The Investment Committee is ready to go. Halftime report starts right now. Welcome good to have you with us our Investment Committee, joe terranova, josh brown, the brothers najarian, jenny harrington, liz young is back, the bny mellon director of market strategy. We begin, where else, the market stocks higher, but, josh, directionless. The word of the moment, you know, were down a bunch then up a bunch and now searching for direction. What gets us back to figuring out where we might be going. Is it all about trade . Really well, it may not be all about trade but it feels like its all about trade headlines and then as we get closer to the next fed meeting, it will be all about trade headlines and whatever the fed remarks are. Its a very mixed market environment. Only 53 of the s p 500 names are above their 200day moving average. Only 35 of russell 2000 names large cap is clearly doing you much better than small cap is. But the s p has really been in a range since the beginning of august more headline volatility than actual stock volatility. 2940ish seems like resistance on the dow more like 2700. Everyones opinion will change whether we stay below them or get above them its not a surprise. If we have a breakout above those levels, a lot of people who had been saying, yeah, i dont know im not so comfortable here, all of a sudden, theyll tell you, i like this, i like that im buying this, im buying that its human nature, the way the ball bounces what gets usout of this range. Whatever you want to characterize it. Range, malaise direction we need. I think its a real easy answer get something sort of facts about whats going to happen in this trade war cant go anywhere without that i think thats what the market is waiting for. Look at the movement we get every day just based upon one headline this headline today versus yesterday. Yesterday down over 200, 300 points and yet we come back today and all of a sudden, some little small cracks come in terms of hong kong theyre still going through some negotiations about plenty more that does not look like its over and yet were up over 200 it was trading up above 2021 yesterday and then here it is were pulling right back again youve got to play the volati volatility index as much as anything in terms of, when do you see these opportunities . When you get these selloffs, you look for the opportunities the quality names. If you think if you are convicted enough, thats when you can buy. Yesterday, quite a bit of buying yesterday of various different stocks just waiting for them to get pushed down. And yesterday was one of those days if were sort of, our hands are somewhat tied and it comes down to trade, citi says base case, no deal for the 2020 election guide us through what happens between now and at least the end of the year with the market, if that view is correct in response to that view, i think we get a lightweight deal at best before the election. I think we do probably need one. Our Administration Needs one by summer of next year to stay in president s dont typically get reelected during a recession. Well do whatever we can to avoid that during now and the end of october, well continue to be decisive too many uncertainties facing us the market will continue to volley back and forth. And you just have to stay in it. Put your seat belt on and enjoy the ride citi says slightly underweight equities overall they cut their overweight in the u. S. Down just because of all the things that liz was talking about. The rest of the desk talks about. Trade, fear of recession too much risk on the table i think cutting the equity exposure is a mistake because theres just a lack of alternatives you cant find a better place to get the returns people need for their retirement other than equities bonds are just a wasteland in terms of yield you can still be in equities and reduce your exposure, right . Are you going to sit in cash . In bonds are you suggesting be all in equities im always long so id say stay in all equities assuming you have a long time horizon. I look at it like this a lot of companies with good earnings not as good as they were you have a Strong Economy and theyre all fighting under this wet blanket of trade they are pushing it up slowly. Thats why were up 18 on the year thats pretty significant to be up as much as we are with the overhang of trade. Yeah if youre in it for the long time, id not reduce your equity exposure. I think every so often the market gives you an opportunity to pick a direction. Right now josh mentioned some levels before. The president on thursday, august 1st, tweeted. We lost 2950 the market has stayed between 2822 and 2945 ever since my expectations were about to break out from that. I think there are things in the marketplace indicating that. Energy prices. Not break down . No, i think the next 50 handles in the s p are higher. Okay. Energy is supporting a little bit here the u. S. Dollar moving lower see some steepening. Im not big into picking the overall market, but every so often you get a setup. You get a setup. If the president relaxes the tweeting, we dont get any tweets, as everyone describes right now, the setup, weve endured september 1st. Endured a lot of negativity. We can break out of this range on position. I bought some calls qqq, iwm, where we go from there, who knows. Literally the tweets, bank of america looks at it and says the more the president tweets, the worse the market does. Rest the fingers and the thumbs for a little bit and lets see where the direction of the market goes based on the actual news scott, over the last three months, the s p 500 is up 4. 6 the dow is up over i mean rather, the xlk, the tech, which is why im so heavily invested in tech is up more than double that and you can pick various time frames, whether its a onemonth, 3 for the s p versus 5. 