Closing Bell - Closing Bell: Dissecting the September Slump 9/6/23

Episode Date: September 6, 2023

Is this month going to live up to its billing and will mega caps like Apple might be more vulnerable than you think? Trivariate’s Adam Parker, Hightower’s Stephanie Link and CNBC’s Steve Kovach give their expert takes. Plus, we drill down on the beige book, ISM data and all of today’s Fed speak with CNBC’s Steve Liesman and Mike Santoli. And, BTIG’s Jonathan Krinsky is taking a look at restaurant performance as we start September. 

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 the sell-off, whether it is nervous time again for investors. Let's get right to your scorecard with 60 minutes to go in regulation. We ask because it's been a pretty rough day for all three major averages coming off the lows, but nonetheless, in the red across the board, a big reason why only the biggest stock in this market. It is Apple. Those shares under pressure as news from the EU and China weigh heavily on that stock today. There it is. It's down just about four percent. All of it happening, of course, less than a week from the big iPhone event. Obviously, that is taking a toll on the Nasdaq, too. And so

are interest rates. They jumped after another economic report came in a bit hotter than expectations. If there's a bright spot, it's energy again, that sector higher. Brent topping 90 bucks for the first time in 2023. There's the XLE. Well, it's gone negative, but it's right at the flat line. We'll watch that closely in the final hour. Takes us to the talk of the tape. Whether this month is going to live up to its billing and if mega caps like Apple might be more vulnerable than you think. Let's ask Adam Parker, the founder and CEO of Trivariant Research, and Hightower's Stephanie Link, both, of course, CNBC contributors. It's great to have you both with us.

Adam, I'll go to you first. I'm going to break it down real simple to what Kramer tweeted earlier. Don't trust any stock rally until oil prices and bond yields fall. Right now, oil prices are going up and yields are going up. Is it as simple as that? Well, I mean, I think there's perception about growth and perception about rates and some combination of those two always drive where we end up. Today, people seem to be worried about the rates thing. We could all sit here and say they should have been worried about it, I don't know, 95 of the last 100 days. So

what makes people worry about it today? Maybe the ISA. It's always some data point that triggers it. Yeah, like hotter than expected data means higher than expected rates. I think that's pretty fair. I think so. I think the earnings part, though, the growth part, to me, has continued to surprise to the upside. I mean, the 2023 S&P earnings estimates today are as high as they were at any point since February of this year. Like, the earnings expectations usually come down all year, and they've actually come up a little bit, both for 24 and for 23 over the last few months, in part because of the mega cap tech stocks. So I don't think the E part's got people freaked out right now. I think it's the P, the price earnings ratio. And I think that's because of Kramer's view, you know, on inflation and how the Fed's going to deal with it. What about stuff this, you know, Jim, as well as

anybody, the way he thinks about the market. Oil has been going up. It's, I don't know, seven straight days, eight straight days, something of that magnitude. Now, you know, Brent's above 90 for the first time, as we said this year. Is it as simple as Jim lays it out? Don't trust any rally in the market as long as oil continues to rally itself. Could be. But I I'm going to take the other side and say that oil is going higher because growth is actually beating expectations. The Atlanta Fed tracker right now is running at 5.6 percent for the third quarter GDP. That wasn't supposed to happen. Everybody started the year thinking 2 percent would be the high watermark for GDP. And we've done nothing but go actually up. And that has led to better than

expected earnings. And that has led recently to a broadening of the market. I'm excited about better growth. I know people say is good news, good news or is it bad news? I think 5.6 percent. It's probably not going to end up at 5.6 percent. We know that. But even if it's at three and a half, four percent, that is good. And that is Goldilocks for earnings and for companies that have restructured over the last several years. Even if it means that rates remain elevated more so than the market could bear. Yeah. It obviously plays into the multiples that you're willing to pay on the market, whether we judge things to be too expensive or not. But that's why you're actually seeing a rotation and you're seeing a broadening out in the

marketplace because people, when rates stay higher for longer, you don't want to own long duration assets. And that didn't work, actually, by the way, for the first six months of the year. We know the actual opposite happened. Long-duration assets like tech and growth did well. But now you're seeing the reversal. And I can tell you that energy and industrials and materials, even some discretionary, those valuations, I can stomach them better. They're not cheap, super cheap. Maybe energy is. But I would say that they're much cheaper than some of the big tech and growth companies out there. Okay. So let's talk, Adam, valuation, right? I mean, you're a statistics guy.

