Closing Bell - Closing Bell: Summer Rally Refresh? 8/7/23

Episode Date: August 7, 2023

Can a stealth pullback centered on select mega-caps be enough to refresh the summer rally? Or is a tougher gut check is due as August unfolds? Trivariate’s Adam Parker and Citi’s Kristen Bitterly give their take. Plus, BTIG’s Jonathan Krinsky is getting bullish on energy. He explains why. And, Gabriela Santos of JP Morgan’s gives her forecast for the fed. 

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner here at Post 9 at the New York Stock Exchange. This make or break hour begins with a reversal of the reversal. The broad index is recapturing the ground lost in Friday's sharp afternoon sell off, even as the retreat in Apple shares continues through another session. The S&P 500 again pushing above that 4500 level as another rush of earnings and a key inflation report await in coming days. Which brings us to our talk of the tape, where we ask whether a stealth pullback centered on select mega caps can be enough to refresh the summer rally. Or if a tougher and broader gut check is due as August unfolds. Here to discuss all that is Adam Parker, Trivariate Research founder and CEO and a CNBC contributor.

So, Adam, I mean, there were all kinds of reasons it made sense to anticipate a little bit of chop coming into August, seasonals, sentiment, technicals, you know, valuation, arguably yields are doing what they're doing. But corporate America has kind of shown its hand on earnings for the most part this this earnings. Better than anticipated. The consensus is holding up on a forward basis. Where does that leave you in terms of whether, in fact, the market can skate without much more of a correction? I mean, if you're reacting week over week or, you know, say over the last month, I don't think the data make you more negative. No. I think if you were starting July 1 saying I'm 50%, we're up 10, 50% we're down 10, I'm

like 60, 40 up now because I think the big companies deliver pretty solid earnings results. They're out year earnings, the 24 earnings are up pretty much for all of them, Google, Amazon, Meta, Nvidia's numbers are up, they didn't even report yet. So I don't think in that broadening debate that I get in every meeting, I don't think you have data that supports selling the big ones yet. So I think the low-end consumer is holding in. I think the dream that 24 could be good is starting to grow. So on the margin, I think the data are slightly more optimistic.

I mean, Apple, that's a little bit of a breakdown that would get your attention if you were just staring at the chart and said, oh, we raced above $3 trillion market cap. And then you get a mostly as expected earnings report and you're down 10 percent. Right. Microsoft trading pretty heavy since its result. I guess the question isn't so much can these big companies deliver on their promise of being resilient and having good profit margins that are defensible. But is the market kind of saying, yeah, we've been here for a while and we priced it in? Yeah, I think the market was anticipatory.

But in order for the rally to broaden, you either have to believe that the other companies are going to have better relative earnings revisions upside to their margins and earnings and a better trajectory, or that their multiple is somehow magically going to expand relative. And it is true the cap weighted universe is very expensive versus the equal weight. So 21% premium, it's about the highest really since the unwind of the tech bubble 20 years ago. So you have valuation support for the broadening, but usually you need the catalyst of the relative margins and earnings to be better. I didn't get that in this earnings season yet.

We'll see if that's what's coming. If you do get lower commodities, you get less wage pressure, then that would be the bull case for margin expansion and the broadening. It seems like you now have most people content in saying that recession watch has been called off for now. Beyond that, I wonder what people are expecting in terms of whether we're just going to be in this kind of late cycle muddle through environment. Yeah, stocks are expensive, but the Fed's almost done. And there's always kind of offsetting factors that seem like you could argue either side. Yeah, you get more into, you know, equity investors get increasingly anticipatory. I remember, you know, 100 years ago when I covered Intel, they raised CapEx. The stock went up because people thought, oh, demand must be good. They're building the facility. Right. Then the next cycle, they raised cap backs the stock went up because people thought oh demand must be good they're building the facility right then the next cycle they raised cap back stock gets creamed because everyone saw what happened they put too much capacity play so this cycle

everyone's been increasingly anticipatory the fed is not dovish but everyone knows we're kind of toward the end of the cycle one more hike no more two more the more of it's behind us in the front of us and so you've seen the relationship between Fed fund futures or the perception about rates and multiples. The price of earnings totally changed, and now nobody cares. Hawkish, dovish, the multiples have gone up in both cases. So there's no doubt people are anticipating the end of the cycle. So I think to me what's interesting is to get to 5,000, so let's call it 10%, a little bit more upside,

and that I think is what required to say I'm going to walk in and be bullish on equities incrementally. You've got to pay over 20 times the consensus 2024 earnings for the S&P. The market doesn't usually stay at levels that high. So the only way that's right is either there's upside to earnings next year. Right. Or, hey, it is the beginning of a new cycle, and earnings are going to grow, let's say, five more years in a row. Or as far as I can see, again, sort of like 2012 to 19.

