Hello and welcome to Market Domination. I'm Josh Lipton live from our NYC headquarters. Wall Street back in the red so far today. Investors are focused on Washington with new remarks from Federal Reserve officials. Plus, the shutdown in DC persists. We're going to have much more on those stories. But right now, just an hour to go until the closing balance stocks are lower. We look at the Dow down about 300 points here. The S&P 500 down about 4/10 of a percent. NASDAQ down about 3/10 of a percent. Let's welcome in now senior markets reporter Enz Fay for a look at the latest moves and Josh.
And as you were just mentioning, all three major averages are in the red. But take a look at this. I'm going to show you the S&P 500 year to date. So you can see here it's still up 14% year to date coming off today off of its highs. But take a look from the April lows. The S&P 500 was down below 5,000. It is at 6,700. So you can see the massive rally that we've seen since those April lows. Same situation with the NASDAQ Composite, which yesterday, for the first time ever, had closed above 23,000. Well, back in April, it was sitting above 15,000. So, this has been really a massive rally year to date and since those April lows that we've seen. But today, a little bit of weakness. Part of that also has to do with we are seeing the 10-year Treasury that's up about 4/10 of a percent. And then if you take a look at the US dollar, the US dollar is rising. It's been consolidating a little bit over the last week or so. We've seen a little bit of an uptick over the last couple of sessions. So that has also weighed on the big trade this year and that is on gold futures down more than 2%. Also that Gaza plan also weighing on gold which has been a sort of a safe haven but that whole debasement trade that we've been talking about that's been a little bit unwinding today you're seeing also Bitcoin is down more than 2% silver futures silver has also been on a tear this year silver down more than 3% as well. If we take a look under the hood at where we're at with equities as I mentioned here the NASDAQ we're seeing a mixed picture for the NASDAQ. You're looking at Nvidia that's up more than 2%. We've got Meta that's up more than 2% but the rest of it is pretty much in red. And then also over on the Dow a mixed picture here as well. And looking at the transport I just want to point out some of the outliers here and that being Delta today up 4% after strong earnings. Josh.
All right. Thank you and appreciate it. Well, PepsiCo reported earnings today and the company is also under mounting activist pressure. Our executive editor, Brian Sazi, joins us live with PepsiCo's CEO now. Brian.
All right, thanks so much, Josh. Ramon, always nice to get some time with you here. I want to start with the Frito-Lay business because I've told you this in the past. I've been covering PepsiCo for a long time. I've only known Frito-Lay to be in growth mode, but the message I got today is that there's a reset moment going on with this brand. What are you doing to reset Frito-Lay and where is this business a year from now?
Yeah. Hey Brian, thank you for hosting me in your show. Um, yeah, Frito-Lay is a jewel that has a lot of growth potential ahead of it. The category is large. It's growing. We can grow in meals, we can grow in other occasions as well. Now there's a few things we're doing. One is making sure we're better at the basics: the basics of pricing, the basics of execution, the basics of service levels to the customers, the basics of space. So that is driving some additional growth for us. We're innovating. We're innovating by restaging some of our key brands, Lays and Tostitos in particular. We're doing some big renovation, eliminating artificials, making sure that communications center on ingredients and the food in the product. And then we're launching a lot of new innovation. Innovation more functional, more permissible innovation that will drive new consumers into the brand. So we're very optimistic about the growth of the business. We see the business getting very close to flat this year and into positive net revenue growth over the next quarters. Now the other thing we're doing is we're right sizing the cost structure of Frito-Lay. We invested a lot in Frito-Lay. Some of that was under investment. Some of that was expanded capacity. Now we're resizing some of our supply chain, manufacturing, warehouses, go to market. That is moving fast. That is impacting our headcount unfortunately. But it's also, by the time we look at the key metrics of productivity per employee in making, moving, and selling, it is now at the levels of two years ago, which tells us that a lot of the leverage is behind us and we'll see an improvement in operating profit at Frito-Lay in the coming quarters.
Why do you think the demand hasn't been there to support the investments you put into Frito-Lay a couple years ago?
