Closing Bell - Closing Bell 7/7/23

Episode Date: July 7, 2023

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

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with a sigh of relief for stocks. Here's your scorecard with 60 minutes left to go in the session. See the S&P 500 up about a third of a percent. The Dow flat. That's really being dragged down by some of the more economically defensive areas. All the indexes, though, well up off their session lows, up by about three quarters of a percent intraday on the S&P, but still all in jeopardy of posting modest weekly declines. After a jobs report that came in a bit softer than what the street was expecting. And Chicago Fed President Austin Goolsbee telling CNBC he is still undecided about what the Fed should do in July. Steve Leisman will be along shortly with more from that interview. And it all brings us to our talk of the tape and whether today's jobs report was just right to keep the Fed from turning much more aggressive, even as it

shows still strong labor market and what it all might mean for the rally. Let's ask Charles Schwab's Lizanne Saunders, chief investment strategist there. Lizanne, great to speak with you on all this. I mean, I guess the question is, do you think the market is correct to take a little bit of comfort out of today's numbers? Essentially, we're not seeing an overheating economy, but also not one that's outright stalling. Yeah, I suppose in the context of the nearly 500,000 ADP print, which really kind of freaked out investors, I think it could take some comfort. But of course, we're starting to see the weakening that although the Fed wants to continue to quell inflation, might be starting to send some signs of sort of full

official recession versus what we've been calling the rolling recession. I think it was a slightly hotter than expected wage number and the uptick in hours work that probably moved the needle a little bit in terms of probabilities for a July hike, which were already high, but now they're up around 95 percent. Beyond that, meaning September, you know, it's the data that's going to define what the Fed does beyond July. But I think a hike is basically baked in. Yeah, it does seem that way, certainly at this point. Although, what are you picking up in these numbers today that suggest to you that we may be now getting closer to that more broad-based formal recession? I mean, obviously, there were downward revisions to prior months' job gains and then about a 40,000 job miss for June.

So you also saw the spread between household and payroll or establishment survey data. The establishment survey is what generates payrolls, and then the household survey is what generates the unemployment rate. And although that, in the case of household, was up, that is compared to a pretty big negative the prior month. And of the last 15 months, five months have seen big declines in household employment. And that tends to lead as you're heading into a downturn in the economy. You've also seen the rolling over in temporary jobs. That also tends to be a leading indicator. And although we had a little bit of relief in terms of unemployment claims, the four-week average is up more than 30 percent from the trough. And the average heading into recessions of claims is up more than 30 percent from the trough and the average heading into recessions of claims

is up only about 20 percent from the the trough so it's certainly not a done deal but maybe a few more little check marks you can put in the in the recession column yeah it's interesting because of course i think there's been in the last couple of months uh this consensus migrating to the idea that we're pushing out the potential date of an onset of recession. It seems like things can appear and feel like a soft landing for a little bit longer. Meanwhile, though, yields have backed up to a point where, you know, the two-year yield almost back to where it was right before that SVB regional bank scare. And of course, the 10-year flirting again with 4%. How does that filter into the,

I guess, the way the equity markets might be able to handle this environment? Well, and keep in mind, as you know, Mike, it nominal yields are up, but so are real yields because you haven't seen a commensurate increase in recent inflation data. So you've got that pop up in real yields. And given that the rally off the October low was more than all accounted for by multiple expansion. There was no earnings component to it. I think in conjunction with the move up in yields, I think it just put some downward pressure on some of the more highly valued segments of the market that were probably ripe for some profit taking anyway, because you had started to see not only overbought conditions, but that concentration problem. On a day like today, seeing a pretty significant rally by small caps via the Russell 2000, we've had smatterings of those.

And I think it's good to maybe see convergence happen by both a little bit of profit taking up the cap spectrum into those names that were solely driving performance, but also greater participation by the so-called average stock. We need more of it, but some comfort in that today, given that broadening out. Yeah, certainly the market has had, you know, coming into the second half, plenty to prove on that score. I know you feel that investor sentiment has also gotten to a point where it's becoming more challenging, maybe more of a headwind from here. What are you looking at specifically that says that maybe raises the bar for further gains? Well, if you look at behavioral measures like fund flows and we focus a little bit more on ETFs because there's more activity there relative to traditional mutual funds, you know, about 80 percent

of the flows in the past month or so have been on the equity side of things. You look at a variety of the so-called smart money, dumb money confidence measures. If you look at some of the attitudinal measures like AAII, although a little bit off the boil, in general, you're in what might be deemed excessive optimism or at least ample complacency that, and this is important, all else equal is a contrarian indicator. You know, sentiment can get frothy and stay there for years, like was the case in the late 90s. So don't ever consider a frothy sentiment environment as some immediate, you know, sell signal for the market. But all else equal, I think it represents at least some near-term risk to the extent that there's a negative catalyst.

