9AM HOUR: Apple iPhone Duo Hits Stores, Tech Extends Sell-off, Merck CEO "First on CNBC"  10/23/26

0:00This 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. Shipping, billing, admin, payroll, marketing. You're managing all the things. So why waste time sending important documents the old-fashioned way?

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1:11Good Friday morning. Welcome to Squawk on the Street. I'm Carl Cantone with David Faber, Mike Santoli, a Post 9 of the New York Stock Exchange. Cramer has the morning off. Kind of a weak start to this Friday as the Q's come off their worst day since June, and the S &P tries to hang on to some slight gains for the week. We do have Brent Doyle at a fresh five-month high at 115, VIX above 20. First up, though, in a few moments, in fact, right now, Apple chief John Ternus going to greet some customers of the company's store in Austin, Texas, as the iPhone duo goes on sale today in dozens of countries.

1:44Our Mackenzie Sigalos watching this as well, getting a setup all week long, Mac, for this big debut of a new form factor. And you got John Ternus breaking tradition somewhat, showing up in an Austin location. And Carl, it really comes as Apple is changing tactics, right? They're shifting more of their production to Texas and Austin and Houston. So it's becoming a more significant market for them as they have this$600 billion push towards domestic manufacturing. And separately, this is the second major entirely new product category that we've seen from John Ternus. He's been on the job for less than two months.

2:21And I'm told we have a camera on the ground there. I'm told the lines were just as long as they are behind me at this flagship shop on Fifth Avenue. What are crowds like this morning in New York? So last night I was here talking to people at 8 p.m. The line was about 60 people long. Some folks have been in line from Wednesday morning. It had more than tripled when I got back here at 4.45 a.m. But a lot of people were coming in blind. Essentially, they weren't able to successfully place a pre-sale order. And so they were just trying their luck. Now, in terms of how this compares to past cycles, that's a big question, right?

2:57The iPhone 17 was a super cycle. Starting in the December quarter, Apple has incredibly tough comps that they're coming up against. And there's a real question about whether this is just a reflection of limited supply or if like the demand that we're seeing. And I talked to Greg Josiewicz, who is the chief marketing officer for Apple. He was the one greeting people in New York City at their flagship shop. And his point is that they are ramping production, but he wouldn't say how many they're producing. The best guess that we have right now is from Morgan Stanley. Six and a half million duos is their estimate in terms of what will be produced this year.

3:31And just to put that into some context, Samsung produced roughly as many as that. So in that range of six to eight million in all of 2025. So this is a pretty small category when you compare it to their pro lineup. Yep. Although hopes are large for it. I know Kramer's been enthusiastic about the duo. By the way, Mike, Apple is about a 1 % away from the number one market cap in the world. It is. And, you know, I don't think that the excitement over the duo is working against that. But I really think a lot of it has to do with Apple's status as the ultimate kind of safety, defensive, non-AI overspending name in the Mag 7.

4:10and the outperformance has been very stark. It's almost basically been a counterweight to the rest of the semis. And the reason it's approaching NVIDIA for the top market cap slot is essentially that. If you looked at Apple versus Mac 7, they literally go in different directions starting a few months ago. Mac, when will we start to get early reads on sales? Well, you know, one thing I was thinking about is the fact that this is a big part of how Apple is going to look to justify its forward earnings of 35 times and reports earnings in a week. And so something like this, the duo that has a 55 percent margin versus the 45 percent gross margin on the iPhone 18 Pro, that helps them make up for potentially fewer sales on the 18.

4:58So that's one thing that is certainly being factored into the equation, potentially why they might have released this product before they had the supply to sufficiently meet the full demand here. And also, Mac, you know, you've talked about how the carriers are going to be, you know, offering pretty good deals on this, which maybe is going to change the equation for somebody who otherwise might have just stood in line. Well, exactly. And I asked everyone in line how they're going to pay for this. And there are a handful of people who are just paying out, right? There are others who are going through AT &T, doing an eligible device handed.

5:29So they're effectively paying$44 a month. Another person is doing it through the Apple card payments, where you actually get 3 % cash back on the entire purchase. And even though you're paying monthly installments over the course of that two-year zero-interest loan, so people are getting creative in terms of how they're paying for it. And so effectively, it's bringing down the price to what you're paying for the iPhone 17. But again, part of how Apple is trying to make up the difference for the memory crunch that we are in, for the fact that components are just harder to get, and especially with the Duo, you're dealing with a hinge in the display that is bespoke, nothing like what we've seen from the likes of Samsung and Google, is effectively, by one, trying to diversify the supply chain and get rid of the 18 base model, start them with the Pro Max.

