Closing Bell - Closing Bell: New Quarter for Stocks off to a Rocky Start 10/1/24

Episode Date: October 1, 2024

Today marks a new quarter for stocks with the economy, earnings , election and geopolitics all on investors minds. Morgan Stanley’s Chris Toomey – one of the country’s top investment advisors �� reveals how he is navigating the market right now. Plus, star chip analyst Stacy Rasgon weighs in on the sell-off in the semi space. And, we break down what to watch when Nike reports in Overtime. 

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 high anxiety in the markets today. The Middle East, once again, a flashpoint. It was right around midday. Iranian missiles were launched into Israel. Oil moving sharply higher. Same for the dollar. The VIX also higher today. There's your picture. Yields moving down. Investors moving to safe havens, as normally happens when something like this happens. Let's show you the major averages, too, because they've been in the red all day, but very interesting activity within the last half hour or so. Would you know the Dow is only about 30 or so points away from another closing high or just about?

It's down about 51 points, but we're watching that. It was just about 30 points away from a closing high, so we'll keep our eyes there over this final stretch. NASDAQ is where the most weakness has been today. It, too, though, off the worst levels was about a 2 percent decliner. Off that significantly, Apple's lower, NVIDIA's lower. Some of the other names are mixed, though. It does take us to our talk of the tape. This new quarter for stocks with the economy, earnings, the election, geopolitics, very much on investors' minds. Let's bring in for some answers now one of this country's top investment advisors, Chris Toomey, Morgan Stanley Private Wealth. Welcome back. Good to have you.

Interesting price action as this new quarter begins. Just what are your general thoughts on where we sit here in the markets? You know, I think when we last spoke, we were a little concerned about September. We were really concerned about the fact that the market had pivoted where good news was good news, but bad news was bad news. And what was the Fed really going to do? And I think that was weighing on markets going into Fed week. I think the Fed giving that 50 basis point cut really kind of jolted into the economy or into the markets, I should say, kind of a more stronger risk appetite. In our view, we think the economy is doing well, but we think a lot of this kind of euphoria is already probably priced into the market.

You think all the good stuff is priced in? Because, I mean, the Fed has just started cutting rates. Right. Some would suggest, look, just keep it simple, right? Fed's cutting. Economy's good. Powell himself reiterated that yesterday to the degree at which he says, hey, we're going to go smaller than 50 because we can. What's wrong with that? I think if you look at Q3 now that we're through Q3, what's performed really well?

Tech's actually not performed very well. But things like utilities, REITs, financials, all up north of 10%, in some cases up almost 20%. That's right. So I think a lot of that euphoria about rates coming down has immediately been responding into those areas of the market. I think looking forward as to what we see, we're entering the blackout period, so buybacks are starting to go away. We're starting to look at earnings expectations. Earnings now are priced to be about two times what historically they have been. And so in our minds, you know, you're right.

The market is very resilient. I'm surprised, honestly, with how well it's doing today after what's happened in the Middle East. But that being said, we think at some point price is going to matter. We see earnings probably priced for perfection and a potential for a pullback. Is there still a huge catch up for all of these other parts of the market? I mean, just because the equal weight S&P outperformed the market cap weight in the third quarter doesn't mean it's done. No, no. And I think that's probably the area where we're probably most constructive. Right. So I think S&P 500 was up about 4 or 5 percent. Yeah, relative to 8 percent.

8 to 8.5 percent, right? So I think there are opportunities in that 473, as well as the fact that I think expectations for those types of companies are actually much more reduced than the MAG-7 and the names that have really been driving this market. Let me ask you this. Why aren't you just net-net? You know what?

The game's changed a little bit. The economy's more resilient than most thought it would be at this point in time. Fed's cutting. They're just beginning. The trend on that is continuing to go lower. China's stimulus there. I mean, central banks are cutting all over the place. Right. Or stimulating all over the place. Well, and this is, I think, the difference between a question of what they

want to do and what they need to do. Right. So I remember when we were talking about the fact that economic data was getting weaker and the fact that the Fed marginally. Well, I mean, look at the labor market. I mean, come on, look at the right? Look at the labor market. Look at the revisions in GDP. I mean, come on, look at the upward revisions in GDP. Well, look at the labor market, right? And look at the fact that one of the key drivers with regards to why the economy is doing well and why inflation is going down is what oil prices and labor costs. Labor costs have been relatively going down and oil prices have been stable, right? We're in a situation right now where we have this issue with regards to what's going on in the ports, potentially with regards to revisions, with regards to labor. So I think labor is a key thing that we want to be

