Closing Bell - Closing Bell 10/4/23

Episode Date: October 4, 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.

Thanks welcome to closing bell I'm Scott Wapner live from post nine here at the New York Stock Exchange and this make or break hour begins with some much needed rate relief as a weak ADP report sends yields lower stocks take their cue and try to get back on track today we'll see how the final stretch goes but there's your scorecard with 60 minutes to go now in regulation hasn't been the strongest day for the Dow as you see but after yesterday's sell off green of any kind is a welcome sight, isn't it? Salesforce, Microsoft, the big winners for the industrials today. And speaking of tech, the Nasdaq is outperforming on that pullback in rates despite a really rare downgrade for Apple today. KeyBank taking the knife to that stock. It's still higher, though, nonetheless, and that is helping to keep the market upright. There's Apple getting a little bit of a lift. It does take us to our talk of the tape, the rising rate reality and whether we're getting close to the end of the recent move. Got to think we need to be if stocks can get anything going from here. Let's ask our panel, Dan Greenhouse is Solus Alternative Asset Management's chief strategist. SoFi is head of investment strategy. Liz Young with us as well. And so is CNBC contributor Greg Branch of the Veritas Financial Group. Everybody's at post nine. So we got a big desk because we got

a big story that we're trying to figure out. Greg Branch, is this your moment? Is your call that stocks are going to have a really rough go in the process of taking place? I think it's starting to take place, Scott. And I think, as you know, I see another 10 percent downside from here at this juncture. We still haven't seen many of the catalysts happen for my thesis to play out. And that is that consensus estimates are just too high. I am higher and longer than consensus. And that means that I see no path to an 8 percent fourth quarter, now an 8.3% fourth quarter, which means that I see no path to a 12.2% growth rate on earnings in 2024. All right. Liz Young, it's great to negative because, I mean, he's been negative for a while. Market's gotten away from him a little bit. He

hasn't really wavered at all. And now he's sort of feeling like this maybe is his moment. I mean, I respect an opinion that if you feel wrong and you stick to it, I've been cautious all year. Obviously, we're getting a little reprieve today, but I think it's just that. It's a brief reprieve. Pretty big down day yesterday. Scary across sectors, scary across rates. And this idea of a 5% 10-year now is not that far off. And then you start to worry about what does a 6% 10-year look like? And one of the things that I've been thinking about a lot today and will be thinking about for the rest of the week

is the re-steepening of the yield curve. And I've said this over and over again. It's not the inversion that's the problem. It's the re-steepening. And we have re-steepened by a lot of basis points now. I think at 31 basis points as we're shooting this that's what the problem usually is okay so you're on team gunlock uh because he tweets he tweets deep inverting very rapidly should put everyone on recession warning not just recession watch

if the unemployment rate ticks up just a couple of tenths, it will be a recession alert buckle up. Is that what we should be worried about? So I'm going to take issue with this. I take issue with a lot of what was just said, but we'll focus on this for a second. Let's go. The yield curve inverting, Liz is exactly right. And everyone who's made this point is exactly right. It's not the inversion. The inversion is the starting of the clock, so to speak. It's the un-inversion, the re-steepening, if you will, that indicates you're close to a recession. But we have to ask yourself why. And historically, the answer is because the two-year rates in general are coming down. But in particular, the two-year is coming down because the market is starting to price in or realize rate cuts. That's not what's happening today. The curve is getting closer to zero

because the 10-year is moving higher. And I'm not sure we should take historical analogies, which are not perfect parallels, and apply them to today and reach a similar conclusion. I don't think that's fair. What do you think? Today, actually, that is exactly what's happening. So today is different than yesterday. Today, the two-year did come down further than the 10-year came down. So there was a re-steepening that accelerated for that reason. Right. And it's because of the weak jobs report, right? So it's all based on the Fed is going to cut sooner.

I take your point, though, completely. The re-steepening that happened earlier this year during the regional bank stuff was the troublesome re-steepening where the two-year came down pretty rapidly. That's right. This re-steepening has been because of upside surprises to economic data. My take is more so that the upside surprises to economic data won't last, especially at these rate levels. And if you get to a point where the long-term average spread between twos and tens is a positive 88 basis points, if the two-year stays where it is,

that suggests a 10-year of about 6%. And I don't see that as sustainable and something that we can get to without pain. Well, that's the kind of pain that Greg Branch says is coming because you do think we're getting to that level, correct? I do. And to follow on something that Liz said, you know, for the last few months, what we've been doing is taking things that are episodic and trying to make them a trend. Yes, we had an $89,000 job ad,

which is in the right direction, but we also had historically low job benefits applications two weeks ago. We're also still stuck at 3.5 percent. And so to take that one data point and say that this is a trend, I think has been a mistake that we've been making over and over again for the last four months. And so when you look at what consensus is forecasting and when you look at the rate where we are right now, and don't forget, Scott, I'm still at 6 percent. So I still believe that the Fed has action to take that is currently not discounted into the market. I mean, Clarida today, the former Fed vice chair, said the Fed may well be done.

