Closing Bell - Closing Bell Overtime: Behind OpenAI’s Funding, Executive Exodus; Former Fed President Loretta Mester 9/27/24

Episode Date: September 27, 2024

OpenAI is telling investors its funding round should close by next week despite recent executive departures, our Kate Rooney reports. Madrona Managing Director Matt McIlwain gives his take on the high-flying startup as well as why he says private equity is becoming increasingly active in tech deals. Former Cleveland President Loretta Mester gives her take on the Fed’s next steps, the consumer and more. Plus, our Robert Frank reports on the sudden uptick in global luxury stocks.

And that is the end of regulation. Kairos Pharmaceutical ringing the closing bell for New York Stock Exchange. Ming Tang International, they're doing the honors on a Friday at the Nasdaq. A little late day selling, bringing the week to a close. The mixed bag for the big averages. The Dow up, hitting yet another record high. The Nasdaq and big tech selling off a little bit, ending lower for the day, but still higher for the week.

Hi, everybody. That is your Friday scorecard. I am not Morgan or John. I am Brian Sullivan. Good to see you. Welcome to Overtime on a Friday. Hope you're having a great day. Big hour for you ahead on deck.

Former Cleveland Fed President Loretta Mester on whether another half a point bazooka rate cut is coming or not. Plus, it is a big week for earnings ahead. Can Nike just do it and put the doubters back on the bench with a new incoming CEO and a little China stimulus thrown in? We've got all that ahead over the hour, but let us begin, as always, with the markets and your money and another solid week on the Street of Dreams. No huge gains, but the big average is all higher since Monday.

Get this. The S&P 500 is now up 20 percent this year. Wow. But, you know, that's the past. You probably care more about what is ahead. So let's kick it off on set. Unlimited CEO Bob Elliott and Main Street Research CIO James Demert. Welcome to you both guys. Working hard on a Friday. Bob, I'll start with you. You are here. Been a great year so far. Past is the past.

What do you see for the next three and a half months, three and a quarter months? Well, I think the biggest thing that we've seen over the course of the last couple weeks is the Fed making the decision to ease aggressively into a relatively strong economy. Yeah, I found that a little weird. You know, what we have, we've got confirmation of GDP prints at three percent. We had another revision which which highlighted the fact that income growth is growing at seven percent nominal and the savings rate has been rising for households. And as a result, you put that together. That's the sort of economy that is quite strong and powering ahead and can do that

quite sustainably. And so the Fed cutting into that, in some ways buttressed by the fact that we are getting some low core PCE readings that we got today, that's just going to add additional rocket fuel to what is already a relatively strong economy. I think the last time, James, that we've gotten, if you know, correct me if I am wrong, the last time we got this size of a rate cut a half a point into an otherwise, at the time, strong economy, I think was in 2007. So like 17 years ago, you don't have to revisit the Fed. The decision has been made. But how much did that kind of add that gasoline to an already hot market, if at all? Yeah. Happy Friday, Brian. And I remember that 07 and that was ill-timed. I think they wish they could take that back

in hindsight. But this is a different story. We're sort of now at the beginning of a business cycle, beginning of a bull market. And like your guest has mentioned, you've got a Goldilocks type of setup here, and that is going to create some rocket fuel. What I think is really interesting here as well, which is different than 07, is the average stock, if you take away the magnificent seven, it's at 16 and a half times earnings, which is historically cheap. You've also got $5 trillion outside the market that should be in it, what I call FOMO fuel, an economy that seems to be running along at a nice pace. I think here the risk is the Fed goes too many cuts and brings that inflation back. So investors should be careful here and maybe use that volatility that comes from it maybe to add stock.

Things have been good. James, I'll go back to you. OK, things have been good. Fine. But the market is based on a couple of things. Earnings, earnings expectations, and valuations. All the underlying stuff that Bob just talked about factors into those things. But the reality is earnings and valuations matter at whatever, 23 or whatever number you have times forward earnings on the S&P 500. A bunch of big economic reports coming out next week. Are we priced too much to perfection? Brian, I don't think so. I think investors think that we are. And that's why you're not we see a lot of people not fully invested. And this is common

in the beginning of a cycle. The psychology, it just can't you can't really get in line with where those expectations should be. And you've seen that for the last 18 months. Earnings estimates continue to be moved up because they're too low. And we think that's going to continue for the next four quarters. But what's really interesting about this market where the real opportunities are is the earnings are way underestimated outside the Magnificent Seven for the other 493 stocks, we think estimates are too low. And that's where you're going to see some big upside surprises. Do you agree with that, Bob? Do you think the estimate, are there other stocks besides the Magnificent Seven?