focusing in on. The fact that China is re-accelerating could actually be a negative for the U.S. economy in the sense that if they're starting to draw more demand with regards to oil, granted Saudi Arabia is raising production, that could be an impact with regards to oil prices. So if you get oil prices going higher, you get labor being an issue with regards to labor costs going higher. That's going to affect margins. That's going to affect earnings. And that could be an issue if prices are too high. And there's a lot of ifs, could bes and whatever's that people have been talking about for the last 18 months, my friend. Right. I mean, a lot of these things just haven't come to fruition. And now you actually get to the point where the Fed is cutting interest rates at a time where the labor market, yes, admittedly from the Fed chair himself yesterday,

is softer now. It's still strong. It is still resilient. No, look, the economy, no jobs. This isn't a situation where you want to say, OK, I'm going to sell all my stocks and go to cash. The question is, is where do you find the most value right now with regards to allocating risk? Necessarily, not necessarily adding exposure to equities, not necessarily in a situation where we want to be adding with prices at this level, probably just waiting for things to come to us. We don't want to be chasing right now. By the way, if you look at tech, I mean, there's a good note out yesterday, I think it was from UBS, that all this talk about multiple expansion for the mega cap stocks, their multiples are actually lower than they were in like 2021. Right. And before all this big AI rush even happened.

Yeah. But if you look at what's been driving them, the earnings have been good. But what's been really great, they've been great. But what has really been driving the performance is multiple expansion. It's people chasing the winners, chasing the winners. And that works great until it doesn't work great. And that's the situation which investors need to be wary of. But some of these multiples have come down. The reason why the stocks have gone up, the multiples have gone up, the prices have gone up, the earnings have gone up. Earnings expectations have gone up. You don't think that the earnings have justified where

the PE multiples have gone for mega cap tech? I think in my mind, I think the expectations with regards to where earnings are right now are higher than they will be. And I think that that will put pressure on markets. So you don't think the 15 percent earnings growth expected for next year is going to live up to that? I don't think you should be expecting earnings over the next 12 to 18 months to double what historically they have been. Even with the Fed cutting? Even with the Fed cutting. Because I actually think that the reason the Fed is cutting is because I think the economy is softening, and I think there is some concern.

I think the other thing that you have to worry about is what's going on if rates don't come down dramatically more, right? The rates have started to come down, but the concern is that they're not going to come down enough. Because the economy is good. You've got $1.6 trillion worth of debt that has to be refinanced at a much higher rate. We're still on the deficit thing? Well, it is a real thing, right? If you're in a situation where the deficit is now bigger than the actual foreign defense budget, right, and we're in a situation where we're going into an election where both candidates are probably going to raise that by multiples of trillions of dollars. At some point, you have to be concerned. I got you. But, you know, 20 percent ago, a lot of people were concerned about the deficit. That's all anybody was talking about. And the cost of funding the

deficit interest rates are going to go to the moon. That hasn't happened. Now, I'm not suggesting that the deficit is not a real issue, but, you know, it's not an issue today. Not enough to send the stock market into some sort of fit. Yeah, we're not necessarily as concerned about today as tomorrow. And our concern is, is that going forward, it's going to become an issue, especially with prices at this level. And so from our standpoint, we want to make sure that we're in higher quality names, cash flow generative. The benefit that we have with generating additional cash is that if we do get that pullback that we're expecting, we've got cash to put to work at a very better price. Last question. You like credit better than equities here? Like Rick Reeder was on, and I think you had watched that interview at the time that we did it not that long ago, made the argument that, like you make, so you're not the time that we did it not that long ago, made the argument that like you make.

So you're not the only one who who says, look, a lot of good stuff is priced in. Market looks a little bit rich. Do you think there's more opportunity today in credit than equities? I think there's opportunities in equities below the surface. So in the force force for ninety three and the names that aren't necessarily been driving this market, I think in the private markets, particularly in the sense that they don't have access to capital the way that public companies do, I think there's opportunities there. I think the area that's most interesting to us right now is probably on the credit side. Really? Okay. Well, we'll see what happens.

Chris Toomey, I appreciate you being here. Thanks for having me. Number nine on the Barron's 2024 top 250 private wealth management teams. Congrats for that. Thank you. All right. That's Chris Toomey, Morgan Stanley Private Wealth. To Brian Sullivan now for a look at the energy sector as tensions rise in the Middle East and oil is probably off of its biggest spike of the day, Brian. But bring us up to date on exactly what is happening. Well, I think it goes to exactly what you and Chris were talking about, Scott, because the port strike that you've mentioned probably could not happen at a better

time, at least vis-a-vis oil and gas prices. You think about the fact that 25 percent of all oil is used for transport, heavy trucks, trains, diesel fuel, et cetera. Any slight slowdown in that might take that marginal pressure off of oil demand in the United States. So bizarrely, the timing of the port strike may actually be very good given what has gone on in the Middle East. To your point, oil, it's up 3%. It's $70 a barrel. It is off its highs of the day given everything that we are watching in Israel and all the missile attacks there. Here's the point, is that I think, Scott, if this was eight or nine years ago, 10 years ago, oil would be up 10 bucks a barrel.

