Oil Spike, The Technical Take, and Oppormunities 10/8/26

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1:06All right. Thank you, Scott, and welcome to The Exchange, everybody. I am Brian in for Kelly once again. Stocks, they're off session lows this hour. Oil and yields leveling off. The Dow was down 240 points. The rate sensitive rustled down more than 1%, now down about half that. But we're going to see if those new headlines that you just heard moments ago about OpenAI and its accounting, if they move the market lower. This is all happening real time. The yield on the 10-year down to 5.25 percent. It was at 5.3 earlier. Fed Governor Waller saying more hikes maybe needed to curb inflation. By the way, same thing we heard out of the Fed minutes yesterday.

1:39You also have another bond auction hitting the tape right now. 22 billion worth of 30-year notes. We're going to bring you those results in moments. Oil prices leveling off a little bit. They were up about 5 percent. President Trump saying the U.S. is having productive talks with Iran. But we're still getting escalatory headlines from the region with an attacks on Saudi Arabia and its airport. We'll get you all the headlines that matter for oil, gas and energy. But we begin now with this open AI news that is moving the technology market. Kate Rooney has the breaking details. And Kate, I know we don't have a whole lot, but they seem the headlines seem big on the surface.

2:18Yeah. And Brian, we did also get a market reaction. So the market has been digesting this headline that we're getting from the Financial Times. Oracle was lower. Broadcom, the entire Nasdaq did take a hit on the FT report, that there is a potentially$20 billion discrepancy between OpenAI's revenue numbers. They say that this was according to a single source. We have not confirmed this, and OpenAI has not commented, but it is clearly having a market reaction. They, according to this report, told investors that the annualized revenue, so that is sort of the current month revenue extrapolated out for the year, it is a common financial metric that we're seeing in AI.

2:55They say that's approaching$50 billion at the end of September. You flash back to a couple weeks ago, many have reported it was close to$70 billion. I will say from multiple sources, that's what we have heard that it was around$68 billion when you look at the annualized revenue. We talked to Sarah Fryer just last week. She did confirm on our air that the growth rate was up about 70 percent quarter to date. So it does sort of conflict with what we have heard. The difference, according to this report, comes down to accounting. And they also talk about growth looking strong. But it is these revenue figures are overall just critical to this entire data center build out.

3:34So anything that could pour cold water on AI demand, especially as OpenAI, is such a key player in this ecosystem. You know, there's the demand picture. There's also the fact that most of the major tech companies at this point, some of the biggest in the world, are investors in OpenAI. So you've got Amazon, you've got Microsoft, you've got NVIDIA. So the tentacles in terms of how big this private company is and the market impact is obvious. I mean, it did hit the S &P, hit the NASDAQ, and you're seeing that play out in real time. And it's a private company, so they don't have to put out the public statements.

4:04So you've got to go on leaked documents, and this person said this. And I'm reading the FT story now, and it sounds like this is what they were telling investors. But again, Kate, I'm pretty sure this would not be the first time that we've had people question OpenAI's numbers or its losses. There's a report out a couple of months ago they're losing billions more than maybe people thought again. And there's always a lot of noise and news-ish, I think, around OpenAI and these numbers because it is private, right? We don't know. And I think one thing to point out, too, Brian, is one of the headlines is that it's about$20 billion lower than expectations or lower than what some had reported.

4:45So it's not like they put out a number publicly. They're not a public company and then missed that by$20 billion. This is sort of expectations according to some people and one person saying that it's lower. So I would caution, you know, again, we haven't confirmed this one, but we do want to talk about the market impact. I would say it's extremely difficult with some of these private companies before they've IPO'd because it is not a benchmark. It's not a real number that they've missed. It's sort of an expectation and what was reported versus what others are saying. So it's an important nuance.

5:16But I would just say it just underlines the essential nature of all of these AI companies. I don't think we've ever had a time when private AI companies, private tech companies, for that matter, have had such an impact on the overall trade and what you're seeing with the market. So that's clearly being digested. And you kind of get those like a little bit of the quant factor, too, where you have a headline. There's a sell off. There's a little bit of a knee jerk reaction. So you may be getting that as we see. It's happened before with open AI headlines. Same thing with Anthropic. They are just really key men.

5:45Let me talk about the overall state of the market right now. Oh, I think that any headline that goes to the growth and the spend that is powering the market is going to have a market impact. Maybe it's just today. Maybe it's not tomorrow. We'll see. Kate Rooney. Thank you very much. Just, folks, I want to say like a number of the stocks that are in the AI infrastructure halo, they were already down ahead of this. They're still down. IREN, I-R-E-N, down eight and a half percent. CoreWeave, down eight percent. Nebius, NBIS, that's down seven percent. You've got some of the semiconductors getting hit as well.

