Closing Bell - Closing Bell Overtime: 2025 Market Outlooks, AI Shopping Revolution, and Energy Sector Trends 12/23/24

Episode Date: December 23, 2024

Stocks closed at session highs after surging in the final hour of trade. A panel featuring Charlie Bobrinskoy of Ariel Investments and Kevin Mahn of Hennion & Walsh kicks off the show with market insights. Key guests include former Ford CEO Mark Fields on what Honda and Nissan’s potential deal means for the auto industry, RBC’s Gerard Cassidy on the banking sector, and former United Airlines CEO Oscar Munoz on airlines’ 2025 trajectory. Emerging markets under a potential Trump 2.0 presidency are analyzed with PIMCO's Pramol Dhawan, while Pippa Stevens explores the uncertain future of energy stocks and potential pivots to gas-weighted producers. Julia Boorstin dives into the transformative role of AI in holiday shopping, highlighting innovations from Sierra AI, Perplexity AI, and tech giants Google and Amazon. 

Thank you, Scott. That's the end of regulation. Third Street Music School ringing the closing bell at the New York Stock Exchange. The Bowery Mission doing the honors at the Nasdaq. Stocks closing near session highs with solid gains for the Nasdaq and a decent bump for the S&P 500 as chip stocks get the boost. That's the scorecard on Wall Street, but the action's just getting started. Welcome to Closing Bell Overtime. I'm Leslie Picker with Mike Santoli. John and Morgan are off today. All right, coming up this hour, former Ford CEO Mark Fields joins us to talk about the official merger negotiations that were just announced between Nissan and Honda and what he expects from auto stocks broadly in the new year. Plus, banks are about to wrap up a solid year of returns, but can they repeat their outperformance in 2025? We'll talk about the names that should be at the top of your watch list for the new year. Let's break down today's

market action with Ariel Investments Vice Chairman Charlie Borbrynskoy and Henian and Walsh Asset Management President and CIO Kevin Munn. Thank you both for being here. Kevin, let's start with you. So chips leading the way. Very decent performance for the NASDAQ. Lighter week, of course, with the holiday and so forth. But what's your read on today's action? I think today's rally in chips should remind all investors that the AI revolution is a long road.

And there's going to be many ups and downs and many potholes along the way. And semiconductors and chips will likely remain a critical component of the overall AI ecosystem, but not the only component. Let's not forget about energy, data centers, hardware, and software. And then, of course, NVIDIA is not the only semiconductor and chip opportunity that's out there. Look at Broadcom. Look at Advanced Micro. Look at even Intel. All priced pretty rich right now, but all have more growth ahead. And if I can remind everybody watching right now,

NVIDIA is going to become the hub of the AI ecosystem. They have very aggressive delivery schedules ahead with the Ultra version next year at Blackwell and, of course, Rubin and the Ultra version of Rubin coming in 2027 after that plus their continued growth in data centers I wouldn't bet against NVIDIA. Well and of course they are comprising such a big part of the overall market as well. Charlie I want to turn to you given kind of what we've seen with NVIDIA what we've seen with chips this year which there's

no way to really describe the market action in 2024 without them. Would you be rebalancing your portfolio now in anticipation of 2025? And if so, how? Yeah, if I owned a lot of chip stocks in NVIDIA, I would absolutely be rebalancing. I mean, at this point, it is very dangerous to own stocks where they are so popular. I teach classes at a couple of eighth grades. And the one thing that these eighth graders all want to do is own chip stocks in NVIDIA. They tend to want to own what's worked in the past and don't care a lot about valuation. I'm not saying at this point I would sell at all, but clearly there's a very high expectations in these names. We're contrarian investors. We try to buy what hasn't gone up. And clearly semiconductors are not that.

Yeah, Charlie, I know that's typically your stock and trade. It's your temperament and orientation is to look at what is not appreciated by the market yet. It's paid off over time, but it's been tough this year. It's a very uneven performance, even though it's a very lucrative year for the second straight year for the indexes. Do we have the ingredients for more cyclical stocks, value stocks to start to work given this rethink of what the Fed's going to do and just maybe a little bit of a stutter step in some parts of the economy? Yeah, as you know, Mike, it's tough for us value investors to make short term predictions. We don't think we or anybody else is good. But the core answer to your question is the ingredients are there. We have very high quality value names trading at very reasonable prices when the rest of

the market is very expensive, when interest rates should be coming down, and when there are some negatives that could start to go away. We could start to have the situation in Russia, Ukraine get a little better. We could start to have the situation in the Mideast, which has been so fraught, get a little better. We could start to have the situation in the Mideast, which has been so fraught, get a little better. But we have great companies like the Goldman Sachs's of the world and a lot of energy names and building materials names trading for very reasonable multiples. So the ingredients are there, but it's been it's been tricky versus growth. Kevin, in the immediate aftermath of the U.S. election, you had this kind of tension release, this little bit of a burst of enthusiasm.

