Closing Bell - Closing Bell Overtime 7/19/24

Episode Date: July 19, 2024

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

That's the end of regulation. Cherries ringing the closing bell at the New York Stock Exchange. Peak shares doing the honors at the Nasdaq. The Dow leading the declines today, finishing down about 1%, wrapping up a volatile week. The Nasdaq shedding more than 3.5% since Monday's open, while the Russell 2000 does hold on to weekly gains. That's the scorecard on Wall Street, but the action's just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. Yeah, and CrowdStrike's flawed update causing what's being called the largest tech outage in history, crippling business across the globe today from airlines to hospitals to trading firms. We will talk to the CEO of backup and recovery firm Cohesity

and the CEO of incident response platform PagerDuty about what happened, the impact on businesses, customers, investors, and what's next. Plus, legendary retail exec Mickey Drexler joins us with his read on the consumer after a number of red flags from retailers just this week. But first, we wrap up a week shaped by the rotation out of the mega caps and into small caps with the Nasdaq 100 falling 4% this week, the Russell 2000 higher by 1.7%. Let's bring in our market panel. Unlimited CEO Bob Elliott and Invesco Chief Global Market Strategist Christina Hooper. It's great to have you both here, Bob. We got the Nasdaq back down, kissing 5,500. It looks

like we're settling just above 5,500 here. Earnings, technicals, seasonality, politics, also geopolitics. I mean, what moves this market from here? Well, I think what we've seen is some of the cracks that we were seeing emerging in financial market liquidity that were sort of showing their head in late June, early July, really became acute in a period where we got forced rotation caused by a short squeeze in short Russell 2000 positions held by hedge funds. And so what happened was you had a big shift in the market, not a lot of liquidity there to help contain those moves the way you would normally see. And I think overall, the big picture is the market's an aggregate. They've come down, right? Russell's outperformed, but they've come down a fair amount.

That highlights the fact that this liquidity sensitivity that started to emerge a couple weeks ago, it looks like it's still there. And the trouble with that is it can be a little self-reinforcing. You know, you get a couple of these days and they create a continuous pullback from various players. So maybe more to the shakeout here. Christina, the fact that we have seen this rotation, and I realize it's maybe it's softened a little bit here in the final several days of the week. But does it have legs? Well, I do think it does have legs because I do expect the Fed to begin cutting rates by the end of the third quarter. The big if for the

sustainability of the rotation, of course, is whether or not the Fed has been able to successfully avoid a recession, or if, in fact, what it has done thus far has created so much damage for the economy. And certainly we are seeing cracks appear in the consumer, but nothing at the level that would suggest that we are going to see any kind of imminent recession. So my base case is that this is sustainable because we will see rate cuts and we will see an economic reacceleration coming in future months. Okay. Now, Bob, looking now at the medium to long term as investors try to figure out what to do with their portfolios and maybe the impact of some of this political, well, the RNC was this week and we heard a lot of things. We've heard about higher tariffs. We've heard about now a weak dollar from J.D. Vance as being some kind of a goal and also a flat tax. All things that sound

blue collar, but some of those things are in conflict with each other. Yeah. In particular, I think the currency related policy is a bit confusing in the sense of the implication of adding significant tariffs, which should be both supportive to the U.S. economy and also inflationary, are also supportive to the dollar by reducing our reliance on foreign imports. So that's a positive to the dollar. And then on the other side, talking about how the dollar should fall as a policy goal, I think the challenge for any policymaker in the U.S. government is currencies are notoriously difficult to control. So their policy that is much more

probabilistic is that implementation of tariffs, which would be supportive of the dollar, supportive to U.S. growth and investment, but also inflationary. And so when you talk about that sort of medium to longer term, you know, as we turn to 2025 and start looking there, are we going to be able to see this persistent disinflation, a soft landing in an environment where inflationary political policies are being pursued by possibly a new administration? Interesting. OK, so, Christina, if you're thinking about the dollar strength or the the puts and takes around international stock investment, should you be thinking at all about

how you expect this election to turn out at this point, or is it a fool's errand to make guesses on policy? I would choose the latter. I think it's a fool's errand. If you think about the time horizon on election, it's much shorter than the time horizon on most investors' portfolios. So, and of course, there's also the added component to this, which is that sometimes policies don't have the results one would expect, especially the impact on markets. So I would argue monetary policy matters a heck of a lot more than who is elected in November. And so that means focusing on what the Fed is going to do. And I think the Fed will, in fact, begin cutting rates and that will cause a weakening of the U.S. dollar, at least a modest weakening. So a policy goal that might be stated by a candidate would be much more likely to be realized by the Fed.

