Closing Bell - Closing Bell 10/19/23

Episode Date: October 19, 2023

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with a post Powell puzzle. The stock market wavering since the Fed chair's midday comments highlighting a sturdy economy and saying policy is now properly restrictive. But he expressed uncertainty about how it might perform under ever higher bond yields. The 10 year Treasury has been hesitating just shy of that 5 percent threshold all day, keeping the indexes off balance. Just about $4.99 right now. Short-term yields are lower. So-called steepening of the yield curve getting some investors a bit unnerved in the last hour or so.

The index, though, supported by Netflix and mega-cap tech. Tesla's post-earnings drop weighing heavily on the S&P 500, down about three-quarters of 1%, which brings us to our talk of the tape. Should investors take Hardin Powell's wait and see approach and are so far encouraging earnings outlook or are long term yields flashing a yellow light for risk? Let's ask Anastasia Amorosa, chief investment officer at iCapital, joins me here at Post 9. Good to see you. Good to see you, Mike. Plenty going on. As we just kind of ran through, the bond market is still fixated on perhaps the supply of treasuries at the long end, perhaps the lack of buyers that have shown up so far and it's gotten people skittish. Is that really what's driving things right here?

Can we get some clearance from the bond market to refocus on earnings anytime soon? Yeah. I mean, unfortunately, not yet, or at least not today. And, you know, if you think about what's driving these yields, I mean, it's at least three or four different factors. You know, first of all, you've got growth that remains resilient. So that keeps pushing up the long end of the curve. Then you've got inflation. You've got oil that's a little bit more resilient. And so that feeds into policy.

So the markets are pricing that in. And inflation break-evens are staying sticky. And then Fed policy you know today you know it was sort of we're going to move carefully but at the same time maybe we're not yet done. So you put all those factors together and that's

what's pushing up the yields. But then that doesn't explain the whole move that we've had in the last two months. And you know there's a big residual there and I think that has squarely to do with this very different environment today

which is this is not QE. This is quantitative tightening at the time where we're issuing record amount of treasuries and refinancing about 40% of our debt maturities this year and next. That is what really pushing on the yield curve and pushing those yields higher. Does that mean that, you know, you just have to sit back and see where yields ultimately settle out or are things becoming interesting and cheap along the way? I mean, yeah, the S&P 500, you look at it, you say, been pretty resilient, all things considered. It's been in this tight range, still up, you know, 12 or so percent on a year-to-date basis. But we all know the average stock's done nothing this year. Right. And only

about maybe a third of S&P stocks are up 10 percent on the year. So how do you navigate it? Right. Well, I think if you look under the hood, the market has actually been incredibly resilient. And I would say discerning, I mean, amidst this higher rates. And, you know, what I mean by that, you know, this month we've got it 36 basis points or more of backup in yields. And at the same time, the S&P, well, maybe until today, was sort of in positive territory. And the Nasdaq has been outperforming. Software was up 5% before the sell-off that we had. So that's a lot of resiliency. And also, if you fast kind of rewind back to the last month, we got 115 basis point backup in rates. And you would think the

market would be down 10% or more. Big tech is down about 6%. So I think that's kind of remarkable resiliency. So what I think what the market is doing is being discerning. If you think about big tech, it's actually one of the sectors that is most immune, so to speak, fundamentally from higher rates. Yes, higher rates hurt valuations, but at the same time, tech doesn't have a whole lot of debt on the balance sheet. So what I worry about, and I think what the markets worry about, are the sectors in the economy that do have a lot of debt, that are vulnerable. And, you know, consumer discretionary, for example, case in point, unprofitable tech. Those are taking it on the chin and rightfully so.

It is true. But, you know, those exactly are the areas that you would say yields have registered. The idea of a slowdown that might be coming is already making its way into those valuations. So, again, you have this bifurcated market and are left with saying either market's got it right and we should just follow the trend or we want to be somewhat counter the tide and try to look for stuff. Well, I love to be a contrarian in most cases, but I think in this case the market is actually right. And the reason is I can say with certainty that we have reached a peak on a 10-year treasury. And again, the reason I say that is because when we look at the different kind of debt piles around there, we know there's so much treasury debt that is coming due. Again, 40% of those maturities are due this year and next, and they have to be refinanced at a materially higher rate. And by the way, this is happening at the time where the Fed used to sit on about a 25% Treasury of the outstanding

that was out of the market. That's not the case today. That percentage down to 19%. So the Fed is not an incremental buyer. The central banks globally are not. The banks are not buyers of these Treasuries either. So that really leaves us with a supply and demand mismatch. So that means most likely we can't quite call a cap in yield just yet. And so that's what makes unprofitable tech a challenging place to buy the dip in as well as consumer discretionary.

