Closing Bell - Closing Bell Overtime: Dan Niles On Tech Positioning, Meta Bull Case; Hamilton Lane Co-CEO On IPO Window 10/7/24

Episode Date: October 7, 2024

Stocks slid lower in afternoon trading, with energy the only positive sector on the day. Niles Investment Management Founder Dan Niles breaks down where he is positioning, why he likes Meta right now and what to do with your money. Erik Hirsch, Hamilton Lane Co-CEO, has AUM of nearly $1T. Hear his bull cases for infrastructure in private credit and tokenization. Plus, Charles Schwab’s Head Trading & Derivatives Strategist Joe Mazzola on where clients are buying and selling the most right now. 

That bell means the end of regulation. The NYSE Tech Council ringing the closing bell at the New York Stock Exchange. Microsoft doing the honors at the Nasdaq. And stocks selling off to start the week as bond yields jump, oil surges and volatility roars back. That's the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, coming up this hour, a number of magnificent seven stocks catching downgrades today, including Apple and Amazon. We will talk to tech investor Dan Niles about those calls and get his take on today's broad pullback for equities. Plus, the co-CEO of Hamilton Lane, the alternate investment firm with nearly a trillion dollars under management, is going to break down two sectors he's bullish on as volatility makes that comeback. But first, let's get right to today's pullback. Joining us, HSBC Global Private Banking and Wealth Management

CIO, Jose Rasco, and Bespoke Investment Group co-founder, Paul Hickey. Guys, welcome. So, Paul, you point out October has a reputation for being a month of market bottoms, but in order for the market to bottom, it has to go down first. The question is how much? Because it went down a bit today. Can you buy these dips? Yeah, I mean, I think 1% in the market that we've had where we're up well over 20% on the year. I don't think that's necessarily something to get too excited about. But John, to your point, you're talking about increased volatility. We have the geopolitical situation, which is the hottest it's been in years. We have an election coming up in November, and then we have the hurricane down south.

I think the election and the hurricane, as far as the market is concerned, are short-term events, whereas the geopolitical situation, who knows? I mean, I don't know how that is going to end up panning out. So that is a worry to think about. But we do think, we just put out our quarterly pros and cons report this past Friday, and there's plenty of positives to like still about the market here. And we do think if you do see a 5% pullback in the market, 5% pullbacks are more common in the month of October than any other month. We would be using that to add exposure. So in that respect, you do have to see weakness in October to get a bottom, and we wouldn't surprise us.

In prior years, when you've been up 20% through the first three quarters of the year, October has been negative seven out of 10 times. But the fourth quarter tends to be positive. Jose, I get the impression from you that you might not need a pullback to see things attractive about this market. You say the fundamentals are good. Fed cuts are good for risk assets. Do you need to wait for a pullback to buy? You know, I think he brings up some great points, but no, we're still positive. We're still bullish on the market long term. Fundamentals look solid. Look at the disinflation we continue to see. We should get more of that later this week. So if you have continued disinflation, wage is still rising at a good clip. Remember, inflation has fallen a lot more than wages. The consumer continues to be one of the drivers of

economic growth. That's always been the case here. And we expect the consumers are looking for value. But the good news is the corporate sector has heard that alarm and they are beginning, you're seeing discounting all over the place. So I think you'll see more of that. And I think that'll keep us afloat and longer. Remember, we still have the tech revolution that it's just that it's in its inception. So from perspective the fundamentals look pretty good and that tech deflation which is a something that happens you know we saw this happen 94 to 2001. that has not yet kicked in and i think we're going to see that kick in more and more yeah something definitely to watch here paul i mean we've got yields up we got oil up equities are taking their cues from some of these other asset classes oh the vix up as well i mean equities are taking their cues from some of these other asset classes.

Oh, the VIX up as well. I mean, equities are taking their cue from some of these other asset classes, at least here in the near term. So how much actually has to go right for earnings season for that to actually become the driving catalyst and the narrative for stocks from here? Yes. You bring up a great point, Morgan. Earnings season kicks off at the end of this week with the financials reporting. When you look at individual analyst revisions on companies within the S&P 1500, we've actually seen over the last four weeks a steady uptick in downward revisions to earnings estimates. So when you talk about complacency heading into earnings season, analysts have been lowering forecasts. And what you tend to see during those periods is it sets the bar low for earnings season and then companies tend to do better.

