Closing Bell - Closing Bell Overtime: Wes Edens On Brightline Opening Its Miami-Orlando Final Leg; Super Micro CEO On The AI Gold Rush 9/22/23

Episode Date: September 22, 2023

Another down day to finish a down week for the major averages. Wells Fargo’s Darrell Cronk and Newton Investment Management’s John Porter break down the market action. Our Phil LeBeau is live from the UAW picket line and brings you the latest on the strikes. RBC’s Helima Croft on the surge in oil prices and if a return to $100 oil is near. Jon sat down with Super Micro CEO Charlies Liang, one of the shovel builders in the AI gold rush, to talk how much longer the rush can go on. Morgan interviewed Wes Edens on the day his Brightline project opened up its Orlando-Miami leg. Plus, Lockheed CFO on the impact a government shutdown would have and Oppenheimer’s Brian Nagel on Nike’s bad week. 

Not a great close, not a great week for the Bulls. That's the scorecard on Wall Street, but the winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. And coming up this hour, could Crude be heading to $150 per barrel? That's what J.P. Morgan says in a new call. We'll ask RBC's energy expert, Halima Croft, if she agrees. Plus, we'll talk to the CFO of $100 billion defense giant Lockheed Martin about how government shutdown would impact the aerospace and defense sector. But first, let's get to our market panel as we wrap up a rough week on Wall Street for the Bulls. The Nasdaq Composite down more than 3.5% for the week. The S&P down 3. The Russells down 3.2.

The Dow faring a little bit better, slipping about 2%. Joining us now is Daryl Kronk of Wells Fargo and John Porter of Newton Investment Management. Guys, welcome. Happy Friday. Daryl, so consumer services, retail, financials all not faring well today. We got another week of trade before a potential government shutdown. Buying opportunity, no? Probably not yet, John. We don't see the risk-reward dynamics terribly favorable here. To your point earlier on the week, I mean, this will go down as the toughest week we've had since March. So I think you've got a real battle line being drawn right now between Goldilocks and the soft landing long positions and those that have to wrestle with

kind of the three bears, right? Oil being too hot, earnings being too cold, and maybe interest rates being just right for trying to find an equilibrium in here somewhere. Either way, one of those factions are going to win. Certainly the three bears won this week, but we'll see how it goes forward here. That's a whole different fairy tale if if you got to wrestle with those bears for sure uh john so there have been 20 government shutdowns in my lifetime i'm not trying to say they're rare or catastrophic for markets this time would you expect bond yields to drop as usual what impact like for people who are trying to game out next week should we expect on yields and on stocks? Yeah, I'll use a word we're all afraid to use now, which is transitory when it comes to the government shutdown. And on the list of things that I'm focused on in the market, that's not high

on the list. As you said, we've seen 20, the 21st may come. It'll come and go. I think there's much more substantive issues. I agree with Daryl. This is a hard market to really get excited about right now. Market valuations are quite high. Bond yields are high, given where it's hard to justify the market multiple, given where bond yields are. You really need an earnings-driven catalyst to take the market higher from here. And I just don't

see where those earnings are going to come from in a meaningful way right now. Okay. So you both sound pretty cautious about equities right now. But John, are yields going to go higher? And if so, how do you position as an investor? Yeah, well, I'm an equity investor. I have enough struggles identifying all the key variables in the equity market. But look, interest rates are very important to monitor. They've been trending higher through this year, and I don't think that the equity market has digested that fully yet. And I think that there's still some potential pain to come. There's certainly room for bond yields to rise further from here, though.

OK, Daryl, I'll get your thoughts on this, too, and what it means in terms of opportunities right now. Yeah, I think that's right, Morgan. So obviously, the path of least resistance is higher both on interest rates and on the U.S. dollar, right, which are going to keep putting pressure on both the economy and probably equities at this point. From the fixed income standpoint, I think you've got to think about how to barbell a portfolio here. So you take advantage of the short side of the yield curve being the highest yields on the board, right, with an inverted curve. And by the way, we've crossed over now to the longest inversion that we've ever had,

not the deepest, but the longest that we've sustained, basically going back in modern times. And then you also have exposure basically to hedge the portfolio, Morgan, to the longest that we've sustained basically going back in modern times. And then you also have exposure basically to hedge the portfolio, Morgan, to the long end of the curve, because if recession comes and the soft landers are not correct, what's going to happen? Long-term interest rates are going to fall. And so you'll be able to take advantage of that from a return standpoint. So we think the short and long side of the yield curve makes sense. We would fade credit here. We think credit spreads and high yield are just too tight. They're not reflecting kind of the deterioration and slowdown we're seeing in some of the data.

