Britain has raised its terror level alert, saying an attack is now likely. We will hear what Prime MinisterDavid Cameron said and have expert reaction. And is the market in for a rough september . Some now wondering if investors will come back from vacation on tuesday and wake up to the global turmoil thats engulfing the world, from the Russia Ukraine mess to the growing Islamic State threat. The stock market has largely ignored it all and continued to make new highs. Can and will that continue next month, again, when everyone is back from the beach . And call this, kelly, game of drones. Google in the drone business in a big way. Is the objective just delivering stuff or is there something bigger at work here . We will explore that all. In the markets right now, the dow is off 11 points, the nasdaqs higher by about 15, the s p 500 is higher by about 3 points. A mixed session, and one, brian, where the s p has been hugging that 2,000 level, frankly, for most of the afternoon. And ive often said this market needs more hugging. Joining us now on our closing bell exchange, patty edwards, rob morgan, rich peterson, jeff taylor from digital risk, our own Rick Santelli and alice the maid in the center square. Patty edwards, august was the second best month of the year. Are you surprised by the resiliency of stocks . Were pleasantly surprised. Weve had a slightly below consensus earnings estimate for the year, and we actually, based on what weve seen from the earnings thus far, have now raised our estimate and have actually raised our target on the s p up to 2,060, and that just happened this week. And i see that you raised it from 116 bucks, patty, to 117. 50. Theres a nice piece by justin l layhart in the wall street journal, pointing out that earnings may not be as high as we might think because a lot of companies have been accounting for depreciation of capital goods in various ways, helped by tax incentives that are largely going away. It might sound a little bit wonky, but its actually quite important on a toplevel basis. Is anybody here, rob, worried about that . You know, it certainly could knock down the earnings estimates a little bit, but as patty said, i think the general trend here for earnings is up. And with a healing economy and stocks that really arent that expensive on an earnings basis, even though were hitting record highs, i continue to like stocks, too. So, i would go with stocks versus bonds here. To go back to the reason i like the piece and the way that justin points out whats really happening under the surface with corporate profits is that a lot of people have to wonder, can profits, can Profit Margins keep growing from here . Were pretty much at alltime highs. Right. Well, and thats and of course, the bears usually use that as a case that what goes up must come down. And im not saying were going to just continue to see rapid growth in Profit Margins heerks b here, but i dont necessarily see the reason now why they necessarily have to come down, just because they are at somewhat elevated levels. What matters the most here, jeff . I mean, we talk about profits. Id like to believe that earnings, which are theoretically supposed to be all a stock is, right, buying the future value of earnings, matter anymore, but with Everything Else going on, its hard to know . You know, it really does matter. Look at different stocks. Look at rental reit sector, up 30 this year. Its not that people walk up overnight and the markets that hot. Its that the supply chain from 20092011, that was basically dead. So, now we have all these americans, firsttime home buyers, who have yet to really come back into the market, are actually getting into the rental market, making a very, very strong rental reit market and rental market in general. Its up over 25 this year. Thats a point, and theyve performed that well. Rich peterson, just watching the index today, the s p 500, you know, the fact that the vix has declined is one thing. Actual volatility is unbelievably low here. What do you make of it . Well, complacency is one fact yorks but bringing some lightheartedness into this, you know, buoyant month. This is very much of a stanley cube rick market, because here we are, nearly a 2001 odyssey. The reason weve seen for the bulls has been the paths to glory. For the bears, its their eyes are wide shut. And for those that have been following the economy, its been a shiny moment because we had a 4. 2 number for Second Quarter. But looking back to earnings, earnings are going to be expected to be up around 6 or so in the third quarter. I think the concern is europe, and were seeing some projections of maybe the euro will trade with a 1. 2 handle. That may impact corporate earnings, especially the large industrials that have a large market share overseas. But all things considered, i think were looking for, you know, an upbeat economy, upbeat market. And i think for september, while historically half of the months of september have been negative, if you look over the past, you know, ten years, eight of the last ten years, september has been positive. Now, theres been some horrific moments in september. Obviously, the september 01 terrorist attacks, the september 2008 lehman bankruptcy. But all in all, i think were going to see a month ahead thats going to anticipate reporting thirdquarter numbers. Another one you want to look at is as we go into consumers, spending money and the economy is going to drive earnings. Were looking at the jobs number coming out next week. And while the numbers are ticking up, one thing that baffles me is, in 2006, the jobs being lost were about 60,000 annual run rate. The