Closing Bell - Closing Bell: Sidestepping Seasonal Weakness 10/16/24

Episode Date: October 16, 2024

Have markets fully sidestepped the seasonal pre-election weakness? JP Morgan’s Gabriela Santos and Alger’s Ankur Crawford reveal where they think the rally will go from here. Plus, Former Dallas Fed President Robert Kaplan maps out what he thinks the Fed’s next move might be. And, star chip analyst Stacy Rasgon tells us how he is navigating the volatility in the semi space this week. 

And welcome to Closing Bell. I'm Mike Santoli, in for Scott Wapner. This make-or-break hour begins with Wall Street shaking off a one-day setback as stocks stage a broad, if somewhat moderate, rally, pretty orderly out there on earnings enthusiasm, a retreat in treasury yields, and plentiful belief that the economy is in a sort of sweet spot. Here's a look at the scorecard with 60 minutes to go in regulation. S&P 500 grinding higher from some early losses, up about half a percent as we speak right now. You see mega cap losers from yesterday bounce up, but include NVIDIA and UnitedHealth. A more mixed picture at this point for the NASDAQ. A lot of movement below the surface and some of

those other big names up about not quite a third of a percent. The Russell 2000 has been whistling higher all day, actually up up about 1.6%. Bank stocks have been strong. They're continuing to trade up on some pretty clean, reassuring earnings reports. Financials often move higher with small caps. Morgan Stanley, today's standout name in that regard, stuck up 6%. Nvidia rebounding, making another run at its all-time intraday high. That was set in June, and it's above 140 a share, though the semis more broadly are mixed.

We'll go deep on that group in just a bit. But first, our talk of the tape. Have markets fully sidestepped the seasonal pre-election weakness we were promised? Has the tenacious rally made investors a bit too optimistic by now? Or are the bull market fundamentals just that good? Here to discuss all of it are Gabriela Santos,

J.P morgan global market strategist and encore crawford portfolio manager at alger thank you very much for both being here it's pretty hard to find too much fault gabriella with how the market's behaving in terms of cyclical leadership and you know banks being rewarded for good numbers now you have small caps the average stock working it really sends a pretty good macro message. And I guess the question is, you know, we felt like this before. We've had growth scares that followed this. So how do you think the setup is going into earnings season at a high? I think we need to clarify what we mean by a good economy and what we mean in terms of how we should express that in the stock market. So in terms of the economy, it's doing fine. But at the margin, we do see some deceleration, some normalization in growth rates.

And this is especially true in the consumer, still doing good enough. But we have to be careful to translate that into actual earnings expectations for things like consumer discretionary, consumer staples, even some travel and leisure where you're seeing some normalization. But what we heard from banks, and so far a great start to the earnings season, is that good enough, normal kind of consumer that keeps the overall economy on track. We would just prefer to still express that via higher quality companies. So, for example, large caps over small caps and some sectors that also have not just a cyclical tailwind, but also have more structural tailwinds. And here thinking of

health care and industrials. Is that because in part you think that this earnings revival that we're expected to see in the broader list of stocks is either priced in or not likely to come around or we're still on watch for that weakening of the broader economy? I think it's mostly there are two stories happening in earnings right now. And we've had very divergent stories for a few years now. There's the decelerating, but great result out of mega cap tech with high expectations. So very jittery there. And then we have the entire rest of the market, which is, it seems, finally coming from an earnings recession. Now, I think in terms of

the growth rate, what we expect, there are some risks around two issues. The first is nominal growth, normalizing or decelerating, which companies are actually going to be able to keep pretty good revenues. And then margins. Margins last season gave a little bit of conviction that they seem to be troughing for the first time in two, three years. But which companies exactly can still maintain margins? So I don't think it's a broad cyclical, low quality kind of earnings or kind of macro environment. Yeah, it seems like it has to be kind of execution gets rewarded. We'll see if that does come to pass. Ankur, you know, talk about tale of two or more, you know, stories here within growth and within the big themes that you would

focus on. The market has really differentiated among some. I mean, just in the near term, Microsoft's been sideways for months now. Obviously, NVIDIA pushing the highs, but also hasn't made one since June. But then you have Meta and these other names that really are in favor. So how do you think the sort of broader landscape shapes up at the moment? Yeah, so I think what you're seeing is a bifurcation in those companies that are able to generate revenues from AI here and now versus those that are having to spend in order to get AI revenues at some point in the future. And the market is losing a little bit of patience with the companies like Amazon or Microsoft for the likes of NVIDIA and Meta. And so I think as you go across all sectors, you're seeing this massive bifurcation in the AI

