Closing Bell - Closing Bell: The Fed & Recession Probability 8/22/24

Episode Date: August 22, 2024

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

Welcome to Closing Bell. I'm Carl Catania in for Scott Waffner live from Post 9 of the New York Stock Exchange. This make or break hour begins with stocks in a bit of a pullback. Investors turn their attention to the Fed chair's speech tomorrow at Jackson Hole. We're going to break down what his commentary might mean for your money. Our panel of experts over this final stretch is still to come. Meantime, look at the scorecard with 60 minutes to go on regulation. Major averages are read across the board. Yields creeping a bit higher, 10-year right around 386.

Chips are in the red. NVIDIA, AMD, Qualcomm, just a few of the laggards in today's session. One bright spot, though, is Peloton. Shares soaring after reporting a rise in sales for the first time in nine quarters. Takes us to our talk of the tape and what tomorrow's speech from the Fed chair may bring for investors and stocks. Here to help us answer that is Ellen Zentner of Morgan Stanley Wealth Management. It is great to have you, Ellen. Welcome back. Thanks, Carl. It's good to see you again.

I remember you because I went back and looked. It was May 23rd when your team at the time wrote a piece that said weaker prints are coming. And you looked at core PCE. You were looking at insurance. You were looking at rent. And all of it really has come to pass. Yeah, it really has. I think, you know, part of that bottoms-up approach to inflation forecasting is really what's necessary in this environment. And I think one of the critical benefits to being at a large firm like Morgan Stanley and being on the research side of institutional securities is that Diego Anzuategui on that team, who is our inflation guru, is able to sit down with all the

equity analysts around the sectors and work with them individually on what they're seeing in their sectors and what they're expecting, and then understanding how the BLS calculates all of those things. And so, you know, the Fed call for that team has been fantastic, that the Fed would start cutting in September and go steadily through the middle of next year because the inflation forecasts have been spot on. At this point, is your argument that risk assets are still too benign relative to the odds of a recession? Well, I think they are, which might sound odd to say because I'm a big believer of the soft landing. We've had that soft landing call at Morgan Stanley

since March of 2022. Can you believe it? That's a longstanding call. It's very difficult to keep a call for that long. But at the same time, there is a slowing of the economy, a slowing of the labor market, a slowing of inflation, and the Fed has to get this right. And so I look at something like equities that seem to be pricing next to zero chance of

recession. I look at corporate credit that certainly doesn't seem like spreads are pricing in a real big chance of or as big of a chance of recession as it probably should, just to be realistic. So while I'm a firm believer in the soft landing call, I think risk assets are probably a bit too benign. Even some of your peers on the street took their recession odds up a little bit after, say, the July jobs number. Then they brought them back in once you've got retail sales and claims. Well, I just think I think it's a little bit ridiculous to move recession probabilities

around like that so high frequency., recession probabilities are always fraught with issues, right? And a lot of the recession probability models themselves have a difficult time discerning the difference between a kink in growth or, say, a shift in regime, meaning from very strong growth to slower growth versus strong growth to recession, right? And it will misinterpret. And so sometimes these models will misinterpret. And so making minute changes really to recession probabilities, I'm not sure that that's really helpful to investors. Lately, you're writing about maybe reaching a terminal rate earlier than you had previously thought. What's what you're thinking on that? Well, I think when we think about the risks to the Fed cutting, cutting steadily, cutting steadily all

the way through the middle of next year. What are the odds that all of that goes perfectly? Right. And so basically, you would be saying, you know, the risk for downside from here is greater than the risk to upside. And look, I think Powell has shown that he can be nimble around the incoming data. I think he would point to 2019 as a prime example of when the data was deteriorating. They were concerned about the global recession approaching. They moved to the sidelines and started cutting sort of that quick course correction, sort of 94, 95, right, recognizing that you could do some quick actions here and keep the economy going. And so

I would think that now that you don't have to worry about inflation, you can focus on the labor market. Some of that quick course correction means that some of that cutting could be front loaded. We're going to talk more about certainly that was reflected in some of the minutes and what August jobs is going to give us. But speaking of the Fed, let's get over to CNBC's senior economics correspondent, Steve Leisman, who is in Jackson Hole ahead of an important day tomorrow. Hey, Steve. Yeah. Hey, Carl. Market attention is focused on Fed Chair Jay Powell's speech tomorrow morning here in Jackson Hole.

