Risk off, Rate Reprieve and a new OpenAI Lawsuit 10/15/26

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1:04Thank you very much, Scott. The AI trade is getting shellacked, but with a surprisingly positive twist. I'm Kelly Evans, and welcome to The Exchange. Take a look at the sell-off in these AI infrastructure names. It continues today. Nebius, Lumentum, Down Big, Iron as well, obviously. core weave shifting, making a bit of a comeback. We're only down half a percent right now. Was this morning the lows? Are we going to put this behind us or not? Have more chapters to come. We'll talk about that. Anthropics ho-hum revenue numbers last night not helping. We'll have more details on that. And what happens if these mega IPOs don't happen?

1:41The surprise twist is that the AI implosion is lowering bond yields. The benchmark 10-year The Treasury fell almost 30 basis points yesterday. And even after hot PPI data this morning, we're still down a little bit, 508. What that tells us about inflation, the economy and rate hikes. Plus, eight states suing OpenAI for alleged child harm. We'll speak with one of the attorneys general leading that effort about what fines and punishment this company and others could face. But let's begin with these jaw-dropping moves in bond yields. The good news is that mortgage rates will drop considerably this week if we stay around here.

2:15Does it mean that AI was the real culprit in the rate run-up we've seen in recent months? Let's bring in EY Parthenon's chief economist, Gregory Daco, along with our very own Steve Leisman, senior economics correspondent. Welcome to you both. Steve, just kick us off for a sec. Set the scene here for you. You might have thought, I mean, after PPI, producer price index data came in hot, you know, bond yields back on the. That was last week's story. That was the story a couple of weeks ago. It's not the story anymore. There's two pieces to this. The first piece is that this flight to safety doesn't always last.

2:48It's not necessarily the be-all and end-all, the end point of where they are. Sometimes you have this movement into bond yields, and that ends up being short-lived. The other piece of this is you did get a stagnant consumer today. So you can add on top of that the concern that, or the hope even, that with consumers perhaps coming off the boil and feeling affected by these higher energy prices, that perhaps that'll be something that ends up easing the inflation concern. Actually, that's super important what you just said. And Gregory, jump in here because retail sales kind of got lost in the shuffle, at least from a news point of view.

3:24But you think for the market that was the much bigger event? Well, I think there are two elements that come into play, and Steve was right to highlight one of them. Higher inflation leads to demand destruction. And what we've had over the last few months is essentially income erosion from these higher inflation readings. In fact, real wages, so wages adjusted for inflation, have been contracting for the last six months. So that's putting a damper on consumer spending. It's not leading to a pullback per se, but it's leading to more selective consumer spending activity. The other thing that's very important to keep in mind is that higher interest rates are also a damper on private sector activity.

3:58And we have to be very cautious that in a high interest rate environment, there is going to be less activity. So that's also, to some extent, pressuring down overall economic activity. And I think we have to be very careful with this notion that the AI space is not sensitive to higher interest rates. There is sensitivity via the financial conditions channel. Steve, here's the whipsaw we've had to go through since yesterday morning. Yesterday morning was CPI. Hotter than expected. Yields initially rose. Right. That's when some were making the connection between yields and the behavior of leveraged names like Corweave.

4:33Right. Fine. Now the argument is, OK, so Treasury yields were up yesterday, which hurts Corweave, but they're down today. Is that why the stock is green? Or a lot is being made of these one-day intra-hour movements. First of all, folks at home, nobody said this was going to be easy, right? There's not one story. There very often isn't just one story. Everybody wants to latch on to something and say, that's it. No, you have this inflation issue. That is a real issue. And by the way, I want to spend a minute contradicting what I said at the top of this, which is I am very concerned about inflationary pressures in this economy.

5:08If you look up the chain or up the pipeline when it comes to the PPI this morning, there is considerable inflation to come. I just did a little regression on diesel prices and food prices. Food prices tend to increase four months later or so. worth thinking about. You do the surveys. We did the NFIB earlier this week. Look at the base book. Companies are saying they're going to be raising prices. So the problem in front of the Fed right now is not even the inflation it has now. It's either, A, the longevity of it and the possibility that it goes higher. That's another thing. But getting to core weave, I think the story here is that - Which is now positive.

5:45We'll pull it up. They went crazy yesterday. That doesn't look like the right chart to me. The shares today, they're down more than 50 % from their highs, down 15, 20 % this week. They're positive on the session now, so a lot of shellacking has been priced in. Are they responding to the reset we've had in treasury yields? I mean, it's hard to know. It comes down a little bit, and that helps them a little bit, that's for sure. But there's another part of this whole aspect that we don't even talk about, which is CoreWeave and Meta and all these other guys. There are guys right now that are buying land in order to sell permitted land to the data center builders.

