C (2:47)

It's broader than that. Yes, they have code red, they have code Orange. They also have vibes getting rough. But part of this is a trend. Whereas, you know, the first few years after Chat GPT launched, I mean, OpenAI was dominant. They had the field. But what we saw even in recent weeks with Google Gemini just really surpassing on the benchmarks. But also to your question, Kelly, it's not just sort of deep thinking versus the quicker answers. It's as you're looking at, this is the perfect chart to show a race for an engagement here. Recent data from similar web shows that users are actually spending more time on Google's Gemini. That is a threat to OpenAI because it tells us that sort of the models are no longer the moats that they used to be. You're seeing the leadership change. It used to take months to change. Now it's a matter of weeks. And in that memo, Sam Altman said that they're going to release a new reasoning model soon. Is that going to overtake Gemini? How long is that going to last? But what specifically they're working on is that chat bot. And you know, the journal article that wrote about this says that they had to work on things like personality. Maybe Chachi Beat had gotten too cold. They're getting simple answers wrong. So again, it's sort of just this idea that this is their crown jewel, but also their single point of failure. It also sort of makes clear that OpenAI hasn't diversified all that while everything is still riding on this chat bot that is vulnerable to big moves from the likes of Google Gemini and Anthropic.

A (4:11)

Okay to jump in here because I know, look, we've all seen the headlines about how great the Google Gemini model is, and that's fine. But I'm already noticing that as a user, I'm kind of defaulting to chatbots because that's just where I've had my history. I have my history, I have my searches. It knows me, and I don't want to spend that kind of time with someone new. And I know that you're a little bit skeptical as well of the idea that Gemini is going to suddenly come in and eat the company's lunch, but obviously it sounds like they have reason to be concerned.

D (4:40)

I think the history of every company, there's fits and starts. And right now ChatGPT is facing competition. But if you look at what's going on in the App Store, even with this flurry of media coverage on Gemini, Chachi is still number one. I mean, Gemini was number one for a little bit like a few hours here and there. But I think ChatGPT market share, like you said, the personalization, the memory and all the workflows, they're going to come back. I actually think that Gemini and Cloud Opus from Anthropic what that will happen over the last two weeks when both models kind of beat each other and did really well on the benchmarks. That's extremely bullish for the entire adoption progress space. It shows that the scaling laws are still intact and I fully expect ChatGPT, Chappie GPT and OpenAI when they train the new models on the new Blackwell NVL 72 clusters that just went live at Microsoft data centers in October. Those clusters are so much more powerful when they train the new models on those Blackwell servers. ChatGPT will come right back.

A (5:46)

Steve, jump in here.

B (5:47)

Yeah. Let me tie this all together, what Deirdre and Tay just said, and we can all flow it back to Apple. So you have engagement, right? This engagement problem with OpenAI, you have this idea that the models are performing better and you have to spend than each other and kind of leapfrogging each other. Apple is taking a totally different approach. They are not spending enormous amounts of money on these Nvidia chips. They're not chasing engagement. What the idea is, now that they've set these pieces in place, they had the executive shakeup last night. They set the pieces in place to have a chatbot as they originally pitched it, which was, hey, it's going to use all the personal stuff on your phone in a private way. You talked about memory, Kelly, how that is a great thing that you like about ChatGPT well, what if the chatbot could also tie into your email? What if it could tie into your text messages? What if it could tie in to everything on your phone in a private way? It would be even more useful. That is the pitch Apple's going to make in a few months time early next year when they release this chatbot. So we're seeing this wide open pie basically continue to get bigger as they all chase each other. One other thing we talk about engagement. Huge red flag when you have OpenAI talking about this because we've seen this throughout the tech Industry in Web 2.0 with social media networks. When they need to boost engagement they do some junky things. Whether that's weird push notifications, the thing you get when you talk to ChatGPT and it's always asking you can, can I help you with something else? Kelly, can I help you with something else? And then of course you get into these lawsuits about suicides and self harm and so forth. OpenAI has yet to prove that it takes that balance of safety and growth as seriously as maybe it should. So one red flag I had when I hear all these, you know, code red, code red, code red within OpenAI and perhaps Deirdre can add on to this is what, what changes can we expect to see to boost the engagement? Are they going to change it to be more sycophantic again? Are they, you know what, what are they gonna do here in order to get that engagement growing the way it was growing? And that's something to be concerned about.

A (7:43)

Steve, that's a great question. Let me help you out with that. That's what it would Deirdre, to jump in here.

C (7:47)

Yeah. And I wonder what is that going to cost Open Air? Right. Because their model is a little different and what we saw with Gemini is that they built a world class model using TPU's. That is such a key point. Google is able to do things like distribute it through AI mode. Potentially billions of users question what's going to power the Apple chat bot? Is it going to be Gemini? We know that TCU TCs have brought down the cost and that's a huge advantage that Google now has over OpenAI or maybe OpenAI. It's already been reported going to turn more to TPU's as well. I'm sure. I'm sure Tay has thoughts on this.