And hopes are pretty high he will lay out a dovish path for rates. Chris Nguha from Evercore ISI writing, We expect Fed Chair Powell to use his Jackson Hole speech to explain why the Fed is now sufficiently confident inflation is heading back durably to 2% to begin dialing back rates soon, September, he says, and provide a basic framework for the cutting cycle ahead. Philly Fed President Patrick Harker affirming that sentiment this morning, telling CNBC here in Jackson Hole that he thinks the Fed needs to not just start cutting in September, but to begin a series of what he called methodical cuts. It was all inflation, inflation, inflation for a while.

Now we're starting to see things, the balance of risk getting more equalized. So we do need to take more into account when it comes to the labor market, for sure. What does that mean, taking more into account? Well, I think it means this September we need to start a process of moving rates down. Harker wouldn't say if he's in the 25 or 50 basis point camp. It's going to depend on the data. And Powell can be expected to be held back a little bit by an inflation and employment report that's still to come between now and the next meeting. The market fairly aggressively priced for rate cuts up now and the end of the year.

And there's a question of whether it's once again, maybe a little ahead of itself. Anyway, 100% chance of a 25, bouncing back and forth between a 50 or a 25 in November. But pretty secure about 100 basis points between now and the end of the year. While those minutes yesterday suggested good agreement on the committee about the direction of policy, still some disagreements out there about how far and how fast to move and just how restrictive policy is right now. Powell's going to obviously reflect on some of these disagreements in his speech. Carl? Steve, I was just thinking about those in the 50 camp. My records show JPM, City, Wells, all arguing for 50. You know who else is in the past few minutes, Steve, is Bharat Ramamurthy, former director, deputy director of the National Economic Council, on the tape saying the FOMC should strongly consider 50 in September.

I saw that. It's an interesting question about whether or not you want a down payment on getting where you need to go. And that's really the question. I ended my report there, Carl, with that question of how restrictive the Federal Reserve is so think about I don't know maybe a spotter in the Olympics where you were a week or so ago right you want to be close enough to catch the person if they're going to fall so how does the Fed get close enough with rates in order to be able to provide stimulus to the economy where is that point if you think about and do the quick math on the 3%, say, or 2.8%, whatever you want to call it, neutral rate, the Fed at 540, it has to get to

a place where it can help or catch the economy if it falls. Steve, we'll be hearing a lot from you in the next 24 hours, our Steve Leisman in Jackson Hole. Let's bring in Eric Johnson of Canterford's Gerald, Peter Cicchini of Exxon and Capital. Of course, Ellen is still with us here at Post 9. Eric, I'm curious to get your thoughts on what tomorrow may sound like and also your view about what the next, say, six weeks may look like if, in fact, we are in the midst of a downtrend. Sure. So thanks for having me. So I think for tomorrow, I'm sort of in line with what the market is thinking and what Steve just said, is that they're going to be very dovish. We're clearly seeing the economy slow down. They've

talked about the cut cycle beginning in September. And so I do expect them to have a very dovish tone, express the confidence that we are in the way to 2%, and also likely talk about the tools they have in the tool belt. The issue for the equity markets is that if you look at the Fed Fund futures, they're pricing in a 3.5% Fed funds rate one year from now. So when we walk away from tomorrow, I think he'll be very dovish. But is it really going to change that expectation even further than 3.5% one year from now? Very unlikely. So I think the words we parse tomorrow, we'll see some volatility tomorrow around that. But I don't think the narrative is going to change. The cut cycle is about to begin, and it's going to be fairly aggressive over the

course of the next year, in my view. Now, in terms of how equities play out over the course of the next six weeks, we all know that seasonality around September and October is very negative. But that's not enough. It's really what else is going on. We've had this 8% rally over the course of the last week and a half. A lot of it has been on systematic buying, meaning CTAs, vol control funds, buying stocks because vol has come in and price has gone up. We think that's likely towards the latter stages. And what we have ahead of us is we have an economy that is slowing. And our view is that it is going to continue to slow because the things that are causing it to slow, restrictive Fed policy, high prices and declining excess savings, are all going to continue for at least the next six to nine months.

