Closing Bell 10/12/26

0:00There are three kinds of investors that listen to this show. Those protecting what they've got, those looking for solid returns, and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores. Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell. Go to VectorVest.com slash closing bell. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. It's the holiday season at House of Burl, which means that it's the perfect moment to review some key rules.

0:36Rule number five, more style means more celebration. Number four, buy gifts, but remember to treat yourself too. Number three, there is no dress code, but always leave them talking. Number two, show off different outfits. No party remains unattended. And rule number one, have it all without spending it all. Happy holidays from House of Burl, Burlington. Welcome to Closing Bell. I'm Leslie Picker in for Scott Wapner. Today, this make or break hour starts with the setup into this very critical week ahead. As earnings season kicks off, our panel of experts are standing by with their playbooks. But first, your scorecard with 60 minutes to go in the trading session.

1:18You can see there the Dow, the one major index in the green today, up about one-third of one percent. The S &P up about 0.2 percent. NASDAQ up about half a percent, and then the Russell lower by about 0.4 percent. Just a reminder, the bond market is closed for the holiday today. Among today's top movers is Meta. It is rallying as the company launches a new AI product. Chipotle, on the other hand, under pressure as Starbucks tells CNBC. It is not interested in buying the company. And Biogen is rallying on a big upgrade. We'll have more on all those stories coming up. But first, to our talk of the tape.

1:54what is at stake for your money as earnings season gets underway? Let's ask Citi's Scott Croner, Northwestern Mutual's Matt Stuckey, and Wealth Enhancement's Ayako Yoshioka. Sorry about that. Thank you all so much for joining us today. Scott, let's start with you. You have got a target of 8 ,100 on the S &P. As earnings season gets underway, what's the path to get there? Well, the path there is that we need both parts of the market performing. We need that AI influence component that we argue is just over half of the index, as well as the other half that's going to beat to a more traditional macro drummer.

2:31And so there, what we need is a combination of some of this inflation Fed hawkish concern coming out of the market, which we think can unfold, as the data suggests, over the next couple of weeks, combined with ongoing earnings tailwinds out of this AI influence component, which we think we'll see as we go into the Q3 reporting period. Matt, are you expecting earnings season to be a net positive or net negative for the markets from here? I think it's going to be positive. Maybe not quite as good as the second quarter, but the second quarter was one for the record books at kind of low 30s earnings growth year over year.

3:09If the consensus is right, we're likely to see something in the upper 20s, maybe a little bit better than that. But really, what might drive things from here through year end has to do with the multiple side, not the earnings side. And really, that's a function of hawkishness from the Fed and where the 10-year rate goes. And so inflation and oil play a lot into that. And that continues to be pretty uncertain in terms of kind of where we sit today and what the outlook for the earnings multiple is on the market. Right. Cost of capital. I, there's a lot that's been made about the concentration of the earnings growth and, you know, what it means for the market from here.

3:46Do you see this as a vulnerability or a trend that you expect to reverse this quarter? In terms of concentration, I don't think that. Oh, sorry, that one was for Aya. All right. Yeah, in terms of the concentration, it has been an issue for markets in general, you know, whether it was through the MAG-7 or now through the AI trade. and especially as it continues to touch, you know, 50 percent of all companies in the S &P 500. But we do think that it's really a focus on the cost of capital side this time around for third quarter earnings season. And to see how that is sort of going through all companies, not just the AI side, but also for those sort of macro sensitive companies on the other 50 percent of the S &P 500.

4:32You think, Aya, that there is a correction risk given that concentration level? Is that something that's on your radar? You know, I think it's really going to depend upon what the hyperscalers say about capital spending going forward on AI, as well as just the overall supply chain for AI. There's been so much focus on that supply chain or all the supply chain beneficiaries so far. And I think we really want to see a continuation from last quarter when the hyperscalers reported really strong cloud growth, and they were seeing really good returns on the investments that they've made. We'd like to continue to see that.

5:10If we don't get that, there could be some of a correction just to level set where we're going to go in 2027. Scott, do you think the upside, given your target, needs to be driven by the growth components of the market? Do you expect the rest of the market to also catch up here? You know, to be quite honest, if you look at what's happened over the past couple of months, going back to the Jackson Hole circumstance back at the end of August, you've seen all your rate-sensitive parts of the market, utilities, real estate, consumer discretionary, the banks to a certain degree, have all come off in the magnitude of 10 % or so.

