Closing Bell - Closing Bell: The Resilient Market 10/8/24

Episode Date: October 8, 2024

Trivariate’s Adam Parker, Truist’s Keith Lerner and HSBC’s Max Kettner debate where they stand. Plus, Avery Sheffield from VantageRock breaks down her market playbook. And, tech stocks had a wild week with several downgrades .. but it still outperformed in today’s session. Tech shareholder Jason Snipe weighs in on where he thinks the sector is headed. 

Thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. As always, this make or break hour begins with, of course, the markets. We're watching the activity today because there is a lot going on. Yes, we're up. We're still a bit unsettled. Tech good, China bad. Rates, earnings, another storm very much in focus today. We're going to ask our experts over this final stretch what all of it means to your money. In the meantime, the scorecard was 60 minutes to go in regulation. I said we've been green throughout the day. It's a big day for mega cap tech. That's primarily the story today. NVIDIA back above three trillion in market cap. Amazon, Microsoft shaking off more downgrades

today. That's a story in and of itself. Oil is falling and that's helping sediment a bit today. Yields pretty calm as well. And so is the VIX for a change. So you put it all together, and as we begin this final stretch, we're trying to work some stuff out here. It does take us to our talk of the tape, and it is this resilient market. Let's welcome in Adam Parker. He joins us now at Trivariate Research, the founder and CEO, also a CNBC contributor. Welcome back. Great to be here. What is your current read on the market and what's been a really noisy week or so? I mean, Jensen is in New York today telling all the institutional investors that there will be return on investment for NVIDIA and calming people down a little bit. Because when I do my meetings in this last week, I'd say three or four times it comes up,

hey, I think one of the biggest investment controversies is what will the return on all the capital spending be for the hyperscalers? And so you get the CEO of NVIDIA in town saying, calm down. And I don't know if guys went out and bought more or whatever, but, you know, that stock acts well. They actually did. I mean, they're buying more. It's up 4%. He's meeting all the big investors. He comes around regularly.

You know, he's doing his normal kind of Boston, New York trip. But I think he knows that one of the biggest five or ten investment controversies across the whole stock market is, will companies see a return on that? And then the answer he's telling me is, yeah. I mean, after a lunch meeting I had, I went and looked at the healthcare stuff on NVIDIA's website just to get excited about some of the, you know, applications there. So for sure, I think that debate, people know that, you know, the quarter's going to be fine.

It's not for quite a while, but maybe they feel a little better about that debate than they did before he went around and came to town. Do you feel a little better about this trade then? The overall mega cap tech trade? Now, this is back above $3 trillion in market cap. I still think that, well, two things. There's two currents. One, I think semis, you want to be overweight for one, two, three and five years. Okay, I like the trade. I don't think I'm smart enough to know exactly what's three weeks.

It pulls back 20%, 30%. But NVIDIA was at 14. It went to 140. I wasn't smart enough to sell it down to 100. I'm not smart enough. It's a long and the whole complex. Okay, so you're saying don't pay attention to the price action really in that space? I don't think so. What I think happens with growth investing is only when you get in the top decile,

the most expensive 10% on enterprise value to forecasted sales, then you get in that alarm area. But as you know, a lot of the semi-companies, revenue is up a lot and their estimates are up a lot. And so the valuation isn't crazy for all these names. You know, I had Rick Reeder on a BlackRock earlier today on halftime and he came across as, he described himself as basically an uncomfortable bull. A lot of money

around, so it's hard not to be bullish, but then he looks at the multiples and he's like, I mean, I'm a little uncomfortable. It sounds like you guys share a view that way, right? Yeah, I mean, I don't mind being associated with the same sense with him in any way, so sure. You know, I think there's certain names. We're working on a research note at Trey Barrett where we're looking at stocks that have been re-rated. Like, I could tell you I think Costco is an amazing company.

I think we've all been there. It's a good store. We like some of the operating characteristics. But there aren't that many companies that are $250 billion-plus in revenue that traded in the low 30 times forward and now traded 50 times forward. Like, at some point, it's hard to, you get a little nervous about, you're uncomfortable a little bit about the valuation, even if you think it's a great business.

So I don't think the MAG 7, or if you want to say big 6, whatever, are really at that level. They're not quite that expensive because they're growing pretty well. They're growing faster than the market, excluding the MAG, you know, stocks, you know, whatever, 7 through 500. So I think things are okay. I think people would get a read that maybe earnings is going to be fine. And so they're a little bit, you know, more relaxed about the next three to six months, I think.

