Closing Bell - Closing Bell: Debating the State of Stocks 9/5/23

Episode Date: September 5, 2023

Is the markets uncanny resiliency throughout much of 2023 a sign of what’s to come in the months ahead? Or is it just too much to maintain? NFJ’s John Mowrey – our bull –  and Cantor’s Eric Johnston – our bear – debate that point. Then, iCapital’s Anastasia Amoroso breaks the tie… and picks who’s strategy she agrees with as we wrap up the year. And, will Apple’s big product event be a big catalyst for the stock? Jason Snipe from Odyssey Capital – who owns that name – breaks down what he thinks. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with a debate on the state of stocks, whether they're poised to buck a historical trend or simply succumb to September's seasonally sad story. One of this show's biggest bulls and one of its biggest bears square off on that critical question. They'll do it momentarily. First, though, your scorecard with 60 minutes to go in regulation. Not a great day for the major averages. Interest rates rising. That put a lid on a lot of today's action.

Rising oil prices weighing on sentiment, too, even as energy stocks see another strong session. That sector going for its seventh straight day of gains. Tech income services really the only other areas with some green on the board. Kind of feels a little suspect that this, as this last hour begins, we'll keep our eyes focused there as well. It takes us to our talk of the tape. Is the market's uncanny resiliency throughout much of 2023 a sign of what's to come in the months ahead or just too much to maintain? Let's ask canners Eric Johnston. He's made his case on this show for many months that stocks are due for a big drop.

And on the other side, NFJ's John Mowry, who's argued investors have been way too negative. Both, of course, as you see there joining me live. It's good to have you both. Eric, you're here next to me, so I'll come to you first. Why do you remain negative on this market as we make the turn into the fall? Yeah, so there remained significant headwinds that are in front of us and I think looking forward. So, I think we've looked at a few different things. Number one, this is a late cycle economy. We've looked back and I would define the cycle by unemployment rate and how much you've grown

since the last recession. What the historic low unemployment rate and nominal growth has already risen 40% since the recession of 2020. Number two is people talk about the delayed impact from rate hikes as being kind of not a big deal. We think it's pretty significant because it really has effects on the consumer, on businesses, on commercial real estate, where all of their paper gets rolled on a rolling basis every few years. And right now, over the next two years, you're gonna be rolling a lot of 0% paper into today's interest rate.

And it's not only the consumer and businesses, but it's also the federal government, right, who has a exploding deficit, which is going to significantly increase the amount of treasuries they're gonna have to issue. And that's part of the reason why we're seeing the higher interest rates. And that capital has to come from somewhere to in order to absorb that supply. And I think equities

will be one of those one of those places. The argument is you ain't seen nothing yet. Like whatever you think about the economy being, you know, allegedly stronger than expected, it's all going to, you know, normalize or worsen or weaken once all of the things you think are going to happen actually happen. Yes, exactly. Like we've been talking about the excess savings declining. San Francisco Fed thinks it hits zero by the end of this year. We've talked about the student loan moratorium ending. That's ending right now. And the first payments come in October. We've talked about these payments having the interest rates, you know, rolling on commercial real estate.

There's about a trillion coming due in the next two years. That's on the come. We talk about tightening lending standards. That's not something that hits the economy right away. That takes time. That takes, that's a lag. And so whether this pushes us into a, you know, very strong, vicious recession, or it is a slowdown from here,

we think categorically there's going to be a minimum, a slowdown in economic growth, and earnings estimates are not pricing that in. Okay, so John, the bottom line here is that Eric thinks stocks are just simply too expensive, where they are even now, based on what's still to come. What's your response? So good to see you, Scott. So definitely some stocks are expensive. You know, stocks are re-rated tremendously. I mean, the Nasdaq's up close to 40% year to date. That was the most beat up index. It was down 35% peak to trough. So no doubt we have seen a big retracement. There are

pockets that are expensive, but I do think there are areas that have gotten cheap. Maybe where I differ with Eric a little bit is I think some of the areas that have gotten the most interesting are the areas that are being most impacted by the higher rates. For example, you're seeing many of the REITs trade at some of the steepest discounts to their history and peers going back over the last five and 10 years. And it's definitely true that many of these are going to have to refinance some of their debt, but I think that you're getting that priced relative to where they've traded historically. And if you think about those valuations in tandem and relative to the tech valuations, I think investors have to get more excited.

I mean, investors have gotten pretty sanguine about the multiples in the tech space. And I find this ironic because interest rates have not come down. If anything, they've gone up. And this was the very reason people sold technology. So now you have a situation where technology is re-rated. It looks very pricey in certain pockets. And the more interest rate sensitive areas look quite cheap. So I think those areas definitely warrant investor attention.

