Closing Bell - Closing Bell: Stocks Set to Shrug off a Sluggish September? 9/28/23

Episode Date: September 28, 2023

In the face of rising rates, rising oil prices and negative sentiment on the street can stocks brush off this sluggish September and rally? Joe Terranova of Virtus Investment Partners and Nicole Webb of Wealth Enhancement Group give their forecasts. Plus, BlackRock’s Rick Rieder joins live from CNBC’s Delivering Alpha conference with his take on inflation and how to play the bond market. And, an ugly day for Workday. Top analyst Brent Thill breaks down that move and what it might mean for the rest of the cloud space.

Welcome to Closing Bell. I'm Carl Cantania, live at Post 9 of the New York Stock Exchange. Scott Wapner is going to join us shortly from Delivering Alpha with BlackRock's Rick Reeder. We'll get his take on inflation and how to play this bond market right now. But this make or break hour begins with stocks making another attempt to bounce after yesterday's late day comeback. Tech holding pretty strong here. Communication services, materials leading the S&P higher, although off the intraday highs. Which brings us to our talk of the tape. In the face of these rising rates, rising oil, negative sentiment, can stocks brush off this sluggish September and rally into October? Let's bring in Joe Terranova of Virtus Investment Partners, Nicole Webb of Wealth Enhancement Group.

Joe, of course, is a CNBC contributor. It's good to see you guys. Thanks for joining us on an eventful day. Joe, I wonder whether or not you think, given the intraday action today, is yesterday's bounce called into question or not? Well, it's the end of the quarter. So at the end of the quarter, Carl, anything could happen. Just look at oil. Oil, $95 early today, settles 2% lower, significant reversal, because oil was technically overboard.

So there's a lot of dynamics that are playing out in the market. Last couple of days, small caps are back. Small caps have been brutal over the last quarter. So a lot of positioning going on. I think you have to now look forward into Q4 and say to yourself, is there a catalyst ahead of us? What would that catalyst ultimately be? And I think it's earnings. And I think it absolutely is the catalyst that can restore the prevailing bull trend for the equity market.

We need technology, which has seen a lot of earnings revisions higher here as you march towards the end of the quarter. And that's somewhat inconsistent to prior seasons. It's going to be technology that's going to have to lead us back higher to resume the prevailing trend. So it's all about earnings. Do you think we've already passed the period by which we should have been warned preseason? Is that still going on? Without question. Generally, as you move towards the end of September, once you hit Labor Day, you usually bury those negative revisions into the headlines coming back from Labor Day. We didn't see a lot of that. And actually, we've seen positive revisions so far for technology,

somewhat surprising. Yeah. Nicole, I wonder whether positive revision so far for technology. Somewhat surprising. Yeah. Nicole, I wonder whether or not earnings inflect positive. We reset here a better and better setup. Maybe we get lucky on some surprises regarding a strike or a shutdown. And then best seasonality of the year. You're like, I hope so. I'm like, where to start? It is so interesting because when you think about the major indices,

earnings season in October, is it going to be good enough to excite the market? So we got blowout earnings from NVIDIA last quarter. We didn't even see that much movement. Instead, you saw this underlying response from names similar to NVIDIA, maybe to play them up a little. So when we think about technology earnings mid-October, can it carry the major indices into the end of the year? But we still have this distinct bifurcation, 490 other names.

When we look at the index on a whole, when we think about 2024 earnings, just to pick on them a little bit, we were looking at Lululemon earlier today. We see no movement compared to that of Peloton with this partnership rebrand intent. And it's because if you looked at earnings expectations for 2024 for Lululemon, we see the softening of the consumer. We're talking about the stronghold and the stickiness of inflation. We are not pricing in these incremental cuts until now, maybe the back half of 24. If we need earnings to pull us forward, are they really happening? Are we going to hit that 10% year-over-year expectation? Because seven isn't going to be good enough to hold us through. And so how do you reposition then into

the end of the year? Well, I think the earnings catalyst is for the fourth quarter. I think I agree with you. When you look into 2024, you have to see a softening economic environment that's going to call into question when we look three, four quarters out that you'll be able to get the double digit earnings growth. I don't know that you're going to see that. I do think you set up for a little bit of a chase for performance, though, in the fourth quarter, where money managers who have been behind all year, money managers who are generally equally weighted in their strategies are going to look at a lot of the mega caps. And if they have strong earnings and are off to the races once again, I think people will chase them. That could lead, by the way, that could lead to a critical inflection

point in the market. I agree with you so strongly in if you can't beat them, join them might be part of the mentality in Q4. The same time you might see this pickup in purchase into small caps just on a price basis, also corporate bonds. So if we think about we went into this year with these deep recession expectations. So for 18 months now, you've seen CEOs make decisions based on recessionary expectations. And so when we think about moving down even in that investment grade bond sector, all of a sudden you're not thinking about the same credit environment that you're generally thinking of, the surprise or the shock to it. And so when you can pick up yields, coupons clipping at 7 percent and then think about that mark to market performance of an active element in the bond market, next year starts to play out very differently.

