Closing Bell - Closing Bell: What’s at Stake for Earnings? 10/20/23

Episode Date: October 20, 2023

What’s really riding on big tech results next week? Dan Greenhaus of Solus Alternative Asset Management and NewEdge’s Cameron Dawson give their forecasts. Plus, star value investor Scott Black breaks down his top picks and why he thinks the fed could hike again this year. And, SolarEdge’s sinking in today’s session. CNBC’s solar expert Pippa Stevens explains what’s behind that move and how it’s impacting the rest of the sector. 

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. And this make or break hour begins with a battle inside this still unsettled market. On one side, rising rates and geopolitics versus those looming mega cap earnings next week. The big question, of course, will some of the biggest names in the market be enough to get your money back on track for a late year run? We'll ask our many experts that very question this hour. In the meantime, there's your scorecard with 60 minutes to go in this week of regulation. It looks like this. Red Day overall yields a big part of that story. The 10-year topping 5% yesterday. It's still hovering near that level.

There it is, the 10-year, 492. It's clearly put some significant pressure on regional banks and real estate as both of those sectors are among the hardest hit today. Real estate making a turn, though, as we begin the final stretch. Regional banks, though, they've been under some significant pressure. NASDAQ suffering as well, as you might imagine. There's Microsoft, Meta, Alphabet and Amazon. We throw those four up because they are the four reporting earnings in the coming days, each with a decline,

well, most at least of about 1%. It takes us to our talk to the tape. What's really riding on those results next week and what is the busiest stretch of earnings season thus far? Let's ask Dan Greenhouse, chief strategist for Solus Alternative Asset Management, back with me at Post 9. It's good to see you. Thank you, sir. So it's been a bit of an unsettled week, obviously. Volatility's picked up a little bit. Does tech come in next week and save the day, or does it just raise more questions? No, listen, I think the important thing to note, I would argue, about tech is that while the market sold off, it's been largely valuation. And for most of these names, not Apple, but for most of these names, we've seen

revisions to the upside. And from a performance standpoint, Google and Meta have looked really strong in the face of a weak tape. Obviously, that's something to do with digital ad trends, et cetera. But I think more likely than not, you go into next week thinking that tech, certainly those big tech names, are going to be more helpful than hurtful. So let me ask you this. Yields remain elevated near 5%. Let's just say the 10-year remains near 5%. Mega cap earnings are good.

Is that good enough to outweigh the higher level of the 10-year? Yeah, listen, clearly there's been a problem. This last leg higher in yields is the story, obviously. Because of the speed speed too, right? Yeah. And what I was going to say exactly that is it's not really the level per se, although the level can be worrisome. It's the speed at which you get to that level. And since call it mid-July, the market has clearly had a problem with the rate at which rates were going up. And so to your point, like if the Fed meeting comes and Jay Powell, we don't raise rates and doesn't really tell us anything that we don't know, which should be your expectation going into the meeting.

And then the EPS or the earnings for those big four or five companies and also Visa, MasterCard, et cetera, are healthy enough. I think that sets the stage for what will ultimately be a late year rally. There's like a 99 percent chance, at least probability, according to the market that there's not going to be a hike in November. So that's done. But what about yesterday? What was your takeaway from Powell? I feel like the market didn't really know what to make of it. Maybe that was the point. Yeah, listen, I don't think I sort of have an issue sometimes because we follow this. I follow this very closely and have been following it very closely for 20, 25 years or whatever it's been. I don't think he said anything that we didn't know.

And more on balance, I think in general, the Fed isn't telling us anything that we don't know. They're data dependent. We can quibble about whether they're too data dependent. But they're in a wait and see mode. If things progress the way that they're supposed to progress, they're probably done. If things, this is, I think, the baseline, they're probably done. If things get a little hotter, then they'll probably raise one or two more times two to two two data dependents an interesting point that you raise i think i was reading muhammad el-aryan who was suggesting the same

thing two data dependent not focused enough on what they've already done which isn't in the data that they're allegedly so dependent on which raises the risks of going too far and causing an issue that didn't need to happen in the first place. I mean, the risk has always been that, and this is true cycle after cycle, the Fed over-tightens. And as I said, the analogy I used, let's call it 12, 18 months ago, 10 guys and girls in a room, to oversimplify, 10 guys and girls in a room are not going to get it right. I think what I would push back on Muhammad's point and a lot of other people's is just note that we don't really know how long and variable the legs are. I think that's part of his point.

