Closing Bell - Closing Bell Overtime: Why Are So Many CEOs Going To China Lately? And Breaking Down The FOMO Rally 6/16/23

Episode Date: June 16, 2023

Stocks lost steam through the session, closing lower for the day but notching another positive week. Our Bob Pisani talks the impact of the market rebalancing happening today. Unlimited Funds’ CIO Bob Elliott breaks down the market action. Moor Insights & Strategy’s Patrick Moorhead talks Micron’s bet on China and what it means for investors. Former Morgan Stanley Asia Chairman Stephen Roach talks the latest on China and why so many Western CEOs are visiting the country recently. Bank of America’s Chief Equity Technical Strategist on why he is calling this the FOMO breakout and summer rally. Flexport CEO Dave Clark on his company’s acquisition of Shopify’s logistics business. Morgan talks the AI investments going on right now in defense. Our Brandom Gomez reports on the racial pay gap ahead of the federal Juneteenth holiday. 

Well, on this quad-witching Friday, a down day for stocks, but another up week. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. Coming up this hour, the latest read on bank balance sheets from the Fed. We're going to bring you that breaking news as soon as it crosses. Plus, we're going to talk to former Morgan Stanley Asia chairman Stephen Roach about investing in China as Micron makes a bet on that country and Secretary of State Blinken heads to Beijing. And we begin this hour with a news

alert surrounding a big rebalance happening in the S&P indices. Bob Pisani, how does this work? There's two things happening here, John. First, this is a trip of witching. This is the quarterly expiration of stock and index options and index futures. It happens four times a year. It used to be a big deal. It's a little less of a big deal because there's many different options now available. You can trade options on a monthly basis. You can trade it even on a weekly basis, even on a daily basis. So what it's doing right now is creating an awful lot of volume, not necessarily a lot of price changes. More interesting is what's going on with the S&P 500 because there's a rebalancing also happens four times a year.

And what they do here is they put in additions and deletions. So right now, Palo Alto Networks at the open on Tuesday is going to become part of the S&P 500. At the same time, something's got to come out. If something goes in, Dish Network is going out. It's not only going out into the mid-cap, it's actually going into a small cap, the S&P 600. This tends to produce pressure on the up and down side. Palo Alto Networks has been trading up in the last month or so. This was announced on June 2nd.

Dish Network has been tending to trade down. This is a very well-studied phenomenon. It's called the S&P 500 effect. In the last month or so, this was announced on June 2nd, Dish Network has been tending to trade down. This is a very well-studied phenomenon. It's called the S&P 500 effect. At the same time, John, there is also rebalancing for stocks that are adding or subtracting to their share count. So remember, there are many companies out there buying back stock actively. Apple, Alphabet, Chevron are among them. Other big companies that are buying back stock throughout the quarter, Chevron, Berkshire, ExxonMobil, Meta, all of them now are having their share count weighting reduced in the S&P 500 right now for those ETFs, for example, that are index related. So if you're an S&P 500 index company right now, like SPY, you're going to

be reducing your share count of those particular companies. There's only one that's really notable that's actually increasing its share count, and that's NVIDIA, which has been an absolute monster. The shares outstanding have increased somewhat in the last three months. So NVIDIA is adding. NVIDIA is becoming more influential in the S&P 500. Finally, John, I just want to note what's going on with CAVA down here. You see it's closing down about 13 percent. Unfortunately, I call this the next day curse for IPOs. It's a major problem for the IPO industry. Recall yesterday, CAVA had an enormous day to the upside and it was up almost 100 percent. And you see it trading down about 13 percent. So this is a first day curse.

This is a very well studied phenomenon. Most of the gains due to the first day in an IPO. And then you see what happens on the second day. John, back to you. All right. I'll actually take it, Bob. Bob Pisani, thanks. Of course, we're going into a holiday weekend. So that, I think, contributing to some of the training action we saw today, too. For more on the markets, let's bring in Bob Elliott, CEO and CIO of Unlimited Funds. Bob, great to have you back on the show. In the past, you have been cautious around equities.

