Kelly Evans (4:00)

All right, Don, thank you very much. Let's get down to Washington where two of the President's closest advisors are trading barbs over how to tackle the Trump trade agenda. But before we get to that, Eamonn Javors is standing by with the latest on the China tariffs. Eamon, when's the last time we had two kind of misfired newswire headlines in a 24 hour period, practically.

Eamon Javers (4:18)

Yeah. It's becoming a familiar feeling around here, Kelly. So first, first thing first, there is this inaccurate report that's been floating around in the market over the past couple of hours that suggested that Caroline Levitt, the White House press secretary, had said that the tariffs on China went into effect at noon today. I spoke to Caroline Levitt in her office a few moments ago. She says she didn't say that she's been misquoted or there was misreporting here. And she confirmed to me that the tariffs do indeed, as planned, go into effect at midnight tonight on China. So just to clear that up, because that was moving markets fairly significantly over the past hour or so, then secondly, we've got this fascinating eruption in the public of this spat between Elon Musk and Peter Navarro, the richest man in the world and the government cutting expert here in the White House, against the trade advisor, a man who went to jail out of loyalty for President Trump. Musk taking to his own social media platform X, to call Peter Navarro a moron and to say that he is dumber than a box of bricks. I think a sack of bricks. He says he's a moron. What he says here is demonstrably false. Tesla has the most American made cars. Navarro is dumber than a sack of bricks. That's Musk reacting to Peter Navarro suggesting that Elon Musk is not an automobile manufacturer, he's more of an automobile assembler putting together parts in the United States that were made elsewhere. So that fight erupting into very public view here over the past couple of hours. And then Caroline Levitt issuing a statement on that. Again, the White House press secretary telling me in a statement, whatever, we are the most transparent administration in history expressing our disagreements in public. So the White House sort of shrugging off this conflict between their two top advisers. But it is a significant one, Kelly, in the sense that you have the Elon Musk school of the world, which is, you know, he's a builder, he is a doer, he is somebody who is deeply ingrained in the global markets and has extensive, extensive business ties in China. He is feeling the pain of these tariffs. And then you have Peter Navarro, the trade adviser, who is deeply committed to this idea of disentangling the United States and China, disentangling supply chains and really US Trade with the rest of the world. He wants to manufacture things here in the United States. And he is one of the chief architects of, of the President's Tariff vision. So the question for the White House is which one of these men will President Trump ultimately side with? For now, the White House is tolerating the spat in public view, but at some point, the president, you know, will ultimately have to pick a side here and we'll, you know, all be watching carefully to see which side he ends up with.

Kelly Evans (7:00)

Eamon I can't help but wonder if Musk is setting up a trajectory for himself to leave the administration over a disagreement instead of being forced out.

Eamon Javers (7:09)

You know, that's an interesting possibility. I think the disagreement is legitimate, not manufactured. But it also could be an opportunity to walk away. There have been a lot of questions about when exactly Musk's tenure here would be over. You know, he's a special governmental employee and that gives him a deadline until sort of around the end of May before he can't use that status anymore. So that had been the thinking of when Elon would leave the administration. The president has said he would leave relatively soon when his work is finished. We just don't know. Could that date be hurried up till tomorrow? I mean, anything is possible. No indication of that right now, though?

Kelly Evans (7:44)

No, not at all. But just kind of thinking through the sequence of events. Eamon for now, thanks. Amyn Jabbers, the White House and while discord is brewing within the White House, some members of Congress voicing concerns as well. Congressman Ro Khanna today, a Democrat representing Silicon Valley, criticized Commerce Secretary Howard Ludnock on squatting on Squawk Box this morning for being out of touch as tech companies, many of which are based in Connor's district, have been sliding by about 10% in the past week.

Harry Sommer (8:11)

The screws and the assemblies of screws.

Ron Koszewski (8:13)

Are like 0.3% of the iPhone's cost.

Rick Santelli (8:16)

You have the display, you have ran memory, you have the camera.

Harry Sommer (8:20)

And I know Lutnick loves 19th century.

Ron Koszewski (8:23)

Policies, but he should understand 21st century production.

Kelly Evans (8:27)

Here now to discuss, we have our own Steve Liesman along with Wells Fargo international economist Brendan McKenna. Needham's Laura Martin is also here to talk more specifically about Apple and those screws which is coming off its worst three day slide since 2001. We'll get to that in a moment. Brendan and Steve, welcome. Steve, let's start with you. You know, there's no evidence, despite all the market's hopes, that the White House is going to back off. There's no evidence they're going to do so.

Steve Liesman (8:50)

Well, it seemed to me that the better attitude of the market came from the idea that maybe Lutnik was being pushed out. That was in one of the journal stories, I think, or, or being otherwise perhaps downgraded in the idea of Besant, the Treasury Secretary, being more in charge of the trade issues and that they were negotiating. But I still think, Kelly, we're where we were, which is this notion of probably some form of permanent tariffs with the possibility that some of the most extreme ones could be negotiated away, but still unclear. We're still in a place where it's not clear both what the ultimate end is. And that was, by the way, something that some. The Congress today, Senators, today in the grilling of the trade representative, they were asking, what's the end game? What's the timeline? I think Wall Street's asking the same question still.

Kelly Evans (9:42)

Yeah. Brendan, you're looking at the international piece of this, and it's been fascinating to watch the posturing, but again, we've had a handful of nations basically trying to be cooperative and, and the White House is still being pretty, pretty vague about this negotiation. You know, just to use the word negotiation doesn't mean they're going to say, sure, the US Tariffs are coming down. They could be saying, we're sticking to our guns until you pledge x hundred billions of investment into our country or something like that.

Dom Chu (10:08)

Yeah, I think you're absolutely right. You know, I think we're starting to see some headlines as it relates to Japan and maybe South Korea, also maybe Indonesia, that maybe are a little bit more willing to come to the table and negotiate and try to bring some of those tariffs, tariff rates down. What's your earlier question and your earlier point? You know, I definitely think that there are some tariffs here that are going to be permanent in nature, and I think the more contentious, more hostile trade policy is certainly going to be a cornerstone of the Trump administration for at least the next four years or so.