And if that's the case, then yeah, equities are going to look better. Or it overshoots to that level and then backs off because none of that comes through. Or we get the pullback. Or we get a 10-15% pullback. It's got to be one of those three things. And I think when I talk to investors, I think the bull case probability is growing in their minds. You dress the market up usually in an election year. I think people think there could be incremental stimulus from China. There's a lot of incentive on decarbonization, on industrialization, on automation. The low in consumers really comes up and is hanging in there pretty well.

So people are starting to have a, and this could be and that could be thing. That's a higher, it's a more plausible, less unicorns and lollipops sort of thing than it was six months ago. Sure. Yeah. Makes sense. So let's bring in Kristen Bitterly of Citi Global Wealth into the conversation. So Kristen, you can definitely build the rationale for why the market is here now that the market is up close to 20 percent, S&P 500 up 30 percent off the low, which after a non-recession bear market is about what you get in the first year. So do you think that that rationale has substance to it or are we just kind of telling ourselves that this makes sense?

I think once you break down what's actually been happening with earnings over the past couple of quarters, it tells a very different story. And this is something that's becoming more frequently discussed, the concept of a rolling recession. So not an economics recession, but profits recession. And so if we look back to Q4 of last year, we had seven out of 11 sectors already in a profits recession. Same thing with Q1. And now Q2, you're looking at about six out of 11 sectors in profits recession. So when we're trying to explain the overall index level, when we're trying to explain the appreciation in the S&P 500 and that concentration, it starts to make sense, right? A lot of the activity is driven by the profitable, positive free cash flow generating companies.

And so the question really becomes, does that have breadth to it? And is it going to expand given the outlook for rates and the economic data? And I mean, the market itself has without a doubt broadened out. I mean, by the time, you know, the complaint about it's only seven stocks going up got into its fourth week. Honestly, I think that whole theme maxed out and then we would have been broadening ever since. I think the question is earnings trough. Maybe you can check off that box. Second quarter looks like the worst, perhaps, at least in terms of the year-over-year. And definitely through the end of 2023, for sure. Yeah, it's mathematical certainty. Yeah.

Disinflation has been pretty persistent since October. I guess the question now this week with CPI coming, are we going to have a rethink on that? Is that what the bond market has been hinting at, that in, inflation expectations are going to be a little more stubborn? I think at the end of the day, you almost have to say, how should an investor be positioned in coming into all of this? And one of the biggest mistakes that you could have made at the beginning of the year is making that decision between being either all in or all out. And even if you were someone who is hiding out on the sidelines in cash, your year-to-date performance is probably just slightly north of 2%. Whereas if you had actually stuck with a diversified portfolio, 60-40, that had one of the worst performances

last year in history, now you're talking it's up around double digits year-to-date. And so I think it really boils down to, from an investor positioning standpoint, this idea of diversification, that there are really attractive opportunities in terms of not only kind of the short end of the curve from a fixed income standpoint but also extending duration and locking in some of these yields and then from equities stay diversified and so I know that sounds really simple but as you look at the different things that could play out going into year end don't market time and actually be balanced and diversified and you'll benefit from some of these things. Yeah, the idea of going longer term in fixed income and locking in positive real yields at these levels,

I think that's maybe you're finding this with clients that you have a little bit of a job to do persuading people of that just because the cosmetic nominal yields at the short end look too interesting at this point. Equity guys always hate that, too, because if it's long enough, we dream things will get better. Yeah, right. And then we could beat the guaranteed yield. I think you have to look at the collective yield of your portfolio, though. And so it's undeniable that on the short end of the curve, whether it's three months, six months, those are really attractive yields at 530.

But you have now all of a sudden, with some of the dialogue, you have real reinvestment risk. And so if that's your cash holding, that's fine. But if this is part of a diversified income strategy or fixed income strategy, that's where you can see locking in even five-year yields at these levels is something that's compelling or at a bare minimum doing kind of a barbell approach and adding diversification and high-quality fixed income assets. Adam, when you say that the very largest high quality stocks haven't given you a reason really to step back from them, does that mean that you would want to overemphasize them or is there stuff happening elsewhere in the index that's interesting?

There's definitely stuff interesting elsewhere. I view the biggest names as risk management stocks anyway. I mean, if you're trying to beat the S&P 500, I'm talking about just in the equity part, you know, you really don't know anything about those companies that's not in the price. I mean, if you're trying to beat the S&P 500, I'm talking about just in the equity part, you really don't know anything about those companies that's not in the price. I mean, there's 60 sell-side analysts and let's say, what, 4 million buy-side analysts covering those names. How can you possibly know something? Their returns are explained by macro factors. So my view is hug that 30% bench weight that those big guys are, and then try to get your performance elsewhere. I think in reality, almost everyone I know that's an active manager was underweight that big group because it's hard to charge one and a half and 17 and then just own Microsoft. Yeah. Right?

