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Tariff Turmoil, Software Sell-Off, and the Old Economy's Revenge 2/23/26
00:43:07
The Supreme Court struck down Trump's tariffs, but the president is warning countries to not back off from trade deals. Further AI disruption could lead to another round of software destruction. Plus, Carlyle's Jeff Currie breaks down the other capex cycle quietly brewing.
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Dan Clifton
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- [01:00]
Kelly Evans
Here's today's show. Welcome to the Exchange. Great to be with you today. Barely made it here. I'm Kelly Evans and we've got tariff confusion, software destruction again, and the revenge of the old economy with the man who coined that phrase more than two decades ago. Let's start with stocks under pressure. The Dow is down significantly, a drop of about 750 points, 1 1/2% today, about 1% drops for the S and P and Nasdaq and a 2% drop for the Brussels. This all comes of course after the President said on social media this weekend he will now be raising global tariff rates to 15% from 10%. That was his response to the Supreme Court on Friday morning. And software continues to get crushed. The sector etf, the igv, along with components like Salesforce, Adobe, Docusign, Intuit, these are all at one year lows or more and seeing additional drops of 5% or more today. Better story over in the commodities world though with gold at a three week high, silver popping around 5%. Could be a flight to safety trade on the back of tariff concerns. The 10 year yield showing that as well, dropping to around 402 today. And tariffs are where we as confusion reigns in the business world. And Europe is now postponing a vote on its trade deal with the US after the President's latest moves. Eamon Javers is in Washington with the latest. Hi Eamon.
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Eamon Javers
Hey there Kelly. President Trump took to social media this morning to warn nations not to back off of the trade deals that they agreed to last year, even though the legal authority for US Tariffs has now been stripped away by that Supreme Court decision. On Friday, the president wrote, any country that wants to play games with the ridiculous Supreme Court decision is especially those that have ripped off the USA for years and even decades, will be met with a much higher tariff and worse than that which they just recently agreed to. Buyer beware. Now, that post coming after Europe warned over the weekend that trade deals with the US could now be at risk. Bernd Lang, the chair of the European Parliament's Committee on International Trade, called it pure tariff chaos from the US Administration. And he wrote on social media, no one can make sense of it anymore. Only open questions and growing uncertainty for the EU and other U.S. trading partners. Now, the EU Parliament postponed a vote this week on the EU trade deal. The EU, remember, they'd been debating proposals that would codify the trade agreement with the US into law with a vote that was scheduled for Tuesday that's now going to be put off. Now, it's not clear when, if ever, that agreement will be finalized. Now, a White House official told CNBC on Friday that the U.S. expects all countries to uphold their end of the agreements with the United States despite all of this tariff uncertainty. And I can tell you, Kelly, that I was just texting over the past hour or so with a White House official who said when I asked for a response to the eu, this official said that the president's social media post earlier today is his response to the eu, that is all countries better live up to their side of the deal.
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Kelly Evans
Are you guys buried down there in Washington under the snow as well?
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Eamon Javers
Not too bad. Not as bad as you guys were and not as bad as the snow Crete we had last month, which, by the way, still hasn't entirely melted yet. We almost never get snow that lasts more than a couple of days. And we've had snow on the ground for a month here.
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Kelly Evans
I agreed. And then it gets that, you know, gross look. Anyway, Eamon, thank you for now. We appreciate it. We'll come back as we get more news on the tariff front. Here to walk us through the economic and markets fallout that we should expect from these latest moves is Dan Clifton. He's head of policy research at Strategics, which is a Baird company. Dan, it's great to see you. You know, Mike Furlough always makes me laugh over at JP Morgan because he's probably right. He usually is. But his analysis was that after everything is said and done, the effective tariff rate will go from like 8 to 9%, which is to suggest that this might be a tempest in a teapot. What would you tell what is your message for investors today and what do you think the economic fallout from all of this is going to be?
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Dan Clifton
Yeah, well, good afternoon. And you know, we got a lot going on here. We got terrorists, we got the State of the Union, we got this article coming, a lot of different Iran attack, you know, a lot of different things going on. But like there's a political argument being made which we just heard in Eamon's report. And then there's the actual facts that are around this. The market did a very good job of pricing in that the tariffs were going to go away and that there would be a replacement plan in place. The market assumed it would be a 15% rate. The president came out on Friday, he said a 10% rate. So that means that you had to reprice almost double the amount of tariff relief that you were going to get from about 70 billion to 100, 140 billion. And then obviously we had that retractment on Saturday back to a 15% rate. And so a lot of that is just clawing back some of the gains that we saw from Friday. Overall, who are the big winners here on a 15% rate? Well, the Asian supply countries. And the biggest winners continue to be Canada and Mexico, which are going to get very significant relief from this, about $30 billion overall. And then if you take that analysis just one step further, Kelly, in terms of thinking about where these kind of benefits are, most of these countries are going to get a better deal or the same deal under the new rules than they did under ipa. So a lot of the complaining from up in other countries I think is hand wringing, trying to get a better deal. And Europe had already been uncomfortable with this deal before this decision. So it feels sometimes like shoot anything that flies, claim anything that falls.
