Closing Bell - Closing Bell: September Slump Strengthens 9/26/23

Episode Date: September 26, 2023

Is there still a bull case to be made for stocks in the year’s final stretch? Some suggest, the answer is yes. BNY Mellon’s Alicia Levine and Trivariate’s Adam Parker give their takes. Plus, Capital Wealth Planning’s Kevin Simpson breaks down his 5 star stock strategy amid today’s big drop. And, market expert Mike Santoli breaks down the crucial moments of the trading day – as stocks sink into the close.

Welcome to Closing Bell, a busy one at that. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with major questions about rates and stocks, whether one might keep rising while the other keeps falling. That's what's happened over the past month as a rough September heads towards an end. Here's your scorecard today with 60 minutes to go in regulation. There's yields. They have turned higher in today's session as the day has moved on. And to no one's surprise, perhaps, stocks are weakening. Take a look. The Dow and S&P now pacing for their worst quarters in a year.

Seven of 11 S&P sectors now below their 200-day moving averages. The Nasdaq, where the biggest pain is today. Several mega cap tech names see moderate selling. We'll show you the names along with Amazon, which is sharply lower as the FTC hits the company with an antitrust suit. We'll have an update on that in just a little bit. Alphabet, Apple, Microsoft, they're all lower as well. Take a look. At least 2% declines. That does take us to our talk of the tape. Is there still a bull case to be made for stocks in the year's final stretch? Some suggest despite all of what we just said, the answer is yes. For more, let's bring in Adam Parker. He's the founder and CEO of Trivariate

Research, also a CNBC contributor. Alicia Levine, BNY Mellon's head of investment strategy, is with us, too. Let's start with you, Alicia. You're sitting right here. It's good to see you. So let's just say that, you know, I was talking to her. Mike Santoli came up to me and said, President Biden, obviously, he went to see the striking UAW workers today, said him saying that he supports a 40 percent increase in pay for UAW workers sent stocks a leg lower. I was just looking at GM and Ford. They were lower. Just put that into context as just one of those areas that has us uneasy in the markets today. Right. We have wages. We have inflation. We have bond supply and all that is weighing on the market right now. And until there's some resolution in

the bond market and on yields, you're going to have this heaviness on the index level. And as we've seen over the last four to six weeks, it's really sitting on the tech sector, which, of course, is still the best performing sector of the year. So places to take profits and where investors really had flocked. And once it was FOMO, it was kind of clear that, you know, it was a vulnerable place to be should something not go right. Now, the interesting thing here is that the fundamentals are actually quite good. We're going to finish the quarter at a three to three and a half percent real GDP supporting earnings going forward. You know, you don't get a recession at the end of that,

but the yield could stop this year. See, that's the issue, isn't it, Adam? The biggest issue, perhaps, is yes, a stronger economy is good, but a too strong economy that forces rates higher, that keeps inflation in the conversation is not good, apparently for stocks. Look, it's P.E. times E. That's how you get the P. Right. So, you know, I guess one thing that's interesting is for a very long time, November 21 through about May of this year, there was a strong and statistically significant relationship between perception about rates and multiples. then it went away and it didn't matter for a while there if they were hawkish or not because people just felt like well we're close to the end of the cycle one more hike two more hikes zero it's all the

same and what's eventually coming is a combination you and I talked I don't know 20 times about the fact that what was in the price was way too many cuts for next year and people woke up to that, I guess, a couple weeks ago. But you led the program with this notion of, like, is there a bull case? And I think there is. I think, frankly, the consensus view is that we end the year at highs. I think a lot of people felt like we were going to have a softer September and then a pretty good year end.

And I still think that's, at least in the institutional investors I regularly talk to, I think most people think we're going to end the year on highs. Because, Adam, there's going to be this great chase for performance from people who simply missed it, were unprepared for what the market was going to deliver to us through the first eight or so months of this year, and then that money is going to rush in and and that's gonna take us to the promised land? I think there's a couple reasons. It does sound, remember, as I can tell from the look on your face,

remember, I always sound dumber when I'm bullish than when I'm bearish, right? But, you know, I think the number of meetings I've done where somebody said, you know, I was really over-allocated to U.S. equities all year. And within the U.S. equity market, I own a ton of the big seven. And so I'm kind of good. I'm locking it in here is basically zero. OK, most people thought equities premium looked too small. Short end bonds were good.

