Power Lunch - Markets Mixed to Start the Second Half of 2026

Episode Date: July 1, 2026

The Dow Jones rises to a record high on Wednesday before giving up most of its earlier gains. Meanwhile, the Nasdaq is struggling to start Q3 as chipmakers are falling. Dominic Chu and Kelly Evans are joined by Bespoke Investment’s Paul Hickey and Portfolio Wealth Advisors’ Lee Munson to lay out their investing strategy for the rest of the year. The anchors are also joined by Brian Daly, the SEC Director if Division of Investment Management, to discuss the timeline and likelihood that investors will see more investable options for prediction markets.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The Dow hits a record high as the second half of 2026 kicks off. Welcome to Power Lunch. I'm Kelly Evans. Along with Dom Chu today, Brian is out. And stocks are coming off. I don't need to tell you, Dom. Their best quarter in six years. But the MAG 7 sees its worst monthly market cap loss on record.

Inflation, it remains too high. Fed chairman Kevin Warsh tells CNBC today. We'll tell tackle all of that and more with Paul Hickey, co-founder and head portfolio manager at the Spoke and Tom Porcelli, who is Wells Fargo's chief economists. All right, plus, there's a new frontier testing the limits of what can be an ETF or what can be called an ETF. Those so-called novel ETFs are funds that could give investors exposure to everything from maybe sports betting outcomes to event contracts now on prediction market platforms. And the big question for the SEC is whether these belong in the ETF wrapper at all.

Brian Daly, who is the director of the SEC's Division of Investment Management, the primary regulator overseeing mutual funds in ETS. He's coming up. I am really looking forward to that. But let's begin with the markets. And a pair of strategists with some different takes as we kick off the second half. One is buying the dip in tech. The other says not so fast as he looks at other areas outside the best performing sector this year. Paul Hickey is co-founder of Bespoke Investment Group here on set with us.

And Lee Munson is president and CEO at Portfolio Wealth Advisors. Welcome to you both. Paul, I'll start with you. Good to be here. What's your read of things today? So I think, I mean, today I think we're seeing a lot of what, worked in the last quarter is, you know, not working today. And what didn't work is reversion to the mean trade.

So I think we saw some, you know, stratospheric runs in certain areas of the tech sector to close out the, to close out the year, specifically in the memory area and in semiconductors. So I think at that point, you got to look, and it's all about an expectations game. Where are expectations now? And I think they've gotten a little bit lofty in those areas. But, I mean, when you, and we are saying to you, which. sectors, you think are best position and all of that, and you've got consumer discretionary and financials and industrials, maybe home builders, but no tech. So you're the guy who's not so sure that leaning into tech right now is the best way to be positioned for the back-out of the

year. Well, it depends on your perspective, the shorter term versus the longer term. So this is a tech bull market, AI-driven bull market. So as long as this bull market continues, you know, when we get to the end of the bull market, tech will be higher than it is now. But in the shorter term, as I was talking about these runs that we've had, we're going into earning season. And earnings estimates have gone up so much in the weeks leading up the earnings season. So it's very, you know, that sounds great. Raises the expectations bar, and most of that gain in expectations is into the technology sector and industrials have seen the most upward revisions.

So that sets the bar high for those sectors. You see sectors otherwise like consumer discretionary, financials, and health care, where expectations and the estimates have not been rising nearly as much. So it sets the stage for some upside surprises. And I think the consumer discretionary sector is especially interesting because you have gas prices falling. You have the consumer held up, retail sales held up during the quarter in the past few months, since the war started. And now you have gas prices falling even more.

And I think that's going to be a tailwind for the consumer in the short term. It sounds like the broadening out trade is something that is not out of the realm of reason, right? But if you take a look, Lee, and I'll go to you for this one here, what the expectation, are the setup, so to speak, are some of these mega-cap technology names, it's not good, right? We've seen some real weakness, relatively speaking, in those Mag 7 mega-cap tech stocks.

Does that then mean, maybe, that a mean reversion trade could play into those types of names versus the broadening out one more, at least more dramatically? You mean the lag seven? I totally agree with you. I think you have to edit,

you know, half my equities, because my clients are retired and everything, are in value indexes. You know, we have sort of a saying around the office, Like, if you're going to buy a value stock, buy an ETF. Here's where the best thing is. If you can edit, edit, edit down, and just find those little value stocks in the mega tech, you're going to have some success.

Think about a couple years ago when nobody wanted Google, and we got a double out of it. Right now, I think the most important company in the world is Microsoft. Not because of its size or whatever, is that it is the poster child for proof that we're going from building out a trillion-dollar highway to who's going to make the next trillion driving on it. So if Microsoft can't deliver and they can't show that co-pilot and Azure AI are accelerating that bottom line earnings per share, we've got a lot of problems because every CEO is going to be looking at Microsoft and saying if they can't do it, that basically blows a thesis. I think they're going to make it, and I can see productivity really happening here.

