Closing Bell - Closing Bell: Overtime: Former Goldman CFO On Rising Rate Environment, Opportunities in AI; Top VC On Prospects For The Rest Of The Year 10/2/23

Episode Date: October 2, 2023

Big tech stocks helped boost the Nasdaq but the Dow closed lower. The S&P 500 turned positive in the final minutes of trading. Bespoke’s Paul Hickey and Wells Fargo’s Sameer Samana break it all down while our Pippa Stevens on why utilities posted its worst day since spring 2020. Former Goldman CFO Marty Chavez talks opportunities in AI and how higher rates are hitting banks and the markets. Bessemer Venture’s Byron Deeter on the recent IPOs and what the rest of the year could hold. Jay Barry, JPMorgan’s Director of Interest Rate Strategy, on how investors can play higher rates. VanEck CEO Jan Van Eck on crypto ETFs. 

Well, you got your scorecard on Wall Street. S&P is about flat. Nasdaq in the green, but the Dow in the red. Winner stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. And coming up on today's show, we're going to speak with J.P. Morgan's top rates expert about another jump in yields to kick off the fourth quarter. Plus, Bitcoin also having a strong start to Q4. We're going to talk to the head of VanEck ETFs about the company's just launched Ethereum fund. And former Goldman Sachs CFO Marty Chavez, now the vice chair of $70 billion investment firm Sixth Street, joins us with the investment opportunities he's watching in AI. But let's begin with rates and the market. The 10-year jumping to 15-year highs today, keeping pressure on the broader market.

So the Nasdaq did manage to notch again. And it looks like the S&P finished just ever so slightly higher. Let's bring in senior markets commentator for CNBC, Mike Santoli. Mike, I mean, 4,200, that's the level everybody seems to be watching. The 200 moving day for the S&P. We're sort of slowly inching back towards that. Yeah, I mean, we've got pretty close with a one percent last week, Morgan. It's also really this area that's been widely watched for a while now in terms of it

being formerly the ceiling of a long trading range around 4200. We broke above that in early June. Everyone said soft landing for the economy is in store. So we're testing all those things at once. And we'll say the S&P 500 about flat on the day in about as uncomfortable a manner as you can get there, because you did have the vast majority of stocks in volume to the downside. You had small caps down a percent and a half. So it was definitely a very bifurcated market. The defensive mega caps doing a little bit of the work. And you mentioned, of course, the 10 year Treasury yield for seven. And it makes people uneasy because it's continuing to go up in this very unanchored way without there being a lot of new inflation or economic news to drive it. So it seems as if it's a bit of a positioning shock in the psychology move more

than anything. So, Mike, I feel like we've gone from everybody knows the market's going to be down to start the year to everybody knows the market's going to be up to end it. But we've got utilities, energy, real estate, materials having a rough day to start October. That's kind of weird. You know, I'm not saying that one day presages the whole month, but it's kind of weird, right? It's a bit odd, although one of the reasons people get conviction that the end of the year has tended to be higher is that you often do get the conditions beforehand, like in September and into October of so bad, it's good, you know, or so far down, everything looks up.

And we might be in for something like that. But I take your point that there is perhaps an excess of conviction out there that the seasonal effects are going to bail this market out. And, you know, we can just have to wait for them to kick in. Eventually, they do become friendlier. But as I like to say, when it comes to market patterns, seasonality is climate. It's not weather. It just tells you these broad tendencies, not, you know, how to dress tomorrow. Point taken, Mike.

Thank you. And, hey, S&P utility sector down almost 5% today. Let's talk more about that big drop. Pippa Stevens has a closer look at what's driving that group lower. Pippa? A big drop, John, with utilities hitting a three-year low as higher rates weigh. Utilities typically have quite a bit of debt, given how capital-intensive the industry is, meaning when rates go up, their costs rise.

The sector is also viewed as a bond proxy or a relatively safe place for income-seeking investors to park their money. But once again, when rates go up, those dividends look less attractive relative to treasuries. NextEra is leading the sector lower, with shares down 11 percent, Once again, when rates go up, those dividends look less attractive relative to Treasuries. NextEra is leading the sector lower with shares down 11 percent, also making it the worst performer in the S&P 500. Goldman and Wells Fargo both cut their price targets on the stock today, but also reiterated overweight ratings. The weakness in NextEra specifically comes after its subsidiary, NextEra Energy Partners, cut its dividend growth rate target. The company is a major owner of renewable assets, which are also adjusting to higher capital costs. Now, John Bartlett from Reeves Asset Management, which invests in utilities, added that investors right now want exposure to a growing economy

rather than utilities model of investing in their systems. John, back to you. All right, Pippa, thanks. Now let's bring in our market panel. Joining us is Paul Hickey of Bespoke Investment Group and Samir Samana of Wells Fargo Investment Institute. Guys, welcome. Paul, so the table's set. If utilities aren't safe in this environment, Can investors really trust that Q4 is going to be that strong? You think so? You know, I do think so. And what you're talking about in your prior segment is that seasonality, you know, you can't just bank on seasonality to bail you out. The seasonals are certainly working in the market's favor. And October is historically known as the month of market bottoms.

