Closing Bell - Closing Bell: Countdown to the Fed 9/19/23

Episode Date: September 19, 2023

Just how resilient is this economy… and what’s at stake when the Fed updates its policy outlook tomorrow afternoon? Dan Greenhaus of Solus gives his expert take. Plus, Deepwater Asset Management��s Gene Munster gives his first take on Instacart’s highly anticipated market debut on the Nasdaq. And, Julia Boorstin breaks down the big leg lower in Disney today and what it might mean for the company’s growth going forward.

Welcome to Closing Bell. I'm Mike Santoli and for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with stocks apprehensive less than 24 hours before a Fed decision as Wall Street debates whether the consumer and the broader economy can handle what the bond and energy markets are throwing at them. The major indexes are up from midday lows as energy industrial bank stocks struggle just a little bit. You see the Dow down half a percent, the S&P down about one-third of a percent. The two-year Treasury yield making a fresh high for this cycle. Actually, I think 5.1 goes back to around 2007, perhaps. And Instacart shares are popping on its first day of trade, but many on Wall Street already looking ahead to the next IPO set to price in overtime tonight. We will have those details coming up.

But first, our talk of the tape. Just how resilient is this economy and what's at stake when the Fed updates its policy outlook tomorrow afternoon? Here to help answer that, Dan Greenhouse, chief strategist and economist at Solus Alternative Asset Management. Dan, good to see you. Thank you, sir. You think that's the right question in terms of what's at stake with the Fed right here? A lot of agreement on exactly what the decision is going to be, but the tone, the outlook and whether they can build in expectations of a soft landing that we can believe. Yeah, I don't think there's a tremendous amount riding on this meeting. I mean, we know they're not going to raise interest rates. They pretty well telegraphed that. I think the

most interesting thing of what's going to happen tomorrow is their projections for next year. They basically forecast 100 basis points of rate cuts next year. Do they ramp that up in an endorsement of the soft landing scenario? Or do they scale that back a little bit on the idea that maybe it's going to take them a little longer to get started on the rate cuts? And I think that's going to be the interesting conversation tomorrow. In terms of what the market is contending with, though, it seems as if, you know, it's funny. You go back to July. We've got this very friendly inflation print. And almost immediately, oil starts to rip higher and it complicates the story on that front.

And then we get this really reassuring, you know, GDP tracking numbers and retail says everything looks strong. This economy won't quit. And then suddenly the market itself starting to register some doubt that we can actually power through this in terms of the consumer. Consumer cyclical is looking weak. Retailers really can't catch a bid. So what do you think the market is mostly worried about at this moment? Well, I think energy you brought up is a big component of this. You look at something like the XRT performing pretty poorly, even though some of the very largest names in the XRT are doing well, like Casey's. But retailers in general are having trouble. I think a lot of that has to do with what's going on,

obviously, with gasoline prices. I don't think people really look at gasoline prices the way they do stock prices, let's say. $3.80, $3.85 a gallon is effectively the highest of the modern era outside of the COVID era spike. So consumers have to deal with that at the same time they're making the student loan payments and all the other stuff that's going on. So that's what's happening there. But I will emphasize on the energy side of things, it's not just the inflation print. I mean, the demand story has been, and you well know this, but for viewers who may not, the demand story globally has been very strong. It's been strong in the United States. It's been strong in Europe. And believe it or not, for a lot of people, it's been strong in China, because a lot of what's driving oil demand is not just the industrial

activity in China that everybody thinks it is. It's transportation. So as long as everybody's still flying and shipping goods around the world, energy is going to be well supported for the demand side of things. And on the supply side, obviously, you've got the Saudi cuts, et cetera, et cetera. So you've really got this two-pronged thrust behind energy prices. We've liked energy, and we still do. It is backing off today, obviously, just taking a breather. But it is interesting that you have had this upturn in enthusiasm for energy as a long-term story. That's the way it works, right, when the prices go higher. Price drives sentiment. But also, you say 380 is the highest on a per gallon national average. That's true. But we were here nine years ago for a little while. The economy was much smaller. Wages were much lower. It just sort of

changes the equation, it would seem, in terms of how it can be absorbed. And also remember, cars get more miles to the gallon. There's all sorts of changes. The economy as a whole consumes less energy. Consumers in general, but the economy as a whole consume less energy today than we did three years, five years, 10 years, et cetera, et cetera. And so in that sense, it's not quite the damaging. It might not have the damaging effects that, let's say, the 1970s would have had. And I would also add, because a lot of people are talking about the 70s, you know, on a percentage basis, the move in oil in the 1970s dwarfs, of course, anything that we've seen today. But listen, I mean, $90, $95 Brent is not nothing.