Right. And certainly what it does is get us into a different place than we were entering the year when it seemed like there was a lot of pessimism that the market was able to feed off of to go a bit higher. Let's bring in CNBC senior economics reporter Steve Leisman, as well as Cameron Dawson of New Age Wealth, to talk more about all this. Steve, you spoke to Chicago Fed President Austin Goolsbee earlier today. What was your takeaway? He was kind of sunny. You know, I think it's a great way to leave on a Friday in a summer afternoon. He is not that discontent compared to, for example, some of his colleagues on the Fed with the trajectory of the economy. They seem all bothered by how resilient the economy has been. Obviously, he thinks inflation is too high, but he talked about making progress. And I think on this sunny, though humid Friday afternoon, we ought to listen to the fairly upbeat Austin Goolsbee here.

The Fed's overriding goal right now is to get inflation down. We are going to succeed at it. And to do that without a recession would be a triumph. And that's the golden path. And I feel like we're on that golden path. So on the golden path, I don't know how much Lizanne or Cameron think we're on the golden path, but we are bringing inflation down. Employment is relatively robust still. We have not yet had anything that would resemble an official recession, in part because we don't have the weakness in the jobs market. The consumer seems to not be giving it up, although perhaps there's some softening there.

So I don't know. There's sort of a feeling among some that maybe they can pull this off against odds and their past history of being unable to do so. Mike. Sure. He said golden path, not yellow brick road. Might have had different implications if that were the case. Cameron, it is the case. And I think it's a good reminder of what Goolsbee had to say, which is it's inflation that is in the mandate and it is the target of their policy right now. It's not we need to get unemployment to a certain level. We need the economy to slow to a certain point. Financial conditions have to be to a certain level of tightness. Those are all the tools. Those are not the jobs. So do you think that there is a shot the economy can have this

more benign outcome? Well, certainly. But I think it really does depend on the path of services inflation, because schools be called out. Goods inflation is needing to see more progress on that front. But that's been in disinflation for 18 months from durable goods. So we've already seen progress on that. It's the services inflation that remains so sticky. And why the Fed keeps bringing up the labor market is something that they need to watch. Because we still see wages being very elevated. Yes, they're a little bit off their highs. But we saw in the

average hourly earnings today that was the source of upside surprise. So how much does the tighter labor market and higher wages feed into that services inflation and keep them from truly achieving the entirety of their 2 percent goal? Cameron, I'll just give you real quickly the Goolsby response to that, because I asked him that and he was talking about the work week as a whole, which is kind of down from where it was. And as you know, the amount that people take home is the hours work times the wage. And if one goes down a little bit and the other goes up, you kind of end up sort of in the flattest area. That's his response to the inflationary impulse from the wage numbers. Although I do think, Steve, that what Cameron said and all that we've been talking about does get to this idea of we take some heart in the resilience of the economy.

And, Lisanne, I love your thought on this, but the resilience of the economy is also the thing that keeps certain factors sticky, whether it is wage growth or it is some of these measures of inflation, and therefore keeps the Fed in the game looking to do perhaps more versus less. So is this just elongating the process, Lizanne, or do you actually think that we can get to some kind of really favorable equilibrium at some point soon? Well, I do think it's elongating the process. And nobody wants a recession or any kind of contraction in economic growth. But frankly, one that gets pushed further out, possibly into 2024, I don't think that that's a more bullish environment for the stock market. I think weakness sooner rather than later allows the Fed not to pivot to rate cuts, but to move into pause mode. So I actually think not that not that we're

cheering for for weaker economic numbers, but that's the better scenario from a market perspective than a push out into 2024. Yeah, Cameron, it seems as if this market has required and it's not that atypical, but it's very stark this year. It's required these scares along the way, people to get worried about something and have a little bit of a concentration of fear and selling intensive and then get a little bit of relief when it doesn't get so bad. So we've been riding that for a while. I wonder if you think that brings us to a place where, you know, we're not able to necessarily find the next thing to climb as a wall of worry.

