Closing Bell - Closing Bell Overtime: What The Teamsters Strike Means; Grading Yellen’s China Visit 7/5/23

Episode Date: July 5, 2023

Averages closed lower after Tuesday’s market holiday. Truist’s Keith Lerner and Wells Fargo’s Darrell Cronk break down the market action. Broughton Capital’s Donald Broughton walks us through the impact of the Teamsters strike on the shipping industry and stocks like UPS and FedEx. JPMorgan Co-Head of US Rates Strategy Jay Barry discusses the second-half outlook for rates. Wahid Nawabi, AeroVironment CEO, talks what a successful China visit for Treasury Secretary Janet Yellen would look like. Plus, Hightower’s Stephanie Link on her second-half playbook and Wedbush’s Dan Ives on Amazon.

And Mike, we'll see you in just a moment. Middling markets on this first full trading day of the second half, with all the major averages finishing lower fractionally. That is the scorecard on our Wall Street. The action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is on assignment today.

Coming up this hour, we're going to talk about news today surrounding failed contract negotiations between UPS and the Teamsters Union and the major impact that could have on the economy, also rival FedEx. Plus, the CEO of defense contractor AeroVironment joins us to talk about Washington's tensions with Beijing as Treasury Secretary Yellen heads to China. And we'll talk to a meta shareholder as that stock hits a 52-week high ahead of the expected launch of its so-called Twitter killer app. Shares finished today up 3%. But first, let's get to today's market action.

Joining us now is Truist Wealth Co-Chief Investment Officer Keith Lerner and Wells Fargo Investment Institute President Daryl Kronk. Good afternoon to you both. Keith, I'll start with you. We had a ferocious start to the year. What do you do now as an investor? Well, great'll start with you. We had a ferocious start to the year. What do you do now as an investor? Well, great to be with you, Morgan. Now, our overall view is that we are strongly neutral. That doesn't sound too exciting, but, you know, this is in this post-pandemic world, a lot of the indicators we're looking at is relatively mixed. So we were basically neutral

against stocks, cash and bonds. As we think about global asset allocation, we are maintaining our long-standing overweight to the U.S. markets, which outperformed in the first half. We think that's likely to continue. We do think there's a relative opportunity in the equal weight index. That index is only up about 5 or 6 percent. It had one of its largest underperformance relative to the S&P market cap that we've seen in the last 30 years. And then lastly, on the sector side, we upgraded tech in March. We're staying with tech and communications. We also like industrials as well.

Okay. Daryl, I want to get your thoughts. We just had Fed Minutes, and the takeaway there is really, okay, two more rate hikes, likely in the cards. Fed's not done, even if it's close to done. You take that, you couple it with this breakdown in UPS contract negotiations. We're going to get into the stock specifics around that a little bit later in the cards. Fed's not done, even if it's close to done. You take that, you couple it with this breakdown in UPS contract negotiations. We're going to get into the stock specifics around that

a little bit later in the show. But it speaks to what we're seeing at a number of companies across the country right now is this tight labor market and the possibility of a wage price spiral, which is what the Fed is trying to avoid right now. So I do want to get your thoughts on this dynamic and what it means for markets if you see interest rates that have risen, thus the cost of capital has risen, and you've seen a low cost of employment and the costs associated with that now on the rise. Yeah, good afternoon, Morgan. It's great to be with you. So it is important. I think UBS can be a barometer in the market. We don't think that the strike is imminent. We think today's, you know, contract negotiation breakdown is probably just a breakdown in that. There's still, you know, 26 days to go until the contract expires. Most of the non-pay issues have been negotiated already.

So it's just really coming to a conclusion on pay. But your point's well taken. I mean, we saw the Fed meeting notes this afternoon, or the minutes this afternoon. The hawks are still in control. And the clear message coming out of those minutes is that the fear of the Fed is not an economic slowdown or recession, the fear is that inflation expectations become anchored, basically.

And so I think that's what they're worried about, and play a big part in that so if wages were to go higher which it doesn't look like they are in the near term they've been actually abating and coming down that would be a real concern for the Fed what's so amazing to me Keith is the fact that you have had the S&P you've had multiple expansion despite the fact that we've seen ongoing rate hikes this year and turmoil in banks and not a contraction, but a slowing of growth in terms of earnings for the biggest companies as well. How do you see it now moving forward? Yeah, it is right what you said. I mean, normally, if you had three rate hikes,

which we had this year and expecting more, you normally would expect multiples to likely contract at or best be flat. But what you're seeing is a difference below the surface. The average stock is around the same multiple from the beginning of the year. Most of the PE expansion we've seen in the headline market, as we all know, is from the tech sector as a whole. And our view that tech sector premium will likely stay at a premium. And part of that is these are the companies that have greater earnings growth. And what changed starting in March is the earning trends for tech relative to the overall market started to improve. So we think the market multiple stays somewhat at a premium. I think we have a much more modest gain in the second half driven by by earnings growth, as opposed to this PE expansion that we've seen in the first half.

