Closing Bell - Closing Bell Overtime: “The time has come for policy to adjust”; Dovish Powell Sends Stocks Higher 8/23/24

Episode Date: August 23, 2024

Fed Chair Jay Powell signaled rate cuts are near after saying, “The time has come for policy to adjust.” Investors cheered the news, sending stocks broadly higher. Innovator Capital Management’s Tim Urbanowicz and Paulsen Perspectives’ Jim Paulsen break down how to position while 3Fourteen’s Warren Pies discusses the impact on housing. Plus, BofA Head of North American Banks Research talks what the cuts will mean for banking stocks and Mercer US CIO Olaolu Aganga gives top ideas and the opportunities in alternative investments. 

That's the end of regulation. Scouting America ringing the closing bell at the New York Stock Exchange. Sporting goods maker Escalade doing the honors at the Nasdaq. Stocks rallying as investors cheer a dovish speech by Fed Chair Jay Powell indicating rate cuts are coming. That's the scorecard on Wall Street. But the action is just getting started. Welcome to Closing Bell. I'm Mike Santoli. Morgan Brennan and John Ford are off today. Every sector in the green today helping the major, closing higher for the second straight week. The S&P 500 up more than 1%. Coming up, 314 Research co-founder Warren Pies on why investors should be fading recession concerns right now.

Plus, more insights and strategy CEO Patrick Moorhead on why next week's earnings from NVIDIA could be the next big catalyst for this market. Let's get started with our market panel. Joining us now are Jim Paulson from Paulson Perspectives and Tim Rabanowicz from Innovator Capital Management. Good to have you both. Jim Paulson, you know, three weeks ago today, we kicked off a pretty good growth scare for this market and the economy with that weak jobs number. We've gone through a lot of kind of stress tests along the way since then with the market pullback, full recovery today. You know, are we in the clear on that score in terms of how the recession, how the economy is setting up and how the markets are pricing it?

Well, I think that I think we are for a while, at least in terms of I do think we're out of the woods on recession here for a little while. I think a lot of that pullback, Mike, was more about the concentration of the Mag 7, and we maybe did a little clearing up of that as well, at least for a period of time. I just think that the economy to me doesn't have a lot of vulnerabilities in the private sector. The household sector, the business sector both have fairly strong balance sheets. Yeah, there's a little credit card debt and so forth, but debt to equity ratios, debt service payments are very low historically. Equity is very high relative to debt. Net cash flow is high. And they're very

liquid, $6 trillion of money market assets. I think it's hard for a recession to find something to bite on, a vulnerability to bring us down. And then when pessimism is still very, very elevated, that its confidence is very low, it tells me that people have been pretty conservative. So I don't think recession risk is very high, and I think we had more of a scare of it than a reality. And Tim, you know, Jim mentions that we did have that concentration in the mega cap growth area. The high momentum stocks definitely broke stride and they've reset lower. In the meantime, even though the S&P 500 is back basically to within one percent of its all time highs, it closed pretty much at a high for the week. There have

been some subtle changes, maybe some more defensiveness implicit in the markets here. Yes, you had banks up today. You had small caps up today. But over the last few weeks, it's been a little more in the way of, you know, rate-sensitive financials and utilities and things like that. So how do you read the market's message on that score right now? Well, Mike, today was all about the Fed, right? I don't think there's any doubt about that. I think Powell came out very dovish, quite frankly, more dovish than we would have expected. Coming in, he basically took a victory lap on inflation, took a victory lap on the economy. But when we look at this market, we think it's important to back up and put the September

25, 50 basis point conversation aside for just a minute, that's going to take the backseat to really what is the path of cuts from here next year in the next 12, 24 months? And really, what is that end rate? Because at the end of the day, Mike, that is going to be what drives risk assets. That's going to be what drives the intermediate and longer part of the yield curve. And that's going to be what investors care about. We think you're going to continue to see this narrative all year long where the market has continued to misread the Fed. They've overestimated what the Fed is going to do. In a typical cycle, you see the Fed take the stairs up and the elevator down. We think this cycle is going to be much different. We took the elevator up, and it's going to be that slow stair step down.

Well, in that case, let's get to Steve Leisman to get a little bit more on what today's message was from Fed Chair Powell's speech in Jackson Hole. Steve, and you've been talking all day about, you know, essentially how this is fairly consequential. It's kind of summing up a long process. In fact, one that, you know, if you go back a little while, Powell wouldn't even commit to saying that a soft landing was in the cards. And today he basically said we have one if we don't fumble it. Yeah, right. My quite the opposite. He said that some pain was going to be necessary here. And I just offer your guests are asking all the right questions.