So when you have more negative revisions than positive revisions heading up to earnings season, you tend to see gains during the six-week reporting period that we measure. And at levels that we've seen heading into this earnings season, the median gain of the S&P 500 has been low to mid-single digits. So, bar set low, so it's easy for companies to surpass that level. And some of the sectors where the revision spreads are pretty negative here are in technology, believe it or not, energy and industrials. Jose, I mean, the big story for the market today really was what we're seeing in yields and not just the 10 year yields back at 4 percent, but also the two year yields flirting with that and the fact that you have the yield curve, you know, flattening out again here. Because we do have financials kicking off earnings later this week. And because

we are seeing this volatility in the bond market, how do you how do you think about that as an investor? Does it mean that you look to fixed income as a bigger part of the portfolio? Is this something that's going to be short lived? No, I think if you look at when the Fed starts to cut rates, Morgan, the next 12 months, fixed income does very well. High yield does well, but investment grade does even better. So we like fixed income. We're telling clients to extend duration and look for quality credits. And we also, if you look historically, especially when you go into mid-cycle slowdown or a no-landing scenario, you see that U.S. markets do very well. So does EM Asia. So we're looking for credit opportunities there as well, in particular India. And then I think if you look at the equity markets,

as the Fed rings the bell, begins to ease, one sector we haven't talked about is health care. And health care, you're not seeing the same level of revisions as was just mentioned down to revisions. And if you look at earnings expectations for next year, it's the best sector out there. So we still stay positive on that one. And historically, that has done very well when the Fed eases. So healthcare, we still keep our eye on that one. And I think one of you mentioned before that energy story as utilities have done well, and they were a little overbought. The other thing is growth in value, right? We're again at a two to one ratio in growth in value year to date. Look for some of that too. I think you're going to see some mean reversion there. That's going to give us that

volatility that we're both looking for to get that end of year rally where we can get between 40 and 60 percent of the year's returns. So hopefully we get a good year end rally out of it. Yeah. Starting a month, yet another month with some volatility. Jose, Paul, thank you both. Well, we got a news alert now on Google. Steve Kovac back with those. Stay there, John. Yeah, Google just out with this statement here saying it's going to appeal a permanent injunction a judge issued earlier this afternoon that sent shares down a leg here. This was a permanent injunction from the judge saying Google will have to allow third party app stores to be offered in its own app store. This all comes from a lawsuit from the

Fortnite maker Epic Games in a trial, a jury trial lawsuit that it lost several months ago. Google saying it's going to appeal this, basically saying it does have competition, including the fact that you can go out there on Android phones and download anything you want without using the Google Store and that it competes with Apple, among many other things. So nothing immediate going to happen changing in the Android ecosystem yet. But an Apple saying I mean, sorry, Google saying it's going to appeal this decision from the judge today. Yeah, certainly adding some more negative sentiment here to the mega cap tech names that have led to the downside today. Steve Kovac, thank you. Now let's get to senior markets commentator Mike Santoli. He's here at CNBC headquarters. He's

tracking the bond market influence on stocks as the 10-year yield tops 4% for the first time since August. Mike, what are you finding? Yeah, Morgan, just try to frame it out in terms of how much this move means. In terms of absolute levels back to 4% on the 10-year, it's not that alarming. We've been here recently, in fact, right at the beginning of August, before we got that week, July jobs report in the first week there. So you see it just takes us back there. But the velocity definitely gets your attention.

When bond market really starts to get jumpy, a lot of times other assets have to at least take note. I would point out this sort of downtrend line. Some people are going to point out it in around 415 or thereabouts. If it doesn't go above that, you're still in this general churn lower in yields, even if we've had this big reset. It shows you people leaning in the wrong direction and disinflation, more Fed easing. And that was sort of contradicted by that Fed, by the excuse me, the jobs report on Friday. Take a look here, though. The correlation between the S&P 500 and the direction of yields has been positive over the last couple of months. This is the

rolling two month correlation between those two things. This means yields up, stocks up at the same time, not every day, but just on a rolling two-month basis. That means that the markets are interpreting good economic news and less disinflation as okay and basically been positive for stocks. Now, today was a different story, of course. You had a 1% drop in the S&P. At the same time, yields were higher. So you might get a little bit of a challenge to this relationship.