6:18So if you want a new iPhone, you're looking at at least 1 ,200. And then for the foldable, it ranges from 2 ,000 to 3 ,200 at the 2-terabyte mark. Yeah, really interesting. We'll watch Apple. We'll definitely watch Legacy Telecom. AT &T and Timo are down 5 % plus pre-market on the notion that SpaceX might be going after some sell sites. And we'll watch some of the tower companies as well. Thanks, Mac. Mackenzie Sagalos watching Apple. As for the broader markets, Mike, I know you've been watching yesterday's action and sort of this historic outperformance of the equal weights versus NDX and the S &P.

6:51Just this desperate, really wrenching rotation as the market tries to kind of stay supported as there's a stampede out of the AI hardware food chain. It resembles last week when Thursday and Friday you did see this very kind of heavy, intense selling pressure on those formerly crowded parts of the market to the point where we and others were speculating on whether there was a bit of forced deleveraging and liquidation going on. It's not as if we've isolated any of that, but it's a similar type action. What's more remarkable than the idea that semis are testing their lows from July July and the rest of the CapEx food chain is under pressure because of these higher cost of capital and all the rest of it, is that other parts of the market, the most defensive parts of the market, are managing to keep things supported.

7:38If you just look at a week to date, NASDAQ 100 versus the equal weight S &P 500, the equal weight S &P 500 is up almost 2 % week to date. The kind of growth core of the market there you see yesterday was basically just going their separate ways. And the big debate right now is how much this can continue. Are we overdue for one of these more kind of washout type, highly correlated pullbacks? Or can the market kind of repair itself on the fly? The other thing is the macro message coming from the fact that consumer staples have gone vertical. Health care has been very strong and is actually looking somewhat overbought.

8:13And even utilities are getting a bounce on this move in rates. Is that a good thing? A year ago, the whole talk was, hey, industrials and cyclicals and financials are telling you the economy is going to be great next year. So what are we to derive from defensives are working right now and bond yields have come in massively in a couple of weeks? You know, still trying to figure out what really happened yesterday. We sat here talking about all those earnings, and I thought we did a pretty good job of it, if I say so. Really, actually? Really good. Really good, you know, and Meta in particular. But as the day went on, I started to hear different narratives on why Meta.

8:47One was why Meta was pressuring the overall market. One was, well, the C-shares are not going to actually be issued until next year. They're going to use them to issue equity. Of course, that also generally is something that shareholders are not happy about because you get no voting rights along with the C-shares. But they're also not going to be raising the equity. We thought they might be raising sooner, so they may not be spending as quickly as we thought. And they didn't raise their capex for this year, so maybe things are not going to be – maybe there's not going to be quite as much spending towards year end.

9:17The other was they're spending too much. They've got lease obligations that went from$349 billion to$454 billion. That's non-cancellable contractual commitments. And not to mention, of course, their plans to potentially issue, and they talked about at least hundreds of billions over time. So I don't know. But all I do know is, of course, that yesterday things just worsened as the day went on. We continue to deal with, but I do wonder, Mike, whether we're going to start to see it sort of put in one box, this concern about capital-constrained companies basically being the neoclouds, but not representative in any way of the overall thesis that demand remains unabated.

9:59And it does. I think that's right. And demand, you know, I do think it makes sense to kind of get at what we say, what we mean when we say demand is unabated, right? So demand for compute capacity is there. The kind of backlog of people who just want access to it is there. But how much of it is the two startups, the frontier models that still have to raise the money? And OpenAI got a raise, you know, it was announced. Yeah, well, they've got it was right. When I first heard it, it was 1.25 billion. Then when it was reported, it was 1.4 trillion. Thank you. And now it's back to 1.25 trillion. That being the overall valuation for what would be a 30 billion dollar raised by OpenAI, to your point.

10:43I said this yesterday you know maybe I'm just talking to a certain cohort of people but they continue to be focused on whether or not the labs are re-accelerating in particular Anthropic given what seemed to be a deceleration in the growth rate obviously growing at an enormous rate but at a slower rate than it had been has that changed was there distillation of the model that they cracked down on that reduced their overall revenue to a certain extent did Meta pull back in terms of their commitments to Anthropic because they started to use more of their own models. I don't know the answer, but that's the focus and for opening the eye as well.

11:19And by the way, you've got the Fed. If oil stays at 115, do financial conditions need to tighten more? You've got midterms where data center scrutiny could actually accelerate, not decelerate. CAT was once the number one down name of the year. It's now number 10. It was up 80 % for the year. It's now up 20. GE Renova. GE Renova. Look at Blue Energy today. Right. Bloom Energy and Western Dig, good results, beats and raises. I don't know how much of this is just valuation as well. I mentioned G. Vranova to somebody. They're like, yeah, but it's also was, you know, its PE was in the mid-30s. Without a doubt.

