Closing Bell - Closing Bell: The Fall Stretch for Stocks 9/23/24

Episode Date: September 23, 2024

Did the Fed just give the green light for more gains ahead? Blackrock’s Rick Rieder gives his take on the state of the market. Plus, venture capitalist Rashaun Williams tells us which growth names he is banking on right now. And, Leslie Picker caught up with Bank of America’s Brian Moynihan. We run through all the highlights – including what he had to say about the consumer. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wabner, live from Post 9 here at the New York Stock Exchange. Let's make a breakout. It begins with the future of this rally. Whether there's still a lot of upside left for stocks, we will ask BlackRock's Rick Reeder. He's going to join me exclusively right here at Post 9 just in a moment. In the meantime, let's look at the scorecard with 60 minutes to go in regulation. We're trying for more records for the Dow and the S&P. Do have that at this moment. 57-16 for the S&P, up one quarter at this moment. Fifty seven sixteen for the S&P up one quarter of one percent. Dow is good for one as well. NASDAQ.

Well, it's working on its own thing today and it's getting a little bit going here. Not great. It's been a tight session throughout utilities, discretionary materials. They're the best performing sectors. Tech, as I said, has been negative. So we're trying to pull a little through here in this final stretch. Yields, they've been mostly higher as well. That's an area that matters a lot to investors. There's the 10-year 374. It does take us to our talk of the tape. The fall stretch for stocks and whether

the Fed just gave the green light for more gains ahead. Let's ask Rick Reeder. He is BlackRock's CIO of Global Fixed Income, also the head of the global allocation team. Back at Post 9. It's good to see you. Good to be here. Thanks, Bill. It's nice to see you, especially after what the Fed did last week. So what's your big takeaway as to how the market's reacted since? So, you know, by the way, I find it interesting the difference between the bond market and the stock market. The bond market's actually backed up.

I mean, we've, you know, and should we follow these short forwards, what they're pricing in for the Fed? They backed up almost 20 basis points. Ten years come off rates higher by about 10 to 15 basis points. Why? Why is that? Because we were pricing in recession. If you go back a week or two ago, I mean, this extraordinary movement towards pricing to recession, hard landing recession, and the fact that the Fed was behind and would have to get there, it was too much. That being said, I think we've retraced to the place that's probably okay.

You know, I always get a kick out of that, where the barman people say, well, the equities are rallying because Fed's moving. Well, the bond market already knew, like it was already in the price that they were moving. Listen, I think one thing that's a big takeaway is when you go 50 and you talk about we're willing to keep going and you talk about a recalibration they needed to do is a little bit of we put foam on the runway. You know, the Fed is receptive. Now that inflation, we're running 2 percent by many measures under 2 percent. You've got a Fed that would be sensitive to the economy, sensitive to labor. So that's good. I mean, is that a positive for equities?

100 percent. How far and how fast do you think they go from here? Listen, I find equities just okay. Not great. I mean, for years we talked about- I meant the Fed, but you could talk about equity. Go ahead. Well, given what you said in the first answer, why do you just see equities as okay? That's somewhat surprising given what you said. So the best way I value equities is I always look at cash flow discount by the cost of debt today the cost of debt is still elevated because where the fed is

and then if you look at multiples it's just not the equities aren't that interesting you're still throwing off good return on equity 18 19 but you're trading at price to book of five times price you're paying a lot for it you talk about 24 and a half times P.E. off of off of trailing 21 and a half off of forward. But that's assuming 15 percent growth of earnings. You're just paying a lot. And you think about for the last couple of years, extraordinary top line revenue growth from tech that motivated the market higher. Listen, I think the numbers will continue to be good, but the market's pricing that today. So they're just OK. If you said to me, I did a presentation called Moving the Needle, would I buy more yielding assets?

I definitely would buy more yielding assets because they're at better price than equities today. Okay, so you've made the remark in the last few weeks that you think it's a golden age for fixed income. Yeah. As a result of that, I always am out with Jeffrey Gundlach. We speak with him for Fed Day. And I asked him about that. And it's not like he disagreed wholeheartedly with his fixed income. Obviously, he does well. But he said, I think you have to be extremely careful with your positioning on that.

So can you elaborate on why you think it's a golden age? And do you need to be more careful or more specific as to exactly where you look? So I've been doing this a really long time. It's very, very rare that you have inflation running at 2% and actually trending a bit lower that you can buy assets that yield. And by the way, not really risky assets. You can use securitized assets. You can use higher quality, high yield. You can create a portfolio to 6 and a half. So your real rate of return or your real rate of interest is very attractive. At the same time, listen, you always have to be careful in fixed income. I mean, the upside of fixed income is we get our money back.