Why do you think the market has been as pretty resilient as it has? You know, we have an election a few weeks away. Have another very, very big and dangerous storm heading towards Florida right now. Right. Not to mention, you know, just other issues that are out there. Yields are still hovering, you know, high. I could go down a list of other things. I was worried in July and August. I was worried even into September about the slowing U.S. consumer. And I didn't really think the Fed cutting would solve it alone. China, you know, kind of did a bit of a weird fit, you know, head fake here a little bit. They got people

excited there'd be multiple things coming and then they sort of took a step back today. But you don't want to fight stimulus plus, you know, the front end, right? I just did a bunch of meetings. I don't know anybody who thinks the Fed's going to cut six, seven times in the next year. I think people think if they do, it's because conditions got much worse. I see the big firms now saying, oh, I'm now at my normal probability of recession back to 15 percent, like everyone who never had a recession and people took their recession probabilities down. And that's not how I remember things. I remember them taking them up a little bit as time went on. So I think maybe people are a little bit more comfortable that we've got some macro data that's not acute,

that maybe spending will be pushed off a little till after the election, and then we'll get a little bit more confidence out of the CEOs for next year. And so I think people think the risk reward is a little bit better, and that's where people's heads are. I never thought the MAG-7 should underperform or lead the big six, unless you're very bullish on the market. I mean, you have interesting sector recommendations. Yeah. Based on the view that you just articulated. You want to be underweight comm services. Yeah.

And, you know, underweight financials. Yeah, I think banks... That's an interesting call because there are some who suggest you need the financials to help this market continue moving higher. You're suggesting you don't like them, but you're still kind of bullish on the market. I think the banks, well, first of all, the market can definitely do well without banks doing well. There are a lot of things in financials. I just think a lot of the banks aren't that cheap on price of tangible book. I think the

interest rate environment that I'm rooting for, I know what I want. I want a 5% 10-year or a 3% 2-year in an economy that's growing. I can't come up with a path why that's anywhere near possible in the next 6 months. You say that because of the net interest. Then the NIMS can go up. And I think that's unlikely. So I'd rather play offense maybe with the AI semis, with select health care, which I think could both be offense and defense, depending on what it is. Power is really, utilities isn't just, you know,

your traditional rate stuff. Utilities are up a lot. You still want to be overweight that group? I do. I do. I think that if you look at the themes that I think are going to work one, three, and five years, AI semis, power to the whole complex complex select software health care services housing and related those things are going to grow above gdp the things i want to avoid banks that have to spend money before they benefit physical retailers commercial real it's like there's definitely trades that i want to avoid i've been wrong about the banks the last few months to be honest with you i they act better than i thought they would. And I think now if I'm saying, oh, do I want to play offense? I don't really know if I can go by. Some of these banks

are up a lot. Regions, Key, they've acted well. I'd rather take a shot at KKR, one of the bigger kind of plays that has a lot more upset. It's weird. When you take a step back at the market, I don't know if you know, but Citigroup's the same size as KKR. KKR's got 4,500 employees and Citi's got 250,000. It's just a difference. So I think there's ways to play financials without just buying traditional banks. That's more my point in the financials call. Yeah. And healthcare, you're still bullish. I love it. I think this is like the next three to five years, you're going to start seeing more and more examples of productivity, whether it's in, you know, better services at hospitals, at medical distributors, whether it's in life sciences generally, and then ultimately maybe down the road even in drug development.

So I think the way we think about health care in the next few years is going to change. Because of AI? Yeah. Predictive analytics across the board, optimization in hospitals, better treatment. You'll be much more proactive. You know, you'll have devices on you. This thing here is going to be like, you know, five years from now, it's going to say, hey, you know, you might need to go get a checkup. And, you know, it's just going to be much better.

And I think that's where we're headed. And I want exposure to that. And in the interim, I can get some defense because there will be companies that have lots of revenue, low revenue per employee, and then their margins can go up. This whole, the whole stock market is about margins. You don't want a short stocks where margins are going up. And I can dream for some of these healthcare services companies that they're going to grow the revenue and not do a lot of hiring. Let me ask you one more question before I open it up.

You were a bit cautious, right? And then you became a little more constructive when China had their announcement. I remember our conversation. But now you called it a head fake. So that doesn't change your broader view? Well, if they're not going to stimulate as much as maybe you thought they would? Man, man, seems like the best signal you want is to know what they're going to do one day in advance. Right. And then you buy casinos and copper and then they tell you to not.

All of those are down today. Somebody's making 50% in both directions. It just wasn't me. Look, I mean, I know Tepper and others thought the China thing was real, too. A lot of smart people. We'll see. I think there's still a skew to the positive what they could do fundamentally. I never thought you were going to see it in the earnings right away. I just thought I'd get in front of it with multiple expansion. I still like copper anyway, so I think you can own something like Freeport with demand exceeding supply. So I think you want to be neutral to constructive here and to earnings and guidance. I don't see any reason to get too negative because we made it through. There's no real pre-releases, and there's lots of things to own.

