Closing Bell - Closing Bell Overtime: Market Insights: Palantir Bull vs. Bear Debate; Booz Allen Hamilton CEO Tariffs and Trump 2.0 on Musk & DOGE 2/3/25

Episode Date: February 3, 2025

A packed show covering the latest in markets, earnings, and tech policy. Adam Kobeissi, Editor-in-Chief of The Kobeissi Letter, and Lori Calvasina, RBC Capital Markets Head of U.S. Equity Strategy, break down key market trends and positioning. A deep dive into Palantir’s earnings with a head-to-head debate between Dan Ives of Wedbush and Jefferies analyst Brent Thill. Plus, Booz Allen Hamilton CEO Horacio Rozanski joins exclusively to discuss the ripple effects tariffs and Trump 2.0. Our Eunice Yoon has fresh reporting on the ground in China taking a look at how the economy there is handling tariffs. 

Well, that bell marks the end of regulation. Easterly government properties ringing the closing bell for New York Stock Exchange. Lifeway Foods doing the honors at the NASDAQ. And a bit of a comeback for the major averages as fast-moving tariff developments led to a rollercoaster session. The Dow rallying back from a 660-point loss to be about 120 points down. And around half of the S&P sectors finished in the green. But tech and small caps remained under pressure with the Nasdaq and the Russell both down more than one percent. That is the scorecard on Wall Street. But winners stay late. Open to closing bell over time. I'm John

Fort with Morgan Brennan. We're going to be all over the market. Volatility and the tariff impact throughout this hour, including a closer look at the potential fallout for tech stocks, industrials, and the Chinese economy. Plus, a massive week of earnings reports gets underway this hour with numbers from the S&P 500's biggest winner of 2024. That's Palantir, along with NXP Semiconductor, Clorox, and more. And the CEO of government contractor Booz Allen Hamilton will join us to break down Elon Musk's efforts to cut spending and how that could impact companies that work closely with Washington. Well, let's get started with today's market action with the Cabasey Letter founder and editor-in-chief, Adam Cabasey, and RBC Capital Markets head of equity strategy, Lori Calvacina.

Guys, good afternoon. Adam, what's the signal in this tariff noise? What do investors know now that they didn't know a week ago? Look, I think, you know, right at the market open, we published a note for our subscribers basically saying, you know, we got to see how all this noise kind of shakes out. And our hunch was that a lot of these tariff threats are really threats and posturing that ultimately are going to lead to buying opportunities, particularly if you look at, you know, close U.S. allies like Canada, Europe's now the European Union's now in discussion, even Mexico. A lot of this appears to be less about necessarily shrinking that trade deficit, but rather just

kind of obtaining different policy measures that President Trump wants to see. And these trade wars might last for a matter of hours or days, like we saw today with Mexico now being delayed by another month. I think what this really means is you're going to see a lot more threats. You're going to see a lot more volatility. But we ultimately think a lot of these dips are going to be great buying opportunities. And today, the S&P is already up almost 100 points off of its low.

That's just in one day. We're now less than 2%, 3% from an all-time high. So I really think this is a tradable opportunity and we still do push higher ultimately. Okay, Lori, even if we don't really want a big trade fight, if we're swinging chairs in the room with the trade China, there's a chance, right, that something gets broken. So how should investors calculate the risk? I think it's a great question, John. And if I think about what I learned today, just from talking to some of my colleagues at RBC who cover specific industries, it does seem like certain areas have already been baking in some pretty onerous tariff outcomes or maybe not completely priced

them in, but got a lot of it priced in. But we didn't see that at the broader market. And I think what we learned today was that the capacity to absorb bad news at the broader market level is pretty low. So I think that's one thing we have to keep in mind, that certain things can be true for industries, but not necessarily true at the broader index level as well. You know, I think going forward, what we have to be as well. You know, I think going forward, what we have to be prepared for is more volatility. I think we all have to be humble as forecasters and realize that not everything is completely forecastable. That's an uncomfortable position for a lot of us on Wall Street. But, you know, I was just really struck by how, you know,

everything that your prior guest just said, you know, about like, look, this is a negotiation tactic. You know, I heard some people who were very confident about that over the past week that were not very confident about that idea this weekend. And then all of a sudden their confidence came back after we got the delay on Mexico. And I think there are just going to be some things that we have to take as we go. And of course, we look for buying opportunities, but we also have to look for opportunities in which we may need to be a little bit more defensive here and there. And I think, again, we had very extreme sentiment and positioning coming into this move today. Very high valuations. And we took a bit of a hit when we got the bad news.

