Tariff Threats Hit Markets 10/10/25

Summary

The Exchange — “Tariff Threats Hit Markets” (October 10, 2025)

Host: Courtney Reagan (in for Kelly Evans)
Podcast: The Exchange (CNBC)
Date: October 10, 2025

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Episode Overview

This episode dives deep into a turbulent day for the financial markets, driven by President Trump’s threat of “massive” new tariffs on China in response to their rare earth export controls. The show covers breaking news from Washington, the potential economic fallout including a government shutdown and layoffs, the Fed’s possible reaction, and knock-on effects in sectors like technology, energy, and fixed income. Expert guests dissect whether the headlines merit panic, how to interpret the market reaction, and what moves investors should consider.

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Key Discussion Points & Insights

1. Breaking News: Tariff Threats & Market Reaction

• Trump’s Announcement

  • President Trump threatened a “massive increase of tariffs on Chinese products” in retaliation for China’s restriction on rare earth exports ([01:53]).
  • Trump also suggested he may cancel his planned summit with Xi Jinping, potentially escalating diplomatic tensions.

• Immediate Market Impact

  • S&P 500 down 2%; tech sector hit even harder ([10:48]).
  • 10-year Treasury yield fell below 4.1% as investors sought safer assets ([01:02], [44:59]).
  • Crude oil prices dropped below $60 a barrel for the first time since May ([38:02]).

• Government Shutdown

  • The shutdown entered its 10th day, with OMB Director Russell Vogt confirming the beginning of layoffs (so-called "reductions in force" [01:53]).

• China’s Response

  • No immediate official response due to the timing (Golden Week; overnight in Beijing). Chinese side is likely to view threat to cancel summit as serious, but vagueness of Trump’s post means Beijing might wait to retaliate ([03:56]).

Notable Quote

“The most important part of that social media post is the threat by the president to cancel his meeting with Xi Jinping ... that is expected to be read on the Chinese side as a dramatic problem.”
— Eamon Javers ([02:50])

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2. The Fed’s Dilemma: Tariffs, Inflation, and Rate Policy

• Tariff Pass-through Debate

  • Some Fed members see tariff price hikes as “one-time” events; others fear they could last and stoke persistent inflation ([05:05]).
  • Fed Governor Michael Barr: "There has been nothing one-time or predictable about these tariff increases." ([06:05])

• Fed’s Next Move

  • Uncertainty whether further tariffs would justify rate cuts or require restraint to avoid validating inflation ([07:13], [12:43]).
  • Market and Fed were caught off guard by both China's rare earth move and Trump's tariffs.

Notable Quotes

"If you ask to look through [tariffs] once, look through it twice, look through it three times—well, all of a sudden maybe it’s a permanent part of the landscape."
— Steve Liesman ([07:56])

"This is not an issue that’s solvable by monetary policy. Period."
— Larry Lindsey ([12:06])

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3. Layoffs and the Shutdown: Labor Market Ramifications

• Effect on Labor Market
  • Standard assumption is a GDP hit now, but made up when workers are paid later. If pay isn't later restored, “you have absolute deadweight loss.” ([08:24])
  • Permanent layoffs change the equation, causing more lasting economic pain.

Notable Quotes

"If you don’t pay people later ... then you have absolute deadweight loss and that’s going to change the economic impact..."
— Steve Liesman ([08:28])

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4. Expert Perspectives: Is This Sell-Off an Overreaction or a Warning Sign?

Larry Lindsey (Former Fed Governor)

• Argues the market should not panic as this is “par for the course” in US-China disputes.
• Recommends the Fed “do nothing”—don’t cut rates just to validate inflation from tariffs ([13:29]), and stresses that this is a supply-side issue.
• On the chair search and remaining contenders: “I have no idea. ... The president is very capable and has a good list to choose from.” ([15:38])

Julian Emanuel (Evercore ISI)

• Views the current selloff as a typical negotiation ploy, not a harbinger of disaster ([16:56]).
• Sees the pullback as a buying opportunity, noting historically robust market rallies after such dips, and remains bullish for 2026.
• Bullish on AI and healthcare, advising tactical buying on weakness in these sectors ([21:24]).

Notable Quote

"Pullbacks are normal parts of bull markets and frankly, even more normal parts of what we see ... in almost every September and October."
— Julian Emanuel ([18:33])

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5. Tech in the Crossfire: Qualcomm, AI, and the Chip Sector

• Qualcomm & Sector Exposure

  • China’s antitrust probe into Qualcomm’s acquisition of AutoTalks underscores the risk for US tech giants, as nearly half of Qualcomm’s sales are China-based ([24:28]).
  • The investigation seen as more of a negotiation tool; the real worry would be any expansion into smartphone restrictions ([27:58]).

• AI Market Outlook

  • Guest analyst (Joshua Bacalter) sees AI as still early-stage and does not believe Nvidia and others are overvalued for their growth rates ([28:55]).
  • Construction: “AI is great, but Quantum is the next leg. Buy Quantum names, don’t just buy AI.” — Steve Grasso ([37:52])

• Market Rotation Advice

  • Take pullbacks as opportunities—rotate into sectors with less China risk (health care) or underappreciated AI/quantum tech plays.

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6. Oil Slump: Macro Implications

• Oil Price Drop

  • Oil fell to $59 per barrel; China’s importance to demand is highlighted ([38:02], [38:43]).
  • Lower oil/gas prices could help consumers but hurt energy stocks ([39:40]).

• Investor Positioning

  • Most traders are negative on oil, creating risk of an upside supply shock if sentiment shifts ([41:09]).

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7. Fixed Income as a Safe Haven (Munis)

• Muni Market Resilience
  • Munis largely immune to the shutdown, thanks to local revenue streams ([46:04]).
  • Highest yields in a decade, few concerns outside of shutdowns directly affecting federal transfers (e.g., SNAP, mass transit) ([47:53]).
  • Local services (water, schools) are unaffected.

