Closing Bell - Closing Bell: Markets Headed for Harder Times? 9/1/23

Episode Date: September 1, 2023

Is a loosening job market and an ongoing retreat in inflation leading toward the soft economic landing that the bulls have pinned their hopes on? Or are the economy and market headed for harder times? Tom Lee from Fundstrat and Warren Pies of 3Fourteen Research debate it. Plus, new data on retail investors is shedding some light on where they’re putting their money these days. Kate Rooney digs in on those numbers. And, top technician Ryan Detrick is breaking down the charts and explaining where he sees stocks headed for the month of September. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with the stock market unable to make too much of some made to order economic data on jobs and wage inflation, leaving the major indexes somewhat indecisive to start September. Bond yields perking up. Some big tech leaders under pressure today. Those small caps and banks getting a nice lift. Ryan Dietrich is back with us to kick off the month. He'll tell us why he thinks September could be better than many are predicting for stocks. But first, our talk of the tape.

Is a loosening job market and an ongoing retreat in inflation leading toward the soft economic landing that the bulls have pinned their hopes on all year? Or are the economy and market headed for harder times? To debate this, we'll bring in Tom Lee, Fundstrat Global Advisors co-founder and a CNBC contributor right here at Post 9, as well as Warren Pies, co-founder of 314 Research. Guys, great to see you both. Appreciate you joining in the homestretch of the week toward the weekend. Tom, I think I frame it as a debate because the numbers are definitely encouraging in that Goldilocks manner, not too hot, not too cold. You are seeing inflation move

the right way. You are seeing the labor market soften up but not fall apart. On the other hand, none of it's inconsistent with either sticky inflation or we're headed toward some kind of an economic downturn. So where does that leave the market entering the new month? Well, I think you've definitely described why investors are bifurcated. You know, there's folks who see hawkish things and bearish things, and they stay bearish into the September. And on the other hand, I do think there's a lot of evidence of the soft landing and that inflation's on a glide path much lower. And given how hesitant people have been and how much cash is on the sidelines,

I think that resolves positively. But the reason I would sort of emphasize that view is I think companies have been really managing this exceptionally well. I mean, X energy second quarter earnings were up 3.5% year over year. I mean, the earnings recession has ended. So we're in a profit recovery cycle as well. No doubt about it. You've seen an upturn in the in the forward estimates for for the S&P 500 earnings, although part of the August story when we got this shakeout, we got this five or six percent pullback. You definitely saw sentiment cool off. But part of it was a rate scare in the

sense of long term bond yields going up to levels, which at least recently have been uncomfortable. Are we out of the woods on that front? How do you interpret the way the stock market has tried to digest that? I think it's two ways. And again, this is where it's indecisive because what we're seeing is a bear steepener, which it's actually generally good for stocks because it's reflationary. But we know when like today yields popped, yields were higher today on a soft jobs report. We know that hurts tech stocks. So I think markets are reflexive, reflexively still reacting to higher rates and its rates are unpredictable. So I would have liked to have seen rates fall like long term rates, but I

what they're up today. Sure. And Warren, in terms of not really just the rate story, but even the internals of the jobs report, the general run of economic data, which has somewhat cooled off, what does that tell you in terms of where we might be going, what the market has seemed to price in from here? Yeah, I mean, I think that at this point, it's clear to everybody that we're getting to the late cycle. So even just a few months ago, there was kind of an open debate. Where are we in the cycle? And at this point in time, we're starting to decelerate, and that's pretty clear. Obviously, we're creating fewer jobs.

The revisions are getting worse. I mean, that's something you see around recessions or into slowdowns where you get negative revisions month over month. We've had that through the beginning part of this year. Something we look at is residential construction payrolls. Those continue to decline and you're getting negative revisions there too. So all these things point to a late cycle type of environment. And then as Tom's alluding to, you kind of have to ask yourself, are we going to end up with a soft landing or a hard landing? And that's a tough question to answer because I think at this stage of the cycle, both of those outcomes feel the same. You start decelerating on the data. You start having a softening of the labor market, the very first signs of softening. And it can go either way.

