Closing Bell - Closing Bell: More Pain Ahead for Tech? 8/14/23

Episode Date: August 14, 2023

Does the tech pullback have more room to go? Chip investors are stepping up and buying today after a positive Morgan Stanley call on Nvidia. BNY’s Alicia Levine and JP Morgan Asset Management’s Jordan Jackson give their expert takes. Plus, T Rowe Price’s Sebastein Page breaks down his playbook for investors who may have missed the rally. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 right here at the New York Stock Exchange. This make-or-break hour begins with NVIDIA's bounce back. After one firm grows even more bullish on that stock, is it a sign that the big tech sell-off is now over? That question as the sector gets a much-needed boost today. Here's your scorecard with 60 minutes to go in regulation. The Dow has been fighting it out all day long. More broadly, though, stocks have been green for much of the day. The S&P trying to avoid its fourth down day of the past five. We're watching interest rates closely to the 10 year hitting its highest level of the year today.

Four point two percent. It has pulled back off that just a little bit, as you see there. The big action, though, in the Nasdaq, as I mentioned, been down for two straight weeks. That's the first time all year that's happened. Takes us to our talk of the tape today, whether the tech pullback has more room to go or not. At least chip investors stepping up and buying today after that positive Morgan Stanley call on NVIDIA. Our Christina Partsenevelos is following that for us today and joins me now. It's been a nice bounce. It has been a 6 percent nice bounce, but the narrative is pretty much buy now. That's what Morgan Stanley and Bank of America are saying about NVIDIA shares.

Its recent sell-off, down about 8% this month and 10% off its 52-week high, is what they are calling an entry point for many, especially ahead of earnings out next Wednesday, the 23rd. So Morgan Stanley thinks that NVIDIA is only serving less than half of the demand in today's AI market, and that's enough to drive revenue over $15 billion in the next few quarters. They think Q2 revenue guidance of $11 billion, which is already 50% higher than what analysts were originally anticipating, is conservative.

In other words, NVIDIA should blow past its revenue number, driven by data center demand. So that call is why you're seeing this stock up 6%. But not everything, Scott, is perfect. There is a lack of supply, specifically for the GPU AI chips, and that could possibly cap off near-term upside. Secondly, Chinese tech giants like Alibaba, Baidu, ByteDance are trying to rush order their NVIDIA AI chips

over fears that the Biden administration will impose even more export restrictions. So that could mean less revenues at the end of 2024. So overall, you just need to get through this, quote, wall of worry in Q3 with Bank of America. That was in their notes saying Q4 is historically stronger for the chip sector. So they see more upside. Yeah. The call today, too, they mentioned the visibility for a while that that NVIDIA has into the future. Also, the stocks pulled back eight and a half percent over the last couple of weeks. And the P.E. has really come in from the high, too, which is notable. And I want you to comment on that. Sixty two and a half times forward P.E. in May. Now down to forty six and a half times. So it's you know, it's obviously one of the knocks that you hear on stocks like NVIDIA.

Oh, it's too expensive. The P is too rich. Well, it continues to come in. Well, yeah, and to that level, I think that you're referring to that in the note. That's the five-year average, if I remember correctly. So it's coming back to the normal level for NVIDIA, which is already higher than a lot of other chip names out there. And if we're going to talk about continued valuations and upside in the near term, they are the dominant player, right? We talk about this often. We can't deny that they're the dominant player. The second closest player is AMD with their AI chip in Q4,

as long as there's no delays. So that is something to consider when you're thinking about, should I sell this name or should I get in? Is there any upside? That's the argument. A lot of these analysts are saying is that nobody's looking to sell anytime soon because they have such a market share over all of the AI chips. Afraid to sell to given what happened last quarter. Remember that? Oh, the seven billion dollars that really blew it out of the park. Is that what you're referring to? Yes, exactly. Exactly. You want to sell ahead of the possibility of something like that happening again? I don't know. Well, yeah. So the 11 billion dollars, right, that we're expecting for this upcoming quarter, that 11 billion dollars, it seems like everyone still believes that NVIDIA will surpass that level by anywhere between 500 and a billion dollars.

So that's still a lot of upside. And that's still a very bullish call for its revenues going forward. And the fact that they're saying $15 billion because of this short supply, these are all strengths. I do think we need to consider the fact that the upside, the limited upside because of those supply strengths is a concern, especially if China goes ahead and buys everything up in advance. Like, how is this going to continue this massive momentum over the next year or two? Yeah. Yeah. Nice game today. We'll watch it for the rest of the session. Christina, thanks. We'll see you in a bit as well. Christina Partsenevelos. Let's bring in Alicia Levine of BNY Mellon Wealth Management.

