Closing Bell - Closing Bell: Stocks Sink in Final Hour of Trade 8/17/23

Episode Date: August 17, 2023

NewEdge’s Cameron Dawson, Virtus’ Joe Terranova and Ed Yardeni break down the big leg lower during the final hour of trade. Plus, Chris Hyzy from Merrill and Bank of America Private Bank explains his strategy as we wrap up the summer and look toward the end of the year. And energy was the big out performer in today’s session. Pippa Stevens breaks down what is behind that move.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. And this make-or-break hour begins with obviously still unsettled stocks. There's your picture. And whether this market has now turned from buy the dips to sell the rips, as some are now suggesting, and if it has, what that could mean for your money in the weeks ahead. Your scorecard with 60 minutes to go is getting a little bit uglier here. There's the lows of the day for stocks. Walgreens and UnitedHealth not doing the Dow any favors today. Both of those stocks dragging the industrials lower. Apple, boy, that's been a big story, and it's not helping either.

That stock continues its lackluster trading. It's been an ugly chart for the biggest stock in the market. Shares have now fallen more than 11% this month alone. Other tech names like Intel and Microsoft also a drag today, and it's hard to get much going for the NASDAQ as well, given the tech slide we've seen and the continued March higher for yields. Take a look. The 10-year, higher again, still pressed against its highest level since last October.

It takes us to our talk of the tape, the state of stocks and why some say this correction is not over. New Edge's Cameron Dawson among those making that case. She's here now at Post 9. It's good to see you again. We should also note, as we're at the lows of the day, the Dow has breached its 50-day moving average. So we've had some technical aspects to this as well. Why do you argue today that this has more to go? Well, the confluence of evidence would support that there is more to go

because of seasonality for the first point, meaning that we're in a bad seasonal stretch. September's the worst month. We also know that momentum has turned decisively negative in the near term on a tactical basis. And then breadth, meaning the number of names that are trading above their 50-day moving average, it's not washed out yet. So there's still likely some churn and digestion to go. We've crossed under the 50-day. There's still likely support at that August 2022 high around 43.25. And then we'll see how we deal with that support level. What do you make of this alleged change in mentality from what was a decidedly buy-the-dip market to what has now become maybe a sell-the-rip market? I think the first thing to acknowledge is that it is very tactical. So as a strategic long-term

investor, this shouldn't really change from what your plan is. But I think we can put it in the context of the 50-day. Prior to this sell-off, we were trading above the 50-day. Every time we traded down April and May, we bounced right off of it. Today is different, where now we're likely going to be in a period of a little bit lower highs, lower lows. You see people sell into strength. You want to comment on the idea that until Apple, biggest stock in the market, which is down 11% this month, it's the worst mega cap this month, and the 10-year yield, which continues to creep higher, until those two things stabilize, we're going to be having similar conversations. Yeah, I think that is hypercritical. And if you look at Apple alone today, that broke below its 100-day moving average, which means it

puts its 200 days in sight for the next level of support. And Apple being such a behemoth and such an important part of market psyche, it's hard to imagine this market pressing much higher without the contribution of Apple and the other tech names which have been trading weak as well. Yeah, Joe Terranova of Virtus is with us as well, a CNBC contributor, of course. You want to give us your sort of read on what's happening here as we've come on the air? We've reached the 50 day, as we said, on the Dow. We're literally, you know, even more unsettled. Mega caps and technology were the leadership. It was the very first time that we've had leadership in the market since the onset of the pandemic. We welcomed it. You can't lose leadership and expect the

market to fight up against what is obviously a historically weak seasonal period. Yeah, September and October. It's the month of October. Cameron mentioned Apple breaking down below the 100-day moving average. It's just not Apple. You also have Microsoft and Tesla. So if my math is accurate here, that's probably 15% or 16% of the overall S&P 500. Well, Apple alone is like 7%. Right. And so Microsoft somewhere 6.5% and Tesla is right below 2%. So you're talking about close to 16% of the S&P trading below its 100-day moving average. We're in that seasonally weak period. And I think the question becomes this.

If you were a 2022 bear, you believe this is the beginning of a deeper decline back towards the October lows. Well, because most of the 2022 bears have been 2023 bears. OK. Because they missed it. They weren't positioned correctly to take advantage of the big run in mega caps that we had, which have saved the market. Correct. And if you're a 2023 Bull, which I am, you believe that ultimately at some point, not now, not now at all, some point as we move to the back half of September into October, there's a tremendous buying opportunity. If you go back, Scott, over the last 33 years, there's been 10 instances in which the S&P 500 in the first half of the year rose by 10% or more. In each one of those 10 instances, the second half of the year was positive. If, in fact, that is going to be the setup as we move into the fourth quarter, you're going to have one heck of a chase for performance because all those 22 bears, they have to come around at some point. So you're part strategist, you're part historian, you're part technician, right?