The capacity to absorb it was just not there at the broader market level. Yeah, I want to take a little bit further into this, because whether it's a negotiating tactic or whether we are on the cusp of a bigger, broader trade war, Adam, and I realize there's a lot of moving parts and a lot has to happen to actually see all of this manifest and manifest simultaneously. over the longer term, you have to weigh that against possible changes to tax policy, deregulation, major cost cuts, which was the other news item of the weekend with Doge and Elon Musk, and the implementation of things like AI. So it is all working together. And I just wonder how you game that out as an investor and think about not just the near term, but the longer term, whether it's into the end of this year or beyond, and what that means for investing in this market. Yeah, I mean, look, I think it's like a scale, right? On one hand, you have a bunch of positive things. On another hand, you have a bunch of different things that are weighing on the market. I do think, you know, just more volatility

is expected, generally speaking. But I maintain my view that I think a lot of these dips are bought, especially now we have a Fed pause effectively priced in through at least June of this year, maybe later. Adam, hold that thought because we're getting Palantir earnings. And we just want to get to those as they're crossing. So we'll be right back with you. As I mentioned, Palantir reporting results. And it is another beat. EPS of 14 cents adjusted. That was three cents better than estimates. Revenue of $828 million. That was a big beat as well. The U.S. continues to be the growth driver amid AI adoption. U.S. revenue up 52 percent year over year to $558 million. U.S. commercial revenue grew 64 percent year over year to $214 million. U.S. government

up 45 percent to $343 million. Palantir closed 129 deals of at least $1 million, 58 deals of at least $5 million, 32 deals of at least $10 million. Here's an eye-popping stat for you as well. Rule of 40 score, 81 percent. For Q1, revenue of $858 to $862 million. That was much higher than estimates for full year 2025. Revenue of $3.74 to $3.757 billion. That's also stronger. U.S. commercial in excess of $1.08 billion. That's what's expected. That represents a 54 percent growth rate this year. I spoke with co-founder and CEO Alex Karp. Here's what he told me, quote, We're very long on America commercial, very long on this being a revolution, very focused on the present and future.

CRSL has validated that ontology is what makes LLMs and AI valuable. We're somewhat happy, they would say gleeful, that the experts are wrong yet again. All of this fueled by boot camps that they do, these AIP boot camps, also word of mouth. As Karp puts it, quote, we do a lot of proclamations of truth, like the West is superior and we should undoubtedly kill terrorists. We do education. We don't do marketing. An example, Palantir implemented in minutes a process, according to Karp, for a company that had spent five years trying to do it themselves. I also asked Karp about tariffs and what changing policy for things like trade could mean for Palantir Software. Karp saying, quote, this is a revolutionary moment. We're embracing the revolution. There are going to be ups and downs. As long as it's good for the upward

trajectory of America, we support it. And now I'm kind of glad that we're getting really serious on foreign policy. It's like, don't screw with America. We bring a lot of goodness to the world. Give us some respect. Karp on Doge and Elon Musk, quote, we help where we can. We want to help. Very supportive of what Elon is doing. I asked Karp about deep seek as well. He said, quote, hopefully it wakes America up just because we're the first mover and we have the best tech scene and we're the inventors and we're the builders doesn't mean adversaries can't copy and we have to just keep running. So if you take a look at shares of Palantir here, they are shooting higher, up 11% on this beat on the top and bottom lines and strong guidance for 2025. So Adam, I'm going to go back to you. You can either answer the question I put in front of

you or if you want to react to Palantir here, given the fact that it really is on the forefront of AI and software application. Yeah. You know, what's funny is I was in studio with you guys the last time Palantir reported earnings and they were right around $50. Now we're doubling just in one quarter, nearing a hundred dollars a share. And I think, you know, DeepSeek really kind of emphasized that we're now in a new stage of AI. These AI models are more or less becoming a commodity. There's a new top model every single day, it seems now, every single week. And the next phase of AI is really implementation and integration of AI apps and platforms into companies and organizations around the world. Palantir has solidified itself as a gold standard and leading that charge right now. platforms into companies and organizations around the world.

Palantir has solidified itself as a gold standard and leading that charge right now. Now, I mean, shares nearing one hundred dollars up sharply. I know what the but the big counter argument is going to be valuation, valuation, valuation. But as we've seen with a lot of these tech names that have just ran over the last few years, the valuation never really makes sense until it does. And at that point, it's probably too late to get in. So I think this is this really strong momentum name. I think we will see 100 plus coming as soon as maybe tomorrow. And I think by the next time

they report earnings, if I'm on with you guys again, we could see this thing at 150. Who would have guessed 15 years ago that looking forward to seeing America's next top model would mean something completely different in 2025. Lori Cavacina, what is your feeling about some of the higher multiple names, not necessarily Palantir itself, but in this environment of that volatility you talked about, are you more or less comfortable holding on to those? Look, I think the earnings have to come through. And so, you know, we're seeing some green on the screen with a strong beat. And if you go back and sort of zoom out a bit, we've looked at the top 10 names in the S&P 500 and their PEs against the rest of the market. And then we've