All right, let's bring in Keith Lerner of Truist Wealth and Max Kettner of HSBC Global Research. Gentlemen, welcome to the program. Max, you're first. What's your view? Yeah, so we're still pretty bullish. I mean, you guys were talking about being uncomfortable pools. I think I would describe myself as a very, very comfortable pool. You know, we've been bullish throughout really the last couple of months. We've never really believed in this story around the US consumer being or feeling much more strained than consensus has thought. And I still really would believe in that story. I do think in terms of the positioning going forward, I think you want to play a bit like the opposite of what worked in Q3. So it's more going into the tech

stuff, into materials, into discretionary as well. So really playing a bit more cyclicality, really playing that. In fact, the higher frequency data, particularly since the beginning of August in the US, has really, really been picking up and been pretty solid. And I think if that just got validated by Friday, I think we were really waiting for that one data point out of the labor market where everyone really sort of realized, look, it's not just the activity data, which might be lagging, but it's really across the board where the US is just doing pretty fine. We're still looking at the now cost of around about 3%. So to me, it's a bit like playing the opposite of what worked in Q3, taking your bond proxies, your utilities, your real

estate as your potential shorts and really the longs being more the cyclical stuff now for the next couple of weeks and months. I find it interesting that you want to play the opposite of what worked, because in large part what worked was anticipating what was going to happen. Fed was going to cut, the economy stay strong. You'd want to be in some of those cyclical areas. Why do you want to go opposite of what was working? I mean, there is something about momentum and a trend, no? Yeah, there is. But I think, look, at the end of the day, when we look at the last couple of months, I think people were freaking out a bit too much

with the July CPI and then, of course, this unwinding of the carry trade at the beginning of August. Let's remember, I mean, at least me, I've had no other discussions other than how much of that carry trade needs to be unwound. That was pretty much the only discussion we had in August. And now September, the discussion was around why do you still want to be long risk? It's this bad seasonality period. And look how well that worked in the last two years. And of course, that's going to be exacerbated now by election uncertainty. So why would you possibly want to be long risk? And look at some of the data. And of course, the labor market is showing some signs of weakness.

I think particularly with Friday's data, but also I think one of the things that are still really underappreciated is the revisions of the national accounts data that we had a week and a half ago, which at least me personally, I've never seen a set of revisions that literally was revising every single subset of the data higher, whether that is incomes, whether that's wages and salaries, whether that's dividend income, interest income, whether that's GDP, GDI, whether that's profits, literally every single thing just got revised higher and was destroying a lot of the bearish sort of pushbacks, right? The sort of, well, you know, GDI versus GDP divergence. A lot of economists used that in

the last two years. That narrative got destroyed. The narrative around, well, profitability is only a max seven story. Well, actually, it's,, actually, it's economy-wide profits that look much, much better. The narrative got destroyed around wages and salaries being much stronger, which actually points to perhaps a healthier labor market than we thought. So a lot of the narratives, a lot of the bearish pushbacks that people have been giving me in the last couple of months have frankly been pushed out of the window. Keith, is the environment as bullish as Max paints it to be? I think overall the backdrop is still positive, and we're still bullish, and we're still sticking with the trend.

I think if you look at some of the basic pillars of this market, don't fight the trend, the price trend's still up, and don't fight central banks. I mean, maybe the Fed slows down a little bit, but if the economy starts to weaken even some, they'll probably be more aggressive. I do think that China will continue to provide stimulus. I think the market got a little bit overheated on a short-term basis, but I would be surprised if they're going to let this thing just roll over this quickly after coming out with all

this ammunition. And one thing I will say is there's been this kind of, you know, one month we're arguing whether the economy's heading towards recession, the next month I'll be saying it's moving too fast. Corporate profits have been unbelievably stable. They're making 52-week highs every week. And then as you talked about earlier, I think technology is going to reassert its leadership. And we're starting to see that today. We're breaking to a two-month high. The earning trends in tech is still the strongest in the market that we have. And I think we'll see more of a rotation back into that area. So net-net, of course, we're going to see some hiccups along the way.

