Closing Bell - Closing Bell: Standard September Setback? 9/25/23

Episode Date: September 25, 2023

Is this still just a standard September setback or do the breakdowns below the surface and the rout in the bond market mean the bulls are losing the benefit of the doubt? BMO’s Brian Belski, Requisite Capital’s Bryn Talkington and Emily Roland of John Hancock give their forecasts. Plus, Elizabeth Burton from Goldman Sachs is breaking down where she is seeing some opportunity right now… despite her prediction that there’s a big downturn ahead. And, we dig in on Amazon’s big AI push and what it might mean for the company’s bottom line.

Welcome to Closing Bell. I'm Mike Santoli, in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make-or-break hour begins with stocks treading gingerly into a new week. Traders anxiously watching that 10-year Treasury yield tick above 4.5%. At the dollar index, also making a new 10-month high. Big tech and energy trying to prop up the S&P 500 as small caps attempt a tentative bounce from deeply oversold levels. Coming up, Elizabeth Burton of Goldman Sachs Asset Management with the results of a new survey and how she's telling clients to position their portfolios. But first, our talk of the tape. Is this still just a standard September setback in the indexes or do the breakdowns below the

surface and the route in the bond market mean the bulls are losing the benefit of the Dow? Here to discuss that is Brian Belsky, chief investment strategist at BMO Capital Markets. Brian, good to talk to you. How are you doing? Thanks so much for having us. Just a normal September in our book. Well, this is it, right? So by all appearances, if you, I guess, sort of pan out, that's what it looks like, right? Six percent off the highs. It started right on cue as August got underway. So we needed something like this, maybe predicted it, maybe should have expected it.

If not, on the other hand, if I look at cyclical stocks starting to struggle, the general market unable to really look beyond what's happening in the bond market, equal weighted S&P maybe breaking down a little bit, too. That doesn't cause you to rethink it? No, it doesn't. Mike, you know, you and I go back a long ways, back to the 90s. And unfortunately, the majority of institutional investors have maybe been in their seat 10 or 15 years, so they've never really seen this. We really think this is all part of kind of returning back to normalization.

If you go back to 1950, when you have a return in the markets of over 15% through August, you typically have a very strong end of the year around 4%. I think 4% is the magic number. The 4% is the average fourth quarter return since 1950. 4% is the average return when you see a negative September. So I think that's going to end up what's going to happen. I think as I go around and talk to clients, Mike, institutional clients are underperforming, long only missed the January, February move, initial move in the markets. Hedge funds are

dramatically underperforming because they've been so negative most of the year. And obviously, they love this action in September. So I think earnings have come in and they've been pretty solid. And I think third quarter earnings are going to be pretty good as September. So I think earnings have come in and they've been pretty solid. And I think third quarter earnings are going to be pretty good as well. So I think we have a pretty decent chance at a liftoff. And history shows that it's pretty normal to have a liftoff, especially considering how strong the first eight months of the year were. Right. Now, everything does line up. If you're going to be kind of combing through the archives and saying what other situations match up to the market experience of this year, it's generally pretty encouraging.

I guess the only question is, you know, in July, we had a pretty solid consensus that a soft economic landing was very likely. And people seem to be positioned roughly accordingly. Now, it's a little bit of doubt creeping in or maybe a lot of doubt creeping in. Do you think the economy can handle what seven and a half percent 30 year mortgage rates and oil prices at ninety dollars a barrel can throw at it? I think so, because first off on oil, it's it's demand outstripping supply for the first time in a long time. And I think coming off of what we had a very strong summer in terms of people traveling and it's coming off of what we had, a very strong summer in terms of people traveling, and it's really a supply issue right now trying to match up with demand. Now we'll see what happens a year from now.

When you kind of look out and plan how, when you're building out on the corporate side, I think that energy cost is going to be going down next year. That's number one. In terms of the economy, look at how some of these consumer stocks have done, actually held in there quite nicely. And I think heading into the holiday shopping season, I think there's going to be some very strong kind of have or have nots. It's going to be really the online side is going to do really well. High end is going to do really well. And kind of the lower end, kind of the consumer staple-ish type consumer stocks. And

that would include Costco and Walmart. But on the online side, we think Amazon is primed, not to catch the pun there, to really rebound. Remember, Amazon had a tougher year last year. So we think Amazon is actually quite well positioned heading into the holiday. Does that go for other stocks in the Amazon category? By that, I mean, you know, the $500 billion and up kind of consensus favorites among the growth companies, the Magnificent Seven, whatever you want to call it, because as much as they've come in off their highs, they haven't really surrendered any relative performance to the average stock since the top of the S&P 500 in late July. They really haven't. And that's a wonderful point. So you kind of go back to this term normal.

