Closing Bell - Closing Bell: Overtime: Former Fed Vice Chair Richard Clarida On When Fed May Cut Rates; Dana Telsey On Lululemon’s Weak Holiday Outlook 12/7/23

Episode Date: December 7, 2023

Tech stocks powered higher today, led by strong gains in AMD and Google. Axonic’s Peter Cecchini and Ned Davis Research Chief US Strategist Ed Clissold break down the market action. Earnings from Lululemon, Broadcom, RH and Docusign. Former Fed Vice Chairman Richard Clarida on what the Fed will do in 2024. Telsey Advisory Group CEO Dana Telsey breaks down the strength of the consumer and Lululemon’s numbers. Susquehanna’s Chris Rolland talks Broadcom. Broadridge CEO Tim Gokey on the plumbing underpinning the financial system. 

Stocks closing high are led by tech, with the S&P and Dow snapping three-day losing streaks. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. On today's show, a nice variety of earnings in chips, retail, software. We're going to hear from Broadcom, Lululemon, DocuSign, RH, and more. Plus, former Fed Vice Chairman Richard Clarida joins us ahead of tomorrow's key jobs report and next week's final Fed decision of the year. Also CPI. Yeah, that too to the market action for now. Mostly higher session after a string of losses this week. Yields and oil were

subdued today, but look at the action in tech. The Nasdaq led the gains. AMD and Alphabet, that's of course Google's parents, seeing sizable jumps on AI announcements. And joining us now is Peter Cecchini of Exxon Capital and Ed Clissel of Ned Davis Research. Good afternoon, guys. And after bumping around sideways to down, the S&P is about back where we started the week. So since you expect choppiness for about the next half year, should investors buy beaten up defensives here? I think as we get closer to year end, that could be the case. We probably have a few more weeks of window dressing, of selling for tax loss purposes. So maybe the momentum trade can work for a little while longer.

But as we move into 2024, you can't get that January factor. We're at last year's losers, gain momentum again. But more importantly, we could just get a choppier market overall. First half of election years tend to be weak. We expect the economy to slow. We don't think there's necessarily going to be a recession, but the recession calls are still going to be around. So you get some slow economic growth, some fears of recession, election uncertainty. That's a choppy market. And so some of the defensive areas, which have lagged so much

this year, could actually have a little bit of mean reversion in the first part of next year. And Peter, I think you see some of those dark clouds gathering. You say a soft landing is highly unlikely. Lori Kalvasina told us yesterday she likes small caps and then equities. You seem to be taking the other side, looking at bonds here. Which ones? Yeah, you know, it's interesting when we think about what the market's been doing of late, especially into the end of the year. And I think about December's, I think it's something like 39 out of the past 53 December's have been positive. I don't think that really tells us much given the window dressing at points two and seasonal factors about what's going to happen next year. I think, you know, look, small caps were potentially interesting

a month ago. They've rallied quite a bit. I think the problem with small caps here, given our slowdown recession view, is that they are subject to financing needs in a much higher rate environment. And that's one of the reasons why they haven't come back as they have, as they often would into the end of the year. You know, so I think when we look at small caps, when we look at high yield bonds, for example, you know, spreads are 400 on CDX high yield. With the VIX at 13, last time that happened, CDX high yield was at 300. So small caps, CDX high yield telling you that storm clouds are on the horizon. You know, our view for next year is that as would be normal after, you know, a series of hikes as aggressive as what we've seen, that we're going to see significant slowdown. Okay. So any sort

of sense on what a significant slowdown could actually look like, Peter? And I ask that because we know every economic cycle, every time you do see a recession actually materialize, if that is in fact what happens next year, each one is its own beast. But does it feel like a certain time period that we've seen in the past? I mean, are you looking to certain historical templates as how this could actually affect the markets and play out? You know, it's a great question. And, you know, this time has been somewhat different. And, you know, the long and variable lags and, you know, the Fed tightening have been a bit longer because of the, you know, the knock on effects of, you know, massive pandemic era stimulus and all the unintended

consequences, not just inflation, but, you know, all the excess savings and everything else. So sort of calling how the recession is going to look is difficult. But there are maturity walls coming up in commercial real estate, a trillion dollars over the next couple of years. High yield maturity walls are also building in 24, 25 and 26. So it could look like a good old fashioned, you know, 2000 ish kind of recession with an element of sort of the 90s credit crunch. Interesting. Ed, I'm looking at your year on 2024 price target for the S&P. It's forty nine hundred implied upside from here, something like seven percent. How do we get here? I would imagine you're not baking recession into your base case with that price target. That's correct. So slow down the first half of your choppiness.