11:52And I do think there's a line of thinking that the industrials in particular entered this new zone. G. Vranova's and the Vertis and all in Eaton, for example, where these were traditional blocking and tackling industrials who'd never experienced rock-solid multi-year order books the way they have right now. They have never been sold out for years in advance the way they are now. They got valued according to that. They're going to be the last to know when people stop the jobs or the money's not there. And so the idea is how much you're going to pay for the distant order books. So that's, I think, part of the story.

12:24You know, Meta also, in its filings about the decision about the new Class C shares, was saying, look, there's going to be this scramble for capital. And it makes sense for Meta to be right there with an ability to press the button and go and raise because there's a sense of the capital scarcity that Jensen Wong has been talking about. And it's sort of capital at what cost, not just, you know, the availability of it. I think the Fed part of it is a little bit secondary because I think the market has kind of moved in their direction in a sense. I don't know. B of A today still thinks that we get 25 bips next week.

12:56I think that's an interesting call. He calls it a close call. But he also it's kind of predicated to a degree on Warsh wanting to assume independence and to essentially, you know, almost surprise the market for its own sake to a degree, but also to stay close to what he's been saying, which is inflation is not coming down. And to your point, don't overlook Jensen's comments that we had yesterday, obviously, from Berlin in terms of capital scarcity for some of the neoclass that may have had an impact as well as the day went on. Yeah, we'll keep an eye on Court Weave, which did close yesterday below 56.

13:27When we come back, Merck's Rob Davis is going to be with us after that data involving the company's cancer vaccine with Moderna had been leaked. Pre-market here, break-even for the week on the S &P, roughly 76-60. We'll see if it holds this morning with the opening bell coming up at the bottom of the hour. 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. Vantage Score is changing that by modernizing credit scoring. Vantage Score uses 400 % more credit and alternative data to create a fuller picture of financial behavior, including trended credit data, rental payments, and timely utility payments.

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14:52Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. 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 And subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. All right, take a look at shares of SpaceX.

15:33They are higher in the pre-market now. The stock was down sharply yesterday. There is a Bloomberg story in which they claim the company is aiming to secure a minimum of 80 ,000 cell sites across the U.S. and is in talks with at least one major cellular infrastructure company to help them reach that goal. This, of course, would be to roll out a terrestrial wireless service, something we've been talking about a lot, particularly since they signed that deal to acquire Spectrum from a company called Grain, which had acquired that Spectrum originally. I think it was from T-Mobile. But all of it going to this idea that they are trying to become a true competitor, a fourth competitor in the wireless market here in the United States after AT &T, Verizon, and T-Mobile.

16:19You can see all three of those company shares are going to be down and down rather sharply following initial losses when we first learned about the spectrum purchase from SpaceX about a week or two weeks ago. I lose track of time. The tower companies also, guys, had benefited on that announcement and now are once again up on this. If you are going to be serious about a terrestrial, a wireless service, you've got to sign up towers. We talked about this day one. That's what you've got to do unless they had some newfangled way of doing it. And, of course, it does raise the question as to why. Why would you want to compete in a market in which margin is kind of tough to come by, in which there is fairly significant price competition, unless you believe your marginal cost will be a significant step below everybody else's.

17:15That has to be the argument. Otherwise, you're just kind of, by your own entry, creating a less rational competitive environment and probably competing away a lot of the profitability. So I don't know to what degree, if you have that huge customer base for terrestrial cellular, you're able to kind of amortize the satellite network and the launch biz and whatever else. And you obviously are going to combine in the same way that we see Comcast, which has now 10 million wireless subscribers, combine broadband and wireless, the same way AT &T combines its fiber offerings, its broadband offerings, I mean, over and over and over again.

17:53That is certainly the play they could pursue as they continue to grow their broadband footprint. But yeah, I do come back to marginal cost here. I guess they must see a line of sight to just being the low-cost provider. The other thing is just the ubiquity of Musk. The cell business, now the media business with this reported investment into Skydance. The Ukraine controversy continues. I wouldn't make too much of the Skydance investment. The Politico item today that he's given,$442 million to the midterm race, including some of the biggest single gifts in political giving ever in Texas. Right. He's everywhere.

18:29No, he's everywhere. Musk is everywhere, no doubt about it. And to your point, I mean, he's given almost, right, the, by the way, I wasn't able to confirm it, the billion dollars said to be in Skydance is not obviously a lot. If it was part of a larger investment over time that involved some commercial agreement somehow where Starlink maybe becomes a distributor of HBO would be a much more significant thing. Not clear to me at all that's the case. So you don't think there'll be any influence in CNN or CBS or who knows what? No, I don't think so. Not at that level, not at a billion dollars. You're talking about a company with 80 plus, 85 billion in debt and another.

