Closing Bell - Closing Bell Overtime: Professor Jeremy Siegel On S&P 500 At Record Levels; Samsara CEO On Negative Stock Reaction To Strong Quarter 6/7/24

Episode Date: June 7, 2024

The S&P 500 touched a record high intraday before retreating into the close. Wharton Professor Jeremy Siegel on where he sees things going from here. Plus, Paulsen Perspectives author Jim Paulsen and Innovator ETFs’ Tim Urbanowicz break down the market action and preview what’s next. Samsara CEO Sanjit Biswas joins exclusively to talk the company’s latest earnings and the negative stock reaction – despite beating on both lines and raising guidance. AeroVironment CEO Wahid Nawabi on his company’s stock runup and the latest government contracts for drones. Plus, Citi Chief US Economist Andrew Hollenhorst on pushing back his Fed rate cut prediction. 

Well, a hot jobs report initially sending the market lower, but stocks recovered. The S&P 500 hit a record intraday high before drifting back to, we'll call it the flat line, to close out the week. That's the scorecard on Wall Street, but the action's just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Fort is off today. We have a big Friday show coming your way.

Wharton's Jeremy Siegel will join us with his latest thoughts on the market as stocks sit near all-time highs. Plus, the call of the day. Citi has been forecasting a Fed rate cut in July, but just pushed back its prediction after today's jobs report. We're going to talk to Citi's chief U.S. economist about his new target date. And the latest on the GameStop roller coaster following Roaring Kitty's YouTube live stream as that stock tumbled after yesterday's spike. But first, let's get to today's action. The S&P 500, as I mentioned, hitting an intraday record despite a stronger than expected jobs report that initially pushed futures sharply lower. Yields rising on the back of that data, though. Those didn't really let up

with a 10-year above 4.4 percent again. Let's bring in our market panel, Jim Paulson of Paulson Perspectives and Tim Urbanowicz of Innovator Capital Management. Good afternoon to you both. Jim, I will start with you. What to make of this jobs report? Because it does seem like there was something for everyone, depending on which part of it you dug into the most deeply. You know, Morgan, I swear most payroll Fridays are just like that. They've got, you know, differential information. And you start it really on Wednesday with the ADP report, the Thursday claim numbers. Friday, you got the payroll, you got the household, you got all this residual statistics. And today's a great example of what I think is just confusion. I think at the end of the day, you know, you've got a bigger 272,000 gain in payroll, but

a big 400,000-plus loss in household. You have loss in full-time jobs, an uptick in unemployment, a little uptick in wages. I think what it says, there's, like you said, on both sides, I think it says the economy is in okay shape. I don't think it's headed for recession, and I don't think it's overheating either. I think that's the message of today's report. Okay. Tim, what did you take away from the report, especially as we did see, as we mentioned, yields higher today, and despite a recovery in the worst of the losses for the major averages. The Russell still finishing down one percent, down two percent on the week. Well, Morgan, I don't think it's the report that the Fed wanted to see necessarily. You had multiple things going on there. You had job

creation that was very strong. You had wage growth that was above expectations. That is significant for us. It really reinforces the view that we have held all year long, which is that you are not going to see the Fed cutting interest rates this year. We're going to have to be in this environment where interest rates are higher for longer. But I do think the good news here, Morgan, is that this is still an environment where equities can do very well in. You back up and you look at the index. Everybody talks about the concentration that we're seeing in the Magnificent Seven and the risk that that presents. And that is true. But we also have to remember that this is a subset of stocks that has done very well in the face of rising interest rates. Since the Fed began its hike cycle back in 2022,

the mag seven is up over 75 percent. So this might not be the report that the Fed wanted, might not be a good report for the average American, but it's still an environment where equities can thrive and continue to do well. Yeah, I'm glad you brought that up. I mean, Jim, the top heaviness of the market right now, is that what still continues to work from here on out? Or do you take this opportunity to diversify? And if so, into what? You know, I dipped a little bit, Tim. I agree that I think the equity outlook remains good.

I think we're going to have some pretty good upside move yet this year, Brent. But Morgan, I but I also I also think it's for a little different reason. I still think the economy is slowing down. You got the Citigroup Economic Surprise Index now below zero for all month. One of its biggest declines negative since early 2023. A lot of data is coming in on the weaker side. I think there's interest rates look out of bounds on the high side to me. I mean, when the 10-year treasury was 3% when inflation peaked in June of 2022, over 9%. The inflation rate came from 9% to 3.5%.