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Kelly Evans
Right?
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Dan Clifton
Your point? It will start to work itself out. The tariff effective rate is going lower here, at least for the next six months, and it's probably peak tariff in 2025. We're not talking about higher tariffs. So we got to resolve the uncertainty. There's some winners and losers, but tariff rate is going lower, not higher. And that's not a bad thing.
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Kelly Evans
One quick question on this then. I do want to you mentioned some of the other themes that might be weighing on the market today. I'm actually curious for your thoughts on that. But the new authority the president is using or the one he's allowed to use is his temporary authority, is that right? Is it section 122? It gives him 150 days or something like that. So, so the Supreme Court ruling came down on Friday. He said then we're going to put in a 10% global tariff under that authority. Then over the weekend he said no, we're going to do 15% which correct me if I'm wrong, is as high as it can go. So what happens after that temporary period is up? Can this, can we keep rolling it over like a Myga?
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Dan Clifton
Nope, nope, we can't. But this was a two part plan, Kelly. Section 122, which the President vote is just a temporary stopgap. It'll last 150 days. And they are just trying to buy time until they can do what's called Section 301 investigations. And once they get that Section 301 power, they're almost going to have an identical power that they had during ipa. So what the Supreme Court said, and this is critical, they didn't say you can't raise tariffs. They were saying you can't collect revenue from the International Emergency Economic Powers Act. But that means that the President has legal authority through these other avenues. Section 301 is the closest to that IPA that I have a tariff rate. But he needs time to open up those investigations to get those power. So section 1 Tony 2 is a temporary power to be able to get there at the end of 150 days, Congress will have to vote on this. And my guess is that Congress is not going to vote for this. Congress has actually been going in the other way.
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Kelly Evans
Exactly.
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Dan Clifton
Probably going to make the case to the State of the Union that Congress should vote and codify these tariffs and make it easier. But my sense is that we're moving to a Section 301 authority after this expires and that Congress will not vote
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Kelly Evans
to ratify the was the section 301 the country by country on national security or was this the sector by sector?
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Dan Clifton
So this is country by country sector by sector's national security. 232 okay, 301 is what the President used during the China tariffs in the first term. Completely legal, has used it before. Joe Biden actually used some of this in early 2024. So this is a very legally upheld type of tariff power that the President has and one that takes some time and you got to go through hearings, you got to have a board that decides on it. But eventually they're going to get that power in most of those countries.
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Kelly Evans
So what? So if he then were to go the slower route of saying I'm going to pursue section 301 with basically, you know, all possible parties. Would anything stand in his way of implementing that before the end of his term?
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Dan Clifton
No. I mean he can have that power. He can have that power within five or six months or talking about grouping countries together to be able to do it. So they're trying to find ways to be able to do it on a faster basis so that it times up with this section 122. As soon as section 122 rolls over they can then go into this 301 power and create a seamless. Then there's no impact on the treasury from a revenue perspective as well. That's what they're trying to do and then that will then set it through. Now to your point, there is an expiration date on those section 301 after four years. They have to then be reviewed and renewed. That's much easier to do than on that section 122 balance payment which expires and requires a congressional vote.
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Kelly Evans
Few know this material as well as you do, Dan. Really appreciate you making the time. I'm curious if you're any thoughts on the apocalypse. We're going to talk about that next.
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Dan Clifton
You know I was. I think that there's just a lot of factors where people are just trying to take risk after a big risk off after a big run up in the equity market overall. And people it's okay to envision what those effects are going to be but my sense is the market's going to work this out. I generally am much more of an optimist than a pessimist in thinking through some of the reports that we see out there. But it's the confluence of all these factors and more uncertainty after a very good run up and a lot of fiscal stimulus. And that's the key point. We have this cushion. We just started the tax refund system. We have $200 billion of CapEx coming in. The Fed balance sheet's expanding so there is some sort of cushion here in the economy to be able to get through this period of uncertainty.
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Kelly Evans
All right, Dan, thanks so much. Really appreciate it today.
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Brent Thiel
Thank you.