The odds historically are that we're going to end up in a hard landing. Soft landings are really rare. The bear steepener, I agree with Tom, we just had a bear steepener. But when you get a bear steepener out of an inverted yield curve, that's usually before you enter a recession. And the most important thing here is not predicting the right outcome. It's understanding what's priced into various markets. And I would argue that you're not being paid to bet on a soft landing anymore, that right now markets in general are already pricing that in. So if we get that outcome, you're going to have to look ahead and say, OK, what's next? I think that under a hard landing is actually kind of underpriced at this

point in time. So, you know, that's the I think we all agree kind of on the lay of the land in the weakening of the data. It's just a matter of what's priced in the markets here. Yeah, I agree with you that it is a bit of an eye of the beholder situation because you can't fully extrapolate from here how the numbers are going to go. And interestingly, though, I've been with you on this idea. Look, it's hard to argue you're not late cycle when when the unemployment rates's already three and a half percent and the Fed has had this tightening campaign. They're just about the end of it. That kind of defines a later part of the cycle. On the other hand, you've had a retrenchment in manufacturing. So the ISM manufacturing pickup housing got blasted, but then maybe is showing maybe some signs of life. Who knows? And then the corporate earning

cycle maybe also had a little bit of a dip and a comeback. So how does that play into this idea of how exactly to price this moment in the cycle? It's a weird cycle. I mean, everyone has to have, there's a large forecast uncertainty at this point in time. I think that housing, just to take one point you brought up, housing, it's showing resilience, but I would argue it's not re-accelerating. And so there's been a bit of a confusion that the housing market's just kind of taking off from here. We're actually seeing prices sop and we're seeing starts continue to trend lower. I mean, single family starts went from over 100,000 a month down to 70,000 a month, and you're seeing job losses in that segment of the economy as well. So

to me, this is resilience. It's not reacceleration. And that's the key, is that we're in this cycle where fiscal spending has supported this cycle for a long time, may continue to do that for a while, and where this long cycle is drawn out. But reacceleration, I think that the PMI data has gotten screwed up this cycle already. So I'm putting that in the penalty box. As far as earnings go, you know, it's priced in. At this point in time, you have double digit earnings growth for 24, double digit earnings growth for 25, margin expansion for both years.

That's optimistic. What happens if we undershoot that, if the hard landing scenario starts to get repriced? And then you usually go to bonds in this scenario. And that's been a big problem for stocks. But usually at a Fed pause, bonds are trading basically right in line with the Fed funds rate. And at this point in time, you're seeing that this is the 10-year. The 10-year is right now like 125 basis points below the Fed funds rate. So bonds are already priced for the cut cycle. So across the asset spectrum, everything's priced for this soft landing and Fed cutting rates. What would you say to that, Tom? I mean, you do have an S&P 500 at, you know, 18, 19 times forward earnings, certainly not out of the realm, but not cheap. And, you know, the idea that this

is a little bit of a disjointed cycle, it's hard to handicap. Yeah, I mean, I heard all Warren's points. Typically, though, a recession is a sudden change in business conditions because of leverage or commodity shock. We've had those shocks already. We had two quarters of negative GDP last year. Businesses aren't over levered and households are not over levered. In fact, next year, if the Fed pauses, mortgage rates could drop, which is a huge easing of household financial conditions. So and when it comes to valuations, you know, X the things it markets really at 16 times, which is not demanding. And typically early in a cycle, you get huge multiple expansion. We haven't had that yet. So I would say it's it's undececided but I think a soft landing stocks have 20% upside still sort of valid view I did mention that you know even today of course you see outperformance by small caps some cyclicals the bank stock so. On a given day you do start to see traction and the cyclicals did not really give way even in the August downturn on a relative basis.

Do you think the Fed is done, Tom? I mean, is this it? Yes. That's one of the things we're watching for this month. I think when we get August CPI, I think the Fed probabilities for both the September and November hike drop to zero. And it's 7% and 35%. So there's still a huge way to go. And I think that's going to change positioning in fixed income and it's going to boost equities as well.

What about the idea that historically the first rate cut isn't necessarily a bullish sign? I mean, I know there's exceptions to that. Yes. But, you know, as we all know, like this hasn't even been a typical cycle because normally stocks rise into the first few hikes and they, you know, fell 27 percent. Yeah. Even before the first one. Yeah, even before the first one. Yeah, exactly. Warren, you mentioned that it's tricky to maybe head for bonds in this scenario, even if you think the economy has some risk to it.

