Closing Bell - Closing Bell: Sidestepping Scary September 09/27/24

Episode Date: September 27, 2024

What is the state of the soft-landing debate? And how are stocks set up heading toward the fourth quarter? Our all-star panel of JP Morgan’s David Kelly, 3Fourteen’s Warren Pies and Neuberger Berman’s Shannon Saccocia give their outlooks. Plus, AB Bernstein’s Aneesha Sherman weighs in on the state of the consumer and what to watch from Nike earnings next week. And, BofA’s Savita Subramanian says the uptrend in value stocks could continue. She makes her case. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with stocks on the verge of sidestepping that scary September we were promised or warned about. The index is holding near record highs without relying too heavily on big tech. Thanks to further signs, inflation has been tamed and the economy is holding up just fine. Here's a look at your scorecard with 60 minutes to go in regulation. See the S&P 500 quite flattish all day, maybe just came back from a quarter percent decline. It has been up 11 of the past 14 sessions. It's sitting on a slight gain for the month as well. The Dow pacing for a record at this point above 42,000, almost 42.4 at this point. NASDAQ has been sidelined, but still is ahead by around 1% on the week.

NVIDIA taking a hit in late-day trading after a report last hour that China is urging local companies to stay away from NVIDIA chips. Kind of a reiterated policy there, but the stock is down 3% at this point. It's restraining the S&P 500 for sure, but unable to hold rallies above 125 this month. Below the surface, the macro message is reassuring. Consumer discretionary stocks and industrials have been outperforming all week. Market breadth solidly positive. Small caps perking up a bit today after a bout of underperformance. We'll talk more about how to play all these rotations within this market with Bank of

America's Savita Subramanian. That's coming up in a bit. But first, our talk of the tape, the state of the soft landing debate and how stocks are set up heading toward the fourth quarter. Joining me now to discuss it all is J.P. Morgan's David Kelly, 314 Research's Warren Pies, and Neuberger Berman's Shannon Sekosia. Shannon, also a CNBC contributor. Welcome to all. David, I'd love to start kind of with the macro view here. You know, when the Fed cut rates, it's a week and a half ago. The debate there was, oh, it's a close

call, 25 or 50. It's also a close call as to whether the Fed is a little bit too late or right on time. Economic data since then has seemed on a net basis pretty reassuring. Very much so. I mean, first of all, if you look at all the GDP revisions and the data we got this morning on consumer spending and inventories, durable goods, trade, overall, it looks like we're heading for about a 3% quarter. I'm getting 3.1% for the third quarter. So that low as people thought. And we've had a huge increase in wealth. And this increase in wealth, 16 straight months of real wage gains, there's a lot behind consumer spending. There's a lot behind, you know, corporate profits also revised up. There's a lot behind corporate spending. So I see plenty of momentum in this economy, you know, with or without Fed rate cuts last week. Yeah, those revisions certainly send the message that we were not as close to stall speed, perhaps, as we thought. And maybe consumers were not nearly as sort of tapped out as was expected.

But all those things you just listed, right, 3.1 percent real GDP pace right now, huge wealth gains in recent years. Is that compatible with a Fed that seems pretty aggressive in terms of trying to become more supportive? Yeah, because the thing is, this economy was never that inflation prone. You know, I've had a hard time the last few years, you know, defending that point. But the reality is we got hit by pandemic supply chain issues, Ukraine. But as all that has faded, inflation is coming down. In fact, this morning's number, 2.2 percent year over year, the consumption of aid is very good. But as we look at the numbers for September, we think we're going to hit a 2.0 percent

number on the consumption of aid year over year for September. So the Fed can essentially say mission accomplished. Now, I don't think they did all the work here. I think that's the nature of the economy. But it looks like this economy can actually tolerate pretty strong growth, pretty strong demand from consumers and from businesses and still have the inflation rate come down to 2%, which is a pretty good backdrop. Yeah. And Warren, that obviously would be the ideal scenario, maybe one that you can't fully put your faith in. But I know you've been kind of sticking with the soft landing outlook as well as believing that, you know, stocks can continue to add on from here.

