Closing Bell - Closing Bell: Massive Comeback, Inflation Nation & History Lesson 10/13/22

Episode Date: October 13, 2022

A dramatic turnaround on Wall Street despite a hotter than expected inflation report. Stocks falling to the lowest level in two years, but rebounding sharply on hopes inflation may soon peak. Former Treasury Secretary Jack Lew discusses whether inflation could soon cool off and how high the Federal Reserve may raise interest rates. Charles Schwab Chief Investment Strategist Liz Ann Sonders on whether investors can trust this massive comeback. Bespoke's Paul Hickey says history shows a market reversal like today's is a bullish short-term indicator. Renaissance Macro Research's Jeff DeGraaf exsplains why he sees some resilience in industrial stocks despite recession fears and the surging dollar. And Dimensional's Mary Phillips says investors should be focusing on profitable companies in this uncertain environment.

Stocks are staging quite a dramatic comeback today after a hot inflation print initially sent the market tumbling. But a major mid-session reversal has the S&P 500 on track to smash a six day losing streak. We are currently at session highs up almost three percent, more than 900 points higher on the Dow. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market in a very different place than where we stood this morning after that pretty disappointing hot inflation read. The Dow, as I mentioned, up more than 3 percent. Every sector higher in the S&P 500 right now of 2.8 percent. The Nasdaq composite is up 2.3 percent. Today at the lows of the day, the Nasdaq was down 3 percent. That is quite a wide range. In fact, it's the S&P 500's biggest trading range, widest trading range since March 2020. It's been like a 5% move altogether. Take a look at the S&P 500 sectors that are leading this rally as we speak.

You've got energy, financials ahead of bank earnings, which kick off tomorrow, technology, materials, and utilities. It's a mix. Check out the moves in the British pound. One potential reason behind this staggering intraday reversal. A lot of people are watching this. It's trading like a stock, not a currency. You can see earlier in the session, right around the time where stocks turned around, buying in the British pound. This has been at the center of the market worries lately. There's speculation that fiscal policy might they might walk it back. That disastrous stimulus that they announced in the form of tax cuts and also potentially extending the bond buying program beyond tomorrow.

That's going to be a big question. But the optimism there certainly helping our markets. We've got a great lineup of guests for you to break down the roller coaster moves, including Lizanne Saunders from Charles Schwab, former Treasury Secretary Jack Lew, chart expert Jeff DeGraff, bespoke Paul Hickey and Mary Phillips from Dimensional. But of course, we also got our own Mike Santoli. So let's get straight to the market dashboard to break down these big swings. Mike, British Pound, I talked to the head of a big trading desk, also just said a lot of people were prepositioned and hedged for a bad CPI report. We got that. They cashed in. They took off those hedges.

And then the market took off. There's no doubt about it. The plan was, the playbook was set. And you saw this, people saying it ahead of time. If you got a hotter than expected CPI, we'd probably trade down 2%. Last time, a month ago, we traded down 4% in the S&P. I don't think, though, it's just the lifting of hedges. Because here's the last week, the five days in the S&P 500. It's not just the fact that we went down. It's how far we've gone down in the

last month or so, in the last few days, and the level we reached. So we were under pressure here. The slingshot gets pulled back right there in the morning trade. We got to thirty five hundred almost exactly on the S&P 500. A lot of folks stalking that area because it has some significance in terms of, you know, it's sort of halfway back from the entire post-COVID crash rally. And you got some buying short squeeze, British pound, all of it feeding on itself in the short term. But look at this. You're basically barely where you were when we opened a week ago. Right. So that just shows you the mean reversion was very violently to the upside, at least in the short term. Let's look at a longer term chart of the S&P. I mentioned where we are relative to the entire, you know, early 2020 low right there.

Twenty two hundred. Right. You go up to forty eight00 and you gave back half of it at 3500. That's the whole story is no grand significance to that, except psychologically you're down 27 percent from the high. That's the median bear market drop. It just seemed like enough for now is all I would suggest. Plus, I said this facetiously, but I mean it. We're past the CPI number. It's four weeks till the next one. That's been the scariest thing in the market all year. So at least we have some breathing room. Now, take a look at the U.S. dollar. Just the overall dollar index move was in sync with what you were saying about the pound. Now, this is a year to date, and it shows you that you have these two little curl downs here that suggest at least the pressure for the moment is taken off there. And

Sarah, this also reflects the fact that the Fed has been operating on the assumption that inflation is going to be stubborn and sticky. They weren't planning on today being a real reassuring number, and we didn't get it. We'll see. I mean, it could all be noise. Well, we also got talk from Fed members and other news outlets that they're not going to pay attention to one CPI report. Even if it's softer today, they're going to keep going. And so that was in the market. That's exactly right. A lot of this bad news on rate hikes is in the market.

