A Tariff Turnaround 2/3/25
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Thank you, Carl and Sarah. Welcome to the Halftime Report. I am Frank Holland in for Scott Wapner. Front and center this hour, a tariff turnaround. Stocks coming well off their lows as the White House pauses tariffs on Mexico at least for one month. Tariffs on Canada and China are still set to take effect just after midnight. Our investment committee is standing by to break down the impact to the markets and to your money. Joining me for the hour, we have Joe Terranova, Steve Weiss, and Jim Labenthal.

But first, I want to take a quick check of the markets. As we've been mentioning, they're off their lows of earlier right now, looking at the Dow, down about 145 points, a third of a percent. The S&P down just over three quarters of one percent. The Nasdaq, still the hardest hit, down one and one quarter of a percent. Also important to note, a lot of talk about tariffs potentially being inflationary. A lot of people expecting a reaction from the bond market, looking at the benchmark, the 10-year, holding pretty steady from the same levels that we've seen throughout the day, a 4.51%.

All right, with that, I think we got to start here, Joe. I mean, what do you make of this? As an investor, the fact that the president announces tariffs, Mexico says we're going to send troops to the southern border, and they delay these tariffs for one month, and then we see this reaction in the market. As an investor, how do you take this? All right, so as it relates to how I think about tariffs...

First of all, it's clear that the announcement and potential implementation of tariffs is part of a negotiating strategy. I think that's very obvious to all of us. I think in other situations, you could expect that tariffs will be implemented and they will be held in force for an extended period of time.

How do you treat that as an investor? I feel like we're in the same place we were last week. You and I, Steve, were on the desk together last Monday. I feel like we're kind of in the same place. And I think the problem for investors is that this can be characterized

as a macro condition that's affecting the price of risk assets. However, I think you're making a mistake if you make a macro call. I think you're making a mistake if you say, okay, this means you need to be bearish. Or no, no, no, no, no. This is a buy the dip, go all in. This is a great opportunity

opportunity. I think in totality, it's a little bit of both. And I think it's about going bottoms up and saying, OK, 2025 is going to be a year where clearly we're going to have elevated volatility and probably going home long volatility on Fridays might be a good idea. We're going to have elevated volatility. And therefore, I want to think about how do I generate alpha by going bottoms up?

trying to find areas of the market where I believe there'll be opportunity despite the volatility and then to kind of look at other areas of the market say no wait a second. That's susceptible to too much of the volatility rhetoric. That we're receiving. Surrounding a lot of these negotiations and I want to avoid it so I don't think

I just think the binary, I'm either bullish or I'm bearish. Take that, put it in the rearview mirror. It was 2024. And you know what? For the month of February, set your expectation. Okay, maybe we have a down month in February. I really don't know. I don't think most people know, but I wouldn't be surprised by it. And that's

probably a little bit different than what we had in 2024. All right, so you're saying it's time for some bottom-up stock analysis, a bit of a nuanced take. Steve Weiss, I'm going to come over to you. How do you view this rebound? And also, how did we even get to where we were? The president certainly telegraphed that he was going to put these tariffs in place, and still we saw the sell-off today.

So there are a few things here. And we could look at tariffs as a one and done incident. We could say, oh, he's just negotiating. This is a guy who's never had success negotiating publicly like this, nor privately. He did have five companies go belly up. So his negotiating skills just aren't that great for all they tend to be. And I'm not going to be somebody who minces on the political side. At least on the president. I'm not. I'm not.

Definitely not a Kamala Harris fan, definitely not a Republican fan. So this is just looking at it as an investor and as a business person. This is chaotic. The first weeks of this administration have been like any other because it's chaotic. It's also been like any other because of the incompetence, not only of the president, but the incompetence of many people he's put in. So I was on an earnings call with a large defense company on Friday.

a large defense company critical to the safety of our country, right? Both within our borders and external. They have no idea. They say some of the agencies are contracting, some aren't. It's basically in a state of flux. And that's a measured outlook because nobody wants to say anything to offend the president. Otherwise, you get kicked out of the press room or he sues you. And I'm actually thinking of going to work for the Trump administration. First, I'm going to say something—

bad about CNBC, then we're going to work for Trump itself for $25 million. I want to get back to the market. You have no idea, to Joe's point, you have no idea what to do. What's it good for? I don't know what tariffs are going to do. Look at it this way. We've got all these sick fans of his administration saying that no, he's not going to bear them. Here are the profit margins. Hold it. On GM.

