Closing Bell - Closing Bell Overtime: Top Analyst Unveils His New Top Big Tech Pick; What Today’s CPI Report Means For The Markets & The Fed 10/12/23

Episode Date: October 12, 2023

Stocks finished well off their lows but couldn’t climb into positive territory, snapping a four-day winning streak for the major averages. Vital Knowledge’s Adam Crisafulli and Main Street Research CIO James Demmert break down the market action. Former Fed Governor Frederic Mishkin talks today’s CPI report and the recent spate of Fedspeak. Evercore’s Mark Mahaney unveils his new top big tech pick heading into earnings season. HashiCorp CEO Dave McJannet talks the company’s new AI products. Gerard Cassidy, RBC analyst, previews bank earnings. Plus, our Kate Rooney on the latest testimony from Caroline Ellison in the Sam Bankman-Fried trial and Eamon Javers on today’s CEO meeting at the White House to talk the economy. 

Late rally, couldn't quite get there. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I'm John Fort. Morgan Brennan is off today. Coming up this hour, former Fed Governor Frederick Mishkin breaks down today's consumer price index data and the renewed spike in Treasury yields that sent stocks tumbling. Plus, Bidenomics in focus this hour as CEOs from Target, IBM and more gather at the White House for a meeting with the president. We will keep you posted as headlines emerge. But first, breaking news from Boston Fed President Susan Collins. Steve Leisman has it. Steve. Hey, John, yeah, Boston Fed President Susan Collins, who just spoke yesterday,

sounds maybe a little bit more concerned about inflation today. She says he's too soon to be confident inflation is heading back towards the Fed's 2% target. She makes specific remarks about today's CPI report, saying it is a reminder that restoring price stability will take time and could be uneven. The current phase of policy, she says, requires patience. That repeats her comments from yesterday. And again, repeating, says we may be at or very near the peak of rates for this cycle. So still not definitively saying that the Fed is on hold because she goes on to say she would not take further tightening off of the table. May need to stay higher for longer. That's been out there. But she adds that the Fed's previous

forecast, that is the one in September, suggested, I guess, raising questions about the two rate cuts the Fed has kind of built into its average forecast for next year. She says recent economic reports have been strong, including both labor and economic activity broadly, and some further rebalancing of the economy will be needed. Back getting to inflation again, she says, the positive news today came from the decline in core goods. Housing inflation is moderating, but progress is uneven, and she's monitoring if the recent house price growth puts new pressure on rents.

Core service inflation, she says, remains elevated. That's the thing that Fed Chair Jay Powell is looking at, and progress has been limited. Bringing it down, she says, will require a slowing labor market. On those rising yields, it does imply the tightening of financial conditions, which she said yesterday as well, and higher yields, if sustained, she says, could reduce the need for further rate hikes. So, John Hart to sort of give it a definitive, is this hawkish? Is this dovish? It's a little bit more hawkish than yesterday, but broadly, she's still calling for patience and not necessarily signaling very clearly a rate hike in November.

It seems like tuck in the corners of the sheets here. I mean, now that the market sort of expects to hold steady at this next meeting, now the market has digested that, maybe don't get too excited like it's going to stay here forever. I think that's right, John. I think that's a clever way to look at it. Think about, like, where is the market priced and how is the Fed official addressing the market here? Well, the market is not priced for a rate hike. That's for sure.

I'm looking at these percentages. We're down below 10 percent for the month of November. We're at 35 percent for December. And it sounds like what she's saying is I'm comfortable with that front end one. The first lower 10 percent, maybe not going to hike in November, but maybe you want to think more about whether or not there may be one more hike left here. OK. OK. Our senior economics reporter, Steve Leisman. Thank you. Now to the broader market. Yields jumping following a treasury auction mid-session, putting pressure on stocks, utilities, materials, and real estate. Those sectors getting hit the hardest while Walgreens topped the Dow on the back of earnings as big banks get ready to report tomorrow. Let's bring

back in senior markets commentator, Mike Santoli. Mike, is this the story of a poorly received Treasury auction? U.S. government needs money. Investors are like, I don't know if I want to give you any. So maybe you got to sweeten the deal and yields perhaps go up. And that's bad for stocks. Is that the story? That's the story this afternoon, John. But also really a few days this week, there were it's about the third not so great Treasury auction in terms of the reception, in terms of the yields that were demanded. And I think it shows that the market in general, as you were just talking about with Steve, it's not in a position where it feels it can relax just yet. Both about the path fully of inflation getting under control and then, of course, of longer term bond yields, which are moving not only on inflation concerns or Fed expectations, but that whole supply-demand picture.

