Closing Bell - Closing Bell Overtime: How Retail Investors Are Trading AI Stocks; “Historic Opportunity” In Municipal Bonds 6/20/23

Episode Date: June 20, 2023

Averages closed lower today but near best levels. Vital Knowledge’s Adam Crisafulli breaks down the market action and reaction to weak FedEx earnings. Broughton Capital’s Donald Broughton on why FedEx stock is selling off in Overtime after Q4 results. PSEG CEO Ralph LaRossa talks EV charging and utilities as the Infrastructure Act money begins rolling out. eToro U.S. CEO Lule Demmissie talks what retail investors are doing with AI stocks. HilltopSecurities Tom Kozlik breaks down what he calls a historic opportunity in municipal bonds. Our Scott Cohn breaks down the top states in a slowing economy. 

You got your scorecard on Wall Street, eh? Off the lows at least. The action just getting started, though. Winners stay late. Welcome to Closing Bell Overtime. I'm John Ford with Morgan Brennan. And we are just moments away from FedEx's latest earnings. We will break down those results as soon as they're released. Plus, the CEO of natural gas and electric provider PSEG discusses what the fast-growing popularity of electric vehicles means for the utility sector and the outlook for home charging stations. And now let's get into today's market action. Joining us now is Adam Christofouli from Vital Knowledge. Adam, welcome. So things market-wise, I mean, down a bit today, but seem pretty stable considering.

But is all of the news and data being factored in here. I mean, I can't help but look at this economic news out of China and notice that Apple is still near all time highs. And we're going to get FedEx in just a bit. It doesn't seem necessarily to be reflected. No, I think I think for the overall S&P, the upside is certainly more limited than it has been. You know, we've gone about 400 points since the last earnings season. I have a really difficult time envisioning it getting above about 1550 in the near to medium term. I do think, though, you have one more kind of big positive macro catalyst, and that is going to be an acceleration of this inflationary pressure in the coming weeks and months. You know, you've seen the last couple of weeks an accumulation of data, including today some of the PPIs out of Europe. The German PPI in

particular is 1 percent in May. That's down from 46 percent a little under a year ago. So you're seeing a real rapid decline in prices. And I think that you're going to see further evidence in the coming months that's going to alleviate a lot of pressure from central banks. And that's going to kind of give you one last positive catalyst. And then we're going to see further evidence in the coming months that's going to alleviate a lot of pressure from central banks. And that's going to kind of give you one last positive catalyst. And then we're going to start to get into a period of time where disinflation is going to actually create some headwinds for corporate earnings. And I anticipate that being more of a fall type of an event. But I agree with you. I think, you know, we've come a long way. And so the upside is definitely not as appealing as it was. So if that's the case, we don't know,

no crystal ball. But if that's the case, if equities have had a nice run, maybe a little higher from here. Similarly, interest rates have run a lot higher, maybe a little higher from here. Seems like a decent time to just assess. Right. I was looking, you know, at my retirement portfolio over the weekend. It's like, wow, the S&P 500 has had quite a run year to date. Baby boomers are overweight equities versus what's traditionally recommended at this point. Long term, you're supposed to hope to get around 7% or 8%, I think, on equities. If you don't have enough fixed income relative to what's usually recommended. Should people be rebalancing, you think? Yeah, and I think that's definitely a consideration as we head into the end of the

quarter. The funds that have pretty standardized benchmarks that they have to be measured against, there certainly could be an allocation out of equities, which have been very strong performers, and into fixed income, which is certainly underperformed. And then circling back to my what I just said about inflation, if we are kind of at this peak and you're going to start to see an acceleration of disinflation, that certainly will be positive for bond prices. So I definitely think, you know, and that is a potential headwind for stocks in the final weeks of this month is a potential rebalance into fixed income away from equities. All right. Well, we have FedEx earnings just crossing the tape. Frank Holland is going to bring us those details. Hi, Frank. Hey there, Morgan. FedEx shares right now, you can see they're falling after a miss on revenue and EPS of $4.94 per share. It's unclear

if that figure is comparable to EPS estimates of $4.89 per share due to goodwill and other charges. Forward guidance was mixed, revenue guidance slightly above estimates, EPS estimates of $489 per share due to goodwill and other charges. Forward guidance was mixed, revenue guidance slightly above estimates, EPS guidance with a wide range, the midpoint falling well short of estimates. FedEx also announcing a management change. It's CFO Mike Lenz announcing his retirement. He will stay with the company through the end of the year until a successor is found. So deeper into the numbers, logistics company missed estimates for its express ground and freight units individually, citing weaker volumes, especially in international markets. We continue to see a slow recovery over in China. However, ground, which is focused on e-commerce,

did see pricing rise by 5%. The one clear headline, the update on FedEx's business transformation efforts to streamline its units next year. The company said currently in Canada, all ground operations are being handled by Express. About that overall effort called Network 2.0, management said in part, FedEx is also making solid progress with Network 2.0 as the company has now announced optimization plans to streamline pickup and delivery operations across networks in 20 markets. Each market is unique and will be optimized based on a number of factors,

including volume fluctuations, customer demand, facility footprints, and more. So again, FedEx shares falling after a miss on the top line, an EPS of 494 a share. It's not comparable to estimates of 489 a share, according to our data team. Back over to you.

