Closing Bell - Closing Bell: Stocks Shrug Off Hotter CPI Print 9/13/23

Episode Date: September 13, 2023

Why have stocks been able to largely brush off today’s CPI? And what does it say – if anything – about where your money might go from here? All star panel of Alicia Levine of BNY Mellon, Marci McGregor of BofA Merrill Lynch and Citi’s Kristen Bitterly give their takes. Plus, King Lip is seeing some serious upside in tech… despite the sector’s rough month. He explains why. And Schwab’s Kevin Gordon is breaking down his rate hike forecast. 

Welcome to Closing Bell. I'm Scott Wapner live from Post 9 right here at the New York Stock Exchange. This make or break hour begins. Well, stocks are largely hanging in there, but we've had a lot of volatility just within the last 15 minutes. So it's going to be a wild ride over this final hour of trade. All of this coming, of course, after that slightly hotter than expected read on inflation. There is your scorecard with 60 minutes to go. Don't look away, though, because it could literally change at any moment. The Dow, well, it dipped lower within the last hour. It was down more than 100 a moment ago, so it's bouncing pretty heavily right now. You see the S&P and the Nasdaq are still in the green.

Nasdaq's the outperformer. Nvidia, Microsoft, Alphabet, Amazon are all higher. The notable exception, well, it's the same old story. Apple, got to show you that one because it's down again today. And that's one day after its big iPhone event. The shares are off nearly, well, six percent this month alone. Actually, now it's seven percent as those shares continue to slide in this final hour of trade yields. They're mostly lower, certainly from where they were earlier this morning after CPI. It's probably helping the tech trade a bit. And it is a bit of a defensive day as well today. Utilities are leading in terms

of what's happening with sectors. We're watching the Russell 2. Small caps are underperforming in a big way of late. So we'll watch that over this final hour. There's your loss there about 1 percent. It does bring us to our talk of the tape. Why stocks have been able to largely brush off today's CPI, if in fact that's what they're doing, and what it says, if anything, about where your money might go from here. Let's ask Alicia Levine of BNY Mellon Wealth Management here at Post 9. So let's caveat all this by saying, well, it's been a little bit wild in the, you know, five or 10 minutes that we've just been sitting here. But for most of the day, we've been able to just get beyond this slightly hotter than expected CPI. Why?

Because it was ultimately expected that you were going to have a hotter top line and and the core was going to come in better and for the first time in 12 months core grew slower than the top line and so that was largely expected having said that it was not a terrific print for the fed and it just does raise the question if you get another one like this then does the fed come back into the picture? But ultimately, the market is still at 40 percent chance of a hike in November. So that hasn't fundamentally changed. And with that picture not changing, the market can hang in there. I mean, this was the thing we were all waiting for since Labor Day, this print right here. Then we have to

get through PPI tomorrow and some of the other prints going forward. You'll obviously get another inflation read before the Fed meets again. As you might know, I spoke with Jeffrey Gundlach out in California yesterday in which he said this is it. He doesn't think the Fed's going to go again. Listen. I think they're done. I think that we have enough economic weakness. I think the one thing that they need to change to be done is they need the core PCE to drop below four. It's been at four to four and a half for about two, two and a half years. And that's the one inflation indicator that is just sideways.

All right. So that's gun luck. What if they are done? I mean, does that change your outlook for stocks if, in fact, they don't even do another one in November? It doesn't change our outlook because we actually, our estimate is that they are done here. So even if you come in a little bit higher, we just think that the Fed holds for much longer at this level and doesn't hike further. We are there anyway. I think that the issue really is what's going on with yields,

less on the short end, but on the longer end. Since I've been on, we've seen that 10-year really take off, and that's where the market has really struggled to move higher and is really consolidating here underneath that 4,500 range, which makes sense with yields higher. One of the reasons that has been discussed today as to why the market was largely hanging in there. You know, certainly rates are lower, but the market still continues to believe that earnings have troughed and that the story is is really going to change. That has to happen or stocks are probably mispriced. Correct.

Right. Because we're right now almost at 19 times 4 or 12 months, and that's with earnings ticking up ever higher. So we troughed several months ago. We're moving higher into the end of 23 and into the end of 24. That has to happen to keep the market going. Let's talk about the real economy. The real economy, as we've spoken about, is really exceeding everybody's expectations. And 15 months, 18 months after the first rate hike, we're still at 3.8 percent unemployment with wages growing over 4 percent.

