Closing Bell - Closing Bell Overtime: Tesla, Large-Cap Tech Slides; Sahm Rule Creator On Recession Warnings; Top States For Business in 2024 7/11/24

Episode Date: July 11, 2024

A strange market day saw the Russell 2000 gain more than 3% while the S&P 500 fell for only the second time in 45 years. Large-cap tech dragged down the broad index despite more winners than losers underneath the surface. Wells Fargo’s Scott Wren breaks down the market action. Guggenheim analyst Ronald Jewiskow on Tesla’s 8% move lower after a report saying it is delaying its Robotaxi event. Claudia Sahm, who created the Sahm rule, on if a recession is really looming. Jan Van Eck, VanEck Associates CEO, on the big moves in small-caps and crypto. Plus, Scott Cohn on CNBC Top States for 2024. 

That's the end of regulation. FM Investments ringing the closing bell at the New York Stock Exchange and BlackRock doing the honors at the Nasdaq. A big rotation day for the market as the Nasdaq pulls back, snapping a seven-day win streak. Small caps surging more than 3%. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And coming up on today's show, Tesla breaking its winning streak in a big way today, sinking after reports said the company was pushing its much-hyped robo-taxi event two months from August to October. We're going to talk to the analyst who told us on Friday to watch out for headline risks around that event. Plus, a recession warning.

We're going to talk to former Fed economist and inventor of the SOM rule, Claudia Somm, about why she says Friday's jobs report triggered a red flag for the economy. And we'll talk about the banks turning in a strong session today ahead of earnings tomorrow from Citi, JP Morgan and Wells Fargo. But first, a cooler than expected print changing the narrative of this market, specifically with yields, with inflation and the CPI report yields pulling back sharply. Big tech names like Nvidia, Apple, Microsoft and Meta all dragging the Nasdaq and the S&P 500 lower today. But other parts of the market surging. The Russell 2000 rocketing higher, finishing about 3.7 percent. Homebuilders jumping. Regional banks popping as well. Today is only the second day since 1979 when the Russell 2000 gained more than 3 percent and the S&P 500 finished lower. That's according to Bespoke Invest. So an unusual move there. Let's bring in Scott Wren of Wells Fargo Investment Institute.

Scott, we're going to start right there because we had the softer than expected CPI report. Claims basically looked pretty good today, too. We're teeing up for earnings from the banks tomorrow. But really, it was everything that's been underperforming up until now that surged higher, including that Russell 2000 today? Yeah, Morgan, I think, you know, you had you had certainly you had a lot of people short the Russell 2000. But but, you know, you've had all these stocks that have done really well. Communication services technology leading the charge for at least the last 18 months in a big time way. And so I think when you hear news, you know, the market expects inflation to come down.

We do, too. But when you see the news, it's a little bit better than expected. And, you know, that kind of sparks the possibility that we might have a broader participation here if the economy improves, and it'll be more than a two-sector, you know, five- or six-stock story. So, you know, that's a big move on the Russell 2000

on one day. You know, I don't think one day really creates a trend because I think we're going to be in a slow environment economically here for probably the next two, three, maybe even four quarters. So I think it's too early for the Russell 2000. But you can see that the market's ready for some early cycle stuff. But that's, you know, I don't think that's going to happen for a little while consistently. Okay. I mean, we have been up until today, we have been talking about this widening divergence between the cap weighted S&P 500 and the equal weighted S&P 500. Should note, we did hit an intraday record high for the S&P before we turned lower. You had treasury yields, the 10-year falling below 4.2 percent

today as well. What do you buy if maybe it's too soon for the Russell 2000, but we could potentially be seeing this broadening? You know, when I've been on with you and John before, Morgan, we've talked about, you know, we've been lightening up in communication services and technology, and we've been taking that money and we've been buying, you know, some of the things that did better today were up on the day. Things like industrials, materials. We have a lot of interest in energy. I think health care is probably a good value in here. So the things that have lagged really for the last 18 months, but some of which are sensitive to the economy and certainly materials and industrials

are sensitive to these data center build outs and all this AI hype. So that's where we've been trying to put our money. We just think the valuations in the big in the mag seven and really probably the mag five only are stretched. And we want to look some other places over the next six, 18 months, especially today. I wish we could put the S&P 500 heat map up again because it's just a head scratcher because it's 10 lines of 50 stocks. The first eight lines of it. Ah, there it is. You see, the first eight lines are almost completely green. Right. I mean, look, but the S&P 500 was negative. And I look at the tech stocks that I follow most closely, the biggest ones.

