>> not just because josh said that, but exxonmobil. it's 3% away from an all-time high, having a great year. >> chemed. it will hurt victims of helene. >> las vegas sands. >> i'll see you on "closing bell." thanks, everybody. "the exchange" is now. ♪ ♪ scott, thank you very much. and "the exchange" picks up our breaking news coverage this hour of israel, where sirens are going off as iran has launched missiles. israel, of course, has warned there will be severe consequences. israel has been warned, but oil is up 5%. let's talk about the market moves we're seeing on the back of these developments. gold is up about a percent. the dollar up half a percent. bond yields are sliding. the two-year sliding, and the vix is jumping today.

this marks a major escalation in middle east tensions. that is where we begin. contessa brewer joins us with the latest. >> we are watching as we speak, kelly, as there is a missile onslaught against israel. explosions reported in the air across the country, and we are literally seeing on reuters feeds right now incoming fire above tel aviv and hearing air raid sirens, as well. the israeli defense force confirms it's a barrage of air attacks by iran. the military has issued orders that civilians have to take shelter upon hearing those air raid sirens. let's pull up the audio and see if you can get a sense of what they're hearing on the ground right now. [ sirens ] in the meantime, as we have been expect thing onslaught, the u.s. embassy has warned its staff and u.s. government workers to shelter in place. witnesses have reported to reuters that iranian missiles were intercepted in jordanian

air space. again, what you're seeing now is just moments ago, in tel aviv. but we have reports in jerusalem and in other cities across the country that there have been explosions spotted there. we are also getting reports in tel aviv that there was a shooting of some kind believed to be a terrorist -- a terrorist activity of some sort that happened on the ground there. this is, of course, an escalation of the onslaught that we have seen by israeli forces against hezbollah, which has to do with rocket strikes outside of rbeirut, lebanon, the capita city there. there have been limited ground incursions, the military says, across the border with lebanon. and this onslaught of missile attacks has been anticipated. we have that from earlier from u.s. sources to nbc news that they were anticipating this.

abc news quoting an israeli source and a senior u.s. administration official said that the onslaught is expected to contain 240 to 250 missiles in two waves at four different targets in israel. expected to be military targets and the head of ossaud, not aimed at civilian targets here. also, the united states has warned iran that there will be severe consequences for this air strike. we know that joe biden and kamala harris have convened with senior security officials to talk about how to respond to these iranian plans to launch the attack, to the attack itself. we'll be waiting to hear from the white house. kelly, we're watching this unfold as we speak. it is seven hours ahead, so 8:03 in tel aviv now, as we continue to watch the attack against israel. >> we're seeing a lot of action up in the sky where the israeli

defense systems are shooting down the missiles where they can. do we have any reports of missiles striking the ground yet? >> reporter: i don't have those reports in front of me, just the shots fired on the ground, and explosions reported. but we don't know whether that means just explosions in the sky above the -- these cities or whether any of them have found their mark. israel said they would be prepared for, this but you can see the sheer scope of this, and how terrifying that must be on the ground for israeli citizens. again, the military says israel civilians have taken shelter, that they're in bomb shelters right now riding this out, and the air raids warned them that the rockets were incoming. >> contessa, thank you. let's bring in re maymond james. gentlemen, thank you both for joining us. michael, anything you can add to what we know and what do you expect after this escalation?

>> greetings. well, no, i can't add too much until we know whether targets have been struck, whether it really is 200 and some missiles in a two-phase attack against four sites. i think we need to understand all of that. some kind of iranian response was almost inevitable. if this winds up being on the scale of april 13th, which is a day when iran tried a similar kind of thing, then i think you might conclude that things can start to level off for the moment. on the other hand, if a lot of these weapons do get through, if civilian targets are struck, and if the united states decides to get involved, that, of course, there's no -- all bets are off as to where this could go. the united states has said we would retaliate. i don't know what that will mean. >> understood. just to be clear, you're saying if we see not much success of these missiles getting through, and this escalation is basically the apex of what we can expect, you can almost take it as now we can look beyond this.