Nor does the Fed, which means keep that more in mind than the data to make your decisions. Yes, but what I make your decisions what i yes but what i was going to say is the other way meaning in other words on the economy the strong economy that's the data that pal's obviously so fixated on because he talked about it yesterday yeah there's essentially and i'm paraphrasing there's just too much demand and that's why inflation on the services side is as sticky as it is and doesn't seem to want to go down any time in the near future. Yes. And let's let's forget the good

services and just look at American Express, who reported and when asked if there was weakness, basically said they're not nothing. We're seeing nothing in the way of of a weak consumer. And a lot of the banks had incredibly very positive things to say about loan demand and the consumer. JP Morgan's CFO, when talking about it, said nothing in terms of weakness outside of what should be expected. So, so far, earnings season's gone really well. And again, forget the macro data for a second. Just from a stock-specific standpoint, nothing in corporate earnings season thus far is giving me pause. And to the point about there being too much demand, I don't, I would push back on there being too much demand.

And what I mean by that is the economy seems to be doing fine. Inflation is normalized. I mean, too much demand for the Fed. Yeah, listen. Too much demand is what's keeping the economy too strong for their liking, which is why they keep talking about having to raise rates, because they are fixated on the fact that data is what we said. The data says that the economy is too strong, which means they think, allegedly, they need to do more. And they would be justified in saying that, because what I was going to get to before, to before is before, is I think they have to go in December. The market's at like 30, 70 that they don't. That should at least be 50, 50.

At the rate we're going, I mean, if you think about the big three economic data points, retail sales, inflation, jobs, all three were hotter than expected. And so while they're clearly not going to go in November, they would have pushed back to a meaningful degree by now. I think they may have to hike in December. But from a market standpoint, I'm not sure I care about that. But the point I was going to make about lags real quick is everyone keeps talking about, well, just wait, just wait, just wait. The lags will show up. The lags will show up. I don't know. There might be an argument that the lags have already happened.

And they just we are not tight. This is a much longer conversation, but maybe we're just not tight enough. But well, leave it for another day. We're not tight enough. I don't know. I mean, maybe Powell suggested that, too. Let's ask Cameron Dawson as well of New Edge. Well, she joins the conversation. It's good to see you. Welcome back. I think everybody wants, you know, a real clear and simple answer to the idea of whether we can have a late year rally or not. Right. Seasonality is on our side, but we have all these other issues, you know, elevated rates, elevated tension in the Middle East and what's going to win out. And then mega caps next week, too. What's your sense?

Well, I think the mega caps are the key point here, which is that that's what's so very different than 2022 when fourth quarter was really weak. We saw weakness into the end of the year despite seasonality because of tax loss selling. The mega caps had been weak all last year. And so people were using that as a way to recognize tax losses. That's not happening this year. And maybe we'll even be delayed in wanting to recognize tax gains, which just means that the area where people will be selling into will be smaller places like the Russell 2000 or utilities, staples, health care. Those likely

can't pull the overall index down. Now, we would watch the 200-day moving average really closely. We bounced off of it earlier today. We bounced off of it a couple weeks ago. If that doesn't hold, it likely lowers the probability of a big roaring Santa Claus rally. But if it does, then we could see that chase and that window dressing into year end. What happens, Dan, if, you know, the earnings next week and they're basically all of the mega caps except for Apple and Nvidia, which are once we turn the calendar into November, is that enough at this point to propel the market like it was enough to take it from the beginning of the year until the very beginning part of the fall when the calendar

got dicey, history wasn't on our side? Sure. I don't know why it would not be. And again, I'm just thinking through the underlying demand trends at work in each one of the names. And I'll go back to Visa and MasterCard, which I mentioned earlier, full disclosure, I own Visa personally, but I've owned it for 15 years. I heard nothing out of American Express. I've heard nothing out of any that type of company, either in the inter-reporting period or up until today, that tells me the consumer's gonna be particularly weak.

And at the end of the day, the consumer's obviously an important driver of economic activity. For the tech stocks. Again, EPS estimates have been drifting up for the last few weeks, if not the last few months. And so the digital ad market, I think, is probably going to be pretty strong. Obviously, that matters a lot for Google. Facebook has some other things to mention, meta, I should say. But I don't know why those report. And again, I don't follow them. I'm not the analyst. But it seems to me like the setup for them is pretty good. Is it enough to drive the market higher? I think so, in conjunction with a Fed meeting on November 1st in which we won't get a hike and no sort of promise to hike the next meeting. Cameron, you don't think that

it's enough to drive the market higher? Do you disagree with Dan? Oh, I think that it could very much through the fourth quarter drive the market higher because it does help boost sentiment. And I think if you look at the tech sector, one of the interesting things is that on a relative basis, despite the higher rates, it's held up fairly well over the past few months. Now, 2024 will be a much different question because a lot of the magnificent seven names are seeing significant decelerations in their growth. So a name like Amazon goes from 322 percent earnings growth this year. No wonder the stock has been so strong to just 30 percent growth next year. That's still much better than the market, but that deceleration and growth often leads to PE multiple compression.

