Closing Bell - Closing Bell: The Market Tug-of-War 8/21/23

Episode Date: August 21, 2023

Who will win the market tug-of-war – the bulls or the bears? John Mowrey of NFJ Investment Group and Greg Branch of Veritas Financial Group debate it out. Plus, Strategas’ Chris Verrone is betting on a big break out in yields. He explains why. And, negative news surrounding China is putting some U.S. companies with exposure in focus and it could have a big impact on their bottom line. Seema Mody breaks down all the details.

And welcome to Closing Bell. I'm Carl Cantania. And for Scott Wapner, live from Post 9 at the New York Stock Exchange, tech is doing the heavy lifting today as we kick off this make or break hour. NASDAQ, the big winner, 60 minutes left in the trading day. Tesla, Moderna, NVIDIA, all powering higher, despite bond yields, as Kelly and Tyler said, hitting some 15-year highs yet again, as investors await some key earnings this week from NVIDIA and, of course, the Fed chair's speech at Jackson Hole on Friday. Which brings us to our talk of the tape. And who will win this market tug-of-war?

The Bulls or the Bears? Here to debate, John Mowry of NFJ Investment Group and Greg Branch of Veritas Financial Group. Guys, great to have you both. Let me begin with you, John, and just walk me through whether or not these last three weeks, this month of August, this correction of sorts has come as any surprise to you. Well, Carl, great to see you again.

A couple of things I would say. I'm not surprised at all that we've had a little bit of softness. We had a very, very strong market coming off of the October lows. Inflation peaked back last summer. It had come down every single month. And just in the last few weeks, you had a lot of market participants kind of say, hey, we think the recession fears are lower. So sell side kind of jumped on the bandwagon. The Fed came out and said, we don't see a recession. So I'm not surprised at all after kind of a melt up period that we're getting a little bit of a relief.

However, I don't think that changes really where we stand on many areas, although I'll get to in a few minutes. I think some different areas and different sectors are getting more attractive. But overall, we still remain positive on the equity markets, albeit some areas have gotten a bit more expensive. Yeah. Yeah. We're going to drill down on sectors in just a moment. Greg, to start with you, though, as well. I mean, you've been equally as resolute in your view, even though you do acknowledge parts of your view for, say, 3800 was a little bit too early. Right. And so the view for 3800 is based on what I see for 2024. And remember, we're in like three of my bare thesis.

You know, the first leg was the Fed needed to raise interest rates in 21 when they didn't do that. I predicted a hyperinflationary environment in 22 and them having to raise rates aggressively, which is what they did. But there's consequence to that raise, to that 500 basis. And what we saw in the first half, what I think screwed my timing up a little bit, is that we saw a really significant amount of government stimulus and government spending. When you look at that GDP number for the second quarter, a lot of that was government spending. We had the CHIPS Act. We had the CARES Act. We had the bank bailout. We have the employee retention

credit. We have all kinds of stimulus that went into, I think, buoying the consumer in that first half. And I'm wondering if the runway isn't running out. And so this last leg of my bare thesis is what happens on the other side of that aggressive interest rate increase? And I think we're just beginning to see some of that in the early cyclicals. We're seeing the consumer, the stretch and the pain that's being thrust upon the consumer, both in terms of those rising delinquency rates they referenced in the last show, but as well in terms of the record credit card debt, as well in terms of things, other areas where we're seeing

stretched consumers and stretched spending. And so I do expect that to curtail in the second half. And when you get a curtailing of spending, a curtailing of demand, when you get continued disinflation from continued demand destruction and the Fed continuing to push those buttons, I don't see a path from this quarter's negative 5 percent earnings to flat earnings in the third quarter or 8 percent earnings in the fourth quarter or 245 in 2023. And so if I can make that math work, I'll get more bullish. But I can't see that right now. Right. Interesting, guys. You know, as we're chatting session highs here, as we're back to 4,400,

John, I do wonder, I mean, there had been this discussion that unless the market, if the bears were going to break some of the generals, like, for example, NVIDIA, and we'll see what the rest of the week brings. But without that, whether or not we were truly in, once again, a sort of by-the-dip environment. Do you think today's action sort of reflects that? You know, it's really interesting. Technology, obviously, has been the that? You know, it's really interesting. Technology obviously has been the clear leader. Now, let's not forget they were the most beat up. The Nasdaq was down 35 percent, peaked the trough. So I think it's very important to contextualize the technology names, Meta, Salesforce, Google, Amazon. These were left for dead back in October. Nobody wanted to own them because interest rates were very high. Now you have an AI frenzy, which is being led by NVIDIA, and you have very strong fundamentals. I'd be shocked if NVIDIA doesn't put up a good quarter given all the demand. So I think that

all of those bode very well. One thing that I'm a little bit concerned about is the very reason that people sold technology they're ignoring, and that was interest rates. I think the real opportunity, Carl, actually lies in the interest rate sensitive areas. So the areas that nobody wants to own, you need to look at banks, you need to look at REITs, and you also need to look at China. Why China? Because China is being impacted by the dollar, which is tied to interest rates. All of those interest rate sensitive areas are on sale. And while I totally agree that the slowing of credit absolutely will have an impact on the consumer, you have a lot of discounting that's already happened, even with the comments that came out and downgraded some of the banks.

