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The Shutdown's Impact on Your Money 10/1/25
00:43:26
We break down how the government shutdown could impact everything from the IPO pipeline to home sales. Plus, the important difference between 2013 and 2018 when it comes to returns.
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A
All right, thank you Scott, and welcome to the Exchange. I'm Mike Santoli along with Melissa Lee. Tensions on Capitol Hill heating up but the market keeping its cool. All three major indices shrugging off the government shutdown which is now underway. Actually the Dow down fractionally, the rest up from early losses, yields lower following a weak private payrolls report. The 10 year touching the lowest level in about a week.
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C
Meantime, Bitcoin is higher, it's up 3% right now. And gold hitting a new record. This is the dollar is declining on pace for its first week in three and on pace for its worst year in more than two decades. Take a look at Pharma stocks higher for a second day strongly following the president's drug pricing plan. We'll take a look at whether the last cloud may have lifted for that sector. That is straight ahead. But notable performance here helping the Dow for instance.
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A
Absolutely. Yeah. The laggard groups, health care in particular are getting a little bit of a bed the first day of a new quarter. So maybe a little bit of kind of rotation around and that's the source of the resilience of this market is one of the sources. Again, Nvidia making new highs doesn't hurt either. But in general market just hangs in there and I think frustrating some people who have been wanting a pullback this time of year and maybe that's why it hasn't pulled back more substantially.
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C
All right, meantime, the government shutdown means there will be no employment report come Friday. That's because the government is shut down. The Labor Department is closed. No one to crunch the numbers and release them. Senior economics reporter Steve Liesman joins us now with more on this. What are we going to do Steve, on Friday at 8:30?
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D
Maybe get off the data hamster wheel for a little bit. I think take a broader view. The government payroll, Melissa, is still vital but over a short period of time. There are still ways to figure out what's going on broadly with the jobs market and the economy. ADP volatile month to month. We learned that in spades today. But over the course of a year lines up pretty well with the private sector data from the Bureau of Labor Statistics. In fact, year to date in August it was off by just 9,000amonth before the but but it's always unfortunately not that good. Take a look. Like a lot of indicators way off during the pandemic. And that raises concern. If jobs are at an inflection point right now, alternative data could miss the change. Jobless claims, they're still going to be published but it will give us data on firing though not hiring. Michael Froli of JP Morgan says continuing claims plus the Conference board's employment date of jobs hard to get. It's a good proxy for the unemployment rate. Claims you can see that have been elevated since May but have recently trended just a little bit lower. Ian Shepherds from Pantheon, he says the best single indicator of payrolls 4 month ahead hiring intentions in the small business NFIB survey. And you can see after weakening early this summer, it's showing some signs of stability and a big missing piece of the data that I cannot help you with. Government jobs. The Trump administration's layoffs of federal workers were likely to show up this month and next. There's no replacement for that in any private sector data. ADP came in -32 for September in part because of revisions. Those revisions will keep in place the trend of a softer job market. Guys. So maybe a bit softer than we previously believed.
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A
So we have really confirmation from multiple fronts of this slackening labor market. And so what?
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D
And by the way, we never got to inclusion about a slackening labor market unless it was on multiple fronts.
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A
Right?
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D
Exactly. That was always the smart way to do it.
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A
And so we have that. It reinforces the market's confidence that October is a rate cut. What I find fascinating is this debate about whether the labor market as we see it now is overstating the deceleration in the economy or is it kind of off on its own with specific factors or is it kind of leading to a broader conclusion that GDP is going to soften up as well?
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D
So the smart ass answer would be yes.
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A
Yeah, right.
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D
Those things being potentially true, I think we're, we perhaps one explanation for what happened is all of these changes from Trump administration and businesses said, whoa, wait a second, and I'm going to hold off. We do see in the data, not the firing and, but not a whole lot of hiring. You also have a problem because one way to fall back without some data is to use ratios. But with what's happening with immigration, the ratios are all coming down or they're changing essentially both sides, the numerator and the denominator. And I think you may have been through a period, this is what several Fed officials have said, where you have this reaction of uncertainty by businesses and then things look a little bit calmer and so maybe they're starting to go ahead. So we could miss the fall and we could miss the comeback depending upon how long this goes. But I want to go back to the first thing. We always should have been and always should be taking a broader view of what's going on. Jobless claims, adp, isms, nfib, all these things we all look at and say look. And there are times when like the job market will do this and I'll be like, no, because none of the other data is doing that. So this is an outlier here.
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C
Meantime, you do have a statement from.
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D
Yes, very quickly, yes. Lisa Cook's attorney sending out a statement which said, and I have it right here, the court's decision rightly allows Governor Cook to continue in her role on the Federal Reserve Board. And we look forward to further proceedings consistent with the court's order that further proceeding oral arguments in January when the court could decide then or sometime in the summer of next year.
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A
Got it. All right, Steve, thank you.
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D
Pleasure.
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A
All right, our next guest says if investors don't much care about much other than momentum in tech stocks, why would the government shutdown be any different? Joining us now, Steve Sosnik, chief strategist at Interactive Broker. Steve, it's good to have you on. So is that really the way you read this market right now is that investors are kind of blindly riding momentum and the aggressive parts of this market, not paying attention to the macro fundamentals?