So, John, what do you do with, say, AI-related stocks that have run so hot for part of the year? I'm looking at a few of them. Supermicro, which we'll talk about later, down about now nine percent for the month nvidia also down about nine percent c3 ai down 22 percent i'm not saying anybody should i don't know what you think about those but if people were wishing they had gotten in before at what point do you just play it yeah look i think you have to be selective ai is going to be transformational. I have no doubt about that. But right now, it's largely one big experiment. There's a lot of speculation out there.

There's very few companies that are seeing tangible benefits yet from AI. Now, you mentioned one of them, NVIDIA. That's a stock that I own. It's a stock that I'd be a buyer of right here. You're looking at NVIDIA at less than 30 times earnings on a forward 12-month basis, which is a very attractive valuation given their their key positioning and artificial intelligence but you have to be very careful with this theme because i think there's been a lot of hype that's carried a bunch of names forward

there's very few very clear winners yet at this point yeah there's a lot of cross currents for investors to navigate right now guys thanks for kicking off the hour with us. John Porter and Daryl Kronk. Shares of Ford getting a lift today on news of progress in negotiations with United Auto Workers. The union expanding its strike against GM and Stellantis, but not against Ford. Phil LeBeau joins us with the latest details.

Phil. Hey, Morgan. We're outside of Mopar Parts Distribution Center here in Romulus, Michigan. This is one of 38 parts centers owned by GM and Stellantis where the UAW walked off the job at noon. Let me give you an understanding of just how extensive the strike is now that has been called for from the UAW. Today at noon, you had GM and Stellantis parts centers with members walking off the job, 38 locations in 20 states, approximately 5,600 UAW members walking off the job. And when we caught up with

the UAW president, Sean Fain, he said, people need to understand it's not the number of people who are on strike. It's the symbol that they, it's what they represent in terms of the continued pressure on the automakers. A lot of options with our stand-up strike strategy, and it's just going to depend on what these companies do. This is our next move in the process, and I think it's a great move. This is one of the strongest aspects of our membership is these PDCs. They generate a lot of profits, especially for Stellantis.

By the way, GM and Stellantis both put out statements today saying that they continue to bargain in good faith. They believe that they are working with the UAW towards an agreement eventually, but no characterization that how close they are to that happening. Meanwhile, the UAW did say today, Sean Fain said, there's real progress being made with Ford. Whether or not that means we should see an agreement before too long with Ford, way too early to predict. But they did not add Ford to the list of places where there are strikes being expanded today. Those are only at GM and Stellantis parts centers. Guys, back to you. Yeah, maybe it perhaps explains why you saw Ford stock actually finish the day higher in a down market.

Phil, we're starting to get some estimates of what the strike so far has meant. Anderson Economic Group, it looks like economic losses exceed a billion dollars in the first week of the strike, wage losses topping $250 million. It's a key question. When a strike happens, the impact it has on workers, does the union have enough in its coffers if this becomes a more prolonged and more sustained effort? Depends on how long it goes and it depends on how many more strikes are called. Look, so far you've got a total of about 18,000

UAW members who have walked off the job. The membership for GM4 and Stellantis combined is about 150,000. So a little over 10% are now on strike. And they are each getting, each of those people on strike gets $500 a week from the UAW Strike Fund. They've got more than enough to continue paying a small number of workers for weeks on end. But if they add more locations and more strikes, that makes more of a drain on the Strike Fund, which, by the way, was about $825 million when they began this strike. Phil, I don't know if it's, you tell me, too soon to assess the effectiveness of the tactics here from Sean Fain and from the union,

but it looks like there might be some tactical victories here, calling out President Biden, kind of head faking which locations were actually going to strike. It looks like they're imposing some pain and then holding up Ford as an example, saying, hey, look, are we not reasonable people? We're not hitting everybody where it hurts to the same degree. And, John, that's by design. They believe it does two things. One, it gives them an advantage in terms of keeping pressure on the automakers. And look, even with Ford today, they said we see progress there, but that doesn't mean that we're close to an agreement with Ford.

