Closing Bell - Closing Bell: Overtime: Stocks close higher to start the second half, Tesla delivers, Software demand in focus 7/3/23

Episode Date: July 3, 2023

Stocks closed higher on the first trading day of the second half of the year, notching small gains after an up-and-down holiday session. Dan Greenhaus from Solus and Matt Stucky from Northwestern Mutual debate the market’s next move. CFRA’s Garett Nelson, who just increased his price target on Tesla, discusses the company’s strong delivery numbers. Hashicorp CEO Dave McJannet talks about the outlook for enterprise software demand and M&A in the space. Plus the latest on the banks, a preview of OPEC’s meeting this week, and a debate on the impact of the Supreme Court’s Affirmative Action decision on the workforce.

Maybe trying to close even. That's a scorecard on Wall Street as we kick off the second half. Happy Independence Day. Winners stay late. Welcome to a special edition of Overtime. I'm John Fort with Morgan Brennan. And coming up this hour, WTI crew just wrapped up a second straight negative quarter. But Russia and Saudi Arabia are signaling output cuts. So will that help put a floor under prices? We will ask RBC's Halima Cross as OPEC gets set to meet this week. And from fossil fuels to EVs, Tesla is jumping after deliveries surged 83% year over year in the second quarter. We're going to talk to an analyst about how high Tesla could climb in the back half of the year. Well, why wait? Let's get straight to our market panel as stocks close,

you know, even, pretty close to even across the board. Joining us now, Solace Chief Strategist Dan Greenhouse and Northwestern Mutual Senior Portfolio Manager Matt Stuckey. Guys, welcome. Dan, second half playbook. What do you sell heading into the second half? Yeah, I mean, I'm not going to get into what you sell. What I would say is...

What area? What area do you lighten up on? Do you perhaps go a little underweight-ish to make room for the possibilities? Yeah, well, listen, if you think that this rally is going to continue, then presumably you're going to believe that it's going to broaden out because of the strength of the gains

and some of the large-cap tech names in particular have been so large, so egregiously large, relative to history and relative to the rest of the index, you'd have to believe for this to continue that the small caps and the mid cap indexes indices, which had a terrific June, are going to keep doing that. And to be clear, that spread between the large cap S&P 500 market weighted market cap weighted and the equal weighted index is as large as basically anything we've seen since the inception of the equal weighted index. So you're at this extreme.

And again, if you're going to expect the broad rally to continue, then that bottom end is going to have to come up. That would make sense. OK, Matt. So strategically, if you're leaning toward small and mid caps and maybe some fixed income, because I know you like that, too, maybe even if you're looking for tax advantages, how do you approach in the second half? Well, I think you outlined it pretty well there. You know, we're kind of barbelling a little bit. We are a little bit concerned about the forward outlook for the economy. And with that concern comes, you know, an overweight position in fixed income.

But if we're wrong on that, if we're a little bit too bearish about the outlook for the macro, we do like some of the valuations in small cap and mid cap. And as Dan was noting, if there is a catch up trade to be had, small and mid cap to us look to be some of the beneficiaries of that. Dan, do you believe a catch up trade is afoot or are you still not sure yet? Are you convinced? No, I'm definitely not convinced. I mean, listen, I think the consensus, the narrative has changed dramatically. Price momentum has a way of doing that.

We went from the world was ending in the winter to now everything is good, good, and a soft landing seems like for a lot of people it's the base case scenario, which would justify the increase in small and mid caps relative to the large caps, which is what you've seen. I'm not convinced because I know it's become something of a clown show, so to speak, to make fun of people who are still holding on to the idea that monetary policy can have negative effects in the economy. But I do consider myself one of those people who still struggle with the idea that as the Fed goes further and continues to hike, that demand throughout the economy is not going to suffer. And to its credit,

you have not seen that in any meaningful amount now. The consumer has been resilient. Manufacturing sentiment has been terrible, but output has been pretty good. But as we move through the back half of the year, maybe the student loan stuff comes into play. Maybe those mysterious excess savings, that well of money that seems to never dry up, dries up. And perhaps demand is a little slower in the back half of the year. And so I'm a little less convinced that the 10 percent rally that we I'm sorry, the 16 percent rally that we've seen thus far is likely to materialize into a 25 or 35 percent rally by by year end. Yeah. I mean, just staying along along those lines, Matt, you talk

about it in your notes that we're in the twilight zone right now. We have seen rates rising in recent weeks. And then on top of that, you are starting to see more and more evidence of these contractions in credit. And we know historically contractions in credit equal slower growth. Have we actually realized the full impact of these rate hikes or is this still another shoe to drop in this market? How do you know when it is dropping, if so? Yeah, these are really important points to make. You know, we say that on average, you know, the long and variable kind of lax monetary policy can take as much as a year and a half to start to impact the real economy. And think about what happened the last couple of years is, you know, we refin years is we refinanced homes across the board. We refinanced corporate America across the board.

