Closing Bell - Closing Bell: Mega-Cap Earnings’ Market Impact 10/31/24

Episode Date: October 31, 2024

What lies ahead for your money over the remainder of the year? NewEdge’s Cameron Dawson breaks down what she’s expecting for stocks into year-end. Plus, Meena Flynn of Goldman Sachs tells us how she is navigating the uncertainty surrounding the election, earnings and the upcoming Fed decision. And, we run through what to watch from Apple and Amazon when those company’s report in Overtime. 

All right. Thanks very much. Welcome to Closing Bell. I'm Scott Wapner live from Post 9 here at the New York Stock Exchange. This make or break hour begins with our countdown to Amazon and Apple earnings. Perhaps even more important now, given the market's unsettling reaction today to Microsoft and Meta. You take a look at both of those stocks are lower. We'll ask our experts what's at stake for stocks in tonight's reports. In the meantime, let's show you the scorecard here with 60 minutes to go and regulation. We've been down all day, led by big tech. NASDAQ basically at the lows of the day, down 2.5%. Every mega cap stock in the red as we speak. And how about Uber?

It's a big drag too today after its outlook and bookings disappointed the street. And shares of our parent company Comcast are higher today after its earnings. And worded is considering a spin of its cable assets. We'll watch that closely over the final hour or two. It's up three and a third percent. Does take us to our talk of the tape. With another month about to be in the books, what does lie ahead for your money over the remainder of this year? Let's ask Cameron Dawson, chief investment officer for New Edge Wealth, with me here at Post 9 once again.

It's good to see you. Good to see you. How does the backdrop feel to you in this market? It's not too surprising to see this volatility. We had been seeing this somewhat dangerous divergence start to brew over the last month where yields moved a lot higher. Earnings estimates were getting cut for the fourth quarter and for 2025. All the while, the market kept pressing to new highs and it was based just on valuation. So now that you're calling more questions about earnings with what Microsoft and what Meta said and that outlook into 25, not surprising to see some of this volatility kind of catch up to us. Speaking of,

do these mega cap reports, is the lesson today that they need to be really perfect? I think so. I think given the fact that positioning is so crowded, we can talk about valuations. Not all of them are very expensive, but we do know that a lot is riding on these earnings because if you look at the source of earnings growth in the third quarter, mega cap was delivering all of the earnings growth. The mag seven, 18% growth, the rest of the 493.1%, which just means that they have to keep delivering. If you look at the street estimates, that kind of high teens growth is what is expected next quarter and through the remainder of 2025. What do you think on this final trading day of October has been the

story of this month? Is it the backup in yields? Is that what the biggest takeaway is going to be and what we need to watch closer than anything else? I think that it is the backup in yields because it's telling you that the increase in yields is not because of something necessarily that the Fed is doing today, but because the economy is holding up better than expected. It is raising the questions of potentially higher inflation into 2025. We don't see evidence of that yet. Look at the ECI, the Employment Cost Index today. We're not seeing a re-acceleration in wage growth,

but I think people are starting to call into question, are we going to get the cuts from the Fed if this economy isn't falling off a cliff? Well, I mean, what if we're not gonna get as many as we thought? How much does that matter? We got two more meetings before we turn the calendar into 25. What if we don't get two? Does that matter? It hasn't mattered all this year. We started this year with six and a half cuts priced in,

and we got all the way up to just one cut priced in. The market still continued to rally. I think the kicker for the market when it comes to the Fed is the perception that if Fed rates are going to weigh on growth. That's what happened in 2022. The Fed said we're increasing interest rates. People started cutting their growth forecasts, and that's how we had a bear market. So if this market is still in an environment that says we can tolerate higher rates, it means that the Fed may not cut as much. Certain pockets of the market might struggle, like small caps. But overall, as long as the earnings story is intact, it can tolerate these higher rates. There's been some commentary over the last few weeks that with valuations where they are, you should expect

muted returns in the years ahead. You don't sound that optimistic from the notes that I've seen that you gave to our producers for 2025, right? Your base case is for lower returns. Now, are you talking about much lower? Because we've had an amazing couple of years here. So do we need 20% return to be happy? I don't know. But what are you really talking about? We're talking about something that looks much closer to average at best,

something that looks like sideways and choppy. And the reason I'd say at best is because if we take current consensus for EPS growth of about 13 percent and say we don't know if we can really push valuations near 22 times that much higher, which just means that at best you get what you have with earnings growth. And at worst, you actually get multiple compression. And so it's a question of as we move through the year, where does that valuation multiple go? And we have to simply appreciate at today's levels, there's probably a lot less upside than we had starting 23 and 24.