$3.80 a gallon is not nothing. And I think, again, it's what you see in the retailing names. And when you look at, like, fourth quarter GDP, which is continuously getting revised down, a lot of it is going to be on the back of consumer spending, which is probably going to take a hit. Maybe not as large as people expect, but it's probably going to take a hit on the back of a lot of the things that we're discussing. Yeah, you're starting to see some anecdotal stuff about, you know, holiday spending intentions have eroded to a fair degree. So the psychological effect, without a doubt, is there. Big picture, though, what the market has been undergoing in the last six or eight weeks, it seems kind of

textbook. I mean, almost too much where it seems up. August comes along. We have to have a little shakeout and a little downside test in our choppiness. And it's continuing into September. But it's low intensity. It's not as if there's a lot of panic. VIX. And yeah, exactly. It seems like it's it's just sort of slow bleed or just this kind of low volume, maybe just kind of reconciling of share prices with the uncertainty of the underlying economy. Where does it lead? So I'll say two things.

One, about the low vol sell-off, if you will. There were a lot of people who came into this month that said, sure, this is a poor period of time for the market. But when the market's up very strong, so listen, we can refine the data one way or the other. To finish your point, September has tended not to be so bad when the rest of the year is up. And listen, a lot of this is data mining to the nth degree. But the larger point, the second point I wanted to make about your textbook argument is this feels and looks a lot to a lot of macro strategists akin to the 05, 06, 07 period. The last time you had real yields up at this level, the last time you were late in a Fed tightening cycle, et cetera, et cetera. There's obviously

more to it, and we won't bore the viewers, but it feels a lot like that, where the equity market continued to make highs, credit spreads continued to tighten. A lot of people don't realize it, but you were tightening in the credit markets until the summer of 07. The equity market peaked in October of 07. A recession began in December. So there's a lot, I think a lot of similarities between now and then. In terms of what does this mean, I still come down in the camp that like,

you can't, the Fed's going to win. The Fed is going to win. They always win. They're probably gonna make a mistake. The idea of the soft landing has gained steam. I've endorsed the higher probabilities of a soft landing. But at the end of the day, I think those economic and market truisms, so to speak, exist for a reason. And I imagine the cycle will be no different. Right. Let's bring in CBC contributor Malcolm Etheridge of CIC Wealth and Crossmark Global's

Victoria Fernandez to talk a little bit more about what the Fed winning might look like and what fighting the Fed even looks like right now, given the fact that they have been on hold. And in fact, it seems like inflation is moving in their in their direction. So I'll just start with you, Victoria. What do you think is at stake when it comes to the Fed and what the markets have already perhaps priced in? You know, I think as far as this week goes, the market is anticipating no move and I think that's what we all agree is probably going to happen. That is you guys were

talking just a moment ago. It's the dot plot especially this twenty twenty four dots and I think we're going to be key in the market could be surprised here. I wouldn't. Expect anything more than having. The great move up a little bit

higher in 2024, closer to that 5.6% Fed funds peak that we saw. That moved up in June, and I would expect to see the 2024 dot come closer to that, meaning they're pricing out rate cuts in 2024. I don't think they did all of this work over the last 18 months in order to quickly turn around, start cutting rates, add to demand, add to the inflation pressures that are there. So I think the market may get a little bit of a surprise depending on how much they move that dot. But otherwise, they are walking a very tight rope here. And I think they're doing a pretty decent job at this

point in time. If they continue to be hawkish and say they are going to push until we get down to 2 percent, that's when I think the market might rebel a little bit. You know, Malcolm, historically, the first rate cut of a cycle is not something that tends to be bullish. There are exceptions, but not the most bullish moment for markets, because it usually means something has not gone as well in the economy or the Fed has gone too far. So do you think the market is indeed sitting here hoping and praying and expecting those rate cuts to come soon? And that's the reason for the bull case? Yeah, I think not hoping. I think the market is expecting that that cut is actually going to come pretty soon because the thesis seems to be the Fed

knows that it went too far. The Fed intentionally went too far because it wanted to make it so that the markets felt some pain, the economy, I should say, felt some pain. And so that means that they're going to immediately follow that up with rate cuts to sort of right size what they know they did wrong in the first place, which is why I think it is really tough to continue to make the argument about us likely heading for a soft landing. I don't understand how we could have the higher for longer scenario Victoria is talking about, which I agree with, and then also expect that we're going to have a soft landing and the Fed's going to be able to perfectly tiptoe