So it likely is a problem for 24, not necessarily the next couple of months. How do we look at multiples, the valuation of the market, the valuation of mega cap tech? Because you can't look at it all the same. You can't necessarily suggest, well, the market is too expensive, valuations are too rich, because if you look under the surface beyond the mega cap seven, valuations are probably not too rich. You know what I'm saying? Like the S&P 493. Yeah. I mean, listen, if I had told you however many months ago, I guess let's call it mid-July, really the 10-year bottom, call it an early May, that the 10-year was going to go from approximately 3.7 to 5, so call it 130 basis points over the next five months.

What's the S&P going to do? Your answer probably would not have been higher. And yet here we are. And if you go back even further, when the 10-year or even the two-year was lower, you wouldn't have expected the market to do what it's done. And yet here we are, and mega cap tech has held up. Although, admittedly, the rate sensitivity of those names is much less than it might be for like a cyber arc or a service now, where a lot of the earnings are in out years, where the discount cash flow models matter a bit more. If you're Google, if you're Meta, if you're Amazon, you're generating enormous cash flow today. And so the out year multiple effect that comes with lower or higher interest rates is muted for those names. Cameron, what in your mind would you say is the biggest risk?

Is it, because I mean, earnings are probably going to come in, you know, just fine. They're not going to be horrible. They're not going to be great. They may get over what is a very low bar. Is it that the Fed has to do more than maybe one more rate hike? Is that what we're so afraid of? And that's going to just take rates up to a tipping point. What is it? I don't think it's one more rate hike. It would potentially be the pricing out of cuts into next year. There's about 75 basis points of cuts. It's either a lot less, meaning that we don't get cuts because the economy holds in better than expected, or a lot more, meaning we get a much more rapid cutting cycle because the economy weakens more than expected. And that would bring you back to the earnings question,

which is that one of the things that has underpinned this market all year is that earnings estimates have stayed flat despite all of the narratives and recession fears and banking issues. If we start going into an earnings revision down cycle because people are actually afraid of growth and starting to price in a recession, that's where that $245 a share plus 12% growth for 2024 looks a bit too aggressive. Now, we're not seeing evidence of the need to do that yet because the economic data is holding in. But we're watching that very closely because that earnings revision down cycle is what could really challenge the market in twenty four if it happens. Let's remind people, too, if we have, I think we do the the bar chart that shows you where earnings, Dan, you know, estimates are expected to be.

Cameron makes a good point. We're still pretty optimistic about fourth quarter and then making the turn into 2024. There you go. And then you see the big earnings growth estimates really take a jump into the end of 23, Q4, and then Q1 of 24, Q2 of 24. Is that too optimistic? Because everything's riding on that. We talked about this last time I was here. You're coming out of an earnings recession, a couple of quarters in a row of a decline in earnings. Whether you're up 10% or

12% or 8% is largely irrelevant. To Cameron's point, if the economy is going to improve, or at least continue doing what it's doing. Now, point, if the economy is going to improve, or at least continue doing what it's doing. Now, granted, third quarter GDP is going to be even stronger than I originally thought. I was targeting somewhere around 3%. It might be as much as 4%. But we are expected to have a bit of a slowdown here. But on the earnings side of things, again, 8% to 12% are irrelevant. As long as the economy continues to do what it's doing, if we skirt a recession and earnings are up, even if you hold the multiple constant, obviously, by definition, the market has to go up. So no, I don't think a miss here or a downgrade there is that big of a

deal. What ultimately matters for the market is profits. And if profits are going up on balance, the market's going to go up. But the point is, though, earnings projections have gotten pretty optimistic by virtue of the chart. Relative to last year. Well, relative to last year. Obviously, the base was low. But nonetheless, you have to start living up to that if you think that we can have a meaningful move in the market, especially relative to where rates are. Yeah, that's That's the key. Normally, if rates weren't so elevated, you'd say, well, you may not have to meet the moment

to those expectations in earnings, but now don't you have to meet them even more so because rates are elevated? You have to justify the multiple of the market based on something. But what I will tell you is we're at 5%. We've been at elevated rates for, call it, nine months. I forget exactly whatever you want to define as elevated. And the S&P 500 is fine. Now, obviously, we're in a bit of a sell-off now.