I hope I can provide a few answers. So Mike is also right. After two and a half years of fighting inflation, Fed Chair Jay Powell steps up to the podium at this Jackson Hole annual conference and he lays out a new marker on policy. He declared now is the time to adjust interest rates downward. The time has come for policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. So Powell went on to say he sees less upside risk to inflation, more downside risk to employment. He is more confident that Fed's going to hit that two percent target and he can bring down inflation and keep the job market

strong. That's that soft landing you've been talking about his comments on coming rate cuts in the outlook for a soft landing made markets price in somewhat a somewhat greater chance of a 50 in september or november not both don't read that chart wrong there the the probability is elevated now for september 50 or a november 50 and the key here is the total of 100 basis points of cuts that are priced in through December. The dollars sold off and bonds and stocks rallied. Now, he didn't specify the pace or the extent of rate cuts,

saying that would be determined by the data, but he did suggest multiple cuts were coming, that the reason for the cuts wasn't future progress, but prior progress. And, Mike, that is sort of one answer, which is that if you think about it you know we're giving you the valedictorian award here for your GPA over the four years not what happens in the next couple months. Right you know it somewhat gets to what you were talking

to Austin Goolsbee about today in terms of you know the Fed doesn't want to stay in a position whereby keeping rates where they are they're passively tightening the economy as inflation falls. He didn't really try to get into that quantification of how tight they are relative to neutral and all that. Is it your impression, though, that Powell is going to have a sales job to do within the committee to either get bigger cuts or have everybody in line with that idea? I don't think the sales job is necessary, Mike, for the first one or maybe the second one. In fact, maybe you want to call it an easy hundred. I think that's easy to do because if you think about it, I don't think anybody disagrees that the Fed is 100 basis points tight here and that you can probably get what you need to do if you have more work to

do on inflation at 450 or 425 as you could at 540 here get that last 0.5 or 6 or 7 of inflation out of the system here i think also by the way they feel like they have a little gift coming in the housing inflation numbers which is really a technical issue, but it's a little bit of an ace in the hole for them. So I think that that's the easier part. The notion that I think Tim was talking about is the market too aggressive. That's a question for next year. But nobody wants to really box themselves in for next year, although that's the important question that you have to make. OK, I can take 100. I'm pretty cool on that. But 200, that's a bigger question as to the performance of the economy.

Yeah. And of course, there's always time to worry about that. You have, you know, fourth quarter investment performance to worry about before that comes into play, I guess, for a lot of a lot of folks. Steve, thanks very much for all the work out there. Let's bring back our panel, Jim Paulson and Tim, your battle with. Excuse me, Jim Paulson. Do you think that this is a message that's going to sustain the market for a little while? Are we just going to be kind of going data point to data point and testing the soft landing proposition against what's coming in? Well, I think it's bigger than just the Fed announcing rate cuts today. I think by doing that, they opened up a lot more positive forces for the stock market that just haven't been there.

This is the only bull market in post-war history where the Fed has been tight throughout its entire existence. Normally, the Fed is easing before the bull even starts. So in some ways, I think the Fed in doing this is taking us back to the start of the bull, and they're going to ease rates, which also means is taking us back to the start of the bull, and they're going to ease rates, which also means bond yields are going to come down for the first time, which also means monetary growth is going to start speeding up even more than it has, really, for the first time. And in addition to that, we still have positive real GDP growth.

We still have the power of disinflation. And if you put all these together, something we haven't had at all yet, we're going to get a rise in private sector confidence. Consumer and business confidence, I think, is going to start to lift as well, much like the feel of a brand new bull market. And it's all of that together, which normally brings a broad market advance when you start a new bull. And I think that's what we're also seeing. So, yeah, I think it isn't just about the Fed doing 25 or 50. It's the intention to ease monetary policy that's opening up a brand new degree of support for stocks that I think is going to persist well into next year. I mean, if that all comes together, we might be talking about overheating in a frothy market before too

long, I guess. Tim. We could. Yeah. Tim, on a practical level, how does an investor, I guess, try to navigate this type of scenario or the range of scenarios that might be out there? Because it's going to be hard to get people to look away from the idea that we're still on some level, have some late cycle dynamics here as well. Well, that's exactly it, Mike. And I think what's still important to be focused on is just like there's a lag with interest rate hikes, there's going to be a lag impact of interest rate cuts as they come through. So investors still need to prepare for a slowdown. Our financial

advisors are turning heavily toward buffer strategies, really to hedge volatility as they head into the back half of the year. But we also think it makes a lot of sense right now to focus on pockets of this market where demand is not going to be impacted by a slowdown in economic growth. Think about some of those AI infrastructure names where companies are not going to be pulling back spending there. They should be able to maintain good margins, firm margins. And then when we look at the other side of the house, you look at some of these retail stocks, we really think it's important to focus on stocks that are actually willing to drop prices to maintain consumer demand. This was a very undercover theme that we saw playing out throughout the Q2 earning season.

