Closing Bell - Closing Bell: Stocks pull back on final day of October, Former Twitter COO on Musk 10/31/22

Episode Date: October 31, 2022

Stocks came under a bit of pressure in Monday trading, but managed to lock in strong gains for October. Sameer Samana from Wells Fargo and Jim Paulsen from Leuthold Group debate the outlook for the market in the home stretch of the year. NBER Chair John Lipsky gives a preview of two key catalysts coming up this week – the Fed decision and the jobs report. Former Twitter COO Ali Rowghani discusses Elon Musk’s vision for the social media company and what it means for the business model. Plus the latest on Apple’s pullback, the impact of Brazil’s election, and how to position in retail ahead of the holidays.

It's under a bit of pressure on this final day of October, but still looking to lock in big gains for the month. This is the make or break hour for your money. Welcome, everyone, to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market, down 89 points or so on the Dow. The low of the day was down 274, so we're off that, down six-tenths of a percent right now in the S&P 500. If you want to know what's working, it's, like everything, been a tale of mixed sectors. Energy is the best performing. It's up one more than one percent. I guess that's it at this moment in terms of sectors. Everyone else is lower. Communication services and technology under the

most pressure. The Nasdaq down one percent. Ten-year note yield above four percent. Check out the scorecard for October for the major averages. The Dow is pacing for its best monthly gain since 1976. And there are a ton of market catalysts coming up in just the next two weeks, including the Fed meeting, which kicks off tomorrow. Big decision on Wednesday. And then Friday, it's the jobs report. We'll see if there's any slowdown evident. The midterm elections early next week. And we'll also get October CPI toward the back half of next week. Coming up on the show today, we're going to talk about all of those events when we are joined by National Bureau of Economic Research Chair John Lipsky. That's the group that determines whether

we are officially in a recession. Plus, we'll talk to former Twitter COO Ali Ragwani about his expectations for the Musk era and how advertisers and users could react to some of the rumored changes out there. Let's break down the market action, though, first with senior market commentator Mike Santoli in today's market dashboard. What are you watching on this final day of the month where everybody's talking about seasonality all of a sudden? Yeah, it's definitely a big theme for understandable reasons. I guess we get to the latter part of the year. There are some clear historical patterns. I would say today is a lot of month-end trimming after we did have a big run higher. Of course, pre-Fed apprehension as well is at work. If you look at the S&P 500, we were up 90 points on this index on Friday,

so you're giving back less than a third of it at this point. Just for curiosity's sake, where was the S&P 500 right before the last Fed meeting in September, September 21st? It was right about there. It's actually about 30 points lower, but essentially in a similar position, except there we were hitting it on the way down. This time we've rallied up into it as the market once again seems to want to believe it's in tune with what the Fed is likely to say on Wednesday. Now, the earnings picture is a little bit quieter today, but you can start to generalize about the character of the reaction to beats and misses. And if you take a look at this from Bank of America, the companies that miss on both top and bottom lines this quarter are having an extremely adverse stock reaction. This is the relative performance of the stocks that miss on

top and bottom line. Now, clearly, this is really affected by a handful of huge movers, like Meta going down 24 percent on the day of, day after its results, Microsoft down 19 percent. But still, it does show you that there's just not a lot of patience as we're all looking for evidence of slowdown for whether when these companies come up short. Now, other times that happened, late 2011. And here you have in the sort of 2001-2002 period, that was another bear market. Those that beat basically average level of outperformance, not very much 2% outperformance. So it shows a little bit of sensitivity to sign, Sarah, that the earnings story is petering out. Tech under pressure today in a bigger way than the rest of the market. Is that just higher yields manifesting again? Yeah, I mean, it could be that.

It also just could be that, you know, they did last week, Apple in particular is what's down today. And so Apple had, you know, massively outperformed last week, had a very positive reaction to its results. And that, to me, is driving most of the headline in tech. Yeah, I'm also seeing some weakness. I mean, you're right, Apple, but Alphabet is lower again. Meta is lower. Some of the... Yeah. There's definitely not much at a month-end basis of bottom fishing instinct. I think a part of that is you do have the sort of tax loss selling. And let me not

show myself owning it at the end of the fiscal year in October. Mike, thank you. We'll see you soon. Mike Santoli. The Dow, as I said, on pace for its best October ever, the best overall month since 1976. But will the recent market strength carry over into the final two months of the year? Let's bring in Samir Samana from Wells Fargo Investment Institute on one side of this debate and Jim Paulson from Luthold Group on the other. So, Samir, the question is, did October kill the bear market? What do you think? No, we don't think so.

