Closing Bell - Closing Bell: Pivotal Two Weeks for Stocks 10/25/24

Episode Date: October 25, 2024

Between tech earnings and the election, the next two weeks are shaping up to be pivotal for the markets. Professor Jeremy Siegel tells us how he is navigating these upcoming events. Plus, 3Fourteen’s Warren Pies tells us why he sees stocks rallying into the year end. And, DataTrek’s Nick Colas is flagging what he says is a positive sign for the tech sector heading into 2025. 

All right, thank you very much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange on this Friday. This make or break hour begins with, of course, the markets. A new record high for the NASDAQ and just in time for mega cap earnings next week. We'll ask our experts what is at stake, including the Wharton Schools. Jeremy Siegel, the professor, will be here momentarily with us. In the meantime, the sport card with 60 minutes to go in regulation looks like that. There's the record high for the NAS, S&P, Dow, Mix, tech and comm services, by far the best sectors today. Big tech heads into earnings on a bit of a high note. Elsewhere, take a look at Decker's crushing earnings and that stock hosting its best day since May of better than 10%. Capri Holdings getting hammered, though, after a judge blocks its merger with Tapestry. That stock is higher on that news. It does take us to our talk of the tape. A pivotal two weeks coming for stocks, the tech earnings, the election. Oh, yeah. Fed meeting,

too, for what's at stake. Let's welcome in Professor Jeremy Siegel of the Wharton School. Welcome back. It is nice to see you and have you with us as always. Thank you, Scott. Happy to be here. Yep. How's this market look to you? It looks strong to me. I mean, I don't see any really drop in the momentum. I mean, I think it surprised everyone. It's only surprised me. It surprised the Fed. GDP is going to be reported next week and looks to be over 3%. We're moving into the fourth quarter, I think, at 2.5% to 3% rate. And by the way, what that means, I think long-term interest rates are going to continue their uptrend. I still think the Fed is going to lower them, but certainly not as much as they said or as many of us felt. But, you know, it could be a quarter point or it might

even be a pause if we get a strong labor market report a week from today. OK, so let's let's there's a there's a lot in there and I want to take it sort of step by step. The backup in yields has obviously made the market a bit uneasy. How much more do you think they could back up? And as long as yields are going up for, quote, unquote, the right reason of the strong economy that you mentioned, is that OK for stocks? Yeah, that's OK for stocks. It's actually better OK for the tech stocks and the big cap stocks than it is for the value stocks and the small stocks, which rely more on the short term borrowing. So the realization that the Fed is not probably going to go certainly as low as we thought a month ago, I think is one thing that has been keeping a lid on those stocks over the last month. OK, so you expect two to three pauses and three to four rate cuts over the next six meetings. Are you are you suggesting in any way that we could get a pause before this calendar year is is over because how strong the economy is?

Yes, I definitely do think so. And, you know, Bowman, you know, finally, you know, objected in the last meeting to the 50 basis points. So, you know, Powell had a record of no dissent. So now people might dissent. It could if we get a strong labor market report for the month of October, there's going to be a lot of people. A lot of those FOMC members are not going to say, you know, maybe we should pause at this particular juncture. So it's between a pause and 25. If I had to go, I would say 25, but I'm looking at next Friday. And of course, probably even more important, looking at the following Tuesday,

we haven't yet talked about the biggest event in November, and that would be the election, of course. What do you make of the positioning that's been around the election? I mean, some would also suggest that the reason why yields are rising is because of a more inflationary agenda, maybe from both parties, but particularly if you're talking about a whole slew of tariffs and the attempt, let's put the attempt to re-up a bunch of tax cuts, if not institute new ones, obviously, depending on what Congress looks like after November 5th. Well, you know, long rates can rise because of inflation, but they also will rise if there's strong economic growth. There's also will rise if there's strong economic growth.

There's also will rise if there's fear of a big bump in the deficits of what really, you know, as important as the president selection is going to be a week from Tuesday. What's going to happen in the House of Representatives? We pretty, pretty well know the Senate is going to turn Republican. The House looks very, very close. If there's a sweep by, let's say, the Republicans, I think there could be a spike in long-term yields because then they'll say, hey, the Christmas tree is open. Whatever tax cuts the Republicans want, they could get if the House flips to Democratic. And by the way, we may not know that for two, three, four days. But if it does, that's a check and balance.