The demand has been impacted by two things, Brian. One is clearly affordability. You know, middle class and lower income households in the United States are stretched by inflation and all the trends that we've been talking about. That is not changing for current times. The second one, I think there is a pivot on what consumers are looking for in snacks. They're looking more for permissible indulgence. They're looking for more functionality. And we need to move the portfolio very fast into those spaces where there is growth. We have a very large permissible portfolio in Frito-Lay. It is over $2 billion that is growing double digit. So we're doing well there. The opportunity for us is to make sure the rest of the portfolio follows that consumer trend and we get more people into our brand, especially the lower income, the middle income consumers that are looking for affordability at certain price points so that they can fit within their budgets. Yeah.
Are you reducing the number of items that Frito-Lay sells?
We're optimizing. We're reducing about 15% of the SKUs, and it's mostly the tail of the large brands. So those SKUs that are driving less incrementality and they're complicating our supply chain, but also in many cases taking space in the store on the shelf for other faster rotating SKUs that should be there to start with. So that's kind of optimization that we're doing in partnership with our customer partners. It will drive efficiency, it will drive more velocity for the total portfolio as we execute better in the store.
Ramon, Elliott when they disclosed their position in PepsiCo a couple weeks or a couple months back put out a slide deck and really calling into question PepsiCo's innovation pipeline. I want to give the floor to you because I've known PepsiCo to be an innovative company for 10, 15, 20 years, if not really for the entire many years the company has been around. What are you exactly bringing to market over the next 6 to 12 months that would fall under 'wow, this is a really new innovative product,' whether it's beverages or even in the snacks business?
Yeah, I mentioned this morning we're obviously innovating a lot against protein. So protein will be a space both from Doritos Protein. We have also other snacks in and the Quaker or some other platforms with protein. And in the beverage business, we are launching Muscle Milk with ultra filtered milk, no artificials, a high protein level beverage to compete in the marketplace. We are launching a Starbucks and protein proposition for the morning or for mid-morning snacking. And we're also launching a GLP-1 addressed beverage from Propel that will have the right level of hydration, fiber, and protein. So that space I think we've covered quite well. I think fiber will be a big trend. Consumers in the United States have a deficiency of fiber and we're innovating in fiber. I think that's great for our snacks portfolio where we can have whole grains and some other sources of fiber to give that to consumers still with great tasting products. We're also innovating in the area of eliminating colors and artificials. So when we relaunch Lays and Tostitos, that would be with no artificials. Gatorade will also have no artificials in the next couple of years. And we are launching innovation in all these big brands with no artificials. Now there's one particular I'd like to mention is called Naked: Doritos and Cheetos Naked, but there will be more brands that will be naked. And naked means no colors. So it's not artificial or natural colors. It will be no colors at all. And hopefully we take the consumer with us because it will be their preferred, their best tasting flavors now with no colors. I think it will be a great innovation especially for moms to give to their younger children and it will bring new consumers into our brand. So that's just some example of how we're leaning into innovation fast. We're reducing development cycles and testing cycles and we'll be in a good position. Also, as you know, we've been doing some M&A recently on segments of the market where I think we're better off buying the brand already a scale brand, put it through our distribution system and scale it up. Things like Poppy, CITE, we got full ownership of Sabra. Those are big platforms that we're scaling very fast. They're not in our organic net revenue at this stage, but they will be as of Q2 next year. So that really will accelerate our performance and we're very happy with having those platforms in the portfolio.
Ramon, it's my understanding that PepsiCo has talked to Elliott. You know, those conversations have been ongoing. Is everything on the table with respect to the changes that could happen at PepsiCo? And I'm not just talking about refranchising bottlers. Everybody loves to focus on that. I'm talking about a potential sale of Quaker. Do you still want to be in the breakfast business? We've seen a lot of transactions in packaged food. A lot of these value motion valuation multiples have been pretty hardy. I mean, how drastic do you want to get here?
Yeah, we've had a couple of interactions with Elliott. They've been super constructive, collaborative, I would say. The good news is we're very aligned that PepsiCo is undervalued and there's a lot of things we can do in improving performance and taking this company to the valuation that it deserves. So we're super aligned. There's a couple of, I would say, most of the things that Elliott is proposing we're doing already. They're part of our PepsiCo 2030 strategy. You know, we mentioned SKU rationalization, reducing cost, investing in growth, adding some new innovation and portfolio in fast growing areas, etc., etc. There's a couple of areas where we need to have more discussion with Elliott. One of that is refranchising. Another one is, do we need to prune the portfolio? And we are open to any ideas at this point. We're listening to everybody, all our investors. We welcome any perspective and we'll do what we think is best for PepsiCo. But yes, we are opening our ears to understand objectively whatever our investor proposed and we'll take it from there.