And to see the dollar weakening on a really hot CPI report is very telling and potentially reassuring to the bulls. Look, down 15% in a month at the lows this morning in the S&P 500. It's a big move no matter what is going on. And you've actually had almost no net downside from the June lows to today. And think of all the awful news that was in there. So earnings are going to matter. You know, recession, whether it happens in the depth of it, all is going to matter. So there's no such thing as an all clear in this business. But for the moment,

reality was not quite as bad as where the market had gotten to at the morning. Also, the macro funds are doing well this year. You've got to think with all these moves, strong dollar, strong, strong yield. So another number to justify that. And they can take some of the positioning. Mike, thank you. Take close. Mike Santoli for more on the market reaction to the inflation numbers. Let's bring in Charles Schwab, chief investment strategist, Lizanne Saunders. What do you make of this stunning reversal, Lizanne? I think Mike had it right. A lot of this was technicals at 3517 on the S&P.

That was the point at which half the post-pandemic rally. And I think that probably triggered not just some taking off of hedges, but probably some short covering, which tends to sort of fuel an intraday switch on the upside. I think it's premature to judge anything beyond that. If you wanted to find something more fundamental to explain it, you did see a reversal in the 10-year yield. You saw a bit of a reversal in the dollar. In the case of the yield, it had jumped back over 4%. That's been a short-term driver and trigger for the equity market. And then maybe the thought is, such a hot CPI reading, is it sort of a last gasp? Does that put us closer to the point where we can start to look at the peak in the rearview mirror? So that's best guess as this is happening as to what my fundamental reasons might be.

Yeah, the rally in the British pound, true. Also, I mean, that has been such a big focal point for the markets lately. So you don't seem quite convinced that now would be the time to buy. I'd be really mindful of chasing what at this point looks to be a huge technical surge on the upside. But it's also the case, as I know I've talked to you guys on this program, I don't think anybody should be trying to pick individual days. Investing is not about getting out and getting in at moments in time. That's just gambling on days and prices. And investing should be a disciplined process over time. It's also a function of where your allocation is. You know, if you've allowed

yourself to get way under in terms of equity exposure, yeah, we're probably closer to the bottom or maybe the bottom is in and you want to do some buying. But that's not an appropriate recommendation for everybody. It just depends on risk tolerance, time horizon, et cetera, et cetera. So what fundamentally needs to change for you, Lizanne, to like the market in a more, in a broader way beyond just technicals and positioning? Yeah. So I would say the collection of sentiment, technical and breadth indicators all look pretty good for the market. If you have, say, you know, six to 12 month time horizon. Most of the studies are, as I think Mike said, there's no such thing as smooth sailing or a complete green light in this in this business. But most of the sentiment breadth and technical studies look pretty decent

a year out, but still pretty bumpy in the next couple of months. I think we need to see further stabilization in yields and maybe the dollar as well. We'll get a little bit more color on what the trajectory for forward estimates are going to be. I think a stabilization in forward estimates is probably a key. Some stabilization in housing and PMIs, at least on the manufacturing side, which is a leading indicator, to sort of finish their descent and start to stabilize. So that would be the collection of more macro fundamentals that I'd be looking for, but we're in much better shape from a sentiment, technical and breadth perspective than we certainly were even at the lows in June.

In other words, things have just gotten more negative. Yeah, certainly the attitudinal measures of sentiment. We haven't quite gotten to that sort of capitulatory phase in some of the behavioral measures, even including the VIX not having any spikes above 40 versus unbelievably high volatility in the bond market and the FX market. We haven't seen sort of a washout in fund flows. But on the attitudinal side of sentiment, things like AAII, investors intelligence, I think we have hit that washout phase. And that's part of the reason for a better setup if you're looking beyond the next few months. I feel like that's more constructive than I've heard you lately, Lizanne, on the market. Am I right? You know, in mid-June,

I was probably on at some point right around the lows talking about the lack of the technical term puke phase that was being displayed at that time. There's a little bit more of that in these recent lows, maybe not quite the extremes of, say, March of 2009. But whether it's, you know, panic euphoria model that sentiment trader sort of adapted from my friend, the late, great Tobias Lefkowitz's model. I mentioned AAII recently hitting an all-time low in percentage of bulls. So those attitudinal measures, survey-based data, I get a lot of anecdotes from our investors. Those definitely suggest washout phase. Maybe you need a little bit more washout in the more behavioral measures like put call or fund flows. But the setup looks healthier than was the case when

when we hit those lows in mid-June. Glad you mentioned Tobias. Miss him, too. I know he would be remarking over these extreme levels in his panic euphoria in terms of panic. Thank you, Lizanne. Lizanne Saunders, good to talk to you today. And perhaps why we're seeing that bad sentiment, such a big rally right now. The Dow just hitting a fresh high, nearing up 1,000 points. We're going to be all over this rally for you throughout the show. After the break, former Treasury Secretary Jack Lew joins us with his first reaction to the hot inflation number, whether he thinks the U.S. can avoid a recession. Up again, 945 points. S&P now up 3 percent.