More bottoms occurring in October than any other month. But when you take a step back to late July where we were and the market was at its peak for the year, there were two factors that were weighing on that were working against the market besides the upcoming two months, which are usually negative from a seasonal perspective. That was sentiment, which had finally become, you know, individual investors were embracing the rally. Bullish sentiment was over 50 percent. And you just had a market that we were calling it the summer of overbought because the S&P 500 had been overbought every day from Memorial Day through the end of July and the Nasdaq from Cinco de Mayo all the way to the end of July. So those types of conditions can't last forever. You had investors offsides

in an overbought market. And so now what we see at the end of September is things have been completely reversed. Bullish sentiment has been cut in half. And just last Thursday, all of the major index ETFs were trading at what we call extreme oversold levels. And the last time that had happened was a year ago to the day in late September of last year. And when you look back at those types of periods, when you have such universal oversold conditions, it sets the stage for the market to do better and put up better than average returns going forward. OK, Samir, just going back to utilities and just in general, the fact that you've seen things like staples selling off and other so-called defensive sectors of the stock market,

does it raise the question that what's considered a safety play needs to change, especially in an environment where you have yields higher and investors are going to get paid more to basically sit out in the short term? Yeah, no, I mean, that's spot on, right? I mean, for about a decade, decade and a half after the financial crisis, people basically crowded into dividend paying stocks because it was the only place to find income. So staples, utilities, parts of health care, parts of telecom, those were kind of the favorites, right? I remember the charts about the number of stocks in the S&P that yielded more than the 10-year. Well, I mean, now we've basically had rates go from zero all the way up to five,

and a lot of the sectors haven't adjusted. So they're incredibly expensive. Some of those revenue streams are what I would call, quote, unquote, defensive. But I think you could argue higher growth areas like technology could also be part of kind of that, you know, growing, you know, defensive basket. Larger caps more broadly, I think, do pretty well in this type of environment. So, you know, what we would tell people is kind of barbell between large caps and bonds, as opposed to trying to go down some of these rabbit holes with dividend payers. And just to be clear, Samir, you think stocks more broadly end of the year lower? We do. So our target range has been for some time 4,000 to 4,200.

So while we might have these kind of on-off types of moves, we do think that we'll end the year pretty much right where we are right now. Paul Hickey, I seem to remember you liking small caps pretty well. What do you think about that barbell, large caps and bonds? Well, so, I mean, small caps, you talk about the valuation problems with the market, and now it's richly valued. So you get to a situation where, you know, outside of this seven largest stocks, the S&P is a much more reasonable market cap. So that's one thing in favor of large caps. You go down the market cap hole and you get like mid caps and small caps, small caps trading for 12 times earnings. So they're much more, you know, much more reasonably priced. When you look at bonds, certain areas of

fixed income market, I mean, even at these levels of long-term treasuries, it's just not necessarily the most attractive position for you. You know, you can talk about how they yield more than equities, but, I mean, that's, for most of history, that's been the case. And from 1982 to the late 1990s, you had the earnings yield of the S&P 500 was less than the 10-year Treasury yield. And that was one of the greatest two decades for U.S. stocks in history. So in that respect, I think just because yields are high doesn't mean stocks are unattractive. Samir, is this a time to be defensive? And if so, should investors see potentially opportunity in utilities, energy, materials, some of the sectors that we saw take a beating today? So we think you've got to be very selective. So I think

first and foremost, it means that you want to be overweighting fixed income at the expense of equities. I think within equities, you want to favor kind of those larger cap, more U.S.-oriented areas. I think you want to stay away from small caps and emerging market equities. I think you want to favor the industrials, materials and health care sectors. Those are areas where you can get some dividend yield, but also some protection from kind of this stagflationary environment that we're currently in. And we would avoid consumer discretionary and real estate almost at all costs. OK, Paul Hickey and Samir Samana, thank you both for kicking off the hour with us. Mixed picture for stocks today on this first day of the last quarter of the year.

