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“Most Fraught” FOMC Meeting, Weight Loss Wars, and Sweet on Hershey’s 9/16/25
00:43:54
Paul McCulley makes the case for a quarter-point cut at what he calls the "most fraught" FOMC meeting in the past 40 years. Eli Lilly and Novo Nordisk race for the next weight-loss blockbuster drug. Plus, Goldman upgrades a consumer staple.
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B
Contact us. You're listening to the Exchange. Here's today's show. Thanks Courtney. Welcome to the Exchange. I'm Melissa Lee along with Mike Santoli. Stocks lower ahead of the Fed's interest rate decision tomorrow. The S and P and Nasdaq did manage to hit all time highs earlier in the trading session but before turning slightly lower right now. Energy discretionary, they're your leaders for today.
- [01:24]
C
And gold hitting another high today. It is up more than 40% so far this year. The move higher is contrary to what we've seen in the past. Since 2001, gold has never rallied when CPI is above 2% and the Fed is easing monetary policy.
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B
Dollar meantime off the lows of the session after touching the lowest level since July, the Euro trading at the highest.
- [01:45]
C
Level in four years and the Nasdaq 100 turning lower after rallying for nine straight sessions a close higher. Today would be the longest streak in two years, so 10 in a row would be the longest streak.
- [01:57]
B
See if we get there, it does feel like ahead of a widely anticipated Fed rate cut that we're sort of set up for a lot of downside, whether it be sell the news or we're disappointed in a major way since the markets are so strongly priced more than 100% chance of a 25 basis point cut.
- [02:13]
C
We have this excess of certainty about what's about to happen. And sometimes when prices are higher, yeah, absolutely. I think it's fair to Say it creates room for disappointment in there. It is interesting. The market is just trying to settle a little bit here and I think if you had, let's say a failed rally on the Fed decision and, and all of a sudden people are looking for, you know, kind of hair on the market rally story, you wouldn't have to go far to find it because it actually has been a little bit top heavy in this last run. And I guess we mentioned discretionary is a leader today, but if you look at some of the consumer geared companies, they're actually backing off because they've had such a strong run.
- [02:46]
B
Yeah. But aside from that, to your point, in terms of consolidating, you know, aside from the dollar which is, you know, touching lows not seen for months, we do have the 10 year treasury yield. Pretty firm, won't break 4%, has not yet. And the markets are pretty firm as.
- [02:59]
C
Well, ahead of the 4.02. It got down there. But yeah, it's sort of been hovering here for about a week essentially. So not incremental downside as we get toward the Fed.
- [03:09]
B
Meantime, we've got some bullish news on the consumer today. August retail sales coming in better than expected, up 6.10of a percent versus estimates of just 3.10of a percent. July also revised higher. Bank of America also saying total credit card spending per household was up 1.7% in August. Clearly there are some caveats to this data. For one, it's not adjusted for inflation, so we don't really know what price increases, what role that had to play. And also there could be some pent up buying or not pent up, but buying in anticipation of potential price increases to come.
- [03:42]
C
Yes. So I think you take it. First of all, the surface level read is definitely better than it could have been. There was positive real spending growth, but the data on retail sales in general this year has been very uneven. You had a big pull forward right before tariffs, then you had a lull and then it's just essentially been kind of fits and starts. So what you could say at minimum, I do think is the general premise of the economy's hanging in there until we start to see job reductions, you're not going to see outright declines in consumer spending. The question is, once again, if we've kind of, you know, gotten there already in terms of how the market is viewing things. So it is, it is an interesting one. So an upside surprise. But to your point, bond yields didn't go up on it. Right. It wasn't like people were grabbing and.
- [04:24]
B
Running and Retail stocks barely reacting as well. I mean, if anything, it's a negative reaction to, to the news.
- [04:30]
C
Yes, that's right. Consumer discretionary equal weight. It is actually down some travel news. Travel names are actually suffering along with restaurants. All right, our next guest says the Fed will start the rate cut cycle tomorrow, not because it has to, but because it can. For more, let's bring in Julian Emanuel. He is Evercore ISI senior managing director and strategist there. Julian, it's great to, great to see you. I guess it's hard to argue with that point. Right. This is a kind of insurance or good news or normalization rate cut program from here on out. If we get a full program, to what degree is that enough at this point now that the market's up, you know, 35% since April?
- [05:08]
D
So actually when we think about it, there's two ways of looking at it in the here and now. We think it's still a bit ambiguous as to whether the market is expecting a rate cut because the Fed can or because it has to. And if you think about that, that is predicated on the labor market data being quite choppy and uneven and in fact hard to interpret. But we feel like as you get towards the end of the year and into 2026, what we're likely to see is the trough in growth and moving back towards sustainably 1 and a half percent GDP in 2026 and the peak in inflation. All the tariff effects are likely to culminate in peaks either again towards the end of this year or early next and then a gradual decrease in inflation really consistent with what the Fed's viewpoint has been that argue for the ability to, to cut because it can. And the stock market says that that tends to be very positive on a 12 month basis, though a little inconclusive on a near term basis.
