Closing Bell - Closing Bell Overtime 6/30/23

Episode Date: June 30, 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. 

And we are halfway through 2023. It's the best first half for the Nasdaq in 40 years. Best for the S&P in four. Stocks ending today higher as well. As you just heard Scott mention, Apple closing above $3 trillion in market cap for the first time ever. That's the scorecard on Wall Street. But the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Coming up this hour, we're on watch for breaking news out of the country's biggest banks as they lay out their capital plans after passing the Fed's stress tests earlier this week. Plus, we'll talk exclusively with Anduril and Oculus founder Palmer Luckey about Anduril's

acquisition this week in the defense space. And we are awaiting President Biden right now. Remarks on the Supreme Court's student loan forgiveness decision. You can see right there on your screen. Any moment now, we're going to bring you there as soon as it begins. But let's get straight to our market panel as we close out a strong first half, particularly for the Nasdaq. Joining us now, Charlie Babrinskoy from Ariel Investments and David Bonson from the Bonson Group. Good afternoon to you both.

David, I'll start with you. Strong day for the market, strong week, month, quarter, and first half. Does it continue? Well, I think it continues, but in a very different way. I don't think the second half will mimic what the first half saw with huge multiple expansion in technology. I think now you'll see the Fed be less of a player in what drives markets. And you're going to see actual earnings expansion and real life free cash flow matter more.

I would expect that the second half is going to be much more of a mixed bag, but definitely still pockets of opportunity. Yeah. And we know the mega cap tech names like Apple, like Meta, like NVIDIA and some of the others have really powered the games so far. Charlie, I want to bring up a chart here. And actually, I'm going to put that on hold because we're going to go back to D.C. and the White House where President Biden is taking the podium to talk about that Supreme Court decision regarding student loans. Millions of Americans in this country who feel disappointed and discouraged, or even a little bit angry about the court's decision today on student debt. And I must admit, I do too. Before I tell you the steps we're going to take and want to talk about what we've been able to achieve so far

on student loan over the past few years, first, we made the largest increase in parental grants in over a decade. talk about what we've been able to achieve so far on student loan over the past few years. First, we made the largest increase in parental grants in over a decade, helping students from families who nearly all make less than $60,000 a year. Then we fixed the so-called, with the help of the department, public service loan forgiveness program. So the borrowers who got into public service, such as school teachers, police officers, social workers, service members, you know, they actually got the debt relief they are entitled to under the law. Before I came to office, only 7,000 people had benefited from that program. Today, over 600,000 borrowers have received relief from that program.

And it's still available. So many people more, so many more people can be helped. And I encourage you to apply if you haven't already. You're still eligible. Go to studentaid.gov. It matters. Third, my administration approved a program from the Obama-Biden administration

on income-driven repayment plan. That's what it was referred to as. Back then, we set a limit. Student borrowers would pay no more than 10 percent of their disposable income to pay back their debt in any one time. My administration is going to reduce that to 5%. It's now the most generous repayment program ever. No one with an undergraduate loan today or in the future, whether from a community college or a four-year college, will have to pay more than 5% of their disposable income to repay their loan. And that's income after you pay for the necessities like housing, food, and the like. Typical borrower is going to save about $1,000 a year. And if you keep up payments for 20 years without missing them, your total debt is forgiven after 20 years. That's what the program was before,

but we've just reduced it 5%. In addition to that, last year I announced my student debt relief plan, a plan that was on the verge of providing more than 40 million Americans with real debt relief, up to $10,000 for many borrowers and up to $20,000 for those who have gotten a Pell Grant. Nearly 90% of the relief would have gone to borrowers, 90% of it making less than $75,000 a year, and no one, no one making over $125,000 would qualify. This program was all set to begin. The website had been set up. The applications had been simplified so that it took less than five minutes to complete.

Notice had been sent out to people about the relief they were eligible for. 16 million people. 16 million people had already been approved. The money was literally about to go out the door. And then Republican elected officials and special interests stepped in. They said, no, no. Literally snatching from the hands of millions of Americans

thousands of dollars in student debt relief that was about to change their lives. You know, these Republican officials just couldn't bear the thought of providing relief for working-class, middle-class Americans. Republican state officials sued my administration, attempting to block relief, including millions of their own constituents.

Republicans in Congress voted to overturn the plan. I think every one, I don't think I named Republican votes for this plan. At the same time, think about this. We all supported the Paycheck Protection Program. Remember PPP, you know, which was designed to help business owners who lost money because of the pandemic? It was a worthy program. But let's be clear. Some of the same elected Republicans, members of Congress who strongly opposed giving relief to students, got hundreds of thousands of dollars themselves

in relief, members of Congress, because of the businesses they were able to keep open. Several members of Congress got over a million dollars. All those loans were forgiven. You know how much that program cost? $760 billion. My program's too expensive. $360 billion more than I proposed in my student debt relief program.