done the same analysis looking at the long-term earnings growth expectations. And guess what? It's the exact same chart. And so what we're really seeing is that some of these higher multiple stocks are getting the premium valuations they deserve. It's really not anything to do with this year's numbers or next year's numbers, but just that longer term earnings growth outlook. And, you know, we've seen this market several different times over the past year or so try to rotate. It's in the middle of one of those attempted rotations again. And I think this is a big test that what we're going to see in coming weeks is whether or not, you know,

sort of the higher growth names can continue to come through, drive the earnings sentiment and justify those premium multiples. And I'll tell you, John, we've had so many head fakes where it looks like the rest of the market is trying to come in and assert earnings leadership.

And you see some of these high growth names, you know, kind of stumble a bit and everybody thinks it's happening. And then we get deeper into reporting season and it shifts back in favor of these high growth names, you know, kind of stumble a bit and everybody thinks it's happening. And then we get deeper into reporting season and it shifts back in favor of these high growth names again. So I'm curious to see what happens here. All right. Lori Calvacina, Adam Kobasi, thank you both for joining us with all the major averages finishing the day lower the S&P. It looks like finishing just below 6K. How long have you been sitting on that nerdy tech zinger? Well, America's next top model. Kobasi said top model, and you know how my brain works.

All right. Well, now let's turn to Senior Markets Commentator Mike Santoli for a closer look at this wild day of trading and just how far the S&P 500 fell at the lows of today. Mike. Yeah, Morgan, it was actually a pretty dramatic intraday, but it's interesting to take a look at the six-month chart of the S&P to see that the lows of the day were essentially back inside the range of November 6th, the day after the presidential election, as well as the December Fed meeting. So you basically have this market that has been kind of choppy with an upward bias for a few months right now that's been contending with a series of headwinds. It was the rush higher in treasury yields, the hawkish turn rhetorically by the Fed, obviously deep seek. And now, of course, tariffs. And it's trying to figure out if these levels are going to hold. It was in the above

fifty nine hundred is where we hung on to today at the low. So you can get down well into the fifty eight hundred and still have it be no big deal based on the last few months range at this point. And take a look at one relative indicator of risk appetite, liquidity, whatever you might want to call it, is the Bitcoin to gold ratio. And obviously, longer term span, it's really kind of no contest Bitcoin in a major uptrend. Obviously, Bitcoin known as digital gold, they're kind of similar stores of value. Bitcoin is a store of value for optimists. Gold is a store of value for pessimists. That's one way to look at it. What you see here, though, is Bitcoin rolling over in relative terms. This

is probably right before the intraday bounce in Bitcoin. But you see that it's stalled out, if nothing else, against gold. So maybe there's a little bit of vulnerability out there to having this come in a little bit more. That would imply broader asset classes might have a little more of a kind of a risk aversion to them. We'll have to see if that does develop. And there's plenty of room for Bitcoin to give back outperformance in the near term without really changing the overall trend. By the way, this was the presidential election, so it did not get back there in terms of the recent lows in relative terms. Oh, for sure. Mike Santoli, thank you. Well, in the meantime, NXP Semiconductor earnings are out. Stock is trying to move higher. Christina Partsenevelis has the numbers. Christina. Well, over 50 percent of NXP's revenue stems from the

auto sector, and Q4 showed auto sales did fall about 2% quarter over quarter. The company, though, posted earnings per share of $3.18 on revenues of $3.11 billion, both beating estimates. Unfortunately, though, for all business categories, industrial, auto, mobile, that I just talked about, communications infrastructure, that fell on the quarter as well as on the year. In the release, the CEO stating that they had to manage what was in their control and to navigate a soft landing. For Q1, their outlook, the company anticipates earnings per share midpoint of $2.59 on revenues of $2.83 billion, both slightly lower than estimates on the street. Q1 gross margins also a little light, but I have to say that the street was anticipating that lightness. So perhaps why you're seeing the stock 2% higher because it wasn't as bad as many people expected. All right. Christina Parts Nevelis, thank you. Clorox earnings are

out. And Courtney Reagan has those numbers for us. Hi, Court. Hi, Morgan. So this is Clorox's fiscal 2Q results. They are beating estimates for the top and the bottom line. Earnings per share coming in at $1.55 adjusted. The street was looking for $1.41. So that's a nice beat. Revenues also coming in ahead of expectations, $1.69 billion. Street was looking for 141, so that's a nice beat. Revenues also coming in ahead of expectations, 1.69 billion. Street was looking for 1.63 billion. The company is giving a full-year adjusted earnings guidance of a range between 695 and 735. That is better than the street's expectation of 684, with revenues of a range between down 1% to up 2%.