But you've got to edit down. I mean, look at meta today. You know, they're popping 10% because they're selling off excess capacity. Now, I know investors love that because they're saying, hey, meta is. is going to get a return on invested capital, but that's not really what it's about, right? That's still just the cloud and the build out. You want to look for companies that are going to make it.

Or you're dealing with companies like Nike that are just headed for more new lows because they don't have an AI strategy. And let's also move away. You know, when we're talking about chips, it's not about the memory stuff. It's going to be about edge computing. And we might roll our eyes now.

But think about two years from now, if suddenly we're talking about Honeywell, because a third of their earnings come from these little edge computing chips, and that suddenly becomes relevant when we've got to get AI off the cloud into our pocket. Come back to that. Just a second. Guys, we have a news alert on SpaceX that's moving shares of Qualcomm Sima Modi with the details. Kelly, SpaceX has reportedly developed a prototype for a handset-like device. That's according to Wall Street Journal quoting sources familiar.

The phone would essentially run on a Qualcomm chip. Now, the report says the device is designed to incorporate AI. and was shared with a select group of investors, in fact, ahead of its initial public offering just three weeks ago. Guys, a move into handsets with certainly underscores SpaceX attempt to diversify its businesses, right? From rockets, satellites, AI, infrastructure, and now potentially handsets.

But again, we're watching Qualcomm share spike on this potential new product coming to market, guys. Perhaps we can also put on the screen shares of the likes of Verizon T-Mobile ATT. They were under some pressure, SEMA, as these rumors were circulating, kind of end. last week and earlier this week. There's a lot of different players who would be affected by this.

The one part that stood out to me as well was this mentioned that perhaps investors were briefed about this before the IPO. Yeah, it is interesting. I think especially ahead of that run-up and the company taking sort of a unique path to going public, firming up its IPO price ahead of the listing day. And using that time during the road show to not just showcase the company's growth story, but also potentially, according to this report, reveal some of the process. that could be in the lineup as well.

All right, Sima Modi with the latest there on that one. Thank you very much for that. Paul, I'll toss this to you. The market-moving headlines for the balance of pretty much the last year have been centered around artificial intelligence, space travel, and everything else. This is kind of no exception. Are we still tethered to this idea that the AI slash cloud-slash-exploration trade is going to be the thing that really captures investor attention

more than just about anything else in the marketplace? Yeah, so I mean, I think that's where the big stories are. That's what's been driving all the investment for this bull market. You know, part of one of the drivers of the economy, primarily in the global economy, has been semiconductors. But there are other stories that we can focus on. You know, that's what we talk about every day. But so investors should look into other places that aren't getting the attention. And I think the stronger consumer, better picture for the consumer going into the second half of the year, we had a guest on earlier who talked about the employment picking up and accelerating. That's going to be a tailwind. And I think you're going to see housing do well, D.R. Horton. I think that's a name to look at going forward through July

and through the remainder of the year. They trade for very reasonable valuations. That in Disney as well, 15 times earnings. They're returning capital to shareholders. And they haven't had the big run-ups that all these other stocks have had. So if you have any scintilla of good news for, them, it could create a spark that. Sintilla is a great word. That is such a, you also talk, and I think everyone senses this, but we're not quite sure what's going to come from it yet, that the Mag 7, and Lee alluded to this as well, the Mag 7 as a group is not really working as a trade anymore.

So I'm curious what direction you think these, in terms of the names you say you like Amazon and Tesla, but I'm curious what the next kind of leadership group, if it gets a moniker, you know, what would that be? Yeah, so, I mean, you can't, they're not one behemoth anymore. And I think what you have to, like you said, we like Amazon, they're exposed to the consumer. They're exposed to AI. So they're exposed to the entire economy. And if you look at the valuation of the stock, it trades that are, you know, not much higher than a market multiple these days, which you haven't been able to say forever in the case of Amazon.

So that's a name of driver going forward that we really like in the mega cap space. We don't like the group necessarily as a whole, but there are individual names, like you said, Amazon and Tesla's a name that we like going to. forward. Lee, I'd like to go back to you for this one. We know your view on what's going to happen, and it sounds like you are all in on this kind of mega-cap tech mag-7 rebound trade. I wonder how much of that thesis is based on a kind of more constructive macro, bigger picture backdrop. We still have at least a conflict in Iran going on that that's looking to be resolved. Oil prices are still a variable right now. Interest rates are a big part of the tech story overall. How does all that square with your pick of the mag-7 tech trade as the leaders in the second half?

