Closing Bell - Closing Bell 9/29/23

Episode Date: September 29, 2023

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

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. A busy Friday. This make-or-break hour begins with news that is new on Closing Bell. On-the-record comments now from hedge fund legend David Tepper. I spoke to him this afternoon about the markets as the dismal month of September comes to a close. He told me the following about how he sees the markets right now. Rates are rising. Stocks are jittery. Tepper telling me, quote, not that complicated right now. You're just not in QE times anymore. You're in the QT era. It's a higher rate

environment. Can't be the same multiples as before. It's not bad. It's just different. It's just a different environment. Pretty clear from my conversation with the hedge fund legend. He's trying to figure out what the right multiple in this market is, just like all of you are. Is it 18 times? 19 times? Is it 16? Is it lower than that? If so, that wouldn't be great. That's what he said. Not terrible, but he did tell me about a new investment he made yesterday. You know what he did? He got 6% on a CD for six months. So he put some cash there, like a lot of you have done. Says he didn't sell anything in his portfolio. That's clear. Stocks are lower as we come on the air.

Wanted to bring you that news first as well. Government shutdowns looming. That's the overhang today, in part with everything else. Let's kick all of it around. Those comments from David Tepper with CNBC Senior Markets Commentator Mike Santoli. Kristen Bitterly of Citi Global Wealth is here as well. So, Mike, let's start with what Tepper had to say. He's always had a knack, which I think has made him as great as he's been,

to take a lot of the most complicated stuff and distill it down into the absolute most easy thing to understand. This, not QE anymore, it's QT. And you can't have the same multiple as you did before. The question is, what's the right one? Yeah, it's obviously encapsulates the struggle that the market is undergoing right now. And trying to sort that out and just exactly how much of a haircut you might have to give to equity valuations based on what yields are doing. I guess I would argue that, you know, there's nothing special about 4% to 5% long-term yields. We've been there many, many times before.

The multiple has ranged all over the place. It was not QE times in 1962 or 1997 or periods of the 80s where we had a similar multiple today. So it's not an either-or, but I still do think it's a relevant discussion for how much of a valuation cushion you want to demand. Now, what are we going to look at to decide? We're under 18 times forward for the S&P right now as of today. It's about $240 in forward earnings.

18 is at the upper end of the norm, and it's actually above the longer-term history. As everybody says, you strip out the biggest companies, it's a lot cheaper. I've looked for same versus same. So I'll take a basket of stocks, J&J, Target, you know, American Express. They're at their average 15 year multiples is like 13, 14 times. So it's it's it's kind of an argument you could almost win or lose, depending on how you define the terms of what you're discussing. So he also made it clear. It's like, you know, there's all this fixation on the top seven stocks and the multiple on those relative to everything else. And he's like, any time throughout history, you could pick probably seven stocks and you could find them where the multiple is much higher than everything else. So be real careful how you use that to decide that the overall market is wholly overvalued.

Right. Yes. Are there are there good values around? Yeah. Do you have to be harder in finding them? Yeah. But again, it wasn't like, OK, it's all over with. But it does come from somebody who has a pretty good knack of understanding what the Fed's doing and what it means to stocks. Remember, he came on our network. I think it was Squawk Box in whether it was 08, 09 or whatever it was. Fed came in big and he's like, what's going to go up?

I actually think it was more like 2010 when we were having one of those panic attacks after the fact, off the lows, and he basically said, you know, you win one of two ways. Either the economy gets better and stocks do well, or the Fed comes in for another rescue round and stocks do well, and that's kind of what happened. Yeah, so he's sort of, Kristen, you know, taking the temperature of where we are. What about the reality check, as he says, you know, and how we need to figure out what the multiple is? And that all depends what earnings are going to be.

And we're not going to know for a little bit here, but they're kind of right in front of us. Yeah. So I think I agree with those comments in terms of we're in a different reality. We're in a different market where it's going to be harder to be profitable, where it's going to be more challenging. That being said, I think the main question that's on everyone's mind right now is going back to the Fed in the driver's seat and rates being a critical part of this equation. The questions were how high, how fast, and for how long? And the first two questions, we largely have the answers to. The how long is really the question that everyone is debating and how that's going to flow through into the consumer spending patterns, into corporate earnings. And so I think that's the major question on the table.

The other thing I love is like, you know, look, he's just he made a lot of money and it's worth a lot of money, but he's just like everybody else. He's looking for yield in the safest place that you can find it. And he gets it in a CD. So he's going to park some cash there and figure it out. But it underscores the fact, Mike, there's still competition. There's a lot of competition to equities in a way that there just hasn't been in the last many years. There's a psychological hurdle rate, I would put it that way, for individuals or institutions who feel as if they're targeting a specific number that they're comfortable with, yeah, absolutely. You don't have to stretch to grab risk to lock some of that in. You know, we could talk about what a more efficient portfolio looks like over time and everything.

