Closing Bell - Closing Bell Overtime: Joby’s New App For Its eVTOL; Oshkosh CEO On New USPS Trucks 6/20/24

Episode Date: June 20, 2024

S&P 500 and Nasdaq hit fresh highs before retreating into the close – Branch Global Capital’s Greg Branch and John Hancock Investment Management’s Emily Roland break down how to play the market at these levels while Moor Insights & Strategy Founder Patrick Moorhead talks the Nvidia trade. Nuveen Real Estate Global CIO on her second-half real estate playbook and where opportunities are. Our Phil Lebeau on Joby’s plans to launch an Uber-style app for its coming eVTOL. Oshkosh Corporation CEO John Pfeifer on the rollout of its new e-USPS trucks and how its electrifying commercial vehicles.  

A mixed picture for the major averages. The Dow having its best day of the month, but the Nasdaq snapping a seven-day winning streak. The S&P also finishing slightly lower. 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 Ford. Yeah, and energy is the big outperforming S&P sector today, thanks to WTI crude hitting its highest level in nearly two months. Tech, the real drag on the market. Semiconductors, a big part of that story. The SMH down almost 3%. Reversal of fortune for Nvidia, a big part of that as it drags down. As I said, other chip and AI plays. And coming up, we're going to discuss whether this red hot stock still has more room to run higher. Plus, real estate is the only S&P

sector that is in the red this year. Coming up, Nuveen Real Estate's global chief investment officer on whether these stocks are too cheap to pass up right now and how she's thinking about real estate more broadly. Let's bring in our market panel, though. Joining us now is Greg Branch, founder of Branch Global Capital Advisors, and Emily Rowland, co-chief investment strategist at John Hancock Investment Management. Emily, I'll go first to you. We've seen some profit taking a little bit of consolidation here with the S&P and the Nasdaq finishing lower, led in part by big tech names, by the semis, which have been on this record run. Are these still the places to be in this market? Or should you be thinking about diversifying, especially as we have had

market breadth so narrow? Yeah, so we still are overweight, the technology sector. We've been overweight U.S. tech companies for five years now. You know, certainly the valuations are starting to get challenged. You look at the forward P.E. ratio on the tech sector within the S&P 500 right now, it's at about 30 times forward earnings, which is the highest since coming down from the tech bubble. So, you know, certainly overbought to a certain extent, but the earnings are there. You look at tech earnings in Q1, they came in at 25 percent, much, much higher than the broad market. Analysts are penciling in about 15 percent for the rest of this year, 19 percent for next year.

So, yes, the PEs are elevated, but the earnings are there as well. These are high-quality companies with great balance sheets, lots of cash. So we continue to embrace tech here. But we do think that you should own other stuff in case tech continues to potentially take a breather here. We look at areas like U.S. mid-cap stocks that are trading at their steepest discount to their large cap counterpart since the late 1990s. They've got outsized exposure to areas like industrials, which we see benefiting from fiscal spending and from onshoring activity that's taking place in the United States. So, yes, tech, but we also want to look at U.S. mid-cap stocks as a great diversifier. Okay. Greg, how do you see this

market right now? We did have a softer batch of economic data again this morning. Jobless claims, yeah, not quite as high as last week, but still higher than expectations. Is bad news still good news for stocks because it signals the Fed could potentially cut rates and maybe more than is currently priced into the market? Or is the bad news finally becoming bad news because the economy is showing signs of turning? You know, I'm not sure where we are with that. Right now, I think my posture continues to be more bearish than bullish, although I think that, you know, I always maintained that when the data led me out of that posture that I would follow.

And we saw something last CPI report that we simply havenps of growth every month, which did not get us on a trajectory for the 2 percent sustainable inflation rate that the Fed has targeted. More so, or adding to that, I guess I should say, is we saw our fourth quarter lead into our first quarter this year, where many of the metrics that we're tracking accelerated, whether it's wage growth that moved from 90 bps to 120 bps, whether it's some of the PMI indicators, whether it was consumer sentiment. Even the Fed itself on the SEP accelerated its view for inflation, its view for unemployment in a negative way. But much of that may be turning around now. And so while you know I was on the margin here thinking that it was more likely that they would hike than cut,

