Closing Bell - Closing Bell: Defensives on the Offensive 9/10/24

Episode Date: September 10, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Mike Santoli, in for Scott Wapner. This make-or-break hour begins with economic slowdown concerns, setting the tone and restraining the major indexes, which haven't been able to build on Monday's brisk rebound rally to outrun those harder landing fears. Here's a look at the scorecard with an hour left in regulation. You see the S&P 500 up about one-third of a percent. It's been plus or minus around the flat line all day.

A few mega caps really responsible for that gain. Microsoft, Oracle and Broadcom in particular. You see the Nasdaq is outperforming based on those stocks. Working Dow is down a quarter of a percent. Russell lagging today just a bit, down by 0.2 percent. Financials and consumer cyclicals have been pacing the downside. That reflects a bit of that macro tunnel, though. You see the financial sector down about 1 percent. A sluggish global growth backdrop dragging Treasury yields to new 14-month lows as well. Lots of dovish global growth data that's getting on people's minds. 3.64 on the 10-year oil,

extending recent losses, actually accelerating down to a three-year low, $66 for WTI, which all takes us to our talk of the tape. How best to navigate a market spooked by late-cycle ghosts, running into seasonal headwinds, and distracted by political static. Let's bring in Eric Johnson of Cantor Fitzgerald, Shannon Sikosha of NB Private Wealth, and Christina Hooper of Invesco, Shannon, ACNBC contributor, all joining me here. Great to see everybody. Eric, I want to just focus on your take, which has for a while been flagging downside risk to the economy and markets that maybe aren't prepared for it. So what are you seeing, I guess, right now that's developing that you think might make stocks a tough trade? Sure. So I think the backdrop of valuations at essentially the second highest we've seen in 150 years since the beginning of data, you've got the individual investor, which essentially is the longest they've ever been in equities.

And to your point, what's going on in real time is the economy is slowing. So the economy has been slowing down from a payroll perspective and other perspectives for about the last, you know, call it four to six months, but it's really started to accelerate and we're seeing it across a number of different factors. Clearly the labor market, you know, unequivocally is slowing. We are seeing delinquencies rising. We saw some of that today within the financial sector. And a whole bunch of other economic indicators are suggesting the slowdown. So I think the key is, why are we slowing? And are those things going to change in the coming three to six months? And our answer is, we don't think so. We think the three biggest things that are essentially impacting the economy and causing the slowdown are that excess savings are declining. We don't see that changing. Prices are simply too high, right? So we've got an inflation rate that on a month-over-month

basis is down to 2%. But right now, we're about 12% above trend for the CPI, and that's causing problems. And then the third factor is restrictive Fed policy. That's going to get less restrictive, but we're still going to be, we think, at least 200 basis points above the month-over-month annualized inflation rate for at least the next four to five months. And then, oh, by the way, you have China, which is 17% of global GDP. That is a drag. So I think it's a tough, tough environment. Well, slowing, Shannon, is something almost nobody disputes, right? We're coming off of above-trend growth for a while. And the question is where we're settling out. And we've seen cyclical parts of this market actually soften up quite a bit.

So in other words, the market's seeing this happening. And the question is, you know, can we pull out of it or can we muddle through? And how would you think about investing given the opportunities that are in front of you right now? Well, if you're thinking about this being softening, we're really thinking about it in terms of a normalization. I think that's what the Fed's talking about, right? And so you can't have a landing without

some sort of landing. And our view is that there are a number of areas of the market, particularly when you look at valuation. But more importantly, when you look at accelerating earnings growth, if you look at the differential between what you're seeing in the MAG-7, for instance, you're actually seeing declining earnings growth. And, you know, I think that's been, you know, well telegraphed. But if you look at some of those more cyclical parts of the economy, financials, health care, which interestingly has become a bit of a cyclical now with some of the megatrends that we're experiencing, utilities, REITs, those are areas that are not only going to benefit from a lower rate environment, but also we do see some disinflation benefits to those companies and

therefore kind of setting the stage for accelerating earnings growth, even with sort of, I would say, at-trend growth, not necessarily some of the stronger growth that we've experienced over the last five or six quarters. Christina, it seems like when you have a Fed that has essentially told you it's going to begin an easing cycle next week. It sort of concentrates this debate on whether it's hard or soft landing, whether it's just in time or a little bit too late or whatever it might be. How does the CPI number tomorrow play into that, if at all? And where do you think we are in terms of just how high the stakes are for how big a rate cut and how the Fed handles this? So I think the CPI number is a lot less important than any

