Closing Bell - Closing Bell: Broad Sell-Off Intensifies; Netflix Gets Ready to Report Results 7/18/24

Episode Date: July 18, 2024

Stocks losing steam with losses accelerating into the close. Is this a midsummer squall to wash away excesses to refresh the bull market, or a more threatening change in the market weather?  Joe Terranova of Virtus Investment Partners, a CNBC Contributor, as well as BMO Strategist Brian Belski and Alicia Levine, BNY Wealth Head of Investment Strategy all join to break down the final moments of the trading day. Plus, Netflix falling as that company prepares to deliver results after-the-bell, on the heels of raised street expectations and numerous price target hikes. We discuss what to watch for when those numbers cross the tape. And, Nuveen’s Saira Malik joins to discuss the big rotation of the year and where we go from here. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with continued pressure on big tech and backsliding in those recently surging small caps, all keeping the indexes in choppy pullback mode just as the big bellwether earnings reports begin to roll. Downside in the index is accelerating into the final hour after a tentative midday rebound attempt. Here's your scorecard with 60 minutes to go in regulation. S&P 500 near the morning lows actually traded positive for a bit, but there you see it down eight tenths of one percent under 5550. The Dow after yesterday's big gain down more than one percent. NASDAQ down not quite as much, 0.9 percent, yet is in basically a five percent

setback from the NASDAq's all-time peak. Small cap, Russell 2000 cooling off in a big way after that blistering five-day rip. It's down 1.9%, down about 3.5% from its highs just a couple days ago. That takes us to our talk of the tape. So is this just a midsummer squall to wash away some excesses, refresh the bull market, or is a more threatening change in the market weather underway? Here to weigh the evidence are Joe Terranova of Virtus Investment Partners, a CNBC contributor, as well as BMO strategist Brian Belsky and Alicia Levine, BNY Wealth Head of Investment Strategy.

Welcome to you all. And Joe, you know, extended periods of calm markets often followed by a little bit of action, a little bit of turbulence. We have that here. What's the message you read and what we've been been dealing with? Well, listen, you've done a great job all year talking about how Q3 could be a little bit bumpy. And it seems as though as we move into the earnings season, that's exactly what we're going to be getting right now. But for the viewers, for investors out there, long-term investors, this is a tough environment right now because you have so many conflicting signals on a daily basis. It looks like we're getting this rotation within the market.

Early this morning, it appeared that that would continue. NASDAQ came under pressure. We had small caps lifting. But we've reversed that now intraday. And now for the first time, really in the last couple of weeks, you have a universal sell-off, a broad-based sell-off. You have small caps down. You have the NASDAQ down. You have the momentum factor down. A lot of the leaders that I've talked about on halftime, I own some of them. Goldman Sachs, JP Morgan,

Morgan Rady, they're down significantly. Eli Lilly down as well. So Chipotle is down like 5%. I think the picture that tells it all, if we could pull it up, is the VIX, because you've got the VIX spiking up to 16. I know that doesn't sound high, but it's certainly a lot higher than it's been over the last three months. It's its highest level since April. We were above 21 in April, and we probably have the blossoming of a much needed correction. You know, Alicia, it's maybe just a little bit of a reminder to investors that a broader market or one that's not kind of anchored by a handful of huge stocks is not necessarily in the near term a more stable one or a more predictable one. But how do you think

investors should be reacting to it, if at all? So I see this as the healthy correction in a broader uptrend. I mean, as you said, we're coming into seasonal weakness. August and September sort of never failed to disappoint on the index level. And we're heading right into it after an epic climb the first half of the year. So that makes sense to us. What looked like rotation into small caps, it can continue. But ultimately, I think if you go forward structurally, the large caps are going to take over here, simply because there's not enough market cap in the small caps to absorb the total rotation out of the large caps. If you just look at the top 10 stocks of the S&P, They're five and a half times the market cap of the Russell.

And the S&P itself is 15 times the market cap of the Russell. So it's a little bit like putting an elephant through a needle, which is what we saw. We saw 3% and 4% moves in a short period of time. That has to be digested. It's very healthy. An average year has a 12% drawdown on the index level for the S&P. We barely had 6 percent in April, and I think we're probably due for another 5 percent here. You know, Brian, the big versus small equation and that bit of rotation,

or at least just a little bit of a comeback from those extreme relative performance metrics, is only one way of viewing what's going on, right? It's also kind of a growth into value. It's the very top of the S&P into some of the rest, things like financials doing better here. So how do you read that? And what should we extrapolate, if anything, from the relative moves in the last week or so? Well, thanks for having us, Mike. We would say that what's happening is very normal. We would say that this is part of a very broad and big picture normalization process, believe it or not. What's happening in the market, we said eight months ago in print that the average correction during the second year of a bull market,