And so we think this continued slow pressure on the economy is going to continue in the downward direction. Peter, it doesn't sound that far removed from your view, meaning looking at going longer volatility and that consumer fundamentals and aggregate do look to be softening, right? That's right. And I would agree with I would agree with Eric's viewpoint. And I would say it boils down to a simple question. What's priced in? How can we really reasonably get 100 basis points of cuts implied by the Fed Fund's future market with the S&P 500 trading at 23 times 2024 earnings? That seems like a real cross-asset disconnect. I would further in the rates market point to an inversion of the yield curve, which has been persistent for some time. But we're still at about 135 basis points from three months to 10 year. And Mr. Harker just expressed the reason is not

only is inflation going in the right direction towards 2 percent, but he's concerned about the labor market. So I agree the messaging tomorrow will be balancing the risks between inflation, which is done and it's been done in our view for some time, and risks to growth. And risks to growth are really going to be in the forefront, especially with asset prices where they are. You don't get a spike in VIX to 60. The inversion in the VIX futures curve for 12 days by three points without there being some underlying structural concern. That's an interesting thought. Ellen, what do you make of that, that quick reparation in the VIX? Yeah, look, I think that clearly, you know, we always have to take into account the reflexivity between monetary policy and financial conditions. But I want to take a step back here and remind everyone

that equities does not matter for the Fed. It is not the Fed's job to prop up equities. It is corporate credit. And so when folks are talking about starting off with a 50 basis point or, God forbid, intermeeting cut, which is where we had gone to with expectations after that early August jobs print, that is the stuff that a freezing up of corporate credit markets are made of. That's what matters to the Fed. So, intermeeting cut, absolutely out, because I could see that commercial paper markets were functioning. Part of their mandate is to ensure healthy credit flow to the economy. But the wealth effect from equities is not that strong. It doesn't feature heavily into the Fed's models. And in fact, all of their models are the three-month moving average of equities. So you have to think about putting on the Fed's goggles every day and looking at

the world through their lens. And so that kind of market volatility is always assumed to be temporary and unless it affects corporate credit spreads. But I also want to remind what Jackson Hole is about. Besides the fact that obviously Leisman is there and it's a big boondoggle. Did you look at his view behind him? Yeah. When he's not in the chair, he's wetting a line. OK, he's fishing. And so but but it's about it. It affords the opportunity to talk about lags on monetary policy.

And so while Chair Powell is not going to give any indication of anything other than that approaching September cut, nothing about the cadence or the magnitude, he can talk a lot about the lags were uncertain on the way up and they're uncertain on the way down. And if they took a long time to feed through on the way up, they could take a long time to feed through on the way down, which would tell you why they need to get started and could also give you a sense of that cadence without him saying it. That's interesting. Peter, you also make the additional point that sometimes Powell can sound dovish even when he doesn't intend to. What do you mean by that? Yeah, I think that's his background in capital markets at work. I think his tone, he starts out in many of his press conferences, at least as I've observed them, sort of sticking to the script. But for example, it was several press conferences ago,

he was asked about hypotheticals relative to what it would take to hike, and he wouldn't give them. But he was more than happy to recite hypotheticals about what it would take to hike, and he wouldn't give them. But he was more than happy to recite hypotheticals about what it would take to cut. And it's those little nuances, I think, that tend to make him a little bit more dovish in tone, perhaps, than he even intends. And I'd just like to address Ellen's point, and I generally agree with her. That said, when we think about the equity cushion underneath of corporate credit, in the Merton-Scholes model, for example, you really can't separate credit spreads from equity valuations. They're integrally intertwined. And I agree, the Fed's not looking at them at a tick

by tick basis. But I think what my point is, is that if equity volatility persists, the Fed will notice that in and of itself, standing alone, first order, they will notice that. And they will also certainly notice it if by second order effect, high yield credit spreads widen, which they tend to do as equity volatility picks up. That's interesting. Eric, would you agree that there still exists some some remnant of a Fed put in equities? I do. And I think it's part of it is in Powell's the backdrop for Powell. It's in his nature. He's dovish by nature. And I do think that Fed put is is absolutely there. Now, the Fed put is what they are trying to accomplish. But as we know, in situations where an economy is rolling over, those Fed cuts will help in the long term, but they tend not to dampen the softening that you see or the sharp weakening that you see in the short term. And we've seen this in prior recessions.

Where we've seen recessions, the Fed has been cutting throughout, but yet that didn't cause the recession to just stop on a dime. It took time. And so I think that's really the case here, where I talked earlier about the Fed funds rate going to 3.5% in a year. So you're talking about the Fed remaining in restrictive territory for at least the next nine to 10 months, barring the fact that the economy doesn't roll over first. So that's a long time of having continued pressure on the economy when we're already seeing the softening. I think that's really what presents this big risk and why I think there's going to be sort of an asymmetric reaction from equities to weak economic prints where they'll hit them hard versus strong economic prints where it'll be seen as a positive but a much more muted reaction based on the valuations that we're already at.

