stand, that is worse? >> yes, chip stocks have been underperforming in the second half, they are leading in the economy, and to see that weakness is another one of those concerns that balances out some of these pros. thank you. merry christmas. happy hanukkah. >> thank you. >> thank you. we got like four seconds. >> want to wish you a happy christmas. >> to becky as well. to all of our viewers. we can't get over that illusion. in make sure you join us -- don't join us tomorrow -- because we won't be here, but squawk on the have next. good morning. we got an abbreviated session this christmas eve.

the stock market will close at 1:00 p.m. eastern time. bond market closes an hour later. the markets close tomorrow. resumes full-day trading thursday and friday. take a look at futures. technically the santa claus rally period. five final trading days of the year. nasdaq futures pointed up, 62. s&p futures higher as well. our road map begins with some news that we broke here first, big banks officially filing a lawsuit against the federal reserve over stress tests. also ahead, holiday stress from american airlines and its passengers today, the carrier halting all flights due to a technical issue, it's since ended that ground stop. and deadlocked on the u.s. steel/nippon steel deal. we'll begin with traveling headaches for american airlines and passengers.

the carrier suffering a technical outage. it lasted about an hour, lifted around 8:00 a.m. eastern when the airline began boarding flights. i can't think of a worst day for this to happen. we don't really know what the issue was yet, do we? >> a technical issue of some kind. hopefully, the flights are going to get back to order in some reasonable order, although big cities around the country, here in new york, it's snowing this morning, adding to the travel hassle. it had me thinking back to two years ago over the christmas travel time where southwest airlines had ha massive meltdown. they cancelled some 17,000 flights. this obviously not reaching that magnitude. we're still following it to see how deep and how long it takes for the airline to get back on track. >> the faa thinks about 30,000 u.s. flights.

across all carriers and the faa has been on top of it. they announced the groundstop was over. american airlines shares initially dropped about 5.5% pre-market, it looks like they're recovering and heading to a flat open. as we wait to assess any potential financial issue and busiest travel season on record. 54 million passengers between december 19th and january 6th. that's the expectation of why any time something like this happens, you're like, oh, man, people trying to get wherever they're trying to get, last-minute business coming home, obviously traveling for the holiday, american airlines stock hasn't had a bad year, up 25%. you take this story out of the mix altogether, it's been dwarfed by the gains that american airlines -- 130% or thereabouts. delta airlines has outpaced american as well. it had the issue with

crowdstrike. crowdstrike tries to get that suit dismissed. but it's been a pretty decent year for airlines, because the consumer has been pretty good in wanting to travel and spend. >> the demand is there. business travel has come back. international travel has come back. we thought there would be this big surge he pent-up demand. but it feels like there's a long tail for this. when i go to the airports, they're always packed. the good news for travelers is that pricing has come down a little bit. air fares were sky high over the last few years coming out of covid as demand surged. they've come back a little bit to earth. the monthly cpi report on inflation, it's been elevate zmrd there's your morning look at a little bit of volatility in the shares as this story broke during "squawk box." back to some semblance of normal

within a reasonable period of time. the situation went from faa groundstop to resuming flights and boarding. >> there will be questions on the technical, what issue. why it happened. sorry. >> you got a big story. we have a big story on the banks. this story broke last night. it's now official, the big banks are suing the federal reserve over stress tests. now, very unusual for the banks to sue their own regulator, but we just got the filing, filed in the 6th circuit coming on behalf the bank policy institute that represents all of the big banks. goldman sachs citigroup. the u.s. chamber of commerce the ohio bankers league and the ohio chamber of commerce, they're filing litigation against the fed and they're really challenging the legal aspects of the stress tests. they call it the opaque aspect

of stress test. while it's an important risk management tool for advisers the lawsuit seeks to resolve longstanding legal violations by subjecting stress test process. here's the backstory, the banks have been upset with the stress test process, this has been going over 15 years, as a result of the financial crisis to try to reassure the public that the system is safe. the problem is, it has been shrouded in secrecy as far as the methodology and it never received public comment in order for it to go into law which apparently is something the banks are challenging the legality here, why now, as i understand it, the statute of limitations is up a few days after january for the banks to be able to challenge this. which is why interestingly the federal reserve yesterday right after the market closed came out

and announced that it's making some changes to boost the transparency of the tests, that it's going to seek public input. if fed itself said it was doing around the legal changes around the framework. clearly the fed was getting the message that the banks have a good legal case here. i'm told for the banks it was too little too late. also key clause that came out of the fed statement yesterday is that capital rules will not -- are not intended to change. the other problem that banks have had with this whole stress test, not an opaque and secretive process, the high capital, volatile rules around how much capital they have to hold, they've complained it hurts lending and growth in the overall economy, they do it from the american bankers association, the bank policy institute, now they're doing something about it and taking

legal action. >> they've been railing on the end game for a while. arguing those were too onerous to begin with. they actually won in that argument, won in quotes, because the requirements from the initial proposal from the fed vice chair barr will probably end up being about half of what was initially going to be required by the fed. the ceos of major banks railing against too much regulation in part the stress tests, so this in least some part the culmination of this. >> the traditional approach by the banks is to work with the regulators to make the changes. when the fed came out with new capital rules, we haven't seen a legal challenge where the banks are suing the fed. >> their regulator. >> their own regulator.