What about now with the S&P up 20% and we're kind of rebuilding that general confidence in the soft landing premise Yeah, I mean soft landing has been our base case for over a year now and I just don't see anything to dissuade us from that we've always said there's three real components resilient economy rapid disinflation In a hyper reactive Fed and I think that the September decision to cut rates by 50 basis points, for better or worse, it's definitely a Fed being hyper reactive. And so I think the soft landing is the base case. And it's just a matter now of how much of that is already priced into the market. My view is that even though we've had such a big run up this year, as we stand at the doorstep of Q4 it's it's kind of crazy but strategist forecasts

relative to where the market's trading right now are the most bearish they've been on record for as long back as long back as we have that data for uh strategists to have like a year-end target of 5483 that's the median so they're like five percent below the s&P 500. We've really never been positioned like that coming into a Q4. Only five other Q4s where we've had this kind of relative bearishness from strategists. And basically, every other case, the market ends the year up, and sometimes quite significantly. So despite all the move we've had, despite the valuations, and I can definitely go down those kind of negative rabbit holes despite all that, I don't see the conditions in place for a top. So we'll check back in at the end of the year and see where if sentiment gets more frothy as people reset their 2025 estimates. But yeah, soft landing. I still think there's upside towards the end of the year

here. Yeah. And I guess you'd wonder if tactically we're not going to get too overexcited in the market when we have the election out ahead of us and all these other excuses maybe to hold back a little bit. Shannon, I guess we shouldn't get too far away from the fact that the last two months, we started the month, and when we got the ISM manufacturing numbers and when we got the jobs report,

that's what's coming ahead of us next week, we found reasons to get scared about growth again. Whether it was valid or not, the market had kind of had this little wobble along with it. So do you think we're there? Do you think we can kind of declare relative victory on the fact that the economy is durably holding together? Well, we know how much hinges on employment. And we understand that, you know, month to month, we see some oscillation in consumer confidence. We may see some read through to consumer spending. A lot of that is seasonal depending on what's what is the catalyst for consumers to go out there and spend. And so I think, you know, there's still going to continue to be a lot of emphasis

on the jobs numbers. And, you know, that's where people have found, you know, I think, you know, there's still going to continue to be a lot of emphasis on the jobs numbers. And, you know, that's where people have found, you know, I think some of the weakness and the potential for a tipping point or an inflection point lower. If you look at vacancies, if you look at the quits rate, the higher rate, if you think about, you know, the fact that we are entering into a period where there is expected to be slightly more muted growth. With that said, you know, I would think that, you know, this particular jobs report, just given how close we are to the election and the traditional level of volatility that picks up, and obviously it's a very hotly contested election that we're looking ahead to, you know, we could see a little bit of additional volatility and perhaps some profit taking as we go through the middle of October. But I would caution to put too much emphasis on this particular jobs number. We've continued to see revisions.

And again, to David's earlier point, a lot of the underlying fundamentals of the economy, they're still fairly robust. And the wealth that's been created is really where we've continued to find some solace in terms of the month-to-month fluctuation in jobs. The bottom line is that kind of post-election, as we know, we would expect there to be some strength in the markets. And then everyone's going to start looking forward to 2025 and some of those policy changes. But for now, these next couple of weeks could be an opportunity for those people that are still on the sidelines, Mike.

Cash rates are coming down pretty quickly here, right? So if you've been waiting for your best opportunity, you might see it over the next few weeks. Yeah, I mean, I guess people are making those calculations at this point. David, what are the main arguments in pushback to your view that the economy is more resilient? Where do they come from? Is it effectively, you know, credit delinquencies perking up among some households?

Is it this idea that once unemployment starts to go up, we seem like it can become self-reinforcing? Yeah, I think there are specific statistics which are scary. I mean, we've had an inverted yield curve. We've had leading indicators be negative for as long as I can remember, actually. And now we've got the SOM rule being triggered by that rise in the unemployment rate. And so you have to look through these. But I think, you know, it's a particularly challenging time for economists because there are so many distortions in the data, particularly when it comes to seasonal effects, because we don't know exactly how seasonality may have changed because of the pandemic, that you really have to look

at the overall mosaic. And when we look at the overall jobs mosaic, we look at the unemployment claims, the confidence numbers, the ISM numbers, as well as the payroll and the household survey, it does tell us slow growth. It doesn't tell us anything keeling over here. And so, overall, it looks OK. But I get all this pushback. But generally, I'd say, look, I'm not going to fight number by number on this. I'm going to look at

the whole picture. And if you look at the whole picture, it says steady growth. And it also says steady noninflationary growth. Yeah. Warren, did the China news this week and the market reaction influence the equation at all for you, whether it means it's a little bit more of a backstop on growth or or just what the market is willing to price in here in terms of commodities outside of oil? That is. Yeah, you know, I think it's a positive, you know, and it's it's been a part, especially for, you know, for so many months we've been talking as an industry about why has the rally been so narrow, and now we've seen it broaden out a bit. It gives a little bit of a tailwind to the cyclical portions of the market that haven't participated as much as the growthy areas. So that's definitely a positive. From our perspective, we focus on oil a lot, our clients.

