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The Exchange
OpenAI’s PR Debacle, Flight Disruptions & Home Improvement Headwinds 11/7/25
00:43:57
OpenAI executives are walking back comments that the government should serve as a backstop for the company. Is OpenAI's business model unsustainable? One of our guests says yes, by design. Plus, what to expect if you’re planning to fly during the government shutdown. And, will home improvement stocks hammer out some gains this earnings season?
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You're listening to THE Exchange. Here's today's show.
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C
Thank you very much, Scott, and happy Friday. Welcome to THE Exchange. I'm Dominic Chewing for Kelly Evans. Today, stocks are lower, capping off a week of losses with the NASDAQ seeing the biggest decline among the major indices. The tech heavy index is down more than 4% this week amid ongoing concerns about the AI trade that's continuing to play out today. Nvidia down about 4% now down 10% for the week. Palantir shares down 14% for the week. Oracle down 11% Broadcom down 7%. You get the idea. One stock, though, that's bucking the trend is Intel. This is on a potential partnership with Tesla. We'll have more on that story coming up ahead. And a check on Bitcoin, trying to finish a volatile week above that key 100,000 level. Currently holding there, but down more than 7% for the week as well. Markets, though, is where we start as big tech earnings delivered but still failed to impress investors this week. And that's not where our next guest is actually looking for some of those opportunities. She is looking at another trade that's been beaten up, but she says the pessimism is now overdone. That would be health care. Joining me now is Julie Beal, chief market strategist over at Kane Anderson Rudnick. Julie, you are now, I think, the third or fourth guest this week that we've talked to that has pointed out health care as a trade. What exactly is attractive to you about it and where would you be going with it?
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D
I think that the real challenge with the way that the market is set up right now is we have this dependence on everything in AI working out. And I think you also have seen especially in small cap, this swing towards these non earners, non profitable companies. I think balance does the body good and I think nice earnings sustainability does the body good. Within kind of small and mid cap. West Pharmaceutical and Merit Medical, these are both businesses that have the same kind of pharma risk that you have in what you would call small cap pharma. In terms of there's only one product that you're dependent on. They're much more diversified in their businesses. West in particular has a pretty strong level of market share and they're benefiting from GLP1s. But what I think you want overall is just some earnings stability and resilience to add to your portfolio when you have kind of these to the moon bets as well.
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C
Earnings resilience instability seems to point you more towards mid cap and large cap, health care, pharma, bio, that sort of thing. But why stay on the smid cap side of things?
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D
I think that the valuations in general are a lot more attractive and I think being able to have some exposure to these smaller businesses that have longer runways in front of them. Many of them are also pursuing markets that are smaller, more niche and so they don't invite as much competition as say everything that we've seen in GLP1s, right? There's just this proliferation of competition. I think when you can be a little bit more niche, you protect yourself and you get to maintain some of that earnings resilience and have a nice, nice Runway of growth as well.
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C
How much of that is going to be dependent on the regulatory and macro environment that some of these companies face? We know that some of the big guys, namely Eli Lilly and Novo Nordisk, seem to be cozying up fairly well to the administration. Maybe they have a better Runway on that front. But how do small and mid cap healthcare companies have to navigate what the future could look like with the Trump White House?
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D
You have to be really careful and I think that's why we prefer to choose names where we don't have the same level of risk in terms of reimbursement and changes in terms of pricing. Most of these businesses are niche and they're supplying say the surgeon with specific tools that they use. And so they don't have the same level of regulatory risk when it comes to pricing. Most of their pricing negotiation happens with the hospitals. In the case of West Pharmaceutical, you know, their products are priced at cents, right? They're, they're small elastomer products on your drug delivery mechanisms. And so they have less pricing risk as well. There's some in terms of the risk of competition, but for them it's much less about the regulatory overhang and there's much more visibility on their business than say an Eli Lilly.
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C
All right, so the health care trade, Julie, is one that we know you're high on and specifically small and mid cap. If we could broaden out a little bit to the price action that we've been seeing this week, we are now not that far away from record highs. But the noticeable pullback in tech and artificial intelligence specifically has some investors and traders worried about a possible change in trend. Do you feel as though this is a medium term and even longer term top?
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D
Yeah, I mean, I think it's always hard to call a top. Right. But I do think that the concerns are really valid because on the one hand you have so many reports coming out and talking about AI and how most of the pilot projects have not been successful as enterprise has tried to integrate them. We know they'll continue to get better. And I do think that the long term fundamentals of AI are great. It's just a function of what the timing looks like and then what the economic models look like. I think what's really spooked investors is this recognition that initially everyone felt great because all of this investment was being funded out of cash flows and now it's being funded by debt. And I think, you know, hearing about Meta's very, very careful off balance sheet financing and hearing that Open Air is looking for a backstop on their debt. I'm sorry, but that's just, I mean, that's not how capitalism work. You can't go to daddy. This isn't like going to daddy and expecting him to backstop, you know, your new home purchase. That's just not how this works.
