Closing Bell - Closing Bell Overtime: Nasdaq Notches Record Close As Nvidia Sets Market Cap Record 7/9/25

Episode Date: July 9, 2025

Nvidia becomes the first company ever to hit a $4T valuation and the Nasdaq notched a record close. But is the rebound starting to feel stretched? Lori Calvasina of RBC joins with her take on positioning. Former USTR official Wendy Cutler on the latest trade headlines. Oppenheimer’s Brian Schwartz on why he upgraded Microsoft and Jefferies’ Sheila Kahyaoglu previews Delta’s earnings.

Well that's the end of regulation. Wellington Shields and Company ringing the closing bell at the New York Stock Exchange and Eladon Pharmaceuticals doing the honors at the Nasdaq. Stocks ending the day in the green. The Nasdaq composite hitting an all-time high. The index surpassing its prior intraday high from July 3rd. The Dow and S&P posting their first positive days in three. Investors appear to be downplaying the latest tariff-related headwinds, even as the president

sends more letters to more countries today. Utilities and communication services were your leaders. Staple and energy lagged. Treasuries rallying today, snapping a five-day losing streak. Yields fell across the board after a solid 10-year auction. Oil steady today as well, after a surprise build in U.S. crude stocks. It's a pretty big build. It did hit the highest level in two weeks. Staying on the commodities front though, copper falling more than 2% after hitting a record high yesterday.

And that's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Ford alongside Morgan Brennan. As Nvidia crosses into $4 trillion territory, Microsoft is not far behind. Coming up, we're going to talk to an analyst upgrading Microsoft this morning, saying AI can continue to drive growth. And no summer doldrums for the markets. Earning season is starting.

Delta reports results tomorrow. We're going to get you ready for that report. And during this market euphoria, a note of caution. RBC's Lori Kavacina is going to join us to explain why she thinks this rebound is looking full. Let's start with the big stock story of the day. The Nasdaq rising to another all-time high led by NVIDIA, which crossed the $4 trillion market cap level for the first time.

First company ever to do it. Christina Parts-Nevel is joining us now from the Nasdaq. Christina. Just over two years ago, John, Nvidia wasn't even in the trillion dollar club, but it's been a record breaking climb actually, taking 262 days to jump from one trillion to two trillion, then three months to hit three trillion, and now just over a year to reach four trillion dollars. The stocks surged 42% just in the last three months or so. Of course, boosted

by the, we can call it a thaw in US-China trade tensions. You've got the multi-billion dollar chip deals in the Middle East. And Nvidia's decision to write off $5.5 billion worth of exports to China. That de-risking play specifically for China was seen as a strategic move, though there are rumors still swirling about a China compliant chip in the works. Even today, there was a report from the FT which could further lift revenue. Nvidia told me they're not commenting. But now comes the next big milestone. Wedbush sees a $5 trillion market cap on the horizon.

Loop Capital even says $6 trillion. To even get to $5 trillion, Nvidia shares would need to climb another 25%, even 26%, from current levels. That means maintaining not only its dominant 80% share of the AI accelerator market, think of it like AI chips, but it would also have to expand its margins and remain the foundation for enterprise as well as sovereign AI factory build outs. Governments from Japan to the UAE are pouring billions of dollars into sovereign AI infrastructure and Nvidia is positioning itself as the arms dealer for that race but it also means

moving beyond just chips. It's expanding its software stack, AI cloud services could be the next billion dollar business potentially locking in developers enterprises and nations alike and as CEO Jensen Wong has said on the earnings call at the GTC flagship event in March, this isn't a GPU company anymore, it's an AI algorithm firm. Guys? All right. Some good context there.

Christina Parts-Nevelest, thank you. Thanks. So now that the NASDAQ 100 is at a record high, what else is sitting on the sidelines waiting to return to the former peak? Let's ask senior markets commentator Mike Santoli. Mike? Yeah, Morgan, sort of the broader expanses of the market are close, but not all of them have gotten there. Equal weighted S&P 500, it has done a pretty good job of participating in the recent upside,

but it's just slightly below the fourth quarter high still, but basically within a rounding error of that. Take a look too at the S&P 500 excluding technology. This is an ETF form, SPXT is the name. And there you see it's basically gotten back there. So whether this is a ceiling, the upper end of a range, a place to rest or just something to blast through, that is what we're gonna have to check out. And then a very broad look at not just small caps, but every stock in the market outside of the S&P 500.