She did. He did. He did. And there are other representatives who said that there is at least one more. And so we'll see. We'll see. You know, they've given us head fakes before. They last year sent us on a pivot party that didn't happen.

And so when I look out at 2024 and I look out at the estimates for 2024, I wonder how consensus can have both of these things. I wonder how we can forecast rate cuts and 12.2 percent earnings growth. And so I don't think both can occur. I think you would, quite frankly, need to be below my estimate of 225, which is one of the reasons I don't think we get rate cuts next year. Let me tell you how both can occur. And I'm not saying that this is what should be the baseline scenario, but it is the Fed's baseline scenario.

If you look at their economic projections, if you will, they're effectively forecasting exactly what you're talking about. The type of environment that will allow them to cut rates a few times next year, economy still expands, unemployment goes up a little bit, but not so much. And inflation continues that glide path down through 2026. There's a lot more to talk about with respect to that. But if that comes to pass, and to your point, they've been as wrong as the private sector for quite some time. I don't even think that's a 12.2 percent earnings growth scenario, which you've just described, is it? He's describing a soft landing scenario. Which is not a 12.2% earnings growth scenario, right?

And so that's what I'm saying is how do we get both? Listen, the 12.2% earnings growth might be excessive, let's say. But whether it's 8% or 12% is not really the point. If you do have that environment unfold, and again, I'm not sure that it will. But if you do have that environment unfold, the path for earnings in the stock market presumably is going to be higher because in a larger sense, what the Fed is effectively saying, whether again, it comes to pass or not, is we are not willing to do the damage to the economy necessary to get inflation to target sooner. We'll take a little higher inflation and a little unemployment in exchange for inflation reaching

target in 2026. If that happens, that means the Fed's not going to be doing some of the extra 6% rate hikes that you projected. And again, they might have to. But again, in terms of how do you get the earnings growth, how do you get the equity gains, et cetera, how are credit spreads appropriately priced? That's the scenario. What if, you know, Greg, you're ignoring the trend of falling inflation, which it has been. It has been. Wouldn't you agree? I would not. I don't think I would agree with as much disinflation as you're implying, right?

The fact is, is that up until recently, core has been expanding by 30 to 40 basis points every month, with the exception of June and July. The fact is that when you look at the underlying metrics of the inflation reports, airlines was down 8 percent. Ut utilities was down 1.7 percent, and used cars were down 70 basis points. Nothing else was down more than 40 basis points. No, but I mean, goods inflation has come down a lot. Housing inflation has come down. It's that non-housing services area that's been more sticky than I think the Fed and

others would like. But if the economy is going to slow to a degree that the Fed wants it to, if you have a slowdown in job growth, Citi data today suggests that the consumer credit card usage is continuing to slow. So if you get the kind of slowdown that the Fed wants to achieve, you could continue to get a pulldown in inflation as well without crashing everything. You could. The risk is, is that we're interpreting any disinflation as the needed disinflation. And those are not the same thing. We of course, we're going to experience some disinflation with 500 basis points of interest rate hikes. But the problem is, is that, yeah, it's the services inflation, not the goods inflation. And we can applaud the goods inflation all day, but those 89,000 jobs that were added

to the economy, those were all in services. Well, hang on one second. Let me just, for the viewer, and Michael Ferroli made this point earlier on TV with, on the network with Sarah, the ADP report is not exactly the best predictor either of economic performance or the Friday employment report. So we need to take the ADP report a little bit of grain of salt. And that goes both ways. Perhaps the number is actually higher. What sure.

What makes you wrong? Where do you get it wrong? I get it wrong if there is something fundamentally in the economy that does get us to 8 percent earnings growth. Now, the reason I think that we can't get there is that the cost of capital is significantly higher than, you know, earlier in the year or last year. The base effect is going to be more unfavorable. That's an inflation number. Wage pressures are slated to continue, at least in the services sector. And I see the consumer weakening. And, you know, one of the things that you waved off last time we were on, Dan, is delinquencies are increasing rapidly.