Yeah, the market has certainly shrugged off a lot. And one of the things that it has shrugged off is the impact on better data to the pricing of Fed rate cuts in 2023, because just a couple of months ago, there was a pretty aggressive pivot price into the back half of the year, which has been now effectively completely priced out as data hasn't supported the Fed moving to an easy stance. But as that has been priced out, you've seen the upward pressure on yields. And yet equity markets have completely ignored the message from yields and really continue to see really sharp valuation expansion in the face of

higher nominal and, as Liz M. pointed out earlier, real yields. And to see the real yield for the 10-year go to a new year-to-date high of nearly 1.8 percent today and have the NASDAQ and growth stocks lead the market higher just as a great example of how much those parts of the market have ignored the message from yields. Are they ignoring the message or are they feeding off of something else out there besides just the math of, you know, sort of the real cost of money, do you think? I think it's a little bit of both. So the message from yields may be that the Fed itself and the market still has cuts priced into 2024. So what's a couple extra months

of higher interest rates before you get the eventual pivot? But to your point on the second hand is that there really are other things driving this market higher. It's the optimism around AI and what that could mean for earnings. We haven't seen that shown up in earnings estimates yet. The Russell 1000 growth earnings have only been revised up by about 3% over the past couple of months. And usually those do lag, but we'll really need to see those earnings estimates be revised higher to justify these kind of valuations, which really do price in a fair amount of good news from out years into today's levels. Steve, with Goolsbee saying he personally is undecided about what to

do in July, it's two and a half weeks away. We're going to get the CPI numbers. Not sure what else. Does that give you any hint of the state of the internal debate, given that he's a voter, he's going to be in the room and he's not taking for granted that we're going to go 25? I mean, he said you can do one or two more hikes this year. He just doesn't think, you know, they're going to do more than that. He maybe wants to take a more of a wait and see approach, which is sort of in line with the chair. He's just a little less downbeat. But Mike, I want to leave you with one sort of other sunny thought here on this Friday afternoon. And it kind of responds a bit to Cameron, which is where's the profits going to come from?

When I think about today's jobs report, you know, the half year is done. We brought on one and a half to two million new workers. It's an enormous number of workers to bring on. I think company and corporate productivity has suffered because of this massive hiring spree they've been on. And I think one of two things is going to happen. The first is that these workers are going to become more productive, and that's going to show up in productivity numbers for the economy, and it's going to make the wage gains look less problematic to the Fed. The other thing that would happen is if these workers don't become more productive, there could be some shedding of these workers, and so companies

will find a route back to enhance their profitability through some cost cutting. One or the other thing needs to happen. But I think we're not giving enough credit for the amount of hiring that's happened and how that, at least initially, is a potential drag both on the economy and on corporate profitability. Yeah, fair point. Unclear just exactly how rapidly we can see that type of effect on productivity that satisfies the time horizons of the average investor. But worth keeping in mind. And Lizanne, just to kind of bring it back to where you sit from practical portfolio allocation stance right here, reacting to this current environment, seemingly late cycle, things not looking cheap, but not everything in the market has participated equally. Yeah, no question about it. I mean, the concentration has been significant in the mega cap eight. And at least for the beginning of June, you had a record low percentage of the S&P that was outperforming the index itself over the past two to three months or so. So I think there is some opportunity down

the cap spectrum in other areas. But we continue to say you want to stay up in quality. As you know, Mike, we've been very factor focused as opposed to trying to make monolithic sector calls with kind of a quality wrapper around factors, factors like strong free cash flows, especially relative to enterprise value, self-funding companies, i.e., you know, strong balance sheet, low debt, high cash. We're in earnings season, so positive earnings revisions, positive earnings surprise. So it's really a blend of lowercase g and v growth and value factors. But I would say broadly, it's got that quality wrap around it. There's going to be a time where you it's OK to move down the quality spectrum because that's where you get leverage to a cyclical upturn in the economy.

I'm just not sure we're there yet. Got you. And Cameron, in terms of the way you would approach things from right now, fresh money wise, we obviously have this market that has left some things on the table. I mean, some things have fallen by the wayside. You have small caps, you have equal weight that have only haltingly participated. But what areas do you think make sense for this current moment? Yeah, I think that you have to have a distinct time frame in mind when making the decision, because if you're looking out two to three months, the best momentum, the best trends are in the most expensive parts of the market. And we really haven't seen any deterioration in those trends yet to suggest that the uptrend is over. But if we're looking from a valuation perspective, which is a better predictor of returns looking out two, three years, you do see much better valuations within equal weight and within value. Now,

we prefer equal weight over value just because value has such a heavy overweight to financials and energy. But that equal weight index is actually trading below its 10-year average valuation. So a lot of that lift in valuations that we've seen year to date that would cause us to be careful about those expensive parts of the market over the longer term, we don't see that within equal weight. And that's where we're finding opportunity in today's market. All right. Yeah, I think it's about a four and a half percent year to date on the equal weight. It's not exactly as impressive as the market cap weighted, but it's not nothing either. Lizanne, Steve, Cameron, thanks so much.