3 for the xlk. And thats during the volatile august that you and pete were talking about. So there are plenty. I completely disagree with citi. If you really want to carve yourself up and hurt your portfolio, go ahead. Lighten up right now thats exactly what you should do if you are listening to citigroup. And then thats why they, obviously, dont have a brokerage anymore either they had to kick that thing over to Morgan Stanley because they did such a poor job of not going to dump all over citi should i be supporting it you can disagree with it. I disagree with it. You dont need to soil the firm just because you disagree with their call. Theyre not the only ones negative or cautious on the market i was listening theyre the only ones on an island nope, but i think whether you are david cotai from cumberland advisers and saying, man, when you get rate cuts like this and youll get more rate cuts like this, you can ask Steve Liesman, but i dont remember that being a bad environment for stocks so if you want to say if you are citi that this is the time to lighten up on stocks, go for it. I think theyre exactly wrong. Dont we know, presumably, that rate cuts are coming . Yes presumably thats in the market still cant get much direction wheres the big shock . Wheres the surprise agairnn, im back to work, wa is working you stick with tech. Tech is where you want to be plenty of examples well tal about throughout the day but tech is where you want to be right now. Absolutely, positively full stop the other point of view is the fed can do whatever it wants. Its not going to make a difference what do you think about that view theres an expectation well have rate cuts still this year that well get another 50 bips this year and 50 bips next year. I still cant justify a ratecutting cycle i can justify another cut this year but i want the fed to at least say, all right, were done well give you this and then were done and we need to stop pretending that rate cuts are going to save us from a manufacturing slowdown caused by a trade war. We have to use the right bullets to fight the animal. I dont think rate cuts are the only thing we have Steve Liesman saddled up to the table. I heard my name called and made a beeline didnt know when you were going to get your mic on a bag of doughnuts out there. Rosengran says hes unconvinced. Liz young says she on the fed yet . No, but her opinion is a smart one. Maybe next year how tall are you . 54. Lets get back to the matter at hand. Bullard says she can consider 50 basis points all over the place. Is that your point theres a bunch of camps. Theres the, im not ready yet the im leaning there. The, lets do it now and the lets do it now and the lets do it now bullard is in that camp. If were going to do 50, might as well do 50 now in september the lower case now folks are the ones who are 25 basis points the people leaning there, they want to see it in the data and the people who are not there yet are the ones who look at the data, dont see it and dont expect to see it the problem is, i almost feel like now you have a debate and you have a silent debate that we havent heard that much about in the room about the trade war and whether members of the fed should take some of the dudley advice as each doubles down in a sense today and tries to clarify what he meant the last week. As to this is a trade war issue. Yeah. Everything else seems fine. Why should we cut rates . I think theres agreement with part one of dudley which is that the fed wants to be careful not to enable or encourage the trade war. And if you look at the tale of the tape, it appears as if they are. Lets go back to the first rate cut. The next day, the president raised tariffs lets go back to the jackson hole speech. Within the hour of the powell speech saying, i think im going to cut, the president retaliates on china theres this appearance there. Part one of dudley is, lets focus on the economy and lets not go out of our way or be very careful not to enable trade. There is complete disagreement with part two of dudley. His explanation today notwithstanding. I dont think it works, whatever he was trying to do, that the fed should in any way take political or Election Outcomes into account when setting Monetary Policy. Period, full stop. If youre going to say we shouldnt enable the president or the administration on the trade war in effect, who cares what they say about that if the trade war makes the economy worse, they should act, period, end of story right okay thats good. But tell me this you have to go back a little bit. Lets go back to the time when the market, and i do this from our cnbc fed survey, 80 of our participants thought there was a deal coming with china okay if you were going to enable the president and im kind of talking loosely here, you might have cut ahead of time to give him scope to hurt the economy from the trade, okay at that point in time, the fed, i think its what its trying to do and you remember powells answer to my question which is, were learning as we go here they dont know how to do this they see trade war they see uncertainty build they see cap ex decline. They see forecasts come down they cut the other way would be lets cut lots now to give the president lots of room on the trade cut. In fact, lets bring down the dollar to improve u. S. Terms of trade versus china that would be, i think, enabling the trade war. Im sure to a person and part of the thinking is that, look, weve navigated this economy pretty damn well, and the trade war is the real issue to blame and, you know, be damned if were going to change our policy to fix what this trade war has done the trade war has done it, so deal with it i throw it back and what would you do would you do a quarter in september . By the way, lets not forget were all sitting here enjoying the fruits of easing, right . What was the tenyear a year ago . Where were mortgages a year ago . The market has already eased and eased substantially. So the fed needs to catch up with the market. In terms of providing easing to the market, its already throughout so that said, would you say, i need to do 50 now because of the cap ex the dilemma the fed folks have is this. The Consumer Spending is strong. They forecast 2 growth. They have 2 growth. Their inflation we could debate. Theyre below the 2 target, but its 1. 6 versus 2. I dont know if im going to have an allout battle against inflation because im 0. 