Closing Bell - Closing Bell Overtime: The Fed cut debate, Shake Shack CEO on the consumer, Intuit CEO on small business 9/17/24

Episode Date: September 17, 2024

The S&P 500 touched an intraday record the day before the Fed decision, where Wall Street is split on whether to expect a 25 or 50-basis-point cut. RBC’s Lori Calvasina, Vital Knowledge’s Adam Crisafulli, and Neuberger Berman’s Joe Amato all weigh in on their expectations and how the Fed could change the narrative. Shake Shack’s CEO Rob Lynch joins for his first interview since taking the helm at the company in May, with his read on consumer spending and Shake Shack’s place in the value menu wars. Plus Intuit’s CEO on the company’s new enterprise tools, Coursera’s CEO on the parts of the world benefitting from AI, and an update on Elliott’s activist battle with Southwest.

That bell marks the end of regulation. MSCI ringing the closing bell at the New York Stock Exchange. Verona Pharma doing the honors at the Nasdaq. And stocks trading in a pretty tight range as the Fed meeting gets underway. Though the S&P 500 did kiss an intraday record. And small caps, the Russells saw some decent gains. That is the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. It was like a peck on the cheek. Well, coming up on today's show, Shake Shack's new CEO, Rob Lynch, joins us to break down today's retail sales data and his read on the consumer in his first interview since taking that job in May. Plus, the CEO of Intuit talks to us exclusively about the company's just announced enterprise suite. And will the Fed go for a 50 basis point cut tomorrow while Neuberger-Berman President

Joe Mato weighs in on the big debate of the moment. Now let's get to our market panel. Lori Kovacina of RBC Capital Markets and Adam Christofouli of Vital Knowledge. Guys, welcome. Lori, small caps outperformed today, but you say investors shouldn't get used to that. Look, I think that small caps already have a lot of good news baked in. And if you look at valuations, they're basically back to average. If you look at positioning, we're basically back to the three-year highs where the small cap outperformance trade has topped out in the recent past. So we're optimistic that we will get a broadening out in the market. We will see small caps do well on a relative basis, but I think that's more of a longer-term call. I think

for the here and now, what we're concerned about is that an environment where we're constantly debating whether or not the Fed waited too late to start cutting rates. Are we on the precipice of a recession? As long as we're having those conversations, it seems difficult to see small caps really continuing this big outperformance move. And I do worry a little bit heading in tomorrow that if we don't get the 50 basis points, that some of the recent price action in the small cap has really been driven by renewed optimism there. Well, yeah, Adam, are we at the point where a 50 basis point Fed rate cut is priced into the major indices and more of the risk is to the downside with relatively high valuations? Yeah, so I definitely think, you know know it's going to be very interesting to see

what they do on rates. I would just point out though that the funds rate will be one component of the overall decision tomorrow. It's just one avenue through which they really convey policy so there'll be some pretty dramatic statement changes. We're going to get a fresh supplemental with new dots, an economic forecast, there'll be a press conference obviously you know along with potential balance sheet commentary. So in aggregate I think that's going to be a press conference, obviously, along with potential balance sheet commentary. So in aggregate, I think that's going to be a very dovish decision. I think that they're justified in doing 50 basis points just given what's happened with jobs, inflation, and given some of the recent rhetoric, including Powell, Jackson Hole, and Waller's recent speech at Notre Dame. I think in the immediate term, markets are pricing in a pretty healthy and favorable decision from the Fed.

But, you know, fundamental news flow remains favorable for equities as far as resilient growth. We saw that with some of the data this morning. We're getting monetary easing not just from the Fed, but BCB, Canada, a lot of the other major central banks except for Japan. And then corporate performance has been relatively healthy also. So long as that news flow stays in place, I think it's going to create upside pressure for stocks going forward. So, Laurie, maybe you're cautious on the small caps. We did have the Dow and the S&P both touch all-time highs earlier in the session. You've got the 10-year Treasury yield at the lowest since June of 2023, the 30-year lowest since July of 2023 right now. How do you position yourself, not only ahead of the Fed and whatever cut we get tomorrow,

but as we look to the elections and we look beyond and you do think about valuations and what's been volatility not only in equities but in bonds? So I think there are so many moving parts right now, Morgan. And I would say, you know, I've had some questions on what do we buy if the Fed cuts 50? What do we buy if they cut 25? I don't think there are any sort of clear sector calls on what you want to do there. I do think what we want to do is continue to look at things like valuations and sectors that can benefit from the preservation of a soft landing and the idea of interest rates coming down just a little bit. And so we keep coming back to the financial sector. And this is one that's, you know, starting to get back to average on an absolute PE,