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C
Well, Julie, it did work during the great financial crisis, so maybe there was a precedent there. We're going to leave the conversation there, Julie. Have a great weekend. Thank you very much. That's Julie Beal. Kayne Anderson Rudnick. Now it is day 38 of the government shutdown and that means no monthly data report today for the second straight month. But it does not mean that we're in a black hole of no data at all. We're just getting it from other places. Yesterday we talked to challenger Graham Christmas. They reported October layoffs hit a two decade high. Global job site indeed is showing that job postings are at their lowest level in four years. With year over year declines in nearly every category. Joining me now for more on this story is Laura Ulrich, the director of Economic research for North America at Indeed. We've also got CNBC senior economics reporter Steve Liesman with us as well to round out the conversation. Steve, I'm going to start with you first to kind of set the scene for us. We had that conversation right here yesterday on this show about the alternative data some people are looking at. Challenger Grand Christmas is one of those points. Just how much clarity do you have to the jobs market right now with all of the other stuff that we have inside into?
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E
You know, we have to admit that we're all learning as we go. I think anybody who says anything differently is kind of making it up. What's happened, Dominic, is we do have a lot of data, a lot of alternative data, and a lot of alternative data is better than no data at all. But we're trying to figure out what it all means. We've got a list that we put together. It's a subjective list because it has to be. If you want to look at those indicators that are showing strength or stability and those that are showing weakness, you put those out there among the strength. Well, we think the ADP is part of the strength that's out there. We think the jobless claims, even though they were up today in the alternatively counted number, it's a little bit hotter, but it's still relatively low. Those are some of the strength things that are out there in terms of weakness. Challenger, we're putting indeed in the there's the jobless claims. We're putting indeed in the signs of weakness. And I think we're going to hear that from Laura in just a minute. In fact, I'm curious how she characterizes it. It's above the 100 average, which is 101.7, but it's still been declining pretty steadily in the post pandemic period.
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C
All right, so that brings you in, Laura, let's talk about this because at one point in your career you were also Fed economist over at the Richmond Fed. You're now doing this at over indeed. Do you look at the numbers that for job postings and say that this kind of evidence is a good proxy, at least correlatively to what jobs data could show? Is the indeed number going to be something that we have to scrutinize more because it is indicative of the job economy?
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Dom, thanks so much for having me. I'm really happy to be here to talk about about our data at Indeed. And I would say our data actually aligns best with the jolts data which we also would have gotten earlier this if it was a normal cycle. So we're seeing that that our job posting index is at 101.7 nationally, which means that job postings are 1.7% higher than they were pre pandemic. I will point out though that that measure declined 0.8% in October, but it declined 2.3% in September. So the decline was a bit less sharp in in October.
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C
Are there places Laura, that have seen at least some of the more market weakness when people post to indeed postings you see it across various industries. Are there certain places that stand out to you with regard to where you are seeing fewer job postings or even perhaps more job postings?
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B
This is a great question and I think absolutely in terms of industrial sector but also based on region. And so if you look at Our Postings Index, e.g. healthcare postings remain strong in a lot of fields. So do things like security. Many of the engineering fields still have postings that are around 20% above pre Covid averages. But if you look at things like software development, data and analytics, scientific research media, those are down anywhere from 30 to 40% compared to pre pandemic numbers. We also see the same when we look at regions. So some of the regions that have been hit hardest by layoffs and by some of the tech cuts have lower job postings levels and as does Washington D.C. which has had major, major cuts this year obviously to funding. But if you look at states like Idaho, Tennessee, the Carolinas, those states remain well above their pre pandemic norms.
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C
Steve, one of the conversation points we had yesterday with Challenger, Gray and Christmas and also Evan Sohn was the idea that artificial intelligence could be one of the drivers behind some of the job transition dynamics we're seeing. Do you think? As though given what we see from indeed Challenger, Grand Christmas and everything else that that tech unwind ish. Tiny bits that we are seeing in the market right now may be flowing through to the broader economy because job postings in certain key areas like software engineering and development are on the decline.