And so it's just going to take time for a lot of that debt to roll to kind of deal with a higher interest rate environment. And so we're still a little bit cautious on the macro as well. And with the resumption of student loan payments, that's another kind of incremental headwind as we look out to the third and fourth quarter. So, you know, with this kind of cross-current of macro against, you know, very strong price momentum, we do think at a minimum investors should think about rebalancing back into attractive real interest rates. Dan, I know you're probably planning on going somewhere else, but I got to ask about these big tech stocks and the idea that they've had too much of a run. Given that we're talking about AI and we're talking about global business still and the ability to pivot and be in a geography if you need to be, but to to have assets domestically in certain markets if you need to do that, aren't big companies with a lot of assets and good cash flows better positioned to navigate this next uncertain

phase? And so don't they maybe deserve to be outperforming? Well, yes. And to be clear, I didn't say that the idea that something has gone too far too fast is not an idea I subscribe to. There's no statistical way to prove whether something has gone too fast. But to your point, yes, I mean, lost in the argument, part of which I just made, about the substantial outperformance on the part of large tech names is the idea that they are

outperforming the other 493, so to speak, or the other 490. There is a reason they get a premium valuation. They have huge balance sheets. They are growing revenue. Well, in some cases, they are growing revenues and growing earnings at a rate beyond what the rest of the index is doing, in which case they should be getting a premium valuation. I would also add the change in market structure over the last 20 years, specifically a shift towards passive investing from active investing, means increasingly there's just this constant flow into the market that allocates capital on behalf of market cap as opposed to any, obviously, active management. And that in itself feeds into the larger, getting larger narrative and actual data flow that we've seen.

Nothing that the companies have done. But between the two, absolutely they deserve and have gotten premium valuations. Yeah, I don't think we talk about that enough. It's a good point to make and to review. Dan Greenhouse and Matt Stuckey, thanks for joining us to kick off the hour. Let's get to senior markets commentator Michael Santoli at the New York Stock Exchange, taking a look at the banks, which had a strong session. Mike. They did, Morgan, up a couple percent today, but also have outperformed for the last couple of months.

In fact, since about May 4th of this year, they have outperformed the S&P 500. It doesn't look like much right here. That's a year-to-date chart of the S&P versus the KBW Bank's index or the S&P Bank sector. But since this point right here, it's up more than the S&P is. That would be an element of any broadening out trade that we're talking about. I would also kind of lean against the idea that it has remained this all or nothing market. That absolutely was true right after SVB happened and maybe in the month or two thereafter, it really was a handful of stocks dominating all the buying interest. It has really been much more dispersed than that since then. The equal weighted S&P is up 10 percent

on a one year basis. It's not exactly kind of flailing around, at least not yet, even if it's underperforming. Take a look here at the U.S. dollar index. Got independence. They see how the states are are holding up relative to the rest of the world. This is a two year chart and it shows you we're kind of holding most of the upside that we got, starting with the anticipation of the Fed going to be hiking rates. And then things really took off to the upside, got overheated around that 110, 115 level. But we're sort of holding in pretty nicely at the lower end of this rate. It's a comfortable level for corporate America somewhat.

You have the yen weakening dramatically. That's also helping to support the U.S. dollar in part. But it does show you that the Fed is probably no longer the prime mover in the outlook for the economy or the markets from here. It's going to be all about how we've dealt with, as you've been discussing, the rate moves that have already happened. Yeah, which may explain why in the second quarter we actually saw sterling outperforming in terms of major currencies. I mean, just looking at this chart, though, Mike, I mean, you can make the argument that the peak in the dollar is in. Oh, without a currencies. I mean, just looking at this chart, though, Mike, I mean, you can make the argument that the peak in the dollar is in.

Oh, without a doubt. I mean, I do think that that's a pretty aggressive peak, and that's okay. Interestingly, last week, we had all those central bankers on the stage. Almost everybody was sounding a pretty resolute tone. We're not done. We have more to do on inflation.