Kelly Evans (10:31)

Right. What do you think the real fallout is, though? I mean, if you had to say, the most noteworthy response you've seen from the international economies affected, from Vietnam to, you name it, to Taiwan, I mean, all the rest of. To Europe. What do you think it is so far?

Dom Chu (10:45)

I think it's really the response from China. You know, I think the initial response to Trump administration tariffs on China was that China was going to take a more gradual approach and they weren't going to be overly retaliatory. But that narrative has really flipped in the last call it a couple of days or so, they responded with a 34% tariff that you see headlines overnight that they're not going to back down from a tariff fight. And I certainly think that they're willing to dig in for the long haul. So I certainly think the most, most, you know, kind of interesting response has been from the China side and then maybe some of the other closely net China economies in Southeast Asia as well.

Kelly Evans (11:18)

Yeah, it's been also amazing to watch it go from being on the back burner a month ago to very much on the front one. Markets are losing pretty much all of their gains here. I just want to point that out. The NASDAQ has gone negative. The S and P is in danger of doing so. We have some headlines meantime from the US Trade reps testimony before Congress today. Let's bring in Megan Casella with some more details. Megan.

Kelly Evans (11:36)

Hey Kelly. So a two or three hour hearing with the trade ambassador where he really forcefully defended the administration's trade agenda. He talked about how they are open to negotiations with trading partners who are not retaliating. He signaled that there was doubtful that there would be a deal with China anytime soon, saying that they were not coming with sort of open eyes to those negotiations, that instead they were retaliating, which he said the president did not like to see. But the other interesting secondary story I would say in this hearing, Kelly, was that it was really a chance for Republican senators to start to air some grievances, I would say about this administration's trade policy. Take a listen to some of what they said.

Rick Santelli (12:14)

I believe that Congress delegated too much authority to the president in trade.

Ron Koszewski (12:20)

Who pays these high tariffs in the short, medium term?

Dom Chu (12:23)

It will be the consumer. It will be the consumer.

Steve Liesman (12:26)

We want fair trade. But I hope you recognize, you know, tariffs are double edged sword. I would argue a somewhat blunt instrument. There's going to be an awful lot of collateral damage.

Kelly Evans (12:36)

People are already feeling that pain.

Mike Wilson (12:37)

So I hope you're sensitive to that.

Dom Chu (12:38)

Whose throat do I get to choke.

Mike Wilson (12:40)

If this proves to be wrong?

Kelly Evans (12:43)

All Republican senators there, Kelly talking about this. So I want to emphasize a lot of them were saying we do want fair trade, saying they were aligned at least with the President's overarching goals. But they were asking the representative repeatedly what is the endgame here? Are these negotiations permanent? Is there any chance that these tariffs don't take effect tomorrow? And on all of that the trade ambassador was really aligned with the president, not wanting to get ahead of him and saying what he was most focused on was trying to reduce trade deficits and bring manufacturing back to America. So we still have to see a bigger push from Republicans before they could do anything to really claw back some of that trade authority delegated to them under the Constitution initially. But at least for now, we can see there's at least some signs of discontent on Capitol Hill.

Kelly Evans (13:25)

I think you can. When Senator Tillis asks whose throat do I have to choke, I think it's fair to call that some discontent. Megan. Thanks. Megan Casella. Steve, I'll turn back to you for the significance of all this.

Steve Liesman (13:36)

Well, I think we are where we were. I've been researching, Kelly, the extent to which we were a great nation in the 18 late 1800s. And I'm not really finding that life expectancy was around 40 years. 40 years rather than what it is right now. So what I'm concerned about, Kelly, from an economic standpoint is this idea that we go down the value chain when we put these tariffs on. Let me explain what I've been thinking about here, which is that by definition, US Manufacturing right now, such as it is, it is about 11% of private sector GDP, down 4 points from, say, 2005. But any manufacturing that's here is high value added because the labor component is going to be a small piece of that. Now what we're doing is we're going to tariff the inputs into that which would make that less costly or, sorry, less, less, more expensive, less affordable. And we're going to try to go down the value chain to basically create those inputs and those are lower value added. So I'm concerned here that we're going to be going, trying to go backwards and try to make a deal with the past. But there's nobody in the past to.

Dom Chu (14:49)

Make a deal with, Brendan.

Kelly Evans (14:50)

All of that said the White House. Look, Steve, let me go back to you for a second. You saw Steve Moran's speech at Hudson yesterday.

Steve Liesman (14:56)

Yeah, I did not know.

Kelly Evans (14:58)

So if you look at the architects of this vision that Trump has, and I think you could call Moran one of them, I think you can say Bessant is one of them. He elaborated on this at great length last week in an interview. They, they're, they're moving forward. They're clearly trying to go in this direction, you know, and imagine what this new. And they talk about automation and we talk about the factories. That's what's so fascinating. They're cognizant of everything that you're pointing out. And they and Lutnick and others have talked about, you know, now we have robotics, now we have AI.

Steve Liesman (15:30)

Let me just make one point that I thought was interesting was Bessant this morning said he didn't come up with the formula. And by the way, that's reporting that I've done and also a very nice piece in the Washington Post that really broke that story that treasury had a plan for reciprocal tariffs. That made a lot of sense and the President came up with a plan that nobody can really make sense of. And in that regard, it depends on what we're talking about here. Bessen seems to be somebody who understands the idea that there needs to be negotiation, there needs to be free trade. And you were talking about it earlier with Eamon, this idea that there appear to be a wing of the President's advisors that want to erect barriers around the whole country, call it Fortress America, and leave everything out of the country. And the idea that the market seemed to rally this morning, going back to the first question you asked me, seemed to be the idea that maybe more the Besset wing was, was, was, was a little bit.

Kelly Evans (16:25)

I would call in that, but we can't go on to great length here. But there's a. The vision encompasses China. It encompasses the US Being the reserve currency. It encompasses the way that's been a headwind in many ways over the past couple of decades. That's one of the reasons we've lost manufacture. So it's all linked together for them. It's bringing down the deficit. I'm not saying whether they get it right or wrong, but the vision is multifaceted and all of these things need to happen for it to work.

Steve Liesman (16:52)

I think the vision is very blurry and I think it's inconsistent. That's my problem with it. Do you want a strong dollar? Well, you can have a strong dollar, but recently, by the way, the dollar has been. Has been weak. Part of the way that we are the reserve currency is we run a trade deficit, Kelly.