All right. That kind of brings us to one final point, Ellen, and that is we got more than Jackson Hole to think about. We got Nvidia earnings and Dell earnings. Next week, you're now involved in thematics. And I wonder how you're thinking about small mid cap plays versus mega cap tech and the cues and so forth. Well, I think when you get into a cutting cycle and once the Fed gets underway and we're sort of establishing what the cadence and magnitude is going to be and how quickly we're going to be there, then I certainly think that people will continue to push on mid-cap, push into small and mid-cap stocks, just because that's the sort of how you play the Fed playbook. For me, I stay shorter to medium term with my chief economic strategist hat on and then longer run thematic with my global head of thematic investing hat on.

So I'm looking more of not what the earnings are going to look like for Dell and NVIDIA, but how is AI going to fuse globally across the global economy. And so that's a much longer term view. If I could just leave you with one last thing to watch for at Jackson Hole, though, because I think it's really important. Chair Powell used to say that real rates were significantly restrictive, and he stopped saying that last year. If he describes real rates as being significantly restrictive, then that tells you he's admitting that you can drop rates a lot and still have room to press the break on the

economy if needed. And so I just think that's really important. And don't forget, this is a very scripted, unlike the Q&A. Right. This is extremely. There is no going off script. It's extremely scripted. So what do you mean when he says he will intend to say yes, that's a good reminder. We'll listen for that tomorrow if we get it. Peter, Eric, Alan, thank you all. Appreciate it for a great a block. Let's send it over to Kate Rooney for a look at the biggest names moving into the close. Hey, Kate. Hey there, Carl.

Let's start with Snowflake. So shares there continue to fall down double digits today. It comes a day after earnings where the data and cloud analytics company showed slowing product revenue growth. Product revenue was still up 30 percent if you look at a year ago. But as Morgan Stanley put it, Snowflake's results, they were good, but, quote, perhaps not enough. The stock is still down more than 40 percent year to date. And then take a look at Intel as well. That stock falling after Bloomberg reports the chipmaker's director, Lip Bhutan, is stepping down from the board after about two years in that role.

The move follows a quarterly report earlier this month, you might remember, that showed Intel with its stock suffering its worst decline. You remember that in decades. Carl, back over to you. All right, Kay, thanks. We're just getting started here. Up next, the top technician, John Kolobos, is breaking down some key levels, watching the three big reasons he is still bullish right now. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. Welcome back. The S&P 500 retreating a bit today, falling back below the key 5600 level, still less than 2% from record highs that we set in July. Joining us here at Post 9 with the key levels he's watching is Macro Risk Advisor's Chief Technical Market Strategist, John Colovo. John, it's great to have you. Thank you. Your view is generally pretty constructive, at least in the medium term. Sure. What would you say?

I would say it's a stillable market. My report today I sent out was a long and winding road to S&P 6,000. So I think we can continue to push up higher, but it's going to be with a lot of volatility. What indicators lead you to that? Okay, so the volatility part has a lot to do with macro uncertainty. So even though the VIX is retraced, a lot of it's pop. Fixed income vol hasn't moved.

Currency vol hasn't moved. Commodity vol hasn't moved. And when most of the cross-asset volatility measures are still elevated, the market is still exposed to an uh-oh moment. There could be another swoosh lower or we continue to move sideways. So there's still a lot of volatility. And it makes sense. We got Jackson Hole tomorrow and we got NVIDIA next week.

We got the Fed. It makes a ton of sense. So when you tie it into today's tape, we'll pull them back. Makes sense. You also look to the cumulative AD line, which is that one of the most more bullish indicators we have at the moment? For me, yes, I think it absolutely is. And it's actually leading the S&P to new highs. Right. So the S&P 500 AD line is breaking out. The S&P 1500, which is even broader. You get the mid caps and the small caps in there. That's also breaking out.

And that's quite interesting. That's actually very bullish on the surface. And the last two times this happened was in 2018. And after the volmageddon, that was that funny, right? And we also kind of have a little vol shock right now. And the previous time after that was in 2020, as we're coming out of the COVID bottom, that first consolidation phase there. So breath broke out at those moments, but the S&P kind of stayed sideways anywhere between two and seven months. So, it should lead the market higher. So, that leads you to what I guess we're calling the sort of stealth bull.