That's extraordinary. I think nobody would have thought that. And I think you have to go back to the playbook of how we think about how rates affect the economy here. So we're hanging in there. There is some question on housing, whether we get, you know, if we have housing prices move up again, what does that do to activity? Because that's really held in as well. What if we're actually, as Gunlock suggested, that we're weaker than people want to believe? It's just taken longer to start showing up. But you're going to start, in his mind, you're

already seeing some of the weakness show up. You know, there's been some really squirrelly consumer-related reports out of the last earnings season. I mean, you could start to build a case if you wanted to that the consumer, in fact, after hanging in for so long and so strong, is actually weakening now. So I think that is the case, actually. The excess savings are largely gone by now. It took a good 18 months from the last of the stimulus on the child tax credit to finally work its way through the system. So on some of the consumer and the discretionary reports, you did see that staples are hanging in better. That's exactly what you would expect in a slowdown. Student debt being repaid, that's going to take you know 380 dollars on average a month

out of spending so that will slow things out as well i'm not sure it's fatal here i think that there's enough activity and clearly the hiring market is still so strong and people are still getting jobs you can you know you have unions out there asking for 35 wage increases obviously we are not having a weak labor market if unions can be asking for this. Let me ask you that then, since you since you went there, the auto strike possibility. Right. That's a wild card, really. And what that could mean for the economy, something long, prolonged. How should we view that as a as a risk to this story that we're trying to build? So I think there are three risks here. You have oil prices, really unknown, right?

Unknown, the auto strike, and of course, the government shutdown. Those are the three things that are not embedded in the fundamental analysis that could be negative. On the auto strike, I think if it lasts four to six weeks, you can recover the activity on the other side of that. But if it goes on longer, then you really wind up hitting growth numbers and you wind up hitting GDP going forward. It has to be short. All right. Well, let's bring in Marcy McGregor now of Bank of America, Merrill Lynch and Kristen Bitterly of Citi Global Wealth. Ladies, good to see you as well. So, Kristen, I'll bring you in.

What do you make of what we got today with the CPI? You know, market not falling out of bed. Rates didn't shoot to the moon. What do we take away from that? It was really interesting because the reaction this morning was quite muted to just echo your comments earlier. And I think that has to do with a couple of things. First of all, the positioning coming into this, there wasn't a lot of implied volatility around this particular event where the majority of that is, is really around FOMC next week. And so there wasn't a lot of positioning coming into this day. The second thing is when you look through to the data

and you actually parse through the various components of CPI, what you see is that shelter came down. And I think the market actually viewed that as a dovish signal. And then really the reason for any of the increases, whether it was airfares or headline inflation, was due to energy prices. And so when you look through to that, I think the overall trajectory was actually slightly dovish, which is why you saw equities hold in there this morning and certainly for the majority of the day. So do you agree then, Kristen, that the Fed's done? I mean, if you're taking what you got today as dovish, you heard Gunlock say, I think they're done. Alicia's modeling in done. What about you?

I think, look, whether we're done or we have one more 25 basis point hike in November, the Fed is always very adamant that they're going to be data dependent. But I think it's really that difference. Are we done here or do we have one more 25 basis point hike? I think the major debate on the table right now is really for how long? Is it higher for longer and how long are we going to hold these rates, which does impact your overall portfolio positioning, both from a fixed income standpoint, as well as where you want to be from an equity standpoint. So whether it's done here or 25 basis points, the positioning is really around how long we're going to hold these rates for. You know, Marcy, I thought that I think I heard Leisman, Steve Leisman, of course, our senior economics reporter, raise an interesting point here that, you know,

you have to believe that the Fed wants to be done, that they'd like to really lean on on being patient here. And no one expects them really to do anything next week. But that if they have to do something in November, that it might be more than one coming down the pike, that if they feel the need that they have to do something again, it's going to mean that inflation has taken a turn perhaps higher than it even maybe ticked today with that next inflation read. What's the risk there, do you think? Well, if you look back, history actually tells us inflationary periods usually have more than one peak to inflation. So that won't really surprise me. When I look at today's CPI,

we are making progress on the core if you look at the three and six month trend there. But I'm a little skeptical about whether we can get back to the Fed's 2% target without some slack in the labor market. We're seeing bleeding indicators of the labor market start to normalize, But I think you need a little bit of slack here. And clearly, wages are still growing. Our view is that there's likely one more rate hike in the hopper for November. But I agree. I think the big question is, how long does the Fed hold tight? I don't think you get a cut until early next summer. Yeah, Kristen, it's interesting. I looked at the notes that you gave our producers today where you say cash is king. So that implies that you're rather defensive on the market here and you don't expect anything to happen in the stock market much, much, much at all between now and the end of the year that you want to stay in cash.

