Closing Bell - Closing Bell: Routine Summer Pullback? 8/8/23

Episode Date: August 8, 2023

Is this still a routine midsummer pullback to help digest huge first-half gains or the start of a more serious setback? Lauren Goodwin of New York Life Investment gives her expert take. Plus, Scott Siefers from Piper Sandler weighs in on Moody’s move to cut the credit rating for a number of regionals. And, a rundown of what to watch from Lyft and Rivian results after the bell. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with another mild disturbance blowing through the markets with a reminder of regional bank challenges and a growth scare out of China overnight wobbling the tape. Yet a strong Treasury debt auction, tame bond yields, a bounce attempt in Apple shares have all got the indexes well off their lows as we head into the close, which brings us to our talk of the tape. Is this still just a routine midsummer pullback to help digest huge first half gains or the start of a more serious setback? Here to discuss all that is Lauren Goodwin,

New York Life Investment Management Senior Director of Multi-Asset Portfolio Strategy. Lauren, good to see you. Great to be here. Thanks for having me, Mike. Sure thing. I like to dial back to just about a month ago, right before the previous CPI report, right? This is July 12th. Yeah, the S&P 500 within 1% of where it is right now. The 10-year treasury yield is 4%. That's where it is right now. When we got that tame inflation number, it was a bit of a kickstart for that late July rally. We added a few percent. Now we've given it back. What is the what is the status right now in your mind of the

soft landing economic scenario and how much of that the market can still benefit from or potentially have a downside surprise about? Well, look, I think that the market learned some pretty important information from that last inflation report from June that we saw in July, which was that the market learned some pretty important information from that last inflation report from June that we saw in July, which was that the disinflationary process has moved from an early stage to a more stable one. That's one where even if the Fed isn't done hiking, the terminal rate is in sight and investors can be excited about the potential for a soft landing. Now, I think it's a little bit of a false start, but one that could last for a couple of months still, because until unemployment claims start durably rising, that narrative is likely to be the one that dominates. Now, do we see significant equity market upside from here? It would have to come from a broadening of performance from the laggard starting to catch

up. So we may be in a bit of a range bound and volatile market one where stock pickers have a bit of an advantage. This latest rise in Treasury yields, it's been a global rise in yields, actually. What do you read into it in terms of are we just pricing out or pushing away the prospect of recession for now? Is it just about rebuilding inflation expectations or something else entirely, maybe just Treasury supply that's on the way as well? It's about something else entirely. There are a couple of reasons why long yields can rise durably. It's either because the path of the Fed funds rate or global interest rates change because growth is looking different in the future or because inflation expectations change or because of supply and demand factors.

And what we've seen over the past week or so is a lot of supply and demand factors pushing and pulling on the long end of the curve. That includes changes in the Bank of Japan's policy. It includes the Treasury auctions that you mentioned, increasing supply. And it also, of course, includes the downgrade to U.S. credit ratings that we saw last week. Now, a couple of really important takeaways for investors on this point. First is that it matters very much why the Treasury yields are moving higher. If it were because of growth expectations moving higher, then it could happen sustainably. But because it's in the supply-demand factors, we expect that to extract more volatility in the

long end of the curve. And for that reason, the second thing really important for investors to keep in mind is that as investors have been thinking about adding duration, this dynamic with the curve being so inverted makes us less certain about that. We're seeing short duration in credit and adding duration only in the municipal part of the curve where we see a little bit more benefit from taking that duration risk. One thing that the yield move has not really been about, though, is the market repricing the path of Fed policy, it seems anyway, because the short end of the curve has been very stable. Today, we did have more Fed speakers out there, I guess, communicating kind of a measured stance on

maybe we'll need to do some more tightening, but as it stands now, probably not yet. Market seems comfortable with that. Is that something that can, I guess, underpin further financial market stability, keep yields in their range, and therefore, you know, the stock market could benefit? That auction, I think it was a three-year note auction today, very well received. That might be an indication that supply can be absorbed. Yeah, look, I think it's really interesting that we've benefited in the markets from several quarters now of essentially a pivot rally. The idea that even if the Fed might have a hike or even two left in its arsenal, that we're close to the end of the rate hiking cycle. We're close to the terminal rate.

