Closing Bell - Closing Bell Overtime 11/27/23

Episode Date: November 27, 2023

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 Door Overtime. I'm John Fort Morgan. Brennan is off today. Coming up this hour, Transportation Secretary Pete Buttigieg is going to join us exclusively to talk about the first meeting of the Supply Chain Resilience Council as the Biden administration tries to prevent future snarls and fight inflation. Plus, former Wells Fargo CEO Dick Kovacevic on the outlook for the Fed and when he thinks rate cuts could start. And we are kicking off Cloud Week here on Overtime ahead of a big interview tomorrow with Adam Solipsky, CEO of the biggest name in cloud, Amazon's AWS.

Meanwhile, today we will break down earnings from cloud security firm Zscaler due out in just moments. But let's begin with the market. Stocks coming off their fourth straight week of gains, the longest streak for the Dow since April. Today's action, muted, maybe a little turkey coma still, ahead of some big inputs coming later this week, including Salesforce earnings on Wednesday, PCE Thursday. CNBC Senior Markets Commentator Mike Santoli back with us now. Mike, the VIX is below 13, which is a level near those lows that we saw in the posts kind of during the pandemic market recovery in late 2020. What's the make of that? Yeah, I mean, on the first order, it reflects just a general calm in the market itself. So

the first input into what is implied volatility going to be, what's expected volatility over the next 30 days is how volatile has the market been in the last 10, 20, 30 days. And it's not been that volatile. It's a pretty typical level if we are in a gentle, boring uptrend like a bull market. It obviously remains to be seen if it continues in that fashion. There has been some commentary about very, very low demand currently for downside hedges. So whether it's because people really sold a lot of stocks between July and October, they don't need to cover their bases with insurance for the downside through index options or something else. It does reflect a market, I think, that's gotten a little more comfortable

with the macro outlook. Yields have come off the boil. Inflation looks like it's going in the right direction. Oil's not standing in the way. So all those things together, we got through earnings season. Corporate buybacks are back in force. So I think all that stuff does put a damper on volatility. Naturally, it mean reverts. It'll probably perk up for some reason. But I don't see a 13 VIX in itself as a reason to say, nobody's worried. It's time to start worrying. Okay. So it made me think of that line from movies and TV long ago. It's quiet, almost too quiet. You're saying not necessarily too quiet. No, not necessarily. I mean, look, you can go back to 2019 and you would have bottomed and

spent a fair amount of time below the 12 area on the VIX in the mid 2000s. It was even lower than that. And I think the bigger point is that it just can get sticky here and bounce around and not really mean a whole lot of anything. Usually you want to look for an aggressive move higher. Credit spreads going the wrong way. Having it be part of a larger story where risk aversion is rising and macro instability seems to be on the radar screens. And right now we're not in that moment. All right. Well, then just quiet can be nice. Mike, thanks. That's right.

You're here again in just a bit. Let's continue this conversation with CityUS equity strategist Scott Kronert. Scott, you think that things could get better from here for the equity market? Well, we've been pretty constructive for several months, right? You know, using a 4,600 year end target premised on earnings resiliency, which has been an ongoing message of ours. We think that can continue into the first half of 24. I think recession risk is still out there as a looming issue at some point in the middle part of next year. But for now, I think equities are taking their cue from the more positive action in rates of late. So 4,600, we're just about there.

We had some other firms coming out with 2024 S&P targets around 5,100 or so. I don't know if yours is out yet, but does being right at your target mean that you just kind of sit on your hands? Or do you look for opportunities elsewhere to strengthen a portfolio? Well, I think you have to respect the move that's come, you know, from a 10 to 11% up move in the past month or so on the heels of this rate pullback. And, you know, you get that kind of move in the S&P. You have to expect some digestion. So we're of the view that we, for the most part, muddle through the balance of this year to our target. Now, as you look ahead, though, I think the big call for 24 is going to be one of broadening or not away from this mega cap growth leadership towards other areas of the market. And we're

of the view increasingly that that broadening is being set up by what should be a more consistent pattern of sector earnings trends up into the right in a positive direction. So basically, we're looking for a broadening effect to carry the index higher. We're using a 5,000 mid-24 target, have been since the end of July. Feel pretty good about that at this point. Okay. So when you look at comm services, consumer discretionary, consumer staples, healthcare, industrials, they tell you what? Well, they tell you different stories. So if you look at the action off of the recent S&P lows, okay, this past month, look at the sectors that responded most aggressively. Well, among them is