6:22Those guys are carrying this land with a relatively short-term note that ultimately has to be paid for, and that went up. So there is this pressure on different parts of the AI pipeline or the AI data center story that doesn't show up at the top. And I guess, Gregory, I'll turn to you on this. And all I'm trying to say is if yields are resetting now because they're seeing that weaker data and thinking we can price out some rate hikes. Well, that that's a different narrative than we literally had tomorrow morning after CPI. That's fine. But that just shows the kind of the whipsaw action that we're having right now.

6:58What do you now expect for Fed hikes? Should we have even had the one in September at this point? Yeah, I would just like to stress that we have a TV moment when Steve starts to talk about running regressions. But when it comes to the economic landscape for the Fed, they're in this very difficult environment where supply shocks are affecting economic activity. And as Steve was highlighting, you have a confluence of supply shocks that are affecting economic activity. and the Fed has to react to the risk of a more permanent inflationary environment, which is a real risk and I think is likely to materialize given we've seen higher diesel prices.

7:35So you're continuing to see Fed policymakers talk about a tighter Fed stance. I think that's still going to be the case. The October meeting is going to be very interesting because on the one hand, there is a risk of appearing to react to specific data points, which the Fed and Kevin Warsh do not want to be seen as. But on the other, there's this question of credibility. You've been talking about tightening monetary policy to bring down inflation. If you don't follow suit with that, there's also a credibility issue. It's a very difficult situation. Let me pile on on that point, Greg. We did a little survey this morning.

8:08We asked eight economists what their outlook was for the PCE number. It's 0.32. And it was 0.25. So here you have this situation where the Fed is ostensibly not going to hike with a higher PCE number or core PCE number than it had last month when it hiked. And a higher year-over-year core PCE number, which was 3.01 in August. And now we're expecting it, according to these eight estimates, at 3.1%. 1%. So, Greg, I have a hard time understanding how they justify it. Now, they could say, look, our forecast for the year is 3-4, which, by the way, they had two hikes built in this year. So maybe they say, hey, we're pretty much where we thought we were going to be, which is higher PCE inflation.

8:57Yeah, I think PCE inflation, the trend, the underlying trend, which is really what should matter for Fed policymakers, is moving towards the upside. And what I worry more about is the core inflationary pressures, because we're starting to see that in some of the latest CPI and PPI data. It's not just about gas prices rising. It's diesel prices that are rising, that are feeding into airfare, that are feeding into transportation costs, and that will make their way into core goods. That is where I see some of the stress. And that's why I think the Fed will be leaning more towards this hawkish stance, even though there are risks, very real risks, and delicate tradeoffs of demand destruction when interest rates are higher.

9:36and that's what we're starting to see the signs of. So 27 may be a different story, but for the near term, you're going to see the Fed leaning more hawkish with more rate hikes on the table. I'm just going to make two final comments, but one of them is we don't know for sure if all of these pipeline pressures are going to be higher consumer inflation. It could be a profit margin hit. If they feel the consumer is weak enough that you can't pass it along now, contra 2021, it's not a good outcome either way, but it's, anyway, the other passing comment I just want to make, Gregory, if people are listening and wondering, Well, what do you mean?

10:06They see the headline retail sales twice as good as expected. X auto is 0.9. What's the problem? What you're saying is, despite the healthy nominal increase, real sales rose just 0.1 month on month. Core sales were flat and volumes were declining across several major categories. Yeah, there's absolutely a cap on consumer spending growth. Consumers are being very selective in how they spend. Yes, you do have a low unemployment rate. You have relatively healthy balance sheets. You have wealth accumulation via the stock market. But at the same time, inflation is still front and center for many consumers.

10:39And the income erosion phenomenon, where people feel like they have less spending capacity, is capping the pace of growth. So, yes, nominal figures are high, but that's a price story. A volume story is much different, where you have much more moderate consumer spending momentum. All right. Steve's going to get a final. Well, I just love that you're sort of not even knowing it, but you're quoting yesterday's Beige book. Consumer-facing firms noted tighter profit margins as price-sensitive customers continue to resist price hikes. Contacts are managing their margins with selective price hikes, targeted incentives, and menu changes.

11:14This is the most important thing, Steve. Thank you. Thank you for doing it. That's what I do here. Just helping you out. That's what I love. But just so everyone's following along here, there is a warning about profit margins in here. This is not the environment from 2021. So a little bit of the stock market. I mean, the first time the S &P was down more than 1 % yesterday in, what, 52 sessions. What you said needs to be digested. Watch your profit margins. Yeah, exactly. Steve, thank you. Gregory Daco, thank you as well. We have to get to some breaking news on Apple. Mackenzie Sigalos is standing by with the story.

11:46Mackenzie? So, Kelly, Apple is now partnering with Meta on AI, the two companies telling CNBC that they're working together to bring Meta's newest open-weight AI model to Apple's highest-end desktop computers. Now, under this partnership, developers will be able to link multiple Mac studios together and then run Meta's new model directly on those machines rather than having to rely on the cloud. Apple's hardware has increasingly become this go-to option for developers that are running powerful AI agents locally, which can then lower cloud costs and, of course, keep more data on the device. For Meta, that gives developers another way into their AI ecosystem.