- [06:37]
E
Good afternoon, Mike. I don't, I would say blindly, just this is the strategy that's worked is, you know, one of the questions that, that I threw back at people when, when the, just when the Discussion was how is the government shutdown going to affect things? I said what is this going to do to Nvidia Microsoft matter? Is this going to change the investment thesis in any of these companies? Probably not. Certainly not in the short term. You know, yes, I mean you can go down the road and extrapolate, you know, government spending, etc. But bottom line is these stocks are going to do what they're going to do and investors are going to keep doing in them what's worked for them before, which is buy dips, Chase rallies Momo and FOMO continues to work for the bulk of the active investors out there.
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C
A government shutdown also doesn't improve the math. Steve, when you take a look at some of these deals and how they will go about financing, particularly on the Oracle side. I know Davidson had some notes today questioning the math here in terms of how much Oracle will have to raise over the next four years in order to satisfy even its commitments to Open Air without even getting paid from Open Air. Yet you also have some questions about how this math is going to work.
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E
Yeah, hi Melissa. Yeah, that, that I do wonder about this because they've committed to 300 billion in spending from open air over the, over the five year period. Well, Open Air is had. The most recent numbers were annualized revenues of 12 billion in revenues and a cash burn of about 8 billion this year so far. And so how do you get to enough revenue to justify all that spending? Meanwhile, Oracle has had to go out and borrow $18 billion in advance. In some ways this could be reminiscent. And history of course doesn't repeat, but it often rhymes. Think back to like Global Crossing and Northern Telecom and God forbid Enron and WorldCom. But the, but the companies that were laying out the fiber required for the Internet to develop into what it is today. And that fiber was necessary and proved very valuable. But in the meantime it took out some very big companies along the way. A couple of them for fraud, but a couple of them just for having to make these huge commitments that didn't pay back quickly enough for their creditors.
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A
Yeah, it's been interesting, Steve, the way that the bullish storyline has evolved with regard to not really the marginal players, not even Oracle, but the hyperscalers themselves, the Metas and the Microsoft's and such. Whereas a year or two ago you say, well of course we have the Mag 7, they're the most profitable companies on earth in history and free cash flow, they don't even know what to do with it. Now they're spending down their Free cash flow. Actually, price to free cash flow valuations are looking really rich right now and the market is saying, yes, of course, but that's because they're building the future in a hurry. So I guess until, until the price action breaks or until even earnings estimates stop going up, it's hard to fight it.
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E
Well, that's, that's clearly the case. You know, one of the lessons I learned early, you know, about looking at stocks is you can't fake cash flows. You can, you can sort of massage earnings. You can even massage, when you time revenues. It's very hard to massage cash flows. And the cash flows are still there. But at some point you do have to wonder if it's absorbing all this cash and you know, and then can be invested at the same ROI that the basic businesses is, is enabling. You do have to start to worry about, about how this, this all transpires. You know, again, this is, I saw a statistic recently that, that only a very, you know, relatively small number of portfolio managers and active traders were around during the late 90s. And so this is a way, again, that history sort of goes through the same motions. Doesn't mean it's going to come out the same. It doesn't mean that we're looking at an impending disaster ahead of us. But I do think at some point, you know, people will start to wonder, you know, there's these, where are we going to get all the cash, all the, all the cash flow required to just keep building this stuff out? And is it being spent wisely? Is it being, is it generating the same ROE ROI that other endeavors that.
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C
These companies are doing, meantime driving the market? Steve, you say is Momo and fomo. And so I'm wondering from your standpoint, at what point do you start getting concerned about this as a driving force? I mean, historically, when you take a look at the markets, what are some of the things that, that kill Momo and fomo?
- [10:58]
E
You know, it's like the butterfly, butterfly effect, Melissa. It's some, it's often something you don't even expect. The Fed is, of course, the biggest killer of these things. And I think while the Fed is certainly skewed, a bit more accommodative, you know, certainly with the last rate cut, you know, do you have to wonder whether the market is a bit ahead of the Fed in terms of rate cuts? But it's been ahead of the Fed for years. And so that's not necessarily an issue. I think, you know, you start, if you start to get a material weakness in the economy. And this is where I start to worry that investors, you know, with the mindset of good economic news is good and bad economic news is good too, because it leads to Fed rate cuts. If the economy were to decelerate sufficiently, I think the Fed gets caught behind the eight ball and that starts to weigh on company earnings and that starts to weigh on the market. And we saw in April these very crowded trades were actually the ones that underperformed. The worst they got recovered. They recovered because of the relentless dip buying and ultimately sort of the change in markets tone and sentiment, government change in tone and sentiment as well about tariffs. But that to me is, is sort of the weak point there.
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A
Yeah, we did see that in 2022 as well, that those big NASDAQ names did underperform in that downturn. Steve, appreciate the time. Steve Sosnik, thank you so much.
