Closing Bell - Closing Bell: Slower Fed, Smaller Gains? 10/10/24

Episode Date: October 10, 2024

Does a slower Fed mean smaller gains for stocks? Ed Yardeni of Yardeni Research, Newedge’s Cameron Dawson and Virtus’ Joe Terranova debate where they stand. Plus, T. Rowe Price’s Sebastein Page tells us why he is looking for opportunities to take on more risk right now. And, Charles Schwab’s Liz Ann Sonders and Kevin Gordon reveal how they are positioning into year-end.

All right, good stuff, guys. Thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with the fate of this rally. Yields moving higher and stocks are assessing a slower than once thought Fed. We will ask our experts over this final stretch what is really at stake here, including Schwab's Lizanne Saunders. She's going to be here on set in just a bit. First, though, let's show you the scorecard with 60 minutes to go in regulation today. Not a big down move for stocks. They are red, though, and that's after the latest CPI report showed inflation falling, but at a slower clip. Now, some slightly hawkish Fed speak this afternoon, also weighing a bit on sentiment. We'll discuss that, too. NVIDIA, it's a standout again. Traders are placing bullish options bets on that name into March of next year. That stock's been really resilient, pushing up against a new all-time high.

In fact, we'll watch it over the last hour. It does take us to our talk of the tape. Does a slower Fed mean smaller gains for stocks? Simple question, maybe a complex answer. Let's ask our panel. Ed Yardeni, he's the president of Yardeni Research. Cameron Dawson, chief investment officer, New Edge Wealth. Joe Terranova, chief market strategist for Virtus, a CNBC contributor.

It's great to have everybody here. Ed, it's good to have you here. Thank you. The set in person doesn't happen that often, so I'm going to begin with you. I mean, what's the most important thing you're thinking about these days when you look at the market? Well, look, I think it's always the Fed, right? The Fed is always taking top spot when it comes to thinking about the markets. And we've been thinking that Powell turned way too dovish back at Jackson Hole and that the 50 basis point cut wasn't really justified, that the economy's resilience doing well. And, you know,

it's not mission accomplished yet on inflation. We still have some stickiness in some areas of that area. So I think I'm predicting none and done for the rest of the year. None and done from the Fed? Yes. Wow. I mean, look, Bostic a little bit earlier says he's keeping the door open to skipping a cut in November. But look, let's play. He's coming in my way.

You can't wish for the cards you hoped to have in your hand. You play the cards that are dealt, correct? Yeah. So, you know, we got to 50. The market thinks we're going to get a couple more cuts, maybe 25 and 25. So let's play that hand. Is that bullish for stocks? Well, yes, I think it is bullish for stocks.

I mean, the fact of the matter is it wasn't too long ago when we were worrying about the Fed raising interest rates and then why aren't they lowering interest rates? And now we're kind of saying, OK, what's more, more, give us more. But look, in my scenario, rates are pretty comfortable where they are relative to the economy. Earnings do fine. And this notion that the interest rate sensitive areas of the markets, the mid caps and the small caps, will make a big comeback. I'm kind of questioning that because they do need lower interest rates. And I don't know that they're going to get the kind of rate drops that the market is anticipating. So I think

what you do is keep playing the S&P 500. And I think it's broadening out to the S&P 493. The Magnificent Seven now becomes the 493. Okay. Cameron, how do you see it? So when it comes to small caps, we do think in agreement with you, Ed, that they don't necessarily deserve the benefit of the doubt. The fact that small caps have big earnings growth expected for 2025 of 32%. But remember that at the start of 2024, estimates for this year were for 25%. They're now negative 7%. They're not delivering. Estimate revisions are coming down.

So unless you see a turn in those earnings forecasts, it seems like they'll continue to chop. And it's been like that for a couple of years now. They've just been kind of in a coma while the S&P 500 earnings have been doing really well. Certainly. But we do note that you have seen S&P 500 estimates starting to revise, get a little bit lower for 2025, which is probably one of the reasons why the market has been kind of flat for the last few months and chopping around simply because you're not seeing those earnings press higher. Joseph, I think the market is beginning to, from a strategic

perspective, clench up a little bit. And I think it's rightfully so. I agree with Ed. I think it was clearly a sell the news moment for Treasury yields and the Russell, the Fed announcement. We've talked about the fact that you had the low for the 10-year and the 30-year the day before the Fed announcement, and the Russell peaked right when the announcement came out. So I think the market strategically is clenching up and recognizing it wants quality. It wants the mag seven. It wants the 493 wants to stay high up in in the equity size class. I don't know. And this comes from a lot of conversations that I've had this week with institutional investors, with hedge funds, from being at Morgan Stanley for a day, talking to financial advisors.

