Closing Bell - Closing Bell Overtime: Rare Interview With Northrop Grumman CEO Kathy Warden; Chamber of Commerce CEO On UAW 9/11/23

Episode Date: September 11, 2023

The Nasdsaq powered more than 1% higher, led by a strong day from Tesla. Truist’s Keith Lerner and Crossmark Global’s Bob Doll break down the market action. Chamber of Commerce CEO Suzanne Clark on UAW and the regulatory regime. Bill CEO Rene Lecerte on the view from business owners. Northrop Grumman CEO Kathy Warden sits down for a rare interview with Morgan. Peak6 Co-Founder Jenny Just on fintech.

Well, you got the score called on Wall Street with all the major indices higher. Winners stay late. Welcome to Closing Bell Overtime. I'm John Ford along with Morgan Brennan who's in my hometown of D.C. today. We're just moments away from Oracle's earnings. We'll break down those results as soon as they hit the wires. Plus, Chamber of Commerce CEO Suzanne Clark on how regulators are targeting businesses and how that's impacting the economy.

And a rare exclusive interview with the CEO of Northrop Grumman on the state of the defense industry, the outlook for the company's space business, which is fast growing. But first, as we wait for those Oracle results, let's bring in our market panel. Joining us now is Truist Chief Market Strategist Keith Lerner, Crossmark Global Investment CIO Bob Dahl. Guys, welcome. Keith, this market's been sort of staggering

back and forth for about two months. I know you don't love tech in general right now, but what's going to swing it one way or the other? Maybe Oracle? Yeah, well, first, great to be with you. Listen, I think the big picture is the market and tech's had a big move this first part of the year. And we're consolidating the gains. We're churning a bit here. But there's nothing wrong with that after you've had these big gains. And I think we're more likely to have that continue near term. But as you mentioned, the near term catalyst is what we're going to listen to after the bell today with Oracle.

Because what investors really want to see is we know that like NVIDIA and some of the chip names have seen some benefit from AI, but is that starting to broin out to validate some of the premium valuations we're seeing in tech today? Bob, you think bonds play a big role in which way the market goes from here? I sure do. We've seen yields creep up again of late, and that's sort of stalled equities. Not today, of course. But I think when you push above four and a quarter in the 10-year, that causes equity multiples to get a little nervous when they're selling it nearly 20 times earnings. Bonds are key here. Okay. So then do you buy into bonds? Do you steer clear of bonds? How are you thinking about that, Bob? I don't think we've seen the high in yield

yet, but we've come a long way. So unlike 18 months ago when the 10-year yield was 1.5, a really bad deal, 4.25 is a lot better. So on weakness, we would be nibbling on bonds and are slowly extending our durations. Yeah. Keith, the fact that you did see big tech companies, Tesla, you had that upgrade, power the market higher today. I mean, to dig in a little deeper on John's question to you earlier, is there a buying opportunity here or are there other sectors in this market that are ripe for opportunity? and I were a sector strategy. We're overweight communication services and discretionary because communication services has names like Meta and Google. Again, I'm not recommending individual names, but those groups don't look good to us as far as relative valuations, momentum with some of the AI side. Consumer discretionary, the top two names in that sector is Tesla and Amazon. So I think you have to be more selective within the sector exposure as a whole. But I think today is a good day. As you mentioned, you get a little bit of news, some news around AI, and you see some of these stocks up 3%, 5%, 10%.

So at this point, big cap tech still has some of that leadership. But again, it's a bit more bifurcated than just, say, in the S&P technology sector as a whole. So again, we're more neutral in the overall sector, but we're finding opportunities within. And I think one of those other areas is software as well. Bob, it's one thing when we're talking about bonds to look at the yield sort of moving up and down day to day. But so many investors, retail investors, families are way off of that traditional 60-40, 60 percent stocks, 40% bonds, fixed income template. So if you're considering moving more into bonds, not as a trade, so maybe what happens day to day

or week to week doesn't matter as much. If you need to move more into bonds to balance out your portfolio, is now the time to do it? And how do you do it? Slowly and in a laddered approach, in my view. Look, I'm presuming somebody that's nibbling on bonds has a bunch of cash that's earning, call it 5%. If you don't, I'm not sure I'd run out and sell a whole lot of stocks to buy bonds,

but cash, which has given us a wonderful return on an absolute basis and should be decent relative going forward is the source for a bond money should you want to add to those positions. Keith, do you see the bond market the same way right now or are you thinking about it differently? No, you know, I think there is some value in bonds, as Bob alluded to. I think it's tough to try to call a top. There's a lot of momentum above, you know, 425. But the way we're thinking about things for, let's say, the next six to 12 months, we think the risk reward is improving there. Because even if yields continue up another

