Closing Bell - Closing Bell: Jobs Report & Energy Markets 8/2/24

Episode Date: August 2, 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.

Welcome to Closing Bell, everybody. On this Friday, I am Brian Sullivan. And for Scott, really a make or break hour. That's why we had the fancy breaking news animation there at the top. You've got a big sell off in stocks, new fears the American economy may, may be about to roll over a bit. The week July jobs number, another downward revision for the June number, putting the Fed back into play. And some on Wall Street sort of loudly wondering, did the Federal Reserve make a mistake by not cutting rates on Wednesday? We're going loudly wondering, did the Federal Reserve make a mistake by not cutting rates on Wednesday? We're going to be joined by former Federal Reserve Vice Chair Richard Clarido. We'll ask him that and more about the economy coming up. You've also got

a concerning Amazon quarter consumer coming in a little bit weak. And get this, Intel is having its worst day since I was three years old and the Brady Bunch was a hit on television when they were still cute. We're going to speak with an all-star analyst who says the stock is, quote, unownable right now. And we'll talk about whether or not Intel could maybe go out of business. Not me, him. All right, rough day for the money. Here it is. Here's how things look. An hour to go. If you're looking for upside, and we always are, the Dow is off its lows. We're down 768 points, about 1.9%. S&P, worst session in roughly two years, but off the lows. NASDAQ now down more than 10% from its high. So technically, they call that a correction.

You got small caps. You got regional banks taking big hits as well. All this is buyers really flock into bonds, setting 10 year yields well under 4 percent. And then this to me, this is the most interesting chart of the day. It is the so-called fear gauge, CBOE, volatility index, measure of bonds, et cetera, or options. It is having one of its biggest moves ever as the market really completely reprices pretty much everything. This all takes us now to our talk of the tape, how aggressive the Fed might have to get, what it means for your money, where do we go? A lot to discuss, so I'll shut up and we'll jump into it. New Edge's Cameron Dawson on set with us here, and Truist Keith Lerner also joining us remotely.

Good to see both of you. Big day. Need a steady voice. Cameron, first to you. The jobs number wasn't that horrible. It feels like, and we brought this up on the noon show, a little bit of a market overreaction. Well, 114,000 really isn't that bad in the grand scheme of things. It depends on what you think the neutral number of jobs should be.

If it's 150,000, 114 isn't bad. If you think we should be closer to 200,000 to 300,000, then that 114 is pretty bad. If we think about this reaction, we can't forget that there's a lot of positioning happening here. And that positioning unwind is likely why this move is so magnified. Yeah, because, and I think Cameron nailed it, Keith, because I've been doing this a long time, my man, you know that. And yeah, we missed slight miss of the jobs number and the market does what it's doing. That to me is not about the jobs number or the Federal Reserve. It's what Cameron said. It's about positioning. It's about hedge funds. It's about this yen Nasdaq carry trade unwinding. Do you if I'm wrong, tell me, would you agree?

Well, first, Brian and Cameron, great to be with you. My head's spinning with all these different cross currents in the market right now. I do think it is somewhat of an overreaction. You said you've been doing this a long time. I've been doing this a long time. The jobs report day tends to be an overreaction. And you also have to look at the trend because this number is revised one, two or three times. If you look back over the last three months, Brian, the average job growth is about one hundred seventy thousand. That's close to the pre-pandemic trend. But also, you know, we have to realize we had a big first half in the market. As Cameron mentioned, positioning was was a bit stretched. And even after you have that big first half, the second half, you tend to see gains.

But it tends to be hiccups along the way with an average pullback at some point of about 9 percent. So I think we're in that corrective period. But we still think the bull market trend is intact. It just is going to take a little bit to get through this kind of choppy period. And you had noted, Cameron, to me that all these sort of technical traders, right, they're all they're all long. It's like ninety nine point nine percent%. That's almost all of them, 99.9%. They're all long. They got to unwind that. And you pointed out, and this is fascinating, that the markets today sold off almost perfectly to their 50-day moving averages. Yeah, 50-day or 100-day moving averages, depending on what index you're looking at. So you look at

the Russell 2000, corrects to its 50-day. S&P 500, right to its 100-day. The SOX index, semiconductors, right to its 200-day. So the biggest test next week is how we react off of this moving average. Do we bounce off of that or do we drift lower, meaning that this correction is deeper and more protracted? We really can't judge that until we start to see this bounce, but we would note markets aren't technically oversold yet, which would say that maybe there is some more churn to come.

More churn to come. Listen, it's a traditional day. And I know it sounds weird, Keith, to say that. Gold is over $2,500. The utilities are up. Apple is up. People are kind of looking for safe places. I won't say safe haven, because that's actually redundant.

Safe haven. Safe places to put their money. Do you expect that to then be unwound and we go back to, quote, normal at some point here, Keith? I don't know if we're going back to normal. I don't even know what normal is. I will say we've, in our portfolios,

we added gold a few months ago. We think it's going to be a good hedge because geopolitical risk is rising. There's uncertainty about the U.S. dollar. It just made a new high. Technically, it looks great. So in moderation, we still think that makes sense. We're actually overweight utilities as well.

