Closing Bell - Closing Bell: Bullish Momentum Back? 8/19/24

Episode Date: August 19, 2024

The broad-based equity rally may be evidence of revived upside momentum. New York Life Investments’ Lauren Goodwin, CIC Wealth’s Malcolm Ethridge, and Merrill and Bank of America Private Bank’s Chris Hyzy discuss whether the upswing can last. Plus, Deepwater Asset Management’s Doug Clinton reveals his pick for winner in AMD’s latest challenge to Nvidia. And, DataTrek Research’s Nick Colas shares his top two sectors for the remainder of 2024.

All right. Welcome to Closing Bell. I'm Scott Wapner live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this broad based rally in stocks. The major averages building on their best week of the year with even more gains today. We'll ask our experts over this final stretch how far this rally can go in the weeks ahead. Take a look at the scorecard with 60 minutes to go now in regulation. We do have green across the board today. All S&P sectors are showing gains today. Nice action from the Nasdaq up near 1 percent. How about volatility? Two weeks ago, it went crazy. Well, there it is today. Subdued under 15 is the fix. The yields on the Treasuries, they're mostly

lower across the curve. That Fed summit in Jackson Hole is looming, of course, at the end of this week. We also have some important earnings in the days ahead, including Lowe's and Target and Macy's. We're watching all those shares as well. Discretionary stocks are having a pretty good day. They're all in the green. Certainly a renewed focus on the health of the consumer after some better than expected data lately. So that is all even more relevant. Now, it takes us to our talk of the tape, whether the bullish momentum is back following that scare a couple of weeks back. Let's ask our panel that question. Chris Heisey is CIO, Maryland Bank of America Private Bank. Lauren Goodwin is Chief Market Strategist with New York Life. And Malcolm Etheridge is Executive Vice President of CIC Wealth and a CNBC contributor. Good to have everybody with us.

Lauren, I'll come to you first. Evercore ISI today says the trajectory for equity skews higher. Goldman's trading desk today says the pain trade is higher. I want everybody's opinion and I want yours first. I expect that the market can move higher as long as the economic data stays in line. That means as long as new unemployment claims aren't rising above what I see as a critical level at 260 and as long as earnings remain robust. The real challenge for investors is that though that essentially looks like a melt up higher is certainly possible, the market is likely to be incredibly reactive to the economic data.

Now, why is that the case more now relative to any point in the last couple of the years? It's because now good news is good news and bad news in the economy is bad news for the markets. The Fed's focus on inflation has transitioned to one on the labor market and growth. And so I do expect that though the market can continue moving higher is going to be a very bumpy road ahead for the next few months. Malcolm, our question right there on the screen is the bullish momentum back? Yes or no? Yes, Scott. I'm a bit in agreement in the sense that any news that we get is going to be a pretty big push in both directions. I think that investors are pretty split right now on whether we think that interest rate cuts is a good thing or a bad thing. And so I

definitely think that we're going to get I'm surprised to see the VIX down so low today because I definitely think that we're going to get movements sort of on a razor's edge of any economic data that we get Wednesday and Friday, obviously. So, Chris, how do you address this? Is the pain trade higher? Are we skewing more positive? And it's remarkable the kind of conversation here that we're having, given what happened two weeks ago. But we've moved fast and far away from that. It's amazing what two weeks will do, but it's amazing what last week will do. I would say to directly answer your question, Scott, it's going to be very, very difficult to stop this market from going higher. And the reason is data is being set up to be lukewarm. Exactly what the Federal Reserve is looking for.

Exactly what investors are looking for. We might get a little miss here or there, but not material misses. There's a lot of distortions in the data over the last couple of months. But when you average that together and now on a go forward basis, given what we saw in some of the recent reports, this data is lining up to be lukewarm. And Lauren's right. Good news lauren's right good news is good news bad news is bad news but you blend those two together and you get lukewarm data overall and this market wants to go higher you could say goldilocks if you wanted to chris that's what i think of when you say lukewarm just right yeah i like to use a term, which is basically balance. The balance that we don't have is usually the unknowns that we know.

It's geopolitical risk. We can't fix that. But what we do know is what the Fed is going to tell us. We do know where they're headed. They've told us that before. And the Fed funds futures market will shake us out here or there. And, you know, volmageddon was a way to clean up the excess. And now we're starting to get a little bit better base going forward.

