← The Exchange
The Exchange
China's Big Growth Concerns, Labor's Big Divergence, and Software's Big Bounce 3/5/26
00:42:55
China sets its lowest economic growth target since the 1991, but AIE's Derek Scissors says it's actually on the "high end of reality." The hiring bifurcation between blue- and white-collar jobs. Plus, stocks under pressure as oil prices keep climbing, but software names buck the downtrend.
Loading summary
Transcript115 lines
- [00:00]
A
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading not every sale happens
- [00:29]
B
at the register before AT&T business Wire. Checking out customers on our mobile POS systems took too long.
- [00:36]
C
Basically a staring contest where everyone loses.
- [00:39]
B
It's crazy what people say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sail or two. Sometimes I do miss the bonding time.
- [00:52]
D
Sometimes AT&T business Wireless connecting changes everything.
- [00:58]
B
You're listening to the Exchange. Here's today's show and welcome to the Exchange where the sell off in stocks today is picking up steam. I'm Kelly Evans. The Dow is down almost a thousand points as oil prices are on the rise again and the yield on the 10 year is back above 4.1. It's at 4.14% this afternoon. Oil is surging over $79 a barrel today after Iran says it attacked a tanker. WTI, keep this in mind has not traded above 80 since January of 2025. So in about a year's time the oil and ETF the XOP is now at a four year high. If there's one positive standout other than in the energy complex from the investor side, it is the software space again. The cloud ETF WCLD is on pace for its best day in nearly a year. Names like MongoDB, Monday.com, okta and DocuSign are all up 4% or more as those CEOs and earnings try to dispel some concern about software being disrupted by AI. But let's start with the sell off in the markets and the rise in both oil prices and yields. Today I'm joined by Drew Pettit. He's U.S. equity Strategist at Citi. Drew, the markets are going day by day with this and so far not liking the continued the fact that this war is dragging on.
- [02:12]
E
Yeah, I think honestly equity markets here are really taking cues from the oil markets. We saw this in Venezuela early in the year but again markets moved on from that pretty quickly. Oil volume settled back down, I would say index volume. The Equity space came down as well. Right now you're still seeing oil volume spike. Higher in the VIX is going to chase that higher. That leads to these sell offs. The good news is it's still not completely correlated. There's still dispersion. That's why this isn't really as bad as it could be. And names like software obviously helping the index not be down any more than really what it is so far.
- [02:48]
B
But the whole story for you is the price of crude.
- [02:52]
E
Yeah, because look that the really strong earnings story to start this year has been on the cyclical side. I get software has beaten raised. I would say semis have as well. But disruption kind of denting that narrative. On the cyclical front you've had really good macro data and again a lot of that's backward looking productivity this morning. Very good. But when you think about oil prices now, the forward looking implication is those inflation differentials are going to be a negative. So you're finally hitting that side of the market which had actually gone up a lot. So we're denting the cyclical narrative with oil prices. That's what's really been driving the market for most of this year.
- [03:34]
B
It's a great point. You mentioned this yesterday. The folks over at Piper Sandler think that this could add a point to CPI which is going to be a really tough story for the Fed.
- [03:44]
E
So the Fed doesn't really live on cpi. I would just like to remind people that they live on kind of core PC or trimming PC. That's going to kick out some of the, I would say initial and immediate like energy impacts. I get it. That there's going to be some cost path pass throughs in some other areas where look, you can't completely disentangle the oil store story from inflation. Where this hurts the most is going to be consumer and something like consumer staples. Well guess what? Those defensive trades that people wanted to pile in, I would say the bad side of halo to us they're not providing defense when oil's up. So again we still feel comfortable with industrials and those types of names. On the industrial I would say like production side of the economy, consumer side, that to us seems worth worse. You don't really have a good fundamental narrative to withstand higher oil prices.
- [04:39]
B
It's really interesting what you said about consumer staples which had been like the third best sector until recently partly on this idea that they can't be gen aid and maybe there's some other factors at play there as well. So now you think this is, you know, you had a great way of putting it. Kind of the worst part of the halo, you know, what is it? Hard asset low, low obsolescence trade. So what should people do then? Get, get out of that sector and can industrials be okay? When we're talking look at jet fuel prices. They're at a four year high and they peaked, you know, to eye watering levels earlier today in Europe.
- [05:13]
E
When you look at the inflecting growth cyclicals, those stories don't actually get get you into airlines and so on. It gets you into a little bit more of the infrastructure build. Those names can actually pass costs on. The margin story there is pretty good. It's the areas where you can't pass along higher input costs. Where we get concerned about the consumer is not as strong as I would say the business side of the economy that's spending out of free cash flow and actual benefits of immediate capex expensing the consumer, yeah, they get some tax refunds but they're not really in the healthiest spot. You're not seeing consumer companies pass along tariffs as aggressively. You think they're going to be able to pass along oil costs aggressively? Probably not. The margin compression story on that side of cyclicals is concerning to us. Keep owning growth, keep owning the industrial side of cyclicals. Don't be chasing this defensive low beta rally. It's not going to provide you defense because it's been bid up too much.
- [06:15]
B
I know you said the Fed might look through a brief inflationary shock but over in Europe there's markets are already potentially pricing in a rate hike as they have to respond to what's going on with energy prices.