You view the market through so many different prisms. What about the one that Joe puts forth? Well, I think to put another point to Joe's is that this correction as of right now is not about growth fears. And that's very different from 2022. 2022, we saw EPS revisions go down 10 percent. We saw the weak recession or the weak GDP quarters that we had. So people had a kick up in recession fears. You don't have growth fears when Atlanta Fed GDP now is at 5.8 percent.

This is about yields and this is about valuations, which is why the highest valuation parts of the market are underperforming. Because I'm so glad you went there because of the idea that the whole reason we got here in the first place was multiple expansion from the very names in which you're referencing that have pulled back over the month of August. Exactly. And if you look at for the S&P 500, the entirety of the move this year has been multiple expansion, anticipating a better earnings environment.

The thing that has been the most surprising is that despite the fact that we've had a recession call or no recession, no landing, a boom, a banking crisis, earnings estimates for the entire year have been static. They haven't moved. And so all the volatility is driven by valuation and multiple, which makes it susceptible to moves and yields. Well, static might be the new up, though, right? I mean, they haven't gone down. Yes. Which is a big part of the story. Let's be honest, right? They haven't deteriorated to the point where some thought they might. Flat is the new up, maybe for earnings for a while. Yes. And I think that that is the big contrast to 22, which was all about earnings coming down. So I think watching 2024 earnings to see how if they get revised higher because of this

GDP growth, that can offset some of the multiple compression. But we do have to remember is that we're pressing into this new high for yields, real yields, and that near peak multiples. That is a challenge for these high flying names. We wanted to add a voice into the conversation, just given the nature of how the market feels over this final stretch. Ed Yardeni from Yardeni Research is also with us. I so much appreciate you being here, Ed. You getting a little nervous, as bullish as you are? Well, actually, I've been saying that the market's probably going to be flat to down during the second half of the year. As you know, we started out the year with lots of people saying that it was going to be a weak first half

and a strong second half. I've been bullish during the first half. Once we got to 4,600 at the end of July, I said, hey, you know what? That's my year-end target. I'm not going to raise it from here. And I've been thinking we would get down and break down below the 50 day moving average. And I think we could actually be retesting the 200 day moving average. So I think we're in a correction. And I think it's largely a result of what we're seeing in the bond market. I mean, we've gone from, oh, my God, the economy is going into recession to, oh, my God, the economy is flying and inflation isn't going to come down. I think that once we get through this pullback, which is what I think it is, I don't know if it's going to be a full fledged correction. I think the market is going to focus

on next year and the next year's outlook for earnings looks really good. And I think the Fed is going to be looking at inflation coming down. And I think they're going to be lowering interest rates. So I view this as a seasonal phenomenon. You're alluding to the fact that what it feels like we now have is a good news is bad news market. Yes. The economy being too strong. It's going to not only, as you say, keep inflation stickier, but also keep the Fed engaged. And we just don't want to deal with that. Well, that's that's the consensus. My view is that if you look at the July CPI excluding shelter, which has really been the only really sticky part of the inflation story, the headline CPI inflation news report was two point zero percent. So we've made a lot of progress on the inflation front. It's just that people are still getting stuck with this shelter component, which is going to come down sharply over the next six to 12 months. Yeah. How do you look at the issue that I've already discussed a bit with Cameron and

Joe about Apple? Right. Biggest stock in the market has had such a tremendous year, even with an 11 percent pullback this month. It's still up better than 30% to 35% this year. But the idea that you can't really get solid footing while the biggest stock in the market is a little squishy. Well, I agree with the conversation you already had with your panelists. I think they're right on the money. I mean, the big cap, the mega cap 8, accounted for something like 27% of the S&P 500's market cap at the end of July.