But you do prefer commodities. What's the rationale there? Well, this is the late cycle playbook. And as Tom talked about, at the end of these cycles, you usually end up with some kind of commodity shock, and that's specific to oil. I mean, that's the largest weight within any commodity index. And right now we have the Saudis basically driving prices higher with a massive unilateral cut. And at the end of the day, demand has not fallen off a cliff in the United States. It's not going to. I think there's still strong underlying demand. Late cycle doesn't equal recession. And China is on its counter cyclical path to the United States and they're digging out of zero COVID still. So I think the backdrop is positive for oil prices and

commodities here for a little bit longer. And so that's our favorite spot. I would agree with Tom on one other thing is that I think the Fed is done here. And I think that the first few weeks of September into that Fed meeting could be a little bit of this relief rally. But I look for the Fed to raise that terminal rate. And that, to me, is the last lever that they pull in this cycle is they start trying to boost terminal rates. That's where the Fed funds rate ends up at the end of this cycle. The last time I did that was 2018. It was a lot of indigestion for asset markets, bonds and stocks. So that's that's something I'm watching. Yeah, I guess that is the question, Tom, because there has been this case. Well, the stock market's banking on rate

cuts because they were priced in the forward curve. We keep pushing that out when the rate cuts are priced in. Is a bullish case contingent on relief on the Fed funds rate within sight? I think it's going to be important, Michael, because next year, let's say inflation, the run rate is down to three and the Fed funds is five and a half. That's a massive, real tightening of financial conditions. So that could, as Warren says, that could tip us easily into a recession. So I think if the Fed is trying to avoid huge job losses and not so worried about what equity prices are doing, I think they'd be cutting next year. Yeah, I mean, that is the question. I mean, clearly, that's why the inflation numbers need to move in their direction for them

to have some kind of flexibility on that front. Final point, Tom, you mentioned that it is the FANG complex that is magnifying the valuation of the overall index. Does that mean avoid that area, or are they operating on just like a different energy source? It's a great question. You know, I used to do wireless, and so I was a tech analyst for 15 years. You should never sell a tech stock on valuation.

So for the FANGs, as long as they have visibility and positive revisions, their multiples can go up far more than most people would like to see. So it could get very uncomfortable. Yeah, it's true if it does continue like this. All right, Tom Warren, I appreciate it. Great conversation. Thanks very much. We'll see you again soon. Let's now get to our question of the day. We want to know, are you more bullish or more bearish after this morning's jobs report? Head to at CNBC closing bell on X to vote on that. We will share the results later this hour. Let's get a check on some top stocks to watch as we head into the close.

Christina Parts-Nevelos here with those. Hi, Christina. Hi, Mike. Well, shares of MongoDB are higher after more than doubling earnings estimates on revenue that also blew past expectations. The database software giant also issued strong third quarter earnings as well as revenue guidance, and the company touted various investments in, what else, AI, though it also warned that growth in its Atlas service would be impacted by the, quote, difficult macro environment throughout the fiscal year. And you can see shares are up almost 4% right now.

Broadcom is lower despite a beat on the top and bottom line. The chip giant's guidance was in line and gross margins were a little bit of a miss, with the CEO calling it a soft landing on the earnings call last night. He says Ethernet and custom AI chips are a driving force for future AI revenue, which they believe will contribute over 25 percent of total revenues in fiscal 2024. The stock is down today, you know, about 5 percent lower. But keep in mind, it closed at a 52 week high yesterday. Mike.

Absolutely. Yeah, this just takes it back, I think, a few days in terms of price after that run up into the numbers. Christina, thanks. Thank you very much. We've got a news alert now on Disney. Julia Boorstin here with that. Hi, Julia. Mike, Disney responding to Charter as its networks remain in the dark on Charter's service. So those Charter subscribers are still not getting access

to ABC, ESPN, and more. Disney is disputing Charter's claims, saying they have actually offered Charter the most favorable terms on rates, distribution, packaging, advertising and more. Disney also saying they have proposed creative ways to make their DTC services available to Charter Spectrum subscribers, including new and flexible prices. But they say that Spectrum is demanding those services for free, something which they do not think is fair. They also do say that they value their relationship with Charter and they say that Spectrum is demanding those services for free, something which they do not think is fair. They also do say that they value their relationship with the charter.

And they say, quote, we are ready to get back to the negotiating table. Disney shares are down about 2 percent on this. A lot hangs in the balance in terms of the future of the TV ecosystem. So we'll see how quickly this can get resolved. Back over to you, Mike. Yep. Plenty of contentious negotiations on all sides in that business Julia thanks very much we'll talk about that some more later. We are just getting started up next some new statistics on retail investors is shedding some light on the one sector they're

betting on and the space they're ditching in a major way. We'll dig in on that data after this break plus tech investor King Lip is back He's weighing in on the sector's rally and where he sees the mega caps headed from here. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. We're getting some fresh figures on where retail investors are putting their money. Kate Rooney is here with that. Hello, Kate. Hey, Mike. So individual traders pivoted a bit in August after a record amount of buying and fixed income. It started ditching treasuries and bond ETFs in favor of big tech names. Last week marked the first week of net selling in U.S. bonds since December.