- [06:17]
C
Yeah, I note that that you do highlight that that sometimes once you get the news. And of course we've got some, some seasonal noise out there ahead of us. It hasn't really hurt to this point in August and September except for some sideways action. But how do you think things are going to play out from here? Because as much as we can talk about the macro and interest rate influences and sometimes it feels as if if the AI trade wants to run, that's kind of all that matters.
- [06:42]
D
Well, and again, coming off of that, that April low, it has been incredible, the relentless nature of this rally. And what we find is actually there are sufficient number of skeptics in terms of the near term, ourselves obviously included and in fact, when you think about the eventual durability of that rally, that's a good thing to us. If you actually got sort of a dialogue whereby the market is expecting an additional cut in October and in December, very close to three full cuts to year end, if that were to be reduced coming out of tomorrow, and we don't necessarily think that it will be, but if that were to be reduced and the market ignored it and kept running higher, we would be a bit more concerned about sort of the near term hubris of that kind of move and actually increasing the probability of a pullback into October at that point.
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B
Julian, you say that clients are very interested in talking about a bubble scenario. I read that in the notes and that really sort of jumped out at me. Given the relentless nature, as you had mentioned, of, of this rally, at what point do you start getting concerned about that sort of scenario? And what exactly are clients worried about?
- [07:58]
D
Well, frankly, Melissa, when I get concerned is when people actually start thinking that it isn't going to be a bubble. Because that kind of, again, sort of acceptance of, of perp rally is the kind of complacency that we've seen at Peaks in 1999 and 2000, at Peaks at when the, the housing bubble burst in 2007. From our mind, when you think about these series of bubbles over the course of the last 25 years, it's entirely possible that at some point in the next couple of years this could end in a bubble. And to that we define it at sort of 30 times $300 in earnings or 9,000. And if you're an active manager, part of the career risk of an active manager is making sure you participate in that kind of explosive upside, while of course taking pains to hedge the potential reversal. But for us, this is something that, if you think about typical cycles and AI is really as significant as the Internet was In the late 1990s, even more, it could eventually end in very speculative bubble type conditions.
- [09:13]
C
Yeah, I mean, I guess it's worth noting a lot of people have kind of been mapping this current rally against what happened in 1998. 99. If you consider the springtime correction, something like that 1998 gut check, it probably gets you somewhere around that 9,000, I would imagine. I mean, the NASDAQ back then like tripled in 18 months or something like that. So, I mean, do you assign odds to this? I know your baseline forecast for next year is 7750 on the S and P, so that's still, you know, 17% up from here or so.
- [09:46]
D
So we don't specifically assign odds, Mike. You know, in my mind, when we think about tail outcomes, you're thinking probably somewhere between 10 and 20% probability, which of course the bear case of 5,000 would also qualify as that. But one thing that this rally has going for it that the late 1990s didn't is you look at the internals of the market, the advanced declines, the number of st number of stocks advancing minus the number of stocks declining day in and day out. You see an increase in advances over decliners as the indexes grind higher versus the late 1990s where that breadth indicator fell for the entirety of the two years before the bubble burst. And that to us says as much concern as we have about valuations and index concentration. The majority of the market, even though it isn't in the headlines, is participating to the upside.
- [10:43]
C
All right, that's one sign, I guess we're not setting up for a generational top as we had in 2000. We can hope. Julian, thanks very much. Thank you, Emanuel.
- [10:54]
B
President Trump heading to the UK For a two day trip that is expected to include some potential deal announcements. Eamon Javers is in Washington with what to expect. Amen.
- [11:03]
C
Hey there, Melissa. President Trump will land in England later today for a visit filled with unusual pomp and circumstance, but also preloaded with billions of dollars in deal announcements, accompanied by a glittering array of technology and finance executives. The White House says there will be three main announcements here which they said would be part of a historic trade agreement. There's going to be a science and technology partnership that will include billions of dollars in new investment. We're told we're also expecting a nuclear power research partnership as well as defense technology cooperation announcements. Now, when asked how much money they plan to announce, the White House said it would definitely be more than 10 billion and perhaps tens of billion. So who are the big business names along for the trip? We don't have a complete list yet from the White House, but their description is that it's going to be significant attendance by several CEOs. Those reportedly making the jump across the pond include Jensen Huang of Nvidia, Sam Altman of OpenAI, Steve Schwarzman of Blackstone, and Larry Fink of BlackRock. One announcement we are expecting is a large data center development deal in the UK by Nvidia and OpenAI. And we may learn more once these events get underway tomorrow. Guys, back over to you.