Now, I'm sorry, it's more like 30 percent. And now it's come down to something like 27 percent. So we have seen a substantial decline in the mega cap eight. I think they probably have lower to go. They do have a valuation issue. But on the other hand, they're great companies. And I think this will turn out to be another buying opportunity, as was the October 12th flow. You know, Joe, the value players, the cyclical people say they've made the argument all along, largely, I think, because they haven't been in

these stocks, that now the market can go up. Market doesn't need these mega cap. It doesn't need Apple to go up for the market to go up. I think what's being proven out, at least here, is that you're going to have a lot of trouble if mega cap continues to fall like Ed thinks it might still have to, like Cameron suggested it could, too. As long as you have an environment in which you're worried about the economy slowing down, the Fed still being engaged and China very much an unanswered question, if not the answer you're getting from there that you don't like. Without question. And look, the market is growth and the market becomes more and more growth as we move through the process of time. If you think about a potential catalyst for the market in the next couple of weeks, it comes from growth. It comes from the fact that maybe NVIDIA is going to deliver something that looks similar to its previous earnings report at the end of May.

I'm not saying that it's going to do that, But it's not coming from the value. Segment of of the market I think energy is the the one outlier in that conversation. I think for investors looking to do something right now. Momentum has. Been within energy over the last six to eight weeks. And I view it as only intensifying as you move into what's a seasonally strong period for energy. And keep in mind, energy is up near the top end of its annual range, despite what we're hearing about the deflationary pressures in the Chinese economy. I'm glad you brought up NVIDIA because now, just given, Cameron, where everything is and how edgy the market is, I know I keep using that word, but it just feels like that's where we are.

I don't want to necessarily use unsettled that much. It just doesn't, it's orderly what's happening, obviously. It's not like, you know, the S&P is only down like 4%. So it's not been this tremendous decline by any stretch of the imagination. It just raises the pressure on NVIDIA next week because otherwise it's an earnings air pocket. There's really nothing going on. You've got Jackson Hole. You don't think the Fed's going to go in September. Most people don't. So what do you have? You've got one of the biggest now stocks in the market reporting earnings next week that's had a massive run, has had a little bit of a pullback, and now some questions as to whether it's going to pull

back further. Yeah, no pressure, right? So if we look at NVIDIA, its earnings estimates for 2024 went up 75% following that May quarter. So it'd be a lot to imagine that it would still have a similar move higher, that similar kind of beat. But I think if we look at the semiconductors overall, they're down now about 10% from their high. If you retrace another 8%, you will have closed the entire post-NVIDIA move from early May. So that's probably an opportunity to revisit the space once we've seen some of that washout. But it is an important tell, and I think so goes NVIDIA, so goes the market. So we haven't really discussed it yet, but there's something within the market that I think is so incredibly important. Why are bonds not rallying? The S&P 500 is

declining significantly. It's in the midst of a very strong correction. Why are bonds not a safe haven asset? That just increases the pressure on Chairman Powell next week at Jackson Hole tremendously. The concept of fighting the Fed, hedge funds and speculators who are short treasuries, they're fighting and they're winning. And I will say this. He has a very difficult job because he potentially could send the bond market parabolic if he signals something that is uncomfortable to investors. The bond market is not doing what it's supposed to be doing in this environment. It's not supposed to be selling off. Ed, this is is your wheelhouse you want to comment on that

yeah i think you're not so clear right uh... there's a lot of pressure on uh... how in terms of what he says uh... everything will be clearly very important i think he's going to basically follow the lead of john williams list the president of the federal reserve bank of new york and say look look, we're seeing some signs of progress on bringing inflation down. And if it continues to come down, then we're probably going to have to lower interest rates

next year simply to avoid becoming even more restrictive in terms of real interest rates. So I'm expecting him to say that because I think he realizes that if he doesn't say that and the bond yield goes parabolic, as Joe said, that would be a disaster for the banking system in terms of commercial real estate defaults. Well, you know, Ed, I want to come back to you on something you suggested earlier about, you know, your level of bullishness after we had the kind of first half that we have. I mean, you still have an extraordinarily lofty target, some would suggest, for the S&P. And, you know, it was only a few weeks ago in which you suggested there was still a lot of room to run for this bull market, which you suggested this undeniably was. Yeah. Well, look, I think we've been in a bullish channel in the market. I did think that when we

got to 4,600 at the end of July, thaty six hundred. At the end of the July that that was my target for the end of the year and so. I turn more cautious and I do see this- sell-off is- continuing somewhat. But I think this is a short term phenomenon if they will be a turn out to be a

buying. Opportunity and I see fifty four hundred. On the S&P five hundred by the end of next year. I've been at the top end of the range of earnings expectations. I'm still using 225 for this year, 250 for next year, and 270 for 2024. Multiply 270 by a multiple of 20, and you get 5,400,

which incorporates the view that the mega cap 8 are here to stay, and they're going to continue to keep the valuation multiple of the S&P 500 elevated relative to history. Ed really hit the nail on the head, right? Yes, his projection is lofty because it's all based on a much improved earnings picture. And projections for next year have gone up, right? You've had three straight quarters of negative earnings growth. We all know that story, but the projections would tell a far different story as you get into next year. Yeah. What's already priced into the market today is 12% earnings growth in 2024. And the question