so just PE relative to history, but it still looks pretty cheap versus the market. And we're getting good earnings revision trends there. If you talk to our large cap banks analyst, Gerard Cassidy, one thing he's been saying for quite some time is that if we were to get some cuts from the Fed and preserve that soft landing, it's really the sweet spot for the banks. And, you know, really keeping interest rates a bit above where they've been in the past is also good for the banks. So I think that, you know, we are looking at sectors like that, not really trying to play these short-term trades, but where do we think we want to be given where we think the economy is headed in that lower-rate environment? And, of course, Adam, it's not just the Fed with the decision this week.

We have a whole flurry of central banks over the next couple of days, many of them G20 members. I mean, you've got Brazil, which could potentially tighten for the first time in three and a half years, Bank of England rate decision on Thursday. And then perhaps just as importantly as the FOMC, the Bank of Japan, where we know there's been a lot of volatility in FX because of some of the dynamics that are going on in that part of the world right now. No, absolutely. So the BOJ is Thursday night. Unlikely they cut at this meeting, but, you know, they've been pretty clear that they are very likely to continue bringing up their policy rate if economic data comes in as expected. So I suspect that would be the messaging that we'll hear from them Thursday night. You know, the BOJ was responsible or played a role in some of the volatility we saw over the summer. You know, but I think markets have gotten their arms around that. You've seen an unwind of a lot of the yen carry trades.

So that's not as large a risk as it was before. But certainly that's going to be a major event right after the Fed, about 24 hours later or so. Lori, we are a little less than four weeks from earnings season anew kicking off with the banks. And I wonder what metrics are going to be front and center for you, as you mentioned that financials are a focus after this Fed action. So, look, I think that we're at a point, right, where beats are not enough. And we've gotten some hints of that in recent reporting season. I think that investors are also increasingly looking at the details. They want to see revenue beats in addition to earnings beats, you know, kind of higher quality earnings beats. And I think also forward-looking

commentary is very important. We've been seeing a lot of companies alluding to the idea of higher interest rates, of inflation overweighing decision making, weighing on demand, also rising uncertainty associated with the election. Obviously, the election is still somewhat off, but now that we've got the cuts upon us, I think investors are really going to be looking for maybe a shift in tone from some of these companies that they're sort of no longer talking about the pressures of higher inflation, of higher interest rates, but looking forward to the benefits of seeing those things come down. I think those are going to be really important themes to monitor. Okay. Lori Kalbstein and Adam Christofouli, thanks for kicking off the hour with us.

With stocks basically finishing the day flat, both the Dow and the S&P, the NASDAQ up fractionally in what is the FOMC drift that we tend to see before a big decision meeting from the Fed. Indeed. Yeah. All right. Well, Microsoft's getting a lift today after the company said it approved a new 60 billion dollar buyback and hiked its dividend. Let's turn to senior markets commentator Mike Santoli for a closer look at the growing interest in companies that can return cash. Mike. Yes, Morgan. And with the Fed cutting rates, there's a lot of things that go into this mix. Microsoft, of course, for two decades has been a pretty active returner of cash to shareholders. It actually was a little over 20 years ago. They initiated a dividend the first time. They also did a big special dividend back in that period. Here's the dividend yield of

Microsoft over just about the last 20 years, a little bit less than that. You see it actually started low, but here in this period, it had quite a rich premium to the yield of the S&P 500. That was when the stock itself was just kind of going sideways. Microsoft raises its dividend pretty much every year, and yet the yield has gone down just because the stock price has appreciated so rapidly in the last several years. So right now, it's not a very high yielder, but it is a dividend growth story. And those stocks, dividend growth type names, have been doing much better. There's ETFs that basically just capture

that part of the market. Now, take a look here at what the respondents to the Global Fund Manager survey that was released today by Bank of America said they would like to see companies do more of with their cash. And you see this real surge in people saying, return it to shareholders, buy back stock, give us dividends relative to other uses of cash, which would include capital spending or debt reduction and improving balance sheets.

So to me, it says this is an environment where investors are comfortable with companies' financial positions. They don't really feel like they have to rush to pay down debt. And maybe the CapEx seems like it's, you know, they've done enough for a while, and so they'd rather see in an environment where valuations are full, some of that cash come back to investors, Morgan. And we do know that tends to be synonymous with quality, this idea of companies that are throwing off cash and then returning it to shareholders.