A (8:22)

Go ahead.

D (8:24)

I think all this discussion about TPUs is really amusing because Google released the specs on Ironwood back in April and now everyone's surprised. There's this thing called TPU that exists. Nvidia's NVL72 Black though, Tay, is it?

C (8:39)

It's the fact that they trained Gemini 3, which is the leading model right now, fully on TPU's. Because you can say all those things, but the proof is in the pudding, isn't it?

D (8:47)

Well, anthropic just beat Gemini. Even though part of that is on TP is. Yes, but like I said, the NVL 72GB 300 Blackwell, which is a much more performant version of the Nvidia chips, have just gone live in October. And when Open Air trains their latest models on those chips, it's going to be much more performant.

A (9:07)

Guys, what's a TPU again?

B (9:09)

Processing unit.

C (9:10)

Okay, okay. Their custom AI chip that's unique to Google. You need to be on the Google Cloud to use it, which was sort of a knock against why people would use TPU's. Right. You don't want to matter. Doesn't want to put all of its business onto Google Cloud. But the fact that they're more performing. We can show you an element to over Nvidia's chips. I think we're just only seeing the beginning of it.

A (9:31)

But what.

B (9:31)

What is it?

A (9:32)

Go ahead. How does that make it different from. I understand. I know the CPU. I grew up in the 90s. I know the GPU. Tay, what is it? What exactly is a TPU?

D (9:43)

GPU is similar to GPU, but GPU is more flexible. But it's a base, basically an ASIC, a fixed function ASIC that is kind of made to do AI workloads that Google has worked on for over 10 years. Google talks about all these specs and performance metrics or whatever, but the reality is those are specs and when you have to integrate the entire. The network, the data center systems, all that stuff, in real life, you know, things are different.

A (10:13)

So does Nvidia not offer this to continue? I note, and you pointed this out, the CEO has described himself as. As a software company that makes chips.

B (10:23)

Right?

A (10:24)

So just please integrate all of these themes.

D (10:27)

So basically TPU's is the chips that Google makes and it's primarily used for internal workloads and it competes with Nvidia GPUs. They're similar, except GPUs are slightly more flexible overall. But the funny thing about, everyone talks about TPU's. Morgan Stanley said the actual amount of TPUs that were made this year were down and. And Google market share for Nvidia GPUs at Google Cloud went up this year and and people are freaking out about this Metadeal. Several billion dollars in 2027. Let's put that in context. If it's a $3 billion deal, that's less than 1% of Nvidia's revenue in 2027. So everyone freaks out. But the reality is all this is because we're in a supply constrained, massively a supply constrained environment. So everyone's like dying for compute capacity. And that's why you know, people are going to Nvidia. People are looking at Google. Yeah, but, but I think the reality is we're in this overwhelming demand situation and everything is sold out for.

C (11:28)

I was just going to say, I mean the yes, we're in a cycle where everyone wants this demand but in video sort of has the dominant position. Are you saying that that's just going to continue unfettered? That other hyperscalers are going to look at these efficient TPU's and say okay, if we can't get our hands on enough GPUs, we're going to go for them. Do you really think that Nvidia can just keep the dominance that it has even with tpu as we heard from Amazon today with their own custom AI chips?

D (11:56)

So I'm very confident Nvidia is going to be dominant over TPU's. If you look at the customer, same dominance. So yes, like maybe it'll go from like a couple of percent to 5% in a couple of years. I mean that's that, that's a deal.

C (12:10)

Big move isn't it when the market.

D (12:11)

Is growing at 50% per year and you lose a few percentage points. And if you actually look at the customers, it's really only meta like Amazon and Microsoft, the major hyperscaler buyers, they're not going to buy Google TPU's because they compete with them on the cloud side. And there's only a handful of startups that have the software sophistication to actually put TPUs to use. The vast majority of enterprises, corporations, sovereign cloud are going to use Nvidia because it's the most optimized chip. They do the best performance every year on this annual cadence and they don't have the crack software engineers they handful AI model startups at.

A (12:46)

I love it. I appreciate this Steve, just bring it. I thought it was noteworthy by the way as well. We've talked about Apple kind of being a side story in many ways to this and you've talked about some of the changes they're making. Stock was still at an all time high yesterday and Today too. And today as well. What does that tell us?

B (13:00)

And so much of that loop capital actually gave them up.

D (13:02)

Right.

B (13:02)

Almost has nothing to do with artificial intelligence, Kelly, because this is going to be a free product. You spend 20 bucks a month on ChatGPT, Apple's going to give you, or at least they say they're going to give you a very similar, perhaps better, more personal experience for $0. You just buy the phone and it comes, it comes with it to the chip point. They're also doing something very different that allows them to build the system more cheaply. They're using in their private cloud servers. They're not using GPUs or GPUs or whatever you want to talk about. They're using the same chips that they put in your MacBook.

