Closing Bell - Closing Bell: Strong Economy, Strong Markets? 10/17/23

Episode Date: October 17, 2023

Can good news for the economy remain good news for stocks, even if it means yields go higher and stay there? Adam Parker of Trivariate and Cheryl Young of Rockefeller break down their forecasts. Plus, retail sales came in stronger than expected today. Evercore ISI’s Greg Melich gives his take… and what he’s expecting from the sector as we head into the holiday season. And, star VC investor Rick Heitzmann is weighing in on the IPO market and where he thinks valuations could be headed from here. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with more evidence of a hot consumer economy scorching bond investors, sending treasury yields to new 16-year highs and boosting cyclical stocks at the expense of big tech. The S&P 500 index made another trip toward a four-week high before again backing off around midday. But the small cap Russell 2000 is popping for a second day in a row as banks catch a bid as well after reassuring results from Bank of America. Which takes us to our talk of the tape. Can good news for the economy remain good news for stocks,

even if it means yields go higher and stay there? Let's ask Adam Parker, Trivariate Research founder and CEO and a CNBC contributor, and Cheryl Young, Rockefeller Family Office private wealth advisor. Welcome to you both. Good to have you both here. So there's the setup, Adam. I mean, the soft landing scenario, you haven't seen much of anything to really disturb that. Market has been trying to make its peace with yields at these levels. I guess putting on a brave face, you have this rotation away from

big tech. How does it feel to you? I mean, my bias is that we can go higher over a few months. And, you know, the market's been remarkably resilient to some pretty extreme politics and global risk. I think most people came in this year under allocated to U.S. equities, believing, you know, bond yields look attractive, and they haven't fully participated in this rally. They didn't own a bunch of Tesla and NVIDIA meta on Jan 3rd and hold it all the way through. And so I think there could be a pretty big chase. I don't believe that good news is bad for the market for a sustained period. It can happen briefly when people get worried.

But basically, good news is good news. And answering the question in your teaser, there's lots of evidence historically that the stock market can work with bond yields rise because often they're both emblematic of better growth. So I think that the risk-worth skewed to the positive, at least through earnings here. Sure. I mentioned the good news that we got evidence of this morning was largely the retail sales coming in very strong. Even industrial production was OK. At the same time, Fed officials have been out there saying, OK, we're not going to necessarily look to do a whole lot more from here. Is that a green light for stocks or do we still have to say, how long can this growth last? How long can the economy withstand higher yields?

Look, I think this is a market where you have to be very picky in terms of what you own, because there are green lots on some sectors and some stocks. But I wouldn't be excited about the overall markets at this point. I look back at this COVID hangover effect I think we've had. And when I look at people I know, they are traveling, eating out, despite the higher costs. And so the feds are saying, hey, we have to get inflation under control. But people are saying, I don't care how much I'm spending. I'm going to go on these trips.

Consumer credit card debt passed a trillion, highest level we've ever seen. Savings rates have been cut in half in the last year. I look at the markets and say, how can people keep spending? And the retail numbers this morning were phenomenal. But that actually concerns me a little bit. Yeah, I mean, they're spending like it's like a 3.8 percent annualized growth rate in retail spending. That's about what wages are up. All right. That's a nominal number. So it's strong relative to what we were expecting. But I guess it's really this tricky point where you say, is it sustainable? Is it are we going to kind of fall off quickly in terms of activity?

You know, I don't think we're going to fall off quickly. I think if I gave anyone a project, tell me what the U.S. consumer's condition is. And I said, ingest any data you want, whether you look at wages and jobs, which really multiply by each other, are the revenue in this analog. And they're still pretty good. You can talk about just saving shore, other stimulus. You can talk about 90-day credit card delivery. No matter what I tell you to do, you're going to say the consumer is in good shape in absolute terms, but it's getting a little bit worse.

Right. So the market can work in that scenario if it really is a sustained Goldilocks, which is people think they're done hiking or there's one more. We're certainly on the other side of that cycle, and earnings don't collapse. And that's what I think is going on, at least for the next few months. There was some interesting commentary. Richmond Fed president, I believe it was, barked at him today. And he, Cheryl, got at your point about this sort of willingness to spend more.

And he's basically saying, one thing we didn't bargain for is, you know, there's a cohort of relatively wealthy investors. They own stocks. You know, they saved a lot. They didn't spend a lot down. They have a lot of home equity.

And they're out there being pretty aggressive with it. It also pairs with this idea that older Americans are spending pretty heavily, 65 and over. They're traveling and doing whatever. And I just wonder if that changes the Fed equation or puts them on more of an alert for we may have to do more or is it just going to be about inflation? Yeah, I think we might have one rate hike ahead of us. I don't think it's going to happen at the end of October, but maybe 50 percent chance December or January it could happen. And I think feds could keep rates longer at a higher level than we originally had thought.