But because the U.S. is at 13.2 million barrels a day, not 8 million barrels a day, this increased U.S. production, increased Brazilian production, has sort of decreased Iran's importance in the global oil market. The key going forward, everybody I've talked to today, been reading today, says this. If we stay here, you get supply demand that goes back in. Oil prices are likely to go lower in the weeks and months ahead. However, it's how Israel responds, Scott. If Israel does attack Iranian oil infrastructure and or nuclear infrastructure, then we could get another leg higher.

The key then would be what will the Saudis do? They kind of, quote, come to the rescue and replace any lost Iranian barrels. That's a whole new ballgame, obviously, that that you you talk about. And maybe the market, Brian, doesn't think that that's going to happen, which is why what was a 5% spike for WTI has now come down to below a 3% one. I think the market is truth. You talk about it every day on Halftime and this show, right? Price is discovery. And I think the market knows that absent any further escalation, the supply demand scenario, the one that has favored lower oil prices for a number of months now, probably comes back into the fold. Remember, we're sitting on a Saudi Arabia that has voluntarily taken two to maybe three million barrels of oil off the market. If Iran, at 3.2 million barrels a day, 1.6 million, about half,

is being exported, if some of that comes offline, let's say Israel attacks an Iranian port, then it's pretty easy. The market knows Saudi Arabia, Scott, could probably step in. By the way, one random group of stocks you may not be looking at. Look at some of the shipping stocks, the ones that you don't talk about a whole lot, sort of the gas logs of the world. They're actually higher today because we could see higher shipping rates. If shippers are nervous, they're going to charge more.

Watch what happens in the Straits of Hormuz. But the shipping stocks, they get no love, but they're all up a couple of percent today. All right. Great insight, Brian. Thank you, Brian Sullivan, joining us here on Closing Bell. Let's bring in Bryn Talkington now of Requisite Capital Management, Jason Snipe of Odyssey Capital Advisors, both CNBC contributors, to continue our reaction to the day's news. But in the bigger picture, really, Jason, what is your outlook now for stocks in this final quarter of the year?

Yes. I mean, obviously, there's some very disappointing news with some of the geopolitical moves that we saw today. And, you know, for me, obviously, these are pass-through events that remind me of obviously what's happened, you know, a few years ago with the Ukraine and Russian rusted advance, right? So, but for me, thinking about the markets and thinking about Q4, I'm optimistic. I think the election about 33 days from now will be a clearing event.

I think earnings going to Q4, we're expecting around 10% earnings growth, which I think we'll be able to lock in. Yes, we're talking about 15 percent in 2025. We'll see if we'll be able to meet those numbers. But I think earnings and margins are relatively intact. I think the consumer is hanging in there. So I feel relatively good about what the markets presents and the prospects going forward. All right, Brynn, what about you? So October down to sideways, right? Not only would you have a geopolitical event, October we know is a weak month. Not only buybacks are closed, we have tax loss selling. So I think going into October or week, I think that'll be a good opportunity for investors to add to positions. I do agree that November will be the beginning of November. The

election will be a clearing event. But you have huge China stimulus, which I think the market is starting to think this is real and not a head fake. This head fake, somewhat of a kitchen sink. You have don't fight the Fed. The Fed is in a dovish easing cycle. And we have earnings, especially within the remaining 493 that for going into Q4, which we won't know until January, are looking to grow 15 percent year over year. And so I think we have all of these ingredients that once we get through October, we're going to have a good November, December to kick off 2025 with a bang. There's a lot there that you said, Bryn. I mean, Chris Toomey made the argument in agreement of all of the positives, but suggests it's already in. Like, what doesn't the market know at this point?

Well, I mean, the market can just continue to operate on the continued strength of the market as a whole, because really you need to stumble into something to actually have the market go weak, go markedly weaker. I also think from a technical perspective, the S&P hit that double top, which in and of itself is bearish, but we broke through that. And so now we've broken through a double top. And if you look historically, that's also another bullish sentiment of technicals. And so I don't think you have to like read through all the tea leaves and say, well, NVIDIA has to have another 40% growth. But if we just continue with the economy slowing, not stalling, GDP is OK. The consumer seems to be or the higher end and middle end consumers, OK, the lower end is not. And that you have a broadening of the rally.