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Timestamps for Key Segments

• Tariff Threat & Market Selloff: [01:02] – [04:44]
• Fed Response, Rate Policy, Inflation: [05:05] – [08:24]
• Larry Lindsey Interview: [09:43] – [16:15]
• Julian Emanuel Market Strategy: [16:56] – [22:19]
• Qualcomm/Tech Chokepoint: [24:28] – [29:59]
• Energy & Oil Price Implications: [38:02] – [42:23]
• Muni Bonds & Fixed Income Safety: [46:04] – [48:48]

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Memorable Moments / Notable Quotes

• On the Tariff Threat’s Importance:
  “The most important part of that social media post is the threat by the president to cancel his meeting with Xi Jinping ... a dramatic problem for them.”
  — Eamon Javers ([02:50])

• View on the Fed's Role:
  “This is not an issue that’s solvable by monetary policy. Period.”
  — Larry Lindsey ([12:06])

• On Market Overreaction:
  "Pullbacks are normal parts of bull markets ..."
  — Julian Emanuel ([18:33])

• On AI’s Value:
  “It is still early in AI ... the demand for compute and the gap between supply and demand ... has actually grown over the last 12 months.”
  — Joshua Bacalter ([29:55])

• On Oil Price Drop:
  “For the fine folks there in Dayton, Ohio... 20 states according to Triple A are now below $3 a gallon.”
  — Brian Sullivan ([39:49])

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Actionable Takeaways

• Investors: Consider buying dips in select sectors, especially AI and undervalued health care, as volatility is likely to remain.
• Macro Watchers: Watch further developments in US-China rhetoric and any concrete moves on tariffs.
• Yield Seekers: Muni bonds present attractive yields and relative safety; little immediate risk from the federal shutdown.
• Energy Outlook: Oil’s drop is a double-edged sword—positive for consumer wallets but bearish for energy stocks.

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Episode Tone

The tone was urgent, analytical, and occasionally reassuring. Experts parsed the ambiguity of political messaging, cautioned against overreacting to shocks, but emphasized staying nimble, diversified, and focused on fundamentals amid headline-driven volatility.

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For anyone who missed the episode, this summary covers the market impact, expert insights, and practical advice delivered as events unfolded.

Transcript

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[Courtney Reagan]

You're listening to the Exchange. Here's today's show. Thanks, Scott. Welcome to the Exchange. I'm Courtney Reagan in for Kelly Evans. A very busy Friday, stocks turning decisively lower on a threat by President Trump to impose a, quote, massive tariff hike on China over the rare earth dispute. Meanwhile, disputes here at home continue as well with the government shutdown now in its 10th day and seemingly no end in sight. OMB Director Russell Voigt saying in the last hour that layoffs have begun. All of this putting pressure on yields the 10 year dropping below 4.1%. But the economy and the consumer, they're holding up. The latest University of Michigan data coming in better than expected. But let's start in Washington and Eamon Javers with the US China tensions rising. Emma, what's the latest?

[Eamon Javers]

Hey there, Courtney. Well, here's the meat of that social media post from President Trump just a short time ago in which he responded to the Chinese government's imposition of export controls on rare earth material. He says, one of the policies that we are calculating at this moment is a massive increase of tariffs on Chinese products coming into the United States of America. There are many other countermeasures that are likewise under serious consideration. Nobody in the administration that I've been able to reach out to since this social media post has been able to tell me exactly what those countermeasures are or exactly how much this massive increase in tariffs might be. But obviously this represents a sharp rhetorical spike in tension between the United States and China responding to that move by the Chinese yesterday. We'll see where we go from there. I'm told, Courtney, by the way, that the most important part of that social media post is the threat by the president to cancel his meeting with Xi Jinping in South Korea, which was expected to happen in just a couple of weeks. That is expected to be read on the Chinese side as a dramatic problem for them that they may want to take some action to fix. So we'll see if that social media post has the desired effect. And meanwhile, speaking of social media, we saw Russ Vogt, the OMB director, posting very shortly on social media. The rifts have begun. That's reduction in force. That means layoffs for the federal government. Again, no answers from the White House so far on how many layoffs, which agencies are experiencing those layoffs, whether this is the first of several waves that they have contemplated or whether this is it. So we don't have any additional information other than that very terse post from Russ Vote in terms of the layoffs here and whether they're of a big enough scale to affect the broader economy or whether this is something a little bit more manageable. We'll wait and see what the information is that we get from the White House this afternoon.

[Fidelity Representative]

Courtney.

[Courtney Reagan]

Amy, do we have any response yet from China? I believe it's Golden Week, so I don't know if sort of everything is running at full force right now.

[Eamon Javers]

Yeah, I mean, obviously it's the overnight hours in Beijing right now, so I have not seen anything, Courtney. But you can imagine that the Chinese are, when they did this yesterday, putting in these export controls which will have huge impact on American companies, tech companies, military industrial companies, all the rest. The Chinese government would have known that there would be a US Response to that and would have something planned. Now, because the president's social media post wasn't specific. He didn't say which countermeasures, he didn't say which tariffs, he didn't give a specific rate on tariff increases. And he sort of suggested that he was going to cancel the summit, but didn't actually cancel it because of that sort of vagueness, there might not be much for Beijing to respond to here until the US Takes some concrete action.

[Courtney Reagan]

Fair enough. As always, we're trying to do our best to read between the tea leaves when we don't have the full information. You do it better than most. Eamon Javors, thank you so much for being with us. Well, what impact will the ramp up in tensions have on the Fed's outlook when it comes to inflation. Steve Liesman is following that story for us, along with many other things. Steve, what's your read on this piece?