Everyone's treating the election like we'll worry about it when it's time to worry about it. No, we're 25 days away. And the election trades, this is the first election that I can remember where no no institutional investors saying I'm putting on this election trade. Everyone's saying we're going to sit back. We're going to wait for the election trades on the other side. And it's starting to get late for that. I think that's going to keep volatility high. And I think that it's time to start thinking about on the other side, where do you actually want to be allocated? I know it's difficult because everything's within a margin of error. But sooner or later, we're going to have to have that moment of resolution. All right. So I want to bring some comments that are on social media, and they are from Ricky Sandler. OK, Eminence Capital doesn't talk that often publicly about his views on the markets,

but it's so relevant to what we're talking about now. He posted a little while ago, and I want to bring some of these thoughts to all of you and continue our debate. He says, and I'm quoting from his post, the market at the index level is expensive and consensus. The biggest tech companies have a blend of overlapping competition and rising capex and outside of Amazon feel uninteresting to me. The macro backdrop is quite favorable with a resilient economy and the Fed on your side. I mean, that's sort of what we're talking about. So let's just take it at that and then, that's sort of what we're talking about. So let's just take it at that, and then I'll read you more as we continue our debate. That's where people are cutting through all of the noise and distilling it down to that thought.

The macro backdrop is favorable. The economy is good. The Fed's on your side. Is that good enough? It's good enough. It's been good enough until now. But I think from here on, the market's going to have to be increasingly earnings-led instead of valuation-led. If it's valuation-led, I think we're starting to talk about an actual melt-up in the market. We're already talking about the Buffett ratio basically being at a record high of 2.8.

You know, that's the price-to-sales ratio. And then the P.E. ratio for the S&P 500 is 22 roughly. It's highest was 25 back during the tech bubble. So stocks aren't cheap. And so I think they are going to have to deliver some earnings here. And I think that's you're absolutely right about these SMIT caps. Everybody's been anticipating that they're going to deliver, but they haven't. And so I think and that gets to Joe's point about quality. Quality means companies that don't

disappoint you on the earning side. Now, Ricky goes on to say, because this tees up the next level of debate when you talk about quality and size on the cap space that you want to be buying. He says of the fact that the index is expensive and a lot of its consensus, right? He's obviously alluding to mega cap tech. And then he goes to the backdrop is favorable. He says the combination of those two things means you can and should play offense in the vast array of below mega cap companies that have interesting equity stories. I'm neutral on the S&P, but believe the mid to large cap world and quality companies outside the U.S. could materially outperform the S&P over the next one to three years.

That's a big statement there when you look at what the backdrop is here and think that maybe there's going to be outperformance in still quality companies, but perhaps outside the United States. What do you think? I think the mid over small point is really important because mid cap companies tend to have lower leverage levels, less floating rate debt, which just means they're less sensitive to where we are in the Fed cycle. They also tend to be higher quality, a bit more earning sustainability. But to the point is that you have seen them trade at bigger discounts to the market. So that is an opportunity that we're seeing to be able to pick up names within mid cap, avoiding the smallest junkier parts of the market.

But that have been unloved in the narrowness we've seen in the last two years. So get a little more creative. Don't go just to the seven, the six or seven stocks, but stay large. Like there are enough companies that you can buy, according to Ricky, at least, and obviously others that are attractive. You don't have to just say, well, it's either the mega caps or small caps. Well, yeah. And we're seeing that clearly as there's momentum building in other sectors and you're seeing strong performance. We're coming into a critical earnings season where I think what's most important is that CEOs and CFOs express confidence about the future, express confidence that EPS growth, which probably in this quarter, if the estimates are right,

it's going to be the weakest quarter of the four quarters in 24. You want to have confidence that we're going to get back to double-digit earnings growth. So to your point, Scott, where do you go with that? Everyone always says, well, I want to own small caps. I think what people fail to realize is that the largest sector waiting for small caps is health care and automatically people say okay i want to own health care before you go to small cap health care let's look at large cap health care and understand that the first quarter you were talking about 26 percent eps contraction now you're talking about actually seeing ePS growth of 10 percent. And in the next quarter, you probably get 20 percent for health care. So you get that broadening out. What if

that's right, that it was one and done? Does that change your entire calculus for this market? Because a lot was priced in. A lot is still priced in. If he's right, that's a shock, isn't it? Jump in and just say what that means is earnings become that much more important because you're not going to get the kicker from surprising the low interest rates. Well, some are questioning whether earnings are already too optimistic, especially as you take the turn into 25, like 15% earnings growth. Well, I'm optimistic on the economy, so I think the earnings are going to surprise us to the upside. I think the margins are going higher.