You do the numbers. You see what the numbers are. Can you justify, and let's just take mega caps, since we kicked off the show talking about this Apple slide. If you look at the historical average of Apple, it's much lower than the forward PE that it's trading now. The forward PE is much higher today than it was at the beginning of the year. The growth rates on revenues are much lower than they were a year or so ago. Can

we justify that? What does it mean? So if I'm trying to beat the S&P 500 in a long only portfolio, I have to look at names like Apple and view them as risk management and not stock picking. Why? There's 60 sell side guys, let's say 4.2 million buy side guys who cover it. It trades very macro, so it can explain a lot of its returns statistically from macro factors, not from individual things. And I basically can't know anything about it that anyone else knows. So it's going to be hard for me to be a cold-blooded bottom-up stock picker and pick Apple. So I think it's a risk management issue. I think that's largely the case for Microsoft, Tesla, Google, Meta, that cohort of stocks.

And so I would be close to market weight that group in trying to beat the S&P. So you wouldn't be overweight, Megacat? I would be close to that and try to make my alpha elsewhere. Now, within that, I could say, well, I like the fortunes of maybe the dream of Microsoft more than, and Google maybe more than Apple. We could go there and trim 1% below Apple and one above the other. But I want to be close to the index weight for all of them in aggregate because I think they're really hard to know things that other people don't.

We could sit here and have said for months we're worried about China. I could have said to you 10 years ago, you know, Apple's only going to grow their net income 9% or 10% per year. It's barely a growth stock. But they bought back 40-something percent of their shares. They got this walled garden of data. I mean, there's reasons it's up. I agree with the aggregate.

It looks expensive to me on what I think its future growth prospects are. It's basically the same size as the energy sector. And I certainly would rather own energy for the next 5 or 10 years than Apple. I would never be 7% weighted in Apple. I'm actually 1% weighted in Apple. And you're underweight tech relative to, you know, where the market is and also relative to a lot of other people. Sure. But I have been adding on weakness to Broadcom last week when it fell on its earnings, which I thought was

ridiculous. I added to Lam Research. Both of those companies are trading at about 20, 21 times earnings. And I like the prospects for wafer fab equipment bottoming. And I like in terms of Broadcom, my goodness, you have a great diversified revenue base between AI and cloud and networking. And they did a great job. And their balance sheet is phenomenal. So I will make those bigger, Scott, really big to offset my underweight in an Apple or in some of the big games. Your voting answers my question. Your buying answers my question.

You can't look at mega cap valuation and get your arms around it enough, so you're looking for growth elsewhere within tech. Within tech. Absolutely right. That is spot on, right? And CDW is a new name for me, right? And IBM is a huge position for me. So I do have technology. I've made them bigger because I don't own the big seven.

I mean, I do own two out of the big seven. But I think that that's how I create my alpha. I understand what Adam's saying. You want to just market weight them. I just think that's not as much risk management because those are big bets that you're making in your portfolio. So I would say hard to agree with more than 80% of what any human being says. I think over the last few years, Steph and I are in the 70s range. I think

we have a lot of agreement even in our current sector recommendations. So I'm just talking about purely from risk management, not alpha, not to get too technical with the crowd. But when you're 6% under when a name, in my parlance, that's tremendous risk. When Apple goes up 9% in June and adds $270 billion market cap, there's nothing you could do to, I don't care how much of the other names you own, you can't make up for that. Well, that's why. There's nothing that correlated to it. It's not that replicable. People on the wrong side positioning this year learned that lesson the hard way. That may well be the correct call today, right now, going forward. I wouldn't dispute that. But I think an aggregate, I think the right risk management thing is to be

closer to the weight of that 30% those big names are. Semis, I think the right risk management thing is to be closer to the weight of that 30% those big names are. Semis, I think, are a different kettle of fish because they're more replicable and you can, you know, and there's a longer term story that I think we both totally agree with makes sense. Yours three through 10. I got issues I want to get to with both you regarding the market, but I do because we're talking about Apple want to bring in our Steve Kovac. It's good to see you. We do have a number of issues on the table as I laid out. News out of China, government officials not being able to use the iPhone at work, etc. And then, you know, news out of the EU as well.

And then questions about the valuation, Steve, which, you know, you look at to historical averages versus where it's at today. Yeah. And I think the EU is the most important story happening right now, Scott. It's this designation that the European government gave under this new law, the Digital Markets Act going to effect next year. It goes after Apple's high margin businesses. The app store is at risk here. iMessage is at risk here. That's important because iMessage is the lock-in that keeps people upgrading to a new iPhone every time instead of switching over to Android. So all these pieces of Apple's walled garden are starting to be cracked down by the European Commission. And basically, it's forcing Apple's hand. Next week, we're going to see this in action, actually.