I was trying to provide students with $10,000 to $20,000 in relief. By comparison, the average amount forgiven in the PPP, the pandemic loan program, average amount forgiven was $70,000. Now a kid making $60,000, trying to pay back his bills, asking for $10,000 in relief, come on, hypocrisy is stunning. You can't help a family making 75 grand a year, but you can help a millionaire and you have your debt forgiven.

My plan would not only have life and life change for millions of Americans, would have been good for the American economy. Free millions of Americans with a crushing burden of student debt. More homes would have been bought. More businesses would have been started. More couples would have had the confidence to start a family. Millions of people would have felt they could get on with their lives. These Republicans blocked all that. Now, in addition to the hypocrisy, some of these Republicans in Congress are shamelessly pushing to advance a bill in the coming weeks that gives hundreds of billions of dollars in

tax breaks and handouts to the wealthiest Americans. They still haven't given up on making permanent a $2 trillion tax cut that they never paid for. Never paid for $2 trillion. So let me be clear. For Republicans in Congress, it's not about reducing the deficit. It's not about fairness and forgiving loans. It's only about forgiving loans they have to pay. Today, the Supreme Court sided with them. I believe the court's decision to strike down my student debt relief program as a mistake was wrong. I'm not going to stop fighting to deliver borrowers

what they need, particularly those at the bottom end of the economic scale. So we need to find a new way. And we're moving as fast as we can. First, I'm announcing today a new path consistent with today's ruling to provide student debt relief to as many borrowers as possible, as quickly as possible. We will ground this new approach in a different law than my original plan, the so-called Higher Education Act. That will allow Secretary Cardona, who's with me today, to compromise, waive, or release loans under certain circumstances. This new path is legally sound. It's going to take longer, but in my view, it's the best path

to remain is to provide as many borrowers as possible with debt relief. I've directed my team to move as quickly as possible under the law. Just moments ago, Secretary Cardona took the first step to initially that to initiate that new approach. We're not going to waste any time on this. We're getting moving on. It's going to take longer, but we're getting at it right away. Second, we know what many borrowers will need to make their hard choices, which their budgets

are being strained now when they start to repay their monthly loan payments this fall. You know, we know that figuring out how to pay these added expenses can take time for borrowers, and they might miss payments at the front end as they get back into repayment. Normally, this could lead borrowers to fall into delinquency and default. But without their financial security, it would hurt their financial security, and that's not good for them or the economy. That's why we're creating a temporary 12-month, what we're calling, on-ramp repayment program. Now, this is not the same as a student loan pause.

It's been in effect for the past three years. Monthly payments will be due. Bills will not go out and interest will be accruing. And during this period, if you can pay your monthly bills, you should. But if you cannot, if you miss payments, this on-ramp temporarily removes the threat of default or having your credit harmed, which can hurt borrowers for years to come. Because the Department of Education won't refer borrowers. And the reason why that will work, they won't refer borrowers who missed payments

to credit agencies for 12 months to give them a chance to get back up and running. Let me close with this. Our Republican officials say student loan relief is a giveaway to the privileged. You hear that loud now, the privileged. I love their concern for the privileged. But I know who student loan borrowers are in this country, and so do all you. There's a couple putting off having a child until they can find their way to deal with their debt. That's who they are. They're young, putting off buying their first home so they can get out from under student loans. Hope on the horizon, thanks to relief that I planned last year, today's court decision snatches it away from them.

I get it. I get it. I hear this. It's — and I'm concerned about it. But today's decision has closed one path. Now we're going to pursue another. I'm never going to stop fighting for you. We'll use every tool at our disposal to get you the student debt relief you need and reach your dreams. It's good for the economy. It's good for the country. It's going to be good for you. Thank you very, very much for listening.

We're going to get this done, God willing. Thank you. Mr. President, why did you give millions of borrowers false hope? You've doubted your own authority here in the past. I didn't give any false hope. The question was whether or not I would do even more than was requested. What I did, I thought was appropriate and was able to be done and would get done. I didn't give borrowers false hope, but the Republicans snatched away the hope that they were given, and it's real, real hope. Thank you.

Mr. President, did you overstep your authority? Did you overstep your authority? I think the court misinterpreted the Constitution. Mr. President, do you admit failure in Afghanistan? Mistakes? There was a report on Afghanistan in withdrawal saying there was failure, mistakes. Do you admit there was mistakes during the withdrawal? Do you admit there was failure during the withdrawal?

Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you admit there was mistakes during the withdrawal? Do you saying there was failure, mistakes.

Do you want to meet? There was mistakes during the withdrawal and before? No, no, all the evidence is coming back. Remember what I said about Afghanistan? I said Al-Qaeda would not be there. I said it wouldn't be there. I said we'd get help from the Taliban. What's happening now?