Maybe there's like four or five that I could think of, but that's about it. Yeah, I mean, I think this really is a rotation market. When you get this sort of liquidity, particularly for those stocks that have been left behind that maybe felt a little more stress because financing conditions were a little tougher for an extended period of time, that easing set of conditions is likely to reduce a bit of the stress there, combined with the fact that we're getting strong growth. That combination, strong growth and an easing Fed, is a perfect combination for particularly smaller stocks. Stocks have been left out of this rally so far, and there's there's plenty of them, as was highlighted. Well, there's thousands. So I think it's either quarter to date or the last month.

I don't have it in front of me. You'll get the directional point. The small cap 600 is up 10 percent in the quarter or this month. The S&P 500 is up five. So we have seen the small cap stocks long ignored, just left for dead, like the Cleveland Browns of the stock market. Finally, not the Browns, but the small caps ascending mid caps as well. Do you think it will last, Bob? Well, like the Lions, they finally found their footing. Better reference, I suppose, right?

Long dormant, now ascending. There you go. As a Detroiter, that's my frame of reference. Going after the Rust Belt, so to speak. Exactly. So I think in a lot of ways, they're experiencing the same exact dynamic, which is get that easing, get that easing with a strong economy and a strengthening economy, low expectations, you know, frankly forgotten about. That's a great situation to rotate into.

And I think in particular, when I look across the market, what you see is you see levered money, hedge fund money that has been actually quite conservative up until the last couple of weeks, waiting on the sidelines to see whether the Fed was going to essentially run prudent policy and continue to keep money tight or juice financial assets. And how much of that small cap run, mid cap run, Bob, has been because of that bazooka half point cut, small cap stocks, mid cap stocks. They will benefit more, I think. And they have historically from lower rates than the than the big dogs. That's exactly right. And that's what you're seeing. Hedge funds have quickly transitioned into those assets because they see that opportunity. Those are

underpriced stocks, a lot of liquidity, good growth ahead. And there's lots of buying power there. OK, I like it. Well, a lot of the big tech not so good today, but small caps doing well. We're going to leave it there. A little optimism for the week. It's been a good time. Bob, James, thank you both very much. All right. Right now, though, we've got some breaking news around arguably the most important stock in America, if not the world, that is NVIDIA. Seema Modi here now with the details. Seema. Brian, Beijing is urging its domestic tech companies to stop using NVIDIA chips. That's according to Bloomberg's citing sources. China remains an important market for the U.S. chipmakers. And for China, NVIDIA is an increasingly important supplier,

despite U.S. export controls that prevent the company from shipping its most powerful AI chips into the country. The Chinese are going as far as smuggling NVIDIA's chips into China and accessing its GPUs through US cloud providers like Amazon. And while Chinese tech giant Huawei is trying to build up its own AI chip, Brian, we spoke to a number of experts. They don't say it stands up against what Nvidia has on the market. And Nvidia is also said to be working on a China specific chip that appeases current

US export controls. But as we've seen in the past, pressure from Beijing has worked. Case in point, the U.S. industrial sector, where companies like GE and Caterpillar are now facing more competition on the ground from Chinese competitors. Does this feel a little bit like a you poke me, I'll poke you, Seema, because we've been layering some, you know, since the Huawei days of a couple of years ago, we've been layering these restrictions on Chinese products here. And it just feels like you do wonder, is this more of a real, well, where they're, you know,