that makes this is a little bit unusual and somewhat unprecedented. the why, the banks feel like they have a good legal case. the changes in the administrative laws. it's been better for these kinds of lawsuits. they feel like they have a good case on their hand. the fed announced these changes yesterday. it says, i'm going through this lawsuit going through right now -- they're trying to ensure beginning in 2026 the board subjects the components of the stress test to public notice and comment. just to make sure that the fed does what it says it's going to do in this statement yesterday, boosting the transparency, getting public comment trying to sort of smooth over the process in a way that makes it more tolerable for these big banks. >> this is about bank freedom, right, the best way to look at,

they want to be able to lend more freely, boost dividends, want to buy stock. the requirements against them have been least in their minds to onerous to do that, because the capital requirements have been much too high in their mind. what's interesting, it's not like these requirements, you know, have been such a massive overhang over performance of stocks. performance of the banks this year they've all done incredibly well. they outpaced the s&p 500. >> however, goldman sachs up 48% this year on the anticipation of greater times ahead. for lending, for less regulation, for deal-making, all the things that are viewed to be positive for the stock market

and the economy in the four years or so ahead have helped these stocks do pretty well in the face of what has been toughness on the stress test angle. >> i think, absolutely right the capital requirements, but more than it feels like what they're going after here is just fairness when it comes to the process of making them go through these stress tests, the fairness in terms of the legal system, and basically what's required to enact a law like this in terms of the process. the plaintiffs filed this suit to preserve their legal rights and ensure timely reformed to the currently flawed process. they intend to work collaboratively with the board in their announced rule-making. the political timing as well, president-elect trump running on deregulation. i'm told this is because the statute of limitations is in early 2025, but it doesn't hurt

that they have a president coming in who's much more friendly on the regulatory side of things. you'll get some people, i'm sure like senator elizabeth warren who will look at this, are you kidding, we bailed out the banks. we're trying to make them safer. now they're suing it. on the republican side, you might get a friendly reception to this. when we return, apple's record run in its push to become the first $4 trillion company. taking a look at futures, as we enter what's technically called the santa claus rally period. final five days of the year and plus the two days of the new year. nasdaq futures up 77 after we saw that pretty strong rally of semiconductors and good overall rally that was prey ttbroad yesterday. more "squawk on the street" when

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apple hitting an all-time high in trading yesterday as it approaches the $4 trillion market cap. joining us to discuss this is tom forte. why the recent run-up beside the fact that we're seeing mega cap stock here. >> what you're seeing here is a continuation of an a.i.-fuelled rally for apple. on the expectation that a.i. is going to result in a major upgrade cycle for the iphone, which remarkable we're talking about $4 trillion market cap and $1 trillion, $2 trillion, 3 trillion, all on the back of the iphone. >> why are you still on hold? >> if you look at the valuation, it's trading well north of

30-times on a p.e. basis, at or above its peers taking advantage of this a.i.-fuelled rally. the next couple of years for apple, a very slow developing upgrade cycle if there's major upgrade cycle you're looking to mid single-git growth. i think it's an expensive stock. >> you say if as if you're skeptical there may be an upgrade cycle. >> i say if because on a near-term basis you had a major disconnect between the timing of the hardware and the software. so they rolled out the iphone 16 lineup in september and they're rolling out the software which is really the more exciting part, the a.i.-related software on a piecemeal basis into

december and if you're talk about europe, potentially april next year. consumers who may want to buy the iphone. wait for the 17 for next year and it's still not clear to me, lot of education going on between google with gemini and apple as far as what are the benefits as pertains to smartphones for a.i. >> how long have you had the hold rating on the stock? i'm curious as to what you think you missed as the stock is approaching $4 trillion. today, it's been pretty remarkable. >> the hold rating stems back to the developers' conference and it relates to the a.i. and how much we're going to see the a.i. translate to earnings growth for apple. so i've had the hold rating for

a while now back to when apple first rolled out their a.i. plan at their developers' conference. >> that's when the stock actually took off which is the interesting thing, right, literally that was the moment, so to speak. >> it with us the catalyst, absolutely. >> what about this, this report that it's going to get into in-home security with a camera, something we already see from some of the others like amazon with its ring, does apple have an advantage here. >> they haven't installed it with the iphone. the home pod or some of the other connected internet devices for apple. getting into a ring-like device for apple is going to be a needle mover, they're such a big company right now, add 10 cents of earning.

iphone, it's half their revenue. >> what would change your mind? >> what would change my mind is that they're seeing a meaningful upgrade on a sooner rather than later basis for the iphone, you add some sort of pullback and the stock got 25, 27 times rather than north of 40 times. >> you think china's bottomed? >> no. i don't think china's bottomed and i don't think the competitive pressure on apple in china has bottomed and it remains to be seen if they'll ever have apple intelligence in china. >> i mean, isn't there tariff risk here. >> there's tariff risk but people are underestimating the benefits of a second trump term as far as low corporate tax rate, yes there's tariff risk, apple is one of the biggest

taxpayers, generates profitability. it offsets some of that tariff risk. >> i think the administration will use that with a lot of the companies between lower taxes and tariffs. thank you very much, tom forte. >> thank you. all right, still to come, here on "squawk on the street," a e show case for netflix as it gets ready to air two nfl games on christmas day, a lot at stake as the company looks to avoid streaming problems. another look at futures, dow riding a three-day rally. more "squawk on the street" when we come back.

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the dow is in the midst of a three-day win streak with the s&p and nasdaq coming off back-to-back gains as well. putting the santa claus rally in focus. it's an important seasonal effect. average return 1.3%. usually bodes well for the coming year, although i'm not sure the research on that we'll see if it we get that. >> it's interesting that we may get it in the face of still-rising rates. 2 year moving higher as well. a story since last wednesday post-fed on what rates were going to do. we talked, they're going up for

the right reasons. >> they're going up because the data is good. the economic outlook is bright. deregulation, lower cop rate taxes theoretically with new administration. earnings outlook has been pretty stable. the biggest thing of the year has been the outperformance of the u.s. the u.s. economy. i put together a chart, scott, this is what i think is the chart of the year, the s&p 500 against everybody else. euro stocks -- china stocks, japanese stocks. ftse 100, you can see the outperformance of the u.s. market. i mean, it's -- we've blown them away, why, because our growth has been easier than expected. we had a pretty decisive election. here's nominal gdp. that shows how strong the economy has been, 5% nominal gdp. nominal gdp is basically gdp

taking out the impact -- with the impact of inflation. how much growth there is with the price changes. 5% growth, not too shabby. >> american exceptionalism on display on that chart and as you said in the market. >> the opening bell. cnbc realtime exchange. here at the big board. the new york stock exchange's very own security team. recognizing their work in keeping the building safe and for employees and for guests, we thank them every day, always friendly to us on the new york stock exchange. at the nasdaq, an integrated oil and gas company ringing the bell. we'll open -- look at what's winning broadcom, tesla, nvidia. there's the chart of the u.s. versus the rest rest of the world, u.s. is on top with 25.5%

