Closing Bell - Closing Bell: Trading the Turbulence 8/24/23

Episode Date: August 24, 2023

What is the best way to position for what happens next in the markets. Joe Terranova from Virtus Investment Partners breaks down his forecast. Plus, Schwab’s Kevin Gordon is flagging a big break up between stocks and bonds. He explains why that relationship is on the rocks. And, market expert Mike Santoli explains the big slide in stocks during the final minutes of trade. 

Welcome to Closing Bell. I'm Scott Wobner, live from Post 9, right here at the New York Stock Exchange. This make-or-break hour begins with this jittery market, despite that big NVIDIA blowout, and what that might mean ahead of tomorrow's key speech from Fed Chair Jay Powell. Rates up today, ahead of those comments. Investors on edge now about what he might say and what all of it might mean to this market in the months ahead. We're right across the board. Take a look. Your scorecard was 60 minutes to go in regulation. The Dow weighed by some big moves today in Disney and Boeing and Walgreens and Intel and Nasdaq getting no lift from NVIDIA either, which has been volatile in its own right. We'll watch that stock in this final hour to see if it closes positive or negative.

And it's been anything but a certainty today. You see the stock is still green. Apple is also lower, along with Microsoft and Meta. That's a bit of a problem today. More broadly, we're watching 4,400 on the S&P. ComServices, discretionary tech among the worst sectors, brings us to our talk of the tape. The message of this market right now, with stocks struggling through a tough month and about to head into a seasonally tough stretch. What is the best way to position then for whatever happens next? Let's ask Joe Terranova, Virtus Investment Partners chief market strategist and a CNBC contributor. Welcome back. Good to see you.

Good to be here, Scott. What's up with this today? You know, we said there are two massive events this week. NVIDIA was the first one we had to get through. You checked the box. I mean, that was a win. Sure did. Stock doesn't look so great today. Market doesn't really look that great today as we now turn our attention towards Jackson Hole. But what do you make of this market? Well, you told us last week when you returned, you said it was a sell the rips market. And that's what it is. It's

sell the rip. We're still, unfortunately, in that state. We're up against very strong historical seasonals. The weakness prevails. And the bond market took over as the catalyst from NVIDIA. There was nothing wrong with NVIDIA. Obviously. It reaffirmed the potential optimism in terms of being able to come out of the earnings recession surrounding generative AI. But it's about bond yields. It's bond yields here and now. And going into tomorrow's Jackson Hole speech, boy, Chairman Powell has to really walk a fine line because he could send the bond market parabolic.

So you say, let's take this on a couple levels. Number one, you're suggesting that the profile of this market has changed. What was a buy-the-dip market is now a sell-the-rip market. Number one. Correct. You say nothing wrong with NVIDIA. Maybe the only thing wrong with NVIDIA is it's up 200% year-to-date and up 50% in three months going into the print. So there's a lot of momentum and froth, perhaps, and a lot of great feeling already in the story there. What do you make of

that? Listen, NVIDIA right now has the most intense positive momentum of a stock that I can remember in recent memory. In addition to that, it has fundamental tailwinds. If you want to try and understand what the actual risks are surrounding NVIDIA. It's that you could see market cap loss from a lot of the mega caps. So if I actually look right now at Apple relative to NVIDIA, what has a stronger fundamental tailwind? Without question, NVIDIA does. NVIDIA has a fundamental tailwind

that a lot of the mega caps don't. So I think portfolio managers are going to be, and they're already underweight, Apple and some of the other mega caps, just because of where they are in valuation. But I do think you're going to see a little bit of an internal rotation amongst the Magnificent Seven going towards NVIDIA at the expense of the other mega caps. So if institutions and mutual funds hedge funds are underweight some of these names as you know yesterday we had eric wood ring on from morgan stanley suggested that apple's under owned in that cohort and then we learned today from another firm

that says a lot of the mega caps under owned in terms of that cohort does that lead to a chase that lead after you get some of this settle out does that lead to a chase? After you get some of this settled out, does that lead to a chase, which gives these stocks that next leg after you consolidate for a little bit? I believe it does, but I don't think we see that until later in the fall. I think in the fourth quarter, we set up perfectly for a chase for performance driven by the positioning, the sizing of the positioning in a lot of those mega caps. But I don't think that's going to happen in the next several weeks. OK, so hold your thought for a second. Let's bring in Leisman, Steve Leisman, our senior economics reporter. He's out in Jackson Hole, obviously.