They looked at other non-U.S. equities and people did not have big positions there. And so they're way behind. And then the bottom of stock pickers that just are U.S. benchmark, most of them have not generated a lot of alpha. So I think people are going to say, you know what, October earnings are going to be pretty good. I don't expect as we just said, we agree. I think the fundamentals of the corporates are pretty good. The big seven fundamentals are good. And I think the case for a broadening rally isn't that great great because that you need to believe

that all margins are going to come up for lots of other companies so i think you're going to ultimately get back to the big seven i think energy keeps working and that's not a great cocktail for a lot of hedge funds who don't own a lot of the big seven don't own a lot of energy but i think at the index level it will probably be good so alicia you make the argument that the market right here is fairly valued, whereas some would make the argument that it's overvalued relative to where we started the program. Talk about rates, where rates are and earnings are too optimistic,

and thus the market's overvalued. How do you counter that? I don't think the market's overvalued here. We're down 7% from the high, close to 8% if we hit 4,200. To me, that is a good amount of consolidation in a world where yields have risen 50 basis points in the last four weeks. That feels like the right reset. And when you reset, you can move from there. Most years, an average drawdown is something like 12%. If we're at 7.5%, 8% today, I call it a victory. This is very orderly. It is not the market puking stocks yet. And I think we're just in the time of the year where we expect to have some unease. The threat of a government shutdown is not helping. The supporting of 40% wage increases in UAW, not helping, obviously.

Student loan? Supporting a 40% wage increases in UAW, not helping, obviously. Student loan? Not helping. But again, there's something remarkable about this economy, which I think has shocked all of us, which is ultimately, if you have an unemployment rate of 3.8% and wage growth that's higher than the inflation rate, you're going to support spending. And I think that's what we're seeing here. Do you agree with Adam about this great performance chase? And that's going to be enough of an engine that it's going to keep the

market high. So having worked in institutional asset management, yes, there will be a performance chase at the end. Everybody was offsides coming into this year, both on tech and on rates a little bit. And I think this will be a reset. I mean, people will be coming in to scoop some stuff up here. You're seeing stocks trading between the 50 and 200 day moving average. Those move much lower around the 200 day. Yes, we're going to see institutional buyers coming in to go to coast into the end of the year. The last two months of the year are historically the best year after year. Once you have a September and October, maybe October that look like this, you'll have buyers come in. So, Adam, what if what if Jamie Dimon is correct in which he says people should be prepared for higher oil and gas prices and higher rates, says the world's not ready for a 7 percent Fed? Is that just, you know, the Dimon isms, you know, things that just Jamie says?

Or should we really put stock in what he's talking about? Because, you know, in some sense, when he threw out the hurricane comments so many months ago, people scoffed. And yet we did have a regional banking crisis of sorts. And we're still trying to figure out where everything is going because of a lag effect and rates that may be stickier and higher than some have suggested. How should we put that into context? What Jamie Dimon says is a possibility, at least in his mind. Yeah, look, I'm not an expert on the history of what he says and the accuracy, but obviously he runs a huge organization that has access to a lot of data points i tend to agree with the oil price to be higher you know energy has been remains our

biggest overweight position if people want to make money in the equity market they should buy oil sensitive securities i think the chance to pick up revisions there in the next 12-13 months is meaningful much much more meaningful than it is for the broader market there's a whole host of things you can own there so i agree with that part of the argument. You know, I guess, look, I'm really excited about the ability for investors to generate positive and negative alpha between now and year end and beyond, because there are things that are really discounting recessions and some things that are not. And most of the questions I've gotten the last couple of days from investors have been about why do certain cyclicals act like things are not cyclical and others do,

and why airlines put up good numbers and got killed, trucking in a recession, they're ripping, you know, semis and home builders are acting differently than they did in the past. Like, there's a lot of things to do underneath the surface that I think are pretty exciting. I mean, Alicia, you mentioned labor. I totally agree with that. We're creating a basket today for short ideas of heavy union labor industrial companies. You go to the government website, your labor statistics, you can look at who's got a CBA, you can look at who's got exposure, and assume that if these guys think a 19% pay increase is no good, that they're going to get, you know, that's going to be a cost for it. So that's not great for all these industrials companies that have high earnings expectations, high inventory, and high valuations, right?

So there's a lot of things to do under the surface, I think, no matter what your market view is. And I feel, like, more excited about that than I have at any time in the last few months. So you make the argument that people should own the banks. Why do you make that case when I feel like those have fallen so out of favor with people other than for the obvious argument that they make is that, well, they're so cheap? Me? Well, look, I don't I've never really recommended the banks in most of my career. I would just say I think the big three are going to be better than the regionals. So I'm not on a relative basis. I think the observation I was making, Scott, was I went one month without an investor in an institutional meeting mentioning financials at all, right?

Not short, not long, just the overt indifference was incredible. Like I spent most of my meetings going through what's dislocated, the industrials, the semis, the discretionary, the retail. And if every sector comes up we do whatever it is 4.6 meeting the day or whatever the number is over time and it was just i had this observation like nobody cares and i think we all want to we romanticize oh that's the best scenario man would be to be contrarian bola and be right right and so you're like okay well i could be that in advance but then when you stare down at what they offer you, it just makes you think maybe that's what the title of the note was.

Sometimes the consensus is right. I mean, I just think maybe the consensus is right. It's not that interesting, even though nobody cared. Alicia, you like industrials, given what we got union related issues, as Adam spoke to. I've got global issues with economies around the world. Who knows what's going to happen to ours? Strong now, what's tomorrow going to bring? Don't know.

