Closing Bell - Closing Bell: Weighing the Fate of the Rally 8/26/24

Episode Date: August 26, 2024

Now that rate cuts are all but confirmed … what is next for the rally? Requisite Capital’s Bryn Talkington tells us what she is expecting. Plus, Former Dallas Fed President Robert Kaplan gives his first take on Powell’s Jackson Hole speech. And, chip stocks got wrecked in today’s session. Seema Mody reveals what’s behind that drop. 

All right, guys, thanks so much. Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. This make or break hour begins with the Dow's new record high as sectors outside of tech continue to rally. Post Powell, we'll ask our experts over this final stretch whether the broadening can continue as NVIDIA earnings loom large in just a couple of days. In the meantime, take a look at the scorecard with 60 minutes to go in regulation. We've got the best sector today being energy. Oil's been up about 3%. So there's the XLE. Staples, utilities, financials among the groups that were performing better today. S&P under some pressure, though, as most of the mega cap tech names remain in the red.

And that does include NVIDIA at the top of the list. It's still down 2%. Of course, earnings coming midweek. Apple sending out a new iPhone invite, which we'll discuss in just a few minutes. It does take us to our talk of the tape, the fate of this rally. Now that rate cuts are all but confirmed, let's ask Brent Talkington, managing partner with Requisite Capital, a CNBC contributor as well, and as you can see, is back at Post 9.

It's nice to see you. So, all right, the Fed chair delivered, and now we have another big week because now we need NVIDIA to deliver. Don't we? I mean, the market's been broadening. Do we need it to deliver? The market has been broadening, but you still have the S&Ps up, what, 18, while the equal weight, which we added in January, is still barely up 11. Right.

So you still have a big delta between the stuff that's been broadening and actually the market cap weight. I think that NVIDIA, I'm not surprised it's down today. Who is going to take a new position in NVIDIA after all this hype and all this pomp? And so I think that you have a little, a tiny bit of a sell-off today, but I think NVIDIA's earnings on Wednesday are going to be an incredibly important gauge of sentiment, of sentiment in the market around this trade in general. And you had your chance kind of at NVIDIA, you know, 20 bucks ago, 25 bucks ago. And it speaks to the way that a lot of these stocks have rallied back.

So now the pressure is really on. You've got to live up to the bounce back that we've had, as we said, the Dow hitting a new closing high today. So NVIDIA is this unique, one-of-a-kind animal. I don't think we've ever had a company of this size. Two years ago, they had full-year fiscal revenues of $6 billion. As of last quarter, it was $26 billion. That's up almost seven to six times.

Their stock's up 600 you know, that's up almost seven to six times. Their stock's up 600 percent in two weeks. So this earnings have actually backed up all of this stock market appreciation. But do I think that NVIDIA is going to go now from 28 billion, which probably where they come in 28, 28.8 for a full year, is going to now go up another five or six times in revenue? No. I mean, and so they had a step function up. The stock and earnings followed each other. But now you will see you will just see that growth, that growth coming down and leveling off. And that's where I say I think this is a lot about sentiment and how people digest slowing growth. I'll be I'll be at huge moving forward. You had a Freudian slip there. You said

600 percent in two weeks. I know it feels like that when the stock moves. I just know people are like, no, not to two weeks, two years. But your point is well made because it does feel like that. OK, Powell, Fed's out of the way. We don't. Why do you make that face? Like, do we have to worry about it anymore? You're still a little iffy on what lies ahead for the Fed. How are you? How are you seeing this? Well, you know, I'm always iffy. There's a There's a great saying that economic expansions don't die of old

age. They get murdered by the Fed. And so right now we're in a soft landing scenario. But what does concern me is that if you look over the last year, 82 percent of all jobs growth was government and education and health care. That is not a healthy jobs market. Historically, those are much smaller percentages. And so I don't know, I just don't know what percent of this jobs growth going forward, if we have less government stimulus, which I think we all know we need to have to be a responsible country, what's going to happen to the economy? And I think that to me, one of the most important numbers will be September 6th when the unemployment comes out, unemployment come out the Friday after next.

That, to me, is going to be a sign of do we continue to get a broadening or all of a sudden if jobs come out worse than expected, that's going to call into question the Fed was late in cutting rates. Are you still worried that they're going to be too late, that they maybe should have gone already in July? They didn't, and by the time they actually do, it's going to be too late. The economy're going to be too late, that they maybe should have gone already in July? They didn't. And by the time they actually do, it's going to be too late. The economy is going to be too weak.

