Closing Bell - Closing Bell: Record Potential Restored? 8/16/24

Episode Date: August 16, 2024

New highs may be back on the table with the major averages notching their best weekly gains for 2024. Charles Schwab’s Kevin Gordon, Payne Capital Management’s Courtney Garcia, and Steve Liesman set investors up for a big week ahead culminating in Fed Chair Jerome Powell’s all-important speech at Jackson Hole. Plus, Morgan Stanley’s Erik Woodring makes the case for more Apple upside. And, noted value investor Scott Black cracks open his playbook to share his top picks.

Welcome to Closing Bell. I'm Scott Wabner, live from Post 9 here at the New York Stock Exchange on this Friday. And this make or break hour begins with the road ahead for stocks. With yet another key week looming, more important earnings along with Fed Chair pals Jackson and Holspeech driving these markets. And they're not that far away from new highs either. On that note, let's look at the scorecard here with 60 minutes to go in regulation today. The major averages having a strong finish to a solid week. The S&P and Nasdaq having their best week since November. It is the Dow's best week since last December.

And that's after a slew of economic reads came in way better than expected this week. Certainly way better than feared. Yields, well, they're stable too. And that's certainly helping the equity picture along as well. Down across the board, 389 on the 10-year. It does take us to our talk of the tape, the likelihood that stocks can reach new records and continue to climb, even as many major hurdles are still ahead.

Let's ask our experts, Kevin Gordon, a senior investment strategist for Charles Schwab. Courtney Garcia, wealth advisor with Payne Capital Management, as you see both are here at Post 9. It's nice to have both of you back. Court, so what do you make of this market? I think its hallmark will go down to be the bull market anyway. One of resiliency.

I mean, at every turn you throw almost anything at this market and it shrugs it off and continues to do what it's doing. Yeah. And I think the downturn that we had about two weeks ago, there was fears that that was because we were going into recession after you got a bad unemployment number. But the fact that you're seeing the markets really shrug that off is because you're getting a lot of good data. We've got CPI coming out, PPI coming out. You've got retail sales. The big picture is that the consumer is still holding in there. Inflation is still coming down. And a lot of those recession fears are likely overblown.

And that downturn we had was more likely due to that yen carry trade than us going into recession, which would be a worse thing for the markets. And that, I think, is ultimately going to put the markets on a positive backdrop. All right. Kevin, you see it the same way? You know, I'm not so sure that, you know, when you look at the sell-off, the sector action wasn't telling me a lot that the market was expecting or fearing a recession. You know, when you look at the sectors that were underperforming the broad market, the S&P, in that period, you know, the entire drawdown from mid-July to early August,

it was just tech and consumer discretionary, both of those driven by a lot of mega cap weakness, which actually preceded the peak in the market and that kind of waterfall moved down. Yes, you did see some weakness in cyclicals, but there wasn't this message from financials or industrials or materials that you were going into this recession. So I understand the fears around why the jobs report came in worse than expected and the. So I understand the fears around, you know, why the jobs report came in, you know, worse than expected and the uptick in the unemployment rate, why that could send some fears into the market. But I'm not so sure that the message has been one of recession. I think it was definitely exacerbated by the attack. Last Monday,

specifically, there was a panic attack that we not only were having a positioning unwind, but that we were, in fact, maybe closer to a recession than we thought. Because the employment report the prior Friday sort of set everybody off. And then we opened Monday and you had that confluence of events, not to mention Buffett selling half of his apple steak. And we're like, OK, what's going on here? I think even with that, though, it was amazing to me to look at some of the reactions to the jobs report itself, as if all of these problems just started to crop up out of nowhere. I mean, we've known that the unemployment rate has been drifting higher, payroll growth

has been softening, there have been massive cuts to the work week, cyclical hiring has been slowing. You know, the list sort of goes on. That's been the trend over time. So, I don't think there was any one particular thing in the jobs report, you know, excluding the uptick in the unemployment rate. But even with that, I think that there's not a lot of supplemental labor data that are yet confirming that.