That's according to Vanda. Research likely has to do with some of the uncertainty around yields. The Fed's path forward as well. Economic data we've gotten this, and then some of the volatility we've seen in bond markets. Vanda notes a pretty sharp decline in buying for bond ETFs leading up to the days before Jackson Hole traders were de-risking ahead of that meeting. And it wasn't just those bond ETFs. ETF inflows across the board have slowed down significantly. That was one of the big reasons for an overall slowdown in retail trading for the month. ETF activity fell drastically, more so than single stock purchases. As you can see there, August does tend to be seasonally slower for trading activity on the retail side. One area that is not slowing down by any means, big tech and especially chip names.

It was the only sector with an uptick in interest this month. Other sectors saw outflows. Meanwhile, that's again, according to Vanda, the most bought stock of that name. It's no of that group. Rather, it's no longer Apple and video topping the charts of the most bought stocks, followed by Tesla and D and then Apple. Apple coming in at number four. Mike, back to you. Yeah, NVIDIA has absolutely taken over.

I know an option's taken over from Tesla, as well as the favorite, Kate. Thank you very much. Let's bring in Baker Avenue Wealth Chief Strategist, King Lip, talk more about this group. King, pretty nice move this week, a rebound, broadly speaking, in tech. You have NVIDIA backing off today,

but still mostly holding all of that gain that led up to its numbers. Where does that leave you in terms of feeling like whether tech has, you know, already figured out the big AI opportunity or has more to go? Hi, Mike. You know, we think the tech trade is still alive and well. You know, August, we just heard that there are money flows into the tech sector. I think that was a smart move because the tech sector did give back some gains in August because of higher interest rates and some seasonality. But, you know, in Q2, we saw an 8 percent earnings surprise for the tech sector. For Q3, estimates are going up by nearly 4 percent.

So we're still quite bullish on the tech sector, and we think there's still a long runway for the AI-driven growth. Now, we do, of course, always talk about the tech sector or the Magnificent Seven or the big tech as a category, but there is a lot of movement, diversity within the group. We have AMD, for example, has struggled as NVIDIA has done well. Where within the sector do you feel as if there's still that long runway? Well, I think from Dell's news today, it looks like some of the downstream effects from AI is starting to pop up in other companies. So for Dell's example, I think the momentum can continue there. They had a wonderful earnings report.

The company has somewhere between a 15% to 20% server market share. Estimates for mid-single digits, I think that's going to be ramped up. But a lot of companies don't want to be left behind in the AI race. So they're going to want to upgrade their servers for servers that are more optimal for running AI chips. So I think there's a lot of opportunities in some of these downstream plays. Yeah, it is remarkable that move in Dell today, getting it up toward a $50 billion market cap. It was kind of left as a no growth story for long until basically last night. When it comes to NVIDIA, I do know there's been some scrutiny on the guts of its report, mainly maybe some excessive reliance on just a couple of big

customers and then just this radical upward pricing in its key AI related processing products, mainly feeding this idea that maybe it's a relatively short-lived binge of a ramp-up in this investment cycle, and it's going to peter out from there. How would you deal with that? Well, we wouldn't agree with that. I think, you know, from just an overall market opportunity for AI, we see multiple, you know, perhaps multiple decades in terms of AI growth. I do believe that from a lot of these AI executives saying that this is the sort of new beginnings of very similar to the internet birth in the 1980s to 1990s. This is similar in our view. So a multiple decade growth opportunity. So perhaps there's things in the AI, in NVIDIA's reports that perhaps bearish investors or speculators, if you would, wouldn't like. But there were also a lot of things that I thought were very, very strong.

We're still scratching our heads a little bit about the $25 billion buyback. But nevertheless, as investors, we still like that. Yeah, it seems like a little bit of a rounding error for the market cap, but it's still real money relative to the size of the revenue. So it is sort of interesting they're going with that. When it comes to Apple, you know, this is a company that hasn't really shown its hand if it has one specifically on air. But we do have this product rollout coming a week from Tuesday, I guess it is. What does that mean for the stock? It has bounced here, but still below the highs.

Yeah, Apple this year, we didn't honestly expect a lot from the stock. So it's great to see the stock has done very well. Earnings growth is to be pretty modest, honestly. The Apple event on September 12th, we're going to be monitoring. We're not expecting a lot of surprises there, to be pretty modest, honestly. The Apple event on September 12th, we're going to be monitoring. We're not expecting a lot of surprises there, to be honest. But what we typically see is the stock would have a run-up for any sort of perhaps some surprises, if you would, and perhaps a sort of a sell the rumor, buy the news type of mentality. But we have seen earnings estimates start to take up on Apple. So from that perspective, we're still quite bullish on the stock as well.

