Under-the-Rader AI Plays, Housing Shift, and Sneaker Softness 10/1/26

0:00It's the holiday season at House of Burl, which means that it's the perfect moment to review some key rules. Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington. Tyler Reddick here from 2311 Racing. And Bubba Wallace. You know what's the worst part of a race? A rain delay. Sitting around and waiting for the track to dry is dull.

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1:06Thank you very much, Melissa. We kick off Q4 with Stocks Under Pressure. After a big jump in the ISM Prices Index, I'm Kelly Evans and welcome to The Exchange. Treasury yields are actually down considerably since this morning, but levels continue to hit multi-decade highs. Our 10-year hitting a 24-year high earlier at 534. Again, we're down at like 523 right now. We'll talk about the fallout that's having on the housing market. Don't have to tell you. 7.5 % on the 30, you're fixed. And whether it's becoming a bigger headwind for stocks. Plus, the latest read on the labor market. After a strong ADP number, Evan Sohn of Reveglio Labs gives us his take on hiring strength ahead of jobs tomorrow morning.

1:45And the biggest opportunity and shakeup in tech since the launch of the App Store. That's how Bach's CEO Aaron Levy describes the era of personal AI agents. He'll join us with who most stands to benefit from that. But we begin this hour with Stephen DiNicolo. He's a senior portfolio manager at Federated Hermes for our opening exchange. Stephen, it's great to have you here. Thanks, Kelly. The biggest question I'm getting all the time is what's going on with bond yields and how would you answer that? Sure. Look, they're going up. But there's a way to think about it. One is a good way and one is a bad way.

2:22ISM, you see the numbers today. The economy is good. GDP is good. Productivity is good, right? If you look at earnings season coming up, we expect some very strong earnings. We're a couple weeks out of NVIDIA telling us that they could have grown 100 percent next year and have huge visibility if there was enough supply. You saw what Micron said today. So by and large, I think earnings are going to be very, very solid. And you have a market right now today that is up less than the earnings per share growth that we're expecting. If you were sleeping all September and you own the S &P 500, the S &P 500 was down less than 1%.

2:59Of course, there was a lot of negativity in small cap. Small caps had their worst month of the year down almost 5%. So underneath it all, we see very, very strong fundamentals. And that wall of worry is building. Take a look at Google search trends and type in stock market crash. You had the biggest spike of the year in mid-September and the largest spike in that search term since Liberation Day in April 2025. And so that's a wall of worry where we're going to take the other side. And we're very excited about some of the opportunities and really destruction in some of these small cap companies.

3:36You, Steve, you guys have been right time and again while I sit over here, you know, talking about all these concerns. So I completely acknowledge that I'm fully invested for the long. Like, that's all well and good. However, I'm going to read you a point of view I'm very sympathetic with right now. Exactly. One of this comes from the credit strategist on Substack, who writes, Arguments that higher yields are a purely positive reflection of a healthy economy are incomplete at best and misleading at worst. At the end of the day, the growing economy is going to have to deal with the debt that made it look so healthy.

4:08From Robin Brooks, the only thing that's certain is that all this stuff going on with bond yields means one thing. The clock is ticking down on building a global debt crisis. Sure. Is that all you got? That's it? I could keep going. In other words, the outperformance of stocks, yes, there are strong earnings, but is that the flip side of us running 7 % deficits without there being a crisis that we're going to have to reckon with? Yes, the stock market is doing well, but the value of the dollar looks like it could be at risk because central banks and governments keep papering over these problems by intervening to try to push yields down in haphazard ways.

4:47That's what I'm a little worried about. Look, you quoted Steve off, so I'll quote Steve off as well, that the world typically goes up and to the right. And we're going to be a long-term optimist here. I'm going to take two points on the two big worries, right? Number one, on inflation. Let's be real. The boogeyman is oil today. Morgan Stanley had a great report yesterday showing flows of oil out of the Middle East are at 93 percent of pre-war levels. I don't think it's oil. I don't think it's oil, Stephen. I think. But listen. Yeah. But listen. But then oil products, which is the problem there, right, you're at 60 percent.

5:22So commerce is finding a way. Of course, of course, you can't have the 10 year go up forever. But what you have to realize is that these companies that are successful right now and let's say funding the AI build out, which I actually think could be deflationary over time, they are doing it within their cash flow. So in a higher interest rate environment, sure, on the lower part of the K for public companies as well, because there is a K economy in public companies, those companies will struggle. But if you look at, let's just say, NVIDIA, for example, they have the same shares outstanding that they had 15 years ago.