Daryl, I'm going to put the same question to you that I did to Keith earlier, and that's, what does an investor do now? Well, I take the point Keith just made, but I would say, look, the 16% year-to-date increase and the 24% increase in the S&P 500 since the October lows has been 100% multiple expansion and 0% earnings growth. In fact, earnings will print their third quarter of negative growth in a row and have come down since the beginning of the year for estimates for second quarter from minus six to minus eight. So there isn't anything in here, you know, if we think this is a durable rally, we'd want to see more leadership from financials. We'd want to see more leadership from REITs. We'd want to see more leadership from energy. I'd want to see more leadership from financials. We'd want to see more leadership from REITs. We'd want to see more leadership from energy. I'd want to see small caps not just participating but leading. I'd want to see commodities leading here. None of that is

happening at this point. So I think you've got to understand and get below the surface for what it is. I would still be trimming here and taking some cash to the sidelines, Morgan, to your question about what's an investor do. We would underweight equities. We don't think the risk reward is good. The equity risk premium is basically below 100 basis points right now, which is really low today. So we think it's an environment to play a little more defense coming into the second strongest first half rally

we've seen since the beginning of this century, only to 2019. All right, Darrell Kronk and Keith Lerner, thanks for joining us. And of course, that is very much what we saw happen today with materials and energy, some of the worst performing sectors in the Russell 2000, the biggest underperformer of the major averages, finishing down 1%. Let's turn now to CNBC Senior Markets Commentator Mike Santoy at the New York Stock Exchange, taking a look at stocks versus bonds. Mike, I mean, double duty, triple duty today. You're the hardest working man on TV.

Oh, I stopped counting. Thank you, Morgan. But hey, it's just nine to five, right? Not that tough. But take a look here at stocks relative to bonds. This is the total stock market index relative to the total bond market index going back to August of last year. Well, basically a one-year chart. That's a pretty extreme level of outperformance. Now, it's not unprecedented by any stretch, but it definitely shows you how unbalanced things have been across asset classes and then also within asset classes. So it's been stocks over bonds, big stocks over small stocks, growth stocks over value stocks. And then here you have more aggressive, higher beta stocks against lower volatility ones. What does that mean? It means the most stock like stocks, the ones with the sort of highest volatility and the biggest variance in

their expected returns against bond like stocks. Very wide gap right there. So on one hand, you say, OK, investor risk appetites have been building. It's been recovering coming out of that defensive crouch we were in last fall. That's a good thing. Bull markets tend to persist. Trends become friendly as they go higher. On the other hand, you wonder if there's going to be a little bit of give back across all of these different relationships before too long. We'll see. All right. Just in terms of the relationships, I mean, does this make sense fundamentally what we've seen in terms of this chart? It makes sense behaviorally. And I do

think fundamentally on some level, it does make sense if you believe that we're essentially part of this is a major rebound from an awful year going into the October lows. So part of it is just mean reversion. But part of it really is this the excitement that sounds strange, the excitement that we didn't fall into a nasty earnings recession, the excitement that sounds strange the excitement that we didn't fall into a nasty earnings recession the excitement that we have this thing called artificial intelligence that's creating another theme and another reason to expect uh future growth whether it pans out or not it's energizing the market at this level so whether it's going to continue to make sense is the bigger question gotcha it goes back to ed yardani on our air earlier today talking about this idea of maybe a rolling recovery.

We'll see. Mike, we'll see you later this hour. Thank you. We have a breaking news. We have breaking news on JetBlue. Phil LeBeau has the details. Hi, Phil. Hi, Morgan. It will not, will not appeal the decision by a judge to block the Northeast Alliance or unwind the Northeast Alliance that JetBlue has with American Airlines.

So as a result of this decision, JetBlue has decided it will begin the process of unwinding that alliance with American. And just to refresh everybody's memory on this, this is an alliance where it covers the three airports in New York as well as Boston. And it allows American and JetBlue to share revenue and to book passengers on the respective airline or the other airline on certain flights. JetBlue, after losing the decision in court, has now made the decision it will not appeal and try to keep the Northeast Alliance going. Instead, it will concentrate on the proposed merger with Spirit Airlines. Remember, the DOJ is fighting that. Meanwhile, American Airlines has said it will continue with its appeal of the Northeast Alliance. So it is going to try to reverse the court decision on its own.

And that's going to take several months, maybe even a year to play out. But in the meantime, the Northeast Alliance, JetBlue, will start to unwind that alliance with American Airlines. So clearly JetBlue has made the decision it is not going to continue fighting the DOJ on this. Instead, it will concentrate on its upcoming court battle over the proposed merger with Spirit. Morgan? Okay, I realize there's a lot of moving parts to this, Phil, and all of this is going to take some time to play out, but any sort of sense of what the unwinding of this alliance is going to mean to prices and the impact on consumers? Too early to know in terms of pricing.