And I think the bond market would be take that more calmly than they would be a sweep by any party. I mean, do do we make too much of a outcome of a presidential race for what stock market performance is going to be? Because if you look historically, it's not like you can make a definitive case. Oh, this party is better for the stock market than that. In fact, in most cases, it's almost even if not not breaking in one of what some would consider to be the unexpected way of the Democrats. Yeah, I mean, actually, you know, my historical data, they do do better on it, but it's not cause and effect. It often is the economy is doing really well. Stock market gets ahead of itself and then the stock market goes down and people say, oh, I'm going to shift to the dams, the dams take over at a low stock market, and then it goes up.

You can't say that correlation is causation when you take a look back at the history. But I think it matters if there's going to be a sweep, and, you know, the betting markets are now between 40 and 50 percent of a Republican sweep. And one thing and certainly for taxes, don't forget, all of Trump's taxes expire on December 31st of next year. And the only way he could be assured of extending them is to get the House of Representatives, keep the Republicans, keep the House as well as the Senate and that. Otherwise, they revert automatically on January 1st, 2026 to the Obama rates, which are something that certainly the Republicans nor the capital markets want to happen. So, yes, the presidency and the Congress are very important. And what else is important is that Congress, in my in my in my lights, at least, stupidly gave up their rights to

set tariffs in 1962 by a trade, a tariff act, which actually gave the president unilateral rights to set tariffs. So in a way, if Trump wants to, he could set the 60 percent, 20 percent. Now, I don't think he will. I think that's a threat. But a 20 percent across the board tariff is a huge economic event if it were to happen. And I mean, I think everyone in the market and the stock market will take note of it. So this election, perhaps more than many, if not all, is really going to be impacted by a week from Tuesday's election. Yeah, it's good to have your insight on that. If you look at what's taking

place within the market, of course, we set up our show today with looking ahead not only to the election, but these mega cap tech earnings, Professor, which come next week. This trade has been revived, if you will. I think that's a fair word. It didn't do that well in the third quarter, and now it's come to life. Tech is up three and a half percent month to date. How do you view the events of next week, these all-important earnings, and that positioning itself in that area?

Well, certainly when you sell in the 30s times earnings, things got to go right. You have no margin for error. In fact, in today's world, you've got to beat. And sometimes you've got to beat by a significant amount to keep your stock moving. If we review the year, we had this huge takeoff in January and February. And remember,

everyone was talking about, oh, my God, this looks like the dotcom boom. And that was a blow off. Remember, we had Nvidia go down, you know, 40, 50 points and and everyone settled down. But it never broke the long run trend growth versus value. And it has been outperforming for 10, 15 years, that long-run trend is still intact. We all talked about the rotation. It happened really for about two months after that blow-off from about February 15th to maybe the middle of April. But since then, you know, tech and large cap have righted themselves. And we see the Nasdaq and again hitting new highs. So that long run trend is not broken. The only thing people should remember is when you're selling at 30 times earnings, everything has to go right.

When you're selling at 12 times earnings, not much has to go right in order to make money. Look at Tesla. Tesla came through at the first one. We'll see whether Nvidia and the others come through next week. Because maybe we're rethinking about where interest rates are going to go, Professor, including yourself, clearly from the answers to the questions that I've already asked you. Does that mean that you think people are making a mistake to think that small caps are actually going to work now? Maybe they worked for a minute, but now that rates are backing up, is it a mistake to position in that area of this market? I still think they're cheap enough that it's going to be a good long run proposition. These small and mid caps that are selling at 15. I mean, as we've often said,

and I've often said, I mean, the big cap tech stocks have been, you know, they've been bringing home the bacon. They've been making the earnings that they have to make. But you can't make 20, 30 percent per year forever. There's a time when competition and rotation will catch up. It's just not going to catch up as fast as we thought when we thought that interest rates are going to go down, especially the Fed moving interest rates down. They were predicting that the markets were looking at maybe even 2% handle on Fed funds at the end of next year. And that would greatly help small caps and mid caps that borrow so much more at short term than certainly the big cap tech stocks, which are really insensitive to the short term borrowings and only partially sensitive to