All right. Christina, Bob, thank you both. Happy Friday. Now let's bring in Steve Kovach for the latest on the fallout from this global IT outage from CrowdStrike. Steve. Yeah, still going on, John. And so here's where we're at right now. This issue with cybersecurity from CrowdStrike pushing out that buggy update overnight and causing Windows PCs using the software to crash. Now, important to note, again, this is not a hack or a cyber attack, but CrowdStrike pushed an update that caused the outage, and a fix has been deployed, and some folks are already seeing their systems recover. CrowdStrike CEO George Hertz apologized for the outage earlier this morning on Squawk on the Street. I want to personally apologize to every organization, every group, and every person who's been impacted by this.

Now, he also just published a pretty lengthy blog post apologizing again in more detail. But look, it's unclear when everything will be back online. Kurtz also told us that not everyone's system is going to fix itself automatically with this update. Many need an IT pro to manually remove the buggy software from each machine individually. In the meantime, shares of rival cybersecurity names like Sentinel-1 and Palo Alto Networks, they were up on the news today. And shares of CrowdStrike, they closed the day down 11%. And we're still waiting for more updates from both CrowdStrike and Microsoft about when everything is fully online. But after that, guys, it's going to be what went wrong and how to prevent it again.

Yeah, the lessons learned. CrowdStrike was the worst performer, as you mentioned, down 11% in the S&P. The fact that we did see some of its rivals that are publicly traded move higher, is that a move that actually makes sense for investors? Is the read-through here that you're going to see some of these other cybersecurity names glean more business and shake up in market share? Or is that really just a fool's errand? That's been the theory so far, at least part of it, Morgan. But also, we've had a number of people on air today talking about just how great CrowdStrike is and how great the product is.

And this might be just a kind of one off thing and a potential buying opportunity. So it really depends on how you look at it. The way I'm looking at it is let's wait until we see exactly what happened in the process over last night that caused them to push out this buggy update when they clearly should not have. Steve Kovach, long day for you. Thank you. Speaking of this outage, Senior Markets Commentator Mike Santoli is joining us now with a technical look at Microsoft. Mike? Yeah, John, and not a huge impact today at all on Microsoft shares, though the stock has been in a pretty substantial pullback.

Take a look at where the stock sits. Right down, sitting on its 50-day moving average. That's not necessarily some kind of magic level that's make or break, but it does show you that in a nice uptrend, it just sort of touches it and then continues higher. And you saw that breach back in the spring when we did have a broader market reset. So it's usually a sign of whether this is, in fact, an aggressive buy the dip situation or whether they're going to let it come in a little bit more below that 50 day average. Now, take a look at where the valuation of Microsoft has come to, also relative to Apple shares. It sort of bumped up against this ceiling in the mid-30s, around 34 and change a few times here, which is probably, I don't know, seems like significant, you know, talking about 3% earnings yield or thereabouts.

And Apple, of course, which used to trade at a big discount, has gained a bit more of a premium and has almost never sustained a premium to Microsoft over this period of time. But you see a little bit of convergence there for two companies worth almost $7 trillion between them. John. Mike, is it unusual? I mean, these companies are the two biggest in the market right now, valuation $3 trillion. Very often people think, well, how fast, how much can they really grow once they achieve a certain scale? Apple hasn't been that acquisitive of large things over time. Microsoft has, and we're in this regulatory environment where it looks like it's going to be difficult for large companies to acquire large things. Evaluation in the 30s, a multiple in the 30s, PE-wise, is that unusual?

It's certainly unusual for companies of this scale. I mean, outside of, let's say, the late 90s for the most part, although they often do trade at a premium when they're – that's how they got this big, right? Because people had a lot of optimism about their ability to at least maintain their profitability. The way I read that clustering of super highly valued stocks in the market this cycle is that they're really getting credit just for how sustainable their advantages are and the fact that they're these impenetrable balance sheets and they're kind of a toll taker on the digital economy as opposed to specific growth rates. Now, when it comes to Microsoft, arguably it's been growing faster than you would expect a company of this size for a while.