This is known as the S&P completion index, also a Vanguard ETF, the extended market ETF. That's got more work to do. So this is both smaller stocks and mid-cap stocks, but also very large stocks that have not yet been placed into the S&P 500. It's sometimes a pretty good gauge of the market's willingness to bid up

unprofitable or somewhat riskier companies. It's sometimes a pretty good gauge of the market's willingness to bid up unprofitable or somewhat riskier Companies and you see still broken this little downturn we were in for a while But still has some room to make up there to the old all-time highs Morgan Yeah, I mean to your point you just sort of touched on it But the small caps though are lagging and the Dow transports we don't talk about them very much But obviously economically sensitive. Those two have yet to play catch up here.

They have. I mean the the A.I. boom and the capitalization of the A.I. story has really essentially overtake it or compensated for some of the traditional cyclical parts of this market that have been stuck and really by some

measures have been this prolonged earnings recession in The majority of stocks out there over the last couple of years So you can look at that one of two ways one is that you know those parts of the market are not Confirming the new highs the other way you could say is there's sort of dry powder in the form of more stocks that are not Very extended or expensive if the earnings start to come through That's what B of A's been saying recently with a value and a smaller cap bias,

but you know, it sort of remains to be proven at this point, John. All right, Mike Santoli, we'll see you again in just a little bit. Now with the NASDAQ hitting an all time high and in Nvidia crossing $4 trillion in market cap, can the tech rally continue or is the trade getting stretched?

Well, this now is T. Rowe Price Portfolio Manager, Tony Wong. Tony, welcome. I actually want to start off referring to that old Gartner hype cycle idea, which I think turns 30 this year. Which comes first for AI? A broad tech lift from measurable productivity driven

by AI or a trough of disillusionment? As investors think, maybe it's not coming. Yeah, well, I think that's what we saw in the last four, is actually demand has improved. We look at the results that Nvidia had. Sequentially, there was a big increase among the current customers, and even after Nvidia got it out,

China was still really strong. So we actually saw an acceleration in demand, I think, and you saw some post-Deep-Sea digestion, perhaps, and concern. But here, I think that reasoning models are really taking off. You have inferencing really coming in to play. And then you also have AI video generation autonomy. So I kind of feel like the fundamentals are actually really driving the stock here. And the multiple is actually pretty reasonable. So in terms of hype cycle, I think when you think of hype, you think of high valuations, but I think the fundamentals are quite strong here

and proven. So you don't think, should I extrapolate from that? You don't think that we're in a period of particular hype because the growth associated with some of the leaders in this AI driven phase is justifying it? Well, I think you have to take it one by one. I think in Nvidia specifically, when you look at the multiple,

I mean, it's a sub 35 times multiple and growing quite significantly. And so you look at what you're getting versus the growth, it's pretty reasonable, I think. And I think when you take a step back, Nvidia has been like the ultimate S curve stock that's been covering for the last eight years. And you just see continuously new TAMs that emerge

and across the board. So I think it is really supported by the demand that they're seeing. And that's why the stock is kind of going to new all-time highs. Christina, Parson Evalish just used the metaphor arms dealer, the AI arms dealer. How big do you think the opportunity is

on the sovereign AI front and how sticky is that ecosystem? So I think the sovereign front makes a lot of sense. When you think about Nvidia, it's really the platform that delivers, I think, intelligence at scale. And in addition, when you think about AI, I think it's going to be the next electricity for the industrial revolution. And when you think about AI, I think it's gonna be the next electricity for the industrial revolution.

And when you think about sovereign players, like they're not, I think it's actually quite sticky. Like, whereas like the hyper scale players, you can think about that they have so much scale, they can design their own chips. But for Nvidia, the sovereign AI piece is a new tam that is quite sticky because they want to build like something that is really fungible.

They can run a lot of things on, you things on and just get it up and running. They're not really focused on displacing NVIDIA at this point. So I think it's a big opportunity, makes a lot of sense. Top holding in your fund, Meta. Obviously, you put in a lot of money out there to hire a lot of talent. Is that a good thing? I think that the AI opportunity is quite large. So to me, it is the S curve of probably the next 10 years.

And so I understand that Mark wants to invest strongly behind it. It probably is more risk of under investment than over. And you can see what it's done to Meta's business. I mean, if you think back a few years ago, Apple kind of turned off the lights on Meta with its privacy changes and with AI and their use of GPUs and getting better at that aspect,

it's actually improved their business a lot. And they have so much room, you know, all their digital properties and where the tension is to improve the reels. So you can think about the reels, if they can show you five relevant reals up from like two or three, like that's a massive improvement in their business.

And so, I think that's why it's exciting to see what they're doing. They are doing it indeed, Tony Wong, thank you. And we talked about Nvidia hitting new milestone, not to be outdone, Take a look at Bitcoin. It just hit an all-time high here and after hours trading and overtime, topping 112,000 before pulling back a little bit,

now up about 19% this year. And of course, we have talked about, Mike Santoli has talked about the fact that the NASDAQ and Bitcoin tend to trade in tandem with each other, maybe speaking to like the liquidity picture overall. So, one to watch. Yeah.

