Closing Bell - Closing Bell: The Risk-Reward for Your Money 10/9/23

Episode Date: October 9, 2023

Is the risk/reward for your money about to get better as some are suggesting? Adam Parker of Trivariate Research and Emily Roland of John Hancock Investment Management give their expert forecasts. Plus, Doug Clinton of Deepwater Asset Management breaks down where he is seeing opportunity in tech ahead of the wave of earnings. And, Meera Pandit – JP Morgan Asset Management’s Global Market Strategist – weighs in on how she is navigating uncertainty overseas amid the war between Israel and Hamas.

Welcome to Closing Bell. I'm Scott Wadner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with markets on edge as a critical week gets underway. Clearly, the events in the Middle East have introduced a new level of risk for investors, but markets, they are strengthening as we move into this final hour. Take a look at your scorecard. With 60 minutes to go in regulation, we're at the highs of the day across the board. And that's despite those geopolitical concerns. Even the Nasdaq, which was the big loser earlier, has turned around. It's good for one half of one percent.

But everything right now is in the green. That ahead of earnings and important inflation data still to come later in the week. So there's a lot still ahead of us, obviously. Also worth noting today, the bond market's closed. But importantly, bond futures suggest some much needed rate relief could be on the way tomorrow as yields look as though they'll be decidedly lower. It'll be interesting to see, of course, how that cycles through the equity market, but perhaps some of it already is, as we showed you what the stock market is doing, perhaps in part based on what's happening in the futures market,

at least as it relates to bonds. Takes us to our talk of the tape, the risk reward for your money and whether it's about to get better, as some are suggesting. Let's ask Adam Parker. He's the founder and CEO of Trivariate Research, a CNBC contributor with me, as you see, at Post 9. Interesting turn in the market. Yeah. Do you think it is in part because of what the futures are telling us that bond yields could do tomorrow and we'll get some relief? I think so. I mean, you always have these weird days when the bond markets close and the equity markets open. And, you know, the value of a lot of the growth stocks, as you alluded to, is, you know, correlated or associated with the perception about rates in the future.

And I think when you get a risk off trade, the 10-year yield usually goes lower. And so some of these things could get a little bit of a bid. And I also think that, frankly, a lot of investors believe the consensus view among institutional investors is we're going to end the year higher. That they're behind on the 12%, 13% we're up in the S&P. They're behind on the 20-something percent we're up on the NASDAQ. They didn't really allocate as much to equities

as they should have at the end of the year. And I think people are going to chase a little bit and frankly what are we october 9th we didn't get any major negative pre-releases yet usually you'd get if things were worrisome on the earnings front you'd get some some kind of mess in the first seven or eight days so i think people are thinking earnings are going to be okay and guides is going to be okay and maybe we could be sort of you know off to a bit of a rally based on fundamentals. What about this new geopolitical risk that was introduced over the weekend? Sort of always in the background, but now it goes on the hot boil and we have all out war.

Yeah. I mean, when you have a risk off trade in that sense, typically the businesses that do the worst are the ones that have poor free cash flow and poor free cash flow conversion. So by conversion, I mean the earnings, like how much of the net income gets turned into free cash flow. So we put out over the weekend ideas that you want to short or ideas you want to avoid owning where they have poor free cash flow attributes and poor conversion. I think that makes sense, but I'm looking at the market here thinking, gosh, I see a lot of things I want to own and a lot of things I want to own. You do? And a lot of things that seem oversold.

For the first time in months, I was looking at Truist today thinking, gosh, that stock's down to March 2020 levels. Does that make sense? Well, my financials have gotten crushed here. Crushed? You look at the KBW, for example. It tells a really tough story. Right. And you look at those things thinking, there's a 7.5%, 7% plus 7.6% dividend.

They've got a pretty solid geographical footprint. And unless something really goes wrong with the fundamentals, should stocks be at the March 2020 level? I'm just looking around thinking maybe there's some things to own. So I'm not as negative as... Maybe rates going up the way they did in September was something really going wrong with the fundamentals. I mean, obviously, bank stocks started to do worse as rates started to shoot up. You start worrying about financial conditions and credit and everything else. I'm looking forward. Like, we've been underweight banks all year. I'm just saying from here, for the first time,

literally all year, I was looking at stocks earlier today thinking there's a bigger recession and some more negativity embedded in those stocks than there are in other parts of the market. So it's more of a relative thing. You're one of those that I wrote about at the top that said. Oh, no. What did I do? No, that some people think the risk reward is better for stocks here forward. You obviously sound like you do. Yeah, I think we're headed higher by year end.