beneficiaries versus not. Even yesterday, ASML was plagued with a whole slew of their own issues and has become kind of a big laggard relative to the AI beneficiaries along with the rest of Semicap equipment. And so you're just starting to see this breaking of correlations inside of sectors, which I find is great for us as we're stock pickers. But it makes for a challenging market. Yeah, I would say challenging, but arguably also healthier because everyone was complaining when these stocks were treated as just sort of one big block and very, very broad and thematic. When it comes, though, to something like Microsoft, I mean, it's funny because it

seems as if that stock was really given credit up front for having a monetization strategy for AI. You were getting subscriptions per seat and all the rest. Why is it now not viewed quite that way? I think as the CapEx cycle is coming to unfold, I mean, our belief is, and last time I was on the show, we talked about how CapEx is going to grow in 25, 26, 27, and 28 for all of these hyperscalers. The market is starting to digest that because it does take from your free cash flow. Now, I would argue that, you know, this happened in the early years of cloud, you know, 10, 15 years ago. And aren't we glad that they spent that way on cloud, you know, one and a half decades ago.

So we're seeing the same kind of cycle today where the revenues are going to come. They'll just come at a slower rate. Now, Microsoft assures us that they will come with a high ROI. So whatever expenditure they will make, there will be an almost immediate ROI. So let's see as they go through the next year. Gabriela, you know, this theme unfolded. In fact, you know, chat GPT comes to wide notice almost as the stock market bottom two years ago, right? And so you've had this. It's been hard to pull apart exactly what was excitement and all this capital rushing toward this massive AI opportunity and just a cyclical recovery. And we've already priced in the Fed tightening and they're going to ease and inflation is down.

Does it matter which it is in terms of how long this all lasts? So I think we have to remember 2022 was a really, really painful year, right, for mega cap tech. Earnings were down 22 percent. Those were the kind of companies that led us on the downside that year. So I do think certain part of 2023 was really just a rebound after there was a big effort to cut costs and to refocus a lot of these businesses. But then you got that additional tailwind of AI. I think if the last two years had just been the cyclical rebound, that story would have petered out by now. It is helpful to have this underlying layer of AI innovation. But I do, we very much agree that it's much more of a story now of what is the return

on investment, over what timeframe, how much has already been pulled forward, and who are the other winners in this space. And we were joking earlier about utilities being rewarded for the power generation, also parts of industrials, also globally, places like Taiwan, for example, really leading on the upside. So even there, it seems like their proof is really in the pudding now, even if it's a rightful dose of AI enthusiasm. Yeah, Ankur, it's funny.

There's a school of thought that says, yes, you have to kind of keep expanding the circle and finding where this theme is going to touch in unexploited areas. And another that says, don't overthink it, right? It's Taiwan Semi and it's NVIDIA. And, you know, in other words, it's just going to be irresistible in terms of how the numbers are going up. I mean, is it safe to think that way at this point? I think you have to be balanced. I mean, there's going to be the winners of today that will continue to be the winners of tomorrow, i.e. Taiwan Semiconductor and NVIDIA. But there will be a broadening out as more companies start to adopt the technology and they drive operating profit because they're more efficient. So this is going to play out over the next five to six years in phases. There's the here and now, and then there's the ones that will generate a lot of revenue over the next one to five years. And then there's the beneficiaries because they're adopting the technology inside of their businesses and making their businesses better and more competitive.

So I think it's a phased rollout, may we call it. Sure. Gabrielle, when you talk about, I mean, it's interesting to think about this, and maybe if you want to map it onto the 90s experience, because at some point the opportunities were real. The world did change. We priced a lot of it in. There was an overshoot to the upside. Don't want to get into that.