You know, I'd love to turn the charts upside down or at least let's talk about treasuries in price terms where you would say if we were talking about stocks right here yeah you'd be saying yeah there's value being built in this pullback's gone deep it could continue to overshoot to the downside but ultimately you want to be a buyer right of that dip does it apply to bonds right now well i would decouple kind of the next three month view versus maybe the next you know six months to a year and what i mean by that you know in the next three months i do actually see scope for the yields to sort of pause and maybe retrace lower.

The reason I say that is because growth is likely to taper off in the fourth quarter, and we've priced in the bulk of Fed policy hawkishness. So I think yields can't pull back longer term. Those dead deficits weigh on treasuries. Yeah, it does seem so. Do we have Greg Branch? I want to bring him into the conversation as well. Veritas Financial Group. Greg, it does seem so. Do we have Greg Branch? I want to bring him into the conversation as well. Veritas Financial Group. Greg, it's good to see you. So look,

you've been sort of thinking that the market had downside to it, that earnings weren't going to come through. And the earnings piece seems like it's OK, at least so far in terms of results versus expectations. But how does the whole macro picture feed into what you're expecting so I agree with Anastasia on that we haven't seen the peak in yields yet and I agree for a couple of reasons the first is whether you believe it's Fed action or whether you believe that the Fed will let the market in them itself do its tightening because of the blood of Treasuries were likely to see this Anastasia already referenced this we know and if if we're going to see higher yields then that could keep me cautious on the equities market as you are as you already pointed out and to a degree that we haven't seen consensus

estimates reflect the harshening environment for companies going forward i think that the estimates of q4 and 2024 are significantly too high. And so that keeps me very cautious on all equities, not just the ones that Anastasia pointed out that are more susceptible to higher yields and higher for longer, but across the board, I think the estimates are going to be too high, despite this quarter coming in much more leniently than expected, with 40 basis points so far of growth as opposed to the projection of 40 basis points of tightening. And so if I am somewhat skeptical on equities and somewhat skeptical on bonds right now, at least long-term bonds, because at the end of the day, I do see yields rising and we're going to get greater compensation on those future issues

than we're going to get on the issues of today. So I'm still focused on the short end of the curve, because that's where I feel like we're being properly compensated and staying liquid enough to take advantage of those other opportunities when they present themselves. And as you said, some things are actually looking quite cheap right now. It's just my macro view that keeps me from advocating for them full-throatedly right now. If you prefer the short end of the curve and you'd rather sort of harvest the five percentage you're going to get in those maturities, you must think the economy is going to be OK, right, that the Fed's not going to be forced to be cutting anytime soon because that would raise the risk of your reinvestment of those proceeds of the short bonds and all the rest of

it. So in a world where the economy is going to hold up, how are we talking about radical downside to earnings? I think that that's absolutely right, Mike. And so let's define the term radical. I'm at 225 for next year. If I put a 17 times multiple in 225, that puts me at 3800. So I'm not advocating for anything exceptionally draconian, but I do think that the consensus has it wrong right now. And so I'm certainly not advocating for 8 percent growth in the fourth quarter and 12 percent growth in 2024. And so let me make that clear. I do believe that we won't see rate cuts next year because, as you pointed out, I don't think the economy is going to slow that much. I do believe, however, that the economy is going to slow much more significantly

than consensus is indicating right now. And so typically headwinds, typically downward revisions are headwinds for equities. And so it's hard for me to get around that and even things that I think to be cheap right now, when I feel like consensus is underestimating how high yields will go and underestimating or overestimating the strength of the consumer balance sheet. Anastasia, it is still on the early end of this earnings season, but the pattern going into today has been big upside in aggregate to the growth rate. But stocks not trading well, right? On average, you're down 1%, I think, of the company's reporting. And even if you're beating and raising, the stock's not getting rewarded on average. Now,

this has been the pattern for the past couple of quarters as well. And ultimately, the market's found there where the index at least found its way to stay supported. Do you think that that simply reflects that we're in this mode where investors are saying, sure, it's fine now, but it's about to erode? We're in late cycle, no matter how you slice it. And I'm not going to be dissuaded otherwise. And what changes that dynamic, no matter how you slice it. And I'm not going to be dissuaded otherwise. And what changes that dynamic, if anything? Yeah, I think there's a couple of things at play, maybe more near term focused, actually, versus thinking about 2024. You know, first of all, again, we can't get away from the rates discussion. And as good as the earnings may