You always have to be careful. Today, you think about during COVID, what happened? Companies turned their debt out. They pushed their maturity wall out. Individuals blocked in their mortgages. It's pretty rare that you get those sort of yields, those sort of real rates. At the same time, there's no maturity wall in front of many of these companies. That's pretty good. It's pretty hard to default if you don't have debt come and do. And most companies don't have debt come and do. So listen, I think the environment is great. Do you be careful? Of course, you always be careful. How much emerging markets do you need to own in the portfolio? Maybe not a lot today because there's yield everywhere. But gosh, I mean, you can build a diversified portfolio with a lot of yield today.

And I think that's super attractive. Relative to equities, that valuation, it's been a couple of decades. So you had that sort of divergence between the earnings yield of equities and the earnings yield of or the yields are getting so the real bull market now the next major leg of it comes in fixed income not stocks so by the way yesterday or yesterday last week it was pretty i was busy yesterday it was pretty uh it was a pretty ferocious rally in credit i mean it was spreads keep tightening and tightening the reason why they are is people have been sitting in the trade the last couple years has been i'll sit in cash and i'll buy NVIDIA.

And like, oh, or maybe I'll get six more stocks, diversify it. Now it's like maybe my cash level is going to come down. The yield on cash will come down. Maybe I'm not going to get this explosive growth in earnings. How do I lock in that yield for the next three years, four years, five years? So, listen, I think that will continue. And, boy, it's pretty impressive in terms of the flows that are driving that. Why can't everything go up kind of nicely from here? You know, don't fight the Fed, right? That you and me have both heard since 2009. And it's largely

worked. So I'll tell you a funny thing. So I don't love the valuation of equities. That being said, when I stare at the technicals, the amount of cash that's sitting there, there's $9 trillion globally in money market funds. If you take deposits, now some of this is pledged, it's $23 trillion. The numbers are staggering. So to your point, part of why, through convexity, I've gotten longer equities, and I don't feel terribly comfortable about it, but the volatility markets are allowing you to do it. But boy, there's a lot of cash and with the Fed putting foam on the runway, with the Fed

bringing the rate down, could both equities and debt do well? I think so. My only point is, would you move the needle going into an election, geopolitical risk, would you move the needle a little bit, downshift the risk, take some yield? That's the direction travel is. Have you pretty much set your course here on soft landing? That's where you're placing the bulk of your bets? No, I actually don't think, I'll just say, I really don't understand the idea of hard landing, soft landing. I think that's a concept from the goods-oriented economy 20 years ago.

I mean we think so third quarter second quarter GDP ran at 3.0 percent. We have third quarter at 2.6 percent third quarter GDP. Fourth quarter we have downscaling to about one, one and a half percent. That's not a recession. That's not a soft landing. That's not a traditional we're gonna go into a recession on the backside of this cycle. you know i've said it before service economy 70 of consumption is in services service economies don't exhibit that sort of cyclical classic cycle dynamic and so i you know i don't think you know for years people talk about well soft landing leads to hard landing i just don't think you land i just think it's you get tired and the economy's a bit tired in a bunch of spaces, but I'm not worried about the

economy. I worry about other things, policy shift, geopolitical, but economy, I think is pretty, pretty solid. Have you, have you been thinking differently about potential policy shifts based on what the polls have suggested over the last six weeks? So a couple of things. I mean, you have to assume that the election is a dead heat and we can debate how it shifts day to day. The divergence in policy is stark. You talk about corporate tax rate, it could be 15 percent, could be 28 percent. You think about the implications of free cash flow. Deficits are a big deal in terms of how we run trade tariffs. So what do you do with all that? Listen, I think the big thing is we run,

per what I was describing earlier, you run a little bit less beta in your portfolio. You keep, you know, equity volatility is, I still think, very cheap. You keep a lot of convexity, downside protection in the portfolio today. So we are, you know, this is a time of year where the seasonals are not great, where the volatility is high. So we've built a bunch of protection in the portfolio. And with yields where they are, you can pay for it because you're clipping so much coupon today. I mean, it's such an interesting time. Normally, you would have a conversation about elections and policy, and the differences could be very stark in terms of what the outcome could be for markets.

