Closing Bell - Closing Bell: Forecasting the End of Summer 8/1/23

Episode Date: August 1, 2023

On this first day of August – the big question is… what scenario has the near 20% gain in the broad market this year priced in and is it a plausible one? Trivariate’s Adam Parker, New Edge’s Cameron Dawson and Bank of America’s Marci McGregor weigh in. Plus, top chip analyst Stacy Rasgon breaks down what he is expecting from AMD’s report – and what it might mean for the rest of the sector. And, a rundown of what to watch when Pinterest and Starbucks report results after the bell. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with stocks taking a well-earned breather to begin August as Treasury yields rise toward their highs for the year and investors seek confirmation that the now popular economic soft landing story is still intact. Which leads us to our talk of the tape where we ask what scenario has the near 20 percent gain in the broad market so far this year priced in? And is that a plausible scenario? Here to discuss all that is Adam Parker, founder and CEO of Trivariate Research. Adam, it's one of these times where if you look at the message of the market and try to figure out how it's behaving, you give a lot of

credit to saying that we have a pretty bright outlook, right? I mean, in terms of the broadening out of the market, the fact that we have this uptrend, we're having a down 1% day in a while. It feels like we're scaling this wall of worry. Volatility has dropped. And then if you try to figure out the fundamental inputs that substantiate that kind of market behavior, maybe it's a little tougher in terms of valuation and what's in for the economy. So where does that bring you? Yeah, I mean, I think what's in my mind, the rally earlier in this year, I thought, OK, well, part of the reason we're up is just the bear case doesn't seem as likely. Consumer real income is doing OK. You can get a job if you need

one. So that explained to me some of the market rally was just a lack of the bear case. But I think in the last five or six weeks, the lack of the 23 bear case isn't the only explanation. I think now it's a more plausible 2024 or 2025 bull case, which comes down to, you know, fiscal stimulus for decarbonization and, you know, data center build out and sort of industrialization of America. And maybe you dress things up in election year, and maybe China has to do it. And there's an emerging number of possibilities that seems to make people think, all right, maybe 2024 earnings could represent the beginning of a new multi-year trend. And so that, I think, is gaining steam among investors I talk to. All the while, if you notice,

I talked about the bear and the bull case. I didn't mention the base case for this year, which is kind of the same for me as it was on Jan 1, which is we're using about 215 in earnings. I think earnings are eroding, but not imploding. And I think that's what you're seeing during the earnings season. So it's a weird kind of bear bull change, but not a base change. Yeah. Yeah. So, yeah. And in sort of hedge fund speak, you've kind of chopped off one of the tails to some degree, the left. And asymmetry. Yeah. Now, to your point about maybe not that much has changed in terms of the earnings picture. If you go back several months, beginning of this year, just looking at 12 month forward S&P 500 earnings, you were 230 bucks and change. Still 230 and change. We went like this, you know, a little bit of a dip and a comeback. So the point being, people seem to just be more certain or confident that we can get there

on a 12 month forward basis. And then to your point, 2024 is when you start to resume growth. But do you think it's all of those individual threads that you mentioned in terms of, you know, these themes of in the economy,-term investment type activity? Or is it just we're backfitting the story to say, maybe we have a bull market that's acting like one and we got to figure out why? Look, people always feel excited after a rally. If you're honest with yourself, you've liked stocks. I know I have. I've liked stocks at higher prices than I used to hate them at. It just happens because the market leads the economy, not the other way around. So what the market's telling you is that the earnings outlook is going to be better than people think or worth meaning of a multi-year

run. If one of those two things are both turned out to be true, we're going to get a big correction in the market. So I think that right now, I think that's, it's definitely some human behavior in psychology. It's definitely part of the answer to your question. I think that's, you know, it's definitely some human behavior in psychology. It's definitely part of the answer to your question. I think part of it is how plausible is the fact that we're going to have sort of beginning of a multi-year run in earnings. And it's not, you know, a zero probability thing. I think it's got some teeth to it. I think the other thing that's important, you know, if you look at the year ahead outlooks from all of the major firms and the economists and the strategists into this year, written mostly around last Thanksgiving, zero of those major documents mentioned AI.