- [06:27]
E
Yeah, this is where us gets a little bit defensive in this area. We're a little bit more independent again on the energy front. We're not getting hit as hard as Europe is here. Our strategists are a little bit more concerned than we are, especially on the earnings front. And then not to mention look our teams globally quant or global equity strategy team done a really good job on this. The reaction sell off is what's gone up the most is going down. So the US being rangebound, not ripping, it's looking like your low beta trade relative to markets like the Cosby for example.
- [07:00]
B
Right. So it's kind of a safe harbor. Finally though, when we look at 4.15 on the 10 year, you know that's a level that's been fine for markets but right now seems to be causing consternation. And I'm just curious if you have a comment on that and on the significance of that, what happens with the kind of the next move there.
- [07:18]
E
It's if this level is sustainable, I don't think you're really going to get a bull market this year. You know, the multiple that we were thinking about, you can't really have rates moving higher to get there. Look, I think the fundamental story is really strong. I think our street high 320 in earnings is actually going to prove to be conservative. It's just the multiple. If rates stay up here, if oil volume stays up here, you're probably not going to pay that much even for a really good earnings story.
- [07:46]
B
I'm actually surprised to hear you say that. Let me just quickly clarify because some people with what what I was almost referencing was that look, a year ago the 10 year was almost at 5, now it's at 4 and change and the market's done quite well. But to you this is a big deal. This back up to around the levels that we're seeing now. What level do you think you said like you said, in order for your multiple for your year end targets to be hit, what level of the tenure were you guys looking for?
- [08:11]
E
Yeah, you probably need this to be closer to 4% with the front end down a little bit lower. So little bit steeper curve macro hanging in there. Rate ball down rates probably closer to 4%. That was kind of all in I would say in our base case around holding a 24, 25x multiple on good earnings.
- [08:30]
B
All right, Drew, thanks so much. Appreciate it. Today, Drew Pettit joining us there from Citi. And our next guest has had plenty of experience navigating through recessions and political turmoil. He has led Stifel Financial since 1997. Joining me now is Ron Kaszewski. He's Stifel's chairman and CEO. I think I got the year there correct. Ron, welcome.
- [08:50]
F
You did, Kelly, glad to have. Glad to be here.
- [08:53]
B
So 30 years, you know, it's put this in some context for us what we're. Because I thought Drew's comments were all on point just now that it is a big deal what we're seeing with oil prices and to some extent even with the ten year.
- [09:05]
F
Right. Well, you know what, the way I put it in context is that 30 years takes 30 years and this show takes five minutes and you can't distill everything that's going on five minutes. And so everything that you said is true. Oil is increasing. I don't know if you saw news across my desk this morning is that Asia is Stockpiling, some might say hoarding oil. Not sure people thought about that. That's going to drive the price of oil up the, you know, a lot of things happening. But the fact of the matter is, is that I think that when you look through this, look through this week and next week, what's really going on, which is a de risking of the world in the Middle East. Let' so let's look forward to what the world might look like without, you know, a lot of the terrorist states around. And I think that that's what's going on. You know, Kelly, I don't want to be political, but I got in the business in 1980. That's when the Shah was overthrown. And for 46 years I've heard death to America and Iran wants a nuclear bomb. And there's been a lot of appeasement for 46 years and I think someone's finally doing something about it and it's going to be a little bumpy as we fix this problem.
- [10:20]
B
Yeah. Although you know better than anyone or as well as anyone, Ron, that the population there, after the Shah initially returned from, you know, Paris at the time, welcomed him with open arms because I'm sorry, not the Shah Khomeini returned from Paris at the time he was, had almost a hero's welcome because they were so frustrated with their leader, with the Shah then. So what alternative does that leave now? And I think, I take your point that you want to derisk the Middle East. Of course, everybody does. But with a country like Iran, which hasn't really had anything other than, you know, this leader or struggling monarchies for decades, if not hundreds of years, you know, what happens now?
- [10:58]
F
You know, it's a great question. I don't know that I have the answer. Kelly, Ultimately the people of Iran will decide. We're not going to decide from the heirs or from afar. It's going to be decided by the people. And, you know, hope springs eternal that a form of democracy that, you know, has more, from my perspective, capitalistic and business, you know, outcomes are good. Well, that'll be good. But that question that you're answering, I don't know, I think they've been trying to answer that question for 2,000 years.
- [11:34]
B
Yes, it's, you know, we sort of sit back and say, you know, we do here have institute celebrate 250th anniversary this summer of a country that's, you know, managed to build and hopefully maintain these institutions. Can I ask you about private credit? And obviously we've seen some other investment Banks with decent exposure to some of the firms that have gone belly up over the past six months or so. How would you describe Stifel's exposure and the way that you're thinking through the ripple effects that these defaults, whatever they will ultimately shake out to be, will have across the financial system?