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Kelly Evans
Clifton With Strategic as mentioned, the software names like Salesforce and Snowflake are down big again today and they have earnings looming as well this time. A new viral essay, not the last one. This is a new a new one. Setting off more disruption fears. Deirdre Bosa brings us more in today's Tech check. Deirdre, welcome. Hi. It's the discourse, right? It feels like we're getting these pieces at a very quick pace, but that one over the weekend, it comes from a popular investment newsletter and it's titled the 2028 Global Intelligence Crisis. This is a thought experiment that plays out what happens if I work so well that it hollows out the white collar economy. And it's going viral because it puts a name on what the software sell off is already pricing in. Now, this week may be the biggest test yet. You've got Salesforce, Snowflake, Workday, big names in the SaaS sell off. They're going to be reporting and they're going to have to answer how their models survive when I can automate their workflows directly. Now, it may not matter, but ServiceNow and Palantir, they reported quarters over the last few weeks that did show real traction and resilience. But investors, they just didn't buy it. They have continued to sell them off along with the rest of the space. Now, Kelly, there's a chart circulating from Goldman Sachs that might explain why investors are nervous even when the numbers look fine. It shows newspaper stocks from 2002 to 2009. As they fell, earnings held up and the business looked okay until all of a sudden it wasn't. The markets saw Internet disruption coming and priced it in even years before the actual PNL confirmed it. So the worry here is that software is in the same pattern right now. Earnings are still holding, stocks are in free fall. The market may be pricing in a world where agents do the work that software was built to help humans do. And you see that again today with the cybersecurity stocks, Kelly, even George Kurtz is out there on saying, you know, that Clyde didn't give him a crowdstrike replica and yet the stock is down another 10% last time I looked. Who made that newspaper analogy? Deirdre? I missed. Oh, that was a chart I got from Goldman Sachs. I see. It's, it's clever. But now, now you've got me going back and like, look at the shares of News A, you know, New York Times, if you sell new rookies. Yeah, Sarah asked me about the New York Times. I think that is such a great one because they adapted. Right. Is the New York Times World a newspaper company? No, it's a gaming company. It's all these other things they found, all of these other revenue streams. And the key is that they became part of the disruption, not just the disrupted. And that's what a lot of the folks I talk to here in Tech in San Francisco says that if you don't embrace these tools, you're going to get left behind. And that's something, you know, we talked to Figma about last week and there they did a partnership with Quadco. The very thing that is disrupting, you know, billions and billions of dollars in the I'm still, I'm going with this is going to be the theme of that going with the physical stuff. They were going to go with newspapers back in the driveway, including that one, some of the other. Deirdre, thanks for now. Appreciate it. Deirdre Bosa, our next guest just downgraded a handful of these software stocks this morning, warning that further AI disruption could still lead to more losses. Let's bring in Brent Thale, tech senior sector research analyst at Jefferies. Brent, great to have you. And this is a great note. Look, a lot of these price target cuts are big workday from 325 to 150, DocuSign 105 to 45 salesforce to 250. Obviously that's been a tough one, but that remains one you're still constructive on. So to you, what's the framework now that you're using to kind of try to find the valuation landing point for a lot of these names?
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Brent Thiel
The framework right now is to be underweight software. That's the framework we started the year. We still have an underweight. We have an overweight in infrastructure. So overweight. All the agents are going to need somewhere to live and they'll live on Microsoft, Amazon, Google. So the hyperscalers are going to benefit regardless of where the AI agents. Doesn't matter if it's OpenAI anthropic take over the world, which the market's pricing in. The two companies are going to reset the entire enterprise, which I think is false, but they'll have a big impact. But it's false that there's going to only be two. But if that thesis played out, you'd be safer on infrastructure. On the application side, we have an underweight and we did lower price targets across multiple names that we cover and brought a few names down. Now, we admit we're late, but we're also I don't think anyone felt that we'd see the magnitude of this downdraft. So all we're trying to do is now hit the reset, say where we're at now, what are the most attractive names from here? A company like procore and Construction Software Intuit we think is in an incredible spot. It's moved down, has been greatly exaggerated by the death of tax and small business. And there's a handful of other names. But I think right now back to the earlier segment you had. This is about terminal risk. This has nothing to do with this week's earnings or next week or the week after. This is two to three years out. Remember two years ago most of our clients said, Brent, I can't own Adobe because I don't know what the terminal value is in a world where I can go onto my phone and create an image in two seconds. It took me two days to create with Adobe. That was two years ago and it had nothing to do with the quarter. The numbers have been fine, but the actual numbers of the stock has continued to drift lower on those terminal fears. This is as we call it, there's 10 walls of worry, there's not one wall of worry. And it's going to take quarters if not years to get through this. And there's not one magical wand you can put on this right now to get through it.
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Kelly Evans
I think people value a position like yours. You can at least go look at these with some level of detail and say, okay, here's the ones like you said, Intuit, you mentioned Procore, Atlassian Salesforce, those four to you are coming up as opportunities to buy here. Whereas some of the others we mentioned workday doc, sign Monday.com, you've, you're downgrading those. Not so sure. I mean I think that's, that's where the value is is to figure out where is there possibly an entry point, you know, to set you up for a great investment and where do you still steer clear, you know, especially look at what's going to happen tomorrow morning. I mean talk about anxiety for the whole sector, right? We already know what happened when Open, I was introducing and Cloud was introducing all those plug ins. Now tomorrow morning Anthropic is hosting a big reveal, 9:30am Eastern time called the Briefing Colon Enterprise Agents to send a chill down everyone's spine.
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Brent Thiel
Look, both OpenAI and Anthropic have big valuations to grow into. So they have to paint a picture that there is a whole new world they're going to build. I think that the view of them going on and replacing everyone is a terrible strategy. I think the right strategy and I think what they've been telling people privately is they don't want to go wipe out Planet Software, they want to partner with software and they want to add new areas to grow. So why would you want to go crush the entire software world? That doesn't make any sense. Because they couldn't do it. It's too hard to do it. And when you look at security, compliance, governance, workflow, all this stuff, there's not one magic button in AI. And I think everyone is over turtleizing how easy this is to replicate. I don't think this is as easy as saying we're going to hit one button. So we need Anthropic and OBI to come public to state their opinion and state where they're going to go. And we think that there's a partnership of frenemy relationships. Right. There's an area where they're going to be friends, there's an area that's going to be enemies. But I don't think they want to destroy everyone because all these systems have the data and they have to partner to figure out where the data is at. They can't just tap in and it's over. And I think the theory that, that there's just an easy button is just everyone's over trivialized how hard this is.
