Closing Bell - Closing Bell Overtime: Taking Stock Of Palantir's Run Higher; Goldman's 2025 AI Predictions 12/26/24

Episode Date: December 26, 2024

Stocks were volatile the day after Christmas. G Squared's Victoria Greene and Carson Group's Ryan Detrick break down market positioning. Dan Ives of Wedbush talks Apple approaching $4T valuation and rising price targets, while Mark Mahaney of Evercore shares his top internet stock picks for 2025, plus what investors need to know about Netflix's NFL debut. Palantir has had a remarkable 2024 run; we talk with early employee and investor Alex Fishman of Empros Capital about what's ahead. Plus,  our Brandon Gomez breaks down the state of cannabis regulation and its impact on investors, and Pippa Stevens dives into the murky future of renewables after a challenging year. Finally, Kate Rooney explores Goldman Sachs’ predictions on AI’s transformative role in 2025.

That's the end of regulation. Merit Securities ringing the closing bell at the New York Stock Exchange. SAG Holdings Limited doing the honors at the Nasdaq. Stocks ending the day around the flat line amid thin trading this shortened holiday week as investors debate the fate of the Santa Claus rally. Five of 11 S&P sectors ending the day higher with tech leading the way and utilities and energy lagging. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Leslie Picker alongside Frank Holland. Today, Morgan and John have the day off.

All right, coming up, former Fed Vice Chair for Supervision, Randall Quarles. He's going to join us to discuss the disconnect between the Fed and the market as the 10-year. That yield just keeps moving higher, even though the Fed has been cutting, as we all know. Plus, top analyst Mark Mahaney breaks down his top picks for the new year. You might be surprised by one of them. But before all that, let's bring in G-Squared Private Wealth CIO

and CNBC contributor Vicki Green and Carson Group Chief Market Strategist Ryan Dietrich. Happy holidays to both of you. Thank you so much for joining us. Absolutely. Thank you. All right, Ryan, let's start off with you. You're a big believer in the Santa Claus rally.

According to you, we had that strong day on Christmas Eve, up over 1%. The historical data shows since 1969, that means we're in for a gain during the rally of 3%. Today was a little bit wobbly, though. In your mind, did you see anything that shook your confidence that we're going to see that Santa Claus rally pull through? Yeah, Frank, thanks for having me back. And I hope everyone's having nice holidays. And here's to a good new year. So, listen, as everyone has talked about, Santa Claus is here.

It's that time. We're up over 1% on Tuesday. And I took a look. Like you said, we tend to see actually better returns the rest of Santa Claus when you have a good first day. But getting more specific, kind of like what Jonathan Krinsky just talked about there. Look what happened today. All right, small caps up over 1%. I get it.

Sometimes small caps are a dirty word, but we are seeing more participation. We are seeing things broaden out a little bit. If you ask me, we can look at small and mid-cap participation. So I like that. And again, let's just think about this. This is one of the most seasonally bullish periods of the year. We came into it extremely oversold. Number of stocks over the 200-day moving average, number of stocks over the 10-day moving average, very, very oversold.

Where I'd be worried is if we actually sold off, right? When do market crashes happen? When you're oversold, not overbought. We're not doing that. I'll be very clear. We're not doing that flat on the day for the S&P. I get it. But I guess put a bow on this. We're encouraged by the action so far. And if you have a bounce during this seasonally bullish time period, it's really not a big signal either way. It's when Santa doesn't come to town, and we're not seeing that so far. All right, Ryan, I'm going to have to push back on that small cap theory in just a second. But before we get to that, Vicki, I want to come over to you.

Happy holidays to you as well. We've been looking at the action on the 10-year. It's pulled back a bit from the highs that we saw earlier today, but concerned all about this higher yield situation despite the Fed cutting. I mean, if you just go back to that hawkish cut, we're up just about 20 basis points. Is that concerning about the equity market going into the new year? Not yet. I mean, it's been an ugly December. I think it's 40 basis points basically moved up here in December on the 10-year. Until it hits five, I'm not too concerned. I think we're going to top out around where we did in April, around that 4.7, 4.75 area. But there's some good resistance here. So again,

