Closing Bell - Closing Bell Overtime: Investing In Defense Stocks Despite DC, Budget Uncertainty; Top Banks Picks As Earnings Roll On 10/17/23

Episode Date: October 17, 2023

The Dow managed a positive close but the S&P 500 and Nasdaq fell in trading today. Truist’s Keith Lerner and Wedbush’s Kevin Merritt break down the market action. Earnings from United Airlines, JB Hunt and Interactive Brokers. Gabelli Funds Portfolio Manager Ian Lapey on his top bank picks as the sector’s earnings wind down. Former Deputy Assistant Secretary of Defense Roger Zakheim on how the defense sector is navigating supply amid DC turmoil. Our Kristina Partsinevelos on Nvidia’s slide today as the US expands its chip export controls. Melius analyst Conor Cunningham breaks down United’s earnings report. Plus, what you need to know ahead of earnings from Netflix and Tesla on Wednesday.

Stops making a late-day rebound despite the spike in treasury yields on red-hot retail sales. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. Coming up on today's show, we are in the thick of earnings season. And this afternoon, we will get three reads on key parts of the market when United Airlines, J.B. Hunt, and Interactive Brokers report results. We'll bring you those numbers as soon as they cross. Plus, we will break down the action in the banks and look ahead to tomorrow's numbers from Morgan Stanley, where we're joined by Gabelli's financial

portfolio manager. We begin with the market, though, and competing narratives pushing and pulling on investors today. We had solid earnings from blue chip names before the bell that helped lift sentiment. But as I mentioned, that hot retail sales number, spiking yields, DC dysfunction, new worries about chips. That all kept the gains in check. You can see the S&P closed basically unchanged, 43.73. And the Dow actually finishing the day up ever so slightly after being down. Like a fingernail up, yeah.

Yeah, being down triple digits. The NASDAQ, though, slightly lower. Joining us now, Keith Lerner from Truist and Kevin Merritt from Wedbush. Good afternoon to you both. Keith, I will start with you because we just mentioned it, this push-pull dynamic in the market right now. But the key to me, it seems, you have a two year yield that's at its highest since 2006, you have the 10 year moving higher again. The reason matters just as much as the move. And if the economy is hanging in there stronger than expected based on this data.

And actually, we're going to go to Phil LeBeau because we've already got our first report out. United. Morgan, United beating the street in the fourth, in the third quarter, I should say. Remember, earnings expectations did come down throughout the quarter, given a number of the cost headwinds that are out there. But United earning $3.65 a share. The street was expecting $3.35 revenue. And this is record quarterly revenue from United Airlines, $14.8484 billion, better than expected, which was $14.43 billion. Revenue per seat mile, down 2.8% compared to the same quarter last year. Passenger

revenue per seat mile, down 1%. And then you've got cost per seat mile, excluding fuel. that's up 2.6% compared to Q3 of 22, Q3 of last year. Fuel expense, down 11%. Average fuel cost, $2.95 a gallon. Load factor of just over 86%. Now it's the focus on the Q4 guidance. This is what a lot of people are going to be focused on. We knew that Q3 would be strong, especially transatlantic and Pacific having record profits from United. EPS of $1.50 to $1.80

a share. The consensus was $2.06. Now, I've seen some analysts bringing down their estimates over the last couple of weeks, but this is below expectations, $1.50 to $1.80 with revenue coming in up 9% to 10.5%. It depends on how long the Tel Aviv flights are suspended. That's 2% of United's capacity. If they're suspended all the way through the rest of the quarter, then you're going to see lower revenue from United. Cost per sea mile up 3.5% to 5%. There are those higher costs that we've been talking about for the airlines with an average fuel cost of $3.38 a gallon. And then for the full year, United is not changing its guidance as of right now. It was $11 to $12 the last time they gave

guidance in July. But if you add in what they're expecting for the fourth quarter, guys, they're going to be earning between $9.55 and $9.85 a share. That is below their previous guidance of $11 to $12 a share. But keep in mind, we have seen a number of analysts bringing down their full year earnings guidance. That's the numbers with United. That's the reason you see some pressure there because of the Q4 guidance coming in below the street consensus. Again, beating the street on the top and the bottom line for the third quarter. Guys, back to you. OK, Philip Boe, thank you. Shares down 3% right now.