Now wages went from 6% to 4%. Commodity prices fell by 30%.. Oil went from 115 to 77 dollars. Here, the 10-year treasury went from three to five percent and is still 4.4 percent tonight. I think they're way out of bounds and it won't take much, I don't think, to convince the Fed that they have to ease. And if they do, we bring down the 10-year and mortgage rates. I think we lift confidence, and I think this market broadens out. Finally, we include small caps. We include defensive stocks. We include even international stocks that have been lagging. And so I think we have a broader market rally into the end of this year.

I don't think that MAG-7 is going to collapse. I just think they're going to underperform from here. It's going to finally get a broad breadth market going last half this year. Well, speaking of the Fed, speaking of Mag 7, I mean, Tim, we got a stock split for NVIDIA that takes place here now after the close. We'll see that start to play out in the market next week. We've got the Apple Developer Conference on Monday. A lot of expectations going into that one. We get more inflation data with CPI and PPI. And then, of course, a Fed decision where largely expected we're not going to get a cut, but the dot plots are going to be very telling. Yeah, that's absolutely

right, Morgan. And I think what's so critical right now for investors and in their portfolios is you have to separate the reliance on interest rates coming down and playing defense in your portfolio. For the foreseeable future, whether it be up or down, interest rates are going to remain the key driver of equity prices moving forward. So that means breaking that link with bonds, not relying on bonds for risk management, and also just shying away from a lot of those interest rate sensitive sectors like utilities at this point. You just can't count on them with yields being the number one driver. So we continue to like leaning into what has worked thus far this year and shying away from the interest rate sensitive sectors and bonds for risk management.

Utilities is an interesting one, though, because you are seeing that tug of war between the AI narrative that's materializing and then, to your point, the traditional rates impact. All right, gentlemen, thanks for kicking off the hour with me, Jim Paulson and Tim Urbano. It's my thanks to you both, as we did see the major averages finish the day fractionally lower, though. The Nasdaq, the S&P and the Dow all finishing the week higher. Well, let's turn now to Apple, touching its highest level of the year today, ahead of the company's hotly anticipated Worldwide Developers Conference on Monday. Steve Kovach has been doing lots of reporting on this. He joins us now with more on Apple and this anticipated bigger, broader push into AI that we'll get details about potentially come Monday.

Almost definitely, Morgan. And there's enormous pressure on Apple to deliver basically a gangbuster AI announcement next week. And we can talk about what we're expecting in a bit, just like that reported open AI partnership and so forth. But first, I want to talk about the quiet Apple executive behind Apple's AI strategy. That's John Gianandrea. Everyone calls him JG for short. Now, we don't hear too much about him like some other Apple execs. Apple actually poached him from Google six years ago. He was the head of AI over there. And within eight months at Apple, he was already promoted to the leadership team, reporting directly to CEO Tim Cook. Now, his team's work

is going to be on full display Monday. So I caught up with folks who know him pretty well, former colleagues and the like. And Gianandrea comes off as humble and unassuming executive in those interviews. Some examples here, Jeffrey Hinton, one of the godfathers of AI who worked with him at Google, said Gianandrea has the rare combination of being a great researcher and a great manager. Emil Michael, a name you might know pretty well, is a former top Uber executive who co-founded a startup with Gianandrea decades ago. He told me he still goes to him for advice and wisdom. And a few other people told me they wouldn't be surprised if Gianandrea is not part of the big keynote on Monday. He's not exactly a showman like so many other Silicon Valley executives, the Mark Zuckerbergs and Elon Musks of the world.

But it's the products, Morgan, that are going to be the most important. What kind of AI features are going into the iPhone and whether or not that's going to spur an upgrade cycle this fall, Morgan? OK, so we just laid out the personality behind the scenes. But what does that mean in terms of the possibility for those products? What is the market now anticipating that we get? Yeah, so there's been, as you mentioned, there's been a kind of run up in the stock for the last couple of weeks, just anticipation of this. And the big thing here is that reported OpenAI deal and the nature of that deal, more so than

what kind of cool features they're going to be doing. The thing I'm really interested in about is what's the business partnership? Is OpenAI paying Apple? Is Apple paying OpenAI? Is Microsoft going to be a beneficiary here because OpenAI has an exclusive deal to run on the Microsoft cloud? We also hear reports that a lot of this stuff is going to be running on an Apple cloud and Apple chips. So that cloud component, so to speak, of this AI push is going to be really interesting for investors to look at, not just on the Apple front, but what other kind of side beneficiaries are going to be there. Because keep in mind, Morgan, there are over 1 billion iPhones in the world. And if these features get pushed out to all or most of them, that's going to be huge exposure for this technology right out the gate. I know you're going to be following all of this and bringing us all the

headlines in real time come Monday from the West Coast on site for this event. Steve Kovac, have a great weekend. Rest up. I'm going to. Now, let's talk about GameStop. Closing sharply lower after Roaring Kitty's afternoon live stream on YouTube. Earlier in the day, GameStop released earnings ahead of schedule, posting a 29% drop in net sales from a year ago. It's basically in line with what they had pre-announced a few weeks ago.

