Closing Bell - Closing Bell: Late-Year Surge in Store? 10/13/23

Episode Date: October 13, 2023

Can stocks have a late-year surge or not? BMO’s Brian Belski – a bull – and Cantor’s Eric Johnston – a bear – debate their forecasts. Then, TIAA’s Kourtney Gibson breaks the tie and explains who she thinks won the debate. And, John Spallanzani of Miller Family Office digs in on the broader market, the Fed and Amazon. 

Welcome to Closing Bell. I'm Scott Wapner on this Friday live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the final stretch of a volatile week. Earnings underway, about to get busier, interest rates falling, but raising new questions about the state of the U.S. economy. The war in the Middle East impacting gold and oil markets. In other words, your money being pulled in multiple directions as we track every move today as always. Here's your scorecard with 60 minutes to go. And regulation stocks were doing pretty well. Well, until late in the morning when a consumer confidence number came in well below estimates and a read on inflation expectations. Well, that was higher than anticipated. And that all but nullified the pop that some of the banks

gave the market on a series of better than expected earnings reports. JP Morgan, well, Citi's gone negative, too. But JPM and Wells Fargo are still nicely positive. Bright spots on an otherwise topsy-turvy day. Boeing is one of the Dow's worst performers today. More issues with the 737 Max emerging, that stock down by more than 3%. And as for tech, it is the biggest loser. Every mega cap name losing some altitude today. Meta, one of the worst performers along with NVIDIA. Takes us to our talk of the tape. Whether stocks can have a late year surge or not.

Let's ask two market watchers on two sides of that argument. BMO's Brian Belsky. He says investors shouldn't fear rising rates. And Cantor's Eric Johnston, who argues stocks are likely going a lot lower. Both join me live, as you can see. It's good to have you both with us. Brian Belsky, you're the bull. I'll go to you first. This week, inflation sticky. We learned today consumer confidence is waning. What allows you to remain bullish stocks? Well, thanks for having us. And we really appreciate the opportunity to clarify our stance. We remain bullish. We think that U.S. profits are going to continue to be strong. I think the

move back this week to U.S. stocks and the stability that the U.S. market shown, considering the atrocities that the world is watching in Israel, shows you once again that. I think what investors need to understand is that rates are going to be higher for longer. We already know that. Elevated, let's call it, as we like to talk about on this network. But I think people really don't understand that if you look at pre-global financial crisis numbers in terms of risk return, in terms of performance for the market. It is at least 300 basis points higher than post the great financial crisis when interest rates are going down. Interest rates go up means the economy is okay.

And I think that we're missing this boat because we have reared an entire generation of investors that do not understand that stocks can go up in a rising rate environment. Further to this, you go back in history since 1950. If you look at when the 10-year treasury goes up between 50 and 100 basis points, that is the best return scenario for markets, period. So I think that we're too stuck on what the Fed is saying, or more importantly, not just Powell, but Fed members. It's very clear to

us in our great economics department that we're not going to have a recession. We're going to have a soft landing. And we're not going to have two negative quarters in a row. And we're going to get through this. So I think a lot of the negative rhetoric, quite frankly, in this waiting for Godot type recession talk that's really been in place for several months has really been misguided. All right, Eric, there's the bullish view. What's wrong with it? Sure. So I think that yields are going up for the wrong reason. So typically when yields go up in history, it's because the economy is strong.

So you have strength in the economy, yields go up, economy weakens, yields come down. One of the issues that's going on right now is that yields are going up because of two facts. One is the Treasury supply, which we've been talking about for the last couple of months. We think it's a big deal and that's only going to get worse. And the second thing is due to inflation. So you have conditions there tightening fairly dramatically. They've moved up 90 basis points in the last few months. Sure. I mean, rates are down like 25 basis points in a week on the 10 year., right? We're at 488. Correct. Right? But yes, still. We're at 462 now. Yes, still quite elevated. The real yield is up to about 2.3%,

which is a pretty dramatic shift over the last few months. Oil is up for the wrong reason, meaning it's not up because of demand, it's up due to supply issues. So that's another headwind right now for the economy. Oil's lower than where it was. We're producing more oil here than we ever have before. That's true, but oil is up about 30% in the last three months. So that's still a shock to the system. And this is all happening. The dollar has had a big move. That's also tightening conditions.

And it's happening as the consumer is depleting their savings. We heard that from JP Morgan today, right? Jamie Dimon said the consumer savings are declining. Citibank said this morning, said the consumer is decelerating. And we're in late cycle. So we are in the latter part of the cycle.