And then as it becomes evident that there isn't going to be a hard landing, then the market can rally toward the back half of next year. And that's where you can get a chunk of those gains. Now, look, the recession is not completely off the table. But if you look at, there's been a few cycles where the Fed has actually pulled this off in the 2018 cycle, the 95 cycle, and back in 1965, they were able to do it. And I think the Fed's rhetoric change over the past several weeks has been a positive sign for being extremely hawkish to recognize that they've done a lot of work already, and now they can see what the effects are going to be. And it always, the U.S. economy comes back to the labor market. We could be adding 150,000 jobs a month. It's just

very hard to get a negative GDP number because consumers, two-thirds of the economy. Okay. Gentlemen, stay with us because we're starting to get our earnings. The first ones are out. Lululemon. I'm going to run through those numbers here. Not immediately clear that adjusted EPS result is comparable with street consensus. So I'll just give that number first. Adjusted EPS of two dollars, 53 cents per share. Looks like revenues beating here. Two point.2 billion versus street estimates of $2.19 billion. Q4 revenue guidance, though, looks a tad light. We're seeing $3.14 to $3.17 billion in revenue for the fourth quarter versus consensus estimates of $3.18 billion.

Initiating $1 billion buyback here. A couple other stats for Lululemon that really matter. Total comparable sales increased 13 percent. Comparable store sales up nine percent. Direct to consumer net revenue up 18 percent. And here's another one that matters with retailers in general. Gross margin increased one hundred and 110 basis points to 57 percent as well. Nonetheless, with that light Q4 revenue guidance in a stock that was up something like 40 percent going into this print, you're seeing shares down about 7 percent right now. Sounds, Morgan, like they're determined to hold their pricing levels, not give that up in order to boost revenue.

They don't want to do discounting into this holiday season. It seems like that. And you do have this commentary from CEO Calvin McDonald as well in the release where he says, as we enter the holiday season, we are pleased with our early performance and are well positioned to deliver for our guests in the fourth quarter, but we'll have to see what additional insights and color we get from the call. And, of course, we will be joined by Dana Telsey to break down these results in just a short while as well.

All right. See if they can hold the line on pricing and maintain that revenue. DocuSign earnings meantime are out. Pippa Stevens has those. Pippa. Hey, John. That stock jumping 9% here after the company beat top and bottom line estimates for the third quarter. DocuSign earned 79 cents per share on an adjusted basis. That was 16 cents ahead of estimates. Revenue coming in at 700 million, also ahead of the expected 690 million. The company also giving optimistic Q4 revenue guidance, saying they expect the range to be 696 to 700 million, while analysts were looking for 694 million.

The CEO also said that they're making progress on moving beyond e-signature and into intelligent agreement management. Once again, that stock up 9%. Morgan. All right. I will take it. Pippa, thank you. Peter, I'll go to you on this one because, Ed, I know you don't like to talk individual stocks. Maybe you'll take a gander on one of these. Either Lululemon, which seems to be focused on not discounting too much with a broad consumer landscape where the consumer seems to be looking for deals. And then you got DocuSign, which is a pandemic darling. It was trading above 300 bucks a share, just maybe showing that a turnaround is still a possibility.

Do I have to pick one? You don't, but the consumer writ large is an important theme for Key4. How do you feel about the consumer? Well, yeah, I'll pivot a little bit to that because I think it's really important. And, you know, we actually spend an awful lot of time poring through individual company transcripts. And we think it's really a really important way to help us understand how to underwrite consumer risk, which is one of the things that we do here, and to understand what's going to happen bigger picture macro with the economy. And as you well know, there's been a tremendous amount of caution among CEOs

relative to the consumer in the last earnings season. You know, Lululemon, my wife loves it. What else can I tell you? I know we're going to keep buying it. So I guess I'll take the punt and I'll take Lululemon over DocuSign. OK. Peter Cecchini and Ed Clissold, thanks for joining us. I just want to talk about one. I didn't mean to actually pick one, but wow, thanks. All right. Yeah, we're going to dive a little deeper into some of that consumer commentary we've been getting from companies as well a bit later in the show, too. But let's turn now to CNBC Senior Markets Commentator Mike Santoli for today's market dashboard, starting with a look at the equal weight version of the S&P 500. Mike. Yeah, Morgan, so much attention on whether the majority of stocks that have lagged the S&P 500