And by the way, the logic also applied at the beginning of this year when you could have gotten your 5%-ish in money market funds. And if you're happy with that, you're great. The S&P 500 is up more than twice that. So you have to understand what the opportunity cost is in certain types of environments. Honestly, I think if the S&P is going to earn 240 in the next 12 months, right, that's what the consensus is. A lot of questions around that. I think the market is probably insulated against a huge downdraft. Usually,

it finds its way if earnings are growing. Oh, if that earnings number is going to be right. So that's why the multiple, you have to argue about both sides. But I think that the multiple, again, is one part of the equation. But if earnings come through, I think it's hard to think that it's going to be a disaster. Hey, he'd be the first one to say that. And he sort of alluded to that. It's a big question. If you believe, Kristen, that some of the numbers that are out there from Goldman and otherwise, and we can put up, if we have guys in the back, where earnings growth projections are, right?

You get a little tick higher finally in this quarter, and then 24, they start to really edge up. There it is. If these are right, then we're probably good. If they're not, bigger questions, especially relative to where rates are. I think they look a little rosy for 2024. I think this is something that, do we see earnings growth in 2024? Absolutely. Is it that high if we're in a higher for longer regime? I think that's going to be challenging. So while earnings certainly have troughed here,

the growth trajectory from here, I think it's going to be challenging. So while earnings certainly have troughed here, the growth trajectory from here, I think, is going to be more modest. I think one good news, though, is when you look at the fact that all this talk about the contraction and recession, I think the fact that the profits recession is behind us is something certainly that's good for risk assets. It's just how much upside are you anticipating from here over the next 12 months? So let's hold the conversation for just a second. I do have breaking news regarding the UAW strike. Yet another thing we need to keep our eyes on. Phil LeBeau has the latest.

What do we know, Phil? You know, Scott, if you want to see how far apart Ford and the UAW are, earlier today, Jim Farley, CEO of Ford, along with other Ford executives, held a briefing with reporters and analysts talking about the fact that another Ford plant, the UAW, was on strike. In that briefing, he said this is a case where he believes the UAW calling these strikes premeditated. They're holding the representation of future EV battery plants as hostage in these negotiations. I mean, he blasted the UAW. Well, now the UAW is out with a statement from President Sean Fain. And here's what he says. Listen to this carefully.

I don't know why Jim Farley is lying about the state of negotiations. It could be because he failed to show up for bargaining this week, as he has for most of the past 10 weeks. If he were there, he'd know we gave Ford a comprehensive proposal on Monday and still haven't heard back. He would also know that we are far apart on core economic proposals like retirement security and post-retirement health care, as well as job security in this EV transition, which Farley himself says is going to cut 40 percent of our members' jobs. Like a good neighbor, we're available 24-7. Name the time and the place you want to settle a fair contract for our members, and we'll be there. That last point about being a good neighbor is in

reference to Jim Farley saying that Sean Fain is on TV more than the State Farm guys on TV. Bottom line is this, Scott. We're nowhere close, nowhere close to a contract being reached between Ford and the UAW. And basically, you can say that with the other automakers as well. Long ways to go before we see this resolved. And as I've said for some time, Scott, do not be surprised if we see more strikes in the weeks to come. Yeah. Phil, thank you for the update there. And come back on if you learn anything more, please. That's Phil LeBeau.

So, Mike, before we bring in Aaron Brown of PIMCO, where does this rank on the list of your own sort of concerns, if you want to even call them that, on what is a growing list? In itself, I would say it's not one of the top concerns. But everything that you put on that list seems to be an exacerbating factor for the top one, which is can the economy handle what rates and the oil price are now throwing at it? I've been saying that for weeks. And then the shutdown moves in that direction, too. So I think strikes and shutdowns are one of those things that the market does its best to put off to the side as a distraction and a temporary thing where you get a payback once they're resolved. And you kind of, you know, you get a little bit of a mulligan on the economic

data during that period. And, you know, it's not necessarily a bad thing. But, you know, you get a little bit of a mulligan on the economic data during that period. And, you know, it's not necessarily a bad thing. But, you know, coming as it does when we have one thing after another, all pushing against the growth story, I think it's not welcome. Also, you saw the headline sensitivity to the shutdown headlines today. You know, when it was going to be OK, now it's going to be two weeks. They didn't get the vote passed. Stock gap fails. You know, every single bit of it sounds familiar from a thousand times before, but we're skittish because of what else is going on.

Yeah, no doubt. I mentioned Erin Brown is going to join us. She will now. Erin Brown, of course, of PIMCO. So, Erin, let's talk about what Mr. Tepper told me a little while ago. Not that complicated, really, to him, and maybe not to you either. Just not QE anymore. We're doing QT.