Well, coming up, a couple of notes of caution on this record run. First, a former trade rep says the markets may be discounting how difficult it will be for the administration to hammer out significant deals by August 1st. And we'll hear from a market watcher on why she thinks this rebound from the April tariff lows might be running out of steam when overtime comes back in two. Welcome back to overtime. We've got a news alert on a possible serial deal. Pippa Stevens has those details. Pippa. Hey Jon, so check out Cheritio WK Kellogg. They're surging more than 40% after the Wall Street Journal reported that Ferraro is nearing

a deal for roughly three billion dollars to buy WK Kellogg. Ferraro behind things like Ferraro Roche and Nutella they are a family-owned Italian company and WK Kellogg is of course the maker of Froot Loops, Frosted Flakes, a lot of other household names like Rice Krispies and it is a product of Kellogg spinning into two companies, WK Kellogg and Kellenova back in 2023, you see there the shares up now almost 50%. Morgan? Wow, huge move on this. If I'm not mistaken, Ferraro bought the cookies

and cakes business from Kellogg some years back, so maybe it's just taking little nibbles. Little little nibbles. Yeah, big nibble this time. I like that. Does it mean we're getting Nutella cereal? The Brennan Cacciotti house where Nutella's a nutritional staple would like to know.

Not if RKJr has anything to say about it. Well, stocks regaining ground today, even with potential tariff turmoil looming. President Trump sending letters to seven more countries with new tariff rates. That's at least 21 countries receiving letters with tariff rates of 20 to 40%. Joining us now is Wendy Cutler,

Vice President of the Asia Society Policy Institute. She's a former acting deputy at the US Trade Representative's Office and worked on negotiations, including on the TPP deal and high level China talks. And Wendy, it's great to have you on the show, welcome. Thank you. So let's start right there.

So we did see these deadlines for these typical tariffs, at least in terms of the companies the government. So let's start right there. We did see these deadlines for these typical tariffs at least in terms of the companies for which these letters have gone out. Extended to August 1st. How much can get done here in three weeks?

And I ask you that question knowing that you have worked on deals in the past and they tend to be timely and they tend to be nuanced and they tend to be very difficult to get to. Exactly, and I think it's very telling that while the administration had promised 90 deals in 90 days, they only have two to show for it thus far. They are making progress with certain countries, including India, but that deal hasn't crossed the finish line.

And it's all because of these details that need to be ironed out, and more time is needed. I think over the next three weeks, we may see a handful of more deals concluded. But I also worry that a lot of countries will not be able to get over the finish line, and therefore they'll have to swallow that tariff rate that was assigned to them in the letters that they are receiving from President Trump.

How to game out the tariff landscape, because not all tariffs are created equal. Obviously, reciprocal tariffs and all these trade deals that we're talking about every day. But then you also have these sectoral tariffs, which seem to be very sticky and perhaps not go anywhere, whether it's cars or now copper, the possibility of semiconductors and pharma.

How to think about those and the intention there as the U.S. tries to stand up domestic supply chains versus getting to trade talks with some of these other deals? Right. So the administration in these current negotiations is trying to limit the scope to just the reciprocal tariffs. So if you reach a deal with the US, we'll bring our reciprocal tariff down, but that does not shield you from tariffs that may be coming on critical minerals or an aerospace or on semiconductors or on pharmaceuticals. But many countries have not accepted that, including Japan, which wanted to get an exception

from the 25% sectoral tariff on autos. So in short, these sectoral tariffs are going to complicate and make even more difficult negotiations that are already encountering a lot of problems. Wendy, what should investors make of the fact that South Korea seemed to say, it really wasn't clear to us exactly what the US wants in this situation. And when these so-called reciprocal tariffs

were first announced in early April, a lot of people were scratching their heads about where exactly did these numbers come from? And it looks like trade deficits, some of the countries, especially the ones today, announced just really don't have the capacity to buy as much stuff from the U.S. as they sell to us. Well, you're exactly right.