But if I tell you, OK, economy's good, we know that earnings are good. They are. Fed's cutting. So what if they're not cutting as many times or as large as we thought? And then you've got all this pent up demand for M&A. Aren't all of those and not just, you know, slight positives for the market, but big positives in the market? And add on top of it the fact that we still have stimulative fiscal spending into a strong economy with the backdrop of easier monetary policy, all of those things would be very good, are typically good. Why not this time? Well, because I think that it does raise the risk of a potential melt up where valuations get so high because you're throwing so much stimulus at the economy that effectively you pull forward returns. So we saw years like 2018, there was a great backdrop in 2018 of tax cuts that led to strong earnings growth,

and it ended up being a flattish year only because we started at such high valuations and the Fed was pulling back on liquidity a bit simply because of the growth that you were seeing from the earnings side. What are we supposed to think about the election? The market was obviously pricing certain trades in. I don't know if that was getting ahead of itself or not.

And we're not going to know till next week. And hopefully we know next week. But how am I supposed to, as an investor, think about the potential risk that lies ahead with the election looming, not to mention the Fed meeting next week on top of that. We've seen the biggest moves within the bond market as well as in cryptocurrency markets, where there's been the tightest correlation between Trump's odds of winning as well as the Republican sweep and the price action in those areas.

It raises the question of the lesson from 2016, which was effectively a sell the rumor, buy the news after the election. So you saw a big jump in yields in 2016 for the two months following the election, and then they kind of drifted down. So maybe we're seeing some of that pull forward today. We do have to consider the wild cards of the election results into 2025, where we could have things like higher corporate taxes on one side, and then on the other side, potential supply chain disruptions from things like immigration, as well as tariffs and

trade. So both of these things could potentially be market jarring, even if the underlying economy is still holding up. So we've talked a lot about mega cap, and we're going to obviously have Apple and Amazon after the bell tonight. There's been a good debate, too, about other areas of the market to be in that forget small cap because there's just too many there's too much noise around small caps. If yields remain elevated, maybe that trade doesn't work. But mid caps, mid caps getting a lot of love. What do you think about that part of the market? Certainly, we've been preferring mid caps over small caps because they typically have better balance sheets. They're not as sensitive to interest rates. And what we are seeing is that you have a lower base for earnings growth going into 2025 that allows you to jump over that. We

think you have to be highly, highly selective, though. We use the phrase quality because it really allows us to find those names that are much more stable through cycles, have reasonable valuation. So it's not just buy all mid-caps, it's buy selective mid-caps. How much do tonight's earnings matter then for the near term? We are talking about the most valuable company in the market. I mean, it was teetering with, you know, flipping back and forth with NVIDIA, but Apple still has great importance to this market. Does it still have as much as it used to?

We used to talk about it's like as Apple goes, so goes the stock market. Now, I don't think we need to do that anymore. But you tell me. Maybe the read through is the connection of Apple's valuation and the overall market's valuation and how much this market is willing to pay up for growth. Apple's trading at about 30 and a half times forward earnings, which is near its 2021 peak. That would say to us that that's a pretty high bar that they have to deliver. Apple's earnings have never been that extraordinary in the last two years. I think the earnings growth

is close to about 9% this year. So it really comes down to the valuation. And if the results are not received well, maybe there's a read through to how well this market will tolerate today's broader high valuations. All right. So you stay with me, because now we're going to talk more about Amazon. It is obviously one of the big reports that we are watching for in overtime. Kate Rooney is watching that and will tell us what we need to focus on most of all. Kate. Hey, Scott. So the setup is important to talk about here as well for Amazon. Expectations have really come down since the last quarter. The list of worries around the stock has weighed on sentiment lately. Amazon has underperformed most of the MAG-7, at least in the

past six months or so. In the second quarter, the last report, Amazon did see some margin compression in that North American retail business. It's something people are watching closely. They also warned about consumer spending pressure. The ad business also didn't quite wow Wall Street the way some had expected. Amazon, though, did have Prime Day in the last quarter, which could lift sales today. We'll see. And then there's really high hopes for Amazon Web Services. AWS, especially after Google Cloud's strong quarter, AI is going to be a big part of that story.

AWS growth is going to be the key number to watch and to beat. Street is expecting that high margin cloud business to deliver 19% revenue growth for the quarter. It's a big number to beat. Analysts are going to be watching for any sort of commentary on retail for this quarter, the consumer, and then CapEx. That commentary is also going to be key. AI is really a balance here. And then guidance after Microsoft disappointed on the guide. Bank of America, I think, really summed it up well. They said it's a balance of AWS optimism versus retail margin uncertainty, Scott. Yeah.