Yeah, Frank, I mean, we've known this restructuring was afoot, and certainly the details now around Canada, specifically in this release. We also know this is a company that's been cutting costs aggressively to the tune of billions of dollars as well. When you do see something like a top line miss and I realize we're just digesting these numbers now, we see something like a top line miss. I mean, do we know how much is company specific versus really the fact that FedEx is a bellwether for the global economy right now? Well, we know one thing. This is their fifth revenue miss in a row. So some of it is the macro economic situation. Raj Subramanian, the company's CEO, he flagged that ahead of a lot of other CEOs before we saw a broader slowdown. Then later, a few months later, we saw UPS's CEO,

Carol Tomei, say something very similar, specifically about volumes coming out of China and out of Asia. On the other end, we know that FedEx did some pretty aggressive cost cutting, as you just mentioned, cutting hours of workers, cutting facilities to try to get its business right size, considering the slowdown in volumes. A lot of people think that we may have hit the bottom. So the question now is, have they cut enough and are they able to capitalize on what could be a big upswing for the second half of the year? All right. And then, as you mentioned, shares are under pressure right now. Frank Holland, thank you. Adam, I want to bring you into this conversation as well, because in general, we're seeing a lot of angst out of China. And certainly this idea that growth there is slowing,

stimulus measures announced, but maybe a little bit disappointing. You got the reorganization at Alibaba as well. I mean, how much is that factoring into the broader market sentiment right now? Yeah, I definitely think there's been a lot of disappointment year to date that the rebound in China's economy hasn't been as robust as hoped or as robust as a lot of other countries saw when they removed their COVID restrictions. So China is pulling stimulus levers. They're definitely not acting aggressively. You're not going to see the shock and awe type of stimulus that they did in 2008. You know, the 10 basis point cut in rates that they just did over the last week,

including the LPRs overnight, you know, certainly not dramatic at all. So we'll just kind of have to see how it plays out going forward. And then you also have this geopolitical element to the China story, too, which is, you know, just compounding a lot of the anxiety around China. And that's obviously been cited by FedEx now for several quarters. China's been a big area of softness for them, which is why they've been so aggressive on restructuring to kind of offset that with cost cutting. So are you surprised by the, I mean, you've got to go through the results a bit more here, the call, but just the top line issues for FedEx here. Do you think that's following a storyline that we've seen thus far for other

companies or is it a new storyline? No, I mean, Q1 was pretty poor for a lot of the transport companies. It looks like you didn't really see a huge rebound in Q2. I'll be interested to hear what they say on the call if they're seeing a stabilization in volume trends, meaning that things aren't getting any worse than before. You know, from all the transport companies we've heard from in the last couple of weeks and months, you know, volumes have been very poor. There are signs that things are stabilizing, but not necessarily rebounding a whole lot. So the top line doesn't surprise me. I'd be curious to see the details on the guidance for next year,

because there was a big expectation that they did have a lot of flexibility to move forward aggressively on cost cutting. And again, offset some of the revenue pressures with and print a decent EPS number because of the cost cost cutting. All right. Okay. Adam Christofoli, thank you. CBC Senior Markets Commentator Michael Santoli joins us now from the New York Stock Exchange. Mike, what are you looking at? Hey, Morgan. Well, here's a little visual representation

of that outperformance so far in the second quarter of equities relative to bonds. There has been a pretty big gap opened up. This is the total bond market ETF against the total stock market ETF. So that's a pretty good spread, more than 8 percentage points. And so, yes, for those funds that do have a strict rebalancing mandate where they have to keep the allocations pretty static, this is going to have a tide running a little bit out of equities and toward fixed income.

