Closing Bell - Closing Bell Overtime: S&P 500’s 44th Record Close; Nvidia Up 25% In A Month 10/9/24

Episode Date: October 9, 2024

The Dow and S&P 500 powered to a record close in today’s session; we have you covered from every angle with BD8 Capital’s Barbara Doran, Payne Capital’s Courtney Garcia and Citi Research Director of US Equity Strategy Drew Pettit. Our Steve Liesman breaks down the Fed minutes release from its last meeting. Nest Seekers International CEO Eddie Shapiro on luxury housing market. 

Well, that bell marks the end of regulation. Soccer legend Ronaldinho ringing the closing bell at the New York Stock Exchange. PIMCO doing the honors at the NASDAQ. Well, record closing highs for the Dow and the S&P 500 as attention now turns to inflation data and to earnings. That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort.

Morgan Brennan is off today. And coming up this hour, Citi's Director of U.S. Equity Strategy weighs in on the push to new highs and how earnings season could change the market narrative. Plus, mortgage applications dipping lower this week, but one luxury brokerage CEO says we're on the cusp of turning point in the real estate market. He'll join us to explain why. And cruise stocks floating to the top of the S&P 500 after a bullish research note. We'll talk to an analyst who lifted the whole space today. Now let's bring in our market panel, Robert Duran of BD8 Capital Partners and Courtney Garcia of Payne Capital Wealth Management and a CNBC contributor. Guys, welcome. Courtney,

so we're talking about broadening happening. There was this rotation significant in Q3, but NVIDIA has roared back. Some other mega caps not doing too badly. How is Q4 looking to you so far? Yeah, and I think that's something to keep in mind where there's really like two conversations here. There's a rotation, which means money coming out of those high flyers like the tech companies and going into those things that have been outperforming in the third quarter. So think of like utilities, financials, industrials. But on the other hand, there's the idea of like an everything rally or just a broadening. And that's actually much more what we're on the camp of. I don't think tech rally is ending anytime here soon. I don't think you want to get out of NVIDIA.

But I think when you're looking at the profit cycle, the profits are likely going to accelerate faster. And you're 493 stocks outside of the MAG7. So with all that cash that's on sidelines right now, you just want to take advantage of those opportunities. But we see everything doing well, not just those seven companies or outside of them. Barb, at the major index level, the S&P up 7 tenths, did a little better than the NASDAQ. But beneath the covers here, I'm looking data-driven software, GitLab, C3.AI, MongoDB, Atlassian, Snowflake, even Palantir, up more than 5%, with the exception of Palantir, up nearly 5%. I know you've been staying on NVIDIA and some of these more data-driven and AI-driven names all along, but what does this tell you? Well, I think what we saw, and I agree with Courtney, by the way, we're seeing a broadening

out and you don't get off the tech trade. But I think NVIDIA's price action in the last few days has really brought tech investors back in. And so I think they're broadening out. I mean, NVIDIA is one name and one way to play it, but these are all beneficiaries of the AI cycle and software. So I think you'll continue to see this action. And also tech in general has lagged, as you've seen this rotation the last few months, to take advantage of cheaper stocks. And so now a lot of those, like utilities, financials are at record highs, all the certain defensive staples. So I think money can be coming out of them because a lot

of the juice has been squeezed out of them. So I think that's what's happening here. And I think we'll continue to see this through the first quarter. Fourth quarter is just a rotation back and forth, but the general market moving higher because of the positive economic backdrop and the Fed continuing to lower rates. OK, Barb, Courtney, hang tight for just a moment. Let's bring in CNBC's Steve Leisman in Washington today covering the release of the Fed minutes from the September meeting. Steve, what do we learn? John, thanks. Yeah, the minutes to the September meeting showed a little bit more disagreement over whether the Fed should have cut by 25 or 50 at the meeting.

More disagreement than was apparent from just the one dissent that we got. The minutes showed a substantial majority did support the Fed's 50 base point cut last month, but some unknown number of Fed officials, hey, they wanted to do 25. Let's look at where they agreed first. They said it was appropriate to ease policy. Everybody agreed on that. Continue easing in the future. They agreed on that. And it's appropriate to ease policy. Everybody agreed on that. Continue easing in the future. They agreed on that.