6:18Again, I don't want to say it's just on this news because the NASDAQ was down going into the news as well. But this news is, as Kate said, moving the entire complex arm holdings down 7 % as well. Sandisk, you can see some of the names that are on the move. Some of the deeper, higher multiple names, higher valuation names, they're the ones that are taking the biggest hit. Super micro, for example, down 6%. Again, these headlines just happening as we go on. All right. So let's talk about the A.I. trade generally, because your first guest now sticking with that A.I. trade, at least for now, Max Wasserman is the senior VP and portfolio manager at Wealth Enhancement.

6:57Max, don't worry, I'm not going to put you on the spot with this, but as I ask you to comment on the headlines. But as an investor in the group, I assume you you watch any headline related to revenues pretty closely. Absolutely. And thank you for having me on. But this is what we're anticipating, that given where the market is with higher interest rates, everybody's anticipating that the offset in earnings growth is going to make up for a higher interest rate market. We tend to think that hopefully it does going into this quarter. We hope that these earnings come out and show the acceleration in demand and growth is still there.

7:33But we're cautious. We like these investments. We like AI as a long-term trade. But we could easily see a pullback. And what you're seeing now, due to the news that just came out, we think is minor. If there was a show of a really slowdown, a deacceleration in the earnings growth, given where rates are now, you could see the Nasdaq give up 10, 12 percent like nothing because it's not anticipating that. Yeah. And I think that's an excellent point. And I know you like a lot of these stocks, right, the big stocks. But there is a part of me that worries just because I'm old and I've been doing this through the subprime crisis.

8:06And I actually was doing this. Yeah, I was actually doing this in a way during, you know, at the NASDAQ in the year 1999 and 2000. And those were different times, different companies that some of them were, as we now learn later, fake companies basically with no revenues. But I do worry, Max, that because there's so many holdings in these huge hyperscalers, if something were to knock it, how vulnerable would the stock market be given the concentration of weight and size in just, what, 10 or 15 stocks? Well, I think you could see, given their weight and size, and again, it's a very crowd. The indices are market cap weighted.

8:47So it's going to go where these large cap stocks go. So if you see any type of chink in the armor, you're going to take these indices down hard. But given the fact that the rest of the market is already discounting, I mean, You look at the financials, consumer staples, consumer discretionary. The market's already been down. It's really the tech trade that's keeping this going up. I mean, we make the comment that everybody's saying it's the K market. We think it's a K stock market, right, where it's the top tech that are doing it. So if you see any disruption in earnings growth, given where 10-year, the five-year treasuries are, where oil prices are, you're going to see a hard, hard pullback.

9:25But again, if you're diversified in your portfolio, I mean, we tend to look at a more barbell strategy. So we have energy. We have health care. This is not our only portfolio of just these stocks. I mean, this technology represents about 20 % to 25 % of our portfolio, and we're divotting growth. So we have a barbell strategy. But we anticipate you could get a pullback here because you're going into earnings season. Oil is not going to be coming soon. And the fact that interest rates and inflation are still there. So these earnings have to deliver. So when you get a headline risk like this, to me, this is just a shot about across the bow.

10:01If there was substantiation that you really saw a deacceleration in the level of growth, this market's going to pull back. But I want to be clear. The headline's 20 billion and I'm not in any way minimizing 20 billion. 20 billion to me, Max, still sounds like a lot of money. OpenAI is likely a one or two trillion dollar company. So you said at the very top, this$20 billion number, and again, it's just one report from the FT. It's an exclusive. We'll see where this leads. You're not that worried about it right now. I'm not that worried because we're diversifying. We have a barbell strategy. If we were just in these stocks or if we had 40, 50 percent of our portfolio, I'd be extremely worried.

10:44But, you know, we have been trimming some of our positions. We like them. We still hold the Microsofts. We still like it. We still like the Broadcoms and the Alphabets. But we're looking three, five years down the road. But they're due for a pullback in this environment. Everybody's way too optimistic. Everybody keeps discounting that we're in the third, fourth inning. But the market anticipation is really very high. And interest rates, inflation is still there. So it's not really a good backdrop if you have a pullback in earnings acceleration. We still like the AI trade. But again, these things are very well-priced for perfection.

11:20And in this environment with interest rates, you've got to be prepared. So I caution investors, make sure you're not overly concentrated in just AI tech, because it could get ugly. Max, sit tight, because speaking of interest rates, day two. Yesterday, 10-year, now we've got more bonds that are up for auction. Pippa Stevens watching that auction and has those results real time for you right now. Hey, Brian, so this was decent, but not as good as yesterday's 10-year note auction. And so just now,$22 billion in reopen, 30 years, seeing a yield of 5 ,618. That was largely in line with the when-issued yield just before at 5 ,617.