What about industrials and why? So we like industrials in the context of thematic investing. So reshoring and rearming and the transition to green energy and the close to $2 trillion that is coming at this sector, both oil and gas and materials and industrials and some of the utilities here. We like it in that context because agreeing with Adam, you have to go under the surface here. There will be winners and losers. And if we are going to have industrial policy in this country, not a fan.

But if we're going to have it, we need to make money for our clients in this way. And thematic investing is the way we're doing. So to that extent, we like industrials because ultimately reshoring means that that production is coming home. Let's discuss what would be, I guess, the other issue that's going to be the rule of where this market goes. We talked about where rates may go and that's going to dictate it largely but earnings you know you've made the argument that we're fairly valued relative to where earnings are we're going to get earnings are going to start soon and the conversation is are the banks really going to get us off to a good enough start and are we going to get a good enough follow-through that we're going

to say okay we're not too optimistic we've troughed we're rising we're going to continue that rise and then we're going to be in a much better place next year. That plausible. It's plausible. I don't think that the big banks are going to lead the earnings tone here. I think that, you know, investors are just looking for them surviving whatever is coming through on the rate side. I do think that the earnings on the large banks will be good enough. And I do think that the multiple that is reflected in the prices right now for the large banks adequately reflects the larger capital ratios that are going to be coming through. So I think the regulation risk is already reflected in the prices of the large. So I think that's fine. What group then out of earnings is

going to come out and say that the outlook looks really good? So I think it's going to be tech again. What's it going to be? That's it? It's going to be partially tech. And I do think it's some of these health care stocks and some of the pharmaceutical stocks, as we know that are levered to longevity and the weight loss drugs and all of that are going to be very good. But it's under the surface. It's not all. The consumer and the lower cohort, the lower 40,

50 percent of the income scale is not doing as well. Those discretionary and some staples may not do as well. But ultimately, we think earnings are going to be quite good and the margins are moving higher. So, Adam, stay with tech. If we have this burst, as you say and suggest is really possible, is that where it's going to come from? Because we're going to focus on the balance sheets. We're going to focus on the buybacks. We're going to focus on all of the things that aren't nearly as bad as some of these other companies might tell us they are. I think it's unlikely the market finishes higher or near highs for the year without the big seven at least pro rata participating, if not more. I don't see the case for big breadth in an up market because that requires, you know, earnings expectations to be much more achievable for them. And, you know, like you said,

some of the commodities trough that are rising, wages are rising, you know, not declining at the rate people want. And that's what you need. You need margins to expand. So I think tech will participate, particularly the Big 7. And frankly, as we've said, they have pretty good results. If you look at the data points in this month, scouring the – we use a lot of language processing for all the transcripts from calls and from the company presentations. Generally, things are mixed to positive as you you went through, you know, conference presentations from this month from industrials and the like. So I don't expect any big pre-releases next week, you know, the first week of earnings

season. I totally agree with Alicia that, you know, banks are just not the harbinger for the stock market. Maybe they were in yesteryear. They're their own regulated set of, you know, companies that are not really the broad barometer. So I think you have to look for industrials. You have to look for semiconductors. You have to look for consumer in terms of the dollars they're spending to get a better grip on what's going on.

And I expect it to be mixed to positive with earnings basically coming in at the expectations people had in January or February this year. And I think that's the real reason the market's up is earnings haven't collapsed. And everyone thought they would at the beginning of the year. Yeah, they did. Alicia, last word to you, because I'm going to sort of tease what our poll is for everybody. You say we're getting to forty five to forty six hundred. We can still do it. Still do it by the end of this year. Yes, we can. Can we can we do it with elevated rates? Can we do it with a 10? Can we do it with a 10-year that inches closer towards 5%? Can we do that? It depends how fast that happens. So, right. It really matters.

If we hang out at $4.50, we can definitely do it from here. This is a reset. This is a consolidation. This is not a new pricing. This is simply absorbing what we have. Yes. Yes, Adam. Yes. We can do that. If we're talking about five percent on a 10 year, we can we can get to those levels on the S&P AP. Yeah, because if we get the five percent, it's not what growth is collapsing. And, you know, go look back and look at the data. Like the 10 year backs up when growth's good. One thing that everyone's been wrong about in my career on the fixed income side is that supply is the only thing you need to analyze. I can't tell you how many two-by-fours I saw people run into during QE1, 2, 3, 4, tort, quiz, whatever, that supply was coming. And the 10-year-old went straight down. Why?

Because the economy was weak. So maybe the inverse isn't that absurd. If the economy holds up and is decent, if people think 24 numbers are going to be above 2023, rates can back up a little and the equity market can be good. All right. So maybe not a hurricane. No, I appreciate it, Adam. Thank you, Alicia. It's good to see you as well here at Post 9. Let's get to our question of the day. I front ran a little bit. We want to know, do you think the 10-year will get above 5% before the end of the year? You can head to at CNBC closing bell on X to vote. The results are a little later on in the hour.