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E
So the way I'm thinking about it now, and I'm learning as we go Dom, is this. I don't think that AI is going to be responsible right now for mass layoffs. I think it's still too early with the technology. I think that when we talk about especially the issue of corporate management jobs, it's just not at the level where it can take, you know, a manager in Singapore and a manager in London and a manager somewhere in the United States and say, I've got a piece of software that's going to replace each one of those three bespoke jobs. What I, I think there's some of that going on on a limited basis. And I think you peg some of the places that might be happening, engineering call in centers, those kind of places. What I think is happening more significantly now is that there's spending going on for AI at corporations. And I think what's happening is they're budgeting for next year and what they're saying is let's try to hold the line on new hires because we have this technology that's going to be rolling out. So I think that I would look for AI right now in less hiring, not in massive firing. At the moment that may happen. I'm still a little bit skeptical about that happening relatively soon. It may happen, but I think right now it's a hold the line thing and I think it's part of the issue when we have this low, low fire, low hire environment that we have right now. I think that's part of it. I think tariffs are a big part of it. I also, you know, the uncertainty that's out there, I think those are some of the issues that make it a low hire environment. And I just want to say, underscore what Laura said, the indeed data is very good or doing as good a job as we have at replacing that jolts data that looks at the dynamics in the workforce more than the absolute level of hiring that may be out there.
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C
All right, Laura, we're going to give you the final word here. Just how much visibility as an economist do you have given the data that you see at your employer at indeed into what the jobs market and economy could look like in the next six to 12 months?
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B
Yeah, wish I had the crystal ball to predict that. Precisely. But I would say right now the data that we're seeing, it indeed indicates that we remain from a macro point of view, really in this low, low, higher, low fire environment. In some sectors it's more of a low hire, some fire environment. But overall, from a macro perspect, it's still quite a stagnant labor market. So there's nothing in our data that would have predicted, you know, a major turnaround in payroll employment reports over the past two months. And going forward, there's nothing in our data that indicates that we should expect anything different tomorrow.
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C
All right, Laura Ulrich over Indeed. Steve Liesman, thank you guys very much. I hope you both have a great weekend.
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E
Thank you.
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C
All right, coming up on the show, Open Air is in damage control mode right now after facing backlash over the idea of a federal government backstop. Should the AI startup or any tech company in general be considered too big to fail? We're going to ask a venture capitalist in Sam Lesson that question coming up next. Plus, home improvement retailers have underperformed the market so far this year. Will this earnings season or the holiday shopping season be enough to turn things around for home improvement? That's ahead. The Exchange is back after this. This is the exchange on CNBC introducing.
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It's happening with Ripple. We all take good care of the things that matter. Our homes, our pets, our cars. Are you doing the same for your brain? Acting early to protect brain health may help reduce the risk of dementia from conditions like Alzheimer's disease. Studies have found that up to 45% of dementia cases may be prevented or delayed. By managing risk factors, you can change make brain health a priority. Ask your doctor about your risk factors and for a cognitive assessment, learn more@brainhealthmatters.com welcome back. OpenAI's charm offensive seems to have hit a bit of a speed bump after implying that the federal government would serve as a backstop for the company. Now that the startup is scrambling to reset the narrative and turn investors attention towards the new revenue milestones it has, Mackenzie Sagalos is following that particular story. Just the developments there are and what we know is the latest from the clarifications coming from Sarah Fryer and OpenAI.
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And this was a rare public stumble for OpenAI, a company that has spent the year firmly in Washington's good graces. But this week, OpenAI found itself on the defensive. The company's CFO Sarah Fryer suggesting in a Wall Street Journal interview that the US Government could help guarantee financing for AI infrastructure, a move that would lower borrowing costs for the massive data centers that they are racing to build. White House AI and crypto czar David Sacks quickly firing back, calling the idea of a federal bailout ridiculous and saying if one of America's multiple AI firms fail, others will fill the void. Fryer has since walked back her comments and CEO Sam Altman stepped in to clarify that OpenAI doesn't want or need government guarantees. Now, the One thing that OpenAI is actively discussing with officials is domestic chip manufacturing. Getting American made silicon instead of relying on Taiwan is exactly why the White House took a stake in Intel. Altman also trying to reset the narrative, saying that they are on track for a $20 billion run rate this year and will hit hundreds of billions by 2030. Money that will fund its $1.4 trillion in compute contracts. All of it capping a string of walkbacks across the sector. From Nvidia's Jensen Huang softening his China remarks to anthropic CEO responding to a different offensive from Sachs. It's a reminder that in the AI race, White House buy in is as critical as infrastructure domestic.
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C
All right, Mackenzie Seagal is here with the latest on the AI trade. Thank you very much for that. Now our next guest says that the too big to fail fear is by design because OpenAI knows that their business model is unsustainable. Sam Lesson is general partner over at Slow Ventures. And Sam, the headlines have been fast and furious, but maybe they have fed a little bit more of this incremental caution around the AI trade overall. From an investor perspective, is the slight pullback that we've seen relative to the massive run up justified?
