Closing Bell - Closing Bell: Can Tech Carry Stocks Higher? 10/12/23

Episode Date: October 12, 2023

The Nasdaq has been performing better lately and is still on track for a relatively strong week. Can tech alone carry the market higher into the end of the year – just as it did for the first six months of 2023? Corient’s Amy Kong and Virtus’ Joe Terranova give their take. Plus, Ed Yardeni gives his first reaction to today’s CPI report. And, both casinos and homebuilders were slammed in today’s session. Our all-star team of reporters explain what is behind those moves lower.

Kelly, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with the major averages trying for five straight days of gains. That's clearly shaping up to be a struggle, to say the least. Rising rates, no doubt a headwind today on that hotter-than-expected CPI report, and a weak Treasury auction right around midday. There's your picture. Dow, S&P, Nasdaq, Russell all week. That's your scorecard with 60 minutes to go in regulation as there is plenty of red on the board today. Materials, industrials, and staples all dragging stocks lower today. It's pretty weak overall. You look under the hood, you see a lot of weakness. There's your picture from the three sectors that I mentioned.

Financials, they're lower too as they get ready to kick off earnings season in the morning. Citi, JP Morgan, Wells Fargo, all of that before the bell. Tech, well, it was one of the only decent spots today. Even it now has rolled over. We show you the tech XLK ETF. It does take us to our talk of the tape. With the Nasdaq performing better lately and still on track for a relatively strong week, can tech alone carry the market higher into the end of the year, just as it did for the first six months of 2023?

Let's ask someone who counts several tech names as top holdings. Amy Kong is with Corriant, also with us today at Post 9, Joe Terranova of Virtus Investment Partners. Joe, a CNBC contributor. It's good to have you both with us. Amy, you first. So we're still worried about rates, obviously. Weak auctions, CPI, PPI, both a little hotter than expected.

How do you see it? Yeah, I think, you know, the market is obviously on its toes. You've got higher for longer. That's the bottom message. But you've also got a number of market dynamics, whether it's strikes, whether it's oil prices moving higher, whether it's now geopolitical tensions all around the world, all hitting the system at the same time. And quite frankly, the market's trying to find direction.

We hope that the earnings season will hopefully provide that as we kick it off tomorrow. Glad you mentioned earnings season because it does begin in earnest. And there are some suggestions that tech is really the only place that you can bank on for earnings season and that that's still going to be good enough if they come in good enough. Joe's smiling because that's his suggestion. And I'll get to him in a second, but I want your take on it first. Yeah, I think the bright spot probably would be tech. You know, you've got, like, take Microsoft as an example.

We're still expecting that it would be above consensus. We think that, you know, earnings, at least from the last quarter, was up 21% on a year-over-year basis. And so don't forget, these are also the names that have the strongest balance sheets. And I think capital strategies, whether it's buybacks or dividends, will also play an important role here. And I think that's going to help in terms of the earnings profile. Yeah, Joe, I mean, look, that is your thesis here. It's why you've made a play into the queues more substantially of late, because you think that's the place to be. And even if earnings aren't great, those earnings are going to be

good enough. And that's the place to ride it. The Magnificent Seven plus Adobe, Lamb Research, Broadcom, those are the names. Those are the quality tech names. Look at today. Look at the price action today, whether it's consumer staples or utilities. Look at technology, non-profitable technology, hypergrowth technology, biotech, DocuSign, Toast, unfortunately, Cathie Wood's ARC fund, all down significantly. You're drawing the distinction between interest rate sensitive assets relative to assets that are not reliant on the cost of capital. And in fact, the Magnificent Seven, along with some of the other technology names that I've mentioned, are not reliant on that. So fortunately for the overall marketplace, they are dominant players in the actual construction of the S&P 500. And if, in fact, they're able to deliver earnings that are just good enough, I think you'll see resiliency as we move towards the end of the year. OK, so what if I say, OK, I agree with you.

I can get my arms around the idea that these are the stocks that are going to have the better earnings, the more bankable earnings. They've got good balance sheets. They're viewed both offense and defense. But the market's different now. There's going to be more scrutiny on the overall market, given where rates have moved now versus where they were then. And it may not be good enough to carry us higher alone because of that added scrutiny of just the overall, more uncertain environment. Probability for that does exist. But however, that's been the case for the entirety of the year. The rest of the market has underperformed. The rest of the market has not been contributing to the performance we're seeing year to date. And I don't expect that it will.