Listen to this list of stocks down more than 2%. Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, Broadcom, Tesla, all of those down more than 2%. What do you suppose is going on here? Because when you've got things happening that different, right, it seems like it's deliberate. It's been such, you know, it's been such a concentrated market, such a big cap leading the charge, carrying the load kind of market. You can see how cap size has had an effect on this, where, you know, all the other stocks other than, you know, the small handful, they

really lagged in the big run up. And so it makes some sense that while a lot of other sectors in the market were up by a pretty good amount today, that cap size, it works to the downside too. So when you see comm services and technology and the big stocks really tumble, the averages aren't going to rally under those kind of conditions. And this is just just a total reversal, 180 from what we've seen on the way up. We'll see what happens next. Scott, thanks for joining us. All right. Thanks, John. All right. Scott Wren from Wells Fargo. Let's turn now to Tesla. It is the mega cap that was down the most in today's session, down about eight and a half

percent after a report that the robo taxi event that we expected in August, it's not going to be till October. This pullback breaks an 11 day win streak. And on Friday, Guggenheim analyst Ron Yovsikov joined the show and warned about headline risks about this robo-taxi event. And YopsoCo joins us now. Well, this isn't as dramatic a move as you might hope, I imagine. I mean, you specifically, Ron, because of your sell rating here. But what does it say? This was the robo-taxi event that Elon Musk announced some months ago,

kind of rescued the stock. It was on the decline. He said, oh, we're going to do this event. People got excited. And now it's getting pushed off. Why do you think? Yeah, it's a good question. To be clear, we don't have all the details right now. But I would say the genesis of this event, or at least the genesis from an investor point of view of when this started, was there were reports that the next generation platform was, was being canceled and they were scheduling the eight, eight robo taxi event that same day was when the public announcement was made. I think there was skepticism even at that time when we were talking with

investors about what they could actually show. But we have entered this, this almost hype cycle over the last several months ahead of this event, which, which our view was it did create some risk. It's much easier in our seat not actually allocating capital to say there was risk there. But I think at this point now, Elon's called himself the boy who cried FSD, FSD being full self-driving.

You do have this unreliable or lack of credibility with the narrator now that's starting to emerge because even showing a prototype is only the first step of actually commercializing a robo-taxi. We think this is 2030 or potentially well beyond 2030 before Tesla has a product in the market. It's important to note that Waymo and numerous operators in China, Baidu, Apollo being the biggest, have robo taxis operating on the road today. Now, arguably, it's not like Elon Musk was EF Hutton before this. Like we've gotten used to Elon Musk saying, I'm going to show you this thing or here's what it's going to be. And then it's not exactly that. So maybe we shouldn't expect that this is the beginning of a great tumble for the stock, because I think the shareholders, the people trading Tesla, sort of expect Elon to be Elon. No? What's different about this time, if anything?

No, I think that's fair. I think there's always a willingness, for lack of a better term, to suspend disbelief with some of the promises that are made here. And to be clear, Tesla does have a lot of data advantages. We just think there's questions around with the legacy fleet, if there's enough inference compute, particularly hardware three and earlier to actually run FSD. And then the whole flywheel of putting the initial Model 3, Model Y vehicles on the robo taxi network is at risk. And showing data to regulators becomes much harder because you don't have actual actual self-driving or level four level five testing data to show regulators to give them confidence that this can be commercialized and uh yeah i mean at the end of the day it's a fair point though the

stock at least from our advantage with a cell rating never seems to react as negatively to to actual negative headlines as it does to positive headlines. But I think today was a step closer to reality, at least for what we see as a very overextended stock. OK. I mean, given the fact that the stock is up something like 40 percent in the past month, expectations of where we go from here, it does seem like there was a lot of short covering that maybe helped fuel the rally we have seen up until today. What's the next, I guess, impetus? What's the next catalyst for this name, whether it's higher or lower? Yeah, I would say what changed today was I think 2Q earnings matter

more than they did before. There was, I would say, almost consensus belief with investors that you couldn't short this stock ahead of the robo-taxi event. Now that that's pushed out, I do think the quality of 2Q earnings matters a lot more. Our view is that the delivery upside this quarter was driven by heavy discounting, and that's going to show up in the form of negative gross margins. It makes it look much more like an auto business, And we can get excited about the energy upside. But I feel like that's well captured by our model. And the stock is trading at still 55 to 60 times our 2026 earnings estimates. It's really hard to justify this valuation without robo taxis. So I think earnings will matter more now. OK, Ron, thanks for joining us. Shares of Tesla finishing the day down about eight and a half percent, turning slightly negative on the year again.

