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Good Friday morning. Welcome to Squawk on the Street. I'm Carl Kington here with Melissa Lee, Mike Santoli, a post-9 of the New York Stock Exchange. Kramer in favor of the morning off. Futures relatively steady after Thursday's downside S&P reversal. Big options explorations today could bring some fireworks. Eurozone PMIs slow down. Our own 10-year yield is back to 4-2-2. A roadmap begins with this tech suck stumble. The Nasdaq ending its string of recent records. Plus NVIDIA pulling back, losing the most valuable crown. Shares of it and other chip makers down sharply from the highs of the week. We'll get into that action in just a moment. And corporate hack attacks, thousands of auto dealers going back to pen and paper deals after a cyber breakdown at a key software provider heads into its third day. Let's begin with this tech pullback we got yesterday. Should I snapping the Nasdaq seven-day win streak? Mike, you were here to see it firsthand. Explanations? I would say you could make observations and descriptions more than explanations. But the setup was obviously there, not just seven days up in the Nasdaq 100, but statistically as stretched to the upside as you've only been a handful of times, let's say a half dozen times in the last decade. So the makings for a enough-for-now moment for the momentum sector of the market was absolutely there. NVIDIA obviously embodies everything in an amplified way. That was the case yesterday as well. Opens up three and a half percent, ends up down three and a half percent on the day. Very similar action to a day in March, March 8th opened up about three percent at a new high. Downside reversal, what happened after that? That was a short-term peak for the momentum factor in the market. It flattened out relative to the rest of the market, didn't do much. NVIDIA actually had like a 15 percent plus pullback ultimately over the next month or two, but you look at a chart, I guess a longer-term chart, you barely see it. It's like a little stutter step. But I think you can sort of be prepared for the at least possibility that this could result in rotation as it did yesterday, or it could create a little bit more of a more chop because you do have these explorations. It kind of clears the decks. It's sort of like all the accumulated call option buying in the hottest stocks essentially comes due today. The dealers that had to buy the stock to hedge it, they came kind of eased back and then you have the market you're left with afterward. I mean, look at that sideways action right after that. Outside reversal day that you referred to back in March, we talked about last night on fast money. That was perhaps one of the greatest buying opportunities that you could have ever been presented with on a split adjusted basis. The stock was down to 88 or something like that in today. Now look at where we are here. The key is... It did get down to 76 I think. Yes, that's your on though. Right. The key is will the buyer step in at this point in the cycle? It was a very different picture back in March in terms of what has been priced in. I think it's also notable though that it's not just in video alone with an outside reversal. We saw a Broadcom first with the outside reversal on Tuesday. So it was sort of a bit of foreshadowing in terms of people examining this AI semi-space, thinking about the stretch that the NASDAQ has had and reevaluating positioning Triple Witch doesn't help the situation. Yeah. And so here we are. We were on pace for the NASDAQ's longest win streak of the year so far. Also had these stories on the wires looking at Fed Fund futures bets and this idea that one particular trade would get paid well if pal turned the July meeting into a live one. Yes. Which got some discussion. Yeah, I guess that's sort of been kicked around, didn't Alan Blinder, you know, say last week on our air, he thought July actually would be a smart time to think about going. Yes. Who knows what has to happen between now and then in the next few weeks? Really? It's four to the five weeks until that meeting for him to have what he needs to either make a cut or at least make that the time when you say next meeting we cut. But yeah, I think a lot of, you know, it's interesting because we're talking about the market responding to its own mechanics here in a lot of respects, both for the Fed Fund's futures and how it spills into stocks. And you know, these parts of the market that have essentially gotten too big for their shell in a way and they kind of wag the dog in the absence of macro. And so, you know, I know we're going to talk about a lot of that stuff in terms of the index weightings and the ETF flows. Semi ETF flows were off the charts for like a couple of weeks before this. But it's not as if you didn't see the makings of some kind of a gut check. Yeah. What was notable within the semiconductor yesterday in terms of a potential rotation within the sector? We did see AMD fine. We just talked about AMD yesterday as being a huge laggard really not doing much for the past month or in a half or so. We asked Stacy Raskin about that when we had him on yesterday. And he said Broadcom is really the main competitor to Nvidia at this point. But we did see money going into AMD yesterday on Nvidia and Broadcom's and