So when you're building that portfolio out, and then you go a mile wide and inch thick on value, which is kind of where my mind is, and then you sort of snipe these little things like a Microsoft, like a Google, like an Amazon. You have to remember those are still considered long duration plays about all this earnings that's going to be in the future because of productivity and accelerating into the future. So when I'm doing that, I'm also marrying. I mean, I'm structurally short oil with a big hunkin supply of 30-year treasuries on my books right now. So I still think there's a place while we have this conflict.

While I love seeing, you know, rates come down, you know, the oil prices come down and me make money on my 30-year, I still think that through the course of this summer, we're going to see a flare-up. We're going to see a flare-up in inflation. And I think that that's going to give you that buying opportunity to buy what we call long-duration assets. It used to be the NASDAQ, I would say, don't just go be reaching for the NASDAQ 100. If you're going to play in that game, you've got to edit, edit, edit down to a couple names. And that's why I think Paul makes a great point that I just also want to, you know, reflect is that core, if you're going to buy core holdings right now, especially in an ETF, look at the Russell 1000.

Look at small cap value, right? And then when you want to go pick a big name, pick a beat up value oriented lag 7 name. But just remember, don't buy it all at once. You see oil go to 90. Those names are going to sell off again. All right. Thank you very much for the conversation. A big one for sure.

Paul Hickey of Bespoke Investment Group. Also, Lee Munson of Portfolio, Wealth Advisors. And a quick programming note. Speaking of the big picture, President Trump is going to join our own Joe Kernan exclusively tomorrow on Fast Money at 5 p.m. Eastern Time. An interview, of course, that could be chock full of headlines. You don't want to miss it.

So watch in. Tune in tomorrow, 5 p.m. Eastern Time. Now, we're just getting started here on the show. Leveraged DTFs are gaining some serious traction, but as these funds grow, they can amplify both rallies and sell-offs as well. We're going to break down the risks and the stocks most vulnerable to the ripple effects of that leverage loop. And after the break, no clues from the Fed chair, Kevin Warsh today,

but will the latest data make the case for a July interest rate hike? Wells Fargo's Tom Porcelli joins us to separate some of the signals from the noise. That's coming up. Keep it right here. All right, welcome back to Power Lunch. Kevin Warsh is keeping his cards close to the vest. Speaking at the ECB's annual policy forum in Portugal, the Fed Chairman's sidestep questions about the central bank's next interest rate move,

but he did weigh in on one of the biggest questions facing the economy. How will artificial intelligence reshape the job market? Who knew when the Internet was born that the Internet was going to create a million and a half jobs as Uber drivers? We are in the first or second inning of this revolution. This is a big paradigm shift, both for the conduct of our policy and for our economies. I think the jobs will be greater prosperity, will be stronger. The question, as one of my colleagues raised is timing, and we have to take that timing very seriously. Timing is everything. His comments come after private payrolls in June rose less than expected,

and tomorrow's non-farm payrolls report could provide the latest and clearest picture yet of whether hiring is losing some kind of momentum. So joining us now for the conversation as Wells Fargo. chief economist, Tom Porcelli, and Tom, this is an interesting development only because so many eyes and ears were focused on what he could say without giving forward guidance, so to speak. But he did at least get some headlines with regard to AI and productivity. What was your takeaway from the discussion? I mean, I think he's doing a masterful job of actually not giving us a lot to chew on, which is clearly his MO at the moment.

I think, look, so he's forcing us to parse his words even more than we normally would. And when we do that, I think that this doesn't strike me as a Fed official that's, you know, anxious to hike rates right now. I know there's obviously some market pricing for that. We think that they will stay on the sidelines. We think that's a prudent thing to do at this juncture, mostly because the kind of inflation we're seeing now is a supply shock. And we keep on, I think, you know, we need to ask a question.

Monetary policy needs to ask question, what are you solving for? And if it's a supply shock, then monetary policy you really can't solve for that. I think he came back to a couple of ideas that we believe in. One is inflation expectations are remarkably anchored. And in that context, I don't think there needs to be a rush to judgment on hiking rates right now. I'm glad you should have been here. Yeah, please, of course. Because tomorrow, if we're right, I mean, look, $188,000 on average over the past three months.

Yes. I realize now that if I use the language is the economy overheating. Yep. He wouldn't like that. Yes. Because he would probably say it can't overheat, you know, unless there's kind of a demand-side inflationary problem. Right. And so I guess his point of view, and it sounds like you're sympathetic to this as well,

is that you can have strong job growth and it be not inherently inflationary. That's right. Sorry. And so I'm 100%. And I think his argument, now whether I believe in this part of it is a little bit, I guess, inconsequential, but his argument is we believe in productivity. And we believe that productivity is going to come in and actually save the day so that we actually don't have to worry about the inflationary pressures that come from this.