I doubt it's going to be the tail that wags the dog entirely, but it's among the things in late June people are looking at for the chance of a little bit of a giveback of this rally. And then take a look at the high beta or more aggressive and volatile parts of the S&P 500 compared to a much more stable basket of stocks, dividend paying stocks, dividend achievers over this span of time, which goes back to when the overall market peaked at the very end of 2021. They are neck and neck right now. But look at how they've gotten there. It's a little bit of a tortoise in the hare story, though. I hesitate to use that, Morgan, because we all know how that race ended up. We don't know exactly how this is going to

end up. But what happens is high beta has these sprints of outperformance where it has caught up. And that seems like we've had a pretty good one right now. Wouldn't be surprising to see those parts of the market kind of cool off a little bit. And we'll see if we can get a sort of broader participation by maybe some of the slower and steadier parts of the tape and some of the more traditional cyclicals. But interesting that they've come to the same place using very different paths. Morgan, I just wonder how much is factoring in the fact that it's the end of the quarter. It's the end of the first half as well.

The fact that you have institutional money that is now going back to, I think, your first chart, you know, looking is reassessing and is realigning as we go into another quarter here. I mean, do we know yet how much is noise versus how much is fundamental shifts as we go into the next six months? We don't know how much in real detail. I think it's much more about what would be intuitive to see at this point. One thing is you will see some trimming around the edges, some profit taking after this great run in the market cap rate weighted indexes. On the other hand, a lot of long only and high net worth investors came into the year relatively under allocated to equity. So they may have to let them ride a little bit more. The interesting thing is the tactical traders, the hedge funds out there really have chased performance and they've grabbed a lot more exposure to stocks. So I think that's going to

be the kind of opposing currents that define where we go in the short term. I don't think it changes the trend. The other final point is, you know, what's different about operating in a bull versus a bear market? Well, if you think we're in a bull market, you might actually let equity allocations drift a bit higher than you would otherwise, maybe delay rebalancing. I'm not saying that should be what you do, but it is something that does tend to happen when the market gets into an uptrend. All right. Something to watch. Mike Santoli, great to have you back with us. Thanks. Up next, much more reaction to FedEx's disappointing results. What investors should be listening for on the earnings call, which kicks off at the top of the next hour. Overtime's back

in two. Welcome back to Overtime. Let's get another check on FedEx. That stock is down more than 4 percent right now and after hours. Joining us now is Broughton Capital founder and managing partner Donald Broughton. Donald, great to have you on the show. I want to get your initial reaction to the results we just got, the fact that revenue did miss. But if I actually look to fiscal 2024, FedEx is forecasting flat to low single digit percent revenue growth year on year, which looks better than the street had expected. EPS basically in line with expectations for the fiscal year as well.

Your thoughts? Well, I think there were many of us out there, myself included, that were looking for a surprise at the upside in the guide. So that's the sense of disappointment I think you're seeing in the shares afterwards. Because I think there's just so much leverage available to the company after the cost reductions they made and their ongoing effort to steal market share from UPS as UPS negotiates its new team source contract. All those things are going on at once.

The other thing is you've got to remember that this stock is infamous for moving ahead of time. Again and again, how many times, Morgan, you and I have talked about this, the whisper out there is they're going to beat and raise, they're going to beat and raise, and the stock moves up by 15%, 20%, and then they beat and raise, and the stock's down by 5% or 7%. And the exact opposite happens where, oh, they're going to miss and lower, and then they do, and the stock's down by 5% or 7%. And the exact opposite happens where, oh, they're going to miss and lower, and then they do, and the stock goes up. So there's some of that because two weeks ago, you could have bought as many shares as you wanted to for as low as $215 a share.

And obviously, the stock's been as high as $235 through $36 recently. Yeah. We know there's a lot of pull for it in terms of e-commerce demand with the pandemic, and it affected everybody. But I'm just looking here. Ground volumes down again year on year. But the decline less than the decline we saw in the previous quarter and actually ground prices looks like those are up 5 percent. So just to get back to the UPS and the Teamsters negotiations that are happening there with that union basically voting to authorize to strike if need be as soon as August 1st. Is FedEx taking market share? When will we know FedEx is taking market share?

Well, you'll know definitively after it's too late and it's already been done. But I can assure you that it's being done right now. They're taking market share for one simple reason. Nobody who routes freight for a living can ignore the potential of a strike. And you have to shift some volume over because otherwise if there is a strike, God forbid, you're going to get fired. And that's the bottom line. And once that share is shifted, you don't go back unless somehow FedEx drops the ball on service. That's just the ethics of how that profession does its job. And it happened, it worked last five years ago for FedEx. FedEx's behavior was interesting.

They raised, in that time frame five years ago, they raised the price per package by over a dollar in an environment in which UPS only raised it less than 50 cents, and yet they still gained market share. I think the same thing is going on right now. And you're looking at that yield improvement, that's including the reduction in fuel surcharge. So if you look at the base yield, they actually got it to actually higher than that. That's the reason why you're seeing margins continue to march upward for ground. Donald, give me your perspective on these results in the context of what we see happening

in the broader economy, because it seems like for a couple quarters now, at least, we've seen people buying less stuff for more money. And it seems like FedEx is shipping less stuff, but able to charge more, at least in ground prices for it. What happens when the comps get tough on those ground price increases? Or can they just keep raising them, right? They can keep raising them because remember that they're moving high-value, low-density goods. They're not moving coal. They're moving iPhones.

