Threequarters of a percent. The nasdaq moving above, 1 higher now. Were going to kick things off with our chart of the day, the ten year. The yield ripping higher again right now. Take a look. It hit above 4. 65 earlier in the session, at its highest level in 16 years, right now at 4. 6. Really thats where we have to start this conversation, shannon. Higher yields but yet were seeing a bigger rally in the markets. How is that even possible . I think weve already been under pressure the last week or so. Not to say that pressure has eased, because if you think about what were facing right now, were facing Higher Oil Prices, higher yields, potential shutdown. Keep going. Student loan repayments are back. Were in september, which is just a tough time in the marketplace, and so this continued pressure, i think, what you see in todays marketplace, youre looking at investors saying, okay, weve experienced some of this pain, we have had a pullback in august and september. The Third Quarter is not going to look as strong. But we still are looking at, you know, over the next three months or so what typically occurs after a tough september. And if you look at the numbers, you know, the last three years, weve had a stronger Fourth Quarter after a weak september. There is some historical precedent, i think, for some of the optimism or enthusiasm youre seeing in a few names today. Our view is that coming into this year end period, the confluence of all of these stressors coming at a time when seasonal weakness is already in the market and expected, thats why youre seeing this continued pressure. I think were going to continue to see some oscillation here, some rotation, and, you know, at the end of the day, i think investors are still trying to figure out what is the right price, what is the right valuation at which i should be investing for 2024 the nasdaq at 1. 1 higher, the highest of the day, but the russell neck and neck with it, up over 1 . Generally small caps are more Interest Rate sensitive hitting 16year highs. Make sense of it. Well, i think small cap has really not participated at all in the rally weve seen this year, and its incredibly cheap. If youre looking for something thats inexpensive relative to other parts of the market, small cap is it. You can say its cheap for a reason, the companies do have to raise capital, whether its through secondary offering or through a bond offering or what have you, so there is some risk there. You could also argue its priced in. So we could be seeing some of that. If we look at how the Fourth Quarter rally might play out, i could see some areas like small cap really starting to act better especially if we see more trends within capital mark, more ipos coming to market, more m a activity, that should create a little bit of a valuation floor for some of those industries particularly if we see some that have action with the small cap. Bryn, one of the things shannon was talking about, all this wall of worry type of thing, oil back above 90 bucks a barrel. Down now threequarters of a percent, but still 3 above 90 a barrel. What do you make of the action were seeing in the market today, the nasdaq up over a percent higher despite the higher yields . Markets are really oversold, first of all, so looking at rsi, looking at all of the stats, the market is oversold. If you look at spy, the 200day moving average is at 4. 20. Were close to that. Youve had a really decent selloff. I think ultimately, though, when youre thinking about position over the next three, six months, i believe that we are now in a structurally different rate environment than weve been in the past 40 years, and so i still dont think that that has made its way through the economy and potentially multiples because we are a country of credit, whether you look at fiscal, corporations, look at individuals. I think the only reason that the economy continues to remain strong is the insane amount of fiscal stimulus we continue to have. But ultimately i do think the atlanta fed gdp number is at 4. 9. I think thats too high and will continue to come down. Anytime you have to transact in the market, whether youre an individual buying a car, no one is buying houses no one is buying existing houses or youre a company having to go to the debt market. The cost of capital is exponentially okay, exponentially higher than the past 13 years. And so i do think rates matter. And i think short term the market is really oversold. You could see a pop here and some opportunity. I think long term well continue to struggle with this new paradigm and this new regime of rates, which i do not think will go back to the way we were the last ten years. All right, steve, agree . Disagree . Will the market continue to struggle with this new paradigm . Yeah, i think it will. What were seeing today is a blip because you actually saw tenyear yields that were up coming down. So the algo traders, they are in there. Lets buy it because, as bryn points out, on a technical look, shortterm technical look, perhaps it is oversold. That, again, is just a blip. Here is a story. The story is and its a really simple story were at a peak in rates now, and they may go higher. And thats not going to drive m a activity. It will continue to put a lid on m a activity because its much more expensive to make an acquisition when youre putting debt in there. I think thats out the window. Just overall weve had a delayed reaction. You know what its like its like theres a kid and theres a dish of cookies, and them eat the first cookie and, you know, then they eat the second cookie, and the parent says, dont eat anymore. Youre going to get a stomach ache. The third cookie, i dont have a stomach ache. Eat four or five, and then the stomach starts to gurgle on the way home. Pundits said market rates arent going to go higher, theyre wrong. Theyve been deluded by the fact we have so much pentup cash, consumers and corporations, at such great Balance Sheets through the pandemic. The pandemic fire hose of demand coming in. Thats gone. The cash is gone. So now what happens, you have that stomach ache, okay, and, guess what, its reality. Higher rates do hurt. They hurt markets. They hurt deals. They hurt valuations, and thats just beginning to play out. So i wouldnt call myself bearish on the