Closing Bell - Closing Bell: Soft Landing Confidence Justified? 9/16/24

Episode Date: September 16, 2024

Is the market’s growing confidence in that favored soft-landing scenario justified? And just how big are the Fed stakes for the fate of the bull market? Trivariate’s Adam Parker, Requisite Capital’s Bryn Talkington and Tavis McCourt of Raymond James debate where they stand. Plus, Former Federal Reserve Vice Chairman Alan Blinder makes the case for a 50 basis point cut at this week’s Fed meeting. And, Citi’s Mithra Warrier weighs in on the health of the hedge fund space heading into the end of the year. 

And welcome to closing bell I'm Mike Santoli in for Scott Wapner this make or break hour begins with stocks holding firm to last week's big gains and inching toward the old record highs as investors cling to soft landing hopes entering what historically has been the roughest two regulation. The Dow earlier touching a new record high briefly intraday. The S&P 500 has made up for earlier modest losses while both indexes soundly outperforming the Nasdaq on the day. It's another burst of rotation away from big tech. Small caps also outperforming the S&P. Bank stocks are standout to the upside with chatter about a possible half percentage point Fed rate cut in a couple of days, encouraging that textbook easing cycle trade. You see J.P. Morgan up one point seven percent. We'll explore all sides of the rate debate with former Fed Vice Chairman Alan Blinder in just a moment. But first, to our talk of the tape, is the market's growing confidence in that favored soft landing scenario justified? And just how big are the Fed stakes for the fate of the bull market?

Let's ask Adam Parker, Trivariate Research founder and a CNBC contributor. So, Adam, you know, market trying to look through maybe some of the signs of weakness in the consumer last week. We've rebuilt toward those record highs. Valuation more or less toward the highs. 12-month forward earnings forecasts continue to rise. I guess you could see that as a reassuring sign or a source of potential risk. So how are you reading it all? I think it's pretty inconsistent. I feel a little bit more tortured than any time in the last couple of years because you can't have an economy that

requires the Fed to cut rates several times. Right now, eight cuts are implied in the next 12 months, eight and a half. You can't need that and then also not have any impact on U.S. corporate earnings. So the bottom-up numbers, as you point out, the 2025 numbers, are a tiny bit higher today than they were on January 1st. Right, yet I know things are slowing in the U.S. consumer. I know they have less pricing power. I know the earnings estimates hockey stick more than the normal hockey stick that's in there. So that's the tension I see is I need to believe that this is

going to end soon, the weakness I'm seeing. And I think the risk really starts on October earnings season, the guidance for the January, the Q4, the January season. So I think it's the kind of maybe sell the news on the Fed stuff a little bit until I get that next sort of round of confidence that it really is going to be accelerating in 2025. I guess the devil's advocate response to that would be just because the Fed funds futures market is positioned for two percentage points of cuts, it first of all doesn't mean that the economy absolutely needs them. It could also mean we have Fed funds above five and a quarter and inflation is two and a half. Right. Yeah. You have this spread. It's you have room to do it.

And of course, it's also kind of a there's always a what if element in there. Right. Like it's not like we know it's going to happen, but we're leaning in that direction. I guess the point is, given that a lot of companies, for all that we've talked about overall earnings growth being great in the last year or so, it's been narrow. A lot of companies are kind of flattish in terms of total profitability over the last couple of years. And are they just getting some relief? You know, generally, look, I go, I make two comments. One one i really look carefully at the relationship between fed fund futures so what people think the fed funds rate is going to be 12 or 24 months from now and how it relates to the valuation the price of forward earnings of stocks

that was very negatively associated in 21 to 2022 we got worried about higher rates multiples get killed then it it didn't matter. Beginning of 2023, people said, ah, we're toward the end of the hiking cycle all is well. Now we're a little bit in this weird situation where the correlation between lower rates and lower multiples looks positive. It's actually reversed some. So I think when I measure what people think two years from now, if it gets too negative, then I think it's bad. So I think we're in this weird kind of top of the saddle. So that's my first point on the multiples. In terms of corporate earnings, look, you're right. I mean, the biggest equities, the big six, actually even the biggest

20 companies have been growing their net income dollars faster than the rest. So for you to really believe in that breadth, what you're really saying is the economy is going to trough sometime in the middle of next year. You want to be usually equities are three months anticipatory. Let's say you're anticipating the other people. So you're six months early. It still feels to me three to six months too early to really bet on a earnings related acceleration. So I just think we're going to have maybe even this.