He is there because of that big speech tomorrow. So, Steve, give me your take here. Joe just said that the chair tomorrow needs to walk a, quote, fine line or he could send the bond market parabolic. What's your sense of the kind of message that Chair Powell wants to deliver tomorrow morning? Scott, can I go back and talk to another thing that Joe said, which is I thought it was really interesting that the bond market looks to be sort of trumping the NVIDIA earnings here, which means the market is really way more concerned about what bonds are doing than it seems to be these unbelievable earnings from at least a single company anyway. And that kind of gets me to my answer to your question. I do think Powell has to walk a fine line. I don't know that I can say that or the bond market will go parabolic, but I think he's

going to walk a fine line because I think there's a fine line to walk. It's one where the Federal Reserve has to still have concern about inflation, but had a bunch of success in bringing inflation down. Inflation was five percentage points higher this time last year, Scott. And we've gotten to this point with, you know, unchanged unemployment. GDP is running pretty strong. That's the big question to me as to whether he feels he needs to address that stronger inflation, stronger GDP growth. Remember last year, he said that bringing down inflation would require a period of below trend growth. He never got that, but he did get inflation coming down. I don't know how much concern there is for that. We had Harker tell us today that higher rates at this point was not a

concern for him. And he said, you know what, in some case, it could help bring down inflation. So I don't think we're that on edge on monetary policy here, because I think the Fed is definitely in a wait-and-see attitude. I don't know what the market heard this morning from Harker that made it feel sour about the world. Well, I mean, Harker said, quote, right now, I think that we've probably done enough. I guess my question to you is, is Harker on an island? Is he on an island or is he part of the majority at this point? I don't think so.

Look, there's there's if you want to put together a majority, the majority would be those who think they've done enough or those who think you've got to go another quarter. That's a big part of the committee right there. There is a contingent out there that does think maybe there's one more to go, but they're going to let it ride, I think, a little bit, Scott. I think a pass in September is probably a done deal or real close to a done deal without any obvious acceleration of inflation. And then you've got a few more months of data where the Fed can come back and figure out if it's done enough. Harker told us he thought the Fed was restrictive already. He didn't say sufficiently restrictive. That would be an incredibly dovish comment from Powell if he says it tomorrow, that we are at this point sufficiently restrictive. That would tell us that he thinks we're at the point where we can hold for a while. That's what Harker thinks.

That's what Collins thinks. I think that's what Bostick thinks from Atlanta. So there is a contingent of, I guess you'd call it the we've done enough crowd. Do you think that the Fed chair's message changes somewhat now because of the moving yields over the last month? In other words, he's going to, has to acknowledge that financial conditions

have tightened somewhat, right? So if he gives a speech a month ago, maybe the wording's different. But the bond market's done some of the Fed shares work for it, hasn't it? Scott, I think you're 100 percent right. I was thinking that we were going to come in here a few weeks ago and the big problem was going to be this strong GDP growth. But the response to that in the bond market, which, as you know, has come from very large issuance announcements from the Treasury, as well as better economic growth and what's been happening in Japan with yield curve control, a lot of forces are working on the bond market right now. And I think that plays a pretty big role in what Powell has to say.

If he doesn't mention it, I think he might come away with saying, hey, he's okay with what's happening because he's doing some of the work for him. And, Scott, I've talked to some big bond investors. They look at a 430. What are you looking at today? 423 on the 10-year. And you say, you know what? Two and change inflation, 2% real return. That's maybe where we're going to be living for a while. And I think what Joe's talking about is he's learning to sleep at night with a with a 10 year yield that may be four and a quarter,

four and a half for a while to come here. Yeah. So do you want to respond to that? I mean, if he sends rates, you know, off to the races and in any way, the stock market is obviously going to have a problem. Well, the bigger problem we're going to have is and financials are already telegraphing that is the stress in the regional banks does it return once again and how in touch is he with the regional banks as far as where they are currently listen mortgages at highest level since 2001 go try and get an auto loan now you you're challenging s&p valuations based on this recent decline. He's got a lot of work to do, and this is also his first opportunity to acknowledge the downgrade of the U.S. from Fitch and the banks with S&P and MUTY.