Do you want to get back to our panel? This is actually what I was going to ask you, is how to balance, is how investors should think about the rapid rise we've seen in Treasury yields versus the earnings that are coming out so far and what all of it means for the economy on a day where we've had some pretty strong economic data look no further than retail sales. United, it seems to me, is a real key one since we know airlines and travel and leisure have been strong this year. Yeah, well, first, Morgan, great to be with you and John today. I think the word we've been using, which you've alluded to, is there's a lot of cross currents in this market today. Listen, I think what just happened as far as the airlines, there's some things that are specific to the airlines when you think about labor, you think about oil prices. But more broadly, we actually expect the earnings season to be pretty solid. I mean, of course, some bifur prices. But more broadly, we actually expect the earnings season to be pretty, pretty solid. I mean, of course, some bifurcation. But as you mentioned, you know, we have Atlanta GDP now, which probably overstates the strength at around five percent.

We have employment in over the last quarter of above 200,000 on average and retail sales. So I do think there's that tension that will continue. But overall, our view is that, you know, when this choppy trading range, excuse me, that should continue. But we actually think we will push a bit higher towards the top end of that trading range because those earnings will likely be, you know, reduced expectations once again, again, because the economy has been so strong. And the last one I'll just say is, you know, the earnings decline this year was really overstated.

That was a big bear case. Right now, earning estimates, forward earning estimates are at a record high. So not just a 52-week high, a record high. Right. Guys, hold tight. Interactive Brokers earnings are out. Kate Rooney has the numbers. Kate. Hey, John. So it's looking like a beat on the top and bottom line for Interactive Brokers. This is the third quarter for the brokerage firm. Starting here with adjusted EPS, that came in at $1.55 adjusted, better than expected by about four cents here. Adjusted revenue, $1.14 billion, also stronger than what the street was looking for. Customer accounts jumped 21% to $2.4 billion roughly. Trading volume or daily active revenue trades, also as darts that decreased so more customers but they're trading less as it appears here net interest income they get a boost here thanks to higher rates that was up 55 commission revenue meanwhile

increased by four percent stock is slightly higher here up about 1.5 after hours back to you guys all right kate thanks uh kevin go to you on this one. We saw a big move in the two-year yield today, and investors are starting to get used to this idea that we might not get rate cuts from the Fed, cuts from the Fed until the second half of next year. So how does that factor not just into the action we saw today, seesaw, but where we go from here. Thanks for having me. I think that's the right conclusion, that inflation is going to remain high and sticky. And the rate cuts that were priced in through the end of next year, about a month ago, are not going to come to pass. And the additional fiscal deterioration is just adding to that narrative. Okay, so Keith, tragically, we've got this news headline of a deadly blast at a hospital in Gaza,

so it looks like this war in the Middle East is escalating. Palestinian authorities saying hundreds were killed. The human toll, of course, is the first focus. If this war does continue to escalate, what sectors are most vulnerable? Yeah, I mean, I would say so far, I will just say that this market has held up remarkably well in light of what's happened. As you said, it is a tragedy. And part of that, I think, as you think about the impact, is a lot of this tends to manifest itself in what does this mean for the global economy and what happens to oil prices.

So I think, you know, naturally, a natural hedge in a sector that we've been overweight for several months now is energy. Energy is one of the cheapest sectors. It's trading at a huge discount to the overall market. It has one of the strongest earnings revision trends. And the bottom end of the oil range is likely to stay higher. So I think that's one area that we would like, we want to stay. And then on top of that, industrials, especially the defense area, is another area we've been

overweight before this. And that reinforces the kind of some secular trends as far as defense spending. But also a lot of the fiscal stimulus is still going to trickle in over the next few years. So those are two areas that we continue to like with some of the geopolitical uncertainty. Kevin, anything you see outside of those two? I would agree with what Keith said. And I think there's going to remain pockets in tech that will have robust fundamentals. The AI investment dynamic is going to continue unabated, irrespective of the geopolitical. Speaking of tech, Kevin, even though the overall indices kind of seesawed up, down, up to about break even, there were certain tech names,

particularly in software, that seemed to just end up a lot higher. Some of the riskier names, C3 AI up 6%, Affirm up nearly 6%, you know, et cetera. ServiceNow did pretty well as well. What does that say to you? I think it reiterates what I just mentioned, that it's a very powerful investment theme. Companies like Microsoft, C3 AI are extremely levered to that theme. It's going to be a mixed bag. We've seen weak results elsewhere, for example, in IT services, hardware, etc. But this is a very strong multi-year trend, which is going to benefit some companies.