I'm not too worried yet. Been an ugly move up, horrible on duration, biting a lot of people's bond portfolios that moved out into that intermediate space and dragging a lot of those negative on the air. But for us, it's not a problem for the equity market yet. Obviously, if we reach five and continue to march higher, then I do get a little bit more concerned. But right now we're still within our inter-year trading range. And so for me, it's a little bit of an eye raiser, but not an actual problem yet. Ryan, what do you make of what's going on with the 10-year relative to expectations for the Fed? You say that you believe there will still be two cuts next year. You don't think it's going to be a no-cut or even hike scenario. But does it even matter if market rates are in such a disconnect

territory from what's going on with the Fed? That's a good question, because, listen, why are rates higher? I mean, is it because inflation is really that much higher? When you look at the CPI and some of the data we saw, we'd say no, it's because the economy is still strong. So, you know, what's really worse, if the Fed cuts 100 basis points next year because the economy is slowing or because the economy is pretty solid? Of course, we would argue we prefer the economy be solid. But adding to what we just talked about there, yields higher above 10% on the 10-year, yeah, that might be something to upset the apple cart. But the U.S. dollar is that big one, right? If you continue to see strength in the dollar,

look what's going on in Germany, look what's going on in France, look what's going on in China. There are some disappointing things happening, right? If the dollar continues to strengthen, that's one of our, I'd say, top three worries next year, because when the dollar is really strong, everybody, that's when things don't do that well. Look at the first 10 months of 2022 for a reminder of that. But we're optimistic that the dollar will start to roll over, that yield will start to roll over. It's a realization, again, that if you look at inflation, I know we can talk about it all day, keep it real simple. You look at inflation, why is it higher? It's because of shelter and auto insurance.

Those are the two main reasons we're having excess inflation on the CPI. So we're optimistic inflation is not a problem and there will be more cuts coming next year than we think right now. Vicky, are you worried at all about a policy error in 2025, just given all these cross currents and kind of unprecedented dynamics that we're seeing on the macro front? Yes, our 2025 outlook is called bullish with a but because there's so many things that could go wrong on the policy side, both fiscal and monetary. First off, monetary. Let's make sure the Fed doesn't get it wrong and we don't have a transitory situation again here in 2025. We want to make sure they move slow, but they are reactive if they need to be. And it's a hard job. You know, when do you need to be aggressive? When do you need to let sit back?

You know, and I know inflation has been super sticky. I tend to think inflation is not coming down all that much because housing is super stuck right now. But for us, it's also then what happens on the fiscal side. There are so many expectations baked in, and we think they could come true. We're looking at tax cuts, lower regulations, things that are going to stimulate the economy.

But you have deficit hawks out there. You have Doge out there. And government expenditures and government employment is a large part of our economy. So you suddenly have these cross currents that make a lot of choppy waters, kind of like Magellan Strait area that we can navigate it, but it is a lot more dangerous sailing next year. And that's why I say it's bullish with a but because a policy error is that try and true way for a bull market to end. All right, Ryan, I'm going to come back to you. I want to push back on your small cap theory, also your broadening theory. I'm looking at the S&P equal weight in Q4. It's

actually trading lower. Small caps, they did finish higher today, but they've definitely been underperformers. And then the idea, you seem to think we're going to get more cuts than the Fed's indicating. I mean, there's a lot of issues that seem to be kind of developing when it comes to small caps. Why do you remain so bullish, especially if we go from four cuts down to two cuts? We see the stronger dollar doesn't directly impact them, but it may impact a lot of their customers. Yeah, great question there. Trust me, there's been a lot of arguments on small caps all year. I know Russell 2 is up like 13, 14 percent on the year, clearly underperforming the large caps. But if you think about what's happened the last couple of years, obviously a huge rally. We've been bullish. We've been bullish. We thought stocks would go higher.

That's happened. Small caps are historically cheap. Mid caps are really, really cheap also. If you're talking to a longer term investor thinking, where should I invest the next three to five years? Maybe you want to look at some of those underloved, underappreciated areas. And again, as I kind of answered in the previous question, I mean, there's people saying there could be hikes next year, right? We just, we're not seeing that.

We don't see that. Again, when you look at why we're having excess inflation, we know it's because of shelter, auto insurance. Actually, in the world, a lot of people listen to, on this network, there are more fees, right? Advisors are getting paid more fees because stocks are up a lot. That's a big reason why PCE has been so high. So, again, if you take a look at all the other parts of inflation, it's really not that bad. How's energy treating people, you know? So there's different ways to look at it.

But, again, I think the Fed wanted to get some bad news out of the way here ahead of January 20th and whatever might happen with that, with tariffs and those things. We're a little optimistic tariffs won't be quite as scary as people are thinking right now. But still, bottom line, if the economy is strong, we still think small and mid are a place you want to have a slight overweight to a well-diversified portfolio in 2025, Frank. Vicki, do you agree with that? You like small cap at these levels or are you sticking with large cap? I think they're a little bit more value-eat-trappy. Sorry to disagree with you, Ryan, but I love the large caps. I'm leaning in there. I want my big, bold, beautiful blue chips, man. I want my strong balance sheets. I want their ability to borrow. And I love their

spending power. And I look at it, especially on the technology side, because they have so much scale in the Mag 7. So if somebody comes out with something innovative, I think they're just going to go buy it and they're going to go acquire it. So I think your growth is going to continue. I am saying hold on to your MAG7 stocks, lean into that technology trade. I don't think it's done yet. There are some areas of the value market I like, but at the same point, I think small caps have been a bit of a trap. Look at December, right? November was everything rally. December, you've got about a 9% delta between the NASDAQ up 3%, 4% and the Russell 2000 down 5%, 6%, you know. And so for me, I'm saying, look, they've started.

