10AM Hour: Stocks Stage Midday Reversal, Starboard’s Jeff Smith, Predicting Netflix’s Post-Earnings Move 10/20/26

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Carl Quintanilla (1:00)

Good Tuesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Lesley Picker. In for Sara Eisen here at Post 9 of the New York Stock Exchange. David is joining us today from 13D Monitor's Active Passive Investor Summit here in New York City where he's got a couple of great interviews coming up, including Starboard Value CEO Jeff Smith in just a minute, and Pact of Capital's Lauren Taylor-Wolfe, who said last year that we were, quote, absolutely in an AI bubble. Also ahead, we'll talk about GM's pullback this morning on earnings. Look ahead to results tonight from SpaceX and Tesla when we're joined by former GM board member and former Tesla president John McNeil. Speaking of earnings, we'll look at the setup for Netflix tonight after the close. That stocks down more than 40% in a year. Former Disney and TikTok executive Kevin Mayer will give us his take on those key departures and signs of waning engagements.

Lesley Picker (1:49)

But first, pending home sales just crossing the tape, let's get to Diana Olick with the numbers. Diana.

Diana Olick (1:56)

Well, Leslie, pending home sales in September dropped 7.3% from August. That is a huge miss. The street was looking for a less than 1% decline, sales down 11.3% year over year according to the realtors. This count is based on signed contracts. So as people out shopping when the average rate on the 30-year fixed really took off, it started down around 6.8% and then hit 7.6% by the end of the month, that according to Mortgage News Daily. Now, regionally, sales dropped across the nation, but the biggest drops month to month were in the south and west. The south is usually the most active market and the west, of course, is the most expensive. Now, the realtors chief economist Lawrence Young blamed mortgage rates and suggested they could be topping out, but he also said increasing energy prices and the resulting inflationary pressure are highly uncertain. Now, this, of course, comes after a disappointing read on September. Housing starts and building permits that we got a couple hours ago. Both missed big time with single family starts down over 4.6% month to month and permits down 4%. September was not a great month for housing, guys.

Carl Quintanilla (3:03)

Very rough prints all across housing this morning, Diana. Thank you, Diana. Olick. Meantime, let's get to some of the broader market action this morning. Solid gains for the Dow on the back of some defensive names, early pressure in tech and some of the AI-related stocks. Our Senior Markets Commentator, Mike Santoli, is with us trying to break down, think of new columns out on the tape as well.

Mike Santoli (3:22)

Sure. I mean, the market's been showing that it's feeling these late cycle tremors, right? Where it's basically looking for quality earnings reliability, not earnings growth velocity as much. It doesn't want the companies that are consuming a ton of capital because guess what? The markets are now rationing capital to the more marginal razor of it. That's the hardware, the AI hardware trade, I think is still dictating the direction of the rotational dynamics we're having here. Yes, the people I've heard of continues to get off easy in some respects. We haven't had more than the 3 percent pullback over the last six months, but that's only because you've had some groups step up. Today, it is defensive quality such as healthcare. In fact, if we take a look at semis, the SOX index versus healthcare over the last six months, you've now got healthcare overtaking semiconductors.

We can keep it going this way for a little while. There is a bull case out there coming into this week which said, positioning has definitely been reset. You've de-risked a lot of the growthy AI trade, taking some leverage out of the hedge fund community. Just as you're getting into what should be a good earnings season and the seasonally strong part of the year when you almost always have a post midterm election rally. All plausible, all makes sense, but we had a similar set up in 2018