5:47So essentially, the mean reversion on that part of the market, Leslie, is what can become very mission-critical here in terms of giving the overall index some legs into the end of the year. Now, we need to get through the midterms, of course, but I think this macro narrative on pricing out some of the current expectations for incremental Fed rate hikes becomes really mission critical to lifting the index. I think the mega cap growth AI components in pretty good stead. The revenue growth that we saw with Q2 should persist into the Q3 results. How much is priced in remains to be seen, but all told, I would say that we need this broadening trade to come back to get to my 8 ,100 target.

6:31How much of a headwind, Scott, is the rate backdrop for that mean reversion to really work? I mean, we hear all the time about how we'll see that mean reversion, we'll see the broadening. But given what's going on with rates, does that create a bigger headwind for that to happen? It certainly does. I mean, we're trying to get through the end of the year here. But I think the current rate backdrop, which you have to begin to factor in as you get further into 2027 is more signs of traditional economic slowing in response to this. And again, from our perch, this ongoing soft landing narrative is mission critical to seeing the broadening play out.

7:11So I think the rate back is pretty important here. Now, fundamentals can do OK, we think, for now. It's just a question of how far out you want to begin to price in the duration of higher for longer interest rates. And Matt, one thing I saw in the producer's notes here is you believe that there is this key question is no longer whether earnings are growing, but whether companies can demonstrate that today's growth rates are sustainable into 2027, which is poignant as we go look ahead to earnings season. How likely is it that these growth rates can maintain for another year or two? Well, we're unlikely to see, you know, upper 20s earnings growth year on year and widespread earnings growth for that matter, especially if rates continue to move higher.

7:57That has a natural way of cooling off some of the froth in the economy as financial conditions get tighter. However, one thing that we have seen is that there's been a broader economic participation happening throughout this year with the ISMs moving higher. If that were to start to compress a little bit just on the fact of we are seeing higher rates and that filters into the economy with a lag, that's kind of where you start to have those question marks. I think with the earnings season kind of on the doorstep tomorrow morning, we're unlikely to hear a whole lot of forecasts about 2027. You typically don't get those until January or so.

8:36But in terms of the near-term outlook, certainly there's going to be a lot of attention paid to those comments. And kind of the law of large numbers as well. I mean, financials in focus, at least in the short term. What do you think the impact of higher interest rates will be on net interest income, on credit quality, on capital markets when we hear from the banks, Matt? You know, looking at NII, I think it's a positive for a few reasons. One is, you know, most banks tend to be asset sensitive, not liability sensitive. Yeah, there might be a little bit of deposit pricing pressure here and there.

9:11But all else being equal between a hike that's in the rearview mirror, maybe a hike before year end, along with asset prices, excuse me, the available for sale book repricing a little bit higher on maturities. I think that's all positive along with still pretty strong loan demand out there. In terms of higher rates, how does it impact the other parts of the business? That's the ultimate question mark on some of the fee-based businesses. Is that going to slow down activity for M &A or for investment banking? I think we're going to hear a lot tomorrow morning about that specific question, whether or not some of those activity levels and the revenue streams on there need to be revised a little bit lower, just given the rate backdrop.

9:50Yeah, right. As that engine was getting turned back on, Aya, you do like financials. Do you think they're worth buying at these levels? We've seen a bit of a sell-off heading into the print that we're expecting tomorrow. You know, we think the financial sector provides a lot of opportunities, and we're going to see a lot of this come to fruition, I think, in the coming days as they report. But, you know, overall, year-over-year earnings growth for the financial sector isn't the best. It's actually one of the worst. It's only 3 percent going into third quarter of 2026. But we do like a lot of the long-term impacts of higher rates.

10:28And banks have multiple ways to win, whether it's the fee business, capital markets, investment banking. We do think that there's and they're trading at good valuations a little around 14 and a half percent, 14 and a half times. So we do like financials here. Scott, speaking of rates, you think that most of the much of the recent rate backup is behind us. Is it fair then to call a top in the 10 year yields? Are we near or approaching that point? Well, if you look at the distribution out the curve, you're starting to see some signs of it, certainly in the two-year and to a certain degree in the 10-year.

11:03So I think we're getting pretty close here. But again, it is predicated on the data coming through, and then we'll see some of that this week with the CPI that kind of points to a little bit lesser concern in some of the components there. So, you know, I'd say, generally speaking, we think we're pretty close in the short term to a 10-year top for sure in terms of yields. And we're going to be, you know, being maniacally focused on that as we go forward from here. Yeah, I think a lot of people are going to be, continue to be focused on that. Matt, what do you think? Yeah, I mean, I think rates are really kind of the key here for kind of where the multiple goes and where the breadth of the market goes.