just the general malaise in the semiconductor. And you also saw energy up a couple of percent. Even with oil prices finally. In terms of the stuff breaking, Lilly, downside reversal, same moment in the day, Chipotle. So it's the momentum theme that is taking a backseat. And who knows? It could pick up again right now. But this is the mechanics. And, you know, we talk about AMD getting a bit of the laggards getting picked up. That's a mechanical action. I'm saying like, oh, the momentum trade is actually long, high momentum, short, low momentum. And so if you're unwinding the trade, both wings of it kind of move. Yeah. It's getting fueled to some degree by news. Qualcomm's going to open down almost 2% on this journal report that some snap dragon chips in the Samsung Galaxy make some computers unable to run various elements of Adobe software or Fortnite. As for the rebalancing here, Mike and the... As history goes, the options expiration today is large, right? It's the biggest ever. It's the biggest ever. I mean, basically, when you have record option volumes on a daily basis now, certainly concentrated in the highest weightings in the S&P and in the NASDAQ, that's as much open interest as stays on the books. And then it gets cleared away. You also... There's all these other... You want to get into it too deeply. But there's all these other products out there, these insurance type products, these hedged fund products, where everyone kind of knows what they have to do when it gets to these quarterly moments. And they have to either take on or re-head risk or they have to have an asset allocation move. A lot of that gets done in advance of the actual expiration. But yes. So this is going to be one of those moments where you're starting with a relatively blank slate on Monday. It doesn't say anything directionally, but sometimes inflections and trends do happen around those points. I mean, I think it's what five... Depending on the number, depending on the S&P, the 5.5 and a half. I saw 5.5, yeah. 5.5 and a half trillion. Yeah, no chill value. It does depend on your estimate. Yeah, and no chill is kind of funny, right? It's just like the grand underlying value of that. But you know, and then of course, people focusing on the XLK, the S&P Tech Spider rebalance, which is part of this. And it's not a lot of money in the grand scheme. It's $10 billion likely moving from Apple to Nvidia in terms of the fund. These stocks are worth more than three trillion each, let's remember. But it does again show that because the products don't want to get too skewed in one direction, they have to not be market cap weighted. I mean, they have to have these adjustments. Even the NASDAQ 100 is really skewed. I mean, if it was just pure market cap weighted, Apple, Microsoft and Nvidia would be a lot bigger than they are in there. You know, I was just looking at the numbers. Meta is way over represented in the NASDAQ 100 and the QQQ because they have to shrink down the ones that are bigger than it. So Microsoft is 1.9 times Meta's market cap weight in the NASDAQ 100. It's 2.6 times actual market cap. So you go down the list, Google is underrepresented. And I think that's an interesting element of it, where it's just the market's gotten away from the wrappers to a degree. And it brings me back to 2018, remember when they created the communication services sector? And part of that was, well, telecom is only 2% of the index. Tech is 26. Let's shovel something from tech into something new called communication services. Guess what? You got tech down to 20. After that, it's up to 33. You just can't keep beating it back. Yeah. How would you, though, Mike, think about triple-witching in relationship to what went on with the outside reversals? And whether or not this is the start of a downtrend. Yeah. I mean, I separate that out. I don't know how easy it is to handicap. To me, the big question is, does it result more in an opportunity for rotation, giving that the vast majority of stocks have been doing not very much. You have the median stock up just a couple of 3% on a year-to-date basis in the S&P 500. So in theory, there's room for them to benefit from lower yields. And if we get a kind of tracking toward a soft landing, the question is whether there's an appetite for that, or if it's just going to be a big profit-taking moment. You're going to start to hear a lot. Well, we got the presidential debate coming up. Yeah, July is usually a positive month, but it seems like we're without catalysts. We have to fixate on the Fed's pacing and all the rest of it. So I think the longer-term trends are intact. There's nothing that says the bears have wrestled back control. But valuation is pretty challenging in general for the biggest stocks. And you've probably got to fight your way through that, a little bit. Meantime, a nice note out of the JPM desk today about Q2 earnings season, less than a month away. Faxet is looking for 9% year-on-year and revenue up almost 5. That would be 15 quarters of revenue growth anyway. Exactly. And they've been beating by 2 to 3 percentage points per quarter pretty consistently. So 9% probably get you above 10 by the time you're done. Yep, it's still skewed by the biggest name, but less so than it has been. A lot to get to this morning, including when we return Ferrari making this bet on EVs. Our Robert Frank is in Italy this morning. Hey, Robert. Carl, even their factories are gorgeous. Ferrari, just minutes ago, opening up this, their most advanced factory yet. And it is where they will build the first all-electric Ferrari. We're going to take you inside and hear from the CEO live from Marinello when we come back. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best. It's possible. Pharmacy benefits that benefit your bottom line. It's possible. Complex specialty care that cares about your ROI. It's possible. Because we're already doing it. All while saving businesses billions. That's wonder made possible. Learn more at EverNorth.com/wonder. Support for this program is provided by Chevron. Demand for energy is projected to continue rising in the future. To help keep up, Chevron is increasing their U.S. oil and gas production. And they're innovating to help do it responsibly across their operations, including their Gulf of Mexico facilities, which are some of the world's lowest carbon intensity operations. Helping supply energy that's affordable, reliable, and ever cleaner. That's energy in progress. Learn more at chevron.com/meetingdemand. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laugh at me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Ferrari shares have more than doubled over the past two years. The luxury sports car maker looking to maintain that momentum. With a move into EVs, Robert Frank is live in Italy, where he spoke exclusively with Ferrari CEO, Robert. Good morning, Melissa. Ferrari, just moments ago, opening up what they're calling the e-building. It's a 450,000-square-foot plant. Now, what makes this factory unusual is that they will be able to make three kinds of Ferraris here. They'll make the traditional combustion engine car. They will make hybrid cars, which now account for nearly half of all Ferrari sales. And they will make the first all-electric Ferrari. Now, the CEO is saying demand for all-electric Ferraris is strong, or it certainly will be by the time they launch. I believe that in the future, we will have a client that today are buying our cars that they will switch to electric, they will add those, they will buy all-electric, and they will be client that they will not buy the electric. Ferrari only produced 14,000 cars last year. Production was flat in the first quarter, but they can actually continue to make more profits on each car because of customization and higher prices. In fact, if you look at what Ferrari makes on a per-car basis per dollar, they make about $126,000 per car, so you'd have to sell about five pourshes, about 15 BMWs, about 27 Teslas, just to get to the dollar profit of a Ferrari. That's why that stock is up 27% this year. Guys, if you look at the market cap of Ferrari, it is now about one-and-a-half times that of Ford or GM, which of course, they make millions of cars. And on a PE basis, Ferrari now trades at 50 times Ford earnings. So, yes, in fact, they're not just a luxury stock. They're better than any other luxury stock, certainly in terms of valuation right now. And Nvidia, Robert, I'm wondering, are they shutting down another plant, or are they actually increasing production because part of the allure is the rarity, is sort of the exclusive factor to Ferrari. And Melissa, that is the delicate balance that Ferrari is trying to walk. When I asked, look, this will clearly increase production. They're not shutting anything down, so I asked the CEO yesterday, will this get you to $20,000? Will you get to $25,000, even $15,000? He refused to say, and so if they do increase production beyond the $14,000 that they had last year, it will be very incremental. Because remember, Ferrari's are unique in that a pre-owned Ferrari often sells for more than a new Ferrari. And in order to maintain those resale values, they have to keep production small. And of course, as you say, they want to keep it as a hard-to-get exclusive product. So, yes, they will increase production, but they're not telling us by how much or by when. Well, Robert, that actually gets exactly what I was interested in, which when you see the market put one of these very generous valuations on a company, it's usually because this is a business that magically scales. And that, you know, essentially all incremental production is profit. Not really the case, or at least the model for Ferrari. Why is Ferrari so intent on making sure resale values stay so high? Do they feel as if that's one of the things they're offering to their new buyers? It's one of what makes a Ferrari an investment and not just another car. But it's also part of why this brand is now one of the most respected brands in the world nearly 100 years after it started, is because of that scarcity. They like the idea that even if you can get on the order list for a Ferrari, it now takes three years to get one. And that makes it special at a time when, you know, mass luxury and things just aren't that special. So, they're really thinking the long-term next 100 years about the brand value. And what's interesting is they've been able to do that while also keeping shareholders happy with the increased profits, the dividend, and, you know, the incredible amount that they grow per car. And the fact that they have this waiting list means that even if