Closing Bell - Closing Bell: Slowdown or Melt Up? 9/20/24

Episode Date: September 20, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this game-changing week. And whether it means this record-setting rally is more sustainable than some thought, we will ask our experts over this final stretch. Take a look at the scorecard here with 60 minutes to go in the week. In regulation, well, we're still hanging on to $42,000 on the Dow, been a little bit all over the place. We'll see what we do here, if we can actually close positive to end this very busy and consequential week. We are watching Apple shares today. The new iPhone going on sale.

That stock's been up throughout the day. $231. We continue to follow Nike following its CEO change. Shares have been up sharply in today's session. They remain there at this moment up near 6%. It does take us to our talk of the tape. Slow down or melt up? That is the question following the Fed's first rate cut in years. Let's ask Dan Greenhouse, Solus Alternative Asset Management's chief strategist with me here

at Post 9. What was this? Good to see you. Good to see you. Welcome back. Game changer? The fact that it was 50? I don't think it was a game changer, per se. I know there was a debate on the halftime show about whether it was a surprise or not. I think most people in my seat who look at things from a macro standpoint were probably caught off guard. And that's because going into the quiet period, we'd all expected 25 basis points. And then the Federal Reserve has now decided to alter how we think about things, which is to say now during the quiet period, you can change market expectations by leaking to newspapers, something that up until this point, we really haven't had to deal with very much. 50 was the right number, according to Waller, who was with Leisman exclusively earlier today, was the right numbers. Chair Powell said,

we're at a point where the economy is strong, inflation's coming down, and we want to keep it that way. So we felt 50 was the right policy action to do. So if they're cutting while the economy's still strong, it's a bit of an insurance cut. What does that mean for stocks then going forward? Well, just to start with, when we last spoke, when you were out West, one of the arguments I made is that I could easily make the case for 25 basis points, which was my assumed outcome. I could easily make the case for 50 basis points. And I think the case that Jay Powell made was the case that all of us who said, well, if you had to cut 50, this is the case you would make.

That's the case Jay Powell made. The economy is still doing well, but I implore everybody who's watching at home and for the discussions we have on the network, this isn't about the economy weakening in any meaningful way. There's obviously some weakness in the labor market. It's about the Fed just getting back on sides with where real rates and nominal rates should be, considering what the progress they've made on the year-over-year inflation rate. It's really not much more complicated than that. Okay. So then why is it any more complicated than don't fight the Fed? Oh, well, listen, I'll repeat a long held position of mine on the show going back to September 23, when the Federal Reserve introduced their introduced for

the first time their 2026 estimates. That was the first time that they said that inflation was not going to get back to target until 2026. So what the Fed said then, again, this is back in late 23, we're not willing to do what everyone else tells us is necessary in order to bring the unemployment rate back to target and the inflation rate back to target more quickly. We're not willing to do that. We're going to wait until 2026 for inflation to normalize. That to me was and remains an incredibly bullish development. The Fed's saying, I'm not going to crack this. I know people keep telling me they want us to crack it, but I'm not going to. So to answer your question, what does it mean for risk assets? For investors at home,

this is really very simple. The economy continues to do well. Obviously, it's decelerating to some degree, although from an elevated level in the back half of last year. Interest rates are beginning to come down. The two-year and the 10-year, both, the yield curve is now steepening. The dollar has sold off a bit. All of this is all else equal, generally speaking, risk asset positive. Which is why Brian Belsky raised his price target, he said, to $6,100. That's right. Assuming that earnings are going to hold up and deliver the kind of results that he expects they will, justifying the multiple that he thinks is deserved. To state the obvious, if earnings don't hold up, if the economy does turn down, then 6,100 is not going to happen.

But you think 24 and a half times or whatever the market's trading at is realistic? I don't love the infatuation with the multiple. Listen, the multiple tells me a lot about market expectations and risk tolerance, et cetera, et cetera. But at the end of the day, it's never been and never will be, never has been a market timing tool. The same people who are saying that the market is expensive at 21, 22 times are the people who are telling the people at home that the stock market was expensive at 17, 18, 19 times. The market is rich to its history. Now, again, a lot of that has to do not with some broad-based overvaluation, but with the weight that's conveyed upon the market by Nvidia, by Apple, et cetera, et cetera, all of which trade with higher growth profiles, so they traded higher multiples. But I don't love the idea that, well, stocks can't go up,

which is the insinuation, because they're at 22 times forward or whatever. They can certainly go up. They were expensive. The first time the idea of a stock market bubble started percolating in the mid-1990s was 1995. The irrational exuberance speech famously is 1996. And equities continue to go on and make new high for years. So telling me equities are overvalued doesn't really do much for me over the next six or 12 months. Okay, so then what kinds of stocks are going to go up the most? There's the idea, seems to be conventional wisdoms, like, okay, Fed cuts rates. Now, cyclical assets or the 493, a lot of the 493 are going to be the outperformers. Russell 2000 is going to outperform because we needed this moment to happen for that to happen.