new jobs being created are 40,000. Thats a gap of 30 . So, they dont have as much affordable, Discretionary Income for the big purchases like autos, houses, et cetera. So, it will be interesting to see how it plays out the second half of this year. Rick and not to mention, look at that saving rate today. I mean, Rick Santelli, i wonder what you think about the fact that Consumer Sentiment is rising again. Some of the factors beneath the hood. As youve mentioned, with the jobs report not always as encourages as the top line, but sentiment rising, people are saving more. Do you think that accounts for the real choppiness weve seen in the Retail Sector . Well, listen, if youre a central banker and you see more savings, youre totally bummed out by that, because they are totally the salmon swimming against the current. Everything central bankers do is for consumption, even in europe these days they dont want savings. And with regard to some of the jobs data, of course thats going to be especially important. But i have to say, i was rather impressed this morning with chicago pmi. Consumer confidence michigan, yes, all important, but really, youre shadow boxing with a delay. The level of equities, Much Research has been done in that camp. But chicagos 60 service, 40 manufacturing, all ball up into one. It says chicago. The respondents are in chicago, but their business is global. So, i think that was a very optimistic read. All the internals were quite strong. Listen, you know, after all these years, id like to see the traction. This is the area to Pay Attention to and the other thing to Pay Attention to is the spread between bunds and 10s. Because if theres any, and i mean any hiccups for any reason where bunds or gilts start to see the rates rise up, its going to have a huge delta effect with our rates reversing the socalled relative value trade. So, that spread really let us know seven months early that you wanted to be long treasuries when their rates were going down, but at some point, the opposite may be true as well. Did you quickly hey, rick, rick, delta effect. The only delta effect i know is when my legs fall asleep in 36d in coach. What are you talking about . Wh whats that mean . It means youre going to get more horsepower out of the trade. In other words, were arguing with under 90 basis point bunds. Its compressing a bit, but you can see that the u. S. Is going to be in this 2 low 2 . But if the bund went to 1 toy. 2 the 10year would go an equal distant move beyond. Are investors safe, patty, in the Broader Market here as some of this plays out . Would you recommend they get sort of tactical with sectors exposure . You know, we really do think that you want to be looking at specific sectors. So, we like industrials, specifically some of the automationtype plays, looking for efficiencies, looking to feed the world. We like technology, once again, to keep those Profit Margins up, we think companies are going to have to be spending on technology in order to get the efficiencies. Those would be the first two places id be looking. Rob, ill go to you, then. Give us an outlook for early 2015, a look even more ahead. What are you advising your clients to do . A lot of people are probably surprised by the strength in stocks. Some people are thinking maybe nows the time to get in after missing out on the last couple years. What are you advising . Well, brian, eventually, the fed is going to start raising rates, and thats when we have to be a little more concerned that theyre going to take away the punch bowl and stocks will have a correction or a bear market. Dont expect it to be that early in 2015, and stocks will continue to rise into a fed rate hike campaign. But thats when im going to start to get a little nervous. The other thing that makes me nervous right now is that the Retail Investor finally, after a fiveyear bull market, is finally getting back into stocks. And that, of course, is bad news. Thats a contrarian sign. Once again, im not calling for anything immediately, but those are things that concern. But heres my point, and i made it in street signs, 2 00 eastern time, right before this nine show, which is this why are we so concerned that the markets going to pull back . If people are concerned the market will pull back, they will sell. It will become a selffulfilling prophecy. But even if they do, mark, and the market goes down 5 , 10 , 15 , if your timeline is 20 years from now, isnt that a good thing . That would certainly be healthy, but from a client standpoint, i think all Financial Advisers want to be advising their clients to take a little bit off the table or certainly get more defensive. And i heard patty talking about the sector she likes. Im kind of with her. I like cyclical sectors, industrials, financials, technology, but if we but you just said defensive. Start to also, take a look at the financials. Right now the banks have taken a beating with all the mortgagerelated litigation over the last couple years. But this might sound counterintuitive, but i think as Interest Rates start to rise a little bit, youre going to start to see them take a harder look at loosening the credit card, getting into mortgages right now. Because Interest Rates are so low, theyre utilizing that capital for other strategies, like buyback strategies for the stock, et cetera. So it will be interesting to see, but financials is what im following. Thats for sure. By the way, we have a couple Retail Investors coming up in our monthend roundtable. So well ask them what theyre up to and rob, you can react accordingly. Thank you all. Have a great weekend. Appreciate your time. Thanks a lot. 15 minutes into the close, brian. The dows off 18. The nasdaq and s p are both slightly positive. Yeah, and i can hear the hooting and hollering behind you, kelly. We wont go into that. Stocks notching impressive gains in august, but did british Prime MinisterDavid Camerons terror alert set the stage for a shaky september, or will we keep on rolling . Dom chus going to have a special report on what might impact the markets next month, kelly. And up next, did you know that four out of five actively managed funds are underperforming their benchmarks this year . 