Apple's expected to change that charger plug on the bottom of the new iPhones because the EU put out a regulation saying they have to start using standard chargers. So that's going to be a global change. But we're also going to see most likely Apple having to start to split up its software. So there's a different version of the iPhone software in Europe and a different version in the rest of the world. And this is going to impact not just Apple, but five other big tech names that we talk about so much. This is a huge law. And then on the China side, you know, this seems like a tit for tat thing for me. I will note that China, the Chinese company Huawei just put

out its first new smartphone in years, in part because they found a way around some U.S. regulations and sanctions keeping them from building those phones. Huawei's downfall in China was the main reason Apple saw so many people switching over to iPhone over the last couple of years. So not only the government officials using it, but consumers having that Huawei, that homegrown Chinese option again, is another risk for Apple. So there's a lot going on today. We see Apple down 4 percent, Scott. Yeah, no doubt. And you laid it out great. I appreciate that very much, Steve Kovach. Thank you. So on that note, the other thing that we're going to find out next week is just what the iPhone, the new one, is going to price at in The Wall Street Journal with an article today that,

you know, Apple is going to push the limits and you're going to see a price increase there. It just leads me to what the Beige Book was talking about, Adam, not an hour or so ago. Some districts report consumers may have exhausted their savings, reported higher credit delinquencies and the like. Do we need to start worrying about the consumer? The thing that has been holding this market up arguably more than anything else? I think if you do what we do, you ingest a couple hundred variables, macro variables, and really try to gauge where we are systematically, no matter how you do it, no matter who you tell to do it, what it'll show you is the consumer's in good shape, but slightly eroding. In aggregate, I don't think you can say it's in bad shape. I don't think you can say it's falling off the cliff.

If you look at jobs, wages, credit card delinquencies, confidence, retail sale, you take all the data in, the consumer in aggregate is in above-average shape versus history, but slightly eroding. I think rising oil could be a fear. The housing market, you know, gas at the pump. There's things you could point to that are getting worse, but I don't think you could say in aggregate the consumer is in bad shape. Whether they pay, you know, five grand or whatever Apple charges for their products. I'm joking, but, you know, we'll see.

We'll see, but I don't think that the mean... Back to the point you made earlier, and this is the part that statistically is hard for me. Basically, using valuation and saying it's going to always mean revert in some time horizon. What the data show you is you get a little short-term mean reversion, you get very long-term mean reversion, like years three through ten.

But one month from now, for the next two or three years, saying, oh, Apple's above its history and it's going to go back down to average, you can't show that for a large basket of stocks over time. So that's trickier. We still have a very tight labor market, right? Initial claims are the leading indicator. That's what I look at. The four-week moving average is $237,000, right? And it keeps surprising to the better side, to the stronger side, right? So that's number one. We just got an ISM services number that expanded 180 basis points month over month. New orders accelerated, employment accelerated. So I think the consumer, sure, maybe there are parts of the consumer that are starting to crack

a little bit. I'm not hearing it from many companies, not all companies, but many of the companies that I own, especially on the discretionary side. But it's the services that continues to have the momentum. Why do we care? Seventy percent of consumption is services, so that's why we care about services. I know, but some of the retailers, whether I think Nordstrom's, Macy's, now you might not own them, you may not own them, but they've talked about rising delinquencies and things of the like. But those businesses are structurally screwed, and they're not like economic barometers. You know what I mean?

I think one of the things we struggle with is like, let's look at the dollars. I got to tell you, auto, SAR, and whole, like the big dollar things. But delinquencies are delinquencies. But not everybody saw them. But when you're looking at like the small retailers, I think a lot of them are, and we talked about this a few months ago, right? It's the shrink. It's the financing arms that are deroding. It's the growth in urban areas. So they have some ago, right? It's the shrink. It's the financing arms that are deroding. It's the

growth in urban area. So they have some challenges, right? In fact, one of the 25% of things we do disagree on in the past has been Target, which I think is at the epicenter of a lot of issues. But I think if you look more broadly, again, I don't see you can look at the data and think that the consumer is in bad shape. No, there are winners and losers. That's a good point. Leaseman with it two hours ago made the distinction that anecdotally, if you look Bay's book, you're like, OK, well, that sounds bad, as he said. And you say and you agree the data would suggest otherwise. Yeah. So which is right. We're going to find out. I don't want to own a dollar store. All right. I don't I don't want to own a department store other than Target

because I do think it's a special situation. Walmart is crushing it. TJX is crushing it. Ross Stores is crushing it. Nike even is crushing it, even though it doesn't get the credibility. Abercrombie is crushing it. Abercrombie. I mean, so there are winners and losers. But you've got to look at the dollars. Amazon and Walmart are $600 billion in annual revenue. And if we pull out something with a billion in revenue and say it missed because people are stealing their stuff it's it's an apple oranges conversation I want to get back to Steve Kovac who I think is still

with us about the iPhone pricing let's just talk about it real quick before we get back to yet another headline I want to bring up and discuss with the group but what do we know yeah so this is a lot of analysts chatter I know the Wall Street Journal wrote about it today and Bloomberg did have a more credible report a few weeks ago but basically saying the pro models you know the Wall Street Journal wrote about it today, and Bloomberg did have a more credible report a few weeks ago, but basically saying the pro models, the more expensive, when they are announced next week, they're going to cost $100 more. Now, there are a couple of things to say here to contextualize this. One, just analyst chatter, we're not, you know, it makes sense.