I'm still maintaining my posture that we won't see any cuts this year. But for the reasons Emily said, I'm not sure that that matters. We're getting exceptionally strong earnings growth right now. We had a 6% first quarter, if consensus is right. We're going to get a 9% second quarter. I think we've yet to enter the cycle. We will have a cycle that probably begins this year. So I'll be back to my bearish ways probably in the fall. But in the

meantime, look for the things that are going to put up 20% earnings growth. Even as a bear, I said this. Look for the things that when breadth does narrow, the multiples won't really matter. You won't be considering things as expensive. Well, Emily, what I'm taking away from both of you guys, I don't hear either of you pounding the table bullish right here. So should investors raise cash, at least some cash in this environment, especially given that waiting for opportunities, it'll earn 5%? Or do you need to stay completely invested as you make that move, perhaps from some tech investment into mid caps? Yeah, we certainly still think that there

are opportunities in stocks, which I talked about, again, U.S. tech stocks, U.S. mid cap equities. But we're also looking at bonds as having the ability to do more heavy lifting in portfolios. Greg talked about this disinflation trend that we're seeing, and it's showing up in things like the housing data this morning, building permits, new housing starts slowing significantly. We're seeing it in things like used car prices falling. We're seeing it in areas like the labor market showing weakness. It's a lot harder to find a job now if you've lost one. We're seeing jobs switching not result in wage gains like we had seen before. So the cracks are forming right now in the labor market. We do think the economy is going to continue to decelerate.

Companies, especially low quality ones, are going to be challenged as the cost of capital remains elevated and they deal with margin compression as record revenue growth slows. So you've got to be really picky and looking at opportunities and stocks. Meanwhile, bonds haven't really sniffed out the disinflation trend yet. We're looking at 425 on the 10-year Treasury yield. We started the year at 388. So bonds are still under pressure. This is resulting in a very, very attractive entry point to us right now. The fact that you can sit and get paid income, 5 to six percent income and high quality bonds and wait for this contraction to play out to us is pretty awesome. OK, Emily Rowland and Greg Branch, thanks for kicking off the hour with us. Pleasure. With with the Dow

finishing higher and the Dow transports actually up one point two percent. That's been an underperforming average in the last couple of months. Let's now bring in senior markets commentator Mike Santoli for a look at how the S&P 500 could be stretched to the upside. Mike. Yeah, Morgan, from the outside looking in just at the index level, it's hard to escape that conclusion. Take a look at the S&P. This is over four years relative to its own 200-day average. So it's a simplistic but relevant way of looking at whether, in fact, too far, too fast is something you could say about this market. So where are we close today? About 12 and a half percent above the 200 day average. It gets a little more extreme than that, but not terribly.

That was right before the the little pullback we got in April. It was about 12 and a half percent there again. Something similar here back in late July of last year. It doesn't mean it has to have a pullback. You've seen some areas here where we just stayed way overbought relative to trend. So that can happen, too. And usually it doesn't mean, again, that somehow the trend itself is in jeopardy. It's much more about the pacing of it and whether we have to, you know, slide back a little bit.

However, what's unusual about this particular time when the index is stretched is take a look at what's going on inside the index. Just another way of saying that we've had massive divergences among stocks. This is from Bespoke, and it essentially just tracks how many individual stocks in the S&P are either overbought or oversold. This, again, is a statistical measure of these stocks relative to their 50-day averages. So you see here, this was at the end of the year, coming into the year, after that huge fourth quarter rally that was really broad. Most stocks were way overbought.

So, yep, we had to cool off a little bit and pull back. Now it's neither here nor there. You actually don't have a fat pitch either direction. And it shows perhaps that most of the market has been just kind of trudging along and consolidating and digesting while the narrow rally has been led at the index level. So maybe you can get away with just rotating out of the huge overheated winters into other stuff. That's actually what was going on most of today, Morgan, talking about the transports bouncing. That's reversion to the mean action. I love that you just picked up what I was putting down before on that one.

I mean, listen, in terms of some of the near-term trends and what's spurring trading, overbought conditions is one of those things that's being bandied about right now. So this adds a lot of context to that conversation. It also raises the question to me, though, Mike, of how much of this is a result of passive investing versus active investing and how you have this handful of very big, very valuable stocks kind of moving the markets more broadly. Yeah, I don't really think that it helps to necessarily place the blame or credit, however you want to think about it, specifically on passive investing.