And maybe also just some, I guess, self-reinforcing psychology. People starting to think yields can go even higher than they believed before. And it's built in there. So the sensitivity today of that move up in longer-term yields, both the 30 and the 10-year, into that zone where we were starting to worry about it last week. That being said, things did not get out of control. We went down to like just about a 1 percent decline on the S&P 500, maybe a little more than that. And then it sort of in lockstep recovered through much of the afternoon. So it seems as if, you know, we've

been dealing with these concerns for a while. We know that we have to be mindful of them, but we maybe have some calluses built up against them as well. Now, Mike, at the same time, we do have a war in the Middle East and a legislative branch here at home that can't seem to release the parking brake. Has the market just ignored that for the most part today? No, I don't think the market fully ignores really anything. What it does is it tries to figure out what precisely about those unsettling things they should be repricing. Like what exactly, how is that going to get to the stuff we care about bloodlessly in the market, which is longer term cash flows, what we're paying for them today. Is the economy going to stay OK or is it not? It's not finding anything yet in either of those things. Maybe you

could argue the Treasury auctions might go a little bit better if people had a firmer grasp of the long term fiscal plan. But I'm not so convinced at this point. So for now, until they erupt into areas that the market really takes to heart, it's much more about kind of background noise that keeps things a little uncomfortable. That was a very short flight to safety on the yields. Yeah, exactly. It was like a very brief sprint. By the way, that's a historic pattern, too. It doesn't usually last after a shocking event.

Okay, great context. Thanks, Mike. Now let's bring in our market panel. Joining us now, Vital Knowledge founder Adam Christofouli and MainStreet Research CIO James Demert. Guys, welcome. James, you think we are actually about to get a new bull market led by AI but lifting all sectors. That sounds great. How are we going to know if it's starting? Thanks, John. Good to see you. And yeah, that's correct. We do believe it's a new bull market starting AI led, but all other sectors to follow as opposed to last rally.

And we see a perfect setup, a setup that you really didn't see at the bottom of the corrections we've had really for the last 18 months. Number one, the Fed being done. And I can give you more information about that. CPI close enough. Yes, not there yet, but we think close enough that stocks are going to start to discount it being where it needs to be. You know, then you've got some technical stuff, very oversold market with elevated VIX, which is what we saw back in March during the last correction, and valuation of equities. So, you know, basically looking forward with managed

inflation, very attractive at these levels. Adam, are you convinced? I wouldn't go so far as to say you're on the brink of a brand new bull cycle. You know, I do think that in the very near term, this rally that kicked off last week can continue a bit further. I think Powell has a big speech next Thursday. It's going to be very important. If he echoes the messaging that's been coming from some of his colleagues yesterday about how the higher yields are doing a lot of the work of the Fed, removing the need for one more rate hike, I think that will be received well. But I still think that there's an awful lot of monetary tightening that's still in the system. Each tick lower in the CPI is raising real yields in the economy. You still have aggressive balance sheet runoff taking place.

And you still have the lag effect of higher tightening that really hasn't even hit the full market yet. There was an interesting Boston Fed report out today talking about how excess savings of companies, not consumers, but excess savings of companies have dwindled over the last couple of years. And now you're going to start to see companies really feel the effects of the recent hike in yield. So I'm a bull in the near term, but then I think that you're going to run into some headwinds again and that will require some time to work off. Okay, James, some names you like, Booking Holdings, Hitachi, Alphabet.

I'm particularly curious about Booking Holdings given the mixed news that we've been hearing on airlines lately. Booking has had a nice run over the past year, isn't too far off the highs. Why do you still like it? Yeah, it's about too far off the highs. Why do you still like it? Yeah, it's about 10% off the highs, John. And we like it here because, again, you look at the company, 30% earnings growth, very fat margins.

Yes, there's increase in airline costs, of course, relative to oil and energy. We do think those are short-term phenomenas. I think investors get a little bit, as you see in a lot of parts of the market this week, get a little bit too sensitive about short term moves and oil, how that affects airlines. We think that is not going to be the big story for booking as we go into the further into the fourth quarter and into certainly 2024. OK. Yeah, I guess if you look at it up 50 percent so far year to date, the 10% doesn't look that big on the chart. But Adam, when I look to sort of some sectors that were down today within health, medical devices still struggling, what are you seeing there as far as what's driving it? And

do you have any opinion on whether they're going to get a bounce? You've seen this, you know, this GLP-1 wrecking ball, you know, really work through not only health care, but consumer staples as well. Beverage and food-linked consumer staples and medical device stocks. And that's the weight loss drugs, which we affectionately call GLP-1s. Yeah. Yes, exactly. So the anti-obesity drugs is arguably a bigger investment theme this year than artificial intelligence as far as the effect it's having on the market. You had DaVita was crushed yesterday on this Novo Nordisk trial result on kidney failure. They came out this morning and said that they don't see any effect to their business, and the stock came for sale again.