Jordan Jackson of JP Morgan Asset Management. Good to have you both with us. Alicia, I'll turn to you first. I mean, Semi's down seven and a half percent in a couple of weeks. Cloud down nine. Software down five and a half. NAS down 9%. Software down 5.5%. NASDAQ down 4.5%. Is it done? Don't think it's quite done yet because of where yields are. If you remember last time we were on together, I said you've got to watch the 10-year. The 10-year sitting over 4% for a couple of weeks

is going to cause a problem in the long-duration names. So I think you still have some consolidation. But look, this is healthy. This is not the sign of a teetering market. This is a bit of a consolidation. And it's a place where you can really start to think about adding. We don't like to time the market. It never works. We're seasonally weak here. It's OK. So, you know, I think there's more upside for the rest of the year, even as we come into seasonally weak August and September. And tech, since it led the market the first half of the year, if we're going to move higher by the end of the year, tech has to be

participating. Yeah, I know there was a note on that today. We'll get back to the conversation in just a minute, though. We are getting some new news on U.S. Steel, which has been making some M&A news today. Pippa Stevens with that story. The update for us. Pippa, what do we know now? Hey, Scott. So S-Mark announcing that it has offered an all-cash offer for U.S. steel shares. It would be $35 per share, all cash. Now, of course, the company rejected the Cleveland Cliffs offer, which was $35 per share, but a mix of cash and Cliffs stock. And over the weekend, U.S. Steel did say when rejecting that offer from Cleveland Cliffs that it had received multiple unsolicited proposals. So once again, S-Mark announcing an all cash deal for U.S. Steel stock up now 40 percent on that. Back to you. Yeah, Pippa, thank you. That story getting a little more interesting, right? I mean, you had the

Cleveland Cliffs CEO on the network today suggesting that he thinks the deal is going to get done with his company. So we're going to see how all that develops. Pippa Stevens, thanks for the update there. Back to the conversation. Jordan, I come to you on the tech sell-off. Buyers obviously coming in today on NVIDIA and some of these other chip names, and most of the mega cap names were up as well. Do you think the sell-off is done?

I'm actually cautiously optimistic on the sector. You know, one, if you look at the semiconductor sector more broadly, we have had a string of quarters of negative year-over-year revenue growth. And I think that starts to turn the corner potentially as soon as the fourth quarter of this year. If you actually look at the backlog of cancellations and reschedules, that number has started to slow a little bit, suggesting that there may be brighter days ahead. Also, let's take into account that you now have the CHIPS Act money. It's about $39 billion, bipartisan legislation, $39 billion that's going to be for grants and loans towards new semi-facilities here in the U.S., alongside a 25% tax incentive for new semi-builds here in the U.S.

And that money is going to start to flow through as well, providing much support, I think, for the sector. So you paint this picture, right? Obviously, generative AI, semiconductors, these chips are going to be incredibly important to that transition to the next stage of generative AI. And so demand is likely going to surge and remain very, very robust over the next couple of quarters. So I'm cautiously optimistic on the sector. Now, valuations, political uncertainty remains to be the headwind. But again, I think there's a good reason for the optimism. I wanted to go back, Alicia, to the point you made, whether the market needs technology, these mega cap tech

stocks to perform it, and if so, to what degree? And I mentioned there was a note on that. It was from Bespoke today, who wholeheartedly agrees with you. And I think most people probably would, just given the size of tech in the market itself. Right. So look, the top 10, we're near 32% of the market. Eight of those names are tech names and communication services, which masquerade as tech. So those names have to work to get much higher in the S&P. I think you can tread water with the rest of the market participating. I think most obviously the energy names have been very strong since mid-June. WTI is up 22 percent, driving energy names higher.

So you've seen a broader participation in the rest of the market today. Obviously not. We're going back to the first half of 2023 trade. But to the extent that you broaden out, it is healthier. And I'd rather see the S&P be in a range in the short term and have the rest of the market participate so we can move higher into that seasonally strong into the end of the year. And to the extent that we think about CHIPS and the CHIPS Act, we're telling our clients to invest thematically. So we're building thematic baskets to take advantage of the reshoring and of the IRA and all these things that are happening in the economy. Because there's so much money coming at certain industries and certain parts of the economy, helping to keep, of course, GDP up. The other points that have been made, Jordan, about rates, whether you think that rates are going to continue to go up, whether they've

topped, it leads into Jackson Hole next week, where the Fed chair is going to make comments that may very well be market moving. After today, we're talking about Goldman Sachs looking ahead to possible rate cuts in the second quarter of 24. So how should we be thinking about the rate picture over the next, let's just say, few months? Sure. I think rates, especially long rates, have really topped out here. You know, there's a couple of reasons. You know, one, I don't think that the Fed is going to have enough evidence to hike again in September. You now have two prints on core CPI, ex-shelter, last two months, month over month, annualized at sub-2%. Obviously, the labor markets continue to be fairly robust, but I think the Fed has already done enough.

