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Market insight and analysis. You're listening to the opening bell of CNBC, Squawk on the Street. Good morning and welcome to Squawk on the Street on "David Favour." With Mike Santoli and Leslie Picker, we're at post 9 on the New York Stock Exchange. Of course, Carl and Jim have the morning off. Let's give you a look at futures as we get ready for the, what do you call it, penultimate? That's right, thank you. Thank you, penultimate day of trading ahead. All right, our roadmap begins with that fact. In fact, those two days left in the trading year, big tech coming off a rough day last week, a number of sectors as well under pressure this month. Shares are bowing her down after South Korea ordered an inspection of all 737-800 planes. That's the model involved in that deadly crash over the weekend. And remembering the life and legacy of former President Jimmy Carter, who passed away last night. And that's where we begin. Former President Jimmy Carter has died at his home in Plains, Georgia. Carter was 100 years old. He was the 39th president serving in the White House from 1977 to 1981. Carter was awarded a Nobel Peace Prize in 2002 for undertaking peace negotiations, campaigning for human rights and working for social welfare. Carter's death begins a series of memorial services that will take place in his hometown of Plains, Georgia in Atlanta, home to his presidential library. Then to Washington, where he will lie in state at the Capitol. President Biden declaring January 9th as a national day of mourning. The NYSC and NASDAQ are both set to hold moments of silence, minutes from now to honor Carter's legacy. Remarkable to live 40 plus years as a former president. And there's a lot of assessments going on, you know, of his life. You know, just in terms of kind of, you know, even though it was considered to be a very dark economic moment when he left, Wall Street relevant stuff, he appointed Paul Volcker and... Towards the end of his term, of course, after '78 or... Very significant inflation under Miller prior to that. And, you know, and then even though it's not really kind of like a top line priority or considered to be one of his policy courses, deregulation started under Carter. Yeah. Of the airline industry, energy, communication. So obviously that's just the real narrow window in terms of, you know, Wall Street investing and how that kind of set the scene for what would happen, you know, in the '80s in a way. Yeah, and obviously there are a lot of people who look at today's market and take some lessons learned during that period and the risk of stagflation, how to avoid that, the risk of lines at the gas station, how to avoid that. And of course geopolitics as well. You can kind of harken back to a lot of important aspects of that period. And, you know... Well, and, unfortunately, the mid-east today, he did negotiate that peace course between Egypt and Israel, which still is in place despite all of the tumult there. And, of course, it was the years after, as Mike said, his presidency in many ways that Jimmy Carter gets the most praise for a great humanitarian. All right, let's turn back to the markets, of course, what you all care about as we get ready for the penultimate day of trading. Under pressure this morning seemed to be stocks. As you can see where we stand on the futures. Mike, these last few days, few weeks, really, the equal-weighted S&P is down 6% for the month. And we've seen the resurgence of MAG-7. Nothing's surging today so far. But that has been an interesting dynamic to see as this year ends. We rode that dynamic for a few weeks, as you say, and then that kind of buckled in the last couple of trading days. And the NASDAQ 100 names have succumbed to some, you know, profiting, and probably some pent-up selling. And I think that the absence of these seasonal tailwinds to show up, and, you know, the idea that late December is supposed to be just this kind of upside-air pocket. And we're going to just levitate because it's an illiquid market. And usually we do. Well, the fact that we're not doing that suggests to me, people are essentially saying why wait till January. When there was generally expected to be a little bit of a gut check moment, just because we have been up so much. The equal-weighted S&P actually is back to levels from, like, early September. So really, you've lost that whole, that's been a horrible month. I mean, 6% of lost has been a very rough loss. Yes. And so a lot of that has occurred as treasury yields have marched higher to multi-month highs. At the same time that the economic data have been okay, but they've been soft relative to expectations. So when yields are going up and it's not because the economy, all of a sudden seems to be accelerating, that's sometimes an uncomfortable combination. I also think there's a sense in which we almost got trapped, or some people got trapped by the idea that there was a playbook from 2016 after President Trump was elected the initial time to say, okay, here's what we do. We buy cyclicals, we buy small caps. Yields are going to go up, but that's fine. And by the way, the markets will tend to be able to ignore perceived policy chaos or erratic decision-making. That was basically the setup for 2017, worked perfectly also, deregulation and tax cuts before tariffs. That was all considered to be the baseline. Now, I think there's just a little bit of we just don't know what we're going to get, and we're not just going to pencil in the optimum policy scenario. And again, the market was up 20 plus percent. MAG 7 was up huge in the first half