Its pretty weak overall. You look under the hood, theres the picture from the three sectors i mentioned. Financials, theyre lower too as they get ready to kick off earnings season. Citi, jpmorgan, wells fargo, all of that before the bell. Tech, well, it was one of the only decent spots today. Even it has rolled over. We show you the tech xlk etf. The nasdaq performing better lately and still on track for a relatively strong week, can tech alone carry the market higher into the end of the year as it did for the First Six Months of 2023. Lets ask someone who count thes several tech names of top holdings. With us today at post 9, joe terranova, joe a cnbc contributor. Its good to have you both with us. Amy first, were still worried about rates, obviously. Weak auction, cpi, ppi, both a little hotter than expected. How do you see it . Yeah, i think, you know, the market is obviously on its toes. Youve got higher for longer. Thats the bottom message. Youve also got a number of market dynamics, whether its strikes, whether its Oil Prices Moving higher. Whether its now geopolitical tensions around the world, all hitting the system at the same time. And quite frankly, the markets trying to find direction. We hope that the earnings season will hopefully provide that as we kick it off tomorrow. Glad you mentioned earnings season. It does begin in earnest, and theres some suggestions that tech is really the only place that you can bank on for earnings season. Thats still going to be good enough, if they come in good enough. Joes smiling because thats his suggestion, and ill get to him if a second, but i want your take on it first. Yeah, i think the bright spot probably would be tech, you know, youve got like take microsoft as an example. Were still expecting that it would be above consensus. We think that, you know, earnings, at least from the last quarter was up 21 on a yearoveryear basis, and so dont forget these are also the names that have the strongest Balance Sheets, and i think Capital Strategies whether its buybacks or dividends would also play an Important Role here, and i think thats going to help in terms of the earnings profile. Yeah, joe, i mean, look, that is your thesis here. Its why youve made a play into the qs more substantially of late. You think thats the place to be, and even if earnings arent great, those earnings are going to be good enough, and thats the place to write it. The magnificent 7, plus adobe, lam research, broadcom, those are the names, those are the quality tech names. Look at today, look at the price action today, whether its Consumer Staples or utilities. Look at technology, nonprofitable technology. Hyper growth technology, biotech, dock usigndocusign, to. All down significantly. Youre drawing the distinction between Interest Rate sensitive assets relative to assets that are not reliant on the cost of capital the, and in fact, the magnificent seven along with some of the other Technology Names that ive mentioned are not reliant on that, so fortunately for the overall marketplace, they are dominant players in the actual construction of the s p 500, and if, in fact, theyre able to deliver earnings that are just good enough, i think youll see resiliency. What if i say, okay, i agree with you. Ky i can get my arms around the idea that these are the stocks that are going to have the better earnings, more bankable earnings. Theyre viewed offense and defense, but the markets different now. Theres going to be more scrutiny on the overall market given where rates have moved now versus where they were then, and it may not be good enough to carry us higher alone because of that added scrutiny of just the overall more uncertain environment. Probability for that does exist, but however, thats been the case for the entirety of the year. The rest of the market has under performed. The rest of the market has not been contributing to the performance were seeing yeartodate, and i dont expect that it will. You know, you mentioned that several weeks ago i bought the qqq, it was a seller of banks. I was a seller of nonprofitable software technology. I was a seller of biotech. So earnings is going to be incredibly critical. What we saw at 1 00 today with this treasury auction, it was remarkably powerful. I had a conversation with larry altman, who you know, scott, and we were questioning each other on when we could remember that type of a catalyst from an auction on the equity market overall, and what that does is it sets up november 1st tor be arguably the most important business day of 2023, not only because of what the Federal Reserve is going to do, but what the Treasury Department is going to do. On that day, youre going to learn what the supply is for fiveyear, tenyear, 30year paper, and the Treasury Department like the Federal Reserve is going to have to step back. Amy, the fed done . Do you think theyre going to hike again . Its likely that they may have to hike again considering that cpi data as we saw this morning continues to be hot. I dont know if thats the right message now. I think its really how much higher for longer is probably the bigger question looming over the market, if you ask me. But what if ill give you that. But what if what if its not quite this high, but its still for longer, and its just more normal . Were just normalizing rates. Now, i dont know if the market can handle 5 rates and im not suggesting that it can, but if rates come down but still remain a elevated over historical levels is that really that bad as long as the economy remains Strong Enough . It really is a function of whether youre going from 5 to 4, and at 4, youre still 4 above what it was ten years ago. I think in this kind of market, smaller cap and mid cap players that are a lot more sensitive to leverage, those are the players that i think will really have a tough time reinvesting and seeking capital, and thats why i agree with