Closing Bell - Closing Bell Overtime: StockX CEO On Birkenstock’s Weak Debut; How Nvidia Could Add Another 50% Stock Upside In Next 12 Months 10/11/23

Episode Date: October 11, 2023

Stocks pushed higher into the close, finishing near best levels to notch a fourth straight positive session for the major averages. Wells Fargo’s Scott Wren breaks down the market action heading into earnings season. Cowen analyst Matthew Ramsay on his new note calling for 50% upside in Nvidia. Former Dallas Fed President Richard Fisher on what investors need to know from today’s Fed minutes release. StockX CEO on Birkenstock’s weak IPO and the state of the consumer. Strategas’ Dan Clifton on the latest moves in the race for the Speaker. Plus, Sunnova CEO John Berger on how elevated rates are hitting the solar industry.  

Yeah, green. How about that? That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell. Over time, I am John Fort back with Morgan Brennan, and ahead on the show, the bull case still for NVIDIA. Artificial intelligence stocks getting a boost this week, and Cowen's analyst just put a price target on NVIDIA that applies another 50% upside. He's going to join us to make that case. Plus, we'll talk to the CEO of online marketplace StockX about Birkenstock's, we'll call it flat footed debut and the brand's rise in popularity on the site. Those shares ended the day down 12 and a half percent from their IPO price. And former Dallas Fed President Richard Fisher will join us to talk about today's Fed Minutes and what he's watching ahead of tomorrow's key inflation print.

Let's start out with the market, though, in a busy day on Wall Street with an IPO, a mega energy deal and key inflation reading. The hot producer price index taking some steam out of the rally early, but the major averages gaining traction late in the day as yields did, in fact, retreat again. Let's bring in CNBC's senior markets commentator, Mike Santoli. Mike, everything but the Russell 2000 finished the day out in the green, but it really, again, was big cap tech that kind of led the charge here today. What does this tell us about this market and where we are with the S&P closing at 43.76? Yeah, Morgan, the market's definitely making pretty good use of the setup we had coming into the last several days, which was very oversold conditions, seasonal factors turning better, bond yields coming in enough to give comfort for people up. They seem like they're the leadership of this market. They're the efficient and maybe more comfortable ways to get exposure to a move in the market if you feel a little bit underinvested. All those things coming together, I think, enabling the indexes to put it a positive day. But I'll say the S&P, again, kind of shuttles right up to this level that people are going to consider,

not make or break, but a little bit of a test for this rally right underneath 4,400. Mike, what's the next real test for the major indices here? I know you just said to close out the last hour that CPI itself hasn't been a major market mover lately. What's the next thing that probably will be? I mean, CPI, without a doubt, holds the capacity to throw things off course in the short term a little bit. I'm not saying I expect that. But I do think it's once we get a sort of critical mass of earnings reports coming in. I mean, right now, the Fed rhetoric has seemingly taken a November 1st rate move off the table. That could certainly change.

But right now, it seems as if that we're putting that in the let's not worry about it too much right now category. Bond yields are the main swing factor in the stock market. But the way we react to the first, let's say, week and a half of earnings will probably tell us if we're able to take a little bit of solace in the fact that corporate fundamentals have turned for the better, as the consensus suggests they might add. All right. We'll get those numbers, many of them here on overtime. Mike, see you in just a couple of minutes. Now let's talk more about the market with Scott Wren of Wells Fargo Investment Institute. Scott, welcome. So the S&P closed today right around that level where it chopped around in mid-June before going higher,

where it also bounced in mid-August. What's the significance of the spot where we are now? Well, John, I tell you, I think if you look at it from a technical perspective, you know, we've held in here pretty well. We almost touched the 200-day moving average in the S&P 500, which I thought we were going to do for sure. We got close, didn't quite get there. And really, so I think we're between now and 4460 is where I see at least technical resistance on the upside. And then that 4200 are close to 4200 for the 200 day. So I think right now we're between there. Tomorrow's clearly going to be a good day. You know, if we had something, you know, core CPI comes in at 3.9% or something like that, I think the market, the bond market and stock market would like that. But,

you know, the thing for us is there are headwinds. The Fed probably does have another hike in them. And believe me, if we see this core CPI stall at 4, 4.1, 4.2, something like that over the next couple of months, you know, the Fed almost has to hike here because that's way above where they want to see it. Now, Scott, you're saying, if I understand you, to expect a stock and bond rally tomorrow if CPI comes in below 4%. Consensus, though, is 3.6% from what I can see. That gives a lot of headroom above consensus to still get a rally. But it sounds like you're inclined to say sell that rally. John, I think that's the headline estimate. I think the core is a little bit lower than that. 4.1, I think, is the core consensus out there. And so I think still that I think that 4.3,

if we stall out there in terms of core CPI, I mean, the Fed's not going to put up with that. But if we start seeing some numbers here in the threes, which we certainly expect inflation to go down, we just think it's going to take a little bit longer than I think the market is expecting. So, you know, we want to see a good inflation number. You know, certainly, you know, this crisis in the Middle East, as far as the financial markets go, that's going to be an oil price type of situation. And we saw a little upside and oil is bouncing around between 80 and 90. If this is really protracted, you know, some other players get involved. Maybe we see oil bounce higher, which wouldn't be good for the global economy.

