Closing Bell - Closing Bell: The Road Ahead for Your Money 8/7/24

Episode Date: August 7, 2024

What’s next for stocks as markets make their way through a turbulent week? iCapital’s Anastasia Amoroso, Merrill and Bank of America Private Bank’s Chris Hyzy and Ryan Detrick of Carson Group break down what they’re expecting next for the market. Plus, JP Morgan CEO Jamie Dimon shedding some light on his future at the company. Top banking analyst Mike Mayo gives his first reaction – and tells us what it could mean for the stock in the long term. And, Robinhood and Warner Bros. Discovery both set to report after the bell. We discuss what is at stake for both of those stocks. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with what else? The market's feeling awfully fragile lately amid a return of volatility even more today, and that's for both stocks and bonds. The big question, whether the worst is behind us or not? We'll ask our experts over this final stretch as the major averages try to continue their bounce back, and they do have some work to do because I'm showing you right now the scorecard with 60 minutes to go and regulation looks a little bit different now, doesn't it? From where it was earlier today, what was green is now red again. There are some standouts in the session today, though. Shopify

and VF Corp, they're surging on earnings today. Take a look at those big gains from both of those stocks. How about Micron resuming its buyback as well, making people talk about that chip trade again. It was higher as well. So it's rolled over to down one and two thirds percent. Disney, it's been lower today because of those theme park numbers. They disappointed stock now just about the lows of the session. That's almost three and a half percent decline. And we're watching JP Morgan shares to CEO Jamie Dimon speaking exclusively to us today, to Leslie Picker on CNBC. We're going to have the highlights coming up in just a bit. That stock, and like many of the financial stocks, doing quite well of late. It takes us to our talk of the tape, the road ahead for your money as the markets make their

way through this turbulent week. Let's welcome in Anastasia Amoroso, iCapital's Chief Investment Strategist with me here at Post 9. It's good to see you. Welcome back. So what are we to make of what's transpired this week? Well, today the stocks are struggling to hold on to see you. Welcome back. So what are we to make of what's transpired this week? Well, today, the stocks are struggling to hold on to any gains. And I think, Scott, the reason for that, this is such a low conviction market because we don't seem to have conviction as a market in the economy. And we've got initial jobless claims that are coming up tomorrow. I feel like people are waiting for that with bated breath. And it seems like in the beginning of the week, the recession fears were on. Today in the morning, they were off, but maybe they're back again. So I think that's why we're likely to

chop around while we try to sort out the data. You know, the other thing, when you have drops like we've seen on Monday, you look to technicals. And what we know from the technical setup is that this is a very thin liquidity market. You look at the market depth, it's something like 63% below the last 20-day average. So, you know, you've got uncertainty, you've got bad liquidity the market depth, it's something like 63 percent below the last 20 day average. So, you know, you've got uncertainty, you've got bad liquidity, bad depth, bad seasonality. By the way, the S&P is now trading, I think, 52.15, which is below the three month average. And none of that is good because that drives systematic selling. There were some who suggested this was mostly positioning.

You know, we had the unwind of the carry trade, and that was Monday's conversation. It's sort of mixed in with the concerns about the economy, which is so interesting because last week, as the Fed chair spoke on Wednesday, he sounded pretty sanguine about where the economy was and where the labor market was. Said it was just normalizing. And we got this jobs report, and everybody kind of had a panic attack over where the economy truly is. Well, it was the payrolls report on top of the

SOM rule that has been so frequently discussed and debated, I would say. And that's what really spooked the markets. And Scott, the market, I mean, going into July, where we're talking about this potential disconnect that's building between the economy and the market expectations. And look, the economic data has been surprising to the downside for quite some time. The labor market has been surprising to the downside, and yet the markets had to catch up with that. So I would argue that maybe some of the unwind has been just positioning driven. But I think we now have a catalyst, which is watching the payrolls data. The reason why markets pay so much attention to payrolls,

because that's what the Fed chair essentially created as a new yardstick for the markets to watch, the labor market and what they will do after that. There's a feeling today, at least in some corners of Wall Street, Tony Pasquarello, Goldman Sachs, for example, saying it's not the start of a new trend. This could be just one report. Don't take your eye off the overall market ball. Now, don't step in with two feet because, as you said, maybe the unsettling feeling of all this has a little bit more room to go. But do you look at the market and you say there's opportunity to be had or are you just kind of stepping away and letting things settle? Well, a couple of points here. First of all, I talk about the low conviction in the market, but our conviction is that we're not headed for a recession. I'm still in the soft landing camp.