which we've been talking about now for two years, within a 25-year secular bull market, which we've been talking about since for two years, within a 25-year secular bull market, which we've been talking about since 2009, is 9.4%. As Alicia said, we only had 5.5%. That's not enough. And obviously, on a near-term basis, we were overheated. Now, I do believe that it's very normal to get broader participation. We are entering a golden age of stock picking, where you're going to need to own a lot of everything. Our theme for 2024 was everybody love everybody, meaning you got to own a little bit of everything. And now it's starting to come into fruition. So value was massively oversold on a technical basis. So a small mid cap. But it's not about just technicals and price, Mike. This is about fundamentals.

Now, starting with small mid cap, we're talking about earnings discernment, cash flow, balance sheet, strength, the strongest in my 35-year career. We have a scarcity proposal in small mid-cap, too, especially given the fact there's no banking deals and nobody's buying small mid-cap over the last few years. And then lastly, on value, more of a GARP-y value we think makes more sense, but we do think everybody's going to go up together once we go through this very normal correction. And it's happening right now. It all nets out for you, Brian, at least in the near term to kind of sideways for the S&P. I mean, you're working with about a 5600 S&P target for year end. Yeah. So here's the way it works. You know, everyone's been chasing the market higher. We've been very blessed and fortunate to be bullish,

been consistently bullish. It bothers me that everyone kind of changed their targets the last six weeks. That's actually a sentiment negative. And so now we've seen the results of that. We've kind of blown up a little bit too much to the upside. So let's go back to the second year of a bull market. So the average correction since 1949 is 9.4%. The average recovery is 15.5%.

So we do think that 5600 still looks pretty good. It probably could be higher. We're not going to adjust our price target until we kind of see how this correction unfolds. But we're very comfortable seeing higher prices from here by year end. Joe, the earnings are going to start to really flow here. It's interesting how all of the market implied expectations got reset. Right. A majority of stocks ramped for a week and the big stocks, which are going to have the most predictable earnings beats, probably have pulled back. You know, I bet you a month ago if if you said, I'm going to get 15 percent discount in meta, you know, the Nasdaq 100 is going to be 5 percent off its high.

You would have said, sign me up. I'll be a buyer on that dip. And then, of course, it happens. And we find reasons why it might not be an opportunity. Well, and that's where I think it's important to always understand what sentiment and positioning is in markets and how full is sentiment and positioning relative to a particular sector or an industry. And I think we could obviously define the technology sector, the mega caps and areas in communication services as having an extreme bullishness. So I think you came into this quarter knowing that you're going to have to exceed expectations in those areas of the markets for earnings, from my perspective, for us to see continued price appreciation here in the near term. I think we've now kind of had this inflection point where looking at the market,

the mentality has become over the last week more about selling rallies than buying dips. And once you get that shift, you need something to act as a very strong catalyst. We're going to have to see a significant earnings beat in the technology and communication sector for that to happen. Well, let's talk about one subgroup of technology that is really at the center of all that's going on. Chip stocks trying to stage a comeback after posting their worst day since March of 2020. Seema Modi is tracking that sector for us. Hey, Seema. Well, Michael, it's sort of a reversal here.

Chip stocks started the day strong following Taiwan semiconductors' better-than-expected second-quarter earnings report fueled by demand for AI chips. It's three nanometers specifically. The chipmaker didn't address former President Donald Trump's Taiwan comments head-on, but did say there are no changes to its U.S. expansion plans and that $40 billion Arizona plant. The stock, though, turned negative just about two hours ago. It comes as Intel doubles down on its U.S. expansion plans. Those shares quietly outperforming up 14 percent this month compared to NVIDIA's 11 percent slide.

Tonight, investors will be parsing through Trump's speech at the Republican National Convention and any comments on China and Taiwan. Bank of America analyst Vivek Arya out with a note today saying the volatility we're seeing in chips could stay enhanced through earnings season and the U.S. election. And that seasonality is also at play with semiconductors and those stocks often underperforming in the third quarter. But reassuring news is that, at least for the bulls, these stocks tend to bounce back three to six months later, Mike. Seema, thank you very much. And, you know, Alicia, in addition to the policy flux around this group, obviously the seasonal issues, the fact they were up so much, it's also at the center of how much do you believe AI as a theme

and whether it's already been priced in and whether this massive CapEx build-out is going to bear fruit or is just going to be, you know, kind of a table stakes? Right. That's sort of the crux of the entire market. Yeah. Right. Because it's not just the chips. It's not just the semis. It's not just the hyperscalers, but it's the, you know, it's the power companies, it's the utilities, and it's kind of broadened out. So we are believers. Our analysts think that this is real. It's a real story. Having said that, the charts on these stocks have gotten parabolic. And parabolas don't make great investing charts for timing.

