Closing Bell - Closing Bell: Case for Cyclicals & Small-Caps, Election Uncertainty, Netflix Earnings 10/18/24

Episode Date: October 18, 2024

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

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. On this Friday, this make or break hour begins with the hunt for 5,900. Stocks are streaking six weeks in a row now. We'll ask our experts over this final stretch how high they can go as more earnings and, of course, the election loom large. In the meantime, the scorecard with 60 minutes to go in regulation. I said we're streaking towards 5,900 on the S&P. We might not get there today, but nonetheless, it's been a pretty good session today. We're up about one half of 1%.

Tech and Com Services leading the NASDAQ to the top of the heap today in terms of the major averages, as we just showed you. Netflix, a big winner, too, after its earnings report. That stock surging all day. It's at the highs of the session as we begin the final hour, up 11%. A good day for the mega caps, too. Apple and Nvidia both posting nice gains today. Small caps, they've led the week, but the Russell, well, it's giving a little bit back today, albeit just a little. It does take us to our talk of the tape, the remarkable run

for stocks. Let's welcome our panel. Adam Parker, Trivariate's founder and CEO, also a CNBC contributor. Ellen Zentner is with Morgan Stanley Wealth Management. Both, as you see, are here at Post 9. Welcome back. Great to be here. Good to have everybody here. I think the thing that stuck out to me, Elle, about your notes today is you suggest the stock market is extraordinarily overbought. Yeah.

Well, I think when you think about where earnings expectations are, let's say we end the year at 240 and the market's looking for 280 at the end of next year. I mean, is that really achievable? And when you look at, you know, volatility versus equity risk premium and sort of what's going to happen after the election and the uncertainty there, it just feels like expectations are a bit too lofty. You know, Adam, you sit back and you're like, OK, economy's good. Labor market's all right. Retail sales tell you the consumer's still hanging in there. Earnings are good. And I'm going to get rate cuts on top of that ice cream.

Well, that's a sundae that looks pretty tasty. Yeah. Is that correct? Yeah. I mean, first of all, I love being with Ellen. We sat next to each other for years. My favorite economist of all time. So it's great to be here in person. Look, let's... Glad we could make this reunion. Yeah, it's lovely. It's wonderful. You want to talk to markets? You want to reminisce about the old days? Listen, you got to take... It's a human

world we're in. Okay. All right. In terms of like the bull case, let's get frothed up for a minute. Let's, like, say we're 15% higher in a year. What happened? Yeah, I think the Fed just started cutting, and we're probably not halfway there. I mean, Ellen's definitely the expert on that, but I don't think we're halfway done yet. So it would be early to fade that. Maybe they flash a little more to you on China stimulus, and you could argue about whether it matters or not, but the market probably likes it if they give you more optimism there.

I think for most companies, the average company gross margins can still go up. I mean, we're going to really stare at that in the next two weeks during earnings season, but I don't think input costs are rising. So I got the Fed cutting, I got China stimulating, I got gross margins going up. I think we have a positive skew on what we're going to get out of, you know, AI. If you look at, obviously, NVIDIA comes in town and tells everyone it's fine and ASML missed

because it's Samsung but then Taiwan sent me and said it's fine. Again, you get, but I think ultimately you're going to get

some real companies telling you they're benefiting on the cost side from AI and that's a big leg up if we get that. We're going to run at a huge deficit

no matter who wins and it looks to me so far like when we run at a big deficit, some of that money makes it to the biggest 20 US equityS. equity.

So, like, there is a frothy cocktail that could get us much higher. I think Ellen's right. Probably the numbers are a little too high for next year. But as long as people don't get a growth scare on that path and you dream they're higher in 26 than 25 and that whole thing, you could end up with a 7,000 number without it being that big of a problem in six months or nine months or whatever. I mean, it's not in the distribution of outcomes. It's possible. At least a growth scare could be on the horizon.

I mean, there is this really big uncertainty around the election out there. Oh, for sure. And, you know, you get an outcome that takes quite some time. If you get some civil unrest that comes with the outcomes, right? We're just now seeing companies start to really show concerns over how trade could pan out. You've got households are not going to go out to eat. They're not going to consume services if there is uncertainty and unrest in the economy. So you could at least have some near-term hiccups here. And that's where the fundamentals are.

Yeah, I was going bull case, not base case. But I was saying you could get a frothy bull case like ours. I'm not saying that. No, but yours sounded like a base case. Thank you. I'm a complete communicator. But what was so bull case? Well, I mean.

Did you just state the obvious of what actually the environment is? I think there's some, the bigger controversies from PMs are like, will we get return on the hyperscale investments? And not everyone thinks that we're going to get the AI proof points. I'm not sure everyone agrees that China will be, like, stimulated if it matters. You know, I think the election is an uncertainty. I don't know what the answer is going to be. But, yeah, I think the base case is the economy slowing a little bit, but not enough to freak people out. Most people took their recession probabilities down.