OK, Kevin Merritt and Keith Lerner, thanks for kicking off the hour with us, J.B. Hunt earnings are out, which is kicking off really the freight and we'll say freight transport part of earnings season. It looks like here 180 gap for J.B. Hunt and revenues missing three point one six billion dollars versus estimates of three point one nine billion. J.B. Hunt saying that in the quarter they saw a decrease in total operating revenue of 18 percent year on year and that excluding the fuel surcharge revenue, there was a decrease of 15 percent, that this was driven primarily by declines in intermodal and truck truck load revenue per load. That being said, this is a key one to watch in terms of intermodal, John. And intermodal volume did increase 1% over the same period in 2022. And they're saying here in this release that demand for intermodal service improved throughout the quarter across both the eastern and transcontinental networks, that that was

supported by moderating destocking trends, seasonal activity, and strong performance from rail providers. The reason I bring that up is because when you talk about intermodal, you talk about containers that tend to hold items that consumers are going to buy from retailers. So it's potentially a sign. We've talked about inventory correction, but we're seeing perhaps the signs of the beginning of a recovery within that part of the business. Intramodal means moving from one mode of transportation, like, say, train to a truck.

Containership, train, truck. And it tends to be consumer-facing freight that's inside those containers. Exactly. Interesting. All right. The average stock has lagged the mega caps this year. There's a reason to worry about. Is that a reason to worry about that dynamic in the market? Well, let's find out. Senior markets commentator Mike Santoli is going to tell us. We're in a long day.

Mike. Yeah, John. Well, look, whether there's a reason to worry about it or not, a lot of people are worried about it because they point to the year-to-date numbers. The S&P is outperforming the equal weighted version of the S&P by like 14 percentage points. Very wide gulf. But on a three year basis, everything is very much in line. The Nasdaq 100 just barely outperforming both the market cap weighted S&P and the equal weighted S&P.

So what you see is over this period, they've traded off leadership. The average stock has done better than the market cap weighted measure last year in the bear market. And it's it's obviously lagged this time time but essentially brought us all to a similar place. Most people who are fixated on it are interested in whether we can declare it a bull market if the average stock hasn't really done anything in eight or nine months. And I don't know that you want to get caught up in those labels, but it seems here that you would love to see the market broaden out more, but it's nothing too weird about it and the NASDAQ 100 move is really just a catch up from much of what was lost last year. Now, in terms of the internals of the

market sector wise this year, still cyclical leadership. That's one of the takeaways. You look at the equal weighted versions of consumer discretionary and industrials. That's industrials, consumer discretionary. That's health care and staples, obviously more defensive, less cyclical. All those sectors have their own things going on. Staples uniquely punished for the lack of pricing power so far in the last few quarters and all the rest of it. Nonetheless, what you see is at least for now, the cyclical parts of the market are managing to maintain an advantage over the more defensive ones. It's good news for as long as it lasts, John. Interesting. So it looks like you are taking us back exactly, what is that, three years on the chart. If I recall, this time 21 was quite a peak for the indices overall. Is that moment, does it have a special significance to go

kind of even to even on equal weight versus the S&P 500? Because all this time for the past couple quarters, few quarters, we've been talking about the strength of the mega caps. This is just an evening out. That's a whole different way of thinking about it. It's kind of what it is. Now, it takes us back, remember, to 2020, right? Three years back from here, October of 2020.

So you're only six or seven months off the low. November of 2021 is when the NASDAQ peaked. And early 2021 is when you had the peak in most of the speculative parts of the market. So you've had this kind of rolling downturn that's been followed by a rolling recovery. And at least for now, the stuff that was down the most last year in terms of largest stocks, like which means that the Nasdaq stuff has sprung back the hardest, but it's taking you to a more or less similar spot. Okay. Mike Santoli, we'll see you later this hour. Thank you. After the break, Gabelli's financials fund manager joins us with his top bank picks after results this morning

from Goldman Sachs and Bank of America and head of numbers tomorrow for Morgan Stanley. And later, we're going to break down United's quarterly results with an analyst whose price target implies more than 50% upside from today's close. See how he feels about that guidance. Overtime's back in two. Welcome back to Overtime. U.S. Bank Corp surging this afternoon on news. The Fed is easing regulatory requirements on the bank.

We're going to hear more when it reports results tomorrow. And that comes after Bank of America and Goldman beat on both top and bottom lines this morning. Here is Bank of America CEO Brian Moynihan on what helped power earnings this quarter. What drives our net interest income is our deposit base, which is the best in the business. And you're seeing the stability and growth in the commercial side of the house. You're seeing stability in the wealth management side in the consumer business. Consumers still spend down, but very stable, very profitable customer base. Let's find out what this means for the banks reporting the rest of the week, including Morgan Stanley tomorrow. Joining us now, Ian Lacey, portfolio manager at Gabelli Funds, focused on financials.