But to Adam's point, there are still a lot of healthy things in this economy that I'm excited about. And you have to look at where the opportunities are and be maybe willing to sit in a sideways market and be patient, which works really well for options, which is a lot of what I do. Oh, is that right? Yeah. For selling them. I sell calls. I buy puts.

Okay. On a day like today where we've had these massive swings, it's been really fun. Yeah. That's right. Yeah. Fun with having big swings and no big net moves is okay. I was just thinking about your kind of 65-year-old cohort. I mean, if you look back at data 30 years from now, couldn't you say, wait a minute, this is like the greatest period ever.

Like the equity market was a rip fest while you were getting rich and working. And then as you got a little bit older, all of a sudden you can get 5% on bonds. And now, you know, you're spending because you're like, all're like, all right, I'm sure your book's the same way. Every advisor I know just had a huge increase in people buying short-duration treasuries. People bought the two-year at 5%. So their business is down short-term, but it's the right thing to do for their clients. I'm not saying hers, but a lot of those advisors. Right, now the clients are pulling in 5% off of that.

Yeah, so if you're a rich guy, you're sitting on $20 million, and you rip from equities the last, now you can make a million a year and do another. So I think people are spending because they're like, I'm locking in some decent money. So what you're saying is for 70 years straight, things are breaking in the direction of baby boomers. Yeah, that's right. I think 30 years from now, people are going to look back and be like, these 30 years from now, if equity markets are going to be bad, people are going to be like, what happened?

We need to jump to a news alert right now on U.S. Bankrupt. Leslie Picker here with that. Hi, Leslie. Hey, Mike. Yeah, those shares are higher today. They were up as much as 11 percent, although they've come down a little bit since the news first broke. This is an 8K filing basically saying that the Fed is releasing them from some stricter regulation that they had been engaging in as a result of an acquisition that they had made. So according to the 8K on October 16th, the Fed provided notification to U.S. Bank that it has been released from commitments to basically provide quarterly implementation plans as a

Category 2 banking organization. That's usually for banks that have more than $700 billion in assets. There are various categories according to asset size. And Category 2 would be basically the second largest tier. But as of the end of its second quarter, U.S. Bank was under that threshold, yet still reporting as a Category 2 under the requirements of this acquisition that it has as of December 2022 with MUFG Union Bank. So as part of that deal, they have been undergoing kind of stricter regulatory plans with the Fed. And now, according to this 8K, they have been released of those commitments. So shares popping on this news up about 6 percent right now, higher earlier when the 8K was first filed. And U.S. Bancorp is scheduled to report its

earnings before the market opens tomorrow for the third quarter. Guys, or Mike. Leslie, yeah, no, interesting. Thanks so much. And boy, it's a good encapsulation of like the way banks are viewed right now. Like hurricanes, like category two. Exactly. Exactly. We just had a little bit of capital freed up. It changes the entire equation for what the net present value of the business is worth. On the other hand, I mean, just in general, we do have banks as a whole up a couple percent again today. Bank of America's numbers, pretty good. And I guess, Adam, it gets to your point, maybe we get into broader earnings on this too, which is, you know, they said

consumers slowing down from strong levels. They are kind of a toll taker across the entire U.S. economy and things remain OK. And credit loss rates are normalizing from low levels. They don't look bad on a pre-pandemic basis. Yeah, it's funny. Last Monday, I guess, eight days ago, I was looking at Truist and it was trading, you know, 7% plus dividend at seven times earnings. And stock was getting awfully close to March 2020 lows. And, you know, I sent the email to my team saying like, let's look at all stocks that are near March. Like these are real companies. They didn't really do anything wrong. Pretty good geographical

footprint. Maybe nothing should be near March 2020. Well, certainly we had more fears about. So I think there's some things that just got really, you know, kind of oversold, even with a hold to maturity issue or whatever some of the banks have. So, yeah, they're cheap, I think. But people worry about next year being a regulation nightmare. And so it's hard to get super excited about them trading at premiums to book. Right. But some of these are trading below book and probably have pretty safe dividends. The upside is definitely kind of unclear beyond a certain, you know, let's normalize the valuations maybe. Right. But, you know, it's also the fact, Cheryl, that you haven't had any nasty surprises out of the bank numbers that have come out so far.