And it's appropriate to move to a more neutral policy. Some preferred, however, the 25 basis point cut, and a few others could have supported it, according to the minutes. The 25 basis point cut, they thought, was more in line with a gradual path of policy normalization, and it was more predictable. And also, by the way, there was disagreement over how restrictive current policy was. So what did the futures market do while they're trading? With an 83% probability of a 25 in November and a 17% probability of skip or no change,

a new trade that began, by the way, after that Friday strong jobs report. All this reduces, maybe eliminates the chance of a 50 anytime soon, unless there's a major weakening in the economy. It does raise the stakes for future data to determine, does the Fed cut 25 or perhaps not at all, John? And that's why we're going to watch very carefully tomorrow morning's 8.30 CPI report. For sure. Courtney, your reaction to the Fed minutes here, especially the possibility that the Fed might take a pause if they were hesitant to go those extra basis points, more of them than we knew, and do 50 in the first place. Yeah, and I think that was the big concern, right? As people were

worried, is going 50 going to be too much? And especially if they continue to do 50 basis points cuts, I don't think that was ever necessary because I think realistically here, we're seeing inflation come down. The economy is remaining on good footing. So the chances of recession, I don't think are as high as the chances of them cutting too fast, too quickly and actually spurring economic growth that actually could cause inflation down the line. So I think you want to make sure that they are going cautiously here. I think some of the things that we're going to want to keep in mind is there is some more data coming out before they decide to cut again. And in that, you're going to have at least two hurricanes in there, plus the Boeing strike, plus the port strike, which could actually have some like one

off data that could, you know, change that picture. I still think the 25 or no cuts probably more realistic. But, you know, there is more data to come out between now and then. Yes, Steve, given the some of the turbulence, whether you're talking about this hurricane bearing down on Florida, the port strike, et cetera. I wonder if the 50 perhaps seems more reasonable and whether you got any sense of who might have wanted to go 25 rather than 50, but not badly enough to dissent. Yeah, I think that comment, by the way, on the data is really important. We've had a couple of Fed officials make that same statement,

that the data is going to be very cloudy over the next several months because of the hurricanes, because of the strikes, and probably the Fed's not going to make any big decisions unless, as I said, there's major weakening out there. Look, we don't know. We know that Michelle Bowman, the Fed governor, dissented. Lori Logan, the Dallas Fed president, had a speech today that argued for a gradual pace of change. She didn't say whether or not she supported the 50 explicitly, but she supported a more gradual

pace of change. There's Schmidt from Kansas City who, when I interviewed him in Kansas City, sounded kind of on the hawkish side. By the way, did Tom Barkin, who I think voted for the 50, but he was also more of a reluctant cutter. And personally, John, I feel a little exonerated because I thought the Fed would go 25. But now I see at least there was a big disagreement about it at the meeting. Yeah, at least it wasn't, you know, everybody thought something different than you thought on the Fed. Barb, closing this out for us, back to the CPI number tomorrow. Do the minutes put the importance of that in any different light for you? And of course, we've got this backdrop of this horrible hurricane bearing down on Florida. I'm wondering if that adds into the concerns and maybe cautiousness that investors should have. Well, I think of the CPI number tomorrow,

people are watching it closely as always. But I think more so tomorrow, because since we had the big strong job numbers last week and Jolt's numbers and other data indicating how strong the economy is, people are concerned that Fed will not ease as quickly or as much. So if the CPI number is in line, which it should be, you know, we're getting data in terms of consumer slowing and credit card spending, it should be in line. And that's, I think, just will be confirmation. Now, the thing about the hurricane, that is a short-term knock, and it will hurt. Back in 2005 when we had Katrina and other hurricanes, for two quarters, including the quarter that the hurricane happened,

you knocked 0.7 tenths off GDP and another half a percentage point the next quarter. But then it rebounded as cleaning and rebuilding took up. So I think when these numbers start to be reported, it'll be well communicated that this is a one time thing. So I don't think that's going to be a factor. John, I just want to make one more very quick point. The market knew all about this disagreement at the Fed and the Dow still closed up to 400 points on the day. So I think it's interesting to have a discussion about how much in the way of rate cuts the market really feels it needs here. I think they think interesting to have a discussion about how much in the way of rate cuts the market really feels it needs here. I think they think they're coming but I think that there has been

a major adjustment as to how much is coming and the market still seems to be relatively buoyant in the face of fewer cuts. Sure does. Steve thank you. Thanks Barb and Courtney as well. And for more Leisman don't miss Steve's first on CNBC interview with Chicago Fed President Austin Goolsbee. That's tomorrow, 10 a.m. Eastern on Squawk on the Street. Now let's turn to Google sitting out the rally today after the Department of Justice suggested it was considering breaking up Alphabet, the parent company. Mike Santoli joins us now with a look at whether Google's regulatory challenges are already priced in. Mike? Yeah, John, or at least largely so now with a look at whether Google's regulatory challenges are already priced in. Mike?