And I think you're getting much of that price, even though we could be late cycle. I mean, if we are late cycle, I would expect actually some of the REITs, utilities, banks to actually do better given where interest rates are today. I mean, his argument is that stocks are just too expensive now. And once, you know, the real effects of what the Fed's already done start to take hold, once the consumer weakens, once the economy then starts to weaken further, that there's no justification to keep stocks at this level, you know, no less expect they're going to go up from here. Well, I wouldn't totally disagree with that. I mean, you're paying 18 and a half times for the S&P, and that's a very tech heavy index. If I look at the Russell 2000 value, which has a greater

dominance in financials and REITs or the Russell mid cap value. Those indexes, Scott, are trading in just 10 times earnings, eight and a half turn discount. That is material. So I want to repeat that eight and a half turn discounts with yield premiums, with growing dividends. And I think these areas are set to outperform. And what's so interesting is over the last three months, the Russell 2000 value and the Russell mid cap value have both been up about the same as the S&P. So they've been performing in line, but you're getting a steep discount in valuation. So I always think that valuation should shape investor expectations. And it's no different

today. Many of the tech names and within the S&P look pricey, but you can look over in the value arena and there's lots of opportunities that have discounted a slowdown, discounted the recession. And I think that is where investors are going to make their money in the back half of the year over some of these other pockets. Eric, how do you account for the fact that the market's been so, as I wrote at the top, uncanny in how resilient it's been in the face of not, I mean, whatever, what you said is not so outlandish, obviously. It just hasn't come to fruition. It keeps getting pushed further and further and further off. And maybe the most dire projections about the consumer and the economy just never materialize. Yeah, I think it's a

great question. You know, the money flows that have come from the federal government have been a massive tailwind. Inflation has had mixed impact on the consumer and on the market. So, for example, Social Security payments got re-rated 8 percent higher this year. That's putting money in people's pocket. And we have full employment due to some of the labor dynamics that are, you know, very kind of new and secular today versus what they have been pre-pandemic. So I think those things, those combination of the federal stimulus and deficit, some of the labor dynamics that are currently there that have not been there before, I think are absolutely helping the market and making it much more resilient. I mean, as long as people are employed, they're going to put money into equities and consumer spending is

going to hold up. What happens if all of that keeps the economic motor running enough, enough, it doesn't stop and we don't have to pull over to the side of the road and have a problem, we don't have to get towed. It keeps the economy motoring on just enough, long enough that inflation continues to come down. The Fed actually starts cutting rates. Is that the nightmare scenario to a bear? So I think the idea of the economy continuing to grow and for this cycle being extended, I think is real. I think it can happen. I think in that scenario, though, returns are going to be very muted because I don't think in that scenario the Fed is going to be able to cut rates. Even if they fully stop raising rates. I mean, you know, muted returns aren't taking us down to what you suggest we could do at 3690

on the S&P 500. We're at 4,500 today. That's a considerable decline you're looking for. Yes. I mean, I think that even if returns are 0, minus 5%, minus 10%, those would be very poor returns relative to your alternative right now, which is very real. You have alternative investments. You have money market funds. You have market neutral hedge funds. There's plenty of absolute return strategies out there that are returning, that have had very good returns, and I think will going forward. And let's be clear, when you say muted returns, and I sort of came back at you, I'm not, muted doesn't mean minus 10% in my book, right? Muted means like reduce your expectations on where the gains in the

equity market are going to be, not fatten down the hatches and prepare for a 10 to 20% decline in stocks. Let's be clear. My point is the best case scenario is going to be muted returns. And my case scenario about what I think is going to happen is that we're going to have a decline of 10% or more in the coming months. So John, how do you counter that? I mean, the market's done a lot. The market's been carried in many respects by mega cap. There still is a lag effect that almost all of the Fed members who speak talk about. The consumer may be on the tail end of this run.