And so while we know AI is probably a little frothy in terms of what people expect and the actual, the truth is there are some companies benefiting now, and that was an upside surprise versus, say, last November. So there's some reasons that the market should be up, the low probability of bear case, the emergence of AI. And I think there's some that are more speculative. I think what most people struggle with is the so-called equity risk premium, which is sort of the valuation of the overall aggregate equity market versus bonds, government bonds. And I think that's what people struggle when they say, well, it looks more attractive to buy two years and maybe equities are not attractive. That works in years three through

10. It has never been a good predictor in a shorter horizon. So I think everyone's trying to figure out, is this the last kind of wave of optimism or not? My suspicion is maybe it isn't, because I think you can still believe the dream that we're at the bottom for a little while longer. Yeah. I mean, I do think we need to scrutinize that relationship a bit. Because if you look at the history of when the stock market has traded at, let's say, near 20 times earnings, and then say, what were bond yields at every one of those moments in time? It's not consistent. Right. You know, we were at six, we were at two, you know, so it's an interesting one to figure out. Usually when real yields are extreme,

the world's a risky place, and you should pay a lower multiple. So that's what feels different this time. And the other pushback you get from people who are bullish is like, look, this S&P multiple thing is not what's happening for the average stock and the median stock, which is at 15, 16 times forward earnings. And I think you're at the biggest gap on cap versus equal weighted valuation really since the TMT bubble. So the case for the broadening is really margins expand for more companies. Yeah, that's a good looking chart. That looks like trivariant research there. Nice, nice play. That's right. We even got the source. Yeah, thank you. So I think the point is that now people are saying, all right, well, margins can expand for more names because commodity, maybe headwinds turn into tailwinds. Labor, you know, is going up at a less rapid rate.

Maybe currency. So all of a sudden there's some higher plausibility to expanding margins for more companies. That's probably what people need to believe, because stocks go up when gross margins go up. I mean, that's basically the number one thing you've got to look at. Yeah, gotcha. Well, let's broaden out the conversation here. We'll bring in Cameron Dawson of New Edge Wealth and Marcy McGregor of Bank of America, Merrill Lynch. Welcome to you both, Cameron. How does this all sound here? I mean, we're we're trying to parse out, you know, whether in fact the market has overshot what we can plausibly expect from the economy. You also pointed out, you know, the equal weight S&P is not necessarily parallel to the market cap weighted one in terms of valuation performance.

Yeah, I think that one of the other things to add to the conversation is one about positioning, because that does explain a fair amount of the move that we've had and that positioning tends to be the bigger driver in the short term. And to Adam's point, valuations don't really kick as a headwind if they're high, really, until you look out two plus years, meaning that they're not good timing tools. So when we look at the positioning standpoint, what we can see is that positioning has gone from being deeply underweight to being closer to overweight, but not to that extreme like we saw at the beginning of 2022, because history suggests that the point that valuations matter is when you are at very long positioning, meaning that that's when people start choosing between bonds and stocks.

That's where you start having that question about the incremental buyers. So there's still likely room for people to get drawn into this market, which means that valuations could get more stretched. But that's where we have to start thinking about two years plus and wanting to be valuation disciplined. Yeah, that makes sense. Marcy, what about the risk reward to you? It seems like you're not in the mood to chase things. So how would you, I guess, with fresh money treat this market? Yeah, we're staying really disciplined here. We've had a slight overweight to U.S. large cap equities all year. So we've been pretty happy about that position. But this has been, you know, the story of the first half was, of course, that this was a really narrow market.

But breath has been quietly expanding over the last month or so. And that tells me we're in for a rotation in this market. So it's not just about tech anymore. This isn't just a Nasdaq rally. I think you're going to see some other sectors really start to participate here. So that's the areas of the market I'd be most positive on. Some of us have tried to be less quiet about the broadening out and the idea that, you know, it was this kind of several week or a couple of months of the year when it really was extremely narrow. I guess the question is, what is defense to you or what is what is now ripe for some kind of catch up if you do think that mean reversion is going to take place? Yeah, well, energy has been the best performing sector over

the last four or six weeks. And of course, it has a nice seasonal tailwind to it. So in the near term, I still think it's the cheapest sector. So I think there's some room there. But if I look bigger picture, you know, I would balance that out a little bit with an area like health care. I like like sciences. I like some biopharma names. And then, you know, position for the world we're in. Talk about defense, defense spending. You know, we're in a world where we are restocking munitions. There's a catch up here with NATO. And talk about a sector that still has pricing power and can pass through

higher prices, especially when globally defense spending is rising. So I like an area like defense. And then finally, infrastructure. You know, it was mentioned earlier around clean energy. There's going to be a tremendous investment. And this isn't just a near term story around the infrastructure for a greener, cleaner world. So that's where I see opportunity right now. The only thing I wanted to throw in there is I don't think the mega cap companies have given us a lot of reason during this earnings season to think that their trade is over. I think it could broaden and they could still go up. And I think that's another reason the market's done okay. I mean, you know, Microsoft basically told you, hey,

if 20% of the people click on this AI button, they could earn 20 bucks in two years. Then all of a sudden people are saying maybe it's a $600 stock and that's a couple trillion cap there, right? NVIDIA, we'll see what they report, but I think people expect the current trends are strong. Google's numbers came up 5%. Facebook's numbers came up 12% or Meta's numbers came up 12%. So, so far, you haven't gotten an excuse to sell the big ones, maybe as much as people thought. No, it certainly hasn't been a zero-sum game. On the other hand, the general reaction of stocks to even upside surprises for earnings, Cameron, has been not strong. So we were set up for good stuff. Microsoft trading below where it was a couple of years ago again. Uber today, big upside surprise, first ever one of those left behind sectors. Nobody was looking at it. And so if we think across the