I would argue with you on what we're buying. I would say that there really are two economies here. There's the international trade economy, and then there's the domestic economy. Onshoring is a real trend that's gaining momentum. And understand that the largest producer of revenue for FedEx is still Express. So when you have China emerging you know, emerging now after shutting, completely shutting down cities, and indeed it's coming back, it's less negative than it was. Right.

But international air freight volumes, instead of being down 25, 30 percent, are only down 10, 15. China's weaker than some had hoped. And I wonder, especially heading into holiday, where, you know, the consumer might be kind of stretched price sensitive. Like how much can those freight can those ground prices be raised here? Is there a limit? Are we close to hitting it or is that. No, I don't think we're close to hitting it. Think of it this way. If I'm sending you a thirteen hundred dollar300 iPhone does it does it really change the value of that delivery if I charge you $20 instead of $15 to deliver it not

much I'm not I'm not delivering toilet paper or something in which the cost of delivery is half the cost of delivery and they what they deliver by definition the reason you air freight something is because you're air freighting something that's high value, low density. A diamond ring, an iPhone, a new tech gadget. It's something that is high value, low density. And so in the cost of goods delivered, the cost of delivery is a small percentage. You care more about service than you care about price. All right. Donald, thank you.

Thank you. Up next, we will discuss what the sharp rise in EV adoption and home charging stations means for the utility sector. And we are joined by the CEO of PSEG. We'll be right back. Check out this chart showing the last four years of registered EVs and plug-in hybrids in the state of New Jersey. Strong growth in the adoption of EVs from just 35,000 in 2019 to more than 90,000 through 2022. So how's that impacting the energy grid and business for utilities. Well, joining us now, PSEG CEO, Ralph LaRosa. PSEG is the parent company of New Jersey's utility subsidiary, PSENG.

So the and is the right. Great to have you here, have you here on set. Set up for me this new demand, right? Growing demand from plug-in hybrids, from EVs. What does that do to your ability to grow and to sort of manage efficiency to grow the business? Yeah, John, so that chart is a great chart to have up front, right? If you think about the first nine years that EVs were in the marketplace, we had about 30,000 vehicles shown up in New Jersey. Over the following two years, 30,000. And then last

year, another 30,000. So while it's only 90,000 out of the 6 million cars that are on the roads, new car sales have been over 10% electric vehicles. So all we're trying to do is stay in front of that wave because the wave is coming. We're celebrating our 120-year anniversary tomorrow at the Stock Exchange. And we've been around for a while, and we've had some engineers have been there 40, 50 years, and they said to us, this just looks a lot like central air conditioners. Right. When central air conditioners came in over time. And we're just going to stay ahead of that wave. And what it means for us is upgrading that last mile, everything from our substations and the high-power transmission lines right to your home, because that's where it all matters now. You can't stand an outage at all anymore, and you want to make sure that power's on all the time.

Can you balance demand, though, better than you can with an air conditioner? Because an air conditioner, you need it in the middle of the day, right, when it's hot. But if you're plugging in your car, you can do that at night, perhaps, and give sort of incentives, right, to people to draw power when it's convenient for you to have them draw power. Yeah, no, that's absolutely right. But the key word there was the incentives and the, really, it's the behaviors of the customers, right? If the customers are willing to have time of use rates and to actually respond to that price signal, then yes, we can impact that behavior. But if you come home, you still may want to make sure that your car is charged up because

you have something to do that evening or you have some emergency you want to be prepared for, some sick one at home or something different. So we want to be prepared for everybody. And the way we do that is just to stay ahead of that curve with the upgrades that we're doing in the streets. So in terms of the upgrades, I mean, how much more over the coming years, how much more electricity demand are you expecting, especially when you don't just factor in EV adoption, but also stuff like building electrification, which I know is starting to take root in places like neighboring New York? How much more demand are you expecting? What does that mean in terms of spending on your infrastructure to stay ahead of it? Yeah, so we're expecting about a 20 percent increase, even with some of the energy efficiency steps that we're taking.