We have a lot of oil-based clients. And we have to be from just in its own silo. I think oil's reaction has been a little disappointing and it points more towards the supply overhang from OPEC versus like a recessionary scare from the U.S. And so there's still some skepticism in the oil patch, but, you know, I have to like, you have to like how the metals reacted and how some of the other cyclical areas of the market reacted to the news. And so, yeah, it just joins the tailwinds of big pro cyclical deficits out of the U.S., a Fed that's dovish and wants to cut and get back to neutral really fast, an AI productivity story that I think a lot of people want to invest hope in. And now you have China stimulus. So

when you add it all up, I mean, it's hard to get a much more favorable macro backdrop. Yeah, it's true. It's amazing how far we've come in really like several weeks of people thinking that it was kind of game over for the recession call. Shannon, tactically speaking now, in terms of what the market has served up in the way of relative opportunities, whether you'd want to reload on the tech trade that's gone sideways for a little while, or if you believe that this sort of cyclical migration is worth following. Our view, Mike, has been that this broadening out is sustainable, and that really just comes back to earnings and the potential for improved earnings growth and the potential for and

likely realization of earnings deceleration for those big cap tech stocks. I think that the China news does change the equation slightly in terms of, you know, as you and I both know, a lot of consumer companies, especially global consumer companies, it's always been with an asterisk, right? U.S. performing pretty well, but not China. You know, it's been a hindrance, if you will, I think, to some of the more cyclical companies. Take outside of really the true cyclical complex in terms of energy and materials, and then think about the fact that if you see a resurgence in China, particularly one that is more focused

on stimulus that's designed to increase consumer behavior and consumer spending, well, that has implications not only for the US market, but also the European market. And so I think if you're looking for, you know, some potential foundation for a continuation, despite the uncertainty of the upcoming election, you could be finding this in this China news, although we have yet to have a lot of details on policy. It does seem like the tone is much less on the we're going to put together a stimulus that's really business focused. It does seem to be more broad, at least what's come out of Beijing, at least so far. And just, David, final word on whether that is a

further cushion in terms of economic growth, what China is doing, or is it at this point not a big swing factor? I don't think it's a huge swing factor. In theory, it pushes up global demand enough to stop disinflation. But overall, you know, the global economy overall is soggy enough for the inflation rate to come down. I still think, you know, we've been doubling up and doubling up and doubling up on this soft landing bet. I do think people shouldn't think tactically. They should think strategically about, you know, maybe these valuations are a bit rich, but more to the point, maybe my portfolio is a little out of whack. And I really need to rebalance here after what has been an extraordinarily good year. Yeah, it's a fair point.

S&P is up 20 percent. We're at 21 plus times earnings. So it's been figured out, at least on some level. David, Warren, Shannon, thank you so much for the conversation this afternoon. Let's send it over to Seema Modi for a look at the biggest names that are moving into the close. Hi, Seema. Hey, Mike, 46 minutes left in trade, and U.S. listed shares of Danish drugmaker Novo Nordisk are down more than 3%. J.P. Morgan said it expects lower sales than Wall Street initially anticipated for the third quarter. Analysts citing a softer-than-consensus outlook for Novo's blockbuster weight loss drug, Wegovy. Shares are down nearly 3%. Acadia Healthcare is sinking to a new 52-week low. The operator of behavioral

healthcare facilities disclosed it's the subject of a government investigation into how patients were treated. The probe follows a New York Times report that said patients were held against their will to boost revenue from insurance payouts. Stock down 16%. Mike? Seema, thank you. See you again in a bit. We are just getting started. Up next, a deep dive into the state of the consumer after today's stronger-than-expected data and as Nike gears up to report results next week. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. A new upbeat read on the consumer this morning. University of Michigan's Consumer Sentiment Index rising to a five-month high in September. That was up more than 3% from August. My next guest is finding some opportunities within the retail space. Joining me now is Bernstein Research's Anisha Sherman. Anisha, it's great to have you. What sort of general backdrop do we have right now for the consumer going into the

final quarter of the year? There was a real scare surrounding some July consumer spending numbers. We maybe have kind of calmed a little bit from there, but how does it seem? Yeah, since July, we've had some good news. We've had a strong back-to-school surge. So most retailers and brands have had good back-to-school numbers, which is a really nice leading indicator for holiday. Because if you end up with a bad back-to-school, you come into the holiday with excess inventory and it becomes very promotional. So we did not have that. And now the holiday season is a few days shorter this year. So it is going to be promotional and retailers are eager to get started on it.