Meantime, Amazon being sued by the FTC. The stock is falling. It's down, as you see, more than 4%. Deirdre Bosa here with the very latest. Dee, what do we know now? So, Scott, the FTC is accusing Amazon of an illegal monopoly, and it's essentially taking aim at the prime flywheel for leveraging that market dominance. Now, Amazon has hit back, saying the suit, quote, makes clear the FTC's focus has radically departed from its mission of protecting consumers

and competition. Now, Lina Khan, she came into the FTC a few years ago. She was determined to hold big tech accountable. But so far, the record has not been great. We went back to take a look. Three of Amazon's five biggest acquisitions have been done while she's been in charge. MGM, One Medical and iRobot. That last one, though, still has yet to close. But there's also all the investments in generative AI. Two of the biggest are Hugging Face and Anthropic. Taking together all of these deals just over the last few years, they have made that prime ecosystem stronger and only more entrenched. Exactly what the FTC is trying to dismantle. So this is really a make or break moment for LinaCon and Amazon, depending on the outcome.

But, Scott, it will take months, probably years for this to play out. It is interesting to see Amazon down some 4% today, though, because usually investors don't really react to regulation. But maybe this tells us that the outcome could not or at least maybe it could be a slow decline for Amazon or a distraction for them to deal with all of these cases. Yeah, important to know. I mean, the stock was down before this announcement obviously came out. It's trended a little bit lower as the rest of the market has as well. Mega cap certainly not having a great day. D, thanks. Deirdre Bosa reporting the latest for us there. Speaking of reporting, we're getting some news now on Target. Our Courtney Reagan is here with that. What are we learning here? Hi, Scott. So Target is closing nine stores in four states, it says, due to theft. On October 21st, Target's going to close three stores in the

San Francisco-Oakland area, one store here in New York City, two in Seattle, and three in Portland. Target says we cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests and contributing to an unsustainable business performance. Now, the retailer said efforts to curtail theft and crime in these stores have failed, and this is sort of the last resort. Target says 150 stores operate in the markets where these nine stores are closing and its website, though often in retail we know that when a store closes, some amount of business is lost. It's not Target says 150 stores operate in the markets where these nine stores are closing and its website. Though often in retail, we know that when a store closes, some amount of business is lost. It's not necessarily all reabsorbed online or in nearby stores. I've reached out to ask more about the financial impact of the closures, but the retailer is not disclosing any more details at this time.

And Scott, just this morning, the National Retail Federation put out its annual shrink survey, and it showed that on average, external theft is in line with past years. That's based on 177 retailers responding to that survey. Back over to you. But, you know, because you cover the space, right, we've heard from so many who have used this as a principle, for lack of a better word, you know, blame point on their earnings calls, as you've reported what the earnings are and what they're saying on the calls and the releases. Everybody feels like is citing this. And it's funny because you really have to listen carefully to the exact verbiage that the retailers cite because Target is calling out organized retail crime and they're giving us quantifiable numbers.

However, other retailers are saying shrink has increased, and shrink in general has increased overall in retail as sales have increased, and shrink includes all forms of loss. Yes, theft is the biggest part of that, but as a percent of total, that theft is actually looking the same as in historical past, at least on average. It's very interesting stuff, Scott. You have to listen very carefully to the details. Well, you need the context from from reporters like you, too. I appreciate that very much. Thank you, Courtney Reagan. We're just getting started right here on Closing Bell. Up next, five star stock strategy. Capital Wealth's Kevin Simpson breaking down his latest trades. He does have several. We'll find out where he is finding

that opportunity amid this uncertainty. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. We're back. I just want to alert you here. We're at the lows of the day for stocks. Take a look at the S&P 500 down 70 and even 70 points. It's one and two thirds percent. NASDAQ one and three quarters percent. You see the Dow as well. This rough month is a buy. With a price target of $8 a share right now, you can see it's trading at $5.84, but it's up about 10%. They say that Fisker has a lower risk business model than Peers.

Even after a 150% year-to-date increase in the stock price of Jaffa Kings, J.P. Morgan still believes it has more room to grow. Yes, the stock has been pretty sluggish just over the last two months or so. You can see it declining roughly about 10%. But analysts say the sports betting sector is appealing with new market growth prospects as well. They upgrade this name to overweight with a giant price target. It was $11 originally, now $37. And that stock is up almost 2%.

Scott? All right, Christina, we'll see in just a bit. Christina Parts in Avalos. Losses accelerating as we head towards the close today. The S&P 500 now touching its lowest level since the summer back in June. Our next guest still finding opportunities amidst the September slump. Kevin Simpson of Capital Wealth Planning joins us now. All right, so we got a rough market, right?