19:07They just brought in 47 billion in equity. Yeah. Larry Ellison is going to have a lot more influence, Carl, than Elon Musk. That's for sure. On CNN. But it does get back to the why on the cell service thing. And, you know, the proposition initially, I mean, you did have a lot of SpaceX, Starlink kind of maximalist bulls saying, no, no, no, Starlink service can actually get down to the handset level, and it's not just going to be in rural areas. You can have a density of coverage and all the other stuff. And on the other side, people saying, absolutely not. You basically have to just do what this report says they're going to do.

19:44So it's a little bit different than the real bull case for SpaceX going into it, but everyone just sort of gives the benefit of the doubt to say, well, they have the capital, the staying power, the size. By the way, SpaceX is coming off its third worst day yesterday, down 9%. yesterday, still in the 30-plus percent drawdown. It's been a rough two-day sell-off from midday Wednesday. And there's this interesting narrative being written about it that it's a weird mishmash, conglomerate, of media and space and the boring company unrealized gain in the 10Q. Not to mention the enormous capex that's got to be spent.

20:18I mean, we made this point the other day. Now they're moving into terrestrial wireless. That's not going to be cheap. Not to mention all of the other capital commitments, number one being, of course, continuing to amass the compute so that they can truly play as a hyperscaler as they say they will. Yeah. No, it's true. I mean, you know. Is there still a conglomerate discount? I don't think that I don't think it applies here because I think that they I think that the whole like the Musk multiplier on valuations for retail centric stocks overcomes whatever, you know, some of the parts analysis anybody would do on a conglomerate.

20:55Yeah. It's still worth more than all seven defense giants combined. Yeah. Well, in the same way that Tesla's been worth the entire auto industry. Right. And a year from now, they're likely to be one company. Right. Or on their way to being one company, certainly. I don't know how long the regulatory review will be once we do get an announcement of a deal, which I do expect, not necessarily this year, but next year. Take a look at the pre-market here. A lot more to get to, including Schlumberger, Amex with a surprising deceleration and spend some layoffs there more squawk on the street in just a minute Ever notice how every new ai tool asks you to explain your business to it all over again Google workspace with Gemini skips that you get Google's ai built right into the premium versions of gmail docs sheets and more No new tools no extra logins just one subscription that gives you personalized ai right inside your actual workflow make work less work.

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22:58Western data is moving lower in the pre-market, despite the company's better-than-expected quarterly results and guidance. This is CEO Irving Tan talking about AI compute demand on the call last night. While much of the conversation around AI focuses on compute, we believe the more enduring opportunity is in data. AI is fundamentally a data system. Every workload creates more data, and that data must be stored, managed, and accessed in a scalable and economical manner. Don't miss an exclusive with Tan today on The Exchange, 1 p.m. Eastern Time. Mike, this was an$800 name back in June. Yep, June was the whole crescendo of excitement around the bottleneck trade.

23:44Maybe a slight surprise the stock traded down off of these numbers also having been washed out for a while now. And that's what all the charts look like. They're just trying to hold above those May levels. That includes the semi-index. Intel reports next week. That chart looks a little bit precarious as well. I was going to say, on Intel, what, 40 % drawdown or close, right? You mentioned the gap between, was that the equity? It went from like, yeah. The U.S. equity? No, I don't think so. That was in April. I think the U.S. equity was in before that. We went from like 69 to 85 in a day. That's the vertical move right there.

24:19So you're kind of still hovering above it. But, you know, there's a whole lot of selling and therefore a lot of supply above, too. So, you know, I don't know what kind of short circuits this move. I think you absolutely can say they're washed out. The earnings estimates haven't changed. The problem is the stocks are going to leave the fundamentals. And it always is the case. And it's really, really about what are we paying for 2028 at this point, you know, as opposed to the next few quarters. That was what, David, what our old friend Herb Greenberg wrote yesterday was that Nortel and Lucent, the order books looked pretty good for months after the stocks began to crack.

25:00Oh, man, that does take me back. I mean, Cisco, on a June 30 fiscal year, from June 30 of 2000 to 2001, earnings were up 15 percent that one fiscal year. and everything was crashing, including its own shares. So at some point, it's not going to matter. Let's get the opening bell here. At the big board on Wall Street, it is Nova Minerals, a mining exploration and development company, celebrating the truth of listing. At the NASDAQ and Times Square, it's like CSR of Budits, focused on autoimmune and inflammatory and allergic diseases, celebrating an IPO. And at Seabow in Chicago, it's fintech company Lost Dog celebrating the upcoming debut of One Lucky Dog social finance platform and stablecoin.

