alphabet warnings. the yield curve to see short and yields dropping, and i wonder how much of a headwind this is for big tech. >> immike santoli's thoughts. thanks for watching, everybody. "closing bell" starts right now. all right, kelly, whether you want it or not, welcome to "closing bell." i'm mike santoli in for scott wapner. this begins with the giants of the nasdaq stumbling, sending tremors through the rest of the tape. another weak tesla quarter, from alphabet, taking its on the staying power, tax the nasdaq done more than 3% for the worst day thisd the game tried to

withstand. here's your scorecard. taking notice, with the flirting april left. a pullback back in april. that takes us to our talk of the tape. liz ann saunders will be, tesla

and the semis, on tracking for all of that. and we begin with steve on alphabet. slowing ad growth, and more spending. on the add growth front, it was up 11%, but slower than last quarter. alphabet will continue to spend while cutting expenses outside of ai. the ceo said he would rather over-spend. that injected some more uncertainly. even less details on ai search, which just launched a couple months ago. no details to show that it can search than vertical already do. and the questioning around cap

ex, and expect that theme to continue, mike, next week when cloud leaders report their earnings. >> absolutely. a big emerging theme, thank you, steve. seema has more on the semis. >> the semiconductor stocks on pace for the worst day since july 17th, responsible for nearly 40% of the nasdaq 100's los losses lo losses. tesla's ceo on the earnings call voicing his frustrate in procuring the various chip to power dojo, saying he does see it as a path processing units for solid artificial intelligence players. it's trying with the m-130 chip equivalent to the h-100, but it

suggestses that they remain the stronger. we're not seeing any price cuts or downgrades, though i would point out that nvidia is now down 6%. we gets earnings from amd and intel next week, so that will be important too. mike? >> seema, thank you. joining me is liz ann sonders. great dove you today. >> thank you. >> what is the market action telling you here, whether it's how high the bar is for earnings results or whether we're starting to doubt the soft landing scenario that pretty much had infusioned markets for months now? >> i think there's some doubt, and i think the comments reinforce that when you look at the lift off the lows and other cracks we're seeing, potential double dip in housing and manufacturing heading slightly lower again after some hope it

was going to pick up. the lift in small caps started with the more benign cpi report. our take has been you want to fade the low quality part of that move. with this extreme outperformance on the part of small caps has come a hue drop for that index. i think that just highlights there's a lot of 1078 by companies, not profitable companies. if you want to lean into in rotation, you definitely wouldn't to stay up on quality. >> liz ann, one thing i've been hitting on normally when you see this surgeon, a lot of lower quality laggard parts of the market, that signifies an early cycle move, or something, you know, it seems not to be the

situation, and the other piece is we're starting to ask about the resilience of the economy, and we had the op head by phil dudley saying fed should cut rates in july, and it feeds into a subnarrative that's going on. >> yeah, you know, we had the goldilocks moment i think that hope for goldilocks persisting may have dampened a bit. we're at that point in and out just about monetary policy expectations, but the over -- and it's not now just that bad news is good news from the perspective of what the fed is going to do, but what does it mean for the economy and earns. we saw so much valuation expansion without a commensurate lift on the he earnings front.

now that we have started earnings season with some of the megacap misses, profit taking has kicked in. >> that being said, even if you looked at the projections, the broader group of stocks outside of the real secular growth areas weren't supposed to start carrying their weight until later this year. right now we sit with the s&p about 4% off a record high. arguably it came in fully valued in july, the sentiment was pretty optimistic, you could argue. so we're working some of that off form the question is, sure, the market is concerned with the possibility that the economy falters. how would you navigate it through investing? >> well, keep in mind that even before the cpi report, when the s&p and the nasdaq were at all-time highs. i think we talked about it on this program a couple times. at the point where the more than a 7% maximum drawdown at the

index level, this idea that the market has been incredibly resilient in the face of all these uncertainties, be it monetary policy, the election, geopolitics, wars, et cetera, all you have to do is look under the surface to see that there has been a lot of churn and tur noil. that bred opportunity that that is so significant between the magnificent 7 and the ref of the market. i think there was that setup for convergence, and that's supported by the forward estimates, mike, to your point where, by the third or fourth quarter this year, you will have seen a mag 7 forward estimates come down, and the rest of the market catch up. i think that's been part of the fundamental basis for this rotation that we have seen. >> actually, of course, that convergence, is perhaps early, but it definitely has begun.