I don't I'm not I don't have a I'm not passionate about that. I'm just looking at history. Historically, the Fed has been so data dependent. And so it's outside of ninety five and then one point in the 60s, which I wasn't around. The Fed has been too late. And all of a sudden, things worsen. So that's not my base case. But that's where I'm not sure if the economy from an employment number is as robust as we think it is

because of how much has been from government, education, and health care jobs. What are you like, especially right now in the market? What area? If I said you can't pick tech, you've got to pick something else, what would it be? You know what I'm going to go for? We do a lot of factor-based investing. And so I think sector investing can be too binary. I really like companies that have high free cash flow yields, not free cash flow, because you can look at Apple and say they have a lot of free cash flow, but take the denominator as their market cap. It's not a high free cash flow yields, not free cash flow, because you can look at Apple and say they have a lot of free cash flow, but take the denominator as their market cap. It's not a high free cash flow yield.

So within that, you could have Lenar. Lenar has, I think, an 8% or 9% free cash flow yield, but so does Diamondback. And so I think that those companies typically are more value-oriented. But what happens when the economy slows if you have a high free cash flow yield? You can do M&A. You can do buybacks. You can do dividends. It just gives companies a lot more flexibility. And so that, to me, that strategy of free cash flow yield is a really nice strategy to have going into, to me, more uncertain times. Generally speaking, though, do you like the housing area of the market?

Energy, which we said, obviously, is the leadership today with energy, with oil on the move? I mean, energy, obviously today with the Middle East, you're getting this just like oil bump. But I think these companies, you continue to see with Marathon, Diamondback, Viper Energy, also Lenar, D.R. Horton, these companies have moved up a lot, but actually they have really strong balance sheets. And so I think if you do get a rate cut, which we should have, and the economy does hold up, I do think the homebuilders can continue their chart. Their chart looks like a nice 40 degree angle on the upside. Those can continue because they're actually still pretty cheap. Yeah. Well, and mortgage rates coming down have obviously stimulated the housing trade, which is waiting to happen. Let's bring in now

John Spallanzani of the Miller Family Office and Ayako Yoshioka of the Wealth Enhancement Group. Good to have you both with us. Aya, your thoughts on the market here and now? So we got through Powell and now we got still a lot more ahead. Absolutely. So, you know, the September rate cut is a done deal. However, I think markets are still trying to figure out, are we going to get that 50 basis point cut to start? However, you know, when the Fed started hiking rates, we only got 25 bps to start. So I think they're going to be measured and start with 25 basis points at the September rate cut. Will it be enough for the markets to grind higher? You know, September tends to be a choppy month for markets.

Typically, it's down about 2% as a month. So it's going to be a tough month in September. John Spalazzani, you see it the same way? Well, I see right now we're in the soft landing sweet spot, so to speak. So as Bryn said, obviously Powell has got a really tough job on his hands now that a lot of people think he's behind the curve. Unemployment is trending higher, which is not good. Inflation has come down. It's funny right now. Most of the Fed speakers have said that as inflation comes down, the Fed gets more tighter. And we've said that quite a while ago, which is true. So them doing nothing really kind of put pressure on other central banks around the world. And that's why we saw the young carry trade blow up. We saw

a lot of different things. So it's really hard. Right now we're in a soft landing sweet spot, but it's really hard for Powell to stick the soft landing. Because you think they're going to be too late by the time they start to really cut? It's just very hard to get it exactly right. There's so many different macro factors.

Again, it's a super tanker. The cuts are going to be long and variable legs, too. So even though they cut 25 basis points, that's really going to do nothing. You know, you have you have tens trading below 4 percent. You have two trading below 4 percent. So the Fed has to cut at least 200 basis points. How quickly they do that and will the data allow them to do that? And will unemployment not spike just kind of like they think it's going to stay around around 4 percent? But if it goes about if it goes about four and a half percent, then definitely 50, 75s are now on the table. Does that make you more cautious because you're having these uncertain feelings about whether Powell and company are going to be able to pull it off?

Not really. You know, it's it's really hard to make money in the market. It's hard to beat the market. And it's really hard to do anything close to that if you're always worried about the market. So we just want to know what's going on in the market right now. We're not going to worry about what happens. I think tax policy really after the election is kind of the big caveat going forward. You know, are they going to raise corporate tax rates? Are they going to raise capital gains? Are we going to have go from we took everything back from on-shoring, and now if they raise the corporate tax rate, are people going to then offshore again? Tariffs. You have to worry about tariffs.