It's a higher-rate environment. Can't have the same multiple. It's not bad. It's just different. I think that's right. I think that you really have to consider the fact that over the next couple of months, really into next year, you're going to be in a very different environment than we've all gotten used to over the last 15 years. And it's going to be much more volatile, both in terms of the trajectory of the market, but also the trajectory of earnings.

And so that, I think, leads you to be much more defensive in your positioning, really hold cash, hoard cash for better opportunities and dislocations in the market. And it's going to be a little bit more of a dynamic trading environment rather than staying invested and holding on. You know, in, you know, for the just keeping your money in, you're going to want to be a little bit more dynamic in terms of how you're trading it. You know, selling when it's high, buying when it's low and really keeping cash on the sidelines and able to take advantage of those dislocations in the market. Like if even one of the greatest investors who's ever lived doesn't know what the right multiple on the market is, how's anybody else to know?

Do you feel like you have a great handle on where we should be? I think a lot of the dialogue and conversation that you had with the previous guests, I think is right in the sense that right now the market, when you look at it, you know, X the Magnificent Seven is actually fairly valued relative to, you know, whether it's 240 on the S&P 500 or a number slightly below that. The market today is not overvalued when you just look at sort of the average S&P component. However, I do think that you're not going to be, you know, likely in an environment with 19, 20 times forward earnings. I think something in the range of 17 to 18 times where we sit today is probably a comfortable level. So we're able to

grow into that with strong earnings. I think that the multiple isn't going to be a deterrent towards, you know, further price appreciation, but it does make the market more skittish just given the fact that we're fairly valued but still have pretty robust earnings expectations out there. I think that the market probably settles in with somewhere a little bit shy of 240 next year, but I don't think that that's going to be an impediment to growth as long as you see further breadth of the market performing next year. It all depends on what rates do. I mean, certainly in the near term. And that was a hot topic of conversation yesterday at Delivering Alpha. You know, CNBC's Delivering Alpha conference. Here's Bill Ackman on what he

thinks rates might do and how he's been playing it to begin with. I would not be shocked to see, you know, 30-year rates well, you know, well into the, you know, through the five barrier. And you could see the 10-year approach, approach five. And that could happen in the very short term, like literally weeks. Now, Kristen, I mean, you know, Ackman's been short in size. He's described it that way. The long end, thinking that like the 30-year, like you're going to get a spike up to 5%, if not more, and maybe other parts of the curve are going to do the same thing too? I think the long end is where it gets very tricky, to be fair, because this is coming not just at the 30-year, but also at the 10-year and saying,

who are the buyers today? That you have Japan out of that market, you have China out of that market. We have more dialogue going on on yield curve control. But I think something that's getting a little lost in this conversation is the fact that yes, it's attractive to invest in T-bills that are three, six months at levels close to five and a half percent. When we're talking about extending duration, because the market is so overweight, cash and cash equivalents, extending duration means going two years,

three years, five years. We're not even getting out to the 10-year or 30-year. And there is value in terms of diversifying and actually eliminating some of that reinvestment risk to take advantage of yields where they are today without having that duration risk. I'm glad you went there. It's a perfect segue to the conversation I had yesterday on this program with Rick Reeder, whom you also spoke with, Mike, for Pro. He likes the shortest end of the curve, three, six months, not 30 years. And grabbing it a little bit in the three-to-five area as well. Again, it depends on what expectations you want to build toward. Three-to-five year.

But again, it's not really extending that far out. And so I guess it's one of those things you take what the market's willing to give you. If you are relatively risk averse, if you think that, you know, we're not going to be cutting rates anytime soon, you don't have the reinvestment risk on that. But I would just also say, as maybe eye catching as a five percent prediction is, it's half the distance from here to 5% as we've traveled in the last two months on the yield. I mean, if you told me or the average equity investor it's only going to get to 5%, and this is not going to be some kind of extremely messy,

headlong increase in yields where who knows where it ends up and it breaks something along the way, I think you'd almost take it. It's not to say the stock market's going to love it, but that to me is not the extreme bear scenario. No. Well, because some have sort of put everything, Aaron, on keeping their eyes on the so-called prize of, yes, I understand that interest rates in the near term may very well go higher. The 10-year might go to 5%. That could be a dislocating for stocks in the near term. However, we're on the precipice of a rate-cutting cycle.

Listen to what Altimeter's Brad Gerstner said at Delivering Alpha 2. We can talk about that. We're at the precipice of a rate-cutting cycle. Very different set of facts. But we also may have, in fact, you know, stepped on the economy. We're slowing it down. The Fed intends to slow it down. So I'm very optimistic over the course of the next two or three years.