gain on the year. nobody comes close to them. >> we'll get the santa claus rally going with the nasdaq leading the way today, as you said many of these names are leading. apple getting close to 4 trillion in market cap. around 3.85 a day ago. we can pull up the chart and see where it currently sits. it's making that march again. when rates are rising, the nasdaq has had an ability to rise anyway. the russell is the place that hasn't. but the nasdaq has been the place where the money has been going. there it is, 3.$3.87 trillion f apple, another record high. >> this divergence for december, between the megacaps and the

neutral. qqq up 2.6%. equal weighted is down. the s&p is down 1.3, equal weighted down 6%. . the average stock not doing as well. big is beautiful again which is a theme we've had all year. all the strategists get excited about the small caps. this is their time. we're going to broaden out. we get these teases where it happens but not necessarily the follow-through. >> the rate cuts, this is the moment, this is the moment people say, that hasn't been the case, growth is absolutely trounced value certainly lately, it's been no contest. the banks of, you know, since we were talking about the news earlier the scoop that you had of the suit against the fed, banks are all higher this morning, morgan stanley, bank of

america, not by a ton but nonetheless they're green and financials as a group are up. >> the news is, they're suing the fed. via the bank policy institute. chamber of commerce. some of the ohio business groups as well. they're challenging the legality of the stress tests. and specifically, calling them opaque, saying they've not been transparent, they've not been consistent and they want to ensure that recent commitments by the federal reserve to make them more transparent andless volatile will be put through into law by 2026. also banks have had a problem with the whole process for years, i'm told five years ago there were all these changes to the stress test which is what irked so much the bankers, the whole process being shrouded in secrecy. we'll see where that goes.

but they're being represented by gene scalia. some high-powered legal fight that's going to come clearly they feel confident, otherwise, i think it would -- it's pretty big deal they've launched this suit. the banks are up. technology and consumer discretionary. >> the other big story, american airlines dealing with at least temporary groundstop due to a tech issue, that stock is still down about 2%, it has since been lifted as the company deals with a very, very busy travel day in what's the busiest travel season on record. 54 million passengers expected to travel from december 19th to january the 6th. this happened this morning, but again, it has been lifted, that groundstop, no indication yet as

to whether all the flights and the whole system is back to normal but not a great day to have that happen to you. >> absolutely. also, u.s. steel is back in the news, this is a saga that never ends. the committee as part of the u.s. government could not reach a consensus on whether the acquisition of u.s. steel by japan's nippon steel threatens national security. so this is the committee on foreign investments. they were deadlocked on this very controversial and highly politically charged $15 billion acquisition. we did hear from u.s. steel in a statement acknowledging that the committee that it was deadlock. biden has 15 days to make the decision. they say the transaction between u.s. steel and nippon enhances

u.s. national and economic security through investment in manufacturing and innovation. this is a transaction that should be approved on its merits and one that should be a model for friendshoring investment. the ceo was with me a few months ago, saying economic security, investment in the united states, preservation of jobs it makes sense. problem, the steelworkers union is against it. the election ran through pennsylvania. so it was a politically charged issue. u.s. steel is a great american company with legacy american. biden has said he's against it. so he now has 15 days to decide whether he wants to terminate the deal, if he does so as expected there could be legal challenges of course that would

punt this over into the trump administration, trump has publicly said he's against it. but he's speaking with business members from various sectors, i wonder if there's an opportunity for him to make a deal. >> i'm taking a look since we're talking a about this story, a stock like cleveland cliffs, which has been mentioned many times in the context of steel company deal-making, the shares were down 1.25% and throughout the development of this story as it progressed, as the saga has played out, i watched that stock, because i think the prevailing thought certainly from cleveland cliffs shareholders, i don't think they want to get involved in that deal and i wonder the stock is

down this morning because the market doesn't want them to be involved in it, either. this current u.s. steel and nippon would fall apart or killed by president biden. you start wondering, who's next? what happens next in the progression -- >> the union backs cleveland cliffs. >> i'm not sure the market wants cleveland cliffs to bite off something that large either. the stock hasn't been trading higher. any time there's been a misstep of any kind in the process, not like cleveland cliffs shares have risen, i think it's the exactly the opposite. i don't think the market necessarily wants this company to be involved to that degree which may be anyway is showing a little bit of weakness. >> it's a good point. three-way love triangle and the companies nippon and u.s. steel are solely focused on their

merger. the only other thing i wanted to mention on this story that hit today a bunch of mayors in pennsylvania a big group of them, i'm looking at a list here, 12 at least or more mayors sending a letter to president biden urging them to let the deal happen. we're writing to express our strong spot for the acquisition by u.s. steel by nippon steel as well as our deep concern that the leadership of the united steelworkers is not acting in the best interests of its members. our communities in the mon valley of pennsylvania as well as gary indiana are made up of working-class americans men and women whose identity and livelihood depend on the success of u.s. steel. putting the pressure on president biden that this will be good for their communities. we'll watch u.s. steel. we'll wait for president biden to make that determination in the next 15 days. equities are a bit stronger.

bob pisani is here. >> the markets are a lot more stable in the last three days. but what we're not seeing is rotation, we were just talking about this, still dominant in tech, mega cap, consumer discretionary, there's amazon. apple at a new high. again, energy, real estate, consumer staples sort of lagging, this has been the story for the entire month of december. we'll have the santa claus, it starts today, whether we had it or not, the tendency to move up in the last five days and the first two days of the new year the afternoon gain is 1.3%. the problem i have with the santa claus rally this is fine in a normal year and this isn't a normal year, the interesting thing about the incoming trump administration it represents both tailwinds and headwinds for

the stock market. in theory there is a great handoff for 2025. great earnings, rising earnings expectations for 2025. the fed is easing. hopes for deregulation. at the same time, we're getting the return of the bond vigilan vigilantes, they're worried about pockets of inflation and tariffs and tax cuts. overlaying some of the concerns that we have that are sort of negating some of the strong tailwinds. we were talking earlier on the show about what we should do with all of the big tech winners in 2025, one of the behavioral economic insights in the last 30 years, people sell their winners too early and hold on to their losers too long. palantir, up 33%. nvidia, up 182%.