And we're really trying to educate and work with our regional transmission operators because it all starts making sure there's enough power supply coming on the high line wires that are coming in. And then we are doing the upgrades in the local communities. And we can stay ahead of that by looking at demand on meters and so on and so forth. So I'm not as worried about the local communities. I want to make sure that we have enough generation source over time as we ramp up this usage. I mean, we talk a lot about inflation. One of the places that consumers have felt, and businesses too, has been their energy and utility bills. So as you do make these investments into your grid and being able to find those energy sources,

how are you balancing that against what is perhaps, or perhaps still is, but has been at least in the past year or two, sticker shock in terms of some of these monthly prices. Yeah, so the prices are really different across the nation. I'm proud to tell you for New Jersey customers over the last, since 2019, we've had one of the lowest across the nation as far as price increases for electricity, one of the lowest of the five states with the lowest, and which has been fantastic. In addition to that, from an affordability standpoint, we've been able to balance that working with the lowest, which has been fantastic. In addition to that, from an affordability standpoint, we've been able to balance that working with the regulator,

even with all the clean initiatives we've had, to stay, again, as one of the top five as far as affordability. So we've been averaging around 3% to 4% of average income that people are taking home. Ralph, for the past decade, for me, it's the first time electricity has become like a consumer good. Like it's become kind of sexy, like from solar panels to in-home batteries to the sort of, you know, if you want to plug in, right, your EV, what kind of plug do you need? You hear stories of people buying their EV before they even know how they're going to plug it in at home. How much of that are you getting at PSE&G, like people trying to figure out, well, how do I make this work for me? Help walk me through this and seeing you as a positive service provider versus just somebody to complain

to. Yeah, so we've had 3,000 of those calls this past year so far. So of the 30,000, about 3,000 reached out because they did not have the answers to that. And we were able to help them, walk them through that process. So we're glad to provide that service. We don't work behind the meter, but we're glad to advise customers as they call us In terms of keeping and we talk about critical infrastructure. We've seen a number of hacks take place Including on the government just in recent days. How do you keep how do you keep the infrastructure safe and sound? Yeah, so there's multiple pieces there from a physical standpoint We're always out with new technology and not a lot of things of things we talk about. And then on a cyber front,

we're staying up front of that curve again by investing in the infrastructure. But I will also tell you, there's times when maybe the best thing to do is to take some of that technology away and operate the system as we did in the 1950s. You know, the electric grid worked in the 1950s without all the SCADA connections

and all the other ways that we check in from a technology standpoint, you can back off of some of that technology if you think you're getting a little closer to that intrusive area. Okay. Old is new. Yeah. I'd like to hear more about that. We can tell you that story anytime.

Thinking about Back to the Future and lightning hitting clock towers. That can... Oh, such a good movie. Yeah, that was set in the 50s. Ralph, thanks. Thanks for having us. Good to have you here. Well, it is time now for a CNBC News update.

And for that, we turn to Christina Parts-Navalas. Hi, Christina. Hello, Morgan. Let's talk about Republicans right now because they're slamming the plea deal President Joe Biden's son reached over his tax-related misdemeanor crimes. House Speaker Kevin McCarthy called it a sweetheart deal and claimed it shows a double standard when compared to former President Donald Trump's recent indictment. The Justice Department says Hunter Biden owed more than $100,000 in taxes each of the two years he did not file. A court-appointed doctor says the former UC Davis student suspected in three brutal stabbings is incompetent to stand trial. The 21-year-old Carlos Dominguez is accused of killing two men and injuring a woman during a five-day stabbing spree that left the college town on edge. A jury will

get a chance to determine his competency during a trial next month. Connecticut is now investigating Kia and Hyundai for failing to equip millions of their vehicles with modern anti-theft technology. The state's attorney general says the hardware can prevent vehicles from easily being hotwired and stolen using a method being shared widely on social media right now. The action comes after New York City sued the automakers earlier this month on similar grounds. I hope neither of you have those cars. No, but noted. Christina Parts Nevelis, thank you. Up next, the U.S. CEO of online brokerage eToro, on which group of retail investors are piling into AI stocks. You might be surprised by the answer. And later, a top strategist reveals the investment he thinks is historically cheap.

Right now, we'll be right back. Welcome back to Overtime. Retail investor interest in AI stocks shows no sign of slowing down. That's according to eToro, an online social investment network. The company says popular AI stocks have seen a 41% bump in younger investors and, get this, a 60% rise among older, more mature investors. One of the top names on the platform, C3AI. eToro says the stock had the biggest growth

in newly opened positions for the over 55 age cohort approximately a 22 000 percent jump 22 000. joining us now lule demise the ceo of etoro us lula it's great to have you back on the show i guess walk me through we i mean we talk about it day in and day out, this investor excitement around AI. Walk me through some of the details around where you're seeing inflows and how it does break down demographically. Yeah, you know, it's interesting. It's one of the technology stories that have sort of defied stereotype. Typically, what you find is about 70% of our platform is millennials or younger, and they are the ones that dominate in tech ownership. And this time around, what you see is that AI kind of lifts all boats, meaning that they too participated in AI ownership. The top

10 holdings on our platform in Q4 and Q1 were either technology or AI players. So ultimately what we see is that the older generation surpassed the younger generation when it comes to AI participation. And it's a very interesting phenomenon. And I think it's one that really sort of tells us that technology, when done well, can be age agnostic. I mean, 55, 55 is young, right? So in a way, perhaps for your platform, I guess, is different.

