Closing Bell - Closing Bell: Testing for Vulnerability 8/15/23

Episode Date: August 15, 2023

Just how vulnerable are stocks right now? Adam Parker of Trivariate gives his forecast for where stocks could be headed from here. Plus, star chip analyst Stacy Rasgon breaks down all the bullish commentary surrounding Nvidia and what he thinks is in store for the stock ahead of its earnings next week. And, market expert Mike Santoli breaks down what he is watching ahead of tomorrow’s fed minutes. 

Welcome to The Closing Bell. I'm Scott Wapner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with this increasingly edgy market. Rates moving higher, China weakness worries, and an economy here at home that might be too hot for comfort. Add it all up, it's been a tough session for your money. Your scorecard with 60 minutes to go looks red. The Dow dragged by bank and industrial stocks all day, while more broadly, energy and materials weighing pretty heavily on performance today. NVIDIA, about the only thing going for the NASDAQ. Its two-day bounce back continues. Star analyst Stacey Raskin, meantime, is coming up in just a bit where he thinks those shares are heading ahead of earnings next week.

I mentioned yields. Take a look. The 10-year hitting its highest level since last October. That was earlier today. Retail sales coming in better than expected. And how about the Atlanta Fed taking GDP and its forecast up to a stunning 5 percent, believe it or not. It brings us to our talk of the tape. Just how vulnerable are stocks right now? Let's ask Adam Parker. He is the founder and CEO of Trivariate Research, a CNBC contributor,

and he is back with me at Post 9. It's good to see you again. Good to be here. Do you feel like stocks are vulnerable? It's been a rocky couple of weeks, especially for tech, but what do you think? You know, the earnings season, I thought, most of it's over. I thought pretty good. Better than feared, for certain, right?

Better than feared. The big cap tech stocks, basically every single one of them, the 2020 earnings are higher than they were on July 1. So I think the fundamentals from the companies look OK. I think what's happening is a little bit of fear about the perception about interest rates. Right. And how that means people will probably not want to pay as high of a multiple as they did a month or two ago. I think that's what's in the price right now. You talked about rates backing up and for a long time, the relationship between the perception about rates and the price earnings ratio was very strong. And it kind of broke in May when people said, ah, hawkish doesn't matter. We're near the end of the cycle. I don't care if the Fed's hawkish. And now I think people are

saying, well, wait a minute, maybe that's a little farther off than I thought. Well, even one time doves like Kashkari today was saying, I'm not ready to throw in the towel just yet on this idea that we're done raising rates. Five cuts are in the price by Jan 25. If you look, you know, depending on what function you type in, I don't know any equity investor I talked to who believes that. So I think ultimately, maybe people are saying, all right, they're going to be a little more hawkish than what's in some of the, you know, bond guys, you know, survey answers. What about this idea that Leisman was putting forth today? You know, we had him on halftime where he was talking soft landing, good, no landing, no good, no landing, no good, because that just means the economy is too hot to handle. Right. We keep praising how good the some of the data is as it relates to the consumer, like retail sales today.

But the inverse on that is that, well, maybe that makes the Kashkari's end company be more aggressive than we actually think. We analyzed a couple hundred variables, macro variables. We put them together. And no matter how we look at it, both consumer activity and industrial activity are high but declining a little bit. You know, wage growth is not as high as it was. Industrial activity is not as strong as it was.

It's still pretty good in absolute terms, but it's declining. So I think if you believe that continues, maybe you're okay. I think the bull case that was forming, you know, a week or two ago when the market was kind of above 4,500 on the S&P and looking strong was maybe people thinking, you know what, maybe we're at the beginning of a new earnings cycle that could just last several years. And so, because the market never trades

for a long period of time above 20 times forward earnings. It just doesn't. So if that's right, and we don't have a correction, either we're at the beginning of a multi-year earnings cycle. You think we are? It's possible. Or the 24 numbers are too low, which I don't think is the case. I don't think the 24... Oh, too low. Some people are suggesting they're still too high. I think they are. I think the consensus is they too are.

But they're too high. But if the market's going to trade it 20 times, it's telling you earnings are going to be better than people think. Or maybe we're just going to slowly go higher for several years, in which case you'll be a little more anticipatory this cycle. I think that was a narrative until very recently now, the last couple of days, where people are saying, you know what, they may end up a little more hawkish than I thought finally. You watching yields or equities more, sort of as a tell on kind of where you think we are, right? Because it's been, as I said, a couple of week pullback in tech. Market's been hanging in though. I mean, look, even today, right?

You're worried about China. Tenure hits its highest level since October. It dials down 0.8 percent. It's not like we're having a major problem. Right. I mean, you and I were on the air together 80 times last year where it was worse than today. Right. So, you know, I don't.