I mean, I don't know, Atlanta Fed GDP is like a three, four. Yeah. Yeah. So right. There's no discernible slowing in the economy. And with the Fed starting at 50 basis points, I think the soft landing scenario has an even greater probability. I wouldn't even talk about putting a probability on recession. I would put a probability on soft landing just because that's the more optimistic take of it, right? The probability of a soft landing is very, very high. The market's going higher is the base case. I think the big upside, which could happen, like, you want to get crazy? Like, maybe, you know, Ellen and I wrote a note together. I don't remember if it was 2013 or not.

If you didn't bring it up, I was going to. It was 2014. But we wrote a note in 2014 saying, hey, what's going to happen? You know, you're 2020 or 3000 in the S&P. People thought it was crazy bullish when we wrote it together at the time. And I kind of feel like it's the same a little bit scenario now of like, what do we get, 2030 or 10,000? You know, when we hit 3000, it was December of 2019. It was one month earlier than you predicted, Adam. What is wrong? You know, I love that. Are we going to hang more up? No, but I'm saying if we get bullish, like, are you going to tell me we couldn't grow earnings? So we're sitting here at the end of the decade looking at 450 or 500 earnings. Of course, you're going to pay more than 20 times for that because this is a real business.

And that's how you get the market going up at the rate it has for a long time. I thought there was an interesting investor note that went out this week from Daniel Loeb of Third Point. I want to bring up some of the points that he made within his most recent quarterly letter to his investors in which he tries to game out the result of the election and what the investing environment might look like. Quote, we believe the likelihood of a Republican victory in the White House has increased, which would have a positive impact on certain sectors and the market overall. We see no evidence of recession. We believe healthy consumer spending and active levels of individual investing

should provide a liquidity backdrop to sustain market levels. We think this setup is a particularly good one for event-driven investing. Ellen, what's your reaction to the words of Daniel Loeb, who's one of the most successful hedge fund managers around? Yeah, and I think it's a great conclusion. I think one thing to bear in mind, though, is that with the perceived odds of a Trump win going up, that's why we've seen business concern over trade policy really rise alongside that. And you look at what happened in 2019 as a good guide, right? Global economy, what looked like it was going down the tubes because of the U.S.-China trade

tensions. We had not yet signed the phase one deal. ISMs were through the floor, looked like a global recession was approaching. The dollar was weakening because or sorry, strengthening because everybody goes into safe dollar dollar backed assets and banks don't lend in uncertain trade times. Right. And so they can't support trade during that time as well. And so I think we've really seen business concern over the trade aspect rising on the possibility of a Trump win. Well, what happens if Harris wins or what happens if Harris wins but Congress is split? I mean, the market has to game both of those scenarios out. Some are almost acting like it's a foregone conclusion of what the result will be. But if we've learned our lesson on anything over the last couple of cycles, you just don't

know until you know. Yeah, I don't know who's going to win. I don't know what will happen if they win. I think it's hard to know. I'll never forget the 2016 Trump victory. We were in the office and markets tanking. And in the middle of the night, it just, you know, reverses and rips higher. And so I think it's somewhat hard to know.

I think the consensus view is it's not good for health care services. It's probably not, probably causes some shortages that help the energy complex. I mean, there's some trades that people will make on it is a knee-jerk reaction i think the reason why the republicans we probably would have to think i saw was at the highest it's been forty forty one percent it that that could be a case for small-cast the perception will be

uh... you know better for companies at the highest statutory taxes uh... probably uh... you know you know less regulation so they'll be a knee-jerk trade uh... i think that happens if you get a Republican sweep. But in terms of gaming the probabilities, it looks like, you know, you have some split is higher probability than not still. And so you'd probably want to, you know, take that as your base case. Let me ask you this, and, Eleanor, I guess I'll come to you first.

Apollo's Torsten Schlott put out a note today, the gist of which was low returns are expected in the S&P of 500 over the years ahead. He says, quote, the current forward P.E. ratio at almost 22 implies a 3 percent annualized return over the coming three years. In other words, when stocks are overvalued like they are today, investors should expect lower future returns. Do you agree with that statement? Yeah, I mean, that's it's a standard relationship, right? A historical relationship. And I think that that we have to couch it as that's that's all it is. Right. It's sort of stating what we know normally happens. How do we know what normally happens is going to happen going forward because we don't know the election outcome? It's

just this big uncertainty out there with with four different scenarios that can have very different policy outcomes. I get asked most often by investors, does the Fed have a role to play here? I think it's very lucky that we are already in a cutting cycle going into the election. The role the Fed has is they have a domestic directive. So if anything coming out of the election or anything, right, impacts the domestic outlook for the economy, they're already in a cutting cycle. They can speed up. They can alleviate some of the pressures on the outlook by cutting more. And then that's going to maybe offset some of the financial conditions that will be more difficult for the S&P to face. What if I don't agree with that? What if I don't agree with the Torsten Stockton? I don't agree with that.