12:22AI chief Alexander Wang telling CNBC that lowering the cost of running these models is part of the strategy to attract more developers who could eventually pay Meta for more computing power. And then for Apple, it's very much diversifying its AI partners. It already has deals with OpenAI, Google here in the U.S. And then in China, they work with Alibaba and Baidu. It also marks a real shift in this relationship between the two companies. Apple and Meta have spent years at odds with Tim Cook-Long criticizing ad-driven data collection and Mark Zuckerberg taking aim at Apple's App Store policies and fees.

12:57But under new Apple CEO John Ternus, this relationship looks a lot more friendly and mutually beneficial. Guys? And so just to say this one more time, when we say that Apple is adding Meta as an AI partner, you can run Muse Spark on Mac Studios. Is that that big of a... I mean, I know they have a long history, but is that that big of a deal or is it a sign of more to come? Well, that's exactly what we asked them, right? Like they haven't struck a public partnership since 2017. They wouldn't disclose that this is the start of potentially a greater integration with Siri AI or something like that, where, you know, to this point, Apple's only worked with OpenAI and Google Gemini.

13:37But what it does do is it opens the door to working with a lot of these new AI models coming out under Alexander Wang. It's certainly an endorsement of their capability. MuseSpark open is this latest version of their open weight models that was also disclosed as part of this announcement now. And the fact that they are looking to integrate it into their Mac Studio ecosystem, like Mac Studio, Mac Mini, these are a big way that people are running AI agents locally. And so it certainly opens the door. It defrosts that relationship to potentially more commercial relationships coming down the pike.

14:07Yeah, that's a good point. And such a change from, you know, Apple blowing up Facebook's business model. But Facebook blew up, you know, dot-com business models before that. It's kind of how it goes. Mackenzie, thank you. Mackenzie Cigalos. As we mentioned, CoreWeave lately is the poster child for the AI sell-off. Maybe a good sign today. Look, it's up 1.4 % now at session highs after being down as much as 10 % earlier to its lowest level in a year and a half. It's having its worst week since November. Let's bring in Seema Modi with more about how we got here. Seema, what can you tell us? Well, yeah, pretty notable here, Kelly.

14:40CoreWeave coming back as NVIDIA CEO Jensen Wong came out defending its partner CoreWeave's financial position saying CoreWeave does not need a backstop. Those comments were made to Bloomberg at an event in Sweden. Worth noting, NVIDIA has been expanding its relationship with CoreWeave investing about$2 billion in the company's stock back in January, while also CoreWeave at that time pledging to use NVIDIA's stack to build about 5 gigawatts of data centers in the next four years. It sort of gets to what Bank of America analysts wrote this morning, The company has these five-year long-term commitments with the large hyperscalers and the AI labs and how that provides investors sort of this high degree of revenue visibility.

15:21It's also important to know that there is a key distinction between CoreWeave's unsecured bonds that, yes, are still trading well above 15 percent and the GPU-backed loans that often use the investment-grade rating of one of their partners. Now, bond investors we spoke to this morning, Kelly, say the key question now is whether CoreWeave can refinance maturing debt and if lenders will make it difficult by demanding either a higher rate or different stricter terms. There was an interesting note from Bernstein this morning saying that CoreWeave does not just need customers willing to buy the compute.

15:53It needs those lenders, right, willing to fund the hardware on terms that leave something attractive for shareholders. Again, we're watching the stock pair losses today, but still down about 55 percent from its recent high. And we would just expand the conversation and look at the other neoclouds, Nebius, Iron, memory names like Micron and Sandusk. Still feeling the effects of this core we follow. It's happening real time, Kelly. I mean, it is it's tough in Korea right now. It's anything at the leading edge of the kind of highly levered A.I. play is, you know, watch out. Seema, thank you. Seema Modi.

16:29Our next guest was actually expecting this weakness. He's had a sell rating on CoreWeave, Nebius and Oracle since mid-September. Let's bring in Alex Hassel. He's an analyst at Rothschild and Redburn. Alex, it's great to have you here. Take us back to September. What were you seeing? Yeah, thanks. First of all, thanks for having me. I mean, back in September, our view was that the bond market is already pricing in some risk that the equity market was overlooking. And now it's basically just a repricing of the equity. So we did expect some kind of a negative reaction on the equity. OK, so now that we've had it, what is your target price?

17:11I mean, our target price would still indicate significant downside for Corvive, because even if they get the capacity up and running and you have all of this capacity being backstopped, we think there's just not enough value to justify a more constructive rating. But we see more downside for Nebius, which we think was the poster child for this compute repricing trade. So there's much more downside for Nebius in our view. So you say Nebius is the poster child. Others say Nebius is still doubled year to date and evidently has nowhere near the debt that Corweave has. Is that true? Yeah, that's correct.

