Closing Bell Overtime: Fed Cut, Warsh’s Presser Sends Stocks Lower 9/16/26

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1:00Marc Giannoni: The Bell's ringing into the trading day at the NYSE. Con Edison ringing the bell at the NASDAQ Airwater doing the honors. Welcome to Closing Bell Overtime. We're live from Studio B at the NASDAQ Market Site. I'm Melissa Lee along with Mike Santoli. Stocks falling as the Fed raises rates and signals more hikes to come. The Dow hit hardest, losing 600 points but off the worst levels in the final minutes of the day. S &P 500 losing half a percent. NASDAQ indices basically flat.

1:24Ken Hoexter: And a look at yields. The two-year moving higher intraday. Longer maturities also ticking up following the Fed decision. That comes along with a drop on the price of oil declining 3%, but still above$100 a barrel.

1:37Marc Giannoni: Interest rate sensitive sectors falling after the decision. Financials one example of much more in that group and all the market reaction. But Mike, let's start off with the first take on the close. It was an interesting sort of reaction. It was a very short press conference. And then the markets settle out here and we're sort of nowhere.

1:54Ken Hoexter: The market definitely read it as net hawkish versus expectations, whether that was correct or not. That was the market reaction. Dollar went up, cyclical stocks down. You got his air pocket in the sort of a little bit of a confusion as to what Kevin Warsh was saying. I do think his emphasis on price stability in the context of what they what he said was a lot of economic momentum and the fact that that economic momentum probably demands tighter financial conditions. If you put that all together, it says, OK, this wasn't just a one hike as a gesture to say that we're on the inflation case. It was part of a taking back of last year's rate cuts, perhaps over the coming months.

2:32Ken Hoexter: You know, that said, I think it's a it's a fuzzy picture. It's not one that says that they're out for the stock market to go down. I do think the old rules Don't fight the Fed. Don't fight the tape. It's kind of dicey right now because the Fed is not exactly friendly. The tape is is a little wobbly. But so far, it hasn't really broken trend.

2:50Marc Giannoni: And we don't really know what the Fed is doing. So when you say don't fight the Fed, it's fine. Don't fight the Fed. But what is the reaction function? I'm not sure that we got any more information on Kevin Warsh and where he sees race, how he sees, you know, what the next step might be at this point. I mean, I think Jeff Gundlach in the three o 'clock show said it best to Scott. and that is the press conference was very thin. The information was very thin, despite the best efforts of journalists like our colleague Steve Leisman, who's going to join us, to get some more information on what that reaction function might be.

3:19Marc Giannoni: We don't have that information at this point.

3:21Ken Hoexter: No, exactly. I mean, I think the clarity came in Warsh's characterization of the economy, not so much what that means for decisions. So I do think what the market has to wrestle with is if that's what they think the economy is, and they think that it could warrant more hikes, does reality match up with that? Or do we have downside risk that we have the lagged effects of oil and rates in the latter half of this year maybe going to slow things down? And so, look, I don't think we have an answer on that, but I do think that's what, in the initial moment, and we always say this the next day sometimes there's a rethink, we have a change of tone, that's what we were contending with.

4:00Marc Giannoni: For more on the Fed decision and the Fed chairman's comments, let's bring in Steve Leisman, who was, of course, in the room. in Washington. Steve?

4:07Guy LeBas: Yeah, I want to pick up on what you guys were saying. This was a well-anticipated rate hike by the market, but it still led to a sharp sell-off in stocks and especially bonds. As Fed Chairman Kevin Warsh, it looks like he offered a more hawkish outlook for rates than the markets expected. Look at this two-year yield surging 13 basis points after the statement and then more with the press conference, with Warsh offering a strong commentary on his views about inflation.

4:33Hassane El-Khoury: My judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since that would make me reverse that decision, so I've stuck with it.

4:45Guy LeBas: With a 12-0 vote, he had the committee with him at a hike intended to support a timely return to the 2 % target, saying inflation remains elevated, being definitive about the committee delivering price stability. And then this piece right here, 16 of the 18 members see at least one more hike this year. Here are the probabilities. We're looking for that hike, 51 percent. That's actually higher than I thought it would be for October, 89 percent for December for that second hike to come through. Much of Worsh's comments and the Fed's outlook, as Mike said, based on the economy being strong, unemployment low, and the Fed having an opportunity to hike without hurting the economy.

5:19Guy LeBas: Worsh said accommodation was removed, and he wouldn't answer my question about it, but he said that means the Fed may have more to go to be restrictive and really bring down inflation.

5:30Ken Hoexter: Yeah, it's interesting, Steve, in terms of the market reaction. I mean, it does probably speak to despite the market pricing 90 percent, this was going to be a 25 basis point hike. So on paper, we saw it coming. But there was so much commentary on we think it's an optional thing. We think it could be one and done, like all of these things that don't necessarily match up with kind of how the Fed patterns typically go and what the data are telling us. Maybe that That explains what had to be unwound in the markets, this sense out there that it was just going to be kind of a messaging hike. And then we were going to, you know, pause for a while.