number of data points that give us a sense of the economic health of the United States. And so while it will matter, it won't matter very much. And quite frankly, I think what we're going to see next week is a Fed that gives us a 25 basis point rate cut because to give us a 50 basis point cut will set off alarm bells and would also be an admission of guilt. So what I would say is I don't think that the Fed keeping us at very restrictive monetary policy levels for a long time creates damage that is irreparable. But I do believe every day we have rates at these levels, the odds of a recession increase. I think we can avoid that. But that means the Fed has to telegraph, probably through the dot plot, that we are headed for more rate cuts sooner rather than later, and that we are

still sitting on a very solid economy based on their growth projections. I mean, you don't think that given that they are conceding that policy has been restricted for this long and that there's a pretty wide distance between where rates are and where they think neutral is. I mean, even the market right now is projecting a terminal rate below 3 percent for Fed funds. We're at five and a quarter plus right now. You don't think that given all that, a half a percent move next week would simply be, look, we're taking a larger down payment on what we ultimately have to do. I think it would be a red flag. Let's look at March of 2022. The Fed knew it was behind the curve in terms of fighting inflation, but it only hiked 25 basis points.

It followed up with 50 and 75 basis point hikes, but the start was slow. And I think to do otherwise suggests problems. Let's get to a part of the market that really brings together a lot of the issues we're talking about. Bank stocks, they have been falling today. There are those macro concerns. We'll send it over to Leslie Picker for a look at what else might be behind that. Leslie. Yeah, that conversation you were just having, Mike, is a perfect segue into what's going on in the banking sector today. You've got J.P. Morgan shares facing the steepest declines among the big banks. President and COO Daniel Pinto updating guidance at the Barclays Financial Services Conference in New York, saying consensus for net interest income is, quote, a bit too high.

That closely watched profitability metric for loan making is impacted by rate changes, which can alter volume of loan demand and the amount banks must pay out for depositors. JP Morgan CEO speaking at a separate event in Brooklyn this morning said whether the Fed cuts 25 or 50 basis points doesn't matter much. He's more focused on the economy. Recessions, you know, drive, youions drive banks and canary in the coal mine. They'll drive loan losses. And you could see banks reenter the red zone. I hope that doesn't happen.

If we have that so-called soft landing, it probably will not happen. I see a lot of banks fixing those issues today. And I think I hope the regulators focus on fixing some of the issues that they knew about. But they were so busy focusing some other stuff, they missed the, what I consider the big one, interest rates. And so hopefully it'll be okay. Bank of America shares fractionally lower after CEO Brian Moynihan saying at that conference that NII would grow in Q3 as delinquencies stabilize. Moynihan just spoke with Sarah Eisen on CNBC, mirroring Diamond's apathy toward whether it's 25 or 50 basis points of cuts at the next Fed meeting, saying instead what matters is where rates end up in six or eight quarters and

the impact on the economy. Goldman shares also plummeting today. Goldman CEO David Solomon spoke at the Barclays conference saying the firm's lucrative trading business is trending down 10 percent in Q3. And Citi shares also lower after its CFO spoke yesterday, reiterating expectations for slight declines in net interest income and highlighting a 2.7 billion cost of credit due to new volumes in cards, Mike. Yeah. And Leslie, on top of all that, and I think the capital markets guidance seems a little bit to have been unexpected, right, by the street. But the the card issuers also obviously have been weak today. Ally Financial at that same conference had a lot to say about that.

And I assume that's got to be filtering into the big banks, even though they can absorb that sort of thing much better. Exactly. And Moynihan kind of trying to establish more tranquility surrounding the state of the consumer, describing the normalizing trends there. And then also when you look at the comments that the CFO of Citi made as well, the increasing cost of credit isn't necessarily due to deteriorating exposure there. It's more due to the increasing volume of cards. So you've got a little bit of mixed messages there, but I think the market is trying to

sift through those and see how it affects the various businesses within the banks. For sure. Leslie, thanks for wrapping it all up for us. And speaking of the banks, don't miss Scott Wapner's exclusive interview with Goldman Sachs CEO David Solomon. That's tomorrow on the Halftime Report. It's sort of this eye of the beholder situation where, again, it's either we're having delinquency rates and consumer finances in general kind of go back to general pre-COVID levels, savings rates, things like that. Or it's simply on this trajectory that says we're going to have an outright downturn. What do you say to those people who say, look, the financial obligations ratio is pretty low. The household sector is not very leveraged right now. And meanwhile, housing, as rates come down, can actually be a positive offset to a lot of the negative trends. Yes, I think if you look at the economy and the consumer on an absolute basis right now as a snapshot in time,