You know, higher taxes, whether it's personal or corporate rates, obviously you'd say, well, that's not going to be great for markets. The other side is, well, tax cuts for individuals, corporations could be fantastic as well. But then we have the deficit issue and the funding of it. And we have the expiration of the Trump tax cuts, which he's obviously suggested he wants to renew. And then the tariffs on top of that. Is it more murky for you as the CIO of all of that, given what I just said? It's not so cut and dry as you might otherwise think. Yeah, murky is a good word.

And by the way, I think what's driven some of the technicals in the equity market, everybody knew the seasonals. Everybody knew we were going to election. There was a ton of de-risking that happened in August. And I think that's part of why people have gotten lower on risk, significantly lower on risk. And that's motivated the markets higher. Listen, I think markets do. I think people, when you look at polls, you look at surveys, people tell you what they think, but they end up doing what they have to do. And today, part of why I think we've gotten comfortable, I would say the market has gotten comfortable,

this is so much cash on the sideline. But from my perspective, in terms of managing risk, you know, I like this posture of getting my beta down a little bit, creating a bit more convexity. And I think, listen, I don't think we're done with volatility. And all it would take, you know, by the way, you look at that August move, 20% move in the Nikkei, you know, dollar-yen trade. I mean, markets are crowded in a bunch of places. Look at what happened to semis.

Markets get extremely crowded these days. So I just think you've got to be really sensitive. You know, fixed income, I tend to diversify it, where I like to concentrate my equities a bit more. But I think you've got to be a bit more careful because the crowding in markets is severe. Do you write off the notion at this point that the Fed's late, that they should have started cutting earlier and therefore they were behind the curve. And even with the 50, they're still behind the curve. They're still too restrictive. And once the labor market starts to get out of their grip, that it can run away from them faster than they're able to deal with. So I think the Fed's behind the curve, full stop. I think the funds rate, if you assume inflation

is two or trending below two, a five and three and 3-inch funds rate was not the right price. 50 base points still doesn't get you to the right price. I still think the Fed's got to get to 4%. I know I've said it before. You look at lower income. You look at small business. There are some parts of the population that are really hurting. I still think they're behind the curve.

What I am more comfortable with is I think the economy, this economy is so resilient, it's so innovative, so flexible, that when I write down all my risks, which I do pretty much every day, economy, this economy is so resilient, it's so innovative, so flexible that I'm, you know, when I write down all my risks, which I do pretty much every day, I write down all the things that keep me up at night. The economy is actually one that I feel pretty good about, that it's going to do its thing. And, you know, you watch other parts of the world, China slowing significantly, Germany going through some significant softness. U.S. economy is pretty extraordinary in how it's energy independent, innovative, education, technology. It's pretty hard to screw it up. I'm going to leave it there. That's mic drop. Good to see you.

Good to have you. Thanks for having me. Black Rocks, Rick Reeder, right here, Post 9. Thank you. We look forward to talking with you again soon. Let's bring in Mike Rode of American Century Investments now and Bryn Talkington of Requisite Capital Management. Bryn is a CNBC contributor. Good to have you both with us. Mike, I'll go to you first. Mr. Reeder is pretty positive on the situation. I think he made that awfully clear. He may have different ideas on where he can get the best returns, be it fixed income versus equities. But what do you make of what he said? No, I think I agree with a lot of what Rick said. And, you know, in terms of where are the areas that are not crowded in the equity markets

today that are not expensive and low expectations, I think small caps look pretty attractive from that perspective. They're trading at a huge discount to large caps. They're under-owned institutionally. And in terms of the steepening yield curve and the rate cutting cycle, there's probably it's probably the best performing asset coming out of basically a year after the Fed starts to cut rates as a lot of those spread type businesses like banks, which we're positive on, by the way, start to benefit. The refinancing risk for a lot of small cap companies who use floating rate debt becomes alleviated with lower rates. And then finally,

in terms of what Rick was saying, if lower rates help stimulate economic growth, that's a pretty good environment for small caps. And small caps are expected to grow in the mid-teens earnings next year. That's higher than large caps. Now, the Magnificent 7 is still higher than that. But back to where the expectations, the expectations are really, really high for the Magnificent 7. And I think the expectations are pretty low for other parts of the market, not the Magnificent Seven. So I'd say as we tell our clients, hey, look in areas that have lagged, but are showing potential accelerating earnings, because we believe that stock prices follow accelerating earnings growth. Bryn, what's your view?