So they believe there's a couple of things. One, it is to their advantage in terms of negotiating. And two, they also believe that this keeps them in the public eye. Let's say Sean Fain waits until Wednesday or Thursday of next week and says, you know what, tomorrow on Facebook, I've got another update on where things are and possible strikes. You can bet the public will be paying attention to that. All right, Bill LaBelle, great reporting as always. Thanks for bringing it to us literally from the picket line. Back to the broader market. The S&P 500 closing out a third straight week of losses and senior markets commentator Mike Santoli sees a familiar pattern developing. Mike, what are the charts telling you today? going back to the end of 2020. This year, 2023, has really matched,

even in levels in lockstep in the rhythms, the 2021 experience. So if we take where we are right now, just above 4,300, and take it back like that, this basically was the September into October pullback in that year. And it bottomed just below 4,300 in early October. Now, we did peak a little bit earlier in July this year versus then. But so we're not only seeing these typical

sort of seasonal cadences, but also around the same level. So I think it would be really weird if we stuck with this exactly. But you see what happened, right? You did have this further pullback and from a lower high, too. So it actually was a, you know, a smaller percentage pullback, really, than we've had already. And then a fourth quarter rally, which almost everybody expects. Why does everybody expect it? Well, look at this stock, this chart, which shows the current year's S&P 500 on the right scale there. We did get to about a 20 percent gain, having pulled back right on cue from a midsummer high. And then this is the average trajectory of the S&P 500 if you blend it every year together since 1950. So this is usually, you know, your template year.

We're not far from it just in terms of when the market flattened out. And so there you go. And starting sometime in October, you tend to get a little bit of a lift. So I can observe this. I think you have to respect it. At the same time, I want to ask myself, can it be that easy? And everybody could just decide this is just normal seasonal stuff. We don't have to look at the headlines. That's, I guess, maybe a length I'm not ready to go to. OK, so I see there's some orderliness here and seasonality certainly plays a role, as you just showed us in the charts. But I wonder how valuation factors into this, too. Even if you look back at

last fall and the pullback we saw then, how the stock market was valued then versus now. Well, last fall, we're talking about 2022. You were a bit cheaper, in fact, a good deal cheaper because you've been going down most of that year. And so we bottomed in the 3600 area, you know, and I think we were probably just below 15 times earnings or thereabouts from the estimates at the time. We're at 18 times right now. So you would say a full valuation for sure. Still a top heavy valuation. So it doesn't match up perfectly, certainly not with last year when you got a good low. But in terms of twenty twenty one, the valuation is actually not that different. So we've been kind of up in this plateau level of P.E.s for a while since the

pandemic. In fact, even since 2019, arguably. Yeah, definitely some good analysis there, as usual. Mike Santoli, it's going to be interesting, though, John, to see you got student loan repayment. You got COVID related child care subsidies expiring, which we haven't talked very much about. Gas prices rising again. And then, of course, strikes like the UAW. These are some factors we don't usually contend with. Yeah, good point. At this time of the year. And looking at those charts, if everybody expects it in Q4,

does that mean it's going to happen, which is what Mike seemed to be wrestling with? Yeah. All right. Well, we just kind of touched on it with gas. But oil prices sitting near their highest levels of the year, up more than 7% so far in September, approaching $100 a barrel. After the break, RBC's Halima Croft on why you might want to brace for even higher prices. And later, it's been a brutal week for consumer discretionary stocks.

Nike, no exception, getting a kick in the pants, down more than 5%. We're going to ask an analyst if now's the time to buy the dip, with earnings just a few days away. Overtime's back in two. Welcome back to Overtime. WTI crude holding above $90 a barrel near its highest levels of the year. JP Morgan turning bullish on energy, upgrading the sector to overweight. Warning the latest surge in oil prices may have a lot further to run.

Analysts there saying Brent could climb as high as a hundred and fifty dollars per barrel let's bring in our VC capital markets global head of commodity strategy and a CNBC contributor Halima Croft I'm gonna start this with a very basic question here when I hear a hundred and fifty dollars a barrel at what level two prices actually become demand destroyers? I mean, look, do we see momentum to take this to 100? Sure. I mean, one of the problems right now in the oil market is you would say, look, at these high levels, refineries are simply going to be uneconomic to run crude. But we actually have a shortage of refined products. So even at these higher levels,

refineries are going to run the crude. The math works. If you look at the prices of distillates, you look at heating oil, you look at diesel, those prices have risen even faster than crude because of the refinery capacity constraints that we're facing. Okay, so $100 sounds likely to you, is that what you're telling me? But what about higher than that? I mean, higher than that, we'd have to look to, do we see further supply disruptions? What does it look like in terms of demand? Do we completely fade every China story? Do we basically say, I'm not going to be concerned about higher rates? So again, I think $100, you know, this momentum to $100, getting beyond that, we'll have to see.