And that pivot rally, it has historically and certainly in this case been an opportunity for investors to add value. Again, it's only when the pivot starts to turn into, oh, no, we might be entering a recession that the equity markets react to recession in real time. And so the fact that investors are not so worried about the Fed funds rate and its trajectory at this point has been very constructive for equity markets. Yeah, it is a fair point that the market doesn't always, you know, see see the tougher times coming from a long distance away. So we have to keep that in mind as we deal with the leads and lags of this cycle. Let's bring in Greg Branch of Veritas Financial Group and Katerina Simonetti

of Morgan Stanley Private Wealth Management to this conversation. Welcome to you both. Greg, you know, we could talk about right now as a snapshot of the economy, soft landing remains plausible. Others are going to say, you know what, this is how the economy decelerates before a downturn. One thing that has been clear, though, is this earning season has pretty much been better than expected on paper, but the market has not received the news all that well. There's been a lot of sell on the news. What does that tell you? What it tells me is that although it's been better than expected, probably for the first time in a long time, we are dealing with fundamentally, does that mean it's been good? And so just because we beat on

lowered expectations, a negative 5 percent, and that's what we have in so far, this far into the quarter, is certainly different than the 3 percent we saw from the first quarter, despite the politicians pumping in lots of stimulus and lots of government spending, which has kind of pushed out whatever landing we're going to have, whether be softer whether it be hard. And quite frankly the title and what we call it matters less to me. But we all have to agree on is that in order to get from here to there meaning from four

and a half percent. To the two percent target that the Fed has we need further demand destruction. And if we need further demand destruction whether you believe that will be through further Fed action or whether you believe they've

done enough. The impact of what they have done or what they will done. Lies ahead of us. Yes the easy the low lying fruit has been picked. But we've been range bound for the most part in this thirty to forty percent a thirty to forty basis point. Growth in

core. The last eight months I suspect will return again we see this month. In the last month was an aberration where we only saw twenty basis points of poor growth. And so if you believe all this is ahead of us, it's really hard to sustain a pivot rally. Because, yes, the Fed might be closer to the end of what they have to do. But we're really just at the beginning innings of the impact of what they've already done.

It's really only dented the early cyclicals. Well, Greg, to your point about, you know, the fiscal push has helped the economy up to this point in the year. Others have made that observation that that's been a different factor in the in the surprisingly resilient economy. I mean, the IRA, the Inflation Reduction Act and the CHIPS Act passed in August of last year. It was in the budget for this year when we were looking ahead at that 2023's economy, whatever you thought the economy was going to give you, recession or not in the first half, the fiscal situation was set up well before we got into this year. Perhaps, Mike. There are a couple of things that weren't in there, though, right? We did not

anticipate the Treasury having to spend down its general account, for example. That's untaxed, unborrowed money. We did not anticipate have the Fed moving from quantitative tightening to quantitative easing with 500 billion of loans to the banks interest-free. We did not anticipate the Employee Reduction Credit Act. We did not anticipate the politicians trying to cancel student loan debt. So perhaps this is actually quite normal heading into an election season. But we've had all kinds of stealthy stimulus coming from the politicians, which have been, quite frankly, fighting the Fed. None of this helps the Fed with its mission to reduce inflation.

And so when we see the duration for which we'll see this rally, I think depends a lot on when we see some of these stimulating activities start to taper off a bit. All right. We will debate all that later. And that's that's not really QE. And, you know, the Treasury general account is there to be spent. So we'll talk about all that another time. But, Katarina, what's your basic sense here of the market field position after we run to a 20 percent gain in the S&P 500? Seeming like we're setting aside the imminent dip into a recession. Maybe earnings hit their low point in the second quarter. That's what the projections say.

What do you think the risk reward looks like with all that in mind? Well, the risk reward has not been looking very attractive. And market is taking a bit of a breather today, which is only understandable when we look at the returns on the S&P so far year to date. And the returns have been driven mostly by the general investor optimism, hoping that inflation is coming down and hoping that Fed is nearing the end of the interest rate hikes. But the performance has not seemingly been driven by is the earnings and specifically market has been ignoring the earnings revisions that have not been you know just really looked at as closely as they need to be so we fully expect some type of an earnings recession before the end of the year we think that soft lending is possible but our expectations for the return of the year. We think that soft lending is possible, but our expectations for

the return for the year end are quite modest, which explains the defensive stance that we have in our clients' portfolios. But didn't we just have the earnings recession? I mean, if you just look at the way the quarterly pace of projected earnings are meant to go, it was a shallow one, perhaps, and off of a high base but the market's acting like that might have been it market is acting this way and the reality is is that we might be in the higher interest rate environment for quite some time especially when we look at the data that just came out recently you know all across the board. And if that is the case, and we look at the pressures that are going to be imposed on the earnings farther, right, you know, then we can't really say that