broadcom, well, you'd say, how much more could we go up. hold on to your winners, tesla, oracle and netflix, also big winners in 2024. the whole play on power, vistra, utilities that became a.i. plays. texas pacific, hold huge land leases there. non-tech companies that have done well. one of the discussions they were having earlier was about whether or not we were going to see new sectors come forward in 2024, that hasn't happened in 2025 excuse me, 's why that's not happening. the earnings growth the last few years, you can see there's been an acceleration in the last couple years, see that 4% and

14%, remarkably stable. why are we getting this acceleration in earnings growth? it has to do with technology. let's look at the technology numbers here. you see the same situation here. sort of flat, 2021, 2022, difficult years. 2023 was a transitional year, now we started accelerating. the reason we're getting the acceleration is because technology has been accelerating if the last few years. by the way -- 2021 to 2022 was very difficult for technology. in the last few years, this is the nvidia story the a.i. buildout story, that has essentially what's been powering the s&p 500 earnings situation forward. i want to see rotation just like you do. there's a reason investors are rightly putting their money into

tech, because that's where the earnings growth is. >> it is what it is. i mean, first of all the average gain of the santa claus rally is 1.3%. we got .3% today already. it's still alive and well. to the point on the bond vigilantes at work, rates are where they are and may do higher because the economy is good, not because of overconcerns about the deficit or re-inflation or any of the like. >> but the bond vigilantes have a point, refinancing. we're at 4.5% to refi this debt. those are legit pat concerns that exist out there. given the permanent rise at how much short-term debt that's out there that has to be rolled over by the u.s. government. i don't think those are

illegitimate concerns. again the earnings, the numbers are fantastic still going into 2025. that's why i'm still personally bullish about 2025. >> but nothing changed between september when yields were above 4% and now when they're 4.6% on the debt side. what did change is that the economy has done better the economic outlook has improved and inflation has been stickier. i mean, that's a big part of it. >> yeah. >> you know. >> that's the important point. again, the earnings not going down at all. it has been 10% earnings growth for s&p the whole year, very unusual. usually we get fluctuations, it hasn't happened, 15% growth for 2025 largely on the back of technology, that's why the stock market is holding up so well. >> 25% gains of the year for s&p. time for the bond report. treasuries faring this morning.

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s&p going strong this morning, and look at what's leading, all the winners of the year, just adding to their gains and not in substantial ways. palantir adding 4%. tesla another 4%, also been a high flyer. broadcom since its earnings report has been a big winner. vistra, the utility that's reason to the to which s&p 500 this year on the boom of a.i. coming up in the next hour, we'll speak with carlos ghosn, longtime leader of nissan. he's been beirut after escaping

japan. honda d annissan entering merger talks. that's all coming up in the next hour. keep it here on "squawk on the street".

netflix gearing up for one of the busiest days since the site's launch. airing two nfl games for the first time on christmas day. chiefs/steelers followed by ravens/texans. what's at stake here? >> well, i don't know if i'd call it at stake, but there's a lot of opportunity for both netflix and the league, in the case of netflix this is obviously another very significant foray into live programming, there should be a lot of demand and a lot of opportunity for the company to expand what they deliver to the opportunity to expand their partnership further into the streaming realm with the industry leader in netflix, but also the chance to expand globally in a much more significant way as net flikts is not only the domestic leader but

the global leader in streaming. >> this is a flex of sort for netflix, you look at the stock chart we have on the screen, above 900 bucks it's been an incredible rocket ship this year and this is about showing the muscle what this company has now become, not only christmas day with the games but the next morning with squid games the next morning. >> that's right. it's been a tremendous story, we've been very bullish on netflix for a long time. you know, to take a rewind, netflix has been the disrupter in this industry and it's very simple they gave consumers more of what they wanted at a lower cost. it continues to be very much alive right now and you're seeing it on a global basis, on a live sport basis and in this particular case the single largest partnership that a media company can have in the u.s. >> i feel like neither of you have mentioned the biggest part of it is that beyonce is going

to be performing at the christmas halftime show. come on, my question is, like if they can get it right, because they've had a ot of technical glitches and issues when it comes to live programming, thinking about the big tyson/paul fight. the finale of "love is blind." which was supposed to be live. the golf tournament did they di while back. >> i think it's their bread and butter. first of all, i agree with you bringing beyonce into the game is just another example of them going very big across their entire, you know, member base, really wanting to make, delight everyone as the company said. with respect to the challenge of streaming i do agree this is uncharted territory when we're talking about the size of the audience the company is delivering at a single moment in

time. i think there have been dmrichs not only for netflix but a number of streaming providers. netflix had a great opportunity in november to deliver the tyson/paul fight. while there as focus on some of the glitches, it was a chance for them to test and really try to find out where the kinks are for these larger things. the tyson/paul fight was important for them, it had a large audience, they'll try to do that again. but nothing bigger than the nfl. the most demanded content consistently in the country. on to show the nfl and other leagues they can get it right. i'm confident they'll be able to deliver it. >> also very expensive which is why some are cautious going forward in terms of building out their sports content. michael, happy holidays. >> thank you. happy holiday zbs a chiefs game.

>> so taylor potentially and beyonce. oh, my god. when we come back, former federal reserve vice chair alan blinder with reaction to big banks suing the federal reserve over stress tests. that big news breaking this morning. "squawk on the "squawk on the street" after this.