11:43Ever since we started to get a little bit of a hawkish tone from the policymakers at the Fed in early August, you've seen breadth plummet from, you know, around mid-60s or so. companies trading above their 200-day moving average to the low 40s today. And that's really just been on the back of hawkers speak from the Federal Reserve, combined with a backup in longer-term rates as that kind of hiking cycle was somewhat priced in over the next 12 months. And so from here through the next couple of quarters, we've seen an ebb and flow in that broadening. As hikes have been priced into the forward curve, it's come under pressure.

12:17But as they've been priced out, we've seen broader participation. And so we'll have to wait and see on the incoming data. CPI is definitely an input into that just in terms of what type of hikes we get from the Federal Reserve. Aya, even if we do get stabilization here in the U.S., how big of a risk is it if we continue to see more volatility in rates ex-U.S., outside of the U.S., whether it's in Europe or elsewhere? Sure. You know, the rise in interest rates has not just been a U.S. phenomenon. It's definitely been something that we've experienced globally. And you're seeing just competition for capital, right, whether it's the hyperscalers and their bonds that are being issued or additional sort of interest rate hikes that are being priced into other markets outside the U.S.

13:04I think it's going to be a selective market for many of us in terms of being able to find great opportunities with pretty decent yields. Yeah, today obviously gives us a chance to focus on other markets instead of just the U.S., given that our bond market here is closed. Scott, I want to ask you, because we do have a birthday to celebrate today, which is the fourth birthday of the bull market today, October 12th. The global equities have rallied 108 percent during that time period. Any risk that that could soon come to an end? You know, we think we're in pretty good shape fundamentally. But, I mean, I think we have to be very clear about this.

13:48You know, to your point, we're at least three, if not four years into this bull. And we've seen very, very rapid upside takes to the earnings picture over the past several years. I think what we have to allow for that more and more about the AI tailwinds are being priced in. and law of numbers is such that we have to expect as we go into 27 that those growth rates probably begin to mitigate a little bit. It doesn't mean it's a bad thing. We just have to acknowledge that. So I think the pace of change here probably decelerates, makes it a little bit more difficult for stocks to give you the type of surging returns we've gotten.

14:27But under the surface, the fundamental picture still remains fairly robust here. And with a little bit of help from the interest rate picture, the backdrop there, still think we're in pretty good stead as we wrap up this year and look ahead to next. Matt, do you agree with that as we kind of reflect back on the last four years? You have RBC out with a note saying that they believe a 5 % to 10 % pullback is actually overdue right now. You know, it might be. It really, it might be due to just a rate backdrop more than anything else. If you look over history, what causes corrections is usually one or two things.

15:01is either a sharp back up in long-term rates or back up the unemployment rate. The unemployment rate continues to be low, but rates are significantly higher. And that hasn't come with a lot of pain, at least at the surface level of the index for the S &P 500. I think that's kind of where we might have a caution flag, just in terms of areas to watch pretty closely. Does this start to slow down that really strong earnings growth story that we've seen? So far, it hasn't. And that has just to do with the ongoing kind of AI build out and the earnings growth has resulted from that. So as long as hyperscalers are continuing to spend, semiconductors are going to continue to have really strong margins in that type of environment.

15:40And with the incremental margins we're seeing from hyperscalers in the mid 50s, you can understand why they're spending what they're spending now. And so we'll have to see what they report. But we're expecting to continue to strengthen them this season. Yeah, it is a pretty remarkable dynamic that the market has held up so well, despite what we've seen in the interest rate picture. Thank you, Scott, Matt and I appreciate your time today. Shares of Meta are popping. Let's get to Julia Boorstin with more on this story. Julia. Leslie, Meta shares are moving higher on Meta's new Frontier Model series called Muse Wonder.

16:14There's also another version called Muse Wonderful. full. Now, Muse Wonder will start rolling out to Muse and Muse Code subscribers who are paying $20 a month or more. Now, these models have specific domain expertise in law, finance, and health, which Meta says are especially valuable for both personal and professional agents. I spoke to Meta's AI chief, Alex Wang, who told me that this frontier model is differentiated from its rivals because, quote, Muse Wonder is specifically focused on personal and professional agents saying, we think I care, we, I think, care a lot more about this form factor than I would assume some of the other labs.