China's really concerned about NVIDIA versus you're going to do it to me. I'm going to do it to you. I'll do it to you. Exactly. In fact, it comes just weeks ahead of what we're expecting is a U.S. commerce rule on limiting U.S. memory chip sales to China. So to your point, this may just be China trying to take a step forward here as we, of course, wait the winner of the presidential election, where there is bipartisan support from Democrats and Republicans to be tough on China. Brian. Sima Modi, a big headline there and just another sort of tit for tat China-U.S. relationship. Sima, have a good weekend. Thank you. All right. Regular overtime viewers and listeners, you know what time it is now. It is Michael Santoli's dashboard. And today he is looking at

you, the consumer, and some of the unusual moves that we have seen recently. Mike. Yeah, Brian, market finally got a little bit of reassurance this week and on an ongoing basis, I guess, that the consumer remains pretty well positioned right here. You see the consumer discretionary sector X, Y, basically accelerating higher away from the staples group. Even the staples sector is mostly being driven higher by things like costco and walmart so it's also to some degree discretionary so as long as this relationship of outperformance by discretionary over staples remains intact usually it means the stock market is pretty comfortable with the current pace of growth of course sometimes it's amazon and tesla driving the xly not really the

case uh this year the equal weighted consumer discretionary is doing even better than market cap weighted. Now, Bob Elliott just referred to this as upward revision in GDP as well as gross domestic income. And a revised estimate of consumer savings rates came out this week. So a blue here is the revised savings rate, personal savings rate. This, of course, is personal income minus personal spending. What's left over? The government considers that's your savings it's close to five percent now this decline in the prior data was giving people a lot of concern because below three percent is very low historically and it was feeding into this idea that of course the consumer was getting somewhat

tapped out and the cushion of savings had really been depleted so if you believe the numbers doesn't really change anything about where we are here now, but it suggests that people were excessively worried going into this period about just exactly how close to the brink the economy was operating, Brian. You know, we talked about it earlier, Mike, but it is fascinating on the consumer side. Let's say, and we talk, okay, luxury is this, lower income is that, I get it. Let's talk about a Walmart, so the dollar stores. Okay, Walmart's up 17% this quarter. Dollar Tree, Dollar General, both down just over 30%. So almost a 50% change, outperformance by Walmart over companies that, let's be clear, probably share some of the same shopper base. What's going on? I think a lot of what's going on is that low price point, which is what the dollar stores

will suggest, is not perfectly equivalent to value. In other words, they're selling you convenience. There's thousands of these stores. People go in there when they need something. They're not necessarily stores that you're going to actually kind of browse around and get things you didn't plan to get. And Walmart just has a better equation in terms of conveying the idea that you're not going to be they're not going to be undersold and all the rest of it. So it's some mixture of those factors, I think. Now, there's definitely also stress at lower income households. And you've heard it from the managements of dollar stores, people talking about, you know, lower spending toward the end of the month when people sort of run short of funds and all that. So you don't want to deny that.

But in terms of the aggregate economy, it just doesn't necessarily pull the entire thing into a negative direction. Michael Santoli, good stuff all day and all week, my man. Thank you. All right, folks, we are just getting started. Up next, has the battle been won over more inflation? And how much does the national debt, if at all, play into Fed decisions? Former Cleveland Fed President Loretta Mester is here. Plus, what the heck is going on at Chad GPT parent company OpenAI?

A lot of key executives suddenly leaving. Kate Rooney up on the story, rocking Silicon Valley, next. All right, welcome back. Now for a special guest with a lot to talk about, with former Fed Cleveland president Loretta Mester, also a CBC contributor, joining us now. Loretta, welcome. Good to have you on.

I'm Brian. Let's talk about inflation, jobs, and maybe a little bit about debt. We had this PC number. I know they always say it's one of the Fed's or the Fed's preferred measure. It can be a little bit wonky to most of our audience. Talk to us about why this personal consumption expenditure index is so important to you and others. Well, you know, our Fed goal for inflation is termed in that year over year change in the PCE. So that's what we're trying to hit at the Fed.

And we set a goal of 2%. And today's report was actually, I think, quite positive. If you look at the year-over-year inflation rate in that report, it was 2.2%. So that's a good number. It's actually better than the markets were expecting. Core went up at 10th, but at 2.7 was in line with expectations. And the better news from the report, if you look at what's happened over the last three months,

the core is basically running at the Fed's target and the total PC inflation is actually running a bit below target. So inflation is doing exactly what the FOMC hoped it would do in that it's sort of moving down on a sustainable path back to 2%. And that's what they've been looking for. That's what they've been expecting. If you look at the forecasts they put out. So inflation is moving as expected. And that's that was good