And it's going to be very important to watch what happens. We have significant OPEC cuts in the market. We have this million barrel Saudi unilateral cut they've extended through the end of the year. But I interviewed the Saudi oil minister this week in Calgary, and he said, we're extending to the end of the year, but we will be reviewing every month and we can go in either direction. So I'm waiting to see what happens with these big U.S.-Saudi diplomatic talks for a comprehensive deal. Is energy potentially part of the package? Okay, Halima, what do you think? What about natural gas, especially as we head into colder temperatures and Russia still doing its thing? I mean, this is the big concern, John. I mean, we had a mild winter last year. We also had abundant supplies from the

u.s lng into europe also mild weather in asia so they were not bidding away cargos it is really a weather story what does winter look like and so in a cold winter scenario of course would be concerns and we'd be concerned about the russian weaponization strategy again what we're seeing this week is on the product side. But again, there is real concern about tightness in these diesel markets. What does it mean if Russia keeps these supplies off for a significant period of time? So how do investors, how are they playing that? What are you seeing in the pricing for natural gas? I mean, I think right now what everyone is in is wait and see mode. When it comes to nat gas, what does winter hold for us?

And if we think about oil prices, again, I think a lot of concern or activity is going to be around what happens with these OPEC production cuts as we get out to year end. Are they going to be extended, the unilateral cuts? Do they fade out? So I think people are going to be watching a lot what happens in Vienna come year end. All right. I need to go back to crude and specifically the saudis i mean i mean oil is always part of the geopolitical

uh... consternation city if you well uh... you had that washington post write up of a classified documents saying that the saudis were essentially gonna weaponize oil uh... in in the relationship tense relationship between you know with the u s we know they're raising money and splashing a lot of around in sports world as well. I just wonder, are the cuts that we're seeing fundamental that are coming out of Saudi right now, or is it something else? I remember we were on in June right after the OPEC production cuts. I came back in July, and the Saudis were really clear. There were a lot of macro concerns in the market. Think where oil was in June. Everyone was talking about

an armada of Russian oil into Asia. They talked about, you know, demand concerns. And the Saudis were really clear. They were going to do what they thought was necessary to bring this market back into balance. And again, I think it's very interesting what the Saudi oil minister said this week in Vienna. I mean, in Calgary, they are reviewing this unilateral cut every month. And so I would pay very close attention. The Saudi crown prince just gave this big interview this week. I'd pay very close attention to what is happening in these broader diplomatic talks with Washington. Is energy part of the equation?

Could we see additional barrels as part of a grand bargain between Washington and the kingdom of Saudi Arabia? All right. We will watch it. Thank you. Coming up, we'll talk to the CEO of one company that has seen its shares nearly triple this year on AI hopes. It's taken a leg lower in the last month and it's not NVIDIA. We'll reveal that name next. And as we head to break, here's a look at the biggest decliners of the week in the S&P 500. Caesars, Moderna, MGM, Alexandria and Ceridian are all or all fell double digits this week in what was another down week for the S&P more broadly. We'll be right back. Welcome back in San Jose this week, I got some time with the founder and CEO of a 30-year-old computing company whose stock has quadrupled in the past 12 months on AI excitement.

No, not NVIDIA, Supermicro. Supermicro makes high-performance data center gear like the race cars of the cloud. Until this year, CEO Charles Liang was known mainly just to the fast and furious drag racers of hardware, people like semiconductor CEOs and cloud giants with a need for speed. But now that investors have caught on, I wanted to visit the garage in San Jose, where Liang's team builds the systems, and get clues on whether the AI trade in Supermicro can go the distance. A big part of Supermicro's premium, domestic manufacturing for quality control and security.

You know, people like Made in USA, especially Made in Silicon Valley, because this way they can come to see our facility, can come to see our product, and monitoring all the process. Kind of a test of the system during our design and building the product before we ship. So when we ship the product to the customer, the customer is pretty much 100% happy.

So that's the advantage of Silicon Valley. And most of our customers are kind of really picky customers. They want the best product, not just just a car can run fast, but fastest and most safe and consume minimal gasoline. That's where you're different from sports cars, because sports cars consume a lot

of gasoline. Though these days, with electric cars, you have more efficiency. I want to go back to exactly how much you're doing here, though, because I'm familiar with the campus where we're sitting on now. It used to be the headquarters of the San Jose Mercury News where I worked as a young reporter. And it's a big piece of land. Yeah.

What are you doing here? You know, from design, validation, and integration, and we ship the complete system or complete the ROAC We make the ROAC plug and play ready to run right away Lots of our customers receive the ROAC they just do the two things plugging the power cable, plugging the data cable, and ready to run. Because we install Optima, all the hardware, firmware, management tool. So it kind of makes customers' job much easier.