OK, tell me. Tell me. That's too negative. I mean, when have we had three Slag thing. I don't agree with that. Okay, tell me why. I think that's too negative. I mean, when have we had three years in a row where the market was only at 3% per year? I agree with Ellen. There's some classic relationship between it's like an equities premium that people make, but it just doesn't pan out in the short term. I think that's way too negative, and I think when you run money, if you really like running a long-winded fund and you position that way, you get fired.

Maybe this is always the issue that issue right with an economist in torson slock has been a good colleague as a chief economist for a long time maybe that's the issue when you let economists opine on markets maybe regretting everything is there a little bit said he's not for the people who's his money as an economist but if he's running money is positioned for three percent in he's really underweight equities were a versus other stuff then gets fired. I mean, he's a very accomplished economist. I know.

He's famous. He's way more famous than I am. This is not a segment about... No, I'm just saying... This is about a note that he put out. He's not alone. There's a lot of people who have been saying that for a long time. So saying 22 times forward is bad for equities.

You could have made that argument a lot in the last few years and the market's ripped in your face. So eventually it would be right, but I think it's all about timing. That's what the investment's about. Why would that be today? Why would we go lower in the last few years and the market's ripped in your face. So like eventually it'd be right, but I think it's all about timing. That's what the investment's on. Why would that be today? Why would we go lower? My comment on this part of the note is what if stocks are not so overvalued as some would like to believe they are? I don't think they are because the big difference between now and history is the gross margins are way higher. And there's another very strong relationship, which is multiples and gross margins.

You just have way more highly profitable business. So the problem with Shiller PE and CAPE and those kind of analyses is they're predicated on businesses that have high capital intensity. In the 80s, eight of the biggest 10 companies in the market were energy. So, yeah, they were mean reverting cyclical businesses with lower margins. We don't have that now. You've got great companies that are higher margins. So I don't think we're going to mean revert back to 15 times or whatever the long-term average is. I think that's- Well, productivity is going to be the key, right? Going forward.

Right. So productivity is going to be the key going forward that gets us to the bull case on the S&P. If you have sustained productivity gains, those are your gross margins. That drives profits. You've already got the labor share of corporate income that's moderated now. And so productivity, which is already very high. And so what policies come out on the other side of the election that further juice productivity, that's going to be important. Is Fed risk somewhat off the table? I mean, the economy is good enough where even if they, let's just say they went once instead of twice for the rest of this year. And if that once was 25, whereas once we thought, okay, they went 50, so maybe they'll go another 50, but at minimum they'll go twice. I think we can say that the neutral rate is probably higher than they thought it originally was.

Yeah. Right? Well, they definitely believe that. The economy is performing well enough. The evidence is the proof is in the pudding. Yeah. Right? So what happens if they only go once instead of twice?

Does it matter? For the rest of the year? For the rest of this year. I mean, as an economist and its impact on the economy, I would say no. I think it would be detrimental to market sentiment. Oh, you do? I think with the Fed having, they're very clear that there is ample room to cut. Now the data, we've had a strong string of data here. So there will be

more voices on the Fed at the November meeting. They're going to push back against delivering a cut at that meeting. But I think Chair Powell is locked in on a deliberate string of 25s while they still believe there's ample room to cut. Where they stop, you know, the market's pricing in between three and a quarter and three and a half percent. That looks fairly, you know, fair value, I would say, based on my own expectation. Could they stop somewhere above that, front load some cuts and stop earlier? Absolutely. I mean, it's sort of a guessing game. I know it's terrible to say, but it's a guessing game. A lot of stuff has been a guessing game. But why would it be bad for market sentiment?

Like, why wouldn't 3-4 Atlanta GDP and retail sales number be more important at this point in the game than 225s? You know what I mean? Take some numbers versus others for what seems more important in the near term tactically for stock investors. Yeah, I mean, the geeky answer to the question is we evaluate the statistical relationship between Fed fund futures and the multiples for stocks, and it oscillates. And at the current moment, I agree with Alan. I think we probably would get a really short-term negative reaction if they appear to be pumping the brakes.