Why wouldn't stocks go higher? And I also think never underestimate. And I talked about this a lot in 2022. Like, don't fight the Fed in 2022. Fighting the Fed was a dumb move. Don't fight the Fed now. They're in a dovish sentiment. Be long equities. That's why, Jason, some argue, just keep it simple. Economy good. Fed's cutting. And that's kind of all you really need to distill everything down to. Cut out a lot of the noise. We've heard this kind of noise before. But Bryn says it's it's just all boils down to that. A hundred percent, Scott. And I think what Bryn said, which I which I really appreciate, is that talking about the 493. When I think about, as an example, the RRSP, the equal weight S&P, I mean, over the quarter, it's up almost 10%.

It's up 14% year to date, right? So we saw a lot of that run this past quarter going into Q4. So I think that's a healthy sentiment. That's something to cheer along because obviously all the talk and all the talk we've had over the last 18 months or so has been about the AI themes and what's going on with mega cap tech. Obviously, we've seen underperformance this past quarter, but it's really healthy to see some of the other sectors starting to perform, financials, utilities, staples. Staples are expensive, but there are other securities, other sectors, I should say, that have really done well. And I think we'll continue to see some follow through to Brent's point on some of the easing cycle, a little bit of ease on the consumer and the market and the and the economy is still relatively healthy.

So I think those will continue to be catalysts. Brent, that's where Chris Toomey was leaning to that the 493 is where it's at. Like, you know, the mega caps are multiple expansion. And, you know, now they're going to come up against tough comps when they start reporting earnings because the Fed's cutting, as you said, because the economy is still hanging in there, that it's those all those other stocks that finally woke up in the third quarter that are going to continue to work in the fourth. I think within the mega caps, I mean, obviously, we have a big position in the Q's and J.P.

But when you look at them individually, I think you have to discern. I think Tesla is getting stronger. Microsoft and Apple, we'll see. I think Google and Meta, Amazon, Netflix, those are getting stronger. So I think you're going to see dispersion, continued dispersion, probably even more dispersion within those seven. We added RSP in January, so we were definitely early, which we could have timed it for this last quarter. But I think historically for investors, if you look going back to 1990 when the equal weight was created, they always mean revert. And so I think that this is this time where it's not that you want the S&P to come down, you want the RSP to go higher. And that's what we have right now is absolutely that R.S.P. And so I think that mean reversion where the R.S.P. catches up to the

S&P is well underway. We've been watching, Bryn, a lot of these Chinese names, especially in tech, really rip after news of the stimulus there. You suggest I wouldn't be buying any of those. Why? No, I mean, you know, I own BABA until they kidnapped Jack Ma. And I just go to, you know, GDP growth. And Michael Sembliss had a really great piece. GDP growth in China has not translated into earnings growth and investor returns. And over the last 10 years, if you would have bought, I think it's MHCI, which is the China ETF, you're negative. And so I still think you have a communist regime, you have a dictator. And so I still think you have a communist regime. You have a dictator.

And so I don't think you're going to see this pull through longer term to the underlying names. I think you had a long Japan, short China. You got that totally closed out. You have David Tepper, who's an amazing investor. You know, he's all in. But I think if I'm a U.S. investor, I'm going to buy Tesla. I'm going to buy Apple. You could buy some of the cosmetics. And so I would I would buy U.S. companies that have great balance sheets that you can look through. You don't have communist

leaders on the boards of these companies to be able to play if we do have a sustainable, you know, economic pickup in China. We'll leave it there. Guys, thanks so much. Bryn, we'll talk to you soon. Jason Snipe, you as well. Thanks for joining us here on Closing Bell. We're just getting started. Up next, semi stocks are selling off today. We hear from star chip analyst Stacey Raskin with how he is navigating this volatility. We're live with the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. Chip stocks under some pressure today. This is new AI chip maker. A new AI chip maker files to go public.

Seema Modi is here with the details. Hi, Seema. Scott, Cerebrus may be only a five-year-old startup, but its rapid pace of growth, over 200% jump in sales in 2023, and reputable backers, including Benchmark, Altimeter Capital, OpenAI founder Sam Altman, has really captivated the attention of Silicon Valley. In its latest round of fundraising, Cerebrus was valued at $4 billion.