Now, it doesn't mean that performance is going to be as good as it was. It simply means we have a healthier base to build from. The only thing I guess I would take issue with with what Chris said, Malcolm, is that we know what the Fed is going to tell us. We think we know. We think we know. We're feeling like we do know. We've priced in what we think we know. Now we need the Fed share to actually deliver on that later this week. And what's good enough if he lets us believe that 25 basis points of cuts is coming in September and that's the beginning of a new trend is that good enough yes I think you framed it up perfectly that we think we know but we very well may not end up with a cut in September and I really don't

think the number of cuts before the year is over is really what matters here, whether it's September or a later date. I think the depth of those cuts, right, you mentioned 25 basis points is sort of baked in and everyone's expectation. But if the Fed were to surprise us and go later with maybe a 50 basis point cut or a 75 basis point cut, the depth of that cut, I think, is what is really going to signal to the markets whether they see some significant economic pain coming or if we really are on the verge of this soft landing that they've been promising us for about two years now. I feel like that's the way outlier view, though, to be to be frank. I mean, I think most people at this point and they've telegraphed it, I feel like as much as they could possibly do that they're cutting in September. What makes you think that they very well might not?

Well, I think that it's important to consider that the Fed at some point has to shift away from being data dependent as they've morphed themselves into and get back to being forward looking. And I think maybe this Jackson Hole symposium could be the place where the Fed decides to get forward looking and says to us, you know, here is where we've outlined the cuts need to happen. And maybe we get lucky and the Fed tells us here's the depth of what those first the first cut, maybe the first couple of cuts actually look like. I doubt it. I understand that the consensus is the consensus for a reason. But I also think that we have to at least consider the fact that the rosy

Goldilocks scenario that we've all framed up in our minds may not come to be. And maybe there really is some other pain on the other side. Lauren, so from from two weeks ago, the low, OK, the Dow's up six percent, the S&P is up nine, the Nasdaq's up 13 and the Russell is up eight, eight and a half percent. Does that embolden the bulls yet again? Mike Santoli earlier was asking the question to everybody, really, does the volatility hurt or help the bulls case that we've rebounded as much as we have in August or is the volatility itself enough to hurt the bulls case? I think that the bulls are emboldened not only by the volatility, but by the momentum,

the market narrative, the couple of weeks in favor of a soft landing story. Where I think the bull case is challenging is, again, not in that the equity market can move higher, but in where the winners and losers are likely to come in an environment where I do expect volatility in both directions. In a more reactive environment, one where the market, the Fed, investors are all more concerned about economic growth. That's an environment where I don't expect small caps to consistently outperform, where I do expect technology and energy could consistently outperform, not necessarily just from a sector basis, but because that's where we're seeing consistent improvement in free cash flow, in earnings.

And though it's a bit boring from a sector perspective. It really is those fundamentals of earnings quality that's likely to drive consistent equity market performance for investors in the coming months. Chris, how do you address that? This renewed volatility, I guess, although it's funny even asking you the question with the VIX under 15. So maybe that was just a fit of volatility and now it's going to be subsided for a while. I don't know. How do you see that? No, I think that's right. I think, you know, August 1st, August 1st, 2nd and 5th, ballmageddon. If you if you just look at that snapshot, particularly Monday, you have a like a flash crash in volatility. Now, it's

quantified. We know the index. We know how they do that. But that was a point in time. And if you put things in perspective, it doesn't feel good when it's three days or one day. But the drawdown wasn't that big. It was big in the areas that rode the market. But now, when you start to see that crest and come down, the one thing you look for is if the rest of the market. But now when you start to see that crest and come down, the one thing you look for is if the rest of the market is now starting to get up off the ground with their fundamentals. And we're starting to see earnings growth for the rest of the 493. So this is actually a pretty good, healthy correction. It doesn't feel good when it's one day or three days. Well, Chris, let me ask you this, Chris, and I apologize for interrupting you

because I think it's the earnings outlook that some are taking great issue with, that yes, the outlook is optimistic, but it's far too optimistic. That's one of the points that Adam Parker made when he was sitting with me the other day, that yeah, earnings, we just printed 11% growth and we're optimistic moving forward, but they're way too high.

What do you think? Yeah, Adam does great work. Respect the work. I would say this. The analysis, when you aggregate it all together, it goes, ah, you know, maybe next year is only 8%. But when you go by stock by stock in the S&P 500 and you start to see more stocks actually piercing the zero line on their earnings, that second derivative is much more powerful than that aggregation because the top end of the market is coming down off of their highs. So for me, it's about participation. That creates a healthier

market, even if we're only going to grow at, say, 7%, 8% in earnings next year versus the 11% or so that we're seeing now. Are you making the case, Chris, that we can believe in the broadening again? Is that what you're saying? Yeah, what I'm saying is this is a rebalancing. This is not a rotation. This is not a, you know, a movement, a wave in and out and then a broader movement. It is a natural rebalancing. Finally, that when you start to see areas of relief through lower rates eventually mixed with areas of value that underperform, mix with quality growth, that altogether and yield is what should be the characteristics of the market for the next 12, 24 months. All right, Lauren, Lauren, why don't you weigh in on that?