And so it's time to get some froth out of this. I think this is a great setup for earnings because we're just coming down so quickly, so hard. We'd like to see it settle at the 50-day moving average and not the 200-day moving average. But ultimately, we feel that this is the right story. But make no mistake, the AI story has to be real to support this entire market, because that's essentially what the story has been. And that's been the excitement for the last 18 months.

Well, exactly. It has been. I mean, unless something, you know, something might come along to partially replace it. Brian, where would Semi sit within the types of stocks in terms of the fundamental trajectory that will or won't work in your in your understanding? Well, I think Alicia is spot on. I think many people, quite frankly, have forgotten that semiconductors are the most cyclical area in technology. And we've also forgotten that the second, third quarter earning is typically their toughest quarter in technology stocks in general. So I think, Mike, that you have to take a look at what we like to call the Super 6 technology companies and use those as your core holdings. And then we think, quite frankly, you want to trade down.

Like who would have ever thought a trade down to a $500 to $800 billion company was a trade down? But we think Oracle, AMD, Qualcomm are going to be clear winners from this. It doesn't mean that big tech is not going to outperform. It just means that I think some more money is going out. And I think this move into small cap is absolutely positively real. It's built some credibility that you actually can buy something, and it goes up. Markets are going to move down together. Everything is going to go down together. And I think that's why you've seen more weakness

here. So, again, I think you have to reallocate money in a small cap. And I think that's really what's going to work the second half of the year. Joe, NVIDIA is actually up a little bit today, but it's in a 15 percent drawdown. You know, we had about a two month period earlier this year where it just went sideways and digested, kind of consolidated the huge gains. It's been in one of those for whatever, since the beginning of June, I guess, right now. So a month and a half. Where would that leave you on it? Because as much as people say, oh, it's not as expensive as it was a year ago. That's because the earnings estimates back then were like radically too low.

Well, I think, you know, you're talking about a stock that you could place in that safety basket. And the safety basket, if we see further declines in the market, is exactly what you're going to see investors and money managers reach towards. And that's where you can get that quality. You could find the reliability in earnings. And it's going to take you right back to the mega cap. So I've said this all along. I agree with Alicia. I don't think you want to move away from mega caps and place yourself in a binary position where you say, I'm going to pick one or the other, small caps or mega caps.

Mega caps are going to help you if we see a deeper correction and you could clearly define NVIDIA as having those characteristics. Alicia, does that make sense? I mean, the market has treated that category of stocks as defensive. So it was defensive, it was quality, it was also growth. I mean, it was like everything working. And I guess that could happen again. Or is there other areas of the market that seem like the risk reward has set up better? So large cap tech has been both offense and defense, right? So it functions as both because of the cash flow and the earnings and the need not to borrow, right? So they work as defense.

So historically, when the Fed has cut into a stable economy, i.e. not because we're going into a recession, but simply because real rates are too high, historically financials have taken off. So the mid-80s, the mid-90s, financials took off when the Fed cut into a soft landing. So you would want to expand here, not just large cap tech, both offense and defense. But if you believe in the soft landing, then financials do well, certain value does well. I think energy is an interesting story, depending on who's in the White House, because historically, energy has been part of the reflation trade. But what we've seen is when Republicans are in office, actually, oil prices are lower and the energy stocks actually don't do that well. Yeah, it's a tricky thing, Brian. I mean,

in terms of trying to handicap not just over the next three months, how the election probabilities evolve, then what will be the policy priorities,, how the election probabilities evolve, then what will be the policy priorities, then how will they actually be enacted and when, then whether the market has already kind of figured that out before it's time. You know, it's many things you have to get right in a row, I think, to have a view based on what the policy is going to be in a year. So I also wonder what the, you know, the starting place here is a little different than it was, let's say, the last time before President Trump was

elected after this period of like disinflationary sluggish growth. And all of a sudden, hey, big nominal GDP policies looked like it was exactly the thing we wanted. It's unclear if that's the case. I think that's right. Yeah, I think that's right, Mike. And, you know, we always say we don't like to give politics any kind kind of uh any kind of credit uh but at the end of the day if you go back from a fundamental perspective look at 2017 2018 yeah the 2018 correction was really about powell and trump sparring about tariffs and then we had the pivot uh 2019, which was very similar to the pivot in 1995, which brought in Goldilocks. So I think the fundamental condition of stocks, quite frankly, is actually in better shape right now than it was in 2016. Remember, 2016, we had a lot of volatility with Brexit.