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B
Will drug pricing be on the agenda at all? Eamon? There are reports that they're going to press the UK to pay more for drugs through their health agency.
- [12:24]
C
Yeah, that's certainly a possibility. The White House hasn't read that out to us. But a lot of this will have been pre cooked and then there'll be some spontaneous pieces to the trip as well.
- [12:33]
B
All right, Eamon, thanks. Eamon Jabbers?
- [12:35]
C
You bet.
- [12:36]
B
Speaking of the administration, Treasury Secretary Scott Bessen, fresh off his negotiations with Chinese officials, joining Squawkbox this morning. But it wasn't a potential TikTok deal that got the most attention during the interview. It was his reportedly fiery confrontations with several Trump officials recently, including FHFA Director Bill Pulte, whom he allegedly threatened to punch in the face. Here's what he said.
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C
A couple of things. Treasury secretaries dating back to Alexander Hamilton have a history of doing.
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E
And I think with the president's team, it turned out a little better for.
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C
Treasury side this time. And with President Trump's team, just like any the great sports team, you can argue in the locker room, but we get out on the field and do.
- [13:27]
E
The best for the president and the American people every day.
- [13:32]
B
The threat originally was specifically a punch in the face, but to draw on Hamilton and Burr implies a pistol.
- [13:38]
C
Exactly. Face off there was. You know, that's not just not a denial, it's almost an escalation or an accentuation that there is friction there. But, you know, kind of an interesting setup in terms of maybe what's perceived to be sort of the productive paths out there. And I mean, I know Treasury Secretary Bessen is seen as the one who's trying to navigate and mediate between markets and business, the corporate sector and the administration, as opposed to, you know, maybe always being on offense.
- [14:07]
B
Yeah. And this of course, follows all these reports that FHFA Director Bill Pulte is sort of coming out of favor amongst Republicans on Capitol Hill and in the administration, people saying that he's too big for his britches, he's a bully, etc.
- [14:21]
C
Yeah. All right, coming up, the FOMC meeting is underway with both Stephen Myron and Lisa Cook participating. How would it all shake out in tomorrow's decision? We will ask former PIMCO Chief Economist Paul McCulloch.
- [14:34]
B
But first, this name will be one of the big winners in the intelligence revolution. According to Bernstein, the firm initiating coverage on the IT hardware space with an outperform rating on this stock, which is up 140% since January. We'll reveal what it is and speak to the analysts behind the call. The exchange is back right after this.
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D
This is the exchange on cnbc.
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B
Welcome back to the exchange. Bernstein initiating coverage with an outperform rating on four key IT hardware names this morning. The firm saying they see big gains ahead for Apple, Dell, Sandisk and Seagate as AI spending continues to ramp. Those four names in the green so far this month. But there is one that is outperforming the rest so far this year and that is Seagate. Our mystery chart from earlier it is up 142% in 2025. It's also the name Bernstein says they are most positive on as the intelligence revolution continues. For more, let's bring in Mark Newman, senior analyst at Bernstein. Mark, great to see you.
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F
Great to be back. Thanks very much.
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B
So it's really stunning to say more outperformance after a 142% run so far this year. So what are the major catalysts here? Especially you know, compared to its peer like wdc, which you rate a market perform?
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F
Yeah, I mean if you look at the performance of Seagate versus Western Digital, they're both outperformed significantly over the past six, six months or so. And so really what's driving a lot of the outcome is just people are starting to get excited around more data. Data needs are necessary to power the intellectual intelligence revolution. So there's this real data explosion going on right now. Data needs to be stored so all the storage names, including Seeker and Western Digital benefit from this. But the real kicker that has not played out yet in the stock, which is going to lead to a lot more further upside, is the technology. Seagate is the leader in hammer technology. It is the next generation in hard dis drive technology. We think that is going to enable them to drive down costs much faster than competitors, leading to an expansion in margins which is leading to a 28% CAGR in EPS over the next five years. And so I think this, if you consider almost 30% 5 year CAGR in earnings, this stock is still very cheap where it is. So we think there's still a lot more upside for this stock.
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B
So within that memory theme, that AI driven memory theme, SanDisk is another one. You say it's very underappreciated right now.