A (13:33)

Wow.

B (13:33)

To run this.

A (13:34)

Wow.

B (13:35)

And so they're able to do it.

A (13:36)

More, which they make.

B (13:37)

They make. Obviously they make it and it themselves. So we're talking a couple hundred bucks per chip out of Apple's pocket as opposed to like 10 or a couple 10,000.

A (13:46)

Well, we'll see.

B (13:47)

Bucks for chip.

A (13:47)

If they end up migrating a user like me from my beloved charging to their.

B (13:52)

That's going to be the technology. Honestly, it matters more to investors if it makes them move more phones than they already are moving.

A (13:57)

You're exactly right.

B (13:58)

Yeah.

A (13:58)

Thank you all. Really appreciated this. Deirdre, Steve, and take him joining us from Barron's today. And let's turn to the markets in the meantime with stocks moving higher as tech regains a bit of its momentum and notably Bitcoin is back above 90k. But as we discussed yesterday, I as much as you want to debate the ins and outs like we just were, it's not the whole story of this market or even this rally this year. My next guest has been hammering this theme all year long and is staying bullish into 2026. He's talking about old fashioned things like housing orders, profits and employment. Joining me now is Michael Kantrowitz. He's the chief investment strategist at Piper Sandler. It's great to see you as well. Thanks for coming in. Did I characterize that correctly?

E (14:38)

That's right.

A (14:39)

By the way, kud, what do we call? I know.

E (14:41)

Xtel.

A (14:42)

Thank you.

E (14:43)

Yes.

A (14:43)

Number one strategist for that call all year long that there's something bigger taking place here. So tell us what, what that is.

E (14:50)

Sure. You know, the market's been very focused, of course, where interest rates are going and what's been driving that. I would say in 22 and 23 was really more about inflation. And in recent years, we've started seeing the labor market soften. And I, I suggest that investors have a brief definition of history and have to look further back and in periods specifically where inflation anxiety was very elevated, like today. And what we see taking place today and for the foreseeable future is softer employment providing for lower rates. And in a market that's we're seeing inverse correlations with equities and interest rates, that's been a positive, and that is what's been missing to get the market to broaden, get the economy to broaden, lower rates, to get manufacturing, transportation and housing to get back to a better, better backdrop in 26 when we see that.

A (15:40)

If I could put it as the eureka moment, as I was reading your work, it occurred to me like this. I keep thinking about, you know, softening employment data and falling interest rates and rate cuts as the end of a cycle.

B (15:50)

Right.

A (15:50)

That's what was happening in 2008, the economy softening. The Fed's behind the curve, they're trying to catch up. And that's a bearish sign. But then I read what you're talking about. You go back to inflationary episodes where that's the top concern for the market. And once you have employment softening and the Fed's cutting, that means you're through the bear market. That actually is the beginning possibly of a rally and a broadening. So you're pointing to that playbook as to people say, how can we possibly be in the early innings? Look at how strong the market's been. Does that give you any concern though? Like we'd be building on a rally that's been so strong for the past few years.

E (16:23)

Well, I think we have to compartmentalize the rally and where it's come from. We had a big bear market in 2022. P. Es collapsed, credit spreads widened, and it took basically 23, 24 into 2025 to recoup all of those losses. So we had earnings, which meant large caps and growth stocks did much better. But look at the Russell 2000. It's back to its highs. None of that is about earnings. It's all PE expansion. And it's because inflation's come way down. Prices are still high, but let's not conflate those definitions. Yes, the labor market softened, but the silver lining of that is that two years ago, interest rates peaked when unemployment started going up. We had mortgage rates of 8% the 10 year over 5. And now we're almost 200 basis points lower. And yes, it is a bit of a no pain, no gain situation.

A (17:14)

And unfortunately or fortunately, this is a weird thing about COVID there was a massive hiring surge. The fact that we're talking about the great resignation and people just phoning in their jobs like yeah, I'll do. Thank you that I've arrived. It's not like that anymore. We're unwinding that.

C (17:28)

Yeah.

A (17:28)

So Amazon cuts 14,000 jobs. Sounds scary. Except that they doubled their workforce to 1.6 million during the pandemic. So we're the labor market reset. It seems to me the market is still perceiving this as there is some rightsizing going on across corporate America still, which shouldn't be confused with kind of where we are in the business cycle.

E (17:46)

Yeah. Not kind of margin pressure, pain induced employment layoffs which is also happening as well. That you've got AI related layoffs, you've got normalization from COVID and there is a cyclical component as well, certainly in smaller businesses. And I think that's going to persist into 2026. I want to be clear. I think the labor market remains very sluggish.

A (18:05)

Right.

E (18:06)

But that opens the door for rates to be to continue drift lower. The Fed to start to continue cutting and seeing a broader improvement in housing, manufacturing, transportation. People have gotten so bearish on these parts of the market.

A (18:20)

And look at the ISM again yesterday.