And so it's going to kick off, you know, in October, starting next week. But retailers seem optimistic. The data look better. Consumers are starting to look a bit more positive. It helps that last week, last year's comparables are quite soft. So I think we will start to see stabilization and growth in retail over the next few months. And with that, though, you still see the off price segment as being the place to be in terms of investing at this point, even though those stocks, many of them have done so well already. Well, they've come off their highs a little bit this this week because they aren't exposed to China. So they haven't been beneficiaries of that China trade.

But in general, in terms of absolute performance, they have continued to outperform the market sequentially for the last five, six quarters. They continue to comp positive. They continue to secure trade down volume. And I think they will continue to do well through the holiday season because people are still value seeking. People are still looking for a good deal and they're incrementally more positive, but they don't have money in the pocket yet. They have aspirations of money in the pocket with the rate cut, but it hasn't quite translated into actual earnings power yet. Right. So what we hear from a lot of these chains about just a more discerning, careful consumer value seeking, as you say. So Ross Stores, one of those names that remains your top pick at this point? I think short term Ross is my topic because it hasn't actually re rated this year

it's actually D rated despite strong performance year to date and that's because people have concerns about the low income consumer but now as we see consumer sentiment changing any benefit to the lower income consumer is going to

disproportionately help a value retailer like Ross and we haven't seen the kind of multiple expansion that we've seen at TJX. So it's relatively undervalued. So I do like it for the next couple of quarters. I think performance is going to be strong, particularly if the lower income consumer starts becoming more positive into the holidays. And I know that, you know, you don't directly cover Costco, but was there anything in those numbers of the company's commentary to make you

kind of think differently about about how consumers are approaching this period? It was not surprising. I mean, look, the comp was still strongly positive. They didn't see an effect of the membership price increase. Both good signs that the consumer is still resilient. Now, they're doing a lot of reinvesting in price, just like Walmart is doing, just like Target is doing. But a lot of that is going into staples. So it's going into the must-have, the food budget, et cetera. And that just makes a little bit more room to spend on discretionary.

So from a discretionary perspective, I would read it as a positive. All right. And do want to look ahead to Nike's results coming next week. Obviously, a lot of excitement surrounding the CEO transition. But what should we expect to hear from the company about, I guess, the current performance and outlook? So the CEO won't be on by next week, and I don't expect him to be part of the earnings call. He joins in about two weeks. And so it's not going to be a very eventful print. The one thing I do expect is I think they will cut guidance again for the back half. They've now had three quarters of either cut or disappointing

guidance. I think there's going to be a fourth one because I think it is the right setup for the new CEO. We have an outgoing CEO in his last quarter of earnings, and I think they're going to try to de-risk the rest of the year to set up the new leader in the best way possible to then come in on a strong note and put out some strong numbers. So I think we'll get a guidance cut. I don't think it will be a negative catalyst, though, because it is widely expected and it could actually even just be a positive catalyst as just a clearing event to clear the decks and set the stage for the new leader. For sure. And the news in China this week and the excitement around the potential stoking of domestic demand, does that move the needle for you in terms of Nike?

Nike has 15 percent exposure to China and at its peak it was almost 20 percent. So it is a big needle mover for Nike and for any other China exposed discretionary retail name, particularly the cash payments that the government is giving out to consumers, because that immediately gets flipped over into discretionary spending. So I think that is a big positive, particularly for companies with double-digit exposure to China, Nike being one of them, yeah. All right, and you continue to recommend Nike price target $109, correct? That's right. Anisha, thanks very much. Appreciate it. All right, up next, top technician Jeff DeGraff is back with how he's navigating the China trade right now.

And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. China stocks in the green again with two ETFs to track the group closing in on their best week ever. Our next guest says the charts are pointing to more bullish momentum ahead. Joining me now is Jeff DeGraff, Renaissance Macros chairman and head of technical research. Jeff, good to catch up with you. Obviously, very strong, almost vertical moves this week. In your reading, what was the setup in the China markets going into this news?