But more broadly, and we talked about this a lot years ago, there's a big difference between the economy and the biggest 100 US equities. All I need to get excited on the productivity front is one real company, Walmart, McKesson. McKesson comes out and says, we're doing a better job of predicting our customer behavior. And we would have hired people in the past, and we're not anymore. And it's like a real proof case from a big revenue company that they're getting productivity. And we get like a real proof case from a big revenue company that they're getting productivity and we get like a giant leg up on all the AI complex again. And I think that's skewed to the positive that that happens in the next couple quarters. Let me do this. Let me get to one other item.

And then I want to come back and get your reactions to that, too, because I want to go to Steve Kovach now for more on Apple's move today because it's on a positive, I guess, sentiment about the iPhone over in China. Do you have whiplash yet, Scott? Because I keep feeling like we just get these alternative viewpoints on what iPhone demand looks like. Let me give you what's going on today, though. Counterpoint Research out with a report saying iPhone sales are up 20 percent year on year for the in China for the first few weeks of the iPhone 16 cycle. And that growth was especially coming from those expensive iPhone 16 pro. And that growth was especially coming from

those expensive iPhone 16 Pro models. Of course, I don't have to tell you guys, China is Apple's second most important market outside of the United States and accounts for nearly a fifth of Apple's total sales. Apple's China business has been pretty crummy coming out of COVID as that economy has been slower to recover than in the West. and the iPhone 15 cycle underperformed in China, at least until now. I will note, though, CounterPoint has been a little wrong before on China's sales for iPhones. In April, they warned that iPhone sales had dropped 19% in the first three months of the year. They did drop, but it wasn't quite that dramatic. Overall revenue in China that quarter were actually down 8% for the period.

Now, this all comes as we kind of play the guessing game for iPhone 16 demand. Overall demand lately has been based on those shipping times for online iPhone 16 orders, and they appear to be muted so far, at least compared to the iPhone 15. And we're still waiting to see how the Apple intelligence launch coming in a software update by the end of this month, within two weeks weeks impacts that demand. Stay tuned, guys, because we're going to get some fresh color from Apple. Finally, when it reports earnings in less than two weeks, that's happening on October 31st. Scott. All right. Appreciate you, Steve Kovac. Thank you very much.

So last point to discuss. Let's use Apple as the jump off point to have the conversation about large cap growth, which you say that you've taken profits on, right? You've taken profits on large cap growth and increased exposure to large cap value. Why? Yeah. And the Global Investment Committee. Well, it's to neutralize and diffuse the portfolio, right? And so going from large cap growth to mid cap growth, large cap growth to large cap value, some of these things to neutralize positions and sort of be a bit more protected going into the the election and just to take profits where we can, where there's been extreme run ups. I see of your notes of your six growth themes of semis and software, those are the ones related to this part of the conversation. I don't see hardware. I don't see Apple. I see NVIDIA and I see Microsoft and I see names like that, but I don't see Apple. Well, I mean, Apple's

definitely an AI company. They may not use that phrase in their earnings called transcript, but their data well certainly means, I don't know, make up a number a trillion of their values associated with that um so you want exposure i mean you know i think ellen's comment i guess i would only caveat this by saying like look the large cap value universe is not as big as a large cap growth universe so just because you're selling a little large cap growth or large cap value you could still own five times as much large cap growth as value overall so it could be prudent risk management to do what she's saying and sell a little large-cap growth and add a little value.

But when you think large-cap value, what are we talking about? Like big banks and industrials like Caterpillar? What are we talking about? Yeah, actually the banks now, a lot of them are so expensive that they're kind of in that middle ground between value and growth. I mean, I don't think J.P. Morgan is considered a value stock. You know what I mean? So maybe Citi or Bank of America, maybe on that.

But most of the big financials now have traded meaningful premiums to tangible. Yeah, there's some utilities, some REITs, some pharma. It's hard to find, though. I mean, because financials and industrials have been trading at high. I like growth. You know my view. You have to own the biggest U.S. growth companies. They're growing faster than average. Their margins are expanding, and they have moats. And so I have to own the biggest U.S. growth companies. They're growing faster than average.

Their margins are expanding, and they have moats. And so I want to own the big names. And the Apple thing to me is funny, right? Because it's like, what am I comping over? A year ago, sales were bad. So yeah, they're going to be up year over year. Why would I? You know, it's funny.

You get the tech guys on, not Steve, but I figured it was a couple months ago, and they were saying, oh, this new Apple isn't good. Google's had the same thing years ago. And it's like, that does not matter, right? I'm not switching to Google from my Apple phone. So the question is only, when will I upgrade my existing Apple phone? And if there's enough stuff coming out, they get an upgrade cycle. So who wants a short Apple into an upgrade cycle?