No, I do not want to stay in cash. However, when I'm adding my equity positions, I want to look at cash on balance sheet. And so our positioning is actually very well diversified. We like fixed income and we like a balanced approach in terms of taking advantage of some of the short term yields, as well as extending duration out about five years to really lock in some of these rates. But the cash comment was about what is going to drive equity market returns. And if you look, there's about 10 companies that are responsible for 25 percent of the free cash flow generation of the entirety of the U.S. market. And so one of the things that's been confusing this year is when you look at the Magnificent Seven, the top 10 stocks, really growth stocks, when you look at their ratios of cash on balance sheet to debt is around 53%,

which positions them quite well compared to even cyclicals or defensives that are significantly less than half of that positioning. So you want the companies that are going to be able to withstand higher for longer, or if we extend out into the full year, you want them to be positioned to be able to grow in these environments. Well, Alicia, that's exactly why people have been going to those stocks. On the top of the list of why, you know, you've been people have been gravitating towards mega cap tech, the balance sheets. Right. They've got the best balance. That's why they're viewed as defensive stocks in many ways. The amount of cash they have on hand on the balance sheet. Right. And they don't have to borrow. One of the reasons. It's one of the reasons they don't have to borrow. They can grow without it. They can fund their growth. And that is exactly the reason that everybody poured into them, besides the fact also that they'd sold off so much last year.

That's exactly right. I mean, we, too, feel that this is an excellent time actually to go a little bit out on the curve on fixed income as well. We are also neutral on equities. We like thematic investing here, actually, because we think there's going to be differential growth going forward and we want our clients to be taking advantage of that. So, Marcy, your overweight treasuries, your neutral equities, when does that dynamic change? What has to happen for that dynamic to change? Because ultimately, that's going to decide whether the stock market has any sort of real strength over a longer period of time. You have to have cash have cash cash equivalents bonds not be as

attractive as stocks well when i look at this market clearly the momentum has been fading everywhere but energy right energy is the the technical envy of this market um which i think is healthy right this market is digesting the gains from the first seven months of the year near term i actually would point to cash and the record level sitting in money market funds, whereas sentiment is improving a little bit. It's still neutral in our work. So that cash sitting in money markets could actually provide a near term boost, call it between now and year end. Big picture, you need a Fed pausing. You need earnings to turn around. And I would argue that you really need the hard landing scenario kind of off the table which I think it

largely is. To get a sustained uptrend as we look into twenty four but it's all about earnings. Markets are going to look ahead they're going to try to find the trough. And see that we're in a new earnings cycle that's ultimately where

the turnaround comes from Christian are we too optimistic when it comes to earnings. Because the markets betting that we've seen the trough. That we get the upturn now we get a better upturn next quarter and then even stronger as we enter 2024. I think we've seen the trough. However, I do think that there's a little bit too much

optimism priced in currently going into Q3, Q4 earnings and also into 2024. I think the important thing to look at, though, is in reality what we have seen, we've been talking a lot about this, a rolling recession and recognizing that a lot of sectors have already experienced recessions. In Q4 of last year, you had six out of 11 sectors. You then had seven out of 11 sectors. And that's continued through Q2 earnings. And so I think that rolling recession component, we have seen earnings trough. It's just it's a little bit too aggressive in terms of where they go from here and what's priced into the market. Alicia, you want to play energy here? Or if you look at things that have had some momentum of late, energy prices hit the highest levels of the year earlier this week. So we're banging on the door of 90, right?

We're very positive energy. And we actually have been. We have a thematic basket that centers around energy, actually, because we think because of the supply issue that energy prices will stay higher. Of course, the stronger dollar is helping here as well. So we think that is still a play out there to be had. We think that's a place to go also. Kristen, how about that dollar that Alicia just mentioned? Is that enough of a headwind to be concerned about?

Would we think that it has any sort of staying power? Remember, it had weakened and then it's been picking up steam over the last few weeks or so. Do we think that last and what sort of headwind could that be for the earnings picture that we're just talking about? Absolutely. So it's something that we saw it reach the second highest level in history and then it gave back a little bit and obviously has come back. And so when you just look at sheer flows, whether that's into the U.S. market from a fixed income perspective, whether it's into the U.S. market from an equity perspective, obviously that has created a lot of strength to the dollar.