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C
We want to mention one of today's biggest movers, and that would be Nike. Up about 5% for its best stay since June after surprising the street with sales growing about 1% versus a year ago. The CEO says Nike is making strides in its wholesale running in North America segments. But China continues to be a pain point for them. Here's what he told analysts on the earnings call.
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D
Greater China, as I mentioned on the.
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Last call, is facing structural challenges in the marketplace.
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Our business was down 10% for the quarter. Seasonal sell through continues to underperform our.
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D
Plans, requiring larger investments to keep the marketplace clean.
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C
Shares coming off their first negative month since April. They are currently 20 buys, 16 holds and 2 sells on the stock. But this report, Mike, was, it was enough to convince analysts that a turnaround story is actually intact.
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A
There's a willingness to believe, I think in this phase of it, you know, if you look at the earnings level, the absolute earnings level for this fiscal year and next it's back to like 2014, 2015 level. So essentially you've rebased the earnings to a radical degree. The stock is not really far above where it was back then. So it's not as if it's cheap, but it just seems as if people are willing to say, look, there's a long distance between what they're earning right now and what the high watermark was a couple of years ago.
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C
I mean, the question though here is 1% revenue growth for a stock that's valued at 44 times forward.
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A
One of the biggest markets. Still kind of unreliable.
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C
Exactly. Some question marks.
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A
Absolutely.
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C
Coming up. We are 13 hours into the government shutdown with no end in sight. And in that time, the U.S. travel association estimates $75 million in travel spending has been lost. But that industry is not the only one feeling the effects already. We'll take a look at the impact to the housing market and IPO pipeline next.
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A
Plus, Atlanta Falcons CEO Rick McKay will join us in studio. The $8 billion franchise ranks 11th in CNBC's official NFL team valuations. A look at the league's international expansion, next year's World cup and more when we return. The exchange right back. This is the exchange on CNBC.
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And now a next level moment from AT&T business. Say you've sent out a gigantic shipment of pillows and they need to be there in time for International Sleep day. You've got AT and T5G so you're fully confident, but the vendor isn't responding. And International Sleep Day is tomorrow. Luckily, AT&T5G lets you deal with any issues with ease. So the pillows will get delivered and everyone can sleep soundly, especially you. ATT 5G requires a compatible plan and device coverage not available everywhere. Learn more@att.com 5G Network.
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Taylor Swift just.
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Came off her record breaking Iris tour.
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What can she do to top it?
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The pop superstar announcing a brand new album.
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Literally everything she touches.
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People won't know about the Swift effect.
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Cnbc premieres Saturday, October 4, 10 Eastern.
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C
Welcome back. The securities and Exchange Commission among the many government agencies set to see major disruptions in the wake of the shutdown. One of the agency's many responsibilities include giving the green light to companies looking to go public. But that task may prove difficult with staffing already being reduced to just essential workers. One company that was able to IPO just under the wire today, Neptune Insurance. That stock is up about 17% after opening at 2250. For more on what's to come in the IPO market, let's bring in Dan Primack, business editor at Axios. Dan, great to have you with us. Was the calendar full already? Are we going to expect to see a lot, put their plans on hold and then all of a sudden the floodgates open again at the end of the shutdown?
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B
I think that's probably what happens. You know, you've got probably about a dozen companies that are on file, you know, to go public at some point. The two that are most interesting to me, there's one called alliance, which is a laundry equipment company, and then there's University of Phoenix, the kind of the secondary education company. They're both interesting because they both chose to launch their roadshows earlier this week Knowing full well there was probably going to be a government shutdown. And I assume the bet there for both of them is it's going to be short lived.
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C
Right. And Fermi did mention, Fermi did manage to go public and that sort of an energy company with a well known backer, Rick Perry. Right.
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B
Yeah, I went public last night. It and Neptune both basically got in just under the wire. I can't. For me, I know Neptune kind of got a little lucky. This was always their schedule to price Tuesday night, begin trading on Wednesday. But in both cases, you know, the writing was on the wall and what you really needed was you needed that effectiveness statement by last night, you know, by midnight before, before the SEC went home for, you know, an indefinite period of time.
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A
Dan, I was trying to game out exactly when a logjam might really build. If the shutdown goes on for a while, presumably these companies need to sort of update their financials through the third quarter and then have that get kind of get clearance and maybe get on the road again. And I mean what's the process by which we have to worry about stuff getting really stalled out?
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B
I think we need to wait a few days, maybe a couple of weeks. Right. Because there's no particular reason for most companies why they need to go public in Q4 as opposed to Q1. You know, if they're so long as they've got all their internal stuff ready to go and their bankers, etc. They could obviously wait a couple of months, January or February or fine months to go public historically. So I think this is really going to be companies waiting, watching. Is this one of these shutdowns? And we've had a bunch of them the last 28 years. I'm sorry, 24, 48 hours. Well then, then nothing changes. Right. They move ahead with their plans. But if this goes a week, maybe two weeks, I think that's the moment where most companies will think, you know what, there's no reason to rush. There's no reason to sit here every day reading the paper, waiting to see when the shutdown ends. Let's just kick the can into the new year.