It doesn't seem like we're in that bubble territory specifically. But in terms of setting expectations for returns for markets right now, I went back and looked. We are now at 14% plus annualized total returns for the S&P 15 and 20 years ago. You're at 29% annualized two years, obviously up, you know, 35 this year. The point being, we've pulled some forward. And then if you go back 25 to October of 1999, right, that's pretty close to the peak. You're up eight and a half percent annualized. That's the average, you know, for the very long term. So is it just, again, you know, kind of can it be that positive or do we have to moderate those returns from here? So for us, I think there there's one number that's really catching our attention and driving a lot of

our conversations with clients, which is 26%. That's how much the 60-40 is up over the last year. So you're up 30 for equities, but you're also up 10% plus for bonds. It doesn't mean anything about where we're going to go next quarter or six months from now, but it means a heck of a lot for where we're going to go over the next 10 years. The starting points do matter, and it suggests much more moderate mid-single-digit returns from here. But I think a lot of the discussion we're having is super important because it's been very bifurcated. It hasn't been the entire market that's gone up, and some have gone up with commensurate earnings, meaning the valuation did it expand but not for all and so really we like to say that's not a time for autopilot here

this is a time to look for underappreciated growth and value opportunities and it's within the US especially large-cap market but it's also overseas and that's not about global growth it's about really idiosyncratic changes so So Japan, India being heavily favored. And then lastly, we also have been talking so much about alternatives as a way to play a lot of these themes. Sure. If you could kind of name a couple of things, Ankur, you're looking for this earnings season from the companies that you follow. I mean, I'm actually most interested in the way the market reacts to some of these CapEx announcements or updates of guidance.

But I just wonder what matters now. Look, I think CapEx definitively matters. Understanding what progress everyone is making on AI, that matters. And granted, it will be more glacial than we want to imagine right now. I think, and across everyone else, it will be really company specific. So, for Microsoft, we're looking at CapEx and making sure enterprise is okay, enterprise spending. For Meta, it's a completely different ball of wax. What are his advertising revenues doing? For Amazon, it's the consumer and AWS. So, again, it's going to be kind of more company specific as we're going through earnings season. But underlying it all, we do want to see everyone making progress in attaining, you know, whatever their goal is in AI.

We have earnings hitting, you know, their heaviest flow in the next couple of weeks at the same time that you would think, based on history, the market might start to clench up a little bit in front of a potential coin toss election. Your clients talking to you about that. Do you have a sense that their behavior is different because that's hanging out there on the horizon? So we do talk about it a lot, whether it's actually driving investment decisions is a different matter. And we like to say that really it's about the policy implication, not the politics there, I think if you look at betting odds, they have been moving around. But generally speaking, I think there's an expectation of a divided government. Areas of the market that we're on the lookout for in terms of election impact, long end yields, which have moved up nearly 40 basis points. If you look at the 10 year, that's all about tax 2025 and all of the discussions about the deficit.

And then the second is the dollar. It's strengthened by one and a half percent over the last two weeks. And I think that has a lot to do with the shift in betting odds towards former President Trump and the discussions around tariffs. Yeah, it seems like we'll see how many versions of this we go through in the next three weeks. Great to talk to you both, Gabriella, Encore. Appreciate it. All right, let's send it over to Kate Rooney for a look at the biggest names moving into the close. Hi, Kate. Hey there, Mike. So Morgan Stanley shares today hitting new highs after the bank posted better than expected results for the quarter.

That was helped by wealth management and a rebound in investment banking after a tough 2023. CEO Ted Pick saying on CNBC earlier that he is particularly optimistic about that banking division. What I'm really bullish on over time is the beginning chapters of growth across the center, the fulcrum of our investment bank, which is our investment banking franchise, which is to offer advice to do the underwriting business, but then also how it filters into our great markets business. And I think it's going to take time, but we're seeing it begin. And shares of J.B. Hunt today jumping after the company posted a quarterly beat on profits and

revenue that was boosted by improving demand for the logistic company's biggest segment, intermodal services. Mike, back to you. All right, Kate, thank you. We are just getting started. Up next, former Dallas Fed President Robert Kaplan is back. He'll tell us if he thinks another rate cut could be in the cards this year and maybe how big they might be. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

Stocks are green across the board, recovering from yesterday's losses. Investors looking ahead to key economic data out tomorrow to indicate what the Fed's next move might be following last month's jumbo cut. My next guest advocated for 50 basis points cut ahead of the September meeting, says there's still room to cut here. But let's bring in Robert Kaplan for more of the details. He's Goldman Sachs vice chairman, of course, and former Dallas Fed president. Robert, great to have you here. It's really fascinating because the moment before the September Fed meeting, I think the general sense on Wall Street was, wow, it's got to be 50.