You look at a company like Target, where they were dropping prices, demand was very strong, their customers were coming in for a bargain. And then on the other side of the equation, you look at like a Home Depot, where they were trying to keep prices high. They're trying to maintain margins and the market didn't like that too much. So we think that's really important right now, just given the slowdown that we think is in store for the next six to 12 months. All right. Yeah. Next message is probably going to continue that way, I suppose. Jim Paulson, Tim Urbanovic, thanks very much for the time today. Well, Delta announcing its chief operating officer is taking off after just a year at the carrier.

Phil LeBeau has the details. Hi, Phil. Hi, Mike. This is one of those moves that when it was announced this morning in a filing that many people said, well, that's kind of interesting timing, given what we saw, what we saw in July with the crowd strike outage at Delta. But Delta makes it clear that Mike Spanos, who is leaving the company at the end of August, is not leaving because of the crowd strike situation that happened in July. In fact, when you take a look at the memo from Delta CEO Ed Bastian, there is no mention of what happened in July. He says earlier this summer, Chief Operating Officer Mike Spanos shared with me that he was considering opportunities outside of Delta. We know what happened in July. In fact, if you go back and you take a look at shares of Delta

on that day, they took a massive hit. Overall, the outage that lasted a little over a week, maybe a week, cost the company $550 million, money that it is trying to recoup. It has hired high-priced attorney David Boyce to represent them as they consider legal options with both CrowdStrike as well as Microsoft. By the way, both CrowdStrike and Microsoft say, wait a second, the issue is on your end. It's not simply that there was an outage and everything is the responsibility of CrowdStrike and Microsoft. We'll see how this plays out over time. But as you take a look at shares of Delta, that's the big dip that you see there, Mike, that happened July 19th. And now we have a chief operations officer who will be leaving the company on August 31st.

Mike, back to you. And Phil, I mean, given that still there is a dispute here, right? Delta is trying to suggest a CrowdStrike and Microsoft have responsibility or some liability for that episode. It would probably not be in Delta's best interest to therefore kind of essentially put somebody internally on notice as having been responsible or having it cost their job. And we should also point out that Ed Bastian has done interviews since the CrowdStrike incident, and he's been asked specifically, well, was it the responsibility of Mike Spanos? And he said, no, no, no, no, this was not a situation involving Mike Spanos. So that has happened. He has mentioned that in interviews prior to this decision today. And as you see in his note, he makes it clear that Mike Spanos, who, by the way, did not come from the airline industry, used to be CEO of Six Flags.

And before that, he was with PepsiCo. He was brought in a little over a year ago and he doesn't have aviation experience. Mike, I don't know for sure, but my guess is that this is one of those situations where it probably on both sides, they probably said, you know what, this is not exactly the fit that we're looking for. And so he's going to be moving on. Yeah. All right. Well, not a bad day stock wise for it to happen. Delta up three percent today in a very strong market. Phil, thanks very much. Up next, 314 Research co-founder Warren Pies on the big rally in homebuilder stocks today and whether they might have more room to run. And later, Mercer's U.S. chief investment officer on what investors should be doing right now with all the cash they might be holding. Overtime, back in two minutes. Welcome back to Overtime. S&P Homebuilders ETF having one of its best days of the year,

while D.R. Horton, Lenar, and NVR all hit record highs today after fresh data showing new home sales rose to their highest level in more than a year. Joining us now is 314 co-founder and strategist Warren Pies. He's also the portfolio manager for the FCT ETF. Warren, great to talk to you. I mean, we got this uptick in new home sales today. And on the same day, of course, we got that dovish message from Powell, huge rally in the Treasury market, mortgage rates coming down and essentially reinforcing confidence in a soft landing scenario. So how does it all fit together and what role do you think housing has in whether, in fact, we can we can still sort of be resilient in this economy?