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C
Well, I'm wondering, Dan, I don't know if you, if you know this specifically, but if the SEC is not accepting documents for an ipo, I mean, are they also accepting company filings? Because in a couple of weeks we're running into earnings season and that could push this IPO pipeline even back further. If they have to prioritize reviewing certain documents first, they are accepting.
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B
So if you're already traded company, your quarterlies or whatever, they're accepting all those. Where it comes in is anything that they need to approve or to make effective. So that means any IPOs, any follow on equity offerings, basically any new shares getting introduced into the market. But if you're just reporting your quarterly earnings, those are going to go into the system just fine.
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A
And Dan, what's the general sense of how the recent crop of IPOs have done both for, you know, the investors, the inside investors and then in terms of just the market action? Because you have these massive one day pops in a lot of the coveted deals and then they've really traded off sharply since then. It feels as if there's a sort of stampede to get in through a narrow door and then they bleed lower.
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B
Yeah, there's been a little bit of a vibe shift for sure. Right. Because you said you had those, couple of those, you know, figma, etc. Yet some of those huge, huge pops on the first day. But the majority of those companies still are trading above their IPO price or they two or three times their IPO price. Not necessarily, but look, still successful offerings. And the reality for most of these companies is most of the companies themselves aren't selling a huge amount of stock into this. Their insiders are locked up for whatever it may be six months. So they're, they're worried kind of about the longer term with these things in general. The big question has been though, can we go public? There were several years where a lot of companies felt they literally couldn't do it. They wouldn't be able to price the ipo, let alone where they would trade in the aftermarket. What we see right now is if you go out, you can go out kind of regardless of sector. We have seen biotech, we have seen industrial again yesterday. We see flood insurance and an energy reit, obviously a bunch of big tech companies. If companies want to get into the public markets right now, they can, you know, are they going to get a huge pop and then trade back? Maybe. But still the goal should be get out, right?
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C
Dan, thank you, Dan Primax.
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A
All right, let's turn now to how the government shutdown could impact the housing sector. Diana Olik joins us now with those details. Diana?
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I
Well, Mike, the biggest impact from the government shutdown could be on mortgage rates. The 10 year yield, which mortgage rates loosely follow, is now down to the lowest level since September 18th. But much of the drop this morning was because it jumped higher yesterday. So the 30 year fixed was actually unchanged today. According to Mortgage News Daily Lenders may be waiting to see if this abrupt reaction is actually going to continue. Now. Next is the National Flood Insurance Program, the nfip. It will continue to pay out claims for existing policyholders, but it won't write new policies or renew existing policy. And that impacts about 1300 property sale closings per day, according to the national association of Realtors. This is a delay. The home sales would eventually close if and when the shutdown lifts. Finally, the FHA mortgage program, which provides low down payment loans to borrowers with lower credit scores. It would still operate to endorse single family mortgages, but likely at reduced capacity. And that would slow down the process for borrowers. Same for VA loans. The exception will be for products like home equity conversion mortgages. Critical FHA operations like claim payments, mortgage servicing, loss mitigation and reo. That's foreclosure property management. They will continue. Some condo project approvals though are suspended. That according to the NAR, FHA, VA and USDA. They made up just over 33% of all mortgage applications last week, according to the NBA. So it's a big chunk, guys.
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C
Diana, can you walk us through? And if you are in the market, you're a buyer, you're in contract, you're looking to get a conforming mortgage through one of these government agencies. The time to lock, because I think that's sort of the, the most precarious time for a homebuyer could, because of the delays in processing. Could we see that window move around more or be diminished? Because you're just, you know, we're waiting, waiting, waiting.
- [21:54]
I
The rate is unconnected. Now when you say a conforming loan, that's Fannie and Freddie, that nothing's going is changing in that Fannie and Freddie loans are still going on. It's the FHA that is the mortgage insurance, the federal government's mortgage insurance program for lower down payment loans. That's the one that you're going to see delays at. But when you talk about the actual rate that you're approved for, you're already going to be approved for that rate. It's a question of when they're going to close on the loan. Anybody who's bought a home knows there can be all kinds of delays, not just a government shutdown. This one's a big one, no question. But there can be all kinds of delays in the closing process, which is why it generally takes one to two months to close on a home. So again, these are delays within the system. It doesn't mean that the it's going to stop it just means that it will be delayed. And especially if it's really the for the people with the flood insurance, that's going to be the hold up because NFIP will not operate and then you can't close on that loan. So that's the biggest delay on that mortgage rates that's just going to depend on the markets.
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C
Right. All right, Diana, thank you. A lot of people are wondering out there, I'm sure. Diana. Oh, look. Coming up, a look at how the momentum stocks are now pacing the rally and what that could be telling us.
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A
Plus a value or a value trap. The pharma sector is trading at multiples not seen in years. But with some policy uncertainty being lifted, is it poised for a further bounce? The exchange is back after this.
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G
Taylor Swift just came off her record breaking era store.
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F
What can she do to top it?
- [23:18]
H
The pop superstar announcing a brand new album.
- [23:21]
G
Literally everything she touches.
- [23:22]
H
People won't know about the Swift effect.
- [23:24]
B
See cnbc premieres Saturday, October 4, 10 Eastern.