might have some catch up potential. Here's a five year chart of that equal weight. And to me, it's hard to get away from the idea that this has just been steady in a range. Obviously, the S&P 500 is up 19 or so percent this year, far outpacing this. But this doesn't look terrible. We're back above its 200-day average. And the average itself, you can't even really see it here, but it's just slightly making a little bit of an upturn at this point. But I think the key is not so much can it keep up with the largest stocks or can it close any kind of perceived gap. But can we just sort of stay tilted

in that direction if they're both more or less moving to the upside? I'm not that you wouldn't necessarily have to be that concerned about the horse race of which types of stocks are winning. Now, take a look at this from Bank of America showing an unusually low percentage of stocks are within 10 percent of their all time high. So this goes back a pretty long way. It goes back into the mid 80s. And you see we're down around 23 percent at this point. The circles are when the overall stock market hit an important peak. So this is basically the beginning of bear markets. And as you see, typically, although this is the major exception, the peak in the year 2000,

typically market breadth is actually not so bad. You have a lot of stocks near their highs when the overall market peaks. So this idea that somehow so many stocks being far from their highs is a sign of kind of a sick market or one that's about to really roll over in an important way. It doesn't necessarily hold up through history, Morgan. That's really interesting because we do talk about market breadth as a barometer of health. I mean, is it more perhaps indicative of the argument that the S&P, for example, is more fairly valued than it would appear on the surface, especially when you strip out the Magnificent Seven? Yeah, it's hard to get away from that.

There's no doubt that if you just sort of carve out the very largest trillion dollar club type stocks, it looks more like a normal valuation for the rest. Now, you kind of have to decide what you're willing to live with. An expensive stock that has very predictable growth at the higher end, where maybe the opportunity for acceleration because of AI, that's the mega caps. Or do you have, you know, some stocks that are cheaper looking but more susceptible to any macro weakness that we might get down the road? So there's no real free lunch in the market. But I also don't think valuation is the overall market's main challenge at this point.

All right. Mike Santoli, thank you. Meanwhile, earnings for RH, the parent of Restoration Hardware, are out. Pippa Stevens back with those. Pippa. Hey, John. The stock is down 6% here after the company's Q3 results. They lost and adjusted $0.42 per share. We're not comparing that to estimates. Revenue coming in at $751 million, slightly short of the $757 million that analysts were expecting. The company also narrowed its full-year revenue range, saying that they expect to earn between,

they expect revenue to be between $3.06 and $3.08 billion, while analysts were looking for $3.08 billion. The company also said that they experienced increased headwinds in early October when mortgage rates peaked above 8%. Once again, that stock down 5.5%. Back to you. Okay, that's going to be another piece of CEO commentary to watch closely because the head of RH tends to be very straight-spoken in terms of what he's seeing in the macro environment and how it's affecting RH. Pippa Stevens, thank you.

Some overlap here between the Lululemon customer and the RH customer, I think. Some of the same models in ads for both. After the break, we're going to have to ask Dana about that. After the break, former Fed Vice Chair Richard Clarida on the odds of a rate cut in the first quarter, even if the economy doesn't fall into recession. And much more on today's After Hours action as we still await Broadcom. We're going to talk to an analyst later who covers that stock along with, as we just mentioned, a Lululemon expert for their first reactions. Overtime is back in two. Welcome back. A mixed bag of labor market data this week, including weekly jobless claims

this morning that came in slightly below expectations. That's all just a preview for tomorrow when we get the November jobs report. Economists estimate 190,000 jobs added last month, an unemployment rate of 3.9 percent. That's going to be the last major data point before the FOMC's December meeting next week, where the Fed is expected to hold rates steady. Joining us now is Richard Clarida, currently PIMCO Global Economic Advisor and a former Fed vice chairman. Great to have you, Richard. So what's the most important data point that you're going to be looking for in tomorrow's job report beneath the headline? Well, I think potentially revision. Sometimes the data does get revised. Also be looking at both the household survey and the payroll survey,

and look to see if the trend of slowing job growth has continued. Richard, hold on just a moment. We got Broadcom earnings in, so we want to get to our Kate Rooney. Hold on, Kate, how do they look? Hey, John. So a mixed quarter here for Broadcom. It's looking like a beat on EPS. This is the adjusted number, $11.06. That was an eight cent beat on the EPS number. Revenue, 9.3 billion. That was slightly short of what the street was looking for. That was up 4% year over year. It's looking like full year revenue guidance is slightly light. 50 billion. Street was looking for around 52 billion for that full year revenue

number. And then increasing that quarterly dividend. They say here this common stock dividend going up by 14% to five dollars and twenty five cents. Stock down more than three percent here after hours. John, back to you. All right. That's going to be an important call to get color on on that outlook for sure. Kate, thanks. I know you continue looking through it. Let's get back to Richard Claret. I'm sorry if we cut you off there on a thought. First of all, I want to give you a chance to finish that. No, as I said, obviously, the labor market is incredibly important to the economy and to the Fed. We've had a trend of slowing employment growth and some modest rise in the unemployment rate.