- [12:03]
F
Well, I'll deal with it two ways. One, we normally, Kelly, when I see cracks in the financial system, I see these kind of things. I, I'll go home, I'll grab our balance sheet, I'll look at our loan book, I'll do a number of things and if there are issues, normally I'll see it in a corner to its stifel. And here I. Here I just don't. Okay, so a lot of, we're a bank and a lot of the private credit has been pushed outside the banks, primarily to the BDC outside of the banking system. And we don't have a lot of exposure to that layer of business. So from my perspective, you know, credit cycles are indiscriminate when they occur. I don't. We will have a credit cycle. But what you're seeing today doesn't really impact Stiefel. What I find tremendously interesting though, Kelly, is as follows. And that is a lot of people are equating the stated nav for private, you know, private funds to the bid that's being put out primarily by hedge funds. So a hedge fund will say, hey, I'll pay you 75 cents for your shares. Well, two things I would say about that, Kelly. One, did you watch It's a Wonderful Life? Do you remember when Potter offered to buy 50 cents?
- [13:13]
B
I have not. Go ahead. It's like a crime. I know, but he offered to buy,
- [13:18]
F
he offered to buy Bailey Savings and loan shares at $0.50 on the dollar. And you know, Jimmy Stewart screamed, said, don't you see what he's doing? He's not selling, he's buying. And what's happening, Kelly, is not credit quality, it's liquidity. People that want out of these vehicles, that want liquidity are going to pay dearly. And the people who are buying them and have patience are going to reap nice returns. And that's. I'm cautioning investors to not hit a liquidity bid on a product that by its very definition takes a number of years to, to pan out.
- [13:56]
B
Fair enough.
- [13:56]
F
So I think it's an education, but
- [13:59]
B
what you're basically saying is that if this is only a liquidity issue that the fundamental assets are in good shape. These are a lot of Software names. For instance, the blackrock one that they marked down. This was in a filing last week. It was in the last quarter, but everyone's poring over this now. They marked down a private loan from 100 to 0. This was infinite Commerce and Amazon Aggregator. So I don't know if there's an angle there or not, but it's going to be obvious as people look through these portfolios. They're going to say, you know, there's some stuff in here that's not worth what we thought it was for whatever reason. But I'm hearing a lot of confidence from you that you think these companies are worth, you know, the valuations that were previously assigned to them. And I would. I might in many cases take the other side of that.
- [14:42]
F
Well, I'll be glad you and I take the other side of many things. Kelly, I'm trying to think if I'm more right than you are, but we can.
- [14:51]
B
I think the Steeple Cell. Yeah, go ahead.
- [14:55]
F
No, I don't know about that. But, Kelly, look, they had a. They had an office tower, you know, written down in San Francisco. You get idiosyncratic events. I know that Mr. Diamond said that when there's, you know, one cockroach, there's more than one. That's true, but it's not necessarily the entire L portfolio. So if you asked me, these portfolios in the B creds and the blue owls and things like that, are they going to settle at a realizable intrinsic value of 65 cents on the dollar? I'll take the over. That's all I'm saying. I just think you need be a little careful as an investor that you're not reading all these headlines and then hitting a low liquidity bid. I also wonder if not an NAV bid.
- [15:39]
B
Right, right. No, again, that's coming from you especially. I think that's important. You go back to the real estate issues. You know, the gating crisis with B. Reed and Starboard, and they kind of. They stretched it out and then it kind of went. The issue kind of went away. I don't, you know, so I think maybe some of these firms now had a little bit of a playbook to work from.
- [15:58]
F
Well, I'd like to see. I'd like to see them explain the issue a little bit better. From my perspective, I think a little PR would go a long way, but I guess it's hard to argue about your nav. But look, I don't think it's as big of a problem as it comes out to be. I think that the economy will be fine. I do not think this will be over in four weeks. I can't. I'm remodeling my bathroom. Kelly, they told me two weeks. Okay, it's going to be four months. Are we actually going to, you know, dismantle Iran in three weeks? No, it's not going to happen. But the outcome of what comes out of this is going to be good for the world economy.
- [16:35]
B
All right, Ron, thanks so much for joining us. I appreciate you talking about all this today. Good to see you.
- [16:40]
F
Thank you.
- [16:41]
B
And I think that was eight or nine or maybe even 10 minutes for the record, you know, not for. Yeah, Ron, thank you. Appreciate it. Run Kruszewski, CEO of Stifel Financial. Coming up, may have seen this. This morning, continuing jobless claims rose to their highest level since early January. New numbers show tech firms account for the most job cuts lately. Is it AI or is it the economy? We'll get into that. But first, the fallout for China, a major customer of Middle east, as oil prices shoot higher and China cuts its GDP target to the lowest since at least the early 90s. We're back after this.
- [17:15]
A
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help. And access support by phone, email, and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading you've never been one
- [17:44]
B
to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outrun, momentum to build on, and your own high standards to meet. Stop now. Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now go earn the degree. Capella University. What can't you do? Visit capella.edu to learn more. What do the steam engine, electricity and AI have in common? These technologies not only change how we work, they can transform entire economies. I'm Stephanie Wong, host of where the Internet Lives, a podcast from Google and Latitude Studios about the unseen world of data centers. Explore how data centers are unlocking growth in every sector of the economy. From agriculture to medicine to manufacturing, data centers are powering a new era of AI innovation. Listen to where the Internet lives wherever you get your podcasts. Welcome back. With the world's attention on the Iran war in the Middle East, China had been largely flying under the radar until now. Today, Beijing set its GDP growth target for the year at 4.5 to 5%. That's its lowest on record going back to the early 90s. China's premier citing a quote, dramatically changing international trade and economic environment along with a deep rooted structural problem. And now the country has to contend with a big disruption to its energy supplies. Pippa Stevens has a closer look. Pippa.
