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Oil Slips, Stocks Rally & a Rate Cut is back in Play 4/8/26
00:44:10
Stocks rally as the U.S.-Iran ceasefire sends oil prices tumbling, but is the rally real? Plus, a fed rate cut is back on the table. We debate whether it should be.
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- [00:01]
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- [00:30]
Podcast Host Keith Lansford
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update.
- [00:57]
Kelly Evans
Wherever you get your podcasts, you're listening to the Exchange. Here's today's show. Thank you very much. Scott. Stocks are still surging this hour as the US Iran cease fire has sent oil prices tumbling. Welcome to the Exchange. I'm Kelly Evans and The Dow's up 1200 points this hour. Two and a half percent gain for the S&P better than three for the NASDAQ. And Russell, we're still near session highs. Matter of fact, this all comes as crude oil is having its worst day in six years with a 15 16% plunge now 94 and and change that slow compared to the levels we were used to over the past week or so and yields the Same story the 10 year back below 4.3% and we'll get an auction result in just a few moments. In terms of the stocks, the semis and the memory names are among the outperformers today as is the travel trade. The Global Jets ETF up 7%. When the market opened we saw some of those names. The oil, the airline names, the travel names like carnival cruise were up 15%. But let's begin with the latest developments out of the Middle East. With a cease fire between the US And Iran in place but attacks continuing in the region. Iranian media reporting that all passage through the Strait has been halted once again after Israel struck Lebanon. We also heard of an attack near Saudi Arabia's east west oil pipeline. And my next guest says we shouldn't expect a quick return to normal for oil prices. Let's bring in Amrita Sen. She's director of Market intelligence at Energy Aspects. Amrita, welcome to you just Remind people before this conflict broke out, you were much more bearish on oil prices. I just want to remind everyone of that because it's not as if you've been out here pounding the table saying oil prices are always going higher. It sounds like though this is leaving some lasting impact on the market. What do you think happens next?
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Amrita Sen
Oh, absolutely, and I'm glad you raised that. Look, we've been talking about, you know, oil prices averaging in the low 60s prior to the conflict for the year because we were expecting stocks to build and now we weren't nearly in the same bearish camp as some of the others who were calling for 4 or 5 million barrels per day of builds. We were more in the one and a half to two. But these are sizable builds.
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Kelly Evans
Right.
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Amrita Sen
This was not going to be a market, you know, sure, not going to 30 or $40, but still $60 the low price. But now what we are looking at is a market where we have lost sustainable volumes of supply. We are currently, we've just redone our numbers with all the latest production numbers coming through. 13 million barrels per day of shut in production. 13, which is a huge number. Right. And 1, 3. Yeah. Okay. And that has, that number has kind of gone up week on week because some of the numbers we're getting through from the countries just show a larger shot in production partly because, you know, they just precautionary shut in some of these volumes. We are looking at storage data from Kairos and you can see tanks are not full. So it's not that any of this volume via exports or production will be able to come to the market overnight. It is going to be a very slow process and like you say, quote unquote, cease fire, extremely fragile if that because attacks have continued all the way through today.
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Kelly Evans
What do you make of. How would you describe the situation in the strait if the president was saying earlier, you know, maybe we'll share the toll money with the Iranians or something like that. How will we know if activity is getting back towards normal? Does it matter if they or us or both are now taking a toll on the passage of ships through that waterway?
- [04:24]
Amrita Sen
Yeah, I wish it was that simple. Right. I think the challenge we have right now is we've counted about 250 odd vessels that are within the strait. Let's say that's able to get out the vessels that are needing to come in. There's two issues with that. One, shippers are charging $40 per barrel for zero as a charge to get in there. Iranians are saying, well you can't come in without our permission. We've also heard the Iranians are asking for a fee and imagine paying the Iranians given a lot of this is sanctioned entities. So you have to go via Chinese or the Hong Kong entities that they've created. And the bigger issue is because of the straits being closed, most of the vessels are now in or pointing towards the US or in Europe. Atlantic Basin taking oil from the US to Asia. So for the ships to even go back to the Middle east will be at least June. Right. So it's a complete mess. And this is why I'm not surprised the market sold off because that's a headline move. But the physical crude market is trading anywhere between $40 to $60 higher than where the price that you and I are looking at. And I think that's the reality on the ground.
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Kelly Evans
And I wanted to show the futures prices we can look out to kind of the summer and fall months where these were as you said, you know, a month ago, these prices were even when the war first broke out, maybe they were creeping up towards the 70s, 80s. What's the level of Marita that you think we're likely to settle at based on everything that you describe?
- [05:51]
Amrita Sen
I think, look, we might still get a little bit of a drift lower because when you have these sell offs just on a technical basis is never over in a day and people were quite long, there was, there was a lot of positioning around this. But I think once this is over, as in by over I mean that once the dust settles, people realize the cease fire actually doesn't mean we're going to get a material flow of oil out of the Hormuz. We think prices will go back up again. Especially because unless we reverse the 13 million barrels per day of shut ins, we are losing that much volume just on crude, let alone of products every single day. And that means you just need higher and higher prices ultimately to balance the market through demand curbs.