Well, speaking of profit, let me run something by Bank of America out with a note today estimating that the tariffs could be as much of an 8% hit on EPS for the S&P 500 this year. So it sounds like what you're saying, similar to what Joe was saying, don't take a macro view. This is a very specific situation that's going to have some twists and turns. That Bank of America, do you think that's just overblown to come out? Not at all. So let me ask you. So if you've got GM, that's got 8% EBITDA margins, right? That's their profitability, 8%. How can

How can they tolerate 25% margins? And then if you retaliate to his retaliation, they'll go higher. Do you think any company is going to lose money? Now, the reason why I think rates are off is because they're saying recession, they're not saying inflation. And that's scary. So you'll put a Fed in a situation that they're not used to being in, which is that you'll have inflation not driven by demand, by an over-eating economy. You'll have inflation that's driven by legislation.

Right. So how do you lower rates in that? Then you'll have massive job cuts because that's what this will do. You take a look at the others where the margins aren't that big. So they can't pass on the cost because nobody's going to produce goods to sell at a loss. You know, to your point, actually, Ernst & Young, one of many shops out with some estimates on what tariffs to do to GDP. Their estimate GDP is going to have a negative impact of one point five percent this year due to tariffs.

2026 down 2.1%. So a lot of people are seeing it the way you're seeing it. Maybe not recession, but certainly a pullback in the economy. But let me just finish. So what am I thinking of doing? Did nothing today. It's another day to do nothing because you don't know which way it's going to go. Look, I do think that they'll be put off. But what's going to be the next minefield? Is it going to be health care? We know it's going to be health care.

If Bobby Kennedy gets it. See, we're getting back to politics, though. We're getting back to politics. Just for a second. I want to go to the very patient. It's not politics, Frank. It's how you think about. But his confirmation is politics. No, I'm not talking about Bobby Kennedy getting him. I'm talking about what's the next landmine. What are we going to do? No, understood. But whether or not he's the person that's the HHA secretary, that has a political ramifications.

to it. I want to get to the very patient Jim Leventhal. Jim, your view, is this a do nothing day? Is this a day you want to sit on your hands and just see how things unfold? Or are there moves that you think you can make in light of the fact that maybe this is a negotiating tactic and we've already seen the markets kind of pair some of their losses?

Before I answer your question, I just want to distill this down to what I think is the core that matters. We all know there's chaos out there. There's no question about it. You can just look at the back and the forth on the tariffs. But underneath this, you have a strong economy. All stop, period. Look at the ISM manufacturing. Look at GDP. Look at jobless claims. You have a strong economy that is highly likely to bull through unemployment.

all of this chaos. You can see that in market indicators. You can look at the VIX right now at 18. That's high, certainly, but that's in the normal operating band. That's not in some nosebleed territory. You can look at sectors of the market that you would think that would be really rallying, not just today, but over the past few weeks. Things like staples and utilities, they're up less than the market overall this year. So there's the fear signs in the market indicators just are not there.

You can even look at just the returns overall on the market. S&P is up 2%. Dow is up about 4%. And that's where I think the story lies. So, yes, there's chaos. We're all going to agree on that. But underneath this is a strong economy that is allowing the rally to broaden. I suspect that it will continue. Will there be hesitation in corporate offices on the back of this chaos? Yes, but there is enough strength in this economy to continue.

So now, having said that, Frank, and trying to answer your question of what do you do, and this is, I think, very much similar to what Joe at least was saying. Steve, I know you're saying just sit tight for a second. I think this is very much a stock picker's market. I agree with you, Steve, and I did this two months ago selling GM. The math just simply doesn't work if the tariffs are in place. It wipes out their profit.

On the other hand, there are things that are up that you can sell. Today I'm selling on Holdings. Kind of breaks my heart. You know, it's an international company, so who knows? It's a European-based company. It may face tariffs in the not-too-distant future. And it's up 60% over the last – excuse me, 50% over the last six months.

So that's a good opportunity to sell. Now, last week I sold, or excuse me, I trimmed Nvidia and Oracle on the back of DeepSeek. I've built a little cache. What do you do right now? You sit on that. So in that regard, after having sold on today, this is a good time to have a little cache in your pocket and just see what unfolds. Not...

Because I'm bearish on the markets overall, not because I'm bearish on the economy. I am neither of those. But I think this volatility or chaos, whatever you want to call it, is going to dislocate individual stocks. And you have to have some dry powder ready to buy low. The only way you can do that is by selling. I don't disagree. And I don't disagree. The economy is strong. I'm not worried about it today. I'm worried about it in a month, three months, six months, a year. But isn't about earnings net more than it is the economy? It's a bet.

It's about guidance. I just told you a very large defense contractor wouldn't give guidance for 26. So because they can't, they don't know. Speaking of defense very quickly, because we're going to get some moves in a second. Raymond James out with a note talking about safe harbor plays right now. Defense is one of them. Health care, utilities, financials, real estate. Agree with that general thesis that if you are going to make a move, why these are potentially safer plays to make in those areas? Well, it's not it's not that easy to say defense.