Exactly. Those policies that are being talked about, too, on one side versus the other side. I mean, there are things being talked about on both sides that could have impact on the markets. Huge volatility to come, but you can't go in and out of stocks like that. AI is a secular thing. Going forward, it's going to be at least 10-year runway. Eric Schmidt, Google is very bullish. Obviously, we've been very bullish. NVIDIA, CUDA, regardless of what the earnings are, if you want the fastest, the best and the brightest working, you have to work on that platform. You have to work on CUDA, which is NVIDIA's 70 percent margins.

They're growing 50 percent, you know, year over year. So that's really the prime sweet spot right now. But then as the AI story evolutionizes, we're going to have lots of other companies being pulled up with it. And it's a productivity miracle that's happening. So that's another reason why the market is doing as well as it's doing, because they know that with AI, productivity is going to increase. Inflation is going to go down. It's going to give the Fed the runway to cut.

And we haven't even mentioned China, but China's deflationary explosion really lately, that that's another thing, another reason why you're seeing commodity prices all over the globe, as well as PMIs in certain European countries, falling. So they're going to have that to contend with as well. Do we have, Bryn, heightened volatility from now until the election? We've got about 70 days. Just fits in spurts of it. Well, I don't think it'll be even remotely what we saw with the carry trade unwind, right?

That was like the second largest move in the past three or four decades. Yeah, that was like a moment in time, right? That was a moment in time. We'll say, wow, that will be remembered as one of those days we look back at and say, okay, that was crazy when the VIX spikes to 65, and then we're talking about it back at 15. I think over the next month, I mean, if you read the technicians, Jonathan Krinsky or

like Mark Newton, you just see like 80 percent of S&P stocks are above their 50-day moving average. So, you know, this could be a good week and then September could be a little bounce, could bounce around. But I don't think unless we have an exogenous event, volatility just appears out of nowhere. And especially going into an election, we have to remember we have this thing called Congress. And I think that's about a balance to both candidates is like who wins Congress to me is is so important in terms of being able to get either mandate that either party wants. And so we're not run by dictators.

We do have that good system here in America. Time to be cautious as a result of all of this or just be more bullish because we know cuts are coming. Scott, I think you've got to be a little bit balanced. I think, you know, we've talked a lot about technology and how that continues to be a secular theme across most portfolios. But I think with the Fed starting to cut rates, you know, having some economic sensitivity, having, you know, sort of that equal weight exposure to the index is something that I think would be positive for most portfolios going forward.

Yeah. You know, as we talk about these mega cap stocks, you find out more and more why people keep investing in them. Names like Apple with a new announcement today. Right. They send out invitations for a highly anticipated hardware event coming next month. Steve Kovac joining us with the details. I guess we knew those invites are coming. I guess we're glad they ended up in our inboxes. Yeah, that's exactly right, Scott. And it is a day earlier than we expected to, September 9th on a Monday. Usually they hold these events on Tuesdays. And the slogan here from Cupertino is it's glow time, which I assume is a reference to that new design that Siri is going to get with all this AI stuff that's happening. So here's what we're expecting. We've got new iPhones, of course, plus the other stuff you carry around with you, AirPods and the Apple Watch.

And by the way, this is the 10th anniversary of the Apple Watch reveal. And of course, that U2 album, they stuffed on everyone's phones without asking us. But as far as the iPhone goes, the most important product, not expecting significant hardware updates here. We're going to look largely and feel largely like the models from last year. And of course, that's because this is all about artificial intelligence. To use those new AI features, you're going to need a 15 Pro or better, presumably the next line of phones we're going to see in a couple of weeks here. And by the way, most on the street think this is going to spur a huge upgrade cycle thanks to AI. But Moffitt and Nathanson this week, although they did agree with that thesis, they said

it's largely already baked into the stock. And by the way, this is going to be a really slow rollout, Scott. It's going to be in U.S. English at first, and the features are going to be rolling out over several months. So you're not going to get everything at day one. ChatGBT integration, for example, is going to come by the end of the year, and some more advancements in Siri and other things are going to happen next year. And after all that happens, it's still going to be a beta version. It's unclear when artificial intelligence on Apple devices is going to launch in China, the next most important market due to regulations there. By the way, CEO Tim Cook told me a few weeks ago the company is working with officials to get artificial intelligence cleared. But expect a slow rollout for now there, Scott. All right. So patience. Patience are in order. Steve,

thanks. Steve Kovach. How do you think about this? Like Moffitt, Nathanson saying, well, yes, we're excited about it. It's going to lead to a great upgrade cycle, but it's already in the stock. That could be true. I really still think this is incremental. Like I have the iPhone 14 and I already got the iOS 18 beta on my phone and it's a 14, not a 15 or 16. And I think this is incremental. Like I have the iPhone 14 and I already got the iOS 18 beta on my phone and it's a 14, not a 15 or 16. And I think this AI is a nebulous concept. And so we'll have to wait and see, must I go from a 14 to a 16? I'm not even thinking about it. But what I do think it does for Apple is it solidifies the billions of people that have an iPhone are going to stay with iPhone, continue to spend.