It does manage to double-digit growth. And then when it comes to Apple, it massively shrinks its share count on a regular basis so that shareholders get the benefit of higher earnings even if it's a kind of slow-growing profit base. Morgan. Okay. Mike Santoli, great context, as always. We've got the S&P and the Nasdaq finishing lower today. Worst week for both of those averages in three months. After the break, Transportation Secretary Pete Buttigieg

weighing in on the impact of the tech outage on airlines, rails, ports, and more. But he told me about the potential vulnerabilities in the system. That's next. And we'll talk to the Chief Technology officer of cybersecurity firm SecureWorks about the ways bad actors are already trying to take advantage of today's events. Plus, don't miss our interview with legendary retail executive Mickey Drexler after a rough week for consumer discretionary stocks. Overtime is back in two. Welcome back. Earlier today, I spoke with Transportation Secretary Pete Buttigieg, and given the impact of CrowdStrike's outage on some airlines, ports and transportation companies,

I asked if it raises questions that one company pushing an update to another company could take down so much of the global IT infrastructure. Anytime you see how a small thing can turn into a massive thing, it raises concerns both about non-nefarious and nefarious risks to our systems. And you think about any transportation system today, it is more digitized, it is more dependent on software than it was a few years ago, and that trend is only going to continue. Now on the whole that has made our systems radically more efficient over the years but as these vulnerabilities open up we've got to make sure that players are on top of them especially because most infrastructure is in private and or

local hands and that means any critical infrastructure owner from a regional airport authority to a port to an airline has to be on top of their own cyber responsibilities. So we're continuing to engage different infrastructure players on those issues. He also said this is a new era in terms of these risks. He expects once operations are back to normal that there will be, quote, a huge amount of after action assessment. The transportation secretary who yesterday broke ground helped break ground on a new one and a half billion dollar rail expansion at the port of Long Beach to help boost capacity and efficiency at that port. Also noting that there was no indication of an outage impact to the FAA or other U.S. DOT systems, and that as of this morning, he was hopeful that spot issues would be resolved today and that operations across transportation systems, passenger airlines, freight, would be getting back to normal by Saturday.

Well, for more on the outage and the fallout, let's bring in Cohesity CEO Sanjay Poonen. He is a former chief operating officer at VMware. Also with us is Mike Aiello. He's chief technology officer at SecureWorks and the former chief information security officer at Goldman Sachs. Guys, you guys know this space as well as anyone better even. Mike, starting with you, SecureWorks services small and medium business. In what ways were you getting customer reaction to this? And does it at all change this mindset I was hearing more about around consolidation? Boy, we just want to deal with one of these platforms, like maybe a CrowdStrike versus having multiple point solutions.

Look, we've been actively supporting customers that have been affected by the outage, monitoring their other security telemetry while they don't have access to that endpoint telemetry. It's important that we believe they've got multiple layers of security from endpoint to network to email to identity. To your comment about consolidation, we believe this is an opportunity that's going to cause companies to think about their endpoint strategy overall. We believe that vendors and platforms that take open approaches are well positioned as organizations reevaluate their endpoint strategy over the coming weeks. A core component of what we do here with our strategy is to be open without compromise, meaning we make it simple to deploy and work with almost any combination of security

controls and vendors. And we work on eliminating the complexity and give customers maximum flexibility as they evaluate the changing landscape. And Sanjay, you there at Cohesity, backup and recovery, storage, have a lot of customers, both in the security space and just affected by this. What were you hearing today from them about the scale of this outage and how it might change the way companies need to engage

with the enterprise going forward? Yeah, thank you, John, for having me. Listen, this is a tough day. Very rarely do you have a system issue that causes a blue screen of death that's so pervasive. I've been talking to CIOs, CISOs today, including Microsoft execs and George Kurtz himself. We're close partners with CrowdStrike. And my years at VMware taught me that whenever you've got invasive software that touched the operating system, VMware was one of them. And now you're starting to see how critical CrowdStrike is. Those responsibilities come with a great amount of accountability. I'm glad that George earned it. Here, what we've been doing is just focused on a keyword resilience. I think this

