Closing Bell - Closing Bell: Tech Slump & Stocks at Session Lows 9/3/24

Episode Date: September 3, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange, the center of the action right now. This make or break hour beginning with the September start for stocks. Not a good one as the major averages remain under pressure here in this final stretch. Let's show you the scorecard here with 60 minutes to go in regulation. Dow's down by more than 600 points right now. But the big story today is at the bottom of the list of the majors. It's tech. It's the Nasdaq down 3 percent. NVIDIA, several other semiconductor names are trading sharply lower today. And the other mega cap names are as well.

And that's where the big laggards are today. Look at Alphabet's down three and a half percent. Apple's down three. If there's any strength today, and you almost put that in quotes, it's in defensive areas of the market. It's staples, it's health care and utilities, and that's just the kind of day this has been. It does take us to our talk of the tape, the ugly beginning to fall trading and what it might mean for where stocks can go from here. Let's ask Adam Parker. He's the founder and CEO of Trivariate Research, a CNBC contributor. He's here with us at Post 9. It's good to see you again.

Always good to be here. You've been warning us, I think, for weeks here that maybe the market was a little too optimistic. What is this about today? Anything? I mean, you can't make a whole leap over one day, but it's an ugly start to a typically bad month. You know, I could argue I'm a little surprised this didn't happen two or three weeks ago a little bit. You know, the recovery from August 5th was sharp. I see a bigger than normal inconsistency. The Fed, what's in the price is eight cuts in the next year.

If we have eight cuts, I got to assume that means the economy's slowing, unemployment's rising, yet the earnings estimates haven't moved lower at all. Right? And I think at some point you have to, well, you have to true all the way up, but they've got to close the gap a little bit. And so I think people come back in September, as we talked about, and they're going to get news that's probably a little bit, that the consumer's slowing, and that the data indicate the numbers have to come down some.

And I think that's, you know, maybe that's a consensus view. I worry everyone thinks September's going to be bad. Well, I mean, eight cuts just doesn't get you back to normal. It does. But why would you know, why would you that unless you get consistent data that things are slowing? Why would you just want to get back to normal? Well, you raise so much. Yeah. That the rate now relative to inflation, I think most people would say makes no sense.

Right. So they need to get it back to whatever level of normal and eight cuts, 25 a piece. That doesn't sound like some crazy amount of cuts that has to mean that the economy is so horrible, does it? I don't know. I mean, I don't know what normal means. Right. I mean, if you if we had this conversation 10 years ago, we just said the 10-year should be at 5, and the 2-year should be at 2.5 or 3, and that's normal, right? You know, and market should be at 20 times. So we're just all disconnected from normal. I think most people are looking around saying, we talked about maybe you fight the Fed this time,

because in the past when we've gotten 25 or 50 bips, we got it with balance sheet expansion. We got it with some incremental fiscal. And I think people are looking out next year saying things are slowing. Stocks are up a lot. You know, I look at today and it makes sense to me. Small caps are underperforming. We've talked about that like 10 times. How does everyone think small caps can outperform in a down tape? I mean, this doesn't surprise me at all. Of course, they shouldn't outperform a down tape. If it's a risk off trade, they get sold. Gross stocks, people are going to play them with mean reversion, right? You got a huge recovery.

Look at NVIDIA, 140 to 98 to 125. The recovery was big. Ultimately, I'm very bullish still on the whole AI deployment, but I'm not surprised that when margins peak and you get a little question about CapEx war, that you're going to get a little bit of a retrenchment. So I don't actually think today's all that surprising, to be honest with you. All right. So you think margins have maybe peaked? Yeah. Are we just at the beginning stages of an earnings recovery? So are we suggesting that earnings in the current cycle have peaked also? No, I don't think they've peaked. I just think right now the market's ahead of the Fed by a lot, right? The market's saying, I know I'm going to get stimulus. I think the market's telling you earnings bottom Q1 maybe and accelerate through 2025. And you're already wanting to pay for some, not all, but some of that recovery. So to the extent that you get a

little afraid the recovery's pushed out or it's a little muted or things are a little bit worse before they get better, you can have a correction. Look, we're still at 5,500 and change. We're still up meaningfully from sort of the low. So it's not like one day corrects at all. I think, you know, as we kind of said, look, same chance of 10% up as we are 10% down. I think there's things going on. I think healthcare is interesting because it's outperforming in a down tape and maybe it can participate in an update. I'm probably more bullish on health care than I was six weeks ago, eight weeks ago. Well, you're skewed more cautious. So health care, the staples, the utilities, the things that are the only areas of green today.