You can look at the trend in initial jobless claims, that's starting to roll back over, not confirming the uptick you've seen in the unemployment rate. You can look at the employment to population ratio on a prime age basis, that's rising, doesn't happen when you go into recession. So there's enough there still in this unique cycle,

which I think we have to keep in mind from a labor supply perspective that is skewing a little bit different this time. I don't want to completely ignore the unemployment rate risk, but I think it's an important, you know, sort of nuanced look at the labor market for this particular cycle. When I asked the question at the top of the show, are we going towards new highs again? And are we going to be able to eclipse, I mean, we're like two to two and a half percent away from that. Yeah. Especially when you look at what's been leading us off of this low, it's been tech and consumer discretionary, which is not surprising given they were sort of at the epicenter of that selling pressure. But if you get more of these clusters of days where

advancers relative to decliners are really strong, kind of in that six to seven, you know, six to seven advancers relative to decliners range, I think, yeah, it's plausible to see that. The key, in my opinion, when you get to that next all-time high, whether it's a week from now, a month from now, is what the breadth picture looks like under the surface. And so far this year, I think one of the strongest aspects of this market has been the fact that when you look at the percentage of companies in the S&P above their 200-day moving average, you've kind of hung in at the 60% to 80% range. 60% as a solid floor, 80 percent, 85 percent as a ceiling. And I think as long as you can keep that, you probably keep everything intact, especially because you now have the added benefit of inflation not only rolling over again, but inflation surprises being much more tame and much more muted.

That tends to be a really positive backdrop. So, Corey, you would agree then with J.P. Morgan and sounds like Kevin Gordon, the bullish narrative remains intact. That was the headline of one of their notes today. And they do talk about rate cuts being a welcome sign. Some people suggest, oh, sell the first rate cut. And I think they're implying that, well, they're cutting because the economy is softening, whereas others would counter with, no, they're cutting because they're just too restrictive and things are working in their favor. So they can and should.

Yeah. And I would agree with the latter there. I think you're really seeing the idea that rates are coming down is more so because inflation is coming down as opposed to the economy being in a bad position. They need to prop it up. That would change the picture if that happens. That's, again, I think what people started to question about two weeks ago, but we really haven't seen that be the case. And I think, too, as you're looking forward here, if the Fed does, in fact, cut interest rates, there is still record levels of cash on hand right now. I think we're at like six point two trillion or something in that in that range. And if rates come down, you're not going to be getting that five percent interest rates any longer. You're going to start to see some of that money come in. And I know we've talked about this for a while now because the question is when that's going

to happen. But that really will probably be the next big catalyst to see those markets go to new highs. What about Kev? if you believe what you guys say, and it sounds like you guys are both reasonably positive for the market here, where do you want to be positioned? Tony Pasquarello of Goldman Sachs says stay with the highest quality assets. Oh, yeah. Now, the implication of that is you're not going to go here into the Russell or anything that is super sensitive to either moves in interest rates

or the economy. Stay essentially with what's worked. Just sit tight, he says. I think, you know, what's funny, though, about the Russell, even if you just use earnings and profitability as your single criterion and you look and you divide the index in those two groups, so the ones that are profitable and the ones that are not profitable, over the past year, the profitable group is up by about 15 percent. Over the past year, the non-profitable group is down by about 5% to 6%. So you're already seeing that split and that bifurcation. In an index like the Russell, I would argue there's probably more active stock pickers in the large cap space than there are in the small cap space.

But index math also works against you for an index like that because you really need cyclicals to do well, given financials, energy, industrials, consumer discretionary. That's about 60 percent of the Russell 2000. So if those cohorts and those pockets of the market are not doing well and outperforming, it's going to be really hard for that index to exhibit leadership and take the baton away from the large cap indexes. I did mention the other hurdles that are kind of in front of us as we're running along here, some being earnings, certainly Chair Powell in Jackson Hole starting next week. Our senior economics reporter, Steve Leisman, joins the

conversation now. And Steve, if the chair sort of set the table at the meeting that ended a few weeks ago, does he go ahead and serve up the appetizer to investors in Jackson Hole that they're ready to go. I think he'll strongly hint that the appetizer is coming, but he can't serve it, Scott, till the meeting. And there's a bit of work that we have to do between now and the meeting. I actually have a little list here that you may want to take a look at. The next thing happening here is going to be the chair's speech. But that's followed by a lot of data. You got the PCE a week after that. You have the jobs report after that.

Then a few days or a week or so before the meeting, the Fed gets a CPI report. So, yeah, I think the market and the Fed, from what I'm hearing, are pretty well aligned here. You're going to get a quarter in September, possibly a half if some of that data goes sour or goes south. And then we'll have a debate about what the next steps are. I do think, Scott, the conversation in Jackson Hole probably centers around this idea of, OK, let's take the September cut as a given. What's the trajectory from here? Is this notion that's baked into the market of 100 basis points between now and the end of the year? Does that make sense? And is the 200 that's baked into the market of 100 basis points between now and the end of the year, does that make sense? And is the 200 that's baked into the futures market between now and a year from now, does that make sense?