11:56Bits to cover coming in at$2.54. That's$2.54, chasing every dollar's worth of debt on offer, higher than the recent average of$2.44. Dealers take coming in at 6.8 percent, also better than the recent average of about 10 percent. Direct bid, 20.9 percent versus 22 percent. And then indirect bid coming in at 72.3 percent versus the recent average of 68 percent. Now, we did see the 30-year yield fall ahead of the auction on that true social from President Trump after earlier hitting a high of 5.733. That was the highest since May of 2002. Right now, we're sitting at 5.62 on the 30-year. Brian? All right, Pippa Stevens with the breaking news on that 30-year auction.

12:35Pippa, thank you very much. Max Wasserman, I'm going to go right back to you. Rates up again. But again, is this a stock market that can handle a 5.3, 5.4 percent 10-year? I think the stock market can handle it as long as there's earnings acceleration is what it's supposed to be and what's anticipated. If there wasn't earnings acceleration to the level, if this open AI news tends to be a shot across the bow and it's more coming this way, then that's too high. But if you get earnings growth, then the market can handle it. But any type of deacceleration in the level of growth with this level of interest rates, or if interest rates continue to outpace the earnings growth anticipation, the market can't handle it.

13:18Not right now. And you have to look at it this way. We know that this market's reacting to every new cycle that comes out of the White House. What's going to happen? Meanwhile, you have oil prices in the$90 range. You still have the Fed talking about maybe tapping the brakes again with another one or two times. Interest rates are not going to come down substantially. So you are going to have to deal with higher rates, higher oil prices, a consumer that's being stretched and anticipation of like glorious earnings from AI. And I don't believe that's going to continue. So we just caution the investor, you know, just have a well diversified portfolio.

13:51Don't concentrate in just these five to 10 stocks because a pullback could be very severe. And you and I've been through these things. And with interest rates where they are, there's not a lot of room for air for earnings disappointments. No, there's not. And when everybody is in the same stocks, because I have been through this before, as have you, and I've seen it a number of times, and it tends to not end well in the short term. But again, we'll see what happens. Market's down a little bit, but the NASDAQ is still higher for the week. So I'm not making too much of that, Max Wasserman, with wealth enhancement.

14:23Max, thank you very much. Thank you. All right. Turning now to sort of the other big market story today, and that is, of course, energy. The oil prices, they're up not as much as they were earlier, but they are still up about 3 percent, despite President Trump saying in just the past hour that the U.S. will not attack Iran before the midterm election, citing sort of productive conversations. But your next guest has been bullish on crude oil all year and says his call was really not even due entirely to the Iran war. Joining us now is Mike Rothman, founder and president of Cornerstone Analytics, longest tenured OPEC meeting attendee in the world.

15:03I don't want to go into rumors, Mike, but there's a lot of stuff out there about there was an attack on the Saudi airport. We know that that was reported, but there's been reports of some other things. Where are we in the story right now? believe it or not you're still in middle innings in terms of a structurally bullish outlook we're not in the consensus we're not near the consensus prior to epic fury we talked about this year as crossing the rubicon because it looked like we were going to get to a point where we actually exhaust spare capacity at the back half of the year and the consensus believed that prior to the war, Epic Fury, the market was oversupplied by 4.5 million barrels a day.

15:49There was zero evidence of that. And that there was a lot more spare oil production capacity available to the system than there really was. The consensus numbers were 4, 4.5 million a day. The number was really like 700 ,000 or 800 ,000 a day. So you had this structurally tight situation. Epic Fury, in terms of the idea of crossing the Rubicon, just put a super powerful motor on the back of the boat. We flew across the river. The reality is, we're in the eighth month of this war. Most people believed, and they were adamant in discussions about it going back seven and a half months ago, that there was no way the conflict could last more than two weeks, like at the most, didn't want to think about entertaining the idea of Iran realizing it could affect shipping out the Persian Gulf.

16:43And here we are looking at two and a half billion barrels of forfeited oil supply. And the number essentially keeps expanding every day. Then you've had the various accounts, statements that the war was over, statements that there's productive discussions. But the reality is that Iran— Mike, I'm sorry to jump in, but the reality is this, as you know, and we had an attack on a ship in the Arabian Gulf today. It was reported there was a strike on a tanker inside the Gulf today. There's kind of the scene kind of off the coast of Qatar and Bahrain. We also had a hit. This is like awful hit on the Riyadh, Saudi Arabia airport where people were killed.

17:26That was less than 24 hours ago. So now they might be going after civilians, which is absolutely despicable. And of course, you've probably heard the rumors about what you know, have there been other things today inside of Saudi Arabia that may have been targeted or hit or something like this? That doesn't seem like, quote, productive discussions to many people, including myself. That would be correct. And it's not even just that the attack on the airport. the Saudis did finally fess up to. They've been loathed to talk about the attack on another pumping station near Riyadh. It wasn't just a refinery that was hit.