I do want to go back to Microsoft for a moment, though, because whether it's Microsoft or Meta or Alphabet, when you're talking about stock buybacks, massive stock buybacks, you're talking about dividends. It almost seems like these are companies that are saying, look, we're going to be spending this much money, so much money on generative AI. We're throwing off enough cash that we want you to come along for the ride as investors. And here's how we're going to do it. Yeah, I've said for a while, Morgan, that there's a small handful of companies that you name there that really don't live in a world of difficult tradeoffs. There's enough to go around. There's enough for them to invest as much as they want in obviously data centers and things

like that and still have enough left over. Now, the numbers sound big. A $60 billion buyback sounds huge in the objective sense, in a vacuum. But it's less than 2% of the market cap of Microsoft. I mean, Microsoft shares trade that much in a few days. So it's a big number going back to shareholders. But the resources and the heft of Microsoft are such that it's not necessarily that enormous an influence on the stock price itself, John. All right. It's all relative. Mike, we'll see you again in just a bit. Turning now to Snap, which is holding a partner summit today in California, announcing new AR products.

Julia Borsten earlier spoke with Snap CEO Evan Spiegel, joins us with the highlights. Hey, Julia. John, that's right. Snap talked here today about how they're starting to roll out a new simplified version of the app, but really in focus with CEO Evan Spiegel and the developers here today are the new augmented reality spectacles and operating system that the company's rolling out

for developers to create new AR experiences. But with no timeline about when they plan to market these devices with consumers, to consumers, and with Snap's shares down about 42% year to date, I asked CEO Evan Spiegel how the innovation of these AR spectacles would drive revenue. The key to generating revenue is making great products that people love and want to use.

And that's always been our focus. That's driven the growth of our community, the engagement with our products. And we're really excited about the way that people are going to use AR glasses. We think we're at a bit of a watershed moment. People are getting fed up with their screens in the way that they make them feel.

And developers are feeling frustrated about developing for the smartphone platform. So I think we're at a unique moment where both consumers and developers are really ready for something new. Spiegel also said that their new ad formats, both within the map and in direct messages, will help brands reach Snapchatters where they are spending time within Snapchat. Though no comment about specific revenue implications of those new ad formats.

And John, that's because we're in a quiet period ahead of earnings. Morgan? All right, Julia Boorstin, great stuff. Shares of Snap finishing the day down 2%. We have some news on EA, which took a dip into the close. And Steve Kovac has those details for us. Steve. Hey there, Morgan. Yeah, this is coming off of Electronic Arts' Investor Day. It's been going on for the last several hours.

Just a slew of announcements coming here, but you do see the reaction here. Shares are down about better than 2.5%. Among the announcements coming here are some conceptual videos of new AI tools that they plan to do. That means using natural language to sort of create your own video games. They did make it clear that those are just concepts, the very early days and things like that. And then some financials that are coming out here, too, talking about American football games. That's the Madden franchise and the new college football franchise saying for fiscal year 2025, they expect that to have one billion dollars in net bookings. And then some one little negative bit of news coming out of here.

Apex Legends, that's a shooting game. That's sort of like Fortnite that Electronic Arts makes. They said that revenue expectations for that game in the current quarter missed some expectations there. And they're taking another evaluation of this new version that just came out to see how they can monetize that better. That appears to be dragging on the stock a little bit as well. This is still going on. It's going to be going on for another 15 minutes or so. The CFO is talking right now, expecting some more color and detail on forward-looking financials there. But you can still see, guys, shares are now about two and a half percent. John, I'll send it back over to you. All right. And by the way, one more thing. One more thing.

I have CEO Andrew Wilson from Electronic Arts. He's going to be on with me exclusively on Money Movers tomorrow at 11. Oh, don't forget that. Can't forget that. Yeah. It's like an Apple style. One more thing. Exactly. Thanks. After the break, Neuberger-Berman president Joe Amato weighs in on whether he thinks the Fed is behind the curve and the one surprising place in the world where he sees opportunities right now. And later, the new CEO Shake Shack joins us for his first interview since taking the helm with a read on the consumer and how he views Shake Shack's position in the value meal wars. Overtime is back in two. Welcome back to Overtime.

The S&P 500 touching a record high ahead of the Fed decision coming in less than 24 hours. But the outlook isn't rosy for everyone. Double lines. Jeffrey Gundlach spoke with Scott Wapner this afternoon at the Future Proof Conference with a warning on the economy. I said on July 31st, I made the maybe extreme statement that the history books would say that the United States was in recession September of 2024. And I still believe that's true. I think we're in a recession right now. Well, joining us now is Neuberger-Berman president and CIO Joseph Amato. Joe, it's good to have you back on the show. Contrarian take by Jeff Gundlach there.