The market believes it in varying degrees, depending on the country or jurisdiction we're discussing. But if nothing else, it feels as if the Fed got into it earlier and is probably going to sort of round out its campaign before some of the others. Mike, when's the last time we had a first half that not only seemed to pivot right on January 1st, practically, I guess that happened relatively recently, but then had such strong performance through six months? I would venture to guess 2019 because the market bottomed after that 20 percent decline in late 2018, right in the final week of the year. And you rebounded in 2019. I also like to point to that year for other reasons relative to the current environment, because it was late cycle.

Everybody understood it was late cycle. People thought the Fed had overdone it going into the end of 2018. The Fed did pivot, didn't really do much on the easing side, but did sort of back away a little bit. The economy kept chugging. Mega cap growth stocks carried the indexes for a lot of that year. And so, you know, who knows where that would have taken us if not for COVID hitting at the beginning of 2020. I love that he always has the dates right there handy at his fingertips. You know, to some degree, Morgan, it's a curse, but I do have these these years swirling around in my head. This isn't choreographed, folks. No, and it's always very impressive.

It's also worth noting that July seasonally tends to be a very, very strong month for the major averages, which perhaps speaks to it was a holiday-shortened day, low volumes, but the gains we saw across the major averages today. Well, Mike Santelli, we'll see you later in the hour. Meantime, Tesla kicking off the second half with a bang after posting record deliveries for Q2. Up next, we're going to ask an analyst who just raised his price target how Tesla's price cuts contributed to the surge and if it's sustainable. Overtime, back in two. Look at that chart of 7% today.

Welcome back to Overtime. Take a look at Coinbase getting a big pop today after CBOE refiled its Bitcoin ETF application on Friday, saying Coinbase would assist in preventing market manipulation. Coinbase was at 50 bucks a share roughly on June 12th, closed just shy of 80 today, Morgan. All right. Big move. Meantime, Tesla, another big move. Jumping on record deliveries in the second quarter, which were helped by sharp price cuts and heavy discounts, the automaker delivering 466,000 vehicles worldwide from April through June, exceeding analyst estimates by over 20,000 cars. Garrett Nelson is VP and senior equity analyst at CFRA. He has a buy rating on Tesla. Just raised his price target to $310 a share from $300 this

morning. Garrett, great to have you on. Just looking at that price target, that would imply 12% upside from here. How'd you get to that number? Sure. Thanks for having me. You know, we came into the year very bullish on Tesla. We named it our top pick. We thought it would have an impressive bounce back after disappointing performance last year. And that has really played out. We took our rating from strong buy to buy a few weeks ago just on valuation. Obviously, the stock price has more than doubled year to date. We do see some upside still from here, but we think the lion's share of the move has happened so far this year. So the basis of our price target is 42.5 times our 2025 EPS estimate, which gets to a price target of $310. So can we say that these so-called price wars that Tesla has initiated both here in

the U.S. and abroad, where, for example, China, you're seeing very fierce competitive landscape emerge there as well. Can we say that they are successful so far? It certainly appears that way. They've been successful. The series of price cuts that they've announced so far this year appear to have stimulated demand, as you mentioned. It was a record high in terms of quarterly production and deliveries. The deliveries actually exceeded the prior record high for a quarter, which was Q1 by 10 percent. And so it appears that they've been very effective. We do see some positive things here for the story, but in our view, a lot of the positive news is really priced in at current

price levels. They're in the process of continuing to ramp their Austin and Berlin factories. They'll be achieving first deliveries of the Cybertruck by the end of the year. They're in the process of breaking ground on a new factory near Monterey, Mexico. And then we think they're going to introduce a new model next year, which will be a lower price coupe. And so those are the catalysts that we see. I guess we've got to really see the margin impact of these price cuts, too, before we're sure how successful and in what way. Gary, tell me, what's your theory of Tesla deserving a trillion dollar market cap? I know Elon Musk and Cathie Wood are talking about self-driving, but it seems to me like if you get self-driving, you get more efficient use of the cars and possibly multiple

people using them. So actually, maybe you sell fewer cars. I'm not sure how good that is. Sure. Really, you know, Tesla is starting to discount some of this growth that they've been forecasting longer term. So their goal is to grow their annual volumes to 20 million units a year by the end of this decade. That would be up from only about a half million units in the year 2020. And so, you know, in our view, the stock price is starting to discount, you know, some of this future growth, which hasn't even occurred yet. Margins certainly are a concern. The gross margin in Q1 came in under 20 percent. That's the weakest quarterly gross margin that Tesla's posted in over two years. And so, you know, that's really the big