What's going on? Read your press. I was right. Thanks. So, the report is from the State Department, actually, about the withdrawal. All right. And that is President Biden at the White House right now responding to the Supreme Court decision earlier today to strike down his student relief plans, calling that decision

by the court, quote, a mistake, wrong, just now saying that he believes the court misinterpreted the Constitution, announcing a new pact to provide student debt relief under a new law, but noting that that relief is going to take longer. So also announcing a temporary 12-month on-ramp repayment plan that will not penalize those student loan borrowers that don't make payments right away. Let's bring in Emily Wilkins for reaction. Hi, Emily. Hey, Morgan. So, yeah, I think three really big things, takeaways from the speech. Of course, the overall is that Biden is still going to try to be pushing to cancel student loans. The program

that he initially put forward, the one the court struck down today, that was tied to a 2020 law that related to COVID. So Biden's going back now and saying, fine, we won't attach this program to that law. We're going to attach it to a much different, much older law, the Higher Education Act. And this is actually what a lot of progressives have been asking Biden to do from the start. They believe that this bill really has more of a standing. It gives the education department more of a power to cancel from the start. They believe that this bill really has more of a standing. It gives the education department more of a power to cancel certain student loans. The other thing I think that is really kind of notable, Biden did touch on it a little bit, is this whole idea of tying the amount that borrowers pay to the government for their

student loans to the income that they currently make. Now, there are some programs currently existing that do that, but Biden's rolling out a much more generous plan. Borrowers would only need to pay 5 percent of their current income. And that, you know, for a lot of them, once they do those payments for 20 years, then all their loans would get forgiven. And then, of course, the very tail end for the next year, if borrowers are not able to make their payments, interest will still accrue, but they won't be in trouble for going into default. Their credit score isn't going to get harmed. Basically, Biden is trying to pull all the levers that he can right now for student borrowers. But of course, there are questions

about whether, you know, if he does try to attach this program to the Higher Education Act, could that wind up being legal in and of itself? Are we going to just go through the process that we saw end today with the Supreme Court striking it down? So clearly, this is a huge political priority for the Biden administration, and they're trying to do everything they can. Yeah, pulling levers, as you just mentioned. I mean, as it stands currently, Emily, student loan borrowers are expected to start making those repayments come October. Is the expectation with some of this news and policy that's expected to be implemented now that it's going to happen before we see that deadline take effect? I mean, for a lot of the borrowers who are going to have to start paying in October,

they were really hoping they'd have to pay on a much smaller amount, that they would get some of that cancellation. That's not the case. All right, Emily, thank you. Let's bring back our market panel, Charlie Bobrinskoy and David Bonson. My goodness, what a start to the hour here. Charlie, I was coming to you before all of this happened to talk a little bit about just the strong move higher we have seen in the major averages to start the year, the fact that it's been powered so heavily by the biggest tech names and what that's meant in terms of, if you take a look at a chart of the market weight versus the equal weight S&P, the divergence we've seen there. How important is that to the health of this rally continuing into the second half of the year?

Well, it's very important, and it's why we shouldn't talk about the stock market being so overpriced. It's about eight or nine stocks that have rallied so dramatically and are overpriced. The big segments of the market, the value stocks that I love, are trading at very reasonable multiples. They're at those low multiples because people have been worried about a recession. And if we get better inflationary news and if the Fed takes its foot off the neck of the economy, we can have a decent economy. And those value cyclical stocks can do very well. We have lots of stocks that are absolutely trading at bubble levels that people should be nervous about. But we have broad parts of this market that are trading

at historically attractive rates. You know, some of the names I love, industrials, financials, some energy names that are very reasonable here. All right. David, I do want to get your thoughts on what you like in the market right now and whether what we just heard from President Biden gives you a moment to reconsider how that could look if you have a consumer that has so far, even with just some of the data today, remained pretty resilient and now perhaps does not have student loan repayments added to the mix? No, I think the Supreme Court did President Biden a huge favor today. I think it was a disastrous idea. And I do not believe the economy is dependent upon magically wiping away $10,000 of money per household. The consumer spends when the consumer

has wages. And to the extent that we shuffle the deck around with redistribution, it doesn't create new wealth. What we need is production. That's what drives economic growth. And I believe that we, I very much agree with what Charlie just said. In industrials, financials, energy, there are valuations that line up with opportunity. And I think that some of these big tech companies are wonderful companies that have grown leaps and bounds. I just think their stock price is totally disconnected from reality. So the macroeconomic story to me is that there are places you can invest, but you really have to be selective right now. Okay. We're going to leave the conversation there. David and Charlie, thanks.