That's another thing you get fired over. Yeah, the economist in me thinks about, you know. If you like your job, China, China stimulus, right? Geared toward some consumer consumer stimulus. You you're stabilizing the property market. You know, there's got to be a reason why it's the most expensive iPhone that's outperforming in China. And I look back to, you know, stimulus that we've done in the past, October 2001, when we sent checks to every household. And still in October 2001, that is the biggest jump in auto sales that we've ever experienced in any given month throughout history. That month,

because everyone took that check and went straight to buy a car. So is there something about the stimulus that China's put in that has increased financial expectations among wealthy households in China and they run out and get that phone? They made 40 percent of the market in one month and now they can afford the new iPhone. Right. Exactly. All right. We're going to leave it there. All right. You guys can collaborate on another note anytime. Good to see everyone. All right. And you can certainly come back and collaborate on a conversation on this. Done. Thank you. Because I enjoyed it very much. Ellen, thank you.

Adam, we'll talk to you soon. To Pippa Stevens now for a look at the biggest names moving into this Friday close. Hi, Pippa. Hey, Scott. Well, CVS is dropping after the company ousted CEO Karen Lynch, replacing her with longtime executive David Joyner. Effective yesterday, it comes as the company has struggled to see higher profits with the stock price suffering. CVS also gave Q3 guidance that was short of estimates and withdrew its full-year forecast. And American Express is

the biggest decliner in the Dow. After reporting weaker-than-expected revenue, Amex did beat on earnings and raised its forecast, helped by growth in loan volumes and card member spending. But it wasn't enough for investors, and those shares are down three percent. Scott. All right. Thank you, Pippa Stevens. We're just getting started. Up next, Cantor's Eric Johnston's back. He's flagging a part of the market he says can run over the next couple of months. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. All right. Welcome back. All three major averages heading for their sixth straight positive week. My next guest says while he believes stocks will hold on into year end, they will prove to be a poor investment in the medium term. Joining me now, Post 9, Eric Johnston of Cantor Fitzgerald.

Welcome back. Scott, how are you? It's been a minute since we've discussed these markets. That's right. Part of your call today, and let's begin there, okay? You are positive on the S&P 500, I mean on the Russell 2000. You're very bullish on small cap equities for the next two months. You say you turned positive on Monday morning. They are leading this week. Why so? Why now? So there's a bunch of reasons. So first around the election, although the market is certainly becoming more optimistic on a Trump win, I think very little of it is being priced into small cap. So when you think about a potential Trump win and investors are going to look at what to buy, I think domestic companies are going to be where people want to go based on lower taxes.

Beneficiaries of deregulation also would be domestic companies and those that have most leverage to a upswing in the economy. The second thing is around, as people look to 2025, the expected growth rate for small cap is right now 32 percent. Now, we don't think they're going to grow 32 percent, to be fair, in 2025. But that's the current estimate. And I think as people look to 2025 about where they might get growth, I think small cap is going to screen very well. Around coming back to the election, no matter what happens, there's going to be more certainty post the election, no matter who wins. And I think people are going to look at it as a lower risk environment. And in a lower risk environment, I think investors are going to be willing to take more risk in terms of the stocks they own. Okay. You've had a love-hate relationship.

Yes. I think it's fair to say with the Russell 2000. In mid-July, you made a bullish call on small caps, okay, on the view that rate cuts were going to be the thing that was going to get the index going, which really didn't work that well. You didn't like them in mid-August. You said they're poor. Their fundamentals are poor and the valuation was high. In mid-September, you continue to be negative on the Russell 2000. Yes. So I'm trying to figure why the change of heart now, if you love them in July, because the Fed was going to be cutting rates and the fundamentals of the economy at that point were good. Where's I feel like there's a disconnect here, like you're liking them now because now you're suggesting that Trump wins going to be good.

But before we liked them because rate cuts were going to be good. Yes. So we've been negative on small cap for a couple of years on that view. Small caps today are the same price they were three years ago. They've gone nowhere because earnings estimates have been in decline. And Russell 2000 today, as I'm making this bullish call, are expensive. They're not cheap. They are not cheap. And their fundamentals over the past couple of years have been very poor. Earnings estimates for the S&P 500, they've been going sideways this year. Estimates for the Russell 2000 have been going down. But I think what's going to happen is as people get more bullish in the short term on the economy, they're going to look at what has the most leverage.

Is it the mega caps, most leverage to a sort of risk on positive economic environment? Or is it going to be the stocks that have not been performing well and have more financial leverage and more cyclicality in it, in industrials and financials that benefit from deregulation? And those are the ones that are going to be benefits. So that's why we're making this switch. And it's been obviously a good call to be negative and cautious on small cap for the last couple of years. Okay. Let's talk about the markets overall, because in thinking about sort of the kind of conversation that I thought we would have and one that I wanted to have, I'm trying to understand more fully why you've continued to lean so heavily against what has undoubtedly been and to some obviously been

a bull market, right? We just had the two-year anniversary of that. But I can go back through so many of our conversations or conversations you've had with others on our network, whether it's in April. S&P 500 will prove to be a bad investment with poor two- to three-year returns. We're up 23% year- date. July, equities are capped. August, equities will be in a downtrend. September, downside risk for equities here are very high. What has led you to be so consistently negative and not be able to bring yourself around to the fact that we're in a bull market, whether you like it or not? So I think right now the backdrop is, you know, the consensus is central banks are cutting. The economy is strong. Earnings growth next year is going to be 14%.