of this year. There's three stocks that are worth 21 percent of the S&P 500 that collectively traded 32 times earnings, right? This is not a market that was kind of under-loved and undervalued going into all this. If we do get a negative Santa Claus rally, which we still have four more trading days to decipher. Including today, yeah. But it would be back-to-back negative Santa Claus rally periods, which has only happened twice before going all the way back to 1950. So it is pretty unique. And I'm curious, Mike, your take on whether it is that disappointing month leading into this that you think contributed. The fact that December is supposed to be seasonally strong. It wasn't. And so everybody just said, OK, rebalanced, you know. I think that's part of the backdrop. I also feel like equity exposures were pretty high, right? We've been in a two-year bull market. It's not as if people needed to rush to grab onto stocks to play the rally. They were there already in large part. And so I think the final, you know, kind of implication of what you're saying is we had a bad season Santa Claus rally period last year. And we're up 20 percent this year. So whatever magical predictive power is that period of time was assigned 50 years ago when people came up with this, don't necessarily hold up year to year. Mike, we spent a lot of the year, certainly the first six to nine months, talking about the enormous percentage of the S&P that was made up by a small group of stocks. Then the S&P, equal weight, kind of everything started to come along. We didn't talk about it as much, even though the percentage didn't decline that much. But what do you make of this reassertion of mega-cap tech here at the end of the year? Yeah, I mean, I think-- And the fade that we just talked about in the, in the equal weight. Part of it is that this is the way the market in these, in this era plays defense, is to buy the known quantities, these companies that deliver earnings. And it's been such a mistake to bet in a sustained way against the NASDAQ 100. I mean, for decades, to be honest with you, it's just always been giving you more return per unit of risk than you would be led to expect. So I think that muscle memory is part of the reason. The other one is they're kind of impervious to what happens with yields and macro. And now, I mean, I just think there are certain limits to it. What's really fascinating is NVIDIA's been essentially dead money for more than six months. Yes. I mean, it got to current levels, right in like early to mid-June. And yet, the market's been able to hold together. Semi's are in a really interesting spot on a two-year basis. It still looks like they're hanging in there, but they're really waning momentum. And I think what's an interesting question for next year is whether there's a bigger rethink of all these companies doing so much capex and throwing so much money at whatever's to come in AI and whether that turns from a benefit because they can do it. And they're the only ones equipped to kind of build the future to what are we getting for all this? Well, that's a big question. Right. I mean, that will in 2025, it has been, and that should come to the floor more often in terms of the return on invested capex, because the capex numbers, we're going to get to this bit later in the show as well, Leslie, are just there beyond any few you could have imagined really, even a number of years ago, when you look at just what Microsoft alone will spend in 2025, not to mention obviously layering in alphabet, Amazon, meta. And there's the opportunity cost as well of what they're not spending because they're spending on capex, things like M&A, which is difficult in this environment, but maybe, I mean, to be determined whether it could be determined. I think there is a broad expectation under the Trump administration. There will be more deals. I'm sure I've been hearing certainly in the conversations I have. I've been sharing this often that there's a lot of dialogue underway. I think it'll be a little less predictable in terms of where antitrust raises its head under a Trump administration. But I think broadly speaking, there is an expectation that there is going to be a more robust environment. It's hard to imagine that would not be the case. Especially right out of the gate. I have a feeling that the first couple deals in a certain sector, a certain area will get done and people will get excited. And then the antitrust environment will start to climb down and say, oh, no, that's that's a little too much. Yeah. And we'll, again, we'll have to see because as we know from the first Trump administration, it was harder to predict. Whereas with the very strict regulatory environment, we are now leaving. It was a bit easier to anticipate. In fact, often you would just anticipate that's not going to be assumed. You assume the answer is no. And then you move on from there. And if you're a company, you assume, all right, the answer may be no, but we think we can win in court. And obviously that did happen until towards the end of this year when the FTC actually had some important wins, whether it was handbags or supermarkets. All right. We're ready to move on here with Professor Segal. All right, we're going to take a break. We're going to get to him in a bit. Nat gas is down, by the way, sharply right now. Take a look. It's one of the worst performing sectors overall. That would be energy. And our next guest is forecasting. Well, it's not going to be a great year in 2025, either. We're going to find out why after the break. Take a look at futures again. Of course, we are headed for a sharply