CNBC’s Mike Santoli and guests dig into the latest market moves and what it means for your money.
Squawk on the Street
CNBC Special Report: Taking Stock 8/16/24
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LinkedIn, the place to be to be. Hello, I'm Mike Santoli. Welcome to the CNBC special Taking Stock. This has been the best week of the year for the markets and the best hour of television for you. And I'm not saying that just because Josh Brown isn't here. Liz Young-Thomas and Dan Greenhouse joining me for the hours we break down this week's market moves and get you ready for what could be another wild consequential week from Wall Street to Wyoming. Let's get right to it. We are on the clock. The biggest stories of the day and the week. We are going to start with that rollicking week on Wall Street. Stock's turning in their best week of the year with the NASDAQ surging 5% on the week, both the S&P and the Dow, now less than 2% off of all-time highs. The last week's volatility spiked all but erased from the markets' collective memory. Anyway, so, the client comes to you and says, "What happened?" I mean, was the downside in overshoot, Liz? Has the rebound been a little bit too far too fast? What were we trying to reprice through all this? Well, I think much like some of the last recoveries that we've had after pullbacks, this was a little game of put the money back where it came from. So yes, last Monday, I think, was an overshoot to the downside. But the market always does that. That's not new. The overshoot to the upside, we overshoot to the downside. So that was an overreaction. But I think it's important to note that even after Monday, we didn't start recovering right away. We tried and failed Tuesday and Wednesday. We didn't really start rallying again until Thursday, which to me says, "This market now needs good news in order to rally." So we needed good initial jobless claims, which we got last week and then we got another one this week. We needed good retail sales. We needed good results from somebody like Walmart. We needed a tame CPI and PPI. So we got all of that and the market now felt justified to keep going up. However, you don't usually see a day like that and just one and done. So I would still be on guard. I don't think that the volatility is over. I don't think it's fair to suggest that the market needed until Wednesday to know that Josh Brown was not going to do this. This is true. I don't think that's appropriate at all. And as a fellow Long Islander, I'll take his place for the day. But listen, at the end of the day, what happened on Monday was incorrect for lack of a better word. Far be it for me to tell the market... You mean a week ago Monday? I'm sorry. Week ago Monday. That's 3% and the volatility index surged above 50 and everything else. When you've got a VIX north of 60, the only times that's happened is when things are going really, really wrong in markets. And granted, Japanese stocks down 12% is something going really, really wrong, but it's going really, really wrong over there. To Liz's point, you've got Walmart, you've got retail sales, you've got jobless claims here coming down a little bit. The U.S. still seems to be operating fairly well. And maybe it took a day or two for people to step back from what happened to Japan. But at the end of the day, whenever you walk in and futures are down 5%, 6% in the case of the S&P more in the case of the NASDAQ, unless something's going on, that's something you should buy. You know, Liz, it all makes sense that we had a growth scare that was all concentrated and it had these knock-on effects with other leverage trades getting unwounded, came after a long period of very calm markets, but you also have to wonder about the starting point. So what was assumed about the economy and, you know, the durability of the expansion and of what the Fed's going to do on July 16th, one month ago today, when the S&P 500 made its peak at 22 times earnings, right? So it's one of those things where, yeah, maybe 3% down in the day and 10% in no time is a lot in a hurry. But maybe it also is because, you know, we were up at these levels where we were out on a limb. I mean, yeah, coming from really high levels, that drawdown, although because it happened so quickly, felt dramatic, it felt scary, but in reality wasn't that bad. It was like a cute little thing that happened on that day. So when you look at basically coming into that, I think maybe the bigger risk, I know we talk about positioning a lot, I don't want to get into the technicals of that right now on a Friday night, but the bigger risk I think coming into that is that everybody had sort of decided we've secured the soft landing and stocks are going to be fine, we're going to pull this off, inflation's under control, jobs are okay, cooling but okay, and stocks are still going up, so why can't they just keep going up? And anytime you get that many people on one side of an argument, you're at risk of something else happening, which is where that positioning discussion comes in and that just exacerbates it on the downside. But let me add, people are on that side of the argument because it's the correct side of the argument right now. Excuse me. Excuse me. Oh, oh, oh, is correct. I mean, listen again. Right be correct, but it has to be tested along the way. Sure, but we're going to talk about this later in the show, but at the end of the day, the same people clamoring for some sort of economic calamity or even just a recession or the same people who've been calling for a calamity or a recession for the better part of 10 years now. And again, there are undoubtedly the economies slower, undoubtedly earnings are a little worse, sentiment a little more poor. But again, the correct view of the environment right now is things are hanging in there. Yeah. So, the retail picture, we are going to get a slew of retail earnings incoming days, names like Lowe's, Target, Best Buy. We of course saw some positive reaction to earnings from Walmart and Home Depot in the past few days. So, should we expect more of the same next week? How much do we extrapolate with? Well, so the reaction to Walmart and Home Depot