50 basis points, because of that coupon you receive in the total return, you're protected up to about $475, $480 on the 10-year. So we are actually extending bond durations as a whole. And again, as we think about overall asset allocation, we're basically neutral against stocks, bonds, and cash because of all the mixed cross currents. But we think high quality fixed income provides pretty attractive yields at current levels. Keith, on the equity side, talk to me about why you like consumer discretionary right now and why you're overweight the industrials sector specifically. Correct. Well, the first thing we consume discretionary where it's it's a quasi growth sector and again we're more focused on the growth components of that as i

mentioned earlier that you know the biggest components of that are amazon and tesla so we like the growth component more than the deep cyclical consumer discretionary names and then as far as industrials we still think there's a lot of secular tailwinds if you think about the industrial sector as far as fiscalals, we still think there's a lot of secular tailwinds. If you think about the industrial sector, as far as fiscal stimulus, we can think about the infrastructure bill where we'll see multi-year spending that goes into that as well. And then we're going to have this continued strategic battle with, if you think about China and geopolitical side, defense spending should continue to increase as well. So we think all in all, the industrial sector will benefit from all those different secular tailwinds.

As we've been talking, Oracle earnings are out. Christina Parts-Nevelis has the numbers. Christina? So we think all in all, the industrial sector will benefit from all those different secular tailwinds. As we've been talking, Oracle earnings are out. Christina Parts-Nevelis has the numbers. Christina? So, beat when it comes to EPS of $1.19 adjusted. The shoe was anticipating $1.15, but revenues fell a little bit shy for Q1 at $12.45 billion, slightly less than the $12.47 billion. I'm just going through the press release right now. One line stands out. Oracle Cloud Infrastructure, OCI, their bread and butter revenue grew 66% in Q1,

much faster than our hyperscale cloud infrastructure competitors. And then I'll go over all of this to get back to you on the actual breakdown, but that seems to be a little bit of a win there. But the stock is down over 5% on that revenue, slightly amiss on that. So I'll get back to you with more. All right, Christina, thanks. Yeah, it looks like, as you said, cloud services and license support came in a little stronger, but hardware and services a little weaker.

Keith, I know you're keeping an eye on Oracle here. Is the cloud really what matters as Oracle tries to kind of justify its inclusion sometimes in that group of hyperscalers? Do they have more to prove on the application side with NetSuite, Cerner, and more? Yeah, well, I think the big question for a lot of these AI stocks is how much of this new potential AI revenue is going to offset other parts of the business that are starting to weaken?

And you think about a stock like Oracle, again, I say big macro as far as sector side, but the stock's up over 50% this year. So I think the challenge that you have is going into these earnings, you've moved up a lot and the expectation is somewhat high. So even if you have a good report, if it doesn't exceed those high expectations, you get a bit of a hit. And a lot of times there's a knee-jerk reaction around the initial print into the conference call. But I think that's it. It's really that offset of how much of that AI will offset weakness in other parts of the business. OK, Keith and Bob, thanks for kicking off the hour with us with all the major averages and

finishing the day higher. Let's bring in senior markets commentator Michael Santoli with a look at Oracle's recent outperformance versus Salesforce. What you got, Mike? Yes. Recent outperformance has been profound over Over a longer period of time, it looks like catch-up. So take a look over the past eight years. Salesforce, of course, founded by an Oracle alum compared to Oracle here. Actually, no, I'm wrong about that. It did overtake it on an eight-month, eight-year basis. So it has basically eclipsed Salesforce. But you see how much it had to sort of recapture along the way. What I think is interesting is the valuation side. So you've had Oracle, which was valued for many years, for most of the 2010s. It's kind of a cash cow, low growth business.

It was all about return of capital, whereas Salesforce was, you know, hyper growth company with a 90 P.E. It didn't even worry about profitability gets cut down as it matures. And you also have that new focus on margins that's helping it to sustain that high 20s P.E. have Oracle getting revalued higher because you have this extra bit of revenue growth anticipated coming from the cloud business, from some kind of exposure to the AI trend. So still not closing the gap, but you have now Oracle trading at a premium to the S&P 500, which it was years since that happened. If we took this all the way back, back to the tech boom around 2000, Oracle would be at like 100 PE. So things change. And I guess there are second acts in tech sometimes. I mean, this is really fascinating, Mike. And of course, it speaks to two companies that have had this, you know, shift, this transition to cloud, having the shift and making investments on the AI

front as well. Salesforce has also had this added impetus or juice to the stock this year as it's undergone those cost cuts and had a stronger focus on profitability, too. I don't know that we've seen that level. It also doesn't have the activist investor pressure that Salesforce has, but we haven't necessarily seen that level of cost cutting at Oracle, right? I wouldn't seem so, but that's the starting point probably makes all the difference, because this was a company that was kind of slow and steady. It did really just harvest a lot of free cash flow along the way.