What happens if what Eric says actually comes to fruition? Well, these are all really good points. I mean, what I would say about kind of the immediate returns and the absolute returns of any of these stocks, we have significant dislocations. The REITs are down, in many cases, 25 or 30 percent year to date. If you look at that relative to the S&P, you've got many REITs, such as even within the tower space, that are down 50% relative. If you look over at the multifamily REITs, those are underperforming homebuilders by over 100% year to date. But John, you can look at any area of the market. I mean, you can't tell me your whole bullish thesis on the market is hanging on REITs. I mean, anybody can look at any one area of the market

and say, well, it's undervalued, it's trading at a valuation less than this, that, or the other thing. But you gotta tell me there's more to your story than, hey, look at REITs. Well, definitely, and that's why I would point to the RUJ, the Russell 2000 value and the Russell Midcap value, Scott, because if you look at those indexes,

25% is in financials, another 1,000 basis points. So now you're up to 35%. Another 1,000 basis points. So now you're up to 35%. Another 1,000 base points is in REITs. And then utilities are another roughly 5% or 10%, depending on the index. Over half the index is in a very different group that has not performed well. That's why I'm so bulled up on these other pockets right now, because you've got a significant portion of the opportunity set that is massively underperforming the market, has priced at a recession, and has also been punished because of higher interest rates. So that's why I get excited when I look at some of the tech areas and some of those indexes that are very heavy there. Those, to me, look much pricier. Those are of much greater concern.

With regard to the slowing consumer, again, I would point to the fact that there has been a difference this cycle. People have been more willing to spend. And I think that that has elongated this particular cycle. But nonetheless, I would completely agree that the lag effects of tightening credit have not fully been felt. I think the real key here is the CPI, which is one third shelter. And I know we've talked about this, Scott. But if that comes down and the St. Louis Fed has already said, if you back that out, the CPI is at one percent. If that comes down, there will be enormous pressure on Powell to lower rates because the real rate will be too high. And there will be enormous pressure from politicians to do so. And so I think that you can have a very real scenario where rates have to fall in the back half of the year,

or excuse me, in the second half of next year, somewhere in the time frame. And I think the two-year bond is going to sniff this out. The two-year bond sniffed out. The Powell's late starting out rate increases. I think the two-year bond will sniff it out once again and roll over and the yield curve will begin to steepen. And that will be a boom for many of these areas in these value indexes. Just like a race against time in some respects, Eric, that, you know, the Fed or let's just say bulls need inflation to continue to come down to a degree that the Fed can really be done at the same time the economy has to keep the analogy going, keep motoring along enough that it can keep keep moving forward enough that it gives us time. It's a race against time. Yes. I mean, I think it's a you have a situation where inflation is coming

is coming down, which it is, which definitely is. And the economy is going through what I think is going to be a sort of transition, you know, to the to the downside, which it hasn't, which it hasn't. Yep. But that's but that's to come. And and do think that that's going to be sort of the direction. So but I do. But the Fed is, you know, I think is really is really done with their tightening process. But remember that quantitative tightening, right, is going to remain. They're probably going to run off another trillion over the next over the next year. And even if they keep rates where they are, which I think they will for for a fairly long time until we start to see what I'm predicting for the economy, that spread is going to be a situation where the Fed is keeping policy tight.

And the further inflation comes down and the wider that spread is versus the Fed funds rate, the more restrictive it is, even though they're not actually raising rates. So, you know, I think this is going to be, even though the Fed is done, the rate policy is going to remain a headwind and is going to have still incremental effects from here. So there have been moments in time where we've had these conversations where you've made, you know, tactical changes. And maybe in the recent history, it's only been one where you got, you tried to get bullish and it didn't last very long

and you've been pretty consistently negative now. So what is it then that gets you to change your view to more constructive on the market? Do you throw in the towel on the idea that we're going to slow, that the economy is going to run out of gas, that the lag effects are going to have such a dramatic impact that haven't been felt yet? Yeah, I mean, it's difficult because it's very hard to justify buying equities at these prices. It just, you know, valuation could change, right? That would have an impact on what we're saying. We could see the economic, the economy rollover, right, where we get a little bit of a reset. That's kind of one of the things that we are we are looking for.

But, you know, outside of that, it's very hard outside of price and actually getting that reset in the economy that would make us turn bullish. But, you know, we're also we are very dynamic. Our opinion has been the same, you know, for the for this year. But we're always, you know, evaluating the market and we'll make a change if we deem it so. But it's very hard to see that happening based on the current dynamics in the market. And we call them like we see them, right? This is the way we do our analysis. We have our view. It's what we believe in. And, you know, we're going to stick with it until we don't believe it anymore. Yeah. John, I mean, do you think earnings are going to hold up? Ultimately, everything's going to come down to that. And, you know, the trajectory for earnings this quarter is where you get back to earnings growth, where you end the

three straight quarters of negative earnings growth. This is supposed to be the change. You need that to happen. Yes. And specifically on a stock by stock basis, what we're looking for companies that have had a dislocation in the valuation, but not a dislocation in the earnings. Yes, and specifically on a stock-by-stock basis, what we're looking for are companies that have had a dislocation in the valuation, but not a dislocation in the earnings. Now, this isn't the case in every stock because some are more cyclical than others, such as energy. But again, to pivot back to some of the real estate and utilities that are now getting cheaper and cheaper, zero dislocation in the fundamentals, zero dislocation in the FFO

