Oil Slides, AI Stocks Rally, Midterm Stakes and Market Rotation 11/3/26

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1:07Thank you very much, Scott. Oil is down, the AI trade is up, and midterm voting is underway. I'm Kelly Evans, and welcome to The Exchange on this Tuesday. The Nasdaq is bouncing 1%, half a percent higher for the S &P today, and the Dow would be positive were it not for Apple. We'll be back to that one a little later on. Down 2 % right now. We're off session lows. But the AI names are back to leading the way. AMD, NVIDIA, Intel all higher. AMD earnings are due out after the bell. It's up 5 % right now. Memory and AI infrastructure names also rising with CoreWeave up 5%. That's the third one on your screen there.

1:41Nebius about 7. Cyber names are up too as Crowd Strike is reportedly buying two AI security startups for half a billion dollars. The company also introducing an AI kill switch. Crowd Strike shares are up about a percent. All of this comes with oil prices slumping again. WTI hitting a low of 93 a barrel earlier. It's down 8 % in two days. It's off the lows, I guess you'd say. All of this despite news of U.S. attacks on Iran. In fact, let's start with the latest on that this hour. Megan Costella is live in Washington with the latest for us. Megan? Kelly, that's right. The market is digesting a few conflicting headlines on Iran today and overnight.

2:18First reports that the U.S. struck Iran's Kashm Island on Monday and that the attacks were the latest in a series of limited strikes the U.S. has been secretly carrying out against Iran in recent weeks. Now, earlier in the war, the U.S. military had been announcing attacks as they happened. Now, the Wall Street Journal cited one U.S. official saying the U.S. has been purposefully keeping the military action quiet so as not to signal any intention of resuming major combat operations. President Trump has also been significantly downplaying the possibility of broader action. He spoke to Fox News last night after reports of the attacks were made public and said, when was the last time we fired anything?

2:54This isn't a war. This is a very soft war. He went on to say that there is a very good chance that we make a deal with the Iranians. So the president clearly there focused on the idea of a diplomatic resolution. And all of this coming after the Iranians have held four straight days now of negotiations with Qatari mediators. Bloomberg was reporting overnight that both the US and Iran are now reviewing fresh proposals from the mediators that would avoid a return to all-out war. So yes, more U.S. attacks yesterday on Iran, but on the whole, the focus appears to still be on this possibility, Kelly, of a deal.

3:27And to put it differently, people in the market are saying what we're really doing is taking out the premium in oil that was building up last week on speculation of these attacks. And one way to kind of gauge that is to look ahead to the futures curve, the forward curve, the price for oil at, say, the end of next year, and we're coming back down into that territory. So if things stay kind of the way they are today, Megan, let's turn our attention to the midterms tonight. What do you think are the most significant races to watch? Yeah, Kelly, it's pretty hard to believe that after months of campaigning and nearly$12 billion in ad spending that tonight, we will finally see some voter data.

4:01So I'm watching the Senate the most closely. Democrats have to flip a net four seats here for the majority, including at least two in states that President Trump won by double digits just two years ago. Now, five toss-up races will likely determine the balance of power in the Senate. Michigan is already a blue seat. So Democrats likely need to keep that and take three of the other four to win. That's out of Maine, Alaska, Texas, and Ohio. I'm also going to be tracking the early poll closings for clues of how things are looking. Parts of Indiana and Kentucky will close first at 6 p.m. Eastern. So I'm looking at Kentucky's sixth district around Lexington and Indiana's fifth, the Indianapolis suburbs.

4:40If either of those are close or go for the Democrats, That means the party is having a good night. Then at 7, Florida and South Carolina's polls will close. The Senate races there should go comfortably for the Republicans, but it will be interesting to see the margins. The first toss-up states then close at 7.30. That's Ohio and North Carolina. But Kelly, I am also bracing for a long week. In each of the past two cycles, it was eight days before the House majority was called. And in the Senate, two of the key states, Maine and Alaska, are exceedingly slow at counting their votes. So if Senate majority comes down to either one, which it very well could, then it would be a long time before we know who controls it.

5:18It's going to, you know, and it's so funny and we'll talk about this with our next guest. But a lot of people are saying it's not clear the midterm elections matter all that much for the S &P. But those eight days, if it's anything like that, again, are going to feel like an eternity. Absolutely. Nobody likes uncertainty, right, Kelly? No, no. I mean, the markets like it. But for us, you know, you want you want to know. You want to we want to write those narratives. We want to say this is what happened. And, you know, it's hard to have to wait. Megan, thank you. Appreciate it. Megan Casella. Our first guest has spent the past 10 weeks touring swing states and data centers.