And that's something with which we have to wrestle. But on balance, the market multiple is still, even for the S&P 500, is called 17, 17 and a half times forward 12 months, not next year. That's pretty good for a 5%. Now, again, do you have to meet that? Sure. But I'm not saying you have to meet it exactly. 12 can be 10 or 10 can be 8.

12 can't be zero. Sure. But you can still have growth, even if it doesn't exactly match up to the estimates in the market. It can still be fine. Yeah. How would you address that, Cameron, about how good earnings actually have to be? I mean, because next week's the moment of truth. I mean, let's be honest. It's the busiest week thus far. You got mega cap stocks and NASDAQ is down one and a quarter percent today. It's down near three percent on the week. So you've had a

slide in a lot of these stocks going into the earnings. I've got names in a week like Tesla, which is down 15 percent. You have names today, Apple, Microsoft, Alphabet, Amazon. Everything's weak. A lot is riding on those names in order to deliver and not give any signs of deterioration. And if you get signs that they're starting to caution of a deceleration in growth, then, of course, the market would run with that and start marking down estimates, which for that 12 percent growth next year. But if we look broadly on the equal weight S&P 500, probably the most encouraging thing and what you've been talking about, that average stock, is that as of today's trading, it's

only one multiple turn above where it traded at the lows in October of 2022 because it sat out on the entirety of the rally this year and has come under renewed pressure. So that could set up for a lower bar to jump over into 2024, a not onerous valuation for that average stock, which I think is a really close watch item if we see more dumping of those weaker names into that tax loss selling into year end. You want to sum up, too? I noticed today, you know, I was even debating whether, man, you know, the market started to look better. Is it going to make a run at green before the week is over? And then you got the headlines out of D.C. of no speaker yet again going home for the weekend. So we still

have an unsettled situation there. We're trying to appropriate more money for, you know, Israel, Ukraine. We can't get anything done because of the chaos, if you want to call it that. Market took a leg lower once that news news broke. How much does that matter towards sentiment in the mix of everything else? I mean, it's impossible to quantify, obviously, but but certainly the lack of a speaker at this moment in time is something to which everybody's paying attention. Geopolitics, more generally, the fact that Iran is on the periphery of what's going on

and there's always a risk to oil there. I will just make one final point separate from that before we get out, just about the slower growth. The next three quarters of GDP estimates for the street are somewhere around zero, zero-two, zero-five, zero- zero six, zero three, something like that. So a slowdown in GDP estimates is already the consensus. So while we're talking about healthy earnings expectations, economically, we're already there for a slowdown.

All right. Well, we'll see what happens next week. It's going to be a big one. I appreciate it, Dan. Thank you. Cameron, we'll talk to you soon. Cameron Dawson from New Edge joining us. To our question of the day, we want to know which of the mega cap earnings reports do you think is most important next week? Amazon, Microsoft, Alphabet, Meta. Head to at CNBC closing bell on X to vote. We have the results later on in the hour. Let's get a check on some top stocks to watch right now as we head into the close. Steve Kovach is here for us today with that. Hey, Steve. Hey there, Scott. Yeah, Regions Financial is on pace for its worst day since March of 2020 after missing on earnings and net interest income. The regional banking giant expects its current quarter net interest

income to fall around 5 percent compared to the prior quarter, though shares down 10 percent right now. And Knight Swift is having its best day in 11 months after handily beating earnings and revenue estimates alongside better than expected guidance. The results have a number of analysts raising their price targets on the trucking stock with JP Morgan also upgrading it from neutral to underweight. Scott, send things back over to you. Good stuff, Steve Kovach. We'll see you in just a bit. We're just getting started here on Closing Bell. Up next, star value investor and Barron's Roundtable member Scott Black is back breaking down his top picks. We'll find out why he thinks the Fed could also hike again this year. He'll make his case after the break. We're live from the New York

Stock Exchange. You're watching Closing Bell on CNBC. Welcome back to Closing Bell. S&P 500 and Nasdaq both on track for their fourth straight down day as yields remain center stage. The 10-year briefly trading above 5 percent. Our next guest says yields should climb even higher and he sees another rate hike this year. Joining us now, value investor Scott Black of Delphi Management. It's good to see you. Welcome back. Thank you, Scott. I can't remember, quite frankly, you sounding as cautious, if not downright negative, as your notes suggest you are. Earnings estimates unrealistic. NASDAQ and Russell 2000 are way overpriced. Do you really believe all that? I really do.