And now health care has even gone red in and of itself. People would look at that and say, those aren't exactly the pillars of strength that you want to hang your hat on in this market. I'm a little bit mesmerized right now by healthcare because I just took this course. I think I told you AI for healthcare, and I'm like the new analyst who everything sounds awesome to, I guess, but I'm like wildly optimistic about what can be deployed there over the next three to five years. So I'm trying to think about whether it acts okay on a down tape, but maybe it can start over the next 12 months participating in the up tape. And all of a sudden you've got a sector that's one

of the leaders for the next few years. So that's probably a new thought for me, but there's no doubt as I sit here today, you know, we did our call, we did the first Monday every month with investors this morning, and it's like, you can't quite true up the fact that estimates are 15% growth next year, haven't come down at all in the last two months, when overall trends are slowing some. That, I think, is an incongruity. So Pasquarello, Goldman Sachs, always cite his stuff. He says today it could feel like a long seven weeks from September's FOMC meeting, that's the Fed meeting, to November FOMC, particularly if the Fed only goes 25 basis points in their opening salvo. I mean, the expectation is that they're going to go 25 basis points,

unless they surprise people. What are your thoughts on on that notion then you have the election looming in 60 plus days not to mention that major and likely volatile event i guess i'll make a generic statement which is historically uncertainty was bad for multiples for stocks and so you're uncertain about the fed path you're uncertain about the economy you're uncertain about the election frankly not only uncertain about the election you're uncertain about the Fed path, you're uncertain about the economy, you're uncertain about the election. Frankly, not only are you uncertain about the election, you're uncertain about the market reaction to the outcomes in the election.

There's a lot of, and so what that means is maybe I should pay a slightly lower multiple right now until I get a little bit more clarity on the path, right? And so that might not be bad for stock pickers because I think there's a lot of individual winners from losers as we've seen through earnings. But I don't think it means, hey, next stop, 6,000, train left the station, idiot, back up the truck. I think we're more in a trading range. And I think you see that with

the growth winners where people are like, you know what? I got to sell some now. I got some of my money back that I lost. I think I should trim some and wait for the next kind of growth catalyst. And look, you're showing on the screen, you know, some of the AI plays. It's also in the power side, which you see, you know, VST and CEG and others. So I think the whole AI thing is taking a pause until people start getting more evidence of productivity in the earnings calls. When you talk about earnings, you lay out one of the key risks when you're worried about earnings to tech and comm services.

Yeah. Which is why you started to suggest, feels like several weeks ago at this point, to maybe lighten up, not be overweight and already large group of the market. Yeah. Yeah. I mean, you know, yeah, our mid-year outlook, mid-July, second half outlook, we said, look, risk towards more balance. I was a little surprised by the correction in early August and the magnitude of the recovery and how fast it was since. And I think now we're going to be more in a trading range. The tech estimates, if you take out the profitless companies and you look at the tech companies that earn money and you track the two-year forward view of earnings, it's actually the highest it's

been right now since 2011. So expectations for earnings are pretty high for tech. And I think that probably means that their relative estimate achievability, their relative revisions will be worse as we get through the October earnings season. So I think the big risk here is Q4 numbers. Q3 expectations aren't as dramatic, but there's a big hockey stick, more than a normal hockey stick in Q4. All right. Let's bring in Brian Levitt now of Invesco and Shannon Sikosha of NB Private Wealth. It's good to see both of you. Brian, you've been sitting here listening to Adam. You want to agree, disagree? What what do you what do you think about where we are here as we start September?

I think where we both agree is we've seen signs leading indicators of the economy showing that things are going to be slowing here a bit. And so it makes sense to be a little bit more defensive tactically in a slowdown. But I actually would suggest that we're starting to move towards better policy clarity than we've had in quite a while. That, you know, if you think not that long ago, we were dealing with 9.5 percent inflation, the Fed raising rates multiple times. We're now on the cusp of the easing cycle. Now, personally, if I was running the central bank, I would have eased earlier than this. So the risk now is really on the growth side. It's not on the

inflation side. The risk is, does this economy remain resilient through this? Right now, basically everything you're seeing with regards to leading indicators, recession warning signs, recession warning signs are not flashing. Leading indicators of the economy are slowing a bit, not collapsing. So it suggests a fairly resilient economy, but a slowdown where things get a little bit, where investors get a bit more taxed. So what would you, you would have done an insurance cut in July? I would have. Just to head off some of the things that you feel. To your earlier point, I mean, we're sitting at a five and a quarter Fed funds rate when their preferred measure of inflation is two and a half percent when the 10-year Treasury is below four, right? It doesn't

make a lot of sense to be this tight. Now, of course, they're still focusing on an environment, you know, a year or two ago where inflation was significantly hot. But that was really the byproduct of a bizarre environment in which we shut down the global economy and didn't have enough stuff on the shelves for the first time in a while. So inflation back in the comfort zone and the economy slowing, unemployment rates picking up a bit. Yeah, I would have been easing. So, Shan, I want to, I guess, jump off with you with a debate over where to be in this market, okay? Because Adam lays out pretty clearly his view about where he thinks you maybe should be and where he thinks you shouldn't. He said,