How different is that from crypto, from the meme stock craze that we saw? And is this perhaps reflected in the fact that so many mainstream, tried and true, even larger cap stocks have AI stories built into them. And I'm thinking the likes of Microsoft, Google, Alphabet, and NVIDIA. Yeah. You know, like any new innovation and new fever around things, there's always the risk of a bubble that bursts, right? But I think what we are seeing a lot of around us is investors seeing not only the promise of AI, but also they're starting to touch and feel it, whether it's chat GP3 or other things that they're being able to see in a more sort of immediate way, the realization of it. So I think that there is both hype, but there's also substance underneath it, which is why you're seeing older generations partake as much as younger ones. And you're absolutely right. Fifty five is young.

So, I mean, we've seen a big run up on some of these names we've been talking about. Are you still continuing to see the same level of activity and enthusiasm from investors? Are you starting to see a shift? We've been talking about it, this rotation in the broader market. Are you seeing it there, too? Yeah. You know, it's interesting. The retail investor is pretty savvy. So we do see when there is a little bit more of a cooling factor, you'll see more people not necessarily sell, but necessarily the buys might get a little cooler. But, you know, especially with these sort of zero days sort of expiration options that gives them an ability to play out their thesis in a quicker, shorter time horizon when it comes to these market disruptions. What about risk? What have you seen happening in 2023 versus 2022 and earlier? Is there as much shorting? Is there as much, you know, kind of betting the farm and taking these,

you know, long leveraged bets that were pretty risky and popular in even early 2021? So a few things about risk. So one of the things you see is that risk appetite has gone up, period. So our large, you know, by far, the majority of our customers still have a high risk tolerance sort of profile. Now, that could be because they're younger and they feel like they have a longer time horizon in front of them. But what we also see is people play out risk differently. So if they have an asset that has lost a lot of value, they're holding on to it. If they're looking to be defensive, you see some of our top names from a defensive perspective is, for instance, healthcare.

And then you see people being a little bit more opportunistic on that risk spectrum, as I said, with things like zero day expiration options, et cetera. So I think that risk is not seen as absolute by retail investors so much as the narrative around them has become. The last time we had you on the show, we were talking about the eToro partnership with Twitter. Since then, we've seen Elon Musk out doing a lot of interviews, including one on CNBC. We've seen the company get a new CEO, Linda Iaccarino. I guess just give us an update on how that partnership is going. It's going great. I mean, part of it is that it's symbiotic. And we didn't necessarily think it was a partnership to turn Twitter into

a financial firm, per se. But what we felt was symbiotic. As you know, eToro is a social trading platform. So it made sense we were going to the largest sort of financial services social platform, which is Twitter, to be able to engage customers. So it's been a very fruitful relationship for us and in terms of educating our customers as they start out with cash tax. All right.

Lule, thanks. Lule Demise. Thanks for having me. From eToro. Up next, Mike Santoli is going to look at what the resilient economic surprise index could mean for the market during the second half of the year. Plus, find out why Boeing was one of the biggest drags on the Dow today, despite announcing new orders at the Paris Air Show. Stock finished down three and a half

percent. Stay with us. Welcome back to Overtime. Michael Santoli returns with a look at the latest economic data. Mike. Yeah, John, the trend in those data has been very sturdy, especially relative to forecast. This is the city U.S. economic surprise index. And you see all year it has actually been basically in positive territory. That means the economic numbers have been coming in better than economists forecast this morning. Housing starts and building permits continued that trend, actually kind of a blowout number. And in most years, this index will spend some time below the flat line as economists raise their forecasts in response to good numbers. And then, you know,

obviously at some point, the data are going to undershoot. That's not happening right now. And it sort of shows you this sense out there that there is this reserve of skepticism about whether the economy can hold firm in this environment. And yet the numbers continue to be good. This is feeding to some this no landing scenario, at least for now in the economy. Take a look at this kind of other measure of of exactly how strong and resilient perhaps the economy can remain. It's basically consumer household assets relative to liabilities. And this goes back a long way, back to the late 80s. The shaded areas are recessions. And what you can see is ahead of recessions, you've had the net worth of consumers be significantly lower than it is

right now up there. What's been clear is that the pandemic stimulus and high wage growth and tight labor markets have enabled households to pay down a lot of debt. They have not had to build it up. Now, this is definitely skewed by a lot of assets at the very high end. So I don't want to pretend like there's no wear and tear around the edges of the consumer economy. But this is another reason some people believe we have buffers against an immediate decline into a consumer led recession, John. But Mike, what happened? The good news is bad news. Well, what happened is the Fed told you it's not going to necessarily in the moment force the economy into a weaker position. So that's why I think that the market is able to enjoy this pause in Fed tightening. Yes, we might have some more down the road to contend with, but it's small moves potentially and only in response to a better economy or perhaps stickier inflation.