through all the raindrops here. I think it's very likely that something else breaks beyond the SVB and regional banking crisis that we saw, simply as a result of the Fed having to stay higher for longer to shake out a lot of the excesses that still exist in the system reflected in that core CPI number. I mean, clearly something can always, you know, kind of blow loose in the system. We don't know exactly what's what's waiting for us. But Dan, you know, so far, the idea that you were going to have the so-called

immaculate disinflation and a job market that's loosening up without really any direct pain to workers. I mean, unemployment is staying low. You can't disprove it yet. No, you cannot. I mean, with the, listen, I was one of the people who was saying 13 guys and girls in a room are not going to get this right. And this is taking longer. The damage, so to speak, is taking longer than I thought. And we've been over, this is well trodden ground, so we're not going to review it now. But from a market standpoint, what I would argue is this idea that the Fed's going to inflict no pain because it hasn't manifested itself in the labor market is false. I mean,

we seem to have forgotten, any number of commentators on CNBC have seemed to have forgotten, the stock market fell 27% last year. That is not nothing. And that's a pretty meaningful drop in equity prices, which discounted a lot of pain, a lot of economic retrenchment, some of which occurred, some of which didn't. Right. So the Fed has gotten something for the tightening cycle. It just hasn't yet happened in the labor market. I don't think you're going to have the immaculate disinflation, so to speak. Right. But it is quite a nice story to tell. Well, the housing market also has not had an easy time. Of course. There's been plenty of things that have retrenched to some degree. You know, I'd also point out, Dan, you were mentioning that 05, 06,

07 period, the lag was enormous. I mean, the Fed stopped in like August of 06. That's correct. And so you had more than a year and the markets kept going up and it felt like maybe we don't have the piper to pay. They never know. This is the story. This is the narrative that now is emerging that a couple of people have been propagating for some time now. The idea that it always looks like a soft landing before a hard landing. And that is true. And you can find ample evidence to that. I agree with it. Again, we mentioned earlier the stock market peaked in October of 2007 at 1565, spot 15. I'll never forget it. We were in a recession a month and a half later. So there wasn't much of a lead time there for the equity market. The credit markets gave you a bit more warning. The equity markets. That was anomalous, though, to some degree. I mean, in terms of the market

not sniffing it out ahead of time. But very quickly, I'm sorry. The stock market peaked in July of 1990. We were in a recession in July of 1990. Yeah, fair enough. Victoria, in terms of investment implications from here on out, what would you like to be doing in terms of either migrating toward or away from risk or which sectors seem like they're the place to be? Yeah, so obviously we do think that there's going to be a pretty significant pullback, whether that's a mild recession or not. We can label it whatever we want at the end of this year. So we really want to have balanced portfolios. So we're talking to our clients. We're trying to find areas that we can still be invested in the market because we don't want to be sitting in cash. But we're talking to our clients. We're trying to find areas that we can still be invested in the

market because we don't want to be sitting in cash. But we have to be pretty choosy. You know, it's interesting. You guys were talking about the balances that we see in the market right now. You've got the recovery sectors like financials underperforming, but you've got the defensive sectors like utilities underperforming as well. So I'm not so sure it's a sector play as much as it is finding those growth quality names that you can have in your portfolio with solid balance sheets. And I think you also have to be pretty tactical. Trim some names that have done pretty well. I mean, CSX, we know that transportation costs are going to go up. They were at 3% last week. Trim a little bit of that name. PayPal up 6%.

Trim a little bit and go into some other names. Adobe, I think, is a way you can play tech, even though it's not cheap. You think there's good growth potential. So MasterCard's another name, kind of in that same situation. Find individual names and have some balance along with some fixed income in order to generate that cash flow. Malcolm, if you're kind of on accident patrol, where does that take you in terms of what qualifies as relatively defensive or something that seems like it's got its own resilience to it? Yeah, that's actually a tough one from a traditional standpoint, right? We've seen all throughout this year where tech has sort of been the defensive play. And so we look at, you know, the mega cap tech names and say that's the area

where it's safest to hide out. But we're actually starting to see a little bit of a tapering off in that in that area. If you look at like an Apple, for example, that started selling off and it's kind of just traded flat since. And so I don't know that we necessarily can rely on the stay in the mega cap tech trade to hide out as the defense way that we have throughout the beginning of this year. I think that you're probably going to have to look to more fixed income instruments, more traditional hedges against downturns going into what could be a mild recession, a little bit of a sell-off, maybe a 5% to 10% pullback, which I'll just point out really quickly, we are well overdue for since we haven't had a 5% or more pullback since about March. And we usually get four or five of those in the S&P every year. Right.