market. Ive been reducing exposure. Im very cautious. That remains to be the case and, to me, its a simple story. I think, everybody, the consensus are the rates are certainly impacting the markets. So the question now is whats really driving yields higher. The ten year hitting a 16year high. A high from 2011, so who else to answer this question, senior economics reporter, steve liesman. Steve, whats the answer . Reporter well, its been a rough couple of days and months, frank, in the bond market. You have rising bond yields, falling prices. Obviously all of that pummeling investors, especially those on the long end. Analysts think this run in higher rates has further to go here. Since early july ive looked at whats happened. You have to hang around a long time to see a move like that, the highest since 2007 on the ten year. And at this level, talking about a 5 yield on the ten year, thats not crazy talk. Rate strategist of bank of america, says the ten year could head upwards and sat 5 , you have the hawkish fed and higher rates. When the fed took away those cuts at the meeting last week, next year, by extension it also extended quantitative tightening. The better economic fundamentals and lots more supply than anticipated by the market. The market was really surprised. It is supply that looks to be driving rates, most of all. In fact, much of the increase in yields has come with little or no reprising of Inflation Expectations or even that much better economic data. They say get used to. Higher structural deficits and neutral rate means the bond market is more like it was before the 08 financial market. Higher yields, normal to be up near 4. 5 or 5, but volatility, the challenge to the bond market from the bond market to the stock market, could be here to stay and, frank, i really like the long and variable gastro invest nal lags that steve weiss was talking about from cookies. A new indicator, steve. I do have a question for you. Were hearing pundits say, hey, were seeing a steepening yield curve. And this is really positive for markets. How can they have it both ways . They say ignore the yield curve. The yield curves dont matter. Now they say, okay, they do matter. So whats your view on that . Is a steepening yield curve enough to support the heequity markets . Reporter i dont think so. It could be good for things like banks and good in a more normal world depending on how we get there, steve, where shortterm money is more expensive. Banks can borrow short, be lend long. A better structure for the economy than the inverted yield curve. We have made progress and people in the steepening curve, you may know a few, have made a few bucks, maybe for the wrong reason. Reasons they werent anticipating, but up over 100 basis points and now were down near, i dont know, 50 or 60. I havent looked at it yet. Steve, good to know that cookie metaphor landed with everybody. Shannon has a question. I dont know if she has a cookie metaphor. Long and variable. There are a bunch more where those came from. I want to point that out. Steve, one of the things i think has been a constant mantra is this expectation fiscal spending will decline next year, and so weve been talking about that being a risk to growth, but also a twosided risk to that. If fiscal austerity doesnt emanate in an election year, how do you think about that supply pressure over the course of 24 and 25 given that we probably arent going to see kind of meaningful austerity coming out in a political cycle next year . I think its a great question. Ill tell you what ive heard on this issue, which is, first of all, the treasury should not be in the business of surprising the market. It wasnt so much the issuance, although it is now, that the amount of issuance, the market was completely unprepared for it in august. They were thinking over time this fiscal stimulus comes down, the total issuance would be coming down, and it hasnt. And so until the treasury steps forward and gets in front of the bond market, gets the bond market to trust it again and its outlook and projections, then i think you can get a little more stability in the market. I do think there will be some negative gdp impacts from i wouldnt call it fiscal austerity. I would say less fiscal spending next year compared to this year and the last year, and hopefully thats replaced by a more normal economy than weve had recently. So it could take a couple tenths of a point off gdp, but i dont expect it to be determinative of economic outcomes. I want to bounce some research off you. Higher yields. I want to read part of this. Whats more likely to happen is the ten year moves to 5 or higher. The technical roundtrip to 2007 highs. And then it could bring all treasury yields to the same level presumably around 5 , which makes the yield curve shape entirely flat. You were talking about steepening. Hes seeing it going flat, and that signals high uncertainty in the economy. Agree or disagree . So, i think thats a potential outcome. I think more likely look, youd have to talk to folks out there, and even around your table, frank, but i think theres a lot of folks that are ready to pounce on these longer term yields. You dont want to get burned by it just as surely as you dont want to miss it, right . 5 has not been around for a while. Theres people who want to jump into that 5 , but they have to feel somewhat secure that theyre not going to lose their shirt. I think 5 might be a signal for some of those people who want to come in on that long end to come in, perhaps borrow short especially if you get more stability from a sense of what the fed is going to do. Imagine a world where its pretty clear the fed is on hold. You might feel confident borrowing short to buy on the long end, and that could have a positive effect on real yields on the long end. I think 5 might be the place that could be a top concern to think about, and i think the conversation in the stock market is, how much are my stocks worth . What is the right valuation for those stocks in a 4. 