we have a downturn, they're insulated from that. Hey, finally, Robert, you know, we did get some EV sales figures out of Europe just yesterday for the month of May, down 12 year on year, down 30 in Germany. And I wonder if the company has a thought on whether this is, they clearly think it's somewhat of a hiccup, right? Well, Ferrari is almost in a class of its own. And my question to them is always does anyone really want an electric Ferrari? You know, we all know Ferraris as being the roaring emotional beasts of the road that they are. Does anyone want a silent Ferrari? And their point is to build this factory, they've hedged their bets. This factory, which is very advanced, can make combustion engine cars. They can make hybrid cars, like the Porto Sango that you see behind me, or they can make electric cars. So, whatever that balanced car, if demand is stronger than they expected for EVs or less strong, they can manage it within this factory because it's so flexible. So, that was part of this design. Fabulous, Robert. I look forward to talking a lot more in the course of the day. Nice gig, Robert Frank in Italy, as usual. Still to come today a closer look at some of the winners and losers when it comes to AI. Take another look here at the pre-market as we approach the opening bell. We'll get to some news on the likes of Boeing, Starbucks, Carmax, United, when we return. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get a $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Earning your degree online doesn't mean you have to go about it alone. At Capella University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step. But having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Some portions of tech trying to recover from yesterday's losses. Take a look at some NASDAQ 100 Lagards though. You'll see a lot of tech in there, including Micron. NVIDIA can open down another almost 3%. We mentioned Broadcom and ASML a few moments ago. Look at the opening bell in about eight minutes. Don't forget, you can catch us anytime, anywhere. Just listen to and follow the Squawk on the street, opening bell podcast. Grappling with a sales slump and a stock down double digits this year. Starbucks looking to win back some customers by offering discounts, including buy when get one free deals. Just weeks ago, the company did launch a $5 value menu. According to the Journal, Starbucks ran promotions for about half of the month of May. We mentioned McDonald's yesterday. Journal's got a piece about brochures, embracing private label even further. Kroger yesterday talking about ready to eat, trying to steal some restaurant traffic. I think the question is whether or not Starbucks and McDonald's for that matter. We were talking about the summer of value. If they waited a long time in order to finally do this, they waited for really the tide to turn, for saves or sales, to really be firmly lower and a consumer to be firmly under pressure, at least their cohorts. I don't know. Are you going to go back now for a couple of weeks, maybe while they have two for one? I don't know. I feel like it's interesting that the period of pricing power where they were really pushing it and felt like they could get away with it and customers were accepting of it, was really the aberration of the last 20 or 30 years of how these companies market themselves. So I wonder if they could just kind of re-engage the value story, the advertising push, and just, you know, make it a push for efficiency. I don't know what the numbers look like. It does strike me though when it comes to the frappuccino thing, that the CEO of Dutch Bros, I recall, I think she was telling Jim last week that 80% of their volume is cold, it's ice drinks. They're selling big cups of ice at a premium. With a little bit of coffee. So maybe it's workable on a cost basis, but I don't know. It's sort of interesting that they're moving away. As we said, I wanted to find a chart of calories per dollar that the U.S. consumer enjoys, you know, let's say quick serve. It would have been going to the moon except for the last couple of years. Also for Starbucks, the proposition to its customers for so long had been a little bit of luxury every morning, right? You spend, you'll cut back on a lot of other things, but you'll still go in and get that coffee because that's your little sort of reward to yourself for that day. Now they're going to compete due to for one. It's a completely different mindset for that customer. Meantime, the straight's obviously on the hunt for any signs of disinflation or deflation. You got lumber, a lowest in over a year, mortgage rates down three straight weeks, lowest since early April. And then fun strat, last night with a look at the car market, he sees another double digit drop in used and new. It is the second largest component to CPI. It's one reason he thinks why this discussion of a July meeting going live made some sense yesterday. Of course, Tom got his 5,500 yesterday on the S&P and he says stay constructive in June. Yeah, you tweeted an interesting chart this morning about disposable income and I'm wondering if part of that is because of the pullback and prices that we've seen over the past month or so. Yeah, BFA has been constructive on lots of things for a long time but they have a big note. US has