consumer discretionary. No doubt tech is in there, but you also saw a big lift on real estate. My point here being is that what the market had been discriminating among was the impact of interest rates on longer-term fundamental projections. And so what's happened is that those sectors that were at most risk or in concern of higher rates have felt that snapback effect. So we're looking for that effect to continue. So again, the muddle through to the end of the year call here is going to be really premised on the 10 year holding a four and a half level, if not a little bit improved from here. I want to mention Zscaler, the cybersecurity provider, its results are out. The stock

initially moving down about 5%. We'll bring you those results when we've gone through them and are clearer on them. It had hit a 52-week high today, as did rival CrowdStrike. Scott, what's your feeling about tech within all of what you're looking at in the markets and the role of AI both right now and in 24? So we get a lot of questions about the valuation on the S&P 500. And our answer has been pretty standard for several months now. And that is that don't be overly concerned about the S&P multiple. It's a function of this growth tech cohort that's really outperformed this year. The rest of the market is a more attractive valuation mode. So when we think about the tech setup here, we get it. It's a big part of the S&P. It's very difficult for the S&P in aggregate to move

materially higher without tech involvement, if not leadership. So we're looking for that to sustain around this new growth driver via generative AI, supported by a more benign interest rate backdrop from this point. But again, that sets the stage for the rest of the market, we think, to show more signs of broadening out, which ultimately is how you get the index working higher from here. All right, hold on. Let's get those numbers I mentioned on Zscaler from our Steve Kovach. Steve? John, so stock is down significantly here despite beats on the top and bottom lines and some strong guidance. Let me go over what we got here. EPS was 67 cents adjusted versus the 49 cents adjusted the street was looking for. And then revenue is also a good

beat here, $497 million versus the $473 million expected. And guidance well above expectations here as well. EPS between 57 and 58 cents versus the 51 cents the street was looking for and revenue guidance between 505 and 507 million versus the less than 500 million, 496 million street was looking for, John. Not sure why it's down 7% here, but we'll keep digging through. They did name a new chief revenue officer in a separate press release. That's part of it as well, John. All right, Steve, thank you. Scott, well, first let me mention Zscaler CEO Jay Chaudhry is going to break down those results with us in an exclusive interview tomorrow. Right here as we continue to kick off Cloud Week.

Scott, I'll note that back in, I think it was May, Zscaler was at around $87 with less than half, even where it is after hours on this downside move after earnings. And maybe investors got that one wrong because look what it's done thus far. But you just talked about this growth cohort. This is an example of that and a lot in the cyber area. How do you treat them? Are they likely to move down even on good news just because it's not good enough for some? You know, it's going to be very idiosyncratic in our view. Essentially, the way we think of it is that, you know, embedded in each stock price, particularly off of the move we've had in the

past month, you build up your implied growth expectations. And that has to be weighed versus where consensus numbers are. So the positioning effect becomes really critical for how these companies respond. And without going too much into this one, what I would just say is that that's usually what's at work here is that implied in the expectations or into the results is a growth expectation that may in many cases be hard to surpass on a short-term basis. So what you really have to come back to and check your confidence level in terms of the underlying longer-term growth trajectory, ultimately that's where we think the market's going to come back and find more of a common ground for some of these names. Yeah. And these things can move around a lot. Reminded of NVIDIA's move in

overtime just a few days ago. Scott Cronert, thank you. Let's get back to Mike Santoli now with today's market dashboard. Mike. Yeah. Hey, John. So the rally in both stocks and bonds in the last month have really done a lot of repair to that traditional 60-40 equity fixed income portfolio. Look at where it sits right here as reflected in the AOR ETF. That is basically a 60-40. It's now above a 10 percent year-to-date total return. And that's actually well above the annualized long-term average for a one-year return. On that front, though, we are still underwater.

Over two years, it's down 5%. So things moving in the right direction, and it's rewarding those folks who maybe rebalanced that portfolio instead of exiting it. Now, if buy and hold and diversification in that way is not your thing, maybe you like the speculative meme stocks. Well, take a look at that. Remember the meme ETF, Roundhill meme ETF? It was born almost two years ago. It's actually going to be going away. Roundhill announced on Friday that it, along with two other ETFs, are going to be liquidated and closed. Less than three million dollars in this meme ETF at the moment. You can see it actually has performed since inception.