Normalizing. They're increasing rapidly as well. Both. Both can be true, Dan. Sure. You know, we're now up at three and a half percent. The new credit cards, which are the consumers most at risk, that delinquency rate is above pre-pandemic levels at 7.3%. So I don't see where this environment is telling us that we can get an 8% earnings growth rate. So the rebuttal that you'll get, because I've gotten the same rebuttal,

that you'll get to the 8% earnings growth rate because capital is harder to get, it's too expensive, is that if it's driven by companies that can internally finance their growth, then they don't need to borrow money. They're not constrained by this capital environment. And that's partially true. I think the issue and the risk is that if the expectation is 8% or 9% earnings growth, in my opinion, the risk is bigger on the revenue side, right? Because inflation has fallen. We can't justify the price pass-throughs. Companies don't have that pricing power. So they've raised prices as much as they're going to be allowed to based on what their consumer will pay. Revenues are capped out.

Revenues can't grow to maintain this level of cost, so they'll have to cut costs. They've cut a lot of costs already. The next thing left to cut is labor. And if you look at, and I know history is only a guide, but if you look at a long-term chart of the unemployment rate, when it hits a bottom, that's right before it spikes back up. It never hits a bottom and then kind of chugs along at the bottom, right? It gets really tight and then it flies back

up. You think earnings are going to be good for this reported season? Good is relative, right? And so the expectation... Better than you and others have thought for a quarter after quarter after quarter because they've largely been better than they have. They have been better than than we thought. And that was because we were pumping a lot of stimulus into the economy. Right now, we're at a contraction of 10 basis points. I think it'll probably hit that on the head. I think that we do see a fourth straight quarter of negative earnings growth. A lot of that, a lot of that is energy. And if you not that you should do this, although on the network, we all do it. But if you X out energy, you've got positive, a couple of percentage points. If you look at the earnings growth, I'm not sure if we have this in the back or not. Projections aren't to be down there. This is the

quarter where you tick up and then you continue to go up. And obviously you're more robust as you get into 2024. The story surprised almost everybody that the economy has remained as resilient as it has. Well, you can't get it wrong every time and then just say, well, it's because of the stimulus here or find another reason of why the economy has performed better. The fact of the matter is it's just performed better. Consumers have remained more flush than we thought. Despite a manufacturing recession, the overall economy is hung in there. Now it's a two-thirds, 80% or so consumer-driven economy. Right.

So I totally get it. But the story hasn't taken the horrible turn that a lot of the forecasters who are big bears want it to? Let's distinguish between what we think and what we want. Because we think that it might take a horrible turn doesn't mean that we want it to. And it's a fair point that you make, Scott. You know, I don't think any of us look back on what we got wrong or what we did wrong to explain it away. I think we look back to figure out so that we don't get it wrong the next time. And I think that no one can deny that there was a lot of stimulus

pumped into the economy. We just had $9 billion of student loan debt erased. That's stimulative. That saves and postpones the duress on the consumer. So these things are happening. Whether it's good or bad, I leave for others to decide. But it does have an impact on the duress that the consumer balance sheet is experiencing. We're going from, I feel like in some respects, Liz, we're going from an environment in which, you know, those who are more cautious or negative describe it as, well, the consumer has run out of money. So you go from big spending to off the cliff. And then other areas that have been strong, you just go from there off the cliff. And it doesn't necessarily have to be that way. No, it doesn't have to be that way. It could

start very slowly. And I do think that there are indications that consumer spending has pulled back. I mean, a plateau in credit card borrowing is an indication that they've pulled back. And the bigger question is, have they stopped borrowing more on credit cards because they maxed out? Have they stopped borrowing because they can't make the current payment? Or is it just that we're taking a break and waiting to see what happens? The only way that consumer spending falls off a cliff like that is if the labor market falls off a cliff, right? Because people are going to keep spending as long as they feel employed or feel optimistic about getting a new job if they end up unemployed. When the labor market, if and when the labor market cracks, that's when you'll see consumers really pull back.

Now, look, these guys have, you know, kind of the trend, the recent trend on their side of a market certainly under the surface that's troubling. Bespoke today, the SPY has made lower lows on 33 of the last 50 trading days. That's tied for the most in the ETF system. Not great. So, you know,

you got to we got to get off the mega cap bus for a minute and really look under the hood and say, well, I mean, I need a hose replaced over here. Look, I got oil leaking over here. Can we get past that? So I don't think to Greg and Liz's credit or to reinforce their point, I don't think people in their camp do a good enough job of emphasizing the point that you just made, which can be illustrated in the Equal Weight Index. If you guys want to be the royal, you guys want to say, hey, the Fed's raised rates by 500 and something basis points. That's going to have an effect on the economy. That's going to have an effect on the market. Don't look at the S&P 500. Look at the equal weight index, because I, money manager at firm A, B, and C, need to pick stocks and outperform. That index is basically down on the year. Let's just call it flat. Yes, the index is up. We know this. This is not unknown to viewers. It's not unknown to the panel, Nvidia, Apple,