Have a great weekend. Thanks, Mike. All right. Let's get to our Twitter question of the day. What will the Fed do at their next meeting? Hike, cut, or pause? Head to at CNBC closing bell on Twitter to vote. We'll share the results later in the hour. We have about 43 minutes left in the trading day. Let's get a check on some top stocks to watch as we head into the close. Christina Parts-Nevel is here with that.

Hey, Christina. Hello, Mike. Let's talk about shares of Riot Platforms. They're surging to a new 52-week high today after releasing its production numbers from last month. The crypto mining platform saw an increase in Bitcoin production last month compared to a year ago. You can see shares are up about almost 13% right now. The stock really has seen just this massive, look at this, this massive run-up this year. Shares are up, what, 350 percent just in 2023. There's that AI. Now let's switch gears, talk about the retail space.

Levi Strauss is following after the company slashed its profit outlook for the rest of the year, driven by a steep drop in wholesale revenues. Contour Brands is another name I wanted to just bring up right here. Down almost 8 percent. It's falling in sympathy because this name is also known for its denim brands, Wrangler and Lee's. You can see both Levi Strauss down six and a half contour, almost eight. Mike, you have Wrangler's? Thanks so much. Not in a long time. Maybe when I was, you know, mom was shopping in the children's section for me. Okay, good, good, good. You're like a Levi's guy. That was now the public company that held them. Excellent. You learn something new every day with me. There you go. Appreciate it.

We are just getting started. Still ahead, Amazon CEO telling CNBC yesterday he has no plans to spin out AWS. So what could be the next catalyst for that stock? We'll ask a top analyst. Plus, the chief U.S. strategist at Ned Davis Research tells us the two market forces that could drive the next leg of this rally. You're watching Closing Bell on CNBC. Amazon shares climbing today following our own John Fort's wide-ranging interview yesterday with CEO Andy Jassy on Closing Bell over time.

Here's what he had to say about the future of AWS and Amazon's position in the AI race. What is the possibility, the likelihood, that you're going to spin out AWS from Amazon? We don't have any intention or plan to do so. We've invested over the last few years in our own customized training chips that we call Tranium and inference chips that we call Inferentia, which will have much better price performance

than you'll find anywhere else. We're on the second versions of those chips, and we're quite optimistic that a lot of the machine learning training and inference will be done on AWS chips. Let's bring in Needham's Laura Martin to React. Laura, good to have you today. Interesting, the takeaway from my perspective from that interview was a lot of more of the same business as usual.

We're going to keep doing what we've been doing, both in AI. We've been in there and it's going to take hold pretty soon. But also in terms of the structure of the company, no spinning out of AWS and kind of blocking and tackling on the retail side and general cost cutting as opposed to some big push for higher margins. So what was your main reaction and what do you think this means for the stock? So, I mean, I think that is his preferred, like he wants it all to go away. But I think it is shameful that we just had a generative AI launch day last week, which is seven months after chat GPT. So talk about defensive in the division he came from. And if you look at these horrible margins at Amazon, my words, not theirs, 2% operating margins last year, and now for the empire overall, and now he's going

to want to spend a ton of money trying to catch up with Microsoft and Google, the market won't tolerate it. They're not going to let this company cut its margins. And he's laying off people, which is really bad in a consumer facing business because it hurts morale of the rest of your employees and makes consumers not like the brand as much. So I don't think he's as sanguine in that seat of his as I think he's far too sanguine. He needs to get he needs to keep these shares going up. So what would be, I guess, one, two and three on your list of what he ought to prioritize that he should spin off 10 percent of AWS. He gives us the financials, anybody. It would allow tax consolidation. It would let a totally different set of investors

invest in AWS and give them capital to drive what is going to require billions, actually, of dollars. We know from Microsoft, they're putting $10 billion into ChatGP Tweet. They only own 49%. So this is going to be billions of dollars that he's going to require in his cloud business. And the e-commerce business doesn't make any money. It's sort of their anchor tenancy, but they don't make any money. So he needs to spin off part of this so he can get a higher multiple so he can fund what he needs to do in generative AI over cloud. Do you think that we'd have any surprises as to how the rest of Amazon would trade if AWS were capitalized separately? In other