And I think that's one of the things that unnerves investors about what's happening in the bond market. Not so much that we've never seen, you know, 5 percent, 10 and 30 year rates before, but that we got here in a hurry from a period when nobody was necessarily prepared for it. And what did that destabilize in the process? Yeah, you have to wonder about the mark to market. I mean, look, we saw this in March with a couple of banks that have now been acquired and are no longer with us. And so I don't really worry about the bigger banks. I do very much worry about the regional banks. We look at the amount of debt that's coming due. Regional banks have a lot of floating debt.

They also have a lot of bonds that maybe are a little bit too long in terms of their duration. So this is an area, you know, financials are flat on the year with the S&P up 14%. So massive, massive underperformance among banking stocks across the whole. But I'd be very, again, picky about what banks you want to own in your portfolio. Yeah. It's low net high gross. So I don't think you want to have massive exposure. But I definitely think with financial conditions tightened, all of our work shows we're better at picking winners from losers and banks in that regime because some of the bad ones get sort of left behind. Yeah. But the

question is, are there good ones trading near March 2020? I think there might be. And that might create a little bit of a short term trade. Sure. Yeah. Stick with me here. We do want to get to another one of the big groups moving today. Chips taking a major hit, the SMH ETF falling. But now well off the lows. This on the back of news that the U.S. is planning to further restrict chip exports to China. Christina Partsenevel is here with all the details. Hey, Christina. Yeah, that's because the U.S. wants to cut off China's AI industry. And like you said, by announcing new export restrictions that include even more advanced computing chips and close any shipping loopholes through which

third party that involve third-party countries. So if you sell an AI chip to China, you're gonna have to let the U.S. government know. NVIDIA's AI chips made specifically for China are now restricted. The stock off earlier lows, but still you can see down 5%, and still down 5% after they said they don't expect a near-term meaningful impact on their financial results. Whereas equipment maker ASML, for example, says the restrictions would impact sales in the medium to long term. Intel also makes China-only chips, and AMD has been working with Chinese hyperscalers, so both of those companies could also be subject to controls and why you're seeing the shares sell

off today. Separately, though, I want to bring your attention to shares of VMware. They're lower on a report from a Chinese outlet that Chinese regulators need more time to review Broadcom's acquisition of VMware. And of course, that has some investors spooked. VMware shares are down almost 7%, Broadcom down over 2%, but Broadcom just got back to me

and a spokesperson tells me that they still expect the deal to close October 30th. But what timing, right? Given the restrictions out today? Absolutely. So only two weeks to sort out if that's if that's going to be on track. Christina, thank you. You know, it's interesting, Adam. I mean, do we have to now look at this group, at least NVIDIA, maybe some of the other directly exposed ones as you know, I mean look, for Google, like, you know, it's the entire world except for China is the end market. Or is it just kind of friction that we have to work our way through?

Did China front load a lot of demand of buying of NVIDIA chips and maybe it's not that big a deal? Or how do we sort it out? I mean, I think the immediate reaction you heard or summarized from NVIDIA and ASML were the same, which is there's no near-term impact, but it might be medium or long-term. But at the end of the day, it's all about timeframe. I mean, NVIDIA, to me, has the best product in the early phases of a 10- to 15-year trend. So, of course, the stock's going to be worth way more in, you know, two or three and five years. Whether there was a surge through, I mean, everyone I know wants the thing to go down 20% so they can buy some. Right. So it's never going to go down 20 percent. Right. That's

what I'm close to 18 percent. Actually, people want to. Yeah. You know, I think they reported, you know, since they reported the whole Nasdaq, you know, sold off, too. But, you know, I mean, like a relative underperformance of its peers. Yeah, I think people want to own it. So, look, can China produce the same power and speed of chips right now on their own? No. So the question is, can they is this some sort of political thing? And then they will have to come back to them later when they need them. We'll see. Yeah. So I'm skeptical that NVIDIA's product can be substituted by anyone else anytime soon. Cheryl, I know you've been kind of saying you want to be buying dips in some big tech. Does this qualify with the semis here? I would say yes. You know, semiconductors are

actually lagging the rest of the technology index as of today. And I said this when I was on the show last time a few months ago. I thought actually mega caps had gotten a little bit overextended and these names are expensive. So I sold at the money calls on some of these names and feeling really happy today because now those calls have made up for any of the downward and these names are expensive. So I sold at-the-money calls on some of these names. I'm feeling really happy today because now those calls have made up for any of the downward movement, and I can add to those names with the proceeds. So it works out really well. It keeps me disciplined.

But for me, any of these mega cap names, and especially in the semi space, I would be buying on these dips. The AI game is not revenue-producing yet, but there's a lot of potential. I'm interested in, Adam, in some of the work on NVIDIA. You mentioned over the next five or ten years they have the best product, but the implied size of this market, if you really want to compound at this level, is wild. I mean, it's way bigger than the cloud infrastructure business. The answer of every paper I've read this year is you need more compute. Whether it's actually AI, which is a pretty misused phrase.