I mean, I'm not I have no idea in the next couple of weeks, but I think earnings are going to be fine. And I think the general expectation, I think people want to own stocks and they're trying to find quality names that are down a lot. And I'm seeing lots of things that I can own. I certainly think you want to avoid indebted companies that have to refinance at higher rates. It's not an all-clear signal, But I'm not negative thinking we're going to end the year way lower. I don't think it's a big risk off sustained trade. And obviously, I'm not getting at the geopolitical stuff, which is a little bit harder for somebody like me to have any idea. It factors into the possibilities of oil, more shocks there. Maybe it changes the more near-term calculus on rates. I mean, we've been on such a hot boil of rates that

you've needed them. If your thesis is going to work, you can't have rates continue to go up. I think the quality growth companies probably don't get affected that much by this environment in terms of their fundamentals. Our biggest overweights have been energy, not only because we see some asymmetry with relative upward earnings revisions. We're very underweight retail. So I think we're positioned correctly here, but I still see lots of long, short opportunities. So I'm not, sometimes I look at the market and I'm like, I have no idea what I want to buy or what I don't want to buy. And right now I think there's like five or six things that I have high conviction on. I don't want to own machinery or electrical equipment. I don't want

to own retail. I want to own energy and metals. All of a sudden, maybe staples are... I've always found it hard to get defensive because the staples were so expensive. Now I'm looking at Coke. On my screen in order today, it looked like it was trading just below 20 times forward earnings. I usually can't get a decent quality defensive name below 20 times. So all of a sudden, I'm finding things that the risk reward looked pretty good to me. Do you want to buy Coke below 20 times earnings? I think history says you do. Maybe they want as much pricing, but I know that their revenue algorithm in years 3 through 10 is going to be pretty good. So help me understand this.

Yeah. So as it relates to the consumer, you're a little more defensive, right? Yeah, staples over retail, for sure. But then you sound pretty positive on the overall picture. Earnings are going to be pretty decent. I think they're going to be fine. I think they're going to be fine. And I think we got a little bit of a harsh sell-off there. And I think you're looking out saying, can earnings be above? Look, all I need to know is, are earnings going to be up next year versus this year? And I

currently think they will be. And so therefore- Well, that's not hard to do. Well, but you know- Right. I mean, we've been in the garbage can on earnings growth for a while. Well, earnings, yeah know, I mean, we've been like in the garbage can on earnings growth for a while. Well, earnings. Yeah, that's true. But earnings expectations for 2023 are the same now as they were in February. Normally they come down the whole time. We're using 225 for next year. The streets at 245. If you get something 225 or higher, I think the market has a bias toward heading higher. Look, I had six investor questions last week of what worked this year that I should immediately sell in December and buy in January because people were kind of burned by that, you know, NVIDIA Tesla meta

reversal last year. So I think people are already trying to think through what do they want to sell that worked this year, kind of implying that they think things end higher this year. So then you think, I mean, so you think 225 for earnings for next year, that's your number. That's our base case we said at the beginning of 23. All right. And what multiple are you putting on that? It's got to be pretty high if you think the market's going to be materially higher than we are now. Because I put an 18 on that and I get to 40, 50.

We're at almost 44. Oh, you're going to have to pay way more than that to get a 5,000 S&P and believe there's a lot of upside because you have to believe that there's going to be not only growth next year, but you have to believe you're at the beginning of a multi-year earning cycle. When we were sitting in 2011, you could sit there and say things were bad, but then earnings grew to 2019. If you don't believe that we're at the beginning of some sort of steady growth for a while, then I think you get a reset. Wait, but everybody's saying we're late cycle. You don't think we're late cycle? Depends what business you're in.

In trucking, we're at the beginning of a new cycle. In industrials, the end of a cycle. In semis, we're getting toward the end of the cycle. We can get to a new. It's all. I think what happens. We're getting into the end of a semi cycle with AI and all that? Well, I'm saying in terms of the inventory cycle.

It depends. Exactly. It depends what business you're talking about. In DRAM and memory, Micron, the cycle peaked 18 months. It really, we don't have the synchronous kind of cyclicality we used to. And I think that's part of the reason I feel excited about some long-short opportunities in the market today. I'm just saying, I'm looking at the market right now thinking, like, you're asking me, are we going to end the year higher or not? I think it's 70-30, we do.

And I think it's because earnings are going to be fine. I don't think bond yields run away from us. And I think people are not positioned and are behind are going to chase to catch up performance in Q4. All right. Let's bring in Emily Rowland of John Hancock Investment Management to join the conversation. It's nice to see you. Welcome. So you heard Adam's take. Do you agree with it or not? Yeah, I mean, we agree that earnings season is probably going to be OK. You know, we're looking at the last quarter here where negative earnings growth is penciled in for the S&P 500. I think the challenge is going to be what happens from here. You look out over the next four quarters and analysts are penciling in between eight and 13 percent earnings

growth per quarter. We're also looking at estimates for a whopping 5.5% revenue growth. I think that's going to be challenging given where we are in the economic backdrop. Another thing that we're watching is margins. So we had just extraordinary margins, 13% in 2021. We're looking at 11% for going into next year. I think margins are going to compress. There's going to be a war on margins as the cost of capital goes up and demand slowly slows. I