I think you would say the consumer is in pretty good shape. Debt levels are actually fairly low. And net worth levels due to home prices and due to equity prices are very elevated. I think the concern is the direction and who's to say when we are going to stop at sort of that normalized level. Yeah. And when you marry that with what equities are pricing in. Right. I think that's really the key is that equities are pricing in no landing or maybe a minor soft landing. And so that's already in prices when you're trading at 21 times earnings, when you're expecting 14% earnings growth in 2025, that's in the numbers,

right? So to the extent that we don't get that, or that even we get a scare that this normalization turns into something or could turn into something larger that scare i think really is going to take some some air out of out of equity markets and if you look at what's going on with oil prices you look what's going on in the bond market there's a lot of nuances there about to be fair but they're certainly pricing in a much higher chance than the equity markets are that this normalization or slowdown is something larger than what it is. Yeah. I mean, there's no doubt that that's definitely in the air. And I guess it remains to be seen how much stocks have to take that in. The earning cycle, though, and Shannon, you kind of alluded to this,

is a little bit unusual in that for many companies, earnings have been kind of flattish or stagnant for a couple of years, and now they're projected to actually start rising again. So is that compatible with a, you know, appreciably slowing economy? Not appreciably slowing. And I think that's the point here. And I think there's also some bifurcation in terms of the slowing, where you expect that slowing. So admittedly, lower-income consumers are under pressure.

However, delinquency rates assert a plateau so we're not improving but we're not getting much worse and so I think when you look at you know those earnings expectations they have to be derived from different areas and so whether that's derived from an interest rate benefit or whether it's derived from from a big input cost more input cost control it certainly not going to be derive from jacking up prices getting that up but I think on the financials, it's a great example, right?

This normalization that we're seeing coming out of the conferences, NII was expected to deteriorate because expectations were for, you know, pricing anywhere from 25 to 50 basis points when these NII expectations were put forth. And so is this, you know, what I'm finding more encouraging is the fact that credit doesn't look too bad, right? They're not citing a real concern about consumer credit. And I think that that is something that we should take away as, again, part of the normalization, extrapolating that out the next three or four quarters. I mean, for sure, public credit markets are not exhibiting a lot of concern, whether that means

they're kind of, you know, not picking up the signals or that, in fact, there's just pretty good cushion there is the question. I think, Christina, you also have had this interesting dynamic where productivity measures are going in the right direction again. And there's sort of the flip side of a lot of what we're talking about, companies not hiring very much and technology working its way through. And then meanwhile, the market trying to absorb what seems like technology surrendering a leadership position, just in terms of the mega cap group. leadership position, you know, just in terms of the mega cap group. So what do you think that says in terms of where you would like to emphasize

being within the markets? So I'd like to emphasize small caps. I'd like to emphasize cyclicals for a few different reasons, certainly benefiting from technology and innovation, also improve productivity. But also, if we do see a reacceleration, and I think we will, markets are likely to discount that by favoring small caps and cyclicals. I think that's the area of the market that could do very well in the next, say, three to six months or even beyond that. And keep in mind that the last time the Fed was able to hike rates and avoid a recession was the 94-95 tightening cycle. But when they gave an easing cycle, it was only 75 basis points. We're looking out on probably 200 basis points. That could be a powerful boost, I think a much bigger boost

to the U.S. economy and in particular impact small caps and cyclicals. I know you don't think that's right in terms of where you'd want to be in the market, Eric. If we're cutting 200 basis points top to bottom, that sounds like it might be the entire time we're going to be worrying if the soft landing are hard, right? Yes. I mean, I think we're probably going to, you know, there's a lag effect on the rate hikes. There'll be a lag effect on the rate cuts. As you said, the terminal rate is already priced in. We're at below 3%.

Well, it's priced into the futures market. Yes, yes. Ask me tomorrow. Exactly. And, you know, look at the 10-year yields, right? It's obviously come down a ton. It's now 180 basis points below the Fed funds rate. And so I think ultimately,

you know, when you see kind of the more classic recessions, putting, you know, financial crisis or COVID aside, you look at a more, you know, kind of classic recession, you know, the cutting of interest rates usually takes time to filter through, right? During the 01, 02 recession, they were cutting rates throughout the entire time,. But you're not seeing the bounce until till 03. And so I think that's it's not really a cure all. And if you look at prior cuts, cut cycles, you know, after the first cut, many times you get drawdowns after that first cut, because like now it's we've gotten the answer. We've gotten what we've been looking forward to for a year and change now. It's finally happened. Now what? We're left with this economy that is slowing. Although if you look at the way the markets actually, you know, let's say if you look six months after the first, I mean, the entire

equation is, did you get a recession or not? Right. I mean, it would seem like if, Christina, you're betting that we have some version of a soft landing cutting cycle that it could just take the pressure off. Absolutely. And keep in mind, though, where we need the boost is manufacturing. If we look at the PMIs, services are doing quite nicely. And, of course, that's a much larger portion of the economy. So I would assume that a lot of the boost could go to manufacturing, which, again, would be positive for the cyclicals. Shannon, you know, we have Oracle up big today, double digits.