Most of what people are doing is, you know, systematically doing things more efficiently. At Trivariant, we bought an NVIDIA GPU. It's out on EQIX a couple months ago. We're able to efficiently do work, but the amount of generative work probably is a little bit inflated. We'll see. But, you know, look, in terms of the mega caps,

I think of only NVIDIA as being a direct chip maker. Some of the other ones are going to make subscale chips. So again, like it's AMD's got a product in Q4. There's some stuff coming out of AVGO. But at the end of the day, like, do you want to look back three to five years from now and say, I had exposure to the companies with the best compute in the mega trend? I think the answer is yes. I think you do. And I think you've wanted it already. I mean, it is up, what, 10,000 percent in the last decade plus. So, yeah, I'm a fan of sticking with this trend in any three, five or 10 year. And if you're smart enough to get it right in a three to six month view, you know, God bless America. I just think that, you know, there's this nagging question and I don't have the answer, of course,

is this like the build out of,, is, is this like the build out of fiber optics and the build out of database with EMC 25 years ago, where it was like, you couldn't buy enough of it until you had too much of it. There's going to be two kinds of companies. Those that have enough data can wall it off in a guard, predict their customer and employee behavior and be efficient with it. Fire firms are paying lots of money to high-margin software data services and fire employees and do some.

I think that stuff's going to take a really long time, and it's going to take many, many years. And so I think this is a really long trend. And by the way, as you know, you need to get new GPUs every two to three years. And so it's just going to be a constant kind of growth for a long time, whether it's mid-singles to high-singles and we're paying for mid-teens, that's a slightly different debate. But of course, you're going to pay more early. And you just had the two biggest upward sales revisions of any mega cap company ever the last two times NVIDIA reported. So, and I think limited chance they miss going forward. Yeah, trillion dollar market cap

can seem like a lot or a little depending on what happens from here, I guess. Yeah, I mean, Apple's three trillion, so, you know, close, two and a half, two seven. All right, Adam, show, great to talk to you. Thanks so much. Thanks for having us. All right, let's get to our question of the day. We want to know, is this an opportunity to buy NVIDIA stock? Head to at CNBC closing bell on X to vote on that. We'll share the results later in the hour. We are just getting started here. Up next, surprising consumer strength. The XRT rising today on the back of better than expected retail sales numbers. We'll hear from an analyst about how he thinks this could impact the sector as we head into the holiday season.

We are live from the New York Stock Exchange. You're watching Closing Balance. Consumers' activity has slowed down. It moves around from which category has been in the aggregate across $4 trillion, 37 million checking customers. It's slowed by half, and that means the consumer is being slowed down by the interest rate environment and all the stuff going on. That was Bank of America CEO Brian Moynihan on Squawk on the Street earlier today, saying he sees a slowdown in consumer activity

despite the stronger-than-expected retail sales report this morning. Joining me here to discuss is Greg Mellick of Evercore ISI. Greg, it's good to have you here. It's maybe some mixed signals coming out. The unequivocally strong number from the government retail sales report today, you know, also some upward revisions from the prior month. On the other hand, you know, some of the card tracking data maybe is more ambiguous and universally expectations

that the consumer is going to show some fatigue before too long. Where do you come down? We're in the slow drip deceleration is here. It's frankly been happening all year, but it's not collapsing. And as long as we get good jobs growth, we don't think U.S. retail sales are going to go nominally negative, which I think is the what the bears are really ultimately thinking. Right. So so nominally, certainly still pretty, pretty strong. And of course, it's feeding into some of the GDP models for the third quarter, close to 5 percent annualized growth. So clearly seems pretty robust, I guess, just not even across the retail space. And to me, the big question is, look, if you see weakness in certain segments, has the market already figured that out?

You've punished the dollar stores. You know, electronics has not been a hotspot within retail. So where is there opportunity between what the market is priced in and where the consumer is still strong? It's a great question. I think if you look at it from a category standpoint, you can see it all year and just continuing. The big ticket discretionary categories, things like electronics and appliances, home improvement, home furnishings, department stores, all those categories are down nominally year over year. So all the growth is coming from restaurants, drugstores, some unique areas like auto parts where people can't afford new cars, so they're fixing up their old ones. So there are a few categories that are driving all of the growth, and a lot of the bigger ticket discretionary ones