17:44I mean, when we think about this year, we've been in the middle of this computer pricing trade. At the beginning of the year, the prices per one gigawatt was around$10 billion. Now we've seen prices moving up to$20,$30,$40,$50 billion. But what we question really is who is behind these contracts. and who is behind these contracts are basically neo labs, like reflection, thinking machine, safe superintelligence, which use this compute for training. So they are not really bound by influencing economics. And so we believe that this pricing is just not sustainable. To answer the question, Nebius is mainly financed via convertible bonds.

18:18So they were riding the equity market, the momentum. But for them also not to have like a big debt pile, they have to see the stock go up quite a bit. Otherwise, they also need to refinance. So explain that again. When we see these equities selling off, you think the pressure is on these companies to refinance their debt? When you see these equities sell off, in particular for Nebius, they have to refinance their convertible bonds because the conversion rate is around 100 percent above the current share price level. So if equities derate, they will also have a pile of debt at some point. And so what options do they have left?

18:53How important is a 20 basis point move in, say, the 10 year rate to its outlook? I mean, a 20 basis point move in the rate doesn't do much. But if we see three, four, five hundred basis points move, then all of a sudden a lot of these projects wouldn't create a lot of a lot of value. So 20 basis points, not much. But if it expands, then it's a big problem. Right. But I guess to say going the other way, you know, if we see some relief in the long end, Is that going to meaningfully give that give these business models and these balance sheets a better and easier go of it? I would say it's the spread on top of the on top of the base rate, which comes back to the to the question, who is the counterparty?

19:34And if there's any like recontracting risk. So even if you see the base rate coming down, the spreads may still widen. And I think that's a much, much bigger problem. I guess my last in the question everyone's asking is, why now? What was it? Was it, you know, change in Fed expectations, hot CPI yesterday, Chamath tweeting about, you know, 15 percent yields, which the market already knew about. I'm not sure why his amplification of that would have been, you know, such a big deal. What what suddenly changed that these equities are dramatically repricing? I think it's a combination of a lot of factors.

20:06We've seen some IPOs that didn't go ahead. We've seen the spreads for financing some of these GPU purchases for non-investment customers. was widening. So I think there was a lot of nervousness. And then what we've seen, obviously, that Corvish has triggered a bigger sell-off. But there have been warning signs. Finally then, Alex, what do you do with the kind of neoclouds broadly? Do you think it's fair to lump them all together? And at what point, when the prices go low enough, do you think that they are a good investment? Medium to long, we struggle to see them competitive because at the end of the They're competing with the hyperscalers, and the real mode is the cost of capital.

20:45And this is where all the hyperscalers have a big advantage. And the other point clearly is that the main labs, so the frontal labs, open and on tropic, we believe over the long time they will vertically integrate. So there's no space for intermediaries. That is fascinating. I really appreciate it, Alex. Thank you for making the time. Alex Heisel of Rothschild Redburn. Coming up, and speaking of AI, Amazon launching a new personal AI device that listens to your conversations to record, transcribe, and analyze them. That's a look at the B. We'll talk about that ahead. But first, Nebraska's Attorney General joins us in a first-on CNBC interview.

21:22On the heels of their lawsuit against OpenAI, they, along with seven other states, are alleging that ChatGPT is an unsafe product harming children. He will make his case next on The Exchange.

21:36This is The Exchange on CNBC.

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22:23You 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. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading.

22:58Download the latest episode and subscribe at schwab.com slash market update podcast or find Schwab Market Update wherever you get your podcasts. Welcome back. OpenAI is facing a new legal challenge with eight states suing the AI giant over safety concerns. Iowa, Kansas, Nebraska, West Virginia, Arkansas, Arizona, Idaho and Montana filing separate suits alleging that ChatGPT is an unsafe product that has harmed children and deceived parents. Joining me now for more is Nebraska Attorney General Mike Hilgers. Attorney General, I should say, Mr. Attorney General. Thanks. Thank you for joining us. And it's good to have you here.

23:37Thanks for having me, Kelly. How did this come to your attention? Well, it's been in the news on the forefront of everyone's mind for the last year, year and a half. And certainly there's been a number of public reports that we've seen where young kids have been harmed by using the ChatGPT product. We've had deaths. We've had suicides. And so it's been something that we've been looking at for a number of months. But certainly, AI is something we're all thinking about all across the country. But has that occurred in your state? Well, we think that it has, certainly. The prominent examples that are in our complaint of death, of suicide, those are not in the state of Nebraska.

24:10But given the widespread usage of ChachiBT in the state of Nebraska, given our significant safety concerns that we think are enterprise-wide, we are certain that it's happening in Nebraska. One of the reasons, Kelly, we've tried to do the lawsuit is to ensure that parents know where to turn when things have happened to their children. Right. I guess I was just wondering if you would have standing to bring a lawsuit. I mean, I'm sure you'd have to demonstrate harm, some kind of specific harm. No, absolutely. And certainly we are confident that we'll be able to do that. We're certain that we've alleged that at this stage within our complaint of harm to Nebraskans.