You were here for like 70 times. Seven of the worst days. Out of the 80. Yeah. So I'll take a little 80 bips like that's that's nothing. But I think it's look, the two things that matter the most are the perception about interest rates. So, you know, where do people think they're going to be 12 and 24 months from now and growth? And I don't think the growth numbers have given people cause for concern. So I think it has to be this perception about rates that's causing the pullback now. So, you know, you you've always looked at technology because it's sort of what, you know, a hat you used to wear in terms of semis. Right. As we look at China and where we think demand is,

how much does it matter to our market right now that China is weaker than we expected it to be? Because it's not like this just popped up today where we say, oh my God, they cut rates. They're trying to stimulate a weak economy. The recovery has been weak for months and months and months, and it hasn't really mattered to U.S. stocks. Two things. I think one is when it's bad there, people just assume that is good because it'll catalyze them to do more stimulus and people are anticipatory. And two, look, other than a few very concentrated and exposed semiconductor companies to AI, most of them have overproduced consumption massively. The big story in COVID was factory shut down,

you couldn't get silicon. So what happened is everyone ordered as much as they possibly could, and now we've overproduced. So most of these companies, look at Texas Instruments, TXN, they've got, I don't know, 200 plus days of inventory. Great company, but they're sitting, they overproduced. So most of these companies, look at Texas Instruments, TXN. They've got, I don't know, 200 plus days of inventory. Great company, but they're sitting, they overproduced by a lot. So I think-

So that has an impact on prices. Ultimately- Margins. It should hurt margins. They can't run the factory as high, for sure, right? And the fixed costs don't get amortized across as many units out. Micron, everyone knows though, everyone overshipped in PC area. That's probably well on the price, but everyone knows they built a year and a half too much inventory.

So I think most companies have overproduced consumption, and the overall industry did well because the answer at every single paper on AI, the answer at the end was, I'm going to need more compute, and people just assumed all semis work, when the reality is, you know, NVIDIA ProRata participates the most. So when you look at MegaCap, which has is you know nvidia pro rata participates the most so when you look at mega cap which is you know pulled back not substantially over the last couple of weeks

but enough to you know raise some eyebrows as to what's what's up with that trade the knock before the pullback was these stocks are too expensive look at the pes historically they're just they're too rich now do you look at the pullback and say, OK, now they're better? They're better buys than they were. And what are you going to argue otherwise? You're going to say, well, I'd rather own cyclical stocks when we're just having a conversation about whether China is really weak and whether growth here is starting to slow even from a consumer standpoint? My answer is I have to like them now more than I did three weeks ago because the earnings expectations are higher and the price is lower, and that's a cocktail I like. And my view

is if I'm trying to beat the S&P 500 long only, the responsible thing for me to do is keep close to the index weight in those big names. I don't really know anything that's not in the price. I mean, come on, there's 60 sell-side guys and, I don't know, you tell me 40 million buy-side analysts on these things. Yeah, but you get surprised. Look at what NVIDIA did last quarter, right? Right. Nobody knew that they were going to come out with that kind of guide. I don't want to be massively underweight or massively overweight. The collective group of all of them, if you like NVIDIA more than you like, you know,

one of the other ones, you can go for it. But it's 30% of the index, and there's no way I want to own 20% and get run over if it outperforms my life. Would you buy industrials? That's one of our underweights. And the reason is because almost every, if I look at all the mistakes I've made in my career, and I'm old and so there's a lot of them, the number one thing that explains those mistakes is I thought something was structural when it was cyclical. It went up a lot.

I then decided I liked it, and then it rolled over. And every ounce of my experience tells me that these businesses are cyclical. Machinery is a cyclical business. And so a number of things that industrials benefited from are slowing. Think about factory utilization was at an all-time high a year ago because we had very high nominal GDP. A lot of these businesses had non-U.S. labor. For all intents and purposes, there was really less wage pressure outside the U.S. because of our fiscal policy. Agricultural, aerospace, and defense were very strong end markets. They're cyclical. So I look at them and I think high inventory to sales, high earnings

expectations, high multiples, and an emerging optimistic narrative, that's not a place I want to be overweight knowing all the mistakes, cyclical structural. I know, but you don't think that those, let's just say the more cyclical in nature stocks, like manufacturing's been in a recession. The data around manufacturing has not been good. Right. And it's been consistently bad, but you don't think at some point it troughs, or maybe it is now. It depends on the business. Some of the trucking data came out, the stocks missed by a lot, and the stocks went up because people think it's the trough on logistics. But if you're backing up and you're saying the industrial sector earnings expectations for 2023 and 2024 are very high,

they grew a lot in 2022. And I think it's because most of these businesses couldn't meet demand earlier in the cycle, right? It's not like they were amazing. They just couldn't get the silicon and logistics to ship it out. So now people think, oh, these businesses are going to grow forever. And there's a narrative about automation and reshoring and all this stuff that's fiscal stimulus for decarbonization. That's all true. But these businesses can't grow forever, have high inventory and high multiples. So in the portfolio strategy, I'd rather take a shot at energy and metals only because expectations for earnings are way lower. They don't have the same inventory issues. Valuation's way cheaper. And so I can kind of

barbell the strategy by the overweight energy materials and underweight industrials. I think that's the better risk reward. All right. Let's bring in Emily Roland now of John Hancock Investment Management as we expand the conversation. It's nice to see you. So you've heard what Adams has to say. I say we have a market I describe as a little edgy. How do you see it? Yeah, it's definitely edgy right now. We're seeing China obviously struggle to keep economic momentum going.