in many of these. The only difference is that people think that because of the 10-year, you should not pay that same price, that same multiple for many of these REITs because they are substitutes for those bond proxies. So I think that there are pockets, Scott, where you've not seen significant dislocations. In fact, in many cases, you're seeing forecasts that are higher and earnings growth in many of these areas. Now, financials are the one tricky one. You have seen a lot of earnings revisions downward. And I think when that happens, you've got to pay close attention to price to book as well as price to tangible book.

And if I can make one color comment around history, in 2007, banks were expensive. And I don't hear a lot of people say this. They always say, well, it's great financial prices. We had a recession inverted yield curve and it took all the financials down. But on a price to book basis, they were expensive coming off of the tech bubble and off that big bottom in March of 2000. But if you look at 2000, if you use that as kind of your pinpoint, valuations are steeply discounted and sometimes the most since that period. You have an inverted yield curve similar to that, and you have tech valuations that in many cases look egregious. I mean, NVIDIA is trading at 38 times sales.

That is a lot to pay. Now, I know the earnings look very good, but it's a lot to pay. So I think that if you look at some of the financials... It's a hard one to pick out of the hat and say tech's too expensive because NVIDIA has always traded at an elevated valuation. It's trading today at roughly its 10-year historical average in terms of forward PE. It's true. And that's why NVIDIA is tricky. I would rather see multiple confirmations across valuation measures. I always get a little nervous when only one or two multiples look cheap and the others look egregious. Price to book looks egregious. Price to sales looks egregious. PE looks pretty good. So you've got to make a choice

as an investment manager, what variables weigh in heavier. I think NVIDIA, it really needs to surprise to the upside on those earnings to maintain that elevated valuation on some of the other metrics outside of... I'm sorry, John. Eric, before I let you go, do you want to leave us with something on MegaCap Tech? Just sort of how, you know, maybe surprising in some respects it's been to you that it's done what it has this year and where you think it goes? Yeah. So I think MegaCap Tech, actually, if you didn't know the valuation, I would actually say that's where you want to be, you know, going forward, heading into a, you know, economic downturn because they are certainly more stable businesses for sure.

The problem is that within mega cap, there are some valuations that we've talked about Apple on this program before, which I think is just purely too rich. On the other hand, I would say something like a NVIDIA, which I would own here. And so there are a mix within mega cap. And I also think that although valuations are lower for the smaller cap and more value-oriented names, I think it's going to be a tough group heading into an economic downturn. Some people are just like literally spitting out their afternoon espresso, hearing you justify NVIDIA's multiple but not Apple's.

You want to expand on that? I had to go, but I want to hear your answer. Sure. Apple has currently zero growth and actually has negative revenue growth. And I think their growth going forward will be fairly muted. And yet it's trading at 30 times earnings. Nvidia is, as we know, is in the sweet spot for the build out of the AI infrastructure. And I think they're going to have a—although there's tons of pull-forward going on, you have a line of sight for the next two to three quarters at minimum that their fundamentals are going to be there. And that's the big differential. You leave it there.

Something to chew on. Guys, thank you. John Bowery, we'll talk to you again soon. Eric, I know you'll be back as well. Eric Johnston joining us here as well. Brings us to our question of the day. We want to know, are you more bullish or bearish heading into year end? You can head to at CNBC closing bell on X to vote the results later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Christina Parts of Nevelos is here with that. Christina. Well, United Airlines has resumed its flights after briefly requesting a nationwide halt for about 40 minutes or so.

The Federal Aviation Administration said the airline carrier experienced computer issues which halted flights at their origin of departure. Those flights already airborne were able to continue to their destination. Shares right now of United are about almost 3% lower. Data storage provider Seagate is seeing its shares almost 3% lower after its CFO issued a warning at Goldman Sachs tech conference today. Management believes Q3 revenue will be quote towards the low end of the guided rain due to weakness in China. Western digital shares are also lower in sympathy. Scott. All right, Christina, thank you. See you in a bit. We're just getting started. Up next and the winner is iCapitals. Anastasia Amoroso is standing by with who she thinks came out on top in the big debate between Eric Johnson and John Mowry. Plus, she's breaking down the three themes she is watching in the year end.