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Kelly Evans
I agree.
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Brent Thiel
It's not going to.
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Kelly Evans
And there's components of it that have nothing to do with just creating a piece of software. There's the relationships, there's the training, there's the, you know, all the things that go into having a software inside a business that, where this stuff is vitally, vitally important. And it's often more of those things than the software itself. No. So I think you're. It's just ironic to think that they could come in and crash the value of a lot of these firms and then end up partnering with them. They should maybe take an equity. It's like the US Government after the financial crisis. They take an equity stake and can, can benefit from, from their, from their durability, if in fact they have that.
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Brent Thiel
Yeah. Again, I think when you think about what they need, they don't have the workflows and the data. And many of these companies have it. We were at IBM last week and the CFO is talking about a mainframe cycle that's going to grow 5%. And everyone said 10, 20 years ago, the mainframe's dead. It's still kicking for 30, 40 years, it's still producing 5% growth. So remember six years ago, everyone thought Oracle database was dead. Oracle stock has been phenomenal over that period. We go through these scares when Steve Jobs was live bashing Adobe Flash, Adobe's dead. And Adobe's like, well, we're going to HTML from Flash and the stock went from 30 to 600. So I think everyone's got to go back and look at past tech trends too, which we've seen all of these and the exaggeration the market's implying right now, there's two companies that are going to rule the entire enterprise software planet. And that's a really bad thing for any cio. Any CIO you have in this program be like, that's a really terrible thing for our enterprise.
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Kelly Evans
That's true.
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Brent Thiel
So I don't think that that's going to happen. I think the market's got it mispriced. Yeah, some of these companies are going to go out of business. But again, the safer stories are these infrastructure companies. If OpenAI anthropic survive and do what everyone fears, you're still going to need Microsoft, Amazon, Google to run these businesses
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Kelly Evans
are going to want that as well. They don't want to just have a monopolistic or duopolistic situation where they have to pay whatever the companies demand. I take your point, Brent. That's amazing. Mainframes at IBM.
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Eamon Javers
Who knew?
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Kelly Evans
That's what I think people are going to go look up and be amazed at. Thanks for making the time today. Yeah, thanks. 5 to 6%. Pretty good. Brent Thiel from Jefferies today. Coming up, what does the dramatic shift in sentiment mean for the broader markets? Will the tariff turmoil lead to more concerns about a recession? We'll dig into that question next as the 10 years just a hair below 4% today. Plus Jeff Curry joins us with his take on the commodity complex and why he thinks gold and metals will continue to outperform. We're back with much more after this. Cash now. More later from Opendoor gives you cash up front for your home plus all the profit later. That's no chaos now. No cash left behind later. Skip the showings now. Pocket extra profit later. This is so simple now. This is so awesome. Later or sell fast now and pop the champagne later. Cash now. More later. Now available nationwide. Start your offer@opendoor.com radio. Profits calculated after fees and costs. Eligibility and offer price may vary. Oh joy.
- [21:49]
Dan Clifton
Another day, another buzz delayed.
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Kelly Evans
Look on the bright side, you can finally catch up on podcast.
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Dan Clifton
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Kelly Evans
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Eamon Javers
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before. Like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading welcome back.
- [22:47]
Kelly Evans
Kind of an ugly picture, although not as ugly as it was earlier. The dow down about 669 points this hour but the safety plays are holding up better. Staples, health care and utilities are all leading and have been outperforming since January 1st. Here to discuss is CIO Group's Chief Investment strategist Steven Whiting. Steven, welcome. This is not a one day trend. This has been going on really since
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Dan Clifton
the calendar turned well, there's a lot going on. You just heard your last guest was great talking about AI hardware, eating software, how it's affecting the lending industry for software. But these other undercurrents that you just showed with health care up, energy up Poly markets is putting 68% odds on a US strike on Iran. The oil price in the energy sector are now picking up sharply at the expense of growth sentiment. There's also that and tariffs at 15%. What does that really mean? Probably less than everyone is fearing today but. But it's a little repeat of what we had last year.
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Kelly Evans
Yeah. So if I were looking at the price action here as we're about to close out the first couple of months and I said okay, utilities, you know, staples like we said health care do you then say these are the trades, like these are the sectors, this is where the growth and this is the place to be for the duration, you know, for at least the next six months, maybe the rest of the year. Is that what you're thinking?
