Closing Bell - Closing Bell 10/2/23

Episode Date: October 2, 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 Scott Wobner, live from Post 9, right here at the New York Stock Exchange. This make or break hour begins with ripping rates and falling stocks. The 10-year hitting a fresh new high today, which means big shocker. Equities begin October much like they ended the previous month, mostly lower. Here's your scorecard with 60 minutes to go in regulation as we show you the major averages as well. I want you to pay really close attention over this final hour to what's happening within the S&P 500 today, specifically utilities suffering their biggest decline in more than a decade. Look at that loss. You just don't see a sector move to that degree all that often,

down more than 5 percent, probably on the continued move in interest rates. It's a stunning sell off there today. Materials, energy staples also decidedly weaker. Elsewhere, tech and communication services have been about the only bright spots. There they are still hanging on to green, and it's probably kept the market picture from looking a whole lot worse as well. Names like NVIDIA, Apple, Alphabet, Amazon and Meta all getting a little bit of a lift today. Takes us to our talk of the tape, whether the fourth quarter will deliver better for investors as history suggests it often does, or is this year's hill just too steep to climb let's ask cameron dawson chief investment officer

at new edge wealth she's here with me at post nine nice to see you first thing you said when you sat down utilities wow right it's a it's pretty stunning to see a sector move to that degree it is incredibly stunning and of course there is that yield impact. If you look at the utility sector, it now has a dividend yield of an entire 100 basis points less than the 10-year treasury. So why take on the risk of compliance and regulation and climate in utilities when you could just buy the 10-year treasury? It does raise the question, though, if what we're seeing within the technology side of things, those names where people flock to saying they're a bit more defensive, is that why we're seeing so much strength in those mega caps as people leave the other high yielding defensives away and go into those? It is interesting too, because you could easily understand if let's say we're saying, okay, the, you know, the 10 year

hits 470. It's a, you know, a cycle high., obviously, growth is going to be down. Not so much today, though. Is that what you think it is? Money coming out of places like utilities and just going for perceived safety or more defensive? Again, out of Staples, too. And into what is perceived to be these more defensive areas like MegaCapTech? It certainly feels like that. And I think because MegaCapTech has also had a lot of earnings resilience, not just in the past couple of years, but if you look over the last cycle, tech has had actually better downside performance in recessions in its earnings than even utilities did. The problem with it is that you can't pay any price for defensiveness or for safety or for quality. And the question is, if you see these

valuations continue to expand as the only game in town, do you run right into having those very high interest rates put pressure on those valuations? And kind of what degree of resilience are you already pricing in? How are you feeling about yields? You feeling we're nearing a top? You know, it was such a swift rise in September. The market obviously was unsettled as a result of all of that. Feeling toppy now? What do you think? I think from a technical perspective, yields are overbought or bonds are oversold.

We've seen this move be near parabolic, which means that you could see some digestion that could provide some relief in this fourth quarter. But I think if we're looking at the trend in yields, it still is very resoundingly positive to the upside. And then if we think about the fundamental dynamics, you still have this scenario where supply is coming in much higher than expected because of higher deficits. And there's just not the demand for that safety trade yet from the market. If you think about demand coming from people worried about a recession, data comes in better than expected.

You're not seeing that same kind of flock to safety that could buoy yields. Let's talk about valuations, whether they're too expensive or not. I'm looking at a headline right here from Marko Kalanovic, J.P. Morgan. He's been negative for a while. And when he publishes a note, we bring it to our viewers. And I want to do it again now. Quote, our cautious outlook will likely remain in place as long as interest rates remain deeply restrictive, valuations expensive, and the overhang of geopolitical risks persists.

Valuation, the multiple on the market, price relative to earnings. Is it too rich or not? I think it is too rich and we've been thinking about how we hit a ceiling effectively at the end of July where the forward valuation traded up to 20 times earnings Tech got up to its prior high from 2021 in its valuation which was very very rich we've seen that come off some You're now up about to about a turn above long run average. But given where we are in interest rates, it's likely to say that you could see even more come out of the valuations, mostly in those growthy side of things. If you

start to see a shift to more risk off type of positioning and that risk aversion come back to the market. What about this notion of what I was talking about on Friday afternoon on this very program, the conversation I had with David Tepper about, you know, we're moving from an era of QE to an era of QT. It's just a higher rate environment. And, you know, you have to decide which earnings you want to believe in to decide whether the multiple on the market, the current one, and some of the more optimistic valuations are justified or not. And therein lies the current trick, if you will, because it's difficult to figure that out. And I think that we shouldn't forget how much QE and very low long-term interest rates actually helped to boost earnings over the prior cycle because it allowed companies to utilize their balance sheets to borrow and buy back shares