Tell me about your relationship with NVIDIA CEO, Jensen Huang. You guys go way back. You've known people in the chip industry for a long time what was the evolution of the use of gpus in the performance systems that you build you know sometimes it's by chance both nvidia and shifu michael founded in 1993 so almost from day one, we know each other. And then we grow together. So Jason shared reality when he introduced the first AI machine. Indeed, Supermicro was the first company to make his chip ready for the market. Supermicro has faced accusations about its security before. I spoke this week with the CEO of a security company who's a longtime customer. He told me he had an independent audit done that convinced him

that the gear is clean. So can Supermicro continue to scale from here? Liang said he's confident his longtime industry friends can get him a lot more chips. Our partner like NVIDIA, they continue to grow their capacity and we are very happy to see their progress. And we believe they will support us much, much more chief. So with that, I believe our growth can be very strong in next few years. Especially this AI revolution, my personal feeling, it may be more powerful, more impact than two centuries ago, the industrial revolution. Industrial revolution helped a lot, changed a lot, but most are visible.

But this AI revolution changed a lot of visible, but lots of assumptions are invisible. So I believe this AI technology still have a long way to grow. And we are really happy to see this opportunity and continue to work with our partner on that in India as close as possible. Indeed, the good thing is that we, both companies, only about 15 minutes away. So we are able to work from early morning to midnight. That's why one of the reasons we are able to deliver a really optimized solution. And to be clear, it's not just NVIDIA. Supermicro makes hardware based on AMD chips. And when Intel this week announced a major AI supercomputer using its Gaudi 2 chips that would serve stability AI

and others, a few people knew and Supermicro confirmed to me that it's Supermicro hardware making that happen. So a little bit of a pullback here. If AI really is the future for investors, the question is, do you get in? When do you get in? Whether we're talking hardware companies like the ones we you know c3 uh or we're talking you know um uh service now we just had bill mcdermott talking about them gearing up their models get your pencils out figure it out yeah well and i think to your point like super micro kind of goes back to the picks and shuffles piece of the puzzle uh right um it's interesting just to hear some of these companies including including a super micro basically say that we're still in early innings and that they are partnered with all of these different companies.

They do have some skin in the game, of course, but interesting also that they're manufacturing there, which they can afford to do because this is high end gear. Right. So they still get their margin. Yeah. The race cars. Yeah. I think, as you said. All right. Well, it's time for a CNBC News update with Bertha Coombs. Bertha. Hey, Morgan. President Biden announcing the creation of the Office of Gun Violence Prevention this afternoon from the White House Rose Garden. Vice President Harris will oversee the first of its kind office. The president said the goal is to find a way around congressional inaction on stricter gun control laws. The White House said the office will implement the a way around congressional inaction on stricter gun control laws. The White House said the office will implement the bipartisan Safer Communities Act and the

president's executive orders on gun violence. A CDC committee is recommending the RSV vaccine for pregnant women at 32 to 36 weeks gestation. The single dose Pfizer shot spurs the production of antibodies in the mother, which can be transferred to protect the baby. Now, the CDC director must also formally recommend the shot so that it can be distributed to the public. Just as the final home weekend of the season gets underway, roughly 700 Wrigley Field concession workers voted to authorize a strike at any moment. Workers union and concessionaire Levi restaurants have not agreed to a contract since the last one expired back in October of 2020. Employees are asking for a $20 minimum wage, expanded health care insurance and a pension. Well, we're not sure if the Cubs will make it into the playoffs. Odds are about 50-50 from what I've seen, guys. So that could really temper their

bargaining power, perhaps. All right. We'll have to see how it all plays out. Bertha Coombs, thank you. It really does feel like it's strike season. Also in the news today, privately owned railroad Brightline debuted its new, long-anticipated route today, linking Miami to Orlando. The first train rolling into Miami station this morning, marking a milestone for the $6 billion decade-long project. Brightline, which is the first private intercity passenger railroad in a century in this country, says the trip will take three to three and a half hours versus four hours by car. I asked Wes Edens, Brightline's chairman and the co-founder of Fortress Investment Group, why, after decades of economic unviability, passenger rail is a compelling investment now. Over the last 15 years in particular, there's been a massive amount of

inner city high speed rails that have been built around the world. China, from a standing start in 2008, has 27,000 miles of high speed rail. The U.S. has exactly zero. So this is the first, what I believe, of many of these projects now that will work. We know that the economics work inner city. We have had great response to our passenger service in South Florida to start. But opening today in Orlando is a real milestone. So up next, Brightline West connecting Las Vegas to Southern California. That's a $12 billion project that would represent the first true high-speed rail system in the U.S. That's cleared environmental permitting. It's apparently shovel-ready.