So the cycle can be defined as the unemployment rate, which is at a historic low, and the nominal GDP growth that we've seen during this recovery. It's about, it's grown by about 40%, which means you're more than, at least more than halfway, halfway through, and you're probably closer to the end. So this is all coming together simultaneously while you have valuations that are extremely high. It's not like they're pricing in a slowdown in the economy. And so I think it's a pretty difficult picture. And at last point, I would make it is just that I think this mid-East situation is kind of showing that when you own equities, you are taking risk. And as a result,

you need to have good upside returns in order to justify that risk, because there are things that come out of nowhere like this situation. And currently that upside is not there. I'll get back to that in just a second. But Brian Belsky, I'm always intrigued in how you can have two people looking at the exact same thing, the market, and coming away with so starkly different conclusions about where we are. I mean, the bullish case that you make, fine, you're entitled to your opinion. The bear case that Eric makes, fine, he's entitled to your opinion. The bear case that Eric makes, fine, he's entitled to his opinion. But what about some of the issues that he does raise? You know, it's not just, you just talked about rate of change with interest rates, as if,

well, we've kind of been here before, but we've gone from zero interest rates to near 5% interest rates. We're talking about 500 basis points of change. So a couple things. You've got to have a buyer and seller. We have, Eric and I have, two very different clientele. And so you have to understand that. Number three, on the valuation side of things, I think... You both want, both of you guys want people to make money.

That's what you get paid to do. You get paid to make people money. That's correct. So we have different, whether you're clients or different or not, the goal is the same. Absolutely. And he has his process and he has, and I have mine, and I'm not going to, I'm not going to belittle his process because he's a professional and I'm a professional, but let's kind of talk about some of these points.

If you look at valuation, so why are valuations pre-financial crisis three multiple points higher than post-financial crisis? Riddle me that. Why, if interest rates went to the 10-year treasury from 0% to 5%, I think the 0% to 2% was during crisis post-traumatic stress syndrome that we're still kind of going through, by the way. So 0% to 2% is not normal. Just like what Eric was kind of referring to

when interest rates go up during times of duress, he's talking really about the 1970s, which that wasn't normal either. When you have a double-dip recession, you've got the oil situation, the embargo, you have the unwind of the Vietnam War. That wasn't normal either. I think this whole move is all about the return to normalization.

If you look at the compound annual growth rate, the compound annual growth rate of the stock market, since 2020, it's 8%. If you go back to the 1950s, the CAGR on the market is 7%. Our view has been very clear. We think that we're heading back into normalization, a trading range of 4% to 5% in the 10-year treasury, high single-digit earnings growth, high single-digit to low double-digit return on the market

when you add in the dividend. That's good old-fashioned investing. We're talking about the 80s and 90s. And I think in between there, as we sit and worry and argue about process and this client and near-term long-term it's all just creating too much noise and too much confusion so I think you brought up a you know a good point around the the rate of change and we were this is an economy that for 13 years was operating at essentially a 0% interest rate environment, which means that-

Free money? Free money. And so you had businesses that part of their model, right, was borrowing at those rates. So it's not the absolute level of comparing, you know, 5% now to when it was 5% 20 years ago or 15 years ago. It's the fact that we've gone from the easiest policy that lasted for a very long time, right? QE, 0% rates that were in basically for a lot of 13 years to all of a sudden a 20 year high in real yields and nominal yields. So if you think about a commercial real estate, right? They borrowed three, four, five years ago at rates that were based on close to zero rates. When you think of someone that got a car lease three years ago, it was based on zero

rates. When you think about that startup company that was able to borrow money for free, and now the debt is maturing. Corporations, right? You look at utilities. Why have utilities been weak? They've been borrowing at zero. Now, when you look at their growth rate going forward, their growth rate is going to get hit because their borrowing costs are increasing. And Brian might say, look, those are all valid points, but all those are known. And those same points have been made by the same people over and over again for many, many months. And just as he said, the waiting for Godot recession, it's like the waiting for Godot apocalypse based on all of those issues that you bring simply haven't happened yet

because the economy has remained, I guess, strong enough to withstand some of that. Maybe lag effects are still to come. But many of the most dire projections about every single thing hasn't really happened. I would say equity returns over the last two years have been terrible. If you look at money market rates, you're getting 5%. The S&P is down from where it was in January of 2022. If you look at small cap, small cap has been a disaster in terms of returns when you compare it to inflation, when you compare it to money market yields. So equity returns. No one's suggesting that equity returns were great. But when you let's stay on the rate of change, when a Fed goes from zero to raises by 525 basis

points in 14 months, well, obviously, you're going to have a reset of expectations of equity returns. But the predictions of the most dire fallout from all of that just simply hasn't materialized. Yeah, I mean, the story is not the story is not over yet. You know, we're we just got to five and a half percent, you know, four months ago. The 10 year yield is hitting a new high. Now, excess savings are the lowest they've been, right? So the story's not over. And I think that this is all happening at a time where the consumer is getting very vulnerable.