This could even be it here for a month or two on the news tomorrow. Yeah, so you've been saying for a while that you feel as if plus or minus 10 percent in the S&P feel roughly equally possible. Yeah, I think that's right. Really, for me, it started in mid-July when I had to take a step back and say, look, we can't ignore the news. Name the industry and the consumer that's not slowing. Companies aren't taking pricing. We don't want to pay $25 for appetizer salads in New York. It's that thing across the world. People are getting more elastic on pricing, and the companies are saying they can't take as much. So if I'm an investor, I've got to find companies I'm pretty confident their earnings are going to be higher next year.

I see a reason they have pricing power. The government's paying for the health care expense. They're in a business that their end customer doesn't have a choice. There are some of those, and I think it's a good stock picking environment in that regard, but I just don't see broad-based consumer strength when I look at all the data points that are slowing. So I think it's too early to bet on this broadening. Sure, you can get a couple weeks here where it happens. I think tomorrow with the Fed, I don't really care if they do 25 or 50, to be honest with you. You guys get lots of people who care about that. Well, tomorrow they're just talking about it. Wednesday is when we get the decision.

Yeah, I'm ahead of myself. I'm ahead of both by one day. But, you know, whether it's 25 or 50, I don't really care. What I care about is do I think there's evidence from the earnings season in October? That's the set of data I'm going to be looking at. It gives us a month of a vacuum here that I'm not sure is skewed to the positive. So I think you want to be a little more defensive, you know, heading into the end of the month. Yeah. I mean, look, the, the Almanac says you got to be at least on guard, uh, into, I worry it's just consent. I

worry that it's consensus. The only thing I worry about is everyone's saying the same thing. September's choppy, sell the new, like, and then you just, the worst thing is your consensus, you know, bear. Yeah. That's like the worst. No, it's true. Although every time I feel like seasonal stuff should be arbitraged out ahead of time, it kind of never is. It's a self-fulfilling prophecy. Everyone's on saying the same thing. Yeah. Yeah.

Well, let's bring in Bryn Talkington of Requisite Capital Management and Tavis McCord of Raymond James. Bryn, of course, a CNBC contributor as well. Tavis, love to get your thoughts here, just on a macro perspective, how the markets are set up and what you feel is necessary to justify where we are and maybe deliver further upside in terms of Fed policy as well as the economic fundamentals.

Well, I think I would agree. The market's reasonably fully priced for a soft landing. So we need a soft landing at this point. So we've been essentially on a roller coaster ride for the last several months. I would expect that to continue. My best guess would be some weakness until the election and a rally from the election to year end. But only because that's normal seasonality. You know, overall, the economy is slowing. It's not, you know, hitting a brick wall.

And at some point, we need that slowing to stop and things to reaccelerate next year. And, you know, when we get in these late cycle type of economies, it seems to be the same narrative every time. The market gets volatile. It tends to rotate into defensive sectors. That's what we've seen since July. And frankly, I think this is kind of what to expect for the next year or so until the market knows for sure whether we're going to get out of this with a recession or not. So a year of this of essentially bouncing from data point to data point and testing the soft landing scenario against the possible recession I mean what clues are we looking for right now? I mean, the bond market?

I mean, it seems like you wouldn't necessarily be wishing for lots of downside to Treasury yields from here if you were bullish on stocks and thought the economy was going to hang in there. Yeah, I mean, look, ultimately, you've got to get the full yield curve positively slow. And because we're so restricted right now, it's going to take time, which is why it's going to take another full year. And as that that yield comes down, the front end of the curve comes down. We just need to make sure earnings, which has been pretty good so far, just stay pretty good. And so it's just it's a longer time period than typical because the Fed is a lot more restricted now than in a typical rate cycle. Bryn, what's your, I guess, level of concern that there's more than just standard downside choppiness, at least at risk here when it comes to what the Fed is going to do?