This is where it came into being. Very similar to the Hark Invest ETF, which, of course, is well over five billion in assets under management. So it sort of shows you, one, they were late to jump on it because the meme stuff, the speculative froth of the 2020 bull market run really peaked in February of 2021. They were nine or 10 months late in launching this thing. And it actually has rekindled a little bit lately. But most of these stocks are down so much from the highs. It's been really tough to rebuild toward anything like where the high watermark sits, John. Oh, well, RIP diamond hands. So I want to go back to the 60-40 that you mentioned off the top. It's a question of strategy versus tactics, right? I mean, there are a lot of people, the journalist

Dunn's stories on this, others, who are just not excited about bonds and are abandoning 60 40, thinking much more tilted toward equities now, at least 80 percent, if not more. But is this chart in effect showing that if you are trying to build a bond position, bond portfolio, there are prices here, entry points that could benefit you in yield as the years progress? Yeah, I mean, I think that the case against having that, let's say, 40 percent in fixed income is generally that somehow structurally inflation is going to be higher. Somehow the Fed is going to keep rates higher, even if the economy buckles and that stocks and bonds won't offset one another the way they did in the 2010s, meaning when stock prices go down because the economy is weak, bond prices went up. All that might be the case. But right now, when you actually have yields of five and six percent in government and corporate bonds as an entry point, it does put the wind at your back a little bit for them to sort of buffer any losses along the way. And at some point down the

road, you know, look, in the 90s, the stocks and bonds moved together and 60-40, you know, did OK over that period. So nobody really knows the future. But I do think the idea that bonds are toxic, it doesn't really hold up if today's your entry point around these yields. Yeah, especially if you're going to hold for a while and if you're in a high tax bracket. Right. I mean, there's there's reason to think about that. Mike Santoli, thank you. When we come back, Transportation Secretary Pete Buttigieg is going to join us exclusively to talk about today's inaugural meeting of the White House Supply Chain Council and how that group aims to tackle inflation and prevent shortages. Overtime's back in two. Welcome back. The first meeting of the White House Council on Supply Chain Resilience happening today.

It comes as the country continues to battle high inflation. It's fueled in part by the supply chain disruption during the pandemic. Transportation Secretary Pete Buttigieg sits on the council, joins us now exclusively. Secretary, welcome. I actually want to start on Thanksgiving travel, though, since we just got done with that and what it says about the state of infrastructure and TSA, airline, all of that staffing in this tight labor market. There were fears that travel could be a nightmare this weekend, but it seems to have come off pretty well. Thanks. I appreciate you asking that, because often when things go well, it doesn't get as much attention. Our numbers that TSA at the Homeland Security Department provided suggest that yesterday was the busiest day of air travel in American history. And the rate of cancellations and delays was well below 1%. So we have seen major progress. Now nobody's spiking the football. We're still keeping very, very close watch on the airlines

and taking very proactive measures with regard to the FAA and the air traffic control system to make sure we continue building on those improvements. But you look at where we are now compared to where we were, let's say a year and a half ago, the summer of 2022, major, major improvements. And when people do get stuck or have a problem, we have much better passenger protections in place that we can enforce as a department compared to even two years ago.

One more on that then. How much of this improvement has to do with improved airline software systems? Because we had a number of concerning breakdowns there over the past year plus? We have seen the airlines step up with regard to more realistic schedules, with regard to staffing, and with regard to technology, things we've really been pushing them on. Look, as a department, we're less focused on exactly how they get the results. We just need to make sure that they do get those results, get people to where they need to be on time, take care of them, follow the law and regulations. And look, the industry has a long way to go. And by the way, so does the FAA. We are coming to Congress right now asking for funding for more air traffic controllers, for technology

modernization. I'm concerned about the House Republican proposed cuts that would affect – they would really short, among other things, across the transportation sector. They would short FAA from what we think we need. But we're going to keep pushing because we know, in addition to holding the airlines accountable for their performance, we've got to make sure we keep our house in order when it comes to the air traffic control system overseen by the FAA. Okay. Well, we talked moving people, let's talk moving goods. This supply chain council, tell me what the metrics are that you're going to be able to use to judge that this is working. More than half of freight by value crosses state lines, more than a quarter is international