You've talked about cash and keeping up part of your position in cash. I wonder, given the rally we've seen, and yes, we finished the day lower on the major averages, but just given the fact that the S&P has finished the week higher for the fifth straight week, the last time we saw that was November of 2021. Have you been participating more in this? How are you thinking about it? Yeah, well, I think when I was talking about cash, what I was talking about was looking at cash relative to all financial assets. And that's been a trade that's basically been flat over the course of the last six weeks. The thing that's been going on that's been meaningful is stocks outperforming bonds. And the reason why that is, is because we're in

this environment where the Fed remains a couple steps behind. And that was reinforced this week with their commentary. The result of that is that you're continuing to see liquidity move into stocks that benefit from continued reasonable growth and elevated inflation. And you see a particularly bad environment for bonds, which suffer from the need for higher monetary policy and continued elevated inflation pressures. And so it really is a stock versus bond story more than it is a cash versus asset story that we're seeing. So in terms of the story that you just laid out, how much does it persevere beyond the next two weeks where we are seeing rebalancing and we're

seeing institutional money basically go to work in equities right now as we do come up on the end of the quarter? Well, I think the main question is, how long is it going to take before we start to really meaningfully cut back the liquidity in the system? And at least so far, what's going on in the overall picture, like you have Kava, the IPO goes up 100 percent on the first day. That's not an environment where money has become tight. Right. There is still this incredible flow of liquidity that is flowing from one interesting small bubble to another, whether it's Nvidia or whether it's the newest IPO, et cetera, et cetera. And until we see a point where the Fed starts to get ahead of the curve, where they start to actually tighten sufficiently to to slow the economy and bring liquidity down in the economy,

you're not really going to see much of a change. And so I'd expect to continue to see stocks outperforming bonds over the course of the next few months until the Fed starts to really move in the way that they need to. OK, you don't expect that. At the same time, we've got some challenges in the second half, I would think, because you've got a consumer that's slowing a bit, and we've got Q4 coming up. Then at the same time, you know, last year's second half was rough on the market. So which outweighs which?

Yeah, there's still a lot of momentum in the system. I think that's the important thing to recognize. If you look at, you know, overall growth, we're still looking at or above potential. Unemployment rate is still basically at secular lows and income growth remains pretty strong, 5, 6 percent, depending on how you measure it. That's a pretty good environment for consumers. Now, of course, there are a few a few up in terms of the restart of student loan payments. But that's going to be pretty modest, pretty targeted. We're talking about a few tenths of a percent of GDP from that sort of restart.

And you're going to see continued, a slight pickup in issuance. That's probably going to be a bit worse for the bond market than it is for the stock market. And so at least for right now, when you look even at the most cyclical parts of the economy, manufacturing is still growing a bit. Housing is rebounding a bit, it seems. Things are not aligning up the way they would if you were starting to move into a relatively acute recessionary environment. Instead, it seems like, if anything, things are picking up a little bit over the course of the last six or eight weeks now that the banking issues are largely behind us. Yeah, but looking at the regional banks,

you might not know it. I mean, do you think they're going to continue to muddle along there, the KRE, around 43, 44 a share? Yeah, I mean, we talked a little bit about this last week and looking at the banking data. You know, even last week, what we saw was bank deposits actually picked up over the week. The stock prices have rebounded, but we're still at levels that are consistent with where they were right after the SVB concerns and where there was a real concern that we were going to have a bank run in the system. Those concerns have largely been alleviated. The banks are reducing their reliance on short-term liquidity measures from the federal home loan bank overall. And as a result of that, they're looking in better shape on a forward

looking basis. And what we're actually starting to see is those banks are picking up their lending. And so it's pretty difficult to imagine that the banks would be picking up their lending if they were really concerned about a short-term squeeze or a bank run. And all that points to a bit of maybe acceleration over the third quarter in the U.S. economy. Okay, we'll look for it. Bob Elliott, thank you. Now let's talk chips. Micron announcing a deeper commitment to China. The U.S. chipmaker saying it will invest $600 million over the next few years in a Chinese facility. Now the company also today warned of a bigger hit

to its revenue from an earlier announced crackdown on some sales of its chips in China. Joining us now is Pat Moorhead, from an earlier announced crackdown on some sales of its chips in China. Joining us now is Pat Moorhead, founder of More Insights and Strategy. Pat, how much of this is perhaps one thing related to another if China's concerned? I mean, they can't be concerned about content because they censor that. So it's not a TikTok type issue. But is Micron trying to make more stuff in China to prove to China that it can be trusted?