So that's where the fine line has to be walked. But I'll tell you, the regional banks is a part of the market that I would be focused on if you see bond yields continue to move higher. That's where the problem is. Are you going to talk about that, Steve, in terms of financial conditions overall? He's going to mention maybe the banks, the ratings, downgrades, just what's the pipes being clogged up a little bit in that part of the system. I would be surprised if he mentions

rating downgrades. I think he sees that as not his particular problem. I do think he would see regional banks as his problem. I think he sees that as not his particular problem. I do think he would see regional banks as his problem. I think he would see some of those other issues Joe talked about as things that are things he can address, though. If he were to say, Joe, that we are done here, look, I would sort of back up a little bit. The Fed sees credit tightening as a need for what they want to do here, which is to bring down inflation. Whether or not there's too much credit tightening,

some pressure is going to be felt by the regional banks because of what's been happening or in the effort to slow down the economy. That's going to happen. He can fix that problem if he feels a need to. If he were to say, you know what, we're done here, that would cause the short end to have a lot of relief in it, and all of a sudden you'd have or could have close to a positive slope in the yield curve, and banks could do their business again.

So I think he's going to let it run for a bit and watch it. If it gets acute, that's when he might address it. I don't think, Joe, he sees the problem as acute right now, but maybe I'll be proved wrong tomorrow. They've been flummoxed somewhat too, Steve, by the resiliency of the consumer, which, you know, obviously they need things to slow in their minds. And if you look at the consumer, you could say it's a tale of two. You know, it's the consumer who's spending on experiences and travel. And then today is yet another example. If you look internally within the market, some of these

retail stocks, some of these apparel makers have absolutely had a brutal week. I wonder what they glean from that. It's not an easy picture to read because you could look at any number of stocks and say, see, their consumers finally cracking and then hear from ceos in another part of the discretionary world and suggest that they're doing just fine yeah so scott i've been collecting dimes for every time somebody told me the consumer was cracking and i now have a pocket full of dimes right now so uh and and people have been wrong about that i'm a little embarrassed about the um economic community which says that consumers either have $100 billion left in savings or they have a trillion dollars left in savings. They don't really know. We don't really know. I've been looking at the idea that there's lots of folks

that are employed at 3.5% unemployment rate. Wages have been relatively healthy. The bulk of consumers' income does come from the fact that they're working so i i'm not ready to say the consumer is going to give it up i think it's possible they slow down a little bit they've been uh you know as you said uh enjoying uh trips and experiences and rock concerts and all kinds of fun stuff out there um and they've been spending on that which we don't by the way track very well so i i don't think that the fed right here is going to believe that the consumer is going to give it up, because having done that over the last several quarters would have been a bad prescription for a forecast. Steve, the topic of this conference, I'm going to read it, structural shifts in the global economy. Does that mean in

some way that Chairman Powell is going to suggest to us that he's going to be patient with 3% inflation. No. Well, OK, patient, yes, but not change the target. I think it's I think he, you know, not publicly. He has a chance. Right. If he has a chance to bring that to to to get a hold of inflation, see it gradually coming down towards 2%, be airing once in a while on reports that are higher than 2%, and make all that happen without a bona fide recession, I think he'll take that. And that means he has to wait for a year, maybe a year and a half. I think he's going to be cool with that. I do think the structural changes, though though one of the areas that might be of

interest is whether or not there's talk about a higher neutral rate that interest rates are higher for longer. I think it's about supply chains and what that means for inflation. The fact that we're domesticating I guess that's I don't know it's the right word some of our supply chains bringing them home and I think the idea of global inflation and how that's been working are all on the table here. We have Lagarde speaking. We have the governor of Bank of Japan here. So all that's possible to be part of the conversation here. Yeah. Well, we'll look forward to all of it in your coverage, too. Eight minutes that changed the market last year because that's how long the Fed chair spoke. And then the markets hit the lows in October

after that summer in Jackson Hole. Steve Leisman, thank you very much. We'll look forward to you over the next day as well. Let's bring in Ayako Yoshioka of Wealth Enhancement Group as we continue our conversation. Ayako, welcome back. It's nice to see you. So what's your view here? Right. So NVIDIA delivered everything that we could have ever asked for again.

And yet we have an uncertain market heading into tomorrow. Yeah. Hi, Scott. NVIDIA definitely had a high bar going into earnings and they did deliver. So the pullback, you know, as Joan mentioned today, is really because of the bond market. The bond market is really driving this reset in valuations. And it's really going to be about time. You know, how long are we going to spend at whatever the terminal rate ends up being? So it's no longer about the level and more about the time. You know, I'm wondering about NVIDIA as we watch it and, you know, we're going to track it over the next 45 minutes and see if it closes in positive or negative

territory. You wonder if it's a dip, you know, if the stock does have a pullback of any size, whether it gets bought. And then the other question is what it really means for the other mega caps, because, you know, all of the mega caps went up and they went up even more after NVIDIA delivered what it did last quarter. But now you have to ask the question whether NVIDIA's gain is NVIDIA's to enjoy itself and whether those other stocks are going to be able to continue streaking with NVIDIA. What's your sense? Well, you know, Scott, on NVIDIA's earnings call, they mentioned how it was the hyperscalers. It is Microsoft and Amazon and Google Cloud purchasing a lot of these