- [24:10]
Dan Clifton
We're strongly overweight health care because of how badly it performed and how much policy concern played a role in its deep underperformance which is now catching up. It's not a wonderful year to date performer but we think that there is more there and it certainly will help out because of its low correlation to tech and what's going on right there. But other areas, you know, funding the AI situation again providing for the build out of AI takes energy. So we've added some energy infrastructure and some income oriented plays. Then there's all these other divergence that you're seeing. Again, real estate associated with people is going down. Real estate associated with data centers is going up. And we want to take advantage of, you know, some of the opportunities. The CIO group, where we're seeing the opportunity to just earn income instead of being pushed around by the headlines in the equity market in terms of the
- [25:04]
Kelly Evans
index levels, does that. So if you're looking to earn income, does that push you into high dividend parts of the stock market or are you thinking even more creatively?
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Dan Clifton
We've done that with international in particular. Again, for whole portfolios, we're about 21% of a medium risk portfolio just in international equities. And of course there's some tech plays which are a little better value there, but dividends are a little more potent at driving equities in international markets. And that's a really potent factor. So that is one of the ways that we're playing it. And also you've got to have bonds in portfolios, you know, for days like today. And we're not coming into this period with the kind of bond market valuation we had in 2022 in the pandemic. We're at a place where it's actually protecting portfolios.
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Kelly Evans
Yeah, well, no one, I don't, I don't want to hear it. La la la. You know, if you had to be
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Dan Clifton
in bonds, 6%, we can find a buying portfolio.
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Kelly Evans
What would be your quickly, your favorite way to do that right now? Is it because the yield is going down? I mean, that's the irony here, is that cash is not going to be quite the game at once. I know you're talking about bonds, but the yields are coming down. So what's your favorite play there?
- [26:11]
Dan Clifton
It's got to be a mixture, a bond. There's no single bond that will do the job entirely for you. But I would tell you the US Is a better valued market for fixed income international. It's a better valued market for equities. And so you've got to have some combination of ultra safe Treasuries. But the high yield market, you know, for all of the turmoil that you're seeing and things like private credit, the high yield market has been underwritten much more like an investment grade bond in this period. And we still find some value there even in loan loans, even though we've reduced there a little bit.
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Kelly Evans
And there it is even in the green year to date. So who would have thought, like you said, with everything that we're seeing. Steve, thanks very Much. Good to see you today.
- [26:51]
Dan Clifton
My pleasure. Thank you.
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Kelly Evans
Stephen Whiting, CIO Group. Meantime, big headline in the housing space. Mortgage rates. Well, I won't steal it. Diana Olek brings us the details. Diana, what can you tell us? I was afraid you were going to steal it, Kelly, because they in fact moved to match the lowest level since September 2022. The average rate on the popular 30 year fixed mortgage fell to 5. Yes, 5.99%, just barely in the fives, according to Mortgage News Daily. Last year at this time the rate was 6.89%. The drop in yields is due, of course, to a combination of factors that we've been talking about all day. Uncertainty over tariffs, cooling inflation and economic weakness shown in that lackluster GDP report Friday. Now, the drop in rates will likely incite more refinancing which has been surging over the last several weeks. Applications to refi are about 130% higher than they were a year ago. That according to the Mortgage Bankers Association. As for buyers, if you're putting 20% down on the median priced home, which is about $400,000, according to the Realtors, you'd have a monthly payment of $1916 for principal and interest. One year ago that would have been 2,105. Your savings today is a difference of $189. And while that might not seem like a lot more borrowers would qualify for a loan in general at today's lower rates. The realtors recently said that with mortgage rates now around 6%, an additional five and a half million households that couldn't qualify a year ago can today. But Kelly, of course not all of them are going to act on that five and a half million household. That's a big number. Yeah, they said about 10% of people generally act on stuff like that. So it'd be 550,000. But again, you've got high home prices, you've got supply issues. So that's just a generalization.
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Eamon Javers
Right.
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Kelly Evans
But it still helps, like you said, always helps. 599. Diana, thanks very much. It's like a Walmart price. That'd be 597 coming up. It's not just software. The cybersecurity stocks are down big today with CrowdStrike and Zscaler among the worst names in the NASDAQ 100. We'll tell you about the new AI agent fears hitting that group.
- [28:49]
Eamon Javers
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Dan Clifton
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Kelly Evans
Yes to right now.
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Eamon Javers
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Kelly Evans
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Dan Clifton
Another day, another buzz delayed.
- [29:10]
Kelly Evans
Look on the bright side, you can finally catch up on podcasts.
- [29:13]
Dan Clifton
You don't mind running late.
- [29:14]
Kelly Evans
What's your deal? What's my deal? I saved at Metro with no activation fees. I got one line of 5G for just $25 a month, kept the phone I love and a 5 year price guarantee for my talk text and data.
- [29:25]
Dan Clifton
Only $25.
- [29:26]
Kelly Evans
I'm going to Metro when we hop off. Get that more for your money feeling Only a Metro by T Mobile. Just bring your number. $30 first month and $25 after with auto pay price guarantee. Exceptions apply. See CSIP for details.
- [29:36]
Eamon Javers
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy gut check.
- [29:50]
Kelly Evans
Need assistance?
- [29:51]
Eamon Javers
No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading welcome back.