And so I think that's, again, where this repositioning might not just go to beat them unless your mandate, of course, is specific to equity. So you're saying best telegraphed recession in a very long time and corporate treasurers have had a lot of time to prep. And same with the consumer. Would you argue that? Because that's the other side of this is that until now, who needs to finance? You've got tons of excess savings. But when that actually dwindles away and they revisit the financial markets, so to speak, financing cars, homes, consumer living, that's when the sting really happens. And I don't think it's the it's the residential real estate that's the big issue, because 90 percent of mortgages are below 5 percent. But to your point, I think you're going to see a lot of people riding bicycles. And obviously, I'm kidding in that sense. But it is the auto loans.

And you're going to see the maturity on a lot of existing auto debt that's going to be very surprised when they go back. To me, the only way, as I said, the economy in 24 is going to weaken. And the other thing that I think is critical for investors and the viewers to think about is maintaining the perspective that you need to position towards quality. Quality as a factor has returned once again. Quality as a factor is outperforming the S&P. So if you want to own corporate debt, you want to stay high up in quality. If you want to own equities, you want to stay high up in quality. And, Carl, I think that's the reason why you've seen all these mega cap technology

consumer discretionary companies year to date outperform is because they're the very nature of what quality is. But you're also seeing some of them sit at these oversold levels for an extended period of time, which is some indication that there's a little bit of wiggle room here. So the flight to quality continues to seem pretty concentrated across Apple, Meta, Alphabet. And so when we see that return to quality also broadening, I think we have a bit more confidence in this run into the end of the year. It is, though, a lot about earnings expectations for next year. And I think this is where there are a lot of headwinds in the fourth quarter. Also, you know, some enthusiasm that one could have because you have such a concentration in these major names. But it's hard to understand exactly where to put money to work today

for next year and beyond. And that's the nature of the consumer, the retail investor, versus those of us who are running a specific strategy or mandate. So living on that consumer side, that's, I think, where you're also going to see some of these technicals not move. And that plays into expectations on the back half of the back quarter of this year. Is any of this conversation relevant until the rate picture kind of moves out of the bull's way? Listen, I think what's going on in the treasury market is less about inflation and more about heavy speculation, first of all. I mean, that's clear to me. It's very easy right now to speculate against bonds.

Being short the treasury market is an easy trade. It's a layup trade. You don't have the foreign buyer demand that you previously had from China and Japan. You've got this increase in supply to fund the deficit, I think $500 billion alone in the last week. You have the Federal Reserve that says, hey, we still think the economy is a little bit too strong. So they're not, to your point, on cuts. They're pushing out the potential for cuts. So it's a layup to me right now to push up against the Treasury market and expect that yields are going to back up. In the near term, that seems like the easy trade. So are you also the view that this move has been largely technical?

It hasn't been mashed by break-evens or inflation products? Absolutely. And I think it's also just the, when you're in this every day, you see the Fed's dilemma. We're at above trend growth. Powell was very straightforward when he said we are going to need a period of below trend growth. And at the same time, we know the reacceleration that will happen at this moment in time if they were to start moving rates lower. That is all indicative of the stronghold of the hire for longer messaging. And also, though, the length of time, the duration we've been talking about the recession has a lot to do with why those of us who speak about this every day talk about the shallowness of this recession.

Because it doesn't have that same shock and awe mentality where we see a credit crisis, where CEOs are shocked and have to lay off. We've actually seen so much incremental movement. And then we saw a lot of multiple expansion in certain areas of the market this year. And so now we have this hyper focus on earnings going into next. That's a hard positioning to perfectly play out for us next year when we're so interested. And I also left out the fact that we're in the middle of QT. So while not an active seller, they are certainly allowing those maturities to roll off the balance sheet. Well, Diamond's been talking about it for a long time, and now we're beginning to figure out exactly why. Joe and Nicole, thank you. Great to see you both.

Let's get to our question of the day this afternoon. We do want to know what will have the biggest impact on the next Fed decision, government shutdown, rising oil prices or PCE inflation data. Just go to CNBC closing bell on X to vote and we'll get you the results later on in the hour. Now, let's get over to CNBC's Delivering Alpha, where Scott Wapner does join us today with BlackRock's Rick Reeder. Hey, Scott. Hey, Carl. Appreciate it very much. Rick sitting right here. Thank you for coming to us right off the stage. I appreciate you being with us. Thanks it very much. Rick sitting right here. Thank you for coming to us right off the stage. I appreciate you being with us. Thanks for having me. So I just saw rates 10 year 459 where it currently sits, but they've been backing up. Obviously, we're going to 5%

on the 10 year. Listen, I think you have we have to get better data. I mean, we've got a core PC print that's going to come out. It's going to be super important. I think that number is probably going to be a softer number. You can't tell with one individual number. And then we're going to get into next week. We're going to get into the payroll report. We're going to get into the JOLTS data that's going to show job openings. Those numbers need to be supportive because the Treasury is issuing so much paper that the markets need to absorb a lot of this paper. So do I think we can back up a little bit from here?