news from that report. So should the Fed sit tight for the next few meetings with a half point cut behind us? Just ride it out. See what happens. Yeah. But remember, we have a dual mandate at the Fed. And I guess I shouldn't be saying we anymore. But anyway, you can say we. And that's where sort of the reason to start this phase of bringing down the interest rate came from is that, you know, inflation looked to be on a good path. They're not getting more inflation going forward. It really is balancing risk here. And the risk to inflation on the upside have moved down. The risk to the employment have gone up a bit. So they're focusing a little bit more on employment than they were early in the cycle when they started raising rates. And that's totally appropriate

at this point, given where things are. Now, the labor market, the conditions remain healthy. There's a low unemployment rate, 4.2 percent. It's pretty near historical lows. There's been solid job growth, but the conditions are clearly moderating. And that's what the Fed's focused on. They're going to look at that carefully and try to assess whether this is the moderation they've been expecting to see or whether something's developing that's a little bit more deterioration. And that's the kind of risk they're trying to balance. They want to prevent that. So even though conditions are good now and healthy now, both on the inflation side of the mandate and the employment side, you know, the Fed has to be forward looking

because its policy affects the economy. And so it's good to know where the economy is today, but really what they have to focus on, where is it going to be tomorrow? And when they're setting and calibrating their policy, that's what they're going to be focused on. So the employment report next week is going to be a key gauge that they're going to be a one-off rate cut. It was going to be starting this phase of bringing rates down closer to the neutral rate because you don't need that degree of restrictiveness that they had before they started this rate cycle of moving rates down. So I suspect, and I think it's been well explained by the chair and the press conference, that they're beginning a new phase.

They're going to be moving rates down. At what pace? That's where the data dependency comes in. They're going to be looking carefully at the data to determine whether they want to do another 50 or whether they want to do 25. And unless something really goes differently than anticipated, I don't think they're going to pause at the next meeting that they'll move rates down. I suspect, Loretta, your answer may be something effective. It's not part of the Fed's mandate, but I'm going to ask it anyway.

We're paying about $870 billion a year in interest on the national debt. We're spending as much on interest as we are on Medicare. We're going to a trillion. Does the Fed talk about this? How much, if at all, does interest payments on the national debt come up, if at all, behind closed doors at the Fed? I mean, it gets discussed in in in in sort of subtle way, more subtle ways, I would say, in terms of sort of the wherewithal of the economy to have a certain potential growth rate. So as you know, if debt is too high, it can crowd out other investment, and that can affect the potential growth rate. It also affects the long-run equilibrium interest rate in the economy. So in other words, if you're thinking about where is a neutral interest rate, right, that's one of the factors that helps determine that.

So in that sense, it does have a role to play in sort of thinking, where is the economy going? How do you assess where interest rate, the neutral interest rate is over the long run. It's not something that is affecting sort of the more recent or current decisions of the Fed on monetary policy, but it is something that does affect sort of when you're thinking about where the long run projections of the economy are going. And the Fed has to take those into account, too, because it's it's determinant of potential growth rates. And so and potential interest rate, long run interest rate. So it is something that matters. I would hope so,

because it's, you know, like anyone out there, it's got a credit card bill or whatever. It just takes away from what you can spend on other stuff. But we have to leave it there. I appreciate the comments, Florida Master. Thank you. Have a good weekend. Thanks very much, you too. All right. Thank you. We got a news alert on a cybersecurity company. It's called Rapid7. So let's rapidly go to Steve Kovach. Steve, start with who is Rapid7? Just like you said, a cybersecurity company. But the news here that we're seeing shares go up on Brian is because Janna Partners, they just put out a filing with the SEC saying that as of September 20th, they now have a 5.8% stake of the company. They continue to buy, and they also say that shares are undervalued here.

We see shares reacting to this filing after market looks like up nearly 4%, Brian. All right. Steve Kobach, appreciate it. Thank you. All right, coming up, staying with tech. Why are so many top executives leaving one of the world's most important AI companies? Kate Rooney up with that big story ahead. Plus, why one expert says private equity firms are having a field day right now and why tech could be the target. All right. Welcome back. Perhaps the most hyped startup in the world, maybe definitely America right now, is OpenAI, the parent company of ChatGPT.

And they're in the midst of closing a massive funding round, raising more money. But at the same time, a number of key executives are leaving the company and now OpenAI is trying to reassure investors that it is still in a strong position. Kate Rooney joining us now with the story. Kate, was it like too much for me to say it's a story that's rocking Silicon Valley?