And it's almost as if we got a little bit tricked by the fact that there was an apparent perfect playbook for this, which was 2016 into 2017. That worked for about a week. And then it was unwound. Now, the market itself has hung in there. It's not as if it's all falling apart. But it has been a growth-centric market again. What are your expectations right now in terms of what the policy influences are going to be?

Because for a while, you could just decide which ones were going to be implemented and invest based on that. Yeah, I think, Mike, the next year is going to look very different than the last year. The next four years are going to look very different than the last four years. And the next decade is going to look very different than the next decade. But certain themes still resonate. First and foremost, the AI revolution. And I would implore investors again to look beyond just the chips companies and consider the data centers and the cooling solutions and the power solutions that are associated with the AI revolution. How about our country's need to replenish, upgrade, and modernize our defense and security capabilities? There's going to be more money spentish, upgrade, and modernize our defense and security capabilities.

There's going to be more money spent in defense spending, and the largest defense contractors are likely to benefit, such as Lockheed Martin. And then I go back to banks. I think the rebound that we've seen in regional banks is only going to continue in 2025 because with yields coming down, treasury prices are going up. The threat of less regulations, lower capital requirements, we could see more consolidation in that space as well. So investors should expect a continuation of the bull market, but not at the pace that we've seen over the last two years. You're going to have to be a lot more selective going forward. The consolidation question is a big one. Charlie, lastly, I want to get your thoughts on the Fed because you've been a bit critical, at least in the producer notes, about their performance so far. I'm just curious, kind of, what do you see as their biggest shortcoming?

And do you think it's their fault or do you think it's due to exogenous factors? Yeah, so I spend a lot of time in the auto insurance industry. And the greatest predictor of accidents is not actually speeding. It's hard braking and hard accelerating and swerving. And that's because people that are behind a car that behaves like that find it very difficult to follow and there tend to be a lot more accidents. And that's what this Federal Reserve is. It's putting on the gas, putting on brakes, veering left, veering right. They took interest rates to zero when they mistakenly thought inflation was going to be transitory. Then they took up interest rates faster than anybody has

before. Then they made what I said at the time was a mistake by cutting rates by half a point by 50 basis points. And now they're reversing again and saying they're only going to be two cuts next year. So they've been all over the road and it's making the market more volatile than it needs to be. And it's making investors less less sure than they should be. And that's a big problem going forward. Although, Charlie, you know, they did nothing for 14 months in terms of rates and they talked a bit about it. And we have, you know, four point two percent unemployment and two and a half percent inflation. How are we paying the price for what you consider to be an erratic Fed? Yeah, well, I'm a Milton Friedmanite here in Chicago at the University of Chicago. And what

we believe is that you want steady, predictable policy from the Fed with steady growth in the money supply. And we've had anything but that. And Mike, it's just giving us more uncertainty than is good. And so we still have, frankly, cyclical stocks that are not sure what the Fed is going to do and therefore aren't getting the kind of valuation they need. If we could get a dependable, predictable Fed, we could have the kind of performance in buildings, in home supply, in autos that a lot of us are looking for. Yeah. All right. Well, I'm sure we'd all love more predictability. See if we can somehow get it in the new year. Charlie, Kevin, appreciate it. Thank you very much. All right. A number of deal headlines crossing the tape today. Nordstrom said it's going private in a transaction worth more than six billion dollars or about twenty

four twenty five per share, led by the founding family, as well as a Mexican department store. Meantime, Xerox posting its best day of the year after announcing it's buying printer maker Lexmark. Those shares ending the day up by 12%, it looks like. But the biggest deal news today comes from Japan, where Nissan and Honda say they have officially entered merger talks. The combination would create the world's third largest automaker by sales. Joining us now is Mark Fields. He is the former CEO of Ford, as well as a CNBC contributor. Mark, it's great to have you on this pretty big deal, I would assume, in the industry. And it's interesting, you know, I don't want to take too much of a message from one day, but the shares of Toyota and GM and Ford were actually up on this

news, pretty acknowledged that global auto capacity perhaps is too high. Do you think that's the case? Do you think this potential deal would do anything to help that out? Well, you know, I do think this deal is really about, you know, Nissan has been in a long-term sales decline. They have a lot of debt. They have dwindling profits in cash. And at the same time, they recently had an activist get into their stock. And also at the same time, Foxconn, the Taiwanese manufacturer, made an advance to them. And so I think this really pushes Nissan to approach Honda. And it probably was helped by the Japanese government, the Ministry of