Nasdaq Comp up 2.7. You're watching Closing Bell on CNBC. Stocks rebounding sharply in the middle of the day today, despite what we got this morning, a hotter, worse than expected inflation print. We wanted to point out some of the most interesting parts of that report. The government saying housing, food and medical care were what fueled the big rise. Shelter, which makes up about a third of CPI, rising 0.7 percent, up 6.6 percent from a year ago. Then there's food, up 0.8 percent, the same as August, and up 11.2 percent from a year ago. And look at some of the increases in food prices at the grocery store.

Overall food at home was up 13 percent over the last year, seeing it in dairy and meats and fresh vegetables, which were higher. It shouldn't be surprising, as we've heard from companies lately and like Mondelēz on this show, saying they need to keep up pricing in this environment. One bright spot, gas prices did fall in September, but they have been creeping higher in recent weeks. The national average now stands at 391. Today's print certainly ups the odds for a 75 basis point rate hike in November, the jumbo size, with some traders now starting to price in 100 basis points. Joining us now, former Treasury Secretary Jack Lew. Secretary Lew, it's great to have you, especially on a day like today. Are you surprised at how stubborn and persistently high these inflation readings are coming out? It's good to see you, Sarah.

And look, obviously, it's not a great CPI report, but I think it would be easy to overstate how much it changes where we are. I actually don't think it changes the course of what the Fed needs to do from where it would have been if it had been a good report. They have been clear that they need to make sure that they've dealt with inflation. They're going to get to a certain destination, which is going to be higher than it would have been a year ago. And then they're going to see how the economy looks after things settle in for a while. I think the markets are anticipating bigger moves in response to each

report than I would think is likely. And I think that they're hoping for quicker reversals of interest rates than I think is likely. It's, you know, they're going to want to be sure that inflation is under control. And I think they've been very clear communicating that. And this report just makes it more understandable why. Where do you think interest rates are going? How high?

So I, as you know, try to avoid point predictions because nobody really knows. You know, the markets certainly are suggesting that there's some number in the fours where they think the interest rates are going. If I were on the Fed, I would answer that I don't know. some number in the in the four is where they think they're the interest rates are going if if i were on the fed i would answer that i don't know it depends where we are when we get to

the the current destination whether inflation is under control um i don't think there's any great desire to slam on the brakes so hard that we drive unemployment up to a truly painful level on the other hand unemployment tends to lag. There's no mystery to what happens when you raise interest rates. Over time, it slows the economy. It's only a question of how long it takes. And there was a chorus for a long time that the Fed should move faster and farther in order to make sure inflation is under control.

I think they moved in a pretty cautious way, but they made clear they're going to keep going. And I don't think anyone should be surprised if the number has a four in front of it before they take a breath to see where they are. Now, I spent a lot of years where 3 and 4 percent interest rates didn't seem like an abnormal number. And I don't think it's something that's necessarily a shock to the economy over a period of time. But it does make it more expensive to borrow money than when rates were zero. Zero was not sustainable. And we obviously are getting to a much higher number. So the question is, what happens to the economy? And what is currently happening to the economy?

I did speak this week with Secretary Yellen, who now sits in the chair that you sat in as Treasury secretary. And I asked her about how the U.S. was doing. She characterized the economy as strong. Just listen to what she said. REP. NANCY PELOSI, I remain encouraged the U.S. economy is strong. And as I've said on other occasions, I think there's a path through. Obviously, inflation is too high.

It's a priority to lower it. But I think there's a path to accomplish that while maintaining a healthy labor market. Does this feel like a strong economy to you? The Nasdaq is 34% off the highs. The S&P is 25%. People are hurting with inflation. Does it feel strong? Yeah, look, I think if you look at the typical measures of a strong economy,

the lowest unemployment rate in a very long time, job creation that's staying stronger than expected, those are signs of core strength in the economy anytime when you try to push and flip and you're raising interest rates in order to accomplish that goal uh... one has to wonder how long that can last i think it has to slow down

the job creation has to slow down. The job creation has to slow down. Unemployment is going to have to creep up. But I agree with the basic assessment that the core economy remains quite strong. In some ways, that stubborn strength is what's making the Fed's job more challenging. If unemployment would just creep up a little bit and job creation would creep down a little bit, there would be a sense that they're getting closer to the end. I think because we've come out of a very odd period, the COVID shutdown caused changes and disruptions that we still haven't fully understood what it takes to transition out of.

