With prices up, trade down, and only 32% of Americans feeling confident about the economy, BBTW editor Peter Green spoke with Tony Roth, chief investment officer of Wilmington Trust Investment Advisors, managing about $80 billion, about where we are and what comes next.

Peter Green: When you look at the markets now, you look at the economy, tariffs, interest rates, how would you describe the situation?

Tony Roth: Right now, there’s probably about a 45% chance of recession, which is attributable primarily to the significant deceleration that we’ve seen in the secondary indicators of the labor market since the data fog started. The labor market’s really struggling right now. Typically, when labor numbers come down to these levels, you do have a recession. But there’s a high degree of uncertainty because there’s been this labor data blackout, and so we’re going to start to get data soon, and we’ll start to get a better read on whether or not the 45% should go up or down.

What should we be looking for in the job numbers?

Non-farm private payrolls. And quite frankly, even what would typically be considered a bad number is probably going to be good. So if we get a number between zero and 50,000 [net new jobs], that would be good for the equity market, not drastic enough to suggest a recession risk higher than 45%, but weak enough to suggest that the Fed, which has triggered the drawdown in equity markets, would be more disposed to cut interest rates in December because they’re getting behind the curve on the labor market. Above 50,000 would really concretize the idea that the Fed’s not going to cut in December, although there’s still a lot more data to come out between now and December. Anything below zero would suggest the Fed is going to cut, but that they’re cutting because the chance of recession is now above 50%.

What’s causing this lack of hiring that we’re seeing now?

Three things: A slowdown by consumers and uncertainty on the geopolitical horizon as it relates to the tariffs, [so] companies don’t want to hire in that environment. Second, a lack of labor supply because of the immigration policies of the current administration. Over the last two or three years, 85 to 90% of new labor was coming from immigration. Third, technology and AI are starting to help companies increase productivity.

What could turn all that around?

Some of the provisions in the big beautiful bill [can] help consumers from a tax standpoint, essentially fiscal stimulus, and provisions that favor corporations around expensing. The other thing is if the Fed cuts rates. Probably the most important, but the most uncertain, is where the 10-year bond rate goes, because in order to get a healthier economy overall, we need to see a healthier housing market.

How does that work?

It’s unlikely that home prices are going to come down in and of themselves; you’re much more likely to see affordability come from lower [mortgage] rates. But to see lower [mortgage] rates, you need to see the Fed cutting, and see the market believe that over a longer-term horizon, you’re not going to get currency inflation. Mortgage rates tee off with the 10-year, so we could see the Fed cut rates and see the 10-year come down, or not see the 10-year come down. That 10-year coming down into the mid-threes is very, very important to get the economy to a long-term trend rate of about 2% growth or above. And we just don’t know if that’ll happen.

And how do we get jobs back?

If, in fact, companies can increase productivity from technology, then new jobs could be created from the uses of those technologies. If it gets too high, you lose too many jobs, and it hollows out the labor force and hurts consumption. You want to see productivity between 2.5% and 3.5%, the sweet spot.

You mentioned a recession risk. What would that recession look like?

I don’t think it would be a very bad recession at all, because we already have some tailwinds in the Big, Beautiful Bill, in productivity coming from technology and AI, which is going to be counter-cyclical to a recession. And if we did have a recession, so long as the current Congress [can] do things through reconciliation, they would probably stimulate the economy by spending more money. But if we [have] a recession, I don’t think the market is priced for it. And you’d get a significant drawdown in stock values during that period.

So, how do investors protect themselves?

I don’t know that there’s a really good way to protect yourself. If you’re going to invest and look for the upside, you’re going to have to bear the risk of the downside. You want to be as diversified as you can, which is to say that you want to make sure that you’re not mainly exposed to the MAG7 and to the AI trade. You want to be broadly invested across the S&P. You want to make sure that you have the right amount of bonds in your portfolio. It’s about having the right amount of risk and having the time horizon so that if you get hurt and the markets do come down significantly, that you can wait it out for the markets to come back.