We've seen quote-unquote normal corrections in these stocks, and you think it's quite healthy. These, what we would like to call them, the consumer staple-ish type tech, meaning Apple, Microsoft, Google, Netflix. We've had really healthy kind of pullbacks and opportunity to, I think, add to positions, kind of core positions over the next three to five years.

In terms of the high multiple names, even some of the forward multiples on NVIDIA are looking more attractive. We've said all along that you want to kind of be more growth at a reasonable price and map a high multiple name with a lower multiple name, especially in the semiconductor space. And I think that's what's really going to help portfolio positions and more of this kind of stock picking going forward. Yeah. Yeah. Seems like not not all boats getting lifted, even if if things turn out to be not so scary in the economy. Let's bring in Bryn Talkington of Requisite Capital Management and Emily Rowland of John Hancock Investment Management. Bryn, of course, a CNBC contributor as well.

Welcome to you both. And Bryn, I guess the big question is, as we set it up before, if this is a normal pullback, when would it become something a little bit more scary, whether it's because of what's going on with bonds or just the market action itself? It's a normal pullback. And I agree exactly what Brian said. This is setting up. We invest based on probabilities. I think when you study history, that's what you have to do. So, so far, this is like a regular healthy pullback. I think from July peaks were about, you know,

five and a half, 5.8% off. But really now you still got to start looking at technicals. And so I think technicals start to take a more front seat because the fundamentals, really, we're not going to get new fundamentals until earnings come out and be able to re-rate or re-qualify what these valuations should be. And so, you know, for the NASDAQ, to me, which is important to look at, because as the 2 and 10 continue to go higher, especially the 10-year, those previous ceilings of 5 and 4 and a quarter are now the floor. Well, the derivative to that, Mike, is now the NASDAQ is under pressure. And we all know pretty much the tech stocks in aggregate are about 40% of the S&P. So you want to see that 43.50 on the S&P. I know intraday, we can move around, but you want to see us close above that.

You know, but on the NASDAQ, we're below the 50-day, we're below the 100-day. And so if you look at the QQQs, I think the 200-day is at 328, which is, that's like a bungee jump from here. So I think you'd need to see a catalyst for that to happen. But right now, I think as a trader, if I were trading, I would want to be patient. I wouldn't be putting on new trades right now just because the S&P from that July high continues to make lower highs and lower lows. And so you want to see some settling out, I think, of rates to start getting a base before you could put on new positions as a trade over the next three or four months. Yeah. And Emily, I mean, you know, whether in fact the market does kind of hold these levels and and whether it's just kind of going through a

normal turbulent period, it seems as if investors are trying to struggle with exactly what the economic impact is going to be of the Fed's current stance and really how strong the recovery has been right now. Has anything did anything change for you, Emily, yet last week with the way the Fed's current stance and really how strong the recovery has been right now. Has anything did anything change for you, Emily, yet last week with the way the Fed positioned its outlook for rates staying high for longer? Yeah, not really. I mean, we saw Chair Powell come out with a hawkish hold and sort of taking the cuts off the table and leaving the door open to more hikes. I don't know that much matters from here, whether we'll see one more hike or not. I think the damage has been done. We've just seen the Federal Reserve over the last 18 months raise interest rates to the highest extent in the shortest amount of time that we've seen in modern history. And we all know that there's a lagged impact of Fed tightening. We haven't yet seen that bite the economy yet in the form of the unemployment rate

going on and more cracks in the labor market. But what we see happening is that the cost of capital goes up and up and up every single day. It's amazing to watch the 10-year Treasury yield today back up 10 basis points on basically no news whatsoever. We're also at the same time seeing inflationary pressures receding and revenue growth coming off record lows. So what we expect to see happen from here is that companies are going to need to start defending their margins. And we'll learn more about this in earnings season. And of course, the biggest cost most companies have is labor. So we eventually think that the lagged impact of Fed tightening will tip the economy into recession, will cause those cracks in the labor market to form. But we're just not there yet. I do think that rates rising to this extent are certainly spooking equity markets as of late.

Yeah. And it's interesting. We should listen to what Austin Goolsbee, Chicago Fed president, said this morning on Squawk Box about the current stance or his current thought about how long rates might have to stay up here. I've been trying to emphasize that pretty soon in here, the question is going to stop being, well, how much more are they going to raise? And it's going to transform into how long do we need to hold rates at this kind of restricted level to feel convinced that we're back on this path to 2 percent? And that's healthy. So, Brian, that's clearly the mode that they're in.