sustained this soft landing. They see it continuing through the end of 26 and they did point out disposable income is outpacing inflation. Employment growth, they still see 216k average this year, 156 next year. They don't see unemployment getting above 4-2 and basically staying near some five decade lows. That disposable income acts as a cushion in large part because very low financial obligations for borrowing. Now obviously not across the board but in aggregate that's different than other late cycle environments where you really had those borrowing costs trying to inch up. I just read the market, action and reactions. Markets much less on edge about the inflation trend than about the growth trend. So it's almost like when the Fed acknowledges this the market's going to be like, we've been here. Yeah, yeah, and that's why we're following all the action in Nvidia because it's all about Nvidia. So we're also following Apple today because Bernstein had an interesting note out in Apple, right? Raise the price target. Raising the EPS estimates for fiscal year 2025, which is interesting because he says that still things Apple can be a beneficiary and a leader in AI. It's going to take longer than perhaps investors are baking in at this point. Still raising the estimates for fiscal year 2025, which does not capture the iPhone 16 upgrade cycle. So raising the estimates for fiscal year 2015, I thought that was interesting. Yeah, to me that has to be the story is earning provisions as opposed to the multiple going up. Tony gets a lot of props from Kramer for making a good call on Apple a few weeks ago and going to 240 today. As he says, investors will now believe that there's a leader in AI, not a lager. It's going to be opening the ballot and the CBC Realtime Exchange and the big board. It's IT consulting company Infosys celebrating 25th listing anniversary at the NASDAQ. It's SBA communications owner and operator of wireless communications infrastructure as the Dow tax on another 70 to open. Interesting watching some of the bell ringing reminds me we will get some IPOs next week, even though some chatter today about the European IPO market cooling off a bit with Golden Goose. Yes, it's going to close for summer before too long, so I do think whatever deals are teed up is probably the time to try them out. It's interesting, you want to see the market sponsor new issues and basically be receptive to fresh ideas and have the capital markets circulatory system start to pump again. On the other hand, the supply demand imbalance in favor of equities has been a big story which is buybacks, retail flows, far outstripping net issuance in equities. You've had this de-equitization of the market for a while. Now, we're a long way from IPOs being able to really flood the market with significant supply, but the absence of IPOs hasn't hurt. By the way, investor bank stocks have been doing very well. The market sort of thinks that the environment is ripe and they can get some deal stuff. Out of the gate, NVIDIA Zenimal 3% broad comes down by more than two, so chips continue under pressure this morning and we're also watching some standouts in biotech last night after the bell, Sorepta getting full FDA approval for its Duchenne muscular dystrophy gene therapy treatment, so full approval, better than expected, gramslam, home run. Those are some of the accolades that the analyst community had on Sorepta this morning. It's up by about 30%, and even this after the conference call happened at 8.30 this morning, so I guess people were pretty satisfied with this. Some questions though about reimbursement because they got approval for ambulatory and non-ambulatory, so will there be differences in reimbursement levels and will that impact the size of the eventual market for this drug? But really good news for Sorepta, and we have followed through from Gilead too. We mentioned that yesterday in terms of being a winner, and so we have these sort of green shoots in the biotech sector, and you've got to wonder if that's going to help the overall sector, which has been flat this year, IBBN, XVI, so whether you want to go market cap weighted or more lean towards the small caps, both have just not really been performers at all so far this year. Yeah, it's been a similar story to other areas of growth, which is we know that Lily can deliver, you know, or a novo, and there's no reason to necessarily look elsewhere for fresh ideas. I mean, Sorepta, I mean, it's doubled since November, but it's doubled and had so many times I can't even keep track over the years. It's been one of those names that kind of epitomizes what biotech investment is. You mentioned Lily, it is positive today, it did have that sort of signs of a reversal, although the volume wasn't there to be completely concerning, but the price action happened in yesterday's session. I spoke to Jared Holtz yesterday on Fast Money in Miss Zuho, and I asked him whether or not he would rather put a dollar into Lily or in novo, and he said, "Lily," and I asked that question because Lily, in addition to having the GLP1 pipeline, the oral's coming up, they also have the Alzheimer's kicker, so he thinks that the pipeline is better for Eli Lilly. Here we go, into the negative territory, but basically flat right now. Yeah, and I think, again, it's all about, you