I don't understand the small caps idea. You've been arguing for broadening areas of the market. Maybe small caps are part of that, too. So are you having second thoughts about that? Help us. No, we're not. I think, you know, Scott, you and I have had this conversation very frequently in terms of our view that we did think that earning expectations for mega cap tech and communication services, that they were a bit lofty. And, you know, whether you want to look at valuation, which is certainly lofty, but I think Adam makes a good point in terms of the vulnerability of the earnings estimates for those companies. Just they look more vulnerable than other parts of the market. We can talk about some of the sectors, you know, this barbell that I think a lot of people

have put on in their portfolio, whether that's, you know, you've got some semis on one side and you've got some health care utilities REITs on the other side. And in the middle are a couple of those sectors that really no one's paying much attention to, right, particularly areas like energy materials. And industrials is one that's a hot topic. And I know Adam and I have had conversations about this over the years in terms of what the opportunity is in industrials. We like industrials. But really, you're seeing a lot of barbelling. And that's because investors are reticent. They're hesitant not to have those positions in mega cap tech because every time we get a sell-off,

there's a lot of volume that comes back into those names. We see that hockey stick, that sharp rebound, and people don't want to miss that. But on the flip side, they kind of know that some of these estimates, they feel a little bit toppy right now. And so I think it comes back to really, Scott, what do you think is happening in the environment? Do you think this kind of noisy normalization, a term that 22V research had in a piece this week, do you think that that noisy normalization is enough to make you feel comfortable being broadly allocated, that this broadening out, this cyclical rebound is going to continue, albeit perhaps at a lower growth rate?

Or do you need to really batten down the hatches in this environment and go completely over to the side of defensives? I would argue that some of those sectors that have been historically defensive, however, have run up based on other megatrends like AI over the course of the last year. So it's difficult to kind of to to execute a true defensive trade in this market. And I think that's why you're starting to see some of this whipsawing as we get back into higher volume, people back from the holidays. So Shannon's made the case, you want to be in these others, the others, including small caps. Yeah, look, I mean, if I sat here and said, what are the themes I think are going to grow above GDP pretty much with certainty over the next couple of years, we'll list them off. AI semis,

AI software, electrication, industrials, housing, healthcare services, life sciences. Those are going to work. The problem is if I only own AI semis and power too, then all my whole portfolio is crushed. So there's a lot of risk in that. So I agree with Shen. You got to be barbelled at some level. And that means you got to find, is there materials for the housing? Is it health care services? I'm going to have days where some of my stuff is down a lot and other stuff is hanging in. Otherwise, I'm really just a huge beta bet, and that's a very risky way to run your funds. But you don't like the financials that they've led from the August low. Yeah, I'm confused.

Maybe I'm too old, but you tell me what rate environment is good for banks. I think what I need is a 5% 10-year and a 2% 2-year. Explain to me how NIMS are going to expand. So I'm a little confused. What about just a normal environment? Yeah, normal environment, banks underperform. I mean, at least for the last 20 years, right? So I need to believe in activity.

I need to believe in asset management. None of their core businesses are that great. So, you know, I don't think the commercial real estate thing is over. So I think after this rally, they're not that cheap on tangible relative to the return on tangible. So, yeah, to me, that's an example of what I don't like. I like industrials more. We're market-weight industrials, but I think there's things in there thematically that make a lot more sense to me. And I'd rather own that for a cyclical recovery than I would, you know, backing up the truck on some regional banks.

Right. I think the big debate is, so when you normalize the yield curve, to your point, normalization of the yield curve should lead to a broadening out, should lead to smaller caps outperform. But the challenge is, do you have a recession in the interim? For the most part, when the yield curve re-steepens on Fed action, you've got an economic event. The hope is this time and the suggestion is this time that you don't get it. So right now, what the leading indicators are saying,

you want to be more defensive, up in quality, lower volatility names as the yield curve normalizes, as the economy picks up activity. If you don't have that recession, you shift into the smaller caps, the cyclicals. But in the near term, we've got a little bit of a challenge. We're waiting for the Fed to get going. And the leading indicators are clearly pointing in the wrong direction. I thought we were supposed to be bullish on the idea of a soft landing. Now we are defining a soft landing, economy slowing from where it was. And the Fed's going to start cutting and getting rates back to normal.

Why aren't we supposed to still be bullish on that idea? Isn't that the definition of a soft landing? Yeah, I mean, I guess. What are we hating what we wished for? We could be, but we had 18 monster months of equity market performance beginning in early 23 under the notion that they were done hiking. So clearly, the market's ahead of the Fed at some level. I would argue while the economy's been slowing and earnings growth has been slowing, it just really started to incrementally surprise negatively.