Thanks, Martin. After the break, billionaire real estate mogul Rick Caruso joins us with a forecast for commercial properties and his read on consumer spending at his malls and his retail locations following a weak outlook from Nike. And we're still awaiting the bank capital allocation plans, which could come this hour. We're going to bring you that breaking news as soon as we have it. Welcome back to Overtime. President Biden just speaking about the Supreme Court's decision on student loan repayment, an issue which some argue could have a big impact on consumer spending. Meantime, the University of Michigan Consumer Sentiment Index rose 9 percent last month,

or this month, I should say, according to new data. On the other hand, Nike shares closed in the red after that company's first earnings miss in three years. Joining us now, Caruso founder and executive chairman Rick Caruso. Three of Caruso's retail centers, including The Grove in Los Angeles, rank among the 15 largest in the country in sales per square foot. Rick, it's great to have you on the show. Thank you, Morgan. Great to be here. All right. We know that the consumer has been resilient based on quite a number of data points we've gotten in recent days and recent weeks. And now it seems perhaps with this news from President Biden just a few

moments ago, student loans are not necessarily, at least for now, going to be part of the mix, those repayments. What are you seeing in real time at your locations? So in real time, listen, the headline certainly is always the question about consumer spending. I understand that. But what we're seeing on our properties is the consumer is still spending. And they're doing it across the portfolio with us, both in the luxury side of our retailers and more of the moderate side of the retailers. Restaurant sales are up. Our traffic on our properties are up around 20 percent. So we're seeing a lot of growth. But let me tell you what I think is an equally important indicator is that tenants are expanding and they're opening new locations. Now, there's a flight to quality.

There's no question. So the better locations are going to benefit from that. But the retailers really have the best pulse from anybody because they understand who their customer is, what their sales are per ticket and where their customers are located to know where to grow. Interesting. I mean, that sounds like a soft landing or even potentially no landing scenario. If you have businesses that are continuing to make those investments, is that your take? Well, it is. But I got to tell you, the boogeyman, you know, is this recession that's maybe looming out there. But in the midst of worrying about the recession, we've actually had an incredibly strong market, right? Incredibly strong sales, good performance coming out of, I think, 80 percent

of the companies that report. So it's a kaleidoscope. There's no doubt. But the largest part of that kaleidoscope is doing really well. Now, let me tell you what my concern is. My concern is interest rates. And with the Fed talking about continuing to raise, I think you're going to see some contraction. And everybody's going to have to be really watchful because the impact of that may be greater than we're all expecting. And I think a lot of companies are going to have to do some readjustments in order to absorb higher inflation and absorb higher interest costs. And it may obviously impact the consumer ultimately, maybe not the top 10, but ultimately, generally the consumer. How does it affect real estate?

And we talk so much day in and day out about commercial real estate and paint it with such a broad brush. But other than certain types of office properties right now that perhaps are older and under scrutiny and don't have much demand, it would seem other areas within the broader sector are holding up strongly. What is your take on the health of commercial real estate from where you sit? I think the health is good. You have to look at sector by sector. You have to look at geographically. You know, if you looked at our retail, we're doing very well. You look at retail in San Francisco in the core, it's decimated. You've got retailers turning back their keys. You've got developers turning back keys to shopping

centers in downtown San Francisco. So you really have to break it down. I think generally it's good. Again, I think a lot of that there's going to be pressure on even the good performers, the high performers in strong geographic areas, depending on how interest rates are going to impact them. But I think companies are getting ready for that. You know, everybody is aware there may be two more rate hikes. So our cost of capital is going to go up and we're going to have to accommodate for that. I also think you're going to see companies really focusing even more on being efficient, cutting back expenses and maybe reducing the workforce, which has not really been impacted that much. But listen, the commercial sector,

the office sector, Los Angeles, 15 percent vacancy rate in downtown L.A., San Francisco, 30 percent vacancy rate. I don't know how that turns around with crime that's impacting those areas. Yeah. The homeless situation. Look at L.A. We're up another 10 percent in homeless that impacts downtown. Those buildings, it's going to be a while before they turn around, I think. OK. Rick Caruso, always great to get your thoughts. Thanks for joining me. Thanks, Morgan. Have a good day. You too. As the war in Ukraine continues, demand for missiles is soaring, but output is not keeping up. One reason, propulsion. Solid rocket motors are to missiles what engines are to cars or planes. There are only two major manufacturers in the U.S., Northrop Grumman and Aerojet Rocketdyne, which L3Harris

is currently trying to acquire. The rocket motor maker, or motor market, I should say, has been plagued in recent years by supply chain issues, has come under scrutiny for lack of competition. Well, this week, defense tech unicorn and a CNBC Disruptor 50 company, Andral Industries, made another acquisition, Adronos, a startup focused on making solid rocket motors. Joining us now is Andrel founder Palmer Luckey. Palmer, great to have you on. Why'd you buy this company? Glad to be here. Morgan, you really nailed it in your intro. I mean, there's only two companies that are making most of the solid rocket motors in the country. That's really bad for national security because the prime contractors that