- [19:12]
C
Hey Kelly. So China relies on imports for nearly three quarters of its oil consumption and about half of that comes from the Gulf region. Now imports from Iran specifically have significantly risen over the last five years, now accounting for about 13% of China's seaborne crude. State owned refiners have largely steered clear of these barrels, but they've become vital for China's independent refiners known as teapots, who have been buying at a discount. But China has been stockpiling and now has an estimated 2.1, sorry, 1.2 billion barrels in onshore inventories, meaning if all imports from the Gulf were halted, the reserves could sustain China's normal consumption levels for about 200 days. That's according to Deutsche bank, the firm adding that China's overall energy mix is less dependent on oil than other major economies, accounting for less than 20% of total energy consumption thanks to coal and renewables. Now while we are watching the tick by tick on oil prices, it is important to keep an eye on products. Arbob, that's gasoline futures approaching a two year high and the gasoline crack spread is now at $31 up from 14 at the start of the year. That is lifting their refining stocks. That's names like Marathon, Valero, Philips 66 and Sinclair. Marathon just now going negative here on the session, Kelly, but those are really the names to watch right now.
- [20:31]
B
But, but your point is there's no question this is what Ron Krishevsky just referred to. There's no question they're stockpiling.
- [20:37]
C
Yes. So China has been stockpiling for many years now. And so now they have, their inventory is at a record. And so while this will no doubt hurt the teapot refineries, especially these state owned refineries are three quarters of China's capacity and so this is not going to hurt them overnight by any means.
- [20:53]
B
All right, Pippa, thank you as always. Pippa Stevens, our next guest says China's new economic growth target Isn't low. It's on the high end of reality. For more, let's bring in Derek Scissors. He's Asia economist at the American Enterprise Institute. Derek, it's good to see you. And yeah, this growth target, 4.5% to 5%, it's them acknowledging that it's going to be harder to get growth higher from there.
- [21:16]
D
Yeah, this is a long term process. Obviously the world is focused on Iran. Its effect on a lot of buyers of oil like China. That's not what's going on here with regard to the growth target. China has been guiding its growth target down since 2011. Other than the blow from COVID been very steady, very consistent. This is a continuation. They announced officially 4.5% real GDP growth in the fourth quarter of last year. That was probably an exaggeration. So they're bringing the target closer to reality. And for those who think, well, this year will be better than last year, because something that's really unlikely. Net exports set a record last year, easily. Huge trade surplus for China. They've been trying to goose up consumption for a long time, maybe you can say as long as 20 years, it hasn't worked. So there's not something coming to the economy's rescue. They're right to guide the growth target lower. It gets them closer to where they actually are and where they're going to be.
- [22:12]
B
Yeah, I think one of their own leaders said they were transitioning to new growth drivers. But this is the problem with the centrally planned economy. I mean, you have to kind of a lot of this is the process, the messy process of innovation and disruption. If nothing else, I'm sure they could pursue something in the AI world now. I mean, our dear Jabosa has been reporting about how much they're kind of pouring into those IPOs. And they've got both the military and the state to be obvious customers of those products. And they could potentially, you know, become some of the top used AI models in the world if they're low cost.
- [22:42]
D
There are going to be sectors of the Chinese economy that do well for sure. And it doesn't, you know, if I say their growth is 1%, there will still be sectors that do well. It's a huge economy. It has a lot of variation. I wouldn't call those sectors growth drivers, though. I would call them activity drivers. And the difference, I think is that China will have very successful tech firms that will have very successful AI firms. But what we've seen from other successful Chinese firms is they don't make money. They're Capital destroyers. They lose money, they gain market share all over the world. They sell like crazy, their revenues are huge and they destroy investment and they destroy profit. That's essentially the Chinese model. Drive everyone out of business by underpricing them but then you don't make money yourself. So there's a, there's a tension here. Chinese AI and other tech firms are going to do really well. You're going to see a lot of numbers that look great but they're not going to actually make money and contribute to the economy that way.
- [23:34]
B
Yeah, I just want to show on our screen here, WTI crude is now over $80 a barrel. So again this is the US West Texas Intermediate. It's up seven and a half percent today. We can show Brent, which is usually, you know, $5, $6 higher and Derek, obviously we're showing this is going to cause some pain here, it's causing some pain for the stock market today. But in China in particular, boy do they have an imported energy problem. And I'm curious kind of the extent of that is PIPA just reported they have 200 days of supply in inventory. So maybe they're just hoping to wait it out.
- [24:04]
D
I think they are not just hoping to wait it out, they plan to wait it out. They accumulated that inventory purposefully and they're in quite good position. They don't rely on oil as much as some other economies. And we should add that China has the world's largest stock of foreign exchange reserves. So when you say WTI goes up to $80, that's not worrying to them. It goes up to $100, they can pay for it. Other countries are going to ones that are going to suffer, that are going to suffer from high prices. All China is worried about is a long term outright supply disruption. So they just can't get the oil no matter what the price is. And as, as PIP has said it's not, it's going to have to last longer than than six months. So they're not happy with what's going on in Iran obviously, but I actually think China is in a stronger position than some of the other buyers.