Yeah, John, or at least largely so. If you look at the underperformance of Alphabet shares just over the last three months relative to the NASDAQ 100, which itself hasn't done much of anything, but also against meta platforms, which is seemingly the chief beneficiary of any kind of shadow that's been cast over Alphabet shares in terms of, you know, forward looking clarity on the on the business, how it's going to be structured, what the earnings power is, even the investment levels in AI. There's also that other subplot, which is people actually thinking Meta's sort of open source AI and its utilization of AI might be better and farther

along than Google. So all that seems like the market's been adjusting to the idea that maybe Google as a business is going to have some headwinds. Take a look here at the valuation side, which actually is a little bit more stark in terms of the market rewarding Meta at the expense to a degree of Alphabet. So this is the forward PE for each stock. In over five years, you see largely tracking one another, and then Meta just shoots higher as Alphabet goes down.

Now trading at a discount, Alphabet is to the S&P 500. It's about 19 times forward earnings, pretty much as cheap against the market as the stock has ever been. Whether that fully prices things in, John, is, of course, remains to be seen. Mike, when I was first getting into the tech reporting game, Microsoft was just finished getting through this big antitrust. It took a long time for that to play out. It looked like Microsoft might get broken up. They ended up not getting broken up. How would you put into context the way investors should consider this looming possibility, given what we've seen happen in the past? Yeah, I don't think you're necessarily rewarded by really gaming out the specific scenarios

or thinking that there's going to be some kind of, you know, sudden big bang and all of a sudden these businesses are cast on their own. But I do think that it reflects the fact that a company having been seen as a quasi-monopoly and being too dominant is something that can kind of change things inside the company and distract it. You mentioned, you know, when Microsoft, you know, they didn't really lose that fight. They lost it, but there wasn't really that much of a direct corporate cost. And yet the stock basically had its valuation knocked down for the next decade or so, even as earnings continued to grow, the core business was fine. So I think in a worst case

scenario, it can really restrain the returns that a business like Google delivers, if in fact it really does, you know, bite at some point in terms of what the government's trying to do here. I would say if Microsoft were a gymnast, it got the twisties after that, though. There's a confidence equilibrium thing with the company. Mike, thanks. See you again in just a bit. Well, after the break, could the upcoming earnings season put the brakes on the S&P 500's march to record highs? Well, Citi's head of U.S. equity strategy tells us why one part of the market in particular is vulnerable to earnings missteps. And we're awaiting a real-time indicator

on the consumer when we get Costco's monthly sales numbers in just a moment. Overtime's back in two. Stocks extending yesterday's rally with new closing highs for the Dow and the S&P 500. But could earnings season derail the momentum? Well, joining us now is Drew Pettit. He is director of U.S. equity strategy at Citi Research. Great to have you here. So, Drew, it's an expensive market. Will earnings justify that? I think for now, yes. Like, we heard Mike talk about this. We heard guests in your prior shows. We've heard Rick Reader say it this week.

Valuations make people uncomfortable, but earnings drives long run direction. And we think we're in store for a pretty decent quarter. So in particular, there's a high bar for software. I was just naming earlier some software names that really ran today. How does that factor in? Because tech in general is a really big piece of the S&P. Yeah, it's funny. Software has the highest bar within tech. And it's not so much that the growth expectations are much higher than semis, for example. The difference is a lot of those names aren't monetizing and seeing the

expected growth in the next three years that we think is priced in right now. So that makes us a little bit nervous. When you have that high bar, that's what creates volatility. So guidance often plays a huge role in how the stocks move after earnings. How much does the current uncertainty in this environment, you think, impact that guidance, even including currency? I think it gives companies an excuse that have pretty good fundamental trajectories. The stocks are up. People are talking about valuations. You can start to walk down some of those expectations for Q4. But before everyone freaks out that we're talking about cuts to Q4 numbers and potentially

cuts to next year's guidance and estimates, that's normal. That's a very typical trend in U.S. markets. Okay. So what mindset should investors have as we approach this earnings season? Financials are up first, and we normally put a good amount of attention on those, particularly the big banks, because they're the first out of the gate. Yeah, look, I think people are going to focus on the consumer and the credit side there. But again, coming back to the banks and the value side of the market, we just started seeing broadening. Everyone's been talking about it.