In terms of consumers, I've had a chance to talk with a few people. And as we were working on this over the last few weeks, this story, you know, I've asked people, look, if they can't win the appeal here, if the two airlines have to separate this alliance, how quickly could it be done? It's going to take some time. And I do know that for people who, let's say you've booked a ticket three weeks from now or six weeks from now, and it's through JetBlue and you're taking an American flight, that will continue. So it's not like immediately they're going to say to people, well, it's too bad you've got a ticket. Nothing we can do about that. What will change is that at some point you won't be able to book a ticket on an American flight

through JetBlue going through one of these airports. Got it. Phil LeBeau, thank you. Spirit Airlines moving higher up about 2% right now in after-hours trading. After the break, shipping and logistics expert Donald Broughton joins us to talk about the breakdown in negotiations between UPS and the Teamsters union and the major economic impact that could have if a deal isn't reached soon. Overtime's back in two.

Welcome back to Overtime. Check out shares of UPS in the red after negotiations with the Teamsters union broke down. The UPS Teamsters contract covers more than 340,000 full and part-time workers and expires at the end of the month. Currently, no additional negotiations are scheduled. UPS saying in a statement in part, quote, we have not walked away and the union has a responsibility to remain at the table. Refusing to negotiate, especially when the finish line is in sight, creates significant unease among employees and customers and threatens to disrupt the U.S. economy. This came in response to the Teamster statement. General President Sean O'Brien quoted as saying, quote, this multibillion dollar corporation has plenty to give American workers. They just don't want to. Joining us now is Donald Broughton of Broughton Capital Management.

Donald, great to have you on. I mean, perhaps it's great to be with you. I realize that we have a couple more weeks before we could potentially see a strike here. A lot could happen in that time. But is the risk rising when you see developments or lack thereof like we did today? Oh, absolutely. Absolutely. You know, every single day that this drags on FedEx gains market share and UPS loses market share. One. Two, both the UPS management and the Teamsters know that you probably don't get the best deal until the 11th hour. So every UPS management and the Teamsters know that you probably don't get the best deal until the 11th hour. So every UPS is not going to give their very, very, very best offer until the 11th hour. And the Teamsters know they're not going to get the very, very best deal until July 30th, the 31st. To your point, I mean, shares of FedEx did end the day higher, even as UPS fell 2%. I realize that your long shares of FedEx, your short shares of UPS,

is that the reason? Are we already seeing evidence that market share is being seeded? We're already seeing evidence that market share is being seeded. In conversations with large shipping customers, small shipping customers, they're all cognizant of what's going on and that their perception has changed. Talking to people who were out freight for a living six months ago, they thought, nah, there's not going to be a strike. Then they started to say, well, you know, there might be a strike. And now they're all believe there's a strong possibility that even if it's brief, that there will be a

strike. And that change in outlook has really driven a change in behavior because if you're an e-tailer and you have a distribution manager who hasn't made contingency plans and UPS goes out on strike, even if it's for a week, you need to fire your distribution manager. And everybody in that role knows that's the equation. We're coming into peak shipping season when all of those containers carrying all of those goods for consumers come to shore and you see those inventories rebuilt ahead of the fall and the holiday season. I mean, heaven forbid you actually see this strike play out and then you layer on top of it the fact that you have a strike going on in Vancouver as well, which has ripple effects to the U.S. West Coast, too. I mean, what could we potentially be talking about

in terms of the freight picture here over the coming weeks? Well, of course, it depends on how if there is a strike, how long that strike lasts. that's a big, big if. But what's really also important to understand is two things. One, the reality of what the current labor situation is. If you go back to the United Auto Workers last went on strike against John Deere, and they got paid an $8,500 signing bonus per person to come back to work. The locomotive engineers were on the verge of holding up the entire labor contracts for the entire railroad industry and they got paid an $11,000 signing bonus to finally sign on the dotted lines and do a grade. So UPS has looked at those I'm sure, look at what's happening right now with the Canadian ports. Unions are getting paid to strike.

One. Two. The current leader, the president of the Teamsters, is a bully. He's a bigger bully than Donald Trump. If you look at what he's done, look at what he said, look at how he behaves, he has a couple of things he's trying to do. One, he's trying to extract as much as he can from UPS, get them signing bonuses, big increases in pay, but he has a bigger objective here. And that bigger objective is this. He wants to organize Amazon. And the bigger of a success, the bigger of a win he has against UPS, then the bigger his credibility is to go around to Amazon workers

and say, hey, look, I can really help you guys out. That's the real threat here. And understanding what's happening, it's not just UPS management bargaining with the Teamsters. There's a lot more at play. Interesting. Yeah. Yeah. I mean, that's interesting, especially because you got Prime Day from Amazon next week. And I haven't really heard that that point raised very, very quickly. Donald Night Swift closed down three percent today. We saw we saw a cut to guidance for that for that major trucker. Walk me through because I know that I know that trucking tends to be in tonnage, tends to be an economic barometer, a forward indicator.