Korea's not alone. I hear this from so many of our trading partners, that they're not really clear on what the U.S. wants. They make proposals, and Washington comes back and says, do more, make more concessions. And so they feel that it's kind of a, you know, there's no end to this. And frankly, they have domestic constituents in their own domestic politics. And so moving in certain areas that the, where the U.S. is pushing for market access, for example,

whether we're talking about dairy in India or beef on Korea, these are very sensitive issues for these countries. And so, again, there's just a lot of confusion and lack of prioritization. And I think the administration is negotiating with so many different countries simultaneously that it's not doing the type of thorough job that really needs to be done to bring these deals over the finish line. So what's the most likely scenario if the deals

don't happen by August 1st, if there's no flood of dozens of countries coming across the finish line? Is the expectation that the tariff levels are just gonna rise so high that they're gonna be forced into compliance, or maybe just that they find different trading partners and the whole world has to live with that? Well, exactly. These countries are not standing still now.

Many are trying to diversify and lessen their dependence on the US market. So it's no coincidence that we're seeing an uptick in free trade agreement activity among our partners and other types of arrangements where they trade more and they integrate their economies further. And in the long term, that hurts the United States because we're on the outside. We don't get those benefits. And so while we think we have a lot of leverage with these tariffs and that everyone really wants the U.S. market to continue access to the U.S. market and they'll do anything to continue that access, I think countries have their red lines and their limits. And I think the U.S. is beginning to see some of those red lines in the negotiations.

I would just say this may lead the administration to become more flexible over the coming three week period, particularly if we see more economic fallouts in the U.S. from these tariff hikes. Okay. Perhaps we're about to find out. Wendy Cutler, thank you. Thank you. Well, the Nasdaq soaring to a record high today, but Apple is flat. Over the past three months, the index is up 20%, Apple just five.

And now Apple is dealing with a loss of a top exec and Arrival's new phone full of AI features. We've got a closer look at those issues coming up. Welcome back to Overtime Samsung, releasing a new phone today, Steve Kovacs with us, not with it, but with us. Yeah. Looking at its AI features.

It's a key issue. Apple doesn't have that yet. You're also pretty with it as a dude. I'm pretty with it as a dude. So look, let me talk about what they got here. These are two foldable phones, the latest iterations of the Galaxy Z Flip and the Galaxy Z Fold.

One folds like a hamburger, one opens up like a book, but that doesn't really matter because I want to talk about the AI features that are in here and these are mostly coming from a partnership Samsung has with Google running the Gemini AI Assistant. This time they're adding Gemini Live to the phones. That's the multimodal assistant.

You can use visuals, voice, or text, use the camera to show it live, feed of what you're looking at and ask it questions, things like that. And then a lot of other AI features that were previously put in the Samsung phones from earlier this year. That's things like AI photo editing and the like.

Now let's compare this to what Apple has been doing. We were at WWDC a month ago, and minimal AI software is announced at that event, and we're not even expecting much new from the new iPhones that should be launching in about two months or so, but I do want to talk a little bit about partnering versus building, because Samsung didn't go out there

and build its own AI assistant. It's using Google's Gemini and Motorola, by the way. They had a new phone that came out a couple months ago. They're using perplexity, nothing the startup hardware brand based out of London. They're using a mixture of chat, GBT and Gemini to power AI in their devices. Now Apple is kind of considering this path too, according to a Bloomberg report the other day and Thropic may be powering that delayed update to Siri so Apple can get it out on time. But right now, Apple's kind of taking a gap year with artificial intelligence. Well, it's competitors, especially Samsung, its

biggest competitor, not sitting by oddly and letting uh, letting things pass. It's pretty interesting here to see all these A. I. Features packed into the android ecosystem right now. All right. Sounds like the ball is in Apple's court. Steve Kovac, 20 26. Thank you guys. We've got breaking ecosystem right now. All right, sounds like the ball is in Apple's court. Steve Kovach. Until 2026. Yeah, thank you. Thanks, guys. We've got breaking news right now. Another tariff letter from the president.

This one with the highest rate we have seen so far. Megan Casella has a story for us. Hi, Megan. Absolutely, another letter has been posted on True Social. The president writing to the leader of Brazil saying that he's imposing a 50% tariff on all imports coming in from Brazil as soon as August 1st, unless the country strikes some sort of a deal before then.

Now this letter, guys, is a little bit different from any of the ones that we've seen so far. For one, Brazil was not previously supposed to face a reciprocal tariff, a country-specific tariff as of April. They only had the blanket 10% tariff. They weren't on the original list. Now that jumps to 50 percent. And at the end of the letter, the president also says that he's instructing

his US trade representative to launch a Section 301 investigation into all imports coming in from Brazil. That's a type of trade remedy. That means there might be harm due to Brazil's imports. That's what the investigation will be looking into. It's the same statute the president used in his first term to impose steep tariffs against China. So it's a longer process, but a little bit more legally rigorous, and those tariffs might be able to stay in place for longer. I will say for Brazil, they're in our top 20 trading partners, they're about 18th or so based