We think the trend is still lower. We think valuations are at best fair. And we think the market could easily chop sideways into year end, but probably does have a little bit more downside risk than upside risk. Why? So, again, I come back to the Fed still raising interest rates. Now, if they go from 75 to 50, that doesn't change what they're doing, right? They're still tightening policy. A lot of people also are confusing the rate side for the balance sheet side because quantitative tightening goes in the background. So if the Fed does nothing, you continue to have that balance sheet unwind. And all the work that we've seen basically suggests that it wasn't those zero rates that led to overvalued markets. A lot of it had to do with

the Fed expanding their balance sheet at a very fast clip. So now that's working in reverse. Clearly, it's going to have a negative impact. It really doesn't get as much airtime, the whole balance sheet tightening thing. So, Jim, you disagree. You've been positive for a long time and you're staying so into year end and into next year? I am, Sarah. You know, I think I look at the trailing P multiple and the S&P 500 are now lower than 70 percent of the time since 1990. I look at sentiment that's very washed out. I think nervous Nellies have had ample opportunity to sell various times this year. The sellers that are Yancey are probably gone. And I think the Fed policy is clearly unsustainable.

We're seeing cracks all over the place and certainly declines in inflation, but also now in real economic growth and other illiquidity problems emerging. Also, Sarah, what I found when I look back to the 1980s is that the 10-year yield has led the Fed on every tightening cycle. And it peaks out before the Fed's done. And oftentimes the Fed keeps tightening, but the 10-year yield stops rising. And the stock market doesn't wait for the Fed to get done. It generally responds when the bond market is done. So I think the bond market is close to blinking. And even if the Fed continues, I think the stocks might already be responding to that. I don't know, Jim, the two years back to 450 today.

Well, yeah, but I'm talking about the 10-year yield that tends to lead the Fed. And the 10-year yield was, you know, rose at 433, you know, intraday. It might go up a little more, maybe four and a quarter it's peaked out. But I'm saying if it's going to stop there and at some point, Sarah, I think it will, the Fed might continue to lift rates. You know, in lifting the rates, what the Fed is doing is lowering inflation fear and raising recession fear. And if inflation fears the dominant force, we have more bond sellers than buyers. But if recession fear rises, we will get more bond buyers than sellers. And I think we're getting close to that.

Samir, what's your take? You just don't think the Fed is going to switch policy paths anytime soon? It just seems premature. And, you know, when you look at long rates and you look at their historical relationship to whether it's GDP or inflation, I mean, history tells you that, you know, much higher rates are warranted, especially if you're trying to bring inflation down. Right. I mean, you know, just to get real rates, you know, north of, you know, into positive territory. Shoot, right now you'd have to raise them into kind of the 7 to 8 percent range. Again, that's not the case. But I don't think it's hard to see, you know, the 10 year going, you know, pushing up to four and a half to five percent,

especially if that's where the short end of the curve is going. So, and from that standpoint, the equity risk premium, especially based on kind of where we see earnings going, which is our number for next year is 200. So, you're actually going to see negative growth in 2023. You're just not getting paid to take the risk. It's not so much that we don't see better days ahead. Our target for next year is actually 4,400, but it wouldn't surprise me if much of those gains come in the second half of 2023 after things start to fall into place. Jim, it raises the question about earnings risk here. Outside of tech, it's been pretty good, as Santoli just laid out. But if the Fed has been doing a lot of front-loading, we're about to go into our fourth 75 basis point hike. What's that going to do to corporate earnings next year?

I think that the economy is going to be real sluggish next year, real sluggish, pretty close to zero growth for a good part of the year. I think earnings will flatten out and maybe even come down a little bit from their peaks, yet what they achieve overall. But, you know, I think the markets reflect a lot of that. I went back, looked at the 12 previous recessions we've had in post-war history, Sarah, and the average decline in the stock market prior to the first month of each one of those recessions off its cycle high was five and a half percent, the median decline prior to the recession starting.