were different in the sense that Home Depot actually reported that they were worried about consumer spending for the rest of the year. Walmart reported that they were not. I think what we might find out from the rest of this retail of Palooza that we're about to begin is that Walmart has been benefiting from the trade down that consumers have been doing in other names, right? And the spending, people have gotten more discerning, they're looking for value, Walmart has provided that. So, although Walmart has probably the best lens into the consumer, we should definitely pay attention to it. But I think we're going to get mixed results from other retailers that are more discretionary in nature. And even some other retailers like Target that would be more of a competitor to Walmart. It did rally and, of course, Walmart did have decent things to say, Dan, about, you know, General merchandise. Sure. It was not just grocery. I guess, look, the consumer can, there's a muddle through is also a direction. Things can go as opposed to boom or bust. Yeah. Listen, to this point, Walmart for a couple of quarters now is told us they've benefited from what they consider upper income brackets trading down to them. And for them, that's about 100,000 income and above. And the point about Target, I mean, you talked about Costco earlier today on air, both of these companies do, I mean, Costco does two plus times the revenue of Target and Target gets four times plus the attention. Both of those companies have done exceedingly well. Their consumer, yes, there's some trade down. But if you look at something like TJX and raw stores, those stocks have performed pretty well. They're a little more middle income consumer. The low income consumer clearly is the problem. Look no further than Dollar General and Dollar Tree for evidence of that. And any number of companies have commented that the lower income consumer is strained. But at the end of the day, the consumer on balance when you look at the restaurant companies that have reported, when you look at the retail companies that have reported, I would argue that on balance, the commentary has been, things are a little slower, but nothing to worry about. Yeah. Big story this week, a grande jolt for Starbucks, the stock jumping 26% over the week as the coffee giant replaced its CEO, Lakshman Narashman, with the leader of Chipotle, Brian Nickel. After that major move, it's worth asking, can any CEO possibly be as much of a hero as the market seems to think Nickel will be--and he just looked at the stock moves, right? Chipotle was the worst performing stock in the S&P, down 6% in a very big up week, 26% up for Starbucks on a week when obviously everyone decided that this was the fix. I think bigger picture the question to me is, can any single CEO actually be that much of a difference maker in this economy or any economy? Well, I mean, there would have to be a lot of changes made. I don't know that he can make changes as quickly as the market is expecting him to with a 26% return. 20 billion dollars, give or change. Yeah, I mean, it's a tough needle to move, and they're different companies, right? Chipotle is a different company than Starbucks, and from what I understand, the weakness in Starbucks is very China-related, too. So it's just a different scenario, and Chipotle was coming off of a tough news cycle with the foodborne illness issue, not dealing with that at Starbucks. I think, really, what investors are looking for here is there needs to be somewhat of a redirection. Starbucks has suffered also from what I understand, from prices rising, and consumers just sort of changing their tastes. And when you have that change in taste, you do have to pivot the company a little bit. I don't know how quickly he'll be able to do that, but it's good to see that investors are enthusiastic about it. And an eager person, can one person do that? But also an eagerness to look to company-specific self-help type situations. It seems to me, I mean, Nike rallied on the Starbucks news, on the idea that this is another wonderful global brand that's under-managed, or whatever you think about it. So to me, it reminds me of the old Warren Buffett quote, which is, "By a business that's so wonderful that even an idiot can run it because eventually one will," right? But I mean, not to say anybody who's running these businesses is that. But the point is, you can either buy the perfect business that can't be screwed up, or one that actually can restructure and do something well. I mean, listen, the network is filled with people who are going to comment on the specifics of the issues facing Starbucks, traffic, innovation, et cetera, et cetera. But the world in which Solis operates has taught me, management can be crucially important to the performance of a company to your point. Now, obviously, Starbucks is infinitely larger for most of the companies that Solis particularly invest in. But at the end of the day, don't underestimate the importance of good quality management, a good individual, a good team in identifying problems and coming up with solutions. And Brian Nickel has done that two times so far. There's nothing to say that Starbucks, third time's a charm, maybe it goes the other way. But someone who has got a demonstrated record of success, the likes that he has, there's a reason why the market did what he did. Market had a few days to rethink that reaction, it didn't really do it. That's a good thing to keep in mind as well. All right, Vice President Harris, speaking today unveiling her plan to lower costs for the middle class on pharmaceuticals, housing, even food and groceries with the DNC set for next week. What should we expect on an economic policy front from both Democratic and Republican candidates? I guess the big question to me, Liz, is what are the swing factors within that the market is going to have to consider as we handicap what happens with the election and really with policy going into next year? Well, there's a lot to consider in an election year. First of all, this election year has not acted like other election years in the market. We're way ahead of where we normally would be. But