Apple has done it before, raised prices on iPhones. They've proven they can raise prices on iPhones and people pay up. And two, they're also, last time I talked to Tim Cook after their last earnings report, he told me demand for smartphones is just falling off a cliff. Not, I'm putting words in his mouth, but basically saying, you know, it's a really tough environment to launch a smartphone as demand continues to fall. So it'll be interesting to see if they feel like given that pressure, they can raise it a hundred bucks. At the same time, we're heading into Apple's first quarter after this month is over. Remember, it was a year ago, they couldn't make enough of the iPhone Pros to sell because of all those COVID shutdowns in China. So the comps for that

first quarter of their fiscal 24 are going to look a lot better. And it might not even matter if they raise the prices because people are willing to pay up for those pros. So it's going to be really interesting to see if the analysts and these supply chain whispers got it right, Scott. Yeah, good stuff. Thank you, Steve Kovach. Now, as we look and we try and debate, discuss the trajectory of the market over the next, let's say, a couple of months, there are some concerns out there that, you know, Marco Kalanovic, J.P. Morgan had a note out today. There's a looming crisis, right? All the stuff that the Fed has done has yet to really be felt.

And it's inevitable that there are going to be some issues, whether it's a credit event or whatever kind of crisis happens. Tightening of credit is going to have an impact on consumers and businesses. There's another headline today that I saw, quote, real estate doom loop threatens America's banks. They're talking mostly about regional banks. Their exposure, according to The Wall Street Journal, is more substantial than first thought. You guys were kind of smiling as I was reading that stuff. I'll come to you first because your smile was bigger than Adam's as I was reading. That's genetic. That's genetic, not environment, but okay. Are these concerns overblown? Are we too complacent about looming risks?

I think there's a lot of underlying momentum in the economy, and I think we can handle a little bit higher rates for longer. Are we going to slow? Yeah, we're going to slow, but I think earnings are going to hang in there. In fact, I think earnings have troughed in this past quarter. Companies are doing a remarkable job on the margin front on restructuring. And if demand hangs in there for certain parts of the market, not all, like the consumer, like manufacturing, like energy, I think that we're going to have volatility, but I think that's opportunity. So to me on the banks, I worry about the regionals. I do. But we've had 519 closures

of banks since 2009. So I wouldn't be surprised to see more than three at this cycle. But I do think the big banks are much better capitalized, right? The big six. And they're going to take market share and they already are taking market share. Yeah, I know. But the stocks like market share, reserves, all this stuff. They may not be good stocks. They may not be good stocks. Why not? Because the economy, as you guys keep arguing, is good, better than people thought. The regulation, I mean, I think is a big overhang. And the amount of capital that they have to all have to raise as a result of new rules, Basel III, end game. So I think that there's a lot there.

But I don't think that they're going to blow up and fail, not the big ones anyway. But the small ones, I do worry about their real estate exposure, for sure. And you think that, you know, Adam, if there are issues with regional banks, some of the smaller banks, the market is just going to rush that off? I'm 100% in line on this point with Steph. I think, first of all, every big firm in the last year calls like 17 of the last zero downturns. So I just can't listen to you tell me every week there's another big firm crapping on the market saying it's about to go lower. Could be. But when I made that call, I lost credibility after the 16th

time I said it. Go with the real estate.. If there's looming risks with real estate, and are there real worries about regional banks like Steph has? We already had a pretty good earthquake as it relates to regional banks. Now the Fed came to the rescue and the market recovered in two seconds. I do think tightening financial conditions generally causes a slower economy. I think some of the regions are more at risk. I totally agree with her that the economy could be fine and earnings could grow some next year versus this year

without the banks being great stocks because of the reasons we talked about. They invest a lot in productivity and it doesn't occur to the shareholder. It manifests itself generally in inferior service for the end user. Ask some reviewers, do they love calling one of their banks to get something done?

No, right? So you could see them do okay as economies okay and be not great stocks. It depends on which one. If you're saying we get more scare on run on regional banks, sure, the market's going lower. But I don't think that's in the current set of concerns for the investors that I talk with. Last point to you, Steph, real quick before we go on that issue. No. I mean, look, I think that the capital requirements are substantial, and that is a really big headwind. But that's a good thing.

We want banks to have excess capital. The big six have a ton of it and billions, I mean, over $500 billion, right? So it's a big number, and I do think that they're just better positioned. But, yeah, I mean, if one fails or two fail, the market's going to go down, and that's where your opportunities are elsewhere in the marketplace. We loved it. Guys, thank you. We'll leave it there.