Yeah, I think housing. Thank you for having me. I think housing is everything, honestly. There's an old paper, housing is the economy, and it kind of oversimplifies everything, but to a certain extent, there's a lot of truth in that. And at 314, that's how we look at the world. We have a framework for determining whether the economy's heading into recession, and we focus on residential construction jobs. And so because of that focus, we really model everything out in the housing industry. And, you know, today's data was definitely a good sign. I mean, there's been weakness. It's something we've been concerned about since mid-year. We're still on the soft landing train, I should say, or the bandwagon. But it's nice to see some reactivity to these lower rates. And I think that's what you're going to need to have to keep the housing market moving. Yeah. I mean, obviously, it's been a little bit slippery in terms of that relationship, right? I mean, you didn't see an immediate burst of demand. You're seeing existing inventories come back online to a fair degree and not immediately being kind of soaked up. So more broadly, how much more confidence did you have after today's message from Powell

and the market action? Or just were you always in this camp that says, listen, the volatility is noise and we're going to be OK? Yeah, no, I think that, look, to me, there's a lot to get kind of ostensibly worried about in the market. And you'll hear a lot about these things, I think, over the next three months. And there's validity to them. So things like seasonality. September is a notoriously weak period for the market. You have NVIDIA earnings next week. Who knows how that's going to break? And obviously, the election, which is the huge wildcard that nobody knows how to discount. And so in a lot of ways, it can feel kind of scary out there. But the bottom line is, I think since mid-year, this market equation has gotten a lot easier to solve. So the bottom line is inflation is no longer, at least for right now, a concern in the market.

And Powell confirmed that today. He talked about inflation in the past tense, which to me, it's a huge change. And it tells me that no matter what, if you're at home thinking about this and you don't think inflation is dead, it doesn't matter. What the Fed, the guy controlling the Fed thinks inflation is behind us. And that has huge implications for policy. So with inflation dead, all we have to worry about is growth going forward. So it goes back to your housing question, goes back to is the consumer responding to lower rates and things like that. But the equation is simplified.

So growth is everything at this point in time, has major implications for how you create your portfolio and what we're paying attention to going forward. And ultimately, I think those things that are really headline-grabbing risks, it's distraction. Ultimately, if we avoid a recession, the market is going to go higher going into next year. Yeah, exactly. I mean, all those lines about how, well, it's always been smart to sell the first Fed rate cut. I mean, that really was only because Fed rate cuts often led to recessions. And the couple of times it didn't happen, that was a bad, bad play. But I guess within the market, what makes most sense

here? I mentioned earlier that, you know, today they sort of just enacted the old playbook, Russell flying on profitable tech up 4 percent or so on the day. Banks moving. Does that sort of make sense or or is there another place to do it? Yeah, for me, our fund and our model, we invest in high quality companies. I think this is the right part of the cycle for that. I know that if we thread the perfect needle on a soft landing, then yes, the small caps make some sense, I think. But notoriously, this is a bad time in the cycle to be levered up on small caps. So I've been shying away from that space all year. And that's just where I am philosophically, where we are in the cycle. Mag 7, on the other hand, is a little bit crowded.

I think everybody feels that way. And so if you're going to beat the quote unquote benchmark here, I think you're going to need to find high quality stocks that you feel confident holding through some of this volatility that we're talking about. And so that's what we're doing. A lot of that means no small caps, reduced weight in MAG7, less cyclical exposure. It leads you to the group of stocks that we own. Gotcha. Yeah, it's tricky because a lot of the MAG-7 stocks would score pretty high on a quality test, but maybe they're crowded and expensive and all the rest. Warren, great to talk to you. Have a great weekend. Thank you. Same to you. All right. A looming Fed rate cut and renewed hopes for a soft landing helping bank stocks outperform the broader market today. Up next, the top analyst on whether investors should bet on the financials right now.

Plus, the key names on next week's earnings calendar and whether NVIDIA's results could determine the market's next move. Over time, we'll be right back. The financial sector outperforming the S&P 500 today following Fed Chair Powell's comments signaling rate cuts are in sight. Joining us now, B of A Securities Senior U.S. Banks Analyst, Abraham Punawala. Abraham, great to have you on. I mean, it's fun to think back to when we were on the cusp of the initial Fed rate hikes and how that might be bullish for banks because of what it might mean for net interest margin. Now we're celebrating the potential for rate cuts for, I guess, what it means for the state of the current economy

and credit conditions. But why don't you boil down why it should be a positive if you think it is? Mike, thanks for having me. So it's interesting, right? Like if you take a flashback in time, we spent a decade post the financial crisis waiting for higher rates. We finally got higher rates. And now we've been waiting for some relief on rates. And I think it's worth putting it in context. What we had with the rate cycle with the Fed from 22 onwards was not a rate cycle. It was a 500 basis point rate shock, which really jolted the system. And then you had the SVB crisis on the back of it where concerns around funding costs, deposits really picked up. And the risk with the 500 basis points in less than 15 months was you started worrying about repricing risk,