something to keep in mind is that September and October you do typically see an uptick in volatility because we start to get polling results as we get closer and we get policy statements as we get closer. So then the market tries to react to that. The most susceptible sectors are sectors like energy and healthcare, obviously. So I would expect to see volatility in those. The interesting backlay of this election season is that it's happening at a time when also we've got a yield curve inversion that's getting more shallow. We are going through little bouts of growth scares, trying to figure out what soft landing really means as it painful. And in those environments, you typically see defensive sectors do well. So we could have this sort of indecisive market that just persists through the election. And then what you'd expect on the other side of it is a relief just because we know what happened. Yeah. Usually the market most of all wants the election to be passed. And what also is interesting, Dan, is of course, you know, the messages that must test well among potential voters is about inflation. And on some level, you have one side saying, well, we got to control profit margins and grocery prices. On the other is we should drill more oil, which we're at record oil production. And inflation's already come down toward, in fact, for goods is totally below. So it's a lagging indicator. The story line is a bit of a lagging indicator to what the market cares about. I'll take somewhere to the other side of what Liz said in the sense that everything that's happening right now are not legitimate economic policy proposals. It's all campaigning. Of course. What's going to sound good to consumers? What's going to sound good to potential voters? Grocery margins is apparently a thing for some people. At the end of the day, from my standpoint, you wait until after the royal you wait until after the election. And you can ascertain what's likely to become law because almost invariably what actually becomes law looks nothing like what was previously proposed. Not just from a settlement standpoint, but six months, 12 months later, your attention as a politician is often on other things than what you said it would be 12 months prior. Yeah. One of the things, if we can bring up a chart, I had sent a chart before the show, so the consumer confidence surveys that we do, there's a question in the survey. It's a series of questions. They call people and they ask these questions. They ask a question about, do you think that your household real income is going to be higher a year from now? And that chart will show you that the responses people have given are now at the lowest level since 1980. So people thinking that their household income is going to be the lowest a year from now than they did in 1980. I think this speaks huge to what people are going to be focused on in election season, what they want to change in the economy going forward. A lot of this has to do with the fact that inflation has been high. This is about real household income, obviously. But also, it's about the labor market, so understanding that because we are more focused on the labor market now than we are on inflation, looking at what do jobs look like, what does the prosperity look like in the future for the next four years of keeping a job, getting a job, getting raises, what is wage growth, I think all of that is going to be. Yeah. No, the psychology of the last few years absolutely has remained somewhat entrenched. That shows that for sure. High rates and low affordability continue to hit housing last month, both starts and building permits falling in July. Just Dan would seem to be one area that a Fed rate cutter too, maybe could unlock a little bit, but it's unclear in the sense because you already see existing home supply come back a little bit and yet affordability is stubborn. Yeah. I mean, listen, at the end of the day, you're talking about mortgage payments today that are for an average home twice a bit more than pre-COVID levels, so you're getting hit on the two sides of things. On the payment side of things with the higher rate and on the price side of things where the average existing home price is up, call it 40% from pre-COVID levels, to tie this all together, this is what people are dealing with right now. There's no single issue bigger than the price level. And the problem that politicians have right now is that everyone else seems to be speaking about the price change and no one cares about the price change anymore. They just care about the fact that they look at the home price. It's up 40%. Yeah. I can't buy a home. I go to the grocery store. I go to 125 instead of 100. The politician that figures out how to speak to consumers and citizens and voters about that. And it sounds like Kamala Harris is trying to do that. Yeah. Irrespective of the quality of the proposal. Another way that this cycle has kind of gotten these internal cycles within it, right? I mean, housing has had its own path that hasn't always linked up with what the overall pace of GDP has been. Yeah. I mean, to the point where we just take it out of CPI entirely, we make up the super core measure, which is core services X shelter. So if you just remove everything that might be a problem, CPI looks fine. And this past month, actually, in the inflation numbers, housing made up 90% of the rise. And so we just, we kind of ignore it because of that. Yeah. Now, it's been sticky. And yes, rents have been higher because people can't buy houses. They don't have another option. But the data that came out today and earlier this week about housing starts, there was some home builder sentiment that came out earlier this week that was weaker than expected. That's a cyclicality signal too. So I don't think that if the Fed does this rate cut cycle, the way that they want to, which is gently and in a normalizing fashion, I don't think it's going to be fast enough to suddenly bring a bunch of buyers back into the market or bring a bunch of sellers back into the market. Yeah. I think if it's faster, which would do that, it's going to look more panicky. So we're sort of stuck in this frozen housing market for a while, and construction employment is hurting because of it. Yeah, it was going to say maybe a supply response could be there, but it would take a while. Right, yep. All right. Time's up. That was on the clock. We are just getting started though in the CNBC special, Taking Stock, on the other side of the break. Google celebrating the 20th anniversary of its IPO next week, but is it the end of the company as we know it? Stay with us. Tonight, happy public anniversary, 20 years since Google's IPO, plus a game of what year is it we take a stroll down memory lane, and it's that time again, a preview of the upcoming Jackson Hole Conference when we return. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line? It's possible. Complex specialty care that cares about your ROI. It's possible, because we're already doing it, all while saving businesses billions. That's wonder made possible. Learn more at EverNorth.com/wonder. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn. The place to be. To be. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success, and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Welcome back. Megacaps bouncing back this week, but Google largely set out that surge, the company facing regulatory scrutiny, and talk of a possible breakup. Hasn't stopped the business as usual, though, with Google now rolling out AI search overviews to six more countries, all this, as the company prepares to celebrate the 20th anniversary of its IPO on Monday. Our own dear, Jabosa joins us now with more and all that. Hi, Dee. Hey, Mike. Two different, very different forces at work here, but I'm going to tell you why they're kind of related, the threat of a breakup, and Google's AI advantage very much on display this week. In many ways, Google is now leading the AI race, more experiment and build in public approach that's more typical of startups like OpenAI. Today, rolled out AI overviews to six new countries, and tweaking the way it presents them, like showing source websites on the right-hand side and links directly in the text. Earlier this week, it beat rivals Apple and OpenAI, giving users an on-device AI assistant and features that are shipping within weeks. Apple intelligence, meanwhile, that's reportedly delayed in OpenAI's voice advanced voice mode. That's only now available to a small group of plus subscribers. 20 years after Google's IPO, it is more integrated than ever. This is already an ecosystem with search, cloud streaming, smartphones, et cetera, et cetera. Generative AI, now the thread tying those business units even closer together, and that was on display at the Made by Google event this week. It was really less about those new pixel smartphones, more about how Google's integrating hardware, software, and services, the tech stack. This is all something that would make a potential breakup technically very complicated. The threat of a breakup sure has caused uncertainty for investors, and they've held Google's shares back this week. But as we have seen from the more aggressive European regulators, attempts to pull down those walled gardens, they just led to more friction and frustration for users, or the tech giants, actually fighting back by withholding products from the EU. On that note, too, like the regulatory landscape, that could be set to undergo some major changes in the weeks and months ahead. Marguerite Vestia will reportedly be stepping down as the EU's chief antitrust official. She has been in this position for a decade. She is famously tough on big tech. There's also Kamala Harris' tech policy stance. That's unknown right now, but we could get more from the DNC next week, certainly an open question, whether the American regulators at the DOJ and FTC are going to be there a year from now. For sure, Dean. I guess it'd be tough to imagine them being particularly tougher, but we'll have to see how it all plays out. Appreciate that set up, but that's our danger, bros. Let's dig deeper into the AI trade. I mean, this is a company that has alternatively been seen as "can't lose" because its core business is so profitable and can just use that as an advantage for anything new, but also mistrusted for how it uses capital and whether it's spending too much on moon shots and things like that. It's sort of emblematic of what the market's going through. Are all these big companies plowing money into these AI dreams based on a very secure understanding of how profitable it might be, or is it a little bit way to feel compelled to do so? Yeah. Quick take. Listen, there's a very famous quote from Paul Grugman in 1998 that the internet was likely to be as impactful in the economy as the fax machine, and I think we are in that moment now. He said by 2005. Sure. Well, irrespective of when. Well, no, irrespective of when. What did Cisco do from '99 to 2005? It crashed. It was distorted. That's right. But obviously, the internet has become, I don't know if you're aware, the internet is around and it's a thing. Just found out. Listen, AI is likely to be around and be a thing 10, 15 years from now, but we heard from Sundar Pichai and Mark Zuckerberg in the last month that clearly there's overinvestment. Mark Zuckerberg's argument, which is the correct one, I would argue, is for a company the size of Facebook or Google, it costs us a couple of billion dollars to overinvest, but you're talking about basically a threat to the company if you underinvest. So what's your choice? You obviously. You overinvest. The last that I saw was effectively that the cumulative capex being invested over the next five or six years is going to create the equivalent of 15,000 or 12,000 chat GBTs. Obviously, that's too much. But at the end of the day, this is going to be a technology that's going to be with us for some time. Is it going to do everything that everyone says it's going to do? Probably not. But again, much like 1998 when Krugman made that quote, I doubt 10 years from now we have any real understanding of what it's going to look like. I guess, Liz, if it's as big as currently the AI optimists would have you think, it's got to be so disruptive to the broader economy. I mean, look, software always