16:50Now, as for concerns about users' data privacy and safety, Meta says this is the most aligned and safe model yet with significant investment on how the models handle adversarial instructions as well as how they handle private information. Now, as for how Meta's Muse AI agent tool is doing, Sensor Tower tells us that the app has now been downloaded 8.8 million times since launching in early September. That's up from just 5 million downloads at the end of September. Leslie? Wow, that is a remarkable uptake there, Julia. Thank you. Let's send it over to Brandon Gomez for a look at some of the other big names moving into the close.

17:30Hey there, Leslie. Shares of Chipotle to start are sinking today after a Starbucks spokesperson told CNBC's Jim Cramer that the company is not considering acquiring the restaurant. The denial follows days of rumors that initially sent shares of Chipotle higher and Starbucks lower. You can see, though, the stock down about four and a half percent now. Next up, Biogen popping after analysts at JP Morgan upgraded the biotech name to overweight from neutral with a price target of$300. Analysts there citing a, quote, increasingly compelling catalyst path for the company as it readies for several clinical readouts.

18:02The stock up about two percent there. And then eBay climbing after Morgan Stanley named the stock a top pick and raised its price target to$132 from 127. The firm estimates that eBay's live selling market has already driven 40 percent of the company's growth. You can see shares there up about three and a half percent. Leslie. All right, Brandon, thank you. We are just getting started up next. The countdown to the big banks earnings season kicking off tomorrow morning. We'll break down what's at stake with a top analyst. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC.

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19:11With higher predictability and greater access to credit, everybody wins. Get started at VantageScore.com. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini. Weren't agents supposed to take things off your plate? Building another to handle the others is a bit much.

19:54Don't make more work out of work. Gemini is the one agent that knows all parts of your business and actually gets stuff done. You give it a project, close your laptop, and when you come back, the job's finished. No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. Welcome back. A big week ahead for banks as earnings season kicks off. Let's bring in Jeffries Bank Research Analyst, David Ciaverini. David, it's good to see you. So I guess the biggest question looming in investors' minds right now is we've seen five weeks, five straight weeks of the KBE selling off into the earnings season as a whole host of headwinds or top of mind.

20:38I'm just curious if you think that this would be a good buying opportunity. Are you expecting the prints to be better than expected and therefore a catalyst to the upside? I do. I'm really looking forward to earnings season given this sell-off into the prints. And I expect these prints to provide relief. Now, there has been concern around higher rates over the past month. But it's really related to their capital levels. But given durations are lower, this go around with higher rates. I expect the capital decline to be much more manageable. And then when we look at net interest margins, NIMS should be stable to up modestly given the shape of the yield curve has maintained that steepness.

21:24So I am expecting pretty good relief rallies from these banks over the next few days. Why do you think there has been such a steep decline leading into these earnings? There was also some concern around AI agents like Muse creating a bank run of sorts, encouraging people to take their money and their deposits out of low cost checking accounts and putting them elsewhere into higher yielding products. Do you think there's any truth to that and a potential impact on net interest margins as a result? I think the bigger issue is loan demand and the concern that higher rates could dampen loan demand looking forward.

22:04And then the other concern is, could higher rates slow the economy and thus lead to deteriorating credit quality for the banks? As it relates to Muse, I think that's more noise. I think that the inertia of depositors will keep the non-interest-bearing deposits for most of these banks to be stable and very modestly on the fringe. because most people, in my opinion, are unlikely to give their passwords to Muse, at least at this early stage of Muse launching. Yeah, yeah. It takes a bit of time for that trust to develop for sure. What about the Wall Street side of the business, particularly around trading, sales and trading, which have been such an engine of growth over the last few quarters for earnings season?

22:49And it's expected to be less so this quarter. Do you think that's a big swing factor one way or another? It will certainly get headlines. And when we look at the numbers from DealLogic, it is implying investment banking revenue down meaningfully year over year, as well as, you know, even more so sequentially. Now, there is a positive outlier tomorrow, you know, J.P. Morgan. We are expecting them to be up mid to high teens in terms of their investment banking and markets revenue. The negative outlier, B of A, they showed some challenges in terms of their investment banking as well as their market revenue, calling for it to be flat.

23:32So the markets, businesses, we are seeing the capital that's allocated to these businesses being reduced at a few banks. So it is an area to watch for sure into the press. What do you think is responsible for the outliers to the positive side and the negative side? What makes it so that J.P. Morgan is poised for gains in this environment and B of A is poised for kind of neutral or potentially declines in some of its investment banking businesses? So B of A, they're up against tough comps a year ago. And then they're not as positioned in terms of their trading businesses on the fixed income side relative to J.P.