International Trade and Industry, because they want to make sure they protect these Japanese blue chip companies. But I think what you'll see is, listen, they have too much capacity right now. Nissan, I think this year, is running at about 65 percent capacity utilization, which anytime you run below 80 percent, you lose a lot of money. So in this case, I think for Honda, the benefits is it gives them scale, gives them access to potentially, you know, some truck technology that Nissan has. And in Nissan case, it gives them, you know, a partner and it allows them to restructure. So I think you'll see capacity come out of the industry. But make no bones about this, Mike.

This is about the Japanese government really wanting two major auto groups, Toyota and their group of companies, including Mazda and Subaru, and Nissan and Honda, to protect them from the onslaught of more competitors and a lot of new technologies. Yeah. And you mentioned just the need for scale. And it's such an interesting position that so many of these companies find themselves in, which is just massive necessary capital spending and research expenditures for whatever the energy transition is going to be to ramp up electric and hybrid capacity. At the same time, the payback is getting a bit unclear and China just keeps building capacity in that area. So on what basis are all these companies making these new investments in terms of what they

think they're going to get out of it? Well, I think what you're saying, you've seen this in the auto industry literally over the past 12 to 15 months, right? You know, prior to that, there were a lot of investments in EV capacity and components, and they thought the market was going to adopt to EVs very quickly. That has not happened. So you've seen a lot of automakers all around the world basically write off capital expenditures. So there was a lot of stranded assets that they've had to write off. And so I think you're seeing going forward this pressure, even before the amount of investments, the profit on EVs is very elusive. The only ones in the industry making profits on EVs is Tesla. You

layer on top of that a slower industry, and that's forcing companies to make really tough decisions about rolling back these investments, writing off investments as well, and driving them into partnerships, because they're going to need these partnerships to spread these investment costs, because they just don't know how fast the market is going to uptake on EVs. And therefore, they want to create a hedge. So in addition to this one, Mark, do you see this spurring other partnerships, joint ventures, and even some mergers in the new year? Well, Leslie, it's a great question. First off, I see more partnerships. I do not see a rush to consolidation in the industry because let's face it, this Honda-Nissan merger agreement is really

a bit of a shotgun marriage because of the issues at Nissan and their dwindling profits and the fact that they've misread the market, particularly here in the U.S. And so I think a lot of this was being thrown into their arms, not only because they're looking at their own numbers and a lot of debt due in the next two years, but also the Japanese government saying, you know, we think you ought to do this. But in the rest of the industry, I continue to see more partnerships. You're seeing it with folks like GM and Hyundai. You're seeing it with others. And I expect that to continue, but I do not expect to see a rush to mass consolidation. If for any other reason, you know, these are national champions in these countries and the governments really want to keep these companies headquartered in their own locations. So for, you know, in-country mergers like you're seeing with Honda, Nissan makes a lot of sense. Yeah, it's a fascinating story, just emblematic of the market as well as the competitive posture across the world in automakers. Thank you, Mark Fields. Appreciate it. You bet. When we come back, your bank stocks playbook financials

broadly outperforming the market in 2025 with major players like Goldman Sachs, Wells Fargo and JP Morgan each up 40 percent or more. We will discuss if that rally will continue and the names that should be on your radar in the new year. And later, PIMCO's head of emerging markets breaks down the outlook for stocks outside of the U.S. and how a second Trump administration will impact global investors. Overtime is back in two minutes. Welcome back. Bank stocks giving investors some of the best returns in years.

The biggest names, Goldman Sachs, Wells Fargo, JP Morgan, Citi, Morgan Stanley, and B of A, each outperforming the financial sector, giving a boost to banks. Well, it's the prospect of averting a recession and the potential for deregulation following the results of the election. The Office of the Comptroller of the Currency, one of the industry's key regulators, put out a new report. It found the banking industry remains sound, highly liquid, and has returns on assets that are consistent with periods of economic expansion. However, the report says the outlook for profitability is mixed with looser monetary conditions, providing a potential tailwind to profitability. But there are also risks related to a softening labor market, higher credit costs and the repricing of lower yielding loans, the