So to already start paying for a big recovery in, say, the second half of 25, to me, feels a little bit early as someone who was kind of bullish on the market for a long time. So I think it's a little early. I'm with you that you're going to want to own small caps when we get three months from the bottom of the cycle and we're going to start accelerating again. My best guess is that's the second half of 25. In the interim, I got numbers that are high and volatility around some of the geopolitical stuff you talked about, the election and other things. So I just think it's a little early and I want to be a little bit more kind of neutral on the risk here through September and October. Jan, I mean, how do you respond to that?

That the things you talk about and recommend may very well work, but maybe now is a little early because we have too much uncertainty in front of us about the near-term direction of the economy. We have to worry about election risk and the dynamics around the election may have changed slightly in the last six weeks, to say the least. So maybe we're a little too early for areas of the market that you like. How would you rebut that? The rebuttal is, is that, you know, it's very difficult to capture the bottom of that trade. And I don't think Adam would disagree with me in any way in terms of being able to capture just the right point to get more cyclical in your allocations. I think the big fear is, Scott, is that, you know, as it relates to the election, you know,

you're really what you're probably most fearful of in terms of construction of your portfolio are really the two ends of the spectrum in terms of, you know, the outcome. And that seems less likely, whether that's a Democratic sweep or particularly on that side. That seems less likely than maybe it had a couple of years ago. And so I think that sort of takes that concern off the table. As it relates to positioning, though, what you're really concerned about here, to your point about soft landing, is that is normalization the new transitory?

And I think that's the biggest concern right now, because the Fed's really hanging their hat on the fact that this is all kind of normal behavior coming out of this cycle. And so in order to position for that inflection point, it's going to be very difficult, because just like we've seen with credit card delinquencies, for instance, that trend is starting to moderate. They're not going down, but they're not rising as fast. And so if we hit that inflection point, that plateau, that could be the impetus to take on some more of this cyclical exposure. And I would argue that it's very difficult to hit that point exactly. And so I'd rather be positioned for maybe that's this second half 2025. I think it's a little earlier than that.

And thus the positioning into this broadening out trade. This is kind of a reasonable thought. And Shannon is not the only one who probably has it, the idea that if the Fed was incorrect at the beginning, they could be incorrect at the end as well. They managed it in the middle okay, but here we are trying for the land, and it may not be as smooth as the market has made up its mind

that it would be from the August 5th growth scare, Japan, of course, to today. And therein lies the risk. I mean, a soft landing, yes, to your point, it's still on the table. That is a good backdrop for the markets. If you have an economic downturn, I still think markets will be higher a year or two, three from now because you're going to have been peak inflation, peak tightening. That's a good backdrop for markets. So it's really about how defensive do you need to be in the near term? Ultimately, I'm still in the soft landing camp and I believe stocks will be higher. The one last point I want to make, you know, we've talked a couple of times here about the election.

I may be missing it in the data. I mean, the reality is if Biden was elected, I think I looked today, 958 trading days ago, markets up 65 percent. In the 958 days after Trump was elected, the market was up 63 percent. And so I hear people all the time talk about the election. It could bring volatility. It could really disrupt these markets. There's very little to suggest in our nation's history that the occupant of the White House has a significant impact on markets. I mean, it could impact just various tax policy, obviously, at a time where we are debating the impact and some are worrying about the impact of the deficit. Sure. But, you, but you know, when Trump won, everyone would have thought traditional energy

would outperform clean energy won. When Biden won, everyone thought clean energy would outperform traditional energy would outperform. My point is to say that people that get caught too up in this tend to miss what really matters for markets. That's going to be the direction of the economy and what the Fed's going to do. Super quick to you, but I'll give you the last word.

Yeah, I never disagree with Shannon. She always makes a lot of sense. So I think her rebuttal is in the range of things that make sense. He went to the University of Michigan. He's an intelligent guy. I think the only thing I heard that I don't get is I don't think the Fed has a plan. They don't have a framework that I can sink my teeth into to understand it. So the uncertainty now seems different than the fact that they do.

What do you want them to do, hand you a plan, say, dear Adam, we're going to cut? They don't have a plan. And so I don't know if I should be critical of them or not. I have no idea. And so I've just concluded I don't care. I'll focus on the perception about growth. And I think the perception about growth is worse now than it was two months ago. And that's kind of my Dennis Miller, you know, I'm sticking with.

We'll leave it there. Guys, thank you. Take care. Thank you. Thanks you as well. We'll see you soon. Shannon Sikosha. See you, Shannon.