Is that true? Because history suggests that it may be true initially, but not necessarily over a longer period of time. Yeah. So I'll repeat my position. The Russell 2000 is not a great index. Everybody knows that a third of the index or whatever is unprofitable. I don't think the average viewer or even people who are guests on the show regularly can name more than three or four stocks in the index. I think certainly mid caps are an index of names that you know who these companies are. So let's say small mid caps, like mid cap stocks. The ones who are more susceptible to floating rates. Right. The floating rates, more hurt by higher rates. Now that you

have rates coming down, is that where the obvious bonus is going? So I think to answer the question glibly and shortly, yes, you would think that companies more levered to floating rate debt, which is predominantly found in the small cap universe, would presumably do better. Now, again, part of the problem with this conversation is while that's true in the short term, to your point, in the medium term, the stocks in the S&P 500 and even in the mid cap index are just infinitely better companies. There's a reason why they're there. I mean, if you think about the small-cap index, to the extent that the S&P 500 benefits from survivorship bias, the exact opposite affects small caps. If you're a good company and you grow, you're going to grow into mid-caps and eventually large caps.

And if you're not a great company, you're going to stay there. And so not that small caps can't do well. They did in the 2000s and 2010s for various periods of time. But it's just not a quality index of quality companies. But yes, in the short term, I think those types of companies are going to do well. But just to repeat, where is their strength? It's clearly in the AI and the large tech names. So I want to still lean there? Listen, I came into the year thinking you were going to see a broadening out. It took much longer, although it's clearly happening now. I think to repeat the position that Solus has had and that I've had for several months now,

for sure, if not a few quarters, there are investable stories going on in large and mid-cap equities, credit, et cetera, et cetera, that are not purely derivatives of, like, for instance, today, I can't see that utilities are the best performing sector last I look. That's largely because of Vistra and Constellation on the back of the Microsoft News. That's not exactly a defensive play, but is a thematic story that's derivative of artificial intelligence and data centers. But there are any number of other companies that are doing very, very well that are in excess of the index returns this year that have nothing to do with AI. And I just we spend so much time talking about them. This is the moment, presumably, where the tailwind that's already in place for some of these companies fundamentally is going to become even more attractive. Let's bring in Brian Levitt now of Invesco and Marcy McGregor of Maryland Bank of

America Private Bank. It's nice to see you both. Marcy, you get the first crack here. OK, take us from this really pivotal and consequential week. And what does it mean for where the markets go from here? Yeah, I think you have to take a step back and look at the backdrop. And the two things that matter right now is, one, we don't believe that we are entering a recession. The economy is stable. If anything, we're seeing the economy normalizing after having overheated and dealt with this inflationary issue for the past few years- the fed made it very clear where we they are

recalibrating how said that nine times. So one no recession and two profits are accelerating that's extremely unusual at the start of a fed cutting cycle. So that it tells me a bullish story for equities yes we have a little over six weeks to

election day so I would expect some October choppiness- but I think this bull trend can continue when I look ahead to 2025. It's not going to be about multiple expansion, of course. It's going to be an earnings story. And earnings accelerating, I think, is the most important point that investors should be watching right now. Yeah, I mean, I was concerned that the Federal Reserve was going to stay too tight for too long. So I'm enthused by what I saw this week right there. The old saying from Rudy Dornbush, none of the market cycles die in bed of old age. They're all murdered by the Federal Reserve with interest rate hikes. So we had a lot of hikes quickly. The economy leading indicators were pointing towards some weakness, two year rate at three and a half. So they're behind the curve and

you got to get going. And I am optimistic on markets, but I acknowledge that we're in a little bit of a race between what the Fed's going to do and what the unemployment rate is doing. And I would like to see, you know, given where inflation is, I would like to see the Fed move faster. I would like to see us work to normalize the yield curve and help growth. Master, I mean, what did you want them to do? Go buy more than 50 this time? I mean, I hear you. I mean, so you're making the argument that you think they're still behind the curve.

I do still think. I do. I mean, it's hard to have an even an I don't even think it's an argument that they're still too restrictive. They're still too restrictive. So virtual, they're preferred by virtue of where inflation is. So their preferred measure of inflation is two and a half percent, right? Core personal consumption expenditure. You've seen jobless claims tick up a little bit. The

unemployment rate move up a little bit. So the economy looks good, but we need to be we need to make sure they don't stay too tight for too long. The two years at three and a half, that's a reasonable expectation for growth and inflation. That's a reasonable neutral rate. There's no reason to be anything but neutral in a world where inflation is back in the comfort zone. In other words, Marcy, I guess the jury is still out, according to Brian, that they can actually pull off the miracle, what was once thought to be a miracle, the soft landing, because they still have work to do. Well, the data is telling us that we are getting a you know I

say the conversation between hard landing and soft landing the data is pointing towards soft landing but again I think this is still a normalization. What I would caution though and we hear the Fed talk about this frequently is the two sided

nature. Of risk right now I do think a year from now the Fed wants to be really sure we're not battling a second wave of inflation- so I think they're going to do a steady march I do think a year from now, the Fed wants to be really sure we're not battling a second wave of inflation. So I think they're going to do a steady march forward from here. You know, claims are still really low. The labor market is healthy.