So obviously, we'll be looking to see if those trends continue tomorrow. More broadly, we're seeing we just had this with Broadcom's report, certainly with Lululemon's a few moments ago. Revenues were a little bit weaker than some might have hoped, but profits strong because they want to hold to pricing. As we think about how this holiday season continues to pan out and what we see employers, retailers do in January based on how their profitability has looked and how the sales have looked. What are you concerned about, about how this holiday season is going to set us up for 24? You know, it's a great point because it's relevant in either direction. If firms are really, really aggressive in trying to keep their margins, then that'll make the Fed's job more difficult because it'll mean inflation's

more stubborn. On the other hand, if firms are not able to keep those margins, that makes the Fed jobs easier. But obviously, it's not great for earnings. And so, you know, typically, John, we do see this in past business cycles. When we get towards the middle part of the cycle, there's a handoff from pricing power to workers. And the way that balances out will be an important story in 2024. Richard, it's great to have you on the show. We know the economy is cooling. We know inflation is moving in the right direction and that's cooling as well. Do we know, can we yet wrap our arms around the magnitude of it, especially as you do have a Fed

that's basically said it's going to be a lot harder potentially and it's going to be a lot stickier to get from a three handle on inflation down to a two. Well, that's right. And of course, that's been a theme at PIMCO as well, you know, the last the last mile. But I think we want to look at the good news. The disinflation progress really has been remarkable in the last 18, 24 months. And so the amount of heavy lifting the Fed needs to do from here on is certainly not all that much, we would think. In fact, I think we think the Fed thinks that they're done. There is a risk that they may need to do more. But importantly, Morgan and John, the Fed has indicated, and we think that Chair Powell

will repeat this on next Wednesday, is they can start to think about cutting rates even before inflation gets to two if they're convinced that the progress is real. And we heard some commentary along those lines from Governor Waller. So I think there's a difference between how long does it take inflation to get to two and a separate question, how long does it take for the Fed to start thinking about rate cuts? Is the market too aggressive in what it's pricing in, in terms of rate cuts? And I guess just as importantly, as someone who sat in the room to have these types of conversations before, what is going to be the methodology that enables the Fed to actually start to do that before we reach 2 percent?

Yes. To your first question, Morgan, yeah, we do believe that the five cuts that are priced in for next year look aggressive to us. That could happen in September for what it's worth. The last time the Fed did its projections, it had two cuts next year And something in that two to three range probably as a baseline makes more sense than five. In terms of sitting in the room, yes, I had that privilege for nearly four years. The Fed is looking at a large body and range of data. But at the high level, they're going to want to be convinced that inflation is less than 3% and on its way to 2, and they'll be looking at not only the price numbers, but also the wage inflation data as well.

So I think they'll look at a wide range of data, but the important point is they are absolutely focused on succeeding, and I think the PALFED would Palafed will succeed but as inflation does continue to fall they'll entertain rate cuts starting next year okay Richard Clarida thanks for joining us thank you and of course we have a lot of data to get through including that jobs report and CPI before we even get that FOMC decision John when we come back Lulu lemon and RH are just the latest companies to give us clues about the fragmented consumer landscape. And that's the word for it, fragmented.

We're going to tell you what executives from Walmart, Amazon, and the big banks are seeing from their customers. Later on, we're going to break down Broadcom's quarter with an analyst who thinks that stock has plenty of room to run, even after a 65% rally this year. It's a bit off of the overtime lows, down about 1.5%. We'll be right back. Two CEO changes just announced in the last few minutes here on Overtime. Let's get to Pippa Stevens with those details. Pippa? Hey, John.