et cetera, et cetera. The average stock is down. And so you can say with some gusto, some emphasis, the Federal Reserve has raised rates by 550 basis points. They might have to do one or two more. And stocks have reacted. Can you also say that, therefore, that when, you know, those might suggest that, well, the market's so overvalued relative to where interest rates are? Well, I mean, you can pick at the seven, you know, forward PEs of the mega caps, but under the surface, to your point, is it really? The equal weights trading it calls 15, including the seven, the equal weights, it's called 15 times forward earnings. And that said, I want to make it, I want to rebut something they said earlier very quickly. Greg made the appropriate point, which is the reason why you go back and try to explain why one was wrong was so that you don't make the same mistake again. What he left out there is with respect to the consumer, the revisions to GDP, et cetera, that just happened showed us that

consumers had even more savings than we originally anticipated. So there is even more ammunition. Forget the $9 billion, which, as you well know, is a drop in the bucket. Consumers had multiple hundreds of billions of dollars of extra savings than we originally thought. They are stronger going into the fourth quarter than we previously thought. That is a positive. So, Greg, let's just paint this picture and see if it's, you know, realistic to get to the final portrait. Sure. Rates stop going up. The Fed really doesn't do anything more. And earnings actually surprise us and they come in okay. And the consumer just manages to hang in enough. Job losses don't accelerate to any meaningful degree. Sure, hiring slows, maybe ADP is a tell. But under that scenario, that doesn't sound in my book

is super negative for equities. That sounds like a great scenario. It doesn't sound like one that gets you to 2% inflation, though. Maybe, maybe not tomorrow, but I mean, as long as the Fed knows you're on the path there, you know, to Dan's point and what we what has been reported, I guess, over the last month is this change of focus somewhat from the Fed of used to be erring on the side of doing too little, right? They would just keep doing it, keep doing it, because they didn't want to make the mistake of what happened in the 70s. But that has now morphed into, as Dan suggested, not doing too much for no reason. And hurting an economy, they actually might be able, I know it's hard for some to think, they might actually be able to pull it off. And I think that it's easy for us to hypothesize about this. I think the luxury that 200 million Americans don't have

and that the Fed probably doesn't have is that things that used to cost $1 in 2021 now cost $1.30. And while that might not be meaningful for much of our audience, for 200 million Americans who live in a family of four that make $70,000 a year, that is very meaningful. So I think that the Fed probably will approach this with more urgency than they've let on. Let's go real quick. I mean, transports have been weak, small caps have been weak, utilities have been weak, homebuilders, cruises, consumer finance companies,

all of those types of companies. Is that a worrisome sign that we should talk about more? Yeah. There's a lot of weakness going on right now. I think a lot of this is a correction of the strength of the rally that we had. I think, obviously, the speed of the adjustment of interest rates is a problem. It's not necessarily the level. It's the speed. And I think if you can, to echo some of the points made on the halftime report, if you can find a level and stop going up at this rate, you do have the seasonality as a tailwind, and you can rally into your end. Speaking of, I mean, NASDAQ high of the day, up one and a quarter percent. They knew I was going to say it.

Well, as rates have taken a breather and I don't know, things are unsettled. You downgrade Apple and Apple goes up and the NASDAQ does too. Go figure. Guys, thanks. I appreciate it very much. Greg Branch, Liz Young, Dan Greenhouse right here at Post 9. Let's get to our question of the day. Would you buy Apple? Speaking of, on today's downgrade, you can head to at CNBC closing bell on X to vote. The results are a little later on in the hour. In the meantime, a check on some top stocks to watch as we head towards the close. Christina Partsinevelos joining us with that. Christina. Well, let's start with travel stocks. They're getting some relief today as oil prices pull back. The cruise lines are all in the green. You can see on your screen. With exception of, no, they're all positive right now. Royal

Caribbean up almost 3%. This is after a sharp drop yesterday. And many of the major airlines have warned of higher fuel prices just in the last few weeks or so. And that's part of the reason they're all off about 10% or more just in the last month. But today we're seeing green across the board with the winter American Airlines up over 3%. CalMain is lower, though, after the egg producer reported a 30% drop in revenue compared with last year. That comes alongside a 30% decline in egg prices, which the company says have now normalized from last year's record.