But given the fact that we are seeing this loosening in the labor market and we have this 50 versus 25 basis point cut. And then, of course, what happens after that in the following meetings with the dot plot tells us tomorrow from the Fed. How do you see this economy? Well, I do think the economy is clearly weakening. The question is, how far is it going to go and what the Fed's response is and how quickly that's going to take effect. But as we've seen over the last number of months and quarters, you've seen slow and steady sort of weakness in the in the labor market. And you have other indicators that are showing some stress on the consumer side. Now, the overall macro numbers remain in decent shape, right? The GDP now numbers right now, I think, are in the mid twos.

And the retail sales number that we saw this morning certainly tells you that we're not falling off a cliff, per se. But clearly, there's weakening going on in segments of the economy. And I think an aggressive action on the Fed is warranted. Does it make sense, then, to be seeing the S&P 500 at record highs? Well, I think you've got to appreciate the S&P 500 is not necessarily reflective of the overall U.S. economy, right? You're talking about 500 stocks that are, you know, world-class, globally competitive stocks that don't really need to go to the banks to borrow money. They can go into the investment grade bond market. So, you know, these companies are doing great, right? But as you get below

the S&P 500s, you move into small cap land, as you move into micro cap, never mind private companies, they're seeing the stress, right? Small cap earnings have been down a number of quarters in a row in the sort of double digit percentage range. So I think that's more reflective of what's going on in the overall economy. Joe, great to have you back. So are bonds back as an effective defensive play on portfolios? Certainly bonds, I think, are proving to be a quite defensive play in the portfolio. And the correlations that we saw back to 22 where people question the validity of a 60-40 portfolio because of that higher correlation of equities and fixed income, I think that shifted. Right. So, you know, the fixed income markets are now driven more by market forces, not suppressed central bank rates, and I think are increasingly an important part of the portfolio because you can get better returns there. I mean, simple as that.

So on international markets, India has been doing really well, but outside of that, where do you see opportunity? Well, the other market outside the U.S. that we have been bullish on for the last couple of years has been Japan. We think there are a lot of very important secular changes going on in corporate Japan that are going to transcend whether the yen is weak or they shift monetary policy modestly in the short term or what have you. I think the long-term changes are that CEOs, management teams of Japanese companies are much more focused on delivering better returns for shareholders. The typical ROE or the average ROE for the Japanese equities is in the 6% to 8% range, right? The trailing 12-month ROE for the S&P 500 is 21%. You know, I'm certainly not saying that you're going to see 21% ROE for Japanese companies. But if six to eight moves up higher

because they're more focused on reducing assets that are not particularly efficient, returning capital to shareholders should drive better returns, I think you're going to see a long-term secular improvement in that market. How do you factor in or position yourself against geopolitical risk, which is rising? I mean, we saw this pager attack on Hezbollah earlier today. Certainly tensions in the Middle East have been flaring, whether it's there. And crude perked up a little bit in response to it today. But whether it's there or Ukraine or just election season, other parts of the world, how do you manage that as an investor? Is it something you think about? Well, certainly it's something we think a lot about. I think the volatility that gets factored into the markets or that's reflected in markets

from geopolitical problems are just a reality of how you've got to manage portfolios. So you want to keep some powder dry to take advantage of big swings in markets like what we saw in early August, where you had a big unwind of, if you will, the yen carry trade. And that created opportunities, whether it be in the US or Japanese equity markets or what have you. So I think you need to keep pattern dry. And we expect this volatility. We're at an important inflection point. We think tomorrow is a significant day in this cycle in a sense that we've been fighting the headwinds of high rates for a while, seems like forever.

And now you're going to start a rate cut cycle that's going to be important. And you want to be able to take advantage of that, but realizing still that there are dangerous places in the world and there are elections, particularly here in the U.S., of course, where policy differences might have meaningful impact on markets. For sure. Joe Amato, thank you. Thanks, guys. Well, we've got some breaking news from Microsoft and BlackRock. Steve Kovach back with details. Steve?

Hey there, John. How about a $30 billion investment fund for AI infrastructure? Because that's what the Financial Times is reporting. BlackRock and Microsoft are working on, they're reportedly going to announce this fund pretty soon here. A lot of names involved that we care about. This is going to be through BlackRock's global investment infrastructure partners, also MGX, also NVIDIA involved. And of course, this is a theme we talk about so much with artificial intelligence,

the enormous amount of energy and power and infrastructure that just needs to continue to be built around for these companies to be able to do what they want with artificial intelligence. We've reached out to Blackstone and Microsoft about this. I'll let you know if we're here back. It looks like shares aren't reacting too heavily on this right now, though, guys. All right. BlackRock and Microsoft, Steve Kovach. Thank you. When we come back, the new CEO of Shake Shack joins us in his first interview since taking the top job in May. We'll get his read on consumer spending, the fierce competition for consumer dollars when Overtime returns.