be, by the way, you know, we're having pretty substantial beat on earnings and we're now flipped into positive territory on year over year earnings. But if we're talking about rates, we can't focus on that. You know, the other thing that I think is at play is the bar going into this earnings season was not set particularly low. You know, for example, you typically have earnings downward revisions going into the quarter, but we didn't really have all that much. So I think most analysts were relatively bullish, so to speak, on the economy in the third quarter and that supporting earnings. So I think that's why the reaction that you're seeing is sort of muted as a result. But I also have to talk about market technicals. And I think what's not at play right now is that corporate buybacks

are not actually being executed right now. As these corporates are in blackout window due to their earnings, they're not the big buyer in the market that they typically are. CTAs have pulled back and hedge funds have put back as well. So you don't have that bit. But I think that does start to come through as the earnings season goes through. And by the way, a huge week of earnings next week. So I'm optimistic on that one. Well, that is true. And I wonder, Greg, if that's the thing that maybe is keeping investors from getting even more negative or reacting in a more rash way to what's happening with yields right now, because it does seem as if there's at least the potential that look, I mean, Netflix is flying today on its own earnings.

It's not that big in the index. It's not really a bellwether for anything. But if that happens to an alphabet or a meta, then, you know, do you want to stand in the way of it? Yeah, look, I think unequivocally the quarter is coming in better than expected, as has as has the last two quarters, even though we had contractions and earnings. You know, we started this quarter with the expectation of a negative 30 bps of contraction and we're at 40 bps of expansion. But that doesn't necessarily predict what's going to happen in future quarters. One of the things that Powell pointed out today and is reminding the market is that we haven't felt the full impact of that 525 basis points of Fed tightening,

nor did he exclude more Fed tightening. He's just waiting to see what the markets will do in and of their own court. The other thing I think we have to focus on is that, you know, not only is this quarter better than expected, but the signs for future quarters being worse and the sign for those earnings being off is littered in some of these earnings reports. And I think it's the reasons for one of the lack of buyback activity that Anastasia referenced, is that the companies are not all that optimistic. Whether it's even J.P. Morgan, who is positioned to capitalize on

all of the trends that we experience, be it a flight to capital quality, be it a net interest or earnings margin environment improving, even they are cautious. We see Wells Fargo provisioning $330 million. We see the retailers talking about failures in their credit card divisions and purchasers shifting from large, large ticket items down to the non-discretionary. And so I think they're sending the warning signs. I think Powell finally took a shot today at his primary enemy, which has been the politicians, by the way, in this fight for inflation. He has warned them that this stimulative path cannot continue forever. And he was right to do that. As he's trying to destroy demand, we've seen an extraordinary amount of stimulus applied to this economy over the first three quarters.

And I think that is postponed the inevitable to some degree, which is we can't get down to 2 percent inflation with 3.5 percent of the program. Yeah, I mean, I mean, I think to be fair, what Powell said and what all Fed chairs have tended to say if they address this at all is the long term fiscal situation is out of whack and something has to change about the trajectory. And, you know, hard to argue that point. I just wonder, Anastasia, I mean, right now we are very focused on this supply demand issue for debt, for the government's securities. On the other hand, debt to GDP and deficit to GDP are off their highs. Right. We're not actually making new peaks because we obviously are growing nominal GDP every day. The credit markets are undisturbed by anything going on right now, whether that's right or wrong. They're not. And, you know, however you slice it, the Fed's kind of in wait and see mode and they're almost done if they're not done outright. All those things, to me,

build toward, you know, maybe there's a little bit of a longer leash on this situation. Well, I'm going to give you one scary stat, and I think there's a positive stat there as well. And the scary stat is if you look at the debt service, the U.S. government debt service relative to revenues, it used to be around 6 percent. Well, if you look at the trajectory of that debt service, if nothing changes with interest rates, then we're on path to be about 21 percent debt service to revenues. So that's why I think the markets are starting to worry about if the Fed is not done, if they're going to stay around current levels, if we don't resolve our budget deficit issues, we're on path to that 21%.

So that's scary. And I think that's why I'm not in a rush to be piling into duration in treasuries. Having said that, if I look at the corporate balance sheets, you know, first of all, only 10% of S&P 500 companies have floating rate debt. And if I look at the wall of maturities and investment grade and high yield corporates, it's actually not that great. They're not refinancing 20 or 40 percent in the next several years. So that gives me a lot more reason if there's a place to step into the bond markets, to step into investment grade corporates, for example, or also look at municipalities, because they're actually in far better shape than they were post the financial crisis. They have a lot of rainy day reserves. And if you're compelled to buy duration, I would do it in munis. Greg, outside of, let's say, short-term bonds and cash-like stuff, is there anything that seems to make sense right now? I mean,

it's funny. A lot of folks from either side of it seem to be able to come around to energy as being something that's exempt from a lot of the issues we're dealing with. Does that appeal? It does have appeal. And Mike, I think you're familiar with my key tenets here. If you need equity exposure, if we need equity exposure, we're going to look for where there's secular talents. We're going to look for where there's some degree of margin protection, if not expansion. And we believe that those things will give us relative earnings growth. And so energy is one where you can certainly argue for the structural advantage long term of owning energy, given that the supplements are not growing as fast as demand even right now, the alternative sources.