So you've got to go down, and what's happened is you're going down in an area where the returns have been worse, and it's just harder to make up the excess return. So I think people want the broadening to happen so their performance can get up, but most people I know were not overweight that group. So to me, it's risk, management, not alpha. The other 70% of the market, there's a lot of things that are going on. I think my highest conviction you view in any six-, 12-month view is to own energy. I think you're starting to see that market act better.

I think demand's going to exceed supply. The stocks are cheap. And I would want people to be as overweight as they could be energy in their portfolio. I think my second highest conviction thing is underweight retail. I think any physical box that sells items has so many headwinds. I think you saw some of the transcript work we did where whether it's stealing, which they call shrink, but I prefer to call it stealing, or growth in the stores or their financing arms, there's a lot of negative trends there. So I like sort of long energy, short retail, you know, as a between now and you're in. Kristen, you talk about the rolling recession concept or earnings downturns that are kind of

not necessarily all lined up at once, which makes sense. And it's the way the economy, I guess, behaves most of the time is that things wax and wane. But it's a reminder maybe that outright recessions tend to come when multiple things go wrong at once or there's some kind of a shock. So you can't anticipate it. But do we have the preconditions for that lining up? I mean, I know that that jobs number on Friday seemed kind of picture perfect in terms of Goldilocks and, you know, right in the middle of what people might be worried about. But you hear the persistent recession callers say, yeah, it always looks that way, you know, six months before jobs go to zero on a monthly basis.

Yeah. So I think you have to look at some of the risks right to that, which would obviously be a massive deterioration in the employment backdrop, would also be just inflation being stickier. And maybe this print that we get this week is a little bit of a head fake in terms of some of the base effects that we're anticipating and some of the things that we already know. And I think the thing that, at least for us at Citi, that makes the most sense is this concept of it's a slowing growth environment. And so it's not necessarily that, because you have to remember companies and consumers came into this year very, very well positioned from a balance sheet standpoint. And what would ultimately derail that? And it goes back to those risks that I mentioned. So this slowing growth, and you can see it even in Q2 earnings, when you look at the earnings beats that you could argue are off a relatively low threshold, when you actually look at that from a top-line revenue, it's

very different, that story. So a lot of the profitability beats are based on inflation coming down, are based on cost discipline and expense discipline. That top-line revenue is starting to get a little shaky in some areas, barring some very minor idiosyncratic results. There's always a tension between the economy and stocks. Oh, yeah. Right?

And I always, I used to, you know, the economists sometimes to me are looking at like a different planet. Like to me, stocks go up when margins go up. Right? And so that's been a playbook for 20 years with semiconductors. Right? So I think that's a huge point. If the input costs come down and companies can have higher margins than 24, than 23,

you don't want to be negative on equities. I think it's that simple. The other point that has acted as, I think, a comfort to a lot of folks, if you look at the credit markets, it seems that financial conditions are loose enough to allow things to continue in this way. On the other hand, are credit markets giving us a useful signal of forward-looking strength? I've been confused about how financial conditions are looser now than they were at the beginning of the year when we had Silicon Valley Bank and Signature, et cetera, in between. I think part of it, if you talk to folks who are trying to get non-recourse loans for construction from a regional bank that can't get one uh... real estate commercial states possible

boots on the ground it's a little bit more difficult than any you know actual stated data look so i'm not sure the i'm not sure i could say all i think loan growth we better going for that it was pretty bad that's what it's a little bit tension between the how that date is measured the reality of what i mean the s and b going to twenty times earnings in the vix going to twelve tell that's loosening financial conditions and just not credit. And those are part of the calculation

of financial conditions for the two major financial condition index that people look at is the market itself and the VIX. But the reality of getting a loan, I think, is more challenging. And I think that's something when we're talking about the health of the consumer and where we would see cracks in that, the first market to widen out is going to be credit spreads. And so right now you see really tight spreads, except for some minor exceptions, which are all in areas that we know very well, whether that's commercial real estate, office space,

some of the areas that we know are going to be stressed going forward. So I think that's one of the metrics to watch very closely if there are any cracks when it comes to the health of the consumer. The monthly master trust data that banks put out, I think is pretty useful. 90-day credit card delinquencies. Yeah, they've ticked up a tiny bit, but they're still super low versus any historical context. So I think the bottom line is the low-end consumer can get a job and feels pretty good. Gas is down at the pump a ton from a year ago. Their real income's up,

and they're still able to do okay. So I think you need the employment market to get way worse or inflation to pick back up again. And they're worried about the week-to-week bills. Short of that, I think the low-income consumer is OK. Yeah, when the big macro worries are wage growth is about 4 percent. And almost everybody with a mortgage has the rate below 4 percent. And that's why the regional banks are in trouble. Right.