Welcome back to Overtime. As consumers are feeling the pressure of inflation, restaurants are taking notice. From McDonald's extending its $5 value meal to Shake Shack, offering a promotion for its chicken sandwiches on Sundays during football season. Well, joining us now in his first interview since taking the helm of Shake Shack, CEO Rob Lynch with our own Kate Rogers. Kate? Morgan, thanks so much. Rob, great to see you. Thanks for joining us. Thanks, Kate. great to see you. Thanks for joining us. Thanks, Kate. It's great to see you. So your last two jobs at Papa John's and Arby's were very clear turnaround jobs for the company.

I'm wondering what the top challenge is right now at Shake Shack and what drew you to this opportunity? You know, Shake Shack's at a pivot point in its history where it's built this great foundation of amazing Shacks, amazing team members, culinary background driven by, you know, Danny Meyer's Union Square Hospitality Group. And now we need to scale. We need to grow. And it's a perfect time for us to do that because we're kind of hitting on all cylinders. The teams have done a great job building an infrastructure grounded in culinary background, enlightened hospitality, taking care of our team members and our guests, and built a technology platform that we can build off of to scale both domestically and globally. So all that attracted me here. And since I've gotten here, it's been amazing to really dig in and figure out how we can continue to get better every day.

And Rob, you're not participating in the value wars in the same way some of the other fast food players are with those $5 offers. You're also not really seeing a consumer pullback. I'm wondering how sustainable it is to not have that $5 platform. And what's your read on the consumer more generally right now? Shake Shack has always been about offering premium ingredients, premium quality with premium service and hospitality. And that model seems to be working for us. Now, we've layered in some great marketing and promotions that are a bit new to Shake Shack. Shake Shack hasn't historically invested as much in marketing as a lot of other

brands. Our marketing teams and our operators are really doing a lot of amazing work to make sure that we're continuing to deliver premium quality and letting folks know what's different about Shake Shack so we can command the kind of checks and tickets that we need to make our model work. Rob, it's Morgan. It's great to have you on Overtime. I want to get your thoughts on labor because I know not only are you implementing a new model around labor and how you're staffing your restaurants, but you also recently announced that you're closing some restaurants, including a number in California where we've seen the minimum wage tick up to $20. Your thoughts on what we're seeing across the labor market? You know, in this business, you have to challenge yourself to continuously improve and look at every facet of your business. When I got here, we looked at all of our shacks,

and it's amazing that we've been able to open a lot of shacks across the country. And when we looked at our portfolio of over 320 shacks, nine stood out as not delivering the return on the resources that we were investing in them. So we closed those shacks. They were in California. They were also in Texas and Ohio. And the great thing about the fact So we closed those shacks. They were in California. They're also in Texas and Ohio. And the great thing about the fact that we closed nine shacks means that 311 of them are returning on the resources that we're investing. So instead of putting operations resources, marketing resources up against underperforming assets, we're putting them up against the opportunities for us to grow the fastest. Rob, great to have you with us. Every time I go to Shake Shack,

I wait what feels like a long time. Is that a problem or do you just wait for premium or is there an order ahead strategy that helps address that? How do you think about it? Well, we do make everything fresh to order. So it does take a little bit longer than it does at some maybe

traditional, you know, fast food restaurants that have some food waiting there prior to the order. But we're doing everything we can to be as efficient as possible. We've got a lot of initiatives in our operations team, making sure that we are driving productivity through equipment innovation, process innovation. So we're also leveraging a lot of data and analytics to understand how we can get better in our drive-thrus. You know, drive-thru is a new model for Shake Shack, and we think it has huge potential. Less than 10% of our shacks today have drive-thrus, and as we continue to grow rapidly throughout domestically and internationally, that model is going to have to be fast.