Ian, thanks for being with us here. Thank you for having me. So interest rate impact on most banks. The narrative at first, one of them was customers pulling their deposits out for better yields elsewhere. Is that shifting now, at least for some banks? It is. Deposits have been stable. So I think the days of panic deposit runs are over. Generally, banks benefit from higher rates. And so I think we're starting to see that now. Of the banks that have reported so far, generally, the results have been

quite resilient. We've seen growth in tangible book value, tier one common equity, actually operating leverage for most of them, revenues growing faster than expenses. And the stocks are really cheap. It's really been a divergence between business performance and stock performance for most banks this year because they've actually, with a lot of headwinds, done quite well and the stocks trade at high single-digit P multiples. OK, among your risks for investors that you've listed here, I see geopolitics. Yes. Does that apply to banks in particular? And if so, how?

Definitely. And I think in my career, this is probably as bad, probably as, you know, the worst that it's been. So we saw, obviously, what happened in Russia and Ukraine, and I own European banks, and most of them had to exit their Russian operations. They were in a position of, generally all of them, actually, of enough strength that they were able to do that, still be profitable. And European banks are actually doing really well buying back stock this year. But we don't know what's going to happen in the future. And it is a period of considerable uncertainty. My approach is to make sure I own common stocks with very strong balance sheets and also very strong management teams that operate like owners with a long-term focus. We're really focused on risk management so that when you do have things happen that you don't

expect, as we've had many times over the last, whether it's the COVID pandemic, bank runs this year or Russia, Ukraine, well-managed, well-financed companies should be okay. So what are some examples of that? And I ask that because the regionals in particular, they've been really beaten down. And yes, we have a lot of green on the screen today, but I'd imagine there's a big difference between value trap and value but quality. Yeah, well, my largest position,

First Citizens Bank shares, again, if you're in a strong capital position and bad things happen, you can be in a position to capitalize. So they were in a good position this year and bought Silicon Valley Bank in an FDIC auction. They paid $500 million, and in the first quarter, they reported a $9.8 billion after-tax gain. So this has actually been an incredible year for First Citizens because they were strongly capitalized, prudently managed, and ready to pounce on opportunities. So that's really what I'm looking to do is invest in companies like that that can capitalize in periods of uncertainty.

So when you see shares of U.S. Bancorp surge today because of this news of easing regulatory requirements from the Fed, do you expect that we're going to see more of that within U.S. banks or not so much? This is a one off. It seems like a one off. It seems like regulators are pretty determined with the Basel three end game to make banks hold more capital. And you've heard bank CEOs complaining a lot about it on earnings calls at the Barclays Conference a couple of weeks ago. And there may be some lightning, but I think generally capital ratios are going to have to be higher for banks.

For me as a long-term investor, I actually don't mind that because, again, I like strongly capitalized banks and I think that if banks were more stable and you didn't have bank failures like we've had this year they would probably trade it higher p.e. multiples so again the seven eight PEs now probably reflect the fact that people don't want to be invested in a sector where you might have failures okay and. Ian Lapie, thanks for joining us. We'll see if it leads to more consolidation as well. Yes, it will. I'm sure it will. Not in the near term, but in the next couple of years. Okay. We'll continue to watch it. Right. Thank

you. Coming up, the China problem for chip makers. NVIDIA and other semiconductor names falling today after the Biden administration announced new export restrictions. We're going to talk about that news and these other geopolitical headwinds that are facing investors next. Let's get a CNBC News update with Contessa Brewer. Contessa. John, the Israeli military is denying involvement in the explosion at a Gaza hospital that the health ministry there says killed 200 to 300 people. The Israeli Defense Force says its intelligence indicates Islamic Jihad was responsible for the bombing with a misfired rocket. NBC News has not independently confirmed that report. In response to the bombing, Palestinian President Mahmoud Abbas said he will not participate in meetings tomorrow with President Biden and regional leaders. Protesters gathered in the West Bank, chanting against President Abbas and throwing rocks following that deadly hospital attack.

Security forces in Ramallah fired tear gas and used stun guns to disperse the group. Witnesses said confrontation with Palestinian security forces broke out in other cities in the occupied West Bank as well. Donald Trump's lawyers filed to appeal the partial gag order on the former president in his 2020 federal election interference case. It bars the former president from verbally attacking the prosecution, court staff and any potential witnesses in that case. We'll keep an eye on that. Send it back to you, Morgan. Contessa Brewer, thank you.