24:14Morgan. Again, they're less focused on the micro and more on the macro type of trading. And that's what's impacted them. JP Morgan, they've been involved in some of the bigger deals that have occurred this quarter. So that's what's giving them a nice tailwind. How does the rate picture impact the trends that we've seen from private credit? Banks, obviously, they do lending to some of these funds as well. But with higher interest rates comes potentially renewed interest in private credit after about a year of turmoil. Does that create any kind of threat into the loan demand picture that we were talking about?

24:52You know, it's a double edged sword as it comes to private credit because higher yields does make the investments more attractive. But at the same time, the IRRs, when you pencil those out, become more difficult to put the dry powder to work for some of these private equity funds. Now, of course, you need the private equity funds to put the money to work in order for private credit to fund those deals. So that's where it's double-edged. But I'm sure the private credit providers would love to put more money to work in this environment, given what's happened with rates. Yeah, if they're able to raise the capital, they definitely need to put it to work pretty quickly.

25:29And lastly, David, I've read a bunch of notes about just the EPS uncertainty surrounding the banks being a little bit elevated this quarter, given the confluence of macro factors as well as potentially some of the IPOs getting pushed out and other questions around deal making and so forth. How would you characterize this idea of sentiment, uncertainty of EPS and what it means for the potential stock reactions tomorrow and Wednesday? I guess that's the silver lining heading into these prints is that the bar is low heading into these prints, given how much negative sentiment has been around as it relates to the investment banking numbers looking soft, the trading numbers looking soft, and then higher rates.

26:12Banks do tend to sell off on extreme rates because I think in the back of investors' minds for the banks, people are still thinking back to 2022 and 2023 with the mini banking crisis that occurred now. That's why I'm looking forward to what the management teams have to say about bank earnings and really ease some of the current concerns that investors have. Yeah. Has all that interest rate risk gotten flushed out in the last four years, or does it still lurk somewhere in the banking system is a key question during the third quarter earnings. David, thank you. Appreciate your time. Thank you. coming up mcdonald's is looking beyond the big mac for its next big growth opportunity what's behind the fast food giant's new strategy and will it work we've got the details next ever notice how every new ai tool asks you to explain your business to it all over again google workspace with gemini skips that you get google's ai built right into the premium versions of gmail docs sheets and more no new tools no extra logins just one subscription that gives you personalized AI right inside your actual workflow.

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28:35Brandon Gomez joins us with those details. Hey there, Leslie. That's right. McDonald's set a goal to gain one and a half percentage points of global market share in both chicken and beverages by 2030. Currently, CEO Chris Kempczynski says the company is maintaining its 40 percent share of the global beef market, but only 20 percent and 10 percent of the multibillion dollar chicken and beverage market, respectively. Well, consumer edge data shared exclusively with CNBC shows that growth will be challenging. McDonald's customers are spending more at rivals like Chick-fil-A was the biggest gainer in spending share among McDonald's diners in the third quarter year over year.

29:08Now, while four coffee chains, including Starbucks, Dutch Bros and Dunkin, picked up nearly nine tenths of a point collectively. And while the data shows some improvement in same store sales for September compared to July and August, Consumer Edge says it's too soon to know if that's a true turning point, especially as consumers stay selective about restaurant spending. And that's a concern. As the company invests for growth, Kamchinsky already warned those investments could pressure near-term earnings. So we're going to have to see how this plays out and how franchisees adopt the new menu items.

29:38Yeah, it feels increasingly competitive. And Brandon, I think about the news today about Starbucks and Chipotle, the marriage that could have been but won't be as they're not, as CNBC confirmed, they're no longer or not in any kind of discussions there. But in terms of a M &A potential, given some of the headwinds and given that desire to grab more share. Is that something that's on your radar or something that you think is going to be a greater possibility given what we're seeing in terms of inflation and consumer tastes and competition? Yeah, I mean, you're hearing it from so many players out there in the market, right?

30:14Those who specialize in morning, they're trying to capture those afternoon and those evening dollars like the Starbucks. They want to expand their menu option. That's why some people actually took that as a credible possibility that they would go for a Chipotle and then vice versa as well. You have of the companies that rule and dominate the afternoon, they're trying to get more into the morning. You hear McDonald's saying they're going to get into beverages. That's because they want to compete with a Starbucks. They want to compete with a Dunkin'. So is that going to lead to more M &A? You know, time will tell and we'll see which deals seem the most reasonable.