So we're working to improve our throughput across all of our system. And, Rob, one last question here. Kiosks, as John mentioned, when you go to Shake Shack, a lot of times you are ordering via kiosk. They have helped to trade up with the consumer, kind of upsell them. I'm imagining they're also saving on labor. So what types of new store formats can you envision as you couple those two goals? You know, the sky's the limit for Shake Shack. Historically, we've had big shacks that depended on kind of walk-up traffic. And, you know, the orders were all placed at the counter. Today, a vast majority of our orders come through

digital channels. That includes third-party delivery, digital web, app, as well as our kiosk. So the digital channels allow us to really interact with our customers in a way that offers them more value prior to their checkout. So sometimes when you're having face-to-face orders going through the system, people don't necessarily know what to offer you. Through our kiosk and our app and our web, we're doing trade-up. It's driving mixed benefit and ticket and profit accretion across our system. So we're going to continue to double down on our technology investment and see a lot of opportunity there. All right. Rob Lynch, Shake Shack CEO, and our own Kate Rogers, thank you so

much. Thank you. Thank you. Reminds me of the conversation we had with Ron Shake just last week where he was talking about value and how do you present value to the consumer and that it's not just about price. Yeah. Ron Shake, no relation to Shake Shack. Different spelling. All right. Well, we've got some news on activist Elliott Management's goals at the airline. According to the memo, Elliott met with the union and said its vision of a Southwest turnaround is, quote, one where Robert Jordan does not remain CEO. Now, that's after Southwest shook up its board, announced its executive chairman, Gary Kelly, would retire next year. The memo says Elliott would prefer Kelly exit sooner than later. Elliott owns 10 percent of Southwest shares. You could see basically unchanged here in overtime, but certainly an activist investor fight we've been watching closely. Yeah, one of a few.

Time now for a CNBC News update with Bertha Coombs. John, a bill for IVF protections failed in the Senate again today in a 51 to 44 vote, with only GOP Senators Lisa Murkowski and Susan Collins voting along with Democrats in favor of the bill. The motion needed 60 votes in order to pass. The bill would put in place broad protections for people looking to access in vitro fertilization treatments. Republicans blocked it, calling it unnecessary and politically motivated. Drugmaker Novartis said the FDA expanded the approval of its breast cancer drug, Cascali, to treat earlier stage patients. The approval allows those patients to have access to the medication that could keep their cancer from coming back.

Novartis said in phase three trials, the drug was found to reduce the risk of a patient's breast cancer recurring by 25 percent after three years. And in California, Governor Gavin Newsom signed into law two bills to protect Hollywood actors from the unauthorized use of A.I. The bill allows actors to back out of contracts entered after January 2025 that contain vague AI provisions and prohibits the use of AI to replicate a deceased performer without their estate's consent. Morgan? All right. Bertha Coombs, thank you.

There's a new battle brewing between Elon Musk and the Federal Aviation Administration. The FAA saying earlier it intends to fine SpaceX more than $600,000 in civil penalties for, quote, allegedly failing to follow its license requirements during two launches in 2023, including using an unapproved launch control room and using an unapproved rocket propellant farm. Musk posting on X that SpaceX, quote, will be filing suit against the FAA for regulatory overreach. Meantime, CNN reporting today that Elon Musk is pacing to become the world's first trillionaire by 2027. Hmm. I wonder how they calculate that. Yeah, I think they're using outside data for that one.

And maybe a SpaceX IPO or something. I don't know. We'll see. Well, I've said, we've heard it. That space is going to mint the first trillionaire. So we will see. Not be surprised. Up next, how Fed rate cuts could impact savers. Well, Mike Santoli looks at the level money market returns have to hit for investors to start reallocating cash. Manifest trillionaire. And later, don't miss our exclusive interview with the CEO of Intuit, Sasan Ghadarzi, on the company's new enterprise tools and how Fed policy is impacting small business. We'll be right back. Welcome back to Overtime. At what point might there be an exodus from money market funds as yields fall? Let's ask Mike Santoli. Mike?

Yeah, John, not likely anytime soon. I'm not sure it's going to be a dramatic effect if we even get there in terms of flows into stocks. Here's a chart from Bank of America that links the yield on the three-month Treasury bill, which is the proxy for cash yields at any given time, along with the year-over-year change in money market fund assets. So I want to draw a line at the 2% yield level. That's the point at which they say is that really you have to get below that in money market yields to see really any draining of assets from money market funds. This is the money market fund year-over-year change in assets one year ahead. So this is

essentially staggered that way. And you also see a couple of other factors here. This was a stock bear market ending right there as money market funds came out of a very risk averse situation. The other one I want to point out here is that's how 2008, 2009 during the global financial crisis, we had money market funds equivalent to 50 percent or more of the S&P 500 market cap. Right now, it's like, I don't know, 5 percent or something like that. So even if money starts coming out of money market funds, if rates go down a lot, it really probably doesn't move the needle. And in general, you know, money market fund assets can go up alongside flows into stock funds. Final point, Bank of America says even when money does come out of of cash, it tends to first go into bonds

as opposed to right into stocks. So the whole cash on the sidelines argument is not necessarily one to put much stock in. Ha ha. Literally, Mike, love it. Well, looking at this chart, it seems to me like the gap that has opened up between the Treasury yield and money market assets is bigger than we've seen in this millennium. Anything to read into that? It does seem a little bit, although it happened, you know, bound here, too. I think it's just the slowing of year-over-year growth in money market assets. That's what that really represents, right?