And then Malcolm, the very same thing, because it's central to the conversation. I read you the rebound in the Nasdaq of some 13 percent has people feeling like, OK, we're just going to go back to where we were. Right. You're going to have the mega cap stocks just continue to lead the way. And NVIDIA on the 28th, when it reports its earnings, is going to validate all of that. So, Lauren, how do you address this? What Chris refers to as rebalancing, not necessarily rotation. I think that rebalancing is an incredibly intelligent move that investors can make on days like the first, second and fifth when we see an outsized reaction in the market. And I agree with Chris that that was an outsized reaction. I also expect that we are going to

continue to get highly reactive markets on big day-to-days like the jobs report, like inflation. How do you rebalance then? I think a big part of the story is diversifying sector exposure. I think you have to be invested in mega cap tech because of the quality of those earnings, but we're increasingly looking to small and mid-cap growth companies with quality earnings. We're also looking, as I mentioned, at the energy sector, at financials, and we're looking at utilities as a way to diversify and equity exposure when we expect more volatility in both directions. I think importantly, we're also looking to the bond market. We've talked a lot about a Fed that looks poised to cut in September. That's an environment where the yield that

investors are capturing on money market funds is going to move lower. And so we expect that we'll continue to see flows towards short duration fixed income trying to capture those higher rates. And then that's a balance that does make sense as we move into a Fed cutting cycle. So, Malcolm, you can make of rebalancing whatever you want. It can have many different forms and definitions, obviously, as it relates to a portfolio. The main point being that it's a it's a drop down, I guess, in the exposure you might have to mega cap and rebalancing that into other underperforming or less performing areas of the market. It could be into treasuries in some respects, as Lauren is talking about, and maybe other areas of credit, too. So how do you see this rebalancing taking

effect if you, in fact, believe in it? Yeah, so I don't necessarily believe that the rebalancing taking effect if you in fact believe in it? Yeah, so I don't necessarily believe that the rebalancing is going to happen right this minute. I think the rebalancing is actually going to have to be forced. I think the market is going to have to break investor psychology and break the momentum of the last few years where everything in the Nasdaq at the top quartile of the Nasdaq is what everybody wants to own. I think there will and should be a rotation within mega cap tech, even forget going to other sectors for a second. But I think that the undertone in the earnings of the second quarter that's kind of been overshadowed by that 11 percent growth that you guys were talking about is the number of layoffs

within mega cap tech that have happened so far this year. Right. If you just think about the fact that about one hundred and thirty thousand tech workers have been laid off so far this year and the year is nowhere near over. That's about 60 percent of where we were in 2023. And 2023 was a brutal year for tech workers as far as layoffs are concerned. So I know that these companies are giving us the line that, you know, these these job cuts are necessary so that we can repurpose that capital to be able to invest in artificial intelligence and the growthier areas of the company. But I just want to say for a second that we should at least consider the fact that maybe there's more to it there. There's a little bit more of an undercurrent and it's being swept under the rug at this moment by having a little bit of an AI glossing over it.

And so I am a little bit concerned within mega cap tech. Obviously, that's where a lot of my own personal portfolio is, along with a lot of our clients at the firm. And so I think that we should at least consider the fact that that rotation needs to happen even within the tech sector. But I don't think it's going to happen willfully. I think the market's going to make it happen. So just just let me clarify one thing, because you said earlier a rotation within mega cap tech, and you just finished by saying a rotation within other areas of tech itself. So are you saying to be super duper selective within the mega caps themselves or rotate out of some of the mega cap names into some other areas of tech?