design and manufacture the missile systems that the United States and our allies and our partners around the world need really do not have nearly enough competition. They don't have nearly enough supply. And we're buying Adranos because we want to become a merchant supplier of rocket motors for those companies so that we can get out of the hole on manufacturing and never be waiting years or many years on Rocket Motors that we think we can make in a matter of months. So how many of these motors can you make now that you're making this acquisition? And do you already have a buyer in the defense department or with some of these defense companies that you could potentially be supplying to directly? Well, Adronis has already been working with some of these companies for a while. I can't talk about the specifics in terms of the conversations or quantities with those

customers. But what I can say is that they are already in production at a smaller level. We're buying them so that we can build up facilities, build up technology, bring some of our own expertise in manufacturing to bear, and use their advanced technology to build tens of thousands of rocket motors per year. We want to be a very large-scale supplier of small motors for things like Javelins and Stinger missiles, all the way up to larger missiles, tactical missiles, things that are 100 times bigger than that. When I think of Andral, I think of software-enabled hardware. Maybe I should say hardware-enabled software.

And I think about the use of artificial intelligence and autonomy. How do rocket motors fit into that? You know, I think Anduril, at the end of the day, is a defense product company that is bringing modern technology and manufacturing techniques and software and automation to the defense industry. And we've made a lot of other acquisitions where we've taken our expertise in artificial intelligence, large-scale manufacturing, designing things that can be manufactured very quickly and also at low cost. And this is not that different. We're buying a company where we can bring in our expertise and ramp up their production scale, start them moving much, much faster, and also improve the quality of the product.

And in general, Andral wants to be where the country's needs are. This is one of the top needs that our country has in national security. I'm not working on this because, you know, I'm a rocket expert or because it's a perfect fit based on exactly the tech we've built in the past. But we are able to apply the tech we have already built to solving this critical problem for U.S. national security and for so many other prime contractors who need more merchant suppliers of Rocket Motors. Yeah. And of course, Andrel is growing. You've been making other acquisitions. You're valued

at $8.4 billion. You've been able to raise capital in a down market when others haven't been able to. IPO plans? Look, you know, I've always wanted to be a publicly traded company. And I'll say that the DOD in general likes to work with publicly traded companies for a variety of reasons, not the least of which is that they don't like to be in the business of auditing the financials of private companies and seeing if they're cooking the books. They like to outsource that to the SEC and all the short sellers and all the Wall Street weenies who are always looking for companies that are going to fail. I think that that is something that could very much be in our future. But right now, we're focused on manufacturing solid rocket motors, manufacturing AI-powered defense hardware for the DoD and our allies.

And that's what I'm thinking about day to day. I don't think that we're close to any kind of IPO. Okay. Wall Street weenies. I don't think I've heard that on the air before. Sorry about that. You never disappoint, Palmer. I'm a computer boy.

You know, I type on a computer for a living. And there's other people who watch charts for a living. We both have a place in this world. Well, that's that's true. Palmer, lucky. It's always great to speak with you. Thanks for joining me. So good to see you guys, too. We have a news alert on Goldman Sachs and Apple. Leslie Picker has the details. Hi, Leslie. Hey, Morgan, quite the segue here because we are talking about Goldman's partnership with Apple, the journal publishing a short while ago that it's looking for a way out of its partnership with Apple. And in doing so, it is having discussions with Amex. I am able to confirm that those discussions are indeed taking place. of the broader Goldman Sachs retreat away from consumer focused on more of its core competencies in the banking space, in the investment banking space, sales and trading, and asset management.

I'm told that the relationship between Goldman and Apple remains strong. It's just part of that strategic retreat that I mentioned, and that the firm is not actually talking to anyone other than Amex at this time. But as part of its investor day back in May, I believe, or April, I believe, they mentioned that they were looking at strategic options for this partnership. Goldman declined to comment. We also have calls out to Apple and Amex as part of this news and are waiting to hear back. We will let you know as soon as we do. Morgan. It has been a busy afternoon for breaking news, and this one is notable. Leslie Picker, thanks for bringing it to us. Coming up, a top analyst weighs in on potential bank

capital allocation plans and what to expect in the second half from the sector following the regionals crisis earlier this year. Stay with us. Welcome back. We've got breaking news on Wells Fargo. Leslie Picker has the details. Hi, Leslie. Hey, Morgan. Yes, we told you that these capital return plans would come fast and furious starting at 430. And they sure have. Wells Fargo, the first of the biggest firms to announce today. They say that they do plan to increase their third quarter 2023 common stock dividend to 35 cents a share from 30 cents a share. As for buybacks, they kind of leave that door open, but don't announce any firm plans at this point in time, saying they have the capacity to repurchase common stock, which will be routinely assessed as part of the company's internal capacity adequacy framework that considers current market conditions, potential changes to regulatory capital requirements, and other risk factors.