Also, a lot of the repricing that you've seen in the rate market has been a function of the market pushing out rate cuts, not necessarily pulling forward rate hikes. You can look at the one-year, one-year SOFR rate as an example, and that's up much more than the terminal rate so far this year. And again, that suggests that the Fed is just going to stay higher for longer. Now, obviously, the PPI print that we got last week was a bit of an upside surprise. And so I think that was the last kind of leg in terms of where rates are headed. But I think we're sort of topped out. And my expectations are for rates to reverse course, inflation coming down, growth coming down, the Fed making a roundabout sometime next year. All that suggests rates should come down over the next six to 12 month time horizon. I mean, we know, right, Alicia, what the Fed chair is likely to say. Inflation is still too high.

The core is too high. We're going to be data dependent. He's not going to give you any idea that cuts are coming anytime soon. Now, he may not really play his hand out in terms of how many hikes they still have in the deck. But what do you expect? So we expect that the Fed is done here.

But I'll say this. You really have to watch wages in the labor market. And if you think about the headlines coming out of labor over the last few weeks. Yeah, labor market tight, wages up. And by a lot. I mean, you're talking about contracts, 40 percent increases. Those are huge increases. So that goes into core. I'd say that rents look like they're rolling over. And in the real economy, not OER, which is how it's calculated in CPI, rents are clearly lower. So that's going to be a tailwind for core. What we really have to watch now are energy prices, right? Because all of a sudden we're up and it's now not only going to be on the top line of CPI,

but it's going to start seeping into core and into PPI as well. And I'd say that's a risk out there for the disinflation story. If oil stays higher, then we sort of stop the disinflation. And so that is definitely something we have to watch. But other than that, you know, I think if the Fed stays here and just remains tight, it's enough to slow the economy here. Jordan, are we still in a place where we can say that the rates picture in terms of where your money is going to work best is still competitive enough in fixed income that it's just too good to ignore? There's just still too many risks on the table as it relates to the

equity market? Absolutely. I think when you take a look at valuations, now, of course, if you sort of strip out the top names in the index, valuations probably look a little bit more attractive. But when I'm looking at a 10-year yield of 4.2 percent, that looks pretty attractive to me. And remember, returns and fixed income going forward are not asymmetric. If yields come down, you're going to get a pretty nice price appreciation coming out of the bond side of the equation, even if yields move higher. And we don't think they're going to skyrocket higher. Maybe there's a slight risk that they move a touch higher from here. Then you've got enough coupon along the way to offset that. Right. So it's not asymmetric returns. And I think risks, as we mentioned, are skewed for higher bond prices, lower bond yields. And I think that

tradeoff now, when I think about valuations, again, on the equity market, I'm still favoring fixed income over stocks at this stage. How are you viewing that same question? So we've been encouraging our clients to get out of cash and to get out of T-bills here because we think it's a pretty good opportunity to move towards more intermediate because the yields are higher. And we'll wake up one day where there's real reinvestment risk on the short side. You can't time it, but this seems like a good opportunity to be doing that. So we agree. We're still

mildly overweight to equities here. We're neutral on fixed income. We are more sanguine on the fundamental outlook than we were in the beginning of the year. So the volatility here is just that. We see it as seasonal. We think it'll settle in by the end of September as it normally does. And then we can move. We can go on from there. What has to happen for you to say, I want to even get more skewed towards towards equities? OK, so we need to see. I need to see yields. I need to see fundamental yields going lower than four percent. That is the one thing that I'm staring at that I think can cap the market here on the multiple side. Because as you know, the move this year was all on the multiple,

not on earnings. So earnings are very slightly starting to tick higher for this year and into next year. So I want to see yields below 4%. I want to see more disinflation. And I think you have to keep an eye on Japan and the Bank of Japan and what happens with the yield curve control there. Because the move in our 10-year really started with the move out of Japan affecting global yields. So that's something I want to see. I need to see the 10-year under 4%. And then we would go even fuller overweight. Jordan, in terms of earnings, do you think, and Alicia just mentioned the fact that expectations have ticked higher, do you think that's realistic?

