Closing Bell - Closing Bell: Too Soon to Sound the All-Clear? 8/30/23

Episode Date: August 30, 2023

Are stocks really back in an uptrend or is it simply too soon to sound the all-clear? Dan Greenhaus of Solus Alternative Asset Management and Hightower’s Stephanie Link give their forecast as we wrap up summer. Plus, star analyst Dan Ives is betting on a “comeback quarter” for Salesforce. He explains why. And VantageRock’s Avery Sheffield is issuing a big warning that growth stocks are still too expensive.

Welcome to Closing Bell. I'm Scott Wabner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with suddenly surging tech storming back from its August low and raising the question once again if this is the safest place to be in stocks. Your scorecard now with 60 minutes to go in regulation. Take a look at the Nasdaq first because it is outperforming once again. There is your chart, two-thirds of 1%. How about Apple, back above its 50-day moving average? NVIDIA, back towards a new high. Tesla, well, it's negative now, still up almost 10% in a week. More broadly, energy and consumer discretionary sectors, also among the day's top

performers today, yields, they are lower. And that is a big part of this story. Rates dropping after a new read on the economy suggests the pace of job growth finally slowing. That's good news for what the Fed wants as it seeks to cool off the economy. We also have some key earnings coming in overtime to remind you about tonight's Salesforce and CrowdStrike reporting their quarterly results in OT. We're going to hear from star analyst Dan Ives in just a bit on what's really at stake. It takes us to our talk of the tape, whether stocks are really back in an uptrend or if it's simply too soon to sound the all clear, even as those early month losses continue to evaporate. Let's ask Dan Greenhouse, Solus Alternative Asset Management's chief strategist with me here at Post 9. It's nice to see you again. Thank you,

sir. I mean, what a difference a couple of weeks make, right? Middle of the month, you're like, all right, how deep is this correction going to be? At the low, we're down, the S&P was 5.5%. Here we are. Now we're only down 1.5%. What's happened? Yeah, I mean, you teased at the outset there that rates is a big part of this. I mean, within the context that rates have gone up and stocks have gone up alongside it,

in the last couple of days, the pullback in longer-term rates from four and a quarter down closer to four is probably the main input right now. And you see that the best performing sectors over that time are is both tech and com services. It's Tesla. It's the semiconductors more specifically. And so I think it's hard to argue otherwise that rates isn't a big part of this. So are we back where we were before, where, you know, lower rates and then tech just carries the ball again? And that's enough to get us through this, you know, historically seasonally tough period? Yeah, I don't know that we were ever out of whatever it is that we've been in since since March. The narrative was, though, that like the uptrend was over and we were going

to have this correction that was, you know, likely going to be a bit steeper than we witnessed at just five and a half percent. And that narrative has changed once again, I think. I'm not sure that the narrative was the uptrend is over. I think what a lot of us were saying, a lot of the people on the halftime show and speaking for myself, was that just you're entering a seasonally weak period. You had a terrific run up and that some digestion of that was likely to come. And you saw that after the NVIDIA report. I know, obviously, some of the more bearish prognosticators, if you will, were saying the market's inability to rally on what was a pretty good NVIDIA report is a sign of something

was wrong. But I think it just played into that narrative put forth prior, which was you had a good rally into the reports. And so some period of digestion was to be expected. And that's what we have. I'm glad you brought up NVIDIA as we show it on the screen. New closing high yesterday. It's not that it's intraday high, but it's not that far away either. It's like 502 and change is the all time intraday high for NVIDIA. So as that stock has come back, I mentioned in the open

as Apple has come back, Tesla started running again. Then I guess it's no secret why we're able to be where we are today versus where we were just a couple of weeks prior. Yeah. And let me add on top of that, it's not just tech. If we've got the charts, you can you can throw out Bristol Myers, a bunch of the retailers, everyone that was was all upset after the retailing report. Take a look at TJX, Ross Store to a less degree. Walmart. We'll cycle through some of those. I'm going quickly here. Keep going. It's all good. Because discretionary, by the way, if you look at the sectors that are actually doing quite well,

as I pull up discretionary today just to give you all a look, yeah, I mean, it's having just a fine session now. And it's up more than 2% in a week. Now, mind you, when you look at discretionary, you have to remember that Tesla is obviously going to carry a lot of that. That's right. Amazon, too. Amazon, too. But even when you take a step back from those, again, TJX is basically back to a high.

Walmart's basically back to a high. I keep mentioning every time I come on a bunch of the industrial names that have to deal with reshoring and electrification, like Eaton, Eddie Tom Nancy. I mean, a couple of these stocks are just absolutely on fire. And that's not to say that the entire market is doing super well, because that's not necessarily the case. But as we power back to record highs, it's not just NVIDIA. It's not just Tesla. A bunch of other names are playing along as well. You all right with the earpiece over there? You're having some repeated problems with that. I apologize.