Can you be more specific for me? I appreciate you giving me the chance to clarify then. So I'm talking specifically the MAG-7 when I initially said rotating away from, right? So investors have shown a habit of any time there's a movement in the market to the downside, we sell off the MAG-7, we go to cash. And then anytime it looks like all is clear, we buy back the Mag7, and that's what drives the market back up. And so I think a rotation within MegaCap Tech that allows us to look for other names, the chip makers, for example, moving

away from just NVIDIA and AMD and rotating into other places that are semiconductor names, for example. I think that is what's ultimately going to have to happen that helps to diversify a little bit more within the tech sector. I'm told you have your eye on Cisco, Malcolm. You don't own it yet. Why are you watching that so closely? Yeah, so Cisco, I know that Cisco's been

one of the biggest losers in tech for the last five years running, but I do think that that company, you know, there is a little bit to like there. They do have a pretty good install base with their security customers already. And I think that Cisco is a company that's going to benefit from the push that's being made in cybersecurity, that large spend and the necessity of that spend on cybersecurity that's happening because things like phishing scams and others have been made more possible and made faster by AI. And so I would look for Cisco to be a beneficiary of the platformization

push and also from the consolidation that's going to happen within cybersecurity next year. Chris, you don't necessarily talk individual names, but the one name seems to matter maybe more than anything else right now, and it is NVIDIA. I did reference the fact they will report their earnings on August 28th. Your bullish view is pretty clear from what you've articulated today. What's really riding in your mind on that report? Well, I think the biggest thing that's riding on the report is the momentum. We had a huge momentum coming off of, you know, obviously August 5th. But if you look at what has performed and what hasn't off of that momentum, the semiconductor names have actually underperformed, albeit except for one or two, overall relative to the rest of the momentum area.

Systematic institutional investors, position traders on a day-to-day basis are going to have to follow the momentum. They did it to the downside on the great carry on wind. They did it back on this reversal these last couple of weeks. And good results coming out of bellwethers like that momentum bellwethers are needed to keep that area at bay. They're not necessarily needed to significantly outperform the so-called whisper expectations for the whole rest of the market to change what is beginning to happen, which is a greater participation. Lauren, you want to address that too? Just all that might be riding now on this earnings report, given the volatility that's been introduced in the last couple of weeks? Yeah, absolutely. I mean, there's no question that NVIDIA's earnings are likely to drive the

market as a whole. And whether that happens, of course, is a function not only of what the earnings are, but what guidance is. And there is potentially slightly less risk on the back of an earnings environment that has otherwise been fairly constructive, that you see a big market miss in the moment of an NVIDIA earnings miss. But where the stakes get larger for me from an allocator and from an economist perspective, is that from my perspective, actually the biggest risk to the economy is now a major sell-off in the market.

Now, it'd have to be sustained, but our research suggests that for every 5% drawdown on the equity market that is sustained, you get about a half a percentage point of consumer spending off of annualized GDP. That's a major number. May even be bigger in this economic cycle where we know that the preponderance of consumer spending is now coming from high income consumers who are so impacted by the ebbs and flows of the market. So it really can't be overstated how important

that report is next week. Something we'll be watching closely, not just for tech earnings, but for economic trajectory as well. Malcolm, last question to you. We said Palo Alto, the earnings and overtime, you own the stock. What are your expectations here? How high is the bar? Yeah, I don't think the bar is all that high for Palo Alto right now. I know investors and analysts are going to be listening to the earnings call, expecting this company with something like a 50 PE to justify that valuation, considering revenues declining, billings are declining, EPS growth has been declining for about a year now. But I don't think this is the quarter we're going to get that. That said, I still think it's early innings for the platformization pivot that the company is making.

And so I think that there is tons of opportunity for Palo Alto, but I don't think this is the quarter where they're going to deliver what those expectations are to the street. Guys, we'll leave it there. It's good talking to everybody. Chris Lauren and Malcolm, we'll see you again soon. To Pippa Stevens now for a look at the biggest names moving into the close. Pippa. Hey, Scott. Well, shares of Paramount are getting a lift following a Bloomberg report the company is likely to extend, it's a go-shop period if Edgar Bronfman makes a bid for the company. Paramount has agreed to merge with Skydance Media.

Elsewhere, some big moves for food stocks after a trio of downgrades to neutral from Piper Sandler, which noted a lack of industry pricing power. Sweetgreen shares down 6%, with the firm saying, while it believes in the long-term growth story, that upside is now reflected in the valuation. Coffee chain Dutch Bros on track to snap a four-day winning streak, after Piper said the risk-reward has become more balanced at current levels. And shares of Shake Shack lower by about 3%, with the firm citing a worsening industry backdrop for the burger chain.

Scott? All right, Pippa, thank you. Pippa Stevens, we're just getting started. Up next, a chip challenger, AMD, going after NVIDIA in the race for AI supremacy. Deepwater's Doug Clinton is back. He reveals the name he prefers in that space. And what is ahead for large, for tech at large? We're live at the New York Stock Exchange.