We are like, you know, 3%, 3% to 4% from the highs at this point. So we'll see if we can get down there. Dan, in talking about fixed income, you mentioned the credit markets gave you a little more of a warning in the global financial crisis. Right now, that's not an area that necessarily is sending up alarms. No. Listen, people look at the high yield market as if it's this stable index over time. It's not. We've pushed out maturities tremendously. That's been beneficial. The market is of meaningfully higher quality today

than it was a couple of years ago. You have much more of the higher rated credits than you do the lower rated credits. Coverage, interest coverage ratios, how much money people have relative to their interest expense is very high. So there's all sorts of reasons that you would be more optimistic on the high yield market.

And actually there's a story in the journal today about leveraged loans, which are even a riskier portion, so to speak, of the high yield market. And actually, there's a story in the Journal today about leveraged loans, which are even a riskier portion, so to speak, of the high yield market. And they're outperforming this year, something that very, very few people suggested coming into the year. But to answer your question, there's little indication in the credit market or in the equity market that something's going wrong. I mean, we can point to Apple under the 50-day, under the 100-day moving average.

But again, broadly speaking, where is the indication that a recession is forthcoming? Again, you're looking at jobless claims. This isn't rocket science. Just watch weekly jobless claims. They haven't budged. Yep. We'll see if they do on Thursday morning. It seems more of a tired market than a sick one, at least for now. See if that stays the case. Dan, Malcolm, Victoria, thanks very much. All right. Let's get to our question of the day. We want to know, how will stocks react to tomorrow's Fed decision? Rally, sell-off, or no reaction at all? Head to at CNBC closing bell on X to vote. We'll share the results later this hour. Let's get a check

on some top stocks to watch as we head into the close. Christina Partsenevelos here with those. Christina. Well, let's start with NIO having its worst day since October of last year after the Chinese EV maker announced plans to issue a billion dollars worth of convertible bonds and that's to boost its balance sheet, which shares down about 17 percent right now in this hour. The stock is now negative, of course, for the year, down about 12 percent year to date. JP Morgan is downgrading Planet Fitness to neutral from overweight and cutting its price target to $52 from $70. Analysts cite the sudden departure of its CEO, which just happened last week, in the fitness chain's economics. Shares are actually hitting their lowest level since April 2020, down over 4%. And Block is lower as well, as the CEO of its Square unit plans to step down effective October 2nd. Founder Jack Dorsey, who already leads the overarching company, will take up her responsibilities.

Analysts at Mizuho say that despite the stock's downturn on the news, they believe Jack Dorsey could, quote, re-inject a zest of brilliance into the business. Shares down almost 3%. We'll see. Yes, we will. Christina, thank you. We're just getting started here. Up next, Instacart making its big market debut. The stock is popping from where the IPO was priced, although it is down from the $42 first trade up 20% on the IPO price. Deepwater Asset Management's Gene Munster is here with us to tell us whether he thinks the name is priced right and if it could have more room to run.

We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Shares of Instacart now up more than 20 percent following its highly anticipated debut on the Nasdaq. The grocery delivery company opening this afternoon at $42 a share, now trading at its lows for the day under $36. It does lift its valuation to about $14 billion. Here to discuss is Gene Munster of Deepwater Asset Management on the CNBC Newsline. Gene, good to talk to you. Thanks for calling in. Hi, Mike. So evaluate this one for us. We know Instacart is kind of a known quantity. It's been in business

for a while. It's been in business for a while. It's been kind of waiting for the IPO window to open up. And it's at an interesting point in its growth trajectory, I suppose. What does an investor kind of need to know about how it's valued today? I think the first thing to know is that the action that we see in the stock today is misleading. And this is a well-orchestrated pop that's typical with an IPO, obviously working with the float and some of the excitement. So I think when you think about the investment case of Instacart, let's just block out the fact that it's up 20% today and ask the fundamental question, which is, what is the growth story? They are positioning

themselves as a tech company. What is the growth story? And their fundamental business today is delivery of groceries. They own that market. The amount of groceries that have been bought online has increased dramatically since pre-pandemic, from 3% in 2019 to 12% year to date. So that's a great business for them. But their unit growth, and this is the pressure point, this is the most important factor that investors should be focused on, has been flat year to date. So the order growth has been flat. So this grocery business, even though it seems to be a big opportunity, it just isn't yielding the critical metric of order growth. And their response to that is they will use an omni-channel approach and vector into local great products, like their relationship

with Dick Sports to deliver sporting good items. And unfortunately for Instacart, this is the same playbook that Uber and Dash are using. They're each coming from a different area of strength. Instacart is grocery. Uber obviously rides, and Dash is with restaurants. And I think the bottom line here is this, the question that investors should ask today, do you believe order growth will reaccelerate? My view on that is I think that it will improve from flat, but it's not going to be as exciting as Uber. So at Deepwater, we do not own Instacart. We do own Uber. We believe in this bigger opportunity, but we think Uber is the winner. There's been a lot of talk surrounding the Instacart deal about the opportunity in advertising, which, you know, is an element of the business right now.