we've been asking is how much higher can that go? What you have baked into that estimate is a return to record margins, which is a little bit of a stretch, mostly without inflation. Inflation is good for margins in the sense it drives revenue growth. Revenue growth drives incremental margins. If that starts to decelerate with lower inflation, then that's where you start to ask the question of if it's not 12 percent, can it really be 15 or 17 or is it more like nine? You think, Joe, we're still too lofty in what our earnings expectations are for next year? I mean, the market starts to, as you know, better than most. The market has that tendency to look ahead by whether it's six to nine months or what have you.

So, you know, it's going to anticipate an improving earnings picture, which is one of the reasons why the market was able to rally to the degree that it did. Because you assume that earnings are going to get better in the near term rather than too far down the road. Do we need to rethink that? I don't think you have enough evidence to suggest you need to rethink that right now. I do think the upcoming quarter is a prove me quarter. I think it's guilty until proven innocent. Because as you look forward over the coming three or four quarters, the current expectation is you're back to double digit earnings growth once again. So there there was enough in the latest release of earnings to feel comfortable that the inflationary pressures were beginning to mitigate the effect of compressing margins significantly. But I think you still need another quarter of evidence to feel comfortable that the expectations as we look forward into the future, they're realistic.

I'm also looking at a couple of sectors, Ed, and I want your opinion on them, too, in terms of we can get away from technology and comm services and the things that we obviously know if they're weak or the market's going to be having a problem. Discretionary over the last week is down 4%. The banks are down two and two thirds percent. Just comment to me on the importance right now of those two areas. The consumer has been a large part of this story. We know that, you know, the banks had traded well for a bit. And I'm just wondering, you know, how you would characterize the importance that they have at the given time when you're already feeling as edgy as we've said the markets look. Well, I think a lot of this edginess is seasonal. I think a lot of the edginess is related to fears that the bond yield is going to go a lot higher. All of this is going to depend on the inflation news. And if I'm right,

and the inflation news continues to moderate, then I think this edginess will evaporate and that we will have a year-end rally going into 2024. With regards to the performance of the sectors, I think they're acting consistent with a fairly broad pullback in the market here. As Joe pointed out, energy is the outlier. A little bit of a mini deja vu of the bear market where the energy stocks performed everything else. But I think it's just a mini version of that. I think that the consumer is in great shape in the financials. I'm waiting for just a wave of M&A activity.

The small mid-cap banks are going to have to go through that because they're dealing with some pretty hefty regulatory costs, and that'll be a requirement for cutting their costs. We'll leave it there. Ed, I so much appreciate you jumping on with us as we watch these markets over the final stretch. Joe, thank you. Of course, Cameron, to you as well.

See everybody soon. Let's get to our question of the day today. We want to know, do you think Apple will trade into the 150s? Head to at CNBC closing bell on X, formerly known as Twitter. Please vote yes or no. The results later on in the hour. Let's get a check now on some top stocks. Christina Partsenevalos is watching as we head towards the close. Christina. Thanks, Scott. Well, the same macro concerns weighing on the broader market appear to be overshadowing

a very strong quarter for Walmart. The retailer beat estimates and raised its full year forecast. The CFO, John David Rainey, told CNBC earlier that there was modest improvement in sales of big ticket and discretionary items. Nonetheless, shares are down 2.5% right now. Hawaiian Electric is falling again as the Wall Street Journal reports that the utility company is in talks with restructuring firms over its potential liability in the Maui wildfires. The stock is trading right now at its

lowest level since March 1985 and heading for its worst week ever, down 65, yeah, over 65 percent. And today it's down 21 percent. Scott. Yeah. Yeah. Christina, thank you. We'll see you soon. We're just getting started right here on Closing Bell. Up next, betting on a bull market. Chris Heisey from Merrill and Bank of America Private Bank is back breaking down his strategy as we wrap up the summer. Look towards the end of the year. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. At this very moment, the Dow Jones Industrial Average is down near 300 points. We're back after this. We're back. Stocks on track for their third straight day of losses. The 10-year yield hitting its highest level now since October of 2022. My next guest is seeing a light at the

end of the tunnel, though, calling for a new profits-driven bull market over the next six months. Let's bring in Chris Heisey of Maryland Bank of America Private Bank. Good to see you, Chris. Welcome back. You too, Scott, as always. With a headline like that, it sounds to me like, given our conversations that I recall having, you're more positive on the market than you've been in at least the last 12 months. Yeah, I think it's important to put it into context. The positivity is really coming what is in store for the back half of 24.