- [30:05]
Kelly Evans
Not a great picture to kick off the week here as we're seeing more pressure across the broad markets. The Dow's down 634, slightly smaller gains for the S&P, Nasdaq slightly bigger one for the Russell 2000. Among the biggest drags on the Dow, American Express, Salesforce, Nike, JP Morgan and IBM Amex. It's down 7 1/2% for its worst day since April. Keep an eye on the financials here, which broadly have not been trading well lately, even after a really strong run coming into the start of the year and elsewhere. Eli Lilly is higher after launching a new form of its blockbuster obesity drug, zepbound. The new form carries a month's worth of doses in a single pen. Makes it easier for patients that stocks up 4%, rival Novo down big and Blue Owl Capital is lower again after last week's sale of loans to its institutional investors. Now activist hedge funds are looking to buy stakes in three of the firm's credit vehicles. Those shares are down almost 4%, down 15% in a week and on pace for their worst month on record. And now to Mackenzie Sagalos for the CNBC news update. Hi Mackenzie. Hey Kelly. Nick Reiner pleaded not guilty this morning to two counts of murder in the stabbing deaths of his parents, Rob and Michelle Reiner. He was originally scheduled to be arraigned last month but was delayed after famed defense attorney Alan Jackson withdrew as his counsel. Reiner's murder charges include special circumstances which could lead to the death penalty of convicted. In a shift long sought by patients with rare diseases, the FDA laid out a proposal today to spark development of customized treatments for hard to treat diseases seen as unprofitable by the pharmaceutical industry. If enacted, the program would create a pathway for niche therapies only testing in a handful of patients because of the challenges of doing larger studies. And Lindsey Vaughn says she nearly had to have her leg amputated following a crash in the women's downhill at the Winter Olympics. She said her injuries led to compartment syndrome, which can cause permanent injury if not treated quickly. She credits surgery for saving her leg. Kelly, back to you. I mean, you know, I'm glad she didn't lose her leg. Let's just leave it at that because that is horrifying. So scary. And yeah, go Team USA. MacKenzie, thank you very much, MacKenzie. Seagallos coming up, are oil prices higher just because of Iran anxiety or could this upward move this time be more lasting? We'll ask Carlisle's Jeff Curry about that and the revenge of the old economy after this. 2026 has been the year where physical assets took over as the hottest investment. Materials, energy and industrials are outperforming. Materials up 16%. Energy 22 12% gain for the industrials there, silver and gold with 20% gains as well. And oil also higher as AI creates concerns about a power shortage. Then of course, the memory names Sandisk with gains of nearly 200%. Seagate50 our next guest says this is just the beginning and this trend could last years. Joining us with more on commodities is Jeff Curry, chief strategy officer of Energy Pathways at Carlyle Group. Jeff, it's great to see you again. And for all those who are now hearing the line the revenge of the old economy, I didn't realize you originally coined that after the dot com crash. So what parallels do you see between now and then?
- [33:18]
Eamon Javers
Well, I mean the idea back then was pretty simple. Higher returns in the dot com space cause capital to get redirected to the new economy, choking off the capital that was needed to grow the supply base of the old economy. Eventually commodity prices rise high enough and then capital moves back into the old economy debottles next it and then you move into a new economy phase. You think about the 1990s, it was all about the dot com boom. And you saw basically remember that big merger between Exxon and Mobil happened during that Pine Pier because they were starved of capital costs needed to be rationalized. Microsoft was the biggest company in the world. And then you go into the 2000s because you didn't invest in commodities. A demand shock like China, you're off to the races, right, in commodities, eventually shale revolution. You have too much of it. Inflation comes down, interest rates come down. And then you go into that period of the 2000 and tens and we're in another new economy cycle. By the way, 60s and 70s were the exact same model. So we've seen this over and over in the whole post war era. The only thing that makes this one really different is these hyperscalers. The winner of the last new economy back in the 2000s. Meaning like Google, Amazon, Microsoft, they're looking like commodity producers. Meaning this is the irony, like the shale guys.
- [34:43]
Kelly Evans
So, and I love this to just make sure that we back up for a second here. We've had basically a tech cycle followed by an energy cycle followed by a tech cycle. In the 90s, an energy cycle as we saw when Exxon and PetroChina, the biggest companies in 2010. And we forget that before the crisis hit in 2008, oil was the equivalent of over $200 a barrel today, aluminum prices, nat gas. Remember those mega mergers that then were like uneconomic within a couple of years after the case. I mean there were, those prices were so high and we just forget that because of how bad the Great Recession was. And now we could be, you think, at a similar turning point. One of the first questions that I have actually is about energy and about oil itself. Is that part of this story this time around or does that kind of stay a little bit on the sidelines?
- [35:28]
Eamon Javers
No, I mean it absolutely is a part of this story. When you what a commodity super cycle or at Cessna asset heavy boom or old economy boom, I don't care what you want to call it, it is simply a capex cycle. And capex cycles require lots of energy. And as a result all the commodities go up in tandem. And that's what ultimately puts, you know, the way I like to think about it. Why do we have higher interest rates right now? Because the global economy's grind against physical capacity constraints, the higher interest rates are telling you put money back into the ground and create excess capacity so we can grow again. And that's why you see all the commodities, you know, trading in parallel during these time periods. And one thing just to point out is that when we think about the demand for energy, it's very much tied to these Big industrial cycles still, you know, whether it's through the diesel channel, the plastic channels, it hasn't changed.