[Steve Liesman]

Well, it's interesting because there's a debate at the Fed and the debate goes as follow. There's a contingent, I think it's probably the majority who think that the tariffs pass through the system, that they one time rise in the price level so the Fed can cut in the face of that because it can count on tariffs coming back down. There's another contingent that's more worried, more worried about inflation, more worried about the effect of tariffs, more concerned that tariffs will take longer to pass through the system. Yesterday, Michael Barr, the Fed governor, said it could be the end of 2026 before these tariffs pass through. And here's a quote that I want to read to you that he said yesterday there has been nothing one time or predictable about these tariff increases. That's almost a direct rejoinder to his colleagues who say that they're one time and will pass through. And today this fight with China last week, the 100% tariffs that were talked about on other products, well, that's kind of proof of the idea that the Fed needs to be someone, the Fed needs to be more wary here about the effect of these tariffs and when they'll show up in inflation and how the Fed should respond.

[Courtney Reagan]

Wow, Steve, there's obviously a lot to go on there. I mean, if you're a voting member of the Fed, how closely are you also watching the reaction in markets? I understand the economy and markets are different things, but there have been times when we've seen these tariff announcements roil the markets. And then there have been times where the markets have sort of sloughed it off. That idea of the taco trade negotiations as Eamon just went through, kind of vague. We don't have the full details right now, though. Markets looking a little nervous. How closely are voting members of the Fed watching a reaction in the broader markets to this and how do they put that into their consideration set in the lack of other data points in.

[Steve Liesman]

The meantime, by the way, it's a good question, Courtney. And what I would say is what's interesting about the market reaction is I think you can take away from how the market's reacting that it believes that the relationship with China and the tariff levels with China are a different order of magnitude to almost all of the other tariffs that are out there.

[Courtney Reagan]

Sure.

[Steve Liesman]

And it's also worth pointing out this is a reversal of the direction that we thought things were going. As Eamon pointed out, you had the Qi meeting. You have the President and the Treasury Secretary going to Asia in just a few days for an extended trip. And there was a thought out there that maybe things were going to get better. Well, this is a sense that things are not going to get worse. And I know that the treasury was surprised by these tariffs from China and it became a big wrench in their thinking and this is a wrench in the market's thinking. So I think that's part of it is a surprise and it's leaning the other way from how the market was leaning. I think the Fed needs to take a step back and just sort of see what happens if there's another round of large tariffs on China. Well, that could be another round of inflation and another thing for the Fed to look through. And Courtney, you know, if you ask to look through it once, look through it twice, look through it three times, well, all of a sudden maybe it's a permanent part of the landscape.

[Courtney Reagan]

Yeah, absolutely. And then before we let you go, obviously we don't have much, a very, very short social media post, but Russell Vogt saying the reductions in force have begun. How much of an impact could that potentially be to the labor market and the ripple effect throughout the economy that the Fed needs to consider going into their next meeting?

[Steve Liesman]

Another great question, Courtney, because it's very significant. In general, what the forecasters have said about the shutdown is something along the lines of you get a hit to GDP now and and you get it back when everybody is paid again with some permanent loss along the way. If you don't pay people later, if they're not entitled to that payback, well, then you have absolute deadweight loss and that's going to change the economic impact of this shutdown. We've been through this a bunch of times. The workers don't come to work, but they rack up the pay, they get paid later. There's some deadweight loss there, but it's not very large. If you don't pay the workers, that changes the economic consequences here in perhaps a meaningful way.

[Courtney Reagan]

Absolutely. Thank you, Steve, for all your analysis. Really appreciate it. I know you've got a lot of irons in the fire today, as usual. My next guest has had a front row seat to inflation pressures on the Fed. He's a former Fed governor, he's also a former National Economic Council director, and he can now add former Fed chair contender to that growing list of titles as he just withdrew his name from consideration. Let's talk about all of that with Larry Lindsey. Mr. Lindsey, it's so great to have have you here with me. I guess just to start off on that news, can you explain to us why indeed you withdrew your name? And was it indeed a withdrawal on your behalf?

[Larry Lindsey]

Oh, yes. I thought very hard about my life. I like my current life. I'm very involved with my children. I have a granddaughter. I enjoy my job. I started this company when I left government 22 years ago. I love my clients. I think they're wonderful people. And I'm involved in some side businesses. I have a very full and enjoyable life. And, you know, it's kind of a been there, done that for government service. And going into government service is more painful than it used to be. It's a much more hostile environment.

[Courtney Reagan]

That is absolutely true. But you did at least put yourself in the running or kept yourself in the running for some time. Is that because you care very deeply about this country or because you also thought that maybe you would want to do this for a period of time?

[Larry Lindsey]

Well, and perhaps both. But I've known Secretary Bessen for a long time. I think it would have been a real pleasure to have been able to work with him. But in the end, my personal considerations won out.

[Courtney Reagan]

Fair enough. I'd love to get your take on all sorts of things. I'm just going to start right now. I have to start with this latest threat from President Trump about potentially quote, unquote, massive new tariffs on China. The market is having a pretty sharp reaction on this Friday afternoon. The S&P 500 down about 2%. The tech sector off much more than that. What do you make of the president's threat?

[Larry Lindsey]

Well, you know, this is par for the course. China cut access to rare earths, which are essential. The president has to do something in retaliation. He did not specify what exactly he's going to do, but certainly tariffs would be on the list. And you know, I, you know, it's very hard to say, well, just ignore it. But this is a passing thing. In the end, it's all going to be worked out. Or if it isn't, it's not this today that we have to worry about. We've got much bigger things to worry about. So if my recommendation and especially to the Fed would be ignorance, I mean, what, this is not an issue that's solvable by monetary policy, period.

[Courtney Reagan]

This, you mean, you mean the back and forth tensions between the US And China is not solvable by monetary policy?

[Steve Liesman]

Correct.

[Larry Lindsey]

Or the impact of not having rare Earths, for example, is not solvable by monetary policy. It's, it's entirely separate. It's a very unique focus. Supply side issue.

[Courtney Reagan]

Fair enough. I understand monetary policy may not be able to solve it, but if we levy larger tariffs on China on our imports and then that raises prices for consumer, thus raising inflation, then doesn't that become a monetary policy to further solve?