Do you think we're too optimistic on how the earnings picture is going to ostensibly have a V-shaped recovery as you get into the early part of next year? I think it really hinges on, and certainly risk assets are calling for that soft landing. We're still on the camp of a soft recession. Now, from an economic perspective, maybe that's not materially different. Soft lending, you're talking about subtrend growth. Let's call it five-tenths of a percent to one percent growth next year. Soft recession, you're talking about the inverse, so maybe down one percent from a GDP perspective.

Not a whole lot, but remember, earnings are hyper-cyclical. They're going to move to a greater degree than the broader economy. And so if you're in the soft recession camp or even a harder landing camp, then earnings are way too high. And so those certainly need to be adjusted lower. I think the last time I looked, the index dollar earnings are somewhere between $2.40 to $2.45 for next year. That's still representing if the 2023 numbers are realized, about 11% to 12% earnings growth for next year. So, again, whether you're in that kind of soft recession or hard lending, earnings probably have to be flat to slightly negative on the back of that call.

So I think we're a little bit optimistic, you know, but, again, markets can stay irrational longer than you or I can stay solvent. So I think you still want to keep some chips on the table, but be selective and active on how you do so. Your sector picks, Alicia, are interesting to me. Bicyclicals, but also play some defense with staples. Yeah. Because you have to have sort of it's a little bit of a hedge on the staple side, but we've been saying bicyclicals for a while just because the picture just has not been as negative as when we first came into the year. I know we had a conversation

about semis a couple of months ago, and we thought it was a great time simply because they've had their recession. They've had the downturn. They've had quarter after quarter of really disappointing earnings, and they're coming out of it. And to the extent that we see this sort of rolling downturn, the cyclicals had their downturn and are coming out of it. I'd say this. What we like to look at for data is the manufacturing ISM new orders index. Okay? The new orders was troughed at 42.

Last month is at 49. It's still below expansion. But the second derivative, the rate of change is positive. And if that's the case, earnings are correlated with that. And we should see earnings move higher as well. All right. We're going to leave it there. I appreciate the time very much, Jordan. Thank you, Alicia. We'll see you soon. Thanks, Scott. As well. Alicia Levine here on set. Let's get to our Twitter question of the day. We want to know when will the Fed cut rates first? End of 23, the first quarter of 24, or as Goldman Sachs today says, the second quarter of 2024.

You can head to at CNBC closing bell on X, formerly known as Twitter, to vote. We'll share the results later on in the hour. We are just getting started, though, right here. Up next, are we out of the woods yet? American Century Investment CEO Jonathan Thomas is raising the red flag on a few key market indicators that he says could impact your money in a major way. He joins me right here post nine after the break. We're live at the New York Stock Exchange and you're watching Closing Bell on CNBC. We're back on Closing Bell. Stocks trying to rebound today. The S&P 500 and Nasdaq both

higher after back to back weekly losses. Our next guest, though, says the market's not out of the woods yet. He expects another possible decline ahead. Let's bring in Jonathan Thomas. He's president and CEO of American Century Investments. Welcome. It's not Lake Tahoe, but this will do. New York Stock Exchange, good to have you here. Thanks for being here.

So we're not out of the woods yet. Explain. Well, yeah, our advice to our clients has really been to be, you know, be patient, be prepared, but also be particular. You know, everybody feels like we've had this big run-up in the market, and therefore everything's okay. But we're really, as you just said, not out of the woods. You've got a steeply inverted yield curve. The most negative it's been since 1980. I think everybody knows there's a commercial real estate

bubble heading our way as well. And then everybody looks at the market and say, well, it's up 17% on the S&P. But if you look back in 87, it was up 100% before the correction. It was up 60% before 2000. It was up 30% before 08. So it doesn't necessarily lead to continued success. I mean, you bring up things like 87 and big market gains leading into that, especially into the fall. Here we go seasonally, what is not a good period for stocks. Are you looking for a big pullback? I mean, to what magnitude are you talking about stocks really correcting? So I don't think anybody's really, you know, if you look at the economists and Wall Street prognosticators, it's kind of split 50-50. And

even the people we're calling for the harshest corrections have walked that back to either no recession or a soft landing or a mild recession. And I think that aligns with where we are, too. We're talking about a slight pullback, nothing catastrophic like 87, 2000 or 08. No. Yeah. In terms of the competition between fixed income and equities, where do you skew on that? Just given the rally that we've had and now we see rates ticking up again, how do you assess that? So, you know, American Century, we're long-term investors. We're not traders per se. So the advice we give people right now, cash is really attractive. I've always wondered, really, since 2010, what are we going to do when cash is yielding 5% or more? Will people even go