know, the fellow travelers with the high momentum stocks. And I mentioned Chipotle was another one. We'll see, you know, Chipotle, I said Costco, you know, you can kind of go down the list of those names that seem like, you know, they're all in the same basket, pressed with the same button. Speaking of travelers, a lot of news in the travel space last 24 hours. First, it was AAA yesterday, saying they do see a record July 4th weekend, another 5 million travelers, then we got in 2019, then you had United follow through for themselves, they see a record July 4th, Delta with a nice div hike. And then the journal today with this piece about Americans in Europe traveling has turned out to be an economic engine of sorts for the continent over there, as we, I guess, leverage our strong dollar. Yeah. Yeah, the dollar's quite strong, yeah. In fact, I keep hearing about Japan being the destination of the summer for a lot of Americans. Oh. Yeah, I know some people have gone over there, maybe for West Coasters in particular. But, you know, between what the yen has been doing and just the idea that, you know, it felt like Europe was crowded with Americans in the past couple of years. So it is fascinating, plus you got the Taylor Swift effect that people keep talking about in Europe. Taylor Swift effect. Some of our colleagues. Apparently. It's a pull forward though. I think that's the other thing. Exactly. It's not like money comes out of the air and... And goes into the Taylor Swift GDP. And usually people who buy Taylor Swift stuff now. They're not doing something else. Do it without something down the road. I thought you were going to mention American Airlines too. The flight attendants saying they are ready to walk off the job. They still have to get approval from the National Mediation Board in order to do so. But, you know, they've been in talks with American. They have not been able to come to a deal. And so they are saying we are ready to walk off the job at this point, just waiting for that green light from the NMB. So we'll watch that, especially as we get into it. Not just this weekend, but the summer will be a very busy trial. We'll see some in general. Melissa mentioned the call out of Bernstein regarding Apple as they go to 240. The other calls of the note today. Nike, Oppenheimer, up to outperform. And then a couple of downgrades as well on Northrop Grumman as Bernstein cuts to market perform. But we'll see. Nike has, it's been a tough road for Nike last year. And it's mostly been come down to a call of like, you know, all we down to the core long-term brand value here. You know, you're not really looking for the particular catalyst necessarily. I've always tried to come back and all the rest of it. I think that, you know, Nike was so over loved for so long by the street. They felt like you could always pay a huge premium for it. And now I think you've kind of drained a lot of that optimism out of the stock. It's still not cheap. It still doesn't really seem like it's ready to kind of get up and run fundamentally. Well, the Olympics have traditionally been a catalyst for Nike in the past. And some analysts will cite that. But some of that money and optimism from Nike just drained into Hoka and on. And so the scenario in which Nike makes a quote unquote comeback is very different this time around because of the presence of these, you know, really strong alternative brands. And we've seen them have big gains, quarter on quarter. So the question is, can Nike bounce back in that sort of competitive environment, which some would argue just did not exist before. And even Lulu, of course, has been pressured, you know. We're stressing the years of the year, right? Downward facing dog. Yeah. Yeah. Did you write that in advance? No. That's like the most obvious bad joke ever, Carl. That's how appropriate we might let you into the dad joke guilt. Trying. Banks are not performing that well. Interesting to see this report out of the city last couple of days looking at the impact of AI, the industries in which it might have the most impact. And banks are at the top in terms of the amount you could automate work. I think the auto industries at the other end of that. There have been several reports last few weeks, JP Morgan, Wells, talking about a re-rating of the cost structure in the industry overall. And what that does for return on equity over the long term. Yeah. I can see where the math gets you there in terms of, you know, total headcount, the functions that a lot of the people are in. But what you'll find is so many of these banks. I mean, city getting dinged perhaps for its living will because of data management type processes, that's because of years and years of single product software things that, through acquisitions and everything else, you just kept everything in parallel and there's so much compliance and you have to have approval. So I just wonder how fast it happens. You know, there's just a built in inertia to financial services because of all the regulation. Yeah. So we'll see. I mean, some will say the same thing about insurance. I mean, insurance has the biggest opportunity to automate. Think of all the paperwork that is submitted to an insurance company that could be reviewed by AI. But a lot of these companies are giants, they're big votes that are hard to