[Larry Lindsey]

I not sure that you want to do that. The reason is whenever the Fed cuts rates, it validates passing on price increases. As long as the Fed signals it does not want to validate them, I think it puts a lid on inflation. I think the worst thing the Fed could do is to signal to the business community, for example, you know, don't worry, you won't lose market share. We're going to signal that with a rate cut. That's not the way to handle this.

[Courtney Reagan]

So what would you do then at the next meeting you would just hold steady? You would not continue those rate cuts? You would just hold that quarter of a point?

[Larry Lindsey]

Well, I don't know how appropriate it is for me to answer that.

[Courtney Reagan]

Why not? You're not, you're not a contender anymore, private citizen.

[Larry Lindsey]

All right, fair, fair enough, fair enough. Courtney? No, I would, I would stay pat. If I look at the labor market, what I see is it's soft, but not much different than one would expect given that we've been in an extended expansion. The wages for lower end workers are doing well. Supervisory workers got a much lower pay increase according to the Atlanta Fed than production and non supervisory workers. If we were having real problems in the labor market, it would be that latter group that is having going to have trouble getting wage increases. It's not so. And again, the Atlanta Fed wage tracker really signals no serious problems in the labor market. There's certainly uncertainty out there, but the uncertainty works both ways and when in doubt, do nothing.

[Courtney Reagan]

What about what Russell Vogt, the OMB director just said about the reductions in force that they have begun? We don't have much more information, but what could the impact of that be on the labor market? That's a permanent loss of a job.

[Larry Lindsey]

Yes. And we also have the folks who took the early buyout back at the beginning. Basically they got a paycheck and their job is now over. And so there are a lot of these people who are, who are out of a job. I'm not sure again that monetary policy is the way to fix that. This is a very specific set of people with very specific set of issues and a broad stroke, non targeted response, macro response I don't think is the right way to go.

[Courtney Reagan]

So speaking of those people with very specific jobs, which of the remaining five contenders do you think is going to be Fed Chair?

[Larry Lindsey]

I have no idea. The president has a list of very fine people to choose among. I've known several of them for literally decades. And it's, you know, whatever the president thinks is best. Look, everybody's got their advantages and everybody's got their disadvantages. And, you know, the skills that the president needs weigh on the one hand and hopefully the drawbacks of someone are something that really doesn't matter and that's the way he's going to go. The president is very capable and has a good list to choose from.

[Courtney Reagan]

Larry Lindsey, we could have you on for the full hour, but alas, we have so much news we have to get to. Thank you so much for joining us. Former Fed Governor Larry Lindsey along with another long list of titles. Well, stocks are moving lower, as we mentioned, amid this China trade tension. But my next guest says this is all just a part of negotiations. He still expects a Trump G meeting to take place and a deal to get done at the end of this month. He also says pullbacks, they're buying opportunities. So for more, let's bring in Julian Emanuel. He's Evercore ISI senior managing director. You sure have a rose colored glasses on today for a market that's selling off pretty sharply. Why do you think all of this is just a negotiation tactic?

[Julian Emanuel]

I to us and it makes sense again is that China had to build its sort of internal, let's say fortitude, knowing that there's a likelihood of this meeting that that is due to take place at the end of the month in Asia. And of course, you know, the President Trump, President Trump, as we've seen time and time again, you know, really hits back in terms, you know, ramping up the rhetoric and potential threats at a time where, look, he's displeased about the fact that China isn't buying soybeans and he's displeased, and rightly so, that access to rare earths is being limited. But in our mind, again, the bigger picture. And he said this time and time again, and if you go back to the first administration has stressed a good relationship with Chairman Xi is that both sides are incentivized to come to some sort of rapprochement. We don't think you're going to have a discrete deal at the end of the month, but we're going to be moving further in the direction that we'd started to move in when Treasury Secretary Bessant met his counterparts earlier this year.

[Courtney Reagan]

I mean, at some point earlier this year, we were looking at potentially 145% tariff on China. All he said in his post is massive. The market seems to believe it's potentially going to be more than what we have now. And we still import an awful lot from China, even if supply chains have gotten more diversified. So you think this is an overreaction? And if so, is that just an opportunity to buy?

[Julian Emanuel]

Well, so again, what needs to be clear here is that first of all, I think given the fact that we have gone literally in a straight line, higher off the April lows of 40% in the S&P 500 and over 100% in the AI Semiconductors Index, we as investors just have to remember that pullbacks are normal parts of bull markets and frankly, even more normal parts of what we see invariably almost every September and October. And you know, from our point of view, you know, with these dates in front of us with regard to potential goings on with China and with the government remaining shut as it is, you know, a little of volatility in our mind is, is probably a normal consequence. And frankly, at 26 times earnings, there's a lot of very perfect news priced in. And this is just a reaction to less than perfect news.

[Courtney Reagan]

So before the last hour or so, when all of these headlines came out that seem to be fair, decidedly negative, at least that's the way the market is reading them, we got notes from you talking about two major milestones in the past 10 days, reinforcing the idea that the S&P 500 target for you is bound for 7750 at least by the end of next year. So now we do have this, this news in the last hour. Does that change anything that you've said about the last 10 days, reinforcing that target for you?

[Julian Emanuel]

Not in the least. And you've seen the positive news on the AI front. That is a story that in our mind has much further to run. And frankly, when you've seen disruptions to that story, deep seek earlier in the year, academic papers about lack of adoption, you just get more and more positive news and more and more news about companies figuring out how to deploy AI to drive revenues as well as the, the obvious cost cuts. And that to us is the bigger story. And the even bigger story there, Courtney, is that similar to other past capital market cycles, the consequential all time largest LBO that we saw announced a week and a half ago is not an endpoint to the capital market cycle. It is the start of the acceleration of the capital market cycle which in our mind is a major tailwind for 2026.