After the break, we will talk about today's inflation data with former Fed economist Claudia Somm, who says Friday's jobs report triggered a recession warning. And later, ETF guru Jan van Eyck is going to join us to break down the massive move for small caps. And if it's just the start of a broader market rotation, Overtime's back in two. Welcome back to Overtime. Some macro and micro economic signals hitting the tape today. Earlier, we got a read on inflation with CPI, which showed its first negative month over month headline print since 2020. Meantime, PepsiCo reported mixed results this morning, citing slowing demand in North America. The company said consumers have become more value conscious. Delta saw a major drop after its Q3 revenue forecast came in light. And oversupply among the airlines is lowering

airfares. These are just some of the latest signals to come after Friday's jobs report showed a move higher in the unemployment rate. Well, joining us now is Claudia Somm. She is the chief economist at New Century Advisors. She's a former Fed economist that created the Somm rule, an indicator for the early stages of recession, which was triggered after Friday's jobs report. It's great to have you on the show, Claudia. Welcome.

And that's exactly where I want to start. The fact that you saw this trigger in your data, are we really on the cusp of a recession here or is it something else? But I should say we're getting very close to the trigger. So we're not we're not quite there. I do expect if the unemployment rate were to continue to rise, we would be in that territory very soon. What what it has historically told us, and it's a really interesting story for right now, is that these small changes in the unemployment rate over a prior year, they can be the signs that we are in the early stages of a recession. Once the unemployment rate starts rising,

it tends to get momentum and then keep going. And that's where at this point, and Fed Chair Jay Powell talked about this as well, acknowledged we've seen a lot of cooling in the in the U.S. labor market. We've seen the unemployment rate drifting up. Often that has been a bad sign. We are in early stages of recession. We're not quite there yet. And yet this time we don't it doesn't look like it's forming up that way in the sense that we're still working through these disruptions from COVID. We've seen a lot of changes in the labor supply, and that also affects the unemployment rate. And certainly we're coming

off of a very low level for the unemployment rate. We have heard from Powell and other Fed officials in recent days what seems like a bigger emphasis on the dual mandate of the central bank. And we've had these conversations for what feels like years now, the fact that this economic cycle is atypical. So at what point would you be looking at the scenario in front of you and saying we're shifting from soft landing to recession, maybe the Fed's behind the ball? I remain in the view that we have a soft landing ahead of us. What is difficult is the Federal Reserve continues to put a lot of pressure on the U.S. economy. Interest rates are high. Interest rates are the one piece that we have not seen normalization relative to before the pandemic.

And it takes time for that pressure to come off. If they begin gradually cutting rates, it takes time. So we can be in a good place right now in the economy with inflation coming down, with the labor market being strong. The question is, where are we in three months, six months from now? And the longer the Fed waits, the higher the risks are that we don't have that soft landing, that we have an unnecessary recession. And yet all signs are we're moving in the right direction. We got data today that should give the Fed a lot of comfort to start moving forward with those rate cuts and taking the pressure off. And that is absolutely important. Claudia, it seems to me a couple of the question marks here when it comes to the labor market are the impact of immigration

and how much higher the labor force participation rate rises because that affects the unemployment rate. Like if there are more people looking for work and can't find it, and that's why the rate is going up versus just more people not getting jobs. Is that fair? Absolutely. And that is the difficulty right now in parsing out as we see this unemployment rate rise. And this has not just been for the past few months. We've seen a gradual drift up in the unemployment rate over the more than a year now. Now, that did come from a period where we had these intense labor shortages. Millions of people drop out of work at the beginning of the pandemic.