But overall, you know, for us, we've been playing defense. We think the stock market probably has some lower levels in it. Our official target for the end of this year is 4,100. So we think that's a good opportunity to pick up stocks right there. But between here and there, we're going to play a little defense. OK, so what does defense look like? And I ask that because, yes, today, real estate and utilities actually led the S&P higher as we saw yields come down on the long end of the curve in the Treasury market. But consumer staples, for example, have just been hammered. And that continued again today. So, yeah, I tell you, Morgan, these higher rates have hurt, you know, let's say staples, utilities, those kinds of things. So in our minds, playing defense, when equities rallied, we backed off the technology,

we backed off the stocks in general, we took some money out, we parked it in short-term fixed income. Clearly, whether you look at three, six, or 12-month bills, those yields are all pretty nice right now. And that's exactly what that is for us as a parking spot, because we do expect opportunities to step back into stocks at lower levels. So if you look at our sector favorites right now, materials and industrials are two of those, which may sound kind of odd if you're trying to play defense. But, you know, for us, you know, we've got a lot of infrastructure spending that's going on, a lot of deficit stimulus infrastructure spending. That's not going to end anytime soon

as a matter of fact it's going to sell accelerate and then we've got health care as another favorite there too so i would say that you know being underweight stocks overweight short-term fixed income we've also been talking to clients about taking advantage of these higher yields we just don't think uh for instance the yield on the 10-year treasury is going to go a heck of a lot higher than where it is now. We think those are the opportunities right now that we want our clients to be taking advantage of. Okay. Sounds good. And, of course, we get earnings kicking off in earnest with the banks here on Friday and a couple names even before that as well.

Scott Wren, thank you. All right. Thanks, guys. NVIDIA ending the day higher by more than 2%, and it's up more than 220% since the start of the year. Our next guest says there's another 50% upside. Wrap your mind around that ahead after spending the last week with the company's management team, raising its price target to $700 per share in a new note. Joining us now, the man behind the call, TD Cowan Senior Research Analyst Matthew Ramsey. Great to have you on. Why do you think there's 50 percent upside here and what is going to spur it? And I ask that after last quarter's earnings, which were blowout, and yet

we saw the stock under pressure. Good afternoon, Morgan. John, to you as well. Thank you guys for having me on. Yeah, we did have the great pleasure of spending uh last week with with jensen and his team meeting investors and i think we we walked away we learned a lot and we walked away i think really confident where the company's going around four vectors and and that's the the basis behind the increased estimates the increased price target and and are still conviction as our top pick. So first, they're increasing the product cadence, the product introduction cadence across the business from once every two years to once every year.

Their Hopper generation basically aligned with the chat GPT sort of iPhone moment for AI and has allowed their data center business to essentially triple this year. And I think there's gonna be a new generation called Blackwell that comes next year and they disclosed that another generation yet comes in 2025 as the roadmap speeds up point two they're innovating across the whole stack many of their competition are looking at

just inference or just training or just cpu or just gpu nvidia is doing all of those things specialty networking specialty memory and at data center scale. The third point that we highlight is that they're really figuring out how to broaden Gen AI adoption into large enterprise install base. Microsoft Office with Copilot has got a lot of attention, but there's many, many other examples. ServiceNow, Adobe, Getty, many others, and into new industries like healthcare and climate change. And finally, demand is way more than their supply right now. They have a ton of visibility. And they talked to me about supply in their data center business getting better each quarter

all the way through the end of next year. And I think those things all come together as a catalyst to more upside in our view. Yeah. I think to your point, bottom line, wide moat potentially expanding here. But I do want to know how you get to $700 price target, how you're thinking about valuation, given how much the stock has already moved in general. Yeah, sure. I think where it's trading now are out your numbers for calendar 24 went to $20 per share in earnings. And so when you see a company that's growing at the rapid rate they are, as I mentioned mentioned their most important business data center tripling i just don't think a low 20s multiple on on 20 in earnings makes any sense for this company we value it on 35 times pe to get to that 700 and if you roll out the team rolled out a 2030 model that