Pepsi results earlier in the week were decent. They raised guidance. They provided decent guidance for next year. The whole space continues to come for sale. So it's kind of a hard concern for these companies to rebut because it's going to take place over the next several years. It's not anything near term. And markets are very concerned that this is a huge secular theme that's going to change huge portions of the economy.

And it's a huge headwind for a lot of these names. A lot of these companies report earnings next week. So we'll get to hear an update. Avid, J&J, you get Nestle sales and a few other companies in this space. So it'll be interesting to hear what they say. But again, you've had a couple of firms out this week already push back and it hasn't really had any effect on how these names are trading. Yeah. Artificial intelligence, artificial diets, both big. Adam Christofouli, James Demert, thanks to you both. Now let's get back to Mike Santoli with a look at how the average stock has performed since the S&P's

market bottom last year. Mike? Yeah, John, not well on a relative basis. The equal weighted S&P is up, let's say, 10-ish percent from a year ago today when the S&P bottom, S&P itself up more than 20 percent. So that's a pretty wide gap. This chart comparing those two things goes back four years just to see how this relationship has evolved. So obviously goes to before the onset of COVID. And during 2020,

during the pandemic, we know it was a very uneven market, a lot of outperformance by those stay at home digital leaders. And you saw that gap really open up S&P 500 way outperforming the equal weight. And what happened after that? Well, you had some catch up. The economy reopened. The rally became more inclusive of economically sensitive stocks and financials and all the rest of it. And then they widened out again. And that was near the high in the overall market in the Nasdaq in late 2021. And that gap closed in a different way, which is the mega caps fell down to meet the equal, which outperformed last year during the entire bear market. I guess the point is there's no single way that this resolves itself- necessarily

you can certainly not like the fact that we have an unusually wide divergence opening up right here. But you can't in itself say therefore the markets either doomed or the rest of the markets going to catch up. Do want to look at

one other relationship- today Walmart versus Target this is a long term comparison you can make where they've kind of moved in sync it's a it's a ten-term comparison you can make where they've kind of moved in sync it's a 10-year chart and so you see they were kind of at the same spot here right at the beginning of the pandemic what happened target just vaulted ahead it was considered to be this omni-channel winner new management really putting target in the right spot for a lot of those discretionary purchases with all the stimulus and And then, of course, just completely unwound all those gains, all the concerns with the boycott, as well as things like shrink. And Walmart gets a

safety premium because of all the grocery. And it's a good operator. But now Walmart right here is at about 23 times earnings. Target today, 12, 13 times forward earnings. B of A upgrading the stock today. It did get a little bit of traction, target stock up a little bit, but they think there's perhaps more catch-up to be done here, John. Certainly a story of bigger does better in both of those charts. Back to the first one. What to make of the fact that in the early part, mega caps were outperforming because they were running higher,

and then in the latter part, maybe they're outperforming because the others are falling faster. Yeah, no, that's a good point. It seems as if right now they've been cast not as, you know, these great, exciting growth stories that people want to own a piece of as much as they're considered defensive, great balance sheets. They can handle higher interest rates because they don't have a lot of debt. And there's sort of places to hide as opposed to, yeah, as I said before, it was all about the digital transformation and people thinking that the sort of new world

was with us all at once. So I think that's the distinction this time. All right, that helps us with our portfolio analysis. Mike Santoli, thank you. Now, as we mentioned, a number of CEOs are meeting this hour at the White House with President Biden to talk about the state of the economy. Our Eamon Javers has more on what to expect. Eamon.

Hey, John, we're out here on 17th Street just outside the White House. We are keeping our eyes out for any CEOs who are arriving for this meeting. This is a meeting for the Biden administration to talk about their infrastructure spending efforts and talk to the CEOs who are at the front lines of that effort to make sure that everything is going well. Obviously, also an opportunity for the Biden administration to hit ahead of a campaign year what they see as the success of what they're calling Bidenomics here at the White House. Take a look here at the CEOs who are going to be in this meeting because they represent a whole different range of industries, starting with Brendan Bechtel of the Bechtel Group. You've got Calvin Butler of Exelon, Kenneth Chenault now of General Catalyst,

