Closing Bell - Closing Bell: Fed's Path for Rate Cuts & Best Bull Market Buys 9/26/24

Episode Date: September 26, 2024

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

Kelly, thanks. 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 central banks on the offensive from China to the U.S. and several points in between. And that is giving a further boost to global stocks today. We will get insight from former Fed Vice Chair Richard Clarida coming up in just a bit. First, though, let's check the scorecard with 60 minutes to go in regulation today. The major averages, as you see, all higher. Several China-related names like Freeport, Caterpillar, Baba, Baidu, and others like Wynn, well, they are surging today, as is Micron, following its earnings and guidance to fit to help the chip trade as well today.

It does take us to our talk of the tape. Where best to position inside this bull market? Let's ask Gabriela Santos, Chief Market Strategist for J.P. Morgan Asset Management, with us here again at Post 9. Nice to see you. Welcome back. Nice to see you. So what are we supposed to do in this market? So we got we're done with the rate cut. This this one. Yeah. We're thinking about the elections like 40 days away. It's nothing. And now we have China, which is stimulating their economy. What does it all mean? So I think the combination of a proactive Fed, a continued expansion in the U.S., plus some stimulus out of China putting a bottom on Chinese growth is an environment where the global expansion continues and risk assets can continue to do well. So equities and credit.

I think the question for investors is, all right, we're normalizing in economic terms and interest rates, but are my portfolios normalized for that environment? And we find that a lot of it tends to be offside. What does that mean? Especially if you think about the fixed income side. Cash rates, of course, were at 5.4%. And we found that investors have a lot of excess liquidity. And they've failed to build a core fixed income allocation. So the average portfolio we look at is about 37% allocation of core fixed income. 37 versus what we think would be normal, 65 to 75%.

And that's what's coming down. It's cash rates post-Fed cut. They're down 26 basis points for the one month to three month. So that's the area where there's reinvestment risk. And we've already started to see some money to build out just more of a core fixed income allocation. So you think that the money that's going to come out of cash, money markets and things like that, should find its way into credit more so than equities? I think so. I think a lot of investors have been a bit barbelled. Either it's cash or it's equities, high yield, private credit. I think where it's most off sides is more the core fixed income. And there we're talking about

investment grade bonds or securitized debt or slightly longer duration paper. That's there for kind of a lock in the income now and get yourself some just in case protection. Within the equity side there, we think there's more space still to rotate within it. Still find portfolios very concentrated by design or not on growth on the U.S. And there's plenty of opportunity to kind of readjust. So we should be believers in the broadening story as a result of this, you know, looser policy from central banks and the economy holding up? I think so. It gives us more conviction in the continued soft landing.

Once we see and have seen central banks be proactive about normalizing interest rates and focusing on the downside to economic growth. And I think the data this morning also gives us more conviction, especially the revision to GDP and GDI, which kept actual consumption pretty strong at 2.8 percent, but revised up income and hence up the consumer savings rate by 1.9 percentage points. So there's still a little bit more gas than expected in the tank there for the consumer to keep going and hence for non-tech related companies to improve. What's on the line tomorrow morning with PCE, do you think? So I think the market, rightfully so, is focusing less on the inflation side unless something reaccelerates, which is not expected.

So really what we're focusing on tomorrow is much more the actual consumer spending data, which was near 3%, as we mentioned, in the second quarter. It is actually tracking around 3%, 3.5% again this quarter. So as gloomy as people feel, they still are spending at an aggregate level. And this really keeps this pro-risk broadening out theme intact. Do you if you look at the sector leadership quarter to date, like utilities are up 17 and a half and it's real estate, industrials and materials, does that start to switch around a little bit? or is that sort of

a bit of a lean in that you're alluding to as well? Yeah, it's been really interesting to see, especially since mid-July when there was more conviction about a proactive Fed and a soft landing, that we've started to see the contribution from the rest of the market improve. So, for example, since mid-July, the MAG-7 is down 6 percent. The rest of the market is up 3 percent. I think part of it is more the broadening out of the AI theme. I think that's what's going on with utilities there and power usage. But there's also this broadening out into other sectors, some more cyclical, some related to other industrial policy, like in industrials. The one that we would like to see participate a bit more and we think is a bit overlooked is health care.