Stephanie Link, Adam Parker, Steve Kovac. Of course, thanks to you as well. Let's get to our question of the day. It's back to tech. Do you think the Nasdaq's going to finish September positive or negative? You can head to at CNBC closing bell on X to vote. The results a little later on in this hour. In the meantime, a check on some top stocks to watch as we head into the close.

And Christina Partsenevelos is here with that. Christina, I got to talk about AMC shares because they're shaking off the recent enthusiasm over Taylor Swift's movie as the company announces plans to sell up to 40 million new shares. It's just the latest development to send the stock lower. And when I say lower, that's an understatement. Down almost 38 percent. And this is coming after the conversion of Ape shares into regular AMC shares and that 10 for 1 reverse stock split. Shares are down roughly 80 and a half percent just in the last month or so. Switching gears, Aero Environment or Aerovironment, I should say, is soaring today after the drone manufacturer smashed earnings estimates. Analysts at Baird are upgrading the defense contractor to outperform

and hiking its price target to $128 from $95, currently trading right now at $115.87. They cite strong demand and a big backlog stemming in part from assistance to Ukraine. Be sure to tune in in the next hour for an interview with Air Environment CEO, who's going to come up at 4 p.m. Eastern. Scott. All right. Christina, thank you. We'll see you in just a bit.

We're just getting started. Up next, the Fed front and center. New data and commentary from several speakers today shedding light on the inflation situation. Looks like there's more work ahead for Chair Powell as well. We'll break down the numbers and what's at stake for your money. We'll do it next. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

We got breaking news on hedge funds. Leslie Picker is here with that. Leslie, what do you know? Hey, Scott. So we know that the broader equity market's down in August, not so for some of the bigger multi-strategy hedge funds out there. I got a hold of some performance numbers from Ken Griffin's Citadel. The multi-strategy fund was up more than 2% in August and up 10.8% in the year through August. The long-short equities fund was up more than 2% in August and 9.5% year-to-date. This according to a person familiar with the numbers who asked to remain anonymous. Now, while the S&P isn't necessarily a perfect benchmark for these strategies, the index was down 1.8 percent last month. So Citadel's monthly returns outperformed the broader index.

And that was also the case for some of Citadel's peers as well, with many multi-strategy funds in the black that month, despite losses in the broader equity markets. I'm told Steve Cohen's 0.72 up almost 7% in the year through August. And D.E. Shaw's composite fund is up about the same amount in the year through August 25th, sources say. Citadel, 0.72, and D.E. Shaw declined to comment. But multi-strategy funds, which usually involve a bunch of different strategies under one umbrella, have been increasing in popularity in recent years, gathering assets and may soon actually overtake long-sh short equity as the largest strategy out there. Scott. Yeah, Leslie, thanks. And, you know, as you're reading the Citadel numbers, if I recall correctly, and you'll you'll know if I'm wrong, they were up better than 30 percent, I think, last year in a down year for just about everybody.

They bucked that trend and had a really great year, didn't they? Yeah, they've had a couple of really good years, which is kind of why that strategy, Citadel in particular, and others have been growing so tremendously. A lot of them are closed to new investors, but obviously the returns help. And the strategy itself has become one, just given the diversification, the incentive structure, and the talent that they've been able to acquire has been a growing pocket of the hedge fund community for several years now. And just the environment where there's so much uncertainty out there when you've got the diversification all under one roof, under one umbrella. It's been very appealing for LPs that

are out there. Yeah. I remember having this conversation with Ken Griffin at Delivering Alpha last year, which we're getting ready for again. Look forward to being there with you, Les. Thank you. Thank you. All right. That's Leslie Picker. Fresh data out of the Fed, along with commentary from Boston Fed President Susan Collins, bringing the inflation conversation front and center yet again this afternoon. Let's get to Steve Leismanman um with more so there's a lot of stuff going on today steve the first thing i want to discuss is the beige book um with you because as you made a great point earlier i thought that data versus anecdotes they don't match

yeah that's right uh scott what we found in the beige book was they said economic growth was modest across the 12 Fed bank districts. But we're tracking the GDP number that's, I don't know, 3, 4, some say even 5 percent. Beige Book said retail spending outside of tourism continued to slow, with some districts reporting consumers may have exhausted savings. We have retail numbers that have been off the charts. Also in the Beige Book, higher consumer credit delinquencies. Job growth was subdued. I don't know.

Jobs data was pretty good as far as I was concerned. Price growth slowed overall. That does seem to be comporting with the data. And businesses struggled to pass along costs. That told you that profit margins probably fell. Meanwhile, you had that ISM service index more in line with the data. Here's the data. 54.5.