Dow's down 426. S&P's upset a bit. NASDAQ is too. Where's this opportunity to be found today? Because you seem to find it. Where is it? First of all, I think that the markets are taking their lead, taking their cue from the weather in the Northeast. It's cold. It's dreary. It's generally unpleasant. And I think for many reasons that are correct, we don't have that same bullish backdrop that we had for most of the summer. Uncertainty is putting pressure on stocks. And the Fed once again last week dug

their heels in and said, hey, we're not lowering rates as quickly as you want. We're not lowering rates anytime soon. And that's giving us opportunities, Scott, because there are so many parts of this market that have been undervalued, not just for September, but really for the past year and a half and it sounds a little bit like a broken record but we're looking for companies that have dividends we're looking for companies that grow their dividends and have low multiples because that's how you can make money in a range-bound market and that's what i think we're in a market that's going to be range bound we're seeing a sell-off because wall street's digesting the reality like it's

finally setting in the fed Fed's not kidding. They're going to keep rates higher for longer. And that weighs on multiples. It weighs on earnings. And maybe most importantly, Scott, it weighs on investor psychology. Yeah, Bob, I mean, I'll play along with your with your weather thing if you want. I mean, it's going to be 75 and sunny next week here as well. So will this pass? Are bluer skies ahead for stocks, as people like Adam Parker suggests? Not out of the question at all that we could have a big run into the end of the year. Yeah, I mean, I don't know that the big run is where my mind's at, but certainly the narrative hasn't changed. We're not at the precipice of falling off a cliff.

It's just the Wall Street's finally digesting what the Fed's been telling us all along. And you need a bullish catalyst to move the markets higher. Maybe you get some of that from earnings. Maybe that is ultimately the Fed becoming dovish, quantitative easing, talking about rate cuts. And certainly that's not in the immediate future. But I mean, that's the catalyst that we've been looking for. Well, what about a chase? For the past two years. What about a chase from people like you who weren't prepared for, you know, who haven't performed well and need to and, you know, missed it and want to get some of it before the year is over? Yeah, if I chase anything or try to miss it, that's when you want to fire me as a portfolio manager.

I don't style drift. I don't try to do any window dressing. We have a little position in technology. It's a Microsoft. We have some Apple. It did well this year. We've been writing position in technology. It's in Microsoft. We have some Apple. It did well this year. We've been writing calls on Apple. That's great. But we're rotating into the other names that haven't performed. And the best part about my style box, the boring, the aristocrat, the dividend payers, when they go through periods of relative underperformance, and it happens once every 10 years or so, they generally respond very favorably after that. So where I've been lackluster, negative, somewhat muted for the past year and a half, now I'm banging the table and saying,

this is when you want to start allocating. You and I were talking about it just the other week, taking some of that profit from growth, putting it into fixed income, putting it into the dividend paying stocks, these dividend growers. Because since the end of 1987, that crash in October, 50% of the S&P returns come from dividends and distributions reinvested. Right. So it's a theme that works. And it's and the timing is now. Let me be clear. I said that poorly. I'm not I wasn't insinuating that you were not prepared. I'm simply talking about investment advisors who who were not prepared for where these markets went. I didn't mean it to come off that way and put you on the defensive for no reason.

So my apologies for that. But you know where I was going, right? That's the idea, that there's enough underperformance from those who weren't prepared who are now going to spur this move into the end of the year. Now, specifics. You bought Cisco. You bought Conoco. You sold calls against Apple. What's your take

on Apple, by the way? Are we heading towards 160? Yeah, probably. But I love the stock. So if it gets to 160, we'll buy more. We were selling all year into the 180s. We were writing calls on it. At one point, I thought we were going to get it called out at 187 and a half, and that would have looked genius. But this is a stock that we own for the long term. It's not something we worry about from a trading perspective. You've got a company that just prints money. They're always buying back shares. They talk about the fact that the sales don't increase as much and maybe to a certain extent that's true. But they're incredibly well healed in terms of their fiscal management. And it's a stock that if it gets to 160, you certainly

want to buy it. We rolled our calls down. We had 185s. We rolled them down to 182s. We sold calls on Visa. We sold calls on JP Morgan just because there's been a little bit of a hiccup in volatility here recently. Cisco, to us, the catalyst was this purchase of Splunk because now they're able to look at their software, their cybersecurity, their cloud, really synergistically put that together in their whole piping system. Think of all the companies in tech that have come and gone. And Cisco just stays there, prints money and prints money. PE is around 17, so very manageable. You get a 3% dividend. They increase it like clockwork, 5% every year. So it's a stock that you can look at here, a little bit more boring tech, but at least it's in the tech space. ConocoPhillips and Energy, I know there's some thematics there, but they're printing

money. They've got special dividends that pay out like an unbelievable rate. They've been increasing that special dividend by over 30 percent a year for the past five years. Got a 13 PE. You're getting over a three percent dividend. Well, probably somewhere between three and five when you break it all out with the special dividend. So whether energy is priced at $80 WTI or $110, these companies are making money. They're focusing on shareholders. They're also buying back stock. And that's how we want to position our portfolio moving forward.