The street is looking for those to be down about 0.6%. So the guidance looks pretty good, but they do note this is sort of exclusive of any impact from tariffs. Obviously, these earnings have probably been baked in here for a while, this guidance, well, before we knew exactly what was going to come down with the tariff announcements that we've seen. And we know that's a moving target still, but we should point out that the Clorox shares are up sharply here in reaction of about 3%. Back over to you, John. All right, Courtney Reagan, thank you. Well, we've got much more on today's earnings action ahead, including a bull bear debate on Palantir, the S&P 500's top performer of 2024,

which is surging again now at 15% after just posting results. After the break, the tariff impact on tech. We're going to talk to T. Rose, tech portfolio manager, about the names most at risk from a trade war and what he recommends shareholders do now. Overtime is back in two. Welcome back to Overtime. The tech sector getting hit hard today amid tariff uncertainty, and some mega cap names could see unique consequences from a trade war. Kate Rooney is looking at the impact on Amazon and a potential silver lining. Kate.

Morgan, hey there. So tariffs are expected to be a negative for Amazon, but some investors are pointing out the bigger hit to Amazon's foreign low-cost competitors. So think of Shein and Temu, which could be a silver lining for the e-commerce giant. A bulk of items available on Amazon do come from China, though these are through third-party sellers. Rohit Kulkarni over at Roth estimates 30 to 40 percent of those Amazon sellers, third-party sellers, import from China. About 60 percent of all the items sold on Amazon are from those third parties. So they may actually be the ones here absorbing more of the cost increases. Mexican tariffs, of course, are on hold for the moment. But that

region makes up less than 10 percent of Amazon's seller base. That silver lining that I mentioned. So tariffs are closing a trade loophole that has boosted Amazon's Chinese competitors. It's allowed exporters to ship packages valued at less than $800 into the U.S. without any sort of levy. As Bank of America put it this morning, growth at Xi'an and Temu could be, quote, significantly constrained by that loophole closing. Though TD Cowen says they think a lot of this is going to be reversed. Trump, quote, has other goals with China that might lead him to undo the de minimis moves, which is what this loophole was called, if China gives him enough on fentanyl. Amazon does report on Thursday, guys, so expect a lot of questions to come up on these cost levers and what sort of levers Amazon does have to pull on margins and all of this tariff conversation, guys, on Thursday.

Back to you. All right. Kate Rooney, thank you. For more on that, tariffs and tech, let's bring in Dominic Rizzo, Portfolio Manager of the Global Technology Fund at T. Rowe Price. Dominic, software doesn't get shipped in boxes anymore. So I guess maybe that would be good for the tariff outlook, but it sure is impacted by currencies and by attitudes toward America. So what's the impact on tech here of the saber rattling, if not the trade war itself? Well, first off, thanks for having me back, guys. It's great to see you. You know, our internal economist team studied this really thoughtfully and kind of came to the conclusion that overall

these tariffs could impact inflation by anywhere from kind of 20 to 60 basis points if they were fully implemented across the board. Because you see some offsets, right, either through U.S. dollar appreciation or through different players kind of eating the tariff headwind rather than the consumer and having it show up in inflation. So I think this is something to watch carefully. But frankly speaking, it seems like more of a negotiating tactic. And so when I'm looking at tech, I'm cautious and careful when I'm thinking about tariffs, but I'm not overly concerned at the moment. So what's well-priced?

Where is there opportunity to buy in the volatility of something dips? I personally think digital semis are really attractive. You know, for the past week, the market has been having this debate about whether or not something like a deep seek is positive or negative for the overall digital semiconductor ecosystem, right? Did the odds of us going to a $400 billion AI chip world in 27, a $500 billion AI chip world in 28, go up or down because of DeepSeq? I think the answer is that the odds have gone up, right? On one side, of course, DeepSeq proved that we can train and inference these models dramatically

more efficiently than we are today. But on the other side, they proved things like reinforcement learning, synthetic data, But on the other side, they prove things like reinforcement learning, synthetic data, models that train other models, all work. And those are very, very compute-intensive. So when I look at names like an NVIDIA, a TSM, or an AMD, I think all of those are attractive here. How about Apple? You know, Apple has a couple moving pieces.