You're watching Closing Bell on CNBC. We're back. AMD rallying today on news. It plans to acquire server builder ZT systems, the latest move by the chip maker to step up competition against the likes of NVIDIA in the AI arms race. NVIDIA investors, though, not shaken by that news because right there on your screen, the stock's up near 4%. Joining me now is Doug Clinton of Deepwater Asset Management. The firm recently bought that stock, that being NVIDIA. Welcome. So you finally decided to buy NVIDIA. The big sell-off a couple weeks ago was too much to pass up. It was. It was too good to be true for us. I mean, NVIDIA is a stock

that they are the arms supplier of this AI arms race. And we've wanted to own it for a while, but for price. And we finally got that opportunity. The yen carry trade blew up. There were rumors about Blackwell delays, their new chip. And when the stock traded down into the mid-90s, you had a kind of forward PE, 25. We felt like that was the right time to enter. This news today of AMD and this deal, if you're an NVIDIA investor now that you're a new one, is it a snoozer to you? Is it meaningful in your mind? I don't think it changes anything for the next one to two years. Let's put it way i mean really what this is about is amd trying to get more competitive in these training clusters helping big customers the hyperscalers build

out data centers and be more creative it's something they weren't doing before it's something nvidia is already very good at so it's not you know something that amIA is already very good at. So it's not something that AMD is now doing, NVIDIA is not. I don't think it's a big threat. You don't own AMD, but you do own Broadcom, which Stacey Raskin, who was with us just the other day, suggested has the second best AI story behind NVIDIA. That AMD may be third, but the feel is that at least I think in some corners that it's a distant third. Why Broadcom over AMD in your mind? Two pieces. One is the networking story. Obviously, they're a leader in networking. And when we think about data center architectures, you have to keep these clusters networked together. They can speak to each other essentially and operate more efficiently. That's a big part of their business. But the even bigger reason that

Broadcom for us is a great AI play is their partnership with Google on TPUs. I mean, they're the provider in terms of Google building its own silicon. I think you're going to see more companies like Meta get more aggressive with building their own silicon as well. That's the next story for the three to five year picture, but not one to two for NVIDIA. Okay. So August 28th, that's the date that's looming large, right? It's NVIDIA's earnings report. You want to just tell me as a new investor how you're thinking about that day? Well, I felt like it was probably de-risked when we bought it at 95, but now I'm a little more concerned.

We've run 30% in two weeks. The run back is crazy. It's difficult. I think that resets expectations going into that event. The thing that worries me, and I don't know that it's going to be an issue or not, but what worries me now that didn't worry me before, is we do have these rumors of the Blackwell delay. And so if that turns out to be true,

if it looks like there's maybe this air pocket in revenue a little bit, as Nvidia waits a quarter or so to actually get those products into market, you know, that could be something for the stock that's dangerous. I think most people who are paying attention to the story know that this delay is possible,

but there's always someone who doesn't know. Are you thinking about just how much NVIDIA might be over-earning now because of all of the spending that we're seeing from the hyperscalers in this area and the mega cap stocks in and of themselves, how much they're spending and what that means in the big picture?

We don't really know. We don't, and I also would argue, I don't know that the hyperscalers are overspending. I would take issue with that. I think that they are appropriately spending, and maybe some of them should even be more aggressive because we think about AI. It is the most important technology

maybe that we ever develop. And so I think it's critical for all of these hyperscalers to have a race, a game in this race, and really put their best foot forward, invest as much as possible, because if they miss it, that's worse than if they spend a couple hundred billion dollars on CapEx and AI turns out to be real. But you still have to get a return on the investment. they're overspending. I mean, their spending rates are up 40 or 50 percent year on year. But the idea that they're spending so much that if there is any part of a bearish view, or at least a cautious one on NVIDIA, is the fact that as a result of that spending, they're over-earning now. Right. Well, I think for us, this AI bull market that we're in, I think it's still very live, very vibrant.

I still think we have two to four years in terms of this AI bull market. And so maybe as we get toward the end of that, we can have a deeper conversation in terms of sort of over-earning. But I think that this is the reality of Nvidia in terms of earnings for the next few years. Aside from your new buy of Nvidia,