That's not really surprising. That's like telling someone to put on sunscreen after they have a sunburn. That's already really out there and in the news. So I think that we have a lot of discounting that already occurred, and there's real opportunities. And what if we actually get a steepening yield curve? That would be a great opportunity for the banks. And the other piece that I'll say, and then I'll shut up when someone else have a comment, is now you're getting all the defensive areas, which were egregiously priced back in October, building up to that recession play. Those are now on sale on sale utilities are now trading at some of the cheapest valuations that we've seen in six seven years even 10 years in some cases nobody wants

them because again they're tied to interest rates yeah no no doubt that some of the new lows that we get day after day are starting to look awfully familiar greg i wonder sector wise with you as well if there are pockets that you like or if your macro view is negative enough that you just are not interested in equities whatsoever? Well, just to dimension my view, I see 225 next year, so I'm at 3,800. So it's not that draconian. But going back to the financials, what we've seen so far is this should be a great environment for an interest margin expansion. Yet that's proven very hard to come by, though even by some of those large money center banks that were a net recipient of all the troubles we saw in the first

half of the year with deposit flight fleeing to them even they couldn't produce much in the way of net interest margin and i think that that will continue in the macro so i am less enthusiastic about large banks i think they'll take the provisioning up more than people expect in the next few quarters due to some of those delinquency rates being higher than we expected. And on the tech side, frenzy to me is a word akin to bubble when we use the word frenzy. quarters to sort out what companies like NVIDIA are having a real impact on their business from AI versus those where it might not be there of that magnitude or it might be two or three years away. And should we be bidding those companies up? Net-net, I think the market will start to refocus around companies that can deliver double-digit earnings growth and that can show us margin expansion. We see some of that in healthcare. We saw some of that with Palo Alto, although they

gave the market a little bit of heart attack with the Friday night earnings announcement. And so that's what I think the market will start to look for as my macro view comes more into being a reality as opposed to what some think, I think, is a passing fancy. Right. I do wonder, Greg, I think your view at one point was that we would get a terminal rate of around six and a quarter. And I'm wondering now if you think that is too light a view. And if it is too light a view, it seems like the Fed chief sort of has a responsibility to prep us for that. Maybe Friday, right? I think that's exactly right, Carl. I think you probably remember when I announced that that terminal rate prediction almost a year ago, and it was seen as rather alarmist. And yet here

we are with 100 basis points of that. So I do think that the Fed, unlike some of us, do not see a continued disinflation. Look at the last few reports. Out of 23 categories, we had 17 that were flat or up and only five that were down. Of those that were up, half of them were up 50 basis points or more. Of those that were down, it was the usual three, airlines, used cars and electricity. And so that is not a path to 2%. And so I think the Fed's job is going to be very difficult after Jackson Hole, because what I think they'll see is a reacceleration of inflation, not disinflation. And if that's the case, they have only two choices, or maybe three. They can pray for divine intervention. They can move the goalposts away from 2 percent, or they can say

that there's work left to do here. And I think that that will be the posture, and I think that that will be surprising to some of the market. I think that's, John, it's a huge question. I mean, the doves would say, just wait. Shelter is our trump card. That's going to be played in the months to come. But is that too much of a responsibility on one play to get Shelter to play along here? I don't think so. It's a very large percentage of the CPI. And the way that it's done is a little bit archaic where they have to

call folks and see what the equivalent rent would be. So I don't think so. I mean, if you look at what they've done with interest rates, I mean, it's kind of like if you were to shut off the water down the Amazon River, it would take time to have impacts. It might kill the crops right near the bed at first, but it would take time to impact the rest of the rainforest. There's no question that what they've done is having a dramatic impact on consumers' ability to be able to go out and consume because of the higher rates. And I think shelter is the slower piece of this. So I'm not surprised it's been stickier. Let's not forget that M2 is now negative year over year.