5:50He's back to share what he's learned and what that portends for the midterms. Dan Clifton is head of policy research at Strategas, a Baird company. It's great to see you, Dan. This feels like it needs like a novel or a magazine article like Dan's trip across. What did you learn? What would you what would your intro be? Well, the first thing I will tell you is that this is a great country. And I love being around America. I love being around Americans. I know we see a lot of divisiveness, but it's been just a tremendous amount of trip to be in all these states and to be with our fellow countrymen.

6:21I would also say that the Midwest is absolutely booming. We're moving from a consumption-based economy to an investment-based economy. It's really hitting hard. And to see those factories and to see the mood improving there. But it's really not impacting consumers. And that's the big issue. It's the affordability issue that everybody has talked about for so long. And this is just a referendum election. So it's very different than 2024, where it was a choice between the two candidates. This is an election where people are sizing up the president over two years and saying, did he make good on his promise?

6:53Did he get inflation down? Did he end Middle East wars? And Kelly, it feels a lot like it did 20 years ago when Strategas opened its doors. We opened our doors right before midterm election. It feels a lot like the 2006 midterm election when you tour the country. You see a lot of discussion about the war, the gasoline prices. And as Megan just said, the Democrats that year had to win in very Republican states to be able to take over the majority. The consensus did not believe that they were going to. And the Democrats did. And the reason that's important is that right now, as we would go through the country, you would see each week more and more institutional investors talking about Republicans losing the Senate.

7:34And that really has kind of built into the consensus now. It was very interesting to see that transform over a 10-week period. Do you have an election eve prediction that you'd want to share? And there's also been this weird phenomenon this time around where those polls over, it was more over the summer. There were a few races where the primaries had these polls or people, I think even in Michigan, maybe the more conservative Democrat dropped out because Al-Sayed was. And then it turns out these were these were fake polling firms that were made up. So kind of a brilliant move. But I mean, we the fact that nobody caught on to this sooner.

8:09How are the polls off by 20 points? They were literally fake polling shops. So absolutely. What's your prediction here? That's why we go to the states and that's why we try and do the best on the ground work that you can. But I would say that we used hard data this election cycle more than the soft data like the polling. We use the special elections. We've had 80 of them. The country's moved 10 points to the Democrats. Those are actual voters and how they voted. What you saw was that Republicans were less enthused. Democrats were very enthused and the independents were swinging over with the Democrats.

8:41That's classic for a midterm election. And those are actual voters. Like then we get the early voting data. I mean, it's just been an amazing two weeks of going through the early voting data. Something that we see is like Virginia hasn't changed much since last November when they had their governor's election. And you see that in the special election data compared to the early voting data. And it tell us, you know, we saw you see this swing happening. That means that the Democrats are going to take the Senate. I mean, take the House. The Senate is much more complicated because you have to win by these very large margins.

9:14And they're going to be very close, less than 1%, right? So what's very interesting to us is that our election baskets, our baskets of stocks levered up to this election, they're projecting about a 60 % probability of a Republican sweep. So it's saying Republican sweep. The betting odds this morning, Kelly, were at 80%. And there's been this - Democratic sweep or Republican sweep? What's that? So say that again. Your election baskets are predicting a 60 % chance of a Democratic sweep? I'm sorry, of a Democratic sweep. Yep. And I'm sorry, I came out wrong. And the 80 percent chance of a Democratic sweep in the betting markets.

9:49And it's the first time you've really seen this diversion. So you're starting to see a little bounce up in defense stocks and bank stocks. You know, anything that's going to be levered up that would hurt if the Democrats sweep and and even some of the biotech stocks. So from that vantage point, you know, the market is just taking a little bit of a pause and say maybe maybe the betting market's got a little ahead of itself. But the market is pricing in a Democratic sweep right now. And anything that's going to deviate from that tonight will be a big capital market event. Right. But just what you said is important, which is that kind of some of the stocks like defense biotech are breaking out a little bit, which, you know, the market odds of a blue sweep are lower than what we see in prediction markets.

10:28So finally, I guess the big, big, big picture question is, if this is all about the AI boom, it's really going to come down to data center build out, chip controls, things like that. Again, from the market's kind of leadership point of view. This has been a data center election, period, right? And people will deny it. The investors will deny it. People in politics will deny it. But when the governor of Virginia taxed Virginia data centers the same week, the governor of Texas said that he wanted to regulate data centers, the data center trade has underperformed the S &P 500 by 30 percent. That was late June, Kelly.

11:04OK, so what you're saying here is, OK, if you're going to get one or two new governors and they're going to tax data centers, you're probably going to get less of it. But if you get five of those in Texas, Ohio, Iowa, Nevada, Georgia, now you've got to change your CapEx view. And the second big issue around this is that Democrats are going to believe that data centers were a mandate issue for them. And at the federal level, the Democrats are talking about using the debt ceiling and trying to remove the 100 percent expensing for data centers. And in fact, we believe that the Ways and Means Committee in the House are going to hold hearings on this almost immediately when they come back in.