Why? Because we're not going to continue to hike rates. And we're at the beginning of one of the biggest tech booms in the history of technology. AI is going to be bigger than the Internet, bigger than mobile and bigger than cloud software. How about that, Erin? So first, I think the biggest impediment to markets right now is not the level of rates, but it's the pace at which rates have sold off. Rates have risen by 70 basis points

over the last quarter alone, and further, if you look back over the last year. And I think that the pace and the speed at which rates have sold off and rates have risen is the biggest concern for markets right now. I think that if you were to stem the pace of rate rises, I think that that's going to go a long way in terms of stabilizing not just bond market volatility, but equity market volatility as well. And you will start to see equity markets regain their footing and start to do well again. But I think that if

you continue to see rates selling off, that's going to be a really challenging environment for equities. I don't think that we're quite at the precipice of rate cuts, but I would say that over the next one to two years, the likelihood of a hundred basis point rate cut is probably more likely than we see, you know, an accelerated move of rate hikes at this point. So we still think that we're a far ways off from rate cuts, but, you know, likely over the next couple of years, we'll certainly be back in a rate cutting environment. I had also mentioned on halftime today, if you look at the movement in rates today, which were largely lower across all parts of the curve, well, now we're green on the 10 year and the 30 year. So there's still, Mike, rate volatility. Any smidge of

movement higher in rates now, where's the Nasdaq now? Well, it's not where it was before. It was the strongest of the three today. It was up more than 100 points, I think, at one point. Now it's up 33. So it's so sensitive to that area of the market. It absolutely is sensitive in the moment, without a doubt. In the moment. I would say, I guess it depends on how you want to approach it. So S&P had like a 7% drawdown from the highs in late July, and we raced to a 16-year high in 10-year yields, right? So it's one of those things, like, is that underreacting? Is that properly accounting for the potential risk? Is it just we don't know? Because we have to see the economy perform over a matter of months in this now rate environment. You want to address, Kristen, before we move,

just this idea of this tech trade that, gosh, so much money has gone towards. It's held the market up to where we are. Now what? Yeah, you know my thoughts on that, that, so much money has gone towards. It's held the market up to where we are. Now what? Yeah, you know my thoughts on that, that it's actually driven not only by AI, but it's also driven by the free cash flow generation of these companies. And this idea as to where do you want to be invested, whether we're higher for longer, hard landing, soft landing, you want to be invested in companies with very strong balance sheets. The one thing that I will say is extending that beyond the Magnificent Seven. There are areas of the market, for example, profitable, small and mid caps where you have the benefit to get in at a valuation discount. That's upwards of about thirty nine percent. And that is some of the opportunity that you may be a little bit early in terms of some of the rate pressure here.

But that's some of the opportunity that still exists within this equity market. Yeah, I appreciate it very much. Thank you, Mike. I know we're going to see you later, obviously, in Market Zone. Kristen, we'll see you soon. Aaron, I appreciate you being with us as well. Everybody reacting to these comments I got from David Tepper, which we'll continue to talk about for our program with our other guests who are coming on as well.

Let's get to our question of the day. We want to know, will the fourth quarter be positive or negative for stocks? You can head to at CNBC closing bell on X to vote. We've got the results coming up a little later on in the hour. Now let's get a check on some top stocks to watch as we head into the close. Pippa Stevens is here for us today. Hey, Pippa. Hey, Scott. Well, AB InBev is higher today as Bank of America upgrades the stock to buy from neutral, saying that margins could expand as the brewer moves past the backlash to Bud Light this year. Analysts also say Bud is a relatively defensive stock for the current environment.

And two restaurant stocks on the move. Brinker International, the parent company of Chili's, is upgraded to buy from hold by Stiefel, saying its playbook could deliver a successful turnaround. And Texas Roadhouse also getting upgraded to buy at North Coast Research, which cites a steady flow of customer traffic. Both of those stocks in the green today. Scott. All right. We'll see in just a bit. Pip Stevens, thank you. We're just getting started right here. Up next, the case for caution.

Morgan Stanley's Chris Toomey is raising the red flag on a few key reasons why he is staying defensive as we round out this quarter. He'll join us after the break. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. A losing September, all but guaranteed with the major averages on the cusp of confirming a sharp monthly decline. That may be all the reason why our next guest needs to stay defensively positioned. Chris Toomey, who runs one of the highest rated private wealth advisory teams in the country, joins us once again right now. It's good to see you. I mean, you've been largely defensively positioned for many, many months. I want your reaction to what David Tepper told me, Chris.

It's not that complicated. You're just not in QE times anymore. You're in the QT era, higher rate environment. Can't be the same multiple as before. Not bad. It's just a different environment. What do you do with that? No, I mean, it sounds familiar. You know, we have been concerned specifically around the fall FFX with regards to QE being removed and moving into QT. And we've also been concerned not only just about the pace of rate hikes, but also the duration of rate hikes. And so it seems like the market has moved away from the transformational powers of AI and the hope that rates were going to come down and really focused in on what really is the side effects of rates moving so dramatically higher. And to David Tepper's point, not having QE and now being focused in on QT.