History doesn't really help you that much to know exactly what it's going to take to get to a more stable inflation rate and without the economy sending some signals like slower job growth. I think the goal ought to be a soft or a bumpy landing, not an unnecessarily hard recession. All the fears of recession are kind of predicated on the Fed has to go farther than they may end up going. You know, the forecasts are quite divided in terms of whether there'll be a recession this year or next year. And if there is, whether it would be a very shallow one or or even a technical. Well, and now we have this added worry about market dysfunction, about liquidity.

A lot of the concern now stems from the U.K. And I started off the show by looking at the intraday rally in the British pound, because that does appear to be leading us here with questions over their fiscal policy, their fiscal credibility, what the central bank has been doing to try to clean it up. What do you make of what's happening over there? Credibility is so hard to earn and so easy to lose. I think that what happened in the UK was an extraordinary error in policy that caused a trigger which is now being reversed.

The policy is now being reversed. The policy is now being reversed. With the reversal of the policy, there seems to be a rally and hopefully some restored confidence in the way policy will be made. Policymakers have to be extremely careful not to lose credibility. I think that is one of the reasons why, in my view, we shouldn't expect sudden, you know, shifts in direction from central banks. You know, and markets want to see, you know, things happen more quickly and to understand what's going to happen more quickly. And I don't think you can read from the markets whether or not the policy is necessarily

on track or not. I wouldn't read from the U.K. example into what to expect in the United States. I think policymakers got a wake-up call that it really does matter what you say and do. And I don't think there's core weakness in the U.S. Treasury market. Demand for treasuries remains high. There's not another currency anywhere in the world that's ready to compete with the dollar or with bonds. And I think there are mechanical plumbing issues that you do have to worry about. And as a treasury secretary, I always worried about them, you know, when things come up

that might be kind of sudden events. But, you know, that doesn't necessarily reflect underlying weakness. Secretary Lew, really good to have you here today. Thank you so much for weighing in on all the hot topics. Always good to be with you. Yeah, you too. Jack Lew, the former Treasury Secretary of the U.S. Take a look at the market right now. Strong rally, up 3% on the Dow. This doesn't even tell the full picture of where we've been today. It has been a stunning range. We were down at the lows of the day, 550 points after that hotter-than-expected inflation report this morning.

And now we are up about 3%, almost a 7% range, a swing here that we've seen in the markets today. The Nasdaq up 2.3%. It was down more than 3% at the lows. You've got every sector higher. It's broad. It's the defensives. It's technology. It's gross energy is the leading sector right now, along with financials. Both are up 4%. Coming up, as spokesman Paul Hickey says, there are two positive factors for the market that investors should be paying attention to heading into earnings season. Oh, yeah, that kicks off tomorrow. He's going to join us to explain and check out the chip stocks as we had a break.

Looked like they were headed for another big down day, but now moving higher with the rest of the market and in fact, leading the Nasdaq 100. We'll be right back. Quite a stunning turnaround in the market today. Our next guest is drilling down into a couple of sectors that could look attractive right now. With us is Renaissance Macro Research Chairman and Head of Technical Research, Jeff DeGraff. And Jeff, I want to get into the sectors in a moment. But first, it does feel like sort of a historic day in terms of how much we were down on bad news for inflation earlier and how much we were down on bad news for inflation earlier and how much we're up and what that tells you and what you're seeing in the

levels. Well, absolutely. I mean, these big reversals, this is called an outside reversal day. We'll see if it closes here. I think it will. Good volumes, good breadth. And I think it's a reflection of sentiment. Sentiment has really been one of the primary bullish or more persistent bullish attributes of this market. And we had a pretty low volume decline here over the last two weeks. And the sentiment has been as bad as I can remember it in a long, long time. So I think really the stage was set. One of the things that we try to remind clients about sentiment is that sentiment's a reflection of the concerns du jour, right? And that is the Fed.

