Closing Bell - Closing Bell: The Bull Run’s 2nd Anniversary 10/11/24

Episode Date: October 11, 2024

Equities just notched their fifth straight week of gains as optimism persists and the bull run enters its second year. Fundstrat’s Tom Lee, NB Private Wealth’s Shannon Saccocia, and RBC Capital Markets’ Lori Calvasina share their expectations for Q4 and beyond. Plus, Wedbush Securities’ Dan Ives defends his Tesla bull case on a difficult day for that stock. And, former Cleveland Fed President Loretta Mester reveals her expectations for rate cuts as inflation cools.

Thank you so much. Welcome to Closing Bell. I'm Scott Wapner live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with streaking stocks, which are about to notch their fifth straight week of gains. And just as earnings season gets started, we're going to ask our experts over this final stretch what the weeks ahead are likely to hold for your money, including fund stretch Tom Lee. He'll join us in just a moment. Lots of questions this week about the future path of rate cuts. And on that note, the former Cleveland Fed president, Loretta Mester, will be here as well with her outlook. We're excited about that interview, too. Let's check the scorecard here. There it is. With 60 minutes to go in this week, strong bank earnings, a good PPI report, have sent stocks higher today. We're on track for record closes yet again. Goldman hitting a new high today. And elsewhere, two stocks moving in

opposite directions, but on the same story. Tesla is lower after its robo taxi event failed to wow the street, at least most on it. Uber rising on those developments, too. And there's Uber up 11 percent today. It does take us to our talk of the tape, the bull run, which marks its two year anniversary tomorrow. Let's welcome in tom lee funstrats managing partner head of research also a cnbc contributor it's good to see you on this friday welcome back tom thank you scott great to see you i led in here with the fact that you know we have this streak going for stocks we above 5800 for the s p for the first time ever though it seems to me from your notes that you're a little bit cautious as this month progresses. Why? Well, Scott, we're cautious, but we advised our clients to be

buying the dips. And the reason we're cautious is that, and I'm probably saying something very obvious, but I think investors want to see who ends up becoming present after election day. So I think we are in a period where markets are just sitting on the sidelines. But at the same time, 2024 has been such a strong year, Scott, that I think the last two weeks have proven that maybe macro is taking a little bit of a step back now, and liquidity and all this cash on the sidelines is really the dominant factor. You think we just have to get the election out of the way, and then it sort of clears the way for what you still think can be a pretty decent rally?

I think your target's 6,000 or around that. Yeah, Scott, there's a lot of firepower supporting stocks post-election because we've got a Fed that's dovish and the economy looks healthy. I don't think we're in a recession. And so the three-month and six-month outlooks are very strong for stocks. And I think China, while there's maybe some hesitation, but China's government is really starting to unleash some measures. And that's supportive of that region finally turning. And of course, the third factor is, I think after two years, investors who've been very cautious are starting to realize that, you know, the six trillion of cash on the sidelines and the low levels of margin debt

need to be put to work at a time when the Fed is supporting the economy. The other possible headwinds, I think, are ones that are maybe outside of the political cycle, at least as people refer to them. Valuations, they say, are too rich or stretched, right? The S&P is about 21 and a half. That's above, obviously, its historical average. Yields are up. Now, you could make the argument that they're up for the right reason, but I think they're still up a little bit more than people thought they might be after the Fed did its 50. And then if the Fed's going to be a little bit slower and smaller in the way they progress with rate cuts, is that an issue? Of course, the flip side of that is, well, why would

they need to do anything anymore anyway? Because the economy is as resilient as you just suggested it is. Yeah. Well, on all those points, Scott, you know, on valuation, I know people use the aggregate number for the S&P, but it is misleading because, as we know, the top seven stocks do have a higher deserve multiple and the median P.E. It's not that much cheaper, but it's around 18 times. But that's not a bad deal considering the 10-year yield is actually a 25 PE. And with regard to the Fed cuts possibly slowing, I think what really matters now is the Fed is on a path to essentially normalize interest rates back towards neutral because the inflation pressures are ebbing. I mean, I think even CPI this week, even though it was a little hotter than expected, really didn't send the signal that inflation's