There are some defense contracts like Booz Allen and Leidos, which I do own, have tremendous respect for that company, as I do for Booz, which I sold, where Leidos, 30% of their personnel, their headcount, is embedded in the government. So we don't know what Doge is going to do. Exactly. So those are the issues. So it may not be a safe harbor.

But we do want to move on. Jim kind of alluded to his move in GM. Joe, you made a similar move. You actually sold General Motors and the Terra Nova Momentum ETF. Looking at shares of GM right now, down over 1%. Your view on GM, their tariff risk, and also just the outlook for this company with this tariff uncertainty. Well, when we took the position in GM, I was skeptical to begin with. No harm, no foul. October 31st, we took the position at 50.75. We're selling out Friday afternoon at 49.46.

Why are we selling out of it? Because you had a very sharp spike in the month of November above $60. And thereafter, you saw price retreat. You could make the argument as to what the fundamental reasoning was behind it. I agree with Jimmy. It was probably more attributable to a lot of threats that were made at that time surrounding tariffs. That probably is why you saw the destruction in price.

But overall, it really was a collapse in momentum itself. And I think it's indicative just in terms of the industrial sector. On the rebalance Friday, we saw for the very first time in several quarters that we began to reduce exposure to industrials.

All right. More broadly, a lot of companies actually have quite a bit of tariff exposure. Jim, I want to get some of your names that have a lot of tariff exposure. A lot of China risk are going to our note out earlier from Goldman. Qualcomm, Applied Materials, Wind Resorts and NVIDIA, which you also mentioned that you trim some of it.

Yeah. Well, so having already mentioned NVIDIA, I mean, Qualcomm and Wynn, I don't think it's a surprise to anybody that there's some China exposure there, but there's different types of exposure. So Qualcomm obviously does sell a lot of chips to Chinese manufacturers, OEMs. That should not be a surprise to anyone. Frankly, I think that's already priced into the multiple. With Qualcomm, which we'll report, Frank, later this week, what you're really looking for there is not smartphone demand in China. If that's your investment thesis, forget it.

The investment thesis has to be the broadening of the product pipeline into automotive, which is growing much faster than smartphones and Internet of Things, tablets, those sort of things where edge computing for AI is the edge pun intended for Qualcomm. So I think just to summarize at this multiple, the China exposure is built in with when it's a little bit different because their exposure is not to China directly. It's to Macau.

And to the extent that China is still trying to stimulate its economy, and they want to, you have seen better gross gaming revenues in Macau for several months now, actually over a year since they opened up the Chinese economy. And that is likely to continue. So that's not something where China is going to come in in the immediate sense and say, hey, we're turning off these concessions.

because they want gamblers to go there. They want to take their cut of the royalties that comes from Las Vegas Sands as well as Wynn. So I don't see the exposure as being directly China-related there. Joe, I want to get some of the companies that you have either personally in your ETF that have some broad tariff exposure. That's WW Granger, Fastenal, and then also some other names like Aquantis Services, KLA Corp, Qualcomm, Applied Materials, some similar names to Jim with some chip exposure as well. How are you viewing this? I think

Yeah, I mean, I think of it in terms of positioning and I think of it in terms of sentiment. And I'll go right towards Nvidia, which we discussed last week. One week ago, I made the remark that if you were leveraged in your position, okay, then you should sell some and hope that that sale is a horrible sale because then the remainder of your position is actually working for you as the stock moves higher.

I made that remark because I truly believe that positioning right now in NVIDIA is extended. I think people are fully long the name. I myself, I am long NVIDIA. I think NVIDIA fundamentally continues to march higher.

So I think you have to work that off a little bit. That's the one name I would speak towards because of positioning itself. Overall, I think when we're talking about a 10% tariff as it relates to China, I think we kind of got some good news in that regard because weren't we talking about 60% potential tariff on the campaign trail? Not so bad.

On the ETF rebalance on Friday, we did continue to take down exposure towards semiconductors. Semiconductor exposure now is only at 4%. That was double-digit territory one year ago. All right, what about the potential, at least, for retaliatory tariffs coming from China?

or some other actions that may not be explicitly terrorist, but some other actions to impact U.S. companies over there, for example, Apple and Apple Intelligence. The government can certainly say we're going to hold off on giving you an AI partner and allow you to unveil or roll out this Apple Intelligence service in China or some other similar actions for other companies. I think anyone's guessing unless they're inside the administration and really understand that. I do think when you think about negotiating leverage

I think President Trump's administration has far more negotiating leverage with Canada and Mexico than they do with China. I think they have to proceed cautiously in that regard. I just want to point out one thing that I think mitigates the China exposure. Let's not forget that China knows that its economy is in bad shape. There's no question about it. They've been on a PR campaign for the last year to try to attract foreign direct investment.