But in our view, the underlying trend is still one that moves up over time. Are you comfortable, Keith, if yields remain elevated? At 4 percent, I'm comfortable. I think where I feel a bit less comfortable is if we start moving, say, north of 4.25, 4.5. At 4 percent, I think on a relative basis, stocks still look relatively attractive. And more importantly, credit spreads are extremely tight, so we're not seeing anything systemic there as a whole. And again, if yields are moving up somewhat

because the economy is showing a bit more resiliency, that should be a positive for corporate profits. Yeah, I mean, look, the best thing is to romanticize you're a contrarian bear, and then you're right. Like, you want everyone to be negative, you know, contrarian bull, and then you're right. You want everyone to be negative, you want to be bullish, you want to be right. I think the problem right now is everyone, I think, is pretty positive.

You know, I think most people that I talk to are positioned that things are going to grind higher, that the year will end. Really? I mean, you talk to a lot of time. Yeah, I do. Investors, hedge fund folks, they don't sound like wildly bullish. They're idiosyncratic stories that they're bullish around. But I think overall, I feel like some chips are coming off the table in the NVIDIAs of the world.

People sold some tech, and I think they're starting to get back in. I agree with what Keith said. I think just if you talk to people who are stock pickers and they don't do macro, they'd say, look, my assumption is we end a few percent higher. The trend's your friend. You know, Fed's going to help. We get some uncertainty out of the way. Corporate stuff looks okay. I would have thought in July that we would have seen some companies say things were slowing in September, and we really didn't. I mean,

you had FedEx kind of miss, you had a couple of one-off things, but you didn't see a real slowdown. Certainly, the jobs report wouldn't suggest that there's a slowdown. I mean, it was slower, but you're still, you're still doing jobs at a pretty healthy clip. Yeah. And, and so the question is, you know, they cut a little bit and the unemployment rate goes down 30, 40, you know, three and a half, three, seven, like how can they, how can they cut more? So like, you know, it depends what I don't know right now. And I think it's an investment controversy is how much, um, you know, is the multiple right now embedding that they cut another more than 50-75?

Or is it just we do 50-75, the economy is okay, we've right-sided, and then we don't do anything for a year or two, and maybe not doing anything is great. Isn't it more than that? That's probably bullish. Yeah, that's bullish. Strategists' targets, Max, continue to go higher, and they make the argument that the multiple uh is fair currently where we are in the stock market even though it's you know it's historically high what do you think yeah i would

i would say so i mean when you look at the multiples one thing i always have a bit of a problem is when people just look at like 10 year 20 year averages or p's or they look at you know the s&p multiple around the first cut and then all those sorts of things. Because what it does, of course, ignore is when we look, for example, at margins, why have margins in the US expanded so much in the last, call it, seven, eight years? Well, a lot of it was the 2017-18 tax cuts. Look at return on equity. Look at the sort of the one-off bump that we had in return on equity back then. A lot of it, of course, was also tech. And frankly, if you look, for example, just price to book of the US versus the rest of the world,

and you ask investors and say, look, do you want to pay that high of a multiple for the S&P? Do you want to buy US equities at such high multiples? They generally, of course, say no, and there's all these valuation concerns around it. But if you phrase the question slightly differently and just show them the line of here's the S&P ROE and the S&P margins relative to the rest of the world, and look how since 2010, that's pretty much a straight line up. Would you buy that? I mean, pretty much everyone says, of course, they want to buy that. So, frankly, if you buy U.S. equities, if you're long S&P, you're paying a higher multiple simply because there is the higher profitability. So you're paying a higher price

just simply for the better earnings quality, the better earnings delivery, better and higher profitability. And therefore, I'm pretty comfortable with that. The only thing where I probably would slightly disagree is around the sentiment of positioning right now. At least when we look at our own measures, in fact, which is extremely surprising, is when we look at our stuff, we're not seeing neither a buy nor a sell signal. Even though the S&P is close to an all-time high, we're still not seeing sort of even a tiny whiff of a sell signal. And, I mean, I've just been in the U.S. touring the East Coast for two weeks, and we've not really seen an awful lot of people being bullish, at least when I thought it was us. So, yeah, I still would say there's a bit more upside, particularly from sentiment and positioning.

I think in my experience, I focus mostly on U.S. equities. So I'll defer on some of your conversations. Most cross-asset people I talk to tend to run more bearish on U.S. equities because they've got to think long-term. They've got piles of money behind them, whether it's the big private world networks. And so it's harder for them to say, hey, we've been a little underweight U.S. equities. We're worried about valuation. Now we're going to add. They're kind of tethered to the little bit neutral call.

When I talk to folks who are U.S. portfolio managers, which I do all day, I think they're directionally skewed to the positive. I do. I think people think we're going to end higher. I do meetings all day, and that's what people say. I got to bounce. Thanks, everybody. Good to see everyone. I appreciate it.