What does this tell us quickly? Well, they just closed a large transaction. They just acquired U.S. Express. So I think the trading in their shares has more to do with the recent acquisition transaction than it does anything on a macro scale. OK. Donald Broughton, great to get your thoughts. Thanks for joining us. Always great to be here. Up next, your credit playbook for the second half. We're going to talk to JP Morgan's co-head of U.S. rates strategy for his best ideas right now. And we're going to ask what he makes of today's Fed Minutes. And as we head to break, take a look at shares of Moderna. The pandemic winner getting a lift today on news that it has struck a deal to develop and manufacture mRNA medicines in the country, in China specifically. We'll be right back. Welcome back to Overtime. It is time now for a CBC News update with Seema Modi. Hi, Seema. Hey, Morgan, here's what's happening at this hour. Let's start in D.C. where the Secret Service is reviewing video and checking visitor logs

in the search for the mystery owner of a bag of cocaine found at the White House on Sunday. It comes after a formal Secret Service lab test came back positive for the illegal drug. The White House press secretary said this afternoon the cocaine was found in a heavily trafficked area of the West Wing, where visitors leave their belongings before taking a tour of the building. A federal judge ordered more information unsealed from the search warrant that led the FBI to discover a trove of classified documents at Donald Trump's Mar-a-Lago resort. In the ruling today, the judge denied a request from media organizations,

including NBC News, to unseal the entire affidavit, but he did clear the way for some new News, to unseal the entire affidavit, but he did clear the way for some new information to be unsealed. It's not clear when that will be made public. And a Florida family's July 4th celebration taking a terrifying turn. Their doorbell camera captured the moment someone threw a firework at them while they sat on their front porch. The homeowner says two adults had minor injuries from the incident. The children on the porch, thankfully, were not hurt. Extremely scary stuff, Morgan.

That's awful. It is. Who would do that? All right. Well, wishing them a speedy recovery then. Exactly. Sima Modi, thank you. Let's send it over to Mike Santoli now for a look at where consumers are spending their money and the breakdown between goods and services. Hi, Mike.

Yeah, Morgan, the long-term trends actually took a bit of a detour during the pandemic. We know about this, but this is a great visualization of it. BlackRock put this together. This is the share of all consumer spending that's attributable to services versus goods. You see a 70-year trend right here. Pretty straight line, services on the upswing, goods on the downswing. And then you had the pandemic where it went the other way. And what we're mostly seeing in the data today with weak manufacturing, obviously retrenchment in durable goods,

all those sorts of things is the recoil from the overconsumption of goods during the pandemic. And so if we had a 1950s or 1960s style economy that was skewed in the direction of goods, then we absolutely would have had a broader recession. So part of the explanation for why the economy has been more resilient most likely is we are insulated by that higher absolute level of services spending. BlackRock also perhaps arguing that it's one reason that might be a little tougher to wrestle inflation lower. Nominal GDP growth coming into the first half of this year up near 7 percent once you include inflation. So it's kind of a mixed blessing right here. And it really gets to the current moment where we're kind of waiting and waiting and waiting for this recession that many have been anticipating.

It's not coming. But also inflation remains with us, even if the trends are moving in the right direction on that. It's incredible. I mean, it's almost it's almost an exact opposite or mirror image looking at this chart over the long term. I mean, it continues to raise the question for me, Mike, of you've got weak manufacturing. At some point, do you start to see a softening in services as well? Or because services continues to stay so strong, you start to see that actually positively impact manufacturing. Yeah. It's hard to know what the interplay is going to be or if just manufacturing is weak enough for long enough that inventories get worked down and you have that basic level of demand that's going to have to be met. And then maybe services have to cool off in response. It is the big question at the moment. Markets struggling with it every day, pretty much.

All right, Mike, great stuff. Thank you, Mike Santoli. Still ahead, we'll talk to Meta shareholder Stephanie Link about the so-called Twitter killer app that's set to debut later this week. As Meta's shares touched a 52-week high today, finishing the day up 3%. Stay with us. Welcome back. Breaking news out of the Fed and some fresh comments from New York Fed President John Williams. Steve Leisman has the details. Hi, Steve. Hey, thanks very much. John Williams, one of the more important members of the Federal Market Committee. He's talking now in New York. His inflation is still too high, but he does see some progress, especially from the 9% where we're at. He says he's been somewhat surprised by the resilience of the housing

market that it has seemed to bottom. That was one of the phrases used by some observations in the minutes. I just released it to a clock today. Williams goes on to say inflation expectations have been remarkably well anchored, so not that much concern on that score. And he supported the decision in the June meeting to pause, saying slowing the plate of rate increases makes sense to give time for, among other things, to figure out the lags from monetary policy. And he supports now a meeting-by-meeting decision on rates. However, he says the projections, in other words, the forecast of the Fed, show, quote, we don't think we're done yet. Morgan? All right, Steve Leisman, thank you. Joining us now to talk more about the Fed and the rate picture is Jay Barry, co-head of U.S. Rate Strategy at

