort of thing playing out in states like Maine in a major way. Carl, I think one thing that's really interesting when you bring up governor races is one of Another reason that Republican strategists told me the president is sticking to these safer areas is because his presence would nationalize an election that they would want to remain local. A lot of these Republican candidates want to stick to these local issues where they might have some differentiation from the White House. If he shows up, then you bring the national attention.

48:56And that's not as much as what they want to see in this cycle. Yeah. Dems have a shot at maybe getting the majority of governorships. That would be the first time since 2010. We'll know a lot more in a couple of weeks. Megan, thank you. Megan Casella watching the midterms. Meantime, Mike, I know you've for a long time watched levels that we got to at the beginning of August. Is that still important? They're a little below here. But, yeah, it is important just to get a sense of whether that marginal new high that we got, you know, not long ago last week, is something that's really the start of something or not.

49:28You're down pretty much session lows, nine-tenths of a percent on the S &P 500. Small caps are really breaking down. They're below the 200-day moving average now. They're back to levels of mid-April, as a matter of fact, than Russell 2000. So you have semis and banks both in these nasty downturns. Normally, that would say that's kind of compromising your bellwether leadership. You want to be on the defensive. But you have to say the overall market has done a really good job of rotating away from weakness as best as it can. Yields credit is where to watch right now because that's where kind of higher Treasury yields get transmitted into equity values.

50:01It's flaring up today. Yeah, 10-year backing off, though, back to five and a quarter. We're still going to work our way through PPI, retail sales, Taiwan Semi, and more. 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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