See you, Keith. Adam, thank you. Max, Keith, thank you. Breaking news right now, too. Cerebra Systems is likely to postpone its IPO. Kate Rooney is joining us now with the details. And this is that company we heard about, what, for about a week ago that wants to be a competitor to NVIDIA, right? Yeah, Scott, this is a highly anticipated deal. Cerebros reportedly delaying that public listing. This is the AI chip maker, of course, that competes with NVIDIA. You just mentioned a

big deal in terms of that company potentially going public. Reuters, though, reporting that the hang up here is with CFIUS. That's the Committee on Foreign Investment in the United States, which reportedly has questions over an investment from G42. That is a fund out of Abu Dhabi. It's a United Arab Emirates fund. And the firm is a big power player, really, in the AI space. It's invested in OpenAI's latest round. It has a high profile partnership with Microsoft as well. This report today says CFIUS is expected to greenlight

the Cerebrus deal later this year, but it is a bump right now in the IPO roadshow, which was supposed to kick off next week. No comment from Cerebrus. We have also reached out to G42 and Treasury, which CFIUS is a part of. No word from those organizations yet, Scott. Back to you.

All right, Kate. Appreciate that. Thank you. That's Kate Rooney. We do have another news alert on another IPO. Leslie Picker with those details. Hi, Les. Hey, Scott. It appears this one is going forward. It's KinderCare.

And I'm told by people familiar with the matter that this one is expected to price within the range. So not above the range, not below the range. But this is newsworthy in the sense that KinderCare tried to go public a few years ago, ultimately wound up postponing and then pulling their IPO due to regulatory concerns surrounding this one. So you see that word kind of pop up in the IPO environment. But if it were to price, say, at the high end of the range of $27 per share, that would imply an IPO size of $648 million and a valuation of over $3 billion. So a sizable deal here. KinderCare runs more than 2,400 child care centers in the U.S.

Scott. Leslie Picker, thank you very much for that. Now let's send it to Pippa Stevens for a look at the biggest names moving into the close. Hi, Pippa. Hey, Scott Palo Alto Networks is leading the S&P higher after Goldman Sachs reiterated its buy rating on the stock and raised its target from 376 to 425. That is the highest on the street, according to FactSet. Now BNP Paribas also initiating coverage on the stock today with an outperform rating, though shares up 5%. And DocuSign is rising as it gets set to join the S&P Midcap 400 index. The electronic signature company will be replacing MDU Resources,

effective prior to the opening bell this Friday. Shares of DocuSign at their highest level since February of 2023. Scott? All right, Pippa, thank you. Pippa Stevens, we're just getting started here. Coming up next, Vantage Rock's Avery Sheffield is back with her market playbook. She'll join me at Post 9 just after the break. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. Stocks are rebounding from yesterday's losses. The Nasdaq leading the charge today. Semis like Nvidia and Broadcom seeing nice gains. My next guest says the market looks to be overbought and might not have much room for error from here.

Joining me now, back at Post 9, Vantage Rock's Avery Sheffield. Welcome back. Great to be here. So you're not as bullish as some of the others who've been on the program here before you today. No, I'm not. I'm not. I mean, the market is expensive, right? 21.5 times the S&P, 28 times the NASDAQ, cyclically adjusted. Case Shiller, 35 times.

It's actually almost the second highest it's been back to the early to late 1800s you have put call ratios expressing extreme bullishness this is a market where people are excited as your previous guests who I greatly respect I think demonstrate people are excited and when everyone's on one side, I always wonder, is this really as good as is it really going to be able to go further from here? And you really feel like everybody is sort of now on one side of the boat. It feels like I mean, valuations would suggest that sentiment would suggest that what call ratios would suggest that I feel very much like a lone, more cautious investor at the moment.

I mean, there are reasons to be bullish. No, that's what they say. Fed's cutting. Economy's much stronger at this point than people thought it would be. And we're just at the first stop on the train tracks of these cuts. Right. Well, the question is what's priced in right so in if if if we look back at you know go back to where the big the market bottom the market bottomed at the end of october 2022 we were worried about the economy getting worse and the fed having to cut at some point we had infrastructure spending ahead we had onshore spending ahead. We had AI excitement ahead of us. The market was at 15 times then. Here we are, you know, two years later, market's at 21 and a half times and AI spending has already massively taken off. It's not over. It's not over. But is it

accelerating from here? Spending? Spending, accelerating. Maybe. Growing at a faster pace than it's grown so far. I'm not sure it's going to grow at a faster pace. It's going to continue to grow a lot. There's going to be a lot of dollars. But is it going to grow at a faster pace than it's grown? I don't know.