So-called quality stocks are often recommended by guests on this network. Kind of touched on that just now a little bit. Have they really outperformed? Let's get some quality time with senior markets commentator Mike Santoli. Mike. Yeah, Morgan. You know, this is a year when so-called quality stocks, by various methodologies of arriving at them, have outperformed the broader market. But I also think it's very interesting to look below the surface and say, what are you getting when you do these quality screens?

So here are a few ETFs, along with the S&P 500, that do attempt to create a system for screening out higher quality stocks usually means companies with good balance sheets, more predictable earnings, high returns on equity, some profit growth, long profit growth record, things like that. So this is the QAL is one of them. Moat is interesting to me because it's basically an ETF built around Morningstar's wide moat companies methodology, which is a little more subjective. But what is fascinating is most of these have essentially arrived at a large cap growth heavy portfolio. If you look at the S&P high quality and the quality ETF, they all have things like Alphabet, Microsoft, Nvidia, MasterCard, Visa, basically all of the very large cap growth companies that we know have performed well. So you're getting those in disguise, although the mode ETF, as I said, more subjective. And you get companies that just have a better competitive advantage that they believe can last over time.

Over longer periods of time, they act a little more like the S&P 500, which itself has grown higher in quality than it used to be. It's just a little bit less cyclical based on the market weights. Morgan, I mean, I keep going back to this whole notion of the magnificent seven, Mike, and the fact that if you if you actually look at these seven stocks, they've led the markets higher this year. They've accounted for more than 80 percent of the S&P 500's total return for 2023. Their valuations are so much higher based on some metrics than the rest of the broader S&P right now. I mean, how much is this distorting the whole notion, to your point, of quality and also value? Yeah, I mean, basically the market is collectively deciding to pay up for quality. Now, we'll say not every one of the seven. For example, I don't think you're going to find Tesla

and Amazon and a lot of the quality screens. They just don't have that long a history of necessarily having higher profitability. But, yes, in general, your point is absolutely true. So the market is already privileging this type of company at this point. And it's distinct from traditional defensive, which, as you guys have been talking about, have really not been any shelter this year. All right. Mike Santoli, thank you. See you in a bit. When we come back, we will talk to former Goldman Sachs CFO Marty Chavez,

who is now at Sixth Street Partners about where his firm is looking for investment opportunities and how sky-high rates are impacting the investment and corporate worlds. Overtime's back in two. Welcome back to Overtime. A mostly down market today, but big tech did outperform. AI-driven names like NVIDIA and Alphabet were two of the top stocks in the S&P 500. Joining us now, Sixth Street partner and vice chairman, Marty Chavez. Marty, it's great to have you on the show. Always a pleasure. I mean, we were just talking about, and we have been all year, the impact of AI on the broader market and the fact that you have seen these big tech names shoot higher. But what does it mean in finance and what does it mean for

a firm like Sixth Street as you think about investing in this landscape? Well, I've been tracking AI for most of my life. I got a PhD in AI a very long time ago when we were embarrassed to talk about AI because we were able to achieve so little. And 30 years on, that has changed. And the advancements that we're seeing literally every week are startling and wonderful. And everybody's got to pay attention to it. It doesn't matter what industry you're in.

I guess the starting point for thinking about it might be that it's going to make all of us more productive, and it's going to be a force multiplier. We just don't know exactly by how much and when that's going to materialize. For our portfolio companies, we're working with all of them to understand the opportunities and the threats occasioned by AI. And we and other financial firms are also introspecting. Yeah. Are you making targeted investments specifically geared towards AI right now? We're thematic investors, as you know, and we're certainly looking hard and developing themes in and around AI.

And this is a very active area right now. So where are the opportunities going to be? Are they going to be in these foundational large language models? Are they going to be in data centers, infrastructure, new software technologies? How is the whole thing going to look? Is it going to be vertical software providers on top of foundational LLM providers? We're investigating and forming theses on all of it. And you've studied this, Marty, so maybe you can help public market investors, at least, if not give them the answer for what's going to be most investable, help them see how they'll know when it's coming. So we've seen NVIDIA move, a couple

of other names as well. But when it comes to life sciences, when it comes to finance, what are going to be the first signs that somebody, either a company using these tools or a company delivering them, has figured it out where AI is concerned? Well, everybody's working on it. I would look at other big developments in technology and see how they played out to look for possible patterns. So right now, clearly the first beneficiary is NVIDIA making the chips that everybody is using. But there's a lot going on in chips. There are other manufacturers.