back into the markets given the volatility they just experienced? And what we see a lot of people doing is there's a lot of people moving into cash and cash-like instruments, gathering that 5%, and then systematically moving in and then being prepared to act if the market does correct. Because the reality of it is, even though the S&P is up 17%, as you know, Scott, it's super narrow. There's seven or eight stocks that are driving all of that. So you've got to be pretty particular when you do go back in. I feel like the point you're making, though, is there's still formidable competition for stocks, whether it's cash where you're getting 5 percent or whatever you're getting. And then, you know, through fixed income where the risk reward may be better than than you see

it in equities. Absolutely. Totally. Yeah. Can you comment, too, on the I don't think enough people know about the commitment that your firm makes to health and well-being, the amount of your profits that sort of go back to society. Can you talk about that? Yeah, it is incredible. I call us a universe of one. We're the only people in the world that do this. Our founder, a guy named Jim Stowers, did something that almost nobody does when they're

alive. He gave away the entirety of his fortune to set up a medical research organization to find cures for cancer and other gene-based diseases. As part of what he gave away, he gave away 40% of the ownership of American Century. The Stowers Institute for Medical Research holds that. And each and every year, as a result of people doing business with us, we direct over 40% of our profits to medical research. To put that in perspective, over the last 20 years,

it's $1.9 billion that we have sent to medical research. To put that in perspective, over the last 20 years, it's $1.9 billion that we have sent to medical research. And it inspires our employees and inspires our clients as well to continue to do business with us. The tournament in which we broadcast live from this year was spectacular. Obviously, Steph Curry made the hole-in-one was in and of itself amazing. It goes on to win the event. And that event in and of itself has raised some $7 million for local charities, too. It has. I mean, the whole thing was created by John Miller, the genius of John Miller from NBC 34 years ago.

But, yes, through that tournament, we've raised $7 million for basically local and national charities. It's a philanthropic component of the tournament. And the celebrities, who I hope you spent some time with, a few of them, they're actually very inspired by it as well. It keeps them coming back, and it's why we have such an impressive field of athletes out there each year. Yeah, we were obviously excited, and we brought the news the day that we broadcast there about the new partnership between NBC Sports and you guys. We're going to do this for a long time. Yeah, so this right now, it is already the longest running made for TV sports event in the country. At 34 years, we've been the sponsor for 25 and we've just added

another six years to it. So we will be crushing all sorts of records and we'll keep this thing going for another six years. I'm going to start planning my travel now. Please do. We love having you out there. That good of an event. Let's get back to the market before I let you go. What gets you more optimistic? Is it that you know that the Fed is done?

Do you think they're done? How do you view that now? So, you know, I think the Fed's going to start slowing up. One of the things that everybody talks about, everybody talks about what's going on in the economy in a one-dimensional way. But the truth of it is it's very multidimensional. And since we're in football season, I'll use the football term, we flooded the zone with economic issues, right? We had the federal government throwing gas on the fire. We had the Federal Reserve trying to hose it down. We had Russia attacking Ukraine, and we still had the supply imbalances from COVID. All of that, the M2, the money supply is starting to correct. The

supply imbalances are coming back in line. And I think that is going to result in a mild recession or soft landing. So I'm pretty optimistic about the future, though I do still think a pullback is a real risk. Do you think the Fed cuts rates anytime soon? I don't think they cut. I like the new words they've created. It used to be pivot, and then they introduced the word pause. It's all Ps. So I think pivot and then they introduced the word pause. It's all P's. So I think we're most likely to see a pause. And if they continue to maintain that they're

going to be data driven, I think the data will support an eventual sustained pause. I think a pivot is unlikely, even though, as I mentioned earlier, the yield curve is very inverted, which is effectively the consensus of all the traders thinking that they will cut rates in the future. Yeah, we will see. I'll see you soon. Thanks for being here. Thank you. That's Jonathan Thomas, American Century Investments. He's the president and of course, the CEO. Up next, your catch up playbook, T. Rowe Price's Sebastian Page. He maps out what you should do if you missed out on the rally. That's coming up after the break and And later, Tesla shares are slipping in today's session. We'll tell you what's driving it lower, what it might mean for the rest of the auto space as well. That's just ahead. Closing bell right

back after this. Doctor, a mixed picture this last hour of trading. My next guest still believes the bear case for the market is compelling. He is finding, though, opportunity in a few areas, he says, are prime for a catch up trade. Let's bring in Sebastian Page of T. Rowe Price. So you're still, are you still a self-described reluctant bear? Yes, Scott. And the bear part is still pretty obvious to me. You had a guest just talked about the inverted yield curve. That is a red flashing recession signal. But if you look at other signals like surveys on credit conditions or manufacturing PMIs, all these macro signals are flashing for a recession. And look, the equity risk premium is quite compressed. It's

at a 20-year low. You've had a lot of guests talk about it just today. We know the regional small banks are fragile. Global growth is coming down. We've got some bad data out of China and on and on. The reason why I'm reluctant, Scott, is that a lot of those signals, and I've mentioned this to you before, represent normalization from very, very high growth, 10% nominal growth in 2021 and 9% in 2022. So a lot of these signals have been misleading. And we've had the most anticipated recession in history became the most delayed recession in history.