You've been covering a little bit of this recently, which is the market looks forward six, nine months, sometimes a little bit longer than that. Next year's story, I want to get ahead of it here, but next year's story is about a drop in yields. We can't see it right now. But with what we're seeing in the slow growth trends, there's some strains out there well covered coming out of China for sure. And then in the United States, what we're starting to see is a little bit of drag from the positive real yields, which hasn't been discussed enough, going from negative real yields to positive real yields with a wide gap, negative leading indicators. There's a lot of things piling up right now where headline risk, and you were talking about this before, is very high. But if you go back to profits, we don't need a big expansion for profits to ultimately bottom out, most likely towards the end of this year, and then start to show the signs that we're going to

begin to recover. August is an Auburn month. It's leaving the brown days, the hot days of summer, going into the October leave-changing days of red. You put the two together, it's an Auburn-type month, consolidation, technical factors, structural factors, low volume. But you're suggestive that we should be buying stocks now then. I mean, if we have the ability to look ahead six to nine months and an improving profits picture, that today is the time to even take advantage of some of this,

you know, unsettled nature of the market and put some money to work. Yeah, we all have been saying a variety of different things as relates to choppiness, edginess. That's been the telltale sign every time something doesn't go your way. In August, this pullback, seasonably the case, we would use this as the first episode. We think there's going to be two more after August and into the early part of September, one towards the end of this year, and then spring of next year. Once you hit that nadir, that topping out of yields before the Federal Reserve starts to say, hey, wait a minute now, we might have to start to pivot a little bit sooner than the market believes. So we think there's three episodes of weakness.

There's a lot of cash on the sidelines. And certainly there is a slower growth environment coming. But you have to have plans ready right now. Most people are still under their benchmark, Scott, in terms of their exposure to equities. And if you're long term, when I say long term, you just have to think about into later 24 into 25. And the market should start to adjust your way in a positive way. So dollar cost averaging starting now makes sense to us. But you also made the case, if I heard you correctly, that you think there could be two more bouts of selling periods before the real opportunities present themselves. In terms of the current one, which we may be in to some degree, you know, we're down today and we've been down, you know, the last couple of weeks have been unsettled.

How much of a correction do you think we're in store for now? You know, typically when you get slow volume months like August, three to five percent makes sense to us. I don't see any much more than that. If it comes a little bit more than that, it's a bigger opportunity. The big magnificent seven, if you want to call it the grade eight, whatever it may be, they push the market's valuation up, in our opinion, justifiably so, because if you're going to see slower growth, you do migrate towards those areas that are going to give you the growth. The story early and late 22 was those magnificent seven areas, the big mega tech, were slowing down in their revenue growth. And what they showed us was, yes, they slowed down, but they didn't go down as much as expected this was a relative move now next year it should be more of an absolute move

so from from our perspective um everybody likes to wait they want to catch a bottom market timing doesn't work it's time in the market and rebalancing when the market activity gives the opportunity to do it don't you think it's going to be hard to convince people to get out of fixed income or a 5% money market and take what feels like a lot more risk in stocks? It is hard. It's difficult. Until yields start to crest and start to come down, then you start to see that activity pick up. And we're suggesting extending duration right now

with the understanding that there's a lot of treasury buyers out there that don't want as much exposure as they did before to longer dated treasuries. So you get a drift up in yields, worries about the deficit. And all of a sudden, when the slow growth activity starts to hit, the yield curve begins to normalize. We've got a ways to go before that. But certainly that shift from being defensive back into, I wouldn't call it risk on, but more risky areas of the market, we expect that to happen over the next six months for those investors who have yet to do it. Chris, enjoy the rest of the summer. We'll catch you soon, I'm sure of that. Chris Heisey, Merrill Bank of America joining us up next, searching for some big opportunity. Lux Capital's Josh Wolf is breaking down where he's seeing some strength right now

and how the big boom in AI is impacting his strategy. That's just after the break. And later, energy. It's outperforming today. We're going to drill down on what's behind that move. There's crude. There's Brent as well. Natural gas is the biggest winner today at 1%.

Closing bell right back. Welcome back to Closing Bell. CVS, one of the biggest S&P laggards today, after reports that Blue Shield of California will partner with Amazon and Mark Cuban's Cost Plus Drugs for its pharmacy network. So is this the tipping point for the health care sector? Our Morgan Brennan joins us live in the Hamptons now with Josh Wolf. He's the co-founder and managing partner of Lux Capital.