John, that's absolutely what's happening. And, you know, there's been an ongoing conversation, probably for 20 years, that the way you impress China is one of two ways. You either transfer them IP or you make major investments in the country. And because Micron would probably not be able to transfer IP based on CFIUS, here we are. They're making a major investment in the country. And quite frankly, Micron is being squeezed between this 20-year conflict between China and the U.S. So, I mean, is this surprising to see that they're making this investment or is this really something to be expected? I mean, how to think about this as an investor on a day where we did get these headlines and the stock finished lower? Yeah, I think we have to take what the company said at face value, where they're essentially doubling their exposure. But I

think the company also wanted to show that it's investing in China for the long term. And I think when I read between the lines, I can't see them making this major investment if they thought they were going to be zeroed out of the country, like a Facebook or a Google or an Instagram or a Twitter. So I actually see this as a positive sign. Okay. So looking into now the back half of the year, going a little bit broader on the semiconductors, there's been a run in some, but not all as strongly. How much optimism do you think is built in? How much of that is based on inventories perhaps being worked down? How long lasting do you think is built in? How much of that is based on inventories perhaps being worked down? How long lasting do you think that is? So the PC market, that has taken its course.

And I think we're going to see natural market forces, meaning the second half will be a lot bigger than the first half. And the whole supply chain looks pretty clear. I think we got an indication last quarter from some of the supply chain that smartphones were actually getting out of the system, particularly Android smartphones, a little bit slower than they wanted. And then we saw from the Intels and the AMDs that there looks like there's a hyperscaler data center, a little bit of a glut happening in there if you're not directly tied to generative AI. So I think the second half is going to look better than the first half, just based upon how bad the first half was, particularly for smartphones and

PCs. But I still think it's a relative unknown for the second half in the data center. And although we should all be excited about generative AI, you don't have to replace the entire ecosystem to be able to do that. You just need higher performing GPUs. Yeah. Yeah. We'll see how much of that I guess is priced. Yeah. And in the meantime, the stock might have finished the day lower, but Micron, like many of the other semi stocks, has been on quite a tear recently. Patrick Moorhead, thank you. Thank you. After the break, much more on China. Former Morgan Stanley Asia chairman Stephen Roach joins us to discuss the outlook for investing in that country as Secretary of State Blinken

heads to Beijing amid heightened tensions with Washington. And we are awaiting bank balance sheet data from the Fed because it's Friday. We're going to bring you that breaking news when Overtime comes right back. Welcome back to Overtime. Check out Chinese tech stocks seeing a boost this month. Names like Alibaba, JD.com and Baidu all up double digits. This coming as Secretary of State Antony Blinken heads to Beijing this weekend, his first trip to China under the Biden administration. Joining us now, Stephen Roach, Yale University senior fellow and a former chairman of Morgan Stanley Asia. Stephen, great to have you on the show. Thanks for being

with us today. Thank you, Morgan. I do want to start with this very anticipated meeting between Blinken and his counterparts in China. Your expectations, are we actually going to see any kind of diplomatic breakthrough or thaw in terms of the relationship between these two countries? I doubt it. This is, you know, a meeting that was supposed to take place over four months ago and was deferred for very contentious reasons. And if anything, circumstances have gotten a lot worse politically between the two countries since then with a number

of incidents. And, you know, politics drives diplomacy. And the bipartisan sentiment in Congress right now is so anti-China that I think Blinken's hands are really tied here. I have low expectations. Possibly, you know, that's an opportunity for a bit of a surprise, but I wouldn't count on it. Yeah. I mean, and we can talk about the geopolitics and the tensions there. But how about the politics domestically in China? Because we did see data

this week coming out of the country that missed expectations. It was disappointing. You have an unemployment rate among young adults that is greater than 20 percent right now. Some real signs of softness in that economy, despite reopening coming out of covid growing expectations, you're going to see more stimulus there as well. How much how much does that factor into how investors need to think about investing in the country? And I guess also into these talks that we're going to see unfold over the next couple of days. Well, I'd make the distinction between the weakness in the economy, which is, you correctly described, is very problematic for China and will evoke a fairly

significant stimulus to be announced shortly by Beijing. And any response that China may have because of that weakness to the United States. I think there are two different sets of considerations, two different buckets. And I think China is just going to hold a very tough line with respect to the U.S. Stephen, got to mention, you got this new book out, Accidental Conflict, America, China, and the Clash of False Narratives. You say that both sides have the wrong idea about each other and that there is a way to forge an advantageous relationship from here. First, what does China have wrong about the U.S. and its motives that's relevant to the market here? Well, the book focuses on equally on false narratives on both sides. One of the leading ones from the Chinese side, John, is that China blames U.S. strategic