So you have to approach all these data with nuances. And as you suggested, there are opportunities under the hood. Even though we're slightly underweight stocks, there are things you can do under the hood. But see, here's the issue is that, you know, you call yourself a bear. I get it. But you hear the same thing from the bears, right? They go down the list of the reasons why you should still be negative to the market. Theoretically, they all make sense. The problem is the one signal, to use your word, that you didn't mention. And that's that the market just continues to go up. Now, I know we've had a couple-week pullback of sort of modest proportions,

but the most important signal is that the market's going the other way than the bears thought it would. Yes, Scott, and you know, I like to say the secret to happiness is low expectations. We started the year with very low expectations and we've had better outcomes than expected. I think the question becomes, what do you do if you miss the rally? And most people think of two options, right? I chase that momentum. And, you know, we're valuation-focused

asset allocators. So for us, prices going up, actually, all else being equal is more of a negative than a positive. Well, of course. Of course. I mean, if you didn't like it then, I definitely don't expect you to like it now, not after the market's gone up a lot. I guess my point would be, at what point do you like it? But I'll tell you, there are things we like right now. At what point do we like it? I'm looking at pullback in equities, a spike in the VIX, a little bit of panic in the market would be a better entry point.

So first option is, you know, you chase the momentum. Second option, which is kind of what I'm describing, you just wait for the dip, right? And we've had a little bit of a dip, and we're probably due for a dip. But here's a third option, which is where we like leaning in, actually, is that all your guests are talking about this today and over the last several weeks, there are parts of the markets as an asset allocator that haven't participated. Scott, think about quality small caps. Let's start with US large cap tech, right? 30 price earnings ratio.

Compare that to quality small caps. 13 price earnings ratio. Compare that to the energy sector in equities. And by the way, all prices are up 20%. Is that a 12 price earnings ratio? Emerging markets equities at an 11 price earnings ratio. High yield bonds, yes, spreads are compressed, but they're offering you 9% yield

compared to 5% earnings yield on the top level S&P 500. So that's the reluctant part, Scott. And we're actually long under the hood, those asset classes that haven't participated here to date, and we've been adding today. You mentioned, you know, you use the word panic in terms. It sounds like you're looking for or you're waiting for some sort of larger sell off to get excited about where things are. What do you think causes that if it is to happen? Is it all about the Fed being more aggressive than

the market wants to believe that they possibly, you know know even could be so i think the two key risks are number one yes the fed and essentially inflation because everyone's seeing inflation coming down the numbers are good and we're all extrapolating the one-year break even inflation is at 1.5 percent. To me, that's way too low. So that is a risk of, you know, forcing the Fed's hand. And the other one is just basically earnings. Again, we have high expectations and we are in a deceleration economically. So you balance these two risks. You look at the risks also in the commercial real estate sector. And again, sometimes I sound really pessimistic, Scott, but sometimes there's so many things that can cause the market fragility right now, you know, because we also

are dealing with very much slowing global growth. We're dealing, I mentioned commercial real estate, small regional banks all got downgraded. So there's all this fragility at the top level. And again, being valuation focused, you want to see stocks go down. Just one clarification, though, we're invested, right? We're not like go all cash type of investors. We never do that because we have long-term retirement-oriented clients. So it's a balance between stocks and bonds

and just being slightly underweight stocks waiting for the opportunity to overweight. I'm looking at areas of the market. Obviously, tech has done incredibly well along with comm services. I'm looking at the S&P sector performance year to date. It's not like nothing else has participated in this. Industrials are up near 11 percent. I mean, if the economy is so bad, why are industrials up 11 percent? We know about the strength of the consumer. Discretionary is up 33 percent. In other words, it's getting much harder

to make the case that this is a very narrow rally that we've had. Don't you think so? I mean, even materials, for example, now they're not beating the S&P, but they're also positive by some 6%. This market under the surface may be a little bit better than people want to give it credit for, no? Yeah, I agree with you, Scott. And I think there's more to go in terms of broadening market participation. For example, if you look at those sectors you mentioned, they're starting with a lower valuation than the top heavy part of the market. So I think there's more to go in the broadening.