Now, this is after many years of punishing foreign direct investment, not just economically, but also with criminal activity along the way, criminal accusations along the way. So they've got a long road to hoe to get out of that mess that they've self-created. But it's clear that they want to. They're trying to do a PR campaign here to get more foreign direct investment. I don't think they can just easily slap on retaliatory tariffs unless they want to give up on that campaign. Well, I think they should give up. That campaign's failed.

when a responsible CEO move their supply chain or open businesses there, forgetting about sharing the intellectual, your IP with them, which they say they've cut back on companies, they haven't.

Apple saw this early. Others have seen it. Caterpillar saw it a while ago when they got defrauded buying company over there. Apple's moving their supply chain to India. The question is they can't move it quick enough. So so I don't think you can rely on a dictatorship because that's what it is in China and putting resources there. They have the ultimate weapon, of course, which is rare earth.

So they want to bring the global economy to grinding halt, which is why Trump wants Greenland. I'm my MP for that. You know, a lot of people do talk about the rare earth and the fact the rarest and the fact they're in China. I've actually spoken to an auto executive says for the most part, U.S. auto companies, they've been able to source it domestically. Now, there's not as much risk. They have supply for two, maybe three years. And I understand you're saying long term that could be an issue. But we have increased. And Jim, you know, as a GM shareholder, I think you well, I'm no longer a GM shareholder previously.

But I'm a shareholder of MP Corporation, which produces rare earth ore in Mountain Pass, California, and refines it. It used to, several years ago, they used to just dig up the ore and send it to China for refinement. Now they're refining it themselves. They're also building magnets from that refined ore in Texas. So they're trying to get the rare earth element supply chain to be entirely domesticated. There's also Linus, which is an Australian company. So this is a little bit weird, trying to do the same thing here in the U.S.,

Both companies have grants from the U.S. government to promote this, but there is a problem looming out there, which has been for the last two years, China has been flooding the market because as much as we produce here and as much as we're building the supply chain, China does produce more, so whenever they want to, they just flood the market and drive down prices.

that has not knocked either of these companies, Linus or MP, out of business. Far from it, and they're about to, as I just said, create an entirely enclosed supply chain here. But what you really need, Frank, is you need demand to remain strong. What you cannot afford is any recessionary or even in a sector like automotive. You cannot afford for automotive demand to go way down such that demand for rare earths goes down. The point is that China is not a good trading partner for us now.

And whether we can have rare earth, I dispute your two or three years of capacity. That's what I'm hearing from an auto executive. And he said that's pretty much in the U.S. auto industry. They have enough supply for the next several years. OK, well, let's get locked up. Let's move on from that. We're getting the point is so many goods come from China. So Macy's profit margins are 12 percent.

you know, PVH profit margins are below that. So what happens? You know, they need their feedstock, Lulu lemon profit margins, 27%, but they import a lot from Asia, particularly China. So you don't want to, you know, really, well, it's, it's, it's a good thing that one week later though, we're really not talking about deep seek anymore. Um,

Well, I was actually about to start talking about it. Yeah, we're still thinking about it. But when you think about China, you think about commodities and commodity usage. And I have to point out that it's been gold more than anything else that really has been one of the stronger assets so far year to date. I think gold's up about 7% year to date. And I just alert that to the viewers because I think in 2025 –

Gold might be something that you're looking towards. I don't know if it's necessarily a buy and hold strategy, whatever your particular strategy might be, but it's clear that there is strong buying demand in the metals, gold and silver as well. And that's also related to the trade war. China restarting its buying of gold for its central bank in December after a multi-month pause.

partly to kind of hedge against the strong dollar. But again, we are getting on several tangents. We do want to switch gears just a bit right now and turn our attention to tech. We just mentioned Apple. Apple shares down about 4%, partly on tariff concerns, but more broadly as we talk about tech. Weiss, I'll come over to you. When we're looking at tech right now and tariffs, how concerned are you about the broader space or the particular companies you're especially concerned about as you look at this market?

MARKET? WELL, TAIWAN SEMI IS A VERY LARGE POSITION FOR ME. SO I DO HAVE CONCERNS. NOT REALLY. THEY'VE GOT OFFICES IN CHINA, BUT THEY DON'T REALLY HAVE THEIR FAB THERE. THEY'RE ACTUALLY BUILDING IN THE U.S. 60 BILLION THEY'RE GOING TO PUT TO IT. BUT I AM CONCERNED

that we could have a blockade of Taiwan, then what do you do? Then it's war. Now, I don't think that's today's business, but those are concerns you have to have. So for companies that do have, that do rely on China for manufacturing, how can you not be concerned about it?

So for me, it just points out how valuable a company Taiwan Semi is and why Taiwan Semi should not be down at all today. It's really down because of the indices. So now NVIDIA, I've got concerns about NVIDIA. It's been a small position as opposed to Taiwan Semi.