5:54Do they need the debt market? Right. I'm not saying it's not a huge problem, but it's probably overstated. The only question I would have for the long term bullish equity view, which, again, I agree with. I think it's well grounded. Thank you. But the only question I would have for the medium term is, are markets going to force governments into having to make moves towards fiscal austerity? Is that going to be a headwind for GDP growth, for earnings growth? It could be on the fringe. And is that necessarily an unhealthy thing? Look, you're seeing it already in the IPO markets. The markets speak louder than everybody.

6:32If you're seeing companies cancel their IPOs, Aura, for example, canceled it this week. The market said no moths, right? The valuations are too high. But if you have a company that could, and at the Federated Kauffman Funds, what we have always focused on is companies that can grow within their cash flow. If you can grow within your cash flow, who cares where interest rates are, Right. And so you focus on high quality, long term compounding companies, which is what we've been doing for 40 years and which I think is going to be a successful investment philosophy over time. Let me serve this up as well for the people.

7:05There are some interesting names in here that we don't talk a lot about. So I'd love to to kind of call them out. Doncaster's ticker DPC, Comfort Systems, ticker Fix, Solve Energy, ticker MWH. and all of these are about 25 % or more off their recent highs. All of these, go ahead. No, and these are all AI enablers. Let's take Comfort Systems, for example. Did you know, Kelly, it is the second best performing S &P 500 stock behind NVIDIA, right? And these guys have done it all within their free cash flow. Their share is outstanding, which not enough people look at when you're analyzing a stock. What does it take for that company to achieve the next level?

7:45Their shares outstanding are lower than it was 15 years ago. And there's 10 people on Wall Street that cover this stock. And you yourself mentioned we don't talk about it so much. And this is a company that enables cooling and everything from a hospital to a school to a data center. And they're one of a kind company that has the scale to talk to Meta, Amazon and Google. This is a company that you should buy all day long, down 30 percent from its highs. Doncaster is, for example, a recent IPO. That's down 30 percent from its highs. They make blades and veins that go into an airplane turbine or a land gas turbine to generate power.

8:22Elon Musk himself tweeted about not having enough blades and veins two weeks ago, and he wants to do it himself. GE then bought one of the four competitors out there, and another one is Warren Buffett, bought a company called CPP that makes blades and veins. There's three public companies left. They have five years of visibility at massively higher prices. And you're getting the stock today for 30 percent off. Now, sure, interest rates are higher, but these stocks are reflecting it. That was my point. There's a lot of fear out there. Final question. If I wanted exposure to the upside but was a little worried about some kind of reckoning, that may or may not be coming.

9:01Again, a 5 percent, 10 percent correction after we've been up however much the past couple of years. Not a big deal. Not a big deal. You know, but if you had a little bit of concern about debt and debasements and all that, I mean, I know I'm going to ask you a question to say talk your book, but I'm curious what your intellectual kind of justification for this is. Can I sit in the S &P 500 in my 401k and just ignore? Am I going to be OK or do I? Are you saying that you have to kind of be company specific in where you're hiding? Because that's that's a lot harder to do. Look, Federated Hermes is a diversified company.

9:34We're one of the largest money market providers in the country today. You can get a money market over 4 % if you're worried. If you're thinking for the long term over and over and over again, stocks have been how not only do you gain wealth, but you outpace inflation. And so I think you have to be a little more intelligent in what you buy. And we have to get away a little bit from the short term gambling culture that we've become in love with and buying just everything. But if you have a company like Comfort Systems that can self-fund their own growth and generate earnings per share growth of 50x percent over the next few years.

10:08Over time, that is a good bet, especially when the fear index is spiking so much right now. All right, Stephen, I enjoyed this. Thank you. Thank you, Kelly. Stephen DiNicolo with Federated Hermes. Meanwhile, the labor market has been a little perplexing, tough for many searchers to get a job out there. And yet payroll growth has been picking up steam, adding to the pressure on the Fed to possibly hike rates. And we'll get the latest official tally tomorrow morning. On the eve of that, Evan Sohn from Reveglio Labs joins us now with a little preview. Evan, it's good to see you again. And what does your data show is happening with jobs over the past month?

10:41Good to see you again, Kelly. It's good news with a batch. So Reveglio data shows the economy added about 57 ,000 jobs in September. It's up from our data of 41 ,000 in August, ADP showing 90 ,000. It's really the first acceleration since May. Job postings actually fell another 2%. 11 out of 16 of the industry sectors saw a drop in job openings led by leisure and hospitality, which was down over 14 % in a single month. So we're only seeing sectors rise like in public administration, transportation, warehousing, and a few others. So where else are you seeing signs that, you know, are we overheating?

11:25You know, how do you match the anecdotes a lot of people have with this sense of it's tough for them to find a new job, the sense that companies are a little bit hesitant about hiring? They want to commit capital to AI budgets where they know they're going to have an ROI. Yeah, so clearly we saw a decline in the entry level jobs. We certainly see that. It's not really this is not an AI issue. We saw the companies that are exposed more to AI or adopting AI faster are actually letting people off slower. So we're seeing that actually change itself as well. I think it's a low hire, low fire job market.