Ultimately, we think over the longer term this is not sustainable and creates some interesting opportunities overseas. But I think going back to something that was said earlier in this conversation, you have to be thematic, especially when you're looking internationally. And there are opportunities, but you have to be thematic and look in areas like health care, investing in longevity, really kind of targeting some of the long term unstoppable trends, as opposed to just diversifying out of U.S. dollar for that sheer reason. Well, maybe you've got to think about rate cuts as well as you're thinking about where the dollar goes over the bigger picture. I want you to also listen to what Jeffrey Gundlach told me yesterday about when he thinks we get the first ones. I think that the Fed raises rates by taking the stairs and they cut rates by taking the elevator.

When will they first cut rates, you think? I think it's going to be in the first half of next year. I think it's going to be when the economy really weakens. Marcy, how about you? I think we get our first rate cut in June of next year. That's, I, our view is that GDP growth is going to kind of flatline into the middle of 2024, that we avoid a recession, but it course, leaves the economy vulnerable to shocks, right, the things that we can't forecast. But I don't think I think the Fed is going to be really patient and try to hold rates as tight as long as they can. So I think that puts us at early next summer. Alicia, you're on the same page as Gunlock and Marcy. Yeah, I think we have

a slowdown, but not an outright recession early next summer. I'll say this. ISM manufacturing looks to have bottomed. If that's the case, earnings are moving higher. Kristen, lastly, you rate cuts next year, midyear, second half. What do you think? I would say midyear, second half of the year. But the one thing that I think we should be cautious of and a slight difference from gun luck is the fact that if we don't see a hard landing, this concept of taking the elevator down, I think the Fed would actually be much more reserved in terms of their rate cuts if we are in a soft landing scenario. And they're just trying to balance out some of the data being contractionary. Yeah. He doesn't believe the soft landing scenario either, as he told me yesterday. He does expect there's going to be a recession early next year. We will see. Ladies, thank you so much. Good having everybody. Kristen and Marcy, we'll see you soon. Alicia, we'll see you back here at Post 9 as well. Let's get to our question of the day. We want to know,

do you think the Fed is done raising interest rates? Head to at CNBC closing bell on X to vote. The results coming up a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Seema Modi with us today. With that, Seema. Hey, Scott, let's draw your attention to Unity software lower as the gaming giant faces backlash from developers over new fees based on how often a game is downloaded. Analysts are sort of downplaying the backlash today with Wedbush Securities saying it does not expect developers to rush for the exit given the value proposition that Unity's services provide. Nonetheless, shares are down over 5%.

And animal health names like Zoetis, Idex, and Elanco are lower today on concerns about potential headwinds in the space. At Morgan Stanley's healthcare conference, the CFO of Zoetis noting foreign currency headwinds and said veterinary visits have moderated. And while China is less than 5% of their total business, they're also seeing a big drop in consumer confidence. Their stock down about 3.4%. Scott? We'll see in just a bit. Seema Modi, thank you so much. We're just getting started. Up next, tracking the tech trade. The sector, as you know, struggling this month. Our next guest, though, still flagging some key reasons to believe in some serious upside as we head into year end. He'll make his case just after the break. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. Welcome back to Closing Bell. This year's tech rally has run into some headwinds recently, with the sector currently on pace for its worst month since December. Our next guest, though, staying bullish, believes there's still more upside ahead for that space. Joining us now is King Lip. He is the chief strategist at Baker Avenue Wealth. It's good to see you again. So you don't think this momentum is lost for a while? Hi, Scott. No, we, you know, August was a slow month for tech. It gave back some profits. September also is lagging a

little bit. But we think there's two reasons for that. One is some seasonality. August and September tends to be weak for the tech sector. Secondly, rates also were higher during the month of August. So tech sector is particularly sensitive to that. That being said, we tend to see seasonality improve in October and November. So we're expecting a rebound there. And frankly, with the overall sector trades, the tech sector is looking one of the best in terms of earnings growth going into the fourth quarter of this year and looking into calendar year 2024. Well, you're assuming, though, that earnings expectations aren't too optimistic. Yeah, well, that's definitely the case. However, what we're

hearing from a lot of these companies is their guidance continues to be pretty decent. We have had some outliers, like Oracle recently reported cloud growth slowing a little bit. But that being said, their forward earnings for a lot of these tech companies, the large tech specifically, have actually seen their shares gotten cheaper as earnings estimates have gotten higher. So for that reason, we think the hurdle for companies to beat is actually lower on a going forward basis. Sure, I hear you. Some would, though, suggest, yes, but they're still overpriced. They're still overvalued. Right. Valuations that were really ridiculous in some of

these names have come in, but they still have more room to go. How do you how do you counter that? Well, I think you got to pick and choose your names between these large cap tech stocks. There are some that have, I would say from a historical perspective, are trading at two to three standard deviations above historical averages. Certainly, names like Nvidia come to mind. Having said that, there are names like Adobe, which is reporting earnings here in the next few days, that are selling below historical averages, that are growing their earnings double digits. I I think you've got to pick and choose between these large cap tech names. And I still think there's values to be found.