turn. So it's hard to sort of implement that technology, but we'll see how it plays out. Yeah. A business full of models and actuaries, right, who have to make difficult calls. Meantime, our next guest does think it's unlikely the Fed cuts rates this year. It remains positive on equities though, favoring information technology, communication services, consumer discretionary, industrials, financials, Oppenheimer. We were just talking about them. Asset management chief, investment strategist John Stoltz was here with a target of 5500. Happy Friday, John. Good day. Same to you, Carl. Um, be here. What do you think prevents the Fed from cutting? I think it's just the stickiness of inflation and a concern by Jerome Powell that he doesn't want to cut rates and then have to go back and raise them again. I think the big thing is, you know, the Fed has now since March of 22 has raised rates 11 times, paused 8 times without a recession. That's really quite an accomplishment. It's helped, of course, by the resilience in labor and other things, you know, and in business and in job growth. But at the same time, the Fed, we believe, has done a really good job and they don't want to ruin it. Would you agree that the market is trying to call his bluff? Oh, you bet. The market represents many different constituencies and in particular, the highly leveraged crowd has been really hurt by the higher rates. You go from a band of 0 to 0.25 to 5 1/4 to 5 1/2 percent on the benchmark rate. That creates, the VIG is a lot more costly, carry cost. It's all problematic. And so when we look at that, that's an argument that occurs. But overall, you know, it's not a bad situation when bond issuers have to pay for the privilege of borrowing money and people when they build their models have to think a little more responsibly than they may have when money was for free. We're at your S&P price target. So how are you feeling? Do you feel like there's a need to push that higher at this point? Melissa, I think we certainly, once the market closes at 5,500 or above that on any given day, that's when we'll review it. And it would seem now that we are still very much in a bull market that is supported both by fundamentals on a cyclical basis as well as secular growth stories that are impacting this. The other side of this is, too, I think the general population today is more concerned with retirement planning in realization that social security might not be anywhere near what it is meant for people. So whether a younger generation is planning for retirement years and years ahead, people who just have retirement a few years ahead or those who are in retirement who want to retain their standard of living for a lifetime that might be a lot longer than they ever expected. Equities is a solution past performance, no guarantee of future results. Yeah, although I guess the question is if, in fact, you have a greater propensity of people to buy more stocks, hold more stocks, keep their exposures high. I mean, is there no cost on the back end in terms of return, right? I mean, that's the issue. You're paying today's price. Yeah, you're paying today's price for people who were in earlier, for instance, if they add more, it increases their cost basis somewhat. But for those who are new to it, of course, the cost basis is going to be higher going in. But that said, AI innovation, other innovation that is in what we would call the proxies of AI, the other sectors that will benefit with greater efficiencies, hopefully, from AI would give us prospects for improved productivity, improved efficiencies in terms of all kinds of delivery of products and services that may take us to a really fairly good position going ahead. Some of the sectors you like would ostensibly benefit from a rate cut. Why do you still like them in light of your Fed view? They haven't done so badly in consideration of the Fed view. The Fed has remarkably, only of the ones that we like, only consumer discretionary, has really lagged. And then within consumer discretionary, if we just look at first quarter earnings season that just ended, there were a lot of consumer discretionary stocks that did very well. Even though many of their peers did not, it was a question of management, management, and what type of products they had. But do you think industrials hold up, even if the market comes to realist view about cuts? Well, I think the market has come much closer to being realistic views about cuts. Remember, at the beginning of this year, we were in the camp. We thought the Fed would probably cut rates only twice. The general market was looking three to five. I even heard somebody say five to 11 because they thought we were going into a recession. We look at it and we think, you know, this is manageable. If you go back all the way, 500 years to the Venetians, that's when they discover that a 10-year yield should be, whether it was shape or cattle or coffee or pepper. The VIG was around somewhere between three and a half to four and a half percent, and people survived it. I was just going to say, I mean, in terms of what you, if you take the Fed on its word, based on its framework, where are things inflation's going, the fact that we've had a yield curve inverted for two years, it seems like they are looking for the opportunity to what they call