But there are other areas. And so financials look interesting if I didn't believe that we were at the very beginning of a provisioning cycle. Manager's margin environment should be improving, particularly if the curve is going to flatten to some degree. And so, you know, once we, I feel like, get into the middle of that provisioning cycle, we have some bellwether names that are trading at the low tangible book right now.

That's always a buy signal for me with financials. Cybersecurity. We certainly have strong secular tailwinds there, as well as cloud and AI. So I do think you can be opportunistic here. I do think it's time to start looking at your stock picking, because I think the opportunity will present itself within the next six months. All right. See how fast it gets here, if it's not already here. Greg, Anastasia, thanks so much. Appreciate

the time today. Thank you. Let's get to our question of the day. What is most important to the market right now? Is it the Fed earnings or geopolitics? Head to at CNBC closing bell on X to vote. We will share the results later in the hour. Let's get a check on some top stocks to watch as we head into the close. Christina Parts Nevelos is here with those. Hello, Christina. Hi, Mike. Well, let's talk about shares of the largest chip contractor in the world, TSMC. Higher, about 4% higher after posting better than feared earnings. That was really early this morning. And this comes even with a 25% year-over-year drop in profit.

On the earnings call, Taiwan Semi Management said the chip-make market is very close to a bottom and that they're seeing stabilization in PCs, personal computers, as well as smartphone demand. The company also is seeing robust demand for more advanced chips, like the ones used in the new iPhone 15 Pros. In other words, the chip recovery is near, and that's why you're seeing the stock up 4%. Switching gears, Union Pacific's third quarter profit dropped about 19% as the railroad hauled fewer shipments and costs remained high. But the company still posted an earnings beat.

Why? The company kept raising prices amid higher inflation. And that's why you're seeing shares almost 3% higher. Competitor CSX Transportation will have earnings after the bell today on Closing Bell, which is just in 40 minutes. Mike? It sure is. Thank you very much. Well, we're just getting started here. Up next, Morgan Stanley's Ellen Zentner joins us with her first reaction to Fed Chair Powell's speech today, how she's sizing up the recent ramp in Treasury yields and her outlook for the U.S. economy heading into next year. We are live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

Stocks moving lower as the yield on the 10-year Treasury inches toward a high not seen since July of 2007. This after Fed Chair Powell signaled further tightening may be necessary to bring down inflation. Joining me now to discuss is Ellen Zentner, chief U.S. economist at Morgan Stanley. Ellen, great to have you with us. Thanks for being here. You bet. So, I don't know what your takeaway was from Powell's comments. It seems to be a reiteration of, of course, there may be more to do. Inflation is not at or even very close to the target.

On the other hand, there are lag effects. We've done a lot. Rates are up. The bond market is doing its thing as well. So where does that leave you? Yeah, so I think it definitely was sort of a softer tone, definitely a more dovish tone, even though he said there could be more work to do. You know, look, he joins a long line of Fed speakers

that we've had over the past couple of weeks where we've seen sort of an about face tied to these tightening financial conditions in terms of do we need to hike rates further? Probably not. And so we heard from Vice Chair Jefferson, which was an important voice, and Governor Waller as well. And Powell is right in there with them. So that appetite for further hikes has definitely waned. And what was so interesting was it comes on the back of really strong data, a blowout jobs report, high inflation report, surprising retail sales report. But you can look through that, right, because they've done a lot

and he's pretty sure there's still a lot of impacts to come through to the economy. And so this is a Fed that's now moved back into the patient zone. For sure. I guess you say we can look through the recent spate of very strong economic growth data. But does that give you confidence that we're going to slow appreciably very soon? We've been surprised at the upside for a while now. Yeah, we have been surprised at the upside. And Chair Powell touched on one of the big reasons why we have been calling for a soft landing since March of last year. There's just less interest rate sensitivity in the economy. But that explains why the Fed's been able to hike rates 500 basis points without killing the economy. Does that mean they can hike another few hundred basis points? No. Or even