We're told by sources the AI chip designer is aiming for a $7 to $10 billion valuation when it goes public on the Nasdaq. It will be the first private AI company to IPO. The company, keep in mind, is not profitable. And it will be competing with chip giants NVIDIA, the dominant leader, and AMD, of course, not an easy feat. Analysts pointing to the high switching costs, plus growing competition from cloud providers, Microsoft and Amazon, that are working on their own in-house chips. Scott? Seema, thank you. That's Seema Modi. Let's bring in now to talk about the chip space more broadly,

top chip analyst Bernstein Stacey Raskin. Welcome back. It's nice to see you. So I know it's too soon for you to talk about this company specifically, but at least it raises the issue of companies that are out there that want a piece of this AI pie. How should we be thinking about these newcomers relative to the heavyweights like nvidia yeah yeah you you know so there's there's a number of areas of competition for nvidia which makes sense it's an enormous potential opportunity and all the dollars right now are flowing to nvidia and you've got other merchant suppliers like like amd or even intel um you have hyperscalers doing their own products and then you have startups as as as right? And I think for a lot of the startups, look, it's difficult.

They don't have scale. You know, they don't have ecosystem. And if their pitch is, you know, we have a chip that's better than NVIDIA, I think that's hard because, you know, with every generation, NVIDIA has a chip that's better than NVIDIA. And they have the software and all the ecosystem support that goes with it. So I'm not going to comment on Cere cerebrus but they're doing some other things i mean clearly you know you know they're they're they're gonna they're gonna try their best at this point um but in general like you know so far it's been a winner take all like and i always as i said this before it seems like it's nvidia's game to lose like like more broadly well i mean it's winner take most right i mean it's not like

broadcom has it hasn't done well the issue though the issue though is that you know, it's Witter take most. Right. I mean, it's not like Broadcom hasn't hasn't done well. The issue, though, the issue, though, is that, you know, as it's done better, it's multiples gone up, hasn't it? So it's not as cheap as it was viewed to be before. That's true. And so so to be honest, if you're if you're talking about like the real competition, I actually think it is more on that hyperscaler side. The cloud vendors doing their own chips. And this is an area clearly where Broadcom really shines. They're doing a lot of the ASIC work for the key players like Google and Meta and some others. It's a very big business for Broadcom. They'll do, they said $12 billion in total AI revenues this year. I bet $8 billion of that $12 is probably custom AI accelerators and ASICs for those large guys. And look, I actually do think that that is

real and it will get bigger, and I wouldn't be surprised if the penetration of ASICs relative to the broader timeline gets bigger and bigger over time. It's kind of apples and oranges in some sense. Those stuff is more used for the internal workloads of the hyperscalers versus workloads where you need programmability or anything that's customer-facing or enterprise. So they are kind of two different markets. But yeah, I mean, this is a market that's already sizable and it's getting bigger. And but to be fair, I think that the overall opportunity, the TAM is big enough for both of them to benefit. I don't think it's a

matter of one necessarily winning over the other. The market's sizable enough where I think both of them can win. And I like Nvidia and I like Broadcom. We like both stocks. I mean, but that kind of squeezes out AMD, doesn't it? Well, I mean, this is one of AMD's, like, broader issues. I mean, in the near term, you know, and by the way, they have an AI event coming up in a week or two, and we'll get some new product announcements and we'll see.

And, you know, they suggest that they'll do $4.5 billion or more than $4.5 billion this year. I think expectations are probably for 5-plus. And I don't want to knock them too badly. And, you know, they suggest that they'll do four and a half billion dollars or more than four and a half billion this year. I think expectations are probably for five plus. And I don't want to knock them too badly, you know, because it was zero a year ago. And I've said this before. So on an absolute basis, ramping up, you know, five billion of a product from zero in a year is nothing to sneeze at. In the grand scheme of the dollars you're getting spent, though, it's not very big.

NVIDIA will do well over $100 billion in revenue this year. Again, Broadcom is going to do double digits in total AI revenues. So it's not that big, but it's good. But long term, you bring up a good point. I understand the need for a second source, but most of AMD's exposure right now is at these larger hyperscalers. And is that second source? Does it need to be the AMD or is it Broadcom? I think that's an open question at this point. Two quick ones before I let you run. What's the outcome, the endgame, whatever you want to call it for Intel? What happens here? Yeah, that's a great question. They kind of bet the company now that they're 18A, their next generation process that they call 18A.

They're betting the company on its success. And so their next generation process that they call 18a and then they're betting the company on its success and so that's that's i guess what we're waiting for and if it is truly successful maybe you could see a revitalization or they bring a bunch of they're outsourcing a lot of stuff to tsmc right now it's killing their margins you bring the stuff back in the margins get better ideally it's a better process so they can take back market share and they can charge more because they're better products. And it gives customers a lot of confidence to put a lot of foundry volume there. And that's how you kind of build to the targets that they put out there for 2030.