the earnings recession is out of the possibility. We think it is a very real possibility. So that's why we're focusing on the sectors that can sustain and do well in this environment, sectors like industrials and financials and consumer staples. And we're recommending that clients perhaps take some gains off the table because some sectors in over the first couple of months, a couple of quarters of the year, have done exceptionally well both in individual use and on the sector level. Got you. Lauren, one thing that has not really popped up as a red or yellow flag just yet is credit conditions. A lot of folks taking comfort in that idea that, you know, how bad can the economy be in terms of its vulnerabilities if, in fact, credit spreads remain very tight, even if the regional banks are pressed here. Does that create an opportunity or is that something you think the market has right or wrong?

I think it does create an opportunity. It's something that our investors have been speaking to a lot, that the second I make cycle along the lines of what Greg was describing is unlikely to be different. That rising interest rates, the rising costs that represents not just for the banks, as we've today, but for the whole economy, is likely to create a drag over the coming months. But the credit cycle may look a little bit different. And that is because of the changes that we've seen as a result of government programs and, frankly, strong corporate actions to push out maturities, to reduce borrowing costs in the near term for the next couple of years. This is an asset class thinking credit, including high yield, that has improved in quality. And so while I completely agree with Greg and Katarina that risks are only likely to rise from here,

the credit cycle may act differently. We may not see yields, high yield spreads, widen out the way they tend to. And so when it comes to taking risk across the portfolio, we've been interested in taking equity risk, especially given the gains that we've seen in the first half of this year and operating it in high yield in order to take that equity like risk, but gather a coupon at the same time. Got it. And Greg, in terms of tactically, how you would maybe sort of survey the landscape right now and decide what the market is giving you, given the kind of environment you're expecting with some trouble for the economy. I know in the past you've thought that exposure to some of the secular growth areas of the market makes sense. A lot of those stocks have had sharp pullbacks from high levels. Is that an area that makes sense to you right now? Yes. And I'm going to I'm going to pull from both Lauren and Katarina for this. On the one hand, I think that

we have significant downward revisions to go. And in a macro environment where I expect significant downward revisions, you're always going to find some safety in those companies that do have defensible margins and that can put up double-digit earnings growth. And we all know what those areas are. And like you said, Mike, whether it's cybersecurity, whether it's tethered to the cloud, tethered to AI, whether it's some areas of healthcare, they've all had runs, but they will still offer us a relative safety towards other, versus other sectors that don't have those built-in capabilities that don't have those secular talents. On the other hand, like Lauren said, I do think that there's an opportunity, particularly in the shorter end of the curve, where we weren't getting a reward when I was originally concerned about this in 2021, but now we are.

And so I think whereas I may be a little bit shorter duration than she's indicating because I want to position myself at the end of all of this. And yes, even I will share shed this bearskin at some point where we have opportunities to pick up some of those secular, secular tailwind powered companies at a discount. All right. Yeah, I mean, the market was down one point two percent in the S&P earlier. Now just down a half a percent. So you can't count on it being that resilient every day. But so far, it's still a kind of a two way market. Makes for a good debate. Lauren, Greg, Katerina, thank you so much. Let's get to our question of the day. We want to know, is it time to position your portfolio more defensively?

Head to at CNBC closing bell on X, formerly known as Twitter, to vote. We'll share the results later in the hour. We're getting some news on X, actually. That is, of course, the former Twitter Julia Boorstin here with that. Hi, Julia. Hey, Mike. X announcing some new advertiser tools for brand safety and suitability, expanding its partnership with Integral Ad Science, which is a third party to help give its U.S. advertisers vetted ad inventory. They're going to start to test sensitivity settings so brands can pick between relaxed, standard, and conservative preferences around content. They're also bolstering what they call block lists to protect advertisers from appearing

adjacent to unsafe keywords in users' timelines. Now, today's announcement follows reports alleging that hate speech and offensive content have increased on the platform since Elon Musk took over. Musk and X did sue the center for countering digital hate after the group claimed Twitter failed to take action against subscribers who post offensive content. Now the question is whether CEO Linda Yaccarino's moves to reassure and bring back advertisers can work after Musk has repeatedly declared his commitment to unfettered free speech. So it's always about that background here. Free speech versus removing hate speech and what it all means for advertisers, Mike.