Kelly Evans (17:11)

Right.

Steve Liesman (17:12)

And I honestly, I'm not sure that they understand that in the White House, people send us stuff so that we can have their dollars. So they can have our dollars. That's the weird thing about all this, Kelly. I don't think that they get that the other side of the trade deficit is a massive capital account surplus where they buy our Treasuries, they buy our stocks.

Kelly Evans (17:32)

I think they do.

Steve Liesman (17:33)

They buy our assets.

Kelly Evans (17:34)

Look, they know that means we over consume. Right. That are over.

Steve Liesman (17:37)

To say we over consume, who is it?

Kelly Evans (17:39)

This is the Republican Party investment in the country, meaning we consume beyond, you know, S equals I. We consume beyond this.

Steve Liesman (17:46)

We consume what we want to consume. That's part of the freedom of being an American, isn't it? Who's to say we over consume based.

Kelly Evans (17:53)

On the stock of investment.

Steve Liesman (17:55)

You can see that by looking at me. I over consume, but that's another story.

Kelly Evans (17:58)

No, listen.

Kelly Evans (18:00)

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Kelly Evans (19:27)

Do do. All right, let's turn to Rick. This is a plank of the story we're talking about here. We've seen stocks, including the S and P now give up their earlier gains, which were sizable turn negative. We had an auction that didn't go all that great. Let's bring in Rick Santelli for some more on this. Rick?

Rick Santelli (19:42)

Yeah, you know, we had the first leg of Treasury's 3s 10s and 30s offering and the three year leg did not go well. It tailed. The metrics were all weak. I gave it D for demand and D for dog. And if you look at the market interest rates had been going down. They turned. We know that stocks and rates have been joined at the hip, but that turn is something to pay attention to. And it came at a time where stocks were already making fresh lows on the session. And I do believe that the reversal in rates gave them a little bit of a push. And it does underscore that the relationship between treasury yields and equities, well, it could morph at any time. We need to pay very close attention to a Flight to safety trade is one thing, but starting to see rates maybe get a little more stubborn, especially on the long end for a variety of reasons, is going to be the type of move stocks do not necessarily follow. And if you look at the yield curve right now, twos, threes, fives, sevens, tens, twenties and thirties, every maturity is now higher on the day. So the auction really did reverse a lot of green back in the red in terms of yields.

Kelly Evans (20:55)

Rick, can you clear up a little bit of this market confusion? Some of these talking points that say China's dumping Treasuries in order to force our yields higher, make bessant look bad and so forth. People argue if this would be hard for their currency to weaken if that's the case. Because if the currency weakens, don't they have to buy Treasuries? And oh, by the way, if we have inflation expectations going up like TIPS did, is it possible the tariff announcement yesterday was just pushing up inflation expectations and pushing up the 10 year? And this isn't so much a symptom of Chinese buying or selling.

Rick Santelli (21:27)

I don't think I could agree with any of those assumptions, to be honest with you. The behavior in the dollar doesn't underscore a big liquidation in Treasuries. I think what's going on in Treasuries makes more sense when you look at it under the microscope of what's going on in equities. And as far as what's moving the market and what interpretations are and how all of this fits in, I think it's anybody's guess at this point. I do think that when we look at the dollar we can't be very short sighted. Look at a 25 year picture of the dollar index and see how much time it spends above or below 100. We could say we've weakened, but it's a post during COVID post Covid move that's really reversing in the grand scheme of things. Our dollar historically is not weak at these levels. And to take another avenue, many believe that much capital in this country is here because of the strong dollar and reserve currency. And for the first time in my lifetime, there's many people I normally agree with that think a reserve currency status may be something that we're better off without. I'm not saying I agree with it, but there's a lot of moving parts here and I think we shouldn't be superficial in some of these moves that really are not explained by the news of the day. As much as everybody wants to connect.

Mike Wilson (22:44)

Those doctor Fair enough.

Kelly Evans (22:44)

Fair enough. The exorbitant burden, as Michael Pettis calls it. But I think the administration wants that burden, right. It's an important tool of political leverage to be able to kind of impose sanctions and everything. But now they're trying to use a different economic regime to prepare.

Rick Santelli (22:57)

The bigger story today is that the offshore yuan, which of course has a shorter history than the actual renminbi, that's the official is at the all time lows against the greenback. That to me is a very important story regarding China and it underscores what the administration may have actually right on all of this and that is many countries have a beggar thy neighbor approach to their currency because they're export economies.

Kelly Evans (23:26)

So enrich. Thank you. Let me just get a quick last comment from our panel. Brendan, I'll turn to you. What's the net effect here, if you have anything to add on what you think is going to happen with China's treasury buying? If the currency is weakening and now the US Isn't as open as a market, should the Europeans and others be worried that these goods are going to flood their markets?

Dom Chu (23:44)

I think they should absolutely be worried. Overproduction over manufacturing, excess supply, these are all themes that have been coming out of China really in the post Covid years. And now I think if the United States is not a viable marketplace for China, absolutely, the European Union, Australia, other parts of Southeast Asia, they could be dumping grounds for a lot of Chinese goods, a lot of Chinese products and a lot of a lot of Chinese manufacturing. And that's a deflationary pressure. That's something that can ultimately weigh on global growth and cause a bit more turbulence in financial markets.

Kelly Evans (24:13)

Mr. Liesman, a final word.

Steve Liesman (24:15)

Just what Brandon is saying you're throwing you've blown a lot of things up, I guess is the best way to say it from a world trade standpoint. Things are up in the air. We don't know where their land. I think one of the things I'm concerned about are what you might call occluded losses and we don't know, Kelly, where the losses are going to be among those who are going to be hit by the tariffs. That was somewhat one of the reasons, I think, for the extreme selling pressure.

Dom Chu (24:37)

Really.

Steve Liesman (24:38)

Analysts don't know where it is. And in fact, I was talking about this morning, JP Morgan put out a spreadsheet for individual investors to look at individual companies to figure out how much tariff exposure they have because all of this hit the market so quickly that analysts have not had an opportunity to analyze either every company or every industry. That's a process that's ongoing as we speak.