The reason for that is every stock gets the money from a passive index investor in exact proportion to that stock's weight in the index. So why that would disproportionately benefit the very largest, most well-sponsored, well-followed stocks as opposed to the neglected ones is kind of unclear, right? We're talking about a market that's kind of the six versus the 494. That doesn't make sense that it's just passive. Now, I do agree that rushing into passive instruments makes the overall market perhaps less valuation sensitive. And it does perhaps create this dynamic where, you know, the few people trying to beat the index find it really hard to do.

So you actually have to feed into the stuff that's working more. So I don't know about passive, but there's a lot of quantitative and momentum type strategies. So just people piling into the trades that have been working, which do so until they don't, John. All right. Mike Santoli, we'll see you in a bit. For now, let's switch gears to AI darling NVIDIA. To the extent that we're ever switching gears talking about NVIDIA, the stock gave back early session gains to close lower by 3.5%. Other names in the space also dragging the Nasdaq 100 lower.

Names like Qualcomm, Micron, Microchip and On Semiconductor all down more than three percent. Let's bring in more insights and strategy founder and CEO Patrick Moorhead. Pat, good to see you. First, starting with NVIDIA, big picture. It's right up there with Apple and Microsoft market cap size wise. And to me, this is more of an investor expectation of where the profits are going to be in the quarters ahead. It's interesting to me, one leads with chips, one leads with software, one leads with consumer devices. What's your expectation about where the AI profits are going to come from in the next three to five years? Yeah. So first off, we should expect all three of these companies to trade places based on sentiment that is all about future expectations. And like you said, these are three very diversified names, right? And you have to

always build the infrastructure. So there's going to be a hardcore chip name out there. There's going to be cloud services for enterprises that are in there. And Microsoft fits the bill, even though they're very well diversified, even in devices. And Apple's really a consumer play with their devices. The only technologies, let's say, that might be missing might be classic enterprise SaaS applications. Now, are they going to reach $3 or $4 trillion? Probably not. But companies like Adobe, Salesforce, and SAP, if there's going to be end user action in AI,

and there has to be to keep this whole AI economy going, those are some names that could be very interesting. We already see interest picking up across semiconductors right now. One area that I've got my eye on, though, is smaller cap software because it's just been having a rough time. Mike Santoli was just talking about, you know, the difference in stocks that are doing particularly well versus those that aren't. Even as we see these overall indices moving higher, what kind of catalyst is it going to take for the very smart software companies that are lining up their AI future significantly now to start to get credit in their pricing for that, do you think? Yeah, so the first thing they need to do, and not

everybody is doing this, and I think we've seen Adobe as an example, they need to be very clear on what the AI profit model looks like, right? Some are not charging anymore, let's say, like a Zoom, and I think they want to make it up in market share, or they'll raise prices later. Other companies like Adobe, Salesforce, it's all about that model. But they need to be very clear what is everyday revenue and profits, and what is directly and distinctly attributable to this new generative AI. And that's what investors need to be looking for. And unfortunately, these small cap software

stocks are all not being very clear in what the opportunity is. And when I talk to some of these companies, they say, hey, you know, Pat, we don't know yet. There's a risk there. We don't have a great idea exactly what they are. But that's exactly why they're not being rewarded in the market, because their message is so muddled. And we're talking about the fundamentals, but we were also just talking to Mike Santoli about the pile on we've seen in terms of market dynamics and the trades that are working versus the trades that aren't and the momentum that that is spurring. You have all this rebalancing going on today and tomorrow. You've got the XLK, the Technology Select Spider Fund, an expectation that you're going to see $11 billion swapped out of NVIDIA into Apple tomorrow as that rebalances as well, at least here in the near term. When we talk about some of the technical dynamics and trading dynamics between some of these stocks, do you expect that we could

see some volatility or some of the investor flows go into some of these less loved areas of the market because of what we've seen up to this point? The answer is yes, and it's all about the run-up and the risk that involves. But what I think people should be looking at are the second order. I call them phase two companies like the HPs of the world, Pure Storage, even Dell Technologies that are part of this secondary build-out of enterprise AI. We saw it first with the hyperscalers, and they were helping the software companies deliver their services. They had their own services.