containment for its inability to reform and restructure its economy. China hasn't reformed and restructured its economy because of its own flawed strategy. It has very little, if not anything, to do with America's aggressive policies of containment. And so what do we believe wrong about China that where there's perhaps economic opportunity here? Well, we believe that China is the largest contributor to our trade deficit, which has destroyed American companies, jobs and communities. And they're they're doing that because of the way they cheat on trade. What that narrative fails to take into account is that we had trade deficits last year, John, with 106 countries in large part reflecting our own shortfall of domestic savings. So we put tariffs on China to try to solve our trade problems for American families,

and it does nothing. It squeezes the Chinese piece of our trade deficit, but it shifts it to other higher cost countries that still put a lot of pressure on American companies. Yeah. I mean, key context and nuance that you're laying out for us, and that tends to be missing from a very bifurcated discussion or debate. What does all this mean in terms of investing in China, especially when you have seen stocks rally so incredibly in recent weeks? Well, they've rallied, you know, off a very low base. And so, you know, the Chinese market has really been under significant pressure for quite some time, Morgan. The tech stocks that you were talking of earlier have been especially hard hit

by the regulatory pressures that Beijing has put on Internet platform companies that do not align with the social values of the Chinese leadership. far from done in putting pressure on live streaming, music, gaming, private sector tutoring. I mean, those pressures are very real, and that's what's contributing to the very high youth unemployment that you also correctly described. All right. Stephen Roach, thank you. Thank you, John. Up next, Bank of America's chart experts are going to take a look at the FOMO rally we have seen this year in the market. And if it means new highs are coming for the S&P 500 this summer, Overtime will be right back. Welcome back to Overtime. The S&P 500 is on track for its best month since January as the bulls take charge of the narrative. And our next guest says the so-called FOMO rally could have more room to run.

Joining us now is Bank of America Chief Equity Technical Strategist Stephen Sutmeier. Well, really? I mean, because when I hear FOMO, I think danger, right? Maybe it's because I'm a parent, but is it enough room to run that one should really add to positions here or just not dump out of them? I would say a little bit of both, actually. We are in one of the better seasonal parts of the year, June through August, where the market typically sees a summer rally. But I think what's even more important is we have cleared some important resistances on the s p first and foremost is the 4200 level which i think is a level that triggered fomo to get the market to go to new 52-week highs beyond 43.28 so when we look at our technical price pattern on the s p we think that breakout above of 4200 suggests that we can trade into the 4500s on a summer rally here uh now are you just looking

at the S and P because I'm a little concerned about the concentration of some of these mega caps particularly the ones where people have been excited about AI and whatnot over the past few months um should I be well I mean look I, there could be rotation in the market, correctly so. But what I think is going on here is that a lot of people are complaining about poor market breadth. But I would argue just the opposite. You're actually seeing improvement in market breadth. In fact, if you look at the S&P 500 advance decline line, it went out at an all-time high earlier this week. So when the breadth line or participation in the market breaks out

to a new all-time high, you know, sometime in the future, the S&P can do the same. So I think breath has improved. And it's not just the advanced decline line. If you look at 52-week highs, for instance, on the S&P, they're also expanding as the index has pushed towards and beyond that high from last August at 43.25. So one of your colleagues at B of A, Michael Hartnett, put out a note and basically said he's not convinced that we're at the start of a brand new shiny bull market. It still feels more like a combo of 2000 or 2008, a big rally before a collapse. When you look at the technicals, are there certain charts or certain patterns that you see

that remind you of previous periods as well? Yes. Actually, that's a great question. And I do think that this is actually not like 2008 and 2000. I think it's more like 2019, 2016 and 2012. Why do I say that? Because the market's climbing a wall of worry. That's why. And in 2019, we were worried about a trade war with china in 2016 it was all about brexit and the presidential election and the market was able to rally in the face of all that uncertainty and fear and finally when you take a

look at 2012 that was eurozone debt crisis i mean that a serious economic issue yet the s p and u.s equities were able to wreck see beyond it and rally. So I think what keeps that technical pattern intact, just watch two moving averages. One's the 40-week and one's the 200-week moving average. The 40-week is roughly around 4,000 and the 200-week is roughly around 3,800. In 2008, for instance, and 2000, coming off those highs, those moving averages broke and you didn't get beyond them for a couple years. Right now, we're sitting comfortably above both. So I would argue that it looks more like a trough in the market.