I think you're right in saying the world, because it's definitely the biggest story in Silicon Valley right now. But I would say throughout the markets, OpenAI is the hottest startup. But you mentioned the news, Sully. We found all of this out about the CFO through a letter to investors. OpenAI's CFO Sarah Fryer in an email yesterday, really looking to reassure some of their investors that the startup is in a strong position to compete at this point, says they are also on track to close a major funding round next week,

despite losing some top talent this week. This email was sent to me by a source, CFO Sarah Fryer. In the email, first tackles the departure of their chief technology officer and then two top researchers all stepped down on Wednesday. That plus other departures have really raised questions about the culture and competitive edge over at OpenAI. Fryer in the email looks to put some of those fears to rest. She says she wanted to, quote, personally reach out following the news and emphasize that we are in a strong position with a talented leadership bench to guide us forward. Brian, we have been reporting that OpenAI is in the midst of closing a multibillion dollar funding round at one hundred and fifty billion dollar valuation.

The CFO says that is supposed to close next week and the round was oversubscribed. She also says they remain laser focused on bringing AI to everyone, building sustainable revenue models that fuel our operations and deliver value to our investors and employees. Open AI declined to comment on this one, Brian. Wow. It seems like, I mean, where does this go, Kate? Very quickly. Where does it go? It's the next step. The next step is closing that funding round and then converting from a nonprofit. I'm told they're looking to become a public benefit corporation. And so there'll be a for-profit company, I'm told, which will be valued at $150 billion. So they will become the most highly valued company in venture capital in Silicon Valley and potentially keeping up the growth. The big thing now is can they live up to

that valuation? How quickly can they grow? And can they fend off some of the competition right now? They're vulnerable. There's a lot of other companies going after the same thing, which is building the best large language model. They've got an edge right now, but there's Anthropic, you got Google, you got Amazon, you got Meta. So everybody's really going for this. It's going to be quite an interesting couple of months here, Brian. I've heard of those companies, Google and others. It's amazing. Kate Rooney, thank you.

All right, venture capitalist Bill Gurley, if you missed it, was on Squawk Box this morning, and he weighed in on some of the eye-popping valuations that have been floating around the private markets. We may be in a permanent world of having lots and lots of money in the late stage private market. And the people that are making these decisions are relatively intelligent. And I think they've come to believe that once a company gets a breakout lead, that there's a high probability that that's going to continue. All right, let's talk more about this and more. Joining us, fellow venture capitalist Matt McElwain. He is a managing director at Madrona, an early investor in Amazon, Snowflake, and other names. So congrats on those, Matt.

I mean, they've made you a little bit of a pretty penny. Before we get into valuations and tech and private equity, do you have a hot take on this OpenAI story? Well, you know, I was on the show in November, the day that Mira became, for a very brief period of time, the CEO of OpenAI. And so senior leadership drama has tended to be a common theme at OpenAI. But I think what we really need to focus on there is not the people drama and more what are they executing on. And in this respect, they're doing some really compelling things. New model out called O1. We're starting to get into greater reasoning versus generative models. That's going to be a really important area in the year

ahead. And they've also figured out how to have a business model. Really, the business model is around chat GPT. That's, by most people's reports, 75% of their roughly $4 billion in revenue. And that's the key 75% of their roughly $4 billion in revenue. And that's the key for all of these companies. Now, we track something called the Intelligent Application 40. We publish that list with all the venture and technology folks contributing to it. And the most interesting thing is that while OpenAI and Hugging Face and RunwayML are constants, there's a high degree of churn every year in these top 40 private companies in the

IA40 list. And so just like Bill Gurley was just alluding to, the question is going to be, if you have an early lead, do you have a durable lead? And I think OpenAI has a strong position, but there's plenty of other challengers, both at the model and the application layer. Yeah, a lot of challengers out there. All right, Matt, so talk to us. Private equity is private equity in a big way, starting to poke around technology again. I would I would say a massive way. I mean, I've seen this firsthand. Of course, it was announced this week that a company I've been on the board of for the last 17 years, Smartsheet, signed a definitive agreement to be taken private by Blackstone and Vista. And so you see it from that kind of a perspective living through one of these types of transactions. But in addition to that, there are

many categories that private equity is actively looking at. And the reasons why is that we now have a constraint on the strategic buyers, the Microsofts and Googles and Amazons of the world, where they've got a lot of scrutiny at the federal government level. We've now got not only a stable economy, we can all debate whether it's a strong economy, but it's stable. And now we've seen the interest rate cuts. And so even before the interest rate cuts, private equity was getting quite aggressive, particularly in the tech sector, because there's a lot of smaller cap public companies that have largely gotten fit, but probably can get fitter and then need to work on doing some change the game things for growth. One of those things, by the way, is AI.