lower open when we get started trading 20 minutes from now. A lot more squat than the streak for your straight head. At KeyBank, we know a small moment like, oh, these sandals would go really well with a beach. Can we do an even bigger question like, should I splurge on a trip this year? And that's the type of moment where we'll meet you with financial advice on everything from budgeting for travel to building savings. So maybe that destination isn't too far off. What do you think, Cindy? I think these sunglasses would go well with a tiny umbrella drink. For every financial need, we'll meet you in the moment. KeyBank opens doors. KeyBank member FDIC. From success of new diverse podcast hosts to the ever evolving host listener dynamic, podcasters have created a revolution in storytelling that has forever changed media. Obsessed? Us too. That's why we at SiriusXM Media are bringing you the trend cast. Hosted by me, Sophie Anderson. It's the show that identifies dissects and explores opportunities for advertisers around five major trends taking hold of the industry today. Take a deep dive with us and listen wherever you enjoy your podcast. Learn how to use AI to be more successful with CNBC Make It's new online course. We'll give you examples that can help you master AI tools. Go to cnbcmakeit.com/ai and register now. Wharton School Professor Jeremy Siegel here with us to get his take on stocks as we head into a new year. Good to see you professor. It's David, actually. We're coming off to great years for the broader markets. Can we make it a third in 2025? We could, but I think if you look at history, I think the only other time that we've had 220 pluses go into the third year was 1999. Then we got way too overpriced and we got to 2000. So I really think we're going to take a pause this next year. You know, one thing is true about the markets as an old saying is that when everybody expects something to happen to the market in the future, it's not going to happen. Everyone expected that we're going to have the Santa Claus rally. Everyone said, oh yeah, it always rises during Christmas and New Year's. And I warned a few weeks ago, I said, yeah, when everyone says that, they buy up before then, and then when it comes, there's disappointment. And I think maybe we're seeing a little bit of that right now. Yeah, right now. Okay, but does that apply to 2025? Is there an expectation, perhaps, that we're going to have another strong year and therefore going to be disappointed? I think there might be some disappointment. You know, as time has gone on, I think the probability of a correction next year, you know, which is defined as a 10% drop in the S&P is getting higher. I'm not saying it's a sure thing. Nothing is a sure thing in the market. But the major forces to propel things upward, I think, have already been built in. We still have, you know, we talk about 22 times earnings on 16, 17% gains of earnings, which is, you know, also far higher than historical. So I see a little bit more risk on the downside. And I'm, you know, I'm a bull on the market. I'm long term. I'm not saying, you know, sell. But, you know, I see more risks. Not as optimistic as Tom Lee was right at the end of the squawk box. And I admire him dramatically. But I think that, I think we have challenges next year because of all the optimism that has been built in this year. What does that mean, Professor Segal, for the long-standing reign of Big Tech, one would say those have been some key forces over the last few years that have pushed the broader S&P 500 upward? Yeah. And then, you know, that, I mean, we do still have a bifurcated market in a sense that, you know, the max 7 being 30%, the max 7 being 30 to 35 times earnings. The rest of the market 18 to 20, which is much more reasonable, you know, I think, yeah, I think 2025 could be that switch around. Now, of course, I, many of us thought that that would happen 2024 that then the narrative of AI is still very, very strong. The spending is there. It's going to bring about all these gains. Now, the amount of actual gains it's bringing about is modest. It isn't, you know, it hasn't been implemented completely at so many firms. The hope is there. And I think ultimately it will prove to be very beneficial. But there is room for disappointment at the speed of implementation and how much that actually will affect profits. Now, will it happen in 2025 or not? Listen, history tells us that narratives go on much longer. They need to be punched down with many failures before they finally did. And, you know, at this particular point, that trend is in. But, you know, I'm looking at, I'm looking at January thinking, hey, that might be a reversal, that big buildup that, you know, that Mike talked about, that we got from Thanksgiving up until a week ago in the MAG-7. We really might find that, you know, reverted least down to the trend line that was established, you know, in September and October. So we might see a reversal earlier. And then we have the challenges that Mike and everyone has been talking about what is going to happen to Terrapal, what's going to happen with immigration policy, et cetera, and so on. I mean, there's a lot of positive aspects. We also have to remember in terms of, you know, we see the Republicans did capture the House, but by one or two votes, some of the things are not going to come maybe as easily as everyone thought on November 5th with the election. I do think, you know, they're going to work on the taxes and get that set in the, as an important priority, certainly in the first two years of the Trump administration. Yeah, which is