AI chips. And so I think the benefit is really going to accrue to all of us who utilize the cloud. The productivity gains that we're going to have in years to come are still going to be there. And so I don't think you can kind of just detach it and say that NVIDIA is on an island by itself. You know, I didn't think that the market was going to be down today, to be honest with you, after what NVIDIA did deliver in overtime. What does that tell you about where we might go from here? You know, I don't know what the Fed chair is going to say tomorrow. None of us do. We don't know what rates are going to do. But is it an ominous sign in any way to you that NVIDIA knocks the cover off the ball yet again, but the market doesn't look like it did last time?

No, I think it makes sense. Again, it's a valuation adjustment. Everything starts with the cost of capital. And so when interest rates are high, you have to adjust for that in valuations. And so, you know, multiple expansion has been the name of the game this year. And so for multiples to come back a little bit, despite the fact that NVIDIA really blew it out, you know, it sort of makes sense, especially where we were at, you know, at the end of July. This sort of August retrenchment makes sense to me. How about you, Joe.

Well, look, I think overall right now, first, it all begins with this battle that you have. You have hedge funds and speculators that are short the Treasury market. They've been vocal about that. They've told you they're short. They're pressing up against the Federal Reserve. On the other side of that, the asset management industry wants to get long duration. They think that there's value that's being realized in the corporate bond market. So I just look at that battle as needing to be resolved one way or the other.

And I think the equity market takes its lead from that thereafter. Aya, what part of the equity market, just to play off what Joe's saying and to wrap it up, looks the best to you right now? You know, we still like health care in general. I think health care has a lot of characteristics to it that can provide growth, as well as some defensive characteristics as we go through the near-term gyrations of the market. Aya, we'll see you soon. Thank you. It's good to see you as always. Thank you for being here once again, Joe.

Thank you. See you tomorrow. As well. Yep, look forward to that. All right, let's get to our question of the day. We want to know, will rates rise or fall on Fed Chair Powell's speech tomorrow? Head to at CNBC closing bell on X, formerly known as Twitter to vote. The results a little later on in this hour.

We're just getting started, though. In fact, let's get a check on some top stocks to watch as we head into the close. Christina Partsenevalos is back with that. Christina. Well, Splunk is an outperformer after beating estimates and issuing an upbeat guidance. CEO Gary Steele said earlier on CNBC around 1.55 Eastern that cloud spending has slowed in the current economic environment, but he remains pretty optimistic, and so does Wall Street, with a number of analysts raising their price targets. Bank of America reiterating the stock as one of its top picks, and that's why shares are up over 13.5% right now. But woof, take a look at shares of Petco.

Yes, I did that pun. Plunging after the company slashed its full-year EPS guidance, Petco's CEO saying in the release that the environment is still uncertain as discretionary spending remains under pressure. What? People aren't spending on their pets? I don't know. We'll see. Christina, thank you. We'll see you in just a bit. All right. We're just getting started, as I mentioned, up next, a big bond and stock breakup. Why Charles Schwab's Kevin Gordon thinks that relationship could be on the rocks. He makes his case just after this break. We're live

from the New York Stock Exchange. You're watching Closing Bell on CNBC. Stocks are near session lows, giving up earlier gains on the back of NVIDIA's strong Q2 earnings. My next guest believes there could be a lot more volatility in store for this market, saying, quote, harmonious relationship between bonds and stocks is likely over. Let's bring in the man behind that quote, Kevin Gord of Charles Schwab. Welcome back. Hey, Scott. Good to see you. The note's path of least resistance in the current sell-off is likely down. I mean, in fairness, you've been saying that when the market was up, you said the path of least resistance in the current sell-off was likely down. Well, we got a little bit more, last time I was on with you,

got a little bit more constructive. I mean, like a smidge. In the June, July period. It was like you could barely see through the positivity. Where, you know, there was hope on our part, at least, that given the significant deterioration into May, you had seen a record low in the percentage of stocks that were outperforming the S&P, which to us, that was more of the bearish case, not as much the fact that you had, you know, this concentration up the cap spectrum with just a few stocks, just a handful of names leading the rally. So because of that, in June, you started to see more of a broadening out. That was kind of the case where we saw a lot more optimism going in. Now, of course, the sell-off has been a little bit more broader. You've seen a pretty significant deterioration in breadth lately. But I would still look for signs where