And where does that leave us after this flash rally? Yeah, thanks for having me, Mike. So a couple of things, you know, we turned bullish on China back in the spring, and that was really based on a capitulation signal in some of our works. In other words, people had just had enough and there really wasn't anyone left to sell. And in our view, that did not turn into momentum that did that did translate into a bullish trend. And then it just kind of went dormant over the summer, which was frustrating, but we stayed with it. And now we're starting to see that pick up. But I think as much as anything, obviously, there are some policy decisions that help catalyze this. But a real important setup for us is looking at where the

sentiment was, what the flows were doing. And the ETF flows with China-related were horrendous. I mean, people were selling almost panic-selling hand over fist. And there just isn't any exposure from our estimates. And so just to get people back to a market weight, there really was this void that was created. And I think that's part of what you're seeing. We call this the acceleration wall. And I think that's part of what you're seeing. We call this the acceleration wall.

I think that's part of it, which is just this vacuum that's created by the abundance of sellers over the last month to three months, really. The fact that you were seeing that evidence of what people had been saying verbally about it being uninvestable and having no reason necessarily to have much exposure, obviously this rally, I guess, would cause some kind of a rethink of that position, whatever you think about the long term sustainability of the policies themselves. So I guess dynamically and sort of behaviorally, how do things go from here in terms of, you know, if you've been out of it, do you want to look for a reason why this is not sustainable or is it going to be a chase? I think you want to do just the opposite. I think you want to look for reasons why it might be sustainable, because that's really the contrarian call here. Look, you know, I don't know if we'll end up being right or not. Let's say it's 50-50. But if we're wrong, you know, I feel

like the risk is very well managed. You know, there might be 10 percent downside. But if we're right, there's probably 50 percent upside. And, you know, the one thing I would say, and we thought this back in March, which if you look back to 2009, right, when quantitative easing and some of the policy measures were in place, you know, we heard the words uninvestable about U.S. equities, right? That's almost laughable now, 15 years later. We heard the phrase that policymakers were out of bullets. And that phrase has come up several times in China. So, you know, whether this ends up being a correct call or not, I don't know. But the setup is certainly most consistent with some of the big calls that we've had throughout the ages. And I'm very excited about what we're seeing from a sentiment standpoint, from the historical return standpoint,

and the idea that policymakers are actually kind of throwing anything at it to try to get this to stick. We can talk philosophically whether it's good in the long run or not. I get it. That's kind of the way that that works. But we set the philosophical side of it to the side and really just focus on the price action. And that price action to us is very bullish. Yeah. We spent years talking about the philosophical side of whether it made sense to backstop the U.S. banks. And then the markets just ran off and said, not interested in the conversation, really. Right. But, Jeff, what are the associated plays here? What are you seeing in the evidence, let's say, in U.S. sectors that are that are linked in one way or another to China? I think there's two really interesting things. One is European discretionary high end luxury good names.

They've had a pretty good rally. Those aren't good charts. So that'll be interesting to see if they can kind of power their way through what appear to be more top formations than not. So we certainly are looking at that as a proxy. I think interestingly, when we go into the Chinese market itself, it's not tech that's leading. I know that seems like it must be a default because of what we're seeing here. But you're really seeing the outperformance in discretionary in China, which is refreshing, frankly. You're seeing it in financials, which is refreshing as well. And I would put tech in the bottom third there. But in terms of the U.S., back to your

question, the U.S., we're seeing a lot of these materials start to pick up, right? So, obviously, copper and silver have benefited from this. Gold's already been in an uptrend. But you're seeing it from things like Southern. You're seeing it things like Freeport and even some of these tertiary names like Alcoa and the like. So that relationship has actually been with us for a long, long time, for many, many years. So it's refreshing to see that working. I don't think this is about a real estate boom in China. I don't think this is a replay of what kind of got us to this in the first place. Obviously, there's excess supply in those economies. You don't fight the same war twice. But I do think that there are some of these signposts that are certainly still bullish and supportive of what

we're seeing out of the market overall. Gotcha. And just, you know, before we let you go, in terms of U.S. market here, I know you've been kind of giving the S&P trend the benefit of the doubt. Where do we sit at this point, having kind of evaded some of the seasonal pain? So, you know, so far, so good. The trends have been have been secured. You made a new high. The equal weight made a new high. 20 day highs are not expanding. And just just as a reference point, right, the 20 day highs here are running about 20 20%. That's okay. There's nothing wrong with that. But in China, yesterday, the new high, or the 20-day high list, I should say, was running at 88%. I mean, that's a fantastic number.