That's where I hope to gain some understanding of what the Fed is thinking. I remember, I think correctly, and you, of course, correct me if I'm wrong, that at the start of the hiking cycle, he gave a speech in Jackson Hole that I think was about eight minutes long. I remember calling it like eight minutes of pain because he said a lot by saying a little. And obviously the markets didn't didn't like it. Do you think he has a longer case to make to the markets this time around as to why, even with an economy that looks OK, that it's prudent to cut and get back to what he thinks is some degree of normal? You know, I think you really hit the nail right there. Yes, you're right. There was an eight minute speech. Apparently he

ripped up a much longer speech and decided that the way to make his point, Scott, was to be a short and sharp, which he was. I do think now it's interesting that he makes a case for cutting rates that goes beyond the vicissitudes of the data. Data is going to go this way a little bit, that way a little bit. One of your guests, I think it was Kevin, talked about the idea of a little less volatility in the inflation numbers. But look, you could get a 0.3 one of these days, or it could be a 0.1.

But I think he'll make a case, at least if that's what he wants, he's going to do, he's going to cut rates and point the market towards taking some off the top here. He'll make a case that, look, we are tight by any measure or standard here, and we do not mean to be more restrictive than we need to be. I'll just point

out, Scott, I've got a good friend in the music business. He has a music rental company. And he said to me, Steve, make sure you get him to cut in Jackson Hole or we're all going to default on our credit lines. In other words, he's going to maybe get away from Kevin being so data dependent and focus on the one piece of data that Steve mentions that many are focused on. And that's just the fact that they're too restrictive. Oh, yeah, I think for sure. I mean, no matter what inflation metric you use to measure real rates, you're basically at your highest since about 2007, maybe a little bit higher depending on the metric you use. But, you know, on the data dependency part, I think one of the difficulties of this cycle, the difficulties with this Fed, just being an ex-post-Fed,

is that they're still going to be data dependent. It's just which data they, you know, choose to focus on and emphasize more. That's shifting clearly from inflation to the labor market. So they could be very data dependent on labor. The only trouble with that is that sometimes when you get these upward trends in the unemployment rate or when you start to see this much of a softening in payroll growth, some of those trends are hard to put back in the bag.

And especially for the unemployment rate, it doesn't really move sideways. It either goes up or it goes down, with the exception, of course, what I mentioned earlier, with some supply issues, that may be the difference in this cycle. That's precisely, precisely, Steve, why it's potentially dangerous to be too data dependent from here forward, because by the time they react to what is a weak, especially weak jobs report, it's arguably too late. Yeah, let me make more confusing what Kevin just said, because the economists talk about the non-linearity, and I applaud Kevin for avoiding that term, but it's a useful one. It basically says things can take off and run away from the line that you were on relatively quickly.

There's that concern. We just had Austin Goolsbee talking about, hey, I should be watching unemployment here a little bit more than I have been watching it. That can get away from you and other things as well. We did have a decent, you know, you looked at the data this week, Scott. It was up and down. And it's kind of like what I think you might expect if you close your eyes and said, what's a soft landing look like? Well, we had a weak housing number today. That's what you would expect. And by the way, Goolsbee talked about the idea of there being some lagged policy tightening still to come into the economy. You had the strong retail sales number. You had the

lousy jobs and unemployment number. But you also had moderating inflation. So there is no way. And it's very difficult, I think, here, Scott. You've been doing this for a very long time. And a lot of times you're asking people what you think and how to invest into a market or an economy that's going up. Or how to invest in an economy that's going down inexorably. But what do you do when we're kind of going sideways to a little bit up? I think the investment case is much harder. You're going to have changes in the yield curve along the way here. You're going to have changes, for example, in the relative

value of utilities and the coupon that you clip there. So there's a lot of stuff in motion, a lot of things to think about. If you're trying to save some money for the longer run, where do you come in on the curve? Do you lock in these tens or is the 10 something that goes up while the two goes down? A lot of stuff in motion here, Scott, to think about. Certainly, which court you're a wealth advisor. Your clients are asking you, I'm sure, questions about what all of this means. Are rate cuts going to be good? Like I've been told since 2009, they're supposed to be a pretty good thing for stocks. How do you answer the question? Yeah. And, you know, different asset classes are obviously going to react differently to this. But I think what you want

to see is rates will be good for a lot of areas of the markets. I mean, stock markets in general, yes, it tends to be a positive. You're also seeing things like housing, which Steve brought up, which I thought is interesting, because right now you're seeing housing start numbers are coming in much less than expected. There's a lot of demand on the sidelines right now. There's people who are just priced out of the markets right now. There's just not enough housing to go around. And you're going to see that demand come right back up the second rates come down. So I think there's a lot of things that are just waiting for rates to come down.