- [36:26]
Kelly Evans
So where do you think if it. I think it's the case. Oil is around 66 now and as people say, they think there could be like a 10 or $15 Iran premium in there. I don't know if you agree with that. Maybe I should use Brent said WTI regardless. I mean, are we talking it goes over $100, 1-5200. How big should we be thinking in terms of this cycle? Because we've already seen the monster moves with gold and silver. I don't know if you think that even there we expect those gains to keep going.
- [36:50]
Eamon Javers
Well, I'm not going to put a number on it because I got in trouble in the past doing that. But I just want to point out now why gold and silver went up so much. These markets are extraordinarily underinvested. They're not owned by very many people. I mean, you take like the position of energy in the S and P, you know, it runs in that 3 to 4% range while the revenues are closer to 8. Whether you want to look at it, the allocations by allocators, you know, the oil supply glut, they don't like the space and as a result, well, when you start to allocate money to creates explosive price action because it cannot handle the rotation. To put it in macro numbers, you look at the broader financial markets, they're up three and a half times since 2014. Why do I say 2014? That was the last time you had investors like in the space on the eve of the big oil price crash, if the financial markets are up something like, you know, three and a half times, physical markets are flat to down. So now you start throwing money into the space. That's what creates the high volatility. One thing I want to point out, when you have a commodity super cycle, it's not a nice easy ride in the commodity prices. It's spike after spike after spike. And so the volatility is a feature of one of these environments because what happens, the demand grinds against the capacity, the price spikes, demand falls off and then it keeps hitting it it over and over. So I think you're going to see all the commodities look like what's happening in gold and silver and copper in many of the different metals.
- [38:28]
Kelly Evans
I see and I want to make sure and leave people with this and then maybe we can get more into it in a future time. But if you see, you look at what's happening with, you know, the hyperscalers, lack of a better word now. And now they are the ones putting steel in the ground. So you're thinking about them as becoming like commodity producers because you're saying they're putting steel in the ground. The unit of output is AI compute. And so I guess, you know, how much does that change the investment case for them and just change so much. I mean this is not the business that kind of, this is not fang, you know, this is not the Mag 7 as we, as we used to think of them.
- [39:06]
Eamon Javers
Well, let's, I like to point out in the, at the end of the shale boom in like 20, 12, 13 and 14, if you recall, these producers were spending 120% of cash flow.
- [39:20]
Kelly Evans
Wow.
- [39:21]
Eamon Javers
You take the, some of these like Oracle are in those, you know, well above those levels. But then you look at the, you know, the big five of the AI five, they're spending somewhere around 83, 84%. The energy guys today are spending 60. So they're already spending more than the 60 guys. So they're asset heavy. And you look at the asset heavy industries, they typically have much lower multiples than the asset light because remember the whole idea of soft software was it's infinitely scalable at zero marginal cost. Here you want to scale, you got to spend a lot of money.
- [39:54]
Kelly Evans
But ironically, energy, commodities, they're becoming heavy asset companies, asset heavy companies at the very moment that those are having a day in the sun. So I guess for now it's fine. But you're saying it fundamentally changes the narrative.
- [40:06]
Eamon Javers
By the way, if you look at energy in all the data, all the companies tied to data centers, they followed the commodity producers write up. So by the way, you know, ultimately they're going to end up with some type of rerating here and start to look more like commodities. But you know, the one thing when you go back to, you asked me about the analogy to the dot com boom at this point in that dot com boom, around 2000, 2001, everybody would get on TV and tell you, hey, it's the telecoms. You want to own the telecoms, own the network because that's where the value is. Who were the winners? It was further downstream, it was Amazon, Google and Microsoft. And what they have learned is they're now vertically integrating upstream into the infrastructure, which makes sense from their perspective. So, but I think the key point here is they're not infinitely scalable software companies anymore. They're now heavy asset. They're in like the commodity business. And I want to point out the commodity they produce. It's a combination of bit add ons. If the 2000s was all about a super cycle in atoms, meaning like atoms in the periodic table in the 2010s were all about a super cycle in bits. What we're seeing in 2020 is it's a bit atom commodity. And what is AI compute? It's a bit atom. What is crypto? It's a bit atom commodity. So these guys are producing a new type of commodity that goes from the
- [41:29]
Kelly Evans
atoms to the bits A to B. There's an Alphabet joke in there somewhere. I like it if I can think it through. Jeff, thank you. Hope to like I said, come back to this another time. It's fascinating stuff and appreciate having you on today.
- [41:41]
Eamon Javers
Great.