Alphabet looks to me to be the only of the mega cap tech stocks that you own. We're here marking 20 years of that company being public today. So why is it the only one outside of NVIDIA? And what are your expectations here moving forward for that one? We do also own Meta. So there's kind of our three horsemen are those three. But for Google, I think I missed that one. My bad. And those two have been two of our favorite horsemen are those three but for google i think i missed that one my bad no it's and those two have been two of our favorite plays on ai because they have reasonable forward pes i think they're earning very well and they both control their own ai destiny for google in

particular though this has been something i think you and i have talked about before scott i think they need to find a hunger and urgency that they still don't have i mean last week we had this news with eric schmidt talking about Google basically being kind of soft. And I think we would agree with that as investors. We've said we would love to see them do a little bit more aggressive of a headcount cut and try to find that urgency in this AI race because they're still losing to open AI

and they should be winning. You don't think that Microsoft, you know, lit a fire under Google by everything that's happened over the last year plus? Not enough of one, unfortunately. I think they still, they're talking the game. You know, we've had quotes from the head of search saying that this is urgent for us, this is important. But we still haven't seen the action yet, and that's what we're waiting for as investors to get really excited. Doug, good to see you.

Thanks for being here. Thanks, man. That's Doug Clinton. Don't miss, by the way, AMD CEO Lisa Su. It's a CNBC exclusive interview. It's coming up in the next hour in overtime. Up next, a rotational refresh. Tech leading the market for much of this year. But DataTrek's Nick Cola says two other sectors are ready to break out. He's going to tell us the best places to ride out the rally. We're back on the bell just after the break. Welcome back. We have some breaking news out of Chicago. Our Eamon Javers has those details. And Eamon, it seems we're learning more about the policies of the Democratic nominee and Vice

President Kamala Harris. Yeah, that's right, Scott. One of the Democratic nominee and Vice President Kamala Harris. Yeah, that's right, Scott. One of the big questions has been with Kamala Harris's economic agenda. How is she going to pay for all of this? We're now learning some more details here. Kamala Harris, spokesperson telling NBC News that one of the ways she's going to pay for her proposals is by raising corporate taxes. She's now endorsing a hike in the corporate tax rate to 28 percent. That is, NBC News reports, her first major proposal to raise revenues and finance the expensive plans that she wants to pursue as president. Now, that's not necessarily a surprise, Scott, because that puts her squarely in line with where Joe Biden has been. So no daylight

there between the presidential nominee and the existing president of the United States on the Democratic side. But it is something of a reversal for corporate America, which has been enjoying 21 percent corporate rates since the Trump tax cuts. And, of course, President Trump has said he will keep those in place and perhaps go farther if he can in terms of tax cutting. And one other thing to bear in mind about all these proposals from presidential candidates when they're running out on the campaign trail, they have to get these through Congress, right? So one of the big

questions is if Kamala Harris does win and pursue a 28 percent corporate rate, would she have the votes up on Capitol Hill to do that without Democratic majorities in both the House and the Senate? That would seem to be very, very difficult for her to do. But nonetheless, it's a signal of intent here from Kamala Harris saying that she would push for that 28 percent rate. Scott, back over to you. Eamon, thank you. That's our Eamon Jabbers, as you see outside the United Center in Chicago, site of the convention. Stocks climbing yet again, putting the S&P 500 and Nasdaq on track for their eighth positive session in a row, their longest winning streaks this year. Our next guest sees a few positive signs for even more upside. Nick Colas, DataTrek Research co-founder. He joins us now. It's good to see you.

Welcome back. Thank you. You're pretty positive on these markets here? Yeah, it feels pretty good. Feels pretty good. We had a bit of a shuffle two weeks ago, but that volatility has died down and now we're reestablishing the same trends that we had in July. So the cyclicals are leading, small caps are leading, and that's good to see. No volatility is going to reemerge. I mean, was that just a one-time fit? Some are suggesting otherwise. Look, volatility will always be with us in some form.

It never is absolutely quiet, but August tends to be one of those months where volatility peaks out for the year. It's about twice as likely to peak out in August as the typical month of the year. So we've just seen a big volatility storm. That was probably the peak for volatility. Are we going to get some more?

Yeah, absolutely. We always do, but nothing on the order that we saw two Mondays ago. Yeah. What about Jackson Hole? You know, the market seems to be expecting a lot from the Fed here forward. What's the risk in that?

Yeah, you're right. There are pretty high expectations. We went back and looked at how markets perform around Jackson Hole. So the week before the Fed chair speak and the week after the Fed chair speech. And what we found is that markets tend to rally through both, but they've definitely weighted towards the back end. So markets do better after the speech, after they hear what they need to hear from the Fed chair.