but if they do make some strikes of civilians are involved and so forth, if the u.s. gets involved, that would represent to you a new chapter? >> that's right. in a nutshell, that's what i'm trying to argue. again, the data is so incomplete, it's hard to draw any firm conclusions. >> ed, how would she we think a this, in terms of investors and response from the u.s.? >> michael is absolutely right, we have to see what the damage is here, and is that an opportunity to kind of start or restart some diplomatic conversations? when you look at any of the responses that have come out of the white house, come out of national security officials, it is always about how the diplomatic options are the best path forward here. when we look at the electoral perspective, you have a lot of americans, about 70% to 75% of americans saying the country is on the wrong track. that is something that generally says this would be a change

election, and then you have the debate as to which candidate would bring about the greater change. certainly, donald trump would be making that point. >> right. >> however, i think it is way too soon to have that -- >> in the arena of foreign policy, ed, joe biden has talked -- in many ways he thinks foreign policy a big part of his legacy. this eruption on the eve of him, you know, turning the presidency over to one of his successors tells what exactly and does it change the odds of who wins in november? >> yeah, kelly, i think it shows you kind of how unpredictable all of this is, how difficult it is to get a near-term deescalation. it is one of those thing where is you have to escalate before you can deescalate, kind of something that changes the calculus. certainly, israel, since october 7th of last year, has certainly felt an increased pressure trying to defend themselves. i just wonder if we are starting for an october 1st, we obviously

look for october surprises. this, the port strike, several other things that are looming out there, we have a vice presidential debate tonight. a lot of cross currents, a lot of detail in a very close election. so a little bit too early to tell how the impact of this is, until we know how it plays out. >> michael, we spoke yesterday, to some extent about the response of international bond markets, the lebanese markets in particular. i'm pricing in some hope this could be the beginning of what could be a brighter chapter for that country. is it too soon to talk, and this is what markets like to discount about this being a kind of dark before the dawn moment? >> it's possible, and i suppose we should all try to keep some degree of optimism as we watch such horrible things happening in the broader middle east. but i think that, you know, at least we're not seeing iran do something radically different than it ever considered before. at least we haven't awakened to the news of ten israeli

ambassadors around the world being assassinated, or american targets being targeted by iran. so this that sense, what we have seen so far, you can say maybe it could have been worse. but we don't really know where this is going to end, and we don't know what the united states is going to do by way of retaliation. are we going to hit back at iranian missile launchers or air defense sites to help israel be able to attack and retaliate on iranian territory proper? that's a huge thing. one thing i'm sure of, this has changed the vice presidential debate tonight, because this has to be the first issue. this now has -- i don't see how you don't begin with this issue. so whatever tactics people had in mind for how to greet each other and how to make an opening joke or platitude or what have you or talk about some big vision for the future, i think this is going to suck a lot of the oxygen out of the room to start the debate. >> was there anything the u.s. could have done to prevent it at this point, or is the matter --

i don't want to say this, but out of our hands? we still don't know the details of this purported shooting that's taken place in tel aviv, and all of this is on the eve of rosh hashana. >> you can debate the whole history of our involvement in the broader middle east, but i think you have to go back a while to find a moment when we had enough leverage to have prevented what happened today. in general, this is still a logical consequence of last year's october 7th tragedy, and everything that's happened since. and maybe we could have tried to shape events subsequently and a little bit more compelling way that we have, but for the most part, it's the regional actors that are driving the decisions and driving the next steps. >> quick follow on to that, especially where international investors are concerned, looking at the price of oil and oil revenues that iran has been able to raise over the past couple of years, is that where a lot of this escalation has began, and

what happen it is iranian oil facilities become part of a broader conflict? again, the markets are not discounting a huge possibility of that, but oil is jumping nevertheless. >> i think you trace it back to what happened last october 7th. that was the fundamentally cataclysmic event, that was the big change. prior to that, as you may recall, there were a lot of middle eastern experts saying that the middle east looked relatively calm in the summer of 2023. obviously it wasn't. obviously, hamas had no intention of letting an ongoing saudi/israeli reconciliation process continue unhindered. even if saudi and iran were getting along a little better, it didn't mean they were going to give israel carte blanche of what it wanted to do in retaliation for an attack. hamas was correct in the sense that terrible tragedy on october 7th provoked an israeli reaction that left much of the broader middle east against israel. even though israel's