J.P. Morgan. Jay, it's great to have you on. You're the rate guy. What you have to say, Wall Street pays attention to. So I do want to get your reaction to the minutes, which do seem to show maybe a little bit of a compromise in terms of that pause, but the fact that we are not done hiking rates. There was more for the hawks and the doves. And even just now, those comments from Williams, who's seen as more dovish, also signaling more hikes to come. Your thoughts? Yeah, sure, Morgan. And thanks so much for having me this afternoon. I think our view is quite similar now that the outcome of the Fed meeting was sort of eye-opening to us with how quickly and how much the dots shifted for this year and how many of the participants shifted towards two more hikes for this year and it makes us think that the fed is

not done either so prior to the meeting we thought that the fed would likely sort of be done by may but now we've penciled in one more hike later this month so we're slightly more dovish than than the than the dots are and mainly that's because we see a slower path for the economy than the fed does though to be fair we don't slower path for the economy than the Fed does. Though, to be fair, we don't see inflation moderating back to the Fed's target until sometime around this time next year. And that means that while Chair Powell certainly has control of the committee right now, and that's reflected in the desire to pause last month, we do think it's going to be harder to pause later this month. And that makes the case for another 25 basis point hike from

there. And following that, I think it's going to be as they said going on a meeting by meeting basis and seeing how the data evolved because if the labor market remains as resilient as it has so far it's going to be tough to make the case that the Fed should pause even once it gets past this July meeting what are your thoughts on the data so far and I ask that because last week you ditched a bullish tactical view on treasuries. Why? Yeah, I think there's been three reasons. First, again, we're sort of pushing out the timing for which we think that the Fed will be done raising rates. And that matters because typically it gets safer to own bonds when you're within one to two months of the final rate

hike. And even though we think we're getting closer, the risk is obviously that the Fed would have to proceed past July. And it's the fact that you haven't seen the labor market really weaken substantially. Jobless claims certainly did rise back into the 260s, but then retraced lower. And the pace of payroll growth remains much stronger than we would have expected. As you and Steve were speaking about before, through the comments from President Williams, it seems like the housing market is holding in better than we would have expected as well. So I think that makes the case for being long duration here a bit more challenging. And further from that, I think there's a valuation and technical component as well.

So looking at how the markets are pricing in the Fed, inflation, and in growth right now, it would actually make the case that 10-year yields should be sitting above 4%. So I think the valuation construct makes it a little bit difficult to be long right now, unless you're sitting at higher yield levels than we are right now. Gotcha. I want to get your thoughts on credit spreads, which has maybe widened in recent weeks, but still, I would say, a bit subdued here. There's also a lot of talk about what's priced into the corporate debt market overall right now. Do you think the risks that are facing the market are fully realized? So I'm just a humble rate strategist.

I don't want to get too far over my skis. But I know that our view on credit here at J.P. Morgan is that spreads are going to remain pretty range-bound for the balance of this year. That on one hand, the fact that the economy is slowing should be somewhat of a negative for credit spreads. But the fact that the supply dynamic is going to be a bit more benign and that we don't actually see a reason for the Fed to start easing until probably the second quarter of next year is sort of an offsetting

factor in the other direction. So broadly speaking, we think that there's room for credit spreads to remain relatively range-bound around current levels through the end of this year in the high-grade space. In high yield, I think we're a little bit less sanguine because they've put in a very strong performance to start the year, so we expect a bit of a mean reversion there. So if anything, I think our credit team is expressing an up-in-quality bias between high-grade and high-yield for the balance of this year. Great.

Jay Barry, thanks for joining me. JAY BARRY, CFO, Military Drone Maker, Air Environment, USA, Thank you. Up next, the CEO of military drone maker, AeroVironment, on how rising tensions between the U.S. and China are impacting the defense industry as Treasury Secretary Yellen heads to Beijing. And check out shares of Wolfspeed staging a big rally today after the chipmaker inked a 10-year supply deal with Japan's Renaissance Electronics that's worth $2 billion. Shares finished up 11 percent. We'll be right back. Welcome back to Overtime. As Treasury Secretary Janet Yellen travels to China to ease lines of communication, a different picture for policy.

The U.S. reportedly looking to restrict China's access to cloud computing services that use advanced AI chips, as China has moved this week to impose export restrictions on key metals used in semiconductor manufacturing, with some experts warning that rare earths could be next. It all speaks to the high stakes nature of the tense relationship between the world's two largest economies in what the U.S. military would refer to as an era of strategic competition. Joining us now, Waheed Nawabi, CEO and chairman of AeroVironment, a defense contractor whose stock is up 15 percent so far this year. Waheed, it's so great to have you on the show. Welcome. Great to be with you, Morgan. Now, you also had record earnings last week, and I want to get to those.

