Power Lunch - S&P 500 retreats from record as comeback rally pauses before Fed decision 7/29/25

Episode Date: July 29, 2025

The S&P 500 fell on Tuesday, on the heels of some mixed corporate earnings, as Wall Street awaits the Federal Reserve’s interest rate decision and a slew of economic data. We’ll cover all of the angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And stocks are pulling back a little bit from record highs as investors weigh earnings, trade talks, and much more. Welcome to Power Lunch, everybody. I am Brian Sullivan. Kelly is on maternity leave, but don't worry, we have got you covered. We're going to look ahead to a pivotal day and rest of the week for markets. You got the Fed interest rate call on deck tomorrow. Their meeting started today. You got more earnings from Big Cap technology on the way.

Plus, a massive deal on the rails that could impact inflation. we're going to break down what all of that means for your money. As you can tell, folks, there is a lot to do on a very busy day. And really the focus of the financial world right now is in Sweden. Because trade talks with the EU, of course, wrapping up over the weekend that resulted in a deal. But a trade deal with China is the real market mover maybe in the days, weeks, and months ahead. As you just saw on CNBC, a big press conference just wrapping up with U.S. Trade Ambassador Jameson Greer and Treasury Secretary Scott Bessett. Now, we are waiting on an interview between Amman Jabbers and Scott Besson, which could start in seconds.

But right now let's wrap up what we all heard in Sweden with Megan Kisela in Washington, D.C. Megan. Hey, Brian, so a very busy hour between a pre-press conference and then a press conference with these officials, wrapping up their two days of talks. Now, top line here is really that this was mostly a check-in after the London talks, a monitoring of how implementation was going, touching base to see where both sides were. But the biggest piece of news centers on this August 12th deadline, at which point tariffs are set to ratchet back up to much higher levels,

something set in April, unless the two sides agreed to extend the deadline. Now, what officials said today is that they have not yet gotten the final sign-off from President Trump as to whether or not that deadline would be extended. were very constructive and they will be briefing the president tomorrow morning. But as of now, there is no confirmation as to whether or not that would be extended and there's no confirmation as to what level tariffs would go back to if it is not extended. So a little bit up in the air, but we do expect to hear more on that point tomorrow morning after these officials have the chance to brief President Trump when everyone's back here in Washington.

Now, President Trump also was speaking simultaneously to reporters on Air Force One and he confirmed that he had just spoken with Scott Besson at the close of these talks describing it as a very good meeting with China. He said day one didn't go so well, but after day two, which was today of talks, things were looking much better. And the president said, quote, I think we'll resolve this problem. But he also said as to the tariff extension, we'll either approve it or we won't. He was also asked about the possibility of the summit, this idea of a meeting between the two presidents, President Trump and President Xi Jinping. The officials in Stockholm did not say it said that it did not come up in their meetings, but President Trump told reporters, quote,

I would say before the end of the year, there could be some sort of a meeting between him and President Xi. Now, just a couple of other issues that did come up. Besson emphasized that these two economies are not decoupling. He describes it as simply derisking. He said they talked about Chinese overcapacity globally. He said China does not agree that they have an overcapacity in manufacturing, that that's one friction that was being discussed. Jameson Greer also said that they did not discuss any export controls on chips or on technology. that's something that's been going on with NVIDIA.

So, Brian, a lot to unpack here. Learned a lot. More to come. All right. Well, more to come right now. Megan Gisela, thank you very much, because maybe we'll get some answers to some of those questions that are tucked in there

because let's go right now back to Stockholm, Sweden, where Aiman Jabbers is live with Treasury Secretary, Scott Besson. Brian, thank you very much. And yes, we are here with Scott Besson. Mr. Treasury Secretary, thank you so much for doing this and being live on CNBC. Really appreciate your time today. Good to see you. Good to be here in Stockholm.

Take us behind the scenes, if you could. Covering these things as we reporters travel around the world following you guys, it's sort of a black box. We don't know what happens inside that room. We occasionally get the handout picture. How are these talks actually structured? What happens inside the room? Do you have sort of bullet points from both sides that each side agrees to bring up in advance? Does each side make a speech to each other?

Bring us in the room. Well, there's a lot of pre-games. So a lot of preparation on. both sides in terms of what do we want to talk about what would we like to accomplish with the the Chinese there there were 75 of them in their delegation 15 of us we start out in a very large room probably 12 or 15 on each side of the table as you said there tends to be a bit of speech reading so there's a little back and forth on that

Then there's a discussion. We have various topics. But the real work gets done. We break down into smaller groups of two-on-two. So Ambassador Jameson, myself, was Vice Premier Huli Fung. And then they actually had two, a deputy trade minister and a deputy finance minister, and then the translators. And then Vice Premier Fung and I spent some time alone with the translators. And do you go into breakout rooms to discuss among just the American side what the Chinese have proposed and then come back? Or is it all done in the same room together? Well, Ambassador Greer and I have been doing a lot of trade deals. And we've done a lot of prep in advance. This was our third meeting with this Chinese team. So we built up some level of personal rapport.