words, you know, is it just such a huge predominant weighting in terms of the overall company valuation that the market is going to pay even less for the rest of it? So I think conglomerates always get a pretty big discount on, you know, from Wall Street. So because when we add up the actual value of what we think cloud would trade out separately and we think the media like Prime and Twitch, all these assets get buried in the conglomerate and the margins get pulled down by e-commerce. It is my point of view that the more you separate those financial statements from e-commerce, the more they would have to increase their e-commerce profits, which would be better for

the business and for capital allocation in my point of view. Do you think they have a clear path in to getting the margins higher in e-commerce? I mean, you mentioned it's not a great look to be laying people off, but presumably that would be part of it. Yeah, no, I don't. I don't think there's a sense of urgency. And I think there should be, because I think he's going to need a lot of money to compete in cloud. And cloud has 30 percent margins, whereas everyone else in cloud is losing money or has tiny margins. So he wouldn't even have had a 2% operating margin last year if it wasn't for his wonderful, huge cloud business at 30%.

By the way, the thing about generative AI is once one of your clients creates an app on one of these foundation models, the lock-in into your cloud business is enormous. So it is really important he race for the finish line here, or he's going to lose his business clients to Google or to Microsoft who are ahead, and he will not get them back because you build these apps on a foundation model that's sitting at one of these big cloud providers. He did address that a bit. Now, is it your sense that the company is truly behind or that they've just been bad about messaging where they're headed in this area and haven't made as big a deal out of it as Microsoft and Alphabet have?

I disagree with his statement, although I think it's the only position he could take. I think they're really far behind. And I think the evidence I would use is not only this very late launch, seven months after ChatGPT came to the consumer, but also the fact that what they're doing is they're saying, hey, all you foundation models, you don't want to be at Google. That's a conflict of interest. Come to us at AWS. We will host your foundation model. And so our business clients can pick among any foundation model, including ours, Bedrock. But that means to me that they're behind because they're going to become the aggregator for other people's foundation models. And now all that said, I mean, I know you're still carrying a buy on the stocks. They are 150 price target. Is that

just because of the underlying AWS value? It is. And because we really think Twitch is undervalued here. We think Amazon Prime is undervalued here. The media assets here are really worth the sum of the parts here. We think sort of you get e-commerce for free, but we think e-commerce must start increase its earnings. Interesting. Laura, thanks a lot for the time. Appreciate it. My pleasure. Laura Martin. Coming up, our next guest says the bull run isn't over yet. He'll tell you why and how to position your portfolio after this quick break.

Welcome back to Closing Bell. The S&P 500 staging a modest midday turnaround to the upside, still on track, though, for its second negative week in three. Yet the bull run isn't over yet, according to our next guest. Ed Klissel, chief U.S. strategist at Ned Davis Research, sees two major market forces that should drive the next leg of the rally. Ed, good to see you. I know you've probably been contending like everybody who's watching this market with some mixed messages, right? It was a pretty good rally off the October low, but it didn't necessarily check off all the boxes to say this is a true high-momentum bull market. But what are you seeing in your signals that emboldened you to maybe nudge equity exposure up recently? Yeah, thanks, Michael. We have been overweight equity

since January and we added a little bit more exposure earlier this week. And there are two reasons for that. One is that a fair criticism of the rally coming off of the Silicon Valley bank debacle was it was very narrow, just a handful of stocks were driving all the gains. But that's changed. It's broadened out considerably. If you look at percentage of stocks and what their 50-day moving average is, that's gotten well above 75 percent. If you look at percentage of sub-industries, there's about 150 sub-industries. Almost 80 percent of them are in uptrend. So that's a pretty broad rally. And the second thing is that there has been this concern over a looming recession because growth has been weak. The Fed's been so aggressive. But the recent economic data, if you look at the jobs data today, the ISM services report the other

day and some other economic data, it's suggesting an imminent recession risk is pretty low. So maybe that could happen next year. But that enables the rally to continue for a little bit longer, even if the Fed does raise rates in a few weeks. So what are some of your other inputs suggesting at this point, things like, you know, valuation overall or even some of the sentiment metrics that you that you carry? Are they also feeding into this idea that there could be more room um yeah those are a little bit mixed but if you look at absolute valuation just the pefs and p500 it's not that far above its long-term average the challenge there is relative