And as we enter third quarter earnings season. I don't think there's a risk this week of the Fed exacerbating or creating choppiness. But don't forget, long term, there's a good saying that economic expansions don't die of old age. It gets killed by the Fed. And so, right, we have this history where the Fed is late. They were late in this cycle, raising rates. And to me, the risk is the economy slowing right now, not stalling. We still had wage growth in the last report of 4% year over year. So that's not a recessionary environment. And so I think it's a very tricky environment for

the Fed, not today. But I think that their cadence going forward, not this cut, but the next few to consistently get, I would say, 100 basis points of tightening, of cutting is really important. I think we're at minimum, they could do 100 basis point, 25, 25, you know, four times. And you still have a very, you know, tight, tight Fed market. But ultimately, Mike, as it relates to the stock market, to me, like today, when I look at what's working, what's doing OK, I still see, you know, the equal weight S&P is a really strong performer, up three quarters of a percent. And so I think as we go through this slowing, not stalling economy, I think things will broaden out. But to me, the question as an investor is just how broad will it get? I still think you

want to stay large cap, like large mid cap, large cap, and want to stay more quality versus going down in the cycle, down in the market cap, because I do think we are later cycle. And so it's too early to get too risky on that on that risk spectrum of market cap. Yeah, I mean, Adam, it's interesting as a lot of the stories came out about 50 basis point cut. And as you had, you know, Bill Dudley, former New York Fed president, kind of throw his weight behind that idea. You saw the market try to execute that by the Russell 2000, you know, trade. And it sort of didn't work initially.

So I know that's not something you feel like makes a lot of sense here. Well, look, I mean, I'll answer your question you asked, Bryn. And I agree largely with her view that it's too early to, you know, take the risk on low quality small cap trade. I totally agree with that. But the data points I'm looking for would be any of the big-ticket U.S. consumer data getting better. Less credit card problems with the monthly MasterTrust data. Better restaurant data. Better hotel rev par. Autos. Housing firming in central Florida and some places really weak. You have to get the big consumer stuff to convince

me that's close to bottoming before I pay for the acceleration already that I'm dreaming is possible in the second half of next year. So I think the reason that they have fits and starts is the fundamentals of those companies haven't been as good. Yeah. Right. And so I need to believe their margins are expanding more. And I just don't think that's likely. So I think you want to. Oh, another thing I would look for would be any evidence in the October earnings season. Walmart showed us a little bit during the last earnings, any evidence that you have productivity from AI deployment, and you'll be back to the races on, you know, that secular trade again. That's in a short pause. I mean, ultimately, I think it makes sense to be

very bullish on AI and AI semiconductors and software and power, but we're in that sort of three-month period of, all right, let me get a couple of positive, you know, return on investment data points. We get one of those in October, it'll be risk on again. Yeah, it's been day by day in terms of whether, in fact, the market's willing to kind of reward the AI-leveraged stocks. And, you know, of course, downside leadership today is from Apple. People are a little concerned as, you know,

analysts talking about maybe not that great a start for the upgrade to the iPhone 16. Maybe AI down the road in your hand is not necessarily a compelling thing. How are you thinking about Apple specifically? And then, you know, you could broaden it out to Microsoft and all the rest. Well, yeah, Apple's not an AI play right now. Right. Apple is a hardware company that sells a ton of services. I think that, and I've said this countless times, I think the iPhone 16 launch is going to be incremental, not exponential. And I think that this is a new territory for Apple, that they're really selling, we'll say, the future software versus what we typically think of as like the hardware of the phone. I think what's interesting today is where, you know, Apple's been mildly weak,

a company like Oracle, right, which I think is probably pretty under-owned, is up 20, 21% over the last five days. So I think you have the market really bifurcating saying, where do I see clear signs of growth on the AI space? And where do I say, let's the jury still out? That being said, I mean, Apple's up 300% over the last five years. It's basically doubled the queues. And so Apple has been a wonderful name to own. And so I think if people are selling, just like saying, I'm taking my chips and go home, I think that's short-sighted. Do I think that Apple's at the forefront of the next new trend? That's going to take a few years for us to find out. Yeah. And Tavis, I guess,

bigger picture, given that we've had this multi-month sort of reassessment of exactly how the AI investment boom is going to go and whether we want to sort of reward all these companies with huge premiums at the outset. We've had that go on. You've had corrections in most of those big names, massive underperformance by the Magnificent Seven type stocks. And yet with it all, you have the equal weighted Russell to Russell 1000. That's kind of close to a record high. And other things have come in to kind of make up the slack. I wonder if you just view that as, hey, this is a bull market finding its way through and feeling as if it has some life left in it. Or is that a more of a kind of a desperate measure of people trying to plug the gap?