And gas is down a dollar at the pump. And that's what people kind of do week to week. Although on the way back. Yeah, on the way back. But your beer. Kristen, in terms of the whole staying diversified story, does it encompass globally? I mean, where where would you say you had to maybe branch out? Absolutely. So one of the things that we've been doing really over the past couple of weeks is adding international exposure and adding actually small and mid-cap exposure. And the reason for that is just more the underweight positioning. When you look at the average investor, there's very minimal exposure period within those two areas.

So I think the small and mid-cap argument, a lot of people are aware of that in terms of trading at about a 30 percent discount. And then when you look at international, international is trading at about a 40 percent discount to U.S. equities. Or another way to look at it is U.S. equities currently comprise about 65% of market capitalization, but only 50% of profitability. I'll add two more arguments, though, for international. One, the currency one. So if you're a U.S.-based investor, you have the equity appreciation as well as a dollar play there. And then the second part is when we think of, and this is something that's a lot easier for investors to do in this type of market, when you think of long-term trends, the ones that dominated the past 10 years, smartphones, social media, are not the same ones that are going to dominate going forward.

And that's much more of an international play in longevity, the rise of the middle class in broader Asia. And so having some of that international exposure, longevity, the rise of the middle class in broader Asia. And so having some of that international exposure, you can clearly benefit. I think if we sat here long enough, we would agree on 80%. It's hard to agree on 100. I spent most of my career not liking international. And I've always thought, oh, Europe's good for me. The valuation thing is always there.

The valuation thing is always there. Every cool thing that happens, like AI, is the U.S., you know, and they're always cheaper for a reason, right? So I'm torn on that. I think sentiment, when I'm out there talking, is the most for, you say, Japan, or you like energy, Adam, I'll buy the European ones. They're cheaper. And I just, I wanted that true-up between GDP and capital markets and that true up between valuations and rates to happen. And before, it has allured me in the past, but I've been burned by waiting for that. That's my only caveat. I know what you mean.

It hasn't felt like you've been penalized. I agree it looks good, but then. You haven't been penalized for being parochial. You know, yeah. So it's like. But when you look at expansion into a region like Asia, for example, a lot of that has always been focused. China, right, was was the biggest topic and really dominated a lot of the investing conversations. Obviously, Japan now much more front and center, given what's happened there.

But I also think markets like whether you're looking at Indonesia, looking at India, you see some of the wealth creation and some of the innovation that's now happening. It creates a compelling argument for the broader Asian economy and markets and not just the China. We've got to leave it there, but we're going to sort out. We're going to, you know, we'll forge world peace in other times. But we appreciate it. Great stuff. Adam, good to see you. Let's now get to our question of the day. We want to know what's the likeliest economic outcome by mid 2024? Soft landing, hard landing or a reacceleration of growth?

Head to at CNBC closing bell on X. That is what used to be Twitter to vote. We'll share the results later in the hour. Let's go to check on some top stocks to watch as we head into the close. Seema Modi is here with us. Hi, Seema. 41 minutes left in the hour, Mike. And shares of BioNTech are firmly in negative territory today after the company reported a sharp drop in revenue due to declining demand for its COVID-19 vaccine.

As a result, the BioNTech firm says it will trim its research budget to cut costs. The news is also weighing on other big COVID players, including Novavax and Moderna, which are down about 5 to 6 percent. Elsewhere, Tyson stock under pressure after missing estimates on earnings and revenue. The company is seeing a number of headwinds from falling chicken prices and pork prices, along with slowing demand for beef as well. You'll see shares are down nearly 5 percent today. Mike? Seema, thank you. We are just getting started. Up next, trouble in the technicals. BTIG's Jonathan Kerensky is back. He's flagging the one sector that could see some serious downside and the one he's betting on instead. We are live from the New York Stock Exchange.

You're watching Closing Bell on CNBC, the Dow up 3.8. Welcome back to Closing Bell. The Nasdaq 100 rebounding today after its worst week in nearly five months as this year's mega cap momentum has been under some recent pressure. But our next guest still sees technical trouble ahead and more upside in one of this year's lagging sectors. Joining us now is BTIG's Jonathan Krinsky. Jonathan, good to see you. You know, I started this hour by essentially asking, you know, can a localized pullback in just the big NASDAQ stocks be enough to refresh this market? What do you see in terms of the NASDAQ, which is now down NASDAQ 100, 3.5% off its high?