contemplates software penetration and growth across all their franchises that gets close to 50 in earnings out that far and admittedly it's throwing darts a bit when you get that far out in a model. But we're early days in some of these new AI penetration vectors. And I think there's lots of years of compounding growth to come. And that's why I wonder about how you're modeling, Matt. Here's what Adobe CEO Shantanu Narayan told us yesterday, talking about AI adoption for marketing. I think every single company in the marketing department, John, is already, what I would say, dabbling with this technology. Until they understand the rights, until they understand the indemnification, I would say they're using it more in prototyping rather than in the actual production of content. I think today we changed that with our announcement of Gen Studio.

And so I think it's all ahead of us in terms of how they reduce their costs. So if you take names like Adobe, like ServiceNow, that aren't really projecting exactly what AI-driven adoption is going to be in 24, and you consider that other chip makers and hyperscalers are looking to compete with NVIDIA, how perfect does their execution have to be?

And how many other players in semis have the ability to succeed and you still see them hit that target? No, John, it's a good question. I mean, we're certainly in the very early innings of this technology's adoption across broader enterprise. I think the segment that you played there just from Adobe, we've heard from Satya at Microsoft talking about similar things with Copilot for Office. Look at the absolute largest install bases of enterprise software that can be reinvigorated from a revenue generation perspective using this technology. And I think we're in the early innings of that. Switching gears to semis, I make the point that NVIDIA is innovating at the system level across CPU, GPU, networking, memory, cooling at data center scale.

There's a lot of competition that comes at them in specific veins of that. And I think it will continue. I think also, though, that they're going to increase the pace of their innovation in their own roadmap and in their software roadmap as well to correspond to that across the system. I hear lots of investor conversation about who's going to do what in training, who's going to do well in inference. I don't hear as much about who's going to do well in data processing, which is a huge part of the workload. And NVIDIA is sort of invading at an increasing pace across all three of those vectors. So I don't think they have to be perfect okay i think they've been doing perfect work near perfect work in their r d for a number of years and now finally we're seeing the products come

out the end of that at an increasing pace we'll see if it ends up being nvidia partnering with everybody and nvidia versus everybody at the same time matt Matt, thanks. Thanks, Jim. Let's turn now to the deal of the day. ExxonMobil buying Pioneer Natural Resources for nearly $60 billion. Pioneer ending the day higher while Exxon shares closed lower. And the broader energy sector was the biggest decliner on the S&P today. Michael Santoli is back with a look at energy stocks. Mike? Yeah, John, kind of interesting setup into this deal

in terms of the performance of energy relative to tech. And I kind of use this as a comparison for the tone of the market. Do we want to look at long-term disinflationary stuff or real asset appreciation? And you see that tech, this is a four-year scale, so it gets you beyond a lot of the kind of whipsaws of the pandemic era and aftermath. You see, of course, tech definitely outperforming. But the part of energy that is more growthy, that is more the R&D CapEx centric area of tech, which is exploration production, that's where Pioneer sits. Seven and a half percent of this ETF has actually kept pace with tech over that period, while broader kind of cash cow energy has struggled a little more

over this four years. Now, there's also a valuation kind of arbitrage here in the Exxon Pioneer deal. Exxon, obviously the biggest market cap in the group. It has about a 12 times forward earnings. That seems to be pretty low for a bellwether. But of course, it's a commodity based business. They're buying Pioneer roughly around 10 times. And I think there was a perception out there that Pioneer maybe could have gotten more of a premium that energy investors thought they could have squeezed a little more out there. So maybe 10 times is kind of your cap

for this type of business. I know there's other subtle ways of valuing this stuff, but it is worth looking at a couple of comps to Pioneer, which would be Diamondback and Permian Resources. They trade roughly eight times, and they also outperform today the energy sector. So there was this sense out there that parts of energy maybe are worth more. Some of that value gets highlighted by this deal, even if ultimately it's not exactly an open ended upside to how much another company or investors are going to pay for these businesses. So just by the numbers, how challenging is it going to be for Exxon to justify this,

given the valuation it has and what it's paying? Not terribly much. I mean, it's an all stock deal. So if you can think about it, they're paying a 12 times earnings piece of paper for a 10 times earnings piece of paper. It's not that simple. The growth rates differ. They're going to have to get some cost cuts. So I don't think it's particularly challenging in terms of Exxon justifying it financially over time, especially because either you buy new resources, you either buy new production or you have to search for it or you have to produce less. So right now, the reaction to the downside in ExxonMobil shares probably is to a degree.