The consumer is stable. And frankly, when profits are accelerating, companies aren't laying off workers. And that's what I keep coming back to. I think the macro call is pretty easy here. But the Fed, while watching the data and being at its core data dependent, need to also make sure we don't get a second wave of inflation, which is so common in inflationary periods. Yeah, well, I mean, that's why I think Waller, the way he was with Leisman today, wasn't willing to suggest that this was now going to be the norm. I want you to listen to what he told Steve, and then we can react on the other side of it. If the data comes in fine, nothing bad one way or the other, you could imagine going 25 at the next meeting or two. If the labor market data

worsens or the inflation data continues to come in softer than everybody was expecting, then you could see going at a faster pace of possibly 50. All right, that's Chris Waller with Leisman earlier. A lot of ifs. If this happens, that, this, that, and the other. I mean, I don't think he's telling us anything that we don't know. If things are okay, we're going to go slow. And if things get worse, we're going to go more quickly. But to Brian's point about the two-year being where it is, the two years telling you about something about market expectations, but market expectations are being set by the Fed. And I would, I just, I don't think everyone should Are they being set by the Fed or the market expectations leading the Fed? I think that I think commentary and tone is helping people get enthused in the idea that

rate cuts are coming at an expedient pace. And you have people already talking about a 50 basis point cut at the next meeting. I would just say I think there's a little more uncertainty here. That 50 basis point cut yesterday was not unanimous. There was the first governor dissent since, I think, 20 years or something. Yes, Bowman wanted 25, not 50. But it was otherwise. Governors don't dissent.

That's not something we should not. First time since 05. Yes, fine. I hear you on that. So it's been some time since the governor's dissented. And secondly, when you look at the dots, a couple of Fed members are projecting no additional cuts, fewer, only one more. It sounds to me like Powell had to drag people into favoring a 50 basis point cut yesterday for all the reasons that we've discussed getting ahead of the curve. And so from a from a interest rate standpoint, there's I mean, the curve is steepening. We know that I would expect it to continue

steepening the two tens curve, that is. But I don't think I should rely. And I don't know that Brian was saying this as affirmatively on what the two year is telling me right now, because to your point about Waller and the data, if the jobs number comes in at five hundred thousand next month or minus one hundred thousand, all bets are off. I was largely saying it, though, from the perspective of if I think about the growth and inflation potential of this economy over the next few years, I'm somewhere between three and a half and four percent. And so a five and a quarter where we were Fed's funds rate is too tight. So what I'm suggesting is they've got room to go to get to neutral before we even consider accommodative.

And when I'm at a two and a half percent inflation rate, but I've got leading indicators of the global economy pointing lower than from my perspective, it's time to get going. It's time to move. Marcy, does 6100 on the S&P, which is Brian Belsky's new targets, the richest on the street. Does that make sense to you? When you look back, we looked back at past Fed cutting cycles. And if you don't get a recession in the 12 months after the first cut, on average, the S&P is up 21 percent. That's versus an 11 percent return in all cutting cycles. So this is a powerful backdrop for equities.

Again, I keep coming back to profits. And by the way I know a lot of us probably have a common view that inflation's not going to get down to the feds two percent target for some time. But two to four percent inflation is actually the sweet spot for

equity returns so. Again once we get past the near term chop choppiness October is one of those. Trick or treat months for markets- I do think the ingredients are here. For- for the bull market to continue into 2025. I think you can get call it seven, eight percent earnings growth next year. You have yields pretty range bound. There's a lot of liquidity in this market.

I think that's a recipe for higher equities. I go back to where you want to be to get the most bang for your buck post cut. Wells Fargo today, looking back at the starts of the last six Fed easing cycles, the highest one year sector returns were in tech. All industry groups within tech discretionaries next and then health care. Does that surprise you? It doesn't surprise me. I mean, you've had different environments. You've seen the normalization of the curve at the beginning of the cycle where you've gone into recession. You've had others where you have not. So it really will depend on the macro environment.