Start, stop, start, stop. I'm just not a believer yet that the small cap rally can happen. I do like smalls more than international EM, but I am so overweight U.S. and I am leaning in harder on that large cap side. Yeah, the market certainly gotten a couple of head fakes when it comes to small caps over the last year or so. Vicki and Ryan, thank you both for joining us. Much appreciated and happy holidays. Happy holidays, y'all.

Now let's turn to Apple. It may not have closed above $4 trillion, but it did post a record close. This comes as Web Bush put on note today, raising its price target on Apple to $325, thanks to a golden era of growth that is underway. Joining us now, Dan Ives. He's the global head of technology research over at Wedbush. Dan, happy holidays. Great to have you here. Yeah, great to be here.

All right, so let's talk about your price target. You're the highest I've seen pretty much. You just raised it from a couple days ago. You put out a note on Monday, and you've raised it since then. What have you seen? What channel checks have you seen that are going to make you raise your price target just within a few days? Yeah, I mean, checks last 48 hours are showing, I think, strength from a holiday season perspective. It's our view. This is going to be a record year.

240 million iPhones, I believe they ultimately sell. And with Wild, this is just the beginning of an AI-driven super cycle that's multi-year. And that's why, look, haters continue to hate on Apple. But I believe $4 trillion is just a start in terms of where we see, because the consumer AI revolution will go through Cook and Cupertino. When you look at multiples for this one, though, Dan, I mean, 37 times last 12-month earnings, about 30 times forward earnings, depending on the estimates. You've got overhang in China. You've got a lower, you know, uptake in terms of people who are buying new iPhones for this AI super cycle that you mentioned.

Do you feel at all that the price could be a little fully valued at these levels? Yeah, look, and I think that's really been the argument. I'd say almost like the last, call it, you know, two, three months. Where I disagree is you got some of the parts. I believe the services business alone is worth $2 trillion. And I think the AI story, because as AI revenue starts to come through over the next few years, that could be an incremental $5, $10 billion annually for Apple. And then you put it all together, this is one where I think the best way to view this is what growth is going to be on iPhones. I believe 5%, 6% is way conservative.

We're looking at high single digit, double digit. The renaissance of growth is now happening in Apple. And that's why I think this is just the start for what's going to be a golden year for Cupertino. Have you looked at all at the interplay between the upgrade cycle and inflation? And I ask that because as consumers are grappling with higher cost of, you know, things like food and shelter and autos and so forth, do they tend to kind of pare back on upgrades if their phone is working just fine? Regardless of the technology that's out there, do we need to see a real pullback in inflation before we get this upgrade cycle that everybody has been kind of banking on here? Yeah, I think maybe on the edges that's been an issue for upgrades. But the big thing here is 300 million of 1.5 billion iPhones are in window of an upgrade opportunity.

Have that upgrade in four plus years. And you look at the carrier discounts that we're seeing, they are significant. But again, the biggest thing is it's about Apple intelligence. It's just starting with 18.2. Now this all rolls out, hundreds of apps that are going to be on Apple. And I think that's why the consumer AI revolution, I still believe the stock is not reflecting what's truly going to be, what could be an incremental $40, $50 per share for AI.

So, Dan, you came out with your note. Your estimates are there's about 300 million iPhones that have been upgraded in four years. You believe in this current fiscal year, this year, 240 of them are going to be upgraded. But I've asked this before, why? Why are we upgrading for Apple Intelligence? We look at AI PCs. We have not seen the same adoption. I look at HP that talked a lot about AI PCs flat year over year, according to last shipments. I look at Dell. They talked a lot about AI PCs actually down 4% year over year. What makes iPhones and phones different than laptops

if we don't really want AI laptops? Well, I think the biggest thing, too, is that if you look at phones, I mean, typical upgrade cycle is called every two and a half, three years. Now it's four. So you're starting to get to a point where there's pent up demand there. But I believe to your point, this is going to be an upgrade cycle across the whole ecosystem from iPads to Macs to iPhones that ultimately they will drive. But it is it will ultimately be AI driven. That's why this is it's the start of what's really going to be a two-year AI-driven

super cycle that plays out. And I think, Frank, to your point, the one thing that I think is underestimated is just the install base here in the monetization. It's only 15% penetrated. That goes to 25, 30% penetration. We're not talking about $4 trillion. 12 to 18 months from now, $5 trillion. You're The always bullish Dan Ives. Dan, we're going to see you in just a bit to discuss Palantir. Thank you very much. Thank you. All right, coming up next, top analyst Mark Mahaney breaks down his playbook for 2025.