30:41But it's definitely a conversation that's happening in the ecosystem. Yeah. Build versus buy in the world of fast food. Brandon, appreciate it. Brandon Gomez. Up next, what is next for stocks as Wall Street heads deeper into Q4? Market veteran Edgar Denny weighs in on what could drive the next big move, Closing Bell is back after this break. We are back on Closing Bell. Stocks hovering near the flatline today as we gear up for earnings season to kick off tomorrow. Joining us now to discuss what's at stake for the market is Edgar Denny, president of Yardenny Research. Ed, it is good to see you.

31:11I want to get your thoughts on earnings season, but I first want to start with yields and what's going on there, because I think that feeds into what we can expect from those reports. I see that you believe that yields may be starting to stabilize at these levels. What gives you confidence around that? I think there's some indications that buyers are finding that yields on a 10-year bond yield over 5 % are very attractive. And I think they're right. I think if you look at a 10-year, over a 10-year period, inflation is going to moderate over time. I think the productivity boom that is becoming increasingly obvious in terms of what it's doing to the economy should be a very powerful force for keeping inflation down.

31:58There's something called unit labor costs, which is hourly compensation divided by productivity. It's up only 1.4 percent on a year over year basis. So, again, if you're a long term investor, getting over 5 percent on a 10 year looks looks pretty good. I'm this doesn't come with the money back guarantee these days when you've got all this uncertainty in the geopolitical political realm, of course. Yeah, that and then, of course, we get CPI, PPI this week. Do you think that has the potential to alter that equilibrium in any way? It does. I mean, the CPI is probably going to be up, going to look quite hot on a headline basis, but excluding energy, it should be up like 0.2 percent.

32:39So I don't know that it's going to be a major market market mover. The retail sales report later this week should be pretty strong, I think. Consumers have been spending. A lot of the bank surveys, the consumers are looking quite good. But all in all, I think the reason bond yields have gone up in the U.S. is because of better than expected economic growth. And I don't know that it's going to get much better than this. So I do think bond yields may settle down for a while. And we're starting to see some of that perhaps in the stock market. I think that Russell 2000 has come down on the rising bond yields, but it may find support right here.

33:20It's 200-day moving average, and the equal weight S &P 500 is doing the same thing. So there has been some internal damage to the market from bond yields going up, but I see some signs that things may be starting to stabilize. Yeah, we did have Cleveland Fed President Beth Hammock today on the tape talking about how higher rates may be needed to avoid a, quote, inflationary mindset. So she basically prefers smaller but quicker adjustments rather than waiting and risking needing a larger course correction, essentially. How popular do you think that view is among Fed officials? I think it's probably relatively popular.

34:01They clearly have pivoted from the beginning of the year where they were saying the Fed funds rate is slightly restrictive and implying that they're going to have to lower it. And then, of course, at the September meeting, they raised it by 25 basis points. And Fed Chair Kevin Warsh said, we've removed a dose of accommodation. So I think they made a mistake last year by lowering rates three times, 75 basis points all told. I think they're in the process of reversing that. So I would expect two more rate hikes, and then they might pause for a while to see how it plays out. Yeah, and we'll hear from the chair later this week.

34:38But before that, we get bank earnings, which could give us a sense of how accommodating, how tight financial conditions are. What's your expectation to come out of those reports? I don't think financial conditions are very tight at all. I mean, the S &P 500 is basically at an all-time record high. The NASDAQ is basically at an all-time record high. When you actually look at the data on the financials, what you see is that loans at the banks were up about 8 % on a year-over-year basis, so there's no problems getting a bank loan. And then, of course, the new issues, particularly new issues of corporate bonds, some of them related to AI, those have got to be great for the earnings of the investment banks.

35:22I don't see that the weekly data on loan loss allowances are going up. They're kind of flat. So all in all, I think the banks are going to report some quite good earnings. The bank stocks have been down, I think, to a certain extent because of the increase in bond yields. But if bond yields stabilize here and we get some really good earnings this week, I think we'll see the financials doing better. What do you think that means for the mindset of capital markets, M &A activity, IPO activity, debt capital markets activity, which has been lower leading into earnings? Yeah, I think that's not atypical, especially analysts typically lower their earnings expectations.

36:06They really haven't done it this time around. I think they really are convinced that earnings are going to be up something like 24 % on a year-over-year basis. And that's without any mark-to-market capital gains as occurred in the second quarter. But all in all, the outlook for the business and the financials is really quite good. Yeah. All right. Well, the countdown begins. We look forward to those reports tomorrow and we appreciate you, Ed, for taking the time. Thank you. Ed Yardini. Thank you. Up next, some of the AI trade's biggest winners getting hit hard today. We've got details when Closing Bell comes back after this quick break.