We also, you know, I can tell you that London built on Geneva, Stockholm built on London and Geneva. So we have an arc that is getting better. We've been able to, this meeting we were able to discuss more of the big economic frameworks, whereas Geneva and London were much more specific meetings. I think the market really expected that what we would see here as an extension of that August 12th deadline. That was sort of a low bar for these talks.

People thought, if they can kick the can another 90 days and keep the truce in place that happened back in London, that's basically a win for Stockholm. Did you agree to kick that can down the road, or is that pending President Trump's approval? Well, it's pending President Trump's approval. He has final say on all the trade deals. I spoke to him right before I came in with you.

I'm going to see with Ambassador Greer tomorrow. and he'll have the final decision. I think our Chinese counterparts have jumped the gun a little and said that we do have an extension. I can say that the meetings were very far-reaching, far-reaching, robust, and highly satisfactory. And what will you recommend to President Trump if you can share it with us?

Will you recommend that he extend that pause? Well, we're just going to give him the facts, and then he'll decide. What can you tell us what's agreed to in the room? if anything, any specific agreements on any of those agenda items that you set up in the pregame, as you call it? Well, we continually are perfecting their rare earth control system. It was a new system that was put in globally on April 4th, and it's been a bit clunky, so

we keep pushing them to work on that, and it's the entire global supply chain because The restrictions or the controls aren't just on the U.S. It's on every country. So we discussed that. We made some very good progress on that. We had very long discussion, in-depth discussions and reports on each other's economies. We push them. They have what they call the five-year plan coming up.

I believe the meeting is in September, October. It will be discussed in February. And we discussed, our Ambassador Jameson and I encourage them to work on rebalancing the economy towards more of a consumer economy away from a manufacturing economy. And if they have decided that that is in their five-year plan to make that public. The other big piece of speculation going into this was, would this tee up a Xi Jinping, Donald Trump, meeting sometime in the fall, maybe October? You've said now that there was no discussion of that in these talks.

So where do we stand on the idea of a possible world leaders meeting? It was June 5th, June 4th, June 5th, President did a call with party chair she. Party chair she invited him to come to Beijing. So, you know, that will be something between the White House and Xi's staff. What else was discussed in the room? One of the items was Chinese purchases of Iranian oil. What did they say to your request to stop making those purchases? They said they're a sovereign nation and that they have security needs, energy needs,

and that it would be based on their internal policies. And so you don't have any leverage at this point to push them on that. Or do you? Well, not at this point. We have, at Treasury, we have sanctioned what are called teapot refineries. They are private refineries, not statutes. state-owned. And so we have sanctioned those refineries. The owners and some of those owners may have assets in the U.S. The other big question coming into this was, how much would the EU deal

having been signed on Sunday, influence what happened in the room in Stockholm this week? Did you get a sense whether that made any difference in terms of the trajectory of the talks here? I think that everyone can see the arc of where these trade deals are going. I won't say that the Chinese were on their heels because they're very composed. But vice premier, Huli Feng is a seasoned politician. But it's clear that the momentum was with us. That when you get the EU, the world's largest trading block, when you get that deal inked, we had Japan, we had Indonesia, we had Vietnam. So not only did we have the EU, who has a very large trading relationship with China, we also had three of their neighbors. You said something interesting with a small

group of reporters earlier today, which was that the Chinese goods, if the U.S. is going to tariff Chinese goods, those goods have to go somewhere and you think they're flowing to Europe, Canada, and Australia. Do you think Europe needs to put up a tariff wall of its own? Do you think they need to be tariffing Chinese goods? I wouldn't be surprised if they don't put on some kind of tariffs at a point, but this is where the opportunity is for the Chinese to be proactive and create a bigger consumer economy and sell more of those goods at home because those goods can't just flow to the global south. You've said that's your goal for the Chinese economy. It's not entirely clear that that's

the Chinese government's goal for the Chinese economy. To what degree do you get the sense that they embrace that argument at all? You know, again, we'll see. It may take some external forces. I remember, I think I went to Japan the first time in 1990. Maybe the bubble burst in 1991. They didn't fix the banking problem until 2004. Then Abinomics was until 2012. And that was really an external stimulus. A lot of that was from the China threat. So, you know, it may take. take some external stimulus or an external the catalyst to get the Chinese to change? It may be more tariffs. One of the big questions about that EU deal from the weekend is this 600 billion piece for additional purchases from the United States. But EU officials have come out since the deal was agreed to and said, well, that's coming from private sector companies. We don't really have any control over that so we can't enforce it on our end. Does the U.S. have any guarantee that that

$600 billion is real and is actually going to happen? Well, I think that's going to be closely monitored. I think President Trump believes that this is a good deal. I mean, on paper, this is a deal of the century. And I would be surprised over time if the EU doesn't hold up their end of the bargain or the 15% tariff rate could change. What do you think those purchases will be? I mean, that could impact, you know, hugely some American companies. Well, it could be purchases. Problem now is Europe is rearming.