We were already off 25% or five times greater than the median response. So even if we have a recession next year, I think a lot of that's already in this stock market. And if we are headed for recession, then the rate structure's got to stop and probably reverse here pretty soon. I think the risk has been overheat. That's brought us down. If that risk quits, I think the market's been overheat. That's brought us down. If that risk quits, I think the market's going to rally, even if there's much slower growth close to even a mild recession. When you say it's in the market already, so S&P is down 19% year to date, NASDAQ's down about 30%. The whole thing has been multiple contraction, though, Jim. We haven't

really seen earnings expectations fall off a cliff anywhere into recessionary territory, have we? Well, but look back to 1990, Sarah, and if you look at the S&P 500 over forward one-year earnings estimates, they've tended to move up and down almost together, except for this year. This year, the market came down 20, 25 percent and forward one year numbers are still pretty close to their highs. That's my point, is I think the market's already discounting a pretty good flattening or even mild decline in earnings. It's not discounting a deep and prolonged recession like 08, 09, 10, but it is, I think, already discounting a mild recession. Samir, final word. How do you position if you are bearish and you don't think that this is the end of the bear market? Sure. So we would continue to participate and we would do so in

a dynamic way. So all year we've been saying, you know, look on these oversold kind of pullbacks, right? In June, more recently, when you get to 3,, $3,600, you know, make sure you're buying those larger cap, higher quality energy, technology, and healthcare names. And on the way back up, you know, look, if you're lucky enough to get something in the low fours, we were at $4,300 not that long ago, make sure you're trimming those international equities. Make sure you're trimming some of those cyclicals like, you know, financials, industrials, discretionary, and REITs. So stay dynamic. There's a lot of opportunities in this type of market and you want to be able to take advantage on both sides. Got it. Samir, Jim, thank you very much for making your cases. We appreciate it. This week's Fed meeting and

October jobs data clearly top of mind for investors as Wall Street looks for clues on the health of the economy and the Fed's rate policy. Up next, we'll get a preview of the big week of market moving economic news when we are joined by NBER Chairman John Lipsky. Dow's down 157. Again, we're off the lows. We're down 274. Energy's the only sector that's up right now. You're watching Closing Bell on CNBC. Wall Street is bracing for a barrage of potentially market-moving events in the coming days, including the Fed decision and the jobs report this week, and the next week, midterm elections and the latest CPI inflation number. Joining us now is NBER Chair John Lipsky.

First on the Fed, John, and it's good to have you. 75 basis points is baked in the cake. Do you expect Fed Chair Powell to start laying the groundwork for a smaller hike in December? It's certainly possible, but I think it's going to depend on, be very data dependent. I think that we'll continue to insist on that approach. Right now, when we look at the Fed funds futures markets, what the market seems to be anticipating in terms of future Fed action, and look at what the likely outcome, the likely course of inflation is going to be, it's plausible that the current expectations, which call for a funds rate at around 4% or more, could actually seem to be, to most investors, consistent

with a sustainable rate in a period of declining inflation. In other words, it's possible, quite possible, that investors are going to be expecting the Fed to start laying the groundwork for how they will decide going forward. I suspect it's a little early for the Fed to be explicit in this regard, however. Because it just doesn't. By all accounts, the market is signaling that they will slow down and that inflation will come down. And yet, you know, I know we've been in a weak, quiet period for the last week, but the Fed commentary has not really signaled that they're ready to slow things down or that they're convinced that inflation is coming down in a meaningful way. Well, certainly the Fed's been obvious for some time that the Fed started late,

underestimated the force of inflation, needed to gain credibility and to convince investors that they were serious about raising rates and about acting on inflation. At this time, it's not obvious that they need to be a lot tougher than is already anticipated, for example, through the dot plots, given what markets seem to expect is happening with the economy. In other words, nonetheless, because of the risk of surprises, I wouldn't expect that the Fed will do much more than insist on data dependence going forward and insist on seriousness and hitting their inflation, longer-term inflation targets. Well, on that data dependence, do you expect the next jobs report to show signs of weakness? We've been looking for it, and it really hasn't shown up in a big way in the monthly jobs numbers or in the wage numbers.

You're correct. Certainly, the growth in employment seems to be consistent with a tendency toward at least trend growth or even a little bit above trend. Nonetheless, the innards, if you will, of the employment data, as many have pointed out, seem to suggest that there's a slight slowdown or a slowdown underway in the force of new hiring. So let me ask you a question. Everybody, even the Fed, has said that the monetary policy hikes hit with a lag. So we're going to feel the brunt of the impact on economic weakness, say, next year. We've had four jumbo-sized rate hikes. What does that lag look like to you?