And that was the way the business was being managed. So it wasn't necessarily gunning for really fast revenue growth, didn't really have the option for a long period of time. So it really isn't so much a cost cutting story. It's about let's keep costs more or less where they are and see if we can capture extra revenue based on some parts of the business in these new areas. All right. Mike Santola, maybe that's partly what you get when you get the longtime CFO in Safra Katz running the company. And also I'll note that the guidance for Oracle tends to come on the call, not in the release. So if you're trading after hours, be careful of that. Up next, the CEO of the Chamber of Commerce on how the threat of a strike by the United Auto Workers Union

could impact the economy. And later, what you need to know ahead of Apple's new iPhone launch, expected tomorrow, and what's at stake for the company and investors. Overtime's back in two. Welcome back to Overtime. It has been a summer of strikes, and the next one could be from the United Auto Workers. Their contracts with Ford, GM, and Stellantis are expiring this Thursday. And with time running out, concerns are brewing over the economic impact if a strike happens. Joining us now, the U.S. Chamber of Commerce CEO, Suzanne Clark, who's here on set with me. Suzanne, it's great to speak with you.

There's a lot to get to in this discussion, but I do want to start with labor because it really seems to have leverage right now. Are you monitoring UAW closely? How likely is it that we could actually see a strike? Well, first, thanks for having me. I'm always so happy to talk about the economy. You've put your finger on an important issue. We do think the Biden administration has got to keep both parties at the table. There is not a clear path forward. Keeping the people talking will be important. I think we have to remember this isn't just about the big three and about the UAW. In 2019, in the GM strike, the small and medium-sized business suppliers to the big three ended up laying off 75,000 people during that strike. So this is a potential for a really big impact.

So you're expecting a major economic impact if we were to see this move forward. And we've heard some analysts' numbers in the billions of dollars. You anticipate something similar? That's right. And what I really worry about is because of what we hear about every day from these small chambers and these small businesses is the impact nobody talks about, which is on these small job-creating community leaders across the country. What are you hearing from small businesses right now? Because we do know that those are the engine of job growth in the U.S. economy, and we're starting to see some signs that maybe the labor market is softening. It's so interesting because we just came out of the field with new research with MetLife, and what the small businesses tell us is record high optimism about

revenue next year, record high optimism about their own ability to run their business and hire, and then kind of secondhand pessimism about what's happening in the rest of the economy and how that will impact them. Regulatory environment. You've been very outspoken about this all year, this idea of, I think, as you've put it, the overreach of the Biden administration. We've seen some high profile court cases. There was one just today that actually involved the chamber against the CFPB, successful for you and for the other industry associations that were involved as well. I guess walk me through what you mean by overreach and why this is unprecedented from your view? I think from our view, and what we hear from CEOs across the country is, it's just different in kind regulation, right?

We have the SEC, a financial regulatory body, trying to regulate emissions. We have the FTC and the DOJ making it unclear which M&A work can go through and what can't. We have the FTC saying, we think we have the authority to regulate non-competes and competition. And so to your point about the courts, using the courts to constrain the administrative state and say to these agencies, you just don't have the authority to do this and create this kind of uncertainty in the economy is really important. Where does Congress fit into all this? I think that Congress needs to do this work because when Congress does it, it ends up surviving, right? When the agencies do it,

it goes guardrail to guardrail in every administration, and that just leads to more uncertainty. So what we're looking for is for Congress to address the big issues, give limited jobs for the regulatory agencies to implement it, but these regulatory agencies then take it and say, wow, we're going to run with this and use a lot more authority than we think they were given. We've seen the industrial policy in this country as well expand pretty exponentially. You could argue it started under the last administration.

It's continued to grow under this administration. It's meant some potentially structural changes, dare I use the word, around how we're thinking about supply chain, interactions with China, money that's going towards standing up, more capabilities here in the U.S. Have we entered a new chapter in terms of U.S. manufacturing? I hope not. I hope that the traditional base of free markets and capitalism and respect for business and job creators is really deep in the soul. You know, I don't know any member of Congress that doesn't care about job creation in their district. So we can always hope that cooler heads will

prevail. But I think you're right. We have to be concerned when government wants to set prices. We have to be concerned when they're not doing the things they could do to help the economy and instead they're doing these things that constrain it and create uncertainty. It's interesting though because, and yes, we're still a year out from the next election, but whether it is on the right or whether it is on the left, there are certain things, for example, China, for example, supply chain and this notion of nearshoring and reshoring, that both parties are raising? But I think fairly, right?