That's another big theme that we shouldn't overlook, all the innovation in therapies, some of which is being generated by AI, by the way, within health care. It's the second worst. I use worst in quotes. It's not like it's had a bad year. It's just the second worst relative to everything else that's gone up so much more. Why so? I think, well, traditionally, health care ends up underperforming during an election year, even though there isn't that much discussion about it this time around versus other election cycles. But I do think we're very fixated on this other theme of AI and the early beneficiaries AI.

And we find it's underappreciated, undervalued, the opportunity, the separate themes in healthcare. The last thing I'll say is a lot of investors have looked to invest in healthcare in the private markets, venture capital, private equity, where some of the new companies are developing these therapies. You watch in financials, two weeks from tomorrow, we start earnings. And we can talk about earnings separately.

But what about the financials and the message of performance from that group into how we should think about the market's overall performance moving forward? Yes. So one of the top three performing sectors this year, I think, A, it speaks to how pessimistic, how gloomy people had gotten last year. So valuations and sentiment positioning do matter. And the second one, that's a prime example of a sector that is benefiting from more enthusiasm around a soft landing, less fears around an upturn in the credit cycle, whether for individuals or corporations. But there, when it comes to financials, specifically when it comes to banks, we would still very much focus on quality, meaning we would still focus on the large cap banks that are more diversified and that have more room to improve or at least maintain their net interest income.

Bottom line for you is that you sound pretty positive on risk assets. We sound pretty positive. Everything that's going on is just a normalizing economy, normalizing rates. It's really just whether investors are able to actually benefit from this next leg in risk assets by normalizing their exposure within the market to different sectors and themes, including some good stories overseas as well. Okay, let's bring in Joe Terranova now of Virtus Investment Partners, Malcolm Etheridge as well of CIC Wealth. Both are CNBC contributors. Good to have you both. Joe, you've heard Gabby's points here about where she sees this going. What do you think? I agree. I think risk assets are in a good place. I think we're in the midst of a secular bull

market. I think global central banks are no longer adversarial. They're ready to be accommodative if needed. But I think in terms of positioning, I don't think this is necessarily the environment where you want to be overly aggressive and allocate towards high beta areas of the market. Scott, you know that I am averse to going out and owning small caps here. It doesn't mean I don't believe in the broadening out story. I do. But I think you stay higher up in the equity size class and stay focused on large caps. I think what we heard from Chinese policymakers is very constructive for areas of the commodity market.

And it's interesting because so many people in the last couple of days to me said, well, this is going to be inflationary. This is going to bring the price of oil higher. All of the commodity space right now has moved higher except oil. Oil's actually moved lower. Right. So it is steel. It is copper. It's those areas that are going to benefit. We're going to rebalance at the end of October. I already see the momentum building in a lot of names that we've previously owned, like Freeport-McMoran, like Yum China. We're seeing the momentum build once again. We'll take a look there. We have ownership right now of Steel Dynamics and Caterpillar,

which are benefiting from China. Why do I need to—so when there was a more defensive posture, even within the bull market, I heard a lot of stay high, stay up in the size class, like the argument you're just making now. Yeah. Now that we seem to have a better feel for a soft landing and the Fed is cutting rates and there's stimulus, as we said, from central banks elsewhere, China and otherwise, why do I still need to stay so high on the market cap from from my perspective from my perspective i do see very

strong evidence that the economy is landing not in a soft place but more of a firm place i think the economy is moderating from a much higher level in labor but certainly outside of the u.s and asia they're experiencing outright deflation And that's why they had this much needed response. I think that gets exported here. I think the economy is cooling somewhat. And I think it's reflected in volatility. Deflation gets exported here? I think deflation is getting. I don't think we have a deflationary environment at all, but I think those forces get exported here and do cool the economy, business investment, certainly consumer spending itself last point on that volatility is telling you that there's a reason to be defensive volatility the

vix is at 15. that's a much higher level than other times this year when the s p has recorded an all-time high we were talking about a vix sub12th. We would very much agree with the up in quality comment, even though we were just saying we're pro-res. Yeah. And that's because of this word normalization. The economy has been growing around 3%. That's not sustainable. We do see some cooling towards a more sustainable 2% rate. Consumption is doing well, but certain parts of the income spectrum are trading down, are a bit more stretched. And companies' overall earnings seem to be improving, but their margins are still under pressure. So that's not a great environment if you're a small cap or deep value, deeply