It's a great earnings story. It's very interesting in the sense that it was this kind of cheap, kind of cash cow type company, and now it's riding this AI tailwind. It's not really getting coattails today in terms of, you know, all of tech or all of semis going up. Do you think that's a change in tone in terms of, you know, AI is now kind of of a show me story or what do we make of it? We've definitely felt like AI has been a show me story and we were wrong

early on. I think Oracle's interesting because there's been a lot of emphasis on what has been called cheap tech. And I think that that is that's a misnomer for where you want to be positioned. You actually want to be in technology that has not experienced the significant appreciation, but yet has meaningful and monetizable growth drivers over the next year. I think when it comes to AI, what's going to happen is that it's not just about the spend. Less than 5% of companies in the U.S. are using AI in any way right now. And so it's really going to be about how are you translating your existing footprint? How are you landing and expanding and then able to provide AI capabilities? Because that's much easier than starting up something from scratch and saying, hey, we're here.

Yeah. And I think Larry Ellison himself said, look, it's just everything. It's just going to be the way we do it. And we're just calling it AI at the moment. Right. And it's expensive. All right. Good to see all of you.

Thank you very much, Eric, Shannon, and Christina. Let's send it over to Seema Modi for a look at the biggest names moving into the close. Hi, Seema. Stealing my thunder here, Mike. We're talking about Oracle. It is the biggest gainer in the S&P. All good. Shares climbing to a new all-time high. In addition to that first quarter earnings speed, revenue from cloud infrastructure surging 45% year over year. Oracle founder Larry Ellison also announcing data center plans that will use over a gigawatt of power

that will rely on three modular nuclear reactors. Shares up nearly 12 percent. On the flip side, Hewlett Packard Enterprise, the worst performer in the S&P, the company announcing plans to sell 1.3 billion dollars in convertible preferred stock. Hewlett Packard does intend to use the net proceeds to fund its acquisition of Juniper Networks. We're looking at shares currently on pace for its worst day since January, down over 6%. Mike? Speaking of so-called cheap tech. All right, Seema, thank you very much. We are just getting started here. Up next, top technician Chris Verone reveals which sectors he's banking on ahead of the Fed's expected rate cut next week. He'll join me at Post 9 after this break. We are live from the New York Stock Exchange. You're watching Closing Bell

on CNBC. Welcome back. Cyclical sectors under pressure this quarter as defensives take the lead with REITs and utilities up double digits. And our next guest says the Fed's expected rate cut next week won't be the catalyst for cyclicals to start to outperform. Joining me here at Post 9 is Chris Verone of Strategas. Chris, good to see you. Great to be here. Yeah, I think it's a bit of conventional wisdom, right, that it's sort of Fed cuts rates, maybe it's a soft landing, maybe it gives the economy a refresh, and why wouldn't you buy cyclicals? So what does history on your work say?

Well, I think it's an example of there are so many things in this business that intuitively sound like they make sense. The Fed cuts, cyclicals are rebirthed, and they resume as leadership. That's just not what the data has said historically, particularly the non-recessionary rate cuts have not recatalysed some cyclical trade. I think 95 is a great example. They went July 5th of 95 was the first cut of that cycle. Tech struggled for the next six months. So if you think of that, it's kind of the flag holder of cyclicality. But you also had consumer discretionary week. Now, Walmart was part of the sector then, so perhaps a little bit different. But what did

work, Staples worked, healthcare worked, Utes held up OK, REITs did well. So there is a kind of a counter cyclical streak that runs through leadership, regardless of why the Fed is cutting. Yeah, I mean, not to go step by step through the history, but I do recall, I mean, the Fed cut in 95. But in the middle of that year, I think the economy GDP was kind of stalling out. Right. You had like a sub one% GDP quarter or something like that. In other words, there's a reason that they're moving. I guess the question is, as you look at the way the market's acting right now, the leadership profile shifting around, is there any way to tell when we just have this, oh, that's the way it acts when we get a non-recessionary rate cut.