joe. These mega 7st or these top tech names is where were staying at the moment. When you think about how long rates have been near zero, there are many people who have never known as an investor or anything but, so adjusting to a new and more normal environment still feels unsettling because we havent lived, many of us, through a period where rates were anything but either zero or barely above. So what it does is it freezes capex for companies that dont have significant amount of Free Cash Flow. Just look at whats going on in the utility sector with next era energy partners, right . The renewable trade, which has to Fund Projects in the moment using the leverage theyre unable to do so right now. It freezes consumers who have been reliant on the cost of capital being basically free and are now witnessing a much higher entry point to lease a vehicle or to go skout and do some of t traveling and maintain some of the credit card balances. The economy one way or another is going to contract. Im completely convinced of that. I dont buy into the premise that this is dpgoldilocks and were going to have a soft landing. The economy almost has to contract at this point. I believe it will dismiss the Third Quarter gdp at 3. 7 or whatever it comes in at. Thats looking in the rearview mirror. Thats not telling you the story. Look at your top holdings, i feel like youre pretty much aligned to where joes thinking is in terms of where the outperformance is going to be. Alphabet, these are your top, lets call them six holdings or so. Alphabet, visa, apple, tetra tech, nvidia and microsoft. Why such a heavy concentration towards the mega caps . We think that they continuously and historically speaking have delivered both on innovation, eps growth, were still sticking with that Balance Sheet characteristic in a tough environment like the one were in right now, cash flow is king and these are the guys that really have the Free Cash Flow generation. Yeah, so how do you look though, thats why people continue to nsinvest in them, a thats why in many respects theyve had the leadership role. What about valuations . How do you square what their valuations are if we want to cite historical averages, many of them are above their tenure historical averages. Youre right. Valuation is a little bit higher than the market. In this kind of environment we will be comfortable paying a little bit higher for that Balance Sheet as ive mentioned and also for consistency. I think thats key in this kind of environment. The other side of that is the valuation of the areas of the market that have under performed like financials, like some industrials, like materials, the valuation looks incredibly cheap, so its important to remember that valuation, yes, it is critical in your fundamental analysis, but its not actually sometimes a catalyst on the investment, because the valuation can remain cheap for an extended period of time, and the valuation can remain rich for an extended period of time, and that just might be the scenario that we have in front of us with the magnificent 7 as we move towards the end of the year. Are there any other areas from those more depressed performance standpoints, more depressed valuation relative to tech that you like. You have to go bottoms up. Just in the example of the industrial sector, there are Companies Like w. W. Granger, copart, these companies are managing the business well, managing the Balance Sheet well, but you have to be active, and you need to go bottoms up in those instances because there is this universal challenge x the magnificent seven given the cost of capital. How would you address that too . Areas that have underperformed that, you know, on paper look cheap. Certainly they look cheap relative to technology and com services. Which ones, if any, stand out as being attractive. We like to Balance Technology with health care. Thats one area that we also have some exposure in. Hasnt made our top ten yet, but in essence, we think it does have characteristics, good cash flow, good Balance Sheet that can be a nice counterpart to some of the more volatile tech. Why do you think its underperformed to the manner it has. There are others who have picked this space early in the year thinking it would be a good place to be. And it just hasnt been, why . I think youre also entering a political year, scott. Generally speaking when you have president ial election years, health care is the top of the game in terms of or top of the line in terms of whether theres going to be health care cuts, medicare spending may be reduced, things of that sort generally are negative, political rhetoric tends to pick up. Earnings season tomorrow Morning Bright and early, jpmorgan, going to be one of the companies reporting. It is on your list as one of your top holdings. Its by far the outperformer of all the banks in whats been a really disappointing and difficult year. Jpmorgan is the only one thats really positive, like wells fargo is up i think 1 . Jpms doubledigit Percentage Points higher on the year. Why do you choose that over the others . Again, we like the big Money Centers in this kind of space. I think jpmorgan has been very prudent in terms of their expenditures, in terms of their expenses. Theyve also been able to manage their Net Interest Income and margins well, better than their competitors. We expect them to give us a little bit more on their outlook on that. What do we expect tomorrow . Are we going to get out of the gates . This is somebody, by the way, who recently sold Morgan Stanley and bank of america. Are we going to get out of the gates and you know, the commentary from the ceos is going to be interesting to listen to. They probably have been more cautious, id say than most, certainly jamie dimon has over the last i guess its fair to say many months. Is that what were going to get . Is that going to color how earnings season starts . I believe it is, yes. I think its rightfully so. Jpmorgan is probably my single best equity trade of the year. I bought it in march in the midst of the crisis. I think jpmorgan has the ability to be the outlier to have some positive performance, Net Interest Income is going to struggle in this quarter, but the acquisition of First Republic actually is going to benefit jpmorgan. But i think scott collectively, the narrative youre going to hear from a lot of these Money Center Banks is that theyre going to have to have higher provisions for loan losses. Because whether its commercial real estate or whether its consumers, the chargeoffs are going to increase year on year for sure. The securities portfolio doesnt look very good given the rise in yields, and i think theres going to have to be that acknowledgment that simultaneously is going to have somewhat of a muted if not discouraged tone. Because you have the exposure you do to big tech and because you have the view that you do around big tech, and they dont report for another couple of weeks, are we essentially going to be in earnings no mans land, that the markets not going to really be able to do much until you get those reports . You have geopolitical headlines that i think will obviously drive the tape and certainly this afternoon is an uncomfortable reminder how powerful the rise in bond yields can be impacting the price of equity. So we are in a little bit of a place right now that makes me somewhat uncomfortable because my expectation is we could have a strong fourth quarter. Yeah. How would you address that as well sorkt of an air pocket before we get to the stocks that many are banking on to carry us, if there is going to be a year end run. Yeah, i agree with joe. I think there are likely a lot of macro headlines if you would, i think there are also key players in different sectors that will be reporting, for example, United Health care is a bellwether in the health care space. Theyre reporting tomorrow as well. I think there is likely to be some key players that will give us some insight into how those sectors are faring. Im just looking, joe, someones sending me a headline, thermo fisher, right, thats tmo . Yep. That they cut their guidance. In the last day, speaking of health care, this whole new phenomenon of weight loss drugs has absolutely upset this group of stocks, joe, some of the hospital hca. Yesterday were down sharply. Many in this universe were down sharply. You have Intuitive Surgical and striker, if i remember. Correct, i do. Fortunately we have limited exposure to health care throughout the year, the strategy has been reducing our waiting to health care, we were overweight health care one year ago, we are now underweight health care, so the strategy has worked effectively in that sensuous but the effect of ozempic is clear on a lot of the medical device names, the ihi was down significantly yesterday on the hospitals its having a significant impact. What do we do about energy . Obviously people are talking about it a lot, and im looking as i forgive me for looking away from you guys, but im looking at the Sector Performance today for the energy space, and we can pull it up there. You can see i mean, its the only sector right now in the green on a reasonably down day, do you like it . In the long run, we have some exposure, but not a lot, and its really because theres to us theres not a lot of ways to really think about cash flow for them, and the price of oil is obviously going to depend on supply and demand, a lot of macro factors that we dont have a lot of control over, and so from a fundamental standpoint, its not top of list for us. How about you, joe . From a momentum perspective, i told you last week we kind of have this yellow light where the breakdown in oil futures reverse a ed a lot of the strong bullish momentum. Positioning was very long when the price of oil was above 90. Weve worked that off, but at this point it really is whats the direction going to be for opec plus . Is it going to be that saudi arabi arabia, is it going to be that russia are going to add more barrels to the marketplace or not. By the way, were are producing a ton of oil here more than we ever have before. I think i saw its a record level of production in the United States compared tonight before. Yes, 100 that is accurate. But i think we are in a police right now where the Energy Market is waiting for information on upply, and also waiting for information on where the economy, whats the trajectory of the economy, the weakness that i see, okay, i think thats reflected in the price of energy and i think its absolutely reflected in the price of gasoline. Lets remember one week ago gasoline was reported on a seasonal basis. The demand was at a 25year low. All right, well leave it there. Guys, good to see you. Welcome back, joe, well see you soon. Lets get to the question of the day. We want to know will the s p 500 be higher or lower one month from today once earnings season starts to wind down. You can head to cnbc closing bell on x to vote. We are just Getting Started here on closing bell. Up next, star witness and former girlfriend of Sam Bankmanfried wrapping up her testimony after nearly three days on the stand. Well bridgeng you a live repor from outside the courthouse. We will take you there live, we are live from the new york stock exchange, and youre watching closing bell on cnbc. Im so glad we did this. Im so glad we did this. Im so glad we did this. Life is for living. Lets partner for all of it. Im so glad we did this. Edward jones when the day that lies ahead of me seems impossible to face a lovely day lovely day lovely day lovely day a bank that knows your business grows your business. Bmo. Nice footwork. A bank that knows your business grows your business. Man, youre lucky, watching live sports never used to be this easy. Now you can stream all your games li