It's a science and technology focused VC firm. Morgan. Scott, thank you. Yes, we can call this CNBC Out East. And Josh, it's great to be sitting here talking to you. Thanks for joining me. All right. So I do want to start there because you and I have had conversations about health care in the past.

You have this big news, CVS stock falling, tech disruption. We've been talking about it coming to health care for quite some time. Is this moment a tipping point? You know, there's something that I think people are not actually talking about that makes it a tipping point, and that actually has to do with labor and unions, so not just technology. If you permit me, I think that we've seen record low participation of people in unions. You have record high support of people wanting to support unions. Biden is very pro-labor. And you're seeing not just a heat wave this summer, but a strike wave.

I mean, we basically averted 350,000 or so UPS workers, which would have been like a cardiac arrest for the circulatory commerce system of the country. If we thought COVID was bad, this could have been terrible. Well, if unions win concessions, what do they get? They get higher wages and then they get health care benefits. So I actually think that there's an unappreciated tailwind that is coming for health care services. Private companies like ours, like Maven Clinic, and then lots of public companies, the indexes, this is something that I would be looking at,

because if labor wins, health care services will win. Fertility services, virtual doctors on demand, local pharmacies, extensions, you know, I think it's going to be a big tailwind. Interesting. So you just mentioned some of your current investments in your portfolio. Are you actively making more investments along these lines? We are. You've had my partner, Dina Shacker, on a lot. She's wonderful. She's really brilliant in healthcare. She's been a magnet for a lot of great entrepreneurs. Pretty much every facet of this, again, from fertility on-demand clinics to people doing mental health to being the back-end software providers for even people like Amazon that are providing some of these services,

it really is going to be a tailwind, I think, across the entire sector, particularly domestic U.S. Yeah. I do want to shift gears a little bit here because the last time you and I spoke, you talked about the fact that maybe one of the biggest opportunities for AI is going to be in biotech as well. I want to dig into that a little bit more. And just at a time where we've seen all of these stocks that have AI applications or are working on AI investment in the public markets run up pretty ferociously since the beginning of the year, have we gotten ahead of ourselves in terms of where we are in the process? Well, hype is always shown in the markets whenever things run up. And people always sort of underestimate things in the long term and overestimate them in the short term.

And I think that's what's happening in AI. The first thing that won was the hardware, so NVIDIA. NVIDIA is still vulnerable. You've got a programming language called CUDA that has dominated. You've got AMD waiting in the wake. You have other languages like PyTorch and Triton, which is something that OpenAI is working on. So that's something that I would watch in terms of the vulnerability of the dominance of what people perceive to be a monopoly with NVIDIA.

Now, once you get all those chips, those A100 and H1 chips that are being banned in China and being really sought after very aggressively here in the U.S., the first beneficiaries of this have been the open AIs, the people that are developing foundation models, all for producing text and video and images. Companies like ours, Hugging Face, that's the repository for all of the AI and ML models, and Runway that is letting you basically text a prompt in and create a full cinematic video movie. The next wave, though, as you noted, is going to be in biology, and that's requiring a much more sophisticated level of understanding. What that means, now that you have these context windows, which Anthropic was one of the first to really expand, so you can put very large, hundreds of thousands of tokens inside, you can put an entire genome in. If you

can put a genome into AI, now you can start to do protein structure prediction. And sure enough, there are groups that are doing just this. It's one of the themes that I think is going to be a big over the next two years for venture. We are taking groups out of big tech. One of the groups that we just took out of big tech, which we haven't announced publicly, is a group that predicted the protein structures from gene sequences better than AlphaFold and DeepMind. It's going to be a new startup. And it's going to mean not only being able to predict protein structures to design drugs, but also ultimately, and this sounds like science fiction, developing synthetic life from software code to being able to develop cells that never existed before to produce things like

insulin and all kinds of drugs that are going to help humanity. All right. My head's exploding a little bit with this concept right now as I wrap my mind around it. I guess just to dig into that a little bit further, though, as you mentioned, some of this is coming out of the larger companies. I mean, how much opportunity is there in terms of AI investment, particularly in the private markets, if there's so much money that needs to go into it and it's so many of these big cap tech companies that are, at least so far, kind of on the forefront? You know, a lot of people have looked at this and said, there's not quite a law like a Moore's Law or a Rock's Law. Rock's Law is, you know, Moore's Law, our chips get better. Rock's Law is that the cost of these fabs to make the chips keep getting more and more expensive.