Yeah, and giving advertisers, it looks like, a little more control over targeting toward or against it. Julia, thank you very much. And don't miss a CNBC exclusive interview with ex-CEO Lindy Iaccarino. That is this Thursday at 10 a.m. Eastern time. Let's get a check on some top stocks to watch as we head into the close. Seema Modi here with those. Hi, Seema. Hey, Mike. U.S. Cellular and its majority holder, TDS, are extending recent gains today as J.P. Morgan upgrades both stocks to overweight. Analysts there are applauding the company's plan to explore strategic alternatives for U.S. Cellular, and they estimate it could be worth $80 a share, more than double its current price, even after jumping over 100 percent in the past week

on the news. Elsewhere, we are watching Datadog having its worst day on record as week, third quarter and full year outlook is outweighing a beat on earnings and revenue. We're looking at shares down about 17 percent on the day. Mike? Yeah, pretty heavy volume as we're showing there right now to SEMA. Thank you. We're just getting started here. Up next, financials under pressure. The sector feeling the heat after Moody's credit rating cut on some of the regional bank names. We'll break down those big concerns after this break. We're live from the New York Stock Exchange.

You're watching Closing Bell on Seema. Welcome back to Closing Bell. Financials, one of the worst performing S&P sectors today, driven lower by the banks. After Moody's cut the credit rating for a number of regionals, that moved renewing investor concerns around the challenges facing the banks. Joining us now is Scott Seifers of Piper Sandler to talk about the group. Scott, good to see you. Hey, Mike.

Good to see you. Thank you very much. How are you thinking about not just the downgrades, but in general, this broader refocusing of attention on, you know, some of the underlying issues that we know the regional banks have been dealing with and where those stand right now? Yeah. So, you know, still kind of a work in progress. We come off of what was actually a slightly better than expected second quarter. Now, there are certainly a lot of pressures, and I don't want to minimize those. But I think what happened in the earnings season is that investors breathed a little bit of a sigh of relief that their worst fears from

earlier this spring did not come to pass. You know, deposit flows have clearly stabilized, and that's great. Having said that, you know, I think with this scream upward in yields that we've had over the last week or so, that's sort of caused some of this enthusiasm to wane. The downgrades we got today from the ratings agencies, that's weighed on sentiment as well. And I think what a lot of investors are doing is saying, look, we've gained about 20 percent, albeit off very depressed levels, over the course of the past month. Maybe we take a deep breath and sort of recollect our thoughts. Because the fact of the matter is that we do still have a long road ahead of us, whether it's with funding costs that will pressure net interest income, new capital rules that will pressure profitability, the eventuality of a credit cycle, et cetera. So

there's still a lot to worry about. Yeah. And what do you do, I guess, in terms of sifting among the banks in that type of environment where it does seem as if, oh, we have all of these, you know, funding issues and margin squeezes on the way, presumably to an economic downturn at some point that always tends to pinch the banks as well. Yeah. So we're trying to stick with quality to the extent that we can. You know, in the largest cap space, J.P. Morgan remains our favorite large bank. You know, to us, it's just in rarefied air with its ability to generate superior returns despite this uncertain environment and some of the most punishing regulatory requirements already in the industry. So that's just an excellent company, and we think it'll continue to be so. If you get into the larger regionals, we like U.S. Bancorp. We think

that's a kind of unique opportunity insofar as they got hit earlier this spring on capital concern issues. So they have had a little bit of ground to make up, but I think they've done a really nice job of laying out for investors a roadmap of how they'll advance their capital levels over time. And the fact of the matter is that they generate capital internally at a more robust clip than virtually anyone else in the industry. So we think what you're getting is an excellent company at an historically discounted valuation. And then you go a little smaller. We like fifth third a lot. High reserve, conservative expectations, good rate positioning, strong capital. So really good, really good company

at an attractive valuation. And in terms of the impact, if there is going to be one of the credit downgrades, it occurs to me not, you know, unlike the downgrade of the U.S. Treasury debt, which is not really going to impact borrowing costs in a direct way, some of these banks obviously have to fund themselves in the capital markets. Have we seen anything in terms of having them to pay higher spreads on their own debt as they raise money? I know deposit funding costs are going up as well. I'm just wondering if there's any real feed-through to dollars and cents for the banks. Yeah, well, presumably there will be. When I think of ratings agencies downgrade, ratings agency downgrades like we're seeing here today, I think of it in two ways. One is the qualitative impact, you know, ways on sentiment. We're seeing that in stock