I mean, we talked to Secretary Raimondo before her trip and after her trip to China. We thought it was important. She was having a dialogue with such a big trading partner. And an important dialogue on all three areas. The red areas that, you know, that Chairman Gallagher at the House Select Committee has pointed out, the national security red lines we can't cross, the kind of danger zone yellow areas where China is using coercive efforts and new laws targeting American companies that need to be beaten back, IP theft, another good example, but also that there are green areas, that 99% of the trade has nothing to do with national security.

And we need to trade ball caps and soybeans and burgers freely. And so that continues. And that continues. OK. Suzanne Clark, CEO of Chamber of Commerce. Thanks so much for joining me. Thank you, Morgan. John, I'll send it back over to you. Yeah. Important perspective from D.C.

Morgan, thank you. Up next, CEO of cloud payments platform Bill on how inflation is pressuring small businesses, how lenders are responding, the macro picture and more. We'll be right back. Welcome back to Overtime. The U.S. consumer remains healthy, according to recent data, but some warnings are emerging, including from the Fed's Beige Book, where businesses said growth was just modest. And Jamie Dimon today saying it would be a huge mistake to assume a strong consumer means it'll be a booming environment for years.

Let's get some more insight into the economy. Joining us now is Bill, founder and CEO. Renee, welcome. Good to have you here. Recently, you've said small businesses were pulling back a year ago. Now they're in a holding pattern. What is a holding pattern, you know, practically look like? Some color there. Yeah, well, thank you, John, for having me on the show. Always good to talk about the state of SMBs and the technology that, you know, businesses need to be able to run their business. The holding pattern that I am referencing is that this, you know, in the last three years, there's been three firsts for SMBs.

I'm not an economist, but this you can kind of see, right? The pandemic, the supply chain disruption, and then the over stimulus. And that's led to this threat of recession for over the last year. That threat of recession means businesses don't know if they can invest for growth or they need to cut. And so the holding pattern, what we see is that they're kind of picking and choosing. So a year ago, for example, advertising was being pulled back. Now, advertising in the last quarter had rebounded. But now we're seeing the commercial real estate business being pulled back. Now advertising in the last quarter had rebounded but now we're seeing the commercial real estate business being pulled back right and so businesses are managing their spending they have the

same number of bills they have every quarter they're still managing their suppliers but they are thoughtfully managing their cash flow and it's one of the most important things that business can do is to manage your cash flow and technology makes that happen that's what we do at Bill. Over the past couple of years, few years, there had been this fintech argument that it was the fintech companies versus the banks. More and more, I'm seeing fintech companies in partnership with banks. You have a partnership with Bank of America, a huge potential source of customer acquisition, though the subscription revenue from that is getting pushed out a little bit. Tell me, it seems like this technology, when large banks use it, allows them to act more like regional banks, higher touch, maybe better service. Is this going to fundamentally alter the landscape and the value proposition of smaller banks?

I think technology always brings more touch to everybody. And so one of the things that I started the company and why I wanted to define and build this category was that small businesses need more tools and services to be able to deliver high touch to their customers. And so at the top of the food chain, you know, financial institutions are part of an ecosystem that reach businesses everywhere. And so I think the high touch that regional and smaller banks have is real. It's something that businesses do enjoy and they thrive on. It's also something that large banks do want to serve their customers with. And so the ability to leverage the technology that we've been building over 17 years to be that category leader so that businesses can manage their cash flow in ways

they've never done before, that's super, super important. And I do think it enables businesses, no matter where we get them, to be able to have a different experience with managing their business than what they had before. Are the smaller banks, the regionals, moving fast enough in technology adoption? Well, we have a number of regional banks as well that are on the platform, and they are actually quick to adopt as well. They can sometimes get products out very quickly and engage with their customers and help the customers understand the benefits, the time savings they get with our platform, the efficiency and money movement that they get with the platform. And so we see it across the spectrum.

What really matters most is having a partner, and we work a lot on our partnerships, where people are committed to that vision for the S&B, that high- that high touch experience of the SMB can do what they love and not what they hate. Nobody loves running the books. I mean, I do, but most businesses don't, right? And that focus of really helping a business do what they love has got to be something that all of us have, because like you said in the last segment, SMBs are the heart of the economy.

