Power Lunch - Stocks continue to rally 10/8/25

Episode Date: October 8, 2025

Stocks mostly keep churning higher. We discuss Nvidia's role in the AI financing ecosystem. And some stocks that Morgan Stanley thinks will surprise to the upside when they report earnings.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

And then I'm on shortly after that with Fast Money 5 p.m. Oh, hi, everybody. The wind streak is back on track. Stocks popping again. Welcome to Power Lunch. I'm Brian Sullivan. Kelly is off today. Happening now. New at 2 p.m. breaking news from the Federal Reserve in D.C. The Central Bank out with the minutes of its latest meeting. Arguably, one of the most important in years. Steve Lees, but in D.C. He has gone through it. And he joins us now with what's critical in it. Steve. Brian, thanks very much after cutting interest rates by a quarter point for the first time in months. Fed officials, most Fed officials agreed it was appropriate to ease further beyond that cut that they gave. Some were a little bit more cautious, and we'll talk about that in a second with a big debate there, and those who were cautious citing financial conditions, which were pretty robust and upside inflation risk remaining elevated. The Fed cut amid what the minutes called a shifting balance of risks at the time, downside risk to employment had increased. Inflation risks had either diminished somewhat or had not increased.

A few argued they could be either unchanged on rates or they could cut. They could go either way, essentially. They were concerned about the stalled inflation progress and inflation expectations. There was a range of views and apparently an interesting debate on just how restrictive the Federal Reserve was at the time or is even now. and that's reflected, I think, in markets. Participants stressed the need for a balanced approach in addressing the employment and inflation sides of the mandate, arguing that they would address that side of the mandate that was further from their goal.

Stephen Myron, as you know, dissented. He was noted, as he has publicly since then, saying that the neutral rate has fallen. He thought the Fed was more restrictive because of that. Quick detail on the inflation bait. You had those saying, look, productivity. going to keep inflation down. You have lower net migration. That would put downward pressure on inflation. And employment was not a source of inflation. On the other hand, those who were more concerned about inflation, talked about tariffs. They talked about inflation expectations remaining

elevated. And businesses saying that they would raise prices to pass along some of those tariff increases. Most thought the tariff effects would be realized, get this, by the end of next year, not this year, but the end of next year. And there was a line there, Brown, I thought was interesting. they are watching artificial intelligence, talking about the huge impact it's having on GDP and investment, and also noting the adoption has the potential to reduce employment. Brian? So all in all, Steve, is it fair to say that the bias was, you said there were some people are having trouble making decision whether they went to lower rates or kind of keep them the same? Is that kind of a tell or a read, some sort of tea leaf to what we can expect at future meetings?

If I could answer that, Brian, I would say, normally I would say it depends on the data, but we don't have the data. So we have to go back to where they were back then and think about the data they may be seeing. I think the important phrase here is the one that I led with that most thought at the time when they did it, it was appropriate to ease further. I think the debate is not, does the Fed ease or not, Brian? I think they will. It's how much from here. And that's why I stress this issue of this debate over how restricted the Federal Reserve is. Some think the Fed is very restrictive. Stephen Myron is taking out his point that the neutral rate is much lower. And if the neutral rate is lower, then the Fed being up here is more restrictive than thought. Others look at the financial conditions, the booming stock market, relatively stable interest rates and say, you know what? There's not a whole lot out there in the markets or even in the economy that's screaming. So there's a debate, but I would say the bias is towards rate cuts. The unknown is how much? bias to rate cuts unknown how much.

Very quickly, Steve, will let you go. I know you may not be able to answer this. If the government shutdown goes on until the next Fed meeting, do they have a meeting? I think they will have a meeting. They still have their mandate. They still have their job to do and they have to figure out how to do it. I think that there's hopefully, Brian, what will happen is in the intermeeting period here, we'll get more of an idea of what the Fed officials are looking at and what becomes decisive for them.

As you know, you, me, everybody on the street. has been trying to figure out, is there a better mouse trap out there? I don't think there is a better mousetrap than the government data, but we're going to have to make do with what we have. And one of the things we're going to be doing is aggregating all of the alternative sources. And one of the things we're working on, Brian, I haven't found one yet, but is finding alternative inflation sources. There are some out there, but they haven't done as good a job as far as we can tell

in matching the government data. All right, well said, and a big job certainly ahead. Steve Leasman in D.C., Steve, thank you very much. All right, folks, it is the perfect day to welcome in your special guest host this hour, a man who needs no introduction, but we'll get one. Sarat said he's managing partner and fund manager at Douglas E. Lane and Associates. We've got them all our. We'll talk markets, stock picks, AI, Open AI, and NVIDIA,

also meet one of America's top financial advisors. Sarat, welcome. Thank you. Okay, we're going to get to all that stuff we just laid out. But let me ask you about the Federal Reserve, your take. on what you just heard for the minutes? Look, I think Steve is spot on. They're in a quandary, right?