I mean, right now, based on this year's earnings, the S&P bottom up is at 219 and change. I'm at 214. The next year, they're at 244.87, which would be a 12% gain. It's ridiculous. When nominal GDP is going to be 5%, not that much increase in operating margins of the S&P. So if you look at my numbers, the S&P is selling at about 18.5 times forward earnings. Historically, it's been about a 16 to 17 PE. I still think stocks are homogeneously overpriced. And if you look at the NASDAQ, that's at a 26 multiple on next year. And the Russell

2000s are 23 times next year. So they're not cheap at all. And the other thing is you asked me why I think rates are going to back up. It's not just because of the Fed, although I think, you know, with core inflation at 4.1 percent, we're not anywhere close to the 2 percent level that Chairman Powell wants. But we have huge structural fiscal deficits that are running 1.4 and 1.5 trillion dollars, as far as the eye can see, if you look at the CBO numbers. And interest expense next year will be over $700 billion, which is almost equal to the defense budget of the United States. So you have a supply and demand issue.

The other thing to take into account is the Fed has shrunk its balance sheet. They've been a net liquidator of securities, not a buyer. They've gone from about $8.8 trillion to about $8 trillion. So if you look at it, to clear the markets, you're going to need higher rates. The other thing is the Chinese have been net sellers of Treasuries over the last year as well. So the long-term supply and demand for Treasuries doesn't look all that good. But I guess part of my point is, like, for a guy who makes his living looking for cheap stocks, right? You are a famed value investor. This all suggests to me that you can't find anything to buy because you don't think it's cheap enough.

Well, we're pretty much fully, we're about 89, 90% invested and we don't panic to sell. But at the margin, you want to buy really good bargains. You just don't want to buy stocks for the sake of buying them. Yes, there are cheap stocks out there, 11, 12, and 13 PEs, but we own a lot of them. But I can't say you should commit incremental funds at this point, because I do think interest rates will back up. There's going to be a severe competition for equities in the short term. And the other thing is, when you have the S&P earnings growing at 8% and 9%, that's not the true thing. If you look at numbers from the Bureau of Labor standards or from FactSet, the real earnings, if you look apples to apples, has grown under 1% this quarter. It just ended. I mean, you know it's bad when a value investor thinks the best thing you can do right now is buy a three-month treasury.

I mean, that pretty much says it all. No. Well, I did pick one stock for you that I thought was doing extremely well, which is Snap Line. They came out. They've had 13 consecutive up quarters. They are over 20 percent on book. We almost no debt. Debt equity is point oh five. They generate nothing but cash and the stock selling at twelve point nine times earnings. And they also have the wind to their back in that the average age of the fleet in the United States amongst automobiles is now 12 and a half years. It's the longest, so it means there's going to be more repairs. It's a well-run company.

I would recommend that. As I say, it's 12.9 times earnings, over 20% return on total capital. It's an excellently run company, and I still think earnings will be up next year. I have 5 percent top line growth and I have somewhere between 5 to 7 percent bottom line growth for next year as well. So I don't think we have a lot of possibility that the earnings will slip and they'll make a mistake. I have to say, you know, your your suggestion that the Russell is is overvalued is interesting because it's gotten hammered. I mean, small caps have gotten crushed on these concerns that we're going to have a recession. It's down

almost 15 percent in the last three months alone. And you think it's still that overpriced? Yes, it is. If you look at the P.E. ratio and if you go through any statistical guide, whether it's balance on a weekend, just look at all the small cap companies that have no earnings whatsoever. And when people talk to your previous speakers about the S&P, it's seven stocks that carry the S&P to 17.7% year to date. If you look at the equal weighted S&P, it was down 3.1% year to date through yesterday. If you look at the Russell 2000, down 2.2, the Russell 2500 down 0.3. It's just really been the magnificent seven that have driven the market. What's your biggest position right now before I let you go?

It's a little company out in Omaha called Berkshire Hathaway. We've owned it for years. So I don't worry. I'm sure Warren doesn't worry on a short-term basis. He runs good businesses and it's not way over value. It's about 1.45 times book value. And the book value is he always points out in his annual report is understated. Well, I'm sure that lets you sleep well at night. Scott, it's good to see you as always. Take care. We'll see you soon. Thank you for inviting me. Yeah, you bet. That's Delphi Management's Scott Black joining us. Have a news alert on Okta. Steve Kovach is back with those details. Hey, Steve. Hey, Scott. Yeah, shares of Okta down 11.5% now after disclosing a hack of its customer support system,

saying the hackers were able to view files uploaded by customers, but also noting this is different than the customer-facing service of Okta that companies tend to use, and that has not been hacked. But again, saying they've notified all customers affected by this. Very few details in this announcement about specifics of the files uploaded and what kind of data was able to be viewed by the hackers, but you can see now, now falling even further down, better than almost 13 percent now, Scott. Yeah, I appreciate you giving us that update to us. Steve, come back. We'll see you a little bit with more stocks to watch.