GameStop also announced plans to sell an additional 75 million shares. Christina Parts Nevelis joins us now with more with the stock down almost 40% today. Christina. Yeah, almost 40%. The worst session in three years since 2021 when, you know, the meme craze started. So you mentioned first you had that surprise earnings release this morning. You could say that management really taking advantage of the stock climbing over the last little while. Some of it was worse than expected. Then you had the announcement of the additional 75 million

in shares. And then lastly, the one that got the most attention, the YouTube stream by Keith Gill, the meme leader and GameStop investor, you know, the star of that movie Dumb Money, which he said he didn't watch. Shares were actually halted 17 times today. And volume, look at that trading volume, over four times its 30-day average trading volume. So incredibly, a lot of traders getting in and out of this name. In the live stream, though, there were no major GameStop revelations from Gil, but he did speak to his belief that CEO Ryan Cohen could turn things around in the long term. Listen to him.

Over the long term here, I think he he seems like the type of guy. Seems like he has those characteristics and the way he approaches this seems like he might be able to do this. But again, that's not a guarantee. He expressed his belief in long term fundamentals, which stood out to me. But at the same time, he also revealed 120,000 call options expiring in just two weeks. So definitely a short-term position, although he also holds 5 million in common shares. There is, of course, a lot of regulatory scrutiny around his commentary, his influence on the stock, his tweets, etc. On the stream, he did say, this is Keith Gill, that he wasn't going to show his

portfolio at one point because the stock was actually halted, which could imply he knows he has influence on the share price, but I'm not a regulatory official. Several times, though, on the live stream, he reminded viewers not to follow anything he does because it's, quote, not investment advice. And yet, look at how the shares have done just over the last while. All right. Christina Parts Anabolous, I mean, it's been a wild ride. Appreciate it. Now let's bring in CBC senior markets commentator Mike Santoli for more on GameStop and the beneficiaries of this meme stock mania 2.0. Mike. Yeah, Morgan, it's sort of maybe a narrow version of that meme stock mania because GameStop and only a couple of others have been

caught up in it and fleetingly. But there has been greater engagement among retail investors over the last couple of years. It's in crypto. You can see penny stocks, those trading below a dollar a share, have seen huge surges in volume. So there is a little bit more of that kind of energy in this market. You can see it reflected in Robinhood shares over the past. This is two years. And that's Interactive Brokers, a more established online broker, also an institutional broker on some level, too. And you see how they were tracking pretty well until this last little burst higher in Robinhood shares, which really is levered to just pure retail excitement plus crypto volumes as well. Now, let's take a longer term look at some of this.

This goes back to August 1st of 2021, basically right after Robinhood came public. That was the initial pop in Robinhood shares. And you can see that remember the buzz ETF? This is basically a ETF built of stocks being talked about most on social media by smaller investors. And then, of course, GameStop itself. So you see relative to where things were back then, and that wasn't even the peak of GameStop. You've seen it just sort of have this long malaise and now just shooting higher and getting rediscovered. It feels to me like something of a fainter echo of that boom in activity that we saw a few years ago. But, you know, we'll see, because these episodes,

they kind of come with little notice and they can, you know, kind of blindside the market again at any moment. Yeah, it's very fascinating. I'm actually surprised you don't have AMC on that chart as well. Well, you're right, but AMC would just be... Okay, fair. You know what I mean? There you go. Fair. Two things. The first is May 17th, GameStop filed issue up to a billion common shares. A billion common shares. So there have been signals with all the meme media and all the movements and volatility we've seen in this name, that these offerings we've been getting were, in fact, coming. The second thing I would note is last time we saw these types of moves a couple of years ago, Reddit was not public. It is now. And what was surprising to me today is that Reddit actually, those shares dropped