So there's a lot of indicators that we should continue to see disinflation and with regard to the you know the fed's uh two percent cpi depending on the time frame you look at um you know it may be a little bit challenging for them to get back there but again i would not be surprised if rents roll over as you continue to see those numbers trickle through a lot of people are not moving the housing markets remain tight and i think that's created and a unique environment where that's buoyed those prices for longer than people have expected. Greg, as for sort of market sentiment and positioning, I wonder if you think once we get out of August, if volumes pick up, maybe we get these IPOs starting to find some

traction. If that creates, I wouldn't say FOMO, but definitely an area where those, even those who've been thinking about how nice it is to sit and collect 5% in a money market, their ears might start getting perked up when it comes to stocks. Carl, I think what you've just described is June and July. I think that that was our FOMO, coming off of relief that we didn't have more of a debt ceiling debacle than we had, relief that we were at least foreseeably past any more Silicon Valley banks in store. And I think before that's all said and done, CRE will certainly have something to say about that. But I think we saw that.

And what I think we're seeing now, when you look at the activity over the last two weeks, is a market coming to grips with perhaps we thought all these things were certain. Perhaps we thought it's certain that the housing component was going to crack. And we see no evidence of that. Yes, Jeff is right. I agree. There are structural elements that probably make this time a little bit more different, most notably that 90 percent of Americans have mortgages that are less than 5%, that stock is simply not coming to market. And when you have tightness in the buy-selling of homes, you have tightness in the rental market. And so we've been counting on that housing component coming down every month in 2023,

and it hasn't yet, which leads to the question, will it? And so, no, Carl, I don't think that we're going to have a FOMO moment. I don't think that we're going to have an excess activity moment that will cause some of the FOMO. I think we've passed that. I think we're now going into the consternation moment. Interesting. John, it would be curious if we priced a lot of that in the summer. Although if you look at years where stocks were up 10% at the end of July, I mean, they do tend to add a little bit more in the last, what, five months of the year. They do. So we would not be surprised to see a little bit more in the last, what, five months of the year. They do. So we would not be surprised to see a back half rally. And again, I think that there could be a different group of stocks that leads in that back half.

I mean, let's talk about multifamily for a moment. That's an area that is priced very attractively. You're seeing some of the cheapest valuations on an FFO basis over the last decade. You're seeing 3% and 4% dividend yields on many of these companies like Equity Residential, Essex, or MidAmerica Properties with healthy dividend growth. And when you have a situation where homebuilders are at egregious valuations, I would argue, on a price-to-book basis, multifamily residential real estate looks very attractive. You also have the tower REITs that are trading very attractively, as well as data center REITs and some of the industrial REITs. So I think there's a lot of

pockets that are very discounted. And you can see those really move higher. One thing I'd offer is after the fourth quarter of 18, that was a big negative down quarter. That was the semiconductor scuffle over between China and the US. You had a big 2019. Utilities were actually one of the best sectors in that year. So you could see utilities, REITs, some of these areas that people are not looking at that are very levered to interest rates really perform well if you get an easing in that 10-year yield. We'll see, guys, as we're talking here whether or not the Dow can go positive. Greg, I am curious, got the VIX back below 17 today. There are those who argue, look, unless you got the VIX back above 20, you know, what are –

I guess my question would be in the back half of the year in Q4, are you looking for some disruptive shock a la March to come and revisit? Or do you think your target can be led through an orderly fashion? I think it'll be quite orderly, to be honest, Carl. I think, you know, the first salvo has already been fired, which we've witnessed over the last couple of weeks, with some reflation happening. With, again, as I covered already, when we dig into these inflation reports, we're not seeing significant continued disinflation you know cores remaining in that 30 to 40 basis points range up until the last two

months we've seen that for eight months now so the market is saying okay at least some of the market saying okay what's next here something else needs to change for further disinflation i think powell's speech will be the next leg and And then, Carl, what I think will have to happen is very significant downward revisions. I think that the third quarter is likely too high. I don't see how we get from an 8.5 percent to a flat third quarter. I think the fourth quarter is egregiously too high. I don't see how we get from a negative 5.2 percent to 8 percent. I think when you factor in some demand destruction on the consumer side, as well as tighter financial conditions, that consensus has to take those numbers into account. So I think that that will be the leg that does a very, very orderly takedown of the market levels, just like we saw last year.

Great debate, guys, especially with you two, because you've been pretty resolute in your views and it's good to see conviction on either side. John and Greg, thanks. We'll see you next time. Thank you. Let's get to our question of the day. We want to know who do you agree with on the market? John, our bull, or Greg, our bear? Go to CNBC Closing Bell on X, formerly known as Twitter, to vote, and we'll share those results later in the hour. Meantime, NVIDIA up another 7% today ahead of earnings on Wednesday. Our Christina Parts Nevel is here with what is behind today's move. Hey, KP. Oh, hi, Carl. Another day passes, another bullish analyst report.