OCC says. So to help us break down his expectations for the sector in 2025, let's bring in Gerard Cassidy. He's the co-head of global financials research at RBC Capital Markets. Gerard, thank you for being here. Let's just start kind of broad. What is your outlook for 2025 with regard to the banking system? And did last week's Fed decision and Fed press conference change the game at all? I don't think so. And thank you, Leslie, for having me on the program. What I would suggest is that, you know, higher for longer is an expression that you'll hear bank investors use. And what that means is that if the Fed lowers the Fed funds rate, let's say to 4%, which is higher than what many people thought

as recently as six months ago, and the long end of the curve comes in at 4.5%, 4.75%, that's a positively sloped curve. So the banks get the benefit in two areas. One, the front end of the curve remains higher, which means all the loans, commercial loans in particular, that are One, the front end of the curve remains higher, which means all the loans, commercial loans in particular, that are priced off the short end of the curve remain at higher yields. But at the same time, they have a positive slope. So that means putting out loans

in the five or seven year time frame, they also get a higher yield. So what the Fed came out with last week talked about economic growth has been good, and we expect that to continue in 2025. And if the rate environment stays around, again, 4% Fed funds, four and a half long into the curve, that's also very positive for the banks. So I agree with you. And that's why I was so surprised to see the sharp sell-off that transpired on Wednesday after that press conference.

Why do you think the market reacted so strongly, especially as it pertained to those banks that are a bit more capital market sensitive? It was interesting. I agree with you. What the Fed said was not necessarily negative for the banks, but, you know, there's an old axiom that many investors use that, you know, banks are short and lend long so that when the yield curve steepens even further, that's even better. And that may have been some of that kind of money that had come recently into the banks because of the expectation of more Fed fund rate cuts. But also, I think some of the tradeoff could have come from, you know, the fear that this inflation trade may not be working as

well as everybody would have liked. And that's a key risk for bank stock investing in 2025, is that if inflation reemerges and the Fed has to pivot and reverse itself, that would not be very good for bank stocks. And we're not expecting that. But that is a risk that we all have to keep an eye on. Gerard, I mean, the case for a lighter regulatory touch is obviously a very persuasive one going into the next Trump administration, whether it means things for capital return and lower reserves, things like that, or even just rationalization of the regulators, as we've heard some talk about. But what about the idea of banks being permitted to do more M&A and consolidate again? First of all, do you expect that to start to occur more quickly in 2025? And also, is that a desirable thing? It's an interesting point, Mike, because when

you take a look at the banking industry and you look at the consolidation we've seen over the last 30 to 40 years, back in the 1980s, we had 18,000 banks and thrifts. Today, we're down to about 4,400. And that consolidation comes in waves. And we have peaks and troughs. We've recently been in a trough under the Biden administration. And we anticipate, based upon the regulatory environment under the first Trump administration, that there will be a light at hand when it comes to regulation, in particular when it comes to mergers and acquisitions. And so we do see and expect a surge of M&A activity in 2025 and 2026. The other thing I think investors have to remember is that obviously we have midterms in 2026. And should

the Senate change hands and moves back to the Democrats, Senator Warren from Massachusetts would be the lead senator on the Senate Banking Committee. Now, granted, the Banking Committee doesn't set regulation for banks, but she could be an obstacle to get deals done. So really, the amount of time you have to get a deal done is, we think, two years. So we do expect to see a lot of activity in 25 and 26. Yeah, I guess they'll have to maybe hit that window while they're sure that it's open. Gerard, thanks very much. I appreciate the time today. Enjoy the holidays. Thank you.

All right, up next, how much runway do the airlines have left after a sharp rally for the group since the summer? Former United Airlines CEO Oscar Munoz joins us next with his outlook for the industry. And later, PIMCO's head of emerging markets explains why he sees 2025 as a year of both concern and opportunity and why Mexico could be poised for big gains, even in the face of tariffs. Welcome back. The holiday travel season is well underway with the TSA projecting it will screen about 40 million passengers between December 19th and January 2nd. And the holiday bump comes as airline stocks have been soaring since late summer. Joining us now is former United Airlines CEO and chairman Oscar Munoz. He is also a CNBC contributor. Oscar, thank you very much.