Are we going to see infrastructure spending grow at an accelerated rate from here versus what we've seen over the past couple of years? From what I'm seeing, it looks to be more stable, right? And then in terms of Fed rate cuts, yes, we are here with rate cuts, which should be stimulatory. The only reason it's taken this long is because the economy has been better. Yeah, for good reasons. For good reasons. But what we've had is we've had the economy or sorry, the market front run those rate cuts. Right. So you look at many industrial stocks, you look at stocks in the housing sector, you look at stocks in trucking. They're trading at near all time highs on potentially depressed earnings with the expectation that rate cuts are justified evaluations. But then when you get those rate cuts, how much upside is there to the stocks from there? OK, so you think a lot of it is just in the market.

What what areas of the market do you like? Because when you sat down and you said you kind of uncomfortably the bear out of the group thus far on the show, it's not like I don't like anything. But what do you like? Yes. Well, I mean, we tend to have more of a barbell approach to our portfolio where you have kind of those steady kind of compounding ballast positions, reasonably priced, not as cyclical and then and then cyclical opportunities. So on the on the kind of more ballast side, we continue to like the telecommunications companies. I don't think many people are aware that actually you've had two of the major wireless carriers in the U.S. Their stocks were around 30% this year. Like, they've massively outperformed the market, but they're still quite cheap at 7% to 10% free cash. They did underperform prior to that, didn't they?

But the whole point is what has been the opportunity for this year and what's the opportunity from here. And I think people are really underappreciating how this industry has become more consolidated. Family plants are creating a stickiness factor where they're not having to spend as much to keep you. Churn is coming down. And also each of them has a secular growth story, whether it's fixed wireless or fiber, that has a high ROI for them to build out their broadband businesses over time. Look, very slow growth, but just way too cheap. Solid, steady businesses. If

rates are coming down, where can you get a 7% return to shareholders every year? So we like that. We also like areas in cyclicals. So we're more cautious on cyclicals that we feel like are pricey in a lot of Fed cuts. But there are still areas of cyclicals that are very cheap. So two areas I'll talk about. One is airlines, right? You have major U.S. airlines, which, by the way, are levered a little bit more to the higher-end consumer, the business consumer, trading at five times, seven times earnings, while you have the low-cost carriers pulling back on capacity.

We're already seeing an impact on that in improved airfares. So you have supply constrained. If the economy is just OK, those stocks are way too cheap. Before COVID, they traded at low double digit multiples. So there's a very meaningful potential upside there. Right. Then you have areas like I would say steel. Everyone's very negative on steel. But how can you be negative on steel and positive on industrials, on infrastructure spending, on trucking that's going to carry around all this steel? Something doesn't add up because the steel industry is meaningfully more consolidated than it has been in the past. There are only four major steel operators. And we're in a low because the PMI

is so weak. But if Fed cuts are going to stimulate the economy, I don't see how steel demand doesn't improve. And you have a consolidated industry that's going to manage supply. Valuation is very cheap there. All right. We'll leave it there. It's good having you back. It's great to be here. All right. It's Avery Sheffield, Vantage Rock, the co-founder and the CIO. Up next, several big tech stocks getting hit with downgrades this week. The sector, though, is still outperforming in today's session, which is why we'll discuss with tech shareholder Jason Snipe just after the break. tech leading the way today despite a number of mega cap downgrades this week and big investor outflows from that sector so is this the start of the mag 7 regaining market leadership let's ask cnbc contributor jason snipe of odyssey capital advisors welcome back i mean what do you make of

this trade it is having a nice day we can hit that first before we talk about some of these downgrades this week. Yeah, so I think, Scott, obviously it slowed down. That trade has obviously slowed down the mag seven, if you will. It slowed down a little bit over the last quarter. But what I will say, I think it's a combination of two things. One, earnings estimates for the other sectors, the 493, if you will, have improved over the last quarter. And I think that's part of the story. The other part is, listen, when we talk about 40% of operating cash flow is being spent on AI CapEx, I mean, these are significant numbers. And I think that question is resurfacing again. When are those dollars actually going to be monetized?

And I think that's what the market is focusing on. I think, hence, that's why we've seen some of the downgrades as of late. But I think there's continued upside across the sector. I don't think it's the whole band, but I think there's a few select names that will continue to do well. I mean, defenders of this space say, yeah, I hear you. We need to see some return on the investment and the dollars are going up by large amounts. The flip side of that, though, is, well, where else in this market are you going to get the kind of growth that mega cap stocks continue to deliver and that you can bank on? Right. The fundamentals continue to back the idea of money going towards the space.