imports. That's a lot of different jurisdictions to try to coordinate and manage. Yeah, there's no single variable that can tell you how you're doing, but we can assemble a picture that I don't think was available before because we have new methods of bringing data together so that we can look at fluidity, we can look at on-time performance. The basic idea, of course, is making sure we get the things that we want and need on time and that it's affordable. You know, we've seen shipping rates come down considerably since two years ago. We think that's one of the big drivers in the disinflation that we've been seeing, if

you compare inflation rates to where they were about a year ago. But there's clearly more work to be done to make sure that our supply chains are strong for the long term. This has been a big focus of the president and the administration really from day one. You know, supply chains have become a household term. It's not just something for infrastructure buffs to talk about. But it was really as early as February of the president's first year that he had an executive order calling on the administration to take steps around supply chains. A number of steps took place over that summer of 2021 that I think really served us well when things reached a crisis level as those COVID disruptions worked through the system. We all remember those images just two

years ago, this November, actually, of all those ships bearing down on the West Coast ports. And the fact that, you know, those most dire predictions didn't come through, that Christmas wasn't canceled. In fact, that throughput at those ports hit an all-time high really is a credit to, of course, the workers who do the physical work of making sure goods get to where they need to be. But I think also all of the players from the private sector that the administration convened and sat down with saying, okay, what can we do to get through this historic disruption and set ourselves up better for the future? So part of the strain here on the supply chain is this domestic energy boom, right?

And pressure then on intermodal. What happens with safety, particularly in rail, given what we saw happen earlier this year in Ohio? Well, safety is the bottom line. And we care a lot about efficiency, about fluidity, about cost and about performance, but there's nothing we care about more than safety, which is why we're continuing to call for elevated rail safety regulations, things that we know will work and make a positive difference.

Right now, there's a Railway Safety Act that's been sitting in Congress for months. We're coming up on the one-year anniversary of that derailment in East Palestine that woke up so many Americans to the level of derailments that were happening all along, finally got the attention that it deserved. And now we need to make sure there's real action. We've taken a number of steps as a department with the authorities that we have. But if Congress acts as we are urging them to do, it would enable us to do more to make sure that we have that kind of safety. Then we need to make sure there's good infrastructure. And part of both safety and efficiency is a function of your physical infrastructure. It's why we're making major, major investments in rail, everything from railroad crossing

elimination around the country that can improve fluidity and improve traffic safety, all the way through to these unsexy but deeply important updates to tunnels, to bridges and other facilities. Another thing, by the way, that we're really urging Congress to work with us to fully fund and not put on a chopping block after all the progress we've made. Secretary, finally, what about data and artificial intelligence and their role in this? It is cloud week here on Overtime. We've got Amazon's AWS reInvent happening. Amazon has become the biggest mover of goods within the country lately by vertically integrating. We've got Samsara on on Friday. That's a company that's using data and the Internet of Things to try to make things

more efficient. Is the government going to be able to pull together these disparate sources of data and run AI on them to drive this efficiency in a way that also protects privacy? So we're taking steps right now, in fact, an unprecedented level of data sharing through an initiative that we stood up in our department called FLOW, bringing people to the table, not through a large, ponderous government mechanism or regulation but a really a voluntary agreement to share data that can be stripped of anything that's business sensitive so that different players along the supply chain can get better information often we were finding that shippers didn't know where the the best place in time to line up their chassis were going to be a lot of things I think most Americans would assume that people

could see across the supply chain between the shipper, the port, the warehouse, and the cargo owner that actually wasn't being shared. So we're really pleased with the early results that we're seeing here. We've got a lot of the top importers and retail chains like Home Depot, Target, Costco, Walmart at the table working with the ports and working with us. And to get to your question, I do think AI is going to play an increasingly important role. We're talking about enormous bodies of data here

where we can see early warnings of where there are imbalances, where there are the kinds of things that led to shockwaves through the system back in 2021. And now is a real opportunity. It's gotta be safe, it's gotta be fair. It's gotta be consistent with good competition policy and data protection. But I believe we're going to see more and more of that. Much of it, frankly, most of it should not be owned and operated by the federal government,

but we are proud to be playing a coordinating role, bringing people together to get this data sharing done. Well, I'm sure there are companies out there that would be happy to take on that work in the form of a government contract. Secretary Buttigieg, thanks for joining us on Overtime. Thank you. More investors are getting on board with the idea that the Fed could cut rates early next year, but our next guest says not so fast. Former Wells Fargo CEO Dick Kovacevic is going to give us his prediction for the timing of the Fed's next cut coming up.