We're going to get some glue. I have ill-formed ears. We're going to get you some glue. OK. The data, too, has been a little softer, which is not such a bad thing either for what the Fed wants. And really, I think you could a bad thing either for what the Fed wants. And really, I think you could go as far as to say what investors need. You need good data, but you can't have data that suggests we're off to the races again

in some sort of, you know, resurgent economic robustness. If you look at that Atlanta GDP now thing, which was at five point eight percent, you're like, wow, the economy's like reaccelerating. Well, we talked. It wasn't going to have that. I know even if that wasn't real, you still can't have a scenario in which the economy continues to get away from the Fed. No, that's right. And I'm glad you brought that up because I think there's an I like to think sometimes I come on at narrative turning points and I think we might be at one now.

And I think there's a lot of not I think there's clearly a lot of celebration about the JOLTS report pulling back, particularly because, again, the soft landing narrative put forth by people like Jan at Goldman Sachs was predicated on the bulk of the work being done through JOLTS rather than through, let's say, the unemployment rate. So there's a lot of celebration of that. But at the same time, I call back to a point that I was making a year and a half or even two years ago, which is this idea that the Fed cannot fine tune the economy. And as you decelerate here, it's not like I'm driving in a car on the West Side Highway and I can go from 80 to 60 with some level of precision. As the economy decelerates, the challenge for the Federal Reserve, of course, is to decelerate just the right amount. And are they able to do that or not? Because the answer to that question is largely going to be determinative

of what happens for risk assets. Well, the risk is that they smash it, that they do too much. You don't even have to smash it. You just have to slow things down more than you intended. Well, I mean, they've obviously, you know, succeeded to some degree to slow things down. When you go 500 basis points in the last, I don't know, what is it, 13 or 14 months? That's ultimately going to happen. That's right. And you have seen that in working in conjunction on, let's say, the inflation side of things with the what is now clearly the transitory part of the post-COVID environment having been sucked out as well. But again, I think this is really important because as we decelerate, we have this jobs report on Friday.

There'll be some screwiness with it, if you will, related to some of the strikes that are going on. We get PCE tomorrow. Let's not forget about that. And you have PCE tomorrow. But the jobs report is crucially important because we have decelerated. We've got two months in a row now, sub 200,000, which is still a healthy level, but slower than it has been. If something happens here where over the next few months you go from, call it 200,000, down to 125, down to 100, down into the double digits over the next few months, there's going to be a lot of questions about the Fed's ability to stabilize things rather than overshoot to the downside. And from a risk asset standpoint, as you get into the fourth quarter and the first quarter of next year, we're going to have to revisit some of those conversations from earlier

this year that were pushed out. All right. So Stephanie Link, CNBC contributor, also of Hightower Advisors, joins us as we branch out the conversation. Steph, so have we gotten this momentum back? Is it too soon to suggest that? Or what do you think? I think it's for now an oversold bounce. And I think it's tied to what you guys were just talking about. We had a softer job report yesterday in Jolt's, today in ADP. You had a lower revision in GDP, the second revision. But I think that's more backward looking. But within the GDP, you had a lower price deflator. So if we think about the Fed, they're looking at growth. They're looking at jobs and inflation. And if all three are going in their direction, meaning in their favor, then you can make a case that the Fed is probably

done with tightening. That doesn't mean that they're going to all of a sudden reverse course, in my opinion. But if you think the Fed is done and rates do drift lower, well, as you said, rates lower than higher growth and higher technology by default. And that's what I think you're seeing. I'm still underweight tech, but I have been looking for opportunities. You know, I took advantage of the 7 percent drop in research, for example, and also put a new position on in CDW. And I would look at other names if they continue to fall. And I think we are going to see a choppy environment in September.

We may get an opportunity. But what I'm impressed with is what you guys were also just talking about is the market breadth. In the past month, energy has outperformed technology by 770 basis points. In the past three months, energy has outperformed technology by 680 basis points. Same thing with industrials. Industrials have outperformed the past month by 200 basis points and 690 basis points in the past three months. So you are seeing a broadening. That's where I see more value, as you know, and I'm pleased to see us broadening out. So I think there's other opportunities, not discounting tech, but I just think there are other opportunities as well. Let's play off of what Steph said, Dan, and take a look at sort of positioning,

thinking about what are the catalysts to propel this market higher between now and the end of the year there are people like steph who are underweight tech who didn't you know position themselves to take advantage necessarily of this incredible gain that we've seen in these mega cap names now if the names continue to run it's going to be hard to reverse the positioning if you're not already there because you're not going to want to pay up at this point, perhaps. But if you have an opportunity to get in, do you think you get a flow of money from those who are not positioned? We still see that a lot. There's a lot of under ownership in these mega cap names that that's that catalyst, that chase for performance, the fear of missing out. Sure. Well, to repeat, we're a hedge fund and take specific positions. We're not benchmarked to the index in that sense. But that said, for having had a career on Wall