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C
And we're going to Washington right now taking a look at a picture of J.D. vance, Vice President speaking about the shutdown at the White House. We'll bring you any headlines as they develop. Of course, the shutdown about 13 hours in now. Any news? Of course, the crosses we'll bring to you. Meantime, Mike is taking a look at momentum which is, I mean we were just talking to Steve Sosnik over at Ikea BR about this and it's been.
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A
A persistent source of leadership in the market. I mean it seems like that's redundant but it's not always the case that technically the momentum factor in the market is leading. This is SPMO. That's the big momentum segment of the S&P 500. SP HP is higher beta, more volatile and aggressive stocks and SP HQ is high quality. This is a three year chart. So the bull market we're in right now started basically almost three years ago within about 10 days of that. And what you see is even at the beginning of 2024, you were still kind of in parity with these different strategies. And even as recently as a couple of weeks ago, quality was holding its own. So you can kind of be sort of prudent and careful and quality was working. Now you have high beta ramping and momentum just taking off. So it's kind of self fulfilling in the short term. And, and when I say high beta, we're talking like semis and all the stuff that fast.
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C
But that was basically, that's the April low.
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A
Yes. This year is the April.
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C
And that's where that difference.
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A
So you see the depth of the destruction in high beta because that's it. They move fast in both directions. But, you know, it's hard to say when this becomes unstable, but you obviously have people willing to say that the familiar winners in momentum are going to keep it.
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C
And of course, we have the Robin Hoods of the world and the coinbase of the world riding high on a lot of chase. Yeah, for sure. Yeah. Now let's get to see Modi for CNBC News updates.
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G
Seema, Melissa, the Pentagon reportedly plans to impose random polygraph testing and strict nondisclosure agreements for thousands of people in its headquarters, including many top officials. Now, according to the Washington Post, a draft memo said the NDA will bar personnel from sharing information that is not public without approval or through a defined process. The plan is part of a Defense Secretary Pete Hegseth's effort to stop leaks and ensure loyalty to this administration. FEMA said it will continue its disaster preparation and response efforts during the government shutdown. The agency said today critical functions including debris removal, emergency protective measures and payments to disaster survivors as well as its workforce will remain in operation. And get this, Italian authorities seizing 21 artworks that were part of a software Salvador Dali exhibition on suspicion they were forgeries. Authorities said today that the Surrealist foundation in Spain tipped them off about some anomalies in the works that while they were on show in Rome in the beginning of the year, according to Art News, Dali's works are among the most forged.
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C
And guys, part of that has to.
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Do with ChatGPT and just the ability to make a lot of digital art.
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C
Wow. Seema. Thank you. Seema Modi. Coming up, we're talking sports business with the CEO of the Atlanta Falcons, valued at $8 billion and ranking 11th in this year's official NFL valuations by CNBC. We'll talk about the rise of streaming, the impact of private equity in sports and hosting the World Cup. That's next, back right after this. Welcome back to the Exchange. Take a look at the markets right now. Hanging in the green for the Dow, the S and P as well as the NASDAQ Big movers there, semiconductors with a number of semiconductor names hitting new highs in today's session as well as health care, specifically, big cap farmer making some big moves today.
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A
And Georgia's Republican Governor Brian Kemp vowing to keep FIFA World cup matches in Atlanta despite President Trump's warning he would move them to different cities if the original locations are deemed unsafe. Atlanta is one of 11 U.S. cities hosting the World cup next year. Our next guest is working to ensure its success. Joining us now is Rich McKay, CEO of the Atlanta Falcons and incoming chairman of the Metro Atlanta Chamber of Commercial. Some of the soccer matches will be played on the Falcons home turf, the Mercedes Benz Stadium. Actually, Rich, it's great to see you. Technically not the home turf, right, because you're putting in a new grass field.
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F
For the soccer match for maybe three month period, but it'll be grass. It's a hybrid that's been developed by FIFA with us and it'll be a.
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C
Cool hybrid of what?
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F
Grass and a little caster stitching to let it last longer and withstand the period of time which the World cup will be over.
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A
What is involved beyond that in terms of hosting a piece of the World Cup?
- [28:09]
F
Crazy amount. You can't. There's so much that goes into it and so much planning. I mean, when I think about we made this bid in, I think it was in 14. This is not 14. This is not 20 anymore. This is we're going to 26 when it's going to be hosted. There's a lot on the city side, on the state side, there's a lot on the security side, which is a federal issue and a state issue and a local issue. There's a lot that goes into it. A lot of our people operationally will do their work during the day, get ready for a Falcons game or a United match or a concert, and then get working on what FIFA will look like when it shows up. It's a big task, but it's a really cool thing for the whole area because the impact is you can feel it coming and you can see it. We've got a $5 billion development that is right next door to us in Centennial Yards. It will be the largest development in the history of the city. And that development is they are desperately trying to get ready to be kind of finished for the World Cup. So there's a lot going on in Atlanta.
- [29:10]
C
You're speaking as from the standpoint of being the CEO of Mercedes Benz Stadium, but also the head of the area Chamber of Commerce. So speaking to a lot of the different businesses there, is there a concern that security will be an issue? You mentioned 2014 is very different from today in terms of the president's desire to use troops to enforce security and keep cities safe.