you've got a lot more profit taking up the cap spectrum. Maybe you can get a little bit more solid on the breadth side as you move down to the rest of the market. You take anything at all from NVIDIA and the earnings, which were blowout again, and a somewhat muted reaction today, what that tells you, if anything, about whether, you know, mega cap stocks still have any level of momentum left to propel them higher? Well, I think what you were talking about with Joe and Steve, you know, with the bond market coming a lot more into focus, it's really the volatility, I think, in yields that's been much more of a driver this time. Because when you actually look back in history, we've done some work on looking at different phases or different stages of volatility within bonds

and kind of the two bookends, meaning the most volatile days, the least volatile days, that being the significant driver for stocks. So it's not as much the level of yields that's the problem. It's when you get these spikes. Right, because from the beginning of earning season, let's say right before earning season to now, we're 40 to 50 basis points higher on the 10-year than we were, which some have suggested is the reason why what was a pretty decent earning season was more muted because market couldn't handle the fact that rates went up as quickly as they did. Yeah, I think it's part that, but also part of, you know, for the earnings season, you kind of have to go a little bit more below the surface and look at the fact that for a lot of companies, a good chunk of the companies that were earnings beats,

put them in that category, it had been because of pretty aggressive cost cutting. So for revenue growth as a whole, for the S&P 500, if you're using that as the proxy for the market, for the quarter, revenues were basically flat. And in real terms, they were negative. They were down for the third consecutive quarter. So in our mind, it's been more of the case of the market realizing that you had probably gotten as good as it got, you know, you've gotten to the stage where it's as good as it gets from an earnings perspective.

Now you have to look for the companies that are actually showing organic revenue growth. And for even some of them, you know, whether they're the high flyers or the mega caps that still have a pretty good runway ahead of them, you know, they've had some pretty solid gains year to date. So in our mind, it doesn't hurt to take a little bit of profits if that's what people are doing in the market. Well, I mean, we talked about that with Joe too, whether the tone and sort of tenor of the market has changed in general,

where it's from buy the dip to sell the rip, that, you know, any meaningful move higher, you know, for NVIDIA is a good example of that. Right. Stocks up 50 percent. It's your number gets a pop off of the initial report and then it's sold. It was negative. Now it's positive and it's going to fight it out for the next 30 minutes, you know, to see what happens at the end. Yeah, I think, you know, one of the ways that I would approach volatility and really our message for the entire year, even in a maybe umbrella of caution, would be underneath the surface. Doesn't mean don't stay invested. I think there's a misperception often that if you're cautious or if you're a little bit negative,

that means get out of the stock market. That's not how we view things. So leaning into high quality, especially in these times of pullbacks where you're looking for earning strength, you're looking for profit margin strength. One thing I would now, you know, with the yield story coming into the mix, one thing I would add to that is who has a high interest coverage ratio. Certain sectors like energy actually screen pretty well on that. So I would look at it from a factor viewpoint, not as much as, you know, what sector is going to do well when yields are at whatever level. What kind of risk do you look at for tomorrow? I think him staying

sort of on message in terms of what he's been expressing and kind of consolidating the viewpoint of all the members saying we're data dependent, nothing's really changed here in terms of what we're looking for for inflation and for growth. I think the interesting thing we were talking about in comparison to last year, very short, very blunt, very much to the point of financial conditions having to tighten more. What I think will be interesting is how he balances the inflation growth dynamic. Because last year, growth was pretty weak heading into the meeting. We didn't have the third quarter GDP report.

And then inflation, we still didn't know if the peak was in the rear view. Now you kind of have the opposite scenario where growth expectations are picking up pretty markedly. I'm not sure if we get to 6%, like some have been suggesting in terms of an outcast. But inflation has definitely been, you know, taking the stairs down. So I think you're in a little bit of a better environment, or at least Powell's in a little bit of a better position to kind of keep us on the path we've been on, which is, you know, let's keep policy restrictive. Let's see where we go from here. Well, he also has in his pocket that rates have gone up as we just expressed over the last four weeks. Yeah, I think that's probably helps him out.

Absolutely. I think that's actually part of the message. And when you hear from our fixed income strategy team in particular, what they've been saying is that the kind of move up in yields, this most recent move, there's a lot of factors you can point to. You can pick basically any narrative you want. But part of it is consistent, I think, with the market embracing a higher for longer scenario, if that is to be the case. And especially with 2024, the Fed not pivoting right away to rate cuts, especially aggressive rate cuts, that would make a lot of sense to me where you have yields readjusting in a positive way. How are you thinking about fixed income versus equities versus cash right now? And how has that mix changed, if at all, in the last month?