as all of this was playing out in real time in the middle of the day, too. Yeah, no, there's no doubt. I mean, the supply of new GameStop shares that you mentioned that GameStop wants to have the ability to act quickly to seize on the upside volatility in its stock by selling new shares, raising new capital, seemingly to place it, by the way, in the hands of Ryan Cohen, who in December was given control of the corporate investment portfolio. So all that being kind of mashed together, the company reported earnings and filed that new at-the-money stock offering

for 75 million new shares that could have been sold today. We don't know. I think it was effective immediately. And at-the-money means they can just sell new shares into the market, not wait for an underwritten offering. So that's what the stock of GameStop is reacting to. And I also just feel that sense of

the fever might have broken in the short term. Maybe this was a little bit of GameStop is reacting to. And I also just feel that sense of the fever might have broken in the short term. Maybe this was a little bit of a one off episode. And then Reddit maybe getting dragged down as well. It's kind of silly in a way because I don't think overall volumes of activity on Reddit are purely determined by what's happening on Wall Street bets or related boards. But it is interesting that at least right now, the stocks are kind of joined. That's always great to get your take on these types of things. Mike Santoli, thank you. We'll see you later this hour. We have a lot more overtime coming your way, a lot when we get back. Wharton's Jeremy Siegel on whether today's hot jobs number closes the

door on Fed rate cuts happening anytime soon. And later, Citi's chief U.S. economist on what the firm just why the firm just pushed back its rate cut timeline and why he still expects three cuts from the Fed this year. Stay with us. Welcome back. It was a blowout jobs report for May. The U.S. added 272,000 jobs. That was well ahead of the 190,000 consensus. Meanwhile, the unemployment rate did rise to 4%. So did this jobs report throw cold water on hopes of a summer rate cut? Well, joining us now is Jeremy Siegel, professor at Wharton School. Professor, it's great to have you on this show.

And that is very much where I wanted to start because the headline number was very strong. The wages data was very strong. But we did see unemployment tick higher. And there were some signs of I'll call it bifurcation when you looked under the hood in this report. Is is the thesis around the Fed not cutting and holding steady through the summer still intact? Well, Morgan, one one thing that I think is noteworthy about today's action is how many times have we seen the 10-year go up 12 basis points, which is quite a big rise, and stocks held their own. Normally, that bigger rise would really depress stocks.

I think it was sort of a relief. You have to remember that we were getting some very weak data late last week and early this week. It looked like the economy was sliding. In fact, the Atlanta GDP now was below 2 percent. You know, at the beginning of the quarter, they had actually thought the second quarter was going to be over 4. So there was some fear, oh, my goodness, we're slipping, could be

into recession. I think with this employment report and the ISM report that we got a couple days ago, there's a sort of a sigh of relief. And actually, I saw that Atlanta now is now actually above 3 percent again for their estimate of this quarter. So what we have is the economy is holding in. You're right. It's mixed. Household was down. The establishment survey was up. There was a little, I think one of the reasons yields rose, and this addresses your question about what the Fed is going to do, the wages were hotter than expected. But we have to remember that there is an important wedge between wages and inflation, and that's productivity growth. So we can't just translate, oh, this wage means this inflation, because the productivity moves upward. And we did not have good productivity

in the first quarter, but oftentimes it bounces back. This 4 percent, 4.1 percent wage growth is not at all threatening for inflation. And I actually think we're going to get good inflation news in the second half of this year. It's interesting to hear you talk about the productivity wedge there, because what's what's new and what's different about this cycle, arguably, is the implementation of AI. We don't always talk about it from a macro or economic standpoint, but I wonder if that is factoring in here, particularly when you do put forward a thesis about, say, a soft landing. Yeah, absolutely. I mean, a lot of, I believe that AI is going to be very important for economic growth. Now, a lot of economists are saying, is it yet? A lot of people are talking about more 2005, 2025, 2026. I mean,

Goldman Sachs and others say that it could increase real GDP growth between 75 and 150 basis points for up to a decade. I mean, that's huge growth going forward. So it is certainly probably, I think only about 8% or 9% of firms have really implemented AI programs yet, but we're on that cusp. And don't forget stocks. Stocks are a forward-looking asset. The market's forward-looking. So even though the productivity might be trickling in slowly now, I think there's encouragement about what's going to happen in the coming years. OK. So even as yields have ticked higher, at least in trading today, can stocks continue to move higher as well? Oh, yeah. I mean, we're still, you know,