is a lesson of how when these things happen, this was non-nefarious, but it could be nefarious next time. We need to find a way by which we could recover systems. There's ways by which we can do this in a lights-out management that I think the industry need to reflect on. How do we make sure that we don't have to have a manual recovery of many of these Windows systems, like the airlines, the hospitals all had to? And then the data recovery part, we do at Cohesity very well. We've been helping customers. But before you even get to data recovery, which we do well, you've got to get the systems up. And there's going to be a lot of reflection from Microsoft and CrowdStrike and many of the other players in this ecosystem. It doesn't happen on Mac and Linux, but we've got to

make these systems a lot more resilient. Michael, we talk a lot about the resiliency or maybe lack thereof of the physical supply chain. But when we talk about the software supply chain, should we be having the same conversation? Absolutely. So as a security company, we actually think of security as a subset of resiliency. The cause of an outage doesn't really matter to the organization. It doesn't matter if it was caused by ransomware, a bug, an operational outage. They're still down. So in cases where we worry about physical supply chain infrastructure, upstream vendors, whether they're security or other

vendors, are important as you think about your overall resiliency strategy as a company. So Sanjay, when we talk about some of the things that lessons learned and things that are going to need to be implemented here, how quickly can that happen? I think there has to be a postmortem. I'm really glad my friend George, I know the company very well, owned it. You've got to first of all own it. This was a content issue on their side. They shouldn't blame anybody else. But in an integrated ecosystem where you've got a Microsoft operating system that's very flexible, part of the reason this happens is Microsoft's a very flexible operating system. So you can change these content files. It doesn't happen so easily in Linux and on Mac as much. We've got to make the combination of

CrowdStrike and Microsoft more resilient. That has to be a reflection of both CrowdStrike's part and Microsoft's. I suspect there will be some people who think about moving to Linux as a result of this, potentially moving to other operating systems that have resilience built into them. But I don't think there's going to be a flee away from Microsoft. I think the right lesson is to make these systems resilient. And then on our side, on the data side, we've got to make sure the speed of cyber recovery is what we specialize in Cohesio. We've got to make sure that's really fast so that the data can be recovered. Now, next time this happens, there will be data that's exfiltrated too. That's the part where people like us come in

to make sure the backup systems have the data coming back really fast. To close this out, Sanjay, it occurred to me early today that this would have been worse for CrowdStrike. See, it was down 11%. It could have been down a lot more than that. It would have been worse for them in a way if it had been one or two really large customers that they had screwed up with versus the entire Falcon customer set. In a way, it's a flex. Not that George would say that or admit to that or anything, that they had screwed up with versus the entire Falcon customer set. In a way, it's a flex. Not that, you know, George would say that or admit to that or anything,

but to see how much of the world was using CrowdStrike, if he's able to apologize, able to be transparent and outline the fixes to convince people that this won't happen again, this could turn out okay, right? I'm a friend of George. I called him, said, keep your chin up. This has happened to me at VMware. It's happened to us at SAP, not BS Bar. But when you're mission critical, this is the price to pay. And it's a high level of combat. I think he will shape up. This should not be a time for any of us to do anything other than help CrowdStrike and help everybody. We're in this together. We're not a competitor of CrowdStrike or a partner. But even

if you're a competitor, our job today is to make the United States and the world more resilient. We don't want the bad guys to learn from this a nefarious way by which they can bring down systems intentionally. That didn't happen this time, but it could happen the next time.

I reached out to a number of rivals of CrowdStrike. Nobody wanted to take any victory laps because I think people feel like it could be them next time. Sanjay, Mike, thank you both. Thank you very much. Well, we have a news alert on Disney. Julia Borson has the details. Hi, Julia. Morgan, Disney announcing that Safra Cast, the CEO of Oracle, is departing its board of directors after six years serving on the board. The company were issuing a press release. Bob Iger, CEO of Disney, saying that Safra has provided invaluable insight and has helped shape the company's long-term strategic planning. Safra Katz issuing a statement saying she's been honored to serve on Disney's board.