In AI, it used to cost $10 million to do these foundation models, then $100 million. And now people think it'll be a billion dollars. So therefore, only if you raise billions of dollars can you do this. So OpenAI and Anthropic and Cohere and some of these other large companies have raised hundreds, if not billions of dollars, hundreds of millions, if not billions of dollars to be able to buy the compute, really making this gold rush for NVIDIA chips. We had a different thesis. We think that actually there's going to be distributed compute architecture. So instead of relying on just these A100 or H1 chips from NVIDIA, you're going to be able to leverage lots of compute. We have a company called Together Compute that is doing exactly this. They can

train models for a fraction of the cost, fraction of the time, and doing it effectively open source with distributed compute. So necessity is the mother of invention. And the necessity now is we can't get a hold of so many of these chips. So people are going to invent new architectures. And I think it's going to flip on its head the presumption that only the biggest companies with billions of dollars can be able to do this kind of stuff. Interesting. Look forward to seeing how all of this evolves. Josh Wolf of Lux Capital, thanks so much for joining me here in the Hamptons. Scott, I'll toss it back over to you.

All right, guys. Thank you very much, Morgan and Josh. And as you know, we'll have many more big guests next hour in OT, including Wes Edens. So we look forward to that interview, his take on the markets as well. Up next, we're tracking the biggest movers as we head into what might be a bit of an unsettled close, shall we say. Christina Partsenevelos. More unsettlement. There weren't enough NHL hockey games this year, and that's hurting shares of one firm. Oh, and we can also blame the Knicks as well. But I heard Scott wouldn't like me saying that. So pretend I didn't say it.

I'll explain next. Working on 15 minutes or so to go before the closing bell rings. Christina Partsenevelos has her eye on the key stocks that we need to look at heading into the close. Christina. Well, costs rising at a faster pace in sales. That's why Wolfspeed is plunging almost 17% right now. The company posted a bigger-than-ex expected loss in quarterly revenue that was below estimates. Wolfspeed executives cited, quote,

significant costs related to construction of new facilities in North Carolina, as well as New York, expansion as well. And neither of those facilities have started generating revenue. Blame the Knicks, much to Scott's dismay, and the Rangers for Madison Square Garden Sports' fourth quarter revenue decline of 28%, even if it was a B. The company said the drop was because or caused by the timing of the NHL

regular season and fewer playoff home games compared with the prior year. Shares of MSGS, not MSGE, because you can get that mixed up, are down nine and a half percent. The Knicks are on the up and up. All right. They're on the up and up. Not as if I follow. I don't know what MSG shares are going to do, but the Knicks are on the up. Got it. All right. All right. Thank you. Christina Parts in that one. Last chance to weigh in on our question of the day. We asked, do you think Apple will trade into the 150s? You can head to at CBC closing bell on X formerly known as Twitter. We're going to bring you the results next.

The results of our question of the day. We said, do you think Apple will trade into the 150s? Now, this is pretty telling to me. The results are split. I figured you guys are going to say no way. But 50 percent of you say almost. Say yeah, could. Very interesting. Up next, Applied Materials reporting in just a few minutes.

We've got a rundown of what to look for when those results hit the tape. We're going to take you inside the Market Zone next. All right, we're now in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day, plus Pippa Stevens digging into today's energy rally. Christina Partsinello is back with us to look ahead to applied materials, the earnings out in OT, and Options plays Jessica Inskip telling us the key market levels we need to watch. Michael, a lot like yesterday, volume 400 million, number getting a little bit uglier as we head towards the close.

Yeah, and look, I wouldn't really hinge too much on it being relatively quiet. Yes, it has been fairly orderly, as you were saying before, but you're starting to deepen a little bit. The downtrend is taking a sharper turn lower. At this point, we've gone back to late June levels, so you kind of got rid of that final thrust higher in July. And what we're waiting for now tactically, as I've been saying for a couple days, is for it to get a little bit more oversold and stretched

and having enough of a kind of broader washout-type feel to it. We're not really there. I think by the time we get tomorrow's kind of postmortems on today, we start people say, yes, some of the conditions are lining up for a tactical low. Yields are still obviously over everybody's shoulder. And I think that the confusion is a reacceleration in a late cycle economy, yields going higher without really repricing the Fed. It seems like yields are trying to restrain demand in the short term.