Apple really benefits from open-source, large, large language models being extraordinarily high quality. And I think what we're going to see is in this race to have America's next top model. I'm going to have to borrow that from you, John. We're going to see a lot of different open source models kind of take the scene. And I think that's great for Apple because they're going to able to improve Apple intelligence very quickly if that ends up being the case. We heard on the call that in the markets that had Apple intelligence, we saw better iPhone sales. And we're now coming to the point where we're four or five years on from COVID. And a lot of people upgraded their hardware in COVID. And that hardware cycle should finally come through. So I think the key is to get people adopting Apple intelligence. And that should eventually lead to a hardware cycle at Apple. But overall, more open source, more AI is good for

Apple. Okay. We have another busy week of tech earnings with Alphabet, Amazon, AMD, and others reporting. Dom Rizzo, thanks for breaking it down for us. Up next, two analysts with opposing views of Palantir join us for a bull bear debate on the stock. Following earnings just moments ago that sent the stock rocketing higher, it's up about 15% right now. And later, don't miss our exclusive interview with the CEO of government contractor Booz Allen Hamilton on how Elon Musk's efforts to cut spending in Washington could impact a wide range of businesses. We'll be right back. Welcome back. Let's get another check on Palantir, which is now up 16 percent. They had a beat on the top line, a beat on the bottom line, strong guidance for full year 2025, free cash flow better than expected as well. It's a stock that has divided analysts even as it soared nearly 400 percent in the past 12 months.

Only three analysts have buy ratings. We have one of them with us here today, Dan Ives, WebBush Global head of technology research. He has now performed in a street-high $90 price target. On the other side of this debate, though, is Brent Thill. He's tech sector lead at Jefferies. He has an underperforming balance here in a $28 price target. It's good to have you both here. And Brent, I'm actually going to start with you, because in the shareholder letter that Alex Karp puts out every quarter, he basically called this a new phase as AI adoption accelerates and with it sales growth, which is what we're seeing at Palantir. And I spoke to Karp and he said it to me like this. He said, quote, say you're a PE company, you acquire a large insurance company, and you wanted to change the cost of revenue, meaning how can you have fewer people doing the same amount of underwriting and have the same number of customers? That was a multi-year project,

like three to five. Now it's a one quarter cost that's completely different. And if you do it and the company down the street doesn't, you're going to have very different margins and very different revenue. And then he goes on from there. But we've talked about it for a while now that 2025 could be the year where you see this application layer actually take effect. And you see corporate America begin to realize the benefits of the investments they've made on AI. Palantir seems to be very far ahead based on the earnings we just got. Does this change your thesis? Look, they've had great fundamentals. I think this is a question of valuation. Again, you'd have to grow five years in a row at 50 percent and stock would still trade at 15 times revenue. So it's not that we're arguing the fundamentals. Kudos to them and great call by Dan on the stock.

Our view is more about liking other names. And remember, 50% of this base is retail and insiders. There's no other software company like this. It's the lowest asked about question of any institutional investor because barely any institutional investors own it. And so I go back to, we've all seen what happened to Snowflake at 50 times revenue. We've all seen what happened to Datadog and others. And maybe Palantir is different. Kudos to them. And I agree with you, it's getting to the application layer and they're in a great spot. So I'm not sitting here attacking the fundamentals.

Fundamentals are great. Ours is largely focused on the stock and looking at what's happened to investors in the last 20 years. When you chase things at 50 times revenue, it doesn't end well. And none of them have. So part of it is we're just scarred from that. And maybe we're totally wrong on that. And so I acknowledge, you know, we're wrong. But I also acknowledge, like, you got to look at the history and look at the fundamental analysis. So that's kind of what we're sticking to right now.

Dan, I want to get your response to that because valuation has been raised by a number of folks here. One of the other things that came up in my conversation with CARP is the fact that, this is how he put it, he said, we don't have the right jokes, the right suits, the right steak dinners. We're never exactly the right people at the right time, unfortunately. And that's probably the biggest limit to our growth. Wrong people, wrong time, but right products. Sort of getting at this idea that they tend to be contrarian and that they don't have a marketing team and yet they're growing. You've called it the messy of AI, but the messy of AI does look expensive based on some valuation metrics. Is it right for a pullback here or does it keep going? Look, I think this was a historical quarter. And ultimately, look, the

bears, they were bearish at $10, hated $40, and despised it at $100, right? And I think they can't see AI in spreadsheets. When we do the checks that we've done for Palantir, I think it's the next Oracle, it's the next Salesforce. I think this is a company, when it comes to AI revolution, this is really front and center is what's gonna be one of the huge beneficiaries there I think you need to pull the marketing lever here. Do they need to build out that team or it's not necessary I think the scary thing is with no direct Salesforce and basically more inbound This is what they've done in terms of what these types of numbers you start to look out the next three, four, five years. I mean, I think this is ultimately, this could be a trillion dollar mark cap when we look