Remember when we were talking about that? Egg prices soaring. CalMain stock down 6.5%. All right, we'll see you in a little bit. Christina, thank you. Christina Partsenevelos. We are just getting started right here on Closing Bell. Up next, green shoots for big tech. One of the hardest hit sectors over the past month is getting a much needed lift today. Our next guest sees clearer skies for that space in the months ahead. He makes his case. He shares his plays. We do it after the break. We're live for the New York Stock Exchange and you're watching Closing Bell on CNBC.

We're back on Closing Bell. KeyBank downgrading Apple to sector weight today, slowing U.S. sales and high valuations were just some of the reasons behind that call. And it's a rare one at that. Joining us now to discuss King Lip, chief strategist at Baker Avenue Wealth Management. It's good to see you again. Welcome back. Hi, Scott. You don't see Apple downgraded very much, especially by somebody who's been bullish,

like this analyst has been. What do you make of the call? I think the research report, there's a couple of good points. What we agree with is the iPhone 15 would probably just be a more modest driver in earnings growth for 2024. What we disagree with is we don't think Apple is necessarily trading at a premium valuation. In fact, it's about one standard deviation away from average over the last 10 years in terms of its multiples. We've seen the shares trade much higher. In fact, two standard deviations, three standard deviations above historical average. And frankly, we think the higher multiples may be warranted since the company's pivoting to more of the services business. So some good points, but overall,

we disagree with the research note. I mean, I think there are many who would suggest that they're not sure that Apple deserves a 28 times forward P.E. That's well higher than its historical average. How do we justify it when we know that we've been in an environment, at least, where revenue growth has been consistently slower? Yeah, I think you justify it with the fact that the services business is a growing part of Apple's hardware business. I think this year, you know, it's a little harder to justify, given that Apple's earnings, to be honest, this year is kind of modest. But looking into 2024 and 2025, you're actually seeing a little bit of acceleration in earnings growth. So relative to what we see potentially for an iPhone 16 catalyst,

we actually are much more excited about the next generation of iPhones than the iPhone 15. We think that's going to be a catalyst for a lot of user upgrades. Yeah. What about tech overall right now? It certainly looks a little shaky as rates have gone up over the last month. These stocks have come down. So what now? How do you make the case to buy the dip if you do? Yeah, it's been tough. I would say since the July 31st month and, you know, markets have been down about 7 percent. I would say tech has done actually a little bit better than that. If you look at the QQQ, it's actually done better than the overall S&P. However, I do think we're near a bottom here.

Perhaps we have a few more down days. The reason why I think that is, number one, I think a lot of the headwinds that we've seen will start to dissipate in the second half of October. You know, we've seen some seasonal tax loss selling from mutual funds that have a 1031 fiscal year end. They need to do their tax losses by then. We've seen some cash raises really from clients as well, selling for raising cash for California's tax payment, which is about $100 billion that California didn't give to the IRS. I think there are some factors coming from there.

And we're also seeing technical factors. We saw the VIX invert. The last time we saw that was back in March. And the market gained about 18% to the highs. And now we're still about 10% from that VIX inversion. We saw that yesterday. We're about 8% of the S&P stocks are above their 50-day moving average. That typically bottoms out at 5 percent. So we're seeing a lot of technical data that also suggests that we're getting near the bottoms here. I mean, second half of October, that not coincidentally coincides with when these companies are going to report earnings. So you must assume that we're going to get some pretty

special deliveries. You're right. I mean, if you're looking at for Q3 earnings, what's interesting is among the tech sector, communications and technology and Amazon specifically, since the end of the second quarter, we've actually seen their earnings estimates tick higher by analysts. So we're not seeing too many sectors out of the S&P actually increasing estimates.

So the tech sector is actually one of the few. And the fact that share prices have been down since the end of July, it makes the valuation hurdle that much easier to eclipse. King, we'll leave it there. We'll talk to you soon. King Lip joining us from Baker Avenue today. Straight ahead, Evercore's Roger Altman waiting in the wings.

He'll join us next, how he sees the market set up into year end. When will this rate rise end? Not to mention the dysfunction in D.C., all of it taking somewhat of a toll on investor sentiment. And then there's the return of M&A to talk about as well. We're back on Closing Bell right after this. S&P and Nasdaq rebounding today. Treasury yields pulling back from multi-year highs. Well, my next guest sees more downside ahead for stocks amid that rising uncertainty. Joining me now, Post 9, Evercore's Roger Altman. It's good to see you. Welcome down here.