I think to stick on earnings, if you look at the 493 names, like X, the Magnificent Seven, this Q3 earnings are looking to only grow 1%. But Q4 estimates for those 493 are 15%. And so if those estimates become actual, I think the market will clearly sniff that out well ahead of time. I think the return we saw over the last month in so many other sectors outside of just the S&P, you're going to continue to see a broadening. But I still think you want to stay mid-large cap, just because I think the market, if we do get any weak data from a rotation perspective, I think the hedge funds, the algos, just like the trader mentality, will actually

sell small caps. And so I think that from a probability perspective, the large cap, mid and large cap, high free cash flow dividend yielding names have more room to run as we continue to get earnings estimates actually, you know, start to actually ramp up in names outside of just the six or seven names we always talk about. Bryn, though, as positive as, you know, Rick Reader's outlook is and yours sounds similar, he does take issue with that number, 15 percent earnings growth. And as a result of that, he takes greater issue with the multiple of the market, 24 times, like too rich. It's a big leap to expect that we're going to get 15 percent earnings growth, which would arguably justify or some would say would justify where the stock market is currently valued. How do you deal with that? Yeah. Yeah.

I mean, I definitely think the market is starting to, we'll say, be priced for perfection, right? Where I think the market is telling us we're having a soft landing, that narrative. And so I think until there's facts to change that, the bias is going to be to the higher. I mean, you see the analysts lifting their price targets for the S&P because they're following the price action. And so I think that, once again, these are estimated numbers. And as I said, they need to become actual. We won't know that, Scott, until Q1 of 2025 when these numbers come out. But I do think, though, that barring some exogenous event, and even if an event occurs, the Fed put his back.

And so I just think you said it at the top of the show. Don't fight the Fed. That's been a very good investment thesis in both tightening and easing cycles. So I'm going to have to go with don't fight the Fed by the dips and that the Fed's going to step in and continue to be now dovish, which I think is bullish for stocks. Yeah. I mean, I guess that's what we've been taught. It seems to have worked reasonably well. Mike, you still say there's a 30 percent chance of a recession and you're investing as if you expect the economy to continue to slow down. What, in fact, if we have the no landing, as Rick Reeder suggested, forget the recession. That's way off the table and not even a soft landing. But the economy just keeps humming along. Yeah,

it may slow a little bit. But the bottom line is this economy stays resilient. The Fed is just starting to cut interest rates. And that backdrop right there is pretty good. Yeah. Cooling inflation and Fed cutting happens pretty rarely. But yeah, this is a really good setup. You have several kind of longer term trends that are driving economic growth in this country. You have reshoring companies bringing their supply chains back to the U.S. That is driving job growth. And small and mid-cap companies are probably the biggest beneficiaries of that. You have artificial intelligence. We all know about that. I think there's been one big beneficiary in NVIDIA, but that will likely start to broaden out. So we've seen in many of these utility

companies as their kind of second derivative AI plays. And then finally, as rates come down, the housing market has been on its back for several years. Lower rates could help spur sales of existing housing. And that's a real driver for the U.S. economy. As you know, in our small cap, one of our small cap portfolios, you know, we own landscape supply businesses, roofing companies, companies that will benefit from the acceleration off of the bottom in housing. I think there are a lot of good stories that are happening in this economy right now. And by the way, back to the election, I think reshoring is really a bipartisan issue. Both sides agree that we need to get supply chains back to the U.S. for geopolitical concerns, national security.

So, you know, this is a potential five, 10 year trend for the U.S. economy. And I think there's a lot of companies that could benefit that it's not yet priced into the stocks. Maybe, look, one of the big debates going into the rate cut was you'd have to wait until that actually happens before you can buy small caps. I mean, Bryn's made that point for months on our programs. Yet, Mike, you say they're going to outperform. They're more attractively valued than large cap stocks. So defend that call. And I'll let Bryn quickly wrap it up. Yeah, I think it goes back to valuation. I think if you look at their trading at about in line with their historical average, but the spread between large and small is the widest it's been in decades. Small only represents about 4 percent

of the U.S. market. That's half of what it historically has been. So there's just there's no expectations there. So, you know, I think we're OK buying some really good businesses. And when you do see dollars come into really whether they redistribute from the Magnificent Seven or they come out of cash and into the market, you'll see kind of rising tide lifting all boats and dollars can go a long way in terms of moving small caps. So it's hard to say whether they work this next week or six weeks from now. But I think trading at these valuations, it's a pretty good starting point. And if you're going to look out three to five years, I think you'll look back and say, well, all right, well, this was a good opportunity here. And you maybe you're a little bit early, but your floor is pretty low.