most likely to take the form of, you know, extension of the current tax structure, Professor Siegel. This is Mike here. And, you know, how does the Fed filter in? That was one aspect of the script that seemed to get scrambled here. On the one hand, probably less easing as inflation is sticky and policies. And certainly on the other hand, you know, nothing necessarily wrong with the Fed, you know, kind of tweaking rates lower a few times and then going on hold. That's what happened in 95, 96. Yeah, and you know, a lot of people have been criticizing the Fed. I think the Fed has been right. Listen, the normal situation, as you know, Mike, is that long term rates are above short term rates. And we were an inversion for two and a half, almost three years, almost the longest in history. And by bringing short term rates down, we finally have the 10 year above Fed funds, which we didn't have for three years. And normally, actually, it's more above Fed funds than it is right now. So I, you know, I'm not criticizing the future of the past 100 basis points, but I do agree, you know, at most one or two next year, depending on the strength. And, you know, if it's going to be much less than two, that's going to be the result of softness. Yeah, Professor Siegel, we're going to end it there. Always appreciate you joining us. Happy new year to you. Thank you, David. Well, the NYC and the NASDAQ will both be holding a moment of silence, of course, to honor the legacy of President Jimmy Carter. That will begin right now. I'm Elliot Kaylin, and I cannot wait to tell you all about the new podcast I'm hosting for Smart List Media. It's called Smart List Presents Clueless, a bite-sized, choice weekly game show with a different main game, cliffhanger puzzle, every single episode, and all this season. The contestant will always be Sean Hayes. That's the Clueless promise. Since you never know what the game will be, you won't want to miss a single episode. Listen and follow wherever you get your podcast. Learn how to use AI to be more successful with CNBC Make It's new online course. We'll give you examples that can help you master AI tools. Go to cnbcmakeit.com/ai and register now. All right, opening bell six minutes away. As you can see, we are set up for what is going to be it. Fairly sharply lower open. Of course, don't forget you can catch us anytime and anywhere. If you want to, by listening to and following the Squawk on the street, opening bell podcast. Welcome back to Squawk on the street. A Boeing 737-800 crash landed in South Korea yesterday, killing 179 people. There were two crew members who were rescued from the tail of the burning plane. As the plane was preparing to land, the airport warned the pilots about a potential bird strike and video does show the plane skidding across the runway on its belly and then ramming into a concrete barrier at the end of the runway and a massive explosion that followed. Investigators are looking into whether it may have been a bird strike that caused a hydraulic system failure and perhaps prevented the pilots from deploying the landing gear. Of course, my reaction would typically be to sell perhaps some Boeing shares, even though it's completely unclear whether there was any mechanical failure that had to do with the specifics of this horrific crash. Even if it is just because of the procedural inspections that have to happen. I think the context here is also very important though, which is the run that Boeing stock has been on. For the last six weeks, it's up like 30% since mid-November. There has been a lot of, I think, sort of new found enthusiasm about the management story, the restructuring, the pivot toward perhaps positive free cash flow again. They're actually making planes again. Exactly. And they're in production and technically a lot of the chart folks were like, "Okay, finally we have this long kind of malaise and base that was built." And so I do think this pullback off of that in the context of a pretty rough open. Maybe you keep it in perspective. Yeah, apparently it was the deadliest year for commercial air travel since 2018, with 318 tragic deaths related to commercial air travel. Well, a number of them at the very end of the year, of course, here as well. I think the Azerbaijani air fragment appears to have been shot down perhaps by Russia. Exactly. So I don't know what the implications of that are, but last year there were zero fatalities this year, 318. Yeah, of course, investors still remember the max with Boeing. But again, as Mike said, a 2024 year of seemingly endless challenges for the company, but ending perhaps on a more positive note as an in fact, actually manufacturing, resolving that strike, of course, of the workers that took them off the assembly line. So quite some period of time. Still a large debt load there at Boeing, not to forget, of course. A ton of companies we continue to get an eye on. Boeing's an in-house. We've been on it for about a month or three here though, and they built the big board. It took a look for real time to change back in our headquarters for this season. There's a lot more red on that board, giving more pieces for it. NYC's mama's give back to the honors here. It's a non-profit providing essential agencies and shelters for the serving pregnant women over the NASDAQ Marine Toys for Tots Foundation. Mike, I'll lead it to you. Where do you want to start? Yeah, I mean, obviously, we have a little more of this kind of pent up selling. What looks like a little bit of a vulnerable setup just in terms of the unsettled nature of leadership and that being the big NASDAQ stocks. And I don't