It looks like, Kate, that AWS growth after flattening out for a few quarters looks like it's reaccelerating, albeit slightly. That's key. Yes, absolutely, Scott. So they did sort of flatten out, I guess, last year, you could say. And that's been the big part of the bull case is that the margin expansion, the growth on AWS, it's the high margin, really profit engine of this business. That's why it's a big tech company. We think of it as retail, too. But one balancing act that they're going to have to do is show that the core business, the retail side, is also doing well in order to spend big, go after some of those moonshot

projects. So really, I would say that the takeaway is balance. They're going to have to nail it on margins in North America, show that that business is doing well. And they did also see margin expansion on the retail side of the business after COVID, margins were negative. And they've really turned that around. So it's a huge part of the bull case. But you've really got two sides of the story, retail and tech with AWS. But again, that 19 percent growth number is really what folks are looking for on AWS. So I would say that is the number one thing to watch today. Okay. Good setup. We'll see a lot of you this evening. We look forward to this report. Kate Rooney, thank you very much for that. Let's bring in our panel now. Malcolm Etheridge of Capital Area Planning Group and Bryn Talkington of Requisite Capital Management, both CNBC contributors. Malcolm, you're the one who owns Amazon here. So I am the most convicted about right now. And you

heard Kate make the point that for the last few months, it has been the least loved of the mag seven names. But I think of all of the companies set to benefit from AI making its way into digital advertising, it's either Meta or Amazon as one and two, and they're close first and second. And so I think that investors are really missing the opportunity that exists within Amazon in that digital advertising space, partly because of the margins that they can extrapolate from what I've seen, 90 to 95 percent margins on ads being created using AI instead of human actors and models. Are you thinking about what the spend is?

CapEx numbers are just enormous for all these companies, Malcolm. Yeah, I hear that point. I heard what Cameron was saying before about investors deciding that now is the time to focus on valuations and multiples. I think I know, you know, it's a little bit unlikely to me for me to be the skeptic, but I find it a little bit strange that now is when investors are deciding that they don't want to own shares of Meta and Microsoft specifically. They're selling those names off because of not liking what they hear in the earnings reports. When we knew last month and last week that these companies were redoubling their efforts, CapEx wise, building AI into all of the products that they're rolling out.

And so I just think it's a little bit more likely that investors are deciding to take some profits during earnings when they knew that those numbers were going to at least meet expectations. And then to borrow again a phrase from Liz Young that I love to use, come November 6th, we might see those same traders putting the money back where it came from. Yeah. Bryn, what do you make of the price action today in the Microsofts and the Metas? Do that for me before I ask you about Apple tonight, which you own. I think if I broaden out to the year, you know, Meta's up 60% for the year. So down five is to me not that big of a deal. I think in terms of like Meta is going to be able to monetize. They're doing so much on AI. Their report was really strong. Yes, their CapEx is up what, 87% year over year. They're on par

with Google. But if you think if you go on Instagram, it's impossible not to buy something. And so I think they're going to continue to benefit from that. I think Microsoft, as a juxtaposition, is only up 9%. Like, my energy names are doing better than Microsoft. I listened to their earnings call actually twice. I mean, their revenues, they beat by a billion dollars. They crushed earnings. Copilot, which I was concerned about, they announced Vodafone, UBS, big enterprise companies. And so I think that ultimately Amy Hood, who the CFO, she is conservative in her guidance very consistently. And I think she was conservative again. But I think you're going to continue to see

a dispersion of returns within these five or six names that we talk about. Because year to date, this has been all about Meta and NVIDIA, not about the Microsoft, Googles, Apples or Amazons, which really have been market or market underperformers this year. But I still do not think this is the beginning of the end. I think these companies will continue to monetize. And data center plays to me are still a great spot to be. Bryn makes a good point, Kim. It's no longer the monolith, right? These are going to be differentiated and separated by virtue of how fast they're growing their revenues for the cloud players who's differentiating themselves, growing their cloud businesses the fast. You think about AI for consumer versus AI for business, and then you place your bets accordingly.