out for the next two, three, four years. As Brett's talked about, I mean, institutional has obviously been very negative on it. But as we've talked, I think many have missed the biggest historical growth themes the last 20 years because they focus on valuation. I'm going to try to get to both of you quick but we got to be quick on the answers. Brent, is Palantir Tesla or Nvidia here? Tesla where fundamentals don't matter because the personality of the CEO is just so big or Nvidia where it might look expensive now but next year it's gonna look cheap because of

the fundamentals? It's Tesla right now. Okay. I mean it's it to look cheap because of the fundamentals? It's Tesla right now. Okay. I mean, it's, look, again, you can't go back to any historic company that's ever sustained it. So, again, if they can accelerate growth and keep it, then we're wrong. But it would be the only company in software that I've covered for 25 years that would maintain that. Okay. Tesla's not bad, though. Dan, is it Tesla or NVIDIA? Look, I'd say it's Tesla with a little NVIDIA, and guess what?

That's a cool club to be in. And when it comes to Tesla, I think this is ultimately, this is Tesla in 2015, 2016, where I view Palantir. Okay. Just as long as it's not Tesla in 2023 or 2024, a brief period of time, you know, maybe Alex Karp needs to buy Twitter. And again, white, but again, you look at Karp, you look at Musk, visionaries, visionaries, big personalities, too. All right, Dan, Brent, thank you. Time for a CNBC News update now with Courtney Reagan. Courtney. Hi, John. Well, California's largest home insurer State Farm is asking state officials for an emergency rate hike averaging 22 percent in the wake of the Los Angeles fire wildfires. The insurer said today it already received over 8500 claims and paid out more than a billion to customers, adding that it expects to pay out, quote, significantly more.

State Farm said the request was needed to rebuild its capital in order to continue to provide home insurance in the state. The Trump White House has asked congressional leaders to approve a roughly $1 billion arms sale to Israel. U.S. officials tell The Wall Street Journal the planned weapons sale includes bombs and armored bulldozers. It comes as Israeli Prime Minister Benjamin Netanyahu is set to meet with President Trump in Washington tomorrow. And as he begins his post-presidential era, Joe Biden has re-signed a deal with Creative Artists Agency. The co-chairs of CAA have long been prominent backers of Democratic candidates. The agency also represents the Obama's production company.

John, back over to you. Courtney Reagan, thank you. Up next, we'll look at the impact of tariffs and trade policy on the industrial sector, which finished near the bottom of the S&P 500 today. And check out Booz Allen Hamilton's stock since the election. The government contractor sharply underperforming as the Trump administration and Elon Musk rethink government spending. We're going to talk to Booz Allen Hamilton, CEO, about the impact on his business in an exclusive interview. It might just surprise you. We'll be right back. welcome back mike santoli returns with his take on this morning's ism manufacturing and the read

through for industrial stocks mike yeah john so ism manufacturing actually nosed above the 50 level which is supposed to separate expansion from contraction for the first time in 26 months. You see this chart that was in that's about the spot a little before that when we finally went negative. Now, this is one of the many potential recession signals that really didn't work this time around. Obviously, it meant pressure on basic manufacturing businesses. And this is not all about big companies, but it does show you that, in fact, we managed to weather this little downturn at least for now. And a lot of new orders was responsible for this bump higher. Could be front loading of tariff impacted stuff. But look

at the stock sector. Industrials relative to the overall market over the last three years hasn't really held it back. Right. Actually outperformed the S&P 500 by a little bit over that period. And it shows you the aerospace cycle has been stronger and essentially earnings have been able to go up, even if purchasing managers were saying, you know what, this month things don't necessarily look all that great, guys. How does the tariff environment impact the ISM and this cohort? Well, there's a sentiment component here, right? So some of it might actually have a negative impact in terms of people's forward-looking expectations. But it seems like in the very near term, there could have been a pull forward of new orders. I know

that some of the other surveys, like consumer surveys, are saying that this is a great time to buy household durable goods because there is an expectation perhaps that prices might go up. So it could have a positive short-term impact. Longer term, industrial companies tend to feel as if they have difficulty navigating a tariff environment, though, of course, they always will adapt. We just bought a washer dryer. Wasn't thinking about that, but maybe I should have. I'd also note made in America, defense manufacturers, defense within being defensive might actually shine here as well. Mike Santoli, thank you. Speaking of, up next, the CEO of defense and government contractor Booz Allen Hamilton on how cuts by Elon Musk's Department of Government efficiency could impact his industry.