- [18:26]
F
Yeah, Exactly. I mean SanDisk just spun out from Western Digital earlier in the year. I think it's not well appreciated. I think it's starting to outperform the last few weeks. But if you look prior to that it had been pretty flat. And if you look in our initiation, no doubt today we value sandage in a few different metrics and if you value it on a portion of its fact replacement value, it is trading at about half, which means it is trading at less than it's half of the value of the fab replacement cost. It's not putting any real value into the ongoing free cash flow generation and an earnings growth from the company. The actual intellectual property in the company is effectively valued at zero. And so there's a lot more upside here. They are also benefiting from the intelligence revolution and the data explosion as well because data is being stored in not just hard disk drivers, but also NAND flash. So SanDisk also benefits from this. And you know, we're ahead of the street on Both Seagate and SanDisk in terms of earnings. I think the street is underestimating earnings for both these stocks and I think there's still a lot of upside for both of them.
- [19:43]
C
Mark, you're also placing Apple in the bucket of AI beneficiaries as opposed to potentially disrupted companies or price target of 290. What's, what's behind that? Is it essentially just that, you know, their devices will be the conduit of whatever comes next or are their own initiatives worth paying attention to?
- [20:03]
F
Yes. So I think, I mean Apple obviously, as you know, is underperformed over the last 612 months based on a lot of fears around AI. The fears are that they're behind, but in our smartphone survey we conducted, we show that iPhone users aren't that worried about AI yet. We do think they will be in the future. We think that is going to become increasingly important and it's an upside opportunity for Apple. But we don't see any evidence yet of any iPhone users transitioning. Apple really has a 1 billion of the world's most lucrative, most sticky consumers in the world. We really think that positions Apple in a key position as the real gateway to this intelligence revolution. We think they can monetize this. They just got to get that sorted out. We think they have time. There's precedent for Apple being two, three, four, even five years late in new technologies and still out executing and dominating the category. And we think they have time here and I, we think they will. And I think also the ruling, the Google DOJ ruling also opens up the potential for them to work with several different partners in AI to enable them to actually monetize this opportunity going forward.
- [21:24]
B
Mark, I wanted to shift gears and go to one of your market perform companies and that would be IBM. You're excited about the long term potential for IBM to, to really capitalize on Quantum in which they've been making a lot of investments. And I was wondering, you know, as you look at the enthusiasm for quantum computing, specifically in the pure play Quantum names like if you took a look at the quantum ETF for instance, that's outperforming IBM. How do you look at IBM's potential especially relative to the smaller players?
- [21:51]
F
Yeah, I think IBM is arguably the leader, is certainly one of the leaders in Quantum if not the leader in Quantum. I think their position in Quantum is phenomenal. Not just from a hardware but also on the software side. They've got, they've got a huge number of systems out there. They're working with lots of different researchers around the world. They're very well positioned. Where we come out on the stock though is market reform or neutral just based on the fact that, you know, it's a big company, big market cap, it's rerated significantly over the last few years because of its reinvention. It's moved into a high growth software, more innovative markets. But we think that has played out in the multiple. The next leg I do think is coming from Quantum but it's just a bit early. So that's why we're not really willing to put our neck out yet for IBM just based on Quantum. But we are looking at closely. We think it is definitely one time for investors to sharpen their pencils, look at Closely because I do think they are one of the potential winners, if not the winner in quantum longer term. It's just a bit early yet. Quantum. We're really talking about 2030. And yes, it gets exciting and some of these smaller stocks, maybe that's a way to play it. But for IBM it's not quite enough yet for us to be recommending the stock. Not yet.
- [23:23]
B
Mark, great to speak with you, thanks. Mark Newman of Bernstein, thanks very much.
- [23:28]
C
Coming up, the latest salvo between Sam Altman and Elon Musk. OpenAI hiring the former X CFO to become its new business finance officer. A closer look at the talent wars is ahead. As you go to a break, here's another check on stocks. You see the major index is kind of hovering around the flat line. A little bit of weakness in small caps. The 10 year 4.026%. 24 and a half hours before the Fed meeting. We're back after this.
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B
Welcome back to the Exchange. At the top of the hour we were talking about how unusual the move in gold has been and in fact you're charting this today.
- [24:08]
C
To a large degree. Yes, because it's not happening at the expense of other types of risk assets. Often that's the case. So here you have ETF, the Gold Miners ETF along with the Mag7 ETF. So these are the companies that are spending to build the future in virtual terms, basically being outperformed on a two year basis by companies that dig the oldest form of money out of the earth. So it's a little bit of an unusual one. Of course the gold miners are kind of a leverage play on the underlying metal price which take a look at gold, the actual commodity relative to the move index. This is basically the VIX of the treasury market shows the expectation for bond market volatility and stress. It's a weird thing to compare. Obviously. I just wanted to sync up the fact that we got the peaks because hey, risk aversion, big deal, lots of macro stress in April and the tariff shock and you had both of them spiking and then you've had basically completely subdued action in the treasury market. It also is matched by equity volatility which has kind of been bumping along one year lows at the same time. Now gold is working for other reasons. Its momentum, its diversification away from dollar assets. It could be maybe longer term inflation expectations holding up better than we thought or it's just liquidity.