I think fixed income has gotten increasingly attractive throughout the year. I mean, yields going up, you actually have, when you're comparing it with equities, what you earn in the stock market, if it's on a forward earnings but yield basis or a trailing, the comparison to bond yields is just much less attractive relative to about two decades ago. It doesn't mean it's inherently bad for stocks, but it levels the playing field a little bit, especially at a time when virtually every valuation metric you use for the market has edged up into expensive territory. Well, of course, bond yields have made that happen too. Bond yields going up. And for a long time, the bull case, even if a PE ratio or price to GDP, whatever you want to use,

even if that had been stretched, you could have rested on the fact, if you were bull, could have rested on the fact that bond yields were pretty low. It's no longer the case. So it levels the playing field a little bit. I don't think it means stocks are bad outright because you can have eras when yields are high, like the 70s, 80s, 90s, even into the early 2000s. And, you know, stocks didn't go down throughout that entire period. Appreciate the conversation. Thanks for being here. Good to see you. All right. That's Schwab's Kevin Gordon right here. Post nine up next. The Fed is in focus, as you know, the Jackson Hole Summit officially kicking off. Investors are anxiously awaiting Mr. Powell's speech tomorrow. Evercore's Roger Altman joins us after the break with what he's expecting from the Fed

share, what it could mean for the market, of course. Closing bell right back. Welcome back to Closing Bell. Stocks and bond prices both coming under pressure. That ahead of the Fed chair's speech tomorrow. Today, Philadelphia Fed President Patrick Harker said he doesn't think the Fed has to raise rates anymore. Right now, I think that we've probably done enough because we have two things going on, right? Both the Fed funds rate increases. They are at a restrictive level. So let's keep them there for a while. And also, we are continuing to shrink our balance sheet.

And that is also removing accommodation. So what should investors expect from Fed Chair Powell's speech tomorrow? Let's ask Evercore's Roger Altman. It's nice to see you. Thanks for being here, Roger. Hey, Scott, how are you? I'm good, thanks. You heard Mr. Harker. We've done enough. You think they have?

Well, I think tomorrow's message from Chair Powell and Jackson Hole is going to be relatively low-key and pragmatic. It's not going to be hawkish in the following sense. I think he's going to say that we've made good progress on inflation, but we have to watch and see if that continues. And he's going to observe, I would expect, that they have to be particularly vigilant because there is stronger underlying growth than most expected and that the Fed expected. And that's a basis for being very watchful. But I don't think

his message is going to be one which commits the Fed one way or the other on the upcoming September meeting. It gives them the flexibility to raise again, including then, if the interim data makes the case for that, but doesn't commit them. So a pragmatic, relatively low-key, low-drama message. Do you think in your gut that September's a live meeting, Roger, or do you think that we get a pause and then we'll put November on the table and just see what the inflation data for what is an alleged data dependent Fed now sees and thinks? I think there would have to be some negative data, meaning higher inflation data between now and the September meeting for the Fed to hike then. I think their

base mentality is not to do that. As you know, the market doesn't expect rate cuts at all between now and the end of the year. But the big story really is the surprising growth. The latest data suggests that this third quarter may come in about 3% real growth. That is remarkable for this late in the economic cycle. I mean, the recovery began almost three years ago today, or this month. And to see 3% growth three years later is surprising. I think it's the main reason probably why bond yields have risen. It centers around the consumer, consumer spending and retail sales. And it's also surprising because there are some considerable signs of economic weakness, but they just aren't showing up in the main growth data.

If you look at mortgage applications, you guys have been talking a lot about that. If you look at the flatness of rents now, you look at the China dynamic, you look at certain commodity prices like copper and aluminum, they're suggesting weakness. And I must say, I think it remains to be seen as to whether the recession risk is really behind us. But that weakness is not yet the main event when it comes to the growth data. It's the consumer. Well, one of the other changes, it appears, is that, you know, as you cite a lot of the positive economic data points and the fact that we're much stronger, I think, at this point, as you suggested, than people thought we would be, that now we've changed things, though,

where that good news is perceived bad news because, A, it pushes bond yields higher where they've gone and now makes the Fed a little bit more of a wild card on that whole thing. Yes, but as you well know, many smart people have already concluded that we're going to see a soft landing, no recession. I mean, the economics department at Goldman Sachs, which I respect a lot, has that viewpoint, for example. I personally think it's too soon to conclude that, because monetary policy operates with such long lags, 12- 18 month lags. And if you look at the speed and the