They drive so much job creation. They drive a lot of creativity. And I'd rather that creativity be spent on innovation than on actually worrying about how to manage the back office. Q3 heading into Q4, which is so important for small and medium business. How does this year look so far compared to the last few that we've seen that have been weird? Yeah. Yeah. I mean, definitely a few years ago coming out of the initial COVID was that overstimulus, right? We had tremendous spend going through the platform and seeing people buying ahead and buying, you know, building their inventories across the planet, essentially. And last year we saw that pull back.

And that was one of the things that we talked about. And I don't know if we talked about it after that February earnings call, but that was definitely a topic because it was clear that businesses were pulling and holding and waiting. And what we see right now is that they're less pulling back and more holding. So I think that's some reason for optimism. But as you referenced with Jamie, if you're a small business owner, you always prepare for the worst and you hope for the best and you have products and tools to enable you to do that. Okay. We'll see how they do. Many of them using Bill as a tool. Rene, thanks for being here with us on set. Thank you, John. Appreciate it.

Morgan. All right. Let's get a quick check on Oracle. Shares are under pressure after the company missed revenue estimates, although it did beat on the bottom line. Oracle usually gives guidance during its earnings call, which kicks off at the top of the hour. Did see some strength in cloud, saying Oracle cloud services plus license support revenue now accounts for 77 percent of overall revenue. Let's get now to the CNBC News update with Contessa Brewer, though. Hi, Contessa. Hi there, Morgan.

The Biden administration has approved a deal with Iran to swap prisoners and release six billion dollars in frozen Iranian funds. That's according to the Associated Press. Five prisoners from both countries will be released. The $6 billion transfer, the critical element in the prisoner release deal, which had the American detainees transferred from jail to house arrest last month. Thousands of protesters are gathering outside the Israeli Supreme Court. The night before that court, we'll hear Prime Minister Benjamin Netanyahu's bid to curb the court's powers. Video shows protesters waving Israeli flags and chanting democracy in support of the court. Tuesday's hearing will be the first time in history the entire 15-judge bench convenes. A top regulator has proposed creating a national

financial fraud database. The Commodity Futures Trading Commission official is pushing for a searchable centralized federal registry for investors and law enforcement easily to access information on past financial fraud convictions and civil fines. The goal, according to the CFTC, is to identify potential fraudsters and prevent repeat offenders. Morgan. Contessa Brewer, thank you. Up next, the CEO of Northrop Grumman. On the outlook for defense spending is the threat of a government shutdown

looms large for investors. That's coming up after the break. Welcome back to Overtime. Northrop Grumman is the fastest growing defense prime and its space business is the largest in the world. Space systems sales grew 17 percent in both Q1 and Q2. I sat down exclusively with CEO and Chair Kathy Worden to discuss the portfolio. But since it is September 11th and we mark 22 years since those terrorist attacks on the World Trade Center and the Pentagon, we first discussed how the world and the notion of security and deterrence have changed.

Well, I'm glad that you raised it because it is a day that we don't want to forget. It is an important reminder of why we do the work we do in support of global security. And we need to remember the tragedy of lives lost. But as I think about the motivation that it brings to the work that we do, our people very much have a passion for mission. And it's events like 9-11 that remind us that that passion is well placed, that we want people to feel safe in their homelands and that in this important time that we live in, we all have a role to play in making that happen. Yeah, never forget. How do you think about the geopolitical landscape right now? And what does

that mean in terms of the way you're making investments and the types of technologies and capabilities you're looking to bring to the government? It's definitely a complex environment that we're operating in. You noted the investments that China is making in their military buildup and also technology advancements. So in one dimension, we need to keep pace and stay at the forefront of technology advancement. On the other hand, there are adversaries that have lesser capability that also are aggressors, and we need to make sure that we are able to have the capability and capacity to address those threats as well. So let's talk a little bit about the role that space plays in all of that, because it is a warfighting domain.

We're seeing a lot of growth, Northrop Grumman specifically, double-digit sales growth, it would seem, every quarter. Huge growing business for you. Well, space is a very exciting environment for us to operate in. It's a challenging environment. There's no doubt that our team, the people, their expertise, and the product lines that we have make it look easy from time to time, but it really is rocket science. And so right now we are focused on being at the forefront of technology and that has led us to grow the portfolio very rapidly. And what we see today is a broad variety of applications for

our products. National security is our core, and it will remain our core. There are applications, though, in civil and commercial, and we look to leverage that technology base quite broadly. You're very heavily involved, and you have multiple contracts for multiple legs of the nuclear triad and modernization of that, including Sentinel, which is the ICBM, the Intercontinental Ballistic Missiles that will replace the Minuteman missiles. I realize it's classified. To the extent you can share an update on that development. Well, Sentinel is an important program for the reasons you note. It is a core of our strategic deterrence as a nation, and we are modernizing it, which includes everything from a