to short-term interest rates it's probably the first time in about 20 years that cash has been a very reasonable alternative uh stock. So that may cap the upside in stock somewhat. When you look at investor sentiment, Michael, that had been a really positive part of our indicator suite. People were so concerned about a recession, about the Fed for so long that any incremental piece of good news was probably going to nudge the market higher. Now, some of those bears have come off the sidelines. There's a little bit more optimism. Usually, when you've been pessimistic for this long, months and months on end, the first movement to optimism isn't necessarily a bull killer. It's if it stays there for a long time that that would be more of an issue,

which, again, is a reason why we think the rally could go go on for several weeks to a few months more before it runs into trouble. All right. And is there a particular level of yields that would become more of a concern? Or I guess if yields fell, would that refresh the bull case? Yeah. So I think from here, you know, another 25, 50 basis points in Fed rate hikes to push the three months towards 6%. At some point in there, it would probably mean, you know, the equities are even less attractive. I think it has to do with the speed of long-term interest rates. If you get a 7,500 basis point move in just a few months, the market tends to really take notice. But if it's a slow climb higher, the market can usually digest that OK. So that's something that we're keeping an eye on, the level, but also the speed of the movement

interest rates. Sure. Yeah, it seems like the market has been, you know, drawing a little bit of strength from the idea that no matter what, the Fed has slowed down quite a bit from from last year. And then just in terms of general seasonal pattern stuff, does that start to get less friendly or are we still in decent shape for the market? It starts to get a little bit less friendly as we move deeper into the second half. You know, usually there is some sort of summer rally that brings you into a fall pullback. So, again, that gives us a little bit more time. But the most positive part of the cycle, if you want, let's say, look over a four-year window, presidential election cycles. I think it's an old wives' tale that the pre-election year is the strongest year on average. And that is very true.

But a lot of those gains do come in the first half. So seasonals will probably get a little bit tougher as we move deeper into the second half of the year. And just in terms of what we're calling this thing, you know, there was a lot of debate. We got across 20 percent in terms of upside from the low. And people said, OK, that's a bull market. You guys have your own ways of determining these things. And you said you have been overweight equity since January. So presumably you've thought that the trend was higher for a while now before we even got to that 20 percent. Yeah. So we do keep our own definition of a bull and a bear market that's different from the 20 percent, because, for example uh november 20th of

2008 to january 6 2009 the s p rallied about 24 percent no one calls out a bull market so if you want to do good robust analysis you need a better definition ours is a combination of time and price we haven't quite gotten there at this point another push higher uh will would get us there uh but you know those those are really good for historical analysis. But if you wait for the market to rally 20 percent or more, then you miss good gains, which is why you need to go ahead and allocate your portfolio before necessarily you get that information that the bull market has already started. Yeah. Staying in tune with the market and then labeling it later, I guess, maybe makes more sense. Ed, great to talk to you.

Thanks so much. Thanks for having me. All right, Ed Clissold from Ned Davis Research. Up next, we're tracking the biggest movers as we hit another close. Christina Partsenevelos is back with that. Hi, Christina. Well, I've got to talk about a new Alzheimer drug

that just got full FDA approval and yet shares of the producer are falling. I'll explain why after this break. 18 minutes to the closing bell. Rally losing a little bit of steam. S&P 500 just about flat right now. Let's get back to Christina Parts of Nevelos for a look at the key stocks to watch.

Hey, Christina. Hi. Well, let's talk about shares of office landlord Paramount Group, ticker PGRE, not to be confused with Paramount Global. Those shares are up about 14 percent after giving an update on former lease agreements. The group sounds like bad news, expects to take a 20 million dollar loss in profit after a loss of revenue from lease agreements with First Republic Bank and Silicon Valley Bank. This news literally comes just two weeks after the New York real estate giant said that they were going to slash its dividend by 55 percent. But the market wanted numbers. They got numbers. That's why it's up. Let's talk about shares of Biogen.

They're about 2 percent, but now 3 percent lower after announcing the FDA approved its first Alzheimer drug, which means patients could actually get reimbursed for the cost. But this is the caveat. Doctors would have to submit patient data before the treatment as well as every six months to a registry database. So that means more paperwork. Analysts seem to be a little bit split on how fast Biogen can ramp up the drug for production. So maybe that's adding to some of the sell-off that you're seeing, about 3%. But still, great news for Alzheimer's. That is for sure. Christina, thanks so much. Last chance to weigh in on our Twitter question. We asked, what would the Fed do at its next meeting? Hike by 25 basis points, presumably cut rates or pause?