And if you look at the breakdown of the earnings of the different pockets of Mag7, what you have is Nvidia and Amazon have huge decelerations in their earnings growth. It's a question of how the market will be able to digest that. Amazon goes from over 100% this year to just 1% next year. Nvidia goes 140% to just 40% next year. If you look at the likes

of Google and Microsoft and Apple, they have much more stable earnings growth kind of year over year. And Tesla is actually the big swing factor of the last Mag 7, where they have a big acceleration baked in. so it's going to be very interesting how the market deals with this second derivative deceleration and is that something that will weigh on growth even though the

absolute growth rates are still likely to be better than the market. Speaking of growth rates I guess Malcolm we're going to be paying super close attention to Apple's revenue growth- which was anemic to say the best- for a while. Now we need

it to, you know, reaccelerate in a meaningful way. There was a time where we'd say, oh, my gosh, this Apple's reporting tonight. It's like the biggest event of the entire week. I don't know. It just doesn't feel that way. It feels like we're expecting kind of ho-hum, not only for the numbers, but the guide. I think we're on our way back there, though, Scott. I think this is probably the quarter that just ended, I think, is the last mulligan that Apple's going to get on that growth rate, especially as it pertains to the iPhone. I think that the expectations around Apple intelligence and the importance of Apple intelligence for the upgrade cycle have been played up so big that if Apple is not able to prove during this

holiday shopping cycle that there is actually demand for the iPhone 16 and that those sales reaccelerate, I think they're going to get punished for it in a major way. I also think that it's really important for all of the other consumer focused AI companies out there that Apple actually show and deliver in this quarter that we're in right now, because we haven't really seen anybody test the theory that there is demand for AI among consumers. We've seen that there's demand among enterprise from Microsoft and Google Cloud and others. But Apple is the one who we can rely on to actually prove that there's legitimate demand from consumers and be able to monetize that in a meaningful way. And that's going to be important for all the other consumer-based tech companies that are building AI products right now. Bryn, you own it too. How are you viewing it? Because I don't judge from

your notes either that you're all that optimistic about the near-term direction for the stock. I think Malcolm, first of all, just like hit the nail on the head about this. This is going to be over the next couple of quarters, I think, really important because outside of COVID, Apple's revenue growth was anemic on both sides of that. And so I think we want to see not will people upgrade, but how long will it take to upgrade? The options market, which have been incredibly accurate, shows Amazon plus or minus 12% post the report. Apple's only at 3%. And so at the end of the day, this plus minus three isn't that big of a deal. I'm more interested because there's so many analysts, like there's this amazing Chinese analyst in China that's saying that they're going to be terrible. And so I think that's going to flesh out a lot of this opinions that we don't know about.

At the end of the day, their services are going to grow. Everyone has an iPhone. It's just how quickly are we going to upgrade? And I think that Apple will remain a market performer as it has this year. It's going to do what the market does. I do not think it'll be an outperformer in the rest of this year or actually the first half of 2025. Let's not, Kim, either forget about what happens in China, too, where there was a lot of optimism. Now I feel like that's faded a little bit. You're talking about 17 percent of overall revenues

coming from greater China. So how do you think about that? It's a big, huge question mark because we've certainly seen other consumer facing companies in China continue to struggle. Maybe there's a little bit of a light at the end of the tunnel. We had slightly better China PMIs today, but certainly in the grand scheme of things, it looks like that Chinese market is continuing to struggle because a lot of the stimulus is not directed at consumers. And that's what Apple cares about most. All right. We will we'll see what happens. Going to be exciting, as it always is. Again, Apple and Amazon coming up in overtime within the next hour or so. Thanks, everybody. Bryn, we'll talk to you soon. Malcolm, you as well. And Cameron, of course. We'll see you back

here post-9 to Pippa Stevens now for the biggest names moving into this close. Pippa? Hey, Scott. Estee Lauder is sinking to its lowest level in more than a decade after the beauty company withdrew its full-year outlook thanks to uncertainty around when China will turn a corner. The company also cut its dividend as its new CEO prepares to take the helm on January 1. The stock is pacing for its worst day on record. And booking holdings hitting a record high after Q3 profit topped estimates. Gross bookings rose 9% year-over-year, while room nights booked were up 8%. Steady international travel demand offsets some domestic weakness.

Scott? All right, Pippa, thank you. Back to you shortly. Pippa Stevens, we're just getting started. Up next, Goldman's Mina Flynn is here. Breakdown how she is navigating potential volatility as we gear up for those high-stakes earnings. A big week ahead.