on the latest data, about 1.3% of all U.S. imports come in from Brazil. So a 50% tariff would be steep for that. It's not the biggest trading partner, but one of the biggest that we've seen so far with all of these letters, guys. Do we have any sense, at least yet, Megan, on how much that tariff and this idea of these Section 301 tariffs, which are tied to national security,

might have to do with the growing relationship between Brazil and China, especially as this administration is looking to crack down and growing relationship between Brazil and China, especially as this administration is looking to crack down and basically ring-fence China, but crack down on trans shipments? It definitely could be part of it. All of these letters have actually included a clause on trans shipments and saying that's one thing they do want to crack down on. A lot of this Brazil letter, which again I'll emphasize is much different from any of the

ones we've seen so far, which have all been sort of form letters. A lot of this is about the way that the president says that former Brazil president Bolsonaro has been treated. He says it's a witch hunt that should end immediately. And because of those domestic politics inside Brazil, he says that's a big reason why he's imposing this. So it's not so much a trade concern. It's not about the trade deficit or surplus or anything like that. It's more about those politics. It very well could be also the

increasing relationship, as you say, with China as well. All right. Fascinating. Megan Casella, thank you for bringing us the latest. It's time now for a CNBC News Update with Pippa Stevens. Hi, Pippa. Hey, Morgan. The Supreme Court today declined to allow Florida from enforcing a state law that would make it a crime for undocumented immigrants to enter the state illegally. In an unsigned order, the justices maintained a district court ruling which barred Florida officials from implementing the law while challenges continued in the lower courts. The South Korean court has issued a new arrest warrant for impeached President Yoon on charges related to his brief attempt to impose martial law last year.

The court approving overnight the special prosecutor's claim that Yun could destroy evidence related to his declaring martial law. And Tim Lewinowki, the CEO of the Oakview Group, is stepping down as CEO and transitioning to vice chair of the board after he was indicted earlier today by the Justice Department He was hit with a criminal conspiracy charge for allegedly rigging a bid to develop and operate the University of Texas basketball arena in Austin a Spokesman for Luacchi says he has done nothing wrong and will vigorously defend himself guys. All right Pippa. Thank you Now coming up now that Nvidia passed that $4 trillion market cap mark, all eyes, well,

most eyes, are on Microsoft. We're going to talk to an analyst who's getting more bullish on Microsoft's AI prospects, raising his target to $600 a share. And CNBC's ranking of the top states for business is back, and we're all trying to figure out which state is going to take the top spot. Scott Cohn is going to join us with another diabolical clue that's coming up on Overtime. Welcome back to Overtime, another record setting day for stocks. The Nasdaq hitting another record high earlier in the session, finishing up almost 1 percent

by the way. Smaller gains for the Dow and S&P 500 after two days of losses. Nvidia, though, was the big stock story, crossing $4 trillion in market cap for the first time ever, also becoming first company to do so ever. But closing below that level, Apple previously held the record at just over $3.9 trillion. And Bitcoin participating in today's rally as well, hitting an all-time high in the after hours action just earlier in this hour, surpassing the levels that we saw in May.

And the yield on the 10-year note, well that fell. Today's Fed minutes showed an increased willingness to cut some time this year. We'll have to see. We'll see. Meanwhile, elsewhere in tech, Microsoft hitting an all-time high today. 15th record this year.

Stock's up nearly 30% in the last three months, and our next guest sees plenty more upside ahead. Joining us now is Brian Schwartz, Oppenheimer Senior Analyst. He upgraded Microsoft to outperform today, raised his price target to 600 bucks a share. That's about 20% upside from current levels. And Brian, I guess if it got there, it'd be just shy of $4.5 trillion in market cap.

I imagine not everybody in investor world agrees with you that Microsoft is heading there soon? No, that is fair, John. First of all, thank you very much for having me on your show. There's some concerns about the durability of spending in AI. It has just been so robust so far. And you know, there's been mixed data points.

It seems companies are struggling to keep up in terms of getting the returns from what they're spending on AI technologies. So if we move forward into the future, and there's a perception here that these companies have essentially spent all this money on vaporware, that could slow down adoption and spending of AI in terms for Microsoft specifically,

that could slow down the growth of their Azure business, which underlies the valuation for the company. So that's a big macro concern, specifically for Microsoft. The OpenAI relationship is top of mind. Microsoft currently has an exclusivity with OpenAI. And based on our work, we think almost half of the revenue from the AI that's on Azure is coming directly from this open AI relationship.