gets faster and better. We get productivity improvements, has technology marches on. But if this is some kind of a step function, then is it either that disruptive or is it being overhiped? I don't think it's going to happen as quickly as everybody has expected it to, which is obvious now in the investor reaction. And I think, honestly, I think a lot of this has been a timing issue. So companies have invested, they needed to invest to Dan's point, they would have gotten punished for not investing. They would have looked like they had their head buried in the sand. So they had no choice, they had to do it. The issue, and I think the link issue that we're having here is that investors buy companies looking at 12 month forward earnings, right? We value them that way. There is no way that AI was going to suddenly become this huge disruptive thing that we understood all the use cases for, and we were going to find profitability for it in 12 months time. So a theme like this that's new, that's expected to disrupt a lot of industries, that's a two to five, maybe even a five to 10 year theme before we even understand what it's going to look like. I mean, the internet, it started as something we weren't really sure what it was going to be. And then look at all the things that grew out of it, right? I mean, e-commerce grew out of it. And there were periods of time in there where we were convinced that the internet was going to eliminate all the jobs. Yes. Now, until it was on your phone, you didn't really recognize the technology's always going to eliminate all the jobs. That's true. But I just want to make a quick point to pivot off what Liz said. An analogy I think that's correct for people at home to think about is refrigeration. And way back when, whenever this was 30s, the 40s, the 90s, I have no idea. When refrigeration was invented, you certainly could have invested in the refrigeration companies, but really what you should have been thinking about are the Ben and Jerry's and the Coca-Cola's that were able to sell items in refrigerators in your home in the store. And that's the AI part of this that I don't think has fleshed itself out just yet. We know who's building AI. We know the infrastructure. We know the data centers, et cetera. But where's the company that's going to do something with it? Okay, you heard it. Dan Greenhouse says that NVIDIA is frigid air. Write that down. All right, coming up in 1995, Seinfeld ruled the airwaves. Michael Jordan returned from his first retirement and the Fed achieved a perfect soft landing. So how does that year stack up to what we're seeing right now? We'll debate that when we return. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man, then he told everyone how much he loved calculating his return on ad spend. My friends still laughing at me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Earning your degree online doesn't mean you have to go about it alone. At Capella University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track, we care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Welcome back. This year's economic and market action leading to a debate about which year from the past looks the most like the present. We always need some kind of an analog. Tonight, we're putting it to the test when we play. What year is it? End debating which blast from the past could offer clues on the future, Liz. We'll start with you. What do you think? If these were my choices, I chose what I'm calling the Crazy Eights. I think it's either '98 or 2018. So taking '98 first, what we had in '98 was an Asian currency issue. There were a few Asian currencies that were devaluing very quickly. Obviously, that's different than today. We're more worried about the yen going up than down. But we had Asian currencies that were devaluing Russia, defaulted on its debt, and sent everything into a tailspin. The Fed ended up having to cut to save it, calm everybody down. If we have this yen thing that heats back up again, I think it's going to look more like '98. Now, important to note that after that happened, the market rally continued for a few more years, and then the tech bubble didn't burst until 2001. So that would suggest that if the Fed does cut to save things, to reduce volatility, it could keep going. Okay, the other option, 2018, this is all Fed-related, so my Fed bias is showing a little bit. All Fed-related, we were hanging on every word of the Fed at that point, Jerome Powell, maybe misspoke at some point, misled the market, freaked everybody out. They were tight and a little bit. I'm trying to be forgiving. I'm being forgiving. Everybody has mistakes. So something happened, he said some stuff, it freaked everybody out, and then there was this huge drawdown into the end of the year, and they ended up having to reverse their statement. That's right. And stop freaking everybody out. So the reason that I think it could be similar to that is because we are in a similar situation where we're hanging on every word they say, and we're very, very sensitive to it. And we might be at an inflection point for policy as we, as we were. That's right. Then we also had Volmageddon in the beginning of 2018, maybe something like that happened this month. What do you think, Dan? In 2014, and not that there's any real corollary with 2014, except that in 2014, we had had a big rally coming out of the debt ceiling crisis in 2011, 2012 and 2013 was just a relentless bear bull market hire with very few downward moves. And by 2014, you'd started to get people talking about, is this a bubble? It seems quaint by today's standards, because the market as a whole is trading at 20, 21 times forward earnings, whereas back then you were trading, let's call it in the mid-teens. But that was the first time that people started to say, something's going on here in the market that doesn't look right, the Fed's inflating a bubble or a tech stocks or a Facebook had cracked mobile Airbnb had come public. And so that was the first time you'd really started post-GFC to get talk about a bubble. And the reason why I bring up 2014 is because in reality, every year since then has been 2014, because for the last 