How many months and how severe do you think of a slowdown we're going into? Well, in the old days, we would call that a $64 question. you? How many months and how severe do you think of a slowdown we're going into? Well, in the old days, we would call that a $64 question. Certainly, the structure of the economy has changed in many ways over the past couple of decades. And the notion we've seen that the ability of the monetary authorities to anticipate and to affect the outcomes has been different from what it's been in the past. And therefore, continually looking back to saying, well, this is what happened in the past, after recessions, et cetera, is certainly useful. But to consider that definitive, I think, is far from it. The important point that it's trying to make is right now the Fed's, the anticipated Fed position consistent with the dot plots

seems to be consistent with what markets expect is necessary to keep inflation in the medium term under control and to keep inflation expectations under control. But there are a lot of uncertainty and there are a lot of big risks in both directions in that outlook. So I think the Fed is going to want to, and I think investors would expect them, to continue to insist on their seriousness about hitting long-term inflation and their willingness and ability to react to changes in the economy. In other words, this is no time to be categorical about what you're going to do, but to make clear what's important. Well, I also want to ask you, John, because of your background at the IMF and in global economics, clearly you're following what's happening around the world, and that is central banks

also having to raise rates and it's causing problems the dollar is super strong and and fed chair powell has a dual mandate that is domestic and i wonder how much investors are right to read into moves like bank of canada going less than expected or australia going less than expected or bond market moves in the U.K. causing nervousness. Just how much do you think that should factor in? Well, certainly it's going to factor into the economic output. The risk, certainly in Europe, to their economic growth is different in detail than what we have here. The U.S. self-sufficient in energy, Europe reliant on imported energy.

The downturn, the risk of a downturn are more severe there, and yet the actual measured inflation is higher. So we can see the point here, the easy point here is that all central banks are facing similar challenges but with very important differences in detail. The main risk to the U.S. economy is much slower growth outside the U.S. that will influence both demand and the competition for imports in the U.S. market. Right. Well, there's this idea that we won't go into recession if Europe does. Can that really happen?

Yes, of course. There's substantial difference in the underlying sources of the challenges in both economies. Europe faces not just a short-term but a mediumterm challenge, if there's been a step change in the future cost of their energy that is going to have a role in their future competitiveness. In other words, another way of saying it, that the dollar's rise may be temporary and it may be exaggerated, but that's not immediately obvious. It may be a repricing of investors' anticipation of relative economic performance in the future. This is an exceptionally uncertain and complex environment. And as I say, the challenges facing Europe, the challenges facing China, facing Japan are all substantially

different, but they're serious. Well, That's why we turn to you in environments like this, John. Thank you for joining me. Appreciate the commentary. Anytime. It's always a pleasure. Thanks very much. Let's show you what's happening right now. The Dow's down about 100 points. We've recovered a bit. The S&P is down a little more than half a percent. Still, energy is the only sector higher. Communication services and tech are down. You've got the Russell 2000 small caps outperforming today, up two tenths of one percent. I would also note some of the meme stocks are having a good day. AMC is up almost two percent. GameStop up one percent. Nothing like the crazy meme trading up 10, 20 percent. But still on my screen, it's up. After the break,

we'll tell you about the perfect name that's making a big stealth move today And later the former coo of twitter once dubbed twitter's mr. Fix it by wall by the wall street journal Will join us we're going to ask what he makes of elon musk's takeover of the company and some of the proposed Changes to the platform as we had to break check out shares of newell brands the rubbermaid parent Falling to its lowest level since 2020 after a downgrade at Barclays and a price target cut at Morgan Stanley that follows earnings last week that pointed to a decline in sales. We'll be right back. We know most recent SPACs have been less than stellar, but an exception today, we got an imperfect one. It's our stealth mover of the day.