All right. Well, good luck in those interactions. It's going to take me a while to get used to it all, a naked colored Cheeto, but you know, I appreciate the efforts from Ramon Laguarta. PepsiCo, we'll talk to you soon.
Thank you, Brian. Talk to you.
Josh. Back to you. All right. Thank you, Brian. Coming up, the blame game over the government shutdown continues in Washington. How will the rest of this standstill play out? We'll get you everything you need to know. Plus, more Fed officials speak today. Are there more clues for investors to focus on? We'll bring you the latest there. And why are investors putting the brakes on Ferrari today? We'll explain those stories and more coming right up.
The government shutdown is in its second week and pressure building on lawmakers with cracks forming in the Republican party. Yahoo! Finance Washington correspondent Ben Worl joining us now with a closer look. Ben. Ben, I think you're muted there. All right, coming back to Ben hopefully because we know he has important things to tell us. But meantime, as we work out those audio issues, another busy day on the Federal Reserve calendar. We've heard from several officials on the health of the economy, gave a glimpse at the future of rate cuts as well. Jennifer Shawnberger giving us the details. Jen,
Hey there, Josh. We heard from Fed Governor Michael Bar earlier today who says he favors a cautious approach to lowering interest rates given uncertainty about whether tariffs will push inflation persistently higher. Breaking with other colleagues on the Federal Open Market Committee who've more blatantly favored further interest rate cuts this year. Bar is concerned about the risk inflation from tariffs could prove more persistent than short-lived and expressed skepticism, criticism that the Fed should fully look through higher inflation from import tariffs. He said, quote, there has been nothing one time or predictable about these tariff increases which have ratcheted upward this year on particular countries and sectors in a series of steps. Bar estimates that the effective tariff rate is about 11% as of August and is expected to climb higher. At the same time, he did acknowledge weakness in the job market and said that the Fed needs to be prepared if things deteriorate. Bar's comments just underscore division within the Federal Reserve, even as most policy makers have said that they favor further rate cuts this year. And we also heard from New York Fed President John Williams earlier today who says he's more concerned about the job side of the Fed's dual mandate than inflation given slower payroll growth and hesitancy of employers to hire. Josh,
Thank you, Jen. All right, the government shutdown is in its second week and pressure building on lawmakers with cracks forming in the Republican party. Yahoo! Finance Washington correspondent Ben Worl joins us now with a closer look. Ben.
Yeah, Josh. So the way the waiting game here in Washington early on in this shutdown was essentially waiting for Democrats to crack, waiting for this kind of GOP pressure campaign to bring moderate Democrats on board. That hasn't happened. And what we've seen in the last couple days is a shift towards the question of whether Republicans are the ones feeling the most heat, and there are signs that so. This comes after six rounds of voting over the last two weeks that have seen the GOP effort to end the shutdown on its own terms fail again and again. There was a vote on September 30th before the shutdown even started that saw three Democratic members of the Democratic caucus vote for the GOP plan. One Republican voted no, everyone else under party lines. We had another vote this afternoon. Exactly the same lineup of senators. So we're just not seeing any movement here and we're seeing increasing restlessness on the GOP side. Especially a figure especially in focus is Representative Marjorie Taylor Greene. She has broken with her leadership and said not only does the House of Representatives have to come back, they need to talk about this healthcare issue, expiring Obamacare subsidies, which is the main Democratic ask for negotiations on there. As for Speaker Mike Johnson and Senate Majority Leader John Thune, they say no change. They're going to keep sort of forcing this. Speaker Johnson isn't even committed to bringing the House of Representatives back next week. They've been out for a few weeks on recess. So there's still a standstill here. But the increasing watch here is whether the Republicans are the ones to fold. And overall, this is spiking the odds that any sort of short-term fix to this shutdown is increasingly off the table. And what we're going to see is a negotiation at some point potentially that could take a longer time and be a little bit more unpredictable in terms of when this ends. That's of course the most important question for economists in terms of how long this goes on as the economic costs begin to toll. But we're sort of headed into another weekend. Probably no Senate votes and standoff continuing. The question being whether talks start again next week.