6:04Guy LeBas: Yeah, I think that's right, Mike. And you also don't know where one particular person might be positioned for this. That might have been a person with a lot of money who had that 10 percent view that the Fed wouldn't hike, even though their money may not have been on the table. I will point out that our lead for our Fed survey was it's not going to be one and done. That was the conclusion. That's the way the market was priced. And the market is priced for not only a second hiker this year, but a third one in March. And this comment, Mike, I just got to keep thinking about it. He said we removed a dose of accommodation.

6:39Guy LeBas: And well to point out that before this comment, before that comment, most Fed officials saw the current rate as mildly restrictive. That means the view on the neutral rate, which Kevin Worsh doesn't want to talk about, may have run higher. I will say John Williams, the New York Fed president, told me that he thinks if you're going to have this higher productivity, the neutral rate is going to be higher. And now the question becomes, how much restraint, how high does the Fed have to go to put restraint on this economy and really bring down inflation?

7:09Ken Hoexter: Yeah. Who knows? Maybe if he were being candid, he would think that the Powell Fed gave the market three doses of accommodation last year that it didn't need, which I think was probably.

7:19Guy LeBas: And now take it back. That's a smart comment, Mike. Yeah. All right, Steve.

7:22Ken Hoexter: Thank you very much. Stocks turned lower after Warsh's press conference, as we say. But will this move down, hold, or will the market look past the meeting in the days ahead? Joining us now is Jim Paulson, Paulson Perspectives author and a longtime Wall Street strategist, along with Jannie Montgomery Scott, chief fixed income strategist Guy Labas. Thanks to you both. Guy, if I could start with you, just weigh in here in terms of what the market was expecting on rates and the projections, what it got, and how to explain the reaction.

7:52Hassane El-Khoury: Yeah, at least in terms of the absolute level of interest rates, the hikes that happened today and that are priced in for the balance of the year, we got basically what we were expecting. You know, my own forecast was for a couple of additional hikes after this first one in light of recent inflation data. Not explicitly in the dot plot, but I still think that's fairly likely as time goes on and we get incremental data. What struck out to me, at least from the FOMC content, was the longer run dots. And I wish I could kind of put them on the screen here with my hands. But essentially, where they've gone over the course of the last year is a pretty good consensus around expecting longer run overnight interest rates at 3 % to gradually higher and a wider distribution of those rates.

8:36Hassane El-Khoury: Thank you. I see it up on the screen now. But the wider distribution, that sort of vertical line towards the side of the screen there, is really maybe what's a little bit concerning here. And there doesn't seem to be a lot of consensus about where rates are likely to settle after the course of the next few months or so.

8:53Marc Giannoni: Do the dots matter anymore? I mean, I'm curious. And I'll ask Guy before we go to Jim here, Guy, I mean, don't you sort of discount these dots, seeing that the most important dot of them all doesn't exist on the plot?

9:07Hassane El-Khoury: I think the phrase is we take them seriously, but not literally, in that those longer-run dots represent pretty good thinking from a range of policymakers about what neutral represents in the economy. And it's not just the absolute level of dots, but the distribution of them, that wider distribution, really signals greater uncertainty. So at least in theory, for that greater uncertainty, we should have to price higher, longer-term interest rates than was the case maybe six or 12 months ago. So some of this increase in long-end yields makes a lot of sense in that context.

9:39Marc Giannoni: Right. Fair enough, Guy. Jim, how does this educate your view of the market? I mean, does it change anything in terms of how you see the markets six months out?

9:49Guy LeBas: Not a lot. I guess, you know, I kind of agree that, you know, the markets kind of got what was already kind of priced in. I guess for me, Melissa, the biggest feeling I had today watching the press conference and whatnot was I was like taken back to the Greenspan gradualism era. where the market ahead of the Fed priced in a rate hike. I mean, the two-year yield was above the funds rate, so it was even the three-month bill yield requesting a 25-basis point hike at a minimum. And they got exactly that. That was kind of what Greenspan did. He believed to let the market sort of communicate what they thought they needed, and then the Fed would follow up with his gradual moves as the market sort of dictated.

10:32Guy LeBas: Then the other thing that stood out to me is he's a lot like Greenspan in his communication approach. Now, Chairman Greenspan would say a lot, and you couldn't understand any of it. And what Wors does is just ignores the question and goes back to the script of the press release and really didn't give any really additional information the whole time. And I don't know if that's bad or anything. It just reminded me of that. I also think they're very data dependent. The two things he put out as trends was, you know, the core CPI report was bad last month, but year on year, that annual core CPI is the lowest it's been since going back to 2021.