That led to shortages that pushed down the unemployment rate. So we probably started lower than what would have been normal. And then we have, you know, bringing people back into work. We had immigration not just reopen, but really have a measurable increase in immigration. You have more people looking for work. This is a good thing. This helps us be more productive down the road. And yet there are adjustments to getting, you know, finding a job. But at the same time, there are signs other places that the economy is not as strong as it was a year ago. And consumer spending, the growth has slowed down some. So there's not as much demand for workers. If you're looking for a job, it is harder. The hiring rates are lower than before the pandemic. Thankfully,

the firing rates are very low. So it's this tricky pulling it all apart. So you don't want to wave it away and just say, oh, it's all labor supply. It's OK, because there is weakening. But it also seems to me, tell me what you think about this, that there's an unusual amount of pressure on the well-heeled consumer. Now, Somebody's got to keep spending, right, for these trends to keep moving in a positive direction. We're getting really close to that trigger for the SOM rule. We have absolutely seen a softening in the demand from consumers.

And there's pressure on... I mean, prices are a lot higher than they were. Even if inflation is cooling, we have seen price levels rise quite a bit and you're seeing pushback from customers and companies trying to figure out their pricing strategies going forward. So yes, as a consumer-driven economy, if you lose the U.S. consumer, we have a big problem. It is where we are right now. Things remain in a good place. It's a delicate balancing act between the consumer and the worker and the Fed easing off and getting out of the way so we can just get into an expansion of glide path. All right. Claudia Assam breaking it down for us. Thank you.

Still ahead, ETF manager Jan van Eyck weighs in on the big jump for small caps, plus his latest thoughts on where crypto and gold are heading from here. And later, the CEO of American Century Investments, which has more than $250 billion under management, joins us with his take on the major rotation in the market today. Stay with us. Welcome back to Overtime. The Russell 2000 having its best day since December, gaining more than 3%. Pharma names and some smaller tech stocks boosting that index.

And joining us now is Jan van Eck, Van Eck Associates CEO. Van Eck offers a small mid-cap ETF, SMOT, one of its 70 U.S.-based funds. Jan, welcome. Could this be the green light today for small caps, finally? Ultimately, I think so. It's hard to know with a one-day move. So when you have such a violent move like you had today with semiconductors falling and basically the rest of the market, except for the MAG-7, doing well, you have to say, is that just a one-day reversal or have we finally hit a trend? I'd like to scale back and say, what's the big force that's been in the U.S. markets and the U.S. economy? It's been government spending. And that's why we didn't have a recession this year. If you look back at all the surprises, why interest rates haven't fallen yet,

it explains almost everything. But we have this huge government spending at very low unemployment rates. So my thinking is the Fed is in a box. They have to be stimulative. And then we have a big fiscal question next year. Do the Trump taxes go, you know, do they roll off? Do taxes go up? It really depends who's elected there. I think the Fed, the pressure is on the Fed to ease in face of all that, which is good for small caps. Oftentimes lately, it seemed that risk assets have moved together, sometimes regardless of size. And Bitcoin has acted like a risk asset.

Bitcoin was weird today, though. It spiked up and then went down. What do you think is moving Bitcoin most these days, especially as we look at inflation and expectations around yields? Right. Big picture. I'm very bullish on it started a year ago. Bitcoin and gold. Why? Because you had the sort of fundamentals of Bitcoin. You had the happening and all the interest stuff there.

But then you had the Fed easing, just like we were talking about. Same trend. It's just, it's like fuel for Bitcoin and gold investors, right? The Fed easing. So it's super bullish. Why did Bitcoin, Bitcoin's got some selling from the German government. There's the Mt. Gox selling, those short-term stuff. But we've seen only a 20% correction, John, in the Bitcoin price.

And that's kind of normal in a bull market. So at VanEck, we like to say we're hodling, which is holding on for dear life. So we're long-term investors. And all the ETFs pretty much have seen inflows, including last month when the price was down 10%. So it's a drip from retail investors. And we've been talking quite a bit about how what you're seeing in Bitcoin tends to be a leading indicator for the levels of liquidity in the market more broadly. But I do want to go back to gold because we're trading at record highs. We do have this geopolitical tension backdrop as well, in addition to the fact that it

is an election year. This reserve weaponization, I've heard it called, with more central banks starting to buy gold rather than bonds or treasuries. Where does it go from here and why are you so bullish? Yeah, I mean, if we're just at the beginning of this trend, that's why we're bullish on gold, because you haven't seen any inflows into the ETFs in the United States, neither gold bullion nor gold shares. It's been foreign bank buying, like you're saying, central bank buying. That's the what else are you going to buy?