Lockheed Martin kicking off defense sector earnings today, beating estimates, reiterating full year 2023 guidance. The largest weapons maker continuing to see strong demand for missiles, munitions, missile defense amid the war in Ukraine and the need to replenish U.S. stockpiles. The key, though, has been the ability to keep pace with that demand, a challenge that's been playing out across the industry. It weighed on Lockheed's Q3 margins. But COO Frank St. John telling me he's seeing, quote, some overall improvement in the supply chain. Regarding the Israel-Hamas war, the defense prime is already ramping production across weapon systems due to Ukraine. St. John noting they, quote, don't see any issues associated with this new development,

impacting our ability to support the U.S. government and its allies in what's required. Complicating all of this, though, the fact that the federal government is operating on a continuing resolution that expires November 17th. Still no elected Speaker of the House with the failed Jim Jordan vote just earlier this afternoon. Now, if we were to see an extended CR, that would restrict the Pentagon's ability to order new weapons or backfill stocks. New programs can't be awarded either. So there are a lot of cross currents here looking at this sector. Joining us now is Roger Zachheim, Ronald Reagan, Presidential Foundation and Institute, Washington

director and former deputy assistant secretary of defense. Roger, it's good to have you on today. I do want to start with more broadly what we're seeing in terms of this geopolitical landscape. You were actually in Israel. You were in Tel Aviv last week when we saw this conflict begin. Walk me through the implications of what we're seeing right now and how all of this could potentially play out. So far, it seems relatively contained between Hamas and Israel. But how acute is the risk that this becomes a broader conflict? conflict. I think we're having some technical difficulties with Roger. We will come back to

him once we get that audio sorted. But I think we have another report tied to national security to discuss as well. Lots of news today. Chip stocks also getting hit hard today after the U.S. outlined new restrictions about exporting AI chips to China. Our Christina Parts Nevelis joins us now with that story. Hey, Christina. Hi, John. Well, the Commerce Department, like you said, wants to cut off China's AI industry by announcing these new export restrictions today that include even more advanced computing chips and close any shipping loopholes through third-party countries. So that means if you sell an AI chip to China, you're going to have to let the U.S. government know. even more advanced computing chips and close any shipping loopholes through third-party countries. So that means if you sell an AI chip to China, you're gonna have to let the US government know.

NVIDIA's AI chips made specifically for China are now restricted. The stock was off the, or is off the earlier lows, but it still closed almost 5% lower today. Even though NVIDIA did assure investors they don't expect a near-term meaningful impact. But you have to keep in mind that NVIDIA gets 20% of its data center revenues from China. 20% is a substantial number. Equipment maker ASML also says the restrictions would impact sales in the medium to long term today.

And Intel also makes China-only chips, but they tell me they're still reviewing the impact. And then you also have AMD that's been working with Chinese hyperscalers. Both of these companies could be subject to the controls and why you're seeing the stocks close over 1% lower today. These new restrictions, though, John, officially come into effect in 30 days from now and also come at a time when President Biden plans to meet with Chinese leader Xi Jinping in just a few weeks. So setting somewhat of an awkward tone, maybe.

Outsized impact on Nvidia stock. It was down more than four and a half percent today. ASML, I guess we'll see how it's impacted trades in Europe. But Intel and AMD, as you mentioned, down just over one percent. Granted, it's on a day when the S&P was about flat, but that's quite a difference, about a 3x impact, at least in terms of percentage points on NVIDIA. Definitely. And part of the reason why you saw the NASDAQ a lot lower today, to your point about Intel and AMD, so neither of them, we haven't been able to call out specifically the Intel GAUDY 2 chip being specifically restricted, but it's assumed that it will. And then AMD has been working with Chinese hyperscalers on an MI300 chip that is an AI-related one. So the consensus from a lot of analysts that I've read just the reports today,

it seems like many of them think that maybe this is a little overblown. Yes, there's exposure. NVIDIA has the most exposure for its AI data centers, 20%. But overall, they could reroute that revenue stream elsewhere or make an even more watered down chip. But then that would defeat the purpose and circumvent the rules all over again. So I guess this is a wait and see kind of moment. The reaction, though, this has been ongoing. We knew about this. That's why the stocks could have been a lot lower than they are today. OK, Christina Parts, Anabolas, thank you. Let's get back to Roger Zakheim, Ronald Reagan Presidential Foundation and Institute Washington director former deputy

assistant secretary of defense Roger I think we've got the audio sorted out I do want to start with you just your take more broadly on the current geopolitical landscape there are a lot of uncertainties Israel's in focus right now we just heard from Christina about these latest restrictions by commerce, and there are national security implications there, too, given the U.S. strategic competition against China on the world stage as well. Thanks, Morgan. And you're right to focus on the regions in the world that present a challenge to the United States and their interconnectedness. So we have the United States trying to deter China in that strategic competition, particularly from challenging Taiwan and the freedom of the people of Taiwan.

Of course, you referenced earlier with the Lockheed report, Ukraine and the way the United States is supporting Ukraine defend its territory against Russia's aggression. And then, of course, in the Middle East now with Israel, as you referenced, the conflict at this point is restricted to Gaza. But with the President of the United States in Israel, what they're working on is trying to make sure that they can deter Hezbollah from expanding a second front from Lebanon. Of course, Iran is agitating for an expansion of the conflict. If that does happen, it reflects how two regions of the world essentially are in an armed conflict with a third we're trying to deter.