Street, it's going to be very difficult if the year progresses. Like, let's use NVIDIA for a second, a name that we're not involved in and I have no particular expertise with, but like they're going to earn 20 bucks or something in two years. They're going to trade at 30 or 35. I mean, this is what the market says. They're going to trade at 30, 30. You're going to get to six or 700 bucks in that name from a street forecast standpoint in pretty short order. If the name keeps trading up, if Apple gets back close to its highs or I'm sorry, back to 200 bucks, Google continues to make new highs. I don't know how managers aren't sucked in, even if you don't, and Stephanie can better answer this question than me, but even if you don't catch up to market weighting, you've got to get more overweight than you are, or else you're going to get further left behind as the year progresses.

And that's my point, too, Steph. We've said this. It's like, you know, the train has left the station. And, you know, we've got people who not only come on this program, but the halftime report and are just buying NVIDIA now. Right. It's like I can't afford to be on the sidelines from where the action is or the train is going to get to the next destination without me. Yeah, but I think you can own other stocks other than the big magnificent seven. And, you know, I own a pretty big chunk of meta, even though I've been trimming it. I think you can own other technology stocks and make them

bigger bets, bigger overweights relative to your benchmark. And even though I'm underweight, I've got a 5% overweight position in Broadcom, which they report tomorrow. So my fingers are crossed there. But I've got a 500 basis point overweight in IBM, and I've been building CDW, and that's now a 300 basis point overweight. These are not small positions by any means. And if tech continues to run, and I think the fundamentals of the companies I just mentioned continue to do well in addition to Lamb Research, I think I will be okay. I just don't want to be where everybody is

at. I can certainly understand the total addressable markets. I know we talk about it all the time, but I can make bigger bets in names that are smaller in the S&P, but my overweight is so much greater, and it does give me the alpha. The risk, sure, and you can be anywhere you want. The risk and not necessarily you specifically, but for those who are also underweight tech, the risk is if this is where the money is going to flow yet again for a variety of reasons, if rates remain low enough, if these stocks are deemed as safety plays in some sense within this market, too, you're just not going to be able to perform as well trying to pick these other stocks if these are the ones that are really going to run the most. It's just the way it's going to be. Well, I am. I disagree because I think fundamentals do matter. Earnings revisions do matter. And if earnings revisions are going up for the names that I mentioned, the stocks should do quite well. And in addition, as I mentioned before, the broadening of the market, nobody is in energy. It's only 5% of the S&P 500. I'm 10% in my portfolio. And I just added to Chevron.

Industrials, I'm 1,100 basis points overweight industrials as a whole. And that has been a home run call from Boeing to GE to Ingersoll Rand to Parker Hannafin. I'm looking at John Deere to add as well. And I think that's also where I'm going to create alpha. So to me that they're not getting talked about as much, Scott, maybe they're not as popular, but I can find values there and I can actually make money and create alpha in those sectors as well. Fair enough. Greeny. Hey, Stephanie, let me ask you a quick question. Google had their event yesterday. And one of the things I heard coming out of the event that maybe from the participants that maybe AI spend wasn't going as rapidly as people thought. And I know, obviously, NVIDIA has been obviously the poster child for spend, spend, spend, spend, spend. But

we heard on the Microsoft call that there's some slowness to AI spend. Meta alluded to the take-up of their AI products being a bit of a question. Do you have a feeling that maybe the market, I mentioned earlier about NVIDIA trading at 30, 35 times. Do you have a feeling that maybe some of this enthusiasm around AI, as we talk about the second half of the year, is getting ahead of itself? I think it is. But at the same time, Dan, you know that the total addressable market by the end of this decade is a trillion dollars with a plus sign next to it. I mean, every day I see it's a trillion, two trillion, three trillion, whatever it is. But at the same time, Dan, you know that the total addressable market by the end of this decade is a trillion dollars plus with a plus sign next to it. I mean, every day I see it's a trillion, two trillion, three trillion, whatever it is, it's a trillion with a T. So you want to have exposure. And it'll be interesting to hear Broadcom tomorrow because they have AI networking chips, customized chips that they said last quarter when that business was going to be was 10 percent of revenues last year, going to 25 by next year.