E (18:22)

And it's, it's still weak, but it's been kind of hanging around. And all of our forward looking indicators suggest that finally in 2026 we'll start to see that get back into expansion. Up until three months ago, we were not seeing those signals.

A (18:37)

What are those signals by the way? It's fascinating.

E (18:39)

So it's changes in interest rates, changes in oil prices, changes in money supply growth, changes in the yield curve. And I'm not even including the fiscal policy kicker that we're going to get.

A (18:50)

In 2020 because you can do the expensing immediately of depreciation or whatever it is that the people seem to be.

E (18:56)

In the first half. All of that's gravy. But it's really as simple as two years ago we saw interest rates peak after rising into 2023 and they stabilized. You know, the 10 year kind of bounced around for about two years and is now near the low end of it. The Fed's been cutting for over a year. It's those changes in rates which help to normalize the economy. And people are getting too stuck. I believe in the bearishness and kind of thinking that this will never change. And that's where things typically do.

A (19:26)

No, I appreciate a different way of looking at it. And you also have some specific ideas as well, which I think about as I watch Boeing breaking out today. You know, you were already talking about industrials and saying Caterpillar becomes a name that looks interesting. Is that right?

E (19:38)

Yeah, I think there's, you know, there's, there's sectors in the economy, whether it's health care or industrials that have had an AI benefit that if we get manufacturing and housing and transportation to see some better, better days, which we think is coming, then you kind of get two parts of, you know, you get to double dip essentially from in that story. So I think industrials is kind of the sweet spot benefiting from AI, but then the, the other business, which people have kind of forgotten, we think could start to kick in.

A (20:07)

We are going to quickly get into this later on. But in the world of small caps you mentioned, this has mostly been multiple expansion. The Russell still only up 12 points this year and the Nasdaq I think is up 21. Do we get earnings growth among smaller companies? Do we get really strong performance or do you still view it as having significant headwinds where you may not want too much exposure?

E (20:25)

Well, in a way, what you typically see when small caps work is they typically work at the beginning of a big, big earnings improvement. And that typically takes place alongside tightening credit spreads and rising multiples. So in a way we've already gotten the multiple expansion because again, multiples got hit earlier this year from tariffs and from April through basically the late summer, multiples again recaptured those losses. Why? Because again, we didn't go into recession. Inflation hasn't shown up in a problematic way. The Fed has cut rates, so multiples are kind of back to those high levels. Credit spreads have tightened up a bit. So I don't think we can really depend on a lot more multiple expansion. So it's really going to come from earnings and that from a, to corroborate that from a macro perspective. Yes. I'd love to see housing, manufacturing and transportation data activity, macro data get better.

C (21:14)

Okay.

E (21:15)

But the Street's expecting at about 15% earnings gain. I'd say that's reasonable. Maybe it comes in a little less, but it's still a positive number.

A (21:22)

Interesting. Michael, thanks. Always good to check in with. Gives us hope. Michael Cantrow. It's a Piper Sandler.

B (21:27)

Thank you.

A (21:28)

Coming up, Bitcoin's rebound today is boosting the crypto related companies like Circle, Robinhood, Bullish and Strategy strategies up about 7% right now. Of course, these names were crushed recently. Circle is down more than 70% from its recent highs and almost fell all the way back to its IPO price. We'll delve more into it next. Plus, bank of America says those small caps could be poised for a big recovery next year. We were just talking about it. They're going to give us their five bullish themes that they say are also emerging. That's ahead on the Exchange.

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A (23:06)

Welcome back with a sharp rebound for bitcoin, putting it back above 92,000 today. Incredible. After having its worst day since March just yesterday. And we saw that breakdown as it pulled down, by the way, all the related bitcoin companies. My next guest isn't sure. I mean, who is sure whether the bottom is in? But he is sure that betting on bitcoin isn't the best way to play a crypto comeback. Let's bring in Dan Dalive. He's a senior analyst at Mizuho and I appreciate you coming in. Dan, it's good to see you again. So it's be much more fun to debate whether crypto is or should or whatever have a comeback. But nevertheless, if you believe that it's going to what do you say is the best way to play it?

F (23:42)

And that's exactly the point, right? So the best way we've figured out to play it is you play it when it goes up, you buy Robinhood because you get all the benefit when crypto goes up it gets that like crypto juice or crypto multiple, but it doesn't suffer as much on the way.

A (23:58)

Down because it has the equities platform.

F (24:00)

It's only like 20% of revenue.

B (24:01)

Right.

F (24:02)

So but people associated with crypto on like, you know, in good days and they sort of forget about it on bad days. So Robinhood remains kind of the best play of like, you know, having it but not suffering from it.

A (24:12)

How did it perform the last few months? I know, you know, this is one of the best stocks of the year going into the summer. What did the recent kind of breakdown tell us?