And the bull market actually can date it all the way back to the October low. So it's not shiny and new. We've been in one for about six or seven months already. Okay. So the S&P closed above 4,400 again today, 4,409. In terms of the actual levels that you're watching, what are they? Sure. I mean, if you break out through a level such as 4,325 and 4,200,

prior resistance often reverses roles and accesses support. So if we did get a tactical pullback here, I would look for support in that range. I already mentioned the 40-week and 200-week moving averages, which are bigger picture levels. And on the top side, I would say we're paying attention to the $4,500 area. The cup and handle is the technical name of the pattern we broke out from. It's the pattern that the market was in from early February. That counts to about 4580. So we're saying 4500 is possible on a summer rally based on the breakout above 4200. All right.

Love a good technical analysis. Stephen Sutmeier, thanks for joining us. And now we have a news alert out of the Fed. Leslie Picker has it. Leslie. Hey, John. Yes, this is the H-8 data out of the Fed showing deposit levels as of the week through June 7th. Those levels have been trending upward, but system-wide deposits declining once again in that week through June 7th.

All commercial banks were down about $79 billion week over week. That's a decline of 0.5 percent. Large domestically chartered banks were leading the declines, leading deposits to the downside here with declines of 77.6 billion week over week. That's a decline of 0.7%. Small domestically chartered banks down about 2.6 billion, so roughly flat based on where they were the week prior. So large domestically charter banks seeing more deposits exit the system in the week through June 7th, guys. All right, Leslie Picker, thank you. Time for a CNBC News update with Deirdre Bosa. Hi, Dee.

Hey, Morgan. A new federal lawsuit accuses eight police officers in Ohio of using excessive force when they fired 94 bullets at a man during a foot chase. The family of Jalen Walker is seeking $45 million in damages from the officers, the city of Akron, and city officials. The lawsuit claims the officers participated in a culture of violence and racism. It comes months after a grand jury declined to indict the officers in Walker's death. The weapons expert charged in connection with the deadly shooting on the set of the film Rust says claims that she was hung over the day it happened are, quote, Recklessly false. Prosecutors made the allegation in response to Hannah Gutierrez's attempt

to have the involuntary manslaughter charge against her dropped. Gutierrez, Reid allegedly handed Alec Baldwin the loaded prop gun that later killed cinematographer Helene Hutchins. And Gloria Estefan made history as the first Latina ever inducted into the Songwriters Hall of Fame. She was honored last night during a ceremony in New York City. Estefan has won eight Grammys and sold 100 million records worldwide. John, back over to you. All right, Dee, thanks. Rhythm is going to get you.

There we are. Yes. After the break, the CEO of supply chain management company Flexport on the company's deal to buy Shopify's logistics business and the headwinds facing freight and transportation. And take a look at shares of Ball Corp. Getting a late-day pop on news

that it's looking to sell its aerospace unit for more than $5 billion. That's according to Reuters. Shares finished the day up 7%. Overtime. We'll be right back. Welcome back. Supply chain challenges are easing. Inflation's cooling.

That's welcome news for consumers. But as prices come down, how does that impact the shippers? Let's bring in Flexport CEO Dave Clark. He joined the global supply chain management company last year after more than 20 years at Amazon, most recently as CEO of Worldwide Consumer. Dave, great to have you on Overtime. Give me a sense of how the global logistics situation looks as we start to look forward to the second half and how your acquisition from Shopify will position you in that? Sure. Thanks. And thanks for having me.

Glad to be here. You know, as we look into the second half of the year, the first half sort of, as you alluded to, price of freight dropping precipitously, getting back to at or below sort of where we were pre-COVID. Lots of excess inventory in the system in the six-month range for most companies coming out of the holiday season, the end of 2023. But the consumers held pretty solid through the year. And so I expect as we go into the back half, we're going to start to see companies placing more orders, start to come back to more of a normalized supply chain flow is what I expect to see. You know, we could still see a bit of a muted holiday. You know, we'll see how that plays out. But I think as we go into 2024, I think things are going to look a lot more normal.