And, you know, maybe the Fed's done. Maybe there's a little more to do. Do you think the market can make its peace with that? Because they seem not in any hurry to try and pivot away from higher for longer, even if the economy sputters. I do. I actually do think that because, again, Bryn talked about history. What's the 10-year average in terms of the rate over the last 50 years? Five percent. Again,

we've reared an entire generation of investors that think that stocks can only go up if rates go down. Actually, no. In the risk return, if you take a look at standard deviations, and the risk return ratio is actually better when rates are higher. That means the economy is still pretty good. So I think this recession camp, the waiting for Godot recession, is more of a primrose path than anything. And we're in the camp of the rolling recessions already happened in terms of all these other industries and sectors. And now, again, we're going to go back into picking asset classes in sectors. And we think small mid-caps are going to be a big part of that. Because if you take a look at the public small mid-cap areas, these companies are in amazing condition with respect to balance sheets,

cash flow, and earnings. And we think that's really the lost gem for the next five years. You know, Bryn, it's an interesting thought because you can look at this market and say, ah, it's been kind of uneven. It's been maybe dominated to the upside by the mega caps. And then if people start to get concerned about the economy, you look and say, well, most stocks haven't really participated. They look cheaper than the indexes. Does that mean it's opportunity or the smaller stocks giving you implicitly a macro warning? I think the smaller stocks are following their playbook. I think to Brian's point about small caps, I think you would want to look at individual names. But playing like small cap or small cap

value, I would still want to avoid because what sector, if you look at like cap weighted is most susceptible to rates, well, it's smaller companies. And so those have, you know, balance sheets that actually are much more susceptible to cost of funding and as well as in addition to how strong or how weak the economy is. And I just feel that, you know, we still want to be very defensive. We like materials, energy, which is not defensive at all, by the way. We like technology. But I think that as a sector and just as a whole, I just still struggle that we've had 13 years of zero rates. So while Brian may be right that the average 10 year is 5%, we've had no time in history, not even after the depression, where you had zero rates for 13 years. And we had QE1 through 5, and then now that QT is coming off. We don't know how that mosaic will actually rear itself.

And I do think when people go to transact, anyone, whether it's a company or individual, that when you go transact at these higher rates, it just costs so much more. And so I think we're going to continue to have the economy weakened. Maybe nothing breaks. I think something ultimately will break, though, Mike, from having rates this high, because I'm not so sure that SDB was the last one to have a poorly managed balance sheet. And to me, those are the biggest risks. But you want to stay invested because I can't you can't invest for an exogenous event. But I definitely think they're out there, out there in the market that people should be aware of. Yeah. As people are currently celebrating the 25th anniversary of the long term capital management meltdown,

we are reminded you can't usually predict these things to detail. Emily, though, you know, one of the points some of the economic optimists have been making is not just, well, look, rates are higher because the economy seems like it's better, but also the defensive sectors of this market have not really outperformed. And so the equity market itself is not necessarily hunkering down for bad times. What would you say to that? Yeah, this does actually feel like a little bit of a 2022 flashback right now. You know, we're starting to see defensive versus cyclical trade perking up a little bit. Defensive showing some signs of life here after lagging materially so far this year. And you're seeing some of the same macro factors influence markets.

You've got a stronger dollar. You've got higher rates. We actually see a big shift coming in consumer behavior. As we think about 21 percent credit card rates, we have housing affordability, the lowest or the least it's been in U.S. history, auto loans at record highs. We think consumers are going to start to make tradeoffs. They're going to do the math and they might not necessarily buy the stuff they want, but they're still going to do the things that they need. So areas like infrastructure, investments, utilities, we think should catch a bit. We look at areas like health care that offer defense. They offer quality, some value there.

They're trading at a 10 percent discount to the market. They've got a 20 percent return on equity. So we do think that there could be some legs here to this relative outperformance of more defensive equities. And to Bryn's point, you want to be invested in this market. You don't want to get overly defensive. We're not suggesting going to cash, but we don't think this is the right time to be reaching for risk. All right. Yeah. Health care, one of the few areas that are green today. Brian, Bryn, Emily, thanks so much. Appreciate it. Thank you. All right. Let's get to our question of the day. We want to know, where do you see opportunity now? Stocks, bonds, commodities, or cash? Head to at CNBC closing bell on X to vote. We will share the results later this hour.