You know, you mentioned that several weeks ago I bought the q q q i was a seller of banks i was a seller of non-profitable software technology i was a seller of biotech so earnings going to be incredibly critical uh... what we saw at one o'clock today with this treasury auction it is remarkably powerful at a conversation with larry altman who you know scott

and we we were questioning each other on when we could remember that type of a catalyst from a auction on the equity market overall. important business day of 2023 not only because what the federal reserve is going to do but what the treasury department is going to do because on that day you're going to learn what the supply is for five year 10 year 30 year paper and the treasury department like the federal reserve is going to have to step back yeah amy the fed done you think they're going to hike again it's likely that they may have to hike again, considering that CPI data, as we saw this morning, continues to be hot. I don't know if that's the right message now. I think it's really how much higher for longer is probably the bigger question looming over the market, if you ask me. But what if, okay, I'll give you that. But what if it's not quite this high,

but it's still for longer, and it's just more normal. We're just normalizing rates. Now, I don't know if the market can handle 5% rates, and I'm not suggesting that it can, but if rates come down but still remain a bit elevated over historical levels, is that really that bad? As long as the economy remains strong enough. It really is a function of whether you're going from five to four. And at four, you're still four above what it was 10 years ago. And I think in this kind of market, smaller cap and mid cap players that are a lot more sensitive to leverage, those are the players that I think will really have a tough time reinvesting and seeking capital. And that's

why I agree with Joe. You know, these mega sevens or these top tech names with the stellar balance sheets is where we're staying with at the moment. It's a really good point. And Joe, when you think about how long rates have been near zero, there are many people who've never known as an investor anything but. So adjusting to a new and more normal environment still feels unsettling because we haven't lived, many of us, through a period where rates were anything but, either zero or barely above. So what it does is it freezes capex for companies that don't have significant amount of free

cash flow generation in the present. Just look what's going on in the utility sector with NextEra Energy Partners, right, the renewable trade, which has to fund projects in the moment using the leverage. They're unable to do so right now. It freezes consumers who have been reliant on the cost of capital being basically free and are now witnessing a much higher entry point to lease a vehicle or to go out and do some of the traveling and maintain some of the credit card balances. So the economy, one way or the other, is going to contract.

I'm completely convinced of that. I don't buy into the premise that this is Goldilocks and we're going to have a soft landing. The economy almost has to contract at this point. And I believe it will dismiss the third quarter GDP at 3.7 or whatever it comes in at. That's looking in the rearview mirror. That's not telling you the story of what we're about to have in front of us. All right.

So, Amy, look at your top holdings. I feel like you're pretty much aligned to where Joe's thinking is in terms of where the outperformance is going to be. Alphabet, these are your top, let's call them six holdings or so. Alphabet, Visa, Apple, Tetra Tech, NVIDIA, and Microsoft. Why such a heavy concentration towards the mega caps? We think that they continuously and historically speaking have delivered both on innovation, EPS growth. We're still sticking with that balance sheet characteristic in a tough environment like the one we're in right now. Cash flow is king and these are the guys that really have the free cash flow generation. Yeah. So how do you look though, and that's why people continue to invest in them and why in many respects they've obviously had the leadership role that they've had all year.

But what about valuation? How do you square what their valuations are when if we want to cite historical averages, many are above their 10-year, let's say, historical averages? How do we justify that? Yeah, you're absolutely right. Valuation is a little bit higher than the market. But in this kind of environment, we would be comfortable paying a little bit higher for that balance sheet, as I've mentioned, and also for consistency. I think that's key in this kind of environment. The other side of that is the valuation in the areas of the market

that have underperformed. Like financials, like some industrials, like materials, the valuation looks incredibly cheap. So it's important to remember that valuation, yes, it is critical in your fundamental analysis, but it's not actually sometimes a catalyst on the investment because the valuation can remain cheap for an extended period of time and the valuation can remain rich for an extended period of time. And that just might be the scenario that we have in front of us with the Magnificent Seven as we move towards the end of the year. Are there any other areas of the market, Joe, like from those more depressed performance standpoints, more depressed valuation relative to tech that you like? You have to go bottoms up. So just in the example of the

industrial sector, there are companies like WW Grainger, Copart. These companies are managing the business well, managing the balance sheet well. But you have to be active and you need to go bottoms up in those instances because there is this universal challenge

