Podcast Summary: Squawk on the Street – Crude Prices Hold Steady, Passenger Plane Crashes in South Korea (12/30/24)

Hosts: David Faber, Mike Santoli, Leslie Picker
Guest: Prof. Jeremy Siegel (Wharton School)
Date: December 30, 2024

Overview

This episode of Squawk on the Street covers major market developments as Wall Street approaches the penultimate trading day of 2024. The hosts discuss the death and legacy of former President Jimmy Carter, the state of equities—especially big tech and the Santa Claus rally—the recent Boeing 737-800 crash in South Korea, and energy markets with a special focus on oil and natural gas. Wharton’s Jeremy Siegel joins to forecast the stock market’s trajectory into 2025, with conversation spanning Fed policy, mega cap tech dynamics, and capital expenditures. The episode concludes with deep dives on Microsoft’s AI investments and market concentration concerns.

Key Topics, Insights, and Segment Highlights

1. Remembering Former President Jimmy Carter

[01:43–03:39]

• Leslie Picker: Recaps Carter’s death at 100, Nobel Peace Prize, and plans for national mourning.
  • “President Biden declaring January 9th as a national day of mourning. The NYSE and NASDAQ are both set to hold moments of silence...” (01:43)
• Mike Santoli: Reflects on Carter’s long post-presidency and impact on economic policy. Carter appointed Paul Volcker, setting the stage for 1980s market changes.
  • “...deregulation started under Carter of the airline industry, energy, communications...” (02:57)

2. Market Recap: Penultimate Trading Day, S&P Dynamics, and Santa Claus Rally

[04:22–07:06]

• David Faber: S&P Equal Weight down 6% for December. The “Magnificent 7” (MAG7) mega caps reassert dominance, but end-of-year momentum waning.
  • “The equal weighted S and P is down 6% for the month and we've seen the resurgence of MAG7.” (04:22)
• Mike Santoli: Questions assumptions about seasonal rallies. Market playbooks from previous cycles (e.g., 2016) less reliable.
  • “The fact that we’re not doing that suggests to me people are essentially saying: why wait till January?” (04:27)
  • “This is not a market that was kind of under loved and undervalued going into all this.” (06:26)

3. Market Concentration, Mega Cap Tech & Capex

[07:22–10:09]

• Santoli: Explains why major funds keep buying large tech (defensive play, reliable earnings). Notes Nvidia’s plateau.
  • “It’s been such a mistake to bet in a sustained way against the NASDAQ 100. I mean, for decades...” (07:48)
  • “Nvidia has been essentially dead money for more than six months.” (08:26)
• David Faber: Raises concern about enormous capex in big tech for AI.
  • “The CapEx numbers, we're going to get to this a bit later in the show, Leslie, are just... beyond anything you could have imagined really, even a number of years ago.” (09:03)
• Leslie Picker: Points out opportunity costs—big tech spending on capex limits M&A possibilities.
  • “There’s the opportunity cost as well of what they’re not spending...” (09:24)

4. Antitrust & Deal-Making Outlook under Trump

[09:33–10:39]

• Faber & Picker: Expect more deals but unpredictable antitrust scrutiny under a returning Trump administration.
  • “There is a broad expectation under the Trump administration there will be more deals.” (09:33)
  • “It was a bit easier [to anticipate] with the very strict regulatory environment we are now leaving.” (10:09)

5. Professor Jeremy Siegel: Market Forecast for 2025

[12:36–19:06]

• Outlook Cautiously Bearish:
  • “I really think we’re going to take a pause this next year... there’s a little bit more risk on the downside.” (12:57, 14:03)
  • “The probability of a correction next year... is getting higher. Not saying it’s a sure thing... but the major forces to propel things upward... have already been built in.” (14:03)
• Mega Cap Tech:
  • “We still have a bifurcated market... Mag Seven being 30–35 times earnings, the rest 18–20... There is room for disappointment at the speed of [AI] implementation and how much that actually will affect profits.” (15:20)
• Political & Policy Wildcards:
  • “We have challenges that Mike and everyone has been talking about: what is going to happen to tariff policy, what's going to happen with immigration policy...” (17:10)
  • “Some of the things are not going to come maybe as easily as everyone thought on November 5th with the election.” (17:30)
• On the Fed:
  • “The normal situation is that long term rates are above short term rates and we were in inversion... and by bringing short-term rates down, we finally have the 10-year above fed funds...” (18:12)

Notable Quotes:

• “Whenever everybody expects something to happen to the market in the future, it’s not going to happen. Everyone expected that we’re going to have the Santa Claus rally... and then when it comes, there’s disappointment.” – Jeremy Siegel (13:08)
• “We might see a reversal earlier [in mega cap gains]... as that big buildup from Thanksgiving up until a week ago unwinds.” – Siegel (16:20)
• “[Fed policy] ...at most [rate cuts] one or two next year, depending on the strength. And, you know, if it’s going to be much less than 2, that's going to be the result of softness.” – Siegel (18:12)

6. Aviation Tragedy: Boeing 737-800 Crash in South Korea

[20:36–22:25]

• Faber: Details the crash, possible causes (bird strike, hydraulic failure), and investor reaction.
  • “A Boeing 737800 crash landed in South Korea yesterday, killing one hundred and seventy nine people... Investigators are looking into whether it may have been a bird strike...” (20:36)
• Santoli: Reminds listeners of Boeing’s stock rally in late 2024, notes context for the pullback.
  • “There has been a lot of, I think, sort of newfound enthusiasm about... restructuring, the pivot toward positive free cash flow again.” (21:44)
• Picker: Notes rise in aviation deaths (318 in 2024, vs. zero last year).
• Faber: Boeing’s manufacturing recovery, debt concerns, and lingering comparison to Intel.