What's the right multiple for stocks, Chris? I mean, it's twofold, right? If rates are here or potentially going higher, you'd have to expect multiples would have to start to come down a little bit. I think the bigger issue is going to be around earnings, right? So we've seen a situation where going into the year, we, like many of the others on Wall Street, were expecting GDP to be suboptimal and earnings to be down. And instead, we saw a real situation where the consumer stepped in. They had $2.2 trillion worth of savings, which they aptly put to work. We saw the federal deficit blow out seven and a half percent. And importantly,

which people are starting to focus in on, especially because it's up over 30 percent this quarter, gasoline prices went from five dollars down to three dollars. Right. And so those are kind of one off type situations that I could make the argument we're actually in reverse right now with oil going back towards $100 and the consumer, instead of sitting on $2.2 trillion worth of savings, actually looking at a situation where credit card debt is over $1 trillion and that debt payment is over 20%. So in addition to QT pulling liquidity out of the market, you also have credit card debt pulling money out of consumers' pockets. So the flip side, I guess, is I hear you. I mean,

those are all the risks that everybody who is negative or cautious the market would suggest you need to be keeping an eye on. But what about the idea of this fourth quarter chase? You know, money managers who just missed it from the beginning of the year. You know, they were mispositioned, as some have suggested, and that's going to result in a dash to the finish from those who want to get, at least while they think the getting can be kind of good.

Who knows what happens next year with earnings? Do you put anything into that? Look, I mean, that is a part of, you know, the Wall Street kind of seasonality, right? Whether it's September being bad or window dressing at the end of the quarter or managers chasing at the end of the year. But I mean, let's dive into the numbers, right? So the market right now, S&P 500 up about 12 percent. You know, you strip out the Magnificent Seven, it's up about two or three percent. You know, you look at an area like healthcare,

fairly defensive area, over two-thirds of those stocks are actually negative this year. So this is the weakest, quote-unquote, bull market in the last 60 years. And this is a situation where the majority of stocks in the S&P 500 are actually below their 200 moving day average, and five percent of the stocks are actually negative. So there's a little bit of deception with regards to what's going on in the market.

So if you're a money manager and you're trying to chase this market higher. I think you have to be really concerned about how you chase it right are you going to go back into these higher multiple stocks. That are

actually starting to sell off pretty dramatically. Or are you going to start looking for opportunities in names that have been beaten up? But my thinking would be that the economy and some of these other areas are just going to weigh on the overall market. And to David Tepper's point, it might make sense to be more cautious sitting in six-month CDs that are paying you 6%. But see, this so-called deception that you mentioned works both ways, depending on which way you want to frame your argument. Now, people who are more cautious would say, well, the market, the multiple on the market's too expensive. Look, it's trading 19

times. There's no way the market's worth 19 times. Is it really 19 times? It really isn't, because if you strip out the seven stocks that we've talked about, the equal weight S&P, that's not trading at 19 times. It's obviously much cheaper. So it skews both ways, depending on how you want to look at it. That's right. And so I think your question is, you know, what's going to drive this market higher? Is it going to be specifically money managers chasing and bidding up these stocks and pushing these index higher with those higher multiple stocks that are a bigger part of the index? Are they going to be looking at individual stocks in the underlining index that might not have as much to do with the index? Or do you look at a situation where you start playing defense because of all of the concerns we talked about?

I think one of the things that people haven't focused in on, if you look at the fixed income market, right, we have a situation where the aggregate bond index is actually now negative. Bonds are down about 3% for the year. And you look at cross bonds right now, you're in a situation where the only thing that is actually positive are short-term rates. And if you look at corporates, September is typically a very busy month for corporates with regards to issuance. And this has actually been a very quiet month, which has actually helped corporate indices do pretty well. The flip side to that is if corporations aren't issuing debt because the cost of capital is so much higher, one of the other drivers for this market has been buybacks,

right? And it was a lot easier to buy back stock when you could issue debt at really low prices and then go buy back stock. This is a different situation now because of what's going on in the bond market. Now, I don't know what your, you know, your current level of cash is relative to history or how you're sort of advising that at the moment. But are you individually thinking about, I want to get a part of this chase too. Maybe I've been a little too cautious. And you're thinking about deploying some of your cash now for whatever kind of run might exist between now and the end of the year? Yeah, I think we have a plan with regards to putting money to work because we do have more cash than we'd like to. Seventy five percent of the time, the S&P 500 is positive. Being in this much cash, this defensive for this long is something that we're not comfortable with.