I have sympathy for that idea. I don't think that's for today. I think that's going to take a little bit of time for that to sort of really unwind or really unfold. But I think that he wants to see this unfold. And so I don't think he's rushing to judgment right now. Is there a case to be made that the policies that have been put together from a portfolio perspective on both the monetary and the fiscal side from the administration and from the Fed have created, I mean, this is cliche, a Goldilocks scenario where we can have modest economic

growth, no real fear of any kind of a recession anytime soon, and a stock market at record highs. So there's a question that we're all going to be debating what put this sort of this backdrop in place. But the reality is that is the backdrop. We do have really great economic activity right now. It's, you know, again, it's like not too hot, not too cold. We do have a labor backdrop that's just moving along. It's, again, not accelerating, not decelerating right now. I think you can make the argument very comfortably that we are getting this benefit from productivity, I don't think that it's related to AI or that kind of tech investment yet. I think it's really more on the back of we just cut hours meaningfully.

And this low-hire sort of low-fire backdrop that continues to exist means that you just don't have to really ramp up hiring so you keep wage pressures pretty modest. But again, modest enough that your sort of, you know, consumption is moving along at a perfectly acceptable pace. Dom said Goldilocks. I did. I'm sorry. We said it yesterday as well.

I'm sorry. And I hate the term. I don't know what to call it. Well, it's not even, you just worry that when we start using the term. Yes. I mean, is that too... Does it imply complacency? Yeah, I mean, when the market's climbing the wall of worries,

when you always feel like, yeah, when there's those... When we can do a wall here at CNBC, Dom, and put up five reasons why. Bricks. Bricks. You know, bricks in the wall. And now I don't think I have any bricks. So, I think Warsh... Look, I'll, well, I'll say more offline.

Online, what I'll say is, I think he's going to do a good job. And I think today really drove home the sort of the concern that you might have, really drove home for me that this is not a Fed chair that strikes me as someone's going to be sleeping at the wheel. Like, I think he's really trying to understand what other data could we actually look at to really try to understand where things are going because he's quite right. When you just look at like tomorrow's payroll report, that's a backward-looking measure. And look, the reality is most economic data are. But he's trying to make a case for how can we actually get better with the analysis and the data.

And so I don't think that that's someone that would be. sleeping at the wheel, Kelly, to your really right concern. So, okay, this is the part that's been kind of really not weighing on me, but I've been trying to debate in my own mind. The economy is not working well for everybody. There is this case-shaped approach. It is something the administration, and specifically Treasury Secretary Scott Besant has talked about, about trying to narrow the gap between Wall Street and Main Street. Yet we see prices the way that they are right now, not just for food and gasoline, but for other parts as well, rents and everything,

is the Fed and is Kevin Warsh as chair in a position to get on board with that line of thinking to narrow the gap between the haves and the have-nots in America? So it sounds like to me, and again reading between the lines of what he's been saying over the last couple of outings that he's had, it sounds like to me that he is really trying to sort of just look at the data in a holistic way, make a good decision based on that. Like I don't know that he doesn't sound to me that he's the kind of person that's going to try to make decisions. for one group or another. It sounds like he's actually trying to make decisions

for the economy and the aggregate, which I think is probably the best that you can hope for from a monetary policy perspective. Monetary policy is a blunt tool. It's like the only true thing you learn in graduate economics, by the way. And so I think he's cognizant of that.

Well, I want to hear more about your thoughts for offline, but maybe that's not for here. Oil was down more than 20% in June, and that was the worst month for the crude since 2021. In Q2, it was down more than 30%, worse decline in more than six years. But the 10-year yield is somewhat unchanged in the face of all of that. Let's bring in Rick Santelli. Rick, for some, what is the bond market telling us?

Well, I think the bond market's telling us that it went from checking out oil because it was the baseline of renewed interest, or I should say fear of inflation when the conflict on Iran began at the end of February. But now it shifted. It shifted to much of what Mr. Warsh was talking about today, the new Fed chairman, trying to get their arms around it. So investors, I think, are a little bit more concerned about pricing pressures. And it's pretty obvious. Even when you look at what's going on with the difference between twos and tens, twos was up, what, over 3% in yield for the month of June. 10s were virtually unchanged. And the two year, that was all reflecting changes in sentiment by investors on what the Fed may or may not do in the

future. Now, Rick, could I just follow up that you mentioned the Treasury side of things. We did see a bit of a sell-off in prices arise and yields yesterday. Is there a point at which you and the traders that you talk to down in the pits down in Chicago think that there is a kind of structural area that people want to buy longer-term treasury debt, that they find it attractive? Absolutely. Matter of fact, I think the answer is pretty easy.