Pleasure, Scott. Thanks for having me. So we have more rough times ahead? I just think it's going to be hard for markets to do well between now and the end of the year. The level of interest rates, as you've been talking about so much, at the margin makes bonds more attractive than stocks. I mean, if you have about a 5% yield on the 10-year and you're looking at all this uncertainty, whether it's in Washington or whether it's hard landing versus soft landing, it's not a bad place to be, at least temporarily. And then you have some fresh concern about whether we can really count on a soft landing with this level of interest rates and some other factors. And then you have the mess in Washington and, in particular, a likelihood of another shutdown. And any time you don't have a speaker of the House, which is a figure, I mean, a position which is cited directly in the Constitution, that's not a good thing.

Then you have some fresh concern over the fiscal trajectory of the country, which I think is quite poor. And it manifests itself in a massive supply of treasuries, of course, but also just no interest in Washington in addressing it. And when you have a roughly $2 billion deficit when the economy is as resilient as it is right now, and the outlook for the debt-to-GDP ratio as it is, it's not good. So rates have obviously backed up a bunch. You know, we're talking about the prospects of a 5% 10-year. How high do you see rates going? Are we getting to the point where we've just moved a little too far,

a little too fast, and we're going to stop this upward momentum some point soon? Of course, it's hard to know, but I would, my best guess would be they're not going to go a lot higher because we have an environment where inflation, even though it's stubborn, is coming down. And that's obviously good because people focus on real returns as they should. And I also think the economy is more likely to be softer at the margin than stronger, which obviously is a positive from the point of view of a cap on yields. So I would doubt that rates are going to go a lot higher. Although there is a sense, as you know, that the so-called neutral rate, the rate at which the economy is neither expanding or contracting, should be higher than

people have been thinking it would be. And I think that has a fair amount to do with why rates have jumped up like this. But are they going to go a lot higher? I would be surprised. I mean, I think the Fed is obviously trying to figure out if the neutral rate is in the right place. Yeah, Rich Clarida, I mentioned it earlier today, the former vice chair, suggests, you know, maybe they are done.

And you have to believe they want to be done. They don't want to inflict undue harm on what's been a better economy than even their forecast suggested it would be. Let's not forget, they got the forecast on the economy incorrect, and they've gotten the forecast on inflation incorrect. A historical error, I might say. And that's going to be talked about for decades. But what do we do with it? What do we do with it now? What if there's enough still in the economy that they can pull it off? Well, as you know, the futures market at the moment is signaling that it's not very likely the Fed will hike again, at least this year.

I think that makes sense because if you're the Fed, you're surprised, I think, by this level of open market interest rates, not the overnight rate you control, but the 10-year, the 30-year, etc. I think you're surprised by that. You're a little concerned as to how much it is tightening financial conditions in addition to what you've done at the Fed. Sure. Well, the lag effects haven't even, you know, they've got to be wondering, wow, we thought the lag effects would already be starting to take hold. Now, maybe these are the first winds blowing in before the storm does. But that's been somewhat of a surprise, too.

And they probably think that there's more to come. Yeah. So I think if you're the Fed, you're feeling cautious. I think the mentality probably is at the moment steady as she goes. No change. And as to next year and when they will cut, how many cuts, I just think that's data dependent. We just aren't going to know that for a while. You think, though, that they will cut rates next year? I do.

I do. And I think that because I think it's going to be hard. The economy has been remarkably resilient. But there are some factors that are more downbeat. You know, apparently for 80 percent of Americans, the surplus pandemic related household savings are now gone. And that's going to work its way through on consumer spending and retail. The top 20 percent, yes, still pretty flush. But the everyday American consumer, not as flush as she was three months ago, six months ago and so forth.

And a few other factors I think that are going to cause the Fed to feel more. I mean, we have to wait and see how inflation progresses. But I think they'll hit their target on inflation in the next medium term. And I think they'll cut rates. I'm not sure how often, but they'll cut rates starting next year by mid-year. See that as you were as you were saying the first half of your answer just now, I was going to come back and say, so you're you're suggesting that they're going to cut

out of necessity because the economy is weakened to the point where they've got to do something. But then you finish by saying, well, inflation is going to come down enough that they'll be able and willing to cut rates for that very reason. I think there will be a sense that they finished the job, that they've that they've solved or at least mostly solved the inflation problem and that that's their core mission after all. And that there'll probably be some soft, I don't know about recession, but soft economic data and the combination of having solved inflation and somewhat softer just growth factors, I think will cause them to begin to cut back. That sounds like a good scenario for stocks, no? I think stocks should do pretty well next year because under that scenario, broad market rates would come back a little bit, come in a little bit. And that would be positive for stocks. And if you don't think there's going

to be a recession, and right now the market still is more in the soft landing camp, it should be a pretty good environment for stocks, yes. What about for M&A? Real quick before I let you go. There's two counter trends going on right now. At one level over the last two, three months, activity levels are definitely up, backlogs up, and announcements are beginning to improve. At another level, though, all this macroeconomic and global financial market uncertainty, you know, causes business leaders and decision makers to pull back. I think the first factor, improved activity, is at the moment a little more prominent than the second. And by the way, earnings remain good, and that's a positive for confidence. But it's kind of a little bit of a rising tide and a falling tide at the same time.