- [24:53]
B
A quick final question then. How would you characterize China's economic position and possibility of not retaliation, but reply as the US has now done this Venezuela operation, this war on Iran, what kind of response should we expect especially with this meeting between the two leaders coming up?
- [25:10]
D
I think the meeting is more important than what's happening in Iran right now. I don't mean to say that Iran is unimportant but for the Chinese, they'll see about Iran in five years. President Trump's visit is an immediate risk. It's an immediate opportunity. That's what they're concerned about. If President Trump comes in conciliatory, which he has been pretty much his whole career as president on China, that would make for a more stable environment, and they could look past Iran. If President Trump were to come in and say, look what I did to Iran, you guys better give me what I want, then there's a real problem from the Chinese side, but I don't think they expect it, and I don't expect it.
- [25:46]
B
All right, Derek, thanks for now. We appreciate it. Derek, Scissors from aei. We have a news alert out of the fda. Let's get to Angelica Peebles. Angelica, what's happening?
- [25:55]
D
Hey, Kelly.
- [25:56]
C
Well, I just got off a press call with a senior FDA official who called Unicur's gene therapy for Huntington disease a, quote, failed therapy. That official confirming that the FDA asked Unicure to run a new trial before it can seek FDA approval, and they're disputing the company's description of what that trial would look like. So this treatment requires brain surgery, and the company said that it's unethical to make people undergo a fake brain surgery. And this FDA official saying, it's not that hard. You don't have to actually emulate the whole thing. You can do it in sort of a shorter version. And some really strong words here from this FDA official who accused Unicure of knowing that this type of trial would fail and that instead of doing the right thing and running the correct clinical study, Unicure is performing a distorted or manipulated comparison to, in the mind of the fda. So really, the bottom line, as I see it, is that it doesn't sound like there's a path forward for this company without a new trial. And there's been this back and forth all week. And it really started last week when FDA Commissioner Marty Makary appeared to criticize this gene therapy in an interview with our Becky Quick. And he didn't name the company, but he described this therapy, and it's really blown up since then. We've reached out to Unicure and we're awaiting comment. And you can see that stock is up today about 18% despite these headlines, but it's still down more than 50% for this year.
- [27:10]
B
Kelly, this is over a potential cure to Huntington's disease. Is that right?
- [27:14]
C
Not a cure, but a treatment for Huntington's disease. That's right. This is a neurodegenerative disease, and it affects about 40,000Americans in the US and so people are really wanting to see some sort of treatment for this, but it's been a really tough area for drug makers.
- [27:27]
B
All right, Angelica, keep us posted. Thank you, Angelica Peebles. Coming up, Nvidia CEO Jensen Huang called OpenClaw the single most important release of software probably ever. And the reason should be a wake up call to every software company in the world, even as those stocks rebound today. We'll be right back.
- [27:43]
A
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading not every sale happens at the register.
- [28:13]
B
Before AT&T business Wireless checking out customers on our mobile POS systems took too long.
- [28:19]
C
Basically a staring contest where everyone loses.
- [28:22]
B
It's crazy what people say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the tasks at hand and make an extra sail or two. Sometimes I do miss the bonding time. Sometimes.
- [28:36]
D
AT&T business Wireless connecting changes everything.
- [28:41]
B
What do the steam engine, electricity and AI have in common? These technologies not only change how we work, they can transform entire economies. I'm Stephanie Wong, host of where the Internet Lives, a podcast from Google and Latitude Studios about the unseen world of data centers. Explore how data centers are unlocking growth in every sector of the economy. From agriculture to medicine to manufacturing, data centers are powering a new era of AI innovation. Listen to where the Internet lives wherever you get your podcasts. Welcome back to the Exchange. A moment ago we were kind of looking at new session lows on the Dow. We're down about 1,000 points as the price of oil continues to shoot higher. WTI just crossed above 80 for the first time in a little over a year. The small caps are down 2.6%. Dom Chu has a closer look at the day's biggest movers.
- [29:28]
D
Dom, all right, so we'll look at some of those derivative trades first and second order from rising oil prices. There are a big part, as you point out, of the market narrative and the story behind what's happening with the broader market declines. Shares of some of the biggest airline operators are taking bigger hits from the ongoing travel disruptions caused by the conflict in the Middle east alongside those rising oil prices and of course, the resulting fuel cost issues for those airlines. Now, in that same vein, you've got analysts at Redburn and Co Rothschild downgrading shares of American Airlines earlier today to a neutral from a prior buy, citing a greater sensitivity to rising fuel costs relative to other operators. Still, though, United, Delta, Southwest, American, as you can see, they're all down roughly 5 to 7% in today's trade. And the ETFs attract transportation down as well. Next up, you got some of the other derivative effects of those rising oil and gas costs. The material sector specifically is one of the biggest laggards partly on some of that exposure that companies have to rising prices for petroleum and those products, as well as some of the economic slowdown fears hitting these economically sensitive or cyclical industries. Look at names like Sherwin Williams, Martin Marietta, PPG, Dupont, others, all downside laggards alongside the materials related ETFs as well. And we'll cap things off with an earnings mover. Shares of apparel retailer American Eagle are down 14 and a half percent. Though it beat estimates for profits and revenues. The company saw sales growth at existing store locations grow double digits. And its Aerie brand has saw some strength as well. But they highlighted profit margin pressures due to tariffs and the potential for shorter term profit headwinds. So American eagle also down 14 and a half percent. I'll send things back over to you.