What it could mean for your money. We are live for the New York Stock Exchange. And you're watching Closing Bell on CNBC. Welcome back to Closing Bell. You just heard the market debate between our resident bull, John Mowry, and our bear, Eric Johnston. Mowry says inflation is moving in the right direction. He sees big opportunities in banks and REITs, while Johnston sees economic headwinds and, quote, meaningful downside risks to the markets. Let's bring in iCapital's Anastasia Amoroso to help settle this debate. What side are you on? Bull or bear?

I'm on the bullish side. And, you know, first of all, I think a 10 percent pullback, if we do get that, gets bought just like that. I mean, if you think about the market in August, you know, we corrected four or five percent and you fast forward. If you're on vacation, you blinked and you missed it. You know, the stocks are almost back to their to their highs from the earlier this summer. And the reason, Scott, why I think any pullback gets bought and I'm not in in the bearish camp, is because, look, this economy I don't think is heading into an imminent recession. You've got the third quarter GDP that's on track for 5.6%. You've got consumer spending that's very resilient. And the biggest thing that makes me say that I

don't think we're headed for a recession is that the Fed is maybe just getting too restrictive. Yes, rates are at 5.5 percent. But if you account for what the neutral rate is, what inflation is, we might just be slightly restrictive. So that doesn't typically tilt the economy into a recession. So that may not be a 2024 event. And you think that that can last. The economy can keep humming along. The consumer can stay strong enough and inflation comes down enough.

It's all going to really hinge on that. Yeah, I mean, I think it can. And first of all, you know, it's all about employment and the consumers gain fully employed. It's fully employed. And yes, the unemployment rate is 3.8 percent. But the only reason for that is that more people we had a spike. More reason for that is because we had more people enter the labor force. You've got wage growth that is strong. And I think probably the biggest reason why the consumer has been so resilient, everybody worries about these lagged effects. Well, most consumers are paying mortgage rates that are in the threes or maybe twos.

Most consumers not seeing this big reset higher in debt expenses. And so why should a consumer that's gainfully employed all of a sudden tighten the belts all that much? That's all good. But how do you, even under that optimistic scenario, justify current valuations, given where rates are and where the economy is still trending? How do you do that?

I think valuations are full and they're fair. I think they're fair for the current level of rates. They're fair for the current level of growth. And I think they're fair for what the forward-looking earnings expectations may be. And obviously there's distinctions within the sectors. But if I look at tech, for example, we all worry about tech valuations. But if I have a company that is growing their earnings at 10%, 12%, 20%, versus the S&P 500 that is maybe growing the earnings at 5% to 10%, of course, I'm going to

pay a higher multiple for the higher growth company. But you're not worried about the fact that that earnings growth in the very companies you're talking about has been coming in, not going up? That was the case earlier this year. That was the case in 2022. But when I look at earnings revisions now, they're actually trending up versus down. That's true for technology. That's true for cyclicals. And, Scott, what happened is if you look at consensus GDP forecast for this quarter, it was virtually 0.5%, 1%.

It's moved higher to 2%, but there's still this delta between the now cast that's at 5.6%. So the reason I bring that up is because as analysts have been behind the curve forecasting sluggish economy and the economy surprised to the upside, they're now having to revise. The equity analysts are having to revise their earnings estimates higher. So I think we're actually in a positive part of the earnings revision cycle. You think the makeup of the market, even as you remain bullish, is going to change that we're going to be talking about more than just technology? Look, energy was at one point today the only positive sector. Last month, it was the only positive sector. How should we

think about the makeup of this market? I think it's really important to have the barbell approach. I mean, look, I am a believer in tech and, you know, partially because of the secular growth and, you know, the artificial intelligence. And, you know, I want to have that in my portfolio, but probably can't be the only thing because there is a risk that, for example, headline inflation starts to creep back higher. And by the way, the culprit of that is going to be energy. So I do want to have some energy in the portfolio. And I think Saudi Arabia-Russia pact today really shows you that that alliance wants to keep oil prices elevated. And higher oil prices, while bad for consumer inflation, is good for energy equities.