really know how much we want to incorporate a lot of the noise surrounding whether big tech is pro or against the current immigration policies and the HB1 debate. That's the backdrop. But just this idea that we are a little bit unsettled, pent up profit, taking if nothing else, because both mentions just now that if we are down 1% on the S&P today, the first time we had two down 1% days in the last five trading days of the year since 1952, which doesn't mean there's anything it says about going forward necessarily, but it does suggest how rare it is. One piece of it that I would also point out though is when you have a market this concentrated, you can get those big moves. If it's basically rotation out of big stuff into small stuff, the index is going to feel it and vice versa. So that's the market we have right now. But it does seem as if there's not a lot of taking up the slack of the big tech selling from the industrials and the banks and the other sickles that had done very well right in the first flush after the election. Well, we're on the subject of superlatives and concentration, but spoke also has those numbers today where they say the eight largest stocks in the S&P currently account for 35.7% of the index is total market cap. In 1999, this was 22.2% just showing that concentration this year. There's also been a narrative this morning just about the remarkable inflows into ETS, specifically the S&P and the NASDAQ obviously contributing to some of the uplift we've seen as well and contributing to kind of this cyclical element of concentration given that the U.S. is really the only game in town from a flow standpoint. Yes. And from a performance standpoint, the global stock markets excluding the U.S. up 3% year to day. A lot of that's China. I mean, even China had a good bounce. China had a bounce. Europe obviously has not been a strong performer. Yeah. And obviously, since the Fed maybe had this hawkish rhetorical turn, you have emerging markets struggling. So the U.S. exceptionalism in the market really is the mega cap growth stocks. I mean, if you just look at the typical stock in the S&P is up like 8% year to day. So, you know, it's not as if it's totally two different world. It's kind of the subcategory of U.S. stocks that have done incredibly well. In terms of the ETS flow. This year is not going to do anything to dissuade people from just owning the index. Right. Tyrion. It shouldn't. In a way. Yeah. And in these last few years. You have to what will at some point. You have, I think a bear market, like a real, a real bruising bear market will because that's all that that did it in the early 2000s. Right. And I keep pointing this out. Everyone points to these like small cap versus large cap relative charts or even value versus growth. And you had this huge upturn in the early 2000s that everyone wants to play for that. And it's like, wow, that would be great if we got mean reversal like that. Well, a lot of that came from growth stocks just imploding. Right. So the relative performance value in small cap was pretty good. But it was because the rest of the market that was so bad driving the index was was so bad. The ETF flows though. I think at some point ETFs, exchange traded funds, it's going to be like touch tone telephone or color TV. In other words, that's the kind of funds we have. No flows are going into traditional mutual funds outside of straight retirement. And so it's just the instrument we use. There's been net outflows from non-exchange traded mutual funds consistently for years now. A trillion dollars. It's a lot of money. That's stocks plus bonds. It's not all stocks. The S&P 500 is like a $50 trillion market cap right now. So that's a nice bit of flows. But to me, it's not enough to say we have this massive push of public buying that that's going to be sustained to drive stocks on themselves. Now we also got a trillion dollars in share buybacks. A lot of that's offsetting dilution. So we have a good flow story. But to me, it's not about the index is just going to magically work because people are putting money into index funds. And everybody. The other thing about that is every stock in the S&P proportionally gets the same amount of money from an index fund investment. Yes. So there's no particular reason that the largest stocks should get more benefit from passive flows than the smallest stock in the S&P 500. There's a small wrinkle in that if you think the largest stocks are relatively under owned by active. But really, it's not about self-perpetuating concentration. I think the concentration comes from other places. But what does that say? Just kind of broadly speaking about the overall diversification of people's portfolios heading into the end of the year. You're not getting it. You're not getting geographic diversification. Probably not even get much in the way of single stock diversification. Well, you can get the diversification, but it's going to be a drag. Yeah, exactly. I think that's one of the reasons the equal weight S&P has become a popular idea on a forward-going base, because it's just hard to bet that we're going from, you know, 30 to 40% MAG 7. It's a way to risk adjust to a certain extent. Yeah, exactly. And you know, ultimately it can work and mean reversal works in your favorites. It's not as expensive. And by the way, coming into this period, equal weight seemed like this is hack. I mean, it really did outperform for a long period of time. When you're saying that, what period of time are you talking about? Like, you look at like a 15 year, you know, if you go back a long way. And again, it's going to be coming