18:04They hit one of the pumping stations on the east-west line, which they were using as a workaround. That affected flows. There was an attack on Quresh, one of the oil fields, and there have been attacks on ships pretty regularly. The reason I say this is because the notion that somehow the war is over is really misplaced. It's what people hope is the case. But the reality is the conflict is still very much hot. And there's no indication from any sources that I would call reliable to suggest that it's actually near an end. And this is a problem because you are literally disrupting normal oil production and export operations from the Gulf.

18:44Now, we'll get a tranche of data next week. I know in our work, we'll update all those analyses when it happens. But the number is still somewhere around 9 to 11 million barrels a day of production is being forfeited per day. And it's just accumulating into this tally of lost supply because you can't make up for that unproduced oil. And I want to, Mike, I want to be careful with my words here. Again, I apologize for jumping in on you. No, don't. There's a refinery in Saudi Arabia called Abcake. It's not a refinery. It's so much. Oh, no, Abcake's a processing center. It's so much. Well, it's just so big.

19:18It's the biggest processing center in the world by far. It's like basically a city. In 2019, it was hit. And by the way, Saudi Arabia, to their credit, is very, very good about getting things repaired, like the east-west pipeline, very, very quickly. If something were to happen with Abkake, I have no idea where Iran's going to go with this. But if they're attacking innocent civilians in airports, it shows that they may be willing to go further than we thought. if they were to hit, say, something like an abcake, then what would happen with the price of oil? Well, to start, I'd be more popular than Bono because for the work that we do, abcake is considered one of the two biggest black swans in the oil industry.

20:01The biggest black swans actually already afoot, which is shipping being interrupted in the Straits of Hormuz. But abcake handles almost 10 percent of the entire world's oil supply. And when it was attacked in 2019, on September 14th, the damage was downplayed pretty heavily. I mean, at the time, the Saudis were actually buying oil from Kuwait, from the UAE, and from Iraq and reselling it because they did not want to declare force majeure. And the attack on paper was never even supposed to happen. So the reality is that Iran's very effective with these drones. There's been a lot of targets hit back a couple of months ago, you may remember, like nine targets hit in one day, which included, by the way, Abcake, and not just the East Swiss pipeline.

20:45A couple of oil fields were hit, refiners were hit, petrochemical plants were hit. And this is unfortunately the state of affair. And when I started going to OPEC, because I know you left to tease me about the fact that I've been doing it for so long. But when I started going to OPEC, which was in 1986, meetings would last for weeks because there was roughly 15 million barrels of spare production capacity in OPEC. and the whole world was consuming only 60 million a day. I mean, the tanker war didn't even affect oil prices because they said, hit a bunch of tankers, it doesn't even matter. There's so much extra production available in the tank that you could bomb tankers and it's not going to be a problem.

21:24That is a luxury that doesn't exist. In fact, and again, not to sound like the old geezer, but back in 1990, when Iraq invaded Kuwait, overnight, the world lost 4.2 million barrels a day of net exports from the two countries. The rest of OPEC had it made up within three weeks. It was like not even a big deal. Again, that is not a luxury that is currently afforded to this market. It's really a tight system. So the war creates a real risk of a protracted pressure situation for oil supply. And like I said, structurally, there's a lot of factors in play. I know you don't have the time for it and I talk too much, but there's a lot of factors in play that talk about this proclivity for the oil market to really get squeezed on supply, not just because of what's happening now, but just structurally the underinvestment in capacity and really the resilience and the growth in oil demand.

22:19Mike, we always listen. I always love I always love hearing you talk. The open A.I. news kind of compressed all the segments right at the top because we have a limited amount of time, kind of like the world might have a limited amount of oil. And let's hope that Iran, as despicable as there being, does not target any more civilians in Saudi Arabia or anywhere. Mike Rothman of Cornerstone Analytics just getting started in the business. Mike, don't we're halfway through. It's all good. I know. I'm only middle innings myself. So thank you very much. Appreciate that. All right. So outside of all of that, you also now have the first hurricane to form in the Atlantic Basin this year.

22:57We went 112 years up to now without having a storm in the Atlantic Basin. Well, that record is now over. The name of the hurricane is called Isaias. I have an odd name, but it's set to become the first storm to hit the mainland United States in two years. AccuWeather's Bernie Raynaud tracking the storm's path. And Bernie, as I understand it, it has shifted a little bit. But what are we looking at? We're looking for that area, ECE, to continue to strengthen. I'll show you the landfall point here in a second. But the important thing also, it is strengthening now. Take a look at the satellite. A picture is worth a thousand words, a thousand words here.

23:35And you could see it really more cylindrical and round. Note the lightning now starting to form. That's the sign of strengthening. maximum sustained winds of 85 miles per hour, and it is now moving toward the United States. We do expect this to continue to strengthen and become a Category 2 hurricane by tonight. Now, what's a Category 2? Maximum sustained winds of at least 96 to 110 miles per hour. And there is a concern that it could become a major hurricane or Category 3 as we head toward tomorrow. That begins with sustained winds at 111 miles per hour. Now, right now, AccuWeather pinpointing that landfall near Pensacola, Florida at 11 o 'clock tomorrow night.