- [25:20]
B
I think you're squinting on that, honestly.
- [25:23]
C
Well, because it's been such a loose relationship over time. Like sometimes in terms of inflation hedge a hedge, sometimes it didn't really save you in 2022 when we had the inflation crisis. So it's kind of interesting. It's just it's working. Don't ask why is the way I would put it. All right. Now to Kate Rogers for a CNBC news update.
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B
Kate?
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A
Hi, Mike. Tesla is being investigated for reports of.
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B
Defects potentially leaving drivers trapped.
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A
Federal regulators said the Investigation affects about 174,000 Tesla Model Y cars from 2021 after receiving reports that the exterior doors may not be able to open.
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B
Tesla has yet to comment. The Menendez brothers have lost a chance for a new trial.
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A Los Angeles judge rejected Eric and Lyle Menendez's last ditch legal challenge late.
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Monday, ruling the brothers didn't show enough evidence that their original murder convictions were unjust. Last month, the brothers were denied parole.
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For three years after being resentenced earlier this year to 50 years to life for the 1989 murder of their parents. And YouTube says it's paid creators, artists and media companies more than $100 billion.
- [26:32]
B
Since 2021, according to the company. The surge is being driven in part.
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A
By the growing number of viewers on connected TVs.
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B
YouTube said the number of channels on its platform making more than $100,000 from TVs jumped 45% year over year.
- [26:47]
A
Back over to you guys.
- [26:48]
B
Thank you, Kate. Coming up, former PIMCO Chief economist Paul McCullough calls this the most fraught FOMC meeting in for 40 years. He'll tell us why and what he expects chair Powell to say in tomorrow's news conference. The exchange is back right after this. Welcome back to the Exchange. We're just over 24 hours away from the Federal Reserve's decision on interest rates. And while the market is all but certain about a rate cut tomorrow, investors are far less certain about the impact of tariffs on the economy. Steve Liesman has results from CNBC's latest Fed survey. Steve.
- [27:26]
C
Thanks, Melissa.
- [27:26]
E
The outlook for the impact of tariffs.
- [27:28]
C
Is one of the most significant factors.
- [27:30]
E
For the economy and the Fed. Unfortunately, respondents to the CNBC September Fed survey forecast more impacts to come. Asked if we've seen how much we've seen of it, 45% say there are somewhat more price increases to come, 41% say substantially more to come. Just 14% say the bulk of the price increase from tariffs have already occurred. As to who's paying them, respondents attribute 31% of that burden borne by tariffs to consumers, 29% to wholesalers and importers 23% to retailers and 18% just to exporters or the exporters eating that, which is suggesting that maybe there's more to come to the consumers if retailers can't keep assuming the burden on the upside. Tariff economic uncertainty has declined somewhat. 51% now say the economic impact of tariffs is very or somewhat uncertain. That's down from 62% in July. And 52% think tariffs will result in one time price increases, while 38% see a lasting inflation from it bit higher than it was in July as well. So the result of all this, nearly all respondents think the Fed will cut by 25 basis points at this meeting, but just 41% think they should cut, with 28% saying the Fed should cut by 50, 28% supporting the Fed's standing pat. Little doubt these numbers reflect similar disagreements on the committee that we've heard in interviews in the in the way up to the meeting. One side focused on the soft jobs number, the other on higher inflation fueled by tariff price increases that could have further to run.
- [29:00]
C
So maybe we'll see that in some dissents tomorrow.
- [29:03]
E
Mike.
- [29:03]
C
Absolutely. Steve, thank you. While the Fed kicking off this pivotal meeting amid intense political pressure, first, the President has been taunting Chair Powell and pushing for massive cuts for weeks. The President has also been in a very public feud with Fed Governor Lisa Cook attempting to fire her. And last night the Senate confirmed Trump's pick for the Fed board. Stephen Myron, raising questions about Fed independence. The president addressed this earlier as he left the White House. Do you believe the Federal Reserve is an independent body?
- [29:32]
B
What do you think about the independent?
- [29:33]
C
Oh, it should be. It should be. But I think they should listen to smart people like me. I think I have a better instinct than him. If you look, all the economists got it wrong. I got it right along with one other people out of 100. So they should listen to people that are smart. Nothing wrong with that. But they have to make their own.
- [29:50]
F
Choice, but they should listen.
- [29:52]
C
Well, joining us now is maybe one of those smart people the Fed should be listening to. On the as this drama unfolds, Paul McCully, former chief economist at PIMCO, currently adjunct professor at Georgetown's McDonough School of Business. Welcome. Paul, Always good to see you.
- [30:07]
E
Good to see you, Mike.