You've got a Fed meeting, election, et cetera. She'll join us right after the break. We're live with the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back. The tech trade dragging down stocks today. Microsoft and Meta among the big names that are sliding. Apple and Amazon, as you know, set to report after the bell. And while my next guest expects a more muted performance from the mag seven around earnings, he's still bullish in

the year end. Joining me now here post nine is Mina Flynn, co-head of Goldman Sachs' Global Private Wealth Management. Welcome to our program. Thank you. So how are you thinking about this group of mega cap names, which, you know, we're winding down here on the earnings and we still have NVIDIA about a month from now. But as a group, what do you think? I think as a group, it's really hard to look at these names on a quarter by quarter basis. They're undergoing significant transformational change in the AI infrastructure and everything that comes from AI I think is going to play out over multiple years and so our clients are really looking at these names from a more longer-term perspective and these businesses have significant moats around them and we do believe that they're

going to continue to outperform from an earnings perspective that earnings may decrease in terms of outperformance. But we do think that this setup is still strong for them. How do you feel about the market overall? We're obviously going to put in, barring some surprise over the next couple of months, a really good year again. Have we borrowed from 25? I mean, how does the landscape look to you? We're pretty constructive.

And the reason why we're constructive is that we have global growth growing at 3% on a real GDP basis and U.S. growth growing at 2.5%. And usually the best predictor of forward equity returns is the economy. So 90% of the time when you have a strong economy, you have positive equity returns. So take that to the S&P 500 and we anticipate earnings growth next year of roughly 8 to 10 percent. You couple that with a 2 percent dividend yield and you're looking at 10 to 12 percent and you could even have some multiple contraction and still have pretty positive returns. So we we justify where the multiple is of the market. I mean, that's the question now is like, well, our stock's too expensive? And as a result, if earnings growth slows, then we are at risk of below average returns for the next couple of years. There's going to be a downturn at some point in the economy, we think.

Yeah, no, I mean, absolutely. But as we're looking forward, we actually do think that growth will continue to be robust. But I think it's really important that you put it in the construct of a total portfolio when you think about portfolio construction. And the number one thing that we do with our clients is we do actually really think about their risk objectives and help them implement a portfolio that's going to keep them from selling during periods of market volatility will also outperform inflation. And so our clients' portfolios are really comprised of a ballast of fixed income, equities, and alternatives. And we seek to implement that for them and really

feed in capital-efficient manners and take advantage of volatility. I mean, when you come to, you know, we're talking about clients of Goldman's private wealth. Obviously, we're talking much beyond the 60-40 portfolio. Clearly for high net worth investors, the construction is going to be far different. I don't know what you think about to what degree you should have alternatives as part of your portfolio. I've heard 50-30-20. Private equity, private credit. It doesn't seem from what we hear that the money flow into alternatives is slowing down anytime soon. No, and nor do we think it should. We recommend on average roughly about a 25% allocation, but we do have clients that run a much higher allocation.

It really goes down to one's risk preference. But really, if you look at big picture, why are we constructive on alternatives? There's three reasons. The first one is that given they don't mark to market on a daily basis, they actually put the emotional side of investing to the side. The second thing is that the investable universe in the private space is larger than it is in the public space. So if you look over the last 25 years, the number of companies that are public has gone down, but the number of private equity-backed private companies has increased sixfold. Additionally, given the amount of money that is coming into private markets, they're able to stay private longer and have a tremendous amount of value creation before they go public.

That being said, we recommend that we leg into alternatives for our clients. So while I said 25%, we get there over a five to six year time period so that our clients aren't geared to any one vintage. I mean, as more money continues to go into things like private credit, it only increases the duration that a company would remain private for longer

because they just don't need to tap the public market for liquidity. Yep. No, absolutely. The private credit, we do see that market is going to continue to expand. And if you look at first lien senior secured loans right now, they are yielding 10 percent plus on an unlevered basis. so very attractive for investors. But there's also much more beyond first lien senior secured loans in private credit. So you do have things like non-traded investment grade and asset-backed securizations and stuff like that, that our clients are able to take advantage of and really just toggle that risk-reward. And like you said, companies are able to use this to be able to help their capital structure and go public when it makes sense for them.

I mean, the movement in interest rates obviously impacts the kind of return you would get in something like private credit. So, I mean, how are you gaming out what you think the Fed is going to do? And have you reset your own expectations as a result of what's just happening in the market? I think you've seen yields widen out by roughly 40 or 50 basis points since we had the last Fed cut. And I don't think that's actually because investors are concerned about anything other than actually we've had a stronger economy and the Fed may actually cut less. And so we still are expecting 25 basis points next week and 200 basis

points through this cycle. But the Fed has some room. I think the bigger question when you think about interest rates is at what point do investors start talking about the fiscal deficit? And so we've got a debt to GDP right now of almost 100 percent. You've got fiscal deficit running six to seven percent. And you couple that with strong growth and an unemployment rate of four percent. You've got fiscal deficit running six to seven percent. And you couple that with strong growth and unemployment rate of four percent. And so that's something that we don't think we're near that tipping point. But we do think that, you know, investors are looking for that to be addressed. I feel like investors are talking about it and are concerned about it, but can't do anything about it. You need something to happen in Washington to deal with the deficit. So we'll see how it all comes together after the election. It's nice to see you. Welcome to our show.