even today the equality-weighted s&p is down, you have the market cap weighted down, and, from its own record high, so obviously the math works in both direction when you have a highly concentrated market. what about the bond market moves, and i guess any response to sliding or shifting fed expectations? >> we've 9 steepening of the used curve, and maybe i suggest that we don't have to worry about recession risk. that's exactly not what history shows. it's not the inversion that's sort of the trigger or some timing component of recession. it's when the steepening starts, and actually you're back into positive territory. it's just interesting, if you were to look at a long-term

chart of a yield curve, and put recession bars in. it's the steepening back into positive territory that's been the precursor to recession, not the initial inversion. >> that definitely is what the record shows. we're not fully inverted yes, on two-year versus ten-year. meanwhile, let's bring in lauren and stephanie. lauren, i mean, i guess we can gauge this on a spectrum of pure seasonal noise, rely heart old pullback in a regular market, to a bit of a warning shout about the macro picture. how do you think about it? >> i think we're taking a lesson, but not a trading signal. that's because we are seeing a bit of uncertainty around the path of the economy ahead and really the concentration risk that these large-cap tech names provide. overall earnings so far have

been pretty good, only 10% of companies reportings in. outside of the sectors like industrials or materials, where you expect to see weakness, things look fine. it's our expectations that the equity market rally can look think days like this, as long as employment remains in good shape. what this type of uncertainly tells, when there is a transition point, it will happen quickly. to liz ann's points, we are taking gains and putting them in fixed income where we can lock in higher rates. >> how close would you say we might be to that point where employment is no longer okay? >> our expectation -- it's the magic question, actually. our expectation is where he start to see that weakness in employment looking up clearer by the end of the year, but the leading indicators of

unemployment, all of which have you been slowing, they've been slowing for two years. it's incredibly difficult to call. it's an environment with cross-currents, with earnings, with politics, portfolio construction as boring as that sounds, is so important. most investors if they haven't made meaningful change or been excited about what they have seen, are probably overweight equity relative to where they should be heading into this late teenage of the cycle. >> and probably overweight the large largest ones. steph, give us your read. what did visa say about the consumer? what is your initial takeaway? >> i this -- think the earnings are coming in okay. we still have a way to say go, but the expectations are really high. i think that's classic. you have to separate alphabet

and tell las they're two totally different stories, alphabet was up about, the quarter needed to be perfect. a lot was very good in terms of search and cloud. youtube not so much. higher capital ex and higher marketing, but generally a good quarter. expensive stock for what you're getting, though. now, fast forward to tesla, terrible quarter against very high expectations, up 53% since april. the quarter was really disappointing. not only was it disappointing, but the gross margin continue to fall raptly, down 180 basis points sequentially form that's just not something that's good for the bottom line. you're getting deleverage. we want positive operating leverage. so i wouldn't touch tesla. i'm not involved in alpha about the bet, but i don't think we

want to extrapolate that they two quarries mean the game is over. they're not very high. they weren't high for financials. financials are acting quite well. there are pockets of industrials. look at ge, and some of these companies are doing quite well. like aviation, like power, like electrification. dr s ris dr horton last weak. i think this is a stock picker's markets. look at seagate today, texas instruments, these are names you want to put on your list if the market continues to be volatility, and the reason it's vol volatile, we have a lot of things going on. just sit back for half a minute, wait for opportunities.