It's like, OK, fine. They're diluting you a little bit in terms of issuing this stock to buy this company. And also a lot of the ExxonMobil investors are like, just return the capital to us. We want buybacks and dividends and not expansion. All right. Mike Santoli, we'll see you later in the hour. After the break, former Dallas Fed President Richard Fisher tells us why he thinks tomorrow's consumer price index might surprise to the hour. After the break, former Dallas Fed President Richard Fisher tells us why he thinks tomorrow's consumer price index might surprise to the upside. Plus, we are awaiting commentary from Boston Fed President Susan Collins this hour. We will bring you those headlines as soon as we've got them. Overtime's back in two. Welcome back. Fed minutes out earlier this afternoon.

Officials earlier suggesting one more hike would be appropriate, but those comments are different from this week's more dovish commentary suggesting a pause in November. A lot has happened since then. We also got the producer price index for September this morning, which came in hotter than expected. And tomorrow we'll get CPI numbers for last month, which are closely watched. Joining us now is former Dallas Fed President Richard Fisher, also a CNBC contributor. Good to see you. So let's start with CPI for you. What are the boundaries here of relief on the low side for a CPI number and maybe some concern on the high side?

Well, if you look at the statement we all read today, they're talking about sustainable movement in that direction to the 2% target. So we're just going to have to see. You know, we had a little surprise. You mentioned the PPI number that was released today. A lot of it was services. Of course, we had energy in there, and we also had food prices. You take those out to get the core core. And I do think if there is a surprise tomorrow, it's going to be slightly on the upside. But I don't expect a whole lot, John. So what does slightly on the upside mean to you? How much slightly is acceptable and then how much is concerning? Well, what I mean may be a surprise being above consensus. So, again, we're moving in the right direction.

I think things are navigating, being navigated well by the FOMC. They haven't crashed the economy, which everybody talked about. We've heard the word recession now for such a long time. And I think it's just as are they moving in the right direction as we go through time. Now, one month's data point doesn't tell you a whole lot. But I do think unless we had something numerically attractive on the downside, that means lower inflation than everybody's expecting, then the market's going to get excited because they'll think that that'll lead them to cut earlier than the current market expectations. So this is a matter of expectations, John, and we'll just have to see tomorrow. None of us know

what the data is going to reveal. Richard, I want to get your thoughts on the flurry of Fed speak we've gotten this week. I'm not going to call it dovish, but I am going to call it perhaps less hawkish. And it's been pretty in tandem, this notion that the rise in bond yields is maybe doing the Fed's job for it in terms of further tightening. Daley, Logan, Bostick, Jefferson, Kashkari, I think I have them all, but maybe I don't, all sort of suggesting this in recent days. And as that's happened, actually, the 10-year is now down to 4.559. I just want to get your thoughts on this and whether it means that the Fed is potentially done here. A couple of points. I would listen carefully to Lori Logan, not because she's one of my

successors at the Dallas Fed, but because of all the people sitting at that table, all the bank presidents, she is the most market savvy. She ran the desk. In essence, she ran a $9 trillion portfolio. And I know that she's held in very high regard by her other colleagues at the table, including the chair. So she's very thoughtful. What she's saying, and what I think Jefferson has said, the vice chair, and others who have commented you just referred to, is obviously noticing that higher yields are moving out the yield curve. And, yes, the 10-year has come down to a little short of 4.6 today. That could be because there's a lot that's rushed into our government holdings or government issues based on uncertainty,

what's happened in Israel with Hamas and other uncertainties. We always are the place people come to. But remember, Morgan, the tenure was in the threes back in July. So we've had a significant move. And the question is, will that continue after we get this issue more contained or this horrible thing that's happened? We could possibly, and I'd like you to think about this, and viewers should think about this, it's possible we could move to a flat yield curve.

Five is the anchor point, or maybe a little bit lower if the Fed decides to move in a reasonable timeframe, not this coming meeting. And then five or so on the 10-year. Or we might even conceivably, given the financing needs of the U.S. government, we have $1.7 trillion that have to be taken down in the next fiscal year, and I bet you that's an underestimate. Tax receipts are coming down, defense spending is going up, et cetera, all over the world. We could conceivably have a positive shape yield curve. I think that's a risk that some people should be thinking about. I'm not saying it's going to happen.

But given the movement that we've seen so far, which whether it's Lori or Vice Chair Jefferson or others have commented on, they're right. It is tightening monetary policy. Richard, appreciate it. Key insights. And this is something we're now going to be watching that much more closely for in the coming weeks and coming months. Richard Fisher. Well, thanks for having me on, Barbara. It's a pleasure. Up next, trading is open for open-toed shoes. Birkenstock having a rough first session, but the company's footwear has seen a big spike in popularity according to online marketplace StockX.