we had gone down 30 basis points. We kind of took a third of that away. And again, you know, when we talk about yields going down, people say, oh, that's good for stocks. Well, there's two types of yields going down. If it's because of a weakness in the economy, that's not good for stocks. If it's because of slowing inflation, that's great for stocks. So as we all know that, you know, the Fed next week, I mean, it's sort of it's going to be a very fascinating way because we know the CPI comes on the day that Fed is going to give their announcement on Wednesday. Nor I believe that Chairman Powell

will have that data actually on Tuesday afternoon and can incorporate it in that. But I'm expecting, as many other economists are, that the data is going to get much better in the second half, particularly because we know that the housing statistics that the Fed uses in government are lagged and that housing prices have not and rental prices are not going up now at the rate that they report. Insurance rates are stabilizing. Those should appear in the second half of this year and bring inflation down much closer to the Fed target. OK, Professor Siegel, thanks for joining me. Thank you, Margaret. We will talk more about the Fed later in the show when we're joined by Citi's chief U.S. economist, Andrew Hollenhorst, after the firm just earlier

today pushed back its call for when the Fed will cut rates. And after the break, software company Samsara pulling back hard despite largely positive results last night. After the bell, the company's CEO weighs in on Wall Street's reaction. That's coming up next. Welcome back to Overtime. Cloud player Samsara under pressure today, posting its worst session since 2022. That's despite top and bottom line beats for Q1 and providing guidance that was largely in line with estimates. Joining us now in an exclusive interview is Samsara co-founder and CEO Sanjit Biswas. Sanjit, it's great to have you back on the show. I mean, you put up a beat and raise and yet the stock tumbled today. And I just want to get your reaction to the reaction

in the market. What perhaps have investors missed here? Well, Morgan, first, thanks for having me on. It was a great quarter. We had a strong quarter of continued growth, growing 37 percent year over year, which is sustained growth from where we were at greater scale. So we were very pleased with the results and proud of the ROI we're delivering for our customers. As far as the market reaction, it's hard to say what's on the buy side. But from our perspective, we did put up a beat and then we did raise the guidance for the rest of the year. Yeah, a number of analysts have pointed out the fact that you've been signaling that the the beat magnitude was going to perhaps diminish, that you'd become a little less conservative in terms of the guidance that you would put forward moving forward. Is this the way to be thinking

about that guidance now, given given the beat and and how it fell in line with, or I guess given the results and how they fell in line with expectations? That's right. So we communicated this a quarter ago at the end of our fiscal year. And we said, now that we've been public a little over two years, we're going to be a little less conservative in the guidance because we have more visibility into the revenue. And so you are seeing some consistency there. We did beat consensus by about 3%. And so we want to be consistent and communicate very clearly how we're thinking about guidance. So at a time where software more broadly has been selling off, lots of questions about an uncertain macro environment,

where companies are spending and why in this new AI era. What are you seeing, especially when it comes to the large customer additions? Well, I think it's important to understand who we serve. So our companies focus on the world of physical operations. These are the electric utilities and the construction companies, supply chains, logistics companies that power our planet. They are very much investing in a digitization journey. So they're going from pen and paper all the way into the cloud and to apps. And so for us, we're helping make that happen.

And that's a journey that they're going to be on for decades. So we're excited about that ongoing trend. It's powered by data and AI does help surface insights in the data. It creates more value for the customer. So no change there. And our customers are the operations buyers. They're not the IT buyers in these companies. And operations tends to be the majority of their budget. So if we can deliver clear and fast ROI, which we do through things like fuel savings and insurance savings, we're able to go

and deliver real value for our customers. So we're seeing no signs of them slowing down in their adoption. It's just a very large movement that they're having to make as they digitize. So when you look across these different end markets, which do tend to be more industrial facing, what's growing the strongest right now? Where are you seeing softness? We've seen a lot of strength in industries like construction. They tend to be earlier in their digitization journey because they have so many different kinds of assets and they're asset heavy industries. So think about all the construction equipment you see on the job sites. Think about all those pen and paper checklists and workflows that can now be digitized. That's where we're seeing very strong adoption. We shared a customer story of a company named Vinci. They're a global