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Look, in the end of the day, I want to be clear. I think what's going on in AI is quite interesting and there is a lot that can be real about it. There's no question that there has been a fast and furious game across the AI sector of this kind of, you know, setting expectations at infinity. And I think there's a reality that, you know, the US wants to grow much faster than it has been. We need hopes and dreams. And so there's been kind of a lot of encouragement along the way to create a story and A narrative that pulls in a ton of capital, a ton of infrastructure, a ton of development to spur growth. And so there's a lot of, you know, people with aligned incentives here. You know, when you see things like though OpenAI kind of flipping the story and again, I think clearly in a faux pas, saying something they shouldn't have said, which is they're looking for a government backstop. I think people's fears get raised that there is a game being played of too big to fail where people are saying, hey, how quickly can we get everyone on our side and get everyone aligned and get hands all tied together and say, we're all in this together? So clearly we're going to keep driving it.
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C
So this all we're all in this together was something that we all went through during the great financial crisis in 2007-2010. And there was ultimately a government backstop. The numbers that we're Talking about for AI projected for the next 5 to 10 years are making the great financial crisis kind of economic impact may be on par with what we could CBC from the AI trade. So is too big to fail something the government needs to even think about at this point?
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G
I mean, I think the answer is yes, the government should be thinking about it. But I think. But again, it is one of those things where here's the problem. We have an enormous debt crisis at the federal level. The only way we're going to get out of that is two things. One is we're going to inflate the currency, right? And two is we need to somehow get GDP growth way higher than it's been historically. What narrative can possibly support that? Well, Sam Altman, LLMs AI has slotted in beautifully to, I think, a national issue which is we have to figure out how to get GDP growth up. And we're pinning a lot of hopes on that narrative. So when you see these types of things where all of a sudden, you know, Wall Street's in the game, the Middle east in the game, everyone's pulled into the game of how do we spur a lot of growth, growth all on this one story, which is lms and I, you understand how quickly you yada, yada, yada, your way into and the government should backstop it, right? And so look, I think it's very dangerous. I think it's socially very dangerous. People remember, oh, they remember the financial crisis. And I think people's biggest concerns at a social level is that we're seeing massive inequality growth. We're seeing, you know, the story of, you know, musk's trillion dollar pay package. And what the average American I think is quite worried about is oh my God, once again, we're going to pay for all this. So that number of technologists get extremely wealthy. So I think we have to be super careful. The fact that these comments got so magnified and projected, it became such a hot button, I think is really a sign of the times. There's a much bigger social context going on here. But like, from my perspective, you know, historically the technology industry has done amazing things in its own little corner in a very competitive market where you say, look, there are big winners, but they're fair winners. There are winners that played it out. The second the technology industry starts looking for bailouts or stories or this kind of like, like we're all in this together narrative, we get into a very.
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C
Socially sticky place, you know, Sam, one final point here. Just before the, you know, COVID pandemic, call it maybe 2018, 2019, when we talked about artificial intelligence, it was more of a frontier type investing environment. It was not mainstream at all. It is anything but frontier right now. It's very front of mind. How does that change venture capitalists or private equity investors view of just how, I guess particular they have to be with regard to how they invest money within AI?
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G
Well, in general, the story I think of, you know, when you take high risk investments that all of a sudden seem not so high risk because everyone else is doing them, that's usually a recipe for failure and for disaster. And I think that's kind of the place we're in right now where there's been such a. We've gone from such a, you know, contrary narrative to a mainstream narrative so quickly. It's been quite easy to write increasingly enormous checks into this stuff. I think you got to be careful about where you end up on this. It doesn't mean that AI isn't valuable, doesn't mean there aren't opportunities for it. I actually think at this point, if you're starting a company or building something and you're not using AI, that's crazy. Like obviously want to use that. That doesn't necessarily Translate into the 7% or even 4% GDP growth Everyone wants and is pushing for and trying to kind of push in the same direction of nor is it kind of aligned with the level or magnitude of investment necessarily being made right now.
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C
All right, Sam, lesson with Sloventures. Have a nice weekend. Thank you very much for that.
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G
Thank you.
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C
All right, coming up on the show, as the record setting government Shutdown enters its 38th day. Air travelers are starting to feel the pain as carriers cut their routes. We're going to hear from one airline executive about what the next phase of this shutdown could look like. And as we head out to break, check out Microsoft on pace for an eight day losing streak that would be its worst stretch in 14 years. We're back after this.
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C
Welcome back to the Exchange. The record setting government shutdown is in day 38, but there seems to be some movement in the Senate to try to end the impasse. Emily Wilkins is in Washington, D.C. with the latest on the shutdown showdown. Emily?