price action today. The second is the quantitative impact, however, because these banks do have to fund themselves and issue debt. And what will be interesting over the next few years is presumably a lot of these regionals will be subject to something called TLAC. It's total loss absorbing capital, one of these myriad acronyms that we're going to have in the regulatory infrastructure. And there will be a lot of supply of long-term debt from the regional banks. So presumably, if we're layering on costs, all that's going to do is weigh on profitability and earnings momentum. So it will be a negative here over the course of the next few years. And, you know, we're already seeing it not in debt specifically, but with deposit costs, which are, you know, of course, a real form of debt and a very big one. So it's already

impacting things in various ways and we'll continue to do so going forward. Yeah. Seems like a long road. Scott, appreciate it. Thanks for keeping us up to date. All right, Mike, thank you very much. All right. Up next, it's been a year since the CHIPS Act was passed in the House. Christina Partsenevel is standing by with that story. Hi, Christina. Fifty three billion dollars promised by the U.S. government and not a penny in sight. I'm Christina Partsenevel at Wolfspeed in North Carolina. Coming up after the break, we talk about the progress of the CHIPS Act. The $53 billion CHIPS Act was signed one year ago with the hope of jump-starting the production of semiconductors in America, but manufacturers are still waiting on that funding. Christina Partsenevel is here with more. Hi, Christina.

Hi, Mike. Well, companies like silicon carbide producer Wolfspeed, where I'm at right now in North Carolina, have opted to start construction even though they haven't received any federal aid. However, other chip companies have had to put their plans on hold until they get some of that Chack funding. Listen in. We've been building coalitions with the construction industry so that once funding does start flowing, we can begin to start that process as quickly as possible. Well, it's not as quickly as many of these companies would hope because the Commerce Department has to sift through

over 400 statements of interest from companies domestically and internationally seeking funding. They're so overwhelmed that they had to hire 140 staff members to sift through all those applications and help disperse the $53 billion over the next five years. And companies won't see any of that funding until the earliest, the end of this year. And then they can start continuously hiring that talent and hope that these factories don't sit empty. Mike? I was going to say, Christina, presumably it's not keeping things from getting started, this lack of government funding. But how far can things progress? Will these companies just remain kind of taking those risks to kind of sink their capital into this indefinitely?

It's actually really, you see a discrepancy between companies that can afford to start construction like the Intels, like TSMC, like Wolfspeed versus the other companies that have made promises, some of the smaller firms, but have said that they've had to put their plans on hold. Like Integra, we spoke to the CEO of Integra Technologies, like just a few other firms, too. So it's not everyone. There's really a divide between both right now.

And the next step, though, this is just the beginning. Then they have to retrofit all of these factories. Let's see if any of that gets delayed because of the lack of funding and best case scenario uh what are we talking about in terms of when you might actually see production out of the new facilities oh fabs usually take anywhere between three and five years so this isn't an overnight process i know we're doing a one-year anniversary right so it's important to just see the progress but overall we're not going to see the production of these chips for at least quite a while. Yeah. All right. It obviously was a long-term plan, at least to some degree, underway. Christina, thanks very much.

Thank you. Speaking of chips, don't miss an exclusive interview with Global Foundry's CEO on Overtime. That's coming up today at 4 p.m. Eastern. Up next, Disney's big AI effort, the media company announcing a new push into the world of artificial intelligence amid the ongoing writer's strike. We'll hear from Disney expert and New York Times columnist Jim Stewart with his take after this break. Closing bell, be right back. Disney reportedly forming a new task force to study the application of artificial intelligence across the company amid the ongoing Hollywood writers and actor strikes. The news coming a day before Disney is set to report third quarter earnings. Joining me now to discuss is New York Times columnist and CNBC contributor Jim Stewart. Jim, always good to have you join.