We don't have any data, and the data that leads to information. So really what they're playing with is all the, pretty much the information we all have. I think what they're also going to look forward to is, look, earning seasons is starting in a week or so. I mean, you got Delta starting Thursday, but financials coming after that. Don't you love Delta? I do. Who doesn't love Delta? There you go.

Delta is a great airline, but what they're going to talk about is pricing, right? What are all these companies going to talk about? Where are they making money? Is it pricing? Are they taking price? Is it margins? Are they cutting? Where is the growth? And I think that's going to be telling for inflation expectations. Because as we've known, the average consumers, inflation expectations are pretty high. And that kind of drives inflation. So we need to have that come down for the Fed to actually say we were going to cut more rates than people expect. Or does the Federal Reserve need to kill that 2% inflation target because that target seems so dated given the post-COVID world and just focus on jobs? That, I mean, I completely agree with you because the 2% was set in the, in 2010 to 2012. And there was effectively no inflation. Well, you also had huge globalization, right? I mean, we were trading with every partner and there were no tariffs and you had immigration coming in.

So you had input costs going down. Right now, you have all those going the other way. So, you know, let's see where 2% maybe is not relevant for today's world. So what would you like? I don't, what do you want to see the Fed do? Maybe, or I should ask it this way, for the stock market, what's the best thing the Fed could do? Well, it's the long-term rate, right? It's the value that you put to in your models for DCF.

It's the value that people pay for their mortgages, what companies are borrowing at. The lower that rate, and that also then helps the budget deficit. So it's that 10, 15, 30-year rates that need to come down, not, you. your short term, you know, what's money market going to do in three to six months. If that starts coming down, then I think you get another leg up to this market. Is it an entirely possible, Sarat, that the Federal Reserve can cut rates again and borrowing costs stay the same or even go up, which I know sounds weird to a lot of viewers and listeners, but the reality is the bond market is going to do what it sees as the best course? 100%. Because the Fed doesn't

control the long term. So it really has to be, is the Fed cutting rates for the right reason? And if it's leading for inflationary pressure, the bond market will act and the rates will go up in the long term. And that will not be good for the stock market. It will be not be good for the dollar. It won't be good for the deficits. It won't be good for companies and for individuals and companies. Yeah, the Red Sox used to, Manny Ramirez, that's just Manny being Manny. It's like, that's the bond market doing bond. That's the bond market. The bond vigilantes might come out if rates get cut too low if for the wrong reason. I'm just, the Fed, the Fed is, to Steve's point, in a quandary.

All right, your other big story today and yesterday and the day before that and the day before that was Nvidia. And CEO Jensen Wong was on Squawk Box this morning for a long, wide-ranging interview. And Becky asked him about their strategic partnership that enables OpenAI to try to deploy sometime in the future about 10 gigawatts of AI data centers using Nvidia's systems, specifically how open eye, open AI, you know, plans to pay for it all. Here's what Jensen Wong said. They don't have the money yet.

And the way that it's going to happen, for every gigawatt of AI factories, you're probably going to need about $50 to $60 billion for the land powered shell and all the computing and networking and all that, you know, everything that goes along with that. And they're going to have to, they're going to have to raise that. money through, first of all, the revenues, which is growing exponentially, equity or debt. Sorat, you own Invidia. Obviously a big fan of Jensen Wong, but yet he just said Open AI doesn't have the money. Right.

I mean, you've got all the words that we're talking about, vendor financing, circularity, you know, how is this a catch-22? Essentially, you have companies that you're giving money to that don't have the revenues that need to go borrow to get the revenues. So it's a very fine line. And look, I mean, he's got great products and he's got a great business. But I think we have to manage expectations because all this is not going to happen in the near future. It's going to take time. My wife worked to consumer products for 25 plus years. Vendor financing is not new. It's not illegal. There's nothing wrong with it. It happens all the time in the retail world. You pay me. I'll ship you stuff. And then I'll pay you back.

Do you worry, though, that this is so priced at perfection that if nobody's doubting the plan? Right. It is just. Right. But what if the plan, as the A-Team guy said, doesn't come together? And that's the fear, because it could bring a lot of things down. So the idea there is, yes, you can be exposed to it, but don't be over-exposed to it. Don't make this the home run.