To your earlier point, you normalize the yield curve with a resilient economy. You want to be in more cyclical assets. You want to be in smaller capitalization names. When I'm talking about the race between the Federal Reserve and the unemployment rate, it's not necessarily about the broad market. It's more about leadership. And if you're in an environment where the Federal Reserve does not get out ahead of weakness in the economy, the more defensive sectors would win. The soft landing scenario, the one that we're all hoping for and discussing, should favor cyclical sectors and small caps. Last point to you. This notion that a year from now, we'll be having the conversation we've been having for the last year. Tech is where you want to be because tech's going to outperform. And there's even more gasoline on this inferno of AI and this market from those stocks.

Listen, it's impossible to argue with the thesis at work here. It's working incredibly well. A lot of these companies are spending a ton of money. Some of them are printing a ton of money. The investment is there. The investor appetite for the names are there. It's not too dissimilar to the late 1990s in that sense. And I would be hard pressed to dissuade people to be able to dissuade people away from that. I would just repeat, there's lots of other

things going on that aren't Broadcom and NVIDIA in markets. And if you spend even five minutes, let alone 50 minutes, you can find them. All right. I appreciate it very much, Dan. Thank you, Brian. Thanks. And Marcy, we'll see you soon. Thank you very much. Speaking of other things going on, Apple's going on today. That stock's higher right now, above $230. They officially released the new iPhone today. Our Steve Kovach is live from the Fifth Avenue store today. He did speak with CEO Tim Cook earlier this morning, and he's been watching the line very closely throughout this day. Steve? Yeah, that's right, Scott. And of course, this whole week started off with some kind of dour news about iPhone 16 demand, that pre-order data that came out over

the weekend. Analysts picked it apart and kind of determined that, well, iPhone sales appear to be down compared to where they were last year. And then we heard from the T-Mobile CEO, Mike Sievert, I believe it was Wednesday. And he said, well, at least on his carrier, on his network, pre-order sales were up from the year ago. And we saw the stock go up nearly 4% on that news yesterday. So here we are. I'm outside of the flagship store. Like you said, Tim Cook was there. I have noticed the lines dwindle a bit, but let's hear what Tim Cook had to say earlier this morning about what he's seeing in iPhone demand. Take a listen. Today is great and very exciting. Better or worse than last year? I don't know yet. It's only the first hour, so we'll see. Pre-order's good? everything is enthusiastic so look Scott that is the

big question on everyone's mind and then there's their artificial intelligence angle into it too because I was talking to so many people here in line on the first day despite the fact that the Apple store behind me is decked out and artificial intelligence marketing and so forth. These people are not gonna get Apple intelligence for another month or so, and even then, it's gonna take some time for all of those features, including that chat GPT integration to really roll out.

And so we're gonna have to see how that dynamic plays out. But everyone I've been talking to, they just say they want a new phone and they want that new camera and that new camera button on the phones. But we'll have to wait and see what the sales look like throughout the weekend. I'm sure we'll get a lot more fresh data. The analysts will pick that apart through their channel checks and we'll get an even better read on demand by this time Monday, Scott. Okay. Good stuff, Steve Kovac. Thank you.

I'm going to bring a headline to you right now. According to Dow Jones, it plays into the story of winners and perceived losers, intraday as well on that, too? You see Intel up about 6 percent, Qualcomm falling in almost the exact amount to the downside. But Intel presumably is getting a pop here late day on this headline from The Wall Street Journal that Qualcomm has approached Intel about a takeover in recent days. And that company, Intel, is the one I'm speaking of, obviously has been in the shadow of all of these other chip makers who are at the forefront of this new revolution. Nvidia comes to mind first and foremost,

but it's AMD, it's Broadcom, it's Taiwan Semi, and some of these other chip stocks that have really gotten a boost, the one that this one has not. So we will continue to follow this story. We're going to take a break in a moment. I do want to send it to Pippa Stevens now for a look at the biggest names moving into the close. Pippa?

Hey, Scott. Well, Constellation Energy surging 21 percent to a new all-time high, by far the best performer in the S&P after announcing it will reopen the Three Mile Island nuclear power plant, selling all of the power to Microsoft as part of a 20-year agreement to power the tech giant's data centers. Constellation shares have more than doubled this year as independent power producers benefit from rising power demand thanks to electrification, reshoring, and data centers. Now, today's announcement also lifting shares of Vistra to a record high. Vistra, which also owns Merchant Nuclear Power, is the top stock in the S&P this year, outperforming even NVIDIA up more than 100 percent. Scott?

All right. Pippa, thank you. We'll see you in a little bit. That's Pippa Stevens. We're just getting started here. Up next, we have Goldman Sachs' Sarah Nason Tarahano. She's breaking down how is she navigating the potential volatility in this market, where she sees the big opportunity post-rate cut.

Right now, she'll tell us next. We're live with the New York Stock Exchange. You're watching Closing Bell on CNBC. All three major averages are on pace for weekly gains after yesterday's post Fed rally. My next guest says now's the time to bet on stocks and use volatility as an entry point. Joining me now post nine once again, Sarah Nason Tarahano of Goldman Sachs. Nice to see you. Great to be here. So how do you characterize what happened this week for the market, that it was 50 and not 25?