25:45As we kind of are at that 7630 level, Mike, that you mentioned yesterday. Yeah, that was last week's low. And so we did break it. And so at this point, you're no longer kind of having this stair-step action higher from the late July low. It doesn't really mean that, you know, it has to turn lower and test those levels. But I do think that, you know, anybody who cares about the charts is keeping it on a little bit of a shorter leash. We have the VIX at 20 going into a weekend. It's just a heightened concern. It's not as if credit spreads, broadly speaking, are blowing out, but they're keeping us on alert right now.

26:19And what I find interesting, too, is this market has sort of scrambled some of the correlations that we got used to for a while. Higher oil meant higher Treasury yields. That has been broken because oil is near the highs. Treasury yields have come in a lot. And then, of course, we all were told that now stocks and bonds are connected again and correlated again. And that's not been the case. Treasury has been rallying, yields coming down, and the S &P 500 has been pressured. Now, what has happened is lower Treasury yields means homebuilders rallying, defensives or rate sensitives are going up, and breath has been very strong.

26:54So we're not sure if we're supposed to celebrate the majority of stocks going up or not. I'll just point out, sustained outperformance in the equal-weighted S &P 500 over, let's say, a year or two period, that's called a bear market because that's what happened in the early 2000s. I mean, typically, you really want the engine of the entire bull market's theme, which is AI and tech, to actually reassert itself at some point as opposed to take a back seat. Yeah, people were pointing out yesterday what happens when you do have tech down dramatically and financials up dramatically or at least 1 % plus.

27:28Right. Not a great precursor to action. It hasn't been. I mean, the weird thing is because of the hyperconcentration of the S &P itself in tech, we keep having all of these never-seen-before relationships just because of the math of how that works. You can still have two-thirds of stocks up in a given day and have the S &P down 1.2%. It's rare. It happened yesterday. You mentioned Amex. We did get a beat, 468 over 448, although revenue up nine was a miss. And spend decelerates from 11 last quarter to nine this quarter. Lower provisions, lower tax rate, kind of being painted as a low quality beat.

28:10Yeah, just something that you don't want to pay up for necessarily. And for as much as, you know, obviously Amex is kind of the premium and exposed to higher end consumers and all the rest, it's really traded like the consumer finance peers. So you look at it against Capital One, against Ally Financial, and it's a very similar chart on a year-to-date basis. Not because people think that, you know, credit is eroding quickly, but that you've probably seen the best levels. There's been some dis-saving going on. In other words, spending has held up in excess of wage growth in the last little while.

28:47And, you know, the stocks do reflect that, even though, you know, and there you go. And there is still this concern about hyper-competitiveness in the rewards business, what they have to pay Amex against the higher, you know, the kind of higher status cards by other issuers. Right. continuing to see this narrative around capital constraints play out in the market. Corweave, after what has been a pretty bad week, shares opened down about 2-plus percent. Nebius, any number of the other neoclads. Shares of Meta also still lower this morning as well. And there is something worth sharing from their 14C SEC filing.

29:29Again, remember, they filed a lot of different documents around the issuance of this Class C share. And this got a lot of focus yesterday. We didn't get to it, but read it. It's recognizing the timing is important to secure capital before competitors saturate various funding options. And they go on to say recent significant capital raises at companies such as Alphabet, SpaceX, Anthropic, OpenAI have resulted in an increasingly challenging environment for raising capital. This was all part of the discussion around the special committee's decision to issue this C-share and to do so fairly quickly, saying it's preferable to implement the recapitalization and dividend now so that we're positioned to act with speed and flexibility when capital needs and strategic opportunities arise.

30:20And again, it just goes to sort of that theme, not to mention, of course, as we mentioned any number of times, we also played them over and over, Jensen's comments, which did differ a bit and perhaps were a bit more pointed than previous comments he's made, Jensen Wong, about capital constraint, particularly for the neoclap. Yeah, that's what I was alluding to with Meta kind of flagging this idea that they had to be a mover. And I think the market steps back, big picture terms, it says, where do the incentives drive all of these competitors? it kind of drives you to this assumption that you have to outspend or be quicker in raising and deploying capital than your competitors because you think it's going to be a one or two winner type race.

31:02So you have five competitors raising and spending as much capital as possible to be one of the two winners. And that, by definition, creates the structure for an overbuilt. I'm not saying that's how it's going to go. Maybe the pie is going to be so big it doesn't matter and the costs go down and usage goes up. But I think the market is registering those concerns, and it just feels late cycle in that sense. And it sort of pushes off the like, oh, we're going to go back to free cash flow harvesting, and share buybacks are going to come up, and total shareholder yield is going to be competitive with bonds again, which it's not right now.