- [06:29]
Kelly Evans
So you think we're going to be higher in a couple of weeks or a month than where we are now?
- [06:35]
Amrita Sen
Yes, I do believe that. Even if we first go lower. The other thing I'd say is that the higher prices is probably more important on the product side. So it's gasoline, it's diesel. Diesel is already trading above $200 per barrel. Jet fuel is as well. That's where ultimately the price impact needs to be because that's where demand needs to come off. So yes, you could still have this situation where crude prices call it $120 on the screen physical crude is another $60 above that. But then its products price is what you and I consume is where the real pain is.
- [07:03]
Kelly Evans
And quickly when you, when we talk about the price on the screen versus the physical price, is that because one is ultimately going to translate to the other. In other words, who's paying the 120 or the, let's call it 90 something you're seeing today and is that going to creep higher or not? Is that more of a financial market price?
- [07:22]
Amrita Sen
Yeah, I mean look, historically we've never had this divergence and it's a real head scratcher.
- [07:27]
Kate Rooney
Right.
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Amrita Sen
Usually the physical market is what drives the futures price and you know, roughly they converge. But I think what's going on right now is the curve is so backward dated that in the futures is a different beast. Right? Different speculators, hedge funds are trading this. Ultimately the people who are buying the crude, which is refiners, they are having to pay that top dollar. Like we heard today, a West African cargo landed in Asia at $170 per barrel.
- [07:52]
Kelly Evans
Wow.
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Amrita Sen
Imagine then you refine that, then your products prices is even higher. So what you and I pay on the products price is reflecting the physical crude price. But the futures market is just, it's more of a financial price mechanism rather than what's really impacting the world economy.
- [08:06]
Kelly Evans
And then finally as we look at the national average today at the pump, it's $4.16 so it continues to creep higher even as the oil price falls. Is it possible that gasoline prices in this country could still go higher even as we've seen this 15% reset per barrel?
- [08:22]
Christina Parts
Yes.
- [08:23]
Amrita Sen
And look, I think that's absolutely our view that again short term it might come off a little bit. But ultimately the products shortage that we're talking about because of refineries can't getting oil in Asia or refineries in the Middle east being stuck and can't get their products out. We are looking at the well over 300 million barrels of product losses across gasoline, diesel and jet that will take probably two years to recover in terms of just the supplies unless demand comes off sharply. And there's only one way demand can come off much much higher prices. So I wouldn't be surprised, let's say May or June we see $5 plus gasoline prices in the U.S. wow.
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Kelly Evans
I mean that's fascinating if that's like I said, you know this better than anyone so really appreciate it today to get help us understand what might and might not come to pass as a result of what We've seen I'm read ascend with energy aspects. We just had a ten year note auction. Let's bring in Rick Santelli for those results. Rick. A beneficial day I guess we could say for it to happen.
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Barry Knapp
Yeah.
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Rick Santelli
You know yields are down a little bit. They're really not down all that much. What's significant is where they're down from. We'll get to that in a minute. This was a $39 billion auction of of nine year ten month securities. Originally they were auctioned off in the first couple of weeks of February. So this is a reopening. The Yield for these 39,004,482 which was a smidge higher than the when issued market. So only a very small tail. All the metrics were pretty close to 10 auction average. My grade A straight C is in Charlie. There was nothing really special about the auction. I thought it would go a little bit better. Just for the headlines that you were thinking of when you, when you threw to me. But when you look at a 377 in a two year that's down what two basis points? Right now we're at three or 428 in a ten year. That's only down one basis point. What's significant is it's the first close yesterday barely below 430 in the ten yesterday the first closed below three hundred and eighty in a two year. That is technically significant and potentially we might be able to build on that. But really if you look at the entire month to date, considering all the volatility in both directions, Treasuries have been rather calm all things considered. Tomorrow's the last leg of this trifecta of offerings from the US treasury with 22 billion 29 year, 10 month or 30 year bond securities. Kelly, back to you.
- [10:54]
Kelly Evans
They've been incredibly calm, Rick. You know it's. If I just saw the numbers on paper, especially after what we've seen for requests for the Pentagon, that's up 40%. Medicare reimbursement rates are up. It's you know, interest every. I just, I'm surprised that the treasury market is taking all this as well as it is. I don't really know what's going to happen, you know, with the payments through the strait if they're going to continue to try to, you know, de dollarize and how that might affect kind of future global demand for Treasuries.
- [11:23]
Rick Santelli
Everywhere you turn things so complicated.
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Kelly Evans
It's just seems like there's fewer buyers in the market.
- [11:28]
Rick Santelli
Think about smart money in the Middle East. Smart Money in the Middle east is definitely not making crude oil go much above 95. I think out of all the sources and all the guests, I still think crude oil has given us the most honest opinion of what's going on. Unlike our last guest, I really doubt if the gasoline markets or the crude oil markets are going to be higher than they are right now in two weeks. I don't think they're going to go back to where they were super quickly, but ultimately I think it is going to go back more quickly than many experts think. You want to know why? Because producers are pretty clever. There's a lot of different workarounds that are being discussed in a variety of publications and websites and I put some stock in that. And I think that the notion of the limited life of its current condition for the Straits of Hormuz, I think that's a huge story.