- [30:08]
C
Well, I mean, for all of this drama and the unknown dynamic within the committee, it feels as if the decision is kind of a foregone conclusion and the data have kind of converged with maybe some political agendas to create an outcome that maybe a lot of folks can get on board with. What do you expect they're going to do? What will the outlook be from there and what do you think the impact of it all is going to be?
- [30:33]
E
Yeah, I think that's right, Mike. I mean, this is really fraught with all of the political noise and it is the most intense that I've seen literally in decades. But the irony is that strictly as an economic matter is a macro matter and a monetary policy matter, this is a really easy decision and very straightforward. The Fed's in the wrong place at 4 and 3, 8 for the Fed funds rate. It doesn't mean they did anything wrong. They just turned out to be in the wrong place. They're about 100 basis points too high relative to neutrality. So they need to do a recalibration 2.0, another hundred basis points off the rate. And I think that process starts tomorrow. I think they'll probably start with 25, but it'll be a very dovish 25 with a dot plot that has two more, which would be 75 for this year and then a couple more next year. So that's my base case is that we get a dovish 25. I don't think that we would get a hawkish 50 because that doesn't make any damn sense in the context that this is a cumulative hundred basis points or so to go. So that's my expectation. Tomorrow is 25, but with a warm and fuzzy tone to what's going to happen at the next two meetings.
- [32:05]
C
You mentioned kind of normalization 2.0. So one year ago, Fed starts with 50, you know, is perceived to have perhaps missed a chance to start easing or becoming less restrictive. Back In July of 24, it did eventually do the 100 basis points. Is it perfectly comparable here? I mean, if you look at the inflation indicators, they're where they were, you know, back a year ago. They have not improved, they're not closer to target. On the other hand, obviously the labor market data has, has weakened, but almost it seems as now looking like maybe not an outlier, but maybe it's overstating current weakness in the economy. So you feel like there's as clear a path of that 100 basis points to the downside from here.
- [32:46]
E
I think the path is pretty clear to the 100 basis points cumulative. And I've actually gone through the logic that you are articulating with respect to comparison to last year. Could you justify a 50 tomorrow on the notion they could have gone 25 in July because that was a fair amount of the Logic. Last year they took a pass on July, but then they made up for it by doing a double in September. And I can make that case from an economic perspective, but from a communication perspective, I think it would be a whole lot more productive for them to give a warm and fuzzy about the fact they're going to do the hundred and have two more cuts penciled in for this year, as opposed to ringing the gong like they did last year with the 50. But I understand that argument, which is why I leave open the possibility you could get a 50 tomorrow. But quite frankly, I don't know how I would explain it in the current context without saying the labor market really is worrying me intensely. And I don't think that's the message that Chair Powell wants to communicate, at least not now.
- [34:09]
B
So the path to 100 basis points lower, Paul, is clear in your view, based on what you see for the economy, does that path change at all? Should there be more FOMC members who would be more inclined to cut rates, as President Trump would like to see? There is a narrative in the market that that is basically, let's say they don't indicate more cuts at the press conference tomorrow, that any volatility is a buying opportunity because it is a foregone conclusion that we will get many more cuts to come because the composition of the Fed will change.
- [34:42]
E
I can't imagine a scenario where they don't forecast more cuts to. To come tomorrow. So that's kind of a hypothetical. But from the standpoint of the personnel, it certainly matters. We know where Mr. Moran is going to be, and he's the only new participant right now. And as a practical matter, I think the center of gravity within the FOMC is moving to Governor Wallach. I really do. Doesn't mean that Chair Powell is not the chair. He is still the chair. But Governor Wallach is a intellectual giant in this field. And as a marvelous practitioner, he's also a pretty clever guy. So when I look out over the next few weeks, if I had to choose a speech from Governor Waller or from the new governor, I just want to hear what Chris Waller has to say. And I think he'll be comfortable with the notion of 25 tomorrow. If you get a communication that says it is the beginning of a process of 100 or more, I think that's really what he wants to do, is to get that process locked in. And quite frankly, with a lot less rhetoric about data dependence, it's, we need to get from here to here, because we're in the wrong neighborhood. And we're going to do it with dispatch.
- [36:16]
B
Paul, great to speak with you. Thanks. Paul McCully, thank you. Coming up, shares of both Novo Nordisk and Eli Lilly up more than 9% over the past month. And both are seeing positive developments for their experimental weight loss drugs. The headlines are next. The Exchange will be right back with.
- [36:37]
D
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C
Restrictions apply at Capella University.
- [36:53]
B
Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the courseroom to the workplace. A different future is closer than you think with Capella University. Learn more at capella.
- [37:06]
A
Edu.