This could be part of a diversified portfolio, and we absolutely agree. But you need to actually make sure that you have other things that could work if this doesn't work. Okay, let's bring in another voice on set. Christina Parts the Nevelis, of course, follows NVIDIA and the space very closely. Your main takeaway, or maybe the headline from that 40-some-minute interview, a Jensen great interview, that he did unsquawk this morning. Just right away, your statement, you just said that it's, don't put all your eggs in one basket, but when you have so much of these tech companies being propped up by NVIDIA,

it's hard not to have some type of connection. And we've showed this throughout the day. And I know the FT did a wonderful graph, just a web of how they're all connected, NVIDIA, as well as Open AI. And so I find at this point, with the level of markets climbing, it's hard to pull away and not have some type of exposure. So as an investor, what do you say to that? No, I mean, you're going to have.

I know that's not what you asked me, but I'm thinking as an event. But I think you're going to have exposure, right? It was before the hyperscalers that were doing it. They had huge, you know, they have a huge amount of cash flow. But now you're going to the other areas. OAI, burning through cash for. through cash, exactly. So you are going to get exposure. Just make sure when you look at your portfolio that everything that's really grown to through the roof, you cut back some of it,

or you just have some other things in your portfolio that could hedge it a little bit so that you're not just completely exposed to everything involved in there. And because Open Eye as a common denominator, right, because they're burning through according to the information about $115 billion through. Although they would dispute that number. Yes, exactly. 2029. They would dispute a lot. By the way, Open AI might dispute a lot of reports that have come out in the last month or so. And as is Oracle yesterday with the margin story, and I'm sure they'll have more comments next week. The information said that Oracle's margins weren't as high as we expected because they're spending so much on the chips.

But I think the analogy that I'm seeing on the bull case is that when you build a restaurant, for example, or you're building a business, you have to put a lot of costs up front. You're scaling. So these companies are building out the infrastructure. of course margins are going to take a hit. Of course, Blackwell, you know, might be a little bit more expensive for some of these companies going forward. So I see that narrative. But then I also see the concern on the flip side that you have, Nvidia, you know, investing with Open AI or not necessarily Oracle, but Oracle buying Nvidia chips. Now with this XAI and the fact that Jensen Wong said that they didn't even invest enough.

Core weave, that Nvidia is not only a 7% investor, but Coreweeb is also like Nvidia supplying Coreweaves. So there's just this confusing circle. Okay, but hold on. Because I don't think there's anything wrong with that. Like I said, retail did it. By the way, let's say you're, let's forget about retail. Let's say you're Boeing. Okay, Boeing.

Boeing gets an order from some airline. Right. So now they're going to build jets. And so Boeing goes out to its vendors. They say secure, you know, landing gear and lights and wiring and stuff like that. It's kind of all interconnected. I'm sure money's moving around. It's not the most elegant analogy.

But I think the risk is, what if Christina and, and Sarat chime in on this as well, people just don't make as much money from AI as they say they're going to. It's not that this is not cool or is going to be used. The risk is valuation, right? What are you paying for every dollar or profit? And in Oracle's case,

you went from 14 times earnings to 40 times earnings, right? So where's that growth? I'm not saying it's not going to be there, but if that growth is not there, your multiple will contract. You'll still make money in an Oracle, but what about the companies that aren't making money and the capital markets start shutting down,

and you get the periods where, hey, we can't raise equity, we've got to go to debt. And that's what happened when you built out the Internet, right? Because they will be people that will benefit. We just don't know who it goes. Have we, and if we haven't had this, please say we haven't had, because I can't remember it, but there's a lot of things I don't remember at this point, Sarat,

which is, have we had anybody announce a billion-dollar deal with OpenA? Like, some big bank is going to pay Open AI a billion dollars to create Jet-Cheap? chat GPT inside it. Do we know how much money OpenAI may be making? They're private, so it's not public. Well, the only thing that comes out are these public deals with, let's say, Oracle 300 billion. Those are spending.

What about revenue, though? Do we know? Well, they're making the revenue from chat GPT, and the numbers have come out, but they're leaked often to journalists. And then the argument could be they're leaked to journalists because then these headlines are grandiose, and then that raises the valuation of Open AI when they continue the funding cycle before going public. So there's two ways to look at it, right? Like, let's drop these little nuggets here.

Your annual reoccurring revenue is, what did I say? I wrote it down is $12 billion, for example, this year, and they aim to be profitable at 2029. Open AI. Open AI. Okay, so $12 billion's a real number. But you have these numbers come out, and they're private, and it helps their rounds of funding, you know, before going public.