This time, HBC analysts raised their price target to $780. Although it's not the highest on the street, Rosenblatt gets that title at $800. But the argument across the board is simple. NVIDIA is the only AI chip game in town. The strong demand for AI infrastructure will continue to outpace supply, which is already constrained, and everyone seems to be just clamoring to get these GPU chips. Even today, the Telegraph reporting

that the UK is looking to spend over $125 million US on GPUs, which could include 5,000 NVIDIA chips. Bulls, though, are calling for NVIDIA data center revenue to jump to $15 billion in future quarters versus the $8 billion estimate for Q2. So that's almost double in the coming quarters. But here's a contrarian view that I read.

Mizuho says that NVIDIA's ability to guide materially above the current level is, quote, highly unlikely. Why? Well, if supply is tight, how are they going to keep guiding that much higher right now? A few other concerns, this current GPU shortage and gold rush mentality are almost certainly leading to double ordering right now, which might be especially true in China due to the fear of getting cut off because of those export restrictions. So could that be a hurdle later on in the quarters for NVIDIA? If we're going to talk about the stock movement today, though, NVID Nvidia's contractor TSMC Taiwan Semi is up almost 2% right now. Today, it reiterated

its prior outlook in light of press reports suggesting that conditions have weakened. So that was a positive. And then one name I wanted to bring up is analog devices. It's also higher ahead of its earnings, about 1% higher. Its earnings are Wednesday morning. There are some concerns, though, about analog demand, which is not like the GPU demand, and weaker demand coming specifically from China. Carl? I'll tell you what. The sell side has given us a lot to chew on this week.

Just on NVIDIA alone, it's been pretty interesting. Christina, thank you. Christina Parts of Nevelos this morning, this afternoon. We're just getting started. Still ahead, investors may be buzzing about NVIDIA. But one top analyst says there's another key name investors need to be looking out for. We're going to reveal that after the break. First, though, bracing for a big breakout.

Top technician Chris Verone forecasting a significant move higher in one part of the market. He'll make his case after this break. We're live from the New York Stock Exchange, and you're watching Closing Bell on CNBC. Welcome back to Closing Bell. Yields mostly higher across the board today. The 10-year hitting its highest level in nearly 16 years. Our next guest says the charts are signaling a further move higher. Let's bring in Christopher Rohn, head of technical and macro research at Strategas.

It's great to have you, CB. It's great to be here. Yeah, my pleasure. There was a time where, talking about the 10-year with a solid five-handle, sounded alarmist. You don't think so anymore? I don't think so at all. And it's really this paradox. If you look at what has happened since that, what appeared to be a very benign CPI print back in July,

you'll look at nothing but straight up. That was 50 basis points a year ago. And I think what's important when you put this in some historical context, the question we're getting from clients is, why would rates still be going up if inflation is falling? And our answer is very simply, when you look historically, rates tend to trade at a premium to CPI. I think the historical average is something like 200 basis points over headline CPI. So we pose the question in our work this morning, is a 3% CPI number and a 5% 10-year yield number that out of bounds? Not at all.

Chances we could overshoot? I think absolutely. If you just do a pure kind of technical target from the breakout here, you're looking at 490 to 510. I think that's very much in play here. You've seen real 10-year yields decisively break out as well above 2% here. And I think where this is manifesting itself is how the leadership complexion of this market, I think, has changed pretty dramatically over the last 12 weeks. Interesting. Meaning we were, what, reliant on FANG and now not as much? Yeah. I mean, if we look since that kind of July CPI print, energy is outperformed tech by 1,500 basis points, discretionary by 1,200 basis points. So you've seen what began as a pretty subtle shift actually become a much

more overt move over the last couple of weeks. A little mean reversion today. I wouldn't chase that. I think that's a bounce in the downtrend. I think ultimately the bigger message is that energy has reclaimed the flag of leadership here. And I think rates have a big part about that. Right. So you're looking for some loss of momentum in technology in particular. Yeah. And I think we've seen it. I mean, just go stock by stock. All these bellwethers have, in many cases, lost their 50-day moving average of the short-term trend. More and more are starting to lose the 200 here as well. So I think when you think about this in terms of, you know, where are the most attractive technical setups? What was tech for a good chunk

of the year? I think that's deteriorated in a pretty meaningful way. I mean, think about the big names. Apple below the 50-day, Microsoft below the 50-day. It's really NVIDIA, which is the last holdout here. They say the best ones fall last. Expectations are really high for this Wednesday number. Right, right. Although for the NASDAQ to go to the 200 would require something truly ugly. Yes. Yeah. You know, it's funny. I think both of these statements can be true. Stocks can be in a longer term uptrend and also they can revisit their 200 day moving average in time. We forget that 15, 20 percent corrections are not abnormal, particularly in an environment where interest rates are more volatile. So I'm kind of thinking about this more in a 1990s, 2000s, or even if you go back further in time, 1960s type environment where volatility in rates leads to more volatility in equity. Finally, homebuilders, you think sledding gets tougher from here?