He'll reveal his top picks right after the break. Overtime, we are back in two minutes. Welcome back to Overtime. Tech has been the second best performing sector in the S&P this year behind communication services, which also includes a lot of tech companies, too, depending on how you define them. Our next guest says he remains constructive on Internet stocks heading into 2025. Joining us now with his top picks for the year is Evercore ISI head of Internet research, Mark Mahaney. Mark, thank you for joining us on this holiday week.

Let's get right to it. How do you see 2025 shaping up in your sector? What are some of your top picks? Probably the same way that 2024 is ending. It looks like demand trends remain reasonably robust, whether that's online retail, advertising, travel, cloud, mobility, delivery. There's a series of verticals within the internet, but the growth rates seem to be, frankly, a little stronger at the end of 24 than they were at the beginning into 24. There's more certainty. And I think that'll hold next year. We'll also probably continue to have very high margins. We had a slew of record high operating margins in the September quarter. I think those are largely sustainable. And then you've got this, like all the gift that keeps on

giving, which are these AI deployments, which are just improving processes, creating new revenue streams, allowing companies to grow with much less headcount growth than they needed in the past. So for investors, there's a lot of goodness in the sector. A good chunk of that is priced in. There's very little dislocation in this space. Our number one pick, really the only large cap stock that I think is dislocated is Uber. Number two pick is Amazon. Number three pick is DoorDash. That was exactly my next question, which was this idea of where you see specific catalysts for these and whether you believe that the market isn't fully appreciating that thesis and if there is a gap or potential for investors to get in now. Well, so here's my pitch on Uber. It's very dislocated.

The stock's underperformed on the year. It's roughly flattish on the year. And S&P 500 sector, that's up 20 percent. Large cap Internet's up 40 percent. So you really got an underperformance here. But it's really triggered by this sell off recently from, call it the mid 90s down to 60 on the thesis that Uber is going to be robo taxi roadkill. And it may well be. I mean, that's a possible outcome here. I just think that I'm taking the other side on this, that the stock's had a 30 percent plus correction that makes it dislocated in my book. And I think it's still a very high quality asset. The world leader, global leader in terms of market share, both delivery and mobility with an ads business that's building up. You know, it's it's one it's got. It's part of the lucky lexicon like Uber. Everybody sort of globally knows what the

brand means and what it does allows them to spend less and less on marketing over time. So the real debate is on robo taxis. But I think it's the largest demand aggregator out there. I think chances are we're going to see robo taxis as part of your Uber app in the future, both on the definitely on the mobility side, maybe on the delivery side, too. So I can't guarantee that. But I know that the market is so negative on that thesis that I think it creates the opportunity asymmetric upside. So that's why we're long Uber. Hey, Mark, talking about your picks here, just looking at two things. Number one, the valuations of all of them kind of elevated over where the market is right now, specifically DoorDash, trading at about 97 times, according to our data.

Are you worried that in a market price to protection to perfection that these high valuation stocks with bond yields rising may face some headwinds? And then specifically about Amazon, is the potential tailwind of AI and their ad business, is that factored into your price target of 260? Yeah. So, you know, I don't know what to say about valuations. If you look at on a price to sales basis, the sector looks expensive. But on a EBITDA, and I'd argue for a lot of these names on a PE basis, it's pretty reasonable because we've had record high margins. And then a lot of these companies are doing the right mature thing and buying back stock or even paying a dividend. With the largest market cap names trading at 20 to 24 times PE, that's Google and Meta and Amazon closer to 30 times. But I think for longer, for stronger, sustainable earnings growth, I think those multiples are fine.

I don't find them too stretched. Now, you go down, you can find some very expensive names, and DoorDash is one of those. I just think DoorDash is one of those that can sustain close to 30 percent plus bottom line growth. So that's what kind of justifies a little bit its premium. There's not a lot of upside to our price target. Again, there's not that much dislocation in the group. And I'd sort of would prefer to see like a modest pullback on March quarter guidance to get more aggressive on the group. So the only real dislocated name in the group, again, I think is Uber. But like some of these other names in

Amazon, it's our number two pick. I think, A, advertising revenue growth is going to accelerate next year for them. And I think cloud growth will, too. And the beauty for Amazon shareholders is those are the two segments with the highest margins. So that's probably going to continue to support free cash flow margins rising and operating margins rising. And that should be a good catalyst for Amazon shares. Are you worried at all about Amazon in Washington, though, given what we're seeing with the potential for immigration, what we're seeing for the potential with tariffs, as well as antitrust. It seems like that may be a bit of a headwind if it all comes to pass for Amazon. Well, antitrust has certainly been a negative catalyst. That's why Google's a little bit further down our list. It does seem like antitrust is likely to be, that the antitrust