11:12Guy LeBas: And the jobs numbers were really good in August again, but that came after a really bad July. And if you look at the last year, they're up, you know, three to four tenths year on year, one of the slowest annual growth rates outside of recession and post-war history. So to say that there's great trending momentum, I think, is a bit of an overstretch. At the end of the day, I think that ultimately, this could be reversed very quickly. And it's just going to take a couple bad data points. If jobs go south again, you'll see the Fed reversing course, because it seems like that's what they're mostly focused on.

11:51Ken Hoexter: Guy, in terms of the longer term treasury yield picture, we've been talking for a while here. It felt like there was a consensus building that a rate hike would mean you might get some relief and lower yields in terms of 10 years. Let's say it didn't really happen. We're back above 5 percent. History says you don't usually get that. I'm not sure you'd want to get that as to what it would say about it being perhaps a policy mistake to hike. But where do you see that going? Maybe that longer term uncertainty of exactly where neutral rates are going to settle tells us something about why we're at 5 percent.

12:25For sure.

12:26Hassane El-Khoury: For sure it does. And the other thing that tells us why we're at 5 percent is that economic growth is going pretty well. You know, Jim laid out some cases of risks over the course of the next few months or so. Could happen. They're not particularly likely in our view and particular the most volatile portion of the U.S. economy, which is corporate investment. We have an unusually strong forward-looking view, unusual amount of insight into it. So the odds of material economic downside aren't huge in the face of that. Ultimately, the Federal Reserve for the short to intermediate term is going to settle rates based on where inflation and jobs are.

13:02Hassane El-Khoury: And that's really a function of nominal growth, which is going great right now. You know, I would say that if you had asked me, say, 12 or 18 months ago, where would the equity markets be in the face of 5 percent 10-year Treasury yield, I would have been far, far more negative than we've actually experienced. And I think that's just underscoring some of the strong sentiment and the length and the foresight for economic growth. So I'll point out one other thing, which is that not that the analogy is perfect here, but during the dot-com boom, some of the biggest gains in risk assets came after and in the face of Fed rate hikes under that Greenspan era that Jim was talking about a few moments ago.

13:40Marc Giannoni: Yeah. And Jim, I do want to ask you, sorry, you wanted to chime in, but I also want to ask you about one of the market's reactions today, and that is a bit higher relative strength in technology. I mean, I guess the thinking that, you know, the revenue growth, the earnings picture out of tech, far outweighs a quarter basis point hike, 50 basis point, even one entire percent move higher on rates at this point. Is that right in your view? Yeah.

14:04Guy LeBas: I mean, I think that the new era of activities are probably making up close to 50 percent of the change in real GDP right now. So it's a significant impact, but they're not nearly as inflationary as other old era parts of the economy. And those parts, I think, are fairly weak overall. If I look at real GDP growth in the last six quarters for outside of new era investment spending, basically, it's growing, you know, a little over 1 % annualized. So I don't see a lot of strength there at all. I think what's interesting to me about this, we heard nothing about, we heard, you know, no forecastings being made and a lot on recent data reports.

14:47Guy LeBas: But I'd like more focus on things that lead to the future. And that to me would be policy forces and some of the other forces that are hitting the economy. I mean, one of the things that picked the economy up this year was bond yields fell last year and the yield curves steepened somewhat. Even money growth picked up. All of those have now been reversed. And so I think if you look at the policy things that we've had in place since February of 1 % increase in long rates, big increase across the curve, a greater inversion, now our flattening of the yield curve, relatively modest, real money supply growth less than 2%.

15:24Guy LeBas: Those are things that, with a lag, are likely to slow down economic activity. And generally, in past oil price spikes, the real damage to the economy and to the stock market doesn't occur while they're going up. It occurs once the peak is reached. It takes time for it to really hit home. And I think that still lies ahead of us. And I heard nothing from the Fed on comments like that of what's already in the pipeline that's likely to slow economic momentum and maybe hurt the stock market.

15:53Marc Giannoni: All right, gentlemen, thanks for joining us. Jim Paulson, Guy Labas, appreciate it. We do want to show you the shot in Chicago there. Fidelity Investments ringing the closing bell at SIBO, ending the regular trading day for options. Well, none of the 11 S &P sectors in the red today, Energy down nearly 3 % as a group. The next worst sector, financials, with Goldman Sachs leading the way lower. Leslie Picker joins us now. And, Leslie, it's not just what happened with the Fed. It's also a Barclays Global Financial Services Conference where we did, by the way, have CEO David Solomon of Goldman Sachs speaking.

16:22Guy LeBas: Yeah, quite the timing for that Barclays Financial Services Conference. Although I will say, throughout the bulk of the conference, which is now extended to its third day today, from the executives we heard, they talked about CEO confidence being strong, voting well for mergers and acquisitions, capital markets as well, and loan demand holding up. Now, I think as you look at the moves today, you can see a clear move lower for the big banks starting at 2 p.m. when that decision was made. I think the hike was priced into these stocks. The bigger concern for the big banks and the banking system is more this idea of higher for longer, the potential, given what we saw with the dot plot for another hike this year, what it means for inflation, what it means for credit quality.