But first, given the fact that AeroVironment is a maker of drones and unmanned ground vehicles, and you specialize in autonomy and robotics, and you're on the edge of artificial intelligence and some of these new capabilities and applications. This technological decoupling between the U.S. and China amid this great power competition, I want to get your thoughts on it. Sure. So obviously it is a great power competition. It's very strategic to U.S. future national security as well as our economy and our way of life in general. And we are a firm believer that unmanned systems, including with AI, autonomy, software analytics, and computer vision, is going to play a vital role, if not the most important role, in helping U.S. keep its lead and protect its interests globally. So what does that mean in terms of air environments specifically? You talked about it on your earnings call last week,

this inflection point of a new phase of growth. So the last fiscal year, which we just ended in April of this calendar year, was a record year for us, record in terms of a sixth consecutive year of top-line growth, as well as really, really a strong backlog. Over $400-plus million worth of backlog sets us up really well for another year of record growth this year, organically. We guided this year that we're going to grow between $630 and $660 million on top-line revenue. And obviously, that is going to add about 100 plus million dollars worth of adjusted EBITDA to our bottom line. So for us, because we're an unmanned, purely unmanned systems player, everything we do is unmanned from the ground, maritime to stratosphere and even to space where we help design the Mars helicopter. We're all about autonomy, AI, unmanned systems to help our warfighters, as well as our civilian and non-military customers proceed with certainty.

The Switchblade drone that you make has been getting a lot of attention because, in large part because of the success it's seen on the battlefield in Ukraine. It spurred this demand for, as you call it, loitering munitions. I guess walk me through what that has meant in terms of the demand picture, not just in the U.S., but internationally as well. So Switchblade is a new category of munitions or loitering missiles, which basically has never been around in the last 50 plus years of military operations. It is basically a drone that also has a warhead in it and acts as a missile, but you as an operator have full control over where it goes, what to do, and what not to do. So this ability for it to also loiter and wave off, which is

patented, makes it a unique capability for military capabilities for military and our allies. So last year was a significant record year for us in terms of sales of that product. We are now shipping close to seven different versions of our drones, different products of ours for Ukraine. Probably the most widely used unmanned systems in Ukraine's conflict has been our drones and our loitering munitions. And so and then recently, U.S. government actually gave us approval to be able to export and market this to up to 50 different countries around the world, which basically opens up the aperture dramatically. So far, only a handful of those countries have been publicly informed or notified, but there is a large list of customers that we believe we're going to expand into over the next decade that is going to set us up for a lot of growth coming in the future. You also have a high altitude pseudo satellite. This got my attention. It's

a football size solar powered aircraft that's enabling Wi-Fi and broadband access. What is the opportunity for that right now? So our solar stratospheric airplane or HABS, high altitude pseudo satellite, is exactly what it is. It's an airplane that is 100 percent solar powered. It takes off from a graveled runway, goes up to the edge of the atmosphere, about 65,000 feet above sea level, almost twice as high as a commercial airliner. And then it basically acts as a geostationary satellite. That's why it's referred to as a pseudo-satellite. Its primary application is for commercial applications to provide 5G connectivity. Think of it as a cell tower in the sky, a 5G cell tower in the sky providing connectivity

for at least two more billion people around the world who doesn't have access to smart devices, smartphones, smart devices, et cetera. And so that's one of the applications. It also has a lot of applications in the defense market for military application and non-commercial applications, communications relay, extended ultra-long endurance ISR that could stay there for months at a time. It allows it to give it a long endurance time in the sky. So this is a multi-billion dollar market opportunity for us, both in commercial and defense. We're clearly the leader in this space. We're all about disruptive innovation. And we believe that in the next 10 years, we're uniquely positioned to capitalize in this market, competing with regular terrestrial cell towers, geosynchronous and leosynchronous satellites

that are out there. Interesting. Waheed Nawabi, thanks for joining me today. We covered a lot here. I appreciate the time. CEO of Air Environment. Meta hitting a 52-week high as it gets set to launch an alternative to Twitter.