think for now we could see some some nice beats this quarter. But you don't sound like you. You certainly don't sound like you like the setup as much as Adam suggests that he does. Well, I agree with him that there are opportunities. One thing that we didn't touch on much was the backup in bond yields. You know, Scott, we've talked a lot about how we see value in bonds today. You know, I think investors often look at big corrections in equity markets as an opportunity to capitalize and buy things that are trading at a discount and they're finally cheap. We almost never think about bonds like that. We just saw one of the biggest backup in rates in the third quarter that we've seen in history. Rates went up almost 1 percent and now we're

looking at 6 percent income on high quality bonds. We think this is a really good opportunity for investors to lean into fixed income and get paid to wait, as we do think that recession does likely unfold into next year. So you want to counter that, right? I mean, I focus mostly on U.S. equities and so do my clients, but every cross-asset person, you know, this year has liked bonds, right? And so I think the question is, you know, what makes that work. I think equity is premium, meaning the yield I get compared to... I think people found equities unattractive all year. I think that works in years 5 through 10,

has some predictive value in years 3 through 5, and zero predictive value in the three-year window. It's very hard to compare bond yields to equities and make money in a shorter-term window. If you have her job and you're giving asset allocation for tons of money to tons of people, then you have to look at that bond equity thing and make intelligent choices. If you talk to my clients who are mostly focused on the rest of this year,

they think equities are going higher and they're trying to figure out how to beat the market. So I think it's a bit of a timing disconnect that maybe explains some of our differences. Is there better value, Adam, in bonds or better value in some of those cheaper stocks? If you want to play this as an equity conversation, how would you answer that question? Because there are a large number, I think, of people who still think that there's better value and better risk reward in bonds or in cash versus a very uneven economic picture. What I would tell you is there's been very, very few times in the last 100 years

where there was better value in cash than equities over any meaningful period of time. To the point that if you told me in your 401k option at your company, they allowed you to choose any cash, I might say that's something they shouldn't allow you to do. No, but you know what I'm talking about.

So I'm never going to say cash is a great idea for any sustained period. Could it be good for the next three or four months? 5% in cash is better than losing money in the stock market. For sure. For sure. And that might be the right call. But that's the calculus that people have made over the last 18 months. Right, and that's destroyed their net worth as the equity market has ripped through all that.

So my point is, like, it has to be right exactly when you do it for this three month period. And I'm willing to bet that, I don't know, 73 of the next 83 month periods, that'll be a dumb idea. And this could be one of the times maybe, you know what I mean? Emily, so we're about to kick off earnings season. You suggested that there'll be, you know, good. I mean, obviously, Adam's looking or they'll be OK or good enough. You think I'll be good enough? Like, where's the bar? Is the bar low? Well, the bar is low. Analysts are expecting negative one percent earnings growth for this quarter. So, you know, I think that that can be achieved. Of course, we'll be watching the financial stocks. They're expected to see about nine percent growth this quarter.

And there are a number of year overover-year tailwinds for the banks. You know, you have a doubling in interest rates. You have, you know, the markets generally are higher than they were a year ago. But then, on the other hand, you've got a yield curve that was much steeper in Q3 of 2022. And you've got some potential loan write downs here. I think we're going to be looking to see, you know, can we get a read on the consumer here? And that should come through in some of these bank earnings. Consumer is fine. Everybody's got a job for now. So you like the financials?

They're not our favorite sector. We actually are looking for pockets of quality. So we'd like areas like technology stocks that have great balance sheets, low interest burdens. Adam talked about this superior profitability, a better ability to maintain margins. We like areas like health care, which are actually trading at a discount. They've sort of been left in the dust. They're trading at a 10 percent discount to the market, 20 plus percent return on equity there. So we like that part of the market. We also want to find things that are already pricing in this contraction that we expect. So we look to areas like U.S. mid-cap equities, which are trading at a significant discount, the biggest discount since the late 1990s versus

their large cap counterparts, also cheap at about 12 times forward earnings for their own long-term history. So it's really about finding that balance between protecting portfolios from solvency risk at the same time from protecting them from valuation risk. Would you buy small caps or mid-caps? She and I are on the opposite side of a bunch of things right now, but I think some of it's timing. I don't think the market can rally and have small caps outperform the whole broadening thesis, because what makes them outperform is a dream their margins are going to expand more. And so some of them are more vulnerable to wage increases, rising

commodities, and cost of capital stuff that she alluded to. The truth is, the biggest 20 or 30 U.S. equities, which are 40, 50 percent of the market, they don't have any cost of capital issues. You think there's a problem for Apple on cost of capital? You know what I mean? So I think that- That doesn't mean that- They are cheap. They're at a 20-year valuation gap, but the catalyst has to be that plus the estimates are more achievable. What if the catalyst is soft landing? What if the catalyst becomes more clear that you're not going to-