So at some point, I agree, a hot economy can be read by the market as bad news, but we're not in that moment just now. All right. Mike Santoli, thank you. Boeing, one of the worst performers in the Dow today, down about three and a half percent. Why? The Paris Air Show, which returned after a four-year hiatus. Big aircraft orders from two Indian airlines, the lion's share going to rival Airbus. Air India finalizing a huge previously announced order for 470 planes from Airbus and Boeing after Indigo disclosed a new 500 Airbus narrowbody jet order just yesterday. Baird says Boeing added 8.8 or about roughly 8.8 billion dollars to its backlog

or 43.8 billion if you're including the finalization of that February Air India order. But Airbus increased its backlog by 58.5 billion billion. Other key topics coming from the International Aerospace and Defense Conference, jet engines. That's something that was discussed on CNBC earlier today by both GE's Larry Culp and Raytheon, now RTX CEO Greg Hayes, which reiterated cash flow and profits for the year, but still ended the day about flat. Defense, John, also in focus, and defense demand, as well as space, commercial space. But really, in terms of the big news that's come out of this week-long event so far, it has been aviation and commercial aerospace. So Boeing potentially losing share is the issue there?

Yeah, well, and Boeing has been having issues and losing share because of production issues and because of regulatory issues over recent years. Now it's playing catch up, but it would look like just based on the news flow we've gotten over the past two days, the first two days of this event. Yes. Okay. All right. Well, our next guest sees a historic buying opportunity in a certain market. He's going to reveal that investment when over time comes right back. Welcome back. Breaking news on tomorrow's Senate Banking Committee hearing. Steve Leisman has the details. Hi, Steve. Hey, Morgan. Yeah, tomorrow we have hearings of several nominees from President Biden to the Federal Reserve Board, including from Philip Jefferson, who has been nominated to become the vice chair of the Federal Reserve Board.

He will say in his testimony the economy faces several challenges, including from inflation, from the banking sector, stress and geopolitical uncertainty. He says he's focused on all three. He says inflation has started to ease, but he remains focused on bringing it down to the Fed's 2 percent target. He says the banking system is sound and resilient. Lisa Cook nominated for a full 14-year term after serving a partial term, says she's committed to sustain economic growth in the context of low and stable inflation. Elevated inflation, she says, is a grave threat to the economy, and she's supportive of efforts to tighten policy and bring inflation down. She will stay focused on inflation until the job is done. Echoing words

there from Chairman Jay Powell, the American economy, she says at a critical juncture. We don't have testimony yet from the third nominee, Adriana Kugler, but she will also be have a hearing tomorrow. John, I think a story here real quickly, a little context is some question as to whether or not President Biden nominated Doves or Hawks to the committee, with many thinking, well, a Democratic president might nominate Doves. But there has been very little space between Powell and the Federal Reserve governors who are set for hearings tomorrow when it comes to fighting inflation. They have all voted with him. They have all of their speeches have been very strong on

fighting inflation. So there's no question here. Maybe there'll be a question when it becomes bringing inflation down from three percent to two percent. But at current levels, there seems to be widespread support from Biden nominees and not Biden nominees or Trump nominees when it comes to fighting inflation on the Federal Reserve Board. All right, Steve, birds of a feather aren't what support from Biden nominees and not Biden nominees or Trump nominees when it comes to fighting inflation on the Federal Reserve Board. All right, Steve, birds of a feather aren't what they used to be. Steve Leisman. Oh, boy. Our next guest, speaking of interest rates, says there is a historic buying opportunity for investors right now. And no, it's not an AI or another hot sector stealing headlines. It's in an area we don't spend a ton of time talking about.