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F
Hey Dom. Well, Senate Majority Leader John Thune said there could be a vote maybe today might be this weekend, not just on that stopgap bill, but on potentially a larger package that Thune is hoping can get more Democratic support. So what is under discussion right now? And again, we should note there's no final agreement. This is all still tentative. You're going to have again that that stopgap measure to continue current funding. But then you'll also have three other bills that won't just be a stopgap. They will actually be funding a number of agencies and programs for the rest of fiscal year 2026. And this would include things like agriculture, so SNAP benefits, as well as stuff for veterans, Capitol Police officers that would all be included. Now there are still discussions about the path forward on those Affordable Care act tax credits that have been keeping some of those premium costs low. Republicans have promised Democrats a vote. Democrats seem to be trying to want something more there. And then of course, a discussion about some of those employees that Trump attempted to lay off during the shutdown. Democrats want reassurances from Republicans that when the shutdown ends, those individuals will still have their jobs. Now, a number of Democrats have told us in the last 24 hours that they've really gotten a momentum boost from how they did in Tuesday's elections and that they want to see if they can use that to extract more campaigns concessions from Republicans. But Republican Senator Mark Wayne Mullen told us just a little bit ago that he doesn't see Republicans budging much more.
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C
Now. They got a whole bunch of different demands that are unrealistic. They're wanting to put restrictions on the president. I mean, they we had a deal last week to reopen the government. That package we're going to try putting on the floor and see if they'll vote for it or not because they agreed to it last week. But now their demands after Tuesday's election is unrealistic. And we're not going to it's not even we can't even negotiate on that.
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F
Meanwhile, we are waiting to see if a judge is going to pump the brakes on another ruling that would have required the Trump administration to pay those full snap benefits for the month of November. Of course, if that doesn't wind up happening and folks don't get those benefits, that's just another degree of pain on the American people. You add that to airlines, you add that to heating programs that are now being going without funding, and you have a lot of ratcheting pain on the American people and pressure on lawmakers to come to some sort of agreement. Dom.
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C
All right, Emily Wilkins there with the latest on the shutdown. Thank you very much for that. The ongoing shutdowns leading to hundreds of flight cancellations at airports all across the country. Our Phil LeBeau spoke with the CEO of one of those airlines this morning and joins us now with just how big the impact is.
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A
Philip, they're noticing it here in Dallas at the American Airlines operations center. We'll talk about that in a little bit. Don, let me bring you up to speed in terms of the number of cancellations today. We are now up to 1,221 and counting for the day. That is the most since last weekend, actually up to 1229. Now, that includes 4% of the scheduled flights into the top 40 markets. By the way, that 4%, that was the threshold that was mandated today from the DOT. It increases up to 10% a week from today. As I mentioned, we were over at the American Airlines operations center. Look, in terms of rescheduling, people and making some of the cuts that they've had to make today, they're handling it relatively well. It helps that we've had decent weather around the country. They're canceling in Advance More than 200 flights. In many cases just dropping down the frequency. Instead of six flights between a big city and a smaller market, it might be down to five for the day. In terms of whether or not passengers have said that's it, I'm not sure I'm going to book a future flight, especially going into the holiday season. Robert Isom, CEO of American Airlines, says they are noticing what people are saying.
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C
Of course there's an impact.
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Nobody wants to put up with hassle.
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And again, we're doing everything we can to make sure our customers know.
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E
But as we get into the busiest.
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Travel part of the year, this is something that we just can't let happen.
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A
If there is any good news, as you take a look at shares of the airline stocks, the only good news that is out there, Dom, is the fact that we have had decent weather around the country. You know that's going to change at some point. And here's the problem. When it does change, there's no slack in the system. Typically you have a little bit of wiggle room. If you're an airline and a storm system moves through the Southeast or the Northeast or the Chicago Midwest area, you can move things around and rebook passengers. Not always the easiest, but you can do that. That happens in the next couple of weeks or the next month and this shutdown is still going on. You're going to have a lot of people stranded at airports or not going on flights. And there's going to be a lot of travelers who have said that's it, I can't take anymore.