So that's part of that regulatory uncertainty with Basel III and other types of regulatory actions that some of these banks are expecting throughout the year. We also just got Truist as well, and they plan to maintain their current quarterly common stock dividend of 52 cents per share, subject to approval by the board of directors. So we'll continue to see these releases as they cross and bring you the latest as they happen. Morgan. Leslie, doing overtime and overtime. Thank you. Let's bring in Wolf Research Managing Director Stephen Chuback, along with Mike Santoli. Stephen, your reaction to this news from Wells Fargo, a five cent increase in the dividend here, but leaving share buybacks unchanged. Is this what you expected? Yeah, it's very consistent with what we had expected. And I think you're going to get a

lot of updates on dividends, but you're going to have relatively vague commentary or guidance around buybacks. And it goes back to what Leslie was alluding to. Basel III endgame is going to be the most significant change in terms of regulatory capital requirements that we've seen in close to a decade plus. And given how significant those changes are going to be, I think the expectation is that the banks need to be conservative, need to be measured with their buyback commentary. We're expecting to get that proposal in a matter of weeks. So then the banks can reassess and determine how much incremental capital are we going to need if it's a... All right.

If it's a curtailed tax or the inverse. Okay. I think we're having some technical difficulties there. Mike, I want to get your thoughts on what we've seen with some of the banks, Dr. Zia. We had a sizable rally in many of these names given the news of the stress test this week. Yeah, it was a bit of reassurance, Morgan, that the capital cushions are sufficient, that there is dry powder that they may have to continue to allow to pile up as they continue to go through this period where they want to show some conservatism. On one level, it's unfortunate for investors that they can't or won't be more aggressive on share buybacks in this sense, because their valuations have come down quite a bit. A lot of these banks are trading below

stated book value. So therefore, if you buy back the stock at those prices, it tends to be pretty good for earnings going forward. On the other hand, there's the reassurance that they that they theoretically have the financial capacity to do it and are not in bad shape. Meanwhile, investors kind of fixating on other elements of the story, such as how much more they're going to have to pay for deposits as money market yields go up. And it seems like a little bit of a general drag on profitability, but nothing to be particularly worried about in the very near term. OK, gentlemen, stay with me. We're going back to Leslie Picker because we're getting more announcements.

Hi, Leslie. Hey, Morgan. Yes, Morgan Stanley announcing a seven and a half cent dividend increase going to 85 cents per share from the current 78 cents per share or so. Also renewing, authorizing a renewed $20 billion repurchase program as part of the stress test that took place earlier this week. They felt confident to be able to hike the dividend as well as reauthorize that $20 billion repurchase program. Also got the announcement from J.P. Morgan as well. They intend to increase their quarterly common stock dividend to $1.05 per share. That's up from about $1 per share for the third quarter of 2023. They continue to authorize to repurchase common shares under the existing program that they have that was previously approved by the board of directors. So you've got

a decent hike from both of them, Morgan Stanley and JP Morgan, and Morgan Stanley renewing its $20 billion repurchase program, Morgan. Okay. Leslie, thank you. We know you're going to continue to monitor here. Stephen, I want to go back to you on the two Morgans. Your thoughts, especially as we see Morgan Stanley move up about 1% right now in after-hours trading. Yeah, I think the commitment to the buyback is being viewed constructively, given some of the uncertainty that I talked about. So not surprising to see Morgan Stanley get a little bit of a bump. But, you know, it's going to be modest simply because we still have to wait and see how this proposal ultimately shakes out. And I do think the general expectation is that Morgan Stanley, as well as the other systemically important banks, are going to be disproportionately impacted by Basel III endgame.

And so given that expectation, I think near term buybacks will be tempered, even in the context of some pretty large headline authorization numbers. But the banks still have to be very much in wait and see mode. And that's going to temper the buyback, at least for the time being. OK, Stephen, I just want to follow up on the expectations around this Basel announcement and what this is going to mean in terms of future regulations. Aren't the biggest banks going to have a couple of years to actually implement some of these changes? I mean, just how meaningful is it going to be in the near term? Yeah, so it's disruptive, but ultimately you're right. You are going to have significant or ample

time to comply. You're probably going to have three to four years of grandfathering before you have to be fully compliant with the proposal. So while that's a ways away, certainly, we have seen this movie before where investors do expect the bank to be compliant on an accelerated timetable. We saw that with Basel III when it was first introduced back in late 2009. And this shouldn't be any different in terms of investor expectations, as well as the bank just wanting to be compliant sooner rather than later. And that will afford them greater flexibility in terms of buyback over the long term. Yeah. Mike, I mean, I remember when Wells Fargo was having all

of its issues for years and going through this turnaround strategy, not doing well in stress tests. We get this news of a dividend increase from them just a few moments ago. The name that's notably absent and has underperformed this week, unsurprisingly, based on these results is Citi. Have we seen a have we seen a switch or a rotation in terms of who's doing well and why? Well, Citi is to some degree been a little bit of a chronic laggard in terms of its capital position, its need to allow capital to pile up. And the stock is traded at a depressed valuation that reflects all of those things. So it has in that case been a somewhat persistent story. But absolutely, Wells Fargo, absolutely out of the doghouse in regulatory terms. And we've turned our attention away from, you know, at the time it was considered to be a real big issue that had this deposit cap.