We don't know what the economic implications of that are going to be. All of this happening, of course, only a week ahead of Jackson Hole. It just makes the buildup in the backdrop all the more important. It does. But I also think we have this dynamic where we're grabbing for things and seeing ghosts in every direction because the market action has been so treacherous, at least in the last little while. So I do agree that the stakes are rising, but I don't necessarily know that everyone has a clear idea of what they want to hear out of Jackson Hole. They just know it's something hovering on the horizon. Yeah, that's for sure. And a good point you make. We'll talk

to you in a bit. Pippa Stevens, one sector in the green today. It's yours, energy. Yeah, that's right, Scott. Energy is the only sector in the green, and that's because oil is higher, making back some of the losses from the last three days as focus is shifting to falling U.S. inventories rather than weak economic data out of China. And so that is supporting energy stocks, which once again, only S&P Group higher. Now, the upstream players, which are the most correlated with commodity prices, are the outperformers. Refiners are also in the green, but we are seeing a modest weakness in some of the oil field services names with Baker Hughes and Halliburton in the red. But the OIH has led in recent months to optimism around a ramp up in

international and offshore. Now, one area to watch is the midstream names. Deal activity there is heating up with energy transfers, saying it will buy Crestwood Equity Partners for $7.1 billion, with a lot of hurdles around building new pipelines. The infrastructure that is already in place, Scott, is looking increasingly valuable. Pippa Stevens, thank you very much. Christina Partsenevelos, AMAT's down 5% thereabouts heading into this number. Well, if the beats by competitors LAM Research and KLA are a barometer of what's to come, then Applied Materials should pose better than expected results today after the bell. So, leading edge, this is just a breakdown.

Leading edge chips power supercomputers, laptops, servers, etc., while lagging ones are used to make up the bulk of other components like electric vehicles and HVAC systems. So, chip equipment maker Applied Materials is highly exposed to those lagging nodes, and there is massive demand still coming from China. Applied Materials also has some exposure to AI. Its machines help with advanced packaging and high bandwidth memory used on those leading edge AI chips, so that could be seen as a boon for guidance. But Mizuho suggests the cyclical slowdown coming in the September quarter is because why investors should actually put

applied materials with L or Lam Research as well as KLA, aka in the camp of waiting to add on further stock price pullback, Scott. Yep, I'm looking at it down 5% or so over the last month heading in. Christina, thank you. We'll see you afterwards with exactly what they delivered to Jessica Inskip. Now, oh, by the way, Mike Santoli, we'll see you at the top of overtime, but thank you as well, obviously, to you. Jessica Inskip, now to you. The levels, what are we watching? What do we need to pay attention to?

So we're definitely jogging in place. We've got that bearish seasonal overhang. That's in full swing. Good news is we're getting to the bottom of those trading ranges. So NASDAQ 100 is the line leader. They lead the rallies. They lead the declines. Their next support level is around 13,950. Now, NASDAQ 100 has already broken its 13 weekly moving average. That's extremely important because that represents one quarter of prices. We're above one, two, and three quarters. If we fall below and close a week below that 13 week, I will raise a flag there. And that's something to be of concern. So that's

14,300 is the April gap where we have the downside risk, too, that I want to pay attention to. You think we've seen a decided trend change? Can we make that call yet in tech? I do not think so. Absolutely not. I think if we look at the broader picture, as in let's talk about how there's GDP growth and there is such a slowdown in the labor market. The productivity that we see there is the health, the pulse of that, and that is all with technology and AI and that boom. So that's necessary. That will translate to earnings. That's going to take some time. We just are very, very oversold at the moment. There has to be a rotation. There needs to be broadening out. We're going to get to the bottom of that trading range, great buying opportunity, and then we'll go right back up. Perhaps we'll consolidate,

but that's going to translate. Definitely broader bull. I am definitely a bull in the longer term, consolidation in the short term. Yeah, Apple is an important one to watch. Talking about consolidation, I thought our poll was very telling with half of those who voted suggesting, yes, stocks going lower. We asked, could it go to 150? You know, comment on Apple as I look at it down another one and a third percent. How important you see it right here where you think it may be going from here? It's very interesting. 173.26 is actually Apple's 26 weekly moving average.

So that's the two quarter price. That, I want to see that close above 173.26, which is we're hovering at right now. That could be the area of support, sending it rebounding. I think 150 is a little low, but from a technical perspective, this is its testing moment right now. Yeah, that's why I love you technicians.

You get right specific, right down to the penny. Jessica, thank you. I appreciate that very much. That's Jessica Inskip. You hear them cheering, but for the second day in a row, the cheers don't match the action because the Dow is going to close not at its lows, but not that far off either. Things certainly deteriorated a bit over this final hour of trade. With that, I'll see you tomorrow.