Yeah, I think you had the first real meaningful crack of what was a very resilient group last week. And it's a reminder that there's no untouchables in this market. And you broke the 50-day on Lenar. You broke it on D.R. Horton. There's a lot of error between where they trade today and the 200-day. I think ultimately lower here. They're oversold. They can probably bounce in the short term. I'm more inclined to fade that. It's got to be a good year to be a chart watcher because everything is really interesting. You know, Carl, we joked a few weeks ago the macro is getting fun again. It's really getting – it's getting interesting.

Yes. Chris, thanks. Thank you. Good to see you. Chris Marone. Coming up next, while everyone's talking about NVIDIA, there is another key report to watch this week. We've got an analyst who's bullish on that beaten down name after this break. Later on, Tesla popping in the session today, which is driving that move as closing bell. We'll be right back.

Shares of Snowflake trading higher to start the week ahead of the company's results after the bell Wednesday. Stocks been under some pressure this month as part of a broader pullback for the cloud sector. But our next guest says cautiously optimistic the Snowflake melt is over. City's Tyler Radke joins us. He has a buy rating on the name Tyler. Great to see you. I was just thinking it must be nice not to be the name that everyone is thinking has to make or break the market.

But you do think we've probably seen the last of the guidance cuts, right? Yeah. Yeah, thanks, Carl. So it's been a disappointing year for Snowflake. You showed how it's underperformed a lot of its peers just this month. But you look at it year to date, hasn't done much, hasn't really participated in this broad-based tech rally. And the reason is the company has had to cut the annual guide three quarters in a row. They've been surprised by cloud optimization headwinds. IT budgets have been under a lot

of pressure. We think we're nearing the end of that. We believe last quarter was the final cut. They have some interesting new products coming, especially later this year into early next that we think investors are going to get excited about once we get through the earnings this Thursday. Right. You do point out, I mean, it's been a while since ServiceNow really started talking about sales elongation. And certainly Snowflake has had some of that. But you're saying it hasn't gotten much worse, right? Yeah, I think you're starting to see some light at the end of the tunnel. So one of the surveys that we run every quarter is we interview over 100 CIOs. And the second quarter survey, we ran this towards the mid-June time frame, was the first quarter in

about a year and a half where budgets hadn't gotten cut. Now, they didn't go up a whole lot, but this was kind of the first quarter where you started to see budget growth expectations stabilize and slightly improve. We're hearing similar things when we talk to channel partners, both in the Snowflake community as well as Microsoft and AWS. A lot of folks really hammered on their cloud costs in the second quarter and third quarter of last year. And so now you're starting to lap those compares. And so ultimately, we think that can support the stabilization in the growth of these companies. And especially as you get into the back half of this year, set up a much better

environment for the stocks. I wonder how you think about sort of the nature of their guidance in general. I guess I would argue Slootman is not subtle, right? When he wants to deliver a message to the market, he doesn't sort of beat around the bush with corporate speak. Would you expect him to be direct on Wednesday? Yeah, I think he's always been a straight shooter. Now, I think the concern maybe investors have had with their guidance is it hasn't been particularly conservative or sandbagged. A lot of these hyper growth companies will purposefully guide low to beat it by 9 or 10 percent. That's never been the way Snowflake has operated. Now, during the good times when IT spending was strong, it didn't really matter too much. But certainly having three quarters in a row where you have to cut guidance has been a problem. I think it's prevented some long-only investors getting involved in the stock. And so ultimately, our view is those headwinds are largely behind the company. And we're expecting

at least a reiteration of the full year guide. Talk for a moment about where it fits in your ladder of favorites. Is this your, is this the top priority for you guys right now? Yeah. So I'd say in general, we are more cautious on the sector. Most of our ratings out of the 30 plus stocks we cover are not buys. We have a lot of neutrals and some sells. Among the buy rated names, look, it's hard not to like Microsoft. It's got a great accelerating growth story, levered to AI probably just about as good as anyone outside of NVIDIA.

And then on the growth side, we also like names like MongoDB, which we think there is a lot of upside to numbers. We have a little bit more conviction in the fundamentals. So probably call it in the third to fifth place bucket, definitely towards the top of our list, though. Right. And then is there a macro test that the names in your coverage universe need to pass, whether it's exposure to financials or our AI or China or something else that sort of levers the favorites from the non-favorites? Yeah, for sure. So I think the nice thing about software is there isn't a lot of China risk, right? I think at most you're talking 2 to 3 percent of revenue. So you don't really have that. Generally speaking, the end markets are very diversified, no more than 15 to 20 percent of a single vertical.