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C
And they're probably going to tell their congressmen and senators the same thing if it gets to that fill. All right, thank you very much for that. We appreciate it. Safe travels to you. Now let's head it over to Bertha Coombs for a CNBC news update. Good afternoon, Bertha. Good afternoon, Dom. A suspicious package delivered to Joint Base Andrews in Maryland yesterday caused at least seven people to become sick and be taken to the hospital. According to cnn, which reports the people got sick after opening a package that contained a suspicious white powder. Individuals hospitalized were treated and released. Investigation into the substance is ongoing. Russian Foreign Minister Sergei Lavrov still has a job that from the Kremlin today as it tries to end speculation that Russia's top diplomat was on the outs with President Vladimir Putin. Reports of a potential shakeup at the Kremlin ramped up after Lavrov men missed a Russian Security Council meeting earlier this week. But the Kremlin insisted today that Lavrov still serves as foreign minister. And the tallest person ever to play college basketball took the court for the first time last night in the University of Florida's win over North Florida. 7 foot 9 inch red shirt freshman Oliver Rio from Canada, who is the world tallest teenager, entered his first game with two minutes to play, but he did not score. It looks like everybody else is small and basketball players are so tall. It is all relative. Of course it is all relative, Bertha. All right. Thank you very much for that. Coming up on the show, there's no place like Home Improvement in this market. Home Depot and Lowe's, both lower this year. But one of these names is trading at nearly an all time high multiple discount to the other one. We're going to tell you which one next. Welcome back. Elon Musk, not the only potential member of the $1 trillion club. This year's holiday shopping season could also cross that threshold, according to a closely watched report. Our Courtney Reagan joins us now with that story. One T for retail, Courtney.
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B
That's right, Dom. So Christmas could be the newest member of the trillion dollar club. According to the National Retail Federation's estimate for holiday sales this year, if retail sales grow, the group's forecast 3 to 7 to 4.2% in November and December holiday will top $1 trillion for the first time ever. Now, the forecast range is slightly more bullish than what we've seen from Deloitte or mastercard's expectations, albeit the last out of the group. But the NRF forecast is the one that's most followed. And while there's worry about the consumer, NRF CEO Matt Shea sat on a call with reporters that the holidays often have a moat around them. And as one CEO told me just this week, somehow Santa Claus always comes, he said. Still, Shea also noted that shoppers are trading down and with a great deal of price sensitivity, but shoppers might be doing more shelf checkout at Christmas. The NRF estimates retailers will hire between 265 and 365,000 seasonal workers, but that's a 15 year low. Walmart and Target are largely leaning on their current employees, offering more hours, as each has done in recent years. Kohl's isn't detailing how many seasonal workers it's hiring, but did say it began hiring in September this year, just like in 2024. Bath and Body Works hiring 30,000 that's slightly less than the 32,000 it hired last holiday. Victoria's Secret tells me it is planning a modest increase in holiday hiring and Amazon is hiring a quarter of a million, which is consistent with what it's done the last several years. Dom.
- [33:56]
C
All right, Courtney Reagan with the state of holiday retail. Thank you for that. Sticking with the retail theme, but turning to home improvement. Shares of deckmaker Trex up 2% today, but boy down 33% this week after lowering revenue and sales guidance following a weaker third quarter result. Lowe's and Home Depot may face similar headwinds this earnings season as well, according to our next guest, but she expects one to fare better than the other. Which one? For more, let's bring in Jihan Ma, the senior analyst over at Bernstein, covers many of these hardline retailers. Jihan, thank you very much. Let's first of all talk about just how much home improvement is going to be impacted by some of the dynamics that we saw out of Trex this week.
- [34:40]
I
Yeah, so overall we're still pretty cautious on the trend in home improvement, at least in the near term. Not only are we seeing still a fairly muted home improvement market based on Home, Home Depot and Lowe's, their peers reporting, their competitors reporting everything, seems to be fairly weak for now. And the two of them are also lapping the hurricane benefit from last year, which was, as you rightfully see on the screen, 55 basis points for Home Depot, 100 basis points of tailwind for those two companies last year that they're lapping this year. So so far we're not seeing a great degree of optimism in the space right now. Now, clearly there could be more macro optimism going into next year as people expect more rate cuts to drive more demand in home improvement. But we'll have to see for now, unfortunately, not too much good news to report.
- [35:31]
C
All right, so with that in mind, if you take a look at the two biggest players out there, we're talking, of course, Home Depot and Lowe's. Which of those two is positioned for the better 6 to 12 months coming up up, the performance so far has been at least more muted for some of these types of plays.
- [35:49]
B
Yeah.
- [35:50]
I
So we prefer Lowe's over Home Depot in the medium term. And part of that is, as you mentioned, upfront Lowe's is trading at an almost all time high valuation discount to Home Depot, a lot of which I think is somewhat backward looking because Lowe's is the more cyclical between the two. And over the past two years or so, when the housing market, the Home Improvement market has been pretty muted. Lowe's some more downside than Home Depot. But even when we do see a rebound, given the cyclicality of Lowe's, we expect them to benefit more on the upside. And meanwhile, Lowe's has more cost savings opportunities. And the valuation gap also provides more buffer from a downside protection perspective. So we like the risk reward better in Lowe's in the near to medium term.