Up next, stocks still under pressure as we come towards the close of this week. Wells Fargo's Chris Harvey, though, finding some opportunity in a few key sectors. He explained where he sees strength right now. We'll do it after the break. Closing bells right back. Well, welcome back. The major average is under pressure today. S&P on pace now to close out its worst week in a month. All this even as the 10 year retreats from its highest level since 07. Joining me now here at Post 9 to discuss is Chris Harvey of Wells Fargo. It's good to see you.

Good to see you. So, I mean, a lot of people are negative, obviously, as you just heard. You're sticking, though, to your guns. You're sticking to your target, $4,200 to $4,600 for the remainder of the year. That's right. So what we think is you're 70% off the high. The 10-year's at 5%, and stocks really haven't created at this point in time. Fundamentals are fine, and I think November 1st is a key date. November 1st is when FOMC happens. More importantly, it's when we get the Treasury refunding. And this backup in rates all started because the Treasury really mismanaged that. Oh, you mean the issuance, which has really created a lot of consternation over, well, there's all the supply coming on the market and

that's causing the backup in rates and who's gonna buy it, you know. And that's right. And you're going to need more paper. But the question is, can you manage expectations better? If they come in line with expectations, I think things firm. The other thing to talk about is a two stance curve. Two stance curve was inverted by over 100 basis points. Now it's steepening. And now it's 15, 16 basis points. So going out on the curve, you're not penalized that much. So we could see rates begin to firm here. So what gets us to 4420, right? That's your year-end target. Yep.

How are we going to get there? About roughly 200 points higher than where we are now. That's really not much, right? We were there. We were almost there the other day. And so really what you need is a little bit of stability. You need earnings to continue to do what they're doing. And you need the Fed to play ball, the Fed and the Treasury to play ball. You need earnings to continue to do what they're doing.

And you need the Fed to play ball, the Fed and the Treasury to play ball. You get that and you're probably up to 40, you could be up to 4,600. What does the Fed playing ball mean? It means that the Fed under, so okay, a couple of things. You have rates going higher. What you want to see is some sort of feedback mechanism. You want to see people acknowledge rates are higher, it's tighter, and maybe that'll slow things down. And they have done that. The other thing you want to see is you want to see the Treasury realize, hey, maybe we didn't

do this thing properly back in the summertime and we'll hit expectations now. We know we need more, but right now we need to calm the market down. And so if you get that, I think things could be very gappy in the rates market because a lot of people are saying to us, hey, the way to lower rates is through higher rates. Hey, I'm not going to buy at $4.75, but I'll buy on the way to $4.25. How about next week? Mega cap. How much does that hold the key for your outlook here? It's very important, right? So obviously, if the numbers are good, stocks rally, that pushes the market higher.

We saw some good numbers from Tesla. Excuse me, not good numbers from Tesla, but we saw good numbers from Netflix, right? And if we get some of the mega caps really performing, that will drive the stock market higher. I think they will. The underlying fundamentals are still strong. I don't think we have a whole lot to worry about. Still, you would suggest if you do get a pop towards your target, you'd sell it, though. You'd sell into strength rather than continue to buy it. Why?

That's right, because if we look into the first quarter, excuse me, first half of next year, it's not looking so great. We're having a hard time saying, hey, there's a real great recovery coming. There isn't. The second thing is there is a lag effect to monetary policy. We haven't seen it yet, but we will see. The other thing is a lot of your risk aversion assets are oversold. Staples, utilities, low volatility. Last time we saw that, late 18, late 21, that was a big reversal. So what are you suggesting? That earnings estimates into next year are too optimistic? I think so. I think so. You usually don't see great

recoveries without a big recession. We haven't had a recession. We hadn't had a big downturn. So where's this great recovery coming from? I don't know. But I mean, we had so much into the system. See, that's why, like, you normally don't see anything like we've seen, right? No, that's true. You normally don't have a tightening cycle in as quick a time as we had this time. You normally don't have a tightening cycle when you had the amount of stimulus you had in the system that we had this time. So let's talk about it. So where would a great recovery come from? The consumer? The consumer is okay, but they're getting a little bit stretched. Is it going to come from corporations?

Well funded costs are kind of high at this point in time. The only way you get a good recovery is things get a little bit sloppy in the first half. The Fed does have to cut, and interest rates come down in the second half. But that's a really back-end loaded recovery, and things have to get worse before they get better. I mean, the consumer could slow down. That could take the edge off of demand, which J-PAL needs it to happen. That could cause inflation to come down. It doesn't have to necessarily be you break it and then you have to cut rates to fix it.