It is a geopolitical scenario that is a huge challenge to United States national security, to the prosperity and the global trade that we rely on. And, of course, we're having this conversation as we see the clock tick down to another possible government shutdown here in the U.S. The House still does not have a speaker. D.C. dysfunction at its finest. How does all of that affect the U.S.'s abilities to either supply or support allies or even enact its own next generation of deterrence? Well, the United States for generations has been the arsenal of

democracy. The Reagan doctrine, of course, is to support allies and partners who are seeking to defend freedom and expand freedom in the world. That requires the President of the United States to stand with moral clarity. President Biden has done that to date. It also requires the US Congress to support that president. And without a Speaker of the House, we're not going to be able to give support to our allies and partners and friends who rely on the United States' clarity and support and vision. A speaker is going to be critical to any appropriation, both in terms of the annual appropriations

for the defense of the United States and what goes to our allies and partners, but of course the supplemental that Taiwan is relying on, that Ukraine is relying on, and now we expect Israel will rely on, not only for the conflict in Gaza, but of course, should a second front open up, it will be even more critical for the United States to provide emergency appropriation for the missile defenses and other precision-guided munitions that, no doubt, Israel will need the United States to give them. So if we go into November with a speaker pro tem, that scenario running the House, just sort of vote by vote, you know, two weeks at a time, in essence, only things that Democrats and Republicans largely agree on. What's the

potential impact on a shutdown? Who will Biden and the Democrats have to negotiate with? And how much market risk is involved in that? I think there's market risk. But to the questions earlier, there's geopolitical risk. Sure. This is unprecedented territory, as you know, in American political history. Now, those things where you can have consensus, perhaps we can get through even that situation approaching a shutdown where, you know, leaders can come together. But the issue, of course, is that the Republicans and the House of Representatives have not backed a leader. And so if they can't back a leader, it's unlikely they will come to an agreement on some sort

of legislative package. So this is unprecedented. Likelihood here is an unknown. And the impact geopolitically and on the markets is high risk. Roger Zachheim, thanks for joining us. Thank you. The latest data shows fund manager positioning remains cautious. That could be a bullish sign for the market. Mike Santoli returns to explain why. Stay with us. Welcome back to Overtime. Let's bring back Mike Santoli for a look at the risk appetite of fund managers and the bullish signal in that data. Mike. Yeah, Morgan, potentially I have some sort of buying power saved up among institutional

managers. Bank of America asked these global fund managers every month, how much risk are you taking in your portfolio relative to what you would consider normal? And you can see it's well below zero, which means more managers are saying they're taking a lot less risk than those are saying they're taking more risk. Now, we're well up off the lows. That's obviously from late last year when the market did bottom. But you've seen it's really at pretty depressed levels. If I just trace it back to, you know, comparable times, it was just coming off the 2009 global financial crisis low, very similar to when we had market lows in 2011 and thereabouts. And also you see there around around covid, we never really even stayed down in these levels for long. So it doesn't in

itself mean, you know, things are great and the market has a free pass to go much higher. But it does show you that among all the things you might consider, investor positioning among professionals is not out over at skis and they have not yet necessarily topped up their risk budget exposure, so to speak. What's defined as risk, Mike? And I ask that and I'm thinking about the Howard Marks oak tree memo yesterday. We know higher yielding fixed income has become more competitive to equities. So what actually defines risk? My guess is it mostly correlates to equity exposure and within equities, whether you're kind of allocated toward the riskier parts of the market or not.

There might be a credit component in there, too. So whether you're into high yield. But I think mostly it's if I use margin leverage, am I using any now or less than I normally do? Or how much do I have allocated to stocks? And you have the definite right question, because there might not be as much of a perceived penalty or opportunity cost for staying in safer instruments if you're happy with the yields they're kicking off right now. So maybe this is not a measure of something that is going to spring higher in the near term just because, you know, folks are more or less content with sitting on safer stuff. All right. Helps not to have too many investors too excited all at once, I guess. Thanks. United Airlines sitting near its after-hours lows right now after fourth quarter guidance missed the mark.