- [12:20]
Kelly Evans
But is the deficit a huge story or no?
- [12:23]
Rick Santelli
Oh, the deficit is going to continue to be. And you know how I feel about that. So when you said you're amazed when I look at a chart of the entire treasury complex going back to last summer and seeing yields higher last summer, you're right. When I look at the one year chart, there's no way I could ever look at that and say, oh my goodness, we have a Middle east war going on there. It just doesn't show up. But debt and deficits. Listen, this administration has policies I agree with in many ways, but I do think we're not making much progress in lowering some of that red ink.
- [12:56]
Kelly Evans
Right, exactly. And that's what I meant, that the market's so calm in the face of that. It's just, just interesting, Rick, for now,
- [13:01]
Rick Santelli
you know, it's going to be a two parter, Kelly. It's going to be a two parter. I think the good news here gives us a bit of a rally potentially, but ultimately it's going to be back to business. And I'll say this for the 9,000 time. We're not going to spend much time under 4% in a 10 year due to debt and deficits. And I still think closer to 5% is a possibility for 2026.
- [13:23]
Kelly Evans
Yeah, it feels right. I, you know, you know more about it than I do, but I appreciate the extra color. Rick. Thanks. Rick Santelli.
- [13:29]
Amrita Sen
Thank you.
- [13:30]
Kelly Evans
And our next guest just lowered his year end price target on the S and P to 7,500 from 7,700 prior to the Iran war. That's still a solid rally. From here though, let's bring in David Lefkowitz. He's head of US equities at UBS Global Wealth Management. This, I believe, was yesterday, David, as what are you pricing in for the slight downgrade? And then why do you think we might still be able to come out of this somewhat unscathed?
- [13:53]
David Lefkowitz
Yeah, thanks, Kelly. So, you know, in our base case, we still think that eventually we're going to be on the de escalation path. And obviously we got, we got some news last night that bolsters our confidence in that path and then ultimately we will see energy flows through the Strait of Hormuz. It's going to take some time. You know, a lot of the, the, the ships have to get into the right place. The, the oil fields need to get repressurized and things like that. But we do think that we will see the energy flows resume. And I think the market's going to start to anticipate some normalization. That also is going to take some time. But you know, ultimately think oil prices will be a little bit lower and, and the economy can, can sort of weather through this, especially with some fiscal stimulus that's helping. And therefore, you know, stocks can move higher as earnings move higher. So we still think earnings will grow, you know, double digits this year. 11% is our, is our number. And given that everybody is de risked at this point, if the, if the conflict de escalates, which we think it will, you know, that's sort of the dry powder to propel us higher.
- [15:00]
Kelly Evans
There's the dip on the screen there. We are showing what's been the trading pattern since the Iran war began. We're only down 1% since that matter of fact. And there's this brief dip better than a week ago because last week we had the 3% rally. So when we ask, you know, is the bottom in? Well, the bottom might have already been in, you know, know, about 10 days ago.
- [15:20]
David Lefkowitz
Yeah, look, I mean, there's no way around this. It really comes down to what is the oil price. I mean, that, that has been what the market has been laser focused on. And so, you know, our view, we will, it's not going to be a straight line. I mean, you know, this is probably not the last story here in the last chapter, but we do think oil prices will be lower over time and that's going to pave the way for, for stocks to continue to move higher. Again, not in a straight line though.
- [15:45]
Kelly Evans
Tech leading today. Small caps are showing some life. They're more economically sensitive. I have to imagine. That's why.
- [15:52]
Mackenzie Seagallos
Any thoughts?
- [15:52]
Kelly Evans
There on market leadership.
- [15:55]
David Lefkowitz
Yeah, I mean I think, you know, not surprising to see the areas that have been sort of most beaten up are getting the biggest bounce today. That's pretty, pretty common and not surprising. I think though, I think it'd be helpful as we're thinking about what the world looks like over the next say six to 12 months. I think there's going to. Oil prices will be higher. I think there's going to be greater focus on energy security, resource security. And we still have the build out that's going on. So that leads us to a lot of some of the industrial areas. We have a list of stocks that's, that's aligned to that. We call it power and resources. I think that's going to be a lot of the focus in terms of market participants going forward. So that's definitely an area that I would focus on.
- [16:41]
Kelly Evans
Sure. And then I guess it would just be a question of whether the consumer. The reason we keep mentioning the triple A fuel price is because even as for us, the trading, the price of oil is down 15%. People today are paying still the most they've been paying in recent months for fuel. And I don't know at some point if that's going to actually bite the consumer more than we realize or if these levels are still relatively low by historical standards. They were $5 as we remember during the post Covid era just a couple of years ago.
- [17:09]
David Lefkowitz
Yeah, Kelly, I think that's a great point. I think if we did see gasoline prices sustainably above $5, I do think that changes the complexion a little bit of consumer spending. But you know, around $4, I think it's digestible, especially given that we, we have already, we have the additional fiscal stimulus coming in with the, the higher refunds and things like that. So it's, and we still have this K shaped economy. Right. So the higher end consumer is less insulated or more insulated I should say from gasoline prices. And as long as the stock market is doing well, I think you're going to see, you know, middle and higher income consumers are still going to be spending. So I think the $5 level is an important marker in our mind.