Fortune 500 company, 275,000 employees. And this was a big win for us in the last quarter. So a lot of strength there. And then in terms of weakness, I think we're seeing continued adoption. It's just some industries are adopting a little faster than others, like construction, for example. Okay. Sanjeev Biswas of Samsara, thanks for joining me. Thanks, Morgan. Well, it's time for a CNBC News Update with Contessa Brewer. Hi, Contessa. Morgan, we're seeing new rules now for fuel efficiency. Vehicles sold in the United States will have to average 38 miles per gallon by the year 2031 in real world driving. Right now, that standard is 29 miles a gallon. The National Highway Traffic Safety Administration unveiled those new rules today. They're less stringent than an earlier proposal, but the White House says greater

flexibility will allow automakers to meet President Biden's goal for half of all new cars sold to be electric by 2030. A jury convicted five Minnesota residents and acquitted two others in a $40 million pandemic fraud trial. The case has been in the spotlight after a juror was dismissed after reporting somebody tried to bribe her with $120,000 in cash. And parents in New York soon will be able to block their kids from getting social media posts suggested from the platform's algorithm. State legislators in New York passed a bill today that would allow parents to curb content that critics call addictive. It would also block kids from getting those suggestions between midnight and 6 a.m. unless they have specific

parental permission. Morgan, they're trying to help. It's an interesting one. We'll see how it we'll see how it shakes out. Contessa Brewer, thank you. Maybe that'll mean no more slime videos in my house. We'll see. Coming up, Mike Santoli returns with his take on one specific part of the jobs report that you should be watching closely. And later, one defense contractor has quietly gained more than 60 percent so far this year. We're going to tell you which one and we're going to talk to the company's CEO about new contracts and the stock's big run. Welcome back. Mike Santoli returns with a look at one part of the jobs report that he's watching closely. Mike. Yeah, Morgan, I like to keep an eye

on aggregate payrolls for the entire economy. Essentially, it's average hourly earnings times the average work week. So the number of hours worked in a week times the number of employees. It's basically the weekly paycheck for all private sector employees. This is the year and year change in that measure. So obviously, massive swings around the pandemic. You had a very fast wage growth coming out of it, but now it's decelerated. But back to a very healthy level, around 5 percent year over year, pretty much matches up with what would be the very high end of the pre-pandemic range. So it seems to me mostly good news for the economy and for workers tends to translate into good news for the stock market,

ultimately, unless you think that the good news is a head fake or it's about to erode or the numbers are somehow fouled up, in which case the Fed could be late. So I don't think this number is suggesting there's a whole lot of risk, at least not at the moment of that happening. OK, some good context right there. Mike Santoli, have a great weekend. I guess I'll see you later this hour, so stay close. I'm not going to jump the gun there. Up next, the CEO of AeroVironment on new defense contracts for its drones, as that stock has taken off 60% plus so far this year. And later, Citi just today pushed back its prediction for when the Fed's first rate cut will come.

We're going to talk to the firm's chief U.S. economist about his new target. Stay with us. Welcome back. Shares of AeroVironment are flying high, up more than 60% here today, strongly outperforming the ITA Aerospace and Defense Sector ETF, not to mention the broader market. The company's Wildcat autonomous aircraft was recently selected by DARPA for further development. And that coming on the heels of the company Switchblade becoming the first drone to be publicly confirmed as part of the Pentagon's high profile replicator initiative

to field thousands of autonomous vehicles and weapon systems for the military within two years. Joining us now exclusively is AeroVironment CEO and Chairman Waheed Nawabi. Waheed, it's great to have you back on the show. There's a lot to talk about, but I am going to start with some of these recent contract awards. And I think perhaps with Replicator first, because that one has been getting watched very closely by industry. And it really speaks to how important autonomy and AI are to the battlefields of the future. Yes, great to be with you, Morgan. Very much true.

We were selected, our Switchblade 600 was selected as the first selection and award for the Replicator Initiative, which has been announced over the last year by the Deputy Secretary of Defense, that. We commend her. I really commend her for her leadership in this space. This is an initiative that is desperately needed to be able to enable the United States to protect ourselves, our freedoms and world order across the globe, especially against the overwhelming and aggressive strategy of China in the Pacific. And of course, we've seen your backlog surge as you continue to rack up the orders for Switchblade and Puma and some of your other drone systems. The key question is, how quickly can you produce them? So that's actually one of the key differentiators about Air Environment and every other company that's out there. We already and have been producing these things by the thousands today in the past few years. In fact, since Ukraine conflict started, we've delivered over 3,000 of our drones to the U.S. military and to Ukraine and to our allies to help in the conflict with Russia and Ukraine.