Let's see what they have to say, if that's changed at all. But I do think, yeah, you know what? A lot of good news is priced into the AI theme. It's a theme you want to have exposure to, but it's certainly not something that you have to chase. If any of these stocks were to pull back substantially, then you take a look. But I do think that you want to have exposure for sure one way or the other. So I guess part of my point is that, you know, it's just more difficult to look at. I'm looking at sector performance year to date beyond where the bulk of the conversation has been, whether it's tech, com services or to some degree discretionary. But that's also skewed by Tesla and Amazon. For example, financials next to nothing year to date, two thirds of one percent

in the green energy, three quarters of one percent in the green. That's it. Industrials, 10 percent positive. So you're talking about three key areas of the market that have dramatically, dramatically underperformed where the leadership has been. What is the point for me to think that you're going to get some kind of catch up trade between now and the end of the year? Why wouldn't you? The mean reversion for sure, right? Energy might be just barely up year to date, but it's actually up almost 20 percent from the lows. Right. And I think you can say the same thing for discretionary. I don't know about financials. I think that they're just so caught up in regulation at this point in time and the yield curve confusion.

But there's no question that they're cheap. But of course, they're cheap for a reason. So maybe that sector doesn't participate. But I think there's a lot of other sectors that will participate. Oh, by the way, the industrials that I just mentioned before, they're up more than the XLI and the energy. I mean, the same thing with the names that I own, maybe not Chevron. That's been a downer for sure. But Diamondback Energy, Slum Verge, they've done well, not to the extent that I want them to do. But I do think you will, you could see a catch up trade trying to buy low and sell high, Scott. That's all I'm trying to do. You know, you just made a really important point. I don't think it gets said enough that

this whole debate about the market cap weighted index versus the equal weighted index and whether one tells a story better than the other. To your point about the other sectors, for money managers who pick specific stocks, that equal weighted index is way more relevant because of how much work is being done by the Magnificent Seven or whatever we want to call them. That's not to say that they're the only ones going up because they're not. But the market cap weighted index is up in the double digits. The equal weighted index is up, call it 5%.

And that tells a much truer story for the average money manager out there that's trying to pick specific stocks and the difficulty they're having this year. That's also where the conversation went when, you know, before the August pullback, when you had this huge run in the Magnificent Seven, the people who tried to throw cold water on the market overall, or at least that narrative, were like, yeah, but if you strip those out, take those seven largest stocks out, the S&P 493, because you're looking at the equal weight index, we're suggesting, well, the S&P 493, because you're looking at the equal weight index, we're suggesting, well, the market's not nearly as good as you think or say it is, because outside of the Magnificent Seven, nothing else has done that much.

And that was 100% true. At the end of May, the equal weighted index was down on the year. And so it was true for a big chunk of this year, the average stock was doing nothing. And all of the work was being done by the large cap. What you've seen, obviously, since is a broadening out, which is a positive all-all sequel. But it doesn't dismiss the fact that a lot of the names that we're talking about are doing the bulk of the work. It's not all of the work. It's the bulk of the work. Steph, one name that you're thinking about before we run, and I do have to go. D.R. Horton, you say you're considering adding to it. Is that correct? Yeah. Yeah. Down 10 percent. Trades at nine times earnings. We're still five million

homes short in the country. Five million millennials are entering into the home buying for the first time. Best in class. Great return. So, yeah, it's down 10 percent. I'm looking to buy. All right. Good stuff. Stephanie, thank you. We'll see you soon. That's Stephanie Link, our Dan Greenhouse, sitting here as well. We'll see you soon. That's Stephanie Link, our Dan Greenhouse sitting here as well. We'll see you soon. Let's get to our question of the day. We want to know what sector will lead the month of September. Tech, energy, consumer discretionary, or will it be something else?

Head to at CNBC closing bell on X to vote. The results coming up a little later on in the hour. In the meantime, a check on some top stocks to watch as we head into the close. Christina Partsenevelos is back with that. Christina. Well, PBH is higher right now after beating estimates on earnings and revenue. This is the Calvin Klein parent company. They also raised their earnings outlook for the entire year and said they're seeing strong performance,

especially internationally and in Asia, and that's why shares are up about 3%. It's not the case, though, for chipmaker Ambarella, having the worst day or its worst day in a year as weak revenue outlooks overshadowed a lighter-than-expected loss. TD Cowan downgrading the stock to market performance, citing the sharp inventory correction among Ambarella's clients. Keep in mind, Ambarella's chips are used in video processing versus all of that AI hype. Though they say the downgrade is painful,

as they still see some long-term promise for this company. It's still a ways off. And that's why shares are down 18 and a half percent. Scott. Wow. All right. Christina, thank you. We'll see you in just a bit. Christina Parts and Avalos. We are just getting started. Up next, counting on a comeback, Salesforce results. They're out after the Bell Star analyst Dan Ives betting we'll see some serious strength from the software name. I mean, the stock's already up like 60 percent year to date. Nonetheless, he makes his case after this break. We're live from the New York Stock Exchange.