Look, I suppose every big company probably has a task force to figure out if AI can help them in some way or another. With Disney, though, it does seem to fit with a picture of a company that's looking for efficiencies anywhere they can find it to try to restore the economics of all these business models that are challenged. It's content creation, movies and linear TV. What's your take? Well, the timing of this announcement is especially bad for Disney, given that the use of AI is a huge issue in the ongoing negotiations with the writers and, to some extent, the actors. They just started talking again, and this is going to inflame a lot of the writers, because let's face it, it's their necks on the chopping block here. AI does have the potential, certainly, to reduce some very large costs for Disney,

not just Disney, but all the Hollywood producers. Wall Street has been very concerned that the cost of these streaming services has just been skyrocketing and are out of control, and AI is certainly a possible way of sharply reducing those costs. I mean, when you really look at what Disney and a lot of these other studios produce, it's pretty formulaic in many cases. There are set elements, and, you know, particularly the action-adventure genre, the sci-fi, the Marvel things. There are set pieces in every one of these, and dare I say it, AI could probably write some of that. Now, that said, the high-concept issues, the truly original work, that's got to come from humans. Right, especially at a time when, in theory,

the kind of cookie-cutter, formulaic film release slates are one of the things that's wrong with the franchises that used to be so profitable. For Disney, I mean, just big picture for the company, though, they're in a fix, as other media companies are, where the areas that are growing fast, like streaming, are not profitable. They're basically burning up capital. The places that have cash flow still, like cable TV, are shrinking pretty fast. It's created this situation where CEO Bob Iger has said we have to consider all options, you know,

selling a stake or finding partners for ESPN, maybe selling out of broadcast TV. Where does that place the company that used to be one of those deals that said, look, when the stock goes down, it's a great franchise. It's the best brands. Just buy it. Seems like the equation is changing. Well, this has really been a pivotal sea change, certainly for Disney, for the entertainment sector generally, that maybe Disney more than anyone. I mean, the stock is now near its 52 week low. The expectations are so grim for the earnings that I suppose that the only real surprise would be maybe better than expected. But they're getting hit on every single front. And certainly the decline of linear broadcasting, the cable channels, the old broadcast networks, this is a serious issue, especially for Disney, but for all of these companies. I mean, I think it came as a shock to a lot of people when Iger went on this very network and said, I'm putting everything up for

sale. This isn't core anymore to Disney. And that came to a shock for both people inside the company and outside the company. But I think people were looking like, what were the trends that led him to make such a drastic statement? I mean, they're really declining. And then secondly, if that's true, who is going to want these assets and at what price can they unload them? Again, it seems like there were obvious buyers or people lining up to buy these things. I wouldn't have had to, like, advertise that they're going to be for sale. Right. Although I guess the question is, if the market is going to penalize Disney for the fact that they are owning or they have this exposure to those shrinking profit pools, that maybe somebody else is willing to just, you know, either take a stake or find a way to pay the right price and buy them. But, you know, I think more

broadly speaking, you say you think Iger's reputation has taken a nosedive. I just wonder if it's a matter of, look, the circumstances have changed. The industry is in a tougher spot. He's back there to make some of the harder decisions that simply need to be made by somebody. Well, you know, some of this you can't really blame on Iger. I mean, he he left the company with an absolutely glowing reputation. He came back to a very changed industry. And nobody is going to be popular who has to make large across-the-company cuts. And he has had to do cuts.

He's had to lay people off. So there's right there a formula for unpopularity. But I think everyone would agree he's not just doing this recklessly. This has to be done. That's number one. Number two, though, he has inflamed the creative community with some provocative comments like the writers are being unrealistic. You know, you want to be really conduct high level diplomacy here and be super careful about any kind of off the cuff remarks about the motives or the intent or the value of these very important creative people to Disney going forward. And then I think the way he announced or I guess you can call it an announcement that he's rethinking the whole structure of the company, came as a great surprise to people both inside and out. And I think it's caused morale problems inside.

Whoa, you know, people were waking up saying, wait a minute, I'm devoting my life here. And he's saying it's not core. And then, you know, his partners out there, they don't own all these things by themselves, who had no heads up, no advance warning that this was coming. And I think that came as a shock to many of them as well. So lately, there have definitely been some mis. And I think that came as a shock to many of them as well. So lately, there, you know, there have definitely been some missteps, I think, that have aggravated a very difficult situation. Yeah, well, we'll see. He's typically over the years been pretty good at

sort of telling the story in a way that Wall Street's willing to embrace when they report earnings, see if he can pull it off this time. Jim, thanks very much. Good to talk to you. Sure. Last chance to weigh in on our question of the day. We asked, is it time to position your portfolio more defensively? Head to at CNBC Closing Bell on X, formerly known as Twitter. We'll bring you the results after this break. 14 minutes until the closing bell. This intraday rally has carried on. S&P 500 down just about a third of a percent. It was down almost 1.2% at the lows.