We've moved on from those issues. And it's much more to me about, OK, if you're OK on capital, what is the underlying economic path look like? And what is it going to mean for your borrower base and credit losses down the road? So everyone's kind of in a similar boat when it comes to that. Yeah. And of course, we know, as we've just been talking about, you know, with Basel, we we know that there are more regulations and more standards. Oh, actually, first, we're going back to Leslie because we just got another report to bring you. I'm still here, Morgan. Yes, BNY Mellon announced a pretty sizable hike

in this current environment to their dividend by about 14% from $0.37 to $0.42 per share. They do say that they will continue to be authorized to repurchase shares under their existing share repurchase program that was announced in January 2023. So no additions to share repurchases from what they previously authorized, but did increase their cash dividend by 14% to $0.42 per share. That's BNY Mellon Morgan. OK, Leslie, thank you. Mike, going back to you, because it sort of keeps me along along the theme of the question I was just about to ask you, we know more regulations are coming for the biggest banks. There's talk

of regulation for some of the regional banks, but that hasn't really manifested yet. I mean, how much of is that how much of that is an overhang when you look at something like the KRE and just how hard it's been hit in the first six months of the year? Oh, it's absolutely been a big part of the overhang. Initially, it was about just exactly how much they're going to bleed away in the way of deposits. And then you have the the what if questions about commercial real estate and how that works its way through their balance sheets. But the idea that regulation is going to buy it harder is also depressing valuations. You might be able to make the argument, though, that right now at these levels, they're not that far off the lows.

Again, the whole KRE, I think, is trading below book value, last 12 months book value. So it shows you that the market has already gotten to a point where they don't expect a whole lot in the way of future earnings and book value growth on these on these banks. So it's going to be such, you know, kind of case by case in the way of the smaller banks. But there's almost no doubt that that mid tier of banks, you know, where SVB would have fallen into is probably in for tighter regulation. Stephen, what would you be buying right now? What looks attractive in the financial sector? Yeah, I'm going to make an outside the box recommendation and say, given the regulatory uncertainty, our preferred way to get exposure to names that are better positioned for an inflationary backdrop and don't have a lot of credit exposure are the retail brokers. So you

think names like LPL Financial, Raymond James, Stiefel, Ameriprise, names that are wealth management pure plays that I don't have to worry about credit risk, not nearly as much on funding risk, and they don't have the same regulatory issues that the banks are grappling with today. So those are really the names that I would look to play as potential winners in an environment where credit regulatory pressures are intensifying. And these companies are far better insulated in that regard. OK, Mike, I've asked you this question before. I'm going to ask you again now that we are at the halfway mark for the markets here. And that is for this broader rally to continue.

How important is it for financials to be participating in a more meaningful way? My general take is that they can't be going down in absolute terms and really have the rally be particularly healthy. So if they hold their levels, if they start to participate a little bit better, I do think it strengthens the case that this is a durable advance in the market. But, you know, I don't think they have to lead. I think the days are past when you had to say, well, financials better be out front or else it doesn't really validate the path of a rally. I think we can be OK if they just sort of basically pull their weight and go along for the ride. All right. And of course, we get the start of the earning season in about two weeks when we do get those

results from the biggest banks. Gentlemen, thanks for going through this breaking news with us. Stephen Chuback and our own Mike Santoli. Thanks for having me. I really appreciate it. Much more on the banks ahead. Plus, we will look ahead to next week's key economic report to watch. Overtime. We'll be right back. Welcome back to Overtime. Let's get a check on the big banks after firms announced capital allocation plans following this week's stress test. Morgan Stanley upping its dividend

by nearly 10 percent, authorizing a buyback of up to $20 billion. Those shares up more than 1 percent right now. JP Morgan increasing its dividend by 5 cents to $1.05 per share. Wells Fargo also raising its dividend by a nickel to $0.35 per share. And BNY Mellon raising its dividend to 14 by 14 percent, 14 percent to 42 cents per share. And as you can see, all of those names are trading fractionally higher. As we wrap up the first half of the year, though, let's bring in senior markets commentator Mike Santoli again for a look at seasonal stock patterns. Mike. Yeah, Morgan, of course, the seasonal effects are not everything, but there's certainly something.