And my whole premise this whole time has been the lack of upside in the market, right? It's that your best case scenario, based on where we are in the cycle, what the headwinds are, and where the multiple is, is not great returns. I think that's the best case. And then, of course, when you're holding equities in this scenario, you have plenty of downside. And there are so many other places that you can be to earn a return and take less risk. In other words, Brian, the bulls, I hear Eric saying quite clearly, the bulls are just too quick to say we're good because we haven't had a recession so far. So so we're going to be good, completely ignoring the lag effects that have really yet to happen, looking at metrics that are more backward than forward, assuming that the consumer is going to hang looking at metrics that are more backward than forward,

assuming that the consumer's gonna hang in there when there are clear indications that the consumer is becoming stressed if they're not already there. How do you respond to that? Well, you've heard me say this a thousand times. I'll say it again. Stocks lead earnings, which lead the economy. So the stock market was down 25% in 2022.

We are going to have some sort of a slowdown in earnings. We already saw that. Now earnings are beginning to come back. And oh, by the way, now we're waiting for the economy. Now, again, we are coming out of this zero interest rate environment, which is not normal. We had a stress on the market in the world called COVID. That was not normal.

And so I think what's going to end up happening is, and we don't need to see a recession. We clearly had rolling recessions in a bunch of different sectors, but in the market, I think too many people are trying to make an economic market call overall, and they've forgotten that the stock market is a market of stocks,

and the economy is also an economy of a bunch of companies. So we actually don't think we're going to see negative contraction two quarters in a row. We may see a zero quarter, and the rate of change might be negative. And that looks like it's going to be modeled out for the next couple of quarters. But we don't see that happening. That's looking forward. That's not looking back. And that's what investing is all about. What I think is interesting, too, Eric, is that while you're obviously bearish and you articulated to our viewers and to Brian exactly why you hold that view, you acknowledge that there are bullish dynamics in the short term. Yes. That could,

in fact, remember I asked the question at the top of the program about this idea that we could have a run into the end of the year, which you, do you think that's possible even as bearish as you sound? Yeah. So I'm very respectful of that. So if you look at institutional positioning, it has declined a lot on that move lower. Institutions and systematic funds sold, and really the individual investor really did not go along. And so if you look at institutional positioning right now, it is somewhat underweight or short, depending on which category you're talking about. And then, of course, you do have the fourth quarter seasonals, which are strong. Now, I happen to think that that is going to be overwhelmed by the fundamental backdrop that I am talking about. And I certainly

believe over the next three to six months, it's going to be overwhelmed by the fundamental backdrop. But I am respectful over the next couple months. could you get some sort of technical rally? It's possible. But I personally, I'm not betting on it, nor would I suggest. But if we did have strength in the next month or two, it wouldn't, I don't think, be because of the fundamental theory being not there, but because there are some technical dynamics that if I knew nothing else, I would tell you the market would go up. But I mean, don't you consider better than expected earnings or at least earnings living up to elevated expectations is a fundamental reason as to why stocks would go up? You can't dismiss that, right? You're right. I mean, I think that this quarter, you know, the earnings are going to be fine. And I think that guidance will probably be OK. I think 24 guidance, which we won't get until the first quarter,

I think that's going to be a problem because I think 2024 estimates or 12 percent growth are too high considering the outlook for the economy. But are we going to see that during this earnings season for the fourth quarter? You really won't get as much 24 guidance or really about fourth quarter guidance, which probably won't be a big driver in, I would say, either direction. So, Brian, that's what it's going to come down to, right? Earnings. Ultimately, earnings. And whether earnings are too high for next year, we're almost at the end of this year,

you don't think that they're too elevated? No. In fact, you know, so let's say if you go back in history and you look at an average fourth quarter rally after having the type of year that we've had is 4%. That would add on to where we are now, 16, 20%. I call that a pretty good year in the stock market, not negative. So I think that needs to be said, number one. Number two, on the earnings side, again, if you look at earnings revisions, they bottomed out three months ago, and the 2024 number actually has been coming up and being improving because a lot of the negativity, quite frankly,

and it was just for a lot of the financials that really drove those earnings lower, and the stability in earnings we're seeing in areas like health care and industrials, but especially, obviously, technology. So I think that earnings are going to be pretty stable, not gangbusters in 2024, high single digits. And again, that's a pretty good environment for stocks, especially if and when we start to see this escalator down in inflation, which I think is just common sense.