31:37And, you know, so it's sort of like you're going to wait longer for that if, in fact, this dynamic spreads is the way everybody is operating. Well, what you're describing is then kind of a bubble. Right. What I'm describing is the way capitalism works, which is in one of these massive technological builds, does get you off into a bubble. Yeah. And I sort of feel like the Iran war kept us from going full bubble mode early this year. Like, just because the macro pressures were such, the market has kind of been forced to be a little more rational about where rates were going, cost of capital, oil, the real economy.

32:11I think you had a risk of going there. So you're not there now. Right now, valuation is the least of our problem. Yeah, we're down to 18. You may be in a capital-raising bubble, but not necessarily an equity bubble when you've got the leader in video up only 13 % for the year at stock price. And as we just showed, Apple surpassing it on market cap. That seems like a moment. And you have kind of a clog in the IPO. I'm glad you said that because we did build a chart of the IPO calendar as it's been so far this year. I mean, it does look like the best times have passed us, at least for now. You look at some of the activity that we got in the summer versus now, and that's been sort of borne out in corporate guidance.

32:51There's a look at IPO listing volume for the year to date. That said, we may very well get the S1 from Anthropoc as early as Monday or Tuesday next week. And I don't know what the raise will end up being, but it could be as much as$100 billion, let's say. That's going to change that chart there a bit as the year ends. Look at GE Aerospace today. That's almost the low for the year on GE after we got some of the commentary out of the airlines, the CFO of American telling the FT that if oil prices come down, airfares probably stay around here. Yeah. And if they don't come down, you're probably looking at higher airfares.

33:28Yeah. 27. Yeah. I mean, I guess we also shouldn't really completely sidestep this idea of, and maybe it's sort of what's holding oil in place as well, which is still unsettled in the Gulf. Is there going to be further escalation after or before the midterms? I just feel like that adds another excuse for people to not add risk here, even though a lot of the charts would say we got rinsed pretty well and you might want to start to step in. We'll see if that still holds for another couple of weeks. A couple of the names that we've talked about as being in the doghouse for months, Nike's up 20 % from the lows.

34:07McDonald's is up 10 % from the lows, two of the worst names of the Dow so far. So the momentum trade is also a short, low-momentum stocks trade. And Goldman Sachs pointing out that their momentum pair, their long-short momentum factor, was up 70 % year-to-date at one point this year. It is now flat on the year. So how does it get there? It gets there by the best-performing stocks getting killed and the worst performing stocks levitating, short covering and under-owned and all the rest of it. And that is really what's happening. It's not like Nike reported a quarter that people revisited and said that was great.

34:47Not in the least. It was not a good quarter. No. In fact, if anything, I think what happened was every time you thought this was going to be the quarter where you could bet the turn was in, they disappointed again and the stock made lower lows. So it's coming off a very low base. It was back to levels it traded at in like 2013 or something. But yes. The other one to watch today is the spread of the yield curve. Two tens, I think, are down to, what, 20 some odd bips. And there's this chatter that if what if long rates do come down, but the Fed can't afford to take its foot off the gas, does it invert?

35:23What does that mean? Classically, not a great cycle. That's called late cycle action. Yeah, I mean, you know, we're going to get the Fed meeting and the commentary next week. I know there's a lot of chatter that, you know, Warsh could be looking at, you know, hotter than expected for CPI and everything else and saying that he has to at least sound hawkish for December. So that leaves you on the hook. Now, there is the two-year yield still has like almost 100 basis points to Fed funds. So there's some room there, I think, for compression. Although, to your point, we're going to get PCE next week.

35:56B of A still sees 3-1 year on year. Although we're going to get GDP also. And they see our first look at Q3. They're calling 3.5. Yeah. A lot of that, I think, is some of the comeback factors, inventory and stuff from the second quarter. But, yeah, it's hard to point at, I don't know, 6 % nominal GDP pace and say the economy needs help in that way. So it's still going to I mean, there's no doubt the Fed is still sole mandate on inflation for the moment. But the market's not comfortable with that necessarily.

36:32By the way, breath is negative today. So we are, in fact, today having a little bit more of a correlated pullback. It's not a at least the way it's starting. No place to hide. Only 27 percent of New York stock exchange volumes in advancing stocks. So, you know, maybe that's the start of a little bit of a flush. Guys, got some news, obviously, in part yesterday, today from Merck and Moderna involving a key trial for a new drug treatment for melanoma. It was phase three. It did leak just days before a planned ESMO presentation of the numbers. results show the investigational therapy combined with Keytruda, that is the therapy from Moderna, cut the relative risk of recurrence or death by 42%.