Okay. So somehow that exclusivity ends. Right. You know, that could. Nothing beats perception like reality. So are we going to see across the whole technology spectrum and frankly, economy, companies getting the real sort of measurable productivity benefit that would benefit the hyperscalers

and Microsoft in particular? Is that what it takes to get you to 600 bucks to start to see that? I think time will tell, John. Time will tell, you know, to see if the efficacy can improve in terms of the returns. What's going to get Microsoft's stock specifically to our price target is going to be upside potential that we think is going to exist from their earnings and their cash flow as the spending ramps in the near term. We think that the earnings power could be 15% higher than what investors are currently

thinking over the next 12 months from Microsoft. That combined with if they can maintain an accelerated growth within the Xur business, that too could drive a higher multiple for Microsoft. We think those two items are not priced in into the stock currently. How much does spending need to ramp? To realize those types of earnings results, how much does it need to ramp from here?

You would need spending to increase at rates close to 20 to 30% to achieve return upsides of 15 percent. All right. Brian Schwartz, thank you. Thank you. Don't miss Microsoft Vice Chair and President Brad Smith right here on overtime tomorrow in an exclusive broadcast interview. We're going to talk AI spending, ROI, the Cloud, but really also Microsoft's new workforce efforts around AI.

Well, stock's staging a massive rally over the last three months, but RBC Capital Markets head of US equity strategy, Laurie Calvicina, makes the case next for why the rebound is starting to feel full. And later, a top airline analyst I want to expect from Delta's earnings tomorrow and the clues They might give about the health of that industry overtime will be right back Welcome back to overtime shares of Verona pharma soaring after mark Merc announced that it is acquiring the lung disease drug maker for ten billion dollars or a hundred and seven dollars per share That's a nearly 25 percent premium to its closing price yesterday

Verona makes a new treatment for chronic obstructive pulmonary disease that analysts expect to be a blockbuster and Generate us sales of two point six billion dollars in 2030 Well, the major averages are rallying in the last three months despite the ongoing tariffs and the economic uncertainty but our next guest says the rebound is starting to feel full. Let's bring in RBC Capital Markets Head of US Equity Strategy Laurie Calvicina. Laurie is this because you think maybe investors aren't considering enough the possibility that these tariffs could end up being inflationary? It's a great question, John, and I'll tell you,

in my sort of client meetings running up to the July 4th holiday, I got an earful from investors who had gone from back in May saying, you know, we paid the price for any potholes, we paid the price for any inflation, you know, kind of hiccups that we have back in April, to hey, we're not getting any sort of, you know, impact to the inflation data.

We don't think there are gonna be any economic potholes. So investors have definitely moved to a much more constructive place in terms of the impact of those tariffs. It does suggest that if we actually do end up seeing some inflationary impacts, if we do get some reverberations in labor data, say cost cutting from companies,

that I think investors are gonna be negatively surprised by that. But I'll tell you, John, it really has to do with our sentiment and our valuation and earnings work. from companies that I think investors are going to be negatively surprised by that. But I'll tell you, John, it really has to do with our sentiment and our valuation and earnings work. When we kind of put all those conversations aside and we look at our earnings and valuation modeling, you know, our base case is for 57.30. If I really stretch and pull inflation down to 2% and boost earnings for this year, I

can get you up to 6,200 on that modeling. But we're really having to stretch to get there. Oh, okay. Well, okay, all that considered then, what are your favorite sectors? So we actually made a couple of changes last week, and it was the first time in quite some time we'd made some changes.

The one big upgrade that we made was we took the materials sector up to overweight. This was the result of a process before we go, and we talked to our analysts all around the globe. I was just focused here on the US, but we found that we really did have some pretty high degree of conviction in terms of performance going forward in the material sectors for most of the industries within that sector, ranging from sort of the metal side to the chemicals and packaging side. If you look at valuations, they're pretty reasonable. I have a lot of

investors who are bulled up on industrials. Those look pretty expensive. We think materials are a good alternatives and funds flows and earnings revisions have also started to turn positive and they do benefit from the weaker dollar. So there's really a lot that we like in that sector right now.

Weaker dollar, do they also benefit from some of the trade policy stuff we see going in like 50% tariffs on some of these things like aluminum and steel and possibly copper? I think that's a complicated issue. I'm going to leave that one to my analysts to sort through. But I would say that when I talk to investors, they've actually been excited to look through some of the laggards in terms of performance.

And if you look at things like consumer discretionary, for example, post-liberation day, you know, that seems to be a sector that's really negatively impacted by terrorists, but really didn't underperform. It's starting to be a little bit weaker in here more recently. So we find that investors really, to be honest, Morgan, are trying to look through that day to day tariff noise. And I'll be honest, I can't blame them for that. Some of the other sectors we upgraded, we only went to neutral, but we pulled our underweights on REITs and staples off.