I mean, Joe, do you? The margins look great right now for companies. The capital allocation strategies are robust right now. But I agree with you. I think 2025, the estimates are high from where we sit today. I think that to reach those levels, you're going to have to have a lot of really good conditions come together. But see, Ed's also, I mean, read between the lines. It's that the multiple, the market may be expensive, but that you can justify the multiple not because of declining interest rates and more Fed cuts, but because the economy is strong enough and earnings are going to live up to the hype,

or if not exceed it. Well, typically you do see multiples correlated to earnings. When earnings estimates are going up, valuations are going up. And people more confident about the future. But to your point, Ed, is that you're at 22 times. We peaked in 2020 at 22 and a half times. It's good to remember you actually derated the market all through 2021, but the market still went up because earnings were growing so much in 21, which is why in 2025, we have to see those earnings deliver. And we would argue on the margin front that there is some risk to current consensus forecasts. They're expected to go up 130 basis points to a new record high. In a declining or decelerating

nominal GDP world with lower inflation, we think that's hard. Yeah, we're in the surprisingly high profit margin camp because we really think that productivity is making a comeback. It's not a forecast. This is looking back on- You've been talking about that for a long time. Yeah, you look over the past, hey, productivity is kind of, you know,

it's not a variable that's often discussed, but it should be because the data's showing that. I mean, we just had an upward revision in real GDP, and the government's talking about maybe a year from now lowering the level of employment. Well, that's productivity. Thank you, technology. There are two schools of thought.

There's Ed's that, like, why, first of all, 50 was a mistake. You don't have to do that because the economy's strong, right? So that's the one point of view. The other side is, well, they're cutting and they did 50 because they're just too restrictive relative to where inflation is. Right there. They just don't make sense where where rates are. So real interest rate argument, the idea that if inflation is coming down and you leave the Fed funds rate at five percent, then the real rates going up. And I find that almost to be comical. It's like, wait a second, you're comparing an overnight rate, a Fed funds rate, to a year-over-year inflation rate? I mean, who makes a decision based on that? The bond market, you can adjust

for inflation. I can see that. But this whole real rate argument just doesn't make sense to me. To me, you watch what the economy is doing. The economy has demonstrated that it's got no problems with interest rates at these levels. OK, so you think rates are up for the right reasons because the economy is sending rates. Yeah. But at some point, is that a problem for stocks? Not if earnings make a comeback because you have a decent economy with productivity. The entire time the real Fed funds rate has been positive, it only went positive in May of 2023,

the U.S. economy has grown above trend. So to Ed's point, you haven't necessarily seen that be the thing that weighs on economic growth. Look at Atlanta Fed GDP now at 3.2 percent. It's really hard to point to the evidence to say that because the real rate is this high, they have to rapidly move it lower in order to save growth. I think that and what Ed's talking about, where you've got the one rate cut and now nothing for 2024, just from the way, way, way outlier view. Right. Let's be clear. The disposition of the Fed, from my perspective right now, there would have to be something very troubling in the inflation numbers for them to sit on their hands for the rest of the year. I don't even know that a strong, strong economy is good enough for them to just sit back.

I think they want to give the market something more this year. Maybe it's not 50 and we're taking 50 off the table and pricing it in in the bond market. But another 25, I could see that for sure. It would have to be something troubling in inflation. The labor market, I mean, aren't you worried about, they're obviously worried about the labor market? Well, they are, but I'm not. I mean, the reality is the numbers have been strong. I mean, I know today's initial unemployment claims data was up there, but a lot of that was because of strikes in the auto industry and some bad weather. And the reality is we just had a really strong, not only did we have a strong September number, we had upward revisions in the two months before that. Initial claims, I think, are still running around 220,000. The jobs availability

remains quite high. So the labor market's doing absolutely fine. I don't really see that there's a problem there. Let me ask you this. So, you know, you got a lot of cash sitting on either the sidelines and maybe vis-a-vis money markets and where you've been getting a really great yield. The assumption was, OK, Fed's going to start to cut. Now the money is going to come out and it's going to go into stocks. OK, now you have perhaps higher for longer in rates. So why would that money, especially with election risk and other stuff between now and the end of the year, why would it come out of those accounts?