17:05Guy LeBas: And if you do continue to see hikes from from this standpoint, what that means for loan demand, which, you know, by many measures, credit quality loan demand have been relatively strong up until this point.

17:19Ken Hoexter: And Leslie, I guess, you know, given the comments this week from Bank of America on top of what's going on with Goldman Sachs today, and then you have Fed chair suggesting that we need financial conditions to be tighter. It's at least got to get into investors heads that, OK, you know, maybe the second quarter was some kind of an interim peak in activity or enthusiasm about what drives bank earn.

17:42Guy LeBas: Yeah, it's a great point because there are these two levers that the big banks have. They have the Wall Street side of their business trading and investment banking, which you saw a little bit of, you know, differences among the big banks. But there is this question as to whether we've seen kind of peak trading, whether that will tail off in the third quarter. And it appears based on the guidance we've seen that could be the case. Investment banking strong some places, but there are a lot of big questions about what the AI CapEx cycle has in store, given some of the big headlines of the week. And now you have the potential for stickier inflation, higher for longer interest rates, a potential hiking cycle in addition to what you've seen today.

18:20Guy LeBas: And so what that means for loan demand, what that means for credit quality are all kind of big questions, which is why you saw the reaction you did after 2 p.m. today.

18:30Marc Giannoni: Leslie, good to see you. Thank you, Leslie Picker. As the Fed tries to fight inflation by raising rates, it has little control over another key factor. that'd be the price of oil. Another example of fuel prices trickling through the economy. Diesel prices. We'll discuss the impact on shipping next on Overtime.

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20:03Guy LeBas: 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.

20:25Ken Hoexter: Airline stocks not finding relief today despite the pullback in oil prices. Speaking at a conference earlier today, the CFO of United Airlines saying the company will continue to cut certain routes as fuel prices remain high, adding that the company is prioritizing profitability and cash flow over trying to gain market share. United shares down 6 percent.

20:45Marc Giannoni: Speaking of fuel, transport's getting hit as diesel prices surge, with the Dow transport's down about two and a half percent today. J.B. Hunt plunging about 13 percent after warning higher fuel and driver costs will weigh on profits. Meanwhile, the CFO of Norfolk Southern saying fuel prices at the present time are like something out of, quote, science fiction. Is this the start of a bigger margin squeeze across the freight trade? With us now is Bank of America research analyst Ken Hexter. Ken, great to see you. This is obviously not a demand issue. There's plenty of demand, at least from the J.B.

21:14Marc Giannoni: Hunt perspective. It is all a cost issue. So is there any relief in sight here?

21:19Ken Hoexter: Well, no relief in sight if we're talking about just on the fuel side. But remember, for transports starting a couple of years ago, this is a full pass through. But the issue becomes when you have such a rapid increase in fuel each week upon week upon week, your surcharge just can't catch up, even though they have weekly fuel surcharges. So you're paying at the pump now, adjust your surcharge next weekend. That means you're a week behind. But when it goes up seven weeks in a row, it's just a delay. You'll catch up eventually. But that's really what the issue was for J.B. Hunt. And there was also, I guess, in the guidance, an aspect of cost in terms of driver training, higher expenses there.

21:54Ken Hoexter: I mean, that would seem to be the negative of what's been presented as a positive for a lot of the publicly traded truckers, which is kind of this crackdown on independent drivers. Yeah, no doubt. We've been in a four year freight recession. So the fact that now the government has moved to take out non domiciled CDLs and English language proficiency tests, all these things that they're doing to squeeze the supply, the oversupply that we had for years, has pulled out about 100000 drivers in a pool of about a million and a half that are for hire drivers. And so that level of removal of capacity has tightened it up.

22:26Ken Hoexter: And so what J.B. Hunt was talking about with the$25 million is that's the cost. Now you're going out to rapidly hire and train and get them ready to fill those seats. That means underlying that, that demand is really starting to pick up because now you've got to catch up with some of the new drivers.

22:42Marc Giannoni: How should we then think about the increases that we're hearing about diesel prices, diesel prices at records, et cetera? Because you mentioned it's the ability to pass on that surcharge on a weekly basis or even sooner than that. So it's not just the ultimate end price or average price for the year. It's how quickly they can sort of navigate it week by week.

23:01Ken Hoexter: So the trucks, air freight companies, UPS, FedEx, they have weekly surcharges. The rails, they're about two months behind on passing that along. But again, they'll catch up. Right. But, you know, for a while you can have that void where you have the expense. But the key is, what does it mean for the consumer, right? If you keep passing along those higher fuel surcharges, C.H. Robinson said to us, well, the concern is, when does the consumer really feel that? And they get impacted, and then the slowing of economic activity. I think that's the bigger question. So far, demand has really been improving from a survey we do of shippers.