board, maybe there is still some room for expectations to rise for cyclical companies. One of the things is that we still have, to Adam's point, very strong fiscal spending. The fiscal deficit is at eight and a half percent right now to GDP that compares to 10 percent during the great financial crisis. So some of these cyclical names should see their earnings start to move higher, mostly as we move into 2024. So the odd part, though, is that earnings estimates are still getting cut for the back half of the year, which is why we're seeing 23 numbers drift down.

It's a bit of a head scratch. For energy and related, you mean? It's interesting. The trucking stocks also kind of missed bad and the stocks went up. And I think some of us think, all right, well, the market cap's not very big, but kind of a leading indicator for maybe more stuff getting moved around. I think the street on those was saying maybe this is the end of the bad news and they get a little better.

So I think you're right. It's about expectations under the print. They were high. Stocks have faded. But some of these that were low, I thought J, B, C, H, some of those, the stocks are higher and the earnings came down a lot. Well, and the extreme example, of course, would be the banks, where you did get a big relief trade off of those numbers in general. I guess just in the category of things that might be lurking ahead of us, some will point out, you mentioned that the fiscal deficit is quite high and explains a lot,

perhaps, of GDP growth this year, but likely to narrow next year, maybe a little bit. Oil moving back up again. It's going to have upward pressure on inflation measures. Yields, of course, to 10 years above 4 percent. So the question is, is that happening for positive reasons or is it about, you know, we just kind of enjoyed this sweet spot for a while and now it's closing a bit? Well, the sweet spot has been moderating inflation, but resilient growth. And I think the trillion dollar question is that if you start to see this reacceleration and growth, as we're seeing in some of the manufacturing indicators, does that come with higher inflation? Do we see a reacceleration in inflation?

Certainly from energy, you could see that on a headline basis. Of course, we know the Fed is watching core. So does the stronger growth, and look at Atlanta Fed GDP now coming out today, very strong. Of course, it's early. But does that mean that the Fed has to do more? Now, all year long, the Fed has not mattered to markets. The market has started to price in, Fed doing more. Equity markets haven't cared. Will we get to the point that if the Fed starts ratcheting up hawkishness, equity markets will care?

It remains to be seen, but I think it is a watch item. Marcy, 10-year Treasuries at 4% or so. In your mind, is that just sort of rebuilding value in longer-term bonds, or is that a little more of a warning sign for some reason so we've been extending duration because i do think not that we're trying to you know pick the top in rates but i do think rates may drift lower from here um to add on to something that cameron said you know uh it's well known that we're at least near the end of the fed hiking cycle markets perform well uh you know when the fed pauses and we talked about the end of the Fed hiking cycle. Markets perform well when the Fed pauses. And

we talked about the removal of a hard landing scenario. I think that's going to be a really good support to markets. The thing we haven't talked about is CapEx. That's actually been, for me, the biggest takeaway of this not-so-bad earnings season is that we've had nine straight quarters of CapEx gains. Guidance in our work is turning positive. That tells me that you could get a productivity boost in the medium term future if all of this investment takes hold. And that could be a real positive for the economy, could be a positive for corporate earnings. And, you know, we've seen so much multiple expansion in the first half of the year. We need earnings to do the heavy lifting next year. And that's the story that actually gives me hope here. Yeah, I guess the CapEx point

is an opportunity to mention that Caterpillar is up eight and a half percent on its results today. That's not all of it, but clearly that was a much more positive response to a good number. I'm always torn on CapEx, having been a semiconductor analyst in the past, because there's three things that matter to gross margins on the cost side, right? There's labor and materials, which we talked about a little bit, and then depreciation, right? So I think if the CapEx is going to be in longer life things, utility plants, and that's probably a positive for economic growth. But what I worry about a little bit is when it hurts, depreciation goes up, and and then revenue slows a little and then your fixed costs are a problem.