I still think you can back up a bit more. Are we going to see five? I don't know. But I still think you can get a little bit of backup. And then, you know, we're going to get into next year. We're going to be a different, I think, a bit more. Are we going to see five? I don't know. But I still think you can get a little bit of backup. And then, you know, we're going to get in the next year. We're going to be a different, I think, a different paradigm. You think we're close to peaking? I think so. But, you know, you have to buy into the fact that this Fed wants to bolt down, that inflation is going to be durably softer over time. So could they hike another time or more? They could. My sense is

they should be done. But, you know, could you back up a little bit more? I think you could. Oh, this is interesting. So you say, my senses, they should be done. Yeah. Are they done? Listen, I've learned in my career, invest relative to what you think they're going to do, not what you think they should do. I think they should have been done before. Listen, I think they want to. I think the Arthur Burns dynamic is important to them. I think the idea that, gosh, we're going to make sure that employment is not going to pressure service inflation higher. We want to make sure that wages are not going to be excessive. So I think they're going to want to see a little bit of time, and then they're going to watch the data for a period of time.

I mean, the reference you're making is that Powell doesn't want to make the mistakes of the 70s. You take your foot off the gas too soon, and then you're forced to come in with a bigger bazooka, which then puts everything on the table. Correct. And listen, I think today, I mean, the interest rate tool is not nearly as effective as it used to be. I think we're witnessing what happens today. When you move up interest rates, the pressure you put on things like commercial real estate to local banks, and you don't have the same impact on a service oriented economy that like it used to be when it was a hard asset economy. But listen, I think they still believe that tool can be helpful to bring inflation down. You mentioned something a moment ago,

the massive amount of issuance that's coming on the market. Ken Griffin was on the network within the last couple of weeks saying it's a real risk, higher real rates for much longer as a result of the issuance coming in and who are the buyers gonna be? I've heard more people talking about that. You were on the stage in that room over there talking about the same thing. Is that a real risk?

Do people appreciate how high real rates might be for as long as they could be? Listen, I mean, I think, you know, when you actually break down, I mean, you think about, we used to issue, we're issuing 330 billion T-bills a week, a week. By the way, that number's going up. It's going to be 343 billion in the next couple of weeks, and it's going to $373 by the end of the year. We used to issue T-bills at zero or 1%. We're issuing now at 5.5% to buy Treasury bills to clear all this supply. What happens is the government, what's going to eat up all the fiscal spend in the country is going to be, obviously, military spend from a discretionary side, but then the debt service is significant. And by the way, for the next year, nobody's going to run under, no politician's going to run under,

let's bring the debt down. So we're going to be in what is a bit of a challenge. And the cost, the cost of the debt service to the country is going to be significant for the next few years. What's it mean for the markets then? Listen, I think the markets, the technicals in the markets, the equity market can absorb these higher rates. I was talking about it earlier on stage. I don't think people realize we're getting $330 billion a week of Treasury bills. We get this week $134 billion of coupons, almost $500 billion a week.

The equity market, the IPO calendar after Instacart, after ARM, is $20 billion year to date. Year to date. We're getting $500 billion in fixed income, and there's, what, $800 billion of equity buyback today. The technicals and equities are pretty amazing relative to the bond market. So listen, I think the equity market can hold in okay, and I think next year you could still get an 8% to 10% return in equities. Really? Even the fact that you've got...

Even with higher real rates. I think so. But by the way, when you strip out the seven stocks, I know you talk about it all the time, the multiples on equities, people talk about where equity risk premium, you know, your 16 multiple when you take seven stocks out, the earnings yield, while it's relative to tens, it's not that attractive. Relative to history, it's actually not bad for most of the equity markets.

So I think equities will do their job. Like they did this year, probably not. But I think they'll be okay. Are they going to be carried next year, Equities, when I say they buy the same stocks, the mega caps, you say, you know, the equal weight S&P. You look at the small caps. The bears will say that that's not where the the the cheap part of the market is. That's where the problem in the market is. And that shows the overall weakness of the market, not where the opportunity is. So we you know, we debate this all the time. You know, if you take those seven stocks,

you take tech generally, if you actually look at the free cash flow generation and your ability to continue to grow, I actually think those stocks. And by the way, when you break down the equity buyback, a huge amount of the equity buyback comes from these big, the big tech companies. So I think you really need those companies, big tech to continue to do well for the equity market to do what it's going to do. And then you make some decisions. There's some places in equities, health care, defense, where valuations are pretty reasonable on what are stable businesses, great ROE, that I still think those will do well. But I think you still need those big tech companies, particularly in the era we're going to spend.