But in general, this is telling you that equity investors want to see firmer economic performance, which is also perhaps compatible with slightly higher yields. And of course, this comes in a week. We're having this discussion in a week where one hundred nineteen billion dollars in debt is going to be issued by Treasury in auctions again this week. I'm really curious about the two year yields because we have seen this back up on the two year yields. And it raises the question, is the bond market behaving the Fed would like to see it behave, given the fact that it is now in a cutting cycle? I think to this point, yes. What I mean by that is you're back toward 4% in the two-year yield as well. Well,

the Fed funds rate is at four and three quarters. So that shows you that the two-year yield is still saying there's downside to the Fed rate and maybe not as much as we thought before, but it's still enough that the Fed can be in an orderly way cutting rates. Remember what Powell said last week. We're not in a rush to get back to neutral. So not in a rush means you can go in these quarter point increments and it's probably still OK. But it really is a moving target, though, given how fast these yields are moving around. Yeah, it's interesting to hear some of the chatter bubbling back up about no landing scenarios, too. Mike, it's good to have you here in the house. We'll see you a little bit later this hour. Well, now to a winner on Wall

Street today. Shares of Pfizer. We're just talking about health care. Shares of Pfizer finishing the day higher by more than 2 percent. Sources telling CNBC that activist investor Starboard Value has taken a billion dollar stake in the drug maker. So joining us now is Evan David-Siegerman of BMO Capital Markets. Evan, it's good to have you on. What's the first thing that Starboard should be doing? What should they be looking for? What would you expect them to be looking for as they do take the stake? Well, this is less than a 1% stake in the company,

so I don't know if it's enough for them to really have a ton of influence. I suspect that they'll probably try to look at the cost basis and potentially some management changes. But in looking at kind of, you know, issues in pharma over the years, it takes a lot to really right the ship. And replacing a CEO isn't going to suddenly reverse course and re-rate shares overnight. So in light of that, I mean, based on CNBC's reporting, Starboard believes that Pfizer's current leadership under CEO Albert Bourla has stepped away from its historically disciplined cost structure and investment in novel drugs. Is that something that this company does, in fact, need to get back to? Well, I'd like to note that they are undergoing cost-cutting measures. They are,

I think it's several billion improving their gross margin right now, which we've seen that start to flow through. And beyond that, when it comes to M&A, yes, I think there has been some undisciplined M&A, but Cgen is really focused in their core area. They are an oncology business. Just think about eye brands, for example. So we obviously need to see them come up with some good assets and kind of clinical trial programs from the acquisition. But they're on their way. Evan, what is the impact, if any, on peers in this space when you get an activist involved? Is there likely to be M&A buzz or activist buzz that can cause, you know, people to look at these multiples again? Well, for sure. I mean, there's always buzz with peers. I think what's important to remember is right now Pfizer is a huge company.

I don't think they're going to be taken out by anyone. Our FTC certainly would not allow that. And they also don't have a lot of capacity to do more M&A. So they really have to fix what they have. In terms of comps to other peers, you know, many other pharmas are kind of flat year to date. Not everyone is, Lily. I know we spend a lot of time talking about that on this show. Merck, for example, is flat year to date. Pfizer is up 2% because of today. So they're not the only one that has kind of lagged the broader market. Speaking of Lily, since you brought it up, it's like the NVIDIA of this particular space. Have we seen the highs for the time being in Lilly? Are they going to be successful, you think, in this effort to use R&D spend to keep powering their results higher? That is the trillion dollar question. I think that's very important. I did meet with the new CFO last week, and they're focused on manufacturing, really investing in the business, ensuring that this growth is sustainable.

So I think 3Q results are going to be very important because that's going to show if they're able to keep up with the man there's been chatter, that Novo and Lilly might miss numbers. We don't quite have a view on that yet. We are definitely watching that. But that will be very important near term. And then beyond that, it's really, to your point, what continues this growth and enthusiasm. All right. Evan David Ziegerman of BMO, thanks for being with us here on Overtime. Thanks, guys.

Now, after the break, investor Dan Niles joins us to talk about the weakness today in some of the MAG7 stocks, why he thinks a different group will outperform into year end. And later, Charles Schwab just out with its latest snapshot of investor sentiment, showing big outflows in some household names. We're going to reveal the surprising stocks that are falling out of favor. We've got a big show ahead. Overtime, back in two. Welcome back to Overtime.