- [37:10]
B
Welcome back to the Exchange. Shares of Novo Nordisk on pace for their best day in nearly a month after its new weight loss drug showed promising results in a late stage trial. The new drug, called Cagralinotide, is also a once weekly injection like Novo's Wegovy, but mimics a different hormone than GLP1 drugs. Let's bring in Angelica Peebles. Angelica, great to see you. There's actually a number of headlines that could be behind this move. There was an upgrade we were just discussing from Redburn of Novo. And then there's also some headlines, some indications that perhaps are going to seek earlier FDA approval of a higher dosage of their weight loss drug.
- [37:41]
A
Right. And right now for Novo, it's all about can they advance their pipeline and can they show that they actually are competitive into the next few years, into the next decade beyond WeGovy and what they have right now. And so today they are presenting some data on that amlo, Amolent, excuse me, analog, which, you know, it's interesting, it demonstrated about 11.8% weight loss after more than a year. And the key thing here is the side effects. And, you know, they didn't share a whole lot in this press release, but they talk about the fact that about 1% of people discontinued because of nausea. And we know that those GI side effects are a key reason that people stop taking these drugs. And so if you can make something that, you know, maybe it's not the best weight loss we've ever seen, but it's more tolerable, that could help. And so that's one leg of it. You also saw the higher dose of Wegovy that they could go after. And again, the goal is just bringing up that weight loss. So you have this fragmentation happening in the market, it's still very early. Right now we have these two main drugs, but the goal going forward is that maybe you have something for all of these different needs. And I think that Novo is trying to demonstrate that they will have something for everyone.
- [38:43]
C
Let's turn now to one of Novo's competitors, Eli Lilly. The company revealing the first location of the four US Manufacturing sites that it's set to announce this year. So, Angelica, you sat down with CEO David Ricks, talk about this.
- [38:56]
A
Yeah. So this is the first of four new manufacturing facilities that they are announcing here in the US and this one is in Virginia. It's a $5 billion site and they will make primarily cancer drugs, also autoimmune drugs, as well as other advanced therapies. So for the first time at this site, they'll have the capability to create these cancer drugs called antibody drug conjugates. They're very trendy right now, but they're also very complicated to make, so they'll have that capability. And you know, everyone's talking about tariffs as one of the reasons why you're seeing so much investment in the US but when you talk to people like Dave Ricks, he'll tell you that it's actually about tax reform. Here's what he had to say.
- [39:31]
C
We went 40 years without building an API site in the US because corporate tax rates were at 35% and they were as low as 15% in other markets.
- [39:40]
B
And it made sense.
- [39:41]
C
And it's our responsibility to, to produce income for our shareholders, to locate API facilities elsewhere when we had the tax cut and job act originally, and now the new permanent 21% base rate tax rate, now that difference is marginal and it makes more sense to build in the US than ever before.
- [40:03]
A
So since 2020, Lilly has announced more than $50 billion in US investments in terms of their manufacturing. And I asked him, with this new facility, are you going to be moving from other places? Are you closing down sites? And he said that they are, are going to start moving some of the capacity to this new facility. When it opens, it'll be about five years, but mostly from European sites. But also this is about increasing capacity. So again, you know, you hear a lot about reshoring, but some of it is also just creating the new capacity that they need.
- [40:31]
B
Could all this also be in pursuit of getting earlier or fast tracked FDA approval of their oral obesity drug?
- [40:39]
A
You know, so a lot of these investments have been in the works for years. I mean, he talked about the fact that they wanted to do this starting in 2020 in the pandemic when they were making a lot of monoclonal antibodies for that Covid drug that they had and they realized that they wanted to do more of that in house. So he says that these are long term investments they've had in the pipeline. But of course they are building a massive site in Indiana that we were actually at last year. And they plan to make small molecules like orphaglipron. And so I think that does help when you're trying to talk to the administration about getting some of those, that priority review voucher I think you're mentioning. But we'll have to see exactly how that plays out.
- [41:15]
B
The Goldman estimate on early approvals is eye popping.
- [41:19]
A
So I saw that and I saw the headline talking about these analysts that are speculating that maybe they will get this priority review voucher that would shorten the timeline to one to two months from about a year. But I asked Dave about that yesterday and he said they're working on the submission right now. Now we're looking at everything we can, but we're now not announcing anything today to speed up getting orphaglipron to Americans. We've got the several studies in the hands. No announcement, but we'll try whatever we can to speed up the review process and make sure that that launch is as big as it can be. So who knows, maybe read the tea leaves. But as of now, no news on that front.
- [41:55]
B
Thank you, Angelica. Angelica Peoples.
- [41:57]
C
All right, coming up, OpenAI hiring a former X AI executive will have the latest escalation in the the Altman Musk rivalry. That's OpenAI's latest high profile hire is another salvo in the escalating rivalry between Elon Musk and Sam Altman. Our Mackenzie Seagalos digs into her scoop in today's tech check. Matt.