And with her departure, the size of Disney's board is being reduced from 12 to 11 directors. Back over to you, Morgan. Okay, Julia, thank you. Well, consumer discretionary stocks getting hit hard this week among the worst sectors in the S&P 500 as a number of high end brands warn about spending. Up next, former Gap and J.Crew CEO Mickey Drexler gives his read on the strength of the consumer. And check out the biggest consumer discretionary decliners of the week. Domino's Pizza, Ralph Lauren, Caesars, Chipotle and Tapestry all on that unfortunate list. We'll be right back. Welcome back to Overtime. It's a volatile week for stocks, including consumer discretionary, which is one of the worst S&P sectors. Consumer spending was

in focus today, with American Express raising its full year guidance thanks to customers splurging. But this week, we also saw several luxury names issue warnings on slowing demand. And the lower end side, five below, provided a downbeat forecast for its second quarter earnings. So joining us now is Mickey Drexler. He is the chairman of Alex Mill and former J.Crew CEO and chairman and so much more. It's great to have you on Overtime. Welcome. Thank you. Nice to be here. So what what are you seeing from your very unique purview when it comes to the consumer and the good space? Well, you know, for me, it's all very confusing.

I see a lot of different things, but I see tremendous inflation, not the 2.3 or 4 percent that the government talks about. Eat in a restaurant, you go to any place, you buy a ticket. So I see inflation not being less, but the inflation experts probably don't go to restaurants for breakfast or whatever. But I see inflation as an issue. I see the prices of clothes have gotten out of hand. And for me and us, value, quality, and style is always what we do. I think that the markdown environment, the sale environment, everything's like 30 off. And the smart consumer today, as a rule, must look at what they're buying for full price and immediately go online and see if that same style is available. So it's confusing for a consumer. Where do you go? Who do you trust?

And it runs it on sale. It's kind of like sale bingo. The other thing, okay, you just interrupt me as you go along. The other thing I see is there used to be a religious issue about from the same business, online prices and the store prices. Today, you have to ask, is there an online deal? Because there's always a different deal a lot. Not always, but a lot. You have to get the right information, and you have to be a smart consumer today. The last thing is that given all the discounting, and I go online every time I come on CNBC, I just breeze through all the websites.

Sale, sale, sale. And if you want to compete with the discounters, you'll never win. Because they know what they're doing. Mickey, I've got to ask you about that, because when I think about you, me in particular, I think about two things. One, the idea of quality at value and that needle that you've tried to thread there, and also helping Steve Jobs out launching Apple stores. And one of the things that he was always big on

is not doing a whole bunch of sales and having consistency in what the customer can expect across products. Is that mindset not over-discounting the idea of quality at a price? Is that still relevant in this digital environment? Well, you know, it's a good question. It's relevant to me every day because everyone is entitled to pay the same price as everyone else. I learned my first job at Bloomingdale's, meet the competitor's prices always. Now it's a moving target and it's bingo, I'm here on the right day. But I think that premise is incredibly important and always has been. And it's a high integrity way to do business. So everyone really pays the same, high or low, whatever it is. It is interesting because you do have another company that you have started,

that you're building, Alex Mill. We do know that there is this bifurcation as well, things that are working really well, things that are not working so well. Some of the stuff that is working does seem to be these next generation, up and coming new designers, but also 90s are back. Abercrombie & Fitch has been on a tear of that stock. And even Gap, where you used to work and you used to run things, seems to be turning itself around as well. What's working, what's not? Well, first of all, my son Alex started it, so I wanted to give him credit. You know, I don't know what's working or not. I won't comment on other companies. For me, I have a point of view. Nice goods, quality, they last. And turnarounds are, I don't know, to me a turnaround is 10 years.

And I know Abercrombie is, I always look at the long term, and Abercrombie was a different company when I knew it, but, you know, I don't understand it to tell you the truth. It's a teenage business, and I don't get that. Gap I won't comment comment on because, you know, I go on and look at their Web sites and that to me, you know, all day she couldn't go to Web sites. But I don't know. It's got to be long term. Look, Abercrombie has had a tremendous run. Yeah, I don't pay attention to it. All right. Well, we'll see what this holiday season has in store with these crosswinds for sure. Mickey Drexler on The Consumer. Thank you.

Thank you. Let's get a news update now with Kate Rogers. Kate. Hey there, John. President Biden's COVID symptoms have, quote, improved meaningfully since yesterday. That is according to his White House doctor in an update released earlier this afternoon. Dr. Kevin O'Connor said the president is still taking Paxlovid and that the president still tested positive for COVID yesterday, but all of his blood work came back, quote, normal. The top United Nations court said today that Israel's presence in Palestinian occupied territories is against the law. The 15-judge panel called on Israel to end settlement construction and to immediately stop ruling over those lands.