Does that change the way you would have seen things today? I think it changes it a little bit. I think the Fed has done a great job. They were very focused on inflation. They got inflation under control into the, you know, 2% range. High 2 is 2.9 is where we're trending right now. And now they're focused on unemployment. And I think it's helpful to the equity markets, clearly, to have rates lower. I really think that it was a bit of a hedge as well, right? We're not having another meeting

until November. Like insurance. We've got insurance, seven weeks. And I think, you know, you would expect equity markets to rise on the back of a 50 basis point rate cut. So you think this was more of a gift than a warning, a worry point? That's something they had to do 50 because they're more worried about the labor market than the economy. Look, I think a little bit of both. I think they're a little worried about the labor market.

But I do think I see it more of a hedge than a trend that we're going to see all these, you know, 50 basis point cuts going forward. I think they've given themselves a really nice hedge for the next seven weeks that if the data comes in worse than expected, we have enough cushion to really be able to, you know, handle that. What about areas of the market? As we spent the first 20 minutes debating kind of where you want to be and whether that's become a game changer, too, as a result of the 50. How do you see that? Yeah, I mean, a little bit. I'll just take a step back. I mean, when we think about advising, you know, high net worth clients and family office, what is the goal? The goal is to protect their money and grow their money to outpace

inflation. That's how you protect purchasing power. What does that better than anything? U.S. equities. You go back and you look from 1926 at rolling 20 year periods, outperformed U.S. equities have outperformed inflation 100 percent of the time. Now, what U.S. equities, I think, is the question that you're asking. And I would say we've been talking about broadening for a while. It's hard to ignore, you know, the mega cap tech outperformance. We wouldn't bet against it. I think it makes sense to have those exposures in a portfolio, particularly because most of our clients have tremendous gains there. And we've talked about the tax consequences of taking those gains. But, you know, 11 of the sectors of the S&P are up

year to date. The broadening is happening. And now it's like, where do you look to add extra exposure? We're starting to talk a lot about mid cap. And, you know, I think the thing that's interesting about mid cap is from sort of a price perspective, they trade at 15 times next 12 months versus the S&P at 22 plus. And then you add to that, that they are profitable companies for the most part, 90% of them have positive net income. And we have positive earning estimates too.

So we see a CAGR of 11% over the next two years versus the S&P at 7. What about, your clients are different. I mean, as you said, it's about preserving their wealth. Yeah, that's right. But what about stepping out on the risk curve? If you think that the Fed's going to be more aggressive than maybe we first expected, does that change that dynamic for you? You know, I think it makes us more and more

comfortable with equities. I don't want to ignore where we are, though, today. We have hit new highs on the S&P this week. We are going into the election in November. October is typically a historically volatile month. So am I running into the equity market here? I am not. Am I telling clients to continue to hold equities? Yes. And to look, and you mentioned this at the beginning, look for dislocations to add exposure, taking advantage of increased volatility, you know, selling puts on names that you really want to get long or selling puts on indices that you want to go long.

So I think we're trying to think about how to use volatility. And we did that on August 5th as well, by the way. Let's talk credit for a minute. Sure. Because one of the hottest areas continues to be private credit. Yes. And now you have a debate developing as to whether that's now a bubble. Yeah.

I asked Jeffrey Gundlach that question about whether it's just too much. Can we listen to what he said? And then I I get your reaction? Yeah, absolutely. There's gunlock the other day with me. Without any doubt, I know that when the first question at a large crowd presentation is over and over again, talk to me about private credit, I say like, well, you're asking me that because you own a ton of it, right? You're an RIA and you've got your clients all in these funds. And of course, now I think somebody's trying to do a closed-end fund for private credit. It gets weirder and weirder. First,

someone's so bold as to want a billion-dollar fund. Then somebody wants to do a $5 billion fund. Now there's somebody doing a $25 billion fund. This is what the top looks like. So here's how I would respond to that. First of all, I don't think our clients, I see their portfolios. We had a family office survey that actually showed that our clients are not overweight private credit. They're actually overweight equity and private equity. There have been a lot of new entries into the private credit market. But let's just take a step back and talk about private credit for a minute, and then I'll talk about the parts of it that do give me some pause. I think, obviously, with interest rate cuts, the overall yields are coming in.

So maybe you're not going to get the 10 to 12 indirect lending strategies. Maybe it's more like the 8 to 9. I still think that's an interesting yield. And I think what is important is to think about the yield in relation to what you can get in the public markets. It's still about a 300 basis point pickup. There's that illiquidity premium that for most ultra wealthy clients and family offices they can afford. There's often offer better covenants. You're higher in the cap stack. But there have been a lot of new entrants into the private credit market.