self-defense was justifiable. and therefore, a lot of what's followed was predictable after october 7th. so that was the key turning point. >> israeli police are saying they're concerned about another terror attack at a hotel near tel aviv, while iraq has shut down its air space. ed, what were you going to add, as we will hear from both vice presidential candidates tonight, but presumably we'll hear from the presidential candidates and the president himself about what the u.s. is now considering, watching, willing to support? >> yeah, so i think for the biden team, i think they're going to want to express for their desire to have a diplomatic solution. but full support of israel. we have seen from harris after the attacks on hezbollah, very clearly labeling hezbollah as a terrorist organization, saying kind of the depth of their leader bricks -- death of their leader brings about a level of

comfort. for donald trump, he will say this is yet another example under biden's leadership that there is a wrong track of the kind of country, and this is something he would not allow, and that he would fully stand with israel. from a market perspective, when i talk to our team here at raymond james, what has been remarkable is kind of the resiliency of the market, especially with oil markets. what we'll be watch thing, is there a physical impact to supply? and the american response and kind of additional kind of regional response is going to be key on that physical supply aspect. >> michael, i don't know if there is an opening for the u.s. to come in and work with a lebanon or some of these other countries to say this is an opportunity to rid the terror that's been harbored in your nation and build towards something more constructive. it's going to be some time for those talks to begin. yet, could this be a leverage point that didn't previously

exist? >> maybe. but i think it's going to take something else. for example, a cease-fire over gaza. if we don't have that as part of the equation as well, and then a diplomatic process that begins to envision some kind of greater autonomy and independence ultimately for the palestinians, i don't know how the arab world lives with this. so yes, you're right, the individual populations throughout the broader middle east suffer from these kinds of tragedies, and probably should want for a new page to be turned over. but it's the hamases, the hezbollahs, that are making the key decisions that start us down these new paths. and i'm afraid they don't always have their own people's best interest at heart. they are motivated by an anti-israeli vision, and israel has decided it can't live with things the way they were, so it's taking more escalatory steps that it has been before. i'm having a hard time just yet looking at silver linings. >> israel had to know there

would be some degree of response from iran. do you think this degree is in line what would be expected or a ratcheting up beyond that, and if so, what might further actions will israel tack? >> from what i've seen so far, it's what i would have expected. but i'm struck still by the united states' statement, that we may get involved. and also by the earlier decision to put an attack submarine into the general vicinity of iran and tell the iranians it was there. the reason you do that is not to have a defensive capability, but an offensive strike capability. so i think the united states may be considering direct strikes on iranian territory, which itself would be a big step, just as iran has krcrossed the threshol of attacking israel. >> do you think it's likely that the u.s. will have direct involvement with iran at this point? >> i don't know. i would have to parse the words, but the more important thing is

to wait and see. if we just hit four missile launchers in the middle of the desert, that's one thing. if we think we have to be involved in a more comprehensive attack to prevent iran from doing this again, that's something else all together. >> la ttanza has stopped flying over the middle east. we'll monitor the story. thank you to you both. again, "the exchange" covering the launch of missiles, more than 200 at this point, into israel. deilonheve more tas t other side of this break.

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welcome back to "the exchange." the markets are under some degree of pressure as iran has launched a missile attack against israel that is playing out as we speak. the dow down about 300 points, the nasdaq is down more than 2%. the vix is spiking to about a reading of 20, that's a 3.5 point increase. and wti crude is up 5%. more on that in a moment. joining me now to discuss, steven stanley is chief economist, and steve is here with me onset. welcome to both of you. steve, this is a difficult one for equity markets to try to figure out. >> always, kelly. these geopolitical events are not actually the equity market's wheel house. i look to bonds, oil and other commodity it is it's a place where it matters, because that's