I just wrote about that this morning, actually. And I said, I wrote about it last night, I should say, when the market hit an all-time record high. The title was, you know, new record highs. And I said, I'm not just talking about the stock market. I'm talking about money and money market mutual funds. I mean, we're at a record high with money market mutual funds inflows still going higher and $6 trillion, over $6 trillion sitting in the money market mutual fund. So the market's already demonstrated that they don't really need that money. I think when they cut the Fed funds rate by 50 basis points,

we raised our risks of a melt-up from 20% to 30%. The reason it's a risk is because melt-ups get out of control, and then you have to worry about melt meltdowns. So, yeah, I think if they do it again, I think the stock market would love it. But I don't think it's it's necessary. We've learned. I mean, the stock market likes a good sugar high. Yeah, but but don't we don't we have the melt up? Don't we go parabolic if you see the junkier high beta small cap areas of the market perform, and they're not. They're not.

So that should give us comfort. So that should give us comfort. By the way, is there distortion looking ahead in any of the economic data, the labor numbers because of the two hurricanes? Oh, absolutely. So then doesn't that kind of put the Fed in an awkward position because the numbers they're working with really aren't the numbers? Yeah, the numbers aren't the numbers.

And they do tend to get revised, too. So you've got to put the whole picture together. And the whole picture has been pretty robust for the economy, all things considered. It's hung in there remarkably well in the face of Fed tightening and keeping interest rates up. But I think we've normalized. I mean, these are normal interest rates. We forgot that. We're all still thinking about when interest rates were near zero.

We're not going back there. I hope we're not going back there. It wasn't necessary to be there. But now we're kind of in a normal environment. The economy is doing fine. Well, I mean, let's just assume that the, with all due respect, that the market's right and you're not. That happens. That they're going to go two more times this year.

Yeah, it happens, sure. So you have, you know, I think the highest target on the street now is 6,100. Costin over at Goldman, you know, crossed a highway over there, bumped it to 6,000. Right. That sounds like reasonable. We're pushing on 5,800. You know, we keep hitting these new highs. Yeah, that's my latest target, but I may have to change that as well. 58? Yeah. Is your latest target? Yeah. It was 5,400. And 5,400 at the beginning of the year,

it was like, well, that's crazy. It can't do that. And it just went right through it. Did the same thing last year. I had a very bullish forecast. I mean, I've got hoof marks on my back from the bull running over me. And I said, well, yeah, I'm a bull too. Believe me, there are a lot of people. But I'm not running fast enough. There are a lot of people, right, who've been looking over their shoulder, Cameron, since this whole bull market started. We're going to have a two-year anniversary of it, you know, on Saturday. Wondering what might, could, if, you know, go wrong. And a lot of stuff has come in the face of this resilient market. And it's to Ed's point, stampeded ahead. Now, the pace of

that rally may have slowed in certain instances, but the direction has been clear. And it may slow into 2025. And that's not all too much a bad thing. If we see it slow, it means that you effectively get to grow into these higher multiples, which just means that it can sustain the rally even further versus getting into that danger territory of a melt-up and a meltdown on the other side. Well, this was a treat. I really enjoyed our conversation. Thanks for being here. Thank you. Cedric, Danny, Cameron, thank you so much. Joe T., as well. That was good stuff. Let's send it to Pippa Stevens now for the biggest names moving into the close. Hi, Pippa.

Hey, Scott. Well, first, solar is the worst performer in the S&P after Jeffrey said they expect a slight miss for Q3 earnings, saying utility scale solar is challenged by delays thanks to long interconnection queues, the supply chain and labor shortages. Meantime, Bank of America reiterating its underperformed rating on Enphase, saying near-term challenges remain. NTD Bank shares are sliding after the company pleaded guilty in a money laundering case and agreed to a $3 billion penalty. As part of a settlement with the DOJ, the bank will accept limits on its growth and enter a three-year monitoring program, though shares down 5.5 percent. Scott? All right, Pippa. Thank you.

That's Pippa Stevens. We are just getting started here on The Bell. Up next, T. Rose Sebastian Page. He'll be with us with why he is looking for opportunities to take on more risk. Well, that sounds like a change. We'll discuss. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC.

All right, some news to bring you in the sports world. MLB franchise, the Minnesota Twins, officially on the auction block, we're learning today. After 40 years of owning the team, the Polad family says they're planning to sell, and according to reports, have retained investment bank Allen & Company. Twins said to be worth $1.7 billion, according to Sportico's most recent valuation. That would be 19th out of 30 teams in MLB. For more sports news, of course, head to cnbc.com slash sport. All right, back to the market. Stocks still in the red today following this morning's hotter than expected CPI report. My next guest says he's looking for opportunity to add some risk heading into year end. Let's bring back Sebastian Page of T. Rowe Price.