There's a lot of things going on at the end of the year. People forget about all this. So I think from a fundamental perspective, the barbell really makes sense in how we're looking at U.S. large cap and being overweight tech and overweight financial, which we have been. You've got to play themes. You've got to play stock picks. And again, buy some of these things that have been out of favor with good, strong fundamentals, like some of the value stocks, like some of the small mid-cap stocks, and spread the money around a little bit. But don't give politicians too much credit. You're way, way, way too early to try to be building investment strategies around a political stance, which could change

week by week. Yeah. Although, Joe, the market will trade it. The market is trading. However the way, however the needle moves. Well, I think the needle moved this week in the direction of a higher probability that legislation get affected with a red wave and that the Republicans actually, and that was a probability that didn't exist. Even if you believed that former President Trump would win the election in November, you didn't think he was going to carry Congress and Senate both along with him. So that's where the needle has changed. But Brian's right. He's spot on.

I mean, we're sitting here. We're in the middle of July. There's a long way to go. We've had a couple of, quote, unquote, black swans already surrounding this election. And let's hope we don't have any more. But I think there's a lot to play out in this story. Yeah. I mean, even if you think that what the market believes right now is the likeliest outcome over the next three and a half months, it's going to be scarce. Polls are going to tighten. Something's going to happen. Algorithms are going to do really well. Yep. Absolutely. Hey, you see Virtue's results? Yeah. There you go. There you go. Up 20 percent today. All right. Alicia, Brian, thanks very much. Joe, you're going to stick around and talk to you again in a bit. Let's send it over to Steve Kovac for a look at the biggest names moving into the

close. Hey, Steve. Hey there, Mike. Let's look at D.R. Horton shares. They're surging about 10 percent as the homebuilder topped Wall Street expectations for its third quarter. The firm citing limited supply of new homes, keeping homebuyer demand high as homebuilder stocks climb on a drop in mortgage rates in response to the June CPI numbers. Cintas also jumping on earnings, leading the S&P 500 as the business services firm topped analysts expectations for the current quarter, beating earnings estimates for the fourth quarter in a row. Mike, I'll send it back over to you. All right, Steve, thanks so much.

All right, we are just getting started here as the market backs off S&P down a full percent. We're going to have a moment of truth for Netflix. Second quarter earnings out today in overtime on the heels of raised street expectations and numerous price target hikes. We have a pair of shareholders standing by, plus big technologies, Alex Kantrowitz, to break down the setup. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Shares of Netflix down slightly today ahead of the company's Q2 results after the bell. Investors paying close attention to any progress made by the streamer on its ad-supported tier,

as well as any guidance as consumers perhaps cut back on spending. Joining me now to discuss is Virtus' Joe Terranova, Odyssey's Jason Snipe, and Big Technology's Alex Kantrowitz. All three CNBC contributors and Joe and Jason are Netflix shareholders. Alex, it seems like the conversation is it's going to be good. Just how good? How rich have expectations got? What do you think the themes will be? Yeah, expectations are high and they should be because this quarter is setting up to be a quarter that Netflix should crush. And I'm talking about the fact that advertising subscribers are now at 40 million. We were at 23 million in January.

Massive jump. All these, the past that we've had, talked about how Netflix can't grow or how it's contracting subscribers. That seems like it's in the rearview mirror. And, you know, people are saying, OK, now we're now at a year of password sharing crackdown. However, this thing doesn't happen at once. They don't just turn it on to 100 percent. Yes, it started a year ago, but this goes gradually. So we should still see benefit there. So I think that Netflix should beat on revenue. It should beat on subscribers and it should beat on profit. And if it doesn't, that's when we start asking questions. But it looks like it's

set up in its favor. Yeah, and Jason, this whole expectations game is always quite funny when it comes to a name like Netflix, when you have the sell side trying to figure out what the buy side is actually expecting relative to sell side expectations. And you get this wide range. I thought it was amusing. Wells Fargo's trading desk today said, well, if the official estimate for sub growth is $5 million-ish,

they're getting some high responses between seven and nine million. And the funny point was they said, well, the nine million are the bears because they want to feel like the expectations are so high they can't be. I mean, it's a funny game to play. But how are you thinking about the stock positioned here? Yeah, I agree with Alex here. I think the expectations are high. I think, you know, they're expecting 16% revenue growth. To your point, Mike, about 5 million new sub ads. They did 9.3 million last quarter, and this is a seasonally weaker quarter. So I think anywhere plus five will be very solid. I think they'll beat on earnings as well. I think we want to look for continued progress on the ad-supported tier. Again, last quarter, it grew 65% quarter over quarter. And the quarter prior to that, it was 70%. So I expect continued acceleration there.