You're watching Closing Bell on CNBC. All right. Welcome back. Shares of Salesforce higher ahead of the company's second quarter earnings after the bell in overtime. My next guest is expecting a beat. He calls Salesforce one of his favorite software names right now. He's Dan Ives, Wedbush, right here at Post 9. Welcome. Good to see you. Great to be here. Pretty good year for the stock. What's up? 60% plus year to date. Look, it's been back against the wall going into earlier this year. Activists swirling and Benioff. It's been a flex the muscles moment for Salesforce because of the margin story

and because what I view as a renaissance of growth that I think will continue in terms of what we see tonight. Well, how high is the bar, though, given the stock move into the number? Yeah, I actually think, look, the bar has definitely been set higher. But when I look at our checks and what's over the coming quarters, I think it could accelerate to double- type growth with margins expanding. I still view this as sort of risk reward that I've used more of a table pounder into the next six to nine months, given where Salesforce fits. And I think this is also going to be a big barometer for the rest of tech. Big piece of the puzzle. They had the slowest rate of revenue growth in 10 years last quarter. Are you taking that into account enough? Is that

reversing? What's the story? Yeah, I think it's starting to reverse. I think the big thing from Tableau, and if you look at what's happening on the core software side, I think Slack was a headwind. Now that actually starts to become a tailwind. They definitely went through a tough time. But if you go back to earlier this year, I think bears were thinking their best days were in the rear view mirror and i actually disagree i think this is a company that's really on the doorstep of a renaissance of growth so we mentioned 60 year-to-date i think i just saw down 20 or something over the last three months or so what are the concerns about cloud spending overall because this is going to play right into this stock and the kinds of things that the ceo says on the call yeah and then look in benioff when benioff talks everyone listens because this is going to play right into this stock and the kinds of things that the CEO says on the call. Yeah. And then look, when Benioff talks, everyone listens, because this is just

another piece of the puzzle. I mean, we heard from Paolo, but Salesforce is a huge barometer. And I believe in terms of cloud spend, similar to what we saw with Microsoft, when I believe what we saw with Google, what we see with Oracle as well, Scott, we're seeing an uptick in terms of over the last two, three months. And I think we're going to hear more of that from Salesforce and Benio. I view this as bullish for overall tech. I misread the chart. It's only down about 2% over the last three months. The other thing is they recently raised prices by about 9%, almost across the board. When does that start to show up? It's too now right it's too soon now but when we look out the next three four quarter i think right now streets actually underestimating growth from a cash flow perspective as well as from a growth and then also

this is all the drum roll to ai because i believe from an ai in terms of that sweet rollout i think that's going to be a big focus tonight in the call. We think that could be potentially $4 billion annually by 2025. And I think this is actually an under-the-radar AI play in terms of what's coming out of Salesforce and Benioff. 238 is the 52-week high. How good does this have to be to get back towards, if not exceed, those levels? Yeah, I think it's called scale 110. If we have an 8 to a 9, this is a stock that I think breaks through that because you think we'll really get an eight to a nine. I mean, just kind of given the environment we're in, whereas I said revenue growth was, you know, in the most recent quarter.

That that sounds to me like they better they better pull an NVIDIA. They better hit the ball so far out of the park it lands on the street. Yeah. Now, to that point, I do think that many on the street, in terms of expectations, have been ratcheted up. But our checks have shown actually significant improvement, not just quarter over quarter, but even over the last six months. And I think this is just an example of a company that has a massive install base. You've got the golden install base of Salesforce. Now it's just further monetizing it. And you go back to that Slack deal. I mean, that was really the headwind. Activists came in swirling. And I think it was really a moment where I think Benioff and Salesforce just proved the value of the franchise. Let's start talking about installed bases. I go right to Apple for obvious reasons, arguably the most powerful installed base in the history of consumer

technology. That stock's on the move, by the way. It's back above its 50-day moving average. They got the invitation sent out yesterday. Is this stock back? Is the momentum back? Oh, I mean, you've talked about it a lot. I viewed it as this was a no-brainer opportunity because of what I view over the last, call it, month or two. The street is significantly underestimated.

What's going to be a mini super cycle in terms of iPhone 15? We think we're talking about $240 million that haven't upgraded in four plus years. All of our checks out of Asia, even as of this week, show as positive. And I think it's one, the street continues to underestimate Cook and Cupertino, where they play chess and others are playing checkers. Quickly, too, on Tesla, which was at the top of our program, is one of the reasons we're talking about this resurgence in tech. What is that, up 10 percent in a month? It's about China.

I mean, go back to— I mean, in a week. But go back to the last few months. I think there was a view that price cuts, you're going to have this price war that's going to continue to play out. Yet for Tesla, you've actually seen what I view as an uptick in demand. We believe 95% of those price cuts in the rearview mirror. And I do think, Scott, you're starting to see that some of the parts story in Tesla in terms of that valuation. Supercharger, next batteries, and then FSD play out, which is why we believe this is a stock that, you know, I think is just on the early stage of its next leg of growth. All right. Dan Ives, thank you very much. Thank you. All right. We'll

see you soon. All right. Up next, the Nasdaq's end of summer rally still in full swing, but Vantage Rock's Avery Sheffield is raising the red flag on that growth trade. She explains why after this break. Plus, it's not just Salesforce reporting an overtime crowd strike among the many names hitting after the bell. We'll tell you what to look out for when those numbers cross. And don't forget to join us for Delivering Alpha. It's our investor summit, September 28th, New York City. It brings together investors and leaders to provide insights, ideas, and analysis to help you balance risk with maximized returns.