24:42So what other examples are there of harmful ways that ChatGPT, and I don't mean to overly dwell on them. I think this would apply or maybe you're thinking about applying it to other chatbots. What are those primary concerns that you have? Yeah, and by the way, we would look at all of them equally, apply the same standard equally. We've seen sort of unique instances with ChatGPT. Let me give you just a couple, Kelly, that were in our complaints. So one example was we had a teen who had suicidal tendencies, had really significant depressive issues, and the chatbot encouraged or discouraged, I should say, that particular teen from talking about these issues with their parents and with people who could help them, that teen ultimately committed suicide.

25:23Another example where a teen was having nausea after taking Kratom and said that, hey, you could have Xanax with the Kratom, with the issues that you're having, that teen ultimately died. Certainly more broadly, there is concern. I know the hugging face incident is a broader, so maybe not specific to teen type of incident. But when you're releasing these models and these agents out into the world, we are concerned about the type of negative impacts that that product could potentially have in Nebraska. So those are just three of the examples, at least, that were in our complaint. What remedies or response are you demanding or looking for?

25:59Well, a couple of different things. I mean, first, one of our core claims, which, by the way, is fully within sort of the decades-long power of a state AG, is just to not deceptively market. And so one of the things that is unique to OpenAI is that they market their chat product to kids. They say in the Apple App Store that it's appropriate for ages 13 and up, which I think conveys to parents something that we think is not true, which is that it is not really fully safe for kids who are underage. The first thing we would want is just for OpenAI to make truthful what we believe to be truthful statements to parents and customers, especially as it relates to kids.

26:34Secondly, we do want to have them be looking at their models. They know how to release models into the wild or hold models back that do things that could harm society. Certainly, Anthropics done that. We've heard reports of OpenAI holding models back. We'd like to see them do the same types of things here and make sure that their models are not actually encouraging kids or playing some role in kids committing suicide or even in the case of death. So those are the types of the changes we're looking at. And certainly there are penalties, monetary penalties in the state, Kelly. But primarily what we're trying to do is just keep people safe and make sure they have accurate information as to this product.

27:11Yeah, you are also part of the meta multi-state suit. You could reach 200 million, your share of that case, which was just settled here this past August. So there is some precedent for going after these tech giants. I guess my final question is, you mentioned this kind of in passing, but why does ChatGPT stand out to you as being kind of the worst offender that you're seeing out there right now? Yeah, a couple of different reasons, Kelly. Number one, I think they're the only one that has made some of these representations that it is that their product is OK for children. We haven't seen that in the Anthropoc case.

27:39We haven't seen that, say, in the Grot case. Haven't even seen that now that MetaMuse is sort of approaching the frontier. We haven't seen it really in that case. So that's one reason. Secondly, a lot of published reports about really the weakness and maybe the erosion of the safety protocols that are in place at OpenAI. Certainly, if you contrast that with a company like Anthropic, we haven't really seen the same type of safety erosion with some of these other companies. And third would be the actual real-life anecdotes and stories that we're hearing are from OpenAI. We just haven't had the same type of examples from other companies.

28:10Now, if that changes for them, we will apply the same standard in the law as to anybody. And if someone's violating the law, we'll pursue that action. Shifting from the concerns about children to the concerns about hacking, here's what Goldman Sachs CEO David Solomon told us yesterday about AI safety. He said it's not just the AI companies that are responsible, but take a listen. I think as we build an AI industry in this country and around the world, we're going to have to create processes, controls, guardrails that make sure that it's safe, it's secure, and it delivers, you know, for society.

28:41And we're just, we're at the beginning of this. And by the way, the people developing the technology have a real responsibility of that. And the people that choose to take the technology and put it in their enterprises or use it have a real responsibility for that, too. And I'm curious, Attorney General, for your response to that. What would you say to the companies whose models are going out there and hacking other businesses, to also the businesses that use this technology and might face that same kind of fallout? Yeah, I'd have at least two responses, Kelly. The first is I think he's exactly right.

29:13There's nothing inherent about the use of AI. I understand it's very sophisticated, cutting-edge technology that somehow removes it from our normal principles of law. Normal principles of law say that, look, if you're using technology, if you're selling a product out into the world, you can be held responsible if it harms businesses or families or individuals. And so I think that absolutely is true. The second thing I would say is I think it's enormously critical for the United States to win the AI race, because one of the best things that we can do on a defensive posture is to be able to deploy frontier based models to help on the cybersecurity side or fraud to actually help harden our defenses in with companies and around the country.