another hike or two? No. What it does mean is that they do need to keep pressure on the break on the economy. And when Chair Powell talks about raising rates further, rates becoming more restrictive over time, that's because inflation is falling. And so we've got a really high real rate now. And the Fed intends to allow that to rise further, which should continue to put downward pressure on the economy. So I do think we're slowing here. I think the fourth quarter is going to start a lot of that slowing. But, you know, we've been wrong before. So let's see. Yeah, it seems like I mean, we got that another, you know, move lower in weekly jobless claims today. If you take that on face value, it seems as if, you know, something structural might be happening with the labor market. But it's been very resilient. Is there any way to handicap how

this move in longer term yields, which has been pretty sudden and steep, is going to play through into next year? It seems as if, you know, the markets in general are very unsure as to whether the overall economy can handle it. Yeah. So the uncertainty is shared by the Fed as well. I mean, when you've got such a sharp rise in longer run yields and a volatile rise, it creates a lot of uncertainty. Certainly, you've seen delinquency rates rising for credit cards, for auto loans. Now, it's still very concentrated toward the lower income, lower credit quality areas. And what I look for is for that to spread out to more consumer products and start to march up the income chain. And so we haven't seen that, but you will probably start to see it more and more as we move into next year.

You know, I was struck by something that Richmond Fed President Barkin mentioned this week as one of the reasons he believes the economy has done better than anticipated, which was relatively wealthy Americans, higher income folks, really strong net worth growth. Houses are up. Financial markets are up in the past few years. And now they're getting 5 percent on whatever cash they have. Is that something that you can identify as a genuine offset to what's been going on in terms of tightening a policy? Yeah, well, so far it has been an offset. Look, the top income quintile represents 40% of all consumer spending in the U.S. and that's why we saw tremendous weakness

among the lower income consumers. But in the aggregate, consumer spending has looked fine, right? What we've seen is that the wealthy drew down much more of that excess savings than we had expected them to, and really pursuing those really high dollar experiences, super luxury travel. And this was a global luxury consumer story. And it's only just now started to slow with, as we've met, pent up demand, but it all comes down to the wealthy when it comes to consumer spending. So what gets them to stop? Loss of real estate wealth, which I don't expect. Our housing strategists don't expect because nobody's moving. Nobody's got homes up for sale. And so that's going to prop up home valuations. The other thing is white-collar layoffs. We had tech round. We've had a round in finance. But we've not

seen broad-based white based white collar layoffs. That's the other thing that can get the wealthy to stop spending. And that's what we have to be watchful for. But as you said, initial jobs claims are still very low. In terms of inflation itself, we all talk about the inputs to it, how it should be trending based on how restrictive policy might be in a conceptual basis. Do you expect the actual measured inflation to be coming down in a way that's going to persuade the Fed and the markets that they're on the right track for now? Presumably Powell's never going to say definitively we're done, mission accomplished until we're at 2 percent. But are we on the way there? I do think we're on the way there. It's a matter of do we get there with a steady deceleration in inflation or do we

sort of have periods where we might sort of look like we've a steady deceleration in inflation or do we sort of have periods where we might sort of look like we've lost that deceleration, then we pick it up again. And that's where the Fed has to really its patience will be tested at those times, I think especially late this year into the first quarter of next year. But our expectation is inflation will continue to come down. Look, nothing has changed in terms of the way inflation develops over the business cycle. And we're seeing it play out right now. Households are substituting down. They are, for instance, substituting away for cheaper goods.

It turns out we don't have unlimited tolerance for higher prices. It's something businesses have been saying. They've reached that limit of being able to pass on price increases. And when we substitute from higher-priced goods to lower-priced goods and services, it changes that weight in these inflation indices. And that's a constant reflection. And that's why, as we get later in the cycle when financial expectations are not as high of households, you start to get that downward pressure that accelerates on inflation. I think that happens as we move further into next year.

All right, Ellen. We can certainly hope. Appreciate the time today. Ellen Zentner, Morgan Stanley. Don't miss noted Fed watcher Jim Grant in overtime today at 4 p.m. Eastern. He will break down Chair Powell's speech and give his outlook for where rates are headed. Straight ahead, bracing for big tech with market heavyweights, Microsoft, Amazon and Alphabet, all reporting earnings next week. We have a shareholder that owns all three and he's waving the caution flag ahead of those mega cap results. He'll make his case next.

S&P 500 down three quarters of a percent, not far above the session lows. Tesla sliding 10 percent today, a big part of that, after the companies missed analyst expectations on earnings. So could the rest of the magnificent seven stocks be headed for a similar fate? Let's bring in CNBC contributor Malcolm Etheridge of CIC Wealth to weigh in on that. Good to see you, Malcolm. Good to see you, too. Now, Tesla, it's kind of its own beast, right? I mean, in terms of its business and the things it feeds off of. But I wonder how you think it fits into the outlook here for some of the other secular growers that have been carrying this market. So I think now is when Tesla gets called an automotive company,

an auto manufacturer. Again, it's no longer a tech company, right? All of a sudden it became a tech company. I think it goes back. I think it's a big difference between Tesla, the manufacturers of hard good, versus the rest of the mega cap tech companies. I mean, shipping software, the margins on that good versus the rest of the mega cap tech companies that, I mean, shipping software, the margins on that doesn't take much, right?