out of a bear market. I think that it really does distinguish itself, which is not the-- Well, I mean, not the moment we're in right now. Ten stocks will represent 40% of the S&P, right? Isn't that roughly the top 10? Yes. I think around 40%. And we talked about the CapEx budget. You mentioned, of course, three stocks are 21%, right? So Apple, Microsoft, and Vidya are effectively 20. Twenty-half percent of the S&P. And to the question you raised earlier, Mike, it may be one that-- I'm sure it's one we're going to entertain almost every day, which is that return on invested capital and whether they're going to be getting, as we start to see true commercialization of AI and apps, the-- what, agentics is the word that everybody is now using and whether that works. In fact, the one company that has been penalized, I think, in part, for what has not been, at least, as strong a debut for that kind of a product has been Microsoft. That's right, yeah. The stock, which is only up to 12.7% this year, markedly underperforming the broader market in the S&P, and most of its megacap brethren. Which-- and now, Microsoft had built up this huge premium, and it was really considerably, "Okay, fine. We can actually do the math here." You know, it's how many people subscribe to the co-pilot. Times users, that right there is, you know, we can get our arms around that. And it was considered to be a very clean way to play AI leverage. And then it may be a little bit disappointing, or maybe there's sort of these offsets with the new investments in OpenAI and how that flows through their bottom line and all the rest of it. So it is tough. I think the market loved the idea initially that the big piles of inert cash on these balance sheets were being catalyzed, and they were being put into something. I would look back when Microsoft bought LinkedIn, right? I think it was like 2016. Sounds right. $26 billion. Microsoft had a ton of cash. LinkedIn was not considered to be a great problem, but it was just a nice asset. It was like 5% of Microsoft's market cap at the time. It'd be the equivalent of like a couple hundred billion dollar market cap acquisition right now, if Microsoft were to do it again. I know. We say nothing, but an aggregate size right now will be big. And the market loved it because they took cash that was earning very little or nothing into a business that they felt like could work well within. No, but the most important point is an NVIDIA, not that they're going to be doing anything, could do a $300 billion deal, correct now, which would be the largest deal we've ever seen. And yet it would only be 10% or less of their market value. So actually, completely conceivable, they could do a deal like that. And it's fast. They're not taking on a company risk, they're so-to-speed. It's not a bad company deal. And it's fast because NVIDIA is in a funny spot because every other, you know, the cloud companies and the super scalars and things like that, they're, they're writing these checks. The checks are being cashed by NVIDIA, because these get too much cash very soon. They're going to have to do something with it. It's probably going to have to be a big buyback or dividend or something like that. And you know, how much is it sustainable? What does the market think about that? That could be an interesting thing coming up too. Well, and the dynamic now is you're actually running something on your cash. Yeah, for sure. You really weren't back when Microsoft bought LinkedIn. That's very true. You know, they were earning basically nothing on the cash they were sitting on. Now you've got, you know, you've got four or five. It reminds me as we come to the end of the year here at Berkshire. Yeah. Yes. They're sitting on an awful lot of cash too. You know, and obviously vast, significantly reduced their exposure to Apple. Still the largest single position, I believe. Like you cover it more closely than I do. But 70% lower less Apple share, fewer Apple shares than that than they've owned. Yeah. And you know, they've been in a real good spot in terms of what the market wants all year, love insurance. Yep. It certainly loves quality. Right. And so just the quality balance sheet, that's been a big factor that's been driving things. And for a lot of the year, the market like kind of a broad play on the US economy. So, cyclical stuff, housing related as a big chunk of Berkshire. Now, a lot of that's starting to wear, you know, around the edges because it's not necessary. Homebuilders have been really weak. And so, I think you've had some give back in Berkshire. But in terms of what it's setting up the company for down the road, under the eventual new regime, in terms of having all this cash, whether it is a big special dividend or some blockbuster investment, very unclear. But it does preserve a ton of flexibility. Yeah. That's the main thing. Is the question here? Because they've been, that's a big piece of it. Yeah. Increasing the state of it. They could buy the rest of it tomorrow. They bought an outright asset, a controlling position. Geez, I'd have to, I mean, they bought this big, you know, truck stop private company. I mean, there's been these private deals that they've done. They bought Allegheny, which was a kind of mini Berkshire. But it has been a little while since there was a real eye catching one. Occidentals, an interesting one though, because they own all these warrants. So, I think they just buy the stock when it gets below a certain threshold. Even though Buffett himself has said he's not particularly interested in knowing the whole thing. We'll see if it happens in slow motion by