Well, but on that note, are you suggesting then that the mega cap names are still overvalued? You know, relative to the historical valuations, I would say they're elevated. But if we do see their earnings growth come to fruition like we expect them to be, I actually think that the valuations are roughly in line with where they should be. Let's just take a name like Apple, for example. That's, well above its 10-year historical average. And it's, what is it, 29 times forward or somewhere around there. What about that stock? I mean, you own it. So there are questions about the growth rate at this point, and there are

questions about the valuation. So how do you tackle both? Yeah, so Apple is a good example of a company that has been selling at a premium, but I think selling at a premium for good reason. One, historically, they've been able to grow their earnings very consistently. I think the reason why the shares have been down recently on the product launch is, one, the rumors going into iPhone 16, is that the even numbers for the iPhone refreshes tend to be the strongest ones. So iPhone 4, iPhone 6, that's actually the best-selling iPhone. So we expect the iPhone 16, looking a little bit forward, to do quite well. And that investors are going to start looking at those earnings growth numbers rather than just this year's. You think the NASDAQ as a whole can

stabilize, if you want to use that word, without Apple? Or does it need it just by simple math, $3 trillion in market cap? Certainly, it's an important component in the overall index for the NASDAQ. Having said that, if you look at the five-year P-E ratio for just the S&P, with Apple being the largest component in there, it's actually now slightly below the average P-E ratio of the last five years, even despite the fact that you've had some of these large tech companies at a higher valuation than historic. So overall, we think the market doesn't look too expensive, even with the Nasdaq and with the S&P 500. I want to ask you one more thing about Apple, because it's just sticking with me. This idea that the new phone launch wasn't as great because it was, in your words, evolutionary, not revolutionary.

Haven't all of their phone launches been exactly just that, and that's been good enough? Just being evolutionary. I mean, it's not like they're reinventing the phone each time. They just continue to evolve it in a way that they cause a big upgrade cycle among what is, I don't know, without question, the most powerful installed base in the history of consumer electronics. Right. And it will continue to be for the foreseeable future. I think what's going to be the catalyst, if you will, for the next revolutionary iPhone is the number of technology that's going to be embedded in that phone. I think the iPhone 15 is very good, but it's more, as

we just discussed, more evolutionary. The internals of the phone are a little bit better, but a lot of the newer technologies, we think, are still waiting to be installed into these new iterations. So for that reason, I think the catalyst for new phone upgrades are going to be much greater, if you would, going into 2024 for iPhone 16 than, say, an iPhone 15. Yeah, I mean, and I don't even mean it as a knock. It's just a simple fact. I mean, they're not necessarily first. They've just had the knack for being better than everybody else in the products that they brought to market to the degree that they've been able to have this massive installed base. We'll see.

King, I appreciate your time as always. That's King Lip, Baker Avenue joining us up next. What's next for the Fed? Charles Schwab's Kevin Gordon. He's back. He's breaking down his rate forecast after today's hot CPI print. That's just after the break. By the way, don't forget, register for CNBC's Delivering Alpha conference. I'll be there with some can't miss interviews, including a sit down with Altimeter Capital's Brad Gerstner. September 28th, New York City. The QR codes on your screen. Scan it. Get your tickets. We'll be right back. Today's CPI report came in hotter than expected with inflation posting its biggest monthly increase of the year. My next guest says the report will cause the Fed to keep another rate hike on the table in November. Joining me now, Kevin Gordon, senior investment strategist at Charles Schwab. Good to see you.

I mean, that might be the case, but it really does nothing to upset the narrative of what investors have been saying or, for that matter, really what the Fed thinks. Yeah, I mean, I think it keeps it on the table in November. I'm not sure it definitively pushes that in the direction of a hike because, you know, as of now, if you were to just take the jobs report, the most recent jobs report, and then the CPI report we got today, I think there's enough cover actually in the jobs report to give the Fed for holding it in September. And if you don't get a continuation in some of the pops higher within the services category this morning within CPI, all of that combined, I think, would probably keep a pause in September, maybe nothing in November. But it's too soon to tell. You have a lot of data to get to November. When do you make a call? Do you think they're done or not? I think they could be.