12:01And it's really finding that first job that's actually, I think, the biggest challenge. And in a low hire, low fire market, that's really what you're going to see. I was surprised when you mentioned that Deloitte, PwC, EY, Accenture, JP Morgan even, hiring is down 35 percent from 2019 level. So before the pandemic, we're not comparing apples with oranges here before the pandemic, down 35 percent. Accenture, I don't know if you saw those shares today, they're up 18 percent. Is that why? Are these companies becoming more efficient? Yeah, I think, well, look, there's been a three percent drop in total headcount.

12:32I just think that they're hiring less entry level people. It's down. It used to be about 52 percent and 51 percent back in 2019. So it's really down. So the door isn't really closed for new grants. It's just really narrowed. It's a narrow window to actually gain entry to these jobs at these at these big companies. All right. Let's talk about health care. One of the most stalwart parts for better or worse of the U.S. economy. And you say tomorrow morning health care is the test. Why? Because, you know, no matter what happens, people are still hiring in health care space. We're seeing fewer health care health care postings.

13:10But as we like to say, that people are now hiring more jobs, even though the postings are going down, which means they're not actually posting for the jobs that they're hiring. They're trying to find those roles elsewhere. In one of our other reports, we actually see that it's now six jobs open for every job that's being hired. That's a really difficult thing to do. So it's difficult to actually sift through these roles. And certainly in health care, where there are licenses and other accreditations that are necessary, It's hard to actually find and hire these folks. And so tomorrow, if health care is really going to prove strong and weathering this storm, that'll be really the biggest anchor that we're going to see in the job market tomorrow.

13:51Sure. And this last one might not come up in the jobs report per se, but I do find it an interesting tell. You've been running the numbers on econ PhDs and finding they're increasingly landing at big tech. I wonder what that tells us about kind of dynamics for talent, for advanced degrees, kind of across the economy. So just I'm glad you picked up on that. Just an interesting statistic. We're running this where we're tracking. There's about thirteen hundred economic Ph.D. graduates per year. And until recently, in fact, in 2017, they were the bulk of them were actually going to academia. So 73 % are actually going to academia, with the 23 % going to non-academia, going into the private sector.

14:37That number is now 40%. That means that 40 % of the graduates in economics PhDs are actually going into academia. I'll give you a crazy statistic. Amazon alone has hired 200-plus PhD economists since 2017, about 23 a year. In contrast, the University of Chicago and Stanford each hire about four or five. So clearly there was a government not hiring more sort of in the government decreasing of government jobs. And we saw that happen. But now you're seeing the private sector really picking up, certainly in the tech space, hiring just a tremendous number of PhDs. Maybe data as a service is growing even faster than we think.

15:18But these companies know that they need PhDs to help drive their overall business. It's fascinating. Evan, as always, thanks. and we'll see if the report is strong tomorrow or if, I don't know, the market may be positioning for a disappointment, who knows. But we always appreciate your data. Thank you, it's good to see you. Thanks, Kelly. Evan Sohn with Reveglio Labs. Coming up, higher rates are threatening to derail the AI build-out, right when personal AI assistants are picking up steam. Between Meta's Muse, Dots from OpenAI, and startups like Instinct, who's best positioned to make inroads in enterprise?

15:51We'll ask Vox CEO Aaron Levy next. Plus, how long will higher rates keep the housing market under pressure? And how long until we see bigger ripple effects in the broader economy? We'll talk about that when The Exchange returns. This is The Exchange on CNBC.

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16:45Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much. Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. It's the holiday season at House of Burl, which means that it's the perfect moment to review some key rules.

17:18Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington. Welcome back. MacMeta just wrapped up its best month since November of 2022, the month after ChatGPT first launched. As its new AI assistant, Muse, has taken the street and the world by storm. According to CensorTower, Muse has surpassed 5 million downloads since its launch just 22 days ago.

18:00Our next guest says AI agents will ultimately be the biggest opportunity and shakeup in consumer tech since the App Store itself. And his firm just announced a partnership with Muse. Let's bring in Aaron Levy. He's the co-founder and CEO of Box. Good to see you again, Aaron. It's been a little while. Yeah, thanks. I have to be honest. When Claude and OpenClaw and all that was going strong, it took me a while to understand what those tools were. Now I get it. I think we all get it. How much bigger can Muse get? Well, as you certainly stated, I think these are actually relatively small numbers compared to the total addressable market of this type of technology.