Well, opening the door for a stealth bull, yeah. Which would look like what? Okay, that's what it would look like. So, what a stealth bull market is, and it's something I think folks need to be aware of when you're talking about breadth, is that the average stock can continue to rally, but the indices themselves can break lower. And the last time that happened, the most significant time that happened was in 2000, when the Nasdaq peaked, the average stock bottomed. And from the low in March, the average stock to May of 01, they went up about 30%. And what did the Nasdaq do during

that timeframe? Went down about 50. S&P went down about 30%. So the market of stocks is much stronger in those scenarios than the stock market itself. So I think that door is starting to open right now. It's not my base case scenario, but I think it's important because in this environment, a lot of macro uncertainty, I think it's important not to confuse your market call with your stock call. Is that suggesting to you anything about how the market perceives earnings growth between, let's say, a broader set of stocks versus mega cap tech? I think there's one way to think about it. I think the one way to think about it

is like up until now, the small cap stocks, they've been in a bear market. They've actually been a bear market. That's reflective of the economy. But the mega caps have been more reflective of, let's say, the AI trade. Now with the Fed needing to, people hoping they're going to cut, that should help more companies, the companies that are closest to the economy. So I think I'm answering your question the right way, but that's how I'm viewing it as. There are two different markets here, ones that's impacted more by the Fed and ones that are more impacted by AI. Right. How about seasonality? Is it as treacherous, do you think, September, as some suggest? Yeah, and that's one reason why I'm saying it's going to be a long and winding road, right?

So September, every September tends to be bad. We all know this, right? Technicians, not technicians, and I know that. But election years, this time in the election cycle, markets tend to struggle. Volatility tends to rise from mid-August until Election Day. So there should be some sort of hiccups along the way. It's very rare to see the market ripAugust until Election Day. So there should be some sort of hiccups along the way. It's very rare to see the market rip from this point until Election Day. There was also discussion in the midst of this, whatever we're in, 11-day rally, right,

best in a couple of years, arguing that it's stealing from the normal post-Labor Day gross-up. Does that make sense? That's fair. No, that's fair. And I think that's a huge risk coming to the market right now. And it's why I like VIX calls, VIX call spreads right now, because the risk reward isn't so great. Coming into Labor Day, it's very possible if he comes back to work, maybe the election dynamics change a little bit. Maybe, you know, Harris's might start

winning and maybe corporate taxes are coming in play. So let's rethink things. There is a risk, yeah, for sure. As we head into September, things may change a little bit. Right. I think the main, one of the main takeaways out of earnings season might be that the cycle, the election cycle, is weighing on CapEx. But we haven't really seen clear examples of how it might affect equity behavior. Yeah, that's fair. That's fair. And I think next week, too, like some folks are asking me, who's more important? Which is more important, Jackson Hole or NVIDIA next week? I think they're equally important. I think breadth will improve if Jackson Hole is positive. But the stock market itself will hold up fine if NVIDIA does what it has to do. John, thanks. You're very welcome.

Thanks for coming in, John. When we come back, Kava is preparing to report today. We'll get results at the top of the hour. That stock has had a wild run up nearly 140 percent this year. We're going to run you through what to expect from that print. And don't forget, you can always catch us on the go by following the Closing Bell podcast on your favorite podcast app. We'll be right back. Welcome back. Kava shares have been on a tear, hitting a record high today, more than doubling in six months. Joining us to discuss the setup ahead of earnings after the bell is Nick Shechin of WebBush.

Nick, good to have you. Restaurants have been going through some things, whether that's McDonald's. We'll talk some Chipotle, Starbucks in a minute. But I wonder how you're thinking of Kava, especially valuation per store, which some have argued is really unprecedented in the space. It really is a tricky setup. You know, we're hitting all time highs every day here. Consensus is ahead of guidance. The buy side expectations are ahead of consensus. So not only do they need to beat, which they will, they need to raise guidance by quite a

bit, which, you know, given their conservative nature, I'm not sure if that's going to happen. So it'll be interesting to see how the stock reacts. But, you know, all things considering, they're one of the winners in this space. They're one of the major market share gainers in this space, you know, in an industry where you can count positive transaction restaurants on one hand. Is unit growth a story on this name? Yeah, absolutely. Absolutely. It's one of the fastest unit growth stories out there in restaurants today. Where does it rank in your universe overall relative to some other names that you might have, say, with a buy rating? It's probably one of my top five. I mean, it's it's, you know, again, I mean, given the dearth of transaction growth and the challenges facing the industry,

you know, the lack of growth overall on top of, you know, transaction growth. There's only a few names you can go into if you are a growth investor. And that just gives you that sort of, you know, premium given the dearth of any other options. And I think of your among your top ideas, correct me if I'm wrong, DPZ, Cake and Chipotle. Are those the three? Those are my top three, yes, that's right. What do they have in common? Well, they're all, you know, positioned to do relatively well in a hyper-value environment, Carl. You know, Domino's within QSR, you know, is always a value player. And so, you know, as that sort of lower-income customer focuses more and more on check management, Domino's is and continues to win.