- [29:31]
F
Well, I think security is the primary issue. I don't think we'll take our eye off that issue at all. I think that is a local issue, a state issue, and A federal issue. I just hope that we're all on the same page as we approach it. I think every day that we're in the World cup, which is, you know, a 40 day window, you'll see a lot of security in place because we'll have a lot of people that will be here for the duration, many of which don't have tickets to the matches. They're just here for the event. And so there is. It's a big challenge, but I do think we're ready. I think we were well coordinated. I do think the federal government is going to provide many guidelines and much support, but we're going to have to execute on the ground.
- [30:14]
A
You have concerns on the other side, and this has been aired a little bit as to whether some fans will be deterred from going because of concerns about immigration, cracks downs or anything else.
- [30:23]
F
I'm not, you know, as far as international travelers, yeah, I hope not. But I think for us, the way we look at it, we almost go back to the old coach speak, the football coach speak, which is, hey, let's control the controllables, the ones that we can control and what we can't control. Let's not get caught up in it or worried about it. Atlanta is set to host this. I mean, we have the hotel rooms, we obviously have the airport, we have the infrastructure. I do expect the people to come. Will there be less? I don't know. We'll see. I don't think so. Because I'll tell you right now, if I took my phone out, I think I could find today a couple requests already for those. They just keep coming in. The World Cup's a pretty big event.
- [31:01]
C
How much of an economic impact do you expect it to be?
- [31:03]
F
Gigantic. I think the idea of economic impact can be measured in many different ways. Right. We can all debate it. We can have guys come from universities and say, oh, there's no economic impact. It's real. When you look at the 96 Olympics and what they did for Atlanta and what they did for the metro and what they did for the state of Georgia, it's incredible. And the long tail effect of it, we expect the same thing from the World Cup. The sales tax, the hotel, motel tax, all those taxes, those are all tangible. But the idea that you may get more businesses to think about relocating to your area, the idea that you're exposing people that might want to move to your area, all that is good.
- [31:43]
A
I mean, obviously if the infrastructure kind of stays after the event, it, it helps out as well. Wanted to get to The NFL a bit, which seems like it's just on kind of another hot streak in terms of team valuations, which we, we mentioned private equity buying stakes at pretty high prices here for some of those teams. And then this report of reopening the. The broadcast rights and things like that. So, you know, is there anything that is getting in the way of the NFL's dominance? Because it feels as if every streaming service, every network feels like it's make or break for them.
- [32:17]
F
I think, you know, and I always give, you know, the commissioner and Brian Rolapp, who was former number two and now over and doing golf. But I give those individuals a lot of credit because I think what streaming did for us was they showed the streaming could be additive, not take away. So in other words, it was additive to all those fandom that was out there. It didn't take away from cbs, NBC, it didn't take away from Fox. And I think that has really served us well. And then they've been so strategic in putting us in big moments, whether it's on Netflix for a game, you know, whatever it may be. And that has just grown the fandom. And then I think the other thing commissioner's done a really good job of is the international focus, because I think what the international focus has done for us is open up this idea that you can play this sport anywhere and watch it anywhere. So I think the sky is always the limit in any of these. But we've always got to pay attention to the fact that in the end of the day, we need a competitive game on the field, we need competitive franchises, and we need to deliver a really good product. And that's what I get worried about. And we've, so far, we've done it. And our coaches, our players can't get enough credit for that.
- [33:28]
C
We mentioned that CNBC values your team at $8 billion.
- [33:31]
F
Seems low.
- [33:33]
C
Would you ever consider selling a small part of. Of the team for cash?
- [33:38]
F
So some other Mr. Blank, you know, owns probably 73. I think Arthur owns 73, 74%. So we have sold pieces over the years. It's not something we're looking to do today. It's not something we're actively talking to anybody about today. It's interesting to watch others do it for various reasons. A lot of it is estate planning. A lot of it could be liquidity. You never know what the reasons are. I do think it's always good when you find people as sophisticated as private equity people are, that they would be interested and willing to. I think that's a good sign for us as a business.
- [34:14]
A
All right, great to talk to you, Rich.
- [34:16]
C
Thank you.
- [34:16]
F
Thank you guys for the time.
- [34:17]
A
Appreciate good luck next year.
- [34:19]
F
We need it.
- [34:20]
C
Coming up, big pharma stocks lower for the year. Novo down more than 50% but quit. That underperformance combined with Lou Malta multiples finally spell a bounce for the sector. That's next. Welcome back. Health care, the second worst performer this year with pharma names under pressure. Those valuations also nearing 15 year lows. And that combined with increased clarity on the Trump administration's drug pricing efforts has us wondering whether the sector now offers investors value or if it's still a value trap. Joining us now to discuss is BMO Capital Markets, Evan, David Segerman. Evan, great to have you with us.
- [34:53]
H
Thank you for having me.
- [34:54]
C
It feels like what we learned from the Pfizer announcement yesterday is that drug companies can give in to Trump's demands without actually giving over too much. And that is a huge positive for, for the stock and for the sector. How much does this sort of clear the air for this for this group?