Bryn, quickly. Yeah, I mean, I think individual small cap names can absolutely work. And I think he brings up great points. I just think from a probability perspective, as we're setting asset allocation, we want to stay mid-large cap and just focus on the probability that things could get worse. And so I think the small caps would just be a bit, people would start selling small caps when we get some weak data. All right. We'll leave it there, guys. Thanks so much.

Brandon, Mike, we'll talk to you soon. Let's send it now to Kate Rooney for a look at the stocks moving into the close. Hi, Kate. Hey there, Scott. So let's start with GM General Motors today, struggling really after a downgrade to market perform. That came from Bernstein, a former bull on the stock. The firm is citing risks to earnings and a potential pricing headwind, multiple headwinds from inventory build, for example. It does come as GM releases its EV sales numbers for July and August, which almost matched its total second quarter sales for EVs. And in the past week, GM has also announced layoffs and a recall of almost half a million cars. And he got Ulta shares lower today, tumbling after TD Cowan downgraded that stock

to hold from buy TD points to slowing sales and sales growth and an expensive valuation for the beauty name. Scott, back over to you. All right, Kate, thank you. We'll see you in just a bit. We're just getting started here. Up next, venture capitalist Rashaun Williams is back.

He's going to break down the growth names he's banking on right now. We're live with the New York Stock Exchange. You're watching Closing Bell on CNBC. We're in the green across the board trying to build on last week's post rate cut momentum. My next guest says this rate dropping environment could be the key to, quote, reopen the spigot for tech IPOs. Joining me now, venture capitalist Rashawn Williams. It's good to see you. I'm sorry about the outcome last night, but I still see you're wearing it proud.

So we'll get there in a minute. But let's talk tech first. Good to see you again. Yeah, thanks for having me. What do you think the rate cut really means for venture-backed companies, first and foremost? Yeah, I think this is finally where, you know, market sentiment will trump fundamentals. We know non-venture capital investors are afraid of unprofitable companies. We totally get it. We know we've been largely shut out of the public markets for the last two and a half years We totally get it. We know we've been largely shut out of the

public markets for the last two and a half years. Totally get it. But as rates drop and capital costs decrease, what we're betting is that the sentiment spreads to venture-backed companies, and it actually reopens the spigot for tech IPOs. So, you know, about time. But delayed does not mean denied. Well, I know delayed, not denied, but how delayed? I mean, I think that's the big question. We've had conversations with folks from the CEO of Goldman Sachs to others in your field, you know, VCs who suggest, I mean, the CEO of Goldman Sachs, David Solomon, was actually more positive than most on the return of the capital markets and really starting to get active again. But when do you think this is going to happen? Well, I think what you'll see in the next quarter or two are companies testing the market. They've already filed confidentially

to S1s. They've been talking about going public forever. They already know that the public sentiment just has to improve and that once people see access to capital as cheaper and more readily available, then these hyper growth, but low profit companies will start to become more involved. But look, we were at a historic low interest rate environments where companies were trading on average at 10 times revenue. So in this four times revenue environment, are people really excited to go public? You're going to need to see multiple expansion from these hyper growth companies at the same time the IPO market opens. So I think when you see those two things happen, when average revenue, average multiple revenue go from four

to probably back in the middle to seven to eight times revenue range, and you see IPOs actually happening and trading at par or above, that's when this figure is going to completely open for us. How are you feeling about the market backdrop now that the Fed has started cutting rates? Do you think earnings expectations will be justified? Will they be met? I think that's the really big question right now as to whether the multiple the market's just too high because earnings can't possibly can't possibly, excuse me, live up to where expectations continue to be. Well, I think the public market is experiencing for the first time in a long time what the private kind of venture capital market experiences all the time. We're used to seeing 25 and 50 percent

CAGRs on the revenue side. We're used to seeing 14 to 30 percent CAGR on the EBITDA and the profit side. Hyper growth companies is the name of the game for us. That's why we're used to seeing higher multiples. But if you're growing at a 10% CAGR on revenue or a 3% to 6% CAGR on EBITDA, then yeah, you would expect multiples like historically the public market to be trading a little lower. But you're seeing this convergence now where the private markets and the public market multiples are the same because you're seeing revenue growth the same. In fact, if you strip out revenue growth of tech companies in the public markets, you might almost be flat.