And certainly default rates are picking up a little bit. They're still below historic averages. That's something we're paying attention to. My advice to clients is do a lot of diligence on the managers that you're investing with. You want to invest with people in private credit who have experience through cycles, through credit cycles, who've been through downturns. I can say, you know, Goldman Sachs private credit strategy has multiple decades of experience. We've been through a lot of credit cycles. You want to see what that default rates look like, what performance looks like through

various cycles. So a little bit nervous, but I think with the right managers, I think it's still an asset class that makes a whole lot of sense. OK, good perspective on that. I appreciate your time. Thanks so much. Great to be here. All right. Sarah Nace Tarahano again with Goldman Sachs right here at Post 9. I want to I want to get back to that breaking news, that report from The Wall Street Journal, that Qualcomm has approached Intel about a possible deal in recent days. Our John Fort joins me now.

John, you certainly know this company as well as anybody does, and you know the somewhat precarious position that Intel has found itself in over the past few years and how it's tried to deal with this AI revolution and wanting to be a critical part of it. What do you think about this report you've heard? Yeah, Scott, it is a tough spot that Intel's in. And I have reached out to Qualcomm. I haven't heard back. Did just get off the phone a few minutes ago with Patrick Moorhead, who's an analyst who I actually met when he was working

for AMD. So he's up on chips and other things as well. I don't know whether or not this report pans out. But when I first saw the headline or heard about the headline, my reaction was, well, this is one of the few deals that could actually be allowed to happen because Qualcomm not only has a market cap right now that is about twice, roughly twice where Intel's is, it's also a big U.S. chip industry player. Now, Qualcomm does not do chip manufacturing. Intel's manufacturing business is the big spot where it's having the difficulty and where it's pouring billions of dollars in. And then, of course, the U.S. government, through the CHIPS Act, has begun supporting that. They haven't delivered the money yet, but they have promised it. Qualcomm and Intel

do compete in PC chips, but of course, Intel's a lot bigger in that space than Qualcomm is. Intel has a lot of business in data center. It's losing share there, but it's there. Qualcomm doesn't. So there's minimal overlap, but a lot of this, as Pat Moorhead was just saying to me on the phone, would depend from a regulatory perspective on how regulators define the market. But these are both domestic companies. They are champions in their own ways. Qualcomm initially on mobile technology now expanding into automotive,

IoT and PCs. Intel squarely in PCs and somewhat data center having trouble with that business in the manufacturing business. Both are focused on AI being the future, but doing that from slightly different perspectives. Again, Qualcomm more on mobile and industrial and Intel really trying with its Gaudi chips to build up a competitor to NVIDIA, also doing some of that on the PC side. So I think, you know, that's why you see Intel right now up seven and a half or so percent on just this possibility. But there are very few companies, Scott, who I think would both have the incentive beginning of the week where Intel made the announcement of turning its foundry business, John, into a subsidiary and then taking outside funding.

I mean, I guess that, you could tell me better, underscores how Pat Gelsinger and the management team at Intel are trying to be transformative for their own business as we move into the future here. It does. And it also underscores the amount of pressure that Pat Gelsinger and Intel's board are under. Look, they were right about the demand for chips into the future and the need for domestic manufacturing. I think what they didn't see coming is the enormous success of NVIDIA and the shift of business away from CPUs where Intel specializes toward GPUs where NVIDIA specializes. So as they're spending these tens of billions of dollars to stand up manufacturing capability to satisfy that demand for domestic chips, for AI chips, their revenue is suffering on the other side at the same time. Pat Gelsinger also here on CNBC exclusively at the beginning of this week said they're trying to keep design and manufacturing together, even though they're structuring from a governance perspective the foundry business as a subsidiary within Intel.

And I can tell you, you know, a couple of years ago when I held a gathering of some CEOs who I know pretty well, both Cristiano Amon, the CEO of Qualcomm, and Pat Gelsinger, the CEO of Intel, flew in. And really, they wanted to talk to each other on the side during that gathering. That's part of the reason why they were there. And Qualcomm is one of the big potential customers for Foundry, right? So they have a need

to diversify their sourcing in chips, whether that is part of what would be attractive about Intel on top of the other IP Intel has, we don't know, Scott, or at least I don't know. Yeah, well, maybe they've been speaking, according to these reports, once again. John, I appreciate it. Thank you. You catch John, of course, in overtime in about 20 minutes. I'm sure he'll have more insight into this breaking story. The Wall Street Journal once again reporting that Qualcomm has approached Intel in recent days about a possible deal. You see Intel shares up six, seven percent. We'll follow it up next. We speak to Ed Yardeni. He's back to reveal why he sees the odds of a melt up increasing just after the break. All right. Welcome back. We are making a run at positive territory here to end this week. The S&P

was just there. It's still above fifty seven hundred. And you can see the Dow Jones Industrial Average is still green as well. It's above forty two thousand. We'll watch it over the last 20 minutes or so. Joining me now, Ed Yardeni. He is the president of Yardeni Research. Welcome back. It's good to see you. Thank you, Scott. You've been talking about the idea of a potential melt-up. Did the Fed just initiate that? I think they did. I don't think that 50 basis points was really necessary for the point of view of the economy. The economy is growing about 3% on a year-over-year basis. Now it could grow at a faster pace as a result.