are down. In terms of picking retailers and stocks, we think this decelerating environment is perfect for retailers that are gaining share. And we love to look at traffic as part of that. It can't just be by taking price. In fact, it really shouldn't be by taking price. It should be by winning more customers than you had. And if we look at our top names, our top five portfolio is Costco, Walmart, Kroger. And then we look for O'Reilly Automotive and Sherwin-Williams to round out the top five. So to me, those are companies that are winning share and they're doing it in a way that they

can therefore be more profitable and come out of this stronger. Yeah. And certainly seems as if, you know, it tilts based on your process toward net defensive things like Costco and Walmart. On the other hand, interested in Sherwin-Williams. I mean, is that simply because, you know, stocks down enough? Is it a call on housing activity or something else? You know, Sherwin has been our favorite in the whole home improvement space. So the three names we do recommend there are Sherwin, Home Depot, and Tractor Supply. But Sherwin is the one that we think has a nice margin story this year, that they finally have raw material costs coming down.

And the pricing from the prior few years is flowing through to help good gross margin expansion. The other thing is the category tends to be a little bit more defensive than a lot of other areas of home improvement. So it's a little less cyclical. So I would say that's why Sherwin is the horse we're riding in that area. O'Reilly is another one that you point out. Yes, it's technically consumer discretionary, but in reality, it acts more like a staple. If you've got to keep the cars and the vehicle fleet running and we can't afford the new cars, to us, that's still the share gainer and the winner in the space. Is there any way to try and handicap both how holiday is going to track from

here and, you know, how to play that within the market? They don't always link up and maybe sometimes we overplay the, you know, the holiday themes. But how would you approach it? Look, it's part of our job. So holiday sales tend to, all the normal fundamentals are in play, like what's job growth, et cetera, and confidence. But what happens more is the wealth effect tends to happen is bigger. So watching how the stock market does sort of between now and the next month, along with home prices holding up, are two things that we think will help holiday sales maybe grow three or four percent, if that would be better. Our forecast is two and a half, just to be clear. But if we're going to see upside in holiday sales in those bigger ticket consumer discretionary

categories, it's usually the wealth effect that gives you that extra little bump. Sure. And things like, you know, maybe more reliance on credit among some consumer segments, things like that that seem like they're starting to maybe fray around the edges of the spending story. Does any of that get your attention? It absolutely does. So we're starting to see some cracks in the consumer credit market. A lot of that, I think, is consumers' unwillingness to pay the higher rates, but also banks' less willingness to lend, given some of the challenges early in the year of Silicon Valley Bank, etc. So I think when you put those two things together, we're just set up for a slow, steady retail deceleration, not a collapse, again, as long as we have jobs. And so the key is finding those retailers that are gaining

share, that are merchandising right, that have more traffic. And that's why those are the ones that we're leaning into. I think that'll be true this holiday more than ever. And value. I shouldn't ever forget that. With that strong consumer balance sheet being chipped away, retailers that can lean into value are also the ones that are winning. Yeah. And presumably value is one of the reasons the traffic is up in certain places as well. Greg, appreciate it. Thanks very much for the time. Thanks, Mike. Greg Malek. Up next, star venture capitalist Rick Heitzman is back. He'll break down his thoughts on Wall Street's latest IPOs and where he thinks valuation should be headed from here. He'll join me at Post 9 right after this break. Closing bell. We'll be right back. Welcome back to Closing Bell. Wall Street analysts out with a number of bullish

calls on Instacart this week, but shares still trading well below their IPO price. Our next guest says that trend of lower valuations could be in store for companies looking to go public in the months ahead. Here at Post 9 is Firstmark Capital's Rick Heitzman. Rick, good to see you. Thanks for coming by. Hey, good to see you again. How's it going? All right. So we had a little bit of an early flurry of IPOs. I think if there was something that unified a lot of them, Instacart, Arm, you had a somewhat mature, privately held story with somewhat motivated sellers, people who felt it was time. What does it mean more broadly to you how the markets receive those? Well, I think it's people are taking their medicine. So the valuations you saw in maybe 2020, 2021 might no longer be real valuations.

So Instacart took a significant step down to go public. Klaviyo, which is a very, very strong company, took a step down to go public. And even Loom selling to Atlassian last week took a step down to go public. Clavio, which is a very, very strong company, took a step down to go public. And even Loom, selling to Atlassian last week, took a step down to go public. But overall, those are all really good exits and all probably pretty healthy valuations. Right. I mean, I guess if you look at any publicly traded proxy for those types of businesses, they're probably down 60% from the highs in early 2021. So nothing that unusual about it. It shouldn't be that unusual. And, you know, in general, kind of mature investors are saying, hey, this might not be where we held it two years ago, but this is a good return for early investors. It might be a time for this company to transition