NATO is finally upping its defense spending. We have a very large backlog with our defense companies. So, you know, I would imagine a big, big portion of that could be for defense. there are going to be some ag purchases. And then they'll also be building, you know, increased investment in European companies, putting plants in the US. These deals have been coming pretty fast and furious.

At times, it gets hard to track the details of them. The Vietnam deal that the president announced earlier in July, I don't think we've seen confirmation, or at least I haven't, as I sit here now, from the Vietnamese government of that deal. Did we get confirmation from the Vietnamese government? Do we have an agreement with them on paper? I didn't work on that deal, but I assume that we do.

Because we've also done Indonesia and Philippines, so I would imagine that. But you haven't seen that paperwork. But that's Ambassador Greer, who is a seasoned veteran with an encyclopedia memory and knowledge of all this keeps all that. How do you divide it in the room between yourself and Ambassador Greer as you are negotiating with the Chinese? Do you have a lane? Does he have a lane? I think, you know, I try to keep things moving along in a big, big picture away and think about what of our goals. Ambassador Greer, again, like I said, he not only has an encyclopedic knowledge, he has dealt with the Chinese in President Trump's first term. he knows all the particulars on tariffs, on trade on.

He walks around, it's a great prop. It's probably two times, three times bigger than the old New York City phone book, but it's the non-tariff trade barriers of all the countries. So you can put that down on the table and said, okay, let's go through them. Right. Friday, we've got another big deadline coming up, which is August 1st for snapback tariffs on all the other kinds. that have not agreed to a deal so far.

What can you tell American businesses to expect on Friday? Well, I would think that it's not the end of the world if these snapback tariffs are on for anywhere from a few days to a few weeks, as long as the countries are moving forward and trying to negotiate in good faith. One of the other big questions around this has been, which of these other sideline issues

are really part of this trade? deal in which are not. TikTok has been one that we've talked about. You said that wasn't discussed today. The other question is that the Financial Times reported that the president of Taiwan was declined permission to transit New York, which is something that the Chinese would have wanted from the U.S. government. Was that done to help smooth a deal with the Chinese? I want to go back for on, because the August 1st is important. I think for President Trump, For me, what's given us a lot of negotiating leverage is he's happy to do the deal, but he's equally as happy sometimes in more cases, in some cases more happy just to have the tariff income. So it gives us a lot of negotiating flexibility.

So TikTok wasn't discussed, and we are very careful to keep trade and national security separate. So the Taiwanese president's movements had nothing to do with our talks. Mr. Secretary, we're almost out of time being told we have just one minute left. So with that, give us a sense of what you expect next from this U.S.-China relationship. Are we going to see another meeting in 90 days? What city will we be in at 90 days from now? Look, I don't know where we're going to be. The good news is we're talking because initially China was on April,

second tariff day. We advised all the countries don't retaliate, and that would be your peak number, and you can work down from there. China was the only country to retaliate. We went into this tit for tat. We ended up at 145. They were at 125, which is essentially an embargo. We brought those down in Geneva. There's the problem with the rare earth magnets that was solved Geneva, London, And the good news is President Xi, President Trump have a very close relationship. Now we are able to establish communication lanes at all the various levels, whether it's between Ambassador Greer and myself with the vice premier, with the trade delegations, with the deputy finance minister.

So, you know, I think more interaction is good interaction. We're not going to agree. They're tough negotiators. We're tough negotiators. We're see where it goes. Mr. Secretary, thanks so much for being on CNBC. Good to appreciate your time. Brian, we'll send it back to you.

All right, Eamon Javers, with Treasury Secretary Scott Besson in Stockholm, Sweden. Big interview there, an important interview there. Joining us out of talk about that and more, Steve Sosnik, he is chief strategist to interactive brokers. Steve, good to have you back on. You always seem to be in the right place at the right time, because we're going to have you on to talk about something else, but I'm very glad you're here because trade, tell our viewers and listeners, how much trade and these deals and trade talks matter to the macro market. In theory, Brian, they should matter a lot, but I think a lot of it is priced in.