But I think the result is going to be productivity gains that are more than we've had of late. And if that's the case, it will show up in earnings. So from an earnings standpoint, I think we're okay. It's not irrational exuberance. But the valuation multiples stretched. It's up around 21 right now on a forward PE basis for the S&P 500. The Buffett ratio is 2.8, which is near record highs. So I would have preferred to see the market kind of go sideways for a while. But the market never listens to me and it just keeps going up. I mean, how much do you think it can go up now?

Well, you know, the way I forecast is I have a base case and then one or two alternative scenarios. And in my base case, which is that the market follows earnings and valuations don't get too much stretched from here, I would have the market going to 5,800. We're almost there. I mean, we could be there by next week sometime. But I think in a melt-up scenario, which I just raised the odds from 20% to 30%, sort of a 1990s deja vu all over again scenario, I we could see over 6 000 and then maybe that'll set us up for a correction early next year i don't think it'll be a bear market because i don't think we're going to have a recession does it change in any way what can go up the kinds of stocks that

maybe i need to think about 50 rather than if it were 25. Yeah, I think the market's already kind of thought that through, and it's kind of given us a pretty strong indication of what this inflection point, this change in Fed policy means for the market. What it means is broadening. We've been thinking it would be broadening there for quite some time, and I just kept focusing on the magnificent seven. But I think we have seen in the past few months that the market has broadened out to the small cap and mid cap. So their valuation multiples are starting to improve. Look, I think that the trade here is to really broaden out the S&P 500. In other words, focus on the S&P 493.

I still have a problem with Smidt caps earnings. They're just kind of still in a coma. They're flat. And I haven't really seen things pick up. Maybe with lower interest rates, that'll provide some lift. But I see more opportunities in the 493. We'll leave it there. Good weekend. We'll see you soon. Thank you, Denny. Thanks so much. Still ahead, Novo Nordisk shares under pressure today following some lackluster data on its new weight loss drug. We'll have the details coming up. The bell's coming right back. We're now in the closing bell market zone. CBC Senior Markets commentator Mike Santoli here to break down the crucial moments of this trading day.

Angelica Peebles will join us on why Novo Nordisk shares are under pressure today. And BTIG's Jonathan Krinsky, he shares how he's approaching this week's breakout rate cut and more. Mike, you first. Your takeaway and how we should be thinking about things going into the weekend. So far, pretty easy digestion of a big move yesterday. Interesting that we perked up toward the close. It seems as if the Qualcomm Intel news was kind of like, let's not get too negative if all of a sudden we're going to start mopping up some of the underperformers in the market. I do think I like to look back at where we came from. So here we are, like less than 1 percent above the July peak in the market.

So what's changed? What's the same? Earnings estimates on a forward basis are higher than they were then. Therefore, the market's a little bit less expensive. I would argue positioning and sentiment have definitely cooled since those conditions back then. Therefore, the market's a little bit less expensive. I'd argue positioning and sentiment have definitely cooled since those conditions back then. And, you know, we've kind of chewed through half, maybe two thirds of the supposed negative seasonal period that we were supposed to be worried about going into August. So all those things seem to set things up OK. I am interested at the change complexion of this market. semis obviously have slid back toward the sidelines are no longer an outperformer you have nvidia unable to crack above 120 yesterday it's making

all these lower highs and yet still the rest of the market's able to hold together it might be too much to ask that we can continue that indefinitely that the big stocks don't really help out although you do have meta and apple working in favor of the indexes today i hear some talking about the buyback window being wide open, and that's going to be another Well, that's going to close down soon. Going into earnings reporting season. But you do have the window. It's still open.

Yeah. And look, I think in general, you have fewer reasons for people to be immediately worried. Therefore, nobody's going to necessarily rush to sell. I mean, I think that's the biggest issue in terms of whether the market comes in heavily or not. Angelica, tell us what's going on with Novo today. Yeah, Novo out with data from an experimental obesity pill that targets something called CB1. That's a different mechanism than the GLP-1 drugs that we're familiar with. And people on that drug losing weight, but also reporting psychiatric side effects like anxiety, irritability and problems sleeping. Now, those side effects like anxiety, irritability, and problems sleeping.