But, you know, can that effectively be the growth engine or the story that that keeps people interested as it waits for order growth to come back? It's a piece of it, but it's not the pressure point. It's not the central piece. It's similar to Amazon and their advertising business. It's an exciting part of it, but the most important metric, the pressure point with Amazon, obviously, is AWS. And so I think in the case of Instacart, I think investors are going to center on that order growth number.

Even if the advertising business was, let's say it was the surprise to the upside, which it probably will right out of the gate and better if an IPO is well-designed. Let's say that it's surprises over the next few quarters. Ultimately, I think investors are going to re-wait back to that order growth because the ad business doesn't scale unless you have improving order growth. So that's the central question. If you feel as if, first of all, it's definitely not any kind of winner-take-all business. There's plenty of competition, and it's somewhat undifferentiated if, in fact, Uber and DoorDash are coming into similar services from different angles. Why do you prefer Uber?

Is it just a matter of how it's valued? The valuation piece is one. So the best way to think about valuation on those three companies is free cash flow. Right now, Instacart is trading at 30 times next year, Dash and Uber about 25. So there is a little bit of an advantage there. But I think the substance is that I think just the size of the network related to Uber, I think that that flywheel is more powerful when it comes to reaching into some of these, this concept of building an omni-channel. I think that just the velocity that they have around their network is better suited to scale versus where Instacart is at.

And I would put this piece out, too, is that Instacart wants to scale their orders outside of groceries. That makes a ton of sense. But they're going to be going head-to-head. And we've seen the difficulty is to scale their orders outside of groceries. That makes a ton of sense. But they're going to be going head-to-head, and we've seen the difficulty is to scale profitability. How long does it take an Uber to get here? So we like Uber because they've shown some of that profitability strength. It's only going to earn $1 next year, so it's not much, but that is a positive sign relative to the expenses

and the investment they've made over the last seven years. Gene, I appreciate your perspective on this. You have Instacart there up to about $35-ish from the $31 IPO price, down from $42 first trade. Gene Munster from Deepwater. And don't miss an exclusive interview with the Instacart founder. That is tomorrow morning at 7.30 a.m. Eastern time. Up next, searching for opportunity.

Bank of America's Chris Heisey is flagging the two sectors he's betting on amid market uncertainty. He will make his case after this break. And as CNBC celebrates Hispanic heritage, we're sharing stories of influential Hispanic business leaders with you. Here is the Four Seasons Hotels and Resorts president and CEO. To me, it's very important to celebrate the Hispanic Heritage Month because ultimately diversity matters and matters a lot. And this cannot be the flavor of the month. It ultimately is something that we have to do on a daily basis.

And we as leaders have a responsibility to lead by example. And for me, it's not only the right thing to do. Driving diversity and inclusion, it just drives the right business outcomes. Stock sliding a bit this afternoon as investors await the Fed decision tomorrow. My next guest is finding some opportunity in two key sectors, despite the fact that we're entering an historically weak trading period. Joining me now is Chris Heisey of Merrill and Bank of America Private Bank. Chris, it's good to see you.

Certainly the seasonal twitchiness of this market has somehow borne out in August and September, but not that bad. Do you expect things to get maybe a little bit tougher before they get better? You know, when you take a look at the VIX index, right, Mike, I think that's what you're also referring to is volatility in general, even if it's on an implied basis, is almost towards the lows that we saw in June and July. So there's not a lot of positioning going on. There's not a lot of changing, whether it's on the institutional side or the private side of the business. But what is absolutely important to note, even though this market, where the Magnificent Seven have about three quarters of the return for the entire S&P up to the first week of September,

there's another 100 stocks behind that that were also up on average about 32 percent. In other words, almost two times the market's overall return. So it's a little bit broader than people think. And the market's resilient because of earnings. It pushes all of the other narratives and all of the other stories to the side for now. And for what it's worth, I think positioning is going to be the same between now and the end of the year. A lot of chop and grind. So, yeah, it's a good point on earnings. I mean, you can kind of, you know, boil it down to the simplest form and say earnings have probably seen their worst year over year performance. They're now on the way higher. And then it gets