Starting here with Crown Castle just now announcing that CEO Jay Brown said that he informed the company's board of directors that he will step down as CEO and president effective January 16th, 2024. The board has appointed Anthony Maloney to serve as interim CEO. This, of course, comes amid pressure from Elliott Management, which has amassed about a $2 billion stake in Crown Company. Now, earlier today, Elliott did send a letter saying that based on the feedback they've received since announcing their campaign, they say that Crown Castle required a CEO change and a robust review of the fiber business. Meantime, Levi Strauss, CEO Chip Berg, will also retire, is also set to retire in April of 2024. The company announced that Michelle Goss will succeed him as president and CEO effective January 29th of 2024. Goss, of course, joined Levi's in 2022 from rival Kohl's and was longtime seen as a potential

successor to CEO. Those shares up about one and a half percent here. Back to you. OK, Pippa Stevens, thank you. Recent data signaling the economy is cooling, possibly paving the way for a soft landing. City economists aren't so optimistic, though. They are expecting a recession next year because of Fed policy. If unemployment really starts to rise, that could eat into consumer spending, which has buoyed the economic growth we've seen this year. City credit card data shows delinquencies have been picking up,

suggesting that consumers are becoming more stretched. But for Bank of America CEO Brian Moynihan, there isn't cause for worry, at least not yet, as American consumers are employed and earning more money, even as the way they are spending it is, quote, leveling out. Andy Jassy sees something similar in Amazon's e-commerce business, too, even as consumers are more price conscious. Consumers are still spending. They're being careful about what they spend on, and they're looking for bargains and deals wherever they can, and wherever they can trade down on price, they're trying to do so. On CNBC yesterday, Walmart CEO Doug McMillan noted credit balances are going up.

The balance sheet of the consumer is not in as good of shape as it was 6 to 12 months ago, but that, quote, we still may find that we're back to growth rates that look like 2018-2019 in terms of total retail. This morning, Dollar General CFO said the bargain retailer continues to see a constrained consumer and softer sales trends. Campbell Soup CEO Mark Klaus told CNBC yesterday it's a volatile consumer environment and the greatest amount of pressure is in the lower-income households. More insights will come tomorrow, too, when consumer sentiment comes out. And in the meantime, Lululemon just gave us its latest read on the consumer. Earnings coming at a 228 per share. Revenue topped estimates. A week holiday outlook sending that stock lower in overtime. The call starts in just a few moments.

Joining us now is Telsey Advisory Group CEO Dana Telsey. Dana, I'm going to step back since we just teed this up. And before I get into Lulu specifically, ask about what you're seeing in the tea leaves where the consumer is concerned looking across the sector. Across the sector, whether it's high income, low income, middle income, there's a moderation. There's a moderation and there's more cautiousness in what the consumer is spending on. What will drive demand is innovation and value. But I think we're seeing greater profitability surprises than we are sales surprises as we're going into this third, as we're in this third quarter earnings reporting season and what the outlook is for the fourth quarter and into next year.

So where does that leave us with Lululemon and the results we just got? I think the results we just got for the third quarter are very good results. Obviously, the fourth quarter guide comes in like a penny below where the consensus was. When you look back at history and what Lululemon's guidance is on a quarterly basis and what they come in at, there's definitely some conservatism there. The rate of growth in sales that they guided to for the fourth quarter of 13 to 14 percent is below what they did this quarter. And let's see exactly what it will turn out to be, because they did say that the early holiday period that started off was very solid. The newness and innovation of new products that they're bringing in is extensive, but it all is still on the come with big weeks still very much ahead. Dana, a couple of things I'm wondering, especially after this Lululemon report.

For a retailer like this, will the consumer keep spending not only right up until Christmas, but then after? Did they plan their inventory correctly? And how much demand was pulled forward into the holiday season, even as they try to hold the line on pricing. How important do you think those things are? I think one of the things that's been happening is, and they've talked about this, the amount of newness and innovation that's coming into the assortment as we go through the fourth quarter, it's extensive. I think the other element is that, yes, the inventories have come down, which is good because it helps them drive full price sales. And when you go in the stores, you look at online, they are generating the interest and generating the traffic. All the checks that I've done lately continue to add up

in terms of the demand for the product and not seeing any increased level of markdowns. But you're comping against big increases last year. So comping the comp is going to be one of the factors for Lululemon going forward. All right. So is there upside from here? I think there is upside going into next year. I think the new stores that they're putting up, and especially international, are going to be part of the big drivers going forward. All right. We'll see. Dana, thank you. Thank you. Time for a CNBC News update with Bertha Coombs. Bertha.