Meantime, we're following the latest developments in the UAW strike. This is President Biden is set to join the picket line tomorrow. Phil LeVo here with an update. Hey, Phil. Mike, I think we're locked into a quiet period of sorts. And I say that because I think that we're not going to have anything until President Biden visits the picketers tomorrow. I don't think the UAW wants to step on his appearance before he is there. And maybe we don't have anything tomorrow. Maybe Wednesday or Thursday is really when we see the developments

happening next. So with that said, here's the state of things in terms of the UAW strike and where they are. There were active strikes, active talks, I should say, very active talks between the UAW and Ford over the weekend. There's three big hurdles right now, not just with Ford, but GM and Stellantis as well. Total wage hike, cutting and ending wage tiers. That's where people are brought in at a lower tier, and then they have to work a number of years before they make the top wage. And then there are cost of living adjustments. Remember, those were stripped out back in 2008, 2009. Now the UAW would like those brought back in.

In terms of the total number of workers who are on strike right now, it's just 12% of the UAW. But this all comes down to how competitive can the big three be versus their foreign counterparts versus Tesla? And as you look at this map here, there's 20 states where we now have UAW strikes going on. A total of, what, 40 overall locations. Just three of them are final assembly plants. So as you take a look at what we see and what we're expecting, you've got picketers who will be meeting with President Biden tomorrow. We're not sure the exact time or how much of a dog and pony show this will be. Does he quietly

meet with them, then turn to a pool camera? Is it going to be where he has a bunch of cameras there? Nobody's entirely sure at this point, but he is going to make it clear that he wants the UAW members to get more money and to stand for their right for collective bargaining. So with that in mind, take a look at shares of GM, Ford and Stellantis. And keep in mind that for all of these automakers, the good news is that there is some progress being made. But whether or not that means we see no more strikes called by the UAW, it's a little too early to say that. Mike. All right, Phil, in that in-between period, waiting for some sense of urgency perhaps to emerge. Phil LeBeau, we are just getting started here. Up next, navigating the volatility.

Goldman Sachs' Elizabeth Burton is breaking down some fresh data and she'll tell us where she's seeing opportunity into year end. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back. We've got, let's see, 39 minutes left in the trading day. Let's get a check on some top stocks to watch as we head into the close. Seema Modi here with those. Hi, Seema. Hey, Mike. Let's start with Williams-Sonoma at its highest level since August of last year after Green Equity investors revealed a 5% stake in the company. Green Equity is an arm of an investment firm, Leonard Green, and the filing indicates that this is a passive investment. Shares you'll see are up over 12% at this hour.

And Alcoa, trading at its lowest level since March of 2021 after the aluminum company announced that its executive vice president would take over the CEO role from Roy Harvey. Effective immediately, Harvey will stay on as a strategic advisor, though through the end of the year we're seeing shares down about 6.5%. Mike? Seema, thank you. The major averages are closing in on their first negative quarter of the year

with the NASDAQ down more than 8% from its summer high. And our next guest says the setup for stocks could get choppier from here into year end. Let's bring in Elizabeth Burton of Goldman Sachs. Elizabeth, good to see you. Hey, Mike. Good to see you. So we have, you know, as we said, the Nasdaq down eight percent, global index is down at least six or seven percent, but also bonds are off. Obviously, we know to say the least. Where does that leave you in terms of figuring out where some opportunities have been created and where there's a better risk reward? Well, what's interesting is we just completed our annual global private alternative investment survey at Goldman Sachs. It's available on our website. We found that investors are actually becoming more constructive on the markets,

with at least 90 percent of them thinking that the markets are stabilizing or improving over the last year. What's also interesting is in that same report, they think markets such as private markets, private equity can be expensive and public equity expensive, but they're continuing to allocate on the private market side. They see public fixed income and public real estate as somewhat cheaper. Does that also fit with how you're viewing the world or how you at the firm would suggest you should position at this point? I think there are some differences. One interesting thing from the report is that investors are much more bearish on the eurozone.

But some of the opportunities we see for diversifying your portfolio could be in the eurozone. For example, as you know, tech, health care can be cheaper there. There's also some selective value plays there that we like, European banking sector, energy stocks, et cetera. So there are some things in the survey that don't quite match with what we're seeing on the opportunity side. What's your take on just how asset markets in general are digesting this change on the yield front? Whether it's going to last a long time or not. The cost of debt has been going up. You're seeing hurdle rates rise. Cash now pays you. Does that change the landscape in a fundamental way? For me personally, and I've been very repetitive on

this, I think one of the things that investors should consider in this rising rate environment, in particular on the fixed income side, is the question that I keep getting from investors is, when should I add duration back in? What should I do with fixed income? And if we're in an environment where inflation remains sticky and high, and the correlation stays somewhat positive between bonds and equities, it doesn't necessarily mean that you shouldn't still shy away from fixed income. There are still positive benefits to adding fixed income into your portfolio, especially at these levels of interest rates. But it also means that you may need to look towards real assets for other sources of diversification, which we are seeing investors doing. We're seeing infrastructure, we're seeing real assets minus real estate becoming more interesting. So that would be things like