Yeah, this installed base they have, right, is second to nobody. Second to nobody. So while their revenue growth is also incremental, right, and they juice their earnings per share, you really can't look at it that much because the per share they keep taking out, so the denominator gets smaller. But I think this is going to, once again, solidify that base. They have such durable revenues. People love the product.

And so I think it's just a great win for Apple. But I do agree that I don't I don't think it's going to be some big move between now and year end because of this launch. Well, I mean, look that from June, we're looking at the chart. You can see from WWDC in June, that was the huge launch. You can see it clearly on that chart, but you've gotten a huge move into that. You still prefer Amazon as your principal AI play? Yes. Yes, still. Obviously, it has so many different ways to make cash, high free cash flow, as Brent said. But in terms of the iPhone, I was told by Bloomberg that I will no longer be supported. So I do have to upgrade this cycle. So I'm going to go with the 16.

Yeah, count me in that cycle. Exactly. With the upgrade cycle. You don't own Apple or you do? It's just small. Yeah, it's just small compared to the others. What gets you to increase the size of your position? That's up to Bill, obviously. But right now, our main hold is obviously Bitcoin, Amazon, ClearSecure, MicroStrategy. Those are the big ones. We have some position, NVIDIA, Google, obviously Meta. Those are the ones that we love. But you guys are still hitching your wagon to Bitcoin. Well, we still have. He was just in Forbes over the weekend. So we still have a one percent allocation to Bitcoin. We think, again, it's a it's it's a it's an insurance policy on catastrophe.

So if the world blows up, you'll still have your Bitcoin on your new iPhone and you'll be able to travel a little bit readily rather than, you know, not. Why do you think it's traded so squirrelly lately? Yeah, I think. well, one of the reasons why we got a big bump up with all the ETFs. So there's a lot of flows that went into that. We got up to about $75,000. Then it kind of died off a little bit. And then we got into this range of really $50,000 to $70,000. It went below $50,000 just briefly. And it was bought pretty strongly there. And I think that going forward, you know, if we do take out that 70,000, that's going to be a FOMO episode, just like 6,000 is

going to be on the S&P. If we take out 75,000 on the Bitcoin, you know, it's easily going to trade above 100,000 and probably rather quickly just because, again, it's a fixed supply. There's only 21 million. We're getting closer to the end of that cycle. We just had another halving. So there's going to be a lot of positive factors going forward, not to mention the fact that both candidates, it's funny because that's one thing they both agree on, right? Republicans and Democrats. I think that's because of all the campaign contributions that they're getting, first with Sam Bankenfried and now with various other parties, that they both want to be, they don't

want crypto to go offshore. They want crypto regulations and rules to be in place so the ecosystem could evolve more and more as we go forward. Has it decoupled itself from the NASDAQ? Because it was correlated heavily for a while, and it's looked like maybe that was undoing itself. There are times when it's more decoupled than others. But the one thing that we do see with Bitcoin is the volatility has gone a lot less. So the moves have become less extreme than they were in the past. So a move when it was at a thousand or ten thousand, they were huge moves, right? Even

twenty thousand, thirty thousand. We saw big drawdowns. We really haven't seen that since it hit 75,000. We haven't seen a 50% drawdown. We've seen drawdowns that coincide with, yes, the Nasdaq, but those are really market, really like stock market related drawdowns rather than the previous Bitcoin. You own crypto related stuff. Are your views correlated with Mr. Spalanzani's or not? Well, you know, I think that first of all, it's still up 44 percent year to date. So just take a little bit longer term just year to date. And it's been one of the I think the top performing asset. I think around the volatility, though, investors need to understand underneath the hood,

this trade gets highly, highly, highly levered. And so when the world ends or like when the yen trade unwinds, what happens to Bitcoin? All that leverage gets flushed out of the system and Bitcoin comes back to it. And so I think that you need to watch the leverage underneath the hood of what's happening because that to me has much higher correlation is how much people are levering up their Bitcoin on the, not on the NASDAQ or iBit, but inside of the cryptocurrency system that still remains really high. It's lower now because they got washed out. But I think as a, you size it right in a portfolio, you know, it may, it may do well. It may, but you got to size it right. Cause it may not.