Hey, John. The Senate Banking Committee is calling on the Federal Deposit Insurance Corporation chair, Marty Grunberg, to step down following allegations of workplace misconduct. The committee is also asking for details regarding the allegations, which include sexual harassment and racial discrimination. The FDIC started an internal investigation last month after the Wall Street Journal first reported the alleged misconduct by employees and Grunberg himself. Republican presidential hopefuls are scheduled to go head-to-head two more times. CNN announced today that it will host two January debates in Iowa and New Hampshire just days before voting begins.

Former President Trump's campaign said he does not plan to participate. And stars of the hit Paramount show Yellowstone are in a legal battle over coffee. Taylor Sheridan, the creator of the show, is suing one of the leads over the logo for his coffee company, Free Rain. Sheridan claims that the logo for Kohlhauser's company is infringing on the trademark for his ranch's logo. The coffee company's logo shows the letters F and R intertwined. The ranch's logo shows the letters B and R similarly intertwined. That show's all about drama, isn't it, Morgan?

Yeah, I need a cup of coffee to wrap my head around this. All right, Bertha Coombs, thank you. After the break, Mike Santoli tells us how two specific stocks can help give clues about tomorrow's jobs report. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Welcome back to Overtime. HashiCorp earnings are out. The stock is sinking down more than 15% at the moment in overtime.

That's despite a beat on the top and bottom lines. Earnings coming in, $0.03 a share versus estimates, a loss of $0.04. Revenue at $146 million, which was $3 million above estimates. Q4 revenue guide is just in line. The EPS outlook is above the street. This after-hours drop would take the stock back to where it closed about a week ago. A little context here. Fellow DevOps companies MongoDB and Asana are both down this

week after earnings. Hashi investors might have been hoping that company would guide more optimistically, signal stronger demand than its peers, but looks like no. Now, initial jobless claims coming in at 220,000, up slightly from last week, but continuing claims ticked lower. Let's bring back Mike Santoli for his take on the report. Hey, Mike. Yeah, John, continuing claims even at last week's level were not really at a worrisome reading. I mean, this shows you it was about 1.86 million, the current reading, down from about 1.89. Now, this here back in 2022 is super low historically, almost unmatched in history in terms of how low the ongoing

unemployment claims readings were. This, of course, goes back to mid-2021. And that's when we were just coming out of lockdown when you had massive still residual unemployment. In fact, before the pandemic, we were routinely running 1.8, 1.9 million. And it was basically a full employment economy. Anything under 2 million is pretty good. So this suggests we still have structural tightness in the labor market, even though it has somewhat loosened. Take a look at the share prices of ADP and paychecks. These are five-year charts. As you can see, they really do tend to move together. ADP has a slight skew toward larger companies, paychecks, smaller companies. But they've basically been in a similar spot here. Now, they're off their highs, which I think makes

sense because the labor market is off of its strongest, tightest levels, but still well supported in this trend. You know, maybe you can look here for some early signs or coincidence signs if eventually we do get worsening of the job picture. But so far, steady as she goes. It looks like it's just wobbling on the edge here, right? I mean, jobless claims ticking up, job openings shrinking, companies saying, you know, Charlie Sharpe, hey, we're ready to lay off people next year, but not doing it now. I mean, Spotify is, but not everybody doing it now. These numbers reflect that?

They pretty much reflect that for now. I think the concern out there is that there tends to be in a cycle some momentum when unemployment starts to go higher. Other companies react. You essentially have people change their mindset. And of course, as people lose their jobs, they can't spend as much. So demand falls in some parts of the economy. And so some of the academic research has shown if you get a half a percentage point rise in the unemployment rate, that tends to mean a shown if you get a half a percentage point rise in the unemployment rate, that tends to mean a recession and you get further upside in unemployment from there.

So we're not at those thresholds yet. But, of course, it's the big question as to whether we can just soften up and stop at a certain healthy level. Well, Mike, that might be the dashboard of the year. Oh, it might be. I can take it. Yeah. But Taylor Swift got time for the year. Person of the year. Oh. It might be. I can take it, yeah. But Taylor Swift got time's person of the year.

I was like, where are we going with this? I'm transitioning. That's all. I was going for the transition. I wasn't aware, yeah. Well deserved. Yeah.

Taylor Swift got that. But did she deserve it? Well, that was the subject of On the Other Hand. Cue the QR code here. The latest installment was about whether she should have gotten that or maybe it should have gone to somebody else. Because the year 2023, was it about Taylor? Was it about other things? You can sign up using that QR code and also get access to the LinkedIn poll.