Forecast is 52.5. All the major components were strong new orders along with employment that gave the market a scare this morning price components got ticked up not a good sign for a fed focused on service inflation but you can see in that chart we're well off the peak levels a year ago all of this the unevenness prompting fed officials to be you know reserve their optimism when it comes to inflation. We had Susan Collins this morning saying the Fed is going to need to hold rates at restrictive levels for some time while the Fed may be at or near a peak. Further tightening could be warranted. Where are we at, Scott? I'll tell you. We have 47 percent on the chance of a member hike. That's

up a few points this morning. September, though, below 10 percent. So you can relax a little bit this month. It does, though, Steve, make it potentially more difficult or tricky, I suppose is a better word, for the Fed in terms of what do they believe? They believe the data. They believe the anecdotes that are in their own beige book. And how do they formulate their decision-making process out of looking at both? Well, I mean, I think a couple things. First of all, the Beige Book, Scott, may be giving us a little bit more flavor from the August data.

We don't have a lot of August data. This is anecdotal data from July and August. So maybe the Beige Book is a touch more contemporary. But I think the Fed is positioned in a way that it doesn't have to decide. So it may be confused by the data, but it's got a full, I don't know what you want to call it, July, August, September and October to figure out if it can hold the line and maintain rates and not have to make a decision until November. So there's time for stuff to sort itself out.

Yeah. And Mike Santoli is here as well, our senior markets commentator. You know, the market's going to have to look at both of these and figure out which one it wants to believe. Right. Or just sort of reserve final judgment and remain unable to relax about anything, either the Fed being fully done or the economy being able to power through. And I think this is always going to be where you were headed in terms of we knew the Fed was in the vicinity of being done. And when it's in the vicinity of being done, well, I don't know, a month, almost two months out

from the next potential Fed decision, it should look like a coin toss. And that's what the odds give it right now. So I feel like the disinflation without the economy buckling is still the overarching premise for why the market has held up this year. It's not been invalidated, but you're not at the destination either. You haven't had the clinching arguments either way. And so we sit here and kind of ping pong back and forth between what are we more worried about?

Is it yields because of overheating as we thought it was going to be from the July numbers? Or is it yields are higher because the economy is a little more fragile than we thought? We have to, you know, kind of deal with that. Yeah, good stuff. Good conversation, guys. I appreciate it. Steve Leisman, thank you, Mike. I'll see you in just a bit in the market zone. Mike Santoli up next trading the tech turbulence. That sector is underperforming today in the face of several headwinds. So how should we navigate this uncertainty?

Well, we will ask Plexo Capital's Lo Tony after this break. And don't forget to register for Delivering Alpha. I mentioned it earlier. I'll be there. We'll have some can't miss interviews as well as sit down with Pershing Square's Bill Ackman. Don't want to miss that. September 28th, New York City. The QR code is on the screen. That's how you can get your tickets. You can register there. Closing bell right back. All right. Welcome back to Closing Bell. Tech stocks underperforming today. The sector set to snap a seven day win streak as the group contends with increasing regulatory pressure, historically high valuations, rising rates, a number of other things.

Joining us now, post nine CNBC contributor Lottoni of Flexo Capital. It's great to see you again right here on the set. I want to start with Apple. Yeah, it's down 4% today. We got issues in the EU. China's banning government officials from using the phones at work. How do you view both of those things? And that's before we even get to valuation conversation. Yeah, that's right. And I think we also need to talk about just global demand in general for smartphones slowing down. Analysts are expecting the orders for the iPhone 15 to pull back slightly. Then we've got the concerns, as pointed out, on the EU. And just thinking about the vertical integration that Apple has used to create this moat, which without question has helped to increase their valuation.

But now Apple responding to pressures and pulling back on, of all things, yet another connector, right? But this shows that, you know, the EU is saying, well, look, you're playing outside of what else is happening and we want to see parity. And I think, you know, Apple succumbing to that pressure just shows that they are sensitive and understand just based on what we've seen happen in the EU and other areas, they need to be sensitive, which is going to have repercussions across the board. And then not even to mention China and what's happening there. I mean, that's pretty profound, just kind of thinking about just an outright ban. That's going to,

obviously, I think that's not the end of where China has its eyes set. And we'll continue to see pressure, which has been a great market for Apple to be able to increase sales. I think it's 20% of revenues. That's right. Just from there. So you can't really afford a major issue over there, especially not at a time where you're talking about smartphone orders pulling back, where you're already in an environment where their revenue growth is much slower than it was not a year, not to mention two years ago. Right. Yeah. Yeah. So they have some serious concerns. And I think all of those things together and kind of where we're landing is what is putting a little bit of pressure on the stock.