All right. Thank you, Ben. The Fed's Michael Bar calls for a cautious approach in adjusting policy. This coming as the Fed is facing even more uncertainty amid the ongoing government shutdown, which is cutting off access to key economic data, potentially saying the rate cut path may hit a detour. We are here to discuss this and more. We have RBC Capital Markets US economist Michael Reid along with Guidest Funds president and chief investment officer Brandon Pizuro. Welcome to you both. Michael, I'll start with you. As the economist on the panel, I mean, one question for investors, Michael, as the government shutdown kind of persists and as Ben was just kind of indicating there, feels like tensions are actually only getting kind of worse here. What that really does mean for our central bankers, for the Fed, how that complicates things for them. If they don't have the hard data they need, Michael, if they're not getting the government jobs data, they're not getting the inflation data. What does it mean for them? What does it mean for this next meeting?
Sure. Yeah, good to be here. So, there's a lot to talk about here. This shutdown comes at a critical juncture for the Fed. As we were talking about earlier, you're seeing a slowdown in the labor market on the one hand and on the other hand, you're worried about the continued rise in prices due to tariffs. So, as you continue to monitor that, we're missing out on data that really will start to dictate which way the Fed starts to lean. Now, prior to the shutdown, it was really looking like the labor market was slowing down. And so what the Fed would want to see was, you know, signs from other labor market data that is set to be released that maybe that was stabilizing. Now you have alternative data sets and we can talk more about those. But even with those in hand, I think the Fed really has to be cautious. The other mandate in terms of prices, you don't really have a good alternative data set there. So I think the conundrum for the Fed will be: do you rely on the known labor market data with some of those alternative data sets, or do you kind of wait to see and take a pause here until the data is released?
So as long as this government shutdown persists, Michael, and the Fed doesn't have that data, what are the odds to you that they hold because of that because they just don't have line of sight? Is that increasing? We think they will pause at some point, whether it's due to the delayed release of data now or due to some of the data we get later on. And what I mean by that is it's not just the data that we're going to get in October. There are ripple effects to these delays. So if you think about the CPI, the data that is collected for October is not being done right now, so those workers are at home. That increases the odds that you're going to have data imputations that'll be released in November and calls into question the quality of that report. And then relative to that, in December you're going to get the November report and relative to the imputed data, the Fed may have questions around the directionality of some of the price changes. So you're really going to have two or three months where the data quality is going to be called into question. Brandon, I want to bring you in here as well. Now you're looking through this through a different lens. Brandon, walk me through how you're thinking about the government shutdown.
Sure, yeah, thanks for having me certainly. We're on day eight as you've probably seen some countdowns on various news programs and that's about the average number of days we've seen in a shutdown going back to the mid-70s. Your other guest is absolutely right in terms of data integrity. You know, leading into this, if you just take CPI for example, historically you've seen about 10% of the basket of CPI goods that are estimated by staff. The last couple of months you've seen that tick up to about a third of the CPI underpinnings within that data calculation. So you're getting murkier and murkier data. There are a lot of alternative data sets. It's not the 1980s or even the 1990s. So that helps from a mosaic approach. But still there's a little bit of inference that needs to be had here. The Fed and also market participants. We are seeing about a quarterly GDP drag estimate of about 10 bips per week as long as this drags on. And by the way, that's about $400 million per day in compensation that federal workers are not getting to put in their pockets and then spend into the economy.
So Brandon, what about this topic? You know, I was just talking about there with Michael. Let's say the Fed decides, you know what, the government shutdown is persisting. We are not getting the hard data we need. We don't have the line of sight we need. We're going to hold here later this month, this next meeting. I'm curious if that was the case. How do you think markets would respond and react to that?
They wouldn't respond well because if you look at the meeting minutes that just came out this week, the underlying tone was that there was going to be this continued kind of glide path of continued rate cuts. I think the question that was raised there that a lot of people have already prognosticated on is how many cuts we get from here. So the next cut that we're seeing is more than likely a go. However, if it was too murky for the Fed to make a decision and pause, that would certainly throw markets into a tailspin because as you know, they've been pricing in these cuts well in advance of the cuts actually being received. So that'd be a big detour and inflection point with this market trajectory.