No, I think it's been real. And the reason that could happen was most stocks, the S&P 493, were actually pretty cheap six months ago. But that valuation has caught up. It's really hard to find stocks that have a lower PE today than they had in 2019. That wasn't the case six, nine months ago. And so at some point, for the market to keep on moving up, we're going to need AI to lead from these levels, because you just can't have a rotation forever and start valuing all these single-digit growers at high-teens multiples. Yeah, and that is, Adam, to your point, Tavis, I mean, that is one of the things about the AI plays, which is you can have some kind of completely wonderful open-ended upside scenario where you feel like this is going to take over

the world and then no price is too high to pay. Whereas for other companies, they're going to probably trade within more of a range. Yeah, I think there's an innocent until proven guilty in some parts of the market, and then it's guilty until proven innocent right now for others. But look, when Ellison begs Jensen for chips, that means something. And Musk, right? So we know we're in the early phases of the deployment of more compute and more power for that compute and if You're not a trader and you say I want to just buy some stuff for two or three years I'm highly confident you want to own a I send me and the associated

I don't doubt that you can never say when the music is stopping But I just think back to a story in front page the Wall Street Journal 1999 people saying the same thing to EMC. I wish I could stop buying your stuff. I've got to buy your database stuff. We just looked at all the stocks that have ever been 10 baggers or more, okay, and over like a few-year period or more. And the best of them was only down 25% during that period. The average goes down 45% at least once.

So, you know, you want to hit home runs. You're going to have some bad days. But I think if you're investing in a theme and you're saying, I'm a money manager, do you want to have a conversation in five years? And I say, hey, man, I never owned AI semis because I couldn't make the valuation work on 2024 free cash. Well, you're a jerk, right? The trend is going to be big for the next several years. No, that's the career risk argument, and I get it. But all I remember is in the mid and late 2000s, every value manager was saying, we did great because we didn't own tech into 01. I mean,

so in other words, there's a certain bear market scenario where all of a sudden you're a hero if you didn't own it. Sure. And I guess, you know, the most clicked on exhibit we've ever had at Trivariant was the NVIDIA God Trade. I called it God Trade, and it was this L-shaped thing. And I said, the problem with not owning NVIDIA is you think you're God. You think you're really close to the top. It's going to crater. You're going to buy it again at the bottom, and you're going to get it right three times in a row, even though you missed most of the first $2.5 trillion, $3 trillion.

The only thing that anyone said on this that I disagree with, and it's respectfully and it's a little bit, is Bryn saying Apple's not an AI play. I know what she means, but I think, Bryn, we could probably debate it, but I got to think a half a trillion of the market cap is like, or a trillion of the cap is a dream of AI down the road. It might not be current. I agree with you that, but if you don't have any AI in the price, that's probably a problem. No, I'm just saying there's no, there's right now. I mean, the iPhone 16, the AI doesn't even start coming out for a few months. And so I said it's not an AI company today. They want to be with their apps and their services. But I think you can go to brass tacks, NVIDIA, Oracle, Palantir.

These companies are absolutely generating returns off of AI today. And that's starting to scale. And so I just think the jury's still out is what I'm saying as a company. I'm still dreaming of it, though. Well, yeah, they're selling devices that are compatible with an AI future, even if people aren't buying it today, for example. I appreciate the conversation. Thanks so much, Adam, Bryn. Yeah, thanks for having me.

We will talk to you all again soon. All right, let's send it over to Seema Modi for a look at the biggest themes moving into the close. Hi, Seema. Mike, 41 minutes left in trade. Shares of Boeing slipping to a new 52-week low. The aerospace giant announcing sweeping cost cuts today in a bid to preserve cash as it deals with a strike by more than 30,000 factory workers. They walked off the job Friday after overwhelmingly rejecting a tentative labor deal.

The strike has halted most of Boeing's aircraft production and shares are down just fractionally right now. Let's talk about contact lens maker, Bausch & Lohn. Having its best day ever, shares shot up more than 14% to a new 52-week high after the Financial Times reported that the company is working on a possible sale and is likely to catch the eye of private equity.

Stock up nearly 16 percent. Mike. Seema, thank you. Well, we are just getting started here. Up next, former Federal Reserve Vice Chair Alan Blinder is here with what he's expecting from this week's critical Fed decision. And if he thinks a 50 basis point cut is really where the Fed will land. We are live in the New York Stock Exchange. You're watching Closing Bell on CNBC. The S&P trying for a positive close while the Dow is on track to close at an all-time high.

Investors focus on this week's highly anticipated Fed meeting, where the FOMC is expected to cut interest rates for the first time since 2020. Joining me now to discuss is Alan Blinder, a former Fed vice chairman as well, of course, as a professor at Princeton. Alan, it's great to have you on. I mean, it's a rare level of suspense, I think, especially maybe the first move of a cycle is in the air. Do you really think it's a it's a 50 50 as the as the market odds would have it between a quarter point and a half?