And anyone who's been a semiconductor analyst has seen that movie and poorly. So it's sometimes for stocks, CapEx isn't that great, even though it's good for the economy. Well, CapEx is great in aggregate as long as you're not the one spending your own capital on those expenditures, maybe because of the accounting. Somebody else is working now and can buy your product. It's good for you, but you just don't want your cap. All the overinvestment in semiconductors over the decades has worked wonders for the world at large. So we can all be thankful for that. You know what I'm saying? So that's always a tricky one on CapEx, but I agree with the tenor of the point of people are believing the economic growth story could be higher than

they did three months ago. And that's that's part of the reason we're up. And we're finding reasons to fill in that thesis. Adam, Cameron, Marcy, thanks so much. Good to see you. All right. Let's now get to our question of the day. We want to know where you think the S&P 500 will end the year below 4600. It's right about 4600 now. You think it'll be between 46 and 4800 or above 4800? That would be a new all time high. Head to at CNBC closing bell on X. It's formerly Twitter to vote. We'll share the results later in the hour. Let's now get a check on some top stocks to watch as we head into the close. Christina Parts and Nevelos has those. Hi, Christina. Well, we've got two S&P constituents moving

in opposite directions. Let's start with Arista Networks, which makes routers, ethernets, and cables. It's on pace for its best day since November 2021, after posting very strong guidance and a strong earnings report. And that's easing some concerns from last week that big clients like Meta and Microsoft are slowing down their data center spending. That's why Arista shares are up almost 19% today. And then on the other end of the spectrum, you've got Zebra Technologies, which makes products like barcodes, scanners, printers, and products tracking software. That stock is on pace for its worst day since 2015 after warning that sales are expected to fall due to softening demand and cautious customer spending. Shares down 18%. Mike? All right. From A to Z. Christina, thank you.

Oh, that was good. I thought you were going to go there. We were just getting started here. Up next, we're setting you up for AMD's results. That company reporting in overtime. We got top chip analyst Stacey Rask on with us. What he'll be watching when those numbers hit and what it could mean for the rest of the chip space. We're live in the New York Stock Exchange. You're watching Closing Bell on CX. AMD shares climbing as the company gears up to report its second quarter earnings after the bell. My next guest says, while he recently increased his estimates for AMD,

investors should still tread lightly when it comes to the stock. Let's bring in Starship analyst, Stacey Raskin of Bernstein Research. Stacey, good to catch up with you here ahead of these numbers. What's your main concern here, I guess, in terms of how the stock is set up for the results? Yeah, so the near term, I think, may be a little challenging. We are below for September quarter for Q3. I think expectations maybe in recent days have been coming down,

although today it is running a little more. But people worried about sort of traditional CPU data center spending in the wake of artificial intelligence and GPUs taking some share there. And Intel pointed to some of this. Intel's own data center guidance for Q3 was not spectacular. You have to remember, AMD has a very big lift in their model in the back half. I think they've got data center revenues guided 50%, half over half in the second half of this year. So I think the data center trajectory from here bears a little bit of watching. I also personally think gross margins exiting the year are still slightly high. Their higher margin businesses have been a little likely to get a little bit weaker. And their margins within their client business have been

low on competition, some other things. And they're looking for some pretty significant improvement in the back half to get the gross margins up. I still worry about gross margins into the end of the year. Now, all that being said, what investors are really going to care about is the AI story, which is a next year story. So there's not a lot of revenue from AI this year anyway. So if they can still kind of give an attractive narrative, they'll probably say MI300, you know, 2,000 times on the call. If they can still give people some confidence that that story is still real for next year, people may decide to look through any sort of near-term weakness. Certainly for Intel, they look through near-term data center weakness just because the rest of Intel's business was

getting better. And do you think that the AI piece of the story is real or maybe it's just not going to be material by next year? I think it just takes some time. So they are going to have a slug of what they call the MI300 selling in Q4. That is not really AI. That's for high performance computers going into the El Capitan supercomputer. The AI, it's called the MI300X, is their AI part. They're not even sampling it until this quarter. They said production in Q4, you'll ramp revenue in the first half. My guess is it's not even really going to be in real volume until the second half of next year. So I think it's going to take some time in order to get to those levels. And we still don't really know sort of what the normalized volume level for that part actually is, pretty relative to what NVIDIA is likely, and their competitors are likely going to be shipping between now and then. So I don't know

yet. I think it's TBD. But I do think expectations for what that part can do next year have been accelerating markedly over the last couple of months. Now, I'm just looking at the consensus earnings for 2024. And so it hasn't seemed to get into the formal numbers, right? You're suggesting that investors in general are building up their expectations for it? I think numbers next year are a little high. We're below, so I don't know exactly what's baked into the sell side consensus in terms of that buildup, but we're under four bucks next year. I think the sell side is over four bucks. My guess is the buy side is over five, right, at some point. Yeah. And so where does that net you out in terms of, you know, the stock and how it's valued and and risk reward?

Yeah. So I think we're below next year. Our target price is a bit below where it's trading. I'd be afraid to short it right now. Like I said, we don't know what that AI story is going to look like. Maybe it's good. But even if it's not right, there's a narrative that can carry them potentially for several quarters before they actually have to put up or shut up on it anyways, whether it's good or bad. So as long as they can keep that dream alive, that may actually help the stock. So that's kind of what I said and what I wrote in it. I would tread a little bit lightly here. If it is strong, especially if it's strong on weak earnings, maybe you look to trim it. If the earnings are still strong, then great.