Generally, the largest verticals could be financial services. Some are retail kind of varies. So I think the big test is just around growth rates, right? Obviously, as interest rates are higher, to have a valuation that is as high as some of these names are, you really have to deliver on that growth. And there's been a lot of excitement around generative AI. And frankly, with the exception of maybe Microsoft and a couple other names, you haven't really seen the results accelerate because of generative AI. So I think people are looking for growth rates to stabilize and improve next year. These software companies need to show it in the numbers that they're actually generative AI winners.

Yeah. Wednesday night's going to be pretty spicy. That's going to be fun to watch. Tyler, thanks for the curtain raise. Good to see you again. All right. Thank you. Coming up next, we're going to track some of the biggest movers as we go into the close. Christina Partsinevolo standing by with that. Christina. Well, dare I mention a new COVID variant and what it means for certain pharma names? I'll also have details on one potential cybersecurity deal that has shares of double digits. All that next.

Just about 22 minutes till the closing bell today. Markets been leaning on tech pretty much all day long. NASDAQ now with gains of one and two thirds percent. Dow did go positive for a moment there, even though breadth is pretty evenly split, and that's despite yields really not giving investors too much comfort with the two-year very close to 5% this afternoon. Let's get back to Christina Parts-Nevelos for a look at some of the key stocks to watch. Christina.

Well, we're watching Sentinel-1 right now because it's surging as Reuters reports that the cybersecurity firm is exploring a potential sale. Early talks have not met SentinelOne's valuation expectations, according to that report. So it's possible these talks could end without a deal, but you're still seeing shares up 16% on the rumors. And the major COVID vaccine players are higher today, and not because of good news. New variants are emerging and investors look ahead to the fall rollout of new booster shots. Moderna, for example, is up over 10 percent.

BioNTech is up about 7 percent and Pfizer around 1 percent. Those names, though, are still down more than 20 percent this year as demand for the vaccines has declined. And one of the hardest hit names in the space is Novavax, going from a market cap of around $22 billion at its February 2021 peak to just around $700 million now. Nonetheless, shares are seeing a big boost today, up 13.5%. Christina, thank you very much. Meantime, some negative news surrounding China, putting some U.S. companies with exposure in focus, and it could have a big impact on their bottom line. Our Seema Modi is here with some details. Hi, Seema.

Hey, Carl. Well, tech stocks really have the most on the line with semiconductor companies like Nvidia, AMD, Qualcomm generating over 20% of revenues in China. While those stocks are up this year, these stocks are actually down in the month of August, coinciding with new data that does show China's economy slowing faster than expected. Meantime, Evercore ISI also pointing to names like Intel and Tesla that they say could be vulnerable to a further pullback if China's growth story continues to worsen. Check out the performance of U.S. companies with China exposure labeled here the China Trade Index.

It's underperforming the S&P 500 so far in 2023, up just 5%. With that said, there's still a number of consumer-facing names like Starbucks, Marriott, Booking Holdings, even Walmart reporting growth in China this earnings season. That's keeping some investors optimistic about a potential turnaround. However, the question is whether that can really happen if China's not able to meet that 5% growth target. Carl? It's interesting, Seema.

You know, Wells took a crack at this last week, looking at the underperformance of names that had, say, 15% exposure to China. And the number one name was Las Vegas Sands. And ironically, today, it's Macau that has reclaimed the gambling hub of the world title back from Las Vegas. So China is a very difficult market to read. It's a mixed story. And that tells you something about the consumer,

that even though we are seeing some signs of outbound travel start to improve, as Booking Holdings alluded to in its earnings release a couple weeks ago, still waiting for that full rebound to bleed into other parts of the economy, which are slowing for sure. Yeah, maybe Macau is one of the good things they have going. Seema, thank you. Great story. Seema Modi. Last chance to weigh in on our question of the day. We asked you, who do you agree with on the market?

John Mowry, our bull, or Greg Branch, our bear? You can still go to CNBC Closing Bell on X, and we'll bring you the results after this break. Let's get the results of our question of the day. We asked you, who do you agree with on the market? John Mowry, our bull, or Greg Branch, our bear, who is looking for 17 times 225 S&P 3800. And the majority of you said John, our bull. We'll see who's right. Coming up next, Zoom reports in just a few moments. We're going to bring you the key themes and metrics to look out for when those numbers hit the tape.