Kelly Evans (25:00)

Perfect segue to Apple, gentlemen. Thanks. Steve Leisman, Brendan McKenna with Wells Fargo. We appreciate it. Actually, let's go to Diana first on the back of the climbing 10 year yield. You know what that means for mortgage rates people. Let's bring in Diana with that latest number. What do you see?

Kelly Evans (25:13)

Well, Kelly, mortgage rates really reversed course this week, moving to the highest level in over a month today. The average rate on the 30 year fixed jumped 22 basis points yesterday, another 3 today to 6.85% according to mortgage News Daily. This fully erased the decline from last week. So much like the stock market, the bond market has, of course, been on a roller coaster over the last weekend. Mortgage rates are along for the ride. Last week, the 30 year fixed dropped to the lowest level since last October. That was after President Trump announced the reciprocal tariffs. Now that drop had housing watchers cheering, a potential boost to the lackluster spring market. Mortgage rates had been moving in a very narrow range since the end of February, lower than last year, but really not by much. The biggest drop actually in rates so far this year wasn't last week. It was in January and February when the 30 year fell from a high of 7.26% to 6.74. But despite that drop, pending home sales, which are a measure of signed contracts on existing homes, it's the most recent indicator of activity in housing. It rose just 2% in February from January and was still close to 4% lower than the year before. So it's not just rates. Homebuyers are also contending with high and still rising home prices and a growing lack of confidence in the broader economy and their own employment. And Kelly, one more stat I want to throw at you that I got from Redfin this morning. One in five home buyers will sell stock to fund their down payment. You think they want to sell stock right now?

Kelly Evans (26:42)

That's a great stat. Something we were all debating is which would kind of hurt more. Would the weak stock market hurt more than the lower mortgage rates?

Dom Chu (26:49)

Help.

Kelly Evans (26:49)

And now we don't have either one, I guess.

Kelly Evans (26:51)

Exactly. It's six and one half in the other. I think it's less about the daily rate moves on mortgages and more about the broader economy, the stock market and what people really want to do with their money. Right now, single largest investment for most is their home.

Kelly Evans (27:04)

All right, Diana, appreciate it. Diana Olek, let's turn back to tariffs as there's one name that's really been at the epicenter of this global trade war especially as things ratchet up with China and that's Apple. The stock is coming off its worst three day stretch since 2001. It's down 20% in just the past week. UBS among those saying Apple products could see big price hikes thanks to these levies. The cost of the iPhone 16 Pro Max rising 29%. $350. The iPhone 16 Pro could cost $120 more. Is this a once in two decades buying opportunity after the sell off we've seen? Our next guest says not so fast. Let's bring in Laura Martin, she's senior analyst at Needham. Laura by the way, I mean look $350, $120, that's not as bad as estimates that the iPhone could cost $3,500. So the numbers do seem a little bit all over the place.

Laura Martin (27:54)

I mean I think the thing that's incredibly important about tariffs is that they add about 50% to the costs of Apple. And so what happens is your $7.32 EPS estimate loses $2 if China, if they, if actually China stays at that 54% and India stays at 26%. So it's not the revenue that's the big question that tariff springs tariffs brings this big question about what are the cost of goods sold and therefore how much falls to the bottom line and how much free cash flow does Apple have compared to what consensus estimates are and most of us aren't changing our estimates because the situation is so fluid.

Kelly Evans (28:31)

Oh sure. Is there any way in which they can absorb this? I mean at least in, in some meaningful aspect absorb it into their bottom line.

Laura Martin (28:40)

I mean we're assuming that they don't raise price and they've said they're not going to raise price, they're going to hold US prices as steady as they can. But if they do that then their costs go through the roof. Yes, they can pass 20% of the cost increase into consumers hands. And so your iPhone, all those numbers you just gave increase by hundreds and hundreds of dollars which drives inflation in America so we end up with higher bond yields.

Kelly Evans (29:06)

Why don't you think this is a buying opportunity for Apple?

Laura Martin (29:09)

Oh this isn't the worst case. This is the impact of a negative $2 on, on EPS for this year of $7 is where most anal is only the direct impact of the Trump tariffs if China retaliates or if they invade Taiwan. Much worse for Apple.

Dom Chu (29:33)

Right.

Laura Martin (29:34)

So there's lots of worse cases for Apple. But again, it's just so hard to know, you know, it's so hard to know what's actually going to happen with tariffs a week from now, four weeks from now. You know, US is 25% of the global GDP. So, you know, anything that hurts trade hurts us one out of every four dollars.

Kelly Evans (29:55)

We just got a headline as well from the White House, Carolyn, leave it at the press briefing saying the President believes the US has, has capability to make iPhones.

Laura Martin (30:04)

Yeah, I don't think that's a thing. I mean our estimates are, they would be 3x whatever you thought just quoted the price 3x that and you couldn't do it immediately. It takes years. India has taken like three years to get up to 14% of their iPhone volumes.

Kelly Evans (30:17)

Right, exactly. And that's, this has raised a lot of questions about the workforce. And can you literally, even if you had to turn the switch tomorrow, you know, kind of turn to the American workforce to make these phones in the same way? I don't know whether anyone can figure that question out. But this is supposed to directionally tell us what's going to happen with EPS in the meantime. And I guess like you said, if you went from seven to five dollars this year.

Laura Martin (30:41)

So if we were moving estimates and analysts aren't moving estimates because of the uncertainty, yes, we would go from seven to five dollars. And that's just on the Trump tariffs alone, not anything worse than that yet.

Kelly Evans (30:53)

What are the reverberations, Laura? You think for the rest of the companies you cover.

Laura Martin (30:57)

So consumer confidence affects everything in advertising and advertising has 80% margins. This morning there was a study out from in last week, 43% of people, CMOs. So chief marketing officer said they were going to cut back spending in linear tv, cut back spending in social media and cut back spending in like analog media like yourself for example, because that's what they need to offset the tariff cost increase. So they have a deliverable to their parent company. They're because of tariffs, their costs on the goods that they're importing in the US are going up. So they're going to cut marketing spend to offset that so they can hit their promised budget to their CEO this year.