Cheesecake doesn't have too much exposure to that sort of meal replacement, direct meal replacement. Consumer, they do tend to have much less volatility in terms of the top line sales because of the productivity of those stores. They have a lot more visibility into margins. They have a couple of emerging brands like North Italia and Flower Child that you may not have heard of, which is really an underappreciated part of the growth story there. So I think over the next year or two, that's going to become more of a valuation. And then Chipotle, I think the whole think the whole, you know, fiasco

after the CEO left is way overblown. They have a deep bench there. You know, their setup is extremely attractive. And I still think relative to their sort of growth rates, they're actually inexpensive. Finally, speaking of nickel, Starbucks made some news as they roll out pumpkin spice for the fall. Some have reported it's one of the earlier rollouts that we've seen. Do you expect nickel's influence to come out with a bang, or is it going to be a bit of a slow fix? I'm a little bit more skeptical than the street has been, primarily because I think that Taco Bell playbook was a very good fit for Chipotle when he joined Chipotle. I think there was a very clear problem to solve at Chipotle, which he could tackle. I think it's a much bigger sort of issue at Starbucks.

I'm not even sure if the issue is necessarily that clear for you to be able to just have a solution for it. It's a very different customer segment, et cetera. So a global company. So I think the solutions there are going to be much tougher and they're going to take much longer to implement. Continues to be a fascinating space this year. Nick, we'll see what we get from Kava in a little bit. Thanks for the help. Good to see you. Coming up next, we are tracking the biggest movers as we head into the close. Our Kate Rooney standing by with that. Kate? Carl, so the theme here is retail. Two major retailers are losing some ground today on worries over weaker sales. We've got those details coming up next. just about 20 minutes to the closing bell let's get back to kate rooney for a look at some of the key stocks to watch today.

Hey, Kate. Hey, Carl. So shares of Williams-Sonoma today slipping after the kitchenware retailer lowered its annual sales forecast and then posted Q2 revenue that missed estimates. The company's earnings per share did come in better than expected. That stock, WSM, having its worst day since May. And then you've got Urban Outfitters today dropping more than 9% after reporting second quarter sales in those stores that were open for at least a year. Those were down 9% from a year ago. That was more than the 8.3% decline that analysts had been expecting

and looking for shares of that clothing retailer. They're down more than 18% just so far this month, Carl. Back to you. All right, Kate, thanks. Meantime, Peloton shares soaring, as you might know today, as the fitness company's turnaround plans seem to be paying off. We're going to break down those details when Closing Bell returns. Don't forget to tune in to the newest episode of CNBC's original podcast series out today, The Crimes of Putin's Traitor, a real-life spy thriller exploring the secret life of a young Russian oligarch who was part of the historic prisoner swap between the U.S. and Russia earlier this month. You can follow and listen wherever you get your podcasts. Up next, advanced auto

parts sinking on some weak results. We're going to break down that number and the key metric weighing on that name when we take you inside the market zone. We are now in the closing bell market zone. CNBC senior markets commentator Mike Santoli going to break down some of these crucial moments of the trading day. Brandon Gomez on Peloton tracking for their best day ever. Phil LeBeau with the big move in advanced auto parts. And our Senior Markets Correspondent Bob Bassani watching the final minutes of this session. Mike, let's begin with you. Does a little VIX spike and retrenchment make sense ahead of tomorrow? Yeah, I think a little apprehension. There's obviously a little bit of maybe two-way risk based on how the market got very aggressively priced for potentially a dovish message tomorrow.

I also think in August week, after this big run we've had into this week, it makes sense to kind of retreat into a neutral spot. And what I mean by that is the Nasdaq 100, which really is the downside pressure today, just pulls right back to its 50-day average. The two-year Treasury yield, it's right at 4% flat. It's exactly the middle of its range for the week. So essentially, let's not be leaning too far in one direction ahead of Powell. Big picture, you know, it's been this great run. We've sort of stalled out or maybe just paused around the 5,600 level of the S&P 500. We kind of know what Powell's going to say.