Joining us today as well. Brian Levitt and, of course, Adam Parker. To Pippa Stevens for a look at the biggest names moving into this rough looking close. Pippa. Yeah, that's right, Scott. Well, Boeing shares are falling after Wells Fargo downgrade to underweight from equal weight as analysts see Boeing's free cash flow peaking by 2027 with delays and added costs dragging what the firm said could have been a quote generational free cash flow opportunity this decade. Those shares at a nearly two year low

and video game maker Unity Software in the green on a Morgan Stanley upgrade to overweight. The bank noting that after a really rough year, those shares are down 60%. Unity is now in a position to capitalize on upsides in mobile and gaming. Scott? All right, Pippa, thank you. Pippa Stevens, we're just getting started here. Up next, Maryland Bank of America Private Bank's Chris Heise. Let's see what he thinks about these markets.

More volatility, is that ahead? The VIX is up a lot today. Have you seen that? We will discuss with the Dow down 600 points. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. we're in the midst of a big sell-off today as september begins nasdaq heading for its worst day since the global market route on august 5th my next guest says markets will likely stay on edge heading into year end let's bring in chris Heisey of Maryland Bank of America Private Bank.

It's good to see you. You too, Scott. What do you make of just how this September has started with today? I guess it's like, you know, things that we've seen, the replay over the last few months. Things happen so quickly. Things are fine. And then all of a sudden something happens. Are they still fine?

Oh, they're still fine. Yeah. I mean, if you take a look at the high yield index, the investment grade index, they hit new highs in August. You're seeing participation broaden out. Earnings are going back up and financial conditions are easy. It's not that simple, but I think people push that off to the side when you get days like this. Well, I mean, Adam Parker just sitting in the seat that you're occupying right now and suggests that earnings may be going up. But estimates are not realistic and they're going to start

coming down. What do you think? Maybe for some of the ones that carried the market before, but the other so-called 493 or so, we're starting to see something different. We're starting to see earnings actually go back up again and broaden out. It first was with the relative movement. Now you're starting to see it in an absolute manner. Next year, Adam could be right, where you see a slowdown in level of growth, but the participation is growing. But isn't that a problem, though, if you agree that earnings are going to likely come down for the largest part of the market, while at the same time you're suggesting that all these other areas are going to continue to go up at the same time

that the economy is decelerating? Yeah. How does that same time that the economy is decelerating. How does that make sense? The economy is decelerating, but I would put it more or less and say it's normalizing. It's marching towards normal. It's still slowing. Still slowing. And that's actually a pretty good thing overall when you think about where we were in overall real and nominal GDP. So coming down, broadening out, and I would say it's healthy. And why is it healthy? Because you don't want a corner of the market driving everything all

the time. That basically means that you're going to see elevated premiums and multiples. And I would argue, overall, heading into next year, if you get more participation, which we expect, returns might be lower on an on an annual basis. But deeper, you think it's healthy that your word that things like staples and utilities and health care are, if not leading, doing quite well. Right. Well, that's not typically the makeup of what we would sit here and discuss being a healthy market. If you're bullish. You're right. You're right. I would say that that is a short-term move to so-called hedge some of your excessive beta, perhaps, for some of the short-term. Longer-term investors might want that little extra yield in those areas as yields and fixed income are coming down. But actually, the next eight weeks should be a prime, a very prime opportunity to rebalance your portfolio, get more diversified, and actually let the market activity go in your favor.

But I mean, if we're going to, the next eight weeks, let's just take that time period. We're going to be whipsawed by economic data. We're going to have Fed meetings, eight weeks, Fed meetings. These other areas of the market are going to, you can rely on these other areas of the market. At the same time, we have all of that. And we're worried about the slowdown and an election at the end of these eight weeks. You know, it depends on whether or not you're looking at just the next eight weeks and you're going to stop, or if you're going to position those next eight weeks, which we think, you know, in our opinion, technicals could tell you another 5% to the downside.

So you'd rather be early. You're willing to be early. Willing to be early. Admittedly so. And prescriptively. So you want to use your discipline, take a motion out as long as the fundamentals march towards what we think is a more dehumidifying type of atmosphere, which is you take the moisture out of the market, sure, but you don't create

enough dryness where you see cracks. You say the consumer's stable. Does that mean that you want to be like discretionary as a sector? We still do. The consumer is stable. We don't see signs of a slowdown overall in services. We're seeing selectivity in the consumer for sure, but not a pullback. The area that's most interesting to us is actually financials. And when you think about adjustment rates lower, the market's already doing that for us. The Fed is just going to play catch-up now,

and that should help underpin a tailwind to the financials. I need to go. I'm getting you and Adam Parker together because I feel like you guys, you guys disagree on every viewpoint. He doesn't like the financials. I said, well, what happens in a normal environment for financials? Like they don't do well. They're terrible. I know they're doing fine now because they've been leading the market since the August 5th low, but rates are coming down. The economy is going to be a little slower. Why is that good for how banks make money? Well, because the way that the traditional financials made money yesteryear, it's not the same as they make it today. There's a very different movement going on right now, much more diversified, better capital levels, actually be able to take advantage of an M&A cycle a little bit more efficiently than they did in the past. We can't just look