It's the fourth day in a row the S&P has crossed the 4,500 level as well. Let's get back to Seema Modi for a look at the key stocks to watch. Hi, Seema. Hey, Mike. Let's start with international flavors and fragrances. This is the worst performer on the S&P 500 right now after cutting its outlook and posting a big miss on earnings, a stock tracking for, again, its worst day, and the stock down 19%.

Meanwhile, on the upside, Eli Lilly and Novo Nordisk are both hitting all-time highs in today's session. Lilly topping estimates and raising its forecast fueled by demand for its diabetes drug and hopes that it will get approved as a weight loss treatment that comes along positive trial data from Novo Nordisk, which said its obesity treatment reduced the risk of a major cardiovascular event by 20 percent, stock heading for its best day in two decades. And by the way, we will hear from Eli Lilly, CEO, tonight on Mad Money with Jim Cramer. Mike? Seema, thank you. All right, let's get the results of our Twitter question of the day, or X question as we now call it.

We asked, is it time to position your portfolio more defensively? Slight majority, 51%, saying yes, 49% still on offense. Up next, Lyft and Rivian results hitting the tape in just a few minutes. We'll break down the key themes and metrics to watch out for. That and much more when we take you inside the Market Zone. We are now in the closing bell market zone. Wealth enhancement groups Nicole Webb is here to break down today's weakness and whether perhaps there's more trouble ahead. Plus, we're monitoring two earnings reports out in overtime.

Leslie Picker on what to watch in LIPS results and Phil LeBeau on expectations for Rivian. So, Nicole, we actually have this little firming of the market intraday. We're back at this 4,500 level on the S&P. But a lot of things really had been in place coming into August where you should have expected the potential for a little bit of downside choppiness. Do you still expect something like that because of the seasonal factors? We priced in a lot. But also, what would you do with that kind of a pullback? So I think there's a lot to unpack here. And August is generally a lack of liquidity month. So as we close out, so it's going to be interesting to see just how choppy it gets or if we kind of go into a bit of a holding pattern

in a tight range. And then September is kind of teeing up for, OK, that's probably not going to be as easy as the first half of the year. I think the most interesting takeaway has been, with as many economic surprises as we've had to the upside, we are not getting earnings revisions following suit. And so what we've really stepped back and taken a look at is, okay, well, the market just never priced in. What the bond market and economists were calling for, which was this recessionary type of event. And so with that, we just go into the back half of the year going, all right, at the surface, perhaps we still end around this 4500, 4600 target.

We keep a lot of what we made in the first half, but the experience of getting there looks a lot different. And we start to see more of the underbelly, choppiness, rotations out of technology, and maybe the pickup in some more defensive or cyclical areas playing into now everyone's in agreement that we're not headed into this recession. Yeah, I guess the big question is, is the market going to be satisfied with looking toward 2024 and the potential for a resumption of earnings growth if the economy can stay on firm footing or if we've had just this relief period where, OK, we didn't get a recession

yet and we also didn't really have a super severe downturn in valuations, as you mentioned. So therefore, is it just a kind of a temporary pause in the difficulties? There is one bit of optimism that I do really think that we're overlooking, and it's productivity. And we're starting to see productivity numbers come back. We were talking about them being the worst they'd ever been. Now we're seeing an incremental tick up. When we think about forward applications of AI and the likes of all the investment into digitization, that will come forward into revenue. And so when we think about productivity, if we continue to see uptick, that is where I start to think, okay, it could look even better

than projected in 2024, but we're going to need more to get there. And so right now, I think it's going to be a lot of how does one think about the positioning that took them this far year to date and where do we want to be for the back half? Because if you had cash and technology, you did fine. Absolutely. You did great. And you might be willing to just try to protect that for a little while. Exactly. Talk to you again in just a second. We want to get to Leslie Picker, though, on anticipating Lyft's numbers after the close. Leslie. Hey, Mike. Lyft had a pretty good summer, shares up about 19 percent since the end of June, outperforming Uber actually quarter to date, but dramatically trailing its rival in 2023. Uber, if you recall, reporting its first ever operating profit last week and momentum and mobility for