long term having such high equity values. Let's expand the conversation, if we could, really insensitive to the short-term borrowings and only partially sensitive to long-term having such high equity values. Let's expand the conversation, if we could, Professor, and bring in CNBC contributor Shannon Sekosha of NB Private Wealth, Mona Mahajan of Edward Jones. It's great to have you both with us. Shannon, I'll go to you first, just expanding on what the professor said. I think people are a little conflicted on how to position within this market. And we asked Dubrovko Lekos of J.P. Morgan, their top strategist today, on where he thinks you really need to be. It plays right into the conversation we're having now. I want you to listen to Dubrovko on where you want to be and maybe where you don't. And then we can kick it on the other side of that.

To me, I'm not sure I wouldn't want to be in defensives and hire for longer. I'm not even sure I would want to be in some of the higher beta, smaller cap cyclical stocks. I would sort of be revisiting sort of the quality growth trade that has been, I don't want to say entirely dormant, but sort of dormant for much of the last four, five, six, seven months. It's an interesting thought. Shan, I ask you because you like small caps, you like cyclicals. What about what Dubrovko had to say? Well, it was a good quarter for small caps for cyclicals, Scott. And so, you know, I think that the revisiting of the quality growth trade is coincident with some continued concerns about uncertainty.

So clearly the Fed has remained incredibly data dependent. To the professor's comment, we get a strong jobs report that starts to put that, certainly, that cut in December perhaps creates some vulnerability around that. But if you think about, you know, in September and October, Scott, we were anticipating that we would see some of this volatility and uncertainty. And if you think about where investors have found safety or relative safety, it's been in the free cash flow, the fortress balance sheets of these magnificent seven stocks. You also talked about the potential for rates not being quite as accommodative. Think about how rate insensitive these names were in 2023. And think about also the fact that, you know, when you look at, you know, the potential for, you know, this this Republican impulse that we're seeing, think about regulation,

think about the potential for buybacks, you know, to remain, you know, fairly economical for these companies to do. So I think that's why you're seeing the rotation. I think it's really it's about the rate story, but it's also about this volatility from the bond market and the election finally manifesting in the equity market, you know, perhaps a little late in the game when compared with historical precedent. Mona, the backup in yields a problem or not? Yeah, thanks, Scott. And look, I think the backup in yields is certainly weighed on some of those cyclical and value parts of the market, no doubt. And I think for that story to work, that broadening of market leadership, cyclical values really having legs from here, there were two components. One was, of course, the earnings growth had to expand. And we're still seeing that. We still think Q4 earnings will be driven both by value and tech

parts of market, cyclical and non-cyclical parts of market. The other part of the story had to be Fed cutting rates so they can really realize that valuation expansion. Now, the Fed will likely still cut rates. But to everyone's point, we do think that maybe not as much as initially anticipated. Certainly, what we've been seeing is not only strong jobs numbers, but inflation that has not moderated yet to that 2 percent level. And so if that gives them any sort of problem in the future, we think there could be a couple of pauses in the Fed funds rate going forward as they

get through their rate cutting cycle. And that will create a problem not only for rates moving higher, but for that value cyclical trade to really work. Professor, you look at the sectors that are down the most this week, and it really is squarely in the heart of, you know, a good portion of the cyclical trade. Materials are down almost four percent. Financials, which have done quite well, are down two. Industrials, which have been near record high, are down about two and three quarters percent. So, I mean, is that where you would see, obviously, aside from the Russell, most acutely where the backup in yields would hurt the most?

Yeah. And I think that is the backup in yields. I mean, and it even ripples through the big tech. You know, we're at 423. I mean, if it goes up to 430, 440, I mean, if there's a Republican sweep and all the goodies are there, I mean, I could see a spike maybe 450, 460 temporarily. I mean, listen, no one wants it to go so high. But think of the homebuilders. They always thought, oh, my goodness, Fed is cutting. Mortgage rates are going to go down. We're going to have a big boom. Well, as we know, mortgage rates have gone up. They're not going up. The 30 years are going up. They're up almost 50 basis points from that September date when the Fed did that whopping 50 basis point cut. So, you know, a lot of sectors have to be rethought in terms, especially those that are dependent on those long-term rates and the Fed dropping the short-term rates about what the profits will actually be.