All right. If you don't want the dollar, you got a Swiss franc, maybe, you know, the euro, the yen is out. Right. Because of all the weakness in that currency. So Bitcoin is your alternative. So I think next year I call it the 2025 fiscal reckoning. You got Social Security bankruptcy looming, I call it the 2025 fiscal reckoning. You got social security bankruptcy looming. You know, in the U.S., that's when we solve problems, the year after a presidential election. So it really matters, you know, how we're going to, you know, we're going to solve these problems next year. And I think that's all Fed easing, all good for gold and Bitcoin. Spot Ether ETF, is it coming?

Yes, soon. Okay. Jan Venek, thanks for joining us. Great to have you here on set. Yep, thank you for having me. Well, it's time now for a CNBC News Update with Eamon Javers. Eamon. Hey there, Morgan. In the final hours of the NATO summit, Ukraine's Volodymyr Zelensky said his country could win the war against Russia if the U.S. lifts a limit on striking military targets inside Russia. Earlier in the day, President Biden reaffirmed his support for Ukraine through a new $225 million weapons aid package. And while pledging to Zelensky, quote, we will stay with you, period. Marathon Oil will pay a $241 million settlement for air quality violations on the Fort

Berthold Indian Reservation in North Dakota. The EPA and the Justice Department said the settlement will require Marathon to curb emissions from the facilities, reducing pollution by 2.3 million tons. Attorney General Merrick Garland called the settlement historic. And a bipartisan group of senators unveiled a new artificial intelligence bill today to give artists and journalists control over their content. The so-called Copied Act would allow people in these professions to make their own decisions over whether their content can be used to train AI models. And that means you too, Morgan. Back over to you. All right. Eamon Javers. Sounds good to me. We'll see. I don't know. Devil's in the details. All right. Up next, the CEO of American Century Investments joins us from the sidelines of the

company's celebrity golf tournament in Lake Tahoe with his latest thinking on the market and where clients are putting money right now. And as we head to break, check out the major move in the home builders today. You can see everybody up more than 6 percent, rallying hard as yields pulled back. KB home up 10 percent. We'll be right back. Welcome back to Overtime. Round one of the American Century Championship tees off tomorrow. The annual celebrity charity golf tournament will feature New York Jets quarterback Aaron Rodgers, former Yankees star Alex Rodriguez, and both Jason and Travis Kelsey, among many other household names. But joining us now to talk about the tournament and to give us his outlook on markets is American Century Investment CEO Jonathan Thomas, along with CNBC senior markets correspondent Dominic Chu. Dom.

Thank you very much, Morgan. Jonathan, first of all, thank you so much for hosting us out here. It's a real pleasure to have you here with us. Thank you. Your whole network, NBC, you guys do an amazing job. This event has turned into a world-class event because of the network. All right. So let's talk a little bit about the event itself.

This is a storied event. The number of celebrities I've spoken to over the course of the last 24 hours they love coming here why do you do this tournament and why have you been doing it for so long so it's the 35th year we've been the sponsor now for 26 of those and it is the perfect platform to tell our story when we look at the demographics of the viewers this and of course what's happened over the 20 years, some years we've done this, golf has grown in popularity. Celebrities have grown in their influence. And this has just taken off. And it is our single major marketing effort of the year. And as I travel around the country, people see the American Century name.

Everybody knows the brand as a result of this tournament. So it's turned out to be a great investment for us. It's not just about investment and marketing for your company. This is also a massive fundraiser with regard to the charity it supports, the primary one. Can you take us through the story about why you've chosen what you've done with this tournament to benefit the charitable causes that you choose?

Thanks, Tom. That's a great question. We are, I call ourselves a universe of one. Our founders, Jim and Virginia, did something almost nobody does while they're alive and they gave away almost 100% of their net worth to set up a medical research organization to help people with cancer and other gene-based diseases. As part of that structure, we now direct 40% of our profits each and every year to medical

research to find these cures and to make the world a better place for you, our kids, and our kids' kids. And over the last 20 some odd years, we've directed over $2.1 billion to medical research from this model. It's crazy. So happy to have you, and certainly very admirable cause to be talking about here. I do want to shift gears a little bit, though, because we had a mixed picture for the markets, but really underneath the surface, it was a very strong mirror rotation versus what we've been seeing play out here this year. Big tech under pressure, yields under pressure, small caps and less loved parts of the market rallying today. Is this a rotation that has legs?