commodities or infrastructure or things like that? Sure. So yes, definitely in commodities. And I know one of my colleagues was on today talking about the opportunity in the copper market. Institutional investors, that's a lot more challenging. You don't just go out and buy commodities typically. You can overweight cash to a certain extent. What's one interesting play that I've been hearing lately is real assets that are more digital in nature or have digital components, so like sports franchises are buying into

the world of competitive sports. Yeah, people have to range pretty far, I guess, to get non-correlated assets of certain types. If we're back in a world, and I assume you think this is the case, where stocks and bonds are going to move together as they generally did in the 80s and 90s. Well, interestingly enough, based on history, you would actually expect that those correlations might come down over the next six months, but they could also stay higher. We don't have total clarity what's going to happen on the long end of the rate range, right? So there could be a period of time where that correlation stays sticky. What's interesting to me is that I thought fiscal year ends for most institutions in July. We did not see a lot of asset allocation changes, and I thought that we would. So when

you want to change your portfolio, you just go out and do it, right? You call an audible. If I'm an institution and I want to go out and change my portfolio, well, I might have to go find a new offensive coordinator and that could take six months and get my GM's buy-in and then it might get rid of me. It's just a different game. For sure. And just finally, because you mentioned institutions like, let's say, pension funds having their fiscal year there. I've seen the case made that in general, defined benefit pension funds may be overfunded right now. And therefore, they might as well just sit there in cash and fixed income and safe income producing assets as opposed to adding risk. I think it's going to be challenging for them to just sit there. I think to your point, I think they might not be changing drastically their allocations.

What I have seen happen is totally different from last year. I'm hearing more questions from institutions on can we hedge our portfolio. Reverse 12 months, they were saying how can we diversify within asset classes. Now they're asking what do you think about a total portfolio hedge to limit our exposure to a massive market drawdown. All right. Sounds pretty attractive if you can pull it off. Elizabeth, great to see you. Thanks so much. Great to see you, too. All right. Up next, Amazon's $4 billion AI bet. Shares of the tech giant moving higher on the news. So how might this big move in the artificial intelligence battle impact Amazon's bottom line? We'll hear from a top analyst after

the break. Closing bell. We'll be right back. Amazon set to invest up to $4 billion in AI company Anthropic. Deirdre Bosa here with those details. Hi, Deirdre. Hey, Mike. So this is really the way that big tech is sort of pioneering this shift in generative AI. Largely, it's partnering with some of these buzzier startups in the generative AI space like Anthropic. It's sort of similar to Microsoft and OpenAI. That was a $13 billion investment for an exclusive partnership. Here, Amazon is going to invest up to $4 billion. So it is smaller and it's not exclusive. And keep in mind, too, that Anthropic already has a partnership with and investment from Google. And this deal in particular, though, Amazon is going to be the primary cloud provider.

So certainly a win for that cloud business, AWS, and a vote of confidence for Amazon's custom silicon. It's custom AI chips, two of them. And the press release says that Anthropic is going to be training its models. I guess it is still an open question, however, how much it's going to be relying on NVIDIA GPUs. Of course, still the dominant chip in AI applications

and AI compute program. But Mike, as we were talking earlier, so much of this shift has to do with compute power, and that is very expensive. So the newer companies, the open AIs, the anthropics of the world, they need to do these partnerships. And I don't know if you've seen this video that was published today by Open AI, Mike, but the one that actually takes video and chat inputs. You can see how these applications are developing, but it's a bicycle. Someone wants to know how to move the seat. And it's pretty incredible. This is sort of the next iteration of chat GPT and generative AI.

It is remarkable, although I wonder from Amazon's perspective, what is the message? Is it effectively them telling their AWS clients like, look, we're going to be right there with whatever you're going to need in this area. We're going to build our capacity. Don't worry about it. Or is there something even on the consumer front that down the road is going to help Amazon? That's a really interesting question because Amazon's strategy so far has in thisative AI shift, has been, hey, we're here for the developers. We're not going to worry too much about consumer applications because there's going to be so many models eventually. There's going to be one for health care. There's going to be one for trading, with answer, and now I can't say the word. With this deeper partnership basically says that they're making a bet on cloud, that is cloud, their generative AI language model. So it is getting a little bit closer to the consumer side of things. But in the past, the company has