That and a lot more when you take you inside the market zone. Don't go away. We are now in the closing bell market zone. UBS's Julie Fox is here with her market playbook. Phil LeBeau on this rebound in Tesla shares today. Pippa Stevens looking at Zoom earnings going in just a few moments. And then Bapasani breaking down the crucial moments of the trading day into the close. Let's begin with Julie. I'd love to get your view, Julie, sort of going into year end, where it doesn't seem like you think

there's a lot more wood to chop, and also shorter term. It doesn't sound like you think there are major surprises headed our way out of Jackson Hole on Friday? Yeah, I mean, the market is taking a breather over the past few weeks. Stocks have done very well this year so far. Not a surprise to see a slight pullback. And August is also a seasonally weak period of time for the market. Jackson Hole is the big focus this week. We want to hear if Powell is more dovish or hawkish tone in his commentary. There isn't a Fed meeting in August and the next meeting is still a month away. So we think this week's Jackson Hole meeting will be important. And we've come a long way. If you look at the Jackson Hole meeting last year,

Powell said the Fed's inflation fight could bring pain. And he was largely talking about job losses. And the market didn't like that phrase. We've seen job losses over the past year, but the unemployment rate is still very low. If you take a step back, we think that most of the market's gains are already in for the year. Our year-end S&P 500 target is 4,500, and that's slight upside from current levels, though it would mean a full-year gain of about 14 percent. Yeah, 4,500. And then I think your 12- month is not much higher than that, right? 4,700. I just wonder if you think this is going to be a deadly 12 months or if there's going to be wild

swings within it. Well, we acknowledge that the backdrop for stocks is improving. Clearly, the market has already run a lot this year, and we think returns are a bit more muted for the rest of the year. And as you said, in about 12 months from now, our price target S&P 500, 4700. And that's largely because we're expecting 9 percent earnings growth across the market in 2024. And that's compared to no earnings growth this year. So as the earnings growth comes back into the picture, we think the market really starts to price that in. And we see this grind higher in stocks over the next 12 months or so. Energy, consumer, staples, industrials. It sounds like your sector view is supportive of a pretty benign macro. Yeah, I think we continue to see an improving environment for stocks and

a better risk reward than we had a few months ago. And as you said, you know, we're favoring sectors that haven't participated in the rally as much so far this year. And those are energy, consumer staples, industrials. Energy is only up about 5 percent so far this year. You've got rising oil prices, improving economic backdrop. And that does bode well for energy stocks. And we also still see opportunities in high-quality bonds. It's the time to be locking in higher interest rates. We're probably near the peak of central policy bank rate raises. And so you'll

start to see that risk that yields start to come down over the next year. And so where there still is the opportunity to lock in five to 10 year rates where they are, we still think there is attractive as well. Are you finding that clients are still a little bit not receptive to equities because the returns in money markets, for example, are so strong? Or are they interested in hearing what kind of stories there are from an equity standpoint? I think it's about being selective and thinking about that risk reward and really trying to find the right opportunities in the markets and finding the sectors that have underperformed, like energy, consumer staples, industrials,

and really trying to find the opportunities within the market where you can still have some of that upside. And that's really what we're seeing clients thinking about right now. Interesting. Julie, appreciate that. We'll see what the next few months as we get into year end brings Julie Fox of UBS. Let's turn to Phil on this Tesla pivot. Phil, the Bulls had been wondering when this was going to come along. Yeah. They've waited a month for it, Carl, and it's finally here. A true rebound day if you are a Tesla shareholder. What caused the stock to move higher today after dropping about 30% in the last month?

Baird adding Tesla to its best ideas list. It points out that the Cybertruck production is scheduled to start later this year. They believe that's going to be a catalyst. Along with the fact that the price cuts have been effective. All of that contributing to Tesla moving up more than 7 percent. The flip side of that, take a look at shares of Nikola down again today. The company is saying that the recall that it initiated eight days ago due to battery issues that caused a couple of fires, that it may hurt their 2023 delivery guidance. As you take a look at shares of Nikola over the last year, the company also issuing or saying it will issue $325 million in convertible bonds. Remember Nikola chair Steve Gerski?

He became CEO earlier this month. He's got a lot on his plate if he's going to stabilize the situation at Nikola. Carl, back to you. Phil, really quick. You know, Xpeng, for example, has been in the news last week. They were forecasting this loss. Today, it's more about saying, look, the cost cuts we've implemented are going to mitigate some of that loss. We've got a partnership with VW.