Yeah, I'm often not with the market, but in this one I am. It's kind of a coin flip. Now, I don't mean Jay Powell is going to flip a coin. I'm pretty sure he knows. We don't know. So from our point of view, it's a coin flip. And do you think, I guess, how much does it matter? And what message does it send in either scenario? Not a great deal. I think what matters much more than whether it's 25 or 50 is the pros that surrounds either the 25 or the 50. You could have a 25 that sounds aggressive about future cuts, or you could have a 50 that sounds a lot more passive about future cuts. And frankly, it's not so clear which of those two is the more expansionary policy. So I think the pros in this case matter much more than the number of basis points, assuming it's either 25 or 50.

And the Fed doesn't have some big surprise in store for us, which I certainly don't think. Yeah, like 37 and a half or nothing? No, like 75 or zero. Yeah. We'd be shocked. You'll be shocked. I'll be shocked. That's not going to happen. Yeah, they seem not to necessarily be looking to to shock a market already a little bit off balance in terms of exactly what to respect. Look, I guess the nature of a potential soft landing is that it's in the eye of the beholder, depending on the latest run of data. And so you can make the case that you have to be careful and take out some more insurance against the downturn by going deeper on the first cut? Or you assume that, you know, you're going to be OK and you have time to move later. Which way would you come down? Well, that's why it's 50-50. I would come

if it was completely up to me and I was just choosing, I would go 50. I'm more worried, a little bit more worried about the downside risk than the upside risk. But it's a very close call. And the point is, an important point is, I don't believe everybody on the Federal Open Market Committee thinks what I just said. I think you still have some hawkish sentiment on the committee. And that could drive Jay Powell to think 25 basis points is the way to hold the committee together, hopefully without dissent at all. Yeah, because there was a case being built that, you know, 25 with a dissent for 50 or more than one dissent would, you know, implicitly be a bit of a dovish message there. I think one thing that maybe the market has

to be refocused on is you wouldn't necessarily be wishing for the circumstances under which the Fed would go big and keep going big. I mean, you know, back in the mid 90s when you were there, that 95 easing cycle was hardly anything, right? It was a couple of cuts and then it was sort of a hold for a while because the economy did OK. We did have a 75 in there. The only 75 of Greenspan's entire 18 and a half years. I thought that was pretty aggressive at the time. But in retrospect, if you look at the whole thing, it was a kind of a calm tightening

and letting the economy down very nicely. That looks to be what's happening now. And I want to emphasize, as I've done before in other fora, this was a much harder job that Jay Powell and his colleagues had to engineer a soft landing in this environment than Alan Greenspan and his colleagues had in 94, 95. Much harder. Right, because inflation obviously had already kind of gotten out of control this time, as opposed to back in the 90s. It was this kind of a proactive defense against inflation getting too too bad. I guess, based on your read of the numbers right

now, should the FOMC have a great deal of comfort about the path of inflation? Because, I mean, obviously, that's underlying the case for half a point on Wednesday is, listen, inflation is taking care of itself here. I'm pretty comfortable about that. I see the inflation rate ticking down, down, down, some months not down, but mostly down, down, down. But to come back to what I said before in another context, I think there are some members of the committee, I'm not going to start naming names, that are a lot less confident in that and that are worried, say, that it's going to stall out at two and a half and not get to two. And that makes them more hawkish than the median member of the committee.

I don't think that characterized the median, but I think it characterizes the hawkish minority. Yeah, for sure. And, you know, it's understandable, given the way everybody was talking about what the job ahead of them to get inflation under control, they were willing to do it, you know, have a recession if they needed to, to get the job done.

It doesn't look like they need to. Yeah. Let's let's hope that stays the case. Alan, great to talk to you. Thanks so much. My pleasure. Alan Blinder. Up next, Citi's Mithra Warrior is back and breaking down where she sees hedge funds headed into the year end. And don't forget, you can catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. The Dow hitting a record high today. The S&P 500 struggling to hold gains but coming off its best week of the year.

