Closing Bell - Closing Bell: The Resilient Rally 9/14/23

Episode Date: September 14, 2023

How long can the market’s unique ability to brush off almost anything thrown its way really last? Gabriela Santos from JP Morgan Asset Management and Virtus Investment Partners’ Joe Terranova give their expert opinions. Plus, ARM made its highly anticipated market debut today. Corient’s Amy Kong explains how she is playing the IPO market. And, Treasury Partners’ Rich Saperstein is laying out his case for caution. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with this resilient stock market, how even one of the world's greatest investors says he's a bit surprised at just how well equities have done this year. We'll get to those comments and others from Citadel's Ken Griffin in just a moment. In the meantime, here's your scorecard with 60 minutes to go in regulation. A nice broad move today. There it is, all three of the major averages plus the Russell. Seeing nice gains today, even after that hotter than expected PPI report this morning. Retail sales coming in better than expected today as well, which is likely one of the reasons interest rates have been creeping up across the curve throughout the day. There's your picture,

and it's green across the board. JP Morgan and Goldman Sachs helping lead the Dow higher today, along with several big industrial stocks like Caterpillar and Dow. We are closely watching the Nasdaq today as well. Arms highly anticipated IPO off and running at a big way. Priced at 51, open just above 56, and there you go, it's above 58, and that's near 15%. The gain on today, we'll discuss whether the biggest IPO of the year is a sign the market is finally thawing out. It does take us to our talk of the tape today. This market's unique ability to brush off almost anything thrown its way and how long that can really last. Let's ask Gabriella Santos, J.P. Morgan Asset Management's global market strategist

and CNBC contributor Joe Terranova of Virtus Investment Partners. Both, as you can see with me here at Post 9. Good to see all of you. It is a resilient market, is it not, Gabriella? It is quite resilient. I mean, we know through the end of May it really was about the AI turbocharge of a handful of companies. Since May, we've had more participation from cyclicals as the data has shifted the narrative much more towards a soft landing. It has been surprising that even though

we've seen a backup in real rates, close to 200 basis points, we haven't seen a bigger correction in long duration stocks. We've seen some, but we haven't seen as big of a correction as we would have expected, given naturally it would lead to more of a focus on valuations. And we know the largest of those stocks are quite extended when it comes to valuation. Yeah, I mean, it's been a surprise to many, you know, not least of which Ken Griffin of Citadel, of course, who was on the network earlier today. Here's Ken on this resiliency we've seen in the market. It's been a really good year for the market, particularly with the backdrop of higher real interest rates. So if you look at both the yield on the 10-year bond and, more importantly, the real yield, for example, in the five-year TIPS bonds, we've seen, again, an increase in real rates and nominal rates, and yet the stock market's been resilient.

So that's a really interesting year to see the resiliency of our stock market against this backdrop that would usually be very challenging for equities. All right, so that's Ken Griffin. So, Joe, why hasn't it been more challenging? So you always want to put a bull market in context and understand the fundamental catalyst behind it. I want to go back to August 18th. The S&P was 43.35. We're up 4% since then. Let's remind ourselves what this bull market has had to overcome since August 18th. We heard about at the end of August that NVIDIA and the price action that day was indicative of an inflection point for the market. The price of oil on August 24th was $77.50.

It's above $90 today. We got through unemployment. We got through CPI. We got through retail sales. And we are coming up towards the end of the quarter ahead of an earnings reporting season. Normally, what happens? We see earnings estimates lowered towards the end of the quarter ahead of the earnings. In fact, what's happened? Earnings estimates for technology has moved higher by 7%. The revisions are actually positive. So you tell me, if you are bearish and you are of

the belief that this market is going to roll over significantly, it's going to give in to the overwhelming force from Treasury yields, what in fact is going to be the catalyst? Because we've overcome all the catalysts that were supposed to in a seasonally weak period defeat that bull trend. I think that's why Ken Griffin, among others, are somewhat surprised, Gabriela, as to why we've been able to overcome all of that. The question I ask Joe, I'll ask you, is why? Why has this market been able to look past most of what's come its way? And that's why we sit here north of $ 4,500 on the S&P 500. I do think this earnings piece is so key because we talked about for the first six months of the year how it was all about multiple expansion, multiple expansion. What's happened since the end of May is not just that the macro data has been better than expected, but also earnings have been better than expected.