What a great environment. I get that. Why have we been cautious? And we've made a lot of calls to our clients this year, bullish and bearish on both single stock sectors and the overall market. No, I know. But we clearly have been overall cautious on the market, negative on the broad market for sure. Why? The market right now is trading at 24 times this year's earnings and 22 times forward earnings and has the highest capitalization GDP ratio ever. Now, you could argue that things were expensive six months ago, right? You have to realize that in the last, we've only seen these multiples one other time, and that was during the

dot-com bubble. Those that were buying in 98 and 99, right, look like heroes for a year, two years. They ultimately saw very poor returns over the course of the next three, four, five years. And so when you're buying multiples that are the second highest in the last 150 years, that is a very risky proposition, especially when you're at full employment. And so, yes, things can last longer. Did I expect the multiple on the S&P to go to 22 times? No. And I would say most people who modeled things out a year ago, a year and a half ago, did they think it was going to go to 22 times? No. And I would say most people who modeled things out a year ago,

a year and a half ago, did they think it was going to go to 22 times earnings? No. Well, because you thought the economy was going to roll over and it hasn't. Let's be clear. Correct. Absolutely. The economy has been- Nor have earnings. Yes. The economy has been incredibly resilient. We've had $2 trillion fiscal deficit, which has been big fuel. We've had an AI investment boom, which has been big fuel. We've had an AI investment boom, which has been big fuel. And that has offset the Fed going from 0% to 5.5% and doing QT. Did you just not think that that was going to happen, that those other forces would be as

powerful as they've proven to be? Yeah. And so one of the reasons why we have not been aggressively negative this year is because, yes, we realized the deficit was going to continue at $2 trillion. And by the way, probably growing. But I mean, I read you. You've been aggressively negative. What do you mean? You've been aggressively negative. You said in April that S&P was going to be a bad investment, in July that equities are capped, that in August they're in a downtrend, and then in September downside risk is very high. Yes. So a bad investment, I think, as I said in the notes this morning, I think over time in the medium term, and I still believe this, equities are

going to prove a poor investment because you mentioned the Torsten Slocke from this morning. Ultimately, if you look over the long term, when you buy multiples at this level, you may win for a year, right? In 97, 98, you won for two and a half years. And then it ultimately proved to be a bad investment. And I think that that's going to be the case, again, especially when we're already at full employment. And, again, we have a – so that leaves less room for sort of that move up. But between now and year end, as an example, I think the economy is going to hold in.

And so I think stocks are going to be, overall stocks are going to be fine. I think the Russell 2000 is going to rally. We'll leave it there. Yeah. I appreciate you coming back and having this conversation with me. Absolutely.

I'm trying to square up some things that we've discussed over the last year, 18 months or so. That's Eric Johnson. Thank you. Thank you. Up next, it's our technician, Ryan Dietrich. He's back with us.

He'll tell us if history is any indication there could be more strength ahead for stocks. The counter view, if you will. Just after the break. We're back on the bell after this. Welcome back to Bull Market. Starting off its third year strong, the S&P 500 trying for a record close today. Our next guest says history is on the side of the bulls in the months ahead. It's bringing Carson Group chief market strategist Ryan Dietrich. Welcome back. I think. Thank you for having me. I feel like you're in the consensus, obviously, now

who among people who look at these markets and say economy good consumers hanging in and you put rate cuts on top of that. Maybe you have animal spirits and M&A. I don't know how the election is going to come out, but, you know, as long as there's some level of gridlock, market will be all right. What do you say to that? You're right there. You know, 18 months ago when we laid out the bullish case and no recession case, I think people thought we were crazy. They've come around a little bit. But, you know, I think it's really interesting here because I love the discussion you just had. You pointed out previous guests.

You know, this is a bull market, okay? Now we're in the third year of a bull market. My friend Sam Stovall said it like this. He said, once you get to 65 years old, the odds of getting to 85 are really, really high. Bull markets work that way, Scott. Going back 50 years, there's five other bull markets that made it into their third year like this one is right now. The worst any of them went was another three years, a five-year total. The average was eight years. So listen, I'm not saying we got another six years of a bull market, but what we're saying is it's an economy that keeps surprising the upside. The likelihood that this bull market

is alive and well, still has a good amount of time left to it. That is kind of how we see things playing out here. Are stocks for where they are in this bull market, though, too expensive today? And then that's going to stunt their growth in the future, as some are suggesting? Yeah, some parts of the market. You like that answer there? Because again, I've come over all year saying small and mid caps are really cheap. Financials, industrials, kind of just right where you want them. They're not too expensive. Yes, large cap tech is still the pricey part. We're more neutral that group. So maybe money sloshes around from that point of view.