X the Magnificent Seven given the cost of capital. How would you address that, too? The areas that have underperformed that, you know, on paper look cheap, certainly they look cheap relative to, you know, technology and comm services. Which ones, if any, stand out as being attractive? We like to balance technology with health care. That's one area that we also have some exposure in. It hasn't made our top 10 yet, but in essence, we think that it does have defensive characteristics, good cash flow,

good balance sheet that can, again, be a nice counterpart to some of the more volatile tech. Why do you think it's underperformed to the demand that it has? There are others who have picked this space early in the year thinking that it was going to be a good place to be, and it just hasn't been. Why? I think you're also entering a political year, Scott. You know, generally speaking, when you have presidential election years, which is obviously coming up, health care is top of the game in terms of or top of the line in terms of whether there's going to be health care cuts, Medicare spending may be reduced. Things of that sort generally are negative. Political rhetoric tends to pick up. Earnings season tomorrow morning, bright and early.

J.P. Morgan going to be one of the companies reporting. It is on your list. Yes. As one of your top holdings. And it's by far the outperformer of all the banks in what's been a really disappointing and difficult year. J.P. Morgan is the only one that's really positive. Like Wells Fargo is up, I think, 1%.

JPM's double digit percentage points higher on the year. Why do you choose that over the others? Again, we like the big money centers in this kind of space. I think JPMorgan has been very prudent in terms of their expenditures and in terms of their expenses. They've also been able to manage their net interest income and margins well, better than their competitors. We expect them to give us a little bit more on their medium outlook on that. And I think that's what we'll watch for when they report tomorrow. Joe, what do we expect tomorrow? Are we going to get out of the gates? And this is somebody, by the way, who recently sold Morgan Stanley and Bank of America. Are we going to get

out of the gates? And, you know, the commentary from the CEOs is going to be interesting to listen to. You know, they've probably been more cautious, I'd say, than most. Certainly Jamie Dimon has over the last, I guess it's fair to say, many months. Is that where we're going to get tomorrow? Is that going to color how earnings season starts? I believe it is, yes. And I think it's rightfully so.

JP Morgan is probably my single best equity trade of the year. I bought it in March in the midst of the crisis. I think JP Morgan has the ability to be the crisis. I think J.P. Morgan has the ability to be the outlier, to have some positive performance. Net interest income is going to struggle in this quarter, but the acquisition of First Republic actually is going to benefit J.P. Morgan. But I think, Scott, collectively, the narrative you're going to hear from a lot of these money center banks is that they are going to have to have for higher provisions for loan

losses because whether it's commercial real estate or whether it's consumers the charge offs are going to increase year on year for sure the securities portfolio doesn't look very good given the rise in yields and I think

there's going to have to be that acknowledgement that simultaneously is going to have somewhat of a muted, if not discouraged tone. Because you have the exposure you do to big tech and because you have the view that you do around big tech and they don't report for another couple of weeks, are we essentially going to be in earnings no man's land, that the market's not going to really be able to do much until you get those reports? You have geopolitical headlines that I think will obviously drive the tape. And certainly this afternoon is an uncomfortable reminder how powerful the rise in bond yields can be impacting the price of equity. So we are in a little bit of a place

right now that makes me somewhat uncomfortable because my expectation is we could have a strong fourth quarter. Yeah. How would you address that as well? Sort of an air pocket before we get to the stocks that many are banking on to carry us if there is going to be a year end run? Yeah, I agree with Joe. I think there are likely a lot of macro headlines, if you would. But I think there are also key players in different sectors that will be reporting. For example, UnitedHealthcare is the bellwether in the healthcare space, and they're reporting tomorrow as well. So I think there's likely to be some key players that will give us some insight into how those sectors are faring. You know, I'm just looking, Joe, someone's sending me a headline, Thermo Fisher,

right? That's TMO? Yep. That they cut their guidance. So in the last, let's, I don't know, at least day, speaking of health care, right? This whole new phenomenon of weight loss drugs has absolutely upset this group of stocks. Joe, some of the hospital stocks, what was it? HCA. Tenant. Tenant, HCA. Yesterday were down sharply. Many in this universe were down sharply, and this is the kind of thing that you see. We had DeVita yesterday. You have Intuitive Surgical and Stryker, if I remember.