Everyone's been hoping for it. It's just happening now. Yeah, we might have a little bit of back and fill, but again, expectations are low. As long as we can keep numbers kind of where they are for next year and for Q4, I think the banks do pretty good this quarter. What kind of inflation commentary do you expect to hear? And in what way does that factor in as you're monitoring the length and breadth of earning season to the bullishness or lack thereof that we hear out of these executives? So I'm curious who's going to have some pricing power into next year.

Again, inflation is coming down. That's actually not good for some parts of the market for earnings growth. So think like staples. We think, oh, rates down, inflation down. That should be good for defensive trades. No, inflation moving higher actually helped them move margins. So I'll be kind of curious who has pricing power, because when we're thinking about stock picking in a fully valued market, we're looking for

companies that can expand margins, improve efficiency, expand ROE. So again, the pricing part of that's very important. Barb Duran was just mentioning how previous natural disasters, hurricanes, have affected the economy overall for a couple of quarters. Should we look for commentary about that, either with regional companies or companies whose products tend to move through either Florida or the environment? Look, it's going to be messy. Again, back to there's probably some excuses to help analysts and everyone kind of take down expectations. What we are seeing right now with the Fed entering a cutting cycle, it has got investors to look out beyond the quarter, beyond Q4 to think about 2025. So those

companies that are talking about disrupted operations, what is going to happen after that? Investors get over those things. What is going to drive 2025? I think that'll matter more. And 25, from all the broader signals that we have, doesn't look too bad, right? It's just that the market is at least fully valued. Yeah, again, valuation, valuation versus momentum.

Always a tough, tough trade. Indeed. Well, Drew, thanks. Drew Pettit from Citi. Well, Costco just reporting its September sales. Kate Rogers has those numbers. Kate. Hi, John.

Yeah, looking like a strong month here for Costco in September. The five weeks ending October 6th. Total company sales up 6.7 percent. E-commerce up 22.9 percent. And just a reminder, the stock for Costco is slightly lower right now, up about 38% year-to-date. John, back over to you. All right. Kate, thank you. Well, residents in Florida have just a few hours left to prepare for a direct hit from Hurricane Milton.

We'll head to Tampa for the latest on that storm. And we'll talk to the CEO of a luxury real estate brokerage about how severe weather events like Milton are impacting the Florida real estate picture when Overtime returns. Welcome back to Overtime. Hurricane Milton is set to make landfall tonight in Florida in what is expected to be a catastrophic storm. NBC's Marissa Parra is in Tampa with the latest details. Marissa. Hey, John, I can tell you we're already starting to see those outer bands of Milton here in the Tampa area. And we are hours away from landfall still. And we're starting to see the water pooling on streets, not just where we are.

And we're in Zone Z. We're not even in the heightened risk, the Zone A, the Zone B. We're not even in those mandatory evacuation zones. So, again, when it comes to Milton, it really does feel like the threats are coming from all sides here. And this is up and down the Gulf Coast. We don't even know where landfall will officially be, but of course there is the threat of flooding, of storm surge, of those wind gusts, which pose a threat to even things like cranes. People who are in the middle of St. Petersburg, for instance, far away from the risk of storm surge and of flooding, thought they were safe and are now being told that some of the cranes in those construction sites are at risk of toppling over

if those wind gusts exceed what the cranes are capable of withstanding. And furthermore, we've talked about the evacuations that have happened in massive droves. People who have taken to the roads were now seeing tornado risks threatening the same people who thought they were getting out of harm's way. So John, there is so much happening from all sides. People really trying to hunker down and stay safe. But my question is how will the debris

left over from Hurricane Helene hamper efforts to not only for rescue crews should they need to try to go out and do those rescues, which they said if the debris is being flown do those rescues, which they said, if the debris is being flown around by the wind, they will not be able to go and perform that. And furthermore, how much worse will it make things when it comes to the flooding, the storm surge, and the wind gusts? How will that debris make things even worse? A lot of questions on what people are going to come back to once this is all over.