Brian Cornell of Target, Tasunda Brown-Duckett of TIAA, Arvind Krishna of IBM, and Judy Marks of Otis, all expected to be at this meeting today with President Biden here. And, of course, it's an opportunity for the Biden White House to talk about the strengths of the economy as they see it again ahead of the election year, John. But it's also an opportunity for these CEOs to talk about any snags or problems that they're seeing in the supply chain of the money getting out to the frontline companies that are actually doing some of this infrastructure work in terms of federal agencies, spending processes, any problems they see,

they'll be able to raise those with the White House staff and, of course, the relevant federal agencies, John. So we'll keep an eye out for CEOs. If we see any, we'll be sure to talk to them here and tell you what they had to say. All right. Looking forward to that. Eamon Jabbers, great setup. Thank you. And the latest inflation print coming in a bit hotter than expected in places, just as Fed officials were pivoting to a more dovish tone. We'll talk about that dynamic next with former Fed Governor Frederick Mishkin. Overtime's back in two.

Welcome back. This morning's September CPI report could be putting the Fed's next decision in limbo. The overall print coming in hotter than expected as shelter prices rose, though the core number matched estimates. And moments ago, Boston Fed President Susan Collins said today's CPI report is a reminder that restoring price stability will take time. Joining us now is former Fed Governor Frederick Mishkin. Frederick, welcome. What do you make of this CPI report? The market seems to still expect we're not getting a hike immediately. Well, I think that's probably right, that we have some conflicting things coming in.

The Fed still has not been successful in terms of achieving their objective, and that's really a big concern for them. However, the markets have finally recognized that the Fed is actually serious about controlling inflation, and they're going to keep rates high for a long time. I think that's a good thing. And the result is that long-term bond rates have gone up, and that's a tightening in financial conditions. So given the sort of data that's coming in, which inflation numbers sometimes look good, but they're still not quite on the path that the Fed needs to achieve. The economy is a little bit strong. But on the other hand, there is a tightening of financial conditions. And that means that things are pretty up in the air for the Fed.

I think the important aspect of this is that the Fed is committed to keeping rates high for a long time. And I think that's what's really important. And the markets have finally figured out that the Fed is serious about that. And that can put pressure off the Fed. So how should we factor in these weak treasury auctions, given the Fed is saying that they're watching the impact of higher yields and it might prevent them from hiking further? Well, I think the issue here is that when the markets finally recognize that the Fed

is going to do it for, keep rates high for a long time, that's reflected in long-term interest rates. And that's what we're seeing now. There are also some other issues in terms of actually the sort of turmoil in our government doesn't really help, government shutdowns, the inability to get our fiscal situation in order. This also impacts long-term bond yields. And that, again, can cause a tightening of financial conditions. So I think that we're in a situation where the Fed can wait to see how the data evolves. I think that's an absolutely appropriate thing for them to do right now.

And we'll have to see what happens, that The Fed's on the right track. They successfully have gotten the markets to understand that they're serious. And I think that's a very good thing. So I'll ask you this. So a war in the Middle East now, a legislative branch that's not functioning. What are the signs, if there are going to be signs, that the economy, the market is being affected by that? Well, you know, look, there are crazy things going on all over the world and even crazier things going on in terms of our politics in the U.S. And this doesn't help. It creates a lot of uncertainty. I think that's actually an issue that it could affect the economy at some point. And the Fed is well aware of that.

Uncertainty and also and policies which are not that effective do make people concerned. And in fact, they may cut back on spending and so forth. So the Fed has to wait and see on this. And we'll have to see how things actually play out in this regard. Clearly, the world is not in a great state right now. And that's not a good thing for the economy. So energy prices, discretionary spending, are those the areas where you would look? Yeah, I think that, again, both the war in Ukraine and also the recent events in the Middle East are not very good for energy prices.

And that can impact the households. And also there's an issue about whether, in fact, the good times are going to keep on rolling, given all of these crazy things that are happening. So that's clearly something that the Fed has to worry about. But on the other hand, the economy has been much stronger than the Fed expected. So, you know, we're living in interesting times, as the curse says. And then you have to watch the data very carefully and keep track of it. You never get it perfect. It's very tough for the Fed to engineer a soft landing. I'm still doubtful that they'll be completely successful at it. But on the other hand, I don't see really

bad times or a serious recession developing, even if a recession does occur. Interesting times indeed. Be well. Thank you, Frederick Mishkin, former Fed governor. Now, despite today's broad pullback, tech is having a strong month so far. And longtime analyst Mark Mahaney just published a note with his new top pick in the space heading into earnings. He will reveal his best idea next. And here's a look at some of the names closing at 52-week lows today. Campbell, Pepsi, PayPal, Dollar General, and Clorox all on that unfortunate list.