That's inflation. And so if you have bulls as low as they are here, it really means that usually, historically, the concerns, at least temporarily from a tactical perspective, have been relatively discounted. And that's always the challenge in this business. This is 3D chess. You have to worry about not only what's happening and likely to happen, but are people positioned for it? And I think people were positioned pretty bearishly coming into this number. Okay, so let's talk about what you like. I found this interesting in your notes that restaurants are one of your favorite groups because it's a group that's been hit pretty hard

on concerns about a pullback in spending. People are still eating a lot at home and they're spending big to do that with these high food prices. Domino's out today. That stock is rallying nicely. Why do you like the group? It just looks good technically. And honestly, from a relative perspective, relative strength perspective, it's been leading particularly in the discretionary space. And the reason, as you point to, you know, restaurants are important, they really are a bit of a window into what's happening to the consumer. But discretionary broadly is important because when you go through and look at historically sectors that lead the market, particularly after a growth trough or after a bear market,

discretionary is usually not always number one, but it's usually in the top three. And so we pay particular attention to what's happening in discretionary on a relative basis. And I'm encouraged that the relative performance of discretionary has held up pretty well above their lows that they made at the beginning of the summer. So even though the news has incrementally felt like it's gotten worse, the discretionary performance has held up pretty well here. Wanted to also highlight industrials because you've noted some strength, even with some of the headwinds that these companies are facing, like a global slowdown, strong dollar, et cetera. Yeah, I mean, look, you know, it's not that I'm building some bullish

narrative. I'm just reporting what the market is telling us, which is the relative performance of the industrials, particularly the machinery names, the aerospace and defense names, has been really, really resilient here. And we look at it on an equal weight basis, so we get a better flavor of what's happening underneath the surface. You're not as dominated by a few big cap names. And I would say probably the biggest head scratcher here is just how well this group has done in the face of a strong dollar, in the face of higher yields, as you point out. Keep in mind, real yields are well above 150 basis points here. That historically is a point that has choked off any type of recovery or any economic activity for that matter. So it's really encouraging to see that the relative performance of industrials and, frankly, discretionary has been able to hold up in spite of those very tight real yields. Jeff DeGraff, thank you for joining us.

Thanks, Sarah. With some of the notes on the charts. Appreciate it, especially on this big market day where stocks have staged a huge comeback. Look at the market reaction earlier this morning, down 550 on the Dow on reaction to that hotter than expected inflation report, a complete turnaround that has only built up steam throughout the session, up 900 points almost on the Dow right now. The S&P is up 2.8 percent. At the lows of the day, it was down 2.4 percent. Up next, we will discuss whether the market will keep rallying as we head into the uncertain waters of earnings season. Closing bell back in a moment.

Breaking news from the January 6th hearing. Let's get to Shep Smith with the details. Shep. Hi, Sarah. The committee investigating the insurrection at the Capitol on January 6th has just voted to subpoena for documents and testimony former President Donald Trump. There had been discussions throughout that they might invite him to testimony today or to give testimony. Today, they made the decision to subpoena him to make it official. The chairman of the committee, Representative Benny Thompson, the Democrat of Mississippi, said he must be accountable.

Speaking of the former president, said he must answer to the police officers who put their lives in harm's way on that day and must answer to the millions of Americans whose votes he wanted to disenfranchise. Our obligation is to seek his testimony. And the vice chairman, Liz Cheney, the Republican of Wyoming, said we must seek testimony under oath of the January 6th central player. And that, she said, is Donald Trump. The vote was unanimous. We don't have a time frame on when they would seek that testimony. We're guessing that Donald Trump could certainly push back or if he felt like it at the time could could invoke the Fifth Amendment. But he would not be the first American president subpoenaed by Congress or committee of Congress in this case. Previously, Abraham Lincoln was subpoenaed, Woodrow Wilson and Gerald Ford to testify

and give testimony before the Congress. This case, of course, he would be the central player at the center of their investigation. They've made that perfectly clear. The hearing has dismissed for the day. We believe that that was at least presumed to be the final committee hearing of the January 6th committee. I suppose if they were able to get testimony from the former president, that might change. But for today, subpoenaing under oath documents and testimony from former President Trump. Sarah, back to you.

Shep Smith, Shep, thank you very much. We'll look to you. inflation numbers. Joining us now, Paul Hickey from Bespoke Investment Group and Mary Phillips from Dimensional. Paul, you're the stats guy. When was the last time we saw an intraday reversal like this? Quite a wide range. Yeah, so I mean, if you look at days where we've opened down 2% and then finished the day up 2%, there's been four other times. 2008, it happened twice. 1997, the fourth one's escaping me right now. But over the next week and month, if you want a positive sign, the S&P was higher all four times, one week later and one month later. So that's something to be encouraged about as we near the end of this day. And there's only a little time left in the day, but we've seen the market has a way of moving a lot. So we'll see what happens by the closing bell.