There are hyperscalers who are designing their own chips and collaboration. Generally, we find that the opportunities proceed up the stack. So you're going to start with foundational tools such as the chips. But eventually, that's going to go off into data centers and software, I would expect. But nobody knows where this is going. That would be the likely trend, up the level. Okay. Are we going to see industry-specific models, say in biotech and life sciences, that are moving the needle? Should investors, can investors look for developments like that? Because we're starting to see them,

you know, in CRM, in customer service, you know, things like that. Is that going to play out as well? Well, here's one place to look, and it is already happening. I work with a wonderful company called Recursion Pharmaceuticals, a pioneer in AI-enabled drug discovery.

And there, the company is doing experiments, data-gathering experiments on an industrial scale, and putting that together with AI to predict how perturbations in a cell, for instance, knocking out a gene or throwing a small molecule at it, might cause it to respond. And doing this is in a consistent and comprehensive way to decode biology, to understand what is going on way down at the level of cellular processes. So this is already happening. Recursion is one example. There are many in our portfolio of companies. We're looking at every company, particularly in life sciences and healthcare, that has gathered a data asset and asking, what is the opportunity if you used AI on that data asset to create new refined data sets? This has been something that's been going on for a long time. Expect a lot of opportunity there as well. Yeah. Recursion CEO has been on

this show a couple of times already to talk about all of this and the possibility. I do want to shift gears a little bit, Marty, because you're in a very unique position. You are the former CFO of one of America's biggest banks, Goldman Sachs, and now you are at Sixth Street. So as we do look to this upcoming earnings season, as we have seen higher rates, what is that going to mean for bank balance sheets? And also as important, as we do see banks start to pull back and tighten and tighten on their lending and credit standards, what is it going to mean for the non-bank companies like a Sixth Street, which is a direct lender, coming in to fill the void? Well, certainly I've seen it from both sides, from the bank perspective, as you mentioned, and then also

from the private capital perspective. And certainly, the last few months, the last year, has really reminded everybody of the importance of interest rate risk management and liquidity risk management. Of course, for banks, this is or certainly ought to be a core competency. There's a lot of discussion among the regulators what went wrong earlier in the year with the number of banks that failed and what needs to change in the governance, in the rules to tighten up the capital rules, for instance, the liquidity rules. So I would expect that to be coming. And certainly it shows the opportunity for other kinds of firms that have built into their structure. And Sixth Street, of course, is such a firm, the matching of assets and liabilities. This has always been a complicated topic for banks and certainly higher interest rates are focusing everyone's attention on it

right now. Marty, do you have a take on what's going to happen to the banks that aren't so big? You know, financials didn't do so great today. The KRE, the regional bank ETF was down about two and a half percent consolidation. There are some of these banks going to go away or have they passed through the worst of it? It is hard to know. I wouldn't want to make very much out of one day's action, of course. One can consider bank consolidation, but note that the regulations make it difficult for bank consolidation to happen.

As regulators tighten the rules, there's going to be a very delicate trade-off here. You might say, on the one hand, let's subject all the banks, even much smaller banks, to stress tests and liquidity coverage ratios and net stable funding ratios. That has all kinds of policy trade-offs. I think it's too early to understand exactly how that is going to play out. There is always a role for community and smaller banks close to the credits doing that information intensive analysis. I expect that to continue. Well, you're a polymath, AI, life sciences, financials. Marty, thanks. Marty Chavez. Thank you. Birkenstock now becoming the latest firm to kick off its IPO roadshow, but recent listing Instacart pulling back sharply today.

Up next, we're going to ask a partner from Bessemer Ventures if companies are rethinking going public during this bout of market volatility. And check out these two stock movers. Investors not liking Kellogg's spinoff, WK Kellogg, on its first day of trading. WK is the standalone cereal business, while the global snack side that remains is Kelanova. Both names taking a hit, a big hit today. A little soggy.