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good tuesday morning. happy holidays. welcome to another hour of squawk on the street. we are live at post 9 of the new york stock exchange. s&p 500 is up almost a half percent. nasdaq is leading again, up almost three quarters of 1% adding to gains month to date of three and a half percent, year to date up 32 and a half percent besting s&p

starting with american airlines because it grounded flights this morning for an hour due to a technical issue. we've got more details on what happened later this hour. approval of nippo steel's deal is now in president biden's

hands after they sent the long awaited report to the white house failing to reach consensus whether to accept or reject the deal. president biden has 15 days to make a final decision. going after rocket homes, one of the largest mortgage lenders accusing of an illegal kickback stream. this is a day after the group also sued wal-mart. first, let's start on the big banks. financials are higher. this is a story we first broke on cnbc and it is official, big banks are suing federal reserve over the stress test. they're doing this via bpi, bank policy institute, u.s. chamber of commerce and other business groups representing big banks like jpmorgan, goldman sachs, citigroup and others. they're questioning legality of the federal reserve's stress tests. these are tests they have to go

through to prove they can be resilient tough economic scenarios. the big banks have had problems for years with what they call opacity, lack of transparency, secretive process, methodology the fed uses to conduct the stress test. they've objected to that and the fact they say that the fed did not require public comment for instance before implementing stress test, something they've said is not legal. interestingly, federal reserve is on to this. yesterday they put out a statement saying they do intend to make changes to the stress test to increase transparency and open for public comment. however, for the banks, i am told too little too latement banks want to ensure that the changes go through, so they are filing suit in the sixth district to try to ensure that the process of the stress test changes. it's unusual for many reasons. one, bank their own regulator,

usually these get discussed, hammered out between regulators who have open dialogue with the banks but it was so many years of frustration and issues, it was running up against statute of limitations so they made their move and are suing. >> you said that the fed is, quote, on to this. >> not necessarily on to the lawsuit. >> are you suggesting they have known something was going to happen as statute of limitations was winding down so they tried to get in front of that? >> even in the feds statement they say we are making changes in light of legal changes with administrative rules. so they could see that the banks had a good case here if they were. again i am speculating what fed ultimately did was tried to get ahead of that and try to avoid legal action. for the banks, they went forward with it. >> this is more about the process as it all takes place rather than the result of the stress test themselves, is that

right? >> that's right. that's the primary concern here. let's continue with the conversation. leslie follows the stress tests, always reports them. the banks have had problems for a while but i am told in the last five years with changes made without much notification or explanation by federal reserve, that fired up banks and led to this result where they're suing. >> it was 2019 in february where there were some documents that outlined changes again in the process of the stress testing as you were emphasizing. this is not something where they're opposed to stress testing. they're not opposed to models or scenarios, it's really the process. it's statute of limitations set to expire from 2019. they were going to expire in february 2025. they're filing on lawsuit to

try to get in advance of that. the key here is with the stress tests, they have models essentially and they have hypothetical scenarios. they change every year. it's things like here is what unemployment rate will spike to. here is what will happen with interest rates. some years it involves commercial real estate losses, equity volatility, fixed income volatility. it changes year to year. those are always published but there is no public comment period by which banks and public can say hey that doesn't make sense. given the macro environment we are in, we should tweak it here and there. that is part one. the second is the models which ultimately the fed does out of the public eye with stress capital buffer which is how much extra capital on bank must hold given the hypothetical scenarios and how they perform on the stress test which in turn has a lot to do with the

buy backs and dividends they can engage in. those two things don't involve a public comment part of the process. and that's the key to what banks are taking issue with here. >> but here is what i also reported. when fed came out yesterday and said they were going to be more transparent, there is a line here saying the proposed changes are not designed to materially affect overall capital requirements. what i have heard is that was not so satisfactory for the banks. because besides the fact they have a problem with how secret and opaque the process is and they can't weigh in on it, they have a problem ultimately i think with the higher capital rules which they view as volatile, unpredictable, and also ultimately impactful for lending and overall economy. >> it remains to be seen on those rules in particular.

banks have been emboldened especially over the last year. we see this pop up in several instances. we have a list here recently. you have the major banks suing fed over stress test rules, some banks and trade groups suing cfpb over over draft fee limit rules just earlier this month. you have b of a and jpmorgan over a zelle probe. and earlier this year regarding community reinvestment act rules recently modernized. so there is this movement, this push. there has obviously been push back. banking system sees these regulations as being duplicative. diamond said it is time to fight back. he said this at american bankser association event. we don't want to get involved

just to make a point. but if you are in a knife fight, you better bring a knife. that's where they are. >> a lot of extra reporting and background on the stress test. we have the perfect guest, the former federal reserve vice chair. what's your reaction to the fact that the banks are taking this fight a notch up with a lawsuit against the fed, their regulator? >> i think it's a little surprising. maybe more than a little surprising. i think obviously the fact that the statute of limitations was looming was a precipitating factor in this. if it weren't that, i would imagine they would keep in dialogue with the fed. the banks have been upset about the capital requirements. there was a big brew haha as you remember about the bosil end game as you recall. there was tv advertising. banks were being aggressive. the fed, i am a long way from

being an insider at the fed. they may not have been as responsive as it usually is. the fed is usually very willing to dialogue with the banks. maybe this case they got their backs up for some reasons that i wouldn't know about. it's possible. this will work out. i can't imagine that this will actually go to court. >> you think they'll settle. >> i think they'll settle. >> the fed in its own statement yesterday said that they were making some of the transparency changes in light of some recent legal rules. they didn't say what but we have had the chevron act. there have been changes that have given banks more confidence on a suit like this to question the legal veracity of the agency making these rules. how do you think it goes in the fed? >> the fed is not happy. lots of regulatory agencies are

not happy about throwing out chevron president. i have written about that. i don't think it's a great idea. where do we want it make these rules actually made. on the other hand administrative po cedars act, it is very detailed, has a lot of requirements that have to be met. the fed is using about crossing every t and dotting every i. i don't know if they missed one this time. it's possible they did in which case they'll need to correct it. as i said i will be surprised if this goes to a judicial decision as opposed to two parties reaching some kind of settlement. >> i am thinking about fed over site in the larger picture taking this stress test into consideration and other things too. do you think the fed has a good read today on what's really happening inside the banks?