On a closing basis, we basically have held above the market at a yield on the 19th of May. at 4.67%. That's considered good technical resistance. On the bottom, well, over the last six, seven days, we've found that bottom, right around 436, 437. I would view that range for the next four to six weeks and look for many of my sources and traders to be playing that exact range. All right, Rick, thank you. We appreciate it. Rick Santell is. Tom, you want a quick response? No, I think. Perfect summary. Perfect summary. We'll leave it at that. Tom, thanks very much. Tom Porcelli. Coming up, retail traders are piling into leveraged tech and chip ETFs. Those bets are driving some pretty wild swings in individual stocks. Forget fundamentals.

Christina Partsenevelas is here to break it all down. Next. The first half of the year brought some massive rallies in chip names like Micron and Sandisk, surging a cool 250 and 750% since Jan 1. Investors are now piling in, doing whatever they can to capitalize on those gains. into leveraged ETFs like Sox L or T-T-T-T-T-T-T-Cues as a way to maximize their gains, but are they also exposing themselves to a lot of potential risks? It seems almost self-evident. I know, especially today when you look at the actual movement. You mention that- People love these plays.

I hear about them all the time, the T-T-T-T-T-L, people love these plays. The Sox L is a perfect example, because if you look at the Sox ETF right now, that's down about 6% on the meta-news. And then you look at the socks, the three-time-leveraged ETF, tracking the socks or I guess the chip index. And that is down, what, over 20% right now? And last week when we saw chips fall over 7% throughout the week, you saw the same thing. I was on air saying, oh, look at it.

It's down again, 23%. So the reason why we're bringing this topic up is that there's an incredible amount of leverage in AI exposed names. And interactive brokers just had a list out yesterday. They said retail investors are getting back in Micron Sandisk over just the last 48 hours. I know you had guests on the set. but they're also now dipping their toes back into these levered ETFs with a big exposure to the chip sector. And so some will say, is this a cause for concern?

The market structure is changing. There's a lot more leverage. There's a lot more, you know, people taking out and buying stocks on margin, too. Margin debt has climbed astronomically in the U.S. But the problem is not necessarily a market crash or anything. It's just we're using a lot more leverage to get exposure. We like these risky bets. And that's what we're seeing with a lot of these names.

This is a great comment. I think we're going to keep coming back to, but Steve Roth was on from Federated Hermes a couple of days ago, and we were talking about what might end the bull market or where are there kind of signs of risk or concerns building up in the system. And he said the way that a lot of professionals are looking at it is the leverage you're talking about may expose retail traders, especially people in Korea. There's a lot of that activity going on there. May expose them to big losses, but it means there's not a systemic risk, like a leveraged systemic risk building up that could take down the entire financial system. So, you know, buyer beware. What it means is that there's, what it means is that the entire financial system is not going to come to the rescue of individual traders who might get wiped out because they were playing around with triple long leverage products. It's too big to bail applies only if the financial system is there. And we'd all like a bull market that doesn't involve any losses for anyone, but at some point these things are going to turn. So then this is, I guess, a symptom of efficient markets, right?

So these, you'll have retail traders or not even retail institutional guys get into this as well. if these ETSs completely fall, they all default on their margin debt, it's their problem, right? Essentially, and the market's going to work itself out. Yeah, it's good. The thing, though, that we've been seeing in other media outlets, too, and newspaper articles and all this, is that they're just highlighting the level of margin debt in the United States. It's hit an all-time high. But as a percentage of the actual market cap, you know, is seeing stocks rise so much

that the margin debt, percentage of that is still smaller than all the previous peak. So that's why you can't just go. and say there's going to be an S&P 500 crash, you just have to acknowledge, yes, this market structure is changing. And what you're seeing on your screen is just one example. I grabbed that from Strategic. This is focusing only on the 200 largest levered ETFs. And you can just see the amount of money that is going into this graph over the last little while. People are piling money. They're taking on the risky debt. And that's coming at the loss of what crypto, right, and other things where they're taking their money out. So here's what I would say. You know,

we see a lot of these stats. At the same time, there are traders, out there and folks in the ETF business who would say we've seen some real bouts of volatility, whether it's because of these levered ETFs or the other way around, that remains to be seen. But one of the things that they'll mention often is that even in times of real volatility, these ETFs have performed the way that they're supposed to perform. In other words, if you're double levered and the thing goes up 5%, it should go up 10% and it's there. And if people redeem, it goes down to your point by the same amount of money. the create and redeem process by which you go put money in ETFs and they buy stuff and you take money out and they sell stuff has been functioning well in times of volatility.