They're running late. It's maybe overdue. Almost all the numbers we've gotten since that point have really told a story of maybe a stronger economy, maybe inflation coming down more slowly. Where do you think that leaves us in terms of the forward path for the Fed? I mean, my own view is if inflation is running headline around 2.4 or 2.5, the Fed has got room to cut the Fed funds rate down to, say, four and a quarter, four and a half percent. And so the inflation's improved at least 100 basis points over the last year. We can have somewhat lower Fed funds rate. So I think the Fed, depending on what as the economy unfolds, is likely to do another 25 in November. I think they'll have a debate

about December. The issue will be, in order to cut below four and a quarter, four and a half, you need to see more sustained improvement going from two and a half to two, and the jury's out on whether or not we're going to see that. And then alongside that, is it your view that the economy is performing well enough, that it really is and can be just about, you know, the progress on inflation toward 2 percent? So the one big factor that I don't think is being talked about enough, and I've talked about it before, is fiscal spending and the special open-ended spending programs, Inflation Reduction Act, Infrastructure Act, CHIPS Act, are providing resiliency to the economy. We're running six and a half, seven percent of GDP deficit this year, historically high when you're at or near full employment. So I think that's

given resiliency. And the other thing that we've benefited from this last year is an inflow of workers. We may not like the way we got there, but labor supply has gone up and that's allowed the economy to grow faster with somewhat more muted inflation. It's unclear whether that trend is going to continue. So I actually have thought for some time and still think the economy is going to be resilient. I think it is what it was wise to buy some insurance on the labor market by doing the 50 basis points last meeting and maybe doing a little bit more. But but I think with this amount of fiscal spending, the economy is going to be resilient and it may again cause service sector inflation

to be stickier than people would like. Yeah, it's certainly, you know, something that's not cooperating as much as other parts of the inflation bucket. Although, you know, you hear people point out and I've mentioned this before, too. if you go back to 2017 into 18, when the Fed was raising rates off of basically zero, you know, in a pretty orderly way, that was occurring while inflation was pretty consistently below the 2% target. In other words, it's not necessarily contradictory to have policy moving in one direction when you haven't, you know, when you're still well short of the goal. Yeah. And remember, we've made a lot of progress on inflation over the last couple of years. We've gone from, you know, eight, nine percent down to two and a fraction.

And so the Fed funds rate should reflect that. Having said that, there are limits. And I think we still want to get inflation down to two percent. But there and there are some other factors going on in the economy that investors are going to have to get adjusted to. Term premiums on the Treasury curve are likely to inch higher. Credit spreads, I'm very mindful, are historically tight right now and early cycle tight. I don't know if we'll look back on that and say that's an anomaly. And the other thing that's going on is we probably can't keep fiscal spending at this level globally. Witness China being a good example. GDP growth, if we can't keep spending this way at the government level, is going to drift down.

And I think that's going to also have an effect on markets and resiliency and winners and losers among companies. You mentioned term premium. So therefore, that's kind of the premium that bond investors are going to demand for holding longer term debt, perhaps because of, you know, longer term deficits and things like that. At this point where, let's say, the 10 and 30 year Treasuries trade, do you think that there's anything anomalous about those levels around 4 percent, 4 percent plus that would suggest that there's that that that term premium is widening out or is this this where they probably would be normally? Well, so I've honestly got to tell you,

I've read just about every research paper I can get my hands on about the effect of this excess fiscal spending and the Fed balance sheet being now around $7 trillion. What's the effect on the term premium? And would, in fact, the 10-year Treasury be 25 or 50 basis points higher if you didn't have the size of the Fed balance sheet. My own sense is our own research at Goldman Sachs suggests that we're going to see the term premium inch up. And if it happens in

an orderly way from here, it won't be such a problem. My concern is that there's a lack of duration buyers globally. We're going to sell nine trillion treasuries this year. We know banks are not buying duration. We know the Fed is not buying duration like they were. Foreigners are not buying it. And what I worry about is a disorderly rise in term premiums that's more destabilizing. And I don't know which it's going to be, but I think people should be watching out for it. Yeah. Among the things to be on alert for. Robert Kaplan, appreciate the time today. Thanks very much. Good to talk to you, Mike. All right. Up next, PIMCO's Erin Brown reveals where she sees this rally heading