cyclical kind of company. Okay. Malcolm, what's your own view? Does it mesh with what you've heard? Differ? What do you think? Yes, Scott, I think I just heard Joe and Gabby make two separate points that might overlap each other a little more than we might realize, which is that traditionally when we talk about buying IWM, right, the Russell 2000, the bulk of what we want to own in there is financials at a time when rates are going to be more favorable for us. But I think in this case, to the point that Gabby was making about owning financials, the net interest margin is not necessarily the place where the real opportunity is to me in this accommodative easing cycle that we're heading into. I think that realistically what we're heading toward is an opportunity to be owning the

GSIBs here. And because net interest margin isn't really the thing that should matter to you so much anymore as an investor in the financials, it's really the deal, the commissions that these banks earn on deals. It's M&A activity, whether it's bringing companies public or facilitating brokering, some sort of tie up between companies, mergers, acquisitions, like I said. And I think that that's where the real opportunity is going to come. So that is more of the argument to stay large there within financials more than going chasing in the smaller cap banks, the regionals and such. Are you, Malcolm, as positive on risk assets in general as Gabriella articulated that she is? I am. I think that for one thing, a lot of

investment has been made into AI over the last couple of years, right? That's no surprise to anyone. But the point that I heard her making before was that a lot of that is spilling over into other industries like utilities where power consumption is ramping up. It's spilling over into areas like real estate, where data centers are needing to be built out. And so all of those other places that are tertiary to the AI arms race are still having their opportunity to really boom. And we really haven't seen the full weight of all of those investments that touch other areas. And so I think that for risk assets, especially those that are somehow

tangential to the AI arms race, it's definitely a good time to still be owning those names. Can we talk about the valuation, Gabriella, of the market 24 times? There's people who have an issue with that. They say that earnings expectations into 2025 are too aggressive at 15% growth. How are you looking at that? So in terms of valuations, I think it's glass half full, glass half empty. The glass half full way of looking at this is because market leadership had been so concentrated. The biggest multiple expansion has happened in those 10 largest companies. If you strip those out, valuations for the rest of the market are around fair value, which is not to say anything's cheap. It's just that it's not as euphoric as perhaps just

the index level might tell you. The glass half empty way of looking at it is if you are investing passively and taking that concentration within the market, you may be ripe for some disappointment, some corrections along the way. We've seen that over the last two earnings seasons with your kind of Mag7 tech-like companies reporting amazing earnings, just with high valuations, high expectations. I think an area that's interesting and we've talked a lot about

is really overseas markets still discounted versus the US and now actually having catalysts to turn around. Take the AI story, key beneficiary, Taiwan, which is up nearly 30 percent this year. An underappreciated one, Korea, which has memory semiconductors, which has lagged behind. So there are some other ways to invest in some of these themes and areas that are a little bit more discounted. Two weeks from tomorrow, right, the banks start reporting and then it's a flood of earnings. We're good this reporting season. Is it forward where we need to be a little more cautious or how do you view it?

I think the comps are going to be difficult in particular for technology in the upcoming quarter. I'm a little bit concerned with financials, as Malcolm mentioned in particular, the regional banks. A lot of the regional banks are going to be affected by what has been a little bit of a cooling in business investment. So that's a little bit concerning to me. I've got Goldman Sachs. I've got JP Morgan. I'm staying high up in the quality. We have a very strong weighting in the ETF to financials. So obviously, I'm going to keep my eye on that. But with financials themselves, I think the expectations are very high. I don't know if they were able to meet them. Can we talk as well, Malcolm, about the outcome of the

election? We say 40 days. Market hasn't been paying that much attention to it at all. How should we be thinking about it relative to tax policy, probably more than anything else, whether you have a split Congress or not. And maybe that's put a little bit of a lid on some of the activity in the market post-rate cut, because now we're going to get more fixated on what happens in the election and what it means for major policy going forward. Well, I think maybe the reason we haven't seen too much market movement or too much concern from investors over the outcome of the election is because we assume that whether Biden, excuse me, whether Harris or Trump is the victor, either administration is going to be more favorable to business than the