And it's barely even begun. John? Stay safe out there, Marissa. Thank you, Marissa Parra. Well, Hurricane Milton comes less than two weeks after Hurricane Helene made landfall in Florida. The storm could cause damage of up to $175 billion, or in a worst-case scenario, that's in a worst-case scenario, according to Wall Street analysts. And there are questions about whether major weather events and rising insurance costs are going to have an impact on the coast.

And joining me here on set to discuss, Eddie Shapiro, CEO of luxury real estate broker Nest Seekers International. Eddie, of course, our primary concern is for people's safety, human life out there. Let's talk about some buildings as well. Real estate sales in Florida had already started evening out or even trending down. Is there impact here? In the short term on the West Coast, absolutely. Concerned, focused on recovery, rebuilding, and insurance costs, of course, it's all a factor. But overall, Florida is a very strong, powerful state that has great momentum the past few years.

We've seen incredible booming economies and Formula One and hospitalities and financial institutions moving down there. So I think the rebuilding and the recovery will be quick and bullish as always on Florida. We have offices in Miami, Palm Beach, and big teams spread out throughout the Florida state. And they're all confident and ready to get back to work as soon as this is over. I imagine interest rates heading lower doesn't hurt. How close are we to a point where that provides a catalyst for the market? It already is. We've now experienced probably our greatest August and September months in a very long time. Just before I came over, I've spoken to one of my traders, brokers, that reported that a new listing they put on the market,

a $15 million townhouse on the Upper West Side, had 66 showings in 40 days. Our friends in the mortgage markets are reporting over 200% increase in mortgage applications for new homes. So I think the momentum is positive, even though we just had one rate cut. And those cuts are not necessarily correlated directly to mortgage rates, but rates are now in the 6% range, give or take. And in fact, with some buy-downs, certain programs, you can get into the market at five and change. And so we're seeing the impact already across the market, momentum, showings, everything. At the very highest end, which is where it sounds like that condo might be, which has a bigger impact, though, mortgage rates or the S&P hitting record highs? Well, I think it's both, right? So

if the S&P and Dow are at the all-time highs, then people's portfolios are better than they've ever been. If, you know, in blue chip stocks, you're making money one way or another, and you're gonna invest it in real estate eventually. So if, you know, rates not necessarily affecting dollar for dollar the purchase, but what it does do is it brings confidence to the marketplace,

it brings momentum, it brings a movement, and that we're not going to move into falling values. And so if that's in place, whether you're going to mortgage the property or not, you're getting into the market. How different is the luxury buyer's sense of enthusiasm, optimism versus the general market now in this economy that's seen some pretty significant separations in how different people are faring? There is, but you know, the luxury market always sort of leads the way. So this year we've already seen multiple trades above $100 million for purchase of single homes. There's a lot of pipeline transactions and luxury. In fact, the past 60 days has seen higher levels in New York. I think 97 home traded over 4 million, which is as high as it was pre-pandemic. And so when that starts to move, everyone else kind of jumps in

in the marketplace. They believe there's wealthy people, know what they're doing, then we should all follow. How much does a transfer of wealth to Gen X and millennials affect the market right now? How many of those buyers in the category that you serve are the ones who are starting to inherit that level of wealth? It's a mixed bag, right? People are buying at different points in their life. The home ownership, the American dream is always there. You know, there was for the past year, maybe it was harder for first time home buyers and people that are really mortgage dependent to make a move. They sit on the on the sidelines and more and more of them are moving right back into the marketplace and they're sorting out

their down payments and purchasing at all levels. Millennials, Gen Z, every generation. Still seeing crypto buyers? Crypto buyers, absolutely. They're still there, 100 percent, even though they left, you know, some money on the marketplace a few months ago. They're still active. They're still massive portfolio. They still want eventually to diversify to the safest investment there is, which is real estate. Well, and crypto has been doing OK. Thank you, Eddie Shapiro of Nest Seekers International. Well, time for a CNBC News update with Bertha Coombs. Bertha. Hi, John. Concerns over an IV fluid shortage across the U.S. are rising. IV supplier Baxter International, which makes an estimated 60 percent of the U.S. supply, said today that it is going to be bringing back its North Carolina facility ravaged by Hurricane Helene in stages.