I was watching the movement of the S&P while the Treasury Secretary was talking. It didn't move very much despite the fact that it already has. Exactly. So I think so much of it is priced in regarding the idea that we're probably going to get a 90-day reprieve. If we don't, that would be problematic. I think for the most part, it's been working out how the market's expected. And I think that's why they've been sort of pushed to the background. That alone seems to have risk that the market is pricing in the absolute best-case scenario. What if we don't get that? Well, then buckle up because I, you know,

I think it was fairly telling when we got the deal with the EU that the market yawned. And that's basically a mark the markets tell that that was what was expected anyway. It's kind of why the market is really meandering today, despite the fact that the sounds coming out of Stockholm are relatively promising. There's not that much new in there. Now, there's a lot to focus on this week. I do think some of what we're seeing is position squaring ahead of a very consequential week of numbers and data. But I do think that you're right. I mean, this is telling us that this is, the good news is in there. The problem is what if something upends that? Mean stocks are soaring.

Companies with no earnings are seeing bids. Spacks are back. Have we gotten? Are we a little bit? What was the term from the 90s, irrationally exuberant? I'm not going to. Valuations are at 30-year highs. There seems to be some underlying risk to this market.

Absolutely. The way we flipped from complete risk aversion to complete risk-exceptive. in just, you know, a matter of weeks is exceptional. I'm not going to channel Chairman Greenspan's rational exuberant. That's maybe for someone else. But we are seeing signs of real froth. I've used the term flight to crap before. And I do think we were seeing some of it. It's backed off a bit today. But you're right. Meme stocks. These stocks are beaten down for a reason. Crypto treasury companies. I get the idea, you know, if you want to buy crypto, that's great. But there's ways to do it without paying a premium to someone to buy it for you, you can go buy it yourself or you can go buy an

an ETF that buys it at face value. You're saying a lot. Let's unpack it one by one. And I love the name. Maybe it's a new band name. But what is a flight to crap? Look at it this way. I coined the term years ago, sort of as the, think about a flight to quality.

You've used that term before in the show. Everyone's the markets used it. Well, what's the opposite of a flight to quality, where you're just looking to, rather than looking to go risk off as much. as you can, you're trying to go risk on as much as you can. And to certain extent, taking risk has worked for people dramatically. Individuals were the ones buying the market for the most part in April, rushing in as the building were on fire, so to speak, and it worked for them. And pretty much any risky trade that they've taken on has worked for them. And so if something keeps working

for you, you're going to keep doing it and you're going to keep doing it in size. And so as a result, you're seeing people assuming risks. But we're starting to get to the to levels that we saw in 2021, which, by the way, at a time when money was free, you're seeing a lot of these same trades make a comeback. And that in itself is a little worrisome. I'm glad to see the market backing off some of that today. Yeah. Do the meme stocks, and by the way, love that people are trading them? Yep. It is risky, but at least they're in the game. But a lot of it is gambling. Yes. Not investing. Correct? The idea being, I'm going to buy a share of no earnings corporation for a dollar, sell it to somebody else for two. And to your point,

as long as I can keep doing that, why wouldn't I keep doing that? Well, that's what it is. Unfortunately, in some of that case, it's sort of a greater fool theory, where you're just trying to, where you're just trying to outrun the next guy. And what we saw with these latest crop of meme stocks was the options activity would pick up the day before, and I wrote about this on our IBK, our campus website. You can read about it. But basically, we picked up the fact that the options activity was gunning for them the day before, then the social media would hit. The interesting problem, though, is they would peak like five minutes after the open. So it was clear that someone was just using that opportunity, using the new people as a source

of liquidity. People get tired of that very quickly, which is why it ended very quickly. But, you know, when some of these companies are beaten up for a reason, you know, I looked at coals, where the bonds are trading at around 65, 70 cents on the dollar, which is the bond market's way of telling you, this company has got some troubles ahead. But yet the market, yet the stock doubled in 10 minutes. Not because people believe others are going to buy more socks. It's just because other people believe the stock we bought by somebody else or they can sell it to somebody else.

Does that affect the S&P 500? Does that behavior impact the macro market at all? Yes, to some extent. Not in the crazy extent that you see with meme stocks, but is there anyone who believes that some of these big cap companies are not going to continue to thrive? But that continues to need, you need more money flowing in to do that. To the extent that they can deliver earnings, and we're going to learn from four of the MAG 7 this week, whether that's still the case. If they deliver earnings, cash flows, I guess that makes sense.

The question is, do you keep paying an ever increasing multiple for them? That's a separate question. But, you know, that idea makes sense. I want to see people at least focus on stocks that have earnings, dividends, cash flows, verifiable situations, even if some of them are getting a bit extended. The S&B 500 is down one quarter of 1% right now, and I'm going to screw the stat up because I'm going off memory. But it's something like now, I think today is like day 29 or day 30 or something like that where we haven't had a 1% move either way. June 24th. I happened to look it up earlier today.