You mentioned tech. I'm going to steer you. You haven't seen this headline that I'm about to read, but I want your reaction to it in a question that I'm going to ask you. Looking at the headline now, according to the Wall Street Journal, OpenAI seeks $90 billion valuation in possible share sale. OK, OpenAI was valued at about $29 billion in January in a sale of existing shares, that according to the Wall Street Journal. So $29 billion in January. Here we are some nine and a half, you know, almost 10 months later, $90 billion valuation, impossible share sale, according to the Journal. Does that speak to a bubble at all to you? How would you read that when we're looking at the

performance of AI-related stocks, when you're deciding whether to get on board that train, which has run away from a lot of people, it speaks to the performance chase, et cetera. How do you view that as a wealth planner? So there's two different ways to look at it. If I was able to get that valuation and triple my company in the course of that short time period, they'd be crazy not to bring it to market. Now, have we seen the IPOs working over the past week? I don't think they really have to any great extent. So I don't know how much Wall Street would embrace it. But there's a sucker born every minute, you know. So we saw meme stocks. We saw NFTs. You're talking about AI being the next bubble. If that comes out to market at that price, I wouldn't buy it. But I'm sure there are people that would.

I mean, do you feel like there's a bubble in this part of the market that we've yet to really feel the repercussions of? I mean, you could say, well, you could say, okay, the picks and shovels companies, the so-called picks and shovels companies of AI, the NVIDIAs of the world, for example. All right, that's tangible. We can see what they're doing. They're making the chips and their sales, you know, the company They're making the chips and their sales. You know, the company suggests their guidance is this. Their sales are already being felt. Some of these companies that are benefiting from the boom may not see the monetizable gains from it for a number of years. Unquantifiable as to how long it could possibly take.

And that raises the question as to whether those valuations are justified or not. So we're thinking about it exactly the same way. I've said before, it's not a bubble. Like these companies make money. You mentioned NVIDIA. You mentioned Microsoft. There's monetization. But when you read that headline, it kind of changes the thought process into,

well, that sort of sounds like a bubble. I mean, in 99, it felt like a bubble. You knew it was a bubble. It was insane. This so far has been a lot more tame and a lot more concentrated, isolated. But when you talk about a headline like that, you know, I think I have to change my comment and say that to me, that does sound like a bubble. We'll follow it for sure. Kevin, I appreciate it so much. Thanks. That's Kevin Simpson, Capital Wealth, joining us once again. Up next, we're trading today's turbulence. Stocks are sinking as we head towards the close. American Century CIO Rich Weiss, well, he's been bracing for a downturn. He's going to tell us now how he's navigating it. That's after the break.

Stocks are lower across the board today as we enter the last trading week of a difficult month. My next guest warns it's likely to get worse before it gets better. Here to share his current investment strategy, Rich Weiss of American Century Investments. Good to see you again. Welcome back. Pleasure, Scott. Thank you. Yeah, it's rough out there, to say the least. Why is it going to get worse before it gets better? Well, a number of reasons. Where do you want me to start? I guess the triple threat of the three S's, right, the shutdowns, the strikes, school loans, that's probably the least of it right now. Certainly weighing on the markets, and at least one of them are already going to be weighing on the real economy. Add to that tightening credit standards, high and rising interest rates, and last but certainly not least nagging inflation right i

mean it's uh you know there's a medical analogy i use where the uh chairman powell is the doctor he's administrating he's administering the antibiotics in the form of uh tight monetary policy to try to get rid of this fever that the uh ill economy has. And the fever is still there. It's been coming down, but he's made it clear progress towards 98.6 isn't good enough. You got to get there. You got to get to the 2 percent inflation rate. We have a ways to go there. That's going to weigh on the economy. So they're steering between the proverbial rock and a hard place, right? But how do you, though, how do you, everything you say obviously makes sense. I mean, it's, they're all plausible, incredible views, but how do you make sense then of why the market is here in the first place if all of those things existed

for the most part over the last eight months? I think it boils down to fear and greed. You know, market swings wildly in both directions, sometimes overshooting again in both directions. And I think it boils down to valuation, relative valuation, bond yields rising, make stocks less attractive. I think that's the new item which is pushing stocks down today. Higher long-term bond yields, relative attractiveness or unattractiveness of stocks. I think it's as simple as that as to why the stock market has been moving down these last few days. It's so funny. I have a conversation at the very beginning of the show with somebody who says 45, 4,600 on the S&P by the end of this year makes perfect sense. Market is fairly valued. Earnings are going

to live up to the hype as well. And then some 41 minutes later, I've got somebody arguing the exact opposite. Do you not think that earnings are going to live up to where expectations have come to? I don't think so. Earnings may come in strong this third quarter, but I think, well, I don't think there's any debate about the slowdown, right? It's not a matter of if we're getting a slowdown. It's to what degree. Are we hitting a soft or hard landing? I think earnings will be disappointing late this year and into 2024. But, hey, that's what makes a market. Right. And at least for the past, let's say, year and a half, two years. OK, being positioned prudently, cautiously, safely has been the way to go. You know, we're not trying to call the market every twist and turn day to day.