23:34Ken Hoexter: Continues to improve. It's at a good level. But the worry and the concern amongst the companies is, does it impact the consumer at some point? So what are the main takeaways from the investment side, where either some of the stocks have really gotten depressed valuations or you'd want to stay away from other areas? That's a great question. When you think about the trucks and the less-than-truckload companies, XPO, SIA, Old Dominion, those companies had really run up in valuation in anticipation that we were seeing the exit of a four-year freight recession. So investors really want those early cyclicals.

24:05Ken Hoexter: The rails, the volumes are trending ahead of target, so those valuations are within five-year historical averages. I think you'll see some, I think you are seeing that little bit of transitions, move to safety, move to the railroads. But when you get the feeling that if demand sustains through this period, if fuel were to roll over, I think you'd rapidly see people want to enter the early cyclical stocks like Knight Swift, the truckload names of J.B. Hunt of today.

24:30Marc Giannoni: Has there been a comparable period for this sector in the past in terms of the pace of the fuel increases and the ability to catch up?

24:37Ken Hoexter: Not the pace of the fuel increases. We've certainly seen scale of pricing. Remember, WTI was at$130,$140, not a couple of years ago. But crack spreads have now doubled and tripled. And so that is why the prices on highway diesel prices have gone above$6 a gallon. That we haven't seen. These are record prices. And so that is the pass-through that could feel the pain for the consumer.

25:03Marc Giannoni: Ken, good to see you. Thank you.

25:04Ken Hoexter: Thank you so much for coming.

25:05Marc Giannoni: Ken Hexter. Yes, sir.

25:06Ken Hoexter: Well, stocks selling off following the Fed's decision to hike interest rates, and it's signaled that more hikes are on the way. The Dow losing 631 points, much more on the market's reaction, coming up on Close Development.

25:24Hassane El-Khoury: This message comes from Wise Business, the only account your business needs to scale globally. You're building a business with global ambitions, but hidden fees are eating into your margins. With Wise Business, you can pay overseas suppliers without exchange rate markups. Have customers worldwide get payment details in 22 currencies so you get more of each hard-earned payment without hidden conversion fees. Be smart. Get Wise Business. Download the app. T's and C's apply.

25:54Guy LeBas: 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. There 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.

26:33Guy LeBas: 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.

27:02Ken Hoexter: Welcome back to Closing Bell Overtime live from the Nasdaq market site. Stocks mostly lower following the Fed's decision to raise interest rates. That was expected, but the market seemed to take Fed Chairman Worsh's comments as a bit more hawkish than anticipated. That sent stocks tumbling during his news conference. But they did bounce back late in the session with the Nasdaq 100 in particular finishing in the green, though just barely in video a big part of that. The S &P 500 down about half a percent on the day. The Dow losing 630 points. Goldman Sachs accounting for about 250 points of the Dow's losses.

27:34Ken Hoexter: It is now down about 9 percent this week, which would be its worst weekly performance in a year and a half. And check out the move in the two-year yield, jumping higher as bonds sold off along with stocks following that decision. Longer maturity yields also moving higher. 4.74 was the close on the two-year.

27:52Marc Giannoni: Time now for a CNBC News update with Julia Borson. Julia.

27:56Guy LeBas: Well, Melissa, OpenAI CEO Sam Altman will reportedly attend President Trump's state dinner at the White House when Chinese leader Xi Jinping comes to Washington next week. That's according to Reuters. A source tells CNBC NVIDIA CEO Jensen Huang is also expected to attend. AI is expected to be a major topic of discussion during Xi's visit. Fencing went up today outside of the now-closed Kennedy Center for the Performing Arts in Washington, D.C. The center's Trump-appointed board voted yesterday to close it for renovations. The president said those repairs won't happen until the building moves forward with plans to add his name to the building, despite a judge's order blocking the renaming.

28:35Guy LeBas: And ESPN's Joe Buck will reportedly remain the voice of Monday Night Football for at least six more years. According to The Athletic, Buck signed a six-year contract extension for$108 million. He will also call ESPN's first Super Bowl broadcast in February, as well as the network's next one in 2031. Back over to you, Melissa.

28:56Marc Giannoni: Thank you, Julia. Will the Fed's rate hike today be enough to cool inflation and calm concerns about the economy? Barclays chief U.S. economist weighs in when closing bell overtime returns.

29:14Marc Giannoni: Lennar earnings are out. Diana Oleg's got the numbers. Diana.

29:19Guy LeBas: Well, Melissa, a pretty disappointing Q3 across the board for Lennar, the home builder EPS of $1.19 a share versus estimates of$1.30. Revenue of$8 billion versus estimates of$8.3 billion. That was a third straight revenue miss. Deliveries fell 3 % to 20 ,840 homes. That was a miss, as was new orders, which came in down 9 % at 20 ,789. Gross margins on home sales were basically in line at 15.8%, but guidance was way off at 15.5 % to 16 % versus estimates of 16.2%. Guidance on deliveries also came in low. Lennar's chairman, Stuart Miller, said in the release, rates are responding as inflation remains above the Fed's target, driven by geopolitical tension and higher oil prices.