So I wonder, too, and maybe that's me being cynical as a journalist. Like, why are these small little nuggets getting dropped out, and then we run with these big headlines, but it's a private company. So it's hard to back it up when they don't have to public. So Open AI has what, a $500 billion valuation? Yes. 12 billion we think of revenue. Would you be happy with that number?

I mean, you're... That's a lot. That's a lot. You're talking of price to sales at 40, you know. 40 times or whatever that is. Yeah. Is that 50 times? 48 times, whatever the math is.

So, yeah, they're growing triple digits, but then where's the earnings after that? So again, I'm not saying it's. not going to happen, but you just have to make sure when you're invested, you know what your eventually kind of exposure is. Yeah. Christina, appreciate it. I would just love to see, you know, a huge bank or somebody else come out and say, we're going to pay Open AI this gigantic sum of money to develop apps for us.

Because that's ultimately what I think OpenAI is going to be. It's going to be like an Apple. It's not going to be an all-encompassing thing. I don't know. Software as a service, which is why you saw so many software names go down, too. after OAA, A, A, when Sam Altman took the stage. So, yeah. Sassy, as they say.

Perfect. Way to end. Christina, thank you very much. After the break, the names. Morgan Stanley thinks can surprise to the upside this earning season, including that stock. It's up more than 20% on the year. It's in social media. The reveal coming up.

All right, let's focus now on one of the most read stories on CNBC Pro. Morgan Stanley has a new note with a list of its overweight-rated stocks. that are reporting earnings in the next month and are most likely to show profits in excess of what the street is expecting. This is real world actionable advice just for you and of course Morgan Stanley's clients. So let's walk through the stocks that may beat earnings, get your pens or iPhone notes ready. Here we go. Morgan Stanley says that Apple, Boston Scientific, Capital One, intuitive surgical, Roblox, and Reddit. All may have earnings. that are better than what is currently projected.

Sarat, interesting list. You own Apple, up nearly 50% of the past six months. Your take? Look, I think some of these stocks have very high expectations built in already. So, for example, Apple, you're going to see how much of the, you know, 17 did they sell? What's in the back order? So we need to make sure that number meets expectations, if not beats it, because the multiples, you know, trading in the high 20s.

Take a Roblox. We've owned that in the past. Roblox has very high expectations built in. And this stock, if you look at kind of what it's done after earnings, can move up or down 10% in one day. So these aren't the faint of hard stocks that you're going to look at and say, hey, you know, it'll be a 1% movement if they miss the or they beat. So you really have to know, that's why the expectations of these are so high. But if they do beat and they give good forward guidance, these things could. you know, go with the other ones.

But if they beat on earnings or revenue, you alluded to it earlier in the show. What are you watching most? Earnings. Earnings for me as we go forward is going to be really important. I mean, most of these companies make money. Roblox makes monies now. Intuitive makes money. Boston Si, Cap 1.

So it's just a question of will they expectations of their earnings keep on going up? All right. Speaking of CNBC Pro, don't miss Surrott and some other pros at our CNBC Pro live event on January 15th. at the New York Stock Exchange. It'll help you invest like a pro Sarat. I'll share his strategies for identifying the best opportunities right now. The live event almost already at capacity. Wow, it's only early October. So if you want to go, get your tickets like right now. Scan the QR code on your screen. Go to cnbcvents.com slash pro live. It's going to be fun, Sarat. I think it's going to be great. It's going to be great. We're going to talk about

themes of investing and how we look at different sectors and areas. is, so I'm looking forward to it. Get smarter. Have a good time. Win, win. All right, speaking of investing pros, are you really getting enough from your financial advisor? Your next guest literally wrote a book on this topic, and he'll join us with some words of wisdom. Next. Welcome back to Power Lounge. I'm Christina Pardsnebless with your CNBC News Update. Virginia Senator Mark Warner says nearly a quarter of FBI agents have been reassigned to immigration cases. He says they were pulled from counterterrorism, cybersecurity, counterintelligence and other criminal cases. Senator Warner is the vice chair of the Senate Intelligence Committee.