And look, Moore's Law, as I said on Wednesday, it's going to happen here like it's happened everywhere else. The question is, will it bounce from here? I sort of think it will because there's so much about deep sea we don't know. I wouldn't buy more here, though. I don't want to skip Apple. Jim, you're the only person that owns Apple here. Concerned at all about Apple being down 4%. I see a Bank of America note saying tariff concerns are overblown. They don't think it's a meaningful impact to earnings yet. We're seeing this stock down just about 4%. I own it at less than half the market weight now.

That means I'm bearish on it. But why would I be bullish on it all? Why would I hold it at all? I will tell you that my perspective as somebody who advises retail clients, I can tell you that the retail demand for this stock remains extraordinarily strong. Frank, you weren't on. Scott was on about three weeks ago when I trimmed it. And at that time, I said on air that I might actually get rid of it.

the rest in the afternoon I was fielding calls from clients and advisers at my firm saying don't you dare one of them said you'll pry my Apple shares from my cold dead hands I thought I was gonna get a call from my CEO I really did it was that there is there is a love for Apple combined with its share buybacks combined with its presence in passive ETFs that mandates that's probably not gonna fall out of bed that said

If you're, you know, the reason that it had a good response, kind of good response to last week's earnings was on the perception that China demand wasn't as bad as feared. If your investment thesis is China demand on Apple, forget it. You got the wrong investment thesis. It has to be what I said just a minute ago. The slowdown in revenue is the reason why it is not in the ETF situation.

And again, this past quarter, I don't know, I didn't think the revenue was exactly exciting. Certainly when you measure it relative to the other MAG-7, we had a very similar circumstance last year during this quarter where it appeared as though you were getting the

uptick in revenue growth and then the quarter was reported and you saw that downtick once again. I just wonder if, in fact, that's what's happening here because this quarter relative to the last indicates that that possibly is occurring where you're seeing a deceleration in revenue growth. And no super cycle upgrade, which was the thesis at the Worldwide Developer Conference back in June. It was my thesis. I bought into the upgrade until I saw the emperor has no clothes. So...

Well, speaking of Mag7 earnings, Joe, you're actually making a move. You are buying Alphabet. You're selling Microsoft. Yeah. And again, it's not in particular a pair's trade or something in tandem. But I think it's just an acknowledgement. Look, it's a momentum strategy. Everything begins with momentum. You could criticize that if you want, but price is really what is driving. It's the foundation for a lot of the decisions. And when you measure price,

Microsoft over the last 12 months, you're really talking about a company that has gone nowhere. I think Microsoft over the last 12 months is maybe up a little bit more than 1%. I know of the last six months it's up 4%. Conversely, when you're looking at Alphabet,

You'll see that Alphabet over the last 52 weeks is up about 41 percent. And over the last six months, it's up 27 percent. It's a really it's just an acknowledgment of of price and reflection of strong price, of reflection of confidence represented in technicals. And that's why the strategy went out of Microsoft and into Alphabet. Now, currently, in terms of the mag seven, there's ownership of Tesla.

Alphabet, Nvidia, and Amazon. Only because you mentioned it. You're not worried about any deep-seat risk in this earnings report, the call, what analysts might have to ask about their cloud infrastructure business and demand going forward, anything like that? So personally, I'm concerned. Personally, I'm concerned about your fundamental headwinds as you present them for both Microsoft and for Alphabet. I'm concerned that Alphabet...

is going to, their search is going to be catalyzed by the introduction of generative AI. But again, a rules-based strategy, it's not incorporating that. It's incorporating the rules, and the rules are looking at, okay, what is price doing? And then what's the reflection on your balance sheet, your revenue growth? All right. Speaking of the MagSafe, let's now turn to Amazon. Could that big tech company be the best position to weather this tariff storm? Our Kate Rooney is following that story for us. Kate. Hey there, Frank. Yeah, so tariffs are

are expected to be negative for Amazon, but some investors are pointing out the bigger hit to Amazon's foreign low-cost competitors think of Shein and Temu, which could be a silver lining for the e-commerce giant. So a bulk of items available on Amazon do come from China, that's through third-party sellers. Rohit Kulkarni over at Roth estimates 30% to 40% of those Amazon sellers

import from China and then about 60% if you step back for a second of all of the items sold on Amazon are from those third party sellers so they may actually be the ones absorbing some of the cost increases. Mexican tariffs as you know are on hold at the moment but that region makes up less than 10% of Amazon's seller base. The silver lining I mentioned tariffs

tariffs are really taking an aim at a trade loophole that has boosted Amazon's Chinese competitors. They have undercut on price, and the loophole allows exporters at this point to ship packages worth less than $800 into the U.S. without any sort of levies, and that is going to be going away

As Bank of America put it, growth at Xi'an and Temu could be, quote, significantly constrained by that, although TD Kao, in a note just out, says they think much of this is going to be reversed. As they put it, Trump has some other goals with China that might lead him to undo the de minimis moves if China gives him enough on fentanyl. Dan Ives, though, over at Wedbush, thinks this dynamic, the competitive dynamic, makes tariffs a net positive for Amazon. Earnings coming up on Wednesday.

on Thursday of this week. So expect a ton of questions on the levers that Amazon has to pull and then questions on margins as well. Frank, back over to you.