Now, we've got announcements coming out about the new hardware, the 15 next week or whenever the. Yeah, next week. Next week. Yeah. Like five days or six days from now. Yeah, and we'll see what happens and how people react to what is expected to be a price increase of around $100 or so, mainly on the pro. So how should we think about valuation? Do you think we make too much of it? You obviously focus on valuation in everything that you do, whether it's a startup investment or what have

you. The stock is well ahead of its historical average. The stock is well ahead of where it was at the beginning of the year. I mentioned where growth rates are for revenues. We're worried about are iPhone numbers going to live up to what the expectations are? How should I think about valuation under all of those scenarios? I think that is the right way to present a framework to think about valuation in light of everything that we've seen that's putting pressure that we really haven't seen at least converge at the same time around Apple. And I think that will put pressure on valuation. We do need to, and I think people that have a longer-term perspective will likely say,

okay, we've seen situations where there's been a little bit of turbulence in the past, and Apple has always managed their way through. I don't know if we've ever seen quite this many issues to address head-on that present the headwinds, but I think long-term investors probably are thinking ahead to the future. Well, I think short-term traders are going to be a little bit concerned about their position. Are you still asked all the time about whether you're at a cocktail party or walking here at the stock exchange? Hey, this AI thing, is it as legit as the stocks would make you believe it is? And how do you answer that question today now that we've been in this, I don't know, you want to call it a phenomenon for six to eight months at this point.

Yeah, I just had a great conversation with an executive at one of the big tech firms. That's one of the leaders in the space. And we were just talking about how this truly is another platform shift. Historically, when we've talked platform shifts, even when it was, you know, going all the way back 20, 30 years and, you know, computers the size of this trading floor that now have the same computing powers in my hip pocket, right? We've historically seen those as hardware, but this is something a little different because AI is really more of a software shift, and I think it's a little bit tougher for people to get their arms around it. We're in the early innings. I think we're going to see great success in the things that people do on a daily

basis, whether in their personal lives or professional lives. We talk professional. Think about the marketing folks that have to do this work. Maybe 60% of their job is doing lower level rote tasks like writing copy for emails. And AI can handle that, freeing people up to do more value-add things. Once we begin to see more of these use cases that are tangible, I think when we look to how this can improve consumers' lives and being able to manage tasks like setting up a trip, getting the plane tickets, booking a hotel, once people start to get their arms around that, the fascination has happened. Genie's out of the bottle with open AI and the prompts. Now we need to see some tangible use cases. Real quick, we are

in the epicenter of capitalism, the epicenter of capital markets, New York Stock Exchange. IPOs, getting some whiffs of ones coming down the pike. You know, ARM is obviously the biggie, but there are others. Are we about to get back to any semblance of normalization? I think so. And this really is a good sign. ARM is obviously going to be a bellwether. Look at the performance and see what happens. We do see the pricing coming in a little bit lower than what many people had anticipated, even coming in a little bit lower than what SoftBank acquired some shares from their Vision Fund even a month ago. Right. But if we see it trade up, if we see performance handle and hold the price, I think we're in good position for the other companies to then start to think about coming out, like the stripes of the world.

Come back more often in person. Appreciate it. Good to see you. That's Lowell Tony, Flexible Capital, joining us back here post-9. Up next, we're tracking the biggest movers as we get closer to the end of today's session. Christina Partsinella standing by with that. Christina. Well, it seems like T-Mobile investors just aren't impressed

with the newly announced dividend, but there could be some good news in the pipeline to help that share price. I'll explain it all next. A little less than 15 from the closing bell. Let's get back to Christina Partsenevel now for a look at the key stocks she's watching. Christina.

Thank you, Scott. T-Mobile is in focus today as it announces a $19 billion shareholder return program through the end of 2024. That will include stock buybacks along with its first dividend payout in the fourth quarter of this year. The yield is actually, though, much lower than what competitors Verizon and AT&T are offering. Shares initially dropped, you can see on the news, just after 2 p.m., but are coming back up ever so slightly, but still down 2%. Solar stocks are under pressure today after Morgan Stanley trims price targets on several names that include big players like SunPower and Enphase. They're also upgrading for solar to equal weight thanks to its strong backlog, but they say there are still

long-term risks in its profile margin. You can see right now SunPower is probably the lowest of the group, down about 5%. Scott? Alright, Christina, thank you very much. Christina Parts of Neveless. Last chance to weigh in on our question of the day. We asked, will the Nasdaq finish September positive or negative? Head to at CNBC closing bill on X, the results after this break. All right, the results of our question of the day. Will the Nasdaq finish September positive or negative? The majority of you said negative. 52% in fact. Up next, semi-stocks are slumping.

We'll tell you what's dragging that sector lower as we head into the close. That and much more when we take you inside the Market Zone. We're in the closing bell Market Zone. We're in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down the crucial moments of the trading day. Plus, BTIG's Jonathan Krinsky on what he says is a bearish setup for restaurants heading into the fall. And Christina Partsenevelos digging into the big moves in the semi space today. What's on your mind, though, Mike? A little more focus on the potential downside risk to the consumer getting a little bit bumpy. It seems like the prevailing driver today, although I will say it's more indecisive in, you know, kind of lack of action more than anything else. There's definitely some pressure on big cap tech.