And so since then, we've had an upward revision in next 12-month earnings of four percentage points. So it's more about favorable fundamentals rather than just pure valuations alone. With that said, we do think it is surprising that valuations, quality, dividends, your traditional factors that would do well when you have these positive high real rates haven't been doing as well. And that's something we think will change. So we're bullish on the market. It's just how you actually invest based on a more positive macro and earnings view that we think is more nuanced. And Joe, it's not like Mr. Griffin thinks, well, we've gotten this far and the markets prove resilient. That means it's off to the races from here. As I say this, the Dow is near 400 points to the upside at the highs of the day because he still looks at this

market and it makes him a little uneasy where we are now. Listen. I'm a bit anxious that this rally can continue. Obviously, one of the big drivers of the rally has been the just frenzy over generative AI, which has powered many of the big tech stocks. I like to believe that this rally has legs. I'm a bit anxious we're sort of in the seventh or eighth inning of this rally. All right, so he points to some froth, as he put it in NVIDIA, even though he likes it and says the management team there has just executed to a T. The other issue he talked about was the prospect of higher real yields, given where the deficit is, the

supply of treasuries coming on the market as a result of that, this overwhelming supply who the buyers might be, and the fact that it really causes a push higher in yields. That's certainly on his radar and others that I've spoken to recently as well. Absolutely. I don't disagree with that. And the market has been anxious since November of 2021, when Federal Reserve Chairman Jay Powell indicated that monetary policy was going to normalize. And certainly it intensified through the better part of 2022. But you asked before the reasonings why the market has been so resilient. I think you have to focus on the what, because the what is what's going to be so critical as we move into the fourth quarter. And the what to me is that absolutely this bull market has legs.

And quite candidly, understanding what I understand about the composition of this rally, we know full well the overwhelming majority of money managers who are behind the daily price movements are underperforming. And if, in fact, over the next several weeks, there's not the injection of bearish conditions that will defeat this bullish trend, this market through the fourth quarter is going to go significantly higher. Well, Gabriel, I mean, that will happen. You know, we think that will happen as long as earnings don't disappoint us. Right. Because we we've gone from what, three quarters in a row of negative earnings growth. This is supposed to be the quarter where we start ticking up and then the fourth quarter is even better. And then we start thinking towards 24 when it's really start to starting to improve.

Headwinds, oil prices, watching that a lot. Highest level of the year, right? We're above 90 bucks. Let's show oil because I think that's where we are. So how should we put all of that into perspective as well? I think what gave us a lot of comfort was the second quarter earning season was negative, but that was largely almost entirely due to energy and materials on a year-over-year basis. If you subtract energy and materials, earnings actually grew in the second quarter. So I think that was a bit of a relief to say that, look, regardless of what happens with the macro economy, the earnings recession seems to be behind us. And it seems to have been so much

milder than we had expected. Remember, we used to talk about the possibility of an earnings contraction of 15, 20 percent. Seems like it was only 4 percent. So companies being much better able to manage their margins and the top line not declining as much as expected. But of course, it will come back to earnings. I think the real rates discussion is also a bit nuanced in the sense of real rates are 200 basis points right now. I think there is some skepticism that's actually the new reality. It seems to us that something closer to 50 to 100 basis points is more realistic. Things haven't changed that much. Next week's Fed meeting will be key to watch in terms of their assessment of this. No doubt about that. Let's finish with tech, Joe. ARM, IPO,

so far so good, right? At least it seems to be that way as we watch that stock up 14 percent as it prices at 51, gets out of the gates a little north of 56. And here you go where it is now. You've got Adobe in overtime tonight as well. You own that stock. We do. Oracle, not good. Not so good. Right. So what do we take from that? What do we look at with ARM as you look for Adobe after? It doesn't seem like one single technology company and a negative price reaction or poor earnings can defeat this bullish trend. In the instance of ARM, I always believed that this was priced incredibly well. The demand you knew was going to be strong on the first day, given the small float. And this

is a real company with real earnings and participation in AI. Now, it is richly valued. And that's one of the reasons why I won't buy the stock, because I could just go buy Broadcom and I already own NVIDIA. Valuation is close to 100 times. In the case of Adobe, this is a company that is in the sweet spot right now. Is the expectation going into earnings very high? Yes, I acknowledge that. It is. But traffic, web traffic has been strong.

Firefly is going to be a positive contributor. And it's been a stock that has come back just like the rest of technology with remarkable resiliency. All right. I appreciate the conversation very much. Gabriela, thank you. Joe Turnova, thanks to you as well. Meantime, the UAW strike looming this evening. The contract talks nearing that deadline.