While there's more evidence that the U.S. is seeing a bit of a reacceleration in economic growth. And that was evidenced by the retail sales data this morning coming in at a high 0.7 percent month over month. And frankly, this is the worst nightmare for the Fed to see economic growth reaccelerating. It means that they may need to tighten more, at least hold for longer here. And what's happening to markets right now is they've been sort of in the boxing ring with the Fed over the last 18 months here, and they keep winning multiple rounds. They keep taking punches from the Fed in the form of higher interest rates. And now we're looking at an environment where we're backing up

back towards last October's high in rates, and markets are becoming a little bit exhausted here. So I think that, you know, the Fed is starting to wear the market down. We're seeing those punches starting to starting to land. And that's what's creating a lot of this volatility that we're seeing. Right. I mean, we went from, OK, economy's good. Hey, soft landing, maybe even no landing. Hard and soft to know. But now today we're saying, well, Adam, maybe no is no good because it just means what Emily just said. Yeah. The Fed's going to just stay engaged as long as the economy remains in their eyes, in their eyes too hot. Yeah. I would say the good is bad logic. I mean, for years we've talked about bad being good, right? If it's bad, the Fed will be there. It'll be good for stocks. And what you're saying now is we're in a good is

bad zone. I don't think so. I really don't. I think if it's good, it'll be good. Meaning if the earnings continue to be strong, people will say, yeah, maybe there's one or two more hikes, but then they'll pause. But the Fed allows it to be good. Right. Isn't that isn't that a question at this point? Right. That we're back to wondering and worrying, are they going to make an error, go too far when they don't have to? Yeah. I mean, if things slow and moderate, but they don't get cratered, I think that's OK. I think that would be good. And I think that would be good for equities and good for the outlook beyond that. So I guess what you're saying is right here, right now, today is good economic news bad for the stock market. I'm going to say no, it isn't. I think good economic news will ultimately mean the market ends higher than it is now.

Emily, do you feel like we're I know some would suggest, well, we've been overdue for a correction because the year has been so strong. If we do get one, to what degree do you think we'll feel it? Yeah, you know, I think it's tough to say here. I do think that there is a possibility that we could retest last year's lows as the lagged impact of Fed policy does impact markets. I don't think we're there yet. We're in a late cycle environment, which can see these big moves higher in risk assets. So we want to stay invested here. We just really want to be disciplined about doing so. So we look at the playbook right now. We still like technology stocks. They're the poster child for quality. These are companies with great,

more steady earnings, good balance sheets, lots of cash, good return on equity. But of course, as you guys talked about earlier, technology stocks have run a lot. They look expensive. One sector that we'd be keeping an eye on here is health care. We're starting to see it perk up a little bit. It's actually trading at a discount to the broad market. It has more defensive and higher quality attributes. It kind of feels like a flashback to the macro playbook of 2022, where we saw relatives' economic strength in the U.S., weakness overseas. We saw a Fed that was continuing to tighten and still concerned about inflation. So that's an area that we would look at. We also do think that bonds can start to kick in. We'd be looking at every one of these backups

and bond yields that we've seen as an attractive entry point to grab a hold of that income, you know, five and a half, six percent on investment grade corporate bonds to us looks pretty nice, given what the macro backdrop is telling us. See, Adam, here we are back again. You know, it's alternatives to stocks that are attractive bond equivalents. You can get rates go up. You can still get, you know, near five percent in your money market. So you still have those other places to go with perceived less risk than stocks. So two things. One, I don't agree that we can get back to last year's lows with the current way I'm viewing the world. Because to get the $3,600 in the S&P where we were last October, whatever that is, 20% down from here, you need to believe earnings are going to

collapse, not erode. And I'm more in the erode and bottom and then accelerate into next year. So I think earnings will be higher next year than this year. And as long as I think that, I don't think we're going to go anywhere near last year's lows. That could change, but that's not what I see now. I think your point is what we call equity risk premium, comparing equities to bonds. And it's been the case since April of 22. I think I mentioned on the air with you, I bought the two-year yield for the first time in my life at 5%. I've never done that before because you couldn't ladder CDs and beat it anymore. That looks attractive. The problem with that logic or the challenge to that logic is I think you can prove in years 5 through 10 that it has predictive values,

maybe in years 3 through 10, but it's just not effective for predicting return in a 6- or 12-month view. And I think a lot of cross-asset folks have struggled because the signals tell them to be overweight, the bonds versus equities, and that, I think, is intellectually honest and right in years 3 through 10, but not in the next 6 to 12 months. So you have to ask yourself, how much can I tolerate if I was underweight? Do I go to market weight or overweight? Hope to catch the 7th, 8th, and 9th inning of this, or how do you play it? So I think people are a little bit trapped in that from where they started.