said that there's not going to be one model to rule them all, but it wants to give access to all the developers, all their AWS customers, everything that they can. Anthropic, that's it. I said it too many times today, Mike. Absolutely. All right, Dean, thanks very much. Here to discuss further is the head of internet research at Evercore ISI, Mark Mahaney. Mark, put this in some perspective in terms of competitively where Amazon sat before with regard to the AI theme and what it might do for them? You know, I like the way Deirdre set it up. This is almost like going back to Microsoft two years ago when they were making this internal decision. It was two or three years ago

whether or not to invest in open AI. They were trying to develop gen AI technology competencies internally, and they realized that they needed to get outside of Microsoft in order to do that. I think this is kind of an acknowledgement by Amazon that they can't do it all organically. So there's a little bit of a defensive element in here. The reason that it's probably a positive for the stock is that the company's at least now willing to make these kind of external investments. And look, Anthropic is pretty well known in the AI community and in the VC community, too. It's been considered a high-quality asset for some time. That's why it's got some of these other investors like Google in there.

So Amazon's making an investment. AWS is making an investment, its biggest ever, in an asset that's considered high-quality. This should increase the range of strategic and operational options for Amazon. That's why it's a positive. That being said, it sort of feels as if over the last few months, the temperature has come down a little bit just in terms of the streets intensity of feeling like everybody has to have

some kind of killer app in this world. Microsoft obviously down off its highs a fair bit. Talk of chat GPT volumes maybe coming off the boil as well. So how much does it matter at this point beyond just saying, look, we're going to participate as things develop? I don't know. Near term, there's a debate, though, as to what's happening, whether we're seeing this kind of reacceleration in cloud industry revenues. Andy Jassy on the last day was on earnings calls pretty much suggested we would see it.

There have been some third party data points that have been kind of skeptical of that. But the latest checks we've done as recently as this last Friday, it's here. The inflection is here. We've moved beyond the optimization cycle. And now we're starting to where, we're at a point now where new workloads, including AI workloads,

are really starting to boost up cloud computing growth rates. So AWS should participate in that. So should Google Cloud. So should Microsoft, Azure, and a few other small players do. So I think that's kind of the big point for investors. And I think this is just one kind of strategic overlay on that. I particularly like AWS here. So I think the industry is finally starting to recover and you can get revenue growth acceleration at AWS. This is kind of just the cherry on top of this and foropic investment. If I could just turn you a little bit to Metaa because they are going to have this, you know, this event, maybe highlighting some of their AI efforts, but also the stock.

I mean, it's up this month and a down 5 percent month for the Nasdaq 100. There's a lot of enthusiasm building among several fronts. How are you thinking about the stock after 150 percent gain this year? I'm not I'm not budging at all on it. It remains one of our top three picks. We go Uber, Amazon and then Meta. It trades at 16 times gap earnings. It's the cheapest high quality tech asset out there, period. And our most recent channel checks, even as close as the reason as this morning, indicate that we're seeing strengthening reacceleration and growth. And the way you really want to see it, which is meta to their credit,

to their discredit. They got blindsided by the Apple privacy changes. To their credit, they invested aggressively in AI and they've used it to much better improve the return on ad spending for their marketers. That's why you've seen this acceleration and growth. You saw it from Q1 to Q2. You're going to see it again in Q3 and then see it again in Q4. This is the best acceleration story you get in online advertising. So I like Meta here. And there's also this odd point, which they've actually done reasonably well with their Lama model. Now, they don't have the enterprise presence. They don't have any enterprise presence like obviously Microsoft and AWS and even Google does. But it's really

impressive the technology that Meta's built kind of in-house. So I don't think the market gives them any credit for that. I will. And I think the stock goes higher from here. With all those things, I guess, driving the story, as well as, of course, the cost discipline campaign that has been in effect for a little while right now, people very excited about reels engagement, things like that. Do you actually need to have a view about its sort of consumer directed AI capabilities, whatever they're going to be announcing there in terms of, you know, actually stuff that users see? Does it matter much for the story? I don't think it matters too much, but I think they've been using generative AI to kind of

improve the personalization of your news feed. They're bringing you material, they're bringing me material, everybody else material that comes from beyond your your social network so they've really kind of emphasized media rather than social and it's work we've got higher engagement at meta but you said something mike that's really important i think for the real unlock still from here on the stock and here's the tagline i think the year of efficiency needs to become the years of efficiency and if they show to the market that they're willing to grow their operating expenses less than they grow revenue, i.e. the margins are going to expand, that they're going to be aggressive, but not super aggressive

in that spend, you know, kind of low double digit growth in their expense space. I think the market will reward them with the higher multiples. That's what the market wants to hear. Just, you know, you got reward last year for making it the year of efficiency. Turn this into the years of efficiency, your stock goes higher. All right. We'll look for that, Mark. Appreciate it.