It's already happening. Now it's just a matter of it actually unfolding. I don't know. I mean, Larry Fink was on our network of BlackRock, and he tries to be more optimistic than not. And he was suggesting, look, inflation's going to be higher for longer. It's already proving to be that. And you're probably going to have long rates above 5%.

Let's just say he's right. Reasonably smart person, right? Let's just say he's right. Reasonably smart person, right? Let's just say he's right. Are you going to be wrong? We'll be wrong if we're above 5% for any kind of prolonged period. I just don't think that that's going to be the case. And I think, you know, the situation with a lot of the CEOs, God bless them. I think they're wonderful. But again, they want to under-promise and over-deliver. Mr. Diamond didn't do anything different than when he talked about a banking crisis and then two weeks later bought First Republic. So, you know, but every time I feel like I bring up some like somebody who mentions anything that is a fly in the ointment of your thesis, it's some caveat about, well,

their strategies are different or their clients are different. Well, he's a CEO, so what is he going to say? I mean, the things he brings up, he being Mr. Fink, are in some respects reality of where we are. This week, PPI, CPI were both hotter than expected. Inflation is somewhat sticky in certain places. Obviously, parts of inflation have come down a lot. Certain parts are sticky. Rates are still elevated, right? They are elevated. And OK, so we haven't really talked about I'm not an economist, but you haven't talked about the BLS has changed in terms of how they

account for medical expenses. That was a surprise that the market didn't see that coming. And even the CPI number wasn't as hot as everybody thinks. The month-over-month change in oil, Eric's right, over the last three months it's up 30%. But it's not up 30% October versus September. And it's probably not going to be up again. And we're going to start to see more supply, which has been our call all along going into 2024. So, again, Scott, I'm not belittling any CEOs. I think they're amazing. But we have

we have seen a sea change since the great financial crisis of U.S. companies and North American companies under promising and over delivering on their earnings and on their outlooks. And so this is a secular trend that is very much in place. Give you the last word. OK, I think we got to wrap it up. All right. I'll give you the last word. Okay. I think we've got to wrap it up. All right. Surely, as much as I like sparring with both of you, I think we have to wrap it up. Two quick points.

So, first of all, in the last CPI report, the super core, month over month, real time right now is 0.6%, 7.2% annualized. The headline was 0.4%, that's 4.8% annualized, and the core was 0.3. Okay, so today, month over month, inflation is remaining sticky, which is why they're going to keep rates for longer.

And then I would say just broadly, you have to ask yourself, the multiple is at a 20-year high. Is that going to go with rates at 20-year high? Is that going to go higher or lower? Is the economy, with all the headwinds that we're talking about, going to get better or is it going to get worse? And are earnings estimates up 12% for next year going to get better or worse? And if you answer those questions and you can't say that multiples are going up, that estimates are going to be 12% or the economy is going to get better, I think it's a very tough way to own equities. I want to do one last thing. I lied. We're not going to wrap it up quite yet. You say in your notes almost every sector faces

significant headwinds, including tech, because there's a belief among a cohort that as long as tech delivers this earnings season, just like from the beginning of the year until three quarters of the way through the year, market will be just fine. So mega cap tech is the one group that does not face those headwinds. The only issue with mega cap tech is that is the price you're paying for it. OK, but if you go through every sector, whether it's home builders, we know their issues, utilities, right? GLP-1s. No, I want to stay on mega cap. Sure. Because there is a belief that as long as mega cap delivers, none of those other sectors you're talking about, with all due respect to them. Sure. Matter. Just like they didn't really matter for the better part of this year thus far.

That's why the major averages have had the kind of year they've had. Sure. So mega cap tech has very good secular trends. OK, if the economy rolls over, their earnings are going to get hit, but will get hit a lot less than the rest of the market. So I think people are looking at them as a place of safety, which I completely understand, especially with what's going on with every sector. But I think from an earnings perspective, where I think people are probably not respecting the risk with them is if we have an economic downturn, that that could offset some of the secular growth that people are betting on. I lied even more, Belsky, because you actually get the last word since we restarted it.