So I want to have that barbell in the portfolio. I also previously talked about financials and they've done OK. Not great recently, but I do think that if capital markets do reinvigorate themselves in the back half of the year, you know, if some of the IPO activity picks up, if the economy doesn't fall apart, then that's good news for financials as well. So I do think a barbell of tech and cyclicals makes sense, but I would be selective. You don't look at any, since you mentioned oil's impact on the consumer, you don't look at any of that recent retail, whether it's earnings or other information that leads you to believe that once the spending on all of that summer travel

subsides and the spending on the experiences and all the concerts, et cetera, subsides, that the economy and the consumer are, in fact, going to start to slow. And oil going up consistently like it's been for the last seven or eight days is just the thing that we don't need at this particular moment. Well, I think consumer spending is going to slow. And Scott, one of the numbers that we get on Friday, we get, first of all, consumer credit, and they will also get household net worth. And I think household net worth is likely to tick higher as equities moved higher. But, you know, consumer credit is probably going to also tick higher because people probably financed a lot of that concert spending and whatever else spending with

consumer credit. Now, I think it would be a perfectly normal thing for that consumer spending number to come down in the fourth quarter. But guess what? If we come from 5.6 percent GDP growth to two or maybe one and a half, that's still not bad news for the economy because, again, most economists have been modeling growth for this year very, very conservatively. We'll leave it there and we'll talk to you soon. Anastasia, thank you. That's Anastasia Amoroso joining us here at Post Night. Up next, trading the Apple rally. That stock seeing serious gains year to date. Its highly anticipated product event is just one week away.

So how could the new iPhone impact the stock performance? We'll hear from a shareholder with what he is expecting. And do not forget to register for CNBC's Delivering Alpha conference. I'll be there with some can't miss interviews, including a sit down with Altimeter Capital's Brad Gerstner and Bill Ackman as well. September 28th, New York City. Scan the QR code to get your tickets. Closing Bell right back.

Back on Closing Bell. One week away now from Apple's latest product event where the company is expected to announce its newest iPhone. But will this be enough to keep the recent momentum going? Did you know shares are coming off their best week of the year? In fact, they are just shy of $190 now. Let's ask CNBC contributor and Apple shareholder Jason Snipe of Odyssey Capital Advisors. Nice to see you. 52-week high on this stock is just under 200 bucks, 198. Is this phone going to push us there? I'm not sure about that, Scott. I think a lot of the return that we saw last week was indicative of some of the softness we saw in economic data, where a lot of the mega tech names caught a little bit of a bid last week. So for me, as it relates to this event, I think as I look at the 5G cycle, the 5G cycle, 5G has been around for several years now.

And if I'm looking at the carriers as an example, I don't see a lot of the incentives being put out there for companies, for the consumer really to plug in and be able to take advantage of, you know, these incentives that are not really there. So for me, I think this is another event. We'll look through the rest of the year. The stock is to some of the common comment that we saw earlier, the stock is trading at 21, 31 times forward, and it's only a long term grief of 9%. So I think, you know, the multiple is definitely in view right now. And I think that's what the concern is the market's looking at going forward. Are you suggesting that you also think that Apple's too expensive? I do. I think it's pricey. It's hard to justify a 9% growth rate, and especially revenue deceleration that we've seen over the last couple of quarters at 31 times forward. But I think, you know, Apple has been a safety trade.

You know, tech has obviously run a ton this year, and Apple clearly has benefited from it. And listen, the consumer is still relatively strong. And I think Apple is always a bellwether stop for the consumer. And I think when the consumer is healthy, Apple is healthy and Apple is strong, although I do think the multiple is a little bit rich at this time. Also considering it's above its three-year average as well. I mean, you sound frankly like somebody who's trying to justify taking profits into stock, not someone who's bullish and continuing to hold at these levels.

Well, I mean, for us, it's something that we continue to review. Clearly, the stock has done very well. It's up 44 percent this year. It's approaching three trillion in market cap. But for us, again, as we look at a lot of the macro data and the consumer willingness to lean into some of these prices and iPhone, iPhone sales have been somewhat muted. And I think that that's definitely a concern for us. But services has been very strong. And even in the last print, I mean, Apple printed, you know, just about a month ago at this

point, China has grown a little bit. But now there's obviously been some there's been concerns all year with China. So for us, I think it's something that we continue to evaluate. But it still remains a core position for us as we move forward. Do you see other mega cap valuations as extended as well? You know what? I think a lot of them, obviously, this year has been about multiple expansions. So a lot of them have been stretched. And I think to your point in their earlier segment, you know, names like NVIDIA, who have actually gotten cheaper because their earnings has been there. You know, so I do think a lot of these tech stocks have moved a lot. And that's obviously the reason for the multiple expansion. I think there's areas of the market that I think are primed for some new leadership and new growth and energy being one of the examples for us

as we start to look to allocate funds in other places of the market. Well, because, I mean, you've got, you know, Alphabet, Amazon, Microsoft, NVIDIA itself, and You're all over this area. Is there another stock that sticks out like a sore thumb to you within mega cap that looks like it might be a little stretch? I mean, I'm looking at Microsoft, for example. I got a PE of 34 north north of that. Right. Right. So it's funny that you mentioned Microsoft.