and increase EPS growth. And so what you're seeing is this major shift away into what drove the market in the prior cycle. Lower interest rates helped drive higher valuations, helped boost earnings growth to a world now where higher interest rates do put more pressure on valuations. It doesn't mean that we can't still get good organic earnings growth. But I think that the overall upside, given a higher interest rate world, is less than what we had in the prior cycle. Is it overstating it to suggest that the market as a whole is overvalued because it's being too skewed by the performance of the Magnificent Seven, where if you take those out and you look at the, you know, the ordinary 493, whatever you want to call it, the equal weight S&P 500 and small caps, for example,

it's not nearly as valuation heavy as the other part of the market is, but the part that is, is small. And it's such a good point because what you have seen is that if you look at the equal weight index, it's now trading below its long run average valuation and that it's down about a percent this year. So there are places for value to be had. The point, though, is that it hasn't been enough to get those parts of the market to work. You've seen the equal weight continue to underperform the top parts of the market. It does remind you if we continue to get more and more narrow of the era of the nifty 50, which was in the late 60s, early 70s, where there was a cohort of names that were the best of the best. They traded at a high valuation. You could own nothing less. But what ended up happening is in the next decade, they underperformed. And that

gets you back to that valuation discipline. You can't pay any price price even for the highest quality. But what about what seems to be attractive to you and cheap? Energy, financials, which areas of if any in that group would you say, OK, I'd be willing to place some bets here now? Yeah, we see some very attractive valuations within energy. You've seen flows out of the sector. People have effectively given up on the sector. There's a lot of businesses within the sector that have great operating leverage, which just means that as oil prices go up, the revenues go up. They're not spending as much as they have in prior cycles. And so you can see a bigger jump and a boost to earnings, which as we roll into 2024, the energy sector may actually have some of the highest earnings growth as we

look across the S&P 500. Do you believe in earnings estimates where they are now? Are they too optimistic? You know, this is the quarter where we're going to have a nice turn. And then as you get into 2024, the story gets obviously much better to tell. But are we still, you know, delusional to some respects about lag effects, which are still going to happen, margin pressures that are still going to exist? What do you think?

At $245 a share plus 12% earnings growth, you are not pricing in any kind of downside scenario for the economy to surprise to the downside. Next year, it's good to remember we have the benefit of easier comps. We did have weaker earnings to start this year. So you have that easiness of comps. But if you see an economic stumble, if you start to go into an environment where unemployment goes up, the consumer starts to spend less, that 12 percent will look far too high. And I think that's where we have to remain very, very nimble to see the path of earnings revisions, because earnings revisions moving lower would be the key negative for this market. Yeah, no doubt about that. We're going to get those starting in a week or so. So Keith Lerner of Truist Wealth joins the conversation now.

How do you see things as we begin the fourth quarter? Yeah, well, great to be with you, Scott and Cameron. Listen, the first thing I wake up in the morning, I look at the 10-year and the 10-year is at 470. So, of course, we're going to need stabilization for this market to find its footing. I will say, you know, we've been in the view of seeing a choppy range. And at this point, I'm starting to lean a little bit more positive, at least into the fourth quarter. I realize

everyone's looking at the same 200-day moving average, the same 4,200. My thing is we probably need to get below that to flush things out a little bit. But I think we're moving to a more of an oversold condition, right? About 10 10 of stocks today were above their 50-day moving average at the lows that's the lowest since the fall you know valuations you know they're not cheap but they have reset from about you know 19.5 to about 17.8 i heard the conversation around the magnificent seven you know if you take those out of the market you you're on 15.8. That's not a screaming buy by any chance, you know, imagination, but at least somewhat better. And, you know, I do think we're getting to a point, you know, somewhere between 470 and 5 percent on the 10-year yield will start to at least stabilize. And I do think we have still a chance for a little bit of a rally

in the fourth quarter here. But again, I think we might need a little bit more of a flush before we get there. I've heard some people suggest, Keith, that, you know, rates and stocks have historically gone up together often. It's not it doesn't have to be the, you know, the headwind that everybody is trying to make it out to be, to which I suggest, yeah, as long as the speed of which they've been going up stabilizes in and of itself. That was kind of the issue in September. But the idea that let's just say rates remain where they are now for a little while. What happens to stocks? I think stocks can do fine.