I'm trying to think of a snack pun. I can't. Welcome back. Take a look at a mover here in overtime, Oddity Tech, posting preliminary results that show revenue growth of 29 to 31 percent. The company went public in July. It uses AI to develop products in the beauty and wellness categories. Oddity also increasing its margin outlook and says sales have jumped by almost 60 percent this year. As you can see, shares right now jumping by about four and a half percent. Yeah. Another recent IPO, Instacart tumbling, posting its second worst day in its short history, falling more than nine percent today. The information reporting that Goldman Sachs is forecasting a weak second half outlook with slower revenue growth and lower profits. Meantime, Birkenstock filing an amended F1 today

that kicks off its IPO roadshow, seeking to raise as much as $1.6 billion at a $9.2 billion valuation. The company's looking to sell 32 million shares between 44 and 49 bucks apiece. Joining us now to talk about the IPO market is Bessemer Venture Partners partner, Byron Dieter. Byron, it's been

a while. Good to see you. Thank you. So, I mean, the post IPO market for some of these names not looking so hot. We just talked about Instacart. Arms also down. These were largely small floats. I assume they were boosted up at least for the first couple of days by supporters. But now, so what does that say about the IPO market? So I think we should keep some perspective. We obviously went from one of the largest IPO markets in history, 2021, to the worst in the last 25 years, last year in 2022. And I think we've got a tale of really three quarters ahead. These companies, in an absolute sense, are still solid valuations in the $9 billion-ish range

if you look at Instacart and Klaviyo. Birkenstock, they expect, will trade in a similar range, and Arm, obviously, a multiple of that, but much larger scale. However, we've got a pretty modest IPO pipeline ahead for this coming quarter. We might see a couple on the enterprise side, names that are mentioned a lot, Rubric or Cohesity, maybe on the consumer side, something like Toro. But almost certainly, it's going to be in between these extremes in the last couple of years and a pretty lukewarm environment over the coming months. Really, what we're looking forward to is Q2 2024. So three quarters out, companies will drop in their financials. Hopefully, interest rates will have stabilized a bit. And we see this massive pipeline that's been building, the largest in our lifetimes,

finally able to start looking towards those markets. And we think it could be a monster Q2 if things stabilize in the macro. What about names that have already gone public, like HashiCorp, that the public market hasn't been kind to? The multiple compression has been rough. You look back, HashiCorp that, you know, the public market hasn't been kind to. The multiple compression has been rough. You look back, HashiCorp was the last IPO, December 2021, two years ago, and it had been a ghost town until Klaviyo and Instacart and Arm opened things up just in the last few weeks. Again, in an absolute sense, the valuations are solid, but the multiple compression has people worried. You look at the quality of these companies, and that's where I might disagree a little bit with some of the prior commentary.

Klaviyo is a fantastic company. Instacart's a solid business, and they're trading at pretty modest multiples. And so everyone else is looking at those comps saying that's a tough class to compete with. We're going to continue to build skill and work our way up. And that's what we expect to see. We think that some of the very strongest names, companies like Adata Bricks that people are looking at, Canva is mentioned a lot. Those are the names that people are looking to be the bellwethers of next year. And we think they could pull a lot of really high quality companies through with them. OK, so we've just established that the high quality companies are going to be the ones that potentially go public next year. What happens to

the ones that are not so high quality, especially in a private market where we've seen capital dry up? We hope the M&A markets follow, but that's been slow. The Splunk Cisco news was a meaningful flag that we hope may signal some opening. However, the valuation mismatch has been massive. Private companies have still been holding on to some of those valuations from their last rounds. Multiples often deep into the double digits on a revenue multiple basis, while their public peers are trading at six to eight times for quality names. We think that the convergence is starting to happen, and that's where you'll see some of the M&A unlock. But we have hundreds of billion-dollar companies in the private markets

that need a path forward. We think that dozens of billion dollar companies in the private markets that need a path forward. We think that dozens of those will follow through the IPO path over the next two years. But the remaining companies are going to have to find exits of some form or fashion. The vast majority of those will go the M&A route in the coming years. OK. I mean, we've had this conversation repeatedly on this show. I think about Jennifer Nason from JP Morgan last week talking about the fact that basically the spread between bid and ask is still too large, whether you're talking about IPO market, we're talking about M&A or even talking about, you know, credit markets and debt issuance right now. What is it going to take to see that narrow?

Does the ask portion need to come down or does or I guess I guess what I'm trying to get to is, especially in a higher interest rate environment, are we going to see another re-rating in the private markets? There needs to be a convergence. I think you're absolutely right there. And it's going to be a combination of multiple factors where I think the team does meet in the middle. There will be a re-rating.