reaccelerating. And so the Fed is, you know, on a path towards, you know, towards 3 percent. And I think that's really constructive for stocks. Let's say we can all kind of come to agreement because I think we could say that the consensus is bullish at this point. People think stocks are going to go higher from here because of the economy and rate cuts. The principal disagreement among the crowd at this point appears to be where? Where do you need to be positioned to take advantage of a market that looks like it really wants to go higher? You obviously have suggested that small caps could have the opportunity to have the biggest jump between now and the end of the year. That's a controversial view because, you know, if yields are elevated, if the economy is slowing at least a bit or there are questions around it, maybe those stocks don't do as well. I thought it was interesting, the thoughtful commentary that Ricky Sandler put forth of eminence yesterday on social media to where he says the best place to play offense and he thinks you should play offense are in below

mega cap companies that have interesting earnings equity stories at mid to large cap not mega but mid to large and he doesn't say small so how would you how would you argue your points against those? I mean, I'd say that we're on the same side of that line, which is market breadth is expanding and he sees a better risk reward in mid to large just because he, I think there are some reasons, you know, there's argument that maybe you can find higher quality and longer histories. But I think that small caps really do perform when the market is believing we're having a soft landing. I don't think that they can make that case in their mind yet until after election day, whether or not Harris or Trump is president. But I think once we're through that period, I think small caps not only have underperformance as a tailwind, but it's really, and I know I'm repeating myself, but median PE of a small cap stock is 10.7 times.

It's like seven turns cheaper. We're already looking at third quarter earnings growth of 43 percent versus around under double digits for S&P. So you're getting better growth. But I think small caps probably do better if Trump wins just because of potential deregulation in M&A. So I think that's why Election Day probably is a pivot point for small caps. Would you agree with Mr. Sandler that, you know, the market at the index level is both expensive and consensus? And that's why, you know, he has the urge to look elsewhere. You know, mega caps are underperforming, or at least the Nasdaq is today. And maybe that's how the story is going to end up playing out for at least two of those reasons that he mentions? Well, I think if someone thinks PEs

mark the top of stocks, then people are cautious. But to me, the PEs rising because the U.S. economy and companies survived a stress test, Scott. We had a pandemic. We had global trade stop. We have a huge inflation cycle the Fed the fastest rate hikes in history let's say four things that just bombarded corporate earnings and companies are producing record profits so to me they survived a stress test that warrants higher multiples I just don't personally think 20 times for a category leading company is expensive even 25 times times. And, you know, like if we're talking about NVIDIA, you know, I don't know, I'm sure the cap should be 30. So I think that we

have this uncomfortableness because PEs are rising, but I think companies have really survived, you know, four cataclysmic stress tests too. Tom, let's broaden the conversation. Let's welcome in some guests. Shannon Sikosha of NB Private Wealth, RBC's Lori Calvacina are with us today. Shannon's a CNBC contributor. It's great to have you both with us. Lori, you know, you're reasonably cautious on this market. Your year-end target is below where we are today. Why? So, look, we do five different models to come up with our target, and a couple of those actually did go up to 5,800. The 5,700 is the median, essentially. And, you know, we do feel neutral in the short term. I think a lot of the stuff, you know, that Tom talked about, you know, kind of getting through this election, we do normally see a bit of a pullback prior to the election. We haven't

gotten that yet for October. But I do think valuations feel a little bit full for the here and now. When I fast forward, though, into 2025 and I run my valuation numbers and we take inflation down a bit more, we bake in some more Fed cuts, we get 10-year yields down a little bit more, our modeling suggests you can get to a 23 times trailing P.E. And if you use my earnings around 268, that gets you to 6,200 on the S&P, 6,500 if you bake in consensus earnings. So I still feel reasonably constructive over a longer period of time. But right now, the valuation's kind of, we feel like we're where we deserve to be, and sentiment is a little bit stretched. You think that it could be a little

tactically messy between now and the end of the year as the election takes center stage? I think that's a perfect way to put it. And, you know, I tell people we can't live in the tails, right? And maybe I'm a little bit too guilty of doing that right now. But we do think that you know there's just a lot of uncertainty related to this election. And one thing I hear from investors is what if we don't have a resolution you know sooner rather than later. I'm not saying it has to be decided the next morning but there are some concerns about kind of what awaits us on the other side. And if you even look back to 2000, when the case got kicked up to the Supreme Court, that's the one time in