All right. Kate Rooney. Kate Rooney, thank you very much. Our Kate Rooney out in the bay. Joe, Jim, you guys both Amazon. Quick comment. Concerns about tariffs when it comes to Amazon and the fact that that de minimis provision has been taken away. Do you think that might actually be a tailwind for the company? I don't own Amazon on the basis of the tariffs or trade wars. I think this is one where you just keep it simple, Saylor. We know what the e-tail is. We know about Amazon Web Services. You have to respect the

price momentum in this name. And anybody who says it's expensive at 38 times has to look at the history of outperforming on earnings and the fact that they do a lot of R&D. It's a lot cheaper than 38 times. This is just a low conviction quarter for me. I own it too. It's a decent sized position, but

You know, with the cloud, they keep in mind they had to buy tools, AI tools from Microsoft. So I just don't know how it's going to diversify the model phenomenally. Well, they've accelerated the revenue growth, pushing everything, pushing back against the skeptics. These guys are excited about it. We're done. Yeah, we're done with Amazon. We've got to move on. All right. Coming up next, tariffs and the energy trade. We're breaking down the impact on the oil and the gas stocks. Plus, we have more committee moves in that space. More halftime coming up right after this.

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We are back on Halftime Report. I'm Solvana Henao with your CNBC News Update. In the wake of President Trump's executive order to impose tariffs on goods from Canada, Ontario's Premier Doug Ford said his government is ending its $68 million contract with Elon Musk's satellite company Starlink. In a statement, Ford said Ontario will also ban U.S. companies from provincial contracts until Trump removes the tariffs.

Jerry's election is set to begin today in the trial of the alleged ringleader of a $250 million pandemic fraud scheme in Minnesota. The founder of Feeding Our Future, Amy Bach, is part of a second group to stand trial. The first trial received attention nationwide after some defendants tried to unsuccessfully bribe a juror. Bach says she is innocent of the charges.

And the Beatles won their eighth Grammy Award last night, thanks to what else? Artificial intelligence. The 2023 track now and then used machine learning technology developed by filmmaker Peter Jackson's sound team to clean up a demo John Lennon recorded in the late 1970s and piece together later contributions from Paul McCartney, Ringo Starr, and George Harrison. Scott, I'll send it back to you. Very cool. Silvana, thank you very much. Our Silvana now back at CNBC HQ.

Turning now to the energy trade, oil coming off session highs as the White House agrees to a one-month delay in Mexico tariffs. Our Brian Sullivan is following the impact on the energy space. Brian.

Well, Frank, it did look like it was going to be a hard day's night for the energy stocks, but that has not been the case. In fact, in Joe Terranova, I know Mr. Oil might be able to go a little deeper into this, but here's what's happening. We're seeing oil stocks mostly higher. The XLE, the XOP, these major ETFs, they're actually up. Some of the stocks, I think, guys, that might be the most exposed to Canadian tariffs, because remember, Mexico delayed markets.

by a month. We're still dealing with Canada. We import 62% of our imported oil comes from Canada. Those tariffs, 10% are still on. Some of the names most impacted should be Marathon Petroleum, MPC. They've got three or four refineries that ingest Canadian crude. Guess what? That stock is higher. Valero, their CEO on a conference call last week saying, well, 25% tariffs would cut our throughput, meaning refining rates

These are 10%, so they should have some impact. Guess what? That stock is also higher. Valero, Marathon Petroleum, Exxon, Phillips 66, they're on this list, guys, because they buy Canadian oil. They're not the only buyers.

And that is not all the oil that they buy. But if we're talking about tariffs, I think we can all agree that like a bad movie, what matters is how long it lasts. Right. You can sit through something for a short period of time. But if it's three hours long, you might get up and leave. And I think with tariffs, I talked spent yesterday talking to market participants, CEOs, companies, et cetera. And all I heard was this.

The longer the tariffs go on, the more risk there is. Right now, and Joe knows this, there is plenty of oil. But if these tariffs go on for a couple of days, a couple of weeks, a couple of months, whatever, we could see Canada divert some of that oil. And that's where I think Joe would agree you get the risk, which is this. If Canada does, guys, quote, the nuclear option, if you're on the radio, I'm doing the air quote thing, and starts diverting the oil they sell to us to, say, India, well,

or China, then those names and a few others that I just showed might have real risk because they need the Canadian oil to process. Otherwise, they have nothing to sell. Right now, they're fine. All right, Brian Sullivan with a look at the energy trade. I mean, Joe, he's talking a lot to you. So I guess we got to start with you. I want to talk about some of your energy ownership, Diamondback, ExxonMobil, Baker Hughes, among the names that you own. Your view of the fact that right now we're seeing oil move higher. By the way, BNP Paribas saying that tariffs are it's mildly bullish for WTI.