Shan, what's really at stake next week with five of the Mag7 reporting? We obviously got Tesla out of the way. We're not going to get NVIDIA until November 20th. So we have a minute to wait for that. But next week's going to be real. Absolutely. And I think, Scott, the challenge is that some of those names are obviously trading at more vulnerable multiples than others. And so if you look at, for instance, Alphabet, Meta, maybe not quite as quote unquote expensive as the other names there. We've seen some fits and starts in terms of that leadership coming back into the market on any given day. One of those five or six names is sort of picking up the slack. I guess, you know, the question really has become, you know, when will investors start to question the amount of CapEx that these companies are

putting into the AI megatrend and being able to keep up, if you will, in this AI arms race? I don't think we're there yet. I really think that these companies have, you know, justified their position, that they still remain very active in terms of spending, becoming more asset heavy, if you will, in order to keep up with this trade. So I don't think we necessarily get a lot of pressure there. But to the professor's earlier point, as we look into 2025, I think that's where you see more vulnerability in terms of the ask from investors relative to the CapEx that's being put into this trade. But I don't think that necessarily comes home to roost in this environment, particularly given the fact that there's some perceived safety in these names in this type of uncertainty.

Mona, you want to weigh in on that? Yeah, you know, look, absolutely. I think next week will be important for the markets. Not only the Mag7 names that are reporting, we'll get that jobs report at the end of the week as well. So this Friday is going to be next Friday. It's going to be huge. Last jobs report before not only the election, but the Fed meeting that comes next Thursday as well. And look, the earnings growth, average hourly earnings is expected to be still somewhere close to 4 percent.

So that does weigh on services inflation as well. So we're keeping an eye on that. On the earnings front, what we've seen thus far is we were expecting a modest 4% earnings growth this quarter. We're actually seeing a little bit softer than that. So we're not getting the beats that we've seen in the first couple of quarters of the year. So certainly if the MAG7 names next week follow that trend, we could see a little bit of volatility in that sector. And without the kind of value cyclicals to support, maybe that free election volatility that we're all kind of watching and waiting for does play out.

So we'll be looking for that as well. Mona, what would happen if the professor's right? Maybe that the Fed doesn't pause between now and the end of the year, but that they do, and maybe they do more than once in the early part of 2025. Is that a potential problem or not? Yeah, you know, the good news is that the markets are starting to get wind of this. We've already seen, you know, there was a terminal rate of 3% at one

point priced in. We're now at 3.5%. And even that, there's a bumpy path to get there. So I think markets are looking at hopefully that 3.5% to 4% as a terminal rate, which really means four to six rate cuts from here. And we think that is still a feasible case, even with a couple of pauses baked in. Really, the concern would be, as the professor alluded to, is if we get perhaps an election sweep and a full-on fiscal stimulus policy that reignites or reaccelerates inflation. And that we haven't seen yet. Although inflation has been bumpy, it hasn't necessarily been reaccelerated in a meaningful way. So if that occurs, that's a tail risk for now. That

would be a problem for the markets. But for now, the basic thesis seems to be intact, a Fed cutting rates, inflation that's mainly cooperating, and earnings growth that looks to be growing double digit next year. Professor, I'm going to leave it with you. You get the last point here because the top targets on the street are about 6100. You see where we are. We're at 58, 58 and change. Does that seem realistic that we could we could have a move to 6000 not beyond, between now and the end of the year? I mean, just given the election and some of the uncertainty that's going to be around that and in the aftermath? I mean, there's a lot of uncertainty. I mean, if it's a clean election and it looks like one side or the other is definitely beat and there's no violence,

I think that's just a relief on the market. You know, the market doesn't like any uncertainty. Even if a likely outcome is good. It likes resolution. And we know it's that's certainly hope that it's a quiet and uneventful. It's going to be an event it's a reincarnation of what Yardini called is the bond vigilantes, is they're going to say, hey, guys, don't think you can do anything you want. We're there to say that if you're fiscally totally irresponsible, you're going to suffer. And that's what they're for. And we might see a reincarnation.