And again, I just think they're hitting on all levers, the ad-supported tier, password sharing, and then their foray into live sports. So I think that's going to be important going forward. So I like the stock and continue to own it. Joe, I mean, it remains the only real grower in media, if you want to call it media. It's got a NASDAQ 100-ish valuation, right? 30 plus forward earnings, but it's smaller. It's not like the multi-trillion dollar market cap. So what's the, I guess, what's the ceiling here in terms of how far this can go, how far this story can play out and compound? Well, it's the one streamer that you could define as being growth, right? I think ultimately Netflix, from a price perspective, takes out the November of 2021 high

at 700. And I think you're talking about a stock that's 750 to 800 easily thereafter. I think the challenge going into tonight is, as Jason and Alex have said, we've got really high expectations. We know how fundamentally strong this company is. We know the success that they've had looking at ad tier subscription and password sharing. Now they're pivoting into live sports. We've got some NFL games coming on Christmas Day. We're all going to be watching that. Myself, I know we did a price hike in 2023. I'd like to hear about another price hike.

I think ultimately that's coming. So the setup is really, we know it's going to be good. And the analyst community has raised the price targets already in the last six weeks. The 650s are now 730s. The 700s is 750 to 780. But here's your problem. Over the last 10 days, and I own it personally, I'm not getting out. Options say 7% move either way. I will not get out if it goes down 10%. But the ETF strategy, which is rules based and looks at quality of momentum, the momentum factor is weakening significantly in the last 10 days. You're below the 50-day moving average. It looks like you're targeting the 100-day moving average.

And you just have to understand that because that's a critical dynamic, especially when you know sentiment and position is extremely bullish. Yeah. And, Alex, I mean, if we get the price increase, I mean, it's been a big part of the story just on a multi-year basis. To what degree do you think Netflix is agnostic about ad subscribers versus premium at this point? Because they obviously needed to build scale and ad support it because that it's the only way it's any good for advertisers is to actually have a pretty broad pool. But are they as profitable? Are they going to be as good a customer in terms of churn? I mean, I think there's more potential in the ad tier than there is in the premium tier. And I'll tell you why. You get the $6.99 a month, that might go up, right? So that's coming in no matter

what happens. And now you have Madison Avenue looking at this very attractive audience and saying they're in, they're watching. By the way, it's very difficult to skip those Netflix ads. You really got to sit and watch them. And so they're saying, listen, if we can get more data than we can get on linear television, we can reach, what, how many, 40 million people already? That's a sizable audience. I think Netflix right now is under-monetizing that. In fact, we're probably not going to see meaningful revenue there until 2025. So if they can figure out the strategy to grow that audience and then to find out a way to make money off of them, then I think that's the way they want to go. And that's what I've been boasting about.

Although it's 40 million kind of splintered. So I guess they have to really figure out the ad serving story better and obviously say the data analytics as part of that, right? Because you're not kind of concentrating that attention all in one place. Yeah, definitely. It's a technology story. I mean, the entire story about advertising online has been about technology, not necessarily bulk audience. That's why Facebook's crushing. It has the audience, but more importantly, it has that technology. Something like Snapchat with like 400 million users, it can't make money the same way because its tech doesn't work as well. But that

being said, Netflix has this huge advantage. I mean, not to mention YouTube. Right. Netflix can also go out, though, and say we're not just performance. We're not just teens and pre-teens tapping away on an app. We're people leaning back, watching quality television, so spend the same rates. And by the way, like you know, the linear audiences might be shrinking. We know what's happening with Warner Brothers

Discovery, and they're going to say, come on home to Netflix, and that will work. All right. Well, we'll see what we get. Guys, appreciate the conversation. Alex, Jason, and Joe. Thanks. We're getting some news on Broadcom and OpenAI. Kate Rooney has that for us. Kate? Hey, Mike. So this is a report from the information. They are reporting that OpenAI, the AI company started by Sam Altman, is in talks and has talked to Broadcom about developing a new AI chip. They also report here that the chat GPT maker has been hiring former members of a Google unit that produces Google's AI chips and trying to take some employees from Google.

They also say here, this is according to three people familiar with the matter, and that OpenAI has been talking to certain ship designers, including Broadcom here. You can see shares kind of jumping around on this news slightly higher. But, again, this report from the information mic. Back over to you. All right. Yeah, we'll still have some power to move the stock, OpenAI relationships. Kate, thank you.