And keep in mind, it's only 2024 right now. There is a lot of wood to chop, though, between now and then. And, you know, if that process does not knock it out of the park, if it's not successful, then there are some more severe scenarios that may come to play. I don't think they're desperate at this point. We've made this point before. I think given the OPEX cuts and the CAPEX cuts and the dividend suspension and the government funds and the private equity funds that they've gotten, I think their cash position is okay. So I don't think they're desperate. They don't need to make any crazy moves. But they've probably got a year, 18 months, like to see if 18A really holds muster

or not. And if not, then there are more severe scenarios that may come to mind. What about Qualcomm, quickly? Yeah, I like Qualcomm. The only issue with the stock is there is an Apple overhang, and it's looking maybe more likely. They've already suggested to people that kind of by the end of 26, the Apple business mostly goes away. And it's looking like they may lose potentially some more of it next year. Now, that being said, with the stock trading right now, it's a roughly low 20s multiple on next year's number, even if there was no Apple in it. And my own opinion is by the time

Apple is gone, if Apple leaves, which would be fiscal 27, I think they're doing 10 bucks plus. So I at that point, I even without Apple. So I think you just need to sort of clear the Apple overhang and the stock can work in general. Smartphones are not great, but they're kind of bottomed. And I'm getting more positive on the content opportunities, if not necessarily on the units for smartphones. And there is a diversification story that's kind of slow, but it is building. They've got an analyst day coming up in November.

So we like the stock. All right, good stuff. Covered a lot. Stace, thanks as always. Stacey Raskin. Yeah, you bet. Up next, First Mark's Rick Heitzman is back with us to break down

where he's seeing the opportunity right now in the AI world. The names he's betting will bring in big returns. Closing bells back after this. Tech stocks are under pressure. NASDAQ leading the major averages to the downside today. It comes as investor demand grows for return on big tech's big AI spending.

Joining me now, Post 9 First Mark's Rick Heitzman. Welcome back. Hey, Scott. Where are we kind of on the hope curve versus return on investment? So that's kind of what we've talked about for the last two years, right? Eventually, the return has to live up to the investment. And so chickens are coming home to roost in the second half of this year. And so far, there's been probably a little,

very little return on investment. Some of the simpler models, some of the guys who are doing data enablement, we've talked about DataIQ in the past, are showing a real return on investment. But for a full cycle, we're still early in the process. And especially in the private companies, there's still a lot. People are betting a lot on the company.

You say at some point you can't spend against hope forever. I mean, where's the breaking point for that? Well, it depends. It's still so early. I mean, you've got to. You're in the first or second inning. So people are thinking, how long do you spend? If you're a hyperscaler, you're Microsoft, Google, Amazon, your turn threshold is so long.

You're playing the game of, can I outspend people? Can I outlast people who won't be able to get from here to there and therefore have a competitive advantage? Because people generally believe that AI is maybe not, it's not if it's gonna happen, it's just a matter of when. So if it's a matter of when, how long can people hold on? Do you feel like the winners are so clearly defined at this point or is the jury still out? The jury is clearly still out.

The first or second inning, the winners are not defined. You're seeing the early leaders. But as we've seen in all kinds of other technology, oftentimes the pioneer gets the arrows in the back. And someone learns from their business model, learns from their go-to-market, and becomes much stronger. And you saw everything from social networking to PCs. And you think this will be no different? This will be no different. I think OpenAI has a significant lead. They have a tremendous amount of capital. They're playing like an incumbent, so they might be able to stay ahead of it. Obviously, we've talked about

Microsoft in the past, and they've invested heavily and have a substantial amount of capital, so they're staying ahead of the curve. But we're seeing things in the private markets, which are very interesting, that might be disruptors. OpenAI's valuation would have one believe that the game's over, right? I mean, $150 billion, I think, is what they're currently raising at. And you put that against what Perplexity or some of these other generative AI companies are being valued at, and it's like the disparity is unbelievable. Well, you're seeing some, you know, anthropic perplexity valued at the billions of dollars.

So the people are playing the game. If you get a certain portion of the search market and Google's worth, you know, a couple trillion dollars, what are you going to be worth? Especially if things get thrown up in the air and, you know, conventional wisdom is five years from now we're not going to be doing conventional search. We're going to be working with a chat GPT from whatever interface,

even if it's metaglass, to be able to answer our questions. So that whole new version might be completely different. It might not be phone-based, and therefore there should be new winners. But prices, you're saying, are clearly priced to perfection if you're open ai at 150 billion where are all the ipos i think there's risk there's too much there's still too much risk in the market in the in the market we saw a lot more risk today and we had the first thing to unwind that risk and we said you know we have to unwind wind a couple risks you have to under on uh unwind the war risk presidential election and clearly and clearly the Fed. And the Fed started to drop rates a