Scan the QR code or visit cnbcevents.com slash delivering alpha for more information. We're back in closing. Bell Tech continues to rally back from August slows with the Nasdaq having its sixth update in the past seven. Our next guest, though, warns growth stocks are still too expensive. Joining me now, post nine, Avery Sheffield, co-founder and CIO of Vantage Rocks. Good to see you again. Great to be here. So there's two, Post9, Avery Sheffield, co-founder and CIO of Vantage Rocks. Good to see you again. Great to be here. So there are two, I mean, valuations have come down a little bit in those names. A little bit. A little bit. I don't know. It looks like a little blip. It was looking like maybe it was going to be more significant. So you don't want to touch these

stocks? So look, I mean, it's a consistent theme whenever we've spoken. We're very valuation sensitive. We continue to be valuation sensitive. The market is not so valuation sensitive. And so, look, there continue to be mega cap tech stocks that we do like because they trade at very reasonable multiples relative to treasuries, relative to the short ends of the curve. Right. But there are a lot of other growth stocks, including some very popular ones that are pricing in an enormous amount of growth. And that might materialize over time. But the more growth that you're pricing in, the more any slowdown can potentially create risks. Okay. So Stephanie Link was on earlier. You referenced her talking about other areas of

the market that you can do just fine in if you're willing to take a hard look rather than just jumping on this proverbial train that everybody is already crowded onto. Exactly. Like what? Exactly. Because you agree. I absolutely agree. I agree that you don't have to own the most popular names.

Maybe they will work, right? But if you go to things that are unpopular, the nice thing is if things work, you get meaningful valuation expansion as well as earnings growth. And so a few areas that we have interest in, one, in retail, there were a lot of weak earnings reports in August. And you can get to a point where a stock is sold off enough that there's interesting upside in its potential turnaround scenario. Now, I'm not saying the macro is great, but if you look at what Fran, the CEO of Torwitz, the CEO of Abercrombie has done with that company, right, and turned it around to like 8%, 10% operating margins,

and you see other companies that are now trading at 2% to 3% operating margins that have potentially a reason to exist because they're selling maybe athletic shoes, which aren't going to go away. They're selling reasonably priced goods. They have new CEOs in the apparel sector who have experience with turnarounds in the past. You say, huh, there might be some opportunity here on normalized earnings. They're just cheap enough that the upside is 100% or more to these names over time. Yeah. I mean, and this one you're specifically talking about A&F. I mean, that was one like right in that wheelhouse of those other reports that were dreadful.

Yes. Right. And those stocks got crushed. And then this one was the real winner of that. Absolutely. And I think I mean, I think the lesson to be learned is retail is detail. And if you have the right product at the right price, merchandise well, over time, you can succeed even against a tough backdrop. didn't take that long for for for fran to really put in place merchandising that made a real difference and so i think a year from now we could be seeing signs of that from other stocks in the meantime how do they drift but i i think you are seeing also the stock movement of some of the names that are beating up the most showing that you know maybe they're just too cheap on a potential normalized earning scenario all right so what about the market as a whole right we're ending august and it's a tale of two months. First half, terrible. We're like,

oh, my gosh, this is going to be a steeper correction. Where are we going to go back to? Yes, yes. And then lo and behold, we've had this rally back. So where does it leave us? Right. So I think it leaves us at a pretty fragile point. And the reason it's fragile is because valuations are still very high right now, around 30 times S&P, just shy of 20 times with interest rates where they are with an economy that's slowing. It's not a weak economy. If it were a terrible economy, we'd be talking about interest rate cuts. Right. But it's a weakening economy, but still strong enough that the Fed has to keep rates high enough for longer. And against that weakening backdrop, I think that what we're going to see over time

in the future earnings reports, which we're now at the end of earnings season, but coming October, if some of these stocks that are considered to be like secular growers actually continue to see some weakness, people might get a little nervous, especially the valuations,

they want to take profits. And that's another reason why we're liking to go to, you know, where are things already pricing in a lot of weakness? Another area that's potentially interesting in industrial, Steph was mentioning that sector, in materials. You know, steel is an area where you actually have secular growth drivers, right? You have, I mean, auto production could be weak and give you some real buying opportunities with a potential strike. But from an infrastructure standpoint, from building out new plants and such and needing green steel, we are likely to have tariffs for a long time. Those stocks are trading at single digit to low double digit multiples on the expectations that they're going to be