I mean, a year ago, everyone was talking about a hard landing, and then it was a soft landing. What if the catalyst becomes more clear that you're not going to... I mean, a year ago, everyone was talking about a hard landing, and then it was a soft landing. Like, we're in the Goldilocks period right now, where the Fed's almost done, and the earnings haven't collapsed yet. That's going to be good for equities. It has been, and will continue to be. And we'll make that change if we somehow get a collapse in earnings in the second half of next year. And the intramurals are fine. But if you're saying Goldilocks, you're implying that there's a lot of stuff that's going to do well. Small caps don't necessarily have to be the best performing thing in the market. It's not, no one's saying they have to outperform mega cap, but I mean, if this is Goldilocks,

and you think the economy's good. I think the small caps will do well. I think they'll do less well than the mega large for the next three or four months. And I think the mega cap growth stocks are going to participate and do better than normal. Look at earnings season. Which one do you think is going to have a bad quarter? I don't think Microsoft's going to have a bad quarter. I don't think Amazon's going to have a bad quarter? I don't think Microsoft's going to have a bad quarter. I don't think Amazon's going to have a bad quarter. I don't think Nvidia's going to have a quarter.

I don't think Google's going to have a bad quarter. I don't think you do either, right? So I think she's right if you look out 12, 18 months, that if the economy bottoms and improves some, that small caps are just too cheap, and they're embedding more of a recession than others. So I don't disagree, but I think it's just a timing issue. You're saying right now it's mid-October,

what's going to happen between year end, which a lot of equity people are focused on. Well, and beyond. Everything's a timing thing when it comes to investing, isn't it? Like you try to buy it at the right time. But tons of equity investors today are focused on how they can make money between now and year end. When you do what she does, asset allocation for multiple years for lots of people, you've got to think 1, 3, 5, and 10 years out. Nobody I talk to, or 90% of people I talk to don't care about five years from now. OK, probably more more more than not care about it. Who are watching us, Emily? What what's your perspective then? Let's just take mega cap, for example. Are you expecting the earnings there to be good enough to propel this sector to carry the market towards a year end

run? Yeah, I actually agree with Adam on this at this point. We have been overweight U.S. large cap equities in portfolios. We certainly have a preference for domestic over international equities. And we look at these mega cap names as being the poster child for quality, which is our favorite thing to screen for right now. We talk about more durable profitability, limited need to tap the capital markets in order to grow. We don't want that right now. So I certainly see some more durability there. And I want to be clear, we aren't emphasizing mid-cap equities, but we're underweight small caps. So 45 percent of the Russell 2000 index is comprised of unprofitable companies. We don't want to own

that in portfolios. Small caps should be better poised to do well early in a cycle. And the final thing I'll say, by the way, just to jump in is, you know, I've been doing this job for about a decade now. This is actually the first time that we've been overweight bonds and portfolio is it takes a lot for us to love bonds. We all know that equities are a much more powerful compounder of wealth over time. So we'll probably go back to an overweight to two stocks once we see this downshift in bond yields play out, which we certainly expect as economic contraction unfolds. Yeah, I mean, bond yields are the highest they've been since 07. So that makes sense. I don't

disagree. And I talked about it in your show over April 22 when I bought the two-year yield of my PA because it could finally, you know, laddering CDs couldn't beat it anymore. But I think if you're just, you know, and I agree totally on U.S. equities versus non-U.S. equities. I mean, I've said for 15 years that Europe's great for vacation. What about utilities? Do you see value there? I kind of do. OK, I think these things that really got sold off in Q3 because the 10 year yield backed up actually have more achievable estimates than most other businesses. They're just safer. So if I'm looking at, if you guys are worried a little bit about the potential for a fear of a recession growing, everyone was wrong this year, there wasn't one, but maybe there

will be, and they were early, then all of a sudden I can buy defensive equities at lower multiples than I could at any time in the last several years. The problem with several years ago, 2018 and 16, when you got nervous, you had to pay 30 times for defensive names. Now you can pay 20 times. So all of a sudden the risk order looks better. And in my view, if I'm trying to find a way to get a basket of stocks to beat the S&P, I think some of those things finally look attractive for the first time in a while. I can buy Coke at 20 times.

I had to pay 30 times in prior cycles, that kind of stuff. Okay. All right, we'll leave it there. Emily, thank you. Yeah. We'll talk to you soon. Emily Rowland, Adam Parker, thanks to you as well. All right. Let's get to our question of the day. We want to know, do you think the risk reward for buying stocks is about to get better or worse? You can head to at CNBC closing bell on X to vote. The results a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Courtney Reagan is here with that. Hey, Court.

