Power Lunch 10/9/26

Space Exploration Technologies

Across the shows: 8 speakers in other episodes, 13 bullish and 4 bearish calls, past 30 days

• Craig Moffett · MoffettNathansonBearish

  SpaceX cannot build a cell network competitive with the big three carriers for many years.

  Signal strength falls with the square of distance, so a satellite acting as a tower in space delivers far less power than a local antenna. Phone uplink is limited to a couple hundred milliwatts, so the uplink problem is a physics limit that engineering cannot remove. Matching Verizon and AT&T would take decades, because the carriers have spent about 30 years filling in coverage across convention centers, malls, airports and rural areas. Customer expectations are now much higher. So even with deep pockets, SpaceX would not be competitive for seven to nine years, and it is not an engineering challenge in any reasonable timeframe.

  “the challenge here is not an engineering challenge, it's a physics challenge. And we see it as really, really difficult to think that in any reasonable timeframe, Elon Musk is gonna be able to build a telecom network”at 4:28

Delta Air Lines

Across the shows: 5 speakers in other episodes, 5 bullish and 0 bearish calls, past 30 days

• Tom Fitzgerald · TD CowenBullish

  Starlink competition is more noise than concern for Delta, which gets a meaningful Wi-Fi upgrade next year.

  Starlink is rolling out across airlines, but Fitzgerald says Delta is not committed to it and could use Amazon's network instead if there are no delays. He argues that as long as the Amazon Leo rollout does not slip, Starlink's threat is more noise than concern. He points to Delta's ViaSat improvements next year, which should bring a meaningful step up in domestic Wi-Fi quality. He also says that in hub markets like Atlanta, Minneapolis and Detroit, Delta is effectively the fortress carrier, which limits competitive pressure.

  “there's gonna be a pretty meaningful step up in the quality on Delta's domestic WiFi next year.”at 13:45

Valero Energy

Across the shows: 1 speaker in other episodes, past 30 days

• Paul Sankey · Sankey ResearchBullish

  Valero has upside into its earnings print, though its valuation is now unprecedentedly stretched.

  Refiners have been running hot, with Valero and peers hitting records and up 120-170% this year as refining margins boom on diesel and jet fuel demand. Sankey says there is more upside into results, which are imminent, so he is riding Valero into the print. He notes the structural drivers (global diesel tightness and refiners' advantage from cheap natural gas) support the earnings outlook. He cautions, however, that the stock's valuation is at unprecedented levels, so the upside is a near-term trade into earnings rather than a durable re-rating.

  “I think into the results, yeah. But of course, as you know, results coming up right now. So we're definitely riding Valero into the print.”at 41:28

Oil & fuels

• Paul Sankey · Sankey Research

  Global diesel tightness is structural, rooted in US refinery underinvestment and cheap gas, not quickly resolved.

  Sankey calls the diesel shortage a structural issue that will not go away quickly. Refiners have a structural advantage from cheap natural gas. He blames government policy, including California's handling of its refining system and the lack of help for refiners during COVID, for the problem. He argues companies did not invest in new capacity when they needed to, so the country now has a shortage. No refinery has been built in the US since 1977, which Brian Sullivan cites as context. The result is that diesel tightness persists.

  “this is a structural issue. It's not something that's going to go away quickly in terms of global diesel tightness”at 41:36

• Paul Sankey · Sankey Research

  Investors are waking up to oil's free cash flow and high shareholder returns versus other sectors.

  Sankey argues the market is finally recognising the oil sector as a generator of a lot of free cash flow and high cash returns to shareholders, in contrast to some other sectors. He frames this as part of why refiners are being re-rated, while also noting the valuation levels are unprecedented.

  “I think generally, people are waking up, Brian, to the oil sector as something that generates a lot of free cash flow and high cash return to shareholders”at 41:45

• Paul Sankey · Sankey Research

  A US diesel export ban is unlikely; the administration sees it as a terrible idea.