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B
Hey, Mike.
- [42:23]
A
So less than four months after taking the CFO role at xai, Mike Libertari has jumped to Open Air as its.
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B
New chief Business officer.
- [42:32]
A
Now, he started this morning teaming up with C CFO Sarah Fryer to lead.
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B
The company's massive AI infrastructure push.
- [42:39]
A
OpenAI CEO Sam Altman has been explicit about his strategy.
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B
He's willing to run at a loss to lock up as much compute as possible, which is why the company signed.
- [42:49]
A
That $300 billion deal with Oracle last week. Liberatory, who helped XAI scale its data center footprint, will now apply that same playbook at OpenAI. Neither X AI nor OpenAI is weighing.
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B
In on the move.
- [43:02]
A
But the switch underscores where the AI race is being being fought right now. Data centers and talent. Now, beyond looking to outspend rivals on comp, the scramble for executives also feeds.
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B
Directly into how companies compete on the fundamentals.
- [43:17]
A
OpenAI's models are broad general purpose workhorses, while Xai's Grok is tuned for real.
- [43:23]
B
Time information and social nuance. That distinction isn't academic.
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A
It shapes which customers sign on, where investor is, place their bets and ultimately where the best people want to work. And it's been a tough run for Musk and Xai this summer, losing Liberatory plus its general counsel and a senior attorney.
- [43:43]
B
Guys, thanks Mac. Mackenzie Segalos. Coming up, we're talking banks, Berkshire and Chocolate. Rapid Fire's next. Welcome back to the Exchange. Let's catch you up on a few more stock stories on our radar today. It is time for Rapid Fire. First up, next up, Wells Fargo is raising earnings estimates and price targets on the five big banks, Citi, JP Morgan, Goldman, bank of America and Morgan Stanley, expecting them to benefit from scale deregulation and strong capital markets. Citi remains the firm's dominant number one favorite. And that is interesting, especially as we see Citi hover around right here, $100.
- [44:22]
C
It is kind of interesting. So we get to that point, it's still slightly below book value. I'm sure that's why Mike Mayo the analyst feels as if it's got more leverage to the upside if in fact the environment remains so friendly. Importantly, it is also interesting given that sometimes when the Fed cuts rates, people think, well, it's time to go for the smaller banks, the Main street banks. He says capital markets, asset flows, deals. And if there's enough to go around, then the catch up to JP Morgan, which is kind of like the big incumbent safety play, right? Maybe can happen.
- [44:50]
B
But even the earnings estimates going higher doesn't include benefits from deregulation. Let's say there's a lot more still that could be built in going forward. Meantime, next up, we got Berkshire Hathaway. Could lose more than 3 billion in annual interest income if the Fed cuts rates aggressively. This according to Barron's. As of June 30, Berkshire held 340 billion of cash and equivalents, including about $244 billion in T bills. This is mostly the insurance.
- [45:16]
C
Yeah, the insurance. Even at the holding company level, you know, they hold a bunch of cash. I mean, obviously anybody holding a lot of T bills, when the Fed cuts rates, you're going to have your income cut. But it just so happens Berkshire Hathaway is literally the largest buyer on a given week or month of T bills in the world and they kind of brag about that. So yeah, we take a little bit off the top in terms of their income, but they'll probably be able to weather it.
- [45:38]
B
Yeah, I would think so. And Goldman sweet on Hershey double upgrading the stock from a sell to a buy, seeing a compelling risk reward set up after several guidance reductions over the past year. Goldman also writing that pressure numbers from cocoa prices and tariffs now largely reflected in expectations and market share trends have in fact improved. There is a worry that people weren't buying as I mean GLP one concern at one point. Seasonality is another brand. Yes, to some degree.
- [46:06]
C
And you know Hershey certainly has hold held its valuation better than most other packaged foods. You know, it's not like Campbell's Soup because it does have that premium for snacking and chocolate. But interesting opportunistic call you when you go from a sell to a buy. You know, it shows you that you kind of got it right on the downside and now you're going to reverse.
- [46:23]
B
A sell in and of itself is rare on Wall street, so it's worth noting. All right, well that does it for us. Thanks for watching the exchange on site on fast. We talking weakness in retail and have you noticed Baidu Baba Fix I all at all time highs? Talk about that power lunch starts right now. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day. Same time, same place. Is it time to reimagine your future? The right business skills may make a difference in your career. At Capella University, we offer a relevant education that's designed to focus on what you need to know in the business world. We'll teach professional skills to help you pursue your goals like business management, strategic planning and effective communication. And you can apply these skills right away. A different future is closer than you think with Capella University. Learn more at Capella Eduardo.