default. Well, and speaking of energy, let's turn to that sector. It has been the second worst performing sector of 2024. We took out Nat Gas this morning. It is spiking following some cold weather forecasts ahead and also a little bit of a run of cold weather we've had. John Kilduff, again capital founder and a CBC contributor joins us now to discuss all this. John, it's great to have you here in terms of, let's just talk about crude initially. I mean, been just really kind of stubborn in this range to a degree. It seems like a well-supplied market, but the prices are not really backing off in a dramatic way. What's your read? Yeah, it's been a torturous range now for months, Mike, as you point out. Basically, there's two very significant competing inputs here. Yet, you have the efforts by OPEC+ and others to restrain supply to the market, which has been having some effect. And then you have the concerns, real concerns about demand out of China, in particular, given their economic situation, which we weren't wrong about, given what the government there has announced about stimulus for the upcoming year and trying to revive that economy. But right now, you're still only looking about a China that might be able to grow possibly 4% next year, I think, at best. So to the extent that these efforts fail, and the OPEC+ cartel can't necessarily hold it together because they are being stressed on the edges by several countries there, that makes the argument for lower prices. Not to mention, John, there's an awful lot of EVs in China. When it comes to gasoline, they are starting to really see a change in demand as a result of, I mean, one of every two, at least, is a new vehicle sold, is EV. Yes, they are in Norway, David, and we're watching that closely. China has sort of indicated that they might have reached peak gasoline demand. We'll have to see. The uptake here, obviously, in the United States, one of the biggest gasoline-consuming countries in the world. Not so great, but it's still there. And even here, we have seen weeks in 2024, now for a while, that gasoline demand is not what it used to be. During the summer months, we only had a couple of really terrifically strong weeks. And even during this holiday season that we're just finishing up here now, we only got over 9 million barrels a day for last week's sprint past the few before that were below that. And it will head back down significantly once we turn the corner here on New Year's. So that, again, will make for a sloppy market, although it looks like we're going to get bailed out a bit on the heating demand side of the equation here over the next couple of weeks. Yeah, well, let's talk. I mean, that gas, again, we've been showing it up 20% today. What does the overall take here? Ukraine no longer? I mean, who knew that they were still allowing and getting paid by the Russians, given what's going on, in terms of allowing natural gas to pass through the country? But what are your expectations then? Is this an appropriate move here? Well, then sometimes you want to buy the world a coat for peace. In this case, it's natural gas or crude oil. But what's happening here, David, is that we've got a, first of all, all the problems of Europe will remain with this. They're ripping through their natural gas storage. That's supporting the price. What you're seeing here in New York, though, trading this morning, is that we got a major upgrade in the weather outlook for January 9th going forward here. And I got some bad news for folks really throughout the entire country. We could see OJ freeze-offs, natural gas freeze-offs, and a big potential. It's early now in the runs, but it's major snowstorm now, potentially projected for the eastern seaboard again that week. And it's going to be sticking around for a couple of weeks. So we are talking bone chilling polar vortex weather, which has caused this spike in natural gas this morning. Really, the modeling really all came together over the weekend real time. And you saw the league last night when trading opened on Sunday evening. Yeah, I guess if you're long, the future is that's an upgrade in the weather forecast for those of us living through it. Not going to feel like that. Hey, John, appreciate the time this morning. Thanks very much. Happy new year. Thank you all very much. Take care. We got Chicago PMI out just moments ago. Rick Centelli has that for us. Rick, David, big miss on December Chicago PMI. We know manufacturing hasn't looked good in a while. It's been a long while. 36.9 is our December read. We're expecting a number around 43. That now makes 27 months. If you look at the last 27 months, we've had only one reading above 50. And that was in November of last year, 27 months, one reading above 50. So, of course, this is a big miss. We can continue most likely not only to look at the slowdown in manufacturing, but many are assessing exactly what's going on in the service sector. Interest rates are down. 4.55 and a 10 is down. 8. 