So I think as the market continues to expand and tech continues to dominate, you'll continue to see these hyper growth and high multiples that are prevalent in today's market. Yeah, I know you have your eye on what's taking place with Intel. That stock's obviously been on the move since news broke that, you know, there's some deal talk around that company. You make the argument in the notes here that you'd prefer that they continue alone. Why is that? I think Intel is just one of those household names that has just done so much for such a long period of time and there's so much public and private capital out there to support this business and have so many opportunities to pivot and regain that revenue growth that they are historically known to do you may have a falter in

three to four quarters but that doesn't mean you should get acquired it doesn't mean a name like intel should go away so i think in my market we're used to seeing these big kind of cachet names. And even back to my Wall Street days, M&A isn't always good, is it? It is not always the solution. And I just think Intel is one of those names that's been in everyone's portfolio for so long. I would love to see them get an infusion of capital, a bunch of fresh ideas, and really recapture that revenue and earnings growth that they're known to have. All right. Now let's talk about that logo on your shirt, because I've said it before on this program, you're an LP of the Falcons. We just came out with our valuations list, of course, which got a lot of talk. Obviously, number one, the Cowboys, 11 billion, but no slouch. Falcons at a little north of six billion. That was number 16 on our list.

Can you just talk about sports as an investable asset at the LP level? You know, we're not we don't have to own these teams outright to make a good quality long term investment as a limited partner. Yeah, I would say two things. First, for any valuation on NFL teams specifically, definitely reach out to the NFL or the team spokesman. I'm not at liberty to speak about that. But two, some of these teams are publicly traded companies, and you can dig into their financials, and you can actually become an owner.

I believe the Green Bay Packers, maybe the Atlanta Braves. So what ultimately private investors and public investors are looking for from my circles is one, a non-correlated asset. People are just too heavily exposed to tech and public markets right now. But two, people want those private equity-like returns, but they want that bond-like risk. And I think profitable sports leagues and teams present that opportunity where you have that annual reoccurring revenue associated with, you know, bond like cash flow and returns and risk profile. But then you have those double digit like returns that are so hard to get with that risk profile. So I think that's driving the crave, the non correlated asset, the risk profile and the overall returns that you've seen in the market for sports teams over the last decade. What kind of shark are you going to be? That's where I'm

going to leave it because you're going to be a guest shark on Shark Tank this season. We'll watch out for you, but what are you going to bring? Yeah, season premiere October 18th. I think you're going to see something very different. I'm the only shark that is not a founder, that is not an entrepreneur, that's just solely been a finance guy watching CNBC his whole life from Wall Street all the way to venture capital. So I bring an extreme amount of two things, deal-making capabilities and education. I think if anybody watches Shark Tank this season, they're going to learn more in one season of Shark Tank

than they can in a two-year MBA program at Ivy. So just be on the lookout for it. All right. Best of luck to you. We'll see you soon. It's Rashawn Williams joining us once again here on Closing Bell. Up next, Mohamed El-Erian. He's here with his forecast for the Fed during this cutting cycle. Join us right after the break. Well, now that the Fed has cut rates, the question becomes how far and how fast will they go? Joining us now, Mohamed El-Erian, chief economic advisor at Allianz. Good to see you. Welcome back. Thank you, Scott.

Well, now that they finally moved, what's your reaction to what they did? I was surprised. I didn't expect them to start the cycle with a 50 basis points cut. And I didn't expect them to package that in the context of saying the economy is in a good place and they have growing confidence that the labor market is going to remain strong. You normally don't have these two things coexist. So it raises a bunch of questions about both the journey and the destination that you just said. Well, when you talk about the destination, it obviously becomes, as I asked in the intro, how far and how fast will they go? I want you to listen to Neil Kashkari this morning on this network and we can react on the other side to what he said. I think after 50 basis points, we're still in a net tight position.

So I was comfortable taking a larger first step. And then as we go forward, I expect on balance, we will probably take smaller steps unless the data changes materially. What's your reaction to that? Smaller steps unless the data changes? So I think that's what we should expect. I would have expected 25 to start with. As you know, I had favored a July cut. Having said that, I didn't want it to start with 50, because once you start with 50, you build up expectations. Look, Scott, there's uncertainty about why they cut 50. Some people like Waller talk about inflation, him being confident that we no longer have an inflation issue. Others, like Goolsbee, speak about the need to cut off the tail of a recession.