18:38And, you know, obviously, Meta has a fantastic distribution channel for Muse to be able to launch in through. ChatGPT now with Dots, obviously, another, you know, great entry into the space. And they have a strong distribution channel. Their startup's like Instinct. I'm sure we'll see, you know, something from the Claude and Google universes. So this is shaping up to be clearly a very dynamic category in space. But I think you're going to have room for a few different winners, just as we've seen with, you know, areas like mobile operating systems and even, you know, AI platforms themselves. Is it too early?

19:12If this is like the launch of the app store, it took years before Uber and Airbnb came on the scene. Is it too early to figure out how to invest in this yet? Or is the winner, the likes of Meta and so forth, are they staring us in the face? Well, I think, you know, I can't really provide investment advice on this front, but I think you can certainly sort of extrapolate out, you know, maybe we get to a point where there's a few hundred million users of these kinds of personal agents and what type of economic activity will a user or consumer, you know, kind of give to their agent and how will that activity be executed?

19:48One of the biggest flips is in a world of agentic task execution, both opportunity and risk is that the preference of the end user starts to become less important than what the agent is just able to execute. I might have a preference traditionally of where I would want to buy something or where to transact. But if an agent can find a better price or a better opportunity for me, maybe I end up going with whatever that agent goes and decides or recommends. So that has the opportunity to provide a little bit of a market shift in some of the dynamics based on who's an incumbent now versus maybe who's an incumbent later.

20:26But unfortunately, that doesn't exactly tell you what to invest in because you have also a huge opportunity for the incumbents to respond very effectively. There's a kind of an increasingly famous line in Silicon Valley that says, build something that agents want. And this is built on the kind of startup ethos of build something that people want that came out of, I think, Paul Graham and Y Combinator many years ago. And the idea was, you know, build a tool that people want to use that makes them, you know, happy or successful or saves money or helps them be more efficient. Now what you're seeing is startups doing that same thing but for agents.

20:59And so that might be infrastructure in an enterprise, build the infrastructure that agents want to execute with or build the APIs that agents want to be able to use to transact online. And so I think increasingly what's going to happen is the companies that are best prepared to work with agents will be the ones that drive the next growth cycle of consumer or even enterprise. I've seen people shorting certain retail names, you know, kind of those incumbents, like you mentioned, because of this, because their agent will just say, you know, there's like a cheaper version from Target that whatever the case may be.

21:31Amazon, of course, it sounds like has gone back and forth with how much access to allow agents to its platform. So, yeah, the next Amazon could be the one that's optimized for those agents. What else should companies, you know, the consumer is easier to talk about. We all experience it, but the enterprise is where the real money is. So if you're ever, you know, explain to me how this would work for a lot of the existing software names. I see Adobe and Intuit, a bounce yesterday. The stocks are still down. I wonder about a company like yours. I mean, how do all of these kind of reimagine themselves for this era?

22:04Yeah, I mean, the, you know, kind of tying into the prior point, I would say, imagine that, you know, if you're in an enterprise and you want to go and execute a bunch of tasks in your organization, you know, in my job, or if you're a sales rep at Box, as an example, there's a lot of information that we comb through to prepare for how we work with a customer. And that information often comes from our CRM system or our documents within Box. And I can only traditionally, you know, three or five years ago, work at the speed of my ability to go pull that information together, collate it, look at it, and sort of process it myself.

22:38Well, in a world where you have agents that will go and do, you know, 10x or 100x that activity for you, So all of a sudden, all of those agents are going to be working within our enterprise systems trying to pull data from a CRM system like Salesforce or from an ERP system or inside of a workflow or from documents in box. And all of that activity is vastly more than what people would have done previously in those same systems. So this creates a huge opportunity for, you know, both incumbent platforms that can successfully sort of reimagine their technology. I think you've seen examples of Salesforce doing that, ServiceNow, Workday, and others, as well as new startup entrants that are being built for this new agentic world.

23:17And that's everything from very applied companies that go after a specific vertical like customer success or legal or coding or infrastructure layer companies that are building out the tools and the systems that these agents are going to use. But again, it's kind of if you just extrapolate forward three, five, ten years and you imagine an enterprise that maybe has 5 ,000 human employees, maybe they have the activity of using these systems at the rate of 100 ,000 people previously. Yes. That means that the guardrails and the systems that are designed for those agents to work in, you know, we believe become increasingly more valuable.

23:51Yeah, and the whole thing turns into a parenting exercise, right? Like, how do you get the agent to do what you want it to do and not just kind of go off on its own tangent? So, yeah, I was going to ask you a final question kind of about all of this and where it's going. But, yeah, I guess I'll just leave it there with the point being we don't really we don't really know yet. The opportunity is is huge. I was sort of struck by Aura pulling its IPO this week. You know, we're talking about the best of times for, in many ways, the markets. And how could you pull your IPO on market conditions? Do they just mean we don't know where AI is going to go?