- [17:55]
Amrita Sen
All right.
- [17:55]
Kelly Evans
And we're well below that for now. David, thanks very much. Appreciate it.
- [17:59]
David Lefkowitz
Thank you.
- [18:00]
Kelly Evans
David Lefkowitz of ubs. Coming up, Asian markets are ripping higher following the two week truce with Iran. Again, they're a big user of fuel from the strait region. My next guest says these moves don't come along often in one's career. But are they overdone or overdue. We'll talk about that next. Plus the cease fire putting a Fed rate cut back on the table. But our guests are divided on whether the market is getting that one wrong. That debate ahead on the Exchange
- [18:28]
Adam Posen
this
- [18:28]
Podcast Host Keith Lansford
is the exchange on cnbc.
- [18:35]
T-Mobile Advertiser
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- [19:04]
Podcast Host Keith Lansford
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.
- [19:33]
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- [20:01]
Kelly Evans
Try it@adidsleep.com Asian markets are surging on the two week ceasefire between the US and Iran, India up nearly 4%, South Korea's Cosby surging almost 7%, the Nikkei up close to 6, China up 4% as well. The Strait of Hormuz, a vital artery for energy delivery for all of those nations. But with reports now of $2 million tolls per passage if the Strait reopens, are these rallies premature? Let's bring in Brendan Ahern. He's the chief investment officer over at Crane Shares. Brendan, it's good to see you and just kind of walk us through this step by step here. A region that we saw suffering as the Iran war went on is now snapping back quite sharply.
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Brendan Ahern
Yeah, 100%. Kelly. In general, Asia is highly dependent upon Middle east oil and natural gas. In the case of say Japan and the Philippines are virtually completely dependent on oil coming out of the Strait are Hormuz. You then have Korea, Taiwan, And Malaysia about two thirds dependent. China's bound call it 50%. So just in general, the Asia region was highly dependent and is obviously cheering the truce that we've seen put in place for the next two weeks.
- [21:13]
Kate Rooney
Right.
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Kelly Evans
That said, you know, it makes sense to kind of ask the question of is it premature? But as you also know, more often than not when we look at these turning points, the market is pricing in, you know, the fact that it's more or less over, it doesn't, you know, do the details really matter here or is the larger point that, you know, we're avoiding the worst case outcome? There's going to be perhaps some messiness. But you know that this is the moment, this is the turning point.
- [21:37]
Brendan Ahern
Yeah, definitely. The market is a probability indicator and so it's pricing in the higher probability for obviously lower, lower oil, lower, lower natural gas and all the issues that the higher, higher oil, higher natural gas comes with it. So, so yeah, I think there's obviously there's a lot unsettled. There's attacks taking place as we speak within the Middle East. So hopefully, hopefully we're just on a path for things to settle down and I think markets are anticipating better, better outcomes versus more negative.
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Kelly Evans
It feels like the moment this goes to a back burner, what happens. Alibaba is surging because of a new AI video tool. You know, that narrative comes back to the fore and China has been a place where we've seen, seen a lot of these startups and IPOs get some traction. The Hong Kong market, obviously the memoried names in Korea, is that trade part of the reason why we're seeing such strong performance there?
- [22:29]
Brendan Ahern
Yeah, I think you had a real relief rally across Asia including both China and Hong Kong. Hong Kong reopening for the first time in five. They had a five day weekend. But yeah, I think there's some other factors at play. You had some very positive signs from Chinese regulators about the importance of E commerce in their efforts to raise domestic consumption. You also had a new video from, from Alibaba release. So there are some net positive. I think there's arguably some real green shoots for China's economy and capital markets and they've really suffered due to some of the AI picks and shovels trade really. Smt, Samsung, sk, Hynix. That's where a lot of the Asia tech money. So we're kind of, you know, constructive on, on our book that we see some, a little bit of a grind higher from, from what's been a pretty tough pullback over the last six months.
- [23:21]
Kelly Evans
What else would you say is going to be lasting reverberations? Whether it's the relationship China has with Iran now getting oil out of the strait, perhaps the Chinese yuan being involved with some toll taking there. Those are based on reports. I'm not sure if that any of that's been confirmed yet. And also again, just the the focus now shifting to the president's meeting with Xi Jinping. That's coming up in a few weeks time.
- [23:44]
Brendan Ahern
I agree. The latter is really the key points, Kelly, that you have President Trump going to China in a little more than a month's time. China as well as Pakistan clearly played an integral role in coming to this truce. The foreign minister of China spoke 26 times between the US and Iran. President Trump acknowledged that. So I think it sets a path for better US China relations. And certainly there's a lot of US Corporate interests in China. We know there's things that we can anticipate will be announced when President Xi and President Trump meet in a month, a little more than a month's time. So we think that potentially dampen some of the geopolitical headwind that's really weighed on some of the investor sentiment in our space.