You have those chip companies. But what I think is being under-specced here is the opportunity for this enterprise infrastructure. And along with that, it does boost some of these other chip names like Broadcom, like Marvell. But yes, it's all about investors are looking for picks that haven't caught in the AI wave just yet, or there's an imbalance in the valuations.

OK, Patrick Moorhead, thanks for joining us. Thank you. We have a news alert on Asana and Pippa Stevens has the details for us. Pippa. Hey, Morgan. Well, Asana is rising here in extended trading after the company announced the 150 million stock repurchase program. The work management platform also reaffirming its previously provided guidance other than its net loss per share.

Because of that stock buyback, the share is now up 2 percent. John. Pippa, thanks. One of those smaller software companies we were just talking about. Well, the S&P 500 closing at another new high, but real estate is the only sector in the red this year. Up next, Nuvine Real Estate's Global Chief Investment Officer on where she's finding opportunities in this beaten down group. And later, we will discuss the future of EVs, of electrification, of autonomy with the CEO of Oshkosh, which just started delivering its new electric trucks

to the U.S. Postal Service. Overtime is back in two. Welcome back to Overtime. Today's housing starts data from May hit lowest levels since June 2020. And looking more broadly, the real estate sector has been one of the worst performing S&P sectors this year. My next guest, though, says investors who remain jaded on the sector are going to miss out on the upcoming rally. Here to discuss the areas where she's finding opportunity is Carly Tripp, Nuveen Real Estate's global CIO and head of Investments. Carly, great to have you with us. I'm wondering first about office. What do you see happening to the older stock in office if it's not already selling at steep discounts? And how long do you think owners and lenders

can afford a massive repricing? Yeah, no, thanks. Happy to be here, John. Thanks for having me today. So if we take a step back, just first commenting on the overall market, because you did give a glowing introduction of our industry at the onset. But really, we are private real estate investors, which lags the public markets. Our returns are really meant to sit somewhere between equities and bonds, inflation hedge, durable cash flow with upside, obviously, through increased demand and continued growth. Private real estate tends to lag public markets. So our experience has been quite different this year than public market rate performance. And what we're seeing is really a turning of the tide for private real estate and a bottoming process. And that's really

indicative if you look at industrial as an example, which is up 9% year over year. So again, valuations are bottoming, liquidity is returning to the market, and transactions are starting to beef up again, which is all good news. As it relates to office, what we're seeing, again, you do see fundamentals generally bottoming. We have seen net absorption positive for the year. That is indicative of a little bit of a turn still going forward. There will be winners and losers structurally in this country. We do not need the amount of office stock that we have. And we are seeing a really massive flight to quality as it relates to office demand, with tenants really requiring highly amenitized, newer space, which isn't

necessarily a good investment outcome for the investor itself. They're very costly to maintain. So traditional office will continue to be challenged going forward, long term still at risk for disruption. And overall, we are underweight to traditional office. Tell me about retail. What distinguishes the retail real estate that's doing best right now beyond geography? Is there anything to what I'm hearing about the return of the mall, particularly in luxury areas? And what comes after, you think, the whole department store anchor tenant model? Yeah, I mean, a little bit, right? So sales have increased. Some malls are doing quite well, very, very resilient. That said, I think retail and mixed-use communities

are doing best. Necessity-based retail is holding strong. When we look at retail overall as a sector, it's like kind of the Rocky Balboa of the last decade. It went through a very, very dark era as e-commerce came to disrupt it, which created this undersupply in the market. You know, you look at the last five years and over 100 million square feet of retail has been positioned to other uses. So the market really self-corrected when we talk about supply. So currently we are seeing the most demand that we've seen in a decade at our retail centers. Vacancy nationally is a meek 5 percent, which creates very, very strong conditions for the landlord. And also, if you look at forecasts

for rent growth, very, very strong outpacing inflation and is expected to continue to do so. Carly, it's good to have you on the show. It's interesting to hear your comments about a bottoming that we're seeing in the real estate market more broadly. And we've heard similar things from Blackstone, from Aries and a number of others. But on the flip side of that, we also know that there is this wall of debt that is in stages coming due. And if rates stay as high as they are, you're going to have a number of developers and a number of loans that are going to have to refinance and reprice at these much higher rates. How much of a concern is that? And therefore, how much does all of this hinge on monetary policy? Yeah, I mean, it definitely hinges on monetary