That's the way soft landings behave. Or is it the market flagging more weakness, a further downturn? Well, I think, Mike, what's important about the leadership is this isn't two or three or four weeks in the making. off-landings behave, or is it the market flagging more weakness, a further downturn risk? Well, I think, Mike, what's important about the leadership is this isn't two or three or four weeks in the making. I mean, this has been the leadership that's been developing in the last four or five months. I mean, utilities have been inflecting all year. The REITs have been inflecting all year. Healthcare more recently starting to improve. What do all of these have in common? I think very rate sensitive. And I do think, as I've told Scott

before, I think there's a difference in this business between fighting the tape and fighting the consensus. I never felt like we were fighting the tape on rates this year, but I did feel like we were fighting the consensus at times. We still like them lower here. And I think the leadership reflects that. Like, for example, 10's lower to where? Under this basically 3.7 neighborhood, which is where we are today, there's really nothing beneath you until about three and a quarter. You could even make a case 2.90 or 3% is kind of ultimately what the final destination is. I think going back to that 95 analog, what's notable is when the Fed started to go, remember, rates had already been falling

in advance of that. They bounced for about six weeks and then they resumed lower. It was not until the final cut where Bonneville's actually bottomed in early 96. You mentioned technology certainly back then would have been considered this really leveraged cyclical boom-bust type of a part of the market. Now, dominated by these kind of monstrous platform-type companies, it's been kind of defensive. But either way you slice it, it feels as if they've kind of broken stride in terms of their leadership. Well, it's been piece by piece. I mean, these semis, put NVIDIA aside for a moment, the average semi has really not been a leadership stock this year. And yeah, right. And I think when you break tech into kind of two pieces here,

you have cyclical semis and then you have, in some respects, the very large MAG-7 type names that were kind of almost viewed as bond substitutes when you couldn't own bonds. So if we can own bonds here, do we need to own those bond substitutes? And at the same time, it does seem like everywhere, cyclicality is under some pressure. It's probably more overt in Europe, where I think tech has broken harder. ASML is the largest weight in the European Tech Index. That has broken hard here. But really, everywhere you look, this is a pretty consistent leadership message around the world. And then what about financials?

We can define them in whatever bucket we want. But they're obviously backing off today but have been improving. Yeah, they've been leadership in our work really all year. I think it's really essential that continues. They're certainly weaker today. I think the trends are good enough where you would want to be a buyer of an oversold condition in financials as it develops. This is a weak seasonal period, as we know. Financial sector seasonality really starts to get better come

late October, early November. I think it's essential they respond out of that affirmatively. And you got to go back again to that 1995 period. What is the one dominant leadership message? Financials roared out of those 95 cuts. So if we're going to maintain what I think is the status quo of soft landing, I think it's essential you keep financials involved and credit conditions benign. Big picture, if you look at just the S&P 500, if we're looking at the index level, I mean, I know you would say the uptrend is still in place, which is a few percent off the highs. Yep, you should expect some seasonal weakness.

But is there anything else we can kind of map out that says, you know, we had a broad rebound rally? Does it seem like there's life left to the upside here? I think ultimately there will be life left to the upside. I do think we need to get through these next four, five, six weeks. And I'm not sure we're going to do that completely unscathed. It feels like we need a flush or an oversold condition to develop first. And I would just go back to that rally off the August lows and think about the change in character. I mean, tech never made a new high.

Q's never made a new high. Semi's never made a new high. Google's undercutting the lows. Micron undercutting the lows. So there's some changes. And I think we ought to be aware of that. I don't think we get to the next four, five, six weeks without some punch in the stomach. Will that be viable? I do think ultimately it will be. The trends underneath it are probably

strong enough. But there are questions that we have about what is the counter cyclical message of markets and macro telling us about 2025? Yeah. And if there'll be enough within the index, you know, that's benefiting from those things that can hold things together, I guess. I think we'll cross that bridge as it arrives. But certainly on our mind. Yeah. Painless rotations are probably less common than people would hope. All right, Chris, thanks very much. Thank you. Appreciate it. All right. Up next, the CEO of Boom Supersonic joins us exclusively from the Global Aerospace Summit. He'll reveal the latest strides the company's making toward a supersonic jet after this break. And don't forget, you can catch us on the go by

following the Closing Bell podcast on your favorite podcast app. We'll be right back. Welcome back. Boom Super Sonic betting big on the future of high speed air travel, designing a supersonic airliner called Overture. Joining us now is Boom Supersonic founder and CEO Blake Scholl, along with our Phil LeBeau. Phil, take it away. Thank you, Mike. We're here at the U.S. Chamber Aviation Summit. Every year we're here, we've seen you a number of years. This year, you come in saying to people, you know, we're getting closer. Quickly run down where you are in terms of first aircraft, first flight, entry into service. Yeah, well, we flew our test airplane for the first time in March. First ever independently

developed supersonic jet. Went great. Flew it again last month. Went even better. Third flight's going to be later, potentially later this week. And that puts us in a position to accelerate into production. Our goal is to roll the first airplane off the line in 27, fly it in 28, get it ready for passengers five years from now in 29. And that's the airplane that I look forward to flying with you and everybody else. The XB-1 prototype, which you were talking about, which you're going to be flying on Friday, the first supersonic flight is later this year, am I correct? That's right. Our target is before the end of the year to go faster than the speed of sound for the first time. You know, a lot of people hear this when you say, we want to entry into service in 29,