Ray, it makes me think of a question I want to ask you, Emily, in terms of when do the bears, because there still are plenty, and I interview enough of them every day. When do they throw in the towel? What do they need to see? You still get the argument, well, there's still better places to be, either fixed income or in cash. What causes a turn? Is it a real chase for performance as we near the end of the year?

What is it? Yeah, I think if you want to be living on soft landing islands, you have to see inflationary pressures come down meaningfully. And we're certainly moving in the right direction here. But there are a number of factors that have caused things like commodity prices to go up. You're seeing China stimulus. I think the jury's sort of still out whether that's pushing on a string or not. But it's, you know, you look for things like copper prices going up, oil prices going up, those things contributing to headline inflation. And then the comps sort of starting to work a little bit the other way. They're not going to be as favorable as we move in to the next few months on a headline inflation perspective. So I think all of those things need to reverse gear in order to really declare victory here. But again, look, it's exhausting.

The leading economic indicators have been negative for 12 months. The yield curve's inverted for 13 months. I think typically in these late cycle environments, investors do tend to capitulate. Soft landing gets priced in. You guys have been talking about no landing. That's not like a thing because there wouldn't be ever be any economic cycles. There will be a landing of sorts. And so I think that that's important to keep in mind. Again, doesn't mean we don't want to be invested, but we want to be really mindful about how we're doing it. And I think risk management is critical today. Sum it up, Adam, 30 seconds. Leave us with a thought now for the rest of this week. Yeah, I think the list, I think there's a lot of agreement in

what happened there. I just think, you know, to get earnings, uh, down year over year, you need a different trajectory than the economy's current odds, currently odds. So I'm, you know, I'd say 60, 40 think the market's next move is 10% up, not 10% down. Cautiously optimistic. Is that fair enough to describe you? I think that's right. And I think the big cap tech tech stuff earnings look really good to me. And so the whole thing that I need broadening isn't going to because they are bad. You need other stuff to have margin expansion. Guys, I appreciate it. Enjoyed the conversation very much. Adam, thank you. Emily, we'll talk to you soon as well. Thank you. That's Emily Rowland. Let's get a check now on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that.

Christina. Well, Hawaiian Electric is plunging again today as S&P downgrades the utilities credit rating to junk status. S&P says the wildfires in Hawaii have destroyed a significant segment of the company's customer base, which will take many years to restore. You can see shares are down 24 percent. They also note that Hawaiian Electric's financial measures would deteriorate if it's found liable for those fires. Shares are down almost 50 percent in the last two days and trading at their lowest level since 2009. And another big decliner today is Sea Limited. The Singaporean-based e-commerce giant posted an earnings beat, but it saw tepid consumer spending and a big drop in its mobile gaming business during the last quarter. The company also says it plans to ramp up investments to fuel its growth, which would impact profits. Those shares down almost 30% right now. Scott. All right. Keep an eye there. Christina, thank you. We'll see you in a little bit.

We're just getting started here on Closing Bell. Up next, Wall Street's been buzzing about NVIDIA. It's big bounce back. Several firms now are issuing bullish calls, even more so on the name. Now star chip analyst Stacey Raskin is here with his take. We'll get his forecast for the stock ahead of earnings next week as well. And that brings us to our question of the day. We want to know, is NVIDIA a buy ahead of those earnings? Or should you wait and see the numbers? You know what happened last time.

What now? Head to at CNBC closing bell on X, formerly known as Twitter. Vote there. We'll share the results later on in the hour. We're live from the New York Stock Exchange closing bell right here on CNBC. We're back. NVIDIA shares climbing again today following three new bullish analyst calls for the chipmaker. UBS, Wells Fargo, and Baird all raising their price targets just a day after Morgan Stanley reiterated

NVIDIA as its top pick. All of these calls based on NVIDIA's position as a primary beneficiary of AI. I think you know that story by now. Let's bring in Starship analyst Stacey Raskin of Bernstein Research. Good to see you again. Good to be here. All right. So what do we make of the two week pullback? PEs come, and now we have a bounce back really initiated by that Morgan Stanley note yesterday and follow through today. Okay, so I don't know what other folks are saying about it. I mean, I don't really care. We know as we're going into earnings, remember they report earnings next week. This is why there's more attention on it now. Numbers are going up. You can sort of look at the current demand environment for AI and for their products.