Yeah, I mean, I think it's not a coincidence that we got the NASDAQ 100, 3.5% off its high. Yeah, I mean, I think it's not a coincidence that we got the NASDAQ and many components of the biggest components within the NASDAQ back into the area of the late 2021, early 2022 highs. We started to stall out and now we're seeing, you know, some early evidence of maybe some waning momentum and even some downside momentum in some of those key names. Obviously, Apple front and center selling off pretty definitively, breaking its year-to-date uptrend post its earnings. But there's a big, big important support there around 176, 178, kind of right where we're trying to bottom today. So I think this week will be telling. If Apple can hold this zone and resume back up, then, you know, no damage done to the bigger structure. But a failure at this at this what is major support would be a pretty good indication that things are pretty tired.

And, you know, in those mega cap tech names, you know, recently, obviously, it's been more a matter of the market being able to rotate away from danger where it popped up and keeps keep itself supported on the S&P level. What are you seeing in that regard, whether in fact there's enough kind of diversified strength in the tape to to keep us here? Yeah, I mean, I think rotation is happening. You know, the issue is given the size and weighting of tech, you know, where tech goes kind of drives the S&P. But I think if you're not beholden to the S&P, there is some opportunity. We've been highlighting energy over the last couple of weeks, starting to show some renewed strength. I mean, if you think about last year, it was kind of the opposite, where tech did awful and energy was the only sector doing well.

This year, energy is about flat year-to-date, even with the recent rally, while tech's up 40%. So we think some rotation back into energy is making sense. Obviously, you have crude breaking above $80. $82, $83 is pretty important resistance. But if you get through that, we think it opens the door into the high 80s for crude. And then today, you're actually seeing a potential breakout in natural gas as well. So you've got a lot of things working for energy, whether it's the XLE or kind of the down cap, some of the E&P names are starting to work. So we think there's opportunity there below the surface. I just don't know if that's enough to support the S&P given the weightings there.

Sure, yeah. I mean, mathematically, it's obviously an uphill battle if the biggest group does not participate or pulls back. I wonder if it beyond energy, if things like I was looking at the regional banks doing reasonably well in the past month, even as yields have risen, in other words, bonds have been selling off. And that was the main problem back in the spring. Right. The losses they were potentially going to have to take on their fixed income. Do banks or broader financials qualify as an area

that you think has some potential to catch up? I mean, look, banks certainly got the oversold rally. They were beating up the most, obviously, into March. There could be a little bit more upside in banks broadly, but they don't really screen that well for us technically here. What we do find interesting, actually actually are the REITs, which are still the worst performing sector over the last 12 and 18 months. So really a contrarian view there. But over the last several weeks, we're starting to see some upside momentum. Some of the office REITs like SL Green and Ornado breaking above their 200-day moving averages, starting to inflect higher. So I think from a contrarian standpoint, you're getting some of those names starting to work. And especially as you get later in the year and investors kind of look for the catch-up type trades, we think REITs offer some insulation

there. Again, historically, they tend to be more defensive. Obviously, given the structural issues with office REITs, they're not so defensive of late, but we think there is some opportunity there as well. Now, that's very interesting, especially that you're focused on some of the really extremely beat up office names because, you know, the REIT indexes are really dominated by things like the cell tower and data center stocks. So the office guys are really coming out of the trench. Jonathan, we've got to leave it there. Appreciate it. Thanks, Mike. Talk to you soon. All right. Up next, countdown to the crucial CPI number. JPMorgan Asset Management's Gabriela Santos says the Fed's next move hinges on this week's big data

in a big way. She'll break down her forecast after this break. Closing bell. We'll be right back. Stocks in the green across the board to start off the week of trading as investors await Thursday's critical July CPI print. My next guest says she expects to see more disinflation, which could mean the end of the Fed hiking cycle. Joining me now here at Post 9, it's Gabriela Santos of J.P. Morgan. Good to see you. Good to see you. Certainly the market is poised, I think, to expect more disinflation. Have that story unfold a little bit farther. Now, how low we get in terms of inflation rates? Who's to say? Anytime soon. What do you attribute the yield

move higher to if it's not necessarily about Thursday's CPI? So I do think the we do think soft landing hopes have really been justified. The probabilities have moved higher. The real economy side is looking good. Demand is just normalizing, not collapsing at the same time that you have this disinflation process. And we do think it'll continue without the Fed needing to tighten policy further. So really, it hinges on that disinflation continuing and lessening any kind of policy-induced recession odds. But I do think it's been interesting to see long-end yields move higher. Really, since early May, they've moved higher by 70 basis points.