It comes as The New York Times reports U.S. officials are racing to approve supplies from overseas plants to ease the shortages that have forced hospitals here in the U.S. to ration their own supplies. Chat GPT maker OpenAI releasing a new report today that warns propagandists around the world are trying to use the AI tool to influence elections. OpenAI said it has stopped people from trying to create content to influence elections in the U.S., Rwanda, India, and the EU. The report echoes recent warnings from U.S. intelligence officials. And hip-hop mogul Sean Diddy Combs is looking to go to trial on sex trafficking charges in April or May, according to a joint letter in which his lawyers and prosecutors advised the judge on what they expect to discuss at a hearing on Thursday. Combs has pleaded not guilty to the charges. John, back over to you.

Bertha, thank you. We're coming up Atlassian finishing near the top of the NASDAQ 100 today after announcing a rollout of its AI teammate, the general availability of its AI teammate Rovo. We'll hear from the company's CEO about how AI is making work more efficient. And the analyst who just upgraded Norwegian Cruise Lines joins us with the call that sent the whole cruise space higher today. Overtime will be right back. Welcome back to Overtime. Well, the latest read on inflation comes tomorrow with the CPI report and the bond market might give some clues about what to expect. Mike Santoli is back to explain. Mike. Yeah, John, there's been a little

bit of a rethink within the bond market about just where inflation lies on its hoped for path down to 2 percent. This is the Treasury break even inflation rate over the next five years. All that means is it's the bond market's pricing of likely annual inflation over the next five years as derived from Treasury securities. You see, there was this real trough here down toward the 2 percent long term Fed target. That was after we got the week July jobs report. Unemployment goes up. People think disinflation is a little bit more entrenched and has more momentum. And then we got the strong jobs report, a series of pretty decent economic readings. And now we reprice higher. Also, of course, oil prices going up around the same time.

This is about headline inflation. So that would matter for that. So now it's still at a reasonable level. If you go back over the last couple of years, it's still in the low twos. It's not a problem. And of course, this is not some kind of an accurate forecast. It's just what the market is now willing to price. Now, take a look at the real yields that an investor gets, which is the yield over and above that assumed inflation rate that we just showed you, about 1.7 percent. You see that's actually elevated on a 10 year basis in terms of the compensation an investor in a five year Treasury gets beyond anticipated inflation. What that shows in part is that rates are still on the restrictive side. So therefore, there's room for the Fed to cut and bring down things like the five-year treasury yield without necessarily compromising the inflation goal.

At least that's how they draw it up. And they hope that plan can be implemented, John. Now, if I'm wondering how this affects equities potentially, especially that one that you still got up there. Yeah. What would you tell me? I would say I would basically tell you that at these levels, bonds are delivering a positive real return, which can mean that they act as a cushion within your portfolio and allows you to own a full complement of equities. To me right now, we have a pretty favorable setup where bonds are doing their job within a portfolio. It doesn't mean that it's at the detriment of equities, but they can act as a little bit of a cushion and an offset right now. I don't believe that it's so restrictive, at least that we found so far, that in fact it's going to choke off growth in the real economy. But there can be a mixed bag effect for for dividend paying stocks, right?

If the return that you can get yield wise elsewhere more safely is historically high. Historically high. Now, that's why I think a lot of people emphasize dividend growth, because obviously the initial yield is not all you get. Presumably it goes up if you buy a five year treasury. That coupon is all you're getting for the duration. Right. And rates, at least in the near term, look to be heading down. Of course, Mike Santoli, thank you. Well, cruise stocks getting a big boost today after Citi upgraded Norwegian to buy from neutral. The analyst behind that call joins us next. And check out shares of KinderCare surging after finally going public following a three-year IPO

postponement over what it called regulatory delays finally got promoted. The early childhood education provider raising nearly $600 million to help pay off debt and cover expenses. And because you love overtime and you want even more of it, we got a QR code for you. You can scan that, follow us on LinkedIn, where we'll post exclusive content. Overtime, we'll be right back. Cruise stocks traded sharply higher today after Citi upgraded Norwegian Cruise Line to buy from neutral and raise the price target on Carnival and Royal Caribbean. The firm has a buy rating on both of those stocks as well. Joining us now, the analyst behind that note, James Hardiman.