OK, not great. But I think the point you had is spot on, Scott. We were at the end of August. We were at 4.09. Now we're at 470. So one, we're seeing, I think, interest rates sensitive. Like look at real estate where we've been underway making new relative lows every week. Small caps underperforming on a relative basis as well. But I do think if you just get some stabilization, then I think that will be helpful. We have to also remember there's

a lot of technical things behind the scene that the 10-year is the risk-free rate. So when you move the 10-year a lot, risk parity strategies, hedge fund strategies, all of that increases volatility around here as well. So we need, I think, to me, it's more important that we see some stability coming back down. We don't need to go below 4%, but we need to see some cooling for this market to do fine. What do you make of, Keith, the fact that here we are talking about a cycle high for the 10-year? You've just cited it yet again. But yet, comm services and technology stocks are actually in the green. And if not for, this market would look, you know, even worse than it is today.

And it's not even that bad. Yeah, no, I mean, even before today, if you look under the surface, I mean, we got the average stock down more than 10 percent. Small and mid caps down, you know, 11, 12 percent. So, no, it's uglier below the surface. So I think what's interesting is last year the whole discussion was rates up bad for tech and communications. And we're seeing them hold up. I think the reason why they're holding up is something that Cameron alluded to before. Earnings in that sector and technology are stronger than in the overall market.

And the other thing we forget about is a lot of these big cap tech companies, they hold a lot of cash. So guess what? As interest rates go up, they're earning more money on their cash as well. So I think it is a defensive area of the market. Communication services continues to be one of our favorite areas of the market. Do you think, Cameron, the consumer is going to hang in for longer than people think? Now we're starting to get, obviously, the consumer

has to this point, but can it continue? It depends on the path of energy prices, I think, in the near term, because falling energy prices did help to boost consumer spending because what we saw is real wage growth recovered. So for all the other headwinds that the consumer had, real wage growth being better did help sustain consumer spending. But now we've spent on the savings, we have the return of student debt repayments, and now if we start to see real wage growth start to turn lower, you could see the consumer stumble.

Now, the job market will remain incredibly important. And I thought the most interesting thing coming out of the ISM manufacturing today was that they called out hiring freezes. And if we start to see more hiring freezes, what do we get in the upcoming months from a payroll standpoint? Yeah. Speaking of, I mentioned the Kalanovic note from a little while ago. I've got it in front of me now, so I can give you a little more color on that. Says delinquencies in consumer loans and corporate bankruptcies are starting to move higher. And this trend is likely to continue absent a cut in rates. Oil price surge adding a drag in growth. While we're not saying that the situation now is the same as in 07-08, there are enough similarities to warrant caution.

You want to put anything to that? I hate comparisons that try and go back to 07-08 because the period now is so incredibly different than it was then. But nonetheless, you know, that's a respected view from somebody at a big shop who mentions, you know, at least some similarities, if not, you know, all too familiar. Just because it's not as bad as the worst consumer balance sheet crisis in history, doesn't mean that we shouldn't worry about it. Meaning that, yes, you are starting to see delinquency rates go up. They have moved up rather quickly. They're still below, well below where they were leading into the great financial

crisis. But the speed of the ascent is notable. So I think to his point is saying, yes, it might not be the GFC, but it's not something that we can ignore, mostly given the fact that 70 percent of the economy is driven by the consumer. What about the idea that he puts forth, Keith, of, you know, until you get rate cuts? When are you modeling in rate cuts? And once you feel like you've sniffed it out, what's that going to mean for your overall outlook for stocks? Does it change at that very moment? No, because if we get rate cuts, it may be for a bad reason. It may be because the

economy is slowing down at a more rapid pace, which will hurt earnings. I think in some ways, what I'm really looking for is that if the employment and labor market still stays relatively strong and inflation still comes down from these elevated levels, the consumer may be able to hang in there just fine. Again, cooling from a really strong level. And if you look at the earnings side of the equation, where all this kind of moves into, we're at an 18-month high on forward earning estimates as well. So listen, the other point, going back to the question you had before, before the global financial crisis, you go from 1990 to about 2006, the 10-year averaged above 5%. So we're almost in some ways going back to somewhat more of a normal way.

The last decade was somewhat abnormal when you think about the equity and 10-year relationship. Sure, but the issue, obviously, as you know, is the speed of getting to normality, right? Yes, 5% is not like fall off the bed over, but 0% to 5% in 14 months or or or whatever um is a bit jarring no no and that's i think that's why we're having this correction which i get as i mentioned before below the surface is is much deeper so again in order to to stabilize this market to make that fourth quarter rally which we still think you know not like a you know 10 15 rally but we think there is a rally attempt you need to see theyear stabilize. We think it most likely does somewhere between here and maybe 5.10 on the 10-year, and I think that will help the overall market. But I think near term, again, we're more likely

to do to a flush before we get to that potential of a fourth quarter rally. Give you the last word, Cameron. Do you believe in a fourth quarter chase? Yeah, I think maybe the more we talk about it, the less likely it'll happen. We do know that the fourth quarter, if you started the year strong, does have the best returns of the year, which would be encouraging. But if we look, it's on average a 4%. That wouldn't even bring us back up to the prior high that we reached in July. So putting it into context, it certainly is a positive from seasonality. But I think probably, again, more we talk about it, maybe less likely. Yeah. Although, you know, you have to figure that if you can even get three or four percent, that means that rates have cooled enough and earnings were good enough. Yes. Right. And that'll that'll be two critical things to turn the calendar on as we head towards the end of the year.

It's good to see you. Thank you, Cameron Dawson. Keith, we'll see you soon. Thank you as well. Keith Lerner, let's get to our question of the day now. What will be the best performing sector in the fourth quarter? Tech, energy, consumer discretionary, or financials? You can head to at CNBC closing bell on X to vote. We'll share the results a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close today.

There's Pippa Stevens with that for us. Hi, Pippa. Hey, Scott. Well, Discover Financial is having its best day since last November after promising to improve its consumer compliance as part of a consent order with the FDIC. The company announced the proposed order back in July, along with an unrelated credit card classification error. Still, shares down over 20 percent since then. Meantime, Jeffries is bullish on diabetes device makers, saying the recent wave of weight loss drugs won't drag on those companies as much as feared. Analysts upgrade Insulet to

buy and reiterate their buy ratings on Dexcom and Tandem. Scott. All right, Pippa, thank you. See you in just a bit. Pippa Stevens, we're just getting started here. Up next, from September slump to a year end surge. Ed Yardeni is back with us today, and he makes the argument for why stocks can bounce back to record highs, or recent highs, excuse me, recent highs. And that's following their worst month of the year. He may think record highs, too. We'll talk to him about that. And later, forget 5% on the 10-year.

We've got someone who says the yield is going well beyond that. He lays his case out coming up. We're live from the New York Stock Exchange, and you're watching Closing Bell on CNBC. Welcome back. Stocks trading lower to kick off the new month of trading. My next guest says he expects a rally into year end, which will be fueled by a better than expected earnings season. Here with the bull case for stocks, Ed Yardeni of Yardeni Research. Welcome back. It's good to see you. Thank you, Scott. So I just read what Marco Kalanovic over at J.P. Morgan said, and I just want you to address two things. Rates are high and restrictive and valuations expensive. Disagree? Well, the bond yield is actually back to where it was before the great financial crisis. You know, we had this

great abnormal environment between the great financial crisis and the great virus crisis. And now the bond yield was trading around four and a half percent, five percent in 2003, 2004, 2005 and 2006. So I think we're back to normal. We've normalized the bond yield in the past three years and the economy has withstood it remarkably well. So I'm not convinced that the economy, I think the the economy has withstood it remarkably well. So I'm not convinced that the economy, I think the economy itself is showing that it's resilient. So from that perspective, I'm not convinced that these rates are going to crush the economy. So that wasn't part of what one of the guests just said as well. And, you know, we're back to normal. I'll give you that. Five percent, as I said, like five minutes

ago, is not like it's the end of the world. But we were at zero forever. OK, theoretically ever, you know. Right. And now we're at five percent. That's a jarring transition to do in a reasonably short period of time. So I think it's it's somewhat unfair to just say, well, we're back to normal because five percent is where we were before the financial crisis. No, it's a very good point, Scott. I've been arguing that the economy is in a recession. I've been making that argument since the beginning of last year. I've been calling it a rolling recession. And certainly the surge in mortgage rate certainly has created a recession in the housing market. But to be more exact, it was a recession in the single-family housing market.

And now that actually looks like it's bottoming as the multifamily housing market's taken a dive because rent inflation has come down a lot, which is great for the inflation outlook. But I tell you, Scott, these rates are going to kill a lot of projects in the commercial real estate market. We have people who are in that marketplace

as accounts managing distressed asset funds. And on the one hand, they're very happy to see all these distressed assets that offer great opportunities for them to turn around. On the other hand, they own some of these assets that they bought with record low interest rates. So now as they have to refinance them, the math just doesn't work. So I agree there are problems out there. And I'm not saying that everything is hunky-dory. I am saying that the economy on balance has been remarkably resilient. Sure, but you just mentioned, you know, you ticked through where we've seen recessions.

Okay, I'll give you that. You know, rolling recessions, we can understand that concept. But there hasn't been a recession in what is, I think without question, the most important area of the economy, right? And that's the consumer economy. Consumer. Now, what happens if that happens, right? The consumer, do you actually believe that the consumer can hang on to the degree that it has? Well, you know, you mentioned some of the headwinds that the consumers is facing the the student loan issue of

course is is a a big issue and uh so-called excess saving i think what's been missing in the discussion here is that there's still a lot of assets of it that have been accumulated since the um beginning of the pandemic you know that uh the net worth of the household sector is up to $150 trillion, $155 trillion, all-time record high. And, Scott, half of that is held by baby boomers. Many of them are retiring, and guess what they're going to do? They're going to spend that. So talk about excess savings. The baby boomers have saved for retirement, and they have a lot of money to spend.

You believe earnings estimates are where they should be for not only the remainder of this year, Ed, but as we turn the calendar, which is not that far away, into 2024? Well, Scott, I've been at the high end of strategists and kind of more consistent with the analysts, recognizing that the analysts have a tendency to be too optimistic. But I'm expecting actually that this year is going to be 225. The analysts are expecting 220. Other strategists have been expecting much less, some at 185. For next year, I'm forecasting 250.

The analysts are forecasting 245. Analysts have recently been actually raising their estimates. Looks like the profit margin has turned. Looks like things are actually getting better on the profits recession, which was all due to a shrinkage of the profit margin. I think the profit margin is starting to improve. But I'm sorry to interrupt you, but that says unequivocally that you believe that the economy is not going to slow any more than it already has shown that it might. In fact, you can't believe that if you have even more optimistic earnings projections than the street.

Well, just because my numbers are more optimistic doesn't mean that's not consistent with an economy that's growing. I do think the economy is going to be growing next year. No, that's my point. That's my point. You can't possibly believe that. Forget recession. Forget that. But you can't possibly believe that the economy is going to slow at all from here forward if you have those lofty of projections. Correct. I guess that's my point. Yeah. I mean, quarter to quarter, there can be volatility. But

yes, I'm expecting that the economy will continue to grow through year end i don't expect it's going to keep up uh what we saw in the in the third quarter which looks like it's going to be four to five percent real gdp growth uh maybe maybe we'll get something less than that i'm sure we'll get something less than that in the fourth quarter especially if the auto strike lasts a while i mean i can't dismiss the possibility there'll be a negative quarter in the fourth quarter if the auto strike lasts through the end of the year. But that's not what I'm anticipating. I'm expecting that there will be a settlement. But going into next year, I think next year will be a growth year.

I think the consumer will continue to have employment gains. I think real wages will be increasing. I really think that the big kind of secret sauce in this whole thing is going to turn out to be productivity. I see evidence of productivity starting to make a comeback. And I think it continues to make a comeback into next year and the following year. So, yeah, I think productivity is going to turn out to be what gives us better than expected growth, better expected profits and real wage gains. So let me ask you one more question before I let you run. I'm just curious what you make of the carnage that we're seeing in utilities.

Seen a lot of markets, Ed. Yeah. What do you make? I mean, you just don't see sectors like that down five plus percent in a single session. And the decline in a week is almost 12 percent. Yeah. Well, look, clearly we've got some real disturbances in the financial markets right now. As you pointed out, the bond yield is absolutely soared. It's really soared ever since Fitch downgraded the U.S. debt and made us all realize that we really do have a problem with the federal deficit.

That hasn't gone away. So I think it's an issue. I think that we're going to find that as inflation continues to moderate, that these yields that we're seeing in the bond market and in the utility market are going to attract buyers. We'll talk to you soon. I always enjoy that. Thank you for your time. Thank you again. That's Ed Yardeni joining us today on Closing Bell. Straight ahead, a new high for yields, putting pressure on stocks and top technician Chris Perrone says investors should brace for even higher rates from here. He'll tell us the key levels he's watching, what they could mean for the market when Closing Bell comes right back.

We are back on the Closing Bell. The 10-year yield, the 10-year Treasury yield hitting its highest level since 07. And my next guest thinks it could rise above 5. Joining me now to discuss, Chris Verone, head of technical and macro research at Strategist Research Partners. Welcome back. Great to be here. North of 5%. Yeah.

To where? 510, 520 is the target from the breakout. So if you look at the range we were in for much of the last year, just project that forward, you get 510, 520. But let's not complicate this. We're in a business of trends. And until the market says otherwise, the trend is higher. So I think more important than whether it's 510 or 517 or 522, it's higher until the market says otherwise. What's remarkable to me is, despite how persistent the move in yields have been, if you survey the economists on the street,

48 economists submit yield forecasts to Bloomberg every week. None of them, zero, have a forecast above 5% for the end of this year. It's 30 basis points away, Scott. Yeah. What makes you think we're going to get there? I understand trends, but that doesn't really— I think there's been every opportunity over the last four, five, six weeks, even this weekend, for the bond market to catch a bid with the debt deal in Washington. And everything you throw at this, there's more sellers than buyers.

I think it reflects the massive amount of supply that's out there. I also find it notable the parts of the market I would expect to work if rates were going to fall continue to be for sale, whether it's staples or utilities, et cetera. You feel like, I mean, I'm almost getting to the point where I feel like they're quickly becoming too many people on the same side of the too much supply, no buyer boat. So rates are just going to continue to shoot higher. I think the twist I would look for is when the flows into the bond products stop. It just seems so inconsistent to look for a high in yield when everyone's still chasing bonds.

And I think the irony is many in this business waited their whole career for bond yields to start going up. And now that they've started going up, everyone's so eager to buy them. It's a remarkable change in psychology over the last 30 or 40 years. Yeah, what about stocks then? So if you're right, and we're talking about five plus percent, you know, five is gonna be that psychological level

that people maybe get freaked out, I don't know. But what do stocks do if we get to five? It's funny. I looked at a bunch of charts this weekend and I wrote one note down to myself. I said, if this is a bull market, what's a bear market look like? Because there's a lot of bad charts out there. You know, I recognize the big weights have kind of kept the indices above the fold here. But when you go kind of name by name, only 40% of the S&P is above the 200. So I recognize where we are seasonally. I recognize we're probably tactically oversold, but that's not the big story to me. The big story

is we're very weak from a foundational perspective under this market. I think rallies from here are sell-up events. Use them to sell strength. You're looking at NVIDIA as one of the specific stocks you mentioned. We mentioned all of these mega cap tech stocks are up today in the face of rising yields, which we haven't always seen. Why would you be a seller of strength in NVIDIA specifically? I think when you look at how they've attacked all the weak stuff in this market, they've thrown out the utilities, they've thrown out the real estate names. It's almost capitulative with the bad stuff. I wonder if they start to go after some of the good stuff here. It's funny, we talk about semis or tech or discretionary in such vaunted terms.

But also when you kind of peel back the onion and look away from those four or five big names that are working, it's not much better for tech discretionary semis under the surface. Only, I think, 35% of semis are above the 200. So it's weaker than you think. No, I mean, discretionary has been completely skewed by Amazon and Tesla. Oh, sure. So we totally get it. And, Scott, you know what's remarkable is this pair between, say, discretionary and energy. We look back at the three prior soft landings in

history, 94, 84, and 67. If soft landing's the right call, discretionary should turn up meaningfully here and it should be broad. So the fact it hasn't, I think, raises some questions there. It's funny. You have, I'm looking at the list of your sector rankings and utilities at the bottom. Now, you don't have to be a rocket scientist to understand that as rates are going up, and you suggest they're going up even more, why it would fall to such a degree that it has in your own ranking list. But what do you make of what we're watching today? It's jarring. I think that price acting today is the first time in this whole utility move where there's a hint of capitulation here. I mean, you're doing, I think, price acting today is the first time in this whole utility move where there's a hint of capitulation here. I mean, you're doing, I think, 45, 46 million shares on the XLU.

Maybe the average is 10 or 12. So it's the first day where you've seen, I would say, some panicky volumes there. What I want to watch for, and think about fall of 2018, that last leg up in rates, you actually started to see the defensive-like utilities outperform. That's a bad message. So I think be on guard here for some type of a bounce in Utes and Staples. We know how bad they are. Today's the first day that looks pretty capitulative. Energy is the top holding. Yeah. Why? 95% of them are above the 200. Everything we've thrown at them for the last two and a half

or three years, they brushed off. You know, it's funny. This was such leadership for two years. It took six months off and everyone forgot about it. I love the paradox of the 3% CPI print on July 12th of this year re-engaged this group. It's global. It's the services. It's the integrators. They've come off the last week or so. I think it's a consolidation. I'd be a buyer of weakness in energy. Good seeing you. Thanks for being here. Yeah. Chris Verone, Strategist, joining us here at Post 9. Up next, we're tracking the biggest movers as we head into the close. Pippa Stevens standing by with that. Hey, Pippa. Hey, Scott. Taylor Swift's Arrows Tour might be on a pause, but we are watching this popping entertainment stock. All the details up next. About 15 or so to go before the closing bell. Let's get back to Pippa

Stevens for a look at the key stocks she's watching. Hi, Pippa. Hey, Scott. SolarEdge is weighing on solar stocks as Barclays downgrades the stock to equal weight. Analysts expect challenges to continue into 2024, saying SolarEdge and Enphase could face price cuts, market share losses, and weakness in Europe. Both of those stocks are firmly in negative territory today. And shares of Sphere Entertainment are soaring today after the company opened its Sphere venue

in Las Vegas over the weekend with a pair of U2 concerts. The company also owns MSG Networks and plans to build another Sphere in London, but is waiting for regulatory approval. The images, Scott, are pretty cool. No, the ones I saw over the weekend were, I don't know, nothing short of stunning. But thank you. That's Pippa Stevens. Last chance to weigh in on our question of the day. We asked what will be the best performing sector in the fourth quarter? Tech, energy, discretionary or financials? You can head to CNBC Closing Bell on X, the results after the break. The results now of our question of the day.

We asked, which will be the best performing sector in Q4? The majority of you said technology. Up next, Tesla deliveries. Missing the mark will break down the numbers, how it's impacting the EV space today. Plus, what Instacart's sharp slide could mean for the upcoming IPO pipeline. Those stories and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Philip Oh shares Tesla and Rivian's latest delivery numbers. Leslie Picker on Instacart's sell-off and what it can mean for Birkenstock's debut.

Michael, I'll turn to you. What stands out to you most on a day where there's a lot standing out? Yeah, probably the stark difference between the indexes and what's going on underneath. 88% of volume to the downside of the New York Stock Exchange. So you do have the support of the defensive mega cap techs. We know that theme. I keep waiting for the moment when it's time to start overthinking it beyond the reaction to this untethered move in treasury yields. It seems not to be the time yet while we're making new highs. Certainly, you could make the case that in general, the indexes have held up better than you might have expected with this ramp to 4.7 on the 10-year yield. I think that's a fair thing to case to make.

Except that you are seeing the toll on things like the small caps, which are basically, you know, pretty much taking the elevator down, pretty close to the springtime lows, which are not really far above the December lows. So, yeah, wear and tear underneath the surface. I think we're building these further oversold conditions. I don't think the calendar is the reason to get excited, but you do see some things starting to kind of move in favor of the risk-reward getting better for a relief rally. We're just not there yet.

Do you want to give your just general perspective on what you're seeing in utilities, for example? You mentioned under the surface some of the ugliness. That's the point of the ugliness. In the best of times, utilities are hard to like as businesses. And so, therefore, you have to be bribed to own them by high dividend yields. And so when the dividend yields themselves do not actually give you a reason because of the relative yield value against bonds, they're getting sold. Now, there's also the fact that the companies themselves, utility companies, are levered on their own. So they don't have great balance sheets. Their debt costs go up. They don't run great margins. So, I mean,

there's all kinds of reasons why it seems like more trouble than they're worth. They're getting super washed out. Anybody could look at a chart and say that that's the case. And I agree, you know, Christopher Rohn was saying it's the one part of the market you're starting to see some capitulation. That does make sense. Ironically, it's also making everybody who does the cyclical sectors versus defensive sectors analysis feel as if the market is still holding up OK. But it's only because defensive sectors are so weak, like staples and utilities, that by comparison, things like industrials are hanging in there. They have energy, Chris Ferron, as his top ranked sector. Down 2% today. I agree with him in general that they have sort of proven their resilience,

even in poor times earlier this year. I would push back against the idea that they're forgotten or that they're underloved at the moment. In fact, if you see the net longs in crude futures, people are getting a little bit involved at this point. But there's no denying that they're both late cycle leadership and that that they have even a valuation case to make. A lot of the mega caps are higher. Tesla, though, Phil LeBeau is not really one of them today. It's barely hanging green after those delivery numbers. Yeah. And a muted reaction to the delivery numbers for the third quarter from Tesla, largely because, Scott, I don't think anybody was too worked up that they fell short of expectations because people knew that you had the Shanghai and the Texas lines down for a period in the third quarter.

So as a result, the company delivering 435,000, shy of the estimate of 448,000, didn't get a whole lot of reaction. They did reiterate their guidance for 1.8 million vehicles to be delivered this year. Meanwhile, as you take a look at shares of Rivian, Q3 deliveries were better than expected for Rivian, delivering just over 15,500 vehicles. The street was expecting 14,000, and it, too, reiterated its 2023 production guidance of 52,000 vehicles. Hey, Scott, don't forget, tomorrow morning, Squawk Box exclusive. We're going to be talking with Rivian founder and CEO, RJ Scurringe. We will be on the assembly line in Normal, Illinois. We'll talk to him about what he's seeing in the EV market right now. Scott, back to you.