And hedge fund sentiment looking similarly rosy, according to our next guest. Here to share how the space looks heading into year end, Mithra Warrior joins me here at Post 9. She's Citi's North America Head of Capital Introduction. Mithra, great to see you. Great to see you. Thank you for having me. So it was a great first half of the year, both for the markets and generally, I think, for equity-oriented hedge funds. Are they not just kind of playing defense and trying to limp to the end of the year? Are they looking for further upside in general? Yeah, it's interesting. If you remember, at the end of July and early August, we had a tremendous amount of volatility. And this is really why you hire hedge funds. And hedge funds showed that both in that period of volatility in July and August, they were able to handle the

volatility well and put up some positive gains. So normally, to go into Q4, some people think that, you know, let's take our foot off the gas, let's lock in gains. That is not happening this year. Everyone wants to, you know, seize this momentum and lock in double-digit gains for the year. Does that mean being positioned aggressively or just sort of looking for the chance to get more tactical? Yeah, that doesn't mean you're just buying, right? You're looking for opportunities on the short side, especially in technology, consumer, the AI boom, right? There's just as many people thinking that it's overbought and looking for short opportunities there. So both on the long and short side, you're seeing opportunities in the biotech industry, in the

energy industry, in the commodity space. So actually, volatility brings tactical opportunities. So people are being quite tactical. And I mean, on paper, the market would seem to be pretty ripe for stock selection, trading one thing against another, right? Because the first half of this year, it was kind of like seven stocks dragging the index up. Now, it seems like you have these rolling rotations and a lot of stocks actually outperforming the index. So I guess where does that bring the typical manager at this point in terms of where they think is worth playing? Yeah, stock selection is relevant. Again, you know, a lot of times what we would see is when a manager wants to hedge, in the last few years we would see ETF hedging or custom baskets.

And while those still are relevant, we're seeing idiosyncratic single name shorts come back to the market. So and even on the long side, you're seeing stock selection becoming a bigger driver of returns. And that's something that I think is very positive. We track among the managers in our universe, we track dispersion and performance returns. And in the equity long short space, dispersion is actually higher than it was last year among manager performance, which tells you that your stock picking is important and can drive your return. So it's something good to see. Interesting. Now, in terms of the end investor, what are they mainly interested right now in capturing from the hedge fund asset club? I think they want diversification and downside protection, right? End investors tell us they don't just want somebody that's doing well when the market goes up. They can invest passively. They want hedge funds to offer downside protection but also upside capture.

So they want them to be uncorrelated to the marketplace, and that's probably the biggest request we see, that hedge funds really serve as that diversification. But you do need to be cash. You do need to generate returns. You can't just be a downside protector. Sure. You know, there's this line that the hedge fund industry, equity-oriented hedge funds in

particular, have become so top-heavy in terms of the assets under management and the returns, like the Millenniums and the Citadels and.72s, these sort of multi-manager shops, seem like they're consuming a lot of the oxygen in the industry. Is that something that makes it more of a challenge for the end investor to figure out where to go? I think the bigger getting bigger, but I think with this market the way it is and with stock selection becoming more relevant, there is a space for the small and emerging managers, especially in sectors. Biotech is a sector where you may not want to be with a very large manager, right? And so there are spaces and energies in other sectors.

So what you're seeing is capacity constrained sectors come back into play where there might be an opportunity to invest with a specialist manager. And that's some interest we're seeing. Again, I was in the Middle East last week in Dubai and Abu Dhabi for a few days. And their interest in equity long short hedge funds and stock selection and single strategy managers is actually quite robust. So it's a bright spot. Is that in general because those investors, you know, the LPs don't expect much in the way of aggregate market returns? They feel as if you have to be maneuvering within the market? Actually, they have a very high hurdle for market return, which is why they feel that managers in spaces that are maybe less trafficked or less traveled or can be nimble in their asset allocation

and their stock selection, will have the opportunity to outperform. They still want established track record. They still want institutional quality, but they want that double-digit returns. And so they want managers who really will be aggressive on risk-taking and will be nimble and tactful. Outside of equities, I mean, is it still kind of a love fest with things like private credit and other strategies? Yeah, I think, you know, the credit market is always really interesting, especially if you're expecting a fourth quarter with things like private credit and other strategies? Yeah, I think, you know, private, the credit market is always really interesting, especially if you're expecting a fourth quarter with volatility.

I think the challenge people would have is, is it public credit or is it private credit? And private credit has certainly been a space that's really been interesting. And I think hedge funds are competing capital with, competing for capital with private credit, real estate, venture investments. So it's what are you getting for the liquidity that you're being offered? And so if there is a longer lockup and you're locking up your capital for longer, you expect that liquidity premium, which private credit can provide. And specialist strategies as well, such as, you know, we briefly talked about activists in our earlier briefing notes. You know,

public real estate is a strategy that's becoming interesting, REITs and things like that. So ECM is a space that people are interested in. So there's pockets of opportunity. Yeah. So activists would obviously be kind of not correlated to broader market and economic trends. Yeah. Makes sense. Mithra, great to see you. Great to be here. Thank you so much. All right. Up next, we're tracking the biggest movers as we head into the close. Seema standing by with those. Seema. Mike, there is one biotech stock surging 26 percent. We're going to reveal the name and why it's up so much after this short break. 18 minutes until the closing bell. SEMA has a look at the key stocks to watch into the close. SEMA.