Thanks, Mike. Mark Mahaney. Up next, we're tracking the biggest movers as we head into the close. Seema Modi is back with that. Seema. Mike, we're taking a look at several stocks that could be impacted by the ongoing strikes,

not to mention the labor market. We'll bring you those names in just a moment. 17 minutes until the closing bell of the S&P, trying to hang on to about a quarter percent gain at this point. Let's get back to Seema Modi for a look at the key stocks to watch. Seema. Mike, let's take a look at CarMax higher as Wedbush upgrades the stock to outperform,

citing an inflection in growth and improving profitability. Analysts say tight inventories and a prolonged strike from the UAW could support demand and pricing in the used car market. That all comes ahead of CarMax's earnings report on Thursday, and something we'll be watching in the inflation report as well. Movie theater stocks are higher as the Writers Guild strikes a tentative agreement with the major studios. AMC CEO Adam Aaron said on X, formerly known as Twitter, that the world's movie theaters

can celebrate the good news as attention turns to the Screen Actors Guild. Shares of AMC, Cinemark, IMAX, as you can see, all higher at this hour. AMC up 7%, Mike. All right, yeah, well, that one is known to be the real mover in the group, Seema. Thanks so much. Last chance to weigh in on our question of the day.

We ask, where do you see opportunity right now? Stocks, bonds, commodities, or cash? Head to at CNBC closing bell on X. We'll bring you those results after this break. Let's get the results of our question of the day. We ask, where do you see opportunity right now? Stocks, the clear winner, 44% cash coming in right behind. So people looking to buy this dip.

Up next, biotech's big tumble, the XBI ETF hitting a new 52 week low today. We'll tell you what's behind that drop, what it might mean for the sector in the long term. That and much more when we take you inside the Market Zone. We are now in the closing bell Market Zone. JPMorgan Asset Management's Gabriela Santos is here to break down these crucial moments of the trading day and share her market playbook, plus Angelica Peebles on weakness in the biotech space and Courtney Reagan on why Jeffries is getting cautious on a pair of shoe

retailers. Gabriela, let's start with you with your market kind of diagnosis before the prognosis. What's been concerning the stock market, do you think, in the last little while? We obviously see 10-year treasury yields at $4.55 or so, oils up near $90 a barrel, and there's a little bit of an undercurrent of anxiety, I guess, that that's happening without necessarily an acceleration in the economy. So is that a correct worry? So a bit surprising to see the 10-year up 10 basis points today. Nothing seems to have fundamentally changed. I think for the stock market, really since the end of July, the pop in yields has been concerning. You can see that in the bigger correction and the longer duration

stops, as well as some of the year's winners. But I think in September specifically, you also started to see some growth fears emerge. That's behind cyclicals, down 3.8 percent versus defensives hanging in there better, down only 1 percent. And I think it's just this nascent realization that the third quarter is probably the high watermark here for growth, that growth is set to slow from here. That is consistent with a soft landing. It's just that it is slower. It is not blue skies ahead. And there are some building laundry lists of concerns out there that could make for a soggy fourth quarter here.

Yeah. So even in a soft landing, you do land. So there is a deceleration underway. I mean, to what degree do you think the economy is going to be able to absorb it? I think that to me is the big question. If the Fed says, look, we think the economy is strong enough. We're in no hurry to cut. We need inflation to come into line. The markets seem to hear they're not going to be sensitive to slowdown fears that really start to pick up. So I think the ability of the economy to have a soft landing very much depends on the labor market. This idea that you have a normalization in the pace of job growth, but you don't have a collapse and that you can have a better mix between the demand and the supply side just by lowering job openings at the same time that you have an increase in the labor force participation rate. So, so far that's played out

and so far that's consistent with a soft landing, but it all comes back to the jobs market. I think for the Fed, really the view that we disagree with is the path for inflation from here. We think we'll get back to 2% much faster than the Fed seems to think. And as a result, that leaves the door open for rate cuts, even in a soft landing scenario, in a way that's faster than what's being priced in, certainly across the curve. I would have voted in the survey you had previously. I would be hard-pressed to choose between stocks and bonds, but I would have chosen bonds over cash

in that scenario of being very close to peak rates. So you think that that would mean that there's value being built up in bonds by this pop in yields and real yields being higher, even if it's to some degree driven by supply, even if it's non-economic factors? I think we don't expect yields to fall anywhere near the kind of rates that prevailed after the financial crisis by any stretch of the imagination.