I knew you would have a pearl of wisdom there about what happens next. So, Mary, over the next week and month, we're going to get a lot of earnings and that could be the next driver until we get another inflation report and a Fed meeting. So far, it looks like the market is reacting, I don't know, in an orderly way to earnings, down on the negative pre-announcements. Delta had a good number up today. What do you think we're going to see here? I think we're going to see all this information get into prices. We've seen that so far today. Always a surprise to see so

down early and then up later. But what we'll be looking at going into the earnings season is staying the course the way we do, focusing on high profitability stocks, value stocks, and small cap stocks. I think a lot of folks may be tempted to lean into quality going into this worries about recession but we would like to caution folks quality is more than just a term you want to focus on what's going to drive what's going to drive a stock's return and that's going to be looking at what their expected cash flows are. Yeah really interesting because we hear a lot about quality and it's good to get a definition.

So you're emphasizing profitability over quality. What do you mean and where can you find that? Yes. When we think about profitability, we're looking at operating profits over book value and that's to focus specifically on the expected cash flows from a company and looking at that on a relative basis. Yeah, a lot of folks when they say quality, they're blending together a lot of different metrics.

It sounds nice, quality sounds very comforting when you're looking at a tough market, but I would say it's not getting at what may drive a stock's return. Profitability drives return. Paul, how do you approach earning season what what's the strategy. Well I think what Mary was saying is that the markets in the price and a lot of the news coming up and so what we want to look for coming

into earnings season is is what maybe is priced in everybody's expecting a terrible earnings season- we saw the same thing last quarter- in the last earnings season. We saw the same thing last quarter in the last earnings season. Very low expectations. Market during that earnings season had its best performance during an earnings season going back to 2009. So you want to look at where expectations are very low right now. And this comes back to, you know, I always like when different segments, you know, say a similar message. And in your prior segment, you know, I always like when different segments, you know, say a similar message. And in your prior segment, you were talking about industrials being an attractive sector.

Well, that sector has the second most highest pace of negative revisions of any sector going into earnings season. And when you look historically when expectations have been that low for the sector going into earnings season. There's been about 10 other times where you've seen this degree of negativity or more. During earnings season, the sector was up nine out of those 10 times for a median gain of about 6% during earnings season. So that's one sector where a lot of the bad news could be priced in already, based on what we're seeing in analyst revisions. Even more downbeat than the industrial sector is the material sector. We see a very high degree of negative revisions there. And for the broader market in general, we've seen a negative pace of revision. So the results this quarter probably won't be nearly as good as they were last quarter, but expectations

and the pace of revisions have been much more negative heading into this earnings season than they were last quarter as well. Mary Paul, we'll leave it there. Thank you both for joining me on such a big update. We're up about 814 points just off the highs. What is Wall Street buzzing about today beyond the market comeback? Netflix, the streaming giant, officially announcing its new ad tier and the stock is jumping. Steve Kovac with the details. How much of a surprise was this? Not a huge surprise because they did kind of pre-announce it.

And by the way, shares are up 5% now. Netflix revealing its plan for its ad-supported tier as it tries to show subscriber growth again. So here's the breakdown of what's new. The ad tier will cost $6.99 per month, will launch in the U.S. and 11 other countries on November 3rd. Now, Netflix says the commercials will run between 15 and 30 seconds long, and you'll see four to five minutes of commercials per hour. Advertisers will be able to broadly target subscribers by genre, meaning, you know, horror or drama and so forth. Netflix says it has nearly sold out of inventory for

launch, declined to say how much they're charging or how they're sharing ratings, though, with the advertisers. This is the new trend among streamers to get subscribers offering a free or cheap version of their services with ads. Hulu, Peacock and HBO Max all offer ad supported plans and Disney Plus' is coming next in December. As for growth expectations from this, expect more on what Netflix reports earnings on Tuesday. We're hoping to get some guidance from them, Sarah. Yeah, after back-to-back subscriber losses, clearly they want to improve that with this urgency of the new ad tier. Thank you, Steve Kovacs. Steve, thanks. Check out shares of Albertsons. The grocery soaring today on a potential acquisition

by Kroger. Up next, a look at what this could mean for the entire grocery industry and those stocks, which are both working today. That story and much more on the big rally and the big reversal when we take you inside the market zone. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day. We've also got Leslie Picker joining us on BlackRock and the banks and Ethan Harris joining us from Bank of America to talk about what the Fed will do next. Mike, let's kick it off with the broad market. We've got a lot to talk about here because it's been this stunning intraday reversal. We thought it was going to be a very ugly day again in the market. And we were down