Good for them. And I don't want to be too negative. I don't want to take away from what they've done over the years. They've done some phenomenal things. They've done really, really well. If the stock was $90 or $100, I think it's fine at like $120 or wherever it's going to. It's bumping up on $120 now this morning or this afternoon. It just feels a little bit stretched, just given. I think it takes a little time for that AI story to play out if it plays out. Yeah. And then just more broadly in the group, that is, is NVIDIA the one legitimate AI play and you got to pay up for it or are there other

places to look? Well, in my coverage, I cover 10 stocks. There are only two stocks that are actually showing actual revenue dollars from AI today. It's NVIDIA and Broadcom. For everybody else, AMD and a bunch of others, right now it is a narrative. There's no actual dollars that are hitting the income statements yet for most other companies out there, at least in semis. We can dream, like maybe it comes next year. There's this hope that the opportunity is so big that even some guys just get the dregs that'll be big enough, and maybe that's the case. But NVIDIA is clearly seeing a ton of upside. And Broadcom is the other one in my space. They're getting revenues from they do custom chips for the hyperscalers doing their own AI chips. And

then they do stuff on the networking side that's benefiting. All right. We'll see how the dream evolves from here once we have the number, Stacey. Thanks a lot. My pleasure. All right. Up next, we're charting the rally. One top market strategist is mapping out his forecast for the rest of the summer and when he thinks we could be due for a pullback. That's after this break. And later, Uber shares slipping. We'll tell you what's driving that leg lower in the stock that's ahead. Closing Bell will be right back. Welcome back to Closing Bell. The S&P 500 is on pace to finish the first trading day of August, slightly in the red. Our next guest believes some tough summer seasonality could lead to some more declines in the near term before the rally resumes its course.

Joining us now is Ryan Dietrich, Carson Group Chief Market Strategist. Ryan, good to see you. Mike, thank you for having me, and happy August. We made it. Yeah, exactly. Seven twelfths of the way through the year. So you've been leaning bullish, obviously, for many months now. So clearly the market has gone in your direction and it's really obeyed a lot of the perhaps, I guess, patterns that you might have expected in terms of seasonal strength,

in terms of what's happened after a midterm election year. You got that October low, inflation coming down. Where does that leave us right now, in your view? You're right, Mike. I mean, I know I was on with you in October of last year, talking about, hey, bear markets tend to bottom in October, and then we rallied the last three quarters or some of the strongest quarters

in a four-year presidential cycle. So a lot of people ignored those things. Those seasonals worked. Now, here we are, August, September, two of the worst months. We are still overweight equities. I'm going to be very clear here, the Carson Investor Research Team. But honestly, maybe it's time for a little pullback.

Just think about this. August is not a good month. We know that, Mike. When you have a good year going into August, up over 17.5%, I found 11 times that's happened. August has only been higher three of them with a down over 1% average return. So are we calling for the end of the world? We'll be very clear, no. But a 4% to 6% correction sometime, Mike, over the next two months, it makes sense, but we're still bullish. We'd be buying it. Just be open to some volatility here. Sure. Are there other things that are in the air that maybe support the idea that we could be in for some kind of a little bit of a break here in the rally?

In other words, you know, is sentiment getting a little bit overheated? Do things technically look vulnerable or is it kind of just, hey, we've had some gains? You know, history says we should expect a little bit of backfill. Yeah, I wouldn't just blindly follow history because, like you said, I mean, honestly, what have we seen the last couple of weeks? Right. Some of the well-known bears have come out and said, you know, we're sorry about that. You know, we're starting to see some of that. Yes, some of the sentiment polls are a little frothy. Believe me, I can show other things to show people.

I do a lot of client events. Believe me, clients are not optimistic out there still. But, hey, we're awfully stretched above the 200-day, all these different things. It just kind of makes sense, I think, to be open to the idea that we could have a pullback. But one more thing, Mike, you know, five months in a row. What does that mean for the S&P? One year later, OK, the stocks are higher 26 out of 28 times with an average return of 12 and a half percent. So what I'm getting at, any pullback here would be an opportunity, we think, for this overall bull market. We've been calling a bull market for a while. We still think we're in a bull market to continue. Yeah. And so, you know, one of the definitions of a bull market,

I guess, is that the overshoots tend to happen on the upside. The pullbacks tend not to be all that deep or long lasting. So we'll see if that does hold up. Now, in terms of within the market, we've all been kind of applauding the fact that it's been a broader rally in the last several weeks, if not more than that. Do you expect any kind of leadership shifts or rotations that are playable? Yeah, I know you've had some great guests talking about some of these themes I'm about to point out. We've been optimistic on small caps and mid caps and the cyclical names. I look at copper, Mike. Copper is like breaking out, like as we speak, as of last week. So again, there are some things taking place at that shift from technology communications, which were more

evenweight, were overweight industrials and small cap, mid caps. We like energy. Energy's like gone nowhere for 15 years. OK, look at a long term chart of energy. They had a big rally. So again, there's some other areas we think this market broadens out. Those are the areas we like and we're overweight for the for the money that we run for more than 350 Carson partners. What do you say to those who will argue that what we're really witnessing here is just a longer than typical lag effect? The tightening of the Fed is done and the economy is still kind of late cycle, no matter what the market is is conveying. And how do we integrate the economic view with what the market's been doing? Yeah, you're right. I mean, like the yield curve, right?