Microsoft is actually the one that I would say is a little bit stretched. I mean, they they took advantage of kind of this AI themed bull that that's taken place throughout throughout the beginning of this year and year to date. So I would say Microsoft actually is the one that's a little bit rich on it, on evaluation, on valuation. Amazon as well. But we continue to like the cloud business and Amazon and some of the other things that they're doing in the margin expansion there. So I think for us, yes, I think it would be Microsoft. But we continue to hold all these names. I think you have to have a barbell approach, you know, with the mega cap tech and some of the more cyclical-oriented areas because I don't believe this. Oh, he froze.

Well, that was Jason Snipe, as you heard, as you see, and we'll see him again soon. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is standing by with that. Christina. Now you can be late to those Zoom meetings or maybe you'll freeze yourself and a bot can recap what you missed. More on Zoom's latest AI offerings. The stock's moving. That's next.

Almost 15 to go before the closing bell, and we're back with Christina Partsinevelos now for a look at the stock she's watching. Christina. Well, Zoom is the latest company to offer an AI assistant that can summarize your video meetings, even if you're late to the meeting, and compose chat messages for you as well.

The press release says that the AI companion will be at no additional cost, but you have to be a paying Zoom user in order to get it. Shares are up almost 2.5% right now, but up about 9% year-to-date. Shares of Airbnb, though, are popping about 8% on Friday's S&P announcement that Airbnb will join the S&P announcement that Airbnb will

join the S&P 500 on September 18th, replacing new old brands. Their stock is one of the top Nasdaq 100 performers today. The continued demand for travel has really helped Airbnb jump about 67% this year alone and pretty much overshadows the local news that's happening here in New York City that New York City is going to be cracking down on Airbnb and short-term rentals. Going forward, Airbnb rentals will have to register with the mayor's office before being rented out. Shares, as I said, are almost 8% higher. Scott. Yep. All right, Christina, thank you again. That's Christina Partsenevelos. Last chance to weigh in on our question of the day. We asked, are you more bullish or bearish heading into year end? You can head to at CNBC closing bell on X.

The results just after this break. The results of our question of the day. We asked, are you more bullish or bearish heading into year end? The majority of you said bullish. All right, up next, oil and gas stocks jumping in today's session. We'll drill down on those moves after this break. Plus, Zscaler reporting in just a few minutes. We'll have a rundown of what to watch when those numbers hit. That and much more when we take you inside the Market Zone. We're in the closing bell Market Zone. CNBC Senior Markets

Commentator Mike Santoli here to break down the crucial moments of this trading day, plus Pippa Stevens on the rally in energy stocks. Crude oil hitting a 10-month high. And Simamodi looking ahead to cybersecurity company Zscaler. Those earnings in overtime today. Here's a good stat for you, Mike, from Bespoke. A horrible day for breath, they say. Just 114 S&P 500 stocks up versus 389 down.

Fang Plus up 1% for the small small cap Russell 2000 down more than 2%. It's very unbalanced and it really is some of the cyclical parts of the market, not on the NASDAQ, really more New York Stock Exchange, that are showing some wear and tear. It feels like there's a sensitivity to this move in yields, four and a quarter on the 10-year, which is, I think, just adding to this sense out there that, yes, this was a pretty down the middle reassuring jobs report on Friday, but still leaves us open to this idea that we're going to have some more

rate sensitivity in the economy. I don't think it's you know, it's not game changing. It's just around the edges. Those were the outperforming areas of the market, consumer cycles, home builders in particular getting smoked today. And it's hard not to feel as if there's been a little bit of crowding in some of those areas. Industrials are a pretty consensus favorite, as well as home builders. We'll see if it's just a brief shakeout at the first part of a new month or something more. Well, speaking of game changing, Pippa Stevens, we're going to find out whether a

continued rise in oil prices will be game-changing for either the consumer, the economy, and perhaps what it means for energy stocks, which, as you know and are watching today, continue to rally. Yeah, that's right, Scott. A big day for oil here with Brent topping $90 per barrel for the first time since last November, after Saudi Arabia said it will extend that voluntary one million barrel per day production cut through the end of the year, with Russia also extending their reduced export levels. Now, energy stocks are the best group today, with Matt Miller over at Miller Tabak, Matt Malium, excuse me, noting that $93 to $94 is the key level to watch here as the sector looks to retest its highs from earlier this year and last year as well.