at the past from a yield curve perspective and say, that's going to happen in the future. It clearly didn't work for the economy as it relates to what happened with the inversion of the yield curve. There's a lot of different makeups going on right now, Scott, that many people haven't seen before. But one thing hasn't changed. When you get easy financial conditions and earnings are stable, that's a good market. So don't fight the Fed. Don't fight the Fed. I have some people suggesting sell the first rate cut. I mean, that's OK. That's OK. But then what are you going to do when the rally hits again heading into next year? Are you going to buy it back again? Too hard a time to market. All right.

We'll leave it there. Heise versus Parker coming to this set. Mark it off, folks. Thank you. Up next, we're selling off to start September. And 314's Warren Pies is flagging some key buying opportunities in the dip today. Going to break it all down next. All right, we are back.

Market starting off September on a sour note. The major average is near the lows of the day as we speak. Our next guest, though, says this is a viable dip for stocks. Let's bring in Warren Pies of 314 Research. Welcome back. It's good to see you. Nice to be here. What makes you think that? Well, I think that today is really about and really what we're going to hear a lot about over the next couple of months are these headline risks, which everyone's familiar with. I mean, I feel like I've listened to the last hour of programming and everybody says the same thing, which I agree with. The next eight weeks are kind of a tough period of time. Seasonal September, last four September has been down. Obviously, the election's a big deal. Fed cuts, nervousness around the economy. I think that those are the optical reasons to be afraid.

But in truth, I think the market has the equation of the market has simplified here in recent weeks. And so basically, it comes down to are we going into a recession? Is the economy going into a recession or not? If we're not going into a recession, I think you look for this week opportunity seasonally to buy in if you're underweight. You have an offensive mindset. And if you think for some reason that the economy is going to a recession, then obviously you need to play defense. But that's our view is that we're not going into recession. Weakness should be bought.

What if what if we agree with you? OK, we say, OK, I agree with that view. We're not going into a recession. But because I don't think Adam Parker necessarily thinks that either. But earnings expectations going forward can still be too optimistic, even in that environment. Wouldn't you agree? Yeah, I mean, I think there is a decent amount priced in. And we've seen that consistently over these years where you get kind of a bolus of earnings out into the future that growth priced in. And then each quarter you go through and the companies have to kind of either talk you

up or down. And what we've seen, though, is that as we've come through really this what we've seen a hockey stick up in earnings here. And yeah, the expectations were high, but they've largely been met. And if under a soft landing scenario, if you think the Fed's going to cut and the Fed's going to support this economy, then I think those earnings estimates, while they're aggressive, I think the odds are that we hit those outside of a recession. I just want to note that as we're speaking here, the Dow is now down by 700. So we're at the lows of the session as we begin September, which we know, as you said, is a seasonably bad time, seasonally bad time for

stocks. What areas of the market would you lean into in the midst of this low of the day weakness? Right. Well, I think it's kind of a process of elimination. So number one, we're late cycle. Even though I think that the soft landing is the base case and we avoid a recession, I mean, obviously the risk you have to control for is that the economy is weaker than we anticipate. And so I've seen a lot of people go to a low quality playbook or kind of an early cycle playbook, which I still don't get. So we saw like the big small cap rally in July. We have been fading that. So I would avoid small caps, avoid cyclicals. I think for right now in this period, going into the first Fed cut,

I'd expect a 10-year fall further in yield. So I think you get this rate sensitivity leadership to continue. And as you get days like this where high quality tech is selling off, I think you're buying that dip in high quality tech. So avoid low quality, lean into high quality. That would be the playbook for a late cycle market like this. Well, when you say lean into high quality and the mega caps are at the top of that list, that things like, wow, let's let's throw up an intraday if we could of NVIDIA, guys, please. It's down 10 percent. So a lot of a lot of these chip names, it's NVIDIA, it's AMD down almost eight. It's Broadcom down as we speak by more than six.