Hi, Scott. Well, the war in Israel is sending oil prices higher, with WTI and Brent both up 4%. That has shares of Halliburton, Marathon Oil, and Devon Energy up around 6%, with a number of other big gainers in the energy sector. And gains in oil are pressuring the airlines, which have been warning about higher fuel costs over the past few months as it is. Major carriers like Delta, American, United, they've all suspended service to Tel Aviv, at least currently. All of those stocks are off by about 5%. And defense contractors are higher as the conflict potentially leads

to higher demand for weapons and other instruments of war. Names like Northrop Grumman, General Dynamics, and Lockheed Martin all firmly in positive territory. One of the ETFs that tracks those names, ticker ITA, it's on pace for its best day in nearly a year. Scott. All right, Court, we'll talk to you soon. That's Courtney Rager. We're just getting started. Up next, trading the tech volatility. The XLK slipping over the last month, down more than 2%. However, our next guest is breaking down where he's seeing pockets of opportunity in that sector as we head towards the end of the year and into earning season.

We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. The Nasdaq looking to close in the green today. My next guest believes tech stocks are a smart buy, could serve as a good defense against any market headwinds to come. Joining me now, Doug Clinton, managing partner and co-founder of Deepwater Asset Management. Good to see you. Nice reversal today, too, by the way, for a NASDAQ that was lower than almost every mega cap tech stock I could find here is green, except for NVIDIA is modestly lower now. Tesla will call that flat. What's the state of big cap tech right here? I think that no matter whether you're trying to play offense or defense here from this market, you can own the MAG7. So if you want offense, if you think rates are going to calm down, I think that you can own them and you can own them for the growth. These are great growth

stocks still. If you want to play defense, they have great fortress balance sheets. And I think that even in a tough economic environment, they have businesses that should be resilient in a recession. And so they'll weather the storm better than most other companies. I think that the knock would be, OK, I hear you on all of that, but the valuations are a problem for some based on how they're looking at where earnings are going to be, where growth has been, where rates are. How do you counter that? We try to pick and choose. I mean, for us, Google and Meta are our two favorite names amongst the Mag7.

Both of them, we think, trade at actually reasonable valuations. They're both around 20 times next year's earnings. And they both have great catalysts. I think for Google, they have a new AI model that they're releasing called Gemini. That should be a catalyst for the stock. It could drive the multiple hire. And on Meta, it's been a year of efficiency per Mark Zuckerberg, but it's also been, I think,

a year of accelerated progress. So that's been underrated. I think Meta is innovating at a faster pace now than they have over the last five or 10 years. So you wouldn't own Amazon, you wouldn't own Nvidia, and then I want to know where Apple comes down on your list as well. NVIDIA, we actually had in one of our strategies, the Deepwater Frontier Tech strategy,

powers the innovator loop ETF. We took that out earlier this year. We replaced it with AMD. We actually think risk-reward-wise, we would rather own AMD here than NVIDIA. The reason is AMD has a new chip coming out later this year. It competes with NVID Nvidia's high-end chip. I think if they get just a little bit of traction and just gain a little bit of market share from Nvidia, who has 85%, 90% market share for AI compute, it's great for AMD's stock.

We also owned Amazon earlier this year. We sold it because we actually see better opportunities in Google and Meta. You just have an issue with NVIDIA's valuation, where it is? It's hard to make the case. I mean, you make the case for not owning it. And in some respects, you kind of make the case for owning it because they have 80 to 85 percent market share. I think if you own it and you want to be part of the AI revolution, you're going to be fine. I think there's a better option out there, which is AMD from a stock standpoint, which we view as different than maybe a fundamental business standpoint for the AI revolution. Okay. Now Apple. Apple, we love, I mean, it's the greatest company in the world. And you know, we were just talking about my partner, Gene. He loves Apple. I think for us,

he loves Apple. You look at the multiple. He loves Apple. Gene Munster. That's who we're talking about. Do you own it? We don't own Apple right now. Does Gene know that? I have to tell him, and he'll be sad. Seriously, why don't you own it? Again, we go back to what are we trying to do with the Mag 7? We don't want to own all of them. We want to try to pick the ones that we think have the most upside over the next 6, 12, 18 months.

It's Google and Meta for us. They have more reasonable multiples, and we actually think they might have better growth prospects than Apple for the next foreseeable future. So what's your outlook then for earnings in this space, which is going to come in just a few weeks? We think that earnings largely in tech will be fine. I think this quarter is set up so different than last quarter. Last quarter, I think there was a ton of expectations coming into earnings. There was a lot of optimism, and we saw companies reporting pretty decent earnings and stocks were going down. I think it's a different setup here where expectations are more modest. And I think earnings are going to be OK in big cap tech. And I think

largely the stocks will be the same. OK. All right. It's good to see you, Doug. Thanks. That's Doug Clinton. Deepwater joining us up next. Weighing market risks. J.P. Morgan Asset Management's global market strategist, Mira Pandit,it is back we'll find out how she's navigating these markets where she sees stocks heading from here closing bell right back we're back from closing bell following the latest developments out of the middle east as the conflict between israel and hamas enters its third day now let's get to amen javers for the very latest amen Eamon? Hey there, Scott. Well, I'm at the Cipher Brief Threat Conference here in Sea Island, Georgia. This is an annual gathering of top current and former U.S. intelligence officials. And I got to say, Scott, the mood here is pretty grim among the CIA veterans I've been talking to today.