recent history where we didn't get our typical post-election pop. Yeah, Shan, what about that? You know, the market has this incredible tunnel vision, it seems. It doesn't seem to be too worried about what might happen with the election today. But obviously, as we get closer, it's going to focus more heavily on what it believes the outcome might be and thus what sectors and stocks are going to possibly perform better in the in the months ahead. How are you thinking about those issues that Laurie so well articulated? I don't disagree. I mean, we do have that one particular example of uncertainty leading to, you know, significant weakness in terms of the market trading in 2000. I think the most important thing that we're looking at, though, Scott, is that, you know, there is I think we

talk a lot about the differences between the two candidates. I think it's important to focus on the similarities. If you think about things like deglobalization, if you think about the protection of certain important industries, the CHIPS Act, infrastructure, Inflation Reduction Act, there are parts of those spending bills that will continue for many years to be stimulative to the economy. And so I think in this shorter term positioning, of course, you're going to be looking at what does it mean for health care companies? What does it mean for energy? What does it mean for defense? But I think more importantly is looking to some of those similarities and understanding that you can capture opportunity going into 2025 on those areas of similarity that, frankly, are unlikely to be upset by either candidate.

I do agree that we'll see some uncertainty if we don't get that answer fairly quickly in the days following the election. But I think in terms of seasonality, boy, we've kind of blown those comparisons out of the water with September already. So I think we should be geared up for something perhaps a little bit different than what we've seen historically. Laurie, what about rate cuts? I feel like the market has like one and a half feet on the idea of resetting expectations thoroughly now as we move forward. I don't know that we're all the way there, but Ed Yardeni sat in his chair yesterday and said, one and done. He doesn't think they're going to go anymore this year. Bostick yesterday was on the tapes. Yeah, I mean, if the data suggests it, I could be totally comfortable with not

going again right now. I'll go back to my valuation model. I can only really make the math work to get us higher if I get in a decent number of cuts next year. And, you know, I will say that as a house, RBC has not been looking for a series of 50. We were back in the 25 camp. Our rate strategists were on that last meeting, which was obviously a very divisive meeting. But I do think in general, you know, whether I'm talking to hedge funds, whether I'm talking to long onlys, they've been anticipating some significant interest rate relief. And if you even go back and just listen to companies and what they've been talking about the last few quarters, how many times have we been hearing about the cumulative impact of inflation and uncertainty over interest rate

policy as something that is restraining not only consumers, but corporations and their business activity decisions? And so I really think if we don't, you know, we just can't sit here and keep debating. We need to know the outcome of this election. We need to know what the Fed is going to do, that they're on a particular path or actually going to see this paralysis in corporate America, frankly, I think, get worse. OK, so, Tom, rate cuts justifying the multiple of the market. Laurie makes a good point. It's like if you if you were justifying the valuation before based on the number of cuts you thought we were going to have and the size of them, and then those don't live up to that expectation,

then how can you justify the multiple being where it is? Well, I think maybe, you know, if we step back, we never know what's priced into stock. So I think it's hard to say how many cuts were priced into the equity market multiple. I think stocks are being supported because there is a lot of cash on the sidelines, Scott. I just think a simple thing to point out is margin debt is like $730 billion or something right now. It was $936 billion in October 2021. So in the last four months, margin debt has actually been flat, actually declined. So there's less money buying

stocks, but they're being supported. I think it's because they're being bid. I don't really know how many cuts were priced into the PE. I mean, none of us really do because there's so much that gets priced into why stocks are where they are. I mean, there's never really equilibrium in a stock price. But something's got to give, though. I mean, at some point, I mean, earnings have to live up to a higher expectation, potentially, if you're not going to get the cuts that you might have thought you were going to get in order to justify the multiple that stocks are trading at, Tom, don't you think? True. I think one thing we have to keep in mind is that there is excess interest rate cost in the economy right now because the mortgage, the 30-year mortgage, should only be 1.7 percentage