Good to see you again. Welcome back. Thank you, Scott. Does this mean you're becoming more bullish as the year goes into its later stage? Scott, yes. And I'm listening to your show over the last couple of days. And the narrative is most people are comfortable with the fundamentals, but uncomfortable with the valuations. I wish I had a differentiated view, but I'm in that camp. Our asset allocation committee is in that camp.

So we're looking at the fall with high valuations, but geopolitical risks, some risks of a rate shock or an inflation surprise on the upside, some risks around the election. And so what we want to do is prepare, discuss at which level we will add to risk assets. We're more likely to add than to subtract over the next few months. And right now, as I said last time I was on your show, we're neutral between stocks and bonds, fully invested.

We actually have a small overweight of half a percent, but let's call it neutral. So that's the plan, Scott. I mean, at least it's at least a half percent overweight. That's more than it was for the multitude of conversations we've had over the last 18 months, I think. You know, the other point, I guess, to be made is that while the overall market multiple may be expensive to some, it's skewed, though, by the biggest market cap stocks in the market. I mean, the index level, obviously, it looks expensive. But as I was suggesting earlier, pointed out by Ricky Sandler, a very well-known and successful hedge fund manager, you've got to focus on stocks beyond

the mega cap names. I mean, you still stay large, but all the action doesn't have to be there. They're too consensus and they're too expensive. Yeah, Scott, I love that question because we're doing a lot of research on this right now. And I completely agree with you. The 22 price earnings ratio, Eddie Arden, he was just talking about it. It is high, but you can't compare that to the run up of the tech bubble. Let me give you two caveats on valuations. First of all, and I've heard people mention this on your shows as well, if you adjust for the return on equity of the market, you get a valuation that's actually below median by historical standards.

Because of all the technology in the S&P 500 and those humongous very large returns on equity when you look at the index It's actually not that's expensive if you adjust for it. So that's caveat number one on valuation the other one is that the average stock in the world is Trading at about 13 take the MSCI all-country world index equal weighted look at its ford pe about 13 that's its long-term like 30 year average so the average stock in the world is valued on a sort of average relative to history so we are positioned for a market broadening we've talked about how we're long value we're long international small cap we're long emerging markets So that's how we're playing this broadening into the fall. Yeah.

Why are you long international small caps? I mean, I'm thinking if there are enough risks on people's minds here about the performance of small caps, where our economy is proving to be, I mean, the most resilient in the world, certainly among developed nations. Why in the world would I want to take the risk of international small caps now? So we're neutral between small and large in the U.S., but we do have an overweight position in international small caps. Look, the macro story is not as good outside the U.S., but on a fundamental basis, if you compare return on equity for international small caps to US small caps, they're actually twice as high in terms of their return on

equity. So they've kind of been dragged down with the whole small cap asset class globally. But fundamentally, they're better positioned. So there's more quality in those companies outside the U.S. So to us, that's an opportunity to be contrarian, play the play, the broadening. And remember, we're kind of in a global easing cycle. International markets are starting to perform better. So that's that's how we're playing it right now. Yeah. When you like emerging markets, you say as well. I mean, what are you calculating that China is going to continue to stimulate their economy for the foreseeable future? So overall, we like emerging markets. That includes countries like India, countries in South America. What's happened in China is

interesting and meaningful for short term sentiment. We're still cautious on China overall because, look, you have long-term structural problems that you can't solve just with this stimulus. And you've seen a little bit of pullback on this as well. But it is a case where valuation obviously are really good for emerging markets. They're trading really attractively. But at the same time, valuation is never enough. You often talk about

that, Scott. So what's the catalyst? The catalyst, China is part of it, is the global easing cycle. And overall, yes, the U.S. economy is looking in better shape. But if you look at those other countries, South America and India and so on, their opportunities, especially if you do it with active management, it's a contrarian position for sure. Let me just let me just ask you quickly about India, because it's been so favored by many different well-known investors. Even now, with the gains that you've seen, I mean, better than 20 percent, obviously, and not that far away from their own record high.

Yeah, I think the fundamental story remains strong and it's part of the emerging market story for sure. Yeah, remain confident on it. All right. We'll talk to you soon. Sebastian, thanks. Good to see you as always. Thank you.

Likewise. All right. Up next, the Schwab playbook. Lizanne Saunders and Kevin Gordon, they're both here at Post 9. Tell us how they're playing these markets in the year end. We're back right after this. Twenty five away from the closing bell. Back now to Pippa Stevens for the stocks that she's watching. Tell us what you see now, Pippa. Hey, Scott. Well, Celsius Holdings shares are surging after a stifle initiated maintained a positive outlook on the energy drink maker.