425 and a two year is also down. 8. We still see 29 plus on Tuesday 10s, which is in the neighborhood of the steepest that curve has been since early June of 2022. Squawk on the street will return after a short break. Few consumer names hitting fresh 52 week lows at the open linar constellation Brown Foreman among them. And after the break, Microsoft's spending big to capitalize on AI demand the staggering numbers and what it means for the stock next. Big tech's AI spending spree is causing capex to balloon into the tens of billions of dollars per quarter. That includes Microsoft, one of the biggest spenders. Our own Steve Kovac joins us to break down the impact of all these huge numbers, Steve. Yeah, Mike, and it might even be the biggest spender Microsoft's ending 2024 spending at least $53 billion in capital expenditures. And we don't even have the latest numbers for the current quarter. And yet we'll get that in a few weeks. Nearly all of that is for artificial intelligence. That means NVIDIA chips, data centers and other related infrastructure for those data centers. And it's not going to stop anytime soon. Microsoft implied to expect around $20 billion in these capital expenditures each quarter going into 2025. The risk of course, investors losing their patience for a return on all that massive spending. And by the way, Microsoft doesn't even know when that's going to happen. CEO, Satya Nadella and CFO Amy Hood on recent earnings calls have said the AI demand is there and Microsoft is going to keep spending in order to meet it. Over the last year, Microsoft separately has announced at least 20 investments of a billion dollars or more at various locations around the globe. That includes Spain, India, Indonesia, London, here in the United States and many more. Those aren't just data centers. Those are training programs and other things related to artificial intelligence investment. Meantime, don't have a clear view yet on how well Microsoft's suite of AI products are selling. Microsoft has said it's on track to generate $10 billion worth of AI related sales this year. That's after spending about $70 billion probably by the year end. A lot of that is coming from the Azure cloud business, but still no concrete disclosures from Microsoft on that or the rest. That includes co-pilot plus PCs, which launched this year. But without its murky AI feature that was called recall, Microsoft said in May, it expected to sell 50 million co-pilot plus PCs over the course of a year, but no indication it's on pace to meet that goal. Also no clue how well co-pilot for businesses is selling after more than a year on the market. I've heard from a few CTOs that 2025 is going to be the year they assess if co-pilot is worth the enormous cost and either spend more or cut back on it. And then, of course, there's opening eye, its losses are now bleeding over to Microsoft, its biggest benefactor. Microsoft said it expects opening eyes losses to shave a few cents off its EPS in the December quarter about one and a half billion dollars. And finally, there's the consumer outside of the enterprise business. Microsoft hired Mustafa Suleiman to be CEO of AI at Microsoft back this spring. But right now, he's reliant on open AI for product development of the latest and greatest AI features that eventually make their way into Microsoft products, guys. Steve, we were talking about co-pilot in particular earlier on the broadcast in light of, of course, what has been a lackluster performance for the stock this year, at least versus its mega cap. Brethren, what are you hearing? I know it's all anecdotal. I hear it. I'm sure you do from the enterprise in terms of usage of co-pilot, disappointed, happy. I'm just curious to get your thoughts. It's all over the map. But basically, no one has a very solid answer of whether or not it's worth that $30 per user per month. That is a huge premium on top of the normal price. CTOs tend to pay for their companies for the regular apps, the outlook, word, things that you and I use every day. This is extra. And it's really hard to just quantify that. And I've talked to a number of CTOs all this year. And a lot of them are saying, yes, we've seen success. We've done pilot programs with a few hundred people here and there. And then this year, going into 2025, that's when the CFO comes in and says, is it really worth this cost? Should we spend more or pull back on spending and kind of end these little pilot programs we'd be doing? You hear a lot of anecdotes from Microsoft as well too, David, but nothing concrete as far as how many seats they're selling. Yeah. Well, for a company, as you just said, it's poised to spend $80 billion on CapEx next year on cloud and AI at least, you would imagine investors are going to be very much focused on that. Steve, thank you. Yeah, Steve Kovac. We're going to have fresh housing data after the break. We'll give you those numbers when Squawk on the Street comes right back. You've been listening to the opening hour of CNBC's Squawk on the Street. All opinions expressed by the Squawk on the Street participants are solely their opinions and do not reflect the opinions of CNBC, NBC, Universal, or their parent company or affiliates and may have been previously disseminated by them on television, radio, internet or another medium. You should not treat any opinion expressed on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of an opinion. Such opinions are based upon information Squawk on the Street participants consider reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy and it should not be relied upon as such. To view the full Squawk on the Street disclaimer, please visit cnbc.com/squawk on the Street disclaimer. From success of new diverse podcast hosts to the ever evolving host listener dynamic, podcasters have created a revolution in storytelling that has forever changed media. Obsessed? Us too. That's why we at SiriusXM Media are bringing you The Trendcast, posted by me, Sophie Anderson. It's the show that identifies dissects and explores opportunities for advertisers around five major trends taking hold of the industry today. Take a deep dive with us and listen wherever you enjoy your podcast. [BLANK_AUDIO]
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