and they say, oh, come on. Even Boeing and Airbus struggle to make an aircraft enter into service on time. How can you be confident that's going to happen? Well, there's a surprising thing, which is we didn't invent anything. The Overture airplane is like we took a Boeing 787 carbon fiber composite airplane. We stretched it out. We made it long and skinny. We put twice as many engines to go twice as fast. We did not invent anything new. We don't need any new regulations. We don't need any safety exemptions, any noise exemptions, emissions exemptions. This is an incredibly pragmatic

approach to supersonic flight. But test flights are test flights. Test flights are test flights. If we execute as well as Boeing did, good old Boeing in the 1990s, they were five years from firm configuration on the 777 to delivering it to their launch customer, United. It's also our launch customer. And if we execute as well as they did 777 in the 90s, five years, we'll be ready for passengers. Your first fabrication facility, which will be your assembly plant, so to speak, in North Carolina, you finished it earlier this year. That's right. It is up and going. A lot of people look at this and they say you're ahead of schedule in many ways, but do you have the capital needed to get to production of your first overture?

This is a capital-intensive business. We've known that from day one, and our approach has been to raise around a capital, accomplish milestones, raise around a capital. And so no, we don't have it all in our bank account today. We'd be foolish to take it all where we are today. But we've been able to enjoy great backing from investors. You see this as an opportunity to create the next great aerospace company. And of course we look at what's going on at Boeing today. We all see the same headlines. This is the number one exporter in the U.S.

It's also national security critical. 24% of Air Force airplanes are derivatives of commercial airplanes. We cannot let aerospace go to Europe or worse, go to China the way it did with semiconductors. So we have to build and invent the next generation of airplanes here in the U.S. Could not be more important. And the size of the prize is very large. And you've got, at the same time, NEOM investments out of Saudi Arabia, has made a small investment in Boom, particularly with the engine that you're developing.

You're over there. You talk with the Saudi Arabians. Why is there so much interest in that region, whether it's eVTOLs, supersonic, or the future of flight? And do you look at that and say, this is where it's going to happen in the next 15, 20 years in terms of really explosive growth? Well, there's a lot of interest in the Middle East and caring for the next generation of products. And aviation can act as a bit of an ambassador. It's a way to take a city brand or national brand and bring it to the world, bring people there.

And so there's excitement about the future of flight. I don't know that it's gonna be first in supersonic. Supersonic is inherently global product. We're certifying it with the FAA, with the AUSA. And I think it'll actually launch here in the US and then we'll bring it elsewhere in the world. You know the usual sales pitch. What does it cut down the flight time between San Francisco and Tokyo?

Six hours. Six hours. So it's magical. What it means is if you've got a Monday morning meeting, you get to sleep an entire extra night at home. You leave San Francisco 8 a.m. Sunday morning. You get to Tokyo six hours later, 8 a.m., Monday morning in Tokyo, we're awake, they're awake. You do a whole day of meetings, come back the same day. 24 hours later, you're in your own bed. No jet lag. Blake Scholl, CEO of Boom Supersonic. You've heard the pitch, guys.

Mike, I'll send it back to you. They believe that they can get into commercial service by 29. We'll see. The clock is ticking. All right. It is, Phil and Blake. Thanks so much. All right. Up next, we are tracking the biggest movers as we head into the close. SEMA standing by with those. Hi, SEMA. Mike, 23 minutes left in trade. One retailer hitting a new high and energy stocks losing steam. We're going to tell you why coming up. Thank you. 19 minutes to the closing bell. You see the Dow down less than 150. It actually was off by more than 300 around midday. Let's get back to SEMA for a look at the key stocks to watch into the close. An interesting one here, Mike. Boot Barn shares stepping up to a new all-time high. The retailer says it sees growth of 4% in same-store sales for its fiscal second quarter. Wall Street's

estimate was 0.1%, so a big beat there. Two Wall Street firms, J.P. Morgan and BTIG, raising their price target on the stock today. It's up 10%. Energy stocks, though, taking a hit. ExxonMobil, Marathon Oil, ConocoPhillips, and Chevron all lower. Tropical Storm Francine is barreling towards Texas and Louisiana. Separately, we're watching oil prices tumble as OPEC lowered its demand forecast for the second time in two months. Some weakness there, Mike. Seema, not sure if this was the idea behind pairing those. But, you know, Boot Barn used to be considered a little bit of a proxy of the oil economy.