new missile to a new command and launch capability. And as a result, we are in the early phases of developing these pieces which will ultimately come together and reach initial operating capability toward the end of the decade. It is progressing well, but there's no doubt that supply chain disruption and some of the other challenges that all industrials have faced over the last 12 to 18 months are impacting timelines on the program. So we're working hard with the Air Force in partnership to make sure that we can deliver this important capability for our nation. National security is about 85 percent of Northrop Grumman's portfolio, but it also builds commercial

satellites, for example, for communications. I saw some of those on the production line today. Has a growing space logistics business to service spacecraft in orbit. It also works with NASA on everything from the James Webb Space Telescope to the Commercial Cargo Program with its Cygnus capsule, with one currently attached to the International Space Station. That capability is one that will be highly relevant in decades to come as we look at manned space travel and what it takes to create habitats for humans who will dwell in space. So it is just the dawn of a new era with what we're doing in civil space. I mean, that's the perfect lead-in for my next question, which is HALO, the habitat and logistical outpost. And I realize you're in a quiet period, but last earnings season, it certainly got a lot

of attention from investors because it impacted space systems margins. Yeah. Well, Halo is complex in that it is a habitat, but it is tied to the gateway, which is the architecture that NASA is building for taking humans into space and then deploying them to the moon. So as the Gateway architecture evolves, so must Halo. And what we're seeing is that that evolution is still very much in process. So we're working with NASA to make sure that as those changes permeate to Halo's design, we are working in a way that's smart, that gets us jointly the capability for both the gateway and the habitat matured quickly, but in tandem. A few other questions for you that are not space related. B21, big focus of investors right now.

A lot of questions about whether there's a possibility of a charge. LRIP, the beginnings of production. Is that still on track? Well, we are really tracking well on the B-21. We continue to feel optimistic about meeting the goals that we've set for the program, including the schedule for first flight. And as we think about how that translates into financials, it is a situation where the B-21 performance is something that will serve us well in the long run and we'll work our way through any interim financial challenges that

the program represents but it still will be a great capability not only for our nation but our investors over time. With earnings over the summer you made some news talking about NGAD and the fact that you're not going to be bidding on that program. Why that decision? A number of factors. We look at the program itself and is it one that we feel is core to moving our company forward. Second, we look at whether it's a program that we have a high probability of winning. We look at whether it's a smart investment for us and that often comes down to the risk reward profile in the program itself, how it is set up for acquisition. And all of those factors combined led us to decide that that program in particular was not one that we would pursue as a prime.

However, we are expected to be involved in the program as a supplier, and we are actively working that. A lot of focus on the FAXX competition as well. More broadly, defense spending, especially at a time where there's a lot of focus on the fiscal 2024 budget, what that's going to look like, when we're going to get it. Does it continue? What are you seeing? And I guess not just in terms of U.S. appetite, but also in terms of allies and what that means for foreign military sales and the like. We are expecting this budget process to have challenges in meeting timely appropriations, but we've seen that before.

And to the extent that a continuing resolution is short-lived, meaning gets resolved in this calendar year, that's something that both the Department of Defense and the industrial base know how to operate under, and I'm confident that we'll be able to do so longer term. Are you seeing increased demand for munitions and other types of weapon systems in Ukraine as well? We are, absolutely, and I don't expect that to diminish anytime soon. But really, that is over and above what the Department of Defense is prioritizing in its budget related to priorities that are long and enduring. We hope that the Ukraine conflict is not long and enduring,

but regardless, it has established priority for weapons restockpiling and the like. As you do see, analysts actually game out the possibility of an extended continuing resolution. What would that mean for Northrop Grumman? How are you thinking about that? Are there programs that would be significantly impacted? We don't see a significant impact to any particular Northrop Grumman program, but I will say that it would not be good for national security to have an extended continuing resolution. Our country needs the certainty of a strong deterrence, and that is underpinned by strong bipartisan support for national security and national defense spending. We also need to keep these

programs moving at pace. When we can't fund them consistently, they do not move at the pace we all know that they need to for our modernization. And since schedule is so important for releasing these capabilities, I'm hopeful that our Congress will see that a continuing resolution does nothing but disrupt that. All those question marks around the possibility of a continuing resolution is part of what's pressured defense stocks like Northrop Grumman this year. I'd also just note this is a company that's also a chip maker. It designs and produces chips in two in-house foundries. It's involved in the CHIPS Act with a funding announcement that is expected potentially imminently. But this is just a piece of my conversation with Kathy Worden. We've talked much more about space. So for more of that conversation,

please check out my podcast, Manifest Space. The next episode, which drops Thursday, will have all of those details about Northrop Grumman and its broader space portfolio. So check that out. John? Fantastic. Morgan, thanks. Now, investors have been rushing into cash this year as flows into equity funds remain weak. Mike Santoli is going to look at what that could mean for the market when overtime returns. Welcome back to Overtime. Michael Santoli is back with a look at the rush into cash. Mike.

