The Investment Committee's Q4 Strategy 10/1/26

Scott Wapner (0:00)

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Melissa Lee (0:16)

Welcome to the Halftime Report. I'm Melissa Lee. And for Scott Wapner, today, front and center this hour, the Investment Committee making some key moves as we kick off the final quarter of the year. We'll run you through those trades. Joining us for the next hour, Malcolm Etheridge, Ross Sethi, Bill Baruch and Josh Brown. Let's get a quick check of the markets as we kick off this month of October. We are starting off with slight declines across the board on the major averages. There's fractional losses here. Dow looking down right now by about a third of a percent. S&P 500, ditto, as well as for the NASDAQ Composite. Ten-year Treasury yield, that is where all eyes are on right now. 5.247% we had been up to, as high as 5.3% roughly, the highest levels we've seen since 2 or so. So I guess when we look at this march higher on yields, is this going to be the new normal?

I think is a big question for markets because we seem to be digesting it pretty well at this point. Saurabh, what do you think?

Saurabh Madaan (1:06)

100%. I mean, we're in that quiet period without earnings right now. So you've got macro, which is geopolitical, which is kind of every day what's happening. But then the rates, because that's what the market's really focused on. That's where valuations really are anchored.

What's the credit market going to do on this as well? Rates spreads, whether they're going to keep on widening. I think all those issues then dovetail into the equity market, because where do you get any liquidity from is the equity market. So I think that's what we're watching. When you see the tenure, I mean, it's amazing with the correlation as to how it is. So I think we're watching that. We're trying to see. Then even within the equity market, if you see the rates go up, the defensive sectors that were normally defensive also get sold off, because then you get dividend substitution. So a lot going on until we really get into, I think, earnings, which will then satisfy at least where we think the market is going to go.

Melissa Lee (2:00)

Yeah. Malcolm, what's your take here?

Malcolm Etheridge (2:02)

I'm hopeful to your point that earnings are going to actually satisfy investor appetite at this moment, but I'm not as sure. You would imagine that because earnings growth is expected to be as strong as it is, that we're going to get the positive results that we want. But when you look at something like Anthropics IPO being pushed out till November, you look at Aura shelving their IPO. We were going gangbusters in the first half of this year in terms of investor enthusiasm. And now you see the semiconductor trade that carried it unwind. Everybody's moving back into the Mag 7 The expectations for the Mag 7 stocks, specifically the hyperscalers who are spending all this money to build out their data centers and such, they really have to show up in a big way. I know we're going to talk about Micron earnings at some point today. If you just look at the movement in Micron, I think that could be apropos of what Q3 earnings could be.

Saurabh Madaan (2:53)

The semi cap or the semi memories are doing kind of what the semi stocks did when all of them blew out their earnings like Nvidia, right? They're not going anywhere.

Malcolm Etheridge (3:00)

So that's my whole point.

Saurabh Madaan (3:01)

What is the two? And then if the hyperscalers actually don't show that they're actually have the free cash flow for it, I think you could get that negative. However, the other side could be, hey, we're going free cash flow and we're spending. So we are going to have to see where the market runs with that.

Bill Baruch (3:16)

Touching back on the treasuries, I think it's something that's really important right now. I'm going to go on a little bit of a limb here. I think we're getting a low in the bonds this week and barring a blowout non-farm payroll number. I think what we saw yesterday with PCE, yes, there was adjustments mechanically and how that is measured. But they're moving from investment advisor fees, I think is a good way to start smoothing some of that, that's rising with the market. But the tech spending, and it was really going under the consumer category. It's moved to PPI. So the market really swept this number away and forgot about it. I mean, we had an early reaction, and then the treasury sold off. And by the end of the day, the equities had basically gone unchanged or even lower.