regime, whatever the word is, is likely to be less restrictive, less aggressive starting January 20th than it's been the last four years. I think that's a probability that the antitrust regime is going to be less restrictive. I also think Amazon on antitrust, I mean, it's 10 percent of retail sales. If you want to throw the book at Amazon, you got to throw it at Walmart. I don't think either of those cases can really be made given their market share. That's not Google. Google's at 90 percent. You could argue that there's a monopoly. The question is whether they're really acting like a monopoly or not. And then there's another thing you mentioned, Amazon. What I what I find

interesting about Amazon going into next year is, you know, the cash pile has been building. I think this may be the last of the mega cap tech stocks that doesn't buy back stock and doesn't declare a dividend. I don't think there's anything that's anathema to Amazon about those. I think those events are coming. I think there's a significant chance you actually start seeing cash return to shareholders this year. So that's a nice catalyst for Amazon as well. All right, Mark Mahaney, great to see you. Thank you very much. Thank you, Frank. All right, coming up, shares of Palantir having a massive run this year. That stock's up well over 300% year to date, making it the top S&P stock in 2024.

We're going to debate where that name could be headed up in 2025. That's next in Overtime. We'll be right back. And welcome back to OT. Palantir may have closed lower today, but it continues to be the top gainer in the S&P 500 for the year. Take a look at this chart. Up more than 300%. But the question is, can those gains continue into the new year?

Joining us now are Alex Fishman. He's the founder of Emprose Capital. He's also a former Palantir employee and an investor, and also Dan Ives from Wedbush. He joins us once again. Gentlemen, great to have you both here. Alex, I'm going to start off with you. We're looking at this tremendous growth when it comes to the stock price for Palantir, an even bigger acceleration after their most recent earnings. Can this trend continue? You work there. You know the business very well. You know Dr. Karp very well as well. How do you see the outlook for this company

despite this big run-up? Thanks so much for having me on, Frank. When I look at Palantir, one of the only companies that I see where it's easy to imagine it being 10 or 20 times the current size. It's just hard to see how many of the enterprises out there on the world today aren't going to end up with a product that looks nearly identical to Palantir.

So, Dan, I'm going to come back over to you. You're nodding and you're always bullish, but I'm going to have to call one thing out here. You have a price target for Palantir of 75 bucks. That's below where the stock's trading. It's higher than the street. The street's at about 45, but you don't seem to see an upside for this stock past where it is. I mean, look, our bull case is 100. But I mean, as we've talked about with Palantir, they hate it as a teenager to start the year, despise it as a senior citizen, right, to end the year. And I, Frank, I believe this could be, when you say, who could be the next Oracle over the next, call it five, 10 years? I think it's Palantir. When I think about the AI revolution, the reason they're the

messy of AI is that this is just the beginning of where I believe Palantir is heading. And as they continue to execute, you could start to justify a stock that goes much higher. And I think that's, to me, that's why it's a get out the popcorn excitement going in 2025 for Carp and Palantir. What does that mean? 100 is your bull case versus your price target. I mean, the way that we've done Palantir, we view it as base case, bull case. And ultimately, as they execute, then ultimately you could ultimately raise the price target as they actually show the numbers. I think with Palantir, you've got to show it as a sort of range, base and bull case. Because it's high beta?

Because it's high beta. But should investors be adding to their position at these levels if you believe the bull case is 100? Or should they be pausing, given with stocks? It's a great question. I mean, we believe this just continues to be a table pounder because of my view where AI heads. Because if you think about and Alex is, you know, who knows AI extremely well, I think if you actually see where this heads with AIP, this is a stock that could be multiples of where it is today, which has been our call the whole year is that this is a name, it's a table pounder, and I think it continues to sort of justify its

valuation. So one of the things that's moved Palantir higher is it's moving to the commercial business. We're working with private companies. Alex, I want to come back over to you, though. When we look at this consortium to get into defense, and we're talking about Palantir, SpaceX, OpenEye, and Andral, how do you view that? Do you believe these companies, Palantir already has a good defense business, but do these companies, what do they represent in this new quote-unquote world of defense as we go forward in 2025 in your mind? Well, I think it's an absolutely enormous opportunity. And in many respects, this is the way that we as America will get the very best and brightest technical minds working on products that can be deployed

broadly to help defeat our adversaries. And, you know, for Palantir, that means being the glue, means tying it all together, means coordinating all these things. Of course, for SpaceX, it means projecting dominance through space. And, you know, for Anduril, of course, you know, dominance in the drone arena. And for Open AI, it means bringing the best AI models to bear. Alex, you have a good vantage point of the startup ecosystem right now. And as we look ahead to 2025, I'm curious what your expectations are for the IPO window. As you talk to startups, as you talk to founders, what is it that has historically, at least over the last few years, been keeping them on the sidelines? And do you think that changes next year, particularly as it pertains to some of these native AI companies that the

buy side's really been waiting on for a while? You know, I think the very best companies, and we've seen this historically, they don't need to go public. And that's what drove the direct listings of the past. And I think it's what's going to drive the best listings of the future. And if you look at the very going to drive the best listings of the future. And if you look at the very largest, very, very best technology companies today, they'll go public on their terms. And they may even essentially be underwriting their IPOs because they'll be so profitable and making so much money before they list. So I have a question for you. I want to get an answer from Dan as well. The last thing you just said there about them basically underwriting their IPOs.

