SpaceX Demand & Cynicism, A Strong Labor Market, & Screwworm 6/8/26

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0:47Download the latest episode and subscribe at schwab.com slash marketupdatepodcast or find Schwab Market Update wherever you get your podcasts. Bring in show music, please. This is Squawk Pod, and I'm CNBC producer Cameron Costa. On today's episode, we're digesting Friday's sell-off. The S &P 500 breaking a nine-week winning streak. First, how the strong May jobs report shook market expectations for Kevin Warsh's first interest rate decision as Federal Reserve chair. The rate hike debate with CNBC's Steve Leisman. The probability of Fed rate like this year at 70 % this morning for December, up from 44 % before the Friday report.

1:32And then the Nasdaq piece, how the SpaceX IPO this week could have played into a rotation out of tech. CNBC's Leslie Picker. According to BNP Paribas, the firm hypothesizes that retail plus passive flows into the IPO could be about$50 billion. SpaceX clearly has penned up investor demand, but famed hedge funder Steve Eisman is one investor who's less hyped up about it. Grok, with all due respect to Elon Musk, is not a world-class AI company. The entire company is being bet on AI in terms of its future, not on space and not on Starlink. Those are his words, not mine. Plus, Iran and Israel have exchanged fire for the first time since the April ceasefire.

2:21And Agriculture Secretary Brooke Rollins on the screw worm. The food supply is not at risk. This is not a virus. It's not a disease. It's just a little pest. It is Monday, June 8th, and Squawk Pod begins right now. Stand back to you by in three, two, one. Cue it, please. Good morning, everybody. Welcome to Squawk Box right here on CNBC. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin. It's a Monday and we are ready to go. On Friday, the Nasdaq fell more than 4%. It was its worst day of trading since April of last year when you were talking about the tariffs first being imposed. It was a decline for the Nasdaq of 4.7 % if you were looking over the course of the week.

3:10The Nasdaq 100 was down by more than four and three quarters percent alone on Friday. We're going to talk more about that. It was something that spread throughout Asia. You saw some steep declines there as well. But on Friday, the S &P 500 breaking a nine-week winning streak. It also had its worst week since last May.

3:30First up today, why good news isn't always good news, for the markets at least. On Friday, the Labor Department reported that the U.S. economy added 172 ,000 jobs in the month of May. That is over double what economists were expecting. Unemployment stayed steady at 4.3 percent, and the report even revised previous months upward, signaling an even stronger labor market. Strong though it was, it means the Fed is less likely to ease monetary policy in the short term, which makes things a little tricky for Kevin Warsh, the new Federal Reserve chair, who's in the role largely because of President Trump's pressure on his predecessor to raise rates.

4:13Let's get back to the show. A strong jobs report presenting an early challenge to the Fed. And new chair Kevin Warsh, senior economics reporter Steve Leisman, has the details. Hey, Steve. Hey, good morning, Joe. This is really interesting. The recent surge in job growth, raising the chance of Fed rate hikes as it shakes up some of the ideas we've had about the economy at the Fed and presents an early test of some of the new ideas of Fed Chair Kevin Warsh. Among the challenges created by those strong job numbers, what is the break-even employment rate believed to be between zero and 50 ,000? What could it be now with a three-month average job growth of 109 ,000 and no change in the unemployment rate.

4:54What's the neutral rate? Hard to believe this rate currently is restricted with such strong job growth. And is there now concern about jobs and wages raising the inflation risk? Cleveland Fed President Beth Hammock saying on Friday, if recent trends continue, it may soon be appropriate to act. And in that sense, it suggested acting being raising rates. And the probability of Fed rate like this year at 70 percent this morning for December, up from 44 percent before the Friday report, blowing the blue past Wall Street expectations for job growth of 172 ,000 in May and big upper divisions in the two prior months.

5:31And hold on, because there's even now a 52 percent chance of a second hike. That would be a year from now, while everyone from the president to his top economic advisor, Kevin Hassett, are arguing strong job growth is no reason to hike rates. the data also as a test for new ideas of Fed Chair Kevin Warsh. He's criticized this notion that strong job growth creates inflation. He said in recent Senate testimony, here's what he said. My view of inflation is a bit different from some. I don't think inflation comes about when the economy grows too much or hardworking Americans get increased in their wages.

6:07Rather, Warsh contends inflation is a function of Fed policy being too loose and the government spending too much money. His colleagues wouldn't on the Fed. They don't disagree with that, but they add that an overheating economy, one running above potential is also a source of inflation relative to where Fed policy is set, Joe. Yeah, that's it. There may be an opportunity to test all this all this stuff, Steve, about, you know, a hot economy doesn't necessarily mean that it's inflationary. It's just it's hard to do during a war, though, isn't it? Because other things are inflationary. Is it possible that we could have a lot of productivity and let things run hot if the war were over?

6:47Yeah. But you know also, Joe, we've talked about this, that the higher productivity also raises the neutral rate. That's another aspect. You know, it really is an important question for the market, Joe, why rates are running higher. They're running higher because the economy is hot because we have strong growth or is it because of inflation? That's a separate reason. You can get there both ways, but it's really important how and why you get there. And you can have the strong productivity, you can raise the nutrient rate, have higher rates, and the market will still do well. But obviously, the market didn't like what it saw and the implications of it on Friday.

7:23I guess today it's a little more chill with it. And that same question, it's a global phenomenon, too, the higher rate. But is that from oil? I something else that we all share that's causing it around the world? A lot of it, Joe. That's what we all share. We all have a blank ton of it. Can I say, I'm not going to say that. I don't know what the rules are in cable so well, but there's an awful lot of debt out there. And then when you think about what happens when rates rise, the ability to service that debt becomes much more expensive. So it's kind of like a vicious circle. Now for the U.S., we'll always be able to service our debt, I suspect.

8:07But for other countries, maybe less so. So as rates go up, it gets harder to service. And look, supply is always an issue somewhere in the equation, usually a little bit less in the United States. But eventually, we're going to have to start thinking about that in a big way. Is globalization kind of splintering? Does that have any impact on rates around the globe? I think that's a good question, Becky. We know what's happening on the good side, right? That globalization, it's really a de-globalizing world where countries, the United States and others, are trying to make sure they have certain supplies domestically.

8:45So that's changing. And if that changes and you work up from goods, well, that means financial flows are probably lessening on the global scale. And so there would be less connectivity and more sort of you're on your own in these aspects. But Joe's point's an important one, that the higher rates we've seen is a global phenomenon. And the extent to which the financial markets are deglobalized, I think it's only modestly at this point, especially when you have a big commodity like oil and higher prices ricocheting through the world and having inflationary effects. But over time, Becky, I think if we go on this route we're going on, there is going to be more to globalization in financial markets.

9:28But I think we're a ways away from that yet.

9:33Let me talk about what President Trump is saying this morning. He says he doesn't, or what he was saying over the weekend, he says that he doesn't want to dictate how the new Fed chair Kevin Warsh runs the U.S. Central Bank. The president spoke in an interview on NBC's Meet the Press that was taped after Friday's jobs report. It aired yesterday. I think Kevin is, Kevin's fantastic. And I want him to do whatever he wants. I don't want to have a big influence on it. But we had a great report. We're doing great. And it's unfair that whenever you do great, they want to raise interest rates. The president also addressing interest rates in the pattern of stock markets, sometimes selling off on good economic news.

10:13Nowadays, when you have good reports, the market goes down because they think they're going to raise interest rates. There's no reason to raise interest rates. The country becomes great. We built the country by doing great and having rates low. What they do is when they raise interest rates, they try and kill success. Raise interest rates, you try and kill success, or at least you lower interest rates when you're really trying to help the economy when it's doing well. Usually you don't need to lower rates because the economy is already doing so well. During the interview, the president did call for lower rates, but he was pretty clear a couple of times in saying he thought Kevin was going, he wasn't going to try and influence Kevin Warsh into doing things as well.

10:52The bond market is dictating exactly where rates are headed. It has nothing. And it was frustrating. It was such a good report on Friday. And that was almost one of the key factors for the big sell off. Things are going a little bit because of what we were just talking about. And technology stocks in particular are kind of keen to the... And it was risk off. To the potential for higher stocks. Bitcoin held at like, I think it did go... No, It went under 60, briefly, I think. It went below 60 ,000 for a hot minute. Yeah, it did. I think it was below 60, 59 or so. 63, I don't know if you'd say it's out of the woods at this point.

11:33It's bouncing a little bit. We want to go to the Middle East right now because Israel and Iran exchanging fire for the first time since that ceasefire between those two countries. we wanted to get over to Dan Murphy, who is right now in the region. Dan, good morning. Andrew, good morning to you. And breaking just a few moments ago, President Trump wading directly into that escalation. In a post on Truth Social just moments ago, the president demanded, and I quote here, that Israel and Iran must immediately stop shooting. It was a blunt, one-line intervention. And it comes after a weekend in which President Trump's private pressure was basically ignored.

12:14According to an Axios report, he personally told Prime Minister Netanyahu in Israel to stand down, saying a deal with Iran was within reach. But Israel struck anyway. President Trump then told the Financial Times he calls all the shots and that Netanyahu doesn't. President Trump now taking that message public. And of course, overnight, we saw Israel and Iran trading direct strikes. The first time the two have targeted each other since the April ceasefire. Israeli warplanes hit military sites in central and western Iran, air defenses, missile launch sites and a petrochemicals facility under U.S.

12:51sanctions. Iran in response firing waves of missiles back. And the markets are, of course, moving on this as well. As Becky just flagged, oil pretty sharply higher this morning, Brent's up around 5 % and inching closer towards 100 USD. US crude also hovering around 95 USD as well. What's interesting in the region today is that the language from both sides is also getting stronger. An Israeli military spokesperson saying Iran had made a serious mistake and that operations against Hezbollah will continue. Iran's foreign ministry also weighing in today saying it will keep responding for as long as needed.

13:28And an Iranian official involved in the talks also told MSNOW that a deal with President Trump is, quote, no longer feasible at this stage. Iran's parliamentary speaker, Mohamed Galibov, the top negotiator, by the way, also saying the U.S. naval blockade and action in Lebanon have made American bases and assets in the region legitimate targets. One more for the energy market, because over the weekends, we also saw OPEC Plus agreeing to raise output targets by another 188 ,000 barrels a day from July. That will be its fourth hike since the Strait of Hormuz were shut. Although, of course, the strait is still choked off.

14:06Little of that is actually reaching the market, which is probably part of the reason we're seeing that risk premium staying intact for oil. So the situation here in the Middle East still looking very volatile after this latest flare up. The big question now is exactly what it means for those U.S. Iran talks. Hey, Dan, in terms of the resources that Iran still has right now to continue fighting, to continue sending missiles either to Israel or elsewhere. How much capability are they still in control of? Well, that's a great question, Andrew, because this most recent escalation ultimately highlights how Iran still has the capability to wage warfare around the region.

14:46Not only did we see these attempted strikes inside Israel, but at the same time as well, the Houthis in Yemen now also threatening to close down the Bab al-Manda. This is the alternative to the Strait of Hormuz. They're saying any enemy ships attempting to pass that critical waterway will be blown up. So the threat level is rising, and it appears that Iran and its proxies are still demonstrating some sort of capability. On the other side of that trade, though, also fair to say that the U.S. has done a really extensive job in degrading Iran's ability to wage that warfare. But of course, the Iranians holding on to the idea that they're going to attempt to maintain that leverage and keep up those strikes as we inch towards what could be another round of talks to find an off ramp to this conflict.

15:34Hey, Dan, I'm sorry to throw this at you without any warning. But when you talk about the Red Sea, how much of the oil flow that used to go through the Gulf has been diverted to go through the Red Sea? And how big of a problem is that to hear the Houthis saying this at this point? Well, the Bab el-Mandeb is a really critical waterway as well. The Strait of Hormuz, responsible for about 20 % of global supply. The Bab el-Mandeb is really critical for goods and products. So this could cause shipping rates to skyrocket. It could ultimately cause more upside inflationary pressures as well. And of course, with that critical waterway also essentially being choked off, it means that the more long-term economic consequences of this conflict could also be impacted as well.

16:23So we're following this very closely. Exactly what type of capabilities the Houthis have to be able to exert their own control over ships in that area remains to be seen. But this is a warning that the market is really taking notice of and, of course, watching closely as well. Again, exactly where this goes, I think, remains to be seen at this point. But the fact that we now have two of the world's most important waterways in the crosshairs of the Iranian proxies and the Iranian regime is obviously a major problem that, of course, global investors and everyone exposed to this conflict is going to be following.

17:00OK, Dan, thank you very much. OpenAI getting ready for the biggest update to ChatGPT since the product launched. It's already been four years. It was four years ago. The Financial Times says that the changes are meant to bolster OpenAI's coding product, Codex, and reflect a belief within the company that task-performing agents are more valuable for the future than chatbots. And the report says as OpenAI competes with Anthropic, it wants to transform ChatGPT from one of those bots into a so-called super app, combining both agents and coding tools. Changes are expected in the coming weeks. Cheese will be next.

17:45Coming up on Squawk Pod, we're ramping up to what could become the biggest IPO ever. Right on the heels of a Nasdaq sell-off. CNBC's Leslie Picker says it might not be such a coincidence. Retail, though, is expected to comprise 30 % of the SpaceX IPO, and they may not be sitting on as much ample cash in order to invest. And so that's why you're seeing kind of, you know, potentially the unwinding of some of these levered ETFs. Then the investor famed for shorting the housing market in 2008, Steve Eisemann. Why he's not so positive about the SpaceX listing. It all comes down to AI. People are switching constantly from one to the other.

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19:32Gambling problem? Call 1-800-GAMBLER or 1-800-MY-RESET. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts.

20:07Welcome back to Squawk Pod. Here's Joe Kernan. SpaceX set to make its debut later this week, but some on Wall Street. I think its impact is already rippling through the market. Leslie Picker joins us now with more. Yeah, we've we've made note of that. Leslie, good morning. Yeah, good morning, Joe. The Nasdaq had its worst performance since April of last year, exactly one week before the SpaceX IPO. And that may be more than a coincidence. Recently, retail investors have been chasing the upside momentum in semiconductors and hardware and AI power names. Micron alone has seen$6.5 billion in net retail flows in the last month, driving 87 % upside.

20:53At the same time, U.S. equity levered ETF assets have reached an all-time high of more than$175 billion, concentrated largely in the NASDAQ 100 and semiconductors. Selling flows in recent winners and levered products from retail to invest in SpaceX could be very large, according to BNP Paribas. The firm hypothesizes that retail plus passive flows into the IPO could be about$50 billion. If retail sells out of levered ETFs, that can create even more disproportionate pressure. Now, this volatility could become even more exacerbated after the IPO. You've got SpaceX options and levered ETFs that list the following week.

21:38And in the weeks after that, the company will start to be included in various indexes. So when you combine SpaceX's tiny 4 % float plus passive and retail flows and then these options and levered ETFs, you can see a situation where SpaceX's performance, either to the up or downside, becomes more pronounced and has the capacity to bring the rest of the market along with it, guys. Every time we see any type of sell-off, Leslie, it's like, well, you like Bitcoin, but if you want some SpaceX, you might sell some Bitcoin to get some SpaceX. And I think that's just one example of what we've been seeing.

22:17And it doesn't stop with just SpaceX. So I don't know what this means for the markets with all these hot IPOs coming. Yeah, I think the question is, at least, you know, the people I speak with, the institutional investors, there's ample cash available. There are a lot of different wells you can kind of tap there if they choose to invest in this IPO. Retail, though, is expected to comprise 30 % of the SpaceX IPO, and they may not be sitting on as much ample cash in order to invest. And so that's why you're seeing kind of, you know, potentially the unwinding of some of these levered ETFs, which have a more pronounced impact on kind of the underlying assets there in order to maybe free up some cash if they were to invest in this.

23:03So you're seeing kind of an inverse relationship with the sell-off and then potentially the, you know, at least retail trying to free up some cash to invest in this IPO. Maybe they can get it from a private equity fund or something. Oh, no, that might be tough. Yeah. Nope, that's locked up, Joe. You can't do that either. Good thought. Yeah. Andrew. Hey, Leslie, I'm curious what the reaction is on the street right now about both Goldman Sachs and Morgan Stanley's analysts. Of course, the bank itself is underwriting this big IPO. But their analysts have put out some, dare I say, sky high projections.

23:41We can hope they get there. Three point four trillion dollars, I think, is the market cap that Morgan Stanley put on this company. Twenty forty. This is something that banks, frankly, did not do. We're not allowed to some degree to do post that global settlement that Elliot Spitzer made back. I want to say, what was it, 2001, 2002? So so what's happened? What's changed? Yeah, I believe there was some reforming of that settlement that took place in December of this year, kind of under the radar in terms of the communication between the analyst side and the investment banking side. It's not that there isn't still supposed to be a wall, but my understanding is that this is something where the analysts can't publish research necessarily, but the investment bankers can maybe go to the analysts and say, hey, what do you think here?

24:34And then they'll kind of work up a model, and then that can be communicated. So it's not something that's used necessarily to win the business, but it's something that's maybe used as they have conversations just colloquially with investors. These are not numbers that have been published anywhere. They've just been kind of communicated. But I think to your point, Andrew, just thinking 14 years into the future for any company is very challenging for anyone to get their head around what is, I mean, what does my life look like in 14 years? I couldn't even tell you. And so, you know, there's definitely been a lot of chatter about just the projections, the fact that, you know, the valuation itself.

25:15I haven't really talked to an institutional investor who said, yeah, I'm really buying this on the fundamentals. It's all about, you know, do you believe this very bullish future case or not? Or do you believe in the technical setup for the actual IPO trade or not? Right. Leslie, the thing that struck me, though, was I agree with you. You supposedly these were internal projections that these analysts were. They were not publishing this in a sort of classic research mode. And yet in both cases, within what, 24 hours of each other, those estimates were put out into the public. And so, you know, maybe the rule of the road is that you can't publish.

25:55But if you can publish internally and then leak them and you happen to be the underwriter, what does that say? Yeah, I think it's a really, really good question. Because I think what happened was these were communicated to investors. But if you communicate it to thousands of investors, I don't know how many were communicated to, but if you communicate it to investors, plural, it could leak easily. Absolutely. Leslie Picker, thank you. We'll be watching the big IPO all week. Joining us right now to talk all things markets is Steve Eisman. He is the host of The Real Eisman Playbook podcast. And Steve, thanks for being here this morning.

26:33Thank you. Why don't we talk first about the SpaceX IPO? We're anticipating it's going to be here later this week. Sure. Even come Friday. I'm not a fan. Why? Explain. Let's see.