But listen, Brian, I think this kind of corrective period, there's two components. There's a price component and there's a time component. I think both of those have a bit further to go. I mean, one thing we'd be watching for is following tech. You know, tech led us down. And often when a correction has run its course, you'll see the leadership or you'll see what brought you down at the bottom. We haven't seen that yet. I think what's also notable, you know, two weeks ago, everyone was talking about, hey, small caps, has that the best five-day change we've seen in history or one of the five? We're back at the breakout point, that CPI day as well. So I'd be watching

that over the next week as well, seeing if we can find some support. But ultimately, we do think the market will eventually recalibrate and move higher. I just think in the near term, it's hard to say what the catalyst is, right? We're moving past earnings season. The Fed's in a bit of a pickle because the next meeting's not until September. And then we get into this kind of. Well said. Well, I'm not disagreeing with you, but the Federal Reserve can cut anytime they want. I mean, they don't have to do it at meetings. They've made intra meeting changes as well.

So, A, do you think they screwed up by not cutting this week? And B, I mean, they could next week to say, you know what, we're going to cut. They can do that. Yeah, well, listen, I'm not one to second guess the Fed. My question today, and I've been asking around, did they have this report on Tuesday or Wednesday? I've got mixed answers on that. But listen, if they cut intra-meeting, I think then the question becomes, are they overly concerned the market may take it it that way as opposed to being patient.

It's like a sign of panic. Yeah, exactly. So I don't know that they're going to do it, and I don't know that the market reaction would be as positive as we think. Yeah, we heard from Austin Goolsbee today, and it's like he read The Hitchhiker's Guide to the Galaxy that says, don't panic. He effectively said this is just normalization and that we won't read into one data point, which just says this doesn't seem like a Fed that's going into the

situation room trying to figure out how they could stall the bleeding. I don't think that they're looking at this 114,000 and saying this is something we need to panic about. And if they did, it would be probably a bigger problem for the market because they would extrapolate that 114 goes to 50, goes to zero, goes to negative in payrolls, which would be a big problem for GDP and growth. I mean, we're just, we're showing all these stocks, Cameron, right? And I get Amazon, they had weaker consumer numbers. Intel, its own story. We'll do more on that in a couple of minutes. But, you know, Micron is down. They make DRAM. It's a commodity product. People are going to buy computers. They're going

to buy things with DRAM. Micron's down 10%. Prudential Financial, probably on the bond move, down 10%. It feels like everyone's just kind of dumping everything. And they're going to take the weekend to kind of reconsider what they want to rebuy. Consider the starting point about how overbought things were. And so there is still this aspect of the bigger they are, the harder they fall. The more you were extended and overbought, the more room there is to correct because valuations were also very extended. But to your point is that the big question from here is that do you see these kinds of moves translate into earnings revision starting to trend lower? That's been the key thing that's been underpinning this market is continuously rising earnings revisions. Well, answer your own question. Is this going

to translate into revised earnings? I think 2025 numbers are too high. Maybe this data is the spark to get people to start moving estimates lower. 2025 numbers have a huge amount of acceleration in the top line and massive margin expansion. If inflation's fading, neither of those two things happen, which is why we think 2025 estimates do need to come down. And it suggests that as we move into next year, we're looking more at a sideways kind of choppy market versus this unflinching up into the right. Yes. And Keith, I know, you know, Bill Gross, he's a friend of mine. He's known as the original bond king. But now he can just do whatever he wants. And he tweeted out something interesting today, as he is wont to do.

Bill said, is any media figure willing to say bear, meaning bear market? Bear. Bill, I'm in the media. I just said it. But he says very few bull stocks these days, pipelines, banks, financials in general. And this is, I want you to comment on this. Investors should stop talking about buying the dip and start asking about selling recoveries. What do you think? Interesting. I got to think about that one a bit. You know, at this point, I mean, we are I got our baseline view is that the bull market is still intact. So we would still be

saying probably somewhat of a deeper pullback that you still want to buy the dip. I think some of this kind of economically sensitive trade that we had up until this point, I think that's questionable in a cooling economy, like going back to the small cap trade, even though we're more neutral, you know, in order for that to really do well, you need an economy historically, at least to have some momentum. So what we're thinking about is we're looking actually with tech. We don't we think it's premature. We downgraded tech at the end of June. We're looking for an opportunity later this year to reengage because we still think that's the secular story. So to ask you to answer your question directly, Brian, we're still looking for buying the dip.