You can look at the supply chain and the amount of capacity that appears to be getting added. You can sort of do the math on the revenue potential that is there, and you can compare it to what's in the current numbers. It is highly likely that numbers are headed north as they report next week. And as people are sort of getting ready for earnings, I think that's what's driving it. But the environment for their products looks off the charts right now. So let's talk about that, the demand, because as our Christina Parts-Nevelos, you know, who covers this space, notes, everybody wants the chips. But at some point, aren't they supply constrained by how many chips

they can actually produce for those who want them? And what implications over the bigger picture is that going to have given all the hype that's around chips they may not be able to produce as fast as some people think? Well, I mean, so the biggest limiter of their revenue over the next, you know, probably year plus is likely to be the supply. So you're absolutely right. I think they're going to sell every part that they can make. And I think it is a good question, like in the near term over the next quarter or two, you know, they're adding a lot of supply. It does take time to bring it online. They've been selling out of inventory for the last quarter or so as they sort of bring the stuff up. But that will be the question. I don't

know. I mean, if they walk into next week and they report, and look, like I said, the numbers are certainly going to be higher than where the sell-side consensus is, but if they miss buy-side, but we know the demand is there and they talk it up, and like I said, you can sort of do some of the math on the revenue potential next year, that doesn't feel bad to me, to be in a position where you're literally selling every part that you can make as quickly as possible as you can bring that stuff online. That doesn't feel like a bad place to be, at least to me. What's the right P.E., do you think?

What do you look at and you say, you know what, this makes sense to me. Stock, as I said in May, was 60-plus times forward. Now it's come 40-some-odd times forward. It's about 40. And frankly, the buy side estimates are probably higher than the sell side estimates. On the buy side expectations, it's probably 30 times, give or take, on next year, which is not a crazy number, especially as if you're looking at over a longer period, five years, 10 years, it is highly likely that if they can hit numbers

like that, that's still not the global peak or the global maximum in their earnings potential. I'm still convinced, you know, if we're looking out 5 years, 10 years, we will be talking about numbers that are materially higher than what we're talking about today. And so, no, as long as you think that it can still grow, and I do think it can, if you're 30, 40 times, it doesn't feel like an awful multiple, especially given some of the multiples that we've seen in the past. And by the way, you can compare it to the rest of the semiconductor industry. And on a relative, I think it's about a 1.6 relative multiple to the stocks, which is actually like in line to low, like relative to where it's

historically traded over its history. Yeah, I just want to note, take a break from our conversation just for five seconds and just say that stocks are at the lows of the day across the board. You can see the Dow is now down 360 plus. NASDAQ's where the pain is, despite that NVIDIA continuing bounce there, albeit, you know, slighter than it was. The NASDAQ's down by more than 1%. So as I come back to you, Stacey, obviously the big surprise last quarter from anybody was NVIDIA with the guide, which just blew everybody out of the water. Does that lessen the chance for any sort of upside surprise this time around? Well, certainly the expectations are now going to be there that we're going to see a big number. And so you can do the math. They guided $11 billion in total revenue for this quarter.

If you sort of back into it, they're probably implying about $8 billion in data center. And just for some context, they did $4.3 billion last year. I think people are widely expecting them to beat that number and certainly to guide higher for next quarter. So, yeah, expectations are going to be higher than they were, for sure. And lastly, before I let you go, who else wins here? There are components that go into, obviously, these chips, too. Who else is a winner? You know, it's funny. So in my coverage, there's only two companies that have actually seen, like, actual dollars from

AI right now. It's NVIDIA and Broadcom, actually. Broadcom gets some, they do chip design services for, like, Google for their own internal AI chips, and they have some networking. Most of the other companies that have risen on AI, AMD and Marvell and a bunch of those others, right now they're actually not seeing a lot of revenue yet. It's a narrative. It's a story. Hopefully it's on the come. But they haven't really seen that much in terms of actual dollars yet. It's really only NVIDIA and maybe Broadcom so far that have seen actual material dollar. All right, Stace, we'll leave it there. I appreciate

it as always. Thank you, Stacey Raskin, for joining us on NVIDIA following that stock's every move. And don't forget to weigh in on our question of the day. We asked, is NVIDIA a buy ahead of earnings or should you just wait and see the numbers? Head to at CNBC closing bell on X to vote. We'll share the results a little later on in the hour. Up next, raising the red flag. I mean, he's been raising them consistently. Are there any red flags left to raise? Well, Morgan Stanley's Chris Toomey, he claims there are more. He breaks down his forecast as we head into the end of the year. We'll highlight the biggest risks he sees for the market. We'll do that after the break. And later, banks sinking in today's session. We'll drill down on what's behind that move and what could be at stake for the sector. Closing bell right back.