—Peter S. Green

Watch Big Business This Week on Cheddar—and YouTube!The usual suspects

• The Great WBD Garage Sale: Is Warner Bros. Discovery $WBD headed for the chop shop? After announcing plans to split its streaming and studios from its cable networks, sharks are circling. Media M&A watchers see three potential buyers for all or part of the studio and streaming complex that CEO David Zaslav built by combining the Discovery Channel with Warner Media, and promising investors the new form would have the heft to combine with Netflix:
• • Paramount Skydance $PSKY, led by nepo-mogul David Ellison and financed by his father, Oracle co-founder Larry, is offering $23.50 a share, backed by Saudi Arabia’s Public Investment Fund. Paramount wants everything, but regulators may balk at it owning two studios, CNN and CBS news networks, and streaming services Paramount+ (No. 4), HBO (No. 6), and Discovery+ (No. 9).
• • NBC parent Comcast $CMCSA, which is spinning off its own cable networks, and owns Universal Studios, is also reported angling for all or part of WBD. Trump called Comcast CEO Brian Roberts Brian Roberts, a “disgrace to the integrity of Broadcasting!!!” but Comcast may also offer Zaslav a role overseeing its media business.
  • Netflix $NFLX, now the biggest player in scripted programming, has the deepest pockets of any suitor, with a $470 billion market cap. It reportedly wants the movie and television studios, film and TV library, and HBO. But that could also pose monopoly risks, with a combined entity having more than 30% of global streaming share. Preliminary bids are due Thursday. Analysts say the company is worth at least $30 a share.
• Nvidia Nvincible: Nvidia $NVDA profits jumped 65% in the third quarter from a year ago to $31.9 billion, and revenue hit $57 billion. With 90% of the market for AI chips, the news suggests a bright future for the industry despite an increasingly shaky financing model for AI development (lots of investment announced, but not much product being sold yet). Shares were up about 4% on the news midday Thursday and more than 40% this year.
• Pizza Play: If it doesn’t sell, change the box. That’s the conventional wisdom at Domino’s, $DPZ where the pizza chain is rolling out a new logo and typeface, along with “stuffed crust” pizza and a partnership with DoorDash $DASH, to boost sales. So far, its sales in the three months ended Sept. 7 grew 6.2% from a year earlier. Scale helps: Domino’s figures it can kill competition with price cutting because selling 4 million pies a day around the world gives it an edge on costs. “The competition cannot sustain the level of prices that we’re able to promote at because they’re not profitable transactions for them over a longer period of time,” CFO Sandeep Reddy told the Wall Street Journal. But shares are still down nearly 20% in the past six months.
• Diverging economy: Some stocks are doing well. Some stocks, meanwhile, are diverging from that norm. Home Depot $HD on Tuesday cuts its full-year profit forecast to a 5% drop from last year, and said it missed analyst’s earnings targets in the third quarter, as consumers are cutting back on remodeling, slammed by tariffs and high mortgage rates. Another cause: Fewer hurricanes cut into sales of plywood and generators. Still, both the world’s least classy discounter, T.J. Maxx $TJX and the world’s largest retailer, Walmart $WMT, raised their sales forecast for the year as consumers look for lower prices.