>> it is absolutely noisy, steph, though, you know, one thing you mention in terms of alphabet's numbers, no doubt this is a bad quarter. but if there were one thing you could say that would scare people out of the biggest market cap weights, ai is mal-investment here. you are seeing microsoft and meta, all down in sympathy with alphabet. i wonder if that's something you would at least keep out there in your progressive vision. >> i think we're in the second or third inning. is the problem is the hyper scalers, they're all up a tremendous amount in the last year on this. it's relative to expectations. no question in my mind, ai and cybersecurity are totally addressable markets, you just

want to pick your spots. >> liz ann, you mentioned earlier the way that small caps have ripped so dramatically against the market. what that seems to suggest in terms of people just grabbing for the higher beta, lower quality stuff, i think it's worth a reminder that in periods when small caps have really outperformed in a big way, let's say, going back 20-plus years, it was largely because big caps had to struggle. i wonder how you think about the relationship right now, and the fact that so many stocks doesn't participate has insulated them or how that plays out? >> again, i would expect to continue to see convergence, where you merz with this profit-taking up the cap spectrum and there's money looking for communities down the cap spectrum. one way to think about the

differential in terms of that quality spread is just look at the forward earnings estimates for the russell 2000 versus the s&p 600, because that's a profitability filler when constructing that small-cap index. it's not used as much as a benchmark, but for the stock pickers out there, if you look at indexes as a source for opportunity, the s&p 600 is much higher quality. it's got the higher quality denominator in the equation, and in turn, doesn't look as lofty from a valuation perspective. >> liz ann, do you have a settled view on when the fed should move, and the fact that any cuts should be part of the optional insurance variety. >> yeah, you know, we are not in the camp that the market was at

the beginning of the year with the march start and six or seven cuts. we were veg vocal in saying the market had gotten way over its skis, now a september cut does feel right. i wouldn't anticipate a formal telegraphing of that. we think that will be more likely at the jackson hole speech versus july. we think september is likely, and one or two cuts, but obviously they're still going to be data dependent, and some key inflation reports. i think september is a pretty good call at this point. >> and lauren, one of one friday, of course, pce. has that been de-risked, so to speak, because people seem so secure on the inflation side of the equation? >> what we expect from the pce data is to come right in line.

that's because we have evidence from that. you get clues that help relieve the market stress. what i think is important for investors, is that after so long of talking about the fed, the fed is not the only game in town. to be honest, that surprises me a bit, that there are so many powerful cross-currents. another way that investors can think about this mix of crosscurrents is that the very nature of sort of concern around alphabet is around cap ex. this is an incredibly capital phase of artificial intelligence, so follow that thread. look at the infrastructure, the energy access, the undercurrents, the foundational layer of technology that can be harvested in the meantime while the silly cal factors play out. >> and you don't necessarily

have to worry about them immediately. steph, i would love your thoughts ahead of ibm. it's hanging in there, never really in the exact category as the trillion dollar club. >> no. it trades with a value index. that's why it's hanging with a lower beta. i think it will be mixed, mike. i think you'll see acceleration in software driven by red hat. that's encouraging, but consulting, we've gotten a ton of channel checks on consulting, and accenture reported -- i think it's going to come in worse than expected. the big thing is it's -- the other piece, the most important piece is that software service components. i do think free cash flow is going to be the bright spot, but 17 times, it's not exactly as cheap, but i think it should hang in, and the restructuring

story is very well intact as they're level the laggard part of their business, the servers, and they're going more toward the growthier parts. >> cheap for tech, not as cheap for ibm. >> right. thank you for the conversation. we are hitting session lows on the s&p 500. over to pippa stevens for the biggest names moving into the close. >> hey, michael. on lamb weston is having its worst quarter ever. frozen potato demand has softened, negatively impacting restaurant traffic. they expect the slowdown to continue in fiscal 2025. and shares of bausch health are -- that they're considering for bankruptcy protection.

bausch has denied the report. the stock was halted several times today for volatility, and now down 25%. thank you, pippa. we are just getting started. up next, navigating the tech turbulence, it is megacaps getting slammed in today's session. we'll discuss that after this break. you're watching "closing bell" on cnbc. clem's not a morning person. or a...people person. but he is an "i can solve this in 4 different ways" person. you need clem. clem needs benefits. work with principal so we can help you with a plan that's right for him. let our expertise round out yours.