And later, how a U.S. trade war with China could impact Chinese consumers who are already bargain hunting in a weak economy there. We'll be right back. Breaking news on the tariffs on Canada. Megan Casella has the details. Megan. John, we can now report that the Trump administration will be delaying by at least 30 days those tariffs against Canada that were set to take effect at midnight tonight. We're getting this out of Canada. Prime Minister Justin Trudeau posting on social media just now that he had a good call with President Trump that had been scheduled for 3 p.m. that Canada will be implementing a $1.3 billion border plan, sending nearly 10,000 frontline personnel to be working on

protecting the border. He'll be appointing a new fentanyl czar, listing cartels as terrorists. A lot of requirements here and saying that proposed tariffs finally will be paused for at least 30 days while we work together. Now, we have not gotten official word from the White House on this just yet, although this is the same pattern we saw earlier today. We saw the news come first out of Mexico before the White House confirmed it. We heard President Trump say just a few minutes ago to reporters that the second call with Trudeau today had gone very well. But when asked whether tariffs were still going to be going into place tonight, he said, just watch. Now we know from Canada that these will be delayed, along with those from Mexico. We'll just be watching to

wait and see what's happening with China. Guys, back over to you. Megan, any sense of why on Friday the Trump administration was saying these tariffs are going into effect, there's no way to forestall them, it's happening over the weekend. And now here we are on Monday. The best answer that I can give you, John, is having covered trade and this president for the last eight years very closely, is that he very firmly believes that no one gives up anything for nothing, that there has to be something on the table. So he has to be going full force and saying that these are coming and order to get something in response, right? So now he can say he's gotten both Mexico and Canada to capitulate at least a little bit to

send more troops to the border. But you're right. He was saying just, you know, 48, 72 hours ago that he wasn't looking for concessions. There was nothing that could be done now just before the deadline. Of course, these tariffs aren't going to be going into effect. It's been a very crazy start to the week. It certainly sets the stage for USMCA renegotiations, which are supposed to start next year. We'll see what happens with that as well. Megan Casella, thank you. Who's Alan Hamilton outperforming today after reporting quarterly results on Friday?

Earnings and revenue coming in above analyst estimates. The company raising its full year guide. The stock is down nearly 30 percent since the election, though, even as the broader ITA defense ETF is up some 7%. But joining us now in a CNBC exclusive is Horacio Rozanski, who is Alan Hamilton, chairman and CEO. And you're here on set, so welcome to you. It's great to have you. Thank you. It's good to be here. Let's start right there, because you did put out stronger-than-expected earnings on Friday, but you did also say that you expect some softness in the near term, in part because of a new administration coming in, most likely affecting

your civil business, I think, the most, or at least from analysts' perspective, the most. So walk me through what that transition means, especially as we're in a continuing resolution, and there is a lot of uncertainty around government in general right now. So first, our business is strong. Double-digit top-line growth, double-digit bottom-line growth, lots of momentum. We feel really good about where we are and the prospects for the future. Been through lots of administration transitions, and they all have some things in common, some things different. What they have in common, there's a change of priorities. For us, that sometimes means some things that we were doing are no longer as important.

Other things become more important, and we can shift resources and the like. What's unique about this one is the speed at which all of this is happening. And so even last October, we were honest with investors, and we said, you know, we expect some level of disruption at the beginning of an administration because we always do.

And then we also expect great opportunities. Booz Allen has always done better post-administrative presidential changes than before. And right now what we're seeing is, yes, we're seeing some of the near-term disruption as we expected. It hasn't affected our business so much, but it will affect the industry potentially. But we're also seeing great opportunities that are beginning to take shape. So overall, we're excited. Last time you and I spoke was at the RIG National Defense Forum, and we talked about

Doge and Elon Musk. And you said at the time that basically we're doing the right thing as a country, but we're just moving too slowly and that you thought Doge could act as an accelerator. How do you see it now? And how do you see the fact that your stock and other stocks, too, particularly in government, you know, IT and services, have been selling off since the election, in part because of Doge. Do you think investors are missing what's about to happen here or what is happening? I do. You know, the old joke that says that Wall Street's predicted eight of the last three recessions. I think there's a little bit of what's happening here. There's an expectation of a lot of downside. But the way we see it, I'm still obsessed with speed.

The country needs to move faster. Elon Musk is moving fast. Doge and the administration are moving fast. And in some areas and directions that we've been advocating for a long time, you know, more use of technology, more use of AI, create efficiencies to be able to invest in the technologies of the future. We're an advanced technology company. This is what we bring to the table, and this is where we're focused.