It is called the Perfect Corporation, and it makes apps that allow consumers to virtually try on beauty products. The stock was actually having a good debut after merging with Provident Acquisition Corporation, but gave up all of its gains throughout the session and is now slightly lower. Well, it seemed like everyone was talking about this weekend on Twitter, was Twitter, Elon Musk asking his followers late Sunday if he should bring back Vine, which remember Twitter bought in 2012 before shutting it down in 2016. And Musk pal and advisor Jason Calacanis tweeting a poll to see how much users might pay to be verified on the platform. And then in a new filing today,

Musk has dissolved the nine-person board, leaving him the sole director at Twitter. Joining us now for more is former Twitter COO, Ali Roghani. Ali is currently leading Y Combinators Continuity Fund, left the company a few years ago. I don't even know where to begin because there's news on this developing story at all times

with a new tweet from Musk. What do you make so far of his takeover? Well, it's kind of a fascinating story. You have one of the most prominent communication platforms in the world being taken over by the world's richest man, who also uses the platform and is doing all sorts of attention grabbing and some of controversial things with his platform. And I think time will tell in terms of the changes he makes to the platform, the improvements he makes to the product, and how he's able to turn around the performance of the company and service the huge amount of debt that he's taken on, et cetera. And it'll be

a great story to watch over the next few years. I think the question we're wondering about, and it's a private company now, but obviously it's still a huge business that we follow, is whether he can make it into a better business, right? 90% of Twitter ads, I don't have to tell you, of Twitter revenues are from advertising. What's going to happen to that if there are changes to content moderation as he has implied he wants to do by making it the free speech town hall for the world? Well, I think that whatever changes Elon may have in store for Twitter and other additional monetization streams, whether it's subscription or people paying for verifications or whatever. And there are probably endless number of ways to make

money using the Twitter platform. I think advertising is going to be a significant revenue driver forever. And, you know, whether it's 90% or one day 70%, we'll see. But I think it's going to be a big deal. And for advertisers to want to be active on the platform, it has to kind of be a, you know, a clean, well-lit space, you know, and with clear rules about what's allowed and what's not allowed and what kind of speech is tolerated versus not. And I think it's, you know, it didn't surprise me despite all of the claims that he'd made beforehand that he's now set up a content moderation board. I think he would be smart not to be the face of content moderation globally himself. I think diffusing that responsibility and getting good advice as far as what to do is a smart move. And hopefully it's heading in that direction. But I think advertising is going to

remain critical. Twitter has to be a safe place with rules about what kind of speech is tolerated and not tolerated. And, you know, I'm sure they can amend the rules somewhat from what they are today. But actually, my prediction is it doesn't change a ton. We'll see. You think that what the company has been doing has been satisfactory on that front? I'm not going to say it's been satisfactory, but I think that the rules that they've set up are largely reasonable. And I think my prediction is that the rules that are ultimately set up won't differ markedly from the rules that are set up today. I mean, let's not forget, you know, 10, 12 years ago, Twitter didn't have rules. You know, you could say really anything, you know, and then over time,

we started to see the problems with that, you know, when, you know, people like ISIS were sharing photographs of beheadings on Twitter, you know, and is that free speech? Is that something that we want on the platform? You know, it's not illegal to share a picture of a beheading, but is that something that you want on the platform? And so there are really some extreme cases that led us to create certain rules for what was tolerated or not. And then well after I left, that's really when the political side of things got much more heated. But I think there will be rules and there should be rules. Advertisers and users will both demand them. And, you know, they may be a little bit different than they are today, but my prediction is

I don't think the rules per se are going to differ markedly from what's in place today. It's really interesting. So the heading, obviously, that's the hellscape. And Musk has said he doesn't want it to be a hellscape, but some gray areas, which really shouldn't be around anti-Semitism now, which is really heated up around use of the N-word, which LeBron James was tweeting about this weekend,

hate speech and how you define that. It's hard to, it's such a gray area. Do you think it can be determined by a content moderation panel? I think that's a gray area. Do you think it can be determined by a content moderation panel? I think that's a great question. There are tons of gray areas when it comes to speech and tons of hard decisions to make. It's a hard issue. And the thing that I'm somewhat heartened by is, you know, some of the comments that Elon had made prior to closing the acquisition sort of were sweeping generalizations about

speech and about what he stood for and didn't stand for. And so far, in what the comments he's made to advertisers, setting up a content moderation board, et cetera, there's some indications that he sees it as being a more complicated problem than maybe he was implying previously, which I think is a real positive. I'll also say one other thing. The tone that he brings to the platform himself as a user of the platform is very important. And I think that's one area where I hope it's a bit better. I think he's reacted to certain things. I mean, he's trolled people all the time on Twitter. I think he thinks it's funny or maybe it is. But like the tone he