We're just not buying the dip yet. Not yet. That word yet is always such an interesting word, yet. Keith Lerner, Cameron Doss, thank you both very much. Have a great weekend. Thank you. All right. Thanks, Brian. In the meantime, we talked about it a moment ago, Intel on pace for its second worst day ever. In fact, in more than 50 years as a public company, Intel has only had one other day worse than this,

and that was in 1974. It just gave away my age, but it's on the wiki thing anyway. This after investors or Intel saying it would suspend its dividend and it would lay off 15% of its workforce as part of its costly turnaround. John Ford sat down with CEO Pat Gelsinger and asked him about what is ahead. Fundamentally, the four areas of our business, we're not changing any of those. A foundry, our client networking and data center business, those four areas. But within each one of them, we're looking at the portfolio of things and saying which ones are getting good financial return and which don't have as good a market or financial opportunity

in the future. All right. Joining us now is Stacey Raskin. He is a senior analyst at Bernstein Research. I'm just going to, Stacey, you're a straight shooter. I'm just going to lay it out. You put in your note. You actually said in your note, I don't have it on top of my head. I'm not looking at it. Something to the effect of we may have to start having going concern comments or discussions. No, not quite. No. Can you clarify that? Because it's getting a lot of attention. What I said was in some other environment, we would probably be having those conversations. Not Intel, I want to be clear, because it's gotten attention. So what I wrote was in other circumstances, we would be having those

conversations. However, the one silver lining from last night, I actually do think Intel will live through this. I don't know what kind of a life they will live, but they will live through it. And here's why. So they are clearly, things are going very badly. They're cutting a lot of costs. They're in survival mode. But if you sort of add up the cost savings from the reduced CapEx, from the reduced OpEx, from the reduced opx, from the suspended dividend, and then from all of the cash that's coming into the company, like from the governmental support, as well as some of these partnerships.

They've sold pieces of some of their fabs to private equity and gotten cash in. If you add all that up, it's probably $40 billion of incremental cash that will be on the balance sheet by the end of 2025 versus had they done nothing. That will probably, like, keep them alive. They'll be okay. Like, I'm not really worried about going concerns given all of that. But in another world, if you didn't have the geopolitical concerns and all the subsidies and everything, like, we'd be having a different conversation. But I don't know what life they live. If I have to sell my couch

to pay the mortgage and then sell my car, I know they don't have to. I get what you're saying. They're trying to bolster the cash position on the balance sheet. But at some point, you run out of things to sell to private equity. Yeah. Again, hopefully they're at a Again, it's, hopefully they're at a point where it's enough. I mean, they've got a lot. I mean, they sold

half of the Ireland fab to Apollo for $11 billion. They sold half of the Arizona fab, which is not operational yet, to Brookfield, I think, for $14 billion. So that's almost $25 billion just there.

And, you know, given, like I said, the CapEx cuts and the OpEx, there is a lot of cash versus doing nothing. But, you know, like the state, the CapEx cuts and the OpEx, there is a lot of cash versus doing nothing. But, you know, like the state of the business is not good, right? I mean, they're burning cash. Margins are horrible.

The revenue is much lower than they thought. It's not a good situation. So go more into that, Stacey. When you say it's not good, how bad is their business? It's bad. So, look, I mean, the quarter itself, the revenue you could argue was okay. The margins were awful, right? They're ramping up their new chips for AI PCs and the cost structure is very, very bad. And so the margins are bad. And that actually gets worse as we go forward on the next quarter or so. Even in the next year, margins don't look great. And then the back half revenues are much worse. So some of that is inventory drain. There's too much inventory on PC chips in the channel.

We've been highlighting that. I monitor that fairly religiously. We publish on it every quarter. And I'm convinced that we're swimming in CPU inventory right now. I think they overshipped massively in Q4 and in Q1. I think on the data center side, they're still losing share to AMD and it doesn't look so good. There are other markets. Mobileye reported last night as well. We don't cover Mobileye, but actually, they cut their guides massively, and that goes into Intel's revenue. Altera looks not great. That's their FPGA business. It's not good in the context of just the broader macro and the share situations and everything else.

And because the cost structure is getting worse, like on just the cost of the parts, it's really impacting the gross margins. The gross margins are back to they have a three-handle on them now, which I was joking. The last time that was happening was 1986 in elementary school. But now you're just bragging that you're younger than I am. I'm not. I don't think I am. I was alive in 1974, so I don't think so. Here's my worry as just a TV guy who's been doing this a while about Intel. Intel, and we wish them all the success of the world, was one of the most iconic success stories in global history, arguably. Everybody knew Intel, Intel Inside, the little ding, ding, ding logo

they had. Obviously, things have gone wrong. My worry is that a lot of investors out there, marginally interested investors, are going to be like, oh, it's Intel. It's down 30 percent in two days. It must go back up again because it's Intel. It's hard. I mean, I've been having that discussion all day with clients, like, how do you value it? And the problem is, there's no real earnings, there's no free cash flow, and there may or may not be any terminal value. Like, we don't know, right? So, you know, I mean, look, tangible book value roughly is about 21 bucks a share, which I think is where it's trading today. So I'm having those kinds of discussions with people. Again, I don't

think there's any reason to own it. Like people that own it clearly are selling it today. You've got probably a bunch of dividend funds who may have still owned it even after they cut the dividend last year, but they still paid one. They don't pay one anymore. So it's hard to own there. You know, it could go up to, I mean, it's down a lot. Like these things get really volatile. They start trading like options, like when the equity value get gets low so i don't i don't really know what to do with it but i mean to me it feels like you don't need to be there like at all like i would be advocating avoidance at this point like why do you need to be there's easier ways to make money yeah or yeah there's and there's a really easy way to lose money today if you owned it yesterday but we appreciate the candor and the