So the returns tend to be skewed towards next week versus this week. And I think we're going to see the same pattern emerge now. Powell should bless a 25 basis point cut in September, at least in principle. And that's what markets want to hear right now. But that's got to be already in the markets, right? Is that enough? You know, it's funny. You would definitely think so, right? Because that's? You know, it's funny. You would definitely

think so, right? Because that's what the chatter is and that's what Fed Funds futures indicate. But there is always uncertainty around these speeches. That's why the market tends to trade up a little bit into them and more after them because they actually want to hear the words and they want to hear how it's said. So I'd say 60 percent of it is in the market right now, but the market still wants to hear the words. And that's what we should hear on Friday. You like cyclical stocks here, correct? Yes. Why so?

So right now, I think we're in what we'd call a mid-cycle market. We're in the part of the economy where the economy is expanding, where there's no obvious recession risks in the offing. The Fed is about to begin reducing interest rates, and that's a classic mid-cycle market setup. And if you go back to every mid-cycle market from the 1980s till now, four groups tend to trade off leadership over the course of a mid-cycle rally, which can last years. On the growth side, it's healthcare is defensive and technology is more offensive. And then in cyclicals, it tends to be financials and industrials. And those four groups trade leadership back and forth over the course of years. We saw the tech rally happen in the first half of the year, supercharged by AI, obviously.

And now we're seeing the cyclical rally come into the second half of the year with financials and industrials leading. And that's true for both large caps and small caps. We're seeing the same kind of leadership emerge across market cap ranges, which confirms that what we're looking at is correct. Yeah, but you say that the economy is expanding, which, OK, it is. It's not contracting, but it's slowing. The numbers are kind of undeniable in that sense, which is why some figure we're in late cycle, not mid. How do you respond to that? Yeah, I mean, it's look, mid cycles are not painless rallies, right? This happens every mid cycle. I've seen every mid cycle since the 80s. And it always happens this way. You get a period of growth and then there's concerns. There's always concerns. But you need a true catalyst to end the cycle. You know, for 1990, it was the Gulf War I. In 2008, it was a financial crisis.

In 2020, it was a pandemic crisis. You need a clear and present catalyst to truly end the cycle once and for all. And I don't see that catalyst forming. I do agree with you, there's slowing, but that happens every mid-cycle. We have periods of better and slower growth, but we shouldn't freak out and worry that, oh my God, it's the end of the cycle, just because we have a few weak data points. No, but I mean, if you think a recession is is possible in the next, let's say, 12 months, that doesn't necessarily portend of a mid cycle market, does it? It doesn't. But again, you have to think about what is the catalyst? What's the call behind that recession call? Because we're going to have the Fed lowering rates.

That'll lower the cost of money for consumers and businesses. We still have, as we saw last week, strong retail sales demand. We track weekly gasoline consumption. That's still good. That's now up year over year. So there's plenty of positive points as well as the negative points. And I'm not overly worried that we get a slowdown that results in a recession. Are we getting a slowdown? Absolutely. Labor markets are slower, but they're normalizing

after a really long period of way above average growth. And lastly, you like small caps as a result of that view? Yes. Small caps are always a trade to us, never an investment. You don't want to be long small caps for 10 years, but there are periods when they work. And this is one of those periods, particularly because high yield spreads absolutely blew out two weeks ago. And they kind of hovered around high levels for a few days. Now they're coming back down again. And small cap stocks really rely on access to affordable capital in order to complete their growth plans. And as high yield spreads decline, which they're doing now, you should see small caps continue to outperform. That was the pattern in July. I think it'll reestablish over the next four weeks as well. Nick, we'll talk to you soon. Thanks so

much, Nicholas. Thank you. All right, up next, tracking the biggest movers as we head into the close. We'll go back to Pippa Stevens, who's standing by with that. Hi, Pippa. Hey, Scott. Well, PC problems are putting one tech stock under pressure today. We've got all the details coming up next. We're less than 15 from the bell. Let's get back to Pippa Stephens now for the stock she's watching. Tell us what you see. Well, shares of HP are moving lower after Morgan Stanley cut the stock to equal weight from overweight, saying there is limited upside to full-year estimates,

given the PC market recovery is now largely priced in. And FuboTV soaring as much as 30 percent at one point. The sports-focused streaming company rallied after a judge's ruling that temporarily blocked sports streaming service Venue from launching. Fubo had argued the streaming service from Disney, Warner Brothers Discovery and Fox was anti-competitive. For more, don't miss FuboTV CEO and co-founder David Gandler. He's coming up on Closing Bell Overtime. Scott? All right, Pippa, thank you. Palo Alto shares, they are up 30 percent from their February lows. We'll get you set up for earnings in

Overtime. Closing Bell back right after this. Coming up next, the pros and cons of Apple's AI push one analyst saying shares are stretched from the hype we'll dig into that call and the implications for the stock when we take inside the market zone next. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Steve Kovac on why Moffitt Nathanson says any Apple win in AI may not be a big boon for the stock. Kate Rogers looking ahead to Palo Alto. Those earnings out after the bell.