concern heading into the earnings release is the impact of the price cuts on the gross margin. Can you address, does self-driving actually mean you end up selling fewer units possibly? Not necessarily. We think it means that they're going to take market share from other automakers who aren't as far along in terms of autonomous driving. You know, it's clear with each update of Tesla's software, they get closer and closer to level five full autonomy. But as it stands today, they're only at about level three. So we still think it's years away before they get to full autonomy. But certainly they're leading the race in terms of a self-driving car. Rivian shot up today. Shares finished up about 17 percent better than expected deliveries

from that EV maker, too. I know very low base here. You're not buying literally. Why? Yeah, I mean, in our view, Rivian is still nowhere near turning the corner towards profitability. They just don't have the size and scale of the traditional automakers. They continue to burn a lot of cash. And in our view, investors should really use this jump in the share price over the last couple of weeks to take profits and sell. We put out a note this morning, our new 12-month price target is $12. They also are going to be facing a lot of competition in the electric truck and SUV segment. As I mentioned, Tesla's Cybertruck, but also electric options from Ford, General Motors, and others that either have debuted or will be debuting very soon. All right, Garrett, thank you.

Thank you. Happy 4th. Up next, the cloud and software ETFs had a very strong first half. One name that sat out that rally is HashiCorp. We will talk to the company's CEO about its latest acquisition and demand for cloud software products when we come right back.

Shares of HashiCorp down more than 25% since the company posted earnings last month, showing a weaker-than-expected outlook, 8% reduction to its workforce. But HashiCorp recently announced a new deal, acquiring startup Blue Bracket, a code security firm for an undisclosed amount. Joining us now to discuss is HashiCorp CEO Dave McJanet. Dave, welcome. So, in a way, I'm putting this Blue Bracket acquisition in the same

bucket as this concern about the data that gets fed into AI systems. And is it disclosing things that companies don't want disclosed? When data is flowing and you're looking for advantage, sometimes that can go wrong, right? Yeah. Hey, John, good to see you. Yeah, absolutely. I think that those things to see you. Yeah, absolutely. I think that those things are definitely interconnected. What Blue Bracket is, is a technology that is in the market for secrets detection. Think about when an application is being built, a developer most often will hard code the username and password combination into that application, whether that's for an AI-oriented

application or whether that's just a generic application. And so discovering where those secrets live inside your organization is a huge concern for every big company. It's a pretty well-understood market, and it's actually a very logical adjacency to our Vault product, which is a secrets management product that is very, very broadly used, and so we're excited about the addition. So, yes, I think for whether it's an application built by a developer or an AI-oriented application, this tends to happen. It's sort of an older model of programming to hardware professionals. And I think there stands to reason that AI-oriented applications are probably going to bias this model. And so it will certainly drive demand for detection of them. What's the theory of why now is the important time

to do an acquisition like this? You are watching the bottom line closely. Valuations in certain startups have been high, but at the same time, I keep hearing from startup CEOs in software that purchasers, CFOs, CIOs don't want to have to buy a whole bunch of stuff. They're looking to consolidate vendors. Correct. Yeah, I think there's really probably two or three things at play here. The first of those is we have a very long-term time horizon in terms of the value creation opportunity that we have as a company. Our customers want us to play this role of sort of interacting between the different cloud providers in a consistent way. And so, you know, when you take that position in the market, you have to have a very long time horizon.

Number two, you know, we're extraordinarily well capitalized. We have north of, you know, a billion dollars in our account sheet and no debt. And so we're in a really logical position to say, you know, irrespective of the cycles that sort of come and go, how do we best build the company for that longer arc? And then the third element is really what you alluded to. There's a lot of venture-funded IP out there in the local ecosystem that perhaps is seeing a different fundraising environment than they may have expected a couple of years ago. And I think the next 6, 12, 18 months is going to be a really interesting time for our ecosystem because a lot of those companies that were funded at really, really large valuations are, you know, just have a different market they're encountering. So I think, you know, we'll continue to look around at interesting things. There's

always interesting IP out there. And I think if you take that long-term view, it's the responsible thing to do. So irrespective of the near term, you know, we need to keep building the most valuable business that we can. Yeah. Dave, I mean, you did just mention cycle. And just to look a little bit more at the near term, the fact that guidance came in when you reported numbers just under a month ago, below street expectations. You talked about an uncertain macroeconomic environment, seeing some large deal scrutiny. Has that continued? And if so, what would you anticipate or expect in terms of this cycle? So, you know, I think what we shared in our last earnings call was that just like all of our peers, that there's a lot more scrutiny in the procurement process

than we've seen previously. And, you know, what we did in Q1 was sort of reset the expectations, reflecting that market environment. But to be honest, it was really just what all of our peers had done the quarter prior. So, you know, I think I've been in this market for a long time. And, you know, I think there just are cycles and markets do move in full cycles. We're in an optimization moment at the moment. And, you know, that doesn't change the long-term trends. You know, I think AI being a great example, all AI interest is being driven on cloud.