policy, right? As soon as we can get the short end of the curve normalized and the curve not inverted, that's a positive thing for lending conditions for commercial real estate, as many, many borrowers take on floating rate debt. If you think, though, further further about it I think what I would say is the bottoming that we're seeing it's not related to office as I mentioned we are starting to see the turn the corner really turn and I think you know the the message there is the bottom is really hard to time however if you're redeeming your positions and you're selling out of real estate right now you are really selling very very very close to a bottom. All right. Carly Tripp, thanks for joining us.

Thank you. The race to make air taxis, a common sight in the sky. It's now one step closer to reality. We've got those details straight ahead. And Accenture shares surging today after the IT services and consulting company announced generative AI sales have hit $2 billion so far this year. Overtime will be right back. Welcome back to Overtime. The race to become the first company offering air taxi services is heating up thanks to FAA approval of an Uber-like app from Joby Aviation. Phil LeBeau has the details. Morgan, in the next year and a half, we're going to see Joby, as well as some of its competitors, all launch commercial air service.

At least that's the plan at this point. And to that end, the question becomes, what's it going to look like? Well, Joby out today saying that it will be offering customized flights for its eVTOL that is currently close to production. That's going to be starting next year. What will this app look like? Well, Joby gave us a glimpse of it today. They say it'll be like an Uber app. Imagine a ride hail service where you can customize your flight.

Now, keep in mind, you can't tell the eVTOL to pick you up in your front yard and drop you off in somebody else's front yard. The destinations will have to be pre-approved by the FAA, and the length is going to be limited to the range of the aircraft. Nonetheless, you will be able to pick the time that you want to go on a particular flight. All of this comes as we are seeing a real race to which company has the first eVTOL in commercial service. Now, Joby is expecting to start commercial service next year. Archer is doing the same. We've heard from other companies that they could have service as well in 2025.

Keep in mind, final FAA approval is crucial here. A couple of things might happen in terms of how we see the service develop. One, it'll be a ride hail service. Joby, for example, will have its own fleet and it will be working with customers, with airlines. But it'll be almost like a ride hail service. We can say, I want to go from this spot to this spot. You also have airlines that will be working with some of these companies, adding them into their fleets. Archer and United is a good example of that. So as you

take a look at shares of Joby, keep in mind, we've only got about, what, 18 months until the end of 25, and we have yet to see final approval from the FAA on the aircraft, either for Joby or for some of its competitors. But this is the race right now, guys. People in this industry believe that they can have commercial service up and running by the end of next year. Which is really incredible, Phil. And the other piece of this, of course, is building out the infrastructure where these eVTOLs are going to take off and land. To your point, to find these designated and approved spots. And Archer, as you just mentioned, I mean, they've struck a deal apparently in the last couple of days with Signature Aviation, which has all the private aviation terminals and a couple of real estate developers like Kilroy. How quickly can this infrastructure actually be built out, assuming you see that FAA approval come as soon as next year? Well, with places like Signature Aviation

and other remote airports that are near big airports, Let's say you want to go from Burbank down to LAX. That's pretty easy. That can come together quickly. What will be more challenging, and you hear a lot of talk about this in the industry, is, well, look, we're going to have people going from the top of a parking garage at a particular mall 30 miles outside of Chicago, and then they'll go into O'Hare Airport. That mall, that skyport, if you will, where an eVTOL may land, that still needs to be developed by the FAA and approved by the FAA.

And I think that's going to take longer, Morgan. All right, Phil LeBeau, thank you. And now it's time for a CNBC News update with Contessa Brewer. Contessa. John, the FBI today raided the home of Oakland, California, Mayor Shen Tao. Agents from the bureau, the IRS and the Postal Service were seen entering the house. Authorities would only say it's part of a larger operation in Oakland. It comes two days after the county election office says it received enough signatures on a petition to recall the mayor. She has not given any public statements about today's raid. Starlink announced today it's rolling out a backpack-sized version of

its satellite antennas called the Mini. According to a customer email seen by CNBC, the backpack's designed for high-speed internet on the go. The company's offering a limited number in early release that will sell for $599, with the service costing about $150 per month for 50 gigs of data. And the Los Angeles Lakers have hired J.J. Reddick as the team's next head coach, according to the Associated Press. This would be his first head coaching job, though Reddick's a 15-year NBA veteran. He retired from pro basketball in 2021 and moved to a broadcasting career, most recently with ESPN. Now he gets to call the shots, apparently. Well, the stars sometimes call the shots, Contessa, but point taken.