The public multiples are unlikely to rebound to the 2021 levels anytime soon. And so we think that the private markets are more likely to come down to those multiples. There's a growth adjustment that will happen. It's quite rational to still pay double digit multiples in the private markets where they may trade at high single digit multiples in the public markets. But the solve function there is the growth rate. And so we think that as the private companies burn down their balance sheets and they have to go back to the private markets, and as some of this backlog of private capital that sits in funds like ours and others starts to be drawn down,

we'll see companies that start to work down their valuation expectations and deal volume will start to unlock. It has been slow. It's taken longer than most of us expected. But we do start to see signs of deals clearing and the bid-ask spreads mathematically are convergent. Okay. Byron Dieter, thank you. Always a pleasure. Thank you. Time for a CNBC News Update with Bertha Coombs. Bertha. Hey, Morgan. A trial date has been set for Senator Bob Menendez. The criminal trial will kick off on May 6, 2024. The judge in the case urging prosecutors to provide the defense with all of the evidence

by December 4th of this year. The New Jersey senator has pleaded not guilty to charges of taking hundreds of thousands of dollars in bribes in exchange for official acts. The Federal Communications Commission is issuing its first ever space debris enforcement fine. Dish will pay $150,000 for failing to properly de-orbit one of its satellites. The commission said Dish will adhere to the compliance plan and has admitted liability.

And a judge ruled that Lady Gaga will not have to pay a reward or damages to the woman who returned her stolen French bulldogs in 2021. The plaintiff, Jennifer McBride, said she was entitled to the $500,000 no questions asked reward that Gaga offered. But the singer's lawyers disputed the claims, saying McBride admitted that she had received stolen property as a part of the group responsible for the theft of the dogs. Back over to you, John. All right, Bertha, thank you. After the break, the big spender generation, there's one demographic in particular that might be propping up consumer spending levels in America. Mike Santoli is going to break it down next. And check out the late day pop for Novo Nordisk.

That stock climbing out of the red and closing higher on news that a U.S. patent trial and appeal board has denied a request from Mylan to review patients, or patents I should say, related to weight loss drug Wegovi. We'll be right back. Welcome back to Overtime. Michael Santoli is back with a look at the spending gap between older and younger generations. Mike, who's spending more? You know what, John? It's not always this way, but older people in America have been spending a lot more. At least their growth has been growing faster in terms of their consumption than younger people. Bank of America pointing this out.

This data goes essentially just through May into the summer of this year. But you see this big gap that opened up right here. Traditionalist generation, that's the generation older than baby boomers born before 1946. And then you have baby boomers themselves still sustaining very high growth rates in spending. And you see that all other generations actually dip negative on a year over year basis in terms of their consumer spending based on car data. Now, a couple of things going on here, one of which is higher interest rates often mean higher interest income for people who have a lot of financial assets. Sixty trillion dollars in financial assets held by baby boomers. And of course, the other thing is pretty significant cost of living adjustments upward in Social Security benefits to start this year as well.

So all that going on suggests there's some quirks about this current cycle, this current consumption cycle that maybe is allowing the market to stay in better shape and overall consumers spending to hold up better despite higher interest rates. Flip side of that, interest costs for homeowners have remained relatively anchored because so many people locked in low-cost mortgages. We know that. But this shows you the gap between the current prevailing mortgage rate and the average effective mortgage rate on all mortgages outstanding. You see very tame under 4%. So essentially, John, households are doing this arbitrage in some respects, getting more income, 5% money market funds, while paying out less, if you're lucky, of course, to have a home and to have financial assets. Mike, this makes me wonder two things in particular.

One, if you're older, you probably paid off your student loans, hopefully, already. So maybe you don't get pinched as we enter further into that repayment period. And then as yields have risen post-May, is there going to be a temptation for that spending demographic to hold on to it and get paid more? Well, there certainly always could be. But I do think you have seen evidence of a little bit of a greater propensity to spend through experiences, through travel, even among older people. So who knows if, in fact, this is going to be sustained. But, you know, it's one of those things where if you feel like you have a nest egg that's going to last you as long as you need it, getting more cash income off of that because you have it in money market funds or short term bonds, you know, probably means you just have more to work with

whatever you want to do with it. All right. Mike Santoli, thank you. The 10-year Treasury yield is hitting its highest level in nearly 16 years today. Up next, JP Morgan's head of interest rate strategy reveals where he sees the biggest opportunities in fixed income right now. So those experienced can spend it, right? And check out Recursion Pharmaceuticals. Marty Chavez from Sixth Street Partners told us earlier this hour he likes the drug discovery name as an A.I. play and it's jumping in overtime. We'll be right back. Welcome back to overtime stocks closing well off the lows today, despite the 10 year yield hitting a fresh high of four point seven percent, its highest level since October of 2007. Joining us now is Jay Barry. He is J.P. Morgan's co-head of U.S. rates strategy. Jay, it's good to have you on. And I just I want to I want to sort of step back and set the stage here because there have been a lot of factors that have been bandied about on CNBC about why we've seen this bear steepener since the summer