Phil LeBeau is here now with the GM North America president. Phil, take it away. Thank you, Scott. Mark Royce, president of General Motors. You just made a fourth offer earlier today to the UAW. Let's talk about this a little bit, because a lot of people are saying, what does GM bring to the table? 20% raise over the life of this contract, four and a half years, correct? That's correct. Yeah. And if you look at that and some of the spikes that happen from an

inflation standpoint, you know, we're getting a lot of people into a great place here for us, employee-wise. So you've got that. Plus, for the first time, and I want you to talk about this, you are basically saying the facilities, the plants that we have, we're going to be, that's through the life of this contract. We're not planning to close any of these plants. No, that's job security. And that's very important to not only our team members and every employee in General Motors, but also the communities that these plants and our suppliers are in. And, you know, that's a big deal because if you,

look, I've been around a while, MGM, and having our plants and our communities fully facilitized with the promise of two more EV investments and a third propulsion EV investment in one of our traditional ice plants. You know, we're doing that. We have vertically integrated all of that. A lot of our competition has them, but we chose to do that, use our full footprint and really capacitize. So it's a big deal for us. Yeah, but you've heard what Sean Fain, president of the UAW, said. It's not enough. Are they negotiating in good faith? Are you frustrated? You know, these are never easy negotiations. But I tell you, we are 120 percent at the table bargaining and negotiating. The offer that we gave today, the subcommittees are all doing that right now.

And so this is a true give and take right now. So it's happening. One thing I will say, though, you know, July 18th, the day that we got, you know, the first list of the demands and the requests by the UAW leadership and the president, that was when we started. And so there were a thousand things that we've been working through until we get to, you know, the last pieces and the time deadline that we have tonight. So we've been doing that all the way through in a very, very, very conscientious and hard effort and result work. If the UAW goes on strike at midnight, and we've been told it's going to be at least three of your transmission and engine plants, how quickly will that shut down final production? Well, you know, it doesn't take long. More importantly, it hurts everybody. It hurts

our employees. It hurts the communities where these plants are. Our supply bases are tier ones, our tier twos, our tier threes. And for every one of those people that are out of work at one of these facilities that we have, there's six other people in the community that are affected. So the buying power in our plants, you know, 2,000, 3,000, 4,000, 5,000 people in some cases, the buying power in those communities is really large. The economy, the communities, it's all affected. That would be a very sad, sad outcome. When you've gone into some of these negotiations in these sessions, has Sean Fain been in there? And what's your take on how he's conducting himself?

He has been in there, Phil. And, you know, so, you know, this has all been in good faith. It has been happening. But as I said, I set the record straight on when we started, and that was July 18th. But are you frustrated? I don't know if frustrated is the right word. We are intensely focused on getting the agreement. And one last question. The ripple effect of this, if this is an extended strike over several weeks, how damaging is it? It's really, if you think about, again, the communities, the employees,

you know, the livelihoods of the families, of all of our employees is devastating. So this is something we have made the investments. You know, we spent $35 billion on the biggest transformation in the auto industry has ever seen. And we're ready to go. The best job security is great products with great people and high quality. We've got all the ingredients. We're ready to go. And so this would really put, you know, a tremendous strain on what we have already in place and what we're ready to execute. Mark Royce, president of General Motors, joining us. Guys, we are just a few hours away from the deadline. 11.59 p.m. tonight is when the contract expires. Back to you. Yeah, Phil are just a few hours away from the deadline. 11.59 p.m. tonight is when

the contract expires. Back to you. Yeah, Phil, this isn't the only big interview you have either. You've got Jim Farley, the Ford CEO, coming up in the next hour, right? Yep, yep. We will be talking with Jim. Similar tenor in terms of the feelings, not only that we heard from Mark here at GM, from Ford, from Stellantis. There is a feeling of we need to get a deal done here. And is the UAW ready to negotiate? Or has the UAW already decided we're going to call a strike? That's the big question out there. Good stuff, Phil. We'll look forward to that in overtime. That's Phil LeBeau on the case as that deadline looms. We'll see what happens there. Let's get a check right now on some top stocks to watch as we head

into the close. Christina Parts and Nevelos is here with that. Christina. Thank you, Scott. Well, all those shares of Etsy have underperformed this year, down about 41 percent versus the Nasdaq, which is up over 30 percent. Analysts at Wolf believe the online marketplace is underappreciated by investors. They say consumer penetration is still pretty low and should grow over the next few years as discretionary spending increases. And that's why you're seeing shares up almost 3%. AT&T shares also jumping today after the CFO said in an industry conference that the telecom company expects third quarter free cash flow of $4.5 billion to $5 billion, although this range was already expected from analysts. And yet the stock is up about almost 3% as well. Scott?