24:17But there is still a little wiggle room here with that landfall as far east as Dauphin Island, Alabama, as far west as Destin, Florida. The timing as early as 8 p.m. Friday, as late as 1 a.m. Saturday, maximum sustained winds of 90 to 110 miles per hour. Now, from an oil standpoint, here are the rigs across the Gulf. When you look at the track of ECE, it's an eyeball. It looks to me like it's going to impact about 15 to 20 percent of those oil rigs. The majority of them are off the Louisiana and Texas coast where there's less impact. When you look at the refineries, similar to the oil rigs where they're located, Most of the refineries are across Louisiana and Texas, but there are some refineries here in southern Alabama and southern Mississippi.

25:14But keep in mind, the five biggest refineries, four of them are in Texas. The other one is in Louisiana. But there's no question from that standpoint there will be some impact on the oil, less so on the refineries. And then once this gets inland, we're going to have some problems. Certainly, Florida Panhandle extending into the southeast. We have a high risk, Brian, of risk the lives and property here beginning Friday night and lasting in the Saturday, including severe weather, unfortunately. By the way, this is not the worst case scenario this track for Mobile, Alabama. It's more of a worst case scenario for Pensacola.

25:55But if that storm comes a little farther to the west, just to the west of Mobile Bay, that would be the biggest problem. Look at the storm surge, 6 to 10 feet. Brian, that's going to do a lot of damage. And, of course, wind will be a huge problem as well. That's going to cause some damage. Bernie Reyna of AccuWeather, keeping a close eye on East AIS, first Atlantic storm this year. Bernie, thank you. All right, coming up, a group of fired OpenAI researchers writing an open letter to their former employer, all in the name of safety. This is The Markets Falling on some other OpenAI headlines. We've got it all right after this short break.

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28:05All right, this OpenAI news from the Financial Times is kind of rattling the markets. It's all happening real time. And Kate, I know you got a whole other story on OpenAI and safety. We'll get to that in a moment. But what else do we know about this FT story? So, Brian, I just got off the phone with a source who's familiar with OpenAI's financials. That$50 billion that the FT is reporting is their revenue number. I'm hearing that is accurate and some nuance here, that$20 billion adjustment. So it was$70 billion was sort of the number that was out there. I'm told that is including some revenue sharing from their big partners.

28:44So think about Amazon. Think about Microsoft. The$50 billion is what goes directly to OpenAI's revenue numbers to their balance sheet. So it is a cleaner number from what I'm hearing. And it's a way that certain investors are taking that and trying to compare it directly to Anthropic. I would just say it speaks to the fact that these companies are private, the fact that it's an entirely new asset class and the way that they have been reporting revenue has included some of these big partnership deals. $50 billion is stripping that out. So it gives a little bit of color there. But we have confirmed the FT report is accurate in terms of that number, but a little bit of nuance there.

29:21Potentially positive news for some of OpenAI's partners, though, if that revenue is actually their revenue. You think about Amazon and Microsoft, I'm not sure what those stocks are doing. But that is one potential beneficiary of this. Those companies report earnings coming up, and these are quarterly numbers. So that could be one of the implications of this report, Brian. Amazon is down 1.9 percent. Microsoft down 1.2. Not big moves, by the way. Some of the other names, the IREN, some of the hyperscalers down 8 percent, core weaves down 7 percent. But those are more high beta names. They tend to move a little bit more.

29:53But that news did move the market. All right. Let's pivot. Speaking of open AI, some recently let go open AI researchers writing an open letter to the board about managing AI safety risks. So, Kate, what are they saying? What is what is this every day? We now seem to get a warning about how we're all doomed. Yeah, well, Brian, I'll give you some context here. So this report does raise some new questions about AI safety for OpenAI. The company also facing some accusations about how it won a prized math problem. So the first part of this has to do with OpenAI employees being fired over what the company says was a violation of policies and sharing confidential information with an outside AI safety firm.

30:35So those researchers are now pushing back. And a letter obtained by the journal sent to OpenAI's board members as well. They say their firings could actually discourage others from speaking up about potential AI risks. It does come at a time when these companies are very much being left to self-regulate. We're not getting any new rules in place. OpenAI denies that the firings were retaliatory. It does also say it supports researchers' broader safety concerns. And then separately, an NYU math professor, Tristan Buckmaster, this morning on Squawk Box, accusing OpenAI of stealing his findings and then using them to solve a millennium math problem.

31:11I mean, the fact that they would front run their customers, I mean, it shows their sort of disdain for their customers. I mean, like, why would a company buy their product when, like, if you get an interesting ideas, they can look at your private notes and beat you to market? Open AI calling it categorically impossible for Dr. Buckmaster's codex prompts over the past two months to have influenced its system in any way, including training. But, Brian, it does highlight the issue of trust for enterprises. That is such a core part of the business as these companies look to go public. Yes, it is. Kate Rooney on a double dose of open AI news.