Mike, let's start with shares of Nuvalent soaring nearly 25% to a new all-time high. The biopharmaceutical company unveiling positive data on two of its experimental cancer treatments over the weekend. The company said the two drugs show, quote, favorable tolerability and that the trials involve patients whose cancers had failed to respond to a number of other treatments. Stock is up right now.

Alcoa stock bouncing more than 8% after the aluminum company agreed to sell its stake in the Mahaden joint venture. Alcoa will sell its full 25.1% ownership to the Saudi Arabian mining company for about $1.1 billion. The deal expected to close in the first half of 2025. And that stock again is higher, Mike.

All right, Seema, thanks so much. Still ahead, Oracle shares higher again today, up over 60 percent this year and having their best five-day win streak since 2009. We'll drill down on what's been driving that stock's rally. Closing bell, be right back. We are now in the closing bell market zone. Apple shares weighing on the NASDAQ pretty heavily. Steve Kovach on what's behind that move. Sima Modi on Oracle hitting all-time highs. And Wells Fargo Investment Institute's Scott Wren breaks down these crucial final minutes of the trading session.

Steve, Apple, obviously a little bit of disappointment here after some were calling for a so-called super cycle. Yeah, so let me explain what's going on here, Mike. It seems like the iPhone 16 is sort of off to a slow start here. Coming off that first week, your pre-orders began last Friday. Analysts today were pointing to lower ship times as a signal demand is weaker than it was for the iPhone 15 last year. I'm going to talk about Ming-Ching Kuo. He's the best analyst I follow. He says unit sales for the 16 were down almost 13 percent compared to last year. And it gets worse when you look at those more expensive

pro models. He said the 16 pro was down 27 percent and the pro max down 16 percent compared to last year. And other analysts were talking about similar estimates this morning, but I'll also point to Bank of America this morning, adding a little caveat here saying Apple may be producing more of those pro models this year, which would explain those reduced ship times compared to the year before. Also, those pre-order ship times, they're not a perfect gauge of demand, but it is the best we have now. And usually they directly tell us how iPhone demand compares to the previous years. And the street narrative, the question, of course, now is, is the AI narrative holding up? So far, we haven't seen much evidence of an AI-driven super cycle. Could be because those

AI features won't be launching for another month or so. And it's going to be a slow rela after that, which could gunk up the true view of iPhone demand. By the way, the iPhone goes on sale this Friday, and we're going to get a lot more data from those ship times to see how demand looks. Yeah, Steve, it seems like there's a familiar cadence to some of these rollouts where maybe there's some high hopes in terms of what the immediate demand is going to be, and then maybe it doesn't show up and analysts start to come out and say, well, but it's going to be a more elongated upgrade cycle and therefore can bolster future quarters. I just wonder exactly whether we're just at a moment here when the compulsion for the next

model is just structurally lower because the phones are pretty good and they don't wear out. Yeah, that's that's been the story. The iPhone story geez, the last five or six years or so, Mike, which is, you know, they get a little bit better incrementally year over year. They're so good. You can keep them three to five to seven years. They provide software updates for that long, giving people less reason to upgrade. And that was the hope after all these quarters of slumping iPhone sales that we've seen coming out of the pandemic, that AI might be kind of the spark that ignites this new super cycle. It could be if sales are up year over year this holiday season,

it could just be because people have old phones. And, you know, back in 2020, when 5G first hit and spurred the last super cycle, maybe it's kind of coming around again. And it has nothing to do with artificial intelligence, Mike. Right. Yeah. You do never know. And, of course, the stock trades at 30 times earnings. So it's not as if it's as cheap as it's been at past cycles necessarily either. Steve, thank you very much. SEMA Oracle up 20% even month to date on results in some analyst talk. Yeah, and it surged 14% just last week following earnings, Mike, touching a record high today.