I would guess that some people are actually watching us on airplanes and in airports right now. So what do you make of this holiday travel season and the ultimate follow through to airline stocks? Well, as it flows through stocks, I mean, I think I always say that, you know, you have to provide proof rather than promise. And I think the airlines writ large had a good Thanksgiving season, despite the same record numbers that are being expected for Christmas. And I think I think the airlines are well equipped. They had a little bit of a blip this. But again, as we all know, the things that impact

airlines are controllable and there's non-controllable. And this weekend was weather, there's FAA issues, there's all sorts of things that are not controllable. But they seem to be on for cover today. And I think a lot of people are traveling to these cited numbers. I've seen numbers north of that, but I'm assuming that indeed will be a good record. As it flows through stocks, again, the issue has been, and you've seen it, especially for a couple of the key big ones, both United and Delta, and United in particular, with a huge run on their stock as that constant proof about delivering what they say they're going to has really proven to be well. And I think the market's accepting that. What does make them stand out? Is it the way that they're pricing tickets? Is it capacity? Is it kind of where they service? As you look at kind

of the landscape for airlines, what do you think is distinguishing the winners from the losers right now? You know, I think it's the ability to do what they say they're going to do, in particular with United, to grow to be the largest airline in the world. They've just proven that time and time again while being profitable. And I think the market always rewards the future, not the past, for sure. And I think that you're seeing a lot of the benefit go to them because they do believe and see that that growth is happening. So increased revenue over the longer period of time and as well as margins is what, again, back to that concept of the future is bright for those two. And I think those would be the two distinguishing facts. To your point, they are running well. Customers are generally happy. They're going to more and

more places than I know, for instance, United has the most aggressive and ambitious the second half of December plan. They're flying all over the a lot of different places and they're being able to do that relatively successfully. And I think the markets and customers reward that. It's interesting, Oscar, given the dominance for multiple years of the big global carriers and the advantages of scale. And of course, last year we saw JetBlue and Spirit abandoned a potential merger because they didn't think they could overcome the regulatory hurdles. Do you think that there will be an opening for more consolidation of some of the smaller players?

You know, it's always hard to forecast that. Clearly, with the new administration, that tends to be more favorable towards these things. But, you know what, DOJ and its rule around customer and consumer impact are still pretty hard-fetched rules. So it might be a little easier whether or not it makes sense for them to do that. I think it remains to be seen. I think the standalone airlines that are out there right now do have a little bit of an issue with regards to, you know, it's good to be an airline right now if you're Delta and United. American, I mean, you look at the market caps. I mean, there's a $20 billion market cap between American and United and Delta. And so, lots are going to happen. Whether it happens or not will be an issue with DOJ. I would guess that they'd be a lot more lenient or doing some of these things. Do you have a thought as to whether Southwest has a good chance of pulling off this

restructuring successfully, obviously trying to incorporate some of the customer policies and other attributes of the larger airlines? I think yes is the answer. I have great trust in that leadership team to pull this off. The issue will be, again, external factors. They're trying to do a lot of different things, I think all in the right direction. But in trying to pull all of that off while facing market pressures, while facing the things that happen normally in markets and to airlines, it's going to be a hard haul and I think patience will play out. Again, good management team, they've reconstituted their board, the changes they're making are good

things. My advice is always that sometimes simplicity is key. Cons that, you know, consumers need to know what they're buying and how they're buying. And so some of the changes that are being made will take some time for the marketplace to and consumers to accept and understand. But I think the changes they're making are good ones. It will take some time. And I think with patience, I think you'll see them remain as one of the strong stalwarts of the industry. Yeah, well, it's certainly one of the situations to watch into the new year. Oscar, thanks very much for the time. Appreciate it.

Happy holidays. You as well. Thanks. Time for a CNBC News update with Seema Modi. Hi, Seema. Hi, Mike. Police arresting and charging a man suspected of setting a woman on fire aboard a subway train in New York City. 33-year-old Sebastian Zabetta is facing three charges, including first and second degree murder and arson. Police say he was arrested at another subway station with a lighter in his pocket. Security at LAX stopping a traveler from bringing a surprising number of prohibited items on a Philadelphia-bound flight last week. According to the TSA, the traveler's bag contained 82 fireworks, three knives, two replica firearms, and a can of pepper spray. It's unclear whether the traveler was arrested or prevented from

boarding the flight to Philly. And baseball MVP Shohei Otani is taking home another award. The Dodger superstar was named the AP Male Athlete of the Year for the third time, tying Michael Jordan. Otani trails only four-time winners Lance Armstrong, Tiger Woods, and LeBron James. Leslie and Mike, back to you. Still an impressive hat trick. Wrong sport, but still coming in threes. Seema, thank you.