They've been kind of quiet for quite a long time. But that concern might come up a week from Tuesday. In the meantime, again, we're all talking, even if the Fed goes slower, you know, a three handle on Fed funds means, you know, money market funds in the low threes. We've got a lot of good dividends paying stocks that are higher than that. They couldn't compete with five, five and a half, but they certainly can compete with three. And I think they're going to hold their own no matter what happens to yields. Thanks, everybody. Good weekend. We'll talk to everybody soon. Professor, thank you, Mona and Shen. We'll see you again shortly. We're getting some news on Lyft. Pippa Stevens has that for us. What

do we know here, Pipps? Hey, Scott. Well, Lyft is under pressure here after the U.S. filed a lawsuit against the company, accusing it of violations concerning unfair and deceptive acts or practices in commerce. Now, the suit specifically says that Lyft disseminated advertisements to prospective drivers that were deceptive about how much money they could earn. Now, this case has been filed with the federal court in San Francisco. We did reach out to Lyft, have yet to hear back, but shares are down now two and a half percent. Scott. All right.

Stephens, thank you very much for that. To Steve Kovac now for a look at the biggest names moving into this Friday close. Steve. Hi there, Scott. Look at shares of HCA Healthcare falling about 10% as hurricane damages drag on revenues for the quarter. The hospital operator warning it faces $200 to $300 million in hurricane-related costs and expecting results to be on the lower half of guidance for the rest of the year. On the other hand, shares of Digital Realty Trust jumping over 9% as the Real Estate Investment Trust reported record

lease bookings for the current quarter and raised the upper end of its full-year revenue forecast. Shares off earlier highs but on pace for its best day since November of 2022, Scott. All right, Steve Kovach, thank you very much. We're just getting started here. Up next, 314's Warren Pies will tell us why he thinks stocks will rally into the end of the year. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. NASDAQ hitting a record high today as investors brace for a big week of earnings in the election.

Our next guest says concerns about the market being overvalued are misplaced, that a year-end chase should push stocks higher. Let's bring in Warren Pies of 314 Research. It's good to see you again. Welcome back. Why shouldn't we be worried about where this market's trading? Yeah, well, I mean, I think that everyone who's making a lot out of the valuations and we've been there ourselves are looking at this market compared to historical P.E. ratios or historical valuation ratios. And I just don't think that this market looks much like the quote unquote historical market that you see when you study history. So if you first, if you start by looking at the composition, what stocks make up this market?

Over the last 20 years, we really swapped in a lot of growth in tech for a bunch of cyclical stocks like financials and energy. And so you think about it, financials and energy, historic P ratio, like 15 times, techs like 20 times. And so just by that swap, you can, in what we've done is hold the current composition of the market steady through history, and then come up with a new PE ratio. And that's like, gives us like a 21 times trailing PE, but we are at 26 times. So we're still slightly overvalued on that basis. But if we look out and we think of other factors, there's some quality factors that I think

make this market more attractive versus history. Consider return on invested capital. We're double where we were 20 years ago. Margins are expected to expand. And the margin expansion that you see out of these secular growers, those tend to push up multiples. So when you add all that together, our view is that it's kind of a fallacy to think that, just take that straight up PE ratio and

conclude that the market is overvalued. Put all that together, I think we're about fairly valued. And if we get the analyst estimates, which is like 26% from the end of 24 out to 26 of earnings growth, I think this market's set to go up above 7,000 by, let's call it 2026. But I mean, at some point, I mean, you say not you, but there's been this thought that you can tolerate higher multiples much, much easier in a lower rate environment. And the thought was that rates were going to be coming in and that earnings were going to be able to sustain the multiple that the market was trading at. But if we're thinking now that maybe rates are going to be higher for longer, doesn't that pressure the multiple at all? And that doesn't

even begin to address the earnings question as estimates have come down. They're still good, but they have come in. Yeah, I mean, to me, the two big risks when we look out the next year are valuations and rates. And like you said, they're kind of mixed together a little bit. And we've done a lot of work and I just went through our really high level thoughts on valuations. But, you know, when I look at 2025, I'm starting to think of themes for 2025. And one of them is, can the U.S. economy deal with 7% mortgage rates? Because it's going to be difficult for, I think, the Fed to move rates much lower. So it's a real risk.