and where she's seeing upside in the market into year end. Closing bell. We'll be right back. The major averages hovering just below record highs as third quarter earning season gets into full swing. But will earnings be enough to justify the market's multiple and keep this year's rally going? Let's ask PIMCO's Erin Brown, who joins me now. Erin, it's great to see you. Yeah, I mean, it seems as if we've reached this moment where a soft landing both seems likely and also very much believed and priced in. So where does that leave you in terms of the markets? Well, we've been talking about this since the beginning of the year, that in the second half, we are going to see a broadening out of the breadth of the equity market and see leadership not just from the Magnificent Seven, but for the remaining 493 companies. And you're finally starting to see

that over the last couple of weeks. You've seen the Russell outperforming. You've seen the S&P equal weighted index outperforming the S&P. All of this is a sign of a healthy market. And then when you layer on top of that, the setup going into the third quarter earnings season, the bar is pretty low. Going into earnings, the bar was for 3% year-on-year earnings. That's a pretty big step down from the second quarter where we grew 11% on a year-on-year basis. Earnings are sort of eking up as we start to see positive earnings surprise. But both the fundamental and the technical picture look pretty good into year end. That said, going into the November election, I do expect a bout of volatility, particularly around the election. That's not a reason to stay out of

the market altogether, because as we know, it policy not politics was drive the equity market but I do think that you have to keep some dry powder waiting for opportunities to get in when you see any type of volatility or drawdown in the market so remain slightly overweight looking for opportunities to add more risk but really focused on a broadening out of sector rotation beyond just what's worked in the mega cap space over the last 18 months or so. Yeah, I mean, it has been really evident even the last couple of days that you've had not much going on at the index level or even some weakness. But it seems like three quarters of all stocks are up and you do have that kind of cyclical tone to leadership. So, you know, that checks off a lot of the boxes. I guess I'd wonder if we do get about a volatility, what in particular would you

look to to pounce on? So the sectors that we like, we still like AI. Now, tech, as you've seen with ASML earnings over the last 24 hours, there's a pretty big bifurcation between the haves and the have nots in tech. I still think that the AI names will work. You've gotten a little bit of weakness in some of those names over the last few trading sessions. I think that that's really opportunistically a good time to start to buy back some of those names. I also really like the REITs. You know, one of the sectors that, you know, is going to be pretty flat on a year on year basis by the end of the year has been the REIT sector just because of higher interest rate costs eating into earnings. But I think that as we move into 2025, as we continue

to see REITs come down, I think that's going to be a sector that's going to do quite well over the next 12 months or so. So we're really focused on buying the REITs. We also like the power AI names. There's been a lot of volatility since the summer in some of these names, but I still think the independent power producers are really primed to do very well next year as we see rate resets and as we continue to see the AI build out, really increased power usage across the U.S. Erin, how are you thinking about the moves in China, both on the policy side and then the way the market's so radically, you know, sort of repriced for them and now have been correcting off those highs? So China, I think, still remains a challenge insofar that we really need to

see policy and fiscal policy that's meaningful in order to buy China as an investor as opposed to just a renter. We bought options in the China market that took advantage of you know sort of cheap optionality to the upside. It's no longer cheap anymore, although it's certainly come back a little bit in recent days. But I think to get, you know, long term bullish China, I still need to see a lot more in terms of rectifying the challenges that they're having on the housing, having more consumption oriented fiscal spend and really solving some of the structural problems that have plagued China over the last 24 months. You know, Erin, we started out by talking about how everything does seem to be coming up,

you know, softish landing, just a benign backdrop, and maybe the Fed looks like it's gotten things right. But it wasn't really long ago. It's really just a couple of months ago where it was seen as the labor markets eroding too fast. We've gone through these kind of hot and cold kind of perceptions over the course of this year a bunch of times. Do you think there's a risk that we're just have, you know, the next growth scares right around the corner? Or is it going to be a overheating scare or something like that? I mean, certainly the sort of boogeyman for the equity market remains out there. Inflation, you know, starting to pick back up again. Right now, all the trends that we're looking at, whether it's, you know, housing

costs or renting costs, some of the import inflation and the data that we saw over the last 24 hours from PPI earlier in the week and then import data, this, you know, more recently is all suggesting that inflation is on a downward trajectory. We do think it's going to remain stickier as we get, you know, further, you know, closer into 2025. But, you know, energy costs coming down does help. I think that the risk is if we were to see, you know, a real revamp of fiscal packages coming out after the election, that could potentially lead to higher inflation in late 2025 into 2026. But for now, we feel very comfortable that the Fed still has a green light to continue to cut rates, given the fact

that inflation, we think, will be cooperative, certainly over the next six months or so. Yeah, it seems like starting from this level, they have a pretty clear path. Maybe it gets more complicated in a couple of quarters. Aaron, great to have you. Thanks so much. Aaron Brown from PIMCO. Up next, Starship analyst Stacey Raskin is back and breaking down how he's navigating the volatility in the semi-space. He'll join me after the break.