It may not. Well, it's an insurance policy that you don't want to have to use. We don't want to see the world blow up. We want to see. But the world only ends once. Yeah, exactly. It really doesn't even matter. All right, we're going to leave it there.

Guys, thank you so much. I will see you soon. Bryn, it's nice to have you here at Post 9. John Spalanzani, we'll catch up with you again soon. Let's send it to Pippa Stevens now for a look at the biggest names moving into the close. Hi, Pippa. Hey, Scott. Well, another setback for Boeing.

NASA announced over the weekend that it will leave two astronauts at the International Space Station until February, when they'll return via a SpaceX spacecraft instead of the Boeing Starliner they arrived on. The test flight was originally supposed to last about nine days. And shares of Icon Enterprises, hitting their lowest level in more than 20 years after Carl Icahn's investment firm said it will sell up to 400 million depository units through an at-the-market offering program. Icahn settled charges with regulators last week, paying a combined $2 million in fines over the failure to disclose as much as $5 billion in personal margin loans, those shares down 12 percent. Scott? Thank you, Pippa Stevens. We're just getting started here.

Up next, the former Dallas Fed president, Robert Kaplan, joins us exclusively. Give us his first reaction to Fed Chair Powell's Jackson Hole speech. We're live at the New York Stock Exchange. You're watching Closing Bell on CNBC. We are back with stocks holding on to most of their post-PAL pop following the Fed chair's dovish speech in Jackson Hole. Now the Fed's new challenge will be navigating the correct size and pace of rate cuts in the months ahead. Joining us now, Robert Kaplan. He's Goldman Sachs vice chairman and, of course, the former Dallas Fed president. Mr. Kaplan, welcome back.

It's nice to see you again. Good to see you, Scott. Our prior guests during our market conversation a few moments ago have doubts that Mr. Powell can pull this off. You share those doubts? No, I think they have a reasonably good chance to pull this off, meaning a soft landing. First of all, we're running 7 percent of GDP deficits fiscally. In other words, a historically high deficit at a time of full employment. Some of that's higher interest, but some of it's higher spending. And I think that's giving some resiliency to the economy. So I think in Jay's speech,

Jay Powell's speech, he made clear they're going to move in September. He left his options open as to how much. He made clear that they're going to balance employment and inflation, and they don't want to let the job market get any worse. And I do think we're going to find out from the August jobs report there's a reasonable chance that that may actually be better than people think. So I think we've got a reasonable chance to navigate this. And if the economy turns out to be weaker than I just said, then the Fed can do more. You think they should go 50 just to be safe?

I think a lot of it's going to depend on the August jobs report. And so I would withhold judgment on that if I were in my seat until we get to the first week in September. And again, if that job report is weak, they'll go 50. If it's stronger than people are expecting, which is a possibility, then I think they'll go 25. And they'll do that in order to move more deliberately and and be able to control the pace. But see that that speaks to one of the criticisms now, doesn't it? That they're too data dependent at this point, that they're already way too restrictive. So why not act faster to bring the rate back down? The fact of the matter is,

if they're late, in my opinion, they're late by a meeting or two. But that's not even clear. And this is actually, there are times where the structural drivers, I think, ought to take more precedence. The amount of fiscal spending is one of those structural drivers. I think when you're tweaking, whether it's 25 or 50 and how fast you want to get the next 75 basis points or 100 basis points of cuts. I think actually looking at data and how it evolves is actually not inappropriate. So I think they've got the balance about right, actually. But you still sound like your principal concern in all of this is the still rising deficit and the cost of funding it and the impact that that's going to have on interest rates in the future? Yeah, I think I have a couple of concerns. One in the near term,

I think the economy is weakening. Anything interest rate sensitive is weaker. The jobs market is is weakening. We needed that weakening to offset some of this fiscal spending. And so I think we've made enough improvement that we can start cutting rates. But yes, secondly, I think the big issue over the horizon, the debates won't be about monetary policy over the next year or two. I think they're more likely to be how do we deal with debt to GDP that's over 100 percent in an aging economy? How do we get higher growth? How do we get more productivity? How do we deleverage? And I think that's more about fiscal policy. I think the Fed's got a runway, in my opinion, to get a couple hundred basis points of cuts over the next year and a half, two years.