- [31:05]
B
All right, Don, thank you. Let's get to Leslie Picker now for the CNBC news Update. Hi, Leslie.
- [31:09]
C
Hi, Kelly. Iran's foreign minister speaking with NBC News just last hour, saying that if the US Were to launch a ground invasion, it would be a, quote, big disaster for them. The foreign minister also said he has
- [31:21]
B
refused any negotiations with the US and
- [31:23]
C
that Iran has not asked for a cease fire.
- [31:26]
B
The National Capital Planning Commission postponing until
- [31:29]
C
April an expected vote on President Trump's
- [31:31]
B
new White House ballroom plan. NBC News reports that the commission has been hit with a deluge of comments from the public, most of them negative.
- [31:39]
C
The president has said the ballroom will
- [31:41]
B
improve the White House's ability to host large scale events. And pop star Britney Spears arrested last night in Ventura County, California.
- [31:50]
C
According to Variety, she was arrested on suspicion of drunk driving, but the California Highway Patrol has not commented on the arrest.
- [31:57]
B
A spokesperson for Spears released a statement saying that hopefully the arrest would be,
- [32:01]
C
quote, the first step in long overdue change that needs to occur in Britney's life.
- [32:07]
B
I'll send it back. It's too bad, Leslie. Thank you, Leslie Picker. Coming up, we'll look ahead to tomorrow's jobs report and the bifurcation between blue collar job growth and white collar job cuts. Those details after this. Welcome back. Some fresh data reinforcing this kind of low hire, low fire trend they call it in the job market. Jobless claims those were okay. They were unchanged from last week ahead of tomorrow's big employment report. But Challengers latest report also showed some bright spots that layoffs dropped 55% in February, but hiring still remains muted. And Revelio Labs says the economy is, quote, operating at a new, lower level of dynamism. Joining me now is Evan Stone, managing director at Revelio, along with Andy Challenger, who is SVP at Challenger. Great. And Christmas, welcome to you both. Andy, I'll just start with you because your data was widely cited when, what was it, January maybe? We had a huge uptick.
- [32:56]
D
We did.
- [32:57]
B
So just talk us through what you think is happening in the economy right now.
- [33:00]
D
Yeah, we saw a big spike in companies announcing job cuts, cuts in January. That was a worrying signal, especially after a couple of nice low months where we started to see what everybody hopes is a leveling off with the labor market. We've seen these two years of relatively gentle cooling of the labor market in line with what the Federal Reserve has wanted to happen. But now the whole world is watching to see if we stick the landing or if it starts to continue to deteriorate and cycle downwards in a how
- [33:34]
B
would you describe it? So, I mean, I know to some extent the jury's always out. Right. It's hard to know until, you know, you look back. But what do you think right now? Are we sticking the landing? Is it looking okay or what is. Because February was better, it sounds like. Although then this morning you wake up Morgan Stanley cutting 2500 jobs, 3% of its workforce.
- [33:50]
D
We're still certainly seeing layoff activity. The fact that it came down this month is a good signal, but it is one month. The hope is that we continue to see this for a few months and we can start to say that's a trend. But right now I'd say it's still really up in the air.
- [34:04]
B
Evan, jump in here. What do you think is going on? Good to see you again.
- [34:07]
G
You know, first of all, good to see you. Good to see you, Andy. We agree. You know, the fact that the warm layoffs are down is really a breath of fresh air. Everyone's a little nervous. Right. Sentiment is down. We're all a little bit nervous on what's going to happen next. We're still in this low hire, low fire, low quit area. We're almost at a standstill, if you will. You know, we're showing a negative job, negative job numbers for the month. But again, you know, these are almost, almost economically zero. Right. You know, we're almost looking at just things not moving. Again, health care really saved the job market, whereas last year we really saw a lot of government jobs. Those are coming down. But the other thing that's really interesting, when we look at the job cuts themselves, look at job posts and the job posting numbers of like the year over year numbers. We're seeing this bifurcation as you said before, the commercial IT services, IT consulting services up almost 40% year over year. So when you think about what does that mean and these are a small percentage of the job post themselves, I think it's under 2%. But these are the people that are hired to help do a certain project at a company. So think of all this AI discussion that's going on here now. And yes, we're seeing layoffs at companies like Block, but someone's going to have to implement these AI agents and these AI technologies at all these other companies. All the manufacturing, all the health care, the education or everything that if it's going to happen in AI is going to need someone on the professional side to make that implementation. And I think that's really where these things are going in here now.
- [35:44]
B
You know, I think Block is sort of a red herring and Evan kind of referred to that as well. But do you see any evidence that AI is actually leading to job cuts or to his point, is it spurring some hiring?