No, but the thing is, what kind of growth rate are you going to get from that level? Are you going to get 20% growth rate or high single-digit growth rate? I think it's really high single-digit. We'll talk to you soon. Enjoy the weekend. You too. A rainy one, unfortunately. Chris Harvey joining us back on Closing Bell. Up next, we're tracking the biggest movers as we head into the close. Steve Kovach back standing by with that. Hey, Steve. Hey there.

Yeah, we have one tech name taking a dip after adjusting its outlook and an pharma name seeing a boost after some positive analyst commentary. We'll have all that when Closing Bell Overtime comes back. A little more than 15 to go before the closing bell this Friday. Let's get back to Steve Kovach now for a look at the stocks he's watching. Hey, Steve. Hey there, Scott. Yeah, let's start with HP Enterprise deep in the red today after lowering its expectations for adjusted profit growth this year. And the price software giant also issued 2024 earning guidance that came up well short of analysts' expectations.

Those shares off by more than 6% now. Meanwhile, shares of Merck outperforming as UBS upgrades the stock to buy from neutral. The price target goes to $1.22 per share from $1.17. Analysts say investors aren't fully appreciating the biopharma giant's strong pipeline nor key treatments like Keytruda and Gardasil. Scott, send it back over to you. All right, Steve Kovach, thank you very much. The last chance now to weigh in on our question of the day.

Which mega cap earnings report next week do you think is most... The results, well, before the result, well, those are the results of today's trading thus far. We're at session lows. So we're sucking some wind here as we close it out or get closer to it. So in the meantime, let's get our results of our question of the day. We asked, which mega cap earnings report is the most important next week? Amazon. That's interesting. Almost 38 percent, followed by Microsoft and Alphabet and Meta. Very big week. All right. Up next, SolarEdge is sinking sinking that stock plummeting in today's

session. We'll find out what's behind that move lower and how it's impacting the rest of the solar space just ahead that and much more when we take you inside the market zone. Welcome to the closing bell market zone. CNBC senior markets commentator Mike Santoli here to break down these crucial moments of this trading day. Plus, we're going to dig into Amex's latest quarter, what it could mean for the consumer. Pippa Stevens on what's behind the sell-off in solar stocks today. That's an ugly space. Mike, not a good week for stocks, and we're ending with a whimper as well.

Yeah, never was really able to gather a whole lot of upside momentum. Nothing brought except for the first couple of days of the week. And we're now just sort of testing the floor of this one month range. So we closed like forty two twenty nine, I think, is the low close for October on the third. And we're right there. You're in this kind of eight percent pullback. So the concern, overarching concern seems to be that yields, even though they're backing off today, maybe have helped to do a little more damage. Powell saying, you know, maybe the economy is still strong because we haven't been restrictive enough for long enough. And so that kind of sets out in front of us a little bit of a murky path. All that together, along with, I think, more of the vague kind of concerns about stocks not trading well off of decent earnings.

Not yet, anyway. That can absolutely change next week. Or, you know, the world doesn't seem like a particularly trustworthy place. All those things fitting together, I think, getting us in this risk-off mode. If there's maybe a silver lining in a lot of the mega cap favorites, all really leading the downside today, the NVIDIAs of the world. It just sort of shows you at least this sense out there that there's no easy place to hide. Very defensive tone if you look at what is working today, which is traditional pharma and the like. You think there's more riding on next week, just given where the Fed seems to be and where rates have moved? So now, you know, you really need something to spur us away from that conversation.

Right. Or you need something to remind everybody that, you know, beneath it all, things still seem potentially OK. You can interpret the corporate fundamentals as OK. If we can say and we absolutely cannot say based on one day's action that yields are put in a short term peak and the S&P 500 is at potential support. We're back at these June 2nd levels where we blasted off from. And you have earnings coming through in a big rush that maybe is going to say the next couple of quarters look like they're plausible in terms of growth rates. Yeah, sure. I could see that happening. The market's not super oversold yet, though. So it doesn't seem as if you've gotten to this point where you've really pulled the slingshot back far.

Yeah. What do you make of American Express, right? It's interesting. You had pretty good earnings. Yeah. Good commentary about the consumer. And yet that stock is one of the biggest weights today. It's down more than 5%. What are we supposed to take away from all of that? Financials, first of all, very suspect today.