The FBI did not immediately respond to request for comment. Secretary of State Marco Rubio is reportedly no longer expected to attend a meeting in Paris tomorrow with European, Arab, and other states to discuss Gaza's post-war transition. Sources tell Reuters he is not able to go because of the government shutdown, but that a U.S. representative will still be there. Tomorrow's meeting comes as Hamas and Israel continue indirect peace talks in Egypt to end. the two-year war. And authorities say all of the hikers stranded near the east face of Mount Everest in Tibet have been brought to safety. Hundreds of people were trapped over the weekend in an unusually strong October blizzard. The search and rescue operation is one of the largest the region has

ever seen. Wow. That's great. Brian? Yeah, 550 down a couple hundred hundred, scary, scary stuff. Glad they've all been taken out. Christina, thank you very much. Right. Time now for your daily bond report. With longer dated treasury yields mostly lower, the government It's shutdown rolling now on its eighth day, 10-year yield briefly fell more than one basis. More than one basis point. That's two basis points. It's currently hovering around 4.1 percent. Bonds really stuck where they were a year ago.

All right, coming up, one of America's top financial advisors here on set with some important advice on investing and why technology is important. But you, the human, still matter. A lot. Are you getting enough out of your financial advisor? It's an important question. And one that's important enough that your next guest wrote an entire book on the topic. You need to read it, but not right now. The Cliff's notes are that as technology and AI advance, many of the more traditional roles of an FAA are going to be replaced, but that does not mean you don't need a financial planner. In fact, you may need one even more. Let's talk about why Onset is

Kathamere Capital CEO, Michael McDermott, Serrat Setti. So with us, Mike. Good to have you on. Thank you, Brian. Okay, so, because there's a lot of talk out there that technology and AI, who needs an FAA, financial advisor, I've got the computer. Why is the human so important right now? Well, I think the point of the book in particular to your question is that in my career,

what I realized is that certain tasks were made easier from the use of technology. And that certainly is not going to slow down. That's only going to increase. And so what really good firms, what I reflected on and I've seen in the industry, really good firms are saying that efficiency doesn't really belong to us entirely. We need to share it with the client. And the way that the firms, the really elite firms are doing that is by saying, what else can we do for the client, right?

So certain tasks trading and research and investing certain pieces are much easier. And now other firms are adding much more planning, cash flow modeling, estate planning, et cetera. How much of this is human emotion? And what I mean by that is in Surat, you know this. Markets can be emotional. They're going up. It feels good.

It's nice. We open our forms. They're like, oh, I made money. We get these severe and sharp downturns. The only thing I know, and I'm confident of, Mike, is that we're going to have another one at some point. That people get very nervous. They don't want to talk to a computer. They want to talk to you.

Yeah. I think you're exactly right. I tell clients all the time, and I think good advisors tell clients all the time that we're really in the business of mistake prevention. Right? If we can help clients avoid the big misses in their financial life, that's as much of a job as actually the big wins for them. Michael, when you talk to clients and the firm talks to clients, how do you portray this message, which is a very important one, that, hey, it's not just the investing part. We can do the value added services as well. How has that message come out? Do your advisors call them? Do you send letters out? Because that makes the client feel like, hey, this is not just one piece of everything. Yeah, I think the main point in the book was that I want clients to feel empowered that actually a financial advisor should not just be somebody that picks investments.

That's an important piece and it gets a lot of attention. But really, the whole picture is what people should be thinking about. And as the industry continues to evolve with more and more firms providing holistic services, clients need to ask the right questions to make sure that they're getting the full picture, the full scope of everything that's available to them. Damn it, I was going to actually quote your own book to you, but you just trounce, don't simply ask questions, ask the correct questions. Chapter 7, what are the correct questions? Well, I think that's really the crux of the book, and I think it's an important one. But the questions really go into, am I getting enough value based on what I need?

And I think that if people are getting limited value from their financial advisor, really we need to move beyond today, investment advisors being the only role that someone plays, in their client's lives. If you're not doing all the other services, that's really... Like what? What other role should they be doing? You've got a lot of viewers right now that may be nodding along going,

yeah, I'm not getting that from my guy. What do they need? The low-hanging fruit is the financial planning, cash flow modeling, but I'll take it a step further. Really good advisors now are working closely with the estate and the tax attorneys, right? And technology has made that a lot easier to do.

Some really good firms are even bringing those professions in-house. And again, all of that's made possible because of some of the efficiencies that technology is sort of bringing. And I think that the really good firms are not stopping today. I think it's a continued evolution. And that's really what I'm trying to get people to think about is that it's not status quo. Status quo, in no industry, is status quo acceptable, and it should not be acceptable in the wealth management business.

And then when you talk about the total package and clients come back to you, do you ever get pushed back and say, well, I don't want those things, so I just want to pay for this? Or is it more like, hey, guys, we're providing this. We want you to have it. And how does that work? You know, I think that there's, there are people in the world that only want a certain, that only want a certain service.