So we are fortunate because we invested in this ahead of the potential needs five, six years ago in anticipation because we knew that this change in paradigm in military warfare and in warfare in general is coming and it's going and it's inevitable. And that is distributed architecture of intelligent drones and loitering munitions, such as switchblade and our Pumas and jump 20 systems and many other ground robots that we make that that a distributed system

and architecture of this with massive volume at low cost and intelligent that can operate and denied airspaces and contested battle spaces where there's no GPS, no communications, no RF will be the next paradigm and is becoming the next paradigm in military warfare. And there is no company out there that's as uniquely positioned and as well positioned as their environment. And we're the leader in that space. It's interesting to hear you talk about this distributed architecture because I know you've also unveiled these new ARC and Avacor AI autonomy technologies. How much do those software offerings, those platforms speak to this distributed architecture? And how much does this tie back to the lessons that are being learned in real time in Ukraine?

So, Morgan, it is a direct correlation and result of the lessons we're learning from Ukraine today. One of the fortunate outcomes and many unfortunate things, but one of the fortunate things is that since we're so heavily involved in Ukraine, we get daily and weekly feedback and update in terms of how to improve our systems to make them more battle resilient, battle proven, and battle tested. And so the AV autonomy retrofit kit or the ARCS solution is exactly that that, allows a Puma operator to take this little box, attach it to a Puma, and now Puma can fly without any GPS signal or satellite in a very heavily contested battle spaces. And we've demonstrated that in Ukraine already, and it's actually being deployed today in Ukraine. that we're delivering on a monthly, weekly, sometimes even on a daily basis is a direct result of our longstanding, entrenched engagement with our customers, learning from the front lines and incorporating that into our solutions of technology and innovation. So I want to go back

to ancillary, the ancillary program and this DARPA down select of AeroVironment to continue designing what is essentially an X plane, a vertical takeoff and landing or helicopter like aircraft that's going to be used for maritime activities. I guess walk me through what that opportunity represents and how it speaks to perhaps another part of your portfolio that we don't speak about as much, which is some of the stuff you're doing in air other than drones and in space. That's correct, Morgan. So part of our business and portfolio that we don't really talk about a lot is many of these advanced, innovative, disruptive technologies and capabilities

that we're working with organizations such as NASA, as the Mars helicopter, or this ancillary Wildcat product for the ancillary program with DARPA, and many others. We have a whole host of these small projects. It's basically to disrupt ourselves and disrupt the status quo. DARPA ancillary is exactly that. It is actually the next generation solution that allows a small ship to be able to carry a UAV of a group three, it's called, that can go up to 450 nautical miles, take off from a ship's basically deck without much infrastructure at all, vertically or vertically, such as a helicopter or quad rotor or multirotor, and then transition to a forward flight as a fixed-wing airplane,

go up to 450 nautical miles, carry about 60 pounds of payload, and do this within a 12-hour endurance. Land on ground or land, and then land back and take off and come back to the ship. This capability is specifically targeted for the next generation of systems that are going to be deployed in the Pacific Command in theater, and for the Navy and the U.S. Marine Corps' needs. They've stopped the market. They realized none of the solutions, including our current one, which is the best in class today, meets the future requirements that our military has to have. And that's the response of the DARPA with the ANSI program, and we're very delighted that we've been selected in this program. Interesting. And, of course, no one on board,

which speaks to, again, the role that autonomy is going to play in all of this moving forward. Waheed Nawabi of AeroVironment, thanks for joining me. Great to be with you, Morgan. Thank you. It's been a big week for space news. Speaking of, with a long-awaited launch from Boeing and the latest test of SpaceX's Starship, there's a growing group of startups looking to cash in on SpaceX's success,

akin to the PayPal mafia that arose in the early 2000s. We're going to hear from one of those companies and its entrepreneur founder next. On the heels of a successful test flight yesterday, as SpaceX continues to develop its new mega rocket system, Starship, some companies, like Astrolab, have been preparing for the future it will bring. I think our rover will be the first large-scale one on the surface, and it's the scale of an SUV. The whole starting premise of the company was to build the biggest thing we could pass through the Starship door to really maximize the capability that you can get out of these systems.

Jarrett Matthews started Venturi Astrolab, as it's officially called, in 2020 after working at SpaceX. The startup has already developed its first prototype, the Flexible Logistics and Exploration, or Flex Rover, which I tried at the Space Symposium earlier this year. Flex is really designed to handle the first problem first, which is the last mile problem. So if you have, you know, one of these landers like Starship landing on the moon with 100 tons of cargo, Flex is designed to take that cargo out of the lander, get it delivered the last mile, get it connected, set up, maintained, etc. But it's also designed to, and we're working on, the infrastructure to ultimately power the lunar economies. Astrolab was recently selected by NASA, one of three, to design the Lunar Terrain Vehicle.