Gotcha. Ken, thanks for the time today. Appreciate it. Thank you. All right, up next, are stocks set to sink in September? Well, in some cases, history would say yes, but top technician Ryan Dietrich is seeing some bright spots in the charts that signal otherwise. He'll make his case after this break.

Plus, what's next for Walgreens? Those shares slumping following CEO Roz Brewer's exit. We've got an analyst standing by with what he's forecasting for the drugstore chain at his right ahead. Welcome back to Closing Bell. Stocks slightly mixed to kick off what's a typically weak stretch for the drugstore chain. That is right ahead. Welcome back to Closing Bell. Stocks slightly mixed to kick off what's a typically weak stretch for the market. But our next guest says history suggests the current setup bodes well for a return to all time highs by year's end. Let's bring in Carson Group Chief Market Strategist Ryan Dietrich. Ryan, good to catch up with you. We were here the first of August. So a month ago, you had been bullish.

You mentioned that maybe August was going to be a little bit bumpy. What is the tendencies and the market behavior itself telling you about what we might expect in September? Yeah, Mike, happy one month since we got to talk. You're right. It was August 1st. And we talked about then the idea of up 17.5% for the the year historically august mike had been down the last four times so maybe it was time for some bumpiness well this was the fifth time but here's the kicker mike when you're up 17 and a half percent again the first seven months of the year august usually bad september this terrible month we've been hearing about is actually higher the last four times with some really good returns one more on on this, when you're up 10% for

the year and down in August, like we are right now, getting into September. The S&P has been higher eight out of 10 times with some really strong returns. We're not ignoring the seasonal weakness. We are saying, you know what, there's a setup. Maybe we can have a surprise September rally when no one expects it. Right. And it definitely seems as if a strong start to the year does change the equation on what might be to come. That being said, aside from the seasonal patterns, what are you seeing in the market set up right now that makes you lean one way or another about how the year might finish? Yeah, well, obviously, we've been overweight equities all year. People didn't like that call beginning of the year. They've come on a little bit. I'll tell you what, Mike, what I like is just looking like

the internals, right? Advanced decline lines, the advanced decline line on the S&P 500. It's really strong. It's not that far away from an all-time high. So you hear about the Magnificent 7, things like that. There really are a lot of stocks participating. The other thing, kind of the second part of this, I love to look at the credit markets, right? Look at BBB spreads, look at high yield, drastically outperforming treasuries and investment grade. Keep this simple. If there's a monster under the bed, we would see more stress in credit markets. We had that 5% correction last month, I guess now technically. We said the whole time it probably wouldn't be much more than that because the credit markets and the internals were both pretty strong,

just a little seasonal weakness, perfectly normal. Now we think that upward bias is back. It is true. Credit markets never really sounded any alarms, although the absolute level of treasury yield seems like it has acted as a little bit of a restraint on stocks. Once it gets to a certain level, how might that go from here? I mean, I'm of the view that the market can make its peace with different higher levels of yields if it's for the right reasons. But how does it play for you? Yeah, I'm with you there. I mean, our opinion, the yields went higher last month because the economic data continue to get better. But I'll

tell you, everybody kind of got on one side. Now you've got this economic data, this softening. I know you guys have talked about it all day. We're seeing some softening. Now yields, I don't have yields at peak for the year, but I think they drastically aren't going to keep going up as much as they were. And that could, like you said, kind of give the market its market, its peace and let it kind of continue to rally. And let's not forget, though, September, October can be a little rough. But again, later in a pre-election year, November, December are really strong. So we still think new highs are quite likely, Mike, when all is said and done. What parts of the market seem like they're standing out to you at this point? Yeah, we've liked cyclicals and value, cyclical value a lot. I mean, energy, no one's really talking about energy. I think I talked to you a month ago. Energy is where it was like in 2008,

Mike. OK, but yet energy all of a sudden is outperforming. There's a lot of potential upside to energy here. We also like small caps. I know they haven't done as well last month. Look at how they're doing today. Small caps doing well. So if there's no recession, we think small caps and again, those cyclicals, energy, industrials, materials, maybe a bit of financials would probably be the areas to lead, I guess we'll say the rest of this year. All right, Ryan, appreciate it. We'll hold you to it. Catch up with you again soon. Thank you. All right, up next, we are tracking the biggest movers as we head into the close. Christina, standing by with that. Hi, Christina. Well, we talk about a slowing Chinese economy, but one retailer saw a 60 percent boost in sales from China. And now those shares are jumping.