31:53Kate, thank you very much. Thanks, Sally. All right, so your next guest says the companies need what he calls a zero-trust model for AIs. Company deploys real-time tracking for every AI agent, model, and non-human workflow across companies. I have no idea what any of that means, but let's find out. Jetstream founder and CEO Raj Rajamani joining us now. Now, what did I just say, Raj? What does that mean? And what do we need to do to make sure the technology, and it's coming, by the way, nobody's stopping the technology, is there for us in the right way? And, you know, doesn't kill us all. Yes, I think the killing narrative is probably a little overblown.

32:30One hopes. One hopes, Raj. Pardon me? I said one hopes. Yes. Yes. So we've been doing this for a very long time, especially cybersecurity has always believed in defense in depth and security in layers. And what you just outlined is what we are hearing many of our more advanced customers trying to put together, which is a system in which every agent has a clear owner, a clearly defined purpose, and in some ways what we call a blueprint that defines all the interrelationships and dependencies that it is allowed to touch. Earlier last week, NVIDIA also published a very notable blog post calling for all agents to run within sandboxes or secure containers.

33:20And I think that is a very valuable prospect. And hopefully the entire industry moves towards that because, you know, we do need to make sure that when things go wrong, we have the ability to, you know, pull a kill switch or stop all the activity that these agents, a swarm of agents may be performing. And one of the biggest challenges here is that it is very hard for anyone to define all the different things that an agent or an AI system is allowed to do or not allowed to do, because it would be too cumbersome, there would be too many things for you to write down, and it would be very error-prone.

33:54So that is where the agentic zero trust models come in, where you allow these agents to run within sandboxes. You observe what they're doing. You baseline their behavior. And whenever you notice certain sequences of factions that are highly correlated with risky activity, you step in and request a human approval. Right. So those are the types of products and systems that we are building and helping our customers embrace and deploy so that they get greater trust and safety with their AI systems. All right. You know, there's also news out there that apparently some changes are being made to the overseas visa program.

34:33This would seem to be a really bad decision if the U.S. wants to be competitive. I would imagine you would agree with that. If we want to have the best and the brightest from all over the world, we need more visas, not fewer, I think. Yes, I would agree. I'm the beneficiary of one such system, and I would like to think that I've made a lot of interesting contributions to cybersecurity and so have numerous others who come in from various different parts of the world. I would definitely want to continue working with the best and brightest. We actually have employees in four different continents, right?

35:08We have folks in India, in Europe, in Brazil, and over here in the United States, and that's because we want to work with the best and most talented people that we can assemble. to go after this really ambitious mission of securing AI for everyone. So, you know, curtailing the ability of certain people to contribute does not really help us on the larger mission here. Raj Rajamani of Jetstream. Raj, really appreciate your views on a couple of different topics. Have a great day. Talk to you soon. Thank you. Thank you for having me. All right. So, folks, coming up, we're going to talk more about this market reaction to that story from the Financial Times about a$20 billion revenue.

35:47I don't want to say revenue miss, but that open AI may make$20 billion less in revenue than maybe some people had thought. It's affecting stocks like NVIDIA. That stock's down just about 3%. But how's the technical setup on the market looking? We're going to find out with Katie Stockton next.

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36:42Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Computers are getting smarter, Silicon Valley's getting weirder, and AI is taking over. At least that's what everyone keeps telling us. Welcome to Machine Gods, a new NPR podcast that will be your field guide to the AI-powered future.

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37:39Welcome back to The Exchange. I'm Cliffith Stevens with your CNBC News update. A federal judge today briefly extended the temporary restraining order that allows CNN, Politico, and our sister network, MSNOW, to have access to the White House. The judge said he would issue a ruling by Tuesday. Last month, the president said he was banning the three outlets, citing negative stories, but the judge temporarily restored access after the news organizations sued. The NFL urged the Supreme Court today to take the case over who has the authority to regulate prediction markets and is backing several states that say the platform should fall under state gambling laws, not the CFTC.

38:16The league filed an amicus brief in the case between Calshi and the state of New Jersey. CNBC and Calgary have a commercial relationship that includes customer acquisition and a minority investment. And the Department of Justice is reportedly seeking a criminal indictment against Cassidy Hutchinson on charges of lying to Congress in her testimony before the January 6th committee. That's according to Punchbowl News, which says the DOJ is presenting evidence to a federal grand jury that Hutchinson has not been subpoenaed to appear. Brian, I'll send it back to you. All right, Pippa, thank you very much.