The CapEx spend in this country, AI and otherwise, is in and around technology. And you think those stocks, technology specifically, can continue to go up at the same time that rates do? So, like I say, I don't think rates are going much higher than here. But I mean, even if they stay near here, NASDAQ's been weak as they've backed up. Yes, I think they continue to do well because the amount of cash flow they're creating. And again, you get in that technical technical condition there's actually just not that much sitting to think about I talked about the equity buyback if you think about

you want to run a balanced portfolio today you can build a fixed income portfolio with an awful lot of yield and then chip away at some equities and there's just you know the technicals will continue to support it what do you think of energy the oil you know 94 bucks in the neighborhood yeah we're talking about a hundred again what do you think of energy? With oil, you know, 94 bucks in the neighborhood. People talking about 100 again. What do you think? Yeah, my sense is we're in and about this range. My sense is we're probably getting close

to the peak in energy. Some of those stocks were pretty reasonable. I actually like some of the refiners, the service companies are actually pretty reasonable in a portfolio. And you're trading at multiples that are not terribly high, even if you assume that energy is going to come down

from where it trades at. Those valuations are pretty reasonable see people look at you generally speaking as a fixed income person but you're head of the global allocation team yeah which is why you think so hard and speak so smartly about equities um as well um i don't know when are the first rate cuts come so i think they got it they got it. Steve Leisman says something I think is dead right. I think the Fed's in no mood to do it anytime soon. I think you've got to see some durably lower inflation as well as start to see some pressure on unemployment. And then I think they're going to do in the second half of the year. And the thing that he said that I think is right, if inflation, which we think is right, is going to come down,

we think core PCE by the beginning of the year is going to be under three. Let's say you've got a Fed funds rate that is in and around five and a half, for argument's sake. You've got real rates. If the economy's slowing, as I think it is, and inflation is moderating, that real rate is pretty darn restrictive. To just get to what would be a normal restrictive real rate, you have to start bringing the rate down. And I think that's, and Chair Powell talked about, his focus is on real rates. If that is right, which I believe is right, they're going to have to start bringing that rate down to be sympathetic to where inflation is next year. Recession or no?

So I think we're slowing. For the first time, I actually think you're seeing a slowdown. But boy, when you add up all the pieces of the economy you look at the spend we're seeing on the infrastructure you take capex you take consumer spend albeit slowing listen could we have a technical recession after tremendous nominal gdp for three years it's possible but i don't think it's going like you're going to see anything deep you know it's always interesting when people for months we're talking about we're going into recession it's unequivocal we're going to recession when you break out the component parts and add it up and say gosh it's pretty darn hard

for the u.s economy without some exogenous shock to have that sort of sort of draw down particularly when you've got savings in this country and deleveraging that's taken place over the last few years you can be you know that confident about that comment with the lag effect still so unknown so i think the interest rate i know i've talked about the interest rate tool is unbelievably blunt. And what it gets at, when you lift interest rates as much, it gets at commercial real estate, gets at local banks, it gets at what you're seeing today, the lower income strata in the country, which is part of why I think the Fed should stop. But actually, if you look at the other parts of the economy, 70% service-oriented economy. It's not like 30 years ago we had a hard asset financed economy.

The big companies that spend on CapEx are the big tech companies that are free cash flow positive, don't need to borrow. Banks, large banks are asset liability matched. People have locked in their mortgages. When you lift the interest rate, it gets at only a targeted part of the economy and actually doesn't get at much of the economy. Until you get, you know, you keep moving, it'll have, I'm not saying it won't have any effect, but it's so blunt as a tool relative to what it was years ago. You think about companies used to borrow in the commercial paperwork on the front end and finance M&A and capital expenditure. Now they term out, now they fund out the yield curve. So it just doesn't have the same impact

that it used to. So yeah, I think the economy can work through it. I think the last time I had you on was when you guys announced the flexible income ETF, the BINC, B-I-N-C. We've needed our BINC. We did the BINC a little bit last year in the stock market. Yeah, so I was going to bring it up. We launched this ETF. We're creating 7% yield. And I've been doing this for 36 years. I hate saying that in the public. But I've been doing this 36 years. You don't have to take a lot of interest rate you don't have risk you don't have to take a lot of credit risk and you can create a seven percent return by buying investment grade credit agency mortgages using the front end of the yield curve pretty attractive i mean it's pretty attractive you've never really had that before you used to have to buy emerging