You know, at the end of the day, though, growth cures all these things. And so one of the things we did is we looked at, what are analysts baking into the top line growth estimates for this market? It's like 12 and 15% out through 2026. You can basically run that against nominal GDP and it equates to, you know, 5% nominal GDP environment. So, you know, if we can hit those growth targets on the economy and on the top line,

ultimately that's going to power this market. Even if multiples compress a little bit, we should have very solid returns out through 26. What about next week? How are you looking at these reports? I mean, I think that the market's going to do whatever it does here in the short term. I'm sure that, you know, there's like, I think we're going to be just fine, to be honest. You know, I think that these mega caps tech stocks are going to be just fine, to be honest. I think that these mega caps tech stocks are going to be just fine with their earnings. I think that the big real risk hanging out there

in front of us is the election. So I think that you're starting to see the bond market position ahead of the election. You're seeing Trump kind of take over in the odds. And so yields are backing up. And that's where you're seeing some jitters in the stock market. So my playbook is I think it's very likely we get some chop and some downside between here and into the election and probably in the days following the election as well. But I think that the ultimate dynamic underneath this market is a chase. We talked about this. You and I had this conversation last December is that everyone was way too bearish on this market heading into the year and that when the market took off heading into the beginning of this year, it's created this chase dynamic and everyone's behind.

All those people that have been behind this year have to chase the market into year end, in my opinion. What happens? I mean, the market seems to be drawing its almost foregone conclusion. But if Harris wins, what kind of unwind do we see in certain trades that have been put on? Because people are believing what the betting markets are suggesting, although those may not be the most accurate places to look either. Yeah, I mean, I try my best to stay as objective as possible.

And when I have conversations with institutional money managers, which is our clientele, I can tell you the big concern out there is a blue sweep. So I think if Harris wins, but we have a Republican controlled Senate, which I think is highly likely, then the market is going to I think cyclicals come off, small caps come off, rates probably come down a bit, and the playbook is going to be to buy high-quality tech. I think Trump is the nominal GDP candidate. So if we do get Trump in a red suite, you're going to have this kind of cyclical pile on. Again, if you play a little 4-D chess and you think about what could happen with rates, I think you could have indigestion at the first part of that, a realization that Trump's

going to win. And then all of a sudden everyone realizes, yeah, but nominal GDP is going to be really strong, so let's buy this market. So that's how I see it. With Harris in a Republican Congress, or at least divided in some way, I think it's more or less status quo going forward. All right. Good perspective there. I appreciate it, Warren. We'll see you soon. Warren Pies. Thanks for having me.

Up next, yep, Datatrex Nick Kolas. He's back with us. Why he is forecasting some serious strength for the tech sector into next year. Back on the bell after this break. NASDAQ soaring to an all time high today, getting a boost from mega cap tech ahead of their big earnings reports. The tech trade overall has been on a tear over the last two years, as you know, during this bull market. NASDAQ seeing a 66 percent rise. My next guest says that's a positive sign for the sector heading into next year. Joining me now, Nick Coles of DataTrek Research. Good to see you. Welcome back. So this is about momentum that's going to carry us to a positive year three? Yes, it is. If you look back on the NASDAQ back to 71, when it started, you'll find that we've had 10 instances where we could have had a third

year of a bull market. We just had two. So the question is, are we going to get a third? In six of 10 times, NASDAQ continued to rally. In four of 10 times, it didn't. The overall average return of those 10 years is 4.4%, so not awesome. But it's entirely due to the four losing years, which were 84, 87, 1990, and 2011. And three of those, as I call out those dates, who recognize the 87 crash, the 90 invasion of Kuwait by Iraq, and then the 2011 Greek debt crisis. That's what killed those NASDAQ rallies. 84 was a garden variety tech recession.