honesty uh tough time for intel its people and its investors. Stacy, thank you. You bet. Oh, by the way, so John Ford sat down, I don't know if it was earlier today or yesterday, with Intel CEO Pat Gelsinger. You saw some clips out of it. The full interview is going to air next hour on Closing Bell Overtime. I'm fascinated to watch and listen. I wonder if he's going to just say straight up to Pat Gelsinger, you seem like a nice guy, but are you going to step down? We'll find out. Tune in in the four o'clock hour. All right. Let's send it over now to Kate Rooney for a look at some of the

other big names that are moving into the close. Lucky you, Kate. Exactly, Sully. A lot to talk about. Clorox is going to be one of the few green charts you see on your screen today. It's emerging as this flight to safety, leading the S&P gains, avoiding this market sell-off you've been talking about. Investors are overlooking some of the weaker-than-expected revenue to focus on the firm's strong profit picture. So the household cleaner giant raising its full-year profit outlook. And then, of course, household essentials tend to hold up better in any sort of economic downturn. And then on to one of the S&P's biggest laggards. You're going to see some red on your screen again. Shares of Snap. This is the parent company of Snapchat, sinking over 24 percent on disappointing guidance. The firm slashing its Q3 earnings outlook on soft demand from advertisers

in consumer sectors. Brian, back over to you. Hard to believe Snapchat was a $70 stock about three years ago, now under $10. Kate Rooney, thank you. All right. We are just getting started here on Closing Bell. Up next, we're going to obviously all over today's market sell off. The major average is still getting hit hard into the close. And we have a great guest for you. Former Fed Vice Chair Richard Clarida back with us. We'll get his first reaction to the jobs number and whether recent economic data really puts recession risk on the table. Live from the New York Stock Exchange, Closing Bell. We're back right after this. Welcome back. Let's ask a very simple question. Did the Federal Reserve make a mistake by not

cutting interest rates this week? More in the street are beginning to ask the question, especially as markets sell off today. So let's talk about the Fed's next move and where the American economy really stands right now with the perfect guest for it all. And that is Richard Clarida. He is former Fed vice chair. He is the global economic advisor to PIMCO. And Richard, listen, good to talk to you again. You have great respect for your former colleagues on the Fed. Great respect and friendship with Jay Powell. You're not going to dunk on anybody. I get it. But was it a policy, personally, was it a policy mistake to not cut on Wednesday? Well, I don't think so. And here's why. Look, the Fed is going to be data dependent. They've said that. The data has been soft for a while. It got various, more than soft today. Markets have

already priced in rate cuts. So I think the important point is the markets understand the Fed's reaction function. I think it would be a mistake if they didn't cut in September and probably indicate more on the way. But no, I don't think you can micromanage July versus September, especially when the markets are doing some of the work for them. Yeah, and that's, you nailed it as usual, that last point. The markets are doing some of the work for them. We're all freaking out about the Fed and what they might do or may not do in September or November or December, whatever it might be.

It looks like you're on the other side now, Rich. The bond market has spoken. Yes. And sometimes the market gets it wrong. In January, the markets thought there would be six cuts this year. Don't think that's going to happen. And then, of course, it got to one cut. So, you know, we're in a phase now.

Look, there's been a big success here. The Fed brought inflation down from seven to two point something. So far, we've avoided a rate cut. Does it matter if they cut in September for the economy, for the economy? And number two, you probably you might have patched in late. I was sort of reminding the audience Fed can cut any time at once. Right. They don't have to cut only meetings. Oh, yeah. In fact, I was there. I was there in 2020.

We did that. Yeah, we prefer to call it an unscheduled meeting, not an emergency meeting. But yes, sure, Ken, I don't I don't see that's happening. You know, there is a risk whenever the central bank adjusts outside of a scheduled meeting. The markets can think, you know, what do they know that we don't know? So no, but get back to your original question a moment ago. Yes, I think it would clearly be a mistake, given what we know now, if they didn't cut in September. You know, the unemployment rate has now moved up by about a point. The payroll gains today were very modest. You know, private sector payroll gains, especially excluding, you know, health care, which has a

connection to the government, have been running weak all year. So I think they have enough information. They will have enough information going into September. I think they will cut. The news then will be how many cuts do they pencil in for the rest of the year. But they made it very clear in the FOMC statement two days ago that risks are bound. They have a balanced approach. They have two mandates, employment and price stability. And I think they're ready to adjust. There's so much noise out there in the data, though. And I get it. I don't want to get politics involved. But it was like, oh, this super strong economy. I've been sort of on the tape saying, I don't know how strong it is. Going back to pre-COVID, 6 million more jobs than pre-COVID.