But what we're seeing is the private equity folks look both for a smaller cap public companies and then quite aggressively at some of the later stage private companies, particularly application companies in areas like sales automation, supply chain, various categories, where there's probably a need for consolidation of a bunch of companies that are generating 100 to 200 million-ish in revenue, and one plus one might indeed equal five. I love that take on big because you remember, you know, the old baseball player, Yogi Berra, no one goes there anymore. It's too crowded.

And I love your I love the take, which it sounds like you're saying that Oracle, Amazon, Microsoft, Google, all maybe even Salesforce, all the companies that did all the buying, they were the buy strategic buyers. They're now too big that their all the buying, they were the strategic buyers, they're now too big. Their likelihood of buying anybody of size is probably not going to happen. Is that what you're saying? Well, I think that that is a factor. And what's interesting is that they can't buy, or it's not as easy for them to buy a smaller cap public company. They want to

buy a medium cap public company. But then they have another constraint, which is the FTC specifically, the government more generally, is not taking kindly to consolidation by strategic companies right now. So it's got to be big enough to matter to them, unless it's just a tuck-in acquisition, or they have to find a way to navigate and take on the regulatory hurdles. So they're kind of on the sidelines right now. Maybe that'll change after this election cycle. And so the PE folks who have all these other good tailwinds also have the fact that they're really the ones that are playing much more aggressively in the market. And I think you'll see that when companies' proxy statements come out and how they, you know, kind of navigated these situations. But the PE folks are quite active right now. Wow. Yeah. Pretty interesting

time there. And your point about the government and whether they would allow some of these things is certainly well taken. Matt McElwain up there and tucked up at the corner of the Pacific Northwest. Matt, thank you. Thanks very much. All right, folks, get those smartphones out and scan that QR code on your screen. If you're driving, you have no idea what I'm talking about. But you can also go to what's called the Internet and look at the CNBC Evolve AI opportunity. It is on Tuesday. We're going to talk about, you know, AI and how artificial intelligence is changing industries and giving companies a competitive edge. Scan that QR code. Watch out for your pets. Don't jump off on the sofa too quickly or go to the Internet when you arrive by car somewhere safely. Meantime, it is time for a CNBC News update with Steve Kobach.

Hey there, Brian. Let's start with Helene. It is now a tropical depression and is forecast to stall over the Tennessee Valley through the weekend, bringing widespread flooding and damage. Now, so far, the storm has killed at least 42 people, stranded countless others and left millions without power across the southeast. And after 10 years, the coalition military mission in Iraq is officially coming to an end. The two countries announced the move today, but U.S. officials disputed earlier assertions from the Iraqis that almost all U.S. troops were leaving, saying the U.S. military will maintain a presence for continued operations against Islamic State militants. And tennis legend Billie Jean King is now the first female individual athlete

to receive the Congressional Gold Medal. President Biden signed the bill, which bestows the award to King for recognition of her efforts, quote, championing equal rights for all in sports and in society. King also became the first female athlete to receive the Presidential Medal of Freedom back in 2009. Brian, back over to you. All right, Steve, thank you very much. All right, folks on deck. Do you know the only big group of stocks that is down

this quarter? Think about it. The answer is ahead. Hopefully you're on the radio because we just gave it to you here on TV+. Plus, lots of new record highs hitting today, including McDonald's, Lowe's, Sherwin-Williams, Ralph Lauren and IBM. If you own any of them, congrats. Overtime back right after this. All right, let's get the answer to that sort of riddle that we had heading into the break. We didn't see it. Energy stocks are the only laggard group this quarter in part or because of crude oil on