That just tells you that, you know, it is not about picking winners or losers. It's just the index is going up. Just for the U.S., I think we're still in this rotation. We actually see some pretty bad charts in tech. So I want to be careful with tech here. That's not to say that it's all defensive working at the expense of cyclicality, because we do see some areas of cyclicality. Some of the industrials have started to break out. I think the shift has gone from semiconductors to maybe the power providers. That's pretty interesting that we're seeing new highs there. So this is a trend market.

Trend markets, you'll have oversold conditions. You'll take two steps forward, one step back. You'll take three steps forward, one step back. We don't need to chase a whole lot here in the U.S. I think you want to chase in Hong Kong and China. But for us here, we're looking for uptrends, oversold names that are uptrends, and I think that's the way to play it between now and the end of the year.

Yeah, difference between a brand-new bull market over there and a two-year-old one here maybe. We'll see. Jeff, great to talk to you. Thanks so much. Thanks, Mike. All right, up next, we're tracking the biggest movers as we head into the close. SEMA is back with those. Well, Mike, technology stocks have been on a tear this month.

We're going to tell you why one stock is sitting out on the rally. That's coming up next. 22 minutes until the closing bell. Let's get back to Seema for a look at the key stocks to watch. Seema. Hey, Mike, let's start with Rocket Lab soaring to a new 52-week high. The aerospace and defense stock adding 16% following a price target increase from KeyBank analysts. The analyst there is saying he had increased confidence in the stock and shares are up about more than 50 percent so

far this month. HP, though, sliding more than 3 percent after getting downgraded from Bank of America to neutral from buy. Analysts warning of challenges in HP's printing business and that the company is becoming more reliant on stock buybacks to grow earnings in the coming years. Shares are down nearly 4% at this hour, Mike. All right, Seema, thank you. Coming up, Bank of America Securities' Savita Subramanian is standing by with the parts of the market she's now seeing opportunity in post-Fed rate cuts. She'll join us after the break. Closing bell, we'll be right back. Value stocks hitting a record high today and

outperforming their growth peers over the last three months by quite a margin, a trend our next guest says could continue as the Fed embarks on its latest easing cycle. Let's bring in Savita Subramanian, B of A Securities head of U.S. equity and quantitative strategy. Savita, it's great to have you. So look, we've had false starts before, I guess, on the value over growth trade. But what are the ingredients as you see them now for why this could last? Yeah, I think we're in an environment. I mean, look, let's take stock of what just happened this week. We've got the two biggest economies in the world in stimulative mode. I don't think we should ignore that. We've got an environment

where the Fed is cutting interest rates as the profit cycle is accelerating. This is unusual. As you know, the Fed is usually cutting into a slowing economy, a slowing profits environment. This time it's different. So I think those are the factors that we need to pay attention to. The market action this week, I think, is indicative of the idea that you don't want to avoid cyclicals in this type of environment. I also think the idea of the Fed cutting interest rates, it's not only liquidity inducing, but it's also cutting money market yields for this massive wash of money that moved into short-duration bonds after the Fed started hiking. So I think that's the other area where we need to track flows and think about where these assets sitting in retiree accounts and money market funds are going.

I think they're going into safe, stable income. That's more value than growth. So I would stick with value. I mean, we've really seen it start to work. We've seen earnings broaden out in tandem. I think it's kind of all cylinders are firing for a nice long value cycle. So you've kind of named a bunch of the different attributes of what you think should work, right? So you have the income piece, dividend and dividend growth probably will be a big part of future returns.

There's value. There's also, you know, don't be afraid of cyclicals. And then I think a quality bias. Where does all that come together in terms of, you know, overlap in terms of sectors? And can they all kind of feed into the same theme at once? Yeah, it's interesting because some of these themes sound a little bit dissonant with one another. You know, where we're finding quality and value and income are in some sectors that you wouldn't necessarily think of as the quality income place. So, for example, large cap real estate, you know, S&P 500 real estate has de minimis exposure to office and much more exposure to power, grid, infrastructure, areas that are likely to see continued demand, continued spend. We're early

in the starts on all of the data centers that tech companies need to power up all these chips they're buying. When you look at financials, I think financials in the large cap space is another higher quality sector than it was back in 08. These companies have basically been starved of capital. Energy, same story. These companies have basically righted themselves since, you know, the last decade and are now throwing off free cash flow, focused on cash return. I think these are some of the areas of the market that you really want to press. I also think we're in an environment where you can get a little bit smaller. So as you know, we like the equal weightedweighted S&P 500 over the cap-weighted benchmark. But I also think, you know, mid-caps look really

interesting here. And our SMID team, led by Joe Hall, have been writing about how mid-caps look particularly well-positioned to outperform in this type of environment. So, you know, it's a little bit more risk on than your typical easing cycle. But I do think, you know, it's a little bit more risk on than your typical easing cycle. But I do think, you know, the areas that you want to focus on are materials. We just got China giving the all clear on materials. And this is a sector that's relatively underweight by professional money managers. You know, areas that have China exposure that are just starting to rally. I think there's a longer themed story there.