Yeah, you know, it's a great question. I mean, the thing about the market that's been going on for everybody, you know, this is the most anticipated recession that everybody's called for that's actually never developed. And part of the thing that's held back the interest rate cuts that everybody's looking forward to, of course, is a strong underlying market. That's why the Fed has been hesitant to cut rates and why the economy continues to move along quite strong. But it is starting to broaden out. The concentration we had in the Magnificent Seven has changed. In fact, if you look at the S&P, which is up about 18 percent year to date, but if you did it on an equal weighted basis it's only up 4% and this speaks to the concentration and we are starting to see a little bit broadening out. We're seeing money

move into some small caps and U.S. global small caps by some of the most informed institutional investors right now. Jonathan GDP accelerating in Europe and the far east compared to the U.S. from here. We talk about broadening out. How are you thinking about international stocks and even emerging markets? Well, you know, the United States, as we always tend to do, has led the way out of this troubled times in the pandemic. And we're still the most attractive market. But there's a lot of a lot of changes going on globally for sure, right? FX rates between Mexico and Japan is at like a 40-year low. The Japanese market's coming back.

So we see lots of opportunity in a selective way, not broad-based investing, but there are absolutely real opportunities investing abroad right now. And Jonathan, one of the things that we also want to talk about is the number of folks out there who may feel as though the upcoming election, which is a big focus for many folks out there, not just investors, but Main Street America as well, whether or not that's going to have any impact on the economy, the markets in general. I wonder if you might take us through what you think, and not predicting the election, but what you think the markets could do in whatever scenario

analysis you guys are planning right now? It's a great question, Dom. First of all, we kind of think it's a fool's errand to be investing based on the market outcome. It's really like three things you got to get right. You got to get the candidate, you got to get their ability to actually execute what they say they're going to do. And then on top of that, it can't be already priced into the market. But the best thing for the markets is always certainty not uncertainty and certainty could also be known as gridlock and gridlock comes along best when you have a split government call it a Republican president and a Democratic Congress that creates a higher degree of certainty than when you have purely

Democratic controlled or purely Republican controlled government so I creates a higher degree of certainty than when you have purely Democratic-controlled or purely Republican-controlled government. So I think the market would be best probably with a Republican president and a Democratic Congress. All right. Jonathan Thomas, thank you guys very much for hosting us here and for a great event you guys are going to have. And good luck with the rest of the tournament this weekend. Thank you, Don. Thank you guys for being here.

Thank you, Morgan and John. Appreciate you guys too. All right. Thank you as Dom. Thank you guys for being here. Thank you, Morgan and John. Appreciate you guys too. All right. Thank you as well to you and to our own Dominic Chu there. And don't miss Bill's quarterback, Josh Allen, Charles Barkley, Colin Jost, and other celebrities in this year's American Century Championship. You can watch all the action Friday through Sunday on NBC, Golf Channel, and Peacock. And I do hope our own Dom Chu gets to hit some golf balls

as well, since he's a formidable golfer. Well, Virginia is America's top state for business for a record sixth time. But up next, Scott Cohn is looking at the one state that skyrocketed up the list. Scott. Yeah, you know, we shook things up a lot this year. So we're going to tell you which states moved. And this state, which really pulled off quite the move in our top states for business study, that's coming up on Overtime. We now know Virginia is America's top state for business, not Georgia. And CNBC's annual study, a study with a lot of changes this year, and that led to some big moves in the rankings, including one that would make Forrest Gump proud.

Our Scott Cohn joins us again from Virginia Beach with this year's winners and losers. Scott. Yeah, John, remember, we had more metrics than ever this year, 128 in our 10 categories of competitiveness, and we also had that new emphasis on infrastructure so this was bound to shake things up let's take a look vermont drops eight points overall led by a big drop in business friendliness three these states all fell because of their infrastructure rankings maryland montana delaware and the biggest overall drop of all was massachusetts the biggest winners iowa and and Kentucky, each jumped nine spots to numbers 14 and 27, respectively. Wisconsin rises 12 spots to number 21, winning that tech hub that we talked about a couple weeks ago, that help.