into the public markets or sell the business. So let's not get all caught up about where you were and let's focus on where you're going. What types of themes or types of companies now seem like they're well positioned? Because it has changed to some degree. We go back to early 2021 and it was kind of everything application software. And what about now? Well, it was go, go, go growth. Yeah, that's right. And it was all growth all the time. And now you've seen the companies that are popular now or companies have done a great job transitioning over the last two years, going from growth to profitability, focusing on unit economics, focusing on the underlying operating metrics. So Clavio, which took a significantly lower discount than some of those others to go public,

is a company that has great growth, growing 50%, 60% a year at scale of a billion-dollar company, and they're profitable. So they have good underlying financial metrics in addition to growth. And those are the companies that are weathering the storm the best. You know, when we talk about the Magnificent Seven, whatever little subcategory of companies, these like acclaimed winners of the economy right now, we give them near trillion or trillion dollar plus or multi-trillion dollar valuations, presumably because their franchises are impenetrable and you can't challenge them. What does it mean for somebody trying to create opportunities in disruptive companies, in new innovation? Are they kind of using up all the oxygen?

They're taking up a lot of oxygen. They have a low cost of capital. And also, they're probably responding more quickly than anyone we've ever seen in history. Early in my career, I've been doing this long enough, our startups would compete with IBM. Then our startups competed to a certain extent with Google and Microsoft. But now I think Google where they are today, Microsoft where they are today, Amazon where they are today are responding much more quickly to changing environments. And that was kind of personified in what we've seen in the AI world. We're trying to you know we were just saying filter

through the early run of earnings so far and and one of those themes has been obviously companies looking for profitability trying to pad margins. How do things feel in terms of just end market demand enterprise side of things what spending levels look like and then I guess even on consumer. Well it's a little bit soft you know we've seen a little bit of softness both on the enterprise and the consumer, despite being pretty strong, we've also seen, you know, the early signs of weakness. So a little bit of consumer credit decreasing, all the savings from COVID has gone away. So, you know, therefore, what does that mean for 2024? It means that the

companies have to be stronger. They have to know their customers better. They have to be able to acquire their customers better and they have to focus on profitability. I know you're kind of hosting a meeting of your own investors here. What is the appetite like now for, you know, private startup or near startup businesses? Because you have to imagine, you know, it's pretty fresh in people's minds. Oh, yes. How you had a little bit of a bust after the boom. Well, I think we're saying, hey, here's what we're doing. We believe that, you know, it was free money for a while.

You know, zero interest rate environments made everybody a venture capitalist. So almost everybody a venture capitalist. And now you're retreating back to venture capitalists are people who've honed their craft for decades, who really like to work with early stage companies and help kind of champion those companies through hard times to success. So you're really seeing a pullback even from the entrepreneur side and focusing on the experienced investors. And therefore, we're also seeing a pullback from entrepreneurs who were the tourist entrepreneurs and really people who want to build good companies. And those are the folks we're coming together with now to hopefully build the next generation of great companies. As you look at your portfolio companies or even just across those held by

others, is there an itchiness, an urgency to try and create exits at this point? And does it seem like there's a backlog? There's a backlog of companies who need capital or need to do something over the next 15 months. SVB came out with a study saying there's 6,800 companies that either need to raise money or exit by the end of 2024 if they don't cut their burn. That's an enormous backlog that only a portion could be handled by the existing venture capital dollars or even M&A exits to the biggest players. So there's going to be a number of companies that are going to face a reckoning in the next 12 months. In terms of fresh new opportunities, is the AI theme dominating everything and therefore are the AI victims going to become a new theme as well? They will become a new theme. People,

again, people who can't adopt, right? So we see AI as there's individual AI companies. We're also seeing a lot of AI-enabled companies. So a lot of classic enterprise software companies are getting powered by AI or incorporating AI into the model. And even consumer companies are doing the same thing. If you look at kind of the travel assistance or even Waze telling you how to get home the fastest, we're seeing AI being incorporated. But if you're not, if you're not staying ahead of that, you're not saying, how is AI going to affect my business over the next three years? You're going to be left behind. Rick, great to catch up with you. Always good to see you, Nick.

Appreciate the time. Enjoy the meeting. All right. Up next, we're tracking the biggest movers as we head into the close. Christina, standing by with that. Hi, Christina. Hi. Well, electric vehicle deliveries disappoint and an activist investor looking to cut costs at an apparel giant. Their stock action next. Under 19 minutes till the closing bell. Let's get back to Christina for a look at the key stocks to watch. Hi, Christina.