And it's not really about shifting Fed expectations because the two-year has gone nowhere during that moment. So it seems to be about 20 basis points higher inflation break-evens, maybe just related to commodity prices moving higher at that time. And then real rates, it might be a combination of just technicals in the bond market, a little bit less demand from foreign investors, and a lot more supply, as we heard last week. And if that's the case, you do have the opportunity to capture real rates and longer-term bonds right now. I guess the question is, does it create a real restraint on the economy beyond just a nice soft landing? And can the stock market digest it okay? So I think it's been happening for over three months and the stock market just did not care.

It was happening in the background. And I think it was just the suddenness of the move last week where at one point, 10-year yields had moved up nearly 30 basis points in just one week and had reached that near 15-year high level of 4.2%. Crossed above 4, yeah. Exactly. So I think it was that suddenness of the move. From here on out, I think it depends how long we stay at these levels. We don't think for very long, which is why you want to take advantage of it by leaning into duration.

And I think it's why it's happening. And critically will be to watch those inflation break-evens. Do they keep widening and then all of a sudden we throw into question the disinflation narrative, the Fed narrative, the soft landing. Or is it just about bond market technicals, in which case stocks can go back to ignoring that move? Exactly. So if you think the Fed won't have to tighten further from here, and let's say that's the case, you'll have some folks come and say, well, you know, it's about six months after the last Fed rate hike that you have on average a recession scare if not worse or you know stocks tend not to bottom so to speak till after that. Can we really put a lot of credence in those things? I just wonder because it seems like this whole cycle has been kind of scrambled in terms of you know the cadence of how

markets have behaved with regard to the Fed. I think you're totally right. It's not a normal business cycle in the sense that it was really driven by the pandemic and we have all kinds of distortions happening, which is why we came into this year expecting a hard landing, expecting a recession. And we've had to revise that now, given the data. I do think soft landing can get extended into next year because we've gotten two really interesting pieces of information over the last, let's call it 24 business hours. First is better improvement on the supply side of the economy. We got that on Friday with productivity moving higher. So that means that unit labor costs are moving lower and you can

continue to see disinflation. And the second one is the interview with the New York Fed President John Williams with the New York Times suggesting that the Fed can lower rates next year because they're focused on the real rate. And it doesn't you don't need a hard landing to have rate cuts. So the Fed can help land this plane together with the improvements on the supply. Yeah, that was it's absolutely kind of kickstarted that storyline again. have rate cuts so the Fed can help land this plane together with the improvements on the supply. Yeah, that was it's absolutely kind of kick started that storyline again. Of course, the market has been projecting the potential for rate cuts, but maybe that was just seen as an insurance policy against the downturn in the economy, as opposed to

the Fed saying we don't have to keep them up here that long. Aside from maybe thinking about longer term bonds, you know, to add right here, what on the equity side makes sense to you? I mean, have we priced in a lot of this soft landing expectation? So we would say the number one thing is to take advantage of the bond sale, extend duration. That also allows you to take more risk on other parts of the portfolio. And we do think the change in the macro landscape does warrant a higher allocation to equities. The trick is it took a lot of guts to be in the equity market in the first half of the year, given all the uncertainty. From here on out, it's going to take a little bit more heavy lifting, meaning we need to be a bit more selective

and think more about the alpha, not just the beta. We're excited by two stories, for example, beyond the mega cap tech. The first one is industrials. You have this huge rise in industrial policy around the world, a lot of capex. That's been a very positive surprise so far this year. And the second one is non-U.S. You still have large discounts that just aren't warranted by a change in the macro and the governance figures especially around

Europe. Japan and parts of emerging Asia all right you broke the tie earlier we had a debate as to whether or not nine U. S. or U. S. was the place to go get really good to see you thank you good to see you thank you all right up

next. We're tracking the biggest movers as we hit into the close and later PayPal popping the fintech company making a big push into the crypto space. Looks like investors are cheering the news. All the details right ahead. Closing bell. Be right back. Coming up in 18 minutes until the closing bell, the S&P holding on to a three quarters of a percent gain. Let's get back to a three quarters of a percent gain. Let's get back to Seema Modi for a look at the key stocks to watch. Seema. Hey, Mike, let's start with an industrial player, United Rentals.

Stock is up about 4.3 percent following multiple Wall Street analysts, including Barclays and KeyBank, raising their respective price targets on the stock this morning. KeyBank to.25 a share. Analysts there say an improvement in the non-residential market will increase demand for United Rental's equipment. But let's turn to, and of course does follow a nice rebound in the broader industrial sector, which has been a bright spot for the overall market as we've been discussing today. Let's turn to travel now. Booking Holdings' record rally continues with the stock up another

5% today and now up 13% since reporting earnings last Thursday. JMP Securities raising its price target on the stock to get this $3,600 a share. Analysts there calling it the stock to own in the travel space, pointing to strong pricing trends in the second half of this year. Mike? All right, Seema, thanks so much. Industrials and travel, right on it. Last chance to weigh in on our question of the day. We asked, what's the likeliest economic outcome by mid-2024? Soft landing, hard landing, or a reacceleration in growth?