Christina, we'll see you soon. Thank you, Christina Parts and Novelists. We're just getting started here. Up next, Arm Holdings officially hitting the public market today. We'll show you those shares. They've had a pretty good day, up 15 percent, just there about. Maybe not the best levels, but nonetheless, a pretty good debut. Now, Corian's Amy Kong is joining me here at Post 9 with her take on that, how she's playing the IPO market as well. That's coming up next. It does bring us to our question of the day. We want to know, would you buy shares of Arm at the current valuation? We said it's about 100 times. Head to at CNBC closing bell on X to vote. The results a little later on in the hour.

You're watching Closing Bell on CNBC. Welcome back. Arm making its highly anticipated market debut today. Leslie Picker is here with the very latest. Leslie. Hey, Scott. Yeah, it's a seminal moment for the IPO market today. Arm is the first U.S. tech IPO of the year, the largest in two years,

and one of the top five U.S. listings in the last decade. And despite its size, so far it's gone pretty smoothly, priced at the high end of the range, then gaining on day one, currently up about 15 percent, although there is still another 40 minutes or so to go in trading. Now, some color on the order book that I haven't yet shared, Scott. I'm told there were more than 50 investors comprising a relatively concentrated book of mutual funds, sovereign wealth funds, and fundamental hedge funds. And then, of course, there were the $735 million worth of indications from cornerstone strategic investors such as AMD, Apple, Google, Nvidia, and others. Arms trading today bodes well for the other IPOs in the pipeline. You've got grocery delivery service Instacart, marketing automation platform Klaviyo, and shoemaker Birkenstock on deck.

Now, as for what it does to truly pry open the IPO window, well, that remains to be seen. Maybe you want to ask me this question the same time next week. We may have a few more data points, Scott, but it certainly doesn't hurt things. No, no, no, no. No, it doesn't. We'll have to see. I mean, how things transpire. The names on the list that you just gave us, along with many others, are in the pipeline. You figure, Leslie, just waiting for the absolute right moment, whether this brings it or not, is anyone's guess, correct? That's right. I mean, the unique thing about this deal is this company was founded, Arm was founded in 1990. So it's an older company. It's an established company. It was solely owned by SoftBank. It's not one of those venture capital backed companies that has been

kind of waiting in the wings and, you know, not profitable and looking at total addressable market in the future. I mean, this isn't that kind of an IPO that we became accustomed to, say, in 2021 during the last week. This one is, you know, it's older. It's not even growing. It's actually shrinking its top and bottom line, although they do have some new markets, particularly those in AI that they've been marketing to investors. So, you know, you kind of take this one in a category of its own. It'll be interesting to see with the deals next week that are more venture backed and more in that category that we're used to with tech IPOs.

Yeah, maybe a better barometer there. Leslie, thank you. That's Leslie Picker covering ARM all day for us. Let's bring in now Amy Kong of Corient for a look at how she is playing the IPO markets. Good to see you. You agree that this is more of an idiosyncratic case rather than a sign of a true thaw of the tech IPO market? Yeah, I think we do need to watch the market. This is obviously a big milestone. It's one of the largest, as we've just heard. At the end of

the day, we're watching for two things. One is how it's debuted. And so far, it's respectable, not a moonshot, but it's respectable. But how sustainable is that? You know, we can recall back in 2012 when Facebook IPO'd, obviously it was a bit of a bummer. And so at the end of the day, when that happened, it really did put a dampening effect on the IPO market. Are you a buyer of this? No, we are not a buyer of Arm. We've been playing AI in different ways. Yeah, why not? Valuation just simply too rich. We mentioned, you know, throughout the program today, it's about 100 times. Maybe too rich for some, including yourself.

Yeah, valuation is a little bit higher for us. The growth prospects of this particular company has not been as attractive, and so we've been shying away from this balance sheet. Okay, so you mentioned you're playing it other ways. Is that code for we like NVIDIA the best of all in AI? We like NVIDIA, best of all in AI? We like NVIDIA, but not at these valuations. We're taking a pause on the name. There are a couple of ways to play AI from our perspective. There's the hyperscale cloud vendors,

which we obviously own Microsoft and Amazon and Google. There are strategic consultants like Accenture. We have end users like Adobe that just went public with their Firefly pricing, and that's an interesting play for us as well. So there are a couple of ways that we're playing this AI megatrend. I want to go back to the comment that you made about NVIDIA maybe too rich where it currently is. The valuation's actually come down over the last several months as the guidance has gone up and