Yeah, John, it's been quite a stampede this year. If you look at the fund flows into various categories of investments, money market funds or cash, really just trouncing everything else, a trillion dollars year to date net inflow into money market funds. You see, that's one seventh of all the assets that are in those funds in general. We know the reason short term yields are much higher than they've been in many years, much higher also than bank deposit rates. So a lot of that money isn't really otherwise earmarked for stocks and bonds. It's really just taking the place of bank deposits. Nonetheless, it's a growing cash cushion.

Meanwhile, a slight negative flow out of a U.S. equity mutual fund and ETFs. It shows you that there really has not been that much of a chase into stocks with the S&P 500 up 17 percent or so year to date. You see a pretty healthy inflow into bonds there, too. Two hundred and thirty billion dollars is pretty good build right there, a little bit into foreign equities, too. Now, one reason you might not see a big rush of new money into equities is this is the financial asset allocation of all U.S. households in aggregate as collected by the Federal Reserve going all the way back to 1960. So a lot of history here. And you see that equities are about 43 percent. That might not seem like a lot if you're talking about the average investor. But in aggregate, it's pretty much at the high end of the historical range. You see that stocks and I mean, bonds, excuse me, and cash are maybe just a little bit

low, lower than average together. So it seems to be there's no real need to top up your equity exposure if you're the typical household that's been participating in the stock market. And that could be why some of these flows this year represent a little bit of a kind of rebalancing effect as opposed to really a seeking of shelter. Yeah. Interesting, Mike. If you were to take out on that previous chart, the money market pillar, it'd be an impressive outperformance for bonds relative to what we've seen lately. I guess the big question next is where does that money flow next out of money markets? Does it go into U.S. or international equities or into bonds?

And how soon? I don't necessarily think that most of the money that's gone into money market funds is destined necessarily for either of those places. It feels like, you know, we feel like we have enough exposure to bonds. So as we get new money in to invest, maybe we'll decide where to put it. But it doesn't have to be at the expense of short-term cash, in part, as I said before, because I think it's taking the place of bank deposits and just sort of daily liquidity as opposed to people saying, I want to avoid stocks, therefore I'm going to hide in bonds. And I've previously shown that $7 trillion is a lot of money by almost any measure.

But compared to the total equity market cap in the U.S., it's actually not that much relative to history. You know, we got like $40 trillion in U.S. equity market cap. So it's not like back in 08 or 09 when money markets represented about half of the stock market capitalization. Some key context there. Mike Santoli, thank you. Up next, self-made billionaire Jenny Just weighs in on the fintech landscape and where she sees investing opportunities right now. And check out another mover we're watching, Casey's General Store. It's up right now about 3% after reporting 11% earnings growth and saying it sees more normalized macro operating environment. Pizza powered the beat. Stay with us.

Welcome back to Overtime. Fintech stocks have been floundering recently, underperforming the broader market over the last few months. For more on the outlook for Fintech, let's bring in Julia Borson at the All In Summit in Los Angeles, along with Peak Six co-founder Jenny Just. Julia. Morgan, thanks so much. And Jenny, thanks so much for joining us here at the All In Conference. Thank you. So your technology powers so many of the different fintech platforms, whether it's SoFi or Betterment or Ally. Talk to us a little bit about what your outlook is for the fintech

landscape, given that so many of these stocks have been struggling recently it is true it's been a rough year after coming off an incredible opportunity sort of april of last year and into um the current event but i think the thing we appreciate most about these new fintechs and this is what these businesses can do because their technology is on the cutting edge is that we're partnering with them every day to figure out what that next best opportunity is given what the market is giving you so for example we are just about to launch the first ever fractional fixed income product literally in two weeks with one of our companies public and those are the types of things we need to do to stay on the cutting edge to keep the consumer excited and happy and looking for yield in places it didn't

exist you know three months ago so where do I find it now yeah you have so many different divisions you have insured tech you have ed tech you have your options trading business and one part of your business was planning to go public via SPAC at a $4.7 billion valuation. It never ended up happening, as many SPAC deals that were about to go did not. What's your outlook on taking that business public now? It is definitely a company that should be in the public markets for many reasons. One is at the end of the day the democratization of finance for each individual out there they

need to understand where their money is, what happens after the trade is made and the more public these type of companies are like Apex FinTech Solutions the more comfort they're going to have and security in who they have their money with. So it's really important. Do we expect to be there? We hope the market's going to turn, you know, give us a little bit more oomph to go out there in, I'm hoping, in 24, if not 25. So what's your outlook?