Biden administration has been to this point. Right. I mentioned before that we should expect to see a decent uptick in M&A activity among the banks. And I think that part of the reason for that is a lot of the tech companies that have had their pencils out looking for opportunities to acquire smaller companies that they could bring in-house to help improve their operations, they've been holding off for hope that a new FTC chair might come in that would be more willing to allow those deals to close. And I think that maybe investors are looking at it on the whole, right? Tax policy, like you said, M&A activity, things like that, that are obviously going to be better for the investor class. And I

think that those are the things that we're hoping that no matter who ends up winning in November, it's going to be all net positive for those of us who have been waiting to see. Joe, Tepper made the point this morning that, you know, forget really what happens for the top of the tickets, right, the presidential race. As long as you have a split Congress, markets are good. Yeah, I mean, the fear in a lot of the conversations that I'm having with advisors is they're holding back on deploying that capital into the market because they want clarity. They want to get to the other side. They want to understand what's the configuration of government. If you think about impactful legislation since the great financial crisis, impactful legislation that could really affect a portfolio, there's

two major pieces, the Affordable Care Act early in President Obama's administration and then early in President Trump's administration, the Jobs and Tax Cuts Act. So each one of those circumstances required the majority and I think a lot of advisors are sitting back right now and saying okay I need to know am I going to get the clarity of having gridlock because that's what investors want. Investors want the gridlock that's the best place to be. And I think especially around taxes and what's going to happen with the individual tax provisions that expire at the end of next year, I think the place to look, whether the market cares or not, is really the 10-year yield, which is actually up 10 basis points since the Fed cut rates. And I think it's all about that fiscal uncertainty, which will depend on the composition of Congress.

It's partly about the deficit continuing to go up, funding the deficit, what long-term rates do as a result of that. That's right. And we'll continue seeing a steepening of the curve as that happens. The long end reacting to fiscal, the very short end reacting to the Fed. All right. We'll leave it there. Gabriela, thank you. Joe, you as well. Malcolm, we'll see you soon. Let's send it to Pippa Stevens now for a look at the biggest names moving into the close. Pippa? Hey, Scott.

Well, shares of CarMax are climbing today after the used car retailer reported a better than expected 4.3% rise in sales for its Q2, with sales up 5.1% in its retail segment. But earnings came up short as the company increased provisions for loan losses. And Southwest Airlines stock is soaring as the carrier upped its third quarter revenue forecast and announced a two and a half billion dollar share buyback program, as well as changes to its business model as the airline battles activist investor Elliott Management. The firm said in a statement just now that CEO Bob Jordan, quote, lacks the vision and capability to execute on those initiatives. And don't miss Southwest CEO Bob Jordan coming up on Closing Bell Overtime.

Scott? All right, Pippa, we will not miss that. Thank you, Pippa Stevens. We're just getting started here. Up next, former Federal Reserve Vice Chair Richard Clarida is back. He'll give us his forecast for the Fed during this cutting cycle. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC.

Nice rally on our hands today. S&P 500 hitting a record high on the heels of strong economic data this morning. What does all of that mean for the Fed's path going forward following last week's jumbo rate cut? Let's ask Richard Clarida. He's the former Fed vice chairman and now PIMCO global economic advisor. It's nice to see you again. Welcome back to our program. Glad to be back. Were you surprised at all by the 50? Well, we said it was a close call and it was a close call. By my count, nine folks were leaning to 25, nine to 50, and I think the chair broke the tie. But, you know, looking ahead, it looks like a pretty sensible path. So I think let's look ahead. I mean, let's do that.

Well, let me ask you one question looking back. I mean, the dissent that we got from Bowman, how should that be taken? If you were still with the Fed, how would you take that? Well, it is the first dissent by a governor in 19 years. Reserve Bank presidents can and do dissent. I think it indicates that it was a close call. I do think, you know, Jay Powell has, is very persuasive and I, ultimately, he persuaded the other 11, other 10 voters to support the 50. So how far and fast do they go from here? And let's not talk about next year. Let's just,

let's fixate here on the rest of 2024. What do you think happens? I think it's pretty finely balanced. I mean, certainly given the robust economic numbers today that we saw, that reinforces the case that they laid out through the projections, which is a 25 basis point cut in November and December for a total of 50 more. On the other hand, the communication from the committee, Governor Waller, Chair Powell, President Goolsbee and others has indicated that they're really looking at the labor market. And I do sense that if we got any softening in the labor market data, in particular,