I couldn't agree with you more, Scott. I mean, from a profit margin perspective, I mean, the MAG-7 profit margin is a little over 23 percent. The 493, all the other sectors, a little over eight and a half percent. So there is a reason why money and capital continues to flow into tech and software and some of these names that continue to show earning strength. So I'm not surprised at all by that. And again, I think a little bit has been the story of we've seen some earnings revisions go upwards in other areas of the market. Maybe it's a little bit of consolidation, a little bit of slowdown.

We're taking a breather from a tech perspective and looking at other sectors. But again, I think muscle memory will come back and these NAIs will continue to move higher. What do you make of this NVIDIA move? What's it about over the last couple of days? Yeah, well, listen, I think we heard from Jensen a little over a week ago. I thought it was a great interview on CNBC just talking about endless demand for the Blackwell chip. So when you hear CEOs talk in this manner about, this is the bellwether, this is exactly, this is what they mass produce and there's endless demand for their product. It's just another catalyst for the stock. We're just being reminded

of what's going on between the lines at NVIDIA. So for me, that's part of the jump that we've seen over the last few days. And again, I think it continues. I think they will jump over the bar from an earnings perspective. We'll hear from them late in their earnings season, as we always do. But I think it was just a little bit of a reminder of what's going on at the company. Are you worried about what's happening with Amazon? It's been down like eight of nine days. We got downgrades this week as well. Not that people are negative on the long term.

These are more tactical calls. Yeah, yeah, yeah, yeah. Well, I think part of it is, you know, we heard from their retail businesses, it appears to be struggling a little bit. Again, it's 62% of the business. We talk a lot about AWS, which had a great quarter. We saw a real acceleration there, up 19% year over year. But when you're thinking about third-party sellers and you're thinking about Walmart as an example, which for fulfillment is 15% cheaper for third party sellers

to sell on their marketplace. That might force Amazon's hand in that respect and potentially lower expenses. But when I think about all the levers that Amazon has, whether it be AWS, obviously the cloud business, whether it's advertising, which was up 20% year over year, and their subscription business that continues to grow with Prime.

I just think there's a lot of areas for them to make up the gap, you know, if there is some competition in the retail side. So I like what Jassy's got in his plan going forward. So I think this stock can continue to move. All right. Let me ask you about Microsoft quickly, too. OK, the company obviously got a lot of credit because of the investment in OpenAI. The stock had a tremendous run as a result of that, and you can make that maybe the line in the sand that started this whole thing in the first place. Oppenheimer downgraded Microsoft

today in part because they think of losses accelerating at OpenAI that Microsoft's going to have to take up more than they had initially modeled into how they viewed the stock. So if we credited Microsoft and the stock's rise on the way up, how do we think about that issue in and of itself affecting the stock's trajectory from here? I mean, it's a great question, Scott. And I think, obviously, it was a $10 billion investment early on that has to show up on the balance sheet. And clearly, we're starting to, we continue to see losses on open AI, which often we do see in early stage companies.

But I think for going forward, there's definitely upside there. And I think it goes back to my point earlier, when you're talking about, again, if we're talking about CapEx, Microsoft's spending $80 billion, planning to spend $80 billion in CapEx next year on this whole AI theme. We're talking about Copilot, again, somewhat disillusioned on how that is going, how production is going, how pricing. We know what pricing is, but what is the revenue stakes look like? So I think that has been somewhat of a concern. Again, it's only up 10% year to date. But again, when I look at the subscription business and I look at their significant ecosystem, I just think Microsoft has a leg up on the others. And I think this is just a

short-term blip and it will continue to catch steam going into 2025. All right, Jay, we'll talk to you soon. That's Jason Snipe joining us once again. Up next, we track the biggest movers into the close. Pippa Stevens is back with that. Hi, Pippa. Hey, Scott. Energy stocks falling as Hurricane Milton approaches Florida. What's behind the decline? Coming up next. All right, we're less than 15 from the close. Let's get back now to Pippa Stevens, who's watching StocksForce. Hi, Pippa. Hey, Scott. Oil prices tumbling more than 4% after China failed to announce additional

stimulus measures, giving back some of the gains from the last week on escalating tensions in the Middle East. Now, that is weighing on the entire energy complex, which is one of just two sectors in the red today, and the biggest laggard by a long shot. Now, the refiners are leading those declines. Marathon Petroleum, Valero and Phillips 66, all sharply lower as Hurricane Milton barrels towards Florida. Now, the storm is not expected to disrupt any infrastructure, given Florida has no refineries, but it could cut demand for petroleum products since people fill up ahead of time and then are not driving as much in the aftermath. Scott. All right. Well, watch that closely. Pippa, thank you. Still ahead, we'll tell you what's driving the big bounce in Robinhood stock today. It's coming up. We're back on the bell just after