So much conversation even here about the economy, soft landing, no soft landing. What are you expecting to see in terms of the economy? Yes, I think we're in a catch-22 right now. We talked about that at our office. Rates higher, rates lower. Inflation higher, inflation lower. You know, rotation of sectors, lack of correlation between the indexes and stocks. And so we sit sort of stuck. And we think that's why option volatility actually is really quite low, unusually low. And so we're anticipating something changing, whatever it's going to change. We don't pick bottoms, we don't pick tops. But fourth quarter, I would expect

something to get us off that dime. More volatility in the fourth quarter. Final question to you about something you were talking about here today and something that you've been making a big push for, which is poker power. You are working to educate people, particularly women, to understand poker, to make them better equipped in the world of finance. What is your argument about why everyone should be learning poker? There are, I had no idea, cuz I did not play either until about four years ago. I didn't realize there's so many skills that men are learning at a very young age that women are not.

They're learning strategy. They're learning capital allocation. They're learning just how to take risks, fail, and get back in the game. The list goes on and on. And when I started to learn, I started to learn because of my daughter. I realized there's really something here like I've been playing poker as a business person my whole life I just didn't know it so I think it truly can be a market disruptor we talked about there's going to be

a market correction and we think that correction is going to be that half the participants are going to identify as female and the reason they're going to do that is because they're going to be that half the participants are going to identify as female. And the reason they're going to do that is they're going to learn this game, practice this game, and build those skills that are necessary. And get more into the investing landscape. Exactly. Well, Derek, Jess, thank you so much for joining us here today. We really appreciate it. Thank you. John, I'm going to send it back over to you. Thank you, Julia. Smart risk assessment, so important. Up next, find out what's at stake for Apple and investors when the company unveils its new iPhone lineup. Expect it tomorrow. We'll be right back.

Welcome back. Qualcomm, one of the best performing stocks in the S&P 500 today, up almost 4% after it announced it will supply 5G chips for Apple phones through 2026. Apple had been trying to switch to its own 5G chips as soon as next year. Speaking of iPhones, Apple set to unveil its new lineup at an event tomorrow. Steve Kovach, what do we expect? Yeah, John, well, these new phones are launching at a time when smartphone demand is falling. Apple expecting its fourth quarter in a row of down revenue. We're also expecting minor updates to AirPods and the Apple Watch in addition to those phones. So here's what we should see in the new phones.

Just like last year, four models, two regular iPhone 15s, including a model with a larger screen. And on the pro end, improved cameras, a faster processor and a new titanium casing but the biggest change apple expected to replace the iphone's port from the lightning connector it's been using for the last 11 years it's switching to usbc the same plugs found in android phones and most laptops and tablets now analysts also predict apple will raise prices on the pro phones by 100 bucks to make up for that shortfall in demand. John, that means a starting price of $1,100. Okay, we'll see how they parse it, Steve. Thanks.

Morgan, I've been thinking about this Qualcomm announcement all day. I was skeptical from the beginning that it was a slam dunk that Apple was going to switch off of Qualcomm for 5G chips and use its own after it bought that business from Intel? Because this stuff is hard. Apple had to get performance that was equal to or better than Qualcomm. So this isn't a big loss for Apple, but it is a big win for Qualcomm, which initially looked like it was losing licensing revenue and 5G revenue from Apple. And now it's not. I guess the key question, John, looking out a couple of years from now is going to be, does this just buy Qualcomm more time to diversify its portfolio away from Apple, or is this even stickier than investors realized in general?

Qualcomm's already done that. They haven't really been counting on this Apple business in the same way, and they've been investing in automotive, IoT, industrial areas. That's the growth market that they've targeted. So this is kind of icing on the cake for them, though their stock has taken a beating over the past year. Yeah. Higher today, though, to your point.

We're going to be watching that Apple event tomorrow. We've got a lot of data this week, CPI, PPI, retail sales that are going to be on tap as well. And then, of course, I'm headed back your way right now. I'll see you on set tomorrow, John. All right. Yeah. Looking forward to that. That Apple announcement going to be a big deal. That's going to do it for us here at Overtime. Fast Money starts now.