And we've been waiting for months and months. But once it happens, there's a lot that can take off. And you want to make sure you're getting ahead of that trend before they raise rates, not after. And the other thing, Steve, I think it was you who made the point. And I think you made this point on social media. But maybe you expanded on it on one of our programs. I'm also wondering whether Chair Powell starts to make the case that they have full agreement here on the Fed of unanimity, that they agree it's time to do this, that there's no fracture which only could potentially

raise issues of the politicization of the Fed if they go in September so close to an election and arguably are going to go two more times after that. I think that's right, Scott. And I want to stipulate two things before I make this point. One is that I think the Fed does what it needs to do regardless of the election. And the second thing is that I think the Fed is not really political in this regard. But I do. And that Powell always wants to have a unanimous board. OK, he's actually worked harder at that than any other chair who I've ever covered over a course of a couple of decades. That said, I think if you're going to be cutting interest rates ahead

of an election, you sure want it to have to be unanimous. You don't want your two Trump appointees, for example, to be dissenting or you don't want your two Trump appointees, for example, to be dissenting, or you don't want to not cut rates and have your Biden appointees dissenting. You want to show a unanimous face. I think that's, you know, because every chair cares, I think, in the first instance about the economy, and in the second instance, I think they care about the institution of the Federal Reserve and its reputation and how it looks. And I think that is something that will be on the mind of Powell. It makes me think more of a 25 for that reason than a 50.

Interesting. Yeah. And also, it's very I just want to make sure everybody knows you're not insinuating in any way either that either cohort appointee of Biden or Trump would would do anything with their voting power politically either. So let me throw that out there. And you were explicit about that. I was able to cover the nomination process of the Trump White House, and it was very much unlike other nomination processes for other departments. This one was very much like other administrations I had covered before until kind of Trump went rogue and named Judy Shelton outside of that process inside the White House. And I know the people who were vetting these people and Shelton came from another part of the apparatus, so to speak, but they were very careful about who they picked. And look, Bowman has been,

who was one of Trump's appointees, more hawkish, but not off-the-reservation hawkish. She has some points to make about her hawkishness that make sense to me. And Waller has been a really interesting surprise. In fact, he's become one of the thought leaders on the Federal Reserve.

So he's somebody who's really interesting to watch, who I cover very carefully. And he's a Trump appointee. And there's a bunch of other folks who, you know, they seem to do leave their their their colored robe at the at the entrance when they come in. Yeah. Waller not afraid to say stuff on his own either. As we learned, I don't know whether six or eight months ago or whatever, whatever it was at this point. Steve, thanks. I appreciate you. That's Steve Leisman, our senior economic coordinator. Sure, pleasure. Back to positioning. Courtney, what's worked this week? Semis are best, up 10 percent, and NVIDIA is up a lot in its own right as I look at it this week, almost 19 percent.

Technology's up seven and a half this week. Discretionary up five and a half. Let's focus on discretionary. I think people know the story at this point on tech. Was the discretionary trade saved this week? Well, I think Walmart really came out and helped like what is happening with discretionary spending right now. Right. And I think you're seeing that the consumer is still holding in there. They're clearly stretched right now. You're seeing like higher income consumers are actually going down into a Walmart. So the question is, like, is that an outlier or not? And that's where I think you want to look at next week. We have Target reporting. We have Lowe's reporting like you're going to really get a good picture of the consumer next

week. And I think that's something we absolutely want to watch. But I think between what Walmart said and the retail sales number, I do think that that is leading to a positive trade there. And that's exactly what you're seeing reflected in the market. How would you address that? Because we've had a lot of people, you know, say you really don't want to be too exposed to the consumer. Did that change? We do have an underperform in our sector rating on consumer discretionary itself. A lot of it is related to some of the valuation excess you get when you have two members in that index that make up almost 40 percent of the sector. It's Amazon and Tesla, of course. But on an equal weighted basis, I could see some room for maybe an ability to look for companies and screen for

companies that, as you mentioned earlier, as Bertone's quote, that screen good and quality. So if it's a profitable name, if it's a profitable industry, high interest coverage ratio, I think that works to the point, you know, Courtney was making, though, the entire sort of shift that's going on in the consumption base and what's going on with the consumer. The bullish case is that there's just shifts going on within the overall consumption universe. There's not this outright sort of falling out, the bottom falls out all at once, which I think is an important story that has been intact as the labor market's been intact. It's one of the ways you can sort of gauge in real time, day by day, earnings report by earnings report, that the labor market's still relatively healthy, relatively resilient, I would say, and that consumption is holding up. But it's slowing