and we've seen yields move higher on the 10-year. Your take. Well, first, Morgan, thanks for having me on this afternoon. And I think there's been two distinctly different trades here over the course of the summer into the early part of the fall. The first was definitively growth-driven as we realized the U.S. economy was more resilient. And I think we've seen our own economists have bumped their second-half growth forecast higher by about 2.5 percentage points. But that came to an end at the beginning of September. And since then, it's been really less fundamentally driven. Fed expectations and growth expectations

have been pretty stable, but market-based inflation expectations have been rising. And even after adjusting for that, we can only see fundamentals really explaining about 50 percent of the move over the past month, which leads me to believe this is more about term premium and technicals. And I think there's a very healthy debate out there about whether expectations of outsized Treasury issuance, which is just at its onset right now, could be having an impact, certainly as the Treasury demand buyer base shifts from more price-insensitive buyers towards more price-sensitive buyers.

But we actually think this is a very slow-moving event, which is going to take years to evolve. If anything, this seems to be about position technicals with this sort of supply-demand story operating in the background. Yeah, and of course, we talk about term premium. We're talking about the compensation that investors require for basically bearing the risk that the interest rates are going to change over the life of a bond. So what does that mean in terms of playing this right now as an investor? What's a compelling, I guess, what's a compelling move right now and why? Yeah, so I think the first thing I'd say is if we think that this Fed tightening cycle is coming to a close or has come to a close, that should also

equal be supportive of yields finally stabilizing because the Fed drawing tightening cycles to a close is certainly supportive there. But you're right, if we're at a sort of turning point here where the Fed, the U.S. banks and foreign investors are disappearing and we need more price sensitive investors to sort of buy treasuries as deficits stay wide right here, it likely means that it's only going to be the very short end of the yield curve that really starts to decline in yield as the Fed goes on hold, where long term yields are going to be anchored at much higher levels. So all in, our thesis on this has been steeper yield curves, so the long-end underperforming and the cheapening of the belly of the curve, which is to

say that the five- to ten-year sector stays relatively cheap while it's the very front-end and the very long-end that sort of outperforms as term premium rises. Okay, so Jay, simplify this for us. Which bonds and bond funds are the most on sale right now? Because it sounds like you're saying, hey, like, this is kind of temporary. It's kind of technical. You know, the hiking cycle is pretty much over. So you should get these yields while you can. No, I think, you know, the only risk to that, John, is the technical forces that have driven us here kind of stay in sort of high vault for the near term. But if anything, the five-year sector of the curve looks valuable to us along the yield curve.

And if anything, we do think that yields are about 30 basis points too high after controlling for their fundamental drivers. So if you had to add anywhere, we think it would be the five-year sector of the curve. But we're cognizant that the technical influence is pretty powerful right now. All right. Jay Barry, thank you. Thanks so much. Well, ratings are in for last night's NFL game featuring the Jets, the Chiefs, and yes, Taylor Swift. Taylor Swift's impact is being felt by more than Travis Kelsey. Julia Boorstin has the details of the ratings. Julia.

John, call it the Taylor Swift effect. We just got the ratings in for the game last night. And this Chiefs-Jets game is the most watched Sunday game since the Super Bowl, averaging 27 million viewers, the most streamed NBC NFL regular season game on a Sunday. And I have to note that viewership increases among females across all age groups, adding more than 2 million female viewers. So clearly some impact there. And it really seemed like they were Sunday Night Football was really taking advantage and leveraging the fact that Taylor Swift was there. They say that the Taylor made for Sunday Night Football game promo was viewed approximately

8 million times. John. Okay, the effect continues. Julia Borsten, thank you. Well, bogus. That's what Microsoft CEO Satya Nadella called a key part of Google's antitrust lawsuit defense. During testimony today, we've got the highlights when Overtime returns. Welcome back. Microsoft CEO Satya Nadella taking the stand in the Justice Department's antitrust trial against Google. And during testimony, he said Google's argument that users can easily change their search defaults is bogus. Eamon Jabbers has the details. Eamon. John, that's right.