So it's trading down with a lot of the regional banks. I mean, overall processing volumes, payment volumes, customer volumes, we're a little bit light, not bad. But to your point, yeah, earnings definitely better than expected. Everything seems okay in the here and now for Amex, but it really does capture this moment we're at where investors are not willing to give the benefit of the doubt to the economy or to companies that they're going to be able to keep it up, that it's going to keep working. There was an uptick in charge off rates or loan loss provisions at American Express. But again, like every one of these you look at, it's a big jump

year over year, but it's not even up to where we were before the pandemic. If you look at 2019 levels, it still looks great. Also, this stock, if the earnings are anywhere near where they're forecast, the stock's cheap relative to its history. It's under 12 times earnings. You don't often get a chance, you know, when the economy is not in complete freefall to buy American Express at these levels, unless you make the case something something sort of secular has changed about the business. I know some have made that case. Well, you also just make the point that it's kind of it's as good as it's going to get for a while. Yeah. American Express feels like you're going to have to take a little bit more pain and go through a little more of the uncertain fundamental times before you get paid for. Yeah. Speaking of pain, Pippa Stevens, solar stocks, brutal.

What's going on? Yeah, SolarEdge is down 28% today. Scott Ahn pays for its worst day on record. And so there have been a lot of headwinds for the solar industry that are well known by the street. But what happened was the magnitude of SolarEdge's warning is really what took investors by surprise. So they said that they view the Q3 revenues are going to be about 20% lower than prior expectations,

with Q4 also taking a hit. They also significantly cut their forecast for margins. They now see that gross margin at 21%, down from a prior forecast of 31%. This all comes down to weakness in Europe. Essentially, distributors are working through an excess of inventory, meaning they're not buying from the product manufacturers like SolarEdge. The street really did not like what it heard from

the company. We got five downgrades, including from Bank of America and Goldman Sachs. Goldman also taking its target from 254 down to 131, saying that there just really is no way to defend the stock at this point. Now, one interesting thing to note is that Enphase is also kind of being thrown out alongside SolarEdge today. But there is a key difference here in that Enphase has much less exposure to the European market than SolarEdge does. So one thing to watch, Scott, is Enphase does report results next week. So we will be listening for commentary around what they say, given that they don't have that same level of exposure to Europe, although the U.S. not looking so good either. So a lot to watch here. But once again, SolarEdge down 27 percent, worst day on record.

All right, Pippa, thank you for that. Pippa Stevens. So, Mike, I'm looking at sector performance for the week. The worst is discretionary. You have figured Tesla. It's obviously a big part of that. But elsewhere, industrials down just about 3 percent. Tech down 3 percent.

I mean, you've really had, you know, broad based weakness, if you if you want to call it that. Materials down just about three. Financials down just about three. Utilities down two. Pick your spot. For a long period of time, even after the market peaked in July, you know, the S&P 500 peaked at that point, it was possible to say, and I was saying it, that cyclicals have still maintained their leadership off the October lows. The credit markets remain relatively firm and not giving you something new to worry about.

And I think you've been able to punch some holes in that idea. The average stock has absolutely taken on a lot of water. And to your point, the equal weighted discretionary is now 16% off its highs. It is down almost 2% for the week and 5.5% month to date. So you're losing a lot of that. Part of that, home builder related stuff, anything housing related. One thing we don't have to debate in terms of the effect of monetary policy what's happening the more housing 8% mortgage rates 8% homebuilder is just not quite

able to buffer that with buying down the rates as easily as they were before yeah you've seen a little bit of supply come up but you've sort of clogged up the entire housing market it's no longer a driver of economic growth, really hasn't been much all year. So that's, you know, one thing you can say about discretionary. And then the rest of it is, once again, yeah, sure, government retail sales report looked pretty healthy, almost 4 percent annual growth. We don't think it can last. That's what the stock valuations are telling you. The other things on our minds, I'll just call it DC ridiculousness. That goes on.

And then, as someone made the point on halftime today, it's hard to be long over the weekend with the Middle East still unfolding and Iran hanging out there. And it's just brought some concern from investors, a hard hump to get over. I think ultimately vague geopolitical worry is viable, but not until you really get the market feeling like it's at this extreme fear point. We haven't really gotten there yet. I totally get it. It's why the VIX is 21 going into a weekend. On the other hand, you know, we had 15 straight Mondays when the S&P was up. It's a bizarre streak.

Maybe nobody wants to bet it's going to make it to 16. But it is interesting that you're having the market down 1.2 percent and you have a little bit of a give up type action right down here at 42 and change. So not a lot of fresh buying interest in here, even though bonds backing up. We'll see if that's a one day quirk or if that's a new lasting dynamic. Yeah, 42-25. We're right around the 200-day, aren't we? Yeah, right there. We found something earlier and came right back to it.

Yeah, so keep an eye on that as we make the turn into a new week. Enjoy the weekend. It's going to be a red Friday, though. Dow's going to go out right around a 300-point loss.