The firm said they expect improvements in convenience store sales, which is a major are surging after a Stifel initiated maintained a positive outlook on the energy drink maker. The firm said they expect improvements in convenience store sales, which is a major driver of revenue. Piper Sandler also saying that Celsius is a favorite in its latest teen survey. And GXO Logistics soaring on reports that it is exploring a sale. The company is working with a financial advisor to field acquisition requests, a person familiar told Reuters. GXO spun off from trucking company XPO in 2021, and those shares are up 14 percent. Scott? Pippa, thank you. Pippa Stevens up next. Charles Schwab's Lizanne Saunders and Kevin Gordon are both here at Post 9. We'll find out how, in fact, they are positioning into year end. The bell's back after this. There's definitely tremendous opportunity for all of us in our country. This is truly a country of opportunity. I have also learned that it's my responsibility to take advantage of those

opportunities. You have to take some risks. I tell many people around me that if you want to get to these levels, you many times will have to sacrifice, you have to go the extra mile, you have to put the extra effort. While stocks are pulling back today from record highs, investors digesting some hawkish Fed commentary, another inflation report, looking ahead to the start of the third quarter earnings season as well. Joining us here post-9, Charles Schwab's chief investment strategist, Lizanne Saunders, and senior investment strategist, Kevin Gordon. Well, this is a treat. Good to have you both here.

Thank you. Congrats. So it's the 15th anniversary of Charles Schwab ETFs. That's why you're here, and you're going to be up on the podium, right? We won't be on the podium. What? Our colleagues will. More important, our clients. All right. Good answer. Good answer. Let's talk about this market, OK? Where your clients are looking to make money. How does the market look to you right here? So I think in terms of the economic data, we are in a good news is good news backdrop for the market. I think some of the recent wobbles probably had a lot to do with a break about 4% on the 10-year.

Yeah, it backed up. Yeah. So I don't know that that was sort of some precise trigger point, but I think that there was maybe a little indigestion that kicked in when you saw yields across the spectrum move up. And that was in contrast to, I think, what the expectation was when the Fed launched an easing campaign. Of course. So I think that's the fundamental explanation. Is that a problem now for your outlook on stocks now that we have what might be, as Lizanne said, this new paradigm for what yields are going to do? Well, it's interesting because as this has happened, where you've seen yields creep back up and arguably you could say

they overshot in terms of expectations for where Fed policy was going and being a little bit too dovish. But what's interesting is that the correlation between stock prices and bond yields has flipped marginally back into positive territory. So all else equal, which of course is never always the case, but all else equal, anytime you've got yields moving up, it's not necessarily putting as much downward pressure on stocks. That's not going to be the case every single day. But if you go back into that environment where, to Lizanne's point, good news being good news again, and you don't necessarily have a lot more pressure from the bond market because presumably inflation is not as much the issue anymore, then yeah, you probably don't have as much of a hostile

scenario as you have in the past couple of years. I think even if you zoom out and you look at the 10-year yield over the past couple of years and you look at these key points where you've broken 4%, some of them have been consistent with a correction in the equity market, but over time you have turned it higher. So it sort of speaks to the fact that it's not necessarily the level itself of rates that matters as much maybe sometimes as the value. As the why, if they're going up for the right reasons? I think yields keying off of economic data is a better backdrop for the equity market than yields keying off of inflation data.

I think that would revert that correlation back to negative. If we saw a continued acceleration in inflation, you started to see yield moves tied more to the inflation data. The right reason versus the wrong reason that yields continue to go up. How are you feeling about earnings, which are getting started tomorrow? The earnings backdrop has been an interesting one. If you think back to the worst part of the pandemic, when you had a record percentage of companies that withdrew guidance altogether,

we're obviously moved away from that. But I actually think that a lot of companies took advantage of the COVID backdrop to not go back to the kind of precision and guidance in many cases because and they've been very vocal about saying this is not how we manage our business on a quarter to quarter cents per chair. And so I think what that's had the effect of doing is analysts are a little bit closer to the best in terms of the adjustments they make to earnings. So when we're in second quarter earnings season, which was good from the perspective of the bar got lowered and companies did well,