And I don't think the data that we've been getting is actually recessionary. I mean, one data point that sort of flew under the radar was the one on Monday where the ISM services number, the employment actually increased. That indicator has increased. So that's different than what we've seen in the payrolls report. So that maybe suggests that the payroll miss that we've seen is a one-off. We do know immigration contributed to the unemployment rate. We know that the new entrance in the labor force drove it higher. And then, of course, you look at the Atlanta Fed GDP. We're looking at 2.9 percent for this quarter. So I'm still in the soft landing camp. And so that brings me to the second point, which is I do think there are opportunities to be had in this market. I don't think it's a quick snapback because we're going to be

looking to build conviction in the economy. But I do think you start to step in and you buy certain pockets of the markets. But you're looking kind of defensive, right? Utilities, munis. That's part of it. And, you know, I think Tony talks about it in his note, you know, sort of looking in both directions. And I think that's exactly of it and you know i think tony talks about it is no you know sort of looking in both directions and i think that's exactly what i'm doing as well i am looking to defensives uh and like utilities because if this economy is slowing not even if it's going into the recession if the economy is slowing you want to be looking to defensive sectors if the fed is cutting interest rates historically to the defensives that actually outperformed in the three months after that. So that's why that has to be part of the barbell.

But, Scott, I've also been tempted this week by semiconductors because the valuations are now not quite to the lows that we've seen over the past year, but getting pretty close. That's kind of Adam Parker's point sitting on this set yesterday was a lot of these semiconductor stocks have come down a lot. Let's bring in Chris Heisey now of Maryland Bank of America, Private Bank, and Ryan Dietrich of Carson Group. It's good to have you guys with us too here at Post 9. So you want to weigh in, Chris, on what you've seen this week and what you think it means for what we should do? Yeah, I'm a big believer in you. You write down thoughts like we've had in the last week, two weeks. At the end of the week, you write them down, you revisit them a year later, two years later, three years later, and you'll find at the time, it's very concerning. At the time when you're going through this,

you go back in time and you see when did this happen before you talked about it before, 1998 brings to mind for me. And you have to look at the catalyst, as Anastasia said, and then ultimately what really matters to production of profits, to production of cash flows. And if that story hasn't changed, it's been dented. But if it hasn't changed, these are buying opportunities. Is that your call that it hasn't changed, that this is a buying opportunity? It hasn't changed. There's talk of soft landing, hard landing and other things. There's also something called a mid-cycle slowdown, which you could use a better term. You talked about it before, normalizing.

We are coming off extraordinary spending times, coming down at a time when the unemployment and employment markets are not materially changing. Like, that is critical. The production of profits by corporate America slowing down, harder to increase margins, but you can still protect them. So this gives portfolio managers an opportunity to not just rebalance, and we could talk about rotation. Before rotation, there's rebalancing. You can't just automatically go from one side of the boat to the next.

And I like the way Anastasia put it, which is it's a characteristic driven market. You have to look for things that will get you through whatever the normalizing period is and come out on the other side. Are we disappointed at the price action today? Yesterday felt a lot better. This morning there was follow through. And here we've rolled as we begin our program. Yeah. First off, it's nice to talk to you. Not in my basement. This is fun face to face like this. So I guess you can say today's a little disappointing, Scott, but let's take a big picture look at this, right? This is an election year. It was the best start to an election year, middle of the year since 1976. Up 19 percent not that long ago for the year on the S&P. Now we've had the eight and a half percent

pullback. And Mike and I were talking about this earlier. It's August. I mean, August is you seem to always get these curveballs out of the blue. I mean, 2015 rings a bell to me, right? The China devaluation of the yuan, the first 1,000-point Dow drop ever. I know points are different now than then, but that was pretty darn scary back then. One final comment, because we covered a lot of bases, or two, actually. Productivity in our country is still really strong. Second quarter had a big jump. I mean, that, to us, is kind of that magic elixir we have not seen since the mid to late 90s. So strong productivity can, again, be some juice. And then overall, the U.S. dollar, it's kind of surprising magic elixir we have not seen since the mid to late 90s. So strong productivity can, again, be some juice. And then overall, the U.S. dollar is kind of surprising to us.

The dollar has not been a safe haven the last week or so. And historically, when trouble happens, we march in 2020, gold down, bonds down, stocks down. Dollar was the only thing higher. We've seen that. Right. And it's interesting to us the dollar is not. I mean, you've got emerging market. got emerging market currencies have been really strong lately. That is not a major risk off end of the world crisis, in our opinion, when we see that, Scott. Chris mentioned the rotation word, and you like cyclicals, financials, industrials, small and mid-caps, which I find interesting in the context of the conversation that we're having.

I spoke with Rick Reeder in the midst of all this on Monday. We talked about the rotation trade, whether he believes in it or not. I want you to listen to what BlackRock's Rick Reeder told me, and we can discuss on the other side. I don't really understand. You know, the whole idea is there had to be a, you know, Fed's easing so you go into small caps or into value. I'm not sure I I understand that the feds just moving from a very restrictive level by the way they haven't moved yet they're moving from a very restrictive level presumably there's still restrictive level so this whole idea that I've got a buy into in asset classes that are if the economy slows will be will be harder in terms of from a performance from earnings for a second that doesn't make a lot of sense to me.