Plenty of red on Wall Street today, including several big tech stocks getting hit on downgrades. Wells Fargo taking Amazon to equal weight on concerns AWS won't be enough to overcome headwinds in other parts of the business. Jefferies cutting its rating on Apple over demand fears for the new iPhone. And Barclays hitting pause on Netflix, writing that subscriber estimates seem unrealistic. Joining us now is Dan Niles, founder and portfolio manager of Niles Investment Management, and a longtime skeptic of some of these MAG7 valuations. So a little pat on the back perhaps for you here. But Dan, you say you expect the rest of the S&P 500 to do better than the MAG7 mega caps. Doing better could mean going down less. How confident are you that we end the year higher than here? So I'm a big believer of investing when you have tailwinds behind you. And you have to remember, we've got multiple tailwinds. The first, obviously, is the Fed

won 50 basis points. And there's a reason there's this saying, don't fight the Fed. And rates are probably going to continue to go down. Inflation is down at two and a half percent. The Fed will probably be aggressive over the next 12 months of continuing to lower rates. That also gave air cover to the world's second largest economy, China, to go ahead and finally pull out some big stimulus. And we've seen it in how much the China equity markets have rallied. And so that's also supportive for U.S. companies that sell into China. And all of this has given other central banks the ability to go ahead and be a little bit looser with their policy. And so you just don't want to

fight that kind of tailwind going forward. Now, to your point, though, as we go into earnings, it's going to come down to individual company earnings. And there, I think you're going to see a big bifurcation between the guys that are continuing to do well and the ones that missed. Well, are they going to improve in terms of what their outlooks are going forward? And I think that's where the risk is, which is why we like a broader basket of S&P 500 stocks, much like you saw on Q3. The equal weighted basket of the S&P was up 9.1 percent.

The S&P itself was up five and a half percent. And the information technology sector was up 1.4 percent. So it lagged pretty badly. And I think we'll see that continue through the year end. What do you do here? You mentioned China. What do you do here with Chinese stocks, even China ETFs? Has the move already happened? Are there other effects of that stimulus, like you mentioned, those selling into China, that are more interesting to have play out from here?

It's a great question, John. I think I always look at valuations as a necessary but not a sufficient condition. And what I mean by that is China's been cheap, but it's been cheap for years. Even with this move higher, the multiple's only 15 times. You compare that with the S&P sitting at 24 times or the Indian stock market, which is at about the same level, which has been one of the best performing emerging markets for a bit. And you go, wow, there's a lot of room for that to continue to improve.

And I think the Chinese government, after a very long period saying, nope, that's welfarism. If we give out checks to consumers, they bit the bullet and said, well, unemployment's a bigger risk. And so they started handing out checks. And so I think you've got still a lot of room for that to be valued. But don't forget, we have the U.S. elections coming up. The Republican Party has floated 100 percent tariffs on China. That's obviously a negotiation point to start with. But, you know, if we end up with much higher Republican control of the government, you know, the day after the election, China is probably going to get hit.

So for right now, we've got very big cash positions. We've got a big position, the equal weighted S&P. And we want to get through that because depending on who takes power, that can be very positive or negative for China, at least in the short term. And it gives you an opportunity to then deploy into what makes sense. The China story, Dan, is also propelling commodities. You take that, you couple it with geopolitics and what's happening in the Middle East right now. We've had a big run up again in oil. You've got Brent back above 80 bucks a barrel. Energy stocks were the only positive sector in the S&P. You came on with this back in mid-September and you said, all right, everybody's so negative on energy, I'm actually getting bullish here. Do you still feel that way?

Yeah, I mean, here's the thing. At some point, this will de-escalate. So I'm a bull on energy below 70, which we've talked about. But when you get close to 80, which is where we're reaching, you know, it's one of those common things that the cure for high prices is high prices. And this high prices is being driven by this geopolitical risk, which at some point will start to go down. So that's also the other reason you've seen yields go up. So energy out of the 11 subsectors was the one that was down in Q3. It's obviously up a lot right now, but I wouldn't be chasing this move. In fact, I'm looking at oil getting close to 80 and going, huh, you know, wouldn't surprise me to see that drop again if things start to deescalate. So I'm not a fan of that. But to your point, things like copper, aluminum, steel, those are areas where we are much more positive based on China going ahead

and trying to stop this fall in their property markets and the industrial base that they have. That's where it's a little bit more interesting because you haven't seen a lot of them have the same kind of moves, and that should be longer lasting in nature. You know, Supermicro, which is sort of seen as one of these indicators of the AI trade and how infrastructure build is going and reflects back, seen by investors as reflecting back on NVIDIA, came out with a pretty positive update today on shipping GPUs on its liquid cooled racks. You saw the stock have its best day since May. In a week where we're poised for a lot of semiconductor news, whether it is NVIDIA speaking down in D.C. or AMD with its event, obviously this update with Supermicro. I mean,