Kelly Evans (31:39)

Yeah, no, I think that makes a lot of sense. Obviously companies have to look to cut where they can before they go into kind of, you know, the work base of their core operations. Would that put something like Netflix, which just got an upgrade today. It seems to be sitting in a nice insulated position from a lot of this. But does an advertising pullback affect them too?

Laura Martin (31:57)

Not really because Netflix is very new to the advertising world and they've been doing a very poor job of driving advertising growth. So now I would say I agree with your prior speaker, the Netflix is almost like a durable that people can, if they can't afford the $20 Netflix price, they just go down to the $7 ad driven tier.

Kelly Evans (32:15)

All right, Laura, we'll leave it there as Apple Netflix is still higher by about 2% today. Apple has given up its gains. It's down about 3. Laura Martin from Needham, thanks as always for your time.

Laura Martin (32:24)

Thank you all.

Kelly Evans (32:25)

The tariff turmoil is prompting economists to revise up their recession probabilities and for market strategists to revise down their year end price targets. Our next guest is still standing by his 6,500 original price target, but does think we could see another 7 to 8% drop here if the White House doesn't back down on its plans. Mike Wilson is the CIO and chief US Equity strategist at Morgan Stanley. That that price target is looking, looking tougher by the day. Mike, welcome.

Mike Wilson (32:51)

Yeah. How are you, Kelly? Good to see you.

Kelly Evans (32:53)

Good. Good to see you too. So just kind of walk us through how you're thinking through all of this.

Mike Wilson (32:57)

Well, I would say first of all, we're not really talking about 12 month price targets in this kind of an environment. And I think, you know, we came into this year pretty defensive in the first half. We talked about a tough first half and a potentially better second half. And so we've been very focused on our first half targets which were sort of 5,500 to 6,100. We obviously went right through that on the announcements last Wednesday because they were worse than we expected. And those first half targets are coming down. And quite frankly, that's all people care about right now is how are we going to trade the next two or three months. And that's part of our offering. We're technicians, we know levels pretty well. We have a lot of information on flows and positioning. And I would say right now we're in a classic bear market. That's how we're trading. We're trading as a bear market. So it's all about technicals. And that's how we're really trying to help clients now, whether it's at the index level or it's at the stock level. And I think the price action in the last two days is very informative. We had very capitulatory behavior Monday morning. I mean, all of our signals that we look at were triggered Positioning, sentiment, the rsi, everything was there for a bounce, but that's all we're getting. We're getting a bounce. And I find it really interesting yesterday on the news for the false headline around the tariffs coming off. We kind of bounced to sort of 5,300. And then today the whole rally, it just went right back to that same level. So what I would say is we're establishing a new range. That range is yesterday's lows, call it 48.50 to today's highs or yesterday's highs, which is around 5,300. And until further notice, that's the range that's going to get traded here on these headlines.

Kelly Evans (34:32)

So is it significant to you that we're turning negative on the session today? That if we were to close negative again?

Mike Wilson (34:38)

Well, it just means that we probably can go revisit the low end of the range. I don't think it tells you anything that we're going to have to take out that range. We're probably going to need some new information, more negative information to probably take out yesterday's lows because it was so capitulatory. It was the highest volume day on record. I mean, we had liquidation, we had defensive stocks going down. And as you noted earlier, you were talking earlier with Steve around the bond market. Part of the bond market sell off was just people selling what they can sell rather than what they want to sell. We're seeing classic signs of forced liquidation. That's capitulatory. So you're going to need something incrementally negative to take out the low end of that range.

Kelly Evans (35:15)

In my view, I still would feel a little bit more comfortable in a weird way if the 10 year was at $3.90 right now.

Mike Wilson (35:21)

Well, sure, that helps valuation, right? That makes the case that, you know, okay, we've got there on valuation and that's really probably the biggest, I think, hurdle right now is that we came in to this year with extremely high valuations. And I think, you know, people trying to justify them saying it's a new normal, whatever, and, you know, high valuations are always a risk. And so, you know, part of this correction, by the way, this correction started four months ago. It didn't start, you know, two, three, four weeks ago with the tariffs escalating. This has been ongoing, which is part of our thesis, which is that the first half was going to see growth, negative effects from not only policy, but also the AI Capex theme, which has kind of lost some of its luster. Also, the Fed don't forget the Fed stopped cutting rates in December. So there's just an enormous number of headwinds beyond tariffs. Tariffs is catching everybody's attention because it's probably the one that has the most uncertainty to it. It's very hard to measure. But let's not kid ourselves. There's probably three or four or five other headwinds that have been weighing on stocks now for most of the the year.

Kelly Evans (36:18)

I spoke with Bill Miller over the weekend who pointed to the fact that the last few times we've seen back to back 4% declines like we saw on Thursday and Friday, I think it was 1987, 2008, moments like that. And after 612 months, 6, 912 months, we were always higher. So I don't know if that gives comfort at a time like this or if it just points to just how big this dislocation is that we've been through. And just because we've been through it and because the worst may be over doesn't mean the market is. You know, think back to 08, right. We had some real washout moments but then there were also just kind of months of grinding and forming that bottoming process.

Mike Wilson (36:54)

I couldn't said it better myself. I mean when you have this sort of action, you should be getting more bullish, not bearish. Right. And that's why we're not throwing in the towel that you know, and by the way the 6500 stands but it's not necessarily in six months. Right. It's sort of a longer term view that, you know, the good part of the policy changes are still to come and that would be lower rates, you know, fiscal consolidation, deregulation, perhaps incremental tax cuts. Right. That stuff is on the second half of the agenda. And you know, the markets are discounting machines. Right. And we peaked in November, December on the expectation that everything was going to continue on that pace. But the market's smarter and it figured out that no, that's not going to be what's happening. It's going to be we're going to these growth headwinds. Well, who's to say that in two months the market isn't looking ahead six months and saying, you know what? Everybody's forgotten about these good things that could be coming down the pike. And the other thing I would say is that you know, the, you know, the it, you know, excitement around that it's really been an excitement around AI Capex. That's really it. But if you actually look at the IT spending for the last two years, it's been in a recession just like most of the private economy. So, you know, we've, we've been talking about sort of a rolling recession at periods of time. I could see a rolling recovery where you don't really want to, you know, focus just on the s and P500. But there's, you know, parts of the economy are going to start recovering sooner because they've been going through such a tough time for the last two or three years. And that's really what our work we're trying to do now. But you know, in the moment today it's about these technical features and the market trying to find a level. It's way too early to be making calls about a rolling recovery, but it's not as far out perhaps as you think.