[Courtney Reagan]

Okay, well before you let you go, help us make some money in this market. And again, if we can see past all the red, we got our eye on green. At least down the line you've talked about I where we put our money there. I know you also like health care, but you're saying to do it tactically so give us some actionable advice.

[Julian Emanuel]

So so from our point of view is is we have preferred as part of a diversified portfolio that's tilted towards a low valuation, high earnings, revision type names and lo and behold that is in the most unloved sector of the last year. Half health care trading at an all time discount six turns below the S and P. It usually trades at a premium. From our point of view. If we get the news after the close that Trump is talking about in terms of prescriptions and so on, that sends that sector weaker into Monday, we would be buyers remembering that above all health care is much less sensitive to the goings on in China and to fluctuations in currency and interest rates.

[Courtney Reagan]

Got it. Well, thank you very much Julian Emanuel. May we all be as positive as you are on a day like today. Well, coming up, Nvidia touching another all time high before turning lower. It's close to becoming the first company to ever top $5 trillion in market cap. But can the rally continue or is the headline risk from China just too great? We're going to talk about it coming up next.

[Julian Emanuel]

This is the exchange on CNBC.

[Courtney Reagan]

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[Courtney Reagan]

Chip stocks sinking as President Trump threatens an escalation of US China trade tensions. And this just hours after China announced an antiTrust probe and US chip giant Qualcomm. Mackenzie Segalis has more in today's Tech check. Mac, help me straighten out all these headlines, headlines.

[Mackenzie Segalis]

So Courtney, Qualcomm shares are plunging down 5% as it finds itself in the crossfire of an escalating trade war between the US And China, one that is now dragging America's biggest tech giants into the fight. Beijing's latest blow, its top competition watchdog has opened an antitrust probe into Qualcomm's 2024 acquisition of auto Talks. That's an Israeli firm that builds vehicle to vehicle communication chips. Qualcomm's exposure here is huge. Nearly half its sales come from companies headquartered in China. In its latest filing, the chip maker warned that US China tensions could push Chinese customers to design their own chips or turn to local competitors, something that is already happening under Beijing's Made in China 2025 campaign. Now today's probe, it comes amid a wider crackdown on American tech. Last month, China accused Nvidia of antitrust violations tied to an acquisition that it made five years ago. And Beijing has also reportedly restrict chip purchases from U.S. suppliers. Now with President Trump just this morning threatening countermeasures over Beijing's rare earth export bans, which is vital by the way to defense systems and semiconductors, the entire chip sector is feeling the hit. The VanEck Semiconductor ETF is down nearly 4% this session within video and Qualcomm leading those losses. It underscores how America's tech leaders are increasingly caught in the middle as China flexes its economic muscle both to pressure Washington, but also to project confidence in its domestic chip industry court.

[Courtney Reagan]

Well, that's a lot to cover. Mac, you did a great job. Thank you so much. My next guest does have a buy on Qualcomm and says semis are runaway freight train. But you should just board, get on. He says he just raised his price targets on several names on his coverage list. So let's bring in T.D. cowan, Joshua Bacalter. Joshua, thank you so much for joining us. Mackenzie just gave through, ran through a lot of the headlines for us. And I'd love to get your reaction first on that, on all the actions that the Trump administration is potentially putting on some of these chip makers, most especially Qualcomm. Can you tell us what your read is? I know that's a buy, I believe on your coverage list.

[Fidelity Representative]

Yeah, that's right. And thank you for having me on. So I think like there's, listen, there's no way to spin it. Increased trade tensions between the United States and China is not good for the semiconductor index. But I think there's, you know, two things, one of which for the broader group and one of which for Qualcomm specifically that we need to remember. One, I think many of these investigations and export restrictions are being used as negotiating tactics is part of a larger trade deal that will be announced, you know, hopefully over the next few months. You know, we don't obviously have a way of timing that, but I think there that will be the outcomes have the potential to change a lot based on where we land at the end of the day on the US China trade. The other thing is in regards to Qualcomm, we should be realistic here. This investigation specifically was related into a tuck in acquisition in their auto business that I'm sure is important strategically long term, but there's likely very minimal contribution to their revenue. Today Qualcomm's auto business as a whole is about $4 billion. I would expect this business specifically to be within its smaller but growing ADAS piece. The bigger concern would be if this expands into their smartphone business and there were more restrictions on their sales to the Chinese customers there. But we really think that's unlikely. Qualcomm is heavily embedded in the Qualcomm smartphone market and there aren't obvious and easy replacements for this, the breadth of their products.

[Courtney Reagan]

Got it. Okay. So Qualcomm shares are down about 5% today. I know it takes a lot to go through when you want to go through and change your price targets, but it sounds like you largely think it's a negotiating tactic. This is probably not going to come to bear and if it does, it's a small part of the business. This doesn't change your outlook in general for shares of Qualcomm.

[Steve Liesman]

Correct.

[Fidelity Representative]

Again, Qualcomm is much more tied to the mobile market. Far it's not been really in the crosshairs of the U.S. china trade tensions.

[Courtney Reagan]

I'd love to expand the conversation to AI. It seems like that's all anybody is talking about, right? For a while you could just say on your conference call and your Stock got a bit higher. It seems like we understand it perhaps a little bit more now still valuation still pretty high. Nvidia close to $5 trillion. Is there still room to run in these names? And if you're an investor that isn't in, wants to get in, how careful do you have to be in stock selection or if you're in AI and at least you're headed the right direction, you're going to be okay.

[Steve Liesman]

Yeah.

[Fidelity Representative]

I think the reality is it is still early in AI. There are, there are plenty of external factors that could disrupt things. But you mentioned valuations. If I look at where Nvidia trading for instance, at, you know, sort of high 20s, low 30s multiple for the growth rates that they're putting up and for how important they are to the global compute ecosystem, I actually don't think it's over. It's all that expensive. I think it's fairly valued and on next year's and two years out, earnings and those earnings numbers are going to move meaningfully higher. If we step back and think about the AI space, the number of users is going up, the complexity of the applications and workloads is going up and the number of, of of applications we're using, AI is all is going up. All three at the same time. I actually think, you know, the, the demand for compute and the gap between supply and demand of where we are today has actually grown over the last 12 months. So without these external factors disrupting things which are impossible for people to predict, I do think this ecosystem going to continue to grind higher.