Still ahead, energy is the second worst S&P sector this year, and 2025 presents a number of headwinds for the industry. But could AI be a saving grace? We'll discuss ahead. But first, today's Consumer Confidence Report showed an unexpected pullback in forward-looking expectations. We'll look at what could be dragging on sentiment when overtime comes right back. Welcome back. New data out this morning showing an unexpected slip in December for consumer expectations. But should that be a cause for concern? Mike's looking into that question, Mike. Yeah, Leslie, this, of course, part of the Conference Board's Consumer Confidence Index. It's broken into a couple of pieces. Present situation. Well, most respondents say that's OK.

It's actually bounced up a little bit recently. Then there's the expectations for the next six months or so. And that really took a drop. And it's really toward these sort of lower end of the range we've been in for a while. I should also mention there wasn't always, if you go way back in history, this massive split between the present expectations. I mean, the present situation and expectations. It seems as if people, since the global financial crisis, are kind of chronically uncertain if things are going to stay OK. So what that maybe suggests is that the affordability issues that were on consumers' minds, especially housing affordability and, of course, broader inflation, maybe are back in front and center, as well, of course, as some softening up of labor conditions. As Jay Powell said last week, the labor market and tightness or softness is actually back

to like 2019 or worse levels. So unemployment's fine. Job growth is OK. But in terms of the number of job openings and the amount of hiring, that's a little bit weaker. So it's something to keep an eye on. I don't think it's really a matter of consumers. They're going to change their behavior very much because this is still in the expansion zone. But it's something to continue to watch. Now, the stock market has been registering an idea that maybe the cyclical trades have waned a little bit over the last month or so. There's been a lot of pressure on things like industrials, that's the XLI, BKX, the bank index, as well as homebuilders. So there's been, you know,

a lot of downward pressure there being held up on a total basis by the NASDAQ 100 mega cap growth stock. So it doesn't, again, mean that the market sees something really worrisome about the economy, just that maybe there's been some deceleration, a little bit of a pause in some of the forward-looking indicators. Do you tend to see expectations this time of year where retail spending is so important and people are going out and purchasing things for the holiday and food and so forth? Is that especially problematic as you look kind of over the course of the year? I think the general rule is watch what consumers do and not what they say. And so far what they're doing is they're managing to keep up spending levels,

but it really is skewed towards services. I mean, that really is the stronger parts of the economy, travel we were just talking about. So I don't think that this is, it's much more of a mood than it is a reflection of actual behavior out there in the economy. So I wouldn't get too worried about it in that particular respect. But, you know, it is one of those things where, you know, a month ago, there was this big boost in expectations.

You had a bit of a post-election relief, tension release, maybe a little bit of excitement of what was to come. And that has been unwound to a little degree. So it's like bah humbug, and then they swipe their credit card. Like, they're fine. They're just angry about it. That's exactly right. Mike, thank you.

Up next, PIMCO's head of emerging markets on where he sees the biggest opportunity for investors and why he's warning about investing in China. And shares of video streaming platform Rumble skyrocketing after cryptocurrency company Tether announced it was buying more than 100 million shares of the company, valued at nearly $800 million. Look at that move. Welcome back. Emerging markets have underperformed the S&P 500 this year, but could 2025 hold more opportunities for the space, despite continued tariff talk from President-elect Donald Trump and heated rhetoric like this weekend's threat to retake control of the Panama Canal? Joining us now is Pramil Dhawan. He is PIMCO's head of emerging markets portfolio management team. Pramil, thank you very much for joining us today. What is the setup here? The markets obviously have not rewarded diversification in the form of owning exposure to emerging markets. You had a bit of a hawkish rhetorical turn by the Fed just last week. It seems like another bit of pressure. So what's the broad outlook?

Well, thanks for having me, Mike and Leslie. Well, we think 2025 outlook for emerging markets is one that's characterized by equal parts of fear and opportunity. On the fear side, I think we highlight three major fear factors, tariff risks, as you mentioned, rising geopolitical uncertainty and China growth slowdowns. But equally, I think there are a lot of opportunities in emerging markets. We highlight that emerging markets are actually well placed to benefit from the Federal Reserve cutting cycles, US anticipated growth pickup and fiscal stimulus, but also what we think is going to happen, which is China is going to continue to stockpile

commodities into next year, and Latin America will stand to benefit from that. So sort of looking across the emerging markets, we highlight a trio of countries, the MIT bloc, Mexico, India, and Turkey, as being three countries which we think are relatively safe and defensive bets that are well-placed to navigate the rising tensions between the U.S. and China. Talk a bit about Mexico as part of that trio. I think there's a perception out there that perhaps Mexico might struggle a bit if, in fact, there's an aggressive tariff policy imposed and maybe there's already been a little bit of friction in that direction. Yeah, we think largely that those fears are a little bit overblown. If you look very recently, Mexico is already starting to make concessions to the U.S. ahead of 2026 USMCA renegotiation and review.