- [36:34]
C
All right, so Lowe's over Home Depot, another key point here before we let you go, Jihan, is this idea that the contractor business has always been a key focus for traders and investors with these prints, just how much is that so called pro customer going to be a factor better or worse for Home Depot or Lowe's?
- [36:51]
I
For now, the important dynamic also to keep in mind is that both are entering into the complex pro market. So basically the bigger ticket pros who are making planned purchases, we're going to see both companies updating their guidance this upcoming quarter to reflect the acquisitions they've recently made. Those are most likely going to be margin dilutive in the near term. But that aside, in terms of the broader pro market, we're expecting some near term weakness or muted mutedness at the very least. Based on their peer and suppliers reporting. The housing market, the new construction market, the roofing market unfortunately are not showing any signs of recovery right now. All hopes on next year.
- [37:33]
C
All right, so key reports to watch next week. Jihan, Matt over at Bernstein, thank you very much. Have a nice weekend. All right, coming up on the show, chips are getting hammered today. The SMH ETF is down more than 2% with universal display and LAM research among the worst performers. Intel is the only component in the green after Elon Musk floated a potential partnership. Floated. We'll bring you the details of that story coming up next. The exchanges back after this. All right, welcome back to the Exchange. Tesla CEO Elon Musk saying he's considering a partnership with intel and previewing plans for a gigantic chip fab that gave Intel a boost after hours. But shares are paring some of those gains amid tech sell off today. Deirdre Bosa has more in today's tech check. And just how much should we put into this report of Intel? Tesla maybe dancing around each other?
- [38:27]
H
Maybe you've got to be skeptical of the report or at least, you know, hold and see what happens. But what it says in the bigger picture of the race, that's where it's like really important. That's what you want to pay attention to. So intel, we know that it's in this place in the air race, it's under the gun to sign up customers ever since, you know, restarting its fabrication business, Tesla would be a big win. It'd be vindication that the big turnaround which was laid out nearly five years ago, that it's starting to show some results. It would be a much needed win because I mean, look at the chart, guys. That's been extremely tumultuous for intel shares ever since Pat Gelsinger returned back in March of 2021 to build out this foundry business. Now, ultimately, investors did not have faith that he could execute. So now it is up to Lip Bhutan. He is the turnaround man and under him, Intel's newest process, known as 14A. This is essentially a moonshot to match or beat TSMC at the leading edge. Now, Tan told me today in a text that he is seeing great customer engagement. Not yet ready to announce. But he does need those customers to prove that he can return intel to those glory days. Now, the stakes, Dom, they could not be higher. Chip manufacturing, this is a critical, critical part of the race at large. This is what I was getting at. So right now most of the capacity sits in Taiwan and South Korea, bringing that capability back to US soil. That's bigger than just Intel's comeback. This is about national leverage and moving away from Taiwan semi, which many see as vulnerable to China and is one of the only games in town. Now, obviously this is an outcome for intel to have a legitimate fabrication business. It's an outcome that Washington and the President himself would love to see. But it's a big, but advanced chip manufacturing that is extremely difficult. Jensen Huang himself said it today in Taiwan when he was asked about Musk's plan to build a giant chip factory. He said that it's not just the plant, it's the engineering, the science. And this one surprised me a little bit. The artistry. There is an art in this because you are working on incredibly delicate small wafers to actually make this possible. Like I said, there's only a few players that can do it at that level.
- [40:27]
C
It has to be a blend of science and art for sure. With that being said, there is no way you can turn a switch and have science and art meld together. So this is going to be a multi year, maybe even multi decade proposition to bring fab to America. Just how much though, do you think that these companies can sell that story to Wall street and Main street for how long? It could take the Runway.
- [40:51]
H
And that's where intel is, right? It decided to make this huge gamble that costs billions and billions of dollars and it's taking a long time. This was five years ago and they still don't have a major customer for that 14A, which is the moonshot. So even just getting one big customer would be a huge moment for intel and say like, guess what, an American company can do this in five years would actually be like pretty relative short amount of time considering what they're able to achieve. You have China on the other side, right. The government is fully backing their chip makers. They're not anywhere close to TSMC and maybe not intel even, but there's a government push and now we have that in the US as well. Right. I mean, the government has a stake now in Intel. So they would very much like this to succeed.