couple of weeks ago. They're going to drop it again. That's one thing they'll unfurl. Hopefully, we'll have a peaceful transition in the presidential race. And then maybe some of the shooting wars will slow down. So there's less of a perception of risk. But in general, on days like today, when you see the NASDAQ do what it does, people are not looking to take a risk on a new whiz-bang AI company. What are private tech companies thinking about the path of interest rates, how it impacts their business, ability to raise capital, cost of it, etc.? They're feeling pretty good because a lot of their, even their projects. So if you're an enterprise software company, you're coming out of the capital budget and therefore interest rates are decreasing. People are hitting earnings,

therefore they have more money to invest and deploy. So you're feeling good about fundamental demand because of lower interest rates, and they're feeling better about the IPO market, but there's still a lot of risk. And what some folks thought was a fourth quarter opening of the IPO market is now looking like second quarter 25. Oh, second of 25.

I hear a lot about healthcare is the great frontier for AI. You smile. You must obviously hear the same thing. How do you think about that question, whether it's in healthcare or elsewhere? What's exciting to you? So you think about healthcare, biggest part of the economy, shortage of doctors, shortage of nurses, the ability to do it on your phone, and even you're starting to see AI be as good as some doctors of, hey, what is this thing on my hand or what should I do about this? So the logic is catching up. That should be good. But you're

seeing it in law, you know, simplistic documentation, legal questions, accounting, but even in things like media and Adobe Firefly doing creative media, that's changing. So you're gradually seeing AI at least change the incumbents, if not disrupt those markets. A few companies on your list, whether you've invested in them or not, that you think are in the pipeline and rising towards the top, who will go public when you suggest could happen in the second half, maybe second quarter, whatever it ends up being of 2025? So on the AI side, hopefully you'll see DataIQ, which does data enablement so people could build their models. Hopefully we'll see OpenAI, which at some point has to go public and unlock that value. On the consumer side, you're going to see probably Harry's.com, which is a big kind of traditional consumer brand that's direct-to-consumer,

and even StubHub and SeatGeek on the ticketing side. What about, like, Stripe? We keep hearing about companies like that. Supposedly they're pushing it out. Some of the companies which could, you know, sometimes the door gets kicked in in the IPO market, and it would have to be an open AI, a Stripe, or someone, SpaceX, or even Starlink as a spin-out, would be something that would really open the IPO market. But conventional wisdom is you're not going to see them in the next 6 to 12 months.

All right, good stuff. Good to talk to you. Nice to catch up with you. Yeah, you too. Rick Heitzman, FirstMark. He is the founder and the partner. Up next, we're tracking the biggest movers into the close. Seema Modi standing by for us with that. Hi, Seema. Just 18 minutes left in trade, Scott.

We're going to tell you why Disney shares are underperforming and what the street is saying about that stock. That's up next. Got 15 to go before the closing bell. Let's get back now to Seema Modi, who's watching the stocks that are moving. Seema? Scott, shares of Paychex in focus having their best day since 2023 after the human resources company reported better than expected quarterly results. Total revenue climbed 3% despite headwinds caused by the expiration

of the employee retention tax credit. Stock up nearly 5 percent. And then there's Disney shares sliding by around 1.5 percent on a Raymond James downgrade to market perform from outperform. Analysts there say the slowdown of Disney's park business could be more than a short-term blip due to increasing competition from our sister company, Universal, and consumers digesting price increases over the past few years. Share is still up about 5% this year. Scott. All right, Seema. Thank you, Seema Modi.

Still ahead, Apple shares slipping on some bearish analyst commentary. We do have the details ahead. Stock's down about 3%. Bell's right back. All right, Nike's preparing to report its results in overtime tonight. We're going to run you through what to watch for. We take you inside the Market Zone next. We're now in the closing bell Market Zone.

CNBC Senior Markets Commentator Mike Santoli is here to break down the crucial moments of this trading day. Plus, Apple, one of the tech stocks weighing heavily on the NASDAQ today. Steve Kovac is going to have the details for us as well. What are we watching today? Interesting price action. Obviously, we're watching the Middle East. Yes. You know, the dollar was up. Yields were all the typical sort of stuff. Dollar yields down, oil up. In mild form, you did have the typical recoil when you have, you know, geopolitical event type risk injected into the market. That said, you also

had the first of the month. You were also losing a little bit of the end of quarter bid that kept the market steady. I do think the market over the course of the middle part of the day read the actions of Iran as somewhat stage managed and not necessarily an open ended escalation. And it felt familiar. So all that being said, there's still an interesting tension between everything leading up to the final quarter of the year suggesting further upside ahead. The trend is intact. If you make a new high in September, if you're up 20 percent starting the fourth quarter, all that stuff feeds into you usually finish the year strong. On the other hand, often with some profit taking and chop and downside testing in October. And so I think it makes all the sense in the world that, by the way way the Nasdaq was the source of weakness For the morning it was not defense mega kept at was not acting as defense against you You take that as maybe a change of character from several months ago