What about tech? Be quick, though. I'm confused. I'm confused by the math because no disrespect, but the industries and the sectors that he mentioned, the three, don't even add up to Apple. And so these are consumer staples names in our view that have massively great balance sheets, great cash flow and very consistent earnings. And they will go through this storm. OK. All right. Good stuff, guys. I appreciate it so much. We'll see you soon. Brian Belsky, thank you. Eric Johnston here at Post 9. Thanks to you as well. Our question of the day. We want to know who do you think is right? Bulls like Brian Belsky, bears like Eric Johnston. Head to

at CNBC closing bell on X to vote. The results are coming up a little later on in the hour. In the meantime, some top stocks to watch as we head into the close. Pippa Stevens is here with that. Hey, Pippa. Hey, Scott. Well, Dollar General is higher as investors cheer the return of its former CEO, Todd Vassos. Gordon Haskett is upgrading the stock to buy with a price target of $140 per share. Analysts say Vasos has the potential to improve Dollar General's business, even in the face of giant competitors like Walmart. And Progressive is at an all-time high after the insurer topped expectations in its third quarter.

Earnings came in well ahead of estimates alongside a slight revenue beat. Net premiums rose 20 percent from last year, which was also ahead of the streets consensus. Those shares up 8 percent. Scott. All right, Pippa, we'll see in just a bit. Pippa Stevens up next. The case precaution. T.I.A.A.'s Courtney Gibson. Well, she's going to settle the debate. How about that? While you're voting, we'll talk to Courtney Gibson and see who she thinks is right, the bull or the bear in the market right now. We're talk to Courtney Gibson and see who she thinks is right, the bull or the bear in the market right now. We're back after this. Welcome back to Closing Bell. The major average is well off session highs after weaker consumer sentiment and higher inflation expectations

outweighed strong earnings from the banks. And our next guest says investors should expect more volatility ahead. Let's bring in Courtney Gibson of TIAA. Court, it is so good to see you. Welcome back. Even better to see you, Scott. Thank you. All right. So let's settle. Let's settle this court. We just had a bull bear debate and a good one at that with great points, frankly, made on both sides. Are you inclined to be more positive or negative on the market right now? I think, you know, the answer to that, Scott, I am always going to be more positive or negative on the market right now? I think you know the answer to that, Scott. I am always going to be cautiously optimistic in a time like this.

Longer term, and you know I tend to be much more of a buy and hold investor personally, as well as at TIAA, obviously for our retirement business, we constantly talk to our participants about the importance of being a long-term holder and consistent with your portfolio holdings. So from my perspective, Scott, I think the short term right now, we know it's going to be volatile. We've heard from Jamie today. You think you had Larry Fink on earlier today is what I've heard. At the end of the day, we know that this is going to be a somewhat tumultuous time. So what does that portfolio look like?

How are you ensuring that you're protecting yourself? Are you staying diversified? Are you sticking to your knitting when you think about where your asset allocation should be? And how are you ensuring income as a part of that overall portfolio for the long term? Well, I'm looking at some of the things that you've done recently, which I guess would suggest a more cautious view. So you're putting your money where your mouth is, I guess. Coca-Cola, right, a staple stock that had gotten hit pretty well. Pepsi reported earnings. Those were good.

And Staples got a nice boost and Coca-Cola did as well. But Target, too, is interesting to me, just given what we've been talking about with the consumer, the, you know, the the degree of strength they either have or don't. How would you address both of those stocks? Well, Scott, they were both holdings I had in my portfolio. And when you think about Coke, we're kind of in this really interesting place where kind of this growth in value kind of situation is blending a bit here. But when you think about Coke and you think about what I said earlier around strong cash flows, I like op margin, I like income. Coke is dominant in its positioning. So again, from a defense perspective, if you're going to lean in somewhere, you're going to lean into strength and you're going to lead

into the number one player in the global market. They have 30 percent op margin. Free cash flow looks fantastic. And it was trading at margin. Free cash flow looks fantastic. And it was trading at low. So from my perspective in my portfolio, I said, this is a good time to add to my position. Then you think about Target. Aside from my personal wallet and the spend there, I promise that's not what's driving where we are today. But again, free cash flows. Think about the partnerships that they're forming as it relates to Starbucks, another behemoth that sits in my portfolio. You couple those two together and what are you doing? You're trying to insulate the brand. You're trying to drive the consumer to spend. You get them to come in for a latte and guess what? They pick up their toilet paper. They pick up some of the