And as we head to break, check out the big move today for Affirm, one of the big winners this Cyber Monday. That pop coming as Adobe says buy now, pay later usage is up 47% on Black Friday versus last year. We'll be right back. Welcome back. Anticipation rate cuts paving the way for markets to close out November as the best month since 2022.

But are investors getting ahead of themselves? Joining us now is Dick Kovacevic, former Wells Fargo CEO. Dick, good to have you. So President Biden tried to make the case that the Thanksgiving meal was the cheapest in a while by historical standards, but housing prices are still stubbornly high. How are you feeling about the latest inflation rates? Well, I think inflation is declining. The question is how much it will decline. But I think we're really missing the point on inflation. For many Americans,

and especially those in low income, it doesn't make a lot of difference whether the inflation rate is at 4% going forward or 2%. The burden that they're suffering is that in the last two years, the inflation went up 30% to 40%. That's the problem they have. What they want to see is deflation. They want to see the food, the gas, and so on go down by 10 or 15 percent so they don't have to live paycheck to paycheck. So I think there's too much emphasis on whether inflation is going up a little or a little more as opposed to what the suffering that people are having because of what happened over the last two years. So what about the Fed? What does the Fed need to see for those cuts to happen? Well, I think we should be careful what we wish for. I think the only way that the Fed is going to be reducing interest rates is if we have a recession. Reducing interest rates before,

say, June or July of next year is if we have a recession. We may have a recession. If you remember all the reports from recent companies, they were seeing their revenue go down. They're projecting their profit to go down. So the economy is weakening. Whether it's weak enough for a recession or not, we don't know. But I think that's the only way that we're going to see a reduction in interest rates. But that's not a good thing to have happen for the market or for the economic policies of the country.

It'd be hard to look at a chart of the S&P over the last month or two and get that sense of what we've heard in those earnings reports, though. What do you make of that? Well, I think they're wrong, quite frankly. I mean, again, it depends upon the earnings reports. Are people correct in what they're saying? And I just think we're seeing weakening all over the place. And I think it will start coming in the numbers. And remember, we're talking about a very, very small number of companies, the magnificent seven, if you will, that are doing well. It's only been in the last couple of days that the broader market has done well. So maybe those seven companies will continue to do well, but I think they're getting at a level that it's going to be very hard for them to continue to grow their stock if the rest of the

economy is not doing well. Dick, there's pockets, though. We were just talking about some of these cyber names like Zscaler that just reported. It's down after hours, but it's more than doubled since its lows from earlier in the spring. So what is it really that you feel is particularly mispriced out there that perhaps isn't reflecting the slower economy and the slower results the way it should? Let me put it in the other way. I think what is out there that is growing the market is AI and all this technology that we believe in the future is going to be very important, very good, and it's going to help companies of all times. I don't think it's going to happen tomorrow.

And the market always looks forward. But when it looks forward, it doesn't see it and doesn't see it enough or it's being offset by, let's say, just the general companies that aren't that impacted by AI. And because AI is already quite high, I think again, there are risks to the market until we get a broader view, a broader success of

companies other than Magnificent Seven or those related to AI. Let me take it another way real quick. The KRE is off its lows. It's in the mid-40s. What are your feelings on the regional banks and potential consolidation? Well, I think the regional banks are really a great value at this time because they have been hit so hard and they have great yields in their dividends and so on. So I think that the deposits that they lost are now stabilized. I think that their loan losses are going to increase a little, but still be low from historical standards. So I think they're probably at their lows at the moment and have a greater probability of going up than going