They're also buying some of their own shares on the private market. How does that change the IPO outlook and also their willingness to partner with other big tech companies in the public space or take investments from that? Yeah, I mean, I think it changes the dynamic and it makes you really want to get in before these things are public, because, you know, we've never seen private companies at a scale where they're big enough to buy back their own stock you know these companies have a a very special vantage point as it pertains to their own business and being private means that there's very few other people that have any information at all and so the fact that these guys are looking at their stock and saying well this represents a very attractive investment relative to everything else I can do with my cash.

You know, I think that's very special and extremely bullish for these companies as we go forward. Yeah. And he makes a great point. But I also want to say the strategics right now, they're looking at this landscape getting ready because with Khan done at the FTC, M&A is going to accelerate massively in terms of strategics. You're going to see the strong get stronger. And I think that's another. Some of these will go through an IPO. Others M&A. And that's why I think with Khan done at the FTC, this is really right now a queen's slate for big tech to just get bigger. And it's still 10 p.m. in this AI party that goes to 4 a.m.

You say that every time. But it speaks to where we are in the AI revolution. The always bullish Dan Ives, Alex Fishman, great to have you both here. Thank you very much. Thanks so much for having us, Frank. Time now for a CBC News update with Pippa Stevens. Pippa. Hey, Leslie, U.S. immigration authorities will bring back family detention centers

once President-elect Trump returns to office in January. That's according to the incoming White House border czar, Tom Homan, who spoke with The Washington Post. Homan said that includes deporting families who are in the country illegally with U.S.-born children. New York Governor Kathy Hochul signed today a bill that will require large fossil fuel companies to pay the state fees to help fight the effects of climate change. Under the new law, companies will pay into a state fund for infrastructure projects meant to repair or protect against future damage from climate change, such as upgrading roads and bridges, as well as restoring coastal wetlands. And if you're trying to access ChatGPT, you might be out of luck. According to DownDetector, more than 15,000 OpenAI users reported they were having issues earlier this afternoon with most of the problems related to ChatGPT. OpenAI said ChatGPT, along with the Soar video generator, were having issues and they were working on a fix.

Leslie? Well, it's a good thing we still have human writers, very talented human writers, here at CNBC to get this show on air for everybody today. Pippa, thank you very much. Up next, getting smoked. It's been a rough year for cannabis stocks, but what could a new administration mean for those names in the new year? All the details after this quick break.

Over time, we'll be right back. And welcome back. It's been a tough year for cannabis stocks as the industry continues to wait for recal classification at the federal level. Brandon Gomez is here with much more on that. Brandon. Hey, Frank. Yeah, cannabis stocks getting smoked to start the year, tracking two ETFs down 30, 50 percent for the year. The industry rallied in March, but investors quickly realized reclassification is a long road. And now a new administration brings opportunities and challenges. Let's start with the opportunities, though. Federal reclassification is underway. President-elect Trump showed support for federal action during his campaign, said he

supports the Safe Banking Act, giving cannabis access to banking and financial services, plus appointment of key officials will matter. RFK Jr. to lead HHS is seen by investors as a positive pick for cannabis. But there are still some challenges remaining. Still, only 24 states and D.C. have legalized recreational use. Medical is legal in 40 states. And Trump's pick for AG, Pam Bondi, raises concern as she's historically opposed cannabis legalization in Florida. That state failing to pass recreational use on this year's election ballot. So as it stands, 2025 may be the payoff for patient investors, but we will have to wait and see. Frank?

All right, certainly a lot of wait and see. One area, and this is actually in Leslie's wheelhouse, but I'm going to ask, what about the Safe Banking Act? A lot of people saw that as one of the big tailwinds for this industry, the idea that these cannabis companies would have lower tax rates and also be able to bank more freely, get loans at lower rates and all those kind of things. As we look at less regulation going into the Trump administration, is that something that's on the table? Yeah, I mean, the question really is how are we going to resolve this disconnect

between state and federal action, right? So they're able to bank within these states. Typically, they go towards banking with local community banks, you know, or credit unions, right? But the legislation in terms of how they can bank at the federal level, right, they're still sort of regulated like one of those high-risk asset industries. Think any industry that deals in, say, firearms or adult entertainment materials, right? Things like that.