commercial real estate, all of that. So what you're seeing today is, and we can talk a little bit more about the conversation you were having with Jim Paulson, I think what you're seeing today is, once again, the market pricing in a soft landing. And I think if we pricing in a soft landing. And I think if we do get a soft landing net net, that should be positive for the banking industry. And where within the banking industry? I mean, if you looked at some, I guess, outside the very largest banks, there's been this overhang or perception of exposure to commercial real estate. I mean, if I look at the publicly traded commercial real estate plays, they've obviously been recovering very strongly right here. Does it seem as if the market is suggesting that they will have sidestepped the worst damage there? How would you play it as an investor?

So you're right. I think what you've seen in the last six months also is the big banks have sort of broken away. You have the likes of J.P. Morgan, Goldman Sachs trading at all time highs. It's the regional banks that have seen pressure on funding costs if you go down the market cap spectrum and the commercial real estate risk, which, and we've been very consistent on this, ex-office commercial real estate has been a bit overblown. But I think what you're seeing is the five-year yield, which underpins a lot of commercial real estate loans, is at about 3.6 percent at last check. It was close to 5 percent in October of 2023. So the relief that you're seeing not only from the Fed cutting interest rates potentially

starting September, but the yield curve resetting relative to where we were six to nine months ago just makes it a lot more easier for some of these landlords to afford refinancing when they come up over the next year or two. Yeah, that does make sense. And it's a good reminder that a lot of the economy is really based on Fed influence rates in one way or another. You mentioned J.P. Morgan and Goldman Sachs. What do we think this might mean for capital markets activity, M&A, the trading business, IPOs. I mean, they've more or less been pretty dormant to date. To be even pretty bullish about just the momentum that you've seen in investment banking this year, Goldman Sachs is the name that's a top pick on BFA's top ideas list for the year. And I do think the one of the outcomes of lower rates, obviously, the market's waiting for elections.

I'm sure you guys are waiting for NVIDIA's results next week. But generally, if we get lower rates, we get some sort of a policy clarity coming out of November. I think that sets up for a really strong rebound continuing in capital markets. And you're right, debt issuance has picked up. What we are yet to see is a greater pickup in M&A activity, which I think will happen. And IPOs, I think you've seen one-off IPOs. But I think if the market overall hold up over the coming months, I think all of that sets up extremely well for the largest banks in terms of capturing that rebound. Is there a part of the sector that you might avoid or be more

skeptical of at this point? I just wonder where we are in terms of things like exposure to consumer credit or other areas that seem as if they've softened up even going into Fed rate cuts. So I think as you look at the most of the large cap banks in the United States, they are indexed to the mid to high segment of the consumer. So even when we've seen the softness, a lot of banks like talking about the excess deposits have come down. But generally, to me, if employment holds up and I don't know if that means 150,000 jobs a month, something in that ballpark. Historically, credit costs for the banking industry correlate highly with what happens to the unemployment rate. So if the unemployment rate is not spiking on us, people have their jobs, they're going to service their credit card, auto debt. And I think that's what we are seeing, I think, from a cards analyst recently talking about

a little bit of a plateauing on delinquencies on the consumer card side as well. Mm-hmm. Yeah, and that clearly is what Jay Powell is focused on now, is hoping that that unemployment rate does not worsen from here. Great stuff. Thank you very much, Abraham. Great to catch up with you today. Time for a CNBC News Update with Kate Rogers. Hi, Kate. Hey there, Mike.

Texas and 15 Republican-led states are suing to end a federal program that could give a path to citizenship to undocumented immigrant spouses married to U.S. citizens. The suit filed today says the Biden administration abused its power by going around Congress to create the program launched in June. The International Criminal Court's top prosecutor insists the court has the power to issue arrest warrants for Israeli and Hamas leaders linked to the war in Gaza. The prosecutor in legal briefings today called on a panel of pretrial judges to urgently rule on his requests filed in May for the arrest, saying that the course had jurisdiction over the matter. And a disability rights organization is challenging a suburban

New York county's mask ban. In a lawsuit filed Thursday, the Disability Rights of New York argued that the Nassau County ordinance, which bans wearing masks in public except for health and religious reasons, was unconstitutional and discriminates against people with disabilities. Mike, back over to you. Okay, thank you. Kava shares soaring after strong earnings and guidance as investors continue to eat up this stock. Up next, a closer look at why Wall Street is valuing some restaurant chains like tech stocks. And Peloton peddling higher for a second straight day after reporting a smaller than expected quarterly loss. Stock up more than 6 percent today. Welcome back.