to the valuation question of what you pay in a world of, you know, somewhat higher bond yields and when there are other alternatives. And I guess when we feel as if we're in a late cycle phase, whether that proves to be the case or not. That's a great point. I think it's important to segment the market in terms of its market multiple in general. Try to figure out exactly where the higher premiums are coming from. We kind of know where they are. They're in the mega tech space, dominating the overall S&P. So when you think about the S&P's valuation, segment that further and go into different stratifications within the market, and you'll see that things are actually reasonably valued. There are some parts of the market that need an expansion to take hold. Obviously, the cyclicals are going

to need to see those tailwinds to come again. And with a slowing China, Europe that is very rigid in its growth right now and growing slower, and then a wait and see in the United States, it's going to be hard to see the cyclicals anytime soon catch that tailwind of an expansion coming. But there's a good portion within the market health care and energy that are providing that free cash flow some dividend yield some elements of growth and i don't want to say hide out there because that's not what we do but certainly have an expression and emphasis in those two sectors um at least for the the intermediate term we think that that's the best place to be yeah the energy uh story mentioned, it's got free cash flow,

certainly with commodity prices where they are. That's going to be supported. Is that the main reason or is it a larger call on either where oil prices will get to or whether demand ramps up from here? The great point again, it's more about the free cash flow. It's more about where is the earnings momentum in the market, even with the oil prices where they are right now, if they were to fall from there. Say you get demand destruction. Maybe supply comes up a little bit. We get caught by surprise from OPEC+. The free cash flow that's being generated in that sector due to years and years and years of underutilized CapEx is providing that investment

thesis right now. And it's not going to go away whether it's $75 oil or 95 or 105. That thesis is still there. You know, we're obviously monitoring the Fed and what it says and what it means as to whether it's done with the tightening campaign. Maybe it has one left. Maybe it's going to start to cut if things go a certain way next year. But all central banks, most of them anyway, seem to be at a similar moment where they've done most of what they're going to do tightening wise. What does that say about investing in the rest of the world? You mentioned Europe seems very sort of stuck economically. But are there other opportunities elsewhere?

Is the U.S. the better choice? I think a lot of people were looking for a weaker dollar heading into this year. You know, the U.S. is the U.S. the better choice? I think a lot of people were looking for a weaker dollar heading into this year. You know, the U.S. is the first to hike. The U.S. would be the first to cut. And that would shift from a stronger dollar bias to a weaker dollar bias as interest rate differentials began to change. That did not materialize for so many reasons. The contribution of the non-U.S. buyer into the U.S. Treasury market has shifted dramatically. That ownership has shifted to the household, where you take a look at it as a percentage of GDP, U.S. Treasury ownership in the United States is at a 25-year high for the average household. When you put that

all into perspective and the fact that non-U.S. economies have much less flexibility, less innovation overall, and very few tailwinds on a go-forward basis. It does not surprise me at all why there's still a home country bias, and we continue to favor the U.S. relative to the rest of the world. The longer-term story, emerging markets starting to wean off of the dollar cycle is a very interesting type of proposition, and I'd watch that very closely for those that are significantly underweight, the emerging markets and want to invest in areas over the next few years. That's an area under-owned. When you mentioned the heavy ownership by

households here of treasuries, is that a rational choice right now? We do have solidly positive real yields on longer term debt. So you're kind of getting paid to own them. But is it the right call? Well, I think one of the sharpest contrasts that we've seen over the last year and a half is the fact that we've gone from negative yields and negative real yields, I should say, to positive real yields pretty quickly. And even though the patience with the Fed and what the Fed is going to do or not do and where the rates market is, we still think the Fed is going to be on hold in September. And then there's a live meeting in November. But overall, what is rational? Investors will go usually to the greatest risk-adjusted return over time. And that's what we've seen over time.

The Treasury market continues to provide that comfort, that level of yield, while people look for new catalysts. And for what it's worth, we like to think about bond ladders here. And why? Because as the yield curve is going to normalize itself, the reinvestment risk is real. And even though it's comfortable being at the shorter end of the curve right now, as we move into the early cycle and the Fed begins to cut, and we could argue and debate when that is, that reinvestment risk starts to rise significantly. So we're thinking about more bond ladder strategies, as elementary as that sounds. Absolutely. Yeah, it's a big reason for that inverted yield curve is there's risks of

owning the short end. Chris, thanks very much. Appreciate it. Thanks, Mike. Chris Heise. Up next, we're breaking down the move lower in intel that stock is now off five percent christina parts neville is here with the details well you just gave my answer away but what does taylor swift push-ups and personal computers all have in common intel's latest innovation event i'll explain all that next 18 minutes till the closing bell. Shares of Intel are lower as the company hosts its innovation event. Christina, back with some of the details. Hey, Christina. Well, who knew Intel CEO Pat Gelsinger was into Taylor Swift?