Talking about the yield curve, it feels like forever about that being inverted. But I'll tell you this. One of the reasons we came into this year saying no recession, and it was a lonely call, was the consumer is still strong. Now with inflation coming back, wages are growing faster than inflation. Compensation is growing faster than inflation. It is what it is. The consumer is still strong, Mike. And then you look at housing and manufacturing. Both of those things are starting to bottom. Housing's taken away,

or detracted is probably what I should say, from GDP nine quarters in a row. We're likely going to start to see housing be an addition to GDP, along with manufacturing, which is trying the bottom as well. So it's not perfect. Don't get me wrong. But last point on this, GDP the last year has grown to 2.6%. We grew at 2.3% the three years before the pandemic. I bet nobody realizes the economy is growing better now than it did three years before the pandemic, but things felt pretty good. So we think it's still pretty solid out there. No, it's a very good point. And it's a good reminder that it takes multiple things going wrong at once, usually for a recession to happen. And we haven't quite

had that be the case just yet. Ryan, thanks very much. Good to catch up. Thank you. All right, up next, we're tracking the biggest movers as we head into the close. Christina, standing by with those. Hey, Christina. Air travel, Mike. This is what I'm going to talk about.

Air travel flourishing, though, for international flights, and that's hurting shares of JetBlue. And one software firm is warning about softer IT budgets. All the details after this short break. We have some breaking news out of the Fed. Steve Leisman has that for us. Hi, Steve. Hey, Mike. Yeah, Atlanta Fed President Rafael Bostic meeting and talking with reporters over Zoom saying the data he's seen so far is consistent with an orderly slowdown. He calls that quite promising. Recent economic reports, he says, argue for the Fed being cautious, cautious in not raising too much, but resolute also in bringing down inflation to the 2% target.

He adds this, which is something that's new for what he's been saying. There is now some risk, he says, of the Fed overtightening, though he does say inflation is still too high and must be brought down. So his baseline right now is no hike in September, though he could support a hike if data goes the other way. That is not, however, his baseline. He does not see cuts until the second half of the year. I'll just add that's very similar to Austin Goolsbee, Chicago president. Mike, who talked earlier today, and he said any cuts would be far off in the future.

He called himself a closet inflation optimist. Mike? OK, well, I guess he was just came out of the closet with that one and calling himself that. That's good to hear. September 19th, 20th is the the next FOMC meeting. Steve, thank you very much. Let's get back to Christina for a look at the key stocks to watch. Hey, Christina. Hello. Let's start with Manchester United because shares are dropping sharply to session lows, down over 7.5% just in the last few minutes as British newspaper The Eye reports that the club's sale process is effectively paused. The stock has just been on a roller coaster ride throughout the sale process this year, but clearly taking a leg lower, you're seeing on your screen on this reported development right now. Switching gears, software firm Zoom Info missed on revenue, cut its full year guidance and got a downgrade from Deutsche Bank to hold

from buy. Zoom Info was vague in its report, but said companies are cutting back on IT budgets and that's why they're seeing some weakness. Shares are down over 26%, which is an all-time low. Last but not least, JetBlue on pace for its biggest drop in more than a year, with shares down almost 8%. The airline cut its outlook because passengers are opting to book international flights over domestic, hurting, of course, JetBlue's sales. Another, though, challenge for JetBlue,

the end of its partnership with American Airlines after a judge ruled it anti-competitive. The two airlines stopped selling seats on each other's flights late last month. Mike? Christina, thanks very much. Thanks. It's now the last chance to weigh in on our Twitter question. We ask where you think the S&P 500 will end the year? Below 4,600, between 4,600 and 4,800, or above 4,800. Head to at CNBC closing bell on X. That's what Twitter is now known as. We'll bring you the results after this break.

Let's get the results of our Twitter question of the day. We asked, where do you think the S&P 500 will end the year? A plurality saying we're going to go to record highs above 4,800, 41.2% of you said that. That beats out flat or down from here. Up next, your earnings rundown. Pinterest and Starbucks, among the big names reporting in overtime, will break down what to watch when we take you inside the market. We're now the closing bell market zone RBC capital's Lori

calvisina is here to break down these crucial moments of the trading day. Plus Jason Hellstein of Oppenheimer shares his top takeaways from Uber's quarter and we're watching two earnings releases in overtime.