We see Palantir doing huge numbers on earnings right now in overtime. Data and AI, a big part of their business. That's also a big part of what you guys help to implement. So connect the dots for investors here on the growth that we're seeing reflected in a name like Palantir and what you guys plan to help the government, your clients implement. So, you know, we're working with technology companies all the time because if you're focused on speed, you don't want to reinvent the wheel. Palantir has some exquisite product. Alex and I are good friends because we are connected on the notion that national security is really important. And if we bring what they can do, what we can do,

their technology, our technology, their people, our people, they can create magic. I mentioned when we were together at Reagan that in 45 days, we went from an idea to a prototype. We could demonstrate that prototype is now being used in exercises and being tested very exciting two weeks ago we announced a partnership with aws an expanded partnership with them again because we can co-invest and co-create on top of the massive investment they've already made to create things that our government really needs we have many other irons in the fire our goal as booz allen is to bring our technology and our people to bear because when these technology companies, volunteers are a little bit different case because they started in the national security space,

but a lot of companies start in the commercial space. And then the technologies need to be adapted to be valuable in the battlefield, for example. You know, if you're a cloud company, you assume that there's perfect connectivity, that electricity is always going to be running, that you're going to get cooling and everything else. That's not the case if you're in the desert. That's not the case if you're underwater. So what we bring is that knowledge and the technologies that close those gaps so you can actually use the cloud in those environments. So given the fact that you are the largest provider of AI to the federal government, your thoughts on DeepSeek and what we're seeing in terms of A.I. as a geopolitical flashpoint

with China? Again, speed. We cannot afford to slow down. We cannot afford to be second in these areas. DeepSeek is interesting because they can — the techniques that they've used, which have been already been testing in academia, but they're the first ones to put it all together, potentially dramatically lowers the cost of training a large language model. And it lowers the footprint

in which those models can operate. So that will have significant implications. Now, from where we sit, the challenge with AI in general is provenance and safety and security. So we would not be telling our clients, go take the deep-sea models and apply them to national security tomorrow because there's a lot that we don't know. But those techniques, I'm sure, will be used more broadly across the industry to create faster,

cheaper, better malls, which is what we're all about. Horacio Rosansky of Booz Allen Hamilton. Great to have you on. Thanks for being here on set. It's good to be here. Coming up, the China lens on the consumer. We'll get a report from Beijing about where Chinese consumers cut back on spending during the Lunar New Year holiday and how tariffs could put more strain on the country's economy. And check out ETFs that track the major averages. Those are jumping right now on the news that we just brought to you about Canada's prime minister saying U.S. tariffs will be paused for at least 30 days. You can see it right there on your screen. Stay with us.

Welcome back to Overtime. We've talked a lot about the potential impact of tariffs on U.S. consumers. But with an additional 10 percent U.S. tariff on Chinese goods set to take effect, is the Chinese economy ready? And this week's China Lens, our Eunice Yun, gives us a look at how consumers there are navigating their biggest holiday season. In China, Lunar New Year is the biggest holiday of the year. It's China's equivalent to Christmas in that people travel long distances to be with family, and they buy gifts at places like this. I came to this traditional Beijing snack store in a popular shopping district to get a sense of how Chinese expect to spend in the year of the wood snake. It turns out many feel constricted.

This year, I find myself buying for quality and value for money, she says. In the down economy, discount retailers like Walmart Sam Club are winning out. Here, cherries from Chile are 70% less compared to a typical supermarket and as much as half off versus Tencent and Alibaba's grocery stores. The government is encouraging spending as well with subsidies. People come to popular retail chains like this one to take advantage of the government subsidy. You could see marketing all over the store, including that banner, which says that you can get as much as 20% off when you buy a TV or a large home appliance.

Xu Zesong is saving $208 on his new iPhone 16 thanks to the subsidy combined with discounts from the retailer and Apple. If there wasn't a government subsidy, I wouldn't consider buying an iPhone now, he says. The subsidies apply for sales online too, where shoppers find a deluge of deals on movie tickets to restaurants to travel. The belt tightening can be felt at train stations, too. This holiday is considered the largest human migration on the planet, with hundreds of millions on the move, often only going home once a year. Even here, people hunt for discounts. Construction worker Huang Peng says last year he bought a ticket for the high-speed train

for a six-hour ride. This year, he's traveling 18 hours on a slow train to save $71. It's just so hard to save money, he says. Eunice joins us now. Eunice, I guess tariffs on China might squeeze exporters who employ these Chinese consumers, right? Yeah, absolutely. A lot of people are nervous about it. At the same time, they are feeling that China got off relatively easy compared to what many had feared. This was a 10 percent tariff on top of existing tariffs. So the exact impact on each industry is really going to vary. But the feeling has been that it wasn't so high

to really change current business plans. The people that we spoke to said that they did, though, feel emboldened to try to push more of the cost onto the U.S. consumer as well as U.S. partners. And that was mainly what they were feeling at this point. All right. Eunice Yoon, thank you. That's going to do it for us here at Overtime. Fast Money starts now.