Israeli Prime Minister Benjamin Netanyahu responded to the non-binding opinion, saying the territories are part of the Jewish people's historic homeland. And WNBA star Brittany Greiner encouraged Wall Street Journal reporter Evan Gershkovich in an NBC News interview to, quote, not lose hope following his sentencing in Russia today to 16 years in prison. Greiner was released last year in a prisoner exchange after her conviction for carrying cannabis oil with her in a Moscow airport. Back over to you, Morgan. All right, Kate Rogers, thank you. After the break, the U.S. versus the rest. Mike Santoli looks at how the shifting market bets around the election could be changing the performance of American stocks versus their global peers. And much more ahead on that global I.T. outage.

CEO of I.T. incident response platform PagerDuty is going to join us to talk about the impact to her blue chip customers. We'll be right back. Welcome back. Mike Santoli returns with a look at how election expectations are shaping the performance of U.S. and global stocks. Mike. Yeah, Morgan, it feels like you can read some of that into this chart here. What we have is the S&P 500, the regular old market cap weighted one against the equal weighted S&P 500, as well as the all country world index X U.S. So everything in the world except the United States. And first thing is, of course, how much the median large cap stock, the equal weighted S&P, has matched the rhythms and essentially the returns of global stocks.

It shows you that the exceptionalism of the U.S. market is mostly about the largest technology stocks that have been driving the S&P. However, you see this little gap that's opened up here of outperformance in the S&P Equal Weight. In fact, on this week alone, Equal Weight was about flat. The ACWX was down about 3%. So arguably, that's showing you a little bit of whatever election component was in the U.S. rotation. The performance of our markets maybe is happening at the expense of overseas. Again, you don't want to extrapolate it too much or assume that this is telling you that the market and its collective wisdom has assumed any one outcome. But it is interesting to see this at

least budding divergence here, Morgan. It is interesting. I mean, when you talk about the possibility and how that plays out in the market of a prospective Trump presidency, I mean, the first time around, we called it the reflation trade. What would you call it this time around? Yeah, well, it's very interesting because that was the reflation trade because we were in kind of persistent disinflation and low growth before that. I guess you would call it, you know, maybe the domestic investment. I mean, I think that's the optimistic way of thinking about it is you put up more barriers to trade, you have more domestic investment or incentivize more domestic investment. I mean, I think that's the optimistic way of thinking about it is you put up more barriers to trade. You have more domestic investment or incentivize more domestic investment.

You know, arguably, as you guys were just talking before, that's going to be supportive of the dollar and and all the rest. And obviously, a lot of the export based economies like in Europe and Asia might have a little more pressure on them if that were to be the case. I mean, look, you have to build a case that goes many links down the chain to decide what's going to happen. But I think that's what the market is trying to, you know, get its arms around here. Yeah. I mean, volatility has been dormant. What have we seen with the VIX this week? Well, it had been dormant. It had been, you know, persistently so. But what was interesting, though, is last week, even though the market did OK and it was a pure rotation and didn't go down,

what you did see is the VIX wouldn't decline. It wouldn't stay at its lows. So there was a little bit of sensitivity to the possibility that we were going to get more jumpy action. My takeaway is a broader market is not a more stable market. The market that was anchored by those huge trillion dollar plus companies, those stocks acted as really just sort of ballast for the entire index that also kept volatility suppressed. So, you know, it's kind of a more dynamic, less predictable tape at this point. That's what the VIX says. It's 16 and a half. All right. It's about time, I guess. Mike, totally. Thanks. Up next, CEO of PagerDuty gives

us a unique look at how today's massive IT outage is impacting IT systems worldwide. What comes next for the industry? And check out shares of chipmaker Arm Holdings. A big winner today. Morgan Stanley upgrading the stock from equal weight to overweight and hiking the price target from 107 to 190 bucks a share, citing its growth prospects in Edge AI. Shares finished up 3%. Welcome back to Overtime. Let's talk more about this global IT outage

and an inside look at how businesses are reacting today. Joining us now is PagerDuty's chair and CEO, Jennifer Tejada. PagerDuty monitors the health of a company's software systems, networks, alerts when there are irregularities that need to be fixed. Jen, I know you guys are partners with CrowdStrike and with Microsoft. Always good to see you. Just first, give me a sense of the scale of this outage. When was the last time you at CrowdStrike saw something with this big an impact?