Correct. I do. Fortunately, we have limited exposure to health care throughout the year. The strategy has been reducing our weighting to health care throughout the year. The strategy has been reducing our weighting to health care. We were overweight health care one year ago. We are now underweight health care. So the strategy has worked effectively in that sense. But the effect of OZEMPEC is clear on a lot of the medical device names. The IHI was down significantly yesterday on the hospitals. It's having a significant impact. So what do we do about energy? Obviously, people are talking about it a lot. And

I'm looking as I as I forgive me for looking away from from you guys, but I'm looking at the sector performance today for for the energy space. And we can pull it up there. You can see, I mean, it's it's the only sector right now in the green on a reasonably down day. Do you like it? In the long run, we have some exposure, but not a lot. And it's really because there's, to us, there's not a lot of ways to really think about cash flow for them. And the price of oil is obviously going to depend on supply and demand, a lot of macro factors that we don't have a lot of control over.

And so from a fundamental standpoint, it's not top of the list for us. How about you, Joe? You know, from a momentum perspective, I told you last week, we kind of have this yellow light where the breakdown in oil futures reversed a lot of the strong bullish momentum.

Positioning was very long when the price of oil was above $90. We've worked that off. But at this point, it really is what's the direction going to be for OPEC Plus? Is it going to be that Saudi Arabia, is it going to be that Russia are going to add new barrels of oil onto the marketplace or not? We're going to learn that in the coming weeks. By the way, we're producing a ton of oil here. I think more than we ever have before.

I think I saw something today that said it's a record level of production in the United States compared to any time before. Yes, 100%. That is accurate. But I think we are in a place right now where the energy market is waiting for information on supply and also waiting for information on where the economy, what's the trajectory of the economy, the's the trajectory of the economy, the weakness that I see, okay, I think that's reflected in the price of energy, and I think it's absolutely reflected in the price of gasoline. Let's remember one week ago, gasoline was reported on a seasonal basis. The demand was at a 25-year low.

All right, we'll leave it there. Guys, good to see you. Amy, welcome back. Joe, we'll see you soon. All right, let's get to our question of the day. We want to know, will the S&P 500 be higher or lower one month from today once earnings season starts to wind down? You can head to at CNBC closing bell on X to vote. We'll share the results a little later on in the hour. We are just getting started here on closing bell up next star witness and former girlfriend of Sam Bankman-Fried wrapping up her testimony after nearly three days on the stand. We're going to

bring you a live report from outside the courthouse. We could see Caroline Ellison emerge from the courthouse any moment. We will take you there live. We are live from the New York Stock Exchange, and you're watching Closing Bell on CNBC. Show you our S&P sector heat map. Well, we do have two sectors now, at least in the green. Energy and tech. Tech barely hanging on, but energy is the, well, modest bright spot today. Otherwise, it's a lot of red on the board today.

Let's get a check on some top stocks to watch as we head into the close. Pippa Stevens is here with us for that. Pippa. Hey, Scott, there is more trouble in the staples sector today, with Hormel hitting its lowest level since 2018. The company's union employees voted to ratify a contract that includes the largest wage increase in Hormel's history. Separately, executives are laying out long-term financial targets at the company's investor day today, and the street is underwhelmed, though shares down 11%. And Keurig Dr. Pepper is also hitting multi-year lows as Bernstein cuts its price target to $37 per share ahead of KDP's earnings in two weeks. That follows Citi reiterating a neutral rating, citing lower coffee volumes. Those shares down nearly 5% today.

Scott? All right. Pips, thanks. Pippa Stevens. We'll see you in just a bit. We're still following the latest developments, of course, out of the Sam Bankman Freed trial. Our own Kate Rooney is outside the courthouse with the very latest. Kate?

Hey, Scott. So Caroline Ellison is done testifying. We're waiting for her to leave the courthouse behind me. You may see her walk out during this hit, but the defense team today really looking to show inconsistencies in her testimony. Unclear how the jury will react, but it was a bit hard to follow in the morning, especially they did not appear today to have any big aha moments. We didn't hear any big bombshells from the defense team.

Attorneys for Bankman Freed jumping between topics a bit and some different timelines. They did try to paint Ellison as a bad leader and a sloppy manager. One example, a failure to hedge and protect from some market losses. There was also talk about jealousy with another hedge fund that Bankman Freed was an investor in. There was a quote about wanting to crush this other hedge fund. This all comes after a really explosive testimony we got yesterday. Ellison said after the two crypto companies filed for bankruptcy, quote, I felt a sense of relief

that I didn't have to lie anymore. She said she had been living in a constant state of dread every day. This also comes after yesterday there was a sidebar, which we couldn't hear in the moment. We did get the court transcript. Scott. The government attorney accused Bankman-Fried of scoffing, shaking his head during Ellison's testimony, and said that given the history of this relationship and the prior attempts to intimidate her, the power dynamic, their romantic relationship, the lawyer asked that the defense counsel tell him to control his visible reactions to her testimony. The judge then asked the defense team to speak to Bankman-Fried about it. There was some awkward tension in the room. These two had not seen each other since the collapse of these companies last November.