24:32We don't know what tools are going to be relevant in the future? I just I was scratching my head about that one. Yeah, you know, unfortunately, not close enough to that one. But I was reflecting on your parenting piece. We have a one-year-old in our house now. So and it's funny because you're constantly putting up these guardrails to ensure that the one-year-old doesn't end up going through some stairwell or something. And, you know, it's not the craziest analogy of this is actually a lot of what you're seeing in the core infrastructure that needs to get built out. We have to build the guardrails for these agents.

25:06We have to keep them on track. We have to keep them very aligned with the tasks that they're executing. And it's going to be a pretty wild environment on that front. Yeah, it's ironic because they're so productive in some ways, but then they go and do that productivity in ways that you're not, you don't really want. And then they can't do basic things, you know. They are. The term, you know, in AI is jagged intelligence, which is, you know, they'll spike on. They can, you know, create a breakthrough in some, you know, sort of math problem that hasn't been discovered before. And at the exact same time, they will, you know, happily, you know, go hack a system, you know, almost inadvertently or accidentally because they were told to.

25:46So this is sort of what the AI industry right now is wrestling with is how do we build these aligned systems that can keep us safe, that can keep us secure, that stay on track, that work within the guardrails that we create for them, that make sure that they don't, you know, work, you know, their way through sandboxes or air-gapped environments. Which, again, you know, for us in the enterprise, that's, you know, clearly there's lots of risk that organizations face. But it's a very exciting opportunity because of how much there is to build and how much innovation there is to go and work on because of the size and scope of these challenges right now.

26:23Absolutely. I totally agree with that. It's fun to cover. Toddlers with access to, like, nuclear tools is kind of how it feels with agents now. Aaron, thanks very much. I won't fully endorse that point. But, you know, it's an interesting mental model. Toddlers who can get into the drawer with the knives, right? And you're just like, OK, you know, be careful. How many different guys? Anyway, we're going to make sure that they're plastic knives and that, you know, there's lots and lots of bubble wrap around everything. Exactly. Aaron Levy, always a pleasure. Thank you. Thank you. Coming up, Nike on deck to report its results after the bell as that stock hovers near a 12-year low.

26:59It's by far the worst name in the Dow since January and on track for its worst year since 1993. That, by the way, was when Michael Jordan and the Bulls clinched their first three-peat. What's weighing on shares and what are investors watching for? We'll talk about that next.

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27:55Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington. This holiday, all plans, even unlimited, are just$15 a month. A holiday deal this good obviously deserves an enormously expensive holiday song, like All I Want. Right. Okay, we can afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain.

28:34Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required,$15 per month equivalent, taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Market. Look at this. positive across the board right now. Led by the Russell, the small caps, as mentioned, the 10-year yield, while it hit multi-decade highs earlier on, is down about 10, 12 basis points since then. Could be offering some support. Dow's up 47. That's the laggard. S &P's up a quarter percent.

29:06And the Dow is actually snapping a five-month win streak after falling 4 % in September. While the Russell saw its worst month since March of 2025, it was down 5%. It also snapped a five-quarter win streak. And it was a September to forget for the financials. The worst performing sector last month, down 6.5 % for its worst month in more than three years. B of A, Morgan Stanley, Goldman down double digits. Goldman seeing its worst month, believe it or not, since March of 2020 with a 10 % drop. Turning back to today's action, we mentioned this briefly earlier, but Accenture is leading the S &P, having its best day ever after a big earnings beat and forecasting strong annual revenue growth.

29:43The firm hit a record high in terms of big-ticket client bookings. The stock up 18 % today, but still down 20 % since January on fears of AI disruption. And Fed Vice Chair Philip Jefferson is speaking about the economy and monetary policy at UVA. Steve Leisman has the headline. Steve? Yeah, Kelly, there's a theme here developing of Fed officials who may want more time. Jefferson is saying future policy adjustments should be determined carefully, examining trends in data and the changing outlook and the balance of risk. He goes on to say that the increase in yields is assigned investors are reassessing the outlook.

30:20But he doesn't want to take that at full value. He says the Fed will have to come to its own judgment, which, quote, may take time. He's assessing whether inflation will return to target at sufficient speed. And he goes on to say that. Hang on one second here. Sorry that the Fed can determine the appropriate past quote with more data in hand. Jefferson said inflation risks are tilted to the upside because of geopolitical risks, along with strong growth. All of that moving yields higher. But he's not seen spillovers of tariffs from tariffs or higher energy prices into broader inflation. He says housing has been a source of disinflation, and he's concerned that these higher energy prices could lead to broader inflation.