It's still positive, but slower because that blue line is going down. And it's probably because there's a lot more money going into bonds for people who are seeking income. It seems more safe now to own bonds now that yields have stopped going up, probably. Interesting. Goes back to what we were talking about with Joe Amato. Mike Santoli, thanks. Up next, Intuit's CEO on how an interest rate cut by the Fed tomorrow could impact small businesses. And check out shares of GE Vrnova, one of the big winners in the S&P 500 today, up 3%. Bank of America upgrading the stock to buy from neutral, hiking its price target to 300 bucks from 200, citing rising electricity demand and optimism over its gas power services

business. We'll be right back. Intuit, the $180 billion market cap fintech, today making a move to serve somewhat larger business customers. The maker of QuickBooks and MailChimp announcing Intuit Enterprise Suite. I spoke exclusively this morning with CEO Sasan Ghadarzi. It really goes after a segment of customers that have revenues of $3 million and above. A segment of customers that may be up to 250 to 300 employees. But I would say more importantly, it's about the complexity of the business. So imagine if it's a construction company, they have multiple construction companies,

multiple construction projects across multiple regions. And what we found with what we call these mid-market businesses is lots of complexity. They are using 7 to 10 apps. They're spending $3,000 to $5,000 a month. Half of the apps go unused, and so they're wasting a lot of time. They're spending a lot of money that is not useful, and they can't actually see how their construction company, in this case, is performing. They really want to be able to see, well, how's my business performing? How's sales doing? What's my pipeline? How's my cash flow? And it's very hard for a business to see all of that in one place. So the essence of your question on how's AI going to change that? Intuit Enterprise Suite sits on our data and AI platform. And so the whole

focus of the platform is about how do we help you with a business feed, manage your cash flow? How do we help you with invoices that are unpaid and follow up with customers? How do we help you with marketing campaigns to know which customers you should go after and why? That's all driven by the AI platform that it sits on. And I think it's revolutionary because ultimately businesses drive half the economy, more than half the hiring around the world is businesses, the smaller businesses. And I think for once they're going to have professional grade help and services to help them grow, to help them deliver for customers. I just think it's a very, very exciting era.

He also talked about the Fed rate cut expected this week and how higher interest rates have affected small businesses. Inflation has been very real for the businesses that we serve, whether it's the cost of labor, the cost of supply, the cost of food, fuel. It's been very real. On the other side, consumers have been very intentional about where they spend their money. So businesses have been squeezed from both ends. Costs have gone up and some of the revenues have gone down. What we've seen this year is actually revenue and profitability is up for most of the businesses on our platform. Their cash reserves are down compared to last year, but far higher than pre-COVID level. So I would say in general, healthy, the older businesses are much healthier. I think a Fed rate cut is simply going to help.

At the end of the day, the cost of borrowing for them is going to go down. The cost of supplies, we would wish that will go down. And consumers, we believe, will over time spend more. Bringing this all together, I've seen three major technology shifts in my career, internet, mobile, and cloud. Each has provided opportunities for challengers in tech to grab share and customers from incumbents. Intuit is one of these category-dominant public players trying to be on the front foot, not the back foot, Morgan, using AI for growth. That's interesting because he's talking about, especially in the wake of interest rate cuts, costs going down, but also productivity going up and what AI does to that equation. Did you guys get into the tax conversation at all? Because I know that's on the ballot.

They've got turbo tax and obviously small businesses also are very focused on this. Either way, we're going to see some tax policy changes next year. And I do wonder what that's going to mean for a player like Intuit. Yeah, we didn't talk about that much. I mean, a lot of those who would be most affected, you know, the very wealthy aren't necessarily filing their own taxes on TurboTax. But I mean, of course, this would, whether the tax cuts get extended for certain folks would matter as well. But they're so strong in tax and controversial as well in some ways. I imagine that business not as much going to steer how Intuit does overall. The opportunity for them, the question is really how much can they grow in small business and can they have as big an impact in mid-market as they have in smaller.