10 years, every move higher has resulted in someone coming out somewhere and saying, is this a bubble? I think it is. I think I mean, Alibaba had come public, but all absolutely correct and worth remembering all of that. I am not saying that we are in a rerun of 1995, but I do think it's instructive to talk about why that's the model for the perfect soft landing. We have been tightening for '94, internal bear market, the small caps and bond market kind of crashed, came out of it, Fed cut, but only twice, didn't need much, the market didn't miss a beat, almost no significant pullbacks. And maybe we were earlier cycle. That's the difference. We were earlier cycle, unemployment had more room to come down, inflation was never a problem. But I do think that that's the idealized path that the Fed has in mind. So we don't know if we're going to get ideal this time. Coming up to paraphrase Johnny Cash, Powell's going to Jackson, but is he going to mess around, a Jackson whole preview on the return? Coming up, hole in one, what you need to know ahead of Wyoming, plus reversal of fortune, take a moment for momentum, and Aaron Judge versus Adam Aaron, who's the superior double A when we return. Yes, yes, yes, I told you we're going to have a soft landing, we're going to have a soft landing, my policies are working, start writing that way, okay? President Biden there maintaining his stance that the economy is headed toward a soft landing. It comes as the market gears up for the Federal Reserve's annual meeting at Jackson Hole next week where Fed Chair Jerome Powell may hint at the central bank's plan for rate cuts. Joining me now for her take on what to expect from the Fed next week is Gina Smilick, Federal Reserve and economy reporter for the New York Times. Gina, really great to have you with us this evening. What does your reporting indicate Powell might want to message next week, one week from today? Either some of the Fed officials in the last few days after the CPI number have indicated a greater sensitivity to downside risk for the economy, markets interpreting that as dovish, what's your take? I think most economists at this stage are thinking that he's definitely going to hold that door open to a rate cut in September, just because the Fed is nervous about the job market. They're sort of finally making progress on inflation, so why not get going? I think the big question is whether he's going to keep that door open to a large rate cut. The question seems to be, is it going to be 25, is it going to be 50? How big is this rate cut going to be? I think that the answer is Chair Powell is unlikely to give us a really clear indication because he's speaking just before that all important jobs report comes out on September 6. I think we've got a few days before a really important day to release. He's probably not going to want to back them into too much of a corner in these remarks. You think that he still is going to want to preserve that kind of rhetorical flexibility that he habitually reaches for, even though we're at this point where so many of the preconditions the Fed has set out for when they might start to make policy less restrictive, seemingly or in place? I think we're at least what most of the economists I'm talking to are saying. I think what we've kind of gotten a hint at from some of the Fed speakers we've been hearing this week is that the question now is really over the size of the rate cut and less about the timing. Most people are really expecting them to move rates in September. I think it'd be a bit of a surprise if Chair Powell came out that he speaks speech injects a hole and tried to take that timing off the table. I think most people are expecting a rate cut in September, given what's been happening in the labor market, inflation's coming down, unemployment's moving up, they're probably going to want to react to that by moving rates. But I think the question is just how big is that? How big is the move we get in September? We will see the minutes from the Fed's last meeting, which just a couple of weeks ago. And after that, Powell essentially said, "Look, we are not interested in seeing more weakening of the labor market at this point." It was one of the several times in recent months where he's indicated he doesn't necessarily think there's some scary trade-off between getting inflation in line and what the economy has to do. I mean, is that still where we are right now or are they alarmed at the rise in unemployment? Yeah, so I think this was the fastest a set of minutes has ever become dated in the history of my experience of Fed watching. So basically 24 hours after the Fed meeting, we had some weak jobless claims numbers, which have since reversed a bit. But within 48 hours, we had that rise in the unemployment rate. And so the Fed met on Wednesday. By Friday, it was clear that the job market was a little bit weaker than I think they had probably anticipated it would be. I don't think anybody was calling for the move up in unemployment that we saw. That could, of course, reverse itself. But I think that assuming it stays steady, assuming that move up in the unemployment rate was real, these minutes are going to be a little bit dated because I think that the Fed officials at this meeting were anticipating that what they were looking at was a situation where unemployment was still pretty low and pretty stable, where inflation was coming down pretty steadily, where they were really achieving their inflation goals with a pretty strong labor market as a background setting. And I think that if that labor market situation is changing, that could potentially change their calculus a bit. You know, I keep going back to the press conference in early 2022 as they were just starting to tighten. And I guess maybe you were in the room getting questions to him about just exactly, you know, maybe there was a way to look at the inflation numbers and say that it wasn't so terrible or maybe they would come down quickly. And Powell said, look, this is not a time for a particularly nuanced view of inflation. It's too high. We have to chase it. I just wonder if there are some folks within the Fed who are now