markets high yields to get four or five percent you can get get a seven now. And so people think about their portfolio. I'm going to own equities. I'm going to own private credit. I'm going to own other things. Boy, if you can get a pretty safe six and a half to seven, like it's pretty good for fixed income. For those who say, you know, reach for duration. Now that's the best play. You say not so much short, much shorter end. Yeah. I mean, we've been extending out to the three to five year point of the yield curve because when the Fed starts moving, that'll be your fulcrum. The curve will steepen out. Yield curve will steepen out. You can extend a little bit. But listen, to lock in rates today when you get this much supply of Treasury paper coming and you've got a Fed that's

in no mood to start cutting today. I don't think we're in any race today. I appreciate your time very much. Good catching up with you, Rick Reeder here delivering Alpha. Carl, I'll send it back to you. Always good, Scott. Thank you. That's our Scott Wapner. By the way, do not miss Scott's sit down with Pershing Square's Bill Ackman. You can catch that live on Overtime this afternoon, 4.15 Eastern time. We are following a developing story out of Washington today. Emily Wilkins is here with that. Hey, Emily. Hi, Carl. Well, of course, the whole Congress is really trying to figure out how to potentially avert a shutdown that is now scheduled to start on midnight on October 1st. Yesterday, you heard House Speaker Kevin McCarthy say that Republicans need to have some measure on border security be attached to a stopgap bill

to prevent that shutdown. And the Senate is starting to listen. You have members today that are beginning to discuss adding an amendment to the Senate's bill that would address some policies over border security. Senator John Cornyn, after having a small meeting with a couple of his Republican colleagues on the potential change, came out and told reporters that what they're focused on is who is basically let into the U.S. You know, a lot of immigrants will come up to the southern border. They'll be processed and then they're allowed to go into the U.S., some of them to await trials and court dates to see if they can be granted asylum. That is one big area that Republicans think that's of concern to them and that they're

considering adding to the CR. But, but, but, but it has to get Democratic buy-in. That is one thing that senators were very clear about. They don't want to have a government shutdown. They want to be able to move their bill through the Senate and through the House. And at this point, it's just not clear if that's going to be happening, but it's certainly something that's now being considered. We will see how it moves the needle across the hall, if at all. Emily, thanks. Emily Wilkins joining us in D.C. today. We're just getting started. Coming up next, Franklin Templeton CEO Jenny Johnson will join us live from Delivering Alpha. We'll talk about her outlook for the economy, the Fed, and where stocks may head from here.

We're live at the New York Stock Exchange, close to session highs with yields down across the curve. You're watching Closing Bell on CNBC. Welcome back. 33 minutes left in the trading day. Let's get a check on some of the top stocks to watch as we go into the close. Christina Parts of Nevelos is here with that. Hi, Christina. Hi, Carl. Well, CarMax is having its worst day in a year after a profit miss from weaker used car demand. Revenue also fell more than 13 percent from last year as the company saw, quote, persistent widespread pressures across its industry. You can see shares are down 12.5% right now. Shares of chipmaker AMD, though, are up about 5% today after Microsoft chief

technology officer shared that Microsoft was working with AMD and quote, they're making compelling GPU offerings and will become more important in the marketplace in the coming years. He made these comments at a code conference just last night. AMD's new AI GPU chips are set to launch in December as an alternative to NVIDIA's GPUs. Shares up 5%. Definitely helping out tech today, Christina. Thank you. Stocks are trying to get back to session highs this morning. NASDAQ's up more than 1%. Joining us ahead of her panel at Delivering Alpha today is Jenny Johnson, president and CEO of Franklin Templeton. Jenny, it's great to have you. Thanks for the time. Thanks for having me here. I know your view is that the markets may have overdid it

with the soft landing chatter earlier in the year. That is the the financial laws of gravity still apply, right? Yes, I do. But I do think we're, you know, I think the equity markets right now is kind of a bond story, right? You know, we've seen the 10 year at, you know, 4.6. I think it's kind of an indication that people think it's not up and then down, it's kind of up in a plateau. And if, you know, the cost of cash becomes more expensive and equity markets represent future earnings, I think, you know, we were due for a little bit of a correction in the market and some volatility. Right. If corporates have had time, though, to adjust to that coming wall and if consumer balance sheets have been able to pare down some debt, where do you think the stresses will appear to the degree we get them?

Well, I think that, first of all, you know, I do think we are in for a soft landing. I think this is being managed reasonably well. But I think actually that the 10-year may reflect a longer-term story, which is just the story of the massive debt that we have. You know, if you look back in 2007, I think it was we had about nine trillion in debt. Now we're over 30 trillion in debt and about 25 trillion of that has to be funded by, well, the Fed owns 25 percent of it. Japan is the largest foreign holder of U.S. treasuries, and that's 1.1 trillion. You know, and this year's deficit is going from last year's

$1 trillion to $2 trillion. So that gets added to our debt, and that has to be financed. And so you've got to make sure that there's enough buyers out there. Japan is seeing inflation, so maybe if rates start to increase, maybe they won't buy as much treasury. We've already heard the story of China being a little bit softer. So they're not likely to increase. And I think that that could potentially have, you know, just if you have a lot of supply of treasury and not enough demand, you're going to see prices go down and yields go up.