what bond traders or commodity traders do, they're laser focused on this stuff. equity traders focus on revenues, earnings, cash flows of companies, and this is very hard to draw clues from. >> absolutely. the tone today has rapidly shifted. it's not just the missile attack. we have had disappointing ism numbers, the atlanta fed's gdp number was revised lower. you wake up today and it's -- it feels as though it's a reset. >> somewhat, yes. an advanced decline is not overwhelmingly so. i looked at new york advanced declines like 15 to 23, something like that. so it's not an overwhelming selloff. this is part of still the rotation going on, although we're seeing -- which is why you're seeing the underperformance of the big cap tech. but you do have to be more concerned with fear. we were finishing out the quarter with a lot of greed, for

good reason. it was a great quarter to be greedy. now we have to think about whether to reset a little bit there. >> are you looking at any pressure points of this conflict vis-a-vie oil on the u.s. economy, and it didn't even mention the port strike that began at midnight. >> any time you talk about the middle east, the first thing markets will consider is the price of oil. we have seen it go up a little bit, but before today, oil was about as low as it's been in a few years. so it doesn't feel like this is going to be a huge stress point on the economy. but it depends on how far this goes. i mean, israel is not an oil producer, lebanon is not an oil producer, but iran is. so if this escalates, as mike and ed were discussing, if it escalates to a point where iran is under direct attack, then presumably the oil markets are going to be affected more significantly. >> of course. any jump for the u.s. consumer into the holidays will not be

taken kindly. job data this morning tells us hiring is a little weak. we would like to see that pace pick up a little bit to assuage concerns about the economy. do you think rate cuts will help guarantee we can pull off a soft landing here? >> over time. i mean, you know, as milton friedman said, there are long and variable lags, and it will take a while for rate cuts to take full effect. so i think the economy is probably in for a bit of a soft patch for the next two or three quarters. but i'm hopeful by the second half of next year, that lower rates will help to get us back on track. >> finally, on the inflation front, do all of these skirmishes and sort of supply chain issues, as the escalation in the middle east, add up to a more significant event on that front, or can we still continue the downward trend? >> well, i this i the thing there to keep in mind is that the genie is a little out of the

bottle. inflation was very low and contained for many years, and then the pandemic came along, and we saw inflation flare up. there's a little bit of muscle memory there now. firms know what to do when there's a supply disruption, and that is to try to raise prices. so we can't be quite as sure today as we might have been in 2018, 2019, that an incident like the port strike or a jump in oil prices won't have lasting effects on inflation. i think we could have written that off pretty easily prior to the pandemic. but now, i think we'll have to see. >> yeah, does it make you want to own smaller companies? we were talking about small caps and yesterday we were speaking to dan ozuki, and i keep going back to if that's true and rates are on the margin higher, the earnings power of the russell 2,000 falls significantly. so it feels as though how you own it sort of with sticky inflation, but not one to avoid

if we have higher rates. >> the narrative is so fluid, and this is the problem i have with small caps. you can make a case for them either way. part of it is because of the size of the russell 2,000 feets neatly into the mega cap stocks, so if money flows, it will move. but i don't see this as a great environment for small caps. they don't have a lot of market power or pricing power. many cases they're not particularly profitable. they're very reliant upon rates. if we're talking about a soft landing, we're not talking about the robust economy that lifts all boats. so i'm very cautious on them. i can't necessarily be outright bearish on them, because if the money flows in, they'll move up. but there's not to me a compelling reason for that to happen. >> makes sense. gentlemen, thank you. we appreciate your time today. while billions of trade is now halted thanks to the east coast port strike. my next guest says most

retailers have received their holiday deliveries and a short work stoppage would have a muted impact, but a longer strike would cause bigger problems. we've only had a couple of hours to figure out what the possible sort of consequences could be now that the strike is officially live. based on what you heard from both sides, and some say they appear maybe to be coming towards the contours of an agreement. do you think that's true or no? >> well, it's hard for me to opine on the timing around an agreement. the good news you mentioned in the opening remarks, most retailers, they kind of know the game already. so if you look at peak shipping import times, it's august. they're ready for the holiday already. so most of the holiday receipts have come in between july, august and september and are making their way to the distribution centers and then to the stores. while it seems scary we're right

before holiday, there is a silver lining in that with the exception of late holiday deliveries, they are set for the important kickoff to the holiday season. >> i wonder in a perverse way it could benefit retailers, because shoppers will go, i better make sure i've got my ducks in a row in case something won't appear later on. >> that certainly happened in 2022, when there were widespread port issues in the news. people were saying go out and buy early and they did. that was great for retailers, because it allowed them to sell more full price and earlier, which gave them a better read on their holiday demand. >> that said, i'm sure they're still a bit wary of people -- speaking to nike in particular, lorain, what is your sort of thought? the new ceo is taking over in a couple of weeks. it's going to be a difficult turn around story for him.