4 off. The other issue greenspan talked about when asked about the likelihood of a recession is the wealth effect on the stock market is being underestimated alan has been on that kick for a bit. I agree with some of what he says on that he has changed over the decades that ive followed him from the notion that the stock market reflects economic outcomes to the stock market creates economic outcomes. Thats a different idea of thinking about it. I will say does the latter seem to be more plausible it is more plausible from a couple directions. My read of Consumer Confidence is its way more tied to stock market headlines than it ought to be given the average wealth of people in the stock market of the average person people freak out when they see the dow, even when they dont have a lot of money in the market thats one aspect of it. Because theres so much more wealth in the stock market than perhaps there used to be, certainly as a percentage, that means theres more the stock market is a lagging indicator. The stock market is not a lagging indicator. It drives the direction of the economy. Anyone that would deny Consumer Confidence is. No, no, no. Stock market used to be forward looking. Used to be the way youd predict because it was an amalgamation of everyones bets for and against what the economy might do six months from now thats no longer the case. Weve rearranged society over the last five decades to the point where the stock market literally determines what the economy will do. It doesnt predict its more volatile obviously. Dividends arent as volatile as earnings earnings arent as volatile as prices to say that Alan Greenspan has not gotten wiser would be wrong. Alan greenspan learned a lesson in 1997, two weeks into his tenure as the fed chair. The lesson was, if i cut rates and save the stock market, that will not spill over into the economy and we wont have a recession. And then he saw another version of that in 2000. A massive dotcom bubble literally cause a recession. No other cause nothing else happened. And take a look at this last december if you need even further proof a bad christmas for retail why . What changed in the economy from the summer to the winter that would have caused that the stock market crashed from september into Christmas Eve 20 bear market and absolutely, that affected the way people chose to spend how do we know that . Look how well everything rebounded once the stock market rebounded in january, february, march. We had a really good spring for home sales a really good spring for retail again. So we know the stock market now drives the economy the only question is what can the fed do about it having that knowledge . And i agree with steve its a conundrum but i think we have to agree that the consumer is only going to be as strong as the stock market encourages it to be at least to some degree the question is what can the the fed cant do anything about it id like to say to my colleague josh, hes got a point but overstates it a little bit i think things like jobs and wages and all those things that eminate from what stock prices have done i can show you when the stock market was definitive there was going to be a recession and no, were not saying that every wiggle in the stock market i dont mean wiggle causes Economic Growth or its not worth spending the important and valuable time of what do you think is a bigger determinant on what the economy will do besides the u. S. Consumer probably nothing, right . I would say jobs. People have jobs and they dont and nothing is more important than that. The stock market is its a Little Chicken we dont have but heres the i think you just want to be careful not to overinterpret what the stock market is telling you. If you followed the consumer data and the 200day moving average over the last ten years, you did really well for your investors. If you followed things like Industrial Production and manufacturing data, you wasted your time. I dont think anyone would disagree with that lets leave the last point being the market assumes that september is a done deal 100 for the most part. With a 14 probability of a 50 wiggling based on where i think powell is, again, 50 is enabling trade war. 25 is responding to the Economic Data as we have it you asked me for that distinction. I think thats the distinction does that depend on friday . I think friday is consequential but id get ready for getting into a zone of lower jobs numbers remember, they reset by 500,000. Took 500,000 jobs from the year ending march 2019. Mean ourselves run rate and by the way, i believe rosengrun said this yesterday. They restated gdp in 18, restated jobs in 19 the economy may be running a little bit softer than we previously believed. Shnge should they have done 50 in july rather than waiting not with a 3 , 4 consumer growth steve, thanks well, the 100th season of the nfl kicks off tomorrow at Soldier Field with the bears hosting their rivals, the Green Bay Packers. And the man calling the action will be Emmy Awardwinner and hall of fame sports commentator al michaels who joins us now from chicago al, welcome back to halftime. Great have to have you on this is my favorite show. Love you. Thanks. I love all you guys, but, you know, josh brown is my towel service. Fantastic. Lets get to the market. Lets kick football and then kick over to what you really want to talk about i havepackers fans at the desk bears fans at the desk and you guys are going to be watching what the league hopes is a great way to kick the 100th season off both teams with a lot of anticipation every fan base thinks theyre going to win this year the cleveland fans are over the moon you know, here were in chicago right now. The bears fans, i have to tell you, beyond giddy in anticipation i can only put it this way rick santelli, who is probably down the block right now, had his inverted yield curve could not be as over the top as the average bears fan. They won 12 games last year. They lost on the double doink in the playoffs in the wild card game they have almost everybody back. People expect them to in chicago, to win the super bowl and they are amongst the favorites. But the great thing about football is you dont know you dont have the injury situations how its going to play out or when youll get a double doink or not whether it will bounce the right way over the goal post so the great way about the football season