Coming up, Nuveen, Sarah Malik is out with her new second half playbook, how she's navigating the recent rotation situation, and where she says investors should be putting money to work in the months ahead. She'll explain when Closing Bell returns. Welcome back. It is red across the board today with the Nasdaq again setting up for a loss. The Dow tracking a break a six day win streak. The S&P off one percent. Our next guest has eyes on three market forces that could shift stocks in the coming months.

Joining me now is Sarah Malik. She is now Nuveen's head of equities and fixed income and CIO and chair of Nuveen's Global Investment Committee. It's great to talk to you, Sarah. Boy, these three forces that you isolate here absolutely have been blowing through the markets. So this is the attempted broadening of the rally, the timing of Fed rate cuts, and then, of course, the election dynamic. So how should investors be thinking about these things? Well, first, let's start with the rotation which has been significant small cap seeing. Some of the best five day gains they've ever seen in history. This is based on

anticipation of the first rate cut which will likely be in September. And also lower yields. And below consensus inflation. I think one question investors are asking is how long can this last. History tells you on average this kind

of rotation last about four weeks. I think what could derail it is tech earnings in a couple of weeks, but the bar is high. And also, as we get to that first rate cut in September, I think that'll be a sell on the news event. And that'll be around the time where small caps discontinue their outperformance. And we may move back to more of a market that we've seen in the past. So the September you suggest would be a sell in the news event for the small caps or the small cap outperformance trade. And you also suggest tech earnings could complicate

that picture. So I guess the question is, if you're an investor who's been largely, you know, passively indexing to the S&P, you're mostly been riding those big growth stocks year to date past couple of years. What might you do right now to make sure that you have some kind of balance and the right kinds of exposures? Well, if you look at the market cap weighted S&P, it's trading well above its historical average by about three or four turns. So I think that's your risk there with just owning the S&P 500 benchmark. I'd be looking to expand from that. Look at the Russell 2000, look at small cap managers. Because if you look at tech stocks and their recent underperformance, that is a drop in the bucket versus the long term

charts for many of these stocks. Just a couple of weeks ago, semiconductors were outperforming software, another tech sector, by over 45 percent year to date. So there is more room for tech to go down at this point, especially if earnings don't meet investors' expectations. Is it your expectation that the market is correct in assuming a pretty benign soft landing type environment for the economy? I mean, we've gotten some mixed economic signals, downside surprises, but also things like retail sales holding up better than expected. Well, that's why I don't see long-term legs around this rotation. I am concerned about weakness around the consumer.

We're seeing higher delinquencies with the consumer. Unemployment, we saw claims come in today above consensus expectations. So employment markets are coming back into balance. The consumer is weakening. I think the risk is exactly that the Fed will likely start its rate cut cycle in September. But will it be enough to stave off a recession? I think a soft landing is going to be hard to achieve. We are in the camp that we do see a recession either later this year

or early in 2025. And then in terms of, you know, the election, I mean, I guess you first of all have the typical election year dynamics, if we can say anything will be typical here in terms of, you know, when the market tends to back off a little bit in the late summer. And then, of course, the actual implications of whatever the probable outcome is. So what's the best way to either, you know, tune it all out or or, I guess, position prudently for that? Typical election year dynamics are twofold. Markets go up low double digits and we see increased volatility. We've already seen the markets capture the upside i think the volatility is what's ahead of us and occurring now you know some of these republican sweep sectors have been outperforming recently like financials i think if we move to where investors think we may have more of a divided government some of those sectors may unwind or

decline that would be financials energy so i think there's still a lot to come with the election and how to position for that. Health care tends to underperform during an election year. But as we get closer to the election, it could hit an inflection point. I'd be a little cautious right now, given the run that financials have had. Yeah, absolutely. Been a very strong group in a short period of time. So you say you expect a little more volatility for this period. Does that mean substantial downside from here in the indexes and would you be, I guess, just sort of waiting to make use of those lower prices at some point? Well, I'm concerned specifically about the S&P 500 given its heavy weighting in mega cap

and the fact that the market cap S&P is trading at a pretty significant premium versus history. So areas that we're looking at, dividend growth stocks within equities, they tend to lag in up markets, but they outperform in down markets. These are companies that consistently grow their dividends. And switching out of equities, let's go to fixed income, where I think that's where it's a really interesting segment. As the Fed moves to rate cuts, you can lock in now a little bit longer duration in your portfolios. Look at areas like senior loans, where the yields are some of the most attractive within fixed income. Even preferred securities, where the backing is banks.