We're back on closing bell. Summer seasonality dragging down the major averages in August. The S&P now on track for its worst month since December. And our next guest says the most likely move for stocks from here is lower. Joining me now post nine is Morgan Stanley's Chris Toomey. He runs one of the highest rated private wealth advisory teams in the country. The more things change, the more they stay the same. I gave you the business a little bit last time because you're still negative in what was a pretty fierce rally. We're a little rocky, a little edgy of late, as the word I've been using. You haven't changed your view at all. No, I mean, I think, like I said before, when the facts change, my opinion will change. I think right now we're really dealing with the

fatigue of the move up higher, right? Like that was kind of a parabolic move higher. And now the market has to digest this giant move. And I think you could see that with earnings. So earnings were expected to be down. They weren't down as much, but they were still down. For companies that beat, you know, the response wasn't as inspiring as you would typically expect, right? So you have that. You've got the seasonality of August and September typically being bad. And then you've got the technicals. When you do one of those gigantic moves higher dramatically, there's usually typically a dramatic drop before you get some sort of stabilization. So I'd say part of what we're seeing right now is just fatigue.

I mean, digestion is normal. It's a normal process, right? And for sure you wouldn't see as big a reactions from beats because a lot of the stocks I assume you're talking about had already run a lot into the numbers. Right. And I think that was kind of my discussion the last time I was here. The market really was priced for perfection. Right. We've got expectations with regards to earnings going pretty dramatically higher. Right. We're expecting the market's expecting about a 10 to 15% increase over the next 12 months. And we're also expecting five rate cuts in 2024.

So, you know, that's a lot of good things that are expected to happen. And so there isn't a lot that could go wrong that could tip this fairly negative. No, but when you say, you know, you'll change your opinion when the facts change. I mean, I could suggest to you, well, the facts have changed. The facts have changed since you were first negative in that we're further down the road on rate hikes, undeniably closer to the end. And the economy is undeniably stronger than many thought it would be to this point, including the consumer hanging in. And as you said, it is. It is. It's a fact. And earnings have also remained better than people have feared. So aren't those strong enough facts that have changed?

So earnings are negative, right? So for the last three quarters, earnings have been negative. So they're down about 7 percent over that time period. If you look at the Magnificent Seven, which are driving the lion's share of this return, they're up over 70 percent. But over 63 percent of that is just PE expansion. Multiple expansion. Right. So in our minds, what's driving that? Is there a tremendous amount of growth that we're expecting? Are we expecting rates to go dramatically lower?

Or the fact that the economy is actually doing better, right? And to your earlier comments with regards to no landing versus soft landing, if we get no landing, we know the Fed doesn't like that, right? Kash Kowry was out today saying we're not done. If the economy holds on and is continuing to go higher, we could be in a situation where the Fed is not looking at five rate cuts next year, but in a situation where it's not just like higher for longer, but maybe higher. But with all due respect to Neil Kashkari, does it really matter what he says today or anybody else for that matter on the Federal Reserve Open Committee?

No. It just matters what they do. Exactly. But I think the reasoning with regards to what they do is the fact that they are concerned in a situation where we had tremendous fiscal stimulus this year. Right. We had a situation where the market has gone dramatically higher and we're in a situation where the labor market is very tight. We're still at about three and a half percent unemployment. Right. And we're in a situation where core CPI is still above four percent. Right. So in that environment, the Fed is not necessarily

happy seeing the economy do dramatically better. The other point you just made in terms of, you know, is growth really going to be as good for some of the stocks that I mean, you mentioned the Magnificent Seven. Yeah. Yeah, it actually is. Aren't we learning that from from some of the guidance that we're getting from the NVIDIA's of the world because of of AI? I mean, that's the pushback on this idea that, you know, those stocks are way ahead of themselves. I think I think the thing you need to think about is is just because there's good fundamentals doesn't make it a good investment. Right. At some point, price matters. And so is AI going to be a game changer with regards to the economy? Is it going to provide tremendous productivity? Absolutely. What are you paying for that right now? In my

view is you're paying way too much. Well, you're still paying less now than you were before. I mean, you don't have to comment on NVIDIA specifically, but that's sort of the perfect example of what you were paying 60 plus times a few months ago. You're paying 40 some odd times now, which for a stock like that isn't insane, or at least it hasn't been historically. Historically. Right. But that's also an environment where we had zero interest rates. Right. So we're in a situation where cost of capital is now normalized. We're at over 5 percent in real rates. And we're in a situation where you don't necessarily

need to be in a situation where you have to be in equities. And you can also discount that at a real reasonable rate and say, maybe I want to be in this when it's a little bit more attractive. So in our minds, I think there's more leaning towards the downside than the upside. And sitting in cash, collecting 5% or 6%, when the market in the market in general has got a p.e. of 20 that's an earnings yields of about 5 percent that's the same as the bond market right now not everybody gets to see your every appearance and they you know remember everything you've said nor for other people who have been been cautious so i just want to end with what turns you more positive i mean what has to happen so i mean look I think what you have to think about is when