You jettison one project that's not working. The team that was working on it goes with it. All of a sudden, your margins improve. Not as easy to do that with an automaker. And so I think Tesla is a little bit of an outlier. And we're seeing that with the share price versus the rest. OK, that's certainly a little bit comforting. You can kind of put that behind a bit of a firewall. But in terms of the other stocks the more traditional ones the Microsoft's Amazon alphabet that is where the earnings estimates have been going up. So it's kind

of been a reason for some of the stock strength. But what's your take on how they're positioned now. I think they better bring it. I think we're going to get earnings from the majority of those names next week, right? And the market has been looking for a reason to bring those names back down to gravity. You've got a Ford PE on the S&P at like 18, roughly 32 on average on those names. And so they better bring it to support that kind of a PE again, again and again and again, quarter after quarter. And I'm not so sure just based on what we've been seeing so far, sentiment wise, that the market's even going to reward them if they do have the goods and earnings reports are favorable. I mean, Netflix is obviously smaller. It's different as well. It's doing something,

you know, it's subscription based. It's direct to consumer. But the market was seemingly a little bit nervous ahead of that and did reward, you know, that stock. So the capacity is there, I guess, if they do have the numbers. But Netflix, to me, is more of a story of the writer's strike for six months, right? On the network, the entire six months we're talking about how they're the only option when you talk about fresh content, right? And so I think this is more of us just getting confirmation that they were the only good thing happening when it came to content. And we also are seeing like 2 million or so, 2.5 million additional subscribers that they got that they didn't expect, almost 9 million new subscribers.

Is that really sustainable for a company like Netflix going forward, right? I just don't think that the double-dig up in their share price is warranted when you consider the unlikeliness that that number repeats. Among those names we mentioned that you that you did own, I mean, something like Alphabet, more like 20 times earnings, not 32, like you mentioned before. So does that seem to be in the reasonable zone, or how would you approach it? So Alphabet I'm a little bit more concerned of for a different reason, and it's more to do with their legal battles, right? I think that Alphabet is actually the one

that Lena Khan's team actually can land a glove on if any of the mega cap techs that she's after, there's actually a shot. And so just the distraction that we know goes along with fighting off a court battle with the government makes me concerned that Google Alphabet's going to be a little bit distracted and not on the right path for a while. But I definitely do think of them, Microsoft is probably the one that I'm most positive on, I'm most excited about and I think will actually continue some growth trajectory going forward through this rough patch we're talking about solely because in the AI battle, save for maybe NVIDIA, they're the only one

likely to do really well and see profit from the AI wave near term. Right. And so just based on their ownership stake in open AI and what's happening there, I think Microsoft is the one that can tell a compelling story regardless of what the macro environment is doing. Yeah, folks made a fair bit of fuss this week on that report that Amazon was going to be getting some licenses for Microsoft Office 365. It's a billion dollars over a few years. I mean, it's not a lot of money,

but it would suggest that Microsoft as a franchise has something going for it here. And for Amazon to concede to Microsoft, their competitor in the cloud space, we can't necessarily do this without you. Also, Amazon had brought itself out as sort of the everything store for AI development, right? We want developers to come build on our chassis. And regardless of what you're building, we've got access to all the large language models. For them to concede that and have to go to Microsoft for help in that regard, that's a big deal, I think.

Yeah. You know, these stocks have also at times, you know, had the character of just, I want to buy a great balance sheet. It's not really about the business. It's not really about where earnings estimates are going. We may be in that mode right now or get there, but does 5% on the 10-year treasury yield change the story in one direction or the other for these guys? So maybe not an Apple, maybe not a Microsoft, right?

Fortress balance sheets, like you said, tens of millions, tens of billions of dollars, excuse me, on their balance sheets in cash, which obviously is going to help their earnings just on a net positive basis. But also those have been the safe haven trade all throughout this year. And I think the history is just going to repeat itself where the trade has always been. We get into a little bit of a stumble. We're not so sure where to go in the market. The safe haven is Microsoft. The safe haven is Apple. And I think that's what traders will cling to once again until we inevitably

rotate out of that mega cap tech trade. But I don't think we're there just yet. Yeah. Still, you know, as a group, they haven't quite recovered the old highs. So as much as it seems like they've been rampaging ahead, there may be plenty more to go at some point down the road. Least dirty sock in the hamper. There you go. All right, Malcolm, we've all worn that one. Thanks very much, Malcolm Elthridge. Up next, we're tracking the biggest movers as we hit into the close. Christina, standing by with those. Hi, Christina. I am, Mike. What bedbugs? Pest control demand is actually down, according to one firm. And one major tech company is encroaching on Duolingo's translation services turf. Pests, parts, and practice. We've got it all next.