the earnings have been good. So that's an interesting perspective that you have that you still think it's overvalued. And I just bring it up, Ken Griffin of Citadel on our network today, he likes it too. Use the word frothy when describing it. Just expand on that. As I mentioned, the valuations come down a lot. You still think that it's too pricey. Yeah, there's a little bit of part art, part science. So from a valuation standpoint, obviously the price to earnings and other metrics that we're looking at is on the higher end when you compare it to the broader market or even to the other fang stocks fundamentally we're also seeing a little bit of to your point froth in terms of just momentum building up a lot of expectations in terms of

what they expect from a revenue standpoint yes they have fulfilled their revenue guidance for the past quarter but that's one quarter of a data point. We want to obviously see a longer-term trend. Yeah, you're looking at NVIDIA, the PE109. Of course, the forward PE is a little bit of a different story. What about mega cap valuation overall? How should we view that in the here and now as really as a group, they've come in a little bit? Yes, we've actually been a little bit relieved in terms of seeing the sell-off, if you would, back in August and now into September. Going into this tech rally, of course, is a welcome sign after a terrible 2022.

But at the end of the day, we are not adding new money into the markets just yet because, again, from, let's say, a price-to-earnings perspective, it's a little bit on the higher end relative to the market, relative to historical averages as well. So how are you viewing the market overall? We've mentioned at the very top of the program this really unique and incredible resiliency in most cases that the market has shown, enough that Griffin himself is surprised by it. I think many are. The data continues to be conflicting, and I agree with you.

On the one hand, you've got leading indicators that suggest that the market, rather the economy, should be in a recession already. But at the same time, the consumer has held up quite nicely. And so we are not yet in the camp of saying a recession is out of the cards. And so we're playing it rather conservatively, if you would. We do have fuller positions in tech, but we've been cutting back a little bit just in light of valuation. Where have you been going elsewhere then if you're moving away from tech? Do you believe in catch-up trades of things like energy or sectors that just hadn't performed all that well this year?

Yeah, we're looking at energy as a sector and perhaps may nibble at that. But at the end of the day, we're really staying with companies that can benefit from shorter and longer-term trends. Longer-term, we've talked about AI, but shorter-term could be something like what's going to benefit in a higher interest rate environment? Private lending is one area that we've liked a lot, and we'll stick with that. Valuations there are certainly less. I know. The noise can be a little distracting.

No worries. We forgive you. But the valuations there are certainly. I'm turning up the volume as we speak. But the valuations with private lenders, for example, plus the dividend yields, are a little bit more attractive to us. Yeah. Do you think the Fed's done? We're not sure yet.

Obviously, you've got data like CPI suggesting that they probably could raise again. I think that's a toss-up now. September's probably a pause from our perspective. All right. We'll leave it there. Amy, I appreciate you being here very much. Thanks, guys. That's Amy Kong joining us here at Post 9. Up next, the case for caution, Treasury partners Rich Saperstein.

He's been cautious on this market. Now he is raising the red flag again on some big market headwinds that could impact your money. He explains after the break. And do not forget, please register for CNBC's Delivering Alpha conference. I'll be there with some can't-miss interviews, including sit down with Pershing Square's Bill Ackman. That's on September 28th in New York City. QR codes on the screen. Get your tickets.

Closing bell. Right back. Welcome back. Closing bell right back. Welcome back to Closing Bell. Major averages rallying into the close today with the S&P 500 roughly 2 percent from a 52-week high. That's all. However, our next guest is staying cautious and thinks the market's overly optimistic on the road ahead. Let's bring in Treasury partner CIO Rich Saperstein back with me at Post 9. Well, the more things change, the more they stay the same. I guess so.

That's what I think of when I see you and we read intros like that. You're still cautious on a market that's proven, as we said at the outset, to be pretty darn resilient. Yeah, well, at the peak of our cautiousness, we trimmed by 10%, and we kept all of our large tech holdings. And we now are back at full allocations with the market appreciation. But we're able to use that capital to redeploy into 4% tax-free muni bonds, which is an outstanding opportunity for our clients. So you still think that opportunities outside of equities provide the best risk reward for you and your clients? Yeah, at this time, we think there's great opportunity in the bond market, which was

uninvestable for roughly 15 years. And clients that had large equity positions that built up over the years, it's time to trim them and reallocate into other alternatives. What about this notion that Ken Griffin posed at the very top? You know, surprised somewhat, you could tell by the level of resiliency that this market has put forward, even in the face of all of these headwinds that people like you look at and say, gosh, I don't want to be overly exposed to equities. Yet, here we are. Super impressed with the resiliency in the economy because of a couple of reasons. One, labor hoarding. Two, you've got the excess savings post-COVID that's being burned off by consumers.