29:55And so I think that's an important part of this as well. No, I know that we have a great CNBC.com story about this today. Attorney General Bank of America, I think, hired a thousand contractors to help it patch the vulnerabilities that AI models were finding. And yeah, that's that's how you take responsibility, I think, for what these models can do, although there's there's certainly more to it than just that. Thank you for making the time. We hope to have you back soon. Yeah, I appreciate it very much. Thank you. Nebraska Attorney General Mike Hilgers. Coming up, it's been a wild 24 hours for mortgage rates.

30:25Look at this chart. They shot up 10 basis points yesterday, only to fade that and end the day lower. Today, they've plunged 12 basis points down to 7.3%. Could that have a big impact, actually, and help homebuyers fight? We'll talk about that ahead on The Exchange.

31:08Transcription by CastingWords We're an agent 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. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab.

31:45Schwab Market Update, an original podcast from Charles Schwab, provides an information-packed daily market preview on stock updates, U.S. and global economic news, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com slash marketupdatepodcast, or find Schwab Market Update wherever you get your podcasts. Welcome back. Decent market picture today. If you can believe it, Dow's up almost 500 points right now, a 1 % gain. The small caps, too, as rates have really backed off. The Russell's up eight-tenths. The S &P is up 13.

32:23The Nasdaq is still lower. Granted, that's where a lot of the troublesome spots we've been talking about are centered. More than half of S &P stocks are actually trading above their 200-day moving averages now. And that's an improvement from less than 40 percent of them just two weeks ago. Another sign, perhaps, of momentum turning positive. And just want to flag Meta turning positive in near-session highs after this announcement that it will partner with Apple to make its new open-source AI model run on Apple's highest-end desktop computers. The deal comes after years of tension between the two over Apple's ad-driven data collection.

32:54Meta shares are now up three-quarters of one percent. Let's get to Brandon Gomez with the CNBC News update. Brandon. Hi, Kelly. After President Trump earlier today called off plans to live stream the execution by firing squad of Fort Hood shooter Nadal Hassan. Pentagon spokesman Sean Parnell says Defense Secretary Pete Hegseth and the president are completely aligned in that Hegseth supports the decision. Hegseth originally announced it would be live streamed, but faced bipartisan backlash over the idea. The president said immediate families of the victims could view the execution if they wanted to.

33:24Meantime, CNN and Google have agreed to a multi-year partnership to use Google's generative AI products to boost engagement with CNN. CNN wrote in a press release that the deal is part of its push to safeguard its journalism in the AI era. The partnership comes months after CNN sued perplexity AI for copyright infringement after the two companies couldn't reach a licensing deal. And Sony just unveiled a line of gold Walkmans. Remember those? They range in price from$1 ,900 to$5 ,900. In the first hardware update in several years for the famous Walkman line, They're available for pre-order, but Sony hasn't said when they will ship.

34:04Kelly, I had a gold-colored Walkman back in the day, but I can tell you it cost a lot less. That is not a Walkman. They cannot call that a Walkman. That is like a dumb phone. They need to bring back the real one, a gold, a real Walkman. It looks more like a Nano, right? Skip proof. I remember that was the fancy one. Brendan, thanks. Coming up, every component of the iShares HomeBuilder ETF is higher today as treasury yields drop. The ITB is on pace for its best day since June 24th. We'll get the read-through on mortgage rates next. And as we head to break, check out the divergence we're seeing in the NASDAQ 100 today.

34:36Moderna, Apple 11, Intuit, Coparton, Autodesk are all positive and leading the way, while Seagate, Western Dig, Lumentum, Rocket Lab, and Teradine are all weighing the index down. We'll be right back.

34:50Welcome back, and what a difference a day makes. Mortgage rates jumped 10 basis points yesterday, gave that all back, and then some today. So where are they landing? Let's bring in Diana Olick with those details. Diana, what can you tell us? Well, Kelly, would you believe it's even more complicated after that? Because after that morning jump in rates yesterday, they came fully back down in the afternoon and again more this morning. So the average rate on the 30 year fix clocked in at 7.33 percent today, down 12 basis points from yesterday afternoon, according to Mortgage News Daily. So that's down 23 basis points from yesterday morning surge.

35:27It has been, of course, quite the wild ride recently as inflation data came in hotter than expected. But investors are now spooked by the potential AI bubble, so a lot of competing factors. Of course, the stocks of the builders seem to just be following the rate moves. The home building ETF ITB is up about 4 % on the day, still way down, though, since the start of September. And that's when rates began to surge higher again. And the biggest names like Lenard, D.R. Horton and Pulte are all up on the day between three and five percent. Now, while we're seeing all of these daily swings in rates, rates are still at these higher levels, and that's still taking a toll on the housing market.

36:08We got the read on mortgage applications for newly built homes, that is the builders, in September, and it was down over eight percent year over year. So, Kelly, still struggling, even though those builder stocks are up today. Well, just yesterday, Diana, we were talking about 52-week lows, if not more than that, for several of these names, Horton, Pulte, I think, Lenar. And you wonder, you know, is today just a bounce or is it something more meaningful that this could be the start of? It's impossible to tell. I mean, you're testing highs, you're testing lows every day. And is this, you know, the start of a downward trend?