I'm not sure one more hike matters as much. When you were talking at the opening of the show, that seemed to be a big debate. To us, that's not as much the focus as much as what the Fed signals from whenever they pause and whenever they stop. I thought Steve Leisman made a good point earlier where he suggested that if they want to, they'd like to be done. And if they have to go in November, that's not a good sign. That means that it might not just be November. Because if they see inflation data progressing to the point next month that they feel like, uh-oh, it's overheating again, one might not be enough. I think that is the tough part because if you look at actually all of the disinflation progress so far,

or the disinflation that we've seen, most of that's been driven on the goods side, not as much on the services side. So given you've made that round trip with goods and it looked relatively transitory, I know that's a bad word, but the goods side looked transitory, services has been taking much longer to come down, even if you take out the shelter component. So yeah, if there was a little bit of an uptick in goods, services took a lot longer to come down. The Fed somehow felt that they needed to adjust for that, all wrapped in under this umbrella of a tighter labor market. And the good news for August was that you had a little bit of labor supply come back. There was a large boost. That's why the unemployment rate came back up.

But if you still have relative tightness in the labor market and you have inflation hanging in there, then they'd probably be convinced that they just have to be a little bit more restrictive. How does the market look to you right now? Seasonally, obviously, everybody knows who watches this that we're seasonally weak. We've been saying it a lot coming into the month. We've been saying it a lot now that we're in the month. What does that mean? You know, I don't pay as much attention to seasonals.

I tend to focus really what's going on in the backdrop of this. And particularly for this market, you know, we're just yesterday, 11 months now off of the low from last October. I still find it remarkable that the banks are still down, that you really haven't had any participation from small caps. So to suggest that, you know, from here you continue to do remarkably well across the market spectrum as you move down the cap spectrum, it's a harder argument to make because as of now, the September broadening outlook to be a little bit like a head fake. And particularly, I will say the one good thing at least is that it hasn't shifted back into just the mega cap trade. You haven't gone back to what you saw kind of in that May, June period where you had at one point a record percentage of companies underperforming the broader benchmark. All the energy or all the

leadership has shifted into the energy sector. But you know at some point you're gonna have to start seeing more of a you know convincing broadening out especially within breadth metrics like percentage of stocks trading above their 50-day moving average, percentage trading above their 200-day, which throughout the summer now and the end of the summer has not looked very good at all. I think it was yesterday where the B of A had their fund manager survey where it was overweight U.S. stocks in the survey for the first time in like 18 months. Emerging markets had taken a tick lower in the same questioning. What do you make of that? I think it probably is in keeping with the growth differential that now seems to be emerging between the U.S. and the rest of the world. If you were to separate the rest of the world into blocks of

the Eurozone and China, clearly China hasn't been nearly as exciting as people thought it was going to be this year. That story is mostly known. I think on the Euro side, you've got heavy contractionary data in Germany. That's starting to spread throughout the rest of the area there. So, you know, even with the ECB still looking aggressive and you have a little bit of differential working that way in favor of the Euro versus the dollar, I think dollar strength right now is probably more synonymous with the fact that the U.S. just looks a little bit better than the rest of the world. So you'd want to be overweight U.S. stocks as well? No, I actually think in terms of U.S. versus international, the way we think about factors and taking a quality-based approach and

looking at characteristics like strong cash, you know, lots of earning strength, lots of profit margin and revenue strength, you can apply that across the world. So it's not necessarily a, you know, overweight the U.S. versus non-U.S. because I think, you know, thinking too monolithically that way can trip you up in this market, whether you're just focusing on a single country or you're going across the world. But in general, I think that if the data continue to deteriorate in recessionary territory, true recessionary territory in the Eurozone, if that is the case, then you probably want to take a little bit more of a step back to view. call on stocks has no bearing on whether the Fed is actually done or not. I

mean, at some point, you're going to have to make a call. Yeah, but I don't think anybody should be investing based on whether the Fed is done, because you go back in all of the tightening cycles. And when the Fed has been done and you look at market performance for U.S. stocks, at least after that, There's an average, but the problem with that is that there's a huge range. So the best, you know, if you go 12 months after the Fed has been done, the best has been up 30 percent, the worst has been down 30 percent. So you can't make a call and say just because the Fed is done, stocks are going to rally. I've heard that a lot. And that really misses the analysis, in my

view, of what the underlying picture is for the economy. Well, every underlying picture is different in every underlying period. That's why I wouldn't look back at history to make any sort of suggestion. But if you think they're done and the economy is largely hung in there and then the next move is going to be cuts because inflation has come down enough while the economy has come in, why can't you make a call? It depends on why there's cuts. I mean, if there are gradual cuts because they see inflation continuing to roll over and then that's going to put upward pressure on real rates, then yeah, keeping nominal rates steady or even cutting just a little bit and making it a little bit more surgical, that would make sense if real