over time. I feel like that was the big deal that Monday prior, that it felt like, oh, is everything going to fall out from the bottom at once? And then this week, you know, maybe it saved the day in some respects. I got to run. It's great to see you, Kevin. Thanks for being here. We'll see you soon. All right. Don't miss, by the way, Steve Leisman's coverage of Jackson Hole. He's going to be live at the Economic Symposium next week. He's going to hear the latest. Obviously, we are, too, from Fed Chair Powell. And that's coming a week from today. But you'll get that coverage starting on Thursday. To Seema Modi now for a look at the biggest names moving into this Friday close. Hi, Seema.

Scott, we've got our Iron German Life Sciences company buyers surging after announcing it secured a legal victory this morning. The court sided with the company in its lawsuit over claims that exposure to Roundup, the company's weed and grass killer, led to cancer. Shares are up around 10 percent at this hour. And take a look at Rivian moving in the opposite direction. A spokesperson for the EV maker said the company has temporarily suspended production of its commercial delivery vans used by Amazon due to a shortage of parts. We're looking at Rivian shares down about 4 percent. Scott, back to you. All right.

Seema, thank you. Seema Modi. We're just getting started on this Friday. Up next, iPhone optimism. Apple shares are up double digits from last week's intraday lows and back in the green now for the month. Star analyst Eric Woodring sees more upside ahead. He's going to break down his latest call just after the break. We're live at the New York Stock Exchange and you're watching Closing Bell on CNBC. We have some breaking news on the streaming space.

Steve Kovach has those details for us. What are we learning here? Yeah, Scott, take a look at shares of Fubo. That's the streaming, sports streaming service, rather. They're up about 17, 18 percent now. This is after a judge just put forward an injunction blocking venue, another sports streaming service from launching. That's, of course, the joint venture between Warner Brothers, Discovery, Disney and Fox, where they're going to have this kind of combined package of live sports for I believe is like 43 bucks a month.

And this is putting a temporary injunction on that service from launching. It was set to launch this fall based on an antitrust lawsuit filed by Fubo TV. For now, the judge is saying it agrees with Fubo and it's going to put on hold the launch so they can have another hearing about this, I think, next week. But you can see shares of Fox and Disney and Warner not moving too much on this. But Fubo definitely is up about, let's see, 19 percent now. Scott. Yeah, we'll follow it. Steve Kovac, thank you very much. Apple, meantime, building on recent momentum amid the broader market bounce back now up more than 14 percent off of the intraday lows of last week. And a new bullish call now for Morgan Stanley's Eric Woodring calling for Apple's strongest Q3 for iPhone builds on record.

He joins me now, as you can see. Welcome back. It's good to see you. Good to see you, Scott. Why this newfound optimism here? Sure. So what we've picked up over the last few days is through the supply chain, we've learned that July was a bit better than we expected when it comes to iPhone demand. We do think that is concentrated primarily in the iPhone 15, so not necessarily a full read-through to the next cycle, but this is typically a period of time where you get a bit of a demand pause ahead of the next iPhone cycle. What we're actually seeing is relative strength in the iPhone 15,

again, builds around 54 million units in the September quarter. That is a record by about 4 million units compared to any other September quarter prior. Just to put that in context, that would imply roughly 55 million iPhone shipments in the September quarter. We're currently forecasting about 52.5 million. Consensus is about 50 million. So it's a relatively good data point that we're picking up on late cycle strength here. Presumably all because of these new AI-related innovations. Did you put anything into those reports? And I'm curious your take on it to begin with, that some of these features were going to be delayed. What do we know about that, if anything? Sure. I don't want to over-extrapolate late-cycle iPhone 15 strength with directly to Apple

intelligence. It's too hard to make that perfect correlation. But what we have talked about, and this has been well publicized, is we do believe the iPhone launch event will be sometime around September 10th. We do believe that iOS 18 will come out shortly thereafter, but that Apple intelligence will somewhat be piecemeal, slowly rolled out through the ensuing weeks and months. Apple told us during earnings two weeks ago

that the ChatGPT integration will come by calendar year end. And so the way that we think about that, at least today, is maybe you get a little bit of different seasonality in the cycle, meaning perhaps some consumers wait to upgrade until they see that those software features are in the market. Again, it's too early to make that call, but we are about 2 million units below consensus iPhone shipments in the December quarter, but above in the March and June quarter of 2025, we have that cycle pushed out a little bit simply because we think the Apple intelligence rollout

will be a bit later than we previously thought. Were you surprised when you heard that Berkshire cut the stake in half? I wasn't. Warren Buffett is obviously a legendary investor. He's up 10x on his Apple position. He bought it around $26, $27 initially, I believe. So the stock is up considerably. He's talked about the potential for higher capital gains taxes. Feels like it's a good time to maybe take some chips off the board. It is still Berkshire's number one position by far. And if you go back to his roots, he's a value investor.