36:42I would doubt it because things have been so volatile lately. We are in this higher rate range. Really anything between, you know, the 7.3, 7.6 percent that it's swinging up around. Remember, we were at 6.8 percent over the summer. Right. So it's a difference. Yeah. Diana, thank you very much. Diana Olick, appreciate it. The risk off rotation that we're seeing in the markets today, helping the Dow gain 500 points while tech remains under pressure. And our next guest says there's less room for negative surprises right now. Here with me on set is Dan Suzuki. He's the global investment strategist at iCapital.

37:13It's great to have you back. Welcome. Thanks, man. Did you have a big opinion on homebuilders, by the way, just to pick up on that one way or the other? Not particularly on homebuilders, but it's obviously one of the interest rate sensitive parts of the market. And, you know, I think what a lot of people have missed is that underneath the surface, there's just been a lot of pain, including the homebuilders. I mean, if you take out the AI and the energy story, really, it's hard to find anything that's not down more than 5%. And I saw a chart today that was saying, you know, your average Russell 1000 stock is in a bear market.

37:43It's down over 20%. And I think that's just part of the story when rates are moving higher and liquidity is tightening up. And then we get the data point Steve Liesman was talking about at the top of the show, which is you have hot producer prices and you have a beige book telling you the firms aren't sure they can actually pass that along this time. That's not a great recipe for profit margins. No. I don't know if we should expect that this one stalwart area of the market, of the economy, comes under a little bit more pressure now. Yeah, I think that's right. I think today's price action seems a little odd to me.

38:13You know, I do think that the PPI number really supported this hot inflation story. I thought the reaction to the CPI story was a little bit muted. I think the point that we've been making a lot is that oil is in the driver's seat here. And so with oil as elevated as it is, you saw that it's reading, it's flowing through almost immediately through the CPI numbers, the PPI numbers. And that's going to continue. And so I think, you know, the expectation is that if oil doesn't get resolved, we're going to have higher interest rates and more Fed tightening. And I don't think the market's really ready for that.

38:43The papers today, I'm sure, are filled with stories about kind of AI and the sell. But let's show the Nasdaq right now, which just went positive. So, yes, there has been a shakeout in kind of the neocloud area and these kind of parts of the infrastructure that had run up a lot. But what do you think the price action today is telling us? I think the price action today is really a little bit confused because I think there's just sort of this back and forth. And it really comes down to sort of the tug of war between the growth that they're seeing and their ability to raise capital to fund that growth.

39:14Right. And I think that's what all the conversations are coming down to. And recently, the news has put that the ability to fund that growth into question, because if the IPOs are getting pushed out, if the cost of raising debt is going up, they're not going to be able to make, you know, hit those targets, those CapEx targets that people are expecting. And I think that back and forth is really what's causing a lot of flux within the AI trend. Meanwhile, we have software doing well today. We have health care at all-time highs, and I know that's an area that you've liked. So what is the Dan Suzuki strategy here and in general?

39:46I mean, given what's going on, don't use the word barbell. Okay, but you can talk about that. But I mean, in other words, like just for the person at home, what should they do? Well, I think the biggest problems for the people at home are, one, the longer-term return outlook for most asset classes that you're looking at is lower today. and you're dealing with very high concentration and you're dealing with a higher rate, higher inflation environment. So you need to think about the things that are going to solve those problems. Probably the biggest one is the fact that it's hard to find diversification today.

40:16So looking out there beyond the AI trade, looking at, I think healthcare, as you said, is a great play there because obviously they're affected by AI, but they're really just an application layer beneficiary of AI. I think you want to not barbell it, but if you want to pair that with something like financials, which gives you cyclical exposure, which actually benefits to an extent from higher rates. And it gives you a little bit of the AI exposure in the capital market story. I think that pairing makes a lot of sense to me. That's interesting. Finally, then, just kind of talking about, you know, the areas that have done the best and whether you stick with the leadership or whether if you ever wanted to own a Nebius or a Corweave, I mean, is this an opportunity?

41:00This is a poll that we're running next hour, which is, you know, would you buy the names that have been in the middle of this AI sell-off? You can include memory in there if you want. What would you say? Yeah, I think that there's an increasing number of risks that are piling up all across the AI chain story. So it's not just the concentration story. It's not just the valuation story. It's not just the expectation story. And it's not just the financing story. There's just so much competition coming into play. And we keep getting these shots across the bow, you know, with competition, with different players that are sort of leading the frontier models, open AI disruption stories.

41:35And all these dynamics, I think, are just adding a lot of uncertainty and risk. So I think, you know, you need to pair your sizing, your positions with your conviction. I think it's hard to have a lot of conviction in any one player today, given the environment. Absolutely. Quick final question. You know, the home builders being at those lows yesterday, breaking out today. But with the concerns, if people share your concerns about kind of rates and sticky inflation, is this a buying opportunity for that group or do you think not so much? I think for that group, again, it comes down to rates. And I think the rate story is still in flux.