- [35:56]
D
Yeah, I mean everybody wants to know if this, if we're at the precipice of a job apocalypse because of AI and there are some signals that companies are really letting people go because of artificial intelligence, Block notwithstanding, where people have different feelings about it. So Dow Chemicals outside of the tech industry specifically cite AI and I'm hearing it more from CHROs and CEOs that it's something that they're planning to do in the future. So I think jury's still out whether this is going to be a big wave.
- [36:27]
B
That's very interesting, Evan. I noted, you know, we said one thing in the tease which was more, you know, is blue collar rising white collar, you know, seeing layoffs. But then in your data you said there are some white collar hiring perhaps for these contractual type jobs and then logistics and transport. Seems like it's under a lot of pressure and maybe that's just tariff related.
- [36:44]
G
I agree. The other number that's really interesting is we actually saw the average salary in the job posting come down by a little over 1%. Again, very, very, very interesting. So it really plays into this. Hey, you know what? It used to be that leaving a job you made a lot more money. If leaving a job is not going to be a lot of money, then you're really going to stay put. And this great freeze that we're in right now I think is really upon us. And so we're being forced to do it. And again, your heart always goes out for people that are getting laid off. But with such a low unemployment number, hopefully these folks could find jobs, you know, very, very quickly.
- [37:20]
B
Yeah, it doesn't make it a lot clearer for the Federal Reserve. That's, you know, that's the interesting thing which is kind of staying here. We could almost fit any narrative. But for now they, and point that out, Evan, you do think it's going to be a negative number in the morning?
- [37:33]
G
Yeah, we think last month was negative also. Let's see what the, let's see what their recast number. They're just the numbers going to be. But yeah, you know, these are all around zero. Right. We're all hovering around just very little employment growth and hopefully that'll spur the Fed to lower rates to get those small businesses which have really been a great source for new jobs, to really get them moving, to start doing more hiring.
- [37:56]
B
All right, Evan Stone for Fed Chair. That was like an interview type of speech, I think. No, gentlemen, thank you. Really appreciate it. Evan Stone, Andy Challenger joining us on the labor market. Coming up, tech bucking today's downtrend with software names leading the way interestingly. Well, once again. But is a new type of AI agent about to upend the industry and possibly the Internet as we know it? That's next. And check out shares of pirate Paramount Skydance off session highs still on track to snap its first two week win streak of the year. Julia Borson sat down with CEO David Ellison today and here's what he said about the cost savings coming from their deal. We will absolutely have to rationalize the overall corporate overhead of the company. But that's not the primary driver of
- [38:40]
H
the synergies in the deal.
- [38:41]
B
Just when you look at it, we're going to bring HBO Max and Paramount plus together. That will rationalize the tech stacks. There's incredible savings there as well as
- [38:49]
E
in our cloud rationalization.
- [38:51]
B
We're going to rationalize the real estate footprint of both of these companies. We're not going to sell either lot. Those are iconic and we are going to absolutely hold on to those. Welcome back. Breaking news out of the White House. Amy Jeffers, what's happening, Kelly?
- [39:05]
A
President Trump says he's removing Homeland Security Secretary Kristi Noem from her position. The president in a social media post just a short time ago says he's going to or he intends to replace Noem with Oklahoma Senator Mark Wayne Mullen. The president says that Mullen will become secretary of homeland security effective March 31, 2026. He says the current secretary, Kristi Noem, who has served us well and has had numerous and spectacular results, especially on the border, will be moving to special envoy for the Shield of the Americas, our new security initiative in the Western Hemisphere. We are announcing on Saturday in Doral, Florida. I thank Christy for her service at Homeland. The president here moving to remove Christi Noem after a week in which she came over and came under intense criticism, particularly up on Capitol Hill in a Senate hearing in which some Republicans and quite a few Democrats really attacked her on a whole host of issues, whether that's contracting at the Department of Homeland Security, her conduct in terms of expenses, airplane flights and how she's spending money at the department and also how she handled the killing of two American citizens in Minneapolis earlier this year. The president apparently has had enough of all of that and is moving on with Mark Wayne Mullen. That's a Senate confirmed position. So eventually there will have to be Senate hearings for Mark Wayne Mullen to take that position on a full time basis. But the president clearly signaling that Noem is out and Mullen is in.
- [40:36]
B
Yeah, I'm just thinking about the Fed. So if MULLEN Senate's what, 53, 47? You know, just thinking, Eamon, if there's any impact here in terms of the president's agenda as all this, because if they go down to 52 and then you have Tillis and you know any other centrists.
- [40:51]
A
Yeah. I mean, look, the president has narrow margins. He knows he's got narrow margins, but he also has personnel that he wants. Clearly the White House I don't think would do this if they felt that it would throw everything up in the air in terms of their agenda on Capitol Hill. Clearly they feel like they have the votes that they need to do what they need to do. And from Oklahoma, you'd think at some point they will get a senator who they can work with.
- [41:17]
F
Exactly.
- [41:18]
A
Coming from that state. So I don't think it's a, a huge change to the balance of power in the Senate?
- [41:23]
G
No.