the outlooks were a little cloudier and analysts therefore adjusted down earnings for the third quarter, cut earnings by about half, but didn't really move the needle much in terms of fourth quarter into 2025. So if you look at consensus, it suggests, you know, we're going to have this dip in earnings in the third quarter, and then we're just going to rebound right back up in the fourth quarter. I don't know how realistic that is. It's just reflective of companies listening or analysts listening to companies during the earnings season and making adjustments really only one quarter out. I wonder if that would, if Lizanne is right, then put pressure on the multiple, right? We're assuming that earnings are going to live up to the expectation of like 15% growth

next year. If they don't, and you have higher rates for longer. Yeah, you are in a bit of a trickier scenario because even if you look across the spectrum evaluation metrics that we look at, and my personal favorite is we take something that Luthold Group had come up with a long time ago, which is looking at four and a half years of trailing earnings and using two quarters, looking ahead, using that to construct your P-E ratio. If you're looking at that for the S&P, there's really only two periods in history that you've been more expensive than you are today. It was the late 90s, right up until the peak in 2000, and then it was 2021. So I think

automatically someone would look at that and say, that's a pretty bearish outcome for the market. We always use the caveat saying, you know, valuation as a market timing tool just doesn't work well. But that does speak to your point of, you know, earnings really needing to kind of take more of a leadership position and really having to do more of the heavy lifting as we go into next year. That becomes a really dominant factor. But some of why we've seen the rotations and the broadening out is that these cap weighted indexes have lofty valuations, but in large part driven by the mega cap names. You X them out or you look at equal weight relative to cap weight and you're looking at more reasonable valuations and more of the high teen. So I think

that that's a fundamental reason why some money has looked outside of those areas because where valuations are more reasonable. Do you think that's going to continue? I mean, that was the story of the third quarter. Obviously, all these other areas, ex-tech, comm services and the like that drove the train in Q3. I think the broadening out in the rotation probably has legs, but that's not to say that the leadership will just stay dominated in what initially happened in the rotation, which is we went into those interest-sensitive areas

like REITs, utilities, and financials. But I think rotations are likely to persist in fits and starts, at least. You agree? I do. I think even to me, what's been the more important story in this rotation that's happened in the past several months has been a lack of a bid for sort of more traditional defensives. So utilities, if you sort of take that as its own, maybe separate story by itself, there hasn't been as much of a pickup from staples. There hasn't been as much of a pickup from healthcare. I think if that sort of defensive trio were really working well and you were getting more of a definitive recession signal, the rotation would mean a lot more from the standpoint of a recession itself. But it has been, to Lizanne's point, more broad sort of in these areas that matter more for the economy and some of the areas that are more economically sensitive. And I think a little bit more in

keeping with the fact that evidenced by what has come out today in terms of news from Bostick and maybe some of the evidence that we're getting from FedSpeak of the Fed not taking as an aggressive of an approach when it comes to rate cuts, that's actually historically a better backdrop for the equity market. So it speaks to what we always say, which is careful what you wish for if you're looking for this aggressive rate cutting cycle. It doesn't tend to benefit equities as much. One of the issues with defensive, classic defensive like Staples is some say they're just expensive. I mean, it's not like they have a terrible year. It's just when you match up 15% or 14% next to 30, it looks like you've so dramatically

underperformed. But those stocks are up a, too. Well, Staples, the pricing power tracked along with inflation. So you had that top line growth that was very strong. It was, I think, misperceived as sort of unique pricing power. But now that inflation has come down, so has the revenue side of the equation. And that's more acute in those traditionally defensive areas like consumer staples. Is that when you look at some of those areas, you say they're a little bit expensive? Oh yeah, absolutely. And I think the expensive nature of some of these defensive areas, and we always use the example of utilities as a poster child,

where there are times when the sector can get really expensive. You could argue that we're in that environment now because of this pretty significant run that they've had. When you approach it from more of a value and a growth standpoint, that doesn't necessarily put them automatically in a different category when it comes to growth and value. So if you look at it sort of sector by sector and you look at what has become expensive,

utilities themselves have kind of come right back up to, if you're relating it, comparing it to the S&P 500 broadly, they've come right back up to that zone where they're looking quite expensive. I mean, look, when you're talking about the amount of power that you're going to need for all of this AI technology that's been driving this market to begin with,

the classic way of looking at utilities may have changed. Yeah, the best performing stock in the S&P 500 this year, by the way, is not part of the Magnificent 7. Vistra, right? Yeah, so that's a utility stock. So only one of the Magnificent 7 is in the top 10 best performers of the S&P. And I think two or three of the top 10 are utility stocks. So there's definitely that AI play that you get with utilities. It's not just that classic defense.