Oh, thank you. So that's actually... Just a little over a month ago. I was probably right on the trading day side, not on the actual days. Point is the market hasn't really moved a lot in either direction. Does that type of setup imply to you, see that we're going to see then some kind of a big move soon, like a almost like a slingshot effect? That's the risk right now. I think market is underpricing volatility. Now, to be fair, historical volatility is in the sewer. Whether you measure the S&P volatility on 10-day basis, 30-day basis. VIX is at 15 and a half? Yeah, but the reason VIX is at 15 and a half is, even though we all know past performance is no guarantee of future success, what option traders tend to do is

look at historical volatility as the basis for pricing future volatility. Well, that volatility, as you just mentioned, has been doing nothing. And so as a result, the premium that people will pay for that volatility is very low. I'm going to argue that, to some extent, that's rational, market correlations are down very much. If you have two companies doing this, you know, one going up, one going down, well, the index doesn't move, even if each company moves 5%, 10%, that kind of thing. So that's also dampened volatility. The risk, though, is that going into a Fed meeting, going into all these big earnings, if they all cancel each other out, well, then the low VIX is correct. If they sort of amplify each other, slingshot, that can be

very problematic. And that's a risk I would not take. So we got to go. But quickly, if the Fed is negative tomorrow, the outcome is not what we want, but the MAG-4 earnings are really good, who wins? We end up on the treadmill. Yeah, it's what you talked about. Yes. You balanced it out. Exactly. Scales of investing justice. So to speak, yes. Financial Libra. How about that? Steve Sosnik, interactive brokers, great conversation. Roland with the Scott Besson interview.

Thank you. Thank you, Brian. All right. Folks, you are fewer than 24 hours away from the Fed decision. And even though investors expect the Federal Reserve to do absolutely nothing, this meeting with interest rates, the president's fight with Chairman Jay Powell has brought this decision front and center. It also matters a lot about what the Fed says may have.

in the meetings ahead. As always, full team coverage to walk you through that decision and reaction. And by the way, speaking of Power Lunch's shadow fed, will that panel part of it anyway already making its own decision? While they voted to keep rates the same, Bill Lee has become dovish. Since the last meeting, calling for a 24 basis point cut. I don't think we'll get it, Bill, but I admire you stepping out there. All right. Coming up on Power Lunch, is it a financial green flag regional bank stock?

Seeing a big surge lately? Is that a sign of good things to come for the economy? Plus, swiping right. Citibank, making a big bet on wealthy spenders like you for the big new credit card and getting heavy on metals. Alamo stock getting downrated on concerns of a glut of lithium. Cue the Nirvana song. We're back right after this. All right, welcome back. Do you pay hundreds of dollars per year for an American Express Platinum card? How about $795 per year for a Chase Sapphire Reserve credit card? Well, if you do, Citigroup would like to have a word and bring you a new credit card. Citigroup is rolling out a new card that costs $595 per year.

And it's meant to take market share away from those two cards and others that we mentioned. because everyone wants a slice of the high-end market. So with all the bells and whistles and perks, will this new city card do that? I don't know, but Leslie Picker might. She's at the stock exchange with Citigroup's head of personal banking. Leslie. Brian, I might not know, but Gonzalo Lucetti might have an idea.

Thank you very much for being here, the head of U.S. personal banking for Citigroup. You oversee the group that launched this card. You have it here, actually, in case those. sitting at home, want to take a look at it. So why do this? And I ask in the context of in 2021, you all kind of pulled back a bit from this space. And now it's become increasingly competitive in the four years since then. So, you know, what strategically was behind the decision to really reenter this market in a big way? Well, thank you for having me, Leslie, first of all.

And yes, I have the card to sell it if anybody in the studio wants to get it. And no, we're very excited about this launch. But if we take the, you know, a step back. in our credit card business is one of our fantastic franchises where I call it the triple threat because it's a very large market, a revenue pool of more than $150 billion. It's growing faster than the GDP of the country, and we have a large, one of the leading positions in the market. So it's a business that helps us drive growth and returns. And then when you look at our cars business, we just presented our second quarter earnings and you saw it growing at 11%.

So it has good momentum across acquisitions, across spend, across borrowing. And we feel like we have a pretty good, decent leading position as it relates to cash products, as it relates to the lending products. And this is an area where we had an opportunity to really double in. You mentioned 2000 and in the past as well where we had pulled back. This is, I think, an opportunity for us to step more purposefully into this segment and really play for the Afghan customer. Why the high end in particular? And I know obviously the fee versus the benefits, there's kind of a balance there.

So how did you think about kind of the pricing structure for this car, the benefits it provided? and just the high-end customer and what they're looking for right now. Yes, no, we thought about it being first one big piece of our puzzle, as I was talking about in our portfolio. And then secondly, when you think about the price point, and Brian was referencing that, we are targeting really the affordable luxury space, right? We really wanted all of the savvy affluent customers.