say two or three tenths rise in the unemployment rate, they would probably be inclined to go 50 again. So right now, I think we've shifted from a Fed that's looking almost exclusively at the inflation data to a Fed that's looking a lot at the employment data. No, but what do you say to those who look at the data today, for example, and say, you see, I mean, they didn't have to do 50 and they shouldn't really be doing much cutting at all because this is not an economy that needs any sort of help from the Fed at this point. The obvious other side of that is, well, they're just too restrictive anyway, so the current rates make no sense relative to where their inflation projections are.

Well, I think, Scott, you phrased this in the correct way. You know, the real question is how restrictive is current policy? Certainly, the federal funds rate is well north of inflation and north of their estimate of, you know, the neutral rate. You know, on the other hand, financial conditions by the Fed's own index are rather easy and, if anything, have eased even more since the rate cut. And ultimately this is about demand and supply. And so I do think they'll be open minded as we go into next year. I don't think they're on a preset path, but I think there is a scenario where rates don't come down as fast, certainly as the markets think, which is a very aggressive path where rates are down another 200 basis points in the next 12 months, we may not see

that. Is there a neutral rate? Right. I mean, do you have a good feel as to where neutral really is? The Treasury secretary and former Fed chief Yellen today said, yeah, they're going to cut to neutral. Do we even know what that really is in this current environment? Well, the short answer is no. It is an important input to

policy, but there's a lot of uncertainty. Indeed, the chair made reference to that last week in the press conference. I think there is broad agreement that the funds rate before the cut last week was above neutral, even the high end of the estimates. So I think there is probably some room to get rates down. But I do think that uncertainty becomes more relevant the more rate cuts that we see. And again, I would look also at broader financial conditions, which are not materially tighter than they were a while back. Are you firmly in the soft landing camp at this point? I mean, I know you have been, but do you remain there? Do you worry about the unemployment rate getting away from the Fed, that they've waited too long, that they're too far behind the curve,

and it's going to come back to haunt them. It just hasn't shown up yet. Well, what I would like to say is historically, you know, the unemployment rate doesn't move very much and then it moves a lot. It's very nonlinear. So the fact that we're at a point that's a very good position to be in, you know, doesn't necessarily tell us that we'll stay there. However, there is no indication in the data that I see in terms of consumption, investment and the like, and certainly government spending that indicates an economy on the verge of recession. But again, we'll get a labor market report soon enough and then we can reassess. How do we view what's happening over in China? And how do you think those on the Fed are taking all of this in? Of course, there's been the

conversation over the last many, many months about China exporting deflation. Now there's some concern that, well, maybe they'll start exporting inflation. And that's going to be bad for our picture because they're doing all that they're doing. How are those in the room today on our central bank thinking about that? Well, you know, certainly when I was there, we got a lot of briefings on the global economy. And China is a huge part of the global economy. It really has been a remarkable development, Scott, that in a period when everybody else has had the problem that inflation is too darn high, in China it's too darn low. Indeed, producer prices in China are falling. They have an enormous property bust, a host of other problems. We've seen both the central bank and then more, I guess, today or yesterday,

the Politar Bureau announcing steps. So I think it'll be one factor. I don't think it'll drive any Fed calculations, but certainly, you know, the deflation out of China, especially hitting the global goods market, has been helping the Fed and other central banks out, for sure. Yeah. I mean, how are they thinking, do you think now, 40 days out from the election, potential changes in policy, tariffs and the like that could have an impact on inflation? Well, I firmly believe, and I think they've communicated this pretty consistently, that they're going to be making decisions in November and December of this year based upon this year's economic data. I don't think

they think they have to reverse engineer what the policy mix is going to look like in 2025. As we enter and go through 2025, they'll have a better sense of that. And of course, that will depend upon not only who wins the White House, but control of Congress. And so I really do think that at least the next two meetings for the remainder of this year are really going to be focused on the on the U.S. state, on the data for this year. It'll be interesting, to say the least. Mr. Claret, I appreciate your time so very much. Thank you, as always, for coming on our program. We'll see you soon. Yeah. OK, up next, CNBC Sport launching its newsletter. Our own Alex Sherman

will join us with those details and why TV executives are focusing on 2029 in a big way. Do it next. Welcome back. CNBC Sport launching its new weekly newsletter today. Here to discuss is our own Alex Sherman. Tell us about this, Alex. Yes, Scott. This is going to be a weekly newsletter. The first one is out today. In fact, you can go ahead and sign up right now if you haven't done it already. Alex Sherman, tell us about this, Alex. Yes, Scott, this is going to be a weekly newsletter. The first one is out today. In fact, you can go ahead and sign up right now if you haven't done it already.