And Eden's telling me that the Florida Railroad is really providing the use case, the economic model, if you will, for more of these types of projects, including this one out west. And, John, one of the ways they've gotten funding over the years for Brightline in Florida, one of your favorite markets to talk about, the muni market. Indeed. Indeed. And this comes on a day when they also had that tragic fatal crash. Are their operations OK? Talk to them. Yes. Unfortunately, I think, yes, we talked a little bit about that. There was a fatality. Somebody had gotten on the track. It wasn't this first train that went from Miami to Orlando. It's under investigation. Whether it's this railroad,

whether it's other railroads, I think it sort of raises the questions and raises the awareness around safety, including things like, for example, suicides and other reasons that unfortunately you see these types of fatalities happen. For sure. Now, we've got a news alert now on another labor strike that might be bubbling up, this time in the health care industry. CBC.com just reporting that unions representing workers at health care nonprofit Kaiser Permanente threatening to go on strike in early October if they can't come to a deal by the end of next week. The coalition of unions represents more than 75,000 workers. The unions say Kaiser has failed to address a staffing crisis that's led to long wait times for patients. Kaiser says the claims are misleading. After the break, Mike Santoli returns with a look at the damage done to mega cap tech stocks in this most recent sell-off. 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. Mike Santoli is back at the New York Stock Exchange with a look at how mega cap leadership is faring after this recent weakness this week. Mike. Yeah, John, you know, we could look at individual names like an apple with a pretty significant pullback, double digits from its highs and feel as if that leadership group of mega cap growth stocks have really unwound some of their advantage. But really isn't the case. This chart is the mega cap growth ETF, the MGK. It's more than 50 percent, the so-called magnificent seven mega cap Nasdaq stocks. And it's relative to the equal weighted S&P. So against the average stock. And you'll see that there's been a series of peaks here over the last five years. This right here was September 1st of 2020. That was the culmination of this huge momentum move during that pandemic summer in Apple,

in Tesla, in all those stay at home type names as well, which really created this blow off top in relative performance of the big Nasdaq stocks. They kind of regrouped, came back. That's the November 2021 all time high in the Nasdaq itself. And so you see it fell away from there. What do we do so far this year coming back from the 2022 bear market is we kind of broke this little downturn. I don't want to make too much about, you know, the price levels and the and the, you know, the trend lines when it comes to a relative chart like this. But it is interesting that we're kind of hanging in there. And it would be hard to believe necessarily that if we regroup here after this pullback and do have a

decent rally, that it won't include at least participation from from the largest stocks at a time when, you know, we're still not too sure about what the economy has to deliver next year. So we're talking about the difference between how well, you know, the regular stocks are doing and the super stocks are doing that, showing that, you know, on the scale, the super stocks are doing and the super stocks are doing, that's showing that, you know, on the scale, the super stocks are still doing way better than even their average outperformance. So even though everything's down, they're down less. Yes, that's exactly what it's saying. Now, arguably, you could say, well, once it gets up into this zone, it just gets too stretched and the market gets too narrow and it's unstable. And that's why you've had these givebacks. But it's not to say that it's sort of game over once once

you do have it out. Everyone would like to see the market broaden out. Probably it used to be it makes for a more durable rally typically. And that would imply this line going down. But I don't think it has to really completely reverse. All right. The magnificent performance of the Magnificent Seven. Mike Santoli, thank you. Have a great weekend. You too. Thank you. The odds of a government shutdown keep increasing. Coming up, the CFO of Lockheed Martin on how that could impact defense companies. More news just crossing on the United Auto Workers strike.

Let's get back to Phil LeBeau. Phil. Hey, Morgan, we have learned from our colleagues in Washington at NBC News that President Joe Biden will be coming here to Michigan on Tuesday. And we've been told it's in a show of support for the United Auto Workers who are striking. Let's see if this produces any movement between the three automakers and the union as they continue to negotiate. But again, the invitation was extended this morning from UAW President Sean Fain. He specifically said, we want anybody who wants to come and walk the line with us to do so, including President Biden. I'm not sure that means he's going to walk

the line, but he is coming here on Tuesday. No doubt that will get plenty of attention in terms of where the UAW is in its demands for more pay and other benefits. Guys, back to you. He'll have to walk a tightrope whether or not he walks the line. Bill LeBeau, thank you. It's another rough day for newly public companies. Klaviyo pulling back again, now sitting firmly below its first trade price of $36.75 a share, though still above its IPO price of $30 a share. Meantime, Instacart is sitting right at its $30 IPO price, even after it popped by 40% its first day of trading on Monday. It's since given up all those gains. BTIG initiating the stock with a neutral rating today, saying it sees only modest growth in light of competition from DoorDash and Uber.