So, you know, these are the areas that I would watch in the next 12 months. So you kind of named a bunch of these things that seem like they might be positioned to outperform. How do you feel like the overall market at this point is valued in terms of delivering future returns? I know you look at the outright valuations. You look at things like sell-side sentiment and other things that could dictate really what we should expect from here. Well, yeah, we're at a nerve-wracking point

when it comes to the index because, you know, the index isn't cheap. The S&P isn't cheap, but maybe we think that a higher multiple is warranted. I mean, the S&P is, you know, comparing today's S&P to 1980 the S&P is, you know, comparing today's S&P to 1980s S&P is apples to oranges. So maybe 20 is a reasonable multiple, but we're also in a seasonally weak period of the year. We're heading into an election. So I think, you know, we might

see a pullback. We might see a healthy correction. Here's a point at which the index itself doesn't look as attractive to me. I think that the underlying rotation within the index is much more compelling, and that's where I have the highest conviction. So that's what I would be pressing at this point is quality income, cyclicals, maybe a bias towards mid caps rather than mega caps, and thinking about the fact what the the fact that the two largest economies in the world are trying to stimulate their economic uh environments yeah i guess uh maybe no need to to overthink it too much beyond uh beyond that uh initially samita it's always great to talk to you thanks very much have a great weekend

great to talk to you thanks all right up next Bristol-Myers shares popping thanks to a key approval from the FDA. The details when we take you inside the Market Zone. We are now in the closing bell Market Zone with the Dow on pace for a record high. Angelica Peebles is looking at the drug approval that's sending Bristol-Myers higher. Plus, Contessa Brewer on what's behind the rally in wind shares. And Datatrex, Nick Colas shares what he's watching in the crucial final moments of the trading day. Angelica, Bristol-Myers on this drug approval. Yeah, so the FDA today or yesterday approving a schizophrenia drug from Bristol-Myers Squibb. And this is the first new type of drug for the brain disorder schizophrenia in more than 30 years.

Doctors excited about the drug. They're calling it CoBenfi because it promises to relieve symptoms without the side effects that come with the current drugs. Things like weight gain and tremors. Bristol pricing the drug around $22,000 a year and that's similar to other branded schizophrenia drugs but there are also many generics available. So clinicians I talked to expect CoBenfi to be given to people who have tried and failed other treatments, at least at first. Now, this is an important drug for Bristol. The company is spending $14 billion to acquire the developer, Corona Therapeutics.

Bristol not sharing sales estimates for CoBenfi at this point, but analysts see it becoming a blockbuster. So it's definitely one to watch, Mike. Yeah, and the stock up almost 2% on a $100 billion market cap for Bristol-Myers. So pretty significant. Thank you very much, Angelica. Contessa, the Wynn rally continues a couple days in. Yeah, the Wynn stock really popped today. Went up more than 7% after an upgrade from Morgan Stanley, Mike,

which sees real advantages in Wynn's first mover status, building a casino in the United Arab Emirates. Plus, the analysts say that Wynn continues to outpace in Las Vegas, attracting high-end customers against its competitors and deserves re-rating, predicting that buybacks or dividends could spark that. Wynn's bid for a New York City casino, full steam ahead and a decision expected next year. And finally, Wynn's bread and butter Macau continues to see high-end customers coming in in spite of the broader slowdown in luxury in China. Sans China also got an upgrade from Morgan Stanley because of the optimism around Macau's gambling resilience. We'll find more about Wynn at the Global Gaming Expo. I'm heading to Vegas in less than two weeks and sitting down with the CEO then, Mike, and really getting a view on all of these forward momentum projects. Oh, for sure. And Contessa, you mentioned that these

analysts had some favorable things to say about Wynn, about Macau, based on what they're seeing in the current trends. But of course, these stocks really ramped this week with these, you know, policy measures unveiled in China. Is there a sense out there that that's going to be a focal point of stimulus for the Macau business? Or are we taking everything up in China at this point? No, I think really what their view is, is that these are resilient even in times of economic downturn, even when there has been significant crackdowns that crushed Macau-facing casinos and stocks. What happened is they were bounded more than