Apple is a 30 times PE company today. That's not exactly a value stock. And so he's been public about saying that there's support or he has support for Apple. He thinks the business model is strong. To me, this is him taking some chips off the table with a 10 bagger, effectively. Yeah. Are you comfortable with 30 times? I am. I am. So the way that we think about it is twofold. One, we are predicting a multi-year upgrade cycle.

Historically, that is what drives multiple expansion. So that's the first point. Second to that is if you look back over time, there's a very clear, positive correlation between services gross profit dollar mix and Apple's valuation. We continue to see services outgrowing the product business, which ultimately means services is becoming a greater proportion of Apple's gross profit dollar mix. That would support kind of a long- term tailwind to Apple's valuation. Historically, back in 2021, the stock peaked around 32 to 34 times earnings. So 30 times is where my price target stands.

I feel comfortable with that. OK, two more quick things. China, are you feeling better about it today? So China is still a tough market, to be very clear. Economically, China is challenging. It is still one of the most competitive markets. But, you know, Scott, we were talking about this a handful of months ago. There was a lot of caution in the market around Huawei's return.

And I think some of those fears were overblown. There was a point where I was forecasting iPhone units in China down 24 percent year over year this year. I have them down roughly 8 year over year this year. I have them down roughly 8% to 10% this year. And I do believe that ultimately in 2025 with the iPhone 16, China is not a headwind, but it is not necessarily a tailwind either. It is a challenging market that Apple has to work through. Don't forget, the Chinese smartphone market is 40% smaller today than it was five years ago. There's still some challenges there. We just don't think they're as significant as we thought,

perhaps a few months ago. The antitrust conversation around Google this week has people once again thinking about large cap tech. And obviously, Apple's been in the crosshairs to some degree somewhat recently. Absolutely. How should we think about that now, given the alphabet ruling, if at all? Sure. Well, it's hard to decipher legal rulings this early ahead of time. There's a lot of different avenues this case can go.

Remember, it is the DOJ versus Google, but obviously Apple has a relatively asymmetric exposure to this case. In the case nothing happened, the status quo remains. We know, obviously, the DOJ has now regarded Google as a monopolist. And something that they cite continuously in their 286-page ruling is the exclusivity relationship that Google has with Apple. We do believe that Apple still has a lot of assets in this relationship. So almost 30% of all search in the US goes through the Safari toolbar. That is a very very valuable piece of real estate. If Apple

cannot maintain exclusivity with Google, what we believe that they will do is introduce a choice screen, which they've done in the EU already, allow users to choose which GSE, which search platform they want to use, but obviously collect economics from each of those search players if they want to be a part of that search screen. And then when you ultimately search through, for example, Google in this instance, get a traffic acquisition cost. So in other words, what I'm saying is I believe that maybe Apple can offset the loss of exclusivity with capitalizing on economics through different means. All right. Good stuff,

Eric. I'll see you soon. Thank you so much, Scott. Morgan Stanley, as you see, joining us once again on Closing Bell. Up next, S&P Value stocks joining in on the market comeback. Now noted value investor Scott Black is back with us. He's cracking open his playbook. He'll give us his top picks, why he sees signs of market euphoria. He'll tell us why when we come back. Stocks looking to end this week's big comeback on another positive note. The S&P 500 now just 2 percent from record highs set mid-July and value stocks even closer to that milestone. Just 1 percent from an all time high set two weeks ago.

Noted value investor Scott Black joins me now to share where he is investing. He's Delphi Management's president and founder. It's good to see you. Welcome back. Thank you for inviting me. We mentioned in the tease to this segment that you think the market's exhibiting some euphoria. In what sense? Okay, if you look at the P.E. ratios, let's take the NASDAQ, for example. It's selling at 27 times this year's earnings. The Russell 2000 is 28 times. And based on my calculation of 235 and S&P 500 earnings,