31:07Basically, what's happening, and I think this may have something to do with the three speakers we had earlier today, my interview last night with Neil Kashkari. But you have this pretty strong move in the 10-year down at 520 now after touching very high levels, 533, 534 overnight and somewhat this morning as well. But this idea that the Fed may not be very quickly raising rates at the next meeting. Kelly, that could be one factor. I talked to our friend Ben Amons, and he says to me that there was a large duration trade out there. Also, the Kashkari idea that the Fed may not have quite as far to go is something that is playing a factor out there.

31:48Whatever it is, there's no clear culprit here. But you've had a pretty strong rally in bonds. That's really it's not even a move in oil, by the way, which has gone the other way. Same for prices paid on the ISM. If they are floating a trial balloon, it's worth floating, Steve, because if they floated the idea of backing off and the long end was worse, that would be important information. And if they floated and the long end improves, that's important information. So whether, you know, I think they got to float it. Ben is also saying that one other idea out there is this notion that maybe the Fed is on the verge of overdoing it.

32:25And that's what would cause something in the bond market to really react. And in a sense, that's the idea that the Fed wants to ingrain in part was that we're really serious about this and get both the public and the markets on board with the other heading down to 2%. It's a tricky game. It's a tricky communication game. But it's a strong move here, especially, by the way, in the two-year, 12 basis points, the 10-year, almost 13 basis points. You don't see that every day, except we've been seeing more and more of it. Agreed. Big moves. What did we talk about? What is the, not the wave index, what's the one that tracks the volatility of the 10-year?

33:01The move index. Move index, thank you. I'm making waves. No. Steve, thank you for now. Yeah, I have that. But one more thing I wanted to point out, Kelly, which is that the probabilities have also gone down quite a bit. We were at 28 percent the last I looked here on those probabilities for the October cut. And you've even come down in December to 80 percent. Big move. Huge move from where we were literally about a week ago. All right. We'll see if it calms things down. Thank you, Steve, for now. Steve Leisman. Let's get to Brandon Gomez for the CNBC News update. Brandon. Hi, Kelly. A group of 21 mostly Democratic-run states and four cities sued the White House today over new Trump administration power plant rules.

33:39They say the federal government's rollback of Biden-era regulations on carbon dioxide from gas and coal power plants is illegal. When the EPA announced the move earlier this month, it said it would save businesses and households more than$310 billion. California Attorney General Rob Bonta just issued an investigative subpoena to OpenAI as part of an ongoing probe into the safety of the company's AI models. Bonta says his office will ask additional questions regarding cybersecurity incidents and risks involving the company. The probe into OpenAI launched last month as the company faces a series of cybersecurity incidents.

34:15And Health Secretary Robert F. Kennedy Jr. is rolling out a nationwide competition for schools in an effort to increase participation in the presidential fitness test. The push includes$7 million in cash prizes for schools, districts, and organizations that implement the test, and$3 million for fitness or sports equipment. Kelly, knowing me now, this will probably surprise you, but I hated running that mile back in the day. What was your time? Do you remember? Oh, my gosh. It was like 15 minutes, I think. I was slow. I couldn't do the V-sit. That was where I struggled. Yeah, that's the other one.

34:47Thank, Brendan. Thanks. Thanks. Coming up, the 30-year mortgage rate is up to nearly 7.6%. percent. That's not just preventing the housing market from thawing. It's having a chilling effect in other areas, too. We'll tell you where exactly next.

35:10Welcome back. We're watching a slight dip in mortgage rates after hitting seven point six percent yesterday, the highest rate in nearly three years. Diana Olek has a look at how that's been impacting the market. Diana, I should say Diana Olick and then Diana. And I'm afraid to even ask you the question because I think we both know the answer. Yeah, we do, actually. But look, you may have heard our own Jim Cramer last night referred to the housing market as frozen. And due to the sharp rise in mortgage interest rates, he's not alone. One agent in Washington, D.C., I spoke with recently described demand in her area as, quote, crickets.

35:44Now, you can see pretty clearly why the average rate on the 30 year fix today, 7.54 percent, according to Mortgage News Daily. That is a 117 basis point jump from a year ago and a 65 basis point jump from just the start of September. We saw what that has done to mortgage demand in the last application numbers. Refis last week down 56 percent year over year. Homebuyer applications down 14 percent, according to the Mortgage Bankers Association. In addition, more than 10 percent of borrowers applied for riskier adjustable rate loans. They call them ARMS, which offer lower rates, the highest share in nearly two years.

36:22Now, a homebuyer purchasing the median price home today, which is around$450 ,000, they're paying$300 more per month than they would have the day before the war with Iran started at start of March, when rates were a tick below 6%. And not only do higher rates make housing less affordable, Kelly, you know they make it harder for people to even qualify for a loan. Yes, it has, I think, had a very big impact. Diana, thank you. Diana Olick. If it stays frozen, does that mean the broader economy will be frozen, too? Let's ask Misha Fisher, Chief Economist at Zillow. Misha, it's great to have you on the program.