30:05Guy LeBas: Additionally, consumer confidence has declined and rates and affordability have driven more consumers to slow their purchase decision. Just a note on rates, as we were talking about that, they dipped a little bit this morning, according to Mortgage News Daily, which runs these around noon, but they ran them again today after the Fed meeting and the Fed's decision. And guess what? They shot back up 7.24 percent on the 30-year fix. That's the highest since January of 2025. Back to you guys.

30:34Marc Giannoni: Diana, remind us, is Lenar buy-down rates? It does. I mean, look, they've all been doing incentives.

30:40Guy LeBas: We heard from the builders this morning in the Builder Sentiment Survey that they were actually more builders were lowering prices, adding incentives.

30:47Marc Giannoni: They all do the rate buy-downs. But as you can see, it hits the margin. It certainly does. Diana, thanks. Stan Olek.

30:54Ken Hoexter: Shares of Generac soaring after hours on news of a deal with Amazon. Generac will provide backup generators to Amazon data centers. The deal could be worth as much as$8 billion. Amazon also getting warrants to buy Generac shares. Generac up 15 % on this news.

31:10Marc Giannoni: Well, the drop in markets come today after the Fed raised rates by a quarter point and signaled more could come later this year as inflation remains too high. But as Rick Reeder of BlackRock argued yesterday, a rate hike won't necessarily lower energy prices, insurance, or health care costs, and it could adversely impact the housing market as we've seen mortgage rates rise. So what will the end result be of a hike on the economy? Joining us now is Mark Giannone. He is chief U.S. economist at Barclays. Mark, great to have you with us.

31:38Jim Paulsen: Thanks, Brian.

31:39Marc Giannoni: So what is the answer to that question? Because I think a lot of journalists in the room were trying to ask him why hike rates when it's, you know, the parts of the economy that are causing the inflation can't be tamed by a rate increase.

31:49Jim Paulsen: That's right. But we see that inflation has been very elevated, well above the target for five years now and going. And as we see in the latest summary of economic projections, they anticipate that inflation will remain above the target even until 2028. It's not before 2029 that they expect inflation to be back at 2%. So as Chairman Walsh had alluded to in his Jackson Hole speech, they have to take some action at this point. I think that's what they did today. And they might do a little more of that going forward.

32:25Ken Hoexter: We've been kind of parsing what he said about this move removes a dose of accommodation. So just to dial it back, last year there were 75 basis points of rate cuts. At that time, core PCE inflation was running below 3 % for several months. The unemployment rate had risen from 3.7 up to 4.4. So now we raise rates a quarter point. We're still 50 basis points below where we were 13 months ago. Unemployment's 4.1. Core PCE's more than 3. So that would seem to make it just completely obvious that they would want rates to snug up. How far do you think rates have to go? And do you think it is going to actually restrain the economy in a significant way?

33:06Jim Paulsen: Yeah, so our expectation is now in line with the new SEP, or Summary of Economic Projection, we just got today, namely that they would raise rates once more this year. We anticipate another hike in the December meeting, and then for rates to remain on hold for much of 2027. The SEP suggests that they are going to lower rates in 28 and in 29, 25 basis point each. So the overall trajectory of short-term rates is going to be a good 50 basis point higher than was previously anticipated for some time. So I think that's going to exert some restraint. It's going to contribute to also increase some of the other longer-term maturity rate, let's say the two-year rate, three-year rates.

33:51Jim Paulsen: And we've seen that respond right away. And so that is going to exert some slowing on overall activity, I would say.

33:59Marc Giannoni: Do you think it's going to be enough? We heard Jeff Gunlock on our three o 'clock show say 50 points would have been a much more assertive move by the Fed first out of the gate. And then you take a look and we mentioned some of the components, for instance, of of inflation that are not controlled by an increase in rates. And then you also think about A.I. issuance. And, you know, a quarter of point increase is not going to stop that issuance when the return on capital is going to be much greater than whatever the cost of capital is still. So there's so many components that will not be tamed whatsoever.

34:30Jim Paulsen: That's a great point. I think it's not clear that this 25 basis point or even 50 basis point would do much for the big investment boom that we are seeing in the AI-related activities. They are mostly driven by anticipation of future profits, anticipation of this race to building up as quickly as we can. And interest rates is probably not a first-order or second-order consideration there. So that's absolutely true. But monetary policy works at the margin, right? So then it affects a wide range of businesses all across the economy and for other businesses in particular who are more affected at the margin by slightly higher cost of capital.

35:12Jim Paulsen: And we expect that to slow that dynamic there. And consumers are also affected to the extent that their shorter term, I mean, rates that affects their credit cards, let's say, holdings and other rates that are based on shorter term maturity rates are going to be affected by that.

35:31Ken Hoexter: What is your projection of the path of inflation from here? I mean, do you think that the that the FOMC, the summary of economic projections, has it close to being correct?