80 of them are underperforming. But are they now poised for a comeback . Were going to ask, next. Not if the market goes down. Plus, we want to know, would you rather invest in an actively managed fund or a passive one that simply tracks a larger index . Cast your vote right now at cnbc. Com vote, unless youre driving. Vote in our live poll right after the break. Were back in a moment. trader vo i search. I research. I dig. And dig some more. 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Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid long term injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision, or any allergic reactions like rash, hives, swelling of the lips, tongue or throat, or difficulty breathing or swallowing, stop taking cialis and get medical help right away. Ask your doctor about cialis for daily use and a free 30tablet trial. Welcome back. Well, according to s p capital iq, 80 , 4 out of 5 active Fund Managers were underperforming their benchmarks yeartodate. We want to know, would you rather invest in an actively managed fund or pass at one that tracks largest indexes like the s p 500 . As we begin this segment, head to cnbc. Com vote and let us know. The polling begins right now. Well bring you results on the screen throughout. Brian . Yeah, its very interesting. Aaron task is editor in chief of Yahoo Finance, alongside me with our own jeff cox. As always, we remind viewers that cnbc and Yahoo Finance have a contentsharing deal. Now that weve got that out of the way, jeff cox, man, eight out of ten . Thats not good. Yeah, its pretty ugly, actually. Its terrible to make the case for active management, you have to view the glass as 20 full. Really, the math doesnt add up. Youre talking about 1 to 1. 25 fees right off the top, you have additional fees, and you put that up against passive index management, youre talking about a fraction of the cost for those things. So i mean, when you look at performance, when you look at all the factors lining up against active management, its a tough, tough case to make for the active side. Aaron . It is a very tough case to make and i am not here to defend active Fund Managers, because there is no defense for 80 of them underperforming the market. I guess i would look at it from the other side. I think theres become this cult around indexing and we have an index for everything now, and people believe that theres safety in indexing. Well, you werent safe in an index fund in 2000 and you werent safe in an index fund in 2008 when the s p was 40 financials. So, i just want people to think about the other side of the coin, that just putting your money in an index fund, yes, youre going to perform what the index does, but youre also taking a risk there. And i do think that over the next five or ten years, there is an opportunity here for active Fund Managers to push back against this idea that theyre going the way of the dodo, that they can outpermoutperform ort have value in your portfolio. Almost to aarons point when you look at the longterm returns from the stock market, youre talking about a 4 average since 2000. So, i think its a little harder case to make for active in that case. I mean, at least if you were in the indexes, you recovered your losses along the way. Heres the biggest problem as far as stockpicking and active management, its the Federal Reserve basically. To win in a stockpickers market, you need volatility. And as we have this massive intervention from the fed, weve seen where volatility is, and it makes it so much harder to pick winners and losers out of that bunch. I dont know go ahead, aaron. Its very hard to pick winners and losers, and im certainly not saying it easy, but would you rather have ten years ago but your money in apple or google when it went pup publ or in the s p 500 . Theres a place for people like bob alstein and lee kuperman and sir john templeton, people who can pick stocks better than the rest of us and theyre worth the fees we pay them. Of course. Aaron, as we showed on our program last week, you know, under armour is up almost twice as much as even apple is. Theres a lot of Good Companies out there. Thats right. This is, though and im not going to defend hedge funds, but i will say this, this is the worst of all environments for hedge funds, is it not . Very little volatility. Were trickling up. You know, hedge funds will tell you, or at least theyll try to explain, because they want to keep their money, which is, our job is to protect you on the down side, when things go really bad. Thats the argument. That were not able to make a lot of money when things are sort of good. Exactly, and i think thats been a misconception, that hedge funds are there to get you alpha and theyre going to outperform the market. Its supposed to be a hedge against what the market is, so, youre right. In this kind of environment but aaron, have they actually been a hedge, because im pretty sure the financial crisis put a good number of them out of business and didnt really see any general outperformance. Thats right, because they were all basically chasin