But over the last year and three quarters, it's been better to be hunkered down in cash. We'll talk to you soon, Rich. Thank you. That's Rich Weiss, American Century Investments. Mike Santoli, our senior markets commentator, has made his way to Post 9. Why? Because that Wall Street Journal headline, to some degree, to some degree, a little bit later, a little bit later, OpenAI of ChatGPT fame seeks $90 billion valuation in possible share sale, according to the Wall Street Journal, a valuation that was about $30 billion in January, so three times as high now. Your thoughts? It's a decent benchmark of, I think, how much AI enthusiasm in general has probably multiplied by that point, it seems as if the report is about a potential private sale. So allowing employees, those who have been compensated with a lot of OpenAI stock, to monetize.

They would be the sellers to get some liquidity. Yes, it would include employee shares. Yes, but of course, it would also likely include some relatively up-to-date revenue and some details that are going to come out. Because the piece in the journal said that a billion dollars in revenue this year going to many billions next year. The growth rate, the being able to put some valuation on a pure AI services stream as opposed to hardware is probably something that the market would appreciate, whether it would mean a reality check for the excitement around it or just kind of fuel to the fire? We'll see. Do you think we need a quote unquote reality check around some of the fire? I mean, I pose

the question to our guests this way, in that you can sort of quantify in your own mind and to some degree with real numbers, picks and shovels, NVIDIA says this, they're making chips that are going to go right into this area. Other companies that have gotten a tremendous benefit from the hype around AI may not realize the monetizable part of it for who knows how long. Years? Decades? I'm always in favor of reality checks. Let's try to knit prices, market prices,

down to something that's actually happening in the business. On the other hand, it doesn't seem to me there are that many names that are going wild to the upside that are not already established companies with other stuff going on. In other words, you could tell me Microsoft added 100 billion because of pure interest in the open AI relationship. OK, it's like a two trillion dollar company. Right. So it's not as if there's a whole parts of this market that are consumed with capitalizing hopes and dreams for for AI down the road at wild levels,

at least not right now. There was at one point when you had C3 AI, all those things going crazy just because of the buzzword. That's fair, but I do to some degree feel like you've gotten a big boost for stocks. And by mentioning names, I want to make it clear, I'm not singling these out. They're just the ones that sort of come to mind on the list. Salesforce, for names, I want to make it clear, I'm not singling these out. They're just the ones that sort of come to mind on the list. Salesforce, for example, 52 weeks ago, 126. Today, 200. Twilio. I mean, these kinds of stocks that we've talked about, and the list is long and distinguished, by the way, beyond the Alphabets and the Microsofts and the NVIDIAs and Broadcoms,

et cetera, where you've seen big gains. If you make an AI benefit list, that list is vast. Yes, and I would say, except for NVIDIA, every one of those companies, their stocks were higher at some point in 2021 before anybody ever heard of ChatGPT. So I think it's just been one of the cover stories and excuses to get excited this year, to have them reclaim a lot of that market cap that they did lose last year. Not saying it's all justified, but again, if it's going to be a mania, let's see some real mania because it's not, I don't think it's right here yet. And I'm not going to say it's not justified because I think the overarching point to what we're both saying is nobody truly knows. You have no idea. Yeah. So the market is therefore just kind of latching on to the known beneficiaries,

maybe giving them too generous a benefit of the doubt on that. But, yeah, we'll see. All right. Better early than late. So you sit right there. We'll take a quick break. Last chance to weigh in on our question of the day. We asked, do you think the 10 year yield will get above 5 percent before the end of the year? Head to at CNBC closing bell on X. The results are after this break. And you know what's coming up because Mike's already here. Market Zone is ahead, too. All right, question of the day.

We asked, do you think the 10-year yield will hit 5% or get above that before the end of the year? Well, the majority of you said yes. 59%, in fact. All right. And up next, the countdown to Costco. The big box retail reporting in just a few minutes. We'll give you a rundown of what to watch for when those numbers hit the tape when we take you inside the already teased, but we'll tease it again because it's coming up, the market zone.

And later, don't miss a special edition of Last Call live in Wayne, Michigan tonight, following all of the latest developments in the UAW strike tonight Tonight, 7 p.m. Eastern, closing bell. Right back. All right, here we go. We're in the closing bell market zone. CNBC Senior Markets commentator Mike Santoli is here to break down the crucial moments of this trading day. Plus, the FTC taking aim at Amazon. We'll dig into what that means for the

stock. Courtney Reagan looking ahead to Costco earnings. They're out in overtime in just a few moments. But Mike, first to you, what stands out to you most? Obviously, getting a little bit spicy in terms of the downside momentum today. Didn't really get out of control, but you're starting to see some concern build. And part of it is, you know, you're seven plus percent off the high in the S&P 500. And there hasn't even been a hint of a bid in long treasuries, right? That's not the usual equation people have gotten used to. No real safety buying in treasuries. Maybe that emerges at some point.