We'll be right back. Earnings season is in full swing with big banks earnings coming in the morning. Tech results are going to ramp up next week, starting with Netflix on Wednesday. Let's bring in Mark Mahaney right now from Evercore ISI. He just published a note with a new top large cap pick. Mark, tell me about it. So Amazon is up about 58% year to date. Uber is up about 58 percent year to date. Uber is up 86 percent.

Is that why you think Amazon has more room to run from here? Well, OK, if I want to step back, you know, we're now called we started here being tactically constructive. We're now totally tactically constructive. Sorry, that's what we're saying, John. So, look, we've had a recent pullback in the sector for a variety of reasons mostly related to macro and markets rates particularly i think that's created a kind of a little bit of a fatter pitch for some of these names we got fundamentals that are improving in the back half of the year a good number of these names are going to have accelerating

revenue growth and then margin expansion with multiples reduced and those two factors there generally stocks work well i like amazon here because it pulled in 15% just in the last month and a half off a variety of concerns that I think are overstated. And one of those concerns is that AWS is just not recovering its growth. The channel checks we do suggest that that growth is recovering. Whether they beat the bar this quarter or not, it's hard to know. But in the next one, two, three quarters, you're going to see reacceleration in part because of these generative AI workloads. Other issues that Amazon, the stock, is facing, concerns over Timu and Xi'an and Chinese fast fashion, fast retail retailers. And I think that mistake, I think there's a mistake going on here. I think if you look at the cross-visitation analysis, I think there's much less overlap between Amazon and those companies than there is with a series of other retailers. And then I think margins are going to continue.

We think margins are going to continue to recover in the retail business. So we like the fundamental setup and the valuation setup on Amazon, number one pick. Okay. So let's center this on Amazon since they got almost all the businesses that we want to talk about. Is Amazon going to move more on AI or on the retail business in Q4? And to the degree that AI is a mover for the stock, how much headline risk is there if people get excited about Microsoft or, well, particularly Microsoft? I'm going to change your question just a little bit. I think it's going to move on AWS and then on retail. And then AI is just kind of part of the thesis in this name because AI is going to, the workloads associated with generative AI, that's what's going to start powering this

re-acceleration or one of the factors that leads to this re-acceleration in AWS growth. But yeah, the AWS has been the number one reason why the stock is, over the last year and a half, has derated so much, why the multiple is so much off. But Mark, is that because of the slowdown in growth in AWS, or is it because of the perception that the second and third place players, because of AI, are catching up from a momentum and profit perspective? I think it's both. I think you've had this optimization cycle amongst a lot of

people, companies that buy enterprises that buy cloud services. For economic reasons, that slowed down AWS. And then, yeah, the margin, the company that's really impressive here is Microsoft Azure. And I think they caught the beat or they took a step ahead. They got a little bit ahead of the curve versus AWS. I think AWS is still well positioned. I think this anthropic investment that they did recently was a super savvy, smart move. I think AWS can fully participate in a reacceleration. So I guess that's really the pitch.

And you give them enough time, I think they can kind of steal back and get back to that leading AI position that Microsoft currently has. Now, Mark, one name that you have liked that has also had a decent pullback over the last few months, but that I don't see on your list of top picks is Netflix. Reports next week. How do you feel about it? I'm a little more nervous on Netflix right here this strike that is not ending uh has two impacts on Netflix first is that it increases the chance of a content hold so um you know those shows they wanted to pull out you know uh push out in Q4 and in Q1 they probably can't it gets delayed the second thing is I think it delays the timing in which Netflix can pull its next price increase, what they call widen the price range.

It's a nice way of, it's a nice euphemism for increasing prices. But that pushes that off probably until the back half of next year. So in the meantime, you have a little bit of an air pocket on Netflix. I think that's why the stock is pulled back, probably for good reasons. I probably want to wait until after the print before getting before becoming a real buyer in Netflix. All right. We'll get that print right here on Overtime next week. Mark Mahaney, thank you. Thanks, John. Time now for a CNBC News update with Bertha Coombs. Bertha.

Hey, John. Secretary of State Antony Blinken says there is no direct evidence that Iran was involved in Hamas' attack on Israel last week. At least, not yet. But he noted in an interview with NBC's Lester Holt today that Iran has long supported Hamas, and the terrorist network wouldn't be what it is without that support. You can see more of Lester's interview with Secretary Blinken tonight on NBC Nightly News. And more top American officials are heading to Israel. Ashinor defense, a senior defense official rather, said Defense Secretary Lloyd Austin is planning to travel to Israel tomorrow. He's expected to meet with the prime minister, Benjamin Netanyahu, Israel's prime minister of defense and the Israeli war cabinet to discuss additional resources and support for Israel.