incredibly cyclical moving forward. Got some M&A stories around that too. M&A stories, consolidation that's happened actually since before COVID. So I think areas like that could really end up surprising to the upside. And I would just be much more cautious on these more expensive stocks. Now, that said, because we have a narrative now, the interest rates have peaked and they're coming down, they might hold up. So I'm not making a call that they're definitely going to fall off. But I just I think it's it's tricky and risky because when when stocks are being driven by, you know, did they beat on this metric and that metric? But when you actually look at the fundamentals and you don't

see real real free cash flow outside of stock options, when you see a slowing growth narrative, but they beat that slowing growth narrative, at some point, investors might start to get concerned. Is there real value here? And that just feels scary to us. Lastly, as we sort of talk about, you just mentioned, you know, peaks in certain things, peaks and troughs. The narrative right now is that we've seen a trough in earnings, right? And that this quarter, third quarter, is going to finally see that growth again and then it's going to further accelerate into the fourth quarter and then into next year. Are you a believer in that narrative? I think it depends on the sector. I think it depends on the sector. And I think, you know,

there are some consumer names, for example, with a low-income consumer, real wages are looking positive now. If that dynamic continues, some of those names really leverage low-income consumer could do better. Like in software, though, I would say, you know, we were talking six months ago, everyone was talking about second half, 3Q, we're going to see a reacceleration in spending. That's kind of been a little iffy. And now we're talking about first half of next year. So those narratives are getting pushed out. It could be tough.

And then I would say in AI in particular, even guests on this show, recently CEOs of major consumers of these GPUs have spoken to the speculative nature of which all these purchases are happening. I'm not saying there's not going to be a lot of development, but if there is a lot of forward buying and the business models don't materialize, companies that are levered to that could be vulnerable. Maybe it's too far out, but I am not seeing in tech companies a sign that like 3Q, 4Q is going to be really strong. And that makes me a little cautious. All right. We will talk to you soon. That is Avery Sheffield joining us once again at Post 9. Up next, we're tracking the biggest movers into the close. And Christina Partsenevalos is back with that. Christina. Premium whiskey sales slumping, and that has investor spirits

on the lowdown. And that's hurting one name. I'll explain after this break. We have a news alert to tell you about on Tesla. The Wall Street Journal just out with a new report saying Manhattan federal prosecutors are investigating Tesla and its use of company funds for a project described as a house for CEO Elon Musk. The project reportedly called for a spacious glass structure a house for CEO Elon Musk. The project reportedly called for a spacious glass structure to be built in Austin, Texas. Shares of Tesla not moving much

on this particular story. We have told you about this run recently in the stock. It's up near 10 percent in just the past week. We'll continue to bring you any updates there if we do have them. Let's get back to Christina now for a look at the stock she's watching. Christina. Sunrun. It's rebounding today after Citi upgraded the solar stock to buy, saying its headwinds are priced in and investors aren't appreciating Sunrun's ability to raise capital and hike prices. Shares are up about 2.2 percent today, but still tracking for sharp monthly declines down 18 percent. Investors' spirits lower after Brown Foreman's earnings and revenue miss. Three main factors, firstly, lagging whiskey sales

from Woodford Reserve and Gentleman Jack. Secondly, supply challenges, including higher costs for grains, wood, and agave. And lastly, a sizable inventory build. I wanted to say I liked my whiskey like I like my jokes, aged to perfection, but I think that line is more appropriate for you, Scott. Thank you so much, Christina. I think, I think. Thank you. Welcome. Bye-bye.

Christina Parton, last chance to weigh in on our question of the day. We asked what sector will lead the month in September, of September? Tech, energy, consumer discretionary, or something else? Head to at CNBC closing bell on X. We'll bring you the results after this break. All right. The results of our question of the day. We asked what sector will lead in the month of September, tech, energy, discretionary or something else. I guess I shouldn't be surprised. Near half of you voting that tech will be the winner. Energy, number two. All right. It's the only sector that's positive for the month of August, which is interesting. And it's just by a couple of percentage points, but nonetheless.