Recently, it imposed tariffs on textile imports. And whilst it didn't directly call out China, 36% of Mexico's textile imports come from China. So I think Mexico's already realized where it needs to make its bets. Its bets lie with the U.S. and Canada. And very similar to U.S.-MCA, the first negotiation, we expect Mexico to view its ability and willingness to be able to retaliate to tariffs as being limited ability and very limited willingness. And through those two vectors, Mexico's highly incentivized to accelerate the conclusion of MCA renegotiation, to take its medicine, so to speak. And I think

what's ultimately left with it is a country that's very, very tied to the U.S. economy, very well placed to benefit from U.S. growth pickup, and very well placed to benefit from what we expect is going to be rising U.S. fiscal stimulus. Outside of tariffs, how do you expect geopolitical uncertainty to impact the flows in various regions? Do you think that it will cause investors to essentially rebalance in the new year, given what we're seeing with sovereign debt abroad? Yeah, I think one of the hard things for emerging markets and indeed global bonds is really when the dollar, the world's reserve currency, is also a high yielding currency. And effectively, what happens is when Fed funds rates are so high, it sucks capital from all of the global economies, including EM, into the U.S. And we've seen that with U.S. money market flows. So it sort of stands to reason that when

the Fed continues to normalize into next year, which we expect it will continue to do, then some of those flows will get released from money market funds and they'll find their way into selective emerging market opportunities. And I think the key term there is to be selective. It's not a homogenous statement on all of emerging markets, but I think there are some key pockets of opportunities that can provide outsized returns. And we saw that already in a year like 2024, where Turkish lira, Turkish equities returned 35 to 40 percent returns, really outsized returns and uncorrelated to the broader global equity and credit markets. Does that hold true if the term premium remains high? If the 10-year,

for example, is at 4.6, even though the Fed is cutting rates? Yeah, I think what matters for EM is not just the level of 10 years, but really the rapid movements of 10 years. When you start to see very rapid movements, higher or lower, and the term structures are steepened aggressively or indeed flattened aggressively, in those bouts of volatility, I think global assets suffer. I think the dollar behaves more as a reserve currency. But what we have been seeing is sort of parsimonious steepening of the yield curve. And against that backdrop of moderately higher rates, moderately steeper yield curves, I think EM will do fine in that backdrop. And it does provide some diversification. And I think that diversification is something that investors need to keep at the front and center of their minds,

especially given where U.S. equity markets are in terms of valuations at the moment. Yeah, obviously, it has been just another year of U.S. dominance. So diversification with emerging markets and perhaps within emerging markets as well makes sense. Pramil Dhawan, thank you very much. Appreciate it. Thank you. Well, oil's not well with energy, one of the worst sectors this year. Up next, a look at whether surging AI power demand could turn things around in 2025. And shares of CPAP maker ResMed, one of the worst performers in the S&P 500 after the FDA okayed Lilly's weight loss drug Zepbound to treat some cases of sleep apnea. Welcome back. Energy investors will be cheering the end to what has been a very rough year for the sector.

Pippa Stevens looks at whether better times could be ahead for energy stocks in 2025. What are your sources telling you, Pippa? Well, it is the second worst sector this year, and things are not looking a whole lot better for 2025, at least in the immediate term. Oil's been stuck in a range all year, and there are three key factors that will influence price direction next year, according to CIBC private wealth's Rebecca Babin. The first is whether President-elect Trump's sweeping tariffs come to fruition

and what that means for demand. Then whether sanctions are ratcheted up on Iran and Venezuela, which could cut supply. And then finally, growth from non-OPEC producers. Amid that backdrop, investors might decide there's simply too much commodity price risk and so turn away from oil-weighted drillers like APA, Devon and Occidental. On the flip side, NatGas just hit its highest level in nearly two years and the dual tailwinds of LNG, demand growth and generative AI could support prices looking forward, benefiting companies like EQT, Antero and Expand Energy. Finally, the pipeline companies like Kinder Morgan, Williams, One Oak and Targa have outperformed this year as a way for investors to bet on energy without having to take on that

commodity price risk. And the midstream has been largely left out of the M&A boom that we've seen. And so that area could be ripe for some consolidation looking into 2025. Coming into 2024, was the expectation that the sector would have a good year, given what seemed like we were averting a recession. There was still some inflation in the system. There was that tailwind with AI. And why do you think it didn't necessarily come to fruition? Well, China demand, that has kind of always been the next catalyst. That's the next thing coming for oil that has yet to come to fruition. And so I think there were a lot of hopes coming into this