This is a competition that will result in one company creating a rover Artemis astronauts will use to drive around the moon come 2030. But Astrolab also isn't waiting. Its first mission, which already has commercial customers, will launch to the moon as soon as next year via, what else, Starship. Astrolab is one of a growing number of companies betting on the space economy potential that Starship will unlock. It's a list that also includes Impulse Space, Vast Space, Stokes Space, to name a few. Perhaps it's time to call SpaceX and the entrepreneurs it is helping to fuel the PayPal mafia of space. For more, scan the QR code here to listen to my podcast, Manifest Space, wherever you get your podcasts. Well, Citigroup is still calling for three rate cuts this year,

but the firm just pushed back its expectation of when easing will start. We're going to talk to Citi's chief U.S. economist about the new target. That's next. Welcome back to Overtime. Citi revising its Fed rate cut forecast today, writing in a note, quote, payroll's hot, but labor market's still cooling. Now expect first rate cut in September. The firm expects additional cuts in November and December. Before the revision, the firm was expecting four cuts starting in July. Joining me now is Citi's chief U.S. economist, Andrew Hollenhorst. Andrew, it's great to have you on. And that's exactly where I want to start with you, because the market priced out the possibility of summer cuts a while ago. You stood pat.

What was it about the jobs report this morning, though, that changed your mind? Yeah, it's a really complex jobs report. But the headline number is 272,000 new jobs in the month of May. And that's just probably going to be too strong for Fed officials to conclude that there's enough weakness to start cutting in July. Remember, they're trading off high inflation, elevated inflation, and a labor market that looks like it's cooling. And that's the other thing in this report, that unemployment rate that's creeping up. And that's why I said a complex report, because we had real strength, 272,000 new jobs, but then some underlying weakness with the unemployment rate rising. That's what we think gets them to the cut in September. What matters more? Which

is less volatile, the establishment survey or the household survey? Yeah, great question. On a monthly basis, the establishment survey is usually the higher fidelity indicator, less volatile indicator. And that's why all the attention goes to the establishment survey. But if you look at the trend in the unemployment rate in that household survey, that trend tends to be very persistent. So that upward trend is what we're worried about. It tends to be a good indicator of recession when the unemployment rate is moving up. So, yes, it's low, but it's moving higher. So what do you think actually causes the Fed to cut in September? Is it the fact that disinflation gets back on track even as an economy continues to chug along here, soft landing in sight? Or is it the possibility that, especially when labor is a lagging indicator,

typically, that we could be in for something worse, that the economy is softening much more quickly, hence the two cuts behind it. Yeah, that's exactly what we're thinking, that the Fed is really going to have to pivot and pivot away from the inflation mandate and towards the employment mandate. They may get helped out with some softer inflation readings as well. But what is really going to drive the Fed to cut as aggressively as we think they are is a material weakening in the labor market. So what do you make of the mixed bag of data we have been getting? It is a really difficult time for economists, a difficult time for Fed officials. You have a lot of indicators in the labor market now that have weakened at least to

pre-pandemic levels. And what we're watching for is, will they just keep trending lower? Will they just keep weakening further? Some things have, like the hiring rate. Those are the kind of things we're looking at when we're saying, you know, this doesn't look like a soft landing to us. If it were a soft landing, we'd just be kind of nicely, softly landing at those pre-pandemic rates. It looks like we're going to move right through them. Okay. So we had Paul Hickey of Bespoke on earlier this week. And one of the things he pointed out is that in 30 years of data, we have never seen the Fed cut rates in election year between May and November, except for one time in October of 2008. And we know what was happening then. The world was collapsing. Basically, the economy was collapsing. So so is there a bias here from the Fed in terms of cutting because of the political

connections that could be perceived? I think at the end of the day, what they're going to do is follow the data. That's what happened in 2008. Now, clearly, everything was pointing to rate cuts at that time. I'm not saying this will be as clear in the data, but there is an analogy there. The idea that if the labor market is weakening, well, one of your mandates is to keep full employment. So it makes sense to cut rates. And I think they'll do that election, no election. I really think it comes down to the economic data. Okay. Andrew Hollenhorst, thanks for joining me. Thank you. So we did see the S&P 500 hit a fresh intraday record, but it did finish the day down about six points, 53-46.

All the major averages finished lower. The Russell 2000 down a little more than 1%. Next week, we have quite a bit on tap. We have the NVIDIA stock split playing out right now. The Apple Developers Conference, more inflation data, a Fed decision. That does it for us here at Overtime.