Kava shares among the biggest winners on a very strong day in the market, up almost 20 percent after comp store sales, revenue, earnings all blew away expectations. You see here it's really accentuating a vast bifurcation within the restaurant stock. So Kava on a one-year basis now overtaking Wingstop, which is sort of in its category of relatively young, fast-growing chains that seem like they have great traffic trends, and they have a good store model, able to add a lot of stores. And then, of course, it contrasts with Chipotle, which we know has stumbled after very high momentum, maybe some pressure from some of that value offerings of competitors and, of course, losing its CEO. And then McDonald's, which has been relatively dormant,

very slower growth and defensive in general. Now, what does it mean for valuations? I mean, the street can't get enough of these fast growing concepts and are willing to just give enormous valuations above 250 times expected earnings. Now, obviously, that's a less mature company. You're never going to get something like that among McDonald's or anything like that. Wingstop, though, a good deal lower, and it's a similar market cap, around 100 times earnings. Chipotle really has come down quite a bit in its valuation from super premium levels. And I actually look back on the, I don't know, 18- year history of

Chipotle as a public company. It never traded above a 200 times multiple. So the fundamentals are great, but the market seems like they're getting pretty aggressive in terms of capitalizing them in the short term. All right. Up next, Mercer's U.S. chief investment officer on whether now is the time for investors to move cash off the sidelines and where they should be putting that money to work. Meanwhile, investors cashing out of Intuit, which is the biggest loser in the S&P 500 today after the TurboTax owner's earnings beat was overshadowed by a weaker than expected forecast down 7 percent. Yields on the 10-year Treasury falling to levels not seen since February this week as investors bet on rate cuts this fall.

So how does this change the investment rationale for your cash allocation? Joining us now is Olalo Agonga Mercer, U.S. CIO. And Olalo, it's great to have you weigh in on this. I mean, obviously, there was a somewhat momentous tone to Jay Powell saying it's time to adjust policy. This is the first time we're having a rate cutting cycle initiated in five years. Does any of this, do you think, serve as a reason to rethink asset allocation? I mean, from a tactical standpoint, yes. And thank you so much for having me, Mike. The time has come for policy to adjust is the quote that's been heard around the world.

From a tactical standpoint of clients are currently sitting in on cash. Those with operating pool shorter duration. If you can lock in rates, particularly given the inverted shape of the curve right now, shorter dated levels, it absolutely makes sense to be able to do so given the opportunity. Now, our base case is still, and we've been saying this for some time, that the Fed is going to cut rates. We're expecting 25 basis points at each of the next few meetings. Maybe if there's a deterioration in the labor market, 50. But lock that in for sure if you have the opportunity. And then also, you know, it's great for equities as rates go lower.

Yeah, I mean, it's an important distinction. I mean, you're not necessarily fleeing toward long duration bonds because you think things are going to get very bad. But it is interesting in this even this last little period in the markets that you have had good offset between how bonds and and stocks have behaved in the correction. For example, we just had a few weeks ago. Bonds did do their part, I guess, in acting as a buffer. Given, though, that you think that equity should continue to do well, it can continue to reward risk taking out there. Where else should we be emphasizing? So we have been overweight equities in our portfolios tactically speaking, as well as, you know, lower rates is good for longer duration assets and not necessarily moving there.

If you're looking geographically, we were overweight in Japan. So the volatility that we saw a couple of weeks ago where we had big pullbacks in Japanese equity markets down 20 percent, we use that as an opportunity to add. So we are longer there. But broadly speaking, equities, longer duration assets. This is a good environment. But the measure of pace at which we're going to see rate cuts, we are looking very closely. I know you have some views as well on private credit, obviously very fast moving and fast growing area of the market on both the demand and supply side, I guess. Investors like it for the yields and borrowers like it for the efficiency, I guess, and speed. What are the implications of being at this point in the cycle and rates coming down for that asset class? Yes, we've loved private credit. You know, if you were to start thinking about the asset class, it's a floating rate nature. So when rates are high, it's great, even with our expectations

of a rate cut, which is our central case as a soft landing. So gradual cooling of the economy, gradual rate cuts. Yes, there have been a lot of entrants within private credit. The estimated assets under management is about $1.7 trillion. And some of that suggests if you four sub strategies or direct lending, opportunistic credit, structure credit and specialty finance. So for us here, of course, we have the opportunity of being a part of Marsh McLennan. Right. So he takes a view on on on risk and gives us insights to some of those trends. But what we are really looking at there is some of the asset backed deals within private credit. And you did mention Japan as a market you liked and you're able to buy that sharp break in the index. Is there elsewhere outside the U.S.? Is anything compelling or is it still better to stay closer to home? It's better to stay closer to home. But again, Japan is part of where we're really focused on. We've talked about emerging markets. It's very bifurcated, somewhat dispersed.