So that means there's less friction and less chance for a systemic drop in these markets. What about the rebalancing that has to happen after every single day? So that was one, Bank of America, maybe we could pull that up. But they were saying that for every 1% swing in a lot of these levered ETFs, it's about $27 billion of funding that will go up or down in either direction at the end of each day. because if you are 3X socks or 3X SpaceX or something like that. At the end of the day, if the sock has gone up, you need to fix that ratio. And therefore, you're buying on the way up and you're selling on the way down. And so that adds to the volatility, again, in those specific AI exposed names as opposed to the entire market crash, et cetera.

So I see your point, but it's got to add some volatility to some of these names. Probably does, but it also maybe a savvy buyer could wait and say whenever those dislocations happen, I'm in to take the other side of it. It's always easier side than done. Because yours will be there. Somebody is making money off of that. There's always a bull market somewhere. There you go. All right.

Christina Parks and Lelves, thank you very much for that. And it's very important. Let's let her make her announcement. What is this? It's Canada Day. It's Canada Day. I'm wearing my... You see her a little pin on your...

Yeah. Oh, no, no, no. I can't do advertisements. There you go. No more. All right, we got to go. What do you say on Canada? It's my fellow.

Happy Canada Day. Yeah, that's what we say. To all who celebrate. All right, there you go. All right, Christina, thank you very much for that. Now, the IGV software ETF, speaking of, it's moving about 3% higher this afternoon, adding to the recent gains that we've seen over the past week.

Now, it comes after analysts at Guggenheim upgraded Salesforce, those shares you can see up about 5%. Some of the names leading the sector higher today include Strategy, App Loven, Palantir, Service now, all higher by more than 7% so far today. Now, despite today's moves, the IGV is still down around 13% over the course of the last month. Well, sticking with the ETFs, a whole new class of exchange-traded funds could hit the market soon, tracking everything from outcomes of sports matches like the World Cup to even presidential election results. We'll take a closer look at these so-called novel ETFs with the SEC regulator overseeing those products. He comes up after the break.

All right, welcome back to Power Lunch. The SEC has got a lot on its plate these days, but one of the items that's getting a lot more attention as of late is what regulators have planned for the next generation of ETS. that track everything from betting on sports events to even event contracts currently traded strictly on prediction markets. These so-called novel ETFs are currently being conceived and developed by some ETF issuers, and the SEC is looking at just how they should be rolled out to traders, if at all, in the future. So joining us now for this conversation is the SEC's Director of Investment Management, a primary source, if you will. Brian Daly, he's the regulator in charge of overseeing mutual fund and ETF products.

Brian, thank you very much for being here with us on Power Lunch. Let's start right away with just the news is the SEC has opened a public comment period for these novel ETFs that some say are really geared towards prediction markets-based ETFs. What exactly brought on this request for comment from the industry? Was it all about prediction markets and ETF wrappers? Right. So first of all, thank you for having me. And to answer your question, yes and no, we've had a lot. We've had this tremendous success in the ETF worlds. In 2019, the stats are just mind-blowing. It is a great wrapper. It helps retail investors. We've been looking at that in terms of a bunch of things, volume, speed, and novelty in asset classes, and really even in structure, fund structure,

and how that all works. When the ETF prediction market wrappers came in, we looked at and we said, okay, this is a good time to take stock of where we are. And what we did, and I think this is just government at its best, is we reached out to the industry. We said, we see where you're coming in with these. We have these new exposures coming in. And then behind it, we'll see what else is after that, probably perpetuals, and I don't know what comes after that. But there are new assets coming in that the system wasn't built for. And we, to have an orderly and predictable review process, want to get it right. So let's all just take a breath. You guys will voluntarily, hopefully, defer your effectiveness, which they all did, and we'll put out this request for

comment, and we will collectively get all the best thoughts from the regulatory side, from the investing public side, and from the industry sponsors themselves, so that we can have a good review process for these. What has been the early feedback, if at all, anything? It's very early in this 60-day window, call it, right? That's what it is. Have you really heard or seen anything before this period opened and in the early stages of it? What's been the general kind of feel of what this kind of product could look like rolled out to investors? So the feedback has been positive. I mean, my inbox lit up yesterday.

We put the RFC out at 9 a.m., 10 a.m. And by the end of the day, we had emails in from fund sponsors, from others who said, we are going to comment. We want to come in and talk to you. We think this is a great idea. When we talk to the sponsors themselves, as we have been doing for weeks, the feedback has been, your review process is really valuable to us. You go through, you help us improve our disclosures, you spot issues.

potential federal securities law violations that we missed or we weren't sensitive to, we get a better product. We value that. But this is the ETF world, as you know, it's a winner take off. First mover wins. So it's hard for them to have an iterative discussion with us to go back and forth when they're looking over their shoulder. And they're saying, oh, my God, there's somebody who is reading my disclosure in real time who is trying to jump ahead of me in line. And if they beat me, all my investment is for naught.