saying, it's not time for a very nuanced view of unemployment. It's going up. Maybe the some rules close to being triggered. Let's not sort of rely on the idea that it's just labor supply increasing that's causing that. Yeah, you know, I think nuance is back in style over at the Fed. They're really looking at everything with a little bit of nuance at the moment, actually. And I think that includes the job market. I think you'll see you will definitely hear people say things that sound like, you know, the job market gets off to tends to get soft quickly, Austin Woolsey has been out making comments sort of along those lines. But even those people tend to take a relatively nuanced view of how you're thinking about this particular moment, just because I think so much in the July jobs numbers looked a little bit weird. We had a lot of people on temporary layoff that doesn't happen all that often. And it made the report look a little bit noisy. And we had a hurricane come through. And so I think there are a lot of people who are saying, you don't want to just jump to conclusions. You don't want to scream that we're in a recession at a time when, you know, Walmart earnings look strong, GDP looks strong, consumer spending looks strong. And this is the only thing that really looks weak. And it might be a one off and it might it might reverse. And so I think I think they're going to take a very nuanced reading, which I think is why coming back to Jackson Hall, Jay Powell's probably going to want to keep his options open for the moment. Yeah. All right. So still a little bit of a suspense about the tone. He might strike. Gina, thanks so much. Thanks for having me. Have a good weekend. Let's bring back Liz and Dan for their take on what to expect from the Fed next week. So, Dan, first of all, how much does it matter? And what do you think we might hear? Well, for the three economists that are watching the show today, this is a really important conversation. But for everybody else, 25, 50 doesn't really matter at all. What matters is that we're on the precipice of starting a rate cutting cycle with the economy that seems to be holding up, although obviously as Gina, one of the best reporters on the street about the Fed, noted seems to be weakening a little bit. That's really the important takeaway, whether he signals that, for some reason, the debate is not 25, 50, but whether it's 25, 0. And to Gina's point, I'm not sure they're going to give that indication. But over the next few weeks, running up to the Fed meeting, that's what you want to really care about, not whether it's 25, 50, but whether it's 25, 0. And Liz, you mentioned earlier that the preferred mode for the Fed is being deliberate about all this, not really rushing. On the other hand, they have, or several people within the Fed have said, you only want to initiate an easing cycle if you think it's first in a sequence. It's part of a new shift in policy in general, not just, hey, we'll wing it with one. Right. It starts a process. So we have to remember, too, this Jackson Hole speech is the first time that we're hearing from Powell after that last jobs report and after the Japanese yen thing has happened. So people are going to be looking for commentary on that. Do we feel like the financial system is stable? Were you actually considering doing an emergency cut or was that all over hyped? And the other thing that I think is important to remember, to Dan's point, 25 or 50, people are acting like 50 would be some big emergency cut. On the way up, they raised by 75 basis points three times in a row. So doing a 50 basis point cut here would really not be that big of a deal, but it is the beginning of a process. I think they would probably prefer to do 25, but there's no meeting in October. So if they only do 25 in September and acknowledge the fact that, okay, we're getting to a place where things are better in balance. We have more confidence on inflation. They have to wait all the way until November, but yeah, I think it's the day after the election result. Oh, that's right. I'm sorry. You're right. Pushed it to Thursday that week. So they have to wait. There's a long pause. There's a lot of data that's going to come in. So here's what I think he's going to do next week. I think he's going to secure that we are getting a September cut. He's not going to secure the size of it. And then he's going to leave the flexibility for the size of it up to what the next jobs data is on September 6 and what the next CPI data is, which I believe is on the 13th. Got it. Yeah. Plenty to kick around for another seven days before we actually hear it. All right. And a programming note for you, our very own Steve Leesman will be live from the Fed Summit next week. Our coverage kicks off on Thursday. You don't want to miss that. Coming up, reversing the reversal. What this week's action means for the rotation trade when taking stock returns. All right. Welcome back. We're at this week's rally. Have the markets fully recovered from the early August drop. Let's see what some charts show here. Take a look at the momentum stocks within the S&P 500 relative to low volatility stocks. Now among the many things that was going on, we saw kind of a crash in the momentum sector of this market. It has not necessarily regained all of its relative performance back, but they're definitely you see there about half of it was. So you had this big momentum peak. We've pulled off of that. Some of those leading stocks have found more buyers on that dip. Take a look here too. It's not just a bit about tech. Some stocks very prominent in these momentum strategies recently have been Costco, Eli Lilly, essentially category killers. And there you see, again, Lilly almost back to the highs, but Costco not fully recovered. So it is a process. Are we seeing any kind of a leadership shift? How do we think about these things? Dan. Yeah. And so just to pivot off that point about Costco and Lilly, it's the net we'd spend a lot of time in the network talking about Nvidia and Broadcom and either that Lilly. But there's a host of other names in what we consider momentum that we're down enormously off the high. You have