I mean, the pace we'll figure out, but they'll do their jobs. I think the bigger issue, we've actually got a glaring issue on fiscal, and I don't think it's been being focused on right now. I mean, we know that some on the Fed wanted to cut in July. If you were sitting in your office in Dallas and you had a vote, would you have said, yeah, I want to go in July, too, for some of the reasons that I'm concerned about? I mean, you said the economy is weakening. The job market is weakening. If you know that, then why not cut in July to send a signal that you're on the case and you're not too data dependent? By the time you do act, it might be too late. I might have moved 25 basis points in July. However, you remember when I was on this program

just a couple of months ago, I think the Barron's headline you and I were talking about is Barron's was saying there would be no cuts this year. So in fairness to the Fed, the narrative has gone from one extreme, which is the economy is too strong, we don't need any cuts, to the Fed can't cut fast enough, they're way behind. I have a funny feeling that as we head into this fall, the narrative is going to get more balanced in between those two. The Fed should be cutting. We need the cuts. The only question is the pace. And I think I think they'll gauge it meeting the meeting. And I think that's the right approach right now. You think they've done well enough in the course of all this to erase the mistakes at the at the very beginning? Or are those going to be forever etched in the history of

Jay Powell's Fed? Well, I think we've talked about this before. I think, unfortunately, I think the Fed was as much as 18 months late in recognizing not the COVID supply issues. They recognize that immediately. I think the excess demand that was created by too much fiscal along with too much monetary. And I think they were a year, 18 months late in recognizing that. I think to their credit, they acknowledge the mistake, did a 180. But anytime you have to raise rates as quickly as they just did, it tells you you were way off course. And so I think both can be true. They made a substantial strategic error a few years ago, but I think they've dealt with the about face relatively well. And I think both are true. We'll leave it there. Good place to leave it. In fact, Mr. Kaplan, thanks so much. I appreciate your time today. Good to talk to you, Scott.

That's Robert Kaplan joining us once again. Up next, Ed Yardeni is back. He says the Fed is, quote, playing with fire. Well, he'll explain why just after the break. We are back with the Dow on track now for another record close. The S&P 500 is lower today, but still around 1% from its own record. Here to share where he sees stocks heading next is Ed Yardeni. He's the president of Yardeni Research. Good to see you.

Welcome back. Thank you. Thank you very much. Well, we've gotten through a lot, haven't we? Carry unwind, the econo scare, the Powell speech, and now NVIDIA is looming large. Do we have enough left in the tank to get over that hurdle? Yeah, I think so. I mean, I'm not quite sure what you're concerned about when you say enough in the tank.

I mean, the economy, I think, is doing fine. I think the next batch of economic indicators are going to be stronger than expected because I think July's numbers were impacted by the weather. And if that's the case, then some of this concern about the weakness of the economy will evaporate, as it has happened in the past since 2022. And meanwhile, inflation is on course to be down to 2%. And the Fed's indicated they're going to ease. I think they're too dovish now, but I don't think that's going to be a big problem unless we get a melt up in the stock market, which is a possibility now. I mean, I guess I would only say it's not like I'm concerned about anything.

This market's been unbelievably resilient, right? I think anybody would say that, and it deserves as much credit. But at some point, does that resiliency run its course? Well, I think, you know, when you said that I'm concerned about the Fed playing with fire, what I'm concerned about is that there's a lot of kindling wood out there. There's over $6 trillion in money market funds, around $2.5 trillion of those are in retail funds. And if the Fed starts lowering interest rates too aggressively or communicating that they're going to be lowering them rather quickly here, you can have a lot of that money going into the stock market, going into the economy.

And the other thing is for the Fed to essentially commit to a process of lowering interest rates for the future here is going to run smack dab into the next elections. In the next election, we may have a Democratic sweep or we may have a Republican sweep. Either one of those scenarios could very well be inflationary, and the Fed, I don't think, wants to be joining that party. So I think the Fed should have just communicated September cut of 25 basis points and left it at that. I mean, they all but did. I feel like that's what the market anticipates now. It's more of what happens next. Shouldn't that be our principal concern at this point, the pace and the size? Yeah, my interpretation of Powell's speech is that it went well beyond just the 25 basis

point cut in September and basically said that it's going to be an ongoing decline in interest rates because of the concern that the balance between inflation and unemployment of risks has turned more to risks of higher unemployment. I don't agree with that. And I think it's with that. And I think it's a mistake. And this wasn't really necessary. I think the Fed could have just signaled 25 basis points for September. I think they signal a lot more beyond that. I know. But why should they just go 25 basis points and then say we're done? They're far

too restrictive relative to where the PCE, for example, is now and where their real rate is. Well, I disagree with that concept. I think there's a lot of people, particularly at the Fed, and that's important, who believe that as inflation comes down, the policy becomes more restrictive because the Fed funds rate, if the Fed funds rate isn't lowered. And also, there's a lot of people that look at the history of the Fed funds rate and said, look, every time they start to decline, it then drops very, very sharply. Look, the economy has proven itself to be resilient. We haven't had a credit crisis. We haven't had a credit crunch. And therefore, we haven't had a recession. The economy has demonstrated that it's perfectly capable of handling these levels of interest rates.