  Sankey argues a diesel export ban would be a terrible idea and is too late given the midterm timeline. The US oil and gas industry has done an incredible job: the country imported 10 million barrels a day around the 2008 financial crisis and now exports that level, which has helped the US and the dollar. Interfering with these companies would be damaging. He sees the administration's other moves, such as tinkering with taxes and red diesel, as silly but minor, and believes the bigger threat of an export ban, which he calls un-American, has been avoided.

  “And I think they've decided it is a terrible idea because it's a terrible idea.”at 43:29

• Paul Sankey · Sankey Research

  Trump's Russian diesel deal cuts prices now but has de minimis structural impact; unsustainable past midterms.

  Sankey says the Russian diesel deal will push prices down immediately because it adds marginal barrels at the margin. He argues the structural impact is negligible: the deal amounts to only a couple of days of US consumption, and the real issue is the security situation in Russia (Ukrainian strikes on refineries) rather than sanctions. He does not see the arrangement as long-term sustainable beyond the midterms, because it is about allowing extra exports rather than real peace. He also notes that the bigger supply event is Europe's sanctions on Russian LNG, which removes about 15 million tons by January.

  “So yeah, no, this will bring down prices immediately just simply because it's marginal barrels at the margin. But the actual structural impact here is de minimis.”at 48:09

Telecom & connectivity

• Craig Moffett · MoffettNathanson

  Telco selloff on the SpaceX spectrum deal is an overreaction, since the purchase was widely expected.

  Moffett's firm wrote in July and again in August that SpaceX would buy this spectrum, and most of their institutional clients expected the purchase. Because of that, the announcement did not come as a surprise, so Moffett expected little reaction in stocks. He was shocked by the size of the drop in the carriers' shares, which he reads as the market being caught off guard by something that was fairly obvious. He also said T-Mobile's 12.5% decline might make these names a buying opportunity, though he hedged that.

  “we're a little surprised about the reaction in part because we thought everyone knew this deal was coming.”at 6:38

• Craig Moffett · MoffettNathanson

  Telecom is not a business earning returns above its cost of capital; big carriers trade near 30-year-old levels.

  Verizon and AT&T trade roughly where they did thirty years ago, which Moffett cites as evidence that the telecom business does not generate outsized returns above its cost of capital. T-Mobile is somewhat different. Because the carriers' economics come from selling service to phone customers, a new entrant like SpaceX would have to earn returns in a business that has historically been weak.

  “Verizon, AT and T trade roughly where they were thirty years ago. So it's not like the telecom business is a business that generates outsized returns above the cost of capital.”at 7:51

US housing

• Noble Black · The Corcoran Group

  New York luxury housing is holding up well despite high rates and tax proposals, as wealth keeps demand strong.

  Black says New York is holding up incredibly well because there is so much wealth and people still want a place in Manhattan. He acknowledges that some of the policies politicians are pursuing, such as the pied-à-terre tax, are things many in the industry disagree with. He argues that nothing competes with New York for shopping, culture and business, so demand for a place there persists despite those policies and the higher borrowing costs.

  “We're holding up incredibly well. There is so much wealth out there and people still want to have a place in Manhattan.”at 35:35

• Noble Black · The Corcoran Group

  Manhattan high-end demand stays strong; buyers are annoyed by the pied-à-terre tax but still buying.

  Noble Black, a Corcoran broker with 22 years in the business, says most high-end buyers are annoyed by the proposed pied-à-terre tax but still proceeding. Some buyers have paused searches and some sellers have listed, but overall the tax has not yet deterred purchases because the levels are not high enough to stop most buyers. He cites a big buyer that morning still going ahead with a pied-à-terre purchase. Demand is strong because supply is scarce: West Village is 'crazy hot' with very little inventory, and Upper East Side is doing well in pockets. Wealthy clients are also buying more and larger homes, moving from two to four properties to five to eight, and he says they buy regardless of the market as long as sentiment is good.