Thank you. Up next, Mike Santoli is going to take a closer look at the inflation picture and what falling food prices could mean for grocery and restaurant stocks. And check out shares of Gilead. It's the top performer in the S&P 500 today. After announcing its experimental HIV prevention shot was shown to be 100 percent effective in late stage trials, shares ended up eight and a half percent. It's a big move for that name. Welcome back to Overtime. Kroger closing sharply lower, down more than 3%, despite topping earnings and revenue estimates for its first quarter earnings. Let's bring back Mike Santoli for a look at how groceries are performing versus

restaurants. Mike. Yeah, John, kind of a shifting balance of power here reflected to a degree in the charts of Kroger relative to Darden restaurants, which also did report today. Here you see, I think, you know, Kroger outperformance as grocery supermarkets rediscovered pricing power and were able to press that advantage. More recently, I think you could argue that you had more value in food bought for consumption at home. So in other words, grocery prices coming down more actually pressured chain store sales in terms of restaurants. Take a look at the inflation readings, the CPI for food consumed at home and food away. You see both of them in free fall really here,

but food away from home has come down more slowly. And there was a sense out there that the value proposition for fast food, fast, casual, casual dining was not really stacking up to what people could do at home as if they felt a little bit squeezed. And now you have all the chain restaurants, mostly quick service, going out with these value meals, obviously McDonald's leading that charge, trying to essentially restore the idea that you can get more for your money

right there. So it could be in this instance where the consumer is is the net winner along both fronts for a little while anyway. Sure. And Mike, it seemed like the actual grocery business outperformed for Kroger. It was food. It was fuel and health and wellness that were a bit worse than expected. So perhaps that benefit to food at home is durable at least for a while versus what we saw at Darden. I think that's very true. And also it's reflected in the outperformance of things like Walmart and Costco relative to other retailers even. So I do think that that dynamic is still there. What is interesting is having the fast food chains realizing that their price

points were very close to full service casual chains and having to try and rectify that, at least perception wise. OK, Mike Santoli, thank you. You may soon see a very different looking post office truck delivering your mail. Up next, the CEO of Oshkosh on these new EVs and what they could mean to the company's bottom line. Stay with us. Welcome back to Overtime. The USPS truck outside your house may look different soon. This week, Oshkosh delivering the first of its new next generation delivery vehicles for the government agency after or quasi government agency after winning a 2021 contract from

the U.S. Postal Service to modernize its fleet. The contract is for up to 165,000 vehicles on a $482 million initial investment. But joining us now in an exclusive interview is Oshkosh Corp CEO John Pfeiffer, who's here on set. It's great to have you. Yeah, Morgan, thank you. And thank John for having me on today. Happy to be here. I mean, I remember a couple of years ago, we were talking about you winning this contract. At the time, it was seen as a controversial contract award. It was contested by the other competitor who is no longer in this market in this way. But we talk about electrification of vehicles. We talk so much about it on the consumer side.

You're on the commercial side. Starting with the Postal Service, what are you seeing in terms of the opportunity and impact of that contract, especially as we've seen the Inflation Reduction Act just continue to propel the demand for these EVs. Yeah, sure. So let me just remind everybody who we are as a company. Oshkosh Corporation, we've been in business a long time. And what we do is we design and develop purpose-built vehicles and equipment for people in our communities who do the toughest work. Soldiers, firefighters, people that work at great height in many different

occupations with our booms and lifts, people on the tarmac of an airport that have to do tough work. And now our newest segment, last mile delivery and serving the postal carrier and allowing them to be more productive and safer and more comfortable to execute their missions every day than they've ever been before. Okay. So what do you, so I guess which part of the business is growing the fastest then in terms of demand, given those different markets, given the fact that we do see this push towards electrification, we also have all this investing into new infrastructure. Yeah. So first of all, the electrification world for the commercial markets, I think, is very different in terms of demand creation than commercial, or I'm sorry,