year that we could see a demand bounce back there. That did not materialize. And then we also did not see a ratcheting up of geopolitical tensions in the Middle East. And that was another catalyst that investors were looking at. Things have since subsided a little bit and things are looking calmer on the geopolitical front. And so it doesn't seem like oil is going to get back to that $80 level anytime soon. You mentioned the move in natural gas, which is pretty steep at this point. Is that seemingly pricing in? You mentioned demand, but is it about, you know, exports really getting to a new level from the U.S.? I mean, it's definitely not in the short term for the exports, but nat gas is coming off a really low base.

It did really poorly for the first half of this year. And I think that we've also seen in Europe they've had a lot of a much colder start to winter. And so already they're drawing down their storage, which does then point to a bullish outlook for next summer. We also had a lot of the producers like EQT cut their production levels, and so it's kind of now reaching an equilibrium. But, you know, you never want to say NatGas is going to stay where it is for the time being, because that is certainly a volatile trade. Predicting the weather, yeah, literally. Superstition there. Pippa, thank you. Appreciate it, Pippa Stevens. Up next, how AI is helping last-minute shoppers find the perfect gift to buy their loved ones this holiday season. 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. There is just one more shopping day before Christmas. And if you're like many people hunting for a last-minute gift, you may want to let AI give you some help. Julia Boorstin has the details. Hi, Julia. Well, Mike, 62% of consumers say they plan to use AI for gift recommendations. That's according to a recent survey that also found that three in five retailers say they have deployed some sort of AI chatbot to help the customer experience. Sierra AI is a startup that has tools to help retailers

ranging from Sonos to Olukai Shoes to create custom AI tools to answer questions and assist with purchases. Sierra co-founder Clay Baver says that many of their retail customers to create custom AI tools to answer questions and assist with purchases. Sierra co-founder Clay Baver says that many of their retail customers actually did not have to hire more support staffers this holiday season because their AI agent picked up the slack. We can help companies in particular surge and scale around holiday times, where one of the challenges is how do you meet peak demand without having call times go up and so on. And so there are meaningful operational

savings there. Now, there are a range of other AI shopping tools to help consumers navigate the whole web. Jeff Bezos-backed Perplexity AI, which is valued at $9 billion, launched an AI shopping tool which can search for products based on photos and also compare prices. And this fall, both Amazon and Google launched personalized AI shopping recommendation bots. Amazon's Rufus AI tool has been asked over half a billion questions. Mike? Fascinating, Julia. I wonder, I'm not sure there's a way that we've been able to test or measure this yet,

but if it's appreciably different than Googling, for example, original gifts for a 17-year-old girl. Well, I think the idea is, especially with Amazon and Google, is that they can actually personalize the answers. So maybe they know, for instance, with Amazon is what other types of teen girl gifts you've purchased in the past. So then they can make recommendations based on that, maybe avoid suggesting those same products. So the idea is that this is smarter than plain old Google. And also it is conversational. You're not just getting a list of links. You're getting a kind of narrative answer.

Do you know what data input is used to train these models? Because it seems like once you get the answer, you kind of just sign off and go away. So how are these machines really learning the best types of gifts for, you know, whomever is asking? Well, it really depends on the platform, right? You could ask Meta AI a question or you could ask ChatGPT a question. But what I'm really talking about here are these custom AI shopping concierges. So Perplexity, for instance, has these tools that are really focused on helping you compare products, compare prices, take a photo, share a photo and say, what can I get that's like this,

but in a different color? So these are much more focused just on that shopping experience. And then, for instance, in Perplexity's situation, they're gathering all this data and letting you make the purchase on the Perplexity website. But what Sierra is doing is that they are creating custom bots with all of the data from their specific clients. So if I have a chat with Olukai about buying their shoes, they're just giving me answers based on the data that they've used to train the bot. All right, Julia, thank you so much. It's almost Santa Claus rally time. It is literally open tomorrow. The official textbook definition of the Santa Claus rally

is the final five trading days of one year, the first two of the next year. So that's tomorrow. We'll see if today's afternoon lift maybe was a prelude to that. And we actually have a shortened trading day tomorrow, a programming note here to be sure to tune in to a special edition of Closing Bell Overtime tomorrow at 1 p.m. to wrap up the holiday shortened trading day. That does it for overtime. Fast Money begins right now.