ever before. So the point of the analysts is that these casinos are resilient in spite of what's happening with the broader picture. Will they benefit from what's happening in China? Maybe. But they never felt worried about even tension with the United States and China and the ways that they might be punished. Therefore, it was never really a factor for them. Yeah. Interesting. Certainly people got focused on it. Went up 22.5 percent this week. Contessa, thank you very much. Nick, Colas, we sit here almost through the month of September. S&P up 20 percent year to date. Everybody was dusting off the post Fed rate cut playbook after the initial ease. What does it all

tell you at this point in terms of what's priced in and how the macro is tracking? You know, so far, look, the best thing about September is that we weren't down. Right. S&P volatility is very well known to be pretty bad in September. And we're up 1.6% on the month. So after some choppiness at the start, we recovered really nicely, and that's a great thing to see in what's usually a volatile month. On the macro side, we're seeing some good revisions. GDP Now, the Atlanta Fed model, just took its Q3 estimate up to 3.1% today. So the economy is tracking pretty well. Gasoline demand up 6% year over year for the most recent week. That data was out on Wednesday. Also shows pretty strong consumer

activity. And then we're also seeing initial claims. Yesterday's data is looking very solid, down below the three-year average. So the whole idea of a mid-cycle playbook that we use at Data Track, I think very much still holds. The economy is chugging along, the Fed's cutting rates, and there's no obvious cracks or fissures in the story. Yeah, it all does come together pretty well at this point. I mean, despite the scares we've had along the way. And I guess the question is, can a market that's already been kind of pricing in or feeding off of those dynamics, is it able to continue to do so to more or less discount a continuation of that trend as opposed to any new fresh positive catalyst to go higher? Yes. I mean, the history of PE multiples and stock prices is pretty clear in that it shows that

multiples creep up and prices creep up with them as long as there's nothing obvious to derail the story, as long as there's no really strong negative catalyst, which tends to be the thing that really ends economic recoveries. So PE multiples are a function of market confidence and investor confidence, and that should continue to hold through the rest of the year. And obviously, we're going into what are seasonally some much better months, particularly after the election for the S&P, going to December and the old Santa Claus rally story. Yeah, for sure. And you wonder if, you know, I'm looking at the volatility index is actually elevated towards 17 here. It just seems like we're going to get within 30 days of the election. You

have some geopolitical stuff. Maybe people are going to stay a little bit on edge for those reasons. Although I guess bigger picture, you guys took a look at the two-year returns of the NASDAQ 100, I guess, up 67 percent or so. It's about when the bull market started two years ago. And how does that fit in terms of historical performance and then what you might expect in terms of returns to come? Yeah, so you're right. NASDAQ's up 67 percent over the last two years. And we use two years as a much better way of thinking about medium-term returns than just one-year returns. It is substantially higher than the average.

No doubt about that. The average is around 25%. So we're chugging along at a pretty good clip off of those lows in October two years ago. However, the most important number to know about the NASDAQ is it's got to go up 100% over two years in order to indicate really a lot of speculative throth. When it does that, yeah, you're in trouble. But we're nowhere near that level now. So we call it a double is a bubble. When you get a double on the NASDAQ over two years, that's when you watch out.

And thankfully, we're nearer close to that now. Yeah, in fact, I mean, you can always slice these numbers different ways. But the NASDAQ peaked before that bear market in November of 2021. So we're coming up on the third year. I think over the past three years, the NASDAQ 100 is up only like 20 percent. So if you wanted to map it on to what happens in prior bubbles, we probably have some room to go. Absolutely. I mean, look at the late 90s bubble, 95 to 99.

You had a double in a year. So we're obviously nowhere close to that now. And does it seem like this rotation out of tech is something that we should get used to? Or do you go back to that idea that, hey, the Nasdaq 100 has rarely been kept down for long? The rotation story still seems to hold, and we're seeing it play through even this month. The cyclicals are doing pretty well. Financials have done well. And obviously, some of the rate-sensitive sectors have done well. So I'm thinking that the tech rally probably has to wait until November, December, until that final move at the end of the year.

When the interim investors are still looking to play the most cyclical sectors, that's where the upside story is in the economy that's still growing. Yeah. And of course, we should always remember it's never necessarily a zero-sum game. Nick, appreciate the time today. Thanks very much. We're going into the close with the Dow up about 135. It is, looks like, it's going to be a record close for the Dow Jones Industrial GST 500, off 0.15%. Just going to miss record territory. NASDAQ off as well.