38:48All right. Overall, the markets are down for a second straight day. Tech, the underperformer again on a report, which Kate Rooney has just confirmed, that OpenAI's revenue may be 20 billion dollars less than expected. But your next guest is bullish in the short term and the longer term and says the cyclical uptrend is still firmly intact. Let's get more now on the charts on this and more with Katie Stockton, founder of Fairlead Strategies and a CNBC contributor. Katie, we've got a couple of things to walk through. Let's begin with the chart of the macro market. How does the S &P 500 look? The new highs that are in reach, I mean, that's a bullish thing in and of itself.

39:28There's nothing wrong with new highs, right? So if we were to see a confirmed breakout from the consolidation phase, that would act as a positive technical catalyst. And the short-term indicators that we track do point higher. So do the long-term indicators. So as much as breath has been weak and that's been widely publicized, the S &P 500 being near its highs and also maintaining those momentum gauges, I think the market is in good shape and wouldn't worry too much about a two-day pullback. OK, not too much. Yeah, the headlines, I mean, they're rattling the markets a little bit, but I want to point out the Nasdaq is still higher for the week.

40:05So not only do you say tech, broadly speaking, is set to rally to all-time highs, but a specific stock, I think it's called NVIDIA. I think I've heard of this company before. Me too. Yeah, it's just like it just rolls off the tongue. That might be poised for a new record. Well, we've seen already a good test of resistance for NVIDIA. And if it were to confirm a breakout above 237, the measured move projection that you can arrive at for NVIDIA based on a breakout would be about 262. And that's very compelling. We all know that NVIDIA has the largest footprint in the major indices and also is really essential to market sentiment when it comes to semis and the AI trade.

40:50So we think it's key to the market and would also encourage folks look at names that have corrected Broadcom for one that have seemingly turned the corner. So we have some different setups that are both intriguing from a technical perspective. We talk about rates every day. The banks have been whacked. You now think that on the charts, banks may be oversold. They are without question oversold. It's just a matter of momentum now improving with that oversold condition. Importantly, the bank index and most of the banks are oversold and still within the scope of their cyclical uptrends as defined by our cloud model.

41:29So the cloud-based support is pretty close by for the likes of Bank of America, Goldman Sachs. And with that in mind, they set up more favorably coming into next week's earnings reports. Katie Stockton, are you as excited as I am to also be on Fast Money tonight? I am looking forward to it. Katie, you'll be with us the entire hour. I will be there as well. It's the Katie Stockton and Brian Sullivan Network today. Katie, we appreciate it. Love it. All right. Thank you. Me too. All right. We've got a news alert, though, happening right now on Apple. Let's find out what's going on. Mackenzie Sigalos, what is going on?

42:04So, Brian, we've got a bit of a leadership shuffle under CEO John Ternus. Bloomberg reporting that we're getting a new M &A chief coming in. Now, this person is going to replace Adrian Perica, who's been in the role for more than a decade now and who's coming in is someone called Steve Smith. He's going to be this new head of the mergers and acquisitions unit. He's already a part of the Apple team. Now, keep in mind, we haven't seen much M &A from Apple, despite a lot of the$110 billion cash pile that they're typically putting toward these share buybacks. This might indicate a change in the direction of M &A under John Turnis with this new leader who's coming in to replace Perica.

42:42Also, keep in mind the way that the M &A team is reporting. They're moving that unit back under finance for the first time since 2019. So this new report, Smith, he's going to be reporting directly to CFO Kevin Breck, who himself has only been in the role for around 18 months now. What I will also say is that we're seeing some changes in terms of the services division under Eddie Q. So a bit of a shuffle there. Carson Oliver, he's being promoted to VP of the App Store. Well, Q has recently taken more of the responsibility across the App Store in addition to services. So we're seeing some changes now that Ternus is in the C-suite.

43:17Yeah, I've got to imagine the Apple head of M &A may be the loneliest job in the world, but maybe that's going to change with a name like Steve Smith. Who's to say it's not going to? Mackenzie Cigalos, thank you very much. All right, coming up, coffee and guacamole? We're not just randomly saying words. We've got a market rumor story you've got to hear, and you will next.

43:42This is an amazing story. You got Chipotle stock is up 7.5%. You got Starbucks stock down about 4%. This is not a random market occurrence. Brandon Gomez joining us now. Some chatter that Starbucks could try to buy Chipotle? I know. There's a lot of fancy headlines out there finding common ground and the like. But look, Chipotle's best single day since July. All right. So this is really sending shares higher. But the immediate logic here is Brian Nickel. He's one of the rare restaurant executives who is in this scenario has run both companies. So putting it simply, he knows both playbooks. Now, for Starbucks, this would add a powerful lunch and dinner brand to the business, most associated with morning coffee and afternoon beverages.

44:25And for Chipotle, it would give the chain access to Starbucks's global real estate licensed stores, digital and loyalty infrastructure as it's been looking beyond its U.S. footprint itself. But the deal gets much harder when you look at the math and execution. Chipotle is roughly as valuable as Starbucks. So any acquisition would require a massive premium debt stock or some combo of all three. And the cost savings may be modest at best. These are not asset light franchise heavy chains with the same supply chain. Chipotle's fresh food company operated model is very different from Starbucks global mix of company operated and licensed stores.