Why does it make sense to you? Yeah, this is a growth scare. We think, like we said, mid-cycle slowdown. Look at the leadership this last couple of days. Today, it's financials and industrials again. There is relative strength there. Look at 3M had to say. I mean, there are some positive earnings from those particular groups.

And as everyone's come on your network, including me, yes, small caps are cheap. Mid-caps are cheap. Our largest overweight of Carson Group all year has been mid-caps. No one's talking about it. They're quietly doing really well. I know everyone argues large and small, but hey, we're comfortable being very overweight mid-caps here. Again, it's an economy that's not going into recession. And again, there's some really cheap valuations when we look at those areas. Sure. But his point, Reeder's point is, I mean, whether this is a mid-cycle slowdown, a late-cycle slowdown, or whatever cycle slowdown, a late-cycle slowdown, or whatever cycle slowdown, it's still a slowdown.

So those sectors might be challenged by the mere notion that the Fed is cutting into a slowing economy. Yeah, I guess the question is they might be, right? Again, when we look at different things. Well, it is a slowing economy. It is, absolutely. It's just to the degree in which it is. Absolutely. We agree on that, don't we? Absolutely, it is a slowing economy.

But again, if everyone's thinking alike, someone isn't thinking. General Patton, how many people hated small caps for all year? It's just to the degree in which it is. Absolutely. We agree on that, don't we? Absolutely. It is a slowing economy. But again, if everyone's thinking alike, someone isn't thinking. General Patton, how many people hated small caps for all year? I mean, there is a very low bar. We've seen everyone loved AI, everyone loved technology, what's happened. Again, it doesn't mean they have to just rip, roar higher. Last point, history will tell you, small caps don't start outperforming until they actually start cutting. And I know Lucy with the football, Charlie Brown, a couple times. But that cut's coming.

And again, we're still comfortable being overweight, small, and mid here. I think you have to look for very specific beneficiaries of rate cuts, even if the economy is slowing on the margin. And the sector that I'm looking to is real estate, and as a proxy for the beneficiary of that are actually regional banks. When you think about real estate, Scott, by the way, most people don't talk about it still because at some point it was down 11% year over year. But real estate prices, commercial real estate prices, actually popped.

They have picked back up. Year over year, they're just about flat. So there's already been a price recovery there. But also what people worried about in commercial real estate is the amount of floating rate leverage that was outstanding, which is about half of all the debt. But if you look at the SOFA rate, for example, which is, of course, what a lot of these mortgages are pegged to, that SOFA rate has already been adjusting as we've been pricing in a more dovish Fed. So I would argue that some of those real estate operators and developers are already starting to feel the benefit of that, which brings me back to regional banks because people worried about commercial real estate exposure on regional banks. But we think they've appropriately provisioned.

And in this last reporting season, they're actually talking about the net interest margins starting to improve as well. So I think that's a very specific example of despite what's going on in the economy, there's a benefit. You want to weigh in on this question? What drove a good portion of the last growth in the economy was the fiscal spend, the acts. Prior to that was the emergency outlays. The next cycle portion of this is going to be the benefit from lower rates, particularly in the areas that need relief. To Anastasia's point, you don't need to

see a re-accelerating economy. What you need to see is relief in the areas that did not participate. And therefore, it does make sense to look and combine with the large cap growth arena, small caps, particularly those characteristics of small caps that will benefit from the lower rate structure. Before mega caps started pulling back, Ryan, I mean, did you look at those valuations and say these are getting a little crazy ahead of themselves? Did they look too expensive then? Because a lot of them have come in now over the last month.

I read this list on halftime and I'm going to do it again. A month ago, NVIDIA's forward PE was 41. Today it's 32 and a half. Meta's was 24 and a half. Today it's 21 and a half. Apple was 32. Today it's 29. Amazon 38. Now 31. Alphabet 23 and a half. Today 19 and a half. Microsoft 35. Now 30. Were they too expensive before? Are they better now? Are they still expensive now? No, they and a half. Microsoft 35, now 30. Were they too expensive before? Are they better now? Are they still expensive now? No, they're a lot better now. We thought they were too expensive before. And now there's probably some much better deals for people. Just don't forget the MAG7s, earnings are up 30% year over year, right, this recent quarter. So there's still

explosive growth. The bottom line, again, is just too many people got in on that ship. And when you get too many people on the boat, it goes the other way. And that's what we saw. Do I want to buy these stocks? Maybe not the MAC7, at least not most of them. And the reason I say that is because, yes, there was this huge earnings surprise relative to expectations that was outsized for a lot of the MAC7 stocks. But that earnings surprise has been shrinking because, to Ryan's point, the expectations have been elevated. As I look going forward, cloud CapEx or AI CapEx is growing something like 24% year over year this year and 10% year over year next year, which means these companies are outlaying cash. But as we've seen in this reporting season, are they really monetizing