Inventory levels back to sort of typical, more pre-COVID level and more traditional flow of goods through the supply chain. Okay. And the acquisition we made with Shopify Logistics and Deliver sets us up, I think, well for that going into next year. It gives us the capabilities now, sort of the last missing puzzle piece to be able to go end to end from manufacturer all the way to customer store or door for each one of our clients to meet their needs,

and to be a contribution or fulfillment. Dave, logistics build-outs are so hard, and the cost of capital has gone up. I mean, we've certainly seen it kind of messed up in the last mile logistics business for a long time. You know better than anybody how hard it is having done it at Amazon. How hard is it going to be to, in effect, compete with Amazon serving SMB now in the e-commerce business? And how do you balance the need to be comprehensive and have scale with the need to be efficient? Yeah, certainly not a business for the faint of heart. It is supply chain is, you know, you're only as good as what you delivered yesterday and what you can do tomorrow for customers. So it's definitely a tough place to live.

One, I would say I don't view us as a competitor with Amazon or Walmart or any of the marketplaces. Really, if you have demand or capacity, you're our friends. You're people we want to partner with. Our objective is to really enable companies to be able to activate, control, and manage their supply chain. We want a lot of partners, and we want to be able to service our customers via those partners wherever they choose to sell, whether it's their own store, Amazon, or Walmart, or Shopify Shopify or wherever that might be. Can you clarify how you're not a competitor to Amazon in the sense that Shopify seem to be trying to arm small and medium businesses with more control over their own destiny and viewed having logistics as an option under them as a part of that? Now that you have that that business, aren't you sort of an Amazon

alternative or how not? Well, I think we're a delivery alternative in the same way that a UPS or a DHL or FedEx or someone else is. You know, we're in the business of providing fulfillment services, delivery services, ocean and air freight and overall supply chain management. Amazon does that as well, but they do that really in the act of servicing Prime. You know, that business is all about providing a Prime service for customers. We're all about providing our customers supply chain service no matter where they sell. You know, we're perfectly happy in the world to help share data with an Amazon or Walmart by bringing freight into the U.S.,

storing it, and then delivering it to an Amazon fulfillment center for last mile delivery. We want to enable our customers' supply chain wherever they're going to meet their clients at. So if they meet their customers on Walmart, we'll go there. If they meet them on Shopify, we'll meet them there. And we were aligned with Shopify on that because that's basically the way Shopify operates too. Their mission is to basically be the operating system of commerce. We want to be the operating system of the global supply chain. And we think that's agnostic of any of the marketplaces.

Yeah, Dave, it's Morgan. It's good to see you. I want to pick up on something you said earlier, which was that the holiday season might be a little softer this year. I mean, that jives with the new CNBC supply chain survey that's out today that shows that retailers are preparing for a discount heavy down holiday season. Why do you think it could be softer? And when you look at some of the freight data that is coming out of China and the fact that it's so weak right now, how much of this has to do with those softer expectations versus the fact that maybe more supply chains are moving out of that country? Well, I look at it as to some degree that some of the softness may be predetermined in that if you don't order it, you can't sell. And so to some degree, stores stocking less will mean that there's less of a holiday season. I think it will be heavily, there'll be a lot of discounts. But at some point we'll be too late if demand holds for supply reach to be there for the holiday. And so you may,

you could very well see a situation this holiday where customer demand is strong, but the inventory of the really hot, the things that people really want just run out of supply much earlier in the season as a result of muted muted orders uh we just saw kava ipo yesterday it had a very strong first day out of the gate there's been a lot of expectation over the last couple of years that we could see flexport go public as well uh what are the plans and how closely did you watch this debut this week yeah it was good to see uh some success in the ipo market uh really happy for those. It looked like a good week for them. My focus is I want to build

an incredibly compelling set of products and services. I want to get those built to scale because as we discussed earlier, this business really is all about scale. And we need to get scale over the next 18 months and a bunch of our new products. And then I think when the market's ready, the market's going to come seek us.