- [24:26]
Kelly Evans
All right, Brendan, for now, thanks. Appreciate it. Brandon Ahern with Crane shares. You can see the large cap Chinese shares. They're up about 2% year to date or today, I should say still lower, about 4% year to date. That's kind of the bird's eye view of the situation in China. But let's drill down a little bit more on the Chinese tech and how companies are advancing their stocks with Nvidia, despite its strong performance today, not necessarily anywhere in sight. Christina Parts and Evolis is here with more of those details. So this is not a, is this a deep seek? Are we continuing this narrative that there are competitors coming out of China here?
- [24:58]
Christina Parts
Oh, yeah, there's, there's a news hook for today and it involves Alibaba, which is why the share price is up almost 5% after and also helping Chinese tech across the board after the company launched a data center in southern China. Not huge news, but it's powered by 10,000 of its own AI chips. And to your point, no Nvidia anywhere in the picture. And that's not an isolated move. So Deep Seek is a Chinese startup. It's about to release its next model V4 and it's going to run entirely on Huawei's Ascend chips. According to the information, the model could have come out sooner, but Deep Sea said spent months rewriting its code with Huawei engineers to get it working on domestic hardware, which means more of the stack is becoming Huawei. Alibaba, ByteDance, Tencent have all placed bulk orders, hundreds of thousands of Huawei chips, not necessarily American ones, ahead of that launch. That's a big deal. And Huawei is now trying to push those chips beyond China's borders. Malaysia recently said it would deploy Huawei Ascend chips as part of a sovereign AI program, the first time outside of check China. Brazil has become another important market for Huawei because of special, because of all the developers over there. So the risk for Nvidia is no longer just lost sales in China. I know analysts and everyone said China is not part of the equation. It's not in estimates anymore. It's that parallel ecosystem that's forming around Alibaba, Huawei, Deepseek, one that gives Chinese AI firms something they haven't had before and that's an exportable alternative.
- [26:19]
Kelly Evans
And yet look at Nvidia shares. They're a little bit off session highs today, but after having treaded water for the past nine months or so, people are waiting to see if this one will break out, especially as some of these concerns recede.
- [26:30]
Christina Parts
Yeah, the problem is it's, it's been stuck in a range. It did dip you below that 170 technical level. But to your point, compute names have climbed higher. AMD is also in that mix today. More specifically with China and all of these names, that's a bigger threat. I would say that you would feel longer term with Nvidia as if Huawei and these Chinese firms start to grow market share outside of China. And so that's when countries decide they're going to use these Chinese offerings as opposed to American offerings. And so that's the major risk and one that Nvidia will use as leverage in D.C. when they say, hey, you shouldn't put these export controls because look what's happening right?
- [27:05]
Kelly Evans
Let that market stay open to us. And of course, investors look at the dollar signs there, potentially with excitement. Christina. Thanks, Christina. Parts and evolis. Still ahead, energy, different story. The only sector in the red today. In fact, it's on pace today for its worst day in nearly a year. Our trader trimmed his winners in energy and was expecting a broader market bounce today. We'll have his latest moves coming up. And a fun fact about today's market. It's the 25th time in the Dow's history it's gained more than 1,000 points intraday. According to Carson Group's Ryan Dietrich, 23 of them under Trump. As far as thousand point declines, Trump has 23 of those as well to President Biden's 11 and President Obama's one. We'll be right back.
- [27:51]
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- [28:23]
Kelly Evans
you could do something that hadn't been done before? I have no fear of failure. Trailblazing women, Changing the game One of
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Kate Rooney
my favorite pieces of advice Think about what your boss's words Boss needs leadership can look in many, many different forms.
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Kelly Evans
It really does come down to just trusting yourself.
- [28:40]
Kate Rooney
Life is short and you just got
- [28:41]
Kelly Evans
to think big to accomplish big things. Julia Boorstin hosts CNBC Changemakers and Power Players. New episodes every Tuesday, wherever you get your podcasts. Welcome back to the Exchange, where we're keeping an eye on this market rally still right near the it's almost like the markets are pegged up at the levels we opened at 9:30am Eastern Time. We're just a little bit below that right now. Solid gains across the board, less than 3% now technically for the Nasdaq and for the Russell. Again, impressive. In light of the headlines that we've been receiving over the past several hours, the market's clearly looking at much more of a resolution than you might be led to think by those news events. In any case, here are some of the movers that we're seeing, and we'll start with Levi's. The shares are up 12% on better than expected results. Best day in a year for that name and putting the stock back in the green year to date. And then the crude stocks rallying as oil plunges. The sector has been beaten up since the start of the Iran war thanks to higher energy prices and travel restrictions. Now Norwegian Viking and Royal Caribbean are popping at least 6%. Carnival's up 11%, making it one of the top performers in the S and P today. Which brings us to Delta. Those shares are up 6% as the airline reports strong demand despite higher fuel costs, CEO Bastian told CNBC Delta will still have to meaningfully reduce its capacity growth plans in the near term thanks to that higher fuel bill. So keep an eye out for the fallout even as the stocks move beyond these near term events. Let's get to Mackenzie seagallos now for the CNBC news update. Hi, mackenzie. Hey, Kelly.