And so I think productivity is making a comeback. I think that the so-called neutral rate, I think it's a fantasy rate, but that's what Fed officials watch. I think the so-called neutral rate is probably higher than most of them believe or expect. So I don't say that they should do 25 and say they're done. I think they should say they're 25 and we'll see how it goes. I know. But why should we have a credit crunch before they they're forced to do more? We already know that the economy is weakening. We can quibble about the degree to which it is in the labor market is obviously weakening to Scott. Scott, let's quibble because I disagree. I think the economy is strong. I think the labor market is back to normal.

It's not that it's cooled off, as Powell said. I think it's back to normal. And what's back to normal is, as evidenced by initial unemployment claims, have come down a bit here after they looked like they were going to go up. But, again, a lot of that was weather-related. The payroll numbers that we had at the beginning of August, that was weather related. And I think we're going to see stronger numbers there. But if things are back to normal, the Fed funds rate is not. That's the whole point. If things are normalizing, but the Fed funds rate is still too restrictive, why shouldn't we move it back towards normal? That's your interpretation. Well, Scott. That's your interpretation.

Well, Scott, that's your interpretation. My interpretation is- But how's my interpretation, Ed? They hiked for 18 straight months. Where is it written? Well, they hiked from zero. That's the point. That's why, you know, I've been predicting no recessions to the beginning of 2022,

and everybody else has been predicting recession. And one of the things I got right was saying, look, the Fed has tightened from zero to 5.25%. So the abnormality was zero, not getting to 5.25%. By 5.25%, the economy is dealt with extremely well. It's been at these levels in the past, and the economy has grown. So I disagree with the view that the economy is weakening, that the labor market is weakening, that the labor market's

weakening, that the Fed funds rate is too restrictive. But I'll go along here. I mean, look, when I say it's irrelevant, the Fed is saying they're going to cut by 25 basis points, and that's what it's going to be. But I mean, job growth is slowing and the unemployment rate is going up. It's not slowing. It's normalizing. We're back to one hundred and seventy thousand. But now we're having a semantics debate, Ed. I mean, OK, it may be normalizing. Sure, it's normalizing, but it's to normalize. It's it's it's slowing. And the Fed doesn't want to lose control of it now after they've come this far. It's slowing relative to a boom that we had in the labor market

that has certainly simmered down. We're back to where we were before the pandemic in terms of the monthly increase in payrolls. And that was perfectly good time for the economy. The unemployment rate got down to three and a half percent right before the pandemic. So interest rates were at zero. What's that? Interest rates were at zero. What's that? Interest rates were at zero. They were absolutely abnormal. Absolutely. And here we are back at 170,000 per month, as we were before the pandemic, and interest rates are 5, 5.25%. And the abnormality was zero interest rates, not 5, 5.25%.

But I'm not saying we're not going to see the Fed lowering interest rates. I'm just saying it's I think they got to got too dovish and they're forecasting too much. I mean, the abnormality was maybe getting to five and a quarter as fast as they had to. I mean, they were forced to do that. That wasn't normal either because of the level of inflation we had the highest in 40 years. Yeah. But Scott, you agree with me that starting in 2022, as the Fed raised interest rates, everybody was talking about that's got to cause a recession. And we're still don't have a recession. Of course. And we still have 20 people talking about it. You are correct. Of course, most people thought that it was going to cause a much faster deterioration

in the economy. But the long and variable lags have proven to be much longer than people ever expected they would be. But that doesn't mean you just declare victory and assume that all of this is going to work out well and that you don't need to do anything with interest rates at this point. I'm not declaring victory. I'm just saying that what economists missed is what I call the credit cycle, the credit crisis cycle. History shows that what happens is when the Fed tightens, you get a credit crisis, which turns into a credit crunch, which then becomes a recession, which is when the Fed lowers interest rates and rates decline sharply. And that's when you get your inverted yield curve, that when it starts to disinvert, that's when the recession actually hits. What's different this time is, yes, monetary policy