There is a sense that the casualty count in Israel and in Gaza is going to increase sharply on the ground, even as both sides really struggle to win a parallel information war online. I spoke with Norman Rule. Now, he's a longtime CIA officer who served as the national intelligence manager for Iran in the U.S. intelligence community. He said we should steel ourselves for what he called dark days ahead and said the hostages in Gaza are in a very difficult situation. And he said the intensity of the Hamas violence that we've seen is intended a deliberate tactical choice by that terrorist organization. They conducted a series of operations that we have not seen since ISIS activities in Syria and Iraq. These are horrific stories that are only beginning to emerge. But as they emerge, they're telling of a new modus operandi by Palestinian terrorists

where civilians were not only kidnapped, murdered, abused, but we're talking children, elderly. And Scott, of course, there are parallel questions here among this group as to how several of the most highly financed and technically sophisticated intelligence services in the world, including the U.S. and Israel, missed this terrorist attack as it was being masked. For now, very few answers to those questions. But Rule said it's important to understand how Hamas did this before they or someone else can do it again, Scott. Amen. Thank you. Amen, Eamon, thank you. Eamon Javers with the update. For what this means for the markets,

let's bring in JPMorgan Asset Management's global market strategist, Mira Pandit. Welcome back. Geopolitical risk introduced in a new way, or at least a new risk for investors to consider. And I just recall, what, it was two weeks ago, Jamie Dimon was talking about geopolitical risk as being maybe the biggest risk for markets still. How should we think about it here forward now? When we think about the conflict that is unfolding right now overseas,

of course, we cannot underscore how vast the implications are from a humanitarian perspective and from a political perspective. And of course, it's going to send some jitters through markets. But what we have seen over time is that typically the impact in the longer run from geopolitical events tends to be somewhat contained. Now, of course, that wasn't the case last year with the Russia-UK crane conflict. So let's dissect that a little bit. Two major commodities exporters in a big shock to energy supply and food supply at a time where the world was very vulnerable to an inflation shock. So what we're watching right now as we see this conflict unfold from an economic and

market perspective is, does it widen out? Do more countries within the Middle East get involved? What is the path to effect potentially to things like oil? But at this point, it's day one. It's really early to say. We just advise clients to keep their cool and composure at this time as things unfold. Most important thing for the market remains rates and the direction of interest rates. Is that fair? I think that's fair. I mean, when we think about where the Fed is going,

likely headed towards a pause in November and from there on out, higher for longer. And we've been seeing for the last couple of weeks the effect that higher for longer is having on stocks as we realize, OK, we're not going to go back to lower rates meaningfully for a while. We're going to have to deal with this type of rate environment. I'd also fold in earnings and growth, of course, in terms of how that continues to play out into the end of this year and next year. You think we're too optimistic on earnings projections? How do you feel about that? Because they've sort of, you know, they've crept up and then pretty optimistic for 2024. We've probably seen the worst of earnings for this year.

And so what we could see is quite a nice quarter coming up in which we see revenue still holding up as a consumer holds up. Margins looking a little bit better because we've seen inflation start to come down and input costs come down. Wages start to come down a little bit. But as we head into next year, if we're not going to see 4% growth as we're tracking roughly right now for this quarter, and we start to see even trend growth or below, that's going to put pressure on revenues. And what could happen next year is we see a little bit of a dip then. I mean, right now expectations are for 12% growth in profits for 2024. That feels a little bit lofty. So we have to prepare ourselves

from a market standpoint that that might not be the outcome. Okay. So we talked about rates. We just talked about earnings. So then let's talk about valuations, right? Because A plus B equals C. Are valuations, is the market too rich or not? The good news about the equity market is things have come down a little bit. So if you look at the S&P as a whole, it's about 8% more expensive than long-term averages. Not great, but if you take out just the top 10 stocks, they're about 30% more expensive than long-term averages. So I do think we have to really modify our allocations in terms of where we're finding

relative pricing opportunities. Look, things are better than July in terms of pricing. They're not perfect. So we have to keep that in mind. But it's just going to be a tougher environment for investing going forward, no matter whether you're looking at stocks or bonds, given the rate environment. What area looks cheap to you in the equity market right now, especially? Let's look outside of mega cap tech for sure. And look in certain areas within sort of the value or even more defensive areas. I mean, defensive stocks have kind of gotten crushed over

the last couple of weeks. Like staples? Maybe more staples, maybe more health care, really, when we think about some of the fundamentals, they're potentially starting to turn around a little bit. I still think areas like energy, especially now that there's a little bit of volatility and uncertainty that energy prices could move higher. So within that, health care, energy, again, more value, more defensive than some of the growth names right now. What about utilities? Had a tough go not too long ago. Some see opportunity in that.