Apple going down. How many times you have to say it wasn't going up because earnings expectations were going up? It was going up for its own reasons. Giving some of that back. And I think that we're testing the yield sensitivity of both the economy and the markets as the 10-year comes to 4.3. All right. Jonathan Krinsky, watching crude oil today. And I know you are, too, but your note is about restaurants. The title, pumpkin spice season, not so nice. And it is related to what you think is going to happen because oil prices have risen. Yeah, hey, Scott, good to see you.

Yeah, so I think, you know, if we look at the restaurant sector, the Russell 3000 restaurant sector, it peaked on May 1st. It was up about 15 percent on the year. At that point, it's only up about five right now. And I think it's no coincidence that right as the restaurants were peaking, crude oil was putting in a bottom. It actually put in its intraday low on May 4th. So we've seen crude oil move to the upside. We've seen restaurants move to the downside. And now they're starting to break some key technical support levels. If we look at the restaurant sector as a whole, it's below two hundred moving average which is starting to flatten out uh... and it just broke it's it's august low so you know i think there's some

vulnerability to restaurant sector even if crude does take a little bit of breather here i think the wheels are probably set in motion a bit for further weakness here who's most at risk you know it's it's fairly broad-based i I mean, we highlight some names, Darden, Brinker, Dave & Buster's, Yum Brands, Denny's, Jack in the Box, those sort of names. But, you know, you're starting to see weakness across the board early, and it makes sense. We're seeing some signs across the consumer, whether it's retail or, you know, some of the consumer finance names. So, you know, it's really pretty broad-based, and I think it's starting to broaden out even more.

Okay, thank you, Jonathan Krinsky. Now to Christina Partsenevelis again on semis. What do you see today? Well, we know that chip stocks are moving lower, are moving the NASDAQ lower, and video's among the five worst NASDAQ performers. It's down about 3%. Last I checked right before the commercial break,

you can see, yeah, 3%. There's no particular news catalyst. However, today, Microsoft announced it would be backing AI startup D-Matrix, which designed chips that power generative AI apps like ChatGPT. In other words, it could be seen as competition to NVIDIA, at least maybe in the future. NVIDIA right now is on pace to snap a three-week win streak. And I have to point out, and I know a lot of our viewers already know this, it is conference season and many of these chip leaders are taking to the stage. Intel, for example, it shares reverse course after its CFO took the stage at a city tech conference earlier today to say Intel's third quarter is tracking above its midpoint. Specifically, data center business is expected to be lower quarter over quarter because of customer inventory

reductions, but it's tracking better than anticipated. And that's why you could see that uplift in the green just past 11 a.m. Eastern. Other notable movers, AMD is about one and a half percent lower and 18 percent off its most recent June high. Yesterday, CEO Lisa Su expressed confidence, though, in hitting near-term targets in data centers. So it was a little bit higher yesterday. It could be some selling off. The key focus, though, will be how-term targets in data centers. So it was a little bit higher yesterday. It could be some selling off. The key focus, though, will be how these stocks hold up throughout this week, as many chip companies provide updates at these sell-side conferences. All right.

Christina, thank you. Christina Partsenevelos, back to Mike Santoli. You know, this 4% slide in Apple makes the market look weaker. I'm not saying it's a good market-finding stretch today, but Apple's decline makes it look weaker than it really is if you look under the surface just because of the drag it's going to have on the Dow, the Nasdaq, and the S&P 500. Yes, 7% of the index is Apple, so a 4% drop is going to hurt. Although yesterday, again, it was sort of the inverse because the market looked better than it really was below the surface. Yeah, Apple is basically responsible for more than a third of the net decline in the S&P 500 today. It's also the only big stock that's trading any real volume today. I definitely don't really defer to volume in saying that explains away the action. Last week was a low volume rally. This week is kind of a lower volume pullback,

waiting for perhaps a little more critical mass of some of that data and for people to get back to work. But it is certainly a lack of momentum and a lack of demand. And we're in this kind of muddled area where we never did really launch off those lows from from mid-August and get anywhere. And so we still just sort of, you know, kind of, as I said earlier, fighting it out. Yeah, I feel like last year's decline, you can look back and say, OK, we got 25 percent down, non-recessionary bear market. It was correcting for some valuation excesses, some speculation. You had an inflation spike and you had a Fed scare. Whatever that priced in sort of expired in terms of pricing and economic weakness from here on out. That's why I think the market is sort of caught in between of what to worry about, whether it is persistent

inflation or that growth gives way a little bit. Yeah, more than a quarter of the Dow's decline today. It's more than $50 worth out of the Dow's outburst because of the decline there. Well, the Dow, speaking of, about a 200-point decline. Maybe we'll eke out a little bit lower than that. Well, we are right across the board. If the bell rings, that does it for us. I'll see you tomorrow.