down. All right. So if you didn't get them in the 30s, maybe you can still get a deal here in the mid 40s then. Dick Kovacevic, thank you. You're welcome. Now let's get a CNBC News update with Contessa Brewer. Contessa. Hi there, John. 11 hostages were released today in exchange for 33 Palestinians. That's according to the Israeli Defense Forces. The IDF says the 11 are now in Israeli territory and are undergoing initial medical assessments and they're being reunited with family members. The White House says today it strongly opposes GOP-sponsored legislation in the House that would ban the use of federal funds to give temporary shelter to undocumented immigrants

on federal land. The House is scheduled to begin considering that bill next week. And Tesla filed a lawsuit against the Swedish government today after postal workers allegedly blocked the delivery of license plates in solidarity with striking workers. Elon Musk called the move insane in a post on X. Unions there are pressuring the car company to sign a collective bargaining agreement. Tesla claims in the suit that the government has a constitutional obligation to provide plates to owners. John. All right, Contessa, thank you. Elon Musk keeping lawyers busy all around the world. Up next, the wrong kind of surprise. Mike Santoli

looks at the recent pullback in the U.S. Economic Surprise Index and whether it raises alarm bells for this rally. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime. Mike Santoli is back with a look at an economic indicator that could raise some alarm bells about the rally's sustainability. Mike, maybe it is too quiet. Maybe. You know what? There's an argument to be made, John, and some are making it, that the softening up of the city U.S. economic surprise index in the last month or so, as the stock market has gone higher, somehow represents an important disconnect.

So this is the 10-year chart of that economic surprise index. Remember, above zero means in aggregate economic numbers are coming in better than forecast and the opposite when it's below zero. So here's that little last move down. I would point out it's still above zero. So in general, numbers are still coming in okay relative to expectations. It's not necessarily something you have to be too concerned about, about outright weakness. The other thing I'll point out is this stretch right here

since about January is one of the longest you've seen on this whole in this whole decade, aside from right after the covid crash recession that we've spent above zero. In other words, economists consistently have been expecting more weakness than we've gotten in the numbers. So I would say it's one of those things to keep monitoring. Don't sort of look the other way, but also don't necessarily feel like it has all the secrets at this point. I would also point out you did have another down leg in this in late April into May. And the stock market kind of hung in there and then rallied thereafter. So I don't think it's necessarily a perfect guide for the market.

OK, little last move down. I want to clarify that you just said. That's right. Yeah, there is a leg down just that you mentioned. I think you pointed it out in April, the years or so. Does that speak to the resilience of this market overall, that there was a bounce after that? Yeah, I think in general it speaks to the resilience of the economy relative to how everybody expected that we had the recession right around the corner. And therefore the stock market was able to stabilize itself once, in fact, the economy held up better and earnings looked like they were bottoming.

So, look, we could just be delaying the inevitable in terms of a broad economic downturn into next year. But so far, things have managed to hold up OK. Yeah, just a little last move down. All right, Mike Santelli, thank you. Up next, a top aerospace analyst discusses which airlines could be the biggest winners from falling oil prices and the holiday travel season. We'll be right back. Yesterday was the busiest day of air travel in American history, and the rate of cancellations and delays was well below 1%. So we have seen major progress. That was Transportation Secretary Pete Buttigieg earlier on Overtime talking about the post-Thanksgiving rush. So which airlines are best positioned to cash in on this holiday travel bump and how big of a role will falling fuel prices play?

Joining us now is Jeffries analyst Sheila Kailu. Sheila, welcome. So you like Delta the best of the airlines despite all of this loyalty program trouble they've had. Why? Thanks so much, John. We're quite bearish on the airline sector, actually. The airlines have underperformed with Delta, the only airline up over the past 12 months. We like Delta for three reasons. One, the premium offering. Premium represents about 40% of sales, and that's really garnering a pricing premium. International, as an example, is up 25% on pricing versus 2019 levels. What we're seeing for Q4 pricing overall in the industry is down 10%. Some airlines are down as bad as 20%. So for 2024, as we look forward, we're seeing price declines on the industry on average of 2% versus year-over-year levels. But we think Delta could hold better pricing than most

airlines, given their premium offering and their international offering. So that's really the biggest reason why we like Delta, in addition to a few other reasons. Okay. But jet fuel prices are down, too. How does that factor into your view of the airlines? Jet fuel is about 30% of total operating costs for an airline. So, of course, as the macro concerns have gotten bigger, that's how help jet fuel come in and is helpful. But the other side of the operating equation is also salaries. Salaries represent about 30% of total costs. And those are going up over the next few years, just given the labor, pilot labor agreements,