Not enough time. Municipal bonds. Joining us now is Tom Koslick. I'm in a role right now. Hilltop Securities Head of Public Policy and Municipal Strategy. Tom, I have been geeking out on muni bonds really since January and funds. They had a terrible 2022, but if we're near the end of a hiking cycle, and especially if you're in a high tax bracket, it seems like a really interesting time. Why do you think it's

a historic opportunity? Municipal yields are historically attractive right now. This is a really amazing opportunity for investors because not only because of the technical side and where yields are, but John, I really can't remember when credit quality was as strong as it is right now. So a lot of this has to do with the federal relief. But one of the things that I've been doing with investors over the last couple of weeks, last couple of months is going through portfolios, in some cases, giving them just a little bit of fine-tuning, but in other cases, cleansing some portfolios, getting rid of some holdings that I'm not quite as happy with, and replacing them with situations where the yields are attractive and their credit

quality is even better. And this is a really great opportunity to do that. So explain a bit, because munis are historically pretty safe, but we've seen all kinds of concerns with COVID and shutdowns and things like that on how towns are operating. So there's a difference between muni bonds that are backed by kind of tax payer guarantees and revenue bonds. So particularly in revenue bonds, things like, I don't know, toll roads or health system, hospitals, why do you feel confident in credit quality there? Well, let's break it down into the GOs and the revenue sector. On the GO side, state government credit quality, even though we lowered our outlook for state governments to stable from positive back in January, we're not expecting credit deterioration.

State total balances are still near record highs, and state credit quality is much stronger now than it was in the end of 2019. On the Loho government side, and where school districts are concerned, we still have a positive outlook from a credit perspective for those entities. And one of the things that happened in the first quarter of this year is that public finance upgrades outpaced downgrades again. I'm expecting upgrades to continue to outpace downgrades for the rest of the year. And that action is going to be led by credits in the local government and school district sector. On the revenue side, I really like toll roads. I really like airports. The activity there, to a degree, it's continuing to be driven by the kind of recovery. But also,

you know, where airports are concerned. The only reason that airport activity isn't higher or stronger, I think, is more just an issue of capacity. Yeah. Two other. I just want to jump in here real quick because, A, what does a recession do to this entire conversation in credit quality, if and when we get one? And, B, when you have the Wall Street Journal writing an article just over the weekend saying that Wall Street has soured on America's downtowns, do you like some of these cities with their office space and their infrastructure and like MTA, for example, in New York, which is one of the biggest issuers of debt in the muni market?

I mean, do you go near that or do you steer clear and look at something like the suburbs? Well, the first thing, let me actually answer the first question. State and local governments, I don't think, have ever been as prepared for an economic downturn as they are right now, number one. Number two, and I think that, you know, really what it is that you're getting at is the idea of what's been happening with this new future of work and how that's going to look, how remote work is impacting, especially places like San Francisco, D.C., New York. And remote work in these numbers are absolutely, there are definitely changes. That being said, I think that, you know, especially those larger cities, it's going to be more politically difficult to make changes to their

revenue structure. But I think that they are going to be able to make changes to the revenue structure. And I don't foresee a lot of credit deterioration as a result of that. But you got to also remember there are entities outside of those larger cities that are benefiting from the activity that was going on in the larger cities, especially in the downtown business districts, that activity is going on in other places. And so there is a plus outside of the larger cities in a lot of cases. All right. Tom Koslick, thanks for joining us. Thank you. On John's favorite subject, one of them. Up next, find out how the uncertain economy is making the battle to be named America's top states for business even harder this year. Stay with us. Welcome back. We are just three weeks away from learning which are America's top states for business in CNBC's annual study. The uncertain U.S. economy is

complicating things this year. Our Scott Cohn is in Arlington, Virginia to explain. Hi, Scott. Hey, Morgan. This is a prime example of what's going on. We're at Amazon's HQ2. Remember how just a couple of years ago, everyone was fighting to win this site? Well, it finally opened last week here in Virginia. And as impressive as it is, it is much smaller than the original vision. Remember, the original plan in 2017 was for 50,000 jobs. They quickly backed off of that because it's so hard to find so many workers in one place. Amazon's worldwide head of economic development says they are still committed to hiring 25,000 people here by 2030. But for now, it is 8,000 people in this phase of the development by this fall. A second phase,

which was supposed to start construction this year, is on hold. We have slowed down on some of our projects, and part of that is the economy. Part of it is we also want to learn and make sure that what we're building, the space that we're delivering today, is the space that's going to be right in 5, 10, 15 years from now. It's not just Amazon. We're hearing projects across the country now being slowed down, and it's why economy is such an important category in this year's America's Top States for Business study. You can read more about that and more about HQ2 at topstates.cnbc.com. The top state revealed on July 11th. Guys? We're looking forward to that, Scott Cohn. Thank you.

We're also looking forward to tomorrow. Powell testimony, two days on the hill starts tomorrow. We got some earnings after the bell tomorrow, too. KB home. Yeah, and this market action has been wild. Tesla was up more than 5% today. All right. Well, that's going to do it for overtime.