F (24:19)

I mean, it's off of, you know, year high. We have over $170 price target. It's been incredibly resilient. Resilient despite what we've seen. Like you're seeing Coinbase, you've seen bitcoin, you've seen like pretty much everything that's tied to crypto getting hammered. And then Robinhood stays there. It's not where it was at the peak, but it's incredibly resilient.

A (24:38)

What happens if bitcoin really, you know, let's just be dramatic because I wonder if it really did collapse. And by the way, this wouldn't be unusual. Down 80% is like, happens every four years with, with this cryptocurrency. So what would happen to investors who are probably already a little still shaken? You know, if you're in anything leveraged by the price action the past week or so, do you think they're all flushed out now? Are they ready for another down leg or is this going to be a moot discussion? Because, you know, maybe now all the selling has taken place and now it can move the other way and be back in triple digits and off we go.

F (25:08)

If it goes further down, it's going to be painful. Yeah. I mean, I wish I could be the bearer of great news here, but if it, if crypto, if bitcoin keeps going down, then altcoins are going to go down even more and then the entire sector is going to take a beating. Right. Like anything from, you know, even Robinhood, not as much as Coinbase. So that sort of, you know, long Robinhood and then hedge it against with other names is going to pay off. Right. So on a relative basis, it's going to continue to, we think, outperform some of the pure play names that are 100% associated with it.

A (25:40)

Do you cover the. What do they call the yield companies, you know, the bitcoin treasury companies?

F (25:46)

I cover microstrategy.

A (25:47)

So strategy. What do you think of that strategy? Is it fine, is it fundamentally innovative or is it just leverage, or is it just hoarding of a, of a scarce asset? Argue, maybe it's scarce, maybe it's not. What is the play ultimately, do you think?

F (26:01)

Well, if Bitcoin, we think that bitcoins, our official stance is that bitcoin is going to continue to go up, you know, over time. And if you believe that, then those companies, the microstrategies of the world, actually make a lot of sense because they're allowing you to buy Bitcoin at a relative discount today, issuing the equity. So it really only works when Bitcoin goes up.

E (26:23)

So.

A (26:25)

But we all know it's not going to go up. I mean, is that the argument is it is going to go up forever to be the first financial. I guess you could argue a lot of dollar denominator financial assets go up forever. But do you know what I mean? That it's, it's just going to go up forever. And so you just, you just continue to hold.

F (26:37)

You have to be in that. You know, I don't want to call it religion, but you have to be this kind of like, in a way, right? There's, there's a lot of comparisons here, but you have to be. It's like when we initiated coverage, we called it a lever for the believer. You have to believe in the underlying category in order for you to believe in the story. So if you believe bitcoin is going to zero, that's not your place to be.

B (26:58)

Yeah.

A (26:58)

And you cover Circle as well.

F (27:00)

Yeah, we're very negative.

A (27:01)

So here's the interesting thing to me about Circle. It comes on the scene and everyone's so excited about the possible total addressable market.

B (27:07)

Right.

A (27:07)

If this person drops stablecoin, this is everyone adopt stablecoin and it's going to have this massive revenue and it's going to take a toll that. Okay, maybe, but there's a lot of stablecoin possible. It doesn't have to be us dc and look at what's happening right now with rates. Every time. This is in their S1. Every time the Fed cuts 25 basis points, I think they lose, what is it, $100 million in revenue.

F (27:25)

Yeah.

A (27:26)

And now it's back to almost its IPO price. So all they're doing is capturing the spread. The spread's going down unless yields go back up. So how big would the adoption story have to be to offset that?

F (27:36)

It would be on anyone's reasonable imagination. I agree with you 100% I think when we first talked I said this is a silly business model. I still stand by that. It's a great feature. Stablecoins are a great feature. They're very disruptive. But it's not a business. It's only a business when rates are high. And we know that's not going to be the case over the next two years and it's going to be raining stable coins. So there's good. Everyone's going to have a stablecoin. So why do you need usdc? It's just one other stablecoin amongst many others.

A (28:01)

No, it's true. So I'm very curious to see how that performs and I'd love to have the company on talk about whether they think that's true or not or what plan B might be. But reigning stablecoins I think is the phrase today. Dan, appreciate it.

B (28:12)

Thank you.

A (28:12)

Dan Dalab with Mizuho. Coming up, we've got the first numbers from November's apartment rentals. Why? Because we care about inflation. What does this all mean? We're going to deep dive on the vacancies indicator, what it all means for the property market and for residential real estate stocks. And as we go to break, here are some of the other names hitting new all time highs today. And it includes Apple, which we mentioned earlier, but also Synchrony, Cummins and Analog Devices. We'll have some more on the biggest movers after this break.

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A (29:58)

Welcome back to the Exchange. Stocks are in the green today and the NASDAQ is leading the way. Dom Chu has a closer look at the biggest movers. Hi, Dom.