it? Are they really seeing the ROI? Well, some of them are. Some of them are, but not all of them. So I would rather focus on what is it that they're investing in, which of course is the AI semiconductors, because they will be continuing to benefit from that CapEx. So that's why I'm looking to AI semis and I'm seeing the pullback in valuation. But at the same time, Scott, if you look at the earnings revisions for a lot of these AI semis, they're still going up for this year, for next year and the year after that. It's not universal across the semiconductor space, but specifically for AI. So I would kind of decouple that. I would invest in the enablers right now of AI. Instead of the mega caps, do you agree with that, Chris? Well, I think price momentum, earnings momentum, and news momentum is still there across the

technology space. I do think it's going to get more selective, as Anastasia said. Semiconductors, because they're inherently cyclical in general, they look cheaper now than, or the movement down is cheaper more than just the mega caps. But we are now going to start to say we need to see in the areas that are the revenue producers of GAI, we're going to need to see that. But most of generative artificial intelligence, the benefits are just beginning and well ahead in the next few years of cost efficiencies. And that's critical for the rest of corporate America. But you said that the price momentum, you said that, is still there. You could make the argument that it's exactly the opposite, that over the last month, where Nvidia's down 20% and Microsoft's down 14, and Meta's down almost 9, and Amazon's down almost 19, and Alphabet's down 15, Tesla's down 22. Isn't the momentum in that

trade gone for right now? Maybe for the next few days, maybe for the next week or two. But between now and the end of the year, you're going to still need the mega caps in your portfolio on a growth basis, because as Ryan said before, you still have the earnings momentum there. Not a second derivative is coming down. We know that. But on a relative basis, it's not coming down versus the others. And then you bookend the rest of your portfolio with the areas that did not participate. So I think this is a rebalancing, not a rotation. How do you see that? No, that makes sense. And one thing I want to point out, we've talked for 17 minutes. Have we talked about the VIX? If I can talk about the VIX just for a second here. You know, we saw the VIX go down 10

points yesterday, Scott. That is a huge implosion of volatility. You're talking after the U.S. downgrade. You're talking after the flash crash in March of 2020. The last times we saw a volatility implosion like that, that usually tells us the worst is over. I mean, you can't go make new lows briefly, get everyone bared up. But that spike we saw is incredible. One more for you. The VIX was close beneath 30, then above 60 the next day, intraday, and then close beneath 30 yesterday. That's never happened in history. I don't really know exactly why.

Is that supposed to make me feel better or think that there's more volatility. Hopefully it makes you feel better because we just had this blast of volatility. We might have more volatility than when we went 18 months without a 2% down day. But to say that we are pretty close to a tactical low, I think it makes a lot of sense when you see things like that. I think you could also take advantage of volatility, obviously, by selling expensive calls, by selling expensive puts. You can monetize it. The last thought I had is that we're talking about the here and now and maybe for the next you know a couple of weeks a couple of months but if you look at the bigger picture we're going to the election cycle that's likely going to propel volatility markets typically consolidate and pull back in the three months after the first rate cut so that's why we're experiencing this phase but if

you step back and look at the six months after the first rate cut, markets do tend to rally, especially in the 12 months after. So I think the playbook now, take advantage of the volatility, maybe buy something with downside protection, step into the names like semiconductors, maybe some Mach 7, but with a one-year-plus time horizon and some downside protection. I'm surprised, Ryan, that you think there could be less volatility coming up as we get closer to an election that might very well be closer than people expected that it would be just one month ago with the change of ticket and some of the most recent polling. Now, between now and Election Day is an eternity in these types of cycles, obviously. But nonetheless, as we get closer to the day to cast your vote, isn't it likely that volatility is going to be picking up? There'll be some days that are. But I guess, listen, we've only had two 2 percent down days all year.

Right now, we barely missed one last Friday. Your average year sees six of them. So I think it's just really important for listeners to remember there are bad days. There are volatility even in your best years. Last year, we know we had a 10 percent pullback and still gained 20 percent. So to build on, yes, you do get the last two elections, 2016, 2020, obviously some weakness before. 2016, actually, was a real slow and steady weakness when we exploded afterward. So some big swings are perfectly normal, but the volatility we've just seen, I think that's the blast of trying to carve out that major low. All right. We're going to watch the markets over this last 40 minutes or so.

Still trying to get positive on this day and, by the way, for the week. It's great talking with you guys. Ryan, thanks for being here. It's good to see you in person. Chris Heisey and Anastasia as well. Thanks for being here at Post 9. To Pippa Stevens now for a look at the biggest names moving into the close. What do you see, Pippa?