higher margin makeup that might be on the shelves. So I think, you know, both of those for me were names that over the last, you know, several weeks have been plummeted into the market. And I felt like it was a fantastic time to add to my portfolio. I want to come back to where we started. I understand, you know, the constituents that you speak to and with and how you have to think about the market. But if I say, well, rates are up, I get it. They're coming down a bit. The economy is still strong. Earnings are still going to be good. As Brian Belsky was making the case, the bear thesis has played out. Now I'm channeling Belsky

with that. How do you respond to that by, you know, thinking that do you think the market's too expensive based on those things that I just brought up? I do in some cases have to catch up to valuations. But again, as you talk about the longer term and having kind of a more high quality tilt to a portfolio, making sure that you're fully diversified, you're going to be able to if you can. And again, time is your friend in a situation diversified. You're going to be able to, if you can, and again, time is your friend in a situation like this. If you have the time, you wait it out. When I think about what we're doing and what we're doing at TIAA in particular, we are absolutely recommending to our clients, this is not the time to get scared, right? This is not the time to be

fearful in the market. But clearly with VIX, I don't know if the VIX is today somewhere around 20. I know it was inching towards it. There is a bit of fear in the market. I mean, it's geopolitical issues. It's national security concerns even here. That makes the market scared. But that does not mean you deviate from where you believe your portfolio should be. Maybe, again, like I did, as you think about the last several weeks, I said, this is a time to lean in a little bit more. It's a time to add to where you have some conviction. But it's not a time to pull money out of the markets or even, you know, when you think about your retirement, it's not time to go say, you know what, I'm going to go to straight cash. I'm nervous about what's going on.

Think about it. I'm just going to say one more thing about the geopolitical issues and national concerns. Clearly, this is a time where the human spirit has to come alive. So from that perspective, we need to stay close to our loved ones. We need to be very thoughtful and mindful of humanity right now. From our portfolio's perspective, this is also a time to think about capital expenditures and governments investing. This is not a time to think about what am I doing today,

rather the long term, the implications of these issues provide for some investment opportunities, Scott. Court, good to see you. As I said, we'll see you soon. That's Courtney Gibson, TIAA, as you see. You be well. Up next, Miller Family Office's John Spallanzani is back. He tells us how he is managing all of those market risks, what might be in store for the Fed as we head into the back end of the year. It's right after this break. Closing bell right back. We are back. The Nasdaq leading the major averages lower today, down more than one percent. Amazon, one of the biggest losers, that's down two percent. Let's bring in John Spallanzani of the Miller Family Office.

Welcome back. Thanks, Scott. All right. So I'm looking at our closing bell scoreboard right now. Cautious slash bearish, two. Bullish, one. Which side do you come down on? Are we going up three to one? Are we going to even it out here with you? With the close? Are you bullish? Not a close today. Well, right now I think we're neutral, but I mean, you had a lot of people talking. That's the non-neutral zone. Are you more positive on the market or not? Yes, positive. Always positive because we're always optimistic.

We always think the market goes up 70% of the times. There's no sense of fighting the market or the Fed. But right now, we had an 8% correction not too long ago. We had a Taylor Swift moment where it was shaking everything off, right? We had a bad unemployment report. It shook that off. Everybody thought that was the end. It had bad PPI. Shook that off. Had claims were still, you know, pretty strong. Shook that off. We had two bad auctions. Shook that off. We have this geopolitical risk now, which is the future is now unknowable. But what it does, it ramps up the uncertainty for the Fed. So, you know, as much as you

want to say, or not you personally, but as much as the people want to say, you know, hire for longer, all this stuff, the Fed is the lender of last resort. So, God forbid, something this escalates. We have wars in Ukraine. We have a war in Ukraine, Russia, and now we have a war in the middle east how that can how that is going to play out is high level geopolitical chess in other words the fed put a much talked about but much now forgotten about it's still here still here that's the case you're making well also the fed foot is actually stronger when you go from zero to five percent five and a quarter oh because the likelihood of something breaking that they need to fix, like the regional banks.

Regional banks broke. But before that, remember, the market bottomed after the Bank of England LDI pension blow-up, which really spiked rates over there. And then we had, this is the first time in response to a crisis such as the regional bank failures, that the Fed actually tightened afterwards. Past crises, the Fed actually eased. So they stuck to their guns. And then they got a little bit nervous the last few weeks. It seems like that was before the war, the invasion into Israel, obviously.