B (30:06)

All right, so Kelly, we're going to start things off with a couple of Earth earnings movers making some noise in today's markets. So the good news first, shares of MongoDB, they're surging and I mean really surging to the tune of 23% after posting third quarter revenue numbers that beat expectations. And it raised its fourth quarter and full year guidance. MongoDB CEO told CNBC that the company saw significant growth in its large enterprise segment driven by rising global demand. He also noted that it's strengthening its relationships with AI developers who are building on MongoDB's platform. 23% gain there. Then you got that not so good news, which is shares of Signet Jewelers which are down roughly 4% right now after the parent company of well known jewelry retailers like Kay Zales, Jared Blue Nile and others actually reported better than expected quarterly revenues and raised its full year guidance. But it gave a current quarter the all important holiday shopping season quarter revenue forecast that fell shy of consensus estimates. So that's why those shares are down four and a quarter percent. And we're going to end with another consumer focused name. Shares of Procter and Gamble lower to the tune of 2.25%. The parent company of brands ranging from Tide Laundry detergent to Pampers Diapers and Gillette Razors amongst others, is taking a hit due in part to comments that Chief Financial Officer Andre Scholten made during a Morgan Stanley retail conference where he warned that the context in the US Is more volatile and probably the most volatile the company has seen in a long time. He cited things like a more cautious consumer, the government shutdown effects and the loss of food assistance benefits during that span. So that's the reason why P and G shares Kelly down two and a quarter percent. I'll send things back over to you.

A (31:40)

Talk more about that next hour. Don, thanks. Let's get to Julia Boorstin now for the CNBC news update. Hi Julia. Hi Kelly.

C (31:48)

Special envoy Steve Witkoff and President Trump's.

A (31:50)

Son in law Jared Kushner in Moscow.

C (31:52)

Today for talks with Vladimir Putin about the war in Ukraine.

A (31:55)

But just before the meeting, Putin did.

C (31:57)

Not seem focused on on peace, accusing, accusing European allies of sabotaging US Led.

A (32:03)

Efforts to end the war and calling.

C (32:05)

The European counter proposals for peace absolutely unacceptable to Russia.

H (32:10)

The CDC Vaccine Advisory Committee, handpicked by.

A (32:13)

Health Secretary Robert F. Kennedy, Jr. Will.

C (32:16)

Meet later this week to vote on whether to delay the hepatitis B vaccine for newborns. The chairman of the committee tells Reuters they have not settled on new timing.

A (32:26)

But a review of more than 400.

H (32:28)

Studies and reports released today by independent.

C (32:30)

Vaccine experts found the current timetable has cut infections in children by more than 95%. And in the wake of several members.

H (32:39)

Of Congress deciding to leave office at.

C (32:41)

The end of their current terms, Virginia.

H (32:44)

Democratic Senator Mark Warner announced today he is running for re election.

C (32:48)

The GOP currently holds a six seat majority. Warner was first elected to the Senate in 2008.

A (32:54)

Back over to you, Kelly. Julia, thank you very much. Coming up, small caps. We'll talk about them once again because they're within striking distance of a new all time high. And bank of America says they could be poised for another breakout next year. We'll look at the biggest factors and reasons after this. Welcome back. Small caps, while doing better lately, have still been underperforming the market this entire year. But my next guest says the stage is finally set for a big breakout. Let's bring in bank of America's Jill Carey Hall. Jill, it's good to see you. We were just talking about this on the top of the hour with Michael Kanchowitz who also sees a nice earnings set up. What do you guys see as the reasons why and how much do you think small caps will outperform?

H (33:40)

Thanks for having me and welcome back. Yeah, I think, you know, simplistically, a lot of it will be about earnings because I think when we went into 2025, the setup for small caps looked a lot less constructive. You had uncertainty around tariffs. You had an uncertainty around Fed cuts getting pushed out later in the year. You had uncertainty around when small caps were ever going to get back into an earnings recovery. They were still in an earnings recession. And a lot of those things have, have changed in the last several months. You know, we have a Fed that's, that's now cutting again and we expect three more cuts between now and the end of next year. And profits have finally recovered and they're expected to continue to recover so that they outpace large cap profits growth next year. And if we're in an environment where equity multiples overall are Already extended. We think earnings are really going to be be the driver of returns, not further multiple expansion. So in that backdrop, if small caps are seeing better earnings growth, we're in a healthy economic growth backdrop and the Fed is cutting. I think those are all supportive factors for, for smaller companies.

A (34:45)

Are we early cycle so to speak. I mean that was another thing we were talking about is that small caps often lead the way in kind of the early stages of something like that of a broadening. And I know as you note that the expectations are for 18% earnings per share growth for small caps next year, just 13% for large caps. And is that kind of the law of this, you know, that normalizes as we get closer or do you think that we really could see a slight spread like that?