17 minutes till the closing bell. S&P 500 sliding toward the day's lows down 9 tenths of 1%. Let's get back to Christina for a look at the key stocks to watch. Well, let's start with Genuine Parts Company. It's on pace for its worst day since March 2020 after the auto parts supplier missed expectations on revenue. But the company did increase its earnings guidance for the full year. Those shares actually hitting their lowest level in over a year, down about 12.5%. And bug extermination giant Rollins is having its worst day in almost two years after its rival Rentokill, yes Rentokill, warned of soft demand for pest control services in North America. London listed shares of Rentokill had their

worst session since 2008 at their close earlier today while shares of Rollins are off by roughly 9%. I guess they weren't in Paris with the bed bugs. Oh, and I have to continue. I have one more stock. Sorry, Mike. I just got really excited with that story. Oh, you bring the punchline home, but go ahead.

Yeah. Shares of Duolingo. Let's talk about Duolingo actually dropping right now. This is serious, though. Dropping sharply late in the session as Google announces a new feature to help users practice speaking and improving other languages. Starting with English for the initial rollout, the newfound competition from Google for Duolingo has shares off 8%. See that drop just after 2 p.m. Eastern. Interesting. Now I'm done.

Excellent. We'll see you again soon, Christina. Thank you. All right, last chance to weigh in on our question of the day. We asked what's most important to the market right now? The Fed, earnings, or geopolitics?

Head to at CNBC closing bell on X. We'll bring you the results after this break. S&P 500 pretty much at session lows. We did get about a 1% pullback down to 60. This happened as bond yields did continue to climb after Jay Powell's midday speech. Let's now get the results of our question of the day. We asked what's most important to the market right now.

Look at that. 37% saying geopolitics that edged out the Fed at 36 percent earnings. People are pretty comfortable with only a quarter of you, 27 percent thinking that's the biggest factor. Up next, AT&T shares having one of their best days of the year after third quarter results, plus a reality check for the regionals as more bank earnings hit the tape. That and much more when we take you inside the Market Zone. We are now in the closing bell of Market Zone. The S&P trying to pull off the lows down about 0.7 percent. Julia Boorstin is here to break down the big move in AT&T shares, plus Contessa Brewer on the rally in casino stocks and Leslie Picker on what to watch

out of upcoming regional bank earnings. Julia, AT&T, a big mover to the upside for a change today. Yeah, that's right. AT&T shares surging up six and a half percent heading into the close after beating expectations on the top and bottom lines when it reported earnings this morning. The company also added four hundred and sixty eight thousand postpaid wireless phone customers. That's more than 60,000 more than anticipated, also marking the company's first quarter of growth after four straight quarters of decline when it comes to that key metric. The company also raised its guidance for free cash flow for the full year by half a billion dollars to $16.5 billion, and AT&T raised its guidance for adjusted

earnings. Now, this stock has been on a roller coaster over the past year, hit by concerns about lead cables, among other things. But with today's gains over the last 12 months, the stock is down less than 1%. And worth pointing out, if you just look at the analysts here, a third of analysts have a buy, 56% of analysts have a hold, 11% have a sell. Back over to you. Yeah, certainly there's plenty of skepticism on the street around that name, Julia. I guess I wonder the management had some pretty encouraging things to say about their view of consumers and

their ability to keep spending. But I wonder if if there's the makings here of another round of, you know, competitiveness outbreak breaking out in this industry. That's always the concern that it's going to start to get very tough again on pricing. Yeah, the concern is always that there's going to be sort of a price war between all of these different players, and that's going to weigh down on margins. But there did seem to be a sense that when it comes to paying for your cell phone or paying for your broadband, those are things consumers are just not going to want to give up. They really understand the value there. So a lot of optimism from CEO John Stanky,

and he certainly left the call indicating to analysts that things were going to continue on this path. Julia, thanks. And Contessa, I guess speaking of consumers, sort of showing no quit, casinos, what's been happening? Yeah, well, especially Las Vegas, Sands, and there's been all the speculation about the Chinese consumer. And they came out with earnings today. And what we saw was that shares were popping all throughout the day on the basis of the strength of the Chinese consumer,