However, he said the sector is looking a little bit overbought here, and so we might see a breather before any type of retesting of those levels. Now, while energy is the top group, there is some divergence. We are seeing some weakness from the nat gas players, notably EQT, after some weakness for nat gas prices today. On the flip side, the oil field services players are doing very well because with WTI approaching $90, we could see an uptick in spending from the independent EMPs, those private companies, which are about half of the rig count. They could look to bring production back online. And so, Scott, that could be very supportive for the services names looking forward. All right, Pippa Stevens, thank you very much. Mike Santoli, $90. Is that the line in the sand of worry?

It's getting closer. I wouldn't say worry. It's definitely the top end of the range. Every little bit is going to be a slight restraint on what the consumer can do, coming at a time when, especially outside the U.S., you're starting to see growth sputter at best. So it's another thing to layer on top. Of the market kind of creates a higher burden of proof for the idea that we can maintain. Above trend GDP growth I don't think the market relies on us having above trend GDP growth. We are seeing earnings estimates tilt higher- you know we have this ongoing choppy period in the market nobody said it was over. In the late part of August in the weight of the evidence still says trend is higher for the market. Usually stocks find their way if earnings can keep going up. But, you know, I don't think the market owes us anything up 30 percent off the October lows. All right. Seema Modi, earnings, Zscaler in overtime, cybersecurity, a hot topic of late.

Boy, this stock is really ramped into the number. I don't know if that's on the back of, you know, CrowdStrike and Palo Alto. You put some of those concerns about Fortinet in the rearview mirror. But this stock is up in a week almost 13%. Yeah, and that's why, Scott, expectations are certainly high. The cybersecurity cloud provider has posted profit growth of 100% or more for three consecutive quarters. And right now, analysts are estimating a 97% jump in the fourth quarter print.

So the question is, will that be enough to appease Wall Street? Shares have gained about 10% in the last month, outperforming the global security ETF. BTIG upgrading the scaler to 185, a share ahead of earnings. Aside from numbers, Wall Street will want more color on Microsoft's expanded security offerings. And if that poses a threat to the company and other cybersecurity names, we have seen some volatility in those security stocks, especially with Palo Alto as of late. But a lot of these names have also bounced off of those lows, Scott. Yeah. All right, Seema, we'll see what happens in overtime. So don't miss that. It's

been a hot space. Yes. And, you know, there's been a lot of chatter about it. You know, as I mentioned, Fortinet kind of raised some questions, but the others seem to close the door on those questions. Yeah. I mean, it's one of those deals where I think stabilization has been this buzzword this quarter for just general IT budgets. It goes name by name as to whether, in fact, they had, you know, what was in demand in that given quarter. I don't think it's that easy to generalize about the group, except there is this broader sense out there that, well, you're always going to have to pay up, you know, even if you don't want to for this type of thing. We're still on the lookout for things that might be victims in the short term of the kind of completely singular focus on AI-related capabilities.

So we'll see if that's part of the story here or not. But, you know, it's the tech side of the market that's been holding things together today. A little bit, you know, despite the yields going higher, big corporate bond issuance window opening up with September starting. That sometimes put some upward pressure on yields as well so I think it's a little bit of a tough tape to decipher in the short term today just because

you do have the back to school new month effect and see if it's you know giving back more of the rally in late August and we thought it would be talking and watching a lot about Apple. Yeah over the next week or a week out from their product

event of course, new iPhone. The stock's coming off its best week of the year, banging up against 190. And it's not that far away from its 52-week high. It's not. And it's a little bit of a puzzle in the sense of what moves the stock and what doesn't. Nobody really has an edge, I don't think, fundamentally about units sold. And if you knew what the number was going to be in terms of iPhone demand, I'm not sure you could translate it into how the stock should trade off of it. So it has been a combination flight to safety beneficiary, you know, mega cap source of stability and predictability. The other small piece of it is,

you know, there's this idea out there that corporate America is so much less rate sensitive than it used to be because you have an Apple earning more on its cash on hand than it's paying out on its own debt, even though Apple has a substantial amount of debt at this point. So it's like this weird buffer for the current environment we're in where everyone's worried about is our rates going to hurt? Also, upward revisions to earnings estimates for NASDAQ 100-type names, but not really for Apple. It's not really an earnings momentum story at this point.

So we'll see if it can make anything of all that. You still feel like, and we don't have much time left, but it's, you know, as big tech goes, so goes the market for now? I mean, always for now in terms of the S&P 500, but I do think you could see, you know, pockets of variation away from that. It's not going to be a monotonous pay. All right, well, we're going to close on the lows. Dow's down 200.

S&P down about 19. And the Nasdaq, even though we're talking about tech, doing better than the others, Nasdaq's going to go red, too.