Up next, we'll ask an analyst what he wants to hear from executives on the earnings call. That's tomorrow morning. We'll be right back. Welcome back. We have a news alert on Microsoft and Amazon. Steve Kovach is here. He has the details. This seems a little curious. Kovach is here. He has the details. This seems a little

curious. Yeah, this is curious. So Insider just came out with this report saying that Amazon is going to do a billion dollar deal to move its on-premise Microsoft productivity stuff. That means Outlook, Word, all the stuff that we use to communicate and do work, moving it from on-premise. That means having, just like we used to do, have those big computers in your office running all these applications to Microsoft's cloud, which is how Microsoft prefers people to use this. You pay a subscription per person, per user, and then you get access to all these automatically updating suite of productivity apps. They already use this. That means Amazon has to email people just like we do and use Teams and things like that, but they don't have their own productivity software. And now

it's kind of funny, I guess, that they have to start running these applications in Microsoft Cloud as they compete with Microsoft at the same time. I guess it does improve the case that Summit AWS might make that Microsoft should improve the terms for running that productivity software on AWS. Because if Amazon itself is a customer saying, well, you know, of course we'd like to do this on AWS, and so would our customers. And we're seeing this in Europe a little bit too. We're seeing different companies kind of complain about it being bundled together and not being able to run some of these applications as well in other clouds than you can with Microsoft's own Azure cloud. That's being worked out over there. Microsoft

has made some concessions that aren't good enough for regulators over there or their competitors. But yeah, it's just kind of a funny thing here to have Amazon moving over to use Microsoft's cloud, rather, as they compete with them for basically every AI deal out there. Perhaps some strategery. Yeah, exactly. Steve, thanks. Thanks. Now take a look again at shares of United.

Stock is down quite a bit on the back of lower Q4 guidance, though third quarter earnings and revenue were above estimates. Joining us now is Connor Cunningham from Milius Research. He has a buy rating, $63 price target on the stock. Mixed bag here, Connor, but a big part of the story of the quarter reported seems to be their ability to charge more for planes that aren't nearly as full as they were a few years ago. Does that balance out this disappointing guidance? So thanks for having me, guys. I appreciate it, John. You know, I think that the revenue outcome

in the third quarter was actually pretty exceptional. You know, I actually saw a quarter-over-quarter improvement in domestic trends. You know, when you look across the industry, we're seeing a lot of discounting. So the fact that United's able to kind of weather that is quite remarkable in the context of what's going on. So, you know, I think a driver of that right now is really premium services are doing very, very well. And really just overall international trends are also quite strong too. So still a lot of potential for United as they work through their next plan. But from a revenue standpoint, still looking very good.

I think the issue that you're looking at in terms of the fourth quarter, you know, fourth quarter costs look a little worse than what we were anticipating. I think part of that has to do just with underlying maintenance expense that's been a real problem throughout the industry. There's also been a bunch of capacity adjustments that need to happen, you know, from the issues in terms of the ATC in New York

and just what's happening in Israel. So, you know, at the end of the day, I think that this report's pretty solid in the context of a pretty uncertain environment. So United and Delta, I would say, continue to kind of distinguish themselves within this group right now. All right. How do you factor in the geopolitical risk, whether it is United Airlines or the other carriers? And I ask that because obviously you've got fuel, which has just been and the rise in fuel prices has been a huge impact on united and also we saw it with delta last week and then to your point mid-east uncertainty yeah it's it's obviously tough for them to navigate in the near term

uh you know what i would just say for for israel for example for for united it's only about two percent of their overall capacity so not a huge portion, but the ripple effect from potentially higher oil prices could obviously hurt them. What I would say is that if oil does move higher, historically what the airline industry has had to do is make adjustments on supply. So if you want to offset or recapture higher fuel, you're going to have to do it with pricing actions. And so in the current environment where there's a lot of capacity, it would force a lot of these other players to potentially make an adjustment, which wouldn't necessarily be a negative thing over the long term. My view or our view, Amelius, is that there's too much industry capacity right now into 2024, and there likely needs to be an adjustment anyway. So fuel is the

near-term headwind that kind of makes that Band-Aid need to be ripped off, and so be it. But from our standpoint, United, again, continues to kind of weather the storm a little bit better than most. OK, quickly, stocks down 4 percent by the dip. Yes or no? I would probably be a buyer of the shares. I do think that, you know, long term United does have a lot, a tremendous amount of potential with their current plan. So, yeah. Conor Cunningham, thanks for joining us. Thank you. Will streams come true for investors tomorrow when Netflix reports earnings? A top analyst tells us what he is expecting when overtime returns.