And the White House said today it will release a supplemental funding request to Congress next week. Sources tell NBC News the Biden administration is planning to link money together for Israel, Ukraine, Taiwan and the U.S. southern border, although several Republicans have said they would not support tying Israel aid to Ukraine. John. All right, Bertha, thank you. After the break, a lack of confidence. CEOs are still feeling bearish about the economy, even as recession fears wane. And there's one factor that could be weighing on that sentiment. We will explain next. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime. Check out shares of Birkenstock under pressure again today following its IPO yesterday. Investors doing some

soul searching after seeing the stock plunge more than 18% since its debut. And that leads in perfectly to my latest installment of the On the Other Hand newsletter. There's the QR code. You can also type in the link cnbc.com slash OTOH. See, it's short. cnb.com, OTOH. This week's debate is which shoe stock is the better bet right now, Birkenstock or Nike? Nike has had a pretty rough year so far. You can sign up using, again, that QR code on the screen or go to CNBC.com slash OTOH. Now, CEOs continue to stay cautious on the economy. The Conference Board CEO Confidence Index fell to 46 in the fourth quarter. That's down from 48 last quarter. 72 percent of CEOs preparing for a recession in the next 12 to 18

months. Mike Santoli is back with his take. Mike. Yeah. So these levels of CEO confidence, John, really are associated with pretty rough economic times. If you look at how this compares in these shaded areas, that's recessions, right? So basically, if you trace it over here, that's usually when things seem pretty bad. What's interesting about the current survey is they're not really saying that the conditions are worrisome at the moment. It's all about the forward-looking expectations. Now, you mentioned that a pretty solid majority of CEOs are on some level preparing for a recession. But 28 percent are now saying they don't anticipate a recession in the next 20, 12 to 18 months. Just three quarters ago, that was only 6 percent. So in other words,

you went from 90 plus percent expecting a recession to maybe a little bit less than 80 percent. That's not great, but it does show you that things have improved in terms of their assessment of things. But obviously inflation and the real kind of uncertainty surrounding Fed policy and this oddities of this cycle seem to be weighing on folks. You've been in recession vigil for like a year and a half now, let's remember. Now, take a look at M&A volume, because this is generally a pretty direct outgrowth in general of CEO confidence in addition to capital markets conditions and things like that. Really weak because, you know, 2021, you know, it was pretty healthy, but it was not really record levels of global M&A. And then we see the step down even last year while stocks were declining pretty precipitously. You know, you still had more deals than we do right now. You've gotten a little bit of a perk up in activity

with that ExxonMobil Pioneer deal this week in the fourth quarter, not reflected here. But you see that basically, even though there theoretically should be some bargains out there in terms of competitor stocks and things like that, not a lot of activity. So, Mike, traditionally, which matters more, that low mark in CEO confidence or the momentum upward in CEOs who don't expect a recession? I would think it's the CEO confidence that continues to weigh, especially on their decisions about where to spend their money, whether to merge or acquire things, whether to invest heavily in capital spending, things like that. I do think that that usually modulates much more with how they're feeling about the outlook. But that outlook does tend to adjust. If we get some kind of reassurance

that a soft economic landing is with us for a while, you'll probably see those moods brighten a bit. And maybe that's where this unfortunate war and Congress also come in. We'll see how that news continues to develop. Mike, thank you. Meanwhile, Dollar General getting a big spike after hours. Pippa Stevens has the detail. Pippa, what's going on? Hey, John.

Well, so Dollar General said that current board member and former CEO Todd Vassos has been reappointed as CEO. He's taking over from Jeff Owen, who has left the company and resigned from the board effective today. Todd Vassos was formerly CEO at Dollar General from June 2015 through November 2022. The company said in a statement that the board determined a change in leadership was necessary to, quote, restore stability and confidence in the company moving forward. Dollar General did also narrow its earnings outlook, though shares up 8%. John?