this break. All right, coming up next, CNBC catching up with the CEO of Hard Rock. We'll tell you what he told us about potential deals that could be critical in the gaming space. All the details when we take you inside the Market Zone. We're now in the closing of the Market Zone. CNBC Senior Markets Commentator Mike Santoli is here to break down these crucial moments of the trading day. Plus, a potential deal in the works in the gaming space. Contessa Brewer has details for us. And Kay Rooney on why Robinhood is heading for its best day. Plus a potential deal in the works in the gaming space contested Brewer has details for us. And K Rooney on why Robin Hood is heading for

its best day. Since May Mike got turned to you is all about tech today. Look at the I mean the S. and P. may not get to a new closing high today but it's going to get close. Yes as a result of the move in those names. Yeah I mean seven points

or eight points or something like that. It's this is a day from out of May or June. When you would have NVIDIA and a couple of other names just take control of the index right now it's about a 50 50 up versus down day across the New York Stock Exchange and the NASDAQ but it shows you that they've rested enough I mean remember NVIDIA's all-time high was back in June so it's been kind of working sideways and coiling up now I don I don't think you say, OK, now this is the new market from here on out through the end of the year.

But it shows you that there's always room for the market to find a way when the big inputs are not being questioned. Right. The Fed is easing at whatever pace into a pretty good economy. Atlanta Fed real GDP gets revised to three point two or something today. So it's all working. I still will say, for as much as it's tempting to insist that the market didn't have any payback in the historically tough months of September and October, August 31st, we closed the S&P 5650. You're up less than 2% from there. You had to go down 4.5%. So there's been a little more downside volatility to absorb on the way to somewhat less generous gains. It doesn't mean it's a problem. The trend is still strong, but we're still in October.

People seem to be long and hedged. That, to me, is the predominant mode. That's why VIX and the move index are elevated, even as people feel like they're involved. All right. Contessa Brewer, tell us about maybe some deals in the casino space. Yeah, we heard some attention-getting comments, Scott, from the chairman of Hard Rock International, CEO of Seminole Gaming. Jim Allen expressed openness to partnerships with commercial gambling operators in Florida. That could affect Vandal

and DraftKings. Remember, they had knocked down drag outs with Hard Rock a couple years ago, trying to get sports betting passed in that state. The compact went to the Seminoles. Hard Rock a couple years ago trying to get sports betting passed in that state. The Compact went to the Seminoles. Hard Rock got the Monopoly. Fandle CEO Amy Howe just talked to me on Power Lunch about trying to open up California and Texas and Florida for their business. So I just asked Jim Allen about that and he said, yeah, I'm open to it. Here it is. Whether it's Fandle or whether it's DraftKings, we've actually developed a great relationship with them. Frankly, I had meetings with them yesterday and today. So we do recognize that long-term, some type of strategic relationship

with some of the brands that really have marquee value could be helpful to both of us. And we are receptive to those conversations. By the way, I asked Alan how much he's making on sports betting in Florida, and he just played coy. He said, look, it's a sovereign nation. We're not telling. And by the way, Florida has more people than New York, which right now brings in the most sports betting revenue.

So we'll see what happens. There you're seeing the shares of the Macau casinos sliding to that's on the stimulus news, Scott. And it's been a rough day, especially the ones traded in Hong Kong, like Sands China, down 11, 12 percent. Yeah, it's been a rough day for anything China related today. Contestant, thank you. Kay Rooney, what's going on with Robinhood? So this one has to do with buzz around investor day, Scott. So fintech analysts I've been talking to pointed to a firm which had its first investor Day last year, and that ended up really being a major catalyst for the stock. So there is some muscle memory among the Fintech investors. Robinhood does plan to

lay out its long-term opportunities in that Investor Day, some of the financial targets that investors can underwrite, and then you may potentially get more product news. So that's a big reason for the buzz. Mike also mentioned some of the tech moves and an upgrade we got from Piper Sandler. That's adding some of the fuel here. They say despite net interest income headwinds, they see a lot of what they call idiosyncratic rather near-term opportunities. They say that's going to help drive earnings. And then called out some of the launch dates coming up for index options and futures trading. So up almost 10 percent.

OK. Yeah. Kate, thank you. We're going to watch those shares. You hear the bell ring. And again, no record close today, but nonetheless, a nice bounce back for stocks led by mega caps. Nvidia, for example, up 4 percent. Many names in that space brushing off downgrades over the last few days. That's a pretty sizable story, too, whether it's Apple or Amazon and then Microsoft and all those stocks finishing in the green today. That does it for us. Mike, thank you very much. That's Mike Ciancioli.

Into overtime now with Morgan and John.