Three, you had the suppression of the student loan repayments. And a lot of that's reversing right now. So we're going to have QT added to that mix. And you've got a situation where the bite of Fed tightening still has to take place. So, I mean, at what point do you change your view? You know, earnings expectations are up. If that remains the case, that earnings meet the moment and meet the expectations, and inflation, though sticky in certain areas, particularly related to services, continues to come down,

what is it out there that causes somebody like you to change your view? Okay, so right now the market's pricing in a, let's call it a bullish slowdown, where it's tepid slowdown in economic activity. A soft landing. A soft landing, plus declining inflation, then a Fed that cuts, then next year an AI-fueled rise in the equity markets. And I just don't think the pieces are going to fall into place like that. In which part? I mean, that all doesn't seem like so far-fetched at this point. Well, let's look at the numbers. So the S&P generated $96 in earnings in the first two quarters. The estimate for this year is $ 222. So we need to have $126 in earnings in the next two quarters, 12% sequential growth.

Now, I don't see that happening. Then in 24, we need another 12% to get to 248. So I think the market's pricing in excessive earnings growth relative to where they're going to come in. Okay, so you think the market's overvalued. Is that fair? It's hard to talk about an overvalued market because tech has had a profound impact. Specifically, a decade ago, Apple and Microsoft were roughly 5.5% of the index. Today, 13.7%. So that's driven the average multiples higher. That's right.

So I don't really look at the multiple. I'm looking at the economic outlook. And what I really have the opportunity to do is to invest past the Fed tightening, all this nonsense about, you know, is inflation coming down or not? There's a wide range of asset classes I could choose from. And that's what we're doing. I know, but I sort of ask you that as I'm thinking about your allocation to, you say you didn't reduce any of your holdings in mega cap. So you have a broadly negative view

of the market, but in some respects, you're justifying what some would call inflated valuations of mega cap. Okay. So MegaCap has great benefits of recurring revenues, a large moat around their business. And take a look at Google, roughly $90 billion in revenues in operating cash flow, $30 billion a year in CapEx and R&D. That's not on the balance sheet. So for five years, there's over $100 billion in R&D that's been spent that we have yet to see the benefit of. So I think these stocks are still very attractive. They're the ones that we own, Apple, Microsoft, and Google, and that they're going to probably go higher over time. Now, we also are along a lot of oil stocks.

We think oil is a great sector to be in right now and have been all year. And you have no desire to increase your weightings in, I mean, what weighting does tech have right now in terms of your investments? Probably double what we should be. Well, I don't know. You just made the most bullish case I can think of for somebody who's negative the overall market. Well, not necessarily negative. I would say cautious. Cautious, negative. I mean, you talked about muni bonds as we started out. So I'll tell you what, if we were negative, we wouldn't have a full allocation in equities. We're cautious. We trim 10% at the peak of our caution.

And keep in mind, for our clients, the return to the capital is more important than the return on the capital. So we get to choose where we're going. We don't have to swing at every pitch. What do you make of what Griffin said, too, which, you know, I've been playing a bunch today because I think it's interesting. And he's not the only one talking about the possibility of real yields really, you know, spiking higher because of where the deficit is, the amount of issuance coming on the market, too much supply than the market can bear if the buyers aren't there to soak it all up.

Yeah. Look, that's a really good point because there's two factors here as we evaluate it. One is higher rates lead to a slowdown, ultimately lower interest rates. That is conflicted with the increased supply that the treasury has to issue to fund this $1.6 trillion deficit.

So that is in conflict. But in the end, we're still buying longer-term bonds. We think in the long run, the market will appreciate, the bonds will appreciate in a slowing economy. What's the most recent stock you bought? Did something jump out to you that you can let us know? Yeah, so we've added to Chevron, Oxy, Home Depot. We're looking at adding to Rockwell right now. So there's a lot of names we've been adding to within our existing portfolio.

So you mentioned energy, obviously, but why Depot? That's interesting to me. Right, so that's an interesting environment where home ownership right now is kind of frozen. If you have a 3% mortgage... You're not moving. And so you're going to do home improvements. So we think it's an interesting space to be in right now,

given the constriction in the housing market. Interesting stuff. Enjoyed it, as always. Likewise. That's Rich Saperstein joining us right here. Treasury partners. He's the chief investment officer. Up next, we're tracking the biggest movers as we head into the close. Christina Partsenevelos is back with that. Christina. Well, aging boomers means cruises will be the thing to do. Plus, Visa wants to change its

chair structure and investors don't like it. I'll explain next. We're about 15 minutes away from the closing bell. Let's get back now to Cristina Partsenevalos with the stock she's watching. Cristina. Well, let's talk about Visa shares falling lower after announcing plans to change its share structure. Class A shares are held by the public. B shares held by U.S. banks. C shares held by foreign banks. Visa wants to allow the U.S. banks to exchange some of their Class B shares,

which don't trade publicly, into Class A shares, which means more Class A, more dilution. That's why you're seeing shares down over 2%. Americans are still itching to travel, and analysts at Redburn believe the cruise lines stand to benefit from strong demand. They upgraded Norwegian and Carnival to buy while keeping Royal Caribbean at neutral.