brings and the tone he sets is important in terms of the kind of norms that the platform has. There are rules and there are norms. And I think that both of them hopefully can be improved over time. And, you know, I think he's an example for how the platform should be used and shouldn't be used. And, you know, again, we'll see how that all evolves. But I do have some concerns in that area. Well, right. He tweeted the conspiracy theory around Paul Pelosi and then erased it this weekend. So, Ali, when you were there, did you look at, I'm sure you guys have been looking at this idea of charging subscriptions for Twitter, whether it's for a blue check mark, which is rumored right now, The Verge had a report on it,

or other drives just for usage. Why could Twitter never do that? And is there an opportunity there for Musk, who appears to be looking into something like that? Well, you know, I was there through 2014, I left about a year after the IPO. And up until that time, the advertising business was absolutely on fire. And up until that time, the advertising business

was absolutely on fire. And, you know, as was our data licensing business. So it wasn't the sort of highest priority item for us to find ways to diversify Twitter's revenue stream. We were trying to catch up to the sort of demand that advertisers had and build out the product suite to make advertisers, you know, very, very happy with using Twitter. That was the period, I would say, until probably 2017, 18, that Twitter was riding a huge wave in advertising. So it's only recently partly driven by macroeconomic conditions and the pullback on digital advertising that the business needs to diversify its revenue stream.

Let's keep in mind, Facebook is several times, many times bigger than Twitter. And it's been sustained by digital advertising almost entirely the whole way. So it's not like there's something wrong or that we can't, you know, the platform can't continue to grow with digital advertising being a major driver. In fact, as I said earlier, I predict that doesn't change. But, you know, look, a new owner, fresh ideas, an amazingly competent human being running the platform now, he should look at everything. But I think at the time when I was there, it wasn't really necessary because, you know, there was just so much headroom as far as the digital advertising revenue stream was concerned. Ali Raghani, thank you for sharing your views on all of this.

It's my pleasure. Appreciate it. My pleasure. Great to see you. Formerly of Twitter, CEO, now at Y Combinator. Still ahead, we'll tell you what's weighing on Apple shares today, which are pulling back after a strong month of gains. And then check out the pot stock, seeing plenty of green today,

with some reports citing comments from Senator Chuck Schumer surrounding the Safe Banking Act. Winners today, including Canopy, Tilray and Kronos all making a big move higher. Look at Canopy up 21.4 percent. They have been big losers, though, we should note over the last year. We'll be right back. Wall Street is buzzing about this weekend's election runoff in Brazil and the impact it could have on emerging markets and your money. Details straight ahead. And be sure to join us virtually tomorrow for CNBC Your Money. Top financial experts discussing how to maximize your finances and invest in a brighter future.

You can just scan the QR code right there on the screen to register still. We'll be right back with the Dow down 40. Some recovery here in the final hour. What is Wall Street buzzing about? Brazil. The country's Bovespa exchange moving slightly higher today while the 10-year bond yield is rising. The currency is actually strengthening against the dollar as well. The EWZ ETF that trades here in the U.S. up nearly 3%. What happened? Luis Ignacio Lula da Silva won the presidential runoff election, beating incumbent President Bolsonaro by less than 2%, super close,

and marking a return to the presidency for Lula, who was leader from 2003 to 2010. Two things investors are watching here closely as to what happens next. First of all, it's not clear whether Bolsonaro will bow out gracefully. He hasn't spoken yet, and he has previously openly talked about refusing to accept the results of the vote. So there's some uncertainty, at least on the democracy front there, potential for unrest. And then on policy, investors did like the pro-business, pro-growth Bolsonaro, who many compared to President Donald Trump.

Lula, on the other hand, is leftist. He's yet to clarify his economic plans and pick his Cabinet members. Look at Petrobras as a battleground example of the two very different policies. Bolsonaro has been moving to privatize it. Lula has called for the opposite, state control, which could put shareholders at risk, as the company has been cutting costs to boost profitability and dividends. But Wall Street notes this morning say there's a good chance that Lula moves to the center, given how deeply divided the country is after the election.

HSBC says use the weakness to add to equity exposure in Brazil, because analysts say there it's cheap. Wells Fargo likes the real starting next year when political risk calms down. And then there's a fiscal plan. Wall Street watching these cabinet selections in the next few days as a proxy for fiscal spending plans by the new government. If they are more centrist, it could suggest spending limitations, even as Lula is vowing to boost social spending. One thing we've all learned from Liz Trust in the UK lately, investors are in charge and there's a limit on spending. Governments need to provide clear, incredible plans in this era of rising rates and raging inflation. Brazil will certainly be one to watch on that front.