And suggest that there's a little bit of a profit-taking undertow that we have to deal with but really it barely made a blip into The longer-term trend it'll be interesting when these mega cap companies report their earnings there You know comps are hard given what they've been reporting a year ago this quarter. And that's what the market's been registering over the last three months, as they lose a little bit of their premium to the rest of the market because they did monopolize earnings growth for a year and a half. And now that's no longer the case. Speaking of, Steve Kovac, I'm not sure what to believe at this point. And maybe investors aren't either because, you know, you go from a flood of negative notes about demand.

Then you got the defenders coming out and they got more notes today questioning demand. What's the real story? I have more whiplash than watching yesterday's Mets game. Scott, this is ridiculous. We have so much divergent opinions of what's really going on here with iPhone 16 demand. So today it's Barclays coming out with this note saying they see a sign that a supplier of apples has cut three million units of production. We get these reports every single year when new iPhones launch. They kind of measure how much demand is going on and they make little cuts or increases as they need to.

By the way, they can still increase production if they need to going into the holidays. And that seems to be sending the stock down. It's down about three percent here. We keep hearing it's the same story we hear over and over again. It's that the preorders, the first week of iPhone 16 sales looked a little weak. It looked a little weak the first full week of sales. And then now things have been starting to moderate. It seems like Barclays has been focusing more on that first week, showing that sales were down about 15 percent on those pre-orders. But look, it's really going to take many, many more months, Scott, before we have this full picture of what this iPhone 16 upgrade cycle actually looks like.

We're still waiting for Apple intelligence coming next like. We're still waiting for Apple intelligence coming next month. We're still waiting for it to fully be realized into next year. So it's going to take at least until early next year, Scott, before we really know what happens. And in the meantime, we have everyone on the street trying to sort of divine what is actually happening with iPhone 16 demand. And you see the reaction day by day, what happens with positive negative reports patience patience needs to be in order yeah steve i appreciate it thank you steve kovac the latest on apple obviously after the bell today overtime big story nike reporting their earnings i'll kick that around um it's i wonder if this is a free quarter in in a sense right they replaced ceo uh that's the overriding story is how is this

gentleman going to engineer the turnaround that this company desperately needs? And tremendous expectation on the street that they probably will guide down or at least be very conservative looking ahead. It already has been a big downward revision to expectations. You know, six months ago, this fiscal year, which ends, I guess, in May, was supposed to be $4 a share in earnings. Now it's closer to $3 a share. So you've already seen this massive downgrade of what people are looking for from Nike.

So it is a pretty good scene setter for a new CEO to come in there, you know, essentially convey the strategy in whatever form can be done in the next month or so, and then maybe have a clean-ish slate. Now, the stock was as cheap as it's ever been relative to the market before this little bump on the CEO news. But it's still getting toward 30 earnings, like 27 times earnings. So it never really trades cheap, but it shows you that it was sort of rescued before having to go and

undergo any more valuation compression. So, yeah, I agree expectations low, but you definitely want to see a plan in terms of market share a new product. I feel like people are really not sure what to do with discretionary stocks. You know, there are some idiosyncratic stories, obviously, and this is one of them. So you can't make a broad brush view. And the sector has done pretty well. I just don't feel like there's a lot of conviction behind it when you get beyond, let's say, Amazon and Tesla, which have been driving the car now for a little bit. That's right. And then you have Walmart and Costco, which are in staples, which everyone assumes is the winner.

Or you have the value names in retail like TJX and Ross Stores, which have held up better. And homebuilders. That's been your consumer discretionary kind of winner's tier. And then you have things like autos, which have been trading terribly. Now, they're not a big part of the index anymore, but you have all this fear about a real weak spot in the global auto cycle. So they've more or less held the advantage over Staples. If you want to look at it as a macro read, it's still hanging in there, but it is very spotty within the index and relying a lot in the past six months or so on a handful of bellwethers. The next 24 hours will certainly be interesting. Markets likely

to be on edge a little bit over developments in the Middle East. What does Israel do now, for example? What happens with oil? What happens with the dollar? And you've got ADP and weekly claims and monthly payrolls in the next three days. And so all that stuff, I think, is going to fine-tune the macro message. Yield's down today, even not really on the GeoPol news. I think it was the soft jolts report and this idea that we still have to have an eye out for the possibility of deceleration. Mike, thank you. We'll go out red across the board.

That looked like it was going to make a run at a new closing high, but it's not going to get there today.