Divide that by the number of months. That's kind of average or even below average job creation. To your point, most of the job creation is either government or government funded, which is your was health care. Those are good jobs. No disrespect. I just wonder, can the private sector stand on its own? People wildly underestimate how much COVID money and COVID stimulus and low rates were out there. I just wonder what the actual stripped down, true American economy looks like right now. And I have no idea. Well, I think it's a very good point. I have a similar set of sentiments in that I think this has been such an unusual cycle. The pandemic was unusual.

The policy response, we had the Russia, Ukraine. You know, we lose count of not even getting involved in the political calendar. Very, very unusual. But in particular, you know, indexes of underlying strength in the economy, especially if the lower half of the income distribution, you know, have been slowing. And so, yes, I do think the economy is growing. I think it's growing at about trend. But the momentum is clearly downshifting.

There is no doubt. Yeah. And would a 25 or 50 basis point cut in the Fed funds rate when the bond market, to your point, is doing it already? Is that going to change things? I went into a, it's like a recreational vehicle dealer, boats, motorcycles, campers, the fun stuff, but nothing we need, right? I was there last week in the Midwest, Rich, and I was talking to some salesmen. I also went to a car dealer. They were like, we're not selling anything. And everything was marked out. Cars are marked down. I get it. It's one stupid anecdotal thing. I just don't know if a small cut in borrowing costs is going to reverse that. Well, there are two points here. One is the bond market's doing the Fed's job for it because the

bond market is pricing in more than one cut. So I think they will have to be in alignment. Now, my view has been and continues to be the baseline that the Fed's thinking that it can downshift rates in tandem as inflation continues to fall. And I think that was a good model until the spring. But as we get closer to 2% inflation target, I think they've made it very clear, you know, that they're prepared to adjust rates as the labor market softens. You know, we've triggered the SOM rule, as we discussed, and I think this is prepared to adjust rates even faster than inflation.

Why is everybody suddenly talking about the SOM rule? I mean, literally, I heard of it for the first time like three weeks ago. We're doing this 26 years, and suddenly it's like this magical thing that's come out of the air. Are you a believer in the Psalm rule? Son of Psalm? Well, I know Claudia. I'm a big, big fan of her work. She was on the 1 o'clock show today.

She's very lovely. Yeah. And the whole point of the SOM rule was essentially to find a simple measure of when the economy is tending to move from recovery, from expansion to to a slowdown or even a recession. And the SOM rule historically has done a good job of identifying that inflection point. It might be wrong this time. You know, we've had Chris Waller, for example, two years ago said, you know, we can get inflation down without a big rise in the unemployment rate. A lot of folks said, you're crazy. That's never happened. Well, it has happened. And so this is unusual. This may be a cycle and the Psalm rule does not indicate a recession. But

certainly I think there's enough there that it's going to get in is getting the Fed's attention. Great, great great interview i would expect nothing less rich thank you very much appreciate it thank you very good all right very welcome all right getting some news by the way out of the food and drug administration breaking news from angelica peoples angelica what's going on hey brian that's right we are just seeing that all doses of eli lily's manjaro and Zepbound, those GLP-1 drugs for diabetes and obesity, are now all available. Remember, these drugs have been in shortage, not all of the doses, but some have been in shortage because there's just so much demand that they can't keep up with the supply. But now FDA is saying that these are available.

And we're going to keep an eye out to see exactly what that means for Lilly when they report earnings next week. Brian. So it's a good news breaking news, Angelica. It's not like a bad news breaking news. No, it's good for Lilly. It's good for people who are looking for that drug. Looking for that drug. There you go.

Two drugs. Raising their output as we talked to the CEO in Indianapolis a couple months ago. Angelica, thank you very much. Thank you. All right, Andek, thank you very much. Thank you. All right, Andek, call it crude realities. Even with the Middle East on the razor's edge, oil down today. We're going to find out why next.

All right, let's talk oil and energy. All right, first up, we got earnings out of ExxonMobil and Chevron. Both were out today. ExxonMobil had one of its highest ever profits. It's a deal to buy Pioneer Natural Resources, boosting output. Now, Chevron did miss estimates. That's stocked them both down. Chevron's down a little bit more. Chevron missing mostly because of weaker margins of refinery.

And maybe a bigger headline, Chevron is leaving California after 145 years. Too high regulation, other issues as well. 2,000 people probably moving to Houston, California, losing another big company could be tough for the area. Now, also with oil, oil prices are down today, even though tension is rising in the Middle East and the real threat of an attack by Iran on Israel this weekend. Let's find out maybe why we're not seeing more of a pop. Bob McNally of Rapid Anger. Bob, I'm guessing we're not seeing a pop because you and I have talked about this many times, unfortunately, in the last couple of years.