James, good to see you. So you said there's been a confidence deficit in Norwegian over the years. What's changed? Yeah, I think for Norwegian specifically, and this isn't an issue that I think the other cruise companies have been saddled with, the previous strategy was really quality at all costs. And the problem is those costs tended to be pretty substantial. And so Norwegian has never had a problem driving pricing and yield growth. The issue is that so much of that growth was eaten up by runaway costs. They brought in a new CEO within the last year or two with a renewed focus on costs.

And so it's a much more balanced strategy. And that gives us confidence that what we perceive to be really encouraging demand trends will ultimately fall through to the bottom line and really create a lot of value here. So I'm looking at five-year charts of some of these names. Royal Caribbean really stands out in that it's above where it was in late 21 before that big drop in 2020, I should say in late 2020. What have they done differently and how much of it does have to do with those costs? Well, I think on the Royal Caribbean side, what haven't they done differently, right? They have been best in breed on so many different levels to the point where it almost feels like

they're a different breed altogether, a whole different animal. I trace a lot of their success back to the opening of what's called Perfect Day at Coco Cay, their own private island in the Bahamas that they invested significantly in and really changed the trajectory of cruise travel for the better. If you've never been, I certainly would recommend it. But it really begun the evolution of the industry and the perception that so many people have of the industry, which historically has been a fairly negative one. And then you layer on top of that these icon-class ships, which you've probably seen the commercials

for. They're kind of hard to avoid. I think what cruise travel represents today is not only greater than it's ever been throughout its long history, but I think it's also catching up with traditional land-based vacations, which you could argue are actually getting worse, right, based on service levels and customer satisfaction. And so on top of that, there's been this pricing deficit cruise to traditional vacations that is, or at least was, larger than it's ever been, and I would argue should be more narrow than it's ever been. And Royal Caribbean has really been at the forefront of all of those trends. And Carnival, even though it's not growing much on the top line, you think it's getting its

books in order? That's right. I mean, Carnival, I think, is an underappreciated cash flow story. And so one of the things that they've done coming out of the pandemic where they had to layer on a whole lot of debt, which really impaired their balance sheet, is they've scaled back their order book. And so they've only got two ships on order over the next three years. That hurts their top line, but it does help their capital expenditure line, which in turn is going to help their free cash flow. And so by our math, we think they're going to generate, call it $9 billion of free cash flow over the next few years, the vast majority of which is going to go towards paying down debt and decreasing that interest cost. And so net-net

on the earnings line, we actually think they're going to be the fastest growing of the three, which is certainly not the perception there. So I think that it's a different path, but I think it's an exciting story nonetheless. Did COVID fundamentally change the cruise business as a business? Or was it more this exogenous event that shook things up and proved out who had the better strategies? Yeah, I mean, I never thought back then that I would be saying this, but it's proved to be a fairly exogenous factor that I think the industry is going to take a while. Right. The biggest impact was the impact on the on the balance sheets of these companies. And that is not something that you fix overnight. But I think from a customer perspective, you know, people aren't concerned about COVID anymore. And I think the demand is higher than it's ever been. If anything,

scaled back capital expenditures, right, new cruises coming online have helped the industry and allowed that demand to translate into better returns. Prior to the pandemic, there were concerns that it was building out too quickly. And the pandemic really slowed a lot of that down and has created much more of a favorable environment as we think about that supply-demand balance. All right. James Hardiman, thank you. Quite a comprehensive look at the cruise business and a big impact of that upgrade. Thank you. Well, still ahead, what's at stake for Elon Musk and Tesla when the EV maker reveals its highly anticipated

robo-taxi plan at an event tomorrow? Plus, Atlassian shares popping today after making its AI teammate Rovo generally available, also rolling out its Focus product. Up next, the company's CEO on the AI strategy. And an update on a deal we reported was in the works last week. Mining giant Rio Tinto confirming its plans to acquire lithium miner Arcadium in a deal valued at $6.7 billion. Arcadium finishing the day higher by more than 30%. We'll be right back. Atlassian shares up nearly 5.5% today. I spoke with co-founder and CEO Mike Cannon-Brooks from the company's