The jury did seem attentive today. They were very tuned in. We're going to get our next witness this afternoon, but Caroline Ellison, the star witness of this case, wrapping up and leaving the courtroom. Back to you. We'll keep our eye, Kay Rooney, on the door as well and show you those live pictures when Caroline Ellison does in fact emerge from the courthouse

right behind where Kate is standing. Thank you. We'll talk to you again soon. Up next, stocks lower as we head into the close. The Dow is now down about 189 points. Coming up, Ed Yardeni, he's back. He's breaking down his first reaction to that CPI print and this late day slip in stocks. That's just after the break and as we head out, CNBC celebrating Hispanic heritage and sharing the stories of influential Hispanic business leaders with you. What others can learn from my journey is that if an industrial engineer from a factory in Brazil can become the chief supply chain officer of Colgate Palmolive, then it means that anyone can not only achieve but go beyond their dreams. Be proud of your heritage, be proud of your identity. At the end, those are your superpowers. What you bring with

you from your country is really what defines you as a professional and as a human being. Welcome back to Closing Bell. Consumer prices rising slightly faster than expected in September, keeping inflation firmly in the spotlight for policymakers. Joining me now to discuss how the Fed may interpret today's CPI report, Ed Yardeni. He's the president of Yardeni Research. Welcome back.

I guess first and foremost, does today stay consistent with your thesis, or does it upset it because you've been more bullish than most? Yeah, I'm not changing anything. I think the Federal Reserve is done raising interest rates, even though the inflation rate was somewhat hotter. In the numbers that came out today a lot of this problem is actually rent. You take out rent out of- the C. P. I. look to got. Rent

through a shelter which includes rent. At the C. P. I. both headline and core. Are up only two point zero percent so excluding shelter. We're actually at the feds target already. And shelter inflation, we know is going to be coming down. I know we can all look more closely at the CPI and find areas

where there's going to be some reversals like in health insurance. But I think the Fed has to look at the overall number. And the overall number suggests to me that inflation has turned out to be actually transitory instead of persistent. And I don't even think it's very sticky. So I think Fed officials are looking at what's going on in the bond market and concluding that the bond market has done all the heavy lifting for them. And they don't really have to raise interest rates anymore. I mean, shelter, though, Ed, is a critical component of where inflation was and why it's been so difficult in getting it down. It's also key on the Fed's mind. I feel like you don't feel like you're being too dismissive of what for many is a critical component in this whole conversation. Well, Scott, you could accuse me of doing what

economists tend to do. They always take out the numbers that don't support their story. And this is, see, I told you so. You said it it got me but i know you're making a good deal without not forgive me for interrupting you but there's caroline ellison she's leaving the courthouse right now uh... getting into that issue well she's leaving the courthouse, as you see. Want to listen in for a second, see if she would answer any of those questions shouted by the reporters who are on site, including our own Kate Rooney, after three days of pretty damning and explosive, if not shocking, testimony

against her former boyfriend and the head of FTX, Sam Bankman-Fried. So we'll keep our eyes peeled there, see if anything else happens at the courthouse, and go back to Kate as needed. But, Ed, I'll come back to you. As I was saying, you know, you're sticking to your bullish case. You don't think that the CPI, nor PPI, for that matter, yesterday upsets it in any way. It just underscores the fact that inflation is coming down,

but it's coming down slowly, and the bond market is still reflecting an environment in which, you know, higher for longer seems to be the play. Well, you're right about all these concerns. I looked at the PPI and I particularly focused on personal consumption expenditures, PPI. There's actually data like that for goods and services. And again, it does not include rent. And it was up 2. seven percent on a year-over-year basis back to the point about shelter as you said shelter reflects what happened yesterday it's not reflecting what's happening

today there's for example the zillow index which shows that inflation is actually running in the in the rent category at three point two percent and this is through September, whereas in the CPI, it's running at 7.4 percent. So the Zillow index tends to be a leading indicator for the shelter. And I think we're going to see over the next several months that the rent component of the CPI comes down