37:22Investors may have wanted more. Moderna shares fell a great deal yesterday, about 17%. That wiped out$24 billion in market value. Merck also slipping about 2%. Now, for Merck, of course, his takes go well beyond melanoma. Keytruda, its key compound, has a patent that's set to expire in December of 2028, Joining us now in our first on CMS interview is Merchant Chairman and CEO, Rob Davis. Nice to have you here. Great. Thank you for having me. You're very welcome. Rob, I guess let's just start off. You know, we first learned about this, I think it was back in August. Yeah. About the trial, that it worked, but we didn't get numbers.

37:57And I'm just curious, do you feel like given what we did get, did expectations run a bit too far beyond what the reality was? Yeah, well, you know, I would just say we are very excited about what we see as landmark data. And I'm quite confident that as the medical community, as the investor community really comes to fully appreciate and understand what we are showing, they will come to appreciate that as well. I mean, if you think about what we're talking about here, this first trial we're doing now is a phase three in melanoma. But this is a neoantigen therapy individualized to the patient. This is basically taking a fingerprint of the person's tumor and developing a personalized vaccine to help immunize against it.

38:42A therapeutic cancer vaccine is what this really is in combination with Keytruda. And if you look at Keytruda itself in melanoma, over time, melanoma was the first indication we went after with Keytruda. Keytruda now, just to set context, has 46 indications across 19 tumor types. Contruda alone reduces the risk of death, of recurrence, by about 40%. This does 42 % on top of that. But what's not appreciated is because this is an immunization, much like you would get if you got a vaccine, you really need to look at the six-month data. That's the time that allows your body to fully mount an immune response.

39:24At six months, it reduced the risk of recurrence or death by 58%. So this is meaningful. If you're a patient, if you're a family member of a patient, to be able to say, I can reduce by more than half the risk at six months that I'm going to have the cancer recur, that's significant. And importantly, in the phase two data, that lasted, that was durable for five years and still counting. So this is meaningful. The phase two data did show, I think, a 65 % cut in distant metastasis. This trial showed 38%. Right. I am curious. That endpoint, by the way, I think Moderna called the most meaningful. But why was there a drop off?

40:02Well, you normally when you move from a phase two to a phase three and you expand the patient population, it's quite normal to see the numbers decline. And in fact, if you look at both, whether you look at the recursion free rate or the distant metastasis rate you're counting, both are considered quite meaningful from the key opinion leaders that have seen this. And importantly, if I give you that same six-month data that I was just quoting, that's 50 percent. The DMFS is 50 percent. So still half. A reduction by 50 percent is still meaningful. So we see whether you look at the phase two or phase three, we think the prescribing community is going to find both results quite meaningful.

40:43When it comes to the financials here, obviously any number of analysts weighing in. RBC says approval likely, but when it comes to commercial success, and this is their words, success is far less certain. They say giving Keytruda before surgery may do about as well for less money. And so they wonder, why would an oncologist choose to go this route? Well, and what they're referring to, there was some studies done, phase two studies. There's actually no indication, approved indication by the FDA for what they're referring to, this neoantigen therapy, which is giving Keytruda before and after the resection of the tumor.

41:17But importantly, it's only a minority of patients that can even be eligible for that therapy. It's a small percentage. And so the vast majority will choose not to go on Keytruda before they have their melanoma resected. So we think this is quite meaningful. And I think that's a little bit of apples and oranges, the comparison they're trying to make. Right. Aspirationally, where could this lead you in the coming years beyond melanoma, for example? Yeah. Well, you know, that's what's so exciting about this. This is the first proof point of a cancer vaccine, a therapeutic cancer vaccine. But we're studying it now in nine other studies, phase two, phase three.

41:56Non-small cell lung cancer is where we're going first. That's the other phase three. But beyond that, we have phase twos in renal cell carcinoma, as well as in bladder cancer, and then phase ones in even broader tumors. If you think of what I mentioned, that Keytruda works across 19 different tumor types, the potential here is big. We need to do the clinical work, and we are doing that now in those nine studies. But this could be very big. Excuse me, but is there anything in this trial that indicates it may be effective in bladder or lung or kidney? Well, the fact that we've seen a positive phase three, I think, has to give you confidence to the platform.

42:33We're going to do the studies to see where it goes in the others, and you'll be seeing readouts in renal cell carcinoma and bladder over the next year. Are there age populations that would benefit the most, do you think? Well, right now, and I don't want to get ahead of the data presentation tomorrow. Unfortunately, because of the leak, we're talking ahead of when the actual meeting is at ESMO, which is the European Society for Medical Oncologists, is tomorrow on Saturday, and that will be the presentation. So they will go through some of the subcut data. But I will tell you generally what we saw in the data is it's pretty consistent across the different subcuts.