So there really needs to be this sort of resolution and this passing of legislation at a more comprehensive level that addresses the whole industry, which is why investors are so focused on rescheduling heading into 2025. Fascinating. Something to keep an eye on, Brandon. Thank you. And the perfect segue to the tease. Here we go. Your big bank outlook for 2025, former Fed Vice Chair for Supervision, Randall Quarlesles tells us what he's expecting from that space the new year and if more mergers could be in the cards. Don't go anywhere overtime we'll be right back. Welcome back the 10-year yield hitting highs last seen in May and crossing above 4.6 percent earlier in today's session before turning lower and this comes as

the Fed has cut by 100 basis points in September. But the Kobesi letter pointing out this morning that the market has moved the opposite direction. The yield on the 10-year note up over 1 percent at today's highs since that September meeting. So joining us now is Randall Quarles, former Fed vice chair for supervision. He is currently chairman at the PE firm, Sinosure Group. Thank you very much, Randy, for being here. So this is just kind of a mind blowing disconnect when you think about it. What do you think is responsible for rates moving and market rates moving in a different direction than where monetary policy is headed?

Well, monetary policy affects the short term rate and in a tightening cycle, as we've had for the last couple of years, the short-term rate is typically higher than the longer-term rate, because markets expect that once inflation is under control, rates will come back down. And so the longer-term rates are lower than the short-term rates. But typically, over the course of decades, the difference between the short-term Fed funds rate and the 10-year rate is 1.5%, 2%, a little bit more. So actually, we would expect to see a return to the typical slope of the yield curve with short-term rates lower, long-term rates higher. And we're beginning to see that. I'd actually expect to see a little bit more of that over the course of the coming months.

So you don't think there is a term premium related to concerns over the deficit or concerns that inflation is going to spike next year, just given kind of the direction of how the longer end of the curve has moved since that September meeting? Well, I do think,

I've been saying for some time that both markets and to some extent, the Fed itself had been overly optimistic about how fast rates could come down and how far they could come down after inflation was brought under control. I think that the FOMC meeting in December demonstrated that the FOMC was coming to that view. Markets began to internalize that. So I do think part of what we're seeing is that markets are realizing that contrary to what they've been expecting for a long time, the path of rates coming down is going to be shallower and the degree to which they come down is going to be less than they had been expecting. That's

also being reflected in the longer term rates. Earlier this week, we got some news that bank industry groups were suing the Fed over what they believe to be an improper stress test process. As someone who's been in that supervisory role, I wonder what you make of that lawsuit and do you think they have a valid case there? Well, let me begin by saying that the stress test, as the banks themselves said in their suit, it's a very useful supervisory tool. The people who run the stress test at the Fed are, you know, they're extremely capable. What they did during the COVID event, for example, kept our banking industry stronger than the European banking industry.

We were able to allow the banks to continue paying dividends precisely because of the stress tests that we run in the United States. But from the beginning, there have been three problems with the Fed's stress tests in practice, which is that the process is very opaque. The outcomes are volatile. They, you know, they change from year to year. And the consequences of any particular outcome are arbitrary and when i was at the fed you know i sought to catalyze some agreement around all three of those flaws we tried to increase transparency around the models that the fed uses in the stress test we saw public well we we proposed to seek public comment on the scenarios each year uh we were developing a

process to reduce that volatility by averaging results over a number of years. And we reduced the arbitrary discretion around the consequences by implementing something called the stress capital buffer. So to make the stress test APA compliant as useful as they are, you need to do all three of those things. But the Fed sort of lost the thread on two of them over the course of the last four years. And if you don't do all three of those things, then the stress tests don't actually comply with the law. Now, on Monday, just before the lawsuit, the Fed put out a press release which indicated that it was picking up pretty aggressively, and I think pretty sincerely, efforts to address those problems with the stress test. And so I think this gets resolved

relatively straightforwardly. The banks are pushing on an open door at the Fed. But I do think that bringing the lawsuit is a useful framing mechanism for ensuring that all of those solutions are reached. So, Randall, switching gears just a bit right now. You're at a PE firm right now. I want to get your take on alternative investing right now and also a bill in the Senate that would create an exam where anybody can invest in private credit, private equity, et cetera, if they pass that exam. Some people kind of wringing their hands about it,

worried about what that might mean for investors and also the alternative investing space. Is this something that you're worried about? Is this something you're thinking about as someone who's at a PE firm right now? So, you know, over the course of decades, investing in private assets, private equity investing has been, you know, both extremely profitable for the investors and less volatile than public markets. And many of the concerns that people have had over those decades, whether it's about the degree of leverage, and I do think that, you know, leverage should be lower in our own firm. We use very little leverage in our private equity

investments. But the many concerns that people have had about risks to investors have simply not played out. It has been a very, you know, it's been a very attractive asset class, as the saying goes. And so, I think that reasonable efforts to broaden the accessibility of that asset class to more investors is appropriate. And none of the, you know the parade of horribles that people have talked about for years have ever come to pass or are likely to. Naysayers would argue that because we haven't really seen a full credit cycle, given the levels of private credit in recent years, it's kind of why that hasn't come home to roost yet. I'm curious if you think that any