When we come back, the top retail analyst on Wall Street, J.P. Morgan's Matt Boss, reveals his core four top retail picks for the holiday season. That story plus fears of an iPhone production cut when we take you inside the Market Zone. We are now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, we've got Steve Kovac here on Apple's move lower and J.P. Morgan's Matt boss on retail stocks. We'll kick it off with the broader market because the

Dow's down about a hundred or so points pulling back on this final trading day of the month nothing extreme S. and P. five hundred. Is lower every sector down except for energy right now Mike Santoli as we close out. Overall pretty strong

month question is what happens next. Yep big question- obviously there's a lot of focus, as you mentioned earlier, on the seasonal patterns. It seems like it would at least keep people from getting too, too negative this time of year, maybe mitigate some of the potential pullbacks, at least for now. I would say today it's at the end of a very strong month. And before a Fed meeting, you'll start to get this market sort of pull themselves back into a balanced footing, which in this case would be trimming back a little bit on stocks. Yields are

inching higher. The dollar is getting a little bit of support. So essentially, it's a little bit of a reversal of all those moves we saw today. But again, we're up something like 8 percent for the month of October in the S&P still. Wanted to point out some other charts for the month of October, which also tell the story. Bitcoin up 3.8% for the month, so not quite as strong of a rebound as the stock market, but clearly catching a bid. Mike, the dollar down half a percent. I think that's probably a big part of the reason why stocks were able to rally. And gold down again.

What is this? Seven months in a row lower for gold. It basically goes down no matter what the market or the dollar is doing lately. I'm just wondering how you're putting all those cross currents together and what the correlations look like. Well, from August 1st, you know, for the next couple of months, real yields, inflation adjusted yields were up a lot. And that really did seem to put gold back on its heels. Bitcoin, I mean, hasn't really been able to find a good source of support until very recently in all of that. So that kind of links up part of it, right? You're going to have a tighter Fed. It's a restrictive

policy. Yields are starting to give some kind of value for longer term bondholders. And then when it comes to the dollar, it really was just obviously taking a breather after an incredibly strong run. And it does just capture everything that we expect between, you know, United States growth differentials versus Europe and the rest of the world. Obviously, we're farther along in the tightening cycle and might go higher than almost anywhere else in the world. So it's all boiled down to the dollar index, at least for now. And that's that's right now below its highs, but not much. That's going to be the key to watch on Wednesday. If you think if you really think that the Fed is going to pause, pull back on its hikes, watch the dollar,

then it would sell off. And if not, then it might go higher because that was the interpretation of the ECB last week that they were going to pare it down a little bit, and the euro got a little bit on that. Let's hit Apple. It's a drag on the Dow and tech stocks following a report that a COVID outbreak in a major Chinese manufacturing plant could reduce iPhone production at that facility by up to 30 percent. Steve Kovach joins us. How could this impact iPhone revenue growth? It's a crucial holiday quarter. And how much stock do you put into this? Yes, Sarah. So this is, by my count, the third report that we've got since the iPhone 14 launched last month that either they're delaying or pulling back on production or cutting production. And so far, none of those reports have panned out because you've got to keep in mind, Jim Cramer and I talked to Tim Cook about this just last week, how complex the supply chain is.

Just because there's a shutdown at one facility or one facility is considering pulling back on production doesn't mean they can't move that production to other parts. And that's kind of been the story with Apple and the supply chain in China and their dependence on China throughout these lockdowns all year. They've been able to shift things around to prioritize iPhone production specifically, and even more so the iPhone 14 Pro line, which is selling better and the demand is much higher for. So it's kind of hard to put too much in this. But at the same time, Sarah, this is the most important facility that makes iPhones. Some people predict it makes up to 50 percent of all iPhones shipped globally. And so if this place does shut down more significantly, that can hurt things. But right now, what China has been doing and Foxconn has been doing has been putting these

people and these workers in a closed loop, meaning they're still working. They're just kind of locked in the facility, which is kind of why we've been hearing these awful stories about people just kind of running away and escaping to get out of these lockdowns, Sarah. I mean, it's just crazy to hear about that. Shanghai Disney as well being locked in. Thank you, Steve Kovach. Apple under a little pressure today. Retail stocks are capping off a solid October.