And there will be people that can provide that to them. Again, there will be online versions of businesses that can do that. That's not what I think the financial advisor of the future should be competing against, and it's not what I think that clients should be aiming for, especially those that have begun to accumulate wealth in their life. And you guys are independent, Kathy, right? We are. kind of highlight that on your webpage.

Like, we're not owned by anybody. We're not. How much does it? I'm sure there are benefits of both. What do you get from that structure? I don't ever want to say that another business model is not able to provide great solutions. But I think the independent business model certainly is one that you can look across the table or across a Zoom meeting and say that I believe that they're giving me the best. And in the last, I think being a fiduciary is very important as well.

And Michael and I have talked about that. When you're a fiduciary, you are doing the best thing for your client, not what's best for you. And have you ever noticed that he looks a lot like a dude that golfs pretty well? Yeah, there's some familiarity there. No, there's the same name, same look. Same kind of town. I don't know. I've seen you in like professional golf tournaments.

Are you a really good golfer? Well, not quite, but the coincidence might be real. The coincidence might be real. Michael McDermott. You might be real. Look is real. The efficient family opposite. Sarat, you're real? I'm real. All right. Let's really get going. Michael, thank you.

Great stuff. Thank you. Great to be with you guys. All right. On deck, real world advice on how to protect your stocks without having to sell them. Jeff Kilberg. Next on that. Dow's not doing much, but the NASDAQ is up 1% today. And as the major averages keep racing to new record highs, some major market players are beginning to sound the alarm. Hedge fund guru Ray Dalio believes the stock market, quote, feels frothy. advised investors to hold more gold than usual, as that medal, by the way, also soars. Paul Tudor Jones saying that today's market is reminiscent of the setup leading up to the burst of the dot-com bubble in late 99, and that is not all. Citadel founder Ken Griffin thinks the American economy is on a sugar high, and he's also seeing echoes of the dot-com bubble in today's market. But it's not just hedge fund billionaires making noise. Today, the normally pretty quiet Bank of England is warning of a short.

sharp market correction if the artificial intelligence complex get revalued. The bank ads at tech valuations appear stretched. All of this is, of course, a huge if we see any change in AI-based valuations. It is entirely possible we will not, or they even go up. But if you do think the market is susceptible to a sharp sell-off, but do not want to sell your own stocks, probably a lot of tax hits there, your next guest is looking. the options market is a way to limit some downside risk. That would be Jeff Kilberg, KKM Financial, on set.

I love it. Everybody's on set, Jeff. Thanks for coming in. How do we do that? How do we protect ourselves? Well, so you're absolutely right. It's getting a very noisy environment. We are seeing a lot of really smart folks come out and talk about downside protection.

So I want to use SPY. That's the S&P 500 ETF. And if you think about the notion of value, if you were to sell one options contract, that's basically hedging out slowly about $67,000. And for all the folks out there with a quarter of a million, $250,000 portfolio, maybe you would put four spreads on here. But what I'm doing is I'm picking 5% above, 5% lower, silly. So I am going to finance this downside protection.

When you buy insurance for your home, you just have to shell out the cash. Here, I am saying I don't think the markets will go up another 5% before New Year's Eve. So I'm selling the $700 call. I'm using that $7.75 to help me buy the $640 spy put for the same expiration. Therefore, it's only costing a dollar, and if you need more than that, it doesn't matter because that put stops you out. So if you have $250,000 and you put four of these risk reversals on, you're completely hedged out. You don't have to sell your spy. You don't have to take those capital gains.

But in the event, you think that the market is going to move higher and you're more optimistic than I even am. You don't have to sell the call. You just have to pay for all that insurance. Does that give me, to your point about insurance insurance, you have a car, you hope you don't get into a wreck. Sometimes things happen. the market may keep going straight up, but we've got a lot of warnings. How does that protect us? The market goes down 15%. What does that mean? So that's really important to understand is that I used a 5% band on this.

5% above, I'm going to sell that call, meaning I'm not going to participate if the market goes above more than 5% but I'm also buying a 5% lower put. And that 640 strike is to allow me to be stopped out, be hedged out without actually selling my stock. If the market moves 3, 4, 5, 6%, like it did back in April, those options are going to be protective of that downside risk. What about the people that are, sir, we talked about this earlier in the show, over exposed on AI, you know, and your portfolio has all these other stocks,

AMD, Nvidia, et cetera. Can you create a basket, an ETF, or use a KKQ or something to that? It's a great point, Sir, right? If you think about the top, you know, five names of the S&P 500, represent 35% is even more pronounced in the QQQQ. So you could use the same strategy,

5% above, 5% lower. But I'm going to take the other side, because we just heard all the emotion about everyone talking about Armageddon coming. If you think the market's going to melt up higher, which it easily could on this sugar high that Ken Griffin was talking about, you're not going to want to sell and cap that limit. You would just buy the put. Now, just like your house said you insurer, so you don't call up your insurance agent at the end of the year and cuss him out because the house didn't burn down. You have to spend that money.