Head to at CNBC Closing Bell on X, formerly known as Twitter, to vote, and we'll bring you the results after this break. Let's get the results of our question of the day. We asked, what's the likeliest economic outcome by mid-2024? Soft landing is the winner. Pretty clear winner, 41.5% of the vote. Hard landing comes in at 30%. After this break, your earnings set up lucid and

paramount. Both out in overtime. We'll bring you a rundown of what to watch in both reports. That and much more when we take you inside the market zone. We are now in the closing bell market zone options plays Jessica in skip is here to break down these crucial moments of the trading day plus Kate Rooney on PayPal's moves in the crypto space and we're monitoring two earnings releases

after the bell. Phil LeBeau is watching Lucid and Julia Boorstin on what to expect out of Paramount. Welcome to you all Jess. We you know the market the S&P 500 kind of gone nowhere in about three or four weeks. It did break down a little bit but we're still on what to expect out of Paramount. Welcome to you all, Jess. The market, the S&P 500's kinda gone nowhere in about three or four weeks. It did bump its head against the 4600 level.

You hear a lot of talk about seasonal weakness in August and sentiment got overheated. Where do you think that leaves us in terms of whether we're in store for a deeper pullback or maybe just a breather? I think we're definitely in the terms of breather territory. I agree with you. We're seasonality. We're in a couple of challenging months as we get into September. However, I think it's important to take note of the levels that I see on the S&P 500 equal weight.

We're looking to overcome the first lower high of the downturn and we need to overcome that level before we can have a new higher high. So I need to see the equal weight index be above consistently on a weekly basis, 6321. I need consistent weekly closes. And I see we failed to make that higher high as we came up to that level. But what I do see is even though we're failing to make higher highs, we're still making that level. But what I do see is even though we're failing to make higher highs, we're still making higher lows. So sideways is a direction that is the best case scenario for a sideways direction is we still have the lows ticking up higher. So eventually, we'd have that broader participation that's needed. See those consistent closes above 6321,

and that would support a new bull-based case for 4600. But I need to see that broader participation first. But a lot of the other fundamental and macroeconomic factors are certainly contributing and pointing to that direction. For sure. You know, we were just showing the equal weight S&P really holding up this month compared to Apple. You know, there was a time and a lot of folks will still say that as goes Apple, so goes, you know, the rest of the market. Apple's down 10 percent from its high. Do you think the rest of the market can can shrug off further weakness there? I certainly do. And I think a lot of that came in what we saw with earnings. Even consumer discretionary was leading the way

with Beats, which is amazing. And that certainly suggest that demand shift from services to goods but I think from this earning season so far is where we can find those details of broader participation. You know there's still year over year increases about nine percent in capex spending that's fiscal spending

reshoring emerging AI which is certainly needed for the job issues in the labor market headwinds that we've definitely discussed consistently. So I think there is broader to participation. That we see with the equal weight that will certainly help

with that base case regardless of apples not there we we know that we need that broader participation to overcome those levels. Yeah for sure that market is kind of answered that criticism in the recent months to some degree that it was too

narrow. I just could thank you so much talk to you again soon to. Kate- fill us in on this in the recent months to some degree that it was too narrow. Jessica, thank you so much. Talk to you again soon. Thank you. Kate, fill us in on this PayPal move in crypto. Yeah, Mike, so this is the first move by a major financial services to launch what's known as a stable coin, and it could help what's been otherwise a pretty slow adoption

of cryptocurrencies for real-world payments. So it's through a partnership. PayPal is partnering with another company called Paxos. They're issuing something called the PayPal USD coin, as it's being called. It's going to be redeemable one for one with U.S. dollars. It's backed by dollar deposits and cash equivalents. PayPal plans to issue monthly reports outlining some of those reserves. They haven't said yet, they have not said what it means for the bottom line,

but there is a chance that PayPal will eventually earn interest on some of these reserves. They hadn't said yet, they have not said what it means for the bottom line, but there is a chance that PayPal will eventually earn interest on some of these coins. PayPal is playing catch up here, though. There are plenty of other stable coins out there. Tether is by far the biggest $83 billion market cap. Their circle is USDC, about $25 billion. And right now, these are mostly used to make it easier to trade cryptocurrencies. You can park these on an exchange. It makes it easier to get in and out of a trade. On the payments side, they don't have the price volatility you see with Bitcoin, which makes them a lot more attractive for buying things like a cup of coffee, for example. And I wonder, is there any other type of transaction flow

that PayPal would hope this gives them more access to? Or is it just about facilitating dealing in crypto coins themselves? So that's the way it's been used now. So people really use it on exchanges. If you want to get out of a Bitcoin trade, instead of cashing out into the banking system, you can just keep it on the exchange. So that's really where these have gotten a lot of uptake.