Kelly Evans (38:24)

Do you look at things like the homebuilders, you know, which were green on Friday. I haven't checked the price action today. Do you look at an Apple right down 30% year to date, down 20% in a week, red again today. I mean, are there areas where you can just say, you know, the market has done so much work here that you can have conviction or are because of the tariff situation and Apple's unique supply chain, is it, you know, just kind of stay away and wait for more information?

Mike Wilson (38:49)

No, it's exactly what you said. We're looking for areas that have been, you know, being done so much work to the downside really for the last year or two. And I would say a few areas, you know, we're not pulling the trigger. We've been underweight these areas but you know, we're looking at them. Seems like homebuilders, things like consumer goods where there's been, you know, a lot of price deflation, perhaps even semiconductors and other parts of it, spending away from AI that you know, have had had a tough time. These are areas that are, that are ripe for, you know, a bottoming process. It's probably too early but, but to me that's the, that's going to be what you should be focused on. You shouldn't be focused on trading index level, you know, everything bottoming at the same day. There's some event that brings in the all clear. That's what investing is all about. No different by the way, when things get extended, you say it's time to let go of this stuff. You know, like last year a lot of stocks got extended and it's like this is in the valuations you can't justify. So we got to let it go. So yeah, we're Looking for areas that are more cyclical in nature. It's not there yet. They've been through a two or three kind of recession on their own. And that rolling recovery story is something that could perhaps play out in the second half as rates come down.

Kelly Evans (39:51)

Super interesting. Mike, thanks for bringing us that perspective today. Appreciate it.

Mike Wilson (39:54)

You bet.

Kelly Evans (39:55)

Mike Wilson with Morgan Stanley. One area we're watching are the cruise lines. Shares of Norwegian up 2% after being up nearly 7% earlier. Now this comes on a big pivot. They had a 52 week low yesterday. Get tariffs, tax questions, recession fears all weighing on the space this year. But some analysts have been turning bullish. We've talked about that. Expecting a trade down on vacations to boost cruises. Let's talk to one of the key players now. Norwegian CEO Harry Summer. Our Contessa brewer brings us that. And Contessa, we appreciate it. There is just so much going on right now. It's great to hear from from Harry. Welcome.

Kelly Evans (40:29)

Yeah, it's been really interesting, Kelly, because here we are, Harry at Sea Trade, which is the cruise industries big conference and you and your competitor CEOs were on stage today. Basically the consensus is tariffs are not an immediate impact on supply chain chain. And are you susceptible to recession? Yes, but resilient. That being said, you're just off an earnings call where you said look, 2025 is looking great. We've got all these forward bookings. How are you feeling about consumer sentiment given all the changes that we're seeing in the markets?

Harry Sommer (40:58)

You know, I think, you know, you said a lot of things. I'm going to try to unpack them to the best of my ability. You know, we think at the forefront that cruising represents a fantastic value. You know, when we say study it, the average cruise is priced about 30% better than the average hotel, the average hotel vacation. And we're such a small percentage of the industry where about 2% of the overall global vacation market is cruising. So when you look at our low penetration, our rate value, if you will, value gap with hotels, we think, I wouldn't say that we're recession proof, but I think when there are bad times, people still want to go on vacations. Cruising represents the tremendous value.

Kelly Evans (41:35)

You haven't seen an automatic reversal, of course, like forward bookings just plummeting because of the jitters that we're seeing shaking the markets.

Harry Sommer (41:44)

Listen, there's no doubt that the last few days have been a little rocky for us. I think every company around the country is sort of living through this. These changes that we've gone through since last Wednesday. That being said, no dramatic, dramatic U turns. You know, we have the benefit of being about 65 to 70% forward book for the next 12 months. So 2025 is pretty much done. We're now looking maybe for late Q4, 25, early 26 for bookings. We have time to be patient and we will be patient.

Kelly Evans (42:12)

You know, there's a lot of talk this week about America bringing manufacturing back to the United States, that we used to be a big shipbuilding country and we're not anymore. You're launching a new ship this week built in Italy. Italy has a way of keeping the shipbuilding in Italy by financing the shipbuilding.

Harry Sommer (42:32)

Sure.

Kelly Evans (42:33)

Is that something that could work for America?

Harry Sommer (42:34)

You know, really, it's, it's an entire ecosystem that Italy and also Germany, France, Finland, there are four countries in Europe that build ships. All four of them have developed this comprehensive infrastructure. So yes, financing is definitely a piece of it. The, the Italian government supports the, the construction of ships for export, if you will, for use in international waters. And they give us very favorable terms here. We have 3, 4, 5% interest rates, you know, fixed over a 12 year period. It's great terms for us. It allows us to have good returns to our shareholders, our stakeholders in financing the ships. But it's not just the financing. They've created an entire infrastructure. Engine manufacturing, cabin manufacturing, theater manufacturing. The United States can get into these things. But I want to be clear, it takes years to develop that type of talented infrastructure. So it's possible, but we need to embark on a multi year, perhaps multi decade path.

Kelly Evans (43:27)

You mentioned the pandemic on stage today said very dark AON and their marine expert said it is still the primary threat to the cruise industry. What have you learned from the pandemic and how does it help you be resilient in the face of other economic headwinds?

Harry Sommer (43:43)

You know, we certainly don't see it as a primary threat to the industry. I'm not sure where AI was getting their information from. You know, the cases of COVID are way, way down. It's almost equivalent.

Kelly Evans (43:51)

I think they meant a global pandemic.

Harry Sommer (43:54)

Okay, there you go. We'll shift that a little bit to global pandemic. You know, I think we learned a lot. We learned a lot in terms of how to operate safely, how to operate in environments where there are unknown things like this happening. I wouldn't say that was necessarily did well during the time. We learned a lot of lessons. And now cruising represents probably one of the safest vacations out There.