A retail roundup is next. Shares of Walgreens down nearly 7 percent on the back of news. Roz Brewer has stepped down as CEO after more than two years in the role. Here to discuss what it means for the company is John Ransom of Raymond James. He joins us on the phone. John, appreciate you calling in. Obviously, this stock had a very rough go before this move. It is deepening its decline here. What does it tell you about where Walgreens is strategically in terms of

the earnings power? They also did effectively kind of guide to the lower end of their earnings, expected earnings range as well. Hey, good afternoon. So a couple of things. Number one, I mean, I think everyone would agree the company needed to pivot away from U.S. drug retail. For context, I mean, that division did $5.9 billion of adjusted operating income in 2019. We're modeling that to be $3.3 billion in 2025. That's when all the COVID noise and other things are out of it. So that business is in secular decline. So what the company's done is they spent $13 billion pivoting to U.S. health care. Problem with U.S. health care is this racked up almost a billion dollars of operating losses. They've missed numbers every quarter. And so the company, every October, they give their forward-looking

guidance. They do a two-hour call. Well, now we have the CFO having stepped down and the CEO having stepped down. And so we're kind of left hanging with what the company is going to say to dig themselves out of this hole. And a couple of years ago, they should have been earning north of $6 a share if they hit their plan. If you look at our furthest out estimates, we're modeling $3.85 a share. So we're some 40 percent below their targets. And that's even with a pretty big expected improvement in U.S. health care with the losses just keep getting worse every quarter. So this shift in emphasis toward health care in the U.S., you felt like it was kind of necessary or defensible, maybe the

right thing to do. Was it just the way it was executed? What's the strategic move from here, do you think? Yeah, it's a good question. They bought four businesses that don't really fit together and two of the four, one of which just loses money like crazy. This is the Village MD that they've opened 190 co-litigated clinics. They didn't really seem to have a plan to attract new patients when they opened these clinics. So the losses are, even they've said they're a year behind filling these clinics. And then secondly, the last deal, they paid $9 billion for CityMD. Those of you in New York know that one, then Summit.

The last filing, I mean, that thing's supposed to be doing about $400 million of EBITDA. It was doing $70 million of EBITDA in a September of 22 filing. Then they buried it. So that one also looks like so it's not so much, hey, health care is the wrong move. It's just the last couple of deals have been very expensive and the numbers are way behind. Yeah. Now, you mentioned 385 a share is where you see ultimately earnings coming through. I mean, obviously, that's a big decline versus historical levels where you thought they should be, but it also means it's eight times maybe what could be trough earnings. I mean, at some point, is the franchise worth something here?

I think the problem with the last two years is the earnings have some, we had $1.30 of COVID in one of our years, and then they've been front-loading some unsustainable real estate gains. So I think the real question, the buy side thinks that the real earnings probably are in the low threes once you strip out all the nonsense. So, yeah, at some point there would be value if earnings stabilized at some number. I think, though, in the front view mirror, you've got this $1.92 dividend that they're not covering from cash flow. And so you've got the dividend. You know, you saw it happen to AT&T when they cut their dividend. There are people hanging on for that 8% yield.

And then, you know, the credit, are they going to get a downgrade to one of the big credit agencies? So, I mean, they piled up $10 billion of either severance costs or opioid litigation over the past couple of years. So the financial position has deteriorated. And so you've got them some more shoes to drop potentially the i mean the business might be worth up to get some points but

were were still away from stable it's stabilizing what that yeah it's pretty messy i guess along the way there and i would contrasted if you could quickly the cbs they clearly also made a different uh... kind of for a closer into health services. Yeah, so the PBM at CVS makes money. It's got double digits this year. The Aetna makes money. So they bought businesses that, A, are profitable,

and, B, have a more logical fit with the drug retail. Now, CVS has also problems in drug retail, not as acute as Walgreens. And then CVS has spent $20 billion on a couple of acquisitions that they just closed and probably the jury is out. So, yes, CVS is a better house, but it's been a tough neighborhood. Yeah, for sure. It's a tough space. John, I really appreciate the time today for you running through all that with us. John Ransom of Raymond James. OK, thank you. Let's get back to Christina for a look at the key stocks to watch. Hi, Christina. Hi, Mike.