Although I do think you also are starting to see within the index some of the ingredients come together for one of those typical oversold. The risk reward is favoring a rebound rally type play, at least before very long. You have the VIX almost at 20. And you've also had some of the more kind of oversold indicators in volatility and breadth and all the rest of it coming together. I also find it interesting where we've gone back to in the S&P, which is June 2nd. It was a payroll Friday. It was a 300,000 plus payroll day. It was no more recession to worry about day. And it was bond yields are tame. We can have it all. And that was the beginning of the soft landing hypothesis. So we've kind of testing it and we're testing the uptrend line from the October lows. Could be

constructive. We'll see. All right. So 59 percent of our voters said 10 years going above 5 percent. Surprise you. Not given the the psychology of the moment and the fact that yields have just been so persistent and relentless on this level and that the atmospherics are now around. When do we get to 5 percent? You guys were talking about Jamie Dimon mentioning 7 percent Fed funds. Whatever that all means in terms of predictive value or not, people have widened out their scales for exactly how high this should go. That at some point gets overdone. Assets are surging in long term. I mean, the trading volumes have surged in the long term Treasury ETF. It seems like we're at a point where maybe it's time for a breather. We'll see. Pick your pain point today in mega cap tech. But Amazon is the biggest loser in the complex,

down 4 percent on those FTC headlines. Yeah. I mean, Amazon yesterday was up one or two percent. And so it was actually the upside, the biggest contributor to the upside in the S&P 500. So it really was sitting up there on a perch. Amazon and Alphabet were the ones that seemed like they'd outperformed really well. They obviously had a little bit of embedded profits and time to back off. And so that's what I do think makes sense in terms of the reaction, even though we're two days removed from the Wall Street Journal story about the hedge fund that has made a lot of money betting that Lena Kahn is going to fail in all these efforts. Basically, the FTC wasn't going to succeed in all these cases. And so it showed you the market was a little vulnerable to the idea that there still is this trend. Taking the under, which may be brought up tomorrow morning when she appears on Squawk Box.

Don't miss that interview, by the way. Courtney Reagan, Costco, stocks down about 1%. What do we expect after the bell in overtime today? Yeah, you know, Scott, Costco is really the only large retailer that still gives us monthly comparable sales and revenue. So investors kind of have a good handle on a big piece of the quarter already. But the street is then expecting $77.896 billion in revenue for the quarter on earnings of $4.79. Comparable sales down 1.4% in June, but then got better, up 2.5% in July, 3.4% improvement in August. Evercore ISI's Greg Malek points out that the quarter itself caps off a year with the lowest comp sales since 2017 for Costco, but it has growing traffic, growing membership, so a good setup going forward. Membership fees expected to be worth about $1.46 billion.

And then membership renewal, that's going to be one piece that's in focus, the possibility of an increase in those fees. The last membership hike was in 2017. Costco usually hikes every five to six years. It's been reluctant to hike the fee during this recent period of high inflation we're all dealing with. But inflation is falling. And Malik points out that he thinks the possibility of the membership fee is coming in recent months. Deutsche Bank says, yeah, we think it's coming, but more likely in December. So we'll see if we get any insight to that after the bell here today. We'll look forward to that and your reporting.

Courtney, thank you. That's Courtney Reagan. So, Mike, from $4.47 to $5.53, that's the 52-week range, the stock doing that in an extraordinarily flush consumer environment. Yeah. What happens now if we're talking about a consumer that isn't as flush as it was? I mean, look, I think that it's always a little bit complicated when it comes to a Costco, for example, because they are considered to be a steadier performer, not a cyclical beneficiary of those fees.

But I do think that the market right now is in an all-out mini panic about the consumer resilience. That's been the story to me of this fees. But I do think that the market right now is in an all-out mini panic about the consumer resilience. That's been the story to me of this market. That's why yields are having their effect. So I still think it's sort of a suspect area of the market, but I don't think Costco is the big culprit, even though it always has a higher valuation. Sure. So yields, I think we were lower earlier. We turned positive almost entirely across the curve. We've got the prediction again. Our voters say we're going over 5 percent on the tenure, which is at 455. Not only the move, but the speed of which, if in fact we get there, would be somewhat of a stunner, I think, for many.

It absolutely would. And, you know, all the charts kind of project ahead up to 5-1 or something like that at this point. I do also like to mention, though, that breakouts in yields aren't always necessarily the kinds of things that are as effective if you're just trying to trade the charts. But I think the market's got to prove it. They've got to prove that there are going to be some people finding value in the long end of the Treasury curve at these levels when you're getting fat real yields, inflation adjusted, all the rest of it. So until that happens, it's probably tough to see the stock market calming down at this point. A lot of what's happening at the long end, if you ask me, is just, you know, mispositioning for a higher for longer message from the Fed that needs to be

unwound continually so. But I don't know where it is. OK, I love that word. We're going to use that between now and the end of the year, I think, a lot. Mispositioning, because it's how some suggest that this market has steam still behind it

because of dramatic mispositioning among fund managers. We'll see if that's the case. There has been a lot of shortening in the last week or so. I'm not sure you can make the case that it's here this year. We'll see you tomorrow.