It's Mina Flynn from Goldman Sachs. Up next, we're getting a setup for Intel results in overtime as well. Star chip analyst Stacey Raskin standing by with the key metrics you need to know. We're back after the break on the bell. Intel, the worst performing chip stock this year, with shares losing more than half their value. So does this underperformance lower the bar into earnings after the bell tonight? Let's ask top chip analyst Stacey Raskin of Bernstein. He covers the name, as you know. Welcome back. It's good to see you. Good to be here. So I look at your note and I think you sum up what every Intel investors thinking about. Quote, we don't really know what to do with Intel stock these days. I guess that kind of says it all. Why are you flummoxed by this name?

You bet. As you know, I've been pretty negative for a long time on the stock, and I'd say we're still pretty negatively biased. That being said, you know, I'm kind of afraid it's hard to run out and short it when you're getting headlines like so-and-so is going to buy it like every other day. And I think it was up, I can't even remember, 30 percent in three days on some of those acquisition rumors, which, to be fair, I find a little implausible. But I guess we'll find out. At the same time, though, it definitely doesn't feel like a long either, right? I mean, we've got issues in the PC market. We've got a CPU channel that's stuffed full. In servers, their competitors are still taking a good amount of share. They don't really have any AI story to speak of to help make up the

difference. And now I'm starting to get more and more worried about the trajectory for gross margins. They've kind of been suggesting that as they ramp some of their new products that have a lot more outsourced content, which hurts the margins, they've kind of been suggesting that that may actually be an incremental headwind to margins as we get into next year. And then you couple that with just everything else around the process roadmap and burning cash and everything else. It doesn't feel like a good situation to be in. I mean, clearly they're in a tough spot.

But I mean, the stock reacted terribly to the report last quarter. Maybe that lowers the bar going into tonight. What do you think about that? To be fair, like it's, you know, it collapsed a lot. It's actually up pretty decently in the last month or so, again, on some of these other news stories that have been coming out around potential M&A and everything else. So, you know, I don't know. It's hard for this one for me to suggest that expectations are low. I feel like they're higher than they were. And to be fair, I mean, even if expectations are low, they could very easily, like, come in below. I'm very interested to hear, by the way, not just their commentary for the quarter, but, like, any sort of incremental commentary they can give us for next year. I'm getting more and more worried. Our numbers are quite a bit below as we go into 2025.

So I get worried about that, particularly, again, without the AI ramp to help to buffer things and in particular gross margins. So anything they can give us on next year would be helpful to try to maybe lower those expectations further. But there's always room for them to go lower, I think, with these guys. So Pat Gelsinger is coming up, by the way, in overtime. I mean, I know you're going to I know you're going to watch that. I mean, what would you tell him? Like what? What's the number one thing? If if Gelsier calls you up and says, all right, Stacey, I know you hate the stock. It's kind of obvious. You keep telling Wapner you hate it.

But what would you tell him he should do? I mean, this is the real issue. So we can argue, is the strategy. Was it the right thing or the wrong thing? That's that's a longer discussion. The problem is, though, you know, they didn't put the cost structure into shape like when he got there and everything else. Really, the problem is that the core business assumptions that they were basing on to bridge them to get that strategy to work, the core business just doesn't really support the path. It's not generating cash to speak of to support their investment path. But it may be too far along to stop.

That's really the issue. I don't know that it's politically viable, frankly, to stop what they're doing, given all the chips act money and subsidies and everything else. But I just don't think the core business in terms of PC trajectory, server trajectory, AI trajectory, there's just not enough oomph there to support them as they go along. But again, I don't know that the right solution is to stop either. You'd pretty much have to scrap everything that they've done. Probably just like, you know, everybody talks about a potential split. And I don't think that's really viable right now. The

foundry can't stand on its own. I don't think you get somebody to buy it as an operating business. It's losing tons of money. I think in a hypothetical situation, the solution would be to scrap it. But I don't think they can do that for political and other reasons. They're just in a tough spot. I don't exactly know what it is that he ought to be doing beyond just cutting costs probably a lot more than they may have to. I guess we'll see what happens and hopefully bridge enough of a path to get to where they're trying to go go to get the new processes out. And hopefully those processes are successful and try to build the business.