  “Right now, the levels are not high enough to make most of them not want to buy.”at 36:54

US consumer

• Tom Fitzgerald · TD Cowen

  Consumer cost pressure is not showing up in air travel; the premium experience trend is still intact.

  Fitzgerald sees no sign of cost pressure on consumers in air travel, which is still top of wallet for them. He says the experience-economy theme is still intact. He was pleasantly surprised by how strong demand has been. He credits the premium boom with showing that airlines may have underpriced the product for a long time, and says it gives people more reason to spend more on the plane.

  “If there's any impact from cost pressure on the consumer, it's not happening in air travel, it's still top of wallet for them. I think the experience economy, that secular theme is still very much intact.”at 14:54

Power demand & the grid

• Aaron Jagdfeld · Generac

  Power quality is a growing problem across the US, for businesses as well as homeowners.

  Jagdfeld says there are vast swaths of the US where power quality is an issue. It is no longer just a homeowner problem, since it is growing for businesses, government agencies, wastewater treatment, telecom and manufacturing. He also says data centers are both a direct opportunity, as backup power for their campuses, and an indirect one, because their heavy power use can worsen power quality issues across other parts of the grid.

  “there are vast swaths of The US where power quality is an issue. And it's not only an issue for homeowners... but it's a growing issue for businesses.”at 21:44

US Treasuries & yields

• Milissa Hutchinson · Nomura Asset Management International

  Bond yields at multi-decade highs are a generational income opportunity for investors.

  Hutchison says yields are at multi-decade highs and the 10-year is at levels last seen before the GFC. Many investors who have been in the market since then have not had a chance to lock in income. Equities have taken most of the upside, so bonds offer a way to diversify and take some risk off the table. She acknowledges yields can still move in either direction, and that supply and demand pressures from the Iran war, hyperscaler bond issuance, US debt and European debt are causing volatility.

  “it's a huge, almost generational opportunity in income right now. When you think about what's happened in the market, we are at multi decade yield highs right now”at 28:44

Credit markets

• Milissa Hutchinson · Nomura Asset Management International

  High-yield munis and high-yield corporates offer attractive, equity-like returns with lower volatility.

  Hutchison says high-yield munis now yield around 9.5% on a taxable-equivalent basis, which is the taxable yield needed to match that after-tax income. That makes them attractive for investors, especially in high-tax states like New York and New Jersey. She also says high-yield corporates tend to have equity-like returns with somewhat lower volatility, so they can replace some equity exposure for investors who are nervous about stocks.

  “We can hide in Munis if you're trying to look for yields that will get you to around nine and a half percent right now.”at 30:36

Banks

• Milissa Hutchinson · Nomura Asset Management International

  Higher rates can be very good for financials, so the sector is an opportunity as the market broadens.

  Hutchison says higher rates can be very good for the financial sector. Financial stocks have been sold off into the rise in rates, which she attributes to investor uncertainty rather than fundamentals. As the market broadens ahead of earnings season, she sees opportunity in financials alongside healthcare, which could benefit from money rotating away from AI. Her argument is brief and does not include specific numbers.

  “Higher rates can be very good for the financial sector in terms of... As we go into this earnings season, we do think that there is still opportunity in the broadening of the market”at 32:30

US state & local policy

• Noble Black · The Corcoran Group

  NYC's pied-à-terre tax is likely to be blocked; it is tied up in courts and badly implemented.

  Noble argues there is a big chance the New York pied-à-terre tax never takes effect. He says it is being challenged on two fronts: the way notice was given, and constitutional grounds. He calls it a measure that has never been done before, poorly researched and horribly implemented, and says it is more about capturing headlines and a class-warfare argument than sound policy. He points to the publicly available spreadsheet of names as an example of the poor rollout. Because of this, many buyers are betting the tax will never really be implemented, which is why they are not yet changing their behaviour.

  “...but it's also being challenged on constitutional grounds. It's never been done. It was not researched well. It was certainly implemented horribly.”at 36:44