Michael, I turn to you at first. This is, for the bulls, a good way to start the week, broad-based and higher. The market is definitely back in gear. Shallow morning dips immediately get bought. You have this kind of levitation-type move, not really aggressive, high-volatility buying. It's just sort of filling an upside air pocket that was left by that little mini-panic a couple of weeks ago. We definitely still have, or I think more than we had before, a good news is good news market, which of course means bad news probably isn't easily shaken off if we really start to get something that makes us doubt the expansion is going to continue here for a little while.

Not yet super overbought in the short term. Getting there, probably another day like this, eight straight days up is not common. But definitely not yet getting too stretched in the short term. So we did reload. We're back just under a percent from the or over a percent from the all-time highs on the S&P 500. So it's hard to find fault with how the market is absorbing this after this little stress test. I think the question is going to ultimately become, you know, once we start to fill in the blanks on the macro, can we hang on to it? All right, I'll come back to you in a second.

I guess, Steve Kovac, AI is not going to be a great boon for Apple, at least according to certain analysts. Yeah, this is a Moffitt-Nason's note this morning, kind of initiating coverage. And basically, Scott, agreeing with Wall Street's basic thesis that Apple's AI will drive iPhone upgrades, but still rating the stock as neutral, saying all that bullishness has largely been baked into the stock by now. The price target over at Moffitt Nathans is implying 6 percent lower from Friday's close. That would be $211. Some of those and then also talking about some of the risks that are going on with the stock,

mainly on the regulatory front. You have the DOJ case against Google, which puts at risk up to $19 billion in payments that Google makes to Apple. Also at risk is the services division in Europe because of the Digital Markets Act. By the way, Epic Games Store just launched there. And over here in the U.S., it's the Department of Justice's antitrust case against Apple targeting the App Store, messaging and so much more. Still plenty of optimism on AI in general in this report. And as far as those things that are already baked in, according to the report today, they need the iPhone 15 Pro or better to work with artificial intelligence. And by the way, also saying Apple is spending far less on capital expenditures as a percentage of revenue, just two and a half percent compared to the more than 20

percent for Meta and Microsoft. They also did a survey saying 51 percent of folks want to use Apple Siri. That far outperformed the preference for competing assistants from Google or OpenAI. But look, Scott, it's going to be months before we have the answer as to whether or not this is going to be an AI-driven upgrade cycle for the iPhone. All right. Good stuff, Steve. Thank you, Steve Kovac. Kate Rogers now on what to expect from Palo Alto. Those earnings coming in over time. Kate. Scott, that's right. The street is looking for EPS of $1.41 adjusted on revenues of $2.16 billion for the quarter. Analysts expect revenue billings and EPS at about the midpoint of guidance for Palo Alto. One area of focus will be platformization strategy.

Investors wanting any details on the success of its platform strategy across different geographies. And in addition, any impact or billings or customer wins from the recent CrowdStrike outage. And the company announced this morning its cybersecurity products going to be used by SLB, formerly known as Schlumberger. The stock up over 2% today, up more than 16% year to date. And don't miss Mad Money tonight when Palo Alto CEO sits down for a CNBC exclusive. Back over to you, Scott. All right, Kate, thank you. That's Kate Rogers. All right, Mike, we'll come back to you with just about a minute left. I mean, the bullish thesis sort of is momentum traders plus buybacks. Now they have minute left. I mean, the bullish thesis sort of is momentum traders plus buybacks. Now they have to think about, right, the blackout period is is over.

Plus, Jackson Hole further setting the table for cuts. That's enough. That's all you need. I would say so. I mean, certainly we check off the boxes of the known things that have been bothering the market for a little while. There's no doubt about it that a lot of selling happened in a concentrated period of time. So you had this, you know, I think routine pullback sometimes need a proper scare before they can, you know, really get kind of stick as a good low. We seem to have gotten that two weeks ago on Monday. Again, one percent from the all time highs. I still think you're going to have a kind of, you know, mission accomplished moment at that point if we get there. But I do think

that at this point, slow and steady Fed easing path is still what we want. We'll see if that's what we get out of Powell in terms of the indications on Friday. We'll go out on the highs. We're just about there today. Just shy of 41,000 on the down. 220-ish. S&P

5,600. Bells ringing. I'll look for you tomorrow. Don't forget Palo Alto, those earnings at OT. John Corley, go.