points higher than the 10-year yield. So in a normal environment, the 30-year mortgage should be at 5.7. I think it hit 6.7 this week. And we know credit card debt's going to get cheaper, and auto loans, and small business borrowing costs, and home equity lines of credit as the Fed cuts. This is going to unleash not only East's financial burdens, but unleash pent-up demand, because we know, I mean, just look at the ISM. Companies have been cautious for two years now. I mean, companies are cautious for two years. It's not as if the economy grinds to a halt. It's now two years of pent-up demand that has to be normalized,

and that's why earnings could really do well next year. Shan, you agree with Tom, and I think Lori agrees with both, that it's these other non-MAG7 areas of the market. And if you want to go all the way down to small caps, you can put those into the groups you think are going to be the outperformers moving forward. Yeah, I mean, higher credit growth, Scott. I mean, we're talking about lower interest rates. We're talking about stabilizing inflation. Clearly, Tom made an excellent point earlier on the relative valuation. But can I just go back and talk a little bit about positioning? Because you just asked about the multiple of the

market and thinking about valuation. And Lori talked about what's happening in terms of the path of interest rate cuts. There is a lot of volatility in the bond market. There's a lot of volatility in the yield curve. But what's not as volatile and what is pretty certain is that rates in the short end of the curve are coming down. So, Scott, I would say that as long as we continue to have this data dependency, this whipsawing from meeting to meeting in terms of expectations for the Fed, how many rate cuts will we have? What does that look like for 2025? That actually supports positioning and flows into the equity market despite the valuations because there are these other factors in terms of the boost to underlying earnings from a resilient economy, better credit growth, lower costs, lower rates.

All of that sort of supports this outsized multiple, at least right now, as cash is coming out of the short end of the curve. I mean, Laurie, that kind of Rick Reader's point when he was sitting with me recently was like, look, the market is stretched, but and I'm uncomfortable to be bullish here, but there's so much money around that it's really hard not to be. I totally sympathize with that. And again, I don't feel bearish longer term. I would say, though, tactically, you know, when I hear the word positioning, you know, the hairs on the back of my neck go up a little bit. Because if you look at AAII net bulls, we've been hovering around the one standard deviation mark in recent weeks.

And that's tactically where in recent years we keep having these 5 to 10 percent drawdowns. If you look at the CFTC data that comes out every Friday, and I haven't seen today's. I don't know if it's out yet. But it's been just climbing higher and higher and higher for S&P contracts, for NASDAQ contracts. It's been bumping up against historical highs. And those are charts that when I talk to my clients in meetings, we all sort of agree they keep you up at night. So the positioning does feel a bit stretched. And even if you want to look at Federal Reserve flow of funds data, equity holdings as a percentage of the financial assets are sitting up around peak. So I absolutely understand and sympathize with the idea of where else are you going to go when things still look okay.

But we are at the same time hitting some tactically concerning pressure points. Yeah, yeah. Tony Pasquarello, I've cited him often, too. He's a Friday note-drop guy. And he talks about the flow of capital, tips the scales in favor of the bulls, like many are talking about. I really appreciate the conversation, everybody. Lori, thanks for being here. Shan, thanks.

Tom Lee, be good. We'll see you soon. Everybody have a good weekend. Let's send it to Pippa Stevens now for a look at the biggest names moving into the close. Pippa? Hey, Scott. Kinder Morgan is at its highest level since 2015 after Bank of America upgraded the stock to buy. The firm said the rise of AI-driven power demand and electrification should provide a boost for the company, whose

pipes serve many data center hubs. And Fastenal shares are the top performer on the Nasdaq 100 after better than expected earnings. The company saw strong demand for its safety products, but the daily sales rate in the quarter was impacted by Hurricane Helene. Those shares up 10 percent. Scott? All right, Pippa, thank you. That's Pippa Stevens. All right, we're just getting started here on Closing Bell on this Friday. Up next, driverless or directionless? Tesla shares are falling today after the robo-taxi event left investors seemingly wanting a lot more. Star analyst Dan Ives is here to defend his bull case. Lots are making the bear case today not that gentleman right

there. He's here at the New York Stock Exchange you'll hear from him next. On closing though. Shares of Tesla sinking today after its robo-taxi event underwhelmed investors. Several analysts notes calling it, quote, disappointing. My next guest says he disagrees.