So what we aimed for, and this was on the back of research, customers were telling us in droves, we really want simplicity, we want flexibility, we want flexibility, I don't want to have a PhD in order to understand what the benefits look like. So for us, it was very important that the earn rate was high, that it was real in terms of being flexible and benefits that the customers could really use. And it didn't have a lot of constraints attached to them, whether it was time or whether it was with this retailer or that retailer.

So yes, we leverage a lot of our strategic partnerships, especially if you're an American Airlines customer. This has additional perks, but even the core benefits around the high earn rate and the flexibility of the benefits that you can really use. it with different flavors of your spend was very important to us. What about the state of the consumer right now? You all reported earnings a couple weeks ago, and I know that CEO Jane Frazier spoke a bit about kind of the bifurcation of the consumer and their spending trends right now.

How would you characterize, we talked a bit about the high-end consumer, what about the lower-end consumer right now? What are you seeing from your purview? Yeah, well, overall, there's always going to be cohorts of vulnerability, and we have a few pockets of that. But if you look across the overall US consumer, we still see a lot of financial resilience. And when you look at the macro, you see income sources have been growing even from pre-pandemic times at or greater than the speed of inflation, whether it's wages or home prices or stock prices.

When you look at the debt levels on the personal side, they are reaching or at the levels of pre-pandemic as well. And then the labor market has been relatively constructive. And then when we look inside our 70 million customers, what we see is first continuation, of spend, so customers are still growing their spend by about 4%, which is what we talked about in the second quarter's earnings. And then on the flip side, on the delinquency side, things are stable to improving. So in what we present in the second quarter is the first quarter, I think, since the second half of 2022 that we saw an year-on-year decline in terms of net credit losses.

And I saw that across the industry. So to us, that's pretty constructive. You see a consumer that's still spending and still very disciplined as it relates to his or her debts. Yeah, credit quality holding up remarkably well. normalization trends you're speaking about also seem to continue. Gonzalo Lucetti, thank you very much for being here from the New York Stock Exchange. Brian, I'll send it back to you.

I like to hear that the consumer is still spending but doing it reasonably. Yeah, good news. Yeah, it is good news. Well, that's good news. Leslie, thank you. All right. Also, well, if you want to know how the economy is really doing, you can look at credit cards, but you can also look at bank stocks, specifically some of the more mid-sized regional banks

and they, as a stock group, have been doing well lately. The KBW Regional Bank Index popping the last few weeks. In fact, look at some of the winners so far this year, many up double digits. Not bad. Your next guest says some of these stocks have more room to run, especially as more deals happen. Here now for a Power Lunch exclusive Tommy Show.

He is CEO of KBW, a steeple company. Joining us with the KBW Community Bank Investor Conference in New York. Next time we'll get you back on set, Tom. Thanks for joining us. You just heard sort of good. news on the borrowing from the credit card side, what kind of news are we hearing on the bank side? So, Brian, yes, thank you. We're worth 115 companies here at our conference. And just like we heard from the quarterly earnings over the last couple of weeks was the sense that the quarter

ended much better than it started and that the earnings improvement story in the banking industry is underway. We raised estimates for over 60% of the banks that we cover. We're now looking for 12% 10 earnings for share growth for the median bank this year, 10% for next. I also, Brian, listen to your prior interview. And unlike some of the stocks that that analyst thought was expensive, bank stocks, frankly, are still on sale, trading at very reasonable valuations at a big discount to their historical valuation. They just need to add, Tom.

They all just need to add AI to their name and their valuation may double, right? Regional bank AI. I'm only half kidding. No, well, believe you that, we had a, guest speaker talk about stable coin and digital assets at lunch, because believe me, it's on everybody's mind. And this industry doesn't want to take anything for granted. And so that is an important theme that the banks don't want to miss. And so they're working hard to stay on top of it. Is there, and I'll be more serious, is there a technology role or benefit, an AI role or benefit

for a group of stocks and companies like this? So in banks, what I see, where I see AI is that banks want to use it to be more efficient, take out the friction in their customer relationships, and improve the service for their customers. What I don't see them doing is turning on AI to really drive the entirety of the credit decision. I think what they want to do is they want to make themselves more efficient. And I think the most successful banks in the future are going to be more efficient, has to be it. and AI is going to be the engine that helps them get there. Yeah, and I'm sure we're going to hear more talk about it. I know they have with you.

You guys do as good a job better than anybody on the banking side. We're going to let you get back to your conference. Tom, Misha, a lot of breaking news. Everything's a little bit compressed. Do appreciate your flexibility, Tom. Thank you. Great. Thank you, Brian.