Hey, Scott. Well, Fortinet is on pace for its best day ever with those shares up 20% after the cybersecurity company posted a strong Q2 report as well as upbeat guidance for the current quarter. The latest report may be a sign that businesses are willing to pay more for cybersecurity as breaches become more prevalent. And shares of Lyft are falling more than 15% after the ride-hailing company posted softer than expected third quarter guidance, which overshadowed their strong Q2 results. Lyft sees revenue ranging between $90 million and $95 million,

while analysts expected a forecast of $103 million, according to Street Account. Those shares are now on track for their worst day since May of 2023. Scott? All right. Pippa, thank you. Talk to you in a little bit. Pippa Stevens. We're just getting started. Up next, J.P. Morgan CEO Jamie Dimon speaking earlier on this network about the future of his role at the bank. Top analyst Mike Mayo is standing by with his first reaction to what Mr. Dimon had to say and what he's forecasting for the broader sector in the months ahead. We're back after this break. Eventually, I have to leave. I mean, I know that we got great people out there. We have a hit by the bus successor, Daniel have to leave. I mean, I know that. We've got great people out there.

We have a hit-by-the-bus successor, Daniel Pinto. You know a lot of the other people and how exceptional they are. When I say exceptional, it's also their heart, their curiosity, the respect they engender from our employees, from our customers, which I feel great about. But even when I'm done with CO, I might be chairman for a year or two. It totally ups the board at that point. So I have a while to go before I'm out of the company. That was J.P. Morgan CEO Jamie Dimon earlier today weighing in on the succession plan at J.P. Morgan. That was an exclusive interview with our Leslie Picker joining me now at Post 9 to talk about that bank and Mr. Dimon and the setup for bank stocks is

Mike Mayo, Wells Fargo Securities. It's good to have you back. Thanks for having me. What, Dimon, 68? He's 68 years old? Well, he has two and a half years left or so on his contract. Are you thinking about it yourself, succession at JPM, and the way you think about the future of this bank? I'd say a lot of the institutional investors that I talk to ask me about succession at JPMorgan. They do? They absolutely do.

And especially with the recent op-ed in the Washington Post by Jamie Dimon, his CEO letter this year in the annual report. He's talking about America, the comments in the press, would he go to the government service? And on that exclusive CNBC interview that you guys had today, he was asked not once but twice, would he consider government service? And he says, I like what I do. What I read in that is... He said that like three, four times.

Maybe three or four times. He didn't give an answer. So if he's going to be Treasury Secretary, the next Fed Chairman or something like that, he didn't say no. And so that certainly comes a little more to the fore during an election period like that. And taking a straw poll among investors,

nothing scientific. It's like, how much would the stock go down if Jamie Dimon were to leave? Yeah, what do you think about that? The answer is like 5%, which would mean $25 billion off the market cap, which would make Jamie Dimon the $25 billion man. What about the financial sector in the here and now? We have, you know, rates to take into consideration. We have worries about the economy as well. So how do you see that? Look, the main course for banks is still good over multiple years. You're looking at a multi-year inflection point

for revenues and earnings starting sometime later this year in 2025. Having said that, no dessert for bank investors in the month of August, maybe a little bit longer. And that dessert's been taken away. There's new data points. The unemployment rate went up a little bit more. The interest rates are a lot lower than people expected. The R words

come back, recession. And so you have to recalibrate your expectations that those extra capital market revenues that you thought you might have gotten over the summer, maybe you don't get that extra. Those extra spread revenues from higher interest rates and what's called fixed asset repricing, you might not get that. The extra reserve releases for problem loans, forget about the reserve releases right now. So you're still inflecting, but maybe just not as much as before, and you have to readjust to that. And so I'm saying it's a speed bump in my multi-year thesis here and a little bit more short-term caution.

What are your expectations about, since you brought it up, capital markets? I mean, David Solomon, Goldman Sachs, was pretty positive on it when he last spoke. Rich Handler of Jefferies put out what I thought was one of the most bullish notes regarding the current state of capital markets, if not the most bullish that I've seen. There are tremendous multi-year tailwinds for capital markets, especially that X factor of private equity, trillions of dollars to get put to work, pent up demand over a number of years, a lot of liquidity. But this hiccup in the market could put a monkey wrench in that or in the short period coming ahead. And the other thing we have to like literally before I go to sleep at night, when I wake up in the morning, are there any accidents in the market given such volatility in recent days?

So far, I don't see any. Nor does Jamie Dimon, by the way, who who was asked by Leslie about, you know, whether there is a recession or not. First thing he went to was credit, said it's fine. Now, obviously, things could get worse at some point. But in the here and now, he doesn't see it. And the credit markets would suggest they're backing that up. I would agree. That's why the main course for banks is still good.