- [41:32]
C
All right. Deirdre Bosa with today's tech check. And welcome back. It's good to have you here. All right. Still ahead on the show, six Flags lowering guidance after reporting a steep third quarter loss, disappointing revenue revenues and a dip in guest spending. But it's banking on its branding partnership with NFL star Travis Kelce after he teamed up with hedge fund Johnna Partners to take a 9% stake. Those shares are down 16% since that announcement, though more of today's biggest movers coming up after this. Welcome back. Earnings continue to dominate the headlines for driving the market action. Expedia right now the best performing stock in the S and p. It's up 17% after the online travel booking company company reported better than expected profits and revenues and gave a current quarter revenue growth forecast that easily topped estimates. Next up, you got a firm up by about roughly 5% or so now, 7% after the Buy Now Pay later lending company reported its own profit and revenue beat gross merchandise volume, which is a measure of transaction frequency. And activity on the platform also came in better than expectations and a firm raised its full year forecast for that key metric. And finally, a check on shares of Peloton. Right now those shares are up about 7.5% after the fitness equipment and online content company reported a surprise profit on better than expected revenues. It also raised its full year forecast for a key measure of operating profitability. Well, coming up on the show, it's been a rough month for rare earth stocks. Both MP Materials and USA Rare Earths down double digits. But one analyst says the US Is on a quote, unshakable path to magnetic and pretty critical mineral independence. He joins us to make the case next. And don't miss Energy Secretary Chris Wright. Coming up on Power Lunch to discuss the new deal for the US to send more LNG to Ukraine via Poland. We are back after this. Welcome back. MP Materials higher today on stronger earnings results. USA Rare Earths also in the green despite a wider than expected loss. But it's been a tough month for the once high flyers as investors try to make sense of shifting trade deals and export controls. MP shares down 23% while USA Rare Earths is down more than 40% in that span. Despite that, our next guest just upped his price target on both companies. Joining me now is George Jenerikis, senior analyst over at Canaccord Genuity covers many of these rare earths and minerals miners. George, thank you for being with us. Let's talk a little bit about just how concerned investors should be about the price volatility that we have seen seen so far in names like MP and USA Rare.
- [44:08]
J
Well, they certainly been volatile and I think there's a lot of excitement in the marketplace around the US Moving to create its own magnetic supply chain. And I think where the market may have misinterpreted recent events is that, you know, there's an obvious rapprochement between the United States and China, better relationship. But that doesn't mean it's not full steam ahead on behalf of the United States and the west and building a material supply chain, a magnetic supply chain that's independent of China. And as we do that, MP is obviously a clear beneficiary of that, as is USA Rare Earths.
- [44:40]
C
All right. During the earnings conference call, James Latinski, the CEO over again at MP Materials made some interesting comments. He didn't want investors to get burned. Those were his words, people to get burned. He also said the vast majority of projects being promoted today simply will not work at virtually any price. It seems very cautionary for a CEO of a minerals miner like them to make a comment like that.
- [45:07]
J
Well, I certainly have a lot of respect for, for the team at MP, including Mr. Latinsky. However, we need a lot of hands on deck, not all hands on deck to make sure that we're independent of China. I'll give you a couple numbers. Right now we estimate that the US consumes around 50,000 tons of rare earth magnets per year. And in our opinion, that number is going to go up, way up over time. If we deploy robots, more drones, iPhones, EVs, etc. And has plans to build 10,000 tons of magnets and there's a 40,000 gap there, companies like USA Rare Earths and others are going to help fill that gap. That's 40,000 today, a lot more tomorrow. So we think that there are multiple winners in the space over time. But Mr. Latinski has a point. Not every project that mines and refines that material will be profitable. We do expect, however, the US Government to support other miners and refiners across the country and across the world to make sure again that we can be independent of Chinese control.
- [46:11]
C
All right, and while I have you here, before we let you go for the weekend, you also cover Tesla. Any thoughts this week about just what happened, the trillion dollar pay package and everything else?
- [46:22]
J
It's good to see Mr. Musk continue with the company. He's obviously a singular CEO, a visionary, and he has broad ambitions for Tesla. Our one concern, look, it's a buy rated stock and we've been believers in the company for a long time. Is just how long the bridge between the Tesla of yesterday, that is EVs and a Tesla of tomorrow, how long that bridge is going to be. We obviously are excited about humanoids. We're excited about robo taxis. But it may take a long time for those two line items to significantly impact the P and L. I mean, you think about it, Tesla's $100 billion revenue company today and those other things may just take some time to materially impact profits at Tesla.
- [47:05]
C
All right, George Janarikis covering Rare Earths and Tesla Canaccore Genuity, thank you very much. Have a nice weekend, sir.
- [47:11]
J
Thank you. You too.
- [47:12]
C
All right, that does it for us. Thanks for watching the Exchange. We got a big interview coming up on Power Lunch with Brian Sullivan and the Energy Secretary. Keep it right here. Power Lunch begins right now.
- [47:21]
B
Now, you've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [47:30]
H
CNBC's Changemakers 2026 list spotlighting women who.
- [47:34]
C
Innovate, lead boldly and are transforming business.
- [47:38]
H
Do you know someone who is rewriting the future? Nominate them now@cnbc.com changemakers.