but are you optimistic or cautious on owning the shares at this point? >> i'm optimistic. i mean, obviously we have earnings tonight, so we have a big catalyst coming up. i would say that tonight's earnings, which are their first quarter, are way less important to investors than what they say about the outlook. so we've just finished the first quarter. i think there's a lot of excitement about new leadership taking over, repairing some wholesale relationships, and really accelerating the innovation that nike needs to turn the business. we won't hear from the new management team tonight, because he hasn't started yet, but i think we will get a road map on recovering sales back to stable, and then potentially to growth. i think that's going to be really important for the shares here. we have a buy on the stock, and i think tonight could really set the stage for him to come in and weigh a longer term foundation for innovation and sales upside. >> he's a great personal story

from his journey as an intern to the top job there. does china turn from a headwind to a tailwind for nike? >> we're very encouraged by the stimulus that's been recently announced. having said that, thor in term is not great for nike. we did take our numbers down. we expect a very weak in china for this and next quarters. but we'll have to see how quickly the stimulus will come through. the wealth effect could be very interesting for them as we move through the rest of their fiscal '25. >> lorain, for now, we'll leave it there. we'll see what they say this evening. now we move to contessa brewer for an update on the situation in israel, where iran has launched a missile attack. >> reporter: many missiles coming into israeli air space. the israeli army radio says there have been at least 200 missiles launched into israel from iran at this point. you're seeing some of that

video. air raid sirens accompany those incoming ballistic missiles. we have some heads up that u.s. officials believe this was coming in, and tel aviv has not been the only target, though it does look at this point like most of the targets on the ground were military or moussad related. we have also gotten new information that iran's supreme leader, cordered those strike ad if israel responded there would be a crushing response. we got news from tel aviv that there was a terrorist attack, a shooting that killed four people and injured more, and some concern that there is another terrorist situation unfolding in a hotel nearby. we know that joe biden has issued an order to u.s. military to aid in israel's defense, to

shoot down any missiles. he had convened in a meeting with kamala harris and the national security team to talk about these plans. we know that cabinet was meeting, and that secretary of state antony blinken, who was expecting to issue some press statements, has postponed that so that he could respond to the situation that is unfolding in israel. we also have learned that israeli air space has been shut down, so there are no flights in or out of any israeli cities at this time. iraq has also shut down its air space. as we get more information in about the situation as it's untolding in israel right now, we will bring it to you, kelly. >> contessa, thank you. iran's missile attack on israel has oil prices spiking. let's bring in brian sullivan and helene mccroft. we see about a 5% pop at the moment, brian. >> yeah, i'm really eager to

hear what helene has to say about the geopolitics, because she's one of my go-to sources. this is the biggest oil move in just about a year's time. we're up about 5.5%. 4.5% now. as i said earlier on "money movers," i think that oil could have been up 10% or 15% had the u.s. not been in record oil production. if we were 8 or 9 million barrels a day, not 13.2 million like now, this type of fear and tension, this type of attack would have had a far out-sized move on the price of oil. but because iran is about 3% of daily production, about 12% of opec's daily production, and the u.s. is doing 13.2 million a day, kelly, i think that has mitigated -- we're not at 80, we're at 70. given what we're seeing in terms of the missile attacks, a little surprising. but the u.s. production muting that. this is where helene knows more