pretty dramatically and helps to bring the inflation rate closer to where it is without shelter, which is under 3 percent and pretty close to 2 percent. OK, that's one part of the picture. No doubt. Earnings season, right, gets underway tomorrow morning. What are your expectations here? Well, I think that we did see a bottom in earnings during the second quarter. I think we're seeing a recovery in the third quarter. We had a very modest earnings

recession, and it wasn't because of the economy going down. It wasn't because of revenues going down. Revenues kept going up. What really came down is the profit margin because companies got squeezed. But somehow or other, companies are starting to figure out ways to make their profit margin go up. The analyst consensus expectations are showing that. So I think we're going to get a very good earnings season. And I think that'll help set us up for a year end rally, maybe a November, December, Santa Claus rally, year end rally. Is tech going to be the thing that carries the market if there is, in fact, a rally? Well, I think it's going to be a couple of things. I think we need to see the bond yield stabilized. And I think it's in the process of stabilizing right now.

I think there was a lot of concern about oil prices. And even with what's going on in the Middle East, the price of oil is actually down from where it was in late September. The price of gasoline actually took a dive so far in October. And that will be something that will impact the next cpi in october rather positively i think the fed is uh and and at the end of october early november when we hear their statement in november 1st i think it'll be clear that uh on balance if come to the conclusion that uh the fed funds rate is restrictive enough in light of the backup and the bond yield and with their bond yield if it stabilizes four and a half to to 3.5% to, let's do that again,

if it stabilizes 4.5% to 5%, that's exactly the range it was in before the great financial crisis. The economy did fine back then, and so did the stock market. So I want to just get back to tech real quick before I let you go. I mean, this story is really about tech in terms of getting us to where we've had good returns for the major averages. It's really been the whole story. Can it still be the story? Do you need more to come along? Or if earnings are just all right, but tech is good, is that good enough?

Well, I think the issue for tech has historically been their growth stocks, and growth stocks don't do well when interest rates go up. However, one of the interesting things is particularly about the mega cap eight. Some people focus on the mega magnificent seven, but whatever they are, the big tech companies, they really aren't that exposed to rising interest rates. They don't have as much debt as maybe some of the other value stocks. So I think tech could actually turn out to be the safe haven in an environment where interest rates are going to be high for higher for longer. All right. We'll leave it there. I appreciate it. As always, Edgar Denny, thank you very much. Up next, we're tracking the biggest movers as we head into the close today.

Pippa Stevens is back with that. Hi, Pippa. Hey, Scott. One Dow component is seeing an injection of optimism. We've got the details coming up next. We're 20 away from the close. Let's get back now to Pippa Stevens for a look at the key stocks she's watching. Pippa. Hey, Scott. Well, Fastenal is hitting its highest level since April 2022 after reporting better than expected earnings. The company saw strong demand for its on-site locations,

which it says offset softer end market demand for manufacturing customers. Those shares up 7%. And Walgreens is a bright spot on the Dow as progress on its cost-cutting program outweighs a miss on earnings. The results come two days after the company named Tim Wentworth as its new CEO. Those shares are up 7% and heading for the best week since November. Back to you. All right, Pippa Stevens, thank you very much.

Last chance now to weigh in on our question of the day. We ask, will the S&P 500 be higher or lower one month from today once earnings season's all but over? You can head to at CNBC Closing Bell on X, The results just after this break. The results now of our question of the day. Will the S&P 500 be higher or lower one month from today once earnings season is all but over? Higher is the answer, near two-thirds. We'll talk to Mike Santoli about that coming up. Also next home builder stocks are sinking. We'll tell you what's behind that drop, what it could mean for the broader economy. I mentioned Santoli. The market zone is coming up. He's in it. We're back

next. We're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Ford's largest plant, the latest target of the UAW strike. That's why you see Phil LeBeau. We'll go to him in a moment. Contessa Brewer on the potential labor dispute hitting casino names as well. And Diana Olick on the sell-off and homebuilders. Today we do begin with Mike. Treasury auction, a little unsettling midday.

Kind of weak under the hood everywhere. It was pretty weak pretty much all along. I mean, not in a dramatic way, but definitely a little bit of wear and tear. Looking at four days of short covering, bargain hunting, a little bit of a chase going on, some relief out there that yields had calmed down, oil as well. And a little bit of a reversal here. It's like, so you think you want to be a day trader. Here's how it goes. You think it's going to be a calm nothing day, pretty poor 30-year treasury auction, sends yields shooting higher, definitely back into the uncomfortable zone.