Missouri climbs 14 places to 18th, and Oklahoma jumps 15 spots to number 26 overall. And we stay in the Deep South for this year's most improved state. It's true there wasn't much place for Alabama to go but up after its 42nd place finish last year. In fact, it's never finished higher than 31st until now. The heart of Dixie surges to the heart of our rankings this year by doing some important things right, especially in infrastructure. In a year when companies are demanding shovel-ready sites, Alabama has 50 of them certified ready-to-go. By the numbers, Advantage Site is one of the best site readiness programs in the country,

according to the Site Selectors Guild, an industry trade group. So a manufacturer can come in and walk right into a site that's ready to go for their operation. Beyond those certified sites, Alabama has the most accommodating land use regulations in the country, a new metric this year in our business friendliness category. And the state is pouring money into education, especially higher ed, more so than any other state. But this state isn't sweet home for everyone. With no state legal protections against discrimination and some policies that are downright hostile to the LGBTQ population, not to mention the nation's most restrictive voting

system, Alabama finishes 48th for quality of life. But that is not stopping workers from moving to the state, particularly in the Huntsville area. So that helped Alabama to a big jump in its workforce ranking. And speaking of workers, it never ceases to amaze me the people that put in so much work to make this happen every year. I wish I could thank everyone individually. I will give a special shout out to the producers of our TV coverage this year, Patrick Manning and Casey O'Brien. This is their first Top States and they knocked it out of the park. Go see where your state ranks, read all of our coverage, see all of what we've done at topstates.cnbc.com. That's Top States for 2024, guys.

Will do for sure. And Scott Scott I wonder how important was federal infrastructure funding which was controversial at one point to helping some of these states with these rankings this year. Well I'll tell you what it did John it got all the states talking about it talking about their great infrastructure because companies want to get this infrastructure money so the thing that we start with when we do the study everywhere is we see what the states are talking about to figure out how we're going to weight our categories of competitiveness. So it made infrastructure more important.

It meant that we had more metrics within infrastructure. And so that federal funding, whether it's in that or in technology and innovation with the Chips and Science Act, it is important. Whatever you think about all this government money going into the economy, it definitely has altered the competitive landscape. All right, Scott Cohn, congratulations on another amazing list. I guess I'm not surprised about Alabama either, knowing what a boom city the rocket city Huntsville has been for a number of years now. Scott, thank you. Well, speaking of space, up next, the CEO of space startup and D50 company Relativity Space on how he's using AI to build rockets. Plus, bank stocks

booming ahead of tomorrow's earnings from JP Morgan, Citi, and Wells Fargo. Coming up, a top analyst tells us what to expect. And check out defense stocks getting a boost as NATO members meet in Washington, Textron, RTX and HII, all closing higher as we've seen more weapons orders and more demand for defense. Overtime, we'll be right back. Relativity Space is a CNBC Disruptor 50 company touting an investor list that includes BlackRock, Bailey Gifford and Fidelity. The space startup is led by Tim Ellis, a Blue Origin alum who founded Relativity on the premise of 3D printing rockets. We're building a reusable rocket, which is really an alternative

to what SpaceX has built with Falcon 9 and now with Starship. So they have continued to be very successful with Starlink, which is their own satellite network. But the commercial launch industry needs there to be another quickly moving disruptive player in launch to launch Amazon, other companies that are building satellite networks. So Relativity is the largest company that is working to be that second great American launch provider. So disrupting the original disruptor. After launching its smaller Terran 1 to space for the first time last year, Relativity pivoted to developing the more powerful Terran R.

Ellis says the medium-to-heavy lift rocket is still on pace to fly for the first time next year. No customer announced yet, but the company has a backlog that's doubled in a year to more than $2 billion. Now, investors have been enticed not just by the launch business, but Relativity has pioneered 3D printing technologies that could be applied to manufacturing across aerospace and other industries. It's the reason the U.S. government has awarded tens of millions of dollars to the startup to implement software and data science in large-scale metal 3D printing. This could become a future prospective revenue stream for Relativity.