Up next, Hightower Chief Investment Strategist and Meta shareholder, Stephanie Link, on how this Chief Investment Strategist and Meta Shareholder, Stephanie Link, on how this potential Twitter killer could impact Meta stock. Welcome back. Meta hitting a 52-week high today as it prepares to take on Twitter by launching a text-based app called Threads. Joining us now is Stephanie Link, Hightower Advisor's Chief Investment Strategist and a Meta Shareholder on set. Great to have you. It's great to be here. So, I mean, you're a meta-shareholder. We just saw, you know, fresh high. Stock finished up 3% right now. Do you still like the name? I still do like the name, but I have been trimming. A year ago, the stock traded at seven times EBITDA. Today, it's trading at 19 times. So it's totally re-rated. And I get why,

because it has gone from a cost-cutting-only story, right, the year of the efficiencies, to actually now a revenue re-acceleration story, right? They're doing very well with Reels. Reels has a $6 billion revenue run right now, right? Click-to-message, a $10 billion revenue run rate. I mean, these were nowhere a year ago, right? So, and then of course you do have this huge install base. And now if you do have this new competition to Twitter, that might be something else, not to mention WhatsApp. They can monetize that too. So I like it, but it's had a nice run. So I did, I have been trimming it, but I'm going to hold it. It'll be a core position for sure.

Got it. I mean, it's pretty amazing. The stock has more than doubled since the start of the year. And to your point, I mean, you have seen this stabilization, maybe even signs of recovery and online advertising more broadly right now. So if you're trimming meta, what are you buying? Well, I'm buying different things because I think for the rest of this year into 2024, I actually think you're going to see a broadening out in the market. You guys have been talking for a while now. From the beginning of this year, you've had a very narrow market. And I think that was because there were a lot of unknowns. And I think we're slowly chipping away at the unknowns, meaning debt ceiling, bank crisis, even the Fed. Even if the Fed goes two or three more times, you're in that ninth inning of this rate cycle. And that's good. Now,

that doesn't mean they're going to start cutting anytime soon. So rates are going to stay high, but at least it's an unknown that becomes known and we can model around it. And at the same time, the economy has stayed pretty resilient. The consumer, housing, auto services, really strong. Manufacturing, not so much. I know you cover the industrial space very well, as do I. So we can talk about that. But manufacturing has been kind of the problem offset by onshoring. So I think you have these puts and takes in the economy, but it's doing better than expected, better than feared. And so I think the cyclicals can actually start to outperform.

And we have been seeing a broadening out over the last couple of weeks. So I kind of want to outperform. And we have been seeing a broadening out over the last couple of weeks. So I kind of want to diversify. So I bought Home Depot because it's lagged. I mean, some of the housing stocks you've seen, they're 30, 50 percent. So I bought Home Depot. It's up one. Right. And they have a great algo, three to four percent total revenues, margins expanding, productivity initiatives. And oh, by the way, their total addressable market is nine hundred and fifty billion dollars. So I bought a little Home Depot and then I bought a little bit of expanding productivity initiatives. And oh, by the way, their total addressable market is $950 billion. So I bought a little bit of Home Depot and then I bought a little bit of Zimmer

because I think after the UnitedHealthcare reported and updated numbers, as did Humana, they've talked about higher utilization rates. Okay. That's good for med tech, right? We want utilization rates and the non-essential surgeries to do better. So this benefits Zimmer. And I still like, and I like Las Vegas Sands. I think that that story is in the

second or third inning in Macau recovery. So I'm finding a lot of stuff. Not so much in tech, though, in other places. Okay. Schwab, you own it. I mean, bank, bank earnings are going to be in focus. What? I think the end of next week. How important is it for financials to play catch up to this market and Schwab specifically? Why? Yeah. So, I mean, financials are about 12% of the S and P 500. So they matter. Right. Um, and I think they are going to do better than feared. They have lagged. They're very cheap. I like Morgan Stanley for a capital markets recovery theme. But I like Schwab because they dominate the industry. They have a great balance sheet. The CEO is buying stock. The stock is cheap. And oh, by the way, they're growing net new assets,

which is most important, 9% per year. That's pretty good. So they're taking share. Okay. Stephanie Link, thank you for joining me. Thank you for having me. I always love the fact we talk about any sector or any stock. I mean, you're ready to go. We're going to have to talk industrials next time. You're on. Sounds good. All right. Thanks for being with me. Breaking news on Bank of America. Speaking of financials, the company just releasing its capital allocation plan, saying it will raise its quarterly dividend by 9 percent to 24 cents per share, that following a number of other dividend raises by major banks following the Fed's stress test results. You can see those shares are up fractionally right now in the after-hours trade. Where in the world is John Ford today? He's traveling for a huge, exclusive interview.

You can see right here tomorrow on Overtime. We will have a preview of that mystery guest right after the break. You don't want to miss this. Welcome back to Overtime. John Ford is traveling today. He's getting ready for a very special interview tomorrow right here on Closing Bell Overtime. It's someone he's talked to before,

and it's a conversation you don't want to miss. All right, giddy up. Andy Jassy. Andy Jassy. Andy, we're back. Here we are again, the CEO of Amazon. What would you point to as the big shifts this year? People are very excited about machine learning. Virtually every company that we interact with is very excited about it. Being able to look at your data and understand predictions is very appealing. And yet, it's still early days for most large companies. Increasingly, artificial intelligence, a big part of what's happening in the cloud. We're still in the relatively early stages of this huge shift from on-premises to the cloud.