Because people in Texas feeling pretty flush when oil prices are higher. I see that. Buy some new boots. But it looks like that relationship's broken for now. So we'll see what that means. Thank you. Thank you. All right, still ahead, Southwest Airlines shares sinking amid a keyboard shakeup and pressure from one activist investor. All the details coming up. On closing bout. And up next

Starbucks new CEO Brian Nickell unveiling some new plans for the company all the details. It's coming up. A little bit later. Up next, shares of Ally Financial getting hit hard. We'll tell you what other stocks are now in the closing bell market zone ally financial warning today of credit

challenges placing the plaguing the lender this quarter Kate Rooney brings us the details plus Philip O. is back to talk about Southwest big board shakeup and Kate Rogers on new Starbucks CEO Brian Nichols plans for the coffee chain. Kate, definitely had some ripple effects here, this Ally warning.

Yeah, absolutely, Mike. So Ally Financial, some other credit card stocks also getting hit. This was on the back of some comments from a top executive at Ally. This was the CFO, Russ Hutchinson. He was at Barclays Financial Conference in New York earlier. He warned that borrowers for Ally are struggling. He mentioned inflation, high cost of living, the labor market, and then pointed to retail auto loans as a key area there. Delinquencies also increased in July and August. As he put it, quote, I'd say over the course of the quarter,

our credit challenges have intensified. Sarah Eisen asked Bank of America CEO Brian Moynihan about all of this. Here's what he told her earlier. Consumers have the money in their accounts. They're spending wisely. They're employed. They're getting paid more. Inflation's tough on certain income strata. Unemployment has kicked up a little bit. The job market's softer. This is why the Fed has to start to get more accommodative. So you mentioned the ripple effects, Mike. Synchrony shares falling. You got Discover lower as well. Capital One, Visa and MasterCard, American Express are also getting hit. MasterCard, though, turning positive. So, but wide ripple effects in terms of what it means for the rest of the credit card landscape, Mike.

Yeah, Kate, I was looking, too, at those stocks that you mentioned, plus Affirm. And they definitely are to the downside. But over the course of the day, they're actually up significantly off their lows. I just wonder if there's a little bit of a reassessment as the day went on, maybe allies a little more exposed to certain parts of the market, auto and things like that. But it seems if nobody's willing to say that it's across the board kind of game over for the consumer. Yeah, Mike, I think you're right on the nuances. Some of those have a lower-income consumer, a lower-income borrower.

You see a company like American Express down on this news, and that's a totally different credit quality than you have in an Ally or Discover or Synchrony, for example. So I think it was the knee-jerk reaction to begin with, and then there's a little bit more of a deeper dive, I'm sure, from some investors saying, wait a minute, you know, this is not necessarily indicative of every borrower out there. It'll be interesting to see. We're talking to Max Levchin tomorrow from Affirm, the CEO there, to hear what he has to say. I think buy now, pay later is one big question mark in terms of the borrowers and, you know, what the credit quality is looking like there. Yeah, for sure. Been a constant theme there.

Thank you, Kate. Phil, talk to us about these changes at Southwest, the victory for the activists here. Absolutely, Mike. These were changes announced by Southwest after a meeting between Southwest leaders and Elliott Management yesterday in New York. So what is Southwest doing? Executive Chair Gary Kelly, who's been at the airline for 38 years, was the CEO, now Executive Chairman.

He is leaving at the annual meeting in 2025. Six directors will be leaving the board in November. Southwest is committing to appointing four independent directors, and they may consider some of the candidates, they will consider them, some of the candidates from Elliott Management, but they're not saying that those four are definitely going to be Elliott Management directors. So what does this mean for CEO Bob Jordan? That's a good question. The board issued a strong statement today saying that he still has the confidence of the board of directors. When I've talked to Bob Jordan, he said, I'm not going anywhere.

I believe in the changes that we've put in place at this airline. We've heard about some of them. We'll hear about more of them. As you take a look at shares of Southwest, we will hear about more of the changes that Bob Jordan and his team have in place on September 26th. That's when there will be an investor day. And as Bob has said to me many times, what we've already announced is just the start. We'll see. Mike, send it back to you. Yeah, Phil, you mentioned the stock. We were looking. It's down about 2% still. Now, it has had a good run off the lows from early August. But I wonder what the streets takeaway is here with these changes. I guess maybe it's a little bit of a protracted timeline in terms of when the board changes will happen and then unclear exactly how that's going to translate

into anything in terms of strategy. I don't think we're seeing much reaction because we don't know exactly how this is going to shake out, Mike. The statement from Elliott today was, this is nice, this is a start, but we need urgent action. Urgent action implies that Elliott is going to continue pushing for its directors, its nominees even quicker? Do we see them push for a shareholder meeting? And what about their demand that Bob Jordan go as CEO? They still are standing by that. They have not removed that. So we have not seen the last of this tug of war between Elliott Management and the current leadership at Southwest Airlines. Yeah, and I guess for context, probably should mention that the other larger airline stocks are also off a bit today. You have American down a couple of percent. So I guess, you know,

the group is still beset by this idea. Nobody's quite sure how the supply demand setup is pointing at this point. Correct. Exactly. That is exactly right. It is not a good setup for the industry right now. Phil, thanks very much. Kate Rogers on Starbucks, another company that, you know, seems like it has strategic changes on the way. Certainly, Mike, in an open letter to Starbucks partners today, Brian Nickel, its new CEO, says that he's been traveling to different cafes and having conversations with both employees and customers. And so far, two truths have emerged. He's been traveling to different cafes and having conversations with both employees and customers. And so far, two truths have emerged. First, that Starbucks is a beloved brand, but second, that it's drifted from its core.