CNBC.com backslash sport. You will get the first newsletter in your inbox in about an hour. And we're going to be showcasing the biggest stories in the world of sports business every week. There will be different parts to the newsletter. There will be a lead story, an interview with an outside guest. We have the big number, which this week is 8 million, representing the amount the most expensive Super Bowl commercials are going for. Those 30-second ads, they go up and up and up every year. I'm told it's up all the way to 8 million this year for the most expensive and other elements. And you'll get that right in your inbox as part of our new venture of CNBC Sport. You're looking at other numbers, too, that we

need to pay attention to. One is one hundred and eleven billion dollars. The other is twenty twenty nine. Do tell. Yeah, the twenty twenty nine one is really the interesting thing to me because, look, that's five years away. And we all know that the media industry has been moving so fast with mergers and acquisitions and the transition from traditional pay TV to streaming over the past five years. Well, if you look ahead another five years, A, who knows what the media landscape is going to look like. But the pivotal event happens at the end of the 2029 season. And that's when the NFL has an opt-out clause in their current media rights deals, where they could completely rejigger the media landscape by moving Sunday afternoon packages, which have existed for decades on broadcast TV networks, over to the big streamers. It may be

that five years from now, the world has changed enough so that the reach and the money that the league is making makes more sense for the league to sell a package like that to, say, Netflix or Amazon, rather than CBS and Fox, which currently own those networks. So what I get into is that executives at these legacy media companies are already thinking ahead to 2029, five years out, to figure out how can we stay in the game should there be a third Sunday package where maybe we don't have to pay quite as much for it because we don't have the balance sheets to compete with the biggest tech companies that may in fact bid on these Sunday packages. You have a Q&A as well with somebody who is well known to many within the media industry, right? Yeah, Jeff Zucker is this week's Q&A. He has moved from, of course, running CNN, running Warner Brothers News and Sports.

He used to run this network, NBCUniversal, to investing in sports and media. So he seemed like a great person to do the first newsletter with because he's kind of been on both sides. He has the media angle. He has the investment angle. And those certainly are two things we're going to be focused on in the newsletter moving forward. And he talks about how women's sports are big. He brings up this idea that the biggest media companies may actually become the owners of smaller sports leagues. That's not something we've really ever seen before. But imagine Netflix, say, actually owning a sports league and then they don't have to rent out or license out the fees for that sports league. It kind of brings it in-house, a new form of vertical integration.

All right. Good luck with that. We're excited about it and we'll read it ourselves and we can't wait. That's Alex Sherman. To sign up for the newsletter, again, you can scan the QR code on your screen or go to cnbc.com slash sport newsletter and you can check that out and see his reporting. Up next, Maryland Bank of America, Private Banks. Chris Heisey is back with us. Tell us where he sees this rally going from here just after the break. Bell's coming right back. Trading record highs today. The S&P closing in on its fifth straight month of gains. And our next guest sees more room to run in the months ahead.

Joining me now with his bull case, Chris Heisey, Maryland Bank of America, private bank. My first question is good to see you. What's going to be you? You've been bullish with us and sounds like you remain so. Yeah, we've got a lot of momentum behind this. You know, everybody talks about the cash on the sidelines. Scott, you and I've talked about this for months now. That's one way to gauge it. But the most important way to gauge how much momentum you have is changing the wedge that's been in the market.

The wedge that's been in the market continues to be the risks that are very tough to measure. Geopolitical risks, concerns around elections. But the biggest wedge that was in the market last year and in 2022 was inflation. That's beginning to go away. It's almost to the fact where no one's talking about whether or not we're going to have inflation that's worrisome. Now, we'll revisit that later. But the second part is this. The two major economies in the world now with China joining the Fed and the fiscal party in the United States at a time when profits are going up. That strikes me as two tailwinds that create a meltdown that we really haven't talked about.