2.4 percent on the S&P after we got that inflation number, which just showed stubbornly high prices and continued to come in above expectations. It all reversed. And it's not just the stock market. We saw it in bonds. We saw it in the dollar, which is now weaker. We saw it in oil prices, which completely turned around. What do you make of why it is and what it tells us about where we go next? In large part, it's because of the lead up to the number, which got all those markets pretty well stretched to extremes. And that's at least the atmospheric conditions for the kind of snapback like this. At the lows this morning, the S&P 500 was down 15% in a month, 27% from the high, at 15 times earnings, and had given up half that whole rally, as we talked about,

from March 2020 to January 2022. It just seemed like a decent culmination point if, in fact, the 10-year Treasury yield was going to respect 4% as a ceiling. Yep, the two-year yield is up, but it's not really dramatically so. And even though the CPI number was not friendly, it wasn't so far out of whack that we had to revise our whole idea of how the Fed is going to attack it. So to me, that's where we sit. We're back to where we were in overall S&P 500 levels around a week ago or six or so days ago. You have to basically say to get below 3,500 probably would take an extra macro shock of the kind we haven't yet seen. So I do think that

sometimes these one-day reversals are significant, even if they're not automatically decisive in telling you that it's a trend change. I think we also have to look at the British pound. I just want to pull up the intraday chart of this one again, because I can't emphasize how much people are paying attention to it. We know it is a highly levered trade, right, Mike, and is a big source of concern. And there's speculation that this is a sort of longer-term year-to-date chart of the collapse of the pound. Intraday, it also had a big reversal, and it's now up almost 2 percent, which is a big move. There's speculation that the new government will walk back their tax policy,

which is what sparked this entire concern and the margin problems where the Bank of England had to step in. Tomorrow will be a decisive day because they're set to end their bond buying program. But clearly, this is where the focus is. Without a doubt. And I think what it tells you also is a fair bit of the recent downside has absolutely been people being on alert for some kind of a mishap out there, for some kind of policy mistake or some piece of the capital markets to blow a hole. And that's clearly been the conversation for a while right now. So you might say, why would the S&P 500 be up more than 2%? Just because there was a policy shift in the UK and the pound got some support. Well, it's because a lot of the lead up to where it got us down here maybe was overdone,

or at least people feared even worse. Right. A pile up on the downside. And we are breaking that six-day losing streak in a big way today. The Dow's up 870 points. Every Dow stock is higher at the moment. Check out shares of Albertsons. The grocery chain soaring today on reports of a potential takeover from rival Kroger. Albertsons up more than 11%.

Sources telling our own David Faber the all cash acquisition could be announced as soon as tomorrow morning. Kroger is the largest supermarket operator in the country, has about two dozen brands under its name. And the company has nearly twenty eight hundred stores spanning thirty five states, employing about four hundred twenty thousand workers. Albertson's the smaller of the two, has about 20 brands, 2,200 stores in 34 states. The companies have not responded to our requests for comment, obviously. I think the big question, as someone who's paid attention to this sector in particular, Mike, is going to be the antitrust implications and whether the authorities will let such a deal go through. Because it does, as I mentioned, the numbers of how many supermarkets they have, because it's a huge footprint. And clearly, I would think part of this deal would have to be

some divestiture so that there's not overlap in certain markets that would box out other competition. They have to make the case that Walmart is still bigger in terms of grocery sales in this country, maybe not as many stores if these two combine, and that there's new competition from Amazon and from some of the other maybe third-party deliveries, like a DoorDash or an Instacart, which there would be implications in this deal as well. Absolutely, yeah. No, it'll be combed over if the deal is in fact announced. Certain markets, without a doubt, you would imagine they would have to make concessions and sell out. And yes, in aggregate market share, Walmart would still be bigger. You never know exactly how the government is going to

treat something like this and how they're going to define too big until you try it. I do think, though, it's tough. When high food prices are a big political issue right now, these are unionized businesses. The administration is going to be sensitive to how the unions might feel about it. So you have to consider there's going to be some regulatory risk or hurdles, even if there's certainly the logic of the deal makes sense. It sort of fascinates me because you would imagine Kroger maybe could have bought Albertsons out of private equity a couple of years ago before the IPO. That thing sat in private hands for a very long period of time. But the business is in a different place right now, clearly. Well, and it's been exploring strategic options for a while, I think. David reporting earlier,

these are on and off again talks. By the way, as you might expect, the options market going crazy on this deal, 30 times surge in normal recent volume for options in Albertsons, very bullish onward of this deal. Let's get another read on those inflation numbers out this morning with the Dow up 900 points. Ethan Harris joins us, head of global economics research at Bank of America Securities. Ethan, what does it mean for the Fed? It means they're going to do more. I mean, I can't explain the stock market today. I think it's irrational exuberance or some kind of technical trade. I mean, I can't explain the stock market today. I think it's irrational exuberance or some kind of technical trade. I mean, this report confirmed that inflation is more persistent than