But even then, you know, the mid to late 90s, of course, that's the period we all look at. Valuations are nowhere near what we saw back then. And the other thing about this is when do markets usually peak? When there's over-the-top optimism. Look at the continued consumer confidence. Look at small business confidence. Even PE multiples. Yes, I know they're higher than we all prefer them to be probably, but they can go a good deal higher.

So we're not ignoring that. But that's, again, why we're more overweight. Those cyclical areas, industrials, financials, mid-caps is actually our largest overweight. And then, yes, we do have a slight overweight to small caps because those are parts of the market that are not extremely pricey but i mean industrials and financials both of those sectors have been trading it at record highs so they've already run a lot what do you mean they are they've been they've been up a lot already why is there still value there then well because earnings are coming in strong, I think is the short answer there, right? What do we see with this earnings season so far?

It's been strong. But you're right. We've been overweight those two groups like all year. But we're still there because the earnings are still strong. So earnings are justifying, we think in a lot of ways, the valuations that we're seeing on those particular areas. And I'm an old school John Murphy guy, right? Message of the market.

I just know how those financials, those big six financial stocks reacted to earnings last Friday and Monday, right? Up almost 6% on average those two days. They said something the market clearly liked. And we know the underlying economy continues to be strong. I mean, retail sales yesterday, yes, but I love looking at the control group, way better than expected, one of the strongest numbers we've seen in a while. So the consumer is not going anywhere, not perfect. There are cracks. We're aware of that. But still, that's a positive thing, we think, for those financials and industrials. Even if they're a tad pricey, there's still a good deal to go and earnings are still strong there. Why are you neutral on tech? Because I could hear you saying almost the same thing. Yeah, even though they're pricey, though, there's still a good long way to go

because, you know, there's earnings and those are going to be good, et cetera. You know where I'm getting at. Oh, yeah. No, you're right. It was a tough interview. I like that question there. But listen, we've been bullish. I know you're right. You say we were right last year as we were bullish. We were more neutral tech because that didn't play out as well as we would have preferred. But again, we've still got a decent amount in tech. But we look at those PE multiples and they are really, really pricey. You talk about AI, there's incredible things happening with AI. I'm not saying it's like another late 90s tech bubble here because there are actual earnings coming in. But when we look at those valuations, Scott, we just think tech is a tad pricey and that can still be market weight. You can still have some

winners in those groups. But again, when you have historic, you know, let's look at small relative to large cap, OK? Ninety-nin nine percentile valuations right now for small cap relative to large. You look at large cap tech, it's even more so. It's just historically those are some pricey areas. And we've said it for a while. And it's not like tech's doing terribly. I mean, tech's still doing pretty good, I'm aware. But we just think the other area is going to do a tad better here. All right, we'll leave it there and we shall see. Ryan, thanks for the time. Thank you. Good weekend to you. Ryan Dietrich up next. Gold crossing a key level for the first time today. We drill down on that move when we come back on the bell. Gold crossing a critical level for the first time today. Seema Modi is here with that. Hi, Seema.

Hey, Scott, breaking above twenty seven hundred dollars an ounce. We're now seeing big gold has now seen its biggest inflow in 12 weeks. That's according to data tracked by B of A that points to three major catalysts behind the gold rally, expectations of further rate cuts, geopolitics, they're referring to the tensions in the Middle East, and China's stimulus. Now, the move in bonds also playing a role. Ned Davis Research says gold's uptrend has coincided with a downtrend in the one-year momentum of the expected 10-year real treasury yield. Gold outperforming stocks this week, again, above 2,700, a new record high. City analysts see it going to 3,000 in the next year, Scott.

Seema, thank you. Seema Modi. Still ahead, shares of Lamb Weston are jumping after one activist investor discloses a stake in the French fry maker. We'll break down the details coming up. I'll be right back. All right, coming up next, a big pop in Peloton shares today. We'll tell you what's behind those big gains when we take you inside the market zone next. All right, we're now in the closing bell market zone. Brandon Gomez shares what's behind the rally in Peloton today, plus activist activity in the Frozen Isle. Leslie Bicker has those details. And Point Wealth Capital's Sandra Cho breaks down these crucial final moments of the trading week. Brandon, to you first. Talk to me about Peloton today.