Well, first of all, these are new positions. In fact, coming into this quarterly rebalance, we held a zero allocation towards energy. Which is remarkably different from a year ago, right? From a little bit longer than a year ago. Yeah, we began to scale down in 2023, the energy exposure.

throughout 2024 reached a point where we had no energy exposure. But now building it back up once again, look, I look at all of this as kind of a reallocation in terms of where production ultimately comes from. Brian made a very thoughtful remark regarding where we are in terms of production and production is present. It's there. It certainly can be increased domestically if we so choose. I think Texas can make up

a lot of that production lost. As it relates to redirecting a lot of Canadian oil elsewhere, probably a little expensive. You know, I think the...

The preference is for that oil to come south here into the U.S., not to be redirected overseas to India and other places. Yeah, by the way, natural gas up double digits. You also own EQT, largest natural gas producer in the U.S., so good day for you there. Coming up next on Halftime, much more on the trade war in your portfolio. Our Courtney Reagan is standing by with the inflation-fighting ETFs in today's ETF Edge. Halftime back right after this.

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And we are back on Halftime. Let's get to our Courtney Reagan with today's ETF Edge. Hi there, Frank. So whether implemented now or later, one of the major arguments against tariffs is that they can spur inflation. Our next guest believes too many investors think inflation is in the rearview mirror, but that they should still consider it a very real and possibly building headwind right now. So joining us is John Davey. He's CIO at Astoria Portfolio Advisors. John, thanks for being with us. I mean, look, as we mentioned, you say most investors' portfolios are not currently prepared for higher inflation. It's not.

Yeah, I mean, a lot of the portfolios that we oversee and we see in the marketplace is still very much tech and growth and have very little exposure to real assets, sectors like energy, materials, industrials, sectors that benefit from higher inflation. So we don't think people are prepared for an extended period of

of tariffs and which tariffs are inflationary by nature. So we don't think people are prepared for it. And here we are. What a day to have you on here. I mean, obviously, you're going to talk your book because you run an inflation adjusted fund. So how does it work? Tell us about it.

Yeah, well, the funny thing is we launched this fund in December 2021, and people thought that inflation was not going to be around. And since then, if you look at core PCE, we're still at 2.6. The Fed's target is 2%. Once inflation genie comes out of the bottle, it's very difficult to

put it back in. And if you were to extend your chart and your screen back to 2021, you'll see that cumulatively, the spread between PPI, our fund, versus S&P, for most of the period, we actually were outperforming the S&P. But that closed with the MAG7 run up. So what we do is we allocate across 50 different stocks and or ETFs that benefit from structurally higher inflation. So that's oil and gas,

parts of energy, industrial materials. We also added recently data centers, power plays. So in aggregate, it's a 13 P ratio, which I think is pretty cheap. And we're picking, you know, the best in breed stocks, ones that are high quality within those sectors. Okay. So, so outside of that, I mean, how else are you advising clients to diversify, spread risk around in their portfolios for everything that we're having to manage right now?

Well, we're global macro investors. We don't love buying the S&P or the Qs, let's say. We think you should be tilted away. The MAG7 stocks are very, very expensive. If you look, earnings growth for the MAG7 stocks is projected to be 20% by the end of this year.

The S&P 493 is projected to be 12%. So that spread of 8%, that's narrowed significantly. Last year, that spread was like 33%. So we think you should be buying very idiosyncratic stories, whether it's things like PPI, which are inflation beneficiaries, or KBWB, the money center banks, or even tilting towards equal weighted strategies.

Okay, some good ideas here on a day where inflation and tariff is all the talk of the town. Thank you very much. Much more on inflation fighting tactics and quick diversification coming up on ETF Edge. That's at 1 p.m. Eastern. John will be joined by Todd Rosenbluth. He's head of research at Betify, ETFEdge.cnbc.com. Frank, back over to you. All right, Courtney, thank you very much. Courtney Regan with today's ETF Edge. Coming up, more committee moves. Joe has two new cells, including a name that Weiss is in. We'll debate the move coming up next.

And welcome back to Halftime. We want to highlight a few other trades in the Terra Nova Quality Momentum ETF. Joe, coming over to you. You sold Caterpillar. Yes. And you do that when revenue growth goes from double digits to negative. So the strategy is constantly looking at what is the revenue growth when thinking about the quality factor. We prioritize that, which is kind of different. And I think that absolves

of then getting into a lot of value traps when you look at that revenue growth and revenue growth for Caterpillar has gone the wrong way. - What do you make the upgrade today? Upgrade today, price target raised from 355 up to 385 by UBS also moved up to neutral. Important to note, Caterpillar is a very big presence in Mexico, a number of facilities there. - It sounds like you're kind of challenging the fact that we got out of the position throwing in an upgrade and saying maybe they're right and possibly you're wrong.