How powerful. And I mean, you mentioned these issues that are still these impediments, perhaps that are still in the way. It's like the election, among other things. We're not 100 percent certain that we've got this soft landing nailed at this point. I mean, we think we do. We hope we do. But we're not fully sold on that, are we? No, I mean, one of the one of the things that everybody talks about is this binary approach to a landing, soft or hard. There's a lot of different scenarios in between those two. You usually have a soft landing for an extended period of time before you get a hard landing, but to get a hard landing you need excessive leverage in the areas that matter most, the consumer or the household and or the corporation, neither of which have that leverage or that massive concern that typically is before a hard landing.

So we have a lot of components of a soft landing. I'd like to say it's more of a mid-cycle slowdown with easier financial conditions that should actually create a profit revision to the upside, not downside, which is what you would typically see in mid-cycle. So you think, right, that the debate centers around market valuation, 15 percent earnings growth expected next year. You think that's all legit, like we can meet that what feels to be a higher bar? I think what we can meet is a better outlook than what most are suggesting. Now, when we talk to clients, they're very apprehensive

with going out long in the curve. They want to stay with that area of the short end of the curve that they're comfortable with. So they've yet to move out on the spectrum. They're very concerned about adding more into the market because of geopolitical risk and or concerns. And they're waiting for a little bit more of an all systems go sign. Unfortunately, you know how this works. You climb the wall of worry. Next thing you know, things are starting to get better, and you're at higher highs. So for next year, the 15%, sure, it's probably going to come down.

But what most people believe in terms of real active risk is much lower than that. So we think that that gap has to narrow. And I think you could see momentum to the upside and profits at a time when financial conditions are going to get easier. Yeah. Chris, I got to run. We'll leave it there. More room next time. I appreciate you. Chris Heisey joining us once again on Closing Bell. Still ahead, we'll tell you what sending shares of Wells Fargo higher today, what it could mean for the rest of the banks. Bell's back after this. Coming up next, Supermicro sinking today following a key move from the DOJ.

We'll break down the details coming up. And later, don't miss a first on CNBC interview today with Southwest Airlines CEO Bob Jordan. Coming up, 4.40 eastern time. Only on overtime market zones next. Are when the closing about market zone. CBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Wells Fargo is

rallying today as well Leslie Picker tells us what's behind that move. Sima Modi is watching two big swings in the A. I. Space today but Mike. Go to you first looks like we're going to get that closing high another today as well Leslie Picker tells us what's behind that move. Sima Modi is watching two big swings in the AI space today but Micah go to you first looks like we're going to get that closing high another one on the S&P. For sure and if you look at it just from a top down level up a third of a percent on the S&P it actually looks like kind of a restrained response relative to this burst higher

at the open a little bit emotional you had the China news you had the micro news but under the surface I have to say everything checks out in terms of strength where you'd want to see it. Consumer cyclical is up more than 1%. Banks up more than 1%. Semis obviously leading up 4% as a group on a market cap weighted basis. And the restraint in the index, I was just looking at the downside pressure coming from Lilly, Microsoft, Walmart, Netflix, GE Aerospace. Guess what? They're all up 40% to 60% this year.

So year-to-date winners kind of harvested to be put elsewhere. So I think it's okay. Positioning seems pretty full, but it looks like we're going to sidestep, you know, the ugly September, you know, headwind. We have only two more trading days to go. Yeah, barring a surprise tomorrow morning from PCE. Let's not forget. You know, we're still waiting for that. It may carry a little less importance because we've moved beyond it, but it still matters. I think you still want

to be able to check it off. You know, I mean, you want to make sure it's still in line with the trend. And I think more to the point, market's gotten itself already priced for a pretty benign inflation environment and a friendly Fed and a supportive growth picture. All that's great, but you have to have it confirmed along the way. China stuff, I mean, it's pretty dramatic. If you look at all of the companies, a swath of Estee, it's LVMH, it's Wynn, it's Las Vegas Sands, it's Caterpillar and Freeport. Really pick your sector and you find winners. I was saying earlier, you know, the Communist Party of China is pretty good at trading this