We'll talk to the CEO of StockX about the demand he's seeing when overtime returns. Bunions on the stock. Oh, boy. We have a news alert on Microsoft and the IRS. Steve Kovach has the details. Steve. Hey there, John.

Yeah, we just got a regulatory filing in from Microsoft saying the IRS has reached out with a notice saying Microsoft owes about $29 billion in back taxes. This stems from the years 2004 through 2013. Now, Microsoft also putting out a blog post saying, quote, Microsoft disagrees with these proposed adjustments and will pursue appeal within the IRS. Also adding that that process is likely to take several more years. John, I'll send things back over to you. Yeah, if I got a $30 billion tax bill, I'd disagree too. Yeah, and dealing with the IRS does take some time.

For what it's worth, Microsoft does have a $121 billion cash pile as of its last earnings. Birkenstock closing lower in its first day of trading after pricing at the midpoint of its range. And check out some notable shoe names this year. Having a difficult 2023 as worries persist about consumer weakness, including Foot Locker down 45%, Under Armour down 34%, and Dow Component Nike down 16%. Joining us now is StockX CEO Scott Cutler. StockX is an online marketplace connecting buyers and sellers of in-demand consumer goods and brands, including Scott Birkenstock, which really got my attention because when I think about StockX, I think about sneakers.

How popular is this brand on the site? Well, we've always been known for the place to get the most sought-after items. And I think the Birkenstock, maybe the Birkenstock IPOs, represents the shifts in consumer preferences that we're seeing. And just a little bit on Birkenstock, which has really been an exciting part. It's one of many brands that are popping this year despite a challenging consumer environment. But they've had three straight years of triple digit gains and growth on StockX. And they're our number two fastest growing brand in the shoes categories and their trades are up 500% per year. And this is

going back to 2019. They did a collaboration with a brand called Stussy, put them on the map among sneaker and streetwear enthusiasts. And that was the breakout year for the brand. And since then, we've seen continued strong growth. Yeah. And what we have seen, and this is what I'm trying to wrap my arms around, is brands that have a strong connection to consumers and are still considered very fashionable are continuing to be resilient and hold up despite a more discretionary consumer in terms of where they're looking to spend their money on apparel and retail goods. It sounds like you're saying that Birkenstock is one of those sticky brands. Birkenstock definitely is. And I'll give you a couple of other examples. Even in this environment, celebrities have huge power to

drive sales, to drive preferences. As we've followed football over the last couple of weeks, Taylor Swift showing up at a Chiefs game in a pair of New Balance 550 white reds, a sneaker that we weren't necessarily tracking before that. But the day after after it was the number two biggest trade day for the sneaker in stock x history and new balance is another example of a brand that has had really breakout performance really uh hidden that pocket in terms of having innovation appealing to a customer but also reviving uh styles that that were popular in the past and becoming a lot more popular today. If you look at the running category, Asics, Salomon, On, Hoka, all examples of brands that, again, are seeing triple-digit growth on the platform. But, Scott, first of all, good to see you again.

It's been a while. Put this in real context for us because I look at the front of StockX right now. I see Crocs. I see Uggs. I see a lot of Jordans. I don't see any Birkenstocks. And I never heard anyone, let alone teenagers, talking about hot Birkenstocks drops or having a collection of rare Birkenstocks. Handbags even, yes. But am I the only one? Where does this rank among brands? How far down is Birkenstocks and StockX? Well, like I said, it's the number two fastest growing brand. I think if you go to the site and certainly if you search up the brand, you're going to find it. You'll see two things. And I

think this is also representative of the market that we're in. Again, speaking specifically to Birkenstock, you can see 150 what we know as the boston clog this is one of the most popular silhouettes but it's also to a value conscious buyer it's but it's also alongside a one thousand dollar birkenstock and dior sandal that would certainly be a hyped product that would be very difficult to get and so you would see that both represented on the platform, represented two different types of consumers, potentially, for the same brand.

All right, Scott Cutler, thanks for joining us. Thank you. $1,000 sandal. I bet there's no bunions when you're wearing that. Better not be. Boston Fed President Susan Collins making some headlines. Steve Leisman has the highlights on the news line.