And even though bank stocks have performed very well, bank fundamentals also are very strong. So that leads us to say, if you want that bank exposure, maybe preferred securities is a better way to get it. Interesting. And is that based on the idea that, let's say, benchmark treasury yields remain at these levels or below,

or do they just seem like, you know, they're attractive on an absolute basis? I think benchmark, I think both, but benchmark treasury yields, we expect to decline a little bit from here. And that is the risk for people keeping their cash on the sidelines. They need to look for areas where they can earn yields outside and higher than cash levels, which likely will, cash yields will likely deteriorate over time from here as the Fed cuts rates. Sarah, it was really great to catch up with you. Appreciate the time. Thanks for having me. Good to see you. Sarah Malik of Nuveen. All right, up next, we're tracking the biggest movers as we head into the close. Steve Kovach is back with those. Hey, Steve. Hey, Mike. Yeah, Smartsheet is fielding takeover interests and drug makers are feeling

the heat. We'll have details after this. We've got a modest lift off the lows for the major indexes in the last few minutes. We'll see how that goes. We've got a little over 16 minutes until the closing bell. Let's get back to Steve Kovach for a look at the key stocks to watch. Hey there, Mike. Smart sheet shares are jumping about 5% or 6% here after a report that the tech firm is working with investment bank Catalyst Partners to field takeover interest. We see shares up about 5% and change now.

And let's go over to Infosys shares. They're popping and after beating expectations on the current quarter earnings and revenue, the digital services company is raising full year revenue outlook, citing a recovery in its demand. And Eli Lilly shares they're sinking 7% as competition intensifies with obesity drug developers. Rival drug maker Novo Nordisk also moving lower. Mike? All right, Steve, thank you. We are also keeping an eye on two big movers in the food industry with Domino's Pizza and Beyond Meat, both down double digits. Kate Rogers here with the details. Hi, Kate. Hey there, Mike. Yeah, we'll start with Domino's. A mixed quarter for the pizza company,

EPS coming in ahead of estimates. Revenues were right in line for the quarter. The news, though, weighing on the stock today, the company temporarily suspending its net new restaurant openings due to challenges with its largest international franchisee, which is struggling in both Japan and France. Now, Domino's did see its U.S. comps really driven by, it says, transaction growth. It also mentioned its growing loyalty redemptions, particularly with its carryout, not delivery business.

And Beyond Meat also taking a hit on a headline from The Wall Street Journal late yesterday regarding debt restructuring, citing sources familiar. The journal reported the company has engaged with a group of bondholders to initiate discussions about a balance sheet restructuring. Now, the cash burn has been an ongoing issue for Beyond Meat. The company, though, declined to comment on this one. Mike, back over to you. Down over 10 percent there, too. Absolutely. Kate, thank you so much.

Still ahead, a health care headache. Shares of Swiss pharma giant Novartis under pressure after earnings. On track for its worst day in more than three years. We'll dive into the details behind today's move lower. Boze and Bell will be right back. It's been a red week on Wall Street for this year's momentum winners, with the Nasdaq having one of its worst weeks of the year. But there are still pockets of strength under the surface.

CNBC Pro out with a new piece, looking at stocks with bullish technical setups. the full story head to CBC dot com slash pro pick or scan the QR code on your screen. Up next counting down to Netflix earnings result hitting the tape at the top of the hour the key metrics to watch and much more when we take you inside the market. We are now in the closing bell market zone.

Blackstone hitting its highest level since the end of 2021. Leslie Picker digs into that big move. Plus, Angelica Peebles on why Novartis is selling off. And Julia Borsten looks ahead to Netflix earnings out after the bell. Leslie, Blackstone, pretty good day coming after some of the big investment banks. Yeah, that's right, Mike. And don't let a double miss get in the way of an otherwise decent print here. Blackstone shares higher despite falling short of street estimates on both the top and bottom line.

That's thanks to positive trends in the business that bode well for future performance. Inflows were up sequentially and year over year. So, too, was capital deployment as well as realizations. President and COO John Gray was on Squawk Box earlier today discussing this dynamic. For us, it was a strong quarter because we see a bunch of positive forward indicators. And the biggest one is this deployment of capital, including what we committed to is more than $53 billion. And we invested that capital because we want to invest before the all clear sign. When you talk about real estate and other areas, before the Fed cuts rate, you want to put money in the ground, and that's what we're doing. Executives on the call spoke about, quote, positive signs emerging in the overall real

estate picture. They noted there are still troubled assets that have to work their way through the system, a sentiment that needs to shift a bit, but the fundamentals are improving, according to Blackstone, Mike. Yeah, I guess hopeful on the real estate side, Leslie, though I guess, you know, you'd also have to pair it with what are market expectations for IPOs so their realizations can be attractive. And then there was a lot of talk, I know, among Goldman Sachs and others about how the makings of a private equity investment pickup are also maybe in place. Yeah, no, that's right. David Solomon, the CEO of Goldman, said on their conference call earlier in the week that they're basically expecting it'll take a few quarters for the sponsor activity to really restart in earnest.