There's always now some kind of a threat. And it feels like there's just plenty of oil to counter anything. We don't need to have $100 oil. What's your take? Right, Brian. You know, the humans and the machines that trade oil are forward-looking and when they look forward they see macro calamity and risk the unemployment missed this morning being the most recent example they're very attuned to that and

and that's why we saw crude sell-off when they look forward on the geopolitical side, they don't see anything. What they hear is the village boy crying wolf. In other words, you get these sporadic escalations between Israel and Iran. You get a little bit of a pop, like we got a few days ago, and then it goes away. And so, look, we're not disagreeing so much. I think the odds favor a sort of a bigger repeat of April. The Iran will strike back, but rubble will bounce. And most likely and hopefully Israelis won't die. However, the risk of escalation is not zero or five percent. It's more like 35 percent. And, you know, Brian, the village boy who cried wolf, that story did not end well for the village or the boy. Yeah, and that's it. And you actually, it's exactly kind of how I phrased it, speaking with somebody earlier today. There's a not zero percent chance. And let's hope that none of this happens, Bob.

But I guess the idea is Iran, literally Iran, maybe not even Hezbollah, launches a bunch of missiles like they did recently at Tel Aviv. Tel Aviv defends them. At some point, if that happens again, Israel will say enough is enough. And if they start to lay waste to some of Iran's money, which is pretty much all oil, what then with the price of oil? It'll go up. The market will be shocked and it will go up. Look, the Houth are killed one israeli

in tel aviv with one drone and israel responded by torching the port of how data in yemen blowing up by are uh... power plants and uh... and storage facilities so israel's in sort of a three eyes for one of my move on the mood right here and so what just as the uh... just as the protagonist 110 years ago in Europe didn't want to enter a big war, a long, costly war. No one wants that. Iran doesn't want it. Israel doesn't want it. Certainly President Biden doesn't want it. But you can't always get what you want.

And we are in an escalatory dynamic and we're still climbing up those rungs. Outside of that, let's all pray it doesn't happen, Bob. Fundamentals alone, fundamentals alone right now. Looks like the trend is lower for prices. Yeah, fundamental data, Brian, coming in do not justify lower prices in my view. Look at May. We got a final hard data for May. Blockbuster strong in the United States, including for gasoline, the highest since 2019 in May. We don't have any sign of a peak and collapse in demand there. Europe, not even so bad in gasoline. Yes, China.

Yes, distillate is weak. But gasoline globally, jet globally, pet chem globally, not weak. And we're seeing stock draws, too, Brian, in Cushing and other places. So, look, it's not super bullish, but it doesn't call for a massive sell-off in oil prices, in my view. Okay, good stuff. And obviously, we'll see what happens with OPEC December 1st in Vienna. Maybe we'll both be there. Bob, thank you very much. Thank you. All right, up next, caught an apple a day keeps the bears away. One bright spot in the market, top apple analyst Eric Woodring is here

at Post 9, making the case for why there's still maybe 20% upside in Apple. All right, got about 18 minutes left to the close here. Not a good day. Macro markets down, NASDAQ down 2.5%, but one stock that is higher, not a lot, but it's higher, is Apple. Now, one analyst calling Apple stock a, quote, good place to hide in today's market. That analyst was not Eric Woodring of Morgan Stanley, but Eric Woodring of Morgan Stanley is indeed here. It's your competitor, but how much do you think there is of today's move is more of like, yes, put money in Apple because they're a safe place to be? I think that's a very fair explanation. Again, what happened last night? Yeah, let's put money in Apple because they're a safe place to be. I think that's a very fair explanation.

Again, what happened last night? And not a knock on, it's kind of a, it's not a knock on Apple at all. It's kind of the opposite. We called it a flight to safety, right? In a world, in a market where there's a lot of concerns of what's going on, both macro and micro wise, especially with the consumer, Apple did slightly better than we expected as a market, right? They have a story to tell about what to look forward to. And in this environment, that was enough. What is that story?

Right. So again, iPhone 16 launch mid-September. What becomes really important is the iOS 18 launch that should come in September as well. But then the incremental rollout of Apple intelligence. The first time you're integrating generative AI onto the iPhone. Now, again, that's new software, but as we've talked about, what's important is you can only run that on the iPhone 15 Pro, Pro Max, and new iPhone 16 model. I was just about to ask that because I got two phones here and I just got a 15. It's not going to work

on these, is it? There's only 70 million iPhone 15 Pro and Pro Maxes out there today. There's 1.3 billion iPhones in the world that are active today. So even if you're happy with your phone, and I'm sometimes happy with the phone, right? Pictures are fine, holds enough music's fine, works fine, whatever. If I really want that AI, I'm going to have to go upgrade. You need to upgrade. Is it going to be thus compelling enough that I will want that AI? That's the magic question, right?

Well, you're the analyst. Answer the magic question. It's not out yet, so we need to figure that out. What we do know is developers have the first beta version of iOS 18 with a few features for Apple intelligence today related to messaging, some transcription functionality. I would say the early reviews are positive, but it's still a very narrow set of features that developers have today. So we will need to wait and be patient for over time for that to roll out. Again, our thesis is fiscal 26 is the big cycle. That's 14 months from

now. We're just saying that there's an upgrade cycle that is coming. I don't give investment advice, but I will give financial advice, right? Sort of. Every couple months, I go a little crazy, and I go through the budget, the family budget, and I go through all the credit cards and everything, and I realize I'm sending massive amounts of money to Apple every month. I'm not talking about the phone. I'm talking about Apple One Plus, right?