Head to at CNBC closing bell on Twitter. We will bring you the results after this break. Let's get the results of our Twitter question. We asked, what would the Fed do at its next meeting? Hike rates. Overwhelming winner here. 72% of you, that's about links up with the odds the market are giving a 25 basis point hike in two and a half weeks, although 3% saying cut rates.

A lot has to happen between now and then for that to happen. All right, Rivian roaring higher, and Alibaba stock is popping. Those stories and more when we take you inside the Market Zone. We are now in the closing bell Market zone. Wells Fargo Securities' Chris Harvey is here to break down these crucial moments of the trading day. Plus, Phil LeBeau on a huge week for Rivian and what it means for the state of the EV market. And Deirdre Bosa on what's behind the rally in Alibaba shares. Chris, start with you

here. We have the major indexes. The big caps are kind of deflating a little bit after this intraday rally, although it is seemingly some health care and Microsoft weighing on the S&P. The equal weighted S&P is showing some relief, up two thirds of a percent. Small caps are outperforming as well. Now, what's your your takeaway from the jobs number, the implications for where we are in whatever landing we're going for and therefore the Fed? So that's a lot. Let me see if I can take it piece by piece. So yesterday, the ADP number, everyone's like, whoa, okay. And so the probability of a Fed fund hike just skyrocketed. We always thought that the Fed was going to raise 25 basis points, but now I think

everyone's convinced it is. Today, we get the payroll numbers. It was a bit cooler than people expected, so we ease back a little bit. At the end of the day, it looks like the Fed has two more hikes in there. That's what we're dealing with. Every time the Fed gets a bit more hawkish, it weighs on the market. It weighs on the Uber cap stocks. And the Uber cap stocks are now overbought. And the last thing is we're heading into earnings season, trying to be a little bit more conservative and look for things that haven't worked, haven't performed just yet. And I think that's what's happening. We're seeing a broadening out of that market because of that. It's interesting. You know, my take on what happened with markets and the interplay with the Fed after the SVB meltdown was

you quickly won us a little more of a patient Fed, it seemed, than we would have had otherwise. And then the question was, how bad does the economy, you know, have to be as a cost of that? We're here now, four months later, and the economy has held up very well. On the question was, how bad does the economy have to be as a cost of that? We're here now, four months later, and the economy has held up very well. On the other hand, rates are almost back to where they were in early March. And we might get towards 6% on the Fed funds rate, maybe not, but toward there. So is that an equation that the market can digest? It's trying to digest it, and it's confusing.

So I've been in the markets for well over two decades, and I'm trying to understand, still understand, why the Fed paused. All of a sudden, 30 days is going to give them such clarity and insight. At the end of the day, yes, there's going to be a lag. But 25 basis points is not going to push us over the cliff. And you want more certainty. You want to do things. You have the economy. You have inflation. Not quite on the ropes, but a little us over the cliff. And you want more certainty. You want to do things.

You have the economy. You have inflation, not quite on the ropes, but a little bit on the run. Push that advantage, right? If you're a boxer or you're an athlete, you know you go for it when the other guy, the opponent's on the ropes. They should not have paused.

They didn't. I think that's to their disadvantage. But to your earlier point, yeah, we may be contending with Fed funds over 6% at some point in the next couple months. Yeah. I think they would say, well, look, it's 42 days between meetings. It's a little more than 30 days, but that's still not maybe a tremendous amount of new information. You mentioned maybe it's time to look for things that haven't participated or things where there's a little more valuation advantage.

What does that mean specifically? What that means is mid-cap and specifically mid-cap growth. Mid-cap growth has done OK this year, but it's underperformed the market. It's a group that still has good valuation. It can perform quite well because it does do well in this kind of economic malaise. In addition to that, you have stocks that really can have power through from an earnings point of view. So that's where we want to put a lot of emphasis. Otherwise, what we tell people is maybe barbell the portfolio with some pharmaceutical, something defensive, and then get your AI exposure through media and entertainment. Valuation still looks good there, and I think that's a smart way to go about it.