Let me know which side you agree with more, Morgan. You're very creative in terms of how you laid out both of your hands on this one, I have to say. Thank you. Thank you. Well, maybe I was inspired by Taylor. She's so creative. She is. Yeah. Okay, so that's one hand.

Several earnings calls are set to kick off at the top of the hour. Up next, a top analyst on what he wants to hear from Broadcom's executives. Stay with us. Welcome back to Overtime. Let's get another check on shares of Broadcom. They are moving a bit lower after revenues came in a little light, though earnings did top street estimates. CEO Hock Tan saying he expects VMware to drive consolidated revenue to $50 billion, adjusted EBITDA to $30 billion. Joining us now is Chris Roland. He's Susquehanna's senior analyst in this area. He's got a positive rating on the stock. When you look at these results, and particularly the guide for fiscal 24,

$50 billion, does that line up? Is that what you expected, including VMware? It was a little below. However, we were using most likely stale street estimates for VMware, and that may explain the difference there overall. About $2 billion lower. Sorry, John. $2 billion lower. Okay. How satisfied are you with the AI story here and how much that's driving these results, given what we're hearing from the rest of the industry? Love the AI story here and how much that's driving these results, given what we're hearing from the rest of the industry? Love the AI story. So they've talked about 50% growth overall, quarter over quarter around AI. This is a big move. And Broadcom is probably the second best

AI story behind NVIDIA, in our opinion. Really? You like it better than AMD, despite the event we had and all the details around the new AI chips that were unveiled yesterday? For right now, yes. But AI for AMD is a great long-term opportunity looking out probably two, three years, yeah. Okay, so as Broadcom folds VMware

into its workings, I guess. It says it's taking $1.3 billion in charges through 2025 in connection with that merger as it now begins to do cost reduction activities. What is Broadcom over the next couple of years post-merger, post-acquisition going to look like? It's going to look more software than ever before, but it is also going to look lean. Those numbers are, those Synergy numbers, we assume they're

Synergy numbers, look better than what we were anticipating. We were anticipating 800 or 900 million. So we were very impressed with those numbers. But yes, Broadcom overall is going to have a much larger software component to it. Do those numbers set a bar that's going to force more consolidation in the industry? Yeah, perhaps. I think so. Other players out there may be deciding to get into software overall, adding that on top of a semiconductor component part of the story as well. All right. Chris Rowland, thank you. Thanks, John. Thanks, Morgan. Up next, the CEO of a fintech firm that could be a big winner from the proxy fight between Nelson Peltz and Disney.

Overtime, we'll be right back. Welcome back to Overtime. Shares of Broadridge Financial Solutions trading near all-time highs. The $22 billion fintech player provides tech and communication services, hosted its investor day today, expecting to see 7% to 9% recurring revenue growth over the next three years. Broadridge sits at the intersection of financial services, providing the technological infrastructure for everything from trading to debt servicing, dealmaking, regulatory compliance, shareholder communications. Joining us now is Broadridge Financial Solutions CEO Tim Gokey. Tim, it's great to have you on the show. Thanks, Morgan. Great to see you. We just talked about the fact that you sit at this intersection for the sector. What does

traffic look like across these different buckets more broadly? What are the trends that are emerging as we look to 2024 within the sector? Yeah, thank you, Morgan. And we're really excited to have our investor day today. And some of the things we talked about are the democratization of investing, necessarily the number of investors, and because of new products and lower-cost trading, more people participating, the number of investors investing in U.S. stocks has gone from 49 percent to 59 percent over the past 10 years. Also digitization of communications to really enable wealth managers to communicate more directly with their clients with less paper, and also the acceleration of trading.

We're seeing coming up in the next six months now trade settlement times moving from the trade date plus one, plus two, excuse me, to the trade date plus one. That's a big industry change a lot of people are working on, including ourselves, supporting our clients. Okay. I do want to get your thoughts on what we're seeing ahead of the next proxy season. We have seen a pickup in activist investing this year. Perhaps the most high profile has been this proxy fight that's playing out at Disney with Tryon and Nelson Peltz as well. How does this speak to what you're seeing within shareholder communications going into the proxy season and whether it is that company specifically or others, what does that mean for Broadridge? Yeah, it is, you know, it's about that time when this begins

to get geared up. There's a whole season of corporate governance that is upcoming. Some of the big questions are really, you know, how many shareholder proposals will there be? A lot of debate around what has been the support for environmental, social, government proposals. And then when we talk about the Disney situation, it's really a very interesting playing out in terms of a change has taken place. Last year is the first year, something called universal proxy, which allows an activist who wants to take on a management team to not nominate a complete replacement for the board of directors, but to nominate a subset and to put all that onto one ballot. And that is still playing out in terms of how that will affect really the balance of sort of power between activists and management teams.