is there still a trade to be had there? Are there still gains to be had in the sector? I think, again, you're going to have to pick stocks. So I think with NVIDIA, it's not going to surprise me to see that hit new all-time record highs before the end of the year, because Blackwell, in a weird way, the fact that it's been delayed is good for them because nobody wants to get out of line and miss getting those chips because they're two to three times more powerful than the current generation of chips out there. So we like quite a bit, in what might seem counterintuitive, we like NVIDIA actually through year end because of that.

Now, I've been pretty open about saying I think there's going to be an AI digestion phase coming. I think it's going to be an AI digestion phase coming. I think it's going to happen in the first half of 2025. I think you're going to have a big problem when that occurs, because you haven't seen revenues for the companies spending all of this money on AI go up. They've all gone down. What do I mean by that?

Google, Microsoft, Amazon, three of the four biggest spenders on AI infrastructure, after they reported the June quarter, all of their forward revenue estimates went down. And that's why those stocks had some issues. So unless you see all this spending translate into revenues, you're going to get a digestion phase. And by the way, that happened after COVID. NVIDIA's revenues went from being up over 80% year over year to being down over 20% year over year as these same customers digested all of the COVID spend. So NVIDIA is kind of complicated, but in the short term, I think there's a good shot you see new record highs before the year is over. All right. Digestion period, you say. We will look for that as well. Dan Niles, thanks for being with us here on Overtime. Now, when we come back,

Mike Santoli is back with a look at why so-called deal stocks have been getting a bid on Wall Street. And up next, the co-CEO of Hamilton Lane, the alternative asset manager with nearly a trillion dollars under advisement, joins us with his read on the pullback and why investors may want to look toward the private markets. Welcome back. Mike Santoli is with us to tell us what's the deal with so-called deal stocks. Looking a little bit to the upside here, John. I mean, nothing special in terms of point-to-point returns, five years here. This is the IPO ETF, and that's CSD as a spin-off ETF, so stocks that have been spun off from bigger companies. What I do want to point out, though, is this steady recovery trend that we've seen over the last year, year and a half.

Now, the IPO ETF barely has any IPOs in it because there haven't been enough to fill up an ETF and refresh it. So a lot of these stocks are two plus years old, but they are generally younger, more dynamic companies. Remember early 2021, how much fun that was with all the profitless IPOs? So there is the makings for a market that's receptive to transactions, to things like corporate actions. You have activists seemingly like they're getting busy again. That probably means more spinoffs. The GE spinoffs have been phenomenal upside performers.

So you have the makings for more activity, but still M&A and to a degree IPO is really lagging. The deal stocks, meaning the actual deal makers, the capital markets related stocks, actually have led. That's asset managers, it's exchange stocks, it's broker dealers, and everything that's sort of a non-bank financial that participates in that. KCE is the ETF that tracks that. You've seen it both outperform the broader financials as well as the market over the last year. So people expect things to happen. Obviously, higher index levels help this. Good investor flows help this.

But so far, it seems like we've been waiting and waiting and waiting for corporate transactions to really pick up. Jose Rasco earlier was making the point that Fed cuts tend to be good for risk assets. Does that count for these deal stocks as well? I think it's one of those things that's lining up, John, absolutely. Of course, you would expect people not sure if we're going to have to worry about a recession or not. If we're going to get clear of that concern in the near term, you get Fed rate cuts, probably get past the election. You have a more clear policy path. All those things should work. But I have to say, credit conditions have been inviting more activity for a while now, and it hasn't really happened. Maybe it's this winner-take-most

economy we have, where the biggest seem to be the strongest in each sector. But we'll see if it comes to pass. All right. Mike Santoli, thank you. Well, speaking of IPOs, this is the perfect setup and a possible resurgence in the private markets. Let's bring in Eric Hirsch, Hamilton Lane co-CEO. Hamilton Lane is an alternative investment firm with nearly a trillion dollars in assets under management. Eric, it's great to have you on, and that's exactly where I want to start with you. What is it going to take to see this IPO market