11:41So you're going to see a lot more oversight on this issue. And it's so critical to CapEx and the market weight of the S &P 500. As you know, we view midterm elections as sort of sectors and sub-industries. But given the nature and size of what we're talking about, it's a little bit more of a macro feel this cycle than you've seen in previous midterm elections. And so as you just said, you said if there's one or two governors who appear to be an anti-data center. That's one thing. You said if we get all five, if there's five new governors, that could change the CapEx view. And the Democrats would believe it's a mandate issue.

12:16They might take that to the debt ceiling and fight to change the 100 percent expensing of data centers. That's right. And the president could veto that. But as you know, the Republicans effectively use the debt ceiling to get President Obama to sign two trillion dollars of spending cuts. The debt ceiling is an extremely strong piece of leverage. And so I just think that investors and the tech companies need to focus in. They're like, hey, this is going to be OK. The election is going to be a clearing event. That may be true. But if you get a Democratic sweep that's bigger than what the market is anticipating right now, particularly at the governor's level, then this is going to be with us for some time.

12:50That works the other way. If the Republicans have a huge election day today and offset some of the gaps that they've had in the early vote that's so clear to us in the data, they're able to pull this out, be able to keep the Senate. you'll see a huge rally in that data center trade. And it will be pretty massive given how much everything's priced in since July 1st. Great insight, Dan. Thank you so much. Really appreciate you bringing that to us. Thank you, Kelly. Dan Clifton with Strategas. There have been nine sessions of Congress since the financial crisis. And our next guest says, despite us seeing five of the eight possible combinations of party control during that time, the one constant is that the S &P has risen during every single one.

13:28Let's bring in Paul Hickey. He is Bespoke Investment Group's co-founder. Paul, I thought that was a nice place to start it, right? It's like, because I hear what Dan says, I'm like, geez, this is going to be a big deal for the data center trade. But one way or the other, maybe the S &P can find its way higher. Yes. I mean, Kelly, I think the point of that table you just showed is just to highlight with all the attention we place on the elections and even the midterm elections. it's more of a sideshow compared to what the main event is of the markets and the economic trends going on in the U.S.

14:01economy. So, you know, it's a lot of, you know, noise around the elections. But I think once we get past this, we'll start to focus on broader trends again. Let me ask you this then and almost kind of take the opposite side of what I just said, which is maybe in this midterm elections, unusually the very thing that's driving the economy, which is data centers, is on the ballot. I'm not sure if that's been as true in previous years, maybe to some extent with the housing cycle or, you know, I don't remember cloud computing being, you know, a midterm rallying cry. Yeah, I mean, that's certainly one of the issues on the ballots, but I think consumers are a lot more angry about the higher price of energy and the wars going on in the Middle East.

14:45So I think that's really causing some dissatisfaction on the part of investors. And if we do see a major Democratic sweep, it'll be because of that dissatisfaction. I think so. You have to look at what you're going to see. And the polls are saying one thing. And, you know, I think the market is priced in a Democratic control of the Senate and the House at this point. But just remember, I mean, in October alone, we saw two big elections in Brazil, both rounds of that presidential election. And what the outcome of each round was, was only a 20 % probability going into it. So we just have the votes count today.

15:23And those are the only ones that count. And we'll just have to see how it plays out. But what I do think is important for investors to realize is that going forward, when you look at market performance, we've heard about the midterm effects and performance going forward from there. But if you look at the four-year presidential cycle, this is actually the one-year forward returns from right about this point are some of the strongest that we've seen at any point in that four-year cycle. You've been positive a year after the close on November 3rd of a midterm year, 92 % of the time. All right, let me ask you about oil, because a lot of people would say the midterms are or have been kind of a sideshow this past week, because so much is geared towards whether there's this big escalation with the Iran war and, you know, concomitant increase in oil price.

16:11We've seen some of that already. How are you reading this relief decline in the oil price? And how important is that as a factor against everything that we're talking about? Yes. I mean, so we started out the week with a big drop in oil. It's encouraging and you didn't see much of a market rally on that. But I think what the market's looking at is we've seen several sharp pullbacks in oil, one day declines of over five percent. And they didn't really amount to much. So I think it's anyone's guess what's going to play out in Iran and how this is going to get resolved at the moment. And every day there's a new headline that contradicts the old one.

16:47So the longer the whole premise at the start of this war was the longer energy prices stay elevated, the more of a weight it's going to become on the economy. And we're now eight months into this. So that's good. That's weighing that's going to weigh on sentiment, which we're seeing, which we will likely see at the polls today. And eventually it impacts the economy, which you've seen some real weakness in consumer stocks in the fall because of that. Have we seen that? That's interesting. Yeah, I mean, we I mean, you look at some of these stocks tied to the consumer. It's in the consumer discretionary sector has seen some more, you know, interest in recent days and recent sessions.