Hi, Steve. Hey, Morgan. Yeah, Boston Fed President Susan Collins making some headlines. Steve Leisman has the highlights on the news line. Hi, Steve. Hey, Morgan. Yeah, Boston Fed President Susan Collins saying inflation is still too high, but the Fed should take its time to assess incoming information. She becomes one of a series of Fed officials who doesn't sound like she's in a big hurry to be raising rates right away. She says the Fed is likely close to the peak of the Titan cycle at this point, something that was talked about in the minutes of the September Fed meeting. Further tightening shifts could be warranted, though, depending upon incoming information, so she's not ruling it out. The risk of high inflation, she says, is more closely balanced

with the risk of slowing activity, another kind of echo over the minutes that we heard earlier today about the idea that risk is two-sided and there's concern over the minutes that we heard earlier today about the idea that risk is two-sided and there's concern in the minutes you heard about some downside risk to the economy. She was honest in that the Fed will need to hold rates at a restrictive level until inflation heads back to the 2 percent target. And she's optimistic price stability can be restored, quote, with an orderly slowdown, she says.

This does not include a very large increase in unemployment rates. The minutes, of course, guys, came out today before the recent rise in rates, and the majority in those minutes wanted to raise rates a second time. But now we hear a lot of folks talking about the rise in yields and how much that means for the Fed and the idea that it could be doing the work for the Fed. And I'll leave it there and let you guys ponder how this will affect Q sales. Oh, we will indeed. Higher for longer still, it sounds like, but maybe not

much higher immediately. Steve Leisman, thank you. Time for a CNBC News update with Pippa Stevens. Pippa. Hi, John. Israel's emergency government coalition is focusing all efforts on the war with Hamas. The unity government said that as long as fighting continues, no bills or government decisions will move forward that don't have to do with the war. All of the country's senior appointment will also be automatically extended during the war period. Secretary of State Antony Blinken is on his way to Israel, speaking with reporters before he departed. Blinken said he will work with American allies in the Middle East to try to secure the release of the hostages being held by Hamas.

Israel says more than 100 people are being held captive, some of whom may be American citizens. Blinken is also due to meet with senior Israeli officials, possibly including Prime Minister Benjamin Netanyahu. And TikTok says it is increasing moderation efforts on the platform using human and digital resources to remove potentially upsetting or violent videos and images of the Israel-Hamas war. Since the conflict broke out, the EU has threatened social media companies with severe legal penalties if they do not remove misinformation and graphic content from their services. John, back to you. Bipa, thank you. Now, after the break, Delta reports earnings tomorrow as airline stocks navigate through

a rough patch. But one part of the travel ecosystem has significantly outperformed. Mike Santoli is going to break that down in the charts next. Welcome back to Overtime. Mike Santoli is back with a look at the value of corporate bonds and what it means for the market. Mike. Yeah, Morgan, of course, the value of those bonds has been declining as overall yields have gone up. That's the way yields go up. The price of the bonds go down. You see here the LQD, that's investment grade corporate debt, has been sliding all year. Sometimes it's helpful to look at the price indexes as opposed to the yields to get a sense of, you know, actual investor experience of loss. Now, that said, if you looked at it compared to the white line, the S&P 500,

you say, well, stocks and bonds are moving in different directions. What's going on here? I thought we were correlated again. Well, we mostly are for the average stock. EQAL, equal weighted Russell 1000 has more or less tracked corporate debt, which makes sense in this environment to a degree because stocks and bonds, equity and debt sit next to each other in the corporate capital structure. So really nothing anomalous, except that the S&P, as we know, has been driven to a large degree by those big cash generating non-levered mega cap growth stocks. That's been the setup for now. We'll see if we get some catch up as bonds are starting to get a bid there in the average stock. Now, speaking of the market kind of differentiating among potential winners and losers, we get Delta Airlines results

tomorrow, as you mentioned. Delta and United have really struggled, even though their businesses seem good. The companies have said in recent quarters that demand looks solid and persistent. Travel demand still very strong. This goes back to right before the onset of COVID, as you see there. Delta and United more or less trading below those levels, four to five times earnings. The market's saying we don't think it's different this time when it comes to the cyclical nature of these big carriers. On the other hand, Hilton and Marriott, the hotels, really reaping the benefits of what has been a long-going travel boom. On the other hand, indeed, I got to do that tomorrow. Mike, thanks. Meantime today, Republicans nominating Steve Scalise to go up for a full vote to be

the next Speaker of the House. Up next, Stratega's head of policy research, Dan Clifton, on whether he'll have enough floor votes to win the gavel and what all this means for investors. Be right back. House Republicans narrowly nominating Representative Steve Scalise of Louisiana to go up for a vote for House Speaker, but his path to fully secure that gavel still unclear. Let's bring in Dan Clifton, head of policy research at Strategas. Dan, welcome. So how much D.C. dysfunction can the market sort of shrug off this time? It took 15 votes from McCarthy last time, but we didn't have a war in the Middle East. Then what happens here?