Well, I think, you know, at P PagerDuty we see a lot of these in fact most of these because we serve 70 percent of the fortune 100 and frankly I think what we're all experiencing today is a bit of the new normal. When you think about the complexity associated with new technology our ability to continuously deploy, the fact that lots of investment's been made in modernizing technology, we're adding automation, we're adding generative AI. What you're ultimately seeing is tech fragility. And I think it's important to remember that software is imperfect. So the new normal is not whether or not you're going to experience a major incident as either

a company or a brand or an end consumer relying on those services. It's when and the important thing to think about is how do you prepare? How do you anticipate and how do you respond when it happens? Well, I've heard that when it comes to cyber attacks, but this was a self-inflicted wound. So it feels a bit strange to suggest that, well, we should get used to companies pushing out updates that crash businesses and cause millions or perhaps even billions of dollars worth of lost productivity. Will AI save us? No, I think you're going to need, you're going to continue to need intelligent humans in the loop. I mean, when you just think about the impact of an event like this, we saw just during the peak of this, we saw over 150% increased volume of major incidents and 200% increase in higher urgency above normal.

We're still seeing 50% increases in event traffic right now. And I think what you're finding is that you need the thousands of IT professionals, software professionals, and operations people that are working through restoring the products and services that rely on the technology endpoints that saw failure. I do think that the genesis of these incidents can vary. It can be cyber related. It can be human error.

It can be, again, imperfect software. It can be the conflation of all these things coming together at the same time. And one of the challenges with the technology ecosystem is it's changing every day. It's a lot like weather systems. You can study what's happened in the past, but you can't know how different events might come together in the future and storm and create a difficult situation, a disastrous situation. So it is about how you respond quickly, how you orchestrate the information that you have, how you separate the signal from the noise, get to recovery, and then very importantly, take the lessons that you learned

from that incident and deploy change so that it doesn't happen again. I mean, you just talked about tech fragility, and I realize we're talking about a buggy content update that caused this entire situation over the last less than 24 hours. But does it raise the threat profile with hackers, with cybersecurity incidents, with maybe adversarial nation states who say, oh, look, this is the situation here. This is the fragility. Now we plan our next attack. That's I mean, that is that threat exists all the time. And if you look back over the last several months, I mean, we've seen major incidents increase on the platform over 40% just year on year. So that fragility does increase the threat vector. And I think it is a really

important message to leaders to think about how they're investing in both modernizing infrastructure through investments, but also modernizing the way they operate, right? If you just improve your technology stack, but you don't change the way they operate, right? If you just improve your technology stack, but you don't change the way people operate, you don't build really good safety mechanisms around test automation, change control, et cetera, you're going to continue to have these challenges. And even with all those systems in place, accidents will happen. You will have problems that you don't plan for, but you can't anticipate and be prepared for when they do. So, Jen, is this a case where some IT pros work over

the weekend rebooting some machines and this will be mostly in the rearview mirror by next week? You know, I think we'll learn more of the details as we go on. I have to say that I think the way the CrowdStrike team has responded to this incident has been admirable. They've been transparent. They've taken accountability. They've been updating constantly. They're working very hard to make sure they get their customers back online. And it also reinforces the need for contingencies and for redundancy. Single systems become single points of failure. And so you need to have multiple redundant systems.

I mean, during a time like this, we see an incredible increase of volume and data crossing our platform. We can't afford to have a bad day on a day like today. And we put ourselves in a strong position by having redundant communication platforms, redundant cloud environments, redundant services that ensure that we are resilient in a moment like this.

We also take precautions. Like we don't ship new things into production on a day like this to protect our customers and ensure they've got visibility and can orchestrate the work they need to undertake. For sure. Quite a day. Jennifer Tejada, CEO of PagerDuty, thanks for joining us. Thank you.