Those are applications being built on cloud infrastructure, and that's going to massively increase the number of applications being built. So irrespective of the near-term optimization cycle, we have to step back and consider the cycle that's going to extend well beyond here. It seems in a way like you're doing some asset reallocation, but when it comes to human resources, right, you did some cuts and you're doing an acquisition of a technology and people. What else are you leaning into as you optimize, as you as you shrink certain things, perhaps even on the go to market side? So overall, I think we reduced our overall headcount by about 8%, which is certainly significant to us.

But it also allowed us to reflect back on the investment cycle that we had been in over the last six quarters. We've massively grown our headcount in anticipation of an environment that we expected. I think as you reflect on the go-to-market side, you start to see, well, actually, you know, certain geographies where you had expected a yield on that investment sooner than we actually saw it are places where we logically pulled back from. So I think what you saw is that some of these really, really forward-leaning markets where certainly there's interest from our customers and our prospects, we sort of pulled back. And I think that allowed us to actually reset our cost structure in a way that I think is probably more appropriate for the current moment. We're always going to look to do that.

We feel really good about where that has left us as we look forward for the remainder of the year. Dave McJanet, thank you. CEO of HashiCorp. It's time now for a CNBC News Update with Seema Modi. Hi, Seema. Hi, Morgan. Here's what's happening at this hour. Baltimore police are now offering a $28,000 reward for information

following a mass shooting early Sunday morning. Police say two people died and 28 others were injured. Half of those victims are minors as young as 13 years old. In an update this afternoon, police said they have no suspects in custody, but they are reviewing video and trying to identify the people involved. They think more than one person was shooting, but they still don't know if it was targeted. The Wall Street Journal says the U.S. ambassador to Russia was granted access today to the paper's jailed reporter, Evan Gershkovich.

This was just the second consular visit since his detention in March. It comes after weeks of repeated U.S. requests to meet with him. Gershkovich remains in jail on an allegation of espionage, which he, the Wall Street Journal, and the U.S. government say is untrue. Moviegoers in Vietnam won't be able to see the highly anticipated Barbie movie. The country removed it from domestic distribution after a scene featuring a map showing the controversial Nine-Dash Line. That line, of course, is used on Chinese maps to lay claims over an area of the South China Sea where Vietnam has been awarded oil concessions. It's tricky. Morgan and John, back to you.

Simamodi, thank you. After the break, a potential red flag for the second half. Mike Santoli looks at why the latest S&P 500 earnings estimates are starting to turn lower. And take a look at pharma giant AstraZeneca as we head to break. That stock falling hard nearly 9% on preliminary results for a phase 3 trial of its lung cancer treatment, which showed some positive results, though it said part of the data was not mature. The company says trials will continue. We'll be right back. Welcome back to Overtime.

The S&P 500 closed out the first half of the year with a solid rally, but concerns remain over how earnings will shape up for the remainder of the year. Mike Santoli is back with a look at forward estimates. Mike. Yeah, Morgan, in general, they're kind of flattening out the estimates for 2023 and 2024. They perked up a little bit a few months ago, if you looked out in terms of the fact set numbers. But that was largely because the better than expected results from the first quarter were kind of filtering through to the full year estimates. And so you

see here, not a lot of change, but for a while, it looked like we might get a little bit of an uplift and then it's sagged now lower. Over the course of the current quarter, well, actually, over the course of the last quarter, the second quarter, which ended on Friday, you did see the analysts do their typical thing, which is cut back expectations by two to three percentage points, presumably, as often happens almost always, companies will hurdle that official final estimate. The big question is this gap right here. You're talking about going from around $220 in S&P earnings up to about 246, still penciling in better than 10 percent growth. It looks like right now is still the trough in terms of year over year

results. So the market could probably live with that. But next year's numbers, as often is the case, probably start out a little bit too high and then get cut back. Mike, there were so many different kinds of expectations for the second half. Some people were expecting rate cuts, we assume because they thought that the Fed had gone too far and the economy would crater. But those aren't necessarily the same kinds of expectations that led to earnings expectations, which would seem to be for companies to continue to be relatively strong. Right. They are. And I think in general, the fact that the overall economy has continued to grow. So the final estimate from the Atlanta Fed on the second quarter is above two percent. If you consider inflation's running 4-ish percent,

that's 6 or so percent nominal GDP growth. That's a very simplistic way of saying there's still a decent amount of top-line growth available to companies. So that seems to be supporting things. Of course, massive variation below the surface of the index. There's going to be winners and losers here. Banks have taken some of their pain.