- [30:08]
Mackenzie Seagallos
North Korea fired several short range ballistic missiles toward the sea today. According to South Korea's military, one of the missiles traveled more than 400 miles off North Korea's coast and followed a separate launch yesterday. It comes as the regime has made clear it has no intention of improving ties with Seoul, with an official saying South Korea would always remain the country's most hostile enemy state. France plans to add $39 billion to its defense spending between now and 2030 under an updated military planning law. The country says it hopes to increase its number of nuclear warheads and earmark billions for rebuilding stocks of artillery shells and air defense interceptors. And the former architect accused of assaulting serial killing spree on Long island over almost two decades changed his plea today, pleading guilty to eight murders. Rex Heuerman, alleged to be the so called Gilgo beach killer, told a Suffolk county judge he was waiving his right to testify on his own behalf and the right to appeal after maintaining his innocence since his 2023 arrest.
- [31:10]
Kelly Evans
Kelly, back to such a troubling story. Mackenzie, thank you. Coming up, the financials are surging today. Rate cut could be back in play. The big banks are all up for 3% or more, cities up 5. But should the Fed lower rates? We'll debate that next. And as we head to break the Ulta, assets are also rallying even as Moody's cuts Blue Owl's fund outlook to negative on surging redemption requests. BlackRock, one of the top performers up nearly 5% today. More after this. Welcome back to the exchange. The U.S. iran cease fire is putting a rate cut back in play. The markets now see about a 31% chance of a cut in December and only a 1% chance of a hike. But my next guests say this doesn't change their very different views on what the Fed should do. One still calling for a hike this year, the other pushing for a cut perhaps more in the near term. Let's ask them. Let's bring in Barry Knapp. He's director of research at Ironsides Macroeconomics along with Adam Posen, who is president of the Peterson Institute for International Economics. And I don't mean to set this up like a boxing match, but you are two intellectual heavyweights. And I hear from people all the time who they'll hear from Barry and then they'll and they go, I agree with him and now I agree with him. So let's Just settle this once and for all. Barry. Why do you think and to what extent do you think that we should cut rates at this point?
- [32:28]
Barry Knapp
Because I think in essence I think that we should cut 50 basis points. The policy rate should be set at 3. I believe that the policy rate setting is about 50 basis points too restrictive. But the balance sheet's providing 50 to 75 basis points of accommodation. So if I had my druthers and Governor Moran detailed this in his recent paper that he constructed with some Fed staffers as well as the speech that he gave a couple of weeks ago in Miami. You have to make the transition slowly, but by getting that policy rate down to three, you'll do a number of things. First of all, you will boost small bank regional bank return on equity above where it needs to be to completely reopen the small bank credit channel. That if we use the 3 month build a 10 year treasury as a proxy for rough bank profitability, that spread is average 100 or median is 140 basis points. Since 1940 it's currently 60. That's why their ROE is 3% lower than the big banks who are more fee based and not as spread sensitive. If we were to steepen that yield curve out, that will open the credit channel for small real estate developers. You know, last time I was on, I was debating this with Steve Lisman. I think we need that credit to flow to those small developers, small businesses.
- [33:54]
Kelly Evans
In this view, the long end, the 10 year yield might go up if the Fed starts releasing, correct? Yeah.
- [34:00]
Barry Knapp
The problem is less on the demand side for housing than it is on the supply side. So sure. Could it push the mortgage rate up, all things equal? Yes, absolutely it could. Though if you do, you know, you conduct this process over time. The way I view the broader plan here that Treasury Secretary Besant would detail, Moran would certainly agree with. It seems Waller, Bowman all agree with and Wash likely as well. You steepen out the yield curve, you lower that policy rate, you start mitigating the problems on the bottom side of the K shaped economy for small banks, small businesses, small business employment is decidedly weak. It's running negative 40 basis points, whereas large businesses is more like plus 80 basis points or so. That's annualized growth. So you start resolving that problem. You go through with Bowman's bank regulatory relief plan. She spelled out things like lowering the capital requirements for small bank C and I lending and small bank business lending last week in a speech. And then you know, in time, second half of the year, you start unwinding that balance sheet. Now, you obviously need to change liquidity requirements and all to do that, but you start shrinking both the liabilities and assets of the Fed's balance sheet. And so now policies a little bit more balanced between big banks, small banks, small businesses, large businesses. And that would, would get us to a better, more fair. Lest I use that loaded word, but sure, you know, set of policies. So I'm not saying that overall policy is too tight. I'm saying the rate policy is too tight, the balance sheet policy is too loose.