We're looking at China given valuations, but that is still a slower moving area. But the overweight that we had tactically looked at within portfolios have been more developed than Japan. And then in terms of just where you sit and your view on kind of pension fund dynamics, I guess, a lot of talk for a while about how there's overfunding in private pension funds to a degree and what that might mean for what they're doing in terms of how much risk incrementally they'll take or withdraw from the markets. Yeah. So it's a trend that's been happening for some time. But of course, it's been more pronounced somewhat the last few years. So the funded status for corporate pensions has been soaring for the most part.

So from a risk perspective, it means that they're able to de-risk. So you don't necessarily need to be able to take that much to be able to get the returns. The equity markets have been soaring. So they've been taking that down. It then means that they're able to focus on some of the liability hedging that they have. Right. So the benefits that they promised to retirees for some time, the equity markets have been good for them. So more and more, we're starting to see what they call pension risk transfers, where you're taking the pension and moving them to other areas. But overall, pensions have been doing well. We're seeing all of that in balance sheets, those types of things.

Yeah, it's certainly a kind of a good news element to a long term liability story we often hear framed in terms of, you know, public sector finances and maybe things looking a little tougher. Olalu Aganga, thanks so much for your time today. Thank you so much for having me. All right. Still ahead, a look at a key inflation reading next week and what it could mean for the increasing odds of a Fed rate cut in September. And check out shares of Roku, a big winner today. Guggenheim upgrading the stock to buy from neutral with a seventy five dollar price target, citing its valuation compared to its rivals, as well as improved home screen monetization.

And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back to Overtime. Some growth stocks, including Robinhood, getting a nice pop today. Kate Rooney looks at what's behind some of those moves. Hi, Kate. Hey, Mike. So this is very much a rate story. The growth names you mentioned, getting a bump on the heels of Jackson Hole with Powell's speech, and then more expectations, higher expectations for a rate cut. So the winners, as you mentioned, you got Robinhood, names like Affirm as well. Both of those names are in fintech. So on the tech side of this,

tech tends to be more attractive when the risk-free rate goes down and people are going to be more willing to take on risk and go for growth. And then you got the Fin side of FinTech. So the financials, they act a little bit like banks. These are rate-sensitive names and both are players in lending at this point. Robinhood shares up about 6% today. More market and trading activity also bodes well for Robinhood in terms of revenue. And then Affirm, I would point out this is also a highly shorted name, so it does tend to see some more outsized moves compared to your average stock. And then you've got Coinbase, another name up big today. It's helping that Bitcoin is higher.

Cathie Wood's ARK Innovation ETF, a high-growth name. Shopify as well. Block, which used to be called Square. All some of the growth names today getting a boost. Mike, back to you. Yeah, it's clear that the traders today kind of reached for that, you know, that old rule of thumb. The Fed's cutting rates. If yields are going to be lower, then you can buy less profitable tax. Speculative stuff, highly shorted. I do wonder, though, I mean, you go back to 2021, the heyday of this type of trade.

Rates were at zero. People thought they'd stayed zero for a while. And I wonder right now if it's a little more like, well, these things haven't participated in this rally. And I guess when it comes to something like an affirm, there really is a macro component there. If you think the soft landing is going to be preserved, their borrowers are going to be in better shape as well. Yeah, I think you're absolutely right about sort of the thematic side of this. They are definitely in that bucket of high growth. They've been a little bit beat up in the past month. They've been really volatile. So you are seeing sort of this relief rally. But then on the specific company names, when you drill down into what might be a win for,

say, Robinhood, take Robinhood for an example, lower interest rates actually as the business has matured might also be a negative because they've gotten a lot from interest income. So it's not necessarily all good that rates are going up. You can kind of see both sides, and they've talked about the name as a little bit of a hedge. They're getting more interest income like a bank. So as rates go down, it's sort of a double-edged sword for Robinhood, a firm, very much a lending name. But it's sort of today one of those macro moves. But if you look, drill down into some of the details, it's not necessarily a blanket positive when rates go down.