than i do, which is 20% of the world's oil flows through the strait of hormuz. iran sometimes drops mine, stealing ships, et cetera. if they decide to get aggressive to force saudi arabia, the uae and others to come to the bargaining table, then we could see a much larger move than we are seeing in oil right now. but i want to hear helena's take on it. >> saudi already indicating its decision as well to try to put more supplies into the market that has been basically oversupplied, probably mutes the impact that we could see here. so curious if you could address that issue, an escalation that could involve the strait of hormuz. >> we do not have an undersupply situation in the market at present. however, there has been a lot of complacency about this war. a lot of oil market participants

said we have not seen a disruption, we do not believe there will be a disruption, and hence, it was not priced in. so the real question right now, kelly, what is the israeli response? contessa mentioned 200 missiles thus far have been fired into israel. do the israelis respond in mind? do they potentially target the iranian nuclear facilities and target the iranian oil facilities? iran is producing a five-year high, over 3 million barrels a day. we need to think about a scenario where iranian supplies are at a risk. iran did hit tankers off the coast of uae, they hit key pipelines. and most importantly, they hit saudi arabia's facility, taking off half of that country's production. so, again, it's a very fluid situation. but there is significant oil at

stake if iran wants to get involved in terms of raising the cost for the west for this war. >> brian, i think that's part of what people are weighing is whether it's the israelis to what extent the u.s. is involved, the striking of the nuclear facilities, of the oil facilities, and if that takes place, would the next step be with the strait of hormuz? >> iran has enough enrich ed rainium, about 60%. they continue to enrich uranium and continue to raise their oil exports, kelly, because they're having more money. they're technically under sanctions, and they've been selling more oil under sanctions, and their financial ability to support the weaponization of hezbollah and hamas has only increased over the last couple of years. so that's on the political side.

back to the oil side. i think there is a measure of comfort, and helima can correct me if i'm wrong, that saudi arabia has enough that it could easily throw another one or two million barrels of oil back on the market relatively quickly. if something were to happen to the iranian oil ports, like you saw israel light up yemen's port and oil receiving facility a couple of days ago. if israel were to do something similar to iran, i can guarantee there will be some back door communication with saudi arabia and maybe some others to say listen, if we do this, are you able to fill that global gap? right, america can't do it, fill that global gap and replace any loss iranian barrels on that market. i can guarantee you, there is a lot of back channel communication going on right now, because the one thing the white house does not want is

some kind of super spike in the price of gasoline one month before an election. >> indeed. helima, add some context to that, if you can. >> certainly we would expect the biden administration to be calling the saudis. they are sit-- the real questio now, this is unknown, unchartered waters, what could happen, would iran potentially target other country's energy infrastructure? saudi arabia normalized relations with iran in march of 2023. i think that's protected saudi arabia from iranian attacks on their infrastructure. the houthis have not attacked saudi infrastructure. and so the question is, how much do countries in the region want to be seen as weighing into this war? again, we will ask saudis to put on barrels. the saudis have been responsive

to those requests. but all these countries in the region are also going to have to weigh how much they want to get caught this the cross hairs of this conflict, because again, in 2019, these countries themselves were targeted by iran. >> yeah. thanks to both of you. as we watch the price of oil jumping. a conflict that may -- expected maybe wouldn't reach the point it has now reached. we are hearing the israeli military saying citizens are permitted to leave protected areas. for now, we go to contessa with an update. >> reporter: i think the way you can interpret that at this point is the israeli military is giving the people of israel an all-clear, that they are able to leave their bomb shelters where they were taking place as these ballistic missiles were incoming across the skies of israel. you were watching this earlier unfolding in tel aviv. israeli army radio said about

200 missiles came in and then a military spokesperson says, and characterized the attack as serious, and said it will have consequences. the escalation in the back and forth between this is ramping up with iran's senior leadership warning that if israel responds to the rocket attack, there will be more violence, there will be a crushing response, they say. this in and of itself is an escalation of what we have seen as israel has rooted out and targeted iran-backed hezbollah, killing the leader there, having a ground incursion into lebanon, crossing the border and what they called position strikes outside of beirut with hezbollah in the target. there you're seeing the incoming ballistic missiles. in the meantime, joe biden has ordered the u.s. military to aid in the israel defense, to shoot down missiles.