Michael, you know, we don't have the government data, but as you were mentioning, you have these alternative data sets. When you look to those data sets just as an economist, do they completely fill in the gaps here or do you feel like you don't have full line of vision?
You know, unfortunately, we don't have the full line of vision. And what I mean by that is sometimes you can get the direction right, but you're really missing out on the magnitude. Even with some of the better alternative data sets that are out there, for example, for the payroll report, there are pretty wide ranges of estimates. I've seen anything as high as 60,000 for the September estimate and as low as -30,000. So that's a pretty wide range. You also don't have a good sense of what that means for the unemployment rate, and you know, going back to the Fed and what it means for them. They focused on that as a better measure of labor market health right now because the break-even rate of payroll gains is really shifted in the past couple months due to changes in immigration policy as well as the uptick in retirements that we've seen. So that's a really important way to interpret the payroll data. That is to say, it is changing but the unemployment rate is really a better gauge of labor market health and that's just something we're not going to get.
So Brandon, as this government shutdown persists, the questions we all have about possible impacts and ripple effects on the economy, labor market, Fed rates, has it caused you, Brandon, to reconsider in any way how and where you want to put money to work?
Not dramatically because we are, like I said, in day eight. So that's certainly something that you have to take into account, but thus far hasn't caused any major shifts in some of the underpinnings. Earnings remain strong. We still have kind of this US exceptionalism that remains. Obviously, mega cap, big tech, those continue to propel markets forward. You're starting to see an emerging trade in small caps. So over the last several days, that...
Hasn't necessarily changed things. It does make you stop and pause though and say, in the absence of this data, how can the market continue to propel forward, especially as this drags on further? But what that doesn't change though is underlying earnings, which have been dramatically increasing. In fact, there's only been five times since 2003 that growth estimates have been revised higher into an earning season like we're about to have. Q3 has ticked up from 8 to 8.8%. So really some underlying strength there in markets.
Coming up, airline earnings taking off. Are investors on board with what they see? More on that when we return. Stick with us.
Shares of Ferrari skidding as the car maker provides an outlook that failed to meet the street's high expectations. Here with more Yahoo Finance's Praz Subarinian. Josh, I know you're a big fan of Ferrari as am I. But the stock is actually loved a lot by analysts and investors because of that strong margins and earnings. But Ferrari can be conservative. And we saw that today. They said their 2025 net revenue would come in or exceed 8.24 billion, up from a prior projection, but not high enough for investors in a stock that trades at 40 times forward earnings. So looking at their longer-term 2030 goals, they talk about a target of 10.5 billion revenue on adjusted EBITDA of 4.2 billion, which missed the mark again. Tom Narin at RBC says that's about 6%, well below the 10% they had been saying back in 2022. So what's going on here? I think the big issue is that the company is in the midst of trying to grow a business that caters to exclusivity. How do you grow a business where you're trying to keep the demand still wanting? You want to sell one less car than you can make. But then you have to grow the business. So that's the spot they're in. And they'll likely focus on more special edition cars with much higher margin to bridge the gap, keep quantities down but profits high.
And what do they have to tell us about their EV plans? Any updates there?
Like every other manufacturer, including a lot of luxury manufacturers, they were pushing into EVs. Only a couple years back, they were talking about how EV sales would have been 40% of all sales by 2030. Now they cut that in half to 20%. So they're still going to come out with EVs, but about half as many as they thought. Which brings us today where they actually revealed details of their new upcoming Ferrari Electric, which is their new full EV. It'll be a quad motor, 1,000 horsepower, a grand touring sedan, four-seater. Interesting sound qualities where they're going to be pumping in sound from the motors, not fake sound, but an actual pickup of the motors. It'll come out in 2026. So they're trying to build enthusiasm for EVs. But with Ferrari, who's going to want to buy a car over that sweet sounding V12? Ferrari is known to talk to their clients ahead of time. They may have pre-sold a bunch, gathered some idea of the excitement for that car, and they're going to release it. So we'll see how that sells next year. Thank you, Praz. Appreciate it.