44:59So investors right now, they need to weigh and decide whether nickel is using this deal to accelerate his vision for Starbucks or if it was the risk of distracting. Quickly, where does it stand, though? I mean, it seems bizarre. Again, the FT is reporting that I've reached out to both companies. I haven't heard back from either of them. The tying thread here really is that nickel was at the helm of both companies. There was a report out, too, that if you look at where Starbucks and Chipotles are located on a map, 90 percent of Chipotles are within one mile of a Starbucks location. So there's some geographic synergy.

45:29But what the no product synergies, I guess. Carne asada and cappuccino. Starbucks is trying to push an afternoon. Afternoon is trying to get more into the morning. You do it in Oxford, Ohio. You know what's there? Miami University of Ohio. You know where Brian Nickel went? Miami University of Ohio. Well, then the students are going to love it. Not University of Miami. MU, which is red and black. All right, Brandon, thank you. Thanks. Coming up, there's a rare combination setting up in the municipal bond market. That's next.

45:59All right. For years, investors like you could almost automatically turn to tax-free municipal bonds for income. But with Treasury yields not hitting multi-decade highs, do munis have to get cheaper and maybe offer more yield to keep up? Joining us now is the head of municipals at Invesco, Mark Paris. Mark, it's a good question. 5 % in the 10-year. Is that competition for your client's money? Yeah, it's a great question, Brian, and thank you for having me and being here. I think right now is a compelling time for investors to be in municipal bonds. You know, yes, the Treasury yields are high, but municipal yields are extremely high, too.

46:34And actually, we have not seen tax equivalent yields this high in almost a decade. So when you gross up the yields that you get in a municipal bond, 20-year bond at 5 percent, 30-year bond at 5.5 percent, good high-quality bonds, you're getting a lot of yield compared to some of the other things that are out there. Muni market was actually one of the worst performers in the month of September. I know taxes differ by state, but grossing up in general, grossing up taxes to those yields realistically on average. What can our viewers and listeners get in a return? Well, look, if you look at 20 year paper right now, we're right around a 5 percent.

47:10If you're in the 37 percent bracket, that's pretty close to 8 percent, 8 and a half percent yields, depending on on some of your local taxes and what type of bonds you buy. And those are safe. That's not like I'm buying some weird Chicago thing that might go bust. not picking on Chicago, I love the city. But I think, you know what, I mean, these are investment. These are high-quality bonds, and right now the municipal bond fundamentals are extremely strong, Brian. Matter of fact, I would say that they're as strong as they've been. This is not a credit event. This is a technical event that we're seeing in the market where the Treasury rates rose so much and municipal prices are cheap.

47:46And not only are the yields high, but there's also some total return possibilities. Are you having people call and say, Mark, you know, I'm thinking about getting into Muniz. I've been in tech stocks for a decade. I've doubled my money. There's a lot of smart people I know that ask me all the time, Brian, how much more money can they make in the market? I say, go ask somebody smarter than I am. That's probably you, Mark. I got to imagine they might be looking to put a little bit of that profit somewhere, maybe in Muniz. I don't know. Muniz? Yeah, you know, it's an interesting thing with Muniz.

48:16The beginning yield that you get usually is a good indicator of what you're going to get in total return every year. So, you know, 5 % a year tax exempt, 5.5 % on the longer end, high-yield municipal bond funds that are yielding above 6 % right now. And if you're not worried about the credit, if you buy good, diverse investments, it's a great place to take some profits and equities and move them over into the municipal bond market. The graphic there says the strongest yield pickup relative to duration risk is an 18 to 22-year maturities. What does that mean? Yeah, so that means you don't have to go all the way out on the yield curve and experience a lot of duration volatility.

48:53A 20-year bond right around a 5 % for a good high-quality bond, that's a lot of yield to take into account right now. For those investors that want to get out longer, there's longer yields. And I also think high yield in the 6.5%, 7 % range is attractive right now as well. So is that higher, lower credit rating? Like, is that better? I'm trying to find the words better. They're not these aren't junk bonds. So they are technically high. Some of them are some of them are these are these are the best of the lowest. Right. And if you buy a big investment grade rate that buys a high yield municipal bonds, you can get a good diverse portfolio with a lot of yield.

49:31And people are going to say spreads are tight. But I always say, would you rather buy a four and a half percent bond at plus 200 or six and a half percent bond at plus 100? I'd rather take the six and a half percent bond. Yeah. And by the way, 8 % grossed up with taxes sounds pretty good to me. Might sound good to a lot of people watching. We're going to say goodbye, though. Mark Paris of Invesco. Mark, really appreciate that. Thank you very much, folks. Thank you for watching or listening to The Exchange. I'll see you on Power Lunch in about two and a half minutes. See you there.

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