concerns about credit quality, if we'd had this conversation a year ago, everyone would be talking about the potential for recession and the potential for credit quality issues in the banking system and the non-bank financial system that didn't necessarily come to pass. A few examples, but by and large, the banks have remained very healthy in the non-bank financial sector, at least what we know publicly has been pretty healthy. Do you feel like those concerns are not necessarily front and center for 2025, given the direction of rates and the state of the economy? I do think that there is likely to be more pressure. I don't think, you know, dramatic pressure or financial instability

inducing pressure on interest rate sensitive assets, because I do think that interest rates are coming down, again, at a shallower pace and not as deeply as people had been expecting. But again, whether that's a systemic problem, whether that's a real problem for investors depends on the degree to which that credit that's being extended is being levered. The banks have a great deal of capital. They weathered recent stresses, both the COVID event and the stress of the spring of 2023 quite well. The non-banks, it's a little more difficult to tell what's happening there. But again, they are not very highly levered in their exposure in the private credit space. They've been adding some leverage,

but not enough to create any financial instability risk. You know, so I'm not arguing that, you know, absolutely everyone ought to be able to invest in private credit because there will be some losses in private credit vehicles. But those vehicles are not particularly dangerous. I like the idea of passing a test to show that you have a certain amount of financial sophistication. And then you can get exposure to some assets that may have some more risk, but again, over time have not demonstrated that that risk is dramatic. All right. Randy Quarles, thank you so much. Wide ranging conversation. Really appreciate it. Thanks. Coming up next on Overtime, clean energy having its worst year in a decade. So what might be in store for that space in 2025? We'll discuss the outlook and what's at stake. That's coming up

on Overtime. We'll be right back. All right, welcome back. Clean energy stocks getting hit pretty hard this year. Pippa Stephens joins us now with whether things could go from bad to worse in 2025. Pippa. So the ICLN, which tracks the space, is now on pace for its worst year in more than a decade, and things really are not looking much better next year. Most important is the trajectory of interest rates, since these capital-intensive businesses are heavily impacted by changes in the cost of capital. Investors may also stay on the sidelines until there's more clarity on how President-elect Trump will change the country's climate policy, with a special focus on the fate of the Inflation Reduction Act. Still, there are some opportunities.

First, solar has bucked the trend and is in the green this year with a motor around it of sorts as the only meaningful producer of utility-scale solar panels. Energy storage, another area to watch with RBC calling 2025, quote, the year of batteries given how much intermittent generation is coming online. Fluence is one name to note with BMO naming it a top pick following steep underperformance this year. Finally, keep an eye on the picks and shovels of the energy transition. That's names like MazTech and Quanta Services, which have outperformed the S&P this year. They design and install renewable projects, including transmission lines. So it's a way to play

the clean energy build out without betting on one specific technology. Fascinating. Pippa, thank you for breaking that all down for us. Appreciate it. Up next, putting AI into practice will run you through Goldman's latest predictions for how companies might use the technology in 2025. Overtime, we'll be right back. Welcome back. AI in the wild.

We've heard a lot about big tech developing artificial intelligence tools. And next year, we could see more of those tools put to use. Kate Rooney is here with what Goldman Sachs is expecting on that front. They have lots of clients and lots of use cases for AI. Lots of data that they're using. So we're kind of calling this AI in the wild. That's not their phrasing, but that's what we're going to call it.

It's one piece of it. I like it. Yeah, I did speak to Goldman's chief information officer, Marco Argenti, exclusively on this topic. He spent a bulk of his career actually at AWS and Nokia back in the mobile era. He said right now in AI feels like the emergence of cloud when he was at Amazon, but a lot faster. He does say next year Fortune 500 companies will start to deploy this in a more impactful way. The first round of returns is going to be on really making the company more efficient and really making companies really like see some real bottom line benefits from the use of AI. Also predicted, we're going to see a new hybrid workforce,

AI agents working right alongside people. Argenti also said there will be an emergence of AI experts that have a very niche, specific industry knowledge. You can think of banking, for example. He is expecting major robotics breakthroughs. AI safety is also going to become a bigger priority, he says, on company boards, not just for regulators. And then large language model commoditization, he says. He described it sort of as having more cars with fewer engines. The engines here being the underlying models.

Thank you, Kate. Yeah, it seems like the question is going to be kind of are they building it? Are they buying it? You know, you have to have this competitive mode if you're a company looking to utilize AI, but in some cases it may be easier to just buy software from a company. But also people working with AI agents, how is that really going to play out? AI agents have just emerged. How does that play out long-term?

We've seen some pushback with Copilot initially, and then adoption. Yeah, and is it efficiency or driving top line is another... Yeah, we'll have to wait and see. All right, that does it for overtime.