normalized, even if inflation's not at the target gap. They sure are, like, very much so. And if anything, we think that if they do give us a cut in November after the election or in December, or both times, it'll be effectively sort of like a down payment for both Main Street and Wall Street to say cuts are coming. Don't get too excited now. But, you know, we're not going to be living at this band of five and a quarter to five and a half. Maybe it'll look like, I don't know, five to five and a quarter, what have you. But it's, we're really normalizing after almost 15 years of most of that period in that band of zero to zero point two five. That was crazy. We don't do the Venetians very often, so thank you for bringing that. John. It's good to see you as always. John Stoltz. I got some breaking news on PMIs in a few seconds. Let's get to Rick Santelli. Hey, Rick. Hi, Carl. Indeed. These are S&P global PMIs, manufacturing services, and then the composite. They're doing preliminary. In a couple of weeks, they will change. In the final analysis, we're looking for all numbers to be over 50, 51.7 on manufacturing, 51.7. That means we now have six reads this year, all above 50. Whereas last year, of course, we finished the year with under 50 reads. 51.7 is the best since March when it was 51.9. The services side, maybe the most scrutinized. 55.1, well ahead of expectations around 54, sequentially following 54.8. 55.1 is the best read going back to April of 22. April of 22. And finally, blend them together in the composite. 54.6. That follows 54.5. 54.6 is the best read, also since April of 22. So you do see the interest rate side moving a bit higher. Preopening equities should improve somewhat on the week. Very fascinating. At 4.72 on the week and at 10, we're basically unchanged on the week. We're down on the session and at 4.25 for 10s. Well, now we are about three or four basis points on the week. Prior to this number, we're down one basis point. So we've had a five basis point move on the long maturities on this number, something to pay attention to. Squawk on his feet return after a short break. We're staying on top of the cyber attack that has impacted thousands of car dealerships across the nation. Ayman Jarvis joins us now with the latest Ayman. Hey there, Melissa. Today will be the third full day of fallout in the auto dealership sector. After a cyber attack, retail technology and software provider CDK, which makes the software that powers many auto dealers across the country. Now CDK says this was a two-tiered attack hitting the company on Tuesday and Wednesday. The company told Reuters news service. It's working to reinstate its services and get dealers business back to normal soon. The company says it works with more than 15,000 retail locations across North America. In trading yesterday, as you can see, auto dealership stocks, including carvana, carmax, and auto nation got clobbered a little bit of a mixed picture here this morning and shares of investment firm Brookfield Business Partners got hit too. There you can see the chart there. CDK Global is one of their biggest holdings on CNBC's last call last night. Celebrity motor car company owner Tom Mayoli described the problems that dealers are facing here. It's a disaster. I have to tell you, customers are coming in, consumers are coming in. You know, we're selling cars, but we can't book the deals, we can't finance the deals, we can't get them to the banks. So far, no word from the company on who may have been responsible for the attack, whether any ransom has been demanded or when dealers might see their services restored here, guys. So a lot of questions still up in the air today. So, Ayman, it appears that this is just a hack that prevents transactions from happening as opposed to a hack, for instance, a lending tree experience. That's on a one and a half percent where the hackers stole the data and are apparently putting that up on the dark web for sale. Yeah, when they do steal the data, you can see it in the dark web. There are a lot of websites where these guys go to sell the data and they post samples of it publicly in demand pricing. So you can see that. We haven't seen that yet in the CDK case. What CDK has said is they've preemptively shut down a lot of their systems internally in order to deal with the problem. But it's not clear when they're going to be able to get the company up and running again, the software up and running again for all those auto dealers. We'll reach out to CDK again this morning and see if they can give us any much clearer picture of what they're facing as we go into the weekend. But the problem for the dealerships is they don't control this, right? So if it is a ransomware attack, we don't even know that. The dealers don't control the negotiations over whether or not to pay. That would be CDK dealing directly with the bad guys here and figuring out whether to pay them a ransom or not. Not clear really what's going on behind the scenes here. So we'll have to wait and see what else the company can tell us later on today. Amen, appreciate that. Huge story for those dealers who are having to break out the notepads once again. That's our image. Oh, I imagine. Would we come back existing home sales and LEIs coming up after the break? 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