Right. And we see oil is going up. There's a flight to safety and to bonds. The market's off because we don't know what's going to happen this weekend. And I think right now the Fed is kind of watching all these events pretty closely. Let's go to one particular stock in which Mr. Miller of the Miller family office has become synonymous with, and that's Amazon. Still one of your largest positions. And Bitcoin.

I know Bitcoin, but let's talk Amazon. Bitcoin is one of the best performers, obviously, this year. OK, well, let's talk Amazon. I think one of the best performers, obviously, this year. Okay, well, let's talk Amazon. I think it's more relevant to more people and to the market, maybe. Yes. It's down 10% over the last month. What's up with the mega caps? Still feel good?

Yeah, I think we still feel good. Again, it's where you're going to put your money, right? So bonds had the biggest drawdown since the 1800s, right? Right now, the P.E. on the 10s is 21 times. The P.E. on the market, X-Fang, market x fang is 15 the pe on high yield is 11. cash is five but we don't know how long you get a 5-4 you can get five for the next three months you might you might not get five for the next three years uh because when they eat when they ease they don't ease in 25-point increments. In order to reestablish the curve, they're going to have to cut rates by 200 basis points at a minimum.

And when Fed funds are higher than the 10s, going back to 1970, that's the peak in rates. So if mega cap earnings come in good enough, is that enough for the stock market to take off between now and the end of the year? I think right now the market's focused on what's happening in the Middle East. Earnings, I mean, we can't really worry about earnings right now when we could have oil at $100. We don't know if this is going to escalate. I understand, but the market, it's astonishing in its own right that this all happened or started to unfold

last weekend. Yeah. The market hardly. Budged. Hardly budged. So what is that? It shook it off. Taylor Swift, right?

What is that? But you're saying it's still sort of super focused on it. But why hasn't it had more of a negative reaction? In terms of the market? Well, because it was so oversold. Going into that employment report, the stocks above the 20-day moving average were about 10. Above the 50-week moving average, there was about 38% of the stocks above the 50-week.

So we were really oversold going into that number. And I actually spoke to a dear friend over at Omega, Stephen Einhorn, about this before the print. And I said, listen, regardless of the print, I think the market's going to go higher just because the positioning was so bad. Same thing in bonds. Positioning was so bearish in bonds

that you had Jamie Dimon saying 7%. You had Bill Ackman saying 7%. You had, you said, Larry Fink also in the 7% camp. But who does that help the most? That helps JP Morgan, BlackRock, and those guys the most. Bank of America is sub-27. That stock is trading bad because they were not prepared for this higher rates going from 0% to 5%

and mortgages going to 7.5% when they have all these unrealized losses that are mark-to-market pretty bad. So those are the things we face. We haven't even mentioned student loans that are coming due. We haven't mentioned commercial real estate that's also coming due. There's a lot of resets that are happening as well. So that's going to put pressure on the Fed more likely to, as they just stated in some of their dovish commentary, Laura Logan. I mean, you can go down the list that, you know, hey, listen, we know that we've done a lot and there's a lot left in the pipeline that we haven't even really felt yet. OK, we'll leave it there. I appreciate you coming by.

God bless. John Spallanzani. See you. We'll see you again soon. All right, up next, we're tracking the biggest movers into the close. Pippa Stevens back with that. Pippa. Hey, Scott.

Well, more production problems for Boeing. The details coming up next. Well, we're less than 15 away from the closing bell this Friday. Let's get back to Pippa Stevens for a look at the key stocks that she is watching. Pippa. Hey, Scott. Boeing is under pressure after saying it will expand the scope of its ongoing inspection into a production defect on its 737 MAX 8 model. The problem was first identified in August and involves parts from its supplier, Spirit Aerosystems. Both of those stocks are lower today. And chipmakers are mostly in negative territory, with the SMH Semi ETF now trading along the flat line for the

week. NXP, Marvell and AMD are among the biggest decliners today. Applied Materials and Lam Research also firmly even in the red, even as Needham analysts upgrade both stocks to buy. And Reuters just reporting activist hedge fund Starboard Value bought shares of News Corp, the stock getting a little pop on that news. Scott? Pippa, thank you. Pippa Stevens, last chance now to weigh in on our question of the day. Do you think the bulls or the bears are right on this market? Vote at CNBC.