And our analyst in particular on consumer staples, Nick Modi, has moved to a much more neutral position. He'd been negative for quite some time. We like the valuations there and it's another weaker dollar play. Okay. What would you steer clear of, especially as we go into another earnings season? So if you think about where we've moved underweight, we actually are underweight the consumer discretionary sector. We do think the policy risks are not fantastic there. It's not cheap like what we see in the consumer staples sector. There's a lot of tariff exposure, but we really questioned whether or not that's priced in just because you haven't really sort of seen, you know, dramatic underperformance post-liberation day. Our analysts are also

pretty negative on the sector from a bottom-up perspective. So that's one that we're frankly steering clear of. And we had been, you know, kind of more neutral on this sector, you know, that was really, you know, kind of born out of some of the performance we saw post-Liberation Day, but we decided to play the consumer. You really want to move more into the staple side at this point.

Okay. Lori Kalasina, thank you. Well, we're just hours away from revealing this year's top state for business as CNBC and our Scott Cohn is already on location in that mystery state. Scott? Still a mystery for just a little bit longer, John. I don't know if this helps you at all.

If it doesn't, we're going to have yet another top state's diabolical hint coming up after the break and also tell you a little bit more about how the study works this year and some important changes It's all coming up on overtime CNBC will crown this year's top state for business tomorrow morning on Squawk box But that means there's still time to guess. Scott Cohn joins us with another hint about this year's winner, Scott. Yeah, John, first let's tell you a little bit

about this study. For those of you who haven't seen this before, this is our 19th year doing this, which is pretty remarkable in and of itself. And there is a study behind this and a methodology that we crafted back in two thousand seven and the way that we start out is there are ten categories of competitiveness

and uh... those are the same from year to year but the waiting changes based on what the states are talking about as they market themselves so this year economy is the top-rated category first time that's happened states are to all talking now with i guess with economic anxiety out there about they have the strong economy They have the best state finances we look at all of that But also this year the risk from things like tariffs and federal budget cuts that is real to many states So economy is the top-weighted category followed by infrastructure remember a couple weeks ago

We were in Richland Paris, Louisiana talking about the big site that Metta is building on so it's the sites that states can Can deliver the roads the bridges the computing power and all that. Workforce still a big deal. There are worker shortages, not as much as there were, but they are. Cost of doing business includes taxes, wages, but also incentives. Business friendliness is an important thing, and we also look at how friendly states are to emerging industries like artificial intelligence. Quality of life, technology and innovation,

a little tricky this year because a lot of that federal research money is going away. We're factoring the risks from that in there. Education, access to capital and cost of living, just last week we were talking about the high cost of insurance, that is in there as well. You can read all about that at topstates.cmbc.com and see all of our sources for that methodology. But first, yet another top states diabolical hint. Let's see it. Hey babe is the hint. I think we've got it. Hey babe, there it is. What does that mean? Think about it. We're gonna have one more diabolical hint and it's actually kind of my favorite one. You got to get up early though for it. It's on Worldwide Exchange tomorrow morning. We'll recap them again on Squawk Box.

And then coming up tomorrow morning, we will reveal where I am, America's top state for business. And you'll be able to see where your state ranks at topstates.cnbc.com. Guys? Okay. So I'm gonna tell you, Paul Amon and David Gernon in our control room right now,

part of our show team, they think this is Tennessee. Okay. Okay. Nothing, I'm getting nothing. It's straight poker face right now. Okay. Yeah. Yeah. I've heard that, I've heard that.

We've heard a number of other guesses out there as well on social media and it's, yeah. My one question Scott. My one question. Yeah. Where are you? Oh, well, I'm glad you asked. Give it a try. Well, it's okay.

All right. Well, well, we're going to be getting up early then. Looking forward to this unveil tomorrow. And what is always an amazing list every year Scott Cohn. Thank you. With your poker face. Thank you. It's been a rough ride.

Meantime for Delta shares this year underperforming the beaten down airline industry up next top analyst and whether tomorrow's earnings can help turn Delta stock around. Welcome back. Shares of Delta have had a rough year, down 16%. But could tomorrow's earnings help the stock turn around?

Well joining us now is Sheila Kailou from Jefferies. Sheila, it's great to speak with you. And let's start right there. What are you looking for out of Delta tomorrow? And we know capacity cuts are on the table but is there anything else. Yeah Morgan- you know we're pretty bearish on the airline industry at the moment- Delta does have

easy cops with that said they have a one point impact from crowd strike last year. They probably benefited from some book away at Newark- winning some share from United especially on the corporate and premium side of the- cabin. But

we still think- you know domestic is weak main cabin is, that trend continues from what we saw in Q1. We have pricing down 6% in Q2, and that sort of continues. We're looking for second half capacity cuts, but they're not coming quickly enough from the likes of American and Southwest. That is like Spirit half-cut capacity, about 30%. So still looking for a weak consumer.