- [41:23]
B
Okay. Eamon, thanks very much. Appreciate it. Amyn Javers in Washington. Meantime, the agent openclaw having a moment after Nvidia CEO Jensen Huang called it the single most important release of software probably ever. Deirdre Bosa has more. And Deirdre, a lot of people are confused. Open Claw sounds like Claude, but it's not Claude. But it was meant to sound like Claude. But now the guy works at, you know, OpenAI. OpenAI. It started as Cloud bot, so it was actually built on cloud. And then a lot of stuff happened. It was really funny how open I ended up getting the guy. But anyways, it's more than just open clots about sort of these agents that can function on their own. And if Jensen Huang and many others in Silicon Valley that are talking about this, if they're right, then agents are essentially a death sentence for the Internet's middlemen. Here's why. The entire Internet was built for humans who search, browse, compare options. They click on ads.
- [42:14]
E
Ads.
- [42:14]
B
An agent doesn't do any of that. It already knows what you want or it figures it out in the background. So it doesn't browse 10 hotel sites or read reviews. It goes right from prompt to transaction. It might still access that data through APIs and data sets, but it skips the front door entirely. So the winners here would be the end points and the pipes. That's airlines, not expedia hotels, not booking.com, your bank, not the nerd wallet that sits in between. So infrastructure too would be winners like Stripe, Plaid and Shopify. Yesterday, Kelly Box CEO Aaron Levy, he told us that agents need everything that an employee needs or human needs. Email, storage and identity. And that could actually be 100 times their existing customer base. So that's not software as a service, it's software for agents as a service and could just be a huge market. That is why Jensen Huang called Open Claw the most important software release ever. A personal AI that runs on your machine all day without even waiting for a prompt. That creator, as you said, just got hired by OpenAI. And the momentum here is unlike anything that we've ever seen in open source. The market is starting to sniff this out as well. You've got stocks like Twilio and Shopify. These are the plumbing that agents run on. They're rebounding big over the last month and that is helping drive the IGV back from that intense February sell off. Yeah, Trade desk also up 18% now apparently they're going to possibly help OpenAI with its ads or something. Deirdre, thanks. Appreciate it for now. Deirdre bosa, Coming up, we'll track the sell off. Stocks are lower across the board today with the Dow on pace for its worst week since last October. The Nasdaq still a relative outperformer, only down about half a percent. Our trader says that's a sign of strength. We'll talk more about where he's putting money to work right after this. Dow down about 1,000 points at the lows today. There's the year to date scoreboard. You can see the negatives across the board there. Dow S and p. Nasdaq down 3% now since January 1st. Let's bring in Jeff Kilberg. He's the CEO and founder of KKM Financial, a CNBC contributor. Before I get into your more constructive thoughts, Jeff, why are we under pressure? It's just as simple as the oil price.
- [44:16]
H
I think it's anxiety about what is going on in Iran. When you do hear suggested report that there was a missile fired at a ship that went through the Strait of Hormuz, you get nervousness, you get anxiety and the algorithms kick in. And we are seeing a tough tape right now with the Dow down thousand points. But I do have some cautious optimism. Kelly.
- [44:33]
B
Yeah, it says it sounds like you think you like what the Nasdaq is doing kind of relatively outperforming. You think that all the averages or just that one you think will be higher within the next few weeks.
- [44:43]
H
Well, to utilize an acronym from my beloved coach Lou Holtz from the university Notre Dame, who unfortunately passed away yesterday in an acronym, Kelly, it was W I N and it stood for what's important now. And what's important now I believe is this great rotation and the turnaround short term in tech. We saw igv, the software, the software apocalypse. Everyone was talking about it. It was down 35% from peak to trough. And you're talking about 100 names in an IGV ETF, Kelly. On average that market cap and those holdings are about 500 billion. These are big companies. Now all of a sudden since last Monday, you're seeing on average about a 12% move higher off the bottom for IGV. So I look at specific names like Salesforce, Oracle, Microsoft, Palo Alto Networks, ServiceNow, Palantir. These are all names which we have rotated into selectively. So I think this is a stock pickers market, very tough tape. Today we're seeing some blue chip names like Berkshire Hathaway and IBM. So you have to own best in breed. But I do think it's finally time to own some of these software names because they're not going away. You should not see these larger market cap names come down and be decimated and left for dead the way they have been.
- [45:51]
B
And you think that could be a tell for the broader market or you would just use it as a way to kind of find some, some quicker ways to. To get better.
- [45:59]
H
Exactly. No. And thank you again for bringing that point out. That's a great point you bring up and I'm seeing this resiliency in this move back. Despite the fact that the NASDAQ's down 3% year to date, you are seeing a bottoming process in this rotation. In the face kelly of a 10 year note moving higher. The 10 year note was at 4%. Under 4%. Just a couple of trading sessions going. Here we are at 415. So when you see growth stocks specifically some of these software beatered, beaten up and battered names have the ability to get off the mat inside of a rising yield 10 year note, that's optimism. I don't know when Iran is going to clear up but I do know that we look back in a month we are going to be happy to see some of these stocks being bought.
- [46:35]
B
All right, win what's important now. It's wise words for all of us, I think. Jeff, thanks very much. Appreciate it.
- [46:41]
D
You bet.
- [46:41]
B
You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [46:49]
A
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help. And access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more at schwab. Com trading.