tightened. Yes, we got a credit crisis last year, but the Fed came in and stabilized the situation. And guess what? We haven't had a credit crunch. We haven't had a recession. And I'm sticking with that story. That's and we'll make that the last word. And I look forward to talking to you again soon. I like the debate. Thanks for having me. All right. Be well, that the last word. And I look forward to talking to you again soon. I like the debate. Thanks for having me. All right. Be well, Ed Yardeni. Up next, we're tracking the biggest movers into the close. Back to Pippa Stevens for that. Hi, Pippa. Hey, Scott, 200 stocks are going in opposite directions. We've got all than 15 to the closing bell. Pippa Stevens looking at the key stocks we need to watch.

Pippa. Hey, Scott. Well, SolarEdge is tumbling after a C-suite shakeup. CEO Zvi Lando is stepping down and will be replaced on an interim basis by CFO Ronen Feier. This comes as the solar industry struggles under higher rates and elevated inventory levels. And U.S. listed shares of Petrobras in the green after Morgan Stanley upgraded the Brazilian oil giant to overweight. The firm said total investor return could hit 60 percent through a combination of share price appreciation, regular dividends, as well as one-time dividend payouts.

Morgan Stanley added strong cash generation differentiates Petrobras from its peers, though shares up 9 percent. Scott? All right, Pippa, thank you. Pippa Stevens. Still ahead, semis are sinking in today's session. We will break down what is behind the big leg lower. There you go. Micron, Lam, and Supermicro among the biggest losers. NVIDIA's red as well. Back right after this. All right, coming up next, PDD shares. They are sinking in today's session. We're going to drill down on what the move could say about consumer spending in China and other retail stocks.

The Market Zone is next. We're now in the Closing Bell Market Zone. CNBC Senior Markets Commentator Mike Santoli here to break down these crucial moments of the trading day. Plus, SEMA Modi is following the sell-off in the chip makers today. Deirdre Bosa on why Timu's parent, PDD, is weighing on Chinese stocks today. SEMA, though, we're going to start with you. Tell us what's happening with the chips here. Well, Scott, semiconductor stocks taking a turn here, as you just pointed out. But if we just zoom out for a second, the sector declined about 25%.

It started in July, and since then, it's recovered about 20% of those losses, all within the span of roughly six weeks. Today, no major catalyst. One portfolio manager characterized it as just more of a breather ahead of NVIDIA earnings on Wednesday. You did see Micron, which does count Nvidia as a customer, get a price target cut over at Needham from $150 to $140 a share. Analysts pointing to Micron's recent comments suggesting shipments would be a bit weaker in the fall. Inventory in general, a key issue for the entire sector. And some trepidation going into Dell's earnings and its margins tied to AI server demand.

The company reports earnings later this week. Dell competitor Supermicro among the hardest hit in today's session. You'll see down over 8 percent, Scott. All right, Seema. Appreciate that. Seema Modi. Dee, tell us about PDD. Take a look at the stock price. It is losing over a quarter of its value today. This is not a small company. Market cap of well over $100 billion. That is dropping. This is a a small company. Market cap of well over $100 billion. That is dropping. This is a giant player in Chinese e-commerce.

It owns the Timu app that has quickly become very popular here in America. So hitting the stock today worries over slowing growth and lower profitability. This is only the latest Chinese e-commerce company hit by the change in consumer behavior over there. You got Alibaba and JD.com reporting disappointing results in the

last few weeks also. In PDD Group's case, it is also in investment mode. It's co-CEO saying that they're investing in trust and safety, improving the merchant ecosystem, and, quote, we are prepared to accept short-term sacrifices and potential decline in profitability. Scott, that is not something that investors love to hear. All right, Dee Bones, appreciate you. Thank you for that. All right, Mike, we'll come back to you in less than a minute. Probably going to get a new closing high for the Dow, although it looked dicey about 10 seconds ago.

So we'll see how it finishes. I mean, look, I think people come into the week saying the Fed put is in place. It's at a little bit more of an attractive level. That's a psychological buffer that the Fed is there. But this ongoing leadership shift is really interesting, and that definitely applies to the semis. We had a big momentum stock on wine tech declining relative to non-tech. And so I do think that sort of leaves a lot to prove for that group

and changing character of the market. Maybe that's a positive thing. We'll see if it plays out that way. A decent press today. We've got a video loom at large midweek. We'll see that the Dow is going to go out with a new closing record high. I'll see you tomorrow. Over time.