- [35:38]
Kelly Evans
All right. So Adam, do you have any issue with that or do you would you
- [35:43]
Adam Posen
say, okay, I got several issues with that. First one is monetary policy shouldn't be used to bail out particular sectors like small banks or small business. Part of what Secretary Besant and chair nominee Warsh have complained about the last few years was when they tried to use monetary policy for distributive purposes. And they're right on that. Shouldn't be doing it in this direction either. Second, it's not going to work. I agree with your guest that worrying about where the policy specifically out turns transmits is important. But if you're jerking up the long end of the curve and steepening the yield curve, maybe you improve profitability for banks, but you make credit conditions harder across the whole economy for everybody else. And if he says, you know, on balance monetary conditions are about right, I don't think they are. But anyway, you certainly don't want to tighten. But third, and most importantly, if you go into the actual data, the reason that small businesses and small business lending are so bad is because the Trump administration has created enormous uncertainty, not just through its trade policies, not just through its undeclared war policies, but through its investment policies, its regulatory policies, some of which are good but have been left too arbitrary, even if they're in the right direction of deregulation. And it's anti migration policies. And you can look at the data and look at the individual companies and industries, and the lowest employment growth was in those areas that most reliant on migrant workers. So if you look at investment, there's been no investment outside of AI, as you and I have discussed previously, Kelly, that's because there is this pall of uncertainty over the economy. What would you call my points? One last point. My point of view is that as the labor market shows, the economy is actually still much more resilient. And so we're going to have inflation from all of this and it's going to get worse if the Fed continues to loosen.
- [37:37]
Kelly Evans
So you think we're going to get inflation from all of this. And so what would your policy, you know, if you were Fed Chair for the rest of the year, Adam, what would your policy response look like?
- [37:46]
Adam Posen
Well, realistically, you cannot raise rates close to the election. But I think what should be happening is there should be a hike in the last meeting before Chair Wash takes over. I think you could get a majority of the committee for that. At a minimum, you should get, get a clear lean in statements for a tightening direction. And I think realistically in terms of forecasts, they're going to be hiking at the December and January meetings because they're going to do nothing between now and then.
- [38:14]
Barry Knapp
Barry, I actually have a question for Dr. Posen.
- [38:20]
Kelly Evans
Adam, whatever you prefer, you can speak to speak to him.
- [38:23]
Adam Posen
Adam is fine.
- [38:25]
Barry Knapp
We met back when I worked at Black Crack. But anyway, it doesn't matter the point. One of the points you made in your paper that you wrote with Peter Orszag was you were worried about deficits potentially contributing to inflation. You had four points as I recall. But I would argue that the thing that facilitated government spending to go going to 24% of GDP from its median since 1981 of 20.3% of GDP. One of the facilitating factors was the Fed's purchases of longer duration assets. And so the fact that the term premium is half of its long term median, that that three month, ten year curve is less than half of where it's been historically. All that those purchases in the long end is actually what fueled the government spending, that fueled, you know, the inflation. Right. The checks that were sent out, the 1.9 trillion stimulus, all that stuff. So I'm not sure how hiking the policy rate is going to act as any kind of a check or a regulator on government spending. Where I'm going with all this rebalancing a policy over time is if the Fed doesn't hold six and a half trillion of assets, the banking system holds a bigger percent of assets. You now have price sensitive private sector buyers that will act as a regulator or you know, check on profligate government spending. And that's sort of where I'm going with the whole argument here.
- [39:59]
Adam Posen
This is, this is fascinating because you're being the theorist and I'm being the practical person. So you're, you're asserting a theory that somehow budget policy gets made in the US by Fed balance sheet balance. Your policy gets made in the US by small business, by banks, but your policy gets made in the US by the President and the Congress and they don't give a rat's bleep for interest rates. If you try to run a regression, they don't tend to be more deficit sensitive or less deficit sensitive as interest rates go up and down. It's just not correct. It's not good either. It's not a good thing. But all these things you're talking about playing with will have no effect on the actual debt deficits because that's a question of Congress and the president.
- [40:44]
Kelly Evans
Adam, I'll give you a final last word on this then. You know, as you'd say you would hike rates in the very near term because you view this economy as not having enough workers fundamentally. Is that what you think is going on?
- [40:57]
Adam Posen
I think three things are going on. Your, your other guest kindly cited the thing with Peter Orsag and I wrote and again, there's room for debate. Obviously, I think labor market's much tighter than people think because we've had so little net migration and because of demographics. So therefore inflation rates are higher, I think, and here's where I agree with him, monetary policy is not as tight as people think it is and so credit conditions are more toppy. And I think that we've got these inflation pressures which are seen in the services, including Chair Powell just recently saying, hey, it actually has been more persistent than we thought. And so there's inflation momentum. So all of those together along with
- [41:38]
Kelly Evans
the fiscal well, I'd love to do this again sometime viewers. Write in with with who you whom you're siding with. I love hearing the full thing. I know we get into the weeds, but it does help. Gentlemen, thanks. Really appreciate it. Very NAP and Adam Posen. Coming up, a harassment campaign that's driven by ego, jealousy and a desire to slow down a competitor. That's what OpenAI called E Elon Musk's ongoing lawsuit against the company and CEO Sam Altman in a social media post. We'll have the latest and the bold ask Musk's legal teammate. That's coming up next. Elon Musk is escalating his legal battle with OpenAI founder Sam Altman in a new court filing ahead of a trial set to begin later this month. Kate Rooney has the latest in Tech Check. Hi, Kate.