Julia Borsten with a preview of Pinterest and Kate Rogers on what to expect. From Starbucks welcome all two earnings releases in overtime. Julia Boorstin with a preview of Pinterest and Kate Rogers on what to expect from Starbucks. Welcome all. Laurie, taking a little bit of a pause here in the market, very benign little decline in the S&P, but it seems like we're at a kind of now what moment, the market up almost 20 percent. People have embraced the soft landing scenario pretty wholeheartedly at this point. I guess it's time to ask, have people gotten overoptimistic and are valuations too rich? What does your work tell you?

So thanks for having me on as always, Mike. And I think, you know, if you looked at the results of the poll you highlighted earlier, it certainly does point to a lot of enthusiasm in the market. I agree with one of your earlier guests who said with the clients he's talking with, everybody's, you know, kind of cranky and not feeling all that great. But when we look at the AAII data, which is, again, is more of the retail side, it does look like sentiment is starting to get a bit extended. It's not at the hold your nose and sell signal yet, but it's starting to get pretty close to it. From a valuation perspective, my work says there's a little bit more room. My valuation and earnings model combined tell us the kind of bull case on the market is forty seven hundred, forty eight hundred.

But that is really a cross purposes with what we're seeing from the sentiment side. So I think it's a very, very tricky market. And look, I agree with your now what comment, Mike? I've been reading through earnings call transcripts and I mean, all the old narratives are fading away and nothing all that interesting is jumping up to take its place. So it's been a pretty, you know, sort of frustrating reporting season for me from that perspective. What has that done for your outlook to, let's say, 2024 earnings? Is it kind of too early to make the call as to whether there's further downside or whether they're reliable at this point in terms of the consensus? So we're pretty far below the consensus. Now, I tell people not to get too alarmed about that. I'm at 227 is my early cut of 2024. The consensus, I believe, is still around 243. Now,

numbers are usually way too high at this point in the process. So that's why I tell people to calm down a little bit about my forecast. That being said, one of the things we've got baked in is the consensus view that inflation will return to kind of the low 2% range next year. And that does depress your revenues. One of the things I have actually noticed, some of the more maybe interesting parts of this reporting season have actually been companies are softening. They're like, hey, everything's great with pricing. The commentary around pricing is softening. And we've had a number of companies say that's because cost pressures and inflation is moderating.

So that's going to bring the pricing strength down with it. That is very consistent with what we're coming up with in our earnings models. I think you're starting to get some hints of that, you know, kind of headwind to earnings from moderating inflation next year. Where does that leave you in terms of groups that you would emphasize or themes or factors that look ripe right now to invest in? So I think it's really tricky from a sector perspective. We still want to have some value exposure in here. We've had sort of a nice reaction for energy and materials companies to earnings beats. I think there's a little bit of catch up in the short term that some of these

value and cyclical sectors need to have. That being said, I'm really hesitant to abandon all of my growth exposure. So we're hanging on to an overweight with tech, and it's not our favorite place in the very short term. But we do like it longer term because we do think that you're going to be heading into a recovery that's subpar economically. And growth stocks typically do well in that environment. I've been joking with people today. I don't love all the commentary. I'm reading on AMI. I understand why a lot of investors are annoyed and rolling their eyes. But I do think there is something there. And I do think a lot of the secular, you know, kind of long term efficiency tailwinds, not just from AI, but from tech and software companies generally are still around. So I want to hang on to those stocks. But, you know, I understand the frustration some clients are feeling.

Yeah, we did race right to a kind of a hype moment, but can't dismiss it out of hand. It's a pretty nuanced take, Lori. Thanks very much. Talk to you again soon. Jason, love your take on the reaction in the stock of Uber to the numbers. Do you think it's anything that investors are particularly seizing on in the results, or is it a matter of how far the stock has run? Oh, first, yeah, let's start with how far the stock is run. It was up six percent from Friday and Monday and just gave it back. But look, I think you have some investors who wanted more, we'll call it momentum. You do have a slowdown basically in the gross bookings and kind of given where they are, you know, they're probably not going to hit now that kind of 170

target bookings target for next year. But a lot of that has to do with freight, which isn't a particularly valuable part of the business. I think they're prioritizing gap earnings to get their S&P inclusion. And that's probably hurting some of the gross bookings growth, right? Like as far as leaning into growth. And some of the more shorter term investors, I think, are kind of unhappy with that and are selling the stock. But ultimately, it sets it up for, I think, the more longer term investors to ultimately participate. It's a fascinating dynamic, this idea. And it has been commented on that Uber is seeking that inclusion, the S&P 500, which does require profitability kind of minimum over a period of time. But is that any kind of magic for the stock?