They take hold even though everybody knows about them in advance. This is a kind of an old favorite, the cycle composite chart from Ned Davis Research. It combines the annual seasonal pattern of the S&P 500 along with the presidential cycle and then the 10-year cycle for years ending in three. So this is what 2023 would look like if it followed those exact patterns. You see strong first half. That's something that has more or less worked out. This little spurt higher, though, is interesting. That's the first half of July. Traditionally, after June 30th, right around July 4th and then about two weeks into the month, has tended to be relatively strong,

in fact, quite strong for the overall market. Did we pull some of that forward? Perhaps. But, you know, Goldman Sachs today, trading desk commentary saying NASDAQ in particular has often enjoyed a very strong start to July. But then you see how it kind of flattens out for the rest of the year. So maybe this is sort of when seasonal tailwinds are the strongest. Take a look at where we are halfway through the year, too, in the traditional 60-40 retirement portfolio, 60 percent equities, 40 percent bonds, basically a 10 percent total return halfway through the year. If you'll remember last year, this is the Vanguard balance, but it basically 60-40. Last year, one of the worst ever for this strategy, especially into June and then again into

October. So a big comeback here. Historical annualized returns more like 7 percent. Here we got 10 percent in just half a year, Morgan. Interesting. Yeah, we've had a lot more strategists coming on to talk about their reigniting of love for the 60-40 strategy. Mike Santoli, have a great weekend. Thank you. Thanks. Up next, J.P. Morgan's chief economist on what the latest sign of easing inflation could mean for the Fed and the economy, plus the potential impact of the Supreme Court's student loan ruling and those comments

we got from President Biden earlier. Stay with us. Welcome back. Core PCE prices and the inflation number that is most closely watched by the Fed rose just 0.3 percent in May, which was in line with expectations. And the University of Michigan's Consumer Sentiment Survey showed confidence improving in June. Next week, we'll get the jobs report for June, which is due out on Friday. Let's bring in Bruce Kasman, chief economist at J.P. Morgan. Bruce, things seem to be, at least based on these most recent data we've gotten, they seem to be moving perhaps in the right direction, at least where inflation is concerned.

How do you see it? Well, I think that's right. It looks like inflation is moving lower, and I think that is going to continue in the coming months. There's a big question about whether it moves low enough to make the Fed comfortable. And I think at the same time, growth is not boomy, but it does not feel like anything is happening that's going to create an imminent threat to this expansion. So I think the economy's on solid footing. Inflation is elevated. The Fed is going to still keep moving here. We clearly have risks as we go ahead, but they're more about an expansion that is continuing to move forward and the risks that

over time that something might happen that's more worrisome. Yeah. In light of that, you know, I look at something like housing because we've got a lot of that data this week, too. You're starting to see maybe a stabilization in housing. I mean, can the Fed really restrain demand in something like that if you have a fundamental supply shortage? And how how much is that a microcosm for this dynamic that the Fed is now grappling with in general? Yeah, I think you're 100 percent right. There's a dynamic here where the Fed has hit housing reasonably hard, but it's bouncing back quickly once we've had a period of mortgage rate stabilization, partly because there's

still underlying demand and there's tight supply. And I think that's a story which is broadly in place in the economy. The issue here, I think, is that the Fed is going to have to do more. The question is whether they're going to end up doing so much that it's going to break the back of this expansion. But the bottom line right now, and I think it's the one which really is changing the terms of the debate, is many people came into the first half of this year thinking the economy was at imminent risk and was going to break. It's not breaking. And as you're noting with housing and other things, there's actually some potential here for the economy to actually lift in ways

that people are not expecting. Does that mean that looking to the labor data that we're expecting next week, you could see another upside surprise? Well, we're thinking that the benefits we've been getting from very strong service sector demand and normalization in some sectors of the economy is going to fade a little bit. But I think this is still going to be a pretty solid labor market. We're going to look for something 200,000 or a little more on job growth. And I think the unemployment rate is going to come down a tick after having made a significant move last month upward. How are you factoring in? And I realize this is very much a moving target, even just in the past hour, how much are you factoring in this dynamic around student loan repayment, especially

if you do have the president saying that there's going to be a temporary 12-month on-ramp for those repayments? I think it's a pretty small factor overall. I think if you start to break up the consumer into pieces, there might be some areas where you'd be a little bit more concerned. But the bottom line is this. It looks like labor income in the U.S. is growing at about a 5 percent pace. It looks like inflation is coming down towards somewhere in the low to mid threes. In that environment, households have real purchasing power. That's really the driver here. And I think if anything is going to disturb this economy in a significant way, it's going to have to be that businesses stop hiring. Until that happens, the consumer is going to be not boomy again, but it's going to be OK. It's going to be

plus or minus. And I think the student debt story is a plus or minus story around a still relatively solid consumer backdrop. OK, Bruce Kasman, thanks for joining me. Before we go, take a look at Virgin Galactic today, falling again after yesterday's successful commercial spaceflight. If you missed our interview with Virgin Galactic CEO Michael Colglazier, you can catch it now on my podcast, Manifest Space, which is available wherever you get your podcasts, some holiday weekend listening. All the major averages finishing today higher, finishing the week, the month, the quarter and the first half of the year higher. Thirty eight percent gains for the Nasdaq 100. That's going to do it for us here at Overtime. We're going to see you for a special time on

Monday, 1 p.m. Eastern for the holiday shortened trading day. Fast money begins right now.