Well, Dollar General is falling again today after at least six firms downgraded the stock in the wake of its disappointing earnings that came out yesterday morning. Loop Capital is among the names cutting its rating from buy to hold. They say they're particularly concerned about the drop in same-store sales, which is a key metric, especially when rival family Dollar posted same-store sale gains during the exact same quarter. Between yesterday and today's declines, the stock is heading for its worst week in three months. Shares are down over 5% at the moment. Lululemon shares are moving in the opposite direction, up about 6% after raising its full year guidance and reporting an 18% jump in both sales and profit for the second quarter. Sales were fueled by strong growth internationally, including a 61% boost in China. The stock is now trading at its highest level since April 2022. Mike, happy Friday. Christina, thank you. Yes, you too. Have a good weekend.

Last chance to weigh in on our question of the day. We asked, are you more bullish or more bearish after this morning's jobs report? Head to at CNBC closing bell on X. We will bring you the results after this break. Let's get the results of our question of the day. We asked, are you more bullish or bearish after this morning's jobs report? 61% more bullish. 187,000 net new jobs seem just right to the majority there. Up next, media stocks slammed. What's sending that group

lower and what is at stake for the space? Right ahead. That and much more when we take you inside the market zone. Dow up 100. We are now in the closing bell market zone. Sandhill Global Advisors' Brenda Vangelo is here to break down these crucial moments of the trading day and shares three tech stocks she's watching for potential upside. Plus, Phil LeBeau on why Tesla shares are under pressure and Julia Boorstin on the sell-off in media stocks. Welcome to you all, Brenda. You know, we have a little bit of a muted response today to a pretty, I would say, comfortable set of data from the employment report. We did have

this shakeout in August, or, you know, up three or four percent on the Nasdaq this week. Where does this leave us? Do we have unfinished business in terms of a pullback, or was that it? You know, I think when we look, it's hard to argue that the fundamental picture is looking pretty good. You know, we have had a look, it's hard to argue that the fundamental picture is looking pretty good. You know, we have had a string of economic data recently that suggests that things may be softening around the edges. But that's really what we need to see in order to suggest that the Fed is probably done or is going to pause in September. So I think that's good news. I don't expect to see more of a pronounced market pullback. I do think we could see some stocks

take a break, some that have had tremendous moves this year, but not all have. There certainly are plenty of opportunities, and even within the tech group, that we think still have legs from here. Yeah, I was going to say a lot of the biggest companies in growth in the NASDAQ, in tech in general, have shown a lot of earnings resilience and even just other kind of growth drivers. Where within the sector would you look right now in terms of fresh opportunities? Yeah, so our view from a fresh opportunity perspective is really sticking with companies that have valuation that's reasonable relative to themselves, have a good margin improvement story and still have a great growth opportunity. So in our in our view, we're looking

at Salesforce, Google and Amazon as being those three companies right here and now within that large tech group that we still think have some upside from here. Yeah, Salesforce, of course, is definitely winning a lot of adherence on the margin story and perhaps as they layer in AI. Google's been a great outperformer. The earnings estimates have tilted higher. I am interested in your view on Amazon right here because there's a lot of questions in terms of which parts of the business you're buying it for. And they're a massive spender right now in AWS on AI capacity. How is that going to pay off for the company? Sure. Well, I think when we look at the company, you know, you have the AWS business where last quarter we did see stabilization and growth there,

which I think is a positive and really heard from management, seeing that, you know, more customers are really looking out to the future and thinking bigger picture rather than being more cautious. We have the advertising business, which I think is, you know, really well positioned within Amazon's retail business to continue growing. And that's another source of very profitable growth. And then we have Amazon's core retail business, which globally, you know, they have a very small share of total retail sales. So we continue to think there is a growth opportunity there, although certainly they will be, If we do see a little bit of a slowdown the consumer side you know that business could be

at risk. But we do think that they've managed to you know really infiltrate such a large percentage of the population especially in the U. S. and there is more opportunity globally. For them to win customers that really become.

You know very comfortable with their business model and the ease of which they can just order product and have it delivered to their door. So we think across the board, there are drivers and really like the margin improvement we saw last quarter. Quite encouraging, especially from a company that has spent significantly over the years as a public company.