- [42:26]
Kate Rooney
Hi, Kelly. So in a filing on Tuesday, Elon Musk's lawyers asked to have CEO Sam Altman and president of that company, Greg Brockman, removed from their roles at Open Air as a legal remedy. They now ask to strip those executives of what they call authority and personal financial benefits they extracted from OpenAI's illicit for profit operations and conversion. The backdrop here, Kelly Musk sued OpenAI, which he also co founded, alleging that he was manipulated and deceived after OpenAI explored converting to a for profit. Jury selection for that trial kicks off in a few weeks here in San Francisco and Musk is now seeking more than $100 billion in damages from OpenAI and CodeFendant. Microsoft now says he would actually return what he calls ill gotten gains to OpenAI's nonprofit arm. It does come just a day after OpenAI penned a letter to the California and Delaware attorneys general accusing Musk of anti competitive behavior, including possible collusion between the Tesla CEO and Meta CEO Mark Zuckerberg. This all do with text messages where Musk asked Zuckerberg for help acquiring OpenAI. Metta had already sided with Musk in this fight, sent a letter to the California AG a couple of years ago asking to block the company's for profit conversion. Musk left OpenAI back in 2018 after trying to merge that company with Tesla. Later launched X AI, which now competes directly with Altman's firm and then that firm recently merged with Space X. The drama, kelly, comes as OpenAI and Musk Space X look to go public in record listings expected this year. Back over to you.
- [44:00]
Kelly Evans
Yeah, there's going to be scrutiny. I mean the New Yorker article, there's, there's so much more scrutiny that's going to come on these companies even as we're using the tools more than ever. Kate, thanks very much. Kate Rooney, 24 hours ago he said buy by the market. He's back to take a victory lap and tells us what he's doing next with Jeff Kilberg. He's up right after the break. While the Dow was tracking for its worst day in nearly two weeks yesterday KKM's Jeff Kilberg was telling us here on the exchange it was time to buy. That call clearly paying off today. So what's the next move? Let's bring him back. CNBC contributor and KKM Financial CEO Jeff Kilberg. You know, not just to give you a victory lap, but it's fun when people make a bold call against the grain. My real question, Jeff, is seriously, what do you do now once you say, okay, you know, we get the initial move, is it just off to the races, we never have to worry about this again? Or could we be in for disappointment and kind of a chronic, you know, churn through oil and stock trading patterns we've experienced the past couple of weeks?
- [45:04]
Jeff Kilberg
Well, Kelly, my glass is still half full and I don't Want to tear a rotator cuff patting myself on the back because the market has its way to humble you very quickly. But we have been bullish here as we saw the market put in a bottom. Last Monday we saw that options volume spike. Remember last Monday we saw unusual option activity. We saw a lot of puts being. Well today we see that gamma squeeze where that 2 to 3% gap up. I think there's more room to run. We're only about 20 handles off of the overnight high. So I think the S and P is going to continue to move higher. Yes, the next two weeks Kelly will probably be littered with potholes as we are now in this Iranian conflict off ramp. But I am optimistic and I love seeing the VIX go lower.
- [45:42]
Kelly Evans
Okay, what else, what else do you look at and feel itchy to buy or sell or follow or anything like that?
- [45:47]
Jeff Kilberg
Well, the component I know is not getting any love. We want to talk about lawsuits with Elon Musk more than actually what he's doing with Terrafab. But if you look at Tesla, it's down about 20% year to date what intel has done. And intel was the big call yesterday. Right. I talked about intel and more room to run. I believe it's going to to go up and touch $70, another $12 higher from where it is after being up 10% today. But that's because intel now has Foundry as a business and that's thanks to Mr. Elon Musk. So there's a ton of cost savings going on by building everything, packaging all those chips inside of their Austin office in Giga, Texas. So that's where I think Tesla is an opportunity. But we're also looking at Applied Materials, look at Lam Research, all, all these different names that have the AI centric. I think they regain their focus and we run to new all time highs. But don't forget Kelly, earnings season right around the corner. There's optimism, there's light at the end of the tunnel. We get all emotional in the next two weeks, but I think racing markets move higher.
- [46:40]
Kelly Evans
What about energy?
- [46:42]
Jeff Kilberg
Energy I think you have to trim, but I'm not walking away from Energy. Marathon Petroleum, ExxonMobil, those are two names we really own. Anchor tenants and our Essential 40 ETF. But at the end of the day I want to see the confirmation on the all clear. We talked about this yesterday. Confirmation. All clear is when we see crude oil go under $83 $85 to be precise index that will allow energy to obviously come off and get some profit taking. But we still want to own those
- [47:06]
Rick Santelli
big blue chip names, but you want
- [47:08]
Kelly Evans
oil below 85 for the broad all clear.
- [47:11]
Jeff Kilberg
I do. And I think there's going to be a lot of confusion between now and the next cease fire deadline, but I think there's a path to peace and that's what's really optimistic. And it's a lonely view, Kelly, but I have to embrace it.
- [47:21]
Kelly Evans
All right, Jeff, thanks. Good to see you again, Jeff. Kilberg, thanks for having me. And that's it for us. Thank you for watching the Exchange. I'll join Brian Sullivan for Power Lunch right after this quick break. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:40]
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