That's what we're fixing. How do you fix that? We heard this around the SpaceX launch. There were people on Friday trying to get out with their levered products before they were even officially allowed to, I think, on what was at the following Monday or Tuesday, because that first mover advantage is so strong. That doesn't seem like a great, you know, feature of the system. Yeah, we recognize that. One thing we did at the SEC for regular public companies, regular public companies under the 33 Act is we started out with this idea for emerging growth companies. We back in 2012 to allow them to file what we know.

now have commonplace the confidential IPO application, right? You hear people, it's very funny when they go on the show and other shows. Jobzac stuff. Yeah, yeah. But they say, confidentially filed a confidential statement. Like, okay. Now, of course, the terms are and all the rest of it. But, and that was done because there was an acknowledgement with Congress, with the SEC, that it wasn't good for small upstarts to come out of Silicon Valley to put all of their trade secrets and ideas out there for everybody to look at and for the established players to basically steal them, steal those ideas and get ahead of them in line. We have never had that. And that obviously was extended to all IPOs a few years later. We haven't had that. I suspect we're

going to get a lot of comments on that that are going to suggest we adopt that system for us. Because we do that now. We get an application in on a Thursday night for a really innovative ETF structure. By the end of the day Friday, we've got 12 copycats. Do we need ETF innovation? I mean, to be a little cheeky about it, a lot of it allows for people to do leverage or kind of put products that aren't traditional. Like, if we just said, well, we want people to own wealth, fine. But a lot of this stuff really veers more into the like trading, betting, leverage, you know.

I mean, I just wonder, we use the word innovation, but do we really need innovation in some of these areas? So we are the most pro-innovation SEC ever. So we love innovation. We want to foster innovation. There's a real risk that when we sit around, and I think I'm pretty sophisticated and smart. I think I've pretty good judgment. but the idea that I'm going to sit in my office in Washington, D.C., and decide, this is good for retail investors. This is not. I have decided. Could we do a 10x levered ETF? What's the 100X? I mean, is the sky the...

So leverage is different. So leverage is different because Section 18 of the 40 Act and our rules, 18F4 in particular. They cap leverage at basically 2%. That's 2x. So that's actually not in the novel ETF RFC. That's different because we're... For better or worse, our hands are tied on that. Okay. Now, the question here, before we let you go, there are those out there who will advocate for the idea that putting novel ETFs that are linked to, say, the Knicks winning the NBA championship next year,

or who is going to gain the GOP nomination for the next presidential election cycle, is tantamount to gambling or casino-type behavior in investing markets that are not supposed to be casinos or gambling-type environment. How exactly do you and your SEC peers respond to some of those types of questions about whether the market is becoming too much like a casino? Right. So a lot of that is what we call merit regulation because it should this be investing or not investing, should it be legal or not? And there, this is a little bit of a cop-out, but we have Congress to rely on. We have the primary regulators of these contracts to rely on. And we are, in a sense, down the line on those decisions already being made. What we focus on is when we have an otherwise legal exposure that people want to put in an

ETF wrapper, our job is to make sure the disclosure is done well. We have effective means of communicating to the retail investor, by we, I mean the sponsor, what the issues are, and that we have a very healthy partnership with the exchanges. Because after we're done, when something goes effective with us, they then take that ETF, they get a ticker, and then they go over to an exchange, and the exchanges have a whole additional set of requirements and duties, which they take very seriously. All right. Well, thank you very much. I'm just trying to think of where ETFs themselves were the big innovation.

So I always wonder, like, could there be some further product innovation beyond that? But maybe this is the final frontier. I think they might. And I think you're right. This was perhaps what we did in 2019. I wasn't there. But what we did in 2019 was maybe one of the most impactful decisions the SEC ever made in terms of retail access to both alpha and cheap basis. In the in ETFs, you mean? Or just broadly speaking? Full stop.

Alpha and cheap. There you go. We get out my handbook. Democratization of markets. Brian, thanks very much. Thank you guys for having me. Brian Daly, Director of the Division of Investment Management at the SEC. Over to Julia Borsden now for the CNBC News Update.

Julia? Kelly, former CIA director, John Brennan, sued the Trump administration today. He wants a judge to require officials to preserve records from investigations. he says are targeting him. Brennan, who was director during Obama's second term, names the president and other top officials as defendants, and asks the court to decide whether he is the subject of a vindictive prosecution. More than two million Russian and Ukrainian troops have been killed or wounded in the four-year-long war. That grim milestone is, according to a new study, by the Center for Strategic and International Studies, which says

Russia has borne the brunt of casualties, with 1.4 million Russian troops killed. or wounded. And tens of millions of people from the East Coast to the Midwest are under heat mornings that are expected to last through the holiday weekend. Much of the region is expected to see triple-digit heat, pushing the so-called real field temperature up to 115 degrees. The extreme heat also threatening to overwhelm some power grids already under stress from data centers and electric vehicles. Kelly, back to you and stay cool. Always worried about, you know, you want to crank the AC, but then you don't. don't because you don't want it rolling brownouts. You don't want a brown out. Julia, thanks.