Age is a factor, though, for their decision. The average cruise guest is over 50 years old. And with the over 65 population set to grow 2% per year until the end of the decade, there's a potential jump in demand. Right, Scott? You should know. Sure. Christina, thanks. Sorry. Christina parts of Nevelas. All right.

As we head out, let's show you arm holdings. Highs of the session up near 20 percent. So we'll watch that over the final stretch here. Got about 15 minutes to go. By the way, don't forget, it's your last chance to weigh in on our question of the day. We ask, would you buy shares of arm at the current valuation? Head to AdCNBC closing bell on X. The results after this break.

The results of our question of the day. We asked, would you buy shares of Arm at the current valuation of about, well, PE, about 100? Majority of you said nope. Almost 85%, in fact. Thanks for voting. After the break, your earnings set up. Adobe and Lenar both reporting in just a few moments in overtime. We run you through the key themes and metrics to watch that and much more when we take you inside.

Where else? The market zone. Well, here we are. We're in the closing bell market zone. CNBC senior markets commentator Mike Santoli is here to break down the crucial moments of the trading day. Plus, Diana Olick on Lenar earnings out in overtime today. Also, we'll dig into whether Adobe could see a sell-off like Oracle with IT Reports within the hour. Mike, I'll turn to you. We're off the highs of the day, but we've got a good, broad day going. Yes.

Pretty reassuring after a couple of wobbly ones. I think that, you know, no part of the August and September choppiness has gotten any deeper, nastier than routine, but it has gotten a little bit fatigued along the way. So right now, S&P 500 around 4,500, making a run at the September 1st closing high. I mean, this is where we're at. We're kind of just still knocking around the same zone. The ECB raising today, and then immediately the markets turn to, well, they're certainly done. And, in fact, let's price in cuts. I think that just reinforces the idea that all the data this week, everything that happened, doesn't really disturb the idea of peak central bank, the U.S. economy.

Yeah, it's decelerating, but it's not really falling apart. The earnings picture looks okay. Yeah, it's a top-heavy earnings picture. NASDAQ 100 estimates up a lot in the last month. The rest of the market, not so much. That reflects how the market's been acting. Well, I mean, you hear the case from those who are cautious, if not bearish. You know, Rich Saperstein makes the case.

Earnings are too optimistic. There are others who say, well, the CPI and PPI just underscore the point that inflation is sticky. And it's come down a lot and quickly, but then you're going to get a stall. There's no doubt that you haven't really proven anything and not achieved anything that's guaranteed. But the S&P is exactly where it was two years ago. Earnings are up 10 percent. Same price, 10 percent higher earnings. Nominal GDP still going five plus percent. Whether whatever you think about inflation, it's still going to be three plus and real growth is two percent. I don't think you have to really kind of twist yourself up to explain why we're trading right here. And meanwhile, the S&P equal

weight is just dead flat since January. I mean, we're talking about eight months of nothing. So it's not as if the market is somehow looking at this unrealistic rosy picture and pricing in it. It's just kind of hanging in there because the backdrop is not that hostile just yet. On that point, just quickly before I get to Diana, Saperstein, again, it's fascinating to me that a guy can be that cautious on the market, but still he's in. He's in more than he wants to cautious on the market, but still he's in. He's in more than he wants to be on the mega caps. Right. The market itself has essentially raised it.

You know, if you have any equities, it's sort of kept you increasing your exposure and then you can figure out what to do with it. I think that bonds at these yields are essentially allowing you to take equity risk more than you were in the past because you're getting 5% carry on the cash. Yeah. All right. Diana Olick, what can we expect from Lenar in overtime? Well, Scott, Lenar is the second largest home builder in the nation, and it, like the other builders, has been benefiting from the severe lack of supply on the existing home side, so the expectation is for another strong report. Now, last month, Berkshire Hathaway reported new positions in Lennar and two other big builders investing $800 million. Lennar's

stock is up about 60 percent in the last 12 months. Demand for housing appears to be strong. Applications for a mortgage to buy a newly built home in August were up 20 percent year over year, according to the NBA. In last quarter's report, Q2, Lennar chairman Stuart Miller said buyers were getting used to the new normal in mortgage rates. But rates in Q2 were well below 7%, even approaching 6% at one point. Then they shot up over 7% in June. So we'll see how much that hit demand in Q3