Closing bell. Be right back. Shares of NVIDIA climbing today, recovering from yesterday's broader chip sell-off on the heels of a disappointing earnings leak from ASML. That stock still sinking today. NVIDIA also getting hit with news that the DOJ is considering capping AI chip exports to some countries. Joining me now to discuss all this is Bernstein Research's Stacey Raskin. Stacey, it's good to have you here. It always sounds like there's a ton going on around NVIDIA.

Certainly there is. Not to mention we have, you know, Jensen is really on the circuit out there, kind of preaching the future at every turn as well. And yet the stock's, you know, it's up seven-tenths of a percent this week. It's kind of hanging in there onto this gain. So separate out what matters and what might not for this one. Yeah. Yeah. You bet. So yesterday took a hit along with the rest of the sector on two things. One was the the ASML earnings leak, which was interesting in its own right. And some of the export control news. I think any hit that it took on the ASML report was probably not really justified because while ASML's report, as we all know now, was not great,

the one sort of bright spot from it was AI demand. It seems like AI demand is still off the charts. It's about the only thing that is, but it's still very strong, and clearly like that, that benefits NVIDIA. I do wonder if some of the hit yesterday was more around some of the export control stuff. And what's going on there is there are some stories that suggest the U.S. is considering, I guess they suggested capping the licenses that NVIDIA and other AI chip vendors can use to sell parts to other countries, particularly, I guess, in this case, the Middle East. I'd say, and I'm not sure it's that big of a deal, I guess we'll see, but caps, in my opinion, are not bans.

They already have license. They're already under licensing arrangements with the Middle East. They have to get licenses to ship there anyways. And frankly, the other outright bans that we've seen in the past haven't really slowed them down at all. So I'm not terribly worried about that. They seem to be more incremental than anything else. And we saw the stock yesterday was coming down before the ASML. They dropped sharply and then kind of recovered a little bit afterwards. So I think today

it's kind of relaxing a little bit as it's clear that the ASML news is not a direct read across. And maybe the export control stuff isn't as big of a deal as people might have been worried at first. Yeah. And the market clearly, as you suggest, making its peace with whatever all this is. And I know there's a way also of saying, listen, this stock is where it traded four months ago. It had an absolutely massive run. It gets to three point three trillion dollar market cap and then maybe it needs to kind of hang out for a little while and figure out exactly how long we're going to be in this lucky position of demand outracing supply into next year. So where do you think that sits in terms of investor expectations and and how the stock is positioned? Yeah, you know, it's interesting. You sort of look at the last couple of months. It was in a lot of a lot of news. Well,

the stock took a big hit several months ago on the Blackwell delay rumors. And while it does seem that there were some issues there, it really looks like they've worked through without any problems. So it didn't really have any impact on the demand trajectory. And I'd say since the stock went to $90 or something close to it. And so it's certainly recovered off of that. I guess that was a great entry point in hindsight. And going forward, all of the checks on AI demand, they're going to sell everything that they can make. And you mentioned Jensen's out there. I think he's been on your channel more than once in recent weeks

and sounding very enthusiastic. It's the one bright spot in the whole semiconductor arena right now. It's the one thing where we can definitively point and say demand is probably going to exceed expectations, even expectations that I think are going up now. Some of the other areas and semis, I wish you could say that. You can't really say that. No, for sure. Well, speaking of the other areas of semis, I mean, we also have these reports that, you know, maybe Qualcomm, if it is considering some kind of a bid for Intel, might be waiting till after the election to sort out that decision. I don't think you're a fan of the idea of the combination, but where does that stand?