43:10Cost always ends up, I mean, we're a ways away, but you make a separate drug for every patient, essentially, right? That sounds expensive. Will it be? Well, you know, as we look at our ability, and I give a lot of credit to our partner in this, Moderna, who is bringing their mRNA technology and frankly, a very unique manufacturing process. We think we will have very competitive costs, and we don't see cost as a limiter to access. Do you think it bends the curve on vaccine acceptance socially? Well, you know, I hope so because I personally, you know, Merck is a vaccine company beyond just what we're doing here.

43:45I think cancer is a unique area for someone facing cancer. The risk benefit is one I think should be easy for that person to make. The broader question of vaccines, you know, we continue to believe if you look at vaccines are probably the most effective population health control measure we have next to maybe clean water. And so we believe they're highly safe, highly effective. And so hopefully this will help to give people further confidence. But within the cancer space, this should definitely be something that people are excited about. You mentioned you're a vaccine company. You're also a key, true to company.

44:19We are a key, true to company. Half of your revenue. We mentioned, of course, patent expires in December of 28. So much focus on that. What does this pairing do in terms of, you know, you've described it, I think as a hill, not a cliff, does this actually lessen the grade or increase it? Yeah. So if you look, you know, this data, we think, and to be clear, we've given out some guidance. We've said that we see the revenue potential of over 70 billion coming from 20 unique assets we're going to be launching over the next few years. 25 billion of that alone was oncology. And this therapy was in that 25 billion.

44:58The reality of it is the strength of this data we've seen increases our commercial confidence, not decreases. And so it is a meaningful part of what we see as the path forward for sustainable growth for our company as we look beyond the Keytruda years. The fact that it's individual vaccines, does that change the ability to scale the speed? And I also wonder, over time, would that sort of create separate classes of disease that you say, actually, this will be a drug that we just can do on a broader base? Yeah, well, and I think, you know, the answer is we're investigating it. Obviously, Moderna is investigating this.

45:38Others in the field are. So the ability to take this idea of a therapeutic vaccine tied to an individualized set of mutations in your own tumor or more broadly, I do think could be much broader than what we're seeing today. Clearly, we think it could be broader in cancer. We're doing that work. But we'll see where this goes. And as you look at the ability to make this, it is bespoke to each individual. That's the power of it. 34 different neoantigens that are unique to you, we can identify to increase your body's response. But we have a very efficient manufacturing process in our clinicals. Six weeks is what it takes.

46:18The way this works, you have your tumor resected. We give you Keytruda. They sequence the tumor. They identify those neoantigens. And then in six weeks, we have nine courses of therapy to give you that are given once every three weeks, then over a nine-week span. So it's actually very efficient. and one we feel very confident we can deliver at scale. And finally, when do you see yourself filing a new drug application? When conceivably is this something patients will actually be able to take advantage of? So we're working as fast as we can right now to get the file in. We will be filing for approval, and we'll hopefully get that done soon.

46:54And then I think you should expect to see approval if timelines move, as we expect sometime in 27. 27. As soon before the end of this year in terms of filing? Hopefully. We'll see. Okay. Rob, we look forward to obviously updates along the way as well. Great. Well, I appreciate you having this for a patient population that's always looking for new therapies. And as we pointed out, one of the best down names of the year so far, Merck. Merck, 37 plus percent. Thank you. That makes you happy too. Yeah, it does. It does. Thank you. Rob Davis, CEO of Merck. As we go to break, watch bonds here. A little creep back up towards 5 % on the 10-year.

47:32S &P, though, right here briefly took out last Friday's lows. We've gone red for the month. We're back in just a minute. Discussed at the top of the show, Apple's foldable iPhone Duo hit stores today with that$2 ,000 price tag and continued scarce supply. Meantime, overall reviews have been coming in kind of mixed. The Verge calling it a good time. The Journal says it offers too little iPad. The New York Times calls it the most exciting phone in years. Mike, with the foldable element, there's bound to be some scrutiny about how long that lasts over time and whether the crease gets more visible and so forth.

48:07I have to say that one thing that tends to go, I guess, maybe just take it for granted about iPhones is the physical durability, I mean, obviously outside the screen. So I don't know, it feels like that's, you know, it would have been an issue in testing if it was going to be one. The bigger thing is it was probably always intended as a status-y, you know, kind of high-end niche thing. And I think, by the way, the biggest risk to Apple's share is not this flopping, but a semis rally. Because they just are on the opposite side of the season. Yeah, they've definitely been vocal about the memory cost pinch.

48:46And there's a look at Ternus greeting shoppers and employees today. As the S &P is down about maybe half a percent, Brent, very stubborn today. approaching 1.16. Don't go anywhere. You've been listening to the opening bell on CNBC's Squawk on the Street. 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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