fueling the quarter, the travel and tourism spending. Singapore on fire. Macau, an impressive ramp up in the eight months since the end of COVID restrictions. That has seen more customers spending 96% occupancy, though visitation is still down 15% or so from pre-pandemic levels. Las Vegas and CEO Rob Goldstein says that the company is sitting on $5.6 billion in cash. They made it clear they're going to use that to invest back into the properties, phase two in Macau,

phase two in Marina Bay Sands in Singapore. And the buyback is back. After a hiatus of three years, the company announced a $2 billion share repurchase, and they're going to really rely on that in the future going forward rather than the dividends. We saw shares similarly pop up on Wynn and MGM today. Melco got a bit of a reprieve where that stock has been in the tank lately. So, you know, it's a nice lift for them. And we saw some real steam,

at least where the gambling destination of the world is concerned. I was going to say, so is this mostly for the industry and the cow story? What about Vegas? You know, United was saying some things about corporate and group travel coming back. Is there any hope of that? Yeah. In fact, it has replaced whatever softness you've started seeing in the leisure segment is being picked up by the business segment. A very crowded convention and conference calendar in Las Vegas.

And then, of course, right around the corner, F1, it's like three weeks away. November is usually the slowest month for Las Vegas. And then, of course, right around the corner, F1, it's like three weeks away. Yes, that's November is usually the slowest month for Las Vegas. They're expecting it to be a blockbuster, the first ever event to make a more than a billion dollar impact on the city. Formula One and the Sphere, apparently. And the Sphere is crazy. Yeah, it's impressive. You got to get out there and check it out. All right. We agree. Contessa, thank you so much. Leslie, let's talk about regional banks. There weren't too many scary surprises coming out of the big ones.

What are we looking for here? Yeah, a huge difference between the big ones and these regionals. But investors, even from there, are separating the wheat from the chaff. As regional banks continue to report this week, you can see their zions down about 9.5% today after missing bottom line estimates and showing higher interest rates squeeze the bank's profitability from loan making. You've got net interest margins slipping 31 basis points from a year ago as the cost of deposits skyrocketed.

And the amount of non-performing assets at that company jumped 45 percent primarily due to two suburban office commercial real estate loans. More expensive deposits and CRE exposure that looks like that are both areas of focus for investors this quarter. But not all banks are disappointing. Webster Financial in fifth third, well, they're in the green today. Webster Financial managed to expand, yes, expand net interest margins sequentially at 14 basis points. Fifth Third did see some NIM contraction in 3Q, but analysts believe it could find a bottom in the next quarter or two. And of course, the reports keep coming tomorrow morning. We'll hear from Regions Financial, Comerica, First Bank Corp. and Huntington, Mike. Yeah, you know, I found it interesting in Jay Powell's speech and his Q&A today. I was asked about bank regulation, about regional banks in

particular. And he said, you know, our largest banks are the biggest and most profitable in the world. The community banks, they have a really important role to play. They're kind of knitted in with their local economies. And regional banks, we hope their business model isn't under too much pressure. So there's some attention on the fact that the regionals are kind of caught in between. I know U.S. Bancorp, the stock popped when there was a little bit of regulatory relief in there. I mean, how big a part of the story is that? It's a huge part of the story, especially since as part of these Basel III endgame proposals that are currently floating around out there, that includes any bank with assets over $100 billion. So it spans $100 billion to $700 billion that weren't previously subjected to as stringent of capital rules.

So what that does, even now, even before the proposal goes in permanent ink, banks are already starting to pull back on lending just in advance of that to make sure that they have adequate capital, you know, if it does come to pass and if it does become permanent, despite the fact that it has a long implementation period, those sorts of activities happen, you know, pretty much right away. And so that's the key talking point. That's what the regional bank CEOs will tell you about. Adding regulation causes, you know, an immediate reaction of pulling back on financing capabilities. Yeah, it does feel like we've been in a mode for months on end for kind of waiting for another shoe to drop. We'll see how these numbers fit into all that, Leslie.

And Basel 3 Endgame, not a Marvel sequel. No, maybe it will be. Yeah. All right, Les. Thanks very much. As we head into the close here, the S&P 500 down about three quarters of 1%. It was off about 1% earlier. It's below 4,300. We're trading at levels we got to last around 10 days ago. So we've lost this last little rally above 4,300.

The volatility index also popping above 20. We have not closed above 20 in quite a long stretch of time, a matter of months. A lot of folks were looking for that as an indication that some anxiety is building. Whether that's a viable bit of anxiety or not, we'll have to see. The NASDAQ down 1%, certainly pressured by Tesla along the way. Market breadth definitely negative as well. The Dow is off just about 250 points. S&P is going to go out around 42.73.

That's going to do it for Closing Bell.