track for its worst month since October of last year. So Mike Santoli is back with a look at whether this means energy is primed for any kind of a relief rally. Mike, it seems like we have the makings of something like that, at least on a reflex basis. Brian, that performance you mentioned, you know, this month, this quarter has just deepened the annual underperformance of the energy sector. This is from Ned Davis Research. And what it shows is the trailing one year return from the energy sector compared to the trailing one year return from the S&P 500. Right now, it's about as low as it gets or as low as it's ever gotten outside of the covid crash when crude oil traded negative briefly. And what that typically has meant is it's coincided with a little bit of a run of relative outperformance by the energy stocks in the short term. Of course, energy is now down about 3.2 percent market cap weight of the S&P 500. So it really has

been beaten down pretty low. And now one of the attributes of the energy stock still is relative dividend yield. So take a look at the XLE energy sector ETF. It's dividend yield compared to that of the S&P 500. It's actually been a pretty good upswing and a decent premium again, if you kind of go outside this period here around the pandemic, when everyone thought that the energy dividends were going to be suspect, couldn't be sustained. Here you see it's about essentially a three and a half percent dividend yield for energy and compared to about less than one and a half for the S&P 500 right now, Brian. Yeah, and it's fascinating. There's so many questions around where oil goes. As you may know, Mike, sometimes I do talk about oil and this question of whether or not OPEC holds or if

there's some kind of market share battle, which I don't think there will be. I talk to OPEC members all the time on and off the record, sending prices down. But that's the battle of around oil right now. Is it 50 or back to 80? Exactly. So in terms of those reports this week that Saudi has kind of given up on the $100 target and they're going to basically try to get back to market share, that doesn't sound right to you? There is no target. Saudi Arabia and OPEC do not have price targets. There's talk about them. But having been to many OPEC meetings in person virtually, I've never heard any buddy, any country ever mentioned a price target. My own take. But your point is well taken, Mike, which is.

Is there a market share battle? You got Guyana coming out, you know, more and more Brazil, more and more U.S. at record highs that I get. Yeah. Well, look, 70 is in the 60s has felt like a comfortable spot for a well-supplied market. I'm not sure, you know, what changes that at this point? We shall see Michael Santoli with his normal 14 hour day. But, Mike, we do appreciate it. Thank you. See you. All right. Will Nike's earnings next week finally help that stock turn around? A top analyst on Nike will tell you why they just might. Coming up.

All right, let's talk about Nike. Nike set to report their earnings on Tuesday after the bell. Now, only two Dow stocks have done worse this year, Boeing and Intel. But will news of a new CEO and hopes of a China recovery turn things around? Brian Nagel thinks so. He's with Oppenheimer. He's got a buy rating on the stock. Brian, good to chat with you again. Is this going to be now like a kitchen sink type period for Nike? And what that means is you got a new CEO coming in. Just flush all the bad news out at once or not. Well, good afternoon, Brian. Look, I think that I think that will be the case. What's interesting here, if you go back, this is what we're talking about is the fiscal Q1 report. So it's the period ended in August. If you go back to Nike's fiscal Q4 report, so that was

the period ended in May, that was the kitchen sink. So this may be kitchen sink take two. But I think as we look towards this report next Tuesday evening, obviously the numbers will be important, but I think what's going to be much more important is kind of the sentiment from Nike, the commentary from Nike, particularly with the company's new CEO set to join here in basically just a few weeks. How about the core business of Nike? I know we're talking about China, China stimulus. Listen, I don't know if China lowering rates to help the real estate sector is going to push people to go buy shoes. Maybe it will. Maybe it won't. How is their core business doing? Because when I go with me or for my son or whatever, I'm looking for shoes. There's a lot of new competition out there.

There's OC on cloud, right? There is Hoka. There's others. And I just wonder, is this a Nike issue or just competition's gotten better? Well, look, I think it's a bit of both. I think the struggles at Nike have definitely opened an opportunity for some of these smaller brands to take market share. So we're definitely seeing that. My thought on this is as Nike strengthens, which I expect it restrengthens, as I expect it to over the next several quarters, I very much expect some of these smaller competitors

to start to struggle as they're starting to compete with a much more, you know, much stronger, better position Nike. But to answer your question, I think it's really a combination of both. I think you've had Nike weakening because of internal shortcomings. That's opened an opportunity for some of these smaller players to get much stronger. Will the I know the market cheered when it was announced that the current CEO, John Donahue, is going to be leaving. And you got the new CEO coming in. The stock soared. It was on this show.