35:40Jim Paulsen: So we we have a broadly similar picture, but we think it's coming down a little faster. We we've seen the I mean, the 12 month inflation rate, core PC inflation is quite elevated, 3.3%. The six-month is, over the past six months, showing about 3%. If we look at the last three months, we've seen some substantial moderation there. So, it's running at an average of about 2.6 % annualized, we think. Going forward, we think inflation is going to be hovering around that level and gradually come down to the 2.25 % range also. So that's what we anticipate to see more of an improvement, let's say, going on.

36:23Jim Paulsen: Not clear from the projection that the Fed submitted whether they incorporate the fact that there is going to be a revision and change in metallurgy there. We suspect that overall didn't really incorporate that, but we think that's going to contribute to slightly lower inflation as well.

36:39Ken Hoexter: Mark, thank you. My pleasure. On semi-shares, plunging nearly 50 percent since mid-June, significantly underperforming the rest of semi-stocks. Up next, the company's CEO discusses his strategy for turning things around and how AI slowdown fears are impacting his firm. Closing bell overtime will be right back.

37:03Marc Giannoni: President Trump reacting to the Fed's decision to raise interest rates. Megan Costello's got this. Megan. Melissa, that's right.

37:09Guy LeBas: This is the first we're hearing from the president since that decision to raise interest rates. He just posted on Truth Social saying interest rates in the United States should be 1 % or less because we are the best credit in the world by far. Our country is booming with new investment. If we stop trading with every country that we have a deficit with, which is most of them, we would make at least$1.5 trillion a year.

37:31Marc Giannoni: The word deficit is nothing more than a fancy word for loss. We are carrying almost every country in the world, and that cannot go on any longer.

37:39Guy LeBas: Lower the interest rates for the United States of America and fast. Now, a little interesting here, Melissa, he seems to be re-upping at least a loose threat to cut off all trade with most of the U.S.'s trading partners, something that we first heard a couple of weeks ago in part of this campaign to pressure the Fed to lower rates. But he wasn't going after Fed Chairman Kevin Warsh here directly at all. This comes after a White House spokesperson earlier today called the move rather unfortunate, sort of soft language there by the White House's own standards or the standards of this administration.

38:07Guy LeBas: So the president, even though he's complaining about this move, not putting the amount of pressure on the Fed chair himself,

38:12Marc Giannoni: as we might have expected. Melissa. All right, Megan, thank you. Megan Casella.

38:18Ken Hoexter: On Semi shares are down 9 percent today as the company wraps up its investor day. The stocks plunged 40 percent in the past three months, significantly underperforming the rest of its sector. So what could the company do to turn the stock around? Joining us now is Christina Parts-Nevelis, along with the On Semi president and CEO, live from the company's investor day. Christine.

38:38Guy LeBas: Thank you, Mike. And Hassan is sitting right in front of me right now. I don't want to start on a negative note because I know shares are down 9%. We can blame the noise, which is what you said prior to the commercial break to me. But I want to focus on your total addressable market. You had announced today of$213 billion. But back in June, didn't you say$243 billion with Synaptics in that deal? So why is that number not$243 billion?

39:02Jim Paulsen: Well, it's very simple. Back in June when we talked about 243, we were talking about the thesis and the strategy with the acquisition of Synaptics. Today, the focus of today is core on semi-business. Because once you announce the deal, we're two separate companies. I'm talking about, so the 30 billion didn't go away. When we close the deal, you'll see that number become over 243.

39:25Guy LeBas: So it's not symbolism for like perhaps this deal not going through because it's supposed to close in mid-2027. Absolutely not.

39:30Jim Paulsen: But from a regulatory perspective, we are effectively two separate companies to the extent of integration planning, which we have been doing. It's going very well. I'm very excited about the engagements that we have. But within the realm of those, we have to operate as two separate companies. So when we're talking about a on-semi investor day, the focus is the strength of our core business and the value we're delivering, which will extend once we close a deal and will become the 243.

39:59Guy LeBas: But on semi shareholders may not have reacted as positively to that deal. And that's why it's relevant to bring up today. Shares dropped dramatically once you announced it back in June. Concern that it's a distraction, that it's pivoting away from the business given, and apparently making it as simple as possible, you know, the brain chips for your on edge devices and stuff like that. Can you speak to that, I guess, merging of both companies and how it'll work in your favor so that you're not spreading yourself too thin across too many business endeavors?

40:29Jim Paulsen: Yeah, look, since June, since we announced the deal, the market has absorbed it. They've done the work. They understand. And by the way, there's other deals that were announced after our deal that has validated our thesis and our strategy. Compute is going to be at the center of everything we do here. And therefore, the complementarity of putting Synaptics and OnSemi together is what's going to create that value. You have one plus one is going to be more than two. And the important thing for us to also understand is that inflection point is what's going to drive a lot of the value moving forward.

41:05Guy LeBas: Yeah. And my colleague, Melissa, the anchor, wants to ask a question. But just quickly, the gross margins, you got it at 53%. That's a number we've heard before.