I think you could start to see that turn around a little bit. But we also don't want to get overly defensive at this point in that we're not quite there where we're seeing the immediate trouble on the horizon. So it's really sort of a balance at this point. Adam Parker started the show by suggesting we could have a pretty good chase into year end. And he's definitely saw the market higher between now and then. You? I'm not so sure that there's too much to chase because, again, if right now we are seeing potential for 4 percent growth and 12 percent earnings next year, I do think those expectations are going to come down throughout the rest of the quarter. Maybe people get a little bit excited about a rate pause, but then remember that we have higher for longer.

So I don't know that there's going to be a huge amount of upside from here. We have to just be selective in where we're deploying money. Mirror Pandit, we'll see you soon. Thanks for coming by. Thank you. All right. Up next, we are tracking the biggest movers. As we head into the close, Courtney Reagan is back with that. Hi, Scott. Well, two stocks moving in opposite directions on big analyst calls, one in music, one in cybersecurity. I've got the names coming up next.

We're 17 minutes away from the closing bell. Let's get back to Courtney Reagan now for a look at the stocks she is watching. Courtney. Hi, Scott. So shares of Spotify under pressure after a Redburn Atlantic downgraded the stock from neutral to buy. Analysts say the streamer's new audiobook offering doesn't help its forecast for margin expansion and could stoke competition from Amazon, which owns Audible. And Zscaler is also getting some analysts' attention. Barclays is upgrading the cyber giant to overweight and hiking its price target to $1.90 a share from $1.76.

Analysts cited a new growth opportunity for Zscaler in an emerging type of cybersecurity. Those shares higher by 3.5%. Scott. All right, Courtney. Thank you, Courtney Reagan. Last chance now to weigh in on our question of the day. We asked, do you think the risk-reward for buying stocks is about to get better or worse? Head to at CNBC Closing Bell on X.

The results are just after this break. The results now of our question of the day. We asked, do you think the risk-reward for buying stocks is about to get better or worse? The majority of you said worse, and it was really tight. We'll call it even, because that's how we are. Up next, we're drilling down on Disney. That stock shifting higher as activist investor Nelson Pelts increases his stake in a big way. We break down what's at stake after the break.

That and much more when we take you inside the Market Zone. We're in the closing bell Market Zone now. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of the trading day. Plus, Julia Borsten on Nelson Peltz's renewed push for Disney board seats. Deirdre Bosa on the analysts weighing in on arm holdings today. Mike, to you first. A lot of green, a nice turn, and I guess some relief for a bond market that's closed, but the futures are giving us a little bit of a tell. Yeah, the repetition, it seems, from these Fed officials pointing to the same factor, long-term yields going up, maybe means the Fed has to do less. I think it does free up the market to essentially embrace the fact that we have a decent economy right here. It

is more of a normalization type move in rates than it is, you know, a punishing one in that context. That being said, you know, we're up for the month now on the S&P 500, which is a little bit of a surprise, but still with plenty to prove. I think everyone's looking at, you know, get above 4,400, get back to that level where we kind of fell out of bed in the third or fourth week of September before you know that this is a sustainable bounce. But I do think if yields are calm, earnings season coming, you're going to have a little bit less macro stress. And the oil move today, while dramatic, only gets us back to where we were several days ago. So it's absorbable for now. CPI needs to play into the Fed is may very well be done. Rates have done a lot of the work for the Fed. You don't want to upset. It certainly has to fit into it. A lot of Fed speakers are

saying the same thing. It can't it can't contradict it in too loud a way, although I do think that the projections of CPI have been coming in very close to the resulting number. You also had, I believe it was Philip Jefferson of the Fed today, said we're not going to get distracted by any one number. And that presumably works in both directions. So you can have some comfort that broadly disinflation is the law of the land for now. All right. Come back to you in a bit. Julia Boorstin, he's back. What does he want this time? Well, Nelson Peltz's Trion Fund management is now, it's one of Disney's largest investors with a stake of 30 million shares worth more than two and a half billion dollars. Peltz also plans to push for multiple board seats at Disney. This according to sources familiar with the situation. Now, all of this

comes after Disney shares just last week hit their lowest level since 2014. It also comes after back in January, Trion launched a proxy fight against Disney, criticizing Disney's acquisition of Fox and failed succession planning. Pelts dropped the battle after CEO Bob Iger unveiled a corporate reorganization and meaningful job cuts. Gordon Haskett Research writing, quote, the stock is stuck in the exact same spot and Disney is holding a much weaker hand of cards than it was holding last winter. Now, the stock is down since then, but Iger has announced a slew of changes. Disney had no comment and we are awaiting

official announcement from Tryon and Pelz about what their plan is here. Yeah. Yeah. Julia, thanks. I mean, to Julia's point, he sort of held stood down the first time and then have watched the stock do nothing, even though this plan was enacted. And now, I guess, thinking enough is enough time for more action. Presumably. Look, I mean, the cost of getting back involved has gone down as the stock has declined. I don't think anyone has the impression, I doubt Peltz has the impression, that there are three or five obvious things to be done to reorient this business that aren't being done by Bob Iger. It's just more a matter of let's have more of a say in it,

maybe change the pace of some of the strategic moves that are on the table. But it's just been an incredibly tough area of the market, and Dizzy just hasn't been immune to the bigger pressures. Yeah. Deirdre Bosa on arm today. We're waiting for the analysts to start weighing in following the IPO. Not six weeks ago, I guess. Yeah, we needed 25 days to be exact. That's how long the banks that underwrote the IPO had to wait in order to publish their research. So now that's out. And overwhelmingly, they're rating the stock a buy. The 10 that I read through this morning, all of them were a buy. The consensus is that they like Arm's growth prospects.