H (35:11)

Yeah, I mean typically small caps their earnings get hit harder in earnings recessions and then see a bigger bounce. So you know, we, we that that spread. You know, for a while small caps were expected to see pretty lofty earnings growth and then that can kept getting kicked down the road. But now I think what's supportive is you're actually seeing companies management guide positively. They're guiding above consistency census more than below. So that's typically a positive signal for you know, for earnings revisions which have started to be much more positive for really across the cap spectrum. But, but even for small and mid caps now analysts have been revising up earnings more than below and we're seeing better trends in small than in mid recently which is the opposite of what we were seeing earlier this year. So I think fundamentally and with the Fed and then there will be some other, you know, pull potential positive tailwinds for small caps that you know, if we, if we see deregulation, if we see any easing or relief on tariffs because small caps have the thinnest margins and the biggest, you know, potential earnings hit from tariffs. So you know, I think all of those are positives that you know as we see earnings recover and from this really negative recession that they were in, should be a boost in the coming quarters but obviously keep continuing to watch credit and the manufacturing recovery. Small caps are very sensitive to moves in the ISM manufacturing index which has struggled to get back above 50.

C (36:36)

Right.

A (36:37)

You're saying like it's not a slam dunk, like a lot of things could go right. But they there's kind of like a thin margin for error financials. By the way you say screen well but it's to your point that you have to be really careful about credit quality. And I like you say you know, plus, let's keep in mind 90% of small cap funds underperformed this year. So you know, what does that tell investors? Just go with the index. Be careful of active management in the small cap space or if it finally gets more traction next year that maybe, you know, that rising tide will lift more boats.

H (37:10)

Well, I think it was an interesting year. You had this sort of barbell of what worked was mega caps and micro caps. And you know, I think a lot of active managers were challenged by what, what led within the market last year where smaller managers may tend to tilt up more in cap and quality relative to their benchmark. But we saw a long period of low quality leadership, micro cap leadership, a lot of stocks that grew to big weights in the Russell that managers may not have necessarily owned. And the Russell only rebalances indices once a year. That may get a little bit better next year when they start to rebalance twice a year. So stocks that get large and someone didn't own them may not stick around for as long. But, but I think, you know, the micro cap rally looks a bit as extended. That is the biggest or the most expensive part of small caps right now. So we don't. Small but not smallest.

A (37:58)

Yeah.

H (37:59)

And I think value, you know, looks good in an environment where profits are recovering financials, you know, in addition to screening well, it also, you know, we're seeing M and A activity pick up. It's starting to see productivity. It's one of the sectors that can benefit from, from AI, from productivity enhancements, from deregulation. Small caps are the most labor intensive size segment. So more of them are starting to talk about AI. So that should be a benefit as well.

A (38:23)

Yeah, that's so ironic what you said, which is that you know, fund managers pick on, pick more higher quality stocks and it was the lower quality stocks that outperformed. I'm sure they're like that's great. We'll see though if that changes in 26. Joe, thanks. Appreciate it. Good to see you today. Jill. Carey Hall. Coming up, the homebuilder stocks are under some pressure, but there's good news on the housing front for consumers at least, maybe not so much for the rent groups. We'll tell you what it is next. And a reminder, you can get the most out of CNBC by checking out CNBC Pro exclusive analysis, real time data, deep dive reporting. Just go to cnbc.compro now for a special limited time opportunity and we'll be right back. Some new weakness in the housing market that might be good news. Finally for renters, of course, not so much for the rental stocks. Diana Olich is here with this week's Property Play. Hi, Diana.

C (39:27)

Hey, Kelly. Yeah, we've got an exclusive early look read on November rent data out tomorrow. It's showing that continued new supply and weaker demand are pushing vacancies up and rents down. The national median rent for apartments fell 1% in November from October according to Apartment List. It was the fourth consecutive monthly drop. Apartment rents are down 1.1% from November of last year and about 5% from their 2022 peak. Now, vacancies hit a record high of 7.2% in October. It was unchanged in November. And it comes after a really historic surge in apartment construction brought on by big pandemic demand. Now, since it takes a while to build a large building, this supply is still on the high side, still coming through the pipeline, although it is expected to fall back next year. Now, we don't have any recent data on multifamily starts because of the government shutdown, but the last read from August showed multifamily permits, which is an indicator of future construction, down about 11% year over year. Now, weakness in the sector is showing up in the stocks of the apartment REITs, names like Avalon Bay Equity Residential and Camden Property Trust, they're all down year to date. There is a significant lag time for these rent figures to get into the CPI numbers, which are a critical measure for the Federal Reserve in determining interest rates. But they will show up eventually. Now for more on this and a big play on investment in early childhood real estate, head to the Property play newsletter that cnbc.com property play.

A (40:55)

Kelly Our rents going to keep falling?

C (40:57)

DIANA it looks like they will until we get this new supply out of the system, which could be through next year. And again, it's that weaker demand. We're not seeing as much household formation, especially on among that younger set of renters, those just out of college who would be moving into a rental apartment, but they're living with mom and dad.