42:06I think unless oil gets resolved, unless there's some sort of sustainable improvement in supply coming out of Hormuz, then it's hard to get really sustainably bullish because likely, more likely than not, there's still more upside to interest rates in that environment. All right, Dan, thank you so much. Thanks, Kelly. Great to have you here today. Dan Suzuki with iCapital. Coming up, the staples are also getting a boost, the consumer staples in today's rotation. I'm paced for their best week since February. We'll get a check on that and some other big movers next. And speaking of boosts, CoreWeave shares are now positive by almost 3 % after being down as much as 10 % earlier today.

42:41Look at this intraday chart, OK? Brad Gerstner was an early CoreWeave investor through the private market and the IPO. He no longer owns it, but he told Halftime Report last hour he's still confident in the company. I think CoreWeave, like I said, Mike, in trader who runs that business, one of the best. I think their capital stack is good. I think their partnerships like they have with NVIDIA are fantastic. They're going to be one of the new AI hyperscalers, you know, these neoclouds that make it to the other side.

43:13Welcome back to the exchange on a decent market day. Dow's up 1%. NASDAQ briefly went positive. It's only down 19. As we mentioned, CoreWeave positive as well. Maybe some of the pressure coming off of that epicenter of the sell-off that we've seen a little bit this week. Here are some of the other movers this hour. We mentioned the staples before the break. Kimberly Clark, one of the leaders, after pre-announcing strong third-quarter earnings and reiterating full-year guidance. The shares are up 4%, best day in nearly two and a half years. Good luck fitting that into a narrative right now. Shares of international paper also higher, as the Financial Times reports two private equity firms are exploring separate bids for IP's European packaging business.

43:50Its shares are up 7 percent, a little bit more on that news. And a different story for LAM. LAM Research down 5 percent or so, ninth straight negative day. That's LAM's longest losing streak ever. The shares are down more than 17 percent for the semi-toolmaker since October 1. Coming up, Amazon making a bigger push into the wearables market. How it plans to cash in on the AI buzz next.

44:16Welcome back to The Exchange. Hot on the heels of MetaSmart glasses and the Muse charm, Amazon is releasing some new personal AI devices. One's called the Bee. Kate Rooney has more in today's tech chat. Kate? Hey, Kelly. So Amazon is taking a step beyond Alexa and devices. It's trying to bring AI assistants more into your everyday conversation. So the tech giant unveiling two new devices from its Bee brand. And this is including a$75 wearable bracelet. And then there is$100 sort of credit card size device that snaps onto your smartphone. Amazon acquired the company behind these always-on listening bracelets last year.

44:54They are equipped with microphones. They can record and transcribe and then analyze conversations using AI. Both do use AI to record and then transcribe, summarize conversations. So that is supposed to help users remember what was said and sort of act as an assistant there. Amazon does say it can also track things like to-do lists, make shopping recommendations, and then unlike Alexa, which waits for a wake word, these devices are designed to just record continuously when they are turned on. It is raising some questions about privacy, but Amazon says audio is not going to be stored and users can delete their transcripts.

45:29And then there's also an indicator light that shows when it's actually recording and when that's active. So the launch does come as Amazon, you mentioned Meta, Kelly, other tech giants are racing to build this entire next generation of AI hardware. It also comes ahead of the holidays, so that tends to be a big sales moment for some of this new hardware, Kel. I didn't foresee that AI was going to bring us into the era of people walking around recording everything all the time. I can see a huge value in it. Don't get me wrong, especially the enterprise. I was in the doctor's office this morning.

46:01The first thing she said, do you mind if I turn on my AI recording device? Okay. What am I going to say? No. And I can see why it might be helpful for her. But you're walking around in everyday life going, is this now just always on? And I don't want to have to ask people. I didn't really see it going in this direction this quickly. No, I think you're right, Kelly. It's a great point in how comfortable people are. I think in one sense, this is a test case for how popular these devices are. Or if there is a certain, I'm going to call it an ick factor, if people say they just don't want to use it, right?

46:36It feels creepy to have something always on listening. I think that's also been one of the pieces of pushback for these metaglasses. I mean, there's been a lot of fun poked at some of the tech companies for building these glasses that don't feel like there's always obvious disclosure that you're either recording or that it's listening to you. So even if it's incrementally helpful, I mean, of course it's helpful for a doctor. But for the rest of us, I mean, I'm going to forget what I meant to write down on my grocery list. I don't think it's worth necessarily giving up that privacy for most people.

47:07But again, a test case here. I think the B is inappropriate. When I see a B, I run away and scream. You know, that's my reaction. Very mature. Kate, thank you. Appreciate it, Kate Rooney. That's it for us. Thank you for watching The Exchange. I'll join Brian Sullivan for Power Lunch after this quick break.

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