Yeah. So, John, first, thank you for having me on. Clearly, the urgency is building here, particularly since the House cannot act on any type of major legislation until you get a new Speaker of the House. The majority of Republicans voted for Steve Scalise to be the Speaker of the House. He now has to convince 100 of his colleagues who didn't vote for him to vote for him to be able to get the votes. And I would put the members into three categories, John. One, some people who just need some time and to ultimately get there. A second group that want to see some concessions around the budget negotiations that are going to have to happen immediately after he takes the speakership. And a third group, which we don't know how big it is,

but maybe just trying to block his nomination so that a new person needs to emerge. And if that third group does start to rise up, you would see more of the dysfunction that you've just asked about and that this would continue. I don't think that's the base case. There's an urgency building in. I think most members want to get back to a resolution and back to governing, particularly in light of some of the geopolitical events that are happening. And I would note that financial markets are beginning to price in

that some of that dysfunction is going to go away. Well, the odds of a government shutdown are declining and you're starting to see a more accommodative Federal Reserve. So, you know, how Congress acts over the next couple of days will determine whether this is sustainable or not that we've been seeing over the last couple of days. We'll see if we can count on Congress people to behave, but how much depends on whether there's that same kind of whoopee cushion built in to the speaker vote this time. Right. which really weakens the position. How important is it perhaps for markets for the next speaker to be stronger than McCarthy was from the get-go? You absolutely nailed it, John. There's really two parts to this. The first, you want the speaker to

have political capital within his own party to be able to cut a budget deal. This is what happened when Paul Ryan took over for John Boehner. Paul Ryan was able to cut a budget deal. This is what happened when Paul Ryan took over for John Boehner. Paul Ryan was able to get a budget deal that John Boehner probably couldn't get with his caucus. The other side of it is, though, you need a strong speaker to negotiate and divide a government and to be able to get some of those policy priorities you want through. Central to that is going to be border security and probably limiting how much Ukraine money is actually going to be appropriated. But ultimately how much Ukraine money is actually going to be appropriated. But ultimately, we can begin to see a deal emerge here. I think the Republicans are

going to be very hard pressed to be talking about cutting defense spending, particularly when we know that there are Americans who are caught up in what's happening in the Middle East right now. And those stories are going to get bigger over the next couple of days. So I think the pressure here is going to build, build to get a speaker and then ultimately time to get a budget deal before the end of the year. And I don't believe that it's going to cut defense spending, although some people probably want to do that. The will probably is not going to be there in light of these geopolitical events. Yeah. Investors are certainly betting that's not going to happen and that, in fact, maybe we see a higher number potentially even emerge from this now, too.

I mean, look no further than defense stocks and the huge surge we've seen in those shares just since the start of this week, which raises the question we're operating on a continuing resolution. I mean, there's still a lot that has to happen before November 17th, including getting a new speaker of the House. But is is the base case growing for an appropriations bill to actually make it across the finish line? Are we looking at another CR here? Well, Morgan, great question. I do think that we'll probably get one more CR by November 17th. We may even get it a little bit quicker than that. There could be a possibility to add some supplemental funds, but that might be asking for too much. But Steve Scalise was pretty clear with the caucus today

that we're probably going to need one more CR and kick it out. And then that means that we're looking at early December negotiations. The defense budget went up 9 percent, more than 9 percent last year. And that's the budget that we're operating on. The big question is whether we're going to have sequestration, which would cut defense by 1%, or are we going to institute the debt ceiling deal, which would increase defense by 3%. So that's a 4% difference. It's pretty wide. It's kept defense investors on the sidelines. But if you look out at the recent events that have happened over the last couple of weeks, we have a shortage of munitions. We now have a new place where there's going to be demand for more defense spending. And after 10 months of these stocks sliding, I think investors are starting to say maybe they're starting to look a little bit attractive here.

Yeah, sure. Seems like it. Dan Clifton, thanks for joining us. Great. Thank you for having me. The power has been drained out of solar stocks over the last few months because rising interest rates are increasing borrowing costs. But they've seen a comeback this week. The CEO of Sanova tells us how rates are impacting his company when overtime returns. Welcome back to Overtime. Several Wall Street firms noting the impact of higher rates on the residential solar market. Truist recently downgrading Sanova to hold. KeyBank and Guggenheim cutting their price targets. Shares are higher, though, on the week as rates have retreated, finished the day up 7%. But they're down more than 50% from the year's high.