They were talking about it all day long. Is that going to matter? I mean, is the CEO going to matter that much in the near term? Or is this like a super tanker where it turns slowly? It's going to take some time i mean if nothing else we've got to keep in context nike is now a 50 billion dollar company you know so just given its sheer size it's going to take some time to basically turn this company around but again i think for the stock you know to the extent this management team talks about some of their early wins new products

you know in geographies i think that would be a positive. But to answer your question, it's going to take some time to turn a company of this size around until we start seeing much better results, results that are more indicative of what Nike can produce. What's the biggest? If you were sitting there with the new incoming CEO and he says, Brian, what should be my biggest change on day one? What would it be? Product innovation. Nike's got to get back on its product innovation game. I think

that has really lulled here. The Nike's is not putting out the product that's driving its poor consumers to spend like they have historically. So we need to get product innovation back to what it had been. That's really key. Support that with marketing. But I think the real key here is product innovation. Like it. Brian Nagel on Nike. Brian, we appreciate it. Have a good weekend. Thank you. Thank you. All right. Coming up, is the boom over? Why two Wall Street firms think weight loss drug sales are starting to slim down. And Rocket Lab, rocketing higher. KeyBank Capital Markets raising its target on the stock to 11 from 8, citing increased confidence in the spacecraft and launch services company ability to scale its business.

That stock up 12.5% today. Like the green on the screen, markets at a record high. We're back after this. All right, here's a question. Is a little shine beginning to come off the weight loss drug trade? Could be. Eli Lilly, a Novo Nordisk, down 3% today. In part because of this, Wells Fargo saying in a new note on Eli Lilly that its prescription tracker shows third quarter sales could come in below consensus.

And it is not just Wells Fargo. JPMorgan Chase analysts seeing potentially similar weakness in Novo Nordisk, Wegovy and Ozempic drugs, citing a slower than expected ramp in supply in the United States. However, they do add that any weakness in the stock is a buying opportunity for investors. So while, listen, sentiment is not ubiquitous, it is still starting to trickle out. Just something to watch. All right, up next, what is behind a massive week for luxury goods stocks

and whether those names could keep rallying? And don't forget, you can catch us on the go by following the Closing Bell Overtime Podcast on your favorite or maybe your least favorite podcasting app. We're back right after this. All right, welcome back. Let's turn now to the big week for Chinese stocks and for companies that benefit from what could be a stronger Chinese consumer. That, of course, includes a big group of stocks in the luxury world.

Robert Frank, rejoining us with a look at some of the winners. Robert. Brian, luxury stocks rallying again today on hopes for that China rebound. The big four, that's LVMH, Hermes, Richemont and Caring adding over 70 billion dollars in market cap over the two days. LVMH up 14 percent. That added $25 billion to the wealth of Bernard Arnault. His net worth now over $200 billion, carrying up 17 percent. Richemont and Hermes also soaring. In fact, Hermes is still the one luxury stock that's still positive for the year. That is because there are big questions about whether China's government stimulus will actually translate into higher sales of handbags and designer shoes.

China accounts for about a quarter of all luxury sales. It used to be half. And consumer preferences in China also changing. That's the rise of luxury shame, as they call it there. That means they're spending more on consumer experiences and low-key fashion rather than the big flashy brands. Then you have lower-priced copies of luxury goods, also more popular there. Now, for more on the luxury economy and how the wealthy are spending their money, go to cnbc.com slash insidewealth.

That's cnbc.com slash insidewealth. Brian? Luxury shaming? Even in China. that's a thing. That's a thing. I mean, they've even banned influencers on social media who, quote, flaunt their wealth. Can you imagine if we did that with Instagram here in the U.S.? Yeah, there would not be an Instagram. It's funny because having been to China, I could tell you at least the last time I was there. I mean, they a lot of it. They like to flaunt it in some cases, right? It was a sexy thing. That's right. And so the big question,

aside from whether this economic stimulus works, is whether there's that big cultural shift away from that usual pride in luxury, showing it off to what seems to be a new sort of China first, China pride and also luxury shame culture where they're buying local brands and more low key brands. Well, it could be a fascinating turn, because if that does continue, you just wonder the Burberry's of the world, the Hermes's of the world, you know, all the names I can't pronounce, Bottega Veneta, whatever that is. We'll see what happens. Robert Frank, we would never luxury shame you, ever. He is luxury.

Guys, thanks for letting me sit in here on closing bell overtime. Hope you have a wonderful weekend.