And the one data point is corporate bond spreads relative to treasuries are still close to the relative low point. They're 100 basis points over. Back in 1998, they were like double that. By the way, bank bond spreads, the largest bank bond spreads, are still close to relative low points. So the $7 trillion investment grade bond market is kind of giving a yawn, and the equity market's kind of freaking out. It's the opposite of, say, the global financial crisis. Remember, the fixed income market was a much more forward indicator than the equity market. Equity market, you know, all of my colleagues, we were slow to the message. In this case, the fixed income market's kind of just saying, ho-hum.

Is there a message today or this week in the fact that, you know, JP Morgan's green on the week, given the turbulence that we've had? Goldman Sachs is positive on the week. Citi's down four and a third percent. Why? This is simply a Pavlov's dog. The bell rings and you salivate. You have a hiccup in the market and you say, all right, who's likely to win? Those who have won in the past, you know, Goldman, JP Morgan, who's likely to lose? Citigroup. I think that's simply a knee-jerk reaction based on their performance over the last 10 to 20 years. I don't think that has any bearing in, it has some bearing to reality, but I wouldn't read too much into that. We'll see the results in the third quarter.

And by the way, if Citigroup navigates yet one more industry issue like this, that could help their revaluation. Still my number one pick, but with the caveat, short term, we have a little more caution for the whole group. What about regionals? Or maybe it's better to ask you about super regionals. That's basically what you cover when it comes to those kinds of stocks. What should I think about that now? Well, I think there's an issue with lower rates. Be careful what you wish for. Everyone said, let's get lower rates. Banks are often treated as a cyclical play. So the Fed cuts, you get a rally. But that net interest margin, it's going higher, I think, for the banks, but probably not as high as you thought before, because you're reinvesting those maturing

securities in yields that are 70 basis points lower than they were a month ago, then that inflection is not as great as it was before. All right. It's good to see you. Thanks for being here. It's Mike Mayo, Wells Fargo Securities. Up next, Treasury partners Rich Saperstein is back, ranked number four on the Barron's top 100 financial advisors list of 2024. He'll tell us how he's advising clients amid this uncertainty and volatility in the markets. Talk about his latest positioning as well. Do it next. All right, we're in the red today, giving up some earlier gains. All three major indices

struggling to recover losses from Monday's sell-off, or at least to back up the gains of yesterday. A few bright spots, though, within tech today. Apple's leading the pack. Amazon and Alphabet are still green as well. You see what those stocks are doing at this moment. My next guest holds all of them. Says now's the time to buy the dip, too. Joining me now at Post 9, Rich Saperstein of Treasury Partners. Good to see you back here. So your phone must have been going crazy on Monday.

Can you just give me, we said that you're one of the top five advisors, right, ranked by Barron. So can you just give me an idea of what this week's been like for you? Well, my first experience with an eye-popping decline like this was back in 87, and we've seen many of them since then. And we've developed a playbook to deal with all this and guard client capital. It starts with the catalyst. And the catalyst here was really a disproportionate decline in the market relative to the tepid economic data. So, lightly caused because we're at 22, 23 times earnings. And really, it's the type of volatility we're going to experience going forward. Now, my phone rings, and it's really about asset allocation.

It's about the move we made last year where we allocated to long-term tax-free municipal bonds at 4 or 4.5 percent and clients wanting to be opportunistic and possibly reallocating back to the stock market. Were you a buyer on Monday? No. We think about an old concept called two steps and a stumble. And so you have a market, we're still fully invested, but you have a market which goes down. There's some decay, there's some issues, there's value. But I'd like to see things settle out first before we start committing more capital. Do you think mega cap tech, which we're showing on the screen right now, and we said that you own a lot of these names, does that need to, in your words, settle out more?

Yeah, I'd like to see that. But we still like the stocks. I mean, where do you find, let's take Google, I'm sorry, Microsoft and Amazon's cloud business. They do $100 billion a year, grew 30% quarter over quarter. Now, $100 billion business would be a S&P 35 company growing 30% a year. So many investors are underweight large cap tech. And that's really where the opportunity is for investors who do not own enough of these names. They should have an exposure to that. When you say investors don't own enough of these names, what kind of investors are we talking about? Because it feels at this point as though

everybody owns these names. Not really, because there's a lot of investors that are underweight large cap tech. And so they might have biotech or other exposures, small cap, mid cap, international. And really, it's very important to understand where there's growth of cash flow and where there's opportunity in the market. And it happens to be rather concentrated right now. What about valuation for these names? Top of the program today, I read the list of how much valuations have come in as these stocks pulled back from July, you know, double digit percentage point declines. No question. Values are stretched. Markets price for 15% earnings growth year over year. And that's the reason why we're seeing all this volatility, which should continue throughout the year. Wait, you mean valuations are still stretched?