Not something like financials, which is a little more of a reclamation project at this point? I think that's a great word, reclamation project. The one thing about financials is generally when they do poorly coming into earnings season, you do see them outperform during earnings season. They have underperformed, so we could see a little bit of a pop. But I think that's a short-term issue, not a longer-term issue. Gotcha. Let's get over to Phil LeBeau, who's going to tell us all about Rivian,

as well as the rest of the EV market, Phil. Mike, what a week for Rivian shares. Take a look at this stock. Up 50 percent. 50 percent compared to last Friday. A number of things helping here. You had commentary, positive commentary about production increasing and sustainably increasing at Rivian. Also, the first half EV sales, we've got a report today, analysis from Motor Intelligence. The R1T is the best-selling electric pickup in the United States in the first half of this year. There you see the market share for the first half. Tesla continues to dominate this market. I want to talk about GM, which is number three, and Ford, which is now number five in terms of EV sales here in the U.S., both of those stocks got price target increases from Morgan Stanley, but not because of the EV

business, not because of optimism there. It's because of the traditional business, Mike, and what's happening there in terms of demand and pricing and the benefits to both GM and Ford with their legacy businesses. That's why both shares getting a decent pop today relative to what they have been doing. And look, we haven't seen this where we've had a decent month or two for GM and Ford, but that's what we're looking at right now. And Phil, what are we pacing in terms of an annual rate for overall North American sales? I mean, I know GM had some optimistic words about that this week.

Well, they thought the second quarter would come in at $16 million. Actually, according to Motor Intelligence, it came in at $15.8 million as the pace of sales. For the year, most believe we're on track to come in somewhere in that $15 to $15.2 million, depending on what we see in the second half. But right now, Mike, we continue to see strong demand and we continue to see estimates move higher. Yeah, it's been, I think, a real surprise to the consensus that the auto market has remained as robust as it has. Phil, thanks very much. Deirdre, Alibaba, another mover today. A little bit of relief running through that stock. There's a relief because even though it is a billion dollar fine that the Chinese authorities are levying on Alibaba, it does mean, or at least it signifies investors' belief,

that this regulatory pressure is finally behind the company. We're moving one obstacle to an IPO. You might remember back in 2020, after some comments that Jack Ma made very publicly to the Chinese regulators themselves, they pulled that IPO. And it's just been sort of a downward spiral since then. Ant Group was once valued at more than $200 billion,

most recently valued at around $64 billion. So it has been a really tough slog. Alibaba, of course, owns 33% of Ant. And that is why you see with this sort of hurdle removed, that is why Alibaba shares are surging today. And what do we take from this, Dee, about, you know, the message from this move in terms of policy by the Chinese authorities toward the private sector? Clearly, that's been one of those factors we've had to evaluate, along with every other bit of

economic fundamentals. I mean, on one hand, and I think this is generous, there's some relief here in that the regulators will eventually back off. But, I mean, it's bittersweet because relief comes after hundreds of billions of dollars destroyed in value at both Ant Group and Alibaba. You go back two years to the beginning of this, or a bit more than that, to the beginning of this whole saga with Ant Group, and Alibaba has suffered dearly. Jack Ma, of course, co-founded both of those companies.

So anything he's touched or built in China has really been smacked down by the authorities. So maybe some small relief here, but it is really small consolation for how much value has been destroyed since this all began. Yeah, without a doubt. Clearly, people are gun-shy, investors and business folks alike. Dee, thanks very much. Have a great weekend. Chris, as we talk about what the Fed might do if they're in this fine-tuning mode, we had Austin Goolsbee there suggest that that coveted soft landing scenario

isn't something you have to abandon yet. Do you agree with that? You don't have to abandon it yet, and I don't think to abandon it yet. And I don't think the economy is going to slow down until the Fed gets a lot more aggressive. We're not talking one or two hikes. We're talking three or four. And that's when you really have to worry about when that terminal rate starts looking or staring at 6%. And that's when I think that trend, the major trend, will break. So that means it's not really a soft landing. It's just kind of a prolonged process before we have the reckoning. I haven't seen too many soft landings.

I'm not expecting one now. And at the end of the day, I think the Fed still has a lot of work to do. They didn't break the economy. They didn't break inflation. They didn't break the job market. Stock market's up double digits. I think they have a lot more to do. Yeah, you would think with all those inputs they have a lot more to do. Yeah, you would think with all those inputs they have a lot more to do, although we'll see what CPI says tomorrow about if inflation really starts to do some of their work for it.

Chris, thanks very much. Thank you. Good to see you. As we head toward the close, you see the S&P 500 now down about one-third of 1% on the day, also down more than 1% on the week. However, market breadth has been positive. This is one of those days where the big caps are pressuring the overall indexes. And yet the Russell 2000 up 1.1 percent. 70 percent of all volume on the New York Stock Exchange is to the upside at this point. And we actually have the equal weighted S&P up 40 basis points. Volatility index back down below 15 after running above 16 in the middle of the week. That's going to do it for closing now.