Really interesting. We're still ahead. How much will J-PAL and company cut interest rates tomorrow? Wall Street's biggest names are weighing in. And coming up, we're going to hear their predictions on 25 versus 50 basis points. Plus, we are celebrating Hispanic heritage this month. Here is Ulta Chief Supply Chain Officer, Eric Lopez. What I want businesses to know about my community is just how to tap into the passion around the culture and the relationships.

The Hispanic community is deep ingrained in these, and by tapping into these, you'll find that there is dedication, excitement, energy, creativity, and innovation, which will ultimately lead back to the business success. Welcome back. Online education company Coursera today unveiling more of its AI strategy with its Coursera coach feature, letting instructors train a tutor specifically on the syllabus material. Now, as for learning to build software with AI on Coursera, I spoke with CEO Jeff Maggiancalda today about the boom in interest in AI workforce training for coders, particularly overseas. The highest rate of usage of generative AI is in India. We have a lot in Pakistan and also Brazil. And the attitudes when we survey learners are much more optimistic and positive about the impact of generative AI on job opportunities in those countries. There's some

skepticism in the U.S. And what I think is going to be pretty interesting is company after company is saying that they would rather hire people who have these skills and can be more productive, whether they're in the U.S. or someone else in the world. So I think there's a little bit of an opportunity and a threat here in emerging labor markets. I was tending to think of code assistance as a threat to offshore software engineers as domestic companies adopt them. But this puts a new twist on it. If lower-cost offshore engineers get more productive thanks to AI, maybe it goes the other way.

Yeah, that was very contrarian versus what I would have expected as well. One to watch. Well, the odds of a 50 basis point interest rate cut tomorrow are on the rise. Up next, some of the biggest names in the financial world predict what the Fed will do. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We will be right back. Wall Street on standby for the Fed's long anticipated rate cut tomorrow afternoon. The Fed began hiking with that campaign in March of 2022. While investors expect a cut, just how much is up for debate.

My base case is 25, but I could, given there's been some softening labor signals, see them cutting 50. But my base case is 25. I'd go into the room thinking about what everyone is saying around the table, and that would inform my view. But I think a series of 25s, and if that's the message coming out, I could be on board with that. I think they've seen enough data that they can start bringing rates down. And I would suggest more aggressively would be better. So I'd be for a 50 basis point cut rather than 25.

I would go 50. I'm more worried, a little bit more worried about the downside risk than the upside risk. But it's a very close call. I would rather go 50. I'm more worried, a little bit more worried about the downside risk than the upside risk. But it's a very close call. I would rather do 50. You're not going to regret 50. We're going to do at least 50 through the fall. Let's front end load it.

Let's make up for the fact that we might be behind. If you look at, I'm sort of famous and I get criticized even though I'm right about this. The Fed just follows the two-year Treasury. And the two-year Treasury is down at 3.6. And so the Fed needs to cut rates 150 pretty quickly. And I think they're going to start with 50 tomorrow. We'll be sure to tune in to Overtime tomorrow when our all-star lineup featuring David Zervos, Barbara Duran, Eric Rosengren, Mark Mobius, and Dan Niles reacts to the Fed's interest rate decision.

What's so fascinating to me about this debate, John, is that it's been taking place in a Fed blackout period from a media standpoint. And in the past week, we've gone to, in the markets, pricing in an almost 70 percent chance that the Fed could ease rates by half a percentage point tomorrow. Last week, that was around 15 percent. Yeah, it's been quite a swing. We just heard from Intuit CEO Sasan Ghadarzi on how much small businesses kind of need a rate cut here. But I wonder, we've got major averages near their highs, seemingly, as you said, in anticipation

of a 50 basis point cut. And with valuations this high, what is there to look forward to if we get it? Right. How good do earnings have to be with that bank cycle starting in October? How strong do holiday sales initially have to be? I can't help but wonder. Yeah, and also speaks to what we've seen in anticipation of this cutting cycle taking root, which is this rotation out of mega cap tech and some of the other high performing parts of the market in the first half of the year into things like industrial cyclicals, financials and even small caps. August core CPI, 2.06 percent on a three month annualized basis. and that's even with hotter shelter data. So this is part of what economists are arguing for, that the Fed is behind the curve,

knowing that cuts take a long time to get into the economy, just like hikes do. A slight rotation out of mega caps, though. It's like rolling over in the bed. Like not rolling out of bed. Yeah. Not yet. All right. Well, we're going to be watching that closely tomorrow. In the meantime, stocks basically flat today.

That's going to do it for us here at Overtime.