Now, those side effects are concerning because this is a known risk with this type of drug. The pill targets what's called CB1, and other companies have struggled here because of the psychiatric problems with this route. Novo and others were trying to make it work, and these results are not helping that case. Some biotechs also getting hit hard today. Look at Corbis Pharmaceuticals and Sky Bioscience. Now, Novo is saying that it'll keep working on the dosing and safety of this pill. It's planning a larger phase 2B trial for next year, but again, seeing some skepticism now with this mechanism.

Scott. Angelica. Angelica, thank you. Angelica Peoples. BTIG's Jonathan Krinsky joins us now. It's good to see you. Good to talk to you nonetheless, since we don't see you. Respecting the action, the bulls regain the upper hand. That was the title of your note today. Tell us more. Hey, Scott. So, you know, we were tactically bullish around 5,400 S&P.

We thought you would see that run up in anticipation of the Fed's rate cut this week. And then we thought there was a good case for, you know, once that was priced in, that you might get a sell the news. And the action on Wednesday was a bit of sell the news. But the fact that we came back Thursday, regained, you know, all those lost and then some, closed above 5,700, I think that, you know, that tells you that the bulls really digested the news and have regained the upper hand until proven otherwise. What looks ripe to break out from here now?

Well, there's a couple parts of the market. It's interesting that we got back to new highs without technology. That's the first note of last week. But within technology, software actually did just make a new high after seven months of consolidation. So we think software has taken some relative strength from the semis, which are, you know, albeit they're not breaking down, but they're struggling a bit more than they have. So software looks pretty good to us. You know, you have new highs. The only sectors that didn't make new highs in this last move were technology and energy, right? So it's pretty broad-based.

So you can kind of make the case for a lot of different sectors. I think one area that we'd actually be fading the strength on, and we've been talking about this lately, are the consumer staples. They're historically stretched by most metrics, technically speaking. And if we do get a bout of more risk on, then they're certainly going to struggle, both in absolute and relative terms. Jonathan, I appreciate your time as always.

Jonathan Krinsky, BTIG. We'll turn back to Mike Santoli. A few minutes left to go here. Need to still watch yields, inflation data next week, although you make the argument now that, you know, yields are going up for the right reasons because the Fed says the economy is pretty good still. Yes. And they had Treasuries had rallied so much into the Fed that you're seeing the longer end kind of leak higher and yield above

370. Really no concern. In fact, if anything, I don't think you want to see longer term yields really compress that much more from here. So so know, I think that the 50 basis point cut allows the investors to keep the economy and the inflation data on a slightly longer leash. I mean, obviously, you have to keep it in mind. PCE next week, obviously, Waller today kind of set the tone in saying that they're looking at it with pretty favorable, you know, kind of glasses at this point and feeling as if the trend is their friend in that regard. So that's all to the good. Again, I say after the big expiration day today, sometimes the market just kind of sloshes around a little bit. So it doesn't mean that you have immediate upside there. You're not cheap going into earnings season.

Third quarter numbers have absolutely come down pretty appreciably. Maybe that lowers the bar. So it's not as if it's all is great But it definitely shows you that we kind of worked through a lot of the known Challenges over this period the S&P 500 is kind of managed to have a you know A couple of sharp pull backs but ultimately come out of this period so far known Catalysts to with with slightly positive over two months you like, talking about the idea of stocks able to sort of get over this little hilltop, a mountaintop, even if you want to go as far as that without technology. Some of these other areas have carried you here. Yeah, it becomes tough, obviously.

Just, you know, arithmetically becomes very tough. And it's not so much that all of technology is sitting it out. I'm much more focused on the leaders in semis that really were pacing the market for a lot of that, you know, a lot of that period of time. And it's sort of like a lot else has to go well for that to sit on the sidelines and then the overall indexes to work OK. But it has done fine. Credit markets giving you no reason to be concerned at this point. People have built up a lot of cash. To me, that means that allows you to just kind of shoulder the equity risk and allow the portfolio to do what it's supposed to do.

So, you know, so far, so good. I mean, I think the main thing you would say is we've already more or less priced in the soft landing scenario. So just saying the Fed is now underwriting a soft landing is not really incremental fresh news. It's more just that gives you greater confidence in the scenario that I think the market was already positioned for. You know, remember, it was like 5600 on the S&P was that number that we were really sort of

anchored at. We couldn't get above it. Now it's 5700. We are looking as we speak right here at 5702. So we need to watch that. We're still above 42,000 on the down. Yeah. And look, 2200 on the Russell 2000. I don't think, again, there's any special prescient powers in the small caps, but it was 21 forever was the ceiling. And so, yes, you've made progress on that front and enabled it to be a more inclusive market. And it gives folks one less thing to complain about as the first half of the year it was too narrow market we're at least beyond that uh being the main sticking point all right what a week and we head into the weekend with the bell we'll go out next obviously

i'll look forward to seeing you on the other side