As the market moves more and more toward cloud, I think we have the chance to be the largest enterprise company in the world. There are some questions I ask you every year. I ask you this every year. I got to ask it every year just to check the box. Is it any more likely than it's been the previous five or six times I've asked? Is Amazon going to spin out AWS? I knew you'd ask me that question. I think what I tell you every year is that I would never say never about anything.

John's interview with Amazon CEO Andy Jassy will be live and exclusive tomorrow right here on Overtime starting at 4 p.m. Eastern. Let's bring in Wedbush analyst Dan Ives now with what he wants to hear from Jassy. It's great to have you here on set. Yeah, great to be here. I mean, I think we can count on a question about AWS and whether it gets spun out based on that video. But what do you want to hear? I think it's really AI because right now it feels like they're on the outside looking in relative to the Crosstown 206 rival, Nadella and Redmond. They're really owning AI in the cloud.

And you look what Google's doing, too. So I think for the first time, backs against the wall a little for Jassy and AWS. And that would be a big focus tomorrow in that interview. All right. What would you want to hear to move the needle in terms of knowing that Amazon is a formidable competitor versus some of the other names that we talk about every day? Yeah, I think for them it's really showing that they're going to be able to monetize cloud when it comes to AI. Because if you look at this AI revolution that's happened across the board, it's really been, of course,

NVIDIA, Microsoft, and even Google in terms of really the first beneficiaries. Amazon, from an AWS perspective, a lot of investor questions, more confidence that they're going to double down on that theme. I think that's really a big focus of the street right now. There's been a major cost-cutting effort

underway under Jassy. Tens of thousands of jobs being cut. You have him scuttling different business segments or products that are not being deemed beneficial or profitable for the company as well. I mean, is that enough here or does there need to be more to continue to see some sort of movement in the stock? Yeah, I think you can't cut your way to growth. Now, look, Jassy, he ultimately inherited an upside down situation from a business model, need to cut significant amount of cost. You look what's happened on the consumer side as well as in the enterprise. The worry right now is I think for the first time for a company that basically essentially built cloud, they now are actually losing share. We believe versus Nadella and Microsoft as well as Google, now it's are they

going to potentially double down there? Are you going to see investments? How are they going to balance this act? And I think that's why from an investor perspective, I think for the first time, there's a lot of questions and frustration around the AWS piece, especially with Microsoft, really with that AI trophy case. So how do you balance that against retail? How do you balance that against the delivery network? How do you balance that against the movie studio, where we know there's reports of more scrutiny in terms of costs, and all the other octopus arms that are out in the economy from Amazon? The biggest upside for the stock is the AWS piece. In other words, that is from a leverage

from where this, you know, what I view is really a trillion dollar AI gold rush, biggest transformation we've seen since the internet in 1995. So I think for Amazon right now, a lot of balancing for JASA, but he is a cloud. That is his DNA. That's his background. I think it also comes down to what's the next strategic move for Amazon in this AI arms race that's essentially going on. Okay. You put out a note in the meantime, talking about AI arms race, on Microsoft, basically saying that you think that this company is going to join Apple in the $3 trillion club early next year. Why?

It's monetization. Relative to all of our checks on Microsoft, for every $100 of cloud spend, potentially 35 to 40 incremental could be AI driven. And I think right now in this Game of Thrones, I mean, they really are owning AI. And I view this for Nadella. It's just another opportunity where I view a growth perspective. Streets still underestimate where growth is. And I think we go into 2024 in that exclusive $3 trillion club, along with Cook, is going to be Nadella and Microsoft, which is why it's our top cloud pick here. I mean, there's been some reports that you're seeing a slowdown

in the number of downloads for chat GPT. Does that matter at this point? I think ultimately that's table stakes relative to the opportunities on the enterprise. That's really the golden goose. That's what we're going after. And from what we see, this could be potentially 8% to 10% of budgets next year from less than 1% today. So I continue to view AI as probably the biggest transformation we've seen in 30 years. And now it's not just NVIDIA and Microsoft. It's the second, third, fourth derivatives in terms of what's playing out and really this modern day goal rush.

So quickly, what are some of those second, third, fourth derivatives given the fact that the primary players have already seen such big moves in the stocks this year? Yeah, those are names like MongoDB, Snowflake, Palantir could be a beneficiary. I think Salesforce.com. Look at names like Oracle.

That's a name where because of the install base, that's going to be a significant beneficiary. And I think right now, from an investor perspective, it's all trying to find whose second, third derivatives are in what we believe right now is a new tech bull market that's playing out. And I think 2Q, there's just going to be more good news rather than many that have yelled fire in a crowd, theater and tech. Okay. Dan Ives, thanks for joining me to preview this big interview tomorrow. John's interview with Amazon CEO Andy Jassy. That's going to do it for us here at Overtime. Fast Money begins right now.