Says the event was a, quote, glimpse of the future and the next generation transportation. Joining me now, Post 9's Wed Bush's Dan Ives. So you say you left that event in which you were there in person more bullish on this story. How? I mean, it's all about clearly details were obviously scarce and that's partially why the stock's down. But in terms of cyber cab, in terms of what we saw, what's really going to be over the next call it 18, 24 months months you look at optimus in terms of what I've used for Robotics where right now there's no value for optimus in the story and I think most importantly in terms of the unsupervised

FSD that's gonna really be rolled out throughout all the Tesla models at least California, Texas into next year And I think that's why to me I'm not talking in the next quarter to us moving the needle. But in terms of the next few years, I believe it's a game changer to the broader story. You saw what might be, not what is. And there really is no real idea of when exactly this is actually going to hit the street. You want to take issue with that? Well, I'd say, first, look, in terms of price per mile, I think the big focus was could they get under 50 cents? He must talk about 20 cents per mile, potentially with taxes 30 or 40 cents.

When you look at CyberCab, and clearly the two-person CyberCab, this is something where, as this goes through the next three to four years there's no reason this can ultimately be 10 15 20 overall profits for tesla as is all ramps up just given what our view of the overall ride sharing market and what they could gain and it comes down to 1.5 billion miles driven so the stock had a significant move on anticipation of this event. The event to many underwhelmed, therefore not justifying the multiple that the stock has expanded to. That's JP Morgan's note today. They see substantial risk to multiple of multiple compression after the big rally into what they call a underwhelming day

i think we look back at last night three four years from now is a historical moment and the reason i say that because they just think because they held an event and showed you these these prototypes sure it's well i think it's more than prototypes because ultimately i think the next leg of the story in terms of autonomous i believe they will be a clear leader in broader autonomous. And I think it shows now when you look at cyber cab, that's just one piece. I think the other reason the stock's down is Model 2, lower cost vehicle. They didn't show it. I think they're not going to show.

We never expected they're going to show that at the event. I still believe that's the 2025 story. So I think broader, you look at, I think, demand stabilizing, just a robust China quarter. I think COGS is going to come down. You got Model 2 or 2.5 in 2025. And then when I look at the future, next two or three years, you look at CyberCab, you look at Optimus, you look at just some of the parts. I argue the ai story it is the most undervalued ai name in in the market i understand but i'm trying to get my

arms around how you're you're trying to value a stock based on some level of identifiable fundamentals sure are you telling me that you came away from that event last night satisfied with the details that you got? Because your colleagues at other places were not. Adam Jonas, that's it? Disappointing lack of detail. Tony Sacanagi, stunningly absent in detail. Wells Fargo, little substance.

Are you telling me that you were fulfilled in the detail that you learned? No, we called out. Details are scarce. That was a negative. And it's a reason that we wanted more details. But to me, with Musk and Tesla, in an event like that, you're maybe not going to get as many details right there as you'd want. But the reason we came out so positive in terms of the test drives and if you look at CyberCab and you look now at production and this is real. We're not talking prototype. 2026, they start to produce this. We go into next year. This starts to become more and more reality. It all comes down to us, FSD.

FSD penetration increases within Tesla. The story massively changes. When do you need more details? When do you sit back and you say, you know what? I've given the benefit of the doubt on this story, whereas many of the others who cover this stock have not. When do you want details? Well, I think by later this year, early next year, you basically need to have some details on when the lower cost vehicles coming out, what production looks like. What in terms of cyber cab and overall FSD, what the rollout is going to look like throughout 2025.

And most importantly, COGS. Because the whole goal here is that Tesla is going to be able to decrease COGS significantly, especially with the next-gen platform. If that happens, then you get numbers into the next year or two, I think they're underestimated by 40%, 50%. That's what we need to see. If we sit here six months from now and they didn't give us that, then at that point, you probably do have to reevaluate things.