rates are staying at restrictive territory. If they pivot right away to aggressive rate cuts, that's, you know, history in that case is pretty consistent with, you know, the economy and or the labor market being in pretty bad shape. That at the outset is not good for risk assets. Eventually that gets you into more of that carnage area where sentiment gets really dour and it provides that good buying opportunity for stocks. But I think we're pretty far from that right now, mostly given what you were talking about with Kristen. And she mentioned at the beginning of the show this kind of rolling nature of recession that we've been in. I think that as it continues to roll through now to some parts of services in the labor market, that probably keeps this push and pull, fits and starts part of the market

or theme for the market in play. We'll see you soon. Kevin Gordon, thank you. All right. Up next, double dose of biotech movers. We'll tell you what's sending shares of Moderna and Rocket Pharmaceuticals higher. That is just after this break. And later, a Netflix nosedive. What is weighing on that stock? What it might mean for the rest of the streaming space is just ahead. Closing bell right back. There's Netflix down 5 percent. About 15 to go before the closing bell. A pair of big biotech movers today. Angelica Peebles is here with what's behind those moves. Angelica.

That's right, Scott. Shares of Moderna higher as the company says its experimental flu shot produces a strong immune response, which could help Moderna expand its portfolio. But one analyst I spoke to worries the company's decision to focus on that metric alone instead of outright efficacy could make the shot a tough sell, especially since the vaccine produces more side effects than what people are used to. Yet Moderna says it's speaking with regulators about bringing its flu shot to the U.S. market. Meanwhile, check out this under-the-radar mover. Shares of rocket pharmaceuticals are soaring.

The FDA signing off on its plans for a pivotal trial of an experimental gene therapy for Danone disease. Now, that's a rare heart condition that affects nearly 30,000 people in the U.S. and Europe. Scott. Angelica, thank you. Last chance to weigh in on our question of the day. We asked, do you think the Fed is done raising interest rates? Head to at CNBC closing bell on on X the results just after this break. Here we go the results of our question of the day we asked do you think the Fed is done raising interest

rates the majority of you said no. Two thirds in fact. Up next it's official arm day we are counting you down to that stocks price it comes in over time tonight you don't want to miss that. We're going to give you a rundown of what to expect just ahead.

That and much more when we take you inside the Market Zone. All right, we're now in the closing bell Market Zone. CBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Julia Borson's with us on Netflix CFO's comments, weighing on the stock and weighing on it big time. And we'll get to that in a moment. Christina Partsenevelos looking ahead to arms hotly anticipated IPO as well. Mike, though, to you first. You know, I guess it was you I think I heard earlier suggest that the reason the market's hanging in there today,

even though the CPI was hotter than expected by a touch, it just doesn't upset the story or the narrative. Not in a big way. It was roughly around expectations. I don't think there was really a lot of buildup to this idea that we're going to get some kind of a benign surprise today. But also, it's really been close to expectations and consensus all year on CPI. So, yes. So it's an absence of a negative shock, but it doesn't mean it was a source of energy, of relief or really something that says we have a new landscape here that means we want to jump into risk. So I still think it's about Fed probably done. But more importantly, the Fed has not been the main character of this story all year. In my view, it's been it's up to the extent that they've more or less moved aside and said we're largely done. We're going to go slow if we do anything. I think you should keep in mind the Fed's own published forecast, their outlook from

June, which they're going to update next week, doesn't have them getting to the two percent inflation target until two years from now. That's right. Twenty twenty five. So it's not as if that they're on that the clock is really ticking loudly for them to do it. So they can kind of find their way. I think the bigger question is, look, if the bond market was okay with the CPI and it was, the stock market's not going to freak out about it. The biggest point, I suppose, and I think you made this earlier, too, until the earnings have troughed story is upset, we're all right.