Yeah, it's a reflex. And obviously with Robinhood, they'll get it on the high order flow for crypto and then maybe lose a little bit on those cash balances. So we'll see how it goes, Kate. Thanks very much. All right, NVIDIA is the highlight of next week's earnings calendar. Up next, the top analyst on why that report could be the next big catalyst for stocks. And make sure to tune in at 6 p.m. when I'll be hosting the CNBC special Taking Stock, featuring Paul Hickey, David Zervos, Gabriela Santos, and Alex Kantrowitz.

Welcome back to Overtime. Another big week of economic data kicks off on Monday with the Durable Goods Report. Tuesday brings the latest Case-Shiller Home Price Index and Consumer Confidence. The weekly mortgage applications report will be out on Wednesday. Thursday features weekly jobless claims, the latest reading on second quarter GDP, and pending home sales. And investors will closely watch the July PCE Price Index for the latest read on inflation as well as consumer sentiment. And if that's not enough, it'll also be a huge week of earnings

with BHP opening the floodgates on Monday. as well as consumer sentiment. And if that's not enough, it'll also be a huge week of earnings, with BHP opening the floodgates on Monday. Box, PVH, SentinelOne, and Nordstrom are reporting on Tuesday. Wednesday brings Salesforce, Affirm, CrowdStrike, HP, and NVIDIA. And Thursday's highlights include Best Buy, Lululemon, Campbell Soup, Dell, and Gap. Joining us now for more on NVIDIA is Patrick Moorhead, founder and CEO of Moor Insights and Strategy. And, you know, Patrick, it looked a couple of weeks ago like maybe expectations would be beaten down. The stock was, you know, off 20 percent. We've had this huge rally back

toward the highs since then. What do you think the embedded expectations are for NVIDIA right here? I think expectations at a minimum are they're going to meet expectations. But I see that this train that can't be stopped, I think they're going to do better than anybody can expect it. Because there's a lot of things people don't understand about NVIDIA, right? This is more or less about just fulfilling demand. And don't get me wrong, the demand from the hyperscalers are huge, but there are new types of opportunities that people don't fully realize in that, first of all, NVIDIA isn't just selling chips. It's selling multiple chips. It's selling entire systems. And add on top of that software and even into a larger enterprise market,

I don't think these are being factored in at this point. And we do know a fair amount, obviously, after the earnings reports from some of those big platforms that their CapEx budgets remain pretty high. I guess there's still this going to be this reserve, though, of doubt about whether that's sustainable at a multi-year look ahead, because, you know, there is a sense out there that there's an urgent buildout happening right now, and we're not quite sure how long it lasts. Yeah, on a multi-year basis, you're absolutely right. There has to be downstream benefits, efficiencies and effectiveness gains that we'll see through software companies, but most importantly, software companies to

enterprises. And on the consumer side, we're going to have to see uplifts, let's say, on advertising revenue, services revenue from those markers. If those don't start hitting, I think in the next 12 to 18 months, investors are going to call to have a cool off on CapEx expenditures. But I believe we are all clear for at least 12 months, maybe 18 months. That's unless barring something economically very negative happens that's outside of NVIDIA's control. Yeah. Presumably they're not 100 percent immune to something like that. You know, it's interesting this dynamic we've seen since the stock peaked in mid-June. It went lower. It had a 15, 20 percent correction. It chopped around sideways. Same thing happened in March, actually. Had a peak there for about two months. It really went nowhere and sort of

reloaded. I guess the question is, is the valuation going to get more aggressive? And I know you're going to say the P.E. is lower than it was a year ago, but a year ago, earnings came in twice as much as we thought they were going to be a year ago. So actually, the valuation was lower last year. Yeah, I think, again, the next 12 months, or at least for this earnings, I think we're good. I do think we are going to see that type of boost moving forward in this quarter, if nothing else, given the hyperscaler FOMO, as I call it. And we saw it from CapEx, from Meta, Microsoft, Google, and Amazon. And the reason we hit these shelves and we have these sell-offs is because people have made so much money on this ticker that they are looking for any hint of a risk. A few weeks ago, it was a risk

on potential Blackwell. And that's something that CEO Jensen Wong is going to have to address head on. Is Blackwell delayed? And if it is, what does that mean? Are people just going to keep buying the previous version, the H100, H200? Yep. That's among the many things we're going to be listening for next week, Patrick, as the company does report. As I mentioned, it's not too far off its all time high. Patrick Moorhead, appreciate the time today. And that's going to do it for overtime on a Friday.