actually pick up some activity here, especially given the fact that the Fed is starting to cut and you do have credit conditions that are pretty inviting? Morgan, great to be back. I think we're starting to see it now. This week, I expect to see at least six in registration. You're starting to see that market open up. Frankly, that market needs to open up. The public markets need more inventory. You've basically seen a flat or declining number of public companies over the last 10, 15 years. That's a problem for the public markets. The investors need more choice. Having kind of this just dominated by a handful of sort of technology,

big cap companies, I think is not healthy for the public market. So glad to see them opening back up and glad to see the private markets sort of returning some assets back to the public markets. We are starting to see the lines blur increasingly between public and private markets. And what I mean by that is the fact that more and more access to high net worth individuals, more and more access or attempts at access for retail investors to the private market as well. How much does that contribute to some of these dynamics? And what does it mean in terms of opportunities for individual investors? Morgan, I think this is great for the individual investor.

They have essentially been shut out of the private markets for the last several decades. And if you look at what's been the big driver of public pension fund performance, for example, where some number of American savers are deriving their retirement savings, the big driver of performance for the pension funds has been the private markets. And yet the non-pensioneer has been really not able to participate in any way. So that is changing. New laws, new structures, more availability of product. I think all that's a good thing. Now, that's not to say that all of these are going to work out great, but I think the fact that the choice is there, I think, is a real positive. It is also

going to result in a lot more capital coming into the private markets. And I think, like all things, that's going to be both good and bad, and people will have to navigate carefully. So when is tokenization's big moment, you think, Eric? And are you counting that among the risks? We saw the volatility around crypto. People have strong feelings about it. I don't know if it would be a good or a bad thing for tokenization to get caught up in that same fervor. I see tokenization as simply a technology, a means to an end. It is simply an easier, better, faster, cheaper way for investors to transact. It is not a crypto play. It's not a currency play. Think of it as sort of the move of

today in the private markets, we're all taking our time to handwrite checks. Tokenization is Apple Pay. And that is a much better development for both sides of the equation. So good for the fund managers, good for the investors. And our view is that as you continue to see more retail capital coming into the private markets, they're not going to want to be writing checks. They're going to want to be using a much more simplistic way of transacting. And we see tokens as the way to do that. Give us, if you will, your thesis briefly on infrastructure and why that's still such an important area for investors to be focused on? If anyone just gets in their car and drives a half an hour tonight on their way home, you're going to see roads that need repair, bridges that

need to be expanded. And you sort of, that's the traditional infrastructure. Now add to that the fact that as a country, we are in dire need of some big energy overhauling, systems at capacity, rolling brownouts, et cetera. And then add to that what's happening on sort of the need for data centers, also infrastructure. You put all of that together, that is a huge amount of capital that's going to be required to take this country to the next level. Some of that's going to come from the government, yes, but a lot of that is going to require private partnership, and that's going to be private infrastructure. Finally, Eric, we don't always talk to you about Hamilton Lane specifically, but the company's been on a tear.

I mean, you've grown your revenue by triple digit percentages, stocks up more than 900 percent since going public in 2017. Walk me through the strategy here, especially as you are targeting the private markets. And we do see growing competition in those markets and some new, as we just touched on it, some new products like ETFs now being floated and everything else. Morgan, our strategy is simple. Take care of the customer and deliver them outstanding results. If we continue to do that, growth will be there. We benefit mightily from being in an industry that has a terrific tailwind. The amount of capital coming in,

the amount of capital that needs to come in and wants to come in is going to be significant. As one of the clear leaders with a great brand and a great franchise, we've been a big beneficiary of that. We've also done a good job of building an incredible culture here because at the end of the day, our assets all go home at night. This is a people business. And so the stock price since IPO has been noteworthy. And I think that is a result of just a singular focus on take care of the customer, do right by them, more customers will follow. This is a great asset

class and the money will continue to come in. All right. Great to have you with us, Eric Hirsch, Hamilton Lane's co-CEO. Well, it's time for a CNBC News Update now with Pippa Stevens. Pippa. Hey, John. A federal judge today gave a preliminary approval to an almost $3 billion settlement that allows colleges to pay players. The settlement will set up a pool of money to pay athletes and a revenue-sharing plan. Athletes would still be able to make separate name, image and likeness deals with outside groups.