Q2 accounts for 45% of annual APS- but I think it's still wait and see for the airlines although Delta does have easy comps this quarter. Coming out of the election we saw such a massive rally in the airline stocks and now we've just reversed all of

that were down for most of these names were down double digits year to date I mean I realize airlines in general tend to be cyclical is that what we're just seeing or is this something more? Yeah, airlines have underperformed here today, but what's

interesting is that EPS is down year over year and multiples have actually doubled. So this time last year, Delta was trading at five times earnings now at $50 and our EPS estimate of about $5 that the shares are

trading at 10 times earnings. So there's a little bit more risk here. We don't know what the outlook the shares are trading at 10 times earnings. So there's a little bit more risk here. We don't know what the outlook looks like for the rest of the year. So bad performance year to date, but they've actually doubled in multiples, obviously off of a low base.

So I don't know if you'll get that positive momentum in the data. And we're seeing that with TSA volumes, although lots of folks are traveling, TSA volumes year to date are only up 1% year-over-year And so that continues to keep pricing weak One of the things we're watching is Atlantic Atlantic has really helped Delta and United and that's been the case of the haves and Have nuts versus American and Southwest which don't have as much transatlantic exposure

So we're gonna see foresee any changes in Atlantic which has really remained strong But if we're starting to see the main cabin crack there as well. Sheila, what happened to that upmarket move where airlines were able to sell that kind of off-price, first-class-ish service? Did that just completely tap out? I don't think so. I think the premium cabin still stays strong, but I think this is about the normal consumer in the main cabin, and that's where we saw high single digit price declines

in Q1, we're estimating down six in Q2, and we're assuming some improvement in the second half as capacity is cut. Premium's still strong, and the Delta One offering, Polaris offering from United, they're superb. You know, they are phenomenal experiences. I think the customer pays up for that, particularly the corporate customer.

So we don't have visibility beyond Labor Day to see what corporate's gonna do. Are they gonna come back or are they not? And that's where, that's how premium will hold. How do we square that with these reports that we hear about record days at TSA? Or is the consumer just traveling less overall, but still on these peak sort of days?

Is there a difference in the pattern of people's travel habit? Record days, I think 3 million passengers were hit with TSA volumes on June 22nd, that was a record, but year-to-date traffic overall is only up 1% year over year. So we're not seeing really more people travel and we're seeing discounting for it to happen.

Southwest, there's things out there that they potentially are rolling back some of their initiatives and they're likely doing that because of Book Away. So overall seeing that weak picture fully with only up 1% year-to-day volumes. Shaili, you can't come on the show and not have me ask you about aerospace and defense and what you're watching in that sector as well coming into earnings. We love aerospace. I think Boeing has some momentum. We saw that with the deliveries yesterday. Deliveries were about 10 above what we expected on the max.

You annualize that or semi-annualize that. That's 50 extra maxes that they would deliver. That's $500 million to a billion dollars of free cash flow. It seems like Boeing's finally turning the corner. GE has an analyst day next Thursday. We're keeping an eye out on that. They're probably going to raise their targets 10% for 2028, have a solid quarter. But will that be enough? We're not sure because expectations are quite high for GE. But we continue to like Boeing, GE, Halmet, and the aftermarket names like Heiko, Lauren, Tramson. GE, HowMet, and the aftermarket names like Heiko, Lauren, Tramson.

All right, Sheila, thank you. Sheila Kialou. Thanks. Don't miss an exclusive interview with Delta's CEO, Ed Bastion, that's tomorrow, 7 a.m. here on Squawk Box on CNBC. Now let's get you set up with tomorrow's trade today. As you just heard, Delta's the big name on the earnings calendar, but we'll also get results

from food giant Conagra before the bell, and then Levi Strauss right here on overtime. On the economic front investors will be closely watching the weekly jobless claims number that is out at 8 30 a.m. and we've been talking about it all day. NVIDIA did finally touch that four trillion dollar market cap. It's now more than 800800 billion ahead of Apple just as of this moment, which is more than a Walmart. That puts it into perspective and certainly as goes Nvidia, so goes the broader market. We saw that with a NASDAQ composite hitting a record high today and certainly the S&P finishing higher as well and the Dow, but in particular those mega cap tech names led by Nvidia

case in point today are really powering the charge here. We've got another earnings season coming up for many of those tech names. And will we see the big growers continue to grow? IBM ServiceNow is particularly an exciting day for me. All right. A rally in bonds as well today. That does it for us here in overtime.

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