All right. After the break, your Salesforce setup, the software company reporting results in just a few minutes. We'll bring you a rundown of what to look for when those numbers hit the tape in OT. 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 is here to break down the crucial moments of this trading day. Plus, we are monitoring two tech earnings out in overtime today. Steve Kovac joining us on what to expect from Salesforce. Christina Parts and Nevelos with what to look for on CrowdStrike. Michael, begin with you. What stands out to you today as the S&P gets back

above 4,500? And there's some other things we can talk about, too. Yeah, back to levels the S&P first got to in about, let's say, mid-July. So really, we haven't traveled too far above this so far in this rally. But I do think it's most of it going to script in terms of routine seasonal pullback, as everybody has been talking about. Nothing really got thrown off the rails. Oil never got out of hand. Yields went right up to the line of being very uncomfortable, didn't really stay there for long. And even the dollar has pulled back. So I get we're in this mode where the economy seems resilient, but not

overheating. We do that PCE number tomorrow. Everyone is sort of bracing for the fact that it's not going to look in the surface to be that great. I wonder if that matters as much at this point when I don't think the Fed has been the decisive factor in this market all year, except in the sense that a patient and relatively data dependent Fed that's not making any sudden moves is not getting in the way of what the market is doing. The stronger than expected economy has, though, been a key part of the story. And at least you know, you may have gotten a bit of a relief on that front today with the ADP coming in below expectations. Some of the other data was a little softer, too, ahead of the jobs report, let's not forget, on Friday. Yes. But we have to stay in that middle zone of still

growing, earnings still remaining supported because the economy is in decent shape, but not really getting back to the sort of late cycle when's the recession coming what are the lagged effects the leading indicators don't look great so I don't think we're that far from getting back in that mode but for now I think you know the market pretty much has it right that it's a it's a pretty good in between uh spot for uh for the data still get some key earnings reports and we are going to in overtime today as well. Steve Kobach, first to you on what to expect from Salesforce, as we were discussing with Dan Ives a little bit earlier. He's had a really nice run into this number. Yeah, that's a big one this afternoon. So look, the story this year with Salesforce, Scott, it's all about cutting

costs and increasing those profits. We know there's activist investors like Starboard. We're concerned the company is focusing too much on top line revenue growth instead of profits. And boy, they got what they wanted. Mass layoffs at the beginning of the year, plus getting rid of unneeded office space, among other cost cuts. And more recently, price increases for its products. Now, for this report coming out in about 10 minutes time, Street expecting revenue to grow about 10 percent year over year to more than eight and a half billion dollars. That would be a slowdown, though, in top line growth from the 22 percent reported in the same quarter last year. And they're still grappling with a slowdown in

enterprise software spending. Unclear when that will improve. So it's going to be really important, Scott, to pay attention to the guidance they give. And we will. All right. Steve Kovac, thanks very much to you. Christina Partsenevelos, what should we look out for with CrowdStrike? Really, it comes down to how much upside we see with its annual reoccurring revenue, especially net new reoccurring revenue, which happens over any growth that we're seeing quarter over quarter. Both those are key metrics for cybersecurity software names. And then Mizzou even suggesting buy side expectations for Q2 net new ARR, just to explain that,

is about 198 million bucks. But there's been pressure on cyber names since mid-June. The industry benefited from the migration of the data center into the cloud, especially during the work from home period. But there are concerns that the AI revolution will shift capex spend to anything AI related and away from cybersecurity. Competitor Fortinet lowered its outlook recently, while Palo Alto actually did the opposite. So the mixed tone is why Morgan Stanley downgraded the stock earlier this week, citing a spending slowdown from larger customers like Meta and finds that CrowdStrike's current investments will put a hamper on its operating leverage. Those analysts are betting on a cut to annual reoccurring revenue, which is an important

factor to this name. All right. Good stuff, Christina. Thank you so much for that. Christina Partsanovalos, you got the two minute warning there. Glad she set that up perfectly. Fortinet was kind of like, oh, no, Palo Alto was OK. It got you back. Now, let's see what CrowdStrike does. Yes, I do think it all reinforces the idea that the total pie isn't growing particularly fast. If you go back two years ago, it seemed like there was no limit. So now it is a little bit of everybody's add to a budget comes from somebody else's to some degree. And also the sales job, so to speak, of saying we are an AI beneficiary, not an AI victim. That's universal at this point in all companies. And when it comes to Salesforce, it's fascinating how quickly it has turned to, hey, we just we took the cost down. We're now a free cash flow story. Forward free cash flow yield for Salesforce is now higher than Microsoft and Oracle for the first time in ever. And so what that means is they're kind of telling you

that shareholders are going to get their share at this point, at least if it continues. I mean, obviously, that can change, especially if the stock goes up a lot. But they're also going to say, not only that, we're not only cutting costs, but of course, we are kind of right in place to be an AI beneficiary as well.

You want to hit Apple real quick, back above the 50-day? That's key. This stock has been on a run as much as anything has lately. It's only about 5% from the highs. It's one of those deals where until it proves otherwise, when it has a 10% correction, when it looks like it's breaking down, you probably want to give it the benefit of the doubt as opposed to run the other direction. It has had an outsized effect on the S&P today. It's the biggest upside contributor, of course. So, you know, people are getting somewhat excited, I guess, about the new product cycle.

We'll see if that's a regime. Well, buy the dip that's not dead in Apple or Nvidia or Tesla, as we've learned over the last couple of weeks. Mike Ciancioli, thank you very much.