Right. But we're also recognizing that there's going to be a great opportunity to buy some of these companies at better prices. And it's coming back, right? So if you look at corporate spreads, they're starting to go out a little bit more. So instead of being on treasuries, we're starting to add in some more corporates and some other areas of the fixed income market that looks good. In the same sense, we're adding to select names that have better balance sheets and are growing dividends so that we're getting that cash flow for reinvestment. So we are slowly but surely, as the market coming down, getting more comfortable with adding more exposure to the market. I appreciate your insights as always. Stay dry. Stay dry up there. It's been tough today. Otherwise, we would have

seen you here. Yeah, we're on a light boat out here. Yeah, I hear you. Chris Toomey, Morgan Stanley Private Wealth. We'll see you soon. Up next, doubling down on the bull case, NFJ's John Mowry. He breaks out his playbook right here at Post 9 as we look towards year end. He reveals the parts of the market where he sees some serious strength right now. He'll tell us next. We're back from closing bells. Stocks losing steam heading into the close. The S&P 500 set to turn in its worst month of the year. Our next guest, though, he's staying bullish.

Finding opportunity, he says, in some of the sectors hardest hit by the recent spike in yields. Joining me back at Post 9, John Mowry of NFJ Investments. Welcome back. Good to see you, Scott. All right, so it's been a rough month, obviously. And you're still bullish. I'm still bullish. Yields are up. Stocks are down. I know. There's a lot of negativity. If you remember a year ago, it was also very negative. Around this time, it happened to be raining outside the last time I was on, I think in October, and it was very gloomy.

What I would say is that the rise in interest rates has really created some big dislocations. And if you look at utilities, if you look at REITs, and if you look at banks, all those areas are tied to rates and they're all big time on sale. The Russell 2000 value, Scott, I heard you mentioned earlier on the set that the small cap names are looking more attractive. And I'll give you an interesting statistic. Did you know there's only been two times in history where the NASDAQ was up 30% or more in the first three quarters of the year and the RUJ was negative? Those two periods were 2000 and 2020. In both those periods over the next 24 months,

significant outperformance in the small arena relative to the NASDAQ. So I think the NASDAQ looks less interesting here relative to some of these other areas. What about what Tepper told me a little while ago? Okay, to him, it's just not that complicated. It's no more QE. It's all about QT. Rates are elevated. The multiples might be too rich in that environment,

especially if earnings don't live up to the hype of where they're expected to be. That's a very, very easy to understand thought. The multiples are very cheap with the banks. I'll sit on the banks for a second. So, you know, every sector is negative this quarter except for energy, right? But I will tell you that the banks actually are positive. They're beating the S&P this quarter by 400 basis points. What's interesting

is that has coincided with the yield curve starting to unwind. So that inversion that we've been looking at, that peaked in the second quarter, at the end of the quarter. That is beginning to unwind. I think financials are an area that people are completely missing out on. They're worried about the banks. They're worried about real estate. They're worried about credit. And if you look at the valuation, Scott, you're getting dislocations not seen since 08 and 09. So it's really interesting for investors that don't want to be overpaying for a lot of the growth names. And I think also relative to fixed income, these yields are very attractive and growing. So you're going to put all your bullish bets on the banks?

I mean, that's not going to get many people on your side of the boat, not necessarily. That's where you're stating your bull case? Well, I mean, if you think about REITs, utilities, financials, that's 50% of the opportunity set in the value arena. So it's a significant portion. I would argue that industrials look pretty rich here. There are pockets of consumer discretionary that looks very attractive. Also materials, Scott. Some of the fertilizer companies have been trashed. There are opportunities outside in materials.

There are opportunities in discretionary as well. But those areas look much more interesting than tech. Why would I go for REITs or utilities when I'm already getting yield? What am I doing in those things? Or I'm doing what Tepper did. I've got 6% on a CD. This is why the opportunity exists. Because the prevailing wisdom right now is own technology, because that's going to give you the growth, and then own fixed income. Well, because you have the best balance sheets, right? You don't need to access debt markets. You've got the balance sheets at best.

You're sitting on mountains of cash. Correct, but you're paying a lot in terms of a multiple. I mean, why were people selling tech a year ago? They were selling it because of interest rates. They've forgotten this. Now they're owning technology. It's up 35% off the lows. Well, because of interest rates. They've forgotten this. Now they're owning technology. It's up 35% off of the lows. Well, because of AI.

Well, AI, yes, but did rates not matter? I mean, that's almost like a fairy tale now. It's like, is that really the reason that people were selling these? I mean, what I would argue is that the reason you just stated because of fixed income, that's creating the opportunity. Utilities are underperforming the S&P by 27% year to date. These are massive. Well, they should be because rates have gone up a lot. And therein lies the opportunity. The reason utilities are underperforming in some of these defensive areas like banks and

REITs, there's two reasons. The first is people were overpaying for defense. A year ago, I sat on this desk and I was very bullish. I didn't like utilities. I didn't like REITs. I didn't like a lot of the defensive areas. They were priced very richly. We joked about Hershey's chocolate chips and semi-chips, right? Now, those areas are being dumped because people are chasing performance. They're chasing the under-allocation of tech. And every reason you just stated is why these are big time on sale. Earnings. You were assuming that they're going to live up to the so-called hype,

that we get back to growth here in the fourth quarter. Which groups? And then, you know, we get back to growth here in the fourth quarter. Which groups? And then, you know what I mean, overall earnings projections for earnings growth are expected to go positive. Yes. And then as you get into the early part of 24, they're supposed to be even better than that. Yes.