I mean, they gave some targets for like 2030 that if you wanted to believe painted a picture. But I mean, there's just a ton of wood to chop between now and now. And then there's no real way to judge it externally, like how it's going either. It's they're in a tough spot. Lastly, I mean, you suggest that that even if a turnaround is successful, it it could take a decade. I mean, it took 10 years to break it. Why would it take it was it was always going to take 10 years to fix it. I don't think that was really ever in doubt. And I just think like the trough they're going through is clearly a lot bigger than they thought it was going to be. I mean, you can go back to 2022 and look at the expectations they put. They were ludicrous, some of the targets they put. I mean, that'd be another point of advice.

And again, it's in hindsight. There's not much they can do about it now. But if Gelsinger is ever starting another CEO job at some point, certainly start with low expectations rather than high expectations. I don't know who comes into a turnaround and sets expectations like they did when he got there. It made no sense at the time, and it clearly makes no sense now. Now it's too late. All right. Well, I think you've given Fort some things to chew on, I guess, before we have this interview in OT. I'm sure he's watching, too. Again, I remind you, don't miss that interview.

They're always good together. We'll see you. Stacey, thank you. Stacey Raskin and Bernstein. Up next, we're tracking the biggest movers into the close. Pippa Stevens standing by with that. Hi, Pippa. Hey, Scott. Well, Wells Fargo says one auto name is in a lane of its own. The company to watch coming up next. We're 15 from the closing bell.

Let's get back now to Pippa Stevens for the stocks that she is watching. Pippa. Hey, Scott. Carvana is surging on the back of better than expected Q3 results. The company also raised its 2024 earnings guidance, saying it would be, quote, significantly above the high end of its prior target. Wells Fargo saying the company is driving in a lane of its own. And Roblox is tracking for its best day in more than a year after reporting a smaller than expected loss

and raising its full year bookings forecast as in-game spending rises. It comes after short seller Hindenburg Research accused the company earlier this month of inflating metrics. For more, be sure to catch Roblox CEO David Buzuki tomorrow at 2 p.m. Eastern. Scott? All right, Pippa, big interview. Thank you, Pippa Stevens. Still ahead, much more on what to expect from Amazon's earnings in overtime tonight. A top analyst's take on that report is coming up.

Plus, we count you down to Apple's results as well. We'll run you through what's at stake. There's the countdown. 44 minutes and 20 seconds until Apple reports. We're back after this. And by the way, a programming note before we go. We're live all night on election night. We're now the closing bell market zone CBC senior markets commentator Mike Santoli here to break down these crucial moments of the trading day plus Peloton hitting its highest level in more than a year today. Brandon Gomez has those details for us and Amazon of course reporting in overtime. That's why Evercourse Mark Mahaney joins us to share what he expects. Mike, I'll send it to you. It's an obvious down day and mega cap tech is a big weight.

Thank you very much. It is. Meta and Microsoft. You can throw Uber into the mix, too. Yeah, it's all, I think, the pressure from the mega caps. But also, it's a pretty kind of persistent but orderly risk reduction going on across the markets. Stocks down, bonds down, gold down. Makes sense, I think, to sort of pull the market a little bit toward neutral

wherever it was overextended ahead of the jobs report, obviously ahead of the election. It's not really panic. It's not a washout. The average stock's doing better than the indexes because of Microsoft and meta dragging on the S&P 500. But, you know, maybe it's a little bit of this pent up. We thought we were going to get some autumn volatility and we we haven't until now. Again, I was talking earlier. It really just looks like a pretty normal pullback in the in the indexes to the 50 day average or thereabouts. So, again, nothing alarming, but it shows you that that we didn't didn't see enough to get incrementally excited from the earnings this week. All right. Well, they're excited about Peloton today, that's for sure.