37:00Can you give us a kind of up-to-the-day, really, sense of what's going on out there in the housing market? Yeah, thanks for having me. So right now, the housing market, I think just to echo what Diana was saying, is definitely struggling from what was already a low baseline. We're seeing in our most recent data, newly pending listings down about 11 % last week. So significantly slowed activity given where rates are. And that's really quite the transition from earlier in the year where we saw much more strength in the market. We had newly pending weeks that were 10 plus percent in some parts of the spring and even the summer.

37:37But the recent run up has really put a chilling effect on things. And, you know, taking a step back, this has really been an interesting cycle because we all tend to sort of think that there's this normal story about the cycle where housing leads us into and out of recessions. And when we had the rate hiking cycle this time around, it successfully put the lid on housing growth. And we've had this four-year slump. But the rest of the economy has continued to hum along. At this time, I think the rate hiking cycle is hitting an already slow housing market. So it's definitely a different set of circumstances than we normally expect under normal economic circumstances.

38:16I always think about that paper from Ed Leamer. He passed last year, unfortunately. But housing is the business cycle. You know, he said, and that was certainly true then. And why is it less true now or will it be true in a couple months? Could it have a chilling effect on GDP? Well, so I think you're raising actually a really, really interesting point on that front, right? We normally, it was certainly not the case with this most recent cycle. But looking ahead, I actually think that, you know, if the event we do see some squeaking in the labor market as a result of this current cycle, If we do see some loss of confidence around the AI buildout and some of the demand for debt in that part of the economy, we could end up with a return to normal where rates eventually do come down as there's a flight to safety and then housing does lead us out of the cycle.

39:02The housing is definitely at the bottom over the last four years. It's just been bouncing along. And so there's lots of room to go up when we do see rates come down. what else happens in the economy is, of course, going to be a function of how long this rate hike cycle lasts and what else happens. But, you know, I think, you know, Leemur's overall perspective is one that I still expect is true over the long term. It just hasn't been true this cycle. Let's say I have a friend who happens to be maybe listing a house for sale right now, and maybe it's not going that well. Misha, what would you, can you be my realtor for a second?

39:36What would you recommend? Do you take it off the market, wait till the spring, hope rates are down By then, things picked back up. I'm afraid that that whole post-COVID boom that we had, which in some ways was demographic-related too, I'm afraid that whole thing is over. Could it be a buyer's market now for some time? Well, I think actually it really depends on where they are, right? There are some strong markets. There are some weak markets. My general advice in every market is if you are a buyer right now, you want to make sure your house is getting in front of as many people as possible and that your listing strategy is supporting that.

40:08So you want to have broad-based views of your listing to get it out there because it is more competitive than it's been in the past. And that will ensure you get the most. You also want to make sure you have a good agent who is informing that listing strategy with a realistic listing price, right? That is something that we've seen a lot of. Even last year, there was some listing prices that were probably a little optimistic. This year, actually, I think we've seen both the share sold above and below listing come back to normal, and we've seen overall listing prices and sales prices be in a spot where I think people have gotten the memo about what the real market price is.

40:46If they are in a stronger market, they shouldn't necessarily delist, but there are still some weak markets out there. You don't want to cut the price because then you're like one of those houses, but sometimes you have to. And again, if you're out there buying right now and if you can somehow deal with rates where they are. Things have shifted. Misha, thanks so much. Good to see you. Thanks for having me. Misha Fisher. Coming up, the street widely anticipating more pain ahead for Nike in today's results after the bell. But our analyst says there are some pockets of strength in athletic apparel.

41:16He'll tell us where next.

41:22Nike reporting after the bell. Poor Nike. Shares are down 44 % since January, 12-year low. Our next guest has maintained a hold since January is cautious into the print. Tom Nickich is managing director at Needham, covering apparel and footwear. Kind of a tough time for everyone, even on falling prey to maybe a high valuation. Lulu, we know the struggles there. Nike is enough priced in, Tom. You get the 4 % or 5 % dividend yield, and eventually they figure this out. Yeah, and Kelly, thanks very much for having me on the show. So Nike, look, I think Nike still has a lot of work to do to right the ship and turn things around.

41:56I think there's too much inventory in the North American wholesale channel. I think China is still a bit of a mess. The macro environment is more challenging than it was in Europe, given all the geopolitical things that are happening and energy prices. So all in all, it seems like, you know, there's still, you know, quite a few headwinds at Nike and honestly, not many tailwinds at the moment. You know, another analyst on the street made the point that streetwear, footwear is kind of a hard thing to do and to do well. In other words, you can have apparel companies come and go, but is there kind of more lasting strength, even though they've been setting out this whole cycle, obviously, but they still, you know, it's still hard to kind of get a big presence in footwear and keep it for a long time.