[Courtney Reagan]

Joshua, thank you so much for being here with us. It is a very busy Friday. We're going to have to have you back next time to get more thoughts on more of your coverage. But appreciate your thoughts today.

[Steve Liesman]

Thank you.

[Courtney Reagan]

Well, coming up, we are continuing to tackle this market. Sell off all of the major averages firmly in a red and take a look at WTI crude breaking below $60 a barrel. This is the first time since May it's down more than 4%. Got a deep dive into energy and that complex coming up. And as we head to break, check out protagonist therapeutics. Shares soaring 34% after the Wall Street Journal reported that Johnson and Johnson is in talks to buy the drug maker. The exchange is back right after this. What made you confident that you could do something that hadn't been done before? I have no fear of failure.

[Steve Grasso]

Trailblazing women and changing the game.

[Courtney Reagan]

One of my favorite pieces of advice, think about what your boss's boss needs.

[Mackenzie Segalis]

Leadership can look in many many different forms. It really does come down to just trusting yourself.

[Courtney Reagan]

Life is short and you just gotta think big to accomplish big things.

[Mackenzie Segalis]

Julia Boorstin hosts CNBC Changemakers and Power Players.

[Courtney Reagan]

New episodes every Tuesday, wherever you get your podcasts. Welcome back to the Exchange. All of the major averages firmly in the red after President Trump threatened a massive quote, that's what he said. Massive tariff hike on China, a rare earths dispute. The S&P 500 is on track to snap a 33 day streak without 1% move in either direction. That's its longest stretch since a 71 day streak that ended in January of 2020. And retail getting hit hard on Trump's comments. Shares of Levi Strauss down nearly 12% after fourth quarter guidance disappointed and management warned tariffs will be an approximate 70 basis point headwind to gross margin. Levi shares on pace for their worst day since April 3, right after Trump announced those so called Liberation Day tariffs. Though we should note they manufacture quite a small percentage of their denim in China, still obviously subject to tariffs on other areas where it manufactures, particularly in Southeast Asia. Now over to Kate Rogers for a CNBC news update.

[Mackenzie Segalis]

Courtney Means, Democratic Governor Janet Mills will run for the Senate seat currently held by Republican Susan Collins next year. That's according to multiple outlets. Mills drew national attention earlier this year when she argued with the president at an event where he pressured the state to comply with a transgender ban in women's sports. MIT rejected a proposal from the White House that asked universities to accept a list of demands in exchange for preferential access to federal funding. In a letter today, the school's president said the offer is is, quote, fundamentally inconsistent with MIT's core beliefs. And at the White House today, first lady Melania Trump said she's working directly with Russian leader Vladimir Putin to help reunite Ukrainian children believed to be abducted by Russia during the war. In June, Ukrainian leader Volodymyr Zelensky estimated more than 200,000 children have been deported to Russian territory since the war began. Court back over to you.

[Courtney Reagan]

You thank you very much Kate. Appreciate it. Well, coming up, more on this market sell off consumer discretionary tech energy among the hardest hit sectors today. So we're going to look at whether it's a good time to buy the dip or whether more pain could be ahead. And be sure to join CNBC next week for the Invest in America Forum in Washington, D.C. on October 15, CNBC will be hosting a first of its kind gathering, convening investors, policymakers and industry leaders, leaders for a series of conversations on American industrial policy. You can scan the QR code right here on your screen or if you're listening on the radio, visit cnbc events.com/invest to learn more and attend. We're back right after this. Welcome back to the Exchange. Stocks continuing to sell off as President Trump threatens, quote, massive tariffs on China. The Dow off 644 points at the low. So should you be buying this dip? Let's ask Steve Grasso. He's CEO of Grasso Global and a CBC contributor. Thanks, Steve, so much for being here with us today. I mean, what do you think? This is quite a day. And there have been times where the markets have shrugged off some of these news about different tariffs or even other headlines about China. But today maybe taking it a little bit more seriously because of the rare earth discussion kind of ratcheted up, up another level. What do you make?

[Steve Grasso]

So, so Corey, I think all those points that you made are accurate. The problem. Well, I should say, I should state that the, the, if you think about the best days in the market, they often come within a week of the worst days. And I would not say that this is a worst day for the market. Right. We saw the, the tariff sell off. We recovered from that. If you look at what really sends this market spiraling, it's China and it's, and it's the Fed. For me, I've been buying today, I buy on weakness. And if you look at how many times you bought on weakness, you were rewarded. What should you buy? What sold off the most?

[Courtney Reagan]

Okay, so do you have any names in specific that you'd love to point us to take some action on your advice?

[Steve Grasso]

Yeah, so I have one that's sort of a hidden play. It's CCCX. It's actually a SPAC. No one's talked about SPACs in how many years court. Right.

[Courtney Reagan]

Yeah, it was all the rage. But what's a SPAC nowadays? Right, exactly.

[Steve Grasso]

So it's merging with inflection. It's a quantum name jumped. If you look at the chart and it's jumped. So please be careful when you, when you buy this stock. This is not for the, the faint of heart. I've been playing it, I'm long it, I've been trading it. Very volatile name. But it's been going up. So the volatility has worked for it. And I think it goes up dramatically higher from here. Having said that, drone companies, quantum companies, tech companies, buy them all because the mark, it's a Friday. What does the market usually do on a Friday? It gives you a little Bit of a sell off because no one wants to go home long. Names over the weekend. I would suggest hold your nose, go home long.