Highest level in more than a year. Brandon Gomez is here at Post 9 to tell us exactly what's going on. Yeah, Scott. Shares on a tear today. Look, the company back to generating free cash flow. Breakeven on EPS still a beat on the top and bottom line. The company says it remains focused on profitability, not just getting bikes into homes. On the call, interim CEO Karen Boone saying, we've been very sure that we're not going to chase unprofitable sub growth. Adding the company has been much more disciplined with spend, too. And after a month's long search, the company announcing a new CEO today, Peter Stern, currently at Ford, where he oversees the company's subscription services, also a co-founder of Apple's Fitness Plus offering,

one UBS analyst calling him a, quote, hardware software industry insider. You can see shares up 170%, a little more than that, since former CEO Barry McCarthy's departure announcement back in May. Scott, worth pointing out, though, all of this clearly overshadowing that Peloton also expects to lose more members, sell less bikes and treads in the holiday quarter, something you'd think would send shares lower. Today, though, investors

waiting to hear more from the incoming CEO who will start in January. All right, good stuff, Brandon Gomez. Thank you very much for that. Let's pivot to Mark Mahaney. He covers Amazon. He calls it his top large cap long over 12 months. Why do you do that? Well, I think AWS growth is likely to continue to accelerate for a while. I think you're going to have this kind of mixed shift towards faster growth, higher margin advertising in AWS businesses. So that's good for margins overall. I think the retail business can also show expanding margins if you're willing to adjust for Kuiper, the satellite communications investment program that the company has. And I think they'll probably give you a little bit more disclosure on that. And then who knows, maybe we'll get some

wonderful surprise because they're the last of the mega cap techs to have done anything with their cash. I'd love to see them initiate some sort of material share buyback dividend policy. They have the ability to do that. Maybe that's a 2025 surprise. How much of an outlier idea do you think that is? I mean, do you think there's a reasonable chance they do that? I think it's not a probability, not greater than 50 percent chance, but their cash balance now is at 100 billion or it's going to be over 100 billion next year. That's the level at which Google started buying back stock. Now, Google sat on that cushion for a while, but that's the level. And Meta's been doing it when they had $60 billion. Now, the cash flow needs, the cash needs these companies are very different. But still, I mean, you're talking about cash levels that at some point are clearly excessive to Amazon.

And so, yeah, I don't think there's anything structurally wrong with them doing that. I don't think they're opposed to doing some sort of capital return like that. I think it's a reasonable possibility in the next year. Speaking of meta, are you surprised at all by the reaction today? No, this was a high bar stock. And so, you know, you needed to do a clean, beat and raise quarter. And, you know, they didn't blow away the numbers in terms of the ad revenue in the quarter. I think fundamentals were fine.

There's no deceleration here. Profitability was extremely impressive. But for the stock to have kept going up, being up 60% on the year, you needed a clean, beaten raise, and you didn't get it. I got to bounce, but would you buy this dip in Uber? Because you cover that, too. Yes. Yes.

I put out a report on it earlier today. This is like the Dodgers at the top of the fifth inning. Uber, I think there are these two false issues on Uber. I think they're going to be an AV winner, autonomous vehicle winner. And I also think that there's a little bit of concern over this deceleration in mobility. I think there's some temporary issues. So this comes close to being a DHQ stock for me, dislocated high quality stock. I like Uber here. It's one of my top picks. We'll have to see who's going to commit the error

to let the Ubers back in the game. Yeah, it's got to be Tesla or DoorDash or something like that. Mark, thank you. Mark Mahaney. We'll see what Amazon does, of course, along with Apple.

That's what we're highly anticipating. Of course, with the jobs report tomorrow, then we turn our attention to next week. Pretty big moves anticipated in the individual stocks. It's worth a reminder that sometimes the whole group kind of gets swayed this way and that. We had a positive follow through from Alphabet and negative now from Meta and Microsoft. So we'll see Amazon and Apple.

I think big picture, you can look at this market as, you know, got elevated valuation and investors are allowing fundamentals to grow into it. And, you know, it's not to say that it's too expensive or that the consensus expectation of a November and December ramp in the market is ill-founded. But, you know, when people are expecting it in general, you have to maybe assume it's not going to be the smoothest ride. And that's why, you know, jobs report tomorrow probably got some two-way risk. You know, every economic number is surprising to the upside. I do think the bond market's been a little braced for that possibility, even as some folks feel like we can have zero because of all the storm impacts. Looking at it right now, I mean, the 10-year, as you were talking, is 428. You know, yields are elevated again today. They are, although, you know, I think it hit 432 or something earlier. So, I mean, these are small differences, but it's definitely been just sticky in that area,

which is the borderline of where, in the past, if you go back several months, 430 was that level that seemed to give the equity markets some indigestion when it looked like you had some momentum and yields well above that level. All right, we're a little sick to our stomachs today, speaking of indigestion, because of these results and the drag on the major averages. By Meta and Microsoft, we'll go red across the board, but we're ready,

because you've got Amazon and Apple, of course, Intel, all studying O2 with John Ford.