A (41:15)

One of those looks fine with me. Talk about that later. Diana thanks. Appreciate it. Diana olek, Coming up, Amazon is upping the ante in the food delivery wars. We'll have the details of its latest moves and talk about just how much of a disruption it really is to the competition. You can see Instacart under some pressure today. And don't miss Dell CEO Michael Dell on closing bell overtime today to give his first interview since announcing he and his wife will donate more than $6 billion to a new government program that will provide those savings accounts for millions of U.S. children. We're back into. Welcome back. As you mentioned, Instacart shares are under pressure today. Amazon has announced its states testing a new ultra fast delivery service that promises to get you groceries and other household items in 30 minutes or less. Door dash down 1% on the news. It's since turned around positive. For more on how much of a disruption this could be, let's bring in Andrew Boone. He's a research analyst at Citizens. And Andrew, Door Dash has also kind of been under some pressure lately. So what do you think that's all about and how seriously would you take this new announcement from Amazon?

G (42:22)

Well, I think there are two things there, one of which is Amazon moving more aggressively into grocery. And this is another test that Amazon remember earlier, last quarter, Amazon tested adding fresh items into the page before checkout. And so they're just pushing more of their fresh produce, their grocery offering into their merchandising into the app, into the purchase flow so the customers are more aware of it. They can garner more share of grocery budgets.

A (42:51)

What's so ironic to me about this is I wish that Amazon would just put Whole Foods on doordash. You know, this is a massive, the irony is for anyone who wants to just get Whole Foods delivered, it takes forever and it's a horrible process. And yet the company's owned by Amazon and Amazon keeps pushing these other alter. I'm like, I just want to doordash Whole Foods. Can't we make this work out somehow?

G (43:14)

Yeah, I hear you. I mean, I'm actually a big fan of the Whole Foods delivery experience, but it's separate from what is Amazon. And so Amazon itself without Whole Foods does $100 billion of grocery sales over the last year. So they have a real grocery business that's scaled, it's big. But the question is, how do you get more of that perishable?

B (43:37)

Right?

G (43:37)

Like when I think about blueberries, I don't necessarily think about Amazon. You're right. I think about Instacart. I do, I think about DoorDash. And so how do you move that consumer mindset really over? And I think part of the problem is that if I think about what I go to Amazon for, it's really high margin goods terms of Amazon. And so do they want to give up that homepage space to be able to push blueberries, which may be a low margin product? And I think that's the challenge.

A (44:03)

No, again, so I appreciate you've had a good delivery experience. Now I want to know more because when I try to get Whole Foods delivery, I have to pick a three hour window that is anywhere from like 24 hours from now. So to me it's, it's a mass. So Amazon's now saying they're going to invest more and pushing other kinds of groceries from its store that I don't trust instead of just giving me the blueberries from whole foods on DoorDash in 30 minutes that I'm just trying to get in the first place. Because ironically, they're one of the few places I do trust versus a stop and shop or an Acme or what have you. So I guess if I were Doordash and Instacart, I might take this as a sign of my success and say, go ahead Amazon, good luck to you. But in the meantime, they're sitting on this crown jewel that I think there's a huge potential market for if they could just maybe rely on other people's 30 minute delivery infrastructure. How, I mean, do you think they can figure that out this year or in several years? Because if they do, Andrew, if Amazon really can crack the code here, then yeah, it's a formidable challenger.

G (45:01)

Well, well, let's, let's break down your.

D (45:03)

Question a little bit.

G (45:04)

And I think part of the opportunity in terms of grocery delivery is really advertising. And so if I think about where Instacart makes money, a lot of their EBITDA comes from the advertising side of the business. Yes, they have unit economics that are positive in terms of transactions, but like even really from them selling CPG ads across the user experience. And so if I outsource that to a doordash, if I outsource that to an Instacart, I'm no longer able to capture that advertising opportunity goes to the third party. And so I don't know that Amazon really wants to be able to give up that space. And again, whether they're going to merchandise blueberries to what we keep coming back to, it feels like they need to do a better job of driving awareness of what is they're offering. And to your point, Whole Foods is great, right? They have great produce. How do you make people aware that I can connect that into Amazon?

A (45:53)

Yeah, or go, I'll go to pick it up. And it's like, you know, your pickup window is tomorrow morning. I'm like, okay, but it's 9pm and I need this for the kids lunch. It's that pragmatic gas that Amazon exists to fill so well. And it's, it's interesting to me they struggle so much with it within this case.

G (46:09)

Yeah. I mean, again, I have a different view in terms of Whole Foods. I think they do a great job for the suburbs.

E (46:16)

Right.

G (46:17)

My guess is that you're a Manhattanite. But again, my two refrigerators, I have a big shop on Sunday and that kind of two to four hour window that I'm blocking out where I know I'm going to be home Sunday afternoon.

A (46:29)

I knew that's what's pretty. Well, I'm going to say Andrew Boone is more organized and better at groceries than I am. And that's the answer yet again. Andrew, thanks. Appreciate it Today. That's it for the Exchange. Power Lunch is up next. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.

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