36:43About 13 minutes until the Closing Bell. Let's get back to Brandon Gomez for a look at the key stocks to watch. Hey, Brandon. Hey, Leslie. Let's start with Fannie Mae and Freddie Mac. both sinking double digits after Mizuho downgraded both stocks to neutral and cut their price targets in half. The bank citing higher mortgage rates, FHFA balance sheet pressures and changes to credit scoring as three key headwinds leading to a lower likelihood of privatization by 2028. Meantime, shares of satellite company AST Space Mobile getting a slight boost today following an upgrade from Deutsche Bank to buy from hold while maintaining a$93 price target.

37:15shares down 65 % from its all-time high in May. Analysts say underlying spectrum value and a number of positive catalysts have gone under the radar. And then a quick check on optical names. They've been getting hit today, reversing Friday's gains. Lumentum, Holdings, Sienna, and Coherent Corp are currently the biggest laggards in the S &P. Lumentum having its worst day since March, Leslie. Yeah, part of that AI complex getting hit today. Brandon, thank you. Up next, the headline that has Apple shares holding in the green today. That and much more when we take you inside the market zone next. We are now in the closing bell market zone.

37:49Mike Santoli and Crescent Grove's Andrew Cry are here to break down these crucial moments of the trading day. Plus, Oliver Rennick is standing by live from Cibo Global Markets in Chicago. And Mackenzie Sigalos is looking at the move in Apple. Mike, we'll start with you. Kind of an interesting tape today on this sort of holiday Monday. For sure. And volumes are light in light of that, in light of the bond market being closed. Leslie, you know, again, another one of these days of offsetting currents, keeping the indexes kind of holding at these levels near their highs. Still big questions. I know there's a vocal camp that says the average stock has really been de-risked going into earnings because you've had massive underperformance versus the S &P.

38:32You've had a lot of a cleanse underneath the surface of the indexes and therefore pretty much a low hurdle going into those numbers. could be the case for sure. We're going to have to see if the bond market's going to permit that kind of a broadening trade. It usually does operate at the discretion of the Treasury market. But I do think the market is open to that possibility if, in fact, some of the big AI names do need a rest. And the weakness in semis is hard to overlook, given what it says about the market's unwillingness to really pay up for what is probably going to be the strongest earnings growth sector in this season.

39:06But the rest of the market's making it up. Right. What is coming up in OT today? Yeah, we have, well, we're going to actually Max Kettner of HSBC, a multi-asset strategist, been risk-on in his recommendations for a while. So we'll get an update on whether that remains the case. Yeah. Max has been max bullish, as he likes to say. I'm looking forward to that. Mike, thank you. Let's go get over to Oliver Rennick at SIBO in Chicago. Hey, Leslie. Seven of the big banks are reporting the next two days a uniquely packed window. J.P. Morgan and Goldman Sachs are getting the most attention right now with options volumes 40 % to 50 % above normal and positioning leaning slightly bullish, particularly in J.P.

39:49Morgan, where 70 % of the premium traded today was tied to calls. Market makers are pricing a 3 % move for JPM, which is bigger than its typical swing, and almost a 3.5 % move for Goldman, notably above its typical 2 % reaction to earnings over the past two years. On the flip side, Wells Fargo, usually the wild one of the bunch, is looking relatively calm right now. Also priced for a 3.5 % swing compared to what's been a typical 5.5 % move after earnings, Leslie. Huh, I wonder if that's because it's the biggest of the laggards year to date, and maybe there's more muted activity expected after that.

40:29Oliver, thank you. Let's get to Mackenzie Cagallos looking at shares of Apple today. Hey, Mac. Hey, Leslie. So Apple shares are trading within striking distance of their record high as J.P. Morgan raised its price target to 360 from 340, saying that recent supplier cuts don't change its favorable view of the iPhone 18 cycle. J.P. Morgan is trimming its near-term volume estimates, but says that higher prices and a greater mix of pricer models, including the Duo launching next week, should help offset fewer units. Its latest demand tracker also shows U.S. Pro Max lead time still matching last year, suggesting that demand remains resilient in Apple's biggest market.