And Arm Holdings is lower as well, dipping below its $51 price per share offering price. That stock also catching a neutral initiation today, Susquehanna giving it a $48 price target. And Morgan, of course, the bankers try to protect that stock price in the first two days of trading. So keep that in mind, too. It's not just trading on its that stock price in the first two days of trading. So keep that in mind, too.

It's not just trading on its own. They weren't able to maintain those pops. That's right. We're still early days here. Well, we have much more on the outlook for IPOs and M&A next week on Overtime when we speak to some of Wall Street's biggest dealmakers. Look at that screen. JPMorgan Investment Banking Global Chair Jennifer Nason, Guggenheim Securities Eric Mandel, and Citi's Tyler Dixon. We're going to be continuing this conversation throughout next week. Fantastic. Up next, the CFO of Lockheed Martin discusses how the increasing threat of a government shutdown could impact the defense industry and so much more.

Stay with us. Welcome back to Overtime. Earlier today, I sat down exclusively with Lockheed Martin CFO Jay Malave from the Global Security Forum in Hartford, Connecticut, a key name to keep an eye on as potential government shutdown looms. We began by discussing Lockheed's efforts, though, to adopt and accelerate commercial technologies for defense applications, everything from 5G to AI, autonomy, cloud computing. And I asked what it means for the weapons maker's business model. It doesn't change it fundamentally, but what we're looking at is different opportunities, whether it is M&A, whether it is things like joint ventures

or just traditional contracting, to see what we can do to accelerate those technologies into defense applications. And so we're wide open in terms of an aperture of how we would approach it from a transactional standpoint. But the most important thing is, is how do we bring those technologies in? As I mentioned, we've got various partnerships. Microsoft is one where we've brought distributed cloud computing into a classified environment. We've got partnerships with Verizon where we're bringing 5G technologies and those types of communication systems into our networking capabilities. We've got partnerships with Intel as well as Global Foundries to accelerate and make sure that we've got capacity and security of supply for microelectronics and chip manufacturing.

And so all of those different areas that we're exploring and trying to accelerate, we're wide open in terms of how we actually bring it in. It's really the important thing is to bring it in. So Lockheed also has struck partnerships with commercial players in recent years. This is part of CEO Jim Taklett's 21st century security strategy to include NVIDIA to use AI for digital twins to help fight wildfires. It's also, as he just touched on there, teamed up with Global Foundries and Intel to boost domestic semi-supply amid the Chips Act rollout, which speaks to a key topic for the prime and for other contractors, supply chain. Supply chain, it's getting somewhat better, not materially better.

What I would tell you is that we still have certain areas where we struggle. And some of the areas that you've heard in terms of the Ukraine demand, whether it's HIMARS, GMLRS, PAC-3, those are areas that we still are trying to ramp up. And all of those really require significant level of continued investment and really a delivery schedule that we can actually get behind. We're really not seeing it yet. We're making some small steps in progress, but we still have a ways to go. So whether it's stockpile replenishments and keeping up with order demand for something like Ukraine, or whether it's developing and employing these new technologies like AI, what does the possibility of a government shutdown, a continuing resolution, or even, heaven forbid, an extended continuing resolution mean for all of this?

Yes. Whether it's a continuing resolution or a shutdown, I mean, you're looking at various degrees, but both of them are disruptive. You know, what happens is the ability to get awarded new contracts gets pushed out to beyond any type of a period of whether it's a CR or a shutdown. The ability to ramp up on particular funding levels also gets limited because you're basically subject to the previous spending levels. And so our ability to meet this demand gets gets jeopardized and what it does is pushes schedules to deliver that capability to the right. And so you'd encourage members of Congress, obviously, to really resolve this as soon as possible.

It's just not helpful to the industry. It causes delays, and we're hopeful that it can be resolved quickly. Are there certain Lockheed programs that could be significantly impacted? It really depends. It's a case-by-case situation. As I mentioned, there were a few programs that I mentioned that we're trying to accelerate, working to accelerate. But really, we're also relying on new awards

that we would have expected here in the fourth quarter, which is the government's first quarter fiscal year, which would be reliant upon fiscal year 24 funding. And our ability to really execute that gets delayed as a result. Yeah, I do have to ask you about F-35. It's been in the headlines. Earlier this month, you trimmed delivery guidance,

tied to some delays around some tech upgrades there, and then just this week, a 96-page report from the GAO that basically said that only 55% mission capable for the aircraft that are in the fleet right now. A lot of flame to go around in terms of that report, but some of the stuff that was flagged there is insufficient supply of spare parts and also a reliance, a heavy reliance on Lockheed and contractors. Well, let me start with the Tech Refresh 3. We started flight testing in January and we'd originally anticipated that we