and potential sellers for Lennar. All right, we'll look forward to your report. Yep, Diana, thank you. We'll look forward to your reporting in overtime, of course, when Lennar hits the right. We'll look forward to your. Yep, Diana, thank you. We'll look forward to your reporting in overtime, of course, when Lennar hits the tape. And speaking of hitting the tape, Adobe also reporting after the bell days after fellow software company Oracle cratered on disappointing guidance. What about now? Is this a risk? We watch chips sort of, you know, some of the chips started to pull back. Oracle out of software starts to pull back a little bit.

Now we're wondering what's going to happen with Adobe. Yeah, obviously could be some risks. Adobe has outperformed on a year-to-date basis. It really was an ultra favorite of the software kind of mini bubble back in 2021. And it got just destroyed off of that. Now you brought, you know, about doubled off the lows. So it's obviously had a decent run. But looking in terms of its valuation,

something like a free cash flow yield, I was just looking at it. It's like 3.5% free cash flow yield. That has been essentially just a rock steady level it's more or less stuck to over the last 10 years, with the exception of 2021 when it got too expensive. And then last year when it got a little bit cheaper. So I don't think people are super offsides about it,

but what Adobe management says about any of the macro stuff, what are clients doing in terms of budgeting, people have been very sensitive to any signals around that in this earnings season. And obviously the AI story. It's like, is it persuasive? How are you getting paid for it? Is it going to be a big enough part of the business that you really want to capitalize the company around that? Which reminds me, you'll hear from the CEO of Adobe as well in overtime.

So don't miss that after the numbers hit the tape. We'll look forward to that. You mentioned earlier, you've got options expiration tomorrow? Yeah, we've got the quarterly options expiration tomorrow. Do you want to explain why that can be a little volatile? Sometimes what it means is that it just has this cluster of exposures around certain index levels and sometimes it kind of traps the market instead of being more volatile leading up to it. And then once you get through the expiration sometimes the market can trade a little bit looser. I would also at least point

out for the basic disclosure sake that a lot of work about the week after the September options expiration has a history of being pretty weak. Everyone knows late September has historically been the scene of a lot of accidents. Doesn't mean it has to be. Doesn't mean it is every year when the market's up on a year-to-date basis as it is today. Maybe the risk is lower. What I find fascinating, though, is volatility index clicking below 13 today. Wow. You know, you've almost roundtripped to the multi-year lows you had before the pandemic. And it's because the index itself has been trapped. We were at 4,500 two months ago. We're at 4,500 right now. It's been a long time, actually, since a 5 percent pullback from a high on a relative basis. So it seems as if the market is pricing in, maybe not much of

anything happening. And I guess you have to ask yourself, does that represent a little bit of near-term tactical risk if, in fact, people have not necessarily got their guard up as much? I guess that being said, yesterday's put-call ratio was really high. Nobody seems to think the market is going to race away from them. So it's almost like it's lulled everybody into this, I guess we're stuck in the range type of an attitude. Let's touch on ARM. We should in the two minutes. You heard the sound effect for the two minute warning there. Biggest IPO of the year, obviously highly anticipated. We can show you a chart here as we look at ARM in this final stretch, 90 seconds or so. So right now it's at the highs of the session. Yeah. Up about 25 percent. So you've got some buyers come in right at the end here. There's been some suggestion today it's

more idiosyncratic than anything in terms of a tell on the state of the thought so to speak in IPOs. I would say in terms of arms specific business it is a bit of a special case. So it's not as if you know it's enthusiasm over know, the chip making process broadly or other design companies. That said, I think the way it's priced and traded is probably the way you would hope to have seen it go. You get a little you get some upside. Twenty four percent is a pretty good run, but also there's a 10 percent float. So there's you know, it's really not that much stock out there. And this is right around where, remember, SoftBank valued it when it kind of transferred it out of the Vision Fund. So it seems like everyone should be happy with

this, even if it's not really valued at this price, you know, all that attractively, unless you have some great expectations of what's going to happen on the earning side. So I think it's a marker of relative health for the overall capital markets, even if it's not. I mean, it doesn't mean anybody can just sort of plug in whatever valuation they want and get out the door, because I think that there was some care taken in pricing it lower than they could have, which is probably prudent given where the markets are. Yeah, speaking of, one of the underwriters, the lead underwriter, is Goldman having a good day, too. So look at the second derivative place, too, having a pretty good day

off of Arm's debut.