I've been saying 4.6 on the 10-year, that's when you can maybe relax if you're below that shot above 4.70, still there right now. So we're on guard, especially because the market, the S&P 500, has not really proven it's more than a bounce yet. It's well on its way, but you haven't gotten above these levels from late September that might tell you a little more that it's a little bit better than just a reflex rebound. So I guess it sort of explains the midday low. We were just about flat for the week. So it seems kind of mechanical on one level, but very much taking its cues from our

Treasury yields going to get messy again to the upside. Or can we can we take some comfort that we've handled the move they've made? It's not about the Fed. The CPI keeps the Fed out of the game. It's all about the longer end. You have a sense of 24 hours from now of what we're going to be talking about. Banks report, obviously, in the morning. It's going to sort of set the stage for earnings season. And, you know, judging by the performance of the banks, it just hasn't been a great place to be. Yeah. I don't imagine there's going to be anything that looks really encouraging in terms of a turnaround narrative,

positive catalyst in the numbers themselves. It's really about relative to how these stocks have become priced. Even J.P. Morgan, which now trades an absolutely tremendous premium to every other big bank on price to book and everything else, it's under 10 times earnings. Nobody's expecting this to be without its bumps along the way as credit concerns start to filter in. So I think expectations should be low enough. But, you know, if you look at the financial sector ETF, which is

a lot better than the bank's ETF, it's still, you know, still working underneath this like short term downtrend line. I hate to get too much into the charts, but that's what seems to be governing things right now. People getting very tactical, figuring out if the worst is over. All right, back to you in just a moment to Phil LeBeau. So, Phil, Ford's largest plant in the crosshairs now of the UAW, we hear. Well, it's no longer producing trucks, that's for sure, Scott. Within the last two hours, we heard from Ford executives basically talking about where the company stands right now. And this is significant. As you take a look at shares of Ford, the company is saying during this briefing with reporters and with analysts

that it has hit its limit in terms of the economic proposal. We asked how much is that economic proposal in terms of billions of dollars, etc. They wouldn't go into that. They simply said we have hit our limit. This comes on the first full day of the Kentucky truck plant being shut down by the UAW. 8,700 members walking off the job. Let me put this into some perspective. This is the most profitable auto plant in North America.

It is almost 20% of Ford's U.S. production. The Super Duty is built there. Hugely profitable and popular pickup trucks, especially for contractors and for professionals who use it for more than just moving around. Meanwhile, you've got GM and Stellantis. According to the UAW today, talks continue with those two automakers. Scott, I'll send it back to you. Yeah, appreciate it, Phil. Mike, you know, you look at the stocks. It's just been just brutal. Down 25% for GM in three months, and Ford's down 21%. And by virtue of the news that Phil was just reporting us, there just doesn't seem to be any end to this insight.

Well, before those declines, the stocks were valued as if, you know, the legacy business is in terminal decline, and maybe they're going to have to be able to, you know, the legacy business is in terminal decline and maybe they're going to have to be able to, you know, perfectly orchestrate whatever transition they're going to make to EVs. And so if you have higher labor costs, it's that much trickier. You talk about low single digits here, right? Four and five times earnings for these stocks. That's right. And, you know, and if you look at the overall capital structure, they have, you know, all kinds of debt on top of that and a lot of longer term liabilities. So I'm to say doom and gloom it's just much more about the market it's to me it's more important for the economy than it is for these stocks what does it mean in terms of general

wage growth you know is this going to be a little bit of a poison chalice if they get the wage growth and the company is somewhat impaired or you're not able to be as flexible as you would have been down the road and you know what does does it mean for overall sort of labor costs and people, you know, workers being able to capitalize on these gains that are being made by a lot of these unions? Boy, we've had these, you know, rolling labor disputes, Contessa Brewer. And now we're talking about casinos. What do we know here? Yeah, well, you were expecting thousands of workers in Las Vegas to go out and picket today. There's not been a strike yet. And I asked CEO of MGM, Bill Hornbuckle,

at the Global Gaming Expo, which I'm just back from in Las Vegas, about this. And he said, we're going to get a deal done. We haven't had a strike here in 40 years. It's got to happen. And they're expecting that to happen, hopefully, before F1. I think what you're seeing today and if you look at the broader group, I mean, Caesars is down 6 percent. Penn is off 6 percent. Bally's off 8 percent. The concern here is not so much the strike that affects three big companies in Las Vegas, but the CPI number coming in hotter than normal. Remember, when you have people paying more for gas prices, conventional wisdom is that's less money they have for discretionary spending, like going to your regional casino and spending money. And who does that hit?