Yeah, the supply, demand, and balance, definitely a story for us lately. I do wonder how you view client interest in stocks versus, say, alternatives, which I know have been a big priority for you, private equity, secondaries, infrastructure, real estate. How is that competing with what might be a classic return to stocks when the picture got more benign? First of all, the one thing that holds true at all times is people should have a diversified portfolio. I think anytime you get away from that, that's where people get in trouble. But what I like now is, first of all, you are actually getting paid to be in the fixed income market. And, you know, whether it's high yield, that's 9 percent, or if you could actually withstand the illiquidity of

private credit, you can get better credits at anywhere from 11.5%, 12.5%. That's like an equity yield. So that's why the bar for equities has increased. Love secondaries. You've had just, again, a supply and demand issue, which is you had $6 trillion deployed in private equity and only about $150 billion deployed in secondaries. And you're sitting there with LPs who are over-allocated into these markets for a variety of reasons. And they need to be able to get some of it out of their current investment portfolio to make room for new cash calls or capital calls. And the way they do that is they go to secondary providers like Lexington Partners, who then buys it at a discount.

And they're seeing some of the best discounts they've seen in their history. And again, that's not a reflection of the quality of the assets. It's really a reflection of not enough secondary managers out there. Right. There's also the ongoing debate about whether or not alternatives have been democratized enough for the average investor to understand whether education efforts are out there, whether they're just easy enough to get in and out of? So they are illiquid. That is a fact. And it's great if you're an institution and you can deal with the illiquidity. But there are excess returns in the alternatives market. It's an illiquidity premium. And it's important. And I make this akin to when my grandfather got in the mutual fund business,

the average investor couldn't have the excess returns of the equity markets. They didn't have access to that until people came up with a mutual fund. Well, we're at a very similar inflection point with the alternatives markets, where we've seen more and more companies wait longer to go public. So the private equity markets have grown. Banks aren't lending like they used to, so private credit has grown. And those excess returns are only captured by really the wealthy. So we have to think about creative ways to responsibly bring that to the average investor. And I think there's some interesting things that we can do, but it really requires education.

It's also why I'm a big believer that people should use financial advisors because they have to understand the risk of illiquidity. Right. Well, we're talking about it right now on CNBC. That is that is a start. Jenny, enjoy the conference. Appreciate it very much. Thank you. Jenny Johnson, Franklin Templeton. Thank you. Still to come today, Workday stock is down, down nearly 9 percent. In fact, a top analyst, Brent Thill, is here to break down that move. Talk about what it means for the rest of the cloud space. That's coming up after the break. And as CNBC celebrates Hispanic heritage, we are sharing the stories of influential Hispanic business leaders with you. This is Shopify's general counsel, Jess Hertz.

Given that it's Hispanic Heritage Month, one of my most profound mentors was Justice Sotomayor. I was able to clerk for her when I graduated law school when she was on the Second Circuit and I remember all that she taught me not only from a academic how to be a good lawyer standpoint but from a human empathy standpoint and really paying it forward is an important part of how we all partake in a community. Shares and workday sinking today after management lowered its outlook for subscription revenue growth. Our next guest is staying pretty bullish on the name and says investors should consider

buying the dip. Let's bring in Brent Phil of Jefferies. Talk about the stock, Brent, which kind of wiped out all the summer's gains. It sounds like you're pretty confident in management's response, though. Yeah, Carl, this is a great franchise. They gave conservative guidance, and we think the fundamental position of Workday is in a great spot. You have a new CEO, Carl Eschenbach, and a new CFO, Zane Rowe, and I call them the two best co-pilots you could have. Carl is one of the most inspirational leaders in software. Zane was the CFO of United Airlines, worked in the airline industry. He knows how to navigate turbulence. He did set the guidance conservative, but we think it's a bar that he can clear. And this is exactly what you would do as a new management team.

If you and I started at Workday, we'd set the numbers low so that we can clear the bar. So it's just a classic case of a new team coming in, want to ensure the bar is low. We think, again, it's basically an oligopoly between SAP, Oracle, and Workday. They're executing very well, and we still believe the stock can grind to $275 a share. So we're buyers on this turbulence. $275. We got a bounce right on the 200-day here at $202. Does it call into question any resilience in enterprise software? Are you on the lookout now for tape bombs going into the earnings season? I think overall demand's pretty good. We had the AI hype cycle, and you had stocks sell off.