slope of the Fed tightening and you look at the shrinkage in money supply, M2, you say to yourself, wow, economic weakness is coming. It just isn't here yet. Now, I'm not sure we're going to see a recession, but I don't think it's clear we aren't. It just may be early to mid 24 before we really know the answer to that. Let me also ask you before I let you go, you know, something in your wheelhouse, whether you think we are emerging from the wilderness, if you will, on the deal market, whether we've got the makings of what is a comeback for what's been really dried up over the last 18 months or so? The answer is maybe. Activity levels are up. Shadow backlogs, so to speak, are up. And that suggests a recovery. But if indeed, six to nine months from now,

we're in recession territory, that would turn the cycle back down. If you believe we're going to have a soft landing, then I think we're past the low point on deal activity and deal volume uh and and the the data i just suggested implies that but it really depends on your longer or your medium-term view on whether uh we're out of the woods economically and we're sailing out into the clear blue waters or whether you think uh ultimately we're going to see economic softness a lot more than we have so far roger i appreciate it as always thanks for being with us pleasure scott all right

that's roger altman joining us up next we're tracking the biggest movers as we head into the close christina parts and nevelos is back with that christina uh-oh more quality issues with boeing 737 jets and that's bringing down one key supplier. I'll explain next. 15 before the closing bell. Let's get back to Christina Partsenevelos now for a look at the stock she is watching. Christina. Software name, Autodesk.

That's what I'm watching because it's up about 3, 2% now after its Q2 revenue and guidance beat analyst expectations. Like many of its peers, the firm touted its AI offerings and workflow products for what should drive demand higher in the second half of this year. William Blair analyst, for example, rated outperform, citing its diversified end market exposure. Shares of Boeing, though, moving in the opposite direction after the aerospace company said deliveries of its 737 MAX planes will be delayed because of new manufacturing flaws. Some holes in the body of the plane were improperly drilled. Spirit Aerosystems, I should say, builds those plane bodies. And its shares are down almost 12.5%, Boeing almost 5%.

Scott. Rough day for both stocks, Christina. Thank you very much. Last chance to weigh in now on our question of the day. We asked, will rates rise or fall on Fed Chair Powell's speech tomorrow? You can head to at CNBC closing bell on X, formerly known as Twitter. The results after this break. We're sliding towards the close here.

340 now. Lows of the day for the Dow Jones Industrial Average. S&P 500 is down by more than 50 points as well. NASDAQ is a drag, too, down 1.75%. And we continue to watch NVIDIA. We're going to see what happens here as we edge towards the close. That stock is still hanging on to positive territory, but not by much. So we'll keep our eyes focused on all of that over the final stretch here, 10 minutes or so. In the meantime, the results of our question of the day, will rates rise or fall on that speech tomorrow by the Fed chair? The majority of you said rise.

Well, they've already been going up. About 60 percent of you think they're going to continue to go up. Just after this break, your earnings set up gap and affirm among the big names reporting in just a few moments. We've got a breakdown of all the key metrics to watch that and more when we take you inside the Market Zone. All right, we're in the closing bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down the crucial moments of this trading day. Plus, two earnings reports out in overtime.

More light perhaps shed on the consumer. We have Courtney Reagan on what to watch out of GAAP, and we're going to talk about what to expect from Affirm as well. In the meantime, Mike Santoli, this is a getting nastier looking day. Yeah, clearly some unfinished business in terms of the dynamics of this pullback, trying to assimilate very conflicting economic observations. I think you can fairly say that with, you know, still strong GDP readings, at least tracking for this quarter. And, you know, you see some decent growth numbers, not bad on the jobless claims, but inflecting enough on the other side of it. People concerned not so much that higher yields are here to stay with a very hot economy, but higher yields mean

it's going to restrain the economy. It's fast economy, then slow economy. That's what we're kind of coming together on. That said, the market is really operating in some respects in some textbook fashion. You had the 5% pullback in the S&P, a bit of a half-hearted bounce that got right back to the 50-day moving average. Couldn't get there yesterday. Sellers seemed to stay out of the way just in case we got a buying frenzy after NVIDIA. When that doesn't manifest at the open today and you start to see it's much more selective market, then it was safe to actually take some further risk off. So we're still sloshing around between last Friday's low and that 50-day average. And it

feels as if I also think there's apprehension ahead of Jackson Hole tomorrow, not because we expect anything specifically bad, but just a why bother adding risk beforehand. One of the stocks of the stocks of the day undoubtedly is Disney. I want to bring it up and I want your opinion here. I mean, the stock is ugly. The chart looks bad. Yes. Looking at the lowest close since 2014, you're going to put a new fresh post-COVID low in today. Just ugliness. Yes. So definitely has been a broken chart for a while when the mid 80s gave way. That seemed like it was a potential floor because it did get you back to the covid low.