To be fair, I hope they wait a little longer. I'm not a fan. To be honest, if they were just taking some of the product pieces of Intel, I could construct a thesis and you can maybe make that work. I just can't make the finances work if the fabs come along with them. I just can't. It's dilutive if you use stock and if you start using cash, it doesn't take a lot for the leverage to reach, in my opinion, what would be unsustainable levels. I really would not like to see Qualcomm buy Intel and

take the fabs. To be honest, I don't think Intel is desperate enough yet to agree to a fire sale. I don't think that splitting the company at this point is really on the road, but the fabs just can't stand on their own. Like they're losing, what did they lose? Close to $3 billion last quarter. So 12 billion annualized. They just can't stand there on their own without a significant amount of like probably external capitalization. It's going to be years before you build a business that enables them to stand on their own, if assuming you can do that at all. Yeah, no, that's a key point about, you know, Intel maybe not even being in a spot where they'd be, you know, looking to consider something like this. They're still in that investment phase, still 100 billion market cap. We'll see how it

all plays out from here. Stacey, great to catch up with you. Thanks a ton. You bet. All right, up next, we're tracking the biggest movers as we head into the close. Kate Rooney standing by with us. Hey, Kate. Hey, Mike. So Citi's seeing bigger opportunities in AI for one tech firm and then a CEO sees some trouble ahead for the beauty industry. All those details coming up next after the break. About 12 minutes till the closing bell. Let's get back to Kate for a look at the key stocks to watch into the close. Kate. Hey, Mike. So shares of Cisco jumping today to new highs today, as Citi says it sees opportunities for AI to play a bigger role in the tech company's business. Analysts over at Citi upgrading the stock to buy. That was from Neutral increasing that price target by $10 to $62. They point to an investor rotation

into networking equipment and out of semis and hardware. Meanwhile, shares of Ulta moving lower. The company's CEO, Dave Kimball, today warning of headwinds in the beauty industry, says they're pressured by more volatile consumer backdrop and stiffer competition out there. Ulta did reaffirm its full year forecast after cutting it last quarter. Mike, back to you. All right, Kate, thank you. Up next, we'll tell you what's sending shares of Novavax sharply lower today and what it might mean for the other big biotech names. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone.

Angelica Peebles on Novavax slumping to its lowest level since May. Diana Olick on what's behind the rally in housing stocks. Bus United lifting airline stocks. Phil LeBeau has more on that group. And Fairlead's Katie Stockton on what she's watching in the crucial final minutes of the trading day. Angelica, fill us in on this Novavax move. Yeah, Mike, Novavax shares are down nearly 20% today, and that's after the FDA putting Novavax's flu shot trials on hold after the report of a serious adverse event. Now, one person who received Novavax's experimental shot developed motor neuropathy.

Now, this report coming more than a year after the person got the COVID flu combination shot. And Novavax saying this clinical hold could delay its phase three flu trials. Now, the company is working on both the COVID flu combination vaccine and a standalone flu shot. So, of course, this is not great news for them. But we'll have to see if they can get that resolved and how quickly. For sure. Angelica, thanks so much. Diana, housing stocks, mortgage applications, kind of a noisy story.

Yeah, obviously the stocks are going up, but it's not on the fundamentals because mortgage rates rose last week for the third straight week, and that tanked mortgage demand with applications dropping 17 percent from the week before. The average rate on the 30-year fixed increased to 6.52 percent from 6.36 for loans with 20 percent down. Refinance demand took it hardest, down 26 percent week to week, still 111 percent higher than the same week a year ago. Rates today are over a full percentage point lower than they were a year ago. Mortgage demand to buy a home fell 7 percent for the week, up 7 percent higher, up than the same week one year ago. The homebuilders don't seem to care much, though. Today, the homebuilding ETF ITB is higher on the day, as are all of the big builders.

That's likely because mortgage rates really haven't moved at all this week. They're also able to buy down mortgage rates to get customers in the door. So, again, Mike, it's definitely not on the fundamentals. Yeah, certainly the homebuilders kind of have their own advantages. Diana, thank you very much. Phil, these airlines running higher, what's behind this? You know how this goes, Mike. When they take off, they take off.

They may have been really down in the dumps for most of this year, but take a look at United. Now at a 52-week high after beating the street on the top and the bottom line yesterday afternoon, the conference call today. Three things are driving the airline stocks higher. First of all, positive seat revenue. That is the key metric that everybody is focused on. They swung to that in the third quarter. Both United and Delta did. We're going to see what the others have to say.