If you mess that up, then stocks are mispriced. We're all right. I still think it's a split market because even the source of the upside in earnings going into next year is relatively narrow at this point. That's why today, a little bit of fatigue and heaviness. You have 3M not saying great things about the outlook for next year for them, the airline. This is general sense of we're still in some suspense as to whether the economy and the consumer can handle rates at this level. All that's already been done. I think the real upside way of viewing it, the positive way is we had a five percent GDP economy in July. It doesn't hurt to have a lot of headwinds collide with the five

percent momentum if it's in the form of higher rates, gasoline prices, student loan repayments, all the stuff we're talking about. If that just creates a nice Goldilocks scenario, that's fine. If it means those things are going to actually weigh us down, it's a problem for stocks. We're looking on the right-hand side of the screen, Julia Borsten. We just were a moment ago, and two stocks stick out like a sore thumb today. It's Apple, and then the stock you're talking about, Netflix. What's going on? Yeah, Netflix shares now down over 5% going into the close. This all comes after CFO Spence Newman warned at the Bank of America media conference

that Netflix's ad business is still in the very early stages and so far not material to the overall revenue of Netflix's business. He said they'll have to build out the ad business over time and that it's not easy to build out an ad business from scratch. Now, on the upside, Newman did say that they're nowhere near peak margins and that the positive impact from cracking down on password sharing will be felt through 2024. But Newman said that spinoff accounts from that password sharing are skewing towards signups for the ad-free option. That does have negative implications for the company's potential to build ad viewership and ad inventory. Newman also shot down speculation that Netflix could buy sports rights or other media assets.

He said it's hard to see the return on billions of dollars of investment in live sports. Also, Scott, he said they're more likely to build than to buy. That's been their trend over time. Yeah, Julia, thank you. Julia Borson, just quickly to you, Mike, depends through what prism you want to look at this Netflix thing from 700 to when it got destroyed and then it's had a rip back. So now you have to assess it. You do. Taking all of that into consideration. Part of that rip back was the sell side getting very excited from having to grow an ad business. It was incremental revenue starting at zero. The street loves to be able to do that, to say this is a new organic growth source. Part of their commentary today is also like average revenue per subscriber is a little bit muted because most of the growth is over.

It's just a message of we're pretty fully penetrated right here. And we don't exactly have hyper growth. And we trade at, you know, 20 times enterprise value to cash. And we traded Adobe's multiple. It's not that much cheaper than NVIDIA. The stock's barely spent much time above 400, except from mid-2020 to early 2022. In other words, pandemic times.

So, yeah, it's a little bit of a higher bar for things getting better at 400 bucks a share. All right, Christina Partsanovalis, tomorrow, all about ARM. Tell us. True, all about ARM, a valuation of roughly $54 billion, which is, by the way, less than what we saw just a month ago from SoftBank. They wanted 54. But you have anchor investors like NVIDIA, TSMC. So it makes a pretty good setup. But there are some risks investors should be aware of. Let's start with the basics. ARM is like a language used by chip designers from Apple to Qualcomm to build chips. The ARM architecture is in 99% of the world's smartphones

and is the standard blueprint for many electronic devices. The company not only charges a licensing fee, but also a royalty fee for every product that uses its chip designs. Based on its prospectus, the balance sheet shows more assets than liabilities, virtually no debt. So no wonder all these big time anchor investors like NVIDIA want it in. But with that massive penetration raises questions about future growth, especially since ARM is so focused on the smartphone market and CPUs, not the GPUs ubiquitous with large language models and generative AI. The company plans to pivot into cloud computing,

but that's still a smaller portion of revenue right now. It also, and these are some of the cons, it derives roughly 50% of its revenue from only five customers. That means concentration risk. And about a quarter of its revenue comes from ARM China, which is really just an independent entity that literally operates in a black box. So we have to trust it. There's also risk of open source platforms that could steal market share away.

Arm has the backing from large investors, but should not be equated to just an AI play just yet, given its exposure to CPUs and smartphones. All right. You'll be busy tomorrow. We'll look forward to seeing you then. Christina Partsenevalos. So Mike Santoli, if you're rooting for a return of capital markets and more IPOs, this better go well. It should. And for all the reasons Christina said, it is a little bit of a special case just because it's not some untested company that really is going to require huge

expectations for massive total addressable market assumptions and all that stuff. But yes, you want to see the market receive it well. It seems like it probably will, at least on the demand for the deal itself. And then we see what follows it. I mean, if it was an AI bubble, there haven't been enough IPOs to justify the idea that it was a true, true bubble in full-fledged, rather than just kind of a little sub-theme that got people excited about certain tech stocks. Yeah, like five or six stocks are you're going to declare a bubble?

Yeah. It's harder to do. And only, you know, 10 months as opposed to, you know, a couple of years. So, I mean, that's the, you know, that's the, I guess, the generous way of looking at the environment right now. But it is still, again, it's a winners and losers market. You still got weak breath. Higher lows since mid-August in the S&P 500, but you still have the eco weight down 2% this month.

Small caps. Ugly, too. Kind of heavy. Something to keep an eye on as well. Alright, that does it for us.