Take care. All right. On deck, what may be the most important railroad news since we drove the golden spike in Promontory Point, Utah, 156 years ago. That's next. Well, not since 1869 is cross-country railroad news

made such headlines. Union Pacific buying Norfolk Southern to complete the first ever truly cross-America Railway. It is a $72 billion deal if it's approved. It would have more than 50,000

route miles across 43 states. Now, Wall Street right now, not super fans of the deal, shares of both Union Pacific and Norfolk Southern, they're down a little bit, not a lot, two and a half percent. But let's talk about this deal, because if it happens, it's big. Morgan Breeden spoke with the CEOs of both rail companies earlier today. Do we have any kind of odds on, like whether this gets approved?

Do we know? This isn't going to be a nearly two-year process. Two years? Nearly two-year process. And this is going to go through regulatory review. Main regulators, federal regulators, surface transportation board. You have one of those seats vacating at the end of this year, and President Trump gets to nominate the next person who will fill it. So some expectation that you need to have that sort of in place

to really see this chug along, if you will. But all the stakeholders are going to have a say in this. Labor is going to have a say in this. Shippers, customers of the rails are going to have a say in this industry as well. Others. And actually the largest rail union, SmartTD, already came out today and said that they have plans to oppose it. That being said, you're seeing the first mega merger of a railroad or railroads proposed in something like 25 years plus, in part because there does seem to be a willingness from regulators to consider this option amidst all the reindustrialization and trade policy that we talk about day and day out, including today. I admit that I did not know that right now there is not currently one rail company that

would take something from, say, Norfolk, Virginia to Los Angeles, California, that somewhere along the line, the cars are put on another train, this deal would make one national railroad effectively, correct? Yeah, it would make the first real true transcontinental railroad here in the U.S. We can talk about the transcontinental railroad, which you've been referencing with Golden Stakes. Sorry. But this is the first time that you see, actually, if this deal were to be approved, that you'd see one operator, one owner, basically 50,000-plus miles. of rail tracks. 43 states. Exactly.

But also the regulator piece of this is very much why I think you see shares of both of these companies under pressure today, including Norfolk Southern, because of that long haul to get it across the finish line. I just want to play for you a soundbite from Jim Venna, the CEO of Union Pacific. Union Pacific is acquiring Norfolk Southern in this deal. And Vena is going to be the CEO of the combined entity, assuming it does close within the next two years here. Here's what he had to say about assessing regulatory risk and what he feels like has been signaled in terms of openness from Washington for the possibility of this deal. We like what we've heard from the Service Transportation Board and the new chair on how they want

to follow strict rules about how we move decisions forward. So we're looking forward to it. We have a strong case. It's all about delivering for America. It's delivering for our customers, having a better service product, and absolutely making it so. that they can move it at a very much better cost-effective manner because of the amount of touch points we remove on rail cars. Here's what else you need to watch, Brian, if this merger, if this acquisition were to move forward, whether this is going to essentially propel the other Eastern Railroad CSX and the other Western Railroad BNSF, which is owned by Berkshire Hathaway.

But didn't we have a report recently, sorry to interrupt. BNSF was in talks about a deal, but then Warren Buffett himself denied that they had been approached about doing a deal? It was not like two weeks ago? That was last week. And we actually also heard from CSX's CEO, Joe Henrich's, post-earnings, when I interviewed him last Thursday as well. And I asked him point-blank whether they were in conversations with the NSF. He said, no comment and sort of get his take on this idea of consolidation across the industry. And he's sort of demurred on whether they'd be open to a deal or not. He didn't say no. He didn't say yes. But I think in general. If you see one get approval, you're going to see another one, strike a deal,

and also push forward. I assume we'll hear more about this on the 4 p.m. show hosted by Morgan Brennan. And John Fort. And we're going to ask. I love them both. A key shipper of the rails, what his thoughts are. There you go. We call that a tease. I love them both. Thank you very much. Good stuff. Let's get right out of Bertha Coombs for a CNBC News Update. Bertha. Brian, President Trump said this afternoon that he never discussed the UK's decision. to recognize Palestine statehood during his visit yesterday with Prime Minister Kier-Starmer. The UK announced the decision today with Starmor calling the situation in Gaza intolerable. He said the declaration would be conditional on a ceasefire in Gaza and Israel's commitment to a two-state solution.

Lawyers for Jeffrey Epstein Associate Galane Maxwell said in a letter today that she will invoke her fifth amendment rights in the House Oversight Committee's Epstein probe, unless she's granted immunity, given questions in advance, and is allowed to testify outside of prison. The committee spokesperson responded that it would not consider immunity. And Minnesota Governor Jim Walt activated the state's National Guard cyber forces today to respond to a cyber attack on the state's capital city, St. Paul. The governor's office said the magnitude and complexity of the incident are above the city's capabilities. Brian? So I assume it's more than like a PayPal fishing scam because I bought Bitcoin and forgot to pay for it?