The XRT retail ETF. Take a look down today. But outperforming the S&P 500 for the month and a surprise turnaround. The department store stocks like Macy's, Nordstrom, Kohl's, they've been carrying the group higher, offsetting weakness from Amazon. But just 55 days until Christmas. Joining me for his holiday forecast, J.P. Morgan's Matt Boss, just ranked number one retail analyst, according to Institutional Investor for the ninth time. Matt, congratulations on that. So what does the top-ranked retail analyst say is the top-ranked retail stock right now? What's your favorite? Thanks, Sarah. Great to be back. So look, we outlined today what we're calling our core four. We're looking for value and convenience. That to me is dollar stores and off-pricers. So dollar general, TJ Maxx would be two top picks there. And then I think across the global brands, it's active and casual. I think it's the largest trend

that will be multi-year out of the pandemic. We think Lululemon between now and year end and into next year, as well as Nike, we think is going to be a turnaround story as we move into 23. You're getting more pushback from clients on those two in particular because you and the street have been bullish on Nike and Lulu for a long time. And lately, both are coming under some pressure. Yeah, look, you know, our work on Lulu is, I think the momentum continues to be there.

I think they have a really nice sweet spot in terms of health and wellness awareness. And now a catalyst on the lifestyle front as people return to work but casualization is now a much larger larger picture trend on nike obviously the exposure the size and scale and their capacity tied to the ocean freight and the category that they operate in put them in a tough spot as the supply chain issues as a result of COVID. I think it'll be a quarter or two in terms of cleaning up this inventory. But on the other side, I think the margin profile here, the two major changes, much greater digital penetration.

They've actually doubled in scale digital penetration at Nike and a much better wholesale footprint as they've cut 50% of their partners. So I think both Nike and Lulu, better companies on the other side, go back to the value convenience. Off-pricers have inventory, and I think others, as we enter next year, will be in a more rational position, which sets up nicely value and convenience. Yeah, I should say Lulu has definitely outperformed. This month, it's up 17.5%. It's only down 16% for the year. Nike's down 44%. Matt, what about the turnaround stories? Because there are no shortage of turnarounds in retail. How do you spot a winner? Yeah, so what we're doing in terms of our

screen for turnaround opportunities as we look to 23, I think you want sectors with larger total addressable markets on the other side, solid management teams, and really idiosyncratic opportunity. So in the dollar stores, I think Dollar Tree with a top management team actually coming on from Dollar General of old, I think sets up very well from a tangible opportunity in 23. I think in the off price space you have Burlington which would be the turnaround growth story and third as you think about across the across the larger picture space in value and convenience five below I think is another beneficiary of disruption. Really quickly what assumption do you make about consumer spending into next year on these stocks? So I think it's going to be a solid holiday for apparel and footwear. We're modeling 5% growth. That actually is up against

18% a year ago. So that's a 23% two-year stack. I think you'll have winners and losers. We're taking a selective stance as we move into next year. I think low-end, look, the demand for low-end workers continues to exceed the supply. So we're not as negative on the low-end look the demand for low-end workers continues to exceed the supply so we're not as negative on the low end as 22 was really the story it's the middle where I think you see you could see some reversion within middle income that's where I think value becomes more important that's why I think you want to stick with value convenience winners off pricers dollar stores and best-in-class global brands all right we've got to leave it there. Matt Boss, thank you for joining me from J.P. Morgan.

Great to be back. Let's go to Mike Santoli now. As we head into the close, Mike, what do you see in the internals? Yes, solidly mixed, I would say, Sarah. Pretty much a little advantage for advancing volume. No big deal. No storyline there. If you look at new highs versus lows, been monitoring this. There were fewer new lows at the October low versus the June low. More new highs on the rebound. It's been neck and neck right here. So I've been keeping an eye on that. The volatility index, it's rebuilt a little bit. That's just a Monday effect mostly. But also, of course, we've got the Fed, we've got the election, we've got the jobs number, lots of reasons for it to stay elevated. Catalyst heavy over the next two weeks.

Mike, as we head into the close, take a look at the Dow. We're going to break a six-week win streak. We're down about 133 points, but it looks like we are going to end the month up 14%. Best monthly performance since January 1976. That is your statistic of the day. S&P 500 going out with a gain of 8% for the month, down three quarters of a percent here on the close. The Nasdaq's gain for the month, about half of that, 4%, lower by 1%. That does it for me on Closing Bell. See you tomorrow, everyone.