would be able to start delivering the Tech Refresh 3 equipped aircraft in December. Based on the learnings through the testing cycle, we've learned that we've got to push that out by four to six months. So we now expect to deliver our first aircraft anywhere between April and June of 2024. And that's just essentially the learnings that we've had to date on that. We feel confident in that April to June timeframe, again, based on what we've learned and what we've been able to extrapolate based on

the testing thus far. As far as, you know, sustainment, you know, one noteworthy item is that 90% of the parts in the LRUs on the aircraft are, 90% of those are performing better from a meantime between failure perspective. And so there's certainly work to do. We have to partner with the Joint Program Office and the services in general to make the flight readiness obviously a lot better than what it is today. We are committed to do that. We know we take our responsibility as the lead integrator of the F-35 seriously, and we'll do what it takes to make sure that we can improve those to the level of expectation of our services.

Well, Lockheed gleans about a quarter of overall revenue from the F-35 Joint Strike Fighter program, but it's been in the news for another reason, too. The F-35, I mean, after a pilot was ejected out of an F-35B due to a malfunction that resulted in the jet flying on its own and a public manhunt to find its debris field some 60 miles away earlier this week. Lockheed Martin saying, quote, we continue to support the United States Marine Corps investigation.

Questions regarding the investigation are best addressed by the Marine Corps. But that got a lot of attention this week. In general, John, though, that shutdown possibility, continuing resolution possibility, that's weighed on defense stocks like Lockheed Martin really all year. They had a down day. These stocks, this sector today again as well. Yeah, interesting focus you got from him, too, on efficiency and partnerships there. I thought you'd like that. Yeah. The headwinds. Nike is the second worst performing Dow stock this year. And up next, we're going to ask an analyst whether the stock looks

cheap ahead of next week's earnings. And don't forget to register for the 13th Annual Delivering Alpha Investor Summit. That is next Thursday. I'll be speaking with one of the biggest names in real estate. Scan the QR code on the screen right now to sign up. Nike is set to report earnings Thursday. The stock's been tripped up this year. Second worst Dow performer down 22 percent. Let's bring in Oppenheimer senior analyst Brian Nagel with a preview of what to expect next week. Brian, is this one overdone to the downside of the declining inventory is a good sign? Hey, John, I think the downside of the stock in Nike stock is overdone. And I think this is a big buying opportunity here. I'll make it simple.

I mean, there's a lot of concerns, a lot of market concerns swirling around Nike. I'm not going to say they're unfounded, but I think they're overblown. And now we have a stock trading at one of the lowest multiples it's traded at in quite some time. So is Nike sort of a standalone name to invest in right now at a time where basically all of consumer discretionary is getting hit hard because of all of the concerns around the weakness of the consumer that's on the horizon? Well, look, I mean, Nike has some unique attributes, right? I mean, it's a very large, global, dominant brand. And I can't say that for all consumer

companies. So from that standpoint, there is a uniqueness, if you will, to the investment opportunity in Nike. Now, I mentioned a second ago, the concerns weighing on Nike, I mean, those are not necessarily unique to Nike. I mean, there's, you know, as you mentioned, Morgan, I mean, there's a lot of worries out there about the consumer. I mean, what I would say that what's interesting here is we've been talking about these consumer worries now for months, quarters, maybe even years. And frankly, you know, from my vantage point, I see a consumer that's holding in quite well. But I think that helps to create the opportunity, the long opportunity in Nike shares.

Quickly, China, a big factor at this time or no? Is a bad news from that economy priced in? Well, I mean, look, China, it's definitely a piece of the Nike story. That's also where investors have a lot of concern. But you look at what Nike has reported. So last time you heard from the company was late June when they reported their fiscal Q4 results. At that time, the management team was very clear to say that as the Chinese economy has been opening post-COVID, the Nike business there has really started to rebound. So I think Nike's doing quite well in China. But again, this is where we have a lot of concern. And that's one of the concerns weighing upon the stock. All right.

Brian Nagel, thank you. Thank you. Morgan, quite a week coming up. Government shutdown looms, but also inflation. Yeah, you've got the PC reading on Friday, which is obviously a key one for the Fed. In the meantime, we just we had another down day for most of the major averages today, another down week. And it's been tech and it's been energy that's been outperforming near some key levels, as Mike Santoli has been telling us on the S&P. So got to come to overtime

to see what's happening with those. All right. Have a great weekend. All that does it for us here at overtime. Fast money. Stick around. Starts now.