Yeah, apparently it shut down a lot of things and they actually shut down some things preemptively because it's quite a hack. Quite the hack on old St. Paul. The better of the two Twin Cities, I think. I don't know. Who knows? Bertha Coombs, thank you very much. It's made that up. All right, the 4th of July was weeks to go. But your next guest sees fireworks ahead with big tech earnings on deck. The snazzy animation says it.

So, Dom Chu. What are we navigating in the market today? It's the main event coming up here, right? Meta platforms, Microsoft, Amazon, Apple, the Mag 4 of the Mag 7 coming up. So let's turn now to Jessica Inskip, who's going to take us through what exactly she sees about the big cap earning season and where the opportunities are, Jessica. Yeah, absolutely. I'm looking at meta.

The options market is leaning modestly bullish, but technically there are warning signs. So what I'm doing is I'm threading the needle dom with a defined risk. that benefits really from range-bound volatility, even though volatility is subdued, agree with Steve Saznack, as he said earlier, I still expect it to collapse. So to define those ranges, I like to look at the options market. Right now, it's pricing about a $40 move, which is about 5.6%. That gives my implied range 670 to about 760. But option sediment is modestly bullish, Whereas in the technical side, I see just a couple of bearish flags. So the trend is bullish on the longer term.

I like to look at the 1326 and 40 weekly moving averages represents one, two, and three-quarters worth of prices. That tells me this is still a bullish trend, so investing in it long term, but having a trade here for earnings. The 40-week moving average is actually my support at 681, but that bearish divergence that I'm spotting is actually from the relative strength index or RSI. Meta retested its February high of around 740 on June 30th. So that's my resistance, which creates my technical range between 680 and 740,

which is within my implied range. So my trade structure, I'm going to create what's called a short iron condor, Dom. Oh, no. Take us through what the short iron condor is. It was a Robert Redford movie. Iron condor. Oh, it was three days the condo. Three days of the condo.

Sorry about that. Go ahead, Jessica. It sounds cool. It's all right. It sounds complicated. but it's really not. All we're doing is we're just defining our ranges. So I'm selling a 760 call. I'm going at about 38 days. You could do this this week if you want. It's just the risk-reward structure is going to be different. So I sell a 760 call at my upper limit and my lower limit is where I'm going to sell my put. So at 670, that creates a short strangle. And that's really the driver of an iron condor, a short iron

condor. The way that we create a condor is you really just add protection, which is further out of the money legs. So I'm buying a 780 call with the same expiration and a 650 put with the same expiration. And all this does, if it doesn't stay within my range and it drastically moves in one direction or the other, I don't want to expose myself to unlimited risk potential on the upside or substantial on the downside. Altogether, I have a premium collected of about $946, which makes my max loss about $1,054. That's a better risk versus reward. So I'm getting nearly a one. one-to-one-ish risk-to-reward ratio, so it's a defined risk strategy that benefits from a volatility collapse and meta-staying right between 670 and 760.

All right, Jessica Inskip, thank you so much for the trade on meta-platform. It's ahead of earnings tomorrow. Big deal. Thank you. You got a take on the iron condor. Three days the condor. By the way, underrated. Good movie. Yeah, you know what I'm talking about?

Faye Dunaway, I think, was at it. Still ahead. The huge deal shaking up the energy market. It's like Takeover Tuesday here in the financial markets. So we've got a big deal in energy. Baker Hughes is buying water and LNG engineering firm chart industries for $13.6 billion. That is $2.10 per share. Chart industry stock is obviously popping on the news.

Although you can notice it's not quite at 210th, at 198 and change. That implies Wall Street maybe not 100% certain the deal will go through. Baker Hughes CEO Lorenza Seminelli, who remember we just interviewed two weeks ago at the OPEC meeting in Vienna. Austria calls us deal a milestone for Baker Hughes shareholders. Chart does a lot of things, but what Baker Hughes is really looking for is the ability to also be more on the engineering and industrial side of the natural gas and LNG supply chains. Basically, Baker Hughes will now be beginning to end on projects like building a new or expanding an existing LNG facility. In other deal-related news, CyberArk popping on reports of a potential 20. billion buyout from Palo Alto networks. That news pop-in about, I don't know, less than an hour ago.

Palo Alto has a market cap of around $132 billion. Both stocks moving Palo Alto down about 5 percent, CyberArk up 11.5 percent. I want to be clear. Baker-U's is a deal the two parties agreed on. The Palo Alto CyberArk report is just that, a report of a deal that may or may not happen. And all this happening, of course, as Union Pacific and Norfolk Southern agreed to a deal, but as Morgan Brennan said earlier, it's going to take two years of review. Wow. Thanks for watching. Power Lunch, everybody. Closing bell starts right now.