I appreciate it very much. Thanks for coming down here. All right. That's Roger Altman joining us right here at Post 9. Up next, we track the biggest movers as we head into the close. And Christina Partsenevelos is standing by once again with that. Hi, Christina. Hi. Well, software firm Palantir shares are up on rumors of a new customer. And beer and medical marijuana, the saving grace for one company, we discuss next. Just about 15 minutes before the closing bell.

Let's get back to Christina Partinellos now for a look at the stock she's watching. Christina. Thank you, Scott. Tilray reporting larger than expected loss in Q1 with the CEO telling CNBC just this morning that, quote, it's frustrating when you look at our stock and you have all this great growth opportunity. We can see the shares are down about 16 percent year to date. The company has been expanding recently in medical marijuana as well as beer. It acquired eight beer and beverage brands from Anheuser-Busch. And the stock is off its lows of the day,

but like I said, still down 17%, despite all those growth opportunities. Palantir shares popping on a Bloomberg report that the software firm has the top pick for a contract, and that would be the UK's National Health Service. The report said the deal is worth $550 million and should be announced later this month. I reached out to Palantir to try to get an answer.

They didn't respond back in time. Shares are up almost 6%. Scott. Yeah, what a difference a day makes because, you know, those shares, along with many others, yesterday, not a great day for NASDAQ. Because of the yields. Yeah.

Thank you, Christina Partsenevelos. Last chance now to weigh in on our question of the day. We asked, would you buy Apple on today's downgrade? Head to at CNBC closing bell on X. The results just after the break.S. for political reasons. Growing up in Miami, the cultural melting pot that it is, was always a comforting feeling because I always felt like I was surrounded by folks that understood my heritage and understood the dynamics of my culture and now that I'm able to raise my own kids here in Miami, it's really nice because we're able to really keep a lot of our own cultural heritage alive. The results now of our question of the day. Would you buy Apple on today's downgrade?

It's neck and neck. Yes, barely winning out. Stock is up. Coming up, energy stocks slammed. Crude oil pulling back to its lowest level in nearly a month. Plus, the latest check on the health of the consumer when Costco reports its September sales in OT. That and much more when we take you in the MZ. That's the Market Zone for you playing at home.

We're 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, Pippa Stevens crude oil is tumbling to one-month lows today. Courtney Regan back on what to expect from Costco when it reports in overtime today. Mike, you first. OK, we're kind of at the highs of the day. NASDAQ's one and a third percent, 1.37. Dow's now good for triple digits. S&P back above 4,200.

What do you make of it? We're stepping into it pretty tentatively and just sort of one eye, if not both eyes, on the bond market. Usually, bonds are going to do what they're going to do by 3 p.m. Eastern time. You get the Treasury futures trading on the floor. It kind of ends around there. It felt as if it was safe to say, fine, we have this, you know, a little bit of a bid in Treasuries. And that was enough to get this oversold market moving a little bit. It is still the mega caps.

You know, we've lost 300 S&P points in about three weeks from high to low. And that was enough to get this oversold market moving a little bit. It is still the mega caps. You know, we've lost 300 S&P points in about three weeks from high to low. And we regained about 34 of them. So obviously it's baby steps. We stopped just short so far of that 200-day average. So maybe we've tested the technical scenario a little bit. Now it's all about what the economic narrative is going to be. Also, a net positive that the bond market did respond to slightly softer economic numbers.

It showed you that it wasn't just about yields blitzing higher based on fear and self-reinforcing supply concerns. So you said it. I mean, it's too soon to declare that it's anything other than a short-lived reprieve. And to your other point, it's largely going to depend on what bond yields do. We have a jobs report, right, on Friday. And then the bond market's closed on Monday, too. So you have some for Columbus Day. Exactly. We've got a lot of interesting things coming up that could drag this market around.

Without a doubt. And it's a little bit of a delicate fundamental situation because you want to see enough softening in the economy that the bond market can find some kind of real buying in there and have a reversal in that upside in yields, or at least get the stock market used to the idea that it's not going to fly higher from here, while also, of course, you don't want to pull forward the real slowdown and the real recession concerns. So we will see, but it's pretty well scripted here. 200-day average test, oversold market.