And then there's a bunch of people in the middle talking about the balance between the two mandates. There's also a wide dispersion as to what the neutral rate is. So this is a very unusual cycle that started in an unusual manner and that you cannot be as certain as the market seems to be that we're going to get another 175 basis points of cuts. But everything was unusual, right? From 2020, it was unusual. A once in 100 year event like the pandemic skewed everything, whether it related to demand, whether it came to stimulus, what it meant overall to supply chains and fueling a lot of this inflation. So the whole thing has been abnormal. So maybe it's OK. I mean, they're kind of figuring it out, maybe a little as they go. What's so bad about

that? And maybe looking back for historical precedent is actually the wrong move in this instance. So whether it's the right move or the wrong move, we'll find out. And data is going to help. It's really interesting as to how much of the uncertainty that remains, Scott, is due to the pandemic and how much is due to significant secular changes in the world we're living in that would have occurred regardless to the pandemic and how much is due to significant secular changes in the world we're living in that would have occurred regardless of the pandemic. I suspect that the balance has shifted significantly towards the latter, that most of the effects of the pandemic are now behind us. And that's important because if that is the case, then you have got to be less data dependent and more forward looking.

And the good news is that the Fed is making that pivot. They are actually looking forward and starting to be more strategic, something that they haven't been since the big mistake in 2021. Right. But most of the effects of the pandemic being behind us mean that inflation has come down to the degree that it has. Right. You can't have one without the other. But does it mean that the neutral rate is at 2.9 percent or does it mean that the neutral rate is closer to 4 percent? That is where these secular changes come in. You know, that's the range that people have right now, 2.9 to 4. And the journey is really impacted by this destination. If you

ask me, it's more likely that we are near 4 percent than 2.9 percent. But that is a view based on what I make of what's happening to the global supply side, what's happening to the fragmentation of the global economy, what's happening to wage bargaining. And that is the sort of issues that the Fed is going to have to take a view on going forward. Well, so you're making the argument that they're not as restrictive as it would seem to many? Correct, they're not as restrictive as they seem, and that the market has run ahead of itself

in pricing in such an aggressive cutting cycle. But I don't know. The bond market got it right this time, didn't they? Well, the bond market was at 25. Was it a 90% probability of 25 before we got two informed articles from the Wall Street Journal and the Financial Times? That expectation of a 50 did not move on the basis of data.

It moved on the basis of this informed reporting from that. So, yes, the market got it right, but the market got it right because it was informed by these two articles. But you don't you don't believe that the word of the moment, which last week was recalibration, is necessary to the degree at which obviously Chair Powell thinks it is? Yeah, I think we recalibrated something else. We recalibrated what it means to start with a 50 basis point cut. We've only done that three times in history, and every single time it was because the economy was in really bad shape.

So this is the first time we cut 50 with the economy doing relatively well. And that is what is the irony, is we expect aggressive cuts for an economy that faces a very high risk of recession, but we're pricing a soft landing. And these two things are gonna be resolved over time. I still am hung up on the fact that you made an argument with me that you

wanted them to cut in July, right? And they did not. They were behind the curve. That's what you said. Many think they still are, by the way, even by going 50. Rick Reeder said as much sitting next to me but 30 minutes ago. So if you wanted them to go 25 in July and they didn't, what difference does it make that they went 50 in September? So they made up for it. Maybe they took out a little bit of insurance in the process. Because it impacts market expectations. It impacts the extent to which liquidity conditions are influenced by the perception of what the

Fed does. So because they did 50, that's quite a few people think they're going to do another 50. And that is going to be, so we are going to be debating up to the November policy meeting, is it 25 or is it 50? We're going to continue this debate, is it 25 or is it going to be 50,

because they did 50. So I'm of the view the Fed should get out of the way. The Fed was the only game in town for a very long time. They should now step back and stop distorting markets. We'll see where it all goes from here. Mohamed, I appreciate the conversation. Thank you. Mohamed El-Erian joining us here on Closing Bell. Next, we're tracking the biggest movers into the close. Let's get, oh, we'll be right back. We're less than 15 from the bell. Let's get back now to Kate Rooney for the stocks that she is watching. Kate.

Hey there, Scott. So we're going to start with Micron getting a bump today after J.P. Morgan reiterates its overweight rating on the chip stock that's ahead of earnings coming later in the week. Analysts over at JPM call out server demand. And then the company's AI Outlook shares, though, still down about 40 percent from that all-time high hit back in June. And then you've got defense stock. This is AeroViron surging double digits today or so. It's yet more than 11 percent after the U.S. Army lifted a stop work order on a nearly $1 billion contract. That contract was announced in late August, but it was being protested by other suppliers. after the U.S. Army lifted a stop work order on a nearly $1 billion contract.

That contract was announced in late August, but it was being protested by other suppliers. The Government Accountability's office saying in an SEC filing that it will still consider what led up to that stop work order. Scott, back to you. All right, Kate, thank you. Kate Rooney still ahead. We'll tell you why Tesla shares are charging higher in today's session. Closing bell. Coming right back. All right, we're back to down the S&P on track for record closes.