you look at the market, right, what's priced into the market right now. And right now you're expecting higher earnings and you're expecting lower rates. And so when the market is in a situation where it's not necessarily priced for perfection, that's when I would say this is a good opportunity to get in. So if in my view, you have maybe one of three things, either our expectation that growth is going to be higher than what the market's pricing in, which we don't necessarily think. Six to nine months from now, you don't think that? I think it's already priced into the market right now. What the market's pricing in is very aggressive growth rates. And so in my mind, unless I view that the market's underrating that growth. I don't want to necessarily add

exposure. Or if the market thinks we're going to be in a situation where rates are going to go dramatically lower, then I would say, OK, now's the time to be in the market. The other thing is, is one of those macro situations. You get a resolution with regards to Russia, Ukraine, you get a China resolution, something that's not necessarily something that the market's pricing in right now. Otherwise, you know, just be patient. Well, you run one of the highest rated private wealth advisory teams in the country for a reason, I guess. That's Chris Toomey. Good to see you again. Thank you.

All right. Up next, we're tracking the biggest movers as we head into the close. Christina Partsinello standing by once again with that. Christina. Well, the CEO of a credit card firm resigns amid regulatory review. Does that spell more trouble for the firm? We reveal all the details after the break. Tough day for stocks. Let's show you where we are with about 15 minutes to go here. The Dow pushing almost a 400 point decline now. Energy's been weak, materials weak. Some of the industrial names, China data has been weaker, including today, and that's dragged some stocks like Caterpillar out of the Dow lower.

But I mentioned energy has been weaker, materials too. Copper's been at a low. So we're watching all that play out here over the final stretch. Christina Partsenevelos is back with a look at the key stocks she is watching. Christina? And I'll add to that negativity. Discover Financial is firmly down today after announcing the sudden departure of its CEO. Shares are down 10.5%. The unexpected exit comes a few weeks after Discovery disclosed separate issues related to credit card classifications and a

consumer compliance probe. Board Director John Owen will serve as interim CEO until a permanent successor is identified by the board, and that's why you're seeing the sell-off in the stock. And Tencent Music, there's some positive hire today as the streaming giant's second quarter revenue rises over 5% year over year. The Tencent subsidiary also saw a 20% jump in paying users for its Spotify-like streaming platform. Those shares are up more than 1% today,

so still not that major, but still up. And notably outperforming other Chinese tech names, which remain under pressure as investors digest the surprise rate cut and disappointing economic data that you referenced, Scott, coming out of China. Yeah, been a big story all day. Christina, thank you. Christina Partsenevelos. Another mover we are keeping an eye on today is VinFast. Phil LeBeau is here with what's behind that move. Phil?

Scott, VinFast is the SPAC IPO of the day. There haven't been many of them this year. We'll talk about that in a little bit. But when you take a look at shares of VinFast after its listing on the Nasdaq, got a little bit of a pop today, up about 25, 30 percent, depending on what time you were looking at it today. If you're not familiar with VinFast, well, you may be over the next couple of years. They've got big plans for here in the United States. Company out of Vietnam has already exported 1,800 from Vietnam, imported them here into the United States. They're building a plant in North Carolina with the first models expected in 2025. So should you get behind the VinFast SPAC IPO? Not if you've gotten behind other SPAC IPOs in the last year. Wow. It has

been brutal. Nothing new here. You've talked about this, Scott, but VinFast needs the money and they're going to have a valuation of about $23 billion. Let's see what the future holds for this Vietnamese electric vehicle maker. Yeah, we'll keep our eyes there. Yeah, I haven't seen any SPACs really. I haven't heard that word in a while, either. Bill, thank you. Bill LeBeau. You bet. Last chance to weigh in on our question of the day.

We asked, is NVIDIA a buy ahead of earnings, or should you just wait and see the numbers first? Head to at CNBC Closing Bell on X. The results, just after this break. Let's get the results now of our question of the day. We asked, is NVIDIA a buy ahead of earnings or should you just wait and see the numbers first? Wait is the majority today. Close, but better than 52% of you said just wait and see. Up next, countdown to cover the fast food name reporting results for the first time after the bell. We'll bring you a rundown of the key themes to watch when those numbers hit the tape.

When we take you inside the Market Zone next. We're now in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Leslie Picker on the sell-off in the regional banks today and Kate Rogers on what to watch ahead of Kava's first earnings report as a public company. Mike, I do want to note with you a number of people on social media pointing out issues with Fidelity's

website throughout this final hour of trade. Fidelity acknowledging that, by the way, we're aware that customers are experiencing issues with Fidelity.com. They say, active trader pro in our mobile apps. We're working urgently to resolve these issues. We apologize for the inconvenience and appreciate your being a customer. Tough timing. Final hour of trade for anybody who trades on that site in terms of retail. It is.