The settlement still needs final approval. McDonald's is suing JBS, Tyson Foods and other major meat processing and packing companies for allegedly conspiring to limit beef supplies and forcing the fast food giant to pay artificially higher prices. It's just the latest in a string of lawsuits accusing the world's biggest meatpackers of violating U.S. antitrust law. The companies have yet to comment. And disgraced crypto exchange FTX received court approval of its bankruptcy plan today. The plan will allow FTX to repay customers using the $16 billion in recovered assets first and then pay claims filed by government regulators. Customers will be paid at least 118% of the value of their accounts as of November 2022. That's when the exchange filed for bankruptcy.

Morgan. Pippa Stevens, thank you. Well, Florida ordering evacuations as Hurricane Milton rapidly intensifies to a Category 5 storm just days after Hurricane Helene struck the region. Up next, how insurance companies are preparing for a second hit. And check out shares of Generac as we head to break. Typically a beneficiary of severe weather finishing the year. Well, finishing, I should say, just near today, near the top of the S&P 500, adding

to strong gains over the past months. Generac's CEO will be on Mad Money tomorrow at 6 p.m. Overtime. Be right back. Welcome back to Overtime. Hurricane Milton rapidly strengthening to a Category 5 storm as it threatens Florida's Gulf Coast, which is still recovering from Hurricane Helene. Contessa Brewer looks at what another huge storm could mean for insurance stocks.

Contessa. John, Milton is a monster. You just showed the map there. It is barreling straight into Florida in a trajectory we have not seen in our lifetimes. This will be a big insurance event and a big reinsurance event. The Florida property insurance market, meantime, has been a mess for years with a score of insurance companies folding or fleeing the state. Citizens, the state-backed insurer of last resort, is now the market share leader. And the big guys, Chubb, AIG, Traveler, State Farm, Allstate, they've all intentionally lowered their exposure in the state. Well, in 2022 and 2023,

Florida tackled the insurance crisis with new laws and coked insurers back, experts tell me, by lowering the barrier to entry. So that means these new insurers to the market are untested. They may be less capitalized and certainly they will be less seasoned than the big companies. If they don't have the reserves to pay out on the claims that come through on Milton, there's a guarantee mechanism in Florida whereby all the insurers pay an assessment. So even those with small exposure to the market share would still be paying. And reinsurers have hiked their rates over the last two years to account for soaring catastrophe costs. They may do that again, which would,

of course, affect insurers' profits and then in turn the premiums they charge their customers. Risk management expert Martin Grace at University of Iowa's business school tells me Hurricane Milton will likely affect what all Americans pay for their property insurance. John Morgan. Contessa, that's exactly where I was going to go with this with you because, I mean, reinsurance rates have been depressed for years. We've seen that reverse here and those rates come up again in January of 2025. We've already seen the effect of insurance inflation on the services part of CPI. Just how much could you see those rates move higher based on damages and catastrophe losses here? And I guess when would we actually start to know what that impact looks like? Well, look, January 1st, the reinsurance renewals come

up again. So we'll have an idea of what they do. What we saw not in 2024, but in 2023 were massive spikes in reinsurance. And so the bottom line for the insurers was either we're going to pay more to have the reinsurance in place for a storm like Hilton or Milton, or what we're going to do is we're going to take bigger deductibles or lower the capacity of payouts. And so the insurers are doing the same thing that homeowners do when they look at how much more willing am I to pay a higher deductible to lower my monthly costs. And we may see that again.

The problem is a storm like Milton, everybody knows there's gonna be a lot of economic damage. The storms that are seeing so much damage through hail, wind from thunderstorms, or where they're sparking tornadoes, those have been very expensive. Last year, that was half of all insured losses globally came from US thunderstorms.

That is a very hard risk to identify and price for accurately. Contessa Brewer, thank you for breaking it all down for us. As we did see property casualty insurance companies selling off today, Everest Group, Reinsure, one of the worst performers in the S&P 500. Up next, Charles Schwab's head of trading and derivative strategist on what clients are buying and selling and whether they still have a strong appetite for AI stocks. The major average is closing out with losses today as rising oil and surging yields put pressure on stocks. And this comes as new data from Charles Schwab shows the client's trading activity fell in September and investors sold out of a number of household names.

Let's bring in Joe Mazzola from Charles Schwab. Joe, good to see you. So the S&P was up more than one and a half percent. The stack score, proprietary for you guys, down 11 percent. What does that mean? That means not necessarily the activity was down, but beta was down, I think is a better way to look at it. There was some de-risking that happened. We saw clients kind of move out of some of their equity positions into mutual funds, ETFs, and particularly fixed income.