But I don't—I think they have a lot more coming than they ever have in the story, if I think back to the last few years. How are you thinking, lastly, about Musk's further leap forward into politics sure and what certainly seems to be um a lack of care if you know half the people uh who are not supporting the candidate that he is or whatever the number is you know what my point is um refuse to buy any of the products that this man is selling in the future. Have you assessed any level of political risk that is out there at all? Yeah. I mean, look, the political risk is definitely amplified relative to what it's been. And he's obviously, he's become more and more vocal in terms of Trump. That's definitely,

there is a negative impact there. But our view is that Musk is Musk, and we've all seen he's never going to change. I believe it's a contained impact as of now in terms of from a demand destruction perspective. Now, to your point, if we sit here 6, 12, 18 months from now and it continues at this pace, then it becomes more detrimental to the story, at least as of right now. I mean, this isn't even a question or a suggestion, and I want to make that clear, that something has to change. I'm saying he is obviously comfortable with having a louder voice in the political discourse, OK? OK, by virtue of that discourse, which is, I think we can fairly say, somewhat deteriorating in this country,

that undoubtedly there are going to be people on the other side of the political aisle who don't agree with him, who may have considered a Tesla in the past, who might not now. At what point do you factor that into anything meaningful, material? That's why we do surveys. I mean, if we do our U.S. consumer surveys and that starts to become more and more of a pronounced uptick, then you start to get concerned, especially as you're launching more and more new vehicles.

But if you look at where it is today, that's not really been the biggest issue for Tesla. It's really been China, and China's actually starting to rebound. But for Musk right now, it is a tightrope. This is a key. This is a fork in the road period, next 12 to 18 months. We either sit here and we look at— What's a tightrope?

It's a tightrope between you have the political situation in terms of the way that he's navigating that. He's not walking it. He's not navigating it. He's not navigating it. He's not walking it like a tightrope. He's decided this is where he wants to be. But the tightrope is you have all these new products. You basically have the next generation of Tesla coming forward. The last thing you want right now is anything to spoil that party.

Last night shows the innovation. That shows the innovation of Tesla if you look going forward. And I think that's our take. But I get it right now. It comes down now to execution and details. And if that happens six months from now, we're looking at a trillion dollar plus mark cap in our opinion. OK, Dan Ives, I appreciate you.

Thanks for being here. All right. That's Wedbush Securities. He's a senior equity research analyst. Up next, one and done or brace for more cuts. The former Cleveland Fed president, Loretta Mester, is here with her own expectations for central bank policy and this economy moving forward. We're back on the bell after this. All right, welcome back. The PPI cooling in September, according to the latest data out this morning.

This after yesterday's CPI number showed inflation slowing. Those data points adding to the questions now over how the Fed might move at its November meeting after that supersized 50 basis point cut in September. Here to share her outlook is the former Cleveland Fed president and CEO CEO Loretta Mester. It's good to see you. Welcome. Hi, Scott. Thanks for having me. Would you have gone 50 at the last meeting? Well, I wasn't at the meeting, so I don't know what to say now. That's why I am allowed to say, you know, I thought it was a close call. I could have made a case for 50. In retrospect, of course, some of the data that they were worried about in terms of the labor market data got revised away. So I can imagine that, you know, now in retrospect, they probably

thought, well, we could have gone 25. But the basic narrative hasn't really changed that much with the basic data we've gotten on both employment and inflation. I think the basic narrative is the same, which is, you know, over the next six months, seven months, eight months, the median run outlook, right, they expect inflation to continue to move down at a gradual pace. And they want to do what they can to keep labor markets healthy. And while there's probably a little more strength in the economy than they saw in September, I don't think the narrative has changed. Some of the risks have changed around that, of course. I think there's less downside risk on the employment front than they saw in September.