- [35:10]
H
I think over the course of the year, especially after Liberation Day tariffs, MFN or most favored nations pricing has been a real overhang for the sector, really scaring away the generalist investor. Yes, you could make money in Lilly, but of course you go back to 2Q and they the orphan glip on data and that reversed. So I think with this out of the way in reprieve on tariffs for three years with Pfizer, we expect other deals to be inked that could definitely help the sector and get more generalists into the space.
- [35:38]
B
You know, I want to highlight that.
- [35:39]
H
You know, among these names looking at value, you know, we talk about the valuation disconnects between Novo and Lilly. I don't know if Novo is going to fare so well here. Right there, a European company. And I think that a lot of this applies to the homegrown, you know, Pfizers, Lillys of the world. So I'm curious to see how Trump interacts with the Novo, with Novo Nordisk for example.
- [35:59]
C
I wanted to focus in on Pfizer because it has been such a dog for so long. Evan. But with this announcement yesterday, coupled with the Matsera acquisition and the positive mid stage readout yesterday on Matsera's long acting GLP1 candidate. I don't know, it feels like there's a different attitude, a different sentiment around Pfizer. It's up another 7% today. Do you see that as being a value here? It's mid single digit valuation, 7% yield most definitely.
- [36:28]
H
And that's why we've been positive on Pfizer even when it wasn't so cool or in vogue. You know, we saw that upside from the dividend. And now with the Metsehra acquisition, I think they could be a credible player in obesity. The data was good, highlighting that their due diligence process was done well. And then in terms of the fact that they are in good graces with the administration, whether, you know, it comes to tariffs concerns around drug pricing, I could see further multiple expansion. Of course, they do have some issues with their loss of exclusivity products, but many of the pharma names that I cover do. And I think that as long as they stay the course in terms of margin expansion and developing their pipeline, they're in good shape.
- [37:05]
A
Evan, a couple of times you've mentioned the generalist investor and how these things have been shadowing the group. I guess one of them might say, well, that's great. You know, we maybe have dodged a bullet when it came to the drug pricing issues and maybe the tariffs. But then what about, you know, reduced funding for health care research and what about the kind of villainization of products that come out of nowhere and also, frankly, the lack of reliable big growth themes outside of obesity treatments for sure.
- [37:34]
H
And I think that's, you know, I got the question asked earlier. Is the are all the clouds gone? I don't think so. I think that there are still some structural issues that the likes of Pfizer, Bristol Merck have to overcome. Obesity is in its own separate kind of category. To your point, I think that one thing that I'm really watching closely still is next this month. Actually, it's October. We're going to get the IRA negotiated prices for the next round of drugs. That was what really started this overhang under the Biden administration. So that could drum up some concern around drug pricing. So we're not out of the woods yet, but the rhetoric going away around MFN and tariffs definitely helps.
- [38:12]
C
All right, Evan, great to see you. Thanks so much. Thank you.
- [38:16]
A
All right, coming up, another day, another announcement from Amazon launching a private label grocery line after yesterday's smart devices revamped. We'll go inside big tech's battle for the home and whether Amazon can find its footing. Next.
- [38:33]
C
Google announcing a major update to its smart home systems, bringing its Gemini AI straight to consumers in its Nest and smart speaker devices. Mackenzie Segalos has more in today's tech check. Hey, Mac.
- [38:44]
I
Hey, Mel.
- [38:45]
G
So Google is Giving its entire home product suite a refresh, baking its generative AI tech into cameras, doorbells and smart speakers. But the real story here is what that unlocks. This is a low stakes testing ground for what AI native hardware could look like. And the home is ideal. Devices are plugged in and always connected, meaning no battery constraints or the need to be mobile. And with a growing belief that the next major hardware leap could be screenless, where you talk, not tap, these home speakers suddenly matter again. Apple, Amazon, even Google were early to voice assistance, but didn't evolve at the same pace as generative AI. Now they are racing to retrofit what they already have, bolting large language models onto existing devices in a bid to stay relevant. DA Davidson's Gil Laureate told me part of Google's edge is its end to end AI ecosystem, from its own models and cloud to tight integration with Android and Chrome. And today's home amount announcement shows Google's larger push to layer AI across its stack, turning voice into a deeper form of ecosystem lock in. And that's part of why the street is buying it. Alphabet just posted its best quarterly stock performance in 20 years as investors bet that Gemini is not just caught up to rivals, but come into the lead.
- [39:59]
C
Guys, how should we look at this Mac? I mean hardware is, you know, negligible in the scheme of Alphabet's business. So is this sort of like a loss of leader to further lock people into using Gemini?
- [40:11]
G
It's absolutely part of the play here is ecosystem lock in, but it's also just trying to get Gemini out into its wider product suite. We saw that Chrome integration a week ago and now they're looking to get it not just into their phones but also into the suite of home products. And it's a way to see whether that voice interaction really works. I mean over at OpenAI, which is among their biggest rivals on the frontier model competition, they have been working on a hardware device. They brought Jony I've in house former Apple executive to design a form of consumer device for gen AI that we haven't seen before. And there's been a lot of talk that would be screenless Mac trying to.