I found it really interesting. I actually, I told my team, I'm like, let's run that number again just to make sure that it's right. But yeah, no, it was the largest divergence that we've seen in the history of the stacks. And the way I guess I would frame it is we had that first week of September, markets were down 4%.

And this was different than, say, August or even what we've seen over the last 18 months where the dip buyers have stepped in. We did see some dip buying. You guys mentioned kind of on the way in looking at the AI names, and we saw that in NVIDIA, Intel, Palantir. Those are probably the top three buys. But some of the other ones where we've seen, you know, buying in the past, they just didn't step in this time. I think they're a little bit more cautious this time. Joe, historically with retail investors, the more frequently you trade, the more money you lose. I don't know if what you're seeing in activity thus far is bearing that out or no.

I mean, activity is healthy and I wouldn't necessarily say that that means that there's losses, but what I'm getting at is there was a rotation, right? And that's where you see the dip in this number because it really measures not just not really activity as much as sentiment, right? So some of that bullish sentiment came out of clients by by by their behavior. Now, interestingly enough, John, we also ran an attitudinal survey at the same time with these clients. And we found out that, you know, they're saying that they're still bullish. About 85 percent of them said that, you know, when they're looking at the economy, they either see a soft landing or no landing. Right. But I think they can they could still have that that belief and kind of rotate out of some of the riskier assets.

And that's what we saw. It's interesting that you're pointing that out. And I wonder how much of that is potentially related to election and uncertainty there, especially when you look at something like the VIX, which we know historically tends to see volatility coming into an election. So I would say this this morning as I was coming into work, I was looking at three numbers and that number is 21, but it was in three places, right? So it was 21 times is what the multiple of the S&P 500 is right now. 21% is what it was up coming into today. And then 21 was the handle on the VIX. You don't see that number across those three different exchanges or those three different prints at the same time.

Right. Something's got to give. And what we're seeing is some elevated call buying in the VIX. We're seeing some some some of the skews, some of that protection that we're you know, that is occurring with some of those downside options. And yes, it could be it could be related to the election. I think there's some, you know, some seasonality that we could look to as a reason that we're seeing some of that downside hedging. And I think also, you know, to a certain extent, I think a lot of it stemmed from some of the weakness that we saw at the beginning of the month that's kind of carried forward. Now, look, I mean, the clients could be this could prove to be very prescient kind of given the move that we've seen, because it does seem like that 5760, 5750 level has provided a little bit of resistance. And it's possible that we'd test that again. But

people do seem to be kind of loading up on some downside protection, kind of heading into these next few weeks. Joe Mazzola, thanks for joining us. Thanks for having me. Up next, why tomorrow could be a big day for Boeing stock, which has plunged roughly 40% this year. And investors toasting shares of Duckhorn that stopped doubling on news private equity firm Butterfly Equity is acquiring the high-end winemaker for nearly $2 billion in cash. We'll be right back. Welcome back to Overtime. It's time for your Wall Street look ahead. Earnings season kicks off later in the week, but tomorrow we will get results from food and beverage giant PepsiCo. Now, the economic front will feature the NFIB small business survey

and the latest U.S. trade deficit data. Investors will also be closely watching Boeing's September orders and deliveries numbers, especially as Boeing goes back to the negotiating table with its striking machinists. I am still thinking about Charles Schwab and that Stacks data and the disconnect between what the data say investors are doing, kind of feeling a little cautious, and how they say they feel about the economy. I think that's reflected in the numbers we see versus what people are saying in these surveys as well.

Yeah, the feelings aren't connecting with the actions, it would appear. And I do think the fact that you have some election uncertainty potentially factoring into that is one that we'll continue to watch here over the coming weeks. In the meantime, industrials actually hit a record before we turned negative for all the major averages today. Energy, the only, in the meantime, industrials actually hit a record before we turned negative for all the major averages today. Energy, the only sector in the green. We've seen the run up back up in yields. We've seen the run up again in oil.

Geopolitics still in focus, at least until we start to get inflation data and earnings later in the week. Dan Niles did warn us, though, about getting close to 80 on that call he had when energy was when oil was below 70. Yeah. So we'll continue to watch that. We continue to watch the AI trade. Supermicro had a very strong day. We know NVIDIA, AMD both having events. We're going to watch those as well. Yeah. That split on Supermicro certainly, I guess, didn't hurt, right? No, it didn't hurt. Meantime, S&P down about 1%, 56.95 was the level there. That's going to do it for us here at Overtime. Fast money begins right after this quick break.