Guys, it's been fun. A treat for us. It's good to see you. Thank you. Welcome. It's great to have you guys here. Liz Ann's been fun. A treat for us. Yeah. Welcome. It's great to have you guys here. Lizanne Saunders, of course, Kevin Gordon joining us right here at Post 9. Still ahead, we're going to break down what's behind the dip in Delta stock today. Closing bells coming right back. Our coming up next, we're going to bring you all the highlights from amd's big ai event today and don't miss a first on cnbc interview with that company ceo lisa sue

that's coming up four o'clock eastern in ot the market zone is next we're now in the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Let's fill the bow on Delta's post-earnings drop. And Christina Partsenevelos with the latest from AMD as it announces a new AI chip. Mike, I begin with you. What's on your mind today in these markets? Look, we're in this sort of tactical pause, even though we're up for the week and we hit a new record yesterday.

I've been saying we're at a 21-21-21 market, up 21% in the S&P year to date, 21 times forward earnings, VIX is at 21. Tells you the trend is positive, a soft landing is largely priced in, and we're on guard for potentially some bumps in the next few weeks. I think that's why we're attentive to all the incoming info, but it doesn't really read as a clear directional catalyst just yet. Today, breadth is poor. NVIDIA is up. You have the market able to stay supported. Yeah, I mean, NVIDIA is approaching an all-time high.

In large part, it's been the stock that's been holding this up a little bit. The market is looking better than it otherwise would without it. Exactly. I would say for the last really month to date, the NASDAQ 100 has taken over. Yeah. All right, Philip O., what's going on with Delta today? Two stories here today, Scott. First of all, third quarter earnings, noisy in the words of Ed Bastian, CEO of Delta, when we talked to them earlier today. Look,

they missed on the top and the bottom line, but there were some issues in the third quarter. There was an impact from Hurricane Helene of three cents a share. Crowd strike outage cost them 500 million. That's half the story today with shares of Delta. The other half, it's the Q4 outlook. They've said they're expecting choppy bookings around the election. People may be a little uncertain, therefore not booking trips. But they are expecting strong holiday travel demand, and they expect record revenue in the fourth quarter.

By the way, their guidance, if you take a look at shares of Delta, is for earnings of between $1.60 and $1.85. Just for some context, the street right now is at $1.71. Scott, back to you. All right, Phil LeBeau, thank you very much for that. To Christina Partsenevelos, who's following AMD and their big AI day-to-day, but it's not giving the stock a boost. Why? No, definitely not.

Down 4%. And we've got to focus that AMD is a smaller player compared to NVIDIA. But with estimated $5 billion in AI chip sales this year, AMD does aim to be number one alternative to NVIDIA, announcing a new AI chip today, the AMI-325X. Scott, that's probably the answer to your question. They're comparing that new chip with the H200, NVIDIA's H200, which has been on the market for a few years, so that could be part of the sell-off. But that does mean two AMD chips on the market now competing with Nvidia.

Sue, Lisa Sue, announcing the overall market for AMD AI chips will go from $400 billion in 2027 to $500 billion in 2028. The company also previewed their fifth-generation CPU chip, claiming they own over a third of the CPU market, which was once dominated solely by Intel. Gone are those days. Much of this news, though, was largely expected. Again, in answering your question, Scott, there was no new customer announcement either, so it could be contributing to the almost 4% stock sell-off

that we're seeing in AMD. Also on your screen, the stock has really just run up double digits, neck and neck with NVIDIA since September 1st, so much of this news might already be priced in to this. And I'd like to also talk about the Ford PE ratios very quickly. The same, both of them, almost, what, 39, almost 40 for NVIDIA, 37 for AMD. But annual revenue growth for NVIDIA is 45% next year versus 28% for AMD. So take your pick, Scott.

All right, Christina, thanks so much. Good seeing you, Christina Partsenevelos. By the way, don't miss once again, AMD CEO Lisa Su, just a few minutes coming up in overtime. This also just goes back to NVIDIA in the sense that they get the benefit of the doubt. A few others, if anybody else does. Well, it's the purest play, obviously. You don't have to look at AMD and say, what's the PC market up to? By the way, also 10 times the market cap. NVIDIA is 10 times the market cap at this point, more than that, of AMD. So it is just assumed to be the predominant way to capture the flow of dollars. And the stock is trading as if we're going to get confidence about the next three or four quarters once we hear from

them and hear all the other crowd players come in. We'll see if that does come around. I would say there's a lot more differentiation within the MAG7 than there had been in the first half of this year. So we digested TPI today. We're going to have to digest again tomorrow bank earnings in the morning. We'll look forward to that and I'll see you then. Into overtime now. Morgan and John and Lisa Chu coming up.