Team24 event in Barcelona about the general availability of AI-based product Rovo and Atlassian's new software for delivering on strategy called Focus. So different organizations have different terms for this. They can be called strategic initiatives, programs, portfolios, big bets. They'll have some set of things. Here are the big things we're trying to accomplish. And they break down into some second and third level sort of things in a bit of a tree or a hierarchy. And then they eventually end up as projects and tasks and individual teams and items. And it's a question of how do we help them understand their world? And then for each of those focus areas, initiatives, portfolios, programs,

whatever it is that the customer calls them, what talent do they have working on that? What people do they have working on that? How much work is there to do? How much have we completed? Both in a quantitative way, we've done, you know, 700 out of 1,000 things we said we were going to go do, and a qualitative way, like is it working?

Is it good? Are we doing it in the right way do we like what we're achieving should we change our outcomes i just spent a lot of time talking to investors in new york and boston just the last couple of weeks and i can say that they were um firstly very excited very impressed by the speed with which we are executing our r& around AI, both in Atlassian Intelligence, which is our set of experiences across all of the applications we have, and secondly, specifically with Rovo, how cutting edge and forward thinking it is compared to what others in the industry are doing. It's my first time speaking with Mike Cannon Brooks since his co-founder, Scott Farquhar, stepped down from being a co-CEO earlier this year. So he gave tribute to Scott and the work that he's done over the years.

Also said product led growth, which Atlassian has been one of the pioneers of, he believes is still alive and well in the AI era. You can catch more of that interview on CNBC Overtime's LinkedIn page in just a little bit. Well, up next, the one economic issue that could move the needle for voters in the key swing state of Nevada. And get out your smartphone, scan the QR code on the screen right now to watch the new CNBC documentary,

Ozempic Underworld, Black Market of Obesity Drugs. Overtime will be right back. Welcome back to Overtime. It is time for your Wall Street look ahead. Investors will digest the latest reading on inflation with the September Consumer Price Index, as well as the weekly jobless claims data. On the earnings front, high on the list,

we will get results from cannabis company Tilray and Delta Airlines. Delta CEO Ed Bastian will break down those numbers exclusively on Squawk Box at 7.30 a.m. And on overtime, don't miss the first on CNBC interview with AMD CEO Lisa Su from the company's Advancing AI event in San Francisco. And if that's not enough, Elon Musk will reveal Tesla's highly anticipated robo-taxi and maybe the strategy behind it tomorrow night. Well, Nevada is one of the key swing states in the upcoming presidential election,

and housing affordability is the number one issue for a key demographic of voters in the Silver State. Megan Casella has the details. Megan. Hey, John. So Latino voters make up about a third of the population here in Clark County, where I am today.

And housing regularly tops their list of issues that they're most worried about in November. And in Nevada, that makes sense. The state ranks worst in the nation when it comes to access to housing affordability. Just about 14 units are available for every 100 that are sense. This state ranks worst in the nation when it comes to access to housing affordability. Just about 14 units are available for every 100 that are needed. So while projects like this one behind me are going up across Las Vegas, they've mostly been fueled by a billion dollars that President Biden had allocated from the American Rescue Plan to Nevada specifically to help with this issue. And while builders here say that that money has helped, it's helping to fuel this project right say that they feel like t

the surface when it comes of demand. And that senti trickle down to voters in are going to see why can Why am I struggling to bu I have my piece of the Am will definitely affect how they vote. And John, this is weighing on the polls. In a recent CNBC Telemundo poll of Latino

voters nationally, Harris was losing to Trump by nine points, specifically on the issue of who would better handle the cost of living. And while she was still leading by 14 points nationally with Latino voters, those are the smallest margins that Democrats have seen in the past four election cycles. John? Right. And Megan, of course, we know that the Latino demographic contains multitudes. We've talked about that here. I wonder how much interest rates play into this? A big part of it. Builders actually said that one reason the funding has been so crucial over the past couple of years is because it's helped them keep up the momentum while the rates have been high. And on the buyer side, Latinos have been especially vulnerable, more so than other demographics, to those higher interest rates. It's harder to qualify for loans. It's harder to afford what they can. And there's so much

more competition for what is out there. It's just making everything that much harder. All right, Megan, thanks. And that's going to do it for Overtime.