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the chief investment officer at bemo wealth management. you know, this happened pretty pain leslie for a while, and now it feels a bit messier. how do you feel about this, and whether it's still one that can hold up in general? >> thanks, mike. great to be here. it's messier. be careful what you wish for, i guess. we have a lot of high uncertainty. also, i would call it an air of skepticism, in terms of what ai can deliver. the market is in very much a pro-me or show-me state, and wants to the proof on a more accelerated time frame. i think we have to stick with themes that are working and continue to work.

we think areas where spending is healthy, in terms of some of the trends for things such as cruise line we think there are healthy areas of the market, but right now, the egacaps, which have done so well and the market, will struggled for a while. >> you know, on the one hand, you can tell the market is getting just a bit uncertain about whether there's staying power. you like cruise lines. it would seem to suggest that the economy is still plugging along okay and maybe the market is having a bit of a hiccup.

>> we are going to see mixed economic date. we think it would be a mistake to interpret mixed economic data as a downturn. we think the underlying fundamental are healthier. the labor market is relatively healthy. we think it could use some support from the fed, which we think is just around the corner, but we think earnings growth, economic growth and eventually benefits from trends such as ai, will kick into in the coming qua quarters. >> that being said, you don't think it's out of the question that the fed might cut by a half a percentage point? why do you think it might be appropriate at that point? >> we've been talking about it for a couple weeks now about this possibility. we don't think it's the most

likely scenario, but we don't think it would take that much. we think the fed has a lot of latitude to cut rates. the one rate cut right now the market is pricing in is really based on what the fed had been messaging as a balanced labor market, but under the hood, you can see it's using a bit of support here. even if we look at june's jobs report, under the hood you see that prior months' revisions were pretty large to the down side. almost ought down grout came from the government and healthcare sector. it will owned a take a few more data points to shift the thinking to cut by 50 basis points in september. >> so, if the bond market is underpricing that potential and

it happens, what is the likely or probable response from the stock market? will it be a needing of policy that we can capitalize on? >> most likely there could be a knee-jerk rear action, thinking the economy could be weakers, but we think the underlying fundamentals are healthy and the fed is about to stash a campaign of cutting rates for the next year. so, if we take a step back and look at the big picture, where we have a fed about to begin on a year-long rate-cutting campaign, that remain relatively healthie, we're at a decent place. about some of these benefits like ai and other technology trends. >> the market gets ahead of

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competition in the space is making a less compelling case for ulta. great to have you here. i assume the struggle in the last few months, you may have taking a look at the fresh look, that might have suggested a turnaround. what are the main elements of this call today? >> the main thing is, as you said it, we'veseen sephora really ramp up its store count with the partnership with kohl's at a much faster rate than ulta has been ramping up with target. we have seen the rise of amazon and digit all players catching

the shares. it's heavier promotions and marketing spend to get those consumers back in the stores. what we're fearful of is that it will be a bigger margin hit than what we are anticipating. >> you have this difficult competitive situation, is there a make roe consumer component to it. whether it is for the category at large there's been a deceleration spending? >> there are definitely pockets of softness in beauty, but overall butte,is a strong and resilient category. we're seeing softs in in mass cosmetics and haircare. ulta has exposure to some of the categories that are still performing very well such as fra fragrance.

>> you have a new price target of 404. the price target he gets is enough you have up side from the target. is it in the post-growth phase at this point? >> we believe so. this is turning much more into a margin story than a top-line growth story. the comparables are getting more challenging, the growth is slowing. we are worried about pricing become less of a tail wind. you have less of the top-line drivers, and the focus is shifting, and what we are seeing with these traffic drivers that ulta has to pull on, and then you factor in pressures such as shrink, which is still very much present, wage inflation still present, and a number of things

that will be pressures their -- >> you mentioned others in the group that you prefer, which would those be? >> we'll point you to several of the beauty brands and beauty manufacturers. our number one would be e.l.f. beauty. it's at a high valuation right now. the growth is extreme that it's delivering, but we think there's still a lot of up side to be had, particularly if they roll out in enter national markets. another within is international pa parfum. it's still outperforming in beauty. this is one we want to play in, as we think that category had hold strong not next year or so. >> interesting. careen

carine, thank you very much. pippa? >> amid the sell-off, one industry is shining bright. we have the details, coming up next.

pippa has a look at the key stocks to watch.