News and all this other stuff. Apple Music, iTunes Match, okay? Apps, Roblox, whatever it might be. It's a lot. I would imagine I'm not alone. Apple's services business is one of the biggest, standalone, if it was, it would be one of the biggest revenue companies in the world.

Correct. It doesn't seem to get a lot of love or attention. It should. It's outperformed for eight quarters in a row. It's accelerating despite... How much are they making off of the Woodring, Sullivan, and millions of other families? I was shocked at the money that was just going to Apple every month without even thinking about it. Well, I'll tell you two things.

First of all, it's the power of the ecosystem, right? Everybody thinks phone, phone, phone, or iPad, Mac. There's an $88 billion business and services that should not go unnoticed. Again, 74% gross margin. That's incredibly important. But second, what's almost more important is today, the average Apple consumer across devices and services spends about a dollar per day on the most important technology platform in their life. On average, a dollar a day. I'm well above that. You spend $7.62 for a coffee per day in New York City.

The amount of potential upside to spend per day that you could have for Apple, again, across the ecosystem, is incredible. Services is a key part. Personal opinion, not representative of Morgan Stanley's views, Eric. Can they do something to make iCloud Mail not be so crappy? I guess I will defer that question to the future. I did not expect you to. It made me feel good to say it because I think everybody kind of knows Gmail is far superior. They got to really work on it a little bit. Sure. But we're still handing over that money. handing over that money again. Apple did what they needed to do to help investors feel better about owning Apple

stock. And you're seeing that today in the market. That's it. A good place to hide also. Eric Woodring, Morgan Stanley, great combo. Thank you. All right. Still ahead. Trouble in tech. Amazon's post earnings drop dragging down the major averages. Nasdaq on pace to close and correction from its record high in July. More than 10% drop. They called out a correction, and we're getting ready to go into the market zone. Thankfully, on a Friday after this. And we are now in the closing bell market zone, the last one of the week. Josh Schwab's Kevin Gordon is here on what is a very volatile day for stocks.

Leslie Picker is tracking some of the bank sector sell-off. Surprised they got that out. Kate Rooney on Amazon's post-earning drop, one of their worst days ever. We've got a lot more to do and not a lot of time to do it. So let's just jump right in. Kevin Gordon of Schwab, thanks so much for being here. Nice to see you. What is the biggest question you are getting from clients right now?

Well, I think one of them being, you know, is this more of a shift out from, you know, what's become this kind of positioning argument, you know, things got too one-sided for the mega caps and maybe shifting into, you know, are recession fears now more justified because of this one jobs report? It is a little amazing to me to see so much focus on one report itself. And of course, yes, the broader context is that things have been slowing in the labor market, but I'm not sure we should be, you know, taking some, having so much of a knee jerk reaction to just one, especially with the aggressive nature of the drop in risk assets. But I do understand why. Well, and go into that more.

Listen, you are the expert. I am not the expert, but I can tell you this. I'm doing a long time. I have not seen a market move like this because of a small miss in the job market, or maybe the federal reserve should cut, you know, two days ago instead of two months from now. Every guest we've had on is like, this is positioning, it's technical stuff, it's carry trade, hedge funds. This is not mom and pop selling, is it? Well, I think you have to keep in mind where we were coming into this. The investor sentiment environment was incredibly frothy. You basically got back up to kind of all-time highs if you were looking at a combo of behavioral and attitudinal measures of sentiment,

but also the fact that, you know, you had this really strong rally and sort of the snapback in the rubber band on the small cap side because of what happened with the June CPI report. Now, of course, a lot of that is reversing. But I think that in conjunction with what had been from a positioning standpoint, yeah, a lot of this trade kind of moving into the mega cap world at the same time that you started to see this breakdown in breadth under the surface. So a lot of this and how we're kind of looking at it is, you know, the indexes from a volatility standpoint catching down to what had been weakness sort of under the surface. Because you have to keep in mind, too, up until this point, the average max drawdown

for members in the S&P was approaching 20 percent, getting up to 16, 17 percent. For the Russell 2000, it was more than 30 percent. The max drawdown at the index level has really not been that bad this year for the S&P, for the Nasdaq, for the Russell. You haven't even yet gotten to outright correction territory. So I think a lot of this is the index is kind of catching back down to what has been the story under the surface. By the way, not even the worst day of the year for the S&P. That was July 24th, where we fell 2.3%. But here's what does not worry me. It vexes me, which is that the rapidity of these moves now,

even though the market's gotten faster every day for 20 years, I get it. But when small caps gain 11% in two weeks, and NVIDIA's down 25% off its high of a month and a half ago, unknown news, by the way, and we have two of the worst days of the year in the same two week period, it just feels like everything is a lot more violent these days. Even for small caps, though, I mean, you have to, the other thing I think it's important to point out is a lot of the move that you had seen post CPI, and I think the excitement around the fact that the Fed was finally getting started, you was finally getting ready to start cutting rates, I think a lot of the excitement was just kind of a delayed reaction because the one unique aspect, I think probably

the most unique aspect at least of this market cycle, especially when you look at prior tightening cycles, when you look at prior bear markets, full bear market cycles for the S&P, the period of October 2022 to October 2023, the first year of the bull market for the S&P, the Russell 2000 was flat. A few days after that, it actually broke through its low from 2022, which has never happened before. So I think a lot of it has been a delayed reaction and kind of hopes of small caps finally getting to start moving again.