Kelly Evans (44:13)

Harry, it's good of you to join us on a busy day here in Miami. And Kelly, it's been a really interesting view of how the whole cruise industry is riding these rough seas of tariffs that we have seen royal the markets.

Kelly Evans (44:25)

Yeah.

Harry Sommer (44:25)

Thank you for having me.

Kelly Evans (44:26)

We really appreciate. Hey, Harry, can you hear me, by the way?

Harry Sommer (44:31)

Yes, I can.

Kelly Evans (44:32)

Please. Do you want to comment? You know, remember the question. Commerce Secretary made some accusations about your industry not paying taxes and so forth a few weeks back. Have you had a chance to respond to that?

Harry Sommer (44:43)

Yes, yeah, we have. We actually headed out to D.C. last week, me and my fellow CEOs, to talk to our, our friends on Capitol Hill. So the truth is cruise lines pay two and a half billion dollars in taxes to, to the federal, state and local municipalities throughout the country in the United States. So any narrative that the cruise industry doesn't pay its fair share, doesn't pay taxes, is simply incorrect. In fact, we, and there are other cruise lines actually have US Flagged vessels that are subject to normal income tax structures as well. So we absolutely, we believe in the United States. We support the United States. We pay our fair share of taxes. I just want to be clear that though the administration has been great supporters of us as well, and I think I said this in the last earnings call, the work that they're doing to try to, to get peace between the Ukraine and Russia with the temporary cease fire, the work they're trying to do now in the Middle east with Gaza and Israel, to the extent that those regions in the world can stabilize, that can unlock tremendous value for the cruising industry to go back to places that were very popular with our guests.

Mike Wilson (45:41)

Yeah.

Kelly Evans (45:41)

No, I appreciate the constructive attitude. You could work in diplomacy. Do you know where that, that came from? This idea that your industry is not paying taxes. Then is that just fake news?

Harry Sommer (45:52)

You know, I'm going to be honest. We don't, I don't know where it came from, you know, but the people that we've talked to in Capitol Hill support the cruise industry. They realize not just the taxes that I mentioned that we pay, but the hundreds of thousands of jobs around the country that we support. You know, Our ships visit 19 states and territories in the United States and we source things like beef and grain and things like that pretty much from all 50 states in the U.S. so we believe, believe we're a great engine for the US Economy as we source all these things locally, and we plan to continue to be that way.

Kelly Evans (46:23)

All right, Harry Contessa, thanks. We appreciate it. Today, Norwegian's Harry Somer own Contessa Brewer to Bertha Coombs now for the CNBC News update. Bertha kelly, the Justice Department is disbanding.

Kelly Evans (46:33)

Its national cryptocurrency enforcement team effective immediately. According to a memo sent Monday night.

Kelly Evans (46:39)

By Deputy Attorney General Todd Blanche. The U.S. attorney's office will take over.

Kelly Evans (46:44)

Digital assets cases that involve criminal matters, including terrorism, while the Market Integrity and.

Kelly Evans (46:50)

Major Frauds Unit will stop pursuing cryptocurrency.

Kelly Evans (46:53)

Cases in favor of immigration fraud. At least 27 people died when a.

Kelly Evans (46:59)

Roof of a nightclub collapsed overnight in the Dominican capital of Santo Domingo, according to local police. A provincial governor is among the dead.

Kelly Evans (47:08)

Police say at least least 134 people were injured. And the South Korean military said it.

Kelly Evans (47:13)

Fired warning shots after 10 North Korean.

Dom Chu (47:16)

Soldiers crossed the border today.

Kelly Evans (47:18)

South Korean officials say it was not a deliberate crossing. However, the motive behind the crossing remains unclear.

Kelly Evans (47:25)

Kelly. All right, Bertha, thank you very much. Financials are the best performing sector today and the XLF was on pace for its best day since early November. Earlier on. Of course, we've lost some steam here. Shares of the big banks are also still 20% or more off their recent highs. Citi's down nearly 30% as macro concerns persist. And the first ever CNBC CEO Council Poll. The majority of respondents see a recession before the end of this year. And remember, CEOs are usually optimistic. JPM raised its recession odds to 60% and maybe even higher last week. My next guest is a CEO who's not yet in the recession camp. Joining me now is Ron Koszewski. He is the chairman and CEO of CEO Stifel. Ron, I've been looking forward to checking in with you especially, you know, I thought if you came on, we were down 1000 with some construction. Then I thought, well, if you come on when we're positive, that would be and now we're negative again. So it just goes to show these are crazy times.

Ron Koszewski (48:16)

Great to see you, Kelly. Yeah, it is kind of crazy times, but not really that unexpected, to be honest with you.

Kelly Evans (48:24)

Really? You think so?

Ron Koszewski (48:27)

Well, look, look at the beginning of the year, you know, we, we had the lowest S and P forecast of any firm on the street. We're at 5,500. We said then that valuations were high and there was going to be turmoil in the market, primarily the threat of tariffs that we thought would be inflationary, tie the Fed's hands. And we just thought the market was priced to perfection then. Now what has happened here has happened very fast, so much faster than we thought, but the, the basis that, that this was going to kind of happen. I mean, President Trump ran on this, so let's not lose sight of that.

Mike Wilson (49:06)

Not.

Ron Koszewski (49:06)

Furthermore, I would say, Kelly, that what is happening here is the first big step to a recalibration of trade policies that have gotten unfair to the United States. It's a huge step. But the President's transactional. He carpet bombs first and negotiates second, and that's what we're seeing. So you got to be a little careful not to think this is the new normal. This tariff situation is not the new normal.

Kelly Evans (49:33)

I'm glad that you said that. I want to come back to that. But you guys have a lot of skin in the game as kind of a deal firm advisory, investment banking and so forth, where we've really seen a stall so far under his administration. So when you're kind of advising or positioning the firm and when you say, look, you got to take them at their word, this is what they're doing, you know, that could interrupt further, interrupt business for the duration of the year. Right?

Ron Koszewski (49:57)

I do. I mean, I think that, I think that, you know, this is not normal politics. Normal politics would, we'd have 10 state dinners to move the needle 1/100th of a percent. This is a much more, you know, in your face, we're going to get it done approach and it's causing some short term pain. But look, we were talking two months ago, Kelly, about the unsustainability of the US Twin deficits being trade and the budget deficits. Interest exceeds defense spending. A lot of these things need to be recalibrated. And this is just, you know, business approach in politics and a lot of people aren't used to it.