So as a full group. Well, so again, I'm going to be a little bit choosy here. I'm not going to just broad brush everything. We're looking for specific areas we want to target. If you look at REITs, for example, many of these REITs, like in the multifamily space, like mid-America properties, they're actually raising their guidance, Scott. They are growing their FFO. Homebuilders are really expensive and the multifamily REITs are very cheap. The banks, I will tell you, we do need to see positive revisions out of that. It's a very tough

environment for banks with an inverted yield curve, but that's when you want to step in, I would argue. In 2000- Ahead of a possible recession? Well, I think the recession's priced because they're underperforming by so much. You think the recession's priced? In the banks. In the banks. If you look at the valuations, it is back to March of 20 and March of 08. So you don't think soft landing's priced? I think that's an interesting question. I'm not really sure. I mean, is it a soft landing for the banks? I mean, they've been blasted. Is it a soft landing for the bond proxies? They've been blasted. Is it a soft landing for FMC, a fertilizer company, down 50% year to date? It's not soft for a lot of these companies out there below the surface. We're seeing very interesting dislocations, Scott. I

think everyone's focused on this top group. And let's not forget the Magnificent Seven were the measly seven not that long ago. NVIDIA, one of the best companies in the world, was down 65% last year. Now everyone can't get enough of it. Well, because their growth projections have gone way up relative to AI. They have. We weren't talking about AI in 2022. We weren't. We weren't, but we're paying a lot for that now.

We're paying a lot for that. The price-to-sales ratio on some of these companies. The valuation on NVIDIA has come down over the last two quarters. Well, the PEs come down that. The price-to-sales ratio on some of these companies. The valuation on NVIDIA has come down over the last two quarters. Well, the PEs come down, but the price-to-sales is near all-time highs. Price-to-sales, maybe. But as guidance has gone up, the multiples come down. Correct. But if you look at the earnings trend on NVIDIA,

I would argue that a parabolic move like that, where a lot of people are pulling demand forward, is going to be challenging for them to sustain. It's an amazing company. They can do very well. But I would argue that on price-to-sales, some of these other metrics, you are paying a lot of people are pulling demand forward, is going to be challenging for them to sustain. It's an amazing company. They can do very well. But I would argue that on price-to-sales, some of these other metrics, you are paying a lot. You're paying way more for NVIDIA on price-to-sales

than you paid for Intel in 2000. Way more. You're paying 10 times price-to-sales for Intel in 2000. It's a lot. It's a lot to pay. We'll leave it there. John Murray, thank you. Thanks, Scott.

Happy birthday, too. Birthday boy. Thank you. All right, up next, we're tracking the biggest movers as we head into the close. Pippa Stevens standing by with that. Pippa. Hey, Scott. Well, we're watching one sector that swung from best to worst. We've got the details up next. We're less than 15 from the closing bell on this Friday. Let's get back to Pippa Stevens for a look at the key stocks that she is watching. Pippa.

Hey, Scott. Well, energy stocks are losing steam today, down 2% and the worst sector in the S&P 500. Every component is in the red, led to the downside by the services names with Halliburton, SLB and Baker Hughes all losing more than 3%. Refiners, Valero and Phillips 66 also under pressure. But energy is still the only group in the green for September,

and it's also the best sector for the quarter, up 11%. Moving to Walgreens, which is adding more than 5%, following a report from Bloomberg that the company is considering Tim Wentworth, a former Cigna exec, as its next CEO. Ross Brewer stepped down from the post at the end of August, though shares up 6%. Scott? All right. Pippa, appreciate it very much.

Pippa Stevens, last chance now to weigh in on our question of the day. We asked, will the fourth quarter be positive or negative for stocks? Head to at CNBC closing bell on X. The results are just after this break. Let's do the question of the day. We asked, will the fourth quarter be positive or negative for stocks? The majority of you said positive, near two-thirds. We've got an optimistic group, which we like.

Up next, Carnival shares. They're dropping in today's session. That name down 5%. We'll tell you what's behind it, how it's impacting the rest of the cruise stocks when we take you inside the market zone. Should call it the flood zone today. Don't CNBC senior markets commentator Mike Santoli here to break down the crucial moments

of this trading day. Plus Courtney Reagan reacting to Nike's post earnings rally a much needed one by the way. Sima Modi on Carnival's quarter to sell off in food stocks accrue stocks as well. Excuse me. All right Mike. Bad month. Get out of here.