42:45That's true. And, you know, Nike obviously has a very, very big research and development budget. And historically, they've been one of the most innovative brands in the footwear space. I think one of the issues they're facing now is that they went an extended period of time without meaningful product innovation because they were so focused on the DTC initiative and moving sales online. And that allowed other brands such as Hoka and On to come to the market with really, really innovative goods, pick up shelf space in the wholesale channel, pick up market share, gain more attention and brand awareness from the consumer.

43:22And that's been a problem for Nike. Yeah. And I love Brooks. Just got some Brooks. Warren Buffett Company, Berkshire Hathaway. So you stay a whole kind of give us the broad sense of maybe this quarter. Is there anything they could do? They already talked about, you know, we know what happened with Dixon Foot Locker and back to school. The host wholesale accounts in China announcing termination of some products. What could turn things around? I think, honestly, the thing that would turn things around more than anything else would be innovative new products. And if they can give the market the sense that there's a pipeline of innovation coming in 2027, that would go a long way.

44:01They're having an investor day in November, I believe. And, you know, hopefully at that event, they'd be able to show us some innovation because that's really what's been lacking in Nike's business the last five or six years. And quickly, do we also need to wait for a turn in fashion? And obviously athletic was all the rage for about a decade. Do you just have to wait it out? Yeah, I think that's a great point. You know, I think pretty much every swimmer's closet is full of sneakers and hoodies and sweatpants. And, you know, if you look at the brands that are doing really well today, it's stuff outside of the athletic and the athleisure space.

44:43So, you know, Ralph Lauren, Levi's, Coach Handbags, et cetera. So I think we have seen consumers start to gravitate somewhat to non-athletic, non-athleisure product categories. And so, you know, we kind of need the pendulum to swing back in the other direction. Yeah. You've got Levi's by Abercrombie, PVH, you know, some of those plays there. Tom, thanks very much. We'll see if this is the turning point this afternoon. Like you said, maybe not. Tom Nickich of Needham. Appreciate it. Coming up, Meta up 31 % in two months as its AI bets are starting to pay off, while Alphabet is down 5 % as the buzz around Gemini and frontier models in general has fizzled to bed.

45:28We'll discuss whether Meta's lead could get even wider next.

45:34Google releasing its latest frontier model, Gemini 4 Argonne, just as the AI race is shifting to personal assistants like Meta's Muse and OpenAI's Dots. Mackenzie Sigalos has more in today's Tech Check. Mackenzie? So, Kelly, nearly a year after Gemini 3 gave Google some much-needed AI street cred, its successor has arrived. Google says that Gemini 4 Argon tops a key software engineering benchmark and ties with OpenAI for first place in cybersecurity. But its rollout is heavily restricted to select cyber defenders and cloud customers while it undergoes U.S. government safety testing. And the arguably more consequential race now is personal AI agents and whether Argonne can help Google compete.

46:16Now, three weeks ago, Meta launched its free Muse app, which has already topped 5 million downloads, according to Sensor Tower. OpenAI's Dots offering and Google's Spark agent, meanwhile, remain behind paywalls. I spoke with Google's agent team about its plans for Spark, And they tell me that as of now, it can navigate Chrome, access Gmail and Calendar. But by design, it cannot make calls or complete purchases, both capabilities that are available through Meta's agent. And keep in mind, Google actually had a head start here. Spark debuted in May, months before Muse. Plus, billions of people use Google's products with their personal data already inside of its ecosystem.

46:53Muse and Dots have to persuade customers to connect those accounts. And there's more at stake than losing ground to rival agents. J.P. Morgan warning just today that as agents take over travel bookings and shoppings, consumers could bypass Google search altogether, threatening its lucrative ad revenue. I must be fancy because I can use Spark a little bit. I think because we pay so much for the photo, the terabytes. It's fine. I actually turned it off because my inbox kept crashing, which had never happened in the 20 years or whatever that I've had it. And it's somewhat useful, but I haven't made the leap yet.

47:27And you can give news access. I haven't done this, but to your Gmail. That's what everybody's doing. So, yeah, Google, it's so incredible to watch them go from a few months ago. All we were talking about was Gemini. Now it's like, what have you done for us lately? And I will say this. You were probably a part of the community of users that are a test case for Google. I spoke to their team. They said that specifically pro users like you, they're watching the use cases they are designing against it. So we'll see what they come up with when they do the public launch. Then I'll keep messing around with it, training it like a dog or a toddler.

48:00Mac, thanks. That's it for us. Thank you for watching The Exchange. Brian is back, and I'll join him for Power Lunch right after this break. You've been listening to The Exchange. Make sure you're subscribed to get each episode every day, same time, same place. It's the holiday season at House of Burrell, which means that it's the perfect moment to review some key rules. Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended.

48:37And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington.