Closing Bell - Closing Bell 10/3/23
Episode Date: October 3, 2023From 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 B...rennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.
Transcript
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Kelly thanks so much welcome to Closing Bell I'm Scott Wapner live from Post 9 here at the New York Stock Exchange and this make or break hour begins with wobbly stocks as another rate fueled sell off grips this market it's doing it right now here's your scorecard with 60 minutes to go in regulation we'll start with yields that's what we're showing you now because that's where the pressure point really is that's where it has been and that's where it is yet again today the 10 year takeyear, take a look, continuing its climb to fresh cycle highs.
And thus, it's hard to find many bright spots for stocks today.
All three of the major averages under pressure throughout the session.
Transport, utilities once again sliding, although now I look and utilities are green.
Not as if that's any consolation in the kind of market we're in anyway.
And unlike yesterday when tech managed to rise despite the jump in yields, totally different story today. The Nasdaq getting absolutely slammed. Mega caps like
Microsoft, Amazon, Nvidia are pulling back sharply. All of that, plus the congressional drama in D.C.
We think that's taking a bit of a toll today as well. Just D.C. dysfunction on top of everything
else. That takes us to our talk of the tape. How high will rates rise?
And if they keep going up, can stocks handle the heat?
It seems to be the only question
that really matters at the moment,
especially with earnings season still more than a week away.
Well, let's ask our panel,
senior markets commentator, Mike Santoli,
Schwab's Kevin Gordon, and Malcolm Etheridge of CIC Wealth.
It's good to have everybody here.
Mike, I'll go to you first.
So I got two things of green on my screen. The VIX at 20, a little north, and then utilities reversing to be positive.
So that's not exactly a great sign for the market. No, it's not. No, very faint bid. Also,
staples outperforming. So you finally see some of the traditional defensives responding
to the kind of market conditions we are in. You have essentially the bond market
searching for the pain threshold for the economy. We don't know where it is. My premise is always
that the stock market usually over time make its peace with a different equilibrium level of yields,
but you don't know in the moment where that is. So we're struggling with that. At the same time,
it felt as if last week was stopping just short of a capitulation type move and everybody really giving up because we did have, you know, the seasonal strength, you know, fairy whispering in mentioned some of those mega cap stocks taking it kind of hard today, in general, it's not really concentrated anywhere. Equal weight,
small cap, NASDAQ 100, S&P 500, they're all kind of in the general zone of just down getting a
haircut on this bond move. Kevin Gordon, we might be talking about 5% on the 10-year faster than we
thought we would, even after the rise that we've seen.
We're at 480, a little bit north of that as we speak.
Yeah, I mean, I think there's probably some psychological level associated with 5. I'm
much more in the camp where I think rate volatility matters more than just levels,
because, yeah, you've gone now back into kind of extreme sort of negative relationship,
negative correlation between bond yields and stock prices broadly for the S&P, especially for certain areas like tech and also utilities.
And any time you have moves to the upside like you've seen over the past 30 days or the past 60
days, similar to what you saw in October of last year and then sort of May, June of last year,
that rapid rise in the 10-year and really across the curve. But that was kind of what had put a
lot of downward pressure on equity. So I think as long as that continues and then vice versa, if you get maybe a little bit of
a stabilization in not just rate volatility, but also for the dollar and oil, which it started to
happen a little bit for oil, that probably helps alleviate some of the stress that you're seeing.
I mean, you've got, you know, Mike, a lot of seasoned market watchers kind of weighing in
on what they're seeing. And it doesn't seem to be all that difficult to understand, at least according to what they're talking about. Mohamed El-Erian tweeted earlier,
last year, markets were adjusting to higher rates. This year, adjusting to rates staying
higher for longer. It's like the Tepper commentary that we got last Friday. It is just a different
environment and no one really knows what the price should be relative to what the earnings are going
to be. The valuation of this market makes sense.
It's the great unknown. Well, and because it's moving too fast, I mean, to Kevin's point,
it's not just about, again, plug it into the equation and what is 4.8 percent on the 10-year get you in terms of paying for earnings. Right now, I think a not so terrible scenario would
be that somehow the economy hangs in there. Earnings estimates for on a forward going basis
for the next
couple of quarters are not out of line with what we expect. And the market maybe can find its way.
What I think is tough, though, is, and this has been the case for months, you're not going to
liberate investors from the late cycle psychology, from this idea that it's when, not if, things
buckle. Even if we go a year from now, we're still going to feel that way.
And so that's why anything that moves fast
and seems like indiscriminate selling,
like the bond market seems right now,
it gets you unnerved.
And I understand that,
but all that being considered,
we're looking at like an 8% pullback in the S&P.
The average stock's doing a whole lot worse than that.
But at the index level,
we're back to four months ago
where we first reached 4,200. You make a good point, the words that you use. Malcolm,
I'll come to you in just a second. I apologize. Indiscriminate selling, it's one thing to see it,
Mike, in the stock market, which is unnerving enough. But when you start seeing indiscriminate
selling in the bond market, in treasuries, it's even more so, isn't it? Because of all the implications
that come with it. To a degree, yes. I mean, it's an enormous market. There's a lot of
institutions that are just kind of passive owners of treasuries. That said, you know,
we do have some big buyers who are not there the way they were. We do have more supply.
I think if you want to take some heart in corporate spreads remaining kind of tame, they have ticked up a little bit. Still, the yields are going up. The cost of debt
is going up, however you slice it. So, Malcolm, the big thing that jumps out to me in your notes
today, resist the urge to buy dips. So you think the stock market is going lower? I do, Scott. This
is the part back last summer, probably, where I was telling you that I thought investors who were a little bit too far over their skis as far as the risk that they had built into their portfolios because we weren't willing to sell because the getting was too good.
It felt too good to us. I was on air saying I think this is the exit that people need to be taking if they know that this is well beyond where their risk profile is. And I think that we're probably going to continue in this downtrend for a little bit,
but I do expect that investors
who missed out on the tech rally earlier in the year
are gonna wanna buy these dips
just to be able to try and right the ship just a little bit
and feel like they didn't miss out completely
once the year turns over and they book it.
But I definitely think it's too soon.
I think we have more pain on the way simply because, you know, everything that we've been talking about as far as the
10 years concerned. Right. But I'm more concerned about the inverse relationship still
between the 10 and the two that I know we want to move past and focus on and say that, you know,
it's no longer relevant. But that yield curve has stayed inverted for this long. And I think it means
additional pain is ahead.
Let's not forget, too, Malcolm, in a week or so, we're going to be talking about earnings, right?
What happens if earnings come in to where expectations are, which are positive again,
or even better? Does that alleviate some of the pressure that the market's feeling from this rapid rise in rates that we've seen over the last 30 plus days?
Yeah, so my thesis in Q1 was that that was the last positive earning season that we were going
to see. And I think that's probably proving true now. I think that the positive earnings are going
to be in the tech sector primarily because when you hold that much in cash, right, you have
companies like Google and Microsoft and Apple and whoever that have tens of billions of dollars
sitting in cash that's paying them yields north of 5 percent.
Not hard to have positive numbers in that regard.
But I think that in tech and in energy, obviously, we're going to have positive earnings.
For everyone else, we're going to find out just how weak the consumer has become.
We're going to find out just how little firepower the consumer now has.
And that, I think, is going to tell a totally different story going into Q4, looking back at Q3 earnings. What are we thinking, Kev, about tech right here?
Nasdaq's down a touch more than 2% as we speak. Mike was mentioning the sell-off in a lot of
these mega cap names. Amazon's down 4%. Broadcom's down. NVIDIA's down near 3%. It's Microsoft.
Apple's not down quite as much, but that whole area is being just pulled down. Tesla's down. NVIDIA's down near 3%. It's Microsoft. Apple's not down quite as much, but that whole area is being just pulled down.
Tesla's down 2%, just looking at all the stocks that we talk about almost every day that somehow
bucked it yesterday, but today are buckling.
Yeah, I mean, I think to Mike's point earlier about not everything moving all together at
once, you know, the tech discretionary comm services trade often gets
lumped together in that mega cap growth trade, mostly because they house the super seven or the
big five, whichever group you want to use. But even if you look at the peak since July for the market,
you know, the profile of all three of those has looked vastly different, whether you're looking
at percentage performance, whether you're looking at percentage of names above their 50 or 200 day
moving averages. And, you know, for all the hits that tech takes from a valuation perspective or whatever you want
to pick, it's still scoring relatively well, I think right at 60% of members above their
200-day moving average, behind energy, of course, which has been the only defensive
name since the market's peak in July.
So I think you have to take a little bit of a more nuanced approach, not just in this
current sell-off, not when we get the next bounce, but now approach the market in any monolithic way, whether it's cyclicals versus defensives,
whether it's growth versus value. I think you have to be a lot more careful about how you
dissect those because correlations are still pretty low. You can, I think, take opportunities
even in sell-offs like this to find what's high quality, what works really well, especially with
an upcoming earnings season and benefit from any tailwind to the upside there.
Well, how do you view what's going to happen in earnings season? As I said to Malcolm,
we're going to shift our attention and we're going to be hyper-focused on the numbers,
more so than maybe the numbers in the bond market at the moment. And is that enough to
sort of save the day?
I think what's most important probably, and this plays off of what we started to see in the second quarter reporting season, where even though the earnings beat rate edged higher
and there was a lot of excitement over that, the reaction from the market, even for companies that
were beating estimates, was basically nothing. It was basically flat. So, you know, in our opinion,
that had shifted the focus a lot more. That showed that the market shifted its focus to
what was the revenue growth like? And revenue was was mostly flat and if you adjust it for inflation it was down for the third straight
quarter so from our view you want to be much more focused on what the revenue mix is too because if
you don't have organic demand growth coming back and you don't have top line growth resurging but
you still have earnings growth that's moving higher that's probably companies just aggressively
cutting costs so i think it's great from a profit margin protection standpoint,
but you have to start showing some kind of demand coming back to it. Mike, you always talk about what's going on under the surface,
trying to dig a little deeper than the superficial story that we often focus on.
Number of stocks in the S&P up on the year, 227.
Number down, 271.
Median S&P 500 stock now down 2.3% year to date.
That gives you the under the hood view that the engine itself is sputtering and isn't running on all cylinders.
And it's been carried by a gas tank full of tech stocks.
For sure. The average, the median stock in the S&P is also off about 16% from its high.
So forget about just calendar year 2023.
I think the question is, what do you do with that information?
Do you say, as a lot of people right now are saying,
who felt too bearish when the S&P was making new highs and was up 30% off its lows,
yeah, but it's not really as strong as it looks.
And now I think there's a little bit of an instinct to declare victory.
It's like, you see, I told you, stuff's really weak now to come up.
But what do you do with it now? Do you say that the market has actually
been pre-sold and a lot of valuation risk has been taken out? Or do you say there's just no demand
for stocks right now and they're going to have to find lower lows to attract new buyers? I think
that's a legitimate question. I can remember years like 2016 when you had this stealth bear market. And,
you know, in 2019, when it was just like a handful of the NASDAQ stocks going up and it was not
always predictive of we're going down from here in the index. So we've had a little bit of a
catch down move from the large caps and we'll see where it goes from here in terms of the earnings
season. We talked about it on Friday. One6 companies have pre-announced for the quarter in the S&P 500. So almost one in four. All right. So a little of the suspense.
You've got a little bit of a cheat sheet. The market's down 8% in two months. You know,
the banks are down 15% since August. I don't think that the people are positioned for wonderful
things for earnings. Malcolm, so taking what Mike just said,
what returns demand for stocks? What changes the narrative?
Yeah, well, two things. I think, one, we have to get past the sentiment of bad news means good news. I know the last few days the market has kind of trended in one direction, but I still
think there's enough sentiment out there listening to some of the voices on the network where we feel like bad news means good news. And I think we have to get to a
place where bad news just means bad news. And we're willing to accept it as it is. And until
that happens, which I do think is Q3 earnings, until that happens, we can't actually move forward
to the point where it makes sense to start moving some chips back to the middle of the table. So
I'm not arguing against anybody who thinks it's dry powder time.
I think that's probably pretty smart here.
But separately from that, we have to find out exactly what is going to happen in November
and whether that is the sticking point as far as higher for longer.
Does that mean that we just keep rates steady after November and we get a raise in November
and that no more and we get the
declaration that this is it? Or do we now have to be looking over our shoulder all the way into
2024, which I think the market just doesn't have the temperament to hold on and wait and see how
that plays out. That could be a bad news even more. I'm sorry. What if you had a crystal ball
and you said, OK, the Fed's done. I know they're done and earnings are going to be better than I thought.
Does that change your perception of whether you want to be engaged in the market right now or not?
It doesn't because I think something else still has to break.
It just doesn't make common, logical, mathematical sense for us to raise short term interest rates more than 5 percent in about a year and nothing
meaningfully break.
So until we get to it and I think that's probably on the horizon.
It usually takes something like 18 to 24 months for interest rate increases to actually work
themselves through the labor market.
And that pretty much means by the end of this year, maybe we start to see an uptick in that
unemployment number that we've been able to hang our hats on this whole time while we've been talking about fighting inflation, all of the responses have been, yeah,
but the unemployment rate is at all time lows. And unless that changes, we're in good shape.
Well, I think that's probably going to finally change because interest rates have such a long
lag impacting the labor market. And once that does, that probably is where that bad news equals bad
news mantra starts to come in. Kev, how would you address that very same question? Well, I think the
discussion about, first of all, from the Fed's perspective, if you go back and look at when
they've been done, when they've gotten to the pause and then they're done, that in and of itself
doesn't constitute any kind of trading strategy just because of the really wide range that you
have throughout history of what the market's done after. I think you have to take a look at what's
going on with revenue growth, you know, the hits that come after what you typically see a year
after the Fed starts tightening, and then a year after that, what starts happening to the labor
market. And to Malcolm's point about, you know, interest rate sensitivity, how much the economy
is maybe impervious to rate hikes, you know, one of the reasons it's been a little bit different
this time
is because if you look at how we recovered from the pandemic,
the bulk of spending and services and just the strength of that part of the economy,
you know, that was disproportionate relative to goods on a scale that we've really never seen.
So when you talk about all the padding and think about all the padding that was in services,
the fact that goods has gone through some form of a recession,
but that really hasn't hit the broader economy, that to us remains the best case scenario, where you start to see rates
take their bite, but it's in different pockets at different times. And that rolling nature of
the recessionary behavior sort of keeps you afloat from a broad economic sense.
I'll tell you, Mike, what maybe is one of the most acute pain points within the market
relative to the rise in rates. As we talk
about the Nasdaq and the sell off there are those higher growth, less profitable stocks, which we
just showed you some of them I noticed on their data dog. I think you guys had up. You can put
them up again, please, if you would, just because I'm looking at the ARK Innovation ETF down near
three percent today. I mean, it's easy to see where the bulk of the pain within the growth spectrum is being felt.
Right. Look, when the market moves in a volatile way in this fashion, it's having to go farther
to find people who have conviction. So it's hard enough to find people who have conviction
about is Johnson & Johnson going to make its numbers next year, as opposed to these companies
that are kind of lightning in the bottle. Maybe it'll work, you know, profits down the road if we're lucky.
That's not what's going to find buyers in a tape like this.
Yeah. Do you have a thought on that, about that cohort, if you will, of stocks that are,
you know, we showed the losses are like 6%.
I saw at least for two or three of the names that we had put.
Yeah, there you go.
There's, you know, Airbnb, Zscaler, Datadog. You probably find CrowdStrike. You probably find, you know, a half
dozen other names at minimum that are seeing this level of selling today as rates continue to tick
to cycle highs. And a lot of those non-profitable names were sort of at the epicenter and kind of
ground zero of that initial shock that you had in 2021. And they kind of kicked off what we had seen
as remarkable weakness under the surface of the market in 2021 into 2022. That's where a lot of the bubble activity was concentrated. It didn't
really make its way over to the traditional market, which is, I think, one of the reasons
that the bear market for 2022, as rough as it was, the rebound since then hasn't been totally
catastrophic. It hasn't been great. But I think that now you have to think, what is the effect of higher for longer and the Fed wanting to stick to that message? And if cost
of capital stays relatively high, even if you go through the next easing cycle and the Fed pulls
the Fed funds rate back to a range that's not zero, that's a very different environment than
what you had, you know, post-financial crisis all up until, you know, 2020, 2021.
I was just looking at the banks too, as you were talking, just because we flashed Goldman Sachs on the screen,
which I think I saw down 4%, as that sector remains,
you know, that those stocks aren't doing well,
down 3% in a week.
All right, we'll leave it there.
Kevin, thank you.
Malcolm, thanks.
We'll see you soon.
Mike, of course, coming back in our market zone, as always.
Let's get to our question of the day.
Will the 10-year yield get above 5% before the end of the month?
I mean, it's marching quickly towards that level.
Again, 480 as we have this conversation today.
Head to at CNBC closing bell on X to vote.
The results are coming up a little later on in the hour.
In the meantime, a check on some top stocks to watch as we head into the close.
Christina Partsenevelos is back today with that.
Christina.
Well, let's talk about Point Biopharma soaring as Eli Lilly announces plans to buy the cancer therapy developer for 12 and 50 cents a share in cash or
around 1.4 billion dollars you can see that stock is up 85 percent right now but shares of eli lilly
falling in the news down about two and a half percent and a number of alternative energy stocks
are sinking again today on concerns yes of, of the general economic picture, but more so the impact of what you were talking about, Scott.
High rates on growth-focused companies.
On the solar side, array technologies, Sunrun are among the biggest losers right now.
You can see a rate down 9%.
You've got EV charging giant ChargePoint and fuel cell developer Bloom Energy
also well over at least 5% lower right now.
Scott?
All right, Christina, we'll talk to you in just a bit.
Thank you, Christina Partsenevelos.
We're just getting started here.
Up next, more on the sell-off in mega cap tech today.
The Nasdaq dropping 2%.
We break down the biggest moves and the health of that tech trade at large.
Plus, one chart watcher says there could be greater decline still ahead.
He makes his case.
Coming up, we're live for the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. Stocks moving
lower as a rate-fueled sell-off takes hold of this market yet again. The Nasdaq feeling the
most pain today. Steve Kovach joins us now with a look at today's action and its ugly action at
that, Steve. Yeah, ugly. And Nasdaq, by the way, could be the third worst day of the year.
But let's take a snapshot of mega cap tech names feeling the pain today, Scott.
Apple shares down about a percent, early signs of strong demand for the iPhone 15 Pros out there,
with wait times extending into a month.
But this September quarter that just finished, expected to be Apple's fourth quarter in a row of declining sales.
However, in this current holiday quarter, comps are going to look a lot better.
Also, an ugly September for Apple, down 9% last month.
Microsoft, down 3% or so.
CEO Satya Nadella testifying yesterday in the DOJ's antitrust case against Google,
admitting he may have overhyped ChatGPT's potential to grow Bing Search's market share.
The company just released
its AI-assisted co-pilot for Windows 11 last week, and it's going to start selling that to
business customers next month. Now let's move over to Amazon, down more than 3.5% or so.
Details leaking out today from an unredacted version of FTC's antitrust lawsuit against the
company. It alleges Amazon used a secret algorithm called Project
Nessie to automatically adjust prices of goods and earn an extra billion dollars in sales before
canceling the program. And Alphabet, not as bad, down about a percent or so, currently undergoing
its antitrust trial, expected to last several weeks or several more weeks, that is, and could
threaten its search dominance if it loses its
case against the government. Meanwhile, Meta down more than 2% coming off its developers conference
last week that failed to wow investors with AI offerings like chatbots that mimic celebrities
like Paris Hilton and Snoop Dogg. Plus, its new headset, the MetaQuest 3, that's going to launch
a week from today. And of course, we got to talk about AI darling NVIDIA down over nearly 3% now, but still up nearly 200% on the year, Scott.
All right, Steve Kovac, thank you very much for that. For more on the big move in the market,
let's bring in Jonathan Krinsky, BTIG's chief market technician, because he's zeroing in today
for all of you on the NASDAQ. You suggest the Nasdaq 100, the Qs, have gone 198 trading days
without a two and a half percent or worse daily decline. That was your note from earlier today,
prescient given what we're witnessing here. What are you watching for now?
Yeah, I mean, it's pretty remarkable. The last time we won a full calendar year without a two
and a half percent or worse daily decline on the NASDAQ was 2013.
And if you think about that period, the NASDAQ composite had pretty much 70% of stocks above
the 200-day for the bulk of the year. This year, we barely have any days above 50%. So, you know,
2013 was a classic low volatility environment. You would expect that. You would not expect it
this year. And I think it just goes to show, you know, again, it's another way of showing how dominant a handful
of stocks have been. And as you and Mike were discussing earlier, you know, it really has not
been a good year for stocks in general. I think the, you know, the headline indices S&P up 12%,
NASDAQ up 35% or so. It really just is in a completely different ballpark from the median
stock,
which most institutional investors, that's really what they're owning. So ultimately,
we think that this 4,200 level in the S&P 500 with the 200 moving average is a very consensus
call that that will hold. And we think the fourth quarter rally is a very consensus call. So
ultimately, we're not so sure it's going to be that easy. And we think we're at the point now where you're
starting to see some of the winners, some of the high momentum stocks catch down to the laggards.
And I think that's ultimately what drives the Nasdaq lower here.
Read at least one note today, speaking of Nasdaq, that the risk to the negative
market call is that there is a late year dash for performance and it goes right into
the seven stocks that have proven to be tried and true. A little bit of defensive. You have
better balance sheets, all the cash, not relying on debt, et cetera. Yeah, look, I think that's
why they're up so much and that's the crowding risk. Right. And so I think we're getting a little
ahead of ourselves talking about the year endend rally until we see where things shake out as we get through October.
And we don't know that.
If we get a bigger washout in the top seven stocks, then sure, maybe that's the case.
But based on our work, there's still a lot of downside for these names.
And you're seeing the unwinding effect.
Some of the worst performing stocks on the year, a name like Dollar General is actually up 2 percent today. So you're seeing
some of those laggards being bought and some of the winners being sold. And I think we're still
a bit early to, you know, to flip the script there. Man, I'm looking at some of these losses
today out of the discretionary space, which obviously gets, you know, overmoved, if you will, by an
Amazon or a Tesla, for example. But the losses today in some of the restaurant stocks, dominoes
down more than 4 percent. The cruise lines are getting absolutely hammered. Carnival's down near
7 percent. Mortgage rates, we're talking about yields going up relentlessly. Mortgage rates
continue to do that, too.
Seven seven on a mortgage rate. It's stunning to see these numbers because people are just not used to the levels being where they are.
Homebuilders today. Pulte Group down three percent. Depot and Lowe's.
How at risk do you think is the discretionary space in general for a consumer that's held in there better than most ever expected it would? Well, you know, the consumer space is something we talked about several weeks
ago when crude oil and gasoline were breaking out. And, you know, there was a lot of consumer
and restaurant stocks were in weak technical positions. And we thought the spike higher in
energy prices was another headwind there.
So, look, the trend in most of those names are certainly weak and continue to be weak.
I think the only areas that we're suggesting maybe you can see a bounce on are the extremely washed out names, like I mentioned, like a dollar general.
But there's still, you know, it's not going to be an easy path, right? I mean, we're talking about trends that are severely damaged and you can get bounces there, but it's going to take a lot to reverse
those downtrends. How about energy? Give me a thought on that before I let you bounce.
You've got another, you know, a green day for crude Brent WTI as well. We're basically at 90
bucks. Yeah, look, I think if outside of some of the extremely beaten down areas, if we have to be
anywhere, we'll probably we'll probably stick with the energy trade.
I think at some point it does come to the unwind factor, right?
I mean, at some point, even the best stocks get unwound.
So if this sell-off intensifies for the next couple of days, I think even energy would be at risk.
But the trends there are still pretty good.
So I think it's more of a tactical pullback.
All right.
Jonathan, we'll see you soon.
Thanks for coming on.
I appreciate it very much. Jonathan Krenski, as you can see from BTIG.
Straight ahead, the latest on dysfunction down in D.C.
The House gets ready to vote on the motion to oust Speaker Kevin McCarthy and stocks remain under pressure.
It's just yet another thing to keep your eyes on over the final stretch here, which has about 30 minutes to go.
We'll be right back.
Red breaking news out of D.C. today, the House preparing to vote on whether to oust Speaker Kevin McCarthy. Emily Wilkins on Capitol Hill following every move. Emily.
Hi, Scott. Well, there was already one vote today, basically a vote on whether the House
should even be voting on whether to remove McCarthy. And on that one, we saw every single Democrat joined with 11 Republicans in favor of
ousting McCarthy and moving forward on that. Now, that means that McCarthy still has a lot of
Republicans who are supporting him. But the fact of the matter is, is that Republicans always had
narrow margins and it meant something like this was always possible. So right now in the House,
they are debating moving forward. We're expecting to see a vote begin around four o'clock on whether
to remove McCarthy from his office. That'll be a roll call vote. So it's probably going to last a
while, but it's just really not looking good for McCarthy. There's a high likelihood that the end
of today, there could be no speaker of the House and no sense of which path to go forward. You know,
Matt Gaetz told a group of us last night night he threw out Steve Scalise's name.
That's McCarthy's number two.
But Steve Scalise is actually on the floor right now speaking in favor of McCarthy.
So it's simply not clear who could actually have the momentum and support to be Speaker
at this point.
But it certainly looks like McCarthy is in hot water.
And if the House does have to go to a speaker vote, it means everything else stops. So everything they want to do to fund the government,
to pass legislation, to move things forward.
I think we lost the audio there from Emily. At least I did. I'm not sure about all of you
watching. But let's, if there's any news that develops there, we'll bring Emily back.
That's Emily Wilkins reporting on the Hill, as you saw there.
Joining us now on the phone is Kenner Fitzgerald's Eric Johnston.
Eric, you there?
Yes. Hi, Scott. How are you?
Yeah, it's good to have you on.
Obviously, we're watching a Dow that's down 500 points and we've had a rip higher in rates, which seems to be the pressure point.
I'm looking at banks which are down sharply.
Bank of America,
Citi, John Spallanzani sending over. They're retesting their spring regional bank failure lows.
Discretionary stocks getting hammered. Tech is in the eye of the storm today.
Just what's your broad view on what we're witnessing?
Yes, I think the big story here is what's going on in the rates market. And the reason why it's
important is that today, inflation break-evens are actually lower, meaning the market thinks the outlook for inflation is
actually lower. And there's been very little change in Fed expectations. So the entire move
higher in yields is all real yields moving higher. And they're moving higher because of this deficit and debt issue that we have.
So, you know, the market has and the economy has absolutely benefited from the deficit. We've
talked about this for a long time. We're running a $2 trillion deficit, and that has been a stimulus.
But if it was that easy just to run a large stimulus, then, of course, or a large deficit, there's obviously a downside.
And we're starting to finally see that downside. And that's what's happening with yields moving
higher. So, you know, you're seeing it across sectors. And, you know, we've seen the financial
situation show up back in February, March. We've now seen the utility situation show up as of last week and
seen a lot of pain in that sector. And what you can see is that it's rolling through different
sectors because higher rates not only impact the consumer and will continue to, but also
corporations. Yeah, I mean, I said these discretionary stocks today, hotels, casinos,
restaurants, all these sensitive areas. So are
you suggesting that as long as this move in rates continues to be at the forefront, that stocks just
are not going to be able to do anything but go down? Yeah, it's going to be really tough for
stocks to work as long as yields are in this zone for a couple of reasons. It's not only the headwinds from,
you know, corporate interest expense, which we're seeing, you know, real time,
but it's also looking at valuations, right? It's looking at the alternatives.
And what's important is that the reason why yields are moving higher, one of the big reasons is that
the government net issuance of treasuries is going to be about $800-plus billion this quarter.
That number was less than $400 billion one year ago.
And so capital has to come from somewhere in order to absorb that supply.
And it's unlikely to come from our international friends.
It's going to really have to come from much more domestic,
and that's really going to pull capital from other places. So I will say that, you know, yields right now,
bonds are very oversold. So there is a possibility of a reversion. But I think the trend is in place
that we're going to have higher yields for longer. Yeah. You know, we're approaching,
just lastly, before I let you
go, we are approaching some interesting levels, Eric, on the S&P, 22, 23 points away from that
4,200 line, which may be a critical level to keep your eye on. Absolutely. Very important level.
You know, near the 200 day, the S&P RSI is 28. So we are oversold. And then, of course,
people are still hoping for the, you know, fourth quarter seasonal bounce in the back of their mind.
So I think we are, you know, susceptible to a potential, you know, reversion bounce. But I
think the trend, you know, firmly believe the trend is still is still lower. All right, Eric,
I appreciate you coming to the phone for us as we track this sell-off.
Eric Johnston of Canter, you see him.
We'll talk to you soon.
Up next, we're tracking the biggest movers as we head into the close.
Cristina Partinellos is back with us, and that has those stocks.
Cristina.
Yeah, well, the maker of Frank's Red Hot Sauce, not feeling red hot in China.
An analyst seeing an inflection point for Warby Parker.
I'll explain next.
Got about 15 to go before the closing bell.
Let's get back to Christina Partsenevelos now
for a look at the key stocks she's watching.
Christina.
I'm watching Spicemaker McCormick.
They raised their annual profit forecast,
not because of demand, but because of higher prices.
The maker of Frank's Red Hot Sauce
posted weaker than expected Q3 sales,
primarily due to a slower recovery from China.
And that has some investors selling shares.
The stock is down over 8% its lowest level since March 2020.
Warby Parker getting some love from Evercore analysts
after they upgraded the eyewear retailer to outperform with a $20 price target.
Their internal survey results show positive reaction from customers
and above industry average repurchase intent.
They say 2024 will be an
inflection year for the retailer. And that's why shares are up almost 4 percent right now,
trading at 1379. Scott. All right, Christina, thank you. Christina Partinovalos. We are also
watching the housing space today. Mortgage rates are on the rise. Diana Olick is following that.
You can see the residual impact on the housing stocks, the home improvement stocks. I mean,
right in the wheelhouse
of the things you look at every day. Yeah, all of it, Scott. Housing stocks are seriously having
a rough day, not just because of the broader market. Higher bond yields today mean higher
mortgage rates. The average rate on the 30-year fix jumped to 7.72 percent. Mortgage rates follow
loosely the yield on the 10-year Treasury, which has been climbing this week on strong economic
data and specifically that JOLTS report today. Rates have not been this high since the end of 2000. Higher rates
have crushed affordability, hitting both new and existing home sales market. Take a look at the
builders, which today are Horton, Lenar, Pulte, all down around 3 percent. And Zillow Group is
also down around 7 percent. The builders had been benefiting from the lack of existing home supply,
but higher rates are just killing them. Builders sentiment is now in negative territory for the
first time in five months. Scott. Wow. Yeah. It's hard to be optimistic when you see mortgage rates,
Diana, do what they're doing as we have this conversation. I appreciate it very much. It's
Diana Olick joining us, as you see from Washington. Last chance to weigh in on our question of the day.
We ask, speaking of rates, will the 10 year yield get above 5% before the end of the month?
I mean, it's quickly marching in that direction.
You can head to at CNBC closing bell on X.
We'll bring you the results just after this break.
Let's get the results now of our question of the day.
We asked, will the 10-year get above 5% before the end of the month?
The majority of you said yes.
I guess one of the issues, will it get there before the end of the week
because of the way that it is marching there today?
4.80, that is a fresh cycle high for the 10-year note yield.
Among the areas getting hit hard today, consumer stocks.
Courtney Reagan following those moves.
Courtney?
Hi, Scott. Yeah, so if you take a look at the S& hit hard today, consumer stocks. Courtney Reagan following those moves. Courtney? Hi, Scott.
Yeah, so if you take a look at the S&P 500 sectors, the consumer discretionary sector is the one that's the hardest to hear going into the close, down about 3%.
And then when you dig below the surface, you say, well, what are the names in the consumer discretionary sector hardest hit?
And what's interesting is they're really leaning towards those travel and leisure names.
So Airbnb, Carnival, Royal Caribbean, Caesars,
down 3%, almost as much as 7% on the high end there. Areas where the consumer really
had been spending, not completely without abandon, but had been spending fairly freely
after being pent up during the pandemic. But then you've also got a high-flying name like
Amazon, obviously a really big, important name in a lot of different spaces that falls in that
consumer discretionary sector. And that's down almost 4% here right now. Now, then, of course, there's the home-related
names that Diana Olick went through. So I won't go through them again, but they're part of the
consumer discretionary sector. So that's really weighing on things as we watch interest rates rise
and it becomes that much more expensive to take on big projects or renovations or even move homes.
But all of this is not to say, Scott, that retail isn't being a hard hit because it is. Names like Big Lots and Victoria's Secret,
Wayfair, Canada Goose, they're just among some of the names that are being hit really,
really hard here today, kind of crossing over all different areas of the consumer.
Back over to you. Yeah, appreciate that very much, Courtney. Thank you, Courtney Reagan. We are now,
by the way, in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments
of this trading day. Plus, Bob Pisani is here on spiking yields, falling stocks, the Fed's next
move and options plays. Jessica Inskip on why she is sticking with tech in this sell off. Mike,
you first. What are you watching right now? Well, I mean, you can see at work in the market today the inklings of the worst of both worlds scenario on people's minds, which would be the economy is
good enough right now and inflation remains, you know, not far enough from target that the Fed has
to stay high for longer. The bond market dealing with this supply glut is also registering that.
At the same time, we're just building the conditions for the economy to buckle down the road. So all those things together, I think, are weighing on what's happening right now.
It is definitely building toward just tactically, you know, the kind of places that you thought the
market needed to get to just to to maybe have hope get extinguished and and get to that point
where you have the makings of a relief rally. You know, that question on do we get to 5% on the 10-year,
eventually you get to a moment where it's like, well, too close not to touch it.
Two more days like today and you're there.
Bob Pisani, Diana Olick was telling us about mortgage rates, fresh high, 7.7%.
We know the impact that has on the housing market.
Banks today, real point of concern, Bank of America down 3%.
You could pull up any number of these stocks. I just typed in Citigroup is down about 2%.
Goldman Sachs, I think we showed earlier, down 4%. What are you watching more than anything else?
There's only two questions we need to answer and only two questions I've been asked today.
Why is this happening and when is it going to end? So there's a combination of factors here.
One is the macro factor.
We know about higher for longer for the Fed.
We saw what the Joltz report did.
So there's a macro overlay to this.
But I think Eric Johnson had a great point about the supply-demand equation for treasuries.
So on the supply side, we know there's a huge supply of treasuries coming,
there's huge supplies of corporate coming.
I think Janet Yellen talked about a trillion dollars in Treasury's coming in the near future. On the demand side, we know
foreign buyers are not going to be nearly as present in the Treasury auctions. We know banks
probably won't because of pressure on their balance sheet. And the Fed's not doing anything.
They're not. They're doing the opposite. They're. But I mean, it has to stop somewhere, though.
OK, so where does it stop? So what do we see today? What's at the highs for the day?
Utilities, okay?
What's also moving up today?
Consumer staples, general mills, all stuff that's been in terrible shape.
Tech's hitting new lows.
That tells me we might have a little further to go because that's the main mover of the market.
Look at that.
We're sitting at the highs today on utilities.
I mean, that collapse in utilities was historic.
They're going to be studying that, what's happened in the last two weeks.
The thing that I would sort of migrate to when you talk about the setup for bonds and
what stops it, it's the realities that we've all been detailing about supply and demand,
but that the market itself is essentially overshooting the reality of the supply-demand
imbalance.
That's where I'm going to.
Because it's just a fear of more supply
that's driving the selling today.
You get everybody on the same side of the boat,
which is, I feel like we've gotten there pretty quickly.
Supply, supply, supply.
Who are the buyers?
Who are the buyers?
Real rates going up, up, up, and up.
Because remember how yields go up.
People sell bonds, okay?
We didn't have an auction that nobody bought the bonds.
You have people selling because they feel as if they were.
And by the way, the setup for this was people badly positioned for exactly this. Right. The idea that maybe the Fed's going to cut or the economy is going to weaken the inverted yield
curve or something you could ride and not fade. Well, I think that's being it's being unwound.
I'll tell you what, we've been spoiled to some degree, Bob, by the Nasdaq itself. You know,
Jonathan Krinsky was on talking about how the Q's haven't had a two and a half percent or greater down day in an awfully long time.
Two point three. What are we down?
I get it until today that we were due for some sort of upset in in tech as rates continue to rise and the pressure point that that that that causes.
So, you know, in many respects, we're due for this moment for tech to have a role.
The question is, you can't have it roll over too hard or the overall market won't be able to find
its footing. Yeah, I think the problem with the technical analysis that we're, you know, the RSI's
are, you know, crazy on these right now is, as you know, Mike, oversold. McClellan used to say
oversold is a condition, not a signal.
We can stay oversold for a very, very long time in this situation.
So this is not necessarily, because we're hitting certain levels of technicals that we haven't seen,
we're four standard deviations away from where we normally are.
It's not necessarily a buying signal.
So I tend to watch just simple stuff like the turnaround in utilities,
the turnaround in consumers, and the fact that we haven't bought them in tech stocks yet.
What's so interesting is that when you say it's not necessarily a buying opportunity,
Jessica Inskip, who's with us today from Options Play, suggests that it is a great
buying opportunity in some of these tech names that have sold off pretty hard.
There's certainly a big test that's coming up. You know, there is this very large move in yields, and we're talking about this influx of supply. What I'm really watching is in the broader S&P
500, which has been propped up by tech, is a large area of demand that we're reaching at $41.95
that's dating back to June of 2021. And that's the real
test. And that's lining up with so many other technical indicators like that rising 200 SMA.
We're looking to get those yields at 5%. So we're just so close to those levels, really,
of finding stabilization on either end with the headwinds of fiscal policy all around. So I'm really looking for the test of
those levels. But to your point on tech, and we're talking about structural economic growth and that
narrative that the U.S. economy can hold higher rates for longer. Well, that structural economic
growth is created through increased productivity. We have higher labor market participation. We're at pre-pandemic
levels. And that increased productivity, we heard from earnings. And so that's where I do see the
value and where we could absolutely see a strong amount of demand that will just come from the
tech side through the end of the year. You know, Bob, you watch the markets so closely. If you think about all the risk factors, it's rates, it's geopolitics, it's labor with the ongoing rolling strikes that we've seen in so many different industries.
Now we're talking about political dysfunction yet again in Washington as we speak, as the speaker tries to hold on to his gavel. And, you know, you wonder what happens if
that takes a turn for his demise in that position. Just another thing that the market needs to get
its arms around is it's trying to find some footing in, you know, in a mushy ground area.
Yeah. And now we have this whole issue about the amount of debt that's out there. So
what's 8 percent of the U.S. budget goes to paying
down debt. That's going to very quickly go up to 9%, 10%. This is now going to become more of a
political issue. It's going to give a lot of people who've been the bond vigilantes have been
screaming about this for a long, long time, added ammunition. So there's a sort of additional
overlay that's gone into this thing. I'm just looking for signs of capitulation at this point here.
Volume is up higher.
It's been up the last few days, but not that high.
I keep looking at things like put call ratios.
They're up a little bit, but I wouldn't say dramatically elevated.
I don't know what you think, Mike.
VIX at 20, I don't see that panicky yet.
I look at 28, 30.
That's when I start thinking about it.
But don't we normally do like 900 million to a billion
shares? Yeah, we should do. We got 555. Yeah, we should. Well, first off, the floor is not
necessarily indicative of the off-trading. Yeah, the market closes a huge percentage. Yeah,
that's going to go up. We'll do about 10.5 billion shares total in the NYSE today. But that's not
dramatically high. I keep waiting for this moment for the traditional signals, and I still don't
see them. Yeah, it's not really there. I mean, look, down 8 percent, it's hard, you know, you don't
know what the exact perfect amount of panic you'd like to see on that for the S&P move. I do think
in terms of the, if it's not one thing, it's another, and, you know, geopolitics piled on top
of congressional dysfunction, there's not a correction in history that did not seem at the
lows, like there was just intractable issues that people were starting to notice all at once.
It's never just one thing that's wrong.
It's never just one economic report.
It's this sense that there's no escape.
So I don't know that we're at the depths of it yet,
but that's not uncommon to have that feeling out there that we're just getting stuff piled on top of us.
Yeah, Jessica gave us some numbers to keep our eye on.
Near-term support, 42-18.
Fairly above that, eight points or so.
Jessica, thank you for being with us.
Bob Pisani, thank you so much.
Mike, of course, to you.
So we're red big time.
Not 500, but the Dow's down about 437 as we speak.
And O.T. with Morgan and John.