flight attendant agreements that we're seeing. And obviously, overall inflation, maintenance costs are also up significantly they represent another 15 so um year over year we're forecasting costs are up overall so it's a matter of what airline could generate better revenues and the revenue is coming not from capacity additions but from pricing power and delta think, is the only one in the industry, just given where it's placed, its network. The losers in the industry are the low-cost carriers. With Southwest, we have an underperformed rating on that one,

just given the headwinds that they're seeing in their specific network. Delta also has a few ways to leverage their other platforms, their SkyMiles business, their Amex program, we think could be valued at about $20 billion of enterprise value. And their Delta tech ops, think of it as an auto body shop for airlines, that could be valued at another $10 billion. So you're basically getting the airline portion of Delta for free in this equation on our math. Okay, tell me about Boeing. When is it going to get back to those 2021 levels? Well, when will it get back to 400 is the question we get from investors all the time.

I was trying to be, you know, I was trying to be reasonable here. You were trying to be polite to me. I get it. The story hasn't worked. Why hasn't it worked? Boeing hasn't been able to deliver aircraft. We think it's finally getting its act together when it comes to the two most important pieces of the aircraft, the fuselage, as well as the engine. The fuselage is Spirit Airspace Systems is the manufacturer of that. They had a CEO change just last month, put a Boeing Insider in. We think that's going to help Boeing deliver the aircraft and eliminate quality issues. And engines in GE, we trust when it comes to manufacturing LEAP engines. So we think those situations get better and Boeing delivers. But ultimately, getting back to that 400 price target we had back in 2018, that's a matter of Boeing getting rid of aircraft that have been sitting in inventory for the last four

years. They have 250 737 sitting in a parking lot somewhere. Until they get rid of those aircraft with lower pricing, we don't think they get to $10 billion plus of free cash flow until 2026. And that's where the real upside comes, of course, the stock will react prior to that. All right. We'll see if and when that happens. Sheila, thank you. It will. Thank you. Now we've got breaking news on the IPO market. The Wall Street Journal reporting that China-founded fast fashion company Shein has filed to go public. The journal notes the IPO could come next year.

It was valued at $66 billion in its most recent funding round, and we will bring you more details as we have them. Coming up, new data may ground the outlook for electric vehicles. Find out why EV sales have been running out of juice recently when overtime returns. Electric vehicles have been getting a shocking amount of hype for years now, but sales of gas-electric hybrids are starting to pull ahead of EVs. Phil LeBeau, is this revenge of the Prius? Maybe a little bit of that, John.

I think it's a case where lower-priced vehicles, which hybrids are substantially lower priced, are much more attractive to people than electric vehicles right now. Not by a wide margin. They've slightly pulled ahead of EVs. About 10 percent of the market right now are hybrid sales. Here's the difference in price. And it basically comes down to this. EVs are 10 grand more expensive than gas electric hybrids. And if you're in the market for a new vehicle and you do want to go towards electric, but maybe not all the way, this is the selling point for you. It's one reason why Toyota,

given the success and the demand that it's had with hybrids, is saying all Camrys starting next year are going to be hybrid only. We're not even going to make an internal combustion engine Camry in the future. Look at what Ford has done with the F-150, pivoting from putting most of its resources in the future in terms of the Lightning and the all-electric version and saying, you know what, we're going to make more F-150 hybrids. And why not? Sales were up almost 47 percent in the third quarter of this year compared to last year. When you take a look at Ford and Toyota and you compare it with

Tesla, yes, Tesla is still, you know, sort of king of the crown or king of the hill, outperforming everybody except for Toyota. Look at this chart. Toyota is outperforming them over the span of the last six months. But keep in mind that when it comes to EVs, we're still going to see more automakers rotating their production in the future that way. And speaking of rotating production, watch Tesla this week, John, because we see the first Cybertruck deliveries on Thursday evening. Not a lot, just 10, but it's the beginning of what is an eagerly anticipated model. We'll see how it fares as they gradually ramp Cybertruck production over the next couple of years. So, Phil, what about all that Tesla price cutting over the past couple of quarters? Was it not enough? Does that just help them grow share

within EVs or does this put a ceiling on their ability to raise prices from here? No, they can raise prices in the future. But look, they understand that where you're really going to see the growth, all automakers understand this, John. There's limited growth when you're selling above $50,000, which is why when you look at the Model 3 and the Model Y, the base versions started about $43,000 or $38,000. Those are the base versions. Nobody buys the base version of anything. They always have add-ons to that. But you need that price to come down lower and lower in order to attract more buyers. That's really the sweet spot of the market that everybody is aiming for. And it'll be a while before we see EVs getting to that point where you see a lot of selection there.