Microsoft CEO Satya Nadella's testimony helped the government's argument today in that he said Microsoft has been trying to bid for the default search position on Apple devices for years, but has never been able to outbid Google, which he estimates pays Apple somewhere between 10 and 15 billion dollars a year for pole position there. He said he would even be willing to take years worth of losses in the short term to get Microsoft's Bing to be that default because consumers simply don't switch from whatever the default setting is. The argument that consumers have a choice, he said, is bogus, to use that word, because they rarely switch. But Google's attorney, John Schmittlin, hit Nadella with a series of questions about Microsoft's slow entry into the search business,

building an argument that the software giant was late to the business, under-invested in it, and wound up with an inferior product as a result. John, back over to you. Amen. This seems similar to the argument that if, say, Internet Explorer were the default browser in Windows, it'd be really hard to get another browser to succeed there. Yeah, that's absolutely right. I mean, what Nadella is saying here is that once consumers have this default on their device, they just don't switch. So arguing that they have the theoretical capability to do that in business terms doesn't really mean anything.

But Google's attorney hit him pretty hard with this idea that Microsoft has paid for the default setting on a number of different devices over the years for Bing. And when they do that, consumers do opt out of Bing. So a little bit embarrassing for Microsoft, at least in that respect, John. All right. Eamon Chalmers, thank you. You bet. Shares of Alphabet and Microsoft both finished the day higher, though. Cryptocurrencies have been a safe haven during the recent market turmoil. And investment manager VanEck just launching its first Ethereum futures

ETF today. We will hear from the company's CEO when Overtime returns. Welcome back to Overtime. Ether and Bitcoin hitting highs earlier today, not seen since August 17th. Ether getting that pop thanks to several Ether futures ETFs launching today, which could drive optimism for spot Bitcoin ETFs filing to be approved by the SEC. Joining us now is VanEck's CEO, Jan VanEck. Jan, it's great to have you on. I do want to start with this Ethereum futures ETF. What does it bring to the market?

And I ask that because there is all this focus on spot ETFs, too. But when we're talking about futures, it's a very different product. It tends to be a more sophisticated trader. So how do you expect this to play out? Well, thanks for having me on, Morgan. Today's kind of a day, a big day in ETF history, if you will. So to the first point, yes, investors, traditional investors now have access to Ethereum, which is really, I would call it a pure play blockchain play, because Bitcoin has got this sort of aspects of gold. So it's interesting. It's a first day. True investors, what the fund holds, the ETF holds, the ETH futures, Ethereum futures, not the spot. So there are, I would say, a couple of

issues relating to that. One is, does the futures curve track the price of Ethereum? And then there's some tax issues that aren't as good as a spot Ethereum ETF. But I think what's historic about today, Morgan, is that for the first time, the SEC organized it so that at least four ETF issuers came to market on the same day, which has never happened before. Yeah. I do wonder, though, how this does pave the way, if it does, for whether it is Bitcoin or whether it is Ether, these spot ETFs, which I know you have applications out there for. Yes, I mean, it has to be a positive that the SEC is allowing these ETFs to go forward, even though they're not spot. We are just seeing signs after the Ripple decision and the Grayscale decision that the SEC is just relaxing their stance and allowing some of these funds to get

to market. I think there's still different views about that. They haven't announced a policy when it comes to spot Bitcoin or spot Ethereum. So it just would be speculation on my behalf. But I think it really is likely that we're likely to see something sooner than later. And I was wrong. I was the more skeptical on this. But it looks like early in 2024, we would probably see a spot product. Jan, taking a step back, I know you're a student of history in the way that you

invest at VanEck. So tell me, what's your theory of the decade, sort of global economy wise, and where does crypto fit in? Well, the decade, I think we're in a completely new paradigm when it comes to rates, and you just discussed that and you discussed a lot. So I won't get into that. But I think you have this higher for longer, tighter Fed stance, and that's not necessarily positive for Bitcoin or gold. Ethereum, I would look at as an aggressive growth investment, sort of a high tech stock in a way. So that's sort of speculative, John. So that's how I kind of break out the universe. And so would you position that in a portfolio then in that way, like extra risky? Absolutely. Thematic, speculative growth. That's for the Ethereum product.

Absolutely. For Bitcoin, I think it's, to me, much more of my core portfolio. Because the biggest risk in the markets is the federal budget deficit. And we don't know how that's going to play out. And I'm not just talking short-term government shutdown. I'm calling how do we fund the trillion dollar budget deficits and what will Washington get around to it before there's a crisis? And that's why it's really hard to time this stuff. But I like gold and Bitcoin in my portfolio now. All right. Jan Van Eck, thank you.

Thank you. Can we even keep the government running? We will find out November 17th because that's where the can has been kicked to. 15 years, 11 months, 10 days. That is the high for the 10-year treasury yield today. We'll see where it goes from here. That's going to do it for us here at Overtime. Fast money starts now.