people have been expecting. We've had repeated upside surprises in CPI releases. This is actually the 12th time in the last 19 reports where there's been an upward surprise in the report, including the last two reports. There's something going on in U.S. inflation that doesn't want to go away. And that just keeps the Fed moving 75 basis points. Why? The Fed has already done a lot. I mean, maybe historically rates aren't that high, but compared to where we were mortgage rates are above seven percent why isn't this being seen in terms of inflation coming down which is what it is supposed to do so here's the problem okay the part of the inflation problem is going away the supply chain issue is improving and so goods inflation's weakened the part of the economy that has not

responded to the fed or to the broader economic slowdown is the labor market. The labor market is out of control. It's overheating. If you look at the service side of inflation, which is driven mainly by wage costs, it's extremely high, and it has shown absolutely no sign of rolling over. And that's the problem for the Fed is they can't really fix the inflation problem with a hot labor market. They have to keep going. Yeah, well, maybe the tough the comps get easier next next month around, which is the best you can say for it. Ethan Harris, thank you. Good to get your initial take on those inflation numbers.

Ethan Harris of Bank of America. Look at BlackRock. It was the first of the financial companies to report today, topping quarterly estimates thanks to strong demand for its ETFs and other low-risk funds. But total assets under management did fall below $8 trillion for the first time in two years. Currency headwinds, rising rates, potential recession, all dampening investment activity.

JP Morgan, Citi, Wells Fargo, and Morgan Stanley out with earnings before the bell tomorrow. Let's get to Leslie Picker for more. What did we glean from BlackRock, Leslie, and how does it relate to the bank earnings we're expecting? Yeah, so what we saw with BlackRock, and this is what we see every quarter, is this is a company very much affected by what goes on with market activity. And I thought that this note from Evercore ISI this morning summed up the quarter perfectly in saying nowhere really to hide in this tape, but they did the best that they could. Now, you see shares up 6.4 percent. That's largely just because the broader market is up so strongly today. So BlackRock is reacting

to that. Their big beat really stemmed from a low tax rate that they enjoyed during the quarter. They did have $65 billion in long-term net inflows. That's pretty decent, although it didn't match what expectations were there. There's still some FX issues, a tough market backdrop despite today's moves. Now, what we can glean from this is basically what the banks can see with regard to their own asset and wealth management businesses. So, you know, doing the best they can. The markets aren't great. It's really hard to find a pocket of the market for strength right now. And so, sure, you might see some lower AUM figures, but net inflows are a good sign here. All right, Leslie, thank you. Leslie Picker. And by the way, do not miss a First on CNBC interview with the CFO of Wells Fargo off the back of those results, Mike Santomasimo,

right here on this show. Closing bell tomorrow, 3 p.m. Eastern time. Mike, we're getting into the two-minute mark here in the session. The rally is holding. We broke the losing streak and then some. Quite an intraday reversal what are you seeing in the internals and what sort of clues does it give us yeah sir it's pretty strong although not necessarily the kind of overwhelming rush to across the board buying as you sometimes see on a big two percent update because we started lower often it's hard to turn breath around completely but still we're looking at 80 percent upside volume. Interestingly, 900 stocks on each of the New York Stock Exchange and the Nasdaq made new 52-week lows today, all of it in the first hour. But still, that's going to kind of build up your total of 52-week

lows. Two-year note yield, big part of the story. You've been talking about the dollar. Two-year note yield similar. This is a two-day chart. It shot up to above 4.5 percent, pulled back. It's still below the highs, but pretty much going back to 2007 levels. So the Fed is fully engaged here, and the market understands that and has for a while. The volatility index early on was easing even as the S&P was down. We're at 32 right now. We got up toward 35-ish. This just shows you that the market has to be really jumpy to keep the VIX climbing once it's above 30. So

right there, it's a neutral to net positive, the fact that we got it easing back on a one-day basis, Sarah. As someone just emailed me, a fire sale situation in U.K. pensions is a bigger financial risk than a higher-than-expected CPI report. And that could be the story of the day today after word of a reversal in policy by the trust government in the U.K. The pound took off. It's up almost 2 percent. And so did the U.S. market. There's the S&P 500 into the close, up 2.6 percent. Every sector is going to close higher. Energy, the best, up 4 percent.

Actually, financials now the best, up 4.1 percent. Technology, not far behind, up 3 percent. Materials, utilities. Worst performing sector right now is consumer discretionary, and it's still up a percent. Just a stunning intraday reversal for the market. And we end on a high note, near the highs of the day, up 830 on the Dow. That's it for me. I'm closing bell. See you tomorrow, everyone.