The IGV is off 7% off of its high this year. That's the software index, the IGV. And we think the AI hype got a little too strong, and I think reality has settled in that AI will be a slow takeoff, not a quick takeoff in software. Like we've seen in semis, it's been a slow takeoff, not a quick takeoff in software. Like we've seen in semis, it's been a fast takeoff there. It'll be a slow, gradual approach into this, into 24. So we think the setup for software is looking good. We're going into the seasonally strong fourth quarter. Overall demand looks like things are bouncing back. We're at Intuit's analyst day

to day, who it's talking about a more resilient, small, mid-sized customer, given the rate hikes that we saw last year. So everything we're seeing in our work is suggesting things are stable. Valuations have come off. The AI hype has come off the top. It feels like a pretty good setup for the group. That's interesting. I keep thinking back to McDermott's comment earlier in the year at SAP about elongated sales cycles that got us all worried for a moment.

You don't think we actually revert to that period of worry, do you? Not at this point. I mean, I think that a lot of the rate concerns and a lot of the jitters we saw at the beginning of the year, we've worn through that. I think it's just, you know, Bill McDermott's a great executor, one of the best guys in the field. Like he can cut through that. And I think a lot of software companies are realizing how to get through some of these hurdles. And so I never, never say never in terms of, hey, could we see another leg down here? It feels from, again, everything we're seeing, including real-time data out of, you know, the number one SMB player. Intuit,

they're saying the small and mid-sized customers are stable. The enterprise demand signals look pretty good. So it feels good. So I think if we're going to see an issue in software, it's probably going to be more execution-related than macro-related at this point. Again, it depends on where rates go. If rates keep going higher, we may have an issue. But right now, we don't see that in the data that we're looking at. Yeah, definitely opened some eyes today. We'll keep our eye on it with your help, Brent. Thanks for the time. Brent Thill talking some workday this afternoon. Still to come, we're going to track the biggest movers as we go into the close.

Christina Partsonevolo standing by with that. Christina. Well, Carl, the meme king is back in the spotlight, and one chipmaker's recovery is taking longer than expected. Both those stories next. Just about 15 minutes till the closing bell. Let's get back to Christina Parts of Nevelos for a look at some key stocks to watch, Christina. Well, let's talk about Micron. Although off earlier lows, the shares are still down about 4% after a mixed Q4 earnings report. The memory chip maker has called a bottom for memory prices, but the road to recovery is moving slower than anticipated. On yesterday's earnings call, I was listening in.

Management said they still need inventory levels to come down. They are still going to be impacted low double digits by a ban in China, and they do anticipate free cash flow to remain negative until the second half of the year. Chewy co-founder Ryan Cohen, also colloquially known as the Mean King, is taking over as CEO of GameStop. He's no stranger to GameStop. He already holds a 12% stake in the firm and was executive chairman. In a statement from the company, they said that Ryan Cohen will not be taking a salary.

Shares are down 1.5%. Carl? All right, Christina, thank you very much. Last chance to weigh in on our question of the day. We asked you what will have the biggest impact on the next Fed decision, government shutdown, rising oil prices, or simple PCE inflation data. Go to CNBC Closing Bell on X,

and we're going to get you the results after this break. Let's get the results of our question of the day. We asked you what will have the biggest impact on the next Fed decision. The majority of you did say PCE inflation data. Interesting debate as to whether or not the Fed looks through oil prices. And of course, we're going to get that data on PCE tomorrow morning, one of the most important prints of the week. Coming up next, your earnings setup. Nike reports in just a few moments. We'll get you a rundown of what to watch when those numbers hit in overtime

when we take you inside the Market Zone. We're now in the closing bell Market Zone. Our senior markets commentator, Mike Santoli, is here to break down these crucial moments of the trading day. We're going to react to altimeters. Brad Gerstner saying that Google has blown the lead in the race for AI dominance. And Courtney Reagan shares what she's watching when Nike reports earnings in overtime today. Speaking of which, Court, we talked earlier this morning about how many different pictures Nike needs to give us, whether it's the consumer here, China or something else. Yeah, I think we want to hear a little bit of everything, right?

We always want to hear about everything. Expectations, though, I think overall are pretty muted going into the report. It's the fiscal first quarter we're going to hear about here today. And analysts point to a choppy China recovery, lower apparel spending in China as well. Those are continued concerns. Remember, China makes us somewhere up between 15, 17 percent of Nike sales, but over 20 percent of profits. And then there's also worry about conservative orders from wholesale partners that are still working to control their inventory and prepare for potentially lower consumer spending here in

the U.S. to investors, though, also watching margins. You might remember last quarter, Carl, profitability was pressured by higher product and freight costs and higher markdowns. Currency fluctuations also could have an impact on the quarter. The dollar was a tailwind in the beginning of the quarter, but then a headwind for the second half. If they give guidance, it's usually going to be on the call. So we'll have to stick around for after the report to get a little more details there. We talked all week long, Courtney, about this survey over at Jeffries about those with student loan debt and how they're being cautious about spending going into holiday. And they did cut Foot Locker at the time.