Hi. Well, let's start with VF Corp, the maker of Vans and North Phase. It's having its best day since 2020 as activist investor Engaged Capital pushes for changes at the company, including a board refresh. The firm also says it sees room for over $300 million in cash savings. VF Corp is down about 30 percent this year, and Engaged Capital believes its plan could put the price in the mid 40s within three years. Shares are up 14 percent today on that news. And Lucid is lower after missing analysts expectations for deliveries in the third quarter. The EV maker also posted a 32 percent drop in vehicles produced compared with last year. And that's why shares are down almost 6 percent today, down almost 30, about 27% year to date.

Mike? Christina, thank you. Last chance now to weigh in on our question of the day. We asked, is right now an opportunity to buy Nvidia stock? Head to at CNBC closing bell on X. We'll bring you the results after this break. Let's get the results of our question of the day. We asked, is right now an opportunity to buy NVIDIA stock?

Stock is down at almost 5% today, down 13% from its high. It is close, but most of you did say no, not quite yet. Yeah, pretty much neck and neck right there in terms of yes or no. Well, the stock is up a cool 200 percent year to date. Up next, United Airlines reporting in just a few minutes. We'll bring you a breakdown of what to watch when those numbers hit in overtime. That and much more when we take you inside the market. We are now in the closing bell market zone. Steve Leisman is here to share the latest Fed speak headlines and what today's retail sales number could mean for the next move. Plus, Leslie Picker for the wrap up of big bank earnings of Phil LeBeau looks ahead to United results out in overtime today.

Steve, we'll start with you. Pretty unequivocally strong retail sales number for September. It collides with a bunch of Fed speakers who have, I think, in general, been expressing no real hurry to do much else on rates, although you did have Barkin out today talking about lags, talking about the consumer that's maybe been a little stronger in some pockets. How does it all net out to you? Well, first, let's talk about retail sales. For the moment, it looks like a game changer in terms of Fed policy and that last quarter point hike, Mike, because what's happened is November is not really in play.

It's very modest when it comes to the probability. However, when you look at December, it goes up. And now January is the new place where they're starting to talk about a rate hike there. We start to price one in. It's over 50 percent. So what's happened, and I'm going to layer in Barkin now. Barkin is saying, yeah, we can be patient. But that means not doing anything immediately.

But when they do get around to doing something, it seems like markets are starting to think more and more it may be a rate hike. And this comes after, you know, feeling pretty definitive the last couple of weeks of FedSpeak saying, you know what, it looks like we're going to be on hold and we reach the place where we don't need to do anymore. And one of the reasons, Mike, I just want to make clear, it's not just backward looking data. What's happened with this third quarter strength of retail sales is beginning to rethink the fourth quarter. And the fourth quarter now looks like it's going to be stronger. So that quarter, Mike, in which you're probably as sick as I am of hearing, is the one where we're finally going to get the slowdown. Maybe not now.

Yeah, exactly. I mean, I think people were saying, OK, fourth quarter, you're going to have a big payback and maybe you're going to have less than one percent GDP growth. But we're in it now and it doesn't seem to be giving way. And, you know, just to your point about, you know, pricing in a little more on the Fed side or at least staying there, the two year note yield did pop above five point two. You know, that's the first time this cycle. And so that kind of gets you to where Fed funds more or less are at the moment. And so if you're saying that's over the next two years where it might average a long way of saying higher for longer is making its way into the market. You're mike and that's really important i was actually going to mention that because when you think about what a two-year note is well it's the average of overnight rates uh

over two years so if that number goes up it tells you not just that the one thing if the six month or the three month or the one year went up but when the two year goes up quite so much it tells you that people are starting to bake that in. And in fact, I can put some numbers behind that, Mike, because what's happened now is the belief in rate cuts is now being pushed forward. It was May on a bad economic day. It had been June kind of on average. And now you got to get to July of next year before more than 50 percent before there's a more than 50% probability of a rate cut. Yeah, so we're talking eight, nine months. All right, Steve, thanks very much.

Appreciate you breaking that down. Pleasure. Leslie, banks, you know, Bank of America feeling a little bit of a benefit from its numbers. Goldman Sachs not so much. What are the takeaways? Yeah, there's a big difference in kind of how these companies are leveraged to the overall trends of rising interest rates. So far, we've had five of the big six that have reported all beating on the top and bottom lines. Citi, JP Morgan, Wells Fargo and

Bank of America each hiked their net interest income guidance. So higher for longer rates, allowing for the biggest firms to over earn on loan making. Now, that's a boom for their bottom lines as the capital markets remain muted. But for firms with, say, less exposure to lending, a la Goldman Sachs, rising rates continue to have an impact. That firm reporting a $700 million plus hit to earnings thanks to legacy investments in private equity and commercial real estate that have depreciated in value, thanks in part to those rising interest rates. And higher rates also led to $131 billion worth of unrealized losses on Bank of America's balance sheet.