After starting Intel's innovation event with some push-ups on stage, Gelsinger demonstrated a laptop running a not-yet-released chip that could generate a Taylor Swift-like song using an artificial intelligence application. The point of the demonstration was to show how Intel plans to bring AI capabilities to personal computers without having to rely on the cloud, and that should in turn cut costs as well as energy use. The company announced that its Intel Core Ultra processors, also known as Meteor Lake,

would be available on PCs as of December 14th. Gelsinger claims they are Intel's most power-efficient chips yet and are the first of three additions to come this year, 2024 and then 2025. No chip performance details just yet, but the company promises improvement in processing graphics and AI performance. The big question for investors as well as consumers, are these chips more efficient than Apple's M-series chips found in their MacBooks? Intel shares, though, as you pointed out, Mike, are down today. And it could be due to the lack of detail about new foundry customers, a section of the business Intel is really trying to bank on, or the fact that much of these products

were already expected by investors. So it became more of a sell the news kind of event today, similar to what we saw happen to AMD at its event back in mid-July. So you can see shares are off. They're going falling even further, almost 5% lower right now. Yeah, and of course, we're set up by about a 40% gain year to date. So therefore, ripe for a sell the news, perhaps. Christina, thanks so much. And don't miss Intel CEO Pat Gelsinger on overtime in the next hour. Last chance to weigh

in on our Twitter question of the day, our X question of the day. We asked how will stocks react to tomorrow's Fed decision? Will they rally, sell off or have no reaction? Head to at CNBC closing bell on X. We'll bring you the results right after this break. We're going to go to Emily Wilkins for an update on some of the stalled budget talks on capitol hill emily well mike we just saw yet another defeat for speaker kevin mccarthy and a sign that getting out of the government shutdown at this point might be quite difficult a bill to fund the department of defense was expected to come to the floor this was a procedural vote to move forward to it.

McCarthy was going to bring it up last week, pulled it because he didn't have any votes, and then put it back on the floor and dared members to vote against. Five of them did, and that's all that's needed in a House that has margins this small. The procedure rule has gone down. They cannot move forward on this. At the same point, remember earlier today, they were going to vote on yet another procedural motion to move to that stopgap continuing resolution to keep the government funded at least until the end of next month. That's also currently off the table, although a number of members are huddling in one of the offices trying to hash out potential agreements on how this can

get done. One amendment that we have heard is to put the funding even lower. Currently, Republicans were looking at about an 8 percent deduction for some domestic programs that didn't deal with the military or veterans. Now they're looking for an even lower amount than that. They say they want to get the government back to the amount of spending before the pandemic. But of course, it's a big question on exactly what's going to wind up happening here. Yeah. One among many big questions, seems like the fight before the real fight. All right, Emily, thank you so much for the update.

Now let's get to the results of our question of the day. We asked, how will stocks react to tomorrow's Fed decision? Rally, sell-off, or no reaction? Rally was the winner. 44% of you think that once we clear through that Fed decision, we will go higher. Up next, Disney shares dropping. We'll break down what's sending that name lower, what it might mean for the media giant in the long term.

That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. Julia Boorstin shares the highlights from Disney's Investor Summit. Kate Rogers on what's behind the sell-off in Starbucks shares. And Leslie Picker on Instacart's debut today and what to expect from the next hotly anticipated IPO, Klaviyo. Julia, Disney shares not taking it too well, the message that management delivered about some investment plans. Yeah, that's right. Disney shares dropping today on news that the company is doubling its capital expenditures on its parks division to $60 billion over the next decade. Disney outlining significant room for expansion on both land and on sea, saying they have over 1,000 acres of land for possible future development.

That's the equivalent of seven new Disneyland's. They also say they see an addressable market of 700 million additional people who would want to visit Disney's parks beyond the 100 million who currently visit annually. CEO Bob Iger addressing some concerns about that jump in capital expenditures, saying in his presentation to investors this morning, quote, the company is able to absorb those costs and continue to grow the bottom line and look expansively at how we return value and capital to our shareholders. You see Disney shares down about 3.5% going into the close, Mike. You know, Julia, it seems across Disney's businesses,

what before was considered to be just a very sure thing in terms of return on these investments, whether it was theme park these investments, whether it was theme park capex, whether it was a Marvel movie at the box office, or whether it was, you know, sports rights for ESPN. Now there's question marks about the payoff they're going to get from all of them. Yeah, I think there's this question about the payoff, but I think what's interesting is looking at how the parks fit into this broader story of Disney IP, this intellectual property that really differentiates Disney from other media companies and how the company has been able to take content from either the film studio or from Disney Plus and then bring it to the