We do think we're in a period where we can have positive real yields of between 100 and 150 basis points. It's just that we're over 200 at this point. It seems excessive, especially when I think markets fully appreciate the slowdown in growth, the idea that it's high for longer, but not higher for longer, that our star might be higher, but the magnitude is not that far. So we see really a lot of opportunity in this extended sale for fixed income. I was going to say, and that would also imply that the market maybe has overshot and its concerns on those fronts. Absolutely. And we would really look at 4.5% in the 10-year as very much a once every 16 years kind of opportunity to lock in yields and benefit from price appreciation.

And if that were to be near the top, maybe stocks could do okay with that as well. I did want to bring in Angelica on this weakness in biotech. It's been pretty pronounced. A lot of times that's sort of an indicator of investor risk appetites, or maybe there are broader concerns just about whether it's the pace of approvals or something else going on there. Yeah, Mike, the closely watched SPDR S&P biotech ETF is hitting a new 52-week low today, and it's now down about 9% this month. The Nasdaq biotechnology index is down about 4% this month as well. And that's a stark contrast from earlier this year when we heard such high hopes that there would be a turnaround. The sector has been hit

hard over the past few years as investors look away from risk and look towards safer investments, or they go into tech with that excitement around AI. You know, there's another piece of the investment thesis, usually when it comes to a lot of biotechs, which is, you know, a certain number of them are going to get bought by pharma companies down the road. Does that activity seem like, you know, it's kind of dormant for now, or is it still live?

We've had a number of deals this year. There have been some big ones, the Pfizer and Cigen acquisition, as well as some smaller ones. But that doesn't seem to be changing investors' minds. And one report out today from Stiefel talking about this talk from the Fed of hire for longer is really turning people away from biotech because if there's any long-term investment, it's biotech. And so that's something that people just don't want to deal with. Yeah, that is for sure. It's right there on its lows, that biotech ETF.

Angelica, thanks so much. And, Courtney, we've been talking about, you know, just general, a little bit of wear and tear on the consumer appetite for lots of things, but you're talking about Nike and other shoe products. Yeah, absolutely. So, obviously, Nike's going to report a little bit later this week. And Jeffrey did a survey of consumers because we know what is also coming is the student loan payment resumption. And they said that I think it's 87% of people that have these student loans that are going

to resume are really worried about how they're going to manage their monthly expenses. So then they said, okay, you're worried, what are you going to cut? Apparel and footwear were really high in the list, around half, more than half, said they were going to cut apparel, a little less than half footwear. And so that's where a Foot Locker comes into a worry, as well as a Nike. And then, of course, you have problems at Nike anyways, because the wholesale channel is a little bit pressured with them buying less inventory. And then 64% of Foot Locker's inventory right now is Nike. So if Nike is weak from other reasons, that's sort of a compounding problem.

China continues to be a concern for Nike. It's been OK, not great. So a lot of things weighing on Nike, which then also has a flow through to Foot Locker. And then just generally, we're going to be watching footwear and apparel companies because it does seem to be an area that consumers are willing to cut back on if they need to when these student loan payments resume. A big part of the Nike narrative has always been, you know, people pay full price. They want the newest stuff. It's a performance culture. It's innovation. It's not just, oh, I need a pair of shoes. Let me go find one. Yeah. Is that broken? Absolutely. I mean, I think some of that is starting to at least worry some of the analysts

that are studying this and they're worried about promotions coming in, lowering prices, lowering the average selling price for the shoes that are selling. So the shoes that are studying this and they're worried about promotions coming in, lowering prices, lowering the average selling price for the shoes that are selling. So the shoes that are selling are more fitness and running less of the basketball, and those are usually the higher prices. So I think that's a bit of a concern, too, for the margins of Nike. All right. We will see what the company has to say later this week. Thank you very much.

All right. As we head into the close, we are just about at the highs of the day for the S&P 500, though very modest moves all around. You see the Dow is above 34,000. The S&P 500 up four-tenths. NASDAQ has been outperforming. Amazon, in particular, has been an upside leader. And the Russell 2000 up one-half of 1%.

That is the most oversold part of the market. Of course, it is still down 11% from its all-time highs. The 10-year note up 4.54% right now. It keeps making new decade-plus highs out there, although so far the stock market has been able to handle it at this point. We also see the volatility index backing off under 17. So it still eludes that trip above 20 that a lot of tactical investors wanted to see before feeling as if the market was due for a durable oversold bounce.

As we go out here, NASDAQ up about half a percent. Looks like S&P 43.38. That's going to do it for closing down.