But AI, that's really the key here. We're using it a lot for material science, for quality control. But what is interesting is we are starting to actually design parts on the rocket with AI. So this is quite exciting. I think this is something, speaking of Sam Altman, I've talked with him quite a lot about because I'm very curious instead of large language models, how do we get to large physics models that actually can do new science and new engineering where you can give some sort of, you know, target of saying, hey, design me an optimum turbo pump or an optimum rocket. And then it actually spits out a design based on AI. But then you need 3D printers to be able to actually build them. And so really 3D printing is just the kind of AI solution to how do you physically build products that are going to be designed in AI. So Ellis and his company were actually directly mentored by Sam Altman when he was at Y Combinator.

But for more, you can check out my Manifest Space podcast. You scan the QR code right here. This was a deep dive, long conversation with Ellis, and that will be available later this evening. Fantastic. Up next, a top analyst on whether to bet on the banks ahead of tomorrow's earnings from some of the biggest names in the industry. And before we head to break, another QR code for you. There you go. Latest installment of my On the Other Hand newsletter is where that will take you. This week's debate is Amazon overstating its green credentials after announcing it has reached one of its climate pledges.

You can scan that code on your screen or type in CNBC.com slash OTOH to join the conversation. Welcome back. It was a wild day for the markets as the Russell 2000 small cap index surged 3.5% while the NASDAQ and the S&P 500 pulled back. And it was a big day for the banks, particularly the regionals. The KRE index jumping more than 4% near levels not seen since January. Now, tomorrow, bank earnings season kicks off with the bigs. Wells Fargo, J.P. Morgan, Citi all reporting before the bell. Let's bring in CFRA Director of Equity Research, Ken Leon.

Ken, it was a day for the smalls, right? Whether you're talking about the Russell 2000, the KRE, the regional banks versus the big ones. I'm looking at, you know, JP Morgan City. They were both down a bit while the regional banks were higher. What kind of a setup is that for the earnings that we're about to get? Well, it's great to be here. And it was good to see this. So we got some breadth and dispersion to smaller banks up until a couple of days ago. The large banks diversified have been up 17 percent. So they've been performing well just to the S&P 500. But the regional banks or smaller banks were

down 7 percent. So I think the market was really looking for underperformers and seeing where maybe fundamentals are going to be stable or not bad, but stocks haven't performed. So I think it's a good sign for the overall equity market. But as we begin to look really deeply into the banks and focus tomorrow's going to be on the global banks, the big at least three of the big ones. Well, it seems like the odds are moving toward that first cut from the Fed coming as soon as September. But we don't know how many more from there. And we don't know how the overall consumer-driven economy is going to react. So what do we need to hear from the banks?

What do you think is going to make the biggest difference investor reaction-wise on these earnings calls? Yeah, so there's two dynamics there. One is about the health of the economy and consumer. The second is for rates, which are important for banks. What we're seeing is still healthy economy, good loan volume activity. Balances are picking up, particularly for consumer on credit cards. But employment is still very healthy. So risk in terms of high delinquencies for auto loans or mortgage, we don't see that. And we do every quarter a deep dive on all the banks on delinquencies and risk.

The banks might add a little bit to the reserves on credit card, but no worries there. The other dynamic for banks, particularly smaller regional banks, a very high percentage of their net revenue is related to rates with net interest income and we're still seeing that battle for deposits higher cd rates so the spreads are narrowing for the larger banks their net interest income comes from a diversified base of custodial and other areas so So overall, let's put it together. Economy's good. Consumer's healthy. We still have those idiosyncratic issues today, but over the next two years on commercial real estate, just for office real estate. And there's nothing episodic or negative within

commercial and industrial loans like energy or any of there. So we're looking pretty good. OK, so Ken, quickly, a steepening yield curve. Is that good? I think at this point, these banks can do well in all rate scenarios. So we're moving from a rate hike to a rate cut regime. And so long as rates don't come down too quickly, we don't think that's the case, they're going to do just fine, providing the backdrop is a healthy economy, not one that's going into recession. Okay. Ken Leon, thanks for joining us. And of course, we do get JP Morgan, we get Wells Fargo, and we get Citi tomorrow. We also get BlackRock. So earning season, here we come.

I'm curious how long this small versus big dynamic plays out. You can call it breadth, but the sheer contrast today was remarkable. We did get some headlines from Chicago Fed President Goolsbee basically calling today's inflation report, quote, excellent. We did see a mixed picture for the markets after the Nasdaq and the S&P both hit intraday records, finishing the day lower, but we've talked about it all hour. Russell 2000, strong, strong day today. That does it for us at Overtime.