Let's see what lies ahead. A rough month. Could I say it felt worse than the actual headline loss in the index was like four and a half percent? That's very fair. And for the third quarter, you know, we're looking at basically three and a half percent down on the S&P. You had down up down was the S&P. You had down, up, down was the pattern. So I do think that you've paid a certain price here after a very exuberant July. And I just think the big question is, is it enough pain before you can essentially give way to a little bit more of relief? And so I don't think that you necessarily have to make too big a leap to say we aren't far away from that. Everybody knows the market did get a little bit washed out. I just worry a little bit too much that everyone's

looking at the same indicators and say we have tactical oversold conditions. We come to the end of September. Seasonality turns better, like as if it's a bit of a free lunch and automatic. I mean, the seasonal stuff has worked perfectly to date. It might be a little bit too neat and tidy for it to pick up as soon as we get into next week. We'll see. I mean, the seasonal stuff has worked perfectly to date. It might be a little bit too neat and tidy for it to pick up as soon as we get into next week. We'll see. I mean, the prevailing thought is that earnings are going to be pretty good for this quarter. You know, the way I think about it is the ability for investors to turn their focus to earnings is probably a welcome sign. FactSet talks about how 116 S&P 500 companies have basically preannounced.

They've given updated guidance on their third quarter. Almost a quarter of the S&P 500, you've taken the suspense out of it. Now, 64% of them is negative guidance. The rest of them positive. But that's about the norm in terms of preannouncing ratios, negative versus positive. So I do think there's a benefit to segueing into corporate earnings season. Maybe we get some confirmation of the disinflationary trend, which we got today, let's remember, in the core PCE. So not a lot of scary macro data

points. What's been scary is the fixed income markets and, to a lesser degree, oil reacting to things that weren't just about the macro. Courtney Reagan, you look up relief rally in the dictionary, there's a picture of the swoosh. Because it was so much needed, right? You literally took the words out of my mouth, Scott. That's exactly what I was going to say. I think the stock was down something like more than 20% since it last reported. Today up about 10% for Nike.

After that fiscal first quarter was really better than feared overall. I think that was the main read. The athletic giant did reiterate its guidance. Look, revenue was below expectations for the first time in a couple years, largely due to greater China. That grew, but just about 5%, so less than expected. Nike's direct-to-consumer business, that's what it's really focused on, it grew 6%. Interestingly, store sales growth much stronger, actually, than digital. Its wholesale business, that was flat over last year. And then on the call, executives said the company is expecting its basketball and running businesses as well as its air business to grow, and it is forecasting it will do so. Nike points to the fiscal 2024 as the turning point for more

profitable growth. And in the quarter that they just reported, margins fell slightly, but were stronger than expected. And some analysts are also forecasting that this is going to mark the beginning of a longer-term upward trajectory for those margins. The quarter, of course, cleared a relatively low bar. Not a lot of analysts moved on their stock recommendations, but sort of a sigh of relief for what we're seeing there. All right, Court, appreciate that very much. Tasima Modi, we might need boats to get home today. I don't know, but what's happening with the stocks?

Well, Carnival's warnings got up higher than expected fuel costs, overriding what is a strong demand story for the cruise line. CEO Josh Weinstein telling CNBC earlier today that the consumer has shown absolutely no signs of slowing down with record revenue. But if those higher costs tied to energy, that's resulted in a softer guide for the fourth quarter. Management adding that Carnival is finding ways to make their fleet more efficient, but shares have been volatile, currently down about 5%, but still up 70%. So this makes it one of the top leaders

in the S&P 500 for the year. And Stiefel says those fuel costs are now embedded in current valuations, Scott. All right, Seema, thank you. Enjoy the weekend. That's Seema Modi. All right, Mike, we got about 90 seconds, a little bit less than that now.

Oh, actually about a minute. Government shutdown over the weekend at Simamodi. All right, Mike, we've got about 90 seconds, a little bit less than that now. Actually, about a minute. Government shutdown over the weekend. Got to see how that develops, what yields do to what we do until these earnings really start to get hot and heavy. Yeah, absolutely. I mean, look, you've cleaned up at least some of the positioning issues, the flow stuff. People were worried about at the end of the quarter. We didn't really see a big kind of selling crescendo into it. We're closing

above the week's lows. We're closing right right around the August. So the point being, it's trying to bump along and say that we've we've discounted a fair bit. But yeah, we're going to have a little bit of headline sensitivity going into into next week. And yeah, people should remember if they're cared to play the seasonal dynamics. It doesn't usually flip over with the calendar. It's a couple of weeks before you can start to say that we ought to be firming up, maybe around earnings season. You put it well, though, a moment ago, saying it feels a little worse than the reality. Yeah, the average stocks down a lot more than the S&P.

Yeah, all right. Good weekend to you. All of you at home, too.