And if we get a pullback, you might think those are cyclical. But it's interesting sometimes when you have such a valuation buffer, when some unloved asset classes like the energy sector or quality small caps, when they have such a valuation buffer and you get more of a, say, long rate shock, which is what you've seen over the last couple of weeks, then even on the downside, you can do better in those sectors. And for example, last couple of weeks, quality small caps, S&P 600, have done marginally better than the tech stocks that have been selling off. So the risk return looks better when you have this valuation buffer. And I agree with you, some of it is already running and it's already broadening. And I think it'll continue. All right. And as will our conversation. Sebastian, thank you. I appreciate it very much. We'll see you soon. Sebastian Page, T. Rowe Price. Up next, we're tracking the biggest moves as we head into the close.

Christina Partsenevelos is standing by with that. Christina. Nine months later, and it looks like Manchester United owners are finally ready to sell. Of course, there are stock implications that we'll get to right after this short break. Got about 15 minutes before the closing bell. Let's get back to Christina Partsenevelos now with a look at the stock she's watching. Christina? Well, as Manchester United plays its first game of the Premier League season today,

its shares are actually getting a boost, still almost over 5.5% higher. The move comes amid reports, though, that the Glazer family is finally close to announcing a sale of the club to a Qatari royal roughly nine months after opening the bidding. Shares right now, like I said, up 5.6 percent right now. And Hawaiian Electric shares are plunging today on concerns about the electric utility's potential liability in the deadly Maui wildfires. Analysts at Wells Fargo are lowering the price target, seeing that while it's unclear whether any of the Hawaiian electrics equipment caused the fires, it's still prudent to consider the risk, especially in light of similar claims that we saw in states like California, Colorado, and Oregon. Shares are off 33%. Scott? All right, Christina, appreciate it. Thank you. Christina Partsenevelos. Last chance to weigh in

on our question of the day. We asked, when will the Fed cut rates? Will it be the end of this year, the first quarter of next, or the second quarter cut rates? Will it be the end of this year, the first quarter of next or the second quarter, as some are predicting? You can head to at CNBC closing bell on X, formerly known as Twitter. Of course, the results are after the break. The results now of our question of the day, we asked, when will the Fed cut rates? Will it be the end of 23, the first or second quarters of 24? The majority of you said the second quarter of 2024. That's what Goldman Sachs is predicting today. Coming up, betting against tech will reveal the one famed investor who is shaking up his ownership in that sector

in a major way. That and much more when we take you inside the market zone. And later, do not miss an exclusive interview tonight with the Florida governor Ron DeSantis presidential candidate as well that's at 7 p.m eastern on last call closing bell right back we're now in the closing bell market zone CNBC senior markets commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Leslie Picker on Michael Burry's bets against big tech. And Phil LeBeau on Tesla's latest price cuts. I'll begin with you, Mike. Two things standing out to me.

Session highs for NAS. Yes. And there's still a lot of bears around. Well, there are. And I've had conversations with a couple of them on this show today. No, that is true. I do think you've got like four weeks where the market did nothing. You've got 10% corrections plus in some of the biggest, most popular names of the Nasdaq. They're bouncing today. I don't think today, in terms of the

little rebound in NVIDIA and some of the other Nasdaq stocks, it didn't really settle anything. If you look at it on a longer term chart, it didn't really change the fact that we're in this downtrend. You've kind of broken momentum a bit. But it also doesn't mean that it's really been any kind of disorderly, worrisome vulnerability in the market. It really has shown mostly regular consolidation. It could have more to go. We are in a tough seasonal period, even if we get a little bit of a respite in the options expiration week in August, which this is. So we'll see. It seems very much kind of a digestion type market. And it has mostly worked against the big Nasdaq stocks.

Some of that's being being taken up again today. But I wouldn't necessarily say that, oh, that was over and that's all we have to do for corrections. Leslie Picker, to you, the man made famous by the big short has a new big short. I don't know how big it is, but it's a short. It's pretty big, actually, Scott. This latest 13F from Michael Burry's firm showing a combined notional value of more than $1.5 billion for some of these bearish bets against the broader market indexes. Michael Burry revealing he had held puts against 2 million shares of the SPDR S&P 500 ETF trust that tracks the S&P.