Applied Materials is down sharply today by about seven. Taiwan semi about the same amount. Micron's down seven and a half percent. Would you go as far as to suggest that the chip stocks, which which are underperforming pretty dramatically relative to some of these other tech stocks? Yeah, I mean, it's a dicey area of the market, but I think so. I mean, no guts, no glory. I think that, you know, select areas in our fund and we don't own NVIDIA, but some chip adjacent stocks, I think, are starting to look attractive in the hyperscalers as well. We've been kind of off the MAG7 train for really during the Q2 part of the year. But I think that there's some opportunities if you're going to look to deploy capital. I mean, MAG7 is still significantly below its mid-year highs versus the rest of the

market is making new highs. And I think we've had that rotation, which has been successful. But if you're going to see some kind of faltering in the AI narrative, it should accrue to the benefit of some of these hyperscalers. And so they can't all just fall apart in my view. So this is just a correction. I think you buy those are exactly some of the neighborhoods I'd be shopping in. Utilities, health care. You talked about, you know, the expectations that yields are going to come down. And you mentioned yield plays. Are we talking about that? Yeah, I mean, I think that utilities, real estate, health care, those staples, those those are good places to hide out during this, like, say, eight week period that everybody's afraid of. I do think that, you know, we've been overweight bonds since July 5th. Again, soft landing playbook is that you see yields really fall in anticipation of that first cut. That's going to power these areas of the

market. I think there is a bit of a misinterpretation going on right now, which is that because we have this kind of traditionally defensive leadership going on, that this signals something for the economy. And to me, this is really just rates. This is a rate sensitivity story. And a lot of people are reading a little too deeply into it. But with that said, even though we're positive on the economy going out, I think that you can do well in those pockets, defensive pockets, over the next eight weeks or so. And you're just kind of rotating as those stocks rally out of those stocks and into some of these more economically sensitive areas like we discussed. All right. We'll leave it there. Warren, I appreciate your time as always. We'll see you soon. That's Warren Pies.

Up next, tracking the biggest movers into this ugly close. Pippa Stevens is standing by for us with that. What do you see now, Pippa? Well, Vice President Harris weighing in on the potential materials company merger, sending those shares lower. The name to watch coming up next. We're less than 15 from this closing bell. Let's get back now to Pippa Stevens for the stocks that she is watching. Pippa? Super micro shares are in the green after CEO Charles Lange issued a letter to customers and partners calling the Hindenburg research report misleading. Those shares dropped

27 percent last week on that short seller's claims of accounting manipulation, as well as a delayed annual report filing. But shares of U.S. steel are falling after Vice President Kamala Harris opposed the planned sale to Japan's Nippon Steel. The vice president saying the steel company should remain American owned and American operated in a Labor Day rally in Pittsburgh, appearing alongside President Joe Biden. Those shares down six percent. Scott. All right. Thank you. That's Bippa Stevens still ahead. Chip makers are sinking, as we said in today's session. Intel is leading the Dow lower. We're going to break down that move. Talk about a number of stocks here. Closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day.

Semiconductors, we've told you all show long they are selling off today. Intel is one of the hardest hit Dow stocks and Sima Modi is following that. DeBosa on what is adding pressure to Alphabet shares today. A lot of these mega cap stocks are under pressure. Deirdre is going to join us in a moment with that. Mike, I'll begin with you. One day doesn't a month make, but this is not the way you want to start what is already a usually hard month. No, trying to fit all the weakness that we are expected to see in September into a single day.

We finished at an all time monthly close in August, S&P 500. My framework has been for a while, back at the highs in July for the S&P, you had maximum belief in the soft landing. Fed was going to do the right thing at the right time for the right reasons. You know the whole mantra. We kind of had a question about that. We had a growth scare. We had a, are we sure AI is going to actually have a payback? All that stuff filled in that August 5th low. We had a near 10 percent pullback.

We rebuilt from there. And in the course of rebuilding from there, we got some pretty comforting data on the economy. The decline today in the S&P 500 has taken us exactly back into the range of August 15th. What happened on August 15th? Great retail sales report, Walmart earnings, weekly claims, great. Everything was, hey, guess what? The soft landing is still on. It was just a scare. The soft landing is, you know, the road to a soft landing is paved by constant doubts that the soft landing is going to happen.

So I think we're back in that a little bit. So we're testing a few things on the S&P at the index level. I also think the rotation failed today because when you had the big sell-off in NVIDIA and the other semis, we're talking again about weak hands. Maybe it wasn't justified to have the rally around earnings and all the rest of it. You couldn't get the rotation because of the weak ISM number. And so all of a sudden, even though yields are down, industrials couldn't pick up the slack. The banks couldn't hold the bid. They're outperforming. Again, I don't see it as really a game changer as much as a relapse of the same kinds of concerns we were concerned with a while ago. There was also this back of the mind sense that you don't get a spike in the VIX to 50 plus and then not have a little bit of an aftershock. This could just

be an aftershock. We're up to 20. It's not a big deal, but we're on alert for something like that. So all that kind of bundled together is sort of where I see things. It sort of was set up by the super mechanical levitation at the end of Friday's trading, which everybody could look at and say, well, that's not that's not really based on much of anything. So once that was unwound, it seemed to make things a lot looser on the downside. We did write off, if you will, the negatives pretty quickly from that August 5th day, whether it was the growth scare itself. We had convinced ourselves that the Japanese central bank had gotten the message that we didn't have to worry about that issue anymore. And maybe that's true. But

to your point, we are going to be constantly reminded about different swings in the economic data. Jobs reports Friday. And maybe we get tensed up a bit. I do think that's the case. I mean, look, it happened at this point in the month last time. Weakness leading into the jobs report. Obviously, it was sort of ratified by the fact it was a weak jobs report. Don't know if we're going to get that now. We're going to get jolts tomorrow. So you want to see how we trade around those numbers. I don't see it as people really panicking about the economy.