the market is about 23 and a half multiple. And if you look at the concentration, the NASDAQ, the top 10 stocks are 50 percent and almost 38 percent in the smt with the exception of meta and alphabet every one of those other eight out of the 10 are selling between 33 and 90 times this year's earnings i'm not saying they're not good companies they're excellent companies but these are full multiples going in and what's happened is i think people are concerned that you know we're going to avoid a recession that the fed suddenly going to drop you know cut we're going to avoid a recession, that the Fed is suddenly going to drop, you know, cut the rate, which I suspect they will, 25 basis points, although they haven't reached the 2% inflation target. So that's mixed in, the imminent cut. And I think they like what they saw with the

consumer was up 1% this year, month over month. And as I say, the headline CPI number was under 3 percent. The actual X energy in food was 3.2. So I think there's just too much expectation already baked in. And the S&P estimates are much too high. When I did the Barron's Roundtable in July, they stood at 241. They're already down to 238. And that would imply that the back half of the year, the S&P operating earnings will be up over 18 percent. Hard to believe because in the last quarter, they're up 7.1. So if you put it all together, it seems to me that markets are expensive. OK, well, so it says to me you you're such a famed value investor who doesn't find much value in the market. So what does that mean? Are you

waiting for a significant pullback you think is coming before you would deploy any capital to the stocks you have your eye on? No, we always stay fully invested. We're about 90 to 93 percent invested at all time. At this juncture, we're about 92 percent. But at the margin, it's getting increasingly difficult to find companies that have high returns on equity, strong free cash generation, selling at low multiples. Because we like companies that aren't in a turnaround situation where you're about two or three quarters of down earnings. So the typical PE at Delphi now is about 12 times earnings, which is half the market market. What's your best name right now? Well, I sent you one. It's called SS&C Technologies in Windsor, Connecticut. It's a little fintech company. Most people don't know it, but it's about a $17 billion market cap. The stock is around $72

a share, and they're going to earn about $575 next year. So it's about a 12.5 PE. The company generates close to a billion a year in free cash. They basically have authorized another billion-dollar buyback, and they're strong. With private equity and hedge funds, they're the strongest asset facilitator in terms of back office, algorithms, market-to-market. They're also the largest transfer agent in the mutual fund industry. The company's not a bond burner on the top line. It grows 5% or 6%, but they've increased the operating margins. They picked up about 170 basis points in operating margin this year. And so you get operating leverage plus buyback. Instead of having 5% top line growth, that translates into

about 11% bottom line. I just think it's awfully cheap at a 12 multiple, a 20% return on equity. Okay. Do you still like some of the other picks that you made for the roundtable? Like Everest and Diamondback and stuff like that? Absolutely. Every one of the stocks, four in the first session and two this summer session, all six. We own all of them. I want to point out, although global payments is down, they've come in with record earnings quarter after quarter.

You know, it's the old Ben Graham. In the short term, it's a voting machine. In the long term, it's a weighing machine. It's ridiculous that global payments, who's growing at roughly double digits on the bottom line, sells under a 9 PE. Each one of these companies, if you look, had an up quarter year over year, both in the first and the second quarter of the year, and they all sell at relatively low PEs, anywhere between 8 and 12 times next year's earnings.

Scott, we'll see you soon. I appreciate the time as always. Scott Black, Delphi, joining us here on Closing Bell. Enjoy the weekend. We'll see you soon. Coming up next, we track the biggest movers as we head into the close. Seema Modi is standing by once again with that. Hi, Seema. Scott, less than 20 minutes left in trade, and there is one beaten down Chinese tech stock that is surging today.

We're going to tell you the closing bell. Back to Seema Modi now for the stocks she's watching. Tell us what you see. Okay, Scott, H&R Block is higher today after reporting fourth quarter results that topped estimates and issued a fiscal 2025 forecast that points to another year of revenue growth. Tax services provider also raised its dividend and authorized a $1.5 billion buyback. We're looking at shares up over 11%.

And JD.com jumping today after nearly doubling its second quarter profit. The Chinese e-commerce players' earnings soared 74% year over year. Price cuts and Beijing's recent push to get citizens to trade in old home appliances for new ones seems to be paying off. You'll see the stock up nearly 8 percent. Scott. All right, Seema, thanks. We'll see in the market zone in just a minute. Seema Modi. All right, still ahead, falling Pfizer shares of the pharma giant under pressure after a trial setback. We break down that move. The bell's back after this.

All right, we're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Sima Modi on this week's big rebound in the chip stocks. And Angelica Peebles on what's putting some pressure on Pfizer today. Michael, I begin with you. Quite a week. S&P is up about 4%. NASDAQ better than 5. Yeah. And the market got back into gear. You know, obviously had that erratic action, that scare that we had to absorb

at the very beginning of the month. And this week, not only did you have those gains piled up on the initial recovery we got later last week, but the mechanisms of the market started to click back in and we get these rotations and this kind of gentle movements. It's probably a net positive, of course. The question is whether we've kind of become clear of some of those macro challenges or not. And I think the market is looking ahead to a couple of weeks where outside of Jackson Hole, there's not a whole lot that could knock the general high probability of an initial soft landing off course. But obviously, you know, surprises happen.