and i think about '08, how the misses were rather large in that regard and even more recently with spb and collapse of the institution itself. has fed gotten any better in understanding what's actually happening within the walls of these institutions? >> i think you can say this sounds slightly paradoxical but only slightly that the fed has gotten better but not good enough. the financial system -- by the way, it is not just banks. let me leave that aside for a moment and stick to banks. financial system inside banks keeps getting more complicated and fed is always playing catch up. that was true 25 years ago when i was on the fed and it's certainly true now. more important, i think, which is outside your question, is what's going on in nonbanks where fed has very little jurisdiction and very little view inside the institutions. you know, they know a lot about

what's happening at jpmorgan chase. they don't know a lot about what's happening in hedge unds all over america or all over the world. they know something but they don't know as much as you might think. you brought up the 2008 crisis. a great deal of that, i would say way more than half, happened to outside banks. never mind that the fed didn't do good enough job in the run up to that, which is true. the fed did not do a good enough job. never mind that. so much happened outside the legal per view of the fed. >> you are eluding to the so called shadow banking system now where we have seen explosion in lending but also private credit for example has become such a lucrative business that the big banks want a piece of the action too and are, you know, writing as much or at least hoping to as some of the others because it

is a great return on that investment. do you think the fed should be more worried about that business or not? >> yes. but, you know, the fed is always more worried about everything. i don't think they're ignoring this. whether they're paying enough attention, i don't know. silicon valley bank was a good example where the fed fumbled the ball a bit. they could have and they should have done a better job supervising silicon valley bank. it still would have gotten into trouble but not as deeply into trouble and would have been caught earlier if the fed was doing a better job. the fed has admitted in the report michael barr wrote about that episode. they make mistakes. they're a bunch of human beings. they have a lot of information. they have a lot of expertise, but they make mistakes. >> they have a lot of power too, alan. thank you very much for joining us. it was a perfect day to have

you as i said. as we head to break, our road map for the rest of the hour. regulation play book under a second trump term. we will talk to a former ftc commissioner about the road ahead specifically for m & a. >> an interview with former nissan chairman and ceo carlos ghosn. his thoughts on the plans with honda and much more. squawk on the street will be right back after a quick break. don't go anywhere. car, this isn't the way home. that's right james, it isn't. car, where are we going? we're here. (♪♪) surprise!!! the future isn't scary. not investing in it is. car, were you in on this? nothing gets by you james. nasdaq-100 innovators. one etf. before investing, carefully read and consider fund

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powering possibilities™. honda and nissan announcing plans this week for potential merger that would be valued around $54 billion. our next guest thinks nissan would be victim of carnage if deal comes to fruition. let's bring in someone who knows the company well, former chairman, long time ceo carlos ghosn who joins us from beirut lebanon where he has been for almost five years. it's good to have you. welcome. >> thank you. >> what do you think of this potential merger? >> i think it's going to be a tough deal if it happens. you know there are a lot of conditions for the deals to proceed. i understand that the ceo of honda said that the deal will proceed only if nissan is able

to reposition itself and possible successful in the little turn around plan they have been announcing. if it is not successful maybe the deal will not take place. if it takes place, obviously honda is in the driver's seat. it's going to be tough because the two companies are in complete dupe asian, one or the other. there is very little between them. these are two strong engineering company. you know the pride of engineers in japan is very high, something to deal with for management. a lot of conflicts, a lot will be necessary. it's going to be tough. >> i wanted to ask about something you unfortunately have experience with which is government control and government working with a company like nissan or honda. do you think that the government is pulling the strings and putting this deal together? >> in my opinion without any

doubt. i don't think something like this can happen without. it may be even an initiative. as you know, i have been leading nissan for 17 years. the relationship between nissan and honda or nissan and toyota were always courteous about extremely competitive. envisioning at a certain point in time that the two companies will be working within the same set, within the same whatever you want to call it, partnership, alliance, merger, will be hard particularly for nissan people. because obviously they'll be the second tier citizen. >> the ministry of economy trade industry, part of the japanese government. how did nissan get here? i have a longterm chart of the stock of nissan. it's incredible. since you got accused basically in japan and left nissan, the stock has been on a one way

ticket lower. what happened? >> you know, in the car industry whenever a company has problem, at the end of the day no matter the challenges, it's always about management. because the difficulties are the same. you know, there is covid, there is covid for everybody. there is recession. there is recession for everybody. why some companies suffer more than the others? always management. unfortunately i.t. and management are judged on the result. unfortunately score card of nissan is pitiful. i railroad this is a weak management issue. >> you call this a desperate move, that there is panic mode at nissan. but to what degree is scale needed so this is maybe a strategic move that has to happen in what is becoming a more scaled industry itself?

>> look, if it was really strategic and not panic, you would select a company which is complementary to your company. in 1999, in japan there was decomplementary. nissan was weak in europe. nissan was strong in four by four. they were strong in diesel, nissan was with the english. so you could work on it. here nissan and honda are weak in china. both are weak in europe. both are on the defensive in the united states. so i don't know how two companies which are on the defensive and on retreat in some market is going to help each other. obviously you will do the obvious synergy of purchasing

together. there is no obvious sophisticated synergy to happen when you look at the footprint of the two companies. maybe in the future but it still has to be demonstrated. >> is there a deal that makes better sense in your mind? >> i was very interested when foxconn said they're interested in nissan. i said that's something creative, something new coming. this is a huge company wanting to have their own electric vehicle. you have a total complementary. this is where i think in the end of the day, they have the say. >> i was going to say do you think japanese government would let a chinese company come in and take nissan? they had questions with you about the french company, right? >> that's right.

the foxconn people. it is fair. if they want to go to ev, they would have to choose because there are so many weaklings today in the car industry, particularly the people not specialized into one sector, they'll have to choose to go for somebody else. >> what is the future of japan's auto industry in light of what we have seen from the chinese ev makers and their advanced technology, their lower prices and what we are seeing from tesla here in the u.s.? >> for the last ten years, the big winners are obviously when you look again at the data, tesla from one side and from the other side, the chinese auto maker. not all of them but the top chinese auto maker. they have been keeping on the offensive, people who are gaining market share, gaining technology, moving up into the level of cars that they have. most of the very established group have been on the

defensive. some of them successfully. mercedes is still doing well. others are struggling because there will be no place for weak or common in the smart market. you will have specialists, ev makers, environment, the technology, all of this will change and transform this industry and the companies which are not really well managed are going to suffer. >> since we are talking about tesla, carlos, we might as well talk musk. i am curious to how you are viewing what's happening in the united states, his political influence has obviously grown tremendously over the last handful of months and only seems to be expanding in what will be the new trump administration. what's your view? >> i cannot talk about the situation in the u.s. because i

am not living there and i am following the news and i am a little bit careful about how to interpret them. i can tell you what musk has done in the car industry, which means sticking to ev from the beginning, going through. tesla was near chapter 11 a couple times. but he was persistent. he was focused. he really played very well this image of technology. it was not only a game. it's also a reality. he has done a remarkable job. i am not surprised he by himself presents 50%. it's amazing. >> let me ask you this then. i understand the way you answered that question and i respect that. but how do you think the other leaders of the auto industry, whether in the united states or globally, should view musk given the political influence that i suggested he now has?