But I also think there's probably a little more upside risk on the inflation front than maybe they were expecting. So I don't think the basic idea of, you know, we're trying to move rates to a more neutral stance over time has changed. And I would expect that that would be sort of what they discuss at the meeting going forward, which is, you know, has something materially changed that we want to really move off of that phase of normalizing rates. And I just don't see it in the data right now. I think the data is pretty compelling that, you know, it's coming about what they expected, a little more strength in the employment side, which is a good thing, I think. Less downside risks there and inflation moving, but moving

gradually back to 2%. Remember in their forecast, the median forecast didn't have inflation reaching 2% in next year. So, I mean, it's basically on track, I think, with that kind of slow, gradual, but more confident on track to get back to 2%. I want to ask you about, you know, the median projections and the forward guidance and all of that, because some are taking issue with it to begin with. There's Stan Druckenmiller, who's one of the most famous and successful investors this country has ever seen, who said, quote, I hope the Fed is not trapped by forward guidance the way they were in 2011. I mean, Larry Summers made the point after the jobs report following 50 basis points,

which he thought, by the way, was a mistake, to where he said, quote, today's employment report confirms suspicions that we're in a high neutral rate environment where responsible monetary policy requires caution in rate cutting. I mean, how would you assess what both of these well-respected economy and market watchers have said? Yeah. So I do believe that probably interest rates and neutral rate is higher than it was in 2014 through 2019. I think there's a lot of reason to believe that. But, you know, the Fed rate, the funds rate is high relative to where inflation has come down to. So in other words, you know, if you don't move rates down gradually, you will be inadvertently tightening. And given where the economy is and where inflation is relative to goal, I don't think that's necessarily

appropriate. But they're right in the sense that you always want to keep your monetary calibrated to the economy and where it is, but also where it's going. And so I think there's still room to do some cuts in a gradual way, you know, next meeting, the following meeting. And, you know, before you get into that realm where, OK, we don't really know where neutral is, maybe we need to sort of be even more gradual than we've been. So, yeah, we'll get to that point, you know, but when we get down to 4, 3, 7, 5, I think that's where you have to sort of be cautious because we don't know exactly where neutral is. And you'll let the economy tell you sort of how

it's behaving, and that'll give you some good clues about, you know, are you getting to a point where it really does seem that you've settled into price stability at 2 percent inflation and maximum employment, where maximum employment, of course, is the employment that's consistent with price stability. So I think the economy is going to tell them. But there's still some room to go on that funds rate, the nominal funds rate, before you get into that area, I would say. But I mean, when some suggest, well, they should move, forget the economy, they're just too restrictive. Others find that argument silly.

And they point to the fact that I'm sitting here saying that the S&P 500 is over 5,800. We're a record high on the S&P and the Dow, and the economy is still strong. The labor market you know bears that out so to the to that argument that the Fed is just too restrictive I mean how do you respond to the critics that say it can't possibly be given the environment that we still are talking about guys remember it's not only about where the economy currently is it's where the economy is going over the median run. So when you look at a median run forecast, right,

their forecast, and we'll use the SEP because that's the best we got, right? They don't have a consensus forecast yet. And I don't know whether they ever will get there, but we can talk about that another time, right? They basically see, right, still positive growth and growth above trend, according to their forecasts, over the next two years, right? And then the unemployment rate moving up only a little bit, but towards where they think sort of an average unemployment rate should be over the long run, so full employment, and inflation gradually moving down. And that's what they're really calibrating their policy toward.

Now, as the economy evolves, they have to always think, okay, is the data coming in consistent with that or not consistent with that? But they have to be more forward-looking than the markets are. If they wait too long to do something, then they get behind, and then that causes the problems that we had when we were raising rates in that we probably waited too long to do that. And then we had to rate it, you know, raise them aggressively. So when you said when you say they need to be more. I'm sorry to interrupt you when you say they need to be more forward looking. Are you suggesting that they're too data dependent? No, I think what they don't want to be

is data point dependent. Right. They're not going to move. The real question is, did the data that came in over the last, you know, last meeting, did that really materially change the median run outlook for the economy? And I submit no. I think it might have changed the risk a bit, the risk assessment, right? So I see, you know, instead of being even risk on inflation, I see there's probably upside risk to inflation, right? Instead of being, you know, all downside risk of inflation, I see there's probably upside risk to inflation, right? Instead of being, you know, all downside risk of employment, you know, or unemployment going up more than you'd expect or more than you'd want, right? That's been diminished, right? So the risks have changed. But in terms of the overall outlook for the economy, I don't think that much has changed, that it would deter from thinking that it's continuing on this phase of policy where you want to bring rates down from their very high levels to something that's approaching neutral and moving to a more normal level.