Closing bell on X. The results after the break. Let's get the results now of our question of the day. Who do you think is right on the market? Bulls like Brian Belsky, bears like Eric Johnston. It's close with the Bulls winning by just a small margin. And it is close. By the way, a reminder, Monday, I'm going to be live at the Case Alternative Investment Summit, talking to some of the biggest names in that space, including a rare and exclusive interview with Eldridge Industries CEO Todd Boley,

right here on Closing Bell. Super excited about that because he rarely does anything. Mr. Boley, also part owner of the Lakers, the Dodgers, Premier League's Chelsea as well. And of course, he has unique insight into where we are in this market, the Dodgers, Premier League's Chelsea as well. And of course, he has unique insight into where we are in this market, the economy, and where he is finding the best opportunities right now. We'll share that interview with you, of course, and others on Monday from out in Los Angeles. Up next, Netflix. The stock's slipping. We'll tell you what's weighing on that name and what to expect from earnings next week when we take you inside the market zone.

Time for the closing bell market zone. Renaissance Macros, Jeff DeGraff shares his must-see charts with stocks under pressure again. Julia Borsten on why one analyst downgraded Netflix ahead of earnings next week. Bob Pizzani on what he is watching in these last moments. Jeff, you first. What should we be paying the closest attention to as we approach the close here?

Well, I think the action of cyclicals versus defensives. It's been really interesting that cyclicals have been able to outperform defensives, even in this little correction that we've had. And it tells us that this impact that yields are having is taking away from that Tina trade. There was no alternative to now. Guess what? There is an alternative. And so you're seeing these defensive names actually under pressure at a point where you would not expect them to be under pressure. And I think that's just a testament to what yields are doing to this market. Appreciate it very much. We'll talk to you soon. Julia Borsten, tough, tough week for Netflix. A downgrade now, earnings next week. Size it all up for us. Well, Scott Netflix share is down nearly 2%

today, off 7% in the past week. And a Wolf Research downgrade to peer performance saying today, quote, while Netflix is on course to build a massive advertising business for the long term, we have rising concern about 2024-25 growth forecasts. Wolf noting reports of slow adoption of the ad-supported service, shortfalls in average revenue per member, and a lack of compelling data on subscriber growth. Meanwhile, Moffitt Nathanson with a neutral rating on the stock, citing major concerns about that password sharing crackdown failing to convert a large percentage of that password sharing base to paying accounts. Now, paid sharing and its impact on subscribers, along with that new ad business, are both sure to be in focus when Netflix reports

that's coming up Wednesday after the bell. All right, Julia, thank you so much. That's Julia Borsten. Now to Bob Pisani. Bob, interesting day. Looked like it was going to be a really good one until that consumer sentiment number came out along with inflation expectations that sort of reset the game on this Friday. It was heartbreaking. We had such a nice rally going and then the numbers came out. Consumer confidence below expectations, expectations for inflation higher than people thought. And this goes to show you the market really is still worried about inflation because it moves interest rates. So we saw the VIX go from 17 to 20. That's a very unusual move. And we saw we lost 60 points in the S&P 500. So we lost all the steam at 10 o'clock. The air just came out of the market. Look at that. That's a very unusual

move, 17 to 20. And look how the air came right out of the market there. So two things make me somewhat optimistic. Number one, we're finally right out of the market there. So two things make me somewhat optimistic. Number one, we're finally getting out of the seasonally weak period of the year. We're getting into the second half of October. It's going to get better. Fourth quarter, better traditionally. The quarter before an election year always is usually the strong side, number one. And number two, look at these earnings numbers, Scott. I have 32 companies reporting two misses. 90% are beating. They're beating by 8% on average.

13% earnings growth for these 32 companies, including good numbers from J.P. Morgan today. I keep waiting. You and I for a year have been waiting for this earnings recession that is never coming. There is no collapse in earnings expectations. In fact, the numbers are going up for the third quarter and the fourth quarter. I want to see regional banks next week. Obviously, we're a little worried here. The numbers are concerns about bond losses and losses in commercial real estate.

But overall, we keep waiting for companies to adopt an expectation that the consumer is falling apart and it's just not happening. That makes me somewhat optimistic. Bob, the thought was going in that maybe the banks were going to tell a tough story and then you're going to get out of the gate slowly. In fact, it's to your point was exactly the opposite. So let's see what happens. Obviously, we're going to get a lot busier next week and then we start talking about tech on the other side. We've got less than 30 seconds now. Right. So the regional banks are the problem here.

They have a different profile than the money center banks that we've just been looking at here, the J.P. Morgans and the cities and the banks and to a certain extent, Wells Fargo. Let's see how the regional they're acting a lot worse. Look at that regional bank ETF. That's really underperforming for a while. So it's a separate concern here, Scott. Bob, thank you. All right, mixed pictures as we go out on this Friday.

See you on the other side again from Los Angeles.