market because it was really washed out and everybody leaning toward uninvestable. It remains to be seen if this really does grow into anything more than just kind of this catch-up move because it's been so washed out. But you have to give it credit that it actually is. The areas that would benefit from domestic consumption are absolutely on the move today. Leslie, what about Wells Fargo? There was this news that sent the stock higher midday. Yeah, so this is a really interesting development, Scott. Wells Fargo shares higher today on reported progress related to lifting an important

regulatory restriction on the firm. Bloomberg headlines showing that the firm has entered a new phase in its seven-year effort to lift an asset cap imposed by the Federal Reserve. Citing people familiar with the matter, the story says Wells Fargo submitted a third-party review of its risk and control overhauls to the Fed for final sign-off. The regulator's cap of $1.95 trillion in assets ever since 2017 has stunted Wells Fargo's growth and limited earnings upside. But the article said that executives still see the Fed maintaining that cap into next year. A spokesperson for Wells Fargo declined to comment, as did the Fed. Still, Wells Fargo shares up 5.3 percent, having their best day since February of this year. Scott. All right, Leslie, thank you.

Leslie Picker, just see Modi now and two big swings in some of the chip makers. Which ones are we talking about today? Well, let's first start with Micron. Scott Wallstreet playing catch-up after the memory chip player surprised the street with better-than-expected numbers and guidance. Morgan Stanley raising its price target on the stock from $100 to $114. Wells Fargo to $175. CEO Sanjay Mahotra telling CNBC the power of AI and the company's pivot into high memory bandwidth chips,

which he sees really growing into a $25 billion market next year. That's up from $4 billion in 2023. AI is a great story, frankly, not only in data center. As you look ahead at smartphone and PCs, AI-enabled smartphones and PCs are going to require more memory content. So as we go through calendar year 25, particularly accelerating in second half of calendar 25, you'll see smartphone and PCs also continuing to drive strong demand for memory. Micron on track for its best day since 2011, but different story for Supermicro. Plunging it again, the DOJ is reportedly probing the AI server maker for accounting violations,

according to the Wall Street Journal. It comes nearly a month after Hindenburg Research published a report accusing the company of accounting fraud. So far, Supermicro denying any wrongdoing. You'll see shares down 12 percent. The stock did ride that AI wave, but has fallen about 50 percent in the last three months, Scott. All right, Seema, I appreciate that. Thank you, Seema Modi. Mike, I mean, better performance from the semis would certainly help this market. No, without a doubt, it's been the engine. Still more to prove there. NVIDIA, interesting trading today, actually, because it had gone up close to challenging the August highs above 125 to 124 right now. But the super micro news actually seemed to put a damper on it. So I think it's all moving in the right direction,

if anything Micron says can be extrapolated to the rest of the group. But what's interesting to me is that the market has found a way in the absence this whole quarter of real leadership from Mag7 and semis to essentially stay together and continue to put in new marginal highs. It's not a high momentum market. People aren't kind of jumping in and really assuming there's going to be an immediate quick upside. Maybe that's a good thing, right? No, that's kind of where I would go with it. It's more of a trending market. It probably means you don't chase everything. It probably means it's OK to buy some pullbacks, at least for now.

You know, again, when Treasury yields staying in this comfortable zone and the data checking out along the way. Yeah. I'm looking at financials decent today, tech obviously leading, materials no surprise on the China news as well. But fascinating that given the decline in crude prices because of Saudi supply story and energy stocks actually are pretty rough to the downside, that's not the textbook China trade, right? So here we have a sort of quasi-China acceleration, reflation rally without the attendant increase in energy costs here. And, you know, for as much as you could look at the insides of the labor market data and stuff like that and say, oh, you know, we have a risk of a hard landing brewing here,

it's hard to get one historically when oil prices have been really benign. I mean, almost every recession is somewhat preceded by a pretty good run in gasoline prices, not as the cause, but as an accompanying factor. We're not seeing it right now. All right. Good stuff. Thank you, Mike. Appreciate that. That's Mike Santoli. We're going to go out with another closing high for the S&P 500. PCE looming in the morning. We'll see you tomorrow. I'll send you the overtime&P 500. PCE looming in the morning. We'll see you tomorrow. I'll send you the overtime with John Ford.