41:08Fresh counterpoint data backs that up. The smartphone market just had its worst Q3 in 14 years. Apple shipped fewer phones, too, but gained four points of market share to 22 percent, helped by stronger pro launches in China and India. And this comes on the eve of Apple's smart home launch, putting Siri AI in the spotlight as Apple looks to move beyond its mixed reception on the phone and expand further into the home. Leslie. Mac, thank you so much. Mackenzie Cigalos, we're moments away from the closing bell. Let's bring in Crescent Grove's Andrew Cry here. Andrew, this is a pretty big week. This is the start to the week, obviously, but you've got bank earnings on deck.

41:45You've got CPI. You've got PPI. You're going to hear from Fed Chair Warsh later in the week as well. How do you think all this shapes up for the bond market? Well, for the bond market, I think particularly close attention will be paid to CPI, needless to say. But I think PPI as well. You look at those two inputs, you can sort of triangulate on PCE. You can kind of project out a little bit of a trajectory here for where things might be headed on the inflation front. And I think that's where if you could see a little bit of softness in CPI in particular, maybe you could see the 10-year come off the boil.

42:20Maybe you could see a resumption of kind of this broadening trade. That, to us, becomes the thing to watch right now as it relates to small caps, as it relates to S &P 500 equal weight, kind of these bigger themes that everybody had been talking about away from the MAG-7. That's what we're watching. Can we see yields come down? Can we see broadening resume? Yeah, that was going to be my next question, this idea of if you do start to see a little bit of pressure on yields, do you see the follow-through in equities, especially since it's just been such a leading indicator of what some of these names have been doing?

42:53We think so. Yeah, I mean, it looks like earnings are more likely than not going to be strong. We're looking at, call it, mid-20 % earnings growth year-over-year for the S &P 500, at least being forecast. Even top line, if you just want to look at it that way, 11 % year-over-year. So we've got really healthy corporate earnings, corporate revenue backdrop here. If we could just see a little bit of relief in sort of the rate of change, even as much as anything, in yields, so much, I think, has been made about just the rapidity of the move here and how the indigestion that can cause as it relates to stocks processing a higher discount rate, processing a higher cost of capital.

43:28I think even a little bit of just grinding sideways, even better yet, if we could see a little bit of relief in the 10-year. And then you start to see, again, that broadening theme, I think, reemerge in the equity market. And as such, you continue to like equal weight and value. Do you feel like that's going to be a catalyst for some mean reversion here? We do. We like that trade. We continue to like that trade. And as much as anything for us, for the clients that we're working with, it's good portfolio hygiene to think about the concentration risk that comes with the top part of the S &P 500 right now, the top 10 names that have gotten so large.

44:04So for us, in some respects, too, it's just, again, good blocking and tackling portfolio management where we're rotating, taking some chips off the table and the things that have done so well. And then buying into some of the names, as a prior guest alluded to, where you've seen this sort of stealth correction beneath the surface, right? You're coming in at a much more favorable valuation right now. So we like that trade. We like that rotational element. So do you think then that S &P 500 valuations are more likely to derate from here or re-rate from here, especially given the concentration of the index right now?

44:37Yeah, well, I would say in terms of, you know, you look at where real yields are right now, and you look at sort of the equity risk premium, you take the earnings yield, if you will, in the S &P 500. We just feel like it would be hard to see that the equity risk premium compress given where real yields are at this point. So we feel like it's really going to be on earnings to do the heaviest lifting. Again, that's where you could see a little bit of a tailwind, though, if we see some softness in inflation, if we see a little bit of a pullback in the 10-year yield, I think there would be perhaps a little bit of a scope for an uptick in the equal weight side of things, at least.

45:07But by and large, we're expecting the earnings growth side of the ledger to really do the heaviest lifting from a return contribution perspective going forward. At what point do you think that the real yield offers a bigger alternative for investors than equities? Yeah, we've gotten a lot of questions from clients over the last several weeks now as yields have moved higher, it's clearly an alternative, right? It's a credible alternative in this environment when you can go into a 10-year treasury or something like a 10-year municipal bond, a highly rated muni bond. If you're a top tax bracket payer in this environment, it's cheap relative to where it ought to be in terms of like a 10-year muni on a triple-A basis versus a treasury right now.

45:48So things like that, right, where you're living on a fixed income, you want to create cash flow in your portfolio, there is a real credible alternative right now. So that's where I think, again, the earnings growth has to be a heavy lifting for the equity market. Yeah, definitely an area to watch, Andrew. Appreciate it. Thank you very much for your time today. As we look at the close, we've got the S &P around the flat line, the Dow up a little bit today. That does it for closing Dow. Let's run into overtime with your local league. I'm next in closing. Real talent is defined by what people can do, not where they learn to do it.

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