And Sanova CEO John Berger joins us now on set. It's great to have you here. Thanks for having me. We were just talking about it. We kind of teed it up there. Higher interest rates. Has that been denting demand? It is not. If you step back and

take a look at what our business does and in the entire industry is utility rates continue to move higher. You have a very inefficient system, a socialistic system that has no competition. So the utilities keep raising rates almost no matter what for a variety of reasons, including interest rates going higher. And that, coupled with equipment, solar equipment, batteries, solar panels, inverters, coming down in price, really in a lot of cases, increasingly crashing in price, really has blown out a wedge of value for the consumer and for our companies like us. And so, yes, interest rates take a little bit out of that, but the wedge keeps getting bigger as far as what you can do in terms of saving money

against these utilities and higher reliability with batteries. And batteries are coming off, like I said, even further. And that's giving a lot of people that are exposed to hurricanes, typhoons, wildfires. They're like, you know, I can get a better energy service at a better price by going to companies like Sanova.

Sounds like what you're laying out is basically a secular growth story. So then when, you know, the analysts at Truist, for example, say they note that you are continuing to take share given the strength of third-party owner financing. But they also note that the equity price response post 2Q results makes it clear that the market is no longer rewarding outsized growth while companies continue to compete in this land grab in the U.S. residential space. I mean, the fact that the stock has sold off this year, is it frustrating? Very frustrating. From IPO just over four years ago, by the end of this year, if you look at our guidance, we'll have increased EBITDA 700%. So we're focused on profitability. We're focused on cash flow. And we've kept all of our cash flows

and we're generating more and more cash flow. We're focused on liquidity. We knew the market was going to get tough and we went out and made sure we had the capital and we're continuing to close on more capital. So when you financially perform like that over a period of time and the stock goes below the IPO price that it was four years ago, that's incredibly frustrating. But it's a deep, deep discount. I mean, at this point, when you look at the discount rate before today, it was about 14, 15 percent discount rate on the top gross cash flows. That's insane. That's incredible in terms of an opportunity from my perspective. How much of your top line growth is dependent on a housing market that is also being

held somewhat stationary, relatively speaking, by high interest rates and low inventories? You say you've got an enormous amount of pricing power, but that doesn't necessarily mean you're going to get volume growth. Well, in terms of the new home market, it's a very small part of our business. We have a great partnership there with Lenar. We bought a company from Lenar, but it's probably about 12% of our business. And so I am surprised at the strength of that business so far this year. But it's a very small part. So really what we're looking at, even in this becomes more important if we get into more difficult times, which I personally think we are, at least a shallow

recession is coming. In that, when people need to figure out ways to save money on bills, they have to pay. Think about the last bill you don't pay as a homeowner is the power and the water bill. Because you can't sit in the house without power. You can't sit in the house without water. You got to watch CNBC. You need power to do that, right? So when you look at what we are offering is at least on average about a 20% discount to the utility. And again, with batteries, a higher reliability. And a lot of our customers that signed up years ago, there's a good number of them that are saving 50% off what they would pay the utility because those utility rates have just skyrocketed and they continue to move up even more. California is looking for a raise of another 18% this year.

Kentucky was also dealing with an 18% increase. Puerto Rico just raised the rates 21%. These are eye-popping numbers. Okay. Yeah. And maybe that inpopping numbers. Okay. Yeah. And maybe that in itself drives demand. John. Absolutely. Thanks for coming in. Thanks for having me. Well, excitement over the prospects for weight loss drugs like Ozempic are weighing heavily on medical device companies today. We'll discuss whether these fears could be overblown when overtime returns.

Welcome back. The Ozempic effect in full force today. Medical device companies like Medtronic, Baxter, Insulet, and Dexcom having a rough session after the Novo Nordisk drug saw positive results in treating kidney disease. J.P. Morgan outlining the negative sentiment around the MedTech group, saying they don't necessarily agree with the notion that these drugs will materially impact MedTech-related procedures, writing, quote, we think MedTech can live side by side with GLP-1s and don't see them as mutually exclusive. Morgan, I can tell you in health circles in general, these, what they call GLP-1s,

these weight loss drugs, are the subject of much conversation. Medtech companies are getting ready to more mount the argument that these devices, things that can be implanted and updated by software, are better than pills. So maybe they can live together, but I don't think they're planning on it. It is fascinating because we've seen consumer staples, packaged food companies. It was brought up with PepsiCo, which said they haven't seen impact yet earlier this week. But you've seen those stocks sell off, and it's a similar thing happening in medtech again with investors here today. It's almost like sell now, ask questions later. Yes.

And, of course, we've got CPI tomorrow before the bell. That's going to be very important. It's going to be one to watch longer term with all of this as well. That's going to do it for us here at Overtime. Fast Money starts now.