passenger cars, I'll say. And the reason is, is that when we develop an electric vehicle, whether it's for last mile delivery, or a 40,000 pound fire truck or a refuse and recycling collection vehicle or the vehicle that operates on the tarmac of an airport or an aerial boom, we do it with the customer's value proposition in mind. And we know that we have to deliver them an economic benefit. Sure, everyone likes that it's better performance as an electric product. They like that it's zero emission, but it has to provide economic benefit. And when it provides economic benefit, there's an incentive for commercial operators to adopt it. Speaking of, there was a yellow flag, I think, on EVs waived with Hertz when they made this big bet on Teslas and EVs, and then they got caught by the maintenance costs on the other end.

How are you helping customers pencil out what those costs are going to be, how the refueling or recharging is going to work, and whether they have the correct infrastructure in the right places to get the economic benefit? Well, John, that's always a pacing item, right? So the U.S. Postal Service is putting electric recharging infrastructure in place and they're doing it faster than anybody else is doing it. So you're going to see our demand and our delivery for electric last mile delivery vehicles, the NGDV for the Postal Service, go faster than other markets because they're getting themselves ready for an electric future. I think you'll see pretty rapid adoption in the environmental services space. It's refuse and recycling collection because it's a perfect use case for an electric vehicle. And the customers are starting to recognize that they need to build out the infrastructure to be able to adopt these vehicles.

One of our biggest customers, Republic, has already said this is the vehicle of the future for them. So a lot of it gets paced by how ready and how quickly can a customer put the recharging infrastructure in place. We're talking about electrification, but another area where you've invested heavily and where you've been sort of on the cutting edge, and I think about even some of your defense contract work being tied to this, has been autonomy. Yeah. How does that continue to evolve as well? Well, autonomy, I think, is where we really make a difference as a supplier to our customers. And we think about the people that are doing the hard work. We know that autonomy makes a huge difference. It makes a difference in how safe people are.

If you look at one of our boom lifts in the JLG product line, we've got all sorts of autonomy on it now to make it really safe for the operator where they're not going to get themselves into a troubled situation with the autonomous functionality. And they can just focus on the job that they're up there to do. So we do that across our product lines, it's all about driving productivity. Everybody cares about productivity and it's driving safety for people in these occupations. That's what our autonomous functionality is all about. All right, John Pfeiffer, thanks for joining us. CEO of Oshkosh Corporation. Yes, thank you for having me. Good to have you here. Yeah, thank you. Well, Honeywell going on defense, I should say, to make

a deal that helps beef up its defense business. We got those details straight ahead. And later, why a record heat wave across the U.S. could result in scorching returns for one specific sector on Wall Street. We'll be right back. Welcome back. Honeywell shares closing slightly higher today and actually touching a new 52-week high. The industrial blue chip announcing it will buy CAES Systems from PE firm Advent International for just under $2 billion, all cash. CAES develops electronics such as antenna systems and communication networks for aerospace and defense companies. Jeffrey says it complements Honeywell's defense and space portfolio, supporting positions on fighter jet programs like F-35 plus missile and unmanned platforms. It also speaks to Honeywell CEO Vimal Kapoor's focus on growth tied to three what he calls megatrends, automation, energy transition and the future of aviation. This is something

Kapoor discussed with me at length just a few weeks ago, including the role of M&A and specifically bolt-on acquisitions to fully realize it. As RBC notes, while U.S. defense spending is growing at a low single-digit percentage year-on-year, upgrades, retrofits, and electronics should see faster growth, making a strong case for a mid-single-digit percentage top-line outlook for this business. Advent bought Cobham Advanced Electronic Solutions for $5 billion in 2020. Then it carved out some of the different businesses, including CAES, as a standalone operation in 2021. Now, today's deal is expected to close in the second half of 2024.

It's expected to add to Honeywell's earnings per share adjusted in the first full year of ownership. Speaking of defense tech, Apex Space just closing a big new funding round as the maker of satellite buses looks to ramp up production and make more products geared towards the defense and national security market. So just a lot of money, both publicly with strategic company acquisitions and on the VC side going into the defense space. For more, scan the QR code on your screen to listen to the latest edition and the latest episode of my Manifest Space podcast. I'm getting all tongue-tied today. Up next, power play. No, we're not talking about hockey in the NHL finals. Why utility stocks could be red hot for your portfolio amid the record heat wave across the country.