So we could be looking into 2025 to see a real resurgence in that private equity activity. But it appears that at least the trends are moving in the right direction. All right. Mark, it seems to think so. Thank you, Leslie. Angelica Novartis, pretty sizable move here. What's behind that? Yeah, Mike. Novartis facing questions today about its growth for the rest of this year and beyond. The company raising its full year adjusted earnings forecast,

but it's maintaining its sales outlook for the year. And that's after beating on the top and bottom lines in the second quarter. One drug that's getting a lot of attention today is Pluvicto for prostate cancer. Sales were up more than 40 percent from the same time last year, but they still came up short of analyst estimates at around 345 million. I spoke to the CEO earlier today about it. We're confident in the long run trajectory of this medicine. I think we're just going through a transition period right now as we move Plavicto out of

large academic medical centers into the community and get broader use of the medicine. Now Mike, one interesting thing that he did say in that conversation is that Novartis is out there looking for next generation obesity drugs and they're doing some early research on their own. They say that they're focusing on the cutting edge, even if that brings them to the 2030s. So they're not interested in this current class of GLP and GIP medicines, but they are still out there looking for what's next. Mike? Well, it's interesting because if you looked at the way Eli Lilly and Novo Nordic shares had traded for most of this year, you would think the market didn't expect there to be many obese

people in the 2030s because they were going to basically treat all of them before then. Those two stocks are also weak again today. Is that just for this idea of potentially some other competition? Yeah, it's really interesting. Remember yesterday we were talking about that Roche data, and today you're still seeing weakness in Eli Lilly. And like you said, you have to wonder, did people just not expect there to be other competitors here? It's still early days, so we'll have to see what comes next. But we are still seeing that weakness. All right, Angelica, thanks so much. All right, Julia, Netflix, the stock is up, I don't know, 85 percent from its lows late last

year. Expectations seem pretty high. Expectations are high. Analysts actually expect the company to meet its own guidance for the quarter as Netflix works to shift focus to margin expansion and away from subscriber growth. This as it prepares to stop reporting its subscriber numbers next year. Now, 16.4 percent revenue growth. That is the analyst forecast, which would be accelerating from last quarter. Analysts also projecting 44 percent growth in earnings per share. This comes after last quarter, the company's 9 million subscriber additions soared past expectations on the crackdown of password sharing. Now, analysts are looking for 4.8 million new subscribers in the quarter. Now, the company's profitability will hinge partly on its ad business, and analysts are largely bullish. 60% of analysts

have a buy rating on Netflix. 36% have a hold rating. Loop Capital just this week reiterating its $750 price target. It predicts that Netflix will eliminate its basic ad-free tier in the U.S. as it pushes its ad-supported option to forecasting a price increase this year. Guys, back over to you. Yeah, Julia, I guess if I think about the kind of themes that might get a lot of focus in this report, I over to you. Yeah, Julia, I guess if I think about the kind of themes that might get a lot of focus in this report, I guess as always would be, you know, where they are in terms of the password sharing, if there's a lot more juice to be squeezed from additional revenue there. And then who knows about any content surprises in the slate ahead? Yeah, I mean,

look, I think that right now Netflix's content is so diversified, so international, it's really rare to have one or two or three pieces of content really make a difference because it's really about the portfolio approach. And Netflix traditionally invests in the new exclusive content to bring in subscribers and then the library to hold on to subscribers. But I think the question now is, can it hold on to subscribers and even bring in new subscribers with a lower cost ad supported option? And really having that low cost option, that's an ability to broaden the variety of people who have the ability to subscribe to Netflix right now. So password sharing, no

doubt, was the thing that really drove Netflix's subscriber additions in the past year. Now the question is whether the ad supported tier can drive subscriptions in the past year. Now the question is whether the ad-supported tier can drive subscriptions over the next year. And then before we let you go, presumably, even though they're going to stop reporting subscribers quarterly, I guess they'll give guidance on the coming quarter? They are expected to continue to give guidance on revenue growth and also earnings growth. Of course, there's a lot of focus on margins, but they're not going to be giving guidance on subscribers. Excellent. Julia, thanks so much. We'll see what they have to say in just a couple of minutes. Let's see. The S&P 500 down about three quarters of one percent actually has picked up off the lows in the last half hour. So the

Russell 2000 on pace for a one point eight percent daily loss, and the Nats got down about two-thirds of 1%. That's going to do it for Cozy Bell. We'll send it into overtime with Morgan Brennan and John Corbett.