- [41:42]
Kelly Evans
Thanks for having me with the Carlyle Group. We'll take another quick break then. Coming up, cybersecurity is the latest slice of software under pressure, although there's one exception according to JP Morgan. We'll dive into that next. Welcome back to the Exchange. One of the weakest spots in software today are the cybersecurity names on your screen. There, there some of the worst performers in the igv. As investors worry about anthropic release of Claude code, security experts and executives are pushing back on all this bearishness. Sima Modi joins us now with that story. Sima. Hey, Kelly. And One executive is CrowdStrike CEO George Kurtz who took to LinkedIn. Pushing back on this narrative that cloud code security tool competes with his company writing if you want to build AI, you need GPUs. If you want to deploy AI, you need security. That's not a hallucination, it's a fact. Now this is not the first time security names have faced this existential threat from other competitors. For example, Google buying a security platform, Mandiant in 2022, Amazon's venture into virtual firewalls. And now it's anthropic cloud, right. That says it can identify vulnerabilities in code and suggest fixes. But analysts say this is one of many features provided by the biggest names in cybersecurity. JP Morgan calling out CrowdStrike and Palo Alto Networks as AI resilient, citing their moat, their end to end security solutions and long list of global enterprise customers. Now J Frog, which scans software for bugs, is getting hit the hardest. It lost about 23% on Friday and is down again today by 6% on this fear because it can dissect weakness in code. But btig calling this stock move as overblown pointing out that J Frog also stores and manages the data which they say is critical for their Fortune 500 clients. But the fact that the selling Kelly is not holding up is continuing to hold up here even on Monday tells you that the street is continuing to figure out where you're going to find some type of terminal value or support for software in general as we count down to some big names in earnings. And plus this anthropic cloud announcement, expect it tomorrow. J frog is down 43% year to date. It really shows you the magnitude of what's going on here. Sima, thanks very much. Sima Modi. Up next, where our trader is seeing opportunities mid today's sell off. I don't know yet. What's Jeff Kilberg going to say? We're back in a couple. Welcome back to our deep sell off. In the markets we were down 861 at the lows and we're down about 716 points right now. That's the Dow which is underperforming about a percent and a half lower while the S and P and Nasdaq are down about a percent. Let's make some sense of today's moves with Jeff Kilberg. He's the CEO and founder of KKM Financial and a CNBC contributor. Jeff, I'm just going to rattle off the menu here. You can have the financials which no one wants. You could have JP Morgan, you could have Goldman Sachs. I mean who can you have? You can go into private credit, you can go into cybersecurity. How about software? How about, I mean you can go into crypto. Where do you see opportunities or would you stick with all the stuff that
- [44:37]
Dan Clifton
is working well, let's go to where the pain is, Kelly. And we're seeing yes, the Dow is down but about 200. Those Dow points are being attributed. American Express team being down about 7%. But let's look at software. I think it's capitulating. We can talk about Microsoft, Oracle, Palto, Networking, Salesforce. All of those names, Kelly, in the last six months are down 20 to 40%. That's opportunity. But if we go out on a longer timeline, these are names that from a ten year perspective these names have delivered, they perform. We've seen Microsoft up 757%, Palo Alto up 585% again on a 10 year timeline. So for the first time these names are on discount, 30% discounts. We are seeing Oracle at a 60% discount. I think you have to own these names. We own Oracle Peloton Network and Microsoft in my Essential 40 ETF. These are essential names. Not going to replace these names, they're going to complement. But there's such a reaction in the market. We saw the market this morning with the Vix about 21. We saw the market go positive for the day and all of a sudden we get really nervous and there are a lot of headwinds. I'm not diminishing the fact that we're seeing Iran tensions, we're seeing the AI scaring sell off. But at the end of the day, look at our earnings growth. It's up the fifth consecutive quarter. This is an opportunity to buy some great names. Don't shy away just because everyone's so scared. And for all the analysts there, they're now downgrading software. Thanks, that was really helpful.
- [45:50]
Kelly Evans
So in the last few seconds that you have, what about the stuff that has been working? Utilities, health care, consumer staples, industrials, materials, energy.
- [46:00]
Dan Clifton
And that's why you have to have a diversified portfolio. So we look at Duke energy, look at ExxonMobil, look at Lilly today, look at Berkshire Hathaway. Berkshire Hathaway is really interesting with all that cash. They're hoarding about 400 billion in cash. Kelly, what actually are you valuing inside of their private portfolio? So I like Berkshire Hathaway for the back half of 2026, we talk about divesting some of those assets, but you have to own these industrials and you have to own these boring blue chip names to weather this type of storm. And we're one tweet away, by the way. Kelly, we're one tweet away from all new, all time highs in the S&P 500.
- [46:30]
Kelly Evans
Jeff Kilberg wants to own it all. That is the message that I'm getting today. Most, most of it, Jeff. Thank you, Jeff Kilberg. And that's it for us here on the Exchange. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.
- [46:46]
Eamon Javers
Trading at Schwab is powered by Ameritrade, giving you even more specialized support than ever before, like access to the trade desk. Our team of passionate traders ready to tackle anything from the most complex trading questions to a simple strategy. Gut check. Need assistance? No problem. Get 24. 7 professional answers and live help and access support by phone, email and in platform chat. That's how Schwab is here for you to help you trade brilliantly. Learn more@schwab.com trading.