So you have to understand what you're spending. But with the VIX right now, going into 16 is down about 5% today. This is an inexpensive way to protect your downside. In the event, this AI sugar hide does come off. Well, Paul Tudor Jones, I want to be clear in that interview where, you know, he said we could have a blow off top. He also said that we could have, I think, a strong rally into a blowoff top. So I want to be clear, Paul Tudor Jones. Goldman Sachs-Oleman talked about a pullback maybe in 24 months.

So there's a lot of nervous. After another leg higher, right? So this, nobody's saying, well, we're not. Maybe you could say it. I can't. This is going to happen. And, Jeff, maybe talk a little bit to the viewers about the Vicks, right? Because you made a really important point that we get, but a lot of people, don't understand because as the VIX goes up and down, what does that mean for the price of the

options and the price for protection? So for someone who's never traded the VIX, it's very simple. A VIX at 16 means all the option premiums, all the calls and puts being traded for the next 30 days in the SP 500 are articulating the fact that we see the S&P 500 moving 1% either up or down. We don't know. But when a VIX at 16, that's a 1% expectation. If the VIX jumps up to 32% as you know, that's a 2% expectation. So right now with the VIX suppressed, tethered to 16%. Sully, we are really seeing a very inexpensive way to buy downside protection. Of course, you get less for the call, 5% higher than you have to pay for the put, but that's the skew. And now I'm getting a little wonky. But at the end of the day, the VIX gives you a

measurement. It's all it is a calculation. I got no problem with wonky. We have the RBI. We call it sometimes WBI, wonky, but important. What do you make up a market that keeps going up, not every day. Yesterday, we had a slight down day after seven up days. The NASDAX's up 1% right now. VIX is at 16 and a half. And, you know, like, Ukraine and Russia continue to escalate their war. Like, there's things, we don't know what China is going to do. The government is shut down, partially, and the VIX is at 16 and a half. We've made three new highs in the SEP of our 100. And we don't know where to ask them. Why doesn't anybody care? It's just the way the market is moving. This is momentum selling. I think if you talk about what's coming, the Fed, industry policy,

the continued cuts that we are going to see. We don't have any data, right? We no longer have been added to really, nor do they. So I think the continued move lower in the VIX is just going to pour into people chasing. Remember, Sully, we're going to the end of the year. There's a lot of underinvestors. There's a ton of cash on the side. A lot of people sold in April. They're going to have to chase that higher.

So the other part that happens with the cash is two things are happening. One is if you look at the bond market, spreads are at their tightest. So you're not going to go by corporates right now, right? And if you know rates are going to go down, why do you want to hold cash? So what do you do? You go after momentum stocks, dividend stocks. So they're kind of like all rising. It's lifting all ties until, of course, something happens.

But now winning season's coming. So that's going to be important because if companies start talking down expectations, you could see cash coming out. And that's why using options takes all that off. You can sleep now for next three months if you own these puts, no matter what happens overnight or what curveball comes at us. It's good real world strategy. We like it with the cues, with the SPYs.

Jeff Kilberg, KKM Financial. Thank you. You're the best, Sally. Appreciate that. All right. Can you predict what chart we're showing you here? Predict is a hint. We're going to tell you what that is after the break. Well, if you took our prediction markets hurting sports gambling stocks and the over, you win. Don't look now, but so-called predictions markets like polymarketing, Kalshi, are starting to hit the shares of sports gaming stocks.

Draft Kings, which was your mystery chart, along with Fandul's parent company, Flutter, have been under pressure. Some of that, not all, but some, it's from competition from the polymarkets of the world, because you can now wager on some sports-related outcomes on those sites without having to go to a sports betting app. But if you are betting on the sports sites, your next guest says, stay long. David Katz, managing director at Jeffries, actually at a gaming conference in Las Vegas. How perfect. And Sarat Steady is still with us. David, I know you like Flutter and others.

when you look at some of these predictions or outcome-based markets like a polymarket, whatever, are they starting to eat into any real market share? I think the impact that they're having based on the data that we're looking at is really very minimal. And Brian, I think we should be clear about what they are and what they're doing. We've done a lot of math on this. We've published on it, talking to clients about it. And you have to take the volumes that they're generating. and it's two to three times what a handle number is that you're seeing from draftings and Flutter.