I mean, you know, correct Dr. Pepper went into the S&P 500 not that long ago. People didn't get all excited about it. Yeah, look, our work with investors suggests that a lot of mutual funds long onlys have not been focused on this. I mean, look, I think more maybe in the last six months. But if this is a stock you were talking to clients about, you know, nine months ago, you definitely had much lower interest from longer-only investors. You tend to focus on index components. So, look, this is a big company, right? This is basically almost a $100 billion company.

And really, it's a disproportionately owned by by hedge funds and kind of more shorter term money. And I think that S&P inclusion is definitely important to running out the investor base, plus the ability to begin buying back stock, which they're also talking about potentially in the fourth quarter. Yeah, no, it's not a non-factor. And it's a good point that it does kind of bring it into a different investor pool, particularly. And Blackstone, of course, is the other one vying potentially for inclusion in the S&P if there's only one. Just quickly, your target on Uber remains 65? 65, 20 times 2025 cash flow, discounted back one year at 10%.

Excellent. Jason, thanks very much. Appreciate you checking in. Thank you. Julia, what are we expecting from Pinterest? Well, the big question for Pinterest is how much new shopping tools for brands and consumers are driving ad dollars, as well as the question of how the overall ad market is faring. Now, with this quarter in particular, investors are looking for an update on a big partnership Pinterest made with Amazon to bring third-party ads to the platform they just announced it at the end of April. Loop Capital with a buy rating on this stock, writing, quote,

we think the Amazon collaboration is critical to demonstrating the bull case that Pinterest can turn its high-intent traffic into action and become a valuable shopping utility. Pinterest is expected to grow its earnings by 5.9 percent and its revenue by about four and a half percent. We'll have to see whether it follows Meta, which far exceeded expectations with accelerating revenue growth, or Alphabet, whose YouTube's ads also meet expectations, or whether it's more like Snap, which missed both on revenue and on guidance. Back to you. Yeah, Julia, where it sits in terms of the ad food chain is, I guess, a crucial one right now. What is the sense of what analysts are expecting

in terms of the ad trajectory for Pinterest relative to those peers? Well, I think the interesting thing about Pinterest is it has particular strength in the retail market. So maybe less exposure to travel, which is seeing such a boom right now in terms of consumer spending and also advertising spending. It's more exposed to retail. So I think the read around the broader ad spending, I think will give us insight into where consumers are putting their money right now. But Pinterest is also unique in this reinvention is going through with CEO Bill Reddy, who just took the reins of the company just over a year ago, this really big reinvention to focus on driving shopping, this idea that people come to Pinterest looking for things to buy. They want to

make it easier to buy things. And that closing the loop is what could make ads on Pinterest so incredibly valuable if they can get that right. So I think Pinterest is really unique from some of the other social players for that reason and may have perhaps different challenges, but also more opportunities than maybe a snap does right now. Yeah, that has been the promise. We'll see how it comes through, Julia. Thanks, Kate Rogers. What is Starbucks about to offer? Hey there, Michael. Analysts are expecting EPS of 95 cents on revenues of nine point two nine billion dollars for the third quarter. Same store sales, of course, in both the U.S. and China will be key for investors to watch in North America. Same storestore sales, of course, in both the U.S. and China will be key for investors to watch. In North America, same-store sales expected to increase 8.4 percent. That China

number will also be key, and Starbucks will break that out in its report. Last quarter, Starbucks saw its same-store sales in China increase for the first time since its third quarter of 2021. But in this quarter, firms including Guggenheim and BTIG have said China's recovery may be uneven and that smaller competitors are crowding the landscape both here and abroad. BTIG even reduced its international projections just last month on a potentially weaker China. In the U.S., it's going to be all about the strength of the consumer. And if Starbucks is able to hang on to share in the face of stubborn inflation, as you can see, the stock is slightly lower on the day, up just over 1% on the year.

Back over to you. Yeah, has been a little bit of a sleepy name. Kate, thank you very much. As we head into the close, the S&P 500 is sitting on very modest decline of about a quarter of 1%. I had been about half a percent lower at the depths of the day in the middle of the session. The Nasdaq down four tenths of 1%. Russell 2000 has been the outperformer. It is now on the downside. You do actually have some negative breath as well. After a broadening out of the market strength, you have about 70% of all New York stock exchange volume to the downside. Treasury yields, definitely a story today. Ten-year Treasury has popped back above 4%.

That's on some firm U.S. economic data as well as some global yield moves as the Bank of Japan alters its longer-term yield suppression policies. The volatility index, not much to say here. Still under 14 as the actual realized volatility of the S&P 500 remains at multi-year lows. Very calm uptrend with rotation within the index as opposed to a broad pullback just yet on the first day of August, as many do expect a pullback. That does it for Closing Vow.