And on a relative basis, they were like, you got to look to the TJXs and the Walmarts of the world. Yeah, absolutely. I mean, when you look at that survey, I think it was something like 54% said that apparel would be one of the top things that they would cut. And then somewhere around 50 percent said that footwear would be next. And so you think about so many retailers that sell those product categories and who potentially could be hurt the most. And then if we're also seeing some potential continued weakness or at least concern out of what's going on with Nike's business. And you know that about 64% of what Foot Locker sells is Nike. You've got two cross-currents going on there for Foot Locker or a retailer that's selling all sorts of apparel and footwear

and then a brand specifically that is not as strong right now as it has been in the past. Costco, I know, was earlier in the week, but they did give us some good color on the cadence of consumers' mindset. They talked about Christmas' mindset. They talked about Christmas already underway. You talked about your own shopping getting underway. I just wonder whether or not that fits with some of the survey data that we've seen, the Deloitte numbers looking at maybe not as much growth this holiday as we've seen in years past. Yeah, absolutely. And I think we all talk about inflation, and inflation certainly still plays a part in that, both in

sort of what we're going to see for those total numbers, and you know inflation is going to be a part of it. Suppose sales rise, they have to rise above the level of inflation. That's key, but also what it means for overall consumer spending and how much we're willing to spend. And I think what consumers say in those surveys at the beginning of the season and then what they actually end up doing can sometimes be two very different things. I think not everyone is like me and has already started holiday shopping here in August and September

when they're surveyed. And perhaps things can change a little bit in the months to come. But I think overall, there is definitely more caution going into this season just because of all the unknowns we've been talking about all day, all week, all month from the student loans, of course, the still rising interest rate environment that we're sitting in and just all of the other pressures that consumers, frankly, have really fought through for years now. And I think at some point you might just say enough is enough and there will be a limit to that discretionary spending. Court, we'll see what happens. Obviously, gas prices, employment, so many other variables affecting the consumer mindset right now. We'll

see what Nike says in a few minutes, Courtney Reagan. Let's get to Mike Santoli. Mike, we'll talk about Alpha in a moment, but I do want to know whether or not holding yesterday's bounds, 42-38, we get PCE tomorrow, yields giving us some cover today? A little bit of relief. The pressure is off, obviously, from the bond market. I do think that it's still tentative.

We certainly knew we were very oversold coming into this period. We know the seasonals kind of get worse before they get better, probably. I do think, though, that we're able to kind of mark our fears to market when you get some of this economic data. So weekly claims coming in, GDP revision, nothing radical. You had the economy you thought you had. And as long as we don't have that kind of indiscriminate, messy sell-off in bonds, we can find our levels. Though we're still below those August lows. So there's work to do. I think until you get above 4,400 on the S&P, nobody's

necessarily going to say it's about to be believed. Some of the bull bear sentiment of survey data today, Mike Bull's lowest since March. I wonder, do you feel like that was reflected today at the conference? Is risk aversion really the primary theme that you heard today? I would say in general, people think there probably are other shoes to drop, whether from some of the tumult in the credit markets, whether it's from the lagged effects of what's going to hit the economy. But almost universally, though, people are kind of using that presumption as an anticipation to pounce. So there is a sense out there that the world is giving you more opportunities in the way of safe yield that lets you take risks in other interesting areas and that the markets in general have perhaps become a little bit maybe more difficult but more

interesting in terms of trying to pick your spots. In terms of sectors, Mike, that are doing well this afternoon, consumer discretionary is up one, materials up one. It kind of reminds you of the story that some had hoped to see play out, and that is that other elements of the S&P would make up for maybe artificial intelligence sentiment topping? Yeah, there's no doubt about it. And I do think that some of the hard hit areas when you did have this rate scare, some of the cyclical groups did give up a lot of the outperformance, but they haven't really kind of unwound their advantage relative to super defensive sectors. So I do think it's reassuring.

Semis, of course, another story out there you'd like to see as a risk appetite gauge. Core PCE tomorrow might be one of those things that can be a trigger one way or the other. I do think that we're now back in a more comfortable zone of evaluating the data as opposed to just worrying that people are just selling off their bonds so fast. Mike, glad we had a chance to talk before the close. Mike Santoli at Delivering Alpha as we finish out the session with a gallop about 123. S&P, 10 at close, above 4,300. We're just about there. VIX below 18. That does it for Closing Bell. Let's get to overtime. Morgan Flinnan and John Ford.