Well, Starbucks investors getting a latte. Good news. On a report that an investor, activist investor, has taken a big stake in the coffee giant. Up next, we will discuss whether this can help turn around the stock. Is that good news? Well, check out shares of travelers weighing heavily on the Dow today after missing revenue estimates and announcing catastrophe losses surged to more than one and a half billion dollars. We'll be right back. Welcome back to Overtime. Starbucks shares

getting a pop late in the trading session on a report Elliott Investment Management has taken a big stake in the coffee chain. Kate Rogers joins us with more and whether this activist move could help fix Starbucks' recent struggles. Morgan, that's right. The Wall Street Journal reporting that Elliott has built a, quote, sizable stake in the coffee giant and has been pushing it on ways to boost the stock price, citing sources familiar. It also said a possible settlement could be reached between the two parties. Now, the company has had several challenging quarters in both the U.S. and China,

its second home market. Most recently in April, Starbucks saw U.S. same-store sales fall 3 percent, traffic drop 7 percent. The coffee chain also cut its 2024 outlook. Starbucks reported rates, this is important, of incomplete mobile app orders in the mid-teens. And really key here, said occasional customers came in less often. CEO Loxman Nirasaman is now under heightened pressure, has mentioned the need to make improvements to stores. And that's also something that former CEO Howard Schultz has openly talked about in recent missives on LinkedIn and via his own communications office,

putting out public commentary on the company he has led three times now as CEO. We should mention Starbucks has undergone three CEO changes in the last three years. Kevin Johnson left in 2022. Schultz at that point returned. And then a Neurossaman stepped into the CEO role last year after shadowing Howard Schultz for six months. Starbucks and Elliott did decline to comment to CNBC, although looking at Elliott's most recent filings as of March 31st, I believe Starbucks was not a holding. So this appears to be a newer holding, guys. Back over to you. Well, Kate, can you tell us if there's a clear articulation philosophically of what might be wrong with Starbucks here? I mean, make the stores nicer. OK, but beyond that, is there some big idea of even what somebody else is doing at scale that might suggest where Starbucks fell off?

John, it's such an interesting question. And Starbucks has long been known kind of as the third place after home and work that you would go and hang out and have your coffee. But consumer demands and desires have really changed over time. Starbucks has tried to meet that with drive-thru, with mobile order and pay. And now it's just been inundated with orders. And it's looking to make that store experience and whatever capacity you're interacting with the brand in smoother for both the barista and the customer. So that's one of the things we've been reporting on in recent weeks are new training systems that are rolling out, new equipment that you're going to see rolling out at Starbucks. Now, whether or not it does improve the experience and customers, you know, complete those mobile orders or occasional customers return remains to be seen. But those

are just some of the issues that they have been tasked with. And again, consumer preferences have really shifted here. I think, you know, when you mentioned brands that have really met that moment, Chipotle always comes to mind in terms of being able to do well with those mobile orders, for example. All right. Kate Rogers, thank you. Thank you. Well, Wall Street is bracing for a key reading on inflation next week. Up next, how that could impact the Fed's interest rate strategy, as well as the key earnings reports that should be on your radar. And don't forget, you can catch us on the go by following the Closing Bell Overtime Podcast on your favorite podcast app. We'll be right back. Welcome back to overtime. Earnings season kicks into overdrive next week

with Monday, Verizon, Truist, Zions Bank, NXP Semi and SAP. Tuesday, Alphabet, Tesla, Visa, Coca-Cola, UPS and GM. IBM, AT&T, Chipotle, Ford and Las Vegas Sands are the highlights on Wednesday and then Norfolk Southern, Hasbro, Honeywell, American Airlines and Southwest report on Thursday. Then Friday closes out the week with 3M, Bristol-Myers and Colgate-Palmolive. You also get almost all of the defense primes in there, too. Of course, there's some pretty important economic data that should be on your radar as well. Existing home sales will be out on Tuesday. New home sales will be out on Tuesday. New home sales will be released on Wednesday. Thursday brings the weekly jobless claims, durable goods and real GDP reports.

And investors are anxiously awaiting the PCE index on Friday, which is a key inflation gauge. We know it's the one that the Fed watches. What we won't get next week, John, is any more Fed speak since the FOMC members, the Fed officials all go into their media blackout period ahead of their decision at the end of the month. Will we get new political fallout, however, post-RNC? Will we get a button put on this whole CrowdStrike outage issue? Remains to be seen. It all remains to be seen. In the meantime, it was a down day for the markets, and you had the S&P and the Nasdaq

posting their worst week in three months. The Dow, though, did eke out a gain. That's going to do it for us here at Overtime.