But right now I think it's positive action, even if we're a couple percent from the highs. Yeah, discretionary, certainly a big story this week. And it's, you know, obviously beyond the Amazons and the Teslas and the nice moves that they've had. But this was one of those weeks where we refocus perhaps our attention on the consumer in a more positive way or at least a less bad way. Yeah, I think it's exactly that. We really had gotten to a point of feeling as if the consumer was sort of at the end of his and her rope and July was going to be extremely weak. And you got some reassurance on that front. That's all to the good. I do think it sort of saved some of the more

cyclical parts of the market from really breaking down. It didn't get them escape velocity. But again, it's a lot of back and forth. The path to an ultimate soft landing is always going to be beset by a lot of these doubts along the way and mixed data points. And so far, as I say, we came through them. We're back to 21 times earnings. Can we hang on to that, you know, as earnings come through? That's a bigger picture question. Seema, you can't tell the story of the market this week without focusing on the chips. Yeah, you really can't, Scott. Sentiment turned during a short period of time. Just two weeks ago, there was a report about a Blackwell delay from Nvidia, and we saw

not only Nvidia but other chip stocks fall. But then it took a couple of days for analysts across Wall Street to quickly acknowledge the fact that a three-month delay won't have an incremental effect on earnings because the demand for their current graphic processing unit, Hopper H100, is still seeing strong demand. And despite AMD showing some level of competition, there really isn't another player that can steal market share from NVIDIA. As we approach earnings on the 28th, we're looking at NVIDIA shares just this week up over 17 percent. This is the best week since May of last year, and it's lifting the broader

semiconductor sector and the ETFs that track these stocks. Another piece of news is Texas Instruments winning a $1.6 billion grant from the Department of Commerce as part of the CHIPS Act. This as the company looks to fast track the build out of two new foundries in Texas. It also includes $6 to $8 dollars in tax credits, about 10 million on workforce. Of course, there are a number of companies that have been awarded funding from the Department of Commerce. The key question, Scott, for the market will be when do those funds get allocated? Something that we've been discussing on the topic with Intel and Taiwan Semi as well. But shares of Texas Instruments sort of sitting out on the rally. But again, the broader sector

doing very well. All right, Seema, thank you. Seema Modi to Angelica Peebles now on what's putting some pressure today on Pfizer. Angelica. Yeah, Scott, the story today is that Pfizer is facing a setback in its work to develop a COVID flu combination shot. The company is saying that its experimental vaccine produces a good response against the type of one type of influenza, but not the other. So Pfizer is going back to see what changes it can make. And they'll talk to regulators about what the next steps are. And Pfizer and Moderna are both working on combo COVID and flu shots. The idea here is that putting

two in one will make it easier for people to get and it'll help boost declining COVID sales. Pfizer isn't giving up, but this is still a pretty big setback. Pfizer has been saying that it could file for approval for this shot by the end of this year. Now it's not clear when that might happen. Scott. All right, Angelica, thank you. Angelica Peebles. Mike Santoli, less than two minutes to go. We got about 90 seconds, a little less than that. Taking stock a couple hours from now. Tell us what you're going to be talking about most of all. Well, I guess, first of all, are investors correct to essentially think that the storm has passed, that we just went through in the last couple of weeks? Also, I want to drill a little bit into this sort of reassessment of the AI opportunity. That's one of the three or four major things that seem to be contributing the pressure from mid-July into last week on the market,

in addition to the growth scare and obviously what was going on with the unwind and the carry trade. There is an AI skeptics case that is getting a little more chatter, I think. And we're going to try to kick that around. And obviously, you know, NVIDIA earnings coming up in a couple of weeks seems like the thing that investors are putting out there. And by the way, bears are saying, I'm not sure how negative I want to get ahead of that. At the same time, you question exactly how much we've paid in advance for all the AI growth. Yeah. All right, Mike, I appreciate it. Go get them in a couple hours on taking stock again, six o'clock with Mike here on CNBC. So we're going to go out pretty green today. In fact, the S&P and the Nasdaq are going

to post their best weeks since November. It's going to be the Dow's best week since December. So the best weeks of the year for stocks. It shows you the magnitude of the comeback that we've seen. Everybody, you have a great weekend. I'll see you on the other side of that. We'll go to overtime now with Morgan.