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The short stack

• Who said the art market was dead? A portrait by Viennese secessionist painter Gustav Klimt brought $236.4 million to the family of cosmetics heir Leonard Lauder, the second-highest price ever paid for a work of art (Leonardo da Vinci’s “Salvator Mundi” fetched $450.3 million in 2017). The more than $30 million of auction house fees on the sale of “Portrait of Elisabeth Lederer” also brought some relief to Sotheby’s $BID and its embattled owner Patrick Drahi, whose media business, Optimum Communications (previously known as Altice, and a one-time owner of Cheddar) has lost 95% of its value in the last five years. Sotheby’s didn’t name the buyer, but the same night, it sold Maurizio Cattelan’s 18-karat solid-gold toilet, “America,” for $12.1 million to Ripley’s Believe it or Not, or about the price of the gold it’s made from.
• Wanna watch a baseball game? Keep subscribing. MLB has a new three-year media rights agreement, and you’ll need a spreadsheet to know what’s on where. Disney’s $DIS ESPN will pay $550 million a year for the right to distribute MLB.TV, a package of 30 national games a season and a bunch of other stuff. Comcast’s $CMCSA NBCUniversal pays $200 million for Sunday Night Baseball and all four postseason Wild Card series. Netflix $NFLX pays $50 million a year for a single opening day game, the Home Run Derby and the annual Field of Dreams MLB game.
• The GLP gulp! Can Eli Lilly $LLY ride the weight-loss craze to a $1 trillion valuation? Sure looks like it. Lilly’s Zepbound is now getting the most new subscriptions among obesity drugs, besting Novo Nordisk’s $NVO Wegovy. Lilly’s already secured Medicare approval. Even an agreement with the U.S. government to cut prices hasn’t hurt, as it (and Novo) ready GLP-1 pills for market. Lilly’s share price is up about 35% this year, and its market cap was $986 billion on Thursday. Still, it’s trading at 34 times forward earnings, tech territory (Nvidia and Microsoft $MSFT are both trading at around 30 times earnings), while most pharma stocks average around 16 times.
• Network news: Can broadcast compete with Big Tech? That’s the question the FCC is confronting after TV broadcaster Nexstar $NXST, with 200 stations across the U.S., asked the regulator for a waiver to let it buy Tegna’s 64 stations. That would put Nexstar in 60% of U.S. homes, far above the legal limit of 39%. Even if those stations continue to carry different networks, that bumps up against the regulator’s efforts to ensure a diversity of views enters U.S. homes. Nexstar’s openly conservative CEO, Perry Sook, ordered his stations to stop carrying Jimmy Kimmel’s show after the comic criticized President Trump’s reaction to the killing of Charlie Kirk. Arch-conservative broadcast owner Sinclair $SBGI, which has its own local news network, is trying to add E.W. Scripps’ $SSP 61 stations to its 178 stations. Sook says the FCC is out of step with the new tech reality. “A broadcasting giant is probably an oxymoron in today’s environment compared to big tech that can reach every screen on every device in every home, in every car, in any suit coat pocket in America,” Sook told the Wall Street Journal. “So that’s really who we compete against.”

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Trumplandia

• Saudi Business: America’s top CEOs flocked to the White House Tuesday night for a state dinner to honor Saudi Crown Prince Mohammed bin Salman and angle to invest in the Kingdom, as the prince tries to diversify its economy away from oil sales. Never mind that U.S. intelligence services say bin Salman ordered the execution and dismemberment of opposition journalist Jamal Khashoggi. Money talks. Besides Paramount CEO David Ellision’s Saudi-backed bid for Warner Brothers (see above), Trump frenemy Elon Musk, GM $GM chief Mary Barra, and Apple $AAPL chief Tim Cook were all present. At a Saudi-US investment forum in the Kennedy Center, Nvidia’s Jensen Huang, Palantir’s $PLTR Alex Karp, Blackstone $BX founder Steve Schwarzman, and Salesforce $CRM boss Marc Benioff were all there to shake hands or do deals. Bin Salman told reporters in the Oval Office that his country would invest $1 trillion in the U.S., while his government said after the forum that $575 billion in deals were agreed on. It’s not clear how much of that will actually happen. That’s in part because the main Saudi investment vehicle, the Public Investment Fund, may be running out of cash, after years of bad deals, the New York Times reported, citing 11 people close to the fund. That includes the utopian city of Neom, an EV startup, and a cruise line with one ship. Still, Musk said he’ll build a 500-megawatt xAI data center in Saudi, in an effort to make the kingdom a regional AI center. Lockheed Martin $LMT will sell F-35s to the Saudis (despite Pentagon concern the Chinese could get ahold of U.S. military tech), and of course, Donald Trump and his family will see their joint ventures in Saudi funded, including four Trump-branded developments and a $63-billion luxury development that could include a Trump property.
• Fantasy Island, Fed Edition: The minutes of October’s Fed meeting, where rates dropped a quarter point, came out Wednesday, and what they show is not good for those banking on another rate cut in December. The big fear: That stubborn high inflation stays high. But equally, members were concerned about stalled job growth and the so-called data fog, which left the Fed without key information during the 43-day government shutdown. “A December cut is possible but far from assured, with policymakers emphasizing data dependence and internal divisions widening,” wrote EY-Parthenon senior economist Lydia Boussour.
• Jobs and the Jobless: Employers added 119,000 jobs in September, even as unemployment rose to 4.4%, in a sign of a weakening economy that could prompt a Fed rate cut in December (See the Q&A above). But that was before the government shutdown, when hundreds of thousands of federal workers were furloughed without pay. The Labor Dept. will release what it can of October and November numbers next month.