When you take those numbers out, the average return for the NASDAQ in year three is 13.3%. So as long as we don't have any one of those big catalytic events, the momentum that you pointed out is historically set to continue and we should have at least a 10 percent return, if not better. We can get as much as 20 percent in some of these year three rallies. But doesn't this cut both ways, though? I mean, if you I'm looking at these years and, you know, of course, you have those bad average returns and we have crises during those periods of time. But you could say, I think now, well, have we pulled forward a lot of gains? We haven't had a crisis. We've had the opposite. We've had exuberance over AI. So given the strength of the last two years, that doesn't

mean that the third year could be a disappointment? You know, I think if we had seen NASDAQ really underperform, say, after June, we know that we had a big rip in the first half of this year, but there's been a lot of healthy rotation since then. And NASDAQ's only really begun to get ahead of steam again in the last month outperforming the S&P. So it's not like we've had just a uniform, monochromatic NASDAQ rally for two years. Other groups have taken leadership occasionally. Even small caps have taken leadership occasionally. And so I think it's a healthier market dynamic than what we had, say, in the late 1990s, where we all recall it was just tech that

worked basically for three years on the run. That's not this kind of trade. No, I know. But over 12 months, the NASDAQ's up 45%. Yes. but if you go back and look for the three-year returns, including the 22-year bear market, then they're much more modest. We're down in the 20% range and much more normal on a compounded growth basis. So we've got to take the good with the bad, which I think is your point. And then based on that, the NASDAQ still has some room to run. The valuations are huge. There's no doubt about that. But valuation is a notoriously bad indicator of when your forward returns. So kind of take that off the table and think about momentum and think about catalysts,

more negative catalysts than positive catalysts. Well, how are you thinking about volatility into the election and beyond? We're at 20 now on the VIX. How should we look at that? Yeah, we get a lot of questions from clients across the board on this point. What we've told them is we have a standard playbook for dealing with volatility, and that's you buy the S&P when the VIX gets to either 27 or 35. 27 is a good buy signal. 35 is a great buy signal. So going back to 2022, if you bought the VIX every time it got to 35, your one-month average return was 6.5%.

So for a trade, if you get volatility to really spike, which is entirely possible, we're looking for the VIX at 27 or 35. And then at 35 especially, it's very safe to buy the market for a trade. It's going to feel awful at the time, obviously. But that's what the relationship between volatility and stock market returns always does. Nick, thank you. Talk to you soon, Nick Colas. Thank you. Up next, we track the biggest movers into this Friday close. Steve Kovac is back with us for that. Steve? Yeah, Scott. Up next, one stock may have just hit the floor and will reveal the name when Closing Bell comes back after this. All right, we're 15 from the closing bell. Let's get back to Steve Kovach now for the stocks that he's watching.

Hi, Steve. Yeah, Scott. Shares of Centene rebounding from this week's lows after delivering better than expected earnings for the current quarter and maintaining its full-year revenue forecast. Centene's CEO previously warned of Medicaid challenges for the quarter, but Medicaid members fell less than the firm expected. Also, shares of Mohawk Industries leading the S&P lower as disappointing earnings forecasts for Q4 overshadowed a beat on profit and revenue for the current quarter. The flooring company anticipating recent hurricanes to hurt Q4 sales by $25 to $40 million. And I'll give a bonus one here. Integral Ad Sciences

looking into a potential sale that's according to a Bloomberg report citing sources familiar. The media tech firm, which is valued at almost $2 billion, is reportedly working with Jeffries as it explores options shares jumping, let's see here, 11% on the news, Scott. That's a good bonus one, Steve. Thank you, Steve Kovac. All right. Still ahead, AutoNation shares are sinking on some weak earnings today. We're going to drill down on that. We're back on the bell right after this.

All right. Coming up next, semis are surging in today's session. We'll break down what's driving that hire when we take inside the market zone next. All right, we're now in the closing about market zone. CNBC senior markets commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, Sima Modi on the rally and the chip makers today. Phil LeBeau on auto nationsation's earnings miss to Mike. All right, let's look ahead to next week,

because that's when it gets fun. MegaCap. It does. You know, for as much as it looked like those stocks were going to just sort of take charge today and maybe carry the market, they're doing their part. But everything else is sort of having a hard time relaxing, is the way I would put it.

For as resilient as the tape has been, for as much as you expect, mega cap earnings to more or less ratify the expectation that these are still great growth stories. And we can talk about how the election is never the big swing factor, and usually you get this tension release after it. But when we're this close to an apparent coin toss, market just doesn't want to fully give in to pure fundamentals.