Up next, Robin Hood expected to make a major announcement, one that could have implications for your crypto portfolio. Stay tuned to find out what it is right after this. All right, welcome back. Robin Hood is holding an event in London, and they're making an announcement on, quote, the new era of crypto. Our McKenzie Seagalos, he is here with the details, what exactly are they announcing, Mac? So, Don, Robin Hood shares, Popin' Up 7. and a half percent as the company makes its biggest crypto push in a year, taking tokenized stocks to more than 120 countries, moving them over its own blockchain rails, and letting AI agents now trade crypto portfolios in the U.S. CEO Vlad Tenav announcing a new version of

Robin Hood's stock tokens. These are digital versions of equities that can trade beyond normal market hours, be borrowed against, or lent out. Think margin in securities lending, but in crypto form. The stock token launch excludes a handful of major markets, including the U.S. and UK, at least to start, but customers in the States are getting AI agents for crypto, an expansion of the agenic trading feature that Robin Hood rolled out for equities and options last month. Customers will be able to port their AI model of choice, set guardrails and capital limits, and then let the agent scan crypto markets and execute strategies. Robin Hood is also offering double the yield Coinbase advertisers to its pro users on US dollar

pegged stable coins and estimated 7%, which is also one. above most high yield savings accounts in the U.S. That puts Robin Hood more directly up against the banks, which have been actively lobbying against crypto products that look like deposit substitutes. Now, Mac, how quickly do we think that Robin Hood will get adoption for this new kind of on-chain product? We know that people have been using the base network on Coinbase for quite some time for some of those transactions. How much do they get in terms of a native blockchain and how much can they attract usage and gain some kind of a critical scale against, say, a competitor like Coinbase.

When I think about tokenized equities outside of the U.S., actually, Cracken was more of a first mover there. You've got Coinbase only recently moving into this ability to offer equity trading, trying to get away from that association solely with being a crypto exchange. But with Robin Hood, the play here, and they actually have been working on this blockchain for a while. They announced last year that it would be going live, so it took a year to get it up and running, but that just makes it an easier, you know, easier for internal transactions to be

carried out. They've got the Robin Hood wallet. They have the blockchain that it runs over. And the point is you can do it all here, which is the value add that they can offer over a crack in, over a coinbase. And another piece of this usage equation I've been trying to better understand is are people actually using agents to trade? And I've told that 70,000 of these agentic accounts, at least in the context of that equity and options trading have been open just in the last few weeks. So people are leaning into having agents help them out with their trade. And of course, the agentic credit card. also part of this equation, which Robin Hood has just rolled out.

More agents? I have way more questions before I turn things over to an agent. I can tell you that much. Well, I just, as we said before, I just want to know if I can sue them to give my money. And it sounds like right now they're not so short. Mackenzie, thanks very much. Appreciate it. Mackenzie Sagalos.

More power lunch after the short break. Earlier this hour, the Wall Street Journal reported that SpaceX showed investors a prototype of Elon Musk's new AI device. In a tweet on S and X, Dom, Musk, said that report is entirely false. It's interesting, too, because somebody else had posted something there, and Elon Musk replied to it saying, quote-unquote, utterly false, and that post was then deleted by the post author, so an interesting development there.

Right, but I think the place to watch is whether SpaceX, whether it's this rival phone or some other kind of AI device. Communications device, using Starlink or something else out there. Exactly. That there's something on that front may be coming, which would be obviously a huge deal. All right. Now, before we go here, we need to talk a little bit about the mass. duo that climbed to the top of the Empire State Building. You can see there's the stunning

visuals. They unfurled a banner on top of the spire reading, when the power of love beats the love of power, the world knows peace. Now, if that wasn't enough, one of them appeared to get down on one knee and propose in the middle of this stunt. The pair spent about 40 minutes at the top of the iconic building before descending the spire. They are now, yes, Kelly, in police custody. Yeah, but look, I sort of still feel the same way as well. Nobody should ever do this. Terrible stunt. Don't do this, people, but when you do, make sure it's for a marriage proposal. Yes, if all things for a marriage proposal, and I got to wonder, I don't know what the economics of going viral are, but it's not just social

media. I mean, I think every New York local news station was covering this so far today. I know, and that's the problem where it'll encourage more of this, but I still wish them all the best. All right. Well, thanks very much for watching Power Lunch, everybody. Tom, thanks for being here. You got. Closing bell starts right now.