He went on to say in this open letter to employees, quote, In some places, especially in the U.S., we aren't always delivering. It can feel transactional. Menus can feel overwhelming. Product is inconsistent. The wait too long or the handoff too hectic. These moments are opportunities for us to do better. Nichols says his core priorities as new CEO will be empowering baristas to take care of our customers, get the morning right every morning, reestablishing Starbucks as the community coffeehouse and telling our story. He also says he's going to focus on the U.S. business initially and then turn to global

markets, including China. So it'll be interesting to see what winds up happening, particularly with the China business. I think in the U.S., you know, the strategy is clear. And one more thing I'd note, Mike, is that he did have a chat today, fireside chat with all of Starbucks employees at its headquarters in Seattle as he kicks off this new venture as its CEO and chairman. It's interesting, Kate, in this idea that the stores have this transactional feel and all those other things even he delineated. You know, I think you would say, well, that's probably a result of the volumes that are being funneled through in terms of transactions through these

stores, the priority on mobile ordering and drive through and, you know, this throughput idea that obviously they did to meet demand. So you wonder how they can take care every step of the way, as he's suggesting, without necessarily maybe having to serve less or find some other efficiencies. Yeah, and I don't think the idea here is to cut back. I think it's to speed up service, but to have that Starbucks touch of connection, right? Because that's something that goes back to Howard Cholton and kind of the foundational values of this company and having that type of an interaction when you're at Starbucks, that's something that the brand really needs to get back to. And, you know, needs to remind consumers why it's worth it to go there every single time,

particularly in an environment where people are being more discerning with how they're spending their money, where they're choosing to go. And, you know, they clearly believe Brian Nichols is the person to strike that right tone and balance. And I guess, I mean, I know there's no way to necessarily read between every line here, but what does get the morning right every morning? Is that considered to be a little bit of a stumbling block for the stores? I would say, you know, if you think about the tradition and routine for so many people starting off their day with coffee or with, you know, a specialty beverage from a place like Starbucks, you want the morning to go well and to get it right, right? Meaning you have a good connection with the barista. If you're wanting

to have a chat with them, the drink order is correct. And most importantly, that your wait time isn't too long. I think also getting clear on the menu and how many items they're having on the menu and some of these complex beverage orders, it seems like, as you said, reading between the lines potentially could be streamlined under his operations here. All right. We see Starbucks shares up about one and a quarter percent today on the day of that message from Brian Nicol. Kate, thanks very much. All right. As we head into the close, the S&P 500 is actually pretty close to the highs for the day. It's up about four tenths of one percent at this point you see the nasdaq leading the way there too up about eight tenths of a percent stocks like microsoft amazon

leading the way there and the dow has firmed up over the course of the afternoon it was looking at a decline of more than 300 points at some point and we are down now only about 100 treasury yields have been a big story continue we've been talking about fourteen month lows. In the ten year treasury yield. They sit now- not too far above that three point. Six mark at this point as people gear up for what's going to happen with the Fed. Next week

the market breath had been a weak point to start out the day would point out it's actually gotten a good deal stronger there slightly more stocks higher. On the New York Stock Exchange. Then our lower though the Nasdaq is actually had. Better breath for the entire day we are waiting of course a good deal stronger there's slightly more stocks higher on the New York Stock Exchange. Then are lower though the

Nasdaq is actually had better breath for the entire day we are waiting of course for that CPI data. In the morning's going to have a lot to say about perhaps how big a rate cut we get. Next week the market has been tensed up

ahead of that although the volatility index I'll point out again. Is down almost half a point it's at about nineteen today that was. Well up into the mid twenties.s last week. And, of course, oil prices. We've been hitting on that as well.

Pretty much a steep decline in crude oil, both Brent and WTI, making three-year lows. No doubt there'll be a lot of talk in the presidential debate tonight about inflation. Well, things are moving at least in a more friendly direction on that score, whether consumers are sensing it or not. That's going to do it for Closing Bell on a Tuesday.

And I'll send it over to overtime with Morgan, Brandon, and John for it.