We will very much look forward to that. Phil LeBeau, thank you. I'm just noticing, you know, I was talking about it earlier today. Speaking of Tesla, the biggest holding of the ARK Innovation Fund. ARK's down like 11% in a month. Rates shoot up. ARK shoots down. Yeah. And that's really, if there is a relationship between rates, liquidity, long-duration stocks, it's in unprofitable ones, right?

Where literally 100 and plus percent of the profits are out in the future. Also, it's just a risk appetite, Tal. I mean, it's not a market that is particularly interested in giving the benefit of the doubt to unproven stories. And that's why, you know, the big fang type stocks are performing because they're very much known quantities. Even though they're tech and expensive, they're reliable and the earnings estimates are going up. All right, Leslie Picker, Instacart, what do we make of this and what's it mean, do you think, for Birkenstock, which we're talking about now going public as well? Yeah, so a pretty significant slide for Instacart this morning. It's been a rough go ever since this company's second day of trading,

essentially. And the reason that it's declining today is largely due to a report by the information, which cites people familiar with the matter that say that analysts at Goldman Sachs have private estimates that there could be much sharply lower revenue growth in the second half compared to the first half of the year. About 7% to 8% revenue growth in the second half compared with 31% in the first half of the year. So sharply lower growth. And the only read-through you could really make to Birkenstock is this idea that maybe the companies that are going public now are doing so at kind of peak growth, trying to get out while they can, strike while the iron's hot. But keep in mind, these are

really different businesses you're talking about. Instacart, venture capital backed, kind of more that Silicon Valley growth type of company, whereas with Birkenstock, this is a 250 year old family owned business until two years ago in which it was taken private. So this is a sponsor-backed IPO. It does have decent top-line growth. It is a profitable company. But this is going to be one of those situations where it's easier to model. There are pretty obvious discounted cash flows that you could really extrapolate from what you see in the filing as opposed to a company that, like an Instacart, for example, it's a platform-oriented company, but, you know, it's

harder to kind of figure out what the comparables are in the public markets and, you know, what the future looks like for a company like that that's pretty nascent in terms of its overall business model in the public markets. Yeah, Leslie, thank you. Thanks for that, Leslie Picker. I guess what we're learning, Mike, is that when we were thinking, OK, Arm and Instacart and a few of these others, OK, the IPO door may be swinging open. And I think it's clear from watching the performance of some of these, they're not so fast. They're individual stories with their own individual story to tell. Some are mature companies. Their growth rates are going to be different. Others not profitable. So be careful what you say until you get more of a sample size to judge.

There's no doubt about that. On the other hand, those same companies probably also had motivated sellers a year ago when the market was down 20 percent and melting down. And they didn't try to come out then. So this is always the way an IPO cycle has to get cranked up, which is you do have some sellers that need to get liquidity and then, you know, some maybe more tested ideas or kind of discarded companies, let's be honest. And then, you know, once you get more out there, you can start to generalize a bit more about the reception, about the caliber of startups and all the rest. But it is true. And by the way, Birkenstock, there are always, you know, mature brands that people would be interested to own in any kind of market environment. It doesn't mean you're going to get the greatest valuation. It doesn't mean the stock's going to pop on debut. But, you know, you can always find

a path into public hands. And, you know, when you have something like Instacart, you know, there's no sponsorship of this in the public markets yet. So nobody is really confident about the performance of this company. And when you get a report that says, actually, maybe things don't look great in the next six months, there's just not a lot of conviction to hang on. As we close it up in less than a minute, I just go back to the point you made at the outset here. You know, yes, the S&P is down 11 and a half points. Dow's down 80. I mean, I get it.

Russell's getting hit pretty good today. But if you would have said before the day, okay, 470 is going to hit on the 10-year, it's going to be a new cycle high, and the market's largely going to look reasonably okay, despite some of what's under the surface, as you said. I would say, no, I'm not so sure. Yeah, look, it remains to be seen. The S&P is like a percent above last week's low, maybe a percent and a half above last week's low. So there's the thinnest of cushions in there.

It's trying to hang on to that uptrend from the October lows. We'll see if it can plan out. We get some data tomorrow. All right, good stuff. Thanks, everybody, for watching. So we'll finish red, except for the NASDAQ, and we'll see how tomorrow goes.