The question is, you know, is it going to be taking credit for what's happened on inflation and then being data dependent, or is it maybe going to be a clearer roadmap? Information technology down a full 2% here. We did get an all-time high on meta earlier in the session. Thoughts about that? And then I wonder, did the retailers that printed add any color to what we already knew? I mean, in terms of tech, it was a rebound that was more selective than we got used to in the first half of this year. And I mentioned the NASDAQ 100. If you look at semis, they really didn't take back as much of the correction losses as the rest of

the market did. So it seems as if there could be sort of an ongoing or subtle leadership shift. The equal weighted S&P is really not down much at all today. So it seems as if there could be sort of an ongoing or subtle leadership shift. The equal weighted S&P is really not down much at all today. So it seems as if for now things like banks are stepping in. When it came to retail, I think in general, you want to take it in aggregate, starting with Walmart's results, going through what we heard today, and then we're going to hear some more after the close. In general, better than feared. In general, 4% annualized wage growth plus 4% plus-ish unemployment rate is still a formula for the pie growing, if more slowly than we thought before. Maybe it complicates what we hear from Powell just because, again, the consumer economy is

maybe a little more resilient than we feared a couple of weeks ago, even if it is still in slowdown mode. We mentioned earlier today, MAG7 on pace for the first relative underperformance against the S&P in nearly two years, Mike. At the same time, you got the equal weight S&P at an all-time high or close to it. Is the market trying to sniff out earnings power that's shifting around? It is probably. I mean, one of the big explanations for why the MAG7 really dominated in the first two quarters of this year was there was just a scarcity of earnings growth. They had pretty much all of it. They are now decelerating from very high rates.

It does make sense textbook wise. I always do want to emphasize, though, and I was saying this a month ago, is a broader market isn't necessarily a safer or more stable market. You know, when you have things like, you know, bank stocks or Russell 2000 kind of wildly acting up, even if it's to the upside, it sometimes can make the market trade a little bit looser. And so therefore, you have a higher VIX. Therefore, the rotations are a little bit less elegant. It's not a big problem overall for the market if the trend stays intact, which it has. But I do think that, you know, you can kind of be careful what you wish for if you say, hey, let's have these mega caps just, you know, correct a little bit and have some fun elsewhere. Mike, stick around. Let's get to Brandon on Peloton.

I got to say, Brandon, when I first saw the print this morning and I saw digital subs down 26 year on year, I wasn't sure this was going to be the result. Yeah, Carl, look, it's been a wild ride today. Obviously, we'll get into some of those numbers. The stock is surging on a better than expected quarter. Progress for the stock, yes, as you point out, but still a long way to go, especially when it comes to sub sales. The first sales increase in nine quarters for the company,

now prioritizing what they say profitability, free cash flow over growth. Now, the question is, how are they going to do that? Well, interim co-CEO Karen Boone said on the earnings call, we're not going to spend inefficiently to acquire unprofitable subscribers, arguably perhaps a past strategy. The company's CFO also updating on the company's promise to deliver $200 million in run rate cost savings by the end of fiscal 2025. Peloton making massive cuts to its sales and marketing spend, running less promotions. The company delivered approximately $15 million of cost savings this quarter alone. The majority of that payroll reductions, which we heard back in July, is part of the debt restructuring.

All this comes as Google's Fitbit and Amazon's Kindle announced product integrations in the past few weeks. And then you have hedge fund manager David Einhorn's Greenlight Capital acquiring a whopping 6.8 million shares of the company, according to 13F filings. Carl, the CEO search still on over at Peloton, though they say they do have quite a few specific folks in mind to turn the company around. Look at that, now 30, almost 36 percent, Brandon. I was just thinking about Barry McCarthy and wondering how much of this turnaround had the seeds planted by him before he left. It definitely is, and it has to do a lot with that app integration, getting people that aren't just in, they don't just need the hardware.

They don't just need to have a bike or a tread in order to enjoy Peloton or in order to subscribe to Peloton. That's really going to be their strategy going forward. They're offering apps like Strength Plus, offering a more premium experience, which down the road, they say, might encourage folks to pay more for the services. So that all is part of the turnaround plan. As you said, a seed planted by Barry. Brandon, thanks. Let's get to Phil. Advanced auto parts slumping today. Phil, what's behind that move? A rough earnings report, Carl. Basically, when you miss by 18 cents a share, that's going to put you

in the hole right out of the gate at the beginning of the day. And then when you have guidance, like we saw from Advanced Auto Parts, well, you see the pressure all day long. Take a look at the stock. Down more than 15% for most of the day. There you see it down 17%. Coming in at 75 cents a share. The street was expecting 93 cents a share. The guidance, though, that's the real pressure.

They are now expecting for 2024 to earn between $2.00 and $2.50 a share, was previously $3.75 to $4.25. Comparable store sales, negative 1% to flat, down from flat to 1%. And then operating margin, 2.1% to 2.5%. That's a cut from 3.2% to point five percent. Anyway, you look at it, this is a company that is in transition. And as part of that transition, they did announce today that they are selling their WorldPAC unit, a subsidiary of theirs that they were trying to sell and they have reached an agreement to sell it for one point five billion dollars. So they're making the moves that need to be made, Carl. This is a relatively new management team. And I'm not surprised to see the stock under pressure because of that guidance. But I did talk to a couple of analysts who said, look, they're making the moves that need to be made here. A little bit of patience and you may see a different result in the quarters ahead.