And I think that's the calculus that a policymaker has to think about. If you're in the markets trading, you have a different calculus because your time horizon is much shorter than a Fed policymaker's time horizon would be. Let me ask you lastly, before we go, November meeting, they cut 25. Is that what our expectation should be? Is that yours? If I were there, given the data we've had so far and there's going to be more data, I would be 25. I would do it again in 25, partly because I think this stop and go is not a good look for the committee. I think they, you know, they started this phase of policy because they really have a media run outlook that says, you know, the funds rate needs to be brought down more towards neutral. None of the data that we've seen has changed that outlook. And therefore,

you'd want to go again. And then as it gets closer, you know, closer to something, the range of neutral, and it's a wide range because we don't know exactly where neutral is, then you become more cautious and perhaps you do it

a little bit slower. Former President Mester, we'll talk to you soon. Thanks for being with us today on Closing Bell. Thanks, Scott. All right. Up next, we track the biggest movers

into the close. Pippa's back with that. Hi, Pippa. Hey, Scott. One struggling automaker is shifting gears in hopes of a turnaround. The name to watch coming up next. We're heading to Los Angeles on Tuesday for the Case Alternatives Conference. We're going to hear about the top opportunities outside of stocks and bonds, growing interest in private equity and credit and

so much more with the leaders in the alts business tuesday on halftime report and closing bell a bunch of exclusives we're very excited about that i think you will be too market zones next we're in the market zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Go to you. We're going to have record highs again, S&P and the Dow Jones Industrial Average. Yeah. You know, the market has struggled to find anything to really worry about in the new data. And obviously, banks, you know, people were maybe not giving them enough benefit

of the doubt at least initially there was also a breakout to the upside to a two-year high in the bank sector that i think has this chase mode so so many people and look i understand why we're entering october saying there is no rush to do much here because you're going to expect some downside chop you have a lot of sort of hedging going on, and the market is not making people feel comfortable with being underinvested. Now, I don't think a lot of people are underinvested, but they might feel as if the market could get away from them just a little bit. I think that's the dynamic we're seeing.

Some of the weakest stocks on a year-to-date basis up substantially this week, so it feels like the market's hunting for hated stuff or things where people are are underexposed. There's like Walgreens and Intel and Lulu and Humana all up way more than the market was this week. Interesting to Russell is just by far and away today. The story is up, you know, two percent. We're able to get back above that twenty two hundred number, which has been a line. And you've been talking about that for so long. And that would go into that category of things people have this overlay of skepticism on. And, you know, the market is is almost sort of trying to punish some prudence in the short term here.

It sometimes does happen now. It's getting just a little bit stretched on a short term basis. You know, I think that it mostly prices in a good scenario. Earnings probably going to come in fine, you know, based on facts that saying if we beat by the normal amount, it'd be a 7 percent growth annually. That's not bad. So it enables the multiple to stay supported, even if nobody feels compelled to do a whole lot of buying. The other piece of it I keep pointing to is the differentiation among the mega caps. It's not monolithic. You've got winners versus losers. So Tesla can go down double digits today. Microsoft can fall asleep for months, as it has, and the index can hang in. I'm looking at NVIDIA. I mean, obviously, a story of the week, up 8 percent, and Uber getting the

reverse of the Tesla sell-off today. Yeah, it's sort of remarkable. Again, I feel like I don't know why people would have expected much on an instant reflex moving Tesla to the upside and frankly, why you would necessarily have been that negative on Uber as being threatened by it. But obviously, there was a lot of tactical money that was exactly laid that way because you don't get these kinds of moves otherwise. Now, again, I want to point out, I don't think people hate this market. The sentiment surveys say no. The positioning data say people are in.

But it is just sort of like if credit conditions are what they are, the market's not acting like a recession is close by. If you don't get a recession and the Fed is cutting, it's really hard for the market to get into bad trouble. Yeah. All right, Mike, you have a great weekend. All of you as well. Dow's going to be about a 400-point winner today.

New high. S&P new high is going to close above 5,800. Everybody, good weekend. And over time with Morgan.