Yeah, Scott, look, Peloton up 10% today. Shares are up as much as 14% earlier this morning, giving back some of that spike this afternoon, though. Still on pace for their third day of gains in a row. I would note, too, some unusual volume activity. Look, over 27 million shares traded thus far today, well above the 30-day average of 11.3 million. Short interest, too, stands out at an elevated 19.5% of float. Look, no one specific catalyst here.

I've been talking to some analysts. The company did announce its earnings release for October 31st and fundamentals have been improving. We'll expect updates on the CEO search and if the company's refinancing plan is still playing out as expected. It's been a real turnaround for the company since former CEO Barry McCarthy stepped down from his role. You can see shares here up 80 percent since May, Scott. All right, Brandon, I appreciate that. Thank you very much. Speaking of catalysts, Leslie Picker, I think we have one on Lamb Weston, don't we? We do have a catalyst here. Shares up by about 10 percent. Those shares are on fire today of the French fry maker. The activist investor Jonna Partners filing a 13D, disclosing a 5 percent stake in the filing, Janna says it intends to have discussions with the board and management about the, quote, litany of self-inflicted missteps that have led to underperformance for shareholders.

Janna says among the options to be discussed are a review of strategic alternatives, often activist code for a sale or other types of capital reallocation. The investor also says it plans to push for discussions on share repurchase strategy and, quote, core operating deficiencies. Janna declining to comment outside the filing when reached by CNBC. Lam Weston saying in a statement, quote, we are aware of the 13D filings from Janna Partners and Continental Grain. We regularly engage with our shareholders to better understand and consider their views and will continue to do so, Scott. All right, Leslie, thank you. That's Leslie Picker. All right. Now let's welcome in Sandra Cho for a look at the market. So we're heading towards a Dow record close. We've been on a remarkable run. Sandra, 5900 looks within reach on the S&P. What's your view? So our view is that by year end, the S&P 500 will reach approximately 6,000. We're in the soft landing camp.

We definitely feel like the Fed has done a pretty good job at, you know, I mean, there's been a couple of hiccups, but has done a pretty good job as far as, you know, factoring in inflation and really managing what's going on, especially with the geopolitical events happening. Where do I want to be then within this market? I feel like there's a good debate, some calling it an everything rally because so many different sectors, every sector is up on the year. Some are up more than 25 of the sectors within the S&P are up more than 20 plus percent year to date. I've gotten a really good run out of financials and industrials and everybody

knows about tech and utilities. But what is that? How does that inform me on where I want to go now? Yes. So definitely some sectors, you know, are pretty hefty and kind of overvalued or fair valued, but there's still some room for certain other sectors. You mentioned industrials. We're still fairly bullish on industrials and the other cyclical sector, energy. So energy is taking a little bit of a hit, we can see. But the valuations we still feel are pretty low. We know that AI is not going to be going away and we know that energy is going to be feeding that AI. So we do like energy. We still like industrials. And then with fixed income, I'm actually, you know, more concerned about fixed income

as far as valuations in some ways, because the areas there look pretty lofty. There's only one area, MBS, mortgage-backed securities, that look like they have more upside. You know, we still like munis, but we think they're fair value right now. But taxes, we feel, are going to continue to go up no matter who gets elected in November. What about tech? A couple of weeks away from big earnings from that big group. But how do you see that now? Yes, I mean, right now, depending on what you're looking at, if you're looking at the max seven, you know, we think that it's going to be hard to know, hard to really kind of, you know, beat the estimates as far as, you know, continue that

kind of same trajectory of growth. We see that leveling off and we definitely see some, you know, potential volatility there. But, you know, remember there's 493 other names in the S&P 500 that haven't gone up as much. And so we feel that, you know, certain sectors are going to continue. There's a rotation right now that we see in small cap and value. And we do think that's going to continue. I've got less than about a minute or so left. Point Wealth Capital Management. How are you thinking about the traditional portfolio versus something that looks a little bit different than 60-40? We started our week talking about alternatives on this program. So let's end it.

Are you looking for better opportunities beyond just stocks and bonds? Absolutely. So we don't think the 60-40 portfolio is going to go anywhere. But let's face it, if you spread out your wings farther, you're going to have that much more protection. So, you know, hedging your bets with some liquid alternatives as well as some other alternatives like structured notes, for example. We are definitely overweight there. We are hedging our bets both with fixed income and with equities using those alternatives.

All right. We'll talk to you soon. Sandra, thanks. Good weekend to you. All of our viewers, too, because we're going to go out and bells are going to start ringing here. And it's going to ring in another closing high

for the Dow Jones Industrial Average. The S&P is not going to get to 5,900 today, but it certainly looks on track to do that as earnings pick up next week, the edge ever closer to the election as well. I'll see you on the other side on Monday.