>> enphase had bottom and top line misses, but the guidance was in line with estimates. margins showed improvements. i'm told that they're working on -- revenue recovery is on the horizon. he also told me demand is improving, up % in the u.s. nextera is also in the green after agreements with google to meet the data center power demand. they expect it to triple over the next seven years. mike? >> thank you, pippa. still ahead, shares of at&t popping. we'll drink down on the numbers and what does it mean.

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let's send it over to bertha coombs for check. >> health care has bucking the trend all day, up in the third session of the was four.

>> as hospitals continue to show it. on a new hiv treatment. a wide assortment. thank you, bertha. up next, we're setting you up for earnings in "overtime." plus, ed yardeni is standing by to break down the closing moments of the session.

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we are now in the "closing bell" market zone. julia boorstin on how at&t is rallying, plus td cowan's, and breaks down the final minutes in this brutal trading session. the company reported wireless subscriber -- 419,000 monthly bill paying subscribers soaring past expectations. this shows the company's higher-tiered unlimited plans, and minimizing churn.

the stock moves higher despite that earns per share was just? expectation and revenue was hampered by slower phone upgrades in the u.s. back over to you. >> julia, thank you. andrew, when it comes to chipotle, it feels like a 25% pullback after a great few years. >> hey, mike, a lot of angst around how 3q has started. we seem in line with 2q. alternative data is concerning investors. so we're looking for a better understanding of this they've been spot on, with their focus on operations. we think there's menu innovation coming so really understanding

better. >> if i look at essentially which the stock peaked, it was almost exactly when they started to get aggressive on pricing. >> the concern from investors is -- we think the industry, the industry has had a challenging july. we think it's more macro. >> i get the lamb weston commentary, the french fry company saying the consumer seems to have pushed back against the higher prices.

i guess that means, when does which i pot lace into a more com pelgs valuation zone? at this point, obviously a pullback. we think they have a lever of disposals. they've been have i spot on with this focus on operations, really improved service. with you know a limited time offering is coming. so we're very bullic on the prospects here. we think there's an opportunity to see nachos as well. some of that hasn't been tested yet, but.

>> i've never tried that. andrew, thanks a lot. coming up on "overtime", don't mitt as interview with brian niccol. we're hitting new lows here with the s&p 500, kind of easy to say they are crowded and expensive, is there anything else going on that would concern you? >> i think you covered did all, michael. usually in a bull market, you get some selloffs. i think it will turn out to be an official correction in the magnificent 7, but i think you're also seeing, as you pointed out, some money is going into the rest of the market. the big decline is in the

magnificent 7. i think when you look at the underlies fundamentals of the economy, i don't think we'll get an economy-wide our s&p 500-wide of 10% to 20%. i don't see recession out there, and i don't think investors are worrying about recession. i don't see a bear market. i think this is a sell-off. they happen from time to time. this one is nasty, because it is a correction in the magnificent 7. >> in fact, just now the nasdaq 100, which basically tracks the missile 7, has clicked to an 8% pullback from the record high, so pretty far away to a 10% move. you seem pretty confident that the economy in general is chugging along pretty well. given what the bond market is acting like, given the new rhetoric on what the fed will do, maybe it has to get more

aggressive, it seems like that worry will hang with us for a while? >> well, let's see tomorrow. tomorrow we'll get gdp, probably up 2.5, so suddenly people will realize the economy is dock well. on friday, we'll get the inflation rate. that should be up 2.4%. so the fundamentals are actually looking what other wore can i come up with? wonderful. maybe people concluded that tesla is actually a car company instead of a technology company, until elon musk comes up with something news for us to excite us.

>> gist quickly, just remind us where you sit in terms of your formal targets for the s&p at this point. >> near the top we crossed 5400, and got to over 6 -- i would race that, because i think the economy will -- i think we'll get one rate cuss and we'll have less political uncertainly, and the market will learn to live with whoever is in the white house. >> over the next year, year and a half. >> it's -- ed, thank you so much. we head into the close,s&p 500

is set up for about a 2.3% decline. that will bring us overall pullback from the high to around 4%. that will do it for "closing bell." oidoid is with morgan and jon. it's been a brutal day for the bulls. dragged down by tesla and other megacaps. that's the unfortunate scoreward. we're in "closing bell" "overtime." >> this hour of earnings will give investors some confident. we're bringing you