The company also just got an upgrade from analysts at Melius Research, who point to Oracle's growth accelerating at a faster pace than Adobe and Salesforce, and that earnings should be helped by the strategic deals it has with hyperscalers. Oracle announcing last week a partnership with Amazon's cloud computing unit to build out data center services. Founder Larry Ellison sharing that at a recent dinner, he begged NVIDIA CEO Jensen Wong for more chips, underscoring how Oracle is really trying to play a leading role in the AI space. So that's also helped spark some enthusiasm here with shares at a record high, Mike. Yes, Seema, it's fascinating that the market kind of rewards that talk, you know, that Oracle is kind of a forced buyer and they're willing to kind of pay up for even more. So the investors in the GPUs are still getting the benefit of the doubt here.

I was looking at the market cap that's been added to Oracle. It's up to $470 billion. If you go back to the beginning of the year, Adobe, AMD, and Oracle were all on 275. The other two companies are below 250 right now. So it seems as if the market's enthusiasm for ways to play the AI trade keeps shifting around, and right now it's in Oracle's corner. And perhaps diversifying a bit beyond the typical AI trades from NVIDIA to the hyperscalers, thinking about I don't think Wall Street fully appreciated just the role that Oracle is trying to play within the build-out of

AI, those comments from Larry Elson on the build-out of data centers, working with nuclear reactors to really power them, and again, and that relationship that he has with Jensen Wong himself. Yeah, it is remarkable stuff. So even an analyst who admitted he missed most of the move and upgraded it is getting traction on that call today. Seaman, thanks so much. Scott, give us your read right now as the setup of the market heading into this Fed meeting, where it seems as if investors are willing to give the benefit of the doubt that we have this soft landing in hand.

What do you think? Well, I think, Mike, that a soft landing is definitely priced in. We're not seeing a recession. I think the market and the financial media, I think, has been spending a lot of time on whether we're going to have a 50 or 25 basis point cut. And I think you don't want to get hung up on that. I mean, we know that the Fed's going to start a series of cuts here. That's going to take a little bit of time to take effect. We're going to see a few slow quarters here GDP-wise.

But really, when you look at second, third, beyond that, in 2025, quarters beyond that, I think 2025 is going to end up to be a pretty good year, not just for the economy, but for the market as well. So does that mean that the recent outperformance of some of the defensive parts of the market is a bit of a head fake if you think, in fact, we're going to get some clarity on better economic fundamentals next year? Yeah, you know, up here with this run that we've had, you know, we're not fond of utilities. We're not fond of staples. We'd be lightning up there.

Consumer discretionary, we'd be lightning up there. And the things that we like as we look ahead, industrials, communication services, materials, you know, these data centers are going to get built out. I think some of the stumble in some AI names is just not many people are able to monetize it right now. There's a lot of spend going on, but who's going to actually make money off it? And the industrial companies, they're building the data centers. They're building the electrical grids that it's going to take to do AI. So I think there are certain parts you can look for. But up here at the top of the range,

I don't think you're going to see much follow through. And with any luck, we'll see some kind of pullback here, which will give retail investors some opportunities to step in because most retail investors have way more cash than what we think they should have in their accounts. It's interesting. Obviously, you have a window on that, on the asset allocation of on retail based on the client base. But if you look at the aggregate equity exposure of retail, of households, people have been pointing to the fact that it seems pretty high relative to history. Well, I tell you, Mike, there might be some bias towards younger investors. But if you look at investors that are 60 and over, they've been burned at least on paper a couple of times over the last 25 years, if not three times.

And so they've been more cautious here, and they really do have a lot of cash. Now, do I think a lot of that's going to come back into the market? That used to be, you could count on that 20, 30 years ago. I don't think so much this time i think some of these investors especially the older ones that are north of 60 they're more than happy to buy some cds buy some short-term yield and not worry too much about the stock market yeah i guess we'll we'll see how fast those those yields come down based on how aggressive the fed has to get here and see if that changes any of their behavior. Scott, appreciate the time today. Thanks very much. Thanks, Mike.

All right. And with less than 48 hours to go until that Fed decision, you see the S&P 500 trying to put on a brave face up about one-seventh of one percent. The Nasdaq still the underperformer, down about half percent on the day, under the weight of Apple and some other large tech stocks pulling back. Though positive breadth across the market continues. You see advancers over decliners by more than two to one on the New York Stock Exchange. Volatility index is relatively neutral right around 17. The bond market still thinks something aggressive could happen on the Fed side.

You see the two-year note yield is plumbing new depths. Close to two-year lows there. That's going to do it for closing down. The S&P 500 looks like it's going to finish up in the green, adding to last week's gain. Let's send it over to overtime with Morgan Brennan and John Ford.