They're not going to be big net contributors in the second half. But then you have, you know, the upward revisions to earnings for a lot of the big tech companies. So, you know, always the details are going to be a little bit tricky. But right now we're in this mode where the earnings collapse did not happen. And so far, it's looking like maybe a muddle through scenario for the second half. Six months full of possibilities with the holidays at the end. Mike, thanks. Up next, we will debate how the Supreme Court's decision to end affirmative action could impact the workforce pipeline and Wall Street in overtime returns. Welcome back. After last week's Supreme Court ruling against affirmative action, many wonder how that'll affect corporate America.

The Supreme Court last week ruled against race-conscious admissions practices, and joining us now are Nikki Lanier. She is CEO of Harper Slade, a racial equity advisory firm, and a former senior vice president at the St. Louis Fed. Richard Sander joins us as well, professor at UCLA School of Law. Welcome to both of you. Richard, you argue, I believe, that affirmative action policies as they evolved at top tier colleges failed, and in part they failed because their measured goal was to show they simply enrolled black and Hispanic students rather than measure and support their success. Do I have that right? And what are the implications, if any, for corporate initiatives? Yes, that's right. The schools tended to score

themselves according to what their entering classes looked like. And I did some research showing that in law schools and in science programs, if you gave someone a very large preference, they tended to struggle. They performed worse than they would at a school where their credentials were closer to their peers. And the result was very poor bar passage rates for students who received preferences at all schools, very high attrition for the sciences and undergraduate programs that used large preferences. So yeah, I found affirmative action was often kind of productive and schools kind of got in a dynamic where they wanted to hide the actual effects. And the more this research came out, the more they didn't focus on outcomes. In corporate America, that doesn't necessarily apply

because corporations have such a strong incentive in employee success that they're likely to provide additional training and, you know, make placement adjustments and job adjustments if students, I'm sorry, if their employees are actually not performing according to expectations. So there's a better alignment of incentives in a company setting. Nicky, trying to separate political rhetoric from the nuts and bolts here, it seems to me the worst thing for any student is to take out massive loans,

say, for a so-called elite degree and either not finish or to go into a field where you can't really afford to pay the loans back. Is there perhaps the issue here, maybe the Ivy Leagues aren't as good a deal for a lot of students, and if their percentages drop in certain demographic categories, it's not the end of the world. Maybe, but I'm not sure that the research that has been shared is dispositive. I mean, that's certainly contrary to my lived experience and to the lived experience of many black and brown students that I know that have traversed through many of Ivy League colleges and these universities and done extraordinarily well. Same can be true with black and brown employees who traverse through many of America's corporate giants and excel and do extraordinarily well. So I'm not sure that the premise upon which

the gentleman's research is compelling from my perspective. In fact, I firmly believe that it is absolutely, absolutely critical that employers have some level of preservation of race-based preferences, both in hiring and selection processes, so that we can assure continued growth, continued representation, and of course, continued maturity in our economy as the demographic changes are afoot. Now, Nikki, when you say race based preferences, do you mean quotas and set asides? Do you mean a consciousness that having a diversity of different points of view, different backgrounds actually benefits them in the marketplace? What do you think is really necessary? Race based remediation. Right.

So we have to acknowledge what has happened specifically and uniquely to black and brown people in this country. The Constitution contemplated that. It always has understood very well, as has its interpreters, that we have lived in a very race-conscious society forever. And so race-based remediation really is the only cure for race-based ills. And so what I'm talking about is absolutely presumptive selection. The decision to assure that black and brown people are amplified both in education settings and in professional corporate settings because it's important to assure that the economy continues to run as the browning of the country ensues. Richard, this is where, to me, it gets confusing because there's a remediation rationale