The Market Zone is next. All right, we're now in the Closing Belt Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down the crucial moments of this trading day. Plus, Leslie Picker with the highlights from her exclusive interview today with Bank of America CEO Brian Moynihan and Phil LeBeau on what's driving Tesla shares higher. Mike, I'll turn to you first. Looking like a record close yet again for the S&P and the Dow. It's been a grind it out kind of a day.

Yes, and it's really been a trending market, not a high momentum, you know, go grab the upside in a hurry type of market for a while. You know, with today's gains, we are on the cusp of a 20% year-to-date gain for the S&P 500, not including dividends. I mean, if it held there or added to it, it would be the second straight 20% plus year.

It's not that common. There's precedent, late 90s, but not that common. And it brings you back to this idea where the market doesn't really owe you anything. The market's fully valued. The market's pricing in a pretty good scenario. But the pretty good scenario continues to unfold. So I think that's a little bit of the push-pull in terms of figuring out where we get to from here. All right, so Leslie Picker with the highlights now.

What did Brian Moynihan tell you? Hey, Scott, yeah, a lot on the Fed. Moynihan called the Fed's 50 basis point rate cut a, quote, good start. He added that the Fed has an appetite to cut not because the economy is in trouble, but because they need to be less restrictive. Interestingly enough, what we're seeing like really real-time and consumer data in the month of September is a stabilizing of the spending rate around four and a half percent which is a good place for it to be consistent with a low growth low inflation environment where it was in 17 18 19 so we feel good about the equilibrium being there but they've got to be mindful that

you know they've got it if they really want a soft landing which we all want they've got to keep making sure they stay ahead and get the real rate structure down. Moynihan said that the government debt and fiscal balance will be key determinants for what the interest rate structure looks like in the future. And he said leadership in this country needs to get those under control. I also asked him about Berkshire Hathaway selling down stock and whether the market should read that as a sign that the stock may be overvalued. He said, not too surprisingly, that from his standpoint, the stock is a great buy and they are buying every day. B of A also announcing plans today to open 165 new branches by the end of 2026.

Scott. All right, Leslie, good stuff. Leslie Picker, up for us with Brian Moynihan to fill the bow. And what's happening with Tesla today? Scott, no specific catalyst, but the stock is now at levels we haven't seen since July 22nd. There are, however, three catalysts on the horizon. Next week, we will get the Q3 deliveries. October 10th is the robo-taxi unveil.

And then later in October, you get the Q3 deliveries. October 10th is the robo-taxi unveil. And then later in October, you get the Q3 results. No, no, there's no guarantee that any of these individually will push the stock higher. But keep in mind, we often see shares of Tesla move higher ahead of big events like this. Scott, back to you. All right, Bill, thank you. Phil LeBeau, back to Mike Santoli. Yeah, Tesla's higher nicely today by 5%, mixed elsewhere within mega cap tech. NVIDIA was red for much of the day. It's turned positive here as we edge towards the close. And lots of differentiation among even the big tech stocks.

I think that's probably healthy. We kind of weaned ourselves off of reliance on those stocks. I was looking earlier. NVIDIA first got to today's stock price like first week of June. So, from that point on to here, it's been almost four months, S&P is up 7.5%. So it couldn't have done what it did in the first half of this year without NVIDIA going to the moon. Since then, it's answered the complaints from a lot of people that the market was too narrow. You know, many things have to go right

for us to keep this up. I think the rally's been sufficiently broad. So far, we've had three days to rethink the response of the Fed. The market has decided not to do that. So it's able to kind of hold on to these gains. And now we just sort of face down your typical seasonal headwinds and a little bit of a macro news vacuum, which honestly, sometimes just as positive as good economics. Talk about NVIDIA, obviously, a lot, but the chips have been a real point of concern within this market. They were mostly negative throughout the entirety of this day. AMD's positive now, Broadcom's positive now, Taiwan Semi, Micron, and as we said, the aforementioned NVIDIA. Yeah, I mean, I think it's a little bit of trying to make a stand.

The market's kind of sloshing around, figuring out if that was enough underperformance for now. On a year-to-date basis, S&P banks and semis pretty much neck and neck. So it shows you have a little more of a diverse market if that's what you were after. I just don't know if semis are going to be the thing to just grab the market and go with it. All right, we shall see. Mike, thank you. That's nice.

Thank you. We'll see you, Marcus. Bells are ringing. And it's going to ring in a new closing high for both the Dow and the S&P. I'll send it into overtime now with Morgan and John.