deckers, Abercrombie and Fitch, William Sonoma. These names are all down 20, 25% from the highs have come back, call it 50%, in some cases 100% back to the high in the case of like a JP Morgan, if you will. So, I mean, the point is there's something going on here that we talked about it earlier in the show. There was a momentary flash crash of confidence, so to speak, where everybody thought what happened to Japan was going to happen here and the names got taken out back. We're not just Nvidia and Broadcom. It was across the spectrum, across industries and a lot of those names have come back with the broader market on the idea, again, that what was experienced was momentary nature and it's probably not going to have a lasting. Yeah, though, Liz, not fully come back. And I guess the question is, is it just, you know, replay the game of the first half of the year when it was a handful of kind of these select types of stocks that work? I mean, when I said earlier in the show, it sort of put the money back where it came from. Right. So, this momentum story is now becoming a tale as old as time. We continue to go back to the same names that tried and true muscle memory of big tech is defensive. Time doesn't last forever, but it is a very, very strong force while it's moving. And something like last Monday that happened shakes the tree pretty hard. The stocks that have gone up the most are the easiest to sell when you're scared. So that is what you're going to see collapse more quickly. I think this bounce back is just, we're just back to sort of where we were. It's not as if we erased entirely last Monday, but we went back to where we were. The positioning is about the same. I think that it'll take a while. It'll take a few tries. There's a Seinfeld episode that talks about shaking the vending machine a few times before you actually get your pizza. It'll be like that. Right. We've got to try it a few times before we actually rotate into some of these other sectors. But I think it'll happen. Yeah. I mean, one counter to this idea that we're just going to go back to the old winners is, you know, the non-manivists and seven stocks have actually finally shown some earnings growth in the latest quarter, up four or five percent year over year. It's nothing compared to the making cap growth stocks. But, you know, everyone would thought that that transition could happen, Dan, in a kind of painless way. And obviously, more likely, you have some frictions to pull back and some pain. Yeah. I think that's right. But I make this point on air a lot. I mean, I just totally disagree with the idea that it's only the magnificent seven or-- No, no, of course. I know we know that. But we focus so much on them because they're so large and we're going to talk about the impact on the index. They're just disproportionate. I mean, for the bottom hundred stocks, I don't know the number offhand would have to go up enormously to counter a one percent move in Nvidia. But on the table we showed before, it was deckers, it's Abercrombie and Fitch, it's General Motors, KKR, and some of the alternative investment managers. There's a ton of stocks doing very, very well this year, and I'm not making the case that you should go buy any of the ones on the name that's not what I can't do that. But what I'm simply observing is from a price standpoint, there are themes, there are investment vehicles for you to explore outside of Nvidia, outside of Broadcom and the semis, et cetera, and they are across industries and they're across sectors. Yeah. Well, the eco-weight S&P is held up a whole lot better than the market cap way to one. We'll see if that persists coming up. You know the movie Kramer versus Kramer, but have you heard of Aaron versus Aaron? I'm going to break that down, we'll come back. Welcome back. Our judge has temporarily blocked the proposed sports streaming service venue from launching. The joint venture would merge the live sports rights owned by Disney, Fox and Warner Brothers Discovery into one platform. It was set to launch ahead of the football season at $43 a month, but it's now on the bench for the time being after Fubo TV launched a lawsuit claiming the service would be anti-competitive. But we all are going to find some way to watch the games. It's been a big week for the markets and for all the errands out there. New York Yankees slugger Aaron Judge hit his 300th career home run on Wednesday. A new biography of New York Jets quarterback Aaron Rogers is set to hit the shelves. Deadpool and Wolverine became the highest grossing R rated movie of all time, which should be a help for AMC theaters and its CEO, Adam Aaron. So Liz, a Packers fan, is Rogers still your preferred Aaron? I mean, lifelong Packers fan, she's had, I own it, she's had, not the first quarterback we've lost to the Jets. It feels weird to even just have you introduce his biography as Jets quarterback Aaron Rogers. It does sound weird. I mean, I'll support the guy, but I like Jordan Love. Jordan Love. Yep. So, so no errands out. The current, the guy currently wears it. I understand he's the quarterback right now. You're picking Jordan Love. It's fair. I understand the rules. I broke the rules with it. It's totally fair. I like the guy wearing the Packers jersey. I guess if I have to pick an errand I'd pick Aaron Judge. There we go. Jan? I pick Aaron Joseph. He's having a legendary year, 43 home runs, and he's batting 333. It's hard to argue with the rules. He's averaged over his career, over a 162 game average of 50 home runs. Although, I will say, and it's no Adam Aaron didn't do anything about it, but man, Deadpool and Wolverine. Oh, come on. High as rated R. High. And then you get your endorsement, you're saying? He was, I enjoyed the movie. Okay. I'm also a big gambit fan, so. I have not seen it. I'm missing it. I don't know that I'm going to see it, but all right. Hey, listen, great to have you here for the full hour guys. Really appreciate it. Hopefully next week is just as eventful as the one we just finished up. That's going to do it for taking stock here on CNBC American Green starts right now. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. [BLANK_AUDIO]