His firm also disclosed puts against 2 million shares of the Invesco QQQ ETF, which tracks the Nasdaq. These are as of the end of 2Q, and the filings are a limited revelation. They don't show things like strikes or expiration dates. My colleague Yoon Lee emailed Burry for additional details, but she hasn't heard back yet. It's also unclear if Burry is just utilizing these puts as portfolio protection. Scott, we spoke about this earlier today. That's essentially what David Einhorn is doing at Greenlight. In his letter, he wrote that he added, quote, substantial portfolio protection through index hedges and that they now characterize themselves as, quote, worried.

Einhorn said the firm believes inflation is stickier and more entrenched than the market is currently appraising. Einhorn said, quote, we think a reacceleration of inflation and higher rates could disrupt the bold narrative. As a result, he's tightened his net exposure. So you've got some pretty thematic bearishness so far in these 13F filings. Of course, the deadline is after the close today. So we small sample size thus far, but interesting theme nonetheless. Yeah, Les, I mean, Mike, it goes to exactly what I started our conversation with. The reasons why those who are bearish are bearish.

Yes. You hear the same sorts of things from people. Well, the market was going straight up into the end of the second quarter, and it was mostly being led by overheated action in the big Nasdaq stock. So it makes sense that that would be where you would say maybe we'll either bet against it. But, you know, if those puts have not expired and he's still holding them, they're worth a lot less if they're not worth nothing at this point because we're up from the end of June, even though we backed off. So it seems like a little tough to try and figure out what to say about it,

how to interpret it from this level, although there has been a trend of hedge fund managers utilizing the indexes or sector ETFs to either place you on the short side or to hedge because it had become so treacherous to short single name stocks. Dan Loeb wrote about that in his shareholder letter. So I do think it's consistent with the way that the market has, I think, put bears a little bit back on their heels and see if that changes with this little back off we've had in the market. All right, Phil LeBeau,

a turn to you. I mean, if it works once, just keep doing it, I guess, cutting prices on Tesla vehicles. It just depends on which market we're talking about. Right. And in this case, Scott, what we're talking about is China. There was a report out overnight that when it comes to the Model Y and two specific versions of the Model Y in the China market, Tesla has cut prices. So what we're talking about are the long range and the performance versions of the Model Y in China. Tesla cutting the price is a little under $2,000, so not a huge price cut here. But as you take a look at shares of Tesla, keep in mind that this is what we've seen over the last year, year and a half, that as that market gets a little bit bumpy, they have to cut the market, cut the prices sometimes. And

that's what we're seeing right here. By the way, they have not changed their guidance at all. Despite all of these price cuts, they're still projecting 1.8 million in global sales this year or global deliveries. Nonetheless, this has put pressure on the other EV stocks out of China. A lot of questions about whether or not we start to see more price cuts. And we saw a round of it earlier this year, Scott, and some are wondering if we're going to see it again. Yeah, and we very well could. Phil, thank you. We'll follow that. Two minute warning. You just heard the sound effect. I turn back to Mike Santoli. NASDAQ is up even more now than it was when I spoke to you a few seconds ago. It's up near 1% now. So a nice bounce for tech.

It has been a nice bounce. Some are going to point out, so I might as well point out right now, market breadth is negative even on the NASDAQ today. So again, it is a handful of names, specifically NVIDIA taking things higher at this point. Market breadth for the overall market has also been somewhat negative. So not to say that that, you know, invalidates what we're seeing right here, but it does show that, you know, it has not necessarily been one of those all-in moves. And people, I know, invalidates what we're seeing right here. But it does show that, you know, it has not necessarily been one of those all in moves. And people, I think, are in kind of stop and reassess mode about the market, about where we are relative to where yields have gone. And we just left behind the idea, a lot of people did anyway, that a recession is kind of, you know, right over

the next right over the next turn. And at this point, now it's about figuring out if we're reheating again. So I do think that leaves us on balance a little bit tentative here. Although, we'll say that even though the market didn't capitalize on a better than expected earning season, it has firmed up the forward estimates. And so we now kind of know what we're dealing with as a run rate of corporate profits in the next few quarters, probably. You mentioned rates. So let's just cap it on noting, once again, the 10-year hits its highest level of the year.

Earlier in the session today, 4.2, 4.20. Backed off just a touch, and maybe that's helped the NASDAQ a little bit. But nonetheless, something to keep an eye on ahead of Jackson Hole. It's absolutely something to keep an eye on, especially because, again, we're at that ceiling, so to speak. Also, worth pointing out, the last time we were at 4-2 on the 10-year,

the NASDAQ was like 30% lower. Okay, so we're in a different spot relative to those rates that we won. I'll see you tomorrow. Thank you for that. Mike Santoli, all of you as well. We're going to go out green across the board, and we'll see you tomorrow.