With the market, you know, it's been heavy for a while. We did take this extra little leg down a few hours ago when we spoke. I mentioned the S&P was sitting right on top of last week's low, which was also exactly where that mid-July breakout took place higher. So it seemed like it was sort of tempting the sellers to take it below. I wouldn't say there's a lot to connect the Fidelity potential outage to that, except that it never helps when there's a sense out there. Of technical problems in terms of the market plumbing. Seems like just too many friction points today. Yields hanging around their highs whether it's because of re accelerating growth inflation going to be sticky. Fed going to have to be on the on the case or just the global story in terms of Japan GDP 6%. All that stuff into the mix with August seasonality. We're not yet oversold. It just kind of caught in between

in general. Nothing that's gone on is really outside the bounds of what you might expect around this time of year after the market came into August hot. But it definitely also doesn't seem fully resolved. As I said earlier, it'd be surprising if we only got away with a 3% dip with all this piled on top of the market. Yeah, all right, we'll talk to you in two seconds. Also, of course, we'll give you more information on this Fidelity story if we get it before the end of closing bell and certainly into overtime if we hear anything more about what's going on there.

Speaking of banks, they've been weak all day. Leslie Picker has more on that, I think, related to a story that was broken on CNBC.com. Related to a story that was broken on CNBC.com, related to what Mike was talking about with yields, slew of negative headlines today. As you mentioned, it was that warning shot that a Fitch analyst gave to our huge zone that it may need to downgrade dozens of bigger banks. Then this afternoon, Minneapolis Fed President Neil Kashkari spoke about the new Basel III endgame proposal unveiled last month that boosts capital requirements for banks with assets greater than $100 billion. But Kashkari

said, quote, it doesn't go far enough. I think it's a step in the right direction, but I would like to go significantly further. Now, this proposal put forth by regulators already results in an aggregate 16 percent increase in common equity tier one capital requirements across the sector if it were to be enacted. Banks have also been selling billions of dollars in debt to shore up their balance sheets in the aftermath of the spring bank turmoil and to boost their capital levels in anticipation of additional requirements. A Bloomberg report today citing a person familiar with the matter says PNC is selling 750 million in notes following similar sales from Bank of America, Goldman, Huntington, among others, and that's just in recent weeks. Kashkari also highlighted the potential for additional issues down the road,

saying that if inflation is not completely under control and the Fed has to raise rates further, banks might face more losses than they currently do. Although he notes we are not seeing that at the present time, Scott. All right, Leslie, I appreciate that. Now to Kate Rogers as we look ahead to Kava's first report as a publicly traded company. And I would assume that investors want them to serve up something in terms of when they're going to be profitable, Kate. That is the big question and not sure it'll be answered tonight, Scott. So as you said, this is the first report since its IPO in June. Analysts are looking for a loss of two cents per share on revenues of one point or one hundred and sixty three point two million for the quarter. Kava's same store sales numbers will be in focus for investors. There are no estimates, though, on that figure yet, as well as any guidance, as you just mentioned, on goals

around future profitability. Given the more expensive price point for consumers, Kava's competitors are Chipotle and Sweetgreen. Both of those names have held up very well on both the consumer spending and stock performance front so far this year. Piper Sandler says that Kava has several tailwinds in its favor, including digital strength, consumer focus on wellness trends, and limited service chains taking share from full service. It's trading down today, but up more than 100 percent since its IPO. Back over to you. I appreciate that. Kay Rogers, thank you very much. You heard the sound effect for the two-minute warning. As we have about 90 seconds to go, Dow's down, Mike, about 320 or so. Right across the board, yields very much a big story today as we have about 90 seconds to go, Dow's down, Mike, about 320 or so.

Right across the board, yields very much a big story today as we hit the highest level on the 10-year since October. An interesting action in the sense that after the hot retail sales report at 830, the 10-year did really shoot to a new high above October's closing high, then backed right down. So, I mean, there's a lot of this sense out there that maybe this yield move is running its course in the short term, but then over the course of the day, it firms up. We do have very negative equity market breadth, I would note, too, about 85% of all volume on the New York Stock Exchange to the downside. Nvidia is, you know, punching above its weight for once here and kind of keeping the S&P 500 loss as narrow as it is.

Those levels I was talking about in terms of last week's low, 44, 43. So right nip and tuck right below that. And I do think that's going to get a little bit of attention as we get into the morning. I mean, the market was due for some sort of digestive period. Absolutely. And this, you know, all things considered, if you're worried about China and then rates going up, this is pretty. Well, at this point, it's pretty mild.

And I think that, you know, the second conclusion that I always go to after we have that observation is maybe we have to get a scare. Because if it feels like this is a painless pullback, what's the big deal? This is all going to be fine. And sometimes you have to have a little bit more of a shakeout to get people to come. We have had a big winning streak, too. All right, we're going to go out in the red, as we said. We'll see where we go tomorrow. I'll see all of you then.