The earnings, as you were talking about, have mostly held up and done their job. Yields are down. That should be supportive. But it's just, look, there's no constitutional right to trade at 21 and a half times forward earnings if things aren't perfect. And I think that's why you see some of the chop there in the S&P when we have a little bit of that doubt. 60 days to the election. There's just a lot swirling around. Plenty of excuses. Yeah, SEMA semiconductors, we've highlighted them all show long.

We didn't touch on Intel, but you can now. It is one of the biggest, if not the biggest, drag on the Dow today. Yeah, Scott, we'll get to Intel in just a second. But to zoom out here, semiconductors, as you were alluding to, the worst performers right now on the Nasdaq 100. I was just looking at a chart of NVIDIA, not only down today, but now down about 15% when it reported second quarter earnings last Wednesday. Some of its peers in the space,

AMD, Qualcomm, are down as well. This as the market awaits earnings from Broadcom of Ago this Thursday. And yes, Intel out with a new window PC chip that is 30% faster than the previous generation. The stock didn't really move on the announcement, Scott. It's been down all day and down as much as 8.5% now. Investors continue to debate what a restructuring could look like. Bernstein's Stacey Raskin, less positive on a sale or a split of Intel's business. He's sticking with a $25 price target. What is on the table right now, a split, a potential sale of a specific business. Reuters reporting that selling Altera, which Intel bought for $16 billion in 2015, is on the table,

as is selling down its stake in Mobileye. We reported last Friday a short list of decisions will be presented by Intel's management at its board meeting this month. So time is of the essence. And again, that stock price target from Bernstein is $25 a share. The stock currently trading at $20, Scott. All right. Seema, thank you. I appreciate that.

Deirdre, what's going on with Alphabet today? All these mega cap stocks are lower, whether it's NVIDIA or Apple and Amazon, et cetera. But this one's off more than the others, except obviously for NVIDIA from a percentage standpoint. Yeah, they're all under pressure. Let me get to Google first. And the catalyst for this underperformance today was a Morgan Stanley note from this morning that lowered its price target to $190 from $205 in it. They look at different remedy scenarios in the DOJ-Google ruling and conclude that long-term uncertainty is going to keep the multiple lower and range bound in the 17 to 20 times earnings band. That said, the regulatory pressure, that is only set to increase for Google, yes,

but some of the others as we head into the fall also. Already, this has been weighing on Google's multiple. As we've talked about, it's the lowest forward price to earnings multiple of the Magnificent Seven. Zoom out there. You can see that Google has been a laggard for months. Over the last three months,

Alphabet shares are lower than 9%. That's much worse than the other magnificent seven. The larger fear here is that antitrust pressure will weigh on Google when it needs to be more focused than ever on AI, and this speaks to Mike's point from just a few moments ago. We haven't resolved that question of, is all of this CapEx that the mega caps are spending,

is that gonna pay off? Are we gonna see the monetization of AI? That's sort of what's plaguing a lot of the mega caps right now. We appreciate it. That's Joe Drabosa. You know, Michael, we're less than two minutes. We got 90 seconds. A lot of these sectors that are closely tied to the economy are down almost the same amount. Industrials, 2.3 percent. Materials, 2.4. Energy, 2.4. Get my drift. Absolutely. No, I mean, the defensive turn, the non-cyclicals have definitely been the support. I know Warren Pye's talking about how that's basically a bit of a

rate play. And it's true, although for much of the first half of the year, you know, I and others were saying, hey, yeah, sure, mega cap tech is dominating, but you also have cyclicals over defensives. And that's telling you a good story about the underlying economy. Now, consumer cyclicals and industrials have gotten a little more wobbly. Look, again, it could just be a phase. We have a little bit of a reset. I don't think we're selling off because the Wall Street Journal was screaming in their headline about how everybody is bullish on stocks. But I don't think that hurts. Frankly, I don't think that retail is as over its skis as it was in 2021 or anything like that. But it's all in the mood. We came back to work after a lot of

people were away, realizing that not every single thing we were concerned about three weeks ago has been solved. It's been many of these days, of course, at this moment, telling you, oh, new high, new closing high for the Dow. It became repetitive. And we are on new high watch for the S&P, which got close too. Not today, as September begins. We'll be red, decidedly so across the board. I'll see you tomorrow. Into OT with John.