Welcome back to Overtime. Forget Merger Monday. Today is Tie-Up Tuesday. Choice Hotels offering to buy rival Wyndham in a cash and stock deal worth nearly $10 billion, including that assumption of debt. But Wyndham is rejecting the proposal, calling it, quote, underwhelming, highly conditional and subject to significant business, regulatory and execution risk. Wyndham shares finishing the day up 9 percent choice down. Meantime, Chesapeake Energy is reportedly approaching Southwestern Energy about a merger. No terms revealed, but a deal would create the largest natural gas producer by market cap in the U.S. Both companies' stocks finished higher. And check out shares of Olink,

which is a leader in the study of proteins, soaring after Thermo Fisher announced it is acquiring the Swedish company for $3.1 billion in cash. Olink shares up 66% today on this news, John. It's quite a pop, indeed. Now, Tesla and Netflix are the big names on tomorrow's earnings calendar. Up next, find out what you need to know ahead of those reports. And tomorrow on Overtime, don't miss an exclusive interview with the CEO of medical device and health care company Abbott following their quarterly results. We'll be right back. and exclusive interview with the CEO of medical device and health care company Abbott following

their quarterly results. We'll be right back. Welcome back. Tesla is going to take center stage on the earnings front tomorrow. We're going to get those results right here on overtime. Philip Bo looks at the key number to watch for. Phil, what is it? It's actually three key numbers. First of all, it's what they say about pricing pressure. That's the first thing that we're going to be focused on in terms of when Tesla reports after the bell tomorrow. China demand, that's a big part of the pricing pressure that's out there. It has been weakening because of the increased competition over there. And do we get the Cybertruck this quarter? They have said that they would like to

start consumer deliveries, retail deliveries this quarter. Will we see that or not? Again, you mentioned earlier, John, we get the numbers after the bell tomorrow. It's less about the earnings per share and more about the guidance and the conference call with Elon. Always the case when Tesla reports. Three for the price of one. Thanks, Phil. Well, Netflix is the other big report on tomorrow's calendar. Also, after the bell on overtime, the stock is down 10 percent over the last month. It's still up 20 percent on the year. Joining us now with a preview is Jason Helfstein of Oppenheimer. He has an outperform rating on the stock. Jason, it's good to have you on. I mean, it does seem like

the bar is relatively low for Netflix coming into this print tomorrow. I mean, we just mentioned down 10 percent over a month. It's down 20 percent since the middle of September. Yeah, I think that the market is acknowledging that their plans for advertising is probably going to take longer than they would have liked. I think there was an article out saying that there was something like in June, 50 percent behind their plan. The executive who was running that as part of the company, they're something like in June, 50% behind their plan. The executive who was running that as part of the company, they're reorganizing that. So I think that's already baked in. Really, the key numbers here is net ads, the number of, you know, additional subs they added,

as well as revenue per subscriber. The revenue subscriber, you know, should be improving to the extent they're cracking down on, you know, password sharing with paid sharing, but they also seem to be slow rolling that. And so perhaps that, you know, password sharing with paid sharing. But they also seem to be slow rolling that. And so perhaps, you know, the street may not see enough revenue per sub relative to expectations. But those are the two most important things to look for tomorrow. Jason, why did the street fall so hard for Netflix's story on ads when they first started telling it? And are there lessons to learn from that? Well, I mean, the reason why the street liked it is they have, you know, 240 million of the most affluent customers, consumers on the planet as their customers. And those consumers are very

attractive to advertisers. I know why they liked it, but why did they believe it? Why did they believe it, Jason? Why did they believe it? Because it would seem like this wouldn't be that hard to stand up. You know, you look at the viewership of YouTube, right? It's, you know, kind of 2X Netflix, for example, right? So clearly consumers will watch videos with ads, and there's an enormous demand for advertisers to be there. The problem is that the Netflix consumer is trained to watch video without ads. And now to go find the consumers who want to watch that with ads, we think they'll get there. It's mostly going to be an international story for advertising, but it's going to take longer than I think we all first thought six, nine

months ago. We have actors still striking. What does all this do to the content pipeline? And is Netflix more immune than others? They are more immune. Number one, they produce content further in advance than linear television. Number two, they have a lot of international production. They've trained us to watch shows with subtitles.

So they should be fine. The writer's strike is settled. Hopefully the actors get settled reasonably soon. But we think, you know, Netflix still has plenty of content to put out over the next two quarters. OK, Jason, thanks for joining us. We'll be watching here in this hour tomorrow. In the meantime, we've also got FedBasebook tomorrow. More earnings in the morning, including Morgan Stanley and Procter Gamble, which we know staples have just been hit hard by investors in recent trading. And then just a flurry of Fed speak. Got to reiterate, at the same time, Abbott, there's been a lot of health sector news with the GLP-1s,

the weight loss drugs and everything else. So how are those hospital procedures ramping? Yeah, supply chain for them, too. Formula was such an issue with that company and others. Meantime, we did have a late day rebound for the averages with the Dow actually finishing slightly higher. That's going to do it for us here at Overtime. Fast money starts now.