You're back to 2016. The S&P was down nine straight days into the election, but in tiny increments. It was just this weird, constricting thing. I'm not saying we're going to get something like that, but it's just not that strange. Because even if you don't think the policy swing is the biggest factor,

somebody else does, or somebody else thinks somebody else does. And that, to me, is why people are keeping the market a little bit short of a leash, even as we're barely below the flat line for the week. Well, I mean, VIX a little, not to say elevated, but it's above 20. It's above 20 when the market's basically at a high. It's made 47 new highs and credit spreads are really tight and all the other indicators would suggest no real need for that much hedging. although bond market volatility has obviously kicked higher and we do have yields pushing the multi-month highs again today. Even if

it's for good reasons, it still creates a little bit of a stop and maybe take a half step back before you make a risky move. All right, Seema, tell us about the chips today. Well, coinciding with that all-time high for the Nasdaq, semis are outperforming. NVIDIA hitting a new all-time high. Intel and AMD are higher ahead of results next week. And even the semiconductor cap equipment stocks also pushing up after Lam Research's upbeat guide earlier this week. This as Taiwan Semi's regional head said at a conference overnight that its Arizona plant is making significant progress and in some cases performing better

than some of the facilities in Taiwan. Analysts say the sooner we get a U.S. foundry, the better from a national security standpoint and for U.S. chip makers that rely on TSMC and shares are up nearly 3%. Separately, BOA says hyperscaler CapEx spend looks strong going into earnings with every top cloud vendor likely to spend in excess of 50 billion dollars annually we know semiconductors

scott are a prime beneficiary of that capex spend i would point out smh the etf that tracks these stocks down uh just about 10 from its all-time high all right sema thank you sema modi all right phil tell us about AutoNation, this miss, and what it could mean for the others in this space. Well, we're going to hear from more auto dealers over the next week and a half or so. And the question is, was this just an AutoNation situation, or was the third quarter really as lumpy as they indicated? They missed by a pretty wide margin. Street was expecting them to earn 438. They earned 402.

They cited three or four factors behind the rough third quarter. First of all, the lingering impact of the CDK software hack in early July. There was Hurricane Helene, a couple of stop sales orders from a couple of the automakers, which obviously are going to disrupt sales to a certain extent. All of this sets up the question, Scott, as we get October sales late next week, what are we expecting to hear? I can tell you what the street's expecting right now, kind of lukewarm results at best. This is an industry that did not have a terribly strong third quarter. And I think that's what we'll find out when we get those results later next week. Scott, back to you. Yeah, appreciate you, Phil. Thank you.

That's Phil LeBeau. We've got about two minutes to go since we're talking autos. I mean, Tesla is the big winner on the week, obviously up 22% on this week. Yeah, and it's holding it. It's at a really interesting spot here in the 260 area for the stock. Even though it's, you know, well below its all-time highs, it's actually close to a one-year high. So maybe, you know, it runs counter-trend very often to the other ones. Everyone now, some people want to talk about the MAG-6 as opposed to 7.

But that one has had a big relief trade. Everything else, I think, is kind of hanging in there in terms of nobody wants to get too negative on the big names. They've sort of reset lower to a degree relative to the rest of the market. But the cyclicals, which have been really core leadership coming into this week, you have the regional banks down 3% on the week, industrials down 2.5%, and, of course, homebuilders off by 7%, all of them off of very healthy levels. But it shows you just a little bit of a rethink based on where yields are going and just taking some chips off the table in the economically sensitive stuff.

Yeah, materials pretty ugly this week. In fact, it's the weakest of the S&P sectors, down 4%. Yeah. So, again, it's one of those things like whatever did well coming into this week is getting hit just a little bit. 5,800. It's been this bit of a magnet for the S&P in both directions. This week, you know, some are going to look back on it and say all we did at the lows for the week in that little sell off a couple of days ago was we touched the September 30th level on the S&P and we held above it. So I think the sum is nothing's changed about the trend, the trend. But, you know, in the in the short term, the tactical stuff, it's getting just a little bit twitchy in there. We understand why. In addition to everything else, jobs number coming up. And naturally, the election plus the meat of earnings season is all right out there ahead of us in the next 10 days.

You have a great weekend, Mike. Thank you. That's Mike Santoli. We did hit earlier in the session a new record high on the NASDAQ. And how appropriate ahead of what's coming next week with those mega cap earnings. Five of the biggest names in tech will give their reports next week. We'll walk you up to all of them. I can't wait for that.