Yeah, still. In these stocks? Yeah. So we look at the cash flow and the growth of the cash flow. But multiples are stretched in these stocks. And there's still a lot of pockets of opportunity in the market right now. Okay, so where is that? Well, we have been adding to two utilities.

Okay, we started with the thesis on utilities is long-term secular increase in power. And we're underpowered in this country. So we own two names, NextEra and Vistra. We've owned Vistra since 2021. It's a $25 billion company, $4 billion in operating cash flow, $2.2 billion in free cash flow, returning it to shareholders. And keep in mind, our utilities are in two states that have net immigration, population immigration, Florida and Texas. But when you are highlighting utilities, that screams defensive. Is that what you think the best strategy is right now, is to be defensive? If you're going to buy anything to buy those types of stocks? Well, when you look at a portfolio of 20 to 30 stocks and you've got to broaden out your

names, one sector we really didn't have exposure in was utilities. So we just added NextEra. We've been a long-term holder of Vistra. But think about the cloud. Think about AI and the concentric rings of opportunity around it. So think about services, Accenture and IBM. Think about the power generating that. So the utilities. So there's a lot of opportunity if you just look past the core cloud providers, you know, like the big four. What's a reasonable

valuation do you think for the overall market? If, you know, people were suggesting 21 times was just way too expensive relative to where earnings were really going to come in, what seems more reasonable? And how far away are we from that? Historically, 16. Okay. But now 16, that's historically, but now that you have a concentration in large cap tech dominating a third of the market, selling at higher multiples with higher growth rates, you've got to raise that higher. So where we are at 22, 23, a little stretch for me, but we still own the stocks and we're still fully invested. What about bonds? The attractiveness of them today, given rates are coming down, now obviously they've bounced back up.

But what's your take there? Look, last year there was a tremendous opportunity to add 4% to 4.5% tax-free long-term munis. Which you did. Yeah, we bought a slug of them. Right now that's down to a 375, 360 yield. So the bonds have gone up in value. I think one of the biggest mistakes was just laddering three six-month treasuries and getting that 5.8% because now that rates are coming down, what do you do with that money? So right now, what we're doing is we're adding housing bonds.

We're still able to achieve over 4% in tax-free housing paper, which is still an amazing opportunity. You're subject to call risk. And other than that, we're buying more three to six-year paper, both on the taxable and the tax-free side. It's good to see you again. Thanks for coming by. It's my pleasure. Rich Saperstein of Treasury Partners. Up next, we're tracking the biggest movers as we head into the close. Pippa Stevens is back with that, Pippa. Hey, Scott. Well, one e-commerce stock is popping at 20%. We are double-clicking on the name coming up next.

We're 15 out from the bell. Back to Pippa Stevens now for the stocks that she is watching. Pippa. Shopify is tracking for its best day of the year following better than expected second quarter results, as well as an upbeat forecast for the current period. Shopify said it saw strong demand for its services, which includes software for online merchants, despite what it called a mixed consumer spend environment. And VF Corporation also in the green after the company beat Wall Street estimates for the most recent quarter. T.D. Cowan saying the company is making progress on its multi-pronged reinvent plan,

noting the sale of the streetwear brand Supreme for $1.5 billion helps with deleveraging the balance sheet, though shares up 7%. Scott? All right, Pip, I appreciate that. Thank you. Still ahead, looking under the hood, FinTech company Robinhood reporting earnings in less than an hour. Stock is seeing some some strength so far this year it's been in the thick of it this week too can the run be sustained we will discuss coming up the bell's coming right back

get a check on shares of lumen now that stock is up big yet again today near 40 percent the telecommunications company recently announcing major deals with Corning and Microsoft and issuing strong free cash flow guidance last night during its earnings release. Stock up more than 500% in just a month. Don't miss, by the way, Lumen's CEO Kate Johnson in a first on CNBC interview. That's in overtime today at four o'clock Eastern time. Up next, your earnings setup. Robin Hood and Warner Brothers Discovery among the names we are watching in overtime that give you a rundown of the key themes to watch for when we take you inside the market zone next. Into the CNBC, the closing bell market zone we go. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, Kay Rooney with the

setup ahead of Robinhood's results. Julia Borson taking a look at Warner Brothers Discovery as those results are in overtime as well. We faded, obviously, Michael, as the day progressed. Maybe some, you know, Middle East geopolitical things swirling around that the markets are concerned about, among a number of other things. There's plenty of excuses. I think the backdrop is we're still in this kind of slop and chop corrective mode. And when that happens, you have to kind of regain trust in the tape. And that hasn't really been done to a convincing way. You basically have some wounded leadership. Semi's had a nasty 6 percent downside reversal

today. They tried to bounce hard this morning. It didn't work. Defensive stocks are the only things really working right now. The low volatility ETF is now way beating the high beta ETF on a year-to-date basis. So you have at least a chance of a change in character of the market. The S&P spent part of today and yesterday above 5,300, right around the 100-day average. I mean, if you care about that kind of thing, found no buyers. Now, none of that says, oh, no, we have to go to nasty new lows. What it says is people have to wait for the market to prove itself. I mentioned yesterday, after you get one of these sharp breaks, usually the market's kind of guilty until proven innocent.