Right now, Arm is the biggest player in smartphones, but they think that there's room in infrastructure, cloud infrastructure, as well as automotive and, of course, AI. That is sort of the big gamble here, which they say justifies its valuation, which is so far above the rest of the chip space, save maybe an NVIDIA. Meanwhile, though, I do want to point out that the market has cooled on ARM. Remember, that first day pop, it was about 25 percent. It has paired gains from there. The consensus or the average price target now for the company is about $10 above where it is today. So a lot would have to happen to fulfill sort of these expectations, Scott.

But I also think it's interesting to note the SoftBank and the Masasan in all of this, because remember that they are still 90% shareholders. And Arm is really now the new crown jewel for SoftBank, taking the place of Alibaba, as Masa-san has sold down that share over the last few years. Yeah, Dean, appreciate it. Deirdre Bosa, back to Mike Santoli. I haven't talked that much in the last week or so about IPOs, though. I did see some Birkenstocks floating around the floor a little bit earlier. Yes, they're ready for that one at this point. Yeah, I'll see if we're going to see a lot of

bare feet around this place on Wednesday. But I do think when it comes to Armand, no surprise that you would have the parade of investment banks. And by the way, it was dozens who were involved in this deal. Because the stock is so close to the actual IPO price. So, you know, you priced it at 51. It's trading, give or take, a couple bucks above that. It's an easy call to say we think it's a core holding

and we think you have to own it at these levels. I still don't know. You know, the response today wasn't necessarily particularly exciting. It's up a little bit. I think the same debate on a very known quantity of a company is there in play. What do you pay for a company at this sort of integral spot in chip design, but you don't really know if it's involved in the right areas of chip. So broadly, IPOs, you know, I think it's going to be deal by deal.

And you've got to have something a little bit special if you're going to be in this first wave. So let's turn our attention to earnings. Going to get the banks first out of the gates. I wonder what you think that's going to mean for sentiment. You're going to get a lot of commentary about rates being up, the likes of Jamie Dimon talking about and talking loudly about the perceived risks. And now you add this geopolitical element to that as well,

as he's already been talking about that for weeks. Yeah, I mean, two things I would look at would be just quantifying on a quarter-end basis where they stand in terms of impact of rates on the balance sheet, on bond holdings. You know, for Bank of America, it matters quite a bit. For others, maybe not as much. And then what their credit loss or delinquency experience has been so far and what they're projecting, because there's a lot of sensitivity toward credit trends right now. Everything looks a little scary on a short term time frame in terms of credit card delinquencies, especially among lower-income households. But if you look at it on a longer-term frame, it really isn't much of anything except coming off very depressed levels

of delinquency. And so it kind of looks like a return to normal. What is that going to mean on a going-forward basis? So I think those are the areas. Really, it is macro, even though it's company-specific. It's kind of their window on the areas. Really, it is macro, even though it's company specific. Oh, sure. You know, it's kind of their window on the macro. They're probably going to say on the spending side in terms of account balances, things look healthy, jobs are in a good spot. So I think it is much more about the credit performance. Brian Moynihan, Bank of America, usually gives a pretty good view into the consumer spending psyche. Cheaper areas of the market. It's interesting. You know, we talked to Adam Parker,

a chef of the show, and others mentioned, hey, maybe some staples. You know, I can get Coca-Cola and Pepsi for a lot cheaper than I thought I could just a short while ago. If you're of a mind. Even some utility action from folks.

Yeah, if you're of a mind to say, okay, they've actually put some relatively defensive things on sale and you could lock it in and you have higher dividend yields on things like, you know, PepsiCo than you've had in years, fine. I would also, though, look at the more cyclical parts of the market that have really been cheapened.

And you have to decide, do we believe the economic outlook implied by, you know, I saw Capital One got an upgrade today. That's a good example of, this is a dirt cheap stock. Is it cheap for a real reason? Or, you know, can you look over the valley and say that it's worth buying? That's the area where, and plus I think you can also look at busted retail as a spot if you're really brave and opportunistic about it. Well, we'll watch energy too, of course, given those events taking place over in the Middle East. We're going to go out with a nice turnaround here. Bell rings, Dow's good for just shy of 200 points. S&P positive and a Nasdaq with that late day turn as well.