The Disney situation is developing. We don't comment. We're really just, we're the plumbing. There was a similar situation last year where it looked like there could be a contest, and then it was settled before there was a vote. Okay. like there could be a contest, and then it was settled before it was available. Okay. Tim, is generative AI going to change trading? We already had algorithmic trading, but is there another wave to come? And if so, how are you preparing for it? Yeah, well, we are doing a lot on AI. It is something that is certainly going to be

embedded, I think, really in all products and certainly in all financial service products in the future. And then for those that have unique data, and we have a lot of data in our company, it's an even bigger opportunity. So I think it's one of those changes, and you've heard this from many people before, sort of like the Internet, that where the impact of it is hard to know right now. I think we already have launched products that help people ask complex questions that you could get the answers to traditionally by looking at different databases,

but it uses the technology to actually write the queries, do them, return them quickly, so you can ask very complex questions and get them back in seconds. And that is really helping people with a lot of the analysis, pre-traded analysis, not doing automated trade or anything, that it can help people with the analysis to know what to trade in a much quicker way. Okay. I do want to get your take on deal activity, because we're getting this sense that it's starting to pick up as we look to 2024. Is that what you're seeing within the company from

your unique vantage point, too? Yeah, I think, you know, there's been just a big disconnect between buyers and sellers and what they're willing to pay over the past couple of years. Also, there was just a lot of activity as at the last market peak and a lot of private equity firms sort of, you know, really tried to transact at that time. So I think there's a sentiment that as interest rates stabilize, that there will be a bit of a pickup in the, particularly in the M&A market. Maybe, you know, people have been talking about it for a while. It still hasn't happened, but maybe sort of late spring in the summer, people are talking about that. Tim Gokey of Broadridge Financial, thanks for joining us.

Thank you. We've got a major supply chain shift underway. One country cashing in on that strategy. Details straight ahead. And be sure to check out the latest episode of my podcast, Manifest Space, featuring astronaut Mike Massimino discussing his new book and how his experiences in space can be used in day-to-day life here on Earth. Welcome back.

Recent supply chain headaches have companies pulling manufacturing closer to the U.S. That's helping Mexico. Frank Holland is in Monterrey, Mexico, with more on nearshoring. Frank. Hey, John. Mexico on track for $30 billion in greenfield foreign direct investment this year. That's money from outside the country to build new manufacturing and other facilities, including this DHL complex where we are right now. Nearshoring is a big part of that boom. For example, Lego. We visited that site. It's looking at double production here in the Monterey area, with every single block produced

going directly into the U.S. market. The global toy brand joins Tesla, Unilever, Nissan, and many other companies with plans to start production or expand production across Mexico. A key factor is supply chain reliability following disruptions from the trade war and the pandemic. In every sector, we're having these discussions around reshuffling the total supply chain and making sure that it is de-risked. Because what we're talking about here is it's not only a cost topic, it's a de-risking of supply chains with everything we learned over the past period. Speed of transport, that's another key factor. Containers here in Monterey can reach the U.S. by rail or by truck in about two days as compared to about 20 days from China and from Asia. Cost of labor is another key factor. The average worker in Asia is paid $6.50 an hour

compared to under $5 an hour here in Mexico. John, back over to you. All right. Frank Holland in Monterey. Thank you. Morgan, we've got this overall theme that's continued through earnings season. Revenues may be coming in in line, maybe a little bit short. Profits better.

And then the guidance mixed bag. That seems to have played out thus far here in overtime today as well. It makes me think about the reading. We got that really strong, robust Q3 GDP number. Everybody looked at that and went, whoa, so much stronger than expectations. But also, is this going to be a peak in terms of economic growth? And now you're starting to see that in the macro data. You're starting to see it to your point in some of the guides we're getting on fourth quarter and beyond with companies as well. And we've got to pair that with the jobs report that we get tomorrow. How strong is that heading into this last stretch of the holiday season?

And how does that reflect what retailers are going to feel that they have the room, the capability to do at the beginning of next year? All right. Big report tomorrow morning, but that's going to do it for us here at Overtime. Fast Money starts now.