on one side where you say that there are populations in this country that have suffered and been locked out. But if remediation is your purpose, then if you are, in the case of higher education, bringing in the children of African immigrants who might have been professionals when they came in, right, or even on the hiring side, then are you really addressing that? But if it's market-based imperatives where you want a diverse workforce because you have a diverse customer base and you want to serve them better, that's a whole different reason. So which is it? Is it clear in higher education or in corporate America exactly what the reasoning is? Well, the court tried to make clear that remediation is not permissible,

that the solution to past discrimination is non-discrimination. So that's at least what they're trying to lay down as a clear rule for higher education now. And we'll see if colleges and universities actually comply. You know, employers have been doing a lot more race-based remediation in the last five or ten years, I would say. And there have been relatively few legal challenges to it. I think the law is already pretty clear there that race-conscious remediation is not permissible. When these issues have come to court, the courts have said that you can only take race into account

when your specific company has a demonstrated discrimination problem that it's trying to remedy. Okay. Nikki, final word here. Do you expect more of a pivot toward market-based imperatives versus remediation, or do you think it's important for companies to have race-based preferences based on the remediation idea? John, even before this decision came down, we saw a malaise beginning to set in with many corporations across this country. Unfortunately, we saw a softening in many employers and organizations' commitment to DEI. And my worry is that this sentiment, the premise upon which this ruling now sits, suggests that under no circumstances is race-based remediation a permissible decision point for employers to move forward with looking at how they're going to build out diversity in their workplace. And I just wonder, worry really, that that sentiment will be proliferated in organizations and throughout society and really serve as a

detriment to whatever DEI strides we might have realized thus far. Interesting. I just note that under Tim Cook's leadership, for example, Apple has done a lot more marketing and hiring that is diverse. And I think they've sold more stuff because of it. I don't know if it was a remediation purpose that led them to it. I guess we'll continue to track all of that. Nikki, Richard, thank you. Thank you. All right.

Well, Apple just unveiled its Mixed Reality Vision Pro headset last month. But the company is already reportedly slashing production plans. Details straight ahead. Plus, energy the worst performing sector in the first half of the year. Coming up, we'll discuss whether Crude can mount a comeback in the second half. Stay with us. Welcome back to Overtime. Apple is reportedly making major production cuts for the recently unveiled Vision Pro mixed reality headset.

Steve Kovach joins us here on set. He's got the details. How major can this be if it wasn't that big to begin with? Exactly. I'm going to put this in perspective for you. So let's talk about what this story says. Apple is cutting targets for its upcoming Vision Pro headset following issues with mass production. That's according to a report this morning from the Financial Times. Now, according to this report, Apple plans to make about 400,000 headsets next year, down from its initial target of a million.

Still, the Vision Pro was never expected to be a big seller in its first year. Apple is only going to sell it in the United States at first, and even then, only in Apple stores or on Apple.com. To put that all in perspective, Apple sells over 200 million iPhones a year, resulting in more than $200 billion in revenue. Even if Apple reaches its reported initial target of a million Vision Pro sales next year, that's not even $4 billion in revenue. Just a drop in the bucket, guys. Looking beyond 2024, though, Financial Times reporting Apple is working on cheaper versions of the headset to broaden its appeal. FT saying Apple's manufacturer for the Vision Pro is preparing to make several million headsets a year. But guys, here's the way to look at it.

The Vision Pro and competing headsets are still in their infancy and largely unproven. If they do take off, they're going to need more capabilities, and pricing is going to have to come down quite a bit. So basically, this is not something that's going to really matter much at all when it comes time for earnings. No, definitely not for this earnings, and definitely not even next year's earnings. This is a very long-term play for Apple. And every time there's the first complicated product to roll off the line, it's extremely expensive.

Even the iPhone. And you never know exactly how line. It's extremely expensive. Even the iPhone. And you never know exactly how it's going to be received. When the iPhone came out, there was no App Store. So your job was like just web apps. So we'll see how this one develops. Remember the problems when the iPhone 4, they had the white model for the first time, and it took them like six or seven months

just to get the white model off the line? So look, Apple is really good at mass production of complicated things. I'm pretty confident they'll figure it out, but they don't need to figure it out very soon. Right. I feel like I'm in an Apple expert sandwich right now with the two of you. A nerd sandwich, I think. A little chutney in there.

It tastes pretty good. All right. Steve Kovach, thank you. Happy for it. You too. Well, up next, RBC Capital Markets Global Head of Commodity Strategy, Halima Croft, on what new oil production cuts from Saudi Arabia and Russia mean for crude prices in the second half of the year. Stay with us.