And then way before that, where it had broke higher in the mid 2010s. So maybe that's one technical reason. It's not a strong group at the moment. You've seen a lot of weakness in everything within communication services outside of alphabet and meta, basically. So all that stuff in the mix. Also, I've always put Disney in an informal bucket with the likes of Nike and Starbucks as these kind of global brands. The stocks never really look dirt cheap. It seems like the brands travel around the world. We can just always own them.

And there's a little bit of hesitancy around all those names right now. You mentioned Nike. It's going to be the 11th straight down day today. Down again. You speak about charts that don't look great. And that brings me to retail. Courtney Reagan, good retail stories these days seem very few and far between. What is Gap going to tell us? Yeah, exactly, Scott. Well, I think Gap is obviously really interesting. We're expecting to report earnings there, but just nine cents on revenues of $3.57 billion. Comparable sales expected to fall 4.4%. A new CEO, Richard Dixon, actually officially started two days ago.

So not responsible for the quarter, but I'm told he's going to join tonight's earnings call. GAAP shares rose on the announcement at the end of June of his hiring, but down about 4% since then. Now, Dixon has a big job to turn around this global multi-brand apparel retailer. It's really struggled under supply chain issues during the pandemic, like many others. But then also, it had fashion that consumers just really weren't so into shortly thereafter. And the inventory was just all off kilter for both of those reasons. There have been a decent amount of executive turnover as well at a number of the brands and a large store closure program that the company has been working through. So I think this kind of needs some new gap magic. We'll

see if Dixon can do it and really how long investors give him to do so. These things take some time, of course, to start a new strategy and then implement it. We'll see how long he gets to do so. OK, Court, thanks. We'll see an OT with the results there. We're also watching for Affirm. Buy now, pay later. Mike Santoli speaking of stocks and charts that don't look great, down 18% in a month, down 55% from its recent high. Yeah, it certainly on a two-year basis doesn't help out in that score either. A lot of attention for obvious reasons on this uptick in consumer credit delinquencies. It's something that is visible to the sell side for a firm in the form of the loans that they sell into security.

So you can actually track the loss rates. And there has been an uptick. It hasn't necessarily been anything that says there's distress there, but it's moving in the wrong direction. Makes operating more expensive for a firm when rates go up, credit conditions soften, and they can't kind of make as much on selling those packet zones. Also, concerns about, you know, it's a commoditized offering, arguably. Buy now, pay later. Everybody else is in there with a me-too basis.

But it's a $4 billion market cap. If you think the franchise is worth anything as a first mover, I think that might be the debate today. Heavily shorted still. Yes, you can't have it become buy now, pay never. Yeah, for sure. That's a problem. So look at the rates. OK, we're green almost across the board. The very, very short end is red in terms of yields.

But otherwise, it's been almost straight up for the last month-ish, right? Sure. And now we lean on tomorrow in this Powell speech. And boy, the market's going to hang on every single word. It most likely will. I mean, you know, the 10-year is essentially hovering near or just below the recent high. So it's not as if yields are blowing out today. It's just there's at this uncomfortable level for what they mean for, you know, higher for longer. I think it's very sound to expect Powell to try once again to say, look, we have no we're in no haste to start cutting rates almost

no matter what. But we are restrictive right now. Kind of what Harker said today. I don't think that's a tough message for the markets. I think that's an as expected, you know, signal that we've been, you know, kind of working with for a while now. So I don't think that's necessarily something that is a huge hurdle for the market. Maybe it's just we have to get past it. Investor sentiment has definitely soured. That's been helpful. So in the last four to five weeks, you've seen people go from pretty bullish as earnings season got underway to very nervous. That's good. It's not enough, clearly, with this decline today. As I said, the lows from last Friday in the 43.30 area have a lot of eyes on them. Does it mean anything to you if NVIDIA manages to close positive today?

I would imagine it would be pretty not a great sign if it reports what it does and it fights it all day and finishes negative. I mean, it would be one more negative. I think that the action, the reversal in the NASDAQ 100 in general has not been a positive one. I mean, massive downside reversal from where we opened and when we were indicated to open last night. But I don't know if NVIDIA, if it's going to be a little bit of a small victory, perhaps, if it pulls it out on the green. They're going to be happy to close them up today. We're going to go with a low, too. Downs down about 375.

I'll see you tomorrow.