And then when you look at the whole percentage, the actual revenue that's being generated, it's 0.2 times, right, rather than the 10 or 11 percent that you're seeing from draftings and Flutter. Now, we've been looking hard at the data and seeing where those volumes are coming from, and we believe that a lot of it is coming from states that have not legalized. sports betting yet. Not all. And as you point out, some is coming from legalized markets, but not a lot. And I think the opt-in that's getting to the stocks is the notion that early football season promos and low-hold percentage caused David Katz to take his numbers down. And it creates the opt-in that Kalshue's growing and it's taking it from Draft Kings and Fandul, which is owned by

Flutter. And I think that's the optic, Brian. So it sounds like if and when these other states that haven't legalized sports betting. When they come on board, you think people will likely, not all, but some people will leave these other markets. They're only going to the polymarkets the colleges of the world because that's the place they have to go. That's correct. In a market where there isn't legalized sports betting, it is geo-fenced on the state level, they are opting for that. But I think when you talk to Flutters, we did this week, when you talk to the management teams and think through the permutations, and then overlay a lot of years of experience following legalized gaming in the U.S. and in North America, all of the paths lead to a pressure that

puts a little more restrictive regulation around the prediction markets, right? There's been disruptions in the gaming legalization market for many years, and they wind up in a legalized context. Think about the sports leagues and Adam Silver and their interest in having legalized, regulated sports better, right? Because it was happening illegal. Think about the NFL and Major League Baseball, what they want. Think about the federal context, the tribal interests operate in and how this can be, right, impacting, Brian. David, a quick question here. In terms of growth, what about international with soccer, other sports like that, a World Cup coming up? I mean, does that enable more growth? How do they think about that? Well, look,

I'm glad you asked the question, right? Because prediction markets have been an okay business called BetFair that Flood has been operating for many years. So this is something that has been available in a legalized and regulated context in Europe and around the world. And yes, the global sports betting market is still seeing some good growth, not as much as you're seeing in the U.S. And it's doing it alongside a regulated prediction market. And so that's That's our anticipated outcome for all of this here in North America, ultimately. David Katz, Jeffrey's really an important interview there because, you know, it's getting a lot of attention and it is moving the stocks, but we're going to let you get back to your gaming conference. Enjoy Vegas. David Katz, thank you very much. All right. One sector, getting a double upgrade at a big Wall Street bank this morning.

You got to stay with us so we can tell you which one it is. Bank of America, double upgrading health care to overweight. It's the first time they've had that in two years. Healthcare is underperformed down about 5% over the past year. But strategist Savita Suburbanian says space has been neglected by investors and is relatively cheap. B of A also identified several stocks they think have attractive valuations. Those names Eli Lilly, Gilead, Thermo Fisher, as well as Henry Shine, Cigna, Boston Scientific, and a few others.

By the way, second Boston Scientific reference of the ship. So, Sarado, you own Thermo Fisher Scientific. It doesn't get a lot of attention. No, Thermo, Danherr, don't get a lot of attention. They did really well after COVID. And then once they're testing all their medical product equipment, demand slowed down. These stocks are really sold off.

Plus, you get the funding that had been taken away at, you know, the educational level and other level. So I think Thermo Fisher is a good one in there. Ones that didn't mention that we still also like. I mean, Daner, of course, J&J, another high quality defensive company. These are all trading at multiples we haven't seen. You got a huge lawsuit verdict against it yesterday. And the stock did do anything.

The talcum powder has been built into that one for years. Yeah, and probably, I'm guessing most of that is insured. Yeah, and I think once they settle that, that'll get another additional popular stock. But this whole sector, Brian, has been so underappreciated. Everybody's moved money to the growth to momentum. But I think this one, when it comes back, and it's become, it's shrunk from 16% of the S&P to down to almost 10%. Which is weird because it's one fifth of American news. GDP. I mean, health care in many ways is the economy along with tech. And health care is just

a, you had government funding taken away, you didn't get the growth rates that people expected, so it's underowned, underappreciated, and going into year end, if you're looking for value, this is the area that I think has a lot more opportunity. Well, Bank of America might, agree because the double upgrade for the sector, Thermo Fisher, certainly a name, big into testing and saw their name a lot during COVID, you know, this and that lab testing. But we're done. Sarat Setti, thanks for joining us. That was a lot of fun.

I hope you enjoyed the entire hour. We certainly did. Appreciate that. Folks, I'll see you on Fast Money, 5 Eastern closing bell. It starts right now.