CEO Brian Moynihan, though, said on CNBC this morning those losses would never be realized. Tomorrow, we'll hear from Morgan Stanley, several other larger regional banks in the latter half of the week. So each of them have their own tailwinds and significant headwinds, especially for those regionals that we will see. Absolutely. And, you know, the market implicitly saying, as you mentioned, if Bank of America is kind of a proxy for the U.S. economy more than anything else, if you're able to look past the unrealized losses that will never be realized in treasuries, then you can pay up for them. But for Goldman Sachs, even though there were tons of those extraordinary items,

really write-offs of sort of dead ends to the business from the past, it still was a misallocation of capital, I think, in the market's mind. And what do they do now, absent a really busy deal calendar and the capital markets looking like they're risk on again? Yeah, obviously, they're kind of in that camp of being super leveraged to the capital markets. And they led three of the biggest IPOs in September. We talked about them a lot. Klaviyo, they had a leading role in ARM. And they led Instacart as well. All of those were a boom for fees for equity underwriting. Advisory's still a little muted as fewer transactions close during the quarter, but their plan, their strategy is really to build up their asset and wealth management business

to kind of compensate for the more volatile returns that they see from their capital markets business. Now, in the quarter, that took a 20% decline in revenue as a result of some of those legacy investments that we talked about. But they did see inflows of about $7 billion. I believe it was, I forget the exact statistic, like 24 quarters in a row or something like that of inflows into this business. And so that's something that they've been touting as a more stable, predictable base. The problem is, of course, with these legacy businesses that they're looking to unwind in the mean term, you start to see some lumpiness in terms of just that business when you break it out.

Yeah, no doubt. Obviously, they're chasing Morgan Stanley along those lines. We are going to hear from Morgan tomorrow, I guess. Where's the state of expectations? Because I have seen some analysts do some downgrades on the stock in the weeks coming up. Yeah, the question really is, some of it is on this cash sorting phenomenon that we've seen elsewhere. The question is, what are the wealthy doing with their money? Are they keeping their deposits at Morgan Stanley or are they seeking higher risk-free yield elsewhere? And so that's going to be the key question when Morgan Stanley reports tomorrow. As you mentioned, the investment banking environment, still very muted. Capital markets, some bright spots, but nothing to out-earn other pockets of the business. So it will really look to what's going on with wealth,

how are people, where are they putting their money, and are they still kind of doing that cash sorting, or is that mostly behind us? Yeah, it'll be a big one for a glimpse into that. Leslie, thanks very much. Phil, what are we looking for most importantly with United today? I think it's what we're going to expect for the fourth quarter, Mike. You know, we know that the summer was strong for United and really for all of the airlines,

especially United with its international route. So three things are really going to be standing out about the Q3 numbers. First of all, what are they seeing in terms of domestic demand, especially the strength of the consumer, the revenue picture there? We've heard some stories about some softness at the lower end of the market. Are they seeing that at all? International? We know it's red hot right now. What about Tel Aviv? And then, of course, the Q4 guidance. As you take a look at shares of United over the last three months, keep in mind that what we heard from Delta last week was a narrowing of its guidance for full year earnings.

Do we hear the same thing from United? Remember, its last earnings guidance for the full year was $11 to $12 a share. And don't forget, Mike, tomorrow morning, a Squawk Box exclusive. Scott Kirby, CEO of United Airlines. We'll talk to him about the Q3. But I think more interesting, what are we expecting for Q4, not only for United, but for the airlines overall? They've got a lot of headwinds that are out there on the cost side, and that's going to be front and center in our conversation.

Well, no doubt. And, you know, for as much as they say demand looks resilient, it's a more rational industry. The stock still trades at four times earnings. So the market seems to say this can't last. I think the market is looking at the overcapacity that's there, especially on the lower end of the market. And they're wondering if that's going to creep into the higher end of the market, the premium players, the Deltas, the Uniteds, the Americans. Gotcha. Phil, appreciate it. We'll talk to you once those numbers are out for sure. As we head into the close, you see the Dow is almost flat. The S&P 500 was down as much as three quarters of one percent at the lows. It is also down to near even. It did make another run up toward 4,400,

got back up to about a four-week high, was not able to stay there. The Russell 2000 over the second day in a row is the standout. More cyclical stocks on that strong economic data and higher yields are performing. The Russell is up almost 3 percent on a week-to-date basis, though, of course, digging out of the big hole. Market breath, notably strong for the second day in a row in the New York Stock Exchange. About 70% of all volume is on the upside as the S&P tries to finish just about flat on the session. That's going to do it for Closing Bell.