And to start to see some margin improvement is really refreshing. Yes, long awaited. Absolutely. Brenda, we'll talk to you again in a second. Phil, you've got some thoughts on this pressure we're seeing on Tesla. Well, part of it, Mike, is if you go back until I think the 15th, maybe the 14th, so basically two weeks ago, look at the move in Tesla shares going from 215 up to 255. And so it was due for a bit of a pullback. And here's the catalyst for the pullback today. It was announced by Tesla overnight in China that

they are going to be they've done a refresh essentially on their Model 3. It's got a sharper, sleeker design, not a huge major overhaul, but a refresh here. But this is only for China, Asia and Europe markets. It'll have longer range. But this is the key point. Twelve percent higher price. They're not cutting prices. They are raising the price on the Model 3, which has some people saying, hmm, are you going to be able to make this stick in China, which is in the midst of a brutal, brutal price war when it comes to electric vehicles? Remember, Tesla is number one worldwide when it comes to EV sales, largely because of its success in China. But look who's number two, BYD. And BYD is coming on strong. Then you have VW and General Motors. And again, Mike, if you take a look at

shares of Tesla, I'm not surprised that it pulled back more than 5% today. I mean, it had a nice move over the last two weeks, and people are looking for any kind of a reason to take a little bit of profit here. Sure. And of course, it is still a double this year. So it has some to give, Phil. Thanks very much. Brenda, there also was some reporting on price cuts, not in China, but domestically here. That's been a theme for a while. And I guess that's a matter of whether you think that's a good strategic volume move or if that's a sign of weakness. Well, I think the price cut to the Model 3, in my mind, makes a lot of sense in order to clear inventory and make way for the newly designed Model 3, even though it hasn't been announced in the U.S. I think it is coming to the U.S. at some point.

So I think that that makes a lot of sense in my mind. But of course, I mean, this is a company that has incredible transparency with pricing of the vehicles, which is great from the consumer standpoint. But from a Wall Street standpoint, it certainly always creates volatility when they make these different moves on the pricing side. But I do think, in my for a refresh in order to compete. Globally with some of the other players out there and in the in the lower price luxury category. And at the end of the day we think about Tesla to you know they do

have an opportunity to do opportunity with their newly opened. Factories to continue driving margins. At. Profit margins higher some of that might be taken away with some of these price adjustment more recently on the model three. But I think

we look out bigger picture we still see a continued opportunity for growth and market share gains from Tesla. And unlike some of the competitors not facing a strike in the next little while. I there will see that plays into

it. Brenda thank you very much. Appreciate the time. Julia media stocks a tough day here. We have continued questions around the various business models. Tough day indeed. Media stocks tumbling pretty much across the board on the standoff between Charter and Disney, which Charter has said will impact its financials. Now, Charter, which has nearly 15 million subscribers, having a chilling effect on other media companies with its threat to potentially permanently drop Disney's channels, including ABC and ESPN.

Disney shares are down about 2% today. The rest of the media giants falling as well on concerns about whether distributors will perhaps drop other networks. Take a look at these stocks here. Warner Brothers Discovery shares down 12 percent. Paramount Global down over 9 percent. Fox down over 6 percent. And then Comcast, which is, of course, CNBC's parent company. That stock is more diversified with its own cable and broadband business. It's down just about 2 percent. Now, LightShed's Rich Greenfield calling Charter's threat to potentially permanently drop ABC and ESPN a watershed moment for linear TV. Mike?

Yeah, Julia, it's worth getting into exactly how that might be. It's the idea here that the cable operators are just now willing, with the decline in viewership, to essentially try and rewrite the entire economic relationship here? In other words, this declining but steady cash flow coming from the cable bundle is now going to go down more quickly, potentially? Yeah, well, what these cable operators are saying, or at least what Charter is saying, and we'll see if others follow, is Charter is saying, look, if only a certain percentage of our subscribers are actually really engaging with Disney content, why do we have to make all of our subscribers pay for it if you are offering it a la carte? So they're basically arguing that the fact that Disney is now bringing content to consumers a la

carte with Hulu and with Disney+, it's undermining the longstanding relationship that they've had, and it's undermining their own business model. So's why charter is asking to have more of a partnership with disney and to get to offer effectively for free those ad supported streaming apps as part of their tv bundle disney's saying why should we give you something for free um you're you're undervaluing our content so it's right now they're going back and forth he said said, she said, but we'll see how this all plays out. And if it really does break the bundle. Well, right. And the logic, of course, has been for years that even if overall viewership is going down, sports is that one thing that does collect a decent size audience of scale. Has that changed or we we feel as if we just have to test

that? I say it all the time. I feel like a broken record. Everyone has always said that sports is the glue holding the bundle together. And ESPN in particular has been this essential piece of the live television bundle. But here's the thing. Now that Disney has said that it is planning to take ESPN direct to consumer, they will also offer it as part of the bundle. Once they start taking it direct to consumer, then the rules of the road may change. All right, Julia, thank you so much.

As we head into the close, the S&P 500 heading for a very slight gain on the day, but up about 2.5% on the week. It's also going to leave at just about 2%

from that record high from the very end of July. That's going to do it for Cozy Val.