And we haven't proven that yet. And we really don't have a lot of fundamental inputs to be working with yet either. I'm sorry to step on your toes there. That's where I was going to go next, though, with jobless claims. Yes. Seems to be of heightened importance now. It does. Yet we want to see if there's a trend that's worrisome or not.

You know, a lot of the people looking, again, at the monthly jobs report from Friday will say, yeah, unemployment rate up, but it wasn't because layoffs went higher. It was really much more about labor force. So we'll see if we do get that. You know, bond yields are up today. There was another kind of not-so-great treasury auction. And you'll see if a lot of that stuff starts to filter into psychology or if it's just, hey, we're 2% above Monday's low still.

You're within the 10% correction zone. Nothing seems too abnormal, but it takes time and proof. All right, Kate Rooney, tell us what to expect here with Robinhood. Been a bit of a turbulent week for that name as well. Yeah, Scott, it's been a big shaky week really for the brokerage industry, but Robinhood today is going to give us a bit of a pulse on the retail investor. Those numbers that really do matter for the quarter. You're going to look at trading volume and transaction-based revenue, plus the breakdown of where that's coming from. So between crypto,

equities, options, and then net interest income. Also watch deposits. So any sign that Robinhood has been successful in taking market share from incumbents like Schwab and Fidelity, something people are watching closely. And then retirement accounts and credit cards, both relatively new businesses for Robinhood, something to keep an eye on. A lot of focus on how they're forecasting amid all this volatility this week and possibly weaker consumer. Any commentary as well on interest income as the Fed appears to be changing course, then would definitely expect some questions around the future of 24 hour trading after the outage earlier this week. Scott. Yeah. All right. Appreciate that.

That's Kay Rooney to Julia Borsten now on Warner Brothers Discovery and what you think we should pay attention to most. Well, Warner Brothers Discovery's revenue is expected to decline by 3% from the year ago period, while its per share loss is expected to shrink by about half, benefiting from progress in streaming, similar to what we saw from Disney. Now, the media giant's loss of NBA rights are very much in focus, especially ahead of the NBA's August 24th deadline to respond to Warner Brothers Discovery's lawsuit. McQuarrie recently downgraded WBD, saying NBA rights are important to the success of Max and that their loss will hasten the downturn of its linear networks as well. There's another wild card. What happens with a sports streaming bundle venue that Warner Brothers Discovery is part of. Three congressional Democrats sent a letter today to the DOJ and FTC urging them to scrutinize it. With shares down by nearly half over the past year, the FT reporting yesterday that in an effort to avoid having to

break up Warner Discovery, CEO David Zaslav is looking to sell off some smaller assets like its Polish TV business. Scott, hopefully we'll hear more about this in the call today. All right. You'll let us know, Julia. Thank you. That's our Julia Borson. Two minute warning. You just saw the animation there and heard it as well. So we're going to turn to you, Mike, as we head towards the flow here. Dow's off about 200 or so. Financials higher today. Energy higher. Oil's higher. Maybe again on that Middle East sort of concerns that are still out there.

So we'll have to watch that. A little bit of counter trend stuff happening for sure. The areas that still are under some pressure are consumer cyclicals. We're still worried about that. The travel stocks probably been talking about that, you know, raising just a little bit of doubt or maybe confirming doubt about the services sector and the resilience of that part of the economy. Now, I don't really think the argument is somebody prematurely hit the bell.

I don't know. For the record, Janesco is ringing the bell tonight. Oh, no. He called him out. You know, I don't think it's like recession for sure or definitely no recession. I think it's what probability do we assign of hard landing? The market's struggling with that and just trying to sort that out. And I think above 5600, where we were at the highs, you had very little chance built in of a real downturn. And you had pretty much all things firing in terms

of the bull thesis. And that's why I think it's more just let's see where we settle out and accommodate. We're still at 20 times earnings on the S&P. It's not like things have really gotten to be desperate. And we're just hanging around these levels that we first got to about, call it, five months ago. I know we look at the travel names. We say the consumer is really struggling. We look at Shopify and VF. And we say, OK, maybe the consumer is not that. We look at Shopify and VF and

we say, OK, maybe the consumer is not that bad. Again, it depends on where you look. It depends where you look and it's the rate of change. All right. It's for real this time. They're ringing the bell. We'll go out red. I'll see you tomorrow.