[Courtney Reagan]

Okay. So obviously you're talking about things that have seen a lot of Runway recently. You talked about drones, but what about tech? What about AI? Those are some of the biggest sellers here today. Some of the weakest names, both the NASDAQ overall, but also that tech sector specifically. We have some guests that are saying don't be scared, just like you're saying AI is still the trade. Nothing fundamentally has changed here. Even if there's an issue with rare earths, even if we get these tariffs on China, we can look through it. It hasn't fundamentally changed the story. What do you make of that? That the tech group, the AI names in video, for example, as it gets closer to 5 trillion.

[Steve Grasso]

Yeah. So I was in video bull when a video was trading in the teens. I think in video and I'm not breaking ground when I say this. Many people think it's overextended. I think you should really segue out and expand out to a lot of the other names in the AI space. A lot of its competitors, a lot of the smaller names that haven't moved as much. I think Nvidia really is sort of, I don't want to say it's at the end of its run because they're always able to pull something out of a hat with that name. But I would more, more apt be in other names, the smaller names or even an AMD that's trying to play catch up with it with Nvidia or the Mag seven names minus, minus Nvidia. I think all of them you could, because they're all trying to do what Nvidia is doing. They're all trying to make their own chips. So I think AI is great. But Court, it's Quantum is the next leg by Quantum names don't buy AI.

[Courtney Reagan]

Names, Quantum compute AI. All hot words. I like your take. Steve. Thank you so much for joining us. Appreciate it as always.

[Steve Grasso]

Thanks, Court.

[Courtney Reagan]

Well, coming up, Trump's China tariff threat pressuring energy to oil back below $60 a barrel for the first time since May. That's down about 4%. So how much further could it fall? That's next the Exchange right back. Welcome back to the Exchange. Crude breaking below $60 a barrel after President Trump threatened a quote, massive tariff hike on China. Brian Sullivan joins me here on Set to discuss. We used to look at oil prices, of course, as an economic indicator. So if it falls, does this mean the global Economy is falling. China's going to use less oil because of these tariffs. What does it mean?

[Larry Lindsey]

Mean?

[Steve Grasso]

Means that you nailed it. Former 9X reporter, by the way. So you get it.

[Courtney Reagan]

Fill in.

[Steve Grasso]

It doesn't matter. You understand the markets. China's critically important to the global oil market. Not as important as the United States. We're about one fifth of global oil usage, give or take. China matters. If you are an oil bull, if you believe that prices were going to go up. Almost your entire thesis has been on a China economic recovery. Right? We've got contested there. She's talking about how Macao is rocking again. China uses a lot of oil. Coming out of COVID we kind of expected this big turn up, kind of like we had here. Has not happened. It's higher than it was. China going heavily electrified cars, a lot of people there fly on trains, maglevs, whatever. Their oil usage has not climbed up as much as thought. And if we get some kind of tit for tat new economic tariff war like the President may alluding to, then maybe China's economy gets hit and thus we don't see the recovery. Thus oil prices at $59 a barrel.

[Courtney Reagan]

But could there be positives? Could gas prices fall? Could that help particularly the lower income consumer that's really struggling right now as this inequality seems to diverge further?

[Steve Grasso]

Absolutely. Listen, this is a market story in one way and an economic story in another way for the fine folks there in Dayton, Ohio, whoop, whoop, oh, there we go. That are going to fill up, up and it's 278, 280 a gallon.

[Courtney Reagan]

It feels good, doesn't it?

[Steve Grasso]

Listen, 20 states according to Triple A are now below $3 a gallon on average. It's regular, unleaded, not the fancy stuff. But President Trump promised lower oil prices whether or not you want to give him credit. Either way, prices are down. But here's the negative. We are cnbc. We talk about stocks. As oil prices come down, rig counts come down and oil stocks have come down today you got all the big boys, they're all lower. You've got the services companies, they're all lower. So yes, the price of a gallon of gasoline, which is affects almost everybody in America down, but so too are the oil and gas stocks.

[Courtney Reagan]

And so when you see these oil and gas stocks, I know they're a very small percentage say of the s and P500, four and a half percent. What do you the folks that the analysts that are fundamentally looking at these stocks and they say, hey, oil Prices fall. So that means what? In actuality for these oil stocks, it.

[Steve Grasso]

Means lower earnings, it means lower profitability. Unless they.

[Courtney Reagan]

If oil prices stay low.

[Steve Grasso]

Yeah. Or go lower.

[Courtney Reagan]

Okay, right.

[Steve Grasso]

And I want to be clear. If you look at the options market, if you look at the positioning of hedge funds and oil traders, almost everybody and their mothers and their mother's mother's mother is negative. Jeff Curry was on yesterday. He's one of the few bulls out there. OPEC has added about 2.74 million barrels a day on their quotas, not actual output on their quotas since about late April, early May. Everybody is positioned negative, which actually would imply that there is a risk to a supply shock on the upside. But not if we have some kind of economic tariff war with China like we talked about at the top. China's a massive part. Millions of barrels of oil a day. If they do not grow or stay where they are or slow down, you're going to see a big hit again. It's very good news at the gas pump. It's not good news for the Chevrons, the Exxons, the conocophillips, whatever of the world Refiners, by the way, have been very, very hot this year. They're a whole separate animal because their input costs may actually go down. Watch the refiners. And also in energy, it's a little outside the thing. Uranium stocks, nuclear soaring. Today, all the uranium complex is up because we're going to need more power. It's unrelated to the China story.

[Courtney Reagan]

This feels like a lot of good stuff to talk about on Power Lunch.

[Steve Grasso]

There is a show coming in about nine and a half minutes called Power Lunch. I'll be there. I hope everybody will join us. We've got Tom Lee, not the drummer. We've got Scott Sosnick on set. We've got Jeff Kilberg on a great call. Got some more on energy. It's a tear up the scripts kind of day.

[Courtney Reagan]

You got, you got a lot of stuff to go on. And by the way, my mother's mother, mother, she's been in heaven for a while. I don't think she's against or for oil in any way.