the entire space has really helped drive Lyft's stock higher. In recent weeks, Lyft has also undergone a big change at the top, with David Risher, a former Amazon e-commerce executive, having stepped into the CEO role in April. For analysts, the overarching question, of course, will be where things stand with Lyft's market share relative to Uber, and overall pricing commentary, and the ability for them to control various costs, including insurance expenses. The street is expecting a loss of one cent per share on an adjusted basis with slightly higher year over year revenue of about a billion dollars. Mike Leslie, thanks very much. Let's get to Phil on on Rivian's numbers about the hit, Phil. And Mike, as it is, was for Fisker with Lucid, Rivian, another one of the pure EV startups. It's all about the guidance. Now, they have made, roughly speaking, 25,000

vehicles in the first half of this year. What do they say about their full year guidance? It's at 50,000 vehicles. That's where they set their guidance earlier this year. Do they keep it there? Do they increase it? That will be in focus, as will be the question of pricing for the R1T electric pickup truck. We know that Ford cut the prices on the Lightning by at least $10,000 for some of the models. Is that putting pressure on the R1T? And what's the order outlook? What does RJ Scaringe, founder and CEO of Rivian, say about that? As you take a look at shares of Rivian, they've had a nice run over the last several months. There's some momentum building here behind what investors are expecting from this company, but they're still expected to post a

loss, roughly speaking of about $1.5 billion. We're going to get the numbers here within the next half hour. We'll see what they say, not only about the second quarter, but more importantly, Mike, what they say about Q3 and the rest of this year, especially when it comes to production. Sure. Now, you mentioned the nice run that the shares have had this year. Certainly also compared to Lucid and Fisker, the other pure EV makers that you mentioned. What does we attribute that to? Is it the category they're in or they're further along in delivering on their volume promises or what? A couple of things. One, they've got scale that

the other two don't have at this point. And two, they haven't disappointed over the last couple of quarters. With Fisker, they brought down their production guidance. We know the story with Lucid. We've covered that extensively over the last six months. The last seven, eight months for Rivian have generally been a case of meeting expectations and doing what they said they would do. And that has people saying, OK, we think they're getting some traction here. Yeah. All right. Phil, we'll we'll talk to you once those numbers are out. Thanks very much. And Nicole, not so much with these EV makers, but there has been in the last couple of months a little bit of a revival in some of the more speculative, longer-term growth plays out there. On one level, after the regional

bank stress in March, everyone went for the known winners. Since then, it's been a little more of a rekindling of the risk appetites. Is that something that you would welcome or be suspicious of? When it comes to names like Rivian, what a buy at 13 a share. Is it still a buy at 26? I don't know. I mean, we're talking about a manufacturer putting out 50,000 units of production as a target. So that one's a bit speculative for me.

I think that there are still names that are very solid, well-established, diversified businesses that we're not talking about, that have not kept up with market performance year to date, that can be a ballast regardless of what the second half of the year comes. Strong dividend playing names. And I think that's really where we are going to start to see some rotation. And I would prefer to be ahead of that rotation. You mentioned if you happen to own tech plus cash this year, you're in very good shape. Somebody in that position, where would you be looking to sort of rebalance into? I mean, it's hard. You can give up 5%

in income on the short duration side. Or will I pick up a company like Honeywell that has paid its dividend religiously for 30 years? But I'm talking about a 2% dividend. It's a diversified business unit. And I don't know if you've come across this, but they're in the quantum computing space. And if they really do something with it, that's very interesting. Also, APD, looking at liquid natural gas and the race to consumption globally, not just here. And then also, I think the conversations around hydrogen and many alternative forms of energy are all very interesting. And those names have not performed the way the S&P broadly has year to date.

So older companies trying to play new, longer term themes. Seems like some place to look. Nicole, thanks very much. Appreciate it. As we head into the close, the market actually is in the S&P 500 anyway, up for the week still. So we've kind of not lost as much today as was gained yesterday. The S&P 500 working on about a one third of a percent decline. Mention we're at that forty five hundred level. We've crossed it the last four trading days in a row. Now, there has been a little bit more wear and tear in small caps. They were the downside leaders all day down down about six-tenths of one percent. There has been a bounce attempt in Apple shares.

Those shares are still down 9.3 percent from their highs. Seems like they may have broken a long-lasting trend line, some technical support, but they are trying to marshal a little bit of buying interest around 180. That also has helped the S&P 500 find its footing right here as Treasury yields have also backed off this week, calming some of those valuation concerns that we had going into Monday. That does it for us here at Closing Bell. Let's get into overtime with Morgan.