Yeah, after hours, investors generally happy with that. Pippa, thanks. HashiCorp making changes to its core product in order to perhaps head off a community revolt. The company's CEO discusses what's at stake when Overtime returns. Welcome back to Overtime. HashiCorp falling today down about 4.5%. The company, meanwhile, unveiling new AI features in its core cloud platform to make it easier for developers to manage their infrastructure,

among other things. Joining us now is the CEO, Dave McJanet. Dave, good to see you. Since the last time we had you live on Overtime, there's been this bit of a community revolt over Terraform. They've kind of forked it and started this new open source community around it that's seen as a threat to HashiCorp. How do these new features that you've unveiled in AI fit into this story? Hey, John, good to see you, and thanks for having me. Yeah, we're actually at our annual conference here in San Francisco. As I look around, I'm kind of shocked at the scale of the user community and kind of the important companies

that use our product each and every day, so it's a super fun reminder for us. But what we're doing is just continue to deliver for them. We have a large group of people, united around the idea of helping people automate their infrastructure lifecycle and their security lifecycle. And a lot of things we did this week was just to underscore our continued progress there. As you mentioned, a bunch of AI capabilities in Terraform, which is actually kind of a fun topic. You're starting to see companies like us start to actually leverage AI inside of our products

rather than just use them as a marketing vehicle, which some others have done. And we're super excited about that. Yeah, happy to talk about those two things happily. Yeah. So correct me if I'm getting any of this wrong, but back in August, you announced over at HashiCorp that you're changing the terms of the license for the version of Terraform that you guys offer. Some of the community was upset about that. Is your message that these features, the kind of support and stability that HashiCorp is going to offer,

is going to make the price worth it? Yeah, so to be clear, we just made a very minor change in the licensing and the open source licensing model for all of our products, actually, which are really very, very simple. And for 99.9% of the world, it makes no difference whatsoever. What you're seeing really from us is just, you know, what we do each and every day.

This is not about anything in particular, nothing specific. You know, I think we have a cadence of product releases that we bring out and we made a bunch of announcements this week around our core product portfolio. So I wouldn't misread the license changes anything other than just something that pretty much everybody before us has done. The license change we made was very similar to what MongoDB did, what Elastic did, what Confluent did. This is a very well understood

model and evolution of how companies in the open source world work. And where our focus really is, we got to keep delivering for our customers. So we talked about the enterprise spending environment and how you guys aren't on a consumption model. So you're seeing the deal cycles evolve slowly in this shaky economy. Does that continue to be the case? Yeah, and I think we talked about this before. It's actually kind of a fascinating aspect of enterprise software buying patterns in that you have some companies that sell consumption-based

models, just like the cloud providers. The minute you turn something on, you get billed for it, and the minute you turn it off, the billing stops. And what you've seen is, as there's been an optimization cycle in the industry, you've sort of seen the reaction in the hyperscalers. Revenues reflect that almost immediately. As the economy has gotten more constrained, people are taking behaviors to minimize their spend. For the general software market, we sell annual entitlements to our products. And so really, it's that cycle.

It's just on a different cycle, right? When people expand or contract their licenses, it takes a few quarters for those renewal cycles to come up and not to get reflected. I think that's what we talked about last time. It's actually a fascinating nuance of just the licensing implications and how that translates to revenue. I would say, you know, I think, you know, the spending environment this year is certainly different from what it was last year. I think like everybody else in the industry, you know, we serve the needs of the four or five thousand largest organizations on the planet. And so as their spending patterns change, we're all impacted.

But what I will say is the secular trends aren't changing. We had some of the biggest companies in the world, companies like Home Depot and BlackRock and gaming companies like Unity here at our conference, talking about the progression of their cloud approaches and how we play a fundamental role. So while their temporary cycles do come and go, kind of the long-term secular trends could sort of continue unabated. And that's super exciting for us to watch. Ah, you mentioned Unity. New CEO over there who knows something about managing open source communities. David Janet, CEO of HashiCorp. Thanks for being with us here on Overtime. Thanks for having me, John. The government's key witness in the fraud trial of FTX founder Sam Bankman-Fried, who also happens to be his ex-girlfriend, getting grilled by defense lawyers today. We've got the highlights when Overtime returns.

The former CEO of Sam Bankman-Fried's hedge fund, who also happens to be his ex-girlfriend, Carolyn Ellison, taking the stand in the FTX founder's fraud trial for the third straight day, this time under intense cross-examination by his lawyers. Kate Rooney is outside the courthouse in Manhattan with the highlights. Kate? Hey, John. So Carolyn Ellison has wrapped up an explosive few days on that witness stand. She left the courthouse just over an hour ago. Far fewer bombshells today when the defense cross-examined Ellison. There were no big aha moments. The attorney's strategy appeared to be more about trying to introduce doubt and

challenge her credibility today. The jury paid close attention during that testimony, especially during the government's direct questioning. They were looking at Ellison and the attorneys, taking notes, attorneys for Bankman-Fried, tried to paint her as really a bad manager. One example was a failure to hedge and protect from some crypto market losses, but the cross-examination, it was scattered,

changing dates and topics without a clear knockout punch today. In her more fiery testimony yesterday, Ellison said that after the two crypto companies filed for bankruptcy, she felt a quote sense of relief that I didn't have to lie anymore and that she said she'd been living in a constant state of dread. There was some awkward tension in the room that courtroom between these two. Ellison said she hadn't seen or spoken to Bankman Freed since those companies collapsed last November. They avoided eye contact completely.