[Steve Grasso]

Fair enough. Well, that was coal back then. Whale oil, something like that.

[Courtney Reagan]

Her husband did work in a coal mine. My great great grandfather. Look at that.

[Steve Grasso]

Anyway, like, oh, is the mentalist.

[Courtney Reagan]

It's not just the energy complex. That's lower yields also under pressure. Let's get on out to Rick Santelli for the story on that one. You can tell like nobody else, Rick what's going on here?

[Bluehost/Lifelock Advertiser]

Yeah, Courtney, and it's not only Treasuries, it's the dollar. Everything followed equities right around 11 when all the Trump China headlines really hit the wires. Let's look at the Nasdaq on top of the 10 year. That pretty much says it all. And if you look at exactly where we sit now, this is very crucial. So right now if you look at a 10 year, it's down about 9 basis points on the day. It's down about 7 basis points on the week it settled, settled last Friday at 412. But the key really is that April 4th we settled at the lowest yield close of the year right around 4%. We could challenge that today. And even though it happened from these exogenous shocks that really didn't directly have anything to do with Treasuries or the dollar. Of course more about what's going on with tariffs, the technical implications of a close under 4% might not be as easy to decipher as they would normally be if this happened for example, on a data release or a CPI report. And the dollar index, especially if you look at it is still up on the week. It settled last week at 97.72. And even after getting hit a bit here today, it's still hovering at 99, well up on the week, unlike treasury yields. And if we want to consider the fact that we are supposedly at some point right now, it sounds like about the the third week in October we're going to actually get the release of CPI not on its actual date which should be Wednesday. We could see that the government understands, especially Social Security recipients that they need to know what the inflation rates are COLA so we could see what we need to pay people next year. So I don't see that the government is going to reopen anytime soon as all of us have been witnessing on CNBC the last week and a half. But ultimately this close in Treasuries could be rather significant. Courtney, back to you.

[Courtney Reagan]

Thank you very much, Rick. Yeah, that's right. With that 10 year around 4%. We got to keep watching it. Well, as we said, Treasuries lower today, but one area of fixed income could offer investors safety among the ongoing uncertainty. That's next Exchange will be right back. Welcome back to the Exchange. Well, aside from today's tariff induced sell off, stocks have been mostly unfazed by the ongoing government shutdown. The Dow S and P and Nasdaq off just about a percent each so far this month with most of that downturn coming from today's losses. But it's not just equities proving their resilience in the ongoing battle in D.C. my next guest points out muni bond yields are at some of the highest levels he's seen over the past decade. So remuneries a good safety trade amid all the uncertainty. Let's ask Dan Close. He's head of municipals at Nuveen. It's great to have you here, fellow Ohioan. I just learned, you know, some of my cousins, the Kohler's. This is great stuff in Columbus, but I would love to get your take on sort of the impact of the muni market amid the shutdown. We don't talk about munis as much as you do equity. So what's going on there right now overall?

[Steve Grasso]

Sure.

[Dan Close]

And thank you so much for having me on the show.

[Larry Lindsey]

Courtney.

[Dan Close]

Great to be back. You know, for munis, we're not really seeing much of an impact at all. Munis have historically been very resilient to government shutdowns, and that's because the taxes backing them are local. They don't have anything to do with all the drama going on in Washington. Washington. So your local water and sewer credit, your local school district credit just isn't impacted by the government shutdown. And we've just seen spreads on munis really not react at all. Even this shutdown, the last shutdown that was more than 35 days. And municipal governments are still doing what they do. You could go to the DMV at your state level, you could go to the courthouse to file a marriage certificate. So really unchanged so far. And I think it's a great safety haven right now amidst all the turmoil.

[Courtney Reagan]

We're seeing good reminder that things are not off the rails everywhere. State local governments still seem to be doing their thing, as you suggest. Are there areas, though, where there are concerns? Because not all munis are the same.

[Larry Lindsey]

Right.

[Dan Close]

You know, first, as far as what we're not concerned with, your local GEOs, your state GOS, your electric utilities, your water and sewer, your ports of entry, all of these our analysts have gone through, looked at the last four or five shutdowns, and we don't have concerns with it again because. Because all of those revenues are local. And we just make the point as well, too. The biggest transfer payments that the federal government makes to state and local governments is Medicaid. And Medicaid is ongoing appropriations. It's not impacted by this. I think the only things we're really concerned with, it's three things. It's One, states will eventually have to step up and make snap payments, for instance, or funding mass transit. They'll eventually get repaid for that, but states will have to step up for that. If the shutdown does go into, you know, two, three weeks, and that's what.

[Courtney Reagan]

I was wondering, does the length of the shutdown change any of this?

[Dan Close]

Yeah, certainly. I mean states will be there for a safety net. They'll have to come in. We're not terribly concerned. States have 13% level of rainy day funds, which is far more than the 8% or so they had pre Covid. You know, we're also looking at municipalities that have a close nexus to federal workers. So deep dc, Northern Virginia, Maryland, all of those have a lot of federal workers around there. But we haven't seen any deterioration in credit. We haven't seen any widening in spreads. Parenthetically walking in here watching corporate spreads blow out 5, 10 basis points on the news, we just don't have that today. And municipals, we're going to be tighter by three to five basis points just because we're such a sheltered asset class from a lot of the headlines, headlines we're seeing right now in Washington.

[Courtney Reagan]

Dan, we really appreciate you being here with us. Sort of ending the show on a note that makes me want to take a deep breath. It's good to end with you. Thank you so much.

[Dan Close]

Thank you.

[Courtney Reagan]

Appreciate it very much on this very busy Friday. That's going to be it for us as the major averages continue to trade. Lower tech really weighing down the markets. But as you can see across the board we're lower that 10 year treasury watch that yield 4.05%. Thank you for watching the Exchange today. Power Lunch with Brian Sullivan. Start right now. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.

[Steve Grasso]

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