Kelly Evans (50:38)

So to put it a little bit more bluntly, maybe this is unfair. But if you, if you kind of see what they're trying to do and understand how it could hurt business, I mean, would you go so far as layoff? You don't want your staff to sit around doing nothing, right?

Ron Koszewski (50:52)

Yeah, we're busy. I mean, look, right now is, is the time that we need to be talking to investors. We caution investors at the beginning of the year that valuations were extended. We're telling investors now that it's a, it's a time to wade into stocks. You know, a typical recession would take the s and P500 to 4400. 4400 from the high of what was 61, 40 or 50. So, you know, the market's telling you a 60% chance of recession. But I will tell you something. The upside from here now is where you would wade in. There are some great companies on sale in the United States right now.

Kelly Evans (51:32)

So talk a little bit about that and how you're going to steer a financial firm through what could be a coming recession. Whatever international business you had done, I don't know how that's being affected. And again, there are now a lot of reasons why people need to tap your brain power to figure out what to do in this environment. But this is going to be a reshaping of a year, it sounds like.

Ron Koszewski (51:53)

Well, it is. And I think that that's again, everyone's very nervous because politics doesn't normally work this way. I mean, look, politicians cajole, they cajole people and it takes years to get some of this done. I've never described President Trump as a cajole or he's again, transactional and we are. It's very difficult to do an M and a transaction or run a business if you're not sure what your cost of goods sold is. Think tariffs. If you don't know what it costs to put something together, that's hard. And second of all, we have a tax bill coming down the pike where it appears that every line item is up for discussion. So that uncertainty makes for a difficult environment. But I think it's short term and I think that we, in the long run, it's a step towards making the United States stronger, economically speaking. You know, our, our allies, our best allies have overproduced and over saved and we have funded that through twin deficits and that needs to be recalibrated.

Kelly Evans (52:59)

But I just wonder what that looks like. I mean some say that will mean almost a, it's less of a financialization of the economy, it's a re industrialization and you're a financial firm.

Ron Koszewski (53:11)

Hey, we're at the fulcrum of savers and investors. And so we were feeling the short term uncertainty for sure. We're really adding value by helping investors understand where they should be allocating money in this, in this market. And I feel that frankly, Kelly, not I feel that we, we called this right up to this point, we started the year cautious. I'm sitting here today saying it's an opportunity. Call me back on your show and tell me I was wrong. Okay, that's fine. But I think that longer term what you're seeing here is an administration that wants to make some changes in what has been an 80 year world order of globalization is being recalibrated here. It's just being done a lot faster than most politicians would do. Well, a lot faster.

Kelly Evans (54:04)

Absolutely. And kudos to Barry, kudos to the rest of the team and everybody for, for trying to kind of help people now. And as you say, you think this is the time to start thinking about getting back in? Ron, really glad you could join us today. Thanks so much, Ron.

Ron Koszewski (54:17)

Got it. Thank you, Kelly. Good to see you.

Kelly Evans (54:18)

You too. Chairman and CEO of Stifel Financial. As we head to break, take a quick look at stocks. The NASDAQ is back in the green after erasing its 5% earlier gain and then turning briefly negative. The Russells, the small caps, are still down about 1%. We'll be right back.

Kelly Evans (54:38)

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Mike Wilson (55:08)

Football season is back. Sports business expert Mike Ozanian breaks down the latest numbers. The biggest and most profitable sports league in the world.

Kelly Evans (55:16)

Exclusive NFL team valuations.

Harry Sommer (55:19)

September 4th CNBC.

Kelly Evans (55:24)

Welcome back. We're watching the tech names giving back much of their early rally, especially Apple, which is down more than 2%. Nvidia is hanging on to a 2 1/2% gain. It's right around 100 bucks a share. But tariffs continue to be a question mark. Even Nvidia as I mentioned, which was up 8% at its highs today, has given up the bulk of that. Deirdre Bosa has more in tech. Check Deirdre Kelly.

Kelly Evans (55:45)

It was an extremely short lived rally even for the AI trade and even as the positive signals on the demand side, we get them. But they succumb to pressures on the supply side. And growing challenges for tech amid the new Trump administration that so far suggests the policy environment is not any more favorable. May even be more hostile for tech. Tech leaders that courted favor, they likely hope for more relief. Instead. Tariffs are looming, FTC and DOJ lawsuits persist. And now their ability to build out compute capacity for the biggest technology shift of at least a generation. That is threatened. Take Oracle founder and Trump supporter Larry Ellison. He stood at the White House podium in January pledging to build out a half a trillion dollar AI infrastructure project, Project Stargate in America with open air and softbank that would be a catalyst for growth and job creation and secure US Leadership in AI. This week the information reporting that Oracle is now rushing to finish a separate Data center for OpenAI before tariffs make the servers and other materials a lot more expensive. Then there's Apple. You mentioned that in the lead in Cali falling into the red today. No guarantee that Tim Cook's playbook during that first Trump administration will work this time around. And it will be able to avoid rising iPhone costs. That's what we're seeing play out in the stock price. Tomorrow I'm going to bring you an exclusive interview with Google Cloud's chief Thomas Currian for the Mega Caps Next Cloud event. This is key. Lots of things we can touch on like AI spending, the regulatory environment. Remember that they are planning Google's biggest acquisition ever. That's whiz. And also how he and Google plan to navigate these new tariffs. Especially as you know their capex is among the largest 75 billion and they have big plans to build data centers.

Kelly Evans (57:26)

Very much looking forward to it. Deirdre. Thanks for now. Appreciate it. Deirdre Bosa, that's it for us. Thank you for watching the Exchange and I'll join Brian Sullivan for Power Lunch right after this. You've been listening to the Exchange. Make sure you're subscribed to get each episode every day, same time, same place.

Mike Wilson (57:50)

Will the job market bounce back from the recent weakness? Will the White House challenge the accuracy.

Harry Sommer (57:55)

Of the data numbers and analysis of.

Mike Wilson (57:58)

The critical August jobs report? Squawk Fox Friday 8:30am Eastern streaming on CNBC.