We had an FTX software engineer come on the stand, and then a lender, BlockFi, is up next. We're going to hear more from them tomorrow, John. All right. Kate Rooney, thank you. Now, big bank earnings take center stage on Wall Street tomorrow. A top analyst is going to tell us what he's expecting when overtime returns. Big bank earnings kick off tomorrow. A top analyst is going to tell us what he's expecting when overtime returns. Big bank earnings kick off tomorrow. J.P. Morgan, Wells Fargo, Citigroup and PNC all reporting before the bell. Let's bring in RBC's head of U.S. bank equity strategy,

Gerard Cassidy. Gerard, is this rise in yields that we've been seeing more good for banks on the loan side or bad for banks because of what they got to pay out in interest? John, thank you very much on the program. And looking at it from the way you just asked that question, the long end of the curve is really not that impactful for the deposits. The deposits tend to be more the front end of the curve to the middle of the curve. And then at the long end of the curve, you do see it in the longer term residential mortgage business, of course, and sometimes the commercial real estate business. But the biggest impact that the rise in rates has had is on the unrealized bond losses in everybody's fixed income portfolio. So for the stocks that are first up in this round

of earnings season, you got buys on JP Morgan, Citigroup and PNC, but a hold on Wells Fargo. Let's start with the odd one out, Wells Fargo. Why the hold? Good question. We still believe that the cease and desist order that they've been operating under, which has led to the balance sheet being frozen, is really putting a cap on this bank. Once that cease and desist order is lifted, however, this stock should do very well. It's been a stock that's traded between the high 30s and mid to high 40s. They've done a very good job in bringing down expenses and driving up those consumer deposits. But because of that limit, they can't grow the balance sheet.

That's the reason that we've got to hold on that stock. OK, Gerard, now between the other three, J.P. Morgan, Citigroup and P&C, is any one of them more of a bellwether? I mean, you know, J.P. Morgan, some might argue that it's in a class of its own. Will the results of any one of these give investors more of an indication of what to expect or look for for the rest of the financials this season? John, a really good question, because you're right. It is J.P. Morgan. They are the bellwether. But more importantly, when you look at the diversified business model, They're in all the different banking businesses. So if you want to do read-throughs tomorrow to wealth management, you can certainly do that with J.P. Morgan's results. Or the payments business, you can do that also with J.P. Morgan. Of course, consumer lending, consumer deposits. And then, of course, the big one of all is investment banking as well as corporate lending. So that's why it's so important to see their results tomorrow,

because it will tell us what's likely to happen in all those different areas throughout the bank's reporting season, which, again, kicks off, as you said, tomorrow. The KRE, the regional banking ETF, is still in detention, right? It's around 41 bucks. Is that going to change after we get some of these reports this season or no? I think what we need to see, John, that's a great I like that term detention, by the way. I would say that what we really need to see is the terminal rate for Fed funds. That's going to be the catalyst, John. And I think what you're going to see is when the market is convinced that Fed is finished raising short-term interest rates in the last four tightening cycles, that has been the bell ringing event.

Now, maybe we're at it right now. We don't know. Maybe it's going to be in December. But if this inflation number can get under control and the market figures out that the Fed is finished raising short-term interest rates, that's going to be the real catalyst, in our opinion. All right. Now, we've got war in the Middle East. We've got a new level of D.C. dysfunction. How much does either of those matter to the banks? They don't have a material impact on their businesses, particularly the

regional banks, as you can imagine. Obviously, they're not doing business globally. J.P. Morgan, Goldman Sachs and some of our global banks certainly have more are more impacted. Of course, Citigroup was impacted the most with the war over with Ukraine and Russia and having to divest certain assets out of Russia. So but overall, it really doesn't impact consumer spending in this country to a material extent. And that's the real key. As you know, the consumers are two-thirds of the U.S. economy. And as long as they remain employed and as long as they're spending money, and we're going to hear about that tomorrow from J.P. Morgan and Citi, that's the real key driver, we think, to whether these banks have a good outlook over the next 12

months all right gerard cassidy um you know those banks kicking off earning season at such an important time where there's so many questions about the market we appreciate you joining us here on overtime thank you john uh we get those numbers again tomorrow morning for now that's going to do it for overtime