Phil, while I've got you, I mean, it's not a great tape today, but Tesla is a relative underperformer, down almost 6%. There was some discussion yesterday about Ford and the tweaking of the EV strategy. Is that good news or bad news for Tesla? I'm not sure it's bad news for Tesla. I think Tesla is its own story, Carl, to be quite honest with you. And I don't think it's going to do a whole lot. Look, it won't do a whole lot, in my opinion, until you get the Q3 deliveries the first three days of October. And then remember, October 10th is when we have the RoboTax event. Those are the two catalysts that are out there

for Tesla shares and then obviously Q3 results. But the big one is going to be RoboTax day on October 10th. Phil, thanks. A lot going on in cars and airlines. That's our Phil LeBeau. Let's get to Bob. What do you make of this market? We ran out of steam. We have been on a tear. The S&P 500 is up 6%, almost in the last eight or nine trading sessions. We moved 300 points in the last eight or nine trading sessions. And most of these gains have come largely in technology. And today, what's down, of course, is technology. I just want to point out the semis smh is up 11 12 percent the last eight or nine days that's really been on a tear today of course you see it's just ran out of steam the last two days it's been very very toppy nvidia is the same thing there's your market leader it was 105 it went to 130 and eight trading

days and that's popped out in the last two days. You see it moving to the downside again. And Phil was talking about Tesla. Tesla's had an amazing run. It was below 200 eight trading sessions ago. It went to 225, and now it's giving back most of that gain. So what I like about today is the laggards are leaders today. So you have bank stocks leading.

They have been lagging recently. Energy stocks, oil has been on a downtrend for a couple of weeks now. And look what the market leaders are today, banks, energy on the upside, and real estate, which has been a leader for a while. So I like the rotation again here. I think if you put it all together with the earnings holding up, you have inflation waning a bit, job growth is slowing. It seems like a very low bar for the Federal Reserve to cut rates. Obviously, we're going to hear from Powell tomorrow on that. But the volume today is 30 percent below normal trading days.

There is no particular catalyst. There was just no buying interest. It's not selling pressure. It's a lack of buying interest that was happening today. What do you make of the fact that we're going into next week where volume arguably will still be light and such large tech catalysts like NVIDIA and Dell? That will move the market on Wednesday when we get NVIDIA. But remember, the numbers we know about NVIDIA, their earnings acceleration have been slowing down now for a whole year. We know their earnings are going to be great. They're just not growing as fast as they used to be.

They have to find another reason to re-accelerate their earnings growth. I don't know what it's going to be, but the street will be surprised if they dramatically raise their numbers. That'll move it to the upside. Are you worried about September seasonality? Yes. You are. Almost invariably, you get a sell-off in the middle of September and into October, and that's been going on for a very, very long time. But the fundamentals are still intact. Remember, third quarter GDP, we're still looking at close to 3% GDP growth. That's the Atlanta Fed's estimates for Q3. That's what matters here. And I think Goldman today also reiterated their tracker with a healthy two handle as well. Yeah. So when you have that and you have 10 percent earnings growth for 2024, 15 percent for 2025, you're looking at

numbers that are still very, very supportive for the markets right now. It's pricey, though, then that you get these sudden sell offs all of a sudden when people don't want to play the multiple. They're not paying less because their earnings of a sudden when people don't want to play the multiple. They're not paying less because their earnings are going down. They don't want to pay for the multiple. That's the problem. Finally, we should point out oil recovered a bit after getting awfully close to 72. Yeah, that's a tough game to play.

Is oil a sign that the global economy is slowing down, or is it really just classic supply-demand issue that's out there? That's a really tough one to call right now. Fortunately, oil's only 4% of the S&P energy is 4% of the S&P 500. So it doesn't drag a lot along with it. It's a very interesting question about what the global economy is looking like right now, what oil has been telling us. I'm very happy about the fact that the yields on the big oil plays are very much intact. And that alone, there are a fanatic group of yield people who are CNBC viewers. I hear it all the time. They love their 3.5 percent REITs. They love their 3.5 percent utilities. And they love their high yield oil plays that are out there,

and the fact that nobody's cutting those yields right now. Nobody's cutting the dividend. So looking at about 200 points on the downside here. The Dow 1% of time on the S&P. We'll watch the 10-year as we get to Powell tomorrow. That does it for Closing Bell. Let's get to overtime. I'm Mike Santoli.