7. Market Structure: Index Concentration & ETF Flows

[25:13–29:21]

• Picker: Notes top 8 S&P stocks now 35.7% of index market cap—surpassing dot-com era concentration.
  • “In 1999, this was 22.2%—just showing that concentration this year.” (25:13)
• Santoli: Explains how ETF inflows and index ownership reinforce concentration; discusses limits of global diversification.
  • “It’s not about self-perpetuating concentration. I think the concentration comes from other places.” (28:18)
• Faber & Santoli: Debate whether the index-centric approach is overdue for a reset.
  • “These last few years... you have to wonder what will finally dissuade people from just owning the index.” (26:33)
  • “A real bruising bear market. That did it in the early 2000s.” (26:44)

8. Big Tech’s Capital Expenditures and Microsoft’s AI Ambitions

[29:46–44:07]

• Santoli & Faber: Discuss Capex bonanza, especially from Microsoft, Apple, Nvidia.
  • “Apple, Microsoft, Nvidia are effectively 21% of the S&P...” (29:46)
• Steve Kovac:
  • “Microsoft’s ending 2024 spending at least $53 billion in capital expenditures... Nearly all of that is for AI.” (40:25)
  • “Microsoft has said it’s on track to generate $10 billion in AI sales this year... after spending about $70 billion.” (41:19)
  • “CFOs ask: is it really worth this cost? Should we spend more or pull back?” (43:18)

Memorable Moment:

• “Microsoft said it expected to sell 50 million Copilot Plus PCs... but no indication it’s on pace to meet that goal.” – Steve Kovac (41:42)
• “For a company... poised to spend $80 billion on capex next year on cloud and AI, at least you would imagine investors are going to be very much focused on that.” – David Faber (44:07)

9. Crude and Nat Gas Market Update with John Kilduff

[34:59–38:41]

• Mike Santoli: Notes oil has been “torturously range-bound for months.”
• John Kilduff: Outlines factors keeping crude prices steady (OPEC+ cuts vs. weak China demand); notes possible gasoline demand peak in China and EV disruption.
  • “To the extent that these efforts [OPEC cuts] fail and... supply goes up and China can't grow as expected, that makes the argument for lower prices.” (35:57)
  • “China has indicated that they might have reached peak gasoline demand.” (36:12)
• Nat Gas Spike: Kilduff attributes a current 20% nat gas price surge to severe cold weather forecasts.
  • “[US] could see... natural gas freeze offs and a big potential... major snowstorm now potentially projected.” (37:30)

10. Economic Data: Chicago PMI

[38:44–39:53]

• Rick Santelli:
  • “Big miss on December Chicago PMI... expecting around 43, actual at 36.9... That now makes 27 months, only one reading above 50.” (38:48)
  • Interest rates down sharply; discussion of curve steepening.

Notable Quotes with Timestamps

• “Even though it was considered to be a very dark economic moment when he left, Carter appointed Paul Volcker... deregulation started under Carter... that kind of set the scene for what would happen in the 80s in a way.” — Mike Santoli [02:57]
• “The equal weighted S and P is down 6% for the month and we've seen the resurgence of MAG7.” — David Faber [04:22]
• “It’s been such a mistake to bet in a sustained way against the NASDAQ 100... always been giving you more return per unit of risk.” — Mike Santoli [07:48]
• “I really think we’re going to take a pause this next year... maybe we're seeing a little bit of that [bad Santa Claus rally] right now.” — Prof. Jeremy Siegel [12:57, 13:53]
• “The probability of a correction next year... a 10% drop—in the S&P is getting higher.” — Prof. Jeremy Siegel [14:03]
• “We still have a bifurcated market... Mag7 being 30 to 35 times earnings... The hope is there [on AI] but there is room for disappointment.” — Prof. Siegel [15:20]
• “A Boeing 737800 crash landed in South Korea yesterday, killing one hundred and seventy nine people...” — David Faber [20:36]
• “ETF flows though, I think at some point ETFs—exchange traded funds—it’s going to be like touch tone telephone or color TV... There’s been net outflows from non exchange traded mutual funds consistently for years now. Trillion dollars.” — Mike Santoli [27:25]
• “Microsoft ending 2024 spending at least $53 billion in capital expenditures... nearly all for artificial intelligence... Microsoft said it’s on track to generate $10 billion [in AI revenue] after spending about $70 billion.” — Steve Kovac [40:25, 41:19]
• “CFOs ask: is it really worth this cost? Should we spend more or pull back?” — Steve Kovac [43:18]

Conclusion

This focused, news-rich episode dissects the macro market outlook as 2024 ends. It examines the legacy of Jimmy Carter, the near-term risks for stocks, the dominance and growing scrutiny of big tech, and the fallout from the Boeing tragedy. Insights from Jeremy Siegel and sector experts add depth to debates on policy impact, AI as the next tech frontier, index concentration, and the energy transition. Listeners gain a nuanced view of market headwinds, capital allocation dilemmas, and why 2025 may prove more turbulent for investors than years prior.