17:29But overall, the consumer discretionary sector has been one of the weaker sectors of the market this year. And would you would you want to see that turn up for a variety of reasons? Right. But I mean, is there a kind of business cycle message? Is there an inflation message? Is that usually a leading indicator? I'm just curious kind of how you read that other than the obvious obvious, which is it's just frustration with high prices. Yeah, I mean, consumer is two-thirds of the economy, so we want to see the consumer stocks doing well. You know, at the index level, it's amazing because we've seen the index sell off so much.

18:04But like, you know, we've been talking about for several days and you've been talking about is that underneath the market, breadth has been really strong. So the S &P 500 is what we call extreme oversold levels, over two standard deviations below its 50-day moving average. But nearly half of the stocks in the S &P are overbought. So like I was just saying, in recent sessions and in recent weeks, we've seen that broadening really play out in the market. All right. And there's the consumer discretion kind of flat year to date. So I'm certainly not keeping up. Let's put it that way. Right. Yeah. Paul, thanks very much.

18:37Appreciate it. All right. Thanks, Kelly. Paul Hickey. Coming up is Apple's pain. Memories gain. Apple, the reason the Dow is red today. But could it be good news for the memory stocks, which are rallying? T. Rowe Price's Tony Wang is here to weigh in on that next. Plus, an exclusive interview with Pfizer CEO Albert Bourla. The pharma giant hiking its full-year outlook after earnings this morning. Shares are riding their first four-month win streak in five years. We're back after this. This is The Exchange on CNBC.

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19:54Before treatment, get checked for infections and tuberculosis. Tell your doctor if you have an infection, flu-like symptoms or need a vaccine. Explore what's possible. Ask your doctor about Trimphia today. Call 1-800-526-7736 to learn more or visit trimphiaradio.com. weren't agents supposed to take things off your plate building another to handle the others is a bit much don't make more work out of work Gemini is the one agent that knows all parts of your business and actually gets stuff done you give it a project close your laptop and when you come back the job's finished no 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 You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter.

20:45Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts.

21:18Welcome back. Shares of Apple are sinking today. They were down 4 % earlier, 1.8 % now. A little frustration with the company's profit margin forecast. CEO John Ternus calling memory costs unprecedented, and that's where they're feeling the squeeze. But Q4 iPad sales also missed expectations and services slowed down. Now, the memory stocks are getting a lift at least. And our next guest is here to weigh in on how much upside is still left in these names. Tony Wang is portfolio manager of the Science and Tech Fund at T. Rowe Price. Tony, it's good to see you again. Where do you want to start? Where did you learn the most that informs where you'd want to invest today based on everything that Apple said?

21:59Yeah, it's a really interesting time, right? Like memory costs have been super high. And so they're eating in a current gross margins. But if you step back and look at what's going on in the industry, right, like Apple is actually growing like very impressively, you know, looking at the competitive backdrop. Competitors are actually declining. So Apple's actually gaining shares. So I think as a long term investor, what matters is that you're actually, you know, increasing share in your ecosystem. And I think on the other side of it, like I think if memory prices do normalize, you actually have that as a tailwind on the other side.

22:31in addition to new users, you know, from the ecosystem. So I think that's, like, pretty interesting here. And that's, you know, probably as, I guess, considered today. But if you look out a year or two, that's what's going to be interesting. So actually, it's made you more bullish. You think they're taking share? Yeah, definitely. I mean, I think that you look at, like, units, shipments for the rest of the industry, they're down, right? And Apple's actually maintaining that. And part of that, you know, their shipments being maintained better is because when you have rising memory costs, Like all of a sudden, the iPhone looks like great value because everybody else can't absorb the cost or they're raising their prices more.

23:08So I think that's like kind of the interesting dynamic. And it's actually better for long term share potential. I think Apple's actually taking advantage of it pretty well. OK, that's I love a little counterpoint on that one today. And maybe that's why we're off the lows in the markets, shaking it off a bit. Where does it leave you on the memory names? I think memory, you know, obviously is becoming more and more important, you know, for the industry. And I think there is a point where how much can prices go before they kind of destroy some demand and people design around it. But I think that the tailwinds are really strong there, and they'll continue to do well.

23:46I do think it's got to remember it's a cyclical industry. And so that's just the biggest thing to think about when you're investing in these names. But they've had a growth tailwind for the last decade. And because memory is becoming more important, it's harder to make these chips. There's AI data center chips that are different from commodities. So I think it's definitely more interesting industry, and they've got a lot of tailwinds. So AMD reports tonight the shares are up 5 % today. But as Dan Clifton just pointed out, the data center trade has underperformed the S &P by 30 points, which he attributes to some midterm anxiety.

24:21Have you been buying the AI trade on all of these down days and buying it broadly? Yeah, I mean, there's a lot of, like, you know, cross currents here. I'd say that part of it is geopolitics. Part of it is like, you know, kind of concerns about the sustainability. But I think that, you know, when you're looking at investing, you want to make sure you own the companies that are the best franchises that can grow share over the long term. And, you know, I think AMD is one of those companies that they continue to do well. And you take a look at the longer term horizon. Yeah, there's cyclical dynamics, but, you know, they've proven to like innovate through the cycle, which is really impressive.

24:58So I can't shake you. I can't shake you on memory. I can't shake you on Apple. I can't shake you on who else? The chips. I mean, and look, maybe with good reason from where you sit. Do you think these continue to lead the business cycle, lead the broad stock market rally, high conviction until until when or what happens? Yeah, I mean, I think that, you know, I don't think like you can expect one company to lead indefinitely or a group of stocks. Right. So I think that I kind of think about as like multi-year compounding and who's best positioned to capture that. And we're going to have cycles and downturns.

25:36But like you want to go into companies that will kind of be like you said, like lead on the other side. And I think that is a lot of technology stocks because of so much innovation going on. But, you know, we're constantly, you know, assessing the risk of the market and rotating the portfolio. So, you know, that's definitely, you know, in our minds as well. What is your favorite name right now? Yeah, I mean, I think that, look, I think like semiconductors, like the big franchise names like NVIDIA continue are good. You know, AMD, like we talked about. You know, I think Microsoft continues to compound really well.

26:10And, you know, if the models are more open, like they will have a good position there with Azure. And I think integrating their broader office suite. So, you know, I think that, you know, these companies just have such good modes and they have a strong competitive kind of like set of characteristics with capital, with compute, with leveraging their install base. So, yeah, I continue to like them over the long term. All right, Tony, thanks so much. Really appreciate it. Thanks. T. Rowe Price's Tony Wang. Coming up, Chinese regulators, very different story over there. They are reportedly telling investment banks to pause IPOs in an effort to boost the market.

26:50The country's benchmark index coming off its worst month in more than a decade. We'll get a live report from Beijing ahead.

27:11Tremphaya offers self-injection or intravenous infusion from the start. Tremphaya is administered as injections under the skin or infusions through a vein every four weeks, followed by injections under the skin every four or eight weeks. If your doctor decides that you can self-inject Tremphaya, proper training is required. Tremphaya is a prescription medicine used to treat adults with moderately to severely active Crohn's disease and adults with moderately to severely active ulcerative colitis. serious allergic reactions, increased risk of infections or lower ability to fight them, and liver problems may occur.

27:45Before treatment, get checked for infections and tuberculosis. Tell your doctor if you have an infection, flu-like symptoms, or need a vaccine. Explore what's possible. Ask your doctor about Trimphia today. Call 1-800-526-7736 to learn more or visit trimphiaradio.com. weren't agents supposed to take things off your plate building another to handle the others is a bit much don't make more work out of work gemini is the one agent that knows all parts of your business and actually gets stuff done you give it a project close your laptop and when you come back the job's finished no 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.

28:32You know, Kevin, sometimes I feel like computers are the only thing around here that are getting smarter. Yeah, my model hasn't had an update in a while. But that changes now. We think that we can smarten these listeners up about all things related to this crazy new future. Welcome to Machine Gods, a new NPR podcast that will be your guide to the AI future. Twice a week, we're going to help you get smarter about AI so you know what's real, what's hype, and what you should probably install on your phone. Listen to Machine Gods from NPR on the NPR app or wherever you get your podcasts. Welcome back to The Exchange.

29:07Dow's still underwater in part thanks to Apple, but the S &P's up six-tenths right now, and the Nasdaq is up better than 1%. Check out Palantir. Earnings beat, guidance raised, but shares are lower this hour, though off earlier lows. The company's commercial revenue topping its government revenue for the first time. Analysts are pointing to a slowdown in total contract value. That was only up 11 percent year on year, whereas last quarter it was up 153 percent from the prior year. Elsewhere, big layoffs at Disney. Sources tell CNBC the company is planning to cut several thousand jobs, with some managers being asked to cut costs by up to 20 percent.

29:43It would mark the latest round of layoffs under new CEO Josh DeMauro, who took over in March. The shares are up about 13 percent since then, and Disney reports results two weeks from today. Also, AMD, it's popping 5 % ahead of its earnings after the bell today. It's down 11 % over the past week, though. The options market pricing in a 7 % move, and that's in line with the move we saw after its August report, but is smaller than the two nearly 20 % swings we saw earlier this year in May and February. And don't miss a first on CNBC interview with AMD CEO Lisa Su tomorrow morning. Squawk on the street around 9 a.m.

30:19Eastern time. Let's get to Julia Boorstin now for the CNBC News update. Julia? Kelly, as voters head to the polls today, federal authorities in Oklahoma charged a man with sending hundreds of letters to public officials containing non-hazardous white powder ahead of the 2024 and 2026 elections. The suspect is expected to make his first court appearance this afternoon. Meanwhile, Westchester County, just outside New York City, hit with a ballot problem this morning. The county executive said there is an issue with ballots not being read by the scanners because the paper they're printed on is too thick.

30:57Voting officials says there's a backup plan to place the ballots in special envelopes so they can all be counted at one location later. And the state of Florida forced to move more than 20 polling places in seven counties today due to severe flooding. In hard-hit Brevard County, officials say unprecedented circumstances forced them to make the move. Almost 30 inches of rain have fallen in some areas along the Space Coast in just the last day. It lasts 36 hours. Back over to you. Wow, that is a torrential amount. Julia, thanks. Coming up, an earnings beat, a guidance raise, and a new CFO, all helping Pfizer touch a two-year high today before turning lower.

31:36We'll speak exclusively with the CEO about what's next at the pharma giant when we come back.

31:46Welcome back. Shares of Pfizer touching a 52-week high earlier after strong third quarter results and a guidance raise couldn't hold the gains or down about half a percent. Analysts are flagging the slippage of a key prostate cancer drug trial from Q4 to the beginning of next year. Joining us now to discuss is the CEO himself. And a CNBC exclusive, we are joined by Pfizer CEO Albert Gorla with CNBC's very own Annika Kim Constantino. Welcome to both of you. Annika, kick us off. Hey, Albert. Thanks for being with us here. So your newly launched and acquired products grew 32 percent operationally here.

32:19But at the same time, revenue overall for the business was relatively flat here. And so can you tell us now how quickly can this new portfolio of products become large enough to drive growth for Pfizer as a whole, rather than just helping offset some of the declines that we're seeing in other parts of the business here? Now, Nika, it's a great pleasure to be with you. Actually, the growth was 7 % if you exclude COVID. COVID was very low this quarter and very low this year. But I think that's the positive news for us because COVID revenues was an overhang over our performance of our stock because of the perception that it is volatile and it's material to us.

32:59Actually, we've proven that we can make it irrelevant, if anything, only an upside, because in the lowest possible COVID performance, we are beating and we are raising by one and a half billion dollars because of the overperformance of the other products. Understood. And I want to shift to patent expirations really quickly here. As you look ahead to these patent expirations over the next several years, how much of that expected revenue loss do you believe that your existing portfolio can fully cover and address here? And how much of a gap is there still left to fill here with things like potential acquisitions from here?

33:34I think our aim was to cover the whole thing. So post-28, we expect to turn into growth, the company, and to have made our projections that from 28 to 33, the five-year projections are high single-digit growth. We prepared for that, LOE. And we invested, since COVID, probably double than the second investor in pharmaceutical companies. We invested almost$80 billion, the second one probably around$40 billion. And as you've said, the performance of this portfolio is doing extremely well. Actually, the acquired products, 80 % of them were in three companies. They are growing 37 % right now. And it is not only that they are growing at 37%, but what we acquired were platforms that they have tremendous pipeline that we are working on it right now.

34:33So in addition to the revenues that they generate now and they will continue generating so that we can overcome the loss of patent exclusivity, we are bringing pipeline that will perform even better in terms of growth. And speaking of your pipeline here, obesity is very top of mind for investors. You've talked about the potential to capture patients that are currently taking weekly injections on the market and switching it to a potential monthly injection that you have. You're also developing it as a weekly injection as well, I know. But can you tell us, Albert, how big is this opportunity in the maintenance treatment setting in this obesity market here?

35:10I think it's huge. The market is, as you know, one of the largest markets. This is the market that created the first$1 trillion company, which is Lilly, with exceptional performance on the obesity. We are coming to this market now in two years. And we are coming with a portfolio that is highly differentiated, very different. You can find higher differentiation than one is weekly, the other is monthly. It's very clear. There is no gray zone. We believe that for products that are monthly, there will be a huge preference from people. And that will allow us not only to gain good market share of every new patient that is going into the GLP-1s, but also we can switch patients that are already on their maintenance phase in the weekly products into our monthly.

36:00So the potential is tremendous if we are successful in doing that. But Albert, I have to follow up here. Monthly dosing isn't unique to Pfizer. We also have some other drug makers that are also using this approach or even less frequent dosing. So really hammer in for us what really differentiates barobanetide here, your GLP-1, in an increasingly crowded market when we reach the end of the decade here. I think in our performance, we have multiple differentiators, but I don't think that there are many that are coming monthly. And maybe there are new players that they are working on monthly performance and we are waiting to see their portfolio.

36:39We are also, I have to say that we are developing an every three months product. So I think very likely in year 28, we will be having a monthly product. And I don't think others will have an equal profile with us. Albert, it's Kelly here. I'm just curious if you're watching the midterms with any particular rooting interest. I know you guys are part of the prescription drug portfolio the president's rolling out, try to bring those discounts to more people. Do you have a rooting interest? Look, we have a high interest, but it's not an interest on Democrats or Republicans. It is an interest on members of the Congress that will be pro-innovation.

37:24And they can sit in both sides of the aisle. And we are looking forward to see more of them elected during these midterms and working with them. Those are the people that they truly believe in science. Those are the people that truly believe that America's edge, it is in innovation. and we should be doing things to enhance this edge rather than take it back. All right. Pro-innovation is the message there, Albert Bourla. Thank you. Appreciate it today. Annika, thank you so much as well. Pfizer CEO Albert Bourla. Coming up, we could now be less than two weeks. Two weeks from Anthropics IPO. Could be the biggest ever, but it's a different story over in China.

38:06Their regulators reportedly pausing new listings. We'll head live to Beijing to find out why next.

38:17Welcome back. Everybody's buzzing about Anthropix upcoming IPO here in the U.S., but a very different story playing out overseas. In China, where the benchmark index is down 20 percent from its June 22nd peak, FT were now reporting that Chinese regulators are asking investment banks to pause IPOs and large share sales. Eunice Yoon is in Beijing for today's Tech Check. Eunice? Thanks so much, Kelly. Well, the Financial Times has been citing sources as saying that investment banks are being told and given informal guidance from the stock securities regulator as saying that there is a pause for these IPOs as well as for large sales of stocks.

39:02And that in addition to that, large sales for existing shareholders are temporarily suspended. All of this is because the stock market here has been falling and the sentiment around it very negative. As people are looking at the economic data, they're worried about the AI trade overseas and the impact of that. The report also comes as a CSRC official had vowed to make every effort, he said, to promote a stable market. and after there have been recent supportive measures for the stock market, which haven't really been received very well. Some of these are meant to try to make it much easier for companies to buy back some of their shares, also to make it easier for institutional investors to get more liquidity, cheaper financing for share buybacks.

39:53So these are a cut rate for relending a facility on a relending facility for share buybacks. It's a one-year swap operation and then revising buyback rules for companies. The government is really making this effort, as I said, to be able to turn around this negative sentiment. But it looks as though, just based on what we saw in the past 24 hours when some of these measures were announced, that the response really doesn't look like it's enough. People are concerned about the overarching sentiment here. And ironically, if this IPO report of a pause does become true, it's going to make it that much harder for a lot of these Chinese companies to be able to make profits, to be able to expand their businesses because they wouldn't be able to tap into that capital that they might need.

40:46As we've seen here and elsewhere, you know, if you try to halt it, to hold things up, you often can make the damage even worse. Eunice, thanks for now. Appreciate it. Eunice Yun in Beijing. Coming up, tech leading the way again today, but Pershing Square's Bill Ackman telling Squawk Box that with all the focus on AI, he's been bargain hunting in the names outside of tech. The focus this year has been chips and semiconductors and that sort of very specific, you know, we call picks and shovels theme. Everything else is sort of ignored. And that's what created the opportunity to buy some pretty amazing businesses at prices that, you know, businesses we've always wanted to own, but were too expensive.

41:28Ackman went on to say he was able to buy Visa and MasterCard on the cheaper side. Both are among the top performing financials over the past three months. Visa up more than 15%. Our next market guest is also looking outside of tech and will tell you where she's adding exposure next.

42:04Welcome back. Earnings season has shaken up the market leadership. Walmart, Berkshire Hathaway, and Eli Lilly have added$550 billion in combined market cap over the past month, nearly offsetting the losses we saw at Alphabet. Our next guest is looking to emerging markets among other non-tech areas right now. Amanda Agati is the chief investment officer at PNC Financial Services. We're not saying you're out of the AI trade, Amanda, but talk to us about how you're approaching the markets here on election eve. Well, it's great to be with you, Kelly. Thanks so much for having me. You're right. Full stop.

42:39I am not exiting the AI trade. We still have a decent amount of exposure there. We're tactically overweight there. But I think what's been really interesting as a function of Q3 earnings season for the S &P 500 is that we're seeing signs of life again, fundamental breadth, and also market breadth, right? Leadership out of the bottom 493. So quality value is reasserting itself again. I think you can find some good opportunities there. So we've been kind of picking up a few things at the margin there. You called out emerging markets. I would say we're thinking about portfolio positioning from a bit of a barbell approach.

43:17It's U.S. large in general, but it's also emerging markets. All the stuff in the middle stuff, technical term, is going to continue to struggle against what I would describe as a pretty rapidly evolving macro backdrop. So emerging markets for us, I mean, it's a little bit of a hold your nose and buy it, right? Valuations are pretty cheap here, reflecting a tougher than expected, I think, backdrop from most market participants. But there's still an AI story there. And importantly, I think the next leg of this innovation cycle is going to lean further into AI commodities. So baskets of commodities, a commodity related exposure in emerging markets looks very well positioned here, even after a bit of a run that they've had this year.