Is Tesla sort of riding alongside this general view of what Chinese EV makers are doing? Yes, to a certain extent it is, because remember, China is the largest EV market in the world. Tesla is the largest player within that market. Now, it's insulated to a certain extent because it's a much better run company than a number of the Chinese EV companies, which are truly startups that are just starting to get their legs in terms of production. So Tesla is better capitalized and a better run company than many of those Chinese electric vehicle companies. Nonetheless, when they go lower and the market goes lower, that weighs on Tesla. China will talk some UAW, I'm sure,

in the coming days. Phil, thank you. Phil LeBeau today on Tesla. Let's turn to Pippa Stevens on Zoom coming up in a few moments here. And another name, Pippa, we're not necessarily going into the print hot. Yeah, that's right, Carl. Expectations are pretty muted ahead of this report with analysts saying there's a lack of catalysts that could lead to a reacceleration in the company's business with limited visibility for margin improvement. That said, Morgan Stanley noting that Q2 likely marked the last quarter of meaningful enterprise downsell and churn, thanks to deals that were signed during COVID. So maybe some stabilization there looking forward as the company tries to expand its product suite beyond just video calls. Now, in addition to opportunities outside of video, investors will also be focused on commentary around AI,

which Zoom has been investing in. That includes timeline and monetization opportunity for products within Zoom IQ, including meeting summary and chat composed. Shares are about 1.4 percent higher right now, Carl. Pippa, we'll be seeing you in just a couple of minutes. Pippa Stevens watching Zoom. Meantime, Bob, looks like we're going to put together the best day of the month so far. Yes, in fact, two up days. So remember, the bottom was on Friday, 4340, right at the open. And look, we're just passing 4400. We're at the highs for the day. You notice the Dow is flat today. That's because it's all about tech and consumer discretionary and communication services. Elsewhere, banks, energy, consumer staples really weighing on the Dow right now.

And this is where you see the differences in the market capitalization. The Dow, of course, a price-weighted index as well. So two things. Every single big cap tech stock is up today. And again, most of them, the bottom was on Friday. Number two, and this is the most important thing, nine basis points up for the 10-year yield. This would have been catastrophic in the last two weeks. And yet all throughout the day, the S&P has been rallying and has not dropped tech, not dropped communication services.

This is a change in trend. We've been totally wedded, obsessed with looking at this 10-year yield for two and a half weeks now. And today, suddenly, it's stopped mattering as much. I think that's potentially significant. So right now, why? There has been this speculation that higher rates are going to somehow kill earnings, kill the rally, kill the economy. But I think it's all very speculative still. I mean, we need some evidence that this small creep up in interest rates we're seeing are somehow going to alter the fundamental outlook. And I'm not convinced that's going to happen. So what do I see? I see multiples have come down since the start of August. We're at 18 and a half, close to 19. We were at almost 20 times

multiple. That's good news. Earnings estimates stable, but they're much higher for the third quarter and the fourth quarter. So the numbers are not coming down. Nobody's cutting their numbers on these slightly higher rates. So far in August, I see seasonally light volume. I see the VIX at below 17. It just dropped below 17. And so I don't see the panic out there right now. I see a little bit of concern about the speculation on the higher rates and what it's going to do. But I don't see the evidence that it's actually going to kill anything right now. It's not going to kill the soft landing. It's not going to kill the earnings, which was the bottom in the second quarter.

So I'm just waiting for evidence. And I'm waiting for Powell to somehow come out and tell us why we need to worry about this a lot more. You mentioned seasonal light volume. Does this mean that we're still sort of waffling around through August? Or is anything decisive right now? No. Well, in terms of price action, it's always decisive. But there is nothing that I am looking at that I'm worried about. I see the volumes are seasonally light today.

No. If it was if there was really a problem, there was a fundamental issue. People were convinced somehow that the economy was changing. Earnings were going to go to go right straight down. You would see much, much heavier volume. You'd see people making bets. somehow that the economy was changing, earnings were going to go right straight down, you would see much, much heavier volume. You'd see people making bets. They're not. All this is right now is lack of conviction of people want to buy stocks at this point, not people looking to sell. The VIX, if there was more concern over a 30-day period that suddenly we were going to see a real blow up, the VIX is in contango. All the VIX futures are slowly sloping upward in the next

few months. That's not a sign of investor panic. If there was panic, you'd invert the VIX curve. You'd have much, much higher VIX looking at the cash, and the months out would be much, much lower. That's not happening. So there's no short term. Look, actually, we were below 17 just a little while ago on that. So right now, I'm looking for this evidence that there's actually going to be real damage due to these slightly higher interest rates, and I still don't see it. And that's why everybody's freaked out about Powell. They somehow think he's going to turn around and say, folks, like last year, that terse speech last year, he basically came out and said, folks, you don't get it. We're higher for longer, and we're going to stay there. That's what we're going to be.

Let's see what happens on Friday. But right now, I still want to see more evidence. Last year's Jackson Hole, we'll never forget that. Yeah, that was pretty terse. Bob, thanks. Okay, pleasure. As Bob points out, nice little attempt here at a afternoon rally. Yeah, we'll close a little bit lower here.