For PayPal, though, you could see a world where they start using this on Venmo. They use it internally. Folks I've been talking to today say that makes the most sense. They'll start rolling this out in their internal systems. It'll make it potentially faster and cheaper and easier to operate within that PayPal ecosystem. And then they could start potentially offering this outside and trying to get a little bit more pickup there, increase the market cap cap and therefore increase their bottom line if they're in interest on this they're holding things like treasuries.

They're earning interest the customers not by the way if you're just parking money on PayPal that's one of the downsides. Of these you know as a consumer. Sure although that's how you know that's a brokerage firms kind of. Kind

of make their money in large part- to a degree as well Kate thank you so much. Phil, set us up for the Lucid report after the close. Mike, the question is, how stable is Lucid right now? It's had a rough six months in terms of not meeting expectations with either production or delivery. So three things we're going to be looking for once the report comes out in the next 10, 15 minutes. First of all, what's the production guidance? Do they keep it at around $10,000, a little over $10,000, or do they lower it even further? Is demand slowing?

And the reason this question comes up is because many believe the inventory has been growing. Why? Look at what they did today. They announced a price cut of between $5,000 and $12,500 on their models. Now, keep in mind, we're talking about with the base model, which is the Lucid Air Pure. A drop of $5,000 brings you down to $82,400. So it's still a very expensive electric vehicle. And then the Grand Touring at the top end still goes for over $125,000. You take a look at shares of Lucid. Stock was under pressure today, Mike, when people

heard about those price cuts. We'll see what the numbers are in the next 10 minutes. Earnings call coming up at 530. Yeah, and, you know, it's still got a, you know, close to $12 billion market cap, Phil. I mean, what do the analysts think ultimately Lucid can get to, you know, in the next couple of years in terms of volumes? I think that the estimates have been brought down so far that it's hard to find an analyst who says, look, I honestly believe these guys are going to get to 20,000 in production. Things have come down that much in the last year that everybody's kind of hedging their guesses at

this point. Do they make it to the production of the Gravity, the SUV that they plan to bring out next? You know, we don't think that Lucid is going away. Clearly, they've got the Saudi investment fund as a major backer. So this is not a company that's going to go bankrupt. But you've had some rough reports over the last six months, which really raises the question about the stability there. All right, Phil, talk to you again soon once those numbers are out. Julia, probably a lot of moving parts when it comes to Paramount in terms of strikes and potential asset sales. That's right. Paramount's results are likely to reflect some of the broader media challenges, including cord cutting and ad contraction. And yes, also those strikes.

Analysts do expect Paramount's revenue to decline four and a half percent, while the company is expected to report zero earnings per share. That's down from 64 cents per share in the year earlier quarter. Now, investors will be focused on growth of the company's direct-to-consumer streaming business with this integration of its Showtime app into its Paramount Plus streaming app. The company is expected to add 1.5 million subs to Paramount Plus. They're also looking for an update on when the streaming business will turn profitable. This year was supposed to be the peak losses for that business. We're also, of course, looking for any commentary on the impact of the writers and actors strikes, which are ongoing. Another thing we're waiting for news on is Simon and Schuster. Paramount is reportedly close to selling its publishing assets to KKR for as much as $1.6 billion.

So that's another thing we're keeping an eye on. Mike? Absolutely. Yeah, and that's a material number for Paramount, which has under an $11 billion market cap at this point. They've been trying to sell that for a while. Julia, thank you. Talk to you once that report is out as well. As we head into the close, you have the Dow up about 411 points. It is the outperformer today. Names like Amgen, UnitedHealth, and Boeing are leading the way within the Dow. The S&P 500 pushing toward a 1% gain on the day, now up 0.9%, recapturing most of Friday's sell-off, although small caps are underperforming.

They are about flat on the day, kind of a split market. The breadth is negative on the Nasdaq. It is still positive on the New York Stock Exchange with about 60 percent of all volume on the NYSE to the upside. You have the volatility index is getting some relief in terms of coming down, relaxing a little bit under 16 right now. That was above 17 at the highs last week as the S&P 500 again looks like it's sticky around the 4,500 level as it was multiple times last week. Bond yields have calmed down after the big increases in long-term yields last week that took the 10-year above 4%. That's going to do it for Closing Bell. We'll send it into overtime with Morgan Brennan.