44:02What do you talk more about that? What do you mean by the next leg could be AI commodities? Well, so I think, you know, everybody's focused on AI, but what does that actually mean? How do we figure out what the winners and losers really are going to look like? It's still early. Our view, our base case is still early to maybe middle innings. It's not about one name, NVIDIA. It's not about seven names, the MAG-7, right? We've seen kind of the market snooze, yawn as it relates to Q3 earnings season, even though the fundamentals have been good. So the question is, when does that baton get handed off to the next leg of innovation in the cycle?

44:39Well, of course, it was semis in the beginning. It's been memory here kind of in the current environment. But what comes next? And so I think, you know, there's been anticipation of this commodities boom as it relates to AI. We need more power. We're short power supply. We need data centers. How are we going to power it? Precious metals, you know, components, that sort of thing. So we're still focused on building blocks. It's still the infrastructure and the foundation. We're nowhere near yet to the place where the use cases, the trajectory and profitability for the market is going to change yet.

45:13I think that's coming, but we're not here yet. And I think investors are notoriously impatient. So for us, we're trying to figure out where the scarcity is. That's the next leg of innovation and way to play the AI cycle. I love this because we had Chris Davis on over the summer. Brilliant. And he's already thinking, to your point, multiple steps ahead. I mean, he was saying his favorite AI play is Capital One, because we all know at some point that rotation is going to happen. It's not going to be about building AI. It's going to be about how AI is making your company more profitable. And that's the name that he's betting on for that reason.

45:47That's fine. But what you're saying is a lot of people are jumping ahead and looking down the road. And right now you guys are still focused on the build out and the shortages that we're seeing. What gives you the confidence to say we can still stay here, we can stay in this place and kind of invest here right now and not be looking ahead? Well, I think there's so many good points to unpack there. I think the here and now is still very much that this infrastructure story has not been fully built out. Right. We know we're very short memory as it relates to power, all the LLNs, all the potential use cases that haven't even really been born yet.

46:23So so I'm still hung up on infrastructure, right? This is a race. The U.S. needs to win the race. It's going to be expensive. We've spent billions and billions of dollars on this, hundreds of billions on this already. But I don't think we're done yet. And so that's where I still think that there are pockets of some opportunity. Yes, valuations have moved. But I think the underlying fundamentals have an opportunity to catch up. And I think that still creates some legs or some runway for the cycle. I think you calling out Capital One is awesome. It's a perfect example. I mean, I'll just zoom out and say financials in general could be a very significant beneficiary of that step change or step function move in terms of profitability, implementing AI to really transform the financial system in a lot of different ways.

47:11The thing I'm thinking about, and it's so hard to catalyze an investment opportunity tactically or otherwise yet is what are the use cases that are going to change the trajectory of growth? The table stakes here is the step change up in profitability. Everybody has to figure out how to make their business models more efficient. But I think the ultimate secular long-term winners are the ones that change the nature and trajectory of growth and really the business model. And you have to get really creative to think about what that's ultimately going to look like. I still think that's a couple of years out.

47:46Yeah, fair enough. And finally, I said it's election eve. That would have been last. But it's like an eve of the results or something. And maybe it will be several days. Are you in the blue wave camp? Is there is it important to be in a camp? Is it important to have a forecast? Is it just a wait and see? I think ultimately we're sort of in alignment with where prediction markets are, which would suggest, again, with a lot of caveats around this, that the Dems are going to take Congress. And so we'll have, of course, the administration as a Republican and then the rest of it Democratic. I think from a market standpoint, that's gridlock and markets want gridlock.

48:23Markets want clarity and a lack of negative policy surprises in one direction or another. So if we're following the prediction markets or the betting markets, I think that's likely to be the outcome. Voter turnout is going to make all the difference, Right. And investor sentiment, voter sentiment is also going to be an important driver of the outcome tonight. So so we'll see. But I think that's the best case scenarios that we end up with gridlock. I think the market should do fine with that clarity lifting. All right, Amanda. Thanks. Good to see you today. Amanda Agati with PNC. That's it for us.

48:56Thank you for watching The Exchange. Coming up on Power Lunch, we'll talk markets and midterms with billionaire investor Barry Sternleg. I'll join Brian Sullivan for that after this quick break.

49:09You've been listening to The Exchange. Make sure you're subscribed to get each episode every day, same time, same place. The quarter pound of a cheese is made with 100 % fresh beef, cooked when you order it. Then comes the melted cheese, the slivered onions, the pickles, the ketchup, and the mustard. Add hot crispy fries and an ice cold Coke, all for$8. And if things go well, one loose fry at the bottom of the bag. The Quarter Pounder with Cheese Meal, now$8. Ba-da-ba-ba-ba.