We'll see if the rally has more than a day in it. Yeah, well, I mean, oil might be a determining factor, Pippa Stevens, of that. And today, it's down 5%. And that is a big relief because it seems to have been pretty relentless on the way up. Yeah, I mean, Scott, it was a brutal day here for oil, closing, as you said, down almost 6%, and actually falling below that 50-day moving average for the first time since July. So we did have that virtual OPEC meeting this morning where the group reiterated its commitment to those production cuts through the end of the year. So perhaps some signals there that they don't see the global economy on all that strong of a footing. But it also feels like some of the headwinds that the oil market had largely been ignoring on that relentless climb higher

are now finally starting to catch up. That's, of course, the higher dollar, as well as what higher for longer rates might ultimately mean a four oil demand. And we are starting to see some cracks in gasoline demand. Specifically, the gasoline crack spread has all but collapsed, really falling off a cliff with Arba futures down another 7 percent or so today. We got the latest data from the EIA today that showed that demand was down 8% over the last month compared to last year. And then finally, we saw so much interest in this trade, money flowing into the sector over the past few months and bullish bets outnumbered bearish bets 6 to 1. And so it was looking really overbought. There was just too much momentum behind this. So this pullback today, perhaps not all that surprising. That said, Scott, while that $100 level might be further afield now,

it does feel like we've reset on the downside and we will see higher lows looking forward. All right. We'll see. Pippa, thank you. Pippa Stevens. Now to Courtney Reagan. We spoke yesterday about the destruction court in some of these discretionary names. Well, we got Costco coming with earnings in overtime. What do we what do we think? Yeah, so Costco is the lone retailer still reporting these monthly comparable sales like we're going to get here today. And last week, it reported another really solid quarter, though it did note continued softness and big ticket, non-food items. So investors probably won't be surprised if sales are down slightly from last year when we're just looking at the month of September. Placer.ai store traffic data for Costco shows that store traffic fell each of the first three weeks of September compared to those same weeks last year.

Gasoline may begin to act a little bit more like a tailwind than a headwind for Costco. We'll see how that impacts the numbers. And just like you said, Scott, I've been saying consumers are kind of in this pressure cooker, right? It's likely only a matter of time until spending gets pulled in more sharply. But Costco members skew a little higher income, but still like the deal, particularly on Essential. So it's a really interesting retailer to watch here. Shares are up about 5% over the last month. The XRT fell 8%.

Consumer discretionary and consumer staples ETFs fell 5% in that same period of time. I would put Costco more in that staples category. But again, they sell a little bit of everything. And so I think we can really pull a lot from the consumer behavior and spending within. Yeah, Courtney, thank you. Courtney Reagan, you just heard the two minute warning at September sales, not earnings. I misspoke on that. But let's talk about what's happening here. Apple gets this really rare downgrade and the stock is in the green and it looks like it's going to close near the highs of the session, at least for that stock. And the Nasdaq is, too. Yeah, it was a relatively tepid downgrade. I know you talked about it quite a bit, but the fair value estimate was like 182 is above where the

stock was trading. It was much more about do we really want to pay up for Apple, given the fact that might have some fundamental challenges. It does show you something, though, that when you do have a little bit of an opening for investors to feel as if it's safe to do some nibbling, it is the familiar, the safer, the better balance sheets. Nobody's going out on a limb and going to those companies that are massive consumers of capital. So that yeah, that's usually the way it starts. I think this stuff usually goes in waves. A lot of valuation risk, whatever you want to say, whether the market's cheap or expensive,

has been taken down, you know, in the last couple of months. And so you have to, you know, just sort of see if the market is in a mood to try to reward bargain hunters, or if it's still going to be like, look, we don't know how bad things are going to be. It's late cycle. We can't declare victory just yet. And yeah, you say we had the jobs number coming and yields. Look, one day doesn't make a trend. No, nor does, you know, a bunch of buying in the Nasdaq either. We'll have to see. But it's one of the central questions as to whether the buy the dip folks, we're going to come into mega cap between now and the end of the

year in a more meaningful way. A lot of room and the end of the year in a more meaningful way. A lot of room until the end of the year. You notice the smaller stocks, though, not really getting much help today. Yeah. All right. Good stuff, Mike. Thank you. We'll see Mike tomorrow, of course.

That does it. There's the bell. Dow good for better than 140. It's a NASDAQ standout today. As you see, interest rates taking a little bit of a breather, as you see on the bottom there. That's it for me. I'll see you tomorrow. Morgan and John at OT right now.