Welcome back. A big week ahead with Fed Minutes out on Wednesday and a key OPEC event in Vienna also kicking off on Wednesday. It comes as top exporters Saudi Arabia and Russia announced supply cuts for August, which initially sent oil prices prices higher or at least the extension thereof here with more on that and her outlook for oil in the second half is Halima Croft managing director and global head of commodity strategy at RBC Capital Markets Halima great to have you on want to get your thoughts on this especially since we've seen oil stubbornly stuck in this range despite earlier production cuts I know I mean this is a market that's a

show-me market. The Saudis announced today they are extending their one million barrel a day unilateral cut from July to August. Most of us think this will materially tighten balances, but this is a market that remains very concerned about macro overhang, rate hikes, hard landings. And so the Saudis are doing whatever they can to give confidence to the market. But right now, it's an uphill task. Yeah. And of course, we've got Treasury Secretary Yellen traveling to China later this week as well. And we know some of the data coming out of that country has been softer than expected, too. In terms of Saudi Arabia and Russia, for that matter. There's geopolitics afoot here too. So Russia is continuing to try and use oil to fund its war in Ukraine. In the case of Saudi Arabia,

it's trying to take its profits from oil and diversify its economy. Can they be successful? How much does that factor into some of this policy here? I mean, clearly oil is the funding mechanism for many of these producer countries. I mean, oil is everything that basically Russia some of this policy here? I mean, clearly, oil is the funding mechanism for many of these producer countries. I mean, oil is everything that basically Russia has at this point. From the Saudi standpoint, they are very focused on sibling to the market. They're back in draggy mode. They're going to do whatever it takes. I mean, one of the concerns in the market, however, is, is will Russia comply with their stated production cuts? I mean, Russia has been pushing a lot of barrels to Asia. These are discounted barrels because they can no

longer go into Europe. And so market participants had anticipated a large Russian reduction when the war started, and that has yet to really materialize. So that's also weighing on sentiment. But the Saudis are really signaling they're going to do this alone if necessary. So where do we see WTI and Brent prices going through the second half of the year? I mean, again, we see the Saudi cut as material. We think it's important they're rolling it over. So we see WTI averaging around, you know, 76, 75 for the remainder of the year. Brent price is about $4 higher. I mean, there are some important wild cards to watch. I mean, again, there's a lot of investor apathy for the oil market right now. You potentially have more macro worries. But again, the Saudis are really signaling they're

going to try to do whatever it takes to bring this market back into balance and more constructive for the back half of the year. Halima, what are the most significant macro benchmarks that we should look for, those signposts in the second half that oil sort of has to go through? I mean, when we think about the physical market as opposed to the broader sort of macro wall of worry, I mean, you mentioned China. I mean, China manufacturing data has disappointed. But what's so interesting is if you look at the oil import data, it has actually been very strong. So I would continue to watch the China story. U.S. inventory data also should be closely watched. I mean, we had a big monster draw already. What happens in the next couple of weeks? Again, we're going to be watching. Does the Saudi action,

does that materially tighten the market? And watch for U.S. inventory data. Yeah, and just to stay with the U.S. theme here for a moment, we have seen rig count come down. What does that mean in terms of the supply picture broadening out from OPEC, given the fact that the U.S. has sort of been the swing producer in all of this? I mean, what's so interesting is we have seen strong U.S. production, I think stronger than anticipated. So when we want to look at on the one side, you have these macro demand worries that have hard landing. The supply picture outside of OPEC U.S. production has been strong this year. Also, several countries that have been exempted from participating in the OPEC cut.

Iran, Iranian exports are at a five-year high. We've also seen added barrels coming from a country like Venezuela and Libya. So there has been sort of supply surprises from some of these other countries as well that the Saudis have had to contend with. Quick question for you. The big rally we saw in NatGas last quarter, does it continue? I mean, we're going into the winter. I think the big question is going to be really potentially what happens with Europe. Does Europe have a colder than anticipated winter? Basically, weather bailed out Europe last winter, but with no Russian gas or very low Russian gas volumes going into Europe, the question is, has Europe done enough? All right. Halima Croft, thank you for joining us.

Thank you. All right. We've got a big week ahead of us. We've got Fed Minutes. We've got a jobs report on Friday. We've got Yemen and China. Fourth of July, Independence Day. Don't take it for granted. American democracy, American capitalism, American education, public education, to be able to take fair advantage of those things and make it equitable. It's important. It is very important.

And we just want to wish everybody a happy Independence Day. And that's going to do it for us here at Overtime.