parks and then use all of that to really feed this flywheel. And it seems to be that that's what Iger is focusing on. As he says, maybe we're willing to get rid of ABC and the linear TV networks that don't fit into that story. That's right. They were not the franchises. He's going to go with that formula. Thank you, Julia. Kate, Starbucks stock lower. What's happening there? Hey, Michael, Starbucks stock, as you said, lower today on a downgrade from TD Cowen from outperform to market performance on concerns about its business in China, which is the coffee giant's second home market, of course. Analyst Andrew Charles says,

quote, we like the long-term story, but move to the sidelines as we monitor China macro and competitive dynamics pointing to those pressures in China. It says it was pleased with the company's performance in China in June, but has concerns that the headwinds are set to increase in the market rather than ease up. For context, last quarter, same-store sales in China increased 46 percent as the company lapped some major COVID lockdowns from the year prior. This all comes as Starbucks announced today, actually, the opening of its China Coffee Innovation Park, which is located about an hour from Shanghai. This is a global first for the company and its largest investment in a manufacturing and distribution center outside of the U.S.

and $220 million in total. The center is to support the company's goal to reach 9,000 locations in China by 2025. For context, it has about 6,500 today. So, of course, obviously a very important market. But as you can see, the stock lowered by about 1.5% into the close, Mike. Yeah, Kate, it's a fascinating side-by-side, given the fact that this downgrade, as you say, is premised to some degree on Starbucks' competitive position being weaker in China. There's some lower cost competition that the analyst was citing. At the same time, Starbucks clearly believes that the long-term story in terms

of getting consumption higher in China and sort of getting thicker on the ground there is the way to go. Yeah, that is certainly true. And I think it's also about continuing to introduce and reintroduce the Chinese consumer to the coffee product. We got a look at a letter that Starbucks CEO Laksa Manarasaman had sent to its partners talking about the Chinese consumer drinking like 12 cups of coffee a year compared to hundreds that we consume in the U.S., hundreds in Japan. So there's a big opportunity to bring that number higher as there's more exposure and understanding of, you know, the importance of the coffee product there and here.

All right. As we see there, Starbucks shares down about 4% year-to-date. Kate, thank you. Leslie, IPO market, I guess, sort of passes another test with the Instacart deal, though the stock's trading lower from its opening print. Yeah, it definitely passes. I mean, it's facing a bit of pressure in the latter part of the trading day. The shares are down about 20% from the opening print of $42 per share, but still up from the $30 IPO price.

This can happen when investors who acquire the stock, either at the IPO allocation or after it starts trading, flip the shares and momentum can play a role as well. Now, it doesn't help that Arm, the chip designer, is down again today after having declined every day since going public last week. It makes a somewhat skeptical case that the IPO window is truly open. Instacart and Arm price at the high end of their ranges, so the roadshows went decently. Marketing automation platform Klaviyo is expected to price at the high end or above its boosted range when it prices shortly. But the public aftermarket demand for new issuance seems somewhat modest,

at least more modest than I think many were expecting, given all the demand that was at least communicated during these roadshows. I guess the question, Leslie, if there is some distinction with Klaviyo in the sense that, you know, with Instacart and with Arm, you had motivated sellers. They kind of felt like they were overdue for kind of getting liquid on these investments. Is it different for Klaviyo in terms of maybe being a more open-ended growth story, or how does it set up? Possibly, although it's priced as well. I mean, Arm was definitely priced over 100 times earnings.

So a lot of people looked at that and said, wow, that's double what their peers were priced at. Instacart's valuation itself came at a discount. But a lot of investors were concerned about the overarching moat surrounding the business, given the competitive dynamics with grocers creating their own fulfillment platforms and own digital ordering systems as well as uh you know just the overall growth picture from here now klaviyo a lot of people look at that and they say you know this is a profitable newly profitable business uh one that is growing but it's expensive um you know at least relative to ipos in history so it's not necessarily

something if you're looking purely on valuation that I think people will say, oh, we're getting an amazing deal here. Yeah, we'll see how forgiving the market is on this one. Leslie, thank you very much. As we head into the close, the S&P 500 is not far from its highs for the day, down about two-tenths of one percent. It was down about 80 basis points earlier at about a three-week low. Oil prices had backed off a little bit from their recent highs, but crude is up about a quarter of one percent.

As we head into Fed Day tomorrow, just under that 44-50 level on the S&P 500. That's going to do it for Closing Bell.