>> well, he's obviously a power house to count on. but, you know, when you look at the total industry, talking about maybe 70 or 80 million cars sold a year, tesla is not a big player in volume. i don't know the latest number of tesla but tesla but these guys that sell probably 4% or 5%, represent 4% or 5% of the volume and 50% of the market cap. it is remarkable. it is remarkable obviously. it's a good tribute to tesla and to elon musk personally but also it is embarrassing for the other car makers that somebody who is not so big in the car industry can represent such a big portion. that means he has a vision and there is an image about tesla that the market is ready to pay

a very high price for. >> but there is also this question about whether future really is evs and whether americans want evs. this administration, biden administration has pushed it hard and the companies like gm have had to scale back their aggressive ev targets and plans because americans don't want them. >> i agree with you, sarah. i think this is a pendulum. i think today maybe there is resistance to the ev in the united states for obvious reason of cost, mileage, et cetera. but i think the environmental constraints are that you cannot escape this. even though you are going to have a pull back for a period of time, it will come back. all the car makers as you know are global. they have to compete in china, have to compete in europe. technology of ev is necessary for them whether they're using it today in the united states or they're not using it. at the end of the day i think

it can be prudent for the car maker to just reduce their pressure on investments on ev because without any doubt, the main market of the world which is china, ev is the main player. >> it was valuable to have your commentary, carlos, on nissan honda merger. i want to ask before we go just about you, as we have reported over the years extensively in the fugitive status wanted by france and japan, in beirut after the dric escape almost five years ago, hard to believe, what is the status? is there any update on legal proceedings? >> legal proceedings unfortunately are very slow particularly when there is obvious about face from one side. the original ipo of the problem is japan. it's not france. what happened is when i escaped japan, japanese refused to transmit the file to lebron niece authorities so justice

can be made. but they transmit the file to the french. now the french are the of the japanese file pursuing this situation. if we can solve the problem in japan, i think the problem will be solved. we are not there. it's going to take a lot of work. it takes a lot of patience. okay. as long as there is in front of us possibilities, i am going to continue to fight. it's a tough fight because i have in front of me people who are really want to punish. >> carlos, appreciate the update. thank you so much for coming on. it is good to see you. >> thank you. still to come, we are monitoring airlines today following the american air grounding earlier this morning. the potential impact to the very busy holiday season. broad com, tesla, palantir leading s&p adding to their

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welcome back. i have your cnbc news update. judge overseeing the trial of a man accused of attempting to assassinate donald trump on his florida golf course pushed the trial date to september of next year. it was originally february but said there was too much electronic evidence to go through. israel's defense minister determining israel assassinated a top hamas leader last summer. haniyeh died in an explosion in iran in july. special prosecutor in manslaughter case against alec baldwin with drew attempt to reinstate charges. he said he faced multiple barriers. a judge dismissed the case against baldwin in the summer nearly three years after a prop gun he was holding on the set of the film rust discharged

killing the cinematographer. back to you. >> thanks. catch the 10:00 a.m. hour any time anywhere. listen to and follow the podcast available on spotify, apple music, and more. we've got dow pass along with s&p and the nasdaq which is still in the year. the story of the year, month, week, day. we'll be right back. >> decade? >> i have to check. (♪♪) (♪♪) (♪♪) everyone has goals and dreams. and everyone deserves a way to get there. wherever you're going, getting there starts here. state street invest in your future with dia, the only etf that tracks the dow. (♪♪)

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doors can take us to new adventures and long-term goals. your dedicated fidelity advisor can help you open those doors. by helping you create a comprehensive wealth plan, with the right balance of risk and reward. doors were meant to be opened. we continue to monitor the airlines this morning following american air's grounding earlier today for about an hour due to a technical glitch. our cnbc airline reporter leslie joseph joins me to discuss. it's good to see you. do you feel like we have a better handle on what caused this? >> good morning. it looks like a technical

glitch, key software customers never see that feeds information like aircraft weight and balance, how many people are on board, kind of the heart of a lot of the back end data that is required to get planes off the gate and moving into the skies. that is something that failed. luckily for travelers, it didn't last long. it was about an hour. american airlines told us they don't expect cancellations at least so far to come as a result of the brief outage. >> so they haven't had cancellations. presumably they've had significant amount of early morning delays they have to work back through. >> that's true. we are expecting some rescuers iliad delays. this is a pretty low schedule. not a lot of people are traveling today. it's the second lowest schedule day after christmas day for the entire holiday period.

airlines are expecting, american included, are expecting record travel period. they're lucky they're flying about 4,000 flights or a little bit less today. that compares to 7,000 leading up to christmas eve. they're lucky in that sense. they're working through it getting travelers on the way. they're lucky that it happened early in the morning not in the middle of the busy schedule. they're trying to reset as quick as they can. >> do the airlines have outdated technology? do they have too much technology? are they just in the cross hairs because so many are affected with flights? is there a technology problem that this keeps happening with the carriers? >> that's a good question. we have seen the high profile melt downs. we saw delta suffering to recover from crowdstrike outage over summer. we saw southwest with the christmas period. what airlines have is a lot of

different systems with different functions. there is software with crew scheduling and what did southwest in at the time. they have different computer systems for different things, reservations. sometimes when one thing fails, easiest thing is hold a ground stop. they won't overload airports and airlines can reset and get on their way. there is a patch work. many of the systems are older dating back sometimes decades. they need to work together perfectly for things to operate smoothly. >> so once we get past this, what's the set up for them in 2025? we were talking earlier about the market divergence between united and delta verses a jetblue or an american. >> united has had this run away year. shares have more than doubled. they've wowed investors this year with the performance.