And that's the way we're setting it up. You know, I would hope that we're in a position to do that over the next couple of years, but that's not my focus right now. All right. Dave Clark, CEO of Flexport, thank you for being with us. Thank you. Up next, we'll hear from the CEO of an under-the-radar company in the defense space that's benefiting from the artificial intelligence hype. And take a look at shares of Squarespace hitting a 52-week high today on news that the company is buying 10 million registered domains from Google's domains business. We'll be right back. Welcome back to Overtime. Artificial intelligence as a matter of national security in focus this week as lawmakers are marking up the defense policy bills for fiscal 2024. The U.S. military

has been actively adopting AI capabilities. It's something we've discussed with Andral and C3AI, two DoD contractors on the show. The investing furor around AI has sent stocks associated with it soaring, including C3AI as well as Palantir, which is up 150 percent this year. But it's also impacted smaller stocks like Big Bear AI, which provides AI-powered analytics for autonomous systems, cybersecurity, and also supply chain and logistics. We have really benefited from an increasing level of awareness around the application of artificial intelligence in a variety of different sectors. And while we don't operate in them all, right, nor do we intend to, for us, the broader population and the investor community gaining an understanding of just how powerful these technologies are and how relevant they are to today's problems has put Big Bear AI

in a really remarkable position. So Big Bear went public via SPAC back in late 2021. Its market cap is small. It's just under $400 million. The stock, though, the chart, it's been a roller coaster ride. The company, though, has been growing double digits, receiving an Army contract extension just earlier this week. It recently partnered with L3 Harris to provide the AI, the computer vision, and all of the analytics for the Defense Prime's autonomous service vessel fleet. The way CEOs of these dual-use

tech companies frame it, it's an AI arms race. We are, I think, for the first time in a long time looking down a future where in the next two to five years we could be in a global conflict with a peer superpower who has been preparing. And as a result of that, if you look at things like the projected federal AI spend in the coming years, there is an incredible amount of effort and resources appropriately being put into the preparation for that type of conflict so that we, as, as a society and as a country can be prepared for what may come of that. I think from Big Bear's perspective, and I've talked about this recently in earnings and some other environments, is our adversaries would love for us to hit the pause button. All right. John, I know we've talked about this before,

but it's worth discussing again, especially in the case of Big Bear, when you have a stock that's now up 273% since the start of the year, perhaps in part, it's been a little bit of that meme craze, a name that's trading around AI in the name, exactly. But it's worth noting that this is a company that has been around for more than two decades and actually does have business, most of it with the U.S. government,

whether it's DOD or intelligence. And you are seeing this increased demand as generative AI is being discussed and put to use in more ways. I wonder, I mean, this seems like the kind of company that's ripe for a potential. I mean, if there is consolidation here, they don't look like a buyer. I would put it that way. But I wonder how many companies there are like that that you see in the ecosystem that, I mean, maybe they will make a go of it independently, but maybe not. Yeah. I also just think it's very interesting to hear those comments from Mandy Long, the CEO, who came from IBM, joined from IBM. It's very it reminds me a lot of what we've heard from Alex Karp in recent months, too, where this dynamic or say, you know,

some of the other big AI startups that are like like an Alex Wang over at Scale AI around this dynamic and what it means, not just from an innovation and a commercial standpoint, but in terms of geopolitics and the ramifications we're going to see around all of that, too. It kind of gets back at that whole pause or not pause. When you have a China also developing this type of technology, you have defense contractors who are saying don't pause. Yeah, not really an option there. Good stuff. And we have a news alert here. Chicago Fed President Austin Goolsbee speaking to NPR right now, one of the first Fed officials to speak since Wednesday's pause. Goolsbee saying there is conflicting data on whether we are too hot or we've done enough, adding he doesn't take much confidence from the May CPI data and that the Fed is trying to get inflation down without starting a big recession. Goolsbee also saying there is very clear evidence that banks are tightening lending standards. I mean, I look forward to hearing about more of that evidence, Morgan.

I keep hearing that the standards aren't tightening as quickly as some thought they would. Yeah, it was interesting, though, to see some of the headlines that were generated at that financials conference, at Morgan Stanley Financials Conference earlier in the week, because you did see, and I want to say, I don't have it in front of me, but you did see a number of banks actually say that they are cutting back on origination of certain types of loans, whether it was autos or whether it was office commercial real estate. So you are starting to see some of that tightening tightening or at least I would say more caution around very specific sectors in terms of what that lending is going to look like

moving forward. But to your point, it hasn't necessarily been a meaningful shift that's showing up in the data. Yeah. Seems like as long as employment stays strong, consumer spending is staying strong and that's propping up a number of things. Yeah, and of course, Goolsbee is somebody to watch because he tends to be more dovish since he has joined the board and is a voting member. Yes, yes, indeed. Now, Monday is Juneteenth, and that's a good time to look at the progress and hurdles surrounding the racial pay gap in America. Up next, the latest data from Just Capital on the companies that are making inroads toward pay parity. As corporate America continues to address disparities in the workplace,