We'll be right back. Welcome back to Overtime. Temperatures across the country have been dangerously high this week. Americans turning up the air conditioning could spark a rally for utility stocks. Pippa Stevens is here with the details. Pippa. That's right. So higher temperatures means more power sold, which tends to be positive for utility companies since it increases revenue and earnings power.

But not all utilities are created equal, and the independent power producers could be the biggest winners from record heat. Companies like Vistra, Constellation and NRG operate in restructured markets and own generation. So when demand surges and power prices rise, they make money that they keep. This is reflected in stock performance. Those three names all up at least 50 percent this year compared to the overall sector's 9 percent gain. The heat is just the latest catalyst. The group also had momentum behind it as Wall Street models just how much power data centers will require. Now, when it

comes to regulated utilities, that's names like Duke Energy, Dominion, a southern company, and Northwestern Energy, the impact of higher heat might not be immediate. But longer term, it's yet another strain on the grid, which helps utilities case when asking regulators for higher rates. And so basically, this is yet another catalyst that makes it more compelling that we need more investment in infrastructure. I guess I wonder what comes after the heat wave from some of these independent power producers? Because you got hurricane risk in some areas, which I guess tempers the upside. And then we've had mild winters, which probably aren't great for them. Yeah, that's right. Particularly in the Midwest, the heat this year is especially important because the heat has been not great for those Midwestern utilities over the past few years. And so investors do tend to look through that weather impact.

But I think for those IPPs that you mentioned, the stocks are already up a lot this year based on that AI momentum. And when you look at the performance on the subsector level, it seems like maybe they could cool off a little bit. But they are just simply the ones that are more exposed to this growing power from electrification, reshoring, and then, of course, data centers. And so for the regulated guys, they can't make quite as much money there because they don't have those generation assets that ramp up when more power is required. We did already get our first named storm, too. Speaking of hurricanes, what's surprising to me is the fact that natural gas has actually come off in recent trading sessions. I would expect to be seeing the opposite happen. Yeah. So a lot of the time with nat gas, it tends to be buy the rumor, sell the news. And so there were forecasts for this heat wave. And then actually last weekend,

their forecasts were revised lower. So still for record heat, but not as quite as big of a record as was previously expected. And nat gas does fluctuate so much with the weather. But I think the reason why we're still below $3 per minute BTU is the fact that storage is still so elevated. We're about 25 percent above the five year average on storage. And so I think that this summer, if we do get this prolonged heat, that could meaningfully reduce the storage, which then could trickle through to higher prices. All right. Pippa Stevens covering it all for us. Thank you. Well, meantime, we have another jam packed show for you tomorrow during this holiday

shortened trading week. Data on deck includes manufacturing and services PMI reads, as well as existing home sales, where economists are expecting a drop from the prior month. Investors will also be paying extra close attention to fund rebalancing. NVIDIA's blazing run higher means the $71 billion, we talked about this earlier in the show, $71 billion XLK will swap Apple and Nvidia spots in the fund. And finally, Chinese e-commerce giant JD.com hosting its annual meeting. Investors will be watching for clues into the state of the consumer in that major market as well. Volatility, Morgan, in this whole AI semiconductor and hardware trade. Earlier in the trading day, we saw Supermicro and Dell

higher on this news that, you know, coming from a tweet from Elon Musk, that they're part of XAI's build out. But then they lost all of that. I think both of them ended the day. Yeah, you can see right there how the stock goes down, but it's still up above 900 bucks a share. It was down in that 750 range not long ago. And by the way, the broader markets, the S&P and the Nasdaq had a similar trajectory, which sort of speaks to what we've been talking about day in and day out, which is the top heaviness of these averages right now, which we continue to watch and monitor. The other thing we haven't talked about and I think is worth noting is the fact that the dollar has been flirting with new highs for 2024, in part because we have continued to see these central bank dynamics

play out in other parts of the world as the Fed easing cycle starting to kick in as the Fed holds steady. Let's talk about it tomorrow. All right. That is the first here at Overtime. Fast Money starts now.