There's reduced capacity and solid holiday demand. That is the early indication of what to expect. And as a result, when you take a look at the other airline stocks today, they were all up substantially for most of the day. Next week, don't forget that we hear from American and Southwest. So the airline stocks, Mike, they're finally taking off. Sorry for the pun. Yeah, for sure, Phil. And just quickly, I mean, this capacity reduction idea, the idea that there's a lot of this uneconomic capacity being taken away. Clearly, the market is saying this is going to persist for a while. Do we have clear signals that that's the case?

Well, you know, as far as the booking, as far as you can look at the booking trends, they can tell when somebody is the bad actor out there and starts adding a lot of seats. That's been stripped out for the fourth quarter and at least into the beginning of the first quarter. Gotcha. I appreciate it, Phil. Katie, you know, this market is getting a lot of accolades for the strength of the trend, the fact that most stocks are participating to the upside. I think you sort of characterize yourself as somewhat neutral on the indexes. What brings you there?

Well, that's right. The short-term momentum is the upside right now behind the major indices. But we expect that as soon as the likes of NVIDIA falter, that we will have a bit of a problem, meaning that sentiment can be considered overly bullish or too greedy. That's the fear and greed index for one. It reached 75%. That's an extreme reading. And that makes it harder for the market to uphold overbought conditions, which are in place across timeframes. So we are looking for a pullback or even a more significant corrective phase in Q4 for the S&P 500 to mark the start of a more range-bound environment. It is supported by the VIX, which has sort of entered a newer,

higher volatility cycle. The momentum is to the upside behind the VIX. And also, we have some signs of long-term exhaustion. You know the DeMarc indicators well, Mike, and the DeMarc indicators show signs of exhaustion thatterm exhaustion. You know the DeMarc indicators well, Mike, and the DeMarc indicators show signs of exhaustion that we really haven't seen for the market collectively since late 2021. It's not to say we're getting into a bear market cycle, but it would enhance the possibility that we do get into a choppier environment. Interesting. And Katie, do you give credence to people celebrating things like banks leading and cyclical stocks doing better than defensive stocks, either for the macro signal it's sending or that those could become perhaps leaders down the road?

Maybe that doesn't help the market cap weighted indexes all that much. But I wonder your thoughts on that. It's been a nice move from the financial sector, and that certainly contributed to what we've recently seen from the S&P 500. I would say it's too early to suggest that we have any kind of breakout in relative strength terms for financials. So we can't be convinced that this is a lasting phase of our performance. Most of our metrics suggest that financials will be more in-line performers and that actually cyclicals may in part rotate out of favor depending on what you're looking at. The real key here, of course, is that the mega cap heavy sectors and the mega caps included, of course, are poised to sort of lose their leadership stronghold to a greater degree.

And I think that's the problem that the market faces. Yeah, that's a good point. I mean, it's clearly a more stable market, more reliable when the mega caps are working. And I guess on that point, Russell 2000 making another upside try close to 2300. It's up 1.6 percent today. What does that tell you about whether it's in fact sustainable? So for the small cap sector or segment of the market, we've seen a little bit of a relative strength shift. But if you look at the longterm trends, they're still to the downside in the Russell 2000 index versus the S&P 500. And we also do not have a breakout of any kind in the Russell 2000,

which is still sort of stalled below resistance from the summertime highs and beyond. So we don't feel like we have an action item there on the small cap front, not yet. But we are looking for the phase of underperformance to give way to something a little bit closer to in line. And that could just mean neutral trading as well for the Russell 2000. And then maybe a quick word on bonds. The Treasuries look like they might be getting some upside momentum and yield. They backed off this week. What do you think there?

I think that we have an entry point, in fact, in the likes of TLT, which is a proxy for the Treasury bonds. You know, we feel that there's signs of downside exhaustion short term in nature, but within the context of a gradual long term uptrend that was associated with the big turnaround for fixed income proxies. So we do feel like we have an entry point, at least short term, if not longer term for Treasury bond proxies like TLT. And in following, of course, we are looking for yields to stall. We don't think there's going to be dramatic downside here in the very near term, but they've had a great up move within the context of a cyclical down move. So we think it's going to tire out here. All right, Katie, appreciate the time today. Thanks so much for

running through all the chorus. As we head into the close, the S&P 500 is about a half a percent higher. It is just short of its former closing high. The Dow looks like it is on track to close at a new record high, 43.078 right now. Three to one upside to downside volume on the New York Stock Exchange. That's going to do it for Closing Dow.