41:15Jim Paulsen: Yeah, but you have to be very, very clear about how Thad presented the 53%. He said it as a milestone, not a destination, because what we've announced today also is a ton of new technologies, very differentiated and unique technology that as we introduce and they become a higher percent of revenue as we grow into these technology from automotive, AI data center and industrial. That's going to drive that mix. But once we get to the 53, we'll talk about what's beyond the 53. And you've seen, even in the last couple of quarters, those step function margin improvements that we have been able to deliver as we ramp those new technologies.

41:54Jim Paulsen: So it is not an end game or an end state. It's a milestone towards a different number as we get to the 53.

42:03Marc Giannoni: Hassan, how should investors think about a possible AI slowdown, whether it come from the companies, the frontier model companies themselves or regulation? and how should we think about in terms of your forecast for AI data center revenue, which you quadruple the forecast for the market to almost$48 billion by 2030. Do you think a slowdown is coming? And what would you say about that in terms of the impact of your forecasts?

42:29Jim Paulsen: Look, I don't think a slowdown is anywhere on the cards because everybody is doing the build-out. If you look at build-out that is already in the works, it's beyond even the next couple of years of visibility. We've even talked about our revenue and AI data center for 2027. And here we're sitting here in September of 2026. So we have that visibility. We have that visibility based on committed projects. And if you look at where we anchored on our growth in AI data center, we talked about a 30 % market, which is in the middle of the range that everybody's talking about. So we're looking at it and we anchored on a 10 % on top of whatever market you want to pick.

43:13Jim Paulsen: So our growth is going to come in. We're being very middle of the fairway as far as the market that we are considering. We talked about a 40 % TAM growth, which in the last couple of years, in 26 and in 27, we're growing over 100%. So it's already in our outlook, but we are going to always see that content growth as more and more compute is going to be deployed. That is not going to slow down, and it's definitely not going to slow down the power semiconductors that we need to deliver to that compute. Because whatever compute it is, it needs more power this year than last year and next year from this year.

43:54Guy LeBas: So quickly, though, just your last investor day, the focus is around EVs. And yet just this most recent earnings call that you had and report, you saw the growth rate within EVs and industrial actually grow at a slower rate than your competitor STM. So is that a signal that, you know, you're just focusing your attention more on the robotics, the AI data center, you know, things that I'm seeing behind you right now, as opposed to what your core was initially years ago?

44:18Jim Paulsen: Look, I don't look at revenue in these markets quarter on quarter. Let me give you a number that will disprove a lot of the headlines. Our number from 2019 till 2026. Think about that range to take out the COVID up and down and all that noise. We grew 72 % our revenue in automotive. We are the highest growth semiconductor company in automotive from 2019 till 2020, beginning of 2026. We are on top that delivered over 9 % CAGR year on year over five years. No other company, whatever they're talking about quarter on quarter, has delivered that content sustainably in automotive. And what we said today is we have more products and more technologies that will sustain that growth over the next five years.

45:01Jim Paulsen: So we have delivered the noise quarter on quarter. That's not what I focus on. That's actually the distraction. What we focus on is a long-term value creation. And we've delivered that over a five-year period. even with this slowdown and total SAR being flat to slightly down, we've outgrown it by high single digits. That's the value we bring into our customers that is sustainable, not quarter on quarter.

45:23Guy LeBas: Very passionate ending. And I'll end with that, Hassan. Melissa, Mike, back over to you guys.

45:29Marc Giannoni: All right, Christina, thanks. Christina Parks-Nebelis with the OnSemi CEO. Up next, what the CofG, Vernova, had to say to calm investor fears over its AI data center buildout. Closing bell over time, live from the Nasdaq Markets. I'll be right back.

46:12Marc Giannoni: Cheers. hit very early in 2027. Let's get more on the check on the markets. Mostly lower following the Fed's decision to raise rates. The Dow losing 631 points. Goldman Sachs, big part of that. A modest loss for the S &P 500. Tech-heavy Nasdaq indices closing right near the flat line there. Bond yields moving higher, especially on the two-year yield we were saying today. The move from 4.6 to 4.74. Decoupling from oil, which fell 3 percent. And a huge move in Generac. Look at this. The stock is now up 40 percent on that news that we had mentioned just 20 minutes ago or so. Deal with Amazon here.

46:49Marc Giannoni: Generac will provide backup generators to Amazon data centers. So what a pop.

46:54Ken Hoexter: Often a volatile stock, often strong opinions on it. But, you know, it's mostly kind of a home and smaller business play. If Amazon's saying we're going to need you to power our data centers, it probably gives a lot more clarity. G.E. Vinova, too. You know, I mean, I'm not sure they're going to be the first to know if there's a slowdown in the two to three years out order backlogs, but reassuring, I suppose, nonetheless. Okay, big day tomorrow. We'll see if the market rethinks the post-Fed action. That does it for overtime today.

47:20Marc Giannoni: Fast money starts right after this quick break.

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