we know that the u.s. defense secretary has spoken to his counterpart today in israel, and you have to believe that there will be a lot of strategy going into how best to respond to this. again, the latest that we have, kelly, is that israeli military spokesperson says, this rocket attack will have consequences. >> also hearing that perhaps at least at this hour, they're not aware of any injuries from the iranian missile attack. there have been other issues, there's been a shooting in tel aviv with casualties. for now, contessa, thanks. defense stocks are on the move, with this development. rtx, formally raytheon, hitting an all-time high, up 2 to.5%. they make the missile defenses israel and allies use to defend against this ballistic missile attack by iran. more after a break. that rate is increasing as more and more businesses move to the cloud. so, the question is -

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perspective, this the u.s. aerospace etf. it is up a percent today, so it is stronger, but not like a panicky run towards defense stocks. for the better part of this year today, this blue line is the 50-day average price, the medium term trend line. we have found support or a trend line along the way higher. it just gives you an idea that geopolitics very much a part of that story. i'm going to call this right here, it is a record high for this etf by the way. a couple of the names also components that hit record highs so far today. big names like rtx, raytheon technologies, up about 2.5%. stronger but not a panic move higher. we'll still above the medium term trend lines, so one to keep an eye on. it is record highs there. also another one, a massive defensive contractor, lockheed martin, shares up 2.5%, above the trend lines.

geopolitics a part of this discussion, as well. and one other place is northrup grumman. up about 3% right now, and northrup grumman is about $7 away from its own record intraday levels. so those are some of the names traders are keeping an eye on to see how intense this could get in the future with regard to access to defense and everything else that goes along with the heightened geopolitical risk. back over to you. >> curious, dom, if we could show the broad markets. today, the russell 2,000s are underperforming, and we were having a conversation who say plenty of people want to be in this because of the big rotation, but the nasdaq and russell are falling and the worst performing effectively. >> in essence, what you are seeing right now, kelly, is this notion that in this kind of an environment, it is a flight to safety. and safety assets.

you're seeing a bid towards government bonds, yields are falling, which in normal times should be good for small companies, because they're more dependent on debt. all of those things go out the window when you talk about uncertainty around geopolitical risks. for that reason, you're seeing the move is an underperformance in the russell 2,000 and the tech heavier nasdaq. in the past, people have used those mega cap mag seven names as "safe havens." so whether or not that plays out this time around, and it's interesting when you talked about the vix before, we are not seeing a panic move that we had seen earlier this fall in the vix. so it remains to be seen whether or not this will have legs or not. >> nowhere near levels of early august. dom chu, thanks. now to my next guest to pick up on what dom was discussing in terms of the defense names. sheila, a couple of all-time highs today, but investors are wondering if this is an

overreaction to what we have seen taking place with this missile attack on israel, especially if this represents closer to the end of the conflict than the beginning. perhaps it's too soon to be making those debts. >> investors have been positioned very selectively, given what the s&p is doing. so we're seeing that rotation reversal into the defensive names like the boeings of the world, which have a little more data. in terms of the defense sector, though, what we're seeing is a continuing revolution running through fiscal 2025 that starts today. so basically we're seeing the can kicked down the road until after the elections. our base case for that, including inflation, is about 3% growth. so you see about a 2% internationally in defense

budgets. zain sk so, our base case for defense spending is in the 3% to 5% range. of course, it was announced over the last week, as we get air strikes in lebanon and yemen, clearly are spreading the conflict. >> i think you're right to turn attention back towards the defense dollars that will be committed to these projects, which is what funds a lot of these names. if someone said rtx and northrup, i want to own these names because they provide this or that component to these conflicts, does that simple investment case make sense to you, or would you point to other parts of that story that might dampen enthusiasm? >> certainly for us, for me it does. of course --