- [40:51]
A
Figure out or imagine how the gen AI empowered voice assistant is going to differ in terms of how a user experiences. It is just going to predict more things for you or is it going to be, I guess maybe more accurate and smarter and how it executes what you ask for.
- [41:07]
G
So that's why this market really stalled out in the last 10 years, because people weren't using these voice assistants to do more than set an alarm, set a timer, or ask for the weather. And even with Alexa Plus, I was talking to Gail Laurie about this. He said it's a very marginal improvement. And this is supposed to be the big gen AI upgrade. We've seen a very limited release with Alexa, with Alexa plus at this point point. But to your larger question, what is this meant to unlock Specifically with the Google home features, they've talked about a scenario where your Nest cameras are able to kind of give you optics into your home. So you ask a question like why is there broken glass on the ground? And it's automatically going, looking at the footage, understanding what you mean, and then explaining the context of what you missed while you're gone. So it's really meant to be this whole home ecosystem that feeds on different inputs, whether that's sound, whether that's video, and is able to give you a thoughtful answer.
- [41:59]
A
Yeah. Or, you know, actually, you know, tell you whether the kid's telling the truth as to who broke it.
- [42:04]
C
I want it to go and then fix, have the window fixed, arrange for it to be fixed. I mean, that would be really, that would be the holy grail when it comes to these home systems. Right.
- [42:14]
G
Well, that's the other piece of this. It's such a good point, Mel. E Commerce like basically wanting to make the shopping experience baked into a voice assistant at home. And that's something that we're seeing Amazon and Google, Google push on back.
- [42:25]
C
Thanks, Mackenzie. Segalus.
- [42:28]
A
Coming up, chemicals, conversation and cadence. All that and more coming up at today's Rapid Fire. The Exchange will be right back.
- [42:40]
C
Welcome back to the Exchange. Let's catch you up on a few more stock stories on our radar. Time for Rapid Fire. First up, Warren Buffett's Berkshire Hathaway could soon make its biggest deal in three years. Reportedly close, close to buying Occidental Petroleum petrochemical unit Oxy chem for roughly $10 billion. A conglomerate is Occidental's biggest shareholder with a 28% stake. There've been some speculation for a long time as to what Warren Buffett would do next with this large stake.
- [43:04]
A
Yes, he has said he has no interest in owning the entire company. This is one of those deals where it's like Buffett always wins in a sense because in addition to the 28% stake, years ago bought $10 billion with the preferred shares. That was 8% yield. And so he got 800 million a year off of that. Some of that's been redeemed. The point is, if It's a cash acquisition. Then it improves occidental balance sheet in a way that's necessary which should create more value for his stake and also chemicals sort of quasi strategic within Berkshire. They own Lubrizol.
- [43:37]
C
Win win.
- [43:37]
A
For him it should be another one.
- [43:39]
C
Yeah. Next up, open air coming for TikTok reportedly developing a standalone short form video app powered by its latest video generation model. Morgan Stanley warning that could take eyeballs and therefore add dollars away from smaller social media platforms like Snap and Reddit. Take a look at shares of Reddit, they are down 10% you flagged. I mean it's always the smaller players that feel the most pain here and.
- [44:01]
A
Also maybe less trading occurring on Reddit's, you know, actual raw material of its threads. And yes, it does accentuate how the smaller media players are now their whole growth story is hey, we're going to be fodder for right?
- [44:14]
C
Right. Topic 3 Peloton debuting new versions of its connected fitness equipment. Now with those two magic letters AI. The Refresh plus line will feature an AI powered tracking camera, speakers, a swivel screen, hands free controls. Peloton also hiking equipment and subscription prices. Shares rallied during the company's press event yesterday but are down 6% today. More than 6%. Eight and a half. Getting a small price target hike from bank of America. A bullish nod from Wolf Research writing the changes should help drive top line growth and engagement to the mid to long term. I mean they said they listened to users biggest complaints. Things like having a little tray for your iPhone or tablet, little things like that to help people get back enhancements.
- [44:57]
A
Traction still seems a little bit more of a niche product than they'd like to think. Yeah.
- [45:01]
C
And finally Tesla making yet another price adjustment, raising the cost of to lease this time. After the tax credit expired yesterday, Tesla shares are up about 3% today. It's been a double though since those April lows. Talk about the momentum.
- [45:14]
A
Actually pretty close to the all time highs. It's really, it looks like it's making a beeline for for those levels once again from earlier this year. Late last year.
- [45:22]
C
Exactly.
- [45:23]
A
All right, that's going to do it. Thank you for watching the exchange. Power lunch starts right now.
- [45:28]
I
Why do over 50% of the Fortune 500 use elastic?
- [45:32]
G
Because of search AI.
- [45:33]
I
Search AI is WatsonX chatting one on one with your business. It's also LGCNS turning real time context.
- [45:40]
G
Into real smart cities.
- [45:42]
I
Find out what Elastic can do for.
- [45:43]
C
Your business at Elastic Co searchai.