some companies are focusing on employee pay. Our Brandon Gomez joins us here on set with more. Brandon. Yeah, John, thanks for having me on set. Morgan. Yes, we are headed into a three-day weekend. Markets are closed on Monday. This will be the second time Juneteenth is celebrated as a federal holiday, commemorating the day President Lincoln freed enslaved African-Americans. Now, companies focused on advancing racial equity, according to our partners at Just Capital. Americans believe one of the top ways corporations can do that is actually through pay equity. Now, based on the public data, here's what Just Capital found. Only 4% of America's largest companies have successfully closed the racial pay gap. Now, companies like Apple, Intel, and Verizon, among the names at

parity you see there in the center column, reporting a one-to-one or dollar-for-dollar ratio. Some companies on the cusp, Amazon, Pepsi, Bank of America, just shy of parity by a few cents, Microsoft, GE, going beyond. Now, what does it take for companies to actually reach parity? Well, it starts with an internal audit. In 2022, 24% of companies in the Russell 1000 covered by Just Capital conducted a pay equity analysis by race and ethnicity. Of that group, only 9% disclosed results. Now, it's a small percent, but it's an improvement on last year, nearly double the number of companies conducting audits

and more than double reporting out results this year. So, John Morgan, room for improvement for sure, but progress nonetheless. So, some of these names actually really got my attention, GE, Microsoft, some of the others. The fact that it's only 4%, I mean, what have those 4% of companies been able to do and how have they been able to do it quickly, if they've been able to do it quickly? Yeah. So, these are also companies that have been the most transparent around diversity as well, right? So it makes sense that they're also the most transparent about diversity when it comes to pay. So they're the companies that have been the most transparent when it comes to EEO1 filings, which measures

workforce diversity as well. Those companies also have an abundance of resources to commit to providing opportunity programs, things like that. John, you know, Microsoft has so many programs for employees as well to sort of close that opportunity gap as much as they do the wealth gap as well. Now, what does pay equity these days mean? Is it based on the same job category, right? And it doesn't mean everybody in one group is getting paid the same as everybody in another group. It's by job category, right, or something like that? It can be job category. So it is all-inclusive, these studies, typically. So it will go everywhere

from hourly to salary employees, as well as entry level, all the way up to executives. So companies, it's a case-by-case basis how they conduct their own audits. But across the board, they are tending to be more comprehensive. And then you also have to factor in that it's not just salary. It's also additional means of compensation like stock options as well. All right. Brandon Gomez, thanks for bringing us the latest. Thanks. Good to have you here on set.

Well, up next, why Bristol-Myers Squibb is suing the Department of Health and Human Services. Late-breaking details when Overtime returns. Welcome back. We have a news alert on Bristol-Myers Squibbs. Bristol-Myers Squibb. Bertha Coombs has it. Hi, Bertha. Hey, Morgan. Bristol-Myers becoming the second drugmaker to sue the government over the drug price negotiation part of the Inflation Reduction Act. Just as we saw last week with other drug makers, they're calling it coercive and unconstitutional because it forces drug makers to take the government's price or face massive fines. In a statement to CNBC, Bristol-Myers says this program is bad for innovation and in turn,

the millions of patients who are counting on the pharmaceutical industry to develop new treatments and cures that save lives and improve health and well-being. It also violates the United States Constitution, they argue, because of that coercive nature. Now, we also saw, Morgan, that the Chamber of Commerce and the Chamber of Commerce Ohio, which is home to AbbVie, also filing suit on these same grounds. Bristol-Myers has a big stake in this, given that their Eloquist is one of the top spending drugs for Medicare. But a lot of folks aren't sure that they can file suit yet because they haven't named which companies they're going to negotiate with.

Back to you. A key story to watch. Thanks, Bertha, for bringing us the headlines on that. You got Etsy moving higher and a billion-dollar share buyback just authorized as well. On Tuesday, FedEx, one to watch with earnings after the bell. Economic bellwether. We're going to watch that indeed. All right.

Well, that's going to do it for us here at Overtime. Happy Father's Day to all the dads out there, including you, John, for it. Thank you. Fast Money starts now.