[ inaudible ] -- 11% this year. they have a loss making program in there. that's about half the growth. so behind these themes is, they have a lot of revenue upside potentially, but it's coming at a discounted market. so you're seeing some program losses across raytheon, boeing. so we want names with operating leverage. so, you know, a defense stock with operating leverage is preferred given they can execute on the top and bottom lines. >> just to make sure people can catch you, run us a couple of names you do like because of operating leverage, and maybe has nothing to do with the events of the day. >> yeah, i think in terms of defense spending, our base case

is a 5% growth. so we want names with growth above that average, and operating leverage on top of that. so general dynamics is about 40% of sales, that could be a cyclical upside. [ inaudible ] and then i think a name i'm going to throw in there is parsons. it's an i.t. services company. they have a great management team. this company has earned 25% of growth per quarter over the last six quarters. and they do government services for the government. so think cyberservices, software. out of the hardware zone into the software. so those are some of the software names, as well, in terms of -- >> that's a great point. just to rattle those off, a

software aspect to this. it always goes to hardware as we watch the events over the sky in there. on defense stocks, would there be any kind of headwind if jet fuel is back up, if there are supply disruptions, is that component or no? >> in general, we actually see defense spending positively potentially impacted by higher fuel prices. given fuel investment dollars and parts of the middle east. that's obviously weakens other parts of the economy, whether it's airlines, 25% other costs. so a little bit of mix and match. >> i wouldn't thought they would be positively correlated. sheila, thank you for your time. thanks for calling in this hour. >> thank you. "the exchange" has more of a break.

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welcome back. the dow is down about 200 points. off session lows half a percent. less than 2% declines for the nasdaq and russell and the volatility index is back below 20. a little breath by markets which had been rattled when iran launched that missile attack on israel which intensified at the top of this hour, seems to be settling down and having dissipated somewhat now. let's bring in lee munson, president and c-io lee, do the developments of this afternoon, this week, you know, this year change what you do with equities here or with markets more broadly? >> i'm looking at how -- what the responses from bond markets right now to help me figure out that question. i'm seeing a 10-year still above a 3.7. that's telling me right here right now and we're at a 3.6 before the end of the day, that's telling you future growth is not being affected on this.

we'll have more deficit spending next year because we're remilitarizing our armed forces. that will be a big theme. i know jamie dimon from jp morgan has been talking about that earlier this year. i've been talking b about it, too. we're not living as a super power anymore. we're multipolar and a lot more money will have to be spent. you look at the hypersonic missile project we're so behind on in this country and start looking at where we're making munitions, where we manufacturing the bombs that have to get on those planes, you'll be seeing a huge increase in spending. so, while i can't tell you right here where my favorite defense company is, i like transdiamond more aerospace. i understand the trade. i think this is a warning, don't think inflation will be going down as much as forward rates are saying. it's this type of stuff that will keep inflation sticky. >> you know, i'm glad you brought it back to that. and to what's happening with bonds. does that -- a lot of people might be looking at it now and saying hey, this was great to

own the past couple months. maybe now not so excited sitting on them. next year. >> so i sold all my -- i got rid of my 10 and 30-year bonds. after the fed announced. i got out of them, i believe, last friday. so, i'm out of all of my 10 and 30-year treasuries. iz bought them last october at a really good price. so i think if people were sitting on this trade up 10, 15% from the pop and yield last year, i would yield this as an opportunity to unload. that's what i did because i'm playing my own game with my clients. i also bought right. but i think that we could see those 10-year yields float back up not just the year but the next 3 to 6 months as we realize the fed will go slower, stuff in the middle east and ukraine will

take longer and the spend will be huge. >> does this support equities? any time you see the vix go up, maybe a one you have. the market has that memory. does it support equity's performance because of deficit spending and the rest of it? >> supports. bullish. i'm unafraid. >> you're buying it sounds like if we get that. >> yes, i'm a net-net buyer. overweight going into next year. only thing can hold me back. don't think that can't happen. nobody is prepared for it. i would pull back if i saw that because you're paying 21 times next year's earnings. >> that would be a major move. buying equities, selling bonds, lee, thank you for joining us this hour. lee munson. that's it for "the exchange." i'll see you next hour on "per nc"tow st wh us. a ask. .

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♪ all right. welcome to "power lunch." an eventful afternoon so far alongside kelly evans, i'm dominic chu. stocks are, as you might imagine, falling today today as tensions heat up the middle east. we're off our worst level so far today but still just looking at things that you can see the dow doin dow