Phil, out of college, I bought the base version of the Toyota Echo. That was as cheap and small as you could go. I was manually cranking the windows. I guess people don't do that anymore. Phil LeBeau, thank you. Very few do it, John. You bet. All right. Shares of Zscaler continue to be under pressure, down more than 6% at the moment, despite an earnings beat and strong guidance. The company's CEO is going to break down those results tomorrow here on Overtime as we kick off Cloud Week.

Up next, more details about our big CEO lineup. And now check out Disney finishing the day lower after the company's animated movie, Wish, failed to impress at the box office, pulling in just $31 million domestically, defeated by Napoleon over the holiday weekend. We'll be right back. It is officially that special time of year,

Cloud Week, here on CNBC, a time when we like to step back and take stock of what's driving enterprise tech. Tomorrow, the tentpole event, the AWS CEO's keynote at Amazon's big annual developer gathering, reInvent. Adam Solipski will join us live on overtime after he gets off stage. And in 2023, there's another significant backdrop to Cloud Week, the rise of generative AI. Last week's drama around open AI and Microsoft's investment drove home the idea that yesterday's leaders won't necessarily be leading tomorrow. And now we're about to hear Microsoft's biggest rival respond. And there's more to the cloud ecosystem than hyperscalers.

Here on Overtime, we'll get earnings from major players like Salesforce, Pure Storage, NetApp, and Samsara. And we'll hear from Zscaler's CEO tomorrow, right here, after tonight's report that beat on the top and bottom lines, but left Billings' guidance unchanged. That stock is trading lower by about 6% now in overtime. Joining us now to put that in context, Scott Kessler, ThirdBridge TMT Global Sector Lead. Scott, were expectations just that high with a name like Zscaler? I don't know if they were so high, John. I think right now people look at Zscaler and they see a dramatic potential deceleration in revenue growth, notwithstanding the fairly favorable guidance that the company just provided. You're going essentially from

a fiscal year where they almost generated 50% revenue growth to a year where revenue growth likely will be under 30%. But didn't we just go through this in May with people being afraid that the revenue growth wasn't going to be there and then they had to reverse? Well, hope springs eternal, I guess, John. And I think there are some who felt like Zscaler might be able to pull the proverbial rabbit out of a hat. The reality here is that, look, there's a lot of competition. And in addition to that, as you well know, I think spenders, when it comes to software, have had somewhat restrained purse strings over the last couple of quarters. And I think spenders, when it comes to software, have had somewhat restrained purse strings over the last couple of quarters.

And I think those factors have definitely had kind of a negative impact on companies like Zscaler. If I'm an investor, how do I decide between Zscaler and CrowdStrike, two companies that are taking this platform approach to cybersecurity? Is one better than the other? Well, I think it's fair to say that at this point, CrowdStrike is more diversified, and I think they've made more progress going beyond their kind of primary cybersecurity software beachhead, if you will. If you look at the number of modules that CrowdStrike has amassed over the last couple of years, I would argue that it's comparable to really anyone in the industry, perhaps save Palo Alto. But that's also because Palo Alto has a significant legacy in hybrid offering. That's something that CrowdStrike

has been building up. But if you look simply in terms of what the fundamental expectations are for this year and beyond, I think the scale tips somewhat towards CrowdStrike and the execution bears that out. We'll obviously see what CrowdStrike has to say tomorrow. Okay, sounds like they're close. Quickly, is there a catalyst that you see for cyber in the coming 12 months? I think a lot of people are in fact focused as you alluded to related to AWS reInvent on generative AI. I think there are a lot of perceived risks related to it. And these companies are trying to leverage that as well. That's something to watch for,

but it's not gonna be a tailwind over the near term, I'd say. We'll leave it there. Scott, thank you. Thanks, John. And that's gonna do it for us here on Overtime.