I believe in following a rules-based strategy, removing the human emotion. So I'm going to align myself with what this ETF is. He was channeling me there. He channeled me. I did. You did. Absolutely. Jim, you're a capital investor way... I knew he was going to do that. Look, people are saying that this is a black jacket. It's the same color as yours. It's navy blue. Navy blue. It's not black.

Jim, just tag us out. We're going to get going on this. Anything on Caterpillar? I know you owned it way back in the day, but very quick. It's a great company. I think that after the run it's had and at the valuation that it's had and all the success that the industrial sector has had, it's fine to trim it or even sell it. There's nothing wrong with selling eyes.

Nothing at all. What about industrials overall? I mean, if we are, in fact, in a trade war in tariffs, you know, we don't have that much clarity. We just saw kind of a reversal today. I'm going to make this simple, too. I'm going to make this simple, too. Look, in the long run, industrials should work, right? We've got infrastructure spending. We've got supply chain onshoring. With all the trade wars going on, that's going to continue. In the short term, the sector is due for consolidation. So just brace yourself for that. All right, brace yourself. We're going to get to another move. Joe, you also sold Uber. Price, momentum.

That's the reason behind it. You had a run up above 80 in the fall at

at as it began to pull back and correct from that level personally sold out of the position at a belief seventy three and a half we talked about it on air i think the company is well positioned when you think about the future but i think you're going to have to endure period in which you're going to have to wait if you're long the position and you want to be patient you will be rewarded for those that own uber

I would think that the next $25 is going to be higher, not $25 lower. But this is a strategy that's rather active. It rebalances and reconstitutes on a quarterly basis. I like that effect. And what it did was it acknowledged that we're basically seeing Uber is running in place. By the way, when you rebalance and reconstitute on a quarterly basis, you have the advantage

of paring back winning positions like Applovin, like Palantir, and that's exactly what happened on Friday. - All right, right now looking at Uber shares up just about 1.5%. All right, coming up next, Mike Santoli joins us with his midday word. We're back right after this.

And we're back on halftime. Senior markets commentator Mike Santoli joins us now with his midday word. Hey, Mike. Yeah. Hey, Frank. You know, I guess you could, in the abstract, step back and say we could be down three quarters of one percent on Monday for no reason at all or any reason. And, of course, it does come down to the market trading in the very short term in this binary way. Either it's going to be maximum tariffs or none. We have to

be headline aware. What is interesting, as some of the dust has settled so far today, is what is still weighing on the S&P 500 is the China basket, right? So it's Nvidia, Apple, and Tesla is the source of most of the downside. That's the way we're going to trade it in the short term. I don't think it's the make or break factor for the U.S. economy.

But it is, in investors' minds, the thing that complicates their fundamental premise for why they, in general, on balance, the majority wanted to lean bullish this year. So I'm very interested in how the retail trading cohort responds to all this. And I noticed my little tells of retail activity had nosed into the green. That would be Robinhood shares and Palantir just a little earlier. So they...

There's a willingness to believe on that front. We're going to talk pounds here in just a second. I want to talk to you about bonds and the so-called bond vigilantes. Where are they? I mean, we've got the tariff announcement. Looking at bond yields, they're actually down a few basis points from a week ago. Well, first of all, you've got the stock vigilantes on tariffs, and that was a percent and a half down on the S&P 500 maybe that got some response. Where it is is I think the long end of the bond market was essentially pricing in at least higher risk of economic disruption or slowdown risk. I mean, these are small moves. This is not –

tremendous. But it's not across the board an organic inflationary event, even if you do get the tariffs. And I don't think that bonds would necessarily respond as if they were. All right. Mike Santoli with his midday word. Mike, thank you very much. Stay with us. We have final trades coming up on halftime.

And we're back on halftime with final trades. Jim, you're up first. Cisco Systems. I know I've talked about this a lot, but you just have to respect the price action here. They've had several quarters in a row of better than expected earnings and guidance. I think that continues in a couple of weeks from now. Weiss. UnitedHealthcare, in fairness, Jim wanted to be his final trade, too, but allowed me to take it.

talk about price action's great it's defensive and i think the stock goes past the old ties joe in the navy jacket so going back to where we began the show talking about don't focus on the macro are you bullish are you bearish walmart trading to a new all-time high tell me frank what does walmart benefit from a bullish environment a bearish environment which environment or a hybrid of all

All right, there we go. Final trades. That's going to do it for halftime. Take a look at the markets still in the red. Have a great day. The exchange starts right now. You've been listening to CNBC's Halftime Report, the podcast. You can always catch us live weekdays at 12 Eastern, only on CNBC.

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