That really hits Caesar, Bally's, Penn. I mean, these are the big players in that regional market. I will point out that Caesars told analyst Carlos Santorelli of Deutsche Bank that they expect the growth in regionals to largely mirror what they see in Las Vegas. And that's good. Week to date, this is down even further. And I think that there's just real concern here over auto loan defaults and very low mortgage demand

and how much money people have in their pockets across this nation's spot. Appreciate it, Contessa Brewer. Then, Diana Olick, I just happened to pull up Lenar. Lenar is down 5 percent, and that's only one of the homebuilder stocks today that's upset. What's happening? Yeah, it's all of them, Scott. Look, this is all about interest rates, plain and simple. We got the Freddie Mac weekly number for mortgage rates midday. And even though that's an average of the past week, the builder stocks moved on it. Then the Treasury yields moved higher this afternoon after the 30-year auction. So the 30-year fix is now at 7.65% on Mortgage News Daily.

That's down a little tiny bit from last week, but still up significantly in the past month. And so, as you said, you see Lennar, Pulte, D.R. Horton, basically all the builders, all down on the day and on the month as well. I'll also add that the sellers, Redfin, Compass and Zillow Group, also down because the housing market is essentially frozen even before winter hits. I was in an open house over the weekend and the real estate agent said nothing is working the way it's supposed to. And Redfin this morning also put our report saying its demand index is down, but supply is actually increasing at an unusual seasonal time. So you're getting more supply in October, just as we're going into kind of the dead season for housing, which is December and January.

All right, Diana, thank you, Diana. Look, you know, Mike, it's one of these days where it's sort of when in doubt, buy tech. If not for tech, this day would look a little messier than it does because you've got NVIDIA is green, Apple's green, Amazon's green. You see Broadcom today up three and a half percent. One of the top contributors to the S&P. Some optimism about the VMware deal getting done. So at least you do have some green on the board, and that's helping the market picture look maybe a little bit better

than, as you said at the outset, underneath the surface it actually is today. Well, quite a bit better. The equal weighted S&P is down 1.25%, so it's down twice as much percentage-wise as the headline is. The question is whether you can bank on that relationship just continuing to spiral higher, meaning the mega cap outperformance over the headline is. The question is whether you can bank on that relationship just continuing to spiral higher, meaning the mega cap outperformance over the average stock. You are right now above the former highs

from 2020 and late 2021 in terms of NASDAQ 100 relative to the average large cap stock. Now, could we go higher? Sure. At the beginning of the crash in 2000, we were like three or four times higher on a relative basis. So you can get wild. But I think it's a much healthier market if it backs and fills and you have some catch-up by the cyclical areas of the market.

The stuff that started to work. And it's happened both ways. It's not as if it has to necessarily break a certain direction. But you're right. The rotational action has insulated the index from worse wear and tear. It's kept what we've been going through since July into the routine zone, right? An 8% peak to trough decline on cue, again, during October, basically. We start to get the bounce.

We'll see if it can still continue to work together according to script. Still have a belief in many circles that as long as tech earnings hold up and as long as those stocks hold up, you're good. You can get a late year burst. That's not going to please everybody because of all the reasons you said, right? It's like, well, the rest of the market's weak. Sure. I mean, you play the scorecard you have. No, that is true. And if you're an index investor, if you're using that to benchmark what's going on in the market, and of course right now it's much more relevant than it ever was before because so many people do essentially just passively own the index. It is a measure of the amount of wealth that's being added or subtracted from the financial system, right?

It's not just an abstract number on a screen. That said, I don't know that that is going to be a formula for things staying, you know, very happy. The math can work that way, but it's still only 25% of the market cap of the S&P 500 in those stocks. All right, so we'll finish, Red. We know that. We'll see what happens in the morning.

I do want to mention before you hear the bell that the Members Handicapped Children's Fund is going to be on the podium today. They're having a big party here tonight. They do incredible work in the fundraising that they do. So just keep that in your mind as you see them clapping and the bell's going to ring. And again, we're going to go out red, but we'll see what tomorrow brings. I'll see you then.

Does it for us. Into OT with John Port.