But now that's being sort of blunted a little bit because of the growth scare that has crept back in. I think a lot of it, too, is the question now, not whether the Fed goes in September, but, you know, the decision between 25 basis points and 50 basis points that reintroduces some of the risk that it's a panic kind of cut and they have to sort of catch down to the economy. They did the rare intramedian cut. That would be the panic cut. Sit tight. We'll get into that. Kevin, don't go anywhere. We've got a lot of stuff happening. Leslie Picker, I'm looking at my little fax set screen of all my bank stocks, hundreds of them. There's four financials and banks that are drag down that financial sector to be the second worst S&P sector today. Citi, the laggard among the big six U.S. firms, slumping more than 7 percent, followed by Wells Fargo. It's a partial reversal in the strength that this cohort has seen in the year through July, with each bank over that time frame up at least 20%, except for Morgan Stanley, which was up about 11% during that time. August has been less friendly

to the sector, though, which is levered to the health of the economy. Cracks in the soft landing narrative would be a headwind for everything from investment banking to consumer credit to wealth management. Additionally, a steeper magnitude of rate cuts could ultimately compress what banks are able to charge for loan making. And on top of the macro issues, some banks facing their own idiosyncratic headlines today as well. Morgan Stanley downgraded today to underweight by Mike Mayo over at Wells Fargo. Berkshire Hathaway sold even more of its stake in Bank of America. And Wells Fargo appears to be the subject of a new regulatory probe, Brian. So it's kind of like bad news on top of the bad macro news, just all kind of hitting this sector pretty hard today.

Can't wait for your conversation with Mr. Jamie Dimon out there in someplace called Kansas City on Wednesday. It's gonna be great. Good timing. Yes. It's perfect timing. Bring back some timing, yes. It's perfect timing. Bring back some barbecue. Leslie Picker, thank you. Speaking of getting barbecued, Amazon's down about 9% today. Kate Rooney, what's going on with Amazon?

So, Brian, Amazon, as you can see on the screen, it's one of the biggest laggards, the biggest laggard, actually, on the Dow, if you look at just the Dow today. It has to do with these jitters around the consumer and this choppy forecast we heard about for the third quarter. And you step back for a second. Amazon was really seen as this hedge in mega cap tech because it also had the consumer business. It wasn't just an AI play, but that is working against the stock today as investors now worry about the broader economy. As you've been talking about, revenue guidance missed for Amazon for the first time in almost two years. Profit outlook also came up short. And then online sales growth did slow. CEO Andy Jassy on the call with analysts called the consumer cautious. He noted that folks are

now trading down to lower priced items. Cloud growth, though, that AWS side of the business, revenue there was up 19 percent. It was better than expected. Amazon does plan to spend more this year after spending $30.5 billion in the first half. The company now expects capital investments to be higher in the second half. They say the majority of that spending is going to be for AWS infrastructure and, of course, AI, Brian. Back to you. Of course, AI. I've got to say AI every day. Kate Rooney, thank you. Kevin Gordon, final wrap.

Listen, it's going to be a big weekend for Schwab.com. Your clients are going to be going there to read what you and Lizanne are writing about. Can you give us a preview? What kind of advice are you giving people here out? Well, I think, you know, as it pertains to the Fed cycle and actually some of the sectors that we just covered, both of them, whether it's financials or Amazon and consumer discretionary, what is what has become important, I think, is the now shift maybe in the narrative, whether it is, now it's a potential shift, it's not a definitive shift, but if the Fed starts to go into an aggressive cutting cycle, because there is, you know, there's a lot of variability when you look at prior Fed cycles and you look at market action, but one that is a little bit more

consistent is when the Fed does get more aggressive, when you've got more than five or six cuts within a 12-month time span, it tends to benefit the so-called, you know, traditional defensive sectors like consumer staples or utilities or health care at the expense of the, you know, quote, rest of the market. Utilities. They were up today. I don't know if they still are. Maybe we can throw the XLU up while we have 30 seconds left. So I think that's going to be part of now the discussion as to whether they're, again, catching, you know, down to where the economic data and if they're being pushed around by the economic data, or if they're able to still sort of, you know, take it at their own pace

and really signal that things are relatively okay, I think that the cyclical trade broadly can hang in there. Well, Kevin, you're more than okay. You're great. We appreciate you coming on. Have a great weekend here. We've got a lot of cheering for the Hong Kong Dragon Boat Race Festival. A lot of smiling faces, not in the market, but up there. Folks, I've enjoyed being with you. We'll see you next week.