united is trying to catch up to delta. all the airlines are trying to go in the high end passenger, adding seating, updating lounges, credit card deals so they can get as many high paying customers on board. what we heard from american, united, delta, even jetblue and some smaller is that demand does look strong going into 2025. >> thank you very much for all the perspective on what happened this morning with american and the entire industry. m & a play book under a second trump term. we will discuss with a former ftc commissioner. let's check the markets. strong session. we have gained momentum throughout this hour with s&p now up almost three quarter of one percent. it's broadened in terms of sectors. now every sector is higher in today's trade. it is technology leading. that's whyasq ndais up almost

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ftc under the biden administration blocking several high profile mergers in recent years challenging deals including kroger's albertson's. a panel is dead locked. u.s. steel leaves the final decision to president biden. let's discuss what m & a can look like under the incoming trump administration. happy holidays. welcome. good to see you. >> hi scott. how are you? >> good. thank you. the assumption obviously, you don't have to be a rocket scientist to hear the assumption. it's going to be way more merger friendly. to what degree? do the doors swing wide open or are there still limits? >> i think it won't be as fast and furious as some may anticipate. ftc is engaged in for example some high profile investigations and litigation. it's going to be harder to turn

that ship around. what you may see is continued emphasis on enforcement but the focus might be slightly different. so for example, there may be a return to looking at empirical data, whether there is actual consumer harm in the form of prices. and the claw back a little on the broadening of some of the more innovative or novel approaches that the biden ftc took on some of the legal cases. you might see that. you also might see things in terms of changes in rule making. the ftc was involved in quite a bit of rule making and so for example in m & a it was new filing requirements. you may see a sort of toning down on that a little bit so they can make the regulatory burden a little easier for people who want to file for

mergers. you also might see a change in some of the standards and what they might look at, claw back on narrower view of what will be anticompetitive. so you will see those things. you also see changes in other rule makings in the consumer area. for example, they have new rules on junk fees, on noncompete clauses, on click to pay. you may see sort of claw back on those things too. so i would pay attention to that. >> what i hear you suggesting though is you said the trump administration is going to be more data driven. what i hear you suggesting is the current administration was not and that it was more ideological for reasons why the deals weren't done. is that what you are suggesting? >> no, i wouldn't say that. i think some people interpret it that way. they added other factors to be considered like job impacts and other things that may not have

been traditionally looked at in the antitrust. i think you might see return to some of the traditional fundamentals here. >> i wonder, is there any scope for which wants to enhance and cut costs to do anything on the part -- something like that? >> i think that's one thing that may be proposed. it's yet to be seen what doj mission is going to be on antitrust side, whether it's based on efficiency, reducing head count for example. ftc legally is an independent agency and it will take a lot to change that legislation in order to make that happen. but what you might see is some impact on the budget. if you see changes to the budget, then ftc will be forced

to change priorities about what it spends on and how it spends it, in which case you may see some policy initiatives. >> is it redundant? why do we have both of them? >> i think traditionally the ftc has looked on certain categories and certain industries differently. i think that one of the things having a bipartisan commission even though there is a majority in one party and the administrative power to bring administrative cases to sort of flesh out new areas of law makes ftc different. it's not really supposed to be guided by politics. so what you see is a different way of approaching those issues and their different industries. for example things that deal with national security, defense, cars, those should go to doj. other issues for example like

oil and gas tend to go to ftc. supermarkets go to the ftc. and so i think it would be very difficult to really all of that in a very short period of time. >> thank you. we'll see you soon. again, happy holidays to you. >> happy holidays to you. >> thanks. still to come, it's been a rough year for big booze. constellation brands, brown-forman. we'll have more when we come right back.

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it's been a bad year for alcohol stocks. breweries and distilleries in the u.s. in the industry down double digits. brandon joins us with why the sector is so beaten up and what's ahead for 2025. when you look at volumes, it's down a lot. >> depleting in terms of sales, beer, liquor, across the category. investors have soured by to constellation. is there rebound for 2025? investors are watching proposed

tariffs on mexico and canada impacting groups like constellation brands. in the eu you have 50% american whiskey tariff about to come back in march if trump and european officials don't reach a new deal. alcohol sales level setting like you said from a covid peak era and you see why investors are starting to back up. for investors keyed in on tariffs, brown forman which makes jack daniels, the smirnoff maker appear to get harder. some are more durable, feel safer but down year to date. brownforman posted stronger sales last quarter. some could signal a bottom of the category. constellation gave a sigh of relief. it is looking to do the same

with ciroc. it's clear executives are focusing on cleaning the balance sheet and trying to improve as year comes to a close. >> glp1s playing a role? alternatives to booze? >> cannabis, right? it faces possible reclassification. >> also, health studies. i feel it is ramped up. news stories, health stories about how people should drink more moderately to protect against heart disease, cancers. >> you have seen this generation to generation. gen-z drinks less than x the companies are investing in nonalcoholic products. you follow the beverage base closely as well. you have coca-cola trying to get into liquor. now you have liquor companies trying to expand to the soft drink category. >> kind of an ugly set of head

wins. all the regulatory hurdles, legal battles state by state. >> rfk, jr wants to get some out of food stamps. it's great to have you. >> it's been fun. >> merry christmas everybody. happy hanukkah. that's going to do it for us. the exchange starts after the break with the early close for the markets at 1:00 p.m. (woman) did i read this? did i get eggs? where are my keys? (vo) don't wait while memory and thinking issues pile up. these issues may seem like normal aging

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welcome to "the exchange." i'm frank holland in for kelly evans. happy holidays. the bull market is in tact, but there is one thing our guest says could derail it next year. and our analyst is seeing clear trends emerging for the new year as she brings the stocks that stand to benefit. this is one of the names of gains in sight. that's a holiday hint. up 87% this year. that makes you think what it is. i'm on twitter, instagram and tiktok. and the stakes are high for