5 to 5 longterm tenyear yield . Because i dont believe were going back to the kansas of 1 tenyear yields. Thank you very much. Bryn, i want to come over to you. What is your take . The conversation we just had and what steve is taking is really driving that move to the upside . Well, i dont even think im looking at the ten year, threemonth treasury right now, and so you still have 100 basis points of inversion there. So were not even close to being able to borrow short and lend long, by the way, because you have a massive inversion. Ill also say that the yield curve and im not in this recession camp. Im data driven, just looking at history. You also had really multiple times since the 80s, the yield curve actually steepening right before you went into a recession. So i just think the tea leaves are too murky or the tea is too murky to say whats going to happen because of whats happening with the yield curve. I just think pragmatically and, you know, steve and i agree on this, pragmatically, higher for longer absolutely will embed itself into an economy thats been juiced up on zero percent rates for 13 years, and i do think the m a out of private equity, we do a lot of business on the private side. The cost of capital is very, very expensive and that absolutely hurts multiples from a vc side as well as going through the ipos. And so i still think its more of a defensive market where you just want to have some hedges on. Whats interesting to me, frank, im really surprised theres so much leverage on the long part of the bond. Im really surprised we havent seen, and maybe it happened too quickly, a risk parity trade, a hedge fund blowup, because they got on the wrong side of the yield move. To me a decent probability of happening because of so much leverage on the long end. Okay. So well continue to watch and will keep the rate discussion going. A big focus at the delivering alpha conference thats under way right now here in new york. Weve heard he from a bunch of big power hitters. Our own leslie picker is there following the money for us and joins us now live. Leslie, over to you. Youre right. I think the word rates has made its way into every panel, the interplay between rates and equities and pretty highprofile investors are skeptical of equities as a result. Cpps chief Investment Officer ed cast says the real rates persistently high will cause equities to underperform. Were in this amazing period from 2008 to 2020 where the best portfolio was equity centric, just be long equity. I think it was really an exceptional period for equity where you had low discount rates and that led to high growth through increased margins. If you think rates have to be higher persistently because of some of these inflationary forces, and thats the opposite. Growth is probably Slower Growth than earnings plus the discount rate is higher, and that doesnt seem, to me, to live a very equity friendly market. Reporter tcws katie koch had a similar thought as well on equities. Its like 85 of returns are being driven by the seven companies, so we have very consolidated leadership. We have valuations above historical averages, and we have a backdrop thats weakening. And i think on a relative basis just the possibility and well come on that later equity returns higher up in the capital structure. I would say were not as excited for equity markets for that reason. Reporter koch says, quote, getting paid to be patient. Cash has a good return. Her firm is defensively positioned with a philosophy around owning Agency Mortgage backed communities or cash or treasuries. And theres still a lot at delivering alpha. Sc frank . Leslie picker live from delivering alpha, thank you very much. Turning our attention now back to the rates. As rates march higher, keeping an eye on apple. Taking a look now at about 171, almost 172. A lot of brad apple ownership. What do you make of this action were seeing in apple . A lot of macro factors, theres china, that ftc investigation into the search. A lot of things are weighing on the stock. I would say those are secondary to what youre seeing in thamerms of apple. Expansion for the magnificent seven coming into the second half of the year, and one of the challenges now is a lot of that was led by enthusiasm around ai, and now what were experiencing is that investors, i think, are thoughtfully looking at that space and looking at those companies that could potentially monetize ai into 2024. If you think about what else is happening, look at the Consumer Confidence numbers we got this week. Present expectations, fine. Future expectations, way down from where they were over the past couple of months. And so that speaks to this idea of a weakening consumer, not just here in the united states, but to your point globally. Whats going to drive adoption of the new 15 pro, for instance, which is the device apple really wants to see pick up an uptick in the Holiday Season . If we are truly getting into a period where more of the Discretionary Income is having to be paid toward staples, were seeing the reacceleration of food and energy, it doesnt give a strong outlook for the Fourth Quarter for apple. I think most importantly, though, this thoughtfulness around what has what stocks what companies have experienced meaningful multiple expansion this year, which of those have been justified, and i think apple is falling to the side, because i think that investors are having a hard time justifying the expansion weve seen with the top line growth that has been, trangly, stagnant for several years. Bryn, you own apple as well. Shares down more than 8 month to date. Valuation 27 times forward earnings. Does it change your thought about apple . I think when we think about apple, were looking Company Specific and just the maturity of the company and just asking ourselves, you know, can it grow like it did over the last decade . And we keep coming back to the same answer which is, probably not, just given this incredible install base they have. Certainly growth on the Services Side they can continue to realize and its profitable growth. But, at the same time, we have to ask ourselves, does the